UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM	10-Q

(Mark One)



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended~~September~~June 30, ~~2017~~

2020



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______________ to _______________

Commission File Number: 1-4639

CTS CORPORATION

(Exact name of registrant as specified in its charter)



~~Indiana~~IN		35-0225010
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)



4925 Indiana Avenue
~~2375 Cabot Drive,~~ Lisle	IL	60532
(Address of principal executive offices)		(Zip Code)

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



Registrant’s telephone number, including area code:	(630)	577-8800

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



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, without par value	CTS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No o¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒x No o¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filero		~~Accelerated filer~~ ☒	~~Non-accelerated~~Accelerated filer o☐	Non-accelerated filer o	Smaller reporting company o
	☐	Emerging growth company	~~(Do not check if smaller reporting company)~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso☐No☒ x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~October 23, 2017: 32,937,050.~~July 28, 2020: 32,267,524.

~~Table of Contents~~

CTS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Earnings (Unaudited) For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	3

	Condensed Consolidated Statements of Comprehensive ~~Income~~Earnings (Unaudited) For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	4

	Condensed Consolidated Balance Sheets As of ~~September~~June 30, ~~2017~~2020 (Unaudited) and December 31, ~~2016~~2019	5

	Condensed Consolidated Statements of Cash Flows (Unaudited) For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	6

	Condensed Consolidated Statements of Shareholder's Equity (Unaudited) For the Three and Six Months Ended June 30, 2020 and June 30, 2019	7

	Notes to Condensed Consolidated Financial Statements ‑ ~~(Unaudited~~(Unaudited))	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2632

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3441

Item 4.	Controls and Procedures	3441

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3441

Item 1A.	Risk Factors	3441

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3442

Item 6.	Exhibits	3542

SIGNATURES		3543

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OFEARNINGS- UNAUDITED

(In thousands, ~~of dollars,~~ except per share amounts)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,			September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Net sales	$	106,243		$	99,697		$	312,083		$	295,095		$	84,197		$	120,684		$	187,272		$	238,308
Cost of goods sold	68,705			63,056			204,527			190,528			57,630			79,480			127,806			156,490
Gross Margin	37,538			36,641			107,556			104,567			26,567			41,204			59,466			81,818
Selling, general and administrative expenses	15,915			16,048			46,970			46,459			14,668			17,036			31,427			34,597
Research and development expenses	6,380			6,284			18,432			18,414			5,522			6,257			12,930			13,048
Restructuring charges	1,435			1,969			2,942			2,175			135			911			375			2,995
Loss (gain) on sale of assets	697			(150		)	698			(11,501		)
Gain on sale of assets													—			(83		)	—			(122		)
Operating earnings	13,111			12,490			38,514			49,020			6,242			17,083			14,734			31,300
Other income (expense):
Other (expense) income:
Interest expense	(773		)	(917		)	(2,209		)	(2,746		)	(909		)	(467		)	(1,760		)	(933		)
Interest income	363			203			914			1,082			304			440			635			872
Other income (expense)	1,258			(46		)	2,889			(1,482		)
Total other income (expense)	848			(760		)	1,594			(3,146		)
Other income (expense), net													256			(1,107		)	(1,726		)	(1,010		)
Total other (expense), net													(349		)	(1,134		)	(2,851		)	(1,071		)
Earnings before income taxes	13,959			11,730			40,108			45,874			5,893			15,949			11,883			30,229
Income tax expense	4,340			8,010			12,039			19,804			1,036			4,006			3,218			6,867
Net earnings	$	9,619		$	3,720		$	28,069		$	26,070		$	4,857		$	11,943		$	8,665		$	23,362
Earnings per share:
Basic	$	0.29		$	0.11		$	0.85		$	0.80		$	0.15		$	0.36		$	0.27		$	0.71
Diluted	$	0.29		$	0.11		$	0.84		$	0.79		$	0.15		$	0.36		$	0.27		$	0.70

Basic weighted – average common shares outstanding:	32,935			32,759			32,876			32,716			32,262			32,799			32,364			32,803
Effect of dilutive securities	456			495			475			494			242			406			284			422
Diluted weighted – average common shares outstanding	33,391			33,254			33,351			33,210
Diluted weighted – average common shares outstanding:													32,504			33,205			32,648			33,225

Cash dividends declared per share	$	0.04		$	0.04		$	0.12		$	0.12		$	0.04		$	0.04		$	0.08		$	0.08

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~EARNINGS‑ UNAUDITED

(In thousands of dollars)


	Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,		September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017		2016			2020			2019			2020			2019
Net earnings	$	9,619		$	3,720		$	28,069	$	26,070		$	4,857		$	11,943		$	8,665		$	23,362
Other comprehensive income (loss):
Other comprehensive earnings (loss):
Changes in fair market value of derivatives, net of tax	(45		)	(263		)	563		(36		)	644			(294		)	(3,770		)	(216		)
Changes in unrealized pension cost, net of tax	936			898			2,694		2,753			1,209			1,026			2,494			2,048
Cumulative translation adjustment, net of tax	164			(164		)	452		(890		)	(14		)	(87		)	(153		)	4
Other comprehensive income	$	1,055		$	471		$	3,709	$	1,827
Other comprehensive earnings (loss)												$	1,839		$	645		$	(1,429	)	$	1,836
Comprehensive earnings	$	10,674		$	4,191		$	31,778	$	27,897		$	6,696		$	12,588		$	7,236		$	25,198

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)



	(Unaudited)
	June 30,			December 31,
	2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	145,981		$	100,241
Accounts receivable, net	59,798			78,008
Inventories, net	44,266			42,237
Other current assets	14,750			16,992
Total current assets	264,795			237,478
Property, plant and equipment, net	99,349			105,038
Operating lease assets, net	24,369			24,644
Other Assets
Prepaid pension asset	64,104			62,082
Goodwill	106,056			106,056
Other intangible assets, net	80,622			85,215
Deferred income taxes	21,278			19,795
Other	2,816			3,046
Total other assets	274,876			276,194
Total Assets	$	663,389		$	643,354
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	32,820		$	48,219
Operating lease obligations	3,051			2,787
Accrued payroll and benefits	8,725			9,564
Accrued expenses and other liabilities	33,175			36,378
Total current liabilities	77,771			96,948
Long-term debt	141,300			99,700
Long-term operating lease obligations	24,473			24,926
Long-term pension obligations	6,504			6,632
Deferred income taxes	6,303			5,637
Other long-term obligations	6,146			4,292
Total Liabilities	262,497			238,135
Commitments and Contingencies (Note 10)
Shareholders’ Equity
Common stock	310,953			307,932
Additional contributed capital	39,775			43,689
Retained earnings	515,841			509,766
Accumulated other comprehensive loss	(93,155		)	(91,726		)
Total shareholders’ equity before treasury stock	773,414			769,661
Treasury stock	(372,522		)	(364,442		)
Total shareholders’ equity	400,892			405,219
Total Liabilities and Shareholders’ Equity	$	663,389		$	643,354

(Unaudited)

September 30,
December 31,
2017
2016
ASSETS

Current Assets

Cash and cash equivalents $ 116,152

$ 113,805
Accounts receivable, net 64,861

62,612
Inventories, net 35,308

28,652
Other current assets 13,453

10,638
Total current assets 229,774

215,707
Property, plant and equipment, net 84,291

82,111
Other Assets

Prepaid pension asset 52,100

46,183
Goodwill 68,933

61,744
Other intangible assets, net 68,652

64,370
Deferred income taxes 37,850

45,839
Other 1,683

1,743
Total other assets 229,218

219,879
Total Assets $ 543,283

$ 517,697
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Short-term notes payable $ —

$ 1,006
Accounts payable 45,479

40,046
Accrued payroll and benefits 11,372

11,369
Accrued liabilities 43,991

45,708
Total current liabilities 100,842

98,129
Long-term debt 82,300

89,100
Post-retirement obligations 6,823

7,006
Other long-term obligations 6,709

5,580
Total Liabilities 196,674

199,815
Commitments and Contingencies (Note 9)

Shareholders’ Equity

Common stock 304,726

302,832
Additional contributed capital 39,525

40,521
Retained earnings 435,099

410,979
Accumulated other comprehensive loss (89,485 )
(93,194 )
Total shareholders’ equity before treasury stock 689,865

661,138
Treasury stock (343,256 )
(343,256 )
Total shareholders’ equity 346,609

317,882
Total Liabilities and Shareholders’ Equity $ 543,283

$ 517,697

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ‑ UNAUDITED

(In thousands of dollars)


	Nine Months Ended						Six Months Ended
	September 30,			September 30,			June 30,			June 30,
	2017			2016			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	28,069		$	26,070		$	8,665		$	23,362
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	15,061			14,010			13,143			11,919
Pension and other post-retirement plan income	(1,369		)	(1,188		)
Pension and other post-retirement plan expense							1,348			502
Stock-based compensation	2,514			1,759			1,045			2,793
Asset impairment charges							1,016			892
Deferred income taxes	6,777			8,332			(466		)	1,937
Loss (gain) on sales of fixed assets	698			(11,501		)
Loss (gain) on foreign currency hedges, net of cash	126			(15		)
Changes in assets and liabilities:
Gain on sales of fixed assets							—			(122		)
(Gain) loss on foreign currency hedges, net of cash							(133		)	88
Changes in assets and liabilities, net of acquisition:
Accounts receivable	202			(5,971		)	17,850			(5,394		)
Inventories	(4,335		)	(2,318		)	(2,328		)	360
Operating lease assets							275			(1,780		)
Other assets	(1,890		)	(489		)	1,460			(2,370		)
Accounts payable	3,234			2,717			(12,294		)	(1,582		)
Accrued payroll and benefits	(2,137		)	4,854			(512		)	(4,713		)
Accrued expenses	(915		)	(949		)
Accrued liabilities							(4,026		)	(3,622		)
Income taxes payable	226			690			(974		)	(588		)
Other liabilities	946			(1,543		)
Operating lease liabilities							(189		)	1,986
Accrued expenses and other liabilities							(26		)	660
Pension and other post-retirement plans	(240		)	(393		)	(130		)	(144		)
Net cash provided by operating activities	46,967			34,065			23,724			24,184
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(11,987		)	(14,467		)	(7,245		)	(9,430		)
Proceeds from sale of assets	485			12,248			—			122
Payments for acquisitions, net of cash acquired	(19,121		)	(73,063		)
Net cash used in investing activities	(30,623		)	(75,282		)	(7,245		)	(9,308		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt	(1,173,000		)	(2,048,000		)	(2,207,450		)	(309,100		)
Proceeds from borrowings of long-term debt	1,166,200			2,053,300			2,249,050			309,100
Payments of short-term notes payable	(1,150		)	—
Purchase of treasury stock							(8,080		)	(5,002		)
Dividends paid	(3,942		)	(3,923		)	(2,598		)	(2,625		)
Taxes paid on behalf of equity award participants	(1,571		)	(1,782		)	(1,903		)	(2,637		)
Net cash used in financing activities	(13,463		)	(405		)
Net cash provided by (used) in financing activities							29,019			(10,264		)
Effect of exchange rate changes on cash and cash equivalents	(534		)	(873		)	242			33
Net increase (decrease) in cash and cash equivalents	2,347			(42,495		)
Net increase in cash and cash equivalents							45,740			4,645
Cash and cash equivalents at beginning of period	113,805			156,928			100,241			100,933
Cash and cash equivalents at end of period	$	116,152		$	114,433		$	145,981		$	105,578
Supplemental cash flow information:
Cash paid for interest	$	1,606		$	2,292		$	1,442		$	574
Cash paid for income taxes, net	$	4,918		$	10,136		$	4,114		$	5,448
Non-cash financing and investing activities:
Capital expenditures incurred but not paid							$	1,158		$	4,807

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - UNAUDITED

(in thousands of dollars)

The following summarizes the changes in total equity for the three and six months ended June 30, 2020:



	Common Stock		Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Earnings/(Loss)			Treasury Stock			Total
Balances at December 31, 2019	$	307,932	$	43,689		$	509,766		$	(91,726	)	$	(364,442	)	$	405,219
Net earnings	—		—			3,808			—			—			3,808
Changes in fair market value of derivatives, net of tax	—		—			—			(4,414		)	—			(4,414		)
Changes in unrealized pension cost, net of tax	—		—			—			1,285			—			1,285
Cumulative translation adjustment, net of tax	—		—			—			(139		)	—			(139		)
Cash dividends of $0.04 per share	—		—			(1,298		)	—			—			(1,298		)
Acquired 220,731 shares of treasury stock	—		—			—			—			(5,304		)	(5,304		)
Issued shares on vesting of restricted stock units	2,166		(4,069		)	—			—			—			(1,903		)
Stock compensation	—		212			—			—			—			212
Balances at March 31, 2020	$	310,098	$	39,832		$	512,276		$	(94,994	)	$	(369,746	)	$	397,466
Net earnings	—		—			4,857			—			—			4,857
Changes in fair market value of derivatives, net of tax	—		—			—			644			—			644
Changes in unrealized pension cost, net of tax	—		—			—			1,209			—			1,209
Cumulative translation adjustment, net of tax	—		—			—			(14		)	—			(14		)
Cash dividends of $0.04 per share	—		—			(1,292		)	—			—			(1,292		)
Acquired 122,000 shares of treasury stock	—		—			—			—			(2,776		)	(2,776		)
Issued shares on vesting of restricted stock units	855		(855		)	—			—			—			—
Stock compensation	—		798			—			—			—			798
Balances at June 30, 2020	$	310,953	$	39,775		$	515,841		$	(93,155	)	$	(372,522	)	$	400,892

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - UNAUDITED

(in thousands of dollars)

The following summarizes the changes in total equity for the three and six months ended June 30, 2019:



	Common Stock		Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Earnings/(Loss)			Treasury Stock			Total
Balances at December 31, 2018	$	306,697	$	42,820		$	478,847		$	(97,739	)	$	(352,696	)	$	377,929
Net earnings	—		—			11,419			—			—			11,419
Changes in fair market value of derivatives, net of tax	—		—			—			78			—			78
Changes in unrealized pension cost, net of tax	—		—			—			1,022			—			1,022
Cumulative translation adjustment, net of tax	—		—			—			91			—			91
Cash dividends of $0.04 per share	—		—			(1,315		)	—			—			(1,315		)
Acquired 31,500 shares of treasury stock	—		—			—			—			(849		)	(849		)
Issued shares on vesting of restricted stock units	967		(3,603		)	—			—			—			(2,636		)
Stock compensation	—		1,154			—			—			—			1,154
Balances at March 31, 2019	$	307,664	$	40,371		$	488,951		$	(96,548	)	$	(353,545	)	$	386,893
Net earnings	—		—			11,943			—			—			11,943
Changes in fair market value of derivatives, net of tax	—		—			—			(294		)	—			(294		)
Changes in unrealized pension cost, net of tax	—		—			—			1,026			—			1,026
Cumulative translation adjustment, net of tax	—		—			—			(87		)	—			(87		)
Cash dividends of $0.04 per share	—		—			(1,309		)	—			—			(1,309		)
Acquired 148,466 shares of treasury stock	—		—			—			—			(4,153		)	(4,153		)
Issued shares on vesting of restricted stock units	111		(111		)	—			—			—			—
Stock compensation	—		1,526			—			—			—			1,526
Balances at June 30, 2019	$	307,775	$	41,786		$	499,585		$	(95,903	)	$	(357,698	)	$	395,545

See notes to unaudited condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(in thousands except for share and per share data)

~~September~~June 30, ~~2017~~2020

NOTE 1—Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by CTS Corporation (“CTS” "we", "our", "us" or the "Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, notes thereto, and other information included in the Company’s Annual Report on Form 10‑K for the year ended December 31, ~~2016.~~2019.

The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

~~Change in Estimate~~

~~Beginning in January 2017, we changed the method we use~~ Certain reclassifications have been made to calculate the service and interest cost components of net periodic benefit cost for our U.S. pension and other post-retirement benefit plans. Previously, we calculated the service and interest cost components using a single weighted-average discount rate derived from the yield curveprior year amounts to measure the benefit obligation at the beginning of the period. In 2017, we began using a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot-rates along the yield curveconform to the relevant projected cash flows. This approach better aligns each of the projected benefit cash flows to the corresponding spot rates on the yield curve, resulting in a more precise measurement of service and interest costs.current year presentation. The change in method will result in a decrease in the service and interest components of pension costs in 2017. Any decrease to these components as a result of adoption of this approach is equally offset by a decrease in the actuarial losses included in our accumulated other comprehensive loss, withreclassifications had no impact on ~~the measurement of the benefit obligation. This change is accounted for prospectively as a change in accounting estimate.~~previously reported net earnings.

~~Subsequent Events~~

~~We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date the consolidated financial statements are issued.~~

NOTE 2 – Revenue Recognition

The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle:

Identify the contract(s) with a customer

Identify the performance obligations

Determine the transaction price

Allocate the transaction price

Recognize revenue when the performance obligations are met

We recognize revenue when the performance obligations specified in our contracts have been satisfied, after considering the impact of variable consideration and other factors that may affect the transaction price. Our contracts normally contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract. We usually expect payment within 30 to 90 days from the shipping date, depending on our terms with the customer. None of our contracts as of June 30, 2020 contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as contract assets or liabilities. Contract assets will be reviewed for impairment when events or circumstances indicate that they may not be recoverable.

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the most likely amount method based on an analysis of historical experience and current facts and circumstances, which requires significant judgment. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

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Disaggregated Revenue

The following table presents revenues disaggregated by the major markets we serve:



	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Transportation	$	38,129	$	80,343	$	99,663	$	159,184
Industrial	20,213		19,500		41,056		37,656
Medical	13,038		8,973		22,408		18,639
Aerospace & Defense	9,373		6,988		18,378		14,511
Telecom & IT	3,444		4,880		5,767		8,318
Total	$	84,197	$	120,684	$	187,272	$	238,308

NOTE 23 – Accounts Receivable

The components of accounts receivable, net are as follows:



	As of
	June 30,			December 31,
	2020			2019
Accounts receivable, gross	$	60,425		$	78,269
Less: Allowance for credit losses	(627		)	(261		)
Accounts receivable, net	$	59,798		$	78,008

As of
September 30, December 31,
2017 2016
Accounts receivable, gross $ 65,237
$ 62,782
Less: Allowance for doubtful accounts (376 ) (170 )
Accounts receivable, net $ 64,861
$ 62,612

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NOTE 34 – Inventories

Inventories, net consist of the following:



	As of
	June 30,			December 31,
	2020			2019
Finished goods	$	8,937		$	9,447
Work-in-process	15,754			14,954
Raw materials	24,943			23,363
Less: Inventory reserves	(5,368		)	(5,527		)
Inventories, net	$	44,266		$	42,237

As of
September 30,
December 31,
2017 2016
Finished goods $ 8,255
$ 7,513
Work-in-process 12,789
9,596
Raw materials 21,383
17,680
Less: Inventory reserves (7,119 ) (6,137 )
Inventories, net $ 35,308
$ 28,652

NOTE 45 – Property, Plant and Equipment

Property, plant and equipment is comprised of the following:


	As of						As of
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2020			2019
Land	$	1,151		$	2,330
Land and land improvements							$	1,095		$	1,095
Buildings and improvements	65,830			63,621			68,424			68,350
Machinery and equipment	220,436			213,198			226,465			224,312
Less: Accumulated depreciation	(203,126		)	(197,038		)	(196,635		)	(188,719		)
Property, plant and equipment, net	$	84,291		$	82,111		$	99,349		$	105,038

Depreciation expense for the nine months ended September 30, 2017				$	10,201
Depreciation expense for the nine months ended September 30, 2016				$	9,755
Depreciation expense for the six months ended June 30, 2020										$	8,580
Depreciation expense for the six months ended June 30, 2019										$	8,537

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NOTE 56 – Retirement Plans

Pension Plans

Net pension ~~income~~expense for our domestic and foreign plans ~~was~~included in other income (expense) in the Condensed Consolidated Statement of Earnings is as follows:

Three Months Ended Nine Months Ended

September 30,
September 30,
September 30,
September 30,
2017 2016 2017 2016
Net pension income $ (492 ) $ (440 ) $ (1,416 ) $ (1,234 )



	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2020		2019		2020		2019
Net pension expense	$	666	$	249	$	1,330	$	499

The components of net pension ~~(income)~~ expense for our domestic and foreign plans include the following:


	Domestic Pension Plans						Foreign Pension Plans						Domestic Pension Plans						Foreign Pension Plans
	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	September 30,			September 30,			September 30,			September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Service cost	$	—		$	21		$	12		$	13		$	—		$	—		$	8		$	9
Interest cost	2,068			2,756			8			12			1,443			1,931			6			7
Expected return on plan assets (1)	(4,060		)	(4,744		)	(5		)	(33		)	(2,454		)	(3,047		)	(3		)	(4		)
Amortization of loss	1,446			1,499			39			36			1,622			1,311			44			42
(Income) expense, net	$	(546	)	$	(468	)	$	54		$	28
Total expense, net													$	611		$	195		$	55		$	54

(1) Expected return on plan assets is net of expected investment expenses and certain administrative expenses.

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	Domestic Pension Plans						Foreign Pension Plans						Domestic Pension Plans						Foreign Pension Plans
	Nine Months Ended						Nine Months Ended						Six Months Ended						Six Months Ended
	September 30,			September 30,			September 30,			September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Service cost	$	—		$	65		$	36		$	38		$	—		$	—		$	15		$	18
Interest cost	6,204			8,268			25			34			2,886			3,862			13			15
Expected return on plan assets (1)	(12,181		)	(14,232		)	(15		)	(19		)	(4,908		)	(6,094		)	(7		)	(9		)
Amortization of loss	4,338			4,495			116			105			3,244			2,623			87			84
Other cost due to retirement	61			12			—			—
(Income) expense, net	$	(1,578	)	$	(1,392	)	$	162		$	158
Total expense, net													$	1,222		$	391		$	108		$	108

(1) Expected return on plan assets is net of expected investment expenses and certain administrative expenses.

In February 2020, the CTS Board of Directors authorized management to explore termination of our U.S. based pension plan ("Plan") at management's discretion, subject to certain conditions. On June 1, 2020, we entered into the Fifth Amendment to the Plan whereby we set an effective termination date of July 31, 2020. The Plan termination process is expected to take twelve to eighteen months and requires certain approvals from both the Internal Revenue Service and Pension Benefit Guaranty Corporation. Once we receive such approvals, an insurance company will be selected to purchase annuities and fulfill the obligations of the Plan including administering payments to participants. Upon settlement of the pension liabilities, we will reclassify the related pension losses currently recorded in accumulated other comprehensive loss into earnings. We do not expect any cash contributions from the Company to the Plan as a result of this termination because plan assets exceed estimated liabilities.

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Other Post-retirement Benefit Plan

Net post-retirement expense for our other post-retirement plan includes the following components:



	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2020			2019			2020			2019
Service cost	$	—		$	1		$	—		$	1
Interest cost	30			43			60			85
Amortization of gain	(21		)	(42		)	(42		)	(83		)
Total expense, net	$	9		$	2		$	18		$	3

Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
2017 2016 2017 2016
Service cost $ —
$ —
$ 1
$ 2
Interest cost 41
52
121
156
Amortization of gain (25 ) (37 ) (75 ) (112 )
Post-retirement expense $ 16
$ 15
$ 47
$ 46

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NOTE 67 – Other Intangible Assets

~~Intangible~~Other intangible assets, net consist of the following components:


	As of							As of
	September 30, 2017							June 30, 2020
	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	64,323	$	(32,833	)	$	31,490	$	92,194	$	(41,370	)	$	50,824
Patents	10,319		(10,319		)	—
Technology and other intangibles	44,460		(9,498		)	34,962		47,925		(20,327		)	27,598
In process research and development	2,200		—			2,200		2,200		—			2,200
Other intangible assets, net	$	121,302	$	(52,650	)	$	68,652	$	142,319	$	(61,697	)	$	80,622
Amortization expense for the three months ended September 30, 2017			$	1,711
Amortization expense for the nine months ended September 30, 2017			$	4,860
Amortization expense for the three months ended June 30, 2020										$	2,268
Amortization expense for the six months ended June 30, 2020										$	4,563



	As of
	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	92,194	$	(38,682	)	$	53,512
Technology and other intangibles	47,925		(18,422		)	29,503
In process research and development	2,200		—			2,200
Other intangible assets, net	$	142,319	$	(57,104	)	$	85,215
Amortization expense for the three months ended June 30, 2019			$	1,692
Amortization expense for the six months ended June 30, 2019			$	3,382

Remaining amortization expense for other intangible assets as of June 30, 2020 is as follows:



	Amortization expense
2020	$	4,459
2021	8,893
2022	8,657
2023	6,651
2024	6,489
Thereafter	45,473
Total amortization expense	$	80,622

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As of
December 31, 2016
Gross
Carrying
Amount Accumulated
Amortization Net Amount
Customer lists/relationships $ 63,386
$ (30,318 ) $ 33,068
Patents 10,319
(10,319 ) —
Technology and other intangibles 36,715
(7,613 ) 29,102
In process research and development 2,200

—

2,200
Other intangible assets, net $ 112,620
$ (48,250 ) $ 64,370
Amortization expense for the three months ended September 30, 2016
$ 1,638

Amortization expense for the nine months ended September 30, 2016
$ 4,254

~~Amortization expense remaining for other intangible assets is as follows:~~

Amortization
expense
2017 $ 1,708
2018 6,763
2019 6,754
2020 6,624
2021 6,467
Thereafter 40,336
Total amortization expense $ 68,652

NOTE 78 – Costs Associated with Exit and Restructuring Activities

~~Costs associated with exit and restructuring activities~~Restructuring charges are ~~recorded~~reported as a separate line within operating earnings in the Condensed Consolidated Statement of ~~Earnings as a separate component of Operating earnings.~~Earnings.

Total restructuring charges ~~all related to the June 2016 Plan described below, were~~are as follows:

Three Months Ended
September 30, 2017 September 30, 2016
Restructuring charges $ 1,435
$ 1,969



	Three Months Ended
	June 30, 2020		June 30, 2019
Restructuring charges	$	135	$	911



	Six Months Ended
	June 30, 2020		June 30, 2019
Restructuring charges	$	375	$	2,995

Nine Months Ended
September 30, 2017
September 30, 2016
Restructuring charges $ 2,942

$ 2,175

2016 Plan

In June 2016, we announced plans to restructure operations by phasing out production at our Elkhart, IN facility ~~by mid-2018~~ and transitioning it into a research and development center supporting our global operations ("June 2016 Plan"). Additional organizational changes ~~will~~were also ~~occur~~implemented in various other locations. ~~During the third quarter of~~In 2017, we revised ~~the June 2016 Plan. The amendment added~~this plan to include an additional $1,100 in planned costs related to the relocation of our corporate headquarters in Lisle, IL and our plant in Bolingbrook, IL, both of which ~~will be~~have now been consolidated into a single facility. ~~The amendment does not impact any additional employees. The total cost of~~Restructuring charges under this plan, which is substantially complete, were $0 and $911 during the three months ended June 30, 2020 and June 30, 2019, respectively. Restructuring charges under this plan ~~is expected to be approximately $13,400~~were $(32) and ~~will impact approximately 230 employees.~~$2,995 during the six months ended June 30, 2020 and June 30, 2019, respectively. The total restructuring liability related to ~~severance and other one-time benefit arrangements under~~ the June 2016 Plan was ~~$1,546~~$48 at ~~September~~June 30, ~~2017,~~2020 and ~~$1,739~~$233 at December 31, ~~2016.~~2019. Additional costs related to production line movements, equipment charges, and other costs will be expensed as incurred.

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The following table displays the planned restructuring charges associated with the June 2016 Plan as well as a summary of the actual costs incurred through ~~September~~June 30, ~~2017:~~2020:



			Actual costs
	Planned		incurred through
June 2016 Plan	Costs		June 30, 2020
Workforce reduction	$	3,075	$	3,312
Building and equipment relocation	9,025		10,530
Other charges⁽¹⁾	1,300		2,156
Total restructuring charges	$	13,400	$	15,998

Actual costs
Planned
incurred through
June 2016 Plan Costs
September 30, 2017
Workforce reduction $ 3,075

$ 2,895
Building and equipment relocation 9,025

2,584
Other charges 1,300

511
Total restructuring charges $ 13,400

$ 5,990
(1) Other charges includes the effects of currency translation, non-cash asset write-downs and other charges.

2014 Plan

In April 2014, we announced plans to restructure our operations and consolidate our Canadian operations into other existing facilities as part of our overall plan to simplify ~~its~~our business model and rationalize our global footprint (“April 2014 Plan”). These restructuring actions ~~which~~ were completed in 2015. Restructuring charges associated with this plan were $(248) for the three and six months ended June 30, 2019. There were no restructuring charges incurred under this plan during ~~2015, impacted approximately 120 positions.~~the three or six months ended June 30, 2020. The ~~remaining~~total restructuring liability related to the April 2014 Plan was ~~$461~~$672 at ~~September~~June 30, ~~2017,~~2020, and ~~$423~~$703 at December 31, ~~2016.~~2019.

Other Restructuring Activities

From time to time we incur other restructuring activities that are not part of a formal plan. During the three and six months ended June 30, 2020, we incurred restructuring charges of $135 and $407, respectively, primarily relating to workforce reduction actions taken during the quarter. There were no such charges incurred during the three and six months ended June 30, 2019. The total remaining restructuring liability associated with these actions was $183 at June 30, 2020 and $1,057 at December 31, 2019.

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The following table displays the restructuring liability activity included in Accrued expenses and other liabilities for all plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:

Combined Plans
Restructuring liability at January 1, 2017 $ 2,162
Restructuring charges 2,942
Cost paid (3,162 )
Other activity (1)
65
Restructuring liability at September 30, 2017 $ 2,007



Restructuring liability at January 1, 2020	$	1,993
Restructuring charges	375
Cost paid	(1,039		)
Other activity⁽¹⁾	(426		)
Restructuring liability at June 30, 2020	$	903

(1) Other activity includes the effects of currency translation, non-cash asset write-downs and other charges that do not flow through restructuring expense.

NOTE 89 – Accrued Liabilities

The components of ~~accrued~~Accrued expenses and other liabilities are as follows:



	As of
	June 30,		December 31,
	2020		2019
Accrued product related costs	$	3,090	$	2,950
Accrued income taxes	6,921		7,903
Accrued property and other taxes	1,948		1,574
Accrued professional fees	903		1,599
Accrued customer related liabilities	3,673		4,391
Dividends payable	1,291		1,299
Remediation reserves	9,300		11,444
Derivative liabilities	2,220		—
Other accrued liabilities	3,829		5,218
Total accrued expenses and other liabilities	$	33,175	$	36,378

As of
September 30, December 31,
2017 2016
Accrued product related costs $ 4,681
$ 5,556
Accrued income taxes 10,157
9,826
Accrued property and other taxes 2,435
1,917
Accrued professional fees 1,687
1,633
Dividends payable 1,317
1,309
Remediation reserves 17,633
18,176
Other accrued liabilities 6,081
7,291
Total accrued liabilities $ 43,991
$ 45,708

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NOTE 910 – Commitments and Contingencies

Certain processes in the manufacture of our current and past products create by-products classified as hazardous waste. 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 may be potentially liable for environmental contamination at several sites currently and formerly owned or operated by us. ~~Some~~Two of those sites, ~~such as~~ Asheville, North Carolina and Mountain View, California, are designated National Priorities List sites under the U.S. Environmental Protection Agency’s Superfund program. We ~~reserve~~accrue a liability for probable remediation activities, ~~and for~~ claims and proceedings against us with respect to ~~other~~ environmental ~~matters. We record reserves on an undiscounted basis. In~~matters if the ~~opinion~~amount can be reasonably estimated, and provide disclosures including the nature of management, based upon presently available information relating to such matters, adequate provision for probable and estimable costs have been recorded. We do not have any known environmental obligations where a loss whenever it is probable or reasonably possible that a potentially material loss may have occurred but cannot be estimated. We record contingent loss accruals on an undiscounted basis.

A roll-forward of ~~occurring for which we do not have a reserve, nor do we have any amounts for which~~

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~~we have not reserved because~~remediation reserves included in Accrued expenses and other liabilities on the ~~amount~~Condensed Consolidated Balance Sheets is comprised of the following:



	As of
	June 30, 2020			December 31, 2019
Balance at beginning of period	$	11,444		$	11,274
Remediation expense	791			2,602
Net remediation payments	(2,956		)	(2,455		)
Other activity⁽¹⁾	21			23
Balance at end of the period	$	9,300		$	11,444

⁽¹⁾Other activity includes currency translation adjustments not recorded through remediation expense.

Unrelated to the environmental claims described above, certain other legal claims are pending against us with respect to matters arising out of the ordinary conduct of our business.

We provide product warranties when we sell our products and accrue for estimated liabilities at the time of sale. Warranty estimates are forecasts based on the best available information and historical claims experience. We accrue for specific warranty claims if we believe that the facts of a specific claim make it probable that a liability in excess of our historical experience has been incurred, and provide disclosures for specific claims whenever it is reasonably possible that a material loss may be incurred which cannot be ~~reasonably~~ estimated. ~~Due to the inherent nature of environmental obligations, we~~

We cannot provide assurance that ~~our~~the ultimate disposition of environmental, ~~liability~~legal, and product warranty claims will not materially exceed the amount of ~~its current reserve.~~our accrued losses and adversely impact our consolidated financial position, results of operations, or cash flows. Our ~~reserve~~accrued liabilities and disclosures will be adjusted accordingly if additional information becomes available in the future.

~~A roll forward of remediation reserves included in accrued liabilities on the balance sheet is comprised of the following:~~

As of

September 30, 2017
December 31, 2016
Balance at beginning of period $ 18,176

$ 20,603
Remediation expense 299

556
Net remediation reimbursements (payments) (842 )
(2,983 )
Balance at end of the period $ 17,633

$ 18,176

During the second quarter of 2017 we received a reimbursement of remediation costs under a cost-allocation agreement that we entered into with an unrelated party in the amount of $811. This reimbursement has been reflected in the net remediation reimbursements above.

Unrelated to the environmental claims described above, certain other claims are pending against us with respect to matters arising in the ordinary conduct of our business. Although the ultimate outcome of any potential litigation resulting from these claims cannot be predicted with certainty, and some may be disposed of unfavorably to us, we believe that adequate provision for anticipated costs have been established based upon all presently available information. Except as noted herein, we do not believe we have any pending loss contingencies that are probable or reasonably possible of having a material impact on our consolidated financial position, results of operations, or cash flows.

NOTE 1011 - Debt

Long-term debt was comprised of the following:



	As of
	June 30,			December 31,
	2020			2019
Total credit facility	$	300,000		$	300,000
Balance outstanding	141,300			99,700
Standby letters of credit	1,740			1,800
Amount available, subject to covenant restrictions	$	157,000		$	198,500
Weighted-average interest rate	2.17		%	3.25		%
Commitment fee percentage per annum	0.25		%	0.23		%

As of
September 30,
December 31,
2017 2016
Revolving credit facility due in 2020 $ 82,300
$ 89,100
Weighted average interest rate 2.3 % 1.9 %
Amount available $ 215,635
$ 208,735
Total credit facility $ 300,000
$ 300,000
Standby letters of credit $ 2,065
$ 2,165
Commitment fee percentage per annum 0.25 % 0.25 %

On ~~August 10, 2015,~~February 12, 2019, we entered into ~~a new~~an amended and restated five-year ~~credit agreement (“Revolving~~ Credit ~~Facility”)~~Agreement with a group of banks ~~in order~~(the "Credit Agreement") to ~~support our financing needs.~~extend the term of the facility. The ~~Revolving~~ Credit ~~Facility originally provided~~Agreement provides for a ~~credit line of $200,000. On May 23, 2016, we requested and received a $100,000 increase in the aggregate~~ revolving credit ~~commitments~~facility of $300,000, which may be increased by $150,000 at the request of the Company, subject to the administrative agent's approval. This unsecured credit facility replaces the prior $300,000 unsecured credit facility, which would have expired August 10, 2020. Borrowings of $50,000 under the ~~existing~~prior credit agreement ~~which increased~~were refinanced into the ~~credit line from $200,000 to $300,000.~~ Credit Agreement.

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The ~~Revolving Credit Facility~~revolving credit facility includes a swing line sublimit of $15,000 and a letter of credit sublimit of $10,000. Borrowings under the Revolving Credit Facility bear interest at ~~our option, at~~ the base rate ~~plus~~defined in the ~~applicable margin for base rate loans or LIBOR plus the applicable margin for LIBOR loans.~~Credit Agreement. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.20% to ~~0.40%~~0.30% based on ~~the~~ our total leverage ratio.

The ~~Revolving~~ Credit ~~Facility~~Agreement requires, among other things, that we comply with a maximum total leverage ratio and a minimum fixed charge coverage ratio. Failure to comply with these covenants could reduce the borrowing availability under the ~~Revolving Credit Facility.~~credit facility. We were in compliance with all debt covenants at ~~September~~June 30, ~~2017.~~2020. The ~~Revolving~~ Credit ~~Facility~~Agreement requires that we deliver quarterly financial statements, annual financial statements, auditor certifications, and compliance certificates within a specified number of days after the end of a quarter and year. Additionally, ~~the Revolving Credit Facility~~it 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 make stock repurchases and dividend payments. Interest rates on the

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~~Revolving Credit Facility~~ credit facility fluctuate based upon the ~~London Interbank Offered Rate~~LIBOR and the Company’s quarterly total leverage ratio.

We have debt issuance costs related to our long-term debt that isare being amortized using the straight-line method over the life of the debt. Amortization expense for the three and six months ended June 30, 2020 and 2019 was approximately $42 and $41 and $84 and $77, respectively. These costs are included in interest expense in our Condensed Consolidated Statement of Earnings. ~~Amortization expense was approximately $46 for both~~

We use interest rate swaps to convert the ~~three months ended September 30, 2017~~revolving credit facility's variable rate of interest into a fixed rate on a portion of the debt as described more fully in Note 12 "Derivative Financial Instruments". These swaps are treated as cash flow hedges and ~~September 30, 2016, respectively, and approximately $139~~ ~~and $116 for~~consequently, the ~~nine months ended September 30, 2017 and September 30, 2016, respectively.~~ changes in fair value were recorded in other comprehensive earnings.

Note 1112 - Derivative Financial Instruments

Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We selectively use derivative financial instruments including foreign currency forward contracts and interest rate swaps to manage our exposure to these risks.

The use of derivative financial instruments exposes the Company to credit risk, which relates to the risk of nonperformance by a counterparty to the derivative contracts. We manage our credit risk by entering into derivative contracts with only highly rated financial institutions and by using netting agreements.

The effective portion of derivative gains and losses are recorded in accumulated other comprehensive (loss) income until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. If it is probable that an anticipated hedged transaction will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive (loss) income to other income (expense).

We assess hedge effectiveness qualitatively by verifying that the critical terms of the hedging instrument and the forecasted transaction continue to match, and that there have been no adverse developments that have increased the risk that the counterparty will default. In accordance with FASB Staff Q&A - Topic 815: Cash Flow Hedge Accounting Affected by the COVID-19 Pandemic (“FASB Staff Q&A Hedge”) issued in April 2020, companies may elect to assess the ineffectiveness of our cashflow hedges utilizing the two-month grace period for assessing whether forecasted transactions will occur. We have made this election in assessing the effectiveness of our cash flow hedges during the three months ended June 30, 2020.

Foreign Currency Hedges

~~In January of 2016, we began using~~

We use forward contracts to mitigate currency risk related to a portion of our forecasted foreign currency revenues and costs. The currency forward contracts are designed as cash flow hedges and are recorded in the Condensed Consolidated Balance Sheets at fair value. At least quarterly, we assess the effectiveness of these hedging relationships based on the total change in their fair value using regression analysis. The effective portion of derivative gains and losses are recorded in accumulated other comprehensive income (loss) until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. Ineffectiveness is recorded in other income (expense) in our Condensed Consolidated Statement of Earnings. If it becomes probable that an anticipated transaction that is hedged will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive income (loss) to other income (expense).

We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At ~~September~~June 30, ~~2017,~~2020, we had a net unrealized loss of $1,247 in accumulated other comprehensive (loss) income, of which $1,037 is expected to be reclassified to earnings within the next 12 months. At June 30, 2019 we had a net unrealized gain of ~~$350~~$784 in accumulated other comprehensive ~~income, all of which is expected to be reclassified to income within the next 12 months. At September 30, 2016 we had a net unrealized loss of $219 in accumulated other comprehensive income~~ (loss). income. The notional amount of foreign currency forward contracts outstanding was ~~$29.5 million~~$24,434 at ~~September~~June 30, ~~2017.~~2020.

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Interest Rate Swaps

We use interest rate swaps to convert ~~the~~a portion of our revolving credit facility’s outstanding balance from a variable rate of interest ~~into~~to a fixed rate. ~~In the second quarter~~As of ~~2012, CTS entered into four separate interest rate swap~~June 30, 2020, we have agreements to fix interest rates on $50,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2012, we entered into four additional interest rate swap agreements to fix interest rates on $25,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2016, we entered into three additional forward-starting interest rate swap agreements to fix interest rates on $50,000 of long-term debt for the periods August 2017 to August 2020.through February 2024. The difference to be paid or received under the terms of the swap agreements will be recognized as an adjustment to interest expense when settled.

These swaps are treated as cash flow hedges and consequently, the changes in fair value ~~were~~are recorded in other comprehensive ~~income~~ (loss). income. The estimated net amount of the existing ~~gains or~~ losses that are reported in accumulated other comprehensive (loss) income ~~(loss)~~ that isare expected to be reclassified into earnings within the next twelve months is approximately ~~$156.~~$505.

The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017,~~2020, are shown in the following table:



	As of
	June 30,			December 31,
	2020			2019
Interest rate swaps reported in Other current assets	$	—		$	82
Interest rate swaps reported in Accrued liabilities	$	(656	)	$	—
Interest rate swaps reported in Other long-term obligations	$	(1,959	)	$	(78	)
Foreign currency hedges reported in Other current assets	$	—		$	580
Foreign currency hedges reported in Accrued liabilities	$	(1,564	)	$	—

~~Table of Contents~~

As of

September 30, December 31,
2017 2016
Foreign currency hedges reported in Accrued liabilities $ —
$ 601
Foreign currency hedges reported in Other current assets $ 260

$ —
Interest rate swaps reported in Other current assets $ 156

$ 2
Interest rate swaps reported in Other assets $ 494

$ 751

The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 ~~(Balance~~(Balance Sheet, ~~Offsetting)~~Offsetting). On a gross basis, there were foreign currency derivative assets of ~~$616~~$57 and foreign currency derivative liabilities of ~~$356.~~$1,621 at June 30, 2020.

The effect of derivative instruments on the Condensed Consolidated Statements of Earnings is as follows:



	Three Months Ended					Six Months Ended
	June 30,			June 30,		June 30,			June 30,
	2020			2019		2020			2019
Foreign Exchange Contracts:
Amounts reclassified from AOCI to earnings:
Net sales	$	73		$	—	$	73		$	—
Cost of goods sold	(519		)	233		(271		)	276
Selling, general and administrative expense	—			23		(5		)	39
Total (loss) gain reclassified from AOCI to earnings	(446		)	256		(203		)	315
Gain recognized in other expense for hedge ineffectiveness	3			—		3			—
Total derivative (loss) gain on foreign exchange contracts recognized in earnings	$	(443	)	$	256	$	(200	)	$	315

Interest Rate Swaps:
(Expense) benefit recorded in Interest expense	$	(109	)	$	156	$	(71	)	$	313
Total (losses) gains on derivatives	$	(552	)	$	412	$	(271	)	$	628

Three Months Ended Nine Months Ended
September 30, September 30, September 30,
September 30,
2017
2016 2017
2016
Foreign Exchange Contracts:
Loss recognized in Net Sales $ (194 ) $ (35 ) $ (253 ) $ (125 )
Gain recognized in Cost of Goods Sold 268
51
182
139
Gain recognized in Selling, General and Administrative expense 21
—
31
10
Loss recognized in Other (expenses) income (2 ) (5 ) (11 ) (9 )

Interest Rate Swaps:

Benefit recorded in Interest Expense $ 12
$ 158
$ 12
$ 471
Total gain / (loss) $ 105
$ 169
$ (39 ) $ 486

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NOTE 1213 – Accumulated Other Comprehensive (Loss) Income

Shareholders’ equity includes certain items classified as accumulated other comprehensive (loss) income (“AOCI”) in the Condensed Consolidated Balance Sheets, including:

•

Unrealized gains (losses) on hedges relate to 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 used to hedge our exposure to changes in exchange rates affecting certain revenues and costs denominated in foreign currencies. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transactions occur, at which time amounts are reclassified into earnings. Further information related to our derivative financial instruments is included in Note 12 - Derivative Financial Instruments and Note 16 – Fair Value Measurements.


•	Unrealized gains (losses) on pension obligations are deferred from income statement recognition until the gains or losses are realized. Amounts reclassified to income from AOCI are included in net periodic pension income (expense). Further information related to our pension obligations is included in Note 6 – Retirement Plans.

•

Cumulative translation adjustments relate to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income.

~~Unrealized gains (losses) on hedges~~ relate to interest rate swaps to convert the revolving credit facility's variable rate of interest into a fixed rate and foreign currency forward contracts used to hedge our exposure to changes in exchange rates affecting certain revenues and costs denominated in foreign currencies. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transactions occur, at which time amounts are reclassified into earnings. Further information related to CTS’ derivative financial instruments is included in Note 11 - Derivative Financial Instruments and Note 15 – Fair Value Measurements.

~~Unrealized gains (losses) on pension obligations~~ are deferred from income statement recognition until the gains or losses are realized. Amounts reclassified to income from AOCI are included in net periodic pension income / (expense). Further information related to our pension obligations is included in Note 5 – Retirement Plans.

~~Cumulative translation adjustments~~ relate to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive (loss) income.

Changes in exchange rates between the functional currency and the currency in which a transaction is denominated are foreign exchange transaction gains or losses. Transaction gains (losses) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were ~~$960~~$892 and ~~$2,517,~~$(379), respectively and transaction losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019 were ~~$165~~$829 and ~~$1,656,~~$355, respectively,

which have been included in other income (expense) in the Condensed Consolidated Statement of Earnings.

~~Table of Contents~~

The components of accumulated other comprehensive (loss) income for the three months ended ~~September~~June 30, ~~2017,~~2020, are as follows:


							Gain (Loss)												Loss
	As of			Gain (Loss)			Reclassified			As of			As of			Gain (Loss)			Reclassified			As of
	June 30,			Recognized			from AOCI			September 30,			March 31,			Recognized			from AOCI			June 30,
	2017			in OCI			to Income			2017			2020			in OCI			to Income			2020
Changes in fair market value of hedges:
Gross	$	1,070		$	37		$	(108	)	$	999		$	(5,044	)	$	250		$	555		$	(4,239	)
Income tax (benefit) expense	(388		)	(14		)	40			(362		)
Income tax benefit (expense)													1,139			(44		)	(117		)	978
Net	682			23			(68		)	637			(3,905		)	206			438			(3,261		)

Changes in unrealized pension cost:
Gross	(148,856		)	—			1,458			(147,398		)	(122,480		)	—			1,574			(120,906		)
Income tax expense (benefit)	59,668			—			(522		)	59,146
Income tax benefit (expense)													33,643			—			(365		)	33,278
Net	(89,188		)	—			936			(88,252		)	(88,837		)	—			1,209			(87,628		)

Cumulative translation adjustment:
Gross	(2,132		)	161			—			(1,971		)	(2,252		)	(14		)	—			(2,266		)
Income tax expense	98			3			—			101
Income tax benefit													—			—			—			—
Net	(2,034		)	164			—			(1,870		)	(2,252		)	(14		)	—			(2,266		)
Total accumulated other comprehensive (loss) income	$	(90,540	)	$	187		$	868		$	(89,485	)	$	(94,994	)	$	192		$	1,647		$	(93,155	)

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The components of accumulated other comprehensive (loss) income for the three months ended ~~September~~June 30, ~~2016,~~2019, are as follows:



							(Gain) Loss
	As of			Gain (Loss)			Reclassified			As of
	March 31,			Recognized			from AOCI			June 30,
	2019			in OCI			to Income			2019
Changes in fair market value of hedges:
Gross	$	1,416		$	32		$	(412	)	$	1,036
Income tax (expense) benefit	(320		)	(7		)	93			(234		)
Net	1,096			25			(319		)	802

Changes in unrealized pension cost:
Gross	(131,135		)	—			1,325			(129,810		)
Income tax benefit (expense)	35,596			—			(299		)	35,297
Net	(95,539		)	—			1,026			(94,513		)

Cumulative translation adjustment:
Gross	(2,203		)	(84		)	—			(2,287		)
Income tax benefit (expense)	98			(3		)	—			95
Net	(2,105		)	(87		)	—			(2,192		)
Total accumulated other comprehensive (loss) income	$	(96,548	)	$	(62	)	$	707		$	(95,903	)

The components of accumulated other comprehensive (loss) income for the six months ended June 30, 2020, are as follows:


							Gain (Loss)												Loss
	As of			Gain (Loss)			Reclassified			As of			As of			Loss			Reclassified			As of
	June 30,			Recognized			from AOCI			September 30,			December 31,			Recognized			from AOCI			June 30,
	2016			in OCI			to Income			2016			2019			in OCI			to Income			2020
Changes in fair market value of hedges:
Gross	$	(403	)	$	(643	)	$	221		$	(825	)	$	659		$	(5,172	)	274			$	(4,239	)
Income tax expense (benefit)	151			242			(83		)	310
Income tax (expense) benefit													(150		)	1,181			(53		)	978
Net	(252		)	(401		)	138			(515		)	509			(3,991		)	221			(3,261		)

Changes in unrealized pension cost:
Gross	(158,763		)	—			1,437			(157,326		)	(124,140		)	—			3,234			(120,906		)
Income tax expense (benefit)	63,260			—			(539		)	62,721
Income tax benefit (expense)													34,018			—			(740		)	33,278
Net	(95,503		)	—			898			(94,605		)	(90,122		)	—			2,494			(87,628		)

Cumulative translation adjustment:
Gross	(1,995		)	(161		)	—			(2,156		)	(2,211		)	(55		)	—			(2,266		)
Income tax expense (benefit)	101			(3		)	—			98
Income tax benefit (expense)													98			(98		)	—			—
Net	(1,894		)	(164		)	—			(2,058		)	(2,113		)	(153		)	—			(2,266		)
Total accumulated other comprehensive (loss) income	$	(97,649	)	$	(565	)	$	1,036		$	(97,178	)	$	(91,726	)	$	(4,144	)	$	2,715		$	(93,155	)

1520

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The components of accumulated other comprehensive (loss) income for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, are as follows:



							Loss
	As of			Gain			Reclassified			As of
	December 31,			Recognized			from AOCI			June 30,
	2018			in OCI			to Income			2019
Changes in fair market value of hedges:
Gross	$	1,316		$	348		$	(628	)	$	1,036
Income tax (expense) benefit	(298		)	(78		)	142			(234		)
Net	1,018			270			486			802

Changes in unrealized pension cost:
Gross	(132,454		)	—			2,644			(129,810		)
Income tax benefit (expense)	35,893			—			(596		)	35,297
Net	(96,561		)	—			2,048			(94,513		)

Cumulative translation adjustment:
Gross	(2,291		)	4			—			(2,287		)
Income tax benefit	95			—			—			95
Net	(2,196		)	4			—			(2,192		)
Total accumulated other comprehensive (loss) income	$	(97,739	)	$	274		$	1,562		$	(95,903	)

Gain (Loss)
As of Gain (Loss) reclassified As of
December 31, Recognized from AOCI September 30,
2016 in OCI to income 2017
Changes in fair market value of hedges:
Gross $ 116
$ 856
$ 27
$ 999
Income tax benefit (42 ) (311 ) (9 ) (362 )
Net 74
545
18
637

Changes in unrealized pension cost:
Gross (151,618 ) —
4,220
(147,398 )
Income tax expense (benefit) 60,672
—
(1,526 ) 59,146
Net (90,946 ) —
2,694
(88,252 )

Cumulative translation adjustment:

Gross (2,414 ) 443
—
(1,971 )
Income tax expense 92
9
—
101
Net (2,322 ) 452
—
(1,870 )
Total accumulated other comprehensive (loss) income $ (93,194 ) $ 997
$ 2,712
$ (89,485 )

~~The components of accumulated other comprehensive (loss) income for the nine months ended September 30, 2016, are as follows:~~

Gain (Loss)
As of Gain (Loss) reclassified As of
December 31, Recognized from AOCI September 30,

2015 in OCI to income 2016
Changes in fair market value of hedges:
Gross $ (768 ) $ (742 ) $ 685
$ (825 )
Income tax expense (benefit) 289
278
(257 ) 310
Net (479 ) (464 ) 428
(515 )

Changes in unrealized pension cost:
Gross (161,719 ) —
4,393
(157,326 )
Income tax expense (benefit) 64,361
—
(1,640 ) 62,721
Net (97,358 ) —
2,753
(94,605 )

Cumulative translation adjustment:

Gross (1,279 ) (877 ) —
(2,156 )
Income tax expense (benefit) 111
(13 ) —
98
Net (1,168 ) (890 ) —
(2,058 )
Total accumulated other comprehensive (loss) income $ (99,005 ) $ (1,354 ) $ 3,181
$ (97,178 )

1621

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NOTE 1314 – Shareholders’ Equity

Share count and par value data related to shareholders’ equity are as follows:



	As of
	June 30,	December 31,
	2020	2019
Preferred Stock
Par value per share	No par value	No par value
Shares authorized	25,000,000	25,000,000
Shares outstanding	—	—
Common Stock
Par value per share	No par value	No par value
Shares authorized	75,000,000	75,000,000
Shares issued	57,066,930	56,929,298
Shares outstanding	32,267,307	32,472,406
Treasury stock
Shares held	24,799,623	24,456,892

As of
September 30,
December 31,
2017 2016
Preferred Stock
Par value per share No par value
No par value
Shares authorized 25,000,000
25,000,000
Shares outstanding —
—
Common Stock
Par value per share No par value
No par value
Shares authorized 75,000,000
75,000,000
Shares issued 56,631,072
56,456,516
Shares outstanding 32,937,050
32,762,494
Treasury stock
Shares held 23,694,022
23,694,022

~~No common~~On February 7, 2019, the Board of Directors authorized a new stock ~~repurchases were made during the nine months ended September 30, 2017. Through September 30, 2017, we had purchased an aggregate~~repurchase program with a maximum dollar limit of ~~$7,446 under a previously board-authorized share repurchase plan allowing for up to~~ $25,000 in stock ~~repurchases.~~repurchases, which replaced the previous program. During the six months ended June 30, 2020 and 2019, 342,731 and 179,966 shares of common stock were repurchased for $8,080 and $5,002, respectively. Approximately ~~$17,554~~$5,740 is available for future purchases.

A roll-forward of common shares outstanding is as follows:


	Nine Months Ended		Six Months Ended
	September 30,	September 30,	June 30,		June 30,
	2017	2016	2020		2019
Balance at the beginning of the year	32,762,494	32,548,477	32,472,406		32,750,727
Repurchases	—	—	(342,731	)	(179,966	)
Shares issued upon exercise of stock options	—	—
Restricted share issuances	174,556	211,032	137,632		136,520
Balance at the end of the period	32,937,050	32,759,509	32,267,307		32,707,281

Certain potentially dilutive restricted stock units are excluded from diluted earning per share because they are anti-dilutive. The number of outstanding awards that were anti-dilutive ~~at September~~for the three months ended June 30, ~~2017~~2020 was 84,720. There were no anti-dilutive awards outstanding for the three months ended June 30, 2019. The number of outstanding awards that were anti-dilutive for the six months ended June 30, 2020 and ~~September~~June 30, ~~2016~~2019 were ~~10,094~~61,780 and ~~2,019,~~108,894, respectively.

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NOTE 1415 - Stock-Based Compensation

At ~~September~~June 30, ~~2017,~~2020, we had ~~four~~5 active stock-based compensation plans: the ~~Nonemployee~~Non-Employee Directors’ Stock Retirement Plan (“Directors’ Plan”), the 2004 Omnibus Long-Term Incentive Plan (“2004 Plan”), the 2009 Omnibus Equity and Performance Incentive Plan (“2009 Plan”), ~~and~~ the 2014 Performance & Incentive Plan (“2014 Plan”), and the 2018 Equity and Incentive Compensation Plan ("2018 Plan"). Future grants can only be made under the ~~2014~~2018 Plan.

These plans allow for grants of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance shares, performance units, and other stock awards subject to the terms of the specific plans under which the awards are granted.

~~Table of Contents~~

The following table summarizes the compensation expense included in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings related to stock-based compensation plans:



	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,			June 30,
	2020		2019		2020			2019
Service-based RSUs	$	779	$	488	$	1,359		$	1,094
Performance-based RSUs	19		1,038		(349		)	1,586
Cash-settled RSUs	19		53		35			113
Total	$	817	$	1,579	$	1,045		$	2,793
Income tax benefit	189		357		240			631
Net expense	$	628	$	1,222	$	805		$	2,162

Three Months Ended Nine Months Ended

September 30,
September 30,
September 30,
September 30,
2017 2016 2017 2016
Service-Based RSUs $ 415
$ 523
$ 1,430
$ 1,471
Performance-Based RSUs 360
235
1,040
267
Cash-settled RSUs 52

34
44

21
Total $ 827
$ 792
$ 2,514
$ 1,759
Income tax benefit 311
298
945
661
Net $ 516
$ 494
$ 1,569
$ 1,098

The following table summarizes the unrecognized compensation expense related to non-vested RSUs by type and the weighted-average period in which the expense is to be recognized:



	Unrecognized
	Compensation		Weighted-
	Expense at		Average
	June 30, 2020		Period
Service-based RSUs	$	2,860	1.53
Performance-based RSUs	2,968		2.12
Total	$	5,828	1.83

Unrecognized

compensation
Weighted-
expense at
average

September 30, 2017
period
Service-Based RSUs $ 865

Performance-Based RSUs 2,552

Total $ 3,417

1.68

We recognize expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The following table summarizes the status of these plans as of ~~September~~June 30, ~~2017:~~2020:



	2018 Plan	2014 Plan	2009 Plan	2004 Plan	Directors' Plan
Awards originally available	2,500,000	1,500,000	3,400,000	6,500,000	N/A
Performance-based options outstanding	—	—	—	—	—
Maximum potential RSU and cash settled awards outstanding	536,819	200,804	75,200	35,952	5,522
Maximum potential awards outstanding	536,819	200,804	75,200	35,952	5,522
RSUs and cash settled awards vested and released	35,637	—	—	—	—
Awards available for grant	1,927,544	—	—	—	—

2014 Plan 2009 Plan 2004 Plan Directors' Plan
Awards originally available 1,500,000
3,400,000
6,500,000
N/A
Performance-based options outstanding 295,000
—
—
—
Maximum potential RSU and cash settled awards outstanding 705,925
122,600
57,391
9,620
Maximum potential awards outstanding 1,000,925
122,600
57,391
9,620
RSUs and cash settled awards vested and released 173,554
—
—
—
Awards available for grant 325,521
—
—
—

~~Stock Options~~

~~We have no stock options exercisable or outstanding as of September 30, 2017, other than the performance-based stock options described below.~~

~~Performance-Based Stock Options~~

During 2015 and 2016, the Compensation Committee of the Board of Directors of the Company (the “Committee”) granted a total of 350,000 performance-based stock option awards (“Performance-Based Option Awards”) for certain employees under the 2014 Plan, of which 295,000 remain outstanding after considering forfeitures. The Performance-Based Option Awards have an exercise price of $18.37, a term of five years, and generally will become exercisable (provided the optionee remains employed by the Company or an affiliate) upon our attainment of at least $600,000 in revenues during any of our four-fiscal-quarter trailing periods (as determined by the Committee) during the term. We have not recognized any expense on these Performance-Based Option Awards for the nine-month periods ended September 30, 2017 and 2016, since the revenue target was not deemed likely to be attained based on our current forecast.

1823

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Performance-Based Stock Options

During 2015, the Compensation Committee of the Board of Directors granted a total of 350,000 performance-based stock option awards for certain employees under the 2014 Plan. We did not recognized any expense on these awards because the attainment of the performance target was not deemed to be likely to occur. These performance options expired unexercised in May 2020.

Service-Based Restricted Stock Units

The following table summarizes the service-based RSU activity ~~as of and~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:


	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	554,478		$	13.37
Outstanding at December 31, 2019					364,396		$	19.87
Granted	34,040		22.98		92,996		27.73
Vested and released	(199,251	)	13.79		(90,595	)	22.71
Forfeited	(9,924	)	16.69		(3,893	)	28.43
Outstanding at September 30, 2017	379,343		$	13.92
Releasable at September 30, 2017	226,811		$	11.38
Outstanding at June 30, 2020					362,904		$	21.08
Releasable at June 30, 2020					185,974		$	14.63

Performance and Market-Based Restricted Stock Units

The following table summarizes the performance and market-based RSU activity ~~as of and~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:



	Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019	217,229		$	27.73
Granted	120,521		28.65
Attained by performance	38,820		23.84
Released	(111,838	)	23.74
Forfeited	(11,884	)	25.69
Outstanding at June 30, 2020	252,848		$	29.31
Releasable at June 30, 2020	—		$	—

Units Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2017 201,900
$ 16.48
Granted 123,919
23.83
Attained by performance 15,285
21.66
Released (43,275 ) 21.66
Forfeited (26,524 ) 22.56
Outstanding at September 30, 2017 271,305
$ 18.77
Releasable at September 30, 2017 —
$ —

The following table summarizes each grant of performance awards outstanding at ~~September~~June 30, ~~2017.~~2020.



Description	Grant Date	Vesting Year	Vesting Dependency	Target Units Outstanding	Maximum Number of Units to be Granted
2018 - 2020 Performance RSUs	February 8, 2018	2020	35% RTSR, 35% sales growth, 30% operating cash flow	31,398	62,796
2018 - 2020 Performance RSUs	February 16, 2018	2020	35% RTSR, 35% sales growth, 30% operating cash flow	31,820	63,640
2019 - 2021 Performance RSUs	February 7, 2019	2021	35% RTSR, 35% sales growth, 30% operating cash flow	60,414	120,828
2019 Supplemental Performance RSUs	February 7, 2019	2021	Succession Planning Targets	6,945	13,890
2020 - 2022 QTI Performance RSUs	September 24, 2019	2022	50% EBITDA growth, 50% Sales growth	1,750	3,500
2020 - 2022 Performance RSUs	February 6, 2020	2022	25% RTSR, 40% sales growth, 35% operating cash flow	72,521	145,042
Focus 2025 Performance RSUs	April 23, 2020	2024	Cumulative revenues of $750 million over a trailing four-quarter period	48,000	48,000
Total				252,848	457,696

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Description Grant Date Vesting Year Vesting Dependency Target Units Outstanding Maximum Number of Units to be Granted
2015 - 2017 Performance RSUs February 5, 2015 2017 35% RTSR, 35% sales growth, 30% cash flow 62,000
124,000
2016 - 2018 Performance RSUs February 16, 2016 2018 35% RTSR, 35% sales growth, 30% cash flow 92,840
185,680
2017 - 2019 Performance RSUs February 9, 2017 2019 35% RTSR, 35% sales growth, 30% cash flow 71,796
143,592
2017 - 2019 Performance RSUs February 9, 2017 2018 - 2020 Operating Income 40,669
40,669
Single Crystal Performance RSUs March 31, 2016 2018 Various 4,000
8,000

Cash-Settled Restricted Stock Units

Cash-Settled RSUs entitle the holder to receive the cash equivalent of one share of common stock for each unit when the unit vests. These RSUs are issued to key employees residing in foreign locations as direct compensation. Generally, these RSUs vest over a three-year period. Cash-Settled RSUs are classified as liabilities and are remeasured at each reporting date until settled. At ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~December 31, 2019 we had ~~14,252~~33,697 and ~~12,074~~17,271 cash-settled RSUs outstanding, respectively. At ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016,~~December 31, 2019, liabilities of ~~$214~~$154 and ~~$115,~~$353, respectively, were included in Accrued expenses and other liabilities on our Condensed Consolidated Balance Sheets.

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NOTE 1516 — Fair Value Measurements

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. These derivative financial instruments are measured at fair value on a recurring basis. Due to changes in interest rates and foreign exchange rates, these fair values fluctuated significantly during the second quarter and may continue to fluctuate based on market conditions and other factors.

The table below summarizes our financial ~~assets~~liabilities that were measured at fair value on a recurring basis at ~~September~~June 30, ~~2017:~~2020:


			Quoted									Quoted
			Prices									Prices
	Asset		in Active		Significant				Liability			in Active		Significant
	Carrying		Markets for		Other		Significant		Carrying			Markets for		Other			Significant
	Value at		Identical		Observable		Unobservable		Value at			Identical		Observable			Unobservable
	September 30,		Instruments		Inputs		Inputs		June 30,			Instruments		Inputs			Inputs
	2017		(Level 1)		(Level 2)		(Level 3)		2020			(Level 1)		(Level 2)			(Level 3)
Interest rate swaps	$	650	$	—	$	650	$	—	$	(2,615	)	$	—	$	(2,615	)	$	—
Foreign currency hedges	$	260	$	—	$	260	$	—	$	(1,564	)	$	—	$	(1,564	)	$	—

The table below summarizes the financial assets ~~(liabilities)~~ that were measured at fair value on a recurring basis as of December 31, ~~2016:~~2019:


				Quoted									Quoted
	Asset			Prices									Prices
	(Liability)			in Active		Significant					Asset		in Active		Significant
	Carrying			Markets for		Other			Significant		Carrying		Markets for		Other		Significant
	Value at			Identical		Observable			Unobservable		Value at		Identical		Observable		Unobservable
	December 31,			Instruments		Inputs			Inputs		December 31,		Instruments		Inputs		Inputs
	2016			(Level 1)		(Level 2)			(Level 3)		2019		(Level 1)		(Level 2)		(Level 3)
Interest rate swaps	$	753		$	—	$	753		$	—	$	4	$	—	$	4	$	—
Foreign currency hedges	$	(601	)	$	—	$	(601	)	$	—	$	580	$	—	$	580	$	—

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~~Level 2 of the fair value hierarchy.

~~The table below provides a reconciliation of the recurring financial assets (liabilities) for our derivative instruments:~~

Foreign
Interest Currency

Rate Swaps Hedges
Balance at January 1, 2016 $ (768 ) $ —
Settled in cash —

54
Included in earnings 928
(18 )
Included in other comprehensive earnings 593
(637 )
Balance at December 31, 2016 $ 753
$ (601 )
Settled in cash (6 )
(75 )
Included in earnings (6 ) (51 )
Included in other comprehensive earnings (91 ) 987
Balance at September 30, 2017 $ 650
$ 260

Our long-term debt consists of 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.

2025

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NOTE 1617 — Income Taxes

The effective tax rates for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016 were:~~2019 are as follows:



	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2020		2019		2020		2019
Effective tax rate	17.6	%	25.1	%	27.1	%	22.7	%

Three Months Ended Nine Months Ended
September 30,
September 30,
September 30,
September 30,
2017
2016 2017
2016
Effective tax rate 31.1 % 68.3 % 30.0 % 43.2 %

Our effective income tax rate was ~~31.1%~~17.6% and ~~68.3%~~25.1% in the ~~third~~second quarters of 2020 and 2019, respectively. This decrease is primarily attributed to the change in the mix of earnings by jurisdiction, a reduction in reserves related to uncertain tax positions, and other favorable permanent items, partially offset by a provision recorded due to the company's decision to no longer permanently reinvest the earnings from our Taiwan subsidiary. The second quarter ~~of 2017 and 2016, respectively, and 30.0% and 43.2% for the nine months ended September 30, 2017 and 2016, respectively. The~~2020 tax ~~rates for the three and nine months ended September 30, 2017 were~~rate was lower than the U.S. statutory federal tax rate for the same reasons as noted above. The second quarter 2019 tax rate was higher than the U.S. statutory federal tax rate primarily due to state taxes and foreign earnings that are taxed at higher rates.

Our effective income tax rate was 27.1% and 22.7% in the first half of 2020 and 2019, respectively. This increase is primarily attributed to establishment of valuation allowances on certain U.S. tax credits and the company's decision to no longer reinvest the earnings of its Taiwan subsidiary, offset by a reduction in reserves related to uncertain tax positions. The tax rate in the first half of 2020 was higher than the U.S. statutory federal tax rate for the same reasons noted above. The tax rate in the first half of 2019 was higher than the U.S. statutory federal tax rate primarily due to higher foreign tax rates applicable on foreign earnings offset by tax benefits recorded upon vesting of restricted stock ~~units,~~units.

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NOTE 18 — Leases

We lease certain land, buildings and equipment under non-cancellable operating leases used in our operations. Operating lease assets represent our right to use an underlying asset for the lease term. Operating lease liabilities represent the present value of lease payments over the lease term, discounted using an estimate of our secured incremental borrowing rate because none of our leases contain a ~~release~~rate implicit in the lease arrangement.

In accordance with FASB Staff Q&A - Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of ~~valuation allowances recorded against realizable foreign NOLs,~~the COVID-19 Pandemic ("FASB Staff Q&A") issued in April 2020, we have elected to account for any lease concessions resulting directly from COVID-19 as if the enforceable rights and ~~favorable tax rates~~obligations for the concessions existed in the respective contracts at lease inception and as such we will not account for any concession as a lease modification. Guidance from the FASB Staff Q&A provided methods to account for rent deferrals which include the option to treat the lease as if no changes to the lease contract were made or to treat deferred payments as variable lease payments. The FASB Staff Q&A allows entities to select the most practical approach and does not require the same approach be applied consistently to all leases. As a result, we have accounted for lease deferrals as if no changes to the lease contract were made and will continue to recognize lease expense, on ~~foreign earnings, offset by~~a straight-line basis, during the ~~impact~~deferral periods. During the three and six months ended June 30, 2020, these rent concessions related to COVID-19 were not material.

Components of ~~state taxes, tax~~lease expense for ~~withholding taxes on the anticipated distribution of earnings in China, and other various permanent items.~~

~~Our continuing practice is to recognize interest and/or penalties related to income tax matters as income tax expense. For~~ the three and six months ended ~~September~~June 30, 2017, and 2016, we recorded $181 and $181, respectively, and for the nine months ended September 30, 2017 and 2016, we recorded $533 and $552, respectively, of interest or penalties in income tax expense. 2020 were as follows:

~~Note 17 - Business Combinations~~

On May 15, 2017, we acquired 100% of the equity interest in Noliac A/S, a privately-held company, for $19.3 million in cash. Noliac A/S is a designer and manufacturer of tape cast and bulk piezoelectric material as well as transducers for use in the telecommunications, industrial, medical, and defense industries. This acquisition will enable us to increase our product base within our ceramics product lines as well as expand our presence in the European market.

The purchase price of $19,121, net of cash acquired of $199, has been preliminarily allocated based on our estimates and assumptions of the approximate fair values of assets acquired and liabilities assumed on the acquisition date. We are still in the process of completing our valuation, and accordingly our estimates and assumptions are subject to change within the measurement period.

Preliminary Fair Values at May 15, 2017
Current assets $ 2,836
Property, plant and equipment 980
Other assets 108
Goodwill 7,189
Intangible assets 9,142
Fair value of assets acquired 20,255
Less fair value of liabilities acquired (1,134 )
Net cash paid $ 19,121



	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2020		2019		2020		2019
Operating lease cost	$	1,190	$	1,075	$	2,389	$	2,069
Short-term lease cost	170		176		337		249
Total lease cost	$	1,360	$	1,251	$	2,726	$	2,318

~~On March 11, 2016, we acquired all of the outstanding membership interests in CTG Advanced Materials, LLC (“CTG-AM”), a privately-held company, for $73 million in~~Supplemental cash ~~plus a working capital adjustment. CTG-AM, formerly operated~~flow information related to leases was as H.C. Materials, is the market leading designer and manufacturer of single crystal piezoelectric materials, serving major original equipment manufacturers throughout the medical marketplace. These materials enable high definition ultrasound imaging (3D and 4D), as well as intravascular ultrasound applications. Other applications for these materials include wireless pacemakers, implantable hearing aids, and defense technologies.

With the CTG-AM acquisition, we gain technology and proprietary manufacturing methods that expand our offering of piezoelectric materials. This allows us to become the leading large-scale commercial producer of both single crystal materials and traditional piezoelectric ceramics.

~~The purchase price of $73,063, net of cash acquired of $4, has been allocated to the fair values of assets and liabilities acquired as of March 11, 2016.~~

follows:



	Six Months Ended
	June 30,		June 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities	$	2,299	$	1,862
Leased assets obtained in exchange for new operating lease liabilities	$	1,179	$	2,961

Supplemental balance sheet information related to leases was as follows:



	As of
	June 30,			December 31,
	2020			2019
Balance Sheet Classification:
Operating lease obligations	$	3,051		$	2,787
Long-term operating lease obligations	24,473			24,926
Total lease liabilities	$	27,524		$	27,713

Weighted-average remaining lease terms (years)	8.43			9.04

Weighted-average discount rate	6.46		%	6.54		%

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Remaining maturity of our existing lease liabilities as of June 30, 2020 is as follows:



	Operating Leases⁽¹⁾
2020	$	2,344
2021	4,686
2022	4,547
2023	4,185
2024	4,075
Thereafter	16,950
Total	$	36,787
Less: interest	(9,263		)
Present value of lease liabilities	$	27,524

⁽¹⁾Operating lease payments include $3,822 of payments related to options to extend lease terms that are reasonably expected to be exercised.

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NOTE 19 – Business Acquisitions

On July 31, 2019, we acquired 100% of the outstanding shares of Quality Thermistor, Inc. ("QTI") for $75 million plus a contingent earn out of up to $5 million based on sales performance objectives. The purchase price included adjustments for debt assumed and changes in working capital. QTI, doing business as QTI Sensing Solutions, is a leading designer and manufacturer of high-quality temperature sensors serving original equipment manufacturers with mission-critical applications in the industrial, aerospace, defense and medical markets. This acquisition provided us with a new core temperature sensing technology that expands our sensing product portfolio, while increasing our presence in the industrial and medical markets.

The final purchase price of $73,906 was allocated to the fair values of assets and liabilities acquired as of July 31, 2019.

The following table summarizes the consideration paid and the fair values of the assets acquired and the liabilities assumed atas of the date of acquisition:

Fair Values at March 11, 2016
Current assets $ 4,215
Property, plant and equipment 6,173
Other assets 37
Goodwill 27,879
Intangible assets 35,427
Fair value of assets acquired 73,731
Less fair value of liabilities acquired (668 )
Net cash paid $ 73,063



	Consideration Paid
Cash paid, net of cash acquired of $567	$	72,850
Contingent consideration	1,056
Purchase price	$	73,906



	Fair Values at July 31, 2019
Current assets	$	6,221
Property, plant and equipment	2,567
Other assets	29
Goodwill	34,999
Intangible assets	32,800
Fair value of assets acquired	76,616
Less fair value of liabilities acquired	(2,710		)
Purchase price	$	73,906

Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion ~~into markets~~of customer relationships within our existing business, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes.

The contingent earn out was payable in cash upon the achievement of a revenue performance target for the year ending December 31, 2019. The Company recorded contingent consideration for the earn out of $1,056 based on the achievement performance target for the full year 2019 results. This amount is reflected as an addition to the purchase price.

The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets:



	Carrying Value		Weighted Average Amortization Period
Customer lists/relationships	$	31,000	15.0
Technology and other intangibles	1,800		5.0
Total	$	32,800

Intangible Asset Type Fair Value Weighted Average Amortization Period (in years)
Developed Technology $ 23,730
15.0
Customer Relationships and Contracts 11,502
14.6
Other 195
0.8
Total $ 35,427
14.8

We incurred $804 in transaction related costs during the year ended December 31, 2016. These costs are included in selling, general, and administrative costs in our Condensed Consolidated Statement of Earnings.

Results of operations for CTG-AM are included in our consolidated condensed financial statements beginning on March 11, 2016. The amount of net sales and net loss from CTG-AM since the acquisition date through the current quarter in the prior year that have been included in the Condensed Consolidated Statement of Earnings are as follows:

For the period
March 11, 2016
through
September 30, 2016
Net sales $ 7,096
Net earnings $ 256

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NOTE 1820 — Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

ASU ~~2017-12~~ No. 2018-13 "~~Derivatives and Hedging~~Fair Value Measurement (Topic ~~815)~~820): ~~Targeted Improvements~~Disclosure Framework-Changes to ~~Accounting~~the Disclosure Requirements for ~~Hedging Activities"~~Fair Value Measurement"

In August ~~2017,~~2018, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued ~~Accountings~~Accounting Standards Update ("ASU") ~~No 2017-12~~ ~~"Derivatives and Hedging~~No. 2018-13 "Fair Value Measurement (Topic ~~815)~~820): ~~Target Improvements~~Disclosure Framework-Changes to ~~Accounting~~the Disclosure Requirements for ~~Hedging Activities"~~Fair Value Measurement". This ASU ~~is meant~~modified the disclosures related to ~~better align an entity's risk management activities~~recurring and ~~financial reporting for hedging relationships through changes~~nonrecurring fair value measurements. Disclosures related to ~~both~~ the ~~designation~~transfer of assets between Level 1 and ~~measurement guidance for qualifying hedging relationships~~Level 2 hierarchies have been eliminated and ~~presentation of the effects of the hedging instrument and the hedged item in the financial statements.~~various additional disclosures related to Level 3 fair value measurements have been added, modified or removed. This ASU is effective for annual periods beginning after December 15, ~~2018,~~2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance. Any changes should be applied to all hedging relationships that exist at the date of adoption by applying a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the

~~Table of Contents~~

~~opening balance of retained earnings as of the beginning of the fiscal year of adoption. Presentation and disclosure guidance is to be applied prospectively.~~ We ~~are still evaluating the impact~~adopted this ASU ~~may have~~ on ~~our financial statements.~~

~~ASU 2017-07~~ ~~"Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost~~January 1, 2020 and ~~Net Periodic Post-retirement Benefit Cost"~~

~~In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-07~~ ~~"Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and net Periodic Post-retirement Benefit Cost"~~. This ASU is meant to improve the presentation of net periodic pension and net periodic post-retirement benefits costs. Currently, pension and post-retirement benefit costs are comprised of several components reflecting the different aspects of an employer's financial arrangements and cost of providing benefits to employees. These components are aggregated for reporting, but prior guidance doesit did not prescribe where the net cost should be presented in the income statement or capitalized in assets. This ASU requires disaggregation of the service cost component from other components of net benefit cost and provides explicit guidance on how to present the service cost and other components in the income statement, allowing only the service cost component of net benefit costs to be eligible for capitalization. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. These amendments should be applied retrospectively for the presentation of the service cost and other components of net periodic pension and net post-retirement benefit cost in the income statement and prospectively for the capitalization of the service cost and net periodic pension cost and periodic post-retirement benefit in assets. This ASU is not expected to have a material impact on our financial ~~statements because the service cost component of our pension cost is expected to be immaterial to our financial results on a prospective basis.~~statements.

~~ASU 2017-04~~ ~~"Intangibles -Goodwill and Other (Topic 305): Simplifying the Test for Goodwill Impairment"~~

~~In January 2017, the FASB issued~~ ASU No. ~~2017-04~~ ~~"Intangibles - Goodwill and Other (Topic 305): Simplifying the Test for Goodwill Impairment"~~. This ASU is meant to simplify the subsequent measurement of goodwill for impairment by eliminating the current Step 2 analysis in computing the implied fair value of goodwill. In addition, this ASU requires an entity to consider income tax effects on any tax deductible goodwill on the carrying amount of the reporting unit when measuring an impairment loss, if applicable. Under this ASU, impairment is determined by comparing the reporting unit's fair value to the carrying value. This amendment is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect this guidance to have an impact on our financial statements.

~~ASU 2017-01~~ ~~"Business Combinations (Topic 805): Clarifying the Definition of Business"~~

~~In January 2017, the FASB issued ASU No. 2017-01~~ ~~"Business Combinations (Topic 805): Clarifying the Definition of Business"~~. This ASU is meant to clarify the definition of a business to add guidance when determining when an acquisition or disposal should be accounted for as a sale of assets or business. This ASU provides a more robust framework to use in determining when a set of assets or activities should be classified as a business, providing more consistency in accounting for business or asset acquisitions. This ASU is effective for public companies, for fiscal years beginning after December 15, 2017, including interim periods within those periods. The ASU will be applied prospectively.

~~ASU~~ 2016-16 "Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory"

In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets Other Than ~~Inventory"~~Inventory". This ASU is meant to improve the accounting for the income tax effect of intra-entity transfers of assets other than inventory. Currently, USU.S. GAAP prohibits the recognition of current and deferred income taxes for intra-entity asset transfers until the asset is sold to a third party. This ASU will now require companies to recognize the income tax effect of an intra-entity asset transfer (other than inventory) when the transaction occurs. This ASU is effective for public companies, for fiscal years beginning after December 15, 2019 and interim periods within those annual reporting ~~periods. Early adoption is permitted~~periods and is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. ~~This guidance is~~We adopted this ASU on January 1, 2020 and it did not ~~expected to~~ have a material impact on our ~~consolidated~~ financial statements.

ASU ~~2016-15~~ 2016-13 "~~Statement~~Financial Instruments - Credit Losses (Topic 326): Measurement of ~~Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments"~~Credit Losses on Financial Instruments"

In ~~August~~June 2016, the FASB issued ASU ~~No. 2016-15, "Classification~~2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of ~~Certain Cash Receipts and Cash Payments". This ASU reduces~~Credit Losses on Financial Instruments, which amends the ~~diversity in reporting of eight specific cash flow issues due to~~current accounting guidance ~~that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements~~and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other ~~various activities. This~~financial instruments, we will be required to use a forward-looking expected loss model that reflects losses that are probable rather than the incurred loss model for recognizing credit losses. The standard became effective for interim and annual periods beginning after December 15, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We adopted this ASU on January 1, 2020 and it did not have a material impact on our financial statements.

Recently Issued Accounting Pronouncements

ASU No. 2020-04 "Reference Rate Reform"

In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as it relates to our LIBOR indexed instruments. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022, and an entity may elect to apply ASU 2020-04 for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

ASU No. 2019-12 "Simplifying the Accounting for Income Taxes"

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for ~~fiscal years~~interim and annual periods beginning after December 15, ~~2017 and interim periods within those fiscal years. Early~~2020, with early adoption ~~is permitted and is to be applied retrospectively using a transition method for each period presented. An entity that elects~~permitted. We are currently evaluating the impact of this ASU on our financial statements.

2330

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~~early adoption of the amendment under this~~

ASU ~~must adopt all aspects of the amendment in the same period. This guidance is not expected to have a material impact on our consolidated financial statements.~~No. 2018-14 "Compensation - Retirement Benefits - Defined Benefit Plans - General"

~~ASU 2016-02~~ ~~"Leases (Topic 842)"~~

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02, "Leases (Topic 842)~~No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General. This amendment created a new Topic under the accounting standards codification to account for the provisions of the ASU. This amendment is meant to provide transparency and to improve comparability between entities. The ASU requires companies to record an asset and liability on the balance sheet for leases that were formerly designated as operating leases as well as leases designated as financing leases. The provisions of the ASU predominately change the recognition of leases for lessees, the provisions do not substantially change the accounting for lessors." This ASU ~~will supersede~~modifies the ~~provisions of Topic 840 Leases.~~

~~The liability recorded~~disclosure requirements for ~~a lease is meant to recognize the lease payments~~defined benefit and other postretirement plans. This ASU eliminates certain disclosures associated with accumulated other comprehensive income, plan assets, related parties, and the ~~asset as a right~~effects of interest rate basis point changes on assumed health care costs; while other disclosures have been added to use the underlying asset for the lease, including optional periods if it is reasonably certain the option will be exercised. Recording of the liability should be based on the present value of the lease payments. If a lease term is less than twelve months, a company is allowed to elect not to record the assetaddress significant gains and ~~liability. Expense~~losses related to ~~these leases are to be amortized straight-line over the expected term of the lease.~~

~~Additionally, the provisions of this~~changes in benefit obligations. This ASU ~~provide additional guidance on separating lease terms from maintenance~~also clarifies disclosure requirements for projected benefit and ~~other type of provisions that provide a good or service, accounting for sale-leaseback provisions, and leveraged leases.~~

~~Reporting~~accumulated benefit obligations. The amendments in ~~the cash flow statement remains virtually unchanged. Additional qualitative and quantitative disclosures are required.~~

These updates are required to be applied under a modified retrospective approach from the beginning of the earlier period presented. The modified approach provides optional practical expedients that may be elected, which will allow companies to continue to account for leases under the previous guidance for leases that commenced prior to the effective date.

~~The provisions of~~ this ASU are effective for fiscal years ~~beginning~~ending after December 15, ~~2018,~~2020 and for interim periods ~~within those periods. Early~~therein with early adoption permitted. Adoption on a retrospective basis for all periods presented is ~~allowed. We have~~required. This ASU will impact our annual financial statement disclosures but will not ~~yet commenced the process for evaluating the~~ impact ~~of this ASU on~~ our interim financial statements and ~~therefore it's impact has not yet been determined.~~

~~ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)"~~

~~In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)".~~The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The new revenue recognition guidance more closely aligns U.S. GAAP with International Financial Reporting Standards ("IFRS"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

~~To achieve that core principle, an entity should apply the following steps:~~


~~Step 1:~~	~~Identify the contract(s) with a customer.~~


~~Step 2:~~	~~Identify the performance obligations in the contract.~~


~~Step 3:~~	~~Determine the transaction price.~~


~~Step 4:~~	~~Allocate the transaction price to the performance obligations in the contract.~~


~~Step 5:~~	~~Recognize revenue when (or as) the entity satisfies a performance obligation.~~

~~In August 2015, the FASB issued ASU 2015-14: Accounting for Revenue from Contracts with Customers (Topic 606)~~" The amended guidance deferred the effective date of ASU 2014-9 to annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2016 and interim periods within those fiscal years. In addition, four other ASUs have been issued amending and clarifying ASU 2014-09 and must be adopted concurrently.

~~ASU 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~

~~ASU 2016-10 "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"~~

~~ASU 2016-12 "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients"~~

~~ASU 2016-20 "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"~~

~~Table of Contents~~

We have completed our review of customer contracts and agreements for revenue recognized through the second quarter 2017. We currently have not identified additional performance obligations within our contracts or expect significant changes in revenue from the measurement of variable consideration upon adoption of the new standard. We expect to adopt the provisions of this standard using the modified retrospective approach, which requires a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption. We are currently completing the quantitative analysis as of the end of the second quarter to determine the financial impact this new standard will have on our operations. Based on our preliminary testing, we expect that the standard willdoes not have ~~a material~~an impact on our consolidated financial ~~statements. This standard becomes effective on January 1, 2018.~~position, results of operations, or cash flows.

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Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations (“MD&A”)

(in thousands, except percentages and per share amounts)

The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included under Item 1, as well as our Consolidated Financial Statements and notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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 in North America, Europe, and ~~Asia, and supply these~~Asia. CTS provides engineered products to OEMs and tier one suppliers in the aerospace ~~communications,~~and defense, industrial, information technology, medical, telecommunications, and transportation 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.

Impact of COVID-19

The COVID-19 pandemic has resulted in a significant disruption to the global economy that has and will continue to adversely affect our business. We have experienced reductions in customer demand in several of our end markets. We expect that social distancing measures, high employee absenteeism, and reductions in production due to mandated labor capacity restrictions at some of our plants in Europe and North America, as well as the reduced operational capacity of our customers and suppliers, will continue to impact our business in the second half of 2020. The pandemic could lead to an extended disruption of economic activity and the impact on our consolidated results of operations, financial position and cash flows could be material.

Table of Contents

Results of Operations: ~~Third~~Second Quarter ~~2017~~2020 versus ~~Third~~Second Quarter ~~2016~~2019

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the quarters ended ~~September~~June 30, ~~2017,~~2020, and ~~September~~June 30, ~~2016:~~2019:


	Three Months Ended							Percent of	Percent of		Three Months Ended								Percent of		Percent of
	September 30,		September 30,			Percent		Net Sales –	Net Sales –		June 30,			June 30,			Percent		Net Sales –		Net Sales –
	2017		2016			Change		2017	2016		2020			2019			Change		2020		2019
Net sales	$	106,243	$	99,697		6.6		100.0	100.0		$	84,197		$	120,684		(30.2	)%	100.0	%	100.0	%
Cost of goods sold	68,705		63,056			9.0		64.7	63.2		57,630			79,480			(27.5	)	68.4		65.9
Gross margin	37,538		36,641			2.4		35.3	36.8		26,567			41,204			(35.5	)	31.6		34.1
Selling, general and administrative expenses	15,915		16,048			(0.8	)	15.0	16.1		14,668			17,036			(13.9	)	17.4		14.1
Research and development expenses	6,380		6,284			1.5		6.0	6.3		5,522			6,257			(11.7	)	6.6		5.2
Restructuring charges	1,435		1,969			(27.1	)	1.4	2.0		135			911			(85.2	)	0.2		0.8
Loss (gain) on sale of assets	697		(150		)	(564.7	)	0.7	(0.1	)
Gain on sale of assets											—			(83		)	(100.0	)	—		(0.1	)
Total operating expenses	24,427		24,151			1.1		23.0	24.3		20,325			24,121			(15.7	)	24.1		20.0
Operating earnings	13,111		12,490			5.0		12.3	12.5		6,242			17,083			(63.5	)	7.4		14.2
Total other income (expense)	848		(760		)	(211.6	)	0.8	(0.8	)
Total other (expense), net											(349		)	(1,134		)	(69.2	)	(0.4	)	(0.9	)
Earnings before income taxes	13,959		11,730			19.0		13.1	11.7		5,893			15,949			(63.1	)	7.0		13.2
Income tax expense	4,340		8,010			(45.8	)	4.1	8.0		1,036			4,006			(74.1	)	1.2		3.3
Net earnings	$	9,619	$	3,720		158.6		9.0	3.7		$	4,857		$	11,943		(59.3	)%	5.8	%	9.9	%
Earnings per share:
Diluted net earnings per share	$	0.29	$	0.11							$	0.15		$	0.36

Sales were ~~$106,243~~$84,197 in the ~~third~~second quarter of ~~2017, an increase~~2020, a decrease of ~~$6,546~~$36,487 or ~~6.6%~~30.2% from the ~~third~~second quarter of ~~2016.~~ 2019. Sales were negatively impacted as a result of the COVID-19 pandemic and government activities to control its spread. In the second quarter, we were impacted by: (1) successively mandated closures of or labor restrictions at our plants in China, Europe and North America, (2) supply chain disruptions resulting from the closure of a number of our suppliers in China and in North America, and (3) weak demand from certain customers as a result of their mandated or elective plant closures. These economic impacts are ongoing and continue to have an effect on our operations, which we are currently unable to quantify.

Sales to ~~automotive~~transportation markets decreased $42,214 or 52.5%. Sales to other markets increased ~~$3,789~~$5,727 or ~~5.8%. Other sales increased $2,757 or 7.9%~~14.2%. The ~~Noliac~~QTI acquisition, which was completed in July 2019, added ~~$2,554~~$5,420 in sales for the quarter. Changes in foreign exchange rates ~~increased~~decreased sales by ~~$247~~$754 year-over-year due to the U.S. Dollar ~~depreciating~~appreciating compared to the Chinese Renminbi and ~~Euro and relating mostly to sales of automotive products.~~Euro.

Gross margin as a percent of sales was ~~35.3%~~31.6% in the ~~third~~second quarter of ~~2017~~2020 compared to ~~36.8%~~34.1% in the ~~third~~second quarter of ~~2016.~~2019. The decrease in gross margin was driven ~~mainly~~primarily by ~~product mix changes as well as unfavorable foreign exchange impact in 2017 versus favorable foreign exchange impact in 2016.~~lower sales volumes, which was partially offset by various cost reduction measures.

Selling, general and administrative ("SG&A") expenses were ~~$15,915~~$14,668 or ~~15.0%~~17.4% of sales in the ~~third~~second quarter of ~~2017~~2020 versus ~~$16,048~~$17,036 or ~~16.1%~~14.1% of sales in the ~~third~~second quarter of ~~2016.~~2019. The ~~2017~~2020 SG&A costs include savings from cost reduction measures we implemented during the second quarter, partially offset by amortization of intangibles and other operating costs associated with ~~our Noliac acquisition, which were offset by other expense reductions.~~the QTI acquisition.

Research and development expenses were ~~$6,380~~$5,522 or ~~6.0%~~6.6% of sales in the ~~third~~second quarter of ~~2017~~2020 compared to ~~$6,284~~$6,257 or ~~6.3%~~5.2% of sales in the comparable quarter of ~~2016. Research~~2019.

Restructuring charges were $135 or 0.2% of sales in the second quarter of 2020 and ~~development expenses~~were mainly for severance charges. Restructuring charges were $911 or 0.8% of sales in the second quarter of 2019.

Operating earnings were $6,242 or 7.4% of sales in the second quarter of 2020 compared to operating earnings of $17,083 or 14.2% of sales in the second quarter of 2019.

Due to the impact of COVID-19, we implemented cost savings measures, some of which are ~~focused on expanded applications~~temporary in nature. We will continue to evaluate market conditions to determine the extent and duration of ~~existing products and new product development as well as current product and process enhancements.~~ the temporary measures. Given the continued demand

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~~Restructuring charges were $1,435 or 1.4% of sales~~volatility and expected multi-year recovery in the ~~third quarter~~transportation end-market, the Company is implementing a restructuring plan starting in July 2020 to adapt our cost structure to lower market demand. The restructuring plan is focused on optimizing our manufacturing footprint and improving operational efficiency by better utilizing our systems capabilities. More information will be provided on the details of ~~2017. The charges were mainly for building and equipment relocation, severance, and travel costs related to the~~this restructuring ~~of certain operations as part of the 2016 Restructuring Plan. Restructuring charges were $1,969 or 2.0% of sales~~plan in the ~~third quarter of 2016.~~Company’s subsequent filings.

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

Operating earnings were $13,111 or 12.3% of sales in the third quarter of 2017 compared to operating earnings of $12,490 or 12.5% of sales in the comparable quarter of 2016 as a result of the items discussed above.

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


	Three Months Ended						Three Months Ended
	September 30,			September 30,			June 30,			June 30,
	2017			2016			2020			2019
Interest expense	$	(773	)	$	(917	)	$	(909	)	$	(467	)
Interest income	363			203			304			440
Other income (expense)	1,258			(46		)
Total other income (expense)	$	848		$	(760	)
Other income (expense), net							256			(1,107		)
Total other (expense), net							$	(349	)	$	(1,134	)

Interest expense ~~decreased in the third quarter of 2017 versus the same quarter of 2016 primarily~~increased mainly as a result of ~~a reduction~~an increase in ~~interest~~debt related to ~~interest rate swaps. Interest income increased due~~the QTI acquisition and additional borrowings to ~~higher cash balances.~~ensure adequate liquidity for the next several quarters given the current global pandemic. Other income in the ~~third~~second quarter of ~~2017~~2020 was principally driven by foreign currency translation gains, mainly due to the depreciation of the U.S. Dollar compared to the Chinese Renminbi and Euro during the ~~quarter.~~quarter, which were partially offset by pension expense.

Three Months Ended
September 30, September 30,
2017 2016
Effective tax rate 31.1 % 68.3 %



	Three Months Ended
	June 30,		June 30,
	2020		2019
Effective tax rate	17.6	%	25.1	%

Our effective income tax rate was ~~31.1%~~17.6% and ~~68.3%~~25.1% in the ~~third quarter~~second quarters of ~~2017~~2020 and ~~2016,~~2019, respectively. ~~The tax rate~~This decrease is primarily attributed to the change in the ~~third quarter~~mix of ~~2017 was lower than the U.S. statutory~~earnings by jurisdiction, a reduction in reserves related to uncertain tax ~~rate due primarily to tax benefits recorded upon vesting of restricted stock units, a release of valuation allowances recorded against realizable foreign NOLs,~~positions, and other favorable ~~tax rates on foreign earnings,~~permanent items, partially offset by a provision recorded due to the ~~impact of state taxes, tax expense for withholding taxes on~~company's decision to no longer permanently reinvest the ~~anticipated distribution of~~ earnings ~~in China, and other various permanent items.~~from our Taiwan subsidiary.

~~Table of Contents~~

Results of Operations: ~~Nine~~Six Months ended June 30, 2020 versus Six Months Ended ~~September~~June 30, ~~2017 versus Nine Months Ended September 30, 2016~~2019

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, and ~~September~~June 30, ~~2016:~~2019:


	Nine Months Ended							Percent of	Percent of		Six months ended								Percent of		Percent of
	September 30,		September 30,			Percent		Net Sales –	Net Sales –		June 30,			June 30,			Percent		Net Sales –		Net Sales –
	2017		2016			Change		2017	2016		2020			2019			Change		2020		2019
Net sales	$	312,083	$	295,095		5.8		100.0	100.0		$	187,272		$	238,308		(21.4	)%	100.0	%	100.0	%
Cost of goods sold	204,527		190,528			7.3		65.5	64.6		127,806			156,490			(18.3	)	68.2		65.7
Gross margin	107,556		104,567			2.9		34.5	35.4		59,466			81,818			(27.3	)	31.8		34.3
Selling, general and administrative expenses	46,970		46,459			1.1		15.1	15.8		31,427			34,597			(9.2	)	16.8		14.5
Research and development expenses	18,432		18,414			0.1		5.9	6.2		12,930			13,048			(0.9	)	6.9		5.5
Restructuring charges	2,942		2,175			35.3		0.9	0.7		375			2,995			(87.5	)	0.2	%	1.3
Loss (gain) on sale of assets	698		(11,501		)	(106.1	)	0.2	(3.9	)
Gain sale of assets											—			(122		)	(100.0	)	—		(0.1	)
Total operating expenses	69,042		55,547			24.3		22.1	18.8		44,732			50,518			(11.5	)	23.9		21.2
Operating earnings	38,514		49,020			(21.4	)	12.4	16.6		14,734			31,300			(52.9	)	7.9		13.1
Total other income (expense)	1,594		(3,146		)	(150.7	)	0.5	(1.1	)
Total other (expense), net											(2,851		)	(1,071		)	166.2		(1.5	)	(0.4	)
Earnings before income taxes	40,108		45,874			(12.6	)	12.9	15.5		11,883			30,229			(60.7	)	6.3		12.7
Income tax expense	12,039		19,804			(39.2	)	3.9	6.7		3,218			6,867			(53.1	)	1.7		2.9
Net earnings	$	28,069	$	26,070		7.7		9.0	8.8		$	8,665		$	23,362		(62.9	)%	4.6	%	9.8	%
Earnings per share:
Diluted net earnings per share	$	0.84	$	0.79							$	0.27		$	0.71

Table of Contents

Sales were $187,272 in the six months ended June 30, 2020, a decrease of $51,036 or 21.4% from the six months ended June 30, 2019. Sales were negatively impacted as a result of the COVID-19 pandemic and government activities to control its spread. In the first half of the year, we were impacted by: (1) successively mandated closures of or labor restrictions at our plants in China, Europe and North America, (2) supply chain disruptions resulting from the closure of a number of our suppliers in China and in North America, and (3) weak demand from certain customers as a result of their mandated or elective plant closures. These economic impacts are ongoing and continue to have an effect on our operations, which we are currently unable to quantify.

Sales ~~were $312,083 in the nine months ended September 30, 2017, an increase of $16,988~~to transportation markets decreased $59,521 or ~~5.8% from the nine months ended September 30, 2016.~~37.4%. Sales to ~~automotive~~other markets increased ~~$7,688~~$8,485 or ~~3.9%. Other sales increased $9,300 or 9.4%~~10.7%. The ~~Noliac~~QTI acquisition, which was completed in July 2019, added ~~$4,097~~$10,995 in sales for the ~~nine~~first six months ~~ended September 30, 2017.~~of 2020. Changes in foreign exchange rates ~~reduced~~decreased sales by ~~$1,400~~$1,317 year-over-year due to the U.S. Dollar appreciating compared to the Chinese Renminbi and ~~Euro and relating mostly to sales of automotive products.~~Euro.

Gross margin as a percent of sales was ~~34.5% in~~31.8%for the ~~first nine~~six months ~~of 2017~~ended June 30, 2020 compared to ~~35.4% in~~34.3% for the ~~first nine~~six months ~~of 2016.~~ended June 30, 2019. The decrease in gross margin was driven ~~mainly~~primarily by ~~product mix changes, costs relating to certain production rework issues in the first half of 2017 and an unfavorable impact of foreign exchange rate movements.~~lower sales volumes, which was partially offset by various cost reduction measures.

Selling, general and administrative ("SG&A") expenses were ~~$46,970~~$31,427 or ~~15.1%~~16.8% of sales infor the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 versus ~~$46,459~~$34,597 or ~~15.8%~~14.5% of sales infor the ~~comparable year-to-date period in 2016.~~six months ended June 30, 2019. The ~~increase was primarily attributable to incremental~~2020 SG&A costs ~~resulting~~include savings from cost reduction measures we implemented during the ~~Noliac acquisition in 2017 and the single crystal acquisition in 2016, including~~second quarter, partially offset by amortization of intangibles ~~which were partially offset by~~and other ~~expense reductions and~~operating costs associated with the ~~timing of certain expenses.~~QTI acquisition.

Research and development expenses were ~~$18,432~~$12,930 or ~~5.9%~~6.9% of sales infor the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$18,414~~$13,048 or ~~6.2%~~5.5% of sales infor the comparable prior year period. Research and development expenses are focused on expanded applications of existing products and new product development as well as current product and process enhancements. six months ended June 30, 2019.

Restructuring charges were ~~$2,942~~$375 or ~~0.9%~~0.2% of sales infor the ~~first nine~~six months ~~of 2017. The charges~~ended June 30, 2020 and were mainly for ~~building and equipment relocation,~~ severance ~~and travel costs related to the restructuring of certain operations as part of the 2016 Restructuring Plan.~~charges. Restructuring charges were ~~$2,175~~$2,995 or ~~0.7%~~1.3% of sales infor the ~~first nine~~six months ~~of 2016.~~

The loss on sale of assets in 2017 was driven by a loss on the sale of vacant land at our Hopkinton, Massachusetts facility in September 2017. The gain on sale of assets in 2016 is due primarily to a gain on the sale of our building in Canada inended June ~~2016.~~30, 2019.

Operating earnings were ~~$38,514~~$14,734 or ~~12.4%~~7.9% of sales infor the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 compared to operating earnings of ~~$49,020~~$31,300 or ~~16.6%~~13.1% of sales for the six months ended June 30, 2019.

Due to the impact of COVID-19, we implemented cost savings measures, some of which are temporary in nature. We will continue to evaluate market conditions to determine the extent and duration of the temporary measures. Given the continued demand volatility and expected multi-year recovery in the ~~nine months ended September 30, 2016, as~~transportation end-market, the Company is implementing a ~~result~~restructuring plan starting in July 2020 to adapt our cost structure to lower market demand. The restructuring plan is focused on optimizing our manufacturing footprint and improving operational efficiency by better utilizing our systems capabilities. More information will be provided on the details of this restructuring plan in the ~~items discussed above.~~Company’s subsequent filings.

~~Table of Contents~~

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


	Nine Months Ended						Six Months Ended
	September 30,			September 30,			June 30,			June 30,
	2017			2016			2020			2019
Interest expense	$	(2,209	)	$	(2,746	)	$	(1,760	)	$	(933	)
Interest income	914			1,082			635			872
Other income (expense)	2,889			(1,482		)
Total other income (expense)	$	1,594		$	(3,146	)
Other (expense) income, net							(1,726		)	(1,010		)
Total other (expense), net							$	(2,851	)	$	(1,071	)

Interest expense ~~decreased in the first nine months of 2017 versus the same period of 2016 primarily~~increased mainly as a result of ~~a reduction~~an increase in ~~interest~~debt related to ~~interest rate swaps. Interest income decreased due to lower investible cash balances~~the QTI acquisition and additional borrowings at ~~certain foreign locations. Other income in~~the end of the first ~~nine~~quarter to ensure adequate liquidity for the next several quarters. The increase in Other (expense) income, net for the six months ~~of 2017~~ended June 30, 2020 was principally driven by pension expense as well as foreign currency translation ~~gains,~~losses, mainly due to the ~~depreciation~~appreciation of the U.S. Dollar compared to the Chinese Renminbi and Euro during the ~~period.~~first half of the year.

Nine Months Ended
September 30, September 30,
2017 2016
Effective tax rate 30.0 %
43.2 %



	Six Months Ended
	June 30,		June 30,
	2020		2019
Effective tax rate	27.1	%	22.7	%

Table of Contents

Our effective income tax rate was ~~30.0%~~27.1% and ~~43.2%~~22.7% in the ~~first nine~~six months ~~of 2017~~ended June 30, 2020 and ~~2016,~~2019, respectively. ~~The tax rate in the first nine months of 2017 was lower than the U.S. statutory tax rate due~~This increase is primarily attributed to ~~tax benefits recorded upon vesting of restricted stock units, a release~~establishment of valuation allowances ~~recorded against realizable foreign NOLs,~~on certain U.S. tax credits and ~~favorable tax rates on foreign~~the company's decision to no longer reinvest the earnings of its Taiwan subsidiary, offset by ~~the impact of state taxes,~~a reduction in reserves related to uncertain tax ~~expense for withholding taxes on the anticipated distribution of earnings in China, and other various permanent items.~~positions.

Liquidity and Capital Resources

Cash and cash equivalents were ~~$116,152~~$145,981 at ~~September~~June 30, ~~2017,~~2020, and ~~$113,805~~$100,241 at December 31, ~~2016,~~2019, of which ~~$114,845~~$93,958 and ~~$113,359,~~$98,309, respectively, were held outside the United States. The increase in cash and cash equivalents of ~~$2,347~~$45,740 was primarily driven by net proceeds from an increase in borrowings of long-term debt of $41,600 and cash generated from operating activities of ~~$46,967,~~$23,724, which ~~was mostly~~were partially offset by ~~the payment for the Noliac acquisition~~treasury stock purchases of ~~$19,121,~~$8,080, capital expenditures of ~~$11,987, net long-term debt payments of $6,800 and~~$7,245, dividends paid of ~~$3,942.~~$2,598, and taxes paid on behalf of equity award participants of $1,903. Total long-term debt was ~~$82,300~~$141,300 as of ~~September~~June 30, ~~2017~~2020 and ~~$89,100~~$99,700 as of December 31, ~~2016.~~2019. Total debt as a percentage of total capitalization, defined as ~~the sum of notes payable and~~ long-term debt as a percentage of total debt and shareholders' equity, was ~~19.2%~~26.1% at ~~September~~June 30, ~~2017,~~2020, compared to ~~22.1%~~19.7% at December 31, ~~2016.~~2019.

We increased our cash position during the first quarter to improve liquidity given the current economic environment. Our net debt, defined as long-term debt less cash and cash equivalents, was $(4,681) at June 30, 2020. We currently have $157,000 available for additional borrowings under our credit facility.

Working capital increased by ~~$11,354~~$46,494 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, primarily due to ~~increases~~the increase in ~~inventory, accounts receivable, other current assets and~~ cash and cash equivalents from borrowings under our credit facility and a decrease in accounts payable, which were partially offset by ~~higher~~a decrease in accounts ~~payable.~~receivable.

Cash Flows from Operating Activities

Net cash provided by operating activities was ~~$46,967~~$23,724 during the first ~~nine~~six months of ~~2017.~~2020. Components of net cash provided by operating activities included net earnings of ~~$28,069,~~$8,665, depreciation and amortization expense of ~~$15,061 and~~$13,143, other net non-cash items of ~~$8,746, offset by the~~$2,810, and a net cash outflow from changes in assets and liabilities of ~~$4,909.~~$894.

Cash Flows from Investing Activities

Net cash used in investing activities for the first ~~nine~~six months of ~~2017~~2020 was ~~$30,623,~~$7,245, driven entirely by ~~the net payment for our Noliac acquisition of $19,121 and~~ capital ~~expenditures of $11,987.~~expenditures.

Cash Flows from Financing Activities

Net cash ~~used in~~provided by financing activities for the first ~~nine~~six months of ~~2017~~2020 was ~~$13,463. These~~$29,019. The net cash ~~outflows were~~inflow was the result of net proceeds from an increase in borrowings of long-term debt ~~payments~~ of ~~$6,800, dividend payments~~$41,600, which was partially offset by treasury stock purchases of ~~$3,942,~~$8,080, dividends paid of $2,598, and taxes paid on behalf of ~~employees for~~ equity ~~awards~~award participants in the amount of ~~$1,571 and short-term notes payable payments of $1,150.~~

~~Table of Contents~~

$1,903.

Capital Resources

Long‑term debt ~~was~~is comprised of the following:


	As of						As of
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2020			2019
Revolving credit facility due in 2020	$	82,300		$	89,100
Weighted average interest rate	2.3		%	1.5		%
Amount available	$	215,635		$	208,735
Total credit facility	$	300,000		$	300,000		$	300,000		$	300,000
Balance outstanding							141,300			99,700
Standby letters of credit	$	2,065		$	2,165		1,740			1,800
Amount available, subject to covenant restrictions							$	157,000		$	198,500
Weighted-average interest rate							2.17		%	3.25		%
Commitment fee percentage per annum	0.25		%	0.25		%	0.25		%	0.23		%

~~On August 10, 2015, we~~Our Credit Agreement provides for a revolving credit facility of $300,000, which may be increased by $150,000 at the request of the Company, subject to the administrative agent's approval.

We have entered into a new five-year credit agreement (“Revolving Credit Facility”) with a group of banks in order to support our financing needs. The Revolving Credit Facility originally provided for a credit line of $200,000. On May 23, 2016, we requested and received a $100,000 increase in the aggregate revolving credit commitments under the existing credit agreement, which increased the credit line from $200,000 to $300,000.

The Revolving Credit Facility requires, among other things, that CTS comply with a maximum total leverage ratio and a minimum fixed charge coverage ratio. Failure to comply with these covenants could reduce the borrowing availability under the Revolving Credit Facility. We were in compliance with all debt covenants at September 30, 2017.

~~We use interest rate swaps to convert the Revolving Credit Facility’s variable rate of interest into a fixed rate. In the second quarter of 2012, we entered into four separate~~ interest rate swap agreements to fix interest rates on $50,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2012, we entered into four additional interest rate swap agreements to fix interest rates on $25,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2016, we entered into three additional forward-starting interest rate swap agreements to fix interest rates on $50,000 of long-term debt for the periods August 2017 to August 2020.through February 2024. The difference to be paid or received under the terms of the swap agreements ~~will be~~is recognized as an adjustment to interest expense when settled.

~~Generally, our practice and intention is to reinvest the earnings~~

Table of our non-U.S. subsidiaries outside the U.S. However, we determined during 2015 that as a result of changes in the business, the foreign earnings of our subsidiaries in Canada and the U.K. were no longer permanently reinvested. Therefore, a provision for the expected taxes on repatriation of those earnings was recorded at that time. Any repatriation may not result in significant cash income tax payments as the taxable event would likely be offset by the utilization of our available tax credits, resulting in no significant net cash taxes being incurred. We do not provide for U.S. income taxes on undistributed earnings of our foreign subsidiaries that are intended to be permanently reinvested.Contents

We have historically funded our capital and operating needs primarily through cash flows from operating activities, supported by available credit under our ~~Revolving Credit Facility.~~revolving credit facility. We believe that cash flows from operating activities and available borrowings under our ~~Revolving Credit Facility~~credit facility will be adequate to fund our working capital needs, capital expenditures, and debt service requirements for at least the next twelve months. However, we may choose to pursue additional equity and debt financing to provide additional liquidity or to fund acquisitions.

Critical Accounting Policies and Estimates

Management prepared the condensed consolidated financial statements ~~of CTS~~ under accounting principles generally accepted in the United States of America. These principles require the use of estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions we used are reasonable, based upon the information available.

Our estimates and assumptions affect the reported amounts in our financial statements. The following accounting policies comprise those that we believe are the most critical in understanding and evaluating our reported financial results.

Revenue Recognition

Product revenue is recognized ~~once four criteria are met: (1) we have persuasive evidence~~when the transfer of promised goods to a customer occurs in an amount that ~~an arrangement exists; (2) delivery~~reflects the consideration to which the entity expects to be entitled in exchange for those goods. We follow the five step model to determine when this transfer has ~~occurred and title has passed~~occurred: 1) identify the contract(s) with the customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the ~~customer, which generally happens at~~performance obligations in the ~~point of shipment, provided that no significant obligations remain; (3)~~contract; 5) recognize revenue when (or as) the ~~price is fixed and determinable; and (4) collectability is reasonably assured.~~

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entity satisfies a performance obligation.

Product Warranties

Provisions for estimated warranty expenses primarily related to our automotive products are made at the time products are sold. These estimates are established using a quoted industry rate. We adjust our warranty reserve for any known or anticipated warranty claims as new information becomes available. We evaluate our warranty obligations at least quarterly and adjust our accruals if it is probable that future costs will be different than our current reserve. Over the last three years, product warranty reserves have ranged from 2.0% to 3.2% of total sales. We believe our reserve level is appropriate considering all facts and circumstances surrounding any outstanding quality claims and our historical experience selling our products to our customers.

Accounts Receivable

We have standardized credit granting and review policies and procedures for all customer accounts, including:

Credit reviews of all new customer accounts,

Ongoing credit evaluations of current customers,

Credit limits and payment terms based on available credit information,

Adjustments to credit limits based upon payment history and the customer's current credit worthiness,

An active collection effort by regional credit functions, reporting directly to the corporate financial officers, and;

Limited credit insurance on the majority of our international receivables.

We reserve for estimated credit losses based on historical experience, ~~and~~ specific customer collection ~~issues.~~issues, current conditions and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual terms of our receivables and other financial assets. Over the last three years, accounts receivable reserves have been approximately ~~0.2%~~0.1% to ~~0.6%~~1.0% of total accounts receivable. We believe our reserve level is appropriate considering the quality of the portfolio. While credit losses have historically been within expectations ~~and~~of the reserves established, we cannot guarantee that our credit loss experience will continue to be consistent with historical ~~experience.~~experience or our current forecasts.

Inventories

We value our inventories at the lower of the actual cost to purchase or manufacture using the first-in, first-out ("FIFO") method, or net realizable value. We review inventory quantities on hand and record a provision for excess and obsolete inventory based on forecasts of product demand and production requirements.

Over the last three years, our reserves for excess and obsolete inventories have ranged from ~~16.8%~~10.2% to ~~18.9%~~16.8% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the inventories.

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Retirement Plans

Actuarial assumptions are used in determining pension income and expense and our pension benefit obligation. We utilize actuaries from consulting companies in each applicable country to develop our discount rates that match high-quality bonds currently available and expected to be available during the period to maturity of the pension benefit in order to provide the necessary future cash flows to pay the accumulated benefits when due. After considering the recommendations of our actuaries, we have assumed a discount rate, expected rate of return on plan assets and a rate of compensation increase in determining our annual pension income and expense and the projected benefit obligation. During the fourth quarter of each year, we review our actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted. Changes in the actuarial assumptions could have a material effect on our results of operations.

~~Valuation~~In February 2020, the CTS Board of Directors authorized management to explore termination of our U.S. based pension plan ("Plan") at management's discretion, subject to certain conditions. On June 1, 2020, we entered into the Fifth Amendment to the Plan whereby we set an effective termination date of July 31, 2020. The Plan termination process is expected to take twelve to eighteen months and requires certain approvals from both the Internal Revenue Service and Pension Benefit Guaranty Corporation. Once we receive such approvals, an insurance company will be selected to purchase annuities and fulfill the obligations of the Plan including administering payments to participants. Upon settlement of the pension liabilities, we will reclassify the related pension losses currently recorded in accumulated other comprehensive loss into earnings. We do not expect any cash contributions from the Company to the Plan as a result of this termination because plan assets exceed estimated liabilities.

Impairment of Goodwill

Goodwill of a reporting unit is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include, but are not limited to, the following:

Significant decline in market capitalization relative to net book value,

Significant adverse change in ~~legal~~regulatory factors or in the business climate,

~~Adverse action or assessment by a regulator,~~

Unanticipated competition,

More-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of,

Testing for recoverability of a significant asset group within a reporting unit, and

Allocation of a portion of goodwill to a business to be disposed.

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If we believe that one or more of the above indicators of impairment have occurred, we perform an impairment test. We have the option to perform a qualitative assessment (commonly referred to as "step zero" test) to determine whether further quantitative analysis for impairment of goodwill and indefinite-lived intangible assets is necessary. The ~~test involves comparing~~qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and our own overall financial and share price performance, among other factors. If, after assessing the totality of events or circumstances we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, we do not need to perform a quantitative analysis.

If a quantitative assessment is required, we estimate the fair value of each reporting unit using a combination of discounted cash flow analysis and market-based valuation methodologies. Determining fair value using a quantitative approach requires significant judgment, including judgments about projected revenues, operating expenses, working capital investment, capital expenditures, and cash flows over a multi-year period. The discount rate applied to our forecasts of future cash flows is based on our estimated weighted average cost of capital. In assessing the reasonableness of our determined fair values, we evaluate our results against our market capitalization. Changes in these estimates and assumptions could materially affect the determination of fair value and impact the goodwill impairment assessment.

Our latest assessment was performed using a qualitative approach as of October 1, 2019, and we determined that it was likely that the fair values of our reporting units ~~with~~were more than their carrying ~~values. We recognize an~~amounts, and therefore no impairment ~~charge for the amount by which the carrying amount exceeds the reporting unit's fair value, but only to the extent of goodwill recognized.~~

We generally determine the fair value of our reporting units using two valuation methods: "Income Approach — Discounted Cash Flow Method" and "Market Approach — Guideline Public Company Method". The approach defined below is based upon our last impairment test conducted as of October 1, 2016.

~~Under the "Income Approach — Discounted Cash Flow Method", the key assumptions include sales, cost of sales, and operating expense projections through the year 2021. These assumptions~~charges were determined by management utilizing our internal operating plan and assuming growth rates for revenues, operating expenses, and gross margin assumptions. The fourth key assumption under this approach is the discount rate, which is determined by looking at current risk-free rates, current market interest rates and the evaluation of risk premium relevant to the business segment. If any of our assumptions were to change or were incorrect, our fair value calculation may change, which could result in impairment.

Under the "Market Approach — Guideline Public Company Method", we identified eight publicly traded companies which we believe have significant relevant similarities to CTS. For these eight companies, we calculated a range of EBITDA multiples derived from the ratio of enterprise value to EBITDA and compared these multiples to the corresponding multiples for each of our reporting units. Similar to the income approach discussed above, sales, cost of sales, operating expenses and growth rates were key assumptions utilized in developing projected EBITDA levels for each of our reporting units. The market prices of CTS and the other guideline company's shares are also key assumptions as they are used to calculate enterprise value.

The results of these two methods are weighted based upon management's determination. The Market approach is based upon historical and current economic conditions, which might not reflect the long-term prospects or opportunities for our reporting units being evaluated.

If the carrying amount of a reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss, if any. This involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill.

There have not been any significant changes to our impairment testing methodology other than updates to the assumptions to reflect the current market environment. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, 2016.recorded. We will monitor future results and will perform a test if indicators trigger an impairment review. At this time, we have not deemed the impact that the current economic environment has or is expected to have on our business to be a triggering event for impairment purposes.

~~Valuation~~

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Impairment of Other Intangible and Long-Lived Assets

We evaluate the impairment of identifiable intangibles and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered that may trigger an impairment review consist of, but are not limited to, the following:

Significant decline in market capitalization relative to net book value,

Significant ~~underperformance~~under performance relative to expected historical or projected future operating results,

Significant changes in the manner of use of the acquired assets or the strategy for the overall business,

Significant negative industry or economic trends.

If we believe that one or more indicators of impairment have occurred, we perform a recoverability test by comparing the carrying amount of an asset or asset group to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value. We recorded a charge of $1,016 during the first quarter due to the impairment of a specific asset group. No indicators of impairment were identified asduring the quarter ended June 30, 2020.

Environmental and Legal Contingencies

U.S. GAAP requires a liability to be recorded for contingencies when it is probable that a liability has been incurred and the amount of ~~September 30, 2017.~~the liability can be reasonably estimated. Significant judgment is required to determine the existence and amounts of our environmental, legal and other contingent liabilities. We regularly consult with attorneys and consultants to determine the relevant facts and circumstances before we record a liability. Changes in laws, regulatory orders, cost estimates, participation of other parties, timing of payments, input of attorneys and consultants, or other circumstances may have a material impact on the recorded liability.

Income Taxes

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of ~~the~~ consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent

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operations. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage ~~the~~our underlying businesses.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ~~ASC~~Accounting Standards Codification (ASC) No. 740 states that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including ~~resolutions~~resolution of any related appeals or litigation processes, on the basis of its technical merits. We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

Our practice is to recognize interest and penalties related to income tax matters as part of income tax expense.

~~We earn a significant amount of our operating income outside~~

Following the enactment of the ~~U.S., which is generally deemed to be permanently reinvested~~2017 Tax Cut and Jobs Act and the associated one-time transition tax, in ~~foreign jurisdictions.~~ ~~However, we determined during 2015 that as a result~~general, repatriation of ~~changes in the business, the~~ foreign earnings to the U.S. can be completed with no incremental U.S. Tax. However, there are limited other taxes that continue to apply such as foreign withholding and certain state taxes. The company records a deferred tax liability for the estimated foreign earnings and state tax cost associated with the undistributed foreign earnings that are not permanently reinvested.

Table of ~~our subsidiaries in Canada and~~Contents

In the ~~U.K. were~~second quarter of 2020, the company made the decision to no longer permanently ~~reinvested. Therefore,~~reinvest the earnings of its Taiwan subsidiary. As a result, a provision for the expected taxes on repatriation of those earnings ~~was recorded~~. We do not intend to repatriate funds beyond the amount from our Canadian and U.K. subsidiaries; however, should we require more capital in the U.S. than is generated by our domestic operations, we could elect to repatriate funds held in foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. Repatriation would result in a higher effective tax rate. Borrowing in the U.S. would result in increased interest expense.has been recorded.

Significant Customers

Our net sales to customers representing at least 10% of total net sales ~~were~~is as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,		September 30,		September 30,		September 30,		June 30,		June 30,		June 30,		June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Cummins Inc.	14.6	%	9.5	%	13.6	%	9.8	%	9.7	%	18.0	%	13.4	%	18.3	%
Toyota Motor Corporation									11.6	%	11.8	%	11.7	%	11.1	%
Honda Motor Co.	11.7	%	10.5	%	10.8	%	10.8	%	9.9	%	9.9	%	8.1	%	10.1	%
Toyota Motor Corporation	9.9	%	9.9	%	10.2	%	10.5	%

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, and computer industries, as well as conditions in the industrial, defense and aerospace, and medical markets; reliance on key customers; unanticipated natural disasters or other events; the ability to protect our intellectual property; pricing pressures and demand for our products; unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters as well as any product liability claims; 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 CTS' Annual Report on Form 10‑K for the fiscal year ended December 31, ~~2016.~~2019. 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations” and to Part II, Item 1A, "Risk Factors”.

There have been no other material changes in our market risk since December 31, ~~2016.~~2019.

Item 4. Controls and Procedures

~~Pursuant to Rule 13a-15(e)~~Evaluation of Disclosure Controls and Procedures

Our management, with the ~~Securities and Exchange Act of 1934, management, under the direction~~participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and ~~procedures.~~procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on ~~such~~that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of ~~September 30, 2017.~~the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CTS Corporation have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting for the quarter ended ~~September~~June 30, ~~2017,~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

~~Not applicable~~

Item 1. Legal Proceedings

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, we believe we have established adequate accruals pursuant to U.S. generally accepted accounting principles for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based ~~upon~~on presently available ~~information, either adequate provision for anticipated costs have been accrued~~information. However, there can be no assurance that the final resolution of any existing or ~~the ultimate anticipated costs~~future lawsuits, claims or proceedings will not ~~materially affect~~have a material adverse effect on our ~~consolidated financial position,~~business, results of operations, financial condition, or cash flows.

See Note 10 "Contingencies" in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

~~There~~The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, supply chains and distribution systems, and results of operations. We have ~~been no significant changes~~experienced, and expect to continue to experience, disruptions in production and supply due to mandated facility closures, labor capacity restrictions, and unpredictable fluctuations in demand for our ~~risk factors since December 31, 2016.~~products. The pandemic could lead to a continued disruption of economic activity and the impact on our consolidated results of operations, financial position and cash flows could be material.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On ~~April 27, 2015, we announced that our~~February 7, 2019 the Board of Directors authorized ~~an expansion to its~~a stock repurchase program ~~by authorizing the purchase~~with a maximum dollar limit of ~~an additional~~ $25 ~~million dollars~~million. This program authorizes us to make repurchases of ~~its~~our common stock infrom time to time on the open ~~market. This authorization~~market, but does not obligate us to make repurchases, and it has no ~~expiration. As shown in the following table, there were no stock repurchases during the quarter ended September 30, 2017.~~expiration date.

(c)
Total Number (d)
(a) of Shares Maximum Dollar Value
Total Number of (b) Purchased as of Shares That May Yet Be
Shares Average Price Part of Plans or Purchased Under the
Purchased Paid per Share Program
Plans or Programs(2)

Balance at December 31, 2016 $ 17,554
January 1, 2017 - September 30, 2017 —
—
—
$ —
Total —
—
—
$ 17,554



				Total Number	Maximum Dollar
				of Shares	Value of Shares
				Purchased as	That May Yet By
	Total Number of			Part of Publicly	Purchased Under
	Shares	Average Price		Announced	Publicly Announced
	Purchased	Paid per Share		Programs	Plans or Programs
April 1, 2020 through April 30, 2020	114,000	$	22.66	114,000	$	5,933
May 1, 2020 through May 31, 2020	8,000	$	24.11	8,000	$	5,740
June 1, 2020 through June 30, 2020	—	$	—	—	$	5,740
Total	122,000	$	22.76	122,000

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Item 6. Exhibits



10.1	Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of June 28, 2018, as filed herewith.

10.2	Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of June 1, 2020, as filed herewith.

(31)(a)	Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

(31)(b)	Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.

(32)(a)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

(32)(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.

~~101.INS~~101.1	~~XBRL Instance Document~~The following information from CTS Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 formatted in Inline XBRL: (i) Condensed Consolidated Statements of Earnings for the three and six months ended June 30, 2020 and 2019; (ii) Condensed Consolidated Statements of Comprehensive Earnings for the three and six months ended June 30, 2020 and 2019; (iii) Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019; (v) Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019; (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

~~101.SCH~~104	The cover page from this Current Report on Form 10-Q formatted as inline XBRL ~~Taxonomy Extension Schema Document~~




~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CTS Corporation		CTS Corporation

/s/ ~~Luis F. Machado~~William M. Cahill		/s/ Ashish Agrawal
~~Luis F. Machado~~William M. Cahill ~~Vice President, General Counsel and Secretary~~Chief Accounting Officer		Ashish Agrawal Vice President and Chief Financial Officer
(Principal Accounting Officer)		(Principal Financial Officer)

Dated: ~~October 26, 2017~~July 31, 2020		Dated: ~~October 26, 2017~~July 31, 2020

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	As of
	December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	63,386	$	(30,318	)	$	33,068
Patents	10,319		(10,319		)	—
Technology and other intangibles	36,715		(7,613		)	29,102
In process research and development	2,200		—			2,200
Other intangible assets, net	$	112,620	$	(48,250	)	$	64,370
Amortization expense for the three months ended September 30, 2016			$	1,638
Amortization expense for the nine months ended September 30, 2016			$	4,254



	Amortization expense
2017	$	1,708
2018	6,763
2019	6,754
2020	6,624
2021	6,467
Thereafter	40,336
Total amortization expense	$	68,652



	Three Months Ended
	September 30, 2017		September 30, 2016
Restructuring charges	$	1,435	$	1,969



Combined Plans
Restructuring liability at January 1, 2017	$	2,162
Restructuring charges	2,942
Cost paid	(3,162		)
Other activity (1)	65
Restructuring liability at September 30, 2017	$	2,007



				Foreign
	Interest			Currency
	Rate Swaps			Hedges
Balance at January 1, 2016	$	(768	)	$	—
Settled in cash	—			54
Included in earnings	928			(18		)
Included in other comprehensive earnings	593			(637		)
Balance at December 31, 2016	$	753		$	(601	)
Settled in cash	(6		)	(75		)
Included in earnings	(6		)	(51		)
Included in other comprehensive earnings	(91		)	987
Balance at September 30, 2017	$	650		$	260



	Preliminary Fair Values at May 15, 2017
Current assets	$	2,836
Property, plant and equipment	980
Other assets	108
Goodwill	7,189
Intangible assets	9,142
Fair value of assets acquired	20,255
Less fair value of liabilities acquired	(1,134		)
Net cash paid	$	19,121



	Fair Values at March 11, 2016
Current assets	$	4,215
Property, plant and equipment	6,173
Other assets	37
Goodwill	27,879
Intangible assets	35,427
Fair value of assets acquired	73,731
Less fair value of liabilities acquired	(668		)
Net cash paid	$	73,063



Intangible Asset Type	Fair Value		Weighted Average Amortization Period (in years)
Developed Technology	$	23,730	15.0
Customer Relationships and Contracts	11,502		14.6
Other	195		0.8
Total	$	35,427	14.8



	For the period March 11, 2016 through September 30, 2016
Net sales	$	7,096
Net earnings	$	256