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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-21 · 172 added, 116 removed, 234 unchanged (55% of the section changed)

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Selected Financial Data.”

The discussion of the comparison of our 2018 and 2017 results was previously presented in the Management’s Discussion & Analysis in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on February 21, 2019 , and has been omitted from this section pursuant to Instruction 1 to Item 303(a) of Regulation S-K.

Business Overview

The discussion of the comparison of our 2019 and 2018 results was previously presented in the Ma nagement’s Discussion & Analysis in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on February 21, 2020 , and has been omitted from this section pursuant to Instruction 1 to Item 303(a) of Regulation S-K.

Company Background and Strategy

Rogers Corporation designs, develops, manufactures and sells high-performance and high-reliability engineered materials and components to meet our customers’ demanding challenges.

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The remaining operations, which represent our non-core businesses, are reported in the Other operating segment.

We have a history of innovation and have established Innovation Centers for our research and development activities in Chandler, Arizona;

During the first quarter of 2021, we completed the realignment of our strategic business segments to reflect the combination of our ACS and PES businesses resulting in a new strategic business segment, Advanced Electronics Solutions (AES).

The combination of these two complementary businesses with capabilities in both high power and high frequency applications is expected to enhance our overall value proposition to customers in multiple high-growth markets.

We have a history of innovation and have established Innovation Centers for our research and development (R&D) activities in Chandler, Arizona;

Burlington, Massachusetts;

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We are headquartered in Chandler, Arizona.

Growth Strategy and Recent Acquisitions

Our growth strategy is based upon the following principles:

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As a market-driven organization, we are focused on growth drivers, including advanced mobility and advanced connectivity.

More specifically, the key trends currently affecting our business include the increasing use of advanced driver assistance systems (ADAS) and increasing electrification of vehicles, including electric and hybrid electric vehicles (EV/HEV), in the automotive industry and new technology adoption in the telecommunications industry, including next generation wireless infrastructure.

In addition to our focus on advanced mobility and advanced connectivity in the automotive and telecommunications industries, we sell into a variety of other markets including general industrial, portable electronics, connected devices, aerospace and defense, mass transit and renewable energy.

More specifically, in addition to the impact COVID-19 discussed below, the key medium- to long-term trends currently affecting our business include the increasing use of advanced driver assistance systems (ADAS) and increasing electrification of vehicles, including electric and hybrid electric vehicles (EV/HEV), in the automotive industry and the growth of 5G smartphones in the portable electronics industry.

In addition to our focus on advanced mobility and advanced connectivity in the automotive, portable electronics and telecommunications industries, we sell into a variety of other markets including general industrial, aerospace and defense, mass transit, renewable energy and connected devices.

Our sales and marketing approach is based on addressing these trends, while our strategy focuses on factors for success as a manufacturer of engineered materials and components:

performance, quality, service, cost, efficiency, innovation and technology.

We have expanded our capabilities through organic investment and acquisitions and strive to ensure high quality solutions for our customers.

We have expanded our capabilities through organic investment and strive to ensure high quality solutions for our customers.

We continue to review and re-align our manufacturing and engineering footprint in an effort to attain a leading competitive position globally.

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We strive to evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.

In executing on our growth strategy, we have completed the following strategic acquisitions in the last two fiscal years:

(1) in July 2018, we acquired Griswold LLC (Griswold), a manufacturer of a wide range of high-performance engineered cellular elastomer and microcellular polyurethane products and solutions and (2) in August 2018, we acquired a production facility and related machinery and equipment located in Chandler, Arizona from Isola USA Corp (Isola).

Executive Summary

The following key highlights and factors should be considered when reviewing our results of operations, financial position and liquidity:

• In 2020 as compared to 2019, our net sales decreased by 10.7% to $802.6 million, our gross margin increased 140 basis points to 36.4% from 35.0%, and operating income as a percentage of net sales decreased 390 basis points to 8.4% from 12.3%.

• We made $248.0 million of discretionary principal payments on our revolving credit facility during the second, third and fourth quarters of 2020, partially offset by $150.0 million in borrowings under our revolving credit facility during the first quarter of 2020 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.

• 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.

• We commenced manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations, primarily impacting our PES and ACS operating segments, and we recognized $12.3 million of restructuring charges in 2020 related to this project.

• We incurred incremental direct costs of $4.9 million in 2020, due to the COVID-19 pandemic.

These costs primarily consist of temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as additional safety supplies.

A substantial portion of the additional benefits under these programs expired in mid-June.

• We recognized an additional $27.4 million of amortization expense in 2020 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.

• In early February 2021, there was a fire at our UTIS manufacturing facility in Ansan, South Korea.

This facility manufactures eSorba® polyurethane foams used in portable electronics and display applications.

These operations will be disrupted, but it is too early to determine the expected duration of the disruption.

The UTIS business represented less than 4% of our annual net sales in 2020.

Results of Operations

The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales.

Net sales 100.0 % 100.0 %

Gross margin 36.4 % 35.0 %

Selling, general and administrative expenses 22.7 % 18.8 %

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Income tax expense 2.3 % 0.8 %

Net income 6.2 % 5.3 %

Net Sales and Gross Margin

(Dollars in thousands) 2020 2019

Net sales $ 802,583 $ 898,260

Gross margin $ 291,820 $ 314,292

Percentage of net sales 36.4 % 35.0 %

Net sales increased by 2.2% in 2019 compared to 2018.

Our ACS and EMS operating segments had net sales increases of 7.6% and 5.9% , respectively, partially offset by a net sales decrease in our PES operating segment of 11.1% .

The increase in net sales was primarily driven by higher net sales in 5G wireless infrastructure in our ACS operating segment and the $15.0 million of net sales in the first half of the year related to Griswold, which we acquired in July 2018.

Net sales were also favorably impacted by higher net sales in the aerospace and defense market in our ACS operating segment, higher net sales in the portable electronics market in our EMS operating segment and higher net sales in the mass transit and power semiconductor substrate EV/HEV markets in our PES operating segment, partially offset by lower net sales in the general industrial, vehicle electrification, ROLINX ® EV/HEV power interconnects and renewable energy markets in our PES operating segment, lower net sales in 4G wireless infrastructure in our ACS operating segment and lower net sales in the general industrial market in our EMS operating segment.

Net sales were unfavorably impacted by the effects of trade tensions in 2019.

Net sales were additionally unfavorably impacted by $20.9 million, or 2.4%, due to the depreciation in value of the euro, Chinese renminbi and South Korean won relative to the U.S.

Gross margin as a percentage of net sales decreased approximately 40 basis points to 35.0% in 2019 compared to 35.4% in 2018.

Gross margin in 2019 was negatively impacted by lower volumes, unfavorable absorption of fixed costs, lower productivity and higher fixed overhead costs in our PES operating segment, as well as an increase in tariffs and duties in our ACS and EMS operating segments.

This was partially offset by higher volumes, favorable product mix and productivity improvements in our ACS and EMS operating segments, as well as the resolution of certain process issues that had negatively impacted gross margin in 2018.

Net sales decreased by 10.7% in 2020 compared to 2019.

Our ACS, EMS and PES operating segments had net sales decreases of 15.1%, 9.2% and 4.3%, respectively.

The decrease in net sales was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure markets in our ACS operating segment, as well as lower net sales in the automotive market in our ACS operating segment, lower net sales in the general industrial, mass transit, consumer and automotive markets in our EMS operating segment and lower net sales in the mass transit, industrial power and vehicle electrification markets in our PES operating segment.

The decrease in net sales was partially offset by higher net sales in the aerospace and defense market in our ACS operating segment, higher net sales in the EV/HEV and portable electronics markets in our EMS operating segment and higher net sales in the EV/HEV and renewable energy markets in our PES operating segment.

Net sales were not materially impacted by changes in foreign currencies.

The lower net sales in the 4G and 5G wireless infrastructure markets in our ACS operating segment reflected the waning of 4G infrastructure spending by telecommunications companies in anticipation of 5G, as well as the impacts of trade tensions, increased competition and design changes by telecommunications equipment original equipment manufacturers (OEMs), which reduced our materials content in 5G base stations.

The lower net sales in the automotive, mass transit and general industrial markets was largely due to the impacts of the COVID-19 pandemic.

The lower net sales in industrial power market in our PES operating segment was due to a slowdown in industrial automation demand due to the impacts of the COVID-19 pandemic combined with customer inventory rebalancing, which began in mid-2019 and continued through most of the first half of 2020.

The lower net sales in the vehicle electrification market in our PES operating segment was due to the COVID-19 impacts on the automotive sector in the first half of 2020, partially offset by a recovery in the second half of 2020.

In our PES and EMS operating segments, we anticipate higher net sales in the EV/HEV market in 2021 driven by continued strong demand.

In our ACS and EMS operating segments, we anticipate a strong recovery in the automotive market in 2021 following industry disruptions that occurred in the first half of 2020 due to the COVID-19 pandemic.

In particular, we anticipate higher net sales for ADAS applications in 2021 driven by increased adoption of safety features in newer vehicles.

In our EMS operating segment, we anticipate higher net sales in the portable electronics market in 2021 due to anticipated continuation of strong demand for 5G smartphones, tempered by the uncertain impacts from the fire at our UTIS manufacturing facility in early February 2021.

In our ACS operating segment, we anticipate higher net sales in the aerospace and defense market in 2021 driven by funding of technology programs such as advanced defense and radar systems.

Gross margin as a percentage of net sales increased 140 basis points to 36.4% in 2020 compared to 35.0% in 2019.

Gross margin in 2020 was favorably impacted by lower freight, duties and tariffs costs in our ACS operating segment, including the recognition of a $3.3 million recovery of previous duty taxes paid due to a change in Chinese tariff regulations, favorable product mix in our EMS operating segment, lower fixed overhead costs and yield improvements in our ACS, EMS and PES operating segments, as well as favorable productivity performance and favorable absorption of fixed overhead costs in our PES operating segment.

This was partially offset by lower volume in our ACS, EMS and PES operating segments, unfavorable absorption of fixed overhead costs in our ACS and EMS operating segments, an increase in inventory reserve provisions in our PES operating segment, as well as unfavorable product mix in our PES operating segment.

We incurred incremental direct costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as additional safety supplies.

These costs impacted our gross margin by approximately $4.5 million in 2020.

A substantial portion of the additional benefits under these programs expired in June 2020.

Selling, General and Administrative Expenses

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Percentage of net sales 22.7 % 18.8 %

SG&A expenses increased 2.8% in 2019 from 2018, primarily due to a $7.0 million increase in total compensation and benefits, a $1.2 million increase in other intangible assets amortization, most of which was related to our acquisition of Griswold, a $1.0 million increase in asbestos-related charges and a $0.8 million increase in environmental charges.

This was partially offset by a $2.7 million decrease in professional service costs, a $1.5 million decrease in depreciation expense and a $1.1 million decrease in travel and entertainment expenses.

Selling, general and administrative (SG&A) expenses increased 8.1% in 2020 from 2019, primarily due to a $24.4 million increase in other intangible assets amortization, a $2.3 million increase in professional services and a $1.4 million increase in total compensation and benefits, partially offset by a $4.8 million decrease in travel and entertainment expenses, a $1.4 million decrease in depreciation, a $1.3 million decrease in advertising expenses, a $1.2 million decrease in recruiting/relocation/training expenses, a $1.1 million decrease in commissions expense and a $1.0 million decrease in environmental charges.

The increase in amortization expense in 2020 from 2019 was due to the acceleration of amortization expense related to our 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 due to an adjustment to their remaining useful lives.

We recognized an additional $27.4 million of amortization expense in 2020 due to this acceleration.

For additional information, refer to “Note 6 – Goodwill and Other Intangible Assets” to “Item 8.

Financial Statements and Supplementary Data.”

The decreases in travel and entertainment and recruiting/relocation/training expenses were primarily driven by the impacts of COVID-19.

Research and Development Expenses

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Percentage of net sales 3.7 % 3.5 %

R&D expenses decreased 4.2% in 2019 from 2018, primarily due to the timing of new product initiatives and lower compensation and benefits costs due to a lower average headcount during 2019.

R&D expenses decreased 7.5% in 2020 from 2019, primarily due to decreases in laboratory expenses as well as travel and entertainment expenses, partially offset by increases in total compensation and benefits.

Restructuring and Impairment Charges and Other Operating (Income) Expense, Net

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Other operating (income) expense, net $ (104) $ 959

We recognized impairment charges of $1.5 million in both 2019 and 2018 primarily relating to certain assets in connection with the Isola asset acquisition, which were allocated to our ACS operating segment.

We incurred restructuring charges associated with the relocation of our global headquarters from Rogers, Connecticut to Chandler, Arizona and the consolidation of our Santa Fe Springs, California operations into our facilities in Carol Stream, Illinois and Bear, Delaware.

In 2019, we recognized $0.9 million of restructuring charges associated with the facility consolidation.

In 2018, we recognized $2.0 million and $0.6 million of restructuring charges associated with facility consolidation and the global headquarters relocation, respectively.

Other operating (income) expense, net decreased by $4.0 million in 2019 from 2018.

In 2019 and 2018, we recognized lease income of $1.0 million and $0.9 million , respectively, and related depreciation expense on leased assets of $1.9 million and $3.5 million , respectively, in connection with the transitional leaseback of a portion of the facility and certain machinery and equipment acquired from Isola.

In 2018, we recorded a gain from the settlement of antitrust litigation in the amount of $4.2 million and recognized income of $0.6 million from economic incentive grants related to the physical relocation of our global headquarters from Rogers, Connecticut to Chandler.

Additionally, we recorded a gain of $0.7 million in both 2019 and 2018 for the settlement of indemnity claims related to the Isola asset acquisition and the DSP acquisition, respectively.

We incurred restructuring charges associated with our manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations.

We recognized $12.3 million of restructuring charges related to this restructuring project in 2020.

We incurred restructuring charges associated with the consolidation of our Santa Fe Springs, California operations with the Company’s facilities in Carol Stream, Illinois and Bear, Delaware.

We recognized $0.9 million of restructuring charges related to our facility consolidation in 2019.

We recognized $0.6 million of impairment charges in 2020 primarily related to certain fixed assets in Belgium and Hungary.

We recognized $1.5 million of impairment charges in 2019 primarily related to certain fixed assets in connection with the Isola USA Corp.

(Isola) asset acquisition.

In connection with the transitional leaseback of a portion of the facility and certain machinery and equipment acquired from Isola, we recognized lease income and related depreciation on leased assets of $1.0 million and $1.9 million, respectively, in 2019.

Additionally, we recorded a gain of $0.7 million for the settlement of indemnity claims related to the Isola asset acquisition in 2019.

Equity Income in Unconsolidated Joint Ventures

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Rogers INOAC Corporation (RIC) and Rogers INOAC Suzhou Corporation (RIS).

Equity income in those unconsolidated joint ventures decreased 3.3% in 2019 from 2018 due to lower net sales for RIC and RIS in the portable electronics and automotive markets.

Equity income in those unconsolidated joint ventures decreased 8.3% in 2020 from 2019 due to lower net sales as a result of the COVID-19 pandemic and declines in operational performance, for both RIS and RIC.

Pension Settlement Charges and Other Income (Expense), Net

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Other income (expense), net $ 3,513 $ (592)

In 2019, we recorded a $53.2 million non-cash pre-tax settlement charge in connection with the termination of 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)).

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 first half of 2020.

In 2020 and 2019, we recorded $0.1 million and $53.2 million of pre-tax settlement charges in connection with the termination of 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)).

For additional information, refer to “Note 11 – Pension Benefits, Other Postretirement Benefits and Employee Savings and Investment Plan” to “Item 8.

Financial Statements and Supplementary Data.”

Other income (expense), net improved to a net expense of $0.6 million in 2019 compared to a net expense of $1.0 million in 2018 due to favorable impacts from our copper derivatives contracts, partially offset by higher costs associated with our defined benefit plans and unfavorable impacts from our foreign currency transactions, including foreign currency derivatives.

Other income (expense), net improved to a net income of $3.5 million in 2020 compared to a net expense of $0.6 million in 2019 due to favorable impacts from our copper derivatives contracts and favorable impacts from our foreign currency transactions, including foreign currency derivatives, partially offset by higher costs associated with our defined benefit plans.

Interest Expense, Net

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Interest expense, net $ (7,135) $ (6,869)

Interest expense, net, increased by 3.6% in 2019 from 2018 due to a higher average outstanding revolving credit facility balance as well as a higher weighted average interest rate on our revolving credit facility in 2019 compared to 2018, partially offset by an increase in interest income year-over-year.

The higher average outstanding balance on our revolving credit facility was a result of $102.5 million of new borrowing under our revolving credit facility during the third quarter of 2018 to fund the acquisition of Griswold and our voluntary pension contribution in connection with the proposed plan termination process.

This was partially offset by $105.5 million of discretionary principal payments on our revolving credit facility in 2019, the majority of which occurred in the second and third quarters of 2019.

Interest expense, net, increased by 3.9% in 2020 from 2019, primarily due to the $2.4 million acceleration of interest expense as a result of the termination of the interest rate swap on September 30, 2020, partially offset by lower interest expense on borrowings under our revolving credit facility, which was mainly attributable to a lower weighted-average interest rate year-over-year as well as a lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

Income Tax Expense

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Our effective income tax rate for 2020 was 27.1% compared to 14.2% for 2019.

The 2019 rate decrease was due to the beneficial impact of changes in valuation allowance against deferred tax assets associated with carried over research and development credits, excess tax deductions on stock-based compensation, and the international provisions from the U.S.

tax reform enacted in 2017.

This decrease was partially offset by a disproportionate tax impact from the non-cash settlement charge in connection with the termination of the Merged Plan, increase in taxes associated with the repatriation of foreign earnings, and increase in current accruals of reserves for uncertain tax positions.

The increase from 2019 was primarily due to the increase in current year accruals of reserves for uncertain tax positions, the decrease in foreign tax credits available to offset foreign source income, 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 pre-tax mix across jurisdictions with disparate tax rates.

Operating Segment Net Sales and Operating Income

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(Dollars in thousands) 2020 2019

Net sales $ 268,699 $ 316,592

Operating income $ 38,202 $ 48,654

ACS net sales increased by 7.6% in 2019 compared to 2018.

The increase in net sales was primarily driven by higher net sales in 5G wireless infrastructure and aerospace and defense markets, partially offset by lower net sale in 4G wireless infrastructure.

Net sales were unfavorably impacted by the effects of trade tensions in 2019.

Net sales were additionally unfavorably impacted by $6.1 million, or 2.1%, due to the depreciation in value of the Chinese renminbi and euro relative to the U.S.

Operating income increased by 43.8% in 2019 from 2018.

The increase in operating income was primarily due to higher net sales, favorable product mix, productivity improvements and the resolution of certain process issues that had negatively impacted gross margin in 2018, partially offset by an increase in tariffs and duties.

As a percentage of net sales, operating income in 2019 was 15.4% , an approximately 390 basis point increase as compared to 11.5% in 2018.

ACS net sales decreased by 15.1% in 2020 compared to 2019.

The decrease in net sales was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure markets, as well as the lower net sales in the automotive market, partially offset by higher net sales in the aerospace and defense market.

Net sales were not materially impacted by changes in foreign currencies.

The lower net sales in the automotive market was largely due to the impacts of the COVID-19 pandemic.

We anticipate a strong recovery in the automotive market in 2021 following industry disruptions that occurred in the first half of 2020 due to the COVID-19 pandemic.

In particular, we anticipate higher net sales for ADAS applications in 2021 driven by increased adoption of safety features in newer vehicles.

Additionally, we anticipate higher net sales in the aerospace and defense market in 2021 driven by funding of technology programs such as advanced defense and radar systems.

Operating income decreased by 21.5% in 2020 from 2019.

The decrease in operating income was primarily due to lower volume and unfavorable absorption of fixed overhead costs, partially offset by lower freight, duties and tariffs costs, including the recognition of a $3.3 million recovery of previous duty taxes paid due to a change in Chinese tariff regulations, yield improvements and lower fixed overhead costs.

Additionally, our ACS operating segment incurred $4.6 million of restructuring and impairment charges in 2020.

As a percentage of net sales, operating income in 2020 was 14.2%, an approximately 120 basis point decrease as compared to 15.4% in 2019.

The incremental direct costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as the additional safety supplies, impacted ACS operating income by approximately $1.9 million in 2020.

Elastomeric Material Solutions

(Dollars in thousands) 2020 2019

Net sales $ 328,177 $ 361,603

Operating income $ 30,817 $ 57,080

EMS net sales increased by 5.9% in 2019 compared to 2018.

The increase in net sales was primarily due to the $15.0 million of net sales in the first half of the year related to Griswold, which we acquired in July 2018, as well as higher net sales in the portable electronics market, partially offset by lower net sales in the general industrial market.

Net sales were unfavorably impacted by the effects of trade tensions in 2019.

Net sales were additionally unfavorably impacted by $5.9 million, or 1.7%, due to the depreciation in value of the Chinese renminbi, South Korean won and euro relative to the U.S.

Operating income increased by 8.7% in 2019 from 2018.

The increase in operating income was primarily due to higher net sales, favorable product mix, productivity improvements and a reduction in facility consolidation costs, partially offset by the non-recurring $4.2 million gain from the settlement of antitrust litigation in 2018 and an increase in tariffs and duties.

As a percentage of net sales, operating income in 2019 was 15.8% , an approximately 40 basis point increase as compared to 15.4% in 2018.

EMS net sales decreased by 9.2% in 2020 compared to 2019.

The decrease in net sales was primarily driven by lower net sales in the general industrial, mass transit, consumer and automotive markets, partially offset by higher net sales in the EV/HEV and portable electronics markets.

Net sales were not materially impacted by changes in foreign currencies.

The lower net sales in the automotive, mass transit and general industrial markets was largely due to the impacts of the COVID-19 pandemic.

We anticipate higher net sales in the EV/HEV market in 2021 driven by continued strong demand.

Additionally, we anticipate a strong recovery in the automotive market in 2021 following industry disruptions that occurred in the first half of 2020 due to the COVID-19 pandemic.

Lastly, we anticipate higher net sales in the portable electronics market in 2021 due to anticipated continuation of strong demand for 5G smartphones, tempered by the uncertain impacts from the fire at our UTIS manufacturing facility in early February 2021.

Operating income decreased by 46.0% in 2020 from 2019.

As a result of the acceleration of amortization expense related to the DSP customer relationships and trademarks and trade names definite-lived other intangible assets, we recognized an additional $27.4 million of amortization expense in 2020.

The decrease in operating income was also due to lower volume and unfavorable absorption of fixed overhead costs, offset by favorable product mix and lower fixed overhead costs.

As a percentage of net sales, operating income in 2020 was 9.4%, an approximately 640 basis point decrease as compared to 15.8% in 2019.

The incremental direct costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as the additional safety supplies, impacted EMS operating income by approximately $1.9 million in 2020.

We recognized an additional $27.4 million of amortization expense in 2020 due to this acceleration.

The increase in amortization expense in 2020 is offset by a decrease in forecasted amortization expense in future years.

For additional information, refer to “Note 6 – Goodwill and Other Intangible Assets” to “Item 8.

Financial Statements and Supplementary Data.”

Power Electronics Solutions

(Dollars in thousands) 2020 2019

Net sales $ 189,980 $ 198,535

Operating income (loss) $ (6,179) $ (1,437)

PES net sales decreased by 4.3% in 2020 compared to 2019.

The decrease in net sales was primarily driven by lower net sales in the general industrial, vehicle electrification, ROLINX ® EV/HEV power interconnects and renewable energy markets, partially offset by higher net sales in the mass transit and power semiconductor substrate EV/HEV markets.

Net sales were impacted by unfavorable currency fluctuations of $8.4 million, or 3.8%, due to the depreciation in value of the euro and Chinese renminbi relative to the U.S.

Operating income decreased by 107.3% in 2019 from 2018.

The decrease in operating income was primarily due to lower net sales, unfavorable absorption of fixed overhead costs, lower productivity and higher fixed overhead expenses.

As a percentage of net sales, PES had an operating loss of 0.7% in 2019, an approximately 950 basis point decrease as compared to operating income of 8.8% in 2018.

The decrease in net sales was primarily driven by lower net sales in the mass transit, industrial power and vehicle electrification markets, partially offset by higher net sales in the EV/HEV and renewable energy markets.

Net sales were favorably impacted by foreign currency fluctuations of $1.0 million, or 0.5%, due to the appreciation in value of the euro relative to the U.S.

We anticipate higher net sales in 2021 in the EV/HEV market driven by continued strong demand.

Operating loss increased by 330.0% in 2020 from 2019.

The increase in operating loss was primarily due to $7.9 million of restructuring and impairment charges incurred in 2020, in addition to unfavorable product mix and lower volume, partially offset by favorable productivity performance, yield improvements, lower fixed overhead costs and favorable absorption of fixed overhead costs.

As a percentage of net sales, operating loss in 2020 was 3.3%, an approximately 260 basis point increase as compared to 0.7% in 2019.

The incremental direct costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as the additional safety supplies, impacted PES operating loss by approximately $1.0 million in 2020.

(Dollars in thousands) 2020 2019

Net sales $ 15,727 $ 21,530

Operating income $ 4,494 $ 6,184

Net sales in this segment increased by 6.4% in 2019 from 2018.

The increase in net sales was primarily driven by higher net sales for our NITROPHYL ® floats product line and a last-time buy in the Durel business.

Net sales were impacted by unfavorable currency fluctuations of $0.5 million, or 2.4%, due to the depreciation in value of the Chinese renminbi relative to the U.S.

Net sales in this segment decreased by 27.0% in 2020 from 2019.

The decrease in net sales was primarily driven by a non-recurring last time buy in the Durel business in the first quarter of 2019, as well as lower demand in the automotive market partially resulting from the COVID-19 pandemic.

Net sales were not materially impacted by changes in foreign currencies.

Operating income decreased by 27.3% in 2020 from 2019.

The decrease in operating income was primarily due to unfavorable absorption of fixed overhead costs and unfavorable product mix, partially offset by higher net sales.

The decrease in operating income was primarily due to lower volume and unfavorable absorption of fixed overhead costs, partially offset by lower fixed overhead costs.

As a percentage of net sales, operating income in 2020 was 28.6%, an approximately 10 basis point decrease as compared to 28.7% in 2019.

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We regularly review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships, seeking to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives.

(Dollars in thousands )

As of December 31,

Key Financial Position Accounts:

Cash and cash equivalents

Accounts receivable, net

Contract assets

Borrowings under revolving credit facility

The following table illustrates the location of our cash and cash equivalents by our three major geographic areas:

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United States $ 21,657 $ 39,354

Europe 55,449 31,166

Asia 114,679 96,329

Total cash and cash equivalents $ 191,785 $ 166,849

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Net working capital was $362.7 million and $363.9 million as of December 31, 2020 and 2019, respectively.

(Dollars in thousands )

As of December 31,

Key Financial Position Accounts:

Cash and cash equivalents $ 191,785 $ 166,849

Accounts receivable, net 134,421 122,285

Inventories 102,360 132,859

Borrowings under revolving credit facility 25,000 123,000

Significant changes in our statement of financial position accounts from December 31, 2019 to December 31, 2020 were as follows:

Accounts receivable, net decreased 15.4% to $122.3 million as of December 31, 2019 , from $144.6 million as of December 31, 2018 .

The decrease was primarily due to lower net sales at the end of 2019 compared to at the end of the 2018, as well as a reduction in our income taxes receivable year-over-year.

Contract assets decreased 1.2% to $22.5 million as of December 31, 2019 , from $22.7 million as of December 31, 2018 , mainly attributable to the decrease in no alternative use inventory for which we have the right to payment in our PES operating segment.

Inventories increased 0.2% to $132.9 million as of December 31, 2019 , from $132.6 million as of December 31, 2018 , primarily driven by higher raw material purchases for long lead times in our ACS and PES operating segments during the third quarter of 2019 in anticipation of demand increases through the first half of 2020, almost entirely offset by inventory reduction efforts in our EMS operating segment.

• Accounts receivable, net increased 9.9% to $134.4 million as of December 31, 2020, from $122.3 million as of December 31, 2019.

The increase from year-end was primarily due to higher net sales at the end of 2020 compared to at the end of 2019, as well as an increase in our income taxes receivable.

• Inventories decreased 23.0% to $102.4 million as of December 31, 2020, from $132.9 million as of December 31, 2019, primarily driven by a decline in inventory levels to align with our lower net sales volumes, as well as an increase in inventory reserve provision within the ACS and EMS operating segments and a reduction of capitalized variances associated with the timing of volumes produced versus sold relative to the end of 2019.

• Borrowings under revolving credit facility decreased 79.7% to $25.0 million as of December 31, 2020, from $123.0 million as of December 31, 2019.

This was as a result of $248.0 million of discretionary principal payments on our revolving credit facility during the second, third and fourth quarters of 2020, partially offset by $150.0 million in borrowings under our revolving credit facility during the first quarter of 2020 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.

For additional information regarding this facility, as well as the Third Amended Credit Agreement and the Fourth Amended Credit Agreement, refer to “ Note 9 – Debt” to “Item 8.

Financial Statements and Supplementary Data.”

(Dollars in thousands )

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Net cash (used in) provided by financing activities (104,189) (111,843)

In 2020, cash and cash equivalents increased $24.9 million, primarily due to the $150.0 million in borrowings under our revolving credit facility and cash flows generated by operations, partially offset by $248.0 million of principal payments made on our outstanding borrowings on our revolving credit facility, $40.4 million in capital expenditures, as well as $5.4 million in tax payments related to net share settlement of equity awards.

In 2019, cash and cash equivalents decreased $0.9 million, primarily due to $105.5 million of principal payments made on our outstanding borrowings on our revolving credit facility, $51.6 million in capital expenditures, as well as $7.6 million in tax payments related to net share settlement of equity awards, almost entirely offset by cash flows generated by operations.

In 2018 , cash and cash equivalents decreased $13.4 million , primarily due to the $78.0 million paid for the Griswold acquisition, net of cash acquired, $47.1 million in capital expenditures, $43.4 million paid for the Isola asset acquisition, and $25.4 million in pension and other postretirement benefits contributions, along with $6.6 million in tax payments related to net share settlement of equity awards, $5.0 million of principal payments made on our outstanding borrowings on our revolving credit facility and $3.0 million in repurchases of capital stock.

This activity was partially offset by proceeds of $102.5 million from additional borrowings under our revolving credit facility, of which $82.5 million and $20.0 million were used to fund the Griswold acquisition and the voluntary pension plan contribution, respectively, and by cash flows generated by operations.

In 2021, we expect capital spending to be in the range of approximately $70.0 million to $80.0 million, which we plan to fund with cash from operations.

Revolving Credit Facility

In February 2017, we entered into a secured five year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Third Amended Credit Agreement), which amended and restated the Second Amended Credit Agreement.

The Third Amended Credit Agreement refinanced the Second Amended Credit Agreement, eliminated the term loan under the Second Amended Credit Agreement, increased the principal amount of our revolving credit facility to up to $450.0 million of borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, and provided an additional $175.0 million accordion feature.

All revolving loans under the Third Amended Credit Agreement are due on the maturity date, February 17, 2022 .

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

In 2019 and 2018 , we made

discretionary principal payments of $105.5 million and $5.0 million , respectively, on the outstanding borrowings under our revolving credit facility.

As of December 31, 2019 , we had $123.0 million in outstanding borrowings under our revolving credit facility.

For additional information regarding the Third Amended Credit Agreement, refer to “ Note 9 – Debt ” to “ Item 8.

Financial Statements and Supplementary Data .”

This range does not incorporate any capital spending that may occur as a result of the fire that extensively damaged our UTIS manufacturing facility located in Ansan, South Korea, in early February 2021.

Restriction on Payment of Dividends

The Third Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our leverage ratio does not exceed 2.75 to 1.00 .

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 December 31, 2019 .

The Fourth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00.

If our total net 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 total net leverage ratio did not exceed 2.75 to 1.00 as of December 31, 2020.

For additional information regarding the Fourth Amended Credit Agreement, refer to “Note 9 – Debt” to “Item 8.

Financial Statements and Supplementary Data.”

Contractual Obligations

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Payments Due by Period

Total Less than

1 Year 1 - 3 Years 3 - 5 Years More than

Operating lease obligations $ 4,741 $ 2,342 $ 2,394 $ 5 $ —

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Capital commitments (1)

5,330 5,330 — — —

Borrowings under revolving credit facility (2)

25,000 — — 25,000 —

Interest payments on borrowings under revolving credit facility (3)

1,500 445 927 128 —

Other postretirement benefits 1,503 148 244 272 839

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(1) This amount represents non-cancelable vendor purchase commitments.

All outstanding borrowings under our revolving credit facility are due on February 17, 2022 .

Estimated future interest payments are based on a leverage ratio based spread that ranges from 1.375% to 1.75%, plus projected forward 1-month LIBOR rates, and have been adjusted for the impact of the floating to fixed rate interest rate swap on $75.0 million of the outstanding borrowings under our revolving credit facility.

For additional information, refer to “ Note 3 – Hedging Transactions and Derivative Financial Instruments ” to “ Item 8.

Financial Statements and Supplementary Data .” Actual future interest payments could differ from those set forth here due to the expected phase-out of LIBOR by the end of 2021.

(2) All outstanding borrowings under our revolving credit facility are due on March 31, 2024.

(3) Estimated future interest payments are based on a leverage ratio based spread that ranges from 1.625% to 2.000%, plus projected forward 1-month LIBOR rates.

Actual future interest payments could differ from those set forth here due to the expected phase-out of LIBOR by the end of 2021.

Other postretirement benefits, which amount to $1.5 million, are expected to be paid from operating cash flows.

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A summary of our critical accounting estimates is presented below:

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value with costs determined primarily on a first-in first-out basis.

We also maintain a reserve for excess, obsolete and slow-moving inventory that is primarily developed by utilizing both specific product identification and historical product demand as the basis for our analysis.

Products and materials that are specifically identified as obsolete are fully reserved.

In general, most products that have been held in inventory greater than one year are fully reserved unless there are mitigating circumstances, including forecasted sales or current orders for the product.

The remainder of the allowance is based on our estimates and fluctuates with market conditions, design cycles and other economic factors.

Risks associated with this allowance include unforeseen changes in business cycles that could affect the marketability of certain products and an unexpected decline in current production.

We closely monitor the marketplace and related inventory levels and have historically maintained reasonably accurate allowance levels.

Our obsolescence reserve has ranged from 9% to 12% of gross inventory over the last three fiscal years.

Goodwill and Other Intangible Assets

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We estimated the fair value of our reporting units using an income approach based on the present value of future cash flows through a five-year discounted cash flow analysis.

The discounted cash flow analysis utilized the discount rates for each of the reporting units ranging from 10.3% for EMS to 11.9% for ACS, and terminal growth rates ranging from 3.3% for curamik ® to 4.6% for ACS.

The discounted cash flow analysis utilized the discount rates for each of the reporting units ranging from 10.5% for EMS to 13.1% for ECD, and terminal growth rates ranging from 3.4% for curamik ® to 4.2% for ACS.

We believe this approach yields the most appropriate evidence of fair value as our reporting units are not easily compared to other corporations involved in similar businesses.

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Fair value is primarily based on income approaches using discounted cash flow models, which have significant assumptions.

Such assumptions are subject to variability

from year to year and are directly impacted by global market conditions.

There were no impairment charges resulting from our definite-lived other intangible assets impairment analysis for the year ended December 31, 2019 .

Such assumptions are subject to variability from year to year and are directly impacted by global market conditions.

There were immaterial impairment charges resulting from our definite-lived other intangible assets impairment analysis for the year ended December 31, 2020.

Our ACS, EMS and curamik ® reporting units had definite-lived other intangible assets of $3.7 million, $101.2 million and $8.2 million, respectively, as of December 31, 2020.

The useful life determination for each indefinite-lived other intangible asset is evaluated each reporting period to determine whether events and circumstances support an indefinite useful life.

The useful life determination for each definite-lived other intangible asset is evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Product Liabilities

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Our estimates of asbestos-related contingent liabilities and related insurance receivables are based on an independent actuarial analysis and an independent insurance usage analysis prepared annually by third parties.

The actuarial analysis contains numerous assumptions, including number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, average indemnity costs, average defense costs, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform.

The actuarial analysis contains

numerous assumptions, including number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, average indemnity costs, average defense costs, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform.

Furthermore, any predictions with respect to these assumptions are subject to even greater uncertainty as the projection period lengthens.

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Sales tax or value added tax (VAT) are excluded from the measurement of the transaction price.

The Company manufactures some products to customer specifications which are customized to such a degree that it is unlikely that another entity would purchase these products or that we could modify these products for another customer.

We manufacture some products to customer specifications which are customized to such a degree that it is unlikely that another entity would purchase these products or that we could modify these products for another customer.

These products are deemed to have no alternative use to the Company whereby we have an enforceable right to payment evidenced by contractual termination clauses.

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Pension and Other Postretirement Benefits

We provide various defined benefit pension plans for our U.S.

employees and we sponsor multiple fully insured or self-funded medical plans and fully insured life insurance plans for retirees.

We sponsor one material defined benefit pension plan that covers certain union employees and we sponsor multiple fully insured or self-funded medical plans and fully insured life insurance plans for retirees.

The costs and obligations associated with these plans are dependent upon various actuarial assumptions used in calculating such amounts.

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Financial Statements and Supplementary Data.” Each assumption has different sensitivity characteristics.

For the year ended December 31, 2019 , a 25 basis point decrease in the discount rate would have increased our pension expense for Rogers Corporation Employees’ Pension Plan (the Union Plan) and the Merged Plan by a de minimis amount.

A 25 basis point decrease in the discount rate would have decreased the other postretirement benefits expense by a de minimis amount.

A 25 basis point decrease in the expected return on assets would have increased the total 2019 pension expense for the Union Plan and the Merged Plan by a de minimis amount.

For the year ended December 31, 2020, a 25 basis point decrease in the discount rate would have increased our pension expense for Rogers Corporation Employees’ Pension Plan (the Union Plan) by a de minimis amount.

A 25 basis point decrease in the discount rate would have increased the other postretirement benefits expense by a de minimis amount.

A 25 basis point decrease in the expected return on assets would have increased the total 2020 pension expense for the Union Plan by a de minimis amount.

As the other postretirement benefit plans are unfunded, they would not be impacted by this assumption change.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value with costs determined primarily on a first-in first-out basis.

Products and materials that are specifically identified as obsolete are fully reserved.

The remainder of the allowance is based on our estimates and fluctuates with market conditions, design cycles and other economic factors.

Risks associated with this allowance include unforeseen changes in business cycles that could affect the marketability of certain products and an unexpected decline in current production.

We closely monitor the marketplace and related inventory levels and have historically maintained reasonably accurate allowance levels.

Our obsolescence reserve has ranged from 9% to 18% of gross inventory over the last three fiscal years.

Equity Compensation

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Below were the assumptions used in the Monte Carlo calculation for each material award granted in 2020, 2019 and 2018:

February 7, 2019

September 17, 2018

February 8, 2018

February 9, 2017

February 12, 2020 June 3, 2019 February 7, 2019 September 17, 2018 February 8, 2018

Expected volatility 41.0% 39.7% 36.7% 36.6% 34.8%

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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-K

Item 7. Management’s Discussion and Analysis