What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-30 compared with 2020-10-30 · 137 added, 249 removed, 127 unchanged (75% of the section changed)

9 unchanged sentences

Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:

• the duration and impacts of the novel coronavirus (COVID-19) global pandemic and efforts to contain its transmission, including the effect of these factors on our business, suppliers, customers, end users and economic conditions generally;

• the duration and impacts of the novel coronavirus (COVID-19) global pandemic and efforts to contain its transmission and distribute vaccines, including the effect of these factors on our business, suppliers, customers, end users and economic conditions generally;

• failure to capitalize on, volatility within, or other adverse changes with respect to the Company’s growth drivers, including advanced mobility and advanced connectivity, such as delays in adoption or implementation of new technologies;

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

We operate three strategic operating segments:

Advanced Connectivity Solutions (ACS), Elastomeric Material Solutions (EMS) and Power Electronics Solutions (PES).

We operate two strategic operating segments:

Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS).

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

5 unchanged sentences

More specifically, in addition to the impact of 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 and telecommunications industries, we sell into a variety of other markets including general industrial, connected devices, aerospace and defense, mass transit and renewable energy.

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, clean 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:

1 unchanged sentence

We have expanded our capabilities through organic investment and acquisitions 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.

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

We have established or expanded our capabilities in various locations in support of our customers’ growth initiatives.

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The global COVID-19 pandemic has affected and continues to affect Rogers’ business and operations, although to a lesser extent than the first half of 2020.

In response to the outbreak, Rogers prioritized the safety and well-being of its employees—including implementing social distancing initiatives in its facilities, providing remote working arrangements for certain employees, expanding personal protective equipment usage, enhancing plant hygiene processes, and extending employee benefits, which increased our expenses in the quarter—while at the same time taking actions to preserve business continuity.

Our non-manufacturing employees transitioned seamlessly to remote working arrangements and are maintaining effective collaboration, both internally and with our customers.

In response to the outbreak, Rogers prioritized the safety and well-being of its employees—including implementing social distancing initiatives in its facilities, providing remote working arrangements for certain employees, expanding personal protective equipment usage, enhancing plant hygiene processes, and extending employee benefits, which increased our expenses—while at the same time taking actions to preserve business continuity.

Our non-manufacturing employees transitioned seamlessly to remote working arrangements and are effectively collaborating both internally and with our customers.

In some cases, based on local conditions, non-manufacturing employees have returned to their worksites.

Our China business and operations were the first to be impacted by the virus, with the government temporarily suspending our operations, as well as the operations of most Chinese business, including our Chinese customers and suppliers, at the beginning of February.

We resumed production in mid-February and reached full production capacity by early-March.

and European businesses were first impacted later in the first quarter, and the impact continued through the first, second and third quarters, and continues through the date of this filing.

In both the U.S.

and Europe, we generally maintained operations at close to normal levels, with the additional employee safety precautions implemented at our facilities.

We do not believe these additional precautions in the aggregate, had a material impact on our financial performance during the first nine months.

In the U.S., exemptions from state-level “shelter in place” directives with respect to numerous sectors, including the Communications, Healthcare and Public Health, Defense Industrial Base, Critical Manufacturing and Information Technology sectors, have largely enabled us to continue our operations while those directives were in place, and as states have continued to reopen during the second and third quarters, and through the date of this filing.

Our operations were not affected by any material shortages, as our inventory and supply chain met our manufacturing requirements.

Global demand continued to be impacted in the third quarter by the COVID-19 pandemic, although to a lesser extent than prior quarters.

General industrial and mass transit market demand continued to be the most impacted.

Demand improved in some markets, such as portable electronics, EV/HEV, aerospace and defense and automotive relative to the second quarter.

We expect that the COVID-19 pandemic will have a continuing but uncertain impact on our business and operations in the short- and medium-term.

Due to the above circumstances and as described generally in this Form 10-Q, our results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.

Due to the above circumstances and as described generally in this Form 10-Q, our results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

Executive Summary

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

• In the third quarter of 2020 as compared to the third quarter of 2019, our net sales decreased 9.0% to $201.9 million, our gross margin increased approximately 180 basis points to 37.4% from 35.6%, and operating income decreased approximately 910 basis points to 4.4% from 13.5%.

In the first nine months of 2020 as compared to the first nine months of 2019, our net sales decreased 16.0% to $591.9 million, our gross margin increased approximately 20 basis points to 35.7% from 35.5%, and operating income decreased approximately 560 basis points to 8.0% from 13.6%.

• We made $213.0 million of discretionary principal payments on our revolving credit facility during the second and third 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 $9.0 million of restructuring charges in the third quarter of 2020 related to this project.

• We incurred incremental transaction costs of $0.3 million in the third quarter of 2020 and $4.3 million in the first nine months of 2020, due to 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 expect significantly lower costs during the remainder of 2020, associated with the remaining additional benefits, as well as safety supplies, when compared to the first and second quarters of 2020.

• We recognized an additional $11.7 million of amortization expense in the third quarter of 2020 and $15.6 million in the first nine months of 2020, and will recognize an additional $11.7 million of amortization expense in the fourth quarter of 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 the first quarter of 2021 as compared to the first quarter of 2020, our net sales increased 15.3% to $229.3 million, our gross margin increased approximately 600 basis points to 39.0% from 33.0%, and operating income increased approximately 740 basis points to 16.2% from 8.8%.

• We made $21.0 million of discretionary principal payments on our revolving credit facility during the first quarter of 2021.

• We recognized $1.5 million of restructuring charges in the first quarter of 2021 related to the manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations, primarily impacting our AES operating segment.

• 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 into at least late 2021.

We are currently evaluating alternative facility options.

We recognized net expense

of $1.3 million related to the financial impacts from the fire, which consisted of write-offs of fixed assets and inventory destroyed and/or damaged in the fire, professional services, costs incurred due to obligations under our manufacturing facility lease agreement, compensation and benefits for certain of our UTIS employees, partially offset by the recognition of certain anticipated insurance recoveries.

• We incurred incremental transaction costs of $0.7 million in both the first quarter of 2021 and the first quarter of 2020 due to the COVID-19 pandemic.

Results of Operations

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

Three Months Ended Nine Months Ended

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

Three Months Ended

March 31, 2021 March 31, 2020

Net sales 100.0 % 100.0 %

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Net Sales and Gross Margin

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Net sales $ 229,265 $ 198,810

1 unchanged sentence

Percentage of net sales 39.0 % 33.0 %

Net sales decreased by 9.0% in the third quarter of 2020 compared to the third quarter of 2019.

Our ACS and EMS operating segments had net sales decreases of 19.3% and 8.9%, respectively, while our PES operating segment had a net sales increase of 11.1%.

The decrease in net sales was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure and automotive markets in our ACS operating segment, lower net sales in the general industrial, mass transit, automotive and consumer markets in our EMS operating segment and lower net sales in the mass transit and variable frequency drives 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 portable electronics and EV/HEV markets in our EMS operating segment and higher net sales in our EV/HEV and renewable energy markets in our PES operating segment.

Net sales were favorably impacted by foreign currency impacts of $0.9 million, or 0.4%, due to the appreciation in value of the euro relative to the U.S.

Net sales decreased by 16.0% in the first nine months of 2020 compared to the first nine months of 2019.

Our ACS, EMS and PES operating segments had net sales decreases of 20.9%, 14.2% and 9.5%, respectively.

The decrease in net sales was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure and automotive markets in our ACS operating segment, lower net sales in the general industrial, mass transit, consumer, portable electronics and automotive markets in our EMS operating segment and lower net sales in the mass transit, variable frequency drives 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 market 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 unfavorably impacted by foreign currency impacts of $5.0 million, or 0.7%, due to the depreciation in value of the Chinese renminbi, euro and Korean won relative to the U.S.

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 the trade restrictions on Huawei, 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 market was largely due to the impacts of COVID-19 pandemic.

The lower net sales in variable frequency drives market in our PES operating segment was due to a slowdown in industrial automation demand through the first nine months of 2020 combined with customer inventory rebalancing, which began in mid-2019, and continued through most of the first half of 2020.

The lower year-to-date net sales in 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 the initial recovery in the third quarter of 2020.

In our ACS operating segment, we anticipate lower net sales in the 4G and 5G wireless infrastructure markets year-over-year in the fourth quarter of 2020, on both a quarter-to-date and year-to-date basis, while we anticipate higher net sales in the aerospace and defense market year-over-year on a quarter-to-date and year-to-date basis.

On a sequential quarter basis, we anticipate lower net sales in the 4G and 5G wireless infrastructure and aerospace and defense markets, while we anticipate higher net sales in the automotive market.

The effects of trade tensions, increased competition, lower 5G base station content and the ongoing decline in 4G deployments are creating a great deal of uncertainty around our outlook for wireless infrastructure.

As a result, we believe the growth opportunity in wireless infrastructure is substantially reduced going forward.

Our expectations of net sales in the aerospace and defense market are primarily due to the alignment of the advanced weaponry requirements with the technical capabilities of our products, partially offset by unfavorable impacts of defense program timing.

Our expectations of net sales in the automotive market are primarily due to the anticipation of further recovery of the automotive sector from the impact of the COVID-19 pandemic in the second quarter of 2020.

In our EMS operating segment, we anticipate higher net sales in the EV/HEV and portable electronics markets year-over-year in the fourth quarter of 2020, on a quarter-to-date basis, and we anticipate higher net sales in the EV/HEV market, year-over-year, on a year-to-date basis, while we anticipate lower net sales in the general industrial market year-over-year, on both a quarter-to-date and year-to-date basis.

On a sequential quarter basis, we anticipate lower net sales in the EV/HEV and portable electronics market in the fourth quarter of 2020.

Our expectations of net sales in the EV/HEV market are primarily due to continued strong demand partially offset by unfavorable variations of ordering patterns.

Our expectations of net sales in the portable electronics market are primarily due to an extension of the normal seasonality from the third quarter into the fourth quarter as a result of the COVID-19 pandemic.

Our expectations of net sales in the general industrial market are primarily due to impact of the COVID-19 pandemic.

In our PES operating segment, we anticipate higher net sales in the EV/HEV market year-over-year in the fourth quarter of 2020, on both a quarter-to-date and year-to-date basis, while we anticipate lower net sales in the variable frequency drives market year-over-year, on both a quarter-to-date and year-to-date basis.

On a sequential quarter basis, we anticipate higher net sales in the EV/HEV market in the fourth quarter of 2020, while we anticipate lower net sales in the variable frequency drives market.

Our expectations of net sales in the EV/HEV market in the fourth quarter of 2020 are primarily due to the anticipation of further recovery of the automotive sector from the impact of the COVID-19 pandemic in the second quarter of 2020.

Our expectations of the net sales in the variable frequency drives market are primarily due to the anticipated continued effects of the COVID-19 pandemic.

Gross margin as a percentage of net sales increased approximately 180 basis points to 37.4% in the third quarter of 2020 compared to 35.6% in the third quarter of 2019.

Gross margin in the third quarter of 2020 was favorably impacted by lower freight, duties and tariffs costs in our ACS operating segment, 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 higher volume, favorable productivity performance and favorable absorption of fixed overhead costs in our PES operating segment.

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

Gross margin as a percentage of net sales increased approximately 20 basis points to 35.7% in the first nine months of 2020 compared to 35.5% in the first nine months of 2019.

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

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

We incurred incremental transaction 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 $0.3 million and $3.9 million on a quarter-to-date basis and year-to-date basis, respectively.

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

significantly lower gross margin impacts during the remainder of 2020, associated with the remaining additional benefits, as well as safety supplies, when compared to the first and second quarters of 2020.

Net sales increased by 15.3% in the first quarter of 2021 compared to the first quarter of 2020.

Our AES and EMS operating segments had net sales increases of 18.5% and 10.0%, respectively.

The increase in net sales was primarily due to higher net sales in the ADAS, aerospace and defense and clean energy markets in our AES operating segment and higher net sales in the EV/HEV, general industrial, consumer and automotive markets in our EMS operating segment.

Net sales were favorably impacted by foreign currency impacts of $8.2 million, or 4.1%, due to the appreciation in value of the euro and Chinese renminbi relative to the U.S.

Gross margin as a percentage of net sales increased approximately 600 basis points to 39.0% in the first quarter of 2021 compared to 33.0% in the first quarter of 2020.

Gross margin in the first quarter of 2021 was favorably impacted by higher volume in our AES and EMS operating segments, favorable product mix in our EMS operating segment, favorable absorption of fixed overhead costs and favorable productivity improvements in our AES operating segment, as well as yield improvements and a lower inventory reserves provision in our EMS operating segment.

This was partially offset by higher commodity costs and unfavorable product mix in our AES operating segment and higher freight expenses in our EMS operating segment.

Our UTIS net sales were only slightly impacted by the fire at our UTIS manufacturing facility in Ansan, South Korea as a result of selling our undamaged finished goods inventory during the remainder of the first quarter of 2021.

In the second quarter of 2021, we expect a greater impact to our net sales due to the continued disruption to our UTIS operations.

In the first quarter of 2021, our net sales were largely unaffected by global supply chain disruptions, but we began seeing some greater impacts as we exited the quarter.

In the second quarter of 2021, the lack of availability of certain raw materials,

primarily due to the weather interruptions along the U.S.

Gulf Coast, will likely somewhat temper our net sales growth and gross margin.

Selling, General and Administrative Expenses

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Selling, general and administrative expenses $ 42,413 $ 40,330

Percentage of net sales 18.5 % 20.3 %

Selling, general and administrative (SG&A) expenses increased 24.2% in the third quarter of 2020 from the third quarter of 2019, primarily due to an $11.0 million increase in other intangible assets amortization, a $0.6 million increase in professional services a $0.4 million increase in total compensation and benefits and a $0.3 million increase in software costs, partially offset by a $1.1 million decrease in travel and entertainment expenses, a $0.3 million decrease in advertising expenses, a $0.3 million decrease in depreciation, a $0.2 million decrease in commissions expense and a $0.2 million decrease in recruiting/relocation/training expenses.

SG&A expenses increased 3.9% in the first nine months of 2020 from the first nine months of 2019, primarily due to a $13.5 million increase in other intangible assets amortization and a $1.9 million increase in professional services, partially offset by a $3.2 million decrease in travel and entertainment expenses, a $2.0 million decrease in total compensation and benefits, a $1.2 million decrease in advertising expenses, a $1.1 million decrease in depreciation, a $0.9 million decrease in commissions expense, a $0.8 million decrease in recruiting/relocation/training expenses, a $0.5 million decrease in environmental charges and a $0.3 million decrease in software costs.

The increase in amortization expense for the three and nine months ended September 30, 2020 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 $11.7 million of amortization expense in the third quarter of 2020 and $15.6 million in the first nine months of 2020, and will recognize an additional $11.7 million of amortization expense in the fourth quarter of 2020.

The increases in amortization expense in 2020 are offset by decreases in forecasted amortization expense in future years.

For additional information, refer to “Note 6 – Goodwill and Other Intangible Assets” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

The decrease in travel and entertainment and recruiting/relocation/training expenses, on both a quarter-to-date and year-to-date basis, was primarily driven by the impacts of COVID-19.

Selling, general and administrative (SG&A) expenses increased 5.2% in the first quarter of 2021 from the first quarter of 2020, primarily due to a $2.5 million increase in total compensation and benefits, a $0.8 million increase in software expenses, a $0.2 million increase in environmental charges and a $0.1 million increase in recruiting/relocation/training expenses.

This was partially offset by a $1.2 million decrease in travel and entertainment expenses, a $0.5 million decrease in other intangible assets amortization and a $0.1 million decrease in depreciation.

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

Research and Development Expenses

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Research and development expenses $ 7,172 $ 7,805

Percentage of net sales 3.1 % 3.9 %

R&D expenses decreased 9.5% in the third quarter of 2020 from the third quarter of 2019 due to decreases in laboratory expenses as well as travel and entertainment expenses, partially offset by increases in total compensation and benefits.

R&D expenses decreased 4.7% in the first nine months of 2020 from the first nine months of 2019 due to decreases in laboratory expenses as well as travel and entertainment expenses, partially offset by increases in total compensation and benefits.

R&D expenses decreased 8.1% in the first quarter of 2021 from the first quarter of 2020 due to decreases in professional services, travel and entertainment expenses, total compensation and benefits and laboratory expenses, partially offset by an increase in depreciation.

The decrease in travel and entertainment expenses was primarily driven by the impacts of COVID-19.

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Restructuring and impairment charges $ 1,506 $ —

Other operating (income) expense, net $ 1,215 $ 20

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

We recognized $9.0 million of restructuring charges related to these restructuring projects for the three and nine months ended September 30, 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 no restructuring charges in the third quarter of 2019.

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

We recognized $0.4 million of impairment charges primarily related to certain 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 nine months ended September 30, 2019, respectively.

We expect to incur between $2.5 million and $4.5 million of restructuring and impairment charges in the fourth quarter of 2020.

With respect to other operating (income) expense, net, we recognized income of $0.1 million from economic incentive grants related to the physical relocation of our global headquarters from Rogers, Connecticut to Chandler, Arizona, for the nine months ended September 30, 2020.

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.

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

We recognized $1.5 million of restructuring charges and related expenses pertaining to these restructuring projects in the first quarter of 2021.

For additional information, refer to “Note 15 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

With respect to other operating (income) expense, net, we recognized expense of $1.2 million primarily related to the financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea in the first quarter of 2021.

This impact consisted of write-offs of fixed assets and inventory destroyed and/or damaged in the fire, professional services, costs incurred due to obligations under our manufacturing facility lease agreement, compensation and benefits for certain of our UTIS employees, partially offset by the recognition of certain anticipated insurance recoveries.

There may be other potential costs that cannot be reasonably foreseen or estimated at this time and we continue to evaluate information as it becomes available.

For additional information, refer to “Note 15 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Equity Income in Unconsolidated Joint Ventures

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Equity income in unconsolidated joint ventures $ 2,181 $ 1,218

As of September 30, 2020, we had two unconsolidated joint ventures, each 50% owned:

As of March 31, 2021, we had two unconsolidated joint ventures, each 50% owned:

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

Equity income in those unconsolidated joint ventures decreased 37.4% in the third quarter of 2020 from the third quarter of 2019, and decreased 22.1% in the first nine months of 2020 from the first nine months of 2019.

On a quarter-to-date basis, the decrease was due to lower net sales due to the COVID-19 pandemic, as well as declines in operational performance for both RIS and RIC.

On a year-to-date basis, the decrease was due to lower net sales due to the COVID-19 pandemic and declines in operational performance for both RIS and RIC.

Pension Settlement Charges and Other (Expense) Income, Net

Three Months Ended Nine Months Ended

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

Pension settlement charges $ — $ — $ (55) $ —

Equity income in those unconsolidated joint ventures increased 79.1% in the first quarter of 2021 from the first quarter of 2020.

On a quarter-to-date basis, the increase was due to higher net sales, driven by strong sales in the portable electronics market, and improved operational performance for both RIS and RIC, primarily due to higher utilization of production capacity.

Other Income (Expense), Net

In the second quarter of 2020, we recorded an immaterial pre-tax settlement charge in connection with the remaining settlement efforts for 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 and Other Postretirement Benefits.”

Other (expense) income, net increased to income of $1.4 million in the third quarter of 2020 from expense of $0.9 million in the third quarter of 2019.

On a quarter-to-date basis, the increase was due to favorable impacts from our copper derivative contracts and foreign currency transactions, partially offset by unfavorable impacts from our foreign currency derivative contracts and by lower net periodic benefit credits associated with our defined benefit plans.

Other (expense) income, net increased to income of $1.3 million in the first nine months of 2020 from expense of $0.9 million in the first nine months of 2019.

On a year-to-date basis, the increase was due to favorable impacts from our copper derivative contracts and foreign currency transactions, partially offset by unfavorable impacts from our foreign currency derivative contracts and by lower net periodic benefit credits associated with our defined benefit plans.

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Other income (expense), net $ 2,968 $ (786)

Other income (expense), net increased to income of $3.0 million in the first quarter of 2021 from expense of $0.8 million in the first quarter of 2020.

Interest Expense, Net

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Interest expense, net $ (607) $ (1,207)

Interest expense, net, increased by 103.4% in the third quarter of 2020 from the third quarter of 2019, and increased by 14.3% in the first nine months of 2020 from the first nine months of 2019.

The increase, on both a quarter-to-date and year-to-date basis, was primarily due to the $2.4 million acceleration of interest expense as a result of the unwinding of the interest rate swap on September 30, 2020.

The increase on both a quarter-to-date and year-to-date basis, was 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.

We expect interest expense, net to decrease on a quarter-to-date basis in the fourth quarter of 2020 from the fourth quarter of 2019 due to an anticipated lower weighted-average interest rate on and an anticipated lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

We expect interest expense, net to increase on a year-to-date basis in the fourth quarter of 2020 from the fourth quarter of 2019 due to the $2.4 million acceleration of interest expense as a result of the unwinding of the interest rate swap, partially offset by an anticipated lower weighted-average interest rate on and an anticipated lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

Three Months Ended Nine Months Ended

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

Interest expense, net, decreased by 49.7% in the first quarter of 2021 from the first quarter of 2020.

The decrease on a quarter-to-date basis was primarily due to a lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

We expect interest expense, net to decrease on quarter-to-date and year-to-date bases in the second quarter of 2021 from the second quarter of 2020 primarily due to a lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Income tax expense $ 10,517 $ 3,441

Effective tax rate 25.2 % 20.6 %

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 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.

Our effective income tax rate was 25.2% and 20.6% for the three months ended March 31, 2021 and 2020, respectively.

The increase from the first quarter of 2020 was primarily due to the decrease in the current quarter valuation allowance release and decrease in current quarter reversals of unrecognized tax benefits.

Operating Segment Net Sales and Operating Income

Advanced Connectivity Solutions

Three Months Ended Nine Months Ended

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

Advanced Electronics Solutions

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Net sales $ 131,892 $ 111,274

Operating income $ 14,849 $ 4,778

ACS net sales decreased by 19.3% in the third quarter of 2020 compared to the third quarter of 2019.

The decrease in net sales over the third quarter of 2019 was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure markets, as well as 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.

ACS net sales decreased by 20.9% in the first nine months of 2020 compared to the first nine months of 2019.

The decrease in net sales over the first nine months of 2019 was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure markets, as well as the automotive market, partially offset by higher net sales in the aerospace and defense market.

Net sales were unfavorably impacted by $1.7 million, or 0.7%, due to the depreciation in value of the Chinese renminbi relative to the U.S.

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

On a sequential quarter basis, we anticipate

lower net sales in the 4G and 5G wireless infrastructure and aerospace and defense markets, while we anticipate higher net sales in the automotive market.

As a result, we believe the growth opportunity in wireless infrastructure is substantially reduced going forward.

Operating income decreased by 63.8% in the third quarter of 2020 from the third quarter of 2019.

As a percentage of net sales, operating income in the third quarter of 2020 was 7.8%, an approximately 960 basis point decrease as compared to the 17.4% reported in the third quarter of 2019.

The decrease in operating income was primarily due to lower volume and unfavorable absorption of fixed overhead costs, unfavorable product mix and an increase in inventory reserve provision, partially offset by lower freight, duties and tariffs costs, lower fixed overhead costs and yield improvements.

Additionally, our ACS operating segment incurred $2.9 million of restructuring and impairment charges in the third quarter of 2020.

Operating income decreased by 42.5% in the first nine months of 2020 from the first nine months of 2019.

As a percentage of net sales, operating income in the first nine months of 2020 was 13.1%, an approximately 490 basis point decrease as compared to the 18.0% reported in the first nine months of 2019.

The decrease in operating income was primarily due to lower volume, unfavorable absorption of fixed overhead costs and unfavorable product mix, partially offset by lower freight, duties and tariffs costs, including the recognition of a $3.3 million expected 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 $2.9 million of restructuring and impairment charges in the first nine months of 2020.

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 $0.2 million and $1.7 million on a quarter-to-date basis and year-to-date basis, respectively.

AES net sales increased by 18.5% in the first quarter of 2021 compared to the first quarter of 2020.

The increase in net sales over the first quarter of 2020 was primarily driven by higher net sales in the ADAS, aerospace and defense and clean energy markets.

Net sales were favorably impacted by foreign currency fluctuations of $5.3 million, or 4.8%, due to the appreciation in value of the euro and Chinese renminbi relative to the U.S.

Operating income increased by 210.8% in the first quarter of 2021 from the first quarter of 2020.

As a percentage of net sales, operating income in the first quarter of 2021 was 11.3%, an approximately 700 basis point increase as compared to the 4.3% reported in the first quarter of 2020.

The increase in operating income was primarily due to higher volume, favorable absorption of fixed overhead costs and favorable productivity improvements.

This was partially offset by higher commodity costs and unfavorable product mix.

Additionally, we incurred restructuring charges and related expenses associated with our manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations.

We recognized $1.5 million of restructuring charges and related expenses pertaining to these restructuring projects in the first quarter of 2021.

For additional information, refer to “Note 15 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

In the first quarter of 2021, our net sales were largely unaffected by global supply chain disruptions, but we began seeing some greater impacts as we exited the quarter.

In the second quarter of 2021, the lack of availability of certain raw materials, primarily due to the weather interruptions along the U.S.

Gulf Coast, will likely somewhat temper our net sales growth and gross margin.

Elastomeric Material Solutions

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Net sales $ 91,849 $ 83,526

Operating income $ 20,077 $ 11,517

EMS net sales decreased by 8.9% in the third quarter of 2020 compared to the third quarter of 2019.

The decrease in net sales over the third quarter of 2019 was primarily driven by lower net sales in the general industrial, mass transit, automotive and consumer markets, partially offset by higher net sales in the portable electronics and EV/HEV markets.

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

EMS net sales decreased by 14.2% in the first nine months of 2020 compared to the first nine months of 2019.

The decrease in net sales over the first nine months of 2019 was primarily driven by lower net sales in the general industrial, mass transit, consumer, portable electronics and automotive markets, partially offset by higher net sales in the EV/HEV market.

Net sales were unfavorably impacted by $1.9 million, or 0.7%, due to the depreciation in value of the Chinese renminbi, Korean won and euro relative to the U.S.

On a sequential quarter basis, we anticipate lower net sales in the EV/HEV and portable electronics market in the fourth quarter of 2020.

Our expectations of net sales in the EV/HEV market are primarily due to continued strong demand partially offset by unfavorable variations of ordering patterns.

Our expectations of net sales in the general industrial market are primarily due to impact of the COVID-19 pandemic.

Operating income decreased by 59.0% in the third quarter of 2020 from the third quarter of 2019.

As a percentage of net sales, third quarter of 2020 operating income was 8.5%, an approximately 1,050 basis point decrease as compared to the 19.0% reported in the third quarter of 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 $11.7 million of amortization expense in the third quarter of 2020.

The decrease in operating income was also due to lower volume and unfavorable absorption of fixed overhead costs.

This was partially offset by favorable product mix, lower fixed overhead costs and yield improvements.

Operating income decreased by 53.2% in the first nine months of 2020 from the first nine months of 2019.

As a percentage of net sales, operating income in the first nine months of 2020 was 9.1%, an approximately 750 basis point decrease as compared to the 16.6% reported in the first nine months of 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 $15.6 million of amortization expense in the first nine months of 2020.

The decrease in operating income was also due to lower volume, unfavorable absorption of fixed overhead costs and an increase in inventory reserve provision, partially offset by favorable product mix, lower fixed overhead costs and lower freight, duties and tariffs costs.

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 $0.1 million and $1.6 million on a quarter-to-date basis and year-to-date basis, respectively.

The increases in amortization expense in 2020 are offset by decreases in forecasted amortization expense in future years.

For additional information, refer to “Note 6 – Goodwill and Other Intangible Assets” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Power Electronics Solutions

Three Months Ended Nine Months Ended

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

Net sales $ 47,927 $ 43,131 $ 139,868 $ 154,607

Operating loss $ (4,691) $ (3,358) $ (3,929) $ (976)

PES net sales increased by 11.1% in the third quarter of 2020 from the third quarter of 2019.

The increase in net sales over the third quarter of 2019 was primarily driven by higher net sales in the EV/HEV and renewable energy markets, partially offset by lower net sales in the mass transit and variable frequency drives markets.

Net sales were favorably impacted by foreign currency fluctuations of $0.9 million, or 2.0%, due to the depreciation in value of the euro relative to the U.S.

PES net sales decreased by 9.5% in the first nine months of 2020 from the first nine months of 2019.

The decrease in net sales over the first nine months of 2019 was primarily driven by lower net sales in the mass transit, variable frequency drives and vehicle electrification markets, partially offset by higher net sales in the EV/HEV and renewable energy markets.

Net sales were unfavorably impacted by foreign currency fluctuations of $1.2 million, or 0.8%, due to the depreciation in value of the euro and Chinese renminbi relative to the U.S.

On a sequential quarter basis, we anticipate higher net sales in the EV/HEV market in the fourth quarter of 2020, while we anticipate lower net sales in the variable frequency drives market.

Our expectations of the net sales in the variable frequency drives market are primarily due to the anticipated continued effects of the COVID-19 pandemic.

Operating loss increased by 39.7% in the third quarter of 2020 from the third quarter of 2019.

As a percentage of net sales, the third quarter of 2020 operating loss was 9.8% as compared to the 7.8% for operating loss reported in the third quarter of 2019.

The increase in operating loss was primarily due to $6.3 million of restructuring and impairment charges incurred in the third quarter of 2020, in addition to unfavorable product mix, partially offset by higher volume, lower fixed overhead costs, favorable productivity performance, yield improvements and favorable absorption of fixed overhead costs.

Operating loss increased by 302.6% in the first nine months of 2020 from the first nine months of 2019.

As a percentage of net sales, the first nine months of 2020 operating loss was 2.8% as compared to the 0.6% for operating loss reported in the first nine months of 2019.

The increase in operating loss was primarily due to $6.3 million of restructuring and impairment charges

incurred in the first nine months of 2020, in addition to lower volume, unfavorable product mix and unfavorable absorption of fixed overhead costs, partially offset by favorable productivity performance, yield improvements, lower fixed overhead costs and lower freight costs.

The incremental transaction 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, did not materially impact PES operating loss on a quarter-to-date basis and impacted PES operating loss by approximately $0.8 million on a year-to-date basis.

Three Months Ended Nine Months Ended

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

EMS net sales increased by 10.0% in the first quarter of 2021 compared to the first quarter of 2020.

The increase in net sales over the first quarter of 2020 was primarily driven by higher net sales in the EV/HEV, general industrial, consumer and automotive markets, partially offset by lower net sales in the mass transit market.

Net sales were favorably impacted by foreign currency fluctuations of $2.7 million, or 3.3%, due to the appreciation in value of the Chinese renminbi and euro relative to the U.S.

Operating income increased by 74.3% in the first quarter of 2021 from the first quarter of 2020.

As a percentage of net sales, first quarter of 2021 operating income was 21.9%, an approximately 810 basis point increase as compared to the 13.8% reported in the first quarter of 2020.

The increase in operating income was primarily due to higher volume, yield improvements and a lower inventory reserves provision.

This was partially offset by higher freight expenses.

Additionally, we recognized expense of $1.3 million primarily related to the financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea in the first quarter of 2021.

There may be other potential costs that cannot be reasonably foreseen or estimated at this time and we continue to evaluate information as it becomes available.

For additional information, refer to “Note 15 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

In the second quarter of 2021, we expect a greater impact to our net sales due to the continued disruption to our UTIS operations.

In the first quarter of 2021, our net sales were largely unaffected by global supply chain disruptions, but we began seeing some greater impacts as we exited the quarter.

In the second quarter of 2021, the lack of availability of certain raw materials, primarily due to the weather interruptions along the U.S.

Gulf Coast, will likely somewhat temper our net sales growth and gross margin.

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Net sales $ 5,524 $ 4,010

Operating income $ 2,267 $ 1,180

Net sales in this segment decreased by 19.4% in the third quarter of 2020 from the third quarter of 2019.

The decrease in net sales over the third quarter of 2019 was primarily driven by lower demand in the automotive market partially resulting from the COVID-19 pandemic.

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

Net sales in this segment decreased by 31.1% in the first nine months of 2020 from the first nine months of 2019.

The decrease in net sales over the first nine months of 2019 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 unfavorably impacted by foreign currency fluctuations of $0.1 million, or 0.7%, due to the depreciation in value of the Chinese renminbi relative to the U.S.

Operating income decreased 23.0% in the third quarter of 2020 compared to the third quarter of 2019.

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

As a percentage of net sales, third quarter of 2020 operating income was 29.3%, a 140 basis point decrease as compared to the 30.7% reported in the third quarter of 2019.

Operating income decreased 30.7% in the first nine months of 2020 compared to the first nine months of 2019.

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

As a percentage of net sales, the first nine months of 2020 operating income was 29.7%, a 10 basis point increase as compared to the 29.6% reported in the first nine months of 2019.

Net sales in this segment increased by 37.8% in the first quarter of 2021 from the first quarter of 2020.

The increase in net sales over the first quarter of 2020 was primarily driven by higher demand in the automotive market.

Net sales were favorably impacted by foreign currency fluctuations of $0.2 million, or 4.4%, due to the appreciation in value of the Chinese renminbi relative to the U.S.

Operating income increased 92.1% in the first quarter of 2021 compared to the first quarter of 2020.

The increase in operating income was primarily driven by higher volume, favorable product mix and favorable absorption of fixed overhead costs.

As a percentage of net sales, first quarter of 2021 operating income was 41.0%, a 1,160 basis point increase as compared to the 29.4% reported in the first quarter of 2020.

Liquidity, Capital Resources and Financial Position

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

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

(Dollars in thousands) March 31, 2021 December 31, 2020

United States $ 28,692 $ 21,657

3 unchanged sentences

Approximately $170.4 million of our cash and cash equivalents were held by non-U.S.

subsidiaries as of September 30, 2020.

We did not make any changes in the nine months ended September 30, 2020 to our position on the permanent reinvestment of our earnings from foreign operations.

subsidiaries as of March 31, 2021.

We did not make any changes in the three months ended March 31, 2021 to our position on the permanent reinvestment of our earnings from foreign operations.

With the exception of certain of our Chinese subsidiaries, where a substantial portion of our Asia cash and cash equivalents are held, we continue to assert that historical foreign earnings are indefinitely reinvested.

(Dollars in thousands )

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Key Financial Position Accounts:

3 unchanged sentences

Borrowings under revolving credit facility $ 4,000 $ 25,000

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2019 to September 30, 2020 were as follows:

• Accounts receivable, net increased 13.4% to $138.6 million as of September 30, 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 the third quarter of 2020 compared to at the end of 2019, as well as an increase to our days sales outstanding and an increase in our income taxes receivable.

• Inventories decreased 17.4% to $109.7 million as of September 30, 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 EMS operating segment 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 51.2% to $60.0 million as of September 30, 2020, from $123.0 million as of December 31, 2019.

This was as a result of $213.0 million of discretionary principal payments on our revolving credit facility during the second and third 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 and the Third Amended Credit Agreement and the Fourth Amended Credit Agreement, refer to “Note 9 – Debt” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Nine Months Ended

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

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2020 to March 31, 2021 were as follows:

• Accounts receivable, net increased 7.2% to $144.0 million as of March 31, 2021 from $134.4 million as of December 31, 2020.

The increase from year-end was primarily due to higher net sales at the end of the first quarter of 2021 compared to at the end of 2020.

• Inventories increased 4.2% to $106.7 million as of March 31, 2021, from $102.4 million as of December 31, 2020, primarily driven by the ramp up of raw material purchases and production efforts to meet anticipated demand.

• Borrowings under revolving credit facility decreased 84.0% to $4.0 million as of March 31, 2021, from $25.0 million as of December 31, 2020.

This was as a result of $21.0 million of discretionary principal payments on our revolving credit facility during the first quarter of 2021.

For additional information regarding this facility and the Fourth Amended Credit Agreement, refer to “Note 9 – Debt” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Three Months Ended

(Dollars in thousands) March 31, 2021 March 31, 2020

Key Cash Flow Measures:

1 unchanged sentence

Net cash used in investing activities $ (3,602) $ (11,160)

Net cash provided by (used in) financing activities $ (67,033) $ (104,010)

As of September 30, 2020, cash and cash equivalents were $186.1 million as compared to $166.8 million as of December 31, 2019, an increase of $19.3 million, or 11.6%.

This increase was primarily due to the $150.0 million in borrowings under our revolving credit facility during the first quarter of 2020, supplemented by cash flows generated by operations.

This increase was partially offset by $213.0 million of discretionary principal payments on our revolving credit facility during the second and third quarters of 2020, $28.9 million in capital expenditures and $5.1 million in tax payments related to net share settlement of equity awards.

Net cash (used in) provided by financing activities $ (23,181) $ 145,571

As of March 31, 2021, cash and cash equivalents were $199.1 million as compared to $191.8 million as of December 31, 2020, an increase of $7.3 million, or 3.8%.

This increase was primarily due to cash flows generated by operations, partially offset by $21.0 million of discretionary principal payments on our revolving credit facility during the first quarter of 2021, $3.6 million in capital expenditures and $2.6 million in tax payments related to net share settlement of equity awards.

In 2021, we continue to 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.

This range excludes the capital expenditures necessary to restore the UTIS operations, a significant portion of which we expect to be reimbursed by insurance proceeds.

Restrictions 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 September 30, 2020.

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 each 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 October 16, 2020.

Our total net leverage ratio did not exceed 2.75 to 1.00 as of March 31, 2021.

Contingencies

During the third quarter of 2020, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters.

During the first quarter of 2021, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters.

Refer to “Note 12 – Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion of these contingencies.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements that have or are, in the opinion of management, reasonably likely to have a current or future material effect on our results of operations or financial position.

As of March 31, 2021, we did not have any off-balance sheet arrangements that have or are, in the opinion of management, reasonably likely to have a current or future material effect on our results of operations or financial position.

Critical Accounting Policies

There were no material changes in our critical accounting policies during the third quarter of 2020.

There were no material changes in our critical accounting policies during the first quarter of 2021.

Recent Accounting Pronouncements

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Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk during the third quarter of 2020.

There have been no material changes in our exposure to market risk during the first quarter of 2021.

For discussion of our exposure to market risk, refer to “Item 7A.

1 unchanged sentence

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 2. Management’s Discussion and Analysis