What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 157 added, 101 removed, 163 unchanged (61% of the section changed)

17 unchanged sentences

• the extent to which end-user products and systems incorporating our products achieve commercial success;

• the ability of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner;

• the ability and willingness of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner;

• intense global competition affecting both our existing products and products currently under development;

36 unchanged sentences

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 months ended March 31, 2021 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 and six months ended June 30, 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 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 the second quarter of 2021 as compared to the second quarter of 2020, our net sales increased 22.9% to $234.9 million, our gross margin increased approximately 160 basis points to 38.2% from 36.6%, and operating income increased approximately 420 basis points to 15.2% from 11.0%.

In the first half of 2021 as compared to the first half of 2020, our net sales increased approximately 19.0% to $464.2 million, our gross margin increased approximately 380 basis points to 38.6% from 34.8%, and operating income increased approximately 580 basis points to 15.7% from 9.9%.

• We made $25.0 million of discretionary principal payments on our revolving credit facility during the first half of 2021.

• We recognized $0.7 million of restructuring charges in the second quarter of 2021 and $2.3 million of restructuring charges in the first half 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.

Operations at this facility will be disrupted into at least the first quarter of 2022.

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.

We recognized net expense of $1.5 million in the second quarter of 2021 and $2.8 million in the first half of 2021, 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 $0.5 million and $3.3 million in the second quarter of 2021 and the second quarter of 2020, respectively, and incurred incremental transaction costs of $1.1 million and $4.0 million in the first half of 2021 and the first half of 2020, respectively, 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

March 31, 2021 March 31, 2020

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

12 unchanged sentences

Net Sales and Gross Margin

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net sales $ 234,906 $ 191,157 $ 464,171 $ 389,967

1 unchanged sentence

Percentage of net sales 38.2 % 36.6 % 38.6 % 34.8 %

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

Net sales increased by 22.9% in the second quarter of 2021 compared to the second quarter of 2020.

Our AES and EMS operating segments had net sales increases of 20.9% and 24.7%, 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.

The increase in net sales was primarily due to higher net sales in the ADAS, EV/HEV, 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.

The increase was partially offset by lower net sales in the wireless infrastructure market in our AES operating segment and lower net sales in the mass transit market in our EMS operating segment.

Net sales were favorably impacted by foreign currency impacts of $8.1 million, or 4.3%, 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.

Net sales increased by 19.0% in the first half of 2021 compared to the first half of 2020.

Our AES and EMS operating segments had net sales increases of 19.7% and 16.8%, respectively.

The increase was partially offset by lower net sales in the wireless infrastructure market in our AES operating segment and lower net sales in the mass

transit market in our EMS operating segment.

Net sales were favorably impacted by foreign currency impacts of $16.3 million, or 4.2%, 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 160 basis points to 38.2% in the second quarter of 2021 compared to 36.6% in the second quarter of 2020.

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

This was partially offset by higher commodity and raw material costs as well as higher freight, duties and tariffs expenses in our AES and EMS operating segments, unfavorable product mix in our AES operating segments and unfavorable productivity performance due to raw material shortages in our EMS operating segment.

The higher freight, duties and tariffs expenses were primarily due to the recognition in the second quarter of 2020 of $3.3 million of Chinese duty tax recoveries.

Gross margin as a percentage of net sales increased approximately 380 basis points to 38.6% in the first half of 2021 compared to 34.8% in the first half of 2020.

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

This was partially offset by higher commodity and raw material costs as well as higher freight, duties and tariffs expenses in our AES and EMS operating segments, unfavorable product mix in our AES operating segment and unfavorable productivity performance due to raw material shortages in our EMS operating segment.

The higher freight, duties and tariffs expenses were primarily due to the recognition in the second quarter of 2020 of $3.3 million of Chinese duty tax recoveries.

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

In the third quarter of 2021, we expect a similar impact to our net sales as the second quarter of 2021.

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.

In the second quarter of 2021, the impact of supply constraints and raw material cost increases, primarily due to the weather interruptions along the U.S.

Gulf Coast as well as commodity price increases, somewhat tempered our net sales growth and gross margin results.

In the third quarter of 2021, we expect these issues to continue, but to a lesser extent.

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 $0.4 million and $3.0 million in the second quarter of 2021 and the second quarter of 2020, respectively, and $1.1 million and $3.6 million in the first half of 2021 and the first half of 2020, respectively.

Selling, General and Administrative Expenses

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Selling, general and administrative expenses $ 44,959 $ 41,694 $ 87,372 $ 82,024

Percentage of net sales 19.1 % 21.8 % 18.7 % 21.0 %

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.

Selling, general and administrative (SG&A) expenses increased 7.8% in the second quarter of 2021 from the second quarter of 2020, primarily due to a $5.2 million increase in total compensation and benefits, a $0.9 million increase in software expenses, a $0.5 million increase in recruiting/relocation/training expenses, a $0.3 million increase in travel and entertainment expenses and a $0.1 million increase in depreciation.

This was partially offset by a $4.5 million decrease in other intangible assets amortization and a $0.1 million decrease in environmental charges.

SG&A expenses increased 6.5% in the first half of 2021 from the first half of 2020, primarily due to an $7.7 million increase in total compensation and benefits, a $1.7 million increase in software expenses and a $0.6 million increase in recruiting/relocation/training expenses.

This was partially offset by a $5.0 million decrease in other intangible assets amortization and a $0.9 million decrease in travel and entertainment expenses.

The decrease in amortization expense for the three and six months ended June 30, 2021 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 amortization expense for our DSP definite-lived other intangible assets of $0.1 million and $4.4 million in the second quarter of 2021 and the second quarter of 2020, respectively, and $0.1 million and $4.8 million in the first half of 2021 and the first half of 2020, respectively.

The year-to-date 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

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Research and development expenses $ 7,492 $ 7,295 $ 14,664 $ 15,100

Percentage of net sales 3.2 % 3.8 % 3.2 % 3.9 %

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.

R&D expenses increased 2.7% in the second quarter of 2021 from the second quarter of 2020 due to increases in depreciation and laboratory expenses, partially offset by decreases in professional services and total compensation benefits.

R&D expenses decreased 2.9% in the first half of 2021 from the first half of 2020 due to decreases in professional services, total compensation benefits and travel and entertainment expenses, partially offset by increases in depreciation and laboratory expenses.

The year-to-date 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

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Restructuring and impairment charges $ 747 $ — $ 2,253 $ —

1 unchanged sentence

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.

We recognized $0.7 million and $2.3 million of restructuring charges and related expenses pertaining to these restructuring projects in the second quarter of 2021 and the first half of 2021, respectively.

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.

With respect to other operating (income) expense, net, we recognized expense of $0.9 million and $2.1 million in the second quarter of 2021 and the first half of 2021, respectively, 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.

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Equity Income in Unconsolidated Joint Ventures

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Equity income in unconsolidated joint ventures $ 1,930 $ 1,022 $ 4,111 $ 2,240

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

As of June 30, 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 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.

Equity income in those unconsolidated joint ventures increased 88.8% in the second quarter of 2021 from the second quarter of 2020, and increased 83.5% in the first half of 2021 from the first half of 2020.

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

Other Income (Expense), Net

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Other income (expense), net $ 1,239 $ 634 $ 4,207 $ (152)

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.

Other income (expense), net increased to income of $1.2 million in the second quarter of 2021 from income of $0.6 million in the second quarter of 2020.

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.

Other income (expense), net increased to income of $4.2 million in the first half of 2021 from expense of $0.2 million in the first half of 2020.

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.

Interest Expense, Net

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Interest expense, net $ (404) $ (1,779) $ (1,011) $ (2,986)

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

Interest expense, net, decreased by 77.3% in the second quarter of 2021 from the second quarter of 2020, and decreased by 66.1% in the first half of 2021 from the first half of 2020.

The decrease on quarter-to-date and year-to-date bases 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 third quarter of 2021 from the third quarter of 2020 primarily due to a lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Income tax expense $ 9,855 $ 6,394 $ 20,372 $ 9,835

Effective tax rate 25.6 % 30.6 % 25.4 % 26.1 %

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.

Our effective income tax rate was 25.6% and 30.6% for the three months ended June 30, 2021 and 2020, respectively.

The decrease from the second quarter of 2020 was primarily due to the decrease in the current quarter accruals for reserves of unrecognized tax benefits and the pretax mix across jurisdictions with disparate tax rates, partially offset by the second quarter of 2020 beneficial impact of changes in valuation allowance related to R&D credits.

Our effective income tax rate was 25.4% and 26.1% for the six months ended June 30, 2021 and 2020, respectively.

The decrease from the first half of 2020 was primarily due to the decrease in the current quarter accruals of reserves of unrecognized tax benefits and the pretax mix across jurisdictions with disparate tax rates, partially offset by the first half of 2020 beneficial impact of changes in valuation allowance related to R&D credits.

Operating Segment Net Sales and Operating Income

Advanced Electronics Solutions

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net sales $ 140,426 $ 116,160 $ 272,318 $ 227,434

Operating income $ 18,288 $ 17,070 $ 33,137 $ 21,848

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.

AES net sales increased by 20.9% in the second quarter of 2021 compared to the second quarter of 2020.

The increase in net sales over the second quarter of 2020 was primarily driven by higher net sales in the ADAS, EV/HEV, aerospace and defense and clean energy markets, partially offset by lower net sales in the wireless infrastructure market.

Net sales were favorably impacted by foreign currency fluctuations of $5.4 million, or 4.7%, 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.

AES net sales increased by 19.7% in the first half of 2021 compared to the first half of 2020.

The increase in net sales over the first half of 2020 was primarily driven by higher net sales in the ADAS, EV/HEV, aerospace and defense and clean energy markets, partially offset by lower net sales in the wireless infrastructure market.

Net sales were favorably impacted by foreign currency fluctuations of $10.7 million, or 4.7%, due to the appreciation in value of the euro and Chinese renminbi relative to the U.S.

Operating income increased by 7.1% in the second quarter of 2021 from the second 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.

This was partially offset by higher commodity costs, unfavorable product mix and higher freight, duties and tariffs expenses.

The higher freight, duties and tariffs expenses were primarily due to the recognition in the second quarter of 2020 of $3.3 million of Chinese duty tax recoveries.

As a percentage of net sales, operating income in the second quarter of 2021 was 13.0%, an approximately 170 basis point decrease as compared to the 14.7% reported in the second quarter of 2020.

Operating income increased by 51.7% in the first half of 2021 from the first half 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, unfavorable product mix and higher freight, duties and tariffs expenses.

higher freight, duties and tariffs expenses were primarily due to the recognition in the second quarter of 2020 of $3.3 million of Chinese duty tax recoveries.

As a percentage of net sales, operating income in the first half of 2021 was 12.2%, an approximately 260 basis point increase as compared to the 9.6% reported in the first half of 2020.

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.

In the second quarter of 2021, the impact of higher commodity costs tempered our gross margin results.

In the third quarter of 2021, we expect these issues to persist, but to a lesser extent due to commercial actions we have begun to take to address these higher costs.

Our AES operating segment 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 operating income by $0.3 million and $1.9 million in the second quarter of 2021 and the second quarter of 2020, respectively, and $0.7 million and $2.3 million in the first half of 2021 and the first half of 2020, respectively.

Elastomeric Material Solutions

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net sales $ 89,331 $ 71,626 $ 181,180 $ 155,152

Operating income $ 15,637 $ 2,995 $ 35,714 $ 14,512

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.

EMS net sales increased by 24.7% in the second quarter of 2021 compared to the second quarter of 2020.

The increase in net sales over the second 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 $2.5 million, or 3.5%, 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.

EMS net sales increased by 16.8% in the first half of 2021 compared to the first half of 2020.

The increase in net sales over the first half 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 $5.2 million, or 3.4%, due to the appreciation in value of the Chinese renminbi and euro relative to the U.S.

Operating income increased by 422.1% in the second quarter of 2021 from the second quarter of 2020.

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 in 2020, we recognized lower amortization expense in the second quarter of 2021 compared to the second quarter of 2020.

The increase in operating income was also due to higher volume, favorable product mix, a lower inventory reserves provision and favorable absorption of fixed overhead costs.

This was partially offset by higher freight, duties and tariffs expenses, higher raw material costs and unfavorable productivity performance due to raw material shortages.

As a percentage of net sales, operating income in the second quarter of 2021 was 17.5%, an approximately 1,330 basis point increase as compared to the 4.2% reported in the second quarter of 2020.

Operating income increased by 146.1% in the first half of 2021 from the first half of 2020.

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 in 2020, we recognized lower amortization expense in the first half of 2021 compared to the first half of 2020.

The increase in operating income was also due to higher volume, favorable product mix, a lower inventory reserves provision and favorable absorption of fixed overhead costs.

This was partially offset by higher freight, duties and tariffs expenses, higher raw material costs and unfavorable productivity performance due to raw material shortages.

As a percentage of net sales, operating income in the first half of 2021 was 19.7%, an approximately 1,030 basis point increase as compared to the 9.4% reported in the second quarter of 2020.

Additionally, we recognized expense of $1.5 million and $2.8 million primarily related to the financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea in 2021 for the second quarter of 2021 and the first half of 2021, respectively.

2 unchanged sentences

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

In the third quarter of 2021, we expect a similar impact to our net sales as the second quarter of 2021.

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

In the second quarter of 2021, the impact of supply constraints and raw material cost increases, primarily due to the weather interruptions along the U.S.

Gulf Coast, somewhat tempered our net sales growth and gross margin results.

In the third quarter of 2021, we expect these issues to persist, but to a lesser extent as the supply chain constraints begin to subside, in addition to commercial actions we have begun to take to address the higher raw material costs.

Our EMS operating segment 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 operating income by $0.2 million and $1.3 million in the second quarter of 2021 and the second quarter of 2020, respectively, and $0.4 million and $1.5 million in the first half of 2021 and the first half of 2020, respectively.

Three Months Ended Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net sales $ 5,149 $ 3,371 $ 10,673 $ 7,381

Operating income $ 1,820 $ 1,027 $ 4,087 $ 2,207

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 in this segment increased by 52.7% in the second quarter of 2021 from the second quarter of 2020.

The increase in net sales over the second 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 6.0%, 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.

Net sales in this segment increased by 44.6% in the first half of 2021 from the first half of 2020.

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

Net sales were favorably impacted by foreign currency fluctuations of $0.4 million, or 5.1%, due to the appreciation in value of the Chinese renminbi relative to the U.S.

Operating income increased 77.2% in the second quarter of 2021 compared to the second quarter of 2020.

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

Operating income increased 85.2% in the first half of 2021 compared to the first half of 2020.

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

As a percentage of net sales, operating income in the second quarter of 2021 was 35.3%, a 480 basis point increase as compared to the 30.5% reported in the second quarter of 2020.

As a percentage of net sales, operating income in the first half of 2021 was 38.3%, a 840 basis point increase as compared to the 29.9% reported in the first half 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) March 31, 2021 December 31, 2020

(Dollars in thousands) June 30, 2021 December 31, 2020

United States $ 39,390 $ 21,657

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Approximately $164.6 million of our cash and cash equivalents were held by non-U.S.

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.

subsidiaries as of June 30, 2021.

We did not make any changes in the six months ended June 30, 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 )

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Key Financial Position Accounts:

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Borrowings under revolving credit facility $ — $ 25,000

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.

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2020 to June 30, 2021 were as follows:

• Accounts receivable, net increased 17.1% to $157.5 million as of June 30, 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 second quarter of 2021 compared to at the end of 2020.

• Inventories increased 8.2% to $110.8 million as of June 30, 2021, from $102.4 million as of December 31, 2020, primarily driven by raw material cost increases as well as the ramp up of raw material purchases and production efforts to meet anticipated demand.

• Borrowings under revolving credit facility were nil as of June 30, 2021 compared to $25.0 million as of December 31, 2020.

This was as a result of $25.0 million of discretionary principal payments on our revolving credit facility during the first half 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

Six Months Ended

(Dollars in thousands) June 30, 2021 June 30, 2020

Key Cash Flow Measures:

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Net cash (used in) provided by financing activities $ (31,632) $ 95,442

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.

As of June 30, 2021, cash and cash equivalents were $203.9 million as compared to $191.8 million as of December 31, 2020, an increase of $12.2 million, or 6.3%.

This increase was primarily due to cash flows generated by operations, partially offset by $25.0 million of discretionary principal payments on our revolving credit facility during the first half of 2021, $21.4 million in capital expenditures and $2.7 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.

This range includes 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

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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 March 31, 2021.

Our total net leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2021.

Contingencies

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.

During the second 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 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.

As of June 30, 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 first quarter of 2021.

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

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis