CTS CORP 10-K

Item 9A. Controls and Procedures (a) Evaluation of Disclosure and Controls Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and 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 Annual Report on Form 10-K. Based on 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 Annual Report on Form 10-K 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 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. (b) Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 as amended (the Exchange Act)). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework). Based on our assessment under the framework in Internal Control—Integrated Framework (2013 framework), our management concluded that our internal control over financial reporting was effective as of December 31, 2020. The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report that is included herein. (c) Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting for the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. CTS CORPORATION 65 REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders CTS Corporation Opinion on internal control over financial reporting We have audited the internal control over financial reporting of CTS Corporation (an Indiana corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 25, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Chicago, Illinois February 25, 2021 CTS CORPORATION 66 Table of Contents Item 9B. Othe r Information Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance Please see Part I, Item 1 of this Annual Report on Form 10-K for information about our executive officers, which is incorporated by reference herein. Information with respect to Directors and Corporate Governance may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders. Such information is incorporated herein by reference. Item 11. Executive Compensation Information with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders. Such information is incorporated herein by reference. EQUITY COMPENSATION PLAN INFORMATION The following table provides information about shares of CTS common stock that could be issued under all of our equity compensation plans as of December 31, 2020: Plan Category (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, RSUs, Warrants and Rights (2) (b) Weighted- Average Grant Date Fair Value of Outstanding Options, RSUs, Warrants and Rights (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) Equity compensation plans approved by security holders 806,336 $ 24.24 1,950,980 Equity compensation plans not approved by security holders (1) 5,522 — — Total 811,858 1,950,980 (1) In 1990, we adopted the Stock Retirement Plan for Non-Employee Directors. Prior to December 1, 2004, we annually credited an account for each non-employee director with 800 CTS common stock units. We also annually credited each deferred stock account with an additional number of CTS common stock units representing the amount of dividends which would have been paid on an equivalent number of shares of CTS common stock for each quarter during the preceding calendar year. As of December 1, 2004, this plan was amended to preclude crediting any additional CTS common stock units under the plan. Upon retirement, a participating non-employee director is entitled to receive one share of CTS common stock for each CTS common stock unit in his deferred stock account. On December 31, 2020, the deferred stock accounts contained a total of 5,522 CTS common stock units. (2) Based on achievement of the maximum targets for performance-based equity grants. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders. Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders. Such information is incorporated herein by reference. CTS CORPORATION 67 Item 14. Principal Accou ntant Fees and Services Information with respect to this item may be found in our definitive proxy statement to be delivered to shareholders in connection with our 2021 Annual Meeting of Shareholders. Such information is incorporated herein by reference. CTS CORPORATION 68 Table of Contents PART IV Item 15. Exhibits and Financial Statements Schedules (a) (1) Financial Statements The following Consolidated Financial Statements of CTS Corporation and Subsidiaries are included herein: Report of Independent Registered Public Accounting Firm Consolidated Statements of Earnings: Years ended December 31, 2020, December 31, 2019, and December 31, 2018 Consolidated Statements of Comprehensive Earnings: Years ended December 31, 2020, December 31, 2019, and December 31, 2018 Consolidated Balance Sheets: December 31, 2020, and December 31, 2019 Consolidated Statements of Cash Flows: Years ended December 31, 2020, December 31, 2019, and December 31, 2018 Consolidated Statements of Shareholders' Equity: Years Ended December 31, 2020, December 31, 2019, and December 31, 2018 Notes to Consolidated Financial Statements (a) (2) Financial Statement Schedule: Schedule II: Valuation and Qualifying Accounts and Reserves Other schedules have been omitted because they are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto. (a) (3) Exhibits All references to documents filed pursuant to the Securities Exchange Act of 1934, including Forms 10-K, 10-Q and 8-K, were filed by CTS, File No. 1-4639. (3)(i) Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 5 to the Current Report on Form 8-K, filed with the SEC on September 1, 1998). (3)(ii) Amended Bylaws (incorporated herein by reference to Exhibit 3 to the Form 8-K, filed with the SEC on April 30, 2019). (3)(iii) Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit A to the 2020 Proxy Statement, filed with the SEC on April 2, 2020). (10)(a) CTS Corporation Stock Retirement Plan for Non-Employee Directors, effective April 30, 1990, as amended (incorporated by reference to Exhibit (10)(a) to the Quarterly Report on Form 10-Q for the quarter ended March 30, 2003, filed with the SEC on April 23, 2003).* (10)(b) Amendment to the CTS Corporation Stock Retirement Plan for Non-Employee Directors, dated as of December 1, 2004 (incorporated by reference to Exhibit (10)(j) to the Annual Report on Form 10-K for the year ended December 31, 2004, filed with the SEC on March 4, 2005). (10)(c) Prototype Individual Excess Benefit Retirement Plan (incorporated by reference to Exhibit 10(d) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the SEC on October 24, 2007).* (10)(d) CTS Corporation Executive Severance Policy, effective as of September 10, 2009 (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended September 27, 2009, filed with the SEC on October 28, 2009).* (10)(e) Prototype Change in Control Agreement (incorporated by reference to Exhibit 10(x) to the Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 24, 2012).* (10)(f) First Amendment to the CTS Corporation Executive Severance Policy (incorporated by reference to Exhibit 10(b) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed with the SEC on April 25, 2013).* (10)(g) CTS Corporation 2014 Performance and Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K, filed with the SEC on May 22, 2014).* CTS CORPORATION 69 (10)(h) Credit Agreement Between CTS Corporation and CTS International B.V. and BMO Harris Bank N.A. dated February 12, 2019 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on February 15, 2019). (10)(i) CTS Corporation Pension Plan Exhibit (Amended and Restated Effective As of July 1, 2015) (incorporated by reference to Exhibit 10(s) to the Form 10-K filed with the SEC on February 23, 2018). (10)(j) Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of October 6, 2016, (incorporated by reference to Exhibit 10(t) to the Form 10-K filed with the SEC on February 23, 2018). (10)(k) Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of June 26, 2017, (incorporated by reference to Exhibit 10(u) to the Form 10-K filed with the SEC on February 23, 2018). (10)(l) Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of September 22, 2017, (incorporated by reference to Exhibit 10(v) to the Form 10-K filed with the SEC on February 23, 2018). (10)(m) Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of June 28, 2018, (incorporated by reference to Exhibit 10.1 to Form 10-Q filed with the SEC on July 31, 2020). (10)(n) Amendment to the CTS Corporation Pension Plan (Amended and Restated Effective as of July 1, 2015) as of June 1, 2020, (incorporated by reference to Exhibit 10.1 to Form 10-Q filed with the SEC on July 31, 2020). (10)(o) CTS Corporation Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Form 8-K, filed with the SEC on February 18, 2015) (10)(p) CTS Corporation 2018 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K, filed with the SEC on May 22, 2018). (21) Subsidiaries. (23) Consent of Grant Thornton LLP. (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 The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Earnings, (ii) Consolidated Statements of Comprehensive Earnings, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. 104 The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL * Management contract or compensatory plan or arrangement. CTS CORPORATION 70 Table of Contents 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 Date: February 25, 2021 By: /s/ Ashish Agrawal Ashish Agrawal Vice President and Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: February 25, 2021 By: /s/ Kieran O'Sullivan Kieran O'Sullivan Chairman, President, and Chief Executive Officer (Principal Executive Officer) Date: February 25, 2021 By: /s/ Robert A. Profusek Robert A. Profusek Lead Director Date: February 25, 2021 By: /s/ Patricia K. Collawn Patricia K. Collawn Director Date: February 25, 2021 By: /s/ Gordon Hunter Gordon Hunter Director Date: February 25, 2021 By: /s/ William S. Johnson William S. Johnson Director Date: February 25, 2021 By: /s/ Alfonso G. Zulueta Alfonso G. Zulueta Director Date: February 25, 2021 By: /s/ Ye Jane Li Ye Jane Li Director Date: February 25, 2021 By: /s/ Donna M. Costello Donna M. Costello Director CTS CORPORATION 71