What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-11-09 · 144 added, 196 removed, 122 unchanged (74% of the section changed)

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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:

• our terminated merger with DuPont de Nemours, Inc.

(DuPont), which may cause us to incur substantial costs that may adversely affect our financial results and operations and the market price of our capital stock, including as a result of litigation;

• 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, supply chains, customers, end users and economic conditions generally;

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• failure to successfully execute on the Company’s long-term growth strategy as a standalone company;

• uncertain business, economic and political conditions in the United States (U.S.) and abroad, particularly in China, South Korea, Germany, Belgium, England and Hungary where we maintain significant manufacturing, sales or administrative operations;

• uncertain business, economic and political conditions in the United States (U.S.) and abroad, particularly in China, Germany, Belgium, England, South Korea and Hungary where we maintain significant manufacturing, sales or administrative operations;

• the trade policy dynamics between the U.S.

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• disruptions in, or breaches of, our information technology systems;

other reports filed with the Securities and Exchange Commission, any of which could cause actual results to differ materially from historical results or anticipated results.

• our terminated merger with DuPont de Nemours, Inc.

(DuPont), which may cause us to incur substantial costs that may adversely affect our financial results and operations and the market price of our capital stock, including as a result of litigation.

Our forward-looking statements are expressly qualified by these cautionary statements, which you should consider carefully, along with the risks discussed in this section and elsewhere in this report, including under the section entitled “Risk Factors” in Part II, Item 1A and in our Annual Report on Form 10-K for the year ended December 31, 2022 (the Annual Report) and our other reports filed with the Securities and Exchange Commission, any of which could cause actual results to differ materially from historical results or anticipated results.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

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

We have a history of innovation and have established Innovation Centers for our research and development (R&D) activities in Chandler, Arizona, Burlington, Massachusetts, Eschenbach, Germany and Suzhou, China.

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

Burlington, Massachusetts;

Eschenbach, Germany;

and Suzhou, China.

We are headquartered in Chandler, Arizona.

Our growth strategy is based upon the following principles:

Our growth and profitability strategy is based upon the following principles:

(1) market-driven organization, (2) innovation leadership, (3) synergistic mergers and acquisitions, and (4) operational excellence.

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

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, 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:

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

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

We 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.

Our priorities in executing this strategy are focused on driving near-term improvements to profitability and improving the growth outlook for the Company over the next several years by further strengthening our focus on commercial activities, expanding capacity to meet customer demand and driving innovation.

As a market-driven organization, we are focused on capitalizing on growth opportunities in the increasing electrification of vehicles, including electric and hybrid electric vehicles (EV/HEV), and increasing use of advanced driver assistance systems (ADAS) in the automotive industry, the advancement of communication systems in aerospace and defense, the growth of 5G smartphones in the portable electronics industry and in renewable energy.

In addition to our focus on these markets, we sell into a variety of other markets including general industrial, wireless infrastructure and mass transit.

Our growth strategy is based on addressing trends in these markets and applying our repeatable customer engagement process.

Our sales engineers and technical service employees work closely with our customers to understand their complex challenges.

They then leverage our innovation and technology capabilities and deep applications expertise to provide unique solutions to customers’ challenges.

In addition to these capabilities, our strategy for success as a manufacturer of engineered materials and components is also built on our reputation for high performance and reliability solutions, trusted customer relationships, a broad product portfolio and custom design capabilities.

Through this strategy we expect to be able to drive further commercial wins, which provide the potential for higher growth in the future.

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

Our operational excellence efforts are focused on driving significant near-term improvement in our profitability.

These efforts include focusing on adding strategic new hires and improving processes and tools to achieve better performance.

We have also taken specific cost improvement actions in the fourth quarter of 2022 and first quarter of 2023 that will benefit subsequent quarters.

These actions include optimizing our manufacturing footprint, divesting non-core product lines and reduction to manufacturing and corporate employees.

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

We seek to enhance our operational and financial performance by investing in research and development, manufacturing and materials efficiencies, and new product initiatives that respond to the needs of our customers.

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

If we are able to successfully execute on our growth strategy, we see an opportunity to double our annual revenues over the next five years.

This robust outlook is supported by our participation in a number of fast-growing markets and by our strong competitive positions in these markets.

Advanced mobility markets, which are comprised of EV/HEV and ADAS, are expected to grow at the fastest rate.

Third-party analysis projects that the EV/HEV market will grow at compound annual growth rate of more than 25% over the next five years and ADAS at a double-digit rate over that time period.

If we are able to successfully execute on our strategy, we see an opportunity to return to historical levels of profitability and accelerate revenue growth, relative to 2022, over the next several years, led by organic growth and complemented by targeted

acquisitions.

This outlook is supported by our participation in a number of fast-growing markets and by our strong competitive positions in these markets.

The fastest growing market opportunity is expected to be EV/HEV where third-party analysis projects that the market will grow at compound annual growth rate of between 20% and 25% over the next several years.

Within the EV/HEV market, we believe our advanced battery cell pads, ceramic substrates and power interconnects provide multiple content opportunities to capitalize on this growth.

In each of these areas we have secured a number of design wins and have a strong pipeline, which provides confidence in our growth outlook.

In the ADAS market, we continue to build on our current position with new design wins, including those for next-generation automotive radar systems.

Other markets with a strong growth trajectory include aerospace and defense, clean energy and portable electronics.

We expect that they will contribute to our growth strategy’s aim of doubling revenues over the next five years.

To support our revenue growth opportunity during the five-year strategic planning period, we have initiated a manufacturing expansion plan, which includes expanding capacity at existing Rogers’ manufacturing facilities, relocating existing manufacturing capabilities to enhance operational efficiency and adding new manufacturing facilities.

This expansion plan will require a significant increase in capital spending together with an associated increase in operating expenses, as compared to historic capital spending and operating expenses over the previous five years.

In each of these areas we have secured a number of design wins and have a strong opportunity pipeline, which provides confidence in our growth outlook.

Other markets with a strong growth trajectory include ADAS, aerospace and defense, portable electronics and renewable energy.

Each of these markets is expected to contribute to our growth.

Terminated Merger with DuPont

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Company shareholders approved the merger agreement at a special shareholder meeting held on January 25, 2022.

merger agreement provided both Rogers Corporation and DuPont with a right to terminate the merger agreement if the merger had not closed on or before November 1, 2022.

The merger agreement provided both Rogers Corporation and DuPont with a right to terminate the merger agreement if the merger had not closed on or before November 1, 2022.

Consummation of the merger was subject to various customary closing conditions, including regulatory approval by the State Administration for Market Regulation of China (SAMR).

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On November 1, 2022, the Company received from DuPont a notice of termination of the merger agreement.

Pursuant to the terms of the merger agreement, the Company received a regulatory termination fee from DuPont in the amount of $162.5 million, before taxes and transaction-related fees.

Pursuant to the terms of the merger agreement, the Company received a regulatory termination fee from DuPont in the amount of $162.5 million, before taxes, and incurred a transaction-related fee of $20.4 million.

COVID-19 Update

The global COVID-19 pandemic has affected and continues to affect Rogers’ business, operations and demand from customers with the emergence and spread of new variants of the virus, such as Delta and Omicron, although to a lesser extent than in 2020, mainly due to the rollout of vaccinations.

In response to the outbreak, Rogers prioritized the safety and well-being of its employees—including incentivizing vaccinations, 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, 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.

Surges in COVID-19 cases in China resulted in lockdowns as well as various restrictions.

These measures have not disrupted our manufacturing efforts, however, they are causing logistics challenges.

The global COVID-19 pandemic has affected and continues to affect Rogers’ business, operations and demand from customers.

Surges in COVID-19 cases in China during 2022 resulted in lockdowns as well as various restrictions.

These measures have not disrupted our manufacturing efforts, however, they have caused logistics challenges.

Even since China ended its zero COVID policy in late 2022, although a significant percentage of our employees in Suzhou, China were diagnosed with COVID, our manufacturing has not been materially disrupted and to date we have received no reports of permanent disability or death among our employees.

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 nine months ended September 30, 2022 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, 2023 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 2022 as compared to the third quarter of 2021, our net sales increased approximately 3.8% to $247.2 million, our gross margin decreased approximately 690 basis points to 31.6% from 38.5%, and operating income decreased approximately 670 basis points to 7.5% from 14.2%.

In the first nine months of 2022 as compared to the first nine months of 2021, our net sales increased approximately 6.4% to $747.5 million, our gross margin decreased approximately 520 basis points to 33.4% from 38.6%, and operating income decreased approximately 690 basis points to 8.3% from 15.2%.

• With respect to other operating (income) expense, net, we recognized income of $0.6 million and expense of $1.4 million in the third quarter of 2022 and 2021, respectively, and income of $2.8 million and expense of $4.2 million in the first nine months of 2022 and 2021, respectively, primarily related to the financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea.

• Our net sales and gross margin results were tempered in the first nine months of 2022 due to continued raw material shortages and supply chain disruptions, which we expect to continue into the fourth quarter of 2022.

• We incurred $3.4 million and $18.3 million of expenses related to the terminated merger with DuPont mainly associated with a discretionary RESIP contribution, retention awards and professional services expenses, in the third quarter of 2022 and first nine months of 2022, respectively.

• In the first quarter of 2023 as compared to the first quarter of 2022, our net sales decreased approximately 1.8% to $243.8 million, our gross margin decreased approximately 170 basis points to 32.7% from 34.4%, and we had an operating loss of 0.1% compared to operating income of 8.0%, an approximately 810 basis points decrease.

• We made a $25.0 million discretionary principal payment on our revolving credit facility at the end of the first quarter of 2023.

• We recognized restructuring charges of $10.5 million in the first quarter of 2023 related to the previously announced reduction in force plan of our global workforce and facility consolidation plans that are expected to be completed in the first half of 2023.

• On February 17, 2023, we entered into an asset purchase agreement to sell our high-performance engineered cellular elastomer business for a purchase price of $1.8 million.

The first phase of the deal was completed in late March 2023, while the second phase is expected to be completed in the second quarter of 2023.

The second phase of the deal pertains to the sale of the land and building to the buyer of the high-performance engineered cellular elastomer business.

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, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

Net sales 100.0 % 100.0 %

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Other operating (income) expense, net — % (0.1) %

Operating income 7.5 % 14.2 % 8.3 % 15.2 %

Operating income (loss) (0.1) % 8.0 %

Equity income in unconsolidated joint ventures — % 0.5 %

Pension settlement charges — % (0.2) % — % (0.1) %

Other income (expense), net — % 0.1 %

Interest expense, net (1.4) % (0.4) %

Income before income tax expense 7.1 % 14.3 % 8.3 % 16.3 %

Income tax expense 1.1 % 3.8 % 1.7 % 4.2 %

Net income 6.0 % 10.5 % 6.6 % 12.1 %

Income (loss) before income taxes (1.5) % 8.2 %

Income tax expense (benefit) (0.1) % 1.5 %

Net income (loss) (1.4) % 6.7 %

Net Sales and Gross Margin

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Net sales $ 243,847 $ 248,266

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Percentage of net sales 32.7 % 34.4 %

Net sales increased by 3.8% in the third quarter of 2022 compared to the third quarter of 2021.

Our AES and EMS operating segments had a net sales decrease of 3.2% and a net sales increase of 13.3%, respectively.

The increase in net sales was primarily due to higher net sales in the EV/HEV market in our AES operating segment and higher net sales in the general industrial market in our EMS operating segment.

The increase was partially offset by lower net sales in the clean energy, aerospace and defense, wireless infrastructure and ADAS markets in our AES operating segment.

Additionally, our EMS operating segment net sales increased by $9.8 million, or 4.1%, reflecting the impact from our acquisition of Silicone Engineering.

Net sales were unfavorably impacted by foreign currency impacts of $11.8 million, or 5.0%, due to the depreciation in value of the euro, British pound and Chinese renminbi relative to the U.S.

Net sales increased by 6.4% in the first nine months of 2022 compared to the first nine months of 2021.

Our AES and EMS operating segments had a net sales decrease of 0.6% and a net sales increase of 16.9%, respectively.

The increase in net sales was primarily due to higher net sales in the EV/HEV market in our AES operating segment and higher net sales in the general industrial and EV/HEV markets in our EMS operating segment.

The increase was partially offset by lower net sales in the wireless infrastructure, aerospace and defense, ADAS and clean energy markets in our AES operating segment and lower net sales in the portable electronics market in our EMS operating segment.

Additionally, our EMS operating segment net sales increased by $32.0 million, or 4.6%, reflecting the impact from our acquisition of Silicone Engineering.

Net sales were unfavorably impacted by foreign currency impacts of $22.8 million, or 3.2%, due to the depreciation in value of the euro, British pound and Chinese renminbi relative to the U.S.

Gross margin as a percentage of net sales decreased approximately 690 basis points to 31.6% in the third quarter of 2022 compared to 38.5% in the third quarter of 2021.

Gross margin in the third quarter of 2022 was unfavorably impacted by higher fixed overhead expenses, unfavorable absorption of fixed overhead expenses, higher freight, duties and tariffs expenses, unfavorable productivity performance and unfavorable product mix in our AES and EMS operating segments, as well as

unfavorable yield performance and a higher inventory reserves provision in our EMS operating segment and lower volume in our AES operating segment.

This was partially offset by the favorable impacts of commercial actions taken in our AES and EMS operating segments, as well as higher volume in our EMS operating segment.

Gross margin as a percentage of net sales decreased approximately 520 basis points to 33.4% in the first nine months of 2022 compared to 38.6% in the first nine months of 2021.

Gross margin in the first nine months of 2022 was unfavorably impacted by higher fixed overhead expenses, unfavorable yield performance and higher freight, duties and tariffs expenses in our AES and EMS operating segments, as well as unfavorable productivity performance and a higher inventory reserves provision in our EMS operating segment and unfavorable product mix, unfavorable absorption of fixed overhead costs and lower volume in our AES operating segment.

This was partially offset by the favorable impacts of commercial actions taken in our AES and EMS operating segments, as well as higher volume and favorable absorption of fixed overhead costs in our EMS operating segments and a lower inventory reserves provision in our AES operating segment.

Supply constraints on raw material and labor availability moderated production levels for our EMS operating segment, creating operational inefficiencies, which negatively impacted our gross margin.

Further, the continuation of the global semiconductor chip shortage and its impact on our customers’ ability to continue to manufacture has negatively impacted our net sales, particularly in the ADAS market segment, for our AES operating segment.

The recent COVID-19 outbreaks, particularly in Asia, adversely impacted our customers’ ability to continue manufacturing operations, which in turn negatively impacted our net sales for both our AES and EMS operating segments in the first nine months of 2022.

Additionally, the impacts of the war in Ukraine, including sanctions and export controls, have impacted the production efforts of suppliers for certain raw materials, both to us and our customers, which could potentially have an impact on our net sales, as well as our gross margin for our AES and EMS operating segments.

The global supply chain disruptions experienced in 2022 to-date and their impacts to our net sales and gross margin are expected to continue further into 2022.

Net sales decreased by 1.8% in the first quarter of 2023 compared to the first quarter of 2022.

Our AES and EMS operating segments had a net sales increase of 2.0% and a net sales decrease of 7.3%, respectively.

The decrease in net sales was primarily due to lower net sales in the wireless infrastructure market in our AES operating segment and lower net sales in the EV/HEV, portable electronics and general industrial markets in our EMS operating segment.

The decrease was partially offset by higher net sales in the EV/HEV and renewable energy markets in our AES operating segment and higher net sales in the mass transit market in our EMS operating segment.

Net sales were unfavorably impacted by foreign currency impacts of $7.4 million, or 3.0%, due to the depreciation in value of the euro, the Chinese renminbi and the British pound relative to the U.S.

Gross margin as a percentage of net sales decreased approximately 170 basis points to 32.7% in the first quarter of 2023 compared to 34.4% in the first quarter of 2022.

Gross margin in the first quarter of 2023 was unfavorably impacted by lower volume and unfavorable mix, as well as higher inventory reserves provisions in our AES and EMS operating segments, as well as unfavorable factory utilization and unfavorable yield performance in our EMS operating segment.

This was partially offset by lower freight, duties and tariffs costs in our AES and EMS operating segments, as well as favorable yield performance in our AES operating segment.

Selling, General and Administrative Expenses

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Selling, general and administrative expenses $ 60,085 $ 57,705

Percentage of net sales 24.6 % 23.2 %

Selling, general and administrative (SG&A) expenses increased 5.8% in the third quarter of 2022 from the third quarter of 2021, primarily due to a $3.0 million increase in professional services, a $0.9 million increase in other intangible asset amortization expense, a $0.3 million increase in travel and entertainment expenses, a $0.2 million increase in depreciation expense and a $0.1 million increase in advertising expense, partially offset by a $1.3 million decrease in total compensation and benefits, a $0.7 million decrease in software expenses and a $0.2 million decrease in utility costs.

SG&A expenses increased 21.6% in the first nine months of 2022 from the first nine months of 2021, primarily due to a $13.4 million increase in professional services, a $8.5 million increase in total compensation and benefits, a $3.2 million increase in other intangible asset amortization expense, a $2.1 million increase in software expenses, a $1.6 million increase in travel and entertainment expenses and a $0.6 million increase in advertising expense, partially offset by a $0.4 million decrease in recruiting/relocation/training expenses and a $0.4 million decrease in utility costs.

The increase in total compensation and benefits was primarily due to a $1.8 million impact for retention awards issued in connection with the terminated DuPont merger, on a quarter-to-date basis, and a $6.5 million discretionary RESIP contribution and a $6.2 million impact for retention awards issued in connection with the terminated DuPont merger, on a year-to-date basis.

The increase in professional services expense is primarily due to $1.5 million of expenses incurred related to the terminated merger with DuPont and $0.1 million of expenses incurred related to our acquisition of Silicone Engineering, on a quarter-to-date basis, and $5.4 million of expenses incurred related to the terminated merger with DuPont and $0.7 million of expenses incurred related to our acquisition of Silicone Engineering, on a year-to-date basis.

Selling, general and administrative (SG&A) expenses increased 4.1% in the first quarter of 2023 from the first quarter of 2022, primarily due to a $8.3 million increase in professional services, a $0.9 million increase in fixed asset depreciation expense and $0.4 million in travel expenses, partially offset by a $7.9 million decrease in total compensation and benefits and a $1.0 million decrease in other intangible asset amortization expense.

The decrease in total compensation and benefits was primarily due to the $6.5 million discretionary RESIP contribution in 2022 and a $0.9 million decrease in the impact for retention awards issued in connection with the terminated DuPont merger, on a quarter-to-date basis.

The increase in professional services expense is primarily due to $7.6 million of expenses related to non-routine shareholder advisory costs and $1.0 million of expenses in connection with the sale of our high-performance engineered cellular elastomer business, partially offset by a $2.8 million decrease in expenses incurred related to the terminated merger with DuPont and $0.4 million decrease in expenses incurred related to our acquisition of Silicone Engineering, on a quarter-to-date basis.

Research and Development Expenses

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Research and development expenses $ 9,586 $ 8,260

Percentage of net sales 3.9 % 3.3 %

R&D expenses increased 21.4% in the third quarter of 2022 from the third quarter of 2021 due to increases in laboratory expenses, total compensation and professional services expense.

R&D expenses increased 14.7% in the first nine months of 2022 from the first nine months of 2021 due to increases in total compensation and benefits, travel and entertainment expenses, laboratory expenses and depreciation expense.

R&D expenses increased 16.1% in the first quarter of 2023 from the first quarter of 2022 due to increases in trial costs for alternative raw materials and total compensation and benefits expense.

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

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Restructuring and impairment charges $ 10,501 $ 69

Other operating (income) expense, net $ (219) $ (531)

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

We recognized restructuring charges and related expenses pertaining to these restructuring projects of $0.4 million in the third quarter of 2022 and $0.9 million in the first nine months of 2022.

We incurred restructuring charges and related expenses associated with the announced reduction in force plan of our global workforce along with certain facility consolidation efforts, which are expected to be completed in the first half of 2023.

The plans are expected to significantly reduce our manufacturing costs and operating expenses.

We recognized restructuring charges and related expenses pertaining to these restructuring projects of $10.5 million in the first quarter of 2023.

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 income of $0.6 million and expense of $1.4 million in the third quarter of 2022 and 2021, respectively, and income of $2.9 million and expense of $3.5 million in the first nine months of 2022 and 2021, respectively, primarily related to the financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea.

The impact in the third quarter of 2022 and the first nine months of 2022 primarily consisted of insurance recoveries, partially offset by professional service costs, compensation and benefits for certain of our UTIS employees, costs incurred under our manufacturing facility lease agreement and inventory charges.

The impact in the third quarter of 2021 and the first nine months of 2021 primarily consisted of write-offs of fixed assets and inventory destroyed and/or damaged in the fire, professional service costs, costs incurred under our manufacturing facility lease agreement, and compensation and benefits for certain of our UTIS employees, partially offset by the recognition of insurance recoveries.

With respect to other operating (income) expense, net, we recognized income of $0.2 million and expense of $0.5 million in the first quarter of 2023 and 2022, respectively.

The impact in the first quarter of 2022 primarily consisted of insurance recoveries, partially offset by professional service costs, compensation and benefits for certain of our UTIS employees, costs incurred under our manufacturing facility lease agreement and inventory charges.

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, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Equity income in unconsolidated joint ventures $ 76 $ 1,275

As of September 30, 2022, we had two unconsolidated joint ventures, each 50% owned:

As of March 31, 2023, 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 34.5% in the third quarter of 2022 from the third quarter of 2021, and decreased 28.0% in the first nine months of 2022 from the first nine months of 2021.

On a quarter-to-date basis and a year-to-date basis, the decrease was due to lower net sales and unfavorable productivity performance for RIC and RIS.

Equity income in those unconsolidated joint ventures decreased 94.0% in the first quarter of 2023 from the first quarter of 2022.

On a quarter-to-date basis, the decrease was due to lower net sales and unfavorable productivity performance for RIC and RIS.

Other Income (Expense), Net

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Pension settlement charges $ — $ (534) $ — $ (534)

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Other income (expense), net $ 5 $ 267

In the third quarter of 2021, we recorded a $0.5 million pre-tax settlement charge in connection with further 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)).

Other income (expense), net increased to income of $1.0 million in the third quarter of 2022 from expense of $0.5 million in the third quarter of 2021.

On a quarter-to-date basis, the increase was due to favorable impacts from our foreign currency derivatives and favorable impacts from our copper derivative contracts.

Other income (expense), net decreased to income of $1.6 million in the first nine months of 2022 from income of $3.7 million in the first nine months of 2021.

On a year-to-date basis, the decrease was due to unfavorable impacts from our copper derivative contracts, partially offset by favorable impacts from our foreign currency derivatives and favorable impacts from our foreign currency transactions.

Other income (expense), net decreased to income of less than $0.1 million in the first quarter of 2023 from expense of $0.3 million in the first quarter of 2022.

On a quarter-to-date basis, the decrease was due to the unfavorable impacts from our foreign currency transactions and the unfavorable impacts from our copper derivative contracts, partially offset by favorable impacts from our foreign currency derivatives.

Interest Expense, Net

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Interest expense, net $ (3,462) $ (1,069)

Interest expense, net, increased by $2.5 million in the third quarter of 2022 from the third quarter of 2021, and increased by $4.1 million in the first nine months of 2022 from the first nine months of 2021.

The increases on quarter-to-date and year-to-date bases was primarily due to a higher weighted-average outstanding balance for our borrowings under our revolving credit facility.

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Income tax expense $ 2,835 $ 8,999 $ 12,683 $ 29,371

Interest expense, net, increased by $2.4 million in the first quarter of 2023 from the first quarter of 2022.

The increase on quarter-to-date basis was primarily due to a higher weighted-average interest rate, as well as a higher weighted-average borrowings under our revolving credit facility.

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Income tax expense (benefit) $ (128) $ 3,764

Effective tax rate 3.5 % 18.5 %

Our effective income tax rate was 16.0% and 26.4% for the three months ended September 30, 2022 and 2021, respectively.

The decrease from the third quarter of 2021 was primarily due to the beneficial impact of a decrease in current quarter accruals of reserves for uncertain tax positions.

Our effective income tax rate was 20.5% and 25.7% for the nine months ended September 30, 2022 and 2021, respectively.

The decrease from the first nine months of 2021 was primarily due to the decrease in the current quarter accruals of reserves of unrecognized tax benefits.

Our effective income tax rate was 3.5% and 18.5% for the three months ended March 31, 2023 and 2022, respectively.

The decrease from the first quarter of 2022 was primarily due to the increase in the current quarter valuation allowance attributable to loss jurisdictions in which no benefit is anticipated to be realized, as well as the decrease in the excess tax benefits associated with stock compensation windfalls.

Operating Segment Net Sales and Operating Income

Advanced Electronics Solutions

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Net sales $ 135,868 $ 133,153

Operating income $ 2,263 $ 13,945 $ 12,342 $ 47,082

AES net sales decreased by 3.2% in the third quarter of 2022 compared to the third quarter of 2021.

The decrease in net sales over the third quarter of 2021 was primarily driven by lower net sales in the clean energy, wireless infrastructure, aerospace and defense and ADAS markets, partially offset by higher net sales in the EV/HEV market.

Net sales were unfavorably impacted by foreign currency fluctuations of $8.0 million, or 5.9%, due to the depreciation in value of the euro relative to the U.S.

AES net sales decreased by 0.6% in the first nine months of 2022 compared to the first nine months of 2021.

The decrease in net sales over the first nine months of 2021 was primarily driven by lower net sales in the wireless infrastructure, aerospace and defense, ADAS and clean energy markets, partially offset by higher net sales in the EV/HEV market.

Net sales were unfavorably impacted by foreign currency fluctuations of $16.3 million, or 4.0%, due to the depreciation in value of the euro relative to the U.S.

Operating income decreased by 83.8% in the third quarter of 2022 from the third quarter of 2021.

The decrease in operating income was primarily due to unfavorable year-over-year changes in shared service operating expense allocations driven by costs incurred related to the terminated DuPont merger.

The decrease in operating income was also due to higher fixed overhead expenses, unfavorable absorption of fixed overhead expenses, higher freight, duties and tariffs expenses, unfavorable productivity performance, unfavorable product mix and lower volume.

This was partially offset by the favorable impacts of commercial actions taken.

As a percentage of net sales, operating income in the third quarter of 2022 was 1.7%, an approximately 860 basis point decrease as compared to the 10.3% reported in the third quarter of 2021.

Operating income decreased by 73.8% in the first nine months of 2022 from the first nine months of 2021.

The decrease in operating income was also due to higher fixed overhead expenses, unfavorable yield performance, higher freight, duties and tariffs expenses, unfavorable product mix, unfavorable absorption of fixed overhead costs and lower volume.

This was partially offset by the favorable impacts of commercial actions taken and a lower inventory reserves provision.

As a percentage of net sales, operating income in the first nine months of 2022 was 3.0%, an approximately 860 basis point decrease as compared to the 11.6% reported in the first nine months of 2021.

The continuation of the global semiconductor chip shortage and its impact on our customers’ ability to continue to manufacture has negatively impacted our net sales, particularly in the ADAS market segment.

Further, the recent COVID-19 outbreaks,

particularly in Asia, adversely impacted our customers’ ability to continue manufacturing operations, which in turn negatively impacted our net sales in the first nine months of 2022.

The global supply chain disruptions experienced in 2022 to-date and their impacts to our net sales and gross margin are expected to continue further into 2022.

Operating income (loss) $ (5,509) $ 1,304

AES net sales increased by 2.0% in the first quarter of 2023 compared to the first quarter of 2022.

The increase in net sales over the first quarter of 2022 was primarily driven by higher net sales in the EV/HEV and renewable energy markets, partially offset by lower net sales in the wireless market.

Net sales were unfavorably impacted by foreign currency fluctuations of $4.3 million, or 3.3%, due to the depreciation in value of the euro and the Chinese renminbi relative to the U.S.

We recognized operating loss of $5.5 million in the first quarter of 2023 compared to operating income of $1.3 million in the first quarter of 2022.

The decrease in operating income was primarily due to unfavorable year-over-year changes in restructuring charges and shared service operating expense allocations driven by non-routine shareholder advisory costs, partially offset by a year-over-year decrease in costs related to the terminated DuPont merger.

The decrease in operating income was also due to lower volume and unfavorable mix, as well as a higher inventory reserves provision.

This was partially offset by lower freight, duties and tariffs costs.

As a percentage of net sales, the operating loss in the first quarter of 2023 was 4.1% compared to 1.0% of operating income reported in the first quarter of 2022.

Elastomeric Material Solutions

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Net sales $ 102,241 $ 110,240

Operating income $ 14,322 $ 18,104 $ 43,920 $ 53,818

EMS net sales increased by 13.3% in the third quarter of 2022 compared to the third quarter of 2021.

The increase in net sales over the third quarter of 2021 was primarily driven by $9.8 million in net sales, or 10.0%, reflecting the impact from our acquisition of Silicone Engineering, as well as higher net sales in the general industrial market.

Net sales were unfavorably impacted by foreign currency fluctuations of $3.7 million, or 3.7%, due to the depreciation in value of the euro, British pound and Chinese renminbi relative to the U.S.

EMS net sales increased by 16.9% in the first nine months of 2022 compared to the first nine months of 2021.

The increase in net sales over the first nine months of 2021 was primarily driven by $32.0 million in net sales, or 11.5%, reflecting the impact from our acquisition of Silicone Engineering, as well as higher net sales in the general industrial and EV/HEV markets, partially offset by lower net sales in the portable electronics market.

Net sales were unfavorably impacted by foreign currency fluctuations of $6.2 million, or 2.2%, due to the depreciation in value of the euro, British pound and Chinese renminbi relative to the U.S.

Operating income decreased by 20.9% in the third quarter of 2022 from the third quarter of 2021.

The decrease in operating income was also due to higher fixed overhead expenses, unfavorable yield performance, higher freight, duties and tariffs expenses, unfavorable productivity performance and a higher inventory reserves provision.

This was partially offset by the favorable impacts of commercial actions taken and higher volume and favorable absorption of fixed overhead costs, in addition to a $2.0 million favorable change in charges/benefits related to the UTIS fire.

As a percentage of net sales, operating income in the third quarter of 2022 was 12.9%, an approximately 560 basis point decrease as compared to the 18.5% reported in the third quarter of 2021.

Operating income decreased by 18.4% in the first nine months of 2022 from the first nine months of 2021.

The decrease in operating income was also due to higher fixed overhead expenses, unfavorable yield performance, higher freight, duties and tariffs expenses, unfavorable productivity performance and a higher inventory reserves provision.

This was partially offset by the favorable impacts of commercial actions taken, higher volume and favorable absorption of fixed overhead costs, in addition to a $7.0 million favorable change in charges/benefits related to the UTIS fire.

As a percentage of net sales, operating income in the first nine months of 2022 was 13.5%, an approximately 580 basis point decrease as compared to the 19.3% reported in the first nine months of 2021.

Supply constraints on raw material and labor availability moderated production levels, creating operational inefficiencies, which negatively impacted our gross margin.

Further, the recent COVID-19 outbreaks, particularly in Asia, adversely impacted our customers’ ability to continue manufacturing operations, which in turn negatively impacted our net sales in the first nine months of 2022.

The global supply chain disruptions experienced in 2022 to-date and their impacts to our net sales and gross margin are expected to continue further into 2022.

Three Months Ended Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Operating income (loss) $ 3,217 $ 16,997

EMS net sales decreased by 7.3% in the first quarter of 2023 compared to the first quarter of 2022.

The decrease in net sales over the first quarter of 2022 was primarily driven by lower net sales in the EV/HEV, portable electronics and general industrial markets, partially offset by higher net sales in the mass transit market.

Net sales were unfavorably impacted by foreign currency fluctuations of $2.9 million, or 2.6%, due to the depreciation in value of the euro, the Chinese renminbi and the British pound relative to the U.S.

We recognized operating income of $3.2 million in the first quarter of 2023 compared to operating income of $17.0 million in the first quarter of 2022.

The decrease in operating income was also due to lower volume and unfavorable mix, as well as a higher inventory reserves provision.

This was partially offset

by lower freight, duties and tariffs costs.

As a percentage of net sales, operating income in the first quarter of 2023 was 3.1% compared to 15.4% reported in the first quarter of 2022.

Three Months Ended

(Dollars in thousands) March 31, 2023 March 31, 2022

Net sales $ 5,738 $ 4,873

Operating income $ 1,891 $ 1,750 $ 5,501 $ 5,837

Net sales in this segment increased by 6.0% in the third quarter of 2022 from the third quarter of 2021.

The increase in net sales over the third quarter of 2021 was primarily driven by higher net sales in the general industrial market.

Net sales in this segment increased by 1.5% in the first nine months of 2022 from the first nine months of 2021.

The increase in net sales over the first nine months of 2021 was primarily driven by higher net sales in the general industrial market.

Operating income increased 8.1% in the third quarter of 2022 compared to the third quarter of 2021.

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

Operating income decreased 5.8% in the first nine months of 2022 compared to the first nine months of 2021.

The decrease in operating income was primarily driven by unfavorable product mix and unfavorable absorption of fixed overhead costs, partially offset by favorable productivity performance, favorable yield performance and higher volume.

As a percentage of net sales, operating income in the third quarter of 2022 was 33.5%, a 60 basis point increase as compared to 32.9% in the third quarter of 2021.

As a percentage of net sales, operating income in the first nine months of 2022 was 33.9%, a 260 basis point decrease as compared to the 36.5% reported in the first nine months of 2021.

Operating income (loss) $ 2,040 $ 1,590

Net sales in this segment increased by 17.8% in the first quarter of 2023 from the first quarter of 2022.

Operating income increased 28.3% in the first quarter of 2023 compared to the first quarter of 2022.

The increase in operating income was primarily driven by higher volume.

As a percentage of net sales, operating income in the first quarter of 2023 was 35.6%, a 300 basis point increase as compared to 32.6% in the first quarter of 2022.

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, 2022 December 31, 2021

(Dollars in thousands) March 31, 2023 December 31, 2022

United States $ 81,437 $ 119,931

3 unchanged sentences

Approximately $112.3 million of our cash and cash equivalents were held by non-U.S.

subsidiaries as of September 30, 2022.

We did not make any changes in the nine months ended September 30, 2022 to our position on the permanent reinvestment of our earnings from foreign operations.

subsidiaries as of March 31, 2023.

We did not make any changes in the three months ended March 31, 2023 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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Key Financial Position Accounts:

3 unchanged sentences

Borrowings under revolving credit facility $ 190,000 $ 215,000

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2021 to September 30, 2022 were as follows:

• Accounts receivable, net decreased 0.1% to $162.9 million as of September 30, 2022 from $163.1 million as of December 31, 2021.

The decrease from year-end was primarily due to the receipt or settlement of $6.3 million in recognized UTIS fire insurance receivables and a $3.8 million decrease in our income taxes receivable, partially offset by an increase in days sales outstanding, higher net sales at the end of the third quarter of 2022 compared to at the end of 2021.

• Inventories increased 30.2% to $173.6 million as of September 30, 2022, from $133.4 million as of December 31, 2021, 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 $290.0 million as of September 30, 2022 from $190.0 million as of December 31, 2021.

This was as a result of $100.0 million of borrowings under our revolving credit facility during the first nine months of 2022.

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.

Nine Months Ended

(Dollars in thousands) September 30, 2022 September 30, 2021

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2022 to March 31, 2023 were as follows:

• Cash and cash equivalents were $193.7 million as compared to $235.9 million as of December 31, 2022, a decrease of $42.1 million, or 17.9%.

This decrease was primarily due to a $25.0 million discretionary principal payment on our revolving credit facility, $16.4 million in capital expenditures and $2.5 million in tax payments related to net share settlement of equity awards.

• Accounts receivable, net decreased 1.6% to $174.6 million as of March 31, 2023 from $177.4 million as of December 31, 2022.

The decrease from year-end was primarily due to a $3.3 million decrease in our income taxes receivable, partially offset by higher net sales at the end of the first quarter of 2023 compared to at the end of 2022.

• Inventories decreased 2.9% to $177.1 million as of March 31, 2023, from $182.4 million as of December 31, 2022, primarily driven by higher inventory reserves provisions.

• Borrowings under revolving credit facility were $190.0 million as of March 31, 2023 compared to $215.0 million as of December 31, 2022.

This decrease was due to a $25.0 million discretionary principal payment on our revolving credit facility made at the end of the first quarter of 2023.

For additional information regarding this facility and the Fifth 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, 2023 March 31, 2022

Key Cash Flow Measures:

Net cash provided by operating activities $ 1,834 $ 106,115

Net cash provided by (used in) operating activities $ 1,835 $ (13,723)

Net cash used in investing activities $ (15,421) $ (25,987)

Net cash provided by (used in) financing activities $ 89,997 $ (30,844)

As of September 30, 2022, cash and cash equivalents were $236.5 million as compared to $232.3 million as of December 31, 2021, an increase of $4.2 million, or 1.8%.

This increase was primarily due to $100.0 million in borrowings under our revolving credit facility, partially offset by $87.0 million in capital expenditures and $10.8 million in tax payments related to net share settlement of equity awards.

Following the end of the third quarter, on November 1, 2022, the Company received from DuPont a notice of termination of the merger agreement, and pursuant to the terms of the merger agreement, the Company received a regulatory termination fee from DuPont in the amount of $162.5 million.

Net cash used in financing activities $ (29,366) $ (9,694)

In 2023, we expect capital spending to be in the range of approximately $65.0 million to $75.0 million.

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Restrictions on Payment of Dividends

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.

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

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

Our total net leverage ratio did not exceed 2.75 to 1.00 as of September 30, 2022.

Our total net leverage ratio did not exceed 2.75 to 1.00 as of March 31, 2023.

Contingencies

During the third quarter of 2022, 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 2023, 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.

Critical Accounting Policies

There were no material changes in our critical accounting policies during the third quarter of 2022.

There were no material changes in our critical accounting policies during the first quarter of 2023.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk during the third quarter of 2022.

There have been no material changes in our exposure to market risk during the first quarter of 2023.

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