UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Registrant's telephone number, including area code: 630-577-8800

Securities registered pursuant to Section 12(b) of the Act:

Safe Harbor

Forward-Looking Statements

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management's expectations, certain assumptions and currently available information. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward-looking statements are made subject to certain risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from those presented in the forward-looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: changes in the economy generally and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition our business; rapid technological change; general market conditions in the automotive, communications,transportation, telecommunications, and computerinformation technology industries, as well as conditions in the industrial, defenseaerospace and aerospace,defense, and medical markets; reliance on key customers; unanticipated natural disasters or other events; environmental compliance and remediation expenses; the ability to protect our intellectual property; pricing pressures and demand for our products; and risks associated with our international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks. Many of these, and other risks and uncertainties, are discussed in further detail in Item 1A. of this Annual Report on Form 10-K. We undertake no obligation to publicly update our forward-looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

CTS Corporation ("CTS", "we", "our", "us" or the "Company") is a global manufacturer of sensors, electronic components, and actuators. CTS was established in 1896 as a provider of high-quality telephone products and was incorporated as an Indiana corporation in February 1929. Our principal executive offices are located in Lisle, Illinois.

We design, manufacture, and sell a broad line of sensors, electronic components, and actuators primarily to original equipment manufacturers ("OEMs") for the transportation,aerospace and defense, industrial, medical, information technology, defensemedical, telecommunications, and aerospace, and communicationstransportation markets. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products and technologies within these categories.

We operate manufacturing facilities in North America, Asia, and Europe. Sales and marketing are accomplished through our sales engineers, independent manufacturers' representatives, and distributors.

See the Consolidated Financial Statements and Notes included in Part II, Item 8 inof 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. Our major products consist principally of sensors and actuators used in passenger or commercial vehicles, electronic components used in communicationstelecommunications infrastructure, information technology and other high-speed applications, switches, and potentiometers supplied to multiple markets, and fabricated piezoelectric materials and substrates used primarily in medical, industrial, defenseaerospace and aerospace,defense, and information technology markets.

The following table provides a breakdown of net sales by industry as a percent of consolidated net sales:

MARKETING AND DISTRIBUTION

Sales and marketing to OEMs is accomplished through our sales engineers, independent manufacturers' representatives, and distributors. We maintain sales offices in China, Czech Republic, Denmark, Germany, India, Japan, Scotland, Singapore, India, Taiwan, and the United States. Approximately 90%89% of 20162018 net sales were attributable to our sales engineers.

Our sales engineers generally service theour largest customers with application-specific products. The sales engineers work closely with major customers in designing and developing products to meet specific customer requirements.

We utilize the services of independent manufacturers' representatives for customers not serviced directly by our sales engineers. Independent manufacturers' representatives receive commissions from us. During 2016,2018, approximately 5% of net sales were attributable to independent manufacturers' representatives. We also use independent distributors. Independent distributors purchase products from us for resale to customers. In 2016,2018, independent distributors accounted for approximately 5%6% of net sales.

RAW MATERIALS

We utilize a wide variety of raw materials and purchased parts in our manufacturing processes. The following are the most significant raw materials and purchased components:

These raw materials and parts are purchased from several vendors,a number of suppliers, and except for certain semiconductors, REEs, and conductive inks, we generally do not believe we are dependent upon one or a limited number of vendors.suppliers. Although we purchase all of our semiconductors, REEs, and conductive inks, and silver pastes from a limited number of vendors,suppliers, alternative sources are available.

We do not currently anticipate any significant raw material shortages that would limit production. However, the 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-than-optimalhigher prices to compensate for the variability of lead times for delivery.

PATENTS, TRADEMARKS, AND LICENSES

We maintain a program of obtaining and protecting U.S. and non-U.S. patents relating to products that we have designed and manufactured, as well as processes and equipment used in our manufacturing technology. We were issued 1710 new U.S. patents and 719 non-U.S. patents in 20162018 and currently hold 167147 U.S. patents and 118159 non-U.S. patents. We have 109 registered U.S. trademarks, 20 registered foreign trademarks and 4 international trademark registrations. We have licensed the right to use several of our patents. In 2016,2018, license and royalty income was less than 1% of net sales.

MAJOR CUSTOMERS

We sellssell automotive parts to both Honda and Toyotathese three customers for certain vehicle platforms under purchase agreements that have no volume commitments and are subject to purchase orders issued from time to time.

No other customer accounted for 10% or more of total net sales during these periods.

We continue to broaden our customer base. Changes in the level of our customers' orders have, in the past, had a significant impact on our operating results. If a major customer reduces the amount of business it does with us, or substantially changes the terms of that business, there could be an adverse impact on our operating results.

We expect to continue to depend on sales to our major customers. Because our customers are under no obligation to continue to do business with us on a long-term basis, it is possible that one or more customers may choose to work with a competitor and reduce its business with us. Customers may also reduce or delay their business with us because of economic or other conditions or decisions that reduce their need for our products or services. Since it is difficult to replace lost business on a timely basis, it is likely that our operating results would be adversely affected if one or more of our major customers were to cancel, delay, or reduce a large amount of business with us in the future. If one or more of our customers were to become insolvent or otherwise unable to pay for our products and/or services, our operating results, financial condition, and cash flows could be adversely affected.

ORDER BACKLOG

Order backlog as previously disclosed, is comprised of firm open purchase orders we have received from our customers and generally represents 1 to 2 months of sales.sales for certain products. Our business is a mix of purchase order based business, shorter-term contracts, and multi-year awards, such as with customers who serve the automotive end-market.end market.  As such, order backlog does not provide a meaningful indication of future sales.  

COMPETITION

We compete with many domestic and foreign manufacturers principally on the basis of product features, technology, price, technology, quality, reliability, delivery, and service. 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 many 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. 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 within the electronics industry, including in some cases short product life cycles and technical obsolescence.

We believe we compete most successfully in custom engineered products manufactured to meet specific applications of major OEMs.

NON-U.S. REVENUES AND ASSETS

A substantial portion of these assets, other than cash and cash equivalents, cannot readily be liquidated. We believe the business risks to our non-U.S. operations, though substantial, are normal risks for global businesses. 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, India, Mexico, and Taiwan.

EMPLOYEES

We employed 2,7963,230 people at December 31, 2016,2018, with 74.2%81% of these employees located outside the U.S. We employed 2,8833,222 people at December 31, 2015.2017. Approximately 15011 employees at one location in the United States were covered by two collective bargaining agreements as of December 31, 2016.2018. Both agreements are scheduled to expire upon completion of our 2016 Restructuring Plan activities.

ADDITIONAL INFORMATION

We are incorporated in the State of Indiana. Our principal corporate office is located at 2375 Cabot Drive,4925 Indiana Avenue Lisle, IL 60532.

Our internet address is www.ctscorp.com. 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"). TheOther than the documents that we file with the SEC that are incorporated by reference herein, the information contained on or accessible through our website is not part of this or any other report we file or furnish to the SEC, other than the documents that we file with the SEC that are incorporated by reference herein.SEC.

The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.

EXECUTIVE OFFICERS OF THE COMPANY

Information with respect to Directors and Corporate Governance may be found in our definitive proxy statement to be delivered to shareholders in connection with our 20172019 Annual Meeting of Shareholders. Such information is incorporated herein by reference.

The following are certain risk factors that could affect our business, financial condition and operating results. These risk factors should be considered in connection with evaluating forward-looking statements contained in this Annual Report on Form 10-K or in any other reports filed or furnished by us, because these factors could cause our actual results and financial condition to differ materially from those projected in any such forward-looking statements. Before you invest in us, you should know that making such an investment involves risks, including the risks described below. The risks that are highlighted below are not the only ones that we face. If any of the following risks occur, our business, financial condition or operating results could be negatively affected.

We depend on a small number of customers for a large portion of our business, and changes in the level of our customers' orders have, in the past, had a significant impact on our results of operations. If a major customer significantly delays, reduces, or cancels the level of business it does with us, there could be an adverse effect on our business, financial condition and operating results, this effect would likely be material.results. Significant pricing and margin pressures exerted by a major customer could also materially adversely affect our operating results. In addition, we generate significant accounts receivable from sales to our major customers. If one or more of our major customers were to become insolvent or otherwise unable to pay or were to delay payment for services,our products, our business, financial condition and operating results could be materially adversely affected.

We operate globally and changes in tax laws could adversely affect our results.  The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures enacted by individual countries.  Additionally,countries, such as the comprehensive tax reform may occurenacted in the U.S. Bothin 2017, which could significantly impact our effective tax rate, tax liabilities, and our ability to utilize deferred tax assets.

Adverse changes in the underlying profitability and financial outlook of our operations in several jurisdictions could lead to changes in our valuation allowances against deferred tax assets and other tax accruals that could materially and adversely affect our results of operations. In addition, acquisitions or divestitures may cause our effective tax rate to increase.change.

We base our tax accounting positions upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax accounting positions are subject to review and possible challenge by taxing authorities and to possible changes in law, which may have a retroactive effect.

Our industry isThe industries in which we operate are highly competitive and characterized by price erosion and rapid technological change. We compete against many domestic and foreign companies, some of which have substantially greater manufacturing, financial, research and development, and marketing resources than we do. If any customer becomes dissatisfied with our prices, quality, or timeliness of delivery, among other things, it could award business to our competitors. Moreover, some of our customers could choose to manufacture and develop particular products themselves rather than purchase them from us. Increased competition could result in price reductions, reduced profit margins and loss of market share, each of which could materially adversely affect our business, financial condition and operating results. These developments also may materially adversely affect our ability to compete successfully going forward. We cannot assure you that our products will continue to compete successfully with our competitors' products, including OEMs.

The technologies relating to some of our products have undergone, and are continuing to undergo, rapid and significant changes. End markets for our products are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements, and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable before we can recover any or all of our research, development and commercialization expenses, or our capital investments. Furthermore, the life cycles of our products and the products we manufacture for others vary, may change, and are difficult to estimate.

We may experience difficulties that could delay or prevent the successful development, introduction and marketing of new products or product enhancements and our new products or product enhancements may not adequately meet the requirements of the

marketplace or achieve market acceptance. If we are unable, for technological or other reasons, to develop and market new products

We generally do not obtain firm, long-term purchase commitments from our customers, and regularly experience reduced or extended lead times in customer orders. Customers cancel orders, change production quantities and delay production for a number of reasons. Uncertain economic and geopolitical conditions may result in some of our customers delaying the delivery of some of the products we manufacture for them and placing purchase orders for lower volumes of products than previously anticipated. Cancellations, reductions or delays by a significant customer or by a number of customers may harm our results of operations by reducing the volumes of products we manufacture and sell, as well as by causing a delay in the recovery of our expenditures for inventory in preparation for customer orders, or by reducing our asset utilization, resulting in lower profitability.

In addition, customers may require 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 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. In addition, we make significantkey decisions based on our estimates of customer requirements, including determining the levels of orders that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-term nature of our customers' commitments and the changes in demand for their products may reduce our ability to estimate future customer requirements accurately. This may make it difficult to schedule production and maximize utilization of our manufacturing capacity. Anticipated orders may not materialize and delivery schedules may be deferred as a result of changes in demand for our products or our customers' products. 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 require rapid increases in production, which may stress our resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers' demands. In addition, because many of our costs and operating expenses are relatively fixed over the short-term, a reduction in customer demand could harm our gross margin and operating income until such time as adjustments can be made to activity and operating levels or to structural costs.

We sell products to customers in cyclical industries that have experienced economic and industry downturns. The markets for our products have softened in the past and may again soften in the future. We may face reduced end-customer demand, underutilization of our manufacturing capacity, changes in our revenue mix and other factors that could adversely affect our results of operations in the near-term. We cannot predict whether we will achieve profitability in future periods.

Sales to the automotive, computertransportation, information technology and communicationstelecommunications industries represent a substantial portion of our revenues. Factors negatively affecting these industries and the demand for their products also negatively affect our business, financial condition and operating results. Any adverse occurrence, including among others, industry slowdown, recession, 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. These industries are generally unionized and some of our customers have experienced labor disruptions in the past. Furthermore, these industries are highly cyclical in nature and sensitive to changes in general economic conditions, consumer preferences and interest rates. The failure of manufacturers that we serve may result in the failure to receive payment in full for products sold in the past and an abrupt cancellation in demand for certain products. Weakness in demand, the insolvency of manufacturers that we serve or their suppliers, and constriction of credit markets may negatively and materially affect our facility utilization, cost structure, financial condition, and operating results.

Despite our quality control and quality assurance efforts, defects may occur in the products we manufacture due to design or manufacturing errors or component failure. Product defects could result in delayed shipments and reduced demand for our products. We may be subject to increased costs due to warranty claims on defective products. Product defects could result in product liability

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. As a result, we are exposed to fluctuations in foreign currencies. Additionally, we have currency exposure arising from funds held in local currencies in foreign countries. Volatility in the exchange rates between the foreign currencies and the U.S. dollar could harm our business, financial condition and operating results. Furthermore, to the extent we sell our products in foreign markets, currency fluctuations may result in our products becoming too expensive for foreign customers.

We experience fluctuations in our operating results. Some of the principal factors that contribute to these fluctuations are: changes in demand for our products; our effectiveness in managing manufacturing processes, costs and timing of our component purchases so that components are available when needed for production, while mitigating the risks of purchasing inventory in excess of immediate production needs; the degree to which we are able to utilize our available manufacturing capacity; changes in the cost and availability of components, which often occur in the electronics manufacturing industry and which affect our margins and our ability to meet delivery schedules; general economic and served industry conditions; and local conditions and events that may affect our production volumes, such as labor conditions or political instability.

Because we have significant international operations, our operating results and financial condition could be materially adversely affected by economic, political, health, regulatory and other factors existing in foreign countries in which we operate. Our international operations are subject to inherent risks, which may materially adversely affect us, including: political and economic instability in countries in which our products are manufactured; expropriation or the imposition of government controls; changes in government regulations; export license requirements; trade restrictions; earnings repatriation and expatriation restrictions; exposure to different legal standards, including related to intellectual property; health conditions and standards; currency controls; fluctuations in exchange rates; increases in the duties and taxes we pay; inflation or deflation; greater difficulty in collecting accounts receivable and longer payment cycles; changes in labor conditions and difficulties in staffing and managing our international operations; limitations on insurance coverage against geopolitical risks, natural disasters, and business operations; and communication among and management of international operations. In addition, these same factors may also place us at a competitive disadvantage compared to some of our foreign competitors.

We may face risks associated with violations of the Foreign Corrupt Practices Act ("FCPA") and similar anti-bribery laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our Code of Ethics mandates compliance with these anti-bribery laws. We operate in many parts of the world where strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures always will protect us from the detrimental actions by our employees or agents. If we are found to be liable for FCPA violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

Public health or safety concerns, conditions, or restrictions that impact the availability of labor or the movement of goods in some of the countries in which we operate could have a material adverse effect on our business, financial condition and operating results.

We have announced and initiated restructuring plans or capital projects at various times in the recent past designed to revise and consolidate certain aspects of our operations for the purpose of improving our cost structure at various times in the recent past.or manufacturing efficiency. We may incur restructuring and impairment charges in the future

We make a number of assumptions relating to our pension plans in order to measure the financial position of the plans and the net periodic benefit cost. The most significant assumptions relate to the discount rate and the expected long-term return on plan assets. If these assumptions prove to be significantly different from actual rates, then we may need to record additional expense relating to the pension plans, which could require cash contributions to fund future pension obligation payments and could have a material adverse effect on our financial condition and results of operations.

We intend toOn 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. We may have difficulty finding thesesuitable 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 our newly acquired operations or employees. 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. Even if we are initially successful in integrating a new operation, we may not be able to maintain uniform standards, controls, procedures and policies, and this may lead to operational inefficiencies. In addition, future acquisitions may result in dilutive issuances of equity securities or the incurrence of additional debt. 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. Divestitures may involve a number of risks, including the diversion of management's attention, significant costs and expenses, the loss of customer relationships and cash flow, and the disruption of operations in the affected business. Failure to timely complete or consummate a divestiture may negatively affect valuation of the affected business or result in restructuring charges.

The success of our business depends, in part, upon our ability to protect trade secrets, trademarks, copyrights and patents, obtain or license patents and operate without infringing on the intellectual property rights of others. We rely on a combination of trade secrets, copyrights, patents, nondisclosure agreements and technical measures to protect our proprietary rights in our products and technology. The steps we have taken to prevent misappropriation of our technology may be inadequate. In addition, the laws of some foreign countries in which we operate do not protect our proprietary rights to the same extent as do the laws of the United States. Although we continue to evaluate and implement protective measures, there can be no assurance that these efforts will be successful. 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. However, there can be no assurance that we will be successful in securing patents for claims in any pending patent application or that any issued patent will provide us with any

competitive advantage. We also cannot provide assurance that the patents will not be challenged by third parties or that the patents of others will not materially adversely affect our ability to do business.

We may become involved in litigation in the future to protect our intellectual property or because others may allege that we infringed on their intellectual property. These claims and any resulting lawsuit could subject us to liability for damages and invalidate our intellectual property rights. If an infringement claim is successfully asserted by a holder of intellectual property rights, we may be required to cease marketing or selling certain products, pay penalties and spend significant time and money to develop a non-

Unanticipated raw material or electronic component shortages may prevent us from making scheduled shipments to customers. Our inability to make scheduled shipments could cause us to experience a shortfall in revenue, increase our costs and adversely affect our relationship with affected customers and our reputation as a reliable supplier. 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. We are also dependent on our suppliers' ability to supply and deliver raw materials on a timely basis at negotiated prices. Any delay or inability to deliver raw materials by our suppliers may require that we attempt to mitigate such failure or fail to make deliveries to our customers on a timely basis. As a result, raw material or electronic component shortages, price increases, or failure to perform by our suppliers could adversely affect our operating results for a particular period due to the resulting revenue shortfall and/or increased costs.

We depend on our senior executive officers and other key personnel to run our business. We do not have long-term employment contracts with our key personnel. The loss of any of these officers or other key personnel could adversely affect our operations. Competition for qualified employees among companies that rely heavily on engineering and technology is at times intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to conduct research activities and develop marketable products successfully.

Our operations are regulated by a number of federal, state, local and foreign environmental, health, and safety (“EHS”) laws and regulations that govern, among other things, air and water emissions, worker protection, and the handling, storage and disposal of hazardous materials. 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. Our environmental permits could also be revoked or modified, which could require us to cease or limit production at one or more of our facilities, thereby materially adversely affecting our business, financial condition and operating results. EHS laws and regulations have generally become more stringent over time and could continue to do so, imposing greater compliance costs and increasing risks and penalties associated with any violation, which also could materially affect our business, financial condition and operating results.

We have been notified by the U.S. Environmental Protection Agency, state environmental agencies and, in some cases, groups of potentially responsible parties, that we are potentially liable for environmental contamination at several sites currently and formerly owned or operated by us, including sites designated as National Priorities List sites under the U.S. Environmental Protection Agency’s Superfund program. Superfund liability is joint and several and we may be held responsible for more than our share of contamination at a site. Although we estimate our potential environmental liability and reserve for such matters, we cannot assure you that our reserves will be sufficient to cover the actual costs that we incur as a result of these matters.

Future events, such as the notification of potential liability at new sites, the discovery of additional contamination or changes to an approved remedy at existing sites, changes to existing EHS environmental laws and regulations or their interpretation, and more

rigorous regulatory action by government authorities, may require additional expenditures by us, which could have a negative impact on our operations.

In addition, we could be affected by future laws or regulations imposed in response to climate change concerns. Such laws or regulations could have a material adverse effect on our business, financial condition, and results of operations.

Our debt consists of borrowings under our revolving credit facility. Our indebtedness could, among other things: increase our vulnerability to general economic and industry conditions, including recessions; require us to use cash flow from operations to service our indebtedness, thereby reducing our ability to fund working capital, capital expenditures, research and development efforts and other expenses; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; place us at a competitive disadvantage compared to competitors that have less indebtedness; or limit our ability to borrow additional funds that may be needed to operate and expand our business. Moreover, an increase in interest rates could increase our interest expense.

Our revolving credit facility requires us to deliver quarterly financial statements, annual financial statements, auditors certifications and compliance certificates. Additionally, the revolving credit facility contains restrictions limiting our ability to: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; and repurchases stockrepurchase stock; or make dividend payments above a certain amount.

The restrictions contained in our credit facility could limit our ability to plan for or react to changes in market conditions or meet capital needs or could otherwise restrict our activities or business plans. These restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, fund investments or other capital needs or engage in other business activities that could be in our interest.

Further, our ability to comply with our loan covenants may be affected by events beyond our control that could result in an event of default under our credit facility, or documents governing any other existing or future indebtedness. A default, if not cured or waived, may permit acceleration of our indebtedness. In addition, our lenders could terminate their commitments to make further extensions of credit under our credit facility. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us, or at all.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo ("DRC") and adjoining countries. As a result, the SEC adopted annual disclosure and reporting requirements for those companies who may use conflict minerals mined from the DRC and adjoining countries in their products. There have been and will continue to be costs associated with complying with these disclosure requirements, including diligence costs to determine the sources of minerals used in our products and other potential changes to products, processes or sources of supply to the extent necessary as a consequence of such verification activities. These rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering conflict-free minerals, we cannot be sure that we will be able to obtain necessary conflict-free minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain conflict minerals or if we are unable to sufficiently verify the origins for all minerals used in our products through the procedures we may implement.

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. The identification of material weaknesses in internal control over financial reporting could indicate a lack of proper controls to generate accurate financial statements. Further, the effectiveness of our internal controls may be impacted if we are unable to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.

Natural disasters, such as storms, flooding and associated power outages, occurring at any of our locations or supplier locations may lead to disruption inof our manufacturing operations and supply chain, adversely impacting our capability to supply product to our customers. In some cases,the event of a natural disaster, it may not be possible for us to find an alternate manufacturing location for certain product lines, further impacting our capability to recover from such a disruption.

Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks by employing a number of measures - including employee training, comprehensive monitoring of our networks and systems, and maintenan]cemaintenance of backup and protective systems - our systems, networks and products remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. Additionally, any updates to or implementation of systems, including the selection and implementation of an ERP system, may cause delays or disruptions in our processes or production which could adversely affect our results.

As of February 24, 2017,22, 2019, we had manufacturing facilities, administrative, research and development and sales offices in the following locations:

(1) Ground lease through 2017;2026; restrictions on use and transfer apply.

We regularly assess the adequacy of our manufacturing 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. The extent of utilization varies from plant to plant and with general 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.

From time to time we are involved in litigation with respect to matters arising from the ordinary conduct of our business, and currently certain claims are pending against us. In the opinion of management, based upon presently available information, either adequate provision for anticipated costs have been accrued or the ultimate anticipated costs will not materially affect our consolidated financial position, results of operations, or cash flows.

See NOTE 9Note 10 "Contingencies" in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Our common stock is listed on the New York Stock Exchange under the symbol "CTS." On February 21, 2017,19, 2019, there were approximately 1,099962 shareholders of record.

The following graph shows a five-year comparison of the cumulative total shareholder return on CTS common stock with the cumulative total returns of a general market index and a peer group index (S&P 500 and Dow Jones Electrical Components & Equipment Industry Group). 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, 2011.2013.

Five-Year Summary

(Amounts in thousands, except percentages and per share amounts)

Overview

CTS Corporation ("CTS", "we", "our" or "us") is a leading designer and manufacturer of products that Sense, Connect and Move. Our vision is to be a leading provider of sensing and motion devices as well as connectivity components, enabling an intelligent and seamless world. These devices are categorized by their ability to Sense, Connect or Move. Sense products provide vital inputs to electronic systems. Connect products allow systems to function in synchronization with other systems. Move products ensure required movements are effectively and accurately executed. We are committed to achieving our vision by continuing to invest in the development of products and technologies within these categories.

We manufacture sensors, actuators, and electronic components and actuators in North America, Europe, and Asia, and supply themAsia. CTS provides engineered products to OEMs in the aerospace and distributors serving the transportation,defense, industrial, medical, information technology, defensemedical, telecommunications, and aerospace, and communicationstransportation markets.

There is an increasing proliferation of sensing and motion applications within various markets we serve. In addition, the increasing connectivity of various devices to the internet results in greater demand for communication bandwidth and data storage, increasing the need for our connectivity products. Our success is dependent on the ability to execute our strategy to support these trends. We are subject to challenges including periodic market softness, competition from other suppliers, changes in technology, and the ability to add new customers, launch new products or penetrate new markets.

(Amounts in thousands, except percentages and per share amounts):

The following table highlights changes in significant components of the Consolidated Statements of Earnings (Loss) for the quarters ended December 31, 2016,2018, and December 31, 2015:2017:

Sales of $101,584$120,073 in the fourth quarter of 20162018 increased $8,302$9,163 or 8.9%8.3% from the fourth quarter of 2015.2017. Sales to automotive end-marketstransportation markets increased $3,487. Higher sensor and actuator volumes were partially offset by an unfavorable foreign exchange impact.$5,163 or 7.2%. Sales to other end-marketsend markets increased $4,815 including sales from the single crystal acquisition.$4,000 or 10.2%. Changes in foreign exchange rates reduceddecreased sales by $1,049$880 year-over-year due to the U.S. Dollar appreciating compared to the Chinese Renminbi and Euro.

Gross margin as a percent of sales was 35.3%35.5% in the fourth quarter of 20162018 compared to 32.3%29.6% in the fourth quarter of 2015.2017. The pension settlement charge recorded in the fourth quarter of 2017 impacted gross margin unfavorably by $4,796 or 4.3%. The

increase in gross margin resulted from costwas primarily driven by savings from continued efficiency gains, material and labor productivity projects, savings from restructuring projects, favorable mix, andrelated to product line transfers associated with the addition of sales from the single crystal acquisition. In addition, foreign exchange rates had a favorable impact on manufacturing costs due to the strengthening of the U.S. Dollar compared to the Mexican Peso.

Selling, general and administrative expenses were $15,165$18,128 or 14.9%15.1% of sales in the fourth quarter of 20162018 versus $15,917$24,973 or 17.1%22.5% of sales in the comparable quarter of 2015.2017. The decrease is primarily attributable to timing of certain expenses. Thepension settlement charge recorded in the fourth quarter of 2016 includes added costs as a result of the single crystal acquisition, including amortization of intangibles.2017 impacted selling, general and administrative expenses unfavorably by $6,557 or 5.9%.

Research and development expenses were $5,626$5,804 or 5.5%4.8% of sales in the fourth quarter of 20162018 compared to $6,083$6,714, or 6.5%6.1% of sales, in the comparable quarter of 2015.2017. The decrease is related to timingpension settlement charge recorded in the fourth quarter of certain expenses.2017 impacted research and development expenses unfavorably by $2,062, or 1.9%. Research and development expenses are focused on expanded applications of existing products, new product development, and enhancements for current products and processes.

Restructuring and impairment charges were $1,698 in the fourth quarter of 2018. These charges were mainly for building and equipment relocation, severance, and travel costs related to the restructuring of certain operations as part of the June 2016 totaled $873 forRestructuring Plan. In the fourth quarter 2017, restructuring and impairment charges consisting of severance and other costs totaled $1,197, which were also in connection with our June 2016 restructuring plan. These costs in the fourth quarter 2015 totaled $9,335 and consisted of a non-cash charge for unamortized losses related to the windup of our U.K. pension plan in the amount of $8,280 and other costs incurred in connection with our previously announced 2013 and 2014 restructuring plans.Restructuring Plan.

Operating earnings were $14,146$17,017, or 13.9%14.2% of sales in the fourth quarter of 20162018, compared to $931an operating loss of $19, or 1.0%0.0% of sales, in the comparable quarter of 20152017 as a result of the items discussed above.

Other income and expense items are summarized in the following table:

The effective income tax rate for the fourth quarter of 20162018 was 26.9%, which includes(4.1)% compared to 9,493.8% in the impactfourth quarter of restructuring charges,2017. The tax rate in 2018 was impacted primarily by a discrete one-time items,rate change benefit related to the Tax Cuts and Jobs Act (“Tax Act”) resulting from the election of tax impact of non-recurring stock compensation changes, and adjustments to valuation allowances.accounting method changes. The effective income tax rate for the fourth quarter of 2015 was (1,910.8%), which included the impact of restructuring charges and one-time items. In the fourth quarter of 2015, we determined that as a result of changes in the business, the foreign earnings of our Canadian and U.K. subsidiaries were no longer permanently reinvested and a provision for the expected taxes on repatriation of those earnings was recorded. In addition, although we plan to permanently reinvest the earnings of our Chinese operations outside the U.S., we determined that we will not maintain those earnings in China in order to mitigate future currency risk. As a result of these changes, we recorded a tax expense of $7,461. We recorded additional discrete tax items related to valuation allowances, foreign earnings, and other discrete items in the fourth quarter of 2015, which increased income2017 was primarily related to the initial application of the Tax Act including the remeasurement of the net deferred tax expense by $4,912. Sinceassets from 35% to 21% and the shutdown of manufacturing facilities in the U.K. and Canada, we do not anticipate generating future profits in these countries. Therefore, the change in permanent reinvestment assertion for these two countries is not expected to have an ongoing impactone-time mandatory transition tax on the Company's effective tax rate. We continue to record tax expense for withholding taxes (currently 10%) onhistorical earnings of foreign affiliates, which resulted in China that are not anticipated to be maintained in China.a net non-cash charge of $18,001.

Net earnings were $8,310,was $17,564, or $0.25$0.52 per diluted share, in the fourth quarter of 20162018, compared to a net loss of $(13,653),$13,621, or $(0.42)$0.41 per diluted share, in the comparable quarter of 2015.2017.

(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, 2016,2018, and December 31, 2015:2017:

Sales of $396,679were $470,483 for the year ended December 31, 2016, increased $14,369,2018, an increase of $47,490, or 3.8%11.2% from 2015.2017. Sales to automotive end-marketstransportation markets increased $5,198. Higher sensor volumes were partially offset by an unfavorable foreign exchange impact.$24,873 or 9.0%. Sales to other end-marketsend markets increased $9,171 including the addition of$22,617 or 15.3%. The Noliac acquisition added $9,463 in sales from our single crystal acquisition. Sales of components for high-density disk drives ("HDD") declined 30% year-over-year.in 2018 and $7,084 in sales in 2017. Changes in foreign exchange rates reducedincreased sales by $2,746$3,238 year-over-year asdue to the U.S. Dollar appreciateddepreciating compared to the Chinese Renminbi and other currencies.Euro.

Gross margin as a percent of sales was 35.4%35.1% in 20162018 versus 33.2% in 2015.2017. The pension settlement charge recorded in the fourth quarter of 2017 impacted gross margin unfavorably by $4,796, or 1.1% of sales. The increase in gross margin resulted from costwas primarily driven by savings from continued efficiency gains, materialrelated to product line transfers and labor productivity projects, savings from restructuring projects, favorable mix, and the addition of sales from our single crystal acquisition. In addition, foreign exchange rates had a favorable impact on manufacturing costs primarily due to the strengthening of the U.S. Dollar against the Mexican Peso.foreign exchange rate movements which were partially offset by material cost increases.

Selling, general and administrative expenses were $61,624,$73,569, or 15.5%15.6% of sales for the year ended December 31, 2016,2018, versus $59,586$71,943 or 15.6%17.0% of sales in the comparable period of 2015. Expenses2017. The pension settlement charge recorded in 2016 include addedthe fourth quarter of 2017 impacted selling, general and administrative expenses unfavorably by $6,557 or 1.6% of sales. The increase includes higher stock-based compensation and ERP implementation costs as a result of our single crystalwell as incremental costs resulting from the Noliac acquisition in 2017, including amortization of intangibles. In addition, we paid an early termination fee related to a leased facility in Lisle, Illinois in anticipation of a move in the 2017/2018 time frame to another leased facility in the same area, which will consolidate the Bolingbrook and Lisle, Illinois sites into one facility and reduce ongoing expenses.

Research and development expenses were $24,040$25,304 or 6.1%5.4% of sales in 20162018 compared to $22,461$25,146 or 5.9% of sales in 2015.2017. The increase was related to continued investmentpension settlement charge recorded in new products to drive organic growththe fourth quarter of 2017 impacted research and development expenses from our single crystal acquisition.unfavorably by $2,062, or 0.5% of sales. Research and development expenses are focused on expanded applications of existing products, new product development, and enhancements for current products and processes.

A non-recurring environmental chargeRestructuring and impairment charges were $5,062 for year ended December 31, 2018. The charges were mainly for building and equipment relocation, severance, and travel costs related to the restructuring of $14,541certain operations as part of the 2016 Restructuring Plan. Restructuring charges were $4,139 in 2017.

The loss on sale of assets in 2017 was recordeddriven by a loss on the sale of vacant land at our Hopkinton, Massachusetts facility in September 2017.

(Amounts in thousands, except percentages and consisted largelyper share amounts):

The following table highlights changes in significant components of severance, production line movethe Consolidated Statements of Earnings for the years ended December 31, 2017, and legal costs in connection with the 2016 restructuring plan. Restructuring and impairment chargesDecember 31, 2016:

The effective income tax rate in 2017 was 64.1%, which was primarily due to a provisional one-time tax expense of $18,001 resulting from the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. The rate also reflects a decrease in the valuation allowance on certain non-U.S. losses as a result of changes in the expectation of our ability to utilize those losses and changes in the mix of earnings by jurisdiction. The effective income tax rate in 2016 was 39.9%, which includes the impact of restructuring charges, and one-time items. The tax rate in 2016 reflectsitems, an increase in valuation allowances recorded against certain state net operating losses and tax credits, and the revaluation of U.S. deferred taxes as a result of the June 2016 restructuring activities discussed in Note 7,8, "Costs Associated with Exit and Restructuring Activities", in this Annual Report on Form 10-K.. The rate also reflects an increase in the valuation allowance on certain non-U.S. losses as a result of changes in the expectation of our ability to utilize those losses, changes in the mix of earnings by jurisdiction, our decision to no longer permanently reinvest the earnings of our Canadian and U.K. subsidiaries, tax expense for withholding taxes on earnings in China that are not anticipated to be maintained in China, and various other discrete items. The effective income tax rate in 2015 was 43.3%, which included the impact of restructuring charges and one-time items. In 2015, we determined that as a result of changes in the business, the foreign earnings of our Canadian and U.K. subsidiaries were no longer permanently reinvested. Therefore, a provision for the expected taxes on repatriation of those earnings was recorded. In addition, although we plan to permanently reinvest the earnings of our Chinese operations outside the U.S., we have determined that we will not maintain those earnings in China in order to mitigate future currency risk. As a result of these changes, we recorded a tax expense of $7,461. We recorded a benefit of $16,305 related to a change in the treatment of foreign taxes for U.S. federal income tax purposes. We also recorded additional discrete tax items in 2015 which increased income tax expense by $10,157 related to uncertain tax positions on certain foreign taxes, valuation allowances, foreign earnings, and other discrete items.