What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 193 added, 385 removed, 434 unchanged (57% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

2 unchanged sentences

Restructuring charges

Loss (gain) on sale of assets

Operating earnings

2 unchanged sentences

Interest income

Other income (expense), net

Total other income (expense), net

Other expense, net

Total other expense, net

Earnings before income taxes

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive earnings:

Other comprehensive earnings (loss):

Changes in fair market value of derivatives, net of tax

1 unchanged sentence

Cumulative translation adjustment, net of tax

Other comprehensive earnings

Other comprehensive earnings (loss)

Comprehensive earnings

3 unchanged sentences

(In thousands of dollars)

September 30,

Current Assets

36 unchanged sentences

(In thousands of dollars)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Asset impairment charges

Restructuring non-cash charges

Deferred income taxes

Gain on sales of fixed assets

(Gain) loss on foreign currency hedges, net of cash

(Gain) on foreign currency hedges, net of cash

Changes in assets and liabilities, net of acquisition:

3 unchanged sentences

Accrued payroll and benefits

Income taxes payable

Operating lease liabilities

4 unchanged sentences

Capital expenditures

Proceeds from sale of assets

Payments for acquisitions, net of cash acquired

Net cash used in investing activities

19 unchanged sentences

(in thousands of dollars)

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

The following summarizes the changes in total equity for the three months ended March 31, 2021:

Comprehensive

Earnings/(Loss)

Balances at December 31, 2020

3 unchanged sentences

Cash dividends of $ 0.04 per share

Acquired 220,731 shares of treasury stock

Issued shares on vesting of restricted stock units

1 unchanged sentence

Balances at March 31, 2021

Changes in fair market value of derivatives, net of tax

Changes in unrealized pension cost, net of tax

Cumulative translation adjustment, net of tax

Cash dividends of $ 0.04 per share

Acquired 122,000 shares of treasury stock

Issued shares on vesting of restricted stock units

Stock compensation

Balances at June 30, 2020

Changes in fair market value of derivatives, net of tax

Changes in unrealized pension cost, net of tax

Cumulative translation adjustment, net of tax

Cash dividends of $ 0.04 per share

Issued shares on vesting of restricted stock units

Stock compensation

Balances at September 30, 2020

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands of dollars)

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

The following summarizes the changes in total equity for the three months ended March 31, 2020:

Comprehensive

Earnings/(Loss)

Balances at December 31, 2019

7 unchanged sentences

Balances at March 31, 2020

Changes in fair market value of derivatives, net of tax

Changes in unrealized pension cost, net of tax

Cumulative translation adjustment, net of tax

Cash dividends of $ 0.04 per share

Acquired 148,466 shares of treasury stock

Issued shares on vesting of restricted stock units

Stock compensation

Balances at June 30, 2019

Changes in fair market value of derivatives, net of tax

Changes in unrealized pension cost, net of tax

Cumulative translation adjustment, net of tax

Cash dividends of $ 0.04 per share

Acquired 106,760 shares of treasury stock

Issued shares on vesting of restricted stock units

Stock compensation

Balances at September 30, 2019

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

(in thousands except for share and per share data)

September 30, 2020

March 31, 2021

NOTE 1 — Basis of Presentation

19 unchanged sentences

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 September 30, 2020 contained a significant financing component.

None of our contracts as of March 31, 2021 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.

5 unchanged sentences

Three months ended

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Transportation

Aerospace & Defense

NOTE 3 – Accounts Receivable

NOTE 3 – Business Acquisitions

On December 30, 2020, we acquired 100 % of the outstanding shares of Sensor Scientific, Inc.

SSI is a manufacturer of high-quality thermistors and temperature sensor assemblies serving original equipment manufacturers (“OEMs”) for applications that require precision and reliability in the medical, industrial and defense markets.

SSI has complementary capabilities with our existing temperature sensing platform and the acquisition expands our presence in the medical end market.

It also provides high quality ceramic processing capabilities and valuable customer partnerships that expands our temperature sensing product portfolio and builds on our strategy to focus on innovative products that sense, connect and move.

The purchase price, which includes assumed changes in working capital, of $ 10,309 has been allocated to the fair values of assets and liabilities acquired as of December 30, 2020.

The allocation of the purchase price continues to be preliminary pending the completion of the valuation of intangible assets and finalization of management's estimates, which are expected to occur in the second quarter.

The information included below represents our current estimate of the purchase price allocation.

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

Consideration

Cash paid, net of cash acquired of $ 470

Contingent consideration

Purchase price

Fair Values at

December 30, 2020

Current assets

Property, plant and equipment

Intangible assets

Fair value of assets acquired

Less fair value of liabilities acquired

Purchase price

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 of customer relationships, access to new customers, and potential cost savings and synergies.

Goodwill related to the acquisition is expected to be deductible for tax purposes.

All contingent consideration is payable in cash and is based on success factors related to the integration process as well as upon the achievement of a revenue performance target through the year ending December 31, 2022, with the possibility of prorated interim payments.

The Company recorded $ 2,000 as the acquisition date fair value of the contingent consideration based on an estimate of the

probability of achieving the performance targets.

This represents the maximum amount of contingent consideration payable by the Company.

This amount is also reflected as an addition to the purchase price and will be evaluated quarterly.

As of March 31, 2021, $ 150 of the contingent consideration became due based on revenue targets achieved and will be paid out in the second quarter.

As of March 31, 2021, and December 31, 2020, $ 950 and $ 800 were recorded in accrued expenses and other liabilities and $ 1,050 and $ 1,200 in other long-term obligations, in each case, respectively.

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

Customer lists/relationships

Technology and other intangibles

The amounts and assumptions included above remain estimates that may be adjusted by the Company once purchase accounting is complete.

NOTE 4 – Accounts Receivable, net

The components of accounts receivable, net are as follows:

September 30,

Accounts receivable, gross

1 unchanged sentence

Accounts receivable, net

NOTE 4 – Inventories

NOTE 5 – Inventories, net

Inventories, net consists of the following:

September 30,

Finished goods

3 unchanged sentences

Inventories, net

NOTE 5 – Property, Plant and Equipment

NOTE 6 – Property, Plant and Equipment, net

Property, plant and equipment, net is comprised of the following:

September 30,

Land and land improvements

3 unchanged sentences

Property, plant and equipment, net

Depreciation expense for the nine months ended

September 30, 2020

Depreciation expense for the nine months ended

September 30, 2019

Depreciation expense for the three months ended

March 31, 2021

Depreciation expense for the three months ended

March 31, 2020

NOTE 7 – Retirement Plans

Pension Plans

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

Net pension expense for our domestic and foreign plans included in other expense, net in the Condensed Consolidated Statement of Earnings is as follows:

Three months ended

Nine months ended

September 30,

Net pension expense

4 unchanged sentences

Three Months Ended

September 30,

Interest cost

3 unchanged sentences

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

Domestic Pension Plans

Foreign Pension Plans

Nine Months Ended

September 30,

Interest cost

Expected return on plan assets (1)

Amortization of loss

Total expense, net

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 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.

In February 2020, the CTS Board of Directors authorized management to explore termination of the U.S.-based pension plan ("Plan"), subject to certain conditions.

On June 1, 2020, we entered the Fifth Amendment to the Plan whereby we set an effective termination date for the Plan of July 31, 2020.

In February 2021, we received a determination letter from the Internal Revenue Service that allows us to proceed with the termination process for the Plan.

In connection with the termination, the Plan has offered a window extending from March 29, 2021 through May 7, 2021 to certain eligible participants to elect lump sum payments.

The distribution date is June 1, 2021.

The completion of the Plan termination process, including the final purchase of annuities, is expected to occur in the second half of 2021.

Upon settlement of the pension liability, we will reclassify the related pension losses, currently recorded in accumulated other comprehensive loss, to the Condensed Consolidated Statements of Earnings.

As of March 31, 2021, we had gross unrecognized losses related to the Plan of $ 123,238 in accumulated other comprehensive loss that are expected to be recognized in the income statement in 2021.

Since the amount of the settlement depends on a number of factors determined as of the liquidation date, including lump sum payout estimates, the annuity pricing interest rate environment and asset performance, we are currently unable to determine the ultimate cost of the settlement.

However, we estimate non-cash settlement charges of approximately $ 10,000 to $ 20,000 will be

recognized in the second quarter of 2021 with the remaining amount of the gross accumulated other comprehensive loss balance to be recognized upon final settlement.

We do not expect any cash contributions from the Company to the Plan as a result of this termination because Plan assets significantly exceed estimated liabilities.

Other Post-retirement Benefit Plan

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Interest cost

1 unchanged sentence

Total expense, net

NOTE 7 – Other Intangible Assets

NOTE 8 – Goodwill and Other Intangible Assets

Other Intangible Assets

Other intangible assets, net consist of the following components:

September 30, 2020

March 31, 2021

Customer lists/relationships

3 unchanged sentences

Amortization expense for the three months ended

September 30, 2020

Amortization expense for the nine months ended

September 30, 2020

In the third quarter of 2020, due to the restructuring actions further outlined in Note 8, we performed an interim impairment assessment.

This resulted in the recognition of $ 2,200 of impairment charges related to in process research and development, and a revaluation of associated contingent liabilities totaling $ 1,900 .

The net impact of $ 300 was recorded as restructuring expense in the Condensed Consolidated Statements of Earnings.

March 31, 2021

December 31, 2020

4 unchanged sentences

Amortization expense for the three months ended

September 30, 2019

Amortization expense for the nine months ended

September 30, 2019

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

March 31, 2020

Remaining amortization expense for other intangible assets as of March 31, 2021 is as follows:

Total amortization expense

Changes in the net carrying amount of goodwill were as follows:

Goodwill as of December 31, 2020

Decrease from purchase accounting adjustments

Goodwill as of March 31, 2021

NOTE 9 – Costs Associated with Exit and Restructuring Activities

2 unchanged sentences

Three Months Ended

September 30, 2020

September 30, 2019

Restructuring charges

Nine Months Ended

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Restructuring charges

September 2020 Plan

In September 2020, we initiated a restructuring plan focused on optimizing our manufacturing footprint and improving operational efficiency by better utilizing our systems capabilities.

This plan includes transitioning certain administrative functions to a shared service center, realignment of manufacturing locations, and certain other efficiency improvement actions ("September 2020 Plan").

The restructuring cost of the plan is estimated to range between $ 5,000 and $ 6,000 , including workforce reduction charges, building and equipment relocation charges, other contract and asset related costs.

In addition to these charges, we expect an additional $ 5,000 to $ 6,000 of other costs to be incurred related to the initiatives that would not qualify as restructuring charges.

These costs would include certain related employee resource overlap and training costs as well as additional capital expenditures.

Restructuring charges under this plan were $ 1,008 during the three and nine months ended September 30, 2020.

The total restructuring liability related to the September 2020 Plan was $ 583 at September 30, 2020.

In September 2020, we initiated a restructuring plan focused on optimizing our manufacturing footprint and improving operational efficiency by better utilizing our systems capabilities (the "September 2020 Plan").

This plan includes transitioning certain administrative functions to a shared service center, realignment of manufacturing locations, and certain other efficiency improvement actions.

The restructuring cost of the September 2020 Plan is estimated to be in the range of $ 4,600 and $ 6,000 , including workforce reduction charges, building and equipment relocation charges and other contract and asset-related costs.

In addition to these charges, we expect an additional $ 4,000 to $ 5,100 of other costs to be incurred related to initiatives that would not qualify as restructuring charges.

These costs would include certain employee overlap and training costs as well as additional capital expenditures.

Restructuring charges under the September 2020 Plan were $( 17 ) during the three months ended March 31, 2021, consisting of $ 36 of workforce reduction costs and $( 53 ) of other contract termination and facility closure costs.

The total restructuring liability related to the September 2020 Plan was $ 130 at March 31, 2021 and $ 512 at December 31, 2020.

June 2016 Plan

In June 2016, we announced plans to restructure operations by phasing out production at our Elkhart, IN facility and transitioning it into a research and development center supporting our global operations ("June 2016 Plan").

Additional organizational changes were also implemented in various other locations.

In 2017, we revised 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 have now been consolidated into a single facility.

Restructuring charges under this plan, which is substantially complete, were $ 0 and $ 671 during the three months ended September 30, 2020 and 2019, respectively.

Restructuring charges under this plan were $( 32 ) and $ 3,914 during the nine months ended September 30, 2020 and 2019, respectively.

The total restructuring liability related to the June 2016 Plan was $ 23 at September 30, 2020 and $ 233 at December 31, 2019.

Additional costs related to production line movements, equipment charges, and other costs will be expensed as incurred.

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 30, 2020:

June 2016 Plan

September 30, 2020

Workforce reduction

Building and equipment relocation

Other charges (1)

Total restructuring charges

Other charges includes the effects of currency translation, non-cash asset write-downs and other charges.

In 2017, we revised the June 2016 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 have now been consolidated into a single facility.

These restructuring actions were completed as of March 31, 2021.

Restructuring charges under the June 2016 Plan were $( 3 ) and $( 32 ) during the three months ended March 31, 2021 and March 31, 2020, respectively.

The total restructuring liability related to the June 2016 Plan was $ 0 at March 31, 2021 and $ 3 at December 31, 2020.

April 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 our business model and rationalize our global footprint (“April 2014 Plan”).

These restructuring actions were completed in 2015.

Restructuring charges associated with this plan were $ ( 248 ) for the three and nine months ended September 30, 2019.

There were no restructuring charges incurred under this plan during the three and nine months ended September 30, 2020.

The total restructuring liability related to the April 2014 Plan was $ 874 at September 30, 2020, and $ 703 at December 31, 2019.

These restructuring actions were substantially completed during 2015.

There were no restructuring charges incurred under the April 2014 Plan during the three months ended March 31, 2021 and March 31, 2020, respectively.

The total restructuring liability related to the April 2014 Plan was $ 847 at March 31, 2021 and $ 839 at December 31, 2020.

The remaining liability is expected to be settled in the second quarter of 2021.

Other Restructuring Activities

From time to time we undertake other restructuring activities that are not part of a formal plan.

During the three and nine months ended September 30, 2020, we incurred restructuring charges of $ 33 and $ 440 , respectively, primarily relating to workforce reduction actions.

During the three and nine months ended September 30, 2019, we incurred restructuring charges of $ 1,671 for exit and disposal activities at three facilities, of which $ 800 was related to a lease termination charge resulting from our acquisition of Quality Thermistor, Inc.

(see Note 19, “Business Acquisitions”) and $ 871 was related to workforce and building relocation costs at two foreign facilities.

The total remaining restructuring liability associated with these actions was $ 14 at September 30, 2020 and $ 1,057 at December 31, 2019.

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

During the three months ended March 31, 2021 and March 31, 2020, we incurred restructuring charges of $ 101 and $ 272 , respectively, primarily related to workforce reduction costs.

The total restructuring liability associated with these actions was $ 83 at March 31, 2021 and $ 9 at December 31, 2020.

The following table displays the restructuring liability activity included in accrued expenses and other liabilities for all plans for the three months ended March 31, 2021:

Restructuring liability at January 1, 2021

1 unchanged sentence

Other activity (1)

Restructuring liability at September 30, 2020

Restructuring liability at March 31, 2021

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

NOTE 9 – Accrued Liabilities

NOTE 10 – Accrued Expense and Other Liabilities

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

September 30,

Accrued product related costs

17 unchanged sentences

A roll-forward of remediation reserves included in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets is comprised of the following:

September 30,

Balance at beginning of period

7 unchanged sentences

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 estimated.

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 or will be incurred, and provide disclosures for specific claims whenever it is reasonably possible that a material loss may be incurred which cannot be estimated.

We cannot provide assurance that the ultimate disposition of environmental, legal, and product warranty claims will not materially exceed the amount of our accrued losses and adversely impact our consolidated financial position, results of operations, or cash flows.

Our accrued liabilities and disclosures will be adjusted accordingly if additional information becomes available in the future.

NOTE 12 — 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 rate implicit in the lease arrangement.

Components of lease expense for the three months ended March 31, 2021 were as follows:

Three Months Ended

Operating lease cost

Short-term lease cost

Total lease cost

Supplemental cash flow information related to leases was as follows:

Three Months Ended

Cash paid for amounts included in the measurement of lease

Leased assets obtained in exchange for new operating lease

Supplemental balance sheet information related to leases was as follows:

Balance Sheet Classification:

Operating lease obligations

Long-term operating lease obligations

Total lease liabilities

Weighted-average remaining lease terms (years)

Weighted-average discount rate

Remaining maturity of our existing lease liabilities as of March 31, 2021 is as follows:

Present value of lease liabilities

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

NOTE 13 - Debt

Long-term debt was comprised of the following:

September 30,

Total credit facility

6 unchanged sentences

The 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.

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 prior credit agreement were refinanced into the Credit Agreement.

The revolving credit facility includes a swing line sublimit of $ 15,000 and a letter of credit sublimit of $ 10,000 .

3 unchanged sentences

The Credit 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 credit facility.

We were compliant with all debt covenants at September 30, 2020.

Failure to comply with these covenants could reduce the borrowing availability under the revolving credit facility.

We were compliant with all debt covenants at March 31, 2021.

The Credit 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.

7 unchanged sentences

engage in certain transactions with our subsidiaries and affiliates;

and make stock repurchases and dividend payments.

and make stock

repurchases and dividend payments.

Interest rates on the credit facility fluctuate based upon the LIBOR and the Company’s quarterly total leverage ratio.

We have debt issuance costs related to our long-term debt that are being amortized using the straight-line method over the life of the debt.

Amortization expense for three and nine months ended September 30, 2020 and 2019 was approximately $ 42 and $ 126 and $ 42 and $ 121 , respectively.

Amortization expense for three months ended March 31, 2021 and March 31, 2020 was approximately $ 42 and $ 42 , respectively.

These costs are included in interest expense in our Condensed Consolidated Statement of Earnings.

7 unchanged sentences

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.

No recognition of ineffectiveness was recorded in our Condensed Consolidated Statements of Earnings for the three months ended March 31, 2021.

Foreign Currency Hedges

2 unchanged sentences

We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future.

At September 30, 2020, we had a net unrealized loss of $ 458 in accumulated other comprehensive (loss) income, of which $ 425 is expected to be reclassified to earnings within the next 12 months.

At September 30, 2019 we had a net unrealized gain of $ 507 in accumulated other comprehensive (loss) income.

The notional amount of foreign currency forward contracts outstanding was $ 17,015 at September 30, 2020.

At March 31, 2021, we had a net unrealized gain of $ 670 in accumulated other comprehensive (loss) income, of which $ 668 is expected to be reclassified to earnings within the next 12 months.

At March 31, 2020, we had a net unrealized loss of $ 2,076 in accumulated other comprehensive (loss) income.

The notional amount of foreign currency forward contracts outstanding was $ 16,445 at March 31, 2021.

Interest Rate Swaps

We use interest rate swaps to convert a portion of our revolving credit facility’s outstanding balance from a variable rate of interest to a fixed rate.

As of September 30, 2020, we have agreements to fix interest rates on $ 50,000 of long-term debt through February 2024.

As of March 31, 2021, we have agreements to fix interest rates on $ 50,000 of long-term debt 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.

1 unchanged sentence

The estimated net amount of the existing losses that are reported in accumulated other comprehensive (loss) income that are expected to be reclassified into earnings within the next twelve months is approximately $ 518 .

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

September 30,

Interest rate swaps reported in Other current assets

The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of March 31, 2021, are shown in the following table:

Interest rate swaps reported in accrued liabilities

1 unchanged sentence

Foreign currency hedges reported in other current assets

Foreign currency hedges reported in Accrued liabilities

The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 ( Balance Sheet, Offsetting ).

On a gross basis, there were foreign currency derivative assets of $ 0 and foreign currency derivative liabilities of $ 615 at September 30, 2020.

On a gross basis, there were foreign currency derivative assets of $ 856 and foreign currency derivative liabilities of $ 0 at March 31, 2021.

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

Three Months Ended

Nine Months Ended

September 30,

Foreign Exchange Contracts:

2 unchanged sentences

Selling, general and administrative expense

Total (loss) gain reclassified from AOCI to earnings

Gain recognized in other expense for hedge ineffectiveness

Total derivative (loss) gain on foreign exchange contracts recognized in earnings

Total gain reclassified from AOCI to earnings

Gain (loss) recognized in other expense for hedge ineffectiveness

Total derivative gain on foreign exchange contracts recognized in earnings

Interest Rate Swaps:

(Expense) benefit recorded in Interest expense

Total (losses) gains on derivatives

Total gains on derivatives

NOTE 15 – Accumulated Other Comprehensive (Loss) Income

11 unchanged sentences

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 for the three and nine months ended September 30, 2020 were $ 2,326 and $ 1,947 , respectively and transaction losses for the three and nine months ended September 30, 2019 were $ 2,473 and $ 2,828 , respectively, which have been included in other income (expense) in the Condensed Consolidated Statement of Earnings.

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

September 30,

Changes in fair market value of hedges:

Income tax benefit (expense)

Changes in unrealized pension cost:

Transaction losses for the three months ended March 31, 2021 and March 31, 2020 were $ 1,330 and $ 1,271 , respectively, which have been included in other (expense) income in the Condensed Consolidated Statements of Earnings.

The components of accumulated other comprehensive (loss) income for the three months ended March 31, 2021 are as follows:

Changes in fair market value of derivatives:

Income tax benefit (expense)

Cumulative translation adjustment:

Income tax benefit

Total accumulated other comprehensive (loss) income

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

September 30,

Changes in fair market value of hedges:

Income tax (expense) benefit

Changes in unrealized pension cost:

1 unchanged sentence

Cumulative translation adjustment:

Income tax benefit (expense)

Total accumulated other comprehensive (loss) income

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

September 30,

Changes in fair market value of hedges:

The components of accumulated other comprehensive (loss) income for the three months ended March 31, 2020, are as follows:

Changes in fair market value of derivatives:

Income tax (expense) benefit

4 unchanged sentences

Total accumulated other comprehensive (loss) income

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

September 30,

Changes in fair market value of hedges:

Income tax (expense) benefit

Changes in unrealized pension cost:

Income tax benefit (expense)

Cumulative translation adjustment:

Income tax benefit

Total accumulated other comprehensive (loss) income

NOTE 16 – Shareholders’ Equity

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

September 30,

Preferred Stock

7 unchanged sentences

Treasury stock

On February 7, 2019, the Board of Directors authorized a new stock repurchase program with a maximum dollar limit of $ 25,000 in stock repurchases, which replaced the previous program.

During the nine months ended September 30, 2020 and 2019, 342,731 and 286,726 shares of common stock were repurchased for $ 8,080 and $ 8,045 , respectively.

On February 7, 2019, the Board of Directors authorized a stock repurchase program with a maximum dollar limit of $ 25,000 in stock repurchases.

During the three months ended March 31, 2021, no shares of common stock were repurchased.

During the three months ended March 31, 2020, 220,731 shares of common stock were repurchased for $ 5,304 .

Approximately $ 5,740 is available for future purchases.

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

Nine months ended

September 30,

Three months ended

Balance at the beginning of the year

2 unchanged sentences

Certain potentially dilutive restricted stock units are excluded from diluted earnings per share because they are anti-dilutive.

The number of outstanding awards that were anti-dilutive for the nine months ended September 30, 2020 and 2019 were 68,198 and 20,273 , respectively.

There were no anti-dilutive awards outstanding for the three months ended September 30, 2020 and the three months ended September 30, 2019.

The number of outstanding awards that were anti-dilutive for the three months ended March 31, 2021 and March 31, 2020 were 35,167 and 38,839 , respectively.

NOTE 17 - Stock-Based Compensation

At September 30, 2020, we had five active stock-based compensation plans:

the 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”), the 2014 Performance & Incentive Plan (“2014 Plan”), and the 2018 Equity and Incentive Compensation Plan ("2018 Plan").

At March 31, 2021, we had five active stock-based compensation plans:

the 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”), the 2014 Performance and Incentive Compensation Plan (“2014 Plan”), and the 2018 Equity and Incentive Compensation Plan ("2018 Plan").

Future grants can only be made under the 2018 Plan.

2 unchanged sentences

Three months ended

Nine months ended

September 30,

Service-based RSUs

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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:

September 30, 2020

March 31, 2021

Service-based RSUs

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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 30, 2020:

The following table summarizes the status of these plans as of March 31, 2021:

Awards originally available

Performance-based options outstanding

Maximum potential RSU and cash settled

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Service-Based Restricted Stock Units

The following table summarizes the service-based RSU activity for the nine months ended September 30, 2020:

The following table summarizes the service-based RSU activity for the three months ended March 31, 2021:

Outstanding at December 31, 2020

Vested and released

Outstanding at September 30, 2020

Releasable at September 30, 2020

Outstanding at March 31, 2021

Releasable at March 31, 2021

Performance and Market-Based Restricted Stock Units

The following table summarizes the performance and market-based RSU activity for the nine months ended September 30, 2020:

The following table summarizes the performance and market-based RSU activity for the three months ended March 31, 2021:

Outstanding at December 31, 2020

Attained by performance

Outstanding at September 30, 2020

Releasable at September 30, 2020

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

Outstanding at March 31, 2021

Releasable at March 31, 2021

The following table summarizes each grant of performance awards outstanding at March 31, 2021:

Vesting Dependency

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30% operating cash flow

2018 - 2020 Performance RSUs

February 16, 2018

35% RTSR, 35% sales growth,

30% operating cash flow

2019 - 2021 Performance RSUs

February 7, 2019

35% RTSR, 35% sales growth,

30% operating cash flow

2019 Supplemental Performance RSUs

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35% operating cash flow

2021 - 2023 Performance RSUs

February 11, 2021

25% RTSR, 40% sales growth,

35% operating cash flow

Focus 2025 Performance RSUs

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Cash-Settled RSUs are classified as liabilities and are remeasured at each reporting date until settled.

At September 30, 2020 and December 31, 2019 we had 33,697 and 17,271 cash-settled RSUs outstanding, respectively.

At September 30, 2020 and December 31, 2019, liabilities of $ 221 and $ 353 , respectively, were included in Accrued expenses and other liabilities on our Condensed Consolidated Balance Sheets.

At March 31, 2021 and December 31, 2020 we had 29,824 and 30,009 cash-settled RSUs outstanding, respectively.

At March 31, 2021 and December 31, 2020, liabilities of $ 177 and $ 396 , respectively, were included in accrued expenses and other liabilities on our Condensed Consolidated Balance Sheets.

NOTE 18 — 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 and third quarters and may continue to fluctuate based on market conditions and other factors.

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

September 30,

The table below summarizes our financial liabilities that were measured at fair value on a recurring basis at March 31, 2021:

Interest rate swaps

Foreign currency hedges

Contingent consideration

The table below summarizes the financial assets that were measured at fair value on a recurring basis as of December 31, 2020:

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Foreign currency hedges

Contingent consideration

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.

The fair value of our interest rate swaps and foreign currency hedges were measured using standard valuation models using market-based observable inputs over the contractual terms, including forward yield curves, among others.

There is a readily determinable market for these derivative instruments, but that market is not active and therefore they are classified within Level 2 of the fair value hierarchy.

Our long-term debt consists of the Revolving Credit Facility which is recorded at its carrying value.

The fair value of the contingent consideration requires significant judgment.

The Company's fair value estimates used in the contingent consideration valuation are considered Level 3 fair value measurements.

The fair value estimates were based on assumptions management believes to be reasonable, but that are inherently uncertain, including estimates of future revenues and timing of events and activities that are expected to take place.

Refer to Note 3 for further discussion on contingent consideration.

Our long-term debt consists of debt outstanding under the revolving credit facility which is recorded at its carrying value.

There is a readily determinable market for our long-term debt and it is classified within Level 2 of the fair value hierarchy as the market is not deemed to be active.

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NOTE 19 — Income Taxes

The effective tax rates for the three and nine months ended September 30, 2020 and 2019 are as follows:

The effective tax rates for the three months ended March 31, 2021 and March 31, 2020 are as follows:

Three months ended

Nine months ended

September 30,

Effective tax rate

Our effective income tax rate was 22.2 % and 62.2 % in the third quarters of 2020 and 2019, respectively.

This decrease is primarily attributed to the change in the mix of earnings by jurisdiction and the 2019 increase to reserves for uncertain tax position associated with the company’s operations in China.

The third quarter 2020 tax rate was higher than the U.S.

statutory federal tax rate primarily due to foreign withholding taxes, state taxes and foreign earnings that are taxed at higher rates.

Our effective income tax rate was 24.4 %% and 30.3 % in the first nine months of 2020 and 2019, respectively.

This decrease is primarily attributed to the change in the mix of earnings by jurisdiction, decreases in uncertain tax position offset by the establishment of valuation allowance on certain U.S.

tax credits and the Company’s decision to no longer permanently reinvest the earnings of its Taiwan subsidiary.

The tax rate in the first nine months of 2020 was higher than the U.S statutory federal tax rate primarily due to the establishment of valuation allowances on certain U.S.

tax credits and the Company’s decision to no longer permanently reinvest the earnings of its Taiwan subsidiary.

The tax rate in the first nine months of 2019 was higher than the U.S.

statutory federal tax rate primarily due to an increase to reserves for uncertain tax positions associated with the Company’s operations in China and foreign earnings that are taxed at higher rates.

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.

In accordance with FASB Staff Q&A - Topic 842 and Topic 840:

Accounting for Lease Concessions Related to the Effects of 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 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 a straight-line basis, during the deferral periods.

During the three and nine months ended September 30, 2020, these rent concessions related to COVID-19 were not material.

Components of lease expense for the three and nine months ended September 30, 2020 were as follows:

Three Months Ended

Nine Months Ended

September 30,

Operating lease cost

Short-term lease cost

Total lease cost

Supplemental cash flow information related to leases was as follows:

Nine Months Ended

September 30,

Cash paid for amounts included in the measurement of lease

Leased assets obtained in exchange for new operating lease

Supplemental balance sheet information related to leases was as follows:

September 30,

Balance Sheet Classification:

Operating lease obligations

Long-term operating lease obligations

Total lease liabilities

Weighted-average remaining lease terms (years)

Weighted-average discount rate

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

Present value of lease liabilities

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

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 as of the date of acquisition:

Consideration

Cash paid, net of cash acquired of $ 567

Contingent consideration

Purchase price

Fair Values at

July 31, 2019

Current assets

Property, plant and equipment

Intangible assets

Fair value of assets acquired

Less fair value of liabilities acquired

Purchase price

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 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:

Customer lists/relationships

Technology and other intangibles

Our effective income tax rate was 18.9 % and 36.4 % in the first quarters of 2021 and 2020, respectively.

This decrease is primarily attributed to the change in the mix of earnings by jurisdiction and the establishment of valuation allowance on certain tax credits in the first quarter of 2020.

The first quarter 2021 tax rate was lower than the U.S.

statutory federal tax rate primarily due to foreign earnings that are taxed at lower rates and tax benefits recorded upon vesting of restricted stock units.

The first quarter 2020 tax rate was higher than the U.S.

statutory federal tax rate primarily due to the establishment of valuation allowances on certain tax credits and a one-time tax expense resulting from a company restructuring.

NOTE 20 — Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

2018-13 "Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement"

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No.

2018-13 " Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ".

This ASU modified the disclosures related to recurring and nonrecurring fair value measurements.

Disclosures related to the transfer of assets between Level 1 and Level 2 hierarchies have been eliminated and 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, 2019, and interim periods within those fiscal years.

We adopted this ASU on January 1, 2020 and it did not have a material impact on our financial statements.

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 ".

This ASU is meant to improve the accounting for the income tax effect of intra-entity transfers of assets other than inventory.

Currently, U.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 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.

We adopted this ASU on January 1, 2020 and it did not have a material impact on our financial statements.

ASU 2016-13 " Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments "

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which amends the current accounting guidance 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 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.

2019-12 "Simplifying the Accounting for Income Taxes"

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 U.S.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

We adopted this ASU on January 1, 2021 and it did not have a material impact on our financial statements.

6 unchanged sentences

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.

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 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

We are currently evaluating the impact of this ASU on our financial statements.

2018-14 "Compensation - Retirement Benefits - Defined Benefit Plans - General"

In August 2018, the FASB issued ASU No.

2018-14, " Compensation - Retirement Benefits - Defined Benefit Plans - General ." This ASU modifies the disclosure requirements for defined benefit and other postretirement plans.

This ASU eliminates certain disclosures associated with accumulated other comprehensive income, plan assets, related parties, and the effects of interest rate basis point changes on assumed health care costs;

while other disclosures have been added to address significant gains and losses related to changes in benefit obligations.

This ASU also clarifies disclosure requirements for projected benefit and accumulated benefit obligations.

The amendments in this ASU are effective for fiscal years ending after December 15, 2020 and for interim periods therein with early adoption permitted.

Adoption on a retrospective basis for all periods presented is required.

This ASU will impact our annual financial statement disclosures but will not impact our interim financial statements and does not have an impact on our consolidated financial position, results of operations, or cash flows.

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 impact of the transition from LIBOR to an alternative reference interest rate in our financial instruments including the potential election of certain practical expedients.

Our LIBOR based revolving credit facility includes a provision for the determination of a successor LIBOR rate, and we are still evaluating the impact to potential future hedging activities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements