What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-02-25 · 239 added, 308 removed, 1051 unchanged (34% of the section changed)

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of CTS Corporation (an Indiana corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive earnings, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of CTS Corporation (an Indiana Corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of (loss) earnings, comprehensive earnings, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (and financial statement schedules included under Item 15(a)) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements;

and (2) involved our especially challenging, subjective, or complex judgments.

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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The Company’s consolidated goodwill balance was $109.8 million as of December 31, 2021.

As described in Note 1 and Note 8 to the consolidated financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually and performed a quantitative impairment assessment as of October 1, 2020 for each of its three reporting units.

The quantitative impairment assessment involves the comparison of the fair value of a reporting unit to its carrying amount.

As described in Note 1 and Note 8 to the consolidated financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually.

A quantitative impairment assessment was performed as of October 1, 2021 for each of the three reporting units.

The quantitative impairment assessment involves the comparison of the fair value of a reporting unit to its carrying value.

The Company determines the fair value of each reporting unit using a combination of discounted cash flow analysis and market-based valuation methodologies, which requires significant management judgment.

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CTS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings

Consolidated Statements of (Loss) Earnings

(in thousands, except per share amounts)

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Interest income

Other income (expense)

Total other income (expense), net

Earnings before taxes

Income tax expense

Net earnings per share:

Other (expense) income

Total other (expense) income, net

(Loss) earnings before taxes

Income tax (benefit) expense

Net (loss) earnings

Net (loss) earnings per share:

Basic weighted-average common shares outstanding

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Years Ended December 31,

Other comprehensive (loss) earnings:

Net (loss) earnings

Other comprehensive earnings (loss):

Changes in fair market value of derivatives, net of tax

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Cumulative translation adjustment, net of tax

Other comprehensive (loss) earnings

Other comprehensive earnings (loss)

Comprehensive earnings

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CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net earnings to net cash provided by operating activities:

Net (loss) earnings

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Depreciation and amortization

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Accrued payroll and benefits

Income taxes payable

Operating lease liabilities

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Payments of long-term debt

( 3,792,550 )

( 1,885,800 )

( 1,060,100 )

Proceeds from borrowings of long-term debt

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Taxes paid on behalf of equity award participants

Contingent consideration payment

Contingent consideration payments

Net cash (used in) provided by financing activities

Effect of exchange rate on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Issued shares on vesting of restricted stock units

Implementation of ASU No.

Stock compensation

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Cash dividends of $ 0.16 per share

Acquired 420,770 shares of treasury stock

Acquired 342,731 shares for treasury stock

Issued shares on vesting of restricted stock units

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We maintain an allowance for credit losses for estimated uncollectible accounts receivable.

Our reserves for estimated credit losses are based upon historical experience, specific customer collection issues, current conditions and reasonable and supportable forecasts that affect the collectability of the remaining cashflows over the contractual terms of our receivables and other financial assets.

Our reserves for estimated credit losses are based upon historical experience, specific customer collection 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.

Accounts are written off against the allowance account when they are determined to no longer be collectible.

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Trade receivables subject us to the potential for credit risk with major customers.

We sell our products to customers principally in the aerospace and defense, industrial, information technology, medical, telecommunications, and transportation markets, primarily in North America, Europe, and Asia.

We sell our products to customers principally in the aerospace and defense, industrial, medical, and transportation markets, primarily in North America, Europe, and Asia.

We perform ongoing credit evaluations of our customers to minimize credit risk.

We do not require collateral.

The allowance for credit losses is based on management's estimates of the collectability of its accounts receivable after analyzing historical credit losses, customer concentrations, customer creditworthiness, current economic trends, specific customer collection issues, and reasonable and supportable forecasts that affect the collectability of the remaining cashflows over the contractual terms of our receivables.

The allowance for credit losses is based on management's estimates of the collectability of its accounts receivable after analyzing historical credit losses, customer concentrations, customer creditworthiness, current economic trends, specific customer collection issues, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual terms of our receivables.

Uncollectible trade receivables are charged against the allowance for credit losses when all reasonable efforts to collect the amounts due have been exhausted.

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Toyota Motor Corporation

Honda Motor Co.

We sell parts to these three transportation customers for certain vehicle platforms under purchase agreements that have no volume commitments and are subject to purchase orders issued on a periodic basis.

We sell parts to these two transportation customers for certain vehicle platforms under purchase agreements that have no volume commitments and are subject to purchase orders issued on a periodic basis.

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

We value our inventories at the lower of the actual cost to purchase or manufacture or the net realizable value using the first-in, first-out ("FIFO") method.

We review inventory quantities on hand and record a provision for excess and obsolete inventory based on forecasts of product demand and production requirements.

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 historical consumption trends as well as forecasts of product demand including related production requirements.

Once reserves are established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory.

Our reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, market conditions, and product life cycles.

Changes in actual demand or market conditions could adversely impact our reserve calculations.

Retirement Plans:

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Our policy is to annually fund the defined benefit pension plans at or above the minimum required by law.

1) recognize the funded status of a benefit plan (measured as the difference between plan assets at fair value and the projected benefit obligation) in our Consolidated Balance Sheets;

2) recognize the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of

1) recognize the funded status of a benefit plan

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net periodic benefit/cost as a component of other comprehensive earnings;

(measured as the difference between plan assets at fair value and the projected benefit obligation) in our Consolidated Balance Sheets;

2) recognize the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit/cost as a component of other comprehensive earnings;

and 3) measure defined benefit plan assets and obligations as of the date of our fiscal year-end.

During 2020, the Company commenced the termination process on our primary U.S.

During 2020, the Company commenced the termination process for its primary U.S.

Pension Plan (“U.S.

Plan”) and expects to offer employees a lump sum settlement and then complete the transfer of any remaining U.S.

Plan assets to a third-party administrator, which the Company expects to complete by the end of 2021.

Plan”) and expects to complete the termination process in the first half of 2022.

See Note 7, "Retirement Plans" for further information.

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We record uncertain tax positions in accordance with Accounting Standards Codification ("ASC") Topic 740 on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of Earnings.

We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of (Loss) Earnings.

Accrued interest and penalties are included in the related tax liability line in the Consolidated Balance Sheets.

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Absent any interim indicators of impairment, the Company tests for goodwill impairment as of the first day of its fourth fiscal quarter of each year.

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 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.

We typically perform a quantitative assessment at least every three years, or as conditions require.

Our previous quantitative test was in 2017, therefore, we performed the current year assessment using a quantitative approach .

Based upon our latest assessment, we determined that our goodwill was no t impaired as of October 1, 2021.

In addition to goodwill, we also have acquired in-process research and development ("IPR&D") intangible assets that are treated as indefinite-lived intangible assets and therefore not subject to amortization until the completion or abandonment of the associated research and development efforts.

If these efforts are abandoned in the future, the carrying value of the IPR&D asset will be expensed.

If the research and development efforts are successfully completed, the IPR&D will be reclassified as a finite-lived asset and amortized over its useful life.

In addition to goodwill, we also had an acquired in-process research and development ("IPR&D") intangible asset that was treated as indefinite-lived intangible assets and therefore was not subject to amortization until the completion or abandonment of the associated research and development efforts.

In the third quarter of 2020, due to the restructuring actions further outlined in Note 9, we identified a triggering event associated with a specific asset group including IPR&D due to executed restructuring actions.

This resulted in the

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recognition of $ 2,200 of impairment charges, and a revaluation of associated contingent liabilities totaling $ 1,900 .

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

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

The net impact of $ 300 was recorded as restructuring charges in the Consolidated Statements of (Loss) Earnings in 2020.

Other Intangible Assets and Long-lived Assets:

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If such assets are considered to be impaired, the impairment to be recognized is measured by the amount in which the carrying amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

We recorded a charge of $ 1,016 during the first quarter due to the impairment of a specific asset group that was recorded in selling, general and administrative expenses in the Consolidated Statements of Earnings.

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disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

In 2020, w e recorded a charge of $ 1,016 due to the impairment of a specific asset group that was recorded in selling, general and administrative expenses in the Consolidated Statements of (Loss) Earnings.

Intangible assets (excluding indefinite-lived intangible assets) consist primarily of technology, customer lists and relationships, patents, and trade names.

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Revenue Recognition:

Product revenue is recognized upon the transfer of promised goods to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods.

Product revenue is recognized upon the transfer of promised goods to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods net of reserves.

We follow the five step model to determine when this transfer has occurred:

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5) recognize revenue when (or as) the entity satisfies a performance obligation.

Our revenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for product returns, price adjustments, and stock rotation adjustments.

We base these estimates on the most likely value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded.

Research and Development:

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The costs we incur are included in other current assets on the Consolidated Balance Sheets until reimbursement is received from the customer.

Reimbursements received from customers are netted against such costs and included in our Consolidated Statements of Earnings if the amount received is in excess of the costs that we incur.

Reimbursements received from customers are netted against such costs and included in our Consolidated Statements of (Loss) Earnings if the amount received is in excess of the costs that we incur.

The following is a summary of amounts to be received from customers as of December 31, 2021 and 2020:

As of December 31,

Cost of molds, dies and other tools included in other

current assets

Cost of molds, dies and other tools included in other current assets

Financial Instruments:

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We estimate the fair value of our financial instruments as follows:

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Method for determining fair value

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The fair value of our interest rate swaps and forward contracts are measured using a market approach which uses current industry information.

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Debt Issuance Costs:

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.

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

Stock-Based Compensation:

We recognize expense related to the fair value of stock-based compensation awards, consisting of restricted stock units ("RSUs"), cash-settled restricted stock units, performance share units ("PSU's"), and stock options, in the Consolidated Statements of Earnings.

We recognize expense related to the fair value of stock-based compensation awards, consisting of restricted stock units ("RSUs"), cash-settled restricted stock units, performance share units ("PSUs"), and stock options, in the Consolidated Statements of (Loss) Earnings.

We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option pricing model.

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Treasury yield curve at the time of grant.

The fair value of awards that are ultimately expected to vest is recognized as expense over the requisite service periods of the awards in the Consolidated Statements of Earnings.

The fair value of awards that are ultimately expected to vest is recognized as expense over the requisite service periods of the awards in the Consolidated Statements of (Loss) Earnings.

The grant date fair values of our service-based and performance-based RSUs are the closing price of our common stock on the date of grant.

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See Note 17, "Stock-Based Compensation" for further information.

Earnings Per Share:

Basic earnings per share excludes any dilution and is computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding for the period.

(Loss) Earnings Per Share:

Basic (loss) earnings per share excludes any dilution and is computed by dividing net (loss) earnings available to common shareholders by the weighted-average number of common shares outstanding for the period.

Diluted earnings per share is calculated by dividing net earnings by the weighted average shares outstanding assuming dilution.

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If the common stock equivalents have an anti-dilutive effect, they are excluded from the computation of diluted earnings per share.

There was no anti-dilutive impact for the year ended December 31, 2021 as result of a net loss incurred in the period.

If there is a net loss for the period, then basic (loss) earnings per share equals diluted (loss) earnings per share.

Our antidilutive securities consist of the following:

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dollars using the U.S.

dollar as the functional currency with all remeasurement adjustments included in the determination of net earnings.

dollar as the functional currency with all remeasurement adjustments included in the determination of net (loss) earnings.

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Foreign currency gains (losses) recorded in the Consolidated Statement of Earnings includes the following:

Foreign currency (losses) gains recorded in the Consolidated Statements of (Loss) Earnings includes the following:

Years Ended December 31,

Foreign currency gains (losses)

Foreign currency (losses) gains

The assets and liabilities of our U.K.

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dollars at the current exchange rate at period end, with the resulting translation adjustments made directly to the "accumulated other comprehensive loss" component of shareholders' equity.

Our Consolidated Statement of Earnings accounts are translated at the average rates during the period.

Our Consolidated Statements of (Loss) Earnings accounts are translated at the average rates during the period.

Shipping and Handling:

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The reclassifications had no impact on previously reported net earnings.

Recently Issued Accounting Pronouncements

Accounting Pronouncements Recently Adopted

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

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

We have applied the requirements of this ASU to the financial statements.

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

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

In August 2018, the FASB issued 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.

Early adoption is permitted upon issuance of the standard for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective date.

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.

Early adoption is permitted 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

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instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.

The standard will become effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.

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

2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting"

In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848):

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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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 alternative reference interest rate in our financial instruments.

Our LIBOR based 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.

We amended and restated our credit and underlying interest rate swap agreements effective December 15, 2021.

We have elected to continue to apply hedge accounting as we have determined that the hedge remains effective.

See Note 13 for further discussion of the credit agreement modification.

2019-12, "Simplifying the Accounting for Income Taxes"

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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.

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 do not expect the adoption of this ASU to have a material impact on our financial statements or results .

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

NOTE 2 – Revenue Recognition

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Recognize revenue when the performance obligations are met

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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.

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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 December 31, 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 may require significant judgment.

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 value method based on an analysis of historical experience and current facts and circumstances, which may require 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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D isaggregated Revenue

Disaggregated Revenue

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

Twelve Months Ended

Transportation

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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 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 purchase price is preliminary pending the completion of the valuation of intangible assets and finalization of management's estimates.

The final purchase price allocation may result in a materially different allocation than that recorded as of December 31, 2020.

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

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

The final purchase price, which includes changes in working capital, of $ 10,221 has been allocated to the fair values of assets and liabilities acquired as of December 30, 2020.

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

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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.

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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.

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This represents the maximum amount of contingent consideration payable.

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

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

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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.

Intangible assets acquired have been assigned a provisional value of $ 5,161 and an estimated weighted average amortization period of 10 years.

They are included as customer lists/relationships in our Consolidated Balance Sheets.

Due to the timing of the acquisition, the identification and valuation of all intangible assets remains incomplete;

however, management used historical experience and projections to estimate the potential value at December 31, 2020.

The amount and assumptions included above remain an estimate that will be adjusted once purchase accounting is complete.

No revenues or earnings from SSI are included in our Consolidated Statements of Earnings.

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

Refer to Note 18 for further information on contingent consideration.

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

Carrying Value

Customer lists/relationships

Trademarks, tradenames, and other intangibles

Quality Thermistor, Inc.

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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 as of December 31, 2019 based on the achievement performance target for the full year 2019 results and the balance was paid out in Q1 2020.

This amount was reflected as an addition to purchase price and was settled in Q1 2021.

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

The Company recorded contingent consideration for the earn out of $ 1,056 as of December 31, 2019 based on the achievement of the revenue performance target for the full year 2019 results and the balance was paid out in the first quarter of 2020.

This amount was reflected as an addition to purchase price and was settled in the first quarter of 2020.

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

Carrying Value

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Results of operations for QTI are included in our consolidated financial statements beginning on July 31, 2019.

The amount of net sales and net loss from QTI since the acquisition date that have been included in the Consolidated Statements of Earnings are as follows:

The amount of net sales and net loss from QTI since the acquisition date that have been included in the Consolidated Statements of (Loss) Earnings are as follows:

For the period July

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Property, plant and equipment, net

Depreciation expense recorded in the Consolidated Statements of Earnings includes the following:

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Depreciation expense recorded in the Consolidated Statements of (Loss) Earnings includes the following:

For the Years Ended

Depreciation expense

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NOTE 7 — Retirement Plans

We have a number of noncontributory defined benefit pension plans ("pension plans") covering approximately 2 % of our active employees.

We have 2 active noncontributory defined benefit pension plans ("pension plans") covering less than 1 % of our active employees.

Pension plans covering salaried employees provide pension benefits that are based on the employees´ years of service and compensation prior to retirement.

Pension plans covering hourly employees generally provide benefits of stated amounts for each year of service.

All benefits for the U.S.

based pension plan were frozen in 2017 and 2013 for union and non-union employees, respectively.

All benefits for the U.S.-based pension plan were frozen in 2017 and 2013 for union and non-union employees, respectively.

We also provide post-retirement life insurance benefits for certain retired employees.

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locations were December 31, 2021, and 2020.

In February 2020, the CTS Board of Directors authorized management to explore termination of the U.S.

Pension Plan (“Plan”) at management's discretion, subject to certain conditions.

On June 1, 2020, we amended the Plan whereby we set an effective termination date of July 31, 2020.

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

The completion of the Plan termination process, including offering lump sum settlements and the final purchases of annuities, is expected to occur in 2021.

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.

In connection with the decision to terminate the Plan, we remeasured the projected benefit obligation in the fourth quarter of 2020 based on the expected Plan termination costs.

Upon settlement of the pension liability, we will reclassify the related pension losses, currently recorded to accumulated other comprehensive loss, to the consolidated statements of earnings.

As of December 31, 2020, we had gross unrecognized losses related to the Plan of $ 125,005 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 experience, we are currently unable to determine the ultimate cost of the settlement.

However, w e estimate that non-cash settlement charges of approximately $ 10,000 to $ 20,000 to be recognized in the second or third quarter of 2021 with the remaining amount of the gross accumulated other comprehensive loss balance to be recognized by the end of 2021.

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 into 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 allowed us to proceed with the termination process for the Plan.

During the second quarter of 2021, the Company offered the option of receiving a lump sum payment to eligible participants with vested qualified Plan benefits in lieu of receiving monthly annuity payments.

Approximately 365 participants elected to receive the settlement, and lump sum payments of approximately $ 35,594 were made from Plan assets to these participants in June 2021.

As required under U.S.

GAAP, the Company recognizes a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost.

The amount of settlement gain or loss recognized is the pro rata amount of the existing unrealized gain or loss immediately prior to the settlement.

In general, both the projected benefit obligation and fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.

Upon the partial settlement of the pension liability due to the lump sum offering in the second quarter of 2021, the Company recognized a non-cash and non-operating settlement charge of $ 20,063 related to pension losses, reclassified from accumulated other comprehensive loss to other (income) expense in the Company's Condensed Consolidated Statements of (Loss) Earnings.

On July 29, 2021, the Plan purchased a group annuity contract that transferred our benefit obligations for approximately 2,700 CTS participants and beneficiaries in the United States (“Transferred Participants”).

As part of the purchase of the group annuity contract, Plan benefit obligations and related annuity administration services for Transferred Participants were irrevocably assumed and guaranteed by the insurance company effective as of August 3, 2021.

There will be no change to pension benefits for Transferred Participants.

The purchase of the group annuity contract was fully funded directly by Plan assets.

As a result of the final settlement of the pension liability with the purchase of annuities, we reclassified the remaining related unrecognized pension losses of $ 106,206 that were previously recorded in accumulated other comprehensive loss to the Consolidated Statements of (Loss) Earnings.

In January 2022, we transferred approximately $ 17,500 of funds from Plan assets to a qualified replacement plan (QRP) managed by the Company.

This plan requires that these assets be used to fund future annual Company contributions to our U.S.

401(k) program.

The Plan assets of $ 49,382 as of December 31, 2021, net of the $ 17,500 noted above, will remain in the Plan until final administrative tasks are completed.

This process is expected to be completed in the first half of 2022, whereby the remaining Plan assets will liquidate and revert to CTS.

At that time, the funds will be subject to income and excise taxes.

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The following table provides a reconciliation of benefit obligation, plan assets, and the funded status of the pension plans for U.S.

locations at the measurement dates.

I n connection with the Plan termination process, we remeasured the projected benefit obligation based on the expected Plan termination costs including estimates for the anticipated amount of lump sum payments as well as estimates for insurance company pricing on the portion of the obligation not distributed through lump sum payments.

These changes as well as a reduction in the discount rate used to determine the benefit obligation were the primary drivers in the increase to the obligation.

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Pension Plans

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Benefits paid

Actuarial loss

Actuarial (gain) loss

Plan settlements

Foreign exchange impact

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Benefits paid

Plan settlements

Foreign exchange impact

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Funded status (plan assets less projected benefit obligations)

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

The measurement dates for the post-retirement life insurance plan were December 31, 2021, and 2020.

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Benefits paid

Actuarial loss

Actuarial (gain) loss

Projected benefit obligation at December 31

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The components of the prepaid (accrued) cost of the domestic and foreign pension plans are classified in the following lines in the Consolidated Balance Sheets at December 31:

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Pension Plans

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The components of the accrued cost of the post-retirement life insurance plan are classified in the following lines in the Consolidated Balance Sheets at December 31:

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Post-Retirement

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Amortization of retirement benefits, net of tax

Net actuarial (loss) gain

Net actuarial gain

Foreign exchange impact

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Net actuarial gain (loss)

Settlement charges

Foreign exchange impact

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Amortization of retirement benefits, net of tax

Net actuarial gain

Net actuarial loss

Balance at December 31, 2021

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The variance resulting from the difference between the expected and actual return on plan assets is included in the amortization calculation upon reflection in the market-related value of plan assets.

In 2021, we expect to recognize approximately $ 125,214 of pre-tax losses included in accumulated other comprehensive loss related to our pension plans and post-retirement life insurance plan.

This includes approximately $ 125,005 in pre-tax non-cash settlement charges expected from the U.S.

Plan termination.

The pre-tax non-cash settlement charge is an estimate and could be in the range of $ 110,000 and $ 135,000 based on changes in market conditions.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those Pension Plans with accumulated benefit obligation in excess of fair value of plan assets is shown below:

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The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those pension plans with accumulated benefit obligation in excess of fair value of plan assets is shown below:

As of December 31,

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Fair value of plan assets

Net pension expense (income) includes the following components:

Net pension expense includes the following components:

Pension Plans

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Amortization of unrecognized loss

Settlement charges

Weighted-average actuarial assumptions (2)

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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.

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Our pension plan asset allocation at December 31, 2021, and 2020, and target allocation for 2022 by asset category are as follows:

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Fixed income/Debt securities

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Historically, we employed a liability-driven investment strategy whereby a mix of equity and fixed-income investments are used to pursue a de-risking strategy which over time seeks to reduce interest rate mismatch risk and other risks while achieving a return that matches or exceeds the growth in projected pension plan liabilities.

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As part of the planned termination of the U.S.

pension plan, a new investment allocation strategy was put in place to protect the funded status of the U.S.

plan assets subsequent to Board approval of U.S.

pension plan termination.

Plan, a new investment allocation strategy was put in place to protect the funded status of the U.S.

plan assets subsequent to Board approval of the U.S.

Plan termination.

The target allocation for U.S.

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Bond funds - other (5) (6)

Real estate (6) (7)

Cash and cash equivalents (2)

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Equity securities - U.S.

Bond funds - government (4) (7)

Bond funds - other (5)

Cash and cash equivalents (2)

Partnerships (3)

The fair values at December 31, 2020, are classified within the following categories in the fair value hierarchy:

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Bond funds - other (5) (6)

Real estate (6) (7)

Cash and cash equivalents (2)

Partnerships (3)

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Comprised of common stocks of companies in various industries.

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Comprised of long-term government bonds with a minimum maturity of 10 years and zero-coupon Treasury securities ("Treasury Strips") with maturities greater than 20 years.

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Comprised predominately of investment grade U.S.

corporate bonds with maturities greater than 10 years and U.S.

corporate bonds with various maturities and U.S.

high-yield corporate bonds;

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dollar-denominated corporate bonds);

Comprised of investments in securities of U.S.

real estate investment trusts (REITs), real estate operating companies and other companies that are principally engaged in the real estate industry and of investments in global private direct commercial real estate.

Investments can be redeemed immediately following the valuation date with a notice of at least fifteen business days before valuation.

Comprised of investments that are measured at fair value using the NAV per share practical expedient.

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Capital contributions

Realized and unrealized gain

Realized and unrealized loss

Capital distributions

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Capital contributions

Realized and unrealized gain

Realized and unrealized loss

Capital distributions

Fair value of Level 3 partnership assets at December 31, 2021

The partnership fund manager uses a market approach in estimating the fair value of the plan's Level 3 asset.

The partnership fund manager used a market approach in estimating the fair value of the plan's Level 3 assets.

The market approach estimates fair value by first determining the entity's earnings before interest, taxes, depreciation, and amortization and then multiplying that value by an estimated multiple.

When establishing an appropriate multiple, the fund manager considers recent comparable private company transactions and multiples paid.

The entity's net debt is then subtracted from the calculated amount to arrive at an estimated fair value for the entity.

When establishing an appropriate multiple, the fund manager considered recent comparable private company transactions and multiples paid.

The entity's net debt was then subtracted from the calculated amount to arrive at an estimated fair value for the entity.

We expect to make $ 100 of contributions to the U.S.

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plans during 2022.

Expected benefit payments under the defined benefit pension plans and the postretirement benefit plan, excluding the impact of the Plan termination process, for the next five years subsequent to 2020 and in the aggregate for the following five years are as follows:

Expected benefit payments under the defined benefit pension plans and the postretirement benefit plan, for the next five years subsequent to 2021 and in the aggregate for the following five years are as follows:

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employees as well as offer similar defined contribution plans at certain foreign locations.

Contributions and costs are generally determined as a percentage of the covered employee's annual salary.

We ceased matching employee contributions in Q2 2020 in light of COVID-19 concerns, and we have reimplemented the match in February 2021.

Contributions and costs were generally determined as a percentage of the covered employee's annual salary.

We ceased matching employee contributions in the second quarter of 2020 in light of COVID-19 concerns, and we reimplemented the match in February 2021.

Effective January 1, 2022, in connection with the U.S.

Plan termination process, we amended our 401(k) plan and transitioned to a non-elective contribution for all U.S.

employees that is also determined as a percentage of the covered employee's salary, provides for immediate vesting and is provided regardless of individual contribution plans.

In addition, we began offering a Roth 401(k) option to employees.

Expenses related to defined contribution plans include the following:

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Other Intangible Assets

The following is a summary of the Company’s other intangible assets as of December 31:

Other intangible assets, net consist of the following components:

As of December 31, 2021

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Technology and other intangibles

In process research and development

Other intangible assets, net

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December 31, 2021

In the third quarter of 2020, due to the restructuring actions further outlined in Note 9, 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 Consolidated Statements of Earnings.

As of December 31, 2020

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Technology and other intangibles

In process research and development

Other intangible assets, net

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Amortization expense for the year ended December 31, 2019

In the third quarter of 2020, due to the restructuring actions further outlined in Note 9, 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 Consolidated Statements of (Loss) Earnings.

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Total future amortization expense

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

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

Goodwill as of December 31, 2019

Increase from acquisition

Increase due to acquisition

Goodwill as of December 31, 2020

Increase from acquisition

Increase due to acquisition

Decrease from purchase accounting adjustments

Goodwill as of December 31, 2021

See Note 3 for further information on the increase due to acquisition.

We performed our impairment test as of October 1, 2020, our measurement date, and concluded there was no impairment in any of our reporting units.

In addition to the purchase accounting adjustments from the SSI transaction, goodwill increased in 2021 due to an acquisition completed during the second quarter.

The purchase price was $ 510 , with $ 255 paid in the second quarter of 2021 and an additional $ 255 to be paid in the second quarter of 2022.

We performed our annual impairment test as of October 1, 2021, our measurement date, and concluded that there was no impairment in any of our reporting units.

The fair value estimates used in the goodwill impairment analysis required significant judgment.

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NOTE 9 — Costs Associated with Exit and Restructuring Activities

Restructuring charges are reported as a separate line within operating earnings in the Consolidated Statements of Earnings.

Restructuring charges are reported as a separate line within operating earnings in the Consolidated Statements of (Loss) Earnings.

Total restructuring charges were:

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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 be in the range of $ 4,600 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 $ 4,000 to $ 5,100 of other costs to be incurred related to the 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 this plan were $ 1,422 during the year ended December 31, 2020, consisting of $ 812 of workforce reduction costs, $ 300 of asset impairment charges (see Note 8) and $ 310 of other contract termination and facility closure costs.

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

The restructuring cost of the September 2020 Plan is now estimated to be in the range of $ 3,500 to $ 4,500 , including workforce reduction charges, building and equipment relocation charges, other contract and asset related costs.

We have incurred $ 1,397 in program costs to date, There were no substantial restructuring charges under the September 2020 Plan during the three and twelve months ended December 31, 2021.

Due to the robust demand environment and COVID-19 limitations, some projects are delayed.

As of December 31, 2021 there was no liability related to the September 2020 Plan.

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").

In June 2016, we announced plans to restructure operations by phasing out production at our Elkhart, Indiana 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 $( 32 ), $ 4,284 , and $ 4,559 during the

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, Illinois and our plant in Bolingbrook, Illinois, both of which have now

CTS CORPORATION 48

years ended December 31, 20 20 , 20 19 , and 20 18 , respectively.

The total restructuring liability related to the June 2016 Plan was $ 3 and $ 233 at December 31, 20 20 and 201 9 , respectively.

Any additional costs related to product line movements, equipment charges, and other costs will be expensed as incurred.

The following table displays the restructuring charges associated with the June 2016 Plan as well as a summary of the actual costs incurred through December 31, 2020:

June 2016 Plan

incurred through

Workforce reduction

Building and equipment relocation

Asset impairment charge

Other charges (1)

Restructuring charges

Other charges include the effects of currency translation, travel, legal and other charges.

been consolidated into a single facility.

These restructuring actions were completed during the year ended December 31, 2021.

Restructuring charges under the June 2016 Plan , w ere $ ( 3 ) , $ ( 32 ) , and $ 4,284 during the years ended December 31, 20 2 1 , 20 20 , and 20 1 9 , respectively.

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 substantially completed during 2015.

Restructuring charges under this plan were $ 0 , $( 248 ), and $ 503 during the years ended December 31, 2020, 2019, and 2018, respectively.

The total restructuring liability related to the April 2014 Plan was $ 839 and $ 703 at December 31, 2020 and 2019, respectively.

The remaining liability is expected to be settled in the first half of 2021.

These restructuring actions were substantially completed during 2015 and the remaining liability was settled during the first half of the year ended December 31, 2021.

Other Restructuring Activities

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

During the years ended December 31, 2020 and 2019, we incurred restructuring charges of $ 442 and $ 3,412 , respectively, for exit and disposal activities at three sites and workforce reduction costs across the company.

During the years ended December 31, 2021 and 2020, we incurred restructuring charges of $ 1,717 and $ 442 , respectively, for exit and disposal activities at three sites, building and equipment relocation, and workforce reduction costs across the company.

The remaining restructuring liability associated with these actions was $ 962 and $ 9 at December 31, 2021 and December 31, 2020, respectively.

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The total liability of $ 962 is included in Accrued expenses and other liabilities at December 31, 2021.

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NOTE 10 — Accrued Expenses and Other Liabilities

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We record contingent loss accruals on an undiscounted basis.

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

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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.

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The operating lease assets and liabilities are adjusted to include the impact of any lease incentives and non-lease components.

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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.

Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Staff Q&A") issued in April 2020, we elected to account for any lease concessions resulting directly from the COVID-19 pandemic 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.

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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 twelve months ended December 31, 2020, these rent concessions related to COVID-19 were not material.

Components of lease expense for the twelve months ended December 31, 2020 and December 31, 2019 were as follows:

During the year ended December 31, 2020, these rent concessions related to the COVID-19 pandemic were not material.

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Components of lease expense for the years ended December 31, 2021, 2020, and 2019 were as follows:

Operating lease cost

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Total lease cost

Rent expense prior to adoption of ASC 842 was $ 5,726 for the year ended December 31, 2018.

Supplemental cash flow information related to leases was as follows:

Cash paid for amounts included in the measurement of lease

Leased assets obtained in exchange for new operating lease

Cash paid for amounts included in the measurement of lease obligations

Leased assets obtained in exchange for new operating lease obligations

Supplemental balance sheet information related to leases was as follows:

As of December 31,

Balance Sheet Classification:

Operating lease obligations

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Weighted-average discount rate

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

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As of December 31,

Total credit facility

Total credit facility availability

Balance outstanding

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Weighted-average interest rate

Commitment fee percentage per annum

On February 12, 2019, we entered into an amended and restated five-year Credit Agreement with a group of banks (the "Credit Agreement") to extend the term of the facility.

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 new 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 prior agreement was terminated as of February 12, 2019.

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On December 15, 2021, we entered into a second amended and restated five-year credit agreement with a group of banks (the “Revolving Credit Facility”) to (i) increase the total credit facility to $ 400,000 which may be increased by $ 200,000 at the request of the Company, subject to the administrative agent's approval, (ii) extend the maturity of the Revolving Credit Facility from February 12, 2024 to December 15, 2026, (iii) replace LIBOR with SOFR as the primary reference rate used to calculate interest on the loans under the Revolving Credit Facility, (iv) increase available sublimits for letters of credit, and swingline loans as well as providing for additional alternative currency borrowing capabilities, and (v) modify the financial and non-financial covenants to provide the Company additional flexibility .

This new unsecured credit facility replaced the prior $ 300,000 unsecured credit facility, which would have expired February 12, 2024.

Borrowings in U.S.

dollars under the Revolving Credit Facility bear interest, at a per annum rate equal to the applicable Term SOFR rate (but not less than 0.0%), plus the Term SOFR adjustment, and plus an applicable margin, which ranges from 1.00 % to 1.75 %, based on our net leverage ratio.

Similarly, borrowings of alternative currencies under the Revolving Credit Facility bear interest equal to a defined risk-free reference rate, plus the applicable risk-free rate adjustment and plus an applicable margin, which ranges from 1.00 % to 1.75 %, based on our net leverage ratio.

The Revolving Credit Facility includes a swing line sublimit of $ 20,000 and a letter of credit sublimit of $ 20,000 .

Borrowings under the Revolving Credit Facility bear interest at the base rate defined in the 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 0.30 % based on our total leverage ratio.

The Revolving Credit Facility requires, among other things, that we comply with a maximum total leverage ratio and a minimum fixed charge coverage ratio.

The commitment fee ranges from 0.175 % to 0.25 % based on our net leverage ratio.

The Revolving Credit Facility requires, in addition to customary representations and warranties , that we comply with a maximum net leverage ratio and a minimum interest coverage ratio.

Failure to comply with these covenants could reduce the borrowing availability under the Revolving Credit Facility.

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and make stock repurchases and dividend payments.

Interest rates on the Revolving 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 was approximately $ 168 for the twelve months ended December 31, 2020, $ 163 in 2019 and $ 185 in 2018.

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

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Amortization expense was approximately $ 169 for the years ended December 31, 2021, $ 168 in 2020 and $ 163 in 2019.

These costs are included in interest expense in our Consolidated Statements of (Loss) Earnings.

We use interest rate swaps to convert the revolving credit facility's variable rate of interest into a fixed rate on a portion of the debt as described more fully in Note 14 "Derivative Financial Instruments." These swaps are treated as cash flow hedges and consequently, the changes in fair value were recorded in other comprehensive earnings.

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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.

No recognition of ineffectiveness was recorded in our Consolidated Statement of Earnings for the twelve months ended December 31, 2020.

No recognition of ineffectiveness was recorded in our Consolidated Statement of (Loss) Earnings for the year ended December 31, 2021.

Foreign Currency Hedges

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The currency forward contracts are designed as cash flow hedges and are recorded in the Consolidated Balance Sheets at fair value.

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

At December 31, 2020, we had a net unrealized gain of $ 910 in accumulated other comprehensive (loss) income, of which $ 820 is expected to be reclassified to earnings within the next 12 months.

At December 31, 2021, we had a net unrealized gain of $ 121 in accumulated other comprehensive (loss) income, of which $ 121 in gains are expected to be reclassified to earnings within the next 12 months.

The notional amount of foreign currency forward contracts outstanding was $ 18,017 at December 31, 2021.

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Interest rate swaps reported in Other current assets

Interest rate swaps reported in Accrued liabilities

Interest rate swaps reported in Accrued expenses and other liabilities

Interest rate swaps reported in Other long-term obligations

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On a gross basis, there were foreign currency derivative assets of $ 141 and foreign currency derivative liabilities of $ 6 at December 31, 2021.

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

The effect of derivative instruments on the Consolidated Statements of (Loss) Earnings is as follows:

Years Ended December 31,

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Gain recognized in other expense for hedge ineffectiveness

Total derivative (loss) gain on foreign exchange contracts

Total derivative gain (loss) on foreign exchange contracts

recognized in earnings

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(Expense) benefit recorded in interest expense

Total (losses) gains on derivatives

Total gains (losses) on derivatives

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NOTE 15 — Accumulated Other Comprehensive (Loss) Income

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This combination of rates creates the foreign currency translation adjustment component of other comprehensive income.

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

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

Changes in fair market value of derivatives:

Income tax (expense) benefit

Income tax benefit (expense)

Changes in unrealized pension cost:

Income tax benefit

Income tax benefit (expense)

Cumulative translation adjustment:

Income tax benefit (expense)

Total accumulated other comprehensive loss

Total accumulated other comprehensive (loss) income

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The components of accumulated other comprehensive (loss) income for the twelve months ended December 31, 2019 are as follows:

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

Changes in fair market value of derivatives:

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Changes in unrealized pension cost:

Income tax benefit (expense)

Cumulative translation adjustment:

Income tax benefit

Cumulative translation adjustment:

Income tax benefit (expense)

Total accumulated other comprehensive (loss)

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Treasury stock

On February 7, 2019, the Board of Directors authorized a stock repurchase program with a maximum dollar limit of $ 25,000 in stock repurchases, which replaced the previous authorized plan that was approved by our Board of Directors in April 2015.

During the year ended December 31, 2020 we purchased 342,731 shares for approximately $ 8,080 .

During the year ended December 31, 2019 we purchased 420,770 shares for $ 11,746 , of which $ 566 was repurchased under the previous plan and $ 11,180 was repurchased under the most recent board-authorized share repurchased program.

Approximately $ 5,740 was available for future purchases.

On May 13, 2021, the Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $ 50,000 of the Company’s common stock.

The repurchase program has no set expiration date and replaces the repurchase program approved by the Board of Directors on February 7, 2019.

During the year ended December 31, 2021, 266,722 shares of common stock were repurchased for approximately $ 8,786 .

Approximately $ 41,214 is still available for future purchases under this program.

A roll forward of common shares outstanding is as follows:

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Future grants can only be made under the 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.

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

The 2018 Plan allows 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 2018 Plan.

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

Years Ended December 31,

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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

25% RTSR, 40% sales growth,

35% operating cash flow

Focus 2025 Performance RSUs

April 23, 2020

Cumulative revenues of $750 million over a trailing four-quarter period

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These derivative financial instruments are measured at fair value on a recurring basis.

The table below summarizes the financial liabilities and assets that were measured at fair value on a recurring basis as of December 31, 2020 and the loss recorded during the year ended December 31, 2020:

The table below summarizes the financial liabilities and assets that were measured at fair value on a recurring basis as of December 31, 2021 and the gain (loss) recorded during the year ended December 31, 2021:

(Liability) Asset Carrying

Quoted Prices

(Loss) Gain for

Interest rate swap

Foreign currency hedges

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The table below summarizes the financial assets that were measured at fair value on a recurring basis as of December 31, 2019 and the gain recorded during the year ended December 31, 2019 :

Asset Carrying

Contingent consideration

The table below summarizes the financial assets that were measured at fair value on a recurring basis as of December 31, 2020 and the (loss) recorded during the year ended December 31, 2020:

(Liability) Asset Carrying

Quoted Prices

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Foreign currency hedges

Contingent consideration

CTS CORPORATION 58

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 the market is not active and therefore they are classified within level 2 of the fair value hierarchy.

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.

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.

A roll-forward of the contingent consideration is as follows:

Consideration

Balance at December 31, 2020

Settled in cash

Reclassified to payable in accrued expenses and other liabilities

Balance at December 31, 2021 in accrued expenses and other liabilities

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

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NOTE 19 — Income Taxes

Earnings before income taxes consist of the following:

(Loss) earnings before income taxes consist of the following:

Years Ended December 31,

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Total net deferred tax assets

The long-term deferred tax assets and long-term deferred tax liabilities are as follows below:

The deferred tax assets and deferred tax liabilities, classified as non-current, are as follows below:

As of December 31,

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A valuation allowance of $ 1,286 was recorded in 2021 against the U.S.

federal foreign tax credit carryforwards of $ 7,467 , which expire in varying amounts between 2028 and 2029 .

federal foreign tax credit carryforwards of $ 9,229 .

These credits begin to expire in varying amounts between 2028 and 2031 .

No valuation allowance was recorded in 2021 against the U.S.

federal research and development tax credits of $ 7,502 , which expire in varying amounts between 2021 and 2040 .

federal research and development tax credits of $ 8,024 .

These credits begin to expire in varying amounts between 2022 and 2041 .

We assessed the anticipated realization of those tax credits utilizing future taxable income projections.

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Impacts of unremitted foreign earnings

Impacts related to the 2017 Tax Cuts and Jobs Act

Release of disproportionate tax effects of OCI

Effective income tax rate

On December 22, 2017, Staff Accounting Bulletin No.

118 ("SAB 118") was issued to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act.

The remeasurement period for SAB 118 ended on December 22, 2018, and upon completion of our analysis we determined the final impact of the Tax Act resulted in an additional tax benefit of $ 348 during the fourth quarter of 2018.

In 2020, the Company began the termination of the U.S.-based pension plan.

As a result of the final settlement of the pension liability in 2021, we reclassified the disproportionate tax effect related to the pension plan of $ 5,375 that were previously recorded in accumulated other comprehensive loss to income tax expense.

Further information related to our pension terminations is included in Note 7 – Retirement Plans.

Following the enactment of the 2017 Tax Cut and Jobs Act and the associated one-time transition tax, in general, repatriation of foreign earnings to the U.S.

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In 2020 the Company made the decision to no longer permanently reinvest the earnings of its Taiwan subsidiary.

As a result, a provision for the expected taxes on repatriation of those earnings has been recorded.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations.

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As of December 31, 2021, we have approximately $ 2,196 of unrecognized tax benefits, which if recognized, would impact the effective tax rate.

We anticipate uncertain tax positions of approximately $ 900 to be settled in the next 12 months.

We do not anticipate significant changes in our unrecognized tax benefit within the next 12 months.

A reconciliation of the beginning and ending unrecognized tax benefits is provided below:

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Increase related to current year tax positions

Decrease related to prior year tax

Decrease related to prior year tax positions

Decrease related to lapse in statute of limitation

Decrease related to settlements with taxing

Decrease related to settlements with taxing authorities

Balance at December 31

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As of December 31, 2021, and 2020, $ 39 and $ 301 , respectively, of interest and penalties were accrued.

CTS CORPORATION 62

We are subject to taxation in the U.S., various states, and in non-U.S.

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however, U.S.

tax authorities also have the ability to review prior tax years to the extent loss carryforwards and tax credit carryforwards are utilized.

tax authorities also have the ability to review prior tax years to the extent loss

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carryforwards and tax credit carryforwards are utilized.

The open years for the non-U.S.

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Consolidated long-lived assets

NOTE 21 — Quarterly Financial Data

Quarterly Results of Operations

Operating earnings

Basic earnings per share

Diluted earnings per share

Operating earnings

Basic earnings per share

Diluted earnings per share

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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-K

Item 8. Financial Statements and Supplementary Data