Knowles Corp

1. Basis of Presentation

Background - Knowles Corporation (NYSE:KN) is a market leader and global provider of high performance capacitors and radio frequency ("RF") products, balanced armature speakers, advanced micro-acoustic microphones, and audio solutions, serving the medtech, defense, electric vehicle, industrial, communications, and consumer electronics markets. The Company uses its leading position in SiSonic TM 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, 2023 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.

As discussed in Note 3. Discontinued Operations, the Company reclassified the results of the Consumer MEMS Microphones ("CMM") segment to discontinued operations in the third quarter of 2024 based on its intention to divest this business. The results of operations and the related assets and liabilities for CMM have been classified as discontinued operations for all periods presented.

Share Repurchase Program -On February 24, 2020, the Company announced that its Board of Directors had authorized a share repurchase program of up to $100.0 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 $150.0 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 nine months ended September 30, 2024 and 2023, the Company repurchased 1,686,253 and 1,630,161 shares of common stock, respectively for a total of $29.5 million and $27.5 million, respectively.

Non-cash Operating Activities - Operating lease liabilities arising from obtaining right-of-use assets for the nine months ended September 30, 2024 and 2023 were $0.6 million and $2.5 million, respectively. These amounts reflect both continuing and discontinued operations.

Non-cash Investing Activities - Purchases of property, plant, and equipment included in accounts payable at September 30, 2024 and 2023 were $1.0 million and $1.6 million, respectively. These amounts reflect both continuing and discontinued operations. These non-cash amounts are not reflected as "Capital expenditures" within Investing Activities on the Consolidated Statements of Cash Flows for the respective periods.

2. Recent Accounting Standards

In November 2023, the FASB issued ASU 2023-07 to expand reportable segment disclosure requirements. This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss. All annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280 must also be disclosed in interim periods. Additionally, this standard requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This standard is effective for the Company beginning with its annual reporting for the year ended December 31, 2024 and its interim reporting for the three months ended March 31, 2025. Early adoption is permitted. The standard requires adoption on a retrospective basis for all prior periods presented in the financial statements. The Company does not expect the adoption of this standard to have a significant impact upon the financial statements.

In December 2023, the FASB issued ASU 2023-09 to enhance the transparency of income tax disclosures. This guidance requires that public business entities disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. A public business entity is required to provide an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes and the judgment used in categorizing the reconciling items. This guidance also requires that all entities disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by those individual jurisdictions equal to or greater than 5 percent of the total. This standard is effective for the Company for its annual reporting for the year ended December 31, 2025. Early adoption is permitted. The standard requires adoption on a prospective basis, although retrospective adoption is permitted. The Company does not expect the adoption of this standard to have a significant impact upon the financial statements.

3. Discontinued Operations

Management and the Board of Directors periodically conduct strategic reviews of the Company’s businesses. On September 18, 2024, the Company entered into a Purchase and Sale Agreement with Syntiant Corp. (the "Purchase Agreement") to sell and assign certain assets and liabilities of the Company’s CMM segment for approximately $150.0 million in total consideration, consisting of $70.0 million in cash, subject to customary working capital and inventory adjustments, and $80.0 million in series D-2 preferred stock of Syntiant, to be issued upon the closing of this transaction. The Company will also share in certain separation costs pursuant to a credit for up to $13.5 million, which the buyer may apply to specified separation costs post-closing. In addition, the Company has committed to provide, under certain circumstances, up to $15.0 million in financing in connection with Syntiant's obligation to have $40.0 million of cash on the balance sheet, which financing would be junior to Syntiant's debt financing.

This transaction, which is subject to customary closing conditions, is expected to occur in the fourth quarter of 2024. The Purchase Agreement contains customary termination rights, including that the parties may terminate the Purchase Agreement (i) by mutual agreement, (ii) if the transaction has not closed by December 31, 2024, subject to certain extensions, or (iii) if a governmental entity with competent jurisdiction has issued a final and non-appealable order permanently restraining, preventing, making illegal, enjoining or otherwise prohibiting the consummation of any of the transactions contemplated by the Purchase Agreement.

The pending disposition of CMM meets the held-for-sale criteria described in Accounting Standards Codification ("ASC") 205-20, Presentation of Financial Statements – Discontinued Operations. In accordance with this guidance, the Company has reclassified the results of operations and financial position of CMM to discontinued operations for all periods presented as this disposal represents a strategic shift that has a major effect on the Company’s results of operations.

Results of the Company’s discontinued operations were as follows:

During the three and nine months ended September 30, 2024, the Company recorded goodwill impairment charges of $13.1 million and $262.5 million, respectively, to write down the carrying value of CMM to its fair value. In addition, the Company recorded an impairment charge of $2.3 million during the three and nine months ended September 30, 2024 to write down the carrying value of the CMM business to its fair value less costs to sell. This impairment is reflected as “Loss on disposal of business” in the results of discontinued operations above.

During the nine months ended September 30, 2024, the Company sold certain technology related to the CMM segment to a third party for total proceeds of $7.2 million. After transaction costs of $1.8 million, the Company recognized a net gain on the sale of this asset of $5.4 million during the nine months ended September 30, 2024. This gain is reflected as “Gain on sale of asset, net” in the results of discontinued operations above.

During the nine months ended September 30, 2023, the Company entered into an agreement to sell certain of its machinery and equipment related to the CMM segment to a third party for total proceeds of $11.4 million, which were received in their entirety in the second quarter of 2023. In addition, the Company received $1.1 million in the second quarter of 2023, which was initially reserved for a third-party payment. The Company transferred control of a portion of these assets with a fair value of approximately $5.5 million and $11.2 million to the buyer during the three and nine months ended September 30, 2023, respectively, resulting in a gain on sale of approximately $5.3 million and $11.0 million. The remaining assets were transferred to the buyer in the first quarter of 2024 for an immaterial gain. During the nine months ended September 30, 2024, the Company recorded an additional gain on sale of these assets of approximately $1.1 million as a result of changing its estimate on the amount owed to the third party. The Company has now completed this sale transaction.

These gains on sale are reflected within the results from discontinued operations above as follows:

Assets and liabilities of discontinued operations are summarized below:

(1)The valuation allowance reflects the write down of the carrying value of CMM to its fair value less expected costs to sell that was recorded in the third quarter of 2024 when the held-for-sale criteria were met. In accordance with ASC 205-20, this loss was not allocated to the major classes of assets and liabilities of the discontinued operation.

As the Consolidated Statement of Cash Flows includes the results of CMM in its net cash provided by (used in) operating, investing, and financing activities, the Company has provided the following information related to CMM in accordance with ASC 205-20:

Capital expenditures included in accounts payable at September 30, 2024 and 2023 for CMM were $0.1 million and $0.3 million. These non-cash amounts are not reflected as "Capital expenditures" above.

Operating lease liabilities arising from obtaining right-of-use assets for CMM for the nine months ended September 30, 2023 were $1.0 million.

4. Acquisition

On November 1, 2023, the Company acquired (i) all the issued and outstanding shares of Kaplan Electronics, Inc. and (ii) certain assets of Cornell Dubilier Electronics, Inc. and CD Aero, LLC (collectively, "Cornell Dubilier" or "CD") for aggregate consideration of $259.8 million, which equated to a total fair value of consideration transferred of $246.8 million. This purchase price of $246.8 million consisted of $136.9 million in cash payments and an interest-free seller note (the “Seller Note”) with a fair value of $109.9 million. The Seller Note consists of aggregate principal amounts of $122.9 million with $50.0 million maturing on November 1, 2024 and $72.9 million maturing on November 1, 2025 and is secured by certain assets (including equity interests) acquired in connection with the acquisition (see also Note 9. Borrowings).

CD is a manufacturer of film, electrolytic, and mica capacitors used in medtech, defense, and industrial electrification applications. The transaction was accounted for as a business combination under ASC 805. The Company has substantially completed the purchase price allocation for the acquisition of CD and has recorded certain measurement period adjustments to the purchase price allocation during the nine months ended September 30, 2024. As additional information is obtained about the net assets acquired within the measurement period (not to exceed one year from the date of acquisition), including finalization of asset appraisals, the Company will refine its estimates of the purchase price allocation.

The table below represents a preliminary allocation of the purchase price to net assets acquired as of November 1, 2023:

The following unaudited pro-forma summary presents consolidated financial information as if CD had been acquired on January 1, 2022. The unaudited pro-forma financial information is based on historical results of operations and financial positions of the Company and CD. The pro-forma earnings are adjusted to reflect the comparable impact of depreciation and amortization expense resulting from the fair value measurement of tangible and intangible assets, nonrecurring deal-related costs, employee retention, inventory step-up charges, and interest expense on borrowings to fund the acquisition.

The unaudited pro-forma financial information does not necessarily represent the results that would have occurred had the acquisition occurred on January 1, 2022. In addition, the unaudited pro-forma information should not be deemed to be indicative of future results.

5. Inventories

The following table details the major components of inventories:

6. Property, Plant, and Equipment, net

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

Depreciation expense totaled $5.0 million and $4.5 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023 depreciation expense totaled $15.3 million and $13.7 million, respectively.

7. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2024 are as follows:

The Company recorded measurement period adjustments totaling $0.2 million to goodwill during the nine months ended September 30, 2024 related to the 2023 acquisition of CD.

Other Intangible Assets

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

The Company recorded measurement period adjustments totaling $0.5 million to customer relationships during nine months ended September 30, 2024 related to acquisitions completed in 2023.

Amortization expense totaled $4.2 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023 amortization expense totaled $12.8 million and $4.3 million, respectively. Amortization expense for the next five years, based on current definite-lived intangible balances, is estimated to be as follows:

8. 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.

The Company recorded restructuring charges of $0.1 million and $1.8 million during the three and nine months ended September 30, 2024, respectively, related to headcount reductions and $0.1 million and $1.1 million during the three and nine months ended September 30, 2024, respectively, for costs associated with transferring certain capacitors manufacturing to existing facilities to further optimize operations within the PD segment.

The Company recorded charges of $0.1 million and $1.4 million within Gross profit for the three and nine months ended September 30, 2024, respectively, and $0.1 million and $1.5 million within Operating expenses for the three and nine months ended September 30, 2024, respectively.

During the three and nine months ended September 30, 2023, the Company recorded restructuring charges of $1.3 million for severance pay and benefits related to headcount reductions within the PD segment and $0.4 million and $0.7 million for Corporate charges for the three and nine months ended September 30, 2023, respectively.

The Company recorded restructuring charges of $0.2 million within Gross profit for the three and nine months ended September 30, 2023, and the remaining $1.5 million and $1.8 million of expense within Operating expenses for the three and nine months ended September 30, 2023, respectively.

The following table details restructuring charges incurred by reportable segment for the periods presented:

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

(1) All accruals for Severance Pay and Benefits are reflected within Other accrued expenses on the Consolidated Balance Sheet.

(2) Accruals for Contract Termination and Other Costs of $5.3 million and $6.1 million were reflected within Other accrued expenses on the Consolidated Balance Sheet at September 30, 2024 and December 31, 2023, respectively. The remaining balances are reflected within Other liabilities.

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

9. Borrowings

Borrowings consist of the following:

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

Revolving Credit Facility

On February 8, 2023, the Company entered into an Amended and Restated Credit Agreement (the "A&R Credit Agreement") that amends and restates the prior Credit Agreement, dated September 4, 2020, and provides for a senior secured revolving credit facility with borrowings in an aggregate principal amount at any time outstanding not to exceed $400.0 million (the "Credit Facility"). The A&R Credit Agreement, among other things, extends the maturity date of the Credit Facility from January 2, 2024 to February 8, 2028, replaces the London Inter-Bank Offered Rate (“LIBOR”) with the Term Secured Overnight Financing Rate (“Term SOFR”) as a reference rate available for borrowings, amends the minimum Interest Coverage Ratio, and amends certain other financial covenants with which the Company must comply, as described below.

On September 25, 2023, the Company amended its A&R Credit Agreement to, among other things, (a) permit the Company in connection with the acquisition of CD, to incur senior priority seller financing indebtedness (the “Seller Note”) in an aggregate principal amount of $122.9 million secured by certain assets (including equity interests) acquired in connection with such acquisition and the capital stock of Cornell Dubilier, LLC (the “Acquisition Assets”), which shall mature two years after the effective date of such Seller Note (the “Seller Note Maturity Date”), (b) extends the requirement to pledge the Acquisition Assets that would otherwise constitute collateral under the Credit Agreement to the date that is 90 days after the Seller Note Maturity Date, and (c) restricts, until the Seller Note Maturity Date, the amount of dispositions and investments from the Company and certain of its subsidiaries into Cornell Dubilier, LLC and the acquired subsidiaries that constitute Acquisition Assets from exceeding $80.0 million in the aggregate. All other terms remain the same as the A&R Credit Agreement dated February 8, 2023.

On June 17, 2024, in anticipation of the CMM transaction, the Company entered into a Consent Memorandum with the administrative agent and lenders under the A&R Credit Agreement that would allow it to consummate the disposition without satisfying the 75% cash consideration condition contained in the A&R Credit Agreement so long as at least 30% of the consideration consists of cash.

Up to $100.0 million of the Credit Facility will be available in Euro, Pounds Sterling, and other currencies requested by the Company and up to $50.0 million of the Credit Facility will be made available in the form of letters of credit. Undrawn amounts under the Credit Facility accrue a commitment fee at a per annum rate of 0.225% to 0.350%, based on a leverage ratio grid.

At any time during the term of the Credit Facility, the Company may request an increase to the commitments under the Credit Facility to establish one or more incremental term loans or revolving credit facilities in an aggregate principal amount not to exceed the sum of $200.0 million, plus additional amounts, so long as the senior secured leverage ratio does not exceed 2.00 to 1.00.

The A&R Credit Agreement includes requirements, to be tested quarterly, that the Company maintains (i) a minimum ratio of Consolidated EBITDA to consolidated cash interest expense of 3.00 to 1.00, (the "Interest Coverage Ratio"), (ii) a ratio of total indebtedness, minus netted cash in an aggregate amount not to exceed $50.0 million, to Consolidated EBITDA of 3.75 to 1.00 (the "Total Net Leverage Ratio"), and (iii) a maximum ratio of senior net secured indebtedness to Consolidated EBITDA of 3.25 to 1.00 (the "Senior Secured Net 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 A&R Credit Agreement. At September 30, 2024, 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 Credit Facility will be, at the Borrowers' option (1) (A) in the case of borrowings denominated in U.S. dollars Term SOFR, (B) in the case of borrowings denominated in Sterling, Daily Simple Sonia, or (C) for borrowings denominated in Euro, EURIBOR, in each case, plus the rates per annum determined from time to time based on the total net 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 A&R Credit Agreement) plus the Applicable Margin. The Applicable Margin for Term SOFR, Daily Simple Sonia, or EURIBOR could range from 1.50% to 2.50% while the Applicable Margin for ABR could range from 0.50% to 1.50%.

The weighted-average interest rate on the Company's borrowings under the Credit Facility and the 2020 credit facility was 7.24% and 6.43% for the nine months ended September 30, 2024 and 2023, respectively. The weighted-average commitment fee on the revolving line of credit was 0.26% and 0.23% for the nine months ended September 30, 2024 and 2023, respectively.

Seller Note

On November 1, 2023, the Company completed the acquisition of CD for a total purchase price of $246.8 million. This acquisition was funded by borrowings on the Revolving Credit Facility and an interest-free note from the seller with aggregate principal payments of $122.9 million (the "Seller Note"). The Seller Note is due and payable in cash with $50.0 million maturing on November 1, 2024 and $72.9 million maturing on November 1, 2025. On the acquisition date, the Company recorded the Seller Note at its present value of $109.9 million by discounting the future principal payments using an imputed rate of interest of approximately 7.1% in accordance with accounting guidance in ASC 835, Interest. During the three months ended September 30, 2024, the Company made an indemnity claim against the Seller Note of $0.2 million. The Company recognized imputed interest expense on the Seller Note of approximately $2.0 million and $6.0 million for the three and nine months ended September 30, 2024, respectively.

The Seller Note is secured by certain assets (including equity interest) acquired in connection with the acquisition. The Seller Note includes Knowles Capital Holdings, Inc. and Knowles Intermediate PD Holdings, LLC as borrowers, which jointly and severally agree to pay James P. Kaplan, as representative of the sellers of Cornell Dubilier, the principal amount of $122.9 million as described above. The Seller Note is not interest-bearing except at such time as an event of default has occurred, upon which and during the continuance of an event of default, all overdue principal will accrue interest at 2.0% per annum plus the SOFR-based rate otherwise applicable under the Company’s existing credit facility. The Seller Note is subject to customary conditions and events of default and the secured nature of the Seller Note is supported by a Security Agreement.

10. Other Comprehensive Earnings

The amounts recognized in other comprehensive earnings (loss) were as follows::

The following tables summarize the changes in balances of each component of accumulated other comprehensive earnings (loss), net of tax during the nine months ended September 30, 2024 and 2023:

The following tables summarize the amounts reclassified from accumulated other comprehensive loss to earnings:

11. 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 Company's ETR from continuing operations for the three and nine months ended September 30, 2024 was 24.6% (inclusive of discrete items totaling $0.7 million of tax benefit) and 38.1% (inclusive of discrete items totaling $0.3 million of tax benefit), respectively. The discrete items impacting the tax provision for the three and nine months ended September 30, 2024 were primarily attributable to stock-based compensation and the deferred tax impact of a tax rate change. Absent the discrete items, the ETR from continuing operations for the three and nine months ended September 30, 2024 was 30.3% and 39.5%, respectively. The Company's ETR from continuing operations for the three and nine months ended September 30, 2023 was (34.5)% (inclusive of discrete items totaling $0.3 million of benefit) and (32.7)% (inclusive of discrete items totaling $0.3 million of expense), respectively. The discrete items impacting the tax provision for the three and nine months ended September 30, 2023 were primarily attributable to stock-based compensation and the recognition of foreign tax credits resulting from the release of IRS Notice 2023-55. Absent the discrete items, the ETR from continuing operations for the three and nine months ended September 30, 2023 was (31.9)% and (33.7)%, respectively.

The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions, which resulted in the provisions and benefits for the three and nine months ended September 30, 2024 and 2023.

12. Equity Incentive Program

The following table summarizes the stock-based compensation expense recognized by the Company for the periods presented:

(1) Stock-based compensation shown here reflects the expense included in continuing operations. Stock-based compensation expense included in discontinued operations totaled $1.5 million and $1.2 million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $4.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Stock Options

No stock options were granted during the nine months ended September 30, 2024 and 2023.

The following table summarizes the Company's stock option activity for the nine months ended September 30, 2024:

(1) The number of stock options exercised includes shares that the Company withheld on behalf of employees to satisfy the option exercise price (in the instances of net exercises) as well as statutory tax withholding requirements.

At September 30, 2024, unrecognized compensation expense related to stock options not yet exercisable of $0.1 million is expected to be recognized over a weighted-average period of 0.4 years.

RSUs

The following table summarizes the Company's restricted stock unit ("RSU") activity for the nine months ended September 30, 2024:

(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, 2024, $27.6 million of unrecognized compensation expense related to RSUs is expected to be recognized over a weighted-average period of 1.8 years.

PSUs

The Company grants performance share units (“PSUs”) to senior management. In each case, the awards will cliff vest three years following the grant date. PSUs will be settled in shares of the Company's common stock. Depending on the Company's overall performance relative to the applicable measures, the size of the PSU awards are subject to adjustment, up or down, resulting in awards at the end of the performance period that can range from 0% to 225% of target. The Company will ratably recognize the expense over the applicable service period for each grant of PSUs and adjust the expense for the expected achievement of performance conditions as appropriate. The fair value of PSUs is determined by using a Monte Carlo simulation. For the awards granted in February 2024, 2023, and 2022, 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.

The following table summarizes the Company's PSU activity for the nine months ended September 30, 2024:

(1) The number of PSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.

At September 30, 2024, $12.3 million of unrecognized compensation expense related to PSUs is expected to be recognized over a weighted-average period of 1.5 years.

13. Earnings per Share

Basic and diluted earnings per share were computed as follows:

(1)In accordance with ASC 260, Earnings Per Share, the control number for determining whether including potential common shares in the diluted EPS computation would be antidilutive is earnings from continuing operations.

For the three and nine months ended September 30, 2024, the weighted-average number of anti-dilutive potential common shares for stock-based awards excluded from the diluted earnings per share calculation above was 0.7 million and 1.2 million, respectively. For the three and nine months ended September 30, 2023, the weighted-average number of anti-dilutive potential common shares for stock-based awards excluded from the diluted earnings per share calculation above was 1.7 million and 2.4 million, respectively.

14. 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. The majority of these claims and proceedings relate to commercial, warranty, employment, and intellectual property matters. 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 believes that the disposition of these legal proceedings or 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 and other intellectual property pertaining to its products, technology, and manufacturing processes. Some of the 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 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.

Intellectual Property Infringement Claims

The Company may, on a limited 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, 2024 and December 31, 2023.

15. Segment Information

The Company'stwo reportable segments are Precision Devices and MedTech & Specialty Audio. Information regarding the Company’s reportable segments is as follows:

Information regarding assets of the Company's reportable segments:

(1) Precision Devices and MedTech & Specialty Audio assets have been adjusted to include a reclassification of $50.4 million and $40.6 million, respectively, of assets at December 31, 2023 that were previously allocated to Consumer MEMS Microphones. These assets will remain with the Company after the disposition of CMM and are, therefore, excluded from Discontinued operations.

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.

Receivables, net from contracts with customers were $97.1 million and $86.3 million as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, our total remaining performance obligations were immaterial.