UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020.

or

☐ 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)

Delaware	90-1002689
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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 class	Trading symbol	Name of each exchange on which registered
Common stock, $0.01 par value per share	KN	New 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 ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☑  No ☐

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.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No  ☑

The number of shares outstanding of the registrant’s common stock as of October 27, 2020 was 91,673,777.

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, 2020 and 2019	1
	Consolidated Statements of Comprehensive Earnings (unaudited) for the three and nine months ended September 30, 2020 and 2019	2
	Consolidated Balance Sheets (unaudited) at September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Stockholders' Equity (unaudited) for the three and nine months ended September 30, 2020 and 2019	3
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2020 and 2019	6
	Notes to Consolidated Financial Statements (unaudited)	7
Forward-Looking Statements		24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II — OTHER INFORMATION		43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	44
SIGNATURES		45

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,
	2020		2019		2020		2019
Revenues	$	205.8	$	235.9	$	521.1	$	620.9
Cost of goods sold	130.6		142.3		339.6		381.5
Restructuring charges - cost of goods sold	—		0.1		2.3		1.0
Gross profit	75.2		93.5		179.2		238.4
Research and development expenses	21.9		23.4		70.2		73.1
Selling and administrative expenses	32.0		34.6		99.3		111.1
Impairment charges	7.6		—		7.6		—
Restructuring charges	0.1		1.9		10.5		3.8
Operating expenses	61.6		59.9		187.6		188.0
Operating earnings (loss)	13.6		33.6		(8.4)		50.4
Interest expense, net	4.7		3.8		12.5		10.9
Other expense (income), net	1.0		(0.6)		0.2		(0.1)
Earnings (loss) before income taxes and discontinued operations	7.9		30.4		(21.1)		39.6
Provision for income taxes	2.3		5.0		5.6		11.0
Earnings (loss) from continuing operations	5.6		25.4		(26.7)		28.6
Earnings from discontinued operations, net	—		—		3.7		—
Net earnings (loss)	$	5.6	$	25.4	$	(23.0)	$	28.6
Earnings (loss) per share from continuing operations:
Basic	$	0.06	$	0.28	$	(0.29)	$	0.31
Diluted	$	0.06	$	0.27	$	(0.29)	$	0.31
Earnings per share from discontinued operations:
Basic	$	—	$	—	$	0.04	$	—
Diluted	$	—	$	—	$	0.04	$	—
Net earnings (loss) per share:
Basic	$	0.06	$	0.28	$	(0.25)	$	0.31
Diluted	$	0.06	$	0.27	$	(0.25)	$	0.31
Weighted-average common shares outstanding:
Basic	91,688,765		91,398,539		91,707,702		90,988,468
Diluted	92,473,318		93,859,446		91,707,702		92,655,874

See accompanying Notes to Consolidated Financial Statements

1

KNOWLES CORPORATION 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(in millions)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net earnings (loss)	$	5.6	$	25.4	$	(23.0)	$	28.6
Other comprehensive earnings (loss), net of tax
Foreign currency translation	9.2		(4.9)		5.1		(3.4)
Employee benefit plans:
Amortization or settlement of actuarial losses and prior service costs	0.3		0.1		0.5		0.4
Net change in employee benefit plans	0.3		0.1		0.5		0.4
Changes in fair value of cash flow hedges:
Unrealized net gains (losses) arising during period	1.4		(1.3)		0.5		(1.1)
Net (gains) losses reclassified into earnings	(0.5)		0.4		(0.1)		0.5
Total cash flow hedges	0.9		(0.9)		0.4		(0.6)
Other comprehensive earnings (loss), net of tax	10.4		(5.7)		6.0		(3.6)
Comprehensive earnings (loss)	$	16.0	$	19.7	$	(17.0)	$	25.0

See accompanying Notes to Consolidated Financial Statements

2

KNOWLES CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

(unaudited)

	September 30, 2020		December 31, 2019
Current assets:
Cash and cash equivalents	$	139.1	$	78.4
Receivables, net of allowances of $1.7 and $0.8	125.2		159.6
Inventories, net	160.1		141.8
Prepaid and other current assets	10.5		8.6
Total current assets	434.9		388.4
Property, plant, and equipment, net	188.6		206.5
Goodwill	909.9		909.9
Intangible assets, net	81.9		91.7
Operating lease right-of-use assets	24.6		33.6
Other assets and deferred charges	27.8		24.5
Total assets	$	1,667.7	$	1,654.6
Current liabilities:
Accounts payable	$	68.9	$	87.7
Accrued compensation and employee benefits	26.8		32.1
Operating lease liabilities	10.0		9.3
Other accrued expenses	23.8		16.5
Federal and other taxes on income	8.5		5.9
Total current liabilities	138.0		151.5
Long-term debt	213.0		156.8
Deferred income taxes	1.7		2.2
Long-term operating lease liabilities	20.5		25.1
Other liabilities	29.3		29.9
Liabilities of discontinued operations	0.6		0.6
Commitments and contingencies (Note 15)
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; 92,658,766 and 91,662,657 shares issued and outstanding at September 30, 2020, respectively, and 91,701,745 shares issued and outstanding at December 31, 2019	0.9		0.9
Treasury stock - at cost; 996,109 shares at September 30, 2020	(15.0)		—
Additional paid-in capital	1,582.8		1,574.7
Accumulated deficit	(198.1)		(175.1)
Accumulated other comprehensive loss	(106.0)		(112.0)
Total stockholders' equity	1,264.6		1,288.5
Total liabilities and stockholders' equity	$	1,667.7	$	1,654.6

See accompanying Notes to Consolidated Financial Statements

3

KNOWLES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions)

(unaudited)

	Common Stock		Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total 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 June 30, 2019	$	0.9	$	1,556.2	$	(221.0)	$	(108.9)	$	1,227.2
Net earnings	—		—		25.4		—		25.4
Other comprehensive loss, net of tax	—		—		—		(5.7)		(5.7)
Stock-based compensation expense	—		5.2		—		—		5.2
Common stock issued for exercise of stock options	—		5.7		—		—		5.7
Tax on restricted stock unit vesting	—		(0.5)		—		—		(0.5)
Balance at September 30, 2019	$	0.9	$	1,566.6	$	(195.6)	$	(114.6)	$	1,257.3

See accompanying Notes to Consolidated Financial Statements

4

KNOWLES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions)

(unaudited)

	Common Stock		Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total 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

	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
Balance at December 31, 2018	$	0.9	$	1,545.9	$	(224.2)	$	(111.0)	$	1,211.6
Net earnings	—		—		28.6		—		28.6
Other comprehensive loss, net of tax	—		—		—		(3.6)		(3.6)
Stock-based compensation expense	—		19.2		—		—		19.2
Common stock issued for exercise of stock options and other	—		7.5		—		—		7.5
Tax on restricted stock unit vesting	—		(6.0)		—		—		(6.0)
Balance at September 30, 2019	$	0.9	$	1,566.6	$	(195.6)	$	(114.6)	$	1,257.3

See accompanying Notes to Consolidated Financial Statements

5

KNOWLES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	Nine Months Ended September 30,
	2020		2019
Operating Activities
Net (loss) earnings	$	(23.0)	$	28.6
Adjustments to reconcile net (loss) earnings to cash from operating activities:
Depreciation and amortization	45.7		40.4
Stock-based compensation	12.4		19.2
Non-cash interest expense and amortization of debt issuance costs	6.6		6.1
Impairment charges	7.6		—
Write-off of fixed assets	1.7		—
Loss on disposal of fixed assets	0.2		0.1
Deferred income taxes	(2.6)		(0.1)
Other, net	1.4		(0.9)
Changes in assets and liabilities (excluding effects of foreign exchange):
Receivables, net	34.6		(20.9)
Inventories, net	(16.3)		(11.1)
Prepaid and other current assets	(1.5)		(0.6)
Accounts payable	(17.2)		(0.3)
Accrued compensation and employee benefits	(5.3)		(9.4)
Other accrued expenses	8.0		1.6
Accrued taxes	—		1.8
Other non-current assets and non-current liabilities	0.3		(3.9)
Net cash provided by operating activities	52.6		50.6
Investing Activities
Additions to property, plant, and equipment	(20.4)		(32.6)
Acquisitions of business (net of cash acquired)	—		(11.4)
Proceeds from the sale of property, plant, and equipment	0.1		—
Net cash used in investing activities	(20.3)		(44.0)
Financing Activities
Payments under revolving credit facility	(50.0)		(19.0)
Borrowings under revolving credit facility	100.0		10.0
Repurchase of common stock	(15.0)		—
Tax on restricted and performance stock unit vesting	(6.1)		(6.0)
Payments of finance lease obligations	(1.4)		(1.4)
Payments of debt issuance costs	(0.9)		—
Payment of consideration owed for acquisitions	—		(1.2)
Net proceeds from exercise of stock-based awards	1.6		7.3
Net cash provided by (used in) financing activities	28.2		(10.3)
Effect of exchange rate changes on cash and cash equivalents	0.2		(0.1)
Net increase (decrease) in cash and cash equivalents	60.7		(3.8)
Cash and cash equivalents at beginning of period	78.4		73.5
Cash and cash equivalents at end of period	$	139.1	$	69.7
Supplemental information - cash paid for:
Income taxes	$	9.5	$	9.9
Interest	$	5.0	$	4.3

See accompanying Notes to Consolidated Financial Statements

6

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

1. Basis of Presentation

Description of Business - Knowles Corporation (NYSE:KN) is a market leader and global provider of advanced micro-acoustic, audio processing, and precision device solutions, serving the mobile consumer electronics, communications, medtech, defense, automotive, and industrial markets. The Company uses its leading position in micro-electro-mechanical systems ("MEMS") microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience in mobile, ear, and Internet of Things ("IoT") applications. Knowles is also a leader in acoustic components, high-end capacitors, and mmWave radio frequency solutions for a diverse set of markets. The Company's focus on the customer, combined with its unique technology, proprietary manufacturing techniques, rigorous testing, and global scale, enable the Company to deliver innovative solutions that optimize the user experience. References to "Knowles," "the Company," "we," "our," and "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, 2019 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 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 nine months ended September 30, 2020, the Company repurchased 996,109 shares of common stock for a total of $15.0 million. In connection with the COVID-19 pandemic, the Company temporarily suspended share repurchases, but intends to resume the share repurchase program in the fourth quarter of 2020.

On December 20, 2019, the Company acquired substantially all of the assets of the MEMS Microphone Application-specific integrated circuit Design Business (“ASIC Design Business”). See Note 4. Acquisitions for additional information related to the transaction.

Non-cash Investing Activities - Purchases of property, plant, and equipment included in accounts payable at September 30, 2020 and 2019 were $1.9 million and $4.2 million, respectively. These non-cash amounts are not reflected as outflows to "Additions to property, plant, and equipment" within "Investing Activities" of the Consolidated Statements of Cash Flows for the respective periods.

7

Table of Contents	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. Early adoption is permitted for fiscal years beginning after December 15, 2020. 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 expected adoption date. See Note 10. Borrowings for detail on the Company's outstanding convertible instruments.

In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes. This guidance removes certain exceptions to the general principles in ASC 740 and amends existing guidance to improve consistent application. The standard is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted and prospective application of the guidance is required. The Company has not yet determined its adoption date for the standard, which will not have a significant impact on the Consolidated Financial Statements upon adoption.

3. Disposed and Discontinued Operations

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

On November 28, 2017, the Company completed the sale of its high-end oscillators business (“Timing Device Business”), part of the Precision Devices (“PD”) segment, for $130.0 million, plus purchase price adjustments for a net amount of $135.1 million. On July 7, 2016, the Company completed the sale of its 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.

In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the results of operations and financial positions of the Timing Device Business and Speaker and Receiver Product 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:

(in millions)	Nine Months Ended September 30, 2020
Revenues	$	—
Cost of goods sold	—
Gross profit	—
Operating income	—
Earnings from discontinued operations before taxes (1)	—
Benefit from income taxes (2)	(3.7)
Earnings from discontinued operations, net of tax	$	3.7

(1) The Company's policy is to not allocate interest expense to discontinued operations unless it is directly attributable to the operations. The discontinued operations did not have any such interest expense in the periods presented.

(2) The Company recorded a tax benefit for a refund received during the first quarter of 2020 related to the Timing Device Business.

8

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

Assets and liabilities of discontinued operations are summarized below:

(in millions)	September 30, 2020		December 31, 2019
Liabilities of discontinued operations:
Other liabilities (1)	$	0.6	$	0.6
Total liabilities	$	0.6	$	0.6

(1) The Company recorded an unrecognized tax benefit related to the Speaker and Receiver Product Line during the fourth quarter of 2019.

Discontinued operations had no impact on the Company's results of operations for the three months ended September 30, 2020 and the three and nine months ended September 30, 2019. There was no depreciation, amortization of intangible assets, or capital expenditures related to discontinued operations during the nine months ended September 30, 2020 and 2019.

4. Acquisitions

ASIC Design Business

On December 20, 2019, the Company acquired substantially all of the assets of the ASIC Design Business from ams AG for $57.9 million. The acquired business, which does not generate revenues, includes intellectual property and an assembled workforce. The transaction was accounted for under the acquisition method of accounting and the results of operations are included in the Consolidated Financial Statements from the date of acquisition in the Audio segment.

The table below represents the final allocation of the purchase price to net assets acquired as of December 20, 2019:

(in millions)
Property, plant, and equipment	$	0.6
Developed technology	33.3
In-process research and development	3.7
Non-competition agreement	1.6
Goodwill	18.8
Assumed current liabilities	(0.1)
Total purchase price	$	57.9

Intangible Assets

The fair values for developed technology and in-process research and development ("IPR&D") were 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 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 developed technology and IPR&D include expected future cost savings, technology obsolescence rates, discount rates, and expected costs to complete IPR&D. Discount rates of 13.0% and 14.0% were applied to the expected future cash flows to reflect the risk related to developed technology and IPR&D, respectively.

Developed technologies will be amortized over an estimated useful life of 6 years based on the technology cycle and cash flows over the forecast period. IPR&D is initially classified as an indefinite-lived intangible asset and assessed for impairment thereafter. Upon completion of the underlying project, IPR&D is reclassified as a definite-lived intangible asset and amortized over its estimated useful life. The IPR&D project is expected to be complete in 2021.

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 Audio segment, which is the segment expected to benefit from the acquisition.

9

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

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.

Unaudited Pro-forma Summary

The following unaudited pro-forma summary presents consolidated financial information for the three and nine months ended September 30, 2019 as if the ASIC Design Business had been acquired on January 1, 2018. The unaudited pro-forma financial information is based on historical results of operations and financial positions of the Company and the ASIC Design Business. The pro-forma results include estimated amortization of definite-lived intangible assets and exclude cost savings and transaction costs.

The unaudited pro-forma financial information does not necessarily represent the results that would have occurred had the acquisition occurred on January 1, 2018. In addition, the unaudited pro-forma information should not be deemed to be indicative of future results.

	(unaudited)
(in millions, except share and per share amounts)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Earnings from continuing operations:
As reported	$	25.4	$	28.6
Pro-forma	23.1		21.6
Basic earnings per share from continuing operations:
As reported	$	0.28	$	0.31
Pro-forma	0.25		0.24
Diluted earnings per share from continuing operations:
As reported	$	0.27	$	0.31
Pro-forma	0.25		0.23

DITF

On January 3, 2019, the Company acquired substantially all of the assets of DITF Interconnect Technology, Inc. ("DITF") for $11.1 million. The acquired business provides thin film components to the defense, telecommunication, industrial, and medtech markets. The transaction was accounted for under the acquisition method of accounting and the results of operations are included in the Consolidated Financial Statements from the date of acquisition in the PD segment. Included in the Consolidated Statements of Earnings are DITF's revenues and loss before income taxes of $6.2 million and less than $0.1 million, respectively, from the date of acquisition through September 30, 2019.

10

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

5. Impairments

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company vacated its leased facility in Mountain View, California during the three months ended September 30, 2020, resulting in its classification as a separate asset group. This facility was previously used by the Intelligent Audio product line, which is included within the Audio segment. Based on current market conditions, in particular the impact of the COVID-19 pandemic, the Company determined that the carrying amount of the related operating lease right-of-use asset was not recoverable through undiscounted future cash flows, which included estimated sublease proceeds. The fair value of the operating lease right-of-use asset was determined by 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 operating lease right-of-use assets are based on significant unobservable inputs, and thus represent Level 3 inputs. 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 $5.4 million within Impairment charges in Operating expenses during the three months ended September 30, 2020.

Leases not yet Commenced - As of September 30, 2020, the Company has an operating lease for a research and development facility in Santa Clara, California that has not yet commenced with fixed lease payments of approximately $5 million. The lease is expected to commence in the first quarter of fiscal 2021 with a lease term of approximately five years. The Company plans to sublet a significant portion of the facility due to the restructuring of the Intelligent Audio product line. 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 current plans and the continuing 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 will reduce the operating lease right-of-use asset upon lease commencement, is recorded in Other liabilities on the Consolidated Balance Sheets as of September 30, 2020.

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

6. Inventories, net

The following table details the major components of inventories, net:

(in millions)	September 30, 2020		December 31, 2019
Raw materials	$	106.0	$	82.8
Work in progress	30.2		30.9
Finished goods	60.9		53.5
Subtotal	197.1		167.2
Less reserves	(37.0)		(25.4)
Total	$	160.1	$	141.8

7. Property, Plant, and Equipment, net

The following table details the major components of property, plant, and equipment, net:

(in millions)	September 30, 2020		December 31, 2019
Land	$	7.9	$	7.7
Buildings and improvements	109.4		104.5
Machinery, equipment, and other	540.6		533.1
Subtotal	657.9		645.3
Less accumulated depreciation	(469.3)		(438.8)
Total	$	188.6	$	206.5

11

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

Depreciation expense totaled $11.9 million and $11.6 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, depreciation expense totaled $35.9 million and $35.1 million, respectively.

8. Goodwill and Other Intangible Assets

There were no changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2020.

The gross carrying value and accumulated amortization for each major class of intangible assets are as follows:

	September 30, 2020				December 31, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Trademarks	$	1.0	$	0.3	$	1.0	$	0.2
Patents	40.8		35.0		40.8		31.5
Customer relationships	12.0		4.9		12.0		3.6
Developed technology	36.5		5.2		36.5		0.7
Non-competition agreements	1.8		0.5		1.8		0.1
Total	92.1		45.9		92.1		36.1
Unamortized intangible assets:
Trademarks	32.0				32.0
IPR&D	3.7				3.7
Total	35.7				35.7
Total intangible assets, net	$	81.9			$	91.7

Amortization expense totaled $3.3 million and $1.8 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, amortization expense was $9.8 million and $5.3 million, respectively. Amortization expense for the next five years, based on current intangible balances, is estimated to be as follows:

(in millions)
Q4 2020	$	3.2
2021	13.0
2022	7.7
2023	7.1
2024	7.0

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.

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. The Company does not expect to incur additional restructuring costs related to this product line during the remainder of the fiscal year.

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 is experiencing due to the COVID-19 pandemic.

12

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

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, 2020, the Company also recorded total restructuring charges within Operating expenses of $0.1 million and $10.5 million, respectively, primarily for severance pay and benefits and contract termination costs associated with the restructuring of the Intelligent Audio product line and other actions to rationalize the remaining Audio segment workforce.

During the three and nine months ended September 30, 2019, the Company recorded restructuring charges within Gross profit of $0.1 million and $1.0 million, respectively, primarily for actions associated with transferring certain operations of capacitors manufacturing to other existing facilities in order to further optimize operations in the PD segment. During the three and nine months ended September 30, 2019, the Company also recorded restructuring charges within Operating expenses of $1.9 million and $3.8 million, respectively, primarily for actions associated with rationalizing the 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)	2020		2019		2020		2019
Audio	$	—	$	1.9	$	11.0	$	3.8
Precision Devices	0.1		0.1		0.1		0.8
Corporate	—		—		1.7		0.2
Total	$	0.1	$	2.0	$	12.8	$	4.8

The following table details the Company’s severance and other restructuring accrual activity:

(in millions)	Severance Pay and Benefits		Contract Termination and Other Costs		Total
Balance at December 31, 2019	$	1.4	$	—	$	1.4
Restructuring charges	9.9		1.2		11.1
Payments	(7.8)		(0.3)		(8.1)
Balance at September 30, 2020	$	3.5	$	0.9	$	4.4

The severance and restructuring accruals are recorded in the following line items on the Consolidated Balance Sheets:

(in millions)	September 30, 2020		December 31, 2019
Other accrued expenses	$	4.0	$	1.4
Other liabilities	0.4		—
Total	$	4.4	$	1.4

10. Borrowings

Borrowings (net of debt issuance costs, debt discount, and amortization) consist of the following:

(in millions)	September 30, 2020		December 31, 2019
3.25% convertible senior notes	$	163.0	$	156.8
Revolving credit facility	50.0		—
Total	213.0		156.8
Less current maturities	—		—
Total long-term debt	$	213.0	$	156.8

13

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

Total debt principal payments over the next five years are as follows:

(in millions)	Q4 2020		2021		2022		2023		2024
Debt principal payments	$	—	$	172.5	$	—	$	—	$	50.0

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’s current intent is to settle the principal amount of the Notes in cash at maturity. 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.

Prior to the close of business on the business day immediately preceding August 1, 2021, the Notes will be 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 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.

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. As of September 30, 2020, no event has occurred that would permit the conversion of the Notes. The Notes are the Company’s senior unsecured obligations.

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.

14

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

The Notes consist of the following:

(in millions)	September 30, 2020		December 31, 2019
Liability component:
Principal	$	172.5	$	172.5
Less debt issuance costs and debt discount, net of amortization	(9.5)		(15.7)
Total	163.0		156.8
Less current maturities (1)	—		—
Long-term portion	$	163.0	$	156.8
Equity component (2)	$	29.9	$	29.9

(1) There are no required principal payments due until maturity in November 2021.

(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, 2020 was $183.0 million. The fair value was determined based on the closing trading price of the Notes as of the last trading day for the third quarter of 2020.

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)	2020		2019		2020		2019
3.25% coupon	$	1.4	$	1.4	$	4.2	$	4.2
Amortization of debt issuance costs	0.2		0.2		0.7		0.6
Amortization of debt discount	1.9		1.7		5.5		5.1
Total	$