What changed in this filing

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Item 1. Financial Statements

2020-07-31 compared with 2020-05-01 · 193 added, 127 removed, 541 unchanged (37% of the section changed)

3 unchanged sentences

(Dollars and shares in thousands, except per share amounts)

Three Months Ended

March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Net sales $ 191,157 $ 242,852 $ 389,967 $ 482,650

4 unchanged sentences

Restructuring and impairment charges — 1,083 — 1,905

Other operating expense, net 20 911

Other operating (income) expense, net ( 112 ) 40 ( 92 ) 951

Operating income 21,092 33,213 38,567 66,013

Equity income in unconsolidated joint ventures 1,022 1,742 2,240 2,579

Pension settlement charges ( 55 ) — ( 55 ) —

Other (expense) income, net 634 ( 1,401 ) ( 152 ) 3

12 unchanged sentences

(Dollars in thousands)

Three Months Ended

March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Net income $ 14,520 $ 24,293 $ 27,779 $ 52,692

1 unchanged sentence

Pension and other postretirement benefits:

Pension settlement benefits, net of tax (Note 4) ( 48 ) — ( 48 ) —

Actuarial net gain incurred, net of tax (Note 4) 626 — 626 —

Amortization of loss, net of tax (Note 4) 67 157 133 313

Derivative instrument designated as cash flow hedge:

Change in unrealized loss before reclassifications, net of tax (Note 4) ( 1,249 ) ( 394 )

Change in unrealized gain (loss) before reclassifications, net of tax (Note 4) 383 ( 810 ) ( 866 ) ( 1,204 )

Unrealized gain reclassified into earnings, net of tax (Note 4) ( 267 ) ( 62 ) ( 334 ) ( 156 )

Other comprehensive loss ( 8,144 ) ( 4,589 )

Other comprehensive income (loss) 6,390 1,467 ( 1,754 ) ( 3,122 )

Comprehensive income $ 20,910 $ 25,760 $ 26,025 $ 49,570

3 unchanged sentences

(Dollars and shares in thousands, except par value )

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Current assets

47 unchanged sentences

(Dollars in thousands)

Three Months Ended

March 31, 2020 March 31, 2019

Six Months Ended

June 30, 2020 June 30, 2019

Operating Activities:

6 unchanged sentences

Dividends received from unconsolidated joint ventures 1,785 1,741

Pension settlement benefits ( 63 ) —

Pension and other postretirement benefits ( 100 ) ( 346 )

Asbestos-related charges — 67

Loss on sale or disposal of property, plant and equipment 53 276

Impairment charges — 956

Provision (benefit) for doubtful accounts 54 ( 128 )

33 unchanged sentences

(Dollars and shares in thousands)

Three Months Ended

March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Capital Stock

20 unchanged sentences

Balance, beginning of period ( 55,049 ) ( 83,423 ) ( 46,905 ) ( 78,834 )

Other comprehensive loss ( 8,144 ) ( 4,589 )

Other comprehensive income (loss) 6,390 1,467 ( 1,754 ) ( 3,122 )

Balance, end of period ( 48,659 ) ( 81,956 ) ( 48,659 ) ( 81,956 )

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For further information regarding our accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of March 31, 2020 and through the date of this report.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of this report.

The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, equity compensation, the carrying value of our goodwill, other intangible assets as well as other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition.

While there was not a material impact to our consolidated financial statements as of and for the three months ended March 31, 2020, resulting from our assessments, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Note 2 – Fair Value Measurements

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• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As a result of our pension termination and settlement efforts in late 2019 and the first half of 2020, we have a pension surplus investment balance, which is now accounted for as an available-for-sale investment as of June 2020.

For additional information regarding this balance, refer to “Note 11 – Pension Benefits and Other Postretirement Benefits.” Available-for-sale investments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, were as follows:

Available-for-Sale Investment at Fair Value as of June 30, 2020

(Dollars in thousands) Level 1 Level 2 Level 3 Total

Pension surplus investment (1)

$ — $ 9,744 $ — $ 9,744

(1) This balance was invested in a fund comprised of fixed income and short-term cash securities, and was recorded in the “Other long-term assets” line item in the condensed consolidated statements of financial position.

As of June 30, 2020, the fair value of this investment approximated its carrying value.

From time to time we enter into various instruments that require fair value measurement, including foreign currency contracts, copper derivative contracts and interest rate swaps.

Derivative instruments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, were as follows:

Derivative Instruments at Fair Value as of March 31, 2020

Derivative Instruments at Fair Value as of June 30, 2020

(Dollars in thousands) Level 1 Level 2 Level 3 Total (1)

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This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

As of March 31, 2020 and 2019, only our interest rate swap qualified for hedge accounting treatment as a cash flow hedge, and the hedge was highly effective.

As of June 30, 2020 and 2019, only our interest rate swap qualified for hedge accounting treatment as a cash flow hedge, and the hedge was highly effective.

Foreign Currency

During the three months ended March 31, 2020, we entered into U.S.

dollar, euro, Korean won, and Japanese yen forward contracts.

During the three months ended June 30, 2020, we entered into U.S.

dollar, Korean won, and euro forward contracts.

We entered into these foreign currency forward contracts to mitigate certain global transactional exposures.

1 unchanged sentence

As a result, any fair value adjustments required on these contracts are recorded in “Other (expense) income, net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.

As of March 31, 2020, the notional values of the remaining foreign currency forward contracts were as follows:

As of June 30, 2020, the notional values of the remaining foreign currency forward contracts were as follows:

Notional Values of Foreign Currency Derivatives

USD/CNH $ 25,492,958

EUR/USD € 13,510,979

KRW/USD ₩ 11,961,700,000

JPY/EUR ¥ 360,000,000

As of March 31, 2020, we had 30 outstanding contracts to hedge exposure related to the purchase of copper in our Power Electronics Solutions (PES) and Advanced Connectivity Solutions (ACS) operating segments.

EUR/USD € 8,018,710

As of June 30, 2020, we had 26 outstanding contracts to hedge exposure related to the purchase of copper in our Power Electronics Solutions (PES) and Advanced Connectivity Solutions (ACS) operating segments.

These contracts are held with financial institutions and are intended to offset rising copper prices and do not qualify for hedge accounting treatment.

As of March 31, 2020, the volume of our copper contracts outstanding was as follows:

As of June 30, 2020, the volume of our copper contracts outstanding was as follows:

Volume of Copper Derivatives

April 2020 - June 2020 202 metric tons per month

July 2020 - September 2020 201 metric tons per month

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April 2021 - June 2021 256 metric tons per month

July 2021 - September 2021 171 metric tons per month

Interest Rates

4 unchanged sentences

The impacts from our derivative instruments on the statement of operations and statements of comprehensive income (loss) were as follows:

Three Months Ended

(Dollars in thousands) Financial Statement Line Item March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

(Dollars in thousands) Financial Statement Line Item June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Foreign Currency Contracts

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Interest Rate Swap

Contract designated as hedging instrument Other comprehensive loss $ ( 1,690 ) $ ( 632 )

Contract designated as hedging instrument Other comprehensive income (loss) $ 173 $ ( 1,113 ) $ ( 1,517 ) $ ( 1,745 )

We estimate approximately $ 1.7 million of pre-tax net losses currently reported in accumulated other comprehensive loss in the condensed consolidated statements of financial position will be reclassified into the condensed consolidated statements of operations within the next 12 months.

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Balance as of December 31, 2019 $ ( 35,478 ) $ ( 10,455 ) $ ( 972 ) $ ( 46,905 )

Other comprehensive loss before reclassifications ( 6,894 ) — ( 1,249 ) ( 8,143 )

Other comprehensive income (loss) before reclassifications ( 1,265 ) 626 ( 866 ) ( 1,505 )

Amounts reclassified from accumulated other comprehensive loss — 85 ( 334 ) ( 249 )

Net current-period other comprehensive income (loss) ( 1,265 ) 711 ( 1,200 ) ( 1,754 )

Balance as of March 31, 2020 $ ( 42,372 ) $ ( 10,389 ) $ ( 2,288 ) $ ( 55,049 )

Balance as of June 30, 2020 $ ( 36,743 ) $ ( 9,744 ) $ ( 2,172 ) $ ( 48,659 )

Balance as of December 31, 2018 $ ( 30,488 ) $ ( 48,700 ) $ 354 $ ( 78,834 )

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Net current-period other comprehensive income (loss) ( 2,075 ) 313 ( 1,360 ) ( 3,122 )

Balance as of March 31, 2019 $ ( 34,745 ) $ ( 48,544 ) $ ( 134 ) $ ( 83,423 )

(1) Net of taxes of $ 2,349 and $ 2,368 as of March 31, 2020 and December 31, 2019, respectively.

Net of taxes of $ 9,938 and $ 9,984 as of March 31, 2019 and December 31, 2018, respectively.

(2) Net of taxes of $ 656 and $ 282 as of March 31, 2020 and December 31, 2019, respectively.

Net of taxes of $ 37 and $( 106 ) as of March 31, 2019 and December 31, 2018, respectively.

Balance as of June 30, 2019 $ ( 32,563 ) $ ( 48,387 ) $ ( 1,006 ) $ ( 81,956 )

(1) Net of taxes of $ 2,172 and $ 2,368 as of June 30, 2020 and December 31, 2019, respectively.

Net of taxes of $ 9,893 and $ 9,984 as of June 30, 2019 and December 31, 2018, respectively.

(2) Net of taxes of $ 598 and $ 282 as of June 30, 2020 and December 31, 2019, respectively.

Net of taxes of $ 278 and $( 106 ) as of June 30, 2019 and December 31, 2018, respectively.

Note 5 – Inventories

Inventories, which are valued at the lower of cost or net realizable value, consisted of the following:

(Dollars in thousands) March 31, 2020 December 31, 2019

(Dollars in thousands) June 30, 2020 December 31, 2019

Raw materials $ 59,832 $ 61,338

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Foreign currency translation adjustment — ( 598 ) 137 — $ ( 461 )

March 31, 2020 $ 51,694 $ 141,242 $ 65,710 $ 2,224 $ 260,870

June 30, 2020 $ 51,694 $ 141,432 $ 67,119 $ 2,224 $ 262,469

Other Intangible Assets

The gross and net carrying amounts, as well as the accumulated amortization of other intangible assets were as follows:

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

(Dollars in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

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In the table above, gross carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations.

Amortization expense was $ 3.7 million and $ 4.4 million, for the three months ended March 31, 2020 and 2019, respectively.

Amortization expense was $ 7.6 million and $ 4.4 million for the three months ended June 30, 2020 and 2019, respectively, and was $ 11.2 million and $ 8.9 million for the six months ended June 30, 2020 and 2019, respectively.

The estimated future amortization expense is $ 30.8 million for the remainder of 2020 and $ 12.3 million, $ 11.8 million, $ 11.2 million and $ 9.9 million for 2021, 2022, 2023 and 2024, respectively.

The weighted average amortization period as of March 31, 2020, by definite-lived other intangible asset class, was as follows:

The increase in amortization expense for the three and six months ended June 30, 2020, and decrease in forecasted amortization expense in future years, were due to the acceleration of amortization expense related to our Diversified Silicone Products, Inc.

(DSP) customer relationships and trademarks and trade names definite-lived other intangible assets, which were both accelerated to be fully amortized by December 31, 2020.

As part of our ongoing assessment of the useful lives of our definite-lived other intangible assets, we reviewed the deterioration of our DSP business and identified significant customer attrition, a sustained substantial decrease in net sales, as well as the planned phase-out of the DSP trademark and trade name by December 2020.

Based on these events and circumstances, we concluded an adjustment to the remaining useful lives of our DSP customer relationships and trademarks and trade names definite-lived other intangible assets was warranted.

The weighted average amortization period as of June 30, 2020, by definite-lived other intangible asset class, was as follows:

Definite-Lived Other Intangible Asset Class Weighted Average Remaining Amortization Period

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The following table sets forth the computation of basic and diluted earnings per share:

(Dollars and shares in thousands, except per share amounts) Three Months Ended

March 31, 2020 March 31, 2019

(Dollars and shares in thousands, except per share amounts) Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Net income $ 14,520 $ 24,293 $ 27,779 $ 52,692

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Anti-dilutive shares are excluded from the calculation of diluted shares and diluted earnings per share.

For the three months ended March 31, 2020 and 2019, 127,106 shares and 23,081 shares were excluded, respectively.

For the three months ended June 30, 2020 and 2019, 55,961 shares and 6,256 shares were excluded, respectively.

Note 8 – Capital Stock and Equity Compensation

1 unchanged sentence

Performance-Based Restricted Stock Units

As of March 31, 2020, we had performance-based restricted stock units from 2020, 2019, and 2018 outstanding.

As of June 30, 2020, we had performance-based restricted stock units from 2020, 2019, and 2018 outstanding.

These awards generally cliff vest at the end of a three -year measurement period.

However, employees whose employment terminates during

the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the measurement period.

However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the measurement period.

Participants are eligible to be awarded shares ranging from 0 % to 200 % of the original award amount, based on certain defined performance measures.

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therefore, a dividend yield of 0 % was used in the Monte Carlo simulation valuation model.

A summary of activity of the outstanding performance-based restricted stock units for the three months ended March 31, 2020 is presented below:

A summary of activity of the outstanding performance-based restricted stock units for the six months ended June 30, 2020 is presented below:

Performance-Based

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Awards forfeited ( 4,962 )

Awards outstanding as of March 31, 2020 117,927

We recognized $ 1.5 million and $ 0.9 million of compensation expense for performance-based restricted stock units for the three months ended March 31, 2020 and 2019, respectively.

Awards outstanding as of June 30, 2020 113,739

We recognized $ 1.3 million and $ 1.1 million of compensation expense for performance-based restricted stock units for the three months ended June 30, 2020 and 2019, respectively.

We recognized $ 2.7 million and $ 2.0 million of compensation expense for performance-based restricted stock units for the six months ended June 30, 2020 and 2019, respectively.

Time-Based Restricted Stock Units

As of March 31, 2020, we had time-based restricted stock unit awards from 2020, 2019, 2018 and 2017 outstanding.

As of June 30, 2020, we had time-based restricted stock unit awards from 2020, 2019, 2018 and 2017 outstanding.

The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date.

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The fair value of the award is determined by the market value of the underlying stock price at the grant date.

We recognize compensation expense on all of these awards on a straight-line basis over the vesting period.

compensation expense on all of these awards on a straight-line basis over the vesting period.

We account for forfeitures as they occur.

A summary of activity of the outstanding time-based restricted stock units for the three months ended March 31, 2020 is presented below:

A summary of activity of the outstanding time-based restricted stock units for the six months ended June 30, 2020 is presented below:

Restricted Stock Units

3 unchanged sentences

Awards forfeited ( 3,585 )

Awards outstanding as of March 31, 2020 111,705

We recognized $ 1.5 million of compensation expense for time-based restricted stock units for each of the three-month periods ended March 31, 2020 and 2019, respectively.

Awards outstanding as of June 30, 2020 108,945

We recognized $ 1.5 million and $ 1.4 million of compensation expense for time-based restricted stock units for the three months ended June 30, 2020 and 2019, respectively.

We recognized $ 3.1 million and $ 2.9 million of compensation expense for time-based restricted stock units for the six months ended June 30, 2020 and 2019, respectively.

Deferred Stock Units

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The fair value of the award is determined by the market value of the underlying stock price at the grant date.

A summary of activity of the outstanding deferred stock units for the three months ended March 31, 2020 is presented below:

A summary of activity of the outstanding deferred stock units for the six months ended June 30, 2020 is presented below:

Deferred Stock Units

2 unchanged sentences

Stock issued ( 5,100 )

Awards outstanding as of March 31, 2020 7,150

We recognized no compensation expense related to deferred stock units for each of the three-month periods ended March 31, 2020 and 2019, respectively.

Awards outstanding as of June 30, 2020 11,450

We recognized $ 1.0 million of compensation expense related to deferred stock units for the three and six months ended June 30, 2020, and $ 1.1 million of compensation expense for the three and six months ended June 30, 2019.

Note 9 – Debt

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Euro-currency loans bear interest based on adjusted LIBOR plus a spread of 137.5 to 175.0 basis points, depending on our leverage ratio.

Based on our leverage ratio as of March 31, 2020, the spread was 162.5 basis points.

Based on our leverage ratio as of June 30, 2020, the spread was 150.0 basis points.

In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Third Amended Credit Agreement, we are required to pay a quarterly fee of 20 to 30 basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the Third Amended Credit Agreement.

The Third Amended Credit Agreement contains customary representations, warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated.

If an event of default occurs, the lenders may,

among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees.

If an event of default occurs, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees.

The financial covenants include requirements to maintain (1) a leverage ratio of no more than 3.25 to 1.00, subject to an election to increase the maximum leverage ratio to 3.50 to 1.00 for three fiscal quarters in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than 3.00 to 1.00.

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If our leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $ 20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments.

Our leverage ratio did not exceed 2.75 to 1.00 as of March 31, 2020.

Our leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2020.

In March 2017, we entered into an interest rate swap to hedge the variable interest rate on $ 75.0 million of our $ 450.0 million revolving credit facility.

We borrowed $ 150.0 million under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility given current uncertainty in the global markets resulting from the novel coronavirus (COVID-19) pandemic, during the three months ended March 31, 2020.

We borrowed $ 150.0 million under our revolving credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility given current uncertainty in the global markets resulting from the COVID-19 pandemic, during the three months ended March 31, 2020.

We did not borrow anything further under our revolving credit facility during the three months ended June 30, 2020.

We are not required to make any quarterly principal payments under the Third Amended Credit Agreement.

We made no discretionary principal payments on our revolving credit facility during the three months ended March 31, 2020 and we made $ 5.0 million of discretionary principal payments during the three months ended March 31, 2019.

We had $ 273.0 million in outstanding borrowings under our revolving credit facility as of March 31, 2020.

We incurred interest expense on our outstanding debt, net of the impacts of our interest rate swap, of $ 1.2 million and $ 2.1 million for the three months ended March 31, 2020 and 2019, respectively.

We incurred immaterial unused commitment fees for the three months ended March 31, 2020 and 2019.

We had $ 1.0 million and $ 1.2 million of outstanding line of credit issuance costs as of March 31, 2020 and December 31, 2019, respectively, which will be amortized over the life of the Third Amended Credit Agreement.

We recognized an immaterial amount of amortization expense for the three months ended March 31, 2020 and 2019, related to these deferred costs.

However, we made a $ 50.0 million discretionary principal payment on our revolving credit facility during the three months ended June 30, 2020.

We had $ 223.0 million in outstanding borrowings under our revolving credit facility as of June 30, 2020.

We made a $ 125.0 million discretionary principal payment on our revolving credit facility on July 29, 2020, reducing our outstanding borrowings under our revolving credit facility to $ 98.0 million as of our filing date.

We incurred interest expense on our outstanding debt, net of the impacts of our interest rate swap, of $ 1.7 million and $ 2.1 million for the three months ended June 30, 2020 and 2019, respectively, and $ 2.9 million and $ 4.2 million for the six months ended June 30, 2020, and 2019, respectively.

We incurred immaterial unused commitment fees for each of the three- and six-month periods ended June 30, 2020 and 2019.

We had $ 0.9 million and $ 1.2 million of outstanding line of credit issuance costs as of June 30, 2020 and December 31, 2019, respectively, which will be amortized over the life of the Third Amended Credit Agreement.

We recognized an immaterial amount of amortization expense for each of the three- and six-month periods ended June 30, 2020 and 2019, related to these deferred costs.

Note 10 - Leases

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Under the terms of the lease agreement, we have an option to purchase the property upon the expiration of the lease in 2021 at a price which is the greater of (i) the then-current market value or (ii) the residual book value of the land including the buildings and installations thereon.

Our finance lease obligation related to this facility was $ 4.4 million and $ 4.5 million as of March 31, 2020 and December 31, 2019, respectively.

The finance lease right-of-use asset balance for this facility was $ 6.1 million and $ 6.3 million as of March 31, 2020 and December 31, 2019, respectively.

Accumulated amortization related to this finance lease right-of-use asset was $ 3.8 million and $ 3.8 million as of March 31, 2020 and December 31, 2019, respectively.

The aggregate of all other finance lease obligations, finance lease right-of-use assets and related accumulated amortization, were immaterial as of March 31, 2020 and December 31, 2019.

Amortization expense related to our finance lease right-of-use assets, which is primarily included in the “Cost of sales” line item of the condensed consolidated statements of operations, was immaterial for each of the three-month periods ended March 31, 2020 and 2019.

Interest expense related to our finance lease obligations, which is included in the “Interest expense, net” line item of the condensed consolidated statements of operations, was immaterial for each of the three-month periods ended March 31, 2020 and 2019.

Payments made on the principal portion of our finance lease obligations were immaterial for each of the three-month periods ended March 31, 2020 and 2019.

Our finance lease obligation related to this facility was $ 4.4 million and $ 4.5 million as of June 30, 2020 and December 31, 2019, respectively.

The finance lease right-of-use asset balance for this facility was $ 6.1 million and $ 6.3 million as of June 30, 2020 and December 31, 2019, respectively.

Accumulated amortization related to this finance lease right-of-use asset was $ 3.9 million and $ 3.8 million as of June 30, 2020 and December 31, 2019, respectively.

The aggregate of all other finance lease obligations, finance lease right-of-use assets and related accumulated amortization, were immaterial as of June 30, 2020 and December 31, 2019.

Payments made on the principal portion of our finance lease obligations were immaterial for each of the three- and six-month periods ended June 30, 2020 and 2019.

We have operating leases primarily related to building space and vehicles.

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Our expenses and payments for operating leases were as follows:

Three Months Ended

(Dollars in thousands) March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Operating leases expense $ 694 $ 775 $ 1,422 $ 1,493

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Our assets and liabilities balances related to finance and operating leases reflected in the condensed consolidated statements of financial position were as follows:

(Dollars in thousands) Location in Statements of Financial Position March 31, 2020 December 31, 2019

(Dollars in thousands) Location in Statements of Financial Position June 30, 2020 December 31, 2019

Finance lease right-of-use assets Property, plant and equipment, net $ 6,125 $ 6,280

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Net Future Minimum Lease Payments

The following table includes future minimum lease payments under finance and operating leases together with the present value of the net future minimum lease payments as of March 31, 2020:

The following table includes future minimum lease payments under finance and operating leases together with the present value of the net future minimum lease payments as of June 30, 2020:

Finance Operating

(Dollars in thousands) Leases Leases Signed Less:

Leases Not Yet Commenced Leases

(Dollars in thousands) Leases Signed Less:

Leases Not Yet Commenced Total Leases Leases Signed Less:

Leases Not Yet Commenced Total Leases

2020 $ 266 $ — $ 266 $ 1,362 $ ( 11 ) $ 1,351

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Leases Operating

Weighted Average Remaining Lease Term 1.3 years 2.6 years

Weighted Average Remaining Lease Term 1.0 year 2.5 years

Weighted Average Discount Rate 3.00 % 4.97 %

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Pension and Other Postretirement Benefit Plans

As of March 31, 2020, we had two qualified noncontributory defined benefit pension plans, the Rogers Corporation Employees’ Pension Plan (the Union Plan) and the Rogers Corporation Defined Benefit Pension Plan (following its merger with the Hourly Employees Pension Plan of Arlon LLC, Microwave Material and Silicone Technologies Divisions, Bear, Delaware (collectively, the Merged Plan)), which were frozen and had ceased accruing benefits.

The Merged Plan was terminated and substantially settled in late 2019, with remaining settlement efforts expected to be completed in the second quarter of 2020.

As of December 31, 2019, we had two qualified noncontributory defined benefit pension plans.

In June 2020, we completed the remaining settlement efforts for the Rogers Corporation Defined Benefit Pension Plan (following its merger with the Hourly Employees Pension Plan of Arlon LLC, Microwave Material and Silicone Technologies Divisions, Bear, Delaware (collectively, the Merged Plan)), which had been terminated and substantially settled in late 2019.

As of June 30, 2020, only the

Rogers Corporation Employees’ Pension Plan (the Union Plan), which was frozen and ceased accruing benefits, remained.

There are no plans to terminate the Union Plan.

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On October 17, 2019, our Chief Executive Officer approved the termination of the Merged Plan.

A group annuity contract was purchased with an insurance company for all participants who did not elect a lump sum distribution, for $ 123.5 million, with a cash settlement date of October 24, 2019.

A group annuity contract was purchased with an insurance company for all participants who did not elect a lump sum distribution, for $ 123.3 million, with an initial cash settlement date of October 24, 2019, and a true-up cash settlement date of June 1, 2020.

The insurance company became responsible for administering and paying pension benefit payments effective January 1, 2020.

The lump sum distributions of $ 38.9 million were paid out prior to December 31, 2019.

Lump sum distributions of $ 38.9 million were paid out prior to December 31, 2019.

The Merged Plan paid an additional $ 1.3 million of monthly pension benefit payments subsequent to the annuity purchase date during the transition period ending December 31, 2019.

As of March 31, 2020, the Merged Plan had sufficient assets to satisfy all transaction obligations and had $ 9.0 million of net assets remaining.

In addition, we recorded a total non-cash pre-tax settlement charge in connection with the termination of the Merged Plan of $ 53.2 million during the fourth quarter of 2019.

This settlement charge included the immediate recognition into expense of the related unrecognized losses within “Accumulated other comprehensive loss” on the consolidated statements of financial position as of the plan termination date.

The settlement charge was recognized in “Pension settlement charges” in the consolidated statements of operations.

We expect to incur an additional non-cash pre-tax settlement charge in connection with the remaining settlement efforts of the Merged Plan of approximately $ 0.7 million during the second quarter of 2020.

In addition, we recorded a total non-cash pre-tax settlement charge in connection with the termination of the Merged Plan of $ 53.2 million during the fourth quarter of 2019, as well as an immaterial non-cash pre-tax settlement benefit during the second quarter of 2020.

This net settlement amount recognized included the immediate recognition into expense of the related unrecognized losses within “Accumulated other comprehensive loss” on the consolidated statements of financial position as of the plan termination date.

The pension settlement charge during the fourth quarter of 2019 was recognized in the “Pension settlement charges” line item in the consolidated statements of operations, and the pension settlement benefit during the second quarter of 2020 was recognized in the “Pension settlement charges” line item in the condensed consolidated statements of operations.

As of June 30, 2020, the remaining pension surplus investment balance was approximately $ 9.7 million.

We plan on using a portion of the funds to pay plan expenses, and moving the remainder funds from the pension trust to a defined contribution plan trust, where they will be used to fund certain employer contributions and pay plan expenses.

On July 27, 2020, we transferred $ 7.4 million of the pension surplus investment balance to a suspense account held within a trust for the Rogers Employee Savings and Investment Plan, a 401(k) plan for domestic employees.

Components of Net Periodic Benefit (Credit) Cost

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Pension Benefits Other Postretirement Benefits

Three Months Ended Three Months Ended

March 31, March 31,

Three Months Ended Six Months Ended Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30,

(Dollars in thousands) 2020 2019 2020 2019 2020 2019 2020 2019

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Amortization of net loss 114 456 228 910 — — — —

Settlement benefit ( 63 ) — ( 63 ) — — — — —

Net periodic benefit (credit) cost $ ( 111 ) $ 49 $ ( 159 ) $ 95 $ ( 1 ) $ ( 220 ) $ ( 2 ) $ ( 440 )

Employer Contributions

There were no required contributions to our qualified defined benefit pension plan for the three-month periods ended March 31, 2020 and 2019, and we are not required to make additional contributions to these plans for the remainder of 2020.

No voluntary contributions were made to our qualified defined benefit pension plans for either of the three-month periods ended March 31, 2020 and 2019.

As there is no funding requirement for the other postretirement benefit plans, we funded these benefit payments as incurred, which were immaterial for each of the three-month periods ended March 31, 2020 and 2019, using cash from operations.

There were no required or voluntary contributions made to our Merged Plan for the three and six-month periods ended June 30, 2020 and 2019.

Additionally, there were no required or voluntary contributions made to our Union Plan for the three and six-month periods ended June 30, 2020 and 2019, and we are not required to make additional contributions to this plan for the remainder of 2020.

As there is no funding requirement for the other postretirement benefit plans, we funded these benefit payments as incurred, which were immaterial for each of the three and six-month periods ended June 30, 2020 and 2019, using cash from operations.

Note 12 – Commitments and Contingencies

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Remediation activities on the site are ongoing and are recorded as reductions to the accrual as they are incurred.

We incurred $ 1.7 million of aggregate remediation costs through March 31, 2020, and the accrual for future remediation efforts is $ 1.0 million.

We incurred $ 1.7 million of aggregate remediation costs through June 30, 2020, and the accrual for future remediation efforts is $ 1.0 million.

We, like many other industrial companies, have been named as a defendant in a number of lawsuits filed in courts across the country by persons alleging personal injury from exposure to products containing asbestos.

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Most of the claims filed against us involve numerous defendants, sometimes as many as several hundred.

The following table summarizes the change in number of asbestos claims outstanding for the three months ended March 31, 2020:

The following table summarizes the change in number of asbestos claims outstanding for the six months ended June 30, 2020:

Asbestos Claims

2 unchanged sentences

Pending claims concluded (1)

Claims outstanding as of March 31, 2020 574

(1) For the three months ended March 31, 2020, 34 claims were dismissed and 4 claims were settled.

Settlements totaled approximately $ 1.6 million for the three months ended March 31, 2020.

Claims outstanding as of June 30, 2020

(1) For the six months ended June 30, 2020, 69 claims were dismissed and 14 claims were settled.

Settlements totaled approximately $ 2.4 million for the six months ended June 30, 2020.

Impact on Financial Statements

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We expect to continue to exhaust individual primary, excess and umbrella coverages over time, and there is no assurance that such exhaustion will not accelerate due to additional claims, damages and settlements or that coverage will be available as expected.

We are responsible for uninsured indemnity and defense costs, and we incurred an immaterial amount of expenses for the three months ended March 31, 2020 and 2019, respectively, related to such costs.

We are responsible for uninsured indemnity and defense costs, and we incurred an immaterial amount of expenses for each of the three- and six-month periods ended June 30, 2020 and 2019, respectively, related to such costs.

The amounts recorded for the asbestos-related liability and the related insurance receivables are based on facts known at the time and a number of assumptions.

2 unchanged sentences

Our projected asbestos-related liabilities and insurance receivables were as follows:

(Dollars in thousands) March 31, 2020 December 31, 2019

(Dollars in thousands) June 30, 2020 December 31, 2019

Asbestos-related liabilities $ 85,703 $ 85,880

5 unchanged sentences

Note 13 – Income Taxes

Our effective income tax rate was 20.6 % and 14.2 % for the three months ended March 31, 2020 and 2019, respectively.

The increase from the first quarter of 2019 was primarily due to the decrease in current quarter reversals of reserves for uncertain tax

positions and the decrease in excess tax deductions on stock-based compensation, partially offset by the beneficial impact of changes in valuation allowance against deferred tax assets associated with carried over research and development credits.

The total amount of unrecognized tax benefits as of March 31, 2020 was $ 11.0 million, of which $ 10.6 million would affect our effective tax rate if recognized.

Our effective income tax rate was 30.6 % and 22.9 % for the three months ended June 30, 2020 and 2019, respectively.

The increase from the second quarter of 2019 was primarily due to the increase in current quarter accruals of reserves for uncertain tax positions and higher tax impact on unremitted foreign earnings and profits, partially offset by the beneficial impact of changes in valuation allowance related to research and development (R&D) credits, pretax mix across jurisdictions with disparate tax rates and the international provisions from the U.S.

tax reform enacted in 2017.

Our effective income tax rate was 26.1 % and 18.5 % for the six months ended June 30, 2020 and 2019, respectively.

The increase from the first half of 2019 was primarily due to the increase in current quarter accruals of reserves for uncertain tax positions, the decrease in excess tax deductions on stock-based compensation and higher tax impact on unremitted foreign earnings and profits, partially offset by the beneficial impact of changes in valuation allowance related to R&D credits and pretax mix across jurisdictions with disparate tax rates.

The total amount of unrecognized tax benefits as of June 30, 2020 was $ 14.2 million, of which $ 13.8 million would affect our effective tax rate if recognized.

We recognize interest and penalties related to unrecognized tax benefits through income tax expense.

As of March 31, 2020, we had $ 0.9 million accrued for the payment of interest.

As of June 30, 2020, we had $ 0.9 million accrued for the payment of interest.

We are subject to taxation in the U.S.

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(Dollars in thousands) Advanced Connectivity Solutions Elastomeric Material Solutions Power Electronics Solutions Other Total

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Net sales - recognized over time $ — $ 2,667 $ 45,060 $ 3,077 $ 50,804

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Total net sales $ 70,940 $ 71,626 $ 45,220 $ 3,371 $ 191,157

Operating income $ 15,624 $ 2,995 $ 1,446 $ 1,027 $ 21,092

Three Months Ended June 30, 2019

Net sales - recognized over time $ — $ 2,965 $ 51,319 $ 4,313 $ 58,597

Net sales - recognized at a point in time 92,529 90,929 343 454 184,255

Total net sales $ 92,529 $ 93,894 $ 51,662 $ 4,767 $ 242,852

Operating income (loss) $ 18,458 $ 15,326 $ ( 1,884 ) $ 1,313 $ 33,213

Three Months Ended March 31, 2019

Six Months Ended June 30, 2020

Net sales - recognized over time $ — $ 5,494 $ 91,461 $ 6,727 $ 103,682

2 unchanged sentences

Operating income $ 21,086 $ 14,512 $ 762 $ 2,207 $ 38,567

Net sales by operating segment and by geographic area was as follows:

Six Months Ended June 30, 2019

Net sales - recognized over time $ — $ 5,971 $ 110,921 $ 8,917 $ 125,809

Net sales - recognized at a point in time 172,999 180,685 555 2,602 356,841

Total net sales $ 172,999 $ 186,656 $ 111,476 $ 11,519 $ 482,650

Operating income $ 31,522 $ 28,757 $ 2,383 $ 3,351 $ 66,013

Net sales by operating segment and by geographic area were as follows:

(Dollars in thousands) Net Sales (1)

Region/Country Advanced Connectivity Solutions Elastomeric Material Solutions Power Electronics Solutions Other Total

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

United States $ 17,396 $ 30,073 $ 5,489 $ 707 $ 53,665

8 unchanged sentences

Total net sales $ 70,940 $ 71,626 $ 45,220 $ 3,371 $ 191,157

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

United States $ 16,272 $ 41,370 $ 8,208 $ 1,079 $ 66,929

10 unchanged sentences

The table above lists individual countries with 10% or more of net sales for the periods indicated.

(Dollars in thousands) Net Sales (1)

Region/Country Advanced Connectivity Solutions Elastomeric Material Solutions Power Electronics Solutions Other Total

Six Months Ended June 30, 2020

United States $ 31,849 $ 68,640 $ 13,661 $ 1,686 $ 115,836

Other Americas 1,625 4,117 186 359 6,287

Total Americas 33,474 72,757 13,847 2,045 122,123

China 60,205 38,534 17,428 1,249 117,416

Other APAC 23,894 22,788 9,224 1,001 56,907

Total APAC 84,099 61,322 26,652 2,250 174,323

Germany 6,381 8,433 28,755 193 43,762

Other EMEA 11,539 12,640 22,687 2,893 49,759

Total EMEA 17,920 21,073 51,442 3,086 93,521

Total net sales $ 135,493 $ 155,152 $ 91,941 $ 7,381 $ 389,967

Six Months Ended June 30, 2019

United States $ 29,343 $ 84,835 $ 15,685 $ 2,369 $ 132,232

Other Americas 1,791 4,273 249 397 6,710

Total Americas 31,134 89,108 15,934 2,766 138,942

China 91,822 46,265 22,347 3,466 163,900

Other APAC 31,167 30,022 11,963 1,569 74,721

Total APAC 122,989 76,287 34,310 5,035 238,621

Germany 8,423 6,907 36,252 276 51,858

Other EMEA 10,453 14,354 24,980 3,442 53,229

Total EMEA 18,876 21,261 61,232 3,718 105,087

Total net sales $ 172,999 $ 186,656 $ 111,476 $ 11,519 $ 482,650

(1) Net sales are allocated to countries based on the location of the customer.

The table above lists individual countries with 10% or more of net sales for the periods indicated.

Revenue from Contracts with Customers

3 unchanged sentences

Contract assets by operating segment were as follows:

(Dollars in thousands) March 31, 2020 December 31, 2019

(Dollars in thousands) June 30, 2020 December 31, 2019

Advanced Connectivity Solutions $ — $ —

3 unchanged sentences

Total contract assets $ 19,280 $ 22,455

We did not have any contract liabilities as of March 31, 2020 or December 31, 2019.

No impairment losses were recognized for either of the three-month periods ended March 31, 2020 and 2019, respectively, on any receivables or contract assets arising from our contracts with customers.

We did not have any contract liabilities as of June 30, 2020 or December 31, 2019.

No impairment losses were recognized for either of the three or six-month periods ended June 30, 2020 and 2019, respectively, on any receivables or contract assets arising from our contracts with customers.

Note 15 – Supplemental Financial Information

1 unchanged sentence

The components of “Restructuring and impairment charges” line item in the condensed consolidated statements of operations, were as follows:

Three Months Ended

(Dollars in thousands) March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Restructuring Charges $ — $ 143 $ — $ 949

3 unchanged sentences

In 2018, we made the decision to consolidate our Santa Fe Springs, California operations into our facilities in Carol Stream, Illinois and Bear, Delaware, which was completed as of December 31, 2019.

We recorded $ 0.8 million of expense for the three months ended March 31, 2019 related to this facility consolidation.

Other Operating Expense, Net

The components of “Other operating expense, net” line item in the condensed consolidated statements of operations, were as follows:

Three Months Ended

(Dollars in thousands) March 31, 2020 March 31, 2019

We recorded $ 0.1 million and $ 0.9 million of expense for the three and six months ended June 30, 2019 related to this facility consolidation.

Impairment Charges

We recognized $ 0.9 million and $ 1.0 million in impairment charges on certain assets in connection with the Isola USA Corp.

(Isola) asset acquisition for the three and six months ended June 30, 2019, respectively.

Other Operating (Income) Expense, Net

The components of “Other operating (income) expense, net” line item in the condensed consolidated statements of operations, were as follows:

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Lease income $ — $ ( 329 ) $ — $ ( 876 )

1 unchanged sentence

Loss on sale or disposal of property, plant and equipment 33 3 53 276

Total other operating expense, net $ 20 $ 911

In connection with the transitional leaseback of a portion of the facility and certain machinery and equipment acquired from Isola USA (Isola) in August 2018, we recognized lease income and related depreciation on leased assets of $ 0.5 million and $ 1.2 million, respectively, for the three months ended March 31, 2019.

Economic incentive grants ( 145 ) — ( 145 ) —

Total other operating (income) expense, net $ ( 112 ) $ 40 $ ( 92 ) $ 951

In connection with the transitional leaseback of a portion of the facility and certain machinery and equipment acquired from Isola in August 2018, we recognized lease income of $ 0.3 million and $ 0.9 million for the three and six months ended June 30, 2019, respectively, and related depreciation on leased assets of $ 0.4 million and $ 1.6 million, respectively, for the three and six months ended June 30, 2019.

Interest Expense, Net

The components of “Interest expense, net” line item in the condensed consolidated statements of operations, were as follows:

Three Months Ended

(Dollars in thousands) March 31, 2020 March 31, 2019

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Interest on revolving credit facility $ 1,388 $ 2,179 $ 2,467 $ 4,430

4 unchanged sentences

Interest income ( 269 ) ( 375 ) ( 589 ) ( 864 )

Other 2 17 27 19

Total interest expense, net $ 1,779 $ 2,038 $ 2,986 $ 3,976

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements