Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Position
The following discussion and analysis of our results of operations and financial position should be read together with our consolidated financial statements and accompanying notes, which are contained in “Item 8. Financial Statements and Supplementary Data.” The discussion of the comparison of our 2024 and 2023 results was previously disclosed within the Management’s Discussion & Analysis in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2025 and has been omitted from this section pursuant to Instruction 1 to Item 303(b) of Regulation S-K.
Company Overview and Strategy
We design, develop, manufacture and sell high-performance and high-reliability engineered materials and components to meet our customers’ challenges. We operate two strategic operating segments: AES and EMS. Our remaining operations, which represent non-core businesses, are reported in our Other operating segment. We are headquartered in Chandler, Arizona.
Our growth and profitability strategy is based upon the following principles: (1) market-driven organization, (2) innovation leadership, (3) operational excellence, and (4) synergistic mergers and acquisitions. Our priorities in executing this strategy are focused on driving near-term improvements to profitability and improving the growth outlook for the Company over the next several years by further strengthening our focus on commercial activities, optimizing our global capacity to meet customer demand and driving innovation.
As a market-driven organization, we are focused on capitalizing on growth opportunities in multiple end markets. This includes the automotive industry, where there are market opportunities resulting from the continuing trends in vehicle electrification, and ADAS adoption. Other opportunities are driven by the advancement of communication systems in aerospace and defense, the growth of next-generation smartphones in the portable electronics industry, and the continued expansion of renewable energy. In addition to our focus on these markets, we sell into a variety of other markets, including industrial, wireless infrastructure and mass transit.
Our growth strategy is based on addressing trends in these markets and maintaining a strong customer-centric focus. Our sales engineers and technical service employees work closely with our customers to understand their needs and then leverage our development capabilities and applications expertise to provide customized solutions. Our strategy is supported by an expansive product portfolio and a reputation for producing high performance and reliable products. We expect to secure further commercial wins and improve sales as we execute on this strategy.
Our operational excellence efforts are focused on driving ongoing cost improvements and efficiencies to further enhance our profitability while enhancing the agility and customer focus of the organization. These efforts include focusing on improving yields, throughput, procurement capabilities, and manufacturing processes. We have also taken specific cost improvement actions in recent quarters that have and will benefit our performance. These actions include optimizing our manufacturing footprint, and reducing manufacturing and corporate employees. We continue to review and re-align our manufacturing and engineering footprint in an effort to maintain a leading competitive position globally and to support our customers’ growth initiatives.
We seek to enhance our operational and financial performance by investing in research and development, manufacturing and materials efficiencies, and new product initiatives that respond to the needs of our customers. We strive to evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and evolving industry trends.
If we successfully execute this growth and operational improvement strategy, we see an opportunity, over the next several years, to increase revenues from current levels and further improve profitability. The increase in revenues is largely expected to come from our organic business, with the potential to augment this growth through targeted acquisitions.
Executive Summary
The following key highlights and factors should be considered when reviewing our results of operations, financial position and liquidity:
• In 2025, as compared to 2024, our net sales decreased by 2.3% to $810.8 million, our gross margin decreased 170 basis points to 31.7% from 33.4%, and operating income as a percentage of net sales decreased 860 basis points to (5.6%) from 3.0%.
• We recognized impairment charges of $71.8 million in 2025 related to our curamik ® reporting unit within our AES operating segment, and $1.9 million related to the impairment of our facility lease in Mexico.
• We recognized restructuring charges of $23.4 million in 2025 due to our wind down of manufacturing operations for our AES operating segment in our Evergem, Belgium facility, phase one of curamik ® manufacturing footprint consolidation, our executive leadership transition, and the reduction of our global workforce.
• We repurchased 738,145 shares of our capital stock for $52.4 million in 2025.
Results of Operations
The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales:
Net sales
Gross margin
Selling, general and administrative expenses
Research and development expenses
Restructuring and impairment charges
Other operating (income) expense, net
Operating income (loss)
Equity income in unconsolidated joint ventures
Other income (expense), net
Interest income (expense), net
Income (loss) before income taxes
Income tax expense
Net income (loss)
Net Sales and Gross Margin
(Dollars in millions)
Net sales
Gross margin
Percentage of net sales
Net sales decreased by 2.3% in 2025 compared to 2024. Our AES and EMS operating segments had net sales decreases of 1.5% and 3.1%, respectively. The decrease in net sales was primarily due to lower net sales in the wireless infrastructure and EV/HEV markets, partially offset by higher net sales in the aerospace and defense and ADAS markets. We experienced lower EV/HEV net sales as customers continued to manage inventory levels and adjust to changing regional demands. We experienced lower wireless infrastructure net sales as a program for a key customer was launched and completed in 2024. Net sales were favorably impacted by foreign currency impacts of $6.0 million, or 0.7%, due to the appreciation in value of the euro relative to the U.S. dollar, partially offset by depreciation in value of the Korean won and Chinese renminbi, relative to the U.S. dollar.
Gross margin as a percentage of net sales decreased 170 basis points to 31.7% in 2025 compared to 33.4% in 2024. Gross margin in 2025 declined due to lower volumes and related utilization headwinds and unfavorable yield performance, partially offset by favorable mix and cost savings from our manufacturing footprint consolidation in Belgium.
Selling, General and Administrative Expenses
(Dollars in millions)
Selling, general and administrative expenses
Percentage of net sales
SG&A expenses decreased 8.7% in 2025 from 2024, primarily due to an $10.6 million decrease in compensation and benefits expense due to our overall reduction in employee count, a $7.2 million decrease in professional services expenses, and a $1.4 million decrease in intangible asset amortization, partially offset by a $3.3 million increase in fixed asset depreciation.
Research and Development Expenses
(Dollars in millions)
Research and development expenses
Percentage of net sales
R&D expenses decreased 18.8% in 2025 from 2024, primarily due to a $3.4 million decrease in compensation and benefits expense and a $1.8 million decrease in R&D trials. The decrease in compensation and benefits expense was largely driven by overall reduction in employee count and cost savings related to our exit from our Burlington, Massachusetts Innovation Center facility.
Restructuring and Impairment Charges and Other Operating (Income) Expense, Net
(Dollars in millions)
Restructuring and impairment charges
Other operating (income) expense, net
We recognized $23.4 million and $16.2 million of restructuring charges in 2025 and 2024, respectively. The restructuring charges in 2025 were related to manufacturing footprint consolidation efforts, which impacted our facilities in Evergem, Belgium and Eschenbach, Germany, our global reduction in workforce, and our executive leadership transition. The restructuring charges in 2024 were related to manufacturing footprint consolidation efforts, the R&D facility exit plan, and the reduction in global workforce.
We recognized $71.8 million of impairment charges in 2025 related to our curamik ® reporting unit within our AES operating segment as well as $1.9 million of impairment charges related to our facility lease in Mexico. For additional information, refer to “Note 7 – Goodwill and Intangible Assets” and "Note 6 – Leases ” to “Item 8. Financial Statements and Supplementary Data.” We recognized $7.9 million of impairment charges in 2024 related to our new ERP system still in development. For additional information, refer to “ Note 14 – Supplemental Financial Information ” to “Item 8. Financial Statements and Supplementary Data.”
Equity Income in Unconsolidated Joint Ventures
(Dollars in millions)
Equity income in unconsolidated joint ventures
Up until early November, 2024, we had two unconsolidated, 50% owned, JVs: RIC and RIS. In early November, 2024, our JV relationships were discontinued resulting in the year-over-year decrease in equity income in those unconsolidated JVs. For additional information, refer to “Note 16 – Mergers and Acquisitions” to “Item 8. Financial Statements and Supplementary Data.”
Other Income (Expense), Net
(Dollars in millions)
Other income (expense), net
Other income (expense), net decreased to $0.9 million of expense in 2025 compared to $8.8 million of income in 2024. The decrease was due to the recognition of a $7.7 million gain in 2024 in connection with the execution of the JV Separation Agreement with INOAC, $2.3 million of unfavorable year-over-year changes in impacts from our foreign currency transactions, $1.4 million of unfavorable year-over-year changes in impacts from our foreign currency derivatives, partially offset by $1.9 million in favorable year-over-year changes from our copper derivatives.
Interest Income (Expense), Net
(Dollars in millions)
Interest income (expense), net
Interest income (expense), net, increased by $1.6 million in 2025 from 2024, due to higher income on interest-bearing cash accounts and a lower average outstanding balance on our revolving credit facility.
Income Tax Expense
(Dollars in millions)
Income tax expense
Effective tax rate
Our effective income tax rate for 2025 was negative 37.0%, representing tax expense with a pre-tax book loss, compared to income tax expense of 23.9% for 2024. The 2025 rate change was primarily due to (i) the change in valuation allowance against deferred tax assets, and (ii) the curamik ® goodwill impairment with no related tax benefit.
Operating Segment Net Sales and Gross Margin
Advanced Electronics Solutions
(Dollars in millions)
Net sales
Gross margin
Percentage of net sales
Our AES operating segment net sales decreased by 1.5% in 2025 compared to 2024. The decrease in net sales was primarily driven by lower net sales in the wireless infrastructure and EV/HEV markets, partially offset by higher net sales in the ADAS and aerospace and defense markets. EV/HEV net sales were lower as customers continued to manage inventory levels and adjusted to changing regional demands. Wireless infrastructure net sales decreased as a program for a key customer was launched and completed in 2024. Net sales were favorably impacted by foreign currency fluctuations of $4.8 million, or 1.1%, due to the appreciation in value of the euro relative to the U.S. dollar, partially offset by the depreciation in value of Chinese renminbi and Korean won relative to the U.S. dollar.
Our AES operating segment gross margin as a percentage of net sales increased 30 basis points to 29.6% in 2025 compared to 29.3% in 2024. Gross margin in 2025 increased due to favorable mix and cost savings from our manufacturing footprint consolidation in Belgium, partially offset by lower volume and related utilization headwinds and unfavorable yield performance.
Elastomeric Material Solutions
(Dollars in millions)
Net sales
Gross margin
Percentage of net sales
Our EMS operating segment net sales decreased by 3.1% in 2025 compared to 2024. The decrease in net sales was primarily driven by lower net sales in the EV/HEV market, partially offset by higher net sales in the industrial market. We experienced lower EV/HEV net sales due to customer inventory management in response to end market demands. Net sales were favorably impacted by foreign currency fluctuations of $1.2 million, or 0.3%, due to the appreciation in value of the euro and British pound relative to the U.S. dollar, partially offset by the depreciation in value of Chinese renminbi and Korean won relative to the U.S. dollar.
Our EMS operating segment gross margin as a percentage of net sales decreased 420 basis points to 34.2% in 2025 compared to 38.4% in 2024. Gross margin in 2025 declined due to lower volumes and related utilization headwinds, unfavorable mix and unfavorable yield performance.
Other
(Dollars in millions)
Net sales
Gross margin
Percentage of net sales
Net sales in our Other operating segment decreased by 6.5% in 2025 from 2024. Our Other operating segment gross margin as a percentage of net sales decreased 320 basis points to 32.1% in 2025 compared to 35.3% in 2024. Gross margin in 2025 declined due to lower volumes and unfavorable mix.
Liquidity, Capital Resources and Financial Position
We believe that our existing sources of liquidity and cash flows that are expected to be generated from our operations, together with our available credit facilities, will be sufficient to fund our operations, currently planned capital expenditures and R&D efforts for at least the next 12 months. We regularly review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships, seeking to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives.
The following table illustrates the location of our cash and cash equivalents by our three major geographic areas:
As of December 31,
(Dollars in millions)
Europe
Asia
Total cash and cash equivalents
Approximately $96.9 million of our cash and cash equivalents were held by non-U.S. subsidiaries as of December 31, 2025. We did not make any changes in 2025 to our position on the permanent reinvestment of our earnings from foreign operations. With the exception of certain Asian entities, we continue to assert that foreign earnings are indefinitely reinvested.
Net working capital was $373.9 million and $370.4 million as of December 31, 2025 and 2024, respectively.
Key Financial Position Accounts
As of December 31,
(Dollars in millions)
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Significant changes in our statement of financial position accounts from December 31, 2024 to December 31, 2025 were as follows:
• Cash and cash equivalents were $197.0 million as compared to $159.8 million as of December 31, 2024, an increase of $37.2 million, or 23.3%. This increase was primarily due to our cash flows provided by operations and $14.2 million in proceeds from the sale fixed assets primarily related to the sale of our Price Road facility, partially offset by $52.4 million in share repurchases and $30.1 million in capital expenditures, as well as the effect of net financing and investing activity outflows during the year.
• Accounts receivable, net decreased 3.5% to $130.6 million as of December 31, 2025, from $135.3 million as of December 31, 2024. The decrease from year-end was primarily due to a decrease in sales across our segments and a $1.0 million decrease in VAT receivable, partially offset by a $0.5 million increase in current taxes receivable.
• Inventories, net decreased 12.2% to $125.0 million as of December 31, 2025, from $142.3 million as of December 31, 2024. primarily driven by reductions in raw materials and finished goods inventories, partially offset by higher levels of work-in-process inventory.
(Dollars in millions)
Year Ended December 31,
Key Cash Flow Measures:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
In 2026, we expect capital spending to be in the range of approximately $30.0 million to $40.0 million, of which we are contractually committed to $4.7 million as of December 31, 2025. We plan to fund our capital spending in 2026 with cash from operations and cash on-hand.
Excluding $2.9 million of inventory purchase commitments, there are no contractual obligations requiring material cash requirements in 2026 and beyond, excluding those already noted, including those related to our outstanding borrowings under our revolving credit facility, our operating and finance lease obligations and our pension benefit and other postretirement
benefit obligations, which are discussed in “Note 9 – Revolving Credit Facility ,” “Note 6 – Leases” and “Note 8 – Postretirement Benefits,” to “Item 8. Financial Statements and Supplementary Data,” respectively.
We do not have any off-balance sheet arrangements that have, or are, in the opinion of management, reasonably likely to have a current or future material effect on our results of operations or financial position.
Restriction on Payment of Dividends
The Fifth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00. If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our total net leverage ratio did not exceed 2.75 to 1.00 as of December 31, 2025. For additional information regarding the Fifth Amended Credit Agreement, refer to “Note 9 – Revolving Credit Facility ” to “Item 8. Financial Statements and Supplementary Data.”
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which require management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances and believe that appropriate reserves have been established using reasonable methodologies and appropriate assumptions based on facts and circumstances that are known; however, actual results may differ from these estimates under different assumptions or conditions. Certain accounting policies may require a choice between acceptable accounting methods or may require substantial judgment or estimation in their application. A summary of our critical accounting policies and estimates is presented below:
Product Liabilities
We endeavor to maintain insurance coverage with reasonable deductible levels to protect us from potential exposures to product liability claims. Any liability associated with such claims is based on management’s best estimate of the potential claim value, while insurance recoverables associated with related claims are not recorded until verified by the insurance carrier.
For asbestos-related claims, we recognize projected asbestos liabilities and related insurance recoverables, with any difference between the liability and related insurance recoverable recognized as an expense in the consolidated statements of operations. Our estimates of asbestos-related contingent liabilities and related insurance recoverables are based on a claim projection analysis and an insurance usage analysis prepared annually by third parties. The claim projection analysis contains numerous assumptions, including number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, average indemnity costs, average defense costs, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform. Furthermore, any predictions with respect to these assumptions are subject to even greater uncertainty as the projection period lengthens. The insurance usage analysis considers, among other things, applicable deductibles, retentions and policy limits, the and historical payment experience of various insurance carriers, the likelihood of recovery as estimated by external legal counsel and existing insurance settlements.
The liability projection period covers all current and future indemnity and defense costs through 2064, which represents the expected end of our asbestos liability exposure with no further ongoing claims expected beyond that date. This conclusion was based on our history and experience with the claims data, the diminished volatility and consistency of observable claims data, the period of time that has elapsed since we stopped manufacturing products that contained encapsulated asbestos and an expected downward trend in claims due to the average age of our claimants, which is approaching the average life expectancy.
Our accrued asbestos liabilities may not approximate our actual asbestos-related indemnity and defense costs, and our accrued insurance recoveries may not be realized. We believe it is reasonably possible that we may incur additional charges for our asbestos liabilities and defense costs in the future that could exceed existing reserves and insurance recoveries. We plan to continue to vigorously defend ourselves and believe we have substantial unutilized insurance coverage to mitigate future costs related to this matter.
We review our asbestos-related projections annually in the fourth quarter of each year unless facts and circumstances materially change during the year, at which time we would analyze these projections. We believe the assumptions made on the potential exposure and expected insurance coverage are reasonable at the present time, but are subject to uncertainty based on the actual future outcome of our asbestos litigation.
As of December 31, 2025, the estimated liabilities and estimated insurance recoveries for all current and future indemnity and defense costs projected through 2064 were $57.4 million and $52.8 million, respectively.
Goodwill
Goodwill is evaluated for impairment annually, and between annual impairment assessments if events or changes in circumstances indicate the carrying value may be impaired. We have the option to first perform a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative analysis indicates that an impairment is more likely than not for any reporting unit, or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, we perform a quantitative impairment test for that reporting unit. We also have the option to bypass the qualitative analysis for any reporting unit and proceed directly to performing a quantitative impairment test. The application of the quantitative assessment requires significant judgment, including the assignment of assets and liabilities to reporting units and determination of the fair value of each reporting unit.
In recent years, management's annual goodwill impairment assessments had been qualitative assessments for all reporting units. During the second quarter of 2025, changing market competition and supply dynamics impacted our curamik ® reporting unit, which resulted in reduced demand forecasts for short and mid-term net sales and gross margin for the reporting unit, creating a triggering event that required an interim quantitative impairment assessment. The interim quantitative assessment resulted in the recognition of a non-cash impairment charge to our curamik ® reporting unit’s goodwill of $67.3 million, which represents a full impairment. In connection with management’s annual assessment in 2025, management elected to bypass a qualitative assessment and perform a quantitative assessment for all reporting units with a remaining goodwill balance. No additional impairments were recorded as a result of such assessments. For additional information, refer to “Note 7 – Goodwill and Intangible Assets”.
The application of the quantitative assessment requires significant judgment, including the assignment of assets and liabilities to reporting units and determination of the fair value of each reporting unit for which a quantitative assessment is performed. We estimate the fair value of each of our reporting units using either an income approach based on the present value of future cash flows through a multi-year discounted cash flow analysis or using an estimated weighting between both an income approach and market approach. Determination of fair value is subjective and requires the use of significant estimates and assumptions, including financial projections for net sales, cost of sales, gross margin and operating margin, discount rates, terminal growth rates, future market conditions, and market multiples, among others. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time at which such impairments are recognized. We assessed the assumptions used in the quantitative impairment assessment to be reasonable and consistent with assumptions that would have been used by other market participants. For additional information, refer to “Note 7 – Goodwill and Intangible Assets” to “ Item 8. Financial Statements and Supplementary Data.”
