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What changed in CTS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CTS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+173 added−180 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in CTS CORP's 2023 10-K

173 paragraphs added · 180 removed · 141 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

43 edited+1 added−7 removed16 unchanged
Biggest changeThese raw materials and parts are purchased from a number of suppliers, and we generally do not believe we are dependent upon one or a limited number of suppliers. Although we purchase all of our semiconductors, REEs, conductive inks, and silver pastes from a limited number of suppliers, alternative sources are generally available.
Biggest changeThese raw materials and parts are purchased from a number of suppliers. Although we purchase all of our semiconductors, REEs, conductive inks, and silver pastes from a limited number of suppliers, alternative sources are generally available. Lead times between the placement of orders for certain raw materials and purchased parts and actual delivery to us may vary.
Mr. O’Sullivan joined CTS on January 7, 2013. Before joining CTS, Mr. O’Sullivan served as Executive Vice President of Continental AG’s Global Infotainment and Connectivity Business and led the NAFTA Interior Division, having joined Continental AG, a global automotive supplier, in 2006. Mr.
O’Sullivan joined CTS on January 7, 2013. Before joining CTS, Mr. O’Sullivan served as Executive Vice President of Continental AG’s Global Infotainment and Connectivity Business and led the NAFTA Interior Division, having joined Continental AG, a global automotive supplier, in 2006. Mr.
We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC").
We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act") as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC").
This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent acquisition and development. Each year, employees are expected to have defined performance objectives so that they focus time and resources appropriately, understand their impact to the success of our strategy, and know how their performance will be assessed.
This includes the identification of key positions, assessment of internal talent and potential successors and plans for talent acquisition and development. Each year, employees are expected to have defined performance objectives so that they focus time and resources appropriately, understand their impact to the success of our strategy, and understand how their performance will be assessed.
In addition, we also utilize the services of independent manufacturers' representatives for customers not serviced directly by our sales engineers. Independent manufacturers' representatives receive commissions from us. During 2022, approximately 3% of net sales were attributable to independent manufacturers' representatives. RAW MATERIALS We utilize a wide variety of raw materials and purchased parts in our manufacturing processes.
In addition, we also utilize the services of independent manufacturers' representatives for customers not serviced directly by our sales engineers. Independent manufacturers' representatives receive commissions from us. During 2023, approximately 3% of net sales were attributable to independent manufacturers' representatives. RAW MATERIALS We utilize a wide variety of raw materials and purchased parts in our manufacturing processes.
Agrawal was with Dometic Group AB, a manufacturer of refrigerators, awnings and air conditioners, as Senior Vice President and Chief Financial Officer, Americas, beginning in 2007. Prior to that, Mr. Agrawal was with General Electric Co. in various positions beginning in December 1994. Scott D’Angelo – 52 – Vice President, General Counsel and Secretary. Mr.
Agrawal was with Dometic Group AB, a manufacturer of refrigerators, awnings and air conditioners, as Senior Vice President and Chief Financial Officer, Americas, beginning in 2007. Prior to that, Mr. Agrawal was with General Electric Co. in various positions beginning in December 1994. Scott D’Angelo – 53 – Vice President, General Counsel and Secretary. Mr.
No other customer accounted for 10% or more of total net sales during these periods. We continue to focus on broadening our customer base to diversify our end market exposure. Changes in the level of our customers' orders have, in the past, had a significant impact on our operating results.
No other customer accounted for 10% or more of total net sales during these periods. We continue to focus on broadening our customer base to diversify our exposure. Changes in the level of our customers' orders have, in the past, had a significant impact on our operating results.
Our employees are regularly trained on safety-related topics, and we monitor and measure the effectiveness of our programs at all of our locations.
Our employees are regularly trained on safety-related topics, and we monitor and measure the effectiveness of our programs at our locations.
Martin Baumeister – 56 – Senior Vice President. Mr. Baumeister joined CTS on January 14, 2020. Immediately prior to joining CTS, Mr. Baumeister served as Executive Director - Product Line Electronics Americas at Vitesco Technologies since October 2019. Prior to that role, Mr.
Martin Baumeister – 57 – Senior Vice President. Mr. Baumeister joined CTS on January 14, 2020. Immediately prior to joining CTS, Mr. Baumeister served as Executive Director - Product Line Electronics Americas at Vitesco Technologies since October 2019. Prior to that role, Mr.
Ashish Agrawal – 52 – Vice President and Chief Financial Officer. On November 11, 2013, Mr. Agrawal was elected Vice President and Chief Financial Officer of CTS. Mr. Agrawal joined CTS in June 2011 as Vice President, Treasury and Corporate Development, and was elected as Treasurer on September 1, 2011. Before joining CTS, Mr.
Ashish Agrawal – 53 – Vice President and Chief Financial Officer. On November 11, 2013, Mr. Agrawal was elected Vice President and Chief Financial Officer of CTS. Mr. Agrawal joined CTS in June 2011 as Vice President, Treasury and Corporate Development, and was elected as Treasurer on September 1, 2011. Before joining CTS, Mr.
MAJOR CUSTOMERS Our net sales to significant customers as a percentage of total net sales were as follows: Years Ended December 31, 2022 2021 2020 Cummins Inc. 15.3% 15.0% 13.1% Toyota Motor Corporation 11.5% 12.4% 13.4% We sell parts to these two transportation customers for certain vehicle platforms under purchase agreements that have program lifetime volume estimates and are subject to purchase orders issued from time to time.
MAJOR CUSTOMERS Our net sales to significant customers as a percentage of total net sales were as follows: Years Ended December 31, 2023 2022 2021 Cummins, Inc. 15.0% 15.3% 15.0% Toyota Motor Corporation 12.5% 11.5% 12.4% We sell parts to these two transportation customers for certain vehicle platforms under purchase agreements that have program lifetime volume estimates and are subject to purchase orders issued from time to time.
Our employees routinely leverage their individual skills and capabilities to give back to their local communities. We value and are proud of the contributions that our employees make. CTS Cares supports our global community. EXECUTIVE OFFICERS OF THE COMPANY Executive Officers. The following serve as executive officers of CTS as of December 31, 2022.
Our employees routinely leverage their individual skills and capabilities to give back to their local communities. We value and are proud of the contributions that our employees make. CTS Cares supports our global community. EXECUTIVE OFFICERS OF THE COMPANY Executive Officers. The following persons serve as executive officers of CTS as of December 31, 2023.
REVENUES AND OPERATIONS Our net sales to customers originating from our non-U.S. operations as a percentage of total net sales were as follows: Years Ended December 31, 2022 2021 2020 Net sales from non-U.S. operations 44.4% 42.0% 43.0% We believe the business risks to our non-U.S. operations, though substantial, are normal risks for global businesses.
REVENUES AND OPERATIONS Our net sales to customers originating from our non-U.S. operations as a percentage of total net sales were as follows: Years Ended December 31, 2023 2022 2021 Net sales from non-U.S. operations 45.0% 44.4% 42.0% We believe the business risks to our non-U.S. operations, though substantial, are normal risks for global businesses.
We engage with outside consulting firms to benchmark all of our employee compensation and benefits aligning to market median. Training and Development Employee development and company growth goes hand in hand. At CTS we focus our learning and development activities on areas that we believe will most effectively support the delivery of our business objectives.
We engage with outside consulting firms to benchmark all of our employee compensation and benefits aligning to market median. Training and Development Employee development and company growth go hand in hand. At CTS, we focus our learning and development activities on areas that we believe will most effectively support the achievement of our business objectives.
We have also licensed certain patents and our license and royalty income for 2022 was less than 1% of net sales.
We have also licensed certain patents and our license and royalty income for 2023 was less than 1% of net sales.
We pull together, drawing on our strengths, guided by our culture which is built on our values. • Play to Win – being ambitious, seizing opportunities, challenging to get best results, acting with humility, intelligence, and integrity • Responsiveness – being nimble and acting fast, understanding customers’ needs, respecting the views and needs of others, working with a sense of urgency • Simplicity – being straightforward, easy to deal with, reducing bureaucracy and complexity, delivering solutions efficiently and effectively • Solution Oriented – staying curious and resourceful, embracing challenges, understanding the challenges, finding new and better ways to work together We have a global business, and our employees reflect the diversity of our geographic footprint.
We work together, drawing on our strengths, guided by our culture, which is built on the following core values: • Play to Win – being ambitious, seizing opportunities, challenging to get the best results, acting with humility, intelligence, and integrity • Responsiveness – being nimble and acting fast, understanding customers’ needs, respecting the views and needs of others, working with a sense of urgency • Simplicity – being straightforward, easy to deal with, reducing bureaucracy and complexity, delivering solutions efficiently and effectively • Solution Oriented – staying curious and resourceful, understanding and embracing challenges, finding new and better ways to work together CTS CORPORATION 6 Table of Contents We have a global business, and our employees reflect the diversity of our geographic footprint.
CTS Cares We recognize that we have a responsibility to be a positive influence in the communities in which we do business around the world, and CTS Cares is the platform which connects CTS employees to the causes that we care about. We have a rich history of philanthropy and community involvement.
CTS Cares We recognize that we have a responsibility to be a positive influence in the communities in which we do business around the world, and CTS Cares is the platform that connects CTS employees to the causes that we care about. We have a rich history of philanthropy and CTS CORPORATION 7 Table of Contents community involvement.
The number of competitors varies from product line to product line. No one competitor competes with us in every product line, but some competitors are larger and more diversified than we are. Some customers have reduced or plan to reduce their number of suppliers, while increasing their volume of purchases.
Most of our product lines encounter significant global competition. The number of competitors varies from product line to product line. No one competitor competes with us in every product line, but some competitors are larger and more diversified than we are. Some customers have reduced or plan to reduce their number of suppliers, while increasing their volume of purchases.
CTS CORPORATION 8 Table of Contents Information with respect to the Company’s Directors and corporate governance policies and practices may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2023 Annual Meeting of Shareholders. Such information is incorporated herein by reference. ADDITIONAL INFORMATION We are incorporated in the State of Indiana.
Information with respect to the Company’s Directors and corporate governance policies and practices may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2024 Annual Meeting of Shareholders. Such information is incorporated herein by reference. ADDITIONAL INFORMATION We are incorporated in the State of Indiana.
See the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Annual Report on Form 10-K for financial information regarding the Company. PRODUCTS BY MAJOR MARKETS Our products perform specific electronic functions for a given product family and are intended for use in customer assemblies.
See the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Annual Report on Form 10-K for financial information regarding the Company. PRODUCTS BY MAJOR MARKETS Our products perform specific electronic functions for a given product family and are intended for use in products assembled by our customers. The following table identifies major products by industry.
Additional information regarding the Company’s sales by geographic area and long-lived tangible assets in different geographic areas is included in Note 20 - "Geographic Data" of this Annual Report on Form 10-K.
Additional information regarding the Company’s sales by geographic area and long-lived tangible assets in different geographic areas is included in Note 20 - "Geographic Data," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
If a major customer reduces the amount of business it transacts with us, or substantially changes the terms of that business, there could be an adverse impact on our operating results. COMPETITION We compete with domestic and foreign manufacturers principally based on product features, technology, price, quality, reliability, delivery, and service. Most of our product lines encounter significant global competition.
If a major customer reduces the amount of business it transacts with us, or substantially changes the terms of that business, there could be an adverse impact on our operating results. CTS CORPORATION 5 Table of Contents COMPETITION We compete with domestic and foreign manufacturers principally based on product features, technology, price, quality, reliability, delivery, and service.
These strategies are advanced through a number of programs and initiatives outlined below: Talent Planning Process We have a global talent review and succession planning process designed to align our talent plans with the current and future strategies of the business.
We advance these strategies through a number of programs and initiatives including the following: Talent Planning Process We have a global talent review and succession planning process designed to align our talent plans with the current and future strategies of the business.
PATENTS, TRADEMARKS, AND LICENSES We continue our practice of innovation and protect our intellectual property by obtaining patents in the U.S. and abroad. Our patents cover inventions relating to products that our engineers have designed, as well as for methods and technology related to our manufacturing processes.
PATENTS, TRADEMARKS, AND LICENSES In 2023, CTS continued its practice of innovation and protecting its intellectual property by obtaining patents in the U.S. and abroad. CTS’s patents cover inventions relating to products that its engineers have designed, as well as for methods and technology related to CTS’s manufacturing processes.
Below is a summary of our employees by location and gender as of December 31, 2022. North America 2,288 Asia 1,352 Europe 569 Total 4,209 Female 58 % Male 42 % CTS is committed to fostering an environment where all employees are respected and treated equally. Empowering our employees’ distinctive talents delivers customer value and advances our culture and engagement.
Below is a summary of our employees by location and gender as of December 31, 2023. North America 2,294 Asia 1,262 Europe 525 Total 4,081 Female 58 % Male 42 % CTS strives to foster an environment where all employees are respected and treated equally. Empowering our employees’ distinctive talents delivers customer value and advances our culture and engagement.
Product Description Transportation Industrial Medical Aerospace and Defense SENSE • • • • (Controls, Pedals, Piezo Sensing Products, Sensors, Switches, Transducers) CONNECT • • • (EMI/RFI Filters, Capacitors, Frequency Control, Resistors, RF filters) MOVE • • • (Piezo Microactuators, Rotary Actuators) CTS CORPORATION 4 Table of Contents The following table provides a breakdown of net sales by industry as a percent of consolidated net sales: 2022 2021 2020 Industry Transportation 52% 55% 57% Industrial 29% 27% 25% Medical 10% 9% 9% Aerospace and Defense 9% 9% 9% % of consolidated net sales 100% 100% 100% In the above table, previously reported Telecommunications & IT are included in the Industrial end-market for all periods presented.
Product Description Transportation Industrial Medical Aerospace and Defense SENSE • • • • (Controls, Pedals, Piezo Sensing Products, Sensors, Switches, Transducers) CONNECT • • • (EMI/RFI Filters, Capacitors, Frequency Control Products, Resistors, RF filters) MOVE • • • (Piezo Microactuators, Rotary Actuators) The following table provides a breakdown of net sales by end-market as a percent of consolidated net sales: Industry 2023 2022 2021 Transportation 55% 52% 55% Industrial 24% 29% 27% Medical 12% 11% 9% Aerospace and Defense 9% 8% 9% % of consolidated net sales 100% 100% 100% In the above table, net sales to the telecommunications and information technology end markets are included in the industrial end-market for all periods presented.
Name Age Positions and Offices Kieran O'Sullivan 60 President, Chief Executive Officer and Chairman of the Board Ashish Agrawal 52 Vice President and Chief Financial Officer Scott D’Angelo 52 Vice President, General Counsel and Secretary Martin Baumeister 56 Senior Vice President Mike Murray 52 Senior Vice President Kieran O’Sullivan – 60 – President, Chief Executive Officer and Chairman of the Board.
Name Age Positions and Offices Kieran O'Sullivan 61 President, Chief Executive Officer and Chairman of the Board Ashish Agrawal 53 Vice President and Chief Financial Officer Scott D’Angelo 53 Vice President, General Counsel and Secretary Martin Baumeister 57 Senior Vice President Kieran O’Sullivan – 61 – President, Chief Executive Officer and Chairman of the Board. Mr.
Our principal corporate office is located at 4925 Indiana Avenue Lisle, Illinois 60532. Our internet address is www.ctscorp.com.
Our principal corporate office is located at 4925 Indiana Avenue, Lisle, Illinois 60532. CTS CORPORATION 8 Table of Contents Our internet address is www.ctscorp.com.
The price and availability of raw materials and manufactured components is subject to change due to, among other things, new laws and regulations, global economic and political events including strikes, and public health and safety concerns. Due to the COVID-19 pandemic, we have experienced supply chain disruptions and inflationary pressures.
The price and availability of raw materials and manufactured components is subject to change due to, among other things, new laws and regulations, global economic and political events including strikes, and public health and safety concerns.
We take great pride in the products we build, and the manner CTS CORPORATION 6 Table of Contents in which we operate as a company and as individuals.
We take great pride in the products we build, and the manner in which we operate as a company and as individuals.
In the competitive environment in which we operate, employees need to replenish their knowledge and acquire new skills to do their jobs better. CTS provides growth and development CTS CORPORATION 7 Table of Contents opportunities through programs such as Education Reimbursement, Situational Leadership, Leadership Essentials, and the Accelerated Leadership Program.
In the competitive environment in which we operate, employees need to replenish their knowledge and acquire new skills to do their jobs better. CTS provides growth and development opportunities through programs such as Education Reimbursement, Situational Leadership, Leadership Essentials, and the Accelerated Leadership Program. In addition, we have a mentorship program for key employees to leverage internal leadership and expertise.
Lead times between the placement of orders for certain raw materials and purchased parts and actual delivery to us may vary. Occasionally, we may need to order raw materials in greater quantities and at higher prices to compensate for the variability of lead times for delivery.
Occasionally, we may need to order raw materials in greater quantities and at higher prices to compensate for the variability of lead times for delivery.
These risks include currency controls and changes in currency exchange rates, longer collection cycles, political and transportation risks, economic downturns and inflation, government regulations, and expropriation. Our non-U.S. manufacturing facilities are located in China, Czech Republic, Denmark, Mexico, Philippines, Poland, and Taiwan.
These risks include currency controls and changes in currency exchange rates, longer collection cycles, political and fulfilment risks, economic downturns and inflation, government regulations, and expropriation. See “Item 1A. Risk Factors” for additional discussion of these and other risks that our business faces. Our non-U.S. manufacturing facilities are located in China, Czech Republic, Denmark, Mexico, Philippines, Poland, and Taiwan.
A vast majority of our products are engineered solutions. The sales engineers work closely with major customers in designing and developing products to meet specific customer requirements. In 2022, independent distributors accounted for approximately 9% of net sales.
The sales engineers work closely with major customers in designing and developing products to meet specific customer requirements. In 2023, independent distributors accounted for approximately 6% of net sales.
The following table identifies major products by industry. Products are sold to several industry OEMs, tier one suppliers, and distributors.
Products are sold to several industry OEMs, tier one suppliers, and distributors.
We believe we compete most successfully in custom engineered products manufactured to meet specific applications of major OEMs. NON-U.S.
We are subject to competitive risks that are typical in our end markets, including technical obsolescence. We believe we compete most successfully in custom engineered products manufactured to meet specific applications of major OEMs. NON-U.S.
Baumeister served as Executive Director Electronics Americas when Continental separated that subsidiary into an independent entity from July 2018, and served as Executive Director - Global Customer Head from February 2015. Mike Murray – 52 – Senior Vice President, Mr. Murray joined CTS on January 22, 2018. Prior to joining CTS, Mr.
Baumeister served as Executive Director Electronics Americas when Continental separated that subsidiary into an independent entity from July 2018, and served as Executive Director - Global Customer Head from February 2015.
We strive to create an inclusive workplace where everyone feels valued, respected, appreciated, and embraced because of their differences – a place where every employee can be themselves so they can reach their highest potential and help us achieve our business goals. Our commitment to the aforementioned goals is evidenced through the formation and leadership from our global diversity council.
We strive to create an inclusive workplace where everyone feels valued, respected, appreciated, and embraced because of their differences – a place where every employee can be themselves so they can reach their highest potential and help us achieve our business goals. Our employees must adhere to a Code of Ethics that sets standards for appropriate behavior.
MARKETING AND DISTRIBUTION Sales and marketing to customers is accomplished through our sales engineers, independent manufacturers' representatives, and distributors. We maintain sales offices in China, Czech Republic, Denmark, Germany, Japan, Singapore, Taiwan, and the United States. Approximately 88% of 2022 net sales were attributable to our sales engineers. Our sales engineers generally service our largest customers with application-specific products.
We maintain sales offices in China, Czech Republic, Denmark, Germany, Japan, Singapore, Taiwan, and the United States. Approximately 91% of 2023 net sales were attributable to our sales engineers. CTS CORPORATION 4 Table of Contents Our sales engineers generally service our largest customers with application-specific products. A vast majority of our products are engineered solutions.
Our employees must adhere to a Code of Ethics that sets standards for appropriate behavior. We require annual training on preventing, identifying, reporting, and stopping any type of unlawful discrimination or unethical actions. A copy of our Code of Ethics is available for review on our Company’s website, www.ctscorp.com.
We provide our employees with annual training on a variety of compliance-related topics including preventing, identifying and reporting any type of unlawful discrimination or unethical actions. A copy of our Code of Ethics is available for review in the investors section of our Company’s website at https://investors.ctscorp.com.
On an annual basis managers complete a mid-year and year-end performance evaluation with their employees. Employee Compensation We strive to align compensation with the external market of companies from a similar industry or that are similarly sized and maintain equity within the organization.
Each year managers are expected to complete a mid-year and year-end performance evaluations with their employees. Employee Compensation We strive to align compensation with an external group of peer companies in our industry and/or similar to our size while also maintaining consistency and equity within our organization.
Customers demand lower cost and higher quality, reliability, and delivery standards from us as well as from our competitors. These trends create opportunities for us, but also increase the risk of loss of business to competitors. We are subject to competitive risks that are typical in our end markets, including technical obsolescence.
In certain other cases customers may choose to use multiple vendors to source products, which could impact our volumes and revenues. Customers demand lower cost and higher quality, reliability, and delivery standards from us as well as from our competitors. These trends create opportunities for us, but also increase the risk of loss of business to competitors.
We obtained 22 patents in 2022, including 7 U.S. patents and 15 non-U.S. patents. We currently own 314 CTS CORPORATION 5 Table of Contents patents worldwide including 132 active U.S. patents. We own 9 registered U.S. trademarks, most of which are registered in jurisdictions throughout the world.
CTS obtained 23 patents in 2023, including four U.S. patents, 13 patents in Asia, and six patents in Europe. CTS currently owns approximately 285 patents worldwide including 131 active U.S. patents. We own seven registered U.S. trademarks, most of which are also registered in jurisdictions throughout the world.
Removed
On February 28, 2022, we acquired 100% of the outstanding shares of TEWA for $24,515. TEWA is a designer and manufacturer of high-quality temperature sensors. TEWA has complementary capabilities with our existing temperature sensing platform, and the acquisition supports our end market diversification strategy and expands our presence in Europe.
Added
The end-market sales for 2022 were adjusted by immaterial amounts to align the classification of certain customers in connection with our recent acquisitions with our enterprise-level end market information. MARKETING AND DISTRIBUTION Sales and marketing to customers is accomplished through our sales engineers, independent manufacturers' representatives, and distributors.
Removed
On June 30, 2022, we acquired 100% of the outstanding shares of Ferroperm for $72,340. Ferroperm specializes in the design and manufacture of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications. Ferroperm has complementary capabilities with our existing medical diagnostics and imaging product lines.
Removed
The acquisition supports our end market diversification strategy and expands our presence in European end markets. On February 6, 2023, we acquired 100% of the outstanding shares of maglab AG ("maglab") for $4,164 in cash subject to additional earnout payments based on future performance.
Removed
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 electric motor sensing and controls markets.
Removed
Our major products consist principally of sensors and actuators used in passenger or commercial vehicles, connectivity components used in telecommunications infrastructure, information technology and other high-speed applications, switches, temperature sensors, and potentiometers supplied to multiple markets, and fabricated piezoelectric materials and substrates used primarily in the medical, industrial, and aerospace and defense markets.
Removed
In particular, semiconductor and resin shortages have increased our material prices, and they have impacted our OEM customers’ ability to finish assembly of vehicles, which in turn have adversely impacted our results of operations and cash flows. These pressures are expected to continue in fiscal 2023.
Removed
Murray gained global experience working and living in China and Hong Kong in senior roles at Laird PLC and Littelfuse, Inc. Most recently, he served as Laird’s Vice President of Global Operations for the Performance Materials Business Unit beginning in January 2014.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

39 edited+18 added−16 removed127 unchanged
Biggest changeAny material variation between our financial projections and our actual results may adversely affect our future profitability, cash flows and stock price. CTS CORPORATION 14 Table of Contents Risks Related to COVID-19 Pandemic and Other External Factors Public health issues such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business or financial results.
Biggest changeAny material variation between our financial projections and our actual results may adversely affect our future profitability, cash flows and stock price.
Our financial projections, including any sales or earnings guidance or outlook we may provide from time to time, are dependent on certain estimates and assumptions related to, among other things, development and launch of innovative new products, market share projections, product pricing, sales, volume and product mix, foreign exchange rates and volatility, tax rates, interest rates, commodity prices, cost savings, accruals for estimated liabilities, including litigation reserves, and our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, repurchase of our stock, make acquisitions, pay dividends and meet debt obligations.
Our financial projections, including any sales or earnings guidance or outlook we may provide from time to time, are dependent on certain estimates and assumptions related to, among other things, development and launch of innovative new products, market share projections, product pricing, sales, volume and product mix, foreign exchange rates and volatility, tax rates, interest rates, commodity prices, cost savings, accruals for estimated liabilities, including litigation reserves, and our ability to generate sufficient cash flow to reinvest in our existing business, fund internal growth, repurchase our stock, make acquisitions, pay dividends and meet debt obligations.
The ongoing conflict between Russia and Ukraine (which we refer to as the “Russia-Ukraine conflict”), has adversely affected the global economy, and the geopolitical tensions and conflicts it generates may continue to negatively impact our operations. It has resulted in heightened economic sanctions from the U.S., the U.K., the European Union and the international community.
The ongoing conflict between Russia and Ukraine (which we refer to as the “Russia-Ukraine conflict”) has adversely affected the global economy, and the geopolitical tensions and conflicts it generates may continue to negatively impact our operations. It has resulted in heightened economic sanctions from the U.S., the U.K., the European Union (the "E.U.") and the international community.
Global economic and political conditions affect our business and the businesses of our customers, suppliers and consumers. Recessions, economic downturns, price instability, inflation, slowing economic growth and social and political instability in the markets where we compete could negatively affect our revenues and financial performance, and adversely impact our ability to grow or sustain our business.
Global economic and political conditions affect our business and the businesses of our customers and suppliers. Recessions, economic downturns, price instability, inflation, slowing economic growth and social and political instability in the markets where we compete could negatively affect our revenues and financial performance, and adversely impact our ability to grow or sustain our business.
We may have difficulty finding suitable opportunities or, if we do identify these opportunities, we may not be able to complete the transactions for any number of reasons including a failure to secure financing.
We may have difficulty finding suitable acquisition opportunities or, if we do identify these opportunities, we may not be able to complete the transactions for any number of reasons including a failure to secure financing.
In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage newly acquired businesses such as TEWA and Ferroperm, including their operations or employees.
In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage newly acquired businesses such as TEWA, Ferroperm and Maglab, including their operations or employees.
We may pursue acquisition opportunities that complement or expand our business as well as divestitures that could impact our business operations. We may not be able to complete these transactions, and these transactions, if executed, may pose risks that could materially adversely affect our business, financial condition and operating results.
We may pursue acquisition opportunities that are intended to complement or expand our business as well as divestitures that could impact our business operations. We may not be able to complete these transactions, and these transactions, if executed, may pose risks that could materially adversely affect our business, financial condition and operating results.
Any adverse occurrence, including among others, industry slowdown, recession, public health crisis, political instability, costly or constraining regulations, increased tariffs, reduced government budgets and spending, armed hostilities, terrorism, excessive inflation, including the current high inflationary environment, prolonged disruptions in one or more of our customers' production schedules or labor disturbances, that results in a decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results.
Any adverse occurrence, including among others, industry slowdown, recession, public health crisis, political instability, costly or constraining regulations, increased tariffs, reduced government budgets and spending, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers' production schedules or labor disturbances, that results in a decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition and operating results.
Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of management's attention CTS CORPORATION 11 Table of Contents from our existing business to integrate the operations and personnel of the acquired or combined business; possible adverse effects on our operating results during the integration process; difficulties managing and integrating operations in geographically dispersed locations; increases in our expenses and working capital requirements, which could reduce our return on invested capital; exposure to unanticipated liabilities of acquired companies; and our possible inability to achieve the intended objectives of the transaction.
Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of management's attention from our existing business to integrate the operations and personnel of the acquired or combined business; possible adverse effects on our operating results during the integration process; difficulties managing and integrating operations in geographically dispersed locations; increases in our expenses and working capital requirements, which could reduce our return on invested capital; exposure to unanticipated liabilities of acquired companies; and our possible inability to achieve the intended objectives of the transaction.
On an ongoing basis we explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer us growth opportunities. For example, during 2022, we acquired both TEWA Temperature Sensors SP. Zo.o. (“TEWA”) and Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S, “Ferroperm”).
On an ongoing basis we explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or product lines or that might otherwise offer us growth opportunities. For example, during 2022 and 2023, we acquired TEWA Temperature Sensors SP. Zo.o. (“TEWA”), Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S, “Ferroperm”) and maglab AG ("Maglab").
If these technologies, systems, products or services are damaged, cease to function properly, are compromised due to employee or third-party contractor error, user error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity attacks, such as those involving denial of service attacks, unauthorized access, malicious software, or other intrusions, including by criminals, nation states or insiders, our business may be adversely impacted.
If these technologies, systems, products or services are threatened, disputed, damaged, cease to function properly, are compromised due to employee or third-party contractor error, user error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity incidents, such as those involving denial of service attacks, ransomware, unauthorized access, malicious software, or other intrusions or disruptions, including by criminals, nation states or insiders, our business may be adversely impacted.
Our operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to our business, customers, suppliers, employees, and other sensitive matters. We have both an increasing reliance on IT systems and an increasing digital footprint as a result of changing technologies, connected devices and digital offerings, as well as expanded remote work policies.
Our operations routinely involve receiving, storing, processing and transmitting information pertaining to our business, customers, suppliers, employees, and other operations. We have both an increasing reliance on information technology systems and an increasing digital footprint as a result of changing technologies, connected devices and digital offerings, as well as expanded remote work policies.
Our business could be interrupted and our financial results could be materially adversely impacted by physical risks such as earthquakes, fires, hurricanes, floods, acts of war, terrorist attacks, cyberattacks and other disruptions in information systems, disease outbreaks or pandemics, and other natural disasters or catastrophic events that damage, disrupt or destroy one of our key facilities or the key facilities of our significant suppliers.
Our business could be interrupted and our financial results could be materially adversely impacted by physical risks such as earthquakes, fires, hurricanes, floods, acts of war, terrorist attacks, cyberattacks and other disruptions in information systems, disease outbreaks or CTS CORPORATION 15 Table of Contents pandemics, and other natural disasters or catastrophic events that damage, disrupt or destroy one of our key facilities or the key facilities of our significant suppliers.
The impacts of any such circumstances could include production downtimes, operational delays, and other impacts on our operations and ability to provide products and services to our customers; compromise of confidential, proprietary or otherwise protected information, including personal information and customer confidential data; destruction, corruption, or theft of data or intellectual property; manipulation, disruption, or improper use of these technologies, systems, products or services; financial losses from fraudulent transactions, remedial actions, loss of business or potential liability; adverse media coverage; and legal claims or legal proceedings, including regulatory investigations, actions and fines; and damage to our reputation.
The impacts of any such circumstances could include production downtimes, operational delays, and other impacts on our operations and ability to provide products and services to our customers; compromise of confidential, proprietary or otherwise protected information, including personal information and customer confidential data; destruction, corruption, or theft of data or intellectual property; manipulation, disruption, or improper use of these technologies, systems, products or services; financial losses from fraudulent transactions, remedial actions, loss of business or potential liability; adverse media coverage; and legal claims or legal proceedings, including regulatory investigations, actions and fines; and damage to our reputation and, as a result, have a material adverse effect on our business operations and financial performance.
Ineffective internal control over our financial reporting may harm our business. We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). Our controls necessary for continued compliance with Sarbanes-Oxley may not operate effectively or at all times and may result in a material CTS CORPORATION 17 Table of Contents weakness.
Ineffective internal control over our financial reporting may harm our business. We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). Our controls necessary for continued compliance with Sarbanes-Oxley may not operate effectively or at all times and may result in a material weakness.
Similarly, if the costs of goods continue to increase, our suppliers may seek price increases from us. If we are unable to mitigate the impact of these matters through price increases, cost savings to offset cost increases, hedging arrangements, or other measures, our results of operations and financial condition could be adversely impacted.
Similarly, if the costs of goods continue to increase, our suppliers may seek price increases from us. If we are unable to mitigate the impact of these matters through price increases, cost savings to offset cost increases, hedging arrangements, or other measures, our CTS CORPORATION 10 Table of Contents results of operations and financial condition could be adversely impacted.
The labor market for many of our employees is very competitive, and wages and compensation costs continue to increase. Our ability to attract and retain key talent has been, and may continue to be, impacted by challenges in the labor market, particularly in the U.S., which has recently been experiencing wage inflation, labor shortages, a continued shift toward remote work.
The labor market for many of our employees is very competitive, and wages and compensation costs continue to increase. Our ability to attract and retain key talent has been, and may continue to be, impacted by challenges in the labor market, particularly in the U.S., which has recently been experiencing wage inflation, labor shortages, and the impacts of remote work.
We often increase staffing and capacity and incur other expenses to meet the anticipated demand of our customers, which causes reductions in our gross margins if customer orders are delayed or canceled. On occasion, customers may require rapid increases in production, which may stress our resources and reduce margins.
We often increase staffing and capacity and incur other expenses to meet the anticipated demand of our customers, which causes reductions in our gross margins if customer orders are delayed or canceled. On occasion, customers may require rapid increases in production, which may stress our CTS CORPORATION 9 Table of Contents resources and reduce margins.
CTS CORPORATION 16 Table of Contents We are exposed to fluctuations in foreign currency exchange rates that may adversely affect our business, financial condition and operating results. We transact business in various foreign countries. We present our consolidated financial statements in U.S. dollars, but a portion of our revenues and expenditures are transacted in other currencies.
We are exposed to fluctuations in foreign currency exchange rates that may adversely affect our business, financial condition and operating results. We transact business in various foreign countries. We present our consolidated financial statements in U.S. dollars, but a portion of our revenues and expenditures are transacted in other currencies.
We are from time to time involved in or subject to a variety of litigation, claims, legal or regulatory proceedings or matters related to our business, warranty claims, our intellectual property rights, alleged infringement or misappropriation by us of intellectual property rights of others, tax, environmental, privacy, insurance, ERISA and employment matters.
CTS CORPORATION 16 Table of Contents We are from time to time involved in or subject to a variety of litigation, claims, legal or regulatory proceedings or matters related to our business, warranty claims, our intellectual property rights, alleged infringement or misappropriation by us of intellectual property rights of others, tax, environmental, privacy, insurance, ERISA and employment matters.
These and other factors could harm our ability to achieve anticipated levels of profitability from acquired operations or realize other anticipated benefits of an acquisition and could adversely affect our business and operating results. We have in the past, and may in the future, consider divesting certain business operations.
These and other factors could harm our ability to achieve anticipated levels of profitability from acquired operations or realize other anticipated benefits of an acquisition and could adversely affect our business and operating results. CTS CORPORATION 11 Table of Contents We have in the past, and may in the future, consider divesting certain business operations.
Our customers may cancel their orders, change production quantities or locations or delay production. We generally receive volume estimates, but not firm volume commitments from our customers, and may experience reduced or extended lead times in customer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons.
Our customers may cancel their orders, change production quantities or locations or delay production. We generally receive volume estimates, but not firm volume commitments from our customers, and may experience reduced or extended lead times in customer orders. Customers may cancel orders, change production quantities and delay production for a number of reasons including the use of additional suppliers.
Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our relationships with vendors, customers, prospective and current employees and others.
Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change CTS CORPORATION 18 Table of Contents in the direction of the business or other instability and may affect our relationships with vendors, customers, prospective and current employees and others.
Compliance with EHS laws and regulations is a major consideration for us because we use hazardous materials in our manufacturing processes. If we violate EHS laws and regulations, we could be liable for substantial fines, penalties, and costs of mandated remedial actions and we could suffer reputational damages due to any such violations.
Compliance with EHS laws and regulations is a major consideration for us because we use CTS CORPORATION 12 Table of Contents hazardous materials in our manufacturing processes. If we violate EHS laws and regulations, we could be liable for substantial fines, penalties, and costs of mandated remedial actions and we could suffer reputational damage due to any such violations.
Our inability to protect our intellectual property rights could diminish or eliminate the competitive advantages that we derive from our technology, cause us to lose sales or otherwise harm our business. We believe that patents will continue to play an important role in our business.
Our inability to protect our intellectual property rights could diminish or eliminate the competitive advantages that we derive from our technology, cause us to lose sales or otherwise harm our business. CTS CORPORATION 17 Table of Contents We believe that patents will continue to play an important role in our business.
Loss, operational disruptions or closure of a key facility, including those of our suppliers, due to unforeseen or catastrophic events or otherwise, could have a material adverse effect on our business and financial results.
Risks Related to Other External Factors Loss, operational disruptions or closure of a key facility, including those of our suppliers, due to unforeseen or catastrophic events or otherwise, could have a material adverse effect on our business and financial results.
In addition, changes to laws or regulations enacted to address the potential impacts of climate change could have a material CTS CORPORATION 15 Table of Contents adverse impact on our business, financial condition, and results of operations.
In addition, changes to laws or regulations enacted to address the potential impacts of climate change could have a material adverse impact on our business, financial condition, and results of operations.
As we grow our business, the risk of exposure to product liability litigation increases. We may be required to participate in a recall involving CTS CORPORATION 12 Table of Contents products which are, or are alleged to be, defective.
As we grow our business, the risk of exposure to product liability litigation increases. We may be required to participate in a recall involving products which are, or are alleged to be, defective.
We may be required to pay higher prices for raw materials or electronic components in short supply and order these raw materials or electronic components in greater quantities to compensate for variable delivery times.
We may be required to pay higher prices for raw materials or electronic components in short supply and order these raw materials or electronic components in greater quantities to compensate for variable delivery times. We may also be required to pay higher prices for raw materials or electronic components due to inflationary trends regardless of supply.
Notwithstanding those measures, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity attacks and other threats, any of which could have a material adverse effect on our financial results.
Notwithstanding these measures, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity threats, any of which could have a material adverse effect on our business operations and financial performance.
Future dividends on our common stock may be restricted or eliminated. Dividends are declared at the discretion of our Board of Directors, and future dividends will depend on our future earnings, cash flow, financial requirements and other factors. Our ability to pay cash dividends on our common stock is limited under the terms of our credit agreements.
Future dividends on our common stock may be restricted or eliminated. Dividends are declared at the discretion of our Board of Directors, and future dividends will depend on our future earnings, cash flow, financial requirements and other factors.
In addition, our effective tax rate could be materially affected by certain tax proposals developed by the Organization for Economic Cooperation and Development and European Commission regarding the taxation of multinational businesses.
The current economic and political environment may result in significant tax law changes in the numerous jurisdictions in which we operate. In addition, our effective tax rate could be materially affected by certain tax proposals developed by the Organization for Economic Cooperation and Development and European Commission regarding the taxation of multinational businesses.
Shareholder activism efforts or unsolicited offers from a third-party could cause a material disruption to our business and financial results. We may be subject to various legal and business challenges due to actions instituted by shareholder activists or an unsolicited third-party offer.
We may be subject to various legal and business challenges due to actions instituted by shareholder activists or an unsolicited third-party offer.
Similar geopolitical tensions and political conflicts, including tensions between the U.S. and China as well as between China and Taiwan, could adversely impact our employees, financial performance, and global operations, including by, among other things, jeopardizing the safety of our employees and facilities, disrupting our and our partners’ production, supply chain and logistics and communications, and causing market volatility, which could adversely impact our sales.
Similar geopolitical tensions and political and/or armed conflicts, including tensions between the U.S. and China, China and Taiwan, and the conflict between Israel and Palestine could adversely impact our employees, financial performance, and global operations, including by, among other things, jeopardizing the safety of our employees and facilities, disrupting our and our partners’ production, supply chain and logistics and communications, and causing market volatility, which could adversely impact our sales and/or amplify or affect many of our other risks described elsewhere in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.
If our ESG practices do not meet investor or other stakeholder expectations CTS CORPORATION 18 Table of Contents and standards or evolving regulatory requirements, our stock price, sales, ability to access capital markets, reputation and employee retention, among other things, may be negatively affected.
If our ESG practices do not meet investor or other stakeholder expectations and standards or evolving regulatory requirements, our stock price, sales, ability to access capital markets, reputation and employee retention, among other things, may be negatively affected. Shareholder activism efforts or unsolicited offers from a third-party could cause a material disruption to our business and financial results.
In addition, changes to existing tax laws or the adoption of new tax laws, particularly in the U.S. and EU, could have a material adverse impact to our effective tax rate and future cash tax liabilities. The current economic and political environment may result in significant tax law changes in the numerous jurisdictions in which we operate.
In addition, changes to existing tax laws or the adoption of new tax laws, particularly in the U.S. and the E.U., could have a material adverse impact on our effective tax rate, future cash tax liabilities and the ability to utilize deferred tax assets.
Such transfers may result in short term inefficiencies and costs due to resulting excess CTS CORPORATION 9 Table of Contents capacity and overhead at one facility and capacity constraints and the inability to fulfill all orders at another.
In addition, our customers may request that manufacturing of their products be transitioned from one of our facilities to another to achieve cost reductions and other objectives. Such transfers may result in short-term inefficiencies and costs due to resulting excess capacity and overhead at one facility and capacity constraints and the inability to fulfill all orders at another.
We, and the service providers that we depend on to support our systems and business operations, are regularly the target of, and periodically respond to, cyberattacks, including phishing and denial-of-service attacks. As a result, we continuously monitor our systems to protect our technology infrastructure and data from misappropriation or corruption.
From time to time, we and the service providers that we depend on to host our data and support our systems and business operations, are the target of, and periodically respond to, cybersecurity threats, including phishing and denial-of-service attacks, which, if successful, could result in a loss of business or customer information, systems interruption or the disruption of our operations.
We may not be able to limit our liability or damages in the event of such a loss. We are exposed to, and may be adversely affected by, potential security breaches or other disruptions to our information technology systems and data security.
Risks Related to Technology and Data Privacy CTS CORPORATION 13 Table of Contents We are exposed to, and may be adversely affected by, cybersecurity threats, incidents or other disruptions to our information technology systems and data.
Removed
In addition, our customers may request that manufacturing of their products be transitioned from one of our facilities to another to achieve cost reductions and other objectives.
Added
Cybersecurity incidents could have a disruptive effect on our business.
Removed
In addition, the effects of the ongoing Russia-Ukraine conflict as well as escalating tensions between China and Taiwan and other geopolitical conflicts could amplify or affect many of our other risks described elsewhere in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.
Added
The techniques that are used to obtain unauthorized access, disable or degrade service or sabotage systems and data change frequently, have continued to increase in recent years and such efforts may be difficult to detect for long periods of time. As a result, we monitor our systems to protect our technology infrastructure and data.
Removed
We may also be required to pay higher prices for CTS CORPORATION 10 Table of Contents raw materials or electronic components due to inflationary trends regardless of supply, including the current high inflationary environment.
Added
We have in the past been subject to cybersecurity incidents which have not had a material impact on our business or financial condition and expect that we will be subject to additional cybersecurity incidents in the future. We are exposed to risks and costs associated with complying with privacy laws and protecting personal data and other sensitive information.
Removed
CTS CORPORATION 13 Table of Contents Negative or unexpected tax consequences could adversely affect our results of operations. We operate globally and changes in tax laws could adversely affect our results.
Added
We are subject to various risks and costs associated with the collection, handling, storage and transmission of information, including costs related to compliance with U.S. and foreign data protection and privacy laws and other contractual obligations, as well as risks associated with the compromise of our systems collecting such information.
Removed
The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures enacted by individual countries, which could significantly impact our effective tax rate, tax liabilities, and ability to utilize deferred tax assets.
Added
Many jurisdictions, including the E.U., the U.K., China and certain states within the U.S., have passed laws that require companies to meet specific requirements regarding the processing, use, and disclosure of personal data.
Removed
Risks Related to Indebtedness and Financing Our indebtedness may adversely affect our financial health.
Added
We collect internal and customer data and other information, including personally identifiable information for a variety of business purposes, including managing our workforce and providing requested products and services.
Removed
Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, operations, financial condition, liquidity and results of operations.
Added
We could be exposed to investigations, fines, penalties, restrictions, litigation, reputational harm or other expenses, or other adverse effects on our business, due to failure to protect personal data or other sensitive information or failure to maintain compliance with the various U.S. and foreign data collection and privacy laws or applicable data security standards.
Removed
For example, the COVID-19 pandemic has affected our offices and manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and their customers for the past several years. As of December 31, 2022, we continue to experience some disruptions, mainly to our operations in China.
Added
Failure to keep pace with developments in technology could adversely affect our operations or competitive position. The technologies and systems we use to operate our business may require refinements and upgrades, and third parties may cease support of systems that are currently in use. The development and maintenance of these technologies may require significant investment by us.
Removed
The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as any additional future resurgences from known or new variants, future government regulations and actions in response to the crisis, the timing, availability, effectiveness and adoption rates of vaccines and treatments, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.
Added
As various systems and technologies become outdated or new technology is required, we may not be able to replace or introduce them as quickly as needed or in a cost-effective and timely manner. As a result, our business operations could be disrupted and we could be exposed to cybersecurity threats, adversely affecting our business operations and financial performance.
Removed
Given these uncertainties, we expect the pandemic to continue to have an impact on our business, operations, financial condition, liquidity and results of operations in 2023 and potentially beyond. There can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future.
Added
Because third parties provide us with a number of operational and technical services, third-party cybersecurity incidents could expose us to liability, harm our reputation, damage our competitiveness and adversely affect our financial performance. CTS CORPORATION 14 Table of Contents Third parties provide us with certain operational and technical services.
Removed
Global privacy, data protection and data security laws are highly complex, evolving rapidly, and may increase our costs to comply.
Added
These third parties may have access to our systems, provide hosting services, or otherwise process data about or on behalf of us, our employees or partners. Any third-party cybersecurity incident could compromise the security, integrity or availability of or result in the theft, unauthorized access or processing, or disruption of access to data, which could negatively impact our operations.
Removed
To conduct our operations, we may need to move data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations in the U.S. and abroad regarding privacy, data protection and data security ("Data Protection Laws").
Added
We rely on the internal processes and controls of third-party software and application vendors to maintain the security of all software code, systems, and data provided to or used by or on behalf of the Company.
Removed
Data Protection Laws typically impose significant requirements and additional obligations for companies on how they collect, process and transfer personal data by enacting consumer privacy rights and imposing significant fines for non-compliance.
Added
Any cybersecurity incidents involving third parties on which we rely could negatively affect our reputation, our competitive position and our financial performance, and we could face regulatory scrutiny, investigations, lawsuits and further potential liability . Risks Related to Indebtedness and Financing Our indebtedness may adversely affect our financial health.
Removed
The potential for fines and other related costs in the event of a breach of or non-compliance with existing or proposed Data Protection Laws may have an adverse effect on our financial results. Further, the regulatory framework around data custody, data privacy and breaches vary by jurisdiction and is an evolving area of law.
Added
We may not continue to repurchase our common stock or make repurchases our common stock at favorable prices. In February 2024, our Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $100 million of its common stock.
Removed
There has been a rise in the number of cyberattacks targeting confidential business information generally and in the manufacturing industry specifically. Moreover, there has been a rise in the number of cyberattacks that depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or perpetrate wire transfer or other frauds.
Added
Any purchases will depend on a number of factors, including our evaluation of general market and economic conditions, our financial condition and the trading price of our common stock. The repurchase program may be extended, modified, suspended or discontinued at any time.
Removed
Furthermore, geopolitical turmoil has heightened the risk of cyberattacks. These trends increase the likelihood of such events occurring as well as the costs associated with protecting against such attacks. It is possible for vulnerabilities in our IT systems to remain undetected for an extended period of time up to and including several years.
Added
A reduction in, or the completion of, our repurchase program could have a negative effect on our stock price. We can provide no assurance that we will repurchase our common stock at favorable prices, or at all. On August 16, 2022, the Inflation Reduction Act of 2022 (“Inflation Reduction Act”) was enacted.
Added
The Inflation Reduction Act imposes on publicly-traded companies a new, nondeductible excise tax equal to 1% of the fair market value of any stock of a company that is repurchased after December 31, 2022, during its taxable year.
Added
Because this excise tax would be payable by us, and not by a redeeming holder, the imposition of this excise tax could cause a reduction in the cash available on hand to implement the repurchase program.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeNon-Manufacturing Facilities Square Footage Owned/Leased Description Boise, ID 13,150 Leased Warehouse Brownsville, Texas N/A Owned Land Brownsville, Texas 10,000 Leased Warehouse El Paso, Texas 22,400 Leased Office and Warehouse Matamoros, Mexico 20,173 Leased Warehouse and administrative offices Elkhart, Indiana 319,000 Owned Idle facility Elkhart, Indiana 93,000 Owned Administrative offices and research Farmington Hills, Michigan 1,790 Leased Sales office Kaohsiung, Taiwan 8,951 Leased Administrative offices and research Lisle, Illinois 74,925 Leased Administrative offices and research Nagoya, Japan 800 Leased Sales office Singapore 5,597 Leased Sales office Yokohama, Japan 1,403 Leased Sales office Total non-manufacturing 571,189 We regularly assess our facilities for manufacturing capacity, available labor, and proximity to our markets and major customers.
Biggest changeNon-Manufacturing Facilities Owned/Leased Description Boise, Idaho Leased Warehouse Brownsville, Texas Owned Land Brownsville, Texas Leased Warehouse El Paso, Texas Leased (1) Office and Warehouse Elkhart, Indiana Owned Idle facility Elkhart, Indiana Owned Administrative and research offices Farmington Hills, Michigan Leased Sales office Hopkinton, Massachusetts Owned Idle facility Juarez, Mexico Leased (1) Idle facility Kaohsiung, Taiwan Leased Administrative and research offices Lisle, Illinois Leased Administrative and research offices Matamoros, Mexico Leased Warehouse and administrative offices Nagoya, Japan Leased Sales office Nogales, Mexico Leased Warehouse and administrative offices Singapore Leased Sales office Tecate, Mexico Leased Warehouse and administrative offices Tecate, Mexico Owned Idle facility Yokohama, Japan Leased Sales office Zug, Switzerland Leased Administrative, sales and research offices (1) These facilities relate to the ongoing restructuring activities involving the Juarez and Matamoros site consolidation..
(2) Land Use Rights Agreement through 2050 includes transfer, lease and mortgage rights. CTS CORPORATION 19 Table of Contents A small portion of the China, Czech Republic, and Denmark locations above also maintain sales offices.
(2) Land Use Rights Agreement through 2050 includes transfer, lease and mortgage rights. CTS CORPORATION 20 Table of Contents A small portion of the China, Czech Republic, and Denmark locations above also maintain sales offices.
We also review the operating costs of our facilities and may from time-to-time relocate a portion of our manufacturing activities in order to reduce operating costs and improve asset utilization and cash flow.
The extent of utilization varies from plant to plant and with economic conditions. We also review the operating costs of our facilities and may from time-to-time relocate a portion of our manufacturing activities in order to reduce operating costs and improve asset utilization and cash flow.
P roperties As of December 31, 2022, we had manufacturing facilities, administrative, research and development and sales offices in the following locations: Manufacturing Facilities Square Footage Owned/Leased Albuquerque, New Mexico 114,525 Leased Boise, Idaho 15,000 Leased Calamba, Philippines 14,800 Leased Hopkinton, Massachusetts 32,000 Owned Juarez, Mexico 42,834 Leased Kaohsiung, Taiwan 75,900 Leased (1) Kvistgaard, Denmark 13,659 Leased Kvistgaard, Denmark 50,569 Leased Lisle, Illinois 31,000 Leased Matamoros, Mexico 51,000 Owned Tecate, Mexico 26,460 Leased Tecate, Mexico 24,500 Owned Nogales, Mexico 67,000 Leased Nupaky, Czech Republic 55,919 Leased Ostrava, Czech Republic 67,473 Leased Tianjin, China 225,000 Owned (2) Zhongshan, China 112,600 Leased Lublin, Poland 24,886 Leased Leczna, Poland 8,503 Leased Total manufacturing 1,053,628 (1) Ground lease through 2026; restrictions on use and transfer apply.
P roperties As of December 31, 2023, we had manufacturing facilities, administrative, research and development and sales offices in the following locations: Manufacturing Facilities Owned/Leased Albuquerque, New Mexico Leased Boise, Idaho Leased Calamba, Philippines Leased Kaohsiung, Taiwan Leased (1) Kvistgaard, Denmark Leased Leczna, Poland Leased Lisle, Illinois Leased Lublin, Poland Leased Matamoros, Mexico Owned Matamoros, Mexico Leased Tecate, Mexico Leased Nogales, Mexico Leased Nupaky, Czech Republic Leased Ostrava, Czech Republic Leased Tianjin, China Owned (2) Zhongshan, China Leased (1) Ground lease through 2026; restrictions on use and transfer apply.
Management believes our manufacturing facilities are suitable and adequate and have sufficient capacity to meet our current needs. The extent of utilization varies from plant to plant and with economic conditions.
We regularly assess our facilities for manufacturing capacity, available labor, and proximity to our markets and major customers. Management believes our manufacturing facilities are suitable and adequate and have sufficient capacity to meet our current needs including approximately 1 million square feet of manufacturing and 750 thousand square feet of non-manufacturing spaces.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+2 added−2 removed1 unchanged
Biggest change(a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Programs (d) Maximum Value of Shares That May Yet Be Purchased Under the Plans or Programs October 1, 2022 – October 31, 2022 10,100 $ 38.00 10,100 $ 27,385 November 1, 2022 – November 30, 2022 69,800 $ 41.34 69,800 $ 24,499 December 1, 2022 – December 31, 2022 119,198 $ 39.70 119,198 $ 19,767 Total 199,098 199,098 On February 9, 2023, the Board approved a new share repurchase program that authorizes the Company to repurchase up to $50 million of its common stock.
Biggest changeCTS CORPORATION 21 Table of Contents (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Programs (d) Maximum Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs October 1, 2023 – October 31, 2023 97,982 $ 40.38 97,982 $ 24,445,949 November 1, 2023 – November 30, 2023 171,665 $ 39.53 171,665 $ 17,660,741 December 1, 2023 – December 31, 2023 115,817 $ 41.03 115,817 $ 12,908,355 Total 385,464 385,464 On February 2, 2024, the Board approved a new share repurchase program that authorizes the Company to repurchase up to $100 million of its common stock.
Item 5. Market for Registrant's Common Equity, Related Sha reholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol "CTS." On February 17, 2023, there were approximately 831 shareholders of record.
Item 5. Market for Registrant's Common Equity, Related Sha reholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol "CTS." On February 16, 2024, there were approximately 771 shareholders of record.
The repurchase program has no set expiration date and supersedes and replaces the repurchase program approved by the Board in May 2021.
The new share repurchase program has no set expiration date and supersedes and replaces the repurchase program approved by the Board in February 2023.
The graph tracks the performance of a $100 investment in the Company's common stock and in each of the indexes (with the reinvestment of all dividends) on December 31, 2017.
The graph tracks the performance of a $100 investment in the Company's common stock and in each of the indexes (with the reinvestment of all dividends) on December 31, 2018. Historical stock price performance should not be relied upon as an indication of future stock price performance.
Removed
CTS CORPORATION 20 Table of Contents On May 13, 2021, the Board of Directors (the "Board") authorized a stock repurchase program with a maximum dollar limit of $50 million.
Added
On February 9, 2023, the Board approved a share repurchase program that authorized the Company to repurchase up to $50 million of its common stock. The repurchase program had no set expiration date and superseded and replaced the repurchase program approved by the Board in May 2021.
Removed
This program authorizes us to make repurchases of our common stock from time to time on the open market, including pursuant to Rule 10b5-1 plans, but does not obligate us to make repurchases, and it has no expiration date.
Added
The performance graph in this Annual Form 10-K shall be deemed furnished, and not filed, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act as a result of this furnishing, except to the extent that we specifically incorporate it by reference.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

40 edited+9 added−14 removed38 unchanged
Biggest changeResults of Operations: Year Ended December 31, 2022 versus Year Ended December 31, 2021 (Amounts in thousands, except percentages and per share amounts): CTS CORPORATION 22 Table of Contents The following table highlights changes in significant components of the Consolidated Statements of Earnings (Loss) for the years ended December 31, 2022, and December 31, 2021: Years Ended December 31, Percent of Net Sales 2022 2021 Percent Change 2022 2021 Net sales $ 586,869 $ 512,925 14.4 % 100 % 100 % Cost of goods sold 376,331 328,306 14.6 64.1 64.0 Gross margin 210,538 184,619 14.0 35.9 36.0 Selling, general and administrative expenses 91,520 82,597 10.8 15.6 16.1 Research and development expenses 24,100 23,856 1.0 4.1 4.7 Restructuring charges 1,912 1,687 13.3 0.3 0.3 Total operating expenses 117,532 108,140 8.7 20.0 21.1 Operating earnings 93,006 76,479 21.6 15.8 14.9 Total other (expense) income, net (12,269 ) (137,359 ) (91.1 ) (2.1 ) (26.8 ) Earnings (loss) before taxes 80,737 (60,880 ) n/a 13.8 (11.9 ) Income tax expense (benefit) 21,162 (19,014 ) n/a 3.6 (3.7 ) Net earnings (loss) $ 59,575 $ (41,866 ) n/a 10.2 % (8.2 )% Diluted earnings (loss) per share: Diluted net earnings (loss) per share $ 1.85 $ (1.30 ) Net sales were $586,869 for the year ended December 31, 2022, an increase of $73,944, or 14.4% from 2021.
Biggest changeResults of Operations: Year Ended December 31, 2023 versus Year Ended December 31, 2022 (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, 2023, and December 31, 2022: Years Ended December 31, Percent of Net Sales 2023 2022 Percent Change 2023 2022 Net sales $ 550,422 $ 586,869 (6.2 )% 100 % 100 % Cost of goods sold 359,563 376,331 (4.5 ) 65.3 64.1 Gross margin 190,859 210,538 (9.3 ) 34.7 35.9 Selling, general and administrative expenses 83,816 91,520 (8.4 ) 15.2 15.6 Research and development expenses 24,918 24,100 3.4 4.5 4.1 Restructuring charges 7,074 1,912 270.0 1.3 0.3 Total operating expenses 115,808 117,532 (1.5 ) 21.0 20.0 Operating earnings 75,051 93,006 (19.3 ) 13.6 15.8 Total other income (expense), net 102 (12,269 ) (100.8 ) 0.0 (2.1 ) Earnings before taxes 75,153 80,737 (6.9 ) 13.7 13.8 Income tax expense 14,621 21,162 (30.9 ) 2.7 3.6 Net earnings $ 60,532 $ 59,575 1.6 % 11.0 % 10.2 % Diluted earnings per share: Diluted net earnings per share $ 1.92 $ 1.85 Net sales were $550,422 for the year ended December 31, 2023, a decrease of $36,447, or 6.2% from 2022.
Cash Flows from Investing Activities 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.
See Note 3, "Business Acquisitions," in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. 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.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of consolidated income tax provision.
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.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 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, 2022.
For 2022, we elected to perform the qualitative assessment. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2022. We will monitor future results and will perform a test if indicators trigger an impairment review.
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.
See Note 7, “Retirement Plan,” 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.
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.
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 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
CTS CORPORATION 26 Table of Contents 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.
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.
Cash Flows from Operating Activities Net cash provided by operating activities was $121,197 during the year ended December 31, 2022.
Net cash provided by operating activities was $121,197 during the year ended December 31, 2022.
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, • Significant negative industry or economic trends.
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 CTS CORPORATION 27 Table of Contents • Significant negative industry or economic trends.
The net cash payment of $24,515 for this acquisition was funded by the Company's cash on hand. CTS CORPORATION 25 Table of Contents On June 30, 2022, we acquired Ferroperm, a designer and manufacturer of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications.
The net cash payment of $24,515 for this acquisition was funded by the Company's cash on hand. On June 30, 2022, we acquired Ferroperm, a designer and manufacturer of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications.
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.
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 CTS CORPORATION 25 Table of Contents on our net leverage ratio.
See Note 13 and 14, "Debt" and “Derivatives,” respectively, 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. • Operating lease payments – We enter into various noncancelable lease agreements for land, buildings and equipment under non-cancellable operating leases used in our operations.
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. • Operating lease payments – We enter into various noncancelable lease agreements for land, buildings and equipment used in our operations.
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 CORPORATION 27 Table of Contents Product Warranties Provisions for estimated warranty expenses are made at the time products are sold.
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. Product Warranties Provisions for estimated warranty expenses are made at the time products are sold.
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 $6,240, with $759 payable in 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 $5,781, with $750 payable in 12 months.
Other expense, net for the year ended December 31, 2022 was primarily driven by $6,803 in excise taxes incurred as part of the U.S. pension plan termination, $1,776 in derivative losses associated with the acquisition of Ferroperm, and foreign currency losses primarily related to the Euro and Chinese Renminbi offset partially by income from the U.S. pension plan investments realized prior to the final termination.
Other expense, net for 2022 was primarily driven by $6,803 in excise taxes incurred as part of the U.S. pension plan termination and $1,776 in derivative losses associated with the acquisition of Ferroperm, as well as foreign currency losses primarily related to the Chinese Renminbi offset partially by income from the U.S. pension plan investments realized prior to its final termination.
CTS CORPORATION 24 Table of Contents Capital Resources Long-term debt was comprised of the following: As of December 31, 2022 2021 Total credit facility availability $ 400,000 $ 400,000 Balance outstanding 83,670 50,000 Standby letters of credit 1,640 1,740 Amount available, subject to covenant restrictions $ 314,690 $ 348,260 Weighted-average interest rate 2.96 % 1.16 % On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility availability to $400,000 which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sublimits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility.
Capital Resources Long-term debt was comprised of the following: As of December 31, 2023 2022 Total credit facility availability $ 400,000 $ 400,000 Balance outstanding 67,500 83,670 Standby letters of credit 1,640 1,640 Amount available, subject to covenant restrictions $ 330,860 $ 314,690 Weighted-average interest rate 6.07 % 2.96 % On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility availability to $400,000 which may be increased by $200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sublimits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility.
Critical Accounting 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.
CTS CORPORATION 26 Table of Contents Critical Accounting 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.
As of December 31, 2022, 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 $83,670 at December 31, 2022, with no amounts payable within 12 months.
As of December 31, 2023, 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 $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 $6,295 through maturity, with approximately $1,464 payable within 12 months based on the December 31, 2022 exchange rate. We may paydown certain portions of these obligations early.
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.
Research and development (“R&D”) expenses were $24,100, or 4.1% of sales in 2022 compared to $23,856, or 4.7% of sales in 2021, in line with our commitment to continue investing in research and product development to drive organic growth. Restructuring charges were $1,912, or 0.3% of net sales in 2022, compared to $1,687, or 0.3% of net sales in 2021.
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. 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.
However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions. Cash and cash equivalents were $156,910 at December 31, 2022 and $141,465 at December 31, 2021, of which $90,244 and $124,635 respectively, were held outside the United States.
However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions. CTS CORPORATION 24 Table of Contents 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.
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.
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.
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.
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.
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 10.8% to 16.0% of gross 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.
Dollar compared to the Czech Koruna and Mexican Peso. Years Ended December 31, 2022 2021 Effective tax rate 26.2% 31.2% The effective income tax rate in 2022 was 26.2% compared to 31.2% in the prior year.
Years Ended December 31, 2023 2022 Effective tax rate 19.5% 26.2% The effective income tax rate in 2023 was 19.5% compared to 26.2% in the prior year.
The Revolving Credit Facility includes a swing line sublimit of $20,000 and a letter of credit sublimit of $20,000. 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 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, 2023.
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. On February 28, 2022, we acquired 100% of the outstanding shares of TEWA for $24,515. TEWA is a designer and manufacturer of high-quality temperature sensors.
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. On February 6, 2023, we acquired 100% of the outstanding shares of maglab AG ("Maglab") for $4,164 in cash subject to additional earnout payments based on future performance.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination and is reviewed annually for impairment or more frequently if impairment indicators arise. Finite-lived intangible assets are reviewed for impairment if facts and circumstances warrant.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination.
We were in compliance with all debt covenants at December 31, 2022 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, including those related to the COVID-19 pandemic discussed in this Annual Report on Form 10-K.
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.
Operating lease obligations were $32,559, with $5,357 payable within 12 months.
Operating lease obligations were $37,856, with $6,215 payable within 12 months.
Net cash used in financing activities for the year ended December 31, 2021, was $20,712. The net cash outflow was the result of net payments of long-term debt of $4,600, treasury stock purchases of $8,786, dividend payments of $5,173, taxes paid on behalf of equity award participants of $1,503, and contingent consideration payments of $650.
The net cash outflow was the result of treasury stock purchases of $40,926, net cash for debt paydowns of $16,170, dividend payments of $5,040, and taxes paid on behalf of equity award participants of $3,263. Net cash provided by financing activities for the year ended December 31, 2022, was $4,336.
Changes in foreign exchange rates decreased net sales by $10,985 year-over-year primarily due to the U.S. Dollar appreciating compared to the Chinese Renminbi and Euro. Gross margin was $210,538 for the year ended December 31, 2022, an increase of $25,919 or 14.0% from the year ended December 31, 2021.
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.
Selling, general and administrative ("SG&A") expenses were $91,520, or 15.6% of sales for the year ended December 31, 2022, versus $82,597 or 16.1% of sales in 2021. The increase in SG&A expenses was driven by the acquisitions and increased incentive compensation.
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.
Other income and expense items are summarized in the following table: Years Ended December 31, 2022 2021 Interest expense $ (2,192 ) $ (2,111 ) Interest income 1,326 840 Other expense (11,403 ) (136,088 ) Total other (expense), net $ (12,269 ) $ (137,359 ) The reduction in other expense, net was primarily driven by decreased pension expense due to the U.S. pension plan termination, effective in 2021.
Other income and expense items are summarized in the following table: Years Ended December 31, 2023 2022 Interest expense $ (3,331 ) $ (2,192 ) Interest income 4,625 1,326 Other expense (1,192 ) (11,403 ) Total other (expense), net $ 102 $ (12,269 ) Interest income increased due to investments of available cash into short-term, cash equivalent, high yield deposit accounts.
Maglab's domain expertise coupled with CTS’ commercial, technical and operational capabilities position us to advance our status as a recognized innovator in electric motor sensing and controls markets. COVID-19 Impact and Supply Chain Uncertainties The COVID-19 pandemic and subsequent supply chain uncertainties have had a significant negative impact on the global economy in 2022 and 2021.
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 electric motor sensing and controls markets.
See “Item 1A. Risk Factors” for additional discussion of these and other risks that our business faces.
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.
Net cash used in investing activities for the year ended December 31, 2021, was $15,896, driven primarily by capital expenditures. Cash Flows from Financing Activities Net cash provided by financing activities for the year ended December 31, 2022, was $4,336.
Cash Flows from Investing Activities 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.
Net cash provided by operating activities was $86,141 during the year ended December 31, 2021.
Total debt as of December 31, 2023 and December 31, 2022 was $67,500 and $83,670, respectively. Cash Flows from Operating Activities 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 loss of $(41,866), depreciation and amortization expense of $26,930, non-cash pension and other post-retirement plan expenses of $132,650, and other net non-cash items totaling $24,912, and a net cash outflow from changes in assets and liabilities of $6,661.
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.
Removed
TEWA has complementary capabilities with our existing temperature sensing platform, and the acquisition supports our end market diversification strategy and expands our presence in Europe. On June 30, 2022, we acquired 100% of the outstanding shares of Ferroperm for $72,340.
Added
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%. CTS CORPORATION 23 Table of Contents The TEWA Temperature Sensors SP. Zo.o.
Removed
Ferroperm specializes in the design and manufacture of high performance piezoceramic components for use in complex and demanding medical, industrial, and aerospace applications. Ferroperm has complementary capabilities with our existing medical diagnostics and imaging product lines. The acquisition supports our end market diversification strategy and expands our presence in European end markets.
Added
(“TEWA”) and Meggitt A/S (a/k/a Ferroperm Piezoceramics A/S, “Ferroperm”) acquisitions, both completed in 2022, added net sales of $37,460 and $23,477 in 2023 and 2022, respectively, while the Maglab acquisition added net sales of $1,755 in 2023. Changes in foreign exchange rates decreased net sales by $2,459 year-over-year primarily due to the U.S. Dollar appreciating compared to the Chinese Renminbi.
Removed
On February 6, 2023, we acquired 100% of the outstanding shares of maglab AG ("maglab") for $4,164 in cash subject to additional earnout payments based on future performance. Maglab has deep expertise in magnetic system design and current measurement solutions for use in e-mobility, industrial automation, and renewable energy applications.
Added
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.
Removed
These events have disrupted the financial markets, negatively impacted the global supply chain and increased the cost of materials and operations, particularly within the global automotive industry. Key semiconductor chip and other critical part shortages continue to force OEMs to shut down production, often on short notice.
Added
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.
Removed
With customers changing orders on short notice, we run the risk of carrying excess inventory in these situations. These developments are outside of our control, remain highly uncertain, and cannot be predicted. In addition, the supply chain shortages continue to put pressure on our manufacturing costs and our gross margins.
Added
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.
Removed
We continue to actively monitor the ongoing impacts of the COVID-19 pandemic and supply chain issues and will seek to mitigate and minimize their impact on our business, when possible. We anticipate the supply chain disruptions to continue to impact our results in 2023 and we remain cautious about the financial impact of these potential disruptions on our business.
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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, 2023, was $65,399.
Removed
Net sales growth was driven by increased demand for our products in all end markets we serve. Net sales to transportation markets increased $19,615 or 6.9%. Net sales to other markets increased $54,329, or 23.7%. The TEWA and Ferroperm acquisitions added sales of $23,489 in 2022.
Added
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%. The Revolving Credit Facility includes a swing line sublimit of $20,000 and a letter of credit sublimit of $20,000.
Removed
The increase in gross margin was driven by sales volume and mix partially offset by increased material freight costs, changes in foreign exchange rates of $3,577 and $4,048 in inventory step-up amortization charges taken relating to the TEWA and Ferroperm acquisitions.
Added
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.
Removed
We continue to experience significant inflation in material and freight costs as well as interruptions in the supply chain, particularly due to the global semiconductor chip shortages. The impact of the supply chain shortages and OEM shutdowns are expected to continue to have an adverse effect on our operations that we are continuing to attempt to mitigate.
Added
CTS CORPORATION 28 Table of Contents 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. Environmental Contingencies U.S.
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We continue to implement certain restructuring actions to improve our cost structure and competitive position.
Removed
Other expense, net in 2021 was primarily driven by increased pension expense including $126,269 in CTS CORPORATION 23 Table of Contents settlement charges from our U.S. pension plan termination process in the second and third quarters of 2021 as well as foreign currency translation losses, mainly due to the appreciation of the U.S.
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The decrease in our effective income tax rate is primarily attributed to a one-time non-cash settlement expense related to the termination of the U.S. pension plan incurred in the second and third quarters of 2021.
Removed
Total debt as of December 31, 2022 and December 31, 2021 was $83,670 and $50,000, respectively. Total debt as a percentage of total capitalization, defined as long-term debt as a percentage of total debt and shareholders’ equity, was 14.2% at December 31, 2022, compared to 9.7% at December 31, 2021.
Removed
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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur 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.
Biggest changeWe 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.
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 2022, net sales from outside the U.S. were approximately 44% of total net sales. During 2021, net sales to customers from outside the U.S. were approximately 42% of total net sales.
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 2023, net sales from outside the U.S. were approximately 45% of total net sales. During 2022, net sales to customers from outside the U.S. were approximately 44% of total net sales.
The assumptions used in measuring fair value of the cross-currency swap are considered level 2 inputs, which are based upon the Krone to United States Dollar exchange rate market. At December 31, 2022 we had a net unrealized loss of $557 in accumulated other comprehensive (loss) income.
The assumptions used in measuring fair value of the cross-currency swap are considered level 2 inputs, which are based upon the Krone to United States Dollar exchange rate market. At December 31, 2023, we had a net unrealized loss of $1,138 in accumulated other comprehensive income (loss).
CTS CORPORATION 28 Table of Contents 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.
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 $12,602 and $17,732 as of December 31, 2022 to hedge our exposure against the Euro and Mexican Peso, respectively.
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 $13,548 and $31,787 as of December 31, 2023 to hedge our exposure against the Euro and Mexican Peso, respectively.
As of December 31, 2022, we had interest rate swaps that fix interest costs on $50,000 of our long-term debt through December 2026 and $22,500 of our long-term debt through June 2027. The remaining long-term debt is unhedged as of December 31, 2022. A 100 basis point change in interest rates would not materially impact our total interest expense.
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. A 100-basis point change in interest rates would not materially impact our total interest expense.
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. Due to the impact from the COVID-19 pandemic, freight costs increased significantly in 2022.
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.
While the Company is exposed to significant changes in certain commodity prices and expects higher freight costs into 2023, the Company actively monitors these exposures and may take various actions from time to time to mitigate any negative impacts relating thereto. CTS CORPORATION 29 Table of Contents
As the Company is exposed to significant changes in certain commodity prices, we actively monitor these exposures and may take various actions from time to time to mitigate any negative impacts relating thereto. CTS CORPORATION 30 Table of Contents
Item 7A. Quantitative and Qualita tive Disclosures About Market Risk (in thousands) 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.
Item 7A. Quantitative and Qualita tive 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 monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed. Interest Rate Risk We are exposed to risk of changes in interest rates on our Revolving Credit Facility. There was $83,670 and $50,000 outstanding under our Revolving Credit Facility at December 31, 2022 and 2021, respectively.
Interest Rate Risk We are exposed to risk of changes in interest rates on our Revolving Credit Facility. There was $67,500 and $83,670 outstanding under our Revolving Credit Facility at December 31, 2023 and 2022, respectively.
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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.
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Our most significant raw materials and purchased components include conductive CTS CORPORATION 29 Table of Contents inks and contactors, passive connectivity components, integrated circuits and semiconductors, certain rare earth elements ("REEs"), ceramic powders, plastic components, molding compounds, printed circuit boards and assemblies, quartz blanks and crystals, wire harness assemblies, copper, brass, silver, gold, platinum, lead, aluminum, and steel-based raw materials and components.

Other CTS 10-K year-over-year comparisons