10-Q 1 kn-20220630.htm 10-Q kn-20220630
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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 June 30, 2022.


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)
Delaware90-1002689
(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 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   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 filerAccelerated filer
Non-accelerated filerSmaller 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 July 29, 2022 was 91,640,697.



Knowles Corporation
Form 10-Q
Table of Contents
Page



PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts)
(unaudited)
 Three Months Ended June 30, Six Months Ended June 30,
 2022202120222021
Revenues$188.0 $199.8 $389.4 $400.8 
Cost of goods sold110.3 116.1 228.4 239.1 
Gross profit77.7 83.7 161.0 161.7 
Research and development expenses21.3 24.6 44.4 47.9 
Selling and administrative expenses30.7 36.7 63.0 72.9 
Impairment charges239.8  239.8  
Restructuring charges0.5 0.1 7.1 0.3 
Operating expenses292.3 61.4 354.3 121.1 
Operating (loss) earnings(214.6)22.3 (193.3)40.6 
Interest expense, net0.8 4.1 1.6 8.1 
Other expense (income), net1.7 (0.6)1.2 (1.5)
(Loss) earnings before income taxes and discontinued operations(217.1)18.8 (196.1)34.0 
Provision for income taxes25.8 1.4 28.7 4.1 
(Loss) earnings from continuing operations(242.9)17.4 (224.8)29.9 
Earnings from discontinued operations, net 0.2  0.2 
Net (loss) earnings$(242.9)$17.6 $(224.8)$30.1 
(Loss) earnings per share from continuing operations:
Basic$(2.64)$0.19 $(2.44)$0.32 
Diluted$(2.64)$0.18 $(2.44)$0.31 
Earnings per share from discontinued operations:
Basic$ $ $ $0.01 
Diluted$ $0.01 $ $0.01 
Net (loss) earnings per share:
Basic$(2.64)$0.19 $(2.44)$0.33 
Diluted$(2.64)$0.19 $(2.44)$0.32 
Weighted-average common shares outstanding:
Basic92.0 92.5 92.2 92.4 
Diluted92.0 94.9 92.2 95.0 

See accompanying Notes to Consolidated Financial Statements
1

KNOWLES CORPORATION 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in millions)
(unaudited)
 Three Months Ended June 30, Six Months Ended June 30,
 2022202120222021
Net (loss) earnings$(242.9)$17.6 $(224.8)$30.1 
Other comprehensive (loss) earnings, net of tax
Foreign currency translation(15.6)0.9 (17.8)(2.7)
Employee benefit plans:
Amortization or settlement of actuarial losses and prior service costs
(0.1)0.4  0.6 
Net change in employee benefit plans(0.1)0.4  0.6 
Changes in fair value of cash flow hedges:
Unrealized net (losses) gains arising during period
(3.1)0.5 (3.1)(0.3)
Net losses (gains) reclassified into earnings0.9 (0.5)0.6 (1.5)
Total cash flow hedges(2.2) (2.5)(1.8)
Other comprehensive (loss) earnings, net of tax(17.9)1.3 (20.3)(3.9)
Comprehensive (loss) earnings$(260.8)$18.9 $(245.1)$26.2 

See accompanying Notes to Consolidated Financial Statements

2

KNOWLES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
(unaudited)
 June 30, 2022December 31, 2021
Current assets:  
Cash and cash equivalents$47.7 $68.9 
Receivables, net of allowances of $0.2
127.8 146.6 
Inventories, net188.8 153.1 
Prepaid and other current assets14.4 11.7 
Total current assets378.7 380.3 
Property, plant, and equipment, net182.2 200.8 
Goodwill702.1 941.3 
Intangible assets, net91.2 97.3 
Operating lease right-of-use assets14.7 17.4 
Other assets and deferred charges89.5 94.5 
Total assets$1,458.4 $1,731.6 
Current liabilities:  
Accounts payable$64.4 $90.9 
Accrued compensation and employee benefits24.5 42.8 
Operating lease liabilities9.9 11.4 
Other accrued expenses23.3 19.4 
Federal and other taxes on income27.0 1.7 
Total current liabilities149.1 166.2 
Long-term debt73.0 70.0 
Deferred income taxes0.5 0.6 
Long-term operating lease liabilities10.1 14.7 
Other liabilities22.1 20.6 
Commitments and contingencies (Note 13)
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; 96,254,641 and 91,990,963 shares issued and outstanding at June 30, 2022, respectively, and 95,112,778 and 91,894,980 shares issued and outstanding at December 31, 2021, respectively
1.0 1.0 
Treasury stock - at cost; 4,263,678 and 3,217,798 shares at June 30, 2022 and December 31, 2021, respectively
(84.7)(62.4)
Additional paid-in capital1,650.9 1,639.4 
Accumulated deficit(242.9)(18.1)
Accumulated other comprehensive loss(120.7)(100.4)
Total stockholders' equity1,203.6 1,459.5 
Total liabilities and stockholders' equity$1,458.4 $1,731.6 

See accompanying Notes to Consolidated Financial Statements


3

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
 Shares IssuedAmountSharesAmount
Balance at March 31, 202296,018,208$1.0 (3,327,578)$(66.1)$1,642.0 $ $(102.8)$1,474.1 
Net loss— — — (242.9)— (242.9)
Other comprehensive loss, net of tax— — — — (17.9)(17.9)
Repurchase of common stock— (936,100)(18.6)— — — (18.6)
Stock-based compensation expense— — 7.2 — — 7.2 
Exercise of stock options167,191 — 1.8 — — 1.8 
Restricted and performance stock unit settlement, net of tax69,242— — (0.1)— — (0.1)
Balance at June 30, 202296,254,641 $1.0 (4,263,678)$(84.7)$1,650.9 $(242.9)$(120.7)$1,203.6 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount
Balance at March 31, 202193,837,670$0.9 (1,078,363)$(16.2)$1,600.7 $(156.0)$(105.7)$1,323.7 
Net earnings— — — 17.6 — 17.6 
Other comprehensive earnings, net of tax— — — — 1.3 1.3 
Repurchase of common stock— (1,011,124)(20.0)— — — (20.0)
Stock-based compensation expense— — 7.4 — — 7.4 
Exercise of stock options124,180 — 2.1 — — 2.1 
Restricted stock unit settlement, net of tax114,035— —  — —  
Balance at June 30, 202194,075,885 $0.9 (2,089,487)$(36.2)$1,610.2 $(138.4)$(104.4)$1,332.1 


See accompanying Notes to Consolidated Financial Statements

4

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
 Shares IssuedAmountSharesAmount
Balance at December 31, 202195,112,778$1.0 (3,217,798)$(62.4)$1,639.4 $(18.1)$(100.4)$1,459.5 
Net loss— — — (224.8)— (224.8)
Other comprehensive loss, net of tax— — — — (20.3)(20.3)
Repurchase of common stock— (1,249,495)(25.4)— — — (25.4)
Stock-based compensation expense— — 14.8 — — 14.8 
Exercise of stock options499,527 — 6.0 — — 6.0 
Exercise of warrants— 203,6153.1 (3.1)— —  
Restricted and performance stock unit settlement, net of tax642,336— — (6.2)— — (6.2)
Balance at June 30, 202296,254,641 $1.0 (4,263,678)$(84.7)$1,650.9 $(242.9)$(120.7)$1,203.6 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount
Balance at December 31, 202092,689,912 $0.9 (1,078,363)$(16.2)$1,587.8 $(168.5)$(100.5)$1,303.5 
Net earnings— — — — — 30.1 — 30.1 
Other comprehensive loss, net of tax— — — — — — (3.9)(3.9)
Repurchase of common stock— — (1,011,124)(20.0)— — — (20.0)
Stock-based compensation expense— — — — 18.5 — — 18.5 
Exercise of stock options649,044  — — 10.5 — — 10.5 
Restricted and performance stock unit settlement, net of tax736,929 — — — (6.6)— — (6.6)
Balance at June 30, 202194,075,885 $0.9 (2,089,487)$(36.2)$1,610.2 $(138.4)$(104.4)$1,332.1 


See accompanying Notes to Consolidated Financial Statements
5

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 Six Months Ended June 30,
20222021
Operating Activities  
Net (loss) earnings$(224.8)$30.1 
Adjustments to reconcile net (loss) earnings to cash from operating activities:
Depreciation and amortization28.8 30.8 
Stock-based compensation14.8 18.5 
Impairment charges239.8  
Non-cash interest expense and amortization of debt issuance costs0.3 4.7 
Gain on disposal of fixed assets (0.1)
Deferred income taxes2.1 (0.7)
Other, net(3.9)(1.2)
Changes in assets and liabilities (excluding effects of foreign exchange):
Receivables, net18.0 17.5 
Inventories, net(40.2)(30.0)
Prepaid and other current assets(3.4)(2.9)
Accounts payable(24.1)2.8 
Accrued compensation and employee benefits(17.6)(0.9)
Other accrued expenses3.0 0.3 
Accrued taxes25.0 (3.3)
Other non-current assets and non-current liabilities2.6 (4.6)
Net cash provided by operating activities20.4 61.0 
Investing Activities  
Acquisitions of business (net of cash acquired)(0.7)(78.6)
Capital expenditures(13.9)(16.0)
Purchase of investments (3.5)
Proceeds from the sale of investments 0.4 
Proceeds from the sale of property, plant, and equipment 0.4 
Net cash used in investing activities(14.6)(97.3)
Financing Activities  
Payments under revolving credit facility(15.0) 
Borrowings under revolving credit facility18.0  
Repurchase of common stock(25.4)(20.0)
Tax on restricted and performance stock unit vesting(6.2)(6.6)
Payments of finance lease obligations(3.6)(1.2)
Proceeds from exercise of stock options6.0 10.5 
Net cash used in financing activities(26.2)(17.3)
Effect of exchange rate changes on cash and cash equivalents(0.8) 
Net decrease in cash and cash equivalents(21.2)(53.6)
Cash and cash equivalents at beginning of period68.9 147.8 
Cash and cash equivalents at end of period$47.7 $94.2 
Supplemental information - cash paid for:
Income taxes$0.7 $8.4 
Interest$1.4 $3.6 

See accompanying Notes to Consolidated Financial Statements

6


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 microphones and balanced armature speakers, audio solutions, and high performance capacitors and radio frequency ("RF") products, serving the consumer electronics, medtech, defense, electric vehicle, industrial, and communications markets. The Company uses its leading position in SiSonicTM micro-electro-mechanical systems ("MEMS") microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience across consumer applications. Knowles is also a leader in hearing health acoustics, high performance capacitors, and RF solutions for a diverse set of markets. The Company's focus on the customer, combined with its unique technology, proprietary manufacturing techniques, and global operational expertise, enable the Company to deliver innovative solutions across multiple applications. 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, 2021 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. 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.

Share Repurchase Program - 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. On April 28, 2022, the Company announced that its Board of Directors had increased the authorization by up to $150 million in additional aggregate value. 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 six months ended June 30, 2022 and 2021, the Company repurchased 1,249,495 shares and 1,011,124 shares of common stock, respectively, for a total of $25.4 million and $20.0 million, respectively.

Non-cash Investing Activities - Purchases of property, plant, and equipment included in accounts payable at June 30, 2022 and 2021 were $5.3 million and $1.5 million, respectively. These non-cash amounts are not reflected as Capital expenditures within Investing Activities on the Consolidated Statements of Cash Flows for the respective periods.

7


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

Recently Adopted 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 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 adopted the standard using the modified retrospective method on January 1, 2022. Adoption of the standard did not impact the Consolidated Financial Statements as all of the Company’s convertible instruments were settled prior to the adoption date. See Note 8. Borrowings for detail on the Company's convertible instruments that matured on November 1, 2021.

3. Acquisition

On May 3, 2021, the Company acquired all of the outstanding shares of common stock of Integrated Microwave Corporation ("IMC") for $81.4 million. During the first quarter of 2022, the Company recorded a purchase price adjustment of $0.7 million that was paid during the second quarter of 2022. The adjustment, which did not impact the Consolidated Statements of Earnings, resulted in an increase to goodwill of $0.7 million. The acquired business provides RF filters to the defense, industrial, and communications 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 Precision Devices ("PD") segment. Included in the Consolidated Statements of Earnings are IMC’s revenues and loss before income taxes of $1.4 million and $1.5 million, respectively, from the date of acquisition through June 30, 2021.

The table below represents the final 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 
Goodwill32.0 
Assumed current liabilities(1.2)
Total purchase price$81.4 

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.

8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.

4. Inventories, net

The following table details the major components of inventories, net:
(in millions)June 30, 2022December 31, 2021
Raw materials$111.5 $89.6 
Work in progress35.4 33.6 
Finished goods79.2 66.7 
Subtotal226.1 189.9 
Less reserves(37.3)(36.8)
Total$188.8 $153.1 

5. Property, Plant, and Equipment, net

The following table details the major components of property, plant, and equipment, net:
(in millions)June 30, 2022December 31, 2021
Land$12.6 $12.9 
Buildings and improvements115.6 119.3 
Machinery, equipment, and other562.0 575.0 
Subtotal690.2 707.2 
Less accumulated depreciation(508.0)(506.4)
Total$182.2 $200.8 

Depreciation expense totaled $11.0 million and $11.8 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, depreciation expense totaled $22.7 million and $23.6 million, respectively.

6. Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2022 are as follows:
 (in millions)AudioPrecision DevicesTotal
Balance at December 31, 2021$878.8 $62.5 $941.3 
Impairment charges(239.8) (239.8)
Purchase price adjustment 0.7 0.7 
Foreign currency translation(0.1) (0.1)
Balance at June 30, 2022$638.9 $63.2 $702.1 

9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company tests goodwill for impairment at least annually as of October 1, or more frequently if there are events or circumstances indicating the carrying value of individual reporting units may exceed their respective fair values on a more likely than not basis. Recoverability of goodwill is measured at the reporting unit level. The Company’s three reporting units are Mobile Consumer Electronics (“MCE”), Hearing Health Technologies, and Precision Devices. The impairment assessment compares the fair value of each reporting unit to its carrying value. Impairment is measured as the amount by which the carrying value of a reporting unit exceeds its fair value.

During the second quarter of 2022, the Company identified a triggering event requiring an interim impairment assessment for the MCE reporting unit, which resulted in a goodwill impairment charge of $239.8 million. The triggering event occurred due to the identification of a rapid decline in current demand and a reduction in the expected future growth rate for global consumer electronics, which resulted in reductions to forecasted revenue and terminal growth rates and profit margins. The goodwill impairment charge is presented within Impairment charges in Operating expenses on the Consolidated Statements of Earnings. The Company had not incurred any previous goodwill impairment charges.

Fair value was estimated using a discounted cash flow model that included the Company’s market participant assumptions, forecasted future cash flows based on historical performance and future estimated results, determinations of appropriate discount rates, and other assumptions which were considered reasonable and inherent in the discounted cash flow analysis. The fair value estimate was based on known or knowable information at the assessment date. Significant assumptions used in the model included forecasted revenue and terminal growth rates, profit margins, income taxes, and the Company's weighted average cost of capital. The fair value measurements for reporting units are based on significant unobservable inputs, and thus represent Level 3 inputs.

Fair value measurements require considerable judgment and are sensitive to changes in underlying assumptions. As a result, there can be no assurance that estimates and assumptions made for purposes of the impairment assessment will prove to be an accurate prediction of the future. Potential circumstances that could have a negative effect on the fair value of our reporting units include, but are not limited to, lower than forecasted growth rates or profit margins and changes in the weighted average cost of capital. A reduction in the estimated fair value of the reporting units could trigger an impairment in the future. The Company cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill.

Other Intangible Assets

The gross carrying value and accumulated amortization for each major class of intangible assets are as follows:
June 30, 2022December 31, 2021
(in millions)Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:
Trademarks$2.0 $0.7 $2.0 $0.6 
Customer relationships36.4 8.1 36.4 5.9 
Developed technology45.4 16.7 45.4 13.2 
Other2.4 1.5 2.4 1.2 
Total86.2 27.0 86.2 20.9 
Unamortized intangible assets:
Trademarks32.0 32.0 
Total intangible assets, net$91.2 $97.3 

10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Amortization expense totaled $3.0 million and $3.9 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, amortization expense was $6.1 million and $7.2 million, respectively. Amortization expense for the next five years, based on current definite-lived intangible balances, is estimated to be as follows:
(in millions)
Q3-Q4 2022$6.1 
202311.6 
202411.6 
202511.2 
20265.3 

7. Restructuring and Related Activities

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

During the six months ended June 30, 2022, the Company restructured its MEMS Microphones product line, which is included within the Audio segment. This action resulted in the termination of a research and development project and a reduction in workforce. During the six months ended June 30, 2022, the Company recorded restructuring charges of $5.4 million related to this action, including $4.2 million in contract termination costs and $1.2 million in severance pay and benefits. The Company may incur additional restructuring charges of up to $4 million during the remainder of the fiscal year for certain fixed assets of the terminated project, which cannot be reasonably estimated at this time due to the complex nature of the assets under review for use in other projects.

In addition, during the six months ended June 30, 2022, the Company recorded restructuring charges of $1.2 million for severance pay and benefits to rationalize the Intelligent Audio product line workforce, which is included within the Audio segment, and $0.5 million for other costs.

No restructuring charges were recorded within Gross profit for the three and six months ended June 30, 2022. During the three and six months ended June 30, 2022, the Company recorded total restructuring charges within Operating expenses of $0.5 million and $7.1 million, respectively, primarily for contract termination costs and severance pay and benefits associated with the MEMS Microphones product line and other actions to rationalize the Intelligent Audio product line workforce.

No restructuring charges were recorded within Gross profit for the three and six months ended June 30, 2021. During the three and six months ended June 30, 2021, the Company recorded restructuring charges within Operating expenses of $0.1 million and $0.3 million, respectively.

The following table details restructuring charges incurred by reportable segment for the periods presented:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2022202120222021
Audio$ $0.1 $6.6 $0.3 
Precision Devices    
Corporate0.5  0.5  
Total$0.5 $0.1 $7.1 $0.3 

11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, 2021$0.4 $ $0.4 
Restructuring charges2.5 4.6 7.1 
Payments(2.6) (2.6)
Balance at June 30, 2022$0.3 $4.6 $4.9 

The severance and restructuring accruals are recorded in the following line item on the Consolidated Balance Sheets:
(in millions)June 30, 2022December 31, 2021
Other accrued expenses$4.9 $0.4 
Total$4.9 $0.4 

8. Borrowings

Revolving Credit Facility

Revolving credit facility borrowings consist of the following:
(in millions)June 30, 2022December 31, 2021
Revolving credit facility $73.0 $70.0 
Less current maturities (1)
  
Total long-term debt$73.0 $70.0 
(1) There are no required principal payments due until maturity in January 2024.

On September 4, 2020, the Company entered into a new Credit Agreement (the "New Credit Agreement"). The New 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 refinancing 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 $400.0 million senior secured revolving credit facility.

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 January 2, 2024.

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 Consolidated total indebtedness to Consolidated EBITDA of 3.75 to 1.0 (the "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 New Credit Agreement. At June 30, 2022, 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 EURIBOR for borrowings denominated in Euro; or SONIA for borrowings denominated in Pounds Sterling) 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.

12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The interest rate under the New Credit Facility is variable based on LIBOR at the time of the borrowing and the Applicable Margin. 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%.

The weighted-average interest rate on the Company's borrowings under the New Credit Facility was 2.18% for the six months ended June 30, 2022. There were no borrowings outstanding under the New Credit Facility during the six months ended June 30, 2021. The weighted-average commitment fee on the revolving lines of credit was 0.23% and 0.26% for the six months ended June 30, 2022 and 2021, 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 which matured on November 1, 2021 (the “Notes”). Interest was payable semiannually in arrears on May 1 and November 1 of each year. The Notes were governed by an Indenture between the Company, as issuer, and U.S. Bank National Association as trustee. Upon conversion, the Company could elect to pay or deliver cash, shares of the Company's common stock, or a combination of cash and shares of common stock. On November 1, 2021, the Company settled the principal amount of the Notes in cash and the excess conversion value by delivering 0.4 million shares of its common stock held in treasury. The conversion rate was 54.2741 shares of common stock per $1,000 principal amount of Notes. The conversion price was $18.4250 per share of common stock. The Notes were 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 did 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 was amortized to interest expense over the term of the Notes.

The following table sets forth total interest expense recognized related to the Notes:
Three Months EndedSix Months Ended
(in millions)June 30, 2021June 30, 2021
3.25% coupon$1.4 $2.8 
Amortization of debt issuance costs0.2 0.5 
Amortization of debt discount2.0 3.9 
Total$3.6 $7.2 

Warrants

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 were separate transactions entered into by the Company, and were not part of the Notes, and were accounted for as part of additional paid-in capital.

The Warrants expired during the first quarter of 2022, which resulted in the Company delivering 0.2 million shares of its common stock held in treasury. Settlement of the Warrants resulted in a $3.1 million decrease in treasury stock, which was measured based on the acquisition cost of the delivered shares determined on a first-in, first-out (“FIFO”) basis, offset by an equivalent decrease in additional paid-in capital with no net impact to equity.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. Other Comprehensive Earnings

The amounts recognized in other comprehensive (loss) earnings were as follows:
Three Months EndedThree Months Ended
 June 30, 2022June 30, 2021
(in millions)Pre-taxTaxNet of taxPre-taxTaxNet of tax
Foreign currency translation$(15.6)$ $(15.6)