ROGERS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Position As used herein, the “Company,” “Rogers,” “we,” “us,” “our” and similar terms include Rogers Corporation and its subsidiaries, unless the context indicates otherwise. Forward-Looking Statements This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such statements are generally accompanied by words such as “anticipate,” “assume,” “believe,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “seek,” “target” or similar expressions that convey uncertainty as to future events or outcomes. Forward-looking statements are based on assumptions and beliefs that we believe to be reasonable; however, assumed facts almost always vary from actual results, and the differences between assumed facts and actual results could be material depending upon the circumstances. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and based on assumptions believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur or be achieved or accomplished. Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation: • the duration and impacts of the novel coronavirus (COVID-19) global pandemic and efforts to contain its transmission and distribute vaccines, including the effect of these factors on our business, suppliers, supply chains, customers, end users and economic conditions generally; • failure to capitalize on, volatility within, or other adverse changes with respect to the Company’s growth drivers, including advanced mobility and advanced connectivity, such as delays in adoption or implementation of new technologies; • 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, Germany, Belgium, England, South Korea and Hungary where we maintain significant manufacturing, sales or administrative operations; • the trade policy dynamics between the U.S. and China reflected in trade agreement negotiations, the imposition of tariffs and other trade restrictions, as well as the potential for U.S.-China supply chain decoupling; • fluctuations in foreign currency exchange rates; • our ability to develop innovative products and the extent to which they are incorporated into end-user products and systems; • the extent to which end-user products and systems incorporating our products achieve commercial success; • the ability and willingness of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner; • intense global competition affecting both our existing products and products currently under development; • business interruptions due to catastrophes or other similar events, such as natural disasters, war, terrorism or public health crises; • the impact of sanctions, export controls and other foreign asset or investment restriction; • failure to realize, or delays in the realization of, anticipated benefits of acquisitions and divestitures due to, among other things, the existence of unknown liabilities or difficulty integrating acquired businesses; • our ability to attract and retain management and skilled technical personnel; • our ability to protect our proprietary technology from infringement by third parties and/or allegations that our technology infringes third party rights; • changes in effective tax rates or tax laws and regulations in the jurisdictions in which we operate; 22 • failure to comply with financial and restrictive covenants in our credit agreement or restrictions on our operational and financial flexibility due to such covenants; • the outcome of ongoing and future litigation, including our asbestos-related product liability litigation; • changes in environmental laws and regulations applicable to our business; • disruptions in, or breaches of, our information technology systems; and • 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. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes that appear elsewhere in this Form 10-Q along with our audited consolidated financial statements and the related notes thereto in our Annual Report. Company Background and Strategy Rogers Corporation designs, develops, manufactures and sells high-performance and high-reliability engineered materials and components to meet our customers’ demanding challenges. We operate two strategic operating segments: Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS). The remaining operations, which represent our non-core businesses, are reported in our Other operating segment. 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 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. 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 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 23 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 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 On November 1, 2021, we entered into a definitive merger agreement to be acquired by DuPont de Nemours, Inc. (DuPont) in an all-cash transaction at a price of $277.00 per share of the Company’s capital stock. The merger agreement provided for the acquisition of Rogers Corporation by DuPont through the merger of Cardinalis Merger Sub, Inc., a wholly owned subsidiary of DuPont, with and into Rogers Corporation, with Rogers Corporation surviving the merger as a wholly owned subsidiary of DuPont. Company shareholders approved the merger agreement at a special shareholder meeting held on January 25, 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). As of November 1, 2022, the parties had not received regulatory approval from SAMR. 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 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. 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 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 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. 24 Results of Operations The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales: Three Months Ended March 31, 2023 March 31, 2022 Net sales 100.0 % 100.0 % Gross margin 32.7 % 34.4 % Selling, general and administrative expenses 24.6 % 23.2 % Research and development expenses 3.9 % 3.3 % Restructuring and impairment charges 4.3 % — % Other operating (income) expense, net — % (0.1) % Operating income (loss) (0.1) % 8.0 % Equity income in unconsolidated joint ventures — % 0.5 % Other income (expense), net — % 0.1 % Interest expense, net (1.4) % (0.4) % 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Net sales $ 243,847 $ 248,266 Gross margin $ 79,701 $ 85,394 Percentage of net sales 32.7 % 34.4 % 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. dollar. 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 (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 % 25 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 (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 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 (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 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 $0.2 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Equity income in unconsolidated joint ventures $ 76 $ 1,275 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 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Other income (expense), net $ 5 $ 267 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. 26 Interest Expense, Net Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 Interest expense, net $ (3,462) $ (1,069) Interest expense, net, increased by $2.4 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. Income Taxes 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 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Net sales $ 135,868 $ 133,153 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. dollar. 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Net sales $ 102,241 $ 110,240 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. dollar. 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 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 27 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. Other Three Months Ended (Dollars in thousands) March 31, 2023 March 31, 2022 Net sales $ 5,738 $ 4,873 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 We believe that our existing sources of liquidity and cash flows that we expect to generate from our operations, together with our available credit facilities, will be sufficient to fund our operations, currently planned capital expenditures, research and development efforts and our debt service commitments, for at least the next 12 months. We regularly review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships in an effort to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives. The following table illustrates the location of our cash and cash equivalents by our three major geographic areas: (Dollars in thousands) March 31, 2023 December 31, 2022 United States $ 81,437 $ 119,931 Europe 59,186 69,877 Asia 53,101 46,042 Total cash and cash equivalents $ 193,724 $ 235,850 Approximately $112.3 million of our cash and cash equivalents were held by non-U.S. 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 ) March 31, 2023 December 31, 2022 Key Financial Position Accounts: Cash and cash equivalents $ 193,724 $ 235,850 Accounts receivable, net $ 174,620 $ 177,413 Inventories $ 177,089 $ 182,402 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, 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. 28 • 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 (used in) operating activities $ 1,835 $ (13,723) Net cash used in investing activities $ (15,421) $ (25,987) 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. We plan to fund our capital spending in 2023 with cash from operations and cash on-hand, as well as our existing revolving credit facility, if necessary. Restrictions on Payment of Dividends 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 March 31, 2023. Contingencies 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 first quarter of 2023. 29 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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. Quantitative and Qualitative Disclosures About Market Risk ” contained in our Annual Report.