CTS CORP Fair Value Disclosure
NOTE 18 — Fair Value Measurements
The table below summarizes the financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2025 and the gain (loss) recorded during the year ended December 31, 2025:
|
|
Asset (Liability) Carrying |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Gain (Loss) for |
|
|||||
Interest rate swap |
|
$ |
455 |
|
|
$ |
— |
|
|
$ |
455 |
|
|
$ |
— |
|
|
$ |
905 |
|
Foreign currency hedges |
|
$ |
4,767 |
|
|
$ |
— |
|
|
$ |
4,767 |
|
|
$ |
— |
|
|
$ |
(704 |
) |
Cross-currency swap |
|
$ |
(786 |
) |
|
$ |
— |
|
|
$ |
(786 |
) |
|
$ |
— |
|
|
$ |
287 |
|
Qualified replacement plan assets |
|
$ |
8,991 |
|
|
$ |
8,991 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
422 |
|
Contingent consideration |
|
$ |
(3,453 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(3,453 |
) |
|
$ |
3,575 |
|
The table below summarizes the financial assets that were measured at fair value on a recurring basis as of December 31, 2024 and the gain recorded during the year ended December 31, 2024:
|
|
Asset (Liability) Carrying |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Gain for |
|
|||||
Interest rate swap |
|
$ |
1,503 |
|
|
$ |
— |
|
|
$ |
1,503 |
|
|
$ |
— |
|
|
$ |
1,430 |
|
Foreign currency hedges |
|
$ |
(2,992 |
) |
|
$ |
— |
|
|
$ |
(2,992 |
) |
|
$ |
— |
|
|
$ |
942 |
|
Cross-currency swap |
|
$ |
324 |
|
|
$ |
— |
|
|
$ |
324 |
|
|
$ |
— |
|
|
$ |
358 |
|
Qualified replacement plan assets |
|
$ |
11,380 |
|
|
$ |
11,380 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
644 |
|
Contingent consideration |
|
$ |
(7,028 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(7,028 |
) |
|
$ |
1,765 |
|
We use interest rate swaps to convert a portion of our Revolving Credit Facility’s outstanding balance from a variable rate of interest into a fixed rate and foreign currency forward contracts to hedge the effect of foreign currency changes on certain revenues and costs denominated in foreign currencies. In addition, the Company entered into a cross currency swap agreement in order to manage its exposure to changes in interest rates related to foreign debt. These derivative financial instruments are measured at fair value on a recurring basis.
The fair value of our interest rate swaps, and foreign currency hedges were measured using standard valuation models using market-based observable inputs over the contractual terms, including forward yield curves, among others. There is a readily determinable market for these derivative instruments, but that market is not active and therefore they are classified within Level 2 of the fair value hierarchy. The qualified replacement plan ("QRP") assets consist of investment funds maintained for future contributions to the Company’s U.S. 401(k) plan. The investments are Level 1 marketable securities and are recorded in Other Assets on our Consolidated Balance Sheets. Gains and losses from these investments are recorded in other income and expense in the Consolidated Statements of Earnings. Refer to Note 7, "Retirement Plans," for further information on the QRP.
The fair value of the contingent consideration required significant judgment. The Company's fair value estimates used in the contingent consideration valuation are considered Level 3 fair value measurements. The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenues and customer order targets. These estimates are highly judgmental and changes to the estimate of expected future contingent consideration payments may occur, from time to time, due to various reasons, including actual results differing from estimates and/or from adjustments to the revenue or customer order target assumptions used as the basis for the liability.
A roll-forward of the contingent consideration is as follows:
|
|
Contingent |
|
|
|
|
Consideration |
|
|
Balance at December 31, 2024 |
|
$ |
7,028 |
|
Change in fair value |
|
|
(3,575 |
) |
Balance at December 31, 2025 |
|
$ |
3,453 |
|
As of December 31, 2025, $3,453 of contingent consideration was recorded in other long-term obligations in the Consolidated Balance Sheets.
Our long-term debt consists of debt outstanding under the Revolving Credit Facility, which is recorded at its carrying value. There is a readily determinable market for our long-term debt, and it is classified within Level 2 of the fair value hierarchy as the market is not deemed to be active. The fair value of long-term debt approximates carrying value and was determined by valuing a similar hypothetical coupon bond and attributing that value to our long-term debt under the Revolving Credit Facility.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.