What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-07-31 · 170 added, 131 removed, 603 unchanged (33% of the section changed)

3 unchanged sentences

(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

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Net sales $ 201,944 $ 221,842 $ 591,911 $ 704,492

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Pension settlement charges — — ( 55 ) —

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

Other income (expense), net 1,446 ( 918 ) 1,294 ( 915 )

Interest expense, net ( 3,553 ) ( 1,747 ) ( 6,539 ) ( 5,723 )

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(Dollars in thousands)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Net income $ 7,006 $ 23,387 $ 34,785 $ 76,079

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Derivative instrument designated as cash flow hedge:

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 )

Change in unrealized loss before reclassifications, net of tax (Note 4) ( 638 ) ( 158 ) ( 1,504 ) ( 1,362 )

Unrealized loss (gain) reclassified into earnings, net of tax (Note 4) 2,810 ( 32 ) 2,476 ( 188 )

Other comprehensive income (loss) 13,510 ( 10,205 ) 11,756 ( 13,327 )

4 unchanged sentences

(Dollars and shares in thousands, except par value )

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets

47 unchanged sentences

(Dollars in thousands)

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Operating Activities:

46 unchanged sentences

(Dollars and shares in thousands)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Capital Stock

34 unchanged sentences

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 of COVID-19 as of June 30, 2020 and through the date of this report.

Refer to the discussion below for our restructuring activities significant accounting policy.

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.

Restructuring Activities

We record charges associated with restructuring activities, such as employee termination benefits, which represent a one-time benefit, when management approves and commits to a plan of termination, or over the future service period, if any.

Other costs associated with restructuring activities may include contract termination costs, including costs related to leased facilities to be abandoned or subleased, and facility and employee relocation costs.

Note 2 – Fair Value Measurements

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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

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

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

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$ 6,911 $ 2,416 $ — $ 9,327

(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.

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

As of September 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 June 30, 2020

Derivative Instruments at Fair Value as of September 30, 2020

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

7 unchanged sentences

Interest rate swap contract $ — $ ( 1,254 ) $ — $ ( 1,254 )

(1) All balances were recorded in the “Other current assets” or “Other accrued liabilities” line items in the condensed consolidated statements of financial position, except the 2020 and 2019 interest rate swap balance, which was recorded in the “Other long-term liabilities” line item.

(1) All balances were recorded in the “Other current assets” or “Other accrued liabilities” line items in the condensed consolidated statements of financial position, except the 2019 interest rate swap balance, which was recorded in the “Other long-term liabilities” line item.

For additional information on derivative contracts, refer to “Note 3 – Hedging Transactions and Derivative Financial Instruments.”

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For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in the condensed consolidated statements of comprehensive income (loss).

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 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.

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 September 30, 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 June 30, 2020, we entered into U.S.

dollar, Korean won, and euro forward contracts.

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

dollar, euro, and Korean won forward contracts.

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

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

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

Notional Values of Foreign Currency Derivatives

USD/CNH $ 30,138,505

KRW/USD ₩ 11,961,700,000

EUR/USD € 9,430,781

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.

KRW/USD ₩ 11,684,000,000

As of September 30, 2020, we had 21 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 June 30, 2020, the volume of our copper contracts outstanding was as follows:

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

Volume of Copper Derivatives

July 2020 - September 2020 201 metric tons per month

October 2020 - December 2020 201 metric tons per month

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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.

This transaction has been designated as a cash flow hedge and qualifies for hedge accounting treatment.

This transaction was designated as a cash flow hedge and qualified for hedge accounting treatment.

We terminated the interest rate swap on September 30, 2020.

As a result, we settled the interest rate swap for $ 2.4 million on October 2, 2020, representing the fair value of the interest rate swap on the date of termination.

Both Rogers and the counterparties released each other from all obligation under the interest rate swap agreement, including the obligation to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to the agreed upon notional principal amount of $ 75.0 million.

As a result of the termination of the interest rate swap, there is an offsetting decrease in the forecasted interest expense, net over the remaining term of the now-terminated interest rate swap, which was set to expire in February 2022.

For additional information regarding our revolving credit facility, refer to “Note 9 – Debt.”

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

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

Three Months Ended Nine Months Ended

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

Foreign Currency Contracts

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Contract designated as hedging instrument Other comprehensive income (loss) $ 2,771 $ ( 240 ) $ 1,254 $ ( 1,985 )

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.

Note 4 – Accumulated Other Comprehensive Loss

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Net current-period other comprehensive income (loss) 10,004 780 972 11,756

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

Balance as of September 30, 2020 $ ( 25,474 ) $ ( 9,675 ) $ — $ ( 35,149 )

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

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Net current-period other comprehensive income (loss) ( 12,262 ) 485 ( 1,550 ) ( 13,327 )

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.

Balance as of September 30, 2019 $ ( 42,750 ) $ ( 48,215 ) $ ( 1,196 ) $ ( 92,161 )

(1) Net of taxes of $ 2,154 and $ 2,368 as of September 30, 2020 and December 31, 2019, respectively.

Net of taxes of $ 9,851 and $ 9,984 as of September 30, 2019 and December 31, 2018, respectively.

(2) Net of taxes of $ 0 and $ 282 as of September 30, 2020 and December 31, 2019, respectively.

Net of taxes of $ 329 and $( 106 ) as of September 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) June 30, 2020 December 31, 2019

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

Raw materials $ 52,105 $ 61,338

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Foreign currency translation adjustment — ( 176 ) 3,027 — $ 2,851

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

September 30, 2020 $ 51,694 $ 141,854 $ 70,009 $ 2,224 $ 265,781

Other Intangible Assets

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

June 30, 2020 December 31, 2019

September 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 $ 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.

Amortization expense was $ 15.4 million and $ 4.4 million for the three months ended September 30, 2020 and 2019, respectively, and was $ 26.7 million and $ 13.3 million for the nine months ended September 30, 2020 and 2019, respectively.

The estimated future amortization expense is $ 15.4 million for the remainder of 2020 and $ 12.3 million, $ 11.8 million, $ 11.3 million and $ 9.9 million for 2021, 2022, 2023 and 2024, respectively.

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.

The increase in amortization expense for the three and nine months ended September 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.

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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:

The weighted average amortization period as of September 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 Six Months Ended

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

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

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Net income $ 7,006 $ 23,387 $ 34,785 $ 76,079

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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 June 30, 2020 and 2019, 55,961 shares and 6,256 shares were excluded, respectively.

For the three months ended September 30, 2020 and 2019, 32,501 shares and 3,173 shares were excluded, respectively.

Note 8 – Capital Stock and Equity Compensation

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Performance-Based Restricted Stock Units

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

As of September 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.

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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 six months ended June 30, 2020 is presented below:

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

Performance-Based

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Awards forfeited ( 5,866 )

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.

Awards outstanding as of September 30, 2020 112,835

We recognized $ 1.6 million and $ 1.5 million of compensation expense for performance-based restricted stock units for the three months ended September 30, 2020 and 2019, respectively.

We recognized $ 4.3 million and $ 3.5 million of compensation expense for performance-based restricted stock units for the nine months ended September 30, 2020 and 2019, respectively.

Time-Based Restricted Stock Units

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

As of September 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.

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

We recognize 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 six months ended June 30, 2020 is presented below:

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

Restricted Stock Units

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Awards forfeited ( 4,962 )

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.

Awards outstanding as of September 30, 2020 106,110

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

We recognized $ 4.6 million and $ 4.4 million of compensation expense for time-based restricted stock units for the nine months ended September 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 six months ended June 30, 2020 is presented below:

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

Deferred Stock Units

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Stock issued ( 5,100 )

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.

Awards outstanding as of September 30, 2020 11,450

We recognized no compensation expense related to deferred stock units for the three months ended September 30, 2020 and 2019, respectively.

We recognized $ 1.0 million and $ 1.1 million of compensation expense for the nine months ended September 30, 2020 and 2019, respectively.

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 June 30, 2020, the spread was 150.0 basis points.

Based on our leverage ratio as of September 30, 2020, the spread was 137.5 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.

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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 June 30, 2020.

Our leverage ratio did not exceed 2.75 to 1.00 as of September 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.

This transaction was designated as a cash flow hedge and qualified for hedge accounting treatment.

We terminated the interest rate swap on September 30, 2020.

As a result, we settled the interest rate swap for $ 2.4 million on October 2, 2020, representing the fair value of the interest rate swap on the date of termination.

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 did no t borrow anything further under our revolving credit facility for the three and nine months ended September 30, 2020.

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

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.

However, for the three and nine months ended September 30, 2020, we made $ 163.0 million and $ 213.0 million of discretionary principal payments on our revolving credit facility, respectively.

We had $ 60.0 million in outstanding borrowings under our revolving credit facility as of September 30, 2020.

We incurred interest expense on our outstanding debt, net of the impacts of our interest rate swap, of $ 3.4 million and $ 1.8 million for the three months ended September 30, 2020 and 2019, respectively, and $ 6.3 million and $ 6.1 million for the nine months ended September 30, 2020, and 2019, respectively.

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

We had $ 0.7 million and $ 1.2 million of outstanding line of credit issuance costs as of September 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 nine-month periods ended September 30, 2020 and 2019, related to these deferred costs.

On October 16, 2020, we entered into the Fourth Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A, as administrative agent, and the lenders party thereto (the Fourth Amended Credit Agreement).

The Fourth Amended Credit Agreement amends and restates the Third Amended Credit Agreement, and provides for a revolving credit facility with up to a $ 450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, in addition to a $ 175.0 million accordion feature.

Borrowings may be used to finance working capital needs, for letters of credit and for general corporate purposes in the ordinary course of business, including the financing of permitted acquisitions (as defined in the Fourth Amended Credit Agreement).

The Fourth Amended Credit Agreement extends the maturity, the date on which all amounts borrowed or outstanding under the Fourth Amended Credit Agreement are due, from February 17, 2022 to March 31, 2024.

All obligations under the Fourth Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Fourth Amended Credit Agreement (the Guarantors).

The obligations are also secured by a Fourth Amended and Restated Pledge and Security Agreement, dated as of October 16, 2020, entered into by us and the Guarantors which grants to the administrative agent, for the benefit of the lenders, a security interest, subject to certain exceptions, in substantially all of our and the Guarantors’ non-real estate assets.

These assets include, but are not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries.

Borrowings under the Fourth Amended Credit Agreement can be made as alternate base rate loans or euro-currency loans.

Alternate base rate loans bear interest at a base reference rate plus a spread of 62.5 to 100.0 basis points, depending on our leverage ratio.

The base reference rate is the greatest of (a) the prime rate in effect on such day, (b) the NYFRB rate in effect on such day plus ½ of 1%, and (c) the adjusted LIBOR for a one month interest period in dollars on such day (or if such day is not a business day, the immediately preceding business day) plus 1 %.

Euro-currency loans bear interest based on adjusted LIBOR plus a spread of 162.5 to 200.0 basis points, depending on our leverage ratio.

In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Fourth Amended Credit Agreement, we are required to pay a quarterly fee of 25 to 35 basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the Fourth Amended Credit Agreement.

The Fourth Amended Credit Agreement contains customary representations and 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.

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

We are permitted to net up to $ 50.0 million of unrestricted domestic cash and cash equivalents against indebtedness in the calculation of the total net leverage ratio.

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 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.

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- and six-month periods ended June 30, 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- and six-month periods ended June 30, 2020 and 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.

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

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

Accumulated amortization related to this finance lease right-of-use asset was $ 4.2 million and $ 3.8 million as of September 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 September 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 nine-month periods ended September 30, 2020 and 2019.

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

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The exercise of lease renewal options is at our sole discretion.

We account for lease components separately from non-lease components.

account for lease components separately from non-lease components.

The incremental borrowing rate represents our ability to borrow on a collateralized basis over a similar lease term.

Our expenses and payments for operating leases were as follows:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Operating leases expense $ 846 $ 843 $ 2,268 $ 2,336

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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 June 30, 2020 December 31, 2019

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

Finance lease right-of-use assets Property, plant and equipment, net $ 6,307 $ 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 June 30, 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 September 30, 2020:

Finance Operating

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Leases Operating

Weighted Average Remaining Lease Term 1.0 year 2.5 years

Weighted Average Remaining Lease Term 0.8 years 2.3 years

Weighted Average Discount Rate 3.00 % 4.84 %

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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.

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 September 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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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.

As of September 30, 2020, the remaining pension surplus investment balance was approximately $ 9.3 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.

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Pension Benefits Other Postretirement Benefits

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

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

Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended

September 30, September 30, September 30, September 30,

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

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Employer Contributions

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.

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

Additionally, there were no required or voluntary contributions made to our Union Plan for the three and nine-month periods ended September 30, 2020 and 2019, and we are no t 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 nine-month periods ended September 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 June 30, 2020, and the accrual for future remediation efforts is $ 1.0 million.

We incurred $ 1.7 million of aggregate remediation costs through September 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 six months ended June 30, 2020:

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

Asbestos Claims

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Pending claims concluded (1)

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.

Claims outstanding as of September 30, 2020

(1) For the nine months ended September 30, 2020, 103 claims were dismissed and 19 claims were settled.

Settlements totaled approximately $ 5.4 million for the nine months ended September 30, 2020.

Impact on Financial Statements

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As of the filing date for this report, the agreement has not been terminated, and no carrier had informed us it intended to terminate the agreement.

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 each of the three- and six-month periods ended June 30, 2020 and 2019, respectively, related to such costs.

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 each of the three- and nine-month periods ended September 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.

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

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

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

Asbestos-related liabilities $ 85,547 $ 85,880

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Note 13 – Income Taxes

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.

Our effective income tax rate was 8.1 % and 18.6 % for the three months ended September 30, 2020 and 2019, respectively.

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

Our effective income tax rate was 23.1 % and 18.5 % for the nine months ended September 30, 2020 and 2019, respectively.

The increase from the first nine months 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 September 30, 2020 was $ 14.9 million, of which $ 14.5 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 June 30, 2020, we had $ 0.9 million accrued for the payment of interest.

As of September 30, 2020, we had $ 1.1 million accrued for the payment of interest.

We are subject to taxation in the U.S.

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These include polyurethane and silicone materials used in cushioning, gasketing and sealing, and vibration management applications for general industrial, portable electronics, automotive, electric and hybrid electric vehicles (EV/HEV), mass transit, aerospace and defense, footwear and impact mitigation and printing markets;

customized silicones used in flex heater and semiconductor thermal applications for general industrial, portable electronics, automotive, EV/HEV, mass transit, aerospace and defense and medical markets;

customized silicones used in flex heater and semiconductor thermal applications for general industrial, portable electronics, automotive, EV/HEV,

mass transit, aerospace and defense and medical markets;

polytetrafluoroethylene and ultra-high molecular weight polyethylene materials used in wire and cable protection, electrical insulation, conduction and shielding, hose and belt protection, vibration management, cushioning, gasketing and sealing, and venting applications for general industrial, automotive, EV/HEV and aerospace and defense markets.

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

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Net sales - recognized over time $ 219 $ 2,612 $ 47,827 $ 3,568 $ 54,226

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Total net sales $ 63,714 $ 86,444 $ 47,927 $ 3,859 $ 201,944

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

Three Months Ended June 30, 2019

Operating income (loss) $ 4,981 $ 7,372 $ ( 4,691 ) $ 1,132 $ 8,794

Three Months Ended September 30, 2019

Net sales - recognized over time $ — $ 3,429 $ 42,906 $ 4,504 $ 50,839

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Operating income (loss) $ 13,778 $ 17,995 $ ( 3,358 ) $ 1,470 $ 29,885

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Net sales - recognized over time $ 219 $ 8,106 $ 139,288 $ 10,295 $ 157,908

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Total net sales $ 199,207 $ 241,596 $ 139,868 $ 11,240 $ 591,911

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

Six Months Ended June 30, 2019

Operating income (loss) $ 26,067 $ 21,884 $ ( 3,929 ) $ 3,339 $ 47,361

Nine Months Ended September 30, 2019

Net sales - recognized over time $ — $ 9,400 $ 153,827 $ 13,421 $ 176,648

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Total net sales $ 251,982 $ 281,596 $ 154,607 $ 16,307 $ 704,492

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

Operating income (loss) $ 45,301 $ 46,752 $ ( 976 ) $ 4,821 $ 95,898

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

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

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

United States $ 18,058 $ 29,733 $ 5,901 $ 980 $ 54,672

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Total net sales $ 63,714 $ 86,444 $ 47,927 $ 3,859 $ 201,944

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

United States $ 17,671 $ 41,232 $ 8,115 $ 1,237 $ 68,255

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

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

United States $ 49,907 $ 98,373 $ 19,562 $ 2,666 $ 170,508

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Total net sales $ 199,207 $ 241,596 $ 139,868 $ 11,240 $ 591,911

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

United States $ 47,014 $ 126,067 $ 23,800 $ 3,606 $ 200,487

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Contract assets by operating segment were as follows:

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

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

Advanced Connectivity Solutions $ 186 $ —

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Total contract assets $ 22,061 $ 22,455

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.

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

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

Note 15 – Supplemental Financial Information

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The components of “Restructuring and impairment charges” 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

Three Months Ended Nine Months Ended

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

Restructuring charges $ 9,027 $ ( 1 ) $ 9,027 $ 948

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Total restructuring and impairment charges $ 9,413 $ 580 $ 9,413 $ 2,485

Our PES, ACS and EMS operating segments incurred $ 6.3 million, $ 2.9 million and $ 0.2 million of restructuring and impairment charges, respectively, for the three and nine months ended September 30, 2020.

Restructuring Charges

During the third quarter of 2020, we commenced manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations, primarily impacting our PES and ACS operating segments, in order to achieve greater cost competitiveness as well as align capacity with end market demand.

We expect the majority of the restructuring activities to be completed by the end of the first half of 2021.

Severance activity related to the manufacturing footprint optimization plan is presented in the table below for the nine months ended September 30, 2020:

(Dollars in thousands) Manufacturing Footprint Optimization Restructuring Severance

Balance as of December 31, 2019 $ —

Provisions 8,754

Payments ( 5 )

Foreign currency translation adjustment ( 78 )

Balance as of September 30, 2020 $ 8,671

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

We recorded immaterial expense and $ 0.9 million of expense for the three and nine months ended September 30, 2019, respectively, related to this facility consolidation.

Impairment Charges

We recognized $ 0.4 million of impairment charges, primarily related to fixed assets in Belgium, for the three and nine months ended September 30, 2020.

We recognized $ 0.6 million and $ 1.5 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.

(Isola) asset acquisition for the three and nine months ended September 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

Three Months Ended Nine Months Ended

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

Lease income $ — $ ( 57 ) $ — $ ( 932 )

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Total other operating (income) expense, net $ ( 4 ) $ 124 $ ( 96 ) $ 1,075

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.

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 $ 0.1 million and $ 0.9 million for the three and nine months ended September 30, 2019, respectively, and related depreciation on leased assets of $ 0.2 million and $ 1.7 million, respectively, for the three and nine months ended September 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

Interest on revolving credit facility $ 612 $ 1,873 $ 3,079 $ 6,303

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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