Forward-Looking Statements This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward-looking statements are based on management's expe ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements for CTS Corporation, detailing earnings, balance sheets, cash flows, and shareholders' equity with accompanying notes [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents CTS Corporation's unaudited condensed consolidated financial statements, detailing earnings, balance sheets, cash flows, and shareholders' equity with accompanying notes [Condensed Consolidated Statements of Earnings](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) This statement details CTS Corporation's net sales, gross margin, operating earnings, net earnings, and EPS for the three and six months ended June 30, 2023 and 2022 | Metric | Three Months Ended June 30, 2023 ($ thousands) | Three Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | 145,182 | 144,982 | 291,176 | 292,677 | | Gross margin | 50,742 | 51,848 | 102,394 | 106,188 | | Operating earnings | 18,432 | 22,686 | 40,607 | 48,732 | | Net earnings | 12,897 | 12,598 | 31,241 | 32,837 | | Diluted EPS | 0.41 | 0.39 | 0.98 | 1.02 | | Cash dividends per share| 0.04 | 0.04 | 0.08 | 0.08 | - **Net sales** for Q2 **2023** increased by **$200** (**0.1%**) year-over-year, while **net sales** for the six months ended June **30, 2023**, decreased by **$1,501** (**0.5%**) year-over-year[7](index=7&type=chunk)[11](index=11&type=chunk)[27](index=27&type=chunk) - **Operating earnings** decreased by **18.8%** in Q2 **2023** and **16.7%** for the six months ended June **30, 2023**, primarily due to lower **gross margin** and increased operating expenses, including **restructuring charges**[27](index=27&type=chunk)[181](index=181&type=chunk)[185](index=185&type=chunk) [Condensed Consolidated Statements of Comprehensive Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Earnings) This statement presents CTS Corporation's net earnings and other comprehensive earnings for the three and six months ended June 30, 2023 and 2022 | Metric | Three Months Ended June 30, 2023 ($ thousands) | Three Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net earnings | 12,897 | 12,598 | 31,241 | 32,837 | | Other comprehensive earnings | 2,993 | 775 | 4,362 | 1,855 | | Comprehensive earnings | 15,890 | 13,373 | 35,603 | 34,692 | - **Other comprehensive earnings** significantly increased in both the three and six months ended June **30, 2023**, driven by positive changes in **fair market value of derivatives** and **cumulative translation adjustments**[49](index=49&type=chunk)[163](index=163&type=chunk)[165](index=165&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement outlines CTS Corporation's assets, liabilities, and shareholders' equity as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------------- | :-------------------------- | :------------------------------ | | Cash and cash equivalents | 150,878 | 156,910 | | Total current assets | 329,877 | 325,760 | | Total Assets | 755,906 | 748,487 | | Total current liabilities | 107,182 | 112,532 | | Long-term debt | 77,040 | 83,670 | | Total Liabilities | 234,511 | 242,263 | | Total Shareholders' Equity | 521,395 | 506,224 | - **Total assets** increased slightly to **$755,906 thousand** at June **30, 2023**, from **$748,487 thousand** at December **31, 2022**, while **total liabilities** decreased, leading to an increase in **total shareholders' equity**[30](index=30&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details CTS Corporation's cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | Cash Flow Activity | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :----------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash from operating activities | 34,607 | 35,352 | | Net cash used in investing activities | (11,846) | (103,519) | | Net cash (used in) provided by financing activities | (29,967) | 24,392 | | Net decrease in cash and cash equivalents | (6,032) | (42,726) | | Cash and cash equivalents at end of period | 150,878 | 98,739 | - **Net cash used in investing activities** significantly decreased from **$(103,519) thousand** in **2022** to **$(11,846) thousand** in **2023**, primarily due to lower payments for acquisitions[31](index=31&type=chunk)[190](index=190&type=chunk) - **Net cash used in financing activities** was **$(29,967) thousand** for the six months ended June **30, 2023**, a shift from net cash provided of **$24,392 thousand** in the prior year, driven by **treasury stock purchases** and **debt paydown**[31](index=31&type=chunk)[191](index=191&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This statement tracks changes in CTS Corporation's shareholders' equity from December 31, 2022, to June 30, 2023 | Equity Component | Balance at December 31, 2022 ($ thousands) | Balance at June 30, 2023 ($ thousands) | | :------------------------------- | :----------------------------------------- | :------------------------------------- | | Common Stock | 316,803 | 319,111 | | Additional Contributed Capital | 46,144 | 43,488 | | Retained Earnings | 546,703 | 575,422 | | Accumulated Other Comprehensive Income (Loss) | (671) | 3,691 | | Treasury Stock | (402,755) | (420,317) | | Total Shareholders' Equity | 506,224 | 521,395 | - **Total shareholders' equity** increased by **$15,171 thousand** from December **31, 2022**, to June **30, 2023**, primarily due to **net earnings** and positive changes in **accumulated other comprehensive income**, partially offset by **treasury stock** repurchases[53](index=53&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [NOTE 1 — Basis of Presentation](index=9&type=section&id=NOTE%201%20%E2%80%94%20Basis%20of%20Presentation) These unaudited financial statements are prepared in accordance with SEC rules and GAAP, requiring management estimates and assumptions - The **financial statements** are unaudited and prepared in conformity with **GAAP**, requiring management estimates and assumptions[76](index=76&type=chunk) - No material changes in significant accounting policies have occurred compared to the Annual Report on Form **10-K** for the year ended December **31, 2022**[76](index=76&type=chunk) [NOTE 2 – Revenue Recognition](index=9&type=section&id=NOTE%202%20%E2%80%93%20Revenue%20Recognition) Revenue is recognized upon satisfaction of performance obligations, typically at delivery or shipment, with variable consideration estimated using the most likely amount method - **Revenue** is recognized when **performance obligations** are satisfied, usually at the date of delivery or shipment[77](index=77&type=chunk) - **Variable consideration** is estimated using the most likely amount method, based on historical experience and current facts[58](index=58&type=chunk) - No contracts as of June **30, 2023**, contained a significant **financing component**[77](index=77&type=chunk) [NOTE 3 – Business Acquisitions](index=10&type=section&id=NOTE%203%20%E2%80%93%20Business%20Acquisitions) Details the acquisition of Maglab AG in February 2023 and final purchase prices for prior acquisitions of TEWA and Ferroperm - On February **6, 2023**, **CTS** acquired **100%** of **Maglab AG** for **$4,167 thousand** in cash, with a final purchase price of **$7,717 thousand** including **$3,564 thousand** in **contingent consideration**[18](index=18&type=chunk)[64](index=64&type=chunk)[85](index=85&type=chunk) - **Maglab AG** specializes in **magnetic system design** and **current measurement solutions** for **e-mobility**, **industrial automation**, and **renewable energy** applications[84](index=84&type=chunk)[154](index=154&type=chunk) - The final purchase price for **TEWA Temperature Sensors** (acquired Feb **2022**) was **$23,721 thousand**, and for **Ferroperm Piezoceramics** (acquired June **2022**) was **$72,340 thousand**[79](index=79&type=chunk)[82](index=82&type=chunk) [NOTE 4 – Accounts Receivable, net](index=12&type=section&id=NOTE%204%20%E2%80%93%20Accounts%20Receivable,%20net) Provides a breakdown of accounts receivable, net, and the allowance for credit losses at June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------------ | | Accounts receivable, gross | 98,666 | 92,171 | | Less: Allowance for credit losses | (1,147) | (1,236) | | Accounts receivable, net | 97,519 | 90,935 | [NOTE 5 – Inventories, net](index=12&type=section&id=NOTE%205%20%E2%80%93%20Inventories,%20net) Details the composition of inventories, net, including finished goods, work-in-process, and raw materials, at June 30, 2023, and December 31, 2022 | Inventory Component | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------ | :-------------------------- | :------------------------------ | | Finished goods | 13,103 | 12,865 | | Work-in-process | 22,076 | 22,819 | | Raw materials | 38,621 | 37,362 | | Less: Inventory reserves | (11,244) | (10,786) | | Inventories, net | 62,556 | 62,260 | [NOTE 6 – Property, Plant and Equipment, net](index=13&type=section&id=NOTE%206%20%E2%80%93%20Property,%20Plant%20and%20Equipment,%20net) Outlines the components of property, plant and equipment, net, and includes an asset impairment charge recorded in Q2 2023 | PP&E Component | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :----------------------------- | :-------------------------- | :------------------------------ | | Land and land improvements | 536 | 1,100 | | Buildings and improvements | 72,956 | 71,938 | | Machinery and equipment | 260,012 | 258,159 | | Less: Accumulated depreciation | (238,548) | (233,897) | | Property, plant and equipment, net | 94,956 | 97,300 | - A charge of **$1,324 thousand** was recorded in Q2 **2023** for **asset impairment charge** due to **restructuring actions**[68](index=68&type=chunk)[95](index=95&type=chunk) [NOTE 7 – Retirement Plans](index=13&type=section&id=NOTE%207%20%E2%80%93%20Retirement%20Plans) Reports net pension expense and other post-retirement plan income/expense for the six months ended June 30, 2023 and 2022 | Metric | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :---------------------- | :------------------------------------------- | :------------------------------------------- | | Net pension expense | 133 | 130 | | Other post-retirement plan (income) expense, net | (72) | 52 | [NOTE 9 – Costs Associated with Exit and Restructuring Activities](index=15&type=section&id=NOTE%209%20%E2%80%93%20Costs%20Associated%20with%20Exit%20and%20Restructuring%20Activities) Details restructuring charges, including costs from the September 2020 Plan and other activities like the Juarez manufacturing facility shutdown | Metric | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :---------------------- | :------------------------------------------- | :------------------------------------------- | | Restructuring charges | 2,807 | 942 | - The **September 2020 Plan** incurred **$1,708 thousand** in **restructuring costs** for the six months ended June **30, 2023**, including **$1,324 thousand** in **asset impairment charges**[95](index=95&type=chunk) - Other **restructuring activities**, including the shutdown of the **Juarez manufacturing facility**, incurred **$1,099 thousand** in charges for the six months ended June **30, 2023**[122](index=122&type=chunk) [NOTE 10 – Accrued Expenses and Other Liabilities](index=16&type=section&id=NOTE%2010%20%E2%80%93%20Accrued%20Expenses%20and%20Other%20Liabilities) Provides a breakdown of accrued expenses and other liabilities, including remediation reserves and derivative liabilities, at June 30, 2023, and December 31, 2022 | Liability Component | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :----------------------------------- | :-------------------------- | :------------------------------ | | Accrued product related costs | 2,251 | 2,368 | | Accrued income taxes | 7,548 | 9,630 | | Remediation reserves | 12,811 | 11,048 | | Derivative liabilities | 702 | 357 | | Other accrued liabilities | 5,400 | 4,196 | | Total accrued expenses and other liabilities | 35,381 | 35,322 | [NOTE 11 – Commitments and Contingencies](index=16&type=section&id=NOTE%2011%20%E2%80%93%20Commitments%20and%20Contingencies) Discusses environmental liabilities, including remediation reserves and an EPA reimbursement request, and other legal actions - **Remediation reserves** increased to **$12,811 thousand** at June **30, 2023**, from **$11,048 thousand** at December **31, 2022**[99](index=99&type=chunk) - The Company received an **EPA letter** seeking **$9,955 thousand** reimbursement for the Asheville Site and recorded a loss estimate of **$1,900 thousand** as of June **30, 2023**[99](index=99&type=chunk) - Management believes adequate accruals are established for **legal** and **environmental matters**, with no **material adverse effect** expected on **financial condition**[126](index=126&type=chunk)[127](index=127&type=chunk) [NOTE 12 - Debt](index=18&type=section&id=NOTE%2012%20-%20Debt) Details the Company's long-term debt, Revolving Credit Facility, available credit, and weighted-average interest rate, confirming covenant compliance | Metric | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :------------------------------------------- | :-------------------------- | :------------------------------ | | Total credit facility | 400,000 | 400,000 | | Balance outstanding | 77,040 | 83,670 | | Amount available, subject to covenant restrictions | 321,320 | 314,690 | | Weighted-average interest rate | 5.74% | 2.96% | - The **Revolving Credit Facility's** maturity was extended to December **15, 2026**, and **LIBOR** was replaced with **SOFR** as the primary reference rate[102](index=102&type=chunk)[215](index=215&type=chunk) - The Company was in compliance with all **debt covenants** at June **30, 2023**[103](index=103&type=chunk)[215](index=215&type=chunk) [NOTE 13 - Derivative Financial Instruments](index=18&type=section&id=NOTE%2013%20-%20Derivative%20Financial%20Instruments) Explains the Company's use of interest rate swaps, foreign currency forward contracts, and a cross-currency swap to manage market risks - The Company uses **interest rate swaps** to convert **$50,000 thousand** of variable rate debt to a fixed rate until December **2026**[107](index=107&type=chunk) - **Foreign currency forward contracts**, designated as **cash flow hedges**, had a notional amount of **$16,538 thousand** at June **30, 2023**, with a net unrealized gain of **$2,387 thousand** in **AOCI** expected to reclassify to earnings within **12 months**[106](index=106&type=chunk)[134](index=134&type=chunk)[158](index=158&type=chunk) - A **cross-currency swap**, designated as a **net investment hedge** for the **Ferroperm acquisition**, resulted in a net unrealized loss of **$1,003 thousand** in **AOCI** at June **30, 2023**[108](index=108&type=chunk) | Derivative Type | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :------------------------ | :------------------------------------------- | :------------------------------------------- | | Total derivative gain on foreign exchange contracts recognized in earnings | 747 | 308 | | Income (expense) from Interest Rate Swaps in Interest expense | 817 | (273) | | Income from Cross-Currency Swap in Interest expense | 295 | — | | Total net gains on derivatives | 1,859 | 35 | [NOTE 14 – Accumulated Other Comprehensive Income (Loss)](index=20&type=section&id=NOTE%2014%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Analyzes the changes in accumulated other comprehensive income (loss), driven by derivatives, pension costs, and translation adjustments | Component | As of December 31, 2022 ($ thousands) | As of June 30, 2023 ($ thousands) | | :-------------------------------------- | :------------------------------------ | :-------------------------------- | | Changes in fair market value of derivatives, net | 3,012 | 4,221 | | Changes in unrealized pension cost, net | (803) | (833) | | Cumulative translation adjustment, net | (2,880) | 303 | | Total accumulated other comprehensive (loss) income | (671) | 3,691 | - The increase in **AOCI** was significantly influenced by a **$2,414 thousand** gain recognized in **OCI** from changes in **fair market value of derivatives** and a **$3,183 thousand** gain from **cumulative translation adjustments** during the six months ended June **30, 2023**[165](index=165&type=chunk) [NOTE 15 – Shareholders' Equity](index=22&type=section&id=NOTE%2015%20%E2%80%93%20Shareholders'%20Equity) Details changes in shareholders' equity, including common shares outstanding, treasury stock, and the new share repurchase program | Metric | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Shares issued | 57,440,235 | 57,330,761 | | Shares outstanding | 31,394,377 | 31,680,890 | | Treasury stock shares held | 26,045,858 | 25,649,871 | - A new **share repurchase program** for up to **$50,000 thousand** was approved on February **9, 2023**, replacing the prior program. As of June **30, 2023**, approximately **$36,633 thousand** remains available[168](index=168&type=chunk)[196](index=196&type=chunk) - During the six months ended June **30, 2023**, **395,987 shares** of **common stock** were repurchased for **$17,562 thousand**[168](index=168&type=chunk)[169](index=169&type=chunk) [NOTE 16- Stock-Based Compensation](index=24&type=section&id=NOTE%2016-%20Stock-Based%20Compensation) Reports stock-based compensation expense, unrecognized compensation for RSUs, and outstanding cash-settled RSUs | Expense Type | Six Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2022 ($ thousands) | | :----------------------- | :------------------------------------------- | :------------------------------------------- | | Service-based RSUs | 1,535 | 1,368 | | Performance-based RSUs | 1,357 | 2,041 | | Cash-settled RSUs | 343 | 157 | | Total compensation expense | 3,235 | 3,566 | | RSU Type | Unrecognized Compensation Expense at June 30, 2023 ($ thousands) | Weighted Average Period (years) | | :----------------------- | :--------------------------------------------------------------- | :------------------------------ | | Service-based RSUs | 2,993 | 1.47 | | Performance-based RSUs | 5,252 | 1.88 | | Total | 8,245 | 1.73 | - At June **30, 2023**, there were **49,347 Cash-Settled RSUs** outstanding, classified as liabilities, for key employees in foreign locations[150](index=150&type=chunk) [NOTE 17 — Fair Value Measurements](index=26&type=section&id=NOTE%2017%20%E2%80%94%20Fair%20Value%20Measurements) Describes the fair value measurement of financial instruments, including interest rate swaps, foreign currency hedges, and contingent consideration | Financial Instrument | June 30, 2023 Carrying Value ($ thousands) | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | | :------------------------------ | :----------------------------------------- | :-------------------- | :-------------------- | :-------------------- | | Interest rate swaps | 3,092 | — | 3,092 | — | | Foreign currency hedges | 2,095 | — | 2,095 | — | | Cross-currency swap | (701) | — | (701) | — | | Qualified replacement plan assets | 14,218 | 14,218 | — | — | | Contingent consideration | (3,564) | — | — | (3,564) | - **Contingent consideration**, valued at **$3,564 thousand**, is a **Level 3 fair value measurement**, relying on management's assumptions about future revenues and timing of events[151](index=151&type=chunk) - **Interest rate swaps** and **foreign currency hedges** are classified within **Level 2** of the fair value hierarchy, using standard valuation models with **market-based observable inputs**[1](index=1&type=chunk) [NOTE 18 — Income Taxes](index=27&type=section&id=NOTE%2018%20%E2%80%94%20Income%20Taxes) Discusses the effective income tax rate and the factors contributing to its decrease for the six months ended June 30, 2023 | Period | Effective Tax Rate | | :---------------------- | :----------------- | | Three Months Ended June 30, 2023 | 19.8% | | Three Months Ended June 30, 2022 | 25.6% | | Six Months Ended June 30, 2023 | 19.5% | | Six Months Ended June 30, 2022 | 23.0% | - The decrease in the **effective income tax rate** is primarily attributed to **tax benefits** recorded upon **vesting of restricted stock** and **tax benefits** from amended U.S. federal income tax returns[4](index=4&type=chunk)[213](index=213&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance for Q2 and six months ended June 30, 2023, noting Q2 sales growth, overall earnings decline, and strong liquidity [Overview](index=28&type=section&id=Overview) CTS Corporation designs and manufactures products for aerospace & defense, industrial, medical, and transportation markets, enhancing capabilities through the Maglab AG acquisition - **CTS Corporation** designs and manufactures products that Sense, Connect, and Move for **OEMs** and tier one suppliers in **aerospace and defense**, **industrial**, **medical**, and **transportation markets**[154](index=154&type=chunk) - The Company acquired **Maglab AG** in February **2023**, gaining expertise in **magnetic system design** and **current measurement solutions** for **e-mobility**, **industrial automation**, and **renewable energy**[154](index=154&type=chunk) [Supply Chain Uncertainties](index=28&type=section&id=Supply%20Chain%20Uncertainties) Despite easing global conditions, material shortages persist, posing risks to production schedules and potentially leading to excess inventory due to fluctuating customer orders - **Supply chain conditions** have eased, but **material shortages** could still impact **production schedules** for **CTS** or its customers[180](index=180&type=chunk) - The Company faces the risk of carrying **excess inventory** due to customers changing orders on short notice[180](index=180&type=chunk) [Results of Operations: Second Quarter 2023 versus Second Quarter 2022](index=29&type=section&id=Results%20of%20Operations%3A%20Second%20Quarter%202023%20versus%20Second%20Quarter%202022) Q2 2023 net sales marginally increased by 0.1%, driven by transportation, while gross margin and operating earnings declined due to sales mix, costs, and restructuring charges | Metric | Q2 2023 ($ thousands) | Q2 2022 ($ thousands) | % Change | | :---------------------- | :-------------------- | :-------------------- | :------- | | Net sales | 145,182 | 144,982 | 0.1% | | Gross margin | 50,742 | 51,848 | (2.1%) | | Operating earnings | 18,432 | 22,686 | (18.8%) | | Net earnings | 12,897 | 12,598 | 2.4% | | R&D expenses (% of net sales) | 6,721 (4.6%) | 6,294 (4.3%) | 6.8% | | Restructuring charges | 1,895 | 630 | 200.8% | | Effective income tax rate | 19.8% | 25.6% | (5.8 pp) | - **Net sales** to the **transportation market** increased by **10.0%**, while **non-transportation markets** decreased by **10.3%** in Q2 **2023**, with **foreign exchange rates** decreasing **net sales** by **$1,092 thousand**[7](index=7&type=chunk) - **Gross margin** decrease was driven by **end market sales mix**, increased **material and freight costs**, and unfavorable **foreign exchange rates** of **$1,720 thousand**[156](index=156&type=chunk) [Results of Operations: Six Months ended June 30, 2023 versus Six Months Ended June 30, 2022](index=30&type=section&id=Results%20of%20Operations%3A%20Six%20Months%20ended%20June%2030%2C%202023%20versus%20Six%20Months%20Ended%20June%2030%2C%202022) Six-month net sales decreased by 0.5%, with transportation growth offset by non-transportation declines, leading to lower gross margin and operating earnings due to increased expenses | Metric | 6M 2023 ($ thousands) | 6M 2022 ($ thousands) | % Change | | :---------------------- | :-------------------- | :-------------------- | :------- | | Net sales | 291,176 | 292,677 | (0.5%) | | Gross margin | 102,394 | 106,188 | (3.6%) | | Operating earnings | 40,607 | 48,732 | (16.7%) | | Net earnings | 31,241 | 32,837 | (4.9%) | | R&D expenses (% of net sales) | 13,307 (4.6%) | 12,488 (4.3%) | 6.6% | | Restructuring charges | 2,807 | 942 | 198.0% | | Effective income tax rate | 19.5% | 23.0% | (3.5 pp) | - **Net sales** to the **transportation market** increased by **1.7%**, while **non-transportation markets** decreased by **2.9%** for the six-month period, with **foreign exchange rates** decreasing **net sales** by **$3,413 thousand**[11](index=11&type=chunk) - **SG&A expenses** increased by **3.7%** due to higher **environmental costs** and **acquisition activity**[186](index=186&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is strong, supported by operating cash flows and a $400,000 thousand Revolving Credit Facility, despite increased cash usage in financing activities - **Net cash provided by operating activities** was **$34,607 thousand** for the six months ended June **30, 2023**[15](index=15&type=chunk)[190](index=190&type=chunk) - **Net cash used in investing activities** was **$(11,846) thousand**, driven by the **Maglab acquisition** and **capital expenditures**[190](index=190&type=chunk) - **Net cash used in financing activities** was **$(29,967) thousand** for the six months ended June **30, 2023**, primarily due to **$17,562 thousand** in **treasury stock purchases** and **$6,630 thousand** net cash used in **long-term debt paydown**[191](index=191&type=chunk) - The **Revolving Credit Facility** provides **$400,000 thousand** in total credit, with **$321,320 thousand** available at June **30, 2023**, and a **weighted-average interest rate** of **5.74%**[17](index=17&type=chunk)[128](index=128&type=chunk)[215](index=215&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The Company's critical accounting policies and estimates remain consistent with the prior Annual Report on Form 10-K, with no significant changes in application - **Critical accounting policies and estimates** are consistent with those discussed in the Company's **Annual Report on Form 10-K** for the year ended December **31, 2022**[192](index=192&type=chunk) - There were no significant changes in the application of **critical accounting policies** or estimates during the three and six months ended June **30, 2023**[192](index=192&type=chunk) [Significant Customers](index=33&type=section&id=Significant%20Customers) Cummins Inc. and Toyota Motor Corporation were significant customers, accounting for 16.4% and 11.7% of net sales, respectively, for the six months ended June 30, 2023 | Customer | Six Months Ended June 30, 2023 (% of Net Sales) | Six Months Ended June 30, 2022 (% of Net Sales) | | :---------------------- | :---------------------------------------------- | :---------------------------------------------- | | Cummins Inc. | 16.4% | 15.9% | | Toyota Motor Corporation | 11.7% | 11.4% | - The Company continues to focus on broadening its **customer base** to diversify **non-transportation end market exposure**[217](index=217&type=chunk) [Forward‑Looking Statements](index=33&type=section&id=Forward%E2%80%91Looking%20Statements) This section contains forward-looking statements subject to various risks, including supply chain disruptions and economic changes, with no obligation for updates - **Forward-looking statements** are based on management's expectations, assumptions, and currently available information, subject to **uncertainties and risks**[20](index=20&type=chunk) - Factors that may affect future operating results include **supply chain disruptions**, **economic changes** (**inflation/recession**), **technological change**, **market conditions**, reliance on **key customers**, and **international operational risks**[20](index=20&type=chunk) - The Company undertakes no obligation to publicly update its **forward-looking statements**[20](index=20&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's exposure to market risk, including foreign currency and interest rate fluctuations, has not materially changed from its prior Annual Report on Form 10-K - There have been no **material changes** in the Company's exposure to **market risk** during the three months ended June **30, 2023**[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - The **CEO** and **CFO** concluded that **disclosure controls and procedures** were effective as of June **30, 2023**, providing reasonable assurance for timely and accurate information disclosure[22](index=22&type=chunk) - No changes in **internal control over financial reporting** materially affected, or are reasonably likely to materially affect, the Company's **internal control over financial reporting** for the quarter ended June **30, 2023**[22](index=22&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, equity security sales, other disclosures, and exhibits [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings, with adequate accruals established and no material adverse effect expected on financial condition - The Company is involved in **litigation** arising from the ordinary conduct of its business[195](index=195&type=chunk) - Management believes adequate accruals have been established for expected future liabilities, and no **material adverse effect** on business, **results of operations**, **financial condition**, or **cash flows** is expected[195](index=195&type=chunk) [Item 1A. Risk Factors](index=34&type=page&id=Item%201A.%20Risk%20Factors) No significant changes to the Company's risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2022 - No significant changes to **risk factors** from those contained in the **Annual Report on Form 10-K** for the year ended December **31, 2022**[227](index=227&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A new $50,000 thousand share repurchase program was approved in February 2023, with $36,633 thousand remaining available after repurchases - A new **share repurchase program** for up to **$50,000 thousand** was approved on February **9, 2023**, replacing the prior program[168](index=168&type=chunk)[196](index=196&type=chunk) - During the six months ended June **30, 2023**, **395,987 shares** of **common stock** were repurchased for **$17,562 thousand**[168](index=168&type=chunk)[169](index=169&type=chunk) - As of June **30, 2023**, approximately **$36,633 thousand** remains available for future purchases under the program[168](index=168&type=chunk)[222](index=222&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) Directors and officers may engage in stock transactions, including through Rule 10b5-1 Plans, with specific plans for the CEO and CFO detailed - Directors and officers may purchase or sell **common stock**, including through **Rule 10b5-1 Plans**[229](index=229&type=chunk) - The **CEO**, Kieran O'Sullivan, entered a **Rule 10b5-1 Plan** on May **23, 2023**, for the sale of up to **65,000 shares**, terminating by May **23, 2025**[223](index=223&type=chunk) - The **CFO**, Ashish Agrawal, entered a **Rule 10b5-1 Plan** on June **2, 2023**, for the sale of up to **25,000 shares**, terminating by August **30, 2024**[198](index=198&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and the Inline XBRL formatted financial information - **Exhibits** include **certifications** pursuant to **Section 302** and **Section 906** of the **Sarbanes-Oxley Act of 2002**[199](index=199&type=chunk)[225](index=225&type=chunk)[231](index=231&type=chunk) - The Quarterly Report on Form **10-Q** includes **financial statements** formatted in **Inline XBRL**[200](index=200&type=chunk)[225](index=225&type=chunk) [SIGNATURES](index=37&type=section&id=SIGNATURES) The report is duly signed by the Corporate Controller and the Vice President and Chief Financial Officer as of July 25, 2023 - The report is signed by Thomas M. White, **Corporate Controller** (**Principal Accounting Officer**), and Ashish Agrawal, **Vice President and Chief Financial Officer** (**Principal Financial Officer**)[201](index=201&type=chunk) - The signing date for the report is July **25, 2023**[201](index=201&type=chunk)

Financial Performance - Q1 2023 - Revenue was $146 million, a decrease of 1% compared to Q1 2022[3] - Adjusted gross margin was 354%, a decrease of 180 basis points from the prior year[3] - Adjusted diluted EPS was $061, a decrease of 9% compared to Q1 2022[3] - Non-transportation revenues increased by 5% compared to Q1 2022[12] - Acquisitions contributed $11 million in sales[12] - Organic revenue decreased by 8%[12] Business Highlights - New business wins totaled $152 million, including 6 EV platform wins[12] - The book-to-bill ratio was 096, with 9 new customers added[12] - The company generated $11 million in operating cash flow[12] - Transportation revenue decreased by 6% compared to Q1 2022, primarily due to semiconductor shortages[12, 38] Forward Looking Statements - The company is closely monitoring risks from interest rates, inflation, currency fluctuations, and the geopolitical landscape[34] - The company is maintaining a softer outlook in the industrial end market and distribution channel[20]

CTS Corporation (NYSE:CTS) Q1 2023 Earnings Conference Call April 27, 2023 10:00 AM ET Company Participants Kieran O’Sullivan - President and Chief Executive Officer Ashish Agrawal - Chief Financial Officer Conference Call Participants Justin Long - Stephens John Franzreb - Sidoti Hendi Susanto - Gabelli Funds Joshua Buchalter - TD Cowen Operator Good morning, and thank you for attending today's CTS Q1 2023 Earnings Call. My name is Daniel, and I'll be the moderator for today's call. [Operator Instructions] ...

CTS CORPORATION 4 SECURITIES AND EXCHANGE COMMISSION We believe the business risks to our non-U.S. operations, though substantial, are normal risks for global businesses. These risks include currency controls and changes in currency exchange rates, longer collection cycles, political and transportation risks, economic downturns and inflation, government regulations, and expropriation. Our non-U.S. manufacturing facilities are located in China, Czech Republic, Denmark, Mexico, Philippines, Poland, and Taiwan ...

CTS Corporation (NYSE:CTS) Q4 2022 Earnings Conference Call February 7, 2023 10:00 AM ET Company Participants Kieran O’Sullivan - President and Chief Executive Officer Ashish Agrawal - Chief Financial Officer Conference Call Participants Brady Lierz - Stephens Joshua Buchalter - Cowen John Franzreb - Sidoti David Kelley - Jefferies Hendi Susanto - Gabelli Funds Operator Hello, everyone and welcome to the CTS Q4 2022 Earnings Call. My name is Bruno and I will be operating your call today. [Operator Instructi ...

Traditional light vehicle key product portfolio 2030: $2.7Bn + 7 Capital Allocation Priorities Capital Structure Leverage 1.0 – 2.5x $142 million in cash returned to shareholders since 2013 Continued progress in 2022 : • Established DE&I Committee • Expanded Compensation & Talent Committee with greater visibility to talent and diversity initiatives • Board diversity >40% Notes: 1Used in Electrified platforms Revenue Notes: 1 CAGR based on mid point of 2023 guidance Q4 2022 Financial Summary ($ Millions, exc ...

CTS Corporation (NYSE:CTS) Q3 2022 Earnings Conference Call October 26, 2022 10:00 AM ET Company Participants Kieran O'Sullivan - Chairman, President and Chief Executive Officer Ashish Agrawal - Vice President and Chief Financial Officer Conference Call Participants Joshua Buchalter - Cowen Inc. John Franzreb - Sidoti and Company, LLC Brady Lierz - Stephens Inc. Hendi Susanto - Gabelli Funds LLC Operator Hello, everyone, and welcome to the CTS Q3 2022 Earnings Call. My name is Seb, and I will be the operato ...

| --- | --- | --- | --- | |--------------------------------|-------|-------|-------| | | | | | | CTS Corporation | | | | | | | | | | 3rd Quarter 2022 Earnings Call | | | | | | | | | | Oct 26, 2022 | | | | Forward-Looking Statements This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, any financial or other guidance, statements ...

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for CTS Corporation [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for CTS Corporation, including statements of earnings, comprehensive earnings, balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, acquisitions, debt, equity, and other financial items [Condensed Consolidated Statements of Earnings (Loss)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20%28Loss%29) This section provides a detailed breakdown of CTS Corporation's earnings and losses for the specified periods **Three Months Ended September 30, 2022 vs 2021 (in thousands of dollars):** | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Net sales | $151,911 | $122,382 | | Gross margin | $53,346 | $45,662 | | Operating earnings | $22,644 | $18,967 | | Net earnings (loss) | $11,798 | $(63,896) | | Basic EPS | $0.37 | $(1.97) | | Diluted EPS | $0.37 | $(1.97) | **Nine Months Ended September 30, 2022 vs 2021 (in thousands of dollars):** | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Net sales | $444,588 | $380,394 | | Gross margin | $159,534 | $135,948 | | Operating earnings | $71,376 | $58,043 | | Net earnings (loss) | $44,635 | $(51,031) | | Basic EPS | $1.39 | $(1.58) | | Diluted EPS | $1.38 | $(1.58) | [Condensed Consolidated Statements of Comprehensive Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Earnings) This section details the company's comprehensive earnings, including net earnings and other comprehensive income or loss components **Three Months Ended September 30, 2022 vs 2021 (in thousands of dollars):** | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Net earnings (loss) | $11,798 | $(63,896) | | Other comprehensive (loss) earnings | $(6,179) | $72,228 | | Comprehensive earnings | $5,619 | $8,332 | **Nine Months Ended September 30, 2022 vs 2021 (in thousands of dollars):** | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Net earnings (loss) | $44,635 | $(51,031) | | Other comprehensive (loss) earnings | $(4,324) | $91,078 | | Comprehensive earnings | $40,311 | $40,047 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents a snapshot of the company's financial position, including assets, liabilities, and shareholders' equity at specific dates **As of September 30, 2022 vs December 31, 2021 (in thousands of dollars):** | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Total Assets | $734,679 | $664,462 | | Total Liabilities | $244,067 | $200,884 | | Total Shareholders' Equity | $490,612 | $463,578 | | Cash and cash equivalents | $147,908 | $141,465 | | Accounts receivable, net | $97,004 | $82,191 | | Inventories, net | $63,465 | $49,506 | | Goodwill | $138,945 | $109,798 | | Long-term debt | $85,478 | $50,000 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities for the specified periods **Nine Months Ended September 30, 2022 vs 2021 (in thousands of dollars):** | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $95,739 | $60,117 | | Net cash used in investing activities | $(105,788) | $(8,395) | | Net cash provided by (used in) financing activities | $15,623 | $(15,411) | | Net increase in cash and cash equivalents | $6,443 | $36,754 | | Cash and cash equivalents at end of period | $147,908 | $128,527 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section details changes in shareholders' equity, including net earnings, dividends, stock repurchases, and other comprehensive income adjustments **Changes in Total Equity for Nine Months Ended September 30, 2022 (in thousands of dollars):** | Item | Amount | | :-------------------------------- | :----------- | | Balances at December 31, 2021 | $463,578 | | Net earnings | $44,635 | | Changes in fair market value of derivatives, net of tax | $3,667 | | Changes in unrealized pension cost, net of tax | $341 | | Cumulative translation adjustment, net of tax | $(8,332) | | Cash dividends of $0.04 per share | $(3,855) | | Purchases of treasury stock | $(13,446) | | Issued shares on vesting of restricted stock units | $(1,413) | | Stock compensation | $5,807 | | Balances at September 30, 2022 | $490,612 | **Changes in Total Equity for Nine Months Ended September 30, 2021 (in thousands of dollars):** | Item | Amount | | :-------------------------------- | :----------- | | Balances at December 31, 2020 | $423,682 | | Net earnings | $(51,031) | | Changes in fair market value of derivatives, net of tax | $100 | | Changes in unrealized pension cost, net of tax | $90,976 | | Cumulative translation adjustment, net of tax | $2 | | Cash dividends of $0.12 per share | $(3,882) | | Acquired treasury stock | $(4,939) | | Issued shares on vesting of restricted stock units | $(1,490) | | Stock compensation | $4,106 | | Balances at September 30, 2021 | $457,374 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering accounting policies, acquisitions, debt, equity, and other significant financial items [NOTE 1 — Basis of Presentation](index=9&type=section&id=NOTE%201%20%E2%80%94%20Basis%20of%20Presentation) The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules, relying on management estimates and assumptions. No material changes to significant accounting policies have occurred since the December 31, 2021 Annual Report on Form 10-K - The financial statements are unaudited and prepared by management, reflecting all necessary adjustments for fair presentation[22](index=22&type=chunk)[23](index=23&type=chunk) - No material changes in significant accounting policies have occurred compared to the 2021 Annual Report on Form 10-K[24](index=24&type=chunk) [NOTE 2 – Revenue Recognition](index=9&type=section&id=NOTE%202%20%E2%80%93%20Revenue%20Recognition) Revenue is recognized when performance obligations are satisfied, typically upon delivery or shipment, with payment expected within 30 to 90 days. The company disaggregates revenue by major markets, showing growth across Transportation, Industrial, Medical, and Aerospace & Defense sectors - Revenue is recognized when performance obligations are met, usually upon delivery or shipment, with payment terms typically 30 to 90 days[25](index=25&type=chunk) **Disaggregated Revenue by Major Markets (in thousands of dollars):** | Market | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Transportation | $78,377 | $62,342 | $232,200 | $209,750 | | Industrial | $43,857 | $36,356 | $125,267 | $98,433 | | Medical | $16,380 | $12,409 | $49,277 | $36,487 | | Aerospace & Defense | $13,297 | $11,275 | $37,844 | $35,724 | | Total | $151,911 | $122,382 | $444,588 | $380,394 | [NOTE 3 – Business Acquisitions](index=10&type=section&id=NOTE%203%20%E2%80%93%20Business%20Acquisitions) CTS Corporation completed two acquisitions in 2022: TEWA Temperature Sensors in February for $24.5 million and Ferroperm Piezoceramics in June for $72.0 million. Both acquisitions aim to expand market presence in Europe and complement existing product lines, with preliminary purchase price allocations including significant goodwill and intangible assets - Acquired TEWA Temperature Sensors on February 28, 2022, for **$24,485 thousand**, expanding temperature sensing capabilities and European presence[29](index=29&type=chunk)[30](index=30&type=chunk) **TEWA Acquisition - Fair Values at February 28, 2022 (in thousands of dollars):** | Asset/Liability | Fair Value | | :-------------------------- | :----------- | | Current assets | $5,650 | | Property, plant and equipment | $644 | | Other assets | $27 | | Goodwill | $7,669 | | Intangible assets | $12,503 | | Fair value of assets acquired | $26,493 | | Less fair value of liabilities acquired | $(2,008) | | Purchase price | $24,485 | - Acquired Ferroperm Piezoceramics A/S on June 30, 2022, for **$72,043 thousand**, enhancing piezoceramic components for medical, industrial, and aerospace applications and further expanding European market presence[35](index=35&type=chunk)[36](index=36&type=chunk) **Ferroperm Acquisition - Fair Values at June 30, 2022 (in thousands of dollars):** | Asset/Liability | Fair Value | | :-------------------------- | :----------- | | Accounts Receivable | $3,073 | | Inventory | $6,848 | | Other current assets | $1,001 | | Property, plant and equipment | $3,953 | | Other assets | $158 | | Goodwill | $24,298 | | Intangible assets | $36,448 | | Fair value of assets acquired | $75,779 | | Less fair value of liabilities acquired | $(3,736) | | Purchase price | $72,043 | [NOTE 4 – Accounts Receivable, net](index=11&type=section&id=NOTE%204%20%E2%80%93%20Accounts%20Receivable%2C%20net) Accounts receivable, net, increased to $97.0 million as of September 30, 2022, from $82.2 million at December 31, 2021, primarily due to an increase in gross receivables, partially offset by a decrease in the allowance for credit losses **Accounts Receivable, Net (in thousands of dollars):** | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Accounts receivable, gross | $98,388 | $83,848 | | Less: Allowance for credit losses | $(1,384) | $(1,657) | | Accounts receivable, net | $97,004 | $82,191 | [NOTE 5 – Inventories, net](index=12&type=section&id=NOTE%205%20%E2%80%93%20Inventories%2C%20net) Inventories, net, increased to $63.5 million as of September 30, 2022, from $49.5 million at December 31, 2021, driven by increases across finished goods, work-in-process, and raw materials, despite an increase in inventory reserves **Inventories, Net (in thousands of dollars):** | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Finished goods | $13,539 | $11,955 | | Work-in-process | $22,328 | $18,878 | | Raw materials | $38,460 | $28,078 | | Less: Inventory reserves | $(10,862) | $(9,405) | | Inventories, net | $63,465 | $49,506 | [NOTE 6 – Property, Plant and Equipment, net](index=12&type=section&id=NOTE%206%20%E2%80%93%20Property%2C%20Plant%20and%20Equipment%2C%20net) Property, plant and equipment, net, slightly decreased to $95.9 million as of September 30, 2022, from $96.9 million at December 31, 2021, with depreciation expense for the nine months ended September 30, 2022, at $13.5 million **Property, Plant and Equipment, Net (in thousands of dollars):** | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Land and land improvements | $1,100 | $1,095 | | Buildings and improvements | $71,644 | $69,614 | | Machinery and equipment | $253,659 | $247,708 | | Less: Accumulated depreciation | $(230,497) | $(221,541) | | Property, plant and equipment, net | $95,906 | $96,876 | - Depreciation expense for the nine months ended September 30, 2022, was **$13,548 thousand**, up from $13,166 thousand in the prior year[43](index=43&type=chunk) [NOTE 7 – Retirement Plans](index=12&type=section&id=NOTE%207%20%E2%80%93%20Retirement%20Plans) The company reported net pension income for both domestic and foreign plans in 2022, a significant shift from expense in 2021, primarily due to the termination of the U.S.-based pension plan in 2021 and related settlement charges. In 2022, the final termination process included transferring remaining Plan assets to the Company, resulting in $6.8 million in excise tax **Net Pension (Income) Expense (in thousands of dollars):** | Period | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------- | :----------- | :----------- | | Three months ended | $(2,076) | $107,447 | | Nine months ended | $(1,944) | $131,227 | - The U.S.-based pension plan termination process, initiated in 2020, was finalized in 2021, leading to significant non-cash settlement charges of **$20,063 thousand** (Q2 2021) and **$106,206 thousand** (Q3 2021)[47](index=47&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - In Q3 2022, approximately **$34,016 thousand** of remaining Plan assets were transferred to the Company, resulting in **$6,803 thousand** of excise tax recorded as Other Expense[52](index=52&type=chunk) [NOTE 8 – Goodwill and Other Intangible Assets](index=14&type=section&id=NOTE%208%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) Other intangible assets, net, increased to $106.2 million as of September 30, 2022, from $69.9 million at December 31, 2021, primarily due to acquisitions. Goodwill also increased significantly to $138.9 million from $109.8 million, driven by the TEWA and Ferroperm acquisitions **Other Intangible Assets, Net (in thousands of dollars):** | Component | Sep 30, 2022 Net Amount | Dec 31, 2021 Net Amount | | :-------------------------------- | :---------------------- | :---------------------- | | Customer lists/relationships | $86,770 | $47,676 | | Technology and other intangibles | $19,437 | $22,212 | | Total other intangible assets, net | $106,207 | $69,888 | **Amortization Expense for Other Intangible Assets (in thousands of dollars):** | Period | Amortization Expense | | :-------------------------------- | :------------------- | | Three months ended Sep 30, 2022 | $3,262 | | Nine months ended Sep 30, 2022 | $8,179 | | Three months ended Sep 30, 2021 | $2,348 | | Nine months ended Sep 30, 2021 | $7,065 | **Changes in Goodwill (in thousands of dollars):** | Item | Total | | :-------------------------------- | :----------- | | Balance at December 31, 2021 | $109,798 | | Acquisitions | $31,967 | | Foreign currency translation | $(2,820) | | Balance at September 30, 2022 | $138,945 | [NOTE 9 – Costs Associated with Exit and Restructuring Activities](index=15&type=section&id=NOTE%209%20%E2%80%93%20Costs%20Associated%20with%20Exit%20and%20Restructuring%20Activities) Restructuring charges increased significantly to $1.4 million for the nine months ended September 30, 2022, from $0.6 million in the prior year, reflecting ongoing efforts to optimize manufacturing footprint and improve operational efficiency, including the September 2020 Plan and other activities **Restructuring Charges (in thousands of dollars):** | Period | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------- | :----------- | :----------- | | Three months ended | $492 | $319 | | Nine months ended | $1,434 | $551 | - The September 2020 Plan, focused on manufacturing footprint optimization and operational efficiency, has incurred **$1,793 thousand** in program costs to date, with a total estimated cost of **$3,500 to $4,500 thousand**[59](index=59&type=chunk) **Restructuring Liability Activity (in thousands of dollars):** | Item | Amount | | :-------------------------------- | :----------- | | Restructuring liability at January 1, 2022 | $962 | | Restructuring charges | $1,434 | | Cost paid | $(1,412) | | Restructuring liability at September 30, 2022 | $984 | [NOTE 10 – Accrued Expenses and Other Liabilities](index=16&type=section&id=NOTE%2010%20%E2%80%93%20Accrued%20Expenses%20and%20Other%20Liabilities) Total accrued expenses and other liabilities decreased slightly to $35.7 million as of September 30, 2022, from $36.7 million at December 31, 2021, with notable changes in accrued income taxes and other accrued liabilities **Accrued Expenses and Other Liabilities (in thousands of dollars):** | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Accrued product related costs | $3,068 | $3,188 | | Accrued income taxes | $9,118 | $6,761 | | Accrued property and other taxes | $1,916 | $2,370 | | Accrued professional fees | $2,031 | $1,629 | | Accrued customer related liabilities | $3,261 | $3,254 | | Dividends payable | $1,274 | $1,289 | | Remediation reserves | $10,635 | $10,979 | | Derivative liabilities | $0 | $437 | | Other accrued liabilities | $4,438 | $6,811 | | Total accrued expenses and other liabilities | $35,741 | $36,718 | [NOTE 11 – Commitments and Contingencies](index=16&type=section&id=NOTE%2011%20%E2%80%93%20Commitments%20and%20Contingencies) The company faces environmental liabilities, including Superfund sites, and other legal claims arising from ordinary business conduct. Liabilities are accrued when probable and estimable, but the ultimate disposition of these claims could materially impact financial results - The company is potentially liable for environmental contamination at several sites, including two designated National Priorities List sites (Asheville, NC and Mountain View, CA)[64](index=64&type=chunk) **Remediation Reserves Roll-Forward (in thousands of dollars):** | Item | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Balance at beginning of period | $10,979 | $10,642 | | Remediation expense | $1,710 | $2,254 | | Net remediation payments | $(2,080) | $(1,929) | | Other activity | $26 | $12 | | Balance at end of the period | $10,635 | $10,979 | - The company accrues for estimated product warranty liabilities at the time of sale, based on historical claims experience and specific claim assessments[67](index=67&type=chunk) [NOTE 12 - Debt](index=17&type=section&id=NOTE%2012%20-%20Debt) Long-term debt increased to $85.5 million as of September 30, 2022, from $50.0 million at December 31, 2021, under the $400 million Revolving Credit Facility. The facility, amended in December 2021, extended maturity to December 2026 and replaced LIBOR with SOFR, with the company in compliance with all debt covenants **Long-term Debt (in thousands of dollars):** | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Total credit facility | $400,000 | $400,000 | | Balance outstanding | $85,478 | $50,000 | | Standby letters of credit | $1,640 | $1,740 | | Amount available, subject to covenant restrictions | $312,882 | $348,260 | | Weighted-average interest rate | 2.22% | 1.16% | - The Revolving Credit Facility was amended in December 2021 to increase total availability to **$400 million**, extend maturity to **December 2026**, and replace LIBOR with SOFR as the primary reference rate[70](index=70&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2022[72](index=72&type=chunk) [NOTE 13 - Derivative Financial Instruments](index=17&type=section&id=NOTE%2013%20-%20Derivative%20Financial%20Instruments) CTS uses derivative financial instruments, including foreign currency forward contracts, interest rate swaps, and a cross-currency swap, to manage exposure to foreign currency and interest rate risks. These instruments are recorded at fair value, with effective portions of gains/losses recorded in accumulated other comprehensive loss until settlement, and a total net gain of $470 thousand on derivatives recognized in earnings for Q3 2022 - The company uses foreign currency forward contracts, interest rate swaps, and a cross-currency swap to manage foreign currency exchange and interest rate risks[74](index=74&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk) **Fair Values of Derivative Instruments (in thousands of dollars):** | Instrument | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Interest rate swaps (asset) | $3,330 | $0 | | Interest rate swaps (liability) | $0 | $(790) | | Foreign currency hedges (asset) | $789 | $135 | | Net investment hedge (asset) | $1,675 | $0 | **Effect of Derivative Instruments on Earnings (in thousands of dollars):** | Item | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :----------------------------- | | Total derivative gain on foreign exchange contracts | $216 | $524 | | Income (expense) recorded in Interest expense (Interest Rate Swaps) | $79 | $(194) | | Income (expense) recorded in Interest expense (Cross-Currency Swap) | $175 | $175 | | Total net gains on derivatives | $470 | $505 | [NOTE 14 – Accumulated Other Comprehensive Loss](index=20&type=section&id=NOTE%2014%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated Other Comprehensive Loss (AOCI) includes unrealized gains/losses on hedges, pension obligations, and cumulative translation adjustments. AOCI increased to $(8.8) million as of September 30, 2022, from $(4.5) million at December 31, 2021, primarily due to significant cumulative translation adjustments and changes in unrealized pension costs - AOCI components include unrealized gains/losses on derivatives, unrealized pension costs, and cumulative translation adjustments[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) **Components of Accumulated Other Comprehensive Loss (Net, in thousands of dollars):** | Component | As of Dec 31, 2021 | Gain (Loss) Recognized in OCI (9M 2022) | Reclassified from AOCI to Earnings (9M 2022) | As of Sep 30, 2022 | | :-------------------------------- | :----------------- | :-------------------------------------- | :------------------------------------------- | :----------------- | | Changes in fair market value of derivatives | $(488) | $3,922 | $(254) | $3,180 | | Changes in unrealized pension cost | $(2,006) | $1,647 | $(1,306) | $(1,665) | | Cumulative translation adjustment | $(2,032) | $(8,332) | $0 | $(10,364) | | Total AOCI | $(4,526) | $(2,763) | $(1,560) | $(8,849) | - Foreign exchange transaction losses for the nine months ended September 30, 2022, were **$3,980 thousand**, compared to $1,412 thousand in the prior year[94](index=94&type=chunk) [NOTE 15 – Shareholders' Equity](index=22&type=section&id=NOTE%2015%20%E2%80%93%20Shareholders%27%20Equity) Common shares outstanding decreased to 31.9 million as of September 30, 2022, from 32.2 million at December 31, 2021, primarily due to share repurchases. The company repurchased 384,428 shares for $13.4 million during the nine months ended September 30, 2022, under a $50 million program with $27.8 million remaining **Share Count Data:** | Item | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Common Shares authorized | 75,000,000 | 75,000,000 | | Common Shares issued | 57,310,837 | 57,245,060 | | Common Shares outstanding | 31,860,064 | 32,178,715 | | Treasury stock shares held | 25,450,773 | 25,066,345 | - The Board approved a new **$50 million** share repurchase program on May 13, 2021, replacing the prior program[100](index=100&type=chunk) - During the nine months ended September 30, 2022, **384,428 shares** were repurchased for **$13,446 thousand**, with approximately **$27,768 thousand** remaining available for future purchases[100](index=100&type=chunk) [NOTE 16- Stock-Based Compensation](index=23&type=section&id=NOTE%2016-%20Stock-Based%20Compensation) Stock-based compensation expense increased to $5.8 million for the nine months ended September 30, 2022, from $4.1 million in the prior year, driven by higher expenses for performance and market-based RSUs. The company has several active plans, with future grants only under the 2018 Plan - The company has five active stock-based compensation plans, with future grants exclusively under the 2018 Equity and Incentive Compensation Plan[104](index=104&type=chunk) **Stock-Based Compensation Expense (in thousands of dollars):** | RSU Type | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :----------------------------- | | Service-based RSUs | $766 | $2,134 | | Performance and Market-based RSUs | $1,338 | $3,379 | | Cash-settled RSUs | $137 | $294 | | Total | $2,241 | $5,807 | | Income tax benefit | $515 | $1,336 | | Net expense | $1,726 | $4,471 | **Unrecognized Compensation Expense for Non-Vested RSUs (as of Sep 30, 2022, in thousands of dollars):** | RSU Type | Unrecognized Compensation Expense | Weighted Average Period (years) | | :-------------------------- | :-------------------------------- | :------------------------------ | | Service-based RSUs | $2,013 | 1.41 | | Performance and Market-based RSUs | $5,282 | 1.82 | | Total | $7,295 | 1.70 | [NOTE 17 — Fair Value Measurements](index=24&type=section&id=NOTE%2017%20%E2%80%94%20Fair%20Value%20Measurements) The company measures financial assets and liabilities at fair value on a recurring basis, primarily classifying interest rate swaps, foreign currency hedges, and a cross-currency swap within Level 2 of the fair value hierarchy due to market-based observable inputs. Contingent consideration is classified as Level 3 due to significant unobservable inputs **Financial Assets and Liabilities Measured at Fair Value (as of Sep 30, 2022, in thousands of dollars):** | Instrument | Carrying Value | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------------- | :------ | :------ | :------ | | Interest rate swaps (Asset) | $3,330 | $0 | $3,330 | $0 | | Foreign currency hedges (Asset) | $789 | $0 | $789 | $0 | | Cross-currency swap (Asset) | $1,675 | $0 | $1,675 | $0 | | Qualified replacement plan assets (Asset) | $15,635 | $15,635 | $0 | $0 | | Contingent consideration (Liability) | $(300) | $0 | $0 | $(300) | - Interest rate swaps, foreign currency hedges, and the cross-currency swap are classified within Level 2 of the fair value hierarchy, using standard valuation models with market-based observable inputs[113](index=113&type=chunk) - Contingent consideration is classified as Level 3, requiring significant judgment and unobservable inputs based on management's estimates of future revenues and timing of events[114](index=114&type=chunk) [NOTE 18 — Income Taxes](index=25&type=section&id=NOTE%2018%20%E2%80%94%20Income%20Taxes) The effective tax rate for Q3 2022 increased to 31.8% from 28.9% in Q3 2021, primarily due to a nondeductible cost associated with the U.S. pension plan termination. For the nine months ended September 30, 2022, the effective tax rate decreased to 25.6% from 32.5% in 2021, mainly due to a one-time non-cash settlement expense related to the pension plan termination in the prior year **Effective Tax Rates:** | Period | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------- | :----------- | :----------- | | Three Months Ended | 31.8% | 28.9% | | Nine Months Ended | 25.6% | 32.5% | - The increase in Q3 2022 effective tax rate is primarily attributed to a nondeductible cost associated with the U.S. pension plan termination[117](index=117&type=chunk)[119](index=119&type=chunk) - The decrease in the nine-month effective tax rate for 2022 is primarily attributed to a one-time non-cash settlement expense related to the U.S. pension plan termination in 2021[120](index=120&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and results of operations for the three and nine months ended September 30, 2022. It covers an overview of the business, the impact of COVID-19 and supply chain issues, detailed financial results, liquidity, capital resources, critical accounting policies, significant customers, and forward-looking statements [Overview](index=27&type=section&id=Overview) CTS Corporation is a leading designer and manufacturer of 'Sense, Connect, and Move' products for aerospace & defense, industrial, medical, and transportation markets. The company recently acquired TEWA Temperature Sensors and Ferroperm Piezoceramics to expand its market presence and product lines - CTS Corporation designs and manufactures products that Sense, Connect, and Move, serving aerospace & defense, industrial, medical, and transportation markets[123](index=123&type=chunk)[124](index=124&type=chunk) - Acquired TEWA Temperature Sensors (Feb 2022) and Ferroperm Piezoceramics (June 2022) to diversify end markets and expand European presence[126](index=126&type=chunk)[127](index=127&type=chunk) [COVID-19 Impact and Supply Chain Uncertainties](index=27&type=section&id=COVID-19%20Impact%20and%20Supply%20Chain%20Uncertainties) The COVID-19 pandemic and ongoing supply chain uncertainties, particularly semiconductor chip shortages, continue to negatively impact the global economy and CTS's operations, leading to increased material and freight costs and production disruptions. These challenges are expected to persist into 2023 - COVID-19 and supply chain uncertainties have disrupted financial markets, impacted the global supply chain, and increased material and operational costs[128](index=128&type=chunk) - Key semiconductor chip and other critical part shortages continue to force OEM production shutdowns, creating risks of excess inventory and pressure on manufacturing costs and gross margins[128](index=128&type=chunk)[131](index=131&type=chunk)[141](index=141&type=chunk) - Challenges from supply chain issues are anticipated to continue impacting results for the remainder of 2022 and into 2023[128](index=128&type=chunk)[131](index=131&type=chunk)[141](index=141&type=chunk) [Results of Operations: Third Quarter 2022 versus Third Quarter 2021](index=28&type=section&id=Results%20of%20Operations%3A%20Third%20Quarter%202022%20versus%20Third%20Quarter%202021) In Q3 2022, net sales increased by 24.1% to $151.9 million, driven by growth in both transportation and non-transportation markets, including contributions from recent acquisitions. Gross margin improved by 16.8%, and operating earnings rose by 19.4%, while the company reported a net profit of $11.8 million compared to a net loss in Q3 2021, largely due to decreased pension expense **Key Financial Highlights (Three Months Ended September 30, in thousands of dollars, except percentages):** | Metric | 2022 | 2021 | Percent Change | | :-------------------------------- | :----------- | :----------- | :------------- | | Net sales | $151,911 | $122,382 | 24.1% | | Cost of goods sold | $98,565 | $76,720 | 28.5% | | Gross margin | $53,346 | $45,662 | 16.8% | | Selling, general and administrative expenses | $24,003 | $19,922 | 20.5% | | Research and development expenses | $6,207 | $6,454 | (3.8%) | | Restructuring charges | $492 | $319 | 54.2% | | Operating earnings | $22,644 | $18,967 | 19.4% | | Total other expense, net | $(5,346) | $(108,786) | (95.1%) | | Net earnings (loss) | $11,798 | $(63,896) | n/a | - Net sales increased by **$29,529 thousand (24.1%)** year-over-year, with acquisitions contributing **$8,588 thousand**, partially offset by a **$4,137 thousand** decrease due to foreign exchange rates[130](index=130&type=chunk) - The significant reduction in total other expense, net, was primarily driven by decreased pension expense due to the U.S. pension plan termination in 2021, despite **$6,803 thousand** in excise taxes in Q3 2022[137](index=137&type=chunk) [Results of Operations: Nine Months ended September 30, 2022 versus Nine Months Ended September 30, 2021](index=29&type=section&id=Results%20of%20Operations%3A%20Nine%20Months%20ended%20September%2030%2C%202022%20versus%20Nine%20Months%20Ended%20September%2030%2C%202021) For the nine months ended September 30, 2022, net sales grew by 16.9% to $444.6 million, with strong performance in both transportation and non-transportation markets, including acquisition contributions. Gross margin increased by 17.3%, and operating earnings rose by 23.0%. The company achieved net earnings of $44.6 million, a significant turnaround from a net loss in the prior year, largely due to reduced pension-related expenses **Key Financial Highlights (Nine Months Ended September 30, in thousands of dollars, except percentages):** | Metric | 2022 | 2021 | Percent Change | | :-------------------------------- | :----------- | :----------- | :------------- | | Net sales | $444,588 | $380,394 | 16.9% | | Cost of goods sold | $285,054 | $244,446 | 16.6% | | Gross margin | $159,534 | $135,948 | 17.3% | | Selling, general and administrative expenses | $68,029 | $59,184 | 14.9% | | Research and development expenses | $18,695 | $18,170 | 2.9% | | Restructuring charges | $1,434 | $551 | 160.3% | | Operating earnings | $71,376 | $58,043 | 23.0% | | Total other (expense), net | $(11,410) | $(133,674) | (91.5%) | | Net earnings (loss) | $44,635 | $(51,031) | (187.5%) | | Diluted net earnings (loss) per share | $1.38 | $(1.58) | | - Net sales increased by **$64,194 thousand (16.9%)** year-over-year, with acquisitions contributing **$14,092 thousand**, partially offset by a **$6,650 thousand** decrease due to foreign exchange rates[139](index=139&type=chunk) - The significant reduction in total other expense, net, was primarily driven by decreased pension expense due to the U.S. pension plan termination in 2021, despite **$6,803 thousand** in excise taxes and **$1,776 thousand** in derivative losses related to the Ferroperm acquisition in 2022[146](index=146&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) CTS primarily funds its operations through cash flows and its Revolving Credit Facility. As of September 30, 2022, cash and cash equivalents were $147.9 million, and total long-term debt was $85.5 million. Net cash provided by operating activities was $95.7 million, while investing activities used $105.8 million (primarily for acquisitions) and financing activities provided $15.6 million - Cash and cash equivalents were **$147,908 thousand** at September 30, 2022, up from $141,465 thousand at December 31, 2021[150](index=150&type=chunk) - Total long-term debt increased to **$85,478 thousand** at September 30, 2022, from $50,000 thousand at December 31, 2021, with debt as a percentage of total capitalization rising to **14.8%** from 9.7%[150](index=150&type=chunk) **Cash Flow Activities (Nine Months Ended September 30, 2022, in thousands of dollars):** | Activity | Amount | | :-------------------------------- | :----------- | | Net cash provided by operating activities | $95,739 | | Net cash used in investing activities | $(105,788) | | Net cash provided by financing activities | $15,623 | - The Revolving Credit Facility has a total credit facility of **$400,000 thousand**, with **$85,478 thousand** outstanding and **$312,882 thousand** available as of September 30, 2022[154](index=154&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies and estimates remain consistent with those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, with no significant changes in their application during the three and nine months ended September 30, 2022 - Critical accounting policies and estimates are consistent with the Company's Annual Report on Form 10-K for the year ended December 31, 2021[161](index=161&type=chunk) - No significant changes in the application of critical accounting policies or estimates occurred during the three and nine months ended September 30, 2022[161](index=161&type=chunk) [Significant Customers](index=32&type=section&id=Significant%20Customers) Cummins Inc. and Toyota Motor Corporation were significant customers, each accounting for over 10% of total net sales during the reported periods. The company continues to pursue a strategy of broadening its customer base to diversify non-transportation end market exposure **Net Sales to Significant Customers (as % of total net sales):** | Customer | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :------------------------------ | :----------------------------- | | Cummins Inc. | 15.6% | 16.1% | | Toyota Motor Corporation | 11.6% | 11.5% | - The company focuses on broadening its customer base to diversify non-transportation end market exposure[162](index=162&type=chunk) [Forward‑Looking Statements](index=32&type=section&id=Forward%E2%80%91Looking%20Statements) This section contains cautionary forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include the impact of COVID-19, economic conditions, integration of acquisitions, technological changes, market conditions, reliance on key customers, and international operational risks - Forward-looking statements are based on management's expectations and assumptions, subject to uncertainties that could cause actual results to differ materially[163](index=163&type=chunk) - Key risk factors include the ultimate impact of COVID-19, general economic conditions (including recessionary conditions), unanticipated issues in integrating acquisitions, rapid technological change, reliance on key customers, and risks associated with international operations (e.g., exchange rates, geopolitical risks)[165](index=165&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company refers to its Annual Report on Form 10-K for detailed quantitative and qualitative disclosures about market risk. No material changes in market risk exposure were reported during the three months ended September 30, 2022 - Detailed market risk disclosures are provided in Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2021[166](index=166&type=chunk) - There have been no material changes in the company's exposure to market risk during the three months ended September 30, 2022[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, providing reasonable assurance for timely and accurate reporting. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022, providing reasonable assurance for information disclosure[168](index=168&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[170](index=170&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information beyond the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) CTS is involved in various legal proceedings arising from its ordinary business conduct and has established adequate accruals for expected liabilities. However, there is no assurance that the final resolution of these matters will not materially adversely affect the company's financial position or results of operations - The company is involved in litigation arising from the ordinary conduct of its business and has established adequate accruals for expected future liability[170](index=170&type=chunk) - There is no assurance that the final resolution of existing or future lawsuits will not have a material adverse effect on the business[170](index=170&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) There have been no significant changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No significant changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2021[172](index=172&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During July and August 2022, CTS repurchased 52,000 shares of common stock under its publicly announced program for a total of $1.7 million, with an average price of $33.58 per share in July and $39.22 in August. Approximately $27.8 million remains available for future repurchases **Common Stock Repurchases (July 1, 2022 - August 31, 2022):** | Period | Total Number of Shares Purchased | Average Price per Share | | :-------------------------------- | :----------------------------- | :---------------------- | | July 1, 2022 through July 31, 2022 | 46,400 | $33.58 | | August 1, 2022 through August 31, 2022 | 5,600 | $39.22 | | Total | 52,000 | | - As of August 31, 2022, approximately **$27,768 thousand** remains available for future purchases under the publicly announced share repurchase program[174](index=174&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications required by the Sarbanes-Oxley Act and financial statements formatted in Inline XBRL - Includes certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[176](index=176&type=chunk) - Financial statements and notes are formatted in Inline XBRL[177](index=177&type=chunk) [SIGNATURES](index=37&type=section&id=SIGNATURES) The report is duly signed on behalf of CTS Corporation by the Corporate Controller (Principal Accounting Officer) and the Vice President and Chief Financial Officer (Principal Financial Officer), dated October 26, 2022 - The report is signed by Thomas M. White, Corporate Controller (Principal Accounting Officer), and Ashish Agrawal, Vice President and Chief Financial Officer (Principal Financial Officer)[181](index=181&type=chunk) - The report was dated October 26, 2022[181](index=181&type=chunk)