Table of Contents
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 30, 2017.2021.



or


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: 001-36102


Knowles Corporation
(Exact name of registrant as specified in its charter)

Delaware90-1002689
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1151 Maplewood Drive
Itasca, Illinois60143
(Address of principal executive offices)(Zip Code)


1151 Maplewood Drive, Itasca, IL
(Address of Principal Executive Offices)


60143
(Zip Code)

(630) 250-5100
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, $0.01 par value per shareKNNew York Stock Exchange

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 þ☑  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 þ☑  No o☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☑Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth companyo
☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐


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


The number of shares outstanding of the registrant’s common stock as ofOctober 26, 20172021 was 89,468,491.92,345,471.




Table of Contents

Knowles Corporation
Form 10-Q
Table of Contents

Page
PART I — FINANCIAL INFORMATION
1
Item 1.
Financial Statements
1
Consolidated Statements of Earnings (unaudited) for the three and nine months ended September 30, 20172021 and 20162020
1
Consolidated Statements of Comprehensive Earnings (unaudited) for the three and nine months ended September 30, 20172021 and 20162020
2
Consolidated Balance Sheets (unaudited) at September 30, 20172021 and December 31, 20162020
3
Consolidated StatementStatements of Stockholders' Equity (unaudited) for the three and nine months ended September 30, 20172021 and 2020
4
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 20172021 and 20162020
56
Notes to Consolidated Financial Statements (unaudited)
67
Forward-Looking Statements
2724
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2825
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
4542
Item 4.
Controls and Procedures
4542
PART II — OTHER INFORMATION
4542
Item 1.
Legal Proceedings
4542
Item 1A.
Risk Factors
4542
43
Item 6.
Exhibits
4643
SIGNATURES
4744






Table of Contents



PART I — FINANCIAL INFORMATION


Item 1. Financial Statements

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except share and per share amounts)
(unaudited)

 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Revenues$233.0 $205.8 $633.8 $521.1 
Cost of goods sold136.1 130.6 375.2 339.6 
Restructuring charges - cost of goods sold— — — 2.3 
Gross profit96.9 75.2 258.6 179.2 
Research and development expenses22.3 21.9 70.2 70.2 
Selling and administrative expenses36.0 32.0 108.9 99.3 
Impairment charges4.0 7.6 4.0 7.6 
Restructuring charges— 0.1 0.3 10.5 
Operating expenses62.3 61.6 183.4 187.6 
Operating earnings (loss)34.6 13.6 75.2 (8.4)
Interest expense, net4.2 4.7 12.3 12.5 
Other (income) expense, net(1.9)1.0 (3.4)0.2 
Earnings (loss) before income taxes and discontinued operations32.3 7.9 66.3 (21.1)
Provision for income taxes4.6 2.3 8.7 5.6 
Earnings (loss) from continuing operations27.7 5.6 57.6 (26.7)
Earnings from discontinued operations, net— — 0.2 3.7 
Net earnings (loss)$27.7 $5.6 $57.8 $(23.0)
Earnings (loss) per share from continuing operations:
Basic$0.30 $0.06 $0.62 $(0.29)
Diluted$0.29 $0.06 $0.61 $(0.29)
Earnings per share from discontinued operations:
Basic$— $— $0.01 $0.04 
Diluted$— $— $— $0.04 
Net earnings (loss) per share:
Basic$0.30 $0.06 $0.63 $(0.25)
Diluted$0.29 $0.06 $0.61 $(0.25)
Weighted-average common shares outstanding:
Basic92,189,329 91,688,765 92,315,146 91,707,702 
Diluted94,143,034 92,473,318 94,780,940 91,707,702 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Revenues$221.7
 $243.1
 $605.6
 $618.7
Cost of goods sold138.7
 148.2
 378.2
 382.7
Impairment charges0.3
 —
 1.7
 —
Restructuring charges - cost of goods sold0.2
 —
 3.9
 1.4
Gross profit82.5
 94.9
 221.8
 234.6
Research and development expenses23.9
 23.3
 76.8
 75.2
Selling and administrative expenses36.8
 43.0
 113.6
 131.3
Impairment charges—
 —
 19.9
 —
Restructuring charges0.9
 2.1
 4.4
 9.3
Operating expenses61.6
 68.4
 214.7
 215.8
Operating earnings20.9
 26.5
 7.1
 18.8
Interest expense, net5.1
 5.6
 15.4
 15.1
Other expense (income), net—
 —
 3.8
 (1.7)
Earnings (loss) before income taxes and discontinued operations15.8
 20.9
 (12.1) 5.4
Provision for income taxes0.4
 —
 7.5
 3.8
Earnings (loss) from continuing operations15.4
 20.9
 (19.6) 1.6
Earnings (loss) from discontinued operations, net0.3
 (28.5) 2.4
 (63.2)
Net earnings (loss)$15.7
 $(7.6) $(17.2)
$(61.6)
        
Earnings (loss) per share from continuing operations:       
Basic$0.17
 $0.24
 $(0.22)
$0.02
Diluted$0.17
 $0.24
 $(0.22) $0.02
        
Earnings (loss) per share from discontinued operations:       
Basic$0.01
 $(0.32) $0.03
 $(0.71)
Diluted$—
 $(0.32) $0.03
 $(0.71)
        
Net earnings (loss) per share:       
Basic$0.18
 $(0.08) $(0.19) $(0.69)
Diluted$0.17
 $(0.08) $(0.19) $(0.69)
        
Weighted-average common shares outstanding:       
Basic89,469,996
 88,720,888
 89,270,103

88,637,001
Diluted90,373,112
 89,317,806
 89,270,103

88,997,050


See accompanying Notes to Consolidated Financial Statements

1
Table of Contents



KNOWLES CORPORATION 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in millions)
(unaudited)

 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net earnings (loss)$27.7 $5.6 $57.8 $(23.0)
Other comprehensive (loss) earnings, net of tax
Foreign currency translation(3.7)9.2 (6.4)5.1 
Employee benefit plans:
Amortization or settlement of actuarial losses and prior service costs0.1 0.3 0.7 0.5 
Net change in employee benefit plans0.1 0.3 0.7 0.5 
Changes in fair value of cash flow hedges:
Unrealized net (losses) gains arising during period(0.2)1.4 (0.5)0.5 
Net losses (gains) reclassified into earnings0.1 (0.5)(1.4)(0.1)
Total cash flow hedges(0.1)0.9 (1.9)0.4 
Other comprehensive (loss) earnings, net of tax(3.7)10.4 (7.6)6.0 
Comprehensive earnings (loss)$24.0 $16.0 $50.2 $(17.0)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net earnings (loss)$15.7
 $(7.6) $(17.2) $(61.6)
        
Other comprehensive earnings, net of tax       
        
Foreign currency translation4.9
 27.2
 25.0
 37.1
        
Changes in fair value of cash flow hedges:       
Unrealized net gains (losses) arising during period0.8
 (0.2) 2.4
 (0.3)
Net (gains) losses reclassified into earnings(0.4) 0.1
 1.3
 (0.1)
Total cash flow hedges0.4
 (0.1) 3.7
 (0.4)
        
Other comprehensive earnings, net of tax5.3
 27.1
 28.7
 36.7
        
Comprehensive earnings (loss)$21.0
 $19.5
 $11.5
 $(24.9)


See accompanying Notes to Consolidated Financial Statements



2
Table of Contents



KNOWLES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
(unaudited)

 September 30, 2021December 31, 2020
Current assets:  
Cash and cash equivalents$140.0 $147.8 
Receivables, net of allowances of $1.4 and $1.6129.8 131.4 
Inventories, net155.7 130.1 
Prepaid and other current assets9.9 10.3 
Total current assets435.4 419.6 
Property, plant, and equipment, net190.6 191.5 
Goodwill941.3 910.0 
Intangible assets, net101.7 78.7 
Operating lease right-of-use assets17.0 23.3 
Other assets and deferred charges37.2 31.8 
Total assets$1,723.2 $1,654.9 
Current liabilities:  
Current maturities of long-term debt$171.8 $165.1 
Accounts payable72.9 70.3 
Accrued compensation and employee benefits36.8 30.4 
Operating lease liabilities10.9 10.2 
Other accrued expenses20.7 18.6 
Federal and other taxes on income0.4 2.7 
Total current liabilities313.5 297.3 
Deferred income taxes2.0 2.0 
Long-term operating lease liabilities15.8 18.7 
Other liabilities25.8 32.8 
Liabilities of discontinued operations— 0.6 
Commitments and contingencies (Note 15)00
Stockholders' equity:
Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issued— — 
Common stock - $0.01 par value; 400,000,000 shares authorized; 94,415,186 and 92,325,699 shares issued and outstanding at September 30, 2021, respectively, and 92,689,912 and 91,611,549 shares issued and outstanding at December 31, 2020, respectively0.9 0.9 
Treasury stock - at cost; 2,089,487 and 1,078,363 shares at September 30, 2021 and December 31, 2020, respectively(36.2)(16.2)
Additional paid-in capital1,620.2 1,587.8 
Accumulated deficit(110.7)(168.5)
Accumulated other comprehensive loss(108.1)(100.5)
Total stockholders' equity1,366.1 1,303.5 
Total liabilities and stockholders' equity$1,723.2 $1,654.9 
 September 30, 2017 December 31, 2016
    
Current assets:   
Cash and cash equivalents$57.7
 $66.2
Receivables, net of allowances of $0.8 and $1.7152.4
 145.1
Inventories, net148.3
 108.2
Prepaid and other current assets12.7
 10.6
Total current assets371.1
 330.1
Property, plant, and equipment, net193.8
 186.2
Goodwill907.7
 894.6
Intangible assets, net57.5
 77.4
Other assets and deferred charges23.8
 25.8
Assets of discontinued operations—
 0.9
Total assets$1,553.9
 $1,515.0
    
Current liabilities: 
  
Current maturities of long-term debt$13.3
 $9.7
Accounts payable75.3
 71.8
Accrued compensation and employee benefits30.3
 34.7
Other accrued expenses31.8
 26.0
Federal and other taxes on income4.7
 6.8
Total current liabilities155.4
 149.0
Long-term debt297.9
 288.5
Deferred income taxes22.3
 21.7
Other liabilities41.4
 41.4
Liabilities of discontinued operations—
 6.0
Commitments and contingencies (Note 14)

 

Stockholders' equity:   
Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issued—
 —
Common stock - $0.01 par value; 400,000,000 shares authorized; 89,467,773 and 88,737,284 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively0.9
 0.9
Additional paid-in capital1,516.8
 1,499.8
Accumulated deficit(377.4) (360.2)
Accumulated other comprehensive loss(103.4) (132.1)
Total stockholders' equity1,036.9
 1,008.4
Total liabilities and stockholders' equity$1,553.9
 $1,515.0


See accompanying Notes to Consolidated Financial Statements




3
Table of Contents



KNOWLES CORPORATION
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)

 Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at June 30, 2021$0.9 $(36.2)$1,610.2 $(138.4)$(104.4)$1,332.1 
Net earnings— — — 27.7 — 27.7 
Other comprehensive loss, net of tax— — — — (3.7)(3.7)
Stock-based compensation expense— — 7.1 — — 7.1 
Common stock issued for exercise of stock options— — 3.9 — — 3.9 
Tax on restricted and performance stock unit vesting— — (1.0)— — (1.0)
Balance at September 30, 2021$0.9 $(36.2)$1,620.2 $(110.7)$(108.1)$1,366.1 
 Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at June 30, 2020$0.9 $(15.0)$1,578.0 $(203.7)$(116.4)$1,243.8 
Net earnings— — — 5.6 — 5.6 
Other comprehensive earnings, net of tax— — — — 10.4 10.4 
Stock-based compensation expense— — 4.8 — — 4.8 
Common stock issued for exercise of stock options— — 0.1 — — 0.1 
Tax on restricted and performance stock unit vesting— — (0.1)— — (0.1)
Balance at September 30, 2020$0.9 $(15.0)$1,582.8 $(198.1)$(106.0)$1,264.6 
 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity
Balance at December 31, 2016$0.9
 $1,499.8
 $(360.2) $(132.1) $1,008.4
Net loss—
 —
 (17.2) —
 (17.2)
Other comprehensive earnings, net of tax—
 —
 —
 28.7
 28.7
Stock-based compensation expense—
 18.6
 —
 —
 18.6
Common stock issued for exercise of stock options—
 3.3
 —
 —
 3.3
Tax on restricted stock unit vesting—
 (4.9) —
 —
 (4.9)
Balance at September 30, 2017$0.9
 $1,516.8
 $(377.4) $(103.4) $1,036.9

See accompanying Notes to Consolidated Financial Statements




















4
Table of Contents





KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
 Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at December 31, 2020$0.9 $(16.2)$1,587.8 $(168.5)$(100.5)$1,303.5 
Net earnings— — — 57.8 — 57.8 
Other comprehensive loss, net of tax— — — — (7.6)(7.6)
Repurchase of common stock— (20.0)— — — (20.0)
Stock-based compensation expense— — 25.6 — — 25.6 
Common stock issued for exercise of stock options— — 14.4 — — 14.4 
Tax on restricted and performance stock unit vesting— — (7.6)— — (7.6)
Balance at September 30, 2021$0.9 $(36.2)$1,620.2 $(110.7)$(108.1)$1,366.1 
 Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance at December 31, 2019$0.9 $— $1,574.7 $(175.1)$(112.0)$1,288.5 
Net loss— — — (23.0)— (23.0)
Other comprehensive earnings, net of tax— — — — 6.0 6.0 
Repurchase of common stock— (15.0)— — — (15.0)
Stock-based compensation expense— — 12.4 — — 12.4 
Common stock issued for exercise of stock options and other— — 1.8 — — 1.8 
Tax on restricted and performance stock unit vesting— — (6.1)— — (6.1)
Balance at September 30, 2020$0.9 $(15.0)$1,582.8 $(198.1)$(106.0)$1,264.6 

See accompanying Notes to Consolidated Financial Statements

5
Table of Contents

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 Nine Months Ended September 30,
20212020
Operating Activities  
Net earnings (loss)$57.8 $(23.0)
Adjustments to reconcile net earnings (loss) to cash from operating activities:
Depreciation and amortization46.6 45.7 
Stock-based compensation25.6 12.4 
Non-cash interest expense and amortization of debt issuance costs7.1 6.6 
Impairment charges4.0 7.6 
Write-off of fixed assets— 1.7 
(Gain) loss on disposal of fixed assets(0.2)0.2 
Deferred income taxes(1.5)(2.6)
Other, net(2.5)1.4 
Changes in assets and liabilities (excluding effects of foreign exchange):
Receivables, net4.6 34.6 
Inventories, net(24.0)(16.3)
Prepaid and other current assets(1.4)(1.5)
Accounts payable1.4 (17.2)
Accrued compensation and employee benefits5.9 (5.3)
Other accrued expenses2.4 8.0 
Accrued taxes(3.0)— 
Other non-current assets and non-current liabilities(6.2)0.3 
Net cash provided by operating activities116.6 52.6 
Investing Activities  
Acquisitions of business (net of cash acquired)(78.5)— 
Additions to property, plant, and equipment(28.2)(20.4)
Purchase of investments(3.5)— 
Proceeds from the sale of investments0.4 — 
Proceeds from the sale of property, plant, and equipment0.4 0.1 
Net cash used in investing activities(109.4)(20.3)
Financing Activities  
Payments under revolving credit facility— (50.0)
Borrowings under revolving credit facility— 100.0 
Repurchase of common stock(20.0)(15.0)
Tax on restricted and performance stock unit vesting(7.6)(6.1)
Payments of finance lease obligations(1.7)(1.4)
Payments of debt issuance costs— (0.9)
Proceeds from exercise of stock-based awards14.4 1.6 
Net cash (used in) provided by financing activities(14.9)28.2 
Effect of exchange rate changes on cash and cash equivalents(0.1)0.2 
Net (decrease) increase in cash and cash equivalents(7.8)60.7 
Cash and cash equivalents at beginning of period147.8 78.4 
Cash and cash equivalents at end of period$140.0 $139.1 
Supplemental information - cash paid for:
Income taxes$12.3 $9.5 
Interest$4.0 $5.0 
 Nine Months Ended September 30,
 2017 2016
Operating Activities   
Net loss$(17.2) $(61.6)
Adjustments to reconcile net loss to cash from operating activities:   
Depreciation and amortization44.4
 57.8
Loss on sale of business—
 25.6
Impairment of intangibles16.2
 —
Stock-based compensation18.6
 16.4
Impairment charges on fixed and other assets5.4
 —
Non-cash interest expense and amortization of debt issuance costs5.5
 3.9
Deferred income taxes(0.6) (1.4)
(Gain) loss on disposal of fixed assets(0.2) 1.3
Other, net5.5
 3.6
Cash effect of changes in assets and liabilities (excluding effects of foreign exchange):   
Receivables, net(4.1) 30.1
Inventories, net(35.8) 8.0
Prepaid and other current assets(0.8) (2.2)
Accounts payable(4.4) (31.8)
Accrued compensation and employee benefits(5.4) (5.0)
Other accrued expenses5.2
 (7.8)
Accrued and deferred taxes, net(3.9) 3.8
Other non-current assets and non-current liabilities2.7
 (2.9)
Net cash provided by operating activities31.1
 37.8
    
Investing Activities 
  
Proceeds from the sale of business—
 40.6
Proceeds from the sale of investment—
 2.0
Proceeds from the sale of property, plant, and equipment0.5
 2.0
Acquisition of business (net of cash acquired)(2.5) —
Additions to property, plant, and equipment(43.4) (31.0)
Net cash (used in) provided by investing activities(45.4) 13.6
    
Financing Activities 
  
Payments under revolving credit facility—
 (77.0)
Borrowings under revolving credit facility15.0
 32.0
Principal payments on term loan debt(7.2) (166.5)
Proceeds from issuance of convertible senior notes—
 172.5
Proceeds from issuance of warrants—
 39.1
Purchase of convertible note hedges—
 (44.5)
Debt issuance costs—
 (6.7)
Proceeds from exercise of stock-based awards3.3
 —
Payments of capital lease obligations(1.2) (1.9)
Payment of taxes related to net share settlement of equity awards(4.9) (1.5)
Net cash provided by (used in) financing activities5.0
 (54.5)
    
Effect of exchange rate changes on cash and cash equivalents0.8
 (0.2)
    
Net decrease in cash and cash equivalents(8.5) (3.3)
Cash and cash equivalents at beginning of period66.2
 63.3
Cash and cash equivalents at end of period$57.7
 $60.0


See accompanying Notes to Consolidated Financial Statements

6
5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Basis of Presentation


Description of Business - Knowles Corporation (NYSE:KN) is a market leader and global supplierprovider of advanced micro-acoustic microphones and speakers, audio processing, and precision device solutions, serving the mobile consumer electronics, communications, medical, military, aerospace,medtech, defense, electric vehicle, and industrial markets. KnowlesThe Company uses its leading position in MEMS (micro-electro-mechanical systems)SiSonicTM micro-electro-mechanical systems ("MEMS") microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience in smartphones, tablets,mobile, ear, and wearables.Internet of Things ("IoT") applications. Knowles is also thea leader in acousticsacoustic components, used in hearing aidshigh-end capacitors, and hasradio frequency ("RF") solutions for a strong position in high-end oscillators (timing devices) and capacitors.diverse set of markets. The Company's focus on itsthe customer, combined with its unique technology, proprietary manufacturing techniques, rigorous testing, and global scale, enablesenable the Company to deliver innovative solutions that optimize the user experience. References to “Knowles,” “the"Knowles," "the Company,” “we,” “our,”" "we," "our," and “us”"us" refer to Knowles Corporation and its consolidated subsidiaries.


Financial Statement Presentation - The accompanying unaudited interim Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“GAAP” or “U.S. GAAP”) for complete financial statements. These unaudited interim Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 20162020 included in the Company’s Annual Report on Form 10-K.


The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. Management uses historical experience and all available information to make these estimates, including considerations for the impact of the COVID-19 pandemic on the macroeconomic environment. The situation related to the COVID-19 pandemic continues to be complex and rapidly evolving. The Company cannot reasonably estimate the duration of the COVID-19 pandemic or fully ascertain its impact on the Company’s future results and market capitalization, which could adversely impact estimates such as the recoverability of goodwill and long-lived assets and the realizability of deferred tax assets. The unaudited interim Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods.

On May 3, 2021, the Company acquired all of the outstanding shares of common stock of Integrated Microwave Corporation ("IMC"), a manufacturer of RF filters. See Note 4. Acquisition for additional information related to the transaction.

On February 24, 2020, the Company announced that its Board of Directors had authorized a share repurchase program of up to $100 million of the Company's common stock. The timing and amount of any shares repurchased will be determined by the Company based on its evaluation of market conditions and other factors, and will be made in accordance with applicable securities laws in either the open market or in privately negotiated transactions. The Company is not obligated to purchase any shares under the program, and the program may be suspended or discontinued at any time. The actual timing, number, and share price of shares repurchased will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal requirements. Any shares repurchased will be held as treasury stock. During the first quarter of 2017,nine months ended September 30, 2021, the Company recordedrepurchased 1,011,124 shares of common stock for a correcting entrytotal of $1.1 million related to inventory reserves and incentive compensation accruals. These items, which decreased earnings (loss) before income taxes and discontinued operations, are not material to the Consolidated Financial Statements for any impacted period.$20.0 million.


During the first quarter of 2017, the Company adopted the Accounting Standard Update (“ASU”) 2016-16 issued in October 2016. The ASU requires the Company to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted this standard utilizing the modified retrospective approach and recognized the cumulative effect of the change, which resulted in the Company increasing the beginning balance of the Accumulated deficit line item by $0.1 million on the Consolidated Balance Sheet. In addition, Other assets and deferred charges decreased by $0.1 million as a result of this adoption. Refer to Note 16. Recent Accounting Standards for additional details.

In January 2017, the Company changed its allocation of resources and its internal reporting structure to facilitate delivering growth in its core business. Given these changes, beginning in January 2017, the Company's two reportable segments are as follows:

Audio Segment
Our Audio group designs and manufactures innovative audio products, including acoustics like microphones and balanced armature speakers, signal processing technologies, and software and algorithms used in applications that serve the mobile, ear, and Internet of Things (IoT) markets. Its transducer products are used principally in hearing aid applications within the commercial audiology market. Locations include the corporate office in Itasca, Illinois; sales, support, and engineering facilities in North America, Europe, and Asia; and manufacturing facilities in Asia.

Precision Devices ("PD") Segment
Our PD group specializes in the design and manufacture of specialized electronic components used in medical and life science applications, as well as high-performance solutions and components used in communications infrastructure and a wide variety of other markets. Its oscillator products predominantly serve the telecom infrastructure market and its capacitor products are used in applications including radio, radar, satellite, power supplies, transceivers, and medical implants serving the defense, aerospace, telecommunication, and life sciences markets. Locations include the corporate office in Itasca, Illinois; and sales, support, engineering, and manufacturing facilities in North America, Europe, and Asia.

Financial reporting under this new structure is included within this report on Form 10-Q and historical financial segment information has been recast to conform to this new presentation within our financial statements.

6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


On January 11, 2017, the Company completed an acquisition of certain assets of a capacitors manufacturer for cash consideration of $4.0 million, of which $2.5 million was paid during the first quarter of 2017, with the remaining $1.5 million to be paid in quarterly installments from 2018 through the first quarter of 2019, less any purchase price adjustments. This acquisition's operations are included in the PD segment. The financial results of this acquisition were included in our Consolidated Financial Statements beginning January 11, 2017.

As discussed in Note 2. Disposed and Discontinued Operations, the Company completed its sale of the speaker and receiver product line on July 7, 2016 ("Speaker and Receiver Product Line"). In accordance with Accounting Standards Codification ("ASC") 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations and related assets and liabilities for the Speaker and Receiver Product Line have been reclassified as discontinued operations for all periods presented.

Non-cash Investing Activities - Purchases of property, plant, and equipment included in accounts payable at September 30, 20172021 and 20162020 were $3.6 million and $3.8$1.9 million, respectively. These non-cash amounts are not reflected as outflows to Additions"Additions to property, plant, and equipmentequipment" within investing activities"Investing Activities" of the Consolidated Statements of Cash Flows for the respective periods.


7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Recent Accounting Standards

Recently Issued Accounting Standards

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06 to simplify the accounting for certain financial instruments with characteristics of liabilities and equity. The standard eliminates certain accounting models that separated embedded conversion features from host contracts for convertible instruments, requiring bifurcation only if the convertible feature qualifies as a derivative under Accounting Standards Codification ("ASC") 815 or for convertible instruments issued at a substantial premium. In addition, the guidance requires the if-converted method of calculating diluted earnings per share for convertible instruments, which eliminates the use of the treasury stock method for instruments that may be settled in cash or shares. The standard is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The standard can be adopted on a modified retrospective basis to transactions outstanding as of the adoption date or on a fully retrospective basis to all periods presented. The Company plans to adopt the standard using the modified retrospective method on January 1, 2022. The Company does not expect the standard to impact the Consolidated Financial Statements as all currently outstanding convertible instruments will mature prior to the adoption date. See Note 10. Borrowings for detail on the Company's outstanding convertible instruments.

3. Disposed and Discontinued Operations


Management and the Board of Directors periodically conduct strategic reviews of its businesses periodically. the Company's businesses.

On February 11, 2016,November 28, 2017, the Company announcedcompleted the sale of its intention to sellhigh-end oscillators business (“Timing Device Business”), part of the Speaker and Receiver Product Line, and asPrecision Devices (“PD”) segment, for $130.0 million, plus purchase price adjustments for a result, reclassified the Speaker and Receiver Product Line within the Audio segment to discontinued operations in the first quarternet amount of 2016.$135.1 million. On July 7, 2016, the Company completed the sale of its speaker and receiver product line (“Speaker and Receiver Product LineLine”) for $45.0 million in cash, less purchase price adjustments for a net amount received of $40.6 million. The Company recorded a loss

In accordance with ASC 205-20, Presentation of $25.6 million as a resultFinancial Statements – Discontinued Operations, the results of operations and financial positions of the sale, which included $26.9 million of loss amounts reclassified from Accumulated other comprehensive loss into earnings related to currency translation adjustments. The results of discontinued operations for the threeTiming Device Business and nine months ended September 30, 2017 and 2016 reflect the net earnings (loss) of the Speaker and Receiver Product Line.Line have been reclassified to discontinued operations for all periods presented as these disposals represent strategic shifts that had a major effect on the Company's results of operations.


Summarized results of the Company's discontinued operations are as follows:
Nine Months Ended
(in millions)September 30, 2021September 30, 2020
Revenues$— $— 
Operating income— — 
Earnings from discontinued operations before taxes
— — 
Benefit from income taxes (1)
(0.2)(3.7)
Earnings from discontinued operations, net of tax$0.2 $3.7 
(1) The Company recorded a tax benefit for a refund received during the first quarter of 2020 related to the Timing Device Business.
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2017 2016 2017 2016
Revenues$—
 $5.5
 $—
 $50.6
Cost of goods sold(0.5) 8.6
 (0.6) 64.3
Restructuring charges - cost of goods sold—
 0.1
 —
 9.4
Gross profit (loss)0.5
 (3.2) 0.6
 (23.1)
Research and development expenses—
 0.2
 —
 6.9
Selling and administrative expenses0.1
 (1.5) (0.4) 6.6
Restructuring charges—
 —
 —
 1.8
Operating expenses (income)0.1
 (1.3) (0.4) 15.3
       
Loss on sale of business—
 25.6
 —
 25.6
        
Earnings (loss) from discontinued operations before taxes0.4
 (27.5) 1.0
 (64.0)
Provision for (benefit from) income taxes0.1
 1.0
 (1.4) (0.8)
Earnings (loss) from discontinued operations, net of tax$0.3
 $(28.5) $2.4
 $(63.2)


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Assets and liabilities of discontinued operations are summarized below:
(in millions)December 31, 2020
Liabilities of discontinued operations:
Other liabilities (1)
$0.6 
Total liabilities$0.6 
(in millions)September 30, 2017 December 31, 2016
Assets of Discontinued Operations:   
Accounts receivable$—
 $0.6
Prepaid and other current assets—
 0.3
Total current assets—
 0.9
Total assets$—
 $0.9
    
Liabilities of Discontinued Operations:   
Accounts payable$—
 $2.8
Other current liabilities—
 3.2
Total current liabilities—
 6.0
Total liabilities$—
 $6.0

The following table presents the depreciation and purchases of property, plant, and equipment of discontinued operations(1) This accrual was attributable to an unrecognized tax benefit related to the Speaker and Receiver Product Line:Line.

 Nine Months Ended September 30,
(in millions)2017 2016
Depreciation$—
 $0.8
Additions to property, plant, and equipment$—
 $2.5

There wasDiscontinued operations had no amortization related toimpact on the Speaker and Receiver Product LineCompany's results of operations for the ninethree months ended September 30, 20172021 and 2016.2020. There were no additionsassets and liabilities of discontinued operations as of September 30, 2021.


8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

4. Acquisition

On May 3, 2021, the Company acquired all of the outstanding shares of common stock of IMC for $80.7 million. The acquired business provides RF filters to property, plant,the defense, industrial, and equipmentcommunications markets. The transaction was accounted for under the acquisition method of accounting and the results of operations are included in accounts payable atthe Consolidated Financial Statements from the date of acquisition in the PD segment. Included in the Consolidated Statements of Earnings are IMC’s revenues and loss before income taxes of $7.0 million and $0.2 million, respectively, from the date of acquisition through September 30, 20172021.

The table below represents a preliminary allocation of the purchase price to net assets acquired as of May 3, 2021:
(in millions)
Cash$2.2 
Receivables3.0 
Inventories2.6 
Property, plant, and equipment8.3 
Customer relationships27.7 
Developed technology5.2 
Trademarks and other amortized intangible assets1.6 
Goodwill31.3 
Assumed current liabilities(1.2)
Total purchase price$80.7 

The preceding purchase price allocation is subject to change as additional information about the fair values of assets and 2016.liabilities becomes available. Any change in the acquisition date fair value of the acquired net assets will change the amount of the purchase price allocated to goodwill. The Company expects to finalize the purchase price allocation as soon as practicable, but not later than one year from the acquisition date.


The fair value for customer relationships was determined using the multi-period excess earnings method under the income approach. This method reflects the present value of expected future cash flows less charges representing the contribution of other assets to those cash flows. The fair value for developed technology was determined using the relief from royalty method under the income approach. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of customer relationships and developed technology include forecasted revenue growth rates, profit margins, customer attrition rates, royalty rates, and discount rates. Discount rates of 13.0% and 14.0% were applied to the expected future cash flows to reflect the risk related to customer relationships and developed technology, respectively.Customer relationships and developed technology will be amortized on a straight-line basis over estimated useful lives of 8 years and 10 years, respectively.
3.
The excess of the total purchase price over the total fair value of the identifiable assets and liabilities was recorded as goodwill. The goodwill recognized is primarily attributable to synergies and the assembled workforce. All of the goodwill resulting from this acquisition is tax deductible. Goodwill has been allocated to the PD segment, which is the segment expected to benefit from the acquisition.

The Company believes the fair values assigned to intangible assets are based on reasonable assumptions and estimates that approximate the amounts a market participant would pay for these intangible assets as of the acquisition date. Actual results could differ materially from these estimates.

Pro-forma financial information has not been provided as the acquisition did not have a material impact on the Consolidated Statements of Earnings.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Impairments


The Company evaluates long-lived assets for recoverabilityimpairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. DuringThe Company vacated its leased facility in Mountain View, California during the secondthird quarter of 2017, an updated strategic plan2020, resulting in its classification as a separate asset group. This facility was completed forpreviously used by the Intelligent Audio segment product lines. The updated strategic plan identified a decline of future demand for a specific product line, which indicated projected future cash flows may not be sufficient to recoveris included within the Audio segment. Based on an assessment of market conditions, in particular the impact of the COVID-19 pandemic, the Company determined that the carrying valueamount of the associated unpatented technologies and property, plant, and equipment assets. The utilization ofasset group was not recoverable through undiscounted future cash flows, was used to determine recoverability of the long-lived assets.which included estimated sublease proceeds. The fair value of the intangiblesoperating lease right-of-use asset was determined through the useby an estimate of discounted future cash flows that included estimated sublease proceeds and the determination of an appropriate discount rate based on market participant assumptions. The fair value measurements of fixedoperating lease right-of-use assets was determined using their liquidation value. As a resultare based on significant unobservable inputs, and thus represent Level 3 inputs. Based on the excess of this analysis,the carrying amount of the asset group over its fair value, the Company concluded that the fair valuesrecorded an impairment loss of these long-lived assets were less than their respective carrying values as of June 30, 2017. The Company recorded total impairment charges of $21.3$5.4 million of which $5.1 million is related to fixed assets and $16.2 million is related to intangible assets. The Company recorded $1.4 million of the charges within Impairment charges in Gross profit andOperating expenses during the three months ended September 30, 2020. During the three months ended September 30, 2021, the Company determined that the remaining carrying amount of the asset group was not recoverable through undiscounted future cash flows, which included estimated sublease proceeds, due to the prolonged impact of the COVID-19 pandemic on market conditions. Based on the excess of the carrying amount of the asset group over its fair value, the Company recorded $19.9an impairment loss of $3.2 million within the Impairment charges line item in Operating expenses during the three months ended September 30, 2021.

The Company entered into an operating lease for a research and development facility in Santa Clara, California during the first quarter of 2020 that did not commence until the second quarter of 2021. During the three months ended September 30, 2020, the Company determined a loss was probable and reasonably estimable under ASC 450, Contingencies, based on its plan to sublet a significant portion of the facility due to the restructuring of the Intelligent Audio product line and the negative impact of the COVID-19 pandemic on market conditions. The estimated loss was determined by comparing the estimated carrying amount of the operating lease right-of-use asset to be recognized for the sublet portion of the facility upon lease commencement to an estimate of discounted future cash flows that included estimated sublease proceeds and the determination of an appropriate discount rate based on market participant assumptions. These measurements are based on significant unobservable inputs, and thus represent Level 3 inputs. The Company recorded an estimated loss of $2.2 million within Impairment charges in Operating expenses during the three months ended September 30, 2020. The corresponding estimated liability, which was recorded in Other liabilities on the Consolidated StatementsBalance Sheets as of Earnings.December 31, 2020, reduced the right-of-use asset upon lease commencement. The lease commenced during the second quarter of 2021, resulting in the recognition of operating lease liabilities of $4.0 million and right-of-use assets of $2.4 million. During the three months ended September 30, 2021, the Company determined that the remaining carrying amount of the operating lease right-of-use asset was not recoverable through undiscounted future cash flows, which included estimated sublease proceeds, due to the prolonged impact of the COVID-19 pandemic on market conditions. Based on the excess of the carrying amount of the operating lease right-of-use asset over its fair value, the Company recorded an impairment loss of $0.8 million within Impairment charges in Operating expenses during the three months ended September 30, 2021.



If actual results differ from estimated amounts, additional impairment charges may be recorded in the future.
8


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

4.6. Inventories, net


The following table details the major components of inventories, net:
(in millions)September 30, 2021December 31, 2020
Raw materials$87.6 $89.7 
Work in progress33.6 31.0 
Finished goods71.2 48.4 
Subtotal192.4 169.1 
Less reserves(36.7)(39.0)
Total$155.7 $130.1 

10
(in millions)September 30, 2017 December 31, 2016
Raw materials$73.7
 $64.1
Work in progress28.4
 18.0
Finished goods77.9
 60.9
Subtotal180.0
 143.0
Less reserves(31.7) (34.8)
Total$148.3
 $108.2


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5.7. Property, Plant, and Equipment, net


The following table details the major components of property, plant, and equipment, net:
(in millions)September 30, 2021December 31, 2020
Land$13.0 $8.0 
Buildings and improvements117.7 111.9 
Machinery, equipment, and other571.6 562.8 
Subtotal702.3 682.7 
Less accumulated depreciation(511.7)(491.2)
Total$190.6 $191.5 

(in millions)September 30, 2017 December 31, 2016
Land$9.1
 $9.2
Buildings and improvements121.9
 112.3
Machinery, equipment, and other512.4
 464.8
Subtotal643.4
 586.3
Less accumulated depreciation(449.6) (400.1)
Total$193.8
 $186.2

DuringDepreciation expense totaled $11.5 million and $11.9 million for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2017, the Company recorded $5.42021 and 2020, depreciation expense totaled $35.1 million in impairment charges on fixed assets. See Note 3. Impairments for more information.and $35.9 million, respectively.


6.8. Goodwill and Other Intangible Assets


The following table provides the changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2017:2021 are as follows:
 (in millions)AudioPrecision DevicesTotal
Balance at December 31, 2020$878.8 $31.2 $910.0 
Acquisition— 31.3 31.3 
Balance at September 30, 2021$878.8 $62.5 $941.3 

(in millions)Audio Precision Devices Total
Balance at December 31, 2016$708.7
 $185.9
 $894.6
Foreign currency translation13.3
 (0.2) 13.1
Balance at September 30, 2017$722.0
 $185.7
 $907.7


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The gross carrying value and accumulated amortization for each major class of intangible assets are as follows:
 September 30, 2017 December 31, 2016
(in millions)
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Amortized intangible assets:       
Trademarks$0.3
 $0.2
 $0.3
 $0.2
Patents42.9
 22.9
 42.9
 19.3
Customer relationships159.5
 154.3
 156.2
 152.8
Unpatented technologies66.6
 66.4
 92.2
 73.9
Other3.1
 3.1
 3.1
 3.1
Total272.4
 246.9
 294.7
 249.3
Unamortized intangible assets:       
Trademarks32.0
   32.0
  
Total intangible assets, net$57.5
   $77.4
  

As discussed in Note 1. Basis of Presentation, the Company
September 30, 2021December 31, 2020
(in millions)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Amortized intangible assets:
Trademarks$2.0 $0.5 $1.0 $0.4 
Patents40.8 39.6 40.8 36.1 
Customer relationships39.7 7.9 12.0 5.2 
Developed technology45.4 11.5 36.5 6.7 
Other2.4 1.1 1.8 0.7 
Total130.3 60.6 92.1 49.1 
Unamortized intangible assets:
Trademarks32.0 32.0 
IPR&D (1)
— 3.7 
Total32.0 35.7 
Total intangible assets, net$101.7 $78.7 
(1) The in-process research and development ("IPR&D") project was completed an acquisition of certain assets of a capacitors manufacturer on January 11, 2017, for cash consideration of $4.0 million. As a result of this acquisition, the Company acquired a customer list for $3.3 million during the nine months ended September 30, 2017, which is included in "Customer relationships" in the table above.third quarter of 2021. The Company is usingIPR&D asset has been reclassified as a five yeardefinite-lived intangible asset to be amortized on a straight-line basis over an estimated useful life to amortize the newly acquired customer list.of 9 years.


11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Amortization expense totaled $1.7$4.3 million and $5.6$3.3 million for the three months ended September 30, 20172021 and 2016,2020, respectively. For the nine months ended September 30, 20172021 and 2016,2020, amortization expense was $7.0$11.5 million and $16.8$9.8 million, respectively. Amortization expense for the next five years, based on current definite-lived intangible balances, is estimated to be as follows:

(in millions)
Q4 2021$4.4 
202212.2 
202311.6 
202411.6 
202511.2 

(in millions) 
Q4 2017$1.7
20186.9
20196.3
20205.3
20215.3

During the nine months ended September 30, 2017, the Company recorded a $16.2 million impairment charge on unpatented technologies intangible assets. See Note 3. Impairments for more information.

7.9. Restructuring and Related Activities


Restructuring and related activities are designed to better align the Company's operations with current market conditions through targeted facility consolidations, headcount reductions, and other measures to further optimize operations.


No restructuring charges were recorded within Gross profit for the three and nine months ended September 30, 2021. During the nine months ended September 30, 2021, the Company recorded restructuring charges within Operating expenses of $0.3 million. No restructuring charges were recorded within Operating expenses for the three months ended September 30, 2021.

During the nine months ended September 30, 2020, the Company restructured its Intelligent Audio product line, which is included within the Audio segment. These actions resulted in a reduction in workforce and the refocusing of certain research and development activities. During the nine months ended September 30, 2020, the Company recorded restructuring charges of $8.3 million related to these actions, including $5.4 million in severance pay and benefits, $1.7 million in fixed asset write-off costs, and $1.2 million in contract termination costs. No restructuring charges were recorded related to the Intelligent Audio product line during the three months ended September 30, 2020.

In addition, during the three and nine months ended September 30, 2020, the Company recorded restructuring charges of $0.1 million and $4.5 million, respectively, for severance pay and benefits primarily to rationalize the remaining Audio segment workforce as a direct result of the lower demand the Company experienced due to the COVID-19 pandemic.

During the nine months ended September 30, 2020, the Company recorded total restructuring charges within Gross profit of $2.3 million, primarily for fixed asset write-off costs and severance pay and benefits associated with the restructuring of the Intelligent Audio product line and other actions to rationalize the remaining Audio segment workforce. No restructuring charges were recorded within Gross profit for the three months ended September 30, 2020. During the three and nine months ended September 30, 2017,2020, the Company also recorded total restructuring charges of $0.2 million and $3.9 million within Cost of goods sold ("COGS") for actions primarily associated with transferring certain operations of hearing health manufacturing to a lower-cost Asian manufacturing facility. The transfer is expected to be substantially completed by the end of 2017. This was recorded as part of the Audio segment.

During the three and nine months ended September 30, 2017, the Company recorded restructuring charges of $0.9 million and $4.4 million within Operating expenses of $0.1 million and $10.5 million, respectively, primarily for actions associated with rationalizing the researchseverance pay and development workforce. During the three months ended September 30, 2017, charges of $0.5 million were recorded for the Corporate segmentbenefits and charges of $0.4 million were recorded for the Audio segment. During the nine months ended September 30, 2017, charges of $2.1 million were recorded for the Audio segment, charges of $2.0 million were recorded for the Corporate segment, and charges of $0.3 million were recorded for the PD segment.


10

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

During the three months ended September 30, 2016, the Company recorded restructuring charges of $2.1 million within operating expenses, primarily for actions associated with rationalizing the selling and administrative workforce.

During the nine months ended September 30, 2016, the Company recorded restructuring charges of $10.7 million, comprised primarily of the restructuring actionscontract termination costs associated with the integrationrestructuring of Audience, Inc. Thethe Intelligent Audio product line and other actions to rationalize the remaining charges primarily relate to actions associated with rationalizing the selling and administrative workforce and the residual expenses for the continued transfer of our capacitors business into lower-cost Asian manufacturing facilities. Total restructuring charges of $1.4 million were classified as COGS and $9.3 million were classified as Operating expenses.Audio segment workforce.


The following table details restructuring charges incurred by reportable segment for the periods presented:
 Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Audio$— $— $0.3 $11.0 
Precision Devices— 0.1 — 0.1 
Corporate— — — 1.7 
Total$— $0.1 $0.3 $12.8 

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2017 2016 2017 2016
Audio (1)
$0.6
 $1.0
 $6.0
 $7.1
Precision Devices—
 —
 0.3
 2.1
Corporate0.5
 1.1
 2.0
 1.5
Total$1.1
 $2.1
 $8.3
 $10.7

The following table details the Company’s severance and other restructuring accrual activity:
(in millions)Severance Pay and BenefitsContract Termination and Other CostsTotal
Balance at December 31, 2020$1.9 $0.7 $2.6 
Restructuring charges0.3 — 0.3 
Payments(1.7)(0.7)(2.4)
Balance at September 30, 2021$0.5 $— $0.5 
(in millions)Severance Pay and Benefits Contract Termination and Other Costs Total
Balance at December 31, 2016$3.4
 $0.4
 $3.8
Restructuring charges (1)
6.5
 1.8
 8.3
Payments(4.8) (1.8) (6.6)
Balance at September 30, 2017$5.1
 $0.4
 $5.5

(1) During the nine months ended September 30, 2017, the Company reversed $0.9 million of previously recorded restructuring charges in COGS due to subsequent developments that impacted the previously estimated amounts.

The severance and restructuring accruals are recorded in the following accountsline items on the Consolidated Balance Sheets:
(in millions)September 30, 2021December 31, 2020
Other accrued expenses$0.5 $2.4 
Other liabilities— 0.2 
Total$0.5 $2.6 

(in millions)September 30, 2017 December 31, 2016
Other accrued expenses$5.2
 $3.6
Other liabilities0.3
 0.2
Total$5.5
 $3.8

8. Hedging Transactions and Derivative Instruments

The Company is affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as "market risks." The Company uses derivatives as a risk management tool to mitigate the potential impact of certain market risks, which are primarily foreign currency risk and interest rate risk related to ongoing business operations.

Cash Flow Hedging

The Company uses cash flow hedges to minimize the variability in cash flows of assets, liabilities, or forecasted transactions caused by fluctuations in foreign currency exchange rates or market interest rates. These derivatives, which are designated cash flow hedges, are carried at fair value. The changes in their fair values are recorded to Accumulated Other Comprehensive Income (Loss) ("AOCI") and reclassified in current earnings when the hedge contract matures or becomes ineffective.


11

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

To manage its exposure to foreign currency exchange rates, the Company has entered into currency deliverable forward contracts. These derivative instruments allow the Company to hedge portions of its forecasted sales and purchases, which are expected to occur within the next twelve months and are denominated in non-functional currencies. The Company maintains a foreign currency cash flow hedging program to primarily reduce the risk that the net U.S. dollar cash inflows from non-U.S. dollar sales and non-U.S. dollar net cash outflows from procurement activities will be adversely affected by changes in foreign currency exchange rates. At September 30, 2017 and December 31, 2016, the notional value of the derivatives related to currency forward contracts, principally the Chinese yuan, Malaysian ringgit, and Philippine peso, was $26.5 million and $75.4 million, respectively.

To manage its exposure to market risk for changes in interest rates, the Company entered into an interest rate swap on November 12, 2014 to convert variable interest rate payments into a fixed rate on a notional amount of $100.0 million of debt for monthly interest payments that began in January 2016 and ends in July 2018. The Company designated the swap as a cash flow hedge with re-measurement gains and losses recorded through AOCI.

Economic (Non-Designated) Hedging

In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses certain derivatives as economic hedges of foreign currency risk. Although these derivatives were not designated and/or did not qualify for hedge accounting, they are effectively economic hedges. The changes in fair value of these economic hedges are immediately recognized in earnings.

The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in non-functional currencies. The Company does not enter into these hedges for speculative reasons. These derivatives are carried at fair value with changes in the fair value recorded in "Other expense (income), net" in our Consolidated Statements of Earnings. In addition, these derivative instruments minimize the impact of exchange rate movements on the Company’s balance sheet, as the gains or losses on these derivatives are intended to offset gains and losses from the reduction of the hedged assets and liabilities. At September 30, 2017, the notional value of the derivatives related to economic hedging was $25.2 million and the Company held no open positions related to economic hedges at December 31, 2016.

The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, or other financial indices. The Company does not view the fair values of its derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying hedged transactions or other exposures. Virtually all of our derivatives are straightforward over-the-counter instruments with liquid markets.

Fair Value Measurements

All derivatives are carried at fair value on the Company’s Consolidated Balance Sheets. ASC 820, Fair Value Measurement, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

Level 3 - Unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company determines the fair values of its derivatives based on standard valuation models or observable market inputs such as quoted market prices, foreign currency exchange rates, or interest rates and therefore, the Company classifies the derivatives within Level 2 of the valuation hierarchy.


12

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table sets forth the fair values of derivative instruments held by the Company at September 30, 2017 and December 31, 2016 and the balance sheet lines to which they are recorded (in millions):
Hedge TypeBalance Sheet Line ItemSeptember 30, 2017 December 31, 2016
Cash flow hedgesPrepaid and other current assets$0.8
 $—
Cash flow hedgesOther accrued expenses0.4
 3.6
Cash flow hedgesOther liabilities—
 0.2
Economic hedgesOther accrued expenses0.1
 —

Accounting for derivatives requires that derivative instruments be recognized as either assets or liabilities at fair value. However, accounting for the gains and losses resulting from changes in fair value depends upon the use of the derivative and whether it is considered designated and qualified for hedge accounting.

For non-designated foreign currency economic hedge derivative contracts, for which the Company does not apply hedge accounting, the changes in fair value of the derivative instrument are immediately recognized in earnings within Other expense (income), net.

For currency forward contracts and interest rate swaps, which are designated as cash flow hedge derivatives and for which the Company applies hedge accounting guidance, the fair value of the effective portion of these hedges is recorded within AOCI and reclassified and recognized in current earnings when the hedge contract matures or is determined to be ineffective. As a result, the Company has recorded gains of $0.5 million and losses of $3.2 million to AOCI on the Company’s Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, respectively.

For economic hedges, for which the Company does not apply hedge accounting, the following (gains) losses were recorded for the three and nine months ended September 30, 2017 and 2016:
(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Hedge TypeStatement of Earnings Line2017 2016 2017 2016
Economic hedgesOther expense (income), net$(0.5) $0.5
 $(1.4) $0.5

The following table presents the pre-tax impact of changes in the fair values of the designated derivatives, which qualify for hedge accounting during the three and nine months ended September 30, 2017 and 2016. Knowles reclassified these (gains) losses out of AOCI into Other expense (income), net as follows:
(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Hedge TypeStatement of Earnings Line2017 2016 2017 2016
Cash flow hedgesOther expense (income), net$(0.4) $0.1
 $1.3
 $(0.1)


13

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

9.10. Borrowings


Borrowings (net of debt issuance costs, debt discount, and amortization) consist of the following:
(in millions)September 30, 2021December 31, 2020
3.25% convertible senior notes$171.8 $165.1 
Revolving credit facility— — 
Total171.8 165.1 
Less current maturities171.8 165.1 
Total long-term debt$— $— 

(in millions)September 30, 2017 December 31, 2016
3.25% Convertible Senior Notes$140.2
 $135.1
Term loan and revolving credit facility171.0
 163.1
Total311.2
 298.2
Less: current maturities13.3
 9.7
Total long-term debt$297.9
 $288.5

On October 11, 2017, the Company entered into a Revolving Credit Facility Agreement. See Note 17. Subsequent Events for additional information.

Total debt principal payments over the next five years are as follows:
(in millions)Q4 20212022202320242025
Debt principal payments$172.5 $— $— $— $— 
(in millions)Q4 2017 2018 2019 2020 2021
Debt principal payments (1)
$3.6
 $14.4
 $153.3
 $—
 $172.5
(1) There are no required principal payments due under the 3.25% Convertible Senior Notes or the revolving credit facility until maturities in November 2021 and January 2019, respectively.


3.25% Convertible Senior Notes Due November 1, 2021


In May 2016, the Company issued $172.5 million aggregate principal amount of 3.25% convertible senior notes due November 1, 2021 ("the Notes"), unless earlier repurchased by the Company or converted pursuant to their terms. Interest is payable semiannually in arrears on May 1 and November 1 each year and commenced on November 1, 2016.


The Notes are governed by an Indenture (the "Indenture") between the Company, as issuer, and U.S. Bank National Association as trustee. Upon conversion, the Company will pay or deliver cash, shares of the Company's common stock, or a combination of cash and shares of common stock, at the Company's election. The Company has elected to settle the principal amount of the Notes in cash. If the conversion value exceeds the principal amount of the Notes, the Company will deliver shares of its common stock to settle the remainder of its obligation. The initial conversion rate is 54.2741 shares of common stock per $1,000 principal amount of Notes. The initial conversion price is $18.4250 per share of common stock. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company may be required, in certain circumstances, to increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change.


13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Prior to the close of business on the business day immediately preceding August 1, 2021, the Notes will bewere convertible only under the following circumstances:
=during any calendar quarter and only during such calendar quarters, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
=during the five business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or
=upon the occurrence of specified corporate events.


No event occurred that would have permitted conversion of the Notes prior to August 1, 2021. On or after August 1, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. AsNo conversion options have been exercised as of September 30, 2017, no event has occurred that would permit the conversion of the Notes.2021. The Notes are the Company’s senior unsecured obligations.


14

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the term of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.


In accounting for the transaction costs related to the Notes issuance, the Company allocated the total amount incurred to the liability and equity components based on their relative values. Issuance costs attributable to the liability component, totaling $5.0 million, are being amortized to interest expense over the term of the Notes, and issuance costs attributable to the equity component, totaling $1.3 million, were netted with the equity component in stockholders' equity. Additionally, the Company recorded a deferred tax asset of $0.5 million on a portion of the equity component transaction costs which are deductible for tax purposes and immediately recorded a valuation allowance against this deferred tax asset.


The Notes consist of the following:
(in millions)September 30, 2021December 31, 2020
Liability component:
Principal$172.5 $172.5 
Less debt issuance costs and debt discount, net of amortization(0.7)(7.4)
Total171.8 165.1 
Less current maturities (1)
171.8 165.1 
Long-term portion$— $— 
Equity component (2)
$29.9 $29.9 
(1) There are no required principal payments due until maturity in November 2021.
(in millions)September 30, 2017 December 31, 2016
Liability component:   
Principal$172.5
 $172.5
Less: debt issuance costs and debt discount, net of amortization(32.3) (37.4)
Total140.2
 135.1
Less: current maturities (1)
(0.9) (0.9)
Long-term portion$141.1
 $136.0
    
Equity component (2)
$29.9
 $29.9
(1) No short-term principal with $0.9 million of short-term debt issuance costs.
(2) Recorded in the Consolidated Balance Sheets within additional paid-in capital, inclusive of the $1.3 million of issuance costs in equity.


The total estimated fair value of the Notes at September 30, 20172021 was $194.7$186.4 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last trading day for the third quarter of 2017.2021.


14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table sets forth total interest expense recognized related to the Notes:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
3.25% coupon$1.4 $1.4 $4.2 $4.2 
Amortization of debt issuance costs0.2 0.2 0.7 0.7 
Amortization of debt discount2.1 1.9 6.0 5.5 
Total$3.7 $3.5 $10.9 $10.4 
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2017 2016 2017 2016
3.25% coupon$1.4
 $1.4
 $4.2
 $2.4
Amortization of debt issuance costs0.3
 0.3
 0.7
 0.4
Amortization of debt discount1.4
 1.4
 4.3
 2.3
Total$3.1
 $3.1
 $9.2
 $5.1


15

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note Hedges


To minimize the impact of potential economic dilution upon conversion of the Notes, the Company entered into convertible note hedge transactions (the “Note Hedges”) with respect to its common stock. In the second quarter of 2016, the Company paid an aggregate amount of $44.5 million for the Note Hedges. The Note Hedges will expire upon maturity of the Notes. The Note Hedges are intended to offset the potential dilution upon conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount upon conversion of the Notes in the event that the market value per share of the Company's common stock, as measured under the Note Hedges, is greater than the strike price of the Note Hedges, which initially corresponds to the initial conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes. The Note Hedges are separate transactions entered into by the Company, and are not part of the Notes or the Warrants, and have been accounted for as part of additional paid-in capital. Holders of the Notes do not have any rights with respect to the Note Hedges.


Warrants


In addition to the Note Hedges, in the second quarter of 2016, the Company entered into warrant transactions, whereby the Company sold warrants to acquire shares of the Company's common stock at a strike price of $21.1050 per share (the “Warrants”). The Company received aggregate proceeds of $39.1 million from the sale of the Warrants. The Warrants expire during the first quarter of 2022. If the market price per share of the Company's common stock for the reporting period, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants could have a dilutive effect on the Company's common stock, unless the Company elects, subject to certain conditions, to settle the Warrants in cash.stock. The Warrants are separate transactions entered into by the Company, and are not part of the Notes or the Note Hedges, and have been accounted for as part of additional paid-in capital. Holders of the Notes and Note Hedges do not have any rights with respect to the Warrants.


Term Loan and Revolving Credit Facility


Term loan andThere were no revolving credit facility borrowings consistoutstanding as of September 30, 2021 and December 31, 2020.

On September 4, 2020, the following:
(in millions)September 30, 2017 December 31, 2016
Term loan due January 2019$111.3
 $118.5
$300.0 million revolving credit facility due January 201960.0
 45.0
Less: debt issuance costs, net of amortization(0.3) (0.4)
Total171.0
 163.1
Less: current maturities(1)
14.2
 10.6
Long-term portion$156.8
 $152.5
(1) Inclusive of $0.2 million of short-term debt issuance costs.

Company entered into a new Credit Agreement (the "New Credit Agreement"). The $300.0 million five-yearNew Credit Agreement provides for a senior secured revolving credit facility (the "New Credit Facility") with borrowings in an aggregate principal amount at any time outstanding not to exceed $400.0 million. The New Credit Agreement serves as wellrefinancing of indebtedness and terminates the Company's Revolving Credit Facility Agreement dated as of October 11, 2017 ("Prior Credit Facility"). The Prior Credit Facility consisted of a five-year$400.0 million senior secured term loan facility, which are referredrevolving credit facility.

Commitments under the New Credit Facility will terminate, and loans outstanding thereunder will mature, on January 2, 2024; provided, that if all the Notes have not been repaid, refinanced, and/or converted to collectivelycommon stock of the Company by August 2, 2021 (the "Springing Maturity Test Date"), then the commitments under the New Credit Facility will terminate, and the loans outstanding thereunder will mature, on such earlier date unless, from and after the Springing Maturity Test Date and for so long as the "Credit Facilities,"Notes have not been repaid, refinanced, and/or converted to common stock of the Company, the Company does not permit liquidity (as defined in the New Credit Agreement) for any period of three consecutive business days to be less than $150.0 million. The Company maintained the required liquidity from August 2, 2021 through September 30, 2021.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The New Credit Agreement includes requirements, to be tested quarterly, that the Company maintains (i) a minimum ratio of Consolidated EBITDA to consolidated interest expense of 3.25 to 1.0 (the "Interest Coverage Ratio"), (ii) a maximum ratio of consolidatedConsolidated total indebtedness to Consolidated EBITDA of 3.75 to 1.0 (the "Leverage"Total Leverage Ratio"), and (iii) a maximum ratio of senior secured indebtedness to Consolidated EBITDA of 3.25 to 1.0 (the "Senior Secured Leverage Ratio"). For these ratios, Consolidated EBITDA and consolidated interest expense are calculated using the most recent four consecutive fiscal quarters in a manner defined in the credit agreement governing theNew Credit Facilities.Agreement. At September 30, 2017,2021, the Company was in compliance with these covenants and it expects to remain in compliance with all of its debt covenants over the next twelve months.


The interest rates under the New Credit Facility will be, at the Borrowers' option (1) LIBOR (or, in the case of borrowings under the New Credit Facility denominated in Euro, EURIBOR) plus the rates per annum determined from time to time based on the total leverage ratio of the Company as of the end of and for the most recent period of four fiscal quarters for which financial statements have been delivered (the "Applicable Margin"); or (2) in the case of borrowings denominated in U.S. dollars, alternate base rate ("ABR") (as defined in the New Credit Agreement) plus the Applicable Margin. The Applicable Margin for LIBOR could range from 1.50% to 2.50% while the Applicable Margin for ABR could range from 0.50% to 1.50%. Prior to the discontinuation of the relevant LIBOR reference rate on June 30, 2023, the Company and its lenders will agree on an ABR to address the replacement of LIBOR for the remaining life of the New Credit Facility.

The interest rate under the New Credit FacilitiesFacility is variable based on LIBOR at the time of the borrowing and the Company's leverage as measured by a total indebtedness to Consolidated EBITDA ratio. Based upon the Company's total indebtedness to Consolidated EBITDA ratio, the Company's borrowing rate could range from LIBOR + 1.25% to LIBOR + 2.25%.Applicable Margin. In addition, a commitment fee accrues on the average daily unused portion of the revolving facilityNew Credit Facility at a rate of 0.2%0.225% to 0.4%0.375%.

There were no borrowings outstanding under the New Credit Facility during the nine months ended September 30, 2021. The weighted-average interest rate on the Company's borrowings under the New Credit Facilities includes interest expense related to the monthly interest rate swap settlementsFacility and Prior Credit Facility was 3.68% and 2.71%2.18% for the nine months ended September 30, 2017 and 2016, respectively.2020. The weighted-average commitment fee on the revolving linelines of credit was 0.37%0.26% and 0.40%0.25% for the nine months ended September 30, 20172021 and 2016,2020, respectively.


16

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


For supplemental cash flow purposes, cash paid for interest was $7.3 million and $7.6 million for the nine months ended September 30, 2017 and 2016, respectively.

See Note 8. Hedging Transactions and Derivative Instruments for information on derivatives used to manage interest rate risk.

10.11. Other Comprehensive Earnings


The amounts recognized in other comprehensive (loss) earnings were as follows:
Three Months EndedThree Months Ended
 September 30, 2021September 30, 2020
(in millions)Pre-taxTaxNet of taxPre-taxTaxNet of tax
Foreign currency translation$(3.7)$— $(3.7)$9.2 $— $9.2 
Employee benefit plans0.2 (0.1)0.1 0.2 0.1 0.3 
Changes in fair value of cash flow hedges(0.3)0.2 (0.1)1.1 (0.2)0.9 
Total other comprehensive (loss) earnings$(3.8)$0.1 $(3.7)$10.5 $(0.1)$10.4 
Nine Months EndedNine Months Ended
 September 30, 2021September 30, 2020
(in millions)Pre-taxTaxNet of taxPre-taxTaxNet of tax
Foreign currency translation$(6.4)$— $(6.4)$5.1 $— $5.1 
Employee benefit plans0.6 0.1 0.7 0.5 — 0.5 
Changes in fair value of cash flow hedges(2.1)0.2 (1.9)0.5 (0.1)0.4 
Total other comprehensive (loss) earnings$(7.9)$0.3 $(7.6)$6.1 $(0.1)$6.0 
16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Three Months Ended Three Months Ended
 September 30, 2017 September 30, 2016
(in millions)Pre-tax Tax Net of tax Pre-tax Tax Net of tax
Foreign currency translation$4.9
 $—
 $4.9
 $27.2
 $—
 $27.2
Changes in fair value of cash flow hedges0.5
 (0.1) 0.4
 (0.1) —
 (0.1)
Other comprehensive earnings, net of tax$5.4
 $(0.1) $5.3
 $27.1
 $—
 $27.1

 Nine Months Ended Nine Months Ended
 September 30, 2017 September 30, 2016
(in millions)Pre-tax Tax Net of tax Pre-tax Tax Net of tax
Foreign currency translation$25.0
 $—
 $25.0
 $37.1
 $—
 $37.1
Changes in fair value of cash flow hedges4.2
 (0.5) 3.7
 (0.5) 0.1
 (0.4)
Other comprehensive earnings, net of tax$29.2
 $(0.5) $28.7
 $36.6
 $0.1
 $36.7


The following tables summarize the changes in balances of each component of accumulated other comprehensive loss, net of tax during the nine months ended September 30, 20172021 and 2016:2020:
(in millions)Cash flow hedgesEmployee benefit plansCumulative foreign currency translation adjustmentsTotal
Balance at December 31, 2020$1.6 $(22.1)$(80.0)$(100.5)
Other comprehensive (loss) earnings, net of tax(1.9)0.7 (6.4)(7.6)
Balance at September 30, 2021$(0.3)$(21.4)$(86.4)$(108.1)
(in millions) Cash flow hedges Cumulative foreign currency translation adjustments Employee benefit plans Total(in millions)Cash flow hedgesEmployee benefit plansCumulative foreign currency translation adjustmentsTotal
Balance at December 31, 2016 $(3.2) $(112.3) $(16.6) $(132.1)
Balance at December 31, 2019Balance at December 31, 2019$0.5 $(18.7)$(93.8)$(112.0)
Other comprehensive earnings, net of tax 3.7
 25.0

—
 28.7
Other comprehensive earnings, net of tax0.4 0.5 5.1 6.0 
Balance at September 30, 2017 $0.5
 $(87.3) $(16.6) $(103.4)
Balance at September 30, 2020Balance at September 30, 2020$0.9 $(18.2)$(88.7)$(106.0)


(in millions) Cash flow hedges Cumulative foreign currency translation adjustments Employee benefit plans Total
Balance at December 31, 2015 $(1.6) $(113.1) $(11.5) $(126.2)
Other comprehensive earnings, net of tax (0.4) 37.1
 —
 36.7
Balance at September 30, 2016 $(2.0) $(76.0) $(11.5) $(89.5)

DuringThe following tables summarize the three and nine months ended September 30, 2017, there were $0.4 million of earningsamounts reclassified from accumulated other comprehensive loss to earnings and $1.3 million of losses reclassified into earnings, respectively. During the three and nine months ended September 30, 2016, there were losses of $0.1 million reclassified into earnings and $0.1 million of earnings reclassified from accumulated other comprehensive loss to earnings, respectively.earnings:
Three Months Ended September 30,
(in millions)Statement of Earnings Line20212020
Pension and post-retirement benefit plans:
Amortization or settlement of actuarial losses and prior service costs
Other (income) expense, net		$0.2 $0.2 
TaxProvision for income taxes(0.1)0.1 
Net of tax$0.1 $0.3 
Cash flow hedges:
Net gains reclassified into earningsCost of goods sold$— $(0.6)
TaxProvision for income taxes0.1 0.1 
Net of tax$0.1 $(0.5)
Nine Months Ended September 30,
(in millions)Statement of Earnings Line20212020
Pension and post-retirement benefit plans:
Amortization or settlement of actuarial losses and prior service costsOther (income) expense, net$0.6 $0.5 
TaxProvision for income taxes0.1 — 
Net of tax$0.7 $0.5 
Cash flow hedges:
Net gains reclassified into earningsCost of goods sold$(1.9)$(0.2)
TaxProvision for income taxes0.5 0.1 
Net of tax$(1.4)$(0.1)



17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

11.12. Income Taxes


Income taxes for the interim periods presented have been included in the accompanying Consolidated Financial Statements on the basis of an estimated annual effective tax rate ("ETR"). The determination of the consolidated provision for income taxes requires management to make certain judgments and estimates. Changes in the estimated level of annual pre-tax earnings or loss, tax laws, and changes resulting from tax audits can affect the overall ETR, which impacts the level of income tax expense or benefit and net income or loss. Judgments and estimates related to the Company’s projections and assumptions are inherently uncertain and therefore, actual results could differ materially from projections. The year-to-date ETR deviates from the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions in which the Company and its foreign subsidiaries generate taxable income or loss, the favorable impact of its significant tax holiday in Malaysia, and judgments as to the realizability of the Company’s deferred tax assets.


The Company's ETR from continuing operations for the three and nine months ended September 30, 20172021 was a 2.5%14.2% provision and a 62.0%13.1% provision, respectively. During the three and nine months ended September 30, 2017,2021, the ETR from continuing operations was impacted by discrete items totaling $3.5$0.4 million of expense and $0.9 million of benefit, and $1.4 million of benefit, respectively. The Company recorded a $3.8 million benefit during the third quarter as a result of settling its German tax exam, which is partially offset by $2.9 million of expense recognized during the second quarter upon settlement of its 2013 pre-spin U.S. income tax exam. Absent the discrete items, the ETR from continuing operations for the three and nine months ended September 30, 20172021 was a 24.7%13.0% provision and a 73.6%14.5% provision, respectively.

The Company's ETR from continuing operations for the three and nine months ended September 30, 20162020 was nila 29.1% provision and a 70.4%26.5% provision, respectively. During the three and nine months ended September 30, 2016,2020, the ETR from continuing operations was impacted by discrete items totaling $4.4$1.2 million of benefit, and $3.4 million of benefit, respectively. The $3.4 million of benefit for the nine months ended September 30, 2016 is primarily related to a $4.7 million discrete tax benefit in our Malaysian subsidiary resulting from an increase to the recognition ofrecognized deferred tax assets due toin the Company's anticipation that, on January 1, 2017, it would not satisfy all ofU.S. and Malaysian subsidiaries. Absent the conditions of one of its Malaysian tax holidays as a result of the sale of our Speaker and Receiver Product Line. Absent discrete items, the ETR from continuing operations for the three and nine months ended September 30, 20162020 was a 21.1%44.3% provision and an 133.3%a 32.2% provision, respectively. The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions (primarily the U.S.), which resulted in the provision for both the three and nine months ended September 30, 2021 and 2020.


The changes in ETR, excluding discrete items, were due to the mix of earnings and losses by taxing jurisdictions. TheCompany's ETR is favorably impacted by two tax holidays granted to the Company in Malaysia effective through December 31, 2021.Malaysia. These tax holidays are subject to the Company's annual satisfaction of certain conditions, including investment and sales thresholds. If the Company fails to satisfy such conditions, the Company's current ETR may be significantly adversely impacted. The continuing operations benefit of ourthe tax holidays in Malaysia for the three and nine months ended September 30, 20172021 was approximately $7.8$3.9 million and $11.9$9.3 million, respectively. The continuing operations benefit of the tax holidaysrespectively, or $0.04 and $0.10 on a per share basis for the three and nine months ended September 30, 2017 is $0.09 and $0.13 per share, respectively.basis. The continuing operations benefit of these incentives for the three and nine months ended September 30, 20162020 was approximately $12.0$2.7 million and $18.2$4.2 million, respectively, of which $4.7 million relates to the discrete tax impact of recognizing deferred tax assets during the period. The continuing operations benefit of the tax holidaysor $0.03 and $0.05 on a per share basisbasis. The Company's existing significant tax holiday in Malaysia will expire on December 31, 2021. The Company is pursuing an extension for the threeits current tax holiday and nine months ended September 30, 2016 was $0.14 and $0.21 per share, respectively, of which $0.05 per share relatesevaluating other strategies to mitigate the discrete tax impact of recognizing deferredthe expiring tax assets duringholiday. If the period.Company is unable to extend the current tax holiday or negotiate acceptable new terms, the Company’s ETR may be significantly adversely impacted.



18

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

12.13. Equity Incentive Program


Stock-based compensation expense recognized in the Consolidated Statements of Earnings totaled $6.2$7.1 million and $5.2$4.8 million for the three months ended September 30, 20172021 and 2016,2020, respectively. For the nine months ended September 30, 20172021 and 2016,2020, stock-based compensation expense was $18.6$25.6 million and $16.2$12.4 million, respectively.


Stock OptionsOptions and SSARs


The expense related to stock options granted in the nine months ended September 30, 20172021 and 20162020 was estimated on the date of grant using a Black-Scholes option-pricing model based on the assumptions shown in the table below.below:
 Nine Months Ended September 30,
 20212020
Risk-free interest rate0.06%0.11%to1.42%
Dividend yield—%—%
Expected life (years)4.54.3to4.5
Volatility36.0%38.8%to40.6%
Fair value at date of grant$6.14to$6.31$4.78to$5.95

18
 Nine Months Ended September 30,
 2017 2016
Risk-free interest rate1.73%to1.93% 1.04%to1.12%
Dividend yield—% —%
Expected life (years)4.5 4.5
Volatility38.1%to38.8% 37.0%to39.6%
Fair value at date of grant$6.07to$6.73 $3.76to$4.27

19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table summarizes the Company's stock-settled stock appreciation right ("SSAR") and stock option activity for the nine months ended September 30, 20172021 (in millions, except share and per share amounts).:
 SSARsStock Options
 Number of SharesWeighted-Average Exercise PriceAggregate Intrinsic ValueWeighted-Average Remaining Contractual Term (Years)Number of SharesWeighted-Average Exercise PriceAggregate Intrinsic ValueWeighted-Average Remaining Contractual Term (Years)
Outstanding at December 31, 2020596,537 $22.72 5,765,903 $17.44 
Granted— — 216,963 20.61 
Exercised— — (867,386)16.54 
Forfeited— — (90,074)17.01 
Expired(106,477)22.17 (848,452)29.52 
Outstanding at September 30, 2021490,060 $22.84 $— 0.94,176,954 $15.34 $14.8 3.0
Exercisable at September 30, 2021490,060 $22.84 $— 0.93,309,977 $14.75 $13.4 2.4
 SSARs Stock Options
 Number of Shares Weighted-Average Exercise Price Aggregate Intrinsic Value Weighted-Average Remaining Contractual Term (Years) Number of Shares Weighted-Average Exercise Price Aggregate Intrinsic Value Weighted-Average Remaining Contractual Term (Years)
Outstanding at December 31, 2016898,718
 $21.25
     4,684,117
 $18.03
    
Granted—
 —
     787,010
 19.17
    
Exercised(31,665) 12.33
     (226,368) 14.36
    
Forfeited—
 —
     (273,050) 15.49
    
Expired(16,537) 23.20
     (77,166) 25.33
    
Outstanding at September 30, 2017850,516
 $21.54
 $0.2
 4.3 4,894,543
 $18.38
 $6.8
 5.0
                
Exercisable at September 30, 2017850,516
 $21.54
 $0.2
 4.3 2,230,395
 $20.54
 $2.1
 4.4


There was no unrecognized compensation expense related to SSARs at September 30, 2017.2021. At September 30, 2017,2021, unrecognized compensation expense related to stock options not yet exercisable was $9.3of $3.3 million and is expected to be recognized over a weighted-average period of 1.21.4 years.


RSUs


The following table summarizes the Company's restricted stock unit ("RSU") balancesactivity for the nine months ended September 30, 2017.2021:
 Share unitsWeighted-average grant date fair value
Unvested at December 31, 20201,909,786 $16.14 
Granted1,117,408 20.58 
Vested (1)
(1,049,222)15.79 
Forfeited(157,176)18.26 
Unvested at September 30, 20211,820,796 $18.82 
 Share units Weighted-average grant date fair value
Unvested at December 31, 20162,074,998
 $14.94
Granted1,305,818
 18.67
Vested(788,168) 16.13
Forfeited(369,542) 15.72
Unvested at September 30, 20172,223,106
 $16.55
(1) The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.


At September 30, 2017, $26.92021, $23.4 million of unrecognized compensation expense related to RSUs is expected to be recognized over a weighted-average period of 1.41.8 years.


PSUs


In February 2017, theThe Company grantedgrants performance stockshare units ("PSUs"(“PSUs”) to senior management. The PSUs areIn each case, the awards that are subject to both performance and market conditions and provide the recipient with Knowles stock upon vesting. The awardswill cliff vest three years subsequent tofollowing the initial grant date. The performance conditionPSUs will be settled in shares of the award is basedCompany's common stock. Depending on the Company's financialoverall performance while the award's market condition relatesrelative to the Company's stock performance. Givenapplicable measures, the conditional naturesize of the PSU awards are subject to adjustment, up or down, resulting in awards at the recipients can receive an awardend of the Company's common stockperformance period that can range from 0% to 225% of the initial grant value and is based on the level of achievement of the specified conditions.target. The Company will ratably recognize the expense over the requisiteapplicable service period for each grant of the PSUPSUs and adjust the expense for the expected achievement of performance conditions as appropriate. The fair value of the PSUs is determined by using a binomial modelMonte Carlo simulation. For the awards granted in February 2021, the number of PSUs that may be earned and vest is based on total shareholder return (“TSR”) relative to the component companies of the Russell 2000 Index over a three-year performance period.



20
19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The COVID-19 pandemic brought on unique and unprecedented challenges to the Company, particularly in the hearing health and medtech markets. Many of the Company's executive compensation programs were affected, including outstanding PSU awards. Due to the impact of the COVID-19 pandemic on the Company’s overall business performance, effective February 8, 2021, the Company’s Compensation Committee approved certain modifications to PSUs granted in February 2018, 2019, and 2020.


For the awards granted in February 2018 (the “2018 PSUs”), the number of PSUs that may be earned and vest was originally based on the Company’s revenues and stock price performance over a three-year performance period. The modified award is based on the Company’s revenues and stock price performance over three separate one-year performance periods to isolate the impact of the COVID-19 pandemic on the Company's fiscal 2020 performance. In addition, the performance periods corresponding to fiscal 2018 and 2019 were weighted at 25% each while the performance period corresponding to fiscal 2020 was weighted at 50%, given the impact of fiscal 2020 performance on shareholders. Service conditions were not modified. The modification of the 2018 PSUs affected 9 employees and resulted in total incremental compensation expense of $3.9 million, which was recognized in the first quarter of 2021 as there was no remaining service period. In February 2021, the 2018 PSUs were converted from 329,092 PSUs to 190,544 shares of common stock based on achievement of the modified conditions.

For the awards granted in February 2019 (the “2019 PSUs”), the number of PSUs that may be earned and vest was originally based on the Company's revenues and TSR relative to the component companies of the S&P Semiconductor Select Industry Index over a three-year performance period. The modified award is based on the Company’s revenues and TSR relative to the component companies of the S&P Semiconductor Select Industry Index over three separate one-year performance periods to isolate the impact of the COVID-19 pandemic on the Company's fiscal 2020 performance. Each period is weighted equally, as the Company expects to face challenges related to the COVID-19 pandemic in fiscal 2021. Service conditions were not modified. The modification of the 2019 PSUs affected 8 employees and resulted in total incremental compensation expense of $2.4 million, which will be recognized over the remaining service period. Incremental compensation expense is subject to adjustment for the expected achievement of the performance condition based on fiscal 2021 revenues.

For the awards granted in February 2020 (the “2020 PSUs”), the number of PSUs that may be earned and vest was originally based on TSR relative to the component companies of the S&P Semiconductor Select Industry Index over a three-year performance period. The modified award replaces the S&P Semiconductor Select Industry Index with the Russell 2000 Index. The Company is a member of the Russell 2000 Index, which represents a broader, more diversified index that better aligns with the Company's strategy. Service conditions were not modified. The modification of the 2020 PSUs affected 8 employees and resulted in total incremental compensation expense of $4.7 million, which will be recognized over the remaining service period.

The following table summarizes the Company's PSU balancesactivity for the nine months ended September 30, 2017.2021:
 Share unitsWeighted-average grant date fair value
Unvested at December 31, 2020920,973 $16.04 
Granted277,183 28.46 
Vested (1)
(329,092)13.75 
Forfeited(101,483)19.05 
Unvested at September 30, 2021767,581 $21.11 
(1) The number of PSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.
 Share units Weighted-average grant date fair value
Unvested at December 31, 2016—
 $—
Granted176,000
 15.32
Vested—
 —
Forfeited—
 —
Unvested at September 30, 2017176,000
 $15.32


At September 30, 2017, $2.22021, $11.9 million of unrecognized compensation expense related to PSUs is expected to be recognized over a weighted-average period of 2.41.4 years.


20
13.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
14. Earnings per Share


Basic and diluted earnings per share were computed as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except share and per share amounts)2021202020212020
Earnings (loss) from continuing operations$27.7 $5.6 $57.6 $(26.7)
Earnings from discontinued operations, net— — 0.2 3.7 
Net earnings (loss)$27.7 $5.6 $57.8 $(23.0)
Basic earnings (loss) per common share:
Earnings (loss) from continuing operations$0.30 $0.06 $0.62 $(0.29)
Earnings from discontinued operations, net— — 0.01 0.04 
Net earnings (loss)$0.30 $0.06 $0.63 $(0.25)
Weighted-average shares outstanding92,189,329 91,688,765 92,315,146 91,707,702 
Diluted earnings (loss) per common share:  
Earnings (loss) from continuing operations$0.29 $0.06 $0.61 $(0.29)
Earnings from discontinued operations, net— — — 0.04 
Net earnings (loss)$0.29 $0.06 $0.61 $(0.25)
Diluted weighted-average shares outstanding94,143,034 92,473,318 94,780,940 91,707,702 

 Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except share and per share amounts)2017 2016 2017 2016
Earnings (loss) from continuing operations$15.4
 $20.9
 $(19.6) $1.6
Earnings (loss) from discontinued operations, net0.3
 (28.5) 2.4
 (63.2)
Net earnings (loss)$15.7
 $(7.6) $(17.2) $(61.6)
        
Basic earnings (loss) per common share:       
Earnings (loss) from continuing operations$0.17
 $0.24
 $(0.22) $0.02
Earnings (loss) from discontinued operations, net0.01
 (0.32) 0.03
 (0.71)
Net earnings (loss) per share$0.18
 $(0.08) $(0.19) $(0.69)
        
Weighted-average shares outstanding89,469,996
 88,720,888
 89,270,103
 88,637,001
        
Diluted earnings (loss) per common share: 
  
    
Earnings (loss) from continuing operations$0.17
 $0.24
 $(0.22) $0.02
Earnings (loss) from discontinued operations, net—
 (0.32) 0.03
 (0.71)
Net earnings (loss) per share$0.17
 $(0.08) $(0.19) $(0.69)
        
Weighted-average shares outstanding90,373,112
 89,317,806
 89,270,103
 88,997,050

As the Company either elected or intended to settle the principal amount of the Notes in cash for all periods presented, the treasury stock method was used to calculate any potential dilutive effect of the conversion option on diluted earnings per share, if applicable. For the three and nine months ended September 30, 2017,2021, the weighted-average number of anti-dilutive potential common shares excluded from the diluted earnings per share calculation above was 4,092,3381,129,231 and 5,067,013,1,299,454, respectively. For the three and nine months ended September 30, 2016,2020, the weighted-average number of anti-dilutive potential common shares excluded from the diluted earnings per share calculation above was 5,227,4274,559,131 and 5,449,342,5,102,219, respectively.



21

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

14.15. Commitments and Contingent Liabilities


From time to time, the Company is involved in various legal proceedings and claims arising in the ordinary course of its business, including those relatedbusiness. The majority of these claims and proceedings relate to commercial, warranty, employment, and intellectual property which maymatters. Although the ultimate outcome of any legal proceeding or claim cannot be owned by itpredicted with certainty, based on present information, including management’s assessment of the merits of the particular claim, the Company believes that, apart from the action set forth below, the disposition of these legal proceedings or others. claims, individually or in the aggregate, after taking into account recorded accruals and the availability and limits of insurance coverage, will not have a material adverse effect on its cash flow, results of operations, or financial condition.

The Company owns many patents coveringand other intellectual property pertaining to its products, technology, and manufacturing processes. Some of thesethe Company's patents have been and may continue to be infringed upon or challenged by others. In appropriate cases, the Company has taken and will take steps to protect and defend its patents and other intellectual property, including through the use of legal proceedings in various jurisdictions around the world. Such steps have resulted in and may continue to result in retaliatory legal proceedings, including litigation or other legal proceedings in various jurisdictions and forums around the world alleging infringement by the Company of patents owned by others. The costs of investigations and legal proceedings particularly multi-forum litigation, relating to the enforcement and defense of the Company’s intellectual property may be substantial. Additionally, in multi-forum disputes, the Company may incur adverse judgments with regard to certain claims in certain jurisdictions and forums while still contesting other related claims against the same opposing party in other jurisdictions and forums. Although the ultimate outcome of any legal proceeding or claim cannot be predicted with certainty, based on present information, including management’s assessment of the merits of the particular claim, the Company does not expect that any asserted or unasserted legal proceedings or claims, individually or in the aggregate, will have a material adverse effect on its cash flow, results of operations, or financial condition.


21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Intellectual Property Infringement Claims


The Company may, on a limited customer specific basis, provide contractual indemnities for certain losses that arise out of claims that its products infringe on the intellectual property of others. It is not possible to determine the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, the Company has not made significant payments under such indemnity arrangements. The Company’s legal accruals associated with these indemnity arrangements were not significant at September 30, 20172021 and December 31, 2016.2020.


15.16. Segment Information


In January 2017, the Company changed its allocation of resources and its internal reporting structure to facilitate delivering growth in its core business. Given these changes, beginning in January 2017, theThe Company's two2 reportable segments are as follows:

Audio Segment
Our Audio group designs and manufactures innovative audio products, including acoustics like microphones and balanced armature speakers, signal processing technologies, and software and algorithms used in applications that serve the mobile, ear, and IoT markets. Its transducer products are used principally in hearing aid applications within the commercial audiology market. Locations include the corporate office in Itasca, Illinois; sales, support, and engineering facilities in North America, Europe, and Asia; and manufacturing facilities in Asia.

PD Segment
Our PD group specializes in the design and manufacture of specialized electronic components used in medical and life science applications, as well as high-performance solutions and components used in communications infrastructure and a wide variety of other markets. Its oscillator products predominantly serve the telecom infrastructure market and its capacitor products are used in applications including radio, radar, satellite, power supplies, transceivers and medical implants serving the defense, aerospace, telecommunication, and life sciences markets. Locations include the corporate office in Itasca, Illinois; and sales, support, engineering, and manufacturing facilities in North America, Europe, and Asia.

Historical financial segment information has been recast to conform to the new segment presentation.


22

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Precision Devices. Information regarding the Company's reportable segments is as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Revenues:  
Audio$177.7 $164.8 $490.6 $389.4 
Precision Devices55.3 41.0 143.2 131.7 
Total revenues$233.0 $205.8 $633.8 $521.1 
Earnings (loss) from continuing operations before interest and income taxes:
Audio$36.6 $17.8 $95.0 $(0.5)
Precision Devices14.0 8.0 28.3 26.2 
Total segments50.6 25.8 123.3 25.7 
Corporate expense / other14.1 13.2 44.7 34.3 
Interest expense, net4.2 4.7 12.3 12.5 
Earnings (loss) before income taxes and discontinued operations32.3 7.9 66.3 (21.1)
Provision for income taxes4.6 2.3 8.7 5.6 
Earnings (loss) from continuing operations$27.7 $5.6 $57.6 $(26.7)
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2017 2016 2017 2016
Revenues:       
Audio$167.8
 $193.4
 $450.1
 $471.6
Precision Devices53.9
 49.7
 155.5
 147.1
Total consolidated revenues$221.7
 $243.1
 $605.6
 $618.7
        
Earnings from continuing operations before interest and income taxes:
Audio$28.1
 $36.5
 $29.9
 $50.6
Precision Devices6.6
 5.3
 18.0
 10.3
Total segments34.7
 41.8
 47.9
 60.9
Corporate expense / other13.8
 15.3
 44.6
 40.4
Interest expense, net5.1
 5.6
 15.4
 15.1
Earnings (loss) before income taxes and discontinued operations15.8
 20.9
 (12.1) 5.4
Provision for income taxes0.4
 —
 7.5
 3.8
Earnings (loss) from continuing operations$15.4
 $20.9
 $(19.6) $1.6


Information regarding assets of the Company's reportable segments:
Total Assets
(in millions)September 30, 2021December 31, 2020
Audio$1,461.7 $1,470.4 
Precision Devices257.4 179.2 
Corporate / eliminations4.1 5.3 
Total$1,723.2 $1,654.9 

22
 Total Assets
(in millions)September 30, 2017 December 31, 2016
Audio$1,370.9
 $1,349.1
Precision Devices180.1
 162.9
Corporate / eliminations2.9
 2.1
Discontinued operations—
 0.9
Total$1,553.9
 $1,515.0

16. Recent Accounting Standards

Recently Issued Accounting Standards

In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-12 with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting guidance.The standard is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The standard requires adoption on a modified retrospective basis for hedging relationships existing as of the adoption date and on a prospective basis for the amended presentation and disclosure requirements. Early adoption is permitted. The Company has not yet determined the effect of the standard on its ongoing financial reporting and plans to adopt this standard on January 1, 2019.

In May 2017, the FASB issued ASU 2017-09 that provides guidance about when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. This standard is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The standard requires adoption on a prospective basis for awards modified on or after the adoption date. Early adoption is permitted. The Company does not expect the adoption of this standard to have a significant impact on its Consolidated Financial Statements. The Company plans to adopt this standard on January 1, 2018.


23


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In March 2017, the FASB issued ASU 2017-07 primarily to improve the presentation of net periodic pension and post-retirement benefit cost. The new guidance requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of earnings separately from the service cost component and outside of any subtotal of operating income. This standard is effective for public business entities for annual periods or any interim periods beginning after December 15, 2017. The standard requires adoption on a retrospective basis for the presentation of net benefit cost components. Early adoption is permitted. The Company does not expect the new guidance to have a significant impact on its Consolidated Financial Statements and plans to adopt this standard on January 1, 2018.

In January 2017, the FASB issued ASU 2017-01, which requires a reporting entity to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or liabilities. This standard is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted under specific circumstances and prospective application of the guidance is required. The standard will not have a significant impact upon adoption on January 1, 2018.

In August 2016, the FASB issued ASU 2016-15 with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new guidance requires evaluation of cash receipts and payments on the basis of the nature of the underlying cash flows and provides clarity for categorization for specific transactions. This standard is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The standard requires adoption on a retrospective basis. Early adoption is permitted. The standard will not have a significant impact upon adoption on January 1, 2018.

In February 2016, the FASB issued ASU 2016-02, which requires a lessee to recognize a lease liability and asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The standard requires a modified retrospective transition method for all entities. This ASU also provides clarification surrounding the presentation of the effects of the leases in the statement of earnings and statement of cash flows. This standard is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company has not yet determined the effect of the standard on its ongoing financial reporting and plans to adopt this standard on January 1, 2019.

In January 2016, the FASB issued ASU 2016-01, which requires a company to present separately in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This standard is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The standard requires adoption on a modified retrospective basis. Early adoption is permitted. The standard will not have a significant impact upon adoption on January 1, 2018.

In May 2014, the FASB issued ASU 2014-09 and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively. The core principal of the guidance is to provide a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The standard is effective for annual and interim periods beginning after December 15, 2017, which will require the Company to adopt these provisions in the first quarter of fiscal year 2018. This update permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. ASU 2016-12, issued in May 2016, removes the requirement to disclose the effect of the accounting change in the period of adoption, but still requires the Company to disclose the effect of the changes on any prior periods retrospectively adjusted. The status of the Company’s implementation process is summarized below:

The Company employed a cross-functional approach in assessing the potential impacts of the standard.
The Company determined the key factors from the five-step model for recognizing revenue under the new standard that may be applicable to the business units that comprise the Company’s reportable segments.
Review of the Company’s contract portfolio, which focused on contracts with significant customers, was completed prior to the filing date of this Quarterly Report on Form 10-Q.
Evaluations of contract provisions and a comparison of historical accounting policies to the requirements of the new standard are in process.

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(unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table details revenues by geographic location. Revenues are attributed to regions based on the location of the Company's direct customer, which in some instances is an intermediary and not necessarily the end user. The Company's businesses are based primarily in Asia, North America, and Europe.
 Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2021202020212020
Asia$163.4 $151.7 $452.0 $368.3 
United States42.2 28.8 109.3 86.8 
Europe24.6 23.1 65.4 59.8 
Other Americas1.6 1.3 3.9 2.8 
Other1.2 0.9 3.2 3.4 
Total$233.0 $205.8 $633.8 $521.1 

Receivables, net from contracts with customers were $120.3 million and $123.8 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, our total remaining performance obligations are immaterial.

17. Subsequent Events

On November 1, 2021, the Company is alsowill deliver $172.5 million in the processcash and approximately 0.4 million shares of evaluating new disclosure requirements, as well as identifying and implementing appropriate changesits common stock to settle its business processes and controls to support recognition and disclosureobligations under the new guidance.

The Company will adopt this new guidance on January 1, 2018 usingNotes. Under the modified retrospective method, which will result in a cumulative effect adjustment as of the date of adoption. Our work to date indicates thatNote Hedges, the Company expects to recognize revenue at a point in time,receive approximately 0.4 million shares of its common stock, which will result in revenue recognition timing that is materially consistent with our historical practiceapproximates the number of recognizing revenue when title and risk of loss passshares to be delivered under the customer. We are currently in the process of determining the expected quantitative impact that the adoption of the new standard will haveNotes. See Note 10. Borrowings for additional information on our Consolidated Financial Statements.

Recently Adopted Accounting Standards

In January 2017, the FASB issued ASU 2017-04, which simplifies an entity's measurement of goodwill for impairment testing purposes by eliminating the requirement to perform a hypothetical purchase price allocation. A goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This standard is effective for public business entities for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance prospectively on January 1, 2017. The Company's adoption of this standard did not have a significant impact on its Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. The Company adopted this guidance on a modified retrospective basis effective January 1, 2017. The Company's adoption of this standard did not have a significant impact on its Consolidated Financial Statements. Refer to Note 1. Basis of Presentation for further details.

In March 2016, the FASB issued ASU 2016-09. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. This standard is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance effective January 1, 2017. The Company's adoption of this standard did not have a significant impact on its Consolidated Financial Statements.

In July 2015, the FASB issued ASU 2015-11, a final standard that simplifies the subsequent measurement of inventory by replacing the lower of cost or market test under current U.S. GAAP. Under the previous guidance, the subsequent measurement of inventory was measured at the lower of cost or market, where “market” may have multiple possible outcomes. The new guidance requires subsequent measurement of inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs to sell (completion, disposal, and transportation). This standard is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance prospectively effective January 1, 2017. The Company's adoption of this standard did not have a significant impact on its Consolidated Financial Statements.

Certain amounts in prior years have been reclassified to conform to the current year presentation as a result of recently adopted accounting standards as described in Note 1. Basis of Presentation.

17. Subsequent Events

Debt Refinancing

On October 11, 2017, Knowles entered into a Revolving Credit Facility Agreement (the "New Credit Facility"). The New Credit Facility provides for a five-year senior secured revolving credit facility providing for borrowings in an aggregate principal amount at any time outstanding not to exceed $400.0 million. Up to $100.0 million of the New Credit Facility will be available in Euro, Sterling, and other currencies requested by the Company and agreed to by each Lender and up to $50.0 million of the New Credit Facility will be made available in the form of letters of credit denominated in other approved currencies.


these instruments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The New Credit Facility serves as refinancing of indebtedness under and terminates the Company's Amended and Restated Credit Agreement dated as of January 27, 2014, as amended and restated as of December 31, 2014 and supplemented from time to time.

At any time during the term of the New Credit Facility, the Company will be permitted to increase the commitments under the New Credit Facility or to establish one or more incremental term loan facilities under the New Credit Facility in an aggregate principal amount not to exceed $200.0 million for all such incremental facilities.

Commitments under the New Credit Facility will terminate, and loans outstanding thereunder will mature, on October 11, 2022; provided, that if all the Company’s 3.25% Convertible Senior Notes Due November 1, 2021 shall not have been repaid, refinanced and/or converted to common stock of the Company by April 30, 2021, then the commitments under the New Credit Facility will terminate, and the loans outstanding thereunder will mature, on such earlier date.

The interest rates under the New Credit Facility will be, at the Borrowers’ option (1) LIBOR (or, in the case of borrowings under the New Credit Facility denominated in Euro, EURIBOR) plus the rates per annum determined from time to time based on the total leverage ratio of the Company as of the end of and for the most recent period of four fiscal quarters for which financial statements have been delivered (the “Applicable Margin”); or (2) in the case of borrowings denominated in US Dollars, alternate base rate (“ABR”) (as defined in the Credit Agreement) plus the Applicable Margin; provided, however, that any swingline borrowings shall bear interest at the rate applicable to ABR borrowings or, prior to the purchase of participations in such borrowings by the Lenders, at such other rate as shall be agreed between the Company and JPMorgan as the swingline lender.

Sale of the Timing Device Business

On October 26, 2017, the Company entered into an agreement to sell its timing device (oscillator) business, part of the Precision Devices segment, to Microsemi Corporation for $130.0 million, subject to purchase price adjustments for working capital. This transaction is subject to regulatory approval and customary closing conditions. We expect the transaction to close in the fourth quarter of 2017 and that it will be slightly dilutive to future earnings. As a result, the Company expects to reclassify the assets, liabilities, and results of operations of the product line to discontinued operations in the fourth quarter of 2017.

As of September 30, 2017, the timing device business had total assets and liabilities of $84.4 million and $23.0 million, respectively. For the nine months ended September 30, 2017, the timing device business had revenues of $77.0 million.


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Forward-Looking Statements


This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to our operations, results of operations, our continued business operations during the COVID-19 pandemic, and other matters that are based on our current expectations, estimates, assumptions, and projections. Words such as “believe,” “expect,” “anticipate,” “project,” “estimate,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “objective,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made. The statements in this Quarterly Report on Form 10-Q are used to identify these forward-looking statements. These statements are not guarantees of future performancebased on currently available information and involve risks, uncertainties,the current expectations, forecasts, and assumptions of our management concerning risks and uncertainties that are difficultcould cause actual outcomes or results to predict. Actual outcomes and results may differ materially from what is expressedthose outcomes or forecastresults that are projected, anticipated, or implied in these forward-looking statements. Risks,statements, including risks related to the COVID-19 pandemic and governmental responses to it, including but not limited to, the impact on our supply chain, power disruptions, customer demand, and costs associated with our operations. Other risks and uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:
oThe rate of multi-microphone and smart microphone adoption and market adoption of our "intelligent audio" solutions across our mobile, ear, and IoT markets;
othe pace and success of achieving the cost savings from our announced restructurings and acquisitions;
oour ability to slow and offset price erosionunforeseen changes in certain of our microphone products;
odelays in customer product introductions and other related customer challenges that may occur;
oMEMS microphone demand from our largest customers, in particular, two large North American, OEM customers, a Korean, OEM customer, and Chinese OEMs;original equipment manufacturer ("OEM") customers;
ofactory capacity utilizationour ongoing ability to execute our strategy to diversify our end markets and customers;
oour ability to stem or overcome price erosion in our Audio segment;segments;
othe pace and success of achieving the cost savings from our announced restructurings, acquisitions, and operating expense reduction efforts;
ofluctuations in our stock's market price;
ofluctuations in operating results and cash flows;
oour ability to prevent or identify quality issues in our products or to promptly remedy any such issues that are identified;
othe timing of OEM product launches;
ocustomer purchasing behaviorrisks associated with increasing our inventories in lightadvance of current and anticipated mobile phone launches;orders by customers;
odownward pressure on the average selling prices for our products;global economic instability;
omacroeconomic conditions, boththe impact of changes to laws and regulations that affect the Company’s ability to offer products or services to customers in the United States and internationally;different regions;
oforeign currency exchange rate fluctuations;risks associated with shareholder activism, including proxy contests;
oour ability to achieve continued reductions in our operating expenses and maintain and improve quality and delivery for our customers;expenses;
oourthe ability to qualify our products and facilities with customers;
orisks and costs inherent in litigation;
oour ability to obtain, enforce, defend, or monetize our intellectual property rights;
odifficulties or delays in and/or the Company's inability to realize expected cost synergies from its acquisitions;
oincreases in the costs of critical raw materials and components;
oavailability of raw materials and components;
othe success and rate of multi-microphone adoption and our “intelligent audio” solutions;
omanaging rapid declines in customer demand for certain of our products or solutions, delays in customer product introductions, and other related customer challenges;
oour ability to successfully consummate acquisitions and divestitures, and our ability to integrate acquisitions following consummation;
oour obligations and risks under various transaction agreements that were executed as part of our spin-off from our former parent company;
omanaging new product ramps and introductions for our customers;
oour dependence on a limited number of large customers;
oour ability to maintain and expand our existing relationships with leading OEMs and to establish relationships with new OEMs in order to maintain and increase our revenue;
obusiness and competitive factors generally affecting the advanced micro-acoustic solutions and specialty components industry, our customers, and our business;
ofluctuations in demand by our telecom and other customers and telecom end markets;
oour ability to enter new end user product markets;
oincreasing competition and new entrants in the market for our products;
oour ability to develop new or enhanced products or technologies in a timely manner that achieve market acceptance;
oour reliance on third parties to manufacture, assemble, and test our products and sub-components; and
oescalating international trade tensions, new or increased tariffs, and trade wars among countries;
ofinancial risks, including risks relating to currency fluctuations, credit risks, and fluctuations in the market value of the Company;
omarket risk associated with fluctuations in commodity prices, particularly for various precious metals used in our manufacturing operation; and
ochanges in tax laws, or the loss of ourchanges in tax holidays.rates, and exposure to additional tax liabilities.


A more complete description of these risks, uncertainties, and other factors can be found under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.2020, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021. We do not undertake to update or revise our forward-looking statements as a result of new information, future events, or otherwise, except as required by law.


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


The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q.


Overview


We are a market leader and global supplierprovider of advanced micro-acoustic microphones and speakers, audio processing, and precision device solutions, serving the mobile consumer electronics, communications, medical, military, aerospace,medtech, defense, electric vehicle, and industrial markets. We use our leading position in SiSonic™ micro-electro-mechanical systems ("MEMS") microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience in smartphones, tablets,mobile, ear, and wearables.Internet of Things ("IoT") applications. We are also thea leader in acousticsacoustic components, used in hearing aidshigh-end capacitors, and haveradio frequency ("RF") solutions for a strong position in high-end oscillators (timing devices) and capacitors.diverse set of markets. Our focus on the customer, combined with our unique technology, proprietary manufacturing techniques, rigorous testing, and global scale, enables us to deliver innovative solutions that optimize the user experience. References to "Knowles," the "Company," "we," "our," or "us" refer to Knowles Corporation and its consolidated subsidiaries, unless the context otherwise requires.

In January 2017, the Company changed its internal reporting to facilitate delivering growth in its core business. Given the changes in the allocation of resources and in its internal reporting structure, the Company now reports two segments, Audio and Precision Devices ("PD"). As a result of this change, transducer products used in hearing health and premium headset applications were moved from the historical Specialty Components segment into the new Audio segment, which includes the historical Mobile Consumer Electronics segment. The oscillator and capacitor products formerly in the Specialty Components segment are now included in the PD segment.


We are organized into two reportable segments based on how management analyzes performance, allocates capital, and makes strategic and operational decisions. These segments were determined in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 280 - Segment Reporting and are comprised of (i) Audio and (ii) PD.Precision Devices ("PD"). The segments are aligned around similar product applications serving our key end markets, to enhance focus on end market growth strategies.


•Audio Segment
Our Audio group designs and manufactures innovative audio products, including acoustics like microphones, and balanced armature speakers, signal processing technologies, and software and algorithmsaudio processors used in applications that serve the mobile, ear,hearing health, True Wireless Stereo ("TWS"), IoT, and Internet of Things (IoT)computing markets. Its transducer products are used principally in hearing aid applications within the commercial audiology market. Locations include the corporate office in Itasca, Illinois; sales, support, and engineering facilities in North America, Europe, and Asia; andAsia, as well as manufacturing facilities in Asia.


•PD Segment
Our PD group specializes in the design and manufacturedelivery of specialized electronic components used in medicalhigh performance capacitor products and life science applications, as well as high-performanceRF solutions and components used in communications infrastructure and a wide variety of other markets. Its oscillator products predominantly serve the telecom infrastructure market and itsfor technically demanding applications. Our high performance capacitor products are used in applications including radio, radar, satellite,such as power supplies transceivers, and medical implants, servingwhich sell to a diverse set of customers for mission critical applications across the communications, medtech, defense, aerospace, telecommunication,electric vehicle, and life sciencesindustrial markets. Our RF solutions solve a broad range of frequency filtering challenges for our military customers, who use them in their satellite communication and radar systems, as well as our telecommunications infrastructure customers deploying mmWave 5G equipment. Locations include the corporate office in Itasca, Illinois; and sales, support, engineering, and manufacturing facilities in North America, Europe, and Asia.


We sell our products directly to original equipment manufacturers ("OEMs") and to their contract manufacturers and suppliers and to a lesser extent through distributors worldwide.

On October 26, 2017, We have recently been experiencing demand in excess of available capacity. During the Company entered into an agreementthird quarter of 2021, we continued to sell its timing device (oscillator) business, partexperience shortages of raw materials used in producing MEMS microphones and capacitor products due to supply chain constraints associated with the Precision Devices segment, to Microsemi Corporation for $130.0 million, subject to purchase price adjustments for working capital. This transaction is subject to regulatory approval and customary closing conditions. We expect the transaction to closeCOVID-19 pandemic. In addition, we anticipate power curtailments in China will impact production during the fourth quarter of 20172021. The duration and that it will be slightly dilutive to future earnings. As a result, the Company expects to reclassify the assets, liabilities, and results of operationsfull extent of the product line to discontinued operations in the fourth quarterimpact of 2017. For additional information, refer to Note 17. Subsequent Events tothese disruptions is uncertain and depends upon many factors outside of our Consolidated Financial Statements.control.


IMC Acquisition

On January 11, 2017,May 3, 2021, we completed an acquisitionacquired all of certain assetsthe outstanding shares of a capacitors manufacturercommon stock of Integrated Microwave Corporation ("IMC") for cash consideration of $4.0 million, of which $2.5 million was paid during$80.7 million. The acquired business provides RF filters to the first quarter of 2017, with the remaining $1.5 million to be paid in quarterly installments from 2018 through the first quarter of 2019, less any purchase price adjustments ("Capacitors Acquisition"). Thisdefense, industrial, and communications markets. The acquisition's operations are included in the PD segment.

On July 7, 2016, we completed the sale of our speaker and receiver product line ("Speaker and Receiver Product Line") for $45.0 million in cash, less purchase price adjustments, for a net amount received of $40.6 million. For additional information, refer to Note 2. Disposed and Discontinued Operations4. Acquisition to our Consolidated Financial Statements.



COVID-19 Update
28

TableDuring 2020 and continuing into 2021, COVID-19, the most recently discovered coronavirus, spread throughout areas of Contentsthe world where we operate. In March 2020, the World Health Organization declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide. While some of these measures have been lightened or removed as global distribution of vaccines continues to progress, the COVID-19 pandemic has resulted in global business disruption, which has impacted our business operations, results of operations, customer demand, and the productivity of our facilities, particularly in China, Malaysia, and the Philippines.



The situation related to COVID-19 continues to be complex and rapidly evolving. We cannot reasonably estimate the duration of the pandemic or fully ascertain its impact to our future results. As the COVID-19 pandemic evolves, we will continue to actively monitor developments and business conditions and may take further actions that alter business operations as may be required by applicable authorities or that we determine are in the best interests of our employees, customers, suppliers, stockholders, and communities. It is not clear what potential effects any such alterations or modifications may have on our business, including the effects on our financial results.
Results
Additional information regarding the risks that we face as a result of Operationsthe COVID-19 pandemic can be found under the heading “Risk Factors” in our Annual Report on Form 10-K for the Three Months Ended Septemberyear ended December 31, 2020, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 Compared2021. Further, to the extent the COVID-19 pandemic adversely affects our business and financial results, it also may have the effect of heightening many of the other risks described in the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and in our subsequent filings with the Three Months Ended September 30, 2016Securities and Exchange Commission.


Non-GAAP Financial Measures

In addition to the GAAP financial measures included herein,in this item, we have presented certain non-GAAP financial measures. We use non-GAAP measures as supplements to our GAAP results of operations in evaluating certain aspects of our business, and our executive management team and Board of Directors focus on non-GAAP items as key measures of our performance for business planning purposes. These measures assist us in comparing our performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in our opinion, do not reflect our core operating performance. We believe that our presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that we use internally for purposes of assessing our core operating performance. The Company does not consider these non-GAAP financial measures to be a substitute for the information provided by GAAP financial results. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the reconciliation included herein.
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  Three Months Ended September 30,
(in millions, except per share amounts) 2017 2016
Revenues $221.7
 $243.1
     
Gross profit $82.5
 $94.9
Non-GAAP gross profit $84.9
 $95.7
     
Earnings from continuing operations before interest and income taxes $20.9
 $26.5
Adjusted earnings from continuing operations before interest and income taxes $31.7
 $39.9
     
Provision for income taxes $0.4
 $—
Non-GAAP provision for income taxes $2.1
 $1.6
     
Earnings from continuing operations $15.4
 $20.9
Non-GAAP net earnings $26.0
 $34.1
     
Earnings per share from continuing operations - diluted $0.17
 $0.24
Non-GAAP diluted earnings per share $0.28
 $0.37


Results of Operations for the Three Months Ended September 30, 2021 compared with the Three Months Ended September 30, 2020
 Three Months Ended September 30,
(in millions, except per share amounts)20212020
Revenues$233.0 $205.8 
Gross profit$96.9 $75.2 
Non-GAAP gross profit$97.5 $75.6 
Earnings from continuing operations before interest and income taxes$36.5 $12.6 
Adjusted earnings from continuing operations before interest and income taxes$52.6 $28.8 
Provision for income taxes$4.6 $2.3 
Non-GAAP provision for income taxes$7.5 $3.7 
Earnings from continuing operations$27.7 $5.6 
Non-GAAP net earnings from continuing operations$43.0 $22.3 
Earnings per share from continuing operations - diluted$0.29 $0.06 
Non-GAAP diluted earnings per share from continuing operations$0.45 $0.24 

Revenues


Revenues for the third quarter of 20172021 were $221.7$233.0 million, compared with $243.1$205.8 million for the third quarter of 2016, a decrease2020, an increase of $21.4$27.2 million or 8.8%13.2%. Audio revenues decreased $25.6increased $12.9 million, due to lower shipments of MEMS microphones to one of our North American customers as a result of the later than prior year ramp of new handsets, weakness at key Chinese handset OEMs, and lower average selling prices in MEMS microphones and hearing health transducers. In addition, shipments of hearing health transducers decreased from prior year as we have been more disciplined with our pricing. These decreases were partially offset by higher shipments of MEMS microphones to the IoT market. PD revenues increased $4.2 millionprimarily due to higher capacitorshipping volumes as market conditions have improved from 2020, which was negatively impacted by the COVID-19 pandemic. The higher volumes were driven by hearing health shipments primarily forabove pre-pandemic levels and increased MEMS microphones shipments into the defense, medical,IoT and automotivemobile markets, as well as increased revenues related to our Capacitors Acquisition in January 2017, partially offset by lower pricing.demand from TWS markets. PD revenues increased $14.3 million, primarily due to our acquisition of IMC and higher demand from the medtech, industrial, defense, and electric vehicle markets, partially offset by decreased demand in the communications market. The medtech market, which includes our high-reliability products used in implantable devices and MRI machines, was impacted by the COVID-19 pandemic in the previous period as hospitals had reduced elective procedures. The demand for our medtech products has returned to pre-pandemic levels.


Cost of Goods Sold


Cost of goods sold ("COGS") for the third quarter of 20172021 was $138.7$136.1 million, compared with $148.2$130.6 million for the third quarter of 2016, a decrease2020, an increase of $9.5$5.5 million or 6.4%4.2%. This decreaseincrease was primarily due to decreased shipmentsthe result of MEMS microphones, favorable impacts from productivity initiatives, and foreign currency exchange rate changes, higher shipping volumes, partially offset by lower fixed overhead absorptionproduct cost reductions and an increase in production transfer costs.higher factory capacity utilization.


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Restructuring Charges


During the third quarter of 2017, we recorded total2021, there were no restructuring charges of $1.1 million. The restructuring charges consist primarily of actions associated with rationalizing the research and development workforce and the residual expenses related to the continued transfer of our hearing health manufacturing to a lower-cost Asian manufacturing facility. Charges of $0.2 million were classified in COGS and charges of $0.9 million were classified asrecorded within Gross profit or Operating expenses.


During the third quarter of 2016,2020, we recorded total restructuring charges of $2.1$0.1 million within Operating expenses, primarily for actions associated with rationalizing the selling and administrativePD segment workforce. Charges of $2.1 million were classified as Operating expenses.


Gross Profit and Non-GAAP Gross Profit


Gross profit for the third quarter of 20172021 was $82.5$96.9 million, compared with $94.9$75.2 million for the third quarter of 2016, a decrease2020, an increase of $12.4$21.7 million or 13.1%28.9%. Gross profit margin (gross profit as a percentage of revenues) for the third quarter of 20172021 was 37.2%41.6%, compared with 39.0%36.5% for the third quarter of 2016.2020. The gross profit and margin decreasesincreases were primarily due to lower average selling prices, decreased shipments of MEMS microphones, lower fixed overhead absorption,higher shipping volumes, product cost reductions, higher factory capacity utilization, positive mix, and an increase in production transfer costs,net favorable inventory reserve adjustments, partially offset by favorable impacts fromhigher precious metals cost. Our 2021 plant productivity initiatives and foreign currency exchange rate changes.has improved due to our factories returning to pre-pandemic production levels.

26


Non-GAAP gross profit for the third quarter of 20172021 was $84.9$97.5 million, compared with $95.7$75.6 million for the third quarter of 2016, a decrease2020, an increase of $10.8$21.9 million or 11.3%29.0%. Non-GAAP gross profit margin (non-GAAP gross profit as a percentage of revenues) for the third quarter of 20172021 was 38.3%41.8%, compared with 39.4%36.7% for the third quarter of 2016.2020. The non-GAAP gross profit and margin decreasesincreases were primarily due to lower average selling prices, decreased shipments of MEMS microphones,higher shipping volumes, product cost reductions, higher factory capacity utilization, positive mix, and lower fixed overhead absorption,net favorable inventory reserve adjustments, partially offset by favorable impacts fromhigher precious metals cost. Our 2021 plant productivity initiatives and foreign currency exchange rate changes.has improved due to our factories returning to pre-pandemic production levels.


Research and Development Expenses


Research and development expenses for the third quarter of 20172021 were $23.9$22.3 million, compared with $23.3$21.9 million for the third quarter of 2016,2020, an increase of $0.6$0.4 million or 2.6%1.8%. Research and development expenses as a percentage of revenues for the third quarter of 20172021 and 20162020 were 10.8%9.6% and 9.6%10.6%, respectively. The increase in research and development expenses was primarily driven by compensation increases.our acquisition of IMC. The decrease in expenses as a percentage of revenues was due to the increase in our revenues.


Selling and Administrative Expenses


Selling and administrative expenses for the third quarter of 20172021 were $36.8$36.0 million, compared with $43.0$32.0 million for the third quarter of 2016, a decrease2020, an increase of $6.2$4.0 million or 14.4%12.5%. Selling and administrative expenses as a percentage of revenues for the third quarter of 20172021 and 20162020 were 16.6%15.5%. The increase in expenses was primarily driven by stock-based compensation, incentive compensation, and 17.7%, respectively.our acquisition of IMC. For additional information on stock-based compensation, refer to Note 13. Equity Incentive Program to our Consolidated Financial Statements. The decreaseincrease in selling and administrative expenses was primarily drivenpartially offset by lower intangible amortizationlegal expenses. Legal expenses andwere lower due to reduced activity related to the benefitsprotection of our cost reduction initiatives.intellectual property. Our expenses as a percentage of revenues remained consistent with prior year as higher revenues offset our increased expenses.


Earnings and Adjusted Earnings from Continuing Operations Before Interest and Income TaxesImpairment Charges


Earnings from continuing operations before interest and income taxesImpairment charges for the third quarter of 2017 was $20.92021 were $4.0 million, compared with $26.5to $7.6 million for the third quarter of 2016, a decrease of $5.6 million. The decrease was primarily due2020. These charges relate to lower gross profit, partially offset by lower selling and administrative expenses.facilities in our Intelligent Audio product line. For additional information related to these impairment charges, refer to Note 5. Impairments to our Consolidated Financial Statements.

Adjusted earnings from continuing operations before interest and income taxes ("Adjusted EBIT") for the third quarter of 2017 was $31.7 million, compared with $39.9 million for the third quarter of 2016, a decrease of $8.2 million. Adjusted EBIT margin (adjusted EBIT from continuing operations as a percentage of revenues) for the third quarter of 2017 was 14.3%, compared with 16.4% for the third quarter of 2016. These decreases were primarily due to lower gross profit, partially offset by lower non-GAAP selling and administrative expenses resulting from benefits of our cost reduction initiatives.


Interest Expense, net


Interest expense for the third quarter of 20172021 was $5.1$4.2 million, compared with $5.6to $4.7 million for the third quarter of 2016,2020, a decrease of $0.5 million. The decrease in interest expense is primarily due to lower outstanding borrowings, partially offset by higher interest rates.debt discount amortization. For additional information on borrowings and interest expense, refer to Note 9.10. Borrowings to our Consolidated Financial Statements.



Other (Income) Expense, net

Other income for the third quarter of 2021 was $1.9 million, compared with expense of $1.0 million for the third quarter of 2020, a change of $2.9 million. The change is primarily due to the impacts from foreign currency exchange rate changes.

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27



Provision for Income Taxes and Non-GAAP Provision for Income Taxes


The effective tax rate ("ETR") from continuing operations for the third quarter of 20172021 was a 2.5%14.2% provision, compared with nila 29.1% provision for the third quarter of 2016.2020. The ETR from continuing operations for the third quarter of 20172021 was impacted by a net discrete provision totaling $0.4 million. The ETR from continuing operations for the third quarter of 2020 was impacted by a net discrete benefit totaling $3.5$1.2 million, comparedprimarily related to a net discrete benefit totaling $4.4 million forresulting from an increase to the third quarter of 2016.recognized deferred tax assets in our U.S. and Malaysian subsidiaries. Absent the discrete items, the ETR from continuing operations for the third quarter of 20172021 and 20162020 was a 24.7%13.0% provision and a 21.1%44.3% provision, respectively. The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions (primarily the U.S.), which resulted in the provision for both the third quarter of 2021 and 2020. The change in the ETR excluding the discrete items, was due to the mix of earnings and losses by taxing jurisdictions.jurisdictions and net discrete items.


The non-GAAP ETR from continuing operations for the third quarter of 20172021 was a 7.5%14.9% provision, compared with a 4.5%14.2% provision for the third quarter of 2016.2020. The non-GAAP ETR from continuing operations for the third quarter of 2017 was2021 and 2020 were impacted by a net discrete items totaling $0.4 million of expense and $0.9 million of benefit, totaling $1.5 million, primarily related to prior year provision to return adjustments of $1.3 million recognized during the period.respectively. Absent the discrete items, the non-GAAP ETR from continuing operations for the third quarter of 20172021 and 20162020 was a 12.8%14.1% provision and a 3.6%17.7% provision, respectively. The change in the non-GAAP ETR was due to the mix of earnings and losses by taxing jurisdictions.jurisdictions and net discrete items.


The ETR and non-GAAP ETR deviate from the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions in whichwhere we generate taxable income or loss, the favorable impact of our significant tax holidays in Malaysia, and judgments as to the realizability of our deferred tax assets. A significant portion of our pre-tax income is subject to a lower tax rate as a result of our Malaysian tax holidays, subject to our annual satisfaction of certain conditions we expect to continue to satisfy. Unless extended or renegotiated, oursatisfy through the holiday period. Our existing significant tax holiday in Malaysia will expire on December 31, 2021. We are pursuing an extension for our current tax holiday and evaluating other strategies to mitigate the impact of the expiring tax holiday. If we are unable to extend the current tax holiday or negotiate acceptable new terms, our ETR may be significantly adversely impacted. For additional information on these tax holidays, refer to Note 11.12. Income Taxes to our Consolidated Financial Statements.

Earnings (loss) from Discontinued Operations, net


Earnings from discontinuedContinuing Operations

Earnings from continuing operations for the third quarter of 2021 was $0.3$27.7 million, compared with earnings of $5.6 million for the third quarter of 2017,2020, an increase of $22.1 million. As described above, the increase is primarily due to increased revenues, higher gross profit margin, lower impairment charges, and reduced legal spending, partially offset by higher income tax expense, stock-based compensation, and incentive compensation.

Earnings and Adjusted Earnings from Continuing Operations Before Interest and Income Taxes

Earnings before interest and income taxes ("EBIT") from continuing operations for the third quarter of 2021 was $36.5 million, compared with a loss of $28.5$12.6 million for the third quarter of 2016.2020, an increase of $23.9 million. The changeincrease in discontinued operationsEBIT was primarily drivendue to increased revenues, higher gross profit margin, lower impairment charges, and reduced legal spending, partially offset by higher stock-based compensation and incentive compensation.

Adjusted earnings before interest and income taxes ("Adjusted EBIT") from continuing operations for the salethird quarter of our Speaker2021 was $52.6 million, compared with $28.8 million for the third quarter of 2020, an increase of $23.8 million. Adjusted EBIT margin (adjusted EBIT from continuing operations as a percentage of revenues) for the third quarter of 2021 was 22.6%, compared with 14.0% for the third quarter of 2020. The increases in Adjusted EBIT and Receiver Product Line on July 7, 2016.Adjusted EBIT margin were primarily due to increased revenues, higher non-GAAP gross profit margin, and reduced legal spending, partially offset by higher incentive compensation.



28

Diluted Earnings per Share from Continuing Operations and Non-GAAP Diluted Earnings per Share from Continuing Operations


Diluted earnings per share from continuing operations was $0.17$0.29 for the third quarter of 2017,2021, compared with $0.24earnings of $0.06 per share for the third quarter of 2016. The decrease in diluted earnings per share was mainly driven2020, an increase of $0.23. As described above, the increase is primarily due to increased revenues, higher gross profit margin, lower impairment charges, and reduced legal spending, partially offset by lower EBIT.higher tax expense, stock-based compensation, and incentive compensation.


Non-GAAP diluted earnings per share from continuing operations was $0.28$0.45 for the third quarter of 2017,2021, compared with $0.37earnings of $0.24 for the third quarter of 2016. The decrease in Non-GAAP diluted earnings per share was mainly driven2020, an increase of $0.21. As described above, the increase is primarily due to increased revenues, higher non-GAAP gross profit margin, and reduced legal spending, partially offset by lower Adjusted EBIT.higher non-GAAP income tax expense and incentive compensation.


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Results of Operations for the Nine Months Ended September 30, 2017 Compared2021 compared with the Nine Months Ended September 30, 20162020

Nine Months Ended September 30,
(in millions, except per share amounts)20212020
Revenues$633.8 $521.1 
Gross profit$258.6 $179.2 
Non-GAAP gross profit$260.7 $182.9 
Earnings (loss) from continuing operations before interest and income taxes$78.6 $(8.6)
Adjusted earnings from continuing operations before interest and income taxes$122.7 $34.9 
Provision for income taxes$8.7 $5.6 
Non-GAAP provision for income taxes$15.5 $3.6 
Earnings (loss) from continuing operations$57.6 $(26.7)
Non-GAAP net earnings from continuing operations$100.9 $24.3 
Earnings (loss) per share from continuing operations - diluted$0.61 $(0.29)
Non-GAAP diluted earnings per share from continuing operations$1.05 $0.26 
  Nine Months Ended September 30,
(in millions, except per share amounts) 2017  2016
Revenues $605.6
  $618.7
      
Gross profit $221.8
  $234.6
Non-GAAP gross profit $233.6
  $240.6
      
Earnings from continuing operations before interest and income taxes $3.3
  $20.5
Adjusted earnings from continuing operations before interest and income taxes $63.9
  $66.0
      
Provision for income taxes $7.5
  $3.8
Non-GAAP provision for income taxes $3.5
  $0.6
      
(Loss) earnings from continuing operations $(19.6)  $1.6
Non-GAAP net earnings $49.3
  $53.3
      
(Loss) earnings per share from continuing operations - diluted $(0.22)  $0.02
Non-GAAP diluted earnings per share $0.53
  $0.59


Revenues


Revenues for the nine months ended September 30, 20172021 were $605.6$633.8 million, compared with $618.7$521.1 million for the nine months ended September 30, 2016, a decrease2020, an increase of $13.1$112.7 million or 2.1%21.6%. Audio revenues decreased $21.5 million primarily due to lower average selling prices in MEMS microphones and hearing health transducers. In addition, shipments of hearing health transducers decreased from prior year as we have been more disciplined with our pricing, partially offset by higher shipments of MEMS microphones to the IoT market. PD revenues increased $8.4$101.2 million, primarily due to higher capacitorshipping volumes as market conditions have improved from 2020, which was negatively impacted by the COVID-19 pandemic. The higher volumes were driven by MEMS microphones in the IoT and timing device product shipments primarily forcomputing markets. The IoT and computing markets are above pre-pandemic levels, with the defense, medical,computing market benefiting from the work-from-home and automotive markets, as well asremote-learning trends. Hearing health demand has returned to pre-pandemic levels. The increased revenues related to our Capacitors Acquisition in January 2017,demand is partially offset by lower pricing.average pricing on mature products. PD revenues increased $11.5 million, primarily due to our acquisition of IMC and higher demand from the industrial, medtech, and electric vehicle markets, partially offset by decreased demand in the communications and defense markets. The medtech market, which includes our high-reliability products used in implantable devices and MRI machines, was impacted by the COVID-19 pandemic in the previous period as hospitals had reduced elective procedures. The demand for our medtech products has returned to pre-pandemic levels.


Cost of Goods Sold


COGS for the nine months ended September 30, 20172021 was $378.2$375.2 million, compared with $382.7$339.6 million for the nine months ended September 30, 2016, a decrease2020, an increase of $4.5$35.6 million or 1.2%10.5%. This decreaseincrease was primarily due to favorable impacts from productivity initiativesthe result of higher shipping volumes and unfavorable foreign currency exchange rate changes, partially offset by increased shipmentsproduct cost reductions, higher factory capacity utilization, and favorable mix.
29


Impairment charges

Restructuring Charges

During the nine months ended September 30, 2017, we2021, there were no restructuring charges recorded total impairmentwithin Gross profit. We recorded restructuring charges of $21.6$0.3 million comprised primarily of $21.3 million of impairment charges related to a specific product line within the Audio segment. We concluded that the projected cash flows from this product line were not sufficient to recover the carrying value of the associated long-lived assets. Total impairment charges of $1.7 million were classified as COGS and $19.9 million were classified as Operating expenses. For additional information on impairment of long-lived assets, refer to Note 3. Impairments to our Consolidated Financial Statements.



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Restructuring Charges


During the nine months ended September 30, 2017,2020, we restructured our Intelligent Audio product line, which is included within our Audio segment. This resulted in a reduction in workforce and the refocusing of certain research and development activities. As a result, we recorded total restructuring charges of $8.3$1.5 million net of a $0.9 million reversal of previouslywithin Gross profit, primarily for fixed asset write-off costs directly associated with the product line. In addition, we recorded restructuring charges. The reversal resulted from subsequent developments that impacted the previously estimated amounts. The restructuring charges consistof $6.8 million within Operating expenses, primarily of actions associated withfor rationalizing the research and development workforce and contract termination costs associated with the continued transfer of our hearing health manufacturing into a lower-cost Asian manufacturing facility. Charges of $3.9 million were classified as COGS and charges of $4.4 million were classified as Operating expenses.product line.

DuringIn addition, during the nine months ended September 30, 2016,2020, we recorded restructuring charges of $10.7$0.8 million comprisedwithin Gross profit, primarily for actions to rationalize the remainder of the Audio segment workforce, as a direct result of the lower demand we experienced from the COVID-19 pandemic for our remaining Audio products. We also recorded restructuring actions associated with the integrationcharges of our acquisition of Audience, Inc. The remaining charges$3.7 million within Operating expenses, primarily relate tofor actions associated with rationalizing the selling and administrative workforce and the residual expenses for the continued transfer of our capacitors business into lower-cost Asian manufacturing facilities. Charges of $1.4 million were classified as COGS and charges of $9.3 million were classified as Operating expenses.remaining Audio workforce.


Gross Profit and Non-GAAP Gross Profit


Gross profit for the nine months ended September 30, 20172021 was $221.8$258.6 million, compared with $234.6$179.2 million for the nine months ended September 30, 2016, a decrease2020, an increase of $12.8$79.4 million or 5.5%44.3%. Gross profit margin (gross profit as a percentage of revenues) for the nine months ended September 30, 20172021 was 36.6%40.8%, compared with 37.9%34.4% for the nine months ended September 30, 2016.2020. The gross profit and margin decreasedincreases were primarily due to lower average selling prices, lower fixed overhead absorption, higher restructuring charges,shipping volumes, product cost reductions, higher factory capacity utilization, positive mix, and production transfer cost activity,net favorable inventory reserve adjustments, partially offset by favorable impacts from productivity initiatives,lower average pricing on mature products, unfavorable foreign currency exchange rate changes, and increased shipments of MEMS microphoneshigher precious metals cost. Our 2021 plant productivity has improved due to the IoT market.our factories returning to pre-pandemic production levels.


Non-GAAP gross profit for the nine months ended September 30, 20172021 was $233.6$260.7 million, compared with $240.6$182.9 million for the nine months ended September 30, 2016, a decrease2020, an increase of $7.0$77.8 million or 2.9%42.5%. Non-GAAP gross profit margin (non-GAAP gross profit as a percentage of revenues) for the nine months ended September 30, 20172021 and 2020 was 38.6%41.1% and 35.1%, compared with 38.9% for the nine months ended September 30, 2016.respectively. The non-GAAP gross profit and margin decreasedincreases were primarily due to lower average selling priceshigher shipping volumes, product cost reductions, higher factory capacity utilization, positive mix, and lower fixed overhead absorption,net favorable inventory reserve adjustments, partially offset by favorable impacts from productivity initiatives,lower average pricing on mature products, unfavorable foreign currency exchange rate changes, and increased shipments of MEMS microphoneshigher precious metals cost. Our 2021 plant productivity has improved due to the IoT market.our factories returning to pre-pandemic production levels.


Research and Development Expenses


Research and development expenses for the nine months ended September 30, 20172021 and 2020 were $76.8 million, compared with $75.2 million for the nine months ended September 30, 2016, an increase of $1.6 million or 2.1%.$70.2 million. Research and development expenses as a percentage of revenues for the nine months ended September 30, 20172021 and 2016 was 12.7%2020 were 11.1% and 12.2%13.5%, respectively. Our expenses have remained consistent, however we have increased development activities in our precision devices, MEMS microphones, and hearing health product lines, which were offset by a reduction in development activities in our Intelligent Audio product line. The decrease in expenses as a percentage of revenues was primarily due to the increase in research and development expenses was driven by compensation increases.our revenues.


Selling and Administrative Expenses


Selling and administrative expenses for the nine months ended September 30, 20172021 were $113.6$108.9 million, compared with $131.3$99.3 million for the nine months ended September 30, 2016, a decrease2020, an increase of $17.7$9.6 million or 13.5%9.7%. Selling and administrative expenses as a percentage of revenues for the nine months ended September 30, 20172021 and 20162020 were 18.8%17.2% and 21.2%19.1%, respectively. The decreaseincrease in expenses was primarily driven by stock-based compensation, incentive compensation, and our acquisition of IMC. Due to the impacts of the COVID-19 pandemic, stock-based compensation in 2021 increased due to certain modifications made to previously granted performance share units, while stock-based compensation in 2020 was lowered due to a change in estimated attainment of certain performance targets. For additional information on stock-based compensation, refer to Note 13. Equity Incentive Program to our Consolidated Financial Statements. The increase in selling and administrative expenses andwas partially offset by lower legal expenses, which were lower due to reduced activity related to the protection of our intellectual property. The decrease in expenses as a percentage of revenues was primarily driven by lower intangible amortization costs and benefitsdue to the increase in our revenues.
30


Earnings and Adjusted Earnings from Continuing Operations Before Interest and Income Taxes


Earnings from continuing operations before interest and income taxesImpairment Charges

Impairment charges for the nine months ended September 30, 2017 was $3.32020 were $4.0 million, compared with $20.5to $7.6 million for the nine months ended September 30, 2016, a decrease of $17.2 million. The decrease2020. These charges relate to facilities in earnings was primarily dueour Intelligent Audio product line. For additional information related to lower gross profit, higherthese impairment charges, in Operating expense, and foreign currency exchange impacts, partially offset by lower intangible amortization costs and benefits ofrefer to Note 5. Impairments to our operating cost reduction initiatives.Consolidated Financial Statements.

Adjusted EBIT for the nine months ended September 30, 2017 was $63.9 million, compared with $66.0 million for the nine months ended September 30, 2016, a decrease of $2.1 million. Adjusted EBIT margin (adjusted EBIT from continuing operations as a percentage of revenues) for the nine months ended September 30, 2017 was 10.6%, compared with 10.7% for the nine months ended September 30, 2016. This decrease was primarily due to a decrease in non-GAAP gross profit and foreign currency exchange impacts, partially offset by lower non-GAAP operating expenses, driven by operating cost reduction initiatives.


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Interest Expense, net


Interest expense for the nine months ended September 30, 20172021 was $15.4$12.3 million, compared with $15.1$12.5 million for the nine months ended September 30, 2016, an increase2020, a decrease of $0.3$0.2 million. The increase in interest expensedecrease is primarily due to non-cash interest expense related to the Company's issuance of $172.5 million aggregate principal amount of 3.25% convertible senior notes due November 1, 2021 in a private placement in May 2016 ("the Notes") and higher interest rates,lower outstanding borrowings, partially offset by lower outstanding borrowings.higher debt discount amortization. For additional information on borrowings and interest expense, refer to Note 9.10. Borrowings to our Consolidated Financial Statements.


Other (Income) Expense, net

Other income for the nine months ended September 30, 2021 was $3.4 million, compared with expense of $0.2 million for the nine months ended September 30, 2020, a change of $3.6 million. The change is primarily due to the impacts from foreign currency exchange rate changes and the appreciation in our investment balances.

Provision for Income Taxes and Non-GAAP Provision for Income Taxes


The ETR from continuing operations for the nine months ended September 30, 20172021 was a 62.0%13.1% provision, compared with a 70.4%26.5% provision for the nine months ended September 30, 2016.2020. The ETR from continuing operations for the the nine months ended September 30, 2017 and 20162021 was impacted by a net discrete benefit totaling $1.4$0.9 million. The ETR from continuing operations for the nine months ended September 30, 2020 was impacted by a net discrete benefit totaling $1.2 million, primarily related to a benefit resulting from an increase to the recognized deferred tax assets in our U.S. and $3.4 million, respectively.Malaysian subsidiaries. Absent the discrete items, the ETR from continuing operations for nine months ended September 30, 2017 was a 73.6% provision, compared to an 133.3% provision for the nine months ended September 30, 2016.2021 and 2020 was a 14.5% provision and a 32.2% provision, respectively. The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions (primarily the U.S.), which resulted in the provision for both the nine months ended September 30, 2021 and 2020. The change in the ETR excluding the discrete items, was due to the mix of earnings and losses by taxing jurisdictions.jurisdictions and net discrete items.


The non-GAAP ETR from continuing operations for the nine months ended September 30, 20172021 was a 6.6%13.3% provision, compared with a 1.1%12.9% provision for the nine months ended September 30, 2016.2020. The non-GAAP ETR from continuing operations for the nine months ended September 30, 20172021 was impacted by a net discrete benefit totaling $3.2$0.6 million. The non-GAAP ETR from continuing operations for the nine months ended September 30, 2020 was impacted by a net discrete benefit totaling $1.4 million, primarily comprised of a $1.3 million benefit for prior year provision to return adjustments recognized during the third quarter of 2017 and a $1.7 million benefit related to thea change in the Company's uncertainindefinite reinvestment assertion related to a portion of undistributed earnings of our Malaysian and Luxembourg subsidiaries and a benefit resulting from an increase to our Malaysian subsidiary's deferred tax positions.assets. Absent the discrete items, the non-GAAP ETR from continuing operations for the nine months ended September 30, 20172021 was a 12.7%13.8% provision, compared to a 0.4% benefit17.9% provision for the nine months ended September 30, 2016.2020. The change in the non-GAAP ETR was due to the mix of earnings and losses by taxing jurisdictions.jurisdictions and net discrete items.


The ETR and non-GAAP ETR deviate from the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions in whichwhere we generate taxable income or loss, the favorable impact of our significant tax holidays in Malaysia, and judgments as to the realizability of our deferred tax assets. A significant portion of our pre-tax income is subject to a lower tax rate as a result of our Malaysian tax holidays, subject to our annual satisfaction of certain conditions we expect to continue to satisfy. Unless extended or renegotiated, oursatisfy through the holiday period. Our existing significant tax holiday in Malaysia will expire on December 31, 2021. We are pursuing an extension for our current tax holiday and evaluating other strategies to mitigate the impact of the expiring tax holiday. If we are unable to extend the current tax holiday or negotiate acceptable new terms, our ETR may be significantly adversely impacted. For additional information on these tax holidays, refer to Note 11.12. Income Taxes to our Consolidated Financial Statements.


31

Earnings (loss)(Loss) from DiscontinuedContinuing Operations net


Earnings from discontinuedcontinuing operations was $2.4for the nine months ended September 30, 2021 were $57.6 million, compared with a loss of $26.7 million for the nine months ended September 30, 2017,2020, an increase of $84.3 million. As described above, the increase is primarily due to higher revenues, higher gross profit margin, lower restructuring charges, reduced legal spending, and lower impairment charges, partially offset by higher stock-based compensation, incentive compensation, and income tax expense.

Earnings (Loss) and Adjusted Earnings from Continuing Operations Before Interest and Income Taxes

Earnings before interest and income taxes from continuing operations for the nine months ended September 30, 2021 were $78.6 million, compared with a loss of $63.2$8.6 million for the nine months ended September 30, 2016.2020, an increase of $87.2 million. The changeincrease in EBIT is primarily due to higher revenues, higher gross profit margin, lower restructuring charges, reduced legal spending, and lower impairment charges, partially offset by higher stock-based compensation and incentive compensation.

Adjusted EBIT from continuing operations for the nine months ended September 30, 2021 was $122.7 million, compared with $34.9 million for the nine months ended September 30, 2020, an increase of $87.8 million. Adjusted EBIT margin for the nine months ended September 30, 2021 was 19.4%, compared with 6.7% for the nine months ended September 30, 2020. The increases in Adjusted EBIT and Adjusted EBIT margin were primarily due to higher revenues, higher non-GAAP gross profit margin, and reduced legal spending, partially offset by higher incentive compensation.

Earnings from Discontinued Operations, net

Earnings from discontinued operations was primarily driven by the sale of our Speaker and Receiver Product Line on July 7, 2016. In addition, the $2.4$0.2 million in earnings in the nine months ended September 30, 2017 was primarily2021, compared with $3.7 million for the nine months ended September 30, 2020. We recorded a resulttax benefit during the second quarter of recording income2021 related to the Speaker and Receiver Product Line. We recorded a tax benefits.benefit for a refund received during the first quarter of 2020 related to the Timing Device Business.


Diluted (loss) earningsEarnings (Loss) per Share from Continuing Operations and Non-GAAP Diluted Earnings per Share from Continuing Operations


Diluted lossearnings per share from continuing operations was $0.22$0.61 for the nine months ended September 30, 2017,2021, compared with earnings per sharea loss of $0.02$0.29 for the nine months ended September 30, 2016. The change in diluted (loss) earnings per share was mainly driven2020, an increase of $0.90. As described above, the increase is primarily due to increased revenues, higher gross profit margin, lower restructuring charges, reduced legal spending, and lower impairment charges, partially offset by lower EBIT.higher stock-based compensation, incentive compensation, and income tax expense.


Non-GAAP diluted earnings per share from continuing operations was $1.05 for the nine months ended September 30, 2017 was $0.53,2021, compared with $0.59$0.26 for the nine months ended September 30, 2016. The decrease in2020, an increase of $0.79. As described above, the increase is primarily due to increased revenues, higher non-GAAP diluted earnings per share was mainly drivengross profit margin, and reduced legal spending, partially offset by lower Adjusted EBIT.higher incentive compensation.



34
32



Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures (1)
Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except share and per share amounts)2021202020212020
Gross profit$96.9 $75.2 $258.6 $179.2 
Stock-based compensation expense0.3 0.4 1.1 1.3 
Restructuring charges— — — 2.3 
Production transfer costs (2)
— — — 0.1 
Other (3)
0.3 — 1.0 — 
Non-GAAP gross profit$97.5 $75.6 $260.7 $182.9 
Earnings (loss) from continuing operations$27.7 $5.6 $57.6 $(26.7)
Interest expense, net4.2 4.7 12.3 12.5 
Provision for income taxes4.6 2.3 8.7 5.6 
Earnings (loss) from continuing operations before interest and income taxes36.5 12.6 78.6 (8.6)
Stock-based compensation expense7.1 4.8 25.6 12.4 
Intangibles amortization expense4.3 3.3 11.5 9.8 
Impairment charges4.0 7.6 4.0 7.6 
Restructuring charges— 0.1 0.3 12.8 
Production transfer costs (2)
— — — 0.1 
Other (3)
0.7 0.4 2.7 0.8 
Adjusted earnings from continuing operations before interest and income taxes$52.6 $28.8 $122.7 $34.9 
Interest expense, net$4.2 $4.7 $12.3 $12.5 
Interest expense, net non-GAAP reconciling adjustments (4)
2.1 1.9 6.0 5.5 
Non-GAAP interest expense$2.1 $2.8 $6.3 $7.0 
Provision for income taxes$4.6 $2.3 $8.7 $5.6 
Income tax effects of non-GAAP reconciling adjustments (5)
2.9 1.4 6.8 (2.0)
Non-GAAP provision for income taxes$7.5 $3.7 $15.5 $3.6 
Earnings (loss) from continuing operations$27.7 $5.6 $57.6 $(26.7)
Non-GAAP reconciling adjustments (6)
16.1 16.2 44.1 43.5 
Interest expense, net non-GAAP reconciling adjustments (4)
2.1 1.9 6.0 5.5 
Income tax effects of non-GAAP reconciling adjustments (5)
2.9 1.4 6.8 (2.0)
Non-GAAP net earnings from continuing operations$43.0 $22.3 $100.9 $24.3 
Diluted earnings (loss) per share from continuing operations$0.29 $0.06 $0.61 $(0.29)
Earnings per share non-GAAP reconciling adjustment0.16 0.18 0.44 0.55 
Non-GAAP diluted earnings per share from continuing operations$0.45 $0.24 $1.05 $0.26 
Diluted average shares outstanding94,143,034 92,473,318 94,780,940 91,707,702 
Non-GAAP adjustment (7)
1,226,016 1,574,586 868,783 2,728,712 
Non-GAAP diluted average shares outstanding (7)
95,369,050 94,047,904 95,649,723 94,436,414 

33
  Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except share and per share amounts) 2017 2016 2017 2016
Gross profit $82.5
 $94.9
 $221.8
 $234.6
Stock-based compensation expense 0.4
 0.4
 1.3
 1.4
Impairment charges 0.3
 —
 1.7
 0.3
Restructuring charges 0.2
 —
 3.9
 1.4
Production transfer costs (2)
 1.5
 0.4
 4.9
 2.9
Non-GAAP gross profit $84.9
 $95.7
 $233.6
 $240.6
         
Earnings (loss) from continuing operations $15.4
 $20.9
 $(19.6) $1.6
Interest expense, net 5.1
 5.6
 15.4
 15.1
Provision for income taxes 0.4
 —
 7.5
 3.8
Earnings from continuing operations before interest and income taxes 20.9
 26.5
 3.3
 20.5
Stock-based compensation expense 6.2
 5.2
 18.6
 16.2
Intangibles amortization expense 1.7
 5.6
 7.0
 16.8
Impairment charges 0.3
 —
 21.6
 0.5
Restructuring charges 1.1
 2.1
 8.3
 10.7
Production transfer costs (2)
 1.5
 0.4
 4.9
 2.9
Other loss (gain)(3)
 —
 0.1
 0.2
 (1.6)
Adjusted earnings from continuing operations before interest and income taxes $31.7
 $39.9
 $63.9
 $66.0
         
Interest expense, net $5.1
 $5.6
 $15.4
 $15.1
Interest expense, net non-GAAP reconciling adjustments(4)
 1.5
 1.4
 4.3
 3.0
Non-GAAP interest expense $3.6
 $4.2
 $11.1
 $12.1
         
Provision for income taxes $0.4
 $—
 $7.5
 $3.8
Income tax effects of non-GAAP reconciling adjustments 1.7
 1.6
 (4.0) (3.2)
Non-GAAP provision for income taxes $2.1
 $1.6
 $3.5
 $0.6
         
Earnings (loss) from continuing operations $15.4
 $20.9
 $(19.6) $1.6
Non-GAAP reconciling adjustments (5)
 10.8
 13.4
 60.6
 45.5
Interest expense, net non-GAAP reconciling adjustments (4)
 1.5
 1.4
 4.3
 3.0
Income tax effects of non-GAAP reconciling adjustments 1.7
 1.6
 (4.0) (3.2)
Non-GAAP net earnings $26.0
 $34.1
 $49.3
 $53.3
         
Diluted earnings (loss) per share from continuing operations $0.17
 $0.24
 $(0.22) $0.02
Earnings per share non-GAAP reconciling adjustment 0.11
 0.13
 0.75
 0.57
Non-GAAP diluted earnings per share $0.28
 $0.37
 $0.53
 $0.59
         
Diluted average shares outstanding 90,373,112
 89,317,806
 89,270,103
 88,997,050
Non-GAAP adjustment (6)
 2,053,916
 1,939,319
 3,173,549
 1,764,683
Non-GAAP diluted average shares outstanding (6)
 92,427,028
 91,257,125
 92,443,652
 90,761,733


35



(1) In addition to the GAAP financial measures included herein, Knowles has presented certain non-GAAP financial measures that exclude certain amounts that are included in the most directly comparable GAAP measures. Knowles believes that non-GAAP measures are useful as supplements to its GAAP results of operations in evaluatingto evaluate certain aspects of its operations and financial performance, and its management team primarily focuses on non-GAAP items in evaluating Knowles' performance for business planning purposes. Knowles also believes that these measures assist it with comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles' opinion, do not reflect its core operating performance. Knowles believes that its presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance. The Company does not consider these non-GAAP financial measures to be a substitute for the information provided by GAAP financial results.
(2) Production transfer costs represent duplicate costs incurred to migrate manufacturing to facilities primarily in Asia. These amounts are included in the corresponding Gross profit and Earnings (loss) from continuing operations before interest and income taxes for each period presented.
(3)    In 2017,2021, Other loss (gain) primarily representsexpenses represent the ongoing net lease cost (income) related to facilities not used in operations and expenses related to the acquisition of certain assets of a capacitor manufacturer.IMC by the PD segment. In 2016,2020, Other loss (gain) primarily represents a gain onexpenses represent the sale of investmentongoing net lease cost (income) related to a non-controlling interestfacilities not used in a MEMs timing device company, partially offset byoperations and expenses related to the Audience Inc. acquisition.shareholder activism.
(4)Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the Company’s $172.5 million of convertible senior notes due 2021 that were issued in a private placement in May 2016. The imputed interest rate is 8.12% for the convertible notes due 2021, while the actual coupon interest rate of the notes was 3.25%. The difference between the imputed interest expense and the coupon interest expense is excluded from management’s assessment of the Company’s operating performance because management believes that this non-cash expense is not indicative of its core, ongoing operating performance.
(5)    Income tax effects of non-GAAP reconciling adjustments are calculated using the applicable tax rates in the jurisdictions of the underlying adjustments.
(6)The non-GAAP reconciling adjustments are those adjustments made to reconcile Earnings (loss) from continuing operations before interest and income taxes to Adjusted earnings from continuing operations before interest and income taxes.
(6) (7)The number of shares used in the diluted per share calculations on a non-GAAP basis excludes the impact of stock-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method. In addition, the Company entered into convertible note hedge transactions to offset any potential dilution from the convertible notes. Although the anti-dilutive impact of the convertible note hedges is not reflected under GAAP, the Company includes the anti-dilutive impact of the convertible note hedges in non-GAAP diluted average shares outstanding, if applicable.



36
34

Segment Results of Operations for the Three Months Ended September 30, 2017 Compared2021 compared with the Three Months Ended September 30, 20162020


The following is a summary of the results of operations of our two reportable segments: Audio and PD.Precision Devices.


See Note 15.16. Segment Information to the Consolidated Financial Statements for (i) a reconciliation of segment revenues to our consolidated revenues and (ii) a reconciliation of segment earnings (loss) from continuing operations before interest and income taxes to our consolidated net earnings (loss) from continuing operations.


Audio
 Three Months Ended September 30,
(in millions)2021Percent of Revenues2020Percent of Revenues
Revenues$177.7 $164.8 
Earnings from continuing operations before interest and income taxes$36.6 20.6%$17.8 10.8%
Stock-based compensation expense2.1 2.2 
Intangibles amortization expense2.7 2.7 
Impairment charges4.0 7.6 
Other (1)
0.3 0.4 
Adjusted earnings from continuing operations before interest and income taxes$45.7 25.7%$30.7 18.6%
(1) Other represents the ongoing net lease cost (income) related to facilities not used in operations.
  Three Months Ended September 30,
(in millions) 2017 Percent of Revenues 2016 Percent of Revenues
Revenues $167.8
 
 $193.4
 
         
Operating earnings $27.7
 16.5% $36.2
 18.7%
Other income, net

 (0.4)   (0.3)  
Earnings from continuing operations before interest and income taxes $28.1
 16.7% $36.5
 18.9%
Stock-based compensation expense 2.8
   2.1
  
Intangibles amortization expense 1.1
   5.2
  
Restructuring charges 0.6
   0.9
  
Production transfer costs (1)
 1.4
   —
  
Adjusted earnings from continuing operations before interest and income taxes ("Adjusted EBIT") $34.0
 20.3% $44.7
 23.1%
         
(1) Production transfer costs represent duplicate costs incurred to migrate manufacturing to facilities in Asia. These amounts are included in earnings from continuing operations before interest and income taxes for each period presented.


Revenues


Audio revenuesRevenues were $167.8$177.7 million for the third quarter of 2017,2021, compared with $193.4$164.8 million for the third quarter of 2016, a decrease2020, an increase of $25.6$12.9 million or 13.2%7.8%. Revenues decreasedincreased primarily due to lower shipments ofhigher shipping volumes as market conditions have improved from 2020, which was negatively impacted by the COVID-19 pandemic. The higher volumes were driven by MEMS microphones to one of our North American customers as a result of the later than prior year ramp of new handsets, weakness at key Chinese handset OEMs, and lower average selling prices in MEMS microphones and hearing health transducers. In addition, shipments of hearing health transducers decreased from prior year as we have been more disciplined with our pricing. These decreases were partially offset by higher shipments of MEMS microphones to the IoT market.and computing markets. The IoT and computing markets are above pre-pandemic levels, with the computing market benefiting from the work-from-home and remote-learning trends. Hearing health demand has returned to pre-pandemic levels.


Earnings and Adjusted Earnings from Continuing Operations Before Interest and Income Taxes


Earnings from continuing operations before interest and income taxesEBIT was a $28.1$36.6 million for the third quarter of 2017,2021, compared with $36.5earnings of $17.8 million for the third quarter of 2016, a decrease2020, an increase of $8.4$18.8 million. The decrease wasincreases were primarily due to an overall decreasehigher revenues, higher gross profit margin, a reduction in shipmentsimpairment charges, and lower legal expenses in connection with the protection of MEMS microphonesour intellectual property. The gross profit margin increase was driven by product cost reductions, positive mix, and hearing health transducers, lower average selling prices, lower fixed overhead absorption, and a decrease in production transfer costs,higher factory capacity utilization, partially offset by benefits fromunfavorable foreign currency exchange rate changes and net unfavorable inventory reserve adjustments. Our 2021 plant productivity has improved due to our productivity initiatives, lower amortization expenses, and the benefits of our operating cost reduction initiatives.factories returning to pre-pandemic production levels.


Adjusted EBIT was $34.0$45.7 million for the third quarter of 2017,2021, compared with $44.7$30.7 million for the third quarter of 2016, a decrease2020, an increase of $10.7$15.0 million. Adjusted EBIT margin for the third quarter of 20172021 was 20.3%25.7%, compared to 23.1%18.6% for the third quarter of 2016.2020. The decrease wasincreases were primarily due to an overall decrease in shipments of MEMS microphones and hearing health transducers, lower average selling prices,higher revenues, higher gross profit margin, and lower fixed overhead absorption,legal expenses in connection with the protection of our intellectual property. The gross profit margin increase was driven by product cost reductions, positive mix, and higher factory capacity utilization, partially offset by benefits fromunfavorable foreign currency exchange rate changes and net unfavorable inventory reserve adjustments. Our 2021 plant productivity has improved due to our productivity initiatives and the benefits of our operating cost reduction initiatives.factories returning to pre-pandemic production levels.



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35



Precision Devices
  Three Months Ended September 30,
(in millions) 2017 Percent of Revenues 2016 Percent of Revenues
Revenues $53.9
   $49.7

 
         
Operating earnings $6.4
 11.9% $5.3
 10.7%
Other income, net (0.2)   —
  
Earnings before interest and income taxes ("EBIT") $6.6
 12.2% $5.3
 10.7%
Stock-based compensation expense 0.2
   0.3
  
Intangibles amortization expense 0.6
   0.4
  
Impairment charges 0.3
   —
  
Production transfer costs (1)
 0.1
   0.4
  
Adjusted earnings before interest and income taxes ("Adjusted EBIT") $7.8
 14.5% $6.4
 12.9%
 
(1) Production transfer costs represent duplicate costs incurred to migrate manufacturing to lower-cost facilities. These amounts are included in earnings before interest and income taxes for each period presented.

 Three Months Ended September 30,
(in millions)2021Percent of Revenues2020Percent of Revenues
Revenues$55.3 $41.0 
Earnings from continuing operations before interest and income taxes$14.0 25.3%$8.0 19.5%
Stock-based compensation expense0.7 0.2 
Intangibles amortization expense1.6 0.6 
Restructuring charges— 0.1 
Other (1)
0.3 — 
Adjusted earnings from continuing operations before interest and income taxes$16.6 30.0%$8.9 21.7%
(1) Expenses related to the acquisition of IMC.
Revenues


PD revenuesRevenues were $53.9$55.3 million for the third quarter of 2017,2021, compared with $49.7$41.0 million for the third quarter of 2016,2020, an increase of $4.2$14.3 million or 8.5%34.9%. Revenues increased primarily due to our acquisition of IMC and higher capacitor shipments primarily fordemand from the medtech, industrial, defense, medical, and automotiveelectric vehicle markets as well as increased revenues related to our Capacitors Acquisition in January 2017,, partially offset by lower pricing.decreased demand in the communications market. The medtech market, which includes our high-reliability products used in implantable devices and MRI machines, was impacted by the COVID-19 pandemic in the previous period as hospitals had reduced elective procedures. The demand for our medtech products has returned to pre-pandemic levels.

Earnings and Adjusted Earnings Before Interest and Income Taxes

PD EBIT was $6.6 million for the third quarter of 2017, compared with $5.3 million for the third quarter of 2016, an increase of $1.3 million. EBIT margin for the third quarter of 2017 was 12.2%, compared to 10.7% for the third quarter of 2016. The increases were primarily due to benefits from productivity initiatives, increased shipments, and realized cost savings from our production transfers to lower-cost Asian manufacturing facilities, partially offset by lower pricing.

PD Adjusted EBIT was $7.8 million for the third quarter of 2017, compared with $6.4 million for the third quarter of 2016, an increase of $1.4 million. Adjusted EBIT margin for the third quarter of 2017 was 14.5%, compared with 12.9% for the third quarter of 2016. The increases were primarily due to benefits from productivity initiatives, increased shipments, and realized cost savings from our production transfers to lower-cost Asian manufacturing facilities, partially offset by lower pricing.


38

Segment Results of Operations for the Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016

The following is a summary of the results of operations of our two reportable segments: Audio and PD.

See Note 15. Segment Information to the Consolidated Financial Statements for (i) a reconciliation of segment revenues to our consolidated revenues and (ii) a reconciliation of segment earnings from continuing operations before interest and income taxes to our consolidated net earnings (loss) from continuing operations.

Audio
  Nine Months Ended September 30,
(in millions) 2017 Percent of Revenues 2016 Percent of Revenues
Revenues $450.1
   $471.6
  
         
Operating earnings $30.7
 6.8% $49.6
 10.5%
Other expense (income), net 0.8
   (1.0)  
Earnings from continuing operations before interest and income taxes ("EBIT") $29.9
 6.6% $50.6
 10.7%
Stock-based compensation expense 8.4
   7.1
  
Intangibles amortization expense 5.3
   15.6
  
Impairment charges 21.3
   0.5
  
Restructuring charges 6.0
   7.1
  
Production transfer costs (1)
 4.2
   1.0
  
Other loss —
   0.1
  
Adjusted earnings from continuing operations before interest and income taxes ("Adjusted EBIT") $75.1
 16.7% $82.0
 17.4%
         
(1) Production transfer costs represent duplicate costs incurred to migrate manufacturing to facilities in Asia. These amounts are included in earnings from continuing operations before interest and income taxes for each period presented.

Revenues

Audio revenues were $450.1 million for the nine months ended September 30, 2017, compared with $471.6 million for the nine months ended September 30, 2016, a decrease of $21.5 million or 4.6%. Revenues decreased primarily due to lower average selling prices in MEMS microphones and hearing health transducers. In addition, shipments of hearing health transducers decreased from prior year as we have been more disciplined with our pricing, partially offset by higher shipments of MEMS microphones to the IoT market.


39


Earnings and Adjusted Earnings from Continuing Operations Before Interest and Income Taxes


Audio EBIT was $29.9$14.0 million for the third quarter of 2021, compared with $8.0 million for the third quarter of 2020, an increase of $6.0 million. EBIT margin for the third quarter of 2021 was 25.3%, compared to 19.5% for the third quarter of 2020. The increases were primarily due to higher revenues, including the acquisition of IMC and higher gross profit margin, partially offset by IMC operating expenses and an increase in intangible amortization. The gross profit margin increase was driven by the benefits of productivity initiatives, higher factory utilization, and net favorable inventory reserve adjustments, partially offset by higher precious metals cost and unfavorable mix. Our 2021 plant productivity has improved due to our factories returning to pre-pandemic production levels.

Adjusted EBIT was $16.6 million for the third quarter of 2021, compared with $8.9 million for the third quarter of 2020, an increase of $7.7 million. Adjusted EBIT margin for the third quarter of 2021 was 30.0%, compared with 21.7% for the third quarter of 2020. The increases were primarily due to higher revenues, including the acquisition of IMC and higher gross profit margin, partially offset by IMC operating expenses. The gross profit margin increase was driven by the benefits of productivity initiatives, higher factory utilization, and net favorable inventory reserve adjustments, partially offset by higher precious metals cost and unfavorable mix. Our 2021 plant productivity has improved due to our factories returning to pre-pandemic production levels.














36

Segment Results of Operations for the Nine Months Ended September 30, 2021 compared with the Nine Months Ended September 30, 2020

Audio
 Nine Months Ended September 30,
(in millions)2021Percent of Revenues2020Percent of Revenues
Revenues$490.6 $389.4 
Earnings (loss) from continuing operations before interest and income taxes$95.0 19.4%$(0.5)
NM (2)
Stock-based compensation expense7.8 8.4 
Intangibles amortization expense8.1 8.0 
Impairment charges4.0 7.6 
Restructuring charges0.3 11.0 
Other (1)
1.2 0.4 
Adjusted earnings from continuing operations before interest and income taxes$116.4 23.7%$34.9 9.0%
(1) Other represents the ongoing net lease cost (income) related to facilities not used in operations.
(2) Not meaningful.

Revenues

Revenues were $490.6 million for the nine months ended September 30, 2017,2021, compared with $50.6$389.4 million for the nine months ended September 30, 2016, a decrease2020, an increase of $20.7 million. EBIT margin for the nine months ended September 30, 2017 was 6.6%, compared to 10.7% for the nine months ended September 30, 2016. The decrease was$101.2 million or 26.0%. Revenues increased primarily due to lower average selling prices, higher impairments of long-lived assets, lower fixed overhead absorption,shipping volumes as market conditions have improved from 2020, which was negatively impacted by the COVID-19 pandemic. The higher volumes were driven by MEMS microphones in the IoT and computing markets. The IoT and computing markets are above pre-pandemic levels, with the computing market benefiting from the work-from-home and remote-learning trends. Hearing health demand has returned to pre-pandemic levels. The increased restructuring charges,demand is partially offset by benefitslower average pricing on mature products.

Earnings (Loss) and Adjusted Earnings from our productivity initiatives, lower amortization expenses, benefits of our operating cost reduction initiatives, favorable impactsContinuing Operations Before Interest and Income Taxes

Earnings from foreign currency exchange rate changes,continuing operations before interest and higher shipments of MEMS microphones.

Audio Adjusted EBIT was $75.1income taxes were $95.0 million for the nine months ended September 30, 2017,2021, compared with $82.0a loss from continuing operations before interest and income taxes of $0.5 million for the nine months ended September 30, 2016,2020, an increase of $95.5 million. The increases were primarily due to higher revenues, higher gross profit margin, a decreasereduction in restructuring charges, lower legal expenses in connection with the protection of $6.9our intellectual property, a reduction in operating expenses, and lower impairment charges. The gross profit margin increase was driven by product cost reductions, higher factory capacity utilization, positive mix, and net favorable inventory reserve adjustments, partially offset by lower average pricing on mature products and unfavorable foreign currency exchange rate changes. Our 2021 plant productivity has improved due to our factories returning to pre-pandemic production levels. Our reduction in operating costs was primarily driven by headcount reductions in our Intelligent Audio product line.

Adjusted EBIT was $116.4 million for the nine months ended September 30, 2021, compared with $34.9 million for the nine months ended September 30, 2020, an increase of $81.5 million. Adjusted EBIT margin for the nine months ended September 30, 20172021 was 16.7%23.7%, compared to 17.4%9.0% for the nine months ended September 30, 2016.2020. The decrease wasincreases were primarily due to higher revenues, higher gross profit margin, lower average selling priceslegal expenses in connection with the protection of our intellectual property, and lower fixed overhead absorption,a reduction in operating expenses. The gross profit margin increase was driven by product cost reductions, higher factory capacity utilization, positive mix, and net favorable inventory reserve adjustments, partially offset by benefits from our productivity initiatives, benefits of our operating cost reduction initiatives, favorable impacts fromlower average pricing on mature products and unfavorable foreign currency exchange rate changes, and higher shipmentschanges. Our 2021 plant productivity has improved due to our factories returning to pre-pandemic production levels. Our reduction in operating costs was primarily driven by headcount reductions in our Intelligent Audio product line.


37


Precision Devices
 Nine Months Ended September 30,
(in millions)2021Percent of Revenues2020Percent of Revenues
Revenues$143.2 $131.7 
Earnings from continuing operations before interest and income taxes$28.3 19.8%$26.2 19.9%
Stock-based compensation expense2.1 0.5 
Intangibles amortization expense3.4 1.8 
Restructuring charges— 0.1 
Production transfer costs (1)
— 0.1 
Other (2)
1.0 — 
Adjusted earnings from continuing operations before interest and income taxes$34.8 24.3%$28.7 21.8%
(1) Production transfer costs represent duplicate costs incurred to migrate manufacturing to existing facilities. These amounts are included in earnings from continuing operations before interest and income taxes for each period presented.
(2) Expenses related to the acquisition of IMC.
  Nine Months Ended September 30,
(in millions) 2017 Percent of Revenues 2016 Percent of Revenues
Revenues $155.5
   $147.1

 
         
Operating earnings $17.6
 11.3% $10.1
 6.9%
Other income, net (0.4)   (0.2)  
Earnings before interest and income taxes ("EBIT") $18.0
 11.6% $10.3
 7.0%
Stock-based compensation expense 0.6
   0.7
  
Intangibles amortization expense 1.7
   1.2
  
Impairment charges 0.3
   —
  
Restructuring charges 0.3
   2.1
  
Production transfer costs (1)
 0.7
   1.9
  
Other loss 0.1
   —
  
Adjusted earnings before interest and income taxes ("Adjusted EBIT") $21.7
 14.0% $16.2
 11.0%
 
(1) Production transfer costs represent duplicate costs incurred to migrate manufacturing to lower-cost facilities. These amounts are included in earnings before interest and income taxes for each period presented.


Revenues


PD revenuesRevenues were $155.5$143.2 million for the nine months ended September 30, 2017,2021, compared with $147.1$131.7 million for the nine months ended September 30, 2016,2020, an increase of $8.4$11.5 million or 5.7%8.7%. Revenues increaseddecreased primarily due to our acquisition of IMC and higher capacitor demand from the industrial, medtech, and timing device product shipments primarily for the defense, medical, and automotiveelectric vehicle markets as well as increased revenues related to our Capacitors Acquisition in January 2017,, partially offset by lower pricing.decreased demand in the communications and defense markets. The medtech market, which includes our high-reliability products used in implantable devices and MRI machines, was impacted by the COVID-19 pandemic in the previous period as hospitals had reduced elective procedures. The demand for our medtech products has returned to pre-pandemic levels.


Earnings and Adjusted Earnings from Continuing Operations Before Interest and Income Taxes


PD EBIT was $18.0$28.3 million for the nine months ended September 30, 2017,2021, compared with $10.3$26.2 million for the nine months ended September 30, 2016,2020, an increase of $7.7$2.1 million. EBIT margin for the nine months ended September 30, 20172021 was 11.6%19.8%, compared to 7.0%19.9% for the nine months ended September 30, 2016. The increases were2020. EBIT increased primarily due to benefits from productivity initiatives, increased shipments, lower restructuring charges,higher revenues and production transfer costs, along with realized cost savings from our production transfers to lower-cost Asian manufacturing facilities,gross profit margin, partially offset by lowerIMC operating expenses, increases in intangible amortization, and stock-based compensation. The gross profit margin increase was driven by benefits of productivity initiatives, higher factory utilization, net favorable inventory reserve adjustments, and higher pricing, partially offset by higher precious metals cost and lower fixed overhead absorption.unfavorable foreign currency exchange rate changes. EBIT margin was consistent with the prior period. Our 2021 plant productivity has improved due to our factories returning to pre-pandemic production levels.



40

PD Adjusted EBIT was $21.7$34.8 million for the nine months ended September 30, 2017,2021, compared with $16.2$28.7 million for the nine months ended September 30, 2016,2020, an increase of $5.5$6.1 million. Adjusted EBIT margin for the nine months ended September 30, 20172021 was 14.0%24.3%, compared with 11.0%21.8% for the nine months ended September 30, 2016.2020. The increases were primarily due to benefits from productivity initiatives, increased shipments,higher revenues and realized cost savings from our production transfers to lower-cost Asian manufacturing facilities,gross profit margin, partially offset by lower pricing.



IMC operating expenses. The gross profit margin increase was driven by benefits of productivity initiatives, higher factory utilization, net favorable inventory reserve adjustments, and higher pricing, partially offset by higher precious metals cost and unfavorable foreign currency exchange rate changes. Our 2021 plant productivity has improved due to our factories returning to pre-pandemic production levels.
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38

Liquidity and Capital Resources


Historically, we have generated and expect to continue to generate positive cash flow from operations. Our ability to fund our operations and capital needs will depend on our ongoing ability to generate cash from operations and access to capital markets. We believe that our future cash flow from operations and access to capital markets will provide adequate resources to fund our working capital needs, and capital expenditures, for at least the next twelve months.strategic investments, and share repurchases. We have secured a revolving line of credit in the United States from a syndicate of commercial banks to provide additional liquidity. Furthermore, if we were to require additional cash in the United States above and beyond our domestic cash on the balance sheet, the free cash flow generated by the domestic businessesbusiness, and availability under our revolving credit facility, we would most likely seek to raise long-term financing through the U.S. capital marketsdebt or private borrowings. Our ability to make payments on and to refinance our indebtedness as well as any debt that we may incur in the future, will depend on our ability in the future to generate cash from operations, financings or asset sales, and the tax consequences of our repatriation of overseas cash.bank markets.


In May 2016, we sold $172.5 million aggregate principal amount of 3.25% convertible senior notes due November 1, 2021 ("the Notes") and concurrently entered into convertible note hedge transactions with respect to our common stock to minimize the potential dilution upon conversion of the Notes. We have elected to settle the principal amount of the Notes in cash. If the conversion value exceeds the principal amount of the Notes, we will deliver shares of our common stock to settle the remainder of our obligation. In addition, we entered into warrant transactions whereby we sold warrants to acquire shares of our common stock at a strike price of $21.1050 per share. The Notes will mature inon November 1, 2021, unless earlier converted. The Notes are unsecured, senior obligations and interest is payable semi-annually in arrears. The Notes will be convertible into cash, shares of our common stock, or a combination thereof, at our election. We have primarily used the net proceeds to reduce borrowings outstanding under our term loan facility.outstanding. For additional information, refer to Note 9.10. Borrowings to our Consolidated Financial Statements.


On July 7, 2016,February 24, 2020, we completed the saleannounced that our Board of Directors had authorized a share repurchase program of up to $100 million of our Speakercommon stock. The timing and Receiver Product Line for $45.0 millionamount of any shares repurchased will be determined by us based on our evaluation of market conditions and other factors, and will be made in cash, lessaccordance with applicable securities laws in either the open market or in privately negotiated transactions. We are not obligated to purchase any shares under the program, and the program may be suspended or discontinued at any time. The actual timing, number, and share price adjustmentsof shares repurchased will depend on a number of factors, including the market price of our common stock, general market and economic conditions, and applicable legal requirements. Any shares repurchased will be held as treasury stock. During the nine months ended September 30, 2021, we repurchased 1,011,124 shares of common stock for a net amount receivedtotal of $40.6$20.0 million. We have primarily used the net proceeds to reduce borrowings outstanding under our

On September 4, 2020, we entered into a new Credit Agreement (the "New Credit Agreement"). The New Credit Agreement provides for a senior secured revolving credit facility. Referfacility (the "New Credit Facility") with borrowings in an aggregate principal amount at any time outstanding not to exceed $400.0 million. For additional information, refer to Note 2. Disposed and Discontinued Operations10. Borrowings to our Consolidated Financial Statements for additional information.Statements.


On January 11, 2017,May 3, 2021, we completed an acquisitionacquired all of certain assetsthe outstanding shares of a capacitors manufacturercommon stock of IMC for cash consideration of $4.0 million, of which $2.5 million was paid during$80.7 million. The acquired business provides RF filters to the first quarter of 2017, with the remaining $1.5 million to be paid quarterly in equal installments from 2018 through 2019, less any purchase price adjustments. Thisdefense, industrial, and communications markets. The acquisition's operations are included in the PD segment.

On October 11, 2017, we entered into a Revolving Credit Facility Agreement (the "New Credit Facility"). For additional information, refer to Note 17. Subsequent Events4. Acquisition to our Consolidated Financial Statements.


On October 26, 2017, the Company entered into an agreementOur ability to sell its timing device (oscillator) business, part of the Precision Devices segment,make payments on and to Microsemi Corporation for $130.0 million, subject to purchase price adjustments for working capital. This transaction is subject to regulatory approval and customary closing conditions. We expect the transaction to closerefinance our indebtedness, as well as any debt that we may incur in the fourth quarter of 2017 and that itfuture, will be slightly dilutive to future earnings. As a result, the Company expects to reclassify the assets, liabilities, and results of operations of the product line to discontinued operationsdepend on our ability in the fourth quarterfuture to generate cash from operations and financings. Due to the global nature of 2017. For additional information, refer to Note 17. Subsequent Events to our Consolidated Financial Statements.

operations, a significant portion of our cash is generated and typically held outside the United States. Our cash and cash equivalents totaled $57.7$140.0 million and $66.2$147.8 million at September 30, 20172021 and December 31, 2016,2020, respectively. Of these amounts, cash held by our non-U.S. operations totaled $55.0$83.2 million and $58.4$101.4 million as of September 30, 20172021 and December 31, 2016,2020, respectively.



To the extent we repatriate these funds to the U.S., we may be required to pay U.S. state income taxes and applicable foreign withholding taxes on those amounts during the period when such repatriation occurs. Management will continue to reassess our need to repatriate the earnings of our foreign subsidiaries.

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39



Cash Flow Summary


Cash flows from operating, investing, and financing activities as reflected in our Consolidated Statements of Cash Flows are summarized in the following table:
 Nine Months Ended September 30,
(in millions)20212020
Net cash flows provided by (used in):  
Operating activities$116.6 $52.6 
Investing activities(109.4)(20.3)
Financing activities(14.9)28.2 
Effect of exchange rate changes on cash and cash equivalents(0.1)0.2 
Net (decrease) increase in cash and cash equivalents$(7.8)$60.7 
  Nine Months Ended September 30,
(in millions) 2017 2016
Net cash flows provided by (used in):    
Operating activities $31.1
 $37.8
Investing activities (45.4) 13.6
Financing activities 5.0
 (54.5)
Effect of exchange rate changes on cash and cash equivalents 0.8
 (0.2)
Net decrease in cash and cash equivalents $(8.5) $(3.3)


Operating Activities


Cash provided by operating activities in 2017 decreased $6.72021 increased $64.0 million compared to 2016,2020, primarily due to aan improvement in net earnings, which was largely driven by higher investmentrevenues and improved gross profit margins. The improvement in adjusted working capital (a non-GAAP measure calculated as receivables, net of allowances, plus inventories, less accounts payable) of $50.6 million,earnings was partially offset by lower cash operating expenses. During 2017,the net sum of unfavorable changes in accounts receivable, inventories, and accounts payable, which is attributable to higher customer demand and increased to support the launch of new handsets at our largest customer and in conjunction with the transfer of certain hearing health production from China to our facility in the Philippines.activity.


Investing Activities


The cash used in investing activities during 20172021 was primarily driven by the acquisition of IMC and capital expenditures to support product innovation and cost savings. The cash used in investing activities during 2020 was driven by capital expenditures to support our manufacturing capacity expansion and the Capacitors Acquisition. The cash provided by investing activities in 2016 was driven by the $40.6 million of proceeds received from the sale of our Speaker and Receiver Product Line, partially offset by capital expenditures.expansion.


In 2017,2021, we expect capital expenditures to be in the range of 5.0% to 6.0% to 8.0% of revenue.revenues.


Financing Activities


Cash provided byused in financing activities during 20172021 is primarily related to the borrowings under our revolving credit facility$20.0 million of $15.0 millionrepurchases of common stock and the $3.3 million of proceeds received for option exercises, partially offset by the $7.2 million principal payment on our term loan and the $4.9$7.6 million payment of taxes related to net share settlement of equity awards, whereas cash used in financing activities for 2016 was primarily related to the $166.5 million in principal payments to our term loan, a $44.5 million purchase of convertible note hedges, $45.0 million in net payments to our revolving credit facility, and the $6.7 million of debt issuance costs, partially offset by proceeds of $172.5$14.4 million from the issuanceexercise of convertible senior notes and $39.1options. Cash provided by financing activities during 2020 is primarily related to the net borrowings under our revolving credit facility of $50.0 million, partially offset by the $15.0 million of proceeds fromrepurchases of common stock and the issuance$6.1 million payment of warrants. For additional information on our debt, see Note 9. Borrowingstaxes related to our Consolidated Financial Statements.net share settlement of equity awards.


Contingent Obligations


We are involved in various legal proceedings, claims, and investigations arising in the ordinary course of business. Legal contingencies are discussed in Note 14.15. Commitments and Contingent Liabilities to our Consolidated Financial Statements.


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Borrowings


Borrowings (net of debt issuance costs, debt discount, and amortization) consist of the following:
(in millions)September 30, 2021December 31, 2020
3.25% convertible senior notes$171.8 $165.1 
Revolving credit facility— — 
Total171.8 165.1 
Less current maturities171.8 165.1 
Total long-term debt$— $— 

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(in millions) September 30, 2017 December 31, 2016
3.25% Convertible Senior Notes $140.2
 $135.1
Term loan and revolving credit facility 171.0
 163.1
Total 311.2
 298.2
Less: current maturities 13.3
 9.7
Total long-term debt $297.9
 $288.5
Commitments under the New Credit Facility will terminate, and loans outstanding thereunder will mature, on January 2, 2024; provided, that if all the Notes have not been repaid, refinanced, and/or converted to our common stock by August 2, 2021 (the "Springing Maturity Test Date"), then the commitments under the New Credit Facility will terminate, and the loans outstanding thereunder will mature, on such earlier date unless, from and after the Springing Maturity Test Date and for so long as the Notes have not been repaid, refinanced, and/or converted to our common stock, we do not permit liquidity (as defined in the New Credit Agreement) for any period of three consecutive business days to be less than $150.0 million. We maintained the required liquidity from August 2, 2021 through September 30, 2021.


The interest rate under the term loan and revolving credit facilityNew Credit Facility is variable based on LIBOR at the time of the borrowing and the Company'sour total leverage as measured by a total indebtedness to Consolidated EBITDA ratio (as defined in the agreements governing the facilities).ratio. Based upon the Company'sour total indebtedness to Consolidated EBITDAleverage ratio, the Company'sour borrowing rate could range from LIBOR + 1.25%1.50% to LIBOR + 2.25%2.50%. In addition, a commitment fee accrues on the average daily unused portion of the New Credit Facility at a rate of 0.225% to 0.375%. At September 30, 2017,2021, we were in compliance with all covenants under these facilities.


Critical Accounting Policies and Estimates


This discussion and analysis of results of operations and financial condition is based on our Consolidated Financial Statements, which have been prepared in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses, and related disclosures. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. Estimates are revised periodically. Actual results could differ from these estimates.


The information concerning our critical accounting policies can be found under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the Securities and Exchange Commission on February 21, 2017.10, 2021. There are no material changes in our previously reported critical accounting policies.


Recent Accounting Standards


The adoption of recent accounting standards, as included in Note 16.2. Recent Accounting Standards to our Consolidated Financial Statements, has not had and is not expected to have a significant impact on our revenue, earnings, or liquidity.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk


During the nine months ended September 30, 2017, 2021, there were no material changes to the information on market risk exposure disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2020. For a discussion of our exposure to market risk as of December 31, 2016,2020, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.


Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Our management has evaluated, under the supervision and with the participation of our chief executive officer ("CEO") and chief financial officer ("CFO"), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.


Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the third quarter of 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, will be detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by intentionally falsified documentation, by collusion of two or more individuals within Knowles or third parties, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.


PART II — OTHER INFORMATION


Item 1. Legal Proceedings


For a discussion of contingencies related to legal proceedings, see Note 14.15. Commitments and Contingent Liabilities to our Consolidated Financial Statements, which is incorporated herein by reference.


Except as otherwise noted above, there have been no material developments in legal proceedings.

Item 1A. Risk Factors


For a discussion of our potential risks and uncertainties, seeThere have been no material changes from the informationrisk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. There are no material developments2020, as updated in our previously reported risk factors.Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.



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

Issuer Purchases of Equity Securities

On February 24, 2020, the Company announced that its Board of Directors had authorized a share repurchase program of up to $100 million of the Company's common stock. The timing and amount of any shares repurchased will be determined by the Company based on its evaluation of market conditions and other factors, and will be made in accordance with applicable securities laws in either the open market or in privately negotiated transactions. The Company is not obligated to purchase any shares under the program, and the program may be suspended or discontinued at any time. The actual timing, number, and share price of shares repurchased will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal requirements. Any shares repurchased will be held as treasury stock.

The Company did not repurchase any shares of its common stock during the three months ended September 30, 2021. As of September 30, 2021, the remaining amount authorized for share repurchases was $63.8 million.


Item 6. Exhibits
Revolving Credit Facility Agreement dated as of October 11, 2017 between Knowles Corporation, JPMorgan Chase Bank, N.A. and the lenders named therein, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Commission on October 13, 2017 and incorporated by reference herein.
10.2
Knowles Corporation Nonemployee Director Deferral Program filed herewith.
10.3
Master Sale and Purchase Agreement among Knowles Corporation, Vectron International, Inc. and Microsemi Corporation dated as of October 26, 2017 filed herewith.
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Joint Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following financial information from Knowles Corporation's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20172021 formatted in XBRL (eXtensible Business Reporting Language):Inline XBRL: (i) Consolidated Statements of Earnings (Unaudited) for the three and nine months ended September 30, 20172021 and 2016,2020, (ii) Consolidated Statements of Comprehensive Earnings (Unaudited) for the three and nine months ended September 30, 20172021 and 2016,2020, (iii) Consolidated Balance Sheets (Unaudited) as of September 30, 20172021 and December 31, 2016,2020, (iv) Consolidated StatementStatements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2017,2021 and 2020, (v) Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 20172021 and 2016,2020, and (vi) the Notes to the Consolidated Financial Statements (Unaudited) tagged as blocks of text and including detailed tags.
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101.





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Signatures


Pursuant to the requirements 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.

KNOWLES CORPORATION
Date:October 28, 2021/s/ John S. Anderson
John S. Anderson
Senior Vice President & Chief Financial Officer
(Principal Financial Officer)
KNOWLES CORPORATION
Date:October 30, 2017/s/ John S. Anderson
John S. Anderson
Senior Vice President & Chief Financial Officer
(Principal Financial Officer)



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