UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For The Quarterly Period Ended ~~September~~June 30, ~~2017~~2018



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

For the Transition Period from _______________ to _______________

Commission File Number: 1-4639

CTS CORPORATION

(Exact name of registrant as specified in its charter)



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

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o¨ No ☒ x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~October~~July 23, ~~2017: 32,937,050.~~2018: 33,087,043.

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CTS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Earnings (Unaudited) For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016~~2017	3

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016~~2017	4

	Condensed Consolidated Balance Sheets As of ~~September~~June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017	5

	Condensed Consolidated Statements of Cash Flows (Unaudited) For the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016~~2017	6

	Notes to Condensed Consolidated Financial Statements ‑ (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2627

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3436

Item 4.	Controls and Procedures	3436

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3436

Item 1A.	Risk Factors	3436

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3436

Item 6.	Exhibits	3537

SIGNATURES		3537

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED

(In thousands of dollars, except per share amounts)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,			September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net sales	$	106,243		$	99,697		$	312,083		$	295,095		$	118,021		$	105,686		$	231,551		$	205,840
Cost of goods sold	68,705			63,056			204,527			190,528			76,208			69,892			151,305			135,822
Gross Margin	37,538			36,641			107,556			104,567			41,813			35,794			80,246			70,018
Selling, general and administrative expenses	15,915			16,048			46,970			46,459			19,621			15,808			36,993			31,056
Research and development expenses	6,380			6,284			18,432			18,414			6,476			6,049			12,983			12,052
Restructuring charges	1,435			1,969			2,942			2,175			1,172			729			2,367			1,507
Loss (gain) on sale of assets	697			(150		)	698			(11,501		)
Operating earnings	13,111			12,490			38,514			49,020			14,544			13,208			27,903			25,403
Other income (expense):
Interest expense	(773		)	(917		)	(2,209		)	(2,746		)	(571		)	(752		)	(1,112		)	(1,436		)
Interest income	363			203			914			1,082			472			298			954			551
Other income (expense)	1,258			(46		)	2,889			(1,482		)
Total other income (expense)	848			(760		)	1,594			(3,146		)
Other (expense) income, net													(2,874		)	1,170			(870		)	1,631
Total other (expense) income													(2,973		)	716			(1,028		)	746
Earnings before income taxes	13,959			11,730			40,108			45,874			11,571			13,924			26,875			26,149
Income tax expense	4,340			8,010			12,039			19,804			4,362			3,958			8,118			7,699
Net earnings	$	9,619		$	3,720		$	28,069		$	26,070		$	7,209		$	9,966		$	18,757		$	18,450
Earnings per share:
Basic	$	0.29		$	0.11		$	0.85		$	0.80		$	0.22		$	0.30		$	0.57		$	0.56
Diluted	$	0.29		$	0.11		$	0.84		$	0.79		$	0.21		$	0.30		$	0.56		$	0.55

Basic weighted – average common shares outstanding:	32,935			32,759			32,876			32,716			33,051			32,890			33,014			32,846
Effect of dilutive securities	456			495			475			494			513			461			513			493
Diluted weighted – average common shares outstanding	33,391			33,254			33,351			33,210			33,564			33,351			33,527			33,339

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

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ‑ UNAUDITED

(In thousands of dollars)


	Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,		September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017		2016			2018			2017			2018			2017
Net earnings	$	9,619		$	3,720		$	28,069	$	26,070		$	7,209		$	9,966		$	18,757		$	18,450
Other comprehensive income (loss):
Other comprehensive income:
Changes in fair market value of derivatives, net of tax	(45		)	(263		)	563		(36		)	67			(152		)	874			608
Changes in unrealized pension cost, net of tax	936			898			2,694		2,753			1,249			942			2,356			1,758
Cumulative translation adjustment, net of tax	164			(164		)	452		(890		)	(375		)	200			(132		)	288
Other comprehensive income	$	1,055		$	471		$	3,709	$	1,827		$	941		$	990		$	3,098		$	2,654
Comprehensive earnings	$	10,674		$	4,191		$	31,778	$	27,897
Comprehensive income												$	8,150		$	10,956		$	21,855		$	21,104

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)


	(Unaudited)						(Unaudited)
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
ASSETS
Current Assets
Cash and cash equivalents	$	116,152		$	113,805		$	102,861		$	113,572
Accounts receivable, net	64,861			62,612			75,597			70,584
Inventories, net	35,308			28,652			41,671			36,596
Other current assets	13,453			10,638			11,931			12,857
Total current assets	229,774			215,707			232,060			233,609
Property, plant and equipment, net	84,291			82,111			93,630			88,247
Other Assets
Prepaid pension asset	52,100			46,183			59,938			57,050
Goodwill	68,933			61,744			71,057			71,057
Other intangible assets, net	68,652			64,370			63,557			66,943
Deferred income taxes	37,850			45,839			20,188			20,694
Other	1,683			1,743			2,123			2,096
Total other assets	229,218			219,879			216,863			217,840
Total Assets	$	543,283		$	517,697		$	542,553		$	539,696
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Short-term notes payable	$	—		$	1,006
Accounts payable	45,479			40,046			51,652			49,201
Accrued payroll and benefits	11,372			11,369			9,689			11,867
Accrued liabilities	43,991			45,708			43,805			41,344
Total current liabilities	100,842			98,129			105,146			102,412
Long-term debt	82,300			89,100			57,000			76,300
Post-retirement obligations	6,823			7,006
Long-term pension obligations							6,998			7,201
Deferred income taxes							3,572			3,802
Other long-term obligations	6,709			5,580			6,077			6,176
Total Liabilities	196,674			199,815			178,793			195,891
Commitments and Contingencies (Note 9)
Commitments and Contingencies (Note 10)
Shareholders’ Equity
Common stock	304,726			302,832			306,570			304,777
Additional contributed capital	39,525			40,521			40,034			41,084
Retained earnings	435,099			410,979			436,274			420,160
Accumulated other comprehensive loss	(89,485		)	(93,194		)	(75,862		)	(78,960		)
Total shareholders’ equity before treasury stock	689,865			661,138			707,016			687,061
Treasury stock	(343,256		)	(343,256		)	(343,256		)	(343,256		)
Total shareholders’ equity	346,609			317,882			363,760			343,805
Total Liabilities and Shareholders’ Equity	$	543,283		$	517,697		$	542,553		$	539,696

See notes to unaudited condensed consolidated financial statements.

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CTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ‑ UNAUDITED

(In thousands of dollars)


	Nine Months Ended						Six Months Ended
	September 30,			September 30,			June 30,			June 30,
	2017			2016			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	28,069		$	26,070		$	18,757		$	18,450
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	15,061			14,010			10,961			9,673
Pension and other post-retirement plan income	(1,369		)	(1,188		)
Pension and other post-retirement plan expense (income)							213			(893		)
Stock-based compensation	2,514			1,759			2,186			1,687
Deferred income taxes	6,777			8,332			(648		)	4,497
Loss (gain) on sales of fixed assets	698			(11,501		)
Loss (gain) on foreign currency hedges, net of cash	126			(15		)
Loss on sales of fixed assets							2			1
(Gain) loss on foreign currency hedges, net of cash							(76		)	73
Changes in assets and liabilities:
Accounts receivable	202			(5,971		)	(5,452		)	(1,950		)
Inventories	(4,335		)	(2,318		)	(5,275		)	(4,737		)
Other assets	(1,890		)	(489		)	1,280			(76		)
Accounts payable	3,234			2,717			4,779			1,616
Accrued payroll and benefits	(2,137		)	4,854			(2,028		)	(4,735		)
Accrued expenses	(915		)	(949		)	247			(1,944		)
Income taxes payable	226			690			3,034			(347		)
Other liabilities	946			(1,543		)	(101		)	2,115
Pension and other post-retirement plans	(240		)	(393		)	(158		)	(159		)
Net cash provided by operating activities	46,967			34,065			27,721			23,271
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(11,987		)	(14,467		)	(14,910		)	(9,110		)
Proceeds from sale of assets	485			12,248			1			1
Payments for acquisitions, net of cash acquired	(19,121		)	(73,063		)	—			(19,265		)
Net cash used in investing activities	(30,623		)	(75,282		)	(14,909		)	(28,374		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt	(1,173,000		)	(2,048,000		)	(749,200		)	(790,600		)
Proceeds from borrowings of long-term debt	1,166,200			2,053,300			729,900			794,300
Payments of short-term notes payable	(1,150		)	—
Dividends paid	(3,942		)	(3,923		)	(2,638		)	(2,624		)
Taxes paid on behalf of equity award participants	(1,571		)	(1,782		)	(1,429		)	(1,569		)
Net cash used in financing activities	(13,463		)	(405		)	(23,367		)	(493		)
Effect of exchange rate changes on cash and cash equivalents	(534		)	(873		)	(156		)	(395		)
Net increase (decrease) in cash and cash equivalents	2,347			(42,495		)
Net decrease in cash and cash equivalents							(10,711		)	(5,991		)
Cash and cash equivalents at beginning of period	113,805			156,928			113,572			113,805
Cash and cash equivalents at end of period	$	116,152		$	114,433		$	102,861		$	107,814
Supplemental cash flow information:
Cash paid for interest	$	1,606		$	2,292		$	995		$	1,053
Cash paid for income taxes, net	$	4,918		$	10,136		$	3,724		$	3,515

See notes to unaudited condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(in thousands except for share and per share data)

~~September~~June 30, ~~2017~~2018

NOTE 1—Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by CTS Corporation (“CTS” "we", "our", "us" or the "Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, notes thereto, and other information included in the Company’s Annual Report on Form 10‑K for the year ended December 31, ~~2016.~~2017.

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

~~Change~~Changes in ~~Estimate~~Accounting Principles

Beginning in January ~~2017, we changed~~2018, CTS adopted the provisions of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" under the modified retrospective method, ~~we use~~which requires a cumulative effect adjustment to ~~calculate~~ the ~~service~~opening balance of retained earnings on the date of adoption. This approach was applied to contracts not completed as of December 31, 2017. At date of adoption, there was no significant change to our past revenue recognition practices and ~~interest cost components~~therefore no adjustment to the opening balance of ~~net periodic benefit cost~~retained earnings was required.

Beginning in April 2018, CTS elected to adopt the provisions of ASU No. 2017-12 "Derivatives and Hedging (Topic 815): Target Improvements to Accounting for ~~our U.S. pension~~Hedging Activities" under the modified retrospective method, which requires a cumulative effect adjustment to the opening balance of retained earnings. Prior to adoption, the company measured hedge effectiveness for all cash flow hedges quarterly and other post-retirement benefit plans. Previously, we calculated the service and interest cost components using a single weighted-average discount rate derived from the yield curve to measure the benefit obligation at the beginning of the period. In 2017, we began using a full yield curve approachrecognized any ineffectiveness in earnings in the ~~estimation~~current period. Upon adoption the company elected to review hedge effectiveness qualitatively as described further in Note 12 - Derivative Financial Instruments. At the date of ~~these components~~adoption there was no significant hedge ineffectiveness recorded in earnings for hedged assets existing as of ~~benefit cost by applying the specific spot-rates along the yield curve~~January 1, 2018, and therefore no adjustment to the ~~relevant projected cash flows. This approach better aligns each~~opening balance of the projected benefit cash flows to the corresponding spot rates on the yield curve, resulting in a more precise measurement of service and interest costs. The change in method will result in a decrease in the service and interest components of pension costs in 2017. Any decrease to these components as a result of adoption of this approach is equally offset by a decrease in the actuarial losses included in our accumulated other comprehensive loss, with no impact on the measurement of the benefit obligation. This change is accounted for prospectively as a change in accounting estimate.retained earnings was required.

Subsequent Events

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

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NOTE 2 – Revenue Recognition

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

Identify the contract(s) with a customer

Identify the performance obligations

Determine the transaction price

Allocate the transaction price

Recognize revenue when the performance obligations are met

We recognize revenue when the performance obligations specified in our contracts have been satisfied, after considering the impact of variable consideration and other factors that may affect the transaction price. Our contracts normally contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract. We usually expect payment within 30 to 90 days from the shipping date, depending on our terms with the customer. None of our contracts as of June 30, 2018, contained a significant financing component. Differences between the amount of revenue recognized and the amount invoiced, collected from, or paid to our customers are recognized as contract assets or liabilities. Contract assets will be reviewed for impairment when events or circumstances indicate that they may not be recoverable.

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

Contract Assets and Liabilities

Contract assets and liabilities included in our Condensed Consolidated Balance Sheets are as follows:



	As of
	June 30,			December 31,
	2018			2017
Contract Assets
Prepaid rebates included in Other current assets	$	64		$	52
Prepaid rebates included in Other assets	482			465
Total Contract Assets	$	546		$	517

Contract Liabilities
Customer discounts and price concessions included in Accrued liabilities	$	(2,323	)	$	(1,133	)
Customer rights of return included in Accrued liabilities	(341		)	(462		)
Total Contract Liabilities	$	(2,664	)	$	(1,595	)

During the three and six months ended June 30, 2018, we recognized a decrease of revenues of $46 and an increase in revenues of $86, respectively, that were included in contract liabilities at the beginning of the period.

The increase in contract liabilities as of June 30, 2018 is primarily due to net increases in estimated future discounts and price concessions, offset by net settlements of products sold with rights of return.

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Disaggregated Revenue

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



	Three Months Ended				Six Months Ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Aero & Defense	$	6,024	$	4,675	$	11,127	$	9,332
Industrial	22,773		19,214		43,129		36,326
Medical	9,793		7,474		19,034		14,288
Telecom & IT	5,525		5,602		10,050		10,780
Transportation	73,906		68,721		148,211		135,114
Total	$	118,021	$	105,686	$	231,551	$	205,840

NOTE 23 – Accounts Receivable

The components of accounts receivable are as follows:


	As of						As of
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
Accounts receivable, gross	$	65,237		$	62,782		$	76,032		$	70,941
Less: Allowance for doubtful accounts	(376		)	(170		)	(435		)	(357		)
Accounts receivable, net	$	64,861		$	62,612		$	75,597		$	70,584

NOTE 4 – Inventories

Inventories consist of the following:



	As of
	June 30,			December 31,
	2018			2017
Finished goods	$	11,778		$	9,203
Work-in-process	12,008			12,065
Raw materials	23,529			21,150
Less: Inventory reserves	(5,644		)	(5,822		)
Inventories, net	$	41,671		$	36,596

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~~NOTE 3 – Inventories~~

~~Inventories consist of the following:~~

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

NOTE 45 – Property, Plant and Equipment

Property, plant and equipment is comprised of the following:


	As of						As of
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
Land	$	1,151		$	2,330		$	1,137		$	1,130
Buildings and improvements	65,830			63,621			68,778			64,201
Machinery and equipment	220,436			213,198			225,843			223,650
Less: Accumulated depreciation	(203,126		)	(197,038		)	(202,128		)	(200,734		)
Property, plant and equipment, net	$	84,291		$	82,111		$	93,630		$	88,247

Depreciation expense for the nine months ended September 30, 2017				$	10,201
Depreciation expense for the nine months ended September 30, 2016				$	9,755
Depreciation expense for the three months ended June 30, 2018										$	3,774
Depreciation expense for the six months ended June 30, 2018										$	7,537

NOTE 56 – Retirement Plans

Pension Plans

Net pension ~~income~~expense (income) for our domestic and foreign plans was as follows:

Three Months Ended Nine Months Ended

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



	Three Months Ended					Six Months Ended
	June 30,		June 30,			June 30,		June 30,
	2018		2017			2018		2017
Net pension expense (income)	$	78	$	(491	)	$	157	$	(924	)

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


	Domestic Pension Plans						Foreign Pension Plans						Domestic Pension Plans						Foreign Pension Plans
	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended
	September 30,			September 30,			September 30,			September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Service cost	$	—		$	21		$	12		$	13		$	—		$	—		$	11		$	12
Interest cost	2,068			2,756			8			12			1,781			2,068			11			9
Expected return on plan assets (1)	(4,060		)	(4,744		)	(5		)	(33		)	(3,225		)	(4,060		)	(6		)	(5		)
Amortization of loss	1,446			1,499			39			36			1,466			1,446			40			39
(Income) expense, net	$	(546	)	$	(468	)	$	54		$	28
Expense (income), net													$	22		$	(546	)	$	56		$	55

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



	Domestic Pension Plans						Foreign Pension Plans
	Six Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2018			2017			2018			2017
Service cost	$	—		$	—		$	22		$	24
Interest cost	3,562			4,136			22			17
Expected return on plan assets (1)	(6,450		)	(8,121		)	(13		)	(10		)
Amortization of loss	2,932			2,892			82			77
Other cost due to retirement	—			61			—			—
Expense (income), net	$	44		$	(1,032	)	$	113		$	108

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

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Domestic Pension Plans
Foreign Pension Plans

Nine Months Ended Nine Months Ended

September 30, September 30, September 30, September 30,
2017 2016 2017 2016
Service cost $ —
$ 65
$ 36
$ 38
Interest cost 6,204
8,268
25
34
Expected return on plan assets (1)
(12,181 ) (14,232 ) (15 ) (19 )
Amortization of loss 4,338
4,495
116
105
Other cost due to retirement 61
12
—
—
(Income) expense, net $ (1,578 ) $ (1,392 ) $ 162
$ 158

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

Other Post-retirement Benefit Plan

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,			September 30,			June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Service cost	$	—		$	—		$	1		$	2		$	—		$	—		$	1		$	1
Interest cost	41			52			121			156			39			40			78			80
Amortization of gain	(25		)	(37		)	(75		)	(112		)	(11		)	(25		)	(23		)	(50		)
Post-retirement expense	$	16		$	15		$	47		$	46
Expense, net													$	28		$	15		$	56		$	31

NOTE 67 – Other Intangible Assets

Intangible assets consist of the following components:


	As of							As of
	September 30, 2017							June 30, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	64,323	$	(32,833	)	$	31,490	$	64,323	$	(35,387	)	$	28,936
Patents	10,319		(10,319		)	—		10,319		(10,319		)	—
Technology and other intangibles	44,460		(9,498		)	34,962		44,460		(12,039		)	32,421
In process research and development	2,200		—			2,200		2,200		—			2,200
Other intangible assets, net	$	121,302	$	(52,650	)	$	68,652	$	121,302	$	(57,745	)	$	63,557
Amortization expense for the three months ended September 30, 2017			$	1,711
Amortization expense for the nine months ended September 30, 2017			$	4,860
Amortization expense for the three months ended June 30, 2018										$	1,704
Amortization expense for the six months ended June 30, 2018										$	3,424



	As of
	December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer lists/relationships	$	64,323	$	(33,685	)	$	30,638
Patents	10,319		(10,319		)	—
Technology and other intangibles	44,460		(10,355		)	34,105
In process research and development	2,200		—			2,200
Other intangible assets, net	$	121,302	$	(54,359	)	$	66,943
Amortization expense for the three months ended June 30, 2017			$	1,613
Amortization expense for the three months ended June 30, 2017			$	3,149

911

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

—

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

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

~~Amortization~~Remaining amortization expense ~~remaining~~ for other intangible assets as of June 30, 2018 is as follows:


	Amortization expense		Amortization expense
2017	$	1,708
2018	6,763		$	3,377
2019	6,754		6,754
2020	6,624		6,624
2021	6,467		6,467
2022			6,230
Thereafter	40,336		34,105
Total amortization expense	$	68,652	$	63,557

NOTE 78 – Costs Associated with Exit and Restructuring Activities

Costs associated with exit and restructuring activities are recorded in the Condensed Consolidated Statement of Earnings as a separate component of Operating earnings.

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

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



	Three Months Ended
	June 30, 2018		June 30, 2017
Restructuring charges	$	1,172	$	729

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

$ 2,175



	Six Months Ended
	June 30, 2018		June 30, 2017
Restructuring charges	$	2,367	$	1,507

In June 2016, we announced plans to restructure operations by phasing out production at our Elkhart facility by ~~mid-2018~~the end of 2018 and transitioning it into a research and development center supporting our global operations ("June 2016 Plan"). Additional organizational changes ~~will~~were also ~~occur~~implemented in various other locations. During the third quarter of 2017, we revised the June 2016 Plan. The amendment added an additional $1,100 in planned costs related to the relocation of our corporate headquarters in Lisle, IL and our plant in Bolingbrook, IL, both of which will be consolidated into a single facility. The ~~amendment does not impact any additional employees. The~~ total cost of the plan is expected to be approximately ~~$13,400 and will impact approximately 230 employees.~~$13,400. The total restructuring liability related to severance and other one-time benefit arrangements under the June 2016 Plan was ~~$1,546~~$1,223 at ~~September~~June 30, ~~2017,~~2018, and ~~$1,739~~$1,460 at December 31, ~~2016.~~2017. Additional costs related to production line movements, equipment charges, and other costs will be expensed as incurred.

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The following table displays the planned restructuring charges associated with the June 2016 Plan as well as a summary of the actual costs incurred through ~~September~~June 30, ~~2017:~~2018:


			Actual costs				Actual costs
	Planned		incurred through		Planned		incurred through
June 2016 Plan	Costs		September 30, 2017		Costs		June 30, 2018
Workforce reduction	$	3,075	$	2,895	$	3,075	$	3,211
Building and equipment relocation	9,025		2,584		9,025		5,518
Other charges	1,300		511		1,300		825
Total restructuring charges	$	13,400	$	5,990	$	13,400	$	9,554

In April 2014, we announced plans to restructure our operations and consolidate our Canadian operations into other existing facilities as part of our overall plan to simplify ~~its~~our business model and rationalize our global footprint (“April 2014 Plan”). These restructuring actions ~~which~~ were completed ~~during 2015, impacted approximately 120 positions.~~in 2015. The remaining restructuring liability related to the April 2014 Plan was ~~$461~~$433 at ~~September~~June 30, ~~2017,~~2018, and ~~$423~~$453 at December 31, ~~2016.~~2017.

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The following table displays the restructuring liability activity for all plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:


Combined Plans
Restructuring liability at January 1, 2017	$	2,162
Restructuring liability at January 1, 2018				$	1,913
Restructuring charges	2,942			2,367
Cost paid	(3,162		)	(2,603		)
Other activity (1)	65			(21		)
Restructuring liability at September 30, 2017	$	2,007
Restructuring liability at June 30, 2018				$	1,656

(1) Other activity includes the effects of currency translation and other charges that do not flow through restructuring expense.

NOTE 89 – Accrued Liabilities

The components of accrued liabilities are as follows:


	As of				As of
	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Accrued product related costs	$	4,681	$	5,556	$	4,716	$	5,297
Accrued income taxes	10,157		9,826		8,512		5,475
Accrued property and other taxes	2,435		1,917		2,080		997
Accrued professional fees	1,687		1,633		3,055		2,228
Contract liabilities					2,664		1,595
Dividends payable	1,317		1,309		1,323		1,318
Remediation reserves	17,633		18,176		14,570		17,067
Other accrued liabilities	6,081		7,291		6,885		7,367
Total accrued liabilities	$	43,991	$	45,708	$	43,805	$	41,344

NOTE 910 – Contingencies

Certain processes in the manufacture of our current and past products create by-products classified as hazardous waste. We have been notified by the U.S. Environmental Protection Agency, state environmental agencies, and in some cases, groups of potentially responsible parties, that we may be potentially liable for environmental contamination at several sites currently and formerly owned or operated by us. Some sites, such as Asheville, North Carolina and Mountain View, California, are designated National Priorities List sites under the U.S. Environmental Protection Agency’s Superfund program. We reserve for probable remediation activities and for claims and proceedings against us with respect to other environmental matters. We record reserves on an undiscounted basis. In the opinion of management, based upon presently available information relating to such matters, adequate provision for probable and estimable costs have been recorded. We do not have any known environmental obligations where a loss is probable or reasonably possible of occurring for which we do not have a reserve, nor do we have any amounts for which

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we have not reserved because the amount of the loss cannot be reasonably estimated. Due to the inherent nature of environmental obligations, we cannot provide assurance that our ultimate environmental liability will not materially exceed the amount of its current reserve. Our reserve and disclosures will be adjusted accordingly if additional information becomes available in the future.

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

As of

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

$ 20,603
Remediation expense 299

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

$ 18,176

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



	As of
	June 30, 2018			December 31, 2017
Balance at beginning of period	$	17,067		$	18,176
Remediation expense	1,048			307
Net remediation payments	(3,545		)	(1,416		)
Balance at end of the period	$	14,570		$	17,067

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

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NOTE 1011 - Debt

Long-term debt was comprised of the following:


	As of						As of
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
Revolving credit facility due in 2020	$	82,300		$	89,100
Weighted average interest rate	2.3		%	1.9		%
Total credit facility							$	300,000		$	300,000
Balance outstanding							$	57,000		$	76,300
Standby letters of credit							$	1,940		$	2,065
Amount available	$	215,635		$	208,735		$	241,060		$	221,635
Total credit facility	$	300,000		$	300,000
Standby letters of credit	$	2,065		$	2,165
Weighted-average interest rate							3.01		%	2.30		%
Commitment fee percentage per annum	0.25		%	0.25		%	0.25		%	0.25		%

On August 10, 2015, we entered into a ~~new~~ five-year credit agreement (“Revolving Credit Facility”) with a group of banks in order to support our financing needs. The Revolving Credit Facility originally provided for a credit line of $200,000. On May 23, 2016, we requested and received a $100,000 increase in the aggregate revolving credit commitments under the existing credit agreement, which increased the credit line from $200,000 to $300,000.

The Revolving Credit Facility includes a swing line sublimit of $15,000 and a letter of credit sublimit of $10,000. Borrowings under the Revolving Credit Facility bear interest, at our option, at the base rate plus the applicable margin for base rate loans or ~~LIBOR~~London Interbank Offered Rate ("LIBOR") plus the applicable margin for LIBOR loans. We also pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The commitment fee ranges from 0.20% to 0.40% based on the 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. Failure to comply with these covenants could reduce the borrowing availability under the Revolving Credit Facility. We were in compliance with all debt covenants at ~~September~~June 30, ~~2017.~~2018. The Revolving Credit Facility requires that we deliver quarterly financial statements, annual financial statements, auditor certifications, and compliance certificates within a specified number of days after the end of a quarter and year. Additionally, the Revolving Credit Facility contains restrictions limiting our ability to: dispose of assets; incur certain additional debt; repay other debt or amend subordinated debt instruments; create liens on assets; make investments, loans or advances; make acquisitions or engage in mergers or consolidations; engage in certain transactions with our subsidiaries and affiliates; and make stock repurchases and dividend payments. Interest rates on the

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

We have debt issuance costs related to our long-term debt that isare being amortized using the straight-line method over the life of the debt. These costs are included in interest expense in our Condensed Consolidated Statement of Earnings. Amortization expense was approximately $46 for both the three months ended ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016,~~2017, respectively, and approximately ~~$139~~ ~~and $116~~$93 for both the ~~nine~~six months ended ~~September~~June 30, 2018 and June 30, 2017, ~~and September 30, 2016,~~ respectively.

Note 1112 - Derivative Financial Instruments

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

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

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

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On April 1, 2018, the company adopted the provisions of ASU 2017-12 "Derivatives and Hedging (Topic 815): Target Improvements to Accounting for Hedging Activities". As a result, hedge effectiveness was reviewed qualitatively by verifying that the critical terms of the hedging instrument and the forecasted transaction continue to match, and that there have been no adverse developments that have increased the risk that the counterparty will default. No recognition of ineffectiveness was recorded in our Condensed Consolidated Statement of Earnings for the three months ended June 30, 2018.

Foreign Currency Hedges

In January of 2016, we began using forward contracts to mitigate currency risk related to a portion of our forecasted foreign currency revenues and costs. The currency forward contracts are designed as cash flow hedges and are recorded in the Condensed Consolidated Balance Sheets at fair value. At least quarterly, we assess the effectiveness of these hedging relationships based on the total change in their fair value using regression analysis. The effective portion of derivative gains and losses are recorded in accumulated other comprehensive income (loss) until the hedged transaction affects earnings upon settlement, at which time they are reclassified to cost of goods sold or net sales. Ineffectiveness is recorded in other income (expense) in our Condensed Consolidated Statement of Earnings. If it becomes probable that an anticipated transaction that is hedged will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive income (loss) to other income (expense).

We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At ~~September~~June 30, ~~2017,~~2018, we had a net unrealized gain of ~~$350~~$59 in accumulated other comprehensive (loss) income, ~~all~~ of which $5 is expected to be reclassified to income within the next 12 months. At ~~September~~June 30, ~~2016~~2017 we had a net unrealized ~~loss~~gain of ~~$219~~$428 in accumulated other comprehensive ~~income~~ (loss). income. The notional amount of foreign currency forward contracts outstanding was ~~$29.5~~$21.1 million at ~~September~~June 30, ~~2017.~~2018.

Interest Rate Swaps

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

These swaps are treated as cash flow hedges and consequently, the changes in fair value were recorded in other comprehensive ~~income~~ (loss). income. The estimated net amount of the existing gains ~~or losses~~ that are reported in accumulated other comprehensive (loss) income ~~(loss)~~ that isare expected to be reclassified into earnings within the next twelve months is approximately ~~$156.~~$524.

The location and fair values of derivative instruments designated as hedging instruments in the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017,~~2018, are shown in the following table:

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	As of				As of
	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Foreign currency hedges reported in Accrued liabilities	$	—	$	601
Foreign currency hedges reported in Other current assets	$	260	$	—
Interest rate swaps reported in Other current assets	$	156	$	2	$	524	$	278
Interest rate swaps reported in Other assets	$	494	$	751	$	835	$	693
Foreign currency hedges reported in Other current assets					$	76	$	—
Foreign currency hedges reported in Accrued liabilities					$	—	$	(742	)

The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance Sheet, Offsetting). On a gross basis, there were foreign currency derivative assets of ~~$616~~$301 and foreign currency derivative liabilities of ~~$356.~~$225.

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

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

Interest Rate Swaps:

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



	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2018			2017			2018			2017
Foreign Exchange Contracts:
Gain (loss) recognized in Net sales	$	21		$	(57	)	$	(37	)	$	(59	)
Gain (loss) recognized in Cost of goods sold	32			58			140			(86		)
(Loss) gain recognized in Selling, general and administrative expense	(4		)	13			(5		)	10
Loss recognized in Other income	—			(1		)	(1		)	(9		)

Interest Rate Swaps:
Benefit recorded in Interest expense	$	105		$	—		$	170		$	—
Total gain (loss)	$	154		$	13		$	267		$	(144	)

NOTE 1213 – Accumulated Other Comprehensive (Loss) Income

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

Unrealized gains (losses) on hedges relate to interest rate swaps to convert the revolving credit facility's variable rate of interest into a fixed rate and foreign currency forward contracts used to hedge our exposure to changes in exchange rates affecting certain revenues and costs denominated in foreign currencies. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transactions occur, at which time amounts are reclassified into earnings. Further information related to ~~CTS’~~our derivative financial instruments is included in Note 1112 - Derivative Financial Instruments and Note 1516 – Fair Value Measurements.

Unrealized gains (losses) on pension obligations are deferred from income statement recognition until the gains or losses are realized. Amounts reclassified to income from AOCI are included in net periodic pension income / (expense). Further information related to our pension obligations is included in Note 56 – Retirement Plans.

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

Changes in exchange rates between the functional currency and the currency in which a transaction is denominated are foreign exchange transaction gains or losses. Transaction losses for the three and six months ended June 30, 2018 were $2,194 and $918, respectively and transaction gains for the three and ~~nine~~six months ended ~~September~~June 30, 2017 were ~~$960~~$1,162 and ~~$2,517, respectively, and transaction losses for the three and nine months ended September 30, 2016 were $165 and $1,656,~~$1,557, respectively, which have been included in other income (expense) in the Condensed Consolidated Statement of Earnings.

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The components of accumulated other comprehensive (loss) income for the three months ended ~~September~~June 30, ~~2017,~~2018, are as follows:


							Gain (Loss)												Gain (Loss)
	As of			Gain (Loss)			Reclassified			As of			As of			Gain (Loss)			Reclassified			As of
	June 30,			Recognized			from AOCI			September 30,			March 31,			Recognized			from AOCI			June 30,
	2017			in OCI			to Income			2017			2018			in OCI			to Income			2018
Changes in fair market value of hedges:
Gross	$	1,070		$	37		$	(108	)	$	999		$	1,332		$	240		$	(154	)	$	1,418
Income tax (benefit) expense	(388		)	(14		)	40			(362		)	(341		)	(54		)	35			(360		)
Net	682			23			(68		)	637			991			186			(119		)	1,058

Changes in unrealized pension cost:
Gross	(148,856		)	—			1,458			(147,398		)	(128,672		)	—			1,617			(127,055		)
Income tax expense (benefit)	59,668			—			(522		)	59,146			52,520			—			(368		)	52,152
Net	(89,188		)	—			936			(88,252		)	(76,152		)	—			1,249			(74,903		)

Cumulative translation adjustment:
Gross	(2,132		)	161			—			(1,971		)	(1,747		)	(368		)	—			(2,115		)
Income tax expense	98			3			—			101
Income tax expense (benefit)													105			(7		)	—			98
Net	(2,034		)	164			—			(1,870		)	(1,642		)	(375		)	—			(2,017		)
Total accumulated other comprehensive (loss) income	$	(90,540	)	$	187		$	868		$	(89,485	)	$	(76,803	)	$	(189	)	$	1,130		$	(75,862	)

The components of accumulated other comprehensive (loss) income for the three months ended ~~September~~June 30, ~~2016,~~2017, are as follows:


							Gain (Loss)												Gain (Loss)
	As of			Gain (Loss)			Reclassified			As of			As of			Gain (Loss)			Reclassified			As of
	June 30,			Recognized			from AOCI			September 30,			March 31,			Recognized			from AOCI			June 30,
	2016			in OCI			to Income			2016			2017			in OCI			to Income			2017
Changes in fair market value of hedges:
Gross	$	(403	)	$	(643	)	$	221		$	(825	)	$	1,308		$	(223	)	$	(15	)	$	1,070
Income tax expense (benefit)	151			242			(83		)	310
Income tax (benefit) expense													(474		)	81			5			(388		)
Net	(252		)	(401		)	138			(515		)	834			(142		)	(10		)	682

Changes in unrealized pension cost:
Gross	(158,763		)	—			1,437			(157,326		)	(150,322		)	—			1,466			(148,856		)
Income tax expense (benefit)	63,260			—			(539		)	62,721			60,192			—			(524		)	59,668
Net	(95,503		)	—			898			(94,605		)	(90,130		)	—			942			(89,188		)

Cumulative translation adjustment:
Gross	(1,995		)	(161		)	—			(2,156		)	(2,328		)	196			—			(2,132		)
Income tax expense (benefit)	101			(3		)	—			98
Income tax expense													94			4			—			98
Net	(1,894		)	(164		)	—			(2,058		)	(2,234		)	200			—			(2,034		)
Total accumulated other comprehensive (loss) income	$	(97,649	)	$	(565	)	$	1,036		$	(97,178	)	$	(91,530	)	$	58		$	932		$	(90,540	)

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The components of accumulated other comprehensive (loss) income for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, are as follows:


							Gain (Loss)												Gain (Loss)
	As of			Gain (Loss)			reclassified			As of			As of			Gain (Loss)			Reclassified			As of
	December 31,			Recognized			from AOCI			September 30,			December 31,			Recognized			from AOCI			June 30,
	2016			in OCI			to income			2017			2017			in OCI			to Income			2018
Changes in fair market value of hedges:
Gross	$	116		$	856		$	27		$	999		$	289		$	1,397		$	(268	)	$	1,418
Income tax benefit	(42		)	(311		)	(9		)	(362		)
Income tax (benefit) expense													(105		)	(315		)	60			(360		)
Net	74			545			18			637			184			1,082			(208		)	1,058

Changes in unrealized pension cost:
Gross	(151,618		)	—			4,220			(147,398		)	(130,096		)	—			3,041			(127,055		)
Income tax expense (benefit)	60,672			—			(1,526		)	59,146			52,837			—			(685		)	52,152
Net	(90,946		)	—			2,694			(88,252		)	(77,259		)	—			2,356			(74,903		)

Cumulative translation adjustment:
Gross	(2,414		)	443			—			(1,971		)	(1,985		)	(130		)	—			(2,115		)
Income tax expense	92			9			—			101
Income tax expense (benefit)													100			(2		)	—			98
Net	(2,322		)	452			—			(1,870		)	(1,885		)	(132		)	—			(2,017		)
Total accumulated other comprehensive (loss) income	$	(93,194	)	$	997		$	2,712		$	(89,485	)	$	(78,960	)	$	950		$	2,148		$	(75,862	)

The components of accumulated other comprehensive (loss) income for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, are as follows:


							Gain (Loss)												Gain (Loss)
	As of			Gain (Loss)			reclassified			As of			As of			Gain (Loss)			Reclassified			As of
	December 31,			Recognized			from AOCI			September 30,			December 31,			Recognized			from AOCI			June 30,
	2015			in OCI			to income			2016			2016			in OCI			to Income			2017
Changes in fair market value of hedges:
Gross	$	(768	)	$	(742	)	$	685		$	(825	)	$	116		$	819		$	135		$	1,070
Income tax expense (benefit)	289			278			(257		)	310
Income tax benefit													(42		)	(297		)	(49		)	(388		)
Net	(479		)	(464		)	428			(515		)	74			522			86			682

Changes in unrealized pension cost:
Gross	(161,719		)	—			4,393			(157,326		)	(151,618		)	—			2,762			(148,856		)
Income tax expense (benefit)	64,361			—			(1,640		)	62,721			60,672			—			(1,004		)	59,668
Net	(97,358		)	—			2,753			(94,605		)	(90,946		)	—			1,758			(89,188		)

Cumulative translation adjustment:
Gross	(1,279		)	(877		)	—			(2,156		)	(2,414		)	282			—			(2,132		)
Income tax expense (benefit)	111			(13		)	—			98
Income tax expense													92			6			—			98
Net	(1,168		)	(890		)	—			(2,058		)	(2,322		)	288			—			(2,034		)
Total accumulated other comprehensive (loss) income	$	(99,005	)	$	(1,354	)	$	3,181		$	(97,178	)	$	(93,194	)	$	810		$	1,844		$	(90,540	)

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NOTE 1314 – Shareholders’ Equity

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


	As of		As of
	September 30,	December 31,	June 30,	December 31,
	2017	2016	2018	2017
Preferred Stock
Par value per share	No par value	No par value	No par value	No par value
Shares authorized	25,000,000	25,000,000	25,000,000	25,000,000
Shares outstanding	—	—	—	—
Common Stock
Par value per share	No par value	No par value	No par value	No par value
Shares authorized	75,000,000	75,000,000	75,000,000	75,000,000
Shares issued	56,631,072	56,456,516	56,781,065	56,632,488
Shares outstanding	32,937,050	32,762,494	33,087,043	32,938,466
Treasury stock
Shares held	23,694,022	23,694,022	23,694,022	23,694,022

No common stock repurchases were made during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Through ~~September~~June 30, ~~2017,~~2018, we had purchased an aggregate of $7,446 under a ~~previously~~ board-authorized share repurchase plan allowing for up to $25,000 in stock repurchases. Approximately $17,554 is available for future purchases.

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


	Nine Months Ended		Six Months Ended
	September 30,	September 30,	June 30,	June 30,
	2017	2016	2018	2017
Balance at the beginning of the year	32,762,494	32,548,477	32,938,466	32,762,494
Repurchases	—	—	—	—
Shares issued upon exercise of stock options	—	—	—	—
Restricted share issuances	174,556	211,032	148,577	170,832
Balance at the end of the period	32,937,050	32,759,509	33,087,043	32,933,326

Certain potentially dilutive restricted stock units are excluded from diluted earning per share because they are anti-dilutive. The number of awards that were anti-dilutive at ~~September~~June 30, 2018 and June 30, 2017 were 72,658 and ~~September 30, 2016 were 10,094 and 2,019,~~122,511, respectively.

NOTE 1415 - Stock-Based Compensation

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

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,		September 30,		September 30,		September 30,		June 30,		June 30,		June 30,		June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Service-Based RSUs	$	415	$	523	$	1,430	$	1,471	$	563	$	465	$	1,018	$	1,015
Performance-Based RSUs	360		235		1,040		267		643		297		1,153		680
Cash-settled RSUs	52		34		44		21		57		46		15		(8		)
Total	$	827	$	792	$	2,514	$	1,759	$	1,263	$	808	$	2,186	$	1,687
Income tax benefit	311		298		945		661		285		304		494		634
Net	$	516	$	494	$	1,569	$	1,098	$	978	$	504	$	1,692	$	1,053

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


	Unrecognized			Unrecognized
	compensation		Weighted-	Compensation		Weighted-
	expense at		average	Expense at		Average
	September 30, 2017		period	June 30, 2018		Period
Service-Based RSUs	$	865		$	1,973	1.94
Performance-Based RSUs	2,552			3,326		1.64
Total	$	3,417	1.68	$	5,299	1.75

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

The following table summarizes the status of these plans as of ~~September~~June 30, ~~2017:~~2018:


	2014 Plan	2009 Plan	2004 Plan	Directors' Plan	2018 Plan	2014 Plan	2009 Plan	2004 Plan	Directors' Plan
Awards originally available	1,500,000	3,400,000	6,500,000	N/A	2,500,000	1,500,000	3,400,000	6,500,000	N/A
Performance-based options outstanding	295,000	—	—	—	—	285,000	—	—	—
Maximum potential RSU and cash settled awards outstanding	705,925	122,600	57,391	9,620	—	732,975	92,600	35,952	5,522
Maximum potential awards outstanding	1,000,925	122,600	57,391	9,620	—	1,017,975	92,600	35,952	5,522
RSUs and cash settled awards vested and released	173,554	—	—	—	—	—	—	—	—
Awards available for grant	325,521	—	—	—	2,500,000	—	—	—	—

Stock Options

We have no stock options exercisable or outstanding as of ~~September~~June 30, ~~2017,~~2018, other than the performance-based stock options described below.

Performance-Based Stock Options

During 2015 and 2016, the Compensation Committee of the Board of Directors of the Company (the “Committee”) granted a total of 350,000 performance-based stock option awards (“Performance-Based Option Awards”) for certain employees under the 2014 Plan, of which ~~295,000~~285,000 remain outstanding after considering forfeitures. The Performance-Based Option Awards have an exercise price of $18.37, a term of five years, and generally will become exercisable (provided the optionee remains employed by the Company or an affiliate) upon our attainment of at least $600,000 in revenues during any of our ~~four-fiscal-quarter~~ trailing four quarterly periods (as determined by the Committee) during the term. We have not recognized any expense on these Performance-Based Option Awards ~~for the nine-month periods ended September 30, 2017 and 2016, since the revenue target was not deemed likely to be attained based on our current forecast.~~

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for the six-month periods ended June 30, 2018 and 2017, since the revenue target was not deemed likely to be attained based on our current forecast.

Service-Based Restricted Stock Units

The following table summarizes the service-based RSU activity as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:


	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	554,478		$	13.37
Outstanding at January 1, 2018					399,347		$	14.60
Granted	34,040		22.98		74,222		26.31
Vested and released	(199,251	)	13.79		(130,301	)	14.22
Forfeited	(9,924	)	16.69		(1,938	)	20.86
Outstanding at September 30, 2017	379,343		$	13.92
Releasable at September 30, 2017	226,811		$	11.38
Outstanding at June 30, 2018					341,330		$	17.26
Releasable at June 30, 2018					194,674		$	12.82

Performance and Market-Based Restricted Stock Units

The following table summarizes the performance and market-based RSU activity as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:


	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	201,900		$	16.48
Outstanding at January 1, 2018					271,305		$	18.77
Granted	123,919		23.83		72,043		28.75
Attained by performance	15,285		21.66		18,600		17.66
Released	(43,275	)	21.66		(72,456	)	18.66
Forfeited	(26,524	)	22.56		(21,700	)	17.66
Outstanding at September 30, 2017	271,305		$	18.77
Releasable at September 30, 2017	—		$	—
Outstanding at June 30, 2018					267,792		$	21.44
Releasable at June 30, 2018					—		$	—

The following table summarizes each grant of performance awards outstanding at ~~September~~June 30, ~~2017.~~2018.


Description	Grant Date	Vesting Year	Vesting Dependency	Target Units Outstanding	Maximum Number of Units to be Granted	Grant Date	Vesting Year	Vesting Dependency	Target Units Outstanding	Maximum Number of Units to be Granted
2015 - 2017 Performance RSUs	February 5, 2015	2017	35% RTSR, 35% sales growth, 30% cash flow	62,000	124,000
2016 - 2018 Performance RSUs	February 16, 2016	2018	35% RTSR, 35% sales growth, 30% cash flow	92,840	185,680	February 16, 2016	2018	35% RTSR, 35% sales growth, 30% operating cash flow	92,840	185,680
2017 - 2019 Performance RSUs	February 9, 2017	2019	35% RTSR, 35% sales growth, 30% cash flow	71,796	143,592	February 9, 2017	2019	35% RTSR, 35% sales growth, 30% operating cash flow	71,796	143,592
2017 - 2019 Performance RSUs	February 9, 2017	2018 - 2020	Operating Income	40,669	40,669	February 9, 2017	2018 - 2020	Operating Income	27,113	27,113
2018 - 2020 Performance RSUs						February 8, 2018	2020	35% RTSR, 35% sales growth, 30% operating cash flow	40,223	80,446
2018 - 2020 Performance RSUs						February 16, 2018	2020	35% RTSR, 35% sales growth, 30% operating cash flow	31,820	63,640
Single Crystal Performance RSUs	March 31, 2016	2018	Various	4,000	8,000	March 31, 2016	2018	Various	4,000	8,000

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Cash-Settled Restricted Stock Units

Cash-Settled RSUs entitle the holder to receive the cash equivalent of one share of common stock for each unit when the unit vests. These RSUs are issued to key employees residing in foreign locations as direct compensation. Generally, these RSUs vest over a three-year period. Cash-Settled RSUs are classified as liabilities and are remeasured at each reporting date until settled. At ~~September~~June 30, ~~2017~~2018 and ~~September 30, 2016~~December 31, 2017 we had ~~14,252~~17,248 and ~~12,074~~14,082 cash-settled RSUs outstanding, respectively. At ~~September~~June 30, ~~2017~~2018 and ~~September 30, 2016,~~December 31, 2017, liabilities of ~~$214~~$184 and ~~$115,~~$241, respectively were included in Accrued liabilities on our Condensed Consolidated Balance Sheets.

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NOTE 1516 — Fair Value Measurements

We use interest rate swaps to convert our Revolving Credit Facility’s variable rate of interest into a fixed rate and foreign currency forward contracts to hedge the effect of foreign currency changes on certain revenues and costs denominated in foreign currencies. These derivative financial instruments are measured at fair value on a recurring basis.

The table below summarizes our financial assets that were measured at fair value on a recurring basis at ~~September~~June 30, ~~2017:~~2018:


			Quoted								Quoted
			Prices								Prices
	Asset		in Active		Significant				Asset		in Active		Significant
	Carrying		Markets for		Other		Significant		Carrying		Markets for		Other		Significant
	Value at		Identical		Observable		Unobservable		Value at		Identical		Observable		Unobservable
	September 30,		Instruments		Inputs		Inputs		June 30,		Instruments		Inputs		Inputs
	2017		(Level 1)		(Level 2)		(Level 3)		2018		(Level 1)		(Level 2)		(Level 3)
Interest rate swaps	$	650	$	—	$	650	$	—	$	1,359	$	—	$	1,359	$	—
Foreign currency hedges	$	260	$	—	$	260	$	—	$	76	$	—	$	76	$	—

The table below summarizes the financial assets (liabilities) that were measured at fair value on a recurring basis as of December 31, ~~2016:~~2017:


				Quoted										Quoted
	Asset			Prices							Asset			Prices
	(Liability)			in Active		Significant					(Liability)			in Active		Significant
	Carrying			Markets for		Other			Significant		Carrying			Markets for		Other			Significant
	Value at			Identical		Observable			Unobservable		Value at			Identical		Observable			Unobservable
	December 31,			Instruments		Inputs			Inputs		December 31,			Instruments		Inputs			Inputs
	2016			(Level 1)		(Level 2)			(Level 3)		2017			(Level 1)		(Level 2)			(Level 3)
Interest rate swaps	$	753		$	—	$	753		$	—	$	971		$	—	$	971		$	—
Foreign currency hedges	$	(601	)	$	—	$	(601	)	$	—	$	(742	)	$	—	$	(742	)	$	—

The fair value of our interest rate swaps and foreign currency hedges were measured using standard valuation models using market-based observable inputs over the contractual terms, including forward yield curves, among others. There is a readily determinable market for these derivative instruments, but that market is not active and therefore they are classified within ~~level~~Level 2 of the fair value hierarchy.

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


				Foreign						Foreign
	Interest			Currency			Interest			Currency
	Rate Swaps			Hedges
Balance at January 1, 2016	$	(768	)	$	—
Total gains (losses) for the period:							Rate Swaps			Hedges
Balance at January 1, 2017							$	753		$	(601	)
Settled in cash	—			54			—			(132		)
Included in earnings	928			(18		)	—			38
Included in other comprehensive earnings	593			(637		)	218			(47		)
Balance at December 31, 2016	$	753		$	(601	)
Balance at December 31, 2017							$	971		$	(742	)
Settled in cash	(6		)	(75		)	—			(21		)
Included in earnings	(6		)	(51		)	(170		)	97
Included in other comprehensive earnings	(91		)	987			558			742
Balance at September 30, 2017	$	650		$	260
Balance at June 30, 2018							$	1,359		$	76

Our long-term debt consists of the Revolving Credit Facility which is recorded at its carrying value. There is a readily determinable market for our long-term debt and it is classified within Level 2 of the fair value hierarchy as the market is not deemed to be active. The fair value of long-term debt approximates carrying value and was determined by valuing a similar hypothetical coupon bond and attributing that value to our long-term debt under the Revolving Credit Facility.

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NOTE 1617 — Income Taxes

The effective tax rates for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 were:

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



	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2018		2017		2018		2017
Effective tax rate	37.7	%	28.4	%	30.2	%	29.4	%

Our effective income tax rate was ~~31.1%~~37.7% and ~~68.3%~~28.4% in the ~~third~~second quarters of 2018 and 2017, respectively. The increase in the effective tax rate for the three months ended June 30, 2018, compared with the same period in 2017, was primarily attributed to tax expense of $1,703 related to a one-time cash distribution from Taiwan, offset by a reduction in our statutory tax rate as a result of the 2017 Tax and Jobs Act (the "Tax Act"). The tax rate in the second quarter of 2018 was higher than the U.S. statutory federal tax rate primarily due to foreign withholding taxes, state taxes and foreign earnings that are taxed at higher rates. The tax rate in the second quarter of 2017 ~~and 2016, respectively, and 30.0% and 43.2% for the nine months ended September 30, 2017 and 2016, respectively. The tax rates for the three and nine months ended September 30, 2017 were~~was lower than the U.S. statutory federal tax rate primarily due to lower foreign tax rates applicable on foreign earnings.

Our effective income tax rate was 30.2% and 29.4% in the first half of 2018 and 2017, respectively. The increase in the effective tax rate for the six months ended June 30, 2018, compared with the same period in 2017, was primarily attributed to tax expense of $1,703 related to a one-time cash distribution from Taiwan, offset by the previously mentioned statutory tax rate reduction resulting from the Tax Act. The tax rate in the first half of 2018 was higher than the U.S. statutory federal tax rate primarily due to foreign withholding taxes, state taxes, and foreign earnings that are taxed at higher rates. The tax rate in the first half of 2017 was lower than the U.S. statutory federal tax rate primarily due to tax benefits recorded upon vesting of restricted stock units, a release of valuation allowances recorded against realizable foreign NOLs, and favorable tax rates on foreign earnings, offset by the impact of state taxes, tax expense for withholding taxes on the anticipated distribution of earnings in China, and other various permanent items.

We recognized the income tax effects of the Tax Act in the audited consolidated financial statements included in our 2017 Annual Report on Form 10-K. Staff Accounting Bulletin No. 118 provides Securities and Exchange Commission staff guidance for the application of ASC Topic 740, Income Taxes, which allows for a measurement period of up to one year from the enactment date for companies to complete their accounting for the U.S. tax law changes. As such, our 2017 financial results reflected a provisional amount of $6,267 that was recorded as deferred tax expense related to the revaluation of deferred tax assets and liabilities, and a provisional amount of $11,734 that was recorded as current tax expense related to the transition tax on the mandatory deemed repatriation of foreign earnings. During the three and six months ended June 30, 2018, we recognized measurement period adjustments that resulted in additional tax expense of $0 and $241, respectively. Any subsequent adjustments to our provisional estimated amounts will be recorded to tax expense in the quarter when the analysis is complete.

For the calendar year beginning in 2018, we are subject to several new provisions of the Tax Act including but not limited to the Global Intangible Low-Taxed Income (GILTI) tax. We have provisionally elected to account for any GILTI tax in the period in

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which it is incurred, and therefore have not provided any deferred tax impacts in our consolidated financial statements. For these computations, we have recorded an estimate in our effective tax rate for the three-months ended June 30, 2018. The company will continue to refine our estimates as additional guidance and information becomes available.

In general, outside of Canada and the U.K., it has been our historical practice to permanently reinvest the earnings of our non-U.S. subsidiaries into those operations. However, as a result of the Tax Act, we can repatriate our cumulative undistributed foreign earnings to the U.S. as needed with minimal U.S. income tax consequences other than the one-time deemed repatriation tax. We will continue to evaluate whether to repatriate all or a portion of the cumulative undistributed foreign earnings based on expansion needs and as circumstances change. We are still evaluating whether to change our indefinite reinvestment assertion in light of the Tax Act and consider that conclusion to be incomplete under guidance issued by SAB 118. If we subsequently change our assertion during the measurement period, we will account for the change in assertion as part of the Tax Act enactment.

Our continuing practice is to recognize interest and/or penalties related to income tax matters as income tax expense. For the three and six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, we recorded ~~$181~~interest and ~~$181, respectively,~~penalties of $0 and ~~for the nine months ended September 30, 2017~~$176, and ~~2016, we recorded $533~~$14 and ~~$552, respectively, of interest or penalties in income tax expense.~~ $352, respectively.

~~Note 17~~NOTE 18 - Business Combinations

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

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

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

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

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

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

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


	Fair Values at March 11, 2016			Fair Values at May 15, 2017
Current assets	$	4,215		$	2,836
Property, plant and equipment	6,173			580
Other assets	37			395
Goodwill	27,879			9,313
Intangible assets	35,427			9,142
Fair value of assets acquired	73,731			22,266
Less fair value of liabilities acquired	(668		)	(3,145		)
Net cash paid	$	73,063		$	19,121

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

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

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

We incurred ~~$804~~$291 in transaction related costs during the ~~year~~six months ended ~~December 31, 2016.~~June 30, 2017. These costs are included in selling, general and administrative costs in our ~~Condensed~~ Consolidated ~~Statement~~Statements of Earnings.

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

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

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NOTE 1819 — Recent Accounting Pronouncements

ASU 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This ASU allows for a reclassification from accumulated comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act enacted in December 2017. This ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period for which financial statements have not been issued. We are evaluating the impact this ASU may have on our financial statements.

ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"

In August 2017, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accountings Standards Update ("ASU") No~~ASU No. 2017-12 "Derivatives and Hedging (Topic 815): Target Improvements to Accounting for Hedging Activities". This ASU is meant to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This ASU also allows an entity to assess hedge effectiveness on a qualitative basis subsequent to the initial quantitative assessment if the facts and circumstances related to the hedging relationship have not changed such that the entity can assert qualitatively that the hedging relationship was and continues to be highly effective. This ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance. Any changes should be applied to all hedging relationships that exist at the date of adoption by applying a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the

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opening balance of retained earnings as of the beginning of the fiscal year of adoption. Presentation and disclosure guidance is to be applied prospectively. We ~~are still evaluating~~adopted the ~~impact this~~provisions of ASU ~~may have on our financial statements.~~2017-12 as of April 1, 2018, see Note 1, Basis of Presentation.

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

In March 2017, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accounting Standards Update ("ASU")~~ASU No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and net Periodic Post-retirement Benefit Cost". This ASU is meant to improve the presentation of net periodic pension and net periodic post-retirement benefits costs. Currently, pension and post-retirement benefit costs are comprised of several components reflecting the different aspects of an employer's financial arrangements and cost of providing benefits to employees. These components are aggregated for reporting, but prior guidance does not prescribe where the net cost should be presented in the income statement or capitalized in assets. This ASU requires disaggregation of the service cost component from other components of net benefit cost and provides explicit guidance on how to present the service cost and other components in the income statement, allowing only the service cost component of net benefit costs to be eligible for capitalization. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. These amendments should be applied retrospectively for the presentation of ~~the~~ service cost and other components of net periodic pension and net post-retirement benefit cost in the income statement and prospectively for the capitalization of ~~the~~ service cost and net periodic pension cost and periodic post-retirement benefit in assets. ~~This~~We adopted this ASU isas of January 1, 2018. It did not ~~expected to~~ have a material impact on our financial statements because the service cost component of our pension cost is ~~expected to be~~ immaterial to our financial results on a prospective basis.

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

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

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

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business". This ASU is meant to clarify the definition of a business to add guidance when determining when an acquisition or disposal should be accounted for as a sale of assets or business. This ASU provides a more robust framework to use in determining when a set of assets or activities should be classified as a business, providing more consistency in accounting for business or asset acquisitions. ~~This~~We adopted this ASU ~~is effective for public companies, for fiscal years beginning after December 15, 2017, including interim periods within those periods. The ASU~~on January 1, 2018 and it will be applied ~~prospectively.~~to any business combinations subsequent to that date.

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

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

ASU 2016-15 "Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments"

In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments". This ASU reduces the diversity in reporting of eight specific cash flow issues due to accounting guidance that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements and other various activities. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted and is to be applied retrospectively using a transition method for each period presented. An entity that elects

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~~early adoption of the amendment under~~We adopted this ASU ~~must adopt all aspects~~as of ~~the amendment in the same period. This guidance is~~January 1, 2018 and it did not ~~expected to~~ have ~~a material~~an impact on our ~~consolidated~~ financial statements.

ASU 2016-02 "Leases (Topic 842)"

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This amendment created a new Topic under the accounting standards codification to account for the provisions of the ASU. This amendment is meant to provide transparency and to improve comparability between entities. The ASU requires companies to record an asset and liability on the balance sheet for leases that were formerly designated as operating leases as well as leases designated as financing leases. The provisions of the ASU predominately change the recognition of leases for ~~lessees,~~lessees; the provisions do not substantially change the accounting for lessors. This ASU will supersede the provisions of Topic 840 Leases.

The liability recorded for a lease is meant to recognize the lease payments and the asset as a right to use the underlying asset for the lease, including optional periods if it is reasonably certain the option will be exercised. Recording of the liability should be based on the present value of the lease payments. If a lease term is less than twelve months, a company is allowed to elect not to record the asset and liability. Expense related to these leases are to be amortized on a straight-line basis over the expected term of the lease.

Additionally, the provisions of this ASU provide additional guidance on separating lease terms from maintenance and other type of provisions that provide a good or service, accounting for sale-leaseback provisions, and leveraged leases.

Reporting in the cash flow statement remains virtually unchanged. Additional qualitative and quantitative disclosures are required.

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

The provisions of this ASU are effective for fiscal years beginning after December 15, 2018 and ~~interim periods within those periods. Early~~early adoption is ~~allowed.~~permitted. We have ~~not yet commenced~~begun the process ~~for~~of reviewing existing agreements and are evaluating the impact of this ASU on our financial ~~statements, and therefore it's impact has not yet been determined.~~

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

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

~~To achieve that core principle, an entity should apply~~recognized as assets and liabilities as a result of adopting the ~~following steps:~~


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


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


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


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


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

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

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

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

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

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

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

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

(in thousands, except percentages and per share amounts)

The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included under Item 1, as well as our Consolidated Financial Statements and notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Overview

CTS Corporation (“CTS”, “we”, “our” or “us”) is a leading designer and manufacturer of products that Sense, Connect and Move. We manufacture sensors, actuators, and electronic components in North America, Europe, and Asia, and ~~supply these~~provide engineered products to ~~OEMs~~customers in the ~~aerospace, communications,~~ aerospace/defense, industrial, ~~information technology,~~ medical, telecommunications/IT, and transportation markets.

Results of Operations: ~~Third~~Second Quarter ~~2017~~2018 versus ~~Third~~Second Quarter ~~2016~~2017

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the quarters ended ~~September~~June 30, ~~2017,~~2018, and ~~September~~June 30, ~~2016:~~2017:


	Three Months Ended							Percent of	Percent of		Three Months Ended							Percent of		Percent of
	September 30,		September 30,			Percent		Net Sales –	Net Sales –		June 30,			June 30,		Percent		Net Sales –		Net Sales –
	2017		2016			Change		2017	2016		2018			2017		Change		2018		2017
Net sales	$	106,243	$	99,697		6.6		100.0	100.0		$	118,021		$	105,686	11.7		100.0		100.0
Cost of goods sold	68,705		63,056			9.0		64.7	63.2		76,208			69,892		9.0		64.6		66.1
Gross margin	37,538		36,641			2.4		35.3	36.8		41,813			35,794		16.8		35.4		33.9
Selling, general and administrative expenses	15,915		16,048			(0.8	)	15.0	16.1		19,621			15,808		24.1		16.6		15.0
Research and development expenses	6,380		6,284			1.5		6.0	6.3		6,476			6,049		7.1		5.5		5.7
Restructuring charges	1,435		1,969			(27.1	)	1.4	2.0		1,172			729		60.8		1.0		0.7
Loss (gain) on sale of assets	697		(150		)	(564.7	)	0.7	(0.1	)
Total operating expenses	24,427		24,151			1.1		23.0	24.3		27,269			22,586		20.7		23.1		21.4
Operating earnings	13,111		12,490			5.0		12.3	12.5		14,544			13,208		10.1		12.3		12.5
Total other income (expense)	848		(760		)	(211.6	)	0.8	(0.8	)
Total other (expense) income											(2,973		)	716		(515.2	)	(2.5	)	0.7
Earnings before income taxes	13,959		11,730			19.0		13.1	11.7		11,571			13,924		(16.9	)	9.8		13.2
Income tax expense	4,340		8,010			(45.8	)	4.1	8.0		4,362			3,958		10.2		3.7		3.7
Net earnings	$	9,619	$	3,720		158.6		9.0	3.7		$	7,209		$	9,966	(27.7	)	6.1		9.5
Earnings per share:
Diluted net earnings per share	$	0.29	$	0.11							$	0.21		$	0.30

Sales were ~~$106,243~~$118,021 in the ~~third~~second quarter of ~~2017,~~2018, an increase of ~~$6,546~~$12,335 or ~~6.6%~~11.7% from the ~~third~~second quarter of ~~2016.~~2017. Sales to ~~automotive~~transportation markets increased ~~$3,789~~$5,185 or ~~5.8%~~7.5%. Other sales increased ~~$2,757~~$7,150 or ~~7.9%~~19.3%. The Noliac acquisition, which was completed in May 2017, added ~~$2,554~~$2,508 in sales ~~for~~in the ~~quarter.~~second quarter of 2018 and $1,543 in the second quarter of 2017. Changes in foreign exchange rates increased sales by ~~$247~~$1,794 year-over-year due to the U.S. Dollar depreciating compared to the Euro and Chinese Renminbi ~~and Euro~~ and relating mostly to sales of ~~automotive~~transportation products.

Gross margin as a percent of sales was ~~35.3%~~35.4% in the ~~third~~second quarter of 2018 compared to 33.9% in the second quarter of 2017. Major drivers for the improvement include savings related to product line transfers and favorable foreign exchange impact. The second quarter of 2017 ~~compared~~also included costs related to ~~36.8%~~certain production rework issues resolved in the ~~third~~first quarter of ~~2016. The decrease in gross margin was driven mainly by product mix changes as well as unfavorable foreign exchange impact in 2017 versus favorable foreign exchange impact in 2016.~~2017.

Selling, general and administrative ("SG&A") expenses were ~~$15,915~~$19,621 or 16.6% of sales in the second quarter of 2018 versus $15,808 or 15.0% of sales in the ~~third~~second quarter of ~~2017 versus $16,048 or 16.1% of sales in the third quarter of 2016.~~2017. The ~~2017~~2018 SG&A costs include a $950 environmental charge, $525 for tax projects, a full quarter of amortization of intangibles and other operating costs associated with our Noliac acquisition, ~~which were offset by other~~higher stock-based compensation, and non-cash pension expense ~~reductions.~~versus income in 2017. The environmental charge relates to soil remediation at one of our older facilities in Asia.

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Research and development expenses were ~~$6,380~~$6,476 or ~~6.0%~~5.5% of sales in the ~~third~~second quarter of ~~2017~~2018 compared to ~~$6,284~~$6,049 or ~~6.3%~~5.7% of sales in the comparable quarter of ~~2016.~~2017. Research and development expenses are focused on expanded applications of existing products and new product development as well as current product and process enhancements.

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Restructuring charges were ~~$1,435~~$1,172 or ~~1.4%~~1.0% of sales in the ~~third~~second quarter of ~~2017.~~2018. The charges were mainly for building and equipment relocation, severance, and travel costs related to the restructuring of certain operations as part of the 2016 Restructuring Plan. Restructuring charges were ~~$1,969~~$729 or ~~2.0%~~0.7% of sales in the ~~third~~first quarter of ~~2016.~~

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

Operating earnings were ~~$13,111~~$14,544 or 12.3% of sales in the ~~third~~second quarter of ~~2017~~2018 compared to operating earnings of ~~$12,490~~$13,208 or 12.5% of sales in the comparable quarter of ~~2016~~2017 as a result of the items discussed above.

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


	Three Months Ended						Three Months Ended
	September 30,			September 30,			June 30,			June 30,
	2017			2016			2018			2017
Interest expense	$	(773	)	$	(917	)	$	(571	)	$	(752	)
Interest income	363			203			472			298
Other income (expense)	1,258			(46		)
Total other income (expense)	$	848		$	(760	)
Other (expense) income, net							(2,874		)	1,170
Total other (expense) income							$	(2,973	)	$	716

Interest expense decreased ~~in the third quarter of 2017 versus the same quarter of 2016 primarily~~mainly as a result of athe reduction in ~~interest related to interest rate swaps.~~debt year-over-year. Interest income increased due to higher ~~cash balances.~~interest rates. Other ~~income~~expense in the ~~third~~second quarter of ~~2017~~2018 was principally driven by foreign currency translation ~~gains,~~losses, mainly due to the ~~depreciation~~appreciation of the U.S. Dollar compared to the Chinese Renminbi and Euro during the quarter.

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



	Three Months Ended
	June 30,		June 30,
	2018		2017
Effective tax rate	37.7	%	28.4	%

Our effective income tax rate was ~~31.1%~~37.7% and ~~68.3%~~28.4% in the ~~third quarter~~second quarters of ~~2017~~2018 and ~~2016,~~2017, respectively. The increase in the effective tax rate infor the ~~third quarter of~~three months ended June 30, 2018, compared with the same period in 2017, was ~~lower than the U.S.~~primarily attributed to tax expense of $1,703 related to a one-time cash distribution from Taiwan, offset by a reduction in our statutory tax rate ~~due primarily to tax benefits recorded upon vesting~~as a result of ~~restricted stock units, a release of valuation allowances recorded against realizable foreign NOLs,~~the 2017 Tax and ~~favorable tax rates on foreign earnings, offset by the impact of state taxes, tax expense for withholding taxes on the anticipated distribution of earnings in China, and other various permanent items.~~Jobs Act.

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Results of Operations: ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 versus ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

The following table highlights changes in significant components of the Unaudited Condensed Consolidated Statements of Earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~September~~June 30, ~~2016:~~2017:


	Nine Months Ended							Percent of	Percent of		Six Months Ended							Percent of		Percent of
	September 30,		September 30,			Percent		Net Sales –	Net Sales –		June 30,			June 30,		Percent		Net Sales –		Net Sales –
	2017		2016			Change		2017	2016		2018			2017		Change		2018		2017
Net sales	$	312,083	$	295,095		5.8		100.0	100.0		$	231,551		$	205,840	12.5		100.0		100.0
Cost of goods sold	204,527		190,528			7.3		65.5	64.6		151,305			135,822		11.4		65.3		66.0
Gross margin	107,556		104,567			2.9		34.5	35.4		80,246			70,018		14.6		34.7		34.0
Selling, general and administrative expenses	46,970		46,459			1.1		15.1	15.8		36,993			31,056		19.1		16.0		15.1
Research and development expenses	18,432		18,414			0.1		5.9	6.2		12,983			12,052		7.7		5.6		5.9
Restructuring charges	2,942		2,175			35.3		0.9	0.7		2,367			1,507		57.1		1.0		0.7
Loss (gain) on sale of assets	698		(11,501		)	(106.1	)	0.2	(3.9	)
Total operating expenses	69,042		55,547			24.3		22.1	18.8		52,343			44,615		17.3		22.6		21.7
Operating earnings	38,514		49,020			(21.4	)	12.4	16.6		27,903			25,403		9.8		12.1		12.3
Total other income (expense)	1,594		(3,146		)	(150.7	)	0.5	(1.1	)
Total other (expense) income											(1,028		)	746		(237.8	)	(0.4	)	0.4
Earnings before income taxes	40,108		45,874			(12.6	)	12.9	15.5		26,875			26,149		2.8		11.6		12.7
Income tax expense	12,039		19,804			(39.2	)	3.9	6.7		8,118			7,699		5.4		3.5		3.7
Net earnings	$	28,069	$	26,070		7.7		9.0	8.8		$	18,757		$	18,450	1.7		8.1		9.0
Earnings per share:
Diluted net earnings per share	$	0.84	$	0.79							$	0.56		$	0.55

Sales were ~~$312,083~~$231,551 in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, an increase of ~~$16,988~~$25,711 or ~~5.8%~~12.5% from the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. Sales to ~~automotive~~transportation markets increased ~~$7,688~~$13,097 or ~~3.9%~~9.7%. Other sales increased ~~$9,300~~$12,614 or ~~9.4%~~17.8%. The Noliac acquisition, which was completed in May 2017, added ~~$4,097~~$5,104 in sales ~~for~~in the ~~nine months ended September 30,~~first half of 2018 and $1,543 in the first half of 2017. Changes in foreign exchange rates ~~reduced~~increased sales by ~~$1,400~~$4,558 year-over-year due to the U.S. Dollar ~~appreciating~~depreciating compared to the Euro and Chinese Renminbi ~~and Euro~~ and relating mostly to sales of ~~automotive~~transportation products.

Gross margin as a percent of sales was ~~34.5%~~34.7% in the first ~~nine months~~half of ~~2017~~2018 compared to ~~35.4%~~34.0% in the first ~~nine months~~half of ~~2016.~~2017. Major drivers for the improvement include savings related to product line transfers and favorable foreign exchange impact. The ~~decrease in gross margin was driven mainly by product mix changes,~~first half of 2017 also included costs ~~relating~~related to certain production rework issues resolved in the first ~~half~~quarter of ~~2017 and an unfavorable impact of foreign exchange rate movements.~~2017.

Selling, general and administrative expenses were ~~$46,970~~$36,993 or ~~15.1%~~16.0% of sales in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 versus ~~$46,459~~$31,056 or ~~15.8%~~15.1% of sales in the comparable year-to-date period in ~~2016.~~2017. The ~~increase was primarily attributable to incremental~~2018 SG&A costs ~~resulting from the Noliac acquisition in 2017 and the single crystal acquisition in 2016, including~~include a $950 environmental charge, $840 for tax projects, amortization of intangibles ~~which were partially offset by~~and other operating costs associated with our Noliac acquisition, higher stock-based compensation, and non-cash pension expense ~~reductions and the timing~~versus income in 2017. The environmental charge relates to soil remediation at one of ~~certain expenses.~~our older facilities in Asia.

Research and development expenses were ~~$18,432~~$12,983 or ~~5.9%~~5.6% of sales in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$18,414~~$12,052 or ~~6.2%~~5.9% of sales in the comparable prior year period. Research and development expenses are focused on expanded applications of existing products and new product development as well as current product and process enhancements.

Restructuring charges were ~~$2,942~~$2,367 or ~~0.9%~~1.0% of sales in the first ~~nine months~~half of ~~2017.~~2018. The charges were mainly for building and equipment relocation, severance, and travel costs related to the restructuring of certain operations as part of the 2016 Restructuring Plan. Restructuring charges were ~~$2,175~~$1,507 or 0.7% of sales in the first ~~nine months~~half of ~~2016.~~2017.

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

Operating earnings were $38,514 or 12.4% of sales in the nine months ended September 30, 2017, compared to operating earnings of $49,020 or 16.6% of sales in the nine months ended September 30, 2016, as a result of the items discussed above.

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


	Nine Months Ended						Six Months Ended
	September 30,			September 30,			June 30,			June 30,
	2017			2016			2018			2017
Interest expense	$	(2,209	)	$	(2,746	)	$	(1,112	)	$	(1,436	)
Interest income	914			1,082			954			551
Other income (expense)	2,889			(1,482		)
Total other income (expense)	$	1,594		$	(3,146	)
Other (expense) income, net							(870		)	1,631
Total other (expense) income							$	(1,028	)	$	746

Interest expense decreased in the first ~~nine~~six months of ~~2017~~2018 versus the same period of ~~2016 primarily~~2017 mainly as a result of athe reduction in ~~interest related to interest rate swaps.~~debt year-over-year. Interest income ~~decreased~~increased due to ~~lower investible cash balances at certain foreign locations.~~higher interest rates. Other ~~income~~expense in the first ~~nine~~six months of ~~2017~~2018 was principally driven by foreign currency translation ~~gains,~~losses, mainly due to the ~~depreciation~~appreciation of the U.S. Dollar compared to the Chinese Renminbi and Euro during the ~~period.~~

first half of the year.

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



	Six Months Ended
	June 30,		June 30,
	2018		2017
Effective tax rate	30.2	%	29.4	%

Our effective income tax rate was ~~30.0%~~30.2% and ~~43.2%~~29.4% in the first ~~nine months~~half of ~~2017~~2018 and ~~2016,~~2017, respectively. The increase in the effective tax rate infor the ~~first nine~~six months ofended June 30, 2018, compared with the same period in 2017, was ~~lower than the U.S.~~primarily attributed to tax expense of $1,703 related to a one-time cash distribution from Taiwan, offset by a reduction in our statutory tax rate ~~due primarily to tax benefits recorded upon vesting~~as a result of ~~restricted stock units, a release of valuation allowances recorded against realizable foreign NOLs,~~the 2017 Tax and ~~favorable tax rates on foreign earnings, offset by the impact of state taxes, tax expense for withholding taxes on the anticipated distribution of earnings in China, and other various permanent items.~~Jobs Act.

Liquidity and Capital Resources

Cash and cash equivalents were ~~$116,152~~$102,861 at ~~September~~June 30, ~~2017,~~2018, and ~~$113,805~~$113,572 at December 31, ~~2016,~~2017, of which ~~$114,845~~$94,507 and ~~$113,359,~~$112,531, respectively, were held outside the United States. The ~~increase~~decrease in cash and cash equivalents of ~~$2,347~~$10,711 was primarily driven by capital expenditures of $14,910 and net long-term debt payments of $19,300, which were partially offset by cash generated from operating activities of ~~$46,967, which was mostly offset by the payment for the Noliac acquisition of $19,121, capital expenditures of $11,987, net long-term debt payments of $6,800 and dividends paid of $3,942.~~$27,721. Total long-term debt was ~~$82,300~~$57,000 as of ~~September~~June 30, ~~2017~~2018 and ~~$89,100~~$76,300 as of December 31, ~~2016.~~2017. Total debt as a percentage of total capitalization, defined as ~~the sum of notes payable and~~ long-term debt as a percentage of total debt and shareholders' equity, was ~~19.2%~~13.5% at ~~September~~June 30, ~~2017,~~2018, compared to ~~22.1%~~18.2% at December 31, ~~2016.~~2017.

Working capital ~~increased~~decreased by ~~$11,354~~$4,283 during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, primarily due ~~to increases~~the decrease in ~~inventory, accounts receivable, other current assets and~~ cash and cash equivalents as well as the increase in accounts payable, which were partially offset by higher accounts ~~payable.~~receivable and inventory.

Cash Flows from Operating Activities

Net cash provided by operating activities was ~~$46,967~~$27,721 during the first ~~nine~~six months of ~~2017.~~2018. Components of net cash provided by operating activities included net earnings of ~~$28,069,~~$18,757, depreciation and amortization expense of ~~$15,061 and~~$10,961, other net non-cash items of ~~$8,746, offset by the~~$1,677, and a net cash outflow from changes in assets and liabilities of ~~$4,909.~~$3,674.

Cash Flows from Investing Activities

Net cash used in investing activities for the first ~~nine~~six months of ~~2017~~2018 was ~~$30,623,~~$14,909, driven almost entirely by ~~the net payment for our Noliac acquisition of $19,121 and~~ capital expenditures ~~of $11,987.~~relating to our ongoing ERP project and production line movements.

Cash Flows from Financing Activities

Net cash used in financing activities for the first ~~nine~~six months of ~~2017~~2018 was ~~$13,463.~~$23,367. These cash outflows were the result of net long-term debt payments of ~~$6,800,~~$19,300, dividend payments of ~~$3,942,~~$2,638, and taxes paid on behalf of ~~employees for~~ equity ~~awards~~award participants in the amount of ~~$1,571 and short-term notes payable payments of $1,150.~~$1,429.

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Capital Resources

Long‑term debt was comprised of the following:


	As of						As of
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
Revolving credit facility due in 2020	$	82,300		$	89,100
Weighted average interest rate	2.3		%	1.5		%
Total credit facility							$	300,000		$	300,000
Balance outstanding							$	57,000		$	76,300
Standby letters of credit							$	1,940		$	2,065
Amount available	$	215,635		$	208,735		$	241,060		$	221,635
Total credit facility	$	300,000		$	300,000
Standby letters of credit	$	2,065		$	2,165
Weighted-average interest rate							3.01		%	2.30		%
Commitment fee percentage per annum	0.25		%	0.25		%	0.25		%	0.25		%

The Revolving Credit Facility requires, among other things, that CTS comply with a maximum total leverage ratio and a minimum fixed charge coverage ratio. Failure to comply with these covenants could reduce the borrowing availability under the Revolving Credit Facility. We were in compliance with all debt covenants at ~~September~~June 30, ~~2017.~~2018.

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

~~Generally,~~In general, other than in Canada and the U.K., it has been our historical practice ~~and intention is~~ to permanently reinvest the earnings of our non-U.S. subsidiaries ~~outside the U.S.~~in those operations. However, ~~we determined during 2015 that~~ as a result of ~~changes in~~ the ~~business, the~~Tax Cuts and Jobs Act (the "Act"), we can repatriate our cumulative undistributed foreign earnings to the U.S. when needed with minimal U.S. income tax consequences other than the one-time deemed repatriation charge. We will continue to evaluate whether to repatriate all or a portion of the cumulative undistributed foreign earnings based on our ~~subsidiaries~~business needs. We are still evaluating whether to change our indefinite reinvestment assertion in ~~Canada~~light of the Act and consider that conclusion to be incomplete under guidance issued by SAB 118. If we subsequently change our assertion during the ~~U.K. were no longer permanently reinvested. Therefore, a provision~~measurement period, we will account for the ~~expected taxes on repatriation~~change in assertion as a change in estimate related to the enactment of ~~those earnings was recorded at that time. Any repatriation may not result in significant cash income tax payments as~~ the taxable event would likely be offset by the utilization of our available tax credits, resulting in no significant net cash taxes being incurred. We do not provide for U.S. income taxes on undistributed earnings of our foreign subsidiaries that are intended to be permanently reinvested.Act.

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

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Critical Accounting Policies and Estimates

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

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

Revenue Recognition

~~Product~~We recognize revenue ~~is recognized once four criteria are met: (1)~~upon the transfer of promised goods to our customers in an amount that reflects the consideration to which we ~~have persuasive evidence that an arrangement exists; (2) delivery has occurred and title has passed~~expect to be entitled by applying the ~~customer, which generally happens at the point of shipment, provided that no significant obligations remain; (3) the price is fixed and determinable; and (4) collectability is reasonably assured.~~following five-step process specified in Accounting Standard Codification ("ASC") Topic 606:

Identify the contract(s) with a customer

Identify the performance obligations

Determine the transaction price

Allocate the transaction price

Recognize revenue when the performance obligations are met

~~Table~~Our contracts normally contain a single performance obligation that is fulfilled on the date of ~~Contents~~

delivery based on shipping terms stipulated in the contract. We recognize revenue when (or as) the performance obligation has been satisfied after considering the impact of variable consideration and other factors that may affect the transaction price. 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.

Product Warranties

Provisions for estimated warranty expenses related to our automotive products are made at the time products are sold. These estimates are established using a quoted industry rate. We adjust our warranty reserve for any known or anticipated warranty claims as new information becomes available. We evaluate our warranty obligations at least quarterly and adjust our accruals if it is probable that future costs will be different than our current reserve.

Accounts Receivable

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

Credit reviews of all new customer accounts,

Ongoing credit evaluations of current customers,

Credit limits and payment terms based on available credit information,

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

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

Limited credit insurance on the majority of our international receivables.

We reserve for estimated credit losses based on historical experience and specific customer collection issues. Over the last three years, accounts receivable reserves have been approximately 0.2% to ~~0.6%~~0.7% of total accounts receivable. We believe our reserve level is appropriate considering the quality of the portfolio. While credit losses have historically been within expectations and the reserves established, we cannot guarantee that our credit loss experience will continue to be consistent with historical experience.

Inventories

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

Over the last three years, our reserves for excess and obsolete inventories have ranged from ~~16.8%~~11.9% to ~~18.9%~~20.1% of gross inventory. We believe our reserve level is appropriate considering the quantities and quality of the inventories.

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Retirement Plans

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

Valuation of Goodwill

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

Significant decline in market capitalization relative to net book value,

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

Adverse action or assessment by a regulator,

Unanticipated competition,

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

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

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

~~Table of Contents~~

If we believe that one or more of the above indicators of impairment have occurred, we perform an impairment test. The test involves comparing the fair values of our reporting units with their carrying values. We recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, but only to the extent of goodwill recognized.

We generally determine the fair value of our reporting units using two valuation methods: "Income Approach — Discounted Cash Flow Method" and "Market Approach — Guideline Public Company Method". The approach defined below is based upon our last impairment test conducted as of October 1, ~~2016.~~2017.

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

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

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

The results of these two methods are weighted based upon management's determination.

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

There have not been any significant changes to our impairment testing methodology other than updates to the assumptions to reflect the current market environment. Based upon our latest assessment, we determined that our goodwill was not impaired as of October 1, ~~2016.~~2017. We will monitor future results and will perform a test if indicators trigger an impairment review.

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Valuation of Other Intangible and Long-Lived Assets

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

Significant decline in market capitalization relative to net book value,

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

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

Significant negative industry or economic trends.

If we believe that one or more indicators of impairment have occurred, we perform a recoverability test by comparing the carrying amount of an asset or asset group to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value. No indicators of impairment were identified as of ~~September~~June 30, ~~2017.~~2018.

Income Taxes

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

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

~~Table of Contents~~

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

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of its technical merits. We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax ~~benefit~~ liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

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

We earn a significant amount of our operating income outside of the U.S., which is generally deemed to be permanently reinvested in foreign ~~jurisdictions.~~ ~~However, we determined during~~jurisdictions except in Canada and the U.K. In 2015, ~~that~~ as a result of changes in the business, the foreign earnings of ~~our~~these two subsidiaries ~~in Canada and the U.K.~~ were no longer permanently reinvested. Therefore, a provision for the expected taxes on repatriation of those earnings was ~~recorded~~.recorded. However, as a result of the Tax Cuts and Jobs Act, we can repatriate our cumulative undistributed foreign earnings back to the U.S. when needed with minimal U.S. income tax consequences other than the one-time deemed repatriation charge. We ~~do not intend~~will continue to evaluate whether to repatriate ~~funds beyond~~all or a portion of the ~~amount from~~cumulative undistributed foreign earnings based on expansion needs and as circumstances change. We are still evaluating whether to change our ~~Canadian~~indefinite reinvestment assertion in light of the Act and ~~U.K. subsidiaries; however, should~~consider that conclusion to be incomplete under guidance issued by SAB 118. If we ~~require more capital~~subsequently change our assertion during the measurement period, we will account for the change in assertion as a change in estimate related to enactment of the U.S. than is generated by our domestic operations, we could elect to repatriate funds held in foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. Repatriation would result in a higher effective tax rate. Borrowing in the U.S. would result in increased interest expense.Act.

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Significant Customers

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,		September 30,		September 30,		September 30,		June 30,		June 30,		June 30,		June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Cummins Inc.	14.6	%	9.5	%	13.6	%	9.8	%	14.0	%	13.2	%	14.1	%	13.0	%
Toyota Motor Corporation									10.8	%	10.0	%	11.0	%	10.4	%
Honda Motor Co.	11.7	%	10.5	%	10.8	%	10.8	%	9.7	%	10.7	%	10.3	%	10.3	%
Toyota Motor Corporation	9.9	%	9.9	%	10.2	%	10.5	%

Forward‑Looking Statements

This document contains statements that are, or may be deemed to be, forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward‑looking statements include, but are not limited to, any financial or other guidance, statements that reflect our current expectations concerning future results and events, and any other statements that are not based solely on historical fact. Forward‑looking statements are based on management’s expectations, certain assumptions and currently available information. Readers are cautioned not to place undue reliance on these forward‑looking statements, which speak only as of the date hereof and are based on various assumptions as to future events, the occurrence of which necessarily are subject to uncertainties. These forward‑looking statements are made subject to certain risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from those presented in the forward‑looking statements. Examples of factors that may affect future operating results and financial condition include, but are not limited to: changes in the economy generally and in respect to the business in which CTS operates; unanticipated issues in integrating acquisitions; the results of actions to reposition our business; rapid technological change; general market conditions in the automotive, communications, and computer industries, as well as conditions in the industrial, defense and aerospace, and medical markets; reliance on key customers; unanticipated natural disasters or other events; the ability to protect our intellectual property; pricing pressures and demand for our products; unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters as well as any product liability claims; and risks associated with our international operations, including trade and tariff barriers, exchange rates and political and geopolitical risks. Many of these and other risks and uncertainties are discussed in further detail in Item 1A. of CTS' Annual Report on Form 10‑K for the fiscal year ended December 31, ~~2016.~~2017. We undertake no obligation to publicly update our forward‑looking statements to reflect new information or events or circumstances that arise after the date hereof, including market or industry changes.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk since December 31, ~~2016.~~2017.

Item 4. Controls and Procedures

Pursuant to Rule 13a-15(e) of the Securities and Exchange Act of 1934, management, under the direction of our Chief Executive Officer and Chief Financial Officer, evaluated our disclosure controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2018.

Changes in Internal Control Over Financial Reporting

~~There were no~~Beginning January 1, 2018, we adopted ASC 606 "Revenue from Contracts with Customers". It is expected to have an immaterial impact on our ongoing net income; however, we implemented changes into our processes related to revenue recognition and related internal ~~control over financial reporting for~~controls. These changes included the ~~quarter ended September 30, 2017, that have materially affected or are reasonably likely~~development of new policies related to ~~materially affect our internal control over financial reporting.~~ the five-step model, training, ongoing contract review requirements, and gathering of information to comply with disclosure requirements.

PART II - OTHER INFORMATION

Not applicable

Item 1. Legal Proceedings

From time to time we are involved in litigation with respect to matters arising from the ordinary conduct of our business, and currently certain claims are pending against us. In the opinion of management, based upon presently available information, either adequate provision for anticipated costs have been accrued or the ultimate anticipated costs will not materially affect our consolidated financial position, results of operations, or cash flows.

Item 1A. Risk Factors

There have been no significant changes to our risk factors since December 31, ~~2016.~~2017.

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

On April 27, 2015, we announced that our Board of Directors authorized an expansion to its repurchase program by authorizing the purchase of an additional $25 million dollars of its common stock in the open market. This authorization has no expiration. As shown in the following table, there were no stock repurchases during the quarter ended ~~September~~June 30, ~~2017.~~2018.

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

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

(c)

Total Number

(d)

(a)

of Shares

Maximum Dollar Value

Total Number of

(b)

Purchased as

of Shares That May Yet Be

Average Price

Part of Plans or

Purchased Under the

Purchased

Paid per Share

Program

Plans or Programs(2)

Balance at December 31, 2017

17,554

January 1, 2018 - June 30, 2018

—

Total

—

17,554

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Item 6. Exhibits



(10)(a)	CTS Corporation Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Form 8-K, filed with the SEC on February 18, 2015).

(10)(b)	CTS Corporation 2018 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K, filed with the SEC on May 22, 2018).

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

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

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

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

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

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



CTS Corporation		CTS Corporation

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

Dated: ~~October~~July 26, ~~2017~~2018		Dated: ~~October~~July 26, ~~2017~~2018

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



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



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



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



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

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Accelerated filer ☒o

Non-accelerated filer o

Smaller reporting company o

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