ROGERS CORP 10-Q

Item 1. Financial Statements ROGERS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars and shares in thousands, except per share amounts) Three Months Ended March 31, 2023 March 31, 2022 Net sales $ 243,847 $ 248,266 Cost of sales 164,146 162,872 Gross margin 79,701 85,394 Selling, general and administrative expenses 60,085 57,705 Research and development expenses 9,586 8,260 Restructuring and impairment charges 10,501 69 Other operating (income) expense, net ( 219 ) ( 531 ) Operating income (loss) ( 252 ) 19,891 Equity income in unconsolidated joint ventures 76 1,275 Other income (expense), net 5 267 Interest expense, net ( 3,462 ) ( 1,069 ) Income (loss) before income taxes ( 3,633 ) 20,364 Income tax expense (benefit) ( 128 ) 3,764 Net income (loss) $ ( 3,505 ) $ 16,600 Basic earnings per share $ ( 0.19 ) $ 0.88 Diluted earnings per share $ ( 0.19 ) $ 0.87 Shares used in computing: Basic earnings per share 18,604 18,780 Diluted earnings per share 18,604 18,999 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 ROGERS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2023 March 31, 2022 Net income (loss) $ ( 3,505 ) $ 16,600 Foreign currency translation adjustment 9,656 ( 11,757 ) Pension and other postretirement benefits: Amortization of loss, net of tax (Note 4) 94 86 Other comprehensive income (loss) 9,750 ( 11,671 ) Comprehensive income (loss) $ 6,245 $ 4,929 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 ROGERS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) (Dollars and shares in thousands, except par value ) March 31, 2023 December 31, 2022 Assets Current assets Cash and cash equivalents $ 193,724 $ 235,850 Accounts receivable, less allowance for credit losses of $ 1,099 and $ 1,007 174,620 177,413 Contract assets 46,746 38,853 Inventories 177,089 182,402 Prepaid income taxes 3,908 4,042 Asbestos-related insurance receivables, current portion 3,881 3,881 Other current assets 11,913 17,426 Total current assets 611,881 659,867 Property, plant and equipment, net of accumulated depreciation of $ 392,217 and $ 381,584 361,527 358,415 Investments in unconsolidated joint ventures 12,841 14,082 Deferred income taxes 57,991 50,649 Goodwill 355,867 352,365 Other intangible assets, net of amortization 132,233 133,724 Pension assets 5,342 5,251 Asbestos-related insurance receivables, non-current portion 55,926 55,926 Other long-term assets 17,919 15,935 Total assets $ 1,611,527 $ 1,646,214 Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 52,156 $ 57,342 Accrued employee benefits and compensation 37,207 34,158 Accrued income taxes payable 4,553 5,504 Asbestos-related liabilities, current portion 4,968 4,968 Finance lease obligations, current portion 380 498 Other accrued liabilities 28,214 40,067 Total current liabilities 127,478 142,537 Borrowings under revolving credit facility 190,000 215,000 Pension and other postretirement benefits liabilities 1,540 1,501 Asbestos-related liabilities, non-current portion 59,996 60,065 Finance lease obligations, non-current portion 1,323 1,295 Non-current income tax 9,204 9,985 Deferred income taxes 24,026 23,557 Other long-term liabilities 19,702 19,808 Commitments and contingencies (Note 10 and Note 12) Shareholders’ equity Capital stock - $ 1 par value; 50,000 authorized shares; 18,609 and 18,574 shares issued and outstanding 18,609 18,574 Additional paid-in capital 140,214 140,702 Retained earnings 1,094,949 1,098,454 Accumulated other comprehensive loss ( 75,514 ) ( 85,264 ) Total shareholders' equity 1,178,258 1,172,466 Total liabilities and shareholders' equity $ 1,611,527 $ 1,646,214 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 ROGERS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2023 March 31, 2022 Operating Activities: Net income (loss) $ ( 3,505 ) $ 16,600 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 14,653 10,724 Equity compensation expense 2,053 3,202 Deferred income taxes ( 7,356 ) ( 2,013 ) Equity in undistributed income of unconsolidated joint ventures ( 76 ) ( 1,275 ) Dividends received from unconsolidated joint ventures 1,457 1,509 Pension and other postretirement benefits — 29 (Gain) loss on sale or disposal of property, plant and equipment 18 ( 15 ) UTIS fire fixed asset and inventory write-offs — 201 Provision (benefit) for credit losses 90 ( 142 ) Changes in assets and liabilities: Accounts receivable 2,566 ( 14,384 ) Proceeds from insurance/government subsidies related to operations 500 334 Contract assets ( 7,934 ) ( 3,121 ) Inventories 3,933 ( 19,935 ) Pension and postretirement benefit contributions ( 3 ) ( 24 ) Other current assets 5,445 ( 11,099 ) Accounts payable and other accrued expenses ( 8,766 ) ( 4,809 ) Other, net ( 1,240 ) 10,495 Net cash provided by (used in) operating activities 1,835 ( 13,723 ) Investing Activities: Disposition of business 989 — Capital expenditures ( 16,410 ) ( 28,249 ) Proceeds from insurance claims — 2,262 Net cash used in investing activities ( 15,421 ) ( 25,987 ) Financing Activities: Repayment of debt principal and finance lease obligations ( 25,118 ) ( 146 ) Line of credit issuance costs ( 1,742 ) — Payments of taxes related to net share settlement of equity awards ( 2,506 ) ( 10,498 ) Proceeds from issuance of shares to employee stock purchase plan — 950 Net cash used in financing activities ( 29,366 ) ( 9,694 ) Effect of exchange rate fluctuations on cash 826 ( 748 ) Net decrease in cash and cash equivalents ( 42,126 ) ( 50,152 ) Cash and cash equivalents at beginning of period 235,850 232,296 Cash and cash equivalents at end of period $ 193,724 $ 182,144 Supplemental Disclosures: Accrued capital additions $ 2,064 $ 14,021 Cash paid during the year for: Interest, net of amounts capitalized $ 3,547 $ 1,068 Income taxes $ 4,002 $ 7,600 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 ROGERS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (Dollars and shares in thousands) Three Months Ended March 31, 2023 March 31, 2022 Capital Stock Balance, beginning of period $ 18,574 $ 18,730 Shares issued for vested restricted stock units, net of shares withheld for taxes 35 67 Shares issued for employee stock purchase plan — 6 Balance, end of period 18,609 18,803 Additional Paid-In Capital Balance, beginning of period 140,702 163,583 Shares issued for vested restricted stock units, net of shares withheld for taxes ( 2,541 ) ( 10,565 ) Shares issued for employee stock purchase plan — 944 Equity compensation expense 2,053 3,202 Balance, end of period 140,214 157,164 Retained Earnings Balance, beginning of period 1,098,454 981,825 Net income (loss) ( 3,505 ) 16,600 Balance, end of period 1,094,949 998,425 Accumulated Other Comprehensive Loss Balance, beginning of period ( 85,264 ) ( 45,243 ) Other comprehensive income (loss) 9,750 ( 11,671 ) Balance, end of period ( 75,514 ) ( 56,914 ) Total Shareholders’ Equity $ 1,178,258 $ 1,117,478 The accompanying notes are an integral part of the condensed consolidated financial statements. 7 ROGERS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 – Basis of Presentation As used herein, the terms “Company,” “Rogers,” “we,” “us,” “our” and similar terms mean Rogers Corporation and its consolidated subsidiaries, unless the context indicates otherwise. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for their fair presentation in accordance with GAAP. All significant intercompany balances and transactions have been eliminated. Interim results are not necessarily indicative of results for a full year. For further information regarding our accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. Note 2 – Fair Value Measurements The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value: • Level 1 – Quoted prices in active markets for identical assets or liabilities. • Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. From time to time we enter into various instruments that require fair value measurement, including foreign currency contracts and copper derivative contracts. Derivative instruments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, were as follows: Derivative Instruments at Fair Value as of March 31, 2023 (Dollars in thousands) Level 1 Level 2 Level 3 Total (1) Foreign currency contracts $ — $ ( 106 ) $ — $ ( 106 ) Copper derivative contracts $ — $ 738 $ — $ 738 Derivative Instruments at Fair Value as of December 31, 2022 (Dollars in thousands) Level 1 Level 2 Level 3 Total (1) Foreign currency contracts $ — $ ( 82 ) $ — $ ( 82 ) Copper derivative contracts $ — $ 500 $ — $ 500 (1) All balances were recorded in the “Other current assets” or “Other accrued liabilities” line items in the condensed consolidated statements of financial position. For additional information on derivative contracts, refer to “Note 3 – Hedging Transactions and Derivative Financial Instruments.” Note 3 – Hedging Transactions and Derivative Financial Instruments We are exposed to certain risks related to our ongoing business operations. The primary risks being managed through our use of derivative instruments are foreign currency exchange rate risk and commodity pricing risk (primarily related to copper). We do not use derivative instruments for trading or speculative purposes. The valuation of derivative contracts used to manage each of foreign currency and commodity risks is described below: • Foreign Currency – The fair value of any foreign currency option derivative is based upon valuation models applied to current market information such as strike price, spot rate, maturity date and volatility, and by reference to market values resulting from an over-the-counter market or obtaining market data for similar instruments with similar characteristics. 8 • Commodity – The fair value of copper derivatives is computed using a combination of intrinsic and time value valuation models, which are collectively a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate and volatility. The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end. The time value valuation model incorporates changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative instrument’s strike price and the remaining time to the underlying copper derivative instrument’s expiration date from the period end date. The guidance for the accounting and disclosure of derivatives and hedging transactions requires companies to recognize all of their derivative instruments as either assets or liabilities at fair value in the condensed consolidated statements of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies for hedge accounting treatment as defined under the applicable accounting guidance. For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in the condensed consolidated statements of comprehensive income (loss). This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Foreign Currency During the three months ended March 31, 2023, we entered into U.S. dollar, Korean won, and Japanese yen forward contracts. We entered into these foreign currency forward contracts to mitigate certain global transactional exposures. These contracts do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred. As of March 31, 2023, the notional values of the remaining foreign currency forward contracts were as follows: Notional Values of Foreign Currency Derivatives USD/CNH $ 16,131,674 USD/EUR $ 8,500,000 KRW/USD ₩ 3,889,350,000 JPY/EUR ¥ 600,000,000 Commodity As of March 31, 2023, we had 12 outstanding contracts to hedge exposure related to the purchase of copper in our AES operating segment. These contracts are held with financial institutions and are intended to offset rising copper prices and do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred. As of March 31, 2023, the volume of our copper contracts outstanding was as follows: Volume of Copper Derivatives April 2023 - June 2023 69 metric tons per month July 2023 - September 2023 69 metric tons per month October 2023 - December 2023 69 metric tons per month January 2024 - March 2024 69 metric tons per month 9 Effects on Financial Statements The impacts from our derivative instruments on the statement of operations and statements of comprehensive income (loss) were as follows: Three Months Ended (Dollars in thousands) Financial Statement Line Item March 31, 2023 March 31, 2022 Foreign Currency Contracts Contracts not designated as hedging instruments Other income (expense), net $ 20 $ ( 682 ) Copper Derivative Contracts Contracts not designated as hedging instruments Other income (expense), net $ 35 $ 331 Note 4 – Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive loss by component were as follows: (Dollars and accompanying footnotes in thousands) Foreign Currency Translation Adjustments Pension and Other Postretirement Benefits (1) Total Balance as of December 31, 2022 $ ( 75,575 ) $ ( 9,689 ) $ ( 85,264 ) Other comprehensive income (loss) before reclassifications 9,656 — 9,656 Amounts reclassified from accumulated other comprehensive loss — 94 94 Net current-period other comprehensive income (loss) 9,656 94 9,750 Balance as of March 31, 2023 $ ( 65,919 ) $ ( 9,595 ) $ ( 75,514 ) Balance as of December 31, 2021 $ ( 35,641 ) $ ( 9,602 ) $ ( 45,243 ) Other comprehensive income (loss) before reclassifications ( 11,757 ) — ( 11,757 ) Amounts reclassified from accumulated other comprehensive loss — 86 86 Net current-period other comprehensive income (loss) ( 11,757 ) 86 ( 11,671 ) Balance as of March 31, 2022 $ ( 47,398 ) $ ( 9,516 ) $ ( 56,914 ) (1) Net of taxes of $ 1,899 and $ 1,926 as of March 31, 2023 and December 31, 2022, respectively. Net of taxes of $ 2,100 and $ 2,125 as of March 31, 2022 and December 31, 2021, respectively. Note 5 – Inventories Inventories, which are valued at the lower of cost or net realizable value, consisted of the following: (Dollars in thousands) March 31, 2023 December 31, 2022 Raw materials $ 87,397 $ 87,851 Work-in-process 48,259 45,100 Finished goods 41,433 49,451 Total inventories $ 177,089 $ 182,402 Note 6 – Goodwill and Other Intangible Assets Goodwill The changes in the net carrying amount of goodwill by operating segment were as follows: (Dollars in thousands) Advanced Electronics Solutions Elastomeric Material Solutions Other Total December 31, 2022 $ 115,352 $ 234,789 $ 2,224 $ 352,365 Foreign currency translation adjustment 1,212 2,290 — $ 3,502 March 31, 2023 $ 116,564 $ 237,079 $ 2,224 $ 355,867 10 Other Intangible Assets The gross and net carrying amounts, as well as the accumulated amortization of other intangible assets were as follows: March 31, 2023 December 31, 2022 (Dollars in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 176,359 $ 83,980 $ 92,379 $ 178,605 $ 85,569 $ 93,036 Technology 76,744 54,337 22,407 82,349 59,052 23,297 Trademarks and trade names 19,045 6,529 12,516 19,098 6,639 12,459 Covenants not to compete 1,497 858 639 1,919 1,199 720 Total definite-lived other intangible assets 273,645 145,704 127,941 281,971 152,459 129,512 Indefinite-lived other intangible asset 4,292 — 4,292 4,212 — 4,212 Total other intangible assets $ 277,937 $ 145,704 $ 132,233 $ 286,183 $ 152,459 $ 133,724 In the table above, gross carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations. Amortization expense was $ 3.3 million and $ 4.3 million for the three months ended March 31, 2023 and 2022, respectively. The estimated future amortization expense is $ 10.0 million for the remainder of 2023 and $ 12.3 million, $ 10.7 million, $ 10.3 million and $ 9.9 million for 2024, 2025, 2026 and 2027, respectively. The weighted average amortization period as of March 31, 2023, by definite-lived other intangible asset class, was as follows: Definite-Lived Other Intangible Asset Class Weighted Average Remaining Amortization Period Customer relationships 7.6 years Technology 3.5 years Trademarks and trade names 10.0 years Covenants not to compete 0.8 years Total definite-lived other intangible assets 7.1 years Note 7 – Earnings Per Share Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. The following table sets forth the computation of basic and diluted earnings per share: (Dollars and shares in thousands, except per share amounts) Three Months Ended March 31, 2023 March 31, 2022 Numerator: Net income (loss) $ ( 3,505 ) $ 16,600 Denominator: Weighted-average shares outstanding - basic 18,604 18,780 Effect of dilutive shares — 219 Weighted-average shares outstanding - diluted 18,604 18,999 Basic earnings per share $ ( 0.19 ) $ 0.88 Diluted earnings per share $ ( 0.19 ) $ 0.87 Dilutive shares are calculated using the treasury stock method and primarily include unvested restricted stock units. Anti-dilutive shares are excluded from the calculation of diluted shares and diluted earnings per share. For the three months ended March 31, 2023 and 2022, 57,000 shares and 33,000 shares were excluded, respectively. 11 Note 8 – Capital Stock and Equity Compensation Equity Compensation Performance-Based Restricted Stock Units As of March 31, 2023, we had performance-based restricted stock units from 2023 and 2021 outstanding. These awards generally cliff vest at the end of a three-year measurement period. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the measurement period. Participants are eligible to be awarded shares ranging from 0 % to 200 % of the original award amount, based on certain defined performance measures. The outstanding awards have one measurement criterion: the three-year total shareholder return (TSR) on our capital stock as compared to that of a specified group of peer companies. The TSR measurement criterion of the awards is considered a market condition. As such, the fair value of this measurement criterion was determined on the grant date using a Monte Carlo simulation valuation model. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period with no changes for final projected payout of the awards. We account for forfeitures as they occur. The following table sets forth the assumptions used in the Monte Carlo calculation for each material award granted in 2023: February 9, 2023 Expected volatility 53.2 % Expected term (in years) 2.9 Risk-free interest rate 4.08 % Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility. Expected term – We use the vesting period of the award to determine the expected term assumption for the Monte Carlo simulation valuation model. Risk-free interest rate – We use an implied “spot rate” yield on U.S. Treasury Constant Maturity rates as of the grant date for our assumption of the risk-free interest rate. Expected dividend yield – We do not currently pay dividends on our capital stock; therefore, a dividend yield of 0 % was used in the Monte Carlo simulation valuation model. A summary of activity of the outstanding performance-based restricted stock units for the three months ended March 31, 2023 is presented below: Performance-Based Restricted Stock Units Awards outstanding as of December 31, 2022 65,513 Awards granted 45,591 Stock issued ( 8,775 ) Awards cancelled ( 30,963 ) Awards outstanding as of March 31, 2023 71,366 We recognized $ 0.1 million and $ 1.1 million of compensation contra-expense and expense, respectively, for performance-based restricted stock units for the three months ended March 31, 2023 and 2022, respectively. Time-Based Restricted Stock Units As of March 31, 2023, we had time-based restricted stock unit awards from 2023, 2022, 2021 and 2020 outstanding. The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed subsequent to the last grant anniversary date. Each time-based restricted stock unit represents a right to receive one share of Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur. 12 A summary of activity of the outstanding time-based restricted stock units for the three months ended March 31, 2023 is presented below: Time-Based Restricted Stock Units Awards outstanding as of December 31, 2022 124,284 Awards granted 60,499 Stock issued ( 42,326 ) Awards cancelled ( 20,721 ) Awards outstanding as of March 31, 2023 121,736 We recognized $ 2.1 million and $ 2.1 million of compensation expense for time-based restricted stock units for the three months ended March 31, 2023 and 2022, respectively. Deferred Stock Units We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13 -month anniversary of the grant date unless the individual elects to defer the receipt of those shares. Each deferred stock unit results in the issuance of one share of Rogers’ capital stock. The grant of deferred stock units is typically done annually during the second quarter of each year. The fair value of the award is determined by the market value of the underlying stock price at the grant date. A summary of activity of the outstanding deferred stock units for the three months ended March 31, 2023 is presented below: Deferred Stock Units Awards outstanding as of December 31, 2022 6,850 Awards granted — Stock issued — Awards outstanding as of March 31, 2023 6,850 We recognized no compensation expense for deferred stock units for the three months ended March 31, 2023 and 2022, respectively. Note 9 – Debt In October 2020, we entered into the Fourth Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Fourth Amended Credit Agreement). The Fourth Amended Credit Agreement amended and restated the Third Amended Credit Agreement, and provided for a revolving credit facility with up to a $ 450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, in addition to a $ 175.0 million accordion feature. Borrowings could have been used to finance working capital needs, for letters of credit and for general corporate purposes in the ordinary course of business, including the financing of permitted acquisitions (as defined in the Fourth Amended Credit Agreement). The Fourth Amended Credit Agreement extended the maturity, the date on which all amounts borrowed or outstanding under the Fourth Amended Credit Agreement are due, from February 17, 2022 to March 31, 2024. All obligations under the Fourth Amended Credit Agreement were guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Fourth Amended Credit Agreement (the Previous Guarantors). The obligations were also secured by a Fourth Amended and Restated Pledge and Security Agreement, dated as of October 16, 2020, entered into by us and the Previous Guarantors which granted to the administrative agent, for the benefit of the lenders, a security interest, subject to certain exceptions, in substantially all of our and the Previous Guarantors’ non-real estate assets. These assets included, but were not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries. On March 5, 2021, the U.K. Financial Conduct Authority (FCA) publicly announced that immediately after December 31, 2021, publication of most Euro, Swiss Franc, Japanese Yen and Pound Sterling LIBOR settings will permanently cease. On October 15, 2021, Rogers Corporation and JPMorgan Chase Bank, N.A. entered into an amendment (Amendment No. 1) to the Fourth Amended Credit Agreement to adopt a new benchmark interest rate to replace the discontinued LIBOR reference rates. Borrowings under the Fourth Amended Credit Agreement could have been made as alternate base rate loans, euro-currency loans, or RFR loans. Alternate base rate loans bore interest at a base reference rate plus a spread of 62.5 to 100.0 basis points, depending on our leverage ratio. The base reference rate was the greatest of (a) the prime rate in effect on such day, (b) the NYFRB rate in effect on such day plus ½ of 1%, and (c) the adjusted LIBOR for a one-month interest period in dollars on such day (or if such day is not a business day, the immediately preceding business day) plus 1 %. Euro-currency loans bore interest 13 based on adjusted LIBOR plus a spread of 162.5 to 200.0 basis points, depending on our leverage ratio. RFR loans bore interest based upon the Sterling Overnight Index Average (SONIA) plus 0.0326 % plus a spread of 162.5 to 200.0 basis points. In addition to interest payable on the principal amount of indebtedness outstanding, we incurred an annual fee of 25 to 35 basis points (based upon our leverage ratio), paid quarterly, of the unused amount of the lenders’ commitments under the Fourth Amended Credit Agreement. The Fourth Amended Credit Agreement contained customary representations and warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated. If an event of default occurred, the lenders may have, among other things, terminated their commitments and declared all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The financial covenants included requirements to maintain (1) a total net leverage ratio of no more than 3.25 to 1.00, subject to a one-time election to increase the maximum total net leverage ratio to 3.50 to 1.00 for one fiscal year in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than 3.00 to 1.00. We were permitted to net up to $ 50.0 million of unrestricted domestic cash and cash equivalents against indebtedness in the calculation of the total net leverage ratio. The Fourth Amended Credit Agreement generally permitted us to pay cash dividends to our shareholders, provided that (i) no default or event of default had occurred and was continuing or would have resulted from the dividend payment and (ii) our total net leverage ratio did not exceed 2.75 to 1.00. If our total net leverage ratio exceeded 2.75 to 1.00, we may have nonetheless made up to $ 20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default had occurred and was continuing or would have resulted from the payments. On March 24, 2023, we entered into a Fifth Amended and Restated Credit Agreement (the Fifth Amended Credit Agreement) with each of the lenders party thereto, JPMorgan Chase Bank, N.A. as administrative agent, and HSBC Bank USA, National Association, Wells Fargo Bank, National Association, Citibank, N.A. and Citizens Bank, N.A. as Co-Syndication Agents. The Fifth Amended Credit Agreement amends and restates the Fourth Amended Credit Agreement, and provides for (1) a revolving credit facility with up to $ 450.0 million of revolving loans, with sub-limits for multicurrency borrowings, letters of credit and swing-line notes, and (2) a $ 225.0 million expansion feature. Borrowings may be used to finance working capital needs, for letters of credit and for the general corporate purposes in the ordinary course of business, including the financing of permitted acquisitions (as defined in the Fifth Amended Credit Agreement). The Fifth Amended Credit Agreement extends the maturity, the date on which all amounts borrowed or outstanding under the Fifth Amended Credit Agreement are due, from March 31, 2024 to March 24, 2028. All obligations under the Fifth Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Fifth Amended Credit Agreement (the Guarantors). The obligations are also secured by a Fifth Amended and Restated Pledge and Security Agreement, dated as of March 24, 2023, entered into by us and the Guarantors which grants to the administrative agent, for the benefit of the lenders, a security interest, subject to certain exceptions, in substantially all of the non-real estate assets of ours and the Guarantors. These assets included, but were not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries. Borrowings under the Fifth Amended Credit Agreement bear interest based on one of two options. Alternate base rate loans will bear interest at a rate that includes a base reference rate plus a spread of 62.5 to 100.0 basis points, depending on our leverage ratio. The base reference rate will be the greater of the (1) prime rate, (2) federal funds effective rate plus 50 basis points, and (3) the one-month Term Secured Overnight Financial Rate (SOFR) plus 110 basis points. Loans bearing an interest rate determined by reference to the Adjusted Term SOFR Rate, the Adjusted Euro Interbank Offered Rate (EURIBOR), or the Adjusted (Tokyo Interbank Offered Rate (TIBOR) (each as defined in the Fifth Amended Credit Agreement) will bear interest based on screen rate plus a spread of 162.5 to 200.0 basis points, depending on our leverage ratio. Based on our leverage ratio as of March 31, 2023, the spread was 175.0 basis points. In addition to interest payable on the principal amount of indebtedness outstanding, we incur an annual fee of 25 to 35 basis points (based upon our leverage ratio), paid quarterly, of the unused amount of the lenders’ commitments under the Fifth Amended Credit Agreement. The Fifth Amended Credit Agree ment contains customary representations and warranties, covenants, mandatory prepayments and events of default under which the Company’s payment obligations may be accelerated. The financial covenants include a requirement to maintain (1) a total net leverage ratio of no more than 3.25 to 1.00, subject to a one-time election to increase the maximum total net leverage ratio to 3.75 to 1.00 for one fiscal year in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than 3.00 to 1.00. We are permitted to net up to $ 50.0 million of unrestricted domestic cash and cash equivalents in the calculation of the total net leverage ratio. 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 did not exceed 2.75 to 1.00. If our total net leverage ratio exceeded 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 14 payments. Our total net leverage ratio did not exceed 2.75 to 1.00 and our interest coverage ratio was greater than or equal to 3.00 to 1.00 as of March 31, 2023. There were no borrowings under the Fifth Amended Credit Agreement for the three months ended March 31, 2023 and there were no borrowings under the Fourth Amended Credit Agreement for the three months ended March 31, 2022. We are not required to make any quarterly principal payments under the Fifth Amended Credit Agreement, and we were not required to make any quarterly principal payments under the Fourth Amended Credit Agreement. We made a $ 25.0 million of discretionary principal payment for the three months ended March 31, 2023, and no discretionary principal payments for the three months ended March 31, 2022. We had $ 190.0 million outstanding borrowings under our revolving credit facility as of March 31, 2023, and $ 215.0 million as of December 31, 2022. We had $ 2.4 million and $ 0.9 million of outstanding line of credit issuance costs as of March 31, 2023 and December 31, 2022, respectively, which will be amortized over the life of the Fifth Amended Credit Agreement. Note 10 - Leases Finance Leases Amortization expense related to our finance lease right-of-use assets, which is primarily included in the “Cost of sales” line item of the condensed consolidated statements of operations, was immaterial for each of the three-month period ended March 31, 2023 and 2022. Interest expense related to our finance lease obligations, which is included in the “Interest expense, net” line item of the condensed consolidated statements of operations, was immaterial for each of the three-month periods ended March 31, 2023 and 2022. Operating Leases We have operating leases primarily related to building space and vehicles. Renewal options are included in the lease term to the extent we are reasonably certain to exercise the option. The exercise of lease renewal options is at our sole discretion. We account for lease components separately from non-lease components. The incremental borrowing rate represents our ability to borrow on a collateralized basis over a similar lease term. Our expenses and payments for operating leases were as follows: Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 Operating leases expense $ 991 $ 692 Short-term leases expense $ 138 $ 122 Payments on operating lease obligations $ 807 $ 869 Lease Balances in Statements of Financial Position Our assets and liabilities balances related to finance and operating leases reflected in the condensed consolidated statements of financial position were as follows: (Dollars in thousands) Location in Statements of Financial Position March 31, 2023 December 31, 2022 Finance lease right-of-use assets Property, plant and equipment, net $ 1,752 $ 1,749 Operating lease right-of-use assets Other long-term assets $ 13,219 $ 13,013 Finance lease obligations, current portion Finance lease obligations, current portion $ 380 $ 498 Finance lease obligations, non-current portion Finance lease obligations, non-current portion $ 1,323 $ 1,295 Total finance lease obligations $ 1,703 $ 1,793 Operating lease obligations, current portion Other accrued liabilities $ 3,175 $ 2,842 Operating lease obligations, non-current portion Other long-term liabilities $ 10,633 $ 10,689 Total operating lease obligations $ 13,808 $ 13,531 15 Net Future Minimum Lease Payments The following table includes future minimum lease payments under finance and operating leases together with the present value of the net future minimum lease payments as of March 31, 2023: Finance Operating (Dollars in thousands) Leases Signed Less: Leases Not Yet Commenced Leases in Effect Leases Signed Less: Leases Not Yet Commenced Leases in Effect 2023 353 ( 7 ) 346 2,953 ( 87 ) 2,866 2024 416 ( 9 ) 407 3,082 ( 194 ) 2,888 2025 416 ( 10 ) 406 2,651 ( 178 ) 2,473 2026 409 ( 10 ) 399 2,216 ( 111 ) 2,105 2027 199 ( 10 ) 189 1,371 ( 6 ) 1,365 Thereafter 149 ( 2 ) 147 4,718 — 4,718 Total lease payments 1,942 ( 48 ) 1,894 16,991 ( 576 ) 16,415 Less: Interest ( 197 ) 6 ( 191 ) ( 2,647 ) 40 ( 2,607 ) Present Value of Net Future Minimum Lease Payments 1,745 ( 42 ) 1,703 14,344 ( 536 ) 13,808 The following table includes information regarding the lease term and discount rates utilized in the calculation of the present value of net future minimum lease payments: Finance Leases Operating Leases Weighted Average Remaining Lease Term 4.5 years 6.3 years Weighted Average Discount Rate 5.55 % 4.97 % Note 11 – Pension Benefits and Other Postretirement Benefits Pension and Other Postretirement Benefit Plans As of March 31, 2023, we had one qualified noncontributory defined benefit pension plan, the Rogers Corporation Employees’ Pension Plan (the Union Plan), which was frozen and ceased accruing benefits in 2013. Additionally, we sponsor other postretirement benefit plans, including multiple fully insured or self-funded medical plans and life insurance plans for certain retirees. The measurement date for all plans is December 31 st for each respective plan year. Components of Net Periodic Benefit (Credit) Cost The components of net periodic benefit (credit) cost were as follows: Pension Benefits Other Postretirement Benefits Three Months Ended Three Months Ended March 31, March 31, (Dollars in thousands) 2023 2022 2023 2022 Service cost $ — $ — $ 19 $ 10 Interest cost 268 191 17 8 Expected return of plan assets ( 356 ) ( 340 ) — — Amortization of prior service credit — — — — Amortization of net loss (gain) 122 111 ( 2 ) — Net periodic benefit (credit) cost $ 34 $ ( 38 ) $ 34 $ 18 Employer Contributions There were no required or voluntary contributions made to the Union Plan for each of the three months ended March 31, 2023 and 2022. Additionally, we are no t required to make additional contributions to the Union Plan for the remainder of 2023. As there is no funding requirement for the other postretirement benefit plans, we funded these benefit payments as incurred, which were immaterial for each of the three months ended March 31, 2023 and 2022, using cash from operations. 16 Note 12 – Commitments and Contingencies We are currently engaged in the following material environmental and legal proceedings: Voluntary Corrective Action Program Our location in Rogers, Connecticut is part of the Connecticut Voluntary Corrective Action Program (VCAP). As part of this program, we partnered with the Connecticut Department of Energy and Environmental Protection (CT DEEP) to determine the corrective actions to be taken at the site related to contamination issues. We evaluated this matter and completed internal due diligence work related to the site in the fourth quarter of 2015. Remediation activities on the site are ongoing and are recorded as reductions to the accrual as they are incurred. We incurred $ 2.0 million of aggregate remediation costs through March 31, 2023, and the accrual for future remediation efforts is $ 0.7 million. Asbestos Overview We, like many other industrial companies, have been named as a defendant in a number of lawsuits filed in courts across the country by persons alleging personal injury from exposure to products containing asbestos. We have never mined, milled, manufactured or marketed asbestos; rather, we made and provided to industrial users a limited number of products that contained encapsulated asbestos, but we stopped manufacturing these products in the late 1980s. Most of the claims filed against us involve numerous defendants, sometimes as many as several hundred. The following table summarizes the change in number of asbestos claims outstanding for the three months ended March 31, 2023: Asbestos Claims Claims outstanding as of January 1, 2023 537 New claims filed 39 Pending claims concluded (1) 18 Claims outstanding as of March 31, 2023 594 (1) For the three months ended March 31, 2023, 17 claims were dismissed and 1 claim was settled. Settlements were immaterial for the three months ended March 31, 2023. Impact on Financial Statements We recognize a liability for asbestos-related contingencies that are probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos-related matters, we record asbestos-related insurance receivables that are deemed probable. The liability projection period covers all current and future indemnity and defense costs through 2064, which represents the expected end of our asbestos liability exposure with no further ongoing claims expected beyond that date. This conclusion was based on our history and experience with the claims data, the diminished volatility and consistency of observable claims data, the period of time that has elapsed since we stopped manufacturing products that contained encapsulated asbestos and an expected downward trend in claims due to the average age of our claimants, which is approaching the average life expectancy. To date, the indemnity and defense costs of our asbestos-related product liability litigation have been substantially covered by insurance. Although we have exhausted coverage under some of our insurance policies, we believe that we have applicable primary, excess and/or umbrella coverage for claims arising with respect to most of the years during which we manufactured and marketed asbestos-containing products. In addition, we have entered into a cost sharing agreement with most of our primary, excess and umbrella insurance carriers to facilitate the ongoing administration and payment of claims covered by the carriers. The cost sharing agreement may be terminated by any party, but will continue until a party elects to terminate it. As of the filing date for this report, the agreement has not been terminated, and no carrier had informed us that it intends to terminate the agreement. We expect to continue to exhaust individual primary, excess and umbrella coverages over time, and there is no assurance that such exhaustion will not accelerate due to additional claims, damages and settlements or that coverage will be available as expected. We are responsible for uninsured indemnity and defense costs, and we incurred an immaterial amount of expenses for each of the three month periods ended March 31, 2023 and 2022, respectively, related to such costs. The amounts recorded for the asbestos-related liability and the related insurance receivables are based on facts known at the time and a number of assumptions. However, projecting for future events, such as the number of new claims to be filed each year, the average cost of disposing of such claims, the length of time it takes to dispose of such claims, coverage issues among insurers and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual liability and insurance recoveries for us to be higher or lower than those projected or recorded. 17 Changes recorded in the estimated liability and estimated insurance recovery based on projections of asbestos litigation and corresponding insurance coverage, result in the recognition of expense or income. Our projected asbestos-related liabilities and insurance receivables were as follows: (Dollars in thousands) March 31, 2023 December 31, 2022 Asbestos-related liabilities $ 64,964 $ 65,033 Asbestos-related insurance receivables $ 59,807 $ 59,807 General In addition to the above issues, the nature and scope of our business brings us in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject us to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. We have established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation will have a material adverse impact on our results of operations, financial position or cash flows. Note 13 – Income Taxes 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. The total amount of unrecognized tax benefits as of March 31, 2023 was $ 9.0 million, of which $ 7.8 million would affect our effective tax rate if recognized. Additionally, the balance of unrecognized tax benefits as of March 31, 2023 also included $ 1.1 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of March 31, 2023, we had $ 1.4 million accrued for the payment of interest. We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2018 through 2022 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state, local and foreign examinations by tax authorities for the years before 2018. Note 14 – Operating Segment Information Our reporting structure is comprised of the following strategic operating segments: AES and EMS. The remaining operations, which represent our non-core businesses, are reported in the Other operating segment. Our AES operating segment designs, develops, manufactures and sells circuit materials, ceramic substrate materials, busbars and cooling solutions for applications in electric and hybrid electric vehicles (EV/HEV), automotive (i.e., advanced driver assistance systems (ADAS)), aerospace and defense (i.e., antenna systems, communication systems and phased array radar systems), renewable energy (i.e., wind and solar), wireless infrastructure (i.e., power amplifiers, antennas and small cells), mass transit, industrial (variable frequency drives), connected devices (i.e., mobile internet devices and thermal solutions) and wired infrastructure (i.e., computing and internet protocol (IP) infrastructure) markets. Our EMS operating segment designs, develops, manufactures and sells engineered material solutions for a wide variety of applications and markets. These include polyurethane and silicone materials used in cushioning, gasketing and sealing, and vibration management applications for EV/HEV, general industrial, portable electronics, automotive, mass transit, aerospace and defense and footwear and impact mitigation markets; customized silicones used in flex heater and semiconductor thermal applications for EV/HEV, general industrial, portable electronics, automotive, mass transit, aerospace and defense and medical markets; and polytetrafluoroethylene and ultra-high molecular weight polyethylene materials used in wire and cable protection, electrical insulation, conduction and shielding, hose and belt protection, vibration management, cushioning, gasketing and sealing, and venting applications for EV/HEV, general industrial, automotive and aerospace and defense markets. Our Other operating segment consists of elastomer components for applications in the general industrial market, as well as elastomer floats for level sensing in fuel tanks, motors, and storage tanks applications in the general industrial and automotive markets. 18 The following table presents a disaggregation of revenue from contracts with customers and other pertinent financial information, for the periods indicated; inter-segment sales have been eliminated from the net sales data: (Dollars in thousands) Advanced Electronics Solutions Elastomeric Material Solutions Other Total Three Months Ended March 31, 2023 Net sales - recognized over time $ 62,419 $ 8,966 $ 3,911 $ 75,296 Net sales - recognized at a point in time 73,449 93,275 1,827 168,551 Total net sales $ 135,868 $ 102,241 $ 5,738 $ 243,847 Operating income $ ( 5,509 ) $ 3,217 $ 2,040 $ ( 252 ) Three Months Ended March 31, 2022 Net sales - recognized over time $ 70,486 $ 3,046 $ 4,373 $ 77,905 Net sales - recognized at a point in time 62,667 107,194 500 170,361 Total net sales $ 133,153 $ 110,240 $ 4,873 $ 248,266 Operating income $ 1,304 $ 16,997 $ 1,590 $ 19,891 Net sales by operating segment and by geographic area were as follows: (Dollars in thousands) Net Sales (1) Region/Country Advanced Electronics Solutions Elastomeric Material Solutions Other Total Three Months Ended March 31, 2023 United States $ 21,549 $ 41,869 $ 1,131 $ 64,549 Other Americas 2,301 9,256 131 11,688 Total Americas 23,850 51,125 1,262 76,237 China 38,436 20,175 2,399 61,010 Other APAC 24,837 6,995 522 32,354 Total APAC 63,273 27,170 2,921 93,364 Germany 24,001 8,034 143 32,178 Other EMEA 24,744 15,912 1,412 42,068 Total EMEA 48,745 23,946 1,555 74,246 Total net sales $ 135,868 $ 102,241 $ 5,738 $ 243,847 Three Months Ended March 31, 2022 United States $ 29,207 $ 45,389 $ 843 $ 75,439 Other Americas 973 2,587 168 3,728 Total Americas 30,180 47,976 1,011 79,167 China 36,079 30,987 1,814 68,880 Other APAC 20,097 6,716 508 27,321 Total APAC 56,176 37,703 2,322 96,201 Germany 20,553 8,738 270 29,561 Other EMEA 26,244 15,823 1,270 43,337 Total EMEA 46,797 24,561 1,540 72,898 Total net sales $ 133,153 $ 110,240 $ 4,873 $ 248,266 (1) Net sales are allocated to countries based on the location of the customer. The table above lists individual countries with 10% or more of net sales for the periods indicated. Revenue from Contracts with Customers We have contract assets primarily related to unbilled revenue for revenue recognized related to products that are deemed to have no alternative use whereby we have the right to payment. Revenue is recognized in advance of billing to the customer in these circumstances as billing is typically performed at the time of shipment to the customer. The unbilled revenue is included in contract assets on the condensed consolidated statements of financial position. 19 Contract assets by operating segment were as follows: (Dollars in thousands) March 31, 2023 December 31, 2022 Advanced Electronics Solutions 37,862 $ 33,736 Elastomeric Material Solutions 5,409 1,584 Other 3,475 3,533 Total contract assets 46,746 $ 38,853 We did not have any contract liabilities as of March 31, 2023 or December 31, 2022. No impairment losses were recognized for the three-month periods ended March 31, 2023 and 2022, respectively, on any receivables or contract assets arising from our contracts with customers. Note 15 – Supplemental Financial Information Restructuring and Impairment Charges The components of “Restructuring and impairment charges” line item in the condensed consolidated statements of operations, which contains restructuring charges and related expenses, as well as impairment charges, were as follows: Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 Restructuring charges Manufacturing footprint optimization $ — $ 69 Global workforce reduction 7,028 — Facility consolidations 3,473 — Total restructuring charges 10,501 69 Total restructuring and impairment charges $ 10,501 $ 69 Allocation of Restructuring and Impairment Charges to Operating Segments The following table summarizes the allocation of restructuring and impairment charges to our operating segments: Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 Advanced Electronics Solutions Allocated restructuring charges $ 5,446 $ 69 Elastomeric Material Solutions Allocated restructuring charges 5,055 — Total restructuring and impairment charges $ 10,501 $ 69 Restructuring Charges - Global Workforce Reduction On February 16, 2023, we announced a reduction in force plan of our global workforce that is expected to be completed in the first half of 2023. The plan is expected to significantly reduce our manufacturing costs and operating expenses. We estimate that we will incur approximately $ 7.5 million to $ 8.5 million in pre-tax restructuring charges related to this plan, all of which are expected to be in the form of cash-based expenditures and substantially all of which are expected to be related to employee severance and other termination benefits. (Dollars in thousands) Global Workforce Reduction Restructuring Severance and Related Benefits Balance as of December 31, 2022 $ — Provisions 6,996 Payments ( 2,368 ) Foreign currency translation adjustment 61 Balance as of March 31, 2023 $ 4,689 20 Restructuring Charges - Facility Consolidations In late 2022 and early 2023, we announced our intention to exit certain facilities in the U.S. and Asia. The plan is expected to significantly reduce our manufacturing costs and operating expenses. We estimate that we will incur approximately $ 5.5 million to $ 6.5 million in pre-tax restructuring charges related to these facility consolidations, most of which are expected to be in the form of accelerated depreciation. As part of our facility consolidations plan, on February 17, 2023, we entered into an asset purchase agreement to sell our high-performance engineered cellular elastomer business in our EMS operating segment for a purchase price of $ 1.8 million. The first phase of the deal, which pertained to the net assets other than the land and building, was completed in late March 2023, while the second phase, which pertains to the sale of the land and building, is expected to be completed in the second quarter of 2023. Of the $ 1.8 million purchase price, $ 1.0 million and $ 0.8 million was allocated to the first and second phases of the deal, respectively. First phase of the deal included $ 3.7 million in assets and $ 3.1 million in liabilities. The assets were primarily comprised of accounts receivable, contract assets and inventories, while the liabilities primarily comprised of accounts payable and other accrued liabilities, along with the previously recognized accrual against the net assets of the business based on the estimated fair value of the business in December 2022. We incurred $ 1.2 million of selling costs in the first quarter of 2023, which were recorded in “Selling, general and administrative expenses” in our condensed consolidated statements of operations. Other Operating (Income) Expense, Net The components of “Other operating (income) expense, net” line item in the condensed consolidated statements of operations, were as follows: Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 UTIS fire Inventory charges — 201 Professional services 263 434 Lease obligations — 232 Compensation & benefits — 796 Other — 11 Insurance recoveries ( 500 ) ( 2,190 ) Total UTIS fire ( 237 ) ( 516 ) (Gain) loss on sale or disposal of property, plant and equipment 18 ( 15 ) Total other operating (income) expense, net $ ( 219 ) $ ( 531 ) In early February 2021, there was a fire at our UTIS manufacturing facility in Ansan, South Korea, which manufactures eSorba® polyurethane foams used in portable electronics and display applications. The site was safely evacuated and there were no reported injuries; however, there was extensive damage to the manufacturing site and some damage to nearby property. Commercial production at our new location in Siheung, South Korea commenced in late January 2023. In connection with the UTIS fire, we recognized insurance recoveries of $ 0.5 million related to our ongoing insurance claims for business interruption and property damage for the three months ended March 31, 2023. We incurred $ 0.3 million for various professional services for the three months ended March 31, 2023, in connection with the pursuit of our insurance claims. In connection with the UTIS fire, we recognized insurance recoveries of $ 2.2 million related to our ongoing insurance claim for property damage and compensation and benefits of hourly employees for the three months ended March 31, 2022. We incurred $ 0.4 million for various professional services for the three months ended March 31, 2022, in connection with the assessment of the fire and the efforts to rebuild and resume operations. Further, we incurred $ 0.8 million for compensation and benefits for UTIS manufacturing employees subsequent to the fire for the three months ended March 31, 2022. 21 Interest Expense, Net The components of “Interest expense, net” line item in the condensed consolidated statements of operations, were as follows: Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 Interest on revolving credit facility $ ( 3,380 ) $ ( 839 ) Line of credit fees ( 302 ) ( 138 ) Debt issuance amortization costs ( 282 ) ( 179 ) Interest income 505 108 Other ( 3 ) ( 21 ) Total interest expense, net $ ( 3,462 ) $ ( 1,069 )