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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-03-01 · 111 added, 125 removed, 127 unchanged (65% of the section changed)

2 unchanged sentences

Financial Statements and Supplementary Data.”

The discussion of the comparison of our 2021 and 2020 results was previously disclosed within the Management’s Discussion & Analysis in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2022 , and has been omitted from this section pursuant to Instruction 1 to Item 303(b) of Regulation S-K.

Company Background and Strategy

The discussion of the comparison of our 2022 and 2021 results was previously disclosed within the Management’s Discussion & Analysis in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2023 , and has been omitted from this section pursuant to Instruction 1 to Item 303(b) of Regulation S-K.

Company Overview 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;

Our 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 R&D activities in Chandler, Arizona;

Burlington, Massachusetts;

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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 and the growth of 5G smartphones in the portable electronics industry.

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

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, reliability, technical service capabilities, cost, efficiency, innovation and technology.

As a market-driven organization, we are focused on capitalizing on growth opportunities in the increasing electrification of vehicles, including EV/HEV, and increasing use of 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.

Our operational excellence efforts are focused on driving significant near-term enhancements to our profitability and ongoing cost structure improvements.

These efforts include focusing on improving yields, throughput, procurement capabilities and manufacturing processes and selectively adding strategic new hires to achieve better performance.

We have also taken specific cost improvement actions in the fourth quarter of 2022 through the end of 2023 that have benefited subsequent quarters.

These actions include optimizing our manufacturing footprint, divesting non-core product lines and reductions 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.

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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 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 more than 25% over the next several years.

If we are able to successfully execute on our strategy, we see an opportunity, over the next several years, to return to historical levels of profitability and meaningfully improve revenues from 2023 levels, led by organic growth and complemented by targeted acquisitions.

This outlook is supported by our participation in a number of growth 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 increase at a compound annual growth rate of between 15% and 20% 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.

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

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

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 for 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.

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 good growth trajectory include ADAS, aerospace and defense, portable electronics and renewable energy.

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

Executive Summary

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

• In 2022 as compared to 2021, our net sales increased by 4.1% to $971.2 million, our gross margin decreased 430 basis points to 33.1% from 37.4%, and operating income as a percentage of net sales increased 230 basis points to 14.9% from 12.6%.

• With respect to other operating (income) expense, net, we recognized income of $144.0 million and expense of $5.3 million in 2022 and 2021, respectively, primarily related to the financial impacts from the regulatory termination fee net of a transaction-related fee, as well as the impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea.

• We recognized $1.5 million and $3.1 million of restructuring charges in 2022 and 2021, respectively, related to the manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations, primarily impacting our AES operating segment.

• We recognized $65.1 million of impairment charges in 2022, primarily related to certain AES operating segment equipment-in-process and certain EMS operating segment intangibles and fixed assets in the U.S.

• We incurred $21.7 million of expenses related to the terminated merger with DuPont, mainly associated with retention awards, a discretionary RESIP contribution and professional services expenses in 2022.

• We borrowed $100.0 million on the revolver to fund our operations, and made a $75.0 million repayment at the end of 2022.

• 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, and are being done in conjunction with other previously announced cost reduction initiatives.

We estimate that we will incur approximately $10 million to $13 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.

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

The business disposition is scheduled to be completed in early March.

• In 2023 as compared to 2022, our net sales decreased by 6.5% to $908.4 million, our gross margin increased 70 basis points to 33.8% from 33.1%, and operating income as a percentage of net sales decreased 550 basis points to 9.4% from 14.9%.

• We recognized restructuring charges of $16.9 million in 2023 related to our reduction in global workforce and facility consolidation plans.

• In 2023, we recognized insurance recoveries of $31.4 million related to our business interruption and property damage insurance claims and incurred $0.9 million of charges for various professional services in connection with the 2021 UTIS fire.

• On September 22, 2023, we entered into asset purchase agreement to sell of one of our Suzhou, China facilities for a purchase price of $6.8 million, resulting in a pre-tax gain of $1.9 million, inclusive of selling and disposal costs.

The sale was completed in December 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 sale was completed in September 2023.

• We made $185.0 million of discretionary principal payments on our revolving credit facility in 2023.

Results of Operations

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Equity income in unconsolidated joint ventures 0.2 % 0.5 %

Pension settlement charges — % (0.1) %

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

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Net Sales and Gross Margin

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Net sales $ 908.4 $ 971.2

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Percentage of net sales 33.8 % 33.1 %

Net sales increased by 4.1% in 2022 compared to 2021.

Our AES and EMS operating segments had a net sales decrease of 0.8% and and a net sales increase of 11.1%, respectively.

$32.0 million of the increase in net sales, or 3.4%, primarily reflects the impact of increased net sales from our Silicone Engineering subsidiary.

The increase was further due to higher net sales in the EV/HEV and mass transit markets in our AES operating segment and higher net sales in the general industrial, mass transit and EV/HEV markets in our EMS operating segment, 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 portable electronics market in our EMS operating segment.

Net sales was unfavorably impacted from foreign currency impacts of $36.9 million, or 4.0%, due to the depreciation in value of the euro, Chinese renminbi and British pound relative to the U.S.

Gross margin as a percentage of net sales decreased 430 basis points to 33.1% in 2022 compared to 37.4% in 2021.

Gross margin in 2022 was impacted by unfavorable factory utilization, unfavorable yield performance, higher freight, duties and tariffs expenses and a higher inventory reserves provision in our AES and EMS operating segments, as well as lower volume in our AES operating segment and unfavorable changes in raw material costs in our EMS operating segment.

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

Supply constraints on raw material and labor availability moderated production levels, creating operational headwinds, 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 2022.

Net sales decreased by 6.5% in 2023 compared to 2022.

Our AES and EMS operating segments had net sales decreases of 3.9% and 9.8%, respectively.

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

These decreases in net sales were partially offset by higher net sales in the power substrates EV/HEV, renewable energy and ADAS markets in our AES operating segment and higher net sales in the aerospace and defense market in our EMS operating segment.

Net sales were unfavorably impacted by foreign currency impacts of $3.3 million, or 0.3%, due to the depreciation in value of the Chinese renminbi relative to the U.S.

dollar, partially offset by the appreciation in value of the euro relative to the U.S.

Gross margin as a percentage of net sales increased 70 basis points to 33.8% in 2023 compared to 33.1% in 2022.

Gross margin in 2023 improved due to lower freight, duties and tariffs costs, lower raw material costs and favorable factory cost optimization efforts in our AES and EMS operating segments.

This was partially offset by lower volume and unfavorable mix, as well as higher inventory reserves provisions and unfavorable yield performance in our AES and EMS operating segments.

Selling, General and Administrative Expenses

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Selling, general and administrative expenses $ 202.3 $ 218.8

Percentage of net sales 22.2 % 22.5 %

Selling, general and administrative (SG&A) expenses increased 13.3% in 2022 from 2021, primarily due to an $11.2 million increase in professional services expenses, a $5.0 million increase in total compensation and benefits, a $2.5 million increase in software expenses, a $2.4 million increase in travel expenses and a $2.1 million increase in other intangible asset amortization expense.

The increase in total compensation and benefits was primarily due to an $8.6 million impact for retention awards issued in connection with the terminated DuPont merger, and a $6.5 million discretionary RESIP contribution, partially offset by lower incentive compensation expense.

The increase in professional services expense is primarily due to $6.4 million of expenses incurred related to the terminated merger with DuPont and $0.8 million of expense incurred related to our acquisition of Silicone Engineering.

SG&A expenses decreased 7.5% in 2023 from 2022, primarily due to a $11.4 million decrease in compensation and benefits, a $3.8 million decrease in professional services expense and a $3.0 million decrease in other intangible asset amortization expense, partially offset by a $1.0 million increase in fixed asset depreciation expense and $0.5 million increase in travel expenses.

The decrease in compensation and benefits was primarily due to the $6.5 million discretionary RESIP contribution in 2022 and a $3.3 million decrease in the impact for retention awards issued in connection with the terminated DuPont merger.

The decrease in professional services expense was due to a $6.3 million decrease in expenses incurred related to the terminated merger with DuPont, a $0.7 million decrease in expenses incurred related to our acquisition of Silicone Engineering as well as an overall general reduction of professional service expenses across general and administrative departments, offset by $7.6 million of expenses related to non-routine shareholder advisory costs and $1.1 million of expenses in connection with the sale of our high-performance engineered cellular elastomer business in 2023.

Research and Development Expenses

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Research and development expenses $ 35.7 $ 35.2

Percentage of net sales 3.9 % 3.6 %

R&D expenses increased 17.7% in 2022 from 2021, primarily due to a $2.3 million increase in total compensation and benefits, a $2.0 million increase in laboratory expenses and a $0.4 million increase in travel expenses.

R&D expenses increased 1.4% in 2023 from 2022, primarily due to a $1.8 million increase in trial costs for alternative raw materials, partially offset by a $1.0 million decrease in professional services expense and a $0.2 million decrease in compensation and benefits expense.

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

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Restructuring and impairment charges $ 16.9 $ 66.6

Other operating (income) expense, net $ (33.1) $ (144.0)

We recognized $1.5 million and $3.1 million of restructuring charges 2022 and 2021, respectively, primarily related to the manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations.

We recognized $65.1 million and $0.5 million of impairment charges in 2022 and 2021, respectively.

The impairment charges in 2022 were primarily related to certain AES operating segment equipment-in-process in the U.S.

We recognized $16.9 million and $1.5 million of restructuring charges in 2023 and 2022, respectively.

The restructuring charges in 2023 were related to the reduction in global workforce and facility consolidation plans announced in February 2023.

The restructuring charges in 2022 were related to the manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations.

We recognized $65.1 million of impairment charges in 2022, primarily related to certain AES operating segment equipment-in-process in the U.S.

as well as certain EMS operating segment intangibles and fixed assets related to our high-performance engineered cellular elastomer business in the U.S.

With respect to other operating (income) expense, net, we recognized income of $33.1 million and income of $144.0 million in 2023 and 2022, respectively.

The income recognized in 2023 was primarily related to insurance recoveries from the fire at our UTIS manufacturing facility in Ansan, South Korea.

The income recognized in 2022 was primarily related to the DuPont merger termination fee less costs incurred, as well as the impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea.

For additional information, refer to “ Note 14 – Supplemental Financial Information ” to “Item 8.

Financial Statements and Supplementary Data.”

With respect to other operating (income) expense, net, we recognized income of $144.0 million and expense of $5.3 million in 2022 and 2021, respectively, primarily related to the financial impacts from the regulatory termination fee net of a transaction-related fee, as well as the impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea.

Equity Income in Unconsolidated Joint Ventures

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Equity income in unconsolidated joint ventures $ 1.8 $ 4.4

As of December 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 36.9% in 2022 from 2021 due to lower net sales for RIC and RIS and unfavorable productivity performance for RIC.

Pension Settlement Charges and Other Income (Expense), Net

(Dollars in thousands) 2022 2021

Pension settlement charges $ — $ (534)

Equity income in those unconsolidated joint ventures decreased 59.1% in 2023 from 2022 due to lower net sales for RIC and RIS, which was primarily driven by the portable electronics market in Asia, as well as a change in the business model for RIS to subcontracting manufacturing in the second half of 2023.

Other Income (Expense), Net

In 2021, we recorded $0.5 million of pre-tax settlement charges related to 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 decreased to $1.1 million of income in 2022 compared to $5.1 million of income in 2021.

The decrease was due to unfavorable impacts from our copper derivative contracts and unfavorable impacts from our foreign currency transactions, partially offset by favorable impacts from our foreign currency derivatives.

(Dollars in millions) 2023 2022

Other income (expense), net $ (0.7) $ 1.1

Other income (expense), net decreased to $0.7 million of expense in 2023 compared to $1.1 million of income in 2022.

The decrease was due to unfavorable year-over-year change in impacts from our foreign currency transactions, partially offset by the favorable year-over-year change in impacts from our foreign currency derivatives and copper derivative contracts.

Interest Expense, Net

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Interest expense, net $ (10.1) $ (9.5)

Interest expense, net, increased by $7.0 million in 2022 from 2021, primarily due to a higher weighted-average outstanding balance for our borrowings under our revolving credit facility.

Interest expense, net, increased by $0.6 million in 2023 from 2022, primarily due to a higher weighted-average interest rate, partially offset by a lower weighted-average outstanding balance for our borrowings under our revolving credit facility.

Income Tax Expense

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Income tax expense $ 19.7 $ 23.8

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Our effective income tax rate for 2023 was 25.8% compared to 16.9% for 2022.

The increase from 2021 was primarily due to the decrease in the current year benefit from the reversal of unrecognized tax benefits.

The increase from 2022 was primarily due to the impact of the decrease in the reversals of unrecognized tax positions in 2022 that did not reoccur in 2023.

Operating Segment Net Sales and Operating Income

Advanced Electronics Solutions

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Net sales $ 509.7 $ 530.2

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Our AES operating segment net sales decreased by 3.9% in 2023 compared to 2022.

The decrease in net sales 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 and mass transit markets.

Net sales were unfavorably impacted from foreign currency fluctuations of $25.3 million, or 4.7%, due to the depreciation in value of the euro and Chinese renminbi relative to the U.S.

Operating income increased by 53.7% in 2022 from 2021.

The increase in operating income was primarily due to favorable year-over-year changes in shared service operating expense allocations driven by the merger termination fee less costs incurred related to the terminated DuPont merger, partially offset by $41.5 million in restructuring and impairment charges.

Additionally, operating income also increased due to commercial actions taken and favorable changes in raw material costs, partially offset by unfavorable factory utilization, lower volume, unfavorable yield performance, higher freight, duties and tariffs expenses and a higher inventory reserves provision.

As a percentage of net sales, operating income in 2022 was 14.6%, an approximately 520 basis point increase as compared to 9.4% in 2021.

In 2022 and 2021, our AES operating segment recognized impairment charges of $40.5 million and $0.5 million, respectively, and recognized restructuring charges and related expenses of $1.1 million and $3.0 million, respectively.

For additional information related to restructuring and impairment charges, refer to “Note 15 – Supplemental Financial Information” to “Item 8.

The decrease in net sales was primarily driven by lower net sales in the power interconnects EV/HEV, aerospace and defense, wireless infrastructure and portable electronics markets, partially offset by higher net sales in the power substrates EV/HEV, renewable energy and ADAS markets.

Net sales were favorably impacted by foreign currency fluctuations of $0.7 million, or 0.1%, due to the appreciation in value of the euro relative to the U.S.

dollar, partially offset by the depreciation in value of Chinese renminbi relative to the U.S.

Operating income decreased by 96.6% in 2023 from 2022.

The decrease in operating income was primarily due to unfavorable year-over-year changes in shared service operating expense allocations and a $9.6 million unfavorable year-over-year change in restructuring charges, as well as, lower volumes and unfavorable mix, unfavorable yield performance and higher inventory reserves provisions.

The decrease in operating income was partially offset by a $40.5 million favorable year-over-year change in impairment charges and a $1.8 million net gain on the sale of one of our Suzhou, China facilities, as well as lower freight, duties and tariffs costs, lower raw material costs and favorable factory optimization efforts.

As a percentage of net sales, operating income in 2023 was 0.5% as compared to 14.5% in 2022.

The unfavorable changes in shared service expense allocations were driven by the merger termination fee less costs incurred related to the terminated DuPont merger in 2022 not recurring, as well as non-routine shareholder advisory costs incurred in 2023, partially offset by favorable year-over-year changes in costs associated with the terminated DuPont merger, including compensation and benefits costs as well as professional services expenses.

In 2022, our AES operating segment recognized impairment charges of $40.5 million.

In 2023 and 2022, our AES operating segment recognized restructuring charges and related expenses of $10.7 million and $1.1 million, respectively.

For additional information related to restructuring and impairment charges, as well as the sale of one of our Suzhou, China facilities, refer to “Note 14 – Supplemental Financial Information” to “Item 8.

Financial Statements and Supplementary Data.”

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

Elastomeric Material Solutions

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Net sales $ 379.0 $ 420.0

Operating income $ 76.1 $ 60.4

Our EMS operating segment net sales increased by 11.1% in 2022 compared to 2021.

The increase in net sales was primarily driven by $32.0 million in net sales, or 8.5%, reflecting the impact of increased net sales from our Silicone Engineering subsidiary, as well as higher net sales in the general industrial and EV/HEV, partially offset by lower net sales in the portable electronics market.

Net sales were unfavorably impacted by foreign currency fluctuations of $11.2 million, or 3.0%, due to the depreciation in value of the British pound, euro and Chinese renminbi relative to the U.S.

Our EMS operating segment net sales decreased by 9.8% in 2023 compared to 2022.

The decrease in net sales was primarily driven by lower net sales in the general industrial, consumer, portable electronics and EV/HEV markets, partially offset by higher net sales in the aerospace and defense market.

Net sales were unfavorably impacted by foreign currency fluctuations of $3.6 million, or 0.9%, due to the depreciation in value of Chinese renminbi relative to the U.S.

dollar, partially offset by the appreciation in value of the euro relative to the U.S.

Operating income increased by 26.0% in 2023 from 2022.

The increase in operating income was primarily due to favorable year-over-year changes in shared service operating expense allocations driven by the merger termination fee less costs incurred related to the terminated DuPont merger, and an $8.6 million favorable change in charges/benefits related to the UTIS fire, partially offset by $25.0 million in restructuring and impairment charges.

Additionally, operating income also increased due the favorable impacts of commercial actions taken and higher volume, partially offset by unfavorable factory utilization, unfavorable changes in raw material costs, unfavorable yield performance, higher freight, duties and tariffs expenses and a higher inventory reserves provision.

As a percentage of net sales, operating income in 2022 was 14.4%, an approximately 150 basis point decrease as compared to 15.9% in 2021.

In 2022 and 2021, our EMS operating segment recognized impairment charges of $24.6 million and no charges, respectively, and recognized restructuring charges and related expenses of $0.4 million and $0.1 million, respectively.

For additional information related to restructuring and impairment charges, refer to “ Note 15 – Supplemental Financial Information ” to “Item 8.

The increase in operating income was primarily due to a $28.0 million favorable year-over-year change in charges/benefits related to the UTIS fire and a $24.6 million favorable year-over-year change in impairment charges, as well as lower freight, duties and tariffs costs, lower raw material costs and favorable

factory optimization efforts.

The increase in operating income was partially offset by unfavorable year-over-year changes in shared service operating expense allocations and a $5.8 million unfavorable year-over-year change in restructuring charges, as well as lower volumes, unfavorable yield performance and higher inventory reserves provisions.

As a percentage of net sales, operating income in 2023 was 20.1% as compared to 14.4% in 2022.

In 2022, our EMS operating segment recognized impairment charges of $24.6 million.

In 2023 and 2022, our EMS operating segment recognized restructuring charges and related expenses of $6.2 million and $0.4 million, respectively.

For additional information related to restructuring and impairment charges, as well as UTIS fire charges/benefits, refer to “ Note 14 – Supplemental Financial Information ” to “Item 8.

Financial Statements and Supplementary Data.”

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

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

Net sales $ 19.7 $ 21.0

Operating income $ 6.6 $ 6.9

Net sales in our Other operating segment increased by 2.5% in 2022 from 2021.

Net sales in our Other operating segment decreased by 6.2% in 2023 from 2022.

Net sales were unfavorably impacted by foreign currency fluctuations of $0.4 million, or 2.0%, due to the depreciation in value of Chinese renminbi relative to the U.S.

Our Other operating segment operating income decreased by 4.3% in 2023 from 2022.

Net sales were unfavorably impacted by foreign currency fluctuations of $0.5 million, or 2.5%, due to the depreciation in value of the Chinese renminbi and euro relative to the U.S.

The decrease in operating income was primarily driven by unfavorable product mix and lower volume, partially offset by favorable yield performance.

As a percentage of net sales, operating income in 2022 was 33.0%, an approximately 90 basis point decrease as compared to 33.9% in 2021.

The decrease in operating income was primarily driven by lower volume and unfavorable factory utilization, partially offset by lower freight, duties and tariffs costs.

As a percentage of net sales, operating income in 2023 was 33.5%, an approximately 60 basis point increase as compared to 32.9% in 2022.

Liquidity, Capital Resources and Financial Position

3 unchanged sentences

As of December 31,

(Dollars in thousands) 2022 2021

(Dollars in millions) 2023 2022

United States $ 60.0 $ 120.0

5 unchanged sentences

We did not make any changes in 2023 to our position on the permanent reinvestment of our historical 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.

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

Net working capital was $410.5 million and $517.4 million as of December 31, 2023 and 2022, respectively.

(Dollars in thousands )

As of December 31,

Key Financial Position Accounts

As of December 31,

(Dollars in millions) 2023 2022

Cash and cash equivalents $ 131.7 $ 235.9

Accounts receivable, net 161.9 177.4

Inventories 182,402 133,384

Inventories, net 153.5 182.4

Borrowings under revolving credit facility 30.0 215.0

Significant changes in our statement of financial position accounts from December 31, 2022 to December 31, 2023 were as follows:

• Accounts receivable, net increased 8.8% to $177.4 million as of December 31, 2022, from $163.1 million as of December 31, 2021.

The increase was primarily due to a $13.3 million increase in our income taxes receivable, as well as an increase in days sales outstanding, partially offset by the receipt or settlement of $6.3 million in recognized UTIS fire insurance receivables and lower net sales at the end of 2022 compared to the end of 2021.

• Inventories increased 36.7% to $182.4 million as of December 31, 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 increased to $215.0 million as of December 31, 2022, from $190.0 million as of December 31, 2021.

The increase reflects $100.0 million in borrowings under our revolving credit facility throughout 2022.

This was partially offset by a $75.0 million of discretionary principal payment at the end of 2022.

For additional

information regarding this facility, as well as the Fourth Amended Credit Agreement, refer to “Note 9 – Debt” to “Item 8.

• Cash and cash equivalents were $131.7 million as compared to $235.9 million as of December 31, 2022, a decrease of $104.2 million, or 44.2%.

This decrease was primarily due to $185.0 million in discretionary principal payments on our revolving credit facility, $57.0 million in capital expenditures and $3.2 million in tax payments related to net share settlement of equity awards, partially offset by $131.4 million of net cash flow provided by operations.

• Accounts receivable, net decreased 8.7% to $161.9 million as of December 31, 2023, from $177.4 million as of December 31, 2022.

The decrease was primarily due to a $15.4 million decrease in our income taxes receivable as well as lower net sales at the end of 2023 compared to at the end of 2022, partially offset by the recognition of $4.1 million in UTIS fire insurance receivables for our business interruption claims.

• Inventories, net decreased 15.8% to $153.5 million as of December 31, 2023, from $182.4 million as of December 31, 2022, primarily driven by a reduction in finished goods stock and raw materials, as well as a $7.5 million increase in inventory reserves provisions.

• Borrowings under revolving credit facility decreased to $30.0 million as of December 31, 2023, from $215.0 million as of December 31, 2022.

The decrease was due to $185.0 million in discretionary principal payments on our revolving credit facility made in 2023.

For additional information regarding this facility, as well as the Fifth Amended Credit Agreement, refer to “Note 9 – Debt” to “Item 8.

Financial Statements and Supplementary Data.”

(Dollars in thousands) Year Ended December 31,

(Dollars in millions) Year Ended December 31,

Key Cash Flow Measures:

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Net cash used in investing activities (47.9) (113.1)

Net cash (used in) provided by financing activities (10,104) 159,057

In 2022, cash and cash equivalents increased $3.6 million, primarily due to $100.0 million in borrowings under our revolving credit facility and cash flows generated by operations, partially offset by $116.8 million in capital expenditures, a $75.0 million of principal payment made on our outstanding borrowings under our revolving credit facility, $25.0 million in share repurchases, as well as $10.8 million in tax payments related to net share settlement of equity awards.

In 2021, cash and cash equivalents increased $40.5 million, primarily due to $190.0 million in borrowings under our revolving credit facility and cash flows generated by operations, partially offset by $71.1 million in capital expenditures, a $25.0 million of principal payment made on our outstanding borrowings under our revolving credit facility, as well as $2.9 million in tax payments related to net share settlement of equity awards.

Net cash used in financing activities (190.3) (10.1)

In 2024, we expect capital spending to be in the range of approximately $70.0 million to $80.0 million, of which we are contractually committed to $5.3 million as of December 31, 2023.

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Restriction 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 December 31, 2023.

For additional information regarding the Fourth Amended Credit Agreement, refer to “Note 9 – Debt” to “Item 8.

For additional information regarding the Fifth Amended Credit Agreement, refer to “Note 9 – Debt” to “Item 8.

Financial Statements and Supplementary Data.”

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Our consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes.

GAAP, which require management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances and believe that appropriate reserves have been established using on reasonable methodologies and appropriate assumptions based on facts and circumstances that are known;

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Our estimates of asbestos-related contingent liabilities and related insurance receivables are based on a claim projection analysis and an insurance usage analysis prepared annually by third parties.

The claim projection analysis contains numerous assumptions, including number of claims that might be received, the type and severity of the disease alleged by each claimant,

the long latency period associated with asbestos exposure, dismissal rates, average indemnity costs, average defense costs, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform.

The claim projection analysis contains numerous assumptions, including number of claims that might be received, the type and severity of the disease alleged by each claimant, the long latency period associated with asbestos exposure, dismissal rates, average indemnity costs, average defense costs, costs of medical treatment, the financial resources of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential changes in legislative or judicial standards, including potential tort reform.

Furthermore, any predictions with respect to these assumptions are subject to even greater uncertainty as the projection period lengthens.

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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-K

Item 7. Management’s Discussion and Analysis