UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20172018
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission file number 1-4347
ROGERS CORPORATION
(Exact name of Registrant as specified in its charter)
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Massachusetts | 06-0513860 |
(State or other jurisdiction of | (I. R. S. Employer Identification No.) |
incorporation or organization) | |
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2225 W. Chandler Blvd., Chandler, Arizona | 85224-6155 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (480) 917-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o |
Smaller reporting company o | Emerging growth company o | (Do not check if a smaller reporting company) | Emerging growth company o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The number of shares outstanding of the registrant’s capital stock as of July 27, 201725, 2018 was 18,173,591.18,385,943.
ROGERS CORPORATION
FORM 10-Q
June 30, 20172018
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TABLE OF CONTENTS |
Part I – Financial Information |
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Part II – Other Information |
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Forward LookingForward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward looking“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. See “Forward-Looking Statements” in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.
Part I – Financial Information
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Item 1. | Financial Statements |
ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and shares in thousands, except per share amounts)
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Net sales | $ | 201,424 |
| | $ | 157,489 |
| | $ | 405,252 |
| | $ | 318,056 |
| $ | 214,675 |
| | $ | 201,424 |
| | $ | 429,286 |
| | $ | 405,252 |
|
Cost of sales | 120,878 |
| | 97,290 |
| | 244,356 |
| | 197,349 |
| 138,003 |
| | 120,878 |
| | 276,007 |
| | 244,356 |
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Gross margin | 80,546 |
| | 60,199 |
| | 160,896 |
| | 120,707 |
| 76,672 |
| | 80,546 |
| | 153,279 |
| | 160,896 |
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Selling, general and administrative expenses | 39,567 |
| | 34,369 |
| | 73,731 |
| | 64,229 |
| 42,540 |
| | 40,012 |
| | 83,137 |
| | 74,580 |
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Research and development expenses | 7,141 |
| | 7,074 |
| | 14,102 |
| | 13,622 |
| 8,750 |
| | 7,141 |
| | 16,884 |
| | 14,102 |
|
Restructuring charges | 1,079 |
| | — |
| | 1,805 |
| | — |
| |
Gain on sale of long-lived asset | — |
| | — |
| | (942 | ) | | — |
| |
Restructuring and impairment charges | | 541 |
| | 1,079 |
| | 963 |
| | 1,805 |
|
Other operating (income) expense, net | | (383 | ) | | — |
| | (3,974 | ) | | (942 | ) |
Operating income | 32,759 |
| | 18,756 |
| | 72,200 |
| | 42,856 |
| 25,224 |
| | 32,314 |
| | 56,269 |
| | 71,351 |
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| | | | | | | | | | | | | | |
Equity income in unconsolidated joint ventures | 966 |
| | 708 |
| | 1,976 |
| | 1,321 |
| 1,804 |
| | 966 |
| | 2,811 |
| | 1,976 |
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Other income (expense), net | (185 | ) | | 191 |
| | 530 |
| | (356 | ) | (34 | ) | | 260 |
| | 32 |
| | 1,379 |
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Interest expense, net | (1,947 | ) | | (1,115 | ) | | (3,195 | ) | | (2,236 | ) | (1,292 | ) | | (1,947 | ) | | (2,503 | ) | | (3,195 | ) |
Income before income tax expense | 31,593 |
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| 18,540 |
| | 71,511 |
| | 41,585 |
| 25,702 |
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| 31,593 |
| | 56,609 |
| | 71,511 |
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Income tax expense | 10,697 |
| | 13,163 |
| | 23,583 |
| | 21,280 |
| 8,373 |
| | 10,697 |
| | 13,144 |
| | 23,583 |
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Net income | $ | 20,896 |
| | $ | 5,377 |
| | $ | 47,928 |
| | $ | 20,305 |
| $ | 17,329 |
| | $ | 20,896 |
| | $ | 43,465 |
| | $ | 47,928 |
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Basic earnings per share | $ | 1.15 |
| | $ | 0.30 |
| | $ | 2.65 |
| | $ | 1.13 |
| $ | 0.94 |
| | $ | 1.15 |
| | $ | 2.37 |
| | $ | 2.65 |
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Diluted earnings per share | $ | 1.13 |
| | $ | 0.29 |
| | $ | 2.60 |
| | $ | 1.11 |
| $ | 0.93 |
| | $ | 1.13 |
| | $ | 2.33 |
| | $ | 2.60 |
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Shares used in computing: | |
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Basic earnings per share | 18,140 |
| | 18,007 |
| | 18,098 |
| | 17,986 |
| 18,389 |
| | 18,140 |
| | 18,338 |
| | 18,098 |
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Diluted earnings per share | 18,547 |
| | 18,253 |
| | 18,460 |
| | 18,234 |
| 18,660 |
| | 18,547 |
| | 18,635 |
| | 18,460 |
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ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Net income | $ | 20,896 |
| | $ | 5,377 |
| | $ | 47,928 |
| | $ | 20,305 |
| $ | 17,329 |
| | $ | 20,896 |
| | $ | 43,465 |
| | $ | 47,928 |
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Foreign currency translation adjustment | 12,591 |
| | (5,729 | ) | | 16,730 |
| | 5,197 |
| (15,294 | ) | | 12,591 |
| | (8,293 | ) | | 16,730 |
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Derivative instruments designated as cash flow hedges: | | | | | | | | | | | | | | |
Unrealized gain (loss) on derivative instruments held at period end, net of tax (Note 6) | (321 | ) | | 5 |
| | (435 | ) | | 11 |
| 320 |
| | (321 | ) | | 1,097 |
| | (435 | ) |
Unrealized (gain) loss reclassified into earnings (Note 6) | 107 |
| | — |
| | 107 |
| | — |
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Accumulated other comprehensive income (loss) pension and post-retirement benefits: | | | | | | | | |
Actuarial net gain (loss) incurred in fiscal year, net of tax (Note 6) | 334 |
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| | 334 |
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Pension and postretirement benefit plans reclassified into earnings, net of tax (Note 6): | | | | | | | | |
Unrealized loss reclassified into earnings (Note 6) | | — |
| | 107 |
| | — |
| | 107 |
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Accumulated other comprehensive loss pension and post-retirement benefits: | | | | | | | | |
Actuarial net gain incurred in fiscal year, net of tax (Note 6) | | 44 |
| | 334 |
| | 87 |
| | 334 |
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Pension and postretirement benefit plans reclassified into earnings: | | | | | | | | |
Amortization of loss, net of tax (Note 6) | 6 |
| | 36 |
| | 36 |
| | 71 |
| — |
| | 6 |
| | — |
| | 36 |
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Other comprehensive income (loss) | 12,717 |
| | (5,688 | ) | | 16,772 |
| | 5,279 |
| (14,930 | ) | | 12,717 |
| | (7,109 | ) | | 16,772 |
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Comprehensive income (loss) | $ | 33,613 |
| | $ | (311 | ) | | $ | 64,700 |
| | $ | 25,584 |
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Comprehensive income | | $ | 2,399 |
| | $ | 33,613 |
| | $ | 36,356 |
| | $ | 64,700 |
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ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(Dollars and shares in thousands)
| | | June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 177,312 |
| | $ | 227,767 |
| $ | 174,700 |
| | $ | 181,159 |
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Accounts receivable, less allowance for doubtful accounts of $2,015 and $1,952 | 136,993 |
| | 119,604 |
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Accounts receivable, less allowance for doubtful accounts of $1,284 and $1,525 | | 148,727 |
| | 140,562 |
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Contract assets | | 21,933 |
| | — |
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Inventories | 102,549 |
| | 91,130 |
| 117,739 |
| | 112,557 |
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Prepaid income taxes | 4,392 |
| | 3,020 |
| 2,732 |
| | 3,087 |
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Asbestos-related insurance receivables | 7,099 |
| | 7,099 |
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Current portion of asbestos-related insurance receivables | | 5,682 |
| | 5,682 |
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Assets held for sale | 2,741 |
| | 871 |
| 381 |
| | 896 |
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Other current assets | 10,355 |
| | 8,910 |
| 13,535 |
| | 10,580 |
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Total current assets | 441,441 |
| | 458,401 |
| 485,429 |
| | 454,523 |
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Property, plant and equipment, net of accumulated depreciation | 173,363 |
| | 176,916 |
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Property, plant and equipment, net of accumulated depreciation of $300,416 and $289,909 | | 184,478 |
| | 179,611 |
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Investments in unconsolidated joint ventures | 17,949 |
| | 16,183 |
| 19,411 |
| | 18,324 |
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Deferred income taxes | 19,657 |
| | 14,634 |
| 3,501 |
| | 6,008 |
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Goodwill | 232,247 |
| | 208,431 |
| 234,287 |
| | 237,107 |
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Other intangible assets | 167,226 |
| | 136,676 |
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Other intangible assets, net of amortization | | 152,009 |
| | 160,278 |
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Asbestos-related insurance receivables | 41,295 |
| | 41,295 |
| 63,511 |
| | 63,511 |
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Other long-term assets | 5,963 |
| | 3,964 |
| 5,503 |
| | 5,772 |
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Total assets | $ | 1,099,141 |
| | $ | 1,056,500 |
| $ | 1,148,129 |
| | $ | 1,125,134 |
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Liabilities and Shareholders’ Equity | |
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Current liabilities | |
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Accounts payable | $ | 35,560 |
| | $ | 28,379 |
| $ | 37,299 |
| | $ | 36,116 |
|
Accrued employee benefits and compensation | 30,433 |
| | 31,104 |
| 26,081 |
| | 39,394 |
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Accrued income taxes payable | 12,387 |
| | 10,921 |
| 3,987 |
| | 6,408 |
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Current portion of lease obligation | 383 |
| | 350 |
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Current portion of long term debt | — |
| | 3,653 |
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Asbestos-related liabilities | 7,099 |
| | 7,099 |
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Current portion of capital lease obligations | | 600 |
| | 579 |
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Current portion of asbestos-related liabilities | | 5,682 |
| | 5,682 |
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Other accrued liabilities | 21,349 |
| | 19,679 |
| 25,095 |
| | 25,629 |
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Total current liabilities | 107,211 |
| | 101,185 |
| 98,744 |
| | 113,808 |
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Borrowings under credit facility | 191,188 |
| | 235,877 |
| 130,982 |
| | 130,982 |
|
Long term lease obligation | 5,207 |
| | 4,993 |
| |
Pension and post-retirement benefit obligations | 8,501 |
| | 8,501 |
| |
Non-current portion of capital lease obligations | | 5,404 |
| | 5,873 |
|
Pension liability | | 8,720 |
| | 8,720 |
|
Retiree health care and life insurance benefits | 1,510 |
| | 1,992 |
| 1,685 |
| | 1,685 |
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Asbestos-related liabilities | 44,883 |
| | 44,883 |
| 70,056 |
| | 70,500 |
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Non-current income tax | 7,302 |
| | 6,238 |
| 9,755 |
| | 12,823 |
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Deferred income taxes | 11,559 |
| | 13,883 |
| 13,879 |
| | 10,706 |
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Other long-term liabilities | 3,525 |
| | 3,162 |
| 4,119 |
| | 3,464 |
|
Commitments and Contingencies (Note 14) |
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Shareholders’ Equity | |
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| |
Capital Stock - $1 par value; 50,000 authorized shares; 18,161 and 18,021 shares outstanding | 18,161 |
| | 18,021 |
| |
Commitments and contingencies (Note 14) | |
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Shareholders’ equity | | |
| | |
|
Capital Stock - $1 par value; 50,000 authorized shares; 18,380 and 18,255 shares issued and outstanding | | 18,380 |
| | 18,255 |
|
Additional paid-in capital | 123,575 |
| | 118,678 |
| 126,452 |
| | 128,933 |
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Retained earnings | 652,009 |
| | 591,349 |
| 732,217 |
| | 684,540 |
|
Accumulated other comprehensive income (loss) | (75,490 | ) | | (92,262 | ) | |
Total shareholders’ equity | 718,255 |
| | 635,786 |
| |
Total liabilities and shareholders’ equity | $ | 1,099,141 |
| | $ | 1,056,500 |
| |
Accumulated other comprehensive loss | | (72,264 | ) | | (65,155 | ) |
Total shareholders' equity | | 804,785 |
| | 766,573 |
|
Total liabilities and shareholders' equity | | $ | 1,148,129 |
| | $ | 1,125,134 |
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ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars and shares in thousands)
| | | Six Months Ended | Six Months Ended |
| June 30, 2017 | | June 30, 2016 | June 30, 2018 | | June 30, 2017 |
Operating Activities: | | | | | | |
Net income | $ | 47,928 |
| | $ | 20,305 |
| $ | 43,465 |
| | $ | 47,928 |
|
Adjustments to reconcile net income to cash from operating activities: | |
| | |
| |
Adjustments to reconcile net income to cash provided by operating activities: | | | | |
|
Depreciation and amortization | 21,536 |
| | 18,312 |
| 22,084 |
| | 21,536 |
|
Stock-based compensation expense | 5,327 |
| | 5,740 |
| |
Equity compensation expense | | 5,814 |
| | 5,327 |
|
Deferred income taxes | 4,813 |
| | 8,825 |
| 3,879 |
| | 4,813 |
|
Equity in undistributed income of unconsolidated joint ventures | (1,976 | ) | | (1,321 | ) | (2,811 | ) | | (1,976 | ) |
Dividends received from unconsolidated joint ventures | 616 |
| | 426 |
| 1,809 |
| | 616 |
|
Pension and postretirement benefits | (794 | ) | | (1,404 | ) | (796 | ) | | (794 | ) |
Loss (gain) from the sale of property, plant and equipment | (942 | ) | | 15 |
| |
Realized (gain) loss from sale of property, plant and equipment | | (383 | ) | | (942 | ) |
Bad debt expense | 61 |
| | — |
| (190 | ) | | 61 |
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Proceeds from insurance related to operations | 826 |
| | — |
| — |
| | 826 |
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Changes in operating assets and liabilities, excluding effects of acquisitions: | |
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| | |
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Accounts receivable | (13,220 | ) | | (8,693 | ) | (9,446 | ) | | (13,220 | ) |
Contract assets | | (21,933 | ) | | — |
|
Inventories | (6,464 | ) | | 616 |
| (6,489 | ) | | (6,464 | ) |
Pension contribution | (147 | ) | | (138 | ) | |
Pension and postretirement benefit contributions | | (338 | ) | | (147 | ) |
Other current assets | (1,991 | ) | | (2,056 | ) | (1,299 | ) | | (1,991 | ) |
Accounts payable and other accrued expenses | 7,213 |
| | 12,585 |
| (13,835 | ) | | 7,213 |
|
Other, net | 1,703 |
| | (1,908 | ) | 3,287 |
| | 1,703 |
|
Net cash provided by operating activities | 64,489 |
| | 51,304 |
| 22,818 |
| | 64,489 |
|
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Investing Activities: | |
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| |
| | |
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Business acquisition | (60,191 | ) | | — |
| |
Capital expenditures, net | (9,696 | ) | | (9,992 | ) | |
Proceeds from insurance related to property, plant and equipment | 922 |
| | — |
| |
Acquisition of business, net of cash received | | — |
| | (60,191 | ) |
Capital expenditures | | (20,177 | ) | | (9,696 | ) |
Proceeds from insurance claims | | — |
| | 922 |
|
Proceeds from the sale of property, plant and equipment, net | 1,641 |
| | — |
| 1,027 |
| | 1,641 |
|
Net cash used in investing activities | (67,324 | ) | | (9,992 | ) | (19,150 | ) | | (67,324 | ) |
| | | | | | |
Financing Activities: | |
| | |
| |
| | |
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Debt issuance costs | (1,169 | ) | | — |
| |
Repayment of debt principal and long term lease obligation | (50,178 | ) | | (1,516 | ) | |
Line of credit issuance costs | | — |
| | (1,169 | ) |
Repayment of debt principal and capital lease obligations | | (291 | ) | | (50,178 | ) |
Repurchases of capital stock | — |
| | (3,997 | ) | (2,999 | ) | | — |
|
Proceeds from the exercise of stock options, net | 1,905 |
| | 2,058 |
| 698 |
| | 1,905 |
|
Issuance of shares upon vesting of restricted stock units, net | (2,617 | ) | | (1,201 | ) | |
Payments of taxes related to net share settlement of equity awards | | (6,427 | ) | | (2,617 | ) |
Proceeds from issuance of shares to employee stock purchase plan | 422 |
| | 427 |
| 558 |
| | 422 |
|
Net cash used in financing activities | (51,637 | ) | | (4,229 | ) | (8,461 | ) | | (51,637 | ) |
| | | | | | |
Effect of exchange rate fluctuations on cash | 4,017 |
| | 5,728 |
| (1,666 | ) | | 4,017 |
|
| | | | | | |
Net increase (decrease) in cash and cash equivalents | (50,455 | ) | | 42,811 |
| |
Net decrease in cash and cash equivalents | | (6,459 | ) | | (50,455 | ) |
Cash and cash equivalents at beginning of period | 227,767 |
| | 204,586 |
| 181,159 |
| | 227,767 |
|
Cash and cash equivalents at end of period | $ | 177,312 |
| | $ | 247,397 |
| $ | 174,700 |
| | $ | 177,312 |
|
| | | | |
Supplemental Disclosures: | | | | |
Cash paid during the year for: | | | | |
Interest, net of amounts capitalized | | $ | 2,631 |
| | $ | 3,085 |
|
Income taxes | | $ | 14,040 |
| | $ | 13,913 |
|
ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands)
| | | Capital Stock/Capital Shares | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Shareholders’ Equity | | Capital Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
Balance at December 31, 2016 | $ | 18,021 |
| | $ | 118,678 |
| | $ | 591,349 |
| | $ | (92,262 | ) | | $ | 635,786 |
| |
Balance at December 31, 2017 | | | $ | 18,255 |
| | $ | 128,933 |
| | $ | 684,540 |
| | $ | (65,155 | ) | | $ | 766,573 |
|
Net income | — |
| | — |
| | 47,928 |
| | — |
| | 47,928 |
| | — |
| | — |
| | 43,465 |
| | — |
| | 43,465 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | 16,772 |
| | 16,772 |
| | — |
| | — |
| | — |
| | (7,109 | ) | | (7,109 | ) |
Stock options exercised | 50 |
| | 1,855 |
| | — |
| | — |
| | 1,905 |
| | 18 |
| | 680 |
| | — |
| | — |
| | 698 |
|
Stock issued to directors | 12 |
| | (12 | ) | | — |
| | — |
| | — |
| | 11 |
| | (11 | ) | | — |
| | — |
| | — |
|
Shares issued for employees stock purchase plan | 8 |
| | 414 |
| | — |
| | — |
| | 422 |
| |
Shares issued for employee stock purchase plan | | | 6 |
| | 552 |
| | — |
| | — |
| | 558 |
|
Shares issued for vested restricted stock units, net of cancellations for tax withholding | 70 |
| | (2,687 | ) | | — |
| | — |
| | (2,617 | ) | | 113 |
| | (6,540 | ) | | — |
| | — |
| | (6,427 | ) |
Cumulative-effect adjustment of change in accounting for share-based compensation | — |
| | — |
| | 12,732 |
| | — |
| | 12,732 |
| |
Stock-based compensation expense | — |
| | 5,327 |
| | — |
| | — |
| | 5,327 |
| |
Balance at June 30, 2017 | $ | 18,161 |
| | $ | 123,575 |
| | $ | 652,009 |
| | $ | (75,490 | ) | | $ | 718,255 |
| |
Shares repurchased | | | (23 | ) | | (2,976 | ) | | — |
| | — |
| | (2,999 | ) |
Cumulative-effect adjustment of revenue recognition ASC 606 | | | — |
| | — |
| | 4,212 |
| | — |
| | 4,212 |
|
Equity compensation expense | | | — |
| | 5,814 |
| | — |
| | — |
| | 5,814 |
|
Balance at June 30, 2018 | | | $ | 18,380 |
| | $ | 126,452 |
| | $ | 732,217 |
| | $ | (72,264 | ) | | $ | 804,785 |
|
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 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 of America (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 transactions have been eliminated.
Certain statementOn January 1, 2018, the Company adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of financial position reclassifications have been madeNet Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. Upon adoption, the Company reclassified $0.4 million and $0.8 million in net periodic pension benefits from Selling, general and administrative expenses to prior period balances in order to conform toOther income (expense), net for the current period’s presentation.three and six months ended June 30, 2017, respectively. See Note 21, “Recent Accounting Standards” for further information.
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 fiscal year ended December 31, 2016.
2017.
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. Assetsmeasurement, including foreign currency contracts, copper derivative contracts and liabilitiesinterest rate swaps. Derivative instruments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, included:consist of:
|
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Carrying amount as of June 30, 2017 | | Level 1 | | Level 2 | | Level 3 |
Foreign currency contracts | | $ | (312 | ) | | $ | — |
| | $ | (312 | ) | | $ | — |
|
Copper derivative contracts | | $ | 1,331 |
| | $ | — |
| | $ | 1,331 |
| | $ | — |
|
Interest rate swap | | $ | (622 | ) | | $ | — |
| | $ | (622 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Carrying amount as of December 31, 2016 | | Level 1 | | Level 2 | | Level 3 |
Foreign currency contracts | | $ | (170 | ) | | $ | — |
| | $ | (170 | ) | | $ | — |
|
Copper derivative contracts | | $ | 1,277 |
| | $ | — |
| | $ | 1,277 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Derivative Instruments at Fair Value as of June 30, 2018 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Foreign currency contracts | $ | — |
| | $ | 118 |
| | $ | — |
| | $ | 118 |
|
Copper derivative contracts | $ | — |
| | $ | 827 |
| | $ | — |
| | $ | 827 |
|
Interest rate swap | $ | — |
| | $ | 1,439 |
| | $ | — |
| | $ | 1,439 |
|
|
| | | | | | | | | | | | | | | |
| Derivative Instruments at Fair Value as of December 31, 2017 |
(Dollars in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Foreign currency contracts | $ | — |
| | $ | (396 | ) | | $ | — |
| | $ | (396 | ) |
Copper derivative contracts | $ | — |
| | $ | 2,016 |
| | $ | — |
| | $ | 2,016 |
|
Interest rate swap | $ | — |
| | $ | 41 |
| | $ | — |
| | $ | 41 |
|
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). During the first quarter of 2017, we also entered into an interest rate swap to hedge interest rate risk. We do not use derivative financial instruments for trading or speculative purposes. The valuation of derivative contracts used to manage each of these 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.
Commodity - The fair value of copper derivatives is computed using a combination of intrinsic and time value valuation models. 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 the constant 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. Overall, fair value is a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate, and volatility.
Interest Rates - The fair value of interest rate swap instruments is derived by comparing the present value of the interest rate forward curve against the present value of the swap rate, relative to the notional amount of the swap. The net value represents the estimated amount we would receive or pay to terminate the agreements. Settlement amounts for an “in the money” swap would be adjusted down to compensate the counterparty for cost of funds, and the adjustment is directly related to the counterparties’ credit ratings.
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 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). 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. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of the future cash flows of the hedged item (i.e., the ineffective portion) if any, is recognized in the condensed consolidated statements of operations during the current period. As of June 30, 20172018, only our interest rate swap qualified for hedge accounting treatment as a cash flow hedge. For the six months ended June 30, 2018 and 2017, therethe hedge was hedge ineffectiveness of approximately $0.1 million which was recorded in the condensed consolidated statement of operations. For the six months ended June 30, 2016 there was no hedge ineffectiveness.highly effective.
Foreign Currency
During the quarterthree months ended June 30, 2017,2018, we entered into Korean Won, Japanese Yen, Euro, and Hungarian Forint and Chinese Renminbi 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.
As of June 30, 20172018 the notional values of these foreign currency forward contracts were:
| | Notional Values of Foreign Currency Derivatives | KRW/USD | | ₩ | 5,695,550,000 |
| | ₩ | 3,454,400,000 |
|
JPY/EUR | | ¥ | 266,000,000 |
| | ¥ | 335,000,000 |
|
EUR/USD | | € | 4,373,956 |
| | € | 12,822,491 |
|
EUR/HUF | | € | 581,180 |
| | € | 1,132,697 |
|
USD/CNY | | $ | 6,083,500 |
| | $ | 10,637,837 |
|
Commodity
We currently have twenty-two25 outstanding contracts to hedge exposure related to the purchase of copper in our Power Electronics Solutions (PES) and Advanced Connectivity Solutions (ACS) operations.operating segments. These contracts are held with financial institutions and minimize the risk associated with a potential rise inare intended to offset rising copper prices. These contracts provide some coverage over the forecasted 20172018 and 20182019 monthly copper exposure 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.operations in the period in which the adjustment occurs. The notional values of our copper contracts outstanding as of June 30, 20172018 were:
|
| | |
Volume of Copper Derivatives |
July 20172018 - September 20172018 | 122 | 153 metric tons per month |
October 20172018 - December 20172018 | 122 | 153 metric tons per month |
January 20182019 - March 20182019 | 140 | 189 metric tons per month |
April 20182019 - June 20182019 | 98 | 188 metric tons per month |
July 20182019 - September 20182019 | 46 | 145 metric tons per month |
Interest Rates
In March 2017, we entered into an interest rate swap to hedge the variable interest rate on $75.0 million of our $450.0 million revolving credit facility. This transaction has been designated as a cash flow hedge and qualifies for hedge accounting treatment. See Note 12, “Debt” for further discussion regarding the credit facility. In July 2012, we entered into an interest rate swap to hedge the variable interest rate on our previously outstanding term loan debt. This swap expired as of June 30, 2016.
Effects on Statements of Operations and of Comprehensive Income (Loss):
| | (Dollars in thousands) | | The Effect of Current Derivative Instruments on the Financial Statements for the period ended June 30, 2017 | | Fair Values of Derivative Instruments as of June 30, 2017 | | The Effect of Current Derivative Instruments on the Financial Statements for the period ended June 30, 2018 | | Fair Values of Derivative Instruments as of June 30, 2018 |
| | | | Gain (Loss) | | Other Assets (Liabilities) | | | | Gain (Loss) | | Other Assets (Liabilities) |
Foreign Exchange Contracts | | Location | | Quarter Ended | | Six Months Ended | | | | Location | | Three Months Ended | | Six Months Ended | | |
Contracts not designated as hedging instruments | | Other income (expense), net | | $ | (312 | ) | | $ | (291 | ) | | $ | (312 | ) | | Other income (expense), net | | $ | (60 | ) | | $ | (124 | ) | | $ | 118 |
|
Copper Derivatives | | | | | | |
| | | | | | | | | | |
Contracts not designated as hedging instruments | | Other income (expense), net | | $ | 71 |
| | $ | 205 |
| | $ | 1,331 |
| | Other income (expense), net | | $ | (363 | ) | | $ | (1,185 | ) | | $ | 827 |
|
Interest Rate Swap | | | | | | | | | | | | |
Contract designated as hedging instrument | | Other comprehensive income (loss) | | $ | (335 | ) | | $ | (515 | ) | | $ | (622 | ) | |
Contracts designated as hedging instruments | | | Other comprehensive income (loss) | | $ | 410 |
| | $ | 1,399 |
| | $ | 1,439 |
|
| | (Dollars in thousands) | | The Effect of Current Derivative Instruments on the Financial Statements for the period ended June 30, 2016 | | Fair Values of Derivative Instruments as of June 30, 2016 | | The Effect of Current Derivative Instruments on the Financial Statements for the period ended June 30, 2017 | | Fair Values of Derivative Instruments as of June 30, 2017 |
| | | | Gain (Loss) | | Other Assets (Liabilities) | | | | Gain (Loss) | | Other Assets (Liabilities) |
Foreign Exchange Contracts | | Location | | Quarter Ended | | Six Months Ended | | | | Location | | Three Months Ended | | Six Months Ended | | |
Contracts not designated as hedging instruments | | Other income (expense), net | | $ | 943 |
| | $ | 908 |
| | $ | 908 |
| | Other income (expense), net | | $ | (312 | ) | | $ | (291 | ) | | $ | (312 | ) |
Copper Derivatives | | | | | | | | | | | | | | | | |
Contracts not designated as hedging instruments | | Other income (expense), net | | $ | (79 | ) | | $ | (103 | ) | | $ | 315 |
| | Other income (expense), net | | $ | 71 |
| | $ | 205 |
| | $ | 1,331 |
|
Interest Rate Swap | | | | | | | |
Contracts designated as hedging instruments | | | Other comprehensive income (loss) | | $ | (335 | ) | | $ | (515 | ) | | $ | (622 | ) |
Note 4 – Inventories
Inventories are valued at the lower of cost or market. Inventories were as follows at the end of the periods noted below:
| | (Dollars in thousands) | June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
Raw materials | $ | 39,163 |
| | $ | 29,788 |
| $ | 51,370 |
| | $ | 43,092 |
|
Work-in-process | 27,074 |
| | 26,440 |
| 29,150 |
| | 28,133 |
|
Finished goods | 36,312 |
| | 34,902 |
| 37,219 |
| | 41,332 |
|
Total inventories | $ | 102,549 |
| | $ | 91,130 |
| $ | 117,739 |
| | $ | 112,557 |
|
Note 5 – Acquisitions
Diversified Silicone Products
On January 6, 2017, we acquired the principal operating assets of Diversified Silicone Products, Inc. (DSP), pursuant to the terms of the Asset Purchase Agreement by and among the Company, DSP and the principal shareholders of DSP (the Purchase Agreement). Pursuant to the terms of the Purchase Agreement, we acquired certain assets and assumed certain liabilities of DSP for a total purchase price of approximately $60.2 million.
We used borrowings of $30.0 million under our credit facility in addition to cash on hand to fund the acquisition.
DSP is a custom silicone product development and manufacturing business and expands the portfolio of Rogers’our Elastomeric Material Solutions business (EMS) operating segment in cellular sponge and specialty extruded silicone profile technologies, while strengthening existing expertise in precision-calendered silicone and silicone formulating and compounding.
The acquisition has been accounted for in accordance with applicable purchase accounting guidance. On a preliminary basis, we recorded goodwill primarily related to the expected synergies from combining operations and the value of the existing workforce. We also recorded intangible assets related to acquired customer relationships, developed technology, trademarks, and a covenant not to compete. As of the filing date of this Form 10-Q, the final purchase accounting and purchase price allocation for the DSP acquisition are substantially complete, however, we continue to refine our preliminary valuation of certain acquired assets and the valuations below remain subject to change. The following table represents the preliminary fair market values assigned to the acquired assets and liabilities in the transaction:
|
| | | |
(Dollars in thousands) | January 6, 2017 |
Assets: | |
Accounts receivable | $ | 2,724 |
|
Prepaid expenses | 21 |
|
Inventory | 2,433 |
|
Property, plant & equipment | 1,589 |
|
Intangible assets | 35,860 |
|
Goodwill | 17,793 |
|
Total assets | 60,420 |
|
| |
|
Liabilities: | |
|
Accounts payable | 179 |
|
Accrued expenses | 50 |
|
Total liabilities | 229 |
|
| |
|
Fair value of net assets acquired | $ | 60,191 |
|
The intangible assets consist of customer relationships valued at $30.5 million, developed technology valued at $1.8 million, trademarks valued at $3.3 million, and a covenant not to compete valued at $0.3 million. The fair value of acquired identified intangible assets was determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 under the fair value measurements and disclosure guidance.
The weighted average amortization period for the intangible asset classes are 11.8 years for customer relationships, 4.3 years for developed technology, 11.7 years for trademarks, and 4.1 years for a covenant not to compete, resulting in amortization expenses
ranging from $1.1 million to $2.0 million annually. The estimated annual future amortization expense is $1.0 million for the remainder of 2017, $1.9 million for 2018, and $1.8 million for each of 2019, 2020, and 2021.
During the first six months of 2017, we incurred transaction costs of $0.5 million related to the DSP acquisition, which were recorded within selling, general and administrative expenses in the condensed consolidated statements of operations.
The results of DSP have been included in our condensed consolidated financial statements only for the periodperiods subsequent to the completion of theour acquisition on January 6, 2017, through June 30, 2017. DSP’s net sales for the three and six months ended June 30, 2017 totaled $5.4 million and $10.9 million, respectively.
DeWAL
On November 23, 2016, we acquired all of the membership interests in DeWAL Industries LLC (DeWAL), pursuant to the terms of the Membership Interest Purchase Agreement, dated November 23, 2016, by and among the Company and the owners of DeWAL for an aggregate purchase price of $135.5 million.
We used borrowings of $136.0 million under our credit facility to fund the acquisition.
DeWAL is a leading manufacturer of polytetrafluoroethylene and ultra-high molecular weight polyethylene films, pressure sensitive tapes and specialty products for the industrial, aerospace, automotive, and electronics markets.
The acquisition has been accounted for in accordance with applicable purchase accounting guidance. We recorded goodwill, primarily related to the expected synergies from combining operations and the value of the existing workforce. We also recorded intangible assets primarily related to customer relationships, developed technology, trademarks, and a covenant not to compete. As of the filing date of this Form 10-Q, the final purchase accounting and purchase price allocation for the DeWAL acquisition are substantially complete; however, we continue to refine our preliminary valuation of certain acquired assets and the valuations set forth below remain subject to change. The following table represents the preliminary fair values assigned to the acquired assets and liabilities in the transaction:
|
| | | |
(Dollars in thousands) | November 23, 2016 |
Assets: | |
Cash and cash equivalents | $ | 1,539 |
|
Accounts receivable | 7,513 |
|
Other current assets | 691 |
|
Inventory | 9,915 |
|
Property, plant & equipment | 9,932 |
|
Intangible assets | 73,500 |
|
Goodwill | 35,755 |
|
Other long-term assets | 101 |
|
Total assets | 138,946 |
|
| |
|
Liabilities: | |
|
Accounts payable | 2,402 |
|
Other current liabilities | 1,062 |
|
Total liabilities | 3,464 |
|
| |
|
Fair value of net assets acquired | $ | 135,482 |
|
The intangible assets consist of customer relationships valued at $46.7 million, developed technology valued at $22.0 million, trademarks valued at $4.3 million, and a covenant not to compete valued at $0.5 million. The fair value of acquired identified intangible assets was determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 under the fair value measurements and disclosure guidance.
The weighted average amortization period for the intangible asset classes are 13.5 years for customer relationships, 8.6 years for developed technology, 5.2 years for trademarks, and 3.8 years for a covenant not to compete, resulting in amortization expenses ranging from $2.4 million to $4.3 million, annually. The future estimated annual amortization expense is $1.5 million for the remainder of 2017, $3.7 million for 2018, $4.1 million for 2019, and $4.3 million for 2020 and 2021.
During 2016, we incurred transaction costs of $2.1 million related to this acquisition, which were recorded within selling, general and administrative expenses on the consolidated statements of operations.
Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations of Rogers, DSP and DeWAL, as if the DSP acquisition had occurred on January 1, 2016 and the DeWAL acquisition had occurred on January 1, 2015. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the DSP and DeWAL acquisitions been completed as of January 1, 2016, and January 1, 2015, respectively, and should not be taken as indicative of our future consolidated results of operations.
|
| | | | | | | |
(Dollars in thousands) | Three months ended June 30, 2016 | | Six months ended June 30, 2016 |
Net sales | $ | 175,533 |
| | $ | 354,401 |
|
Net income | 5,313 |
| | 18,540 |
|
Note 6 – Accumulated Other Comprehensive Income (Loss)Loss
The changes in accumulated other comprehensive income (loss)loss by component for the six months ended June 30, 20172018 and 20162017 were as follows:
| | (Dollars in tables and footnotes in thousands) | Foreign currency translation adjustments | | Funded status of pension plans and other postretirement benefits (1) | | Unrealized gain (loss) on derivative instruments (2) | | Total | |
Beginning Balance December 31, 2015 | $ | (41,365 | ) | | $ | (47,082 | ) | | $ | (11 | ) | | $ | (88,458 | ) | |
(Dollars and accompanying footnotes in thousands) | | Foreign currency translation adjustments | | Funded status of pension plans and other postretirement benefits(1) | | Unrealized gain (loss) on derivative instruments (2) | | Total |
Beginning Balance December 31, 2017 | | $ | (17,983 | ) | | $ | (47,198 | ) | | $ | 26 |
| | $ | (65,155 | ) |
Other comprehensive income (loss) before reclassifications | 5,197 |
| | — |
| | — |
| | 5,197 |
| (8,293 | ) | | — |
| | 1,097 |
| | (7,196 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) (3) | — |
| | 71 |
| | 11 |
| | 82 |
| |
Amounts reclassified from accumulated other comprehensive loss | | — |
| | 87 |
| | — |
| | 87 |
|
Net current-period other comprehensive income (loss) | 5,197 |
| | 71 |
| | 11 |
| | 5,279 |
| (8,293 | ) | | 87 |
| | 1,097 |
| | (7,109 | ) |
Ending Balance June 30, 2016 | $ | (36,168 | ) | | $ | (47,011 | ) | | $ | — |
| | $ | (83,179 | ) | |
Ending Balance June 30, 2018 | | $ | (26,276 | ) | | $ | (47,111 | ) | | $ | 1,123 |
| | $ | (72,264 | ) |
| | | | | | | | | | | | | | |
Beginning Balance December 31, 2016 | $ | (46,446 | ) | | $ | (45,816 | ) | | $ | — |
| | $ | (92,262 | ) | $ | (46,446 | ) | | $ | (45,816 | ) | | $ | — |
| | $ | (92,262 | ) |
Other comprehensive income (loss) before reclassifications (4) | 16,730 |
| | — |
| | (435 | ) | | 16,295 |
| 16,730 |
| | — |
| | (435 | ) | | 16,295 |
|
Actuarial net gain (loss) incurred in the fiscal year (4) | — |
| | 334 |
| | — |
| | 334 |
| |
Amounts reclassified from accumulated other comprehensive (income) loss (4) | — |
| | 36 |
| | 107 |
| | 143 |
| |
Actuarial net gain incurred in the fiscal year | | — |
| | 334 |
| | — |
| | 334 |
|
Amounts reclassified from accumulated other comprehensive loss | | — |
| | 36 |
| | 107 |
| | 143 |
|
Net current-period other comprehensive income (loss) | 16,730 |
| | 370 |
| | (328 | ) | | 16,772 |
| 16,730 |
| | 370 |
| | (328 | ) | | 16,772 |
|
Ending Balance June 30, 2017 | $ | (29,716 | ) | | $ | (45,446 | ) | | $ | (328 | ) | | $ | (75,490 | ) | $ | (29,716 | ) | | $ | (45,446 | ) | | $ | (328 | ) | | $ | (75,490 | ) |
(1) Net of taxes of $9,536 and $9,563 as of June 30, 2018 and December 31, 2017, respectively. Net of taxes of $8,961 and $9,160 as of June 30, 2017 and December 31, 2016, respectively.
(2) Net of taxes of $9,840$316 and $9,879$15 as of June 30, 20162018 and December 31, 2015,2017, respectively.
(2) Net of taxes of $187 and $0 as of June 30, 2017 and December 31, 2016, respectively. Net of taxes of $0 and $5 as of June 30, 2016 and December 31, 2015, respectively.
(3) Net of taxes of $39 and $5 for the pension plans and postretirement benefits and unrealized gain (loss) on derivatives, respectively.
(4) Net of taxes of $199 and $(187) for the pension plans and postretirement benefits and unrealized gain (loss) on derivatives, respectively.
Note 7 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
| | (In thousands, except per share amounts) | Quarter Ended | | Six Months Ended | |
June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(Dollars and shares in thousands, except per share amounts) | | Three Months Ended | | Six Months Ended |
| June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Numerator: | | | | | | | | | | | | | | |
Net income | $ | 20,896 |
| | $ | 5,377 |
| | $ | 47,928 |
| | $ | 20,305 |
| $ | 17,329 |
| | $ | 20,896 |
| | $ | 43,465 |
| | $ | 47,928 |
|
Denominator: | | | | | | | |
| | | | | | | |
|
Weighted-average shares outstanding - basic | 18,140 |
| | 18,007 |
| | 18,098 |
| | 17,986 |
| 18,389 |
| | 18,140 |
| | 18,338 |
| | 18,098 |
|
Effect of dilutive shares | 407 |
| | 246 |
| | 362 |
| | 248 |
| 271 |
| | 407 |
| | 297 |
| | 362 |
|
Weighted-average shares outstanding - diluted | 18,547 |
| | 18,253 |
| | 18,460 |
| | 18,234 |
| 18,660 |
| | 18,547 |
| | 18,635 |
| | 18,460 |
|
Basic earnings per share | $ | 1.15 |
| | $ | 0.30 |
| | $ | 2.65 |
| | $ | 1.13 |
| $ | 0.94 |
| | $ | 1.15 |
| | $ | 2.37 |
| | $ | 2.65 |
|
Diluted earnings per share | $ | 1.13 |
| | $ | 0.29 |
| | $ | 2.60 |
| | $ | 1.11 |
| $ | 0.93 |
| | $ | 1.13 |
| | $ | 2.33 |
| | $ | 2.60 |
|
Certain potential options to purchase shares may be excluded from the calculation of diluted weighted-average shares outstanding where their exercise price is greater than the average market price of our capital stock during the relevant reporting period. For the quarterthree months ended June 30, 2018, 27,145 shares were excluded. For the three months ended June 30, 2017, no shares were excluded. For the quarter ended June 30, 2016, 13,500 shares were excluded.
Note 8 – Stock-Based Compensation
Equity Compensation Awards
Performance-Based Restricted Stock Units
As of June 30, 2017,2018, we had performance-based restricted stock awardsunits from 2015, 2016, 2017 and 20172018 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 vestingmeasurement period. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures. Compensation expense is recognized using the straight line method over the vesting period, unless the employee has an accelerated vesting schedule.
The 20152016, 2017 and 2018 awards have twoone measurement criteria on which the final payout of each award is based - (i) the three year return on invested capital (ROIC) compared to that of a specified group of peer companies, and (ii)criteria: the three year total shareholder return (TSR) on the performance of our capital stock as compared to that of a specified group of peer companies. The 2016 and 2017 awards have one measurement criteria - the three year TSR on the performance of our capital stock as compared to that of a specified group of peer companies. In accordance with the applicable accounting literature, the ROIC measurement criteria of the 2015 awards is considered a performance condition. As such, the fair value of the ROIC portion is determined based on the market value of the underlying stock price at the grant date, with cumulative compensation expense recognized to date being increased or decreased based on changes in the forecasted pay out percentage at the end of each reporting period. The TSR measurement criteria of the awards is considered a market condition. As such, the fair value of this measurement criteria was determined on the grant date of grant using a Monte Carlo simulation valuation model, with relatedmodel. We recognize compensation expense fixed on the grant date and expensedall of these awards on a straight-line basis over the life of the awards that ultimately vest andvesting period with no changes for the final projected payout of the awards. We account for forfeitures as they occur.
Below were the assumptions used in the Monte Carlo calculation:
| | | | June 30, 2017 | | June 30, 2016 | June 30, 2018 | | June 30, 2017 |
Expected volatility | | 33.6% | | 29.6% | 34.8% | | 33.6% |
Expected term (in years) | | 3.0 | | 3.0 | 3.0 | | 3.0 |
Risk-free interest rate | | 1.38% | | 0.93% | 2.28% | | 1.38% |
Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility.
Expected term – We use the vestingmeasurement 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.
Forfeiture Rate - We previously estimated the forfeiture rate based on historical experience and our expectations regarding future terminations. To the extent our actual forfeiture rate was different from our estimate, stock-based compensation expense was adjusted accordingly. In accordance with the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, on January 1, 2017, we now account for forfeitures as they occur. The adoption of this standard, with respect to treatment of forfeitures, did not have a material impact on our condensed consolidated financial statements in the period of adoption.
The following table summarizes the change in number of non-vested performance-based restricted stock awardsunits outstanding since December 31, 2016:for the six months ended June 30, 2018:
|
| | |
| Performance-Based Restricted Stock AwardsUnits |
Non-vested awardsAwards outstanding at December 31, 20162017 | 151,769169,202 |
|
Awards granted | 56,14772,160 |
|
Stock issued | (33,88781,230 | ) |
Awards forfeited | (3,55717,489 | ) |
Non-vested awardsAwards outstanding at June 30, 20172018 | 170,472142,643 |
|
During the three and six months ended June 30, 2018, we recognized compensation expense for performance-based restricted stock units of approximately $0.8 million and $1.8 million, respectively. During the three and six months ended June 30, 2017, we recognized compensation expense for performance-based restricted stock awardsunits of approximately $1.6 million and $1.5 million, respectively. During the three and six months ended and June 30, 2016, we recognized compensation expense for performance-based stock awards of approximately $1.4 million and $2.1 million respectively.
Time-Based Restricted Stock Units
As of June 30, 2017,2018, we had time-based restricted stock grantsunit awards from 2013, 2014, 2015, 2016, 2017 and 20172018 outstanding. The remaining 2013 grant cliff vests on the fourth anniversary of the original grant date. The 2014, 2015, 2016, 2017 and 20172018 grants all ratably vest on the first, second and third anniversaries of the original grant date. The remaining outstanding 2014 grants cliff vest on December 17, 2018, the fourth anniversary of the original grant date. Each restricted stock unit represents a right to receive one share of the 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. The fair value of the award is determined based on the market value of the underlying stock price at the grant date.We account for forfeitures as they occur.
The following table summarizes the change in number of non-vested time-based restricted stock awardsunits outstanding since December 31, 2016:for the six months ended June 30, 2018:
|
| | |
| Time-Based Restricted Stock AwardsUnits |
Non-vested awardsAwards outstanding at December 31, 20162017 | 239,189173,331 |
|
Awards granted | 77,00541,310 |
|
Stock issued | (68,14277,513 | ) |
Awards forfeited | (4,72514,627 | ) |
Non-vested awardsAwards outstanding at June 30, 20172018 | 243,327122,501 |
|
During the three and six months ended June 30, 2018 we recognized compensation expense for time-based restricted stock units of approximately $1.3 million and $2.9 million, respectively. During the three and six months ended June 30, 2017 we recognized compensation expense for time-based restricted stock awardsunits of approximately $1.7 million and $2.7 million, respectively. During the three and six months ended June 30, 2016 we recognized compensation expense for time-based restricted stock awards of approximately $1.5 million and $2.7 million, respectively.
Forfeiture Rate - We previously estimated the forfeiture rate based on historical experience and our expectations regarding future terminations. To the extent our actual forfeiture rate was different from our estimate, stock-based compensation expense was adjusted accordingly. In accordance with the adoption of ASU 2016-09 on January 1, 2017, we now account for forfeitures as they occur. The adoption of this standard, with respect to treatment of forfeitures, did not have a material impact on our condensed consolidated financial statements in the period of adoption.
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 month13-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 based onby the market value of the underlying stock price at the grant date.
The following table summarizes the change in number of deferred stock units outstanding since December 31, 2016:during the six months ended June 30, 2018:
|
| | |
| Deferred Stock Units |
Awards outstanding at December 31, 20162017 | 11,9009,250 |
|
Awards granted | 8,400 |
|
Stock issued | (11,9008,400 | ) |
Awards outstanding at June 30, 20172018 | 8,4009,250 |
|
ForDuring each of the threethree- and six monthsix-month periods ended June 30, 20172018 and 2016,2017, we recognized compensation expense associated with the deferred stock units of $0.9 million and $0.7 million, respectively.$0.9 million.
Stock Options
Stock options have been granted under various equity compensation plans, and they generally became exercisable in one-third increments on the second, third and fourth anniversaries of the grant dates. The maximum contractual term for all options was normally ten years. We used the Black-Scholes option-pricing model to calculate the grant-date fair value of an option. We have not granted any stock options since the first quarter of 2012.
A summaryThe following table summarizes the change in number of stock options outstanding for the activity under our stock option plans during the three and six month periodsmonths ended June 30, 2017 and changes during the six months then ended, is presented below:2018:
|
| | | | | | | | | | | | |
| Options Outstanding | | Weighted- Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Life in Years | | Aggregate Intrinsic Value |
Options outstanding at March 31, 2017 | 94,275 |
| | $ | 37.46 |
| | 3.1 | | $ | 4,563,655 |
|
Options exercised | (29,317 | ) | | $ | 38.46 |
| | | | |
|
Options forfeited | — |
| | $ | — |
| | | | |
|
Options outstanding at June 30, 2017 | 64,958 |
| | $ | 37.01 |
| | 3.0 | | $ | 4,651,550 |
|
Options exercisable at June 30, 2017 | 64,958 |
| | $ | 37.01 |
| | 3.0 | | $ | 4,651,550 |
|
Options vested at June 30, 2017 | 64,958 |
| | $ | 37.01 |
| | 3.0 | | $ | 4,651,550 |
|
| | | Options Outstanding | | Weighted- Average Exercise Price Per Share | Options Outstanding | | Weighted- Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Life in Years | | Aggregate Intrinsic Value |
Options outstanding at December 31, 2016 | 116,575 |
| | $ | 37.76 |
| |
Outstanding at December 31, 2017 | | 33,283 |
| | $ | 36.40 |
| | 2.2 | | $ | 4,177,655 |
|
Options exercised | (51,617 | ) | | $ | 36.66 |
| (17,683 | ) | | $ | 39.48 |
| | |
Options forfeited | — |
| | $ | — |
| — |
| | $ | — |
| | |
Options outstanding at June 30, 2017 | 64,958 |
| | $ | 37.01 |
| |
Options outstanding at June 30, 2018 | | 15,600 |
| | $ | 32.91 |
| | 2.5 | | $ | 1,225,308 |
|
Options exercisable at June 30, 2018 | | 15,600 |
| | $ | 32.91 |
| | 2.5 | | $ | 1,225,308 |
|
Options vested at June 30, 2018 | | 15,600 |
| | $ | 32.91 |
| | 2.5 | | $ | 1,225,308 |
|
During the six months ended June 30, 2017,2018, the total intrinsic value of options exercised (i.e., the difference between the market price at time of exercise and the price paid by the individual to exercise the options) was $2.8$2.0 million, and the total amount of cash received from the exercise of these options was $1.9$0.7 million.
Employee Stock Purchase Plan
We have an employee stock purchase plan (ESPP) that allows eligible employees to purchase, through payroll deductions, shares of our capital stock at a discount to fair market value. The ESPP has two six month offering periods each year, the first beginning in January and ending in June and the second beginning in July and ending in December. The ESPP contains a look-back feature that allows the employee to acquire shares of our capital stock at a 15% discount from the underlying market price at the beginning or end of the applicable period, whichever is lower. We recognize compensation expense on this plan ratably over the offering period based on the fair value of the anticipated number of shares that will be issued at the end of each offering period. Compensation expense is adjusted at the end of each offering period for the actual number of shares issued. Fair value is determined based on two factors: (i) the 15% discount on the underlying stock’s market value on the first day of the applicable offering period and (ii) the fair value of the look-back feature determined by using the Black-Scholes option-pricing model. We recognized approximately $0.1 million of compensation
expense associated with the plan in each of the quartersthree-month periods ended June 30, 20172018 and 20162017 and approximately $0.2 million of compensation expense associated with each of the six monthsix-month periods ended June 30, 20172018 and 2016.2017.
Note 9 – Pension Benefits and Other Postretirement Benefit Plans
We have two qualified noncontributory defined benefit pension plans: 1) the Rogers Corporation Employee’s Pension Plan for unionized hourly employees (the Union Plan); and 2) the Rogers Corporation Defined Benefit Pension Plan for (i) all other U.S. employees hired before December 31, 2007 who are salaried employees or non-union hourly employees and (ii) employees of the acquired Arlon business (the Rogers Plan).
The Company also maintains the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2004 and the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2005 (collectively, the Nonqualified Plans). The Nonqualified Plans serve to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans, as well as to provide supplemental retirement benefits, for certain senior executives of the Company.
In addition, we sponsor multiple fully insured or self-funded medical plans and life insurance plans for certain retirees. The measurement date for all plans is December 31 for each respective plan year.
Pension Plan Proposed Termination
The Company currently intends to terminate the Rogers Plan and has requested a determination letter from the Internal Revenue Service (IRS). The termination of the Rogers Plan remains subject to final approval by both management and the IRS. The Company plans to provide for lump sum distributions or annuity payments in connection with the termination of the Rogers Plan and we expect the settlement process to be completed in early 2019. The Company lacks sufficient information as of June 30, 2018 to determine the financial impact of the proposed plan termination. At this time, there are no plans to terminate the Union Plan.
Components of Net Periodic (Benefit) Cost
The components of net periodic (benefit) cost for the periods indicated were:
| | | | | | | | | | | | | | | | | | | Pension Benefits | | Retirement Health and Life Insurance Benefits |
(Dollars in thousands) | Pension Benefits | | Retirement Health and Life Insurance Benefits | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
Quarter Ended | | Six Months Ended | | Quarter Ended | | Six Months Ended | June 30, | | June 30, | | June 30, | | June 30, |
Change in benefit obligation: | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | 37 |
| | $ | 56 |
| | $ | 74 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | 17 |
| | $ | 38 |
| | $ | 56 |
|
Interest cost | 1,841 |
| | 1,893 |
| | 3,682 |
| | 3,786 |
| | 13 |
| | 19 |
| | 31 |
| | 38 |
| 1,692 |
| | 1,841 |
| | 3,372 |
| | 3,682 |
| | 16 |
| | 13 |
| | 31 |
| | 31 |
|
Expected return on plan assets | (2,309 | ) | | (2,706 | ) | | (4,618 | ) | | (5,412 | ) | | — |
| | — |
| | — |
| | — |
| (2,164 | ) | | (2,309 | ) | | (4,333 | ) | | (4,618 | ) | | — |
| | — |
| | — |
| | — |
|
Amortization of prior service cost (credit) | — |
| | — |
| | — |
| | — |
| | (407 | ) | | (373 | ) | | (780 | ) | | (746 | ) | |
Amortization of prior service credit | | — |
| | — |
| | — |
| | — |
| | (400 | ) | | (407 | ) | | (801 | ) | | (780 | ) |
Amortization of net loss (gain) | 433 |
| | 447 |
| | 866 |
| | 894 |
| | (17 | ) | | (19 | ) | | (31 | ) | | (38 | ) | 457 |
| | 433 |
| | 913 |
| | 866 |
| | — |
| | (17 | ) | | — |
| | (31 | ) |
Net periodic (benefit) cost | $ | (35 | ) | | $ | (366 | ) | | $ | (70 | ) | | $ | (732 | ) | | $ | (394 | ) | | $ | (336 | ) |
| $ | (724 | ) | | $ | (672 | ) | $ | (15 | ) | | $ | (35 | ) | | $ | (48 | ) | | $ | (70 | ) | | $ | (367 | ) | | $ | (394 | ) |
| $ | (732 | ) | | $ | (724 | ) |
Employer Contributions
At December 31, 2016 we had met the minimum funding requirements for all of our qualified defined benefit pension plans due to aThere were no required contribution of $0.3 million to the pension plan that covers employees at our Bear, Delaware facility. We made required contributions of $0.1 million to our qualified defined benefit pension plans infor the firstthree and six months of 2017ended June 30, 2018, and 2016. We estimate that we will beare not required to make additional contributions of $0.2 million to these plans in 2017.
Infor the quarterremainder of 2018. We paid $0.1 million of required contributions to our qualified defined benefit pension plans for the three and six month periodsmonths ended June 30, 2017 and 2016, we did not make any2017. No voluntary contributions were made to our qualified defined benefit pension plans.plans for the three and six months ended June 30, 2018 and 2017. We anticipate making an estimated payment of $25.0 million to the Rogers Plan during the third quarter of 2018 as part of the termination process.
As there is no funding requirement for the non-qualified unfunded noncontributory defined benefit pension plan or the retiree health and life insurance benefit plans, benefit payments made during the year are funded directly by the Company.
Note 10 – Segment Information
Our reporting structure is comprised of the following operating segments: ACS, EMS PES, and Other.PES. Our non-core businesses are reported in the Other operating segment. We believe this structure aligns our external reporting presentation with how we currently manage and view our business internally.
In November 2016,On January 1, 2018, we acquired DeWAL, a leading manufacturer of polytetrafluoroethylene, ultra-high molecular weight polyethylene films, pressure sensitive tapesadopted ASU 2014-09, Revenue from Contracts with Customers. See Note 19, “Revenue from Contracts with Customers” for further information about this adoption. The Company sells products to fabricators and specialty products fordistributors who then sell directly into various end markets. End markets within the ACS operating segment include wireless infrastructure, aerospace and defense, auto safety and connectivity, and consumer electronics. End markets within the EMS operating segment include general industrial, aerospace,portable electronics, mass transit, and automotive. End markets within the PES operating segment include industrial, e-mobility, renewable energy, mass transit, and micro channel coolers. End markets in the Other operating segment include automotive and electronics markets. In January 2017, we acquired the principal operating assets of DSP, a custom manufacturer of silicone sheet, extrusions, stripping and compounds. We are in the process of integrating both DeWAL and DSP into our EMS segment.
industrial. The following table sets forth the information about our segmentspresents a disaggregation of revenue from contracts with customers for the periods indicated; inter-segment sales have been eliminated from the net sales data:
|
| | | | | | | | | | | | | | | |
| Quarter Ended | | Six Months Ended |
(Dollars in thousands) | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 |
Net sales | | | | | | | |
Advanced Connectivity Solutions | $ | 74,340 |
| | $ | 67,222 |
| | $ | 152,882 |
| | $ | 140,598 |
|
Elastomeric Material Solutions | 77,585 |
| | 45,767 |
| | 154,434 |
| | 92,084 |
|
Power Electronics Solutions | 43,905 |
| | 38,363 |
| | 86,557 |
| | 73,614 |
|
Other | 5,594 |
| | 6,137 |
| | 11,379 |
| | 11,760 |
|
Total | $ | 201,424 |
| | $ | 157,489 |
| | $ | 405,252 |
| | $ | 318,056 |
|
| | | | | | | |
Operating income | |
| | |
| | |
| | |
|
Advanced Connectivity Solutions | $ | 13,208 |
| | $ | 10,829 |
| | $ | 32,897 |
| | $ | 26,729 |
|
Elastomeric Material Solutions | 14,068 |
| | 5,348 |
| | 26,980 |
| | 10,653 |
|
Power Electronics Solutions | 3,660 |
| | 477 |
| | 8,595 |
| | 1,773 |
|
Other | 1,823 |
| | 2,102 |
| | 3,728 |
| | 3,701 |
|
Total | 32,759 |
| | 18,756 |
| | 72,200 |
| | 42,856 |
|
| | | | | | | |
Equity income in unconsolidated joint ventures | 966 |
| | 708 |
| | 1,976 |
| | 1,321 |
|
Other income (expense), net | (185 | ) | | 191 |
| | 530 |
| | (356 | ) |
Interest expense, net | (1,947 | ) | | (1,115 | ) | | (3,195 | ) | | (2,236 | ) |
Income before income tax expense | $ | 31,593 |
| | $ | 18,540 |
| | $ | 71,511 |
| | $ | 41,585 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Advanced Connectivity Solutions | | Elastomeric Material Solutions | | Power Electronics Solutions | | Other | | Total |
Three Months Ended June 30, 2018 | | | | | | | | | | |
Net sales - recognized over time | | $ | — |
| | $ | 907 |
| | $ | 53,052 |
| | $ | 4,616 |
| | $ | 58,575 |
|
Net sales - recognized at a point in time | | 76,376 |
| | 78,309 |
| | 595 |
| | 820 |
| | 156,100 |
|
Total net sales | | $ | 76,376 |
| | $ | 79,216 |
| | $ | 53,647 |
| | $ | 5,436 |
| | $ | 214,675 |
|
Operating income | | $ | 10,594 |
| | $ | 8,421 |
| | $ | 4,239 |
| | $ | 1,970 |
| | $ | 25,224 |
|
| | | | | | | | | | |
Three Months Ended June 30, 2017 (1) | | | | | | | | | | |
Net sales - recognized over time | | $ | — |
| | $ | 415 |
| | $ | 43,409 |
| | $ | 4,741 |
| | $ | 48,565 |
|
Net sales - recognized at a point in time | | 74,340 |
| | 77,170 |
| | 496 |
| | 853 |
| | 152,859 |
|
Total net sales | | $ | 74,340 |
| | $ | 77,585 |
| | $ | 43,905 |
| | $ | 5,594 |
| | $ | 201,424 |
|
Operating income | | $ | 12,997 |
| | $ | 13,934 |
| | $ | 3,560 |
| | $ | 1,823 |
| | $ | 32,314 |
|
| | | | | | | | | | |
Six Months Ended June 30, 2018 | | | | | | | | | | |
Net sales - recognized over time | | $ | — |
| | $ | 1,941 |
| | $ | 110,451 |
| | $ | 9,265 |
| | $ | 121,657 |
|
Net sales - recognized at a point in time | | 149,831 |
| | 155,358 |
| | 909 |
| | 1,531 |
| | 307,629 |
|
Total net sales | | $ | 149,831 |
| | $ | 157,299 |
| | $ | 111,360 |
| | $ | 10,796 |
| | $ | 429,286 |
|
Operating income | | $ | 18,496 |
| | $ | 22,581 |
| | $ | 11,260 |
| | $ | 3,932 |
| | $ | 56,269 |
|
| | | | | | | | | | |
Six Months Ended June 30, 2017 (1) | | | | | | | | | | |
Net sales - recognized over time | | $ | — |
| | $ | 1,082 |
| | $ | 85,681 |
| | $ | 9,838 |
| | $ | 96,601 |
|
Net sales - recognized at a point in time | | 152,882 |
| | 153,352 |
| | 876 |
| | 1,541 |
| | 308,651 |
|
Total net sales | | $ | 152,882 |
| | $ | 154,434 |
| | $ | 86,557 |
| | $ | 11,379 |
| | $ | 405,252 |
|
Operating income | | $ | 32,495 |
| | $ | 26,724 |
| | $ | 8,404 |
| | $ | 3,728 |
| | $ | 71,351 |
|
(1) For comparison purposes, this table reflects the disaggregation of 2017 revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606).
Information relating to our segment operations by geographic area for the three months ended June 30, 2018 and 2017 was as follows:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | | Net Sales (1) |
Region/Country | | Advanced Connectivity Solutions | | Elastomeric Material Solutions | | Power Electronics Solutions | | Other | | Total |
June 30, 2018 | | | | | | | | | | |
United States | | 14,447 |
| | 35,777 |
| | 8,279 |
| | 866 |
| | 59,369 |
|
Other Americas | | 758 |
| | 2,179 |
| | 323 |
| | 725 |
| | 3,985 |
|
Total Americas | | 15,205 |
| | 37,956 |
| | 8,602 |
| | 1,591 |
| | 63,354 |
|
China | | 32,032 |
| | 24,071 |
| | 8,940 |
| | 1,410 |
| | 66,453 |
|
Other APAC | | 18,588 |
| | 8,324 |
| | 7,092 |
| | 649 |
| | 34,653 |
|
Total APAC | | 50,620 |
| | 32,395 |
| | 16,032 |
| | 2,059 |
| | 101,106 |
|
Germany | | 4,823 |
| | 2,595 |
| | 16,524 |
| | 163 |
| | 24,105 |
|
Other EMEA | | 5,728 |
| | 6,270 |
| | 12,489 |
| | 1,623 |
| | 26,110 |
|
Total EMEA | | 10,551 |
| | 8,865 |
| | 29,013 |
| | 1,786 |
| | 50,215 |
|
Total Net sales | | 76,376 |
| | 79,216 |
| | 53,647 |
| | 5,436 |
| | 214,675 |
|
June 30, 2017 | | | | | | | | | | |
United States | | 11,372 |
| | 35,904 |
| | 7,118 |
| | 1,348 |
| | 55,742 |
|
Other Americas | | 1,158 |
| | 2,989 |
| | 258 |
| | 193 |
| | 4,598 |
|
Total Americas | | 12,530 |
| | 38,893 |
| | 7,376 |
| | 1,541 |
| | 60,340 |
|
China | | 33,949 |
| | 22,556 |
| | 7,884 |
| | 1,072 |
| | 65,461 |
|
Other APAC | | 16,984 |
| | 8,693 |
| | 5,156 |
| | 1,002 |
| | 31,835 |
|
Total APAC | | 50,933 |
| | 31,249 |
| | 13,040 |
| | 2,074 |
| | 97,296 |
|
Germany | | 6,786 |
| | 2,355 |
| | 13,380 |
| | 158 |
| | 22,679 |
|
Other EMEA | | 4,091 |
| | 5,088 |
| | 10,109 |
| | 1,821 |
| | 21,109 |
|
Total EMEA | | 10,877 |
| | 7,443 |
| | 23,489 |
| | 1,979 |
| | 43,788 |
|
Total Net sales | | 74,340 |
| | 77,585 |
| | 43,905 |
| | 5,594 |
| | 201,424 |
|
| |
(1) | Net sales are allocated to countries based on the location of the customer. The table above includes countries with 10% or more of net sales for the periods indicated. |
Information relating to our segment operations by geographic area for the six months ended June 30, 2018 and 2017 was as follows:
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | | Net Sales (1) |
Region/Country | | Advanced Connectivity Solutions | | Elastomeric Material Solutions | | Power Electronics Solutions | | Other | | Total |
June 30, 2018 | | | | | | | | | | |
United States | | 26,725 |
| | 73,469 |
| | 16,857 |
| | 2,123 |
| | 119,174 |
|
Other Americas | | 1,584 |
| | 3,980 |
| | 681 |
| | 555 |
| | 6,800 |
|
Total Americas | | 28,309 |
| | 77,449 |
| | 17,538 |
| | 2,678 |
| | 125,974 |
|
China | | 65,539 |
| | 44,865 |
| | 18,362 |
| | 2,727 |
| | 131,493 |
|
Other APAC | | 33,926 |
| | 17,484 |
| | 13,543 |
| | 1,442 |
| | 66,395 |
|
Total APAC | | 99,465 |
| | 62,349 |
| | 31,905 |
| | 4,169 |
| | 197,888 |
|
Germany | | 11,073 |
| | 5,337 |
| | 31,234 |
| | 332 |
| | 47,976 |
|
Other EMEA | | 10,984 |
| | 12,164 |
| | 30,683 |
| | 3,617 |
| | 57,448 |
|
Total EMEA | | 22,057 |
| | 17,501 |
| | 61,917 |
| | 3,949 |
| | 105,424 |
|
Total Net sales | | 149,831 |
| | 157,299 |
| | 111,360 |
| | 10,796 |
| | 429,286 |
|
June 30, 2017 | | | | | | | | | | |
United States | | 24,595 |
| | 74,000 |
| | 15,708 |
| | 2,563 |
| | 116,866 |
|
Other Americas | | 1,725 |
| | 5,461 |
| | 561 |
| | 377 |
| | 8,124 |
|
Total Americas | | 26,320 |
| | 79,461 |
| | 16,269 |
| | 2,940 |
| | 124,990 |
|
China | | 71,378 |
| | 39,468 |
| | 14,251 |
| | 2,414 |
| | 127,511 |
|
Other APAC | | 32,911 |
| | 18,635 |
| | 10,275 |
| | 1,917 |
| | 63,738 |
|
Total APAC | | 104,289 |
| | 58,103 |
| | 24,526 |
| | 4,331 |
| | 191,249 |
|
Germany | | 12,862 |
| | 4,648 |
| | 25,315 |
| | 341 |
| | 43,166 |
|
Other EMEA | | 9,411 |
| | 12,222 |
| | 20,447 |
| | 3,767 |
| | 45,847 |
|
Total EMEA | | 22,273 |
| | 16,870 |
| | 45,762 |
| | 4,108 |
| | 89,013 |
|
Total Net sales | | 152,882 |
| | 154,434 |
| | 86,557 |
| | 11,379 |
| | 405,252 |
|
| |
(1) | Net sales are allocated to countries based on the location of the customer. The table above includes countries with 10% or more of net sales for the periods indicated. |
Note 11 – Joint Ventures
As of June 30, 2017,2018, we had two joint ventures, each 50% owned, which were accounted for under the equity method of accounting.
|
| | | |
Joint Venture | Location | ReportableOperating Segment | Fiscal Year-End |
Rogers INOAC Corporation (RIC) | Japan | Elastomeric Material Solutions | October 31 |
Rogers INOAC Suzhou Corporation (RIS) | China | Elastomeric Material Solutions | December 31 |
We recognized equity income related to the joint ventures of $1.8 million and $2.8 million for the three and six months ended June 30, 2018, respectively. We recognized equity income related to the joint ventures of $1.0 million and $2.0 million for the three and six months ended June 30, 2017, respectively. We recognized equity income related to the joint ventures of $0.7 million and $1.3 million for the three and six months ended June 30, 2016, respectively. These amounts are included in the condensed consolidated statements of operations.
The summarized financial information for the joint ventures for the periods indicated was as follows:
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Net sales | $ | 12,846 |
| | $ | 11,210 |
| | $ | 24,270 |
| | $ | 20,386 |
| $ | 14,907 |
| | $ | 12,846 |
| | $ | 28,232 |
| | $ | 24,270 |
|
Gross profit | $ | 4,706 |
| | $ | 3,435 |
| | $ | 9,142 |
| | $ | 6,597 |
| $ | 5,608 |
| | $ | 4,706 |
| | $ | 11,081 |
| | $ | 9,142 |
|
Net income | $ | 1,932 |
| | $ | 1,416 |
| | $ | 3,952 |
| | $ | 2,642 |
| $ | 3,609 |
| | $ | 1,932 |
| | $ | 5,622 |
| | $ | 3,952 |
|
Receivables from and payables to joint ventures arise during the normal course of business from transactions between us and the joint ventures. WeAs of June 30, 2018 and December 31, 2017, we had receivables of $2.2$3.0 million and $2.4$3.7 million, respectively, due from RIC, and RIS, our affiliated partner in the joint ventures, as well as its subsidiaries. As of June 30, 20172018 and December 31, 2016, respectively. We2017, we owed payables of $2.4$1.9 million and $1.6$2.1 million, respectively, to RIC and RIS as of June 30, 2017 and December 31, 2016, respectively.
RIS.
Note 12 – Debt
On June 18, 2015, we entered into a secured five year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Second Amended Credit Agreement). The Second Amended Credit Agreement provided (1) a $55.0 million term loan; (2) up to $295.0 million of revolving loans, with sublimits for multicurrency borrowings, letters of credit and swing-line notes; and (3) a $50.0 million expansion feature.
On February 17, 2017, we entered into a secured five year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Third Amended Credit Agreement), which amended and restated the Second Amended Credit Agreement. The Third Amended Credit Agreement refinanced the Second Amended Credit Agreement, eliminated the term loan under the Second Amended Credit Agreement, increased the principal amount of theour revolving credit facility to up to $450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, and provided an additional $175.0 million accordion feature. Borrowings may be 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 Third Amended Credit Agreement).
Borrowings under the Third Amended Credit Agreement can be made as alternate base rate loans or euro-currency loans. Alternate base rate loans bear interest that includes a base reference rate plus a spread of 37.5 to 75.0 basis points, depending on our leverage ratio. The base reference rate is the greater of the prime rate; federal funds effective rate (or the overnight bank funding rate, if greater) plus 50 basis points; or adjusted 1-month LIBOR plus 100 basis points. Euro-currency loans bear interest based on adjusted LIBOR plus a spread of 137.5 to 175.0 basis points, depending on our leverage ratio.
In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Third Amended Credit Agreement, we are required to pay a quarterly fee of 20 to 30 basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the Third Amended Credit Agreement.
The Third Amended Credit Agreement contains customary representations, warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated. If an event of default occurs, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The financial covenants include requirements to maintain (1) a leverage ratio of no more than 3.25 to 1.00, subject to an election to increase the maximum 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.
All obligations under the Third Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Third Amended Credit Agreement (the Guarantors). The obligations are also secured by a Third Amended and Restated Pledge and Security Agreement, dated as of February 17, 2017, 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 the Guarantors. These assets include, but are not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries.
All revolving loans are due on the maturity date, February 17, 2022. We are not required to make any quarterly principal payments under the Third Amended Credit Agreement, however, during the second quarter of 2017, we made a discretionary principal payment of $50.0 million to reduce the amount outstanding on our credit facility. Asand as of June 30, 20172018 we have $191.2$131.0 million in outstanding borrowings under our credit facility.
At June 30, 2017,2018, we have $2.8$2.0 million of outstanding deferred debtline of credit issuance costs consisting of $1.6 million related to the term loans under the Second Amended Credit Agreement and $1.2 million related to the Third Amended Credit Agreement. These coststhat will be amortized over the life of the Third Amended Credit Agreement, which will terminate in February 2022. We incurredrecorded amortization expense of $0.1 million infor each of the threethree-month periods ended June 30, 2018 and 2017, and $0.3 million and $0.2 million for the six months ended June 30, 2018 and 2017, and 2016respectively, related to these deferred costs.
In March 2017, we entered into an interest rate swap to hedge the variable interest rate on $75.0 million of our $450.0 million revolving credit facility. In July 2012, we entered into an interest rate swap to hedge the variable interest rate on our previously outstanding term loan debt. This swap expired as of June 30, 2016.
See further discussion in Note 3, “Hedging Transactions and Derivative Financial Instruments.”
Restriction on Payment of Dividends
Our Third 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 leverage ratio does not exceed 2.75 to 1.00. If our leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20$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 leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2017.2018.
Capital LeaseLeases
We have a capital lease obligation related to our manufacturing facility in Eschenbach, Germany. Under the terms of the leasing agreement, we have an option to purchase the property upon the expiration of the lease in 2021 at a price which is the greater of (i) the then-current market value or (ii) the residual book value of the land including the buildings and installations thereon. The total obligation recorded for the lease as of June 30, 20172018 is $5.6$5.3 million. Depreciation expense related to thethis capital lease was $0.1 million for each of the three monthsthree-month periods ended June 30, 2018 and 2017, and 2016 andwas $0.2 million for each of the six monthssix-month periods ended June 30, 20172018 and 2016. Accumulated depreciation at June 30, 2017 and December 31, 2016 was $3.6 million and $3.4 million, respectively.2017. These expenses are included as depreciation expense in cost of sales on our condensed consolidated statements of operations. Accumulated depreciation at June 30, 2018 and December 31, 2017 was $3.1 million and $3.3 million, respectively.
We also incurred interest expense on thethis capital lease of $0.1 million for each of the three monththree-month periods ended June 30, 2018 and 2017 and 2016 and $0.1 million and $0.2 million for each of the six monthsix-month periods ended June 30, 20172018 and 2016.2017. Interest expense related to the debt recorded on the capital lease is included in interest expense on the condensed consolidated statements of operations.
In 2017, we entered into two additional capital lease agreements for office related equipment in various worldwide locations. The total obligation recorded for the capital leases as of June 30, 2018 was $0.7 million. Depreciation expense related to the capital leases was $0.1 million for the three and six months ended June 30, 2018. These expenses are included as depreciation expense in selling, general and administrative expenses on the condensed consolidated statements of operations. Accumulated depreciation as of June 30, 2018 was $0.2 million.
Note 13 – Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the period ending June 30, 2017,2018, by operating segment, were as follows:
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Advanced Connectivity Solutions | | Elastomeric Material Solutions | | Power Electronics Solutions | | Other | | Total |
December 31, 2016 | $ | 51,693 |
| | $ | 91,531 |
| | $ | 62,983 |
| | $ | 2,224 |
| | $ | 208,431 |
|
Foreign currency translation adjustment | — |
| | 786 |
| | 5,121 |
| | — |
| | 5,907 |
|
Purchase accounting adjustment | — |
| | 116 |
| | — |
| | — |
| | 116 |
|
DSP acquisition | — |
| | 17,793 |
| | — |
| | — |
| | 17,793 |
|
June 30, 2017 | $ | 51,693 |
| | $ | 110,226 |
| | $ | 68,104 |
| | $ | 2,224 |
| | $ | 232,247 |
|
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Advanced Connectivity Solutions | | Elastomeric Material Solutions | | Power Electronics Solutions | | Other | | Total |
December 31, 2017 | $ | 51,693 |
| | $ | 111,575 |
| | $ | 71,615 |
| | $ | 2,224 |
| | $ | 237,107 |
|
Foreign currency translation adjustment | — |
| | (707 | ) | | (2,113 | ) | | — |
| | (2,820 | ) |
June 30, 2018 | $ | 51,693 |
| | $ | 110,868 |
| | $ | 69,502 |
| | $ | 2,224 |
| | $ | 234,287 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2017 | | December 31, 2016 |
(Dollars in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Trademarks and patents | $ | 10,161 |
| | $ | 1,637 |
| | $ | 8,524 |
| | $ | 6,825 |
| | $ | 1,156 |
| | $ | 5,669 |
|
Technology | 72,826 |
| | 29,037 |
| | 43,789 |
| | 68,880 |
| | 24,365 |
| | 44,515 |
|
Covenant not to compete | 1,729 |
| | 1,004 |
| | 725 |
| | 1,419 |
| | 932 |
| | 487 |
|
Customer relationships | 127,887 |
| | 18,205 |
| | 109,682 |
| | 96,148 |
| | 14,311 |
| | 81,837 |
|
Total definite lived intangible assets | 212,603 |
| | 49,883 |
| | 162,720 |
| | 173,272 |
| | 40,764 |
| | 132,508 |
|
Indefinite lived intangible assets | 4,506 |
| | — |
| | 4,506 |
| | 4,168 |
| | — |
| | 4,168 |
|
Total intangible assets | $ | 217,109 |
| | $ | 49,883 |
| | $ | 167,226 |
| | $ | 177,440 |
| | $ | 40,764 |
| | $ | 136,676 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
(Dollars in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer relationships | $ | 127,885 |
| | $ | 25,815 |
| | $ | 102,070 |
| | $ | 128,907 |
| | $ | 22,514 |
| | $ | 106,393 |
|
Technology | 72,374 |
| | 35,175 |
| | 37,199 |
| | 73,891 |
| | 33,491 |
| | 40,400 |
|
Trademarks and trade names | 10,180 |
| | 2,649 |
| | 7,531 |
| | 10,213 |
| | 2,157 |
| | 8,056 |
|
Covenants not to compete | 760 |
| | 150 |
| | 610 |
| | 1,799 |
| | 1,108 |
| | 691 |
|
Total definite-lived other intangible assets | 211,199 |
| | 63,789 |
| | 147,410 |
| | 214,810 |
| | 59,270 |
| | 155,540 |
|
Indefinite-lived other intangible asset | 4,599 |
| | — |
| | 4,599 |
| | 4,738 |
| | — |
| | 4,738 |
|
Total other intangible assets | $ | 215,798 |
| | $ | 63,789 |
| | $ | 152,009 |
| | $ | 219,548 |
| | $ | 59,270 |
| | $ | 160,278 |
|
Gross and net carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations.
Amortization expense for the three and six months ended June 30, 20172018 was approximately $3.8 million and $7.1$7.7 million, respectively. Amortization expense for the three and six months ended June 30, 20162017 was approximately $2.7$3.8 million and $5.3$7.1 million, respectively. The estimated future amortization expense is $7.6 million for the remainder of 20172018 and $15.3$15.0 million, $15.1$11.7 million, $11.8$11.0 million and $11.0$10.6 million for 2018, 2019, 2020, 2021 and 2021,2022, respectively.
On November 23, 2016, we acquired DeWAL, and on January 6, 2017, we acquired the principal operating assets of DSP. For further detail on the goodwill and intangible assets recorded in connection with the acquisitions, see Note 5 - Acquisitions.
The indefinite-lived trademarkother intangible assets wereasset was acquired as part of the acquisition of curamik®. These assets areCuramik Electronics GmbH. This asset is assessed for impairment annually, and between annual assessments if an event occurs or if changes in circumstances change that indicate that the carrying valuesvalue may not be recoverable.
The definite-lived other intangible assets are amortized using a fair value methodology that is based on the projected economic use of the related underlying asset. The weighted average remaining amortization period as of June 30, 2017,2018, by definite-lived other intangible asset class, is presented in the table below:
|
| | |
Definite-Lived Other Intangible Asset Class | | Weighted Average Remaining Amortization Period (Years) |
Trademarks and patents | | 7.2 |
Technology | | 6.0 |
Customer relationships | | 10.38.9 |
CovenantTechnology | | 4.8 |
Trademarks and trade names | | 5.9 |
Covenants not to compete | | 3.41.7 |
Total definite liveddefinite-lived other intangible assets | | 8.97.7 |
Note 14 – Commitments and Contingencies
We are currently engaged inDescriptions of the followingprincipal environmental and legal proceedings:proceedings in which we are engaged are set forth below:
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. We recorded an accrual of $3.2 million as of December 31, 2015 for remediation costs expected to be incurred based on the facts and circumstances known to us at that time. During the third quarter of 2016, the CT DEEP approved a change to our remediation plan for the site that will reduce our overall expected costs. Accordingly, we reduced the accrual by $0.9 million as a result of a change in the level of remediation that needs to take place. This benefit was recorded as an offset to selling, general, and administrative expenses in the condensed consolidated statement of operations. Remediation activities on the site continue, totaling approximately $0.5are ongoing and are recorded as reductions to the accrual as they are incurred. We have incurred aggregate remediation costs of $0.7 million through June 30, 2017,2018, and the remaining accrual for future remediation efforts was $1.8is $1.7 million.
Superfund Sites
We are currently involved as a potentially responsible party (PRP) in one active case involving a waste disposal site, the Chatham Superfund Site. The costs incurred since inception for this claim have been immaterial and have been primarily covered by insurance policies, for both legal and remediation costs. In this matter, we have been assessed a cost sharing percentage of approximately 2% in relation to the range for estimated total cleanup costs of $18.8 million to $29.6 million. We believe we have sufficient insurance coverage to fully cover this liability and have recorded a liability and related insurance receivable of approximately $0.4 million as of June 30, 2017, which approximates our share of the low end of the estimated range. We believe we are a de minimis participant and, as such, have been allocated an insignificant percentage of the total PRP cost sharing responsibility. Based on facts presently known to us, we believe that the potential for the final results of this case having a material adverse effect on our results of operations, financial position or cash flows is remote. This case has been ongoing for many years and we believe that it will continue for the indefinite future. No time frame for completion can be estimated at the present time.
PCB Contamination
We have been working with CT DEEP and the United States Environmental Protection Agency, Region I, in connection with certain polychlorinated biphenyl (PCB) contamination at our facility in Woodstock, Connecticut. The issue was originally discovered in the soil at the facility in the late 1990s, which has been remediated. Further contamination was later found in the groundwater beneath the property, which was addressed with the installation of a pump and treat system in 2011. The future costs related to the maintenance of the groundwater pump and treat system now in place at the site are expected to be minimal. We believe that the remaining remediation activity will continue for several more years and no time frame for completion can be estimated at the present time.
PCB contamination at this facility was also found in the buildings and courtyards original to the site, in addition to surrounding areas, including an on-site pond. We have completed remediation activities for the buildings and courtyards. We currently have a reserve of $0.2 million for the pond remediation recorded in our condensed consolidated statements of financial position. We
believe this reserve will be adequate to cover the remaining remediation work related to the pond contamination based on the information known at this time. However, if additional contamination is found, the cost of the remaining remediation may increase.
Asbestos Litigation
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 presents information about our recentsummarizes the change in number of asbestos claims activity:outstanding during the six months ended June 30, 2018:
|
| | |
| Asbestos Claims Activity |
Claims outstanding at December 31, 20162017 | 605687 |
|
New claims filed | 195126 |
|
Pending claims concluded | (184127 | ) |
Claims outstanding at June 30, 20172018 | 616686 |
|
For the six months ended June 30, 2017, 1752018, 110 claims were dismissed and 917 claims were settled. Settlements totaled approximately $1.2$4.9 million for the six months ended June 30, 2017.2018.
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. Our estimates of asbestos-related contingent liabilities and related insurance receivables are based on an independent actuarial analysis and an independent insurance usage analysis prepared annually by third parties. The actuarial analysis contains numerous assumptions, including general assumptions regarding the asbestos-related product liability litigation environment and company-specific assumptions regarding claims rates (including diseases alleged), dismissal rates, average settlement costs and average defense costs. The insurance usage analysis considers, among other things, applicable deductibles, retentions and policy limits, the solvency and historical payment experience of various insurance carriers, the likelihood of recovery as estimated by external legal counsel and existing insurance settlements.
We review our asbestos-related forecasts annually in the fourth quarter of each year unless facts and circumstances materially change during the year, at which time we would analyze these forecasts. Currently, these analyses project liabilitiesDuring 2017, we reviewed the projections of our current and related insurance receivables over a 10-year period. It is probable we will incur additional costs for asbestos-relatedfuture asbestos claims, following this 10-yearand determined it was appropriate to extend the liability projection period but we do not believe that any related contingencies are reasonably estimable beyond such period based on, among other things, the significant proportion ofto cover all current and future claims includedthrough 2058. We based our conclusion 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 expectation of a downward trend in claims due to the analysisaverage age of our claimants, which is approaching the average life expectancy. As a result, we believe we are now able to make a reasonable estimate of the actuarially determined liability for current and future asbestos claims through 2058, the lag time between the date a claim is filed and its resolution. Accordingly, noexpected end of our asbestos liability (or related asset) has yet been recorded for claims that may be asserted subsequent to 2026.exposure.
As of December 31, 2016,2017, the balances of the asbestos-related claims and insurance receivables, for the 10-year projection periodwhich are projected to cover all current and future claims through 2058, were $52.0$76.2 million and $48.4$69.2 million, respectively. As of June 30, 2017, there have been no changes to these projections.
To date, the defense and settlement costs of our asbestos-related product liability litigation have been substantially covered by insurance. We have identified continuous coverage for primary, excess and umbrella insurance from the 1950s through the mid-1980s, except for a period in the early 1960s, with respect to which we have entered into an agreement for primary, but not excess or umbrella, coverage. 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 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. As previously disclosed, however,During the first quarter of 2018, we received notice that primary coverage for a period of eight years and excess coverage for a period of two years had been exhausted, and as a result, we incurred indemnity and defense costs of $0.2 million and $0.5 million for the three and six months ended June 30, 2018, respectively. These costs reduced our existing asbestos-related liabilities to $75.7 million as of June 30, 2018. We expect 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. Accordingly, while we believe it is reasonably possible that we may incur losses and defense costs in excess of our accruals in the future, we do not have sufficient data to provide a reasonable estimate or range of such losses and defense costs, at this time.
The amounts recorded for the asbestos-related liabilityliabilities and the related insurance receivables described above were based on facts known at the time and a number of assumptions. However, projecting 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.
There can be no assurance that our accrued asbestos liabilities will approximate our actual asbestos-related settlement and defense costs, or that our accrued insurance recoveries will be realized. We believe that it is reasonably possible that we may incur additional charges for our asbestos liabilities and defense costs in the future, which could exceed existing reserves and insurance recovery, but we are unable to estimate the amount of such additional liabilities and costs. We will continue to vigorously defend ourselves and believe we have substantial unutilized insurance coverage to mitigate future costs related to this matter.
General Litigation
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, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position or cash flows.
Note 15 – Share RepurchaseRepurchases
On August 6, 2015, we initiated a share repurchase program (the Program) of up to $100.0 million of the Company’s capital stock. We initiated the Program to mitigate potentially dilutive effects of stock optionsoption exercises and sharesvesting of restricted stock units granted by the Company, in addition to enhancing shareholder value. The Program has no expiration date, and may be suspended or discontinued at any time without notice. As of June 30, 2017, $52.02018, $49.0 million remained available tofor repurchase under the Program.
NoWe repurchased the following shares of capital stock were repurchased during the three and six months ended June 30, 2017. 2018:
|
| | | | | | | |
| Three Months Ended | | Six Months Ended |
(Dollars in thousands) | June 30, 2018 | | June 30, 2018 |
Shares of capital stock repurchased | — |
| | 23,138 |
|
Value of capital stock repurchased | $ | — |
| | $ | 2,999 |
|
All previous repurchases were made using cash from operations and cash on hand.operations.
Note 16 – Income Taxes
Our effective income tax rate was 33.9%32.6% and 71.0%33.9% for the three months ended June 30, 2018 and 2017, respectively. The decrease was primarily due to a lower U.S. effective tax rate, as a result of U.S. tax reform, and 2016, respectively.changes in pretax mix across jurisdictions with disparate tax rates, partially offset by an increase in current year accruals for uncertain tax positions. Our effective income tax rate was 33.0%23.2% and 51.2%33.0% for the six months ended June 30, 20172018 and 2016,2017, respectively. The decrease compared to the same periods in 2016, was primarily due to withholding taxes on off-shore cash movements and the changea lower U.S. effective tax rate, as a result of U.S. tax reform, changes in our assertion that certain foreign earnings are permanently reinvested recorded in 2016,pretax mix across jurisdictions with disparate tax rates, excess tax deductions on stock basedequity compensation, recognized in 2017,R&D credits and a decrease in current year accrualsrelease of reserves for uncertain tax positions, partially offset by a decreasean increase in reversal of reserves associated withcurrent year accruals for uncertain tax positions.
Historically, our intention was to permanently reinvest the majority of our foreign earnings indefinitely or to distribute them only when it was tax efficient to do so. As a result of certain internal restructuring transactions effectuated to more closely align our foreign subsidiaries from an operational, legal and geographic perspective and improve management of financial resources, with respect to offshore distributions, we modified our assertion of certain foreign subsidiary earnings considered permanently reinvested in 2016. In connection with this change, we recorded a deferred tax liability of $3.4 million associated with distribution-related foreign taxes on prior years’ undistributed earnings of certain of our Chinese subsidiaries in the second quarter of 2016. These taxes become due when distributed to other offshore subsidiaries. In addition, we incurred $5.5 million of withholding taxes related to distributions from China in the second quarter of 2016. With few exceptions, U.S. income taxes have not been provided on undistributed earnings of international subsidiaries. We continue to intend to reinvest these earnings permanently outside the U.S. or to repatriate the earnings only when it is tax effective to do so.
The total amount of unrecognized tax benefits as of June 30, 20172018 was $6.6$12.4 million, of which $6.2$10.9 million would affect our effective tax rate if recognized. It is reasonably possible that approximately $1.6$3.6 million of our unrecognized tax benefits as of June 30, 20172018 will reverse within the next twelve months.
We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of June 30, 2017,2018, we had $0.7 million accrued for the payment of interest.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years prior to 2012.2013.
We adopted ASU 2016-09 on January 1, 2017. Upon adoption, we recognized excess tax benefits of approximately $12.7 million in deferred tax assets that were previously not recognized in a cumulative-effect adjustment to retained earnings. In addition, the new guidance requires that all of the tax effects related to share-based payments at settlement or expiration be recorded through the statement of operations which resulted in the recognition of $0.5 million and $1.6 million of income tax benefits during the three and six months ended June 30, 2017, respectively. See Note 19 - “Recent Accounting Standards” for further information.
Note 17 – Restructuring and Impairment Charges
Global Headquarters Relocation
In the second quarter of 2017, we completed the physical relocation of our global headquarters from Rogers, Connecticut to Chandler, Arizona. The move builds upon our presence in Arizona, where we have major business and manufacturing operations. The move supports our long-term strategy and is an integral part of our plans for growth and expansion. The new global corporate headquarters location is home to approximately 70 employees who support areas such as human resources, information technology, finance and supply chain, among others. The Rogers, Connecticut location continues to have manufacturing, research and development and support services. We recorded $1.1$0.1 million and $1.8$1.1 million of expense related to this project in the three months ended June 30, 2018 and 2017, respectively and $0.5 million and $1.8 million in the six months ended June 30, 2017.2018 and 2017, respectively. Severance activity related to the headquarters relocation is presented in the table below for the six months ended June 30, 2017:2018:
| | (Dollars in thousands) | Severance related to headquarters relocation | Severance Related to Headquarters Relocation |
Balance at December 31, 2016 | $ | 470 |
| |
Balance at December 31, 2017 | | $ | 183 |
|
Provisions | 320 |
| 99 |
|
Payments | (566 | ) | (244 | ) |
Balance at June 30, 2017 | $ | 224 |
| |
Balance at June 30, 2018 | | $ | 38 |
|
The fair value of the total severance benefits to be paid (including payments already made) in connection with the relocation is $1.1 million, of which we expensed $0.0 million and $0.1 million in the three months ended June 30, 2018 and 2017, respectively and $0.1 million and $0.3 million in the six months ended June 30, 2018 and 2017, respectively. The total severance costs are being expensed ratably over the required service period for the affected employees.
Facility Consolidation
On April 24, 2018, we made the decision to relocate our Santa Fe Springs, California operations to the Company’s facilities in Carol Stream, Illinois and Bear, Delaware. We expect to incur restructuring expenses of approximately $2.0 million in connection with the closure and transfer of production capabilities to the Carol Stream, Illinois and Bear, Delaware facilities. These costs include approximately $0.8 million in severance and retention expenses and $1.2 million of costs related to the relocation of equipment. The Company estimates that approximately $1.5 million and $0.5 million of the costs will be incurred in fiscal years 2018 and 2019, respectively.Completion of the transfer, and start-up of production at the Carol Stream, Illinois and Bear, Delaware facilities, is expected to require capital expenditures of approximately $1.2 million to $1.4 million. We recorded $0.5 million of expense related to this project in the three and six months ended June 30, 2018, respectively. Severance activity related to the facility consolidation is presented in the table below for the six months ended June 30, 2018:
|
| | | |
(Dollars in thousands) | Severance Related to Facility Consolidation |
Balance at December 31, 2017 | $ | — |
|
Provisions | 316 |
|
Payments | (14 | ) |
Balance at June 30, 2018 | $ | 302 |
|
The fair value of the total severance benefits to be paid (including payments already made) in connection with the relocation is $0.8 million. This total is being expensed ratably over the required service period for the affected employees. We incurred $0.1 million and $0.3 million of severance related expenses during the three and six months ended June 30, 2017.
2018.
Note 18 – Assets Held for Sale
In the second quarter of 2017, we began actively marketing for sale unutilized property in Chandler, Arizona, consisting of a building and two adjacent parcels of land with an aggregate net book value of $0.9 million. In the second quarter of 2018, we completed the sale of the building and one parcel of land and recognized a gain on sale of approximately $0.4 million in operating income. The remaining parcel of land being classified as held for sale has a net book value of $0.4 million.
Note 19 – Revenue from Contracts with Customers
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to achieve a consistent application of revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We recognize revenue when all of the following criteria are met: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of our shipping terms permit us to recognize revenue at point of shipment. Some shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, revenue is not recognized until either the customer has received the goods or they have passed through customs, depending on the circumstances. Shipping and handling costs are treated as fulfillment costs. Sales tax or VAT are excluded from the measurement of the transaction price.
The Company manufactures some products to customer specifications which are customized to such a degree that it is unlikely that another entity would purchase these products or that we could modify these products for another customer. These products are deemed to have no alternative use to the Company whereby we have an enforceable right to payment evidenced by contractual termination clauses. In accordance with ASC 606, for those circumstances we recognize revenue on an over-time basis. Revenue recognition does not occur until the product meets the definition of “no alternative use” and therefore, items that have not yet reached that point in the production process are not included in the population of items with over-time revenue recognition.
As appropriate, we record estimated reductions to revenue for customer returns, allowances, and warranty claims. Provisions for such reductions are made at the time of sale and are typically derived from historical trends and other relevant information.
Performance Obligations
Manufactured goods are our primary performance obligations. Revenue related to our performance obligations is predominantly recognized at a point in time consistent with our shipping terms. For certain products that meet the criteria of no alternative use whereby the Company has the right to payment, we recognize revenue on an over-time basis.
The selection of a method to measure progress toward completion of a contract requires judgment and is based on the nature of the products or services to be provided. We use the cost incurred method to measure the progress of our contracts with no alternative use products whereby the Company has the right to payment as we believe it is the best depiction of the transferring of value to the customer. Under the cost incurred method, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the contract. Contract costs include labor, materials and subcontractors costs, as well as an allocation of indirect costs. Revenues, including estimated fees or profits, are recorded as costs are incurred.
Performance obligations are typically satisfied within three months of receipt of a customer order; therefore, a change in cost estimates will not have a material impact on the percentage of completion noted at the prior quarter end. Our typical payment terms with customers range from 30 days to 105 days. Product pricing is determined and negotiated on a standalone basis. Product pricing is determined without consideration for the pricing, margin, or other information specific to other products that the same customer or other parties related to that customer may also purchase, whether in the same or a different contract. Management allocates the transaction price to its performance obligations primarily based on stand-alone selling prices that may have been developed via specific customer quote for no alternative use products and non-standard products or standard price lists for standard products. The accounting for the estimate of variable consideration is consistent with our current practice.
Contract modifications occur when there is a change to the products, price, or both. Contract modifications are treated as a separate contract if there are additions to promised goods and services that are distinct and if the price for that separate performance obligation reflects the stand-alone selling price for those goods or services. However, if the obligations in the contract modification are not distinct and are part of a single performance obligation that is only partially satisfied, the contract is not determined to be a separate contract and is accounted for as a revision to an existing contract. These modifications are accounted for prospectively when remaining promises are distinct from those previously transferred, or through a cumulative catch-up adjustment.
Contract Balances
The Company has 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 the contract assets on the condensed consolidated statements of financial position.
The Company did not have any contract liabilities as of June 30, 2018.
The following table presents contract assets by operating segment as of June 30, 2018:
|
| | | | | | | | | | | | | | |
| June 30, 2018 |
(Dollars in thousands) | Advanced Connectivity Solutions | | Elastomeric Material Solutions | | Power Electronics Solutions | | Other | | Total |
Contract Assets | — |
| | 384 |
| | 18,126 |
| | 3,423 |
|
| 21,933 |
|
No impairment losses were recognized during the three and six months ended June 30, 2018 on any receivables or contract assets arising from our contracts with customers.
Transition
We adopted ASU 2014-09 in the first quarter of 2018 retrospectively with the cumulative effect of applying the standard recognized at the date of implementation and without restatement of comparative periods. This application of the new standard resulted in an increase to the January 1, 2018 balance of retained earnings of approximately $4.2 million, net of tax.
The guidance was applied to all contracts that were not completed at the date of implementation. The primary reason for the impact of adoption is due to over-time revenue recognition.
If the criteria for over-time recognition are not met, revenue is recognized at a point in time. In considering at what point in time control of the product or service has transferred to the customer, we consider qualitative factors such as: 1) present right to payment; 2) legal title to the asset; 3) physical possession; 4) risks and rewards of ownership; and, 5) customer acceptance.
The impact of adoption using the modified retrospective method on the Company’s condensed consolidated financial statements is as follows:
|
| | | | | | | | | | | |
| As of |
Condensed Consolidated Statements of Financial Position: | December 31, 2017 | | | | January 1, 2018 |
(Dollars in thousands) | Under ASC 605 | | Impact of Adoption | | Under ASC 606 |
Contract assets | $ | — |
| | $ | 18,099 |
| | $ | 18,099 |
|
Inventories | 112,557 |
| | (12,307 | ) | | 100,250 |
|
Deferred income taxes | 10,706 |
| | 1,580 |
| | 12,286 |
|
Retained earnings | 684,540 |
| | 4,212 |
| | 688,752 |
|
The following tables set forth the amount by which each financial statement line item is affected in the current reporting period by the application of ASC 606, as compared to the guidance that was in effect before its adoption. The impact of adoption on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 is as follows:
|
| | | | | | | | | | | |
Condensed Consolidated Statements of Operations: | Three Months Ended |
June 30, 2018 |
|
|
| June 30, 2018 |
(In thousands, except per share amounts) | Under ASC 605 |
| Impact of Adoption |
| Under ASC 606 |
Net sales | $ | 214,782 |
|
| $ | (107 | ) |
| $ | 214,675 |
|
Cost of sales | 138,076 |
|
| (73 | ) |
| 138,003 |
|
Income tax expense | 8,373 |
|
| — |
|
| 8,373 |
|
Net income | 17,363 |
|
| (34 | ) |
| 17,329 |
|
|
|
|
|
|
|
Basic earnings per share | $ | 0.94 |
|
| $ | — |
|
| $ | 0.94 |
|
Diluted earnings per share | $ | 0.93 |
|
| $ | — |
|
| $ | 0.93 |
|
|
| | | | | | | | | | | |
Condensed Consolidated Statements of Operations: | Six Months Ended |
June 30, 2018 | | | | June 30, 2018 |
(In thousands, except per share amounts) | Under ASC 605 | | Impact of Adoption | | Under ASC 606 |
Net sales | $ | 425,452 |
| | $ | 3,834 |
| | $ | 429,286 |
|
Cost of sales | 273,400 |
| | 2,607 |
| | 276,007 |
|
Income tax expense | 12,811 |
| | 333 |
| | 13,144 |
|
Net income | 42,571 |
| | 894 |
| | 43,465 |
|
| | | | | |
Basic earnings per share | $ | 2.32 |
| | $ | 0.05 |
| | $ | 2.37 |
|
Diluted earnings per share | $ | 2.28 |
| | $ | 0.05 |
| | $ | 2.33 |
|
|
| | | | | | | | | | | |
| As of |
Condensed Consolidated Statements of Financial Position: | June 30, 2018 | | | | June 30, 2018 |
(Dollars in thousands) | Under ASC 605 | | Impact of Adoption | | Under ASC 606 |
Contract assets | $ | — |
| | $ | 21,933 |
| | $ | 21,933 |
|
Inventories | 132,653 |
| | (14,914 | ) | | 117,739 |
|
Deferred income taxes | 1,588 |
| | 1,913 |
| | 3,501 |
|
Retained earnings | 727,111 |
| | 5,106 |
| | 732,217 |
|
|
| | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows: | Six Months Ended |
June 30, 2018 | | | | June 30, 2018 |
(Dollars in thousands) | Under ASC 605 | | Impact of Adoption | | Under ASC 606 |
Cash provided by operating activities: | | | | | |
Net income | $ | 42,571 |
| | $ | 894 |
| | $ | 43,465 |
|
Deferred income taxes | 3,546 |
| | 333 |
| | 3,879 |
|
Contract assets | — |
| | (21,933 | ) | | (21,933 | ) |
Inventories | (21,403 | ) | | 14,914 |
| | (6,489 | ) |
Other, net | (2,505 | ) | | 5,792 |
| | 3,287 |
|
Net cash provided by operating activities | 22,818 |
| | — |
| | 22,818 |
|
Practical Expedients
The Company will recognize the incremental costs of obtaining a contract as an expense when incurred as the amortization period of the asset is expected to be one year or less. The Company will not adjust the promised amount of consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when the transfer of goods to our customer occurs and when the customer fully pays for the goods will be one year or less. We do not disclose the Company’s unsatisfied performance obligations as they are part of contracts that have an original expected duration of one year or less.
Note 20 – Supplemental Financial Information
The components of Other operating (income) expense, net are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(Dollars in thousands) | June 30, 2018 |
| June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Gain from antitrust litigation settlement | $ | — |
| | $ | — |
| | $ | (3,591 | ) | | $ | — |
|
Gain on sale of long-lived assets | $ | (383 | ) | | $ | — |
| | $ | (383 | ) | | $ | (942 | ) |
In the first quarter of 2018, we recorded a gain from the settlement of antitrust litigation in the amount of $3.6 million as a result of the settlement of a class action lawsuit, filed in 2005, which alleged that Dow Chemical Company and other urethane raw material suppliers unlawfully agreed to fix, raise, maintain or stabilize the prices of Polyether Polyol Products sold in the United States from January 1, 1999 through December 31, 2004 in violation of the federal antitrust laws.
In the second quarter of 2018, we completed the sale of a building and a parcel of land in Arizona that had been classified as held for sale as of June 30, 2017 and recognized a gain on sale of approximately $0.4 million.
In the first quarter of 2017, we completed the planned sale of a parcel of land in Belgium that had been classified as held for sale as of December 31, 2016. We2016 and recognized a gain on sale of approximately $0.9 million during that quarter in operating income. Also in the first quarter of 2017, we began actively marketing for sale a facility in Belgium with a net book value of $1.8 million. The asset is classified as held for sale as of June 30, 2017 and is no longer being depreciated. We have an agreement to sell this property and expect to close on the sale in the second half of 2017.
In the second quarter of 2017, we began actively marketing for sale unutilized property in the U.S. consisting of a building and an adjacent parcel of land with a net book value of $0.9 million. The asset is classified as held for sale as of June 30, 2017 and is no longer being depreciated.
As both the Belgian and U.S. facilities held for sale are expected to be sold within the next twelve months, they have been classified as current.
Note 1921 – Recent Accounting Standards
In March 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-05, Income Taxes (Topic 740):Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This ASU adds guidance that answers questions regarding how certain income tax effects from the Tax Cuts and Jobs Act (the Act) should be applied to companies’ financial statements. The guidance also lists which financial statement disclosures are required under a measurement period approach.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows for reclassification of stranded tax effects resulting from the Act from accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the method and impact the adoption of ASU 2018-02 will have on the Company’s consolidated financial statements and disclosures.
In January 2018, the FASB released guidance on the accounting for tax on the Global Intangible Low Tax Income (GILTI) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. Effective in the first quarter of 2018, the Company has elected to treat any potential GILTI inclusions as a period cost.
In December 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we recorded provisional estimates for the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and tax expense associated with the mandatory deemed repatriation of foreign earnings at December 31, 2017. Management has continued to gather and analyze information associated with these provisional estimates and did not record any adjustments during the three and six months ended June 30, 2018. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU No. 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017. Adoption of this standard will be applied prospectively to awards modified on or after the adoption date. The impact of this new standard will depend on the extent and nature of future changes to the terms and conditions of the Company’s share-based payment awards. Historically, theThe Company hasadopted this standard on January 1, 2018, which did not had significant changes to its share-based payment awards and therefore does not expect adoption of this guidance to have a material effect on the condensed consolidated financial statements upon its adoption in 2018.statements.
In March 2017, the FASB issued ASU No. 2017-05 and ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. The changes to the standard require employers to report the service cost component in the same line item as other compensation costs arising from services rendered by employees during the reporting period. The other components of net periodic pension benefit costs will be presented in the statement of operations separately from the service cost and outside of a subtotal of operating income from operations. In addition, only the service cost component may be eligible for capitalization where applicable. ASU No. 2017-05 and ASU 2017-07 arebecame effective for annual periods beginning after December 15, 2017. The Company expects to adoptadopted this guidance when effective andstandard on January 1, 2018. In conjunction with the adoption is not expected to have a material effect on the financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, in an effort to simplify the subsequent measurement of goodwill and the associated procedures to determine fair value. The amendments of this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, however, the Company has not yet determined if it will adopt prior to 2020. The adoption of this guidance, is not expected to have a material impact on our financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, with the intention to reduce diversity in practice, as well as simplify elements of classification within the statement of cash flows for certain transactions. The update was effective for interim and annual reporting periods beginning after December 15, 2016. The accounting update was to be adopted using a retrospective approach. The Company adopted ASU 2016-15 effective January 1, 2017, and it did not have a material impact on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which contains amendments intended to simplify various aspects of share-based payment accounting and presentation in the financial statements, including the income tax consequences, classification of awards as either equity or liabilities, treatment of forfeitures and statutory tax withholding requirements, and classification in the statement of cash flows. The update was effective for interim and annual reporting periods beginning after December 15, 2016. The new standard required a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective transition. The Company adopted ASU 2016-09 on January 1, 2017. Upon adoption, the Company recognized excess tax benefits of approximately $12.7reclassified $0.4 million and $0.8 million in deferred tax assets that were previously not recognized in a cumulative-effect adjustmentnet periodic pension benefits from Selling, general and administrative expenses to retained earnings. In addition,Other income (expense), net for the new guidance requires that all of the tax effects related to share-based payments at settlement or expiration be recorded through the statement of operations. The Company also adopted the standard with respect to treatment of forfeitures, which did not have a material impact on our financial statements.three and six months ended June 30, 2017, respectively.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to classify leases as either finance or operating leases and record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. An accounting policy election may be made to account for leases with a term of 12 months or less similar to existing guidance for operating leases today. ASU No. 2016-02 supersedes the existing guidance on accounting for leases. The standard is effective for interim and annual reporting periods for fiscal years beginning after December 15, 2018. Early adoption of this standard is permitted and it is to be adopted using a modified retrospective approach. The Company has initiated its implementation plan, which includesestablished an inventory of existing leases and is in the process of evaluating the classification of oureach lease agreements and quantifying the accounting impact in accordance with the new accounting standard. The Company expects to adopt this accounting standard beginning in fiscal year 2019.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Note 22 – Subsequent Events
Acquisition
On July 9, 2015,6, 2018, we acquired 100% of the FASB agreedmembership interests of Griswold LLC (Griswold), a leading manufacturer of a wide range of high-performance engineered cellular elastomer and microcellular polyurethane products and solutions, for a cash-free, debt-free purchase price of $77.9 million plus an earn-out capped at $3.0 million based on certain of Griswold’s 2018 product sales. We used $82.5 million in borrowings under our existing credit facility to delayfund the effective date by one year. In accordance withtransaction. Griswold, headquartered in Moosup, Connecticut, sells to customers across the agreed upon delay,automotive, transportation, medical, office products, printing and electronics industries.
Due to the updated standard is effectivetiming of the acquisition, disclosures relating to the acquisition, including the allocation of the purchase price, have been omitted because the initial accounting for us beginning in the first quartertransaction was incomplete as of 2018. Early adoption is permitted, but not before the original effectivefiling date of the standard. During 2016, the FASB issued new accounting standards updates regarding principal versus agent considerations in determining revenue recognition identifying performance obligations and licensing, collectability, sales tax, non-cash considerations, completed contracts, contract modifications and effect of accounting change. During 2017, the FASB issued new accounting standards updates regarding clarification of determining the customer in a service concession arrangement. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company plans to adopt this standard retrospectively with the cumulative effect approach; however, the Company will continue to evaluate its options as the implementation process continues. The Company has established a cross-functional coordinated implementation team and engaged a third party service provider to assist with the project. The Company is completing its evaluation of contracts and is in the process of quantifying the financial impact of the new standard. The Company is also evaluating and implementing changes to its systems, processes and internal controls, as necessary, to meet the reporting and disclosure requirements. At this stage of the process, the Company has not yet determined if the adoption of the new standard will have a material impact on its consolidated financial statements and disclosures.report.
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
As used herein, the “Company,” “Rogers,” “we,” “us,” “our” and similar terms include Rogers Corporation and its subsidiaries, unless the context indicates otherwise.
Forward LookingForward-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. 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:
failure to capitalize on, or volatility within, or other adverse changes with respect to the Company’s growth drivers, including advanced mobility and advanced connectivity, clean energy, and safety and protection;such as delays in adoption or implementation of new technologies;
uncertain business, economic and political conditions in the United States and abroad, particularly in China, South Korea, Germany, Hungary and Belgium, where we maintain significant manufacturing, sales or administrative operations;
changes in trade policy, tariff regulation or other trade restrictions;
fluctuations in foreign currency exchange rates;
our ability to develop innovative products and have them incorporated into end-user products and systems;
the extent to which end-user products and systems incorporating our products achieve commercial success;
the ability of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely or cost-effective manner;
intense global competition affecting both our existing products and products currently under development;
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;
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; and
disruptions in, or breaches of, our information technology systems;
asset impairment and restructuring charges; and
changes in accounting standards promulgated by the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC).systems.
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 and inour other reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 20162017 (the Annual Report), 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 the Selected Financial Data and our Condensed Consolidated Financial Statementscondensed 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.
In the following discussion and analysis, we sometimes provide financial information that was not prepared in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that this non-GAAP information provides meaningful supplemental information regarding the Company’s performance by excluding certain expenses that are generally non-recurring or otherwise may not be indicative of the core business operating results. In general, the Company believes that the additional non-GAAP financial information provided herein is useful to management and investors in assessing the Company’s historical performance and for planning, forecasting and analyzing future periods. However, non-GAAP information has limitations as an analytical tool and should not be considered in isolation from, or solely as an alternative to, financial information prepared in accordance with GAAP. Any time we provide non-GAAP information in the following narrative we identify it as such and in close proximity provide the most directly comparable GAAP financial measure, as well as the information necessary to reconcile the two measures.
Executive Summary
Company Background and Strategy
Rogers Corporation designs, develops, manufactures and sells high-quality and high-reliability engineered materials and components for mission critical applications. We operate principally three strategic businessoperating segments: Advanced Connectivity Solutions (ACS), Elastomeric Material Solutions (EMS) and Power Electronics Solutions (PES). We are now headquartered in Chandler, Arizona. We have a history of innovation and have established two Rogers Innovation Centers for our leading research and development activities in Chandler, Arizona, Burlington, Massachusetts, Eschenbach, Germany and Suzhou, China. We are headquartered in Chandler, Arizona.
Our growth strategy is based upon the following principles: (1) market-driven organization, (2) innovation leadership, (3) synergistic mergers and acquisitions, and (4) operational excellence. Our ability to manage the risks inherent in the markets into which we sell our products, and thereby maintain our financial performance in the future, will depend, in part, on our ability to continue to maintain our focus on these principles. As a market-driven organization, we are focused on growth drivers, including advanced mobility and connectivity, clean energy, and safety and protection.advanced connectivity. More specifically, the key trends and markets that affect our business include the growth in automotive, automotive radar,increased use of advanced driver assistance systems and adoption of electric vehicles,and hybrid electric vehicles rail, aviation,and new technology adoption in the telecom industry, including next generation wireless internetinfrastructure. In addition to our focus on advanced mobility and advanced connectivity, we also sell into a variety of other end markets including renewable energy, aerospace and defense and diverse general industrial markets.applications.
Our sales and marketing approach is based on addressing these trends, while our strategy focuses on imperativesfactors for success as a manufacturer of engineered materials and components: quality, service, cost, and efficiency, and innovation and technology. We have expanded our capabilities through organic investment and acquisitions and strive to ensure a full complement of high quality solutions for our customers. We continue to review and re-align our manufacturing and engineering footprint in an effort to attain a leading competitive position globally. We have established or expanded our capabilities in various locations such as Eastern Europe and Asia in support of 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.
In executing on our growth strategy, we have completed three strategic acquisitions: (1) in January 2017,On July 6, 2018, we acquired 100% of the principal operating assetsmembership interests of Diversified Silicone Products, Inc. (DSP), a custom silicone product development and manufacturing business, serving a wide range of high reliability applications, (2) in November 2016, we acquired DeWAL IndustriesGriswold LLC (DeWAL)(Griswold), a leading manufacturer of polytetrafluoroethylenea wide range of high-performance engineered cellular elastomer and ultra-high molecular weight polyethylene films, pressure sensitive tapesmicrocellular polyurethane products and specialty products for the industrial, aerospace, automotive, and electronics markets, and (3) in January 2015, we acquired Arlon LLC and its subsidiaries, other than Arlon India (Pvt) Limited (the acquired entities, collectively, Arlon), a leading manufacturer of high performance materials for the printed circuit board industry and silicone rubber-based materials.solutions.
20172018 Second Quarter Executive Summary
In the second quarter of 20172018 as compared to the second quarter of 2016,2017, our net sales increased 27.9%6.6% to $201.4$214.7 million, gross margin increased 180decreased 430 basis points to 40.0%35.7%, and operating margin increased 440decreased 430 basis points.points to 11.7%. The following key factors should be considered when reviewing our results of operations, financial condition and liquidity for the periods discussed:second quarter of 2018:
Our net sales increase in the second quarter of 20172018 was attributable to increases in net sales across all three of our strategic business segments, reflecting both organic growth within each business unit,segments. Net sales were favorably impacted by $8.4 million, or 4.2%, due to the appreciation in value of the Euro and growth attributableRenminbi relative to our recent acquisitions. Each of ACS, EMSthe U.S. dollar. Net sales were also favorably impacted by higher demand in electric and hybrid electric vehicles, renewable energy, mass transit and variable frequency motor drives applications in the PES recorded net sales growth. ACS experienced continued growth in automotive, portable electronics, and aerospace and defense applications, which wasoperating segment, partially offset by lower demand in portable electronics and wireless telecommunications applications. EMS4G LTE applications in the ACS operating segment. The adoption of new accounting guidance for revenue recognition unfavorably impacted net sales increased primarilyin the second quarter of 2018 by $0.1 million. See Note 19, “Revenue from the recent acquisitions of DeWAL and DSP, and from higher demand from its core markets, including general industrial, portable electronics, automotive, and mass transit applications. PES saw strength across most of their traditional markets, including mass transit applications, laser diode coolers, variable frequency motor drives, and renewable energy. SeeContracts with Customers,” as well as “Segment Sales and Operations.”Operations” for further discussion.
Our gross margin improved 180decreased 430 basis points and our operating margin improved 440decreased 430 basis points in the second quarter of 2017 primarily as a result of increased demand and our operational improvement initiatives.2018. Our gross margin improveddecreased to 40.0%35.7% in the second quarter of 20172018 as a result of unfavorable absorption of fixed costs and increased net sales, as described above,costs for copper commodities, facility consolidation and continued benefits from operational improvement initiatives. Operatingmulti-site product qualification, including freight.
Our operating income increaseddecreased to $32.8$25.2 million in the second quarter of 2017,2018, as compared to $18.8$32.3 million in the second quarter of 2016,2017, reflecting an increasea decrease in net sales that more than offset angross margin, furthered by a $2.5 million increase in selling, general & administrative (SG&A) expense. Asexpenses and a result,$1.6 million increase in research and development (R&D) expenses. The increase in SG&A expense declinedexpenses was driven by strategic investments associated with future growth initiatives. SG&A expenses decreased slightly as a percentage of net sales from 21.8%19.9% in the second quarter of 20162017 to 19.6%19.8% in the second quarter of 2017.
We continue to integrate DeWAL and DSP. Acquisitions remain a core part of our growth strategy, and successful integration efforts are a key element to ensuring our growth strategy is successfully executed.2018.
We are an innovation company, and in the second quarter of 20172018 we continued our investment in research and development, R&D, with research and developmentR&D expenses comprising 3.5%4.1% of our quarterly net sales. Research and development (R&D) R&D expenses were $7.1$8.8 million in the second quarter of 2017,2018, which was an increase of $0.1$1.6 million, but a declinean increase of 1.0%60 basis points as a percentage of net sales, from the second quarter of 2016. The year-over-year decline as a percentage2017. We have made concerted efforts to realign our R&D organization to better fit the future direction of net sales is attributableour Company, including dedicating resources to net sales growth (including the recent acquisitions),focus on current product extensions and we expect the percentageenhancements to rebalance closer to historical levelsmeet our expected short-term and long-term technology needs.
We acquired Griswold in July 2018, as we integratecontinue to execute on our synergistic acquisition strategy. Acquisitions are a core part of our growth strategy, and these particular acquisitions extend the new businesses. Our spending continues to be focused on developing new platformsproduct portfolio and technologies.technology capabilities of our EMS operating segment. Griswold is a leading manufacturer of a wide range of high-performance engineered cellular elastomer and microcellular polyurethane products and solutions across the automotive, transportation, medical, office products, printing and electronics industries. We financed our acquisition of Griswold with $82.5 million in borrowings under our revolving credit facility in July 2018. As a result, borrowings under our credit facility will increase in the third quarter of 2018.
Results of Operations
The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales.sales:
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Gross margin | 40.0 | % | | 38.2 | % | | 39.7 | % | | 38.0 | % | 35.7 | % | | 40.0 | % | | 35.7 | % | | 39.7 | % |
| | | | | | | | | | | | | | |
Selling, general and administrative expenses | 19.6 | % | | 21.8 | % | | 18.2 | % | | 20.2 | % | 19.8 | % | | 19.9 | % | | 19.4 | % | | 18.4 | % |
Research and development expenses | 3.5 | % | | 4.5 | % | | 3.5 | % | | 4.3 | % | 4.1 | % | | 3.5 | % | | 3.9 | % | | 3.5 | % |
Restructuring charges | 0.5 | % | | — | % | | 0.4 | % | | — | % | |
Gain on sale of long-lived asset | — | % | | — | % | | (0.2 | )% | | — | % | |
Restructuring and impairment charges | | 0.3 | % | | 0.5 | % | | 0.2 | % | | 0.4 | % |
Other operating (income) expense, net | | (0.2 | )% | | — | % | | (0.9 | )% | | (0.2 | )% |
Operating income | 16.3 | % | | 11.9 | % | | 17.8 | % | | 13.5 | % | 11.7 | % | | 16.0 | % | | 13.1 | % | | 17.6 | % |
| | | | | | | | | | | | | | |
Equity income in unconsolidated joint ventures | 0.5 | % | | 0.4 | % | | 0.5 | % | | 0.4 | % | 0.8 | % | | 0.5 | % | | 0.7 | % | | 0.5 | % |
Other income (expense), net | (0.1 | )% | | 0.1 | % | | 0.1 | % | | (0.1 | )% | — | % | | 0.1 | % | | — | % | | 0.3 | % |
Interest expense, net | (1.0 | )% | | (0.7 | )% | | (0.8 | )% | | (0.7 | )% | (0.6 | )% | | (1.0 | )% | | (0.6 | )% | | (0.8 | )% |
Income before income tax expense | 15.7 | % | | 11.8 | % | | 17.6 | % | | 13.1 | % | 12.0 | % | | 15.7 | % | | 13.2 | % | | 17.6 | % |
| | | | | | | | | | | | | | |
Income tax expense | 5.3 | % | | 8.4 | % | | 5.8 | % | | 6.7 | % | 3.9 | % | | 5.3 | % | | 3.1 | % | | 5.8 | % |
| | | | | | | | | | | | | | |
Net income | 10.4 | % | | 3.4 | % | | 11.8 | % | | 6.4 | % | 8.1 | % | | 10.4 | % | | 10.1 | % | | 11.8 | % |
| | Net Sales | | Quarter Ended | | Six Months Ended | |
Net Sales and Gross Margin | | Net Sales and Gross Margin |
| | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Net sales | | $ | 201,424 |
| | $ | 157,489 |
| | 27.9% | | $ | 405,252 |
| | $ | 318,056 |
| | 27.4% | | $ | 214,675 |
| | $ | 201,424 |
| | 6.6% | | $ | 429,286 |
| | $ | 405,252 |
| | 5.9% |
Gross margin | | 40.0 | % | | 38.2 | % | | 39.7 | % | | 38.0 | % | | | 35.7 | % | | 40.0 | % | | 35.7 | % | | 39.7 | % | |
Net sales increased by 27.9%6.6% in the second quarter of 20172018 compared to the second quarter of 2016. This increase was driven by higher organic2017. The ACS, EMS and PES operating segments had net sales in our three strategic business segments (ACS, EMSincreases of 2.7%, 2.1% and PES)22.2%, as well as from the net sales from our recent acquisitions, DeWAL and DSP.respectively. The ACS operating segment had an increase in net sales was primarily driven by favorable currency fluctuations of 10.6%$8.4 million, or 4.2%, due to higher-end marketthe appreciation in value of the Euro and Renminbi relative to the U.S. dollar. Net sales were also favorably impacted by higher demand in automotive, portable electronics,electric and aerospacehybrid electric vehicles, renewable energy, mass transit and defensevariable frequency motor drives applications in the PES operating segment, partially offset by lower demand in portable electronics and wireless and telecommunications applications. EMS had increased organic4G LTE applications in the ACS operating segment. The adoption of new accounting guidance for revenue recognition unfavorably impacted net sales in the second quarter of 2018 by $0.1 million.
Net sales increased by 5.9% in the first half of 2018, compared to the first half of 2017. The EMS and PES operating segments had net sales increases of 1.9% and 28.7%, while the ACS operating segment had a net sales decrease of 2.0%. The increase in net sales was primarily driven by favorable currency fluctuations of $17.8 million, or 4.4%, due to higher end-market demand in general industrial, portable electronics, automotive, and mass transit applications (21.4%), as well as from acquisitions (48.1%) for an overall increase of 69.5%. PES had increased net sales of 14.4% also due to higher end-market demand in mass transit, laser diode cooler, variable frequency motor drive, and renewable energy applications. Currency had a negative impact of 2.4% on total net sales, primarily as a result of the depreciationappreciation in value of the RenminbiEuro and EuroRenminbi relative to the U.S. dollar.
On a year to date basis, The adoption of new accounting guidance for revenue recognition favorably impacted net sales increased by 27.4% fromin the first half of 2016. The ACS operating segment net2018 by $3.8 million, or 0.9%. Net sales increased 8.7%. The EMS operating segment net sales increased 67.7%were also favorably impacted by higher demand in electric and hybrid electric vehicles, renewable energy, mass transit and variable frequency motor drives applications in the PES operating segment, net sales increased 17.6%. Bothpartially offset by lower demand in portable electronics and wireless 4G LTE applications in the ACS and PES had net sales increases from higher end-market demand, and EMS experienced higher net sales resulting from the acquisitions of DeWAL and DSP and organic net sales growth. Currency had a negative impact of 2.0% on total net sales, primarily as a result of the depreciation in value of the Renminbi and Euro relative to the U.S. dollar.
See “Segment Sales and Operations” below for further discussion on segment performance.
Gross Marginoperating segment.
Gross margin as a percentage of net sales increased 180decreased 430 basis points to 35.7% in the second quarter of 2018 compared to 40.0% in the second quarter of 2017 compared to 38.2% in the second quarter of 2016.2017. Gross margin in the second quarter of 20172018 was favorablyunfavorably impacted by an increase in net sales, and operational performance improvements driven by increased capacity utilization, operational process enhancements and automation, conversionlower absorption of fixed cost structure to variable, benefits from low cost country manufacturing expansion,costs and synergies fromincreased costs for copper commodities, facility consolidation and multi-site product qualification, including freight. The adoption of new accounting guidance for revenue recognition unfavorably impacted gross margin in the recent acquisitions.second quarter of 2018 by a de minimis amount.
On a year to date basis, grossGross margin as a percentage of net sales increased by 170decreased 400 basis points to 35.7% in the first half of 2018 from 39.7% in the first half of 2017 from 38.0% in the first half of 2016.2017. Gross margin in the first half of 20172018 was unfavorably impacted by lower absorption of fixed costs and increased costs for copper commodities, machine downtime, facility consolidation and multi-site product qualification, including freight. The adoption of new accounting guidance for revenue recognition favorably impacted gross margin in the first half of 2018 by an increase in$1.2 million, or 0.3% as a percentage of net sales, andsales.
operational performance improvements. The first quarter of 2017 included $1.6 million of expense for a non-recurring purchase accounting fair value adjustment for inventory related to the DeWAL and DSP acquisitions.
| | Selling, General and Administrative Expenses | | Quarter Ended | | Six Months Ended | Selling, General and Administrative Expenses |
| | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Selling, general and administrative expenses | | $ | 39,567 |
| | $ | 34,369 |
| | 15.1% | | $ | 73,731 |
| | $ | 64,229 |
| | 14.8% | | $ | 42,540 |
| | $ | 40,012 |
| | 6.3% | | $ | 83,137 |
| | $ | 74,580 |
| | 11.5% |
Percentage of net sales | | 19.6 | % | | 21.8 | % | | 18.2 | % | | 20.2 | % | | | 19.8 | % | | 19.9 | % | | 19.4 | % | | 18.4 | % | |
SG&A expenses increased 15.1%6.3% in the second quarter of 20172018 from the second quarter of 2016,2017, primarily due principally to $2.7a $2.1 million of additionalincrease in sales and marketing investments to support future growth initiatives, a $0.9 million increase in severance expense, a $0.7 million increase in acquisition expenses, partially offset by a $1.2 million decrease in equity and incentive compensation expense, $1.5 million of additionalexpense. SG&A expenses from the operations of the acquired businesses and $1.4 million of additional intangible amortization and depreciation related to the acquisitions. SG&A declineddecreased as a percent of net sales to 19.6%19.8% in the second quarter of 20172018 from 21.8%19.9% in the second quarter of 2016, as a result of administrative cost containment activities.2017.
On a year to date basis, SG&A expenses increased 14.8%, due principally to $2.6 million of additional SG&A expenses11.5% from the operationsfirst half of the acquired businesses, $2.52017, primarily due to a $4.2 million of additionalincrease in sales and marketing investments to support future growth initiatives, a $1.9 million increase in severance expense, a $0.7 million increase in other intangible assets amortization, and depreciation related to the acquisitions, $2.1a $0.5 million of additionalincrease in equity and incentive compensation expense and $2.1a $0.2 million ofincrease in acquisition and integration related costs.expenses. SG&A declinedincreased as a percent of net sales to 18.2% for the first half of 2017, from 20.2%19.4% in the first half of 2016, as a result2018 from 18.4% in the first half of administrative cost containment activities.2017.
| | Research and Development Expenses | | Quarter Ended | | Six Months Ended | Research and Development Expenses |
| | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Research and development expenses | | $ | 7,141 |
| | $ | 7,074 |
| | 0.9% | | $ | 14,102 |
| | $ | 13,622 |
| | 3.5% | | $ | 8,750 |
| | $ | 7,141 |
| | 22.5% | | $ | 16,884 |
| | $ | 14,102 |
| | 19.7% |
Percentage of net sales | | 3.5 | % | | 4.5 | % | | 3.5 | % | | 4.3 | % | | | 4.1 | % | | 3.5 | % | | 3.9 | % | | 3.5 | % | |
R&D expenses increased 0.9%22.5% in the second quarter of 20172018 from the second quarter of 2016,2017, and increased 3.5%19.7% in the six months ended June 30, 2017first half of 2018 from corresponding prior year period.the first half of 2017. The increases are due to continued investments that are targeted at developing new platformsconcerted efforts to realign our R&D organization to better fit the future direction of our Company, including dedicating resources to focus on current product extensions and technologies focused onenhancements to meet our expected short-term and long-term growth initiatives at our innovation centers in the U.S. and Asia. Although R&D expenses as a percentage of net sales declined from the corresponding periods of the prior year, we expect the percentage to rebalance closer to historical levels as we integrate the new business.technology needs.
|
| | | | | | | | | | | | | | | | | | | | |
Other Operating Expenses (Income) | | Quarter Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change |
Restructuring charges | | $ | 1,079 |
| | $ | — |
| | 100.0% | | $ | 1,805 |
| | $ | — |
| | 100.0% |
Gain on sale of long-lived asset | | — |
| | — |
| | 100.0% | | (942 | ) | | — |
| | 100.0% |
|
| | | | | | | | | | | | | | | | | | | | |
Restructuring and Impairment Charges and Other Operating Expenses (Income), Net |
| | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Restructuring and impairment charges | | $ | 541 |
| | $ | 1,079 |
| | (49.9)% | | $ | 963 |
| | $ | 1,805 |
| | (46.6)% |
Other operating (income) expense, net | | (383 | ) | | — |
| | —% | | (3,974 | ) | | (942 | ) | | 321.9% |
TheWe incurred restructuring charges in the second quarter and the first six months of 2017 are associated with the relocation of our global headquarters from Rogers, Connecticut to Chandler, Arizona. TheseArizona and the relocation of our Santa Fe Springs, California operations to the Company’s facilities in Carol Stream, Illinois and Bear, Delaware. We recognized $0.1 million and $0.5 million of restructuring charges consist of severance expense and other costs associated with relocating employeesthe headquarters relocation and the facility consolidation in the second quarter of 2018, respectively, and $1.1 million of restructuring charges related to the new location.headquarters relocation in the second quarter of 2017. We recognized $0.5 million and $0.5 million of restructuring charges associated with the headquarters relocation and facility consolidation in the first half of 2018, respectively, and $1.8 million of restructuring charges related to the headquarters relocation during the six months ended June 30, 2018. We did not recognize any restructuring charges related to the facility consolidation in the three and six months ended June 30, 2017. We estimate that approximately $1.0 million of additional costs will be incurred in the second half of 2018, with $0.5 million of remaining costs expected to be incurred in 2019.
In the second quarter of 2018, we recognized other operating income of $0.4 million as a result of the sale of a building and a parcel of land in Arizona that had been classified as held for sale as of June 30, 2017. Additionally, in the first quarterhalf of 2018, we recorded a gain from the settlement of antitrust litigation in the amount of $3.6 million. In the first half of 2017, we completedrecognized other operating income of $0.9 million as a result of the planned sale of a parcel of land in Belgium that had been classified as held for sale as of December 31, 2016. We recognized a gain on sale of approximately $0.9 million during the six months ended June 30, 2017.
| | Equity Income in Unconsolidated Joint Ventures | | Quarter Ended | | Six Months Ended | Equity Income in Unconsolidated Joint Ventures |
| | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Equity income in unconsolidated joint ventures | | $ | 966 |
| | $ | 708 |
| | 36.4% | | $ | 1,976 |
| | $ | 1,321 |
| | 49.6% | | $ | 1,804 |
| | $ | 966 |
| | 86.7% | | $ | 2,811 |
| | $ | 1,976 |
| | 42.3% |
Equity income in unconsolidated joint ventures increased 36.4%86.7% in the second quarter of 20172018 from the second quarter of 2016,2017, and year to date increased 49.6%.42.3% in the first half of 2018 from the first half of 2017. The increases were due to higher demand, primarily in the portable electronics market.applications.
| | Other Income (Expense), Net | | Quarter Ended | | Six Months Ended | Other Income (Expense), Net |
| | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Other income (expense), net | | $ | (185 | ) | | $ | 191 |
| | (196.9)% | | $ | 530 |
| | $ | (356 | ) | | 248.9% | | $ | (34 | ) | | $ | 260 |
| | (113.1)% | | $ | 32 |
| | $ | 1,379 |
| | (97.7)% |
Other expenseincome (expense), net decreased 113.1% in the second quarter of 2018 from the second quarter of 2017, was primarily attributableand decreased 97.7% in the first half of 2018 from the first half of 2017. The decreases were due to unfavorabledeclines in the value of our copper derivatives partially offset by favorable changes in foreign currency transaction costs of $0.3 million, compared to favorable foreign currency transaction costs of $0.2 millioncosts.
|
| | | | | | | | | | | | | | | | | | | | |
Interest Expense, Net |
| | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Interest expense, net | | $ | (1,292 | ) | | $ | (1,947 | ) | | (33.6)% | | $ | (2,503 | ) | | $ | (3,195 | ) | | (21.7)% |
Interest expense, net, decreased by 33.6% in the second quarter of 2016.
In2018 from the second quarter of 2017, and by 21.7% in the first half of 2018 from the first half of 2017, other income was attributabledue to gains of $0.3 million compared to expenses of $0.1 million in the first half of 2016, primarily related to the value of the copper derivative contracts. In the first half of 2016, we recorded an additional loss related to the sale of the Arlon polimide and thermoset laminate business of $0.2 million.
|
| | | | | | | | | | | | | | | | | | | | |
Interest Expense, Net | | Quarter Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change |
Interest expense, net | | $ | (1,947 | ) | | $ | (1,115 | ) | | 74.6% | | $ | (3,195 | ) | | $ | (2,236 | ) | | 42.9% |
Interest expense, net, increased by 74.6% in the second quarter of 2017lower average outstanding balances on our credit facilities resulting from the second quarterdiscretionary payments of 2016, and by 42.9% in the first half of 2017 from the first half of 2016. This increase was primarily due to the additional $166.0 million of debt incurred for the DeWAL and DSP acquisitions. As explained in “Liquidity, Capital Resources and Financial Position” below, however, we made a $50.0 million discretionary paymentand $60.0 million, during the second quarterand third quarters of 2017, respectively, to reduce our outstanding borrowings under our credit facility. We expect interest expense to increase during the remainder of the year as a result of the $82.5 million increase in borrowings under our credit facility to $191.2 million, asfund the acquisition of June 30, 2017.Griswold in July 2018.
| | Income Taxes | | Quarter Ended | | Six Months Ended | Income Taxes |
| | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2017 | | June 30, 2016 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change | | June 30, 2018 | | June 30, 2017 | | Percent Change |
Income tax expense | | $ | 10,697 |
| | $ | 13,163 |
| | (18.7)% | | $ | 23,583 |
| | $ | 21,280 |
| | 10.8% | | $ | 8,373 |
| | $ | 10,697 |
| | (21.7)% | | $ | 13,144 |
| | $ | 23,583 |
| | (44.3)% |
Effective tax rate | | 33.9 | % | | 71.0 | % | | 33.0 | % | | 51.2 | % | | | 32.6 | % | | 33.9 | % | | 23.2 | % | | 33.0 | % | |
Our effective income tax rate was 33.9%32.6% and 71.0%33.9% for the three months ended June 30, 2018 and 2017, respectively. The decrease was primarily due to a lower U.S. effective tax rate, as a result of U.S. tax reform, and 2016, respectively.changes in pretax mix across jurisdictions with disparate tax rates, partially offset by an increase in current year accruals for uncertain tax positions. Our effective income tax rate was 33.0%23.2% and 51.2%33.0% for the six months ended June 30, 20172018 and 2016,2017, respectively. The decrease compared to the same periods in 2016, was primarily due to withholding taxes on off-shore cash movements and the changea lower U.S. effective tax rate, as a result of U.S. tax reform, changes in our assertion that certain foreign earnings are permanently reinvested recorded in 2016,pretax mix across jurisdictions with disparate tax rates, excess tax deductions on stock basedequity compensation, recognized in 2017R&D credits and a decrease in current year accrualrelease of reserves for uncertain tax positions, partially offset a decreaseby an increase in reversal of reserves associated withcurrent year accruals for uncertain tax positions.
Historically, our intention was to permanently reinvest the majority of our foreign earnings indefinitely or to distribute them only when it was tax efficient to do so. As a result of certain internal restructuring transactions effectuated to more closely align our foreign subsidiaries from an operational, legal and geographic perspective and improve management of financial resources, with respect to offshore distributions, we modified our assertion of certain foreign subsidiary earnings considered permanently reinvested in 2016. In connection with this change, we recorded a deferred tax liability of $3.4 million associated with distribution-related foreign taxes on prior years’ undistributed earnings of certain of our Chinese subsidiaries in the second quarter of 2016. These taxes become due when distributed to other offshore subsidiaries. In addition, we incurred $5.5 million of withholding taxes related to distributions from China in the second quarter of 2016. With few exceptions, U.S. income taxes have not been provided on undistributed earnings of international subsidiaries. We continue to intend to reinvest these earnings permanently outside the U.S. or to repatriate the earnings only when it is tax effective to do so.
Segment Sales and Operations
Advanced Connectivity Solutions
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
(Dollars in millions) | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(Dollars in thousands) | | June 30, 2018 | | June 30, 2017 | | June 30, 2018 | | June 30, 2017 |
Net sales | $ | 74.3 |
| | $ | 67.2 |
| | $ | 152.9 |
| | $ | 140.6 |
| $ | 76,376 |
| | $ | 74,340 |
| | $ | 149,831 |
| | $ | 152,882 |
|
Operating income | $ | 13.2 |
| | $ | 10.8 |
| | $ | 32.9 |
| | $ | 26.7 |
| $ | 10,594 |
| | $ | 12,997 |
| | $ | 18,496 |
| | $ | 32,495 |
|
The ACS operating segment is comprised of high frequency circuit material products used for making circuitry that receives, processes and transmits high frequency communications signals, in a wide variety of marketsapplications and applications,markets, including wireless communications, automotive,wired infrastructure, high reliability, wired infrastructure, aerospace and defense, and consumer applications, among others.
Q2 2017 versus Q2 2016
ACS experienced continued growth in automotive portable electronics,radar, and aerospace and defense, applications, offset in part by lower wireless infrastructure demand. Netamong others.
Q2 2018 versus Q2 2017
ACS net sales in this segment increased by 10.6%2.7% in the second quarter of 20172018 compared to the second quarter of 2016.2017. The increase was primarily driven by favorable currency fluctuations of $1.9 million, or 2.5%, due to the appreciation in net sales overvalue of the second quarter of 2016 was favorably impacted by demand growth in automotive radar applications for Advanced Driver Assistance Systems (73%), portable electronics (76%),Euro and aerospace and defense applications (8%),Renminbi relative to the U.S. dollar, partially offset by lower demand in theportable electronics and wireless telecom market for 4G LTE applications (-7%).applications. Net sales were unfavorably impacted by 1.3% due to currency fluctuations, primarily as a resultincreased in aerospace and defense and automotive radar applications, while net sales decreased in portable electronics and wireless 4G LTE applications. The adoption of the depreciation in value of the Renminbi and Euro relative to the U.S. dollar.
Operating income increased by 22.2%new accounting guidance for revenue recognition did not impact ACS net sales in the second quarter of 20172018.
Operating income decreased by 18.5% in the second quarter of 2018 from the second quarter of 2016.2017. As a percentage of net sales, operating income in the second quarter of 20172018 was 17.8%13.9%, a 170360 basis point increasedecrease as compared to the 16.1%17.5% reported in the second quarter of 2016. This increase2017. The decrease in operating income is primarily due to the higher net sales previously notedincreased costs for copper commodities and multi-site product qualification, including freight, as well as lower costshigher overhead from continued operational efficiencies and cost reduction initiatives.strategic investments in infrastructure. The adoption of new accounting guidance for revenue recognition did not impact ACS operating income in the second quarter of 2018.
YTD 20172018 versus YTD 20162017
On a year to date basis, ACS experienced growth in automotive, aerospace and defense applications, offset in partnet sales decreased by lower wireless infrastructure demand. Net sales in this segment increased by 8.7%2.0% in the first half of 20172018 compared to the first half of 2016.2017. The increasedecrease in net sales iswas primarily driven by demand growth in automotive radar applications (54%), and aerospace and defense programs (11%), partially offset by lower demand in theportable electronics and wireless telecom market for 4G LTE applications, (-7%). Net sales were unfavorably impactedpartially offset by 1.2%favorable currency fluctuations of $3.7 million, or 2.4%, due to currency fluctuations, primarily as a result of the depreciationappreciation in value of the RenminbiEuro and EuroRenminbi relative to the U.S. dollar.
Operating income improved by 23.2% Net sales increased in aerospace and defense and automotive radar applications, while net sales decreased in wireless 4G LTE and portable electronics applications. The adoption of new accounting guidance for revenue recognition did not impact ACS net sales in the first half of 20172018.
Operating income decreased by 43.1% in the first half of 2018 from the first half of 2016.2017. As a percentage of net sales, the first half of 20172018 operating income was 21.5%12.3%, a 250an 900 basis point increasedecrease as compared to the 19.0%21.3% reported in the first half of 2016. This increase2017. The decrease in operating income is primarily due to the higherlower net sales, increased costs for copper commodities and multi-site product qualification, including freight, lower capacity utilization due to process issues and machine downtime, unfavorable absorption of fixed costs, as well as lower costs from continued operational efficienciesinvestments in sales and cost reductionmarketing to support future growth initiatives.
The adoption of new accounting guidance for revenue recognition did not impact ACS operating income in the first half of 2018.
Elastomeric Material Solutions
| | | Quarter Ended | | Six Months Ended | Three Months Ended |
| Six Months Ended |
(Dollars in millions) | June 30, 2017 |
| June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(Dollars in thousands) | | June 30, 2018 |
| June 30, 2017 |
| June 30, 2018 |
| June 30, 2017 |
Net sales | $ | 77.6 |
| | $ | 45.8 |
| | $ | 154.4 |
| | $ | 92.1 |
| $ | 79,216 |
| | $ | 77,585 |
| | $ | 157,299 |
| | $ | 154,434 |
|
Operating income | $ | 14.1 |
| | $ | 5.3 |
| | $ | 27.0 |
| | $ | 10.7 |
| $ | 8,421 |
| | $ | 13,934 |
| | $ | 22,581 |
| | $ | 26,724 |
|
The EMS operating segment is comprised of polyurethane and silicone foam products, which are sold into a wide variety of applications and markets, including general industrial, portable electronics, automotive, mass transit and consumer applications. In November 2016,July 2018, we completed the acquisition of DeWAL,acquired Griswold, a leading manufacturer of polytetrafluoroethylene, ultra-high molecular weight polyethylene films, pressure sensitive tapes and specialty products for the industrial, aerospace, automotive, and electronics markets. In January 2017, we acquired the principal operating assets of DSP, a custom silicone product development and manufacturing business, serving a wide range of high reliability applications.high-performance engineered cellular elastomer and microcellular polyurethane products and solutions. We are in the process of integrating DeWAL and DSPGriswold into ourthe EMS operating segment.
Q2 20172018 versus Q2 20162017
EMS experienced organic net sales growth in the quarter, as well as growth from net sales stemming from our DeWAL and DSP acquisitions. Net sales in this segment increased by 69.5%2.1% in the second quarter of 20172018 compared to the second quarter of 2016.2017. The increase in net sales over the second quarter of 2017 was primarily driven by the acquisitionsfavorable currency fluctuations of DeWAL and DSP (48.1%)$2.0 million, or 2.6%, as well as an increase in organic net sales (21.4%). Organically, EMS experienced higher demand in general industrial (30%), portable electronics (24%), automotive (51%) and mass transit (5%) applications. Net sales were unfavorably impacted by 2.1% due to currency fluctuations, primarily as a result of the depreciationappreciation in value of the RenminbiEuro and EuroRenminbi relative to the U.S. dollar.
Operating income Net sales increased by 166.0%in portable electronics, consumer, automotive and mass transit applications, while net sales decreased in general industrial applications. The adoption of new accounting guidance for revenue recognition favorably impacted EMS net sales in the second quarter of 20172018 by $0.1 million, or 0.1%.
Operating income decreased by 39.6% in the second quarter of 2018 from the second quarter of 2016.2017. As a percentage of net sales, second quarter of 20172018 operating income was 18.2%10.6%, a 660740 basis point increasedecrease as compared to the 11.6%18.0% reported in the second quarter of 2016. This increase2017. The decrease in operating income is primarily due to the higher net sales attributableincreased costs for raw materials, and increased freight costs related to growth from acquisitionscapacity optimization and organic growth,facility consolidation, unfavorable absorption of fixed costs, as well as lower costs from continued operational efficiencies, partially offsetinvestments in sales and marketing to support future growth initiatives. The adoption of new accounting guidance for revenue recognition favorably impacted EMS operating income in the second quarter of 2018 by increases in intangible amortization and depreciation expense of $1.4a $0.0 million, related to the DeWAL and DSP acquisitions.or 0.2%.
YTD 20172018 versus YTD 20162017
On a year to date basis, EMS experienced strong net sales growth from the added net sales of the DeWAL and DSP acquisitions, as well as organically. Net sales in this segment increased by 67.7%1.9% in the first half of 20172018 compared to the first half of 2016.2017. The increase in net sales iswas primarily driven by the acquisitionsfavorable currency fluctuations of DeWAL and DSP (48.6%)$4.0 million, or 2.6%, as well as an increase in organic net sales (19.1%). Organically, EMS experienced higher demand in portable electronics (29%), general industrial (19%), automotive (50%), and mass transit (17%) applications. Net sales were unfavorably impacted by 1.7% due to currency fluctuations, primarily as a result of the depreciationappreciation in value of the RenminbiEuro and EuroRenminbi relative to the U.S. dollar.
Operating income improved by 152.3% Net sales increased in portable electronics, consumer and automotive applications, while net sales decreased in general industrial and mass transit applications. The adoption of new accounting guidance for revenue recognition favorably impacted EMS net sales in the first half of 20172018 by $0.2 million, or 0.1%.
Operating income decreased by 15.5% in the first half of 2018 from the first half of 2016.2017. As a percentage of net sales, the first half of 20172018 operating income was 17.5%14.4%, a 590290 basis point increasedecrease as compared to the 11.6%17.3% reported in the first half of 2016. This increase2017. The decrease in operating income is primarily due to the higher net sales attributable to both acquisitionsincreased costs for raw materials and organic growth,freight, unfavorable absorption of fixed costs, as well as lower costsinvestments in sales and marketing to support future growth initiatives, partially offset by a $3.6 million gain on settlement from continued operational efficiencies. Operatingantitrust class action litigation, as discussed in Note 20, “Supplemental Financial Information.” The adoption of new accounting guidance for revenue recognition favorably impacted EMS operating income in the first half of 2017 included $1.62018 by $0.0 million, of expense for a non-recurring purchase accounting fair value adjustment for inventory related to the DeWAL and DSP acquisitions in addition to $2.1 million of acquisition and integration costs. The first half of 2017 also includes increased intangible amortization and depreciation expense of $2.5 million related to the DeWAL and DSP acquisitions. Despite these expenses, operating income increased due to higher net sales and ongoing operational excellence initiatives.
or 0.2%.
Power Electronics Solutions
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
(Dollars in millions) | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(Dollars in thousands) | | June 30, 2018 | | June 30, 2017 | | June 30, 2018 |
| June 30, 2017 |
Net sales | $ | 43.9 |
| | $ | 38.4 |
| | $ | 86.6 |
| | $ | 73.6 |
| $ | 53,647 |
| | $ | 43,905 |
| | $ | 111,360 |
| | $ | 86,557 |
|
Operating income | $ | 3.7 |
| | $ | 0.5 |
| | $ | 8.6 |
| | $ | 1.8 |
| $ | 4,239 |
| | $ | 3,560 |
| | $ | 11,260 |
| | $ | 8,404 |
|
The PES operating segment is comprised of two product lines - curamik® direct-bonded copper (DBC) substrates that are used primarily in the design of intelligent power management devices, such as IGBT (insulated gate bipolar transistor) modules that enable a wide range of products including highly efficient industrial motor drives, wind and solar energy converters and electrical systems in automobiles, and ROLINX® busbars that are used primarily in power distribution systems products in electric and hybrid electric vehicles and clean technology applications.
Q2 20172018 versus Q2 20162017
PES experienced net sales growthincreased by 22.2% in the second quarter of 2017 across key markets, as compared to2018 from the second quarter of 2016.2017. Net sales increased in this segment increased by 14.4%electric and hybrid electric vehicles, renewable energy, mass transit and variable frequency motor drives applications, primarily due to higher demand. The adoption of new accounting guidance for revenue recognition favorably impacted PES net sales in the second quarter of 2017 from the second quarter of 2016. Net sales were positively impacted2018 by higher demand for mass transit (36%), laser diode cooler applications (35%), variable frequency motor drives (6%), and renewable energy (15%)$0.4 million, or 0.8%. Net sales were unfavorablyalso impacted by 4.7%favorable currency fluctuations of $4.3 million, or 9.8%, due to currency fluctuations, primarily as a result of the depreciationappreciation in value of the Euro and Renminbi relative to the U.S. dollar.
Operating income for the quarter increased by 640.0%19.1% in the second quarter of 20172018 from the second quarter of 2016.2017. As a percentage of net sales, second quarter of 20172018 operating income was 8.4%7.9%, a 71020 basis point increasedecrease as compared to the 1.3%8.1% reported in the second quarter of 2016. This2017. The increase in operating income is primarily due to higher net sales from increased demand, partially offset by a provision for a commercial settlement, capacity optimization and increased equipment utilization, supply chain volume discounts,facility consolidation efforts, as well as investments in sales and improved productivity from operational excellencemarketing to support future growth initiatives. The adoption of new accounting guidance for revenue recognition PES operating income in the second quarter of 2018 by $0.1 million, or 3.3%.
YTD 20172018 versus YTD 20162017
NetPES net sales in this segment increased by 17.6%28.7% in the first half of 20172018 from the first half of 2016.2017. Net sales increase was driven by higher demand for laser diode cooler applications (55%),increased in electric and hybrid electric vehicles, renewable energy, (22%),mass transit and variable frequency motor drives (8%), hybrid electric vehicles (18%), and mass transit (24%)applications, primarily due to higher demand. The adoption of new accounting guidance for revenue recognition favorably impacted PES net sales in the first half of 2018 by $4.6 million, or 5.4%. Net sales were unfavorablyalso impacted by 3.8%favorable currency fluctuations of $9.6 million, or 11.1%, due to currency fluctuations, primarily as a result of the depreciationappreciation in value of the Euro and Renminbi relative to the U.S. dollar.
Operating income increased 377.8%34.0% in the first half of 20172018 from the first half of 2016.2017. As a percentage of net sales, the first half of 20172018 operating income was 9.9%10.1%, a 75040 basis point increase as compared to the 2.4%9.7% reported in the first half of 2016. This2017. The adoption of new accounting guidance for revenue recognition favorably impacted PES operating income in the first half of 2018 by $1.5 million, or 17.7%. The increase in operating income is primarilyalso due to higher net sales from increased demand, partially offset by a provision for a commercial settlement, process issues, capacity optimization and increased equipment utilization, supply chain volume discounts,facility consolidation efforts, as well as investments in sales and improved productivity from operational excellencemarketing to support future growth initiatives.
Other
| | | Quarter Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
(Dollars in millions) | June 30, 2017 | | June 30, 2016 | | June 30, 2017 | | June 30, 2016 | |
(Dollars in thousands) | | June 30, 2018 | | June 30, 2017 | | June 30, 2018 |
| June 30, 2017 |
Net sales | $ | 5.6 |
| | $ | 6.1 |
| | $ | 11.4 |
| | $ | 11.8 |
| $ | 5,436 |
| | $ | 5,594 |
| | $ | 10,796 |
| | $ | 11,379 |
|
Operating income | $ | 1.8 |
| | $ | 2.1 |
| | $ | 3.7 |
| | $ | 3.7 |
| $ | 1,970 |
| | $ | 1,823 |
| | $ | 3,932 |
| | $ | 3,728 |
|
OurThe Other operating segment consists of our elastomer rollers and floats business, as well as our inverter distribution business.
Q2 20172018 versus Q2 20162017
Net sales in this segment decreased by 8.9%2.8% in the second quarter of 20172018 from the second quarter of 2016, and2017. The decrease in net sales over the second quarter of 2017 was primarily driven by the adoption of new accounting guidance for revenue recognition, which resulted in a $0.6 million unfavorable impact, or 10.0%. Currency fluctuations had a negative currency$0.2 million favorable impact on net sales during the second quarter of 2.0%, primarily as a result of2018 due to the depreciationappreciation in value of the Euro and Renminbi relative to the U.S. dollar.
Operating income decreased 14.3%increased 8.1% in the second quarter of 20172018 compared to the second quarter of 2016.2017. As a percentage of net sales, second quarter of 2018 operating income decreasedwas 36.2%, a 360 basis point increase as compared to 32.1%the 32.6% reported in the second quarter of 2017 from 34.4%2017. This increase was primarily driven by operational improvements and efficiency initiatives. Operating income in the second quarter of 2016. This decrease2018 was primarily drivenunfavorably impacted by lower net sales.$0.2 million, or 9.8%, from the adoption of new accounting guidance for revenue recognition.
YTD 20172018 versus YTD 20162017
Net sales in this segment decreased by 3.2%5.1% in the first half of 20172018 from the first half of 2016,2017. The decrease in net sales is primarily driven by the adoption of new accounting guidance for revenue recognition, which resulted in a $1.0 million unfavorable impact, or 8.5%. Currency fluctuations had a $0.5 million favorable impact on net sales during the first half of 2018 due to a negative currency impact of 2.0% resulting from an increasethe appreciation in the value of the Euro and Renminbi relative to the U.S. dollar.
Operating income increased by 5.5% in the first half of 20172018 from the first half of 2017. As a percentage of net sales, second quarter of 2018 operating income was flat36.4%, a 360 basis point increase as compared to the 32.8% reported in the second quarter of 2017. This increase is primarily due to operational improvements and efficiency initiatives. Operating income in the first half of 2016. This2018 was due to lower net sales offsetunfavorably impacted by $0.3 million, or 8.3%, from the impactadoption of continuing operating efficiencies.new accounting guidance for revenue recognition.
Liquidity, Capital Resources and Financial Position
We believe that our ability to generate cash from operations to reinvest in our business is one of our fundamental strengths. We believe that our existing sources of liquidity and cash flows that are expected to be generated 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. We continuallyregularly review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships seeking to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives.
| | (Dollars in thousands) | June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
Key Balance Sheet Accounts: | | | | | | |
Cash and cash equivalents | $ | 177,312 |
| | $ | 227,767 |
| $ | 174,700 |
| | $ | 181,159 |
|
Accounts receivable, net | $ | 136,993 |
| | $ | 119,604 |
| $ | 148,727 |
| | $ | 140,562 |
|
Contract assets | | $ | 21,933 |
| | $ | — |
|
Inventories | $ | 102,549 |
| | $ | 91,130 |
| $ | 117,739 |
| | $ | 112,557 |
|
Outstanding borrowing on credit facilities (short term and long term) | $ | 191,188 |
| | $ | 241,188 |
| |
Borrowings under credit facility | | $ | 130,982 |
| | $ | 130,982 |
|
|
| | | | | | | |
| Six Months Ended |
(Dollars in thousands) | June 30, 2017 | | June 30, 2016 |
Key Cash Flow Measures: | |
| | |
|
Cash provided by operating activities | $ | 64,489 |
| | $ | 51,304 |
|
Cash used in investing activities | $ | (67,324 | ) | | $ | (9,992 | ) |
Cash used in financing activities | $ | (51,637 | ) | | $ | (4,229 | ) |
At the endAs of the second quarter of 2017,June 30, 2018, cash and cash equivalents were $177.3$174.7 million as compared to $227.8$181.2 million at the endas of 2016,December 31, 2017, a decrease of $50.5$6.5 million, or 22.2%3.6%. This decrease was primarily due primarily to our use of $60.2 million for the acquisition of DSP, a $50.0 million discretionary principal payment on our outstanding credit facility, and $9.7$20.2 million in capital expenditures, $6.4 millionin tax payments related to net share settlement of equity awards and$3.0 millionin repurchases of capital stock, partially offset by strong cash generated by operations.operations during the first half of 2018. We financed our acquisition of Griswold with $82.5 million in borrowings under our revolving credit facility in July 2018. As a result, borrowings under our credit facility will increase in the third quarter of 2018.
The following table illustrates the location of our cash and cash equivalents by our three major geographic areas as of the periods indicated:
| | (Dollars in thousands) | June 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
U.S. | $ | 19,467 |
| | $ | 95,481 |
| |
United States | | $ | 33,987 |
| | $ | 35,653 |
|
Europe | 54,799 |
| | 37,791 |
| 43,386 |
| | 41,307 |
|
Asia | 103,046 |
| | 94,495 |
| 97,327 |
| | 104,199 |
|
Total cash and cash equivalents | $ | 177,312 |
| | $ | 227,767 |
| $ | 174,700 |
| | $ | 181,159 |
|
CashApproximately $140.7 million of our cash and cash equivalents were held in certain foreign locationsby non-U.S. subsidiaries as of June 30, 2018. As a result of U.S. tax reform, unremitted earnings as of December 31, 2017 were subjected to U.S. tax through the transition tax, but a portion could be subject to additional foreign income taxes if we repatriate such amounts back tothey are redeployed outside of their country of origin. With the U.S. or offshore subsidiaries. In 2016, as a result of certain internal restructuring transactions effectuated to more closely align our foreign subsidiaries from an operational, legal and geographic perspective and improve management of financial resources, we changed our estimate of the amount of foreign subsidiary earnings considered permanently reinvested. Undistributed earningsexception of certain of our Chinese subsidiaries, we have historically asserted and continue to assert that foreign earnings are no longer considered indefinitely reinvested and may be distributed to other offshore subsidiaries. Wereinvested. While we have not changed our assertion with respect to distributionsforeign earnings compared to prior years, we are currently evaluating the impact of U.S. tax reform on our global structure and any associated impacts it may have on our assertion on a go forward basis, and as such have not changed our assertion with respect to distribution of earnings that would require the accrual of U.S.additional deferred income tax.taxes.
Significant changes in our balance sheet accounts from December 31, 20162017 to June 30, 20172018 were as follows:
Accounts receivable increased 14.5%5.8% to $137.0$148.7 million as of June 30, 2017,2018, from $119.6$140.6 million at December 31, 2016.2017. The increase from year endyear-end was primarily due to higher net sales inat the end of the second quarter of 2017, in comparison with2018 compared to at the fourth quarterend of 2016. Additionally, accounts receivable increased by $3.4the 2017.
We recorded contract assets of $21.9 million as of June 30, 2017 due2018 related to the acquisitionadoption of DSPASU 2014-09. See further discussion in January 2017.Note 19, “Revenue from Contracts with Customers” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
Inventory increased 12.5%4.6% to $102.5$117.7 million as of June 30, 2017,2018, from $91.1$112.6 million at December 31, 20162017, primarily as a result of inventory buildup to meet future demand in anticipation of increased demand inlong supply lead times, supplier transition and planned machinery downtime, partially offset by the second half of 2017 within our EMS and PES segments. Additionally, inventory increased $2.1 million due to the acquisition of DSP in January 2017.
Deferred income tax assets increased 34.3% to $19.7 million as of June 30, 2017,impact from $14.6 million at December 31, 2016. The increase is primarily due to the recognition of $12.7 million in deferred tax assets previously not recognized in accordance with the adoption of new accounting guidance offset by $7.9 million decreasefor revenue recognition. See discussion in deferred tax assets in the U.S. associatedNote 19, “Revenue from Contracts with tax credit utilizationCustomers.”
Accrued employee benefits and timing differences.
Goodwill increased 11.4%compensation decreased to $232.2$26.1 million as of June 30, 2017,2018, from $208.4$39.4 million at December 31, 2016. The increase2017. This decrease is primarily due to incentive compensation payouts of $18.2 million that occurred in the acquisitionfirst half of DSP in January 2017.2018, partially offset by $3.6 million of accruals for projected incentive compensation payouts for the current performance year.
Other intangible assets increased 22.4% to $167.2
During the six months ended June 30, 2018, we repurchased 23,138 shares of our capital stock for $3.0 million asunder a $100.0 million share repurchase program approved by our Board of Directors on August 6, 2015. The share repurchase program has no expiration date and may be suspended or discontinued at any time without notice. As of June 30, 2017,2018, $49.0 million remained for repurchase under our share repurchase program. All purchases were made using cash from $136.7 million at December 31, 2016. This overall increase is due to the acquisition of DSP in January 2017.operations.
On February 17, 2017, we entered into the Third Amended and Restated Credit Agreementa secured five year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Third Amended Credit Agreement), which amended and restated the Second Amended Credit Agreement. The Third Amended Credit Agreement refinanced the Second Amended Credit Agreement, eliminated the term loan under the Second Amended Credit Agreement, and increased the principal amount of theour revolving credit facility to up to $450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, and provided an additional $175.0 million accordion feature. All revolving loans underBorrowings may be 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 Third Amended Credit AgreementAgreement).
All revolving loans are due on the maturity date, February 17, 2022. We are not required to make any quarterly principal payments under the Third Amended Credit Agreement. During the second quarter of 2017, we made a discretionary principal payment of $50.0 million to reduce the amount outstanding on our credit facility. As of June 30, 2017,2018, we had $191.2have $131.0 million in outstanding borrowings under our credit facility.
TheOur Third 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 leverage ratio does not exceed 2.75 to 1.00. If our 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 leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2017.2018.
During the second quarter of 2017,2018, there were not any material new developments related to our capital lease.leases. Refer to Note 12, - “Debt” of Notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion on liquidity matters.
Contingencies
During the second quarter of 2017,2018, we did not become aware of any material new developments related to environmental matters or other contingencies or incur any material costs or capital expenditures related to environmental matters. Refer to Note 14, - “Commitments and Contingencies” of Notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion on ongoing environmental and other contingencies.
Off-Balance Sheet Arrangements
As of June 30, 2017,2018, we did not have any off-balance sheet arrangements that have or are, in the opinion of management, likely to have a current or future material effect on our financial condition or results of operations.
Critical Accounting Policies
There were no material changesRevenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to achieve a consistent application of revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. With the adoption of ASU 2017-09, we recognize revenue when all of the following criteria are met: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of our critical accounting policies duringshipping terms permit us to recognize revenue at point of shipment. Some shipping terms require the second quartergoods to be through customs or be received by the customer before title passes. In those instances, revenue is not recognized until either the customer has received the goods or they have passed through customs, depending on the circumstances. Shipping and handling costs are treated as fulfillment costs. Sales tax or VAT are excluded from the measurement of 2017.
the transaction price.
Recent Accounting Pronouncements
See Note 19 -21, “Recent Accounting Standards” of Notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for discussion of recent accounting pronouncements including the respective expected dates of adoption.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significantmaterial changes in our exposure to market risk during the second quarter of 2017.2018. For discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, contained in our Annual Report.
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Item 4. | Controls and Procedures |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company, with the participation of our Chief Executive Officer and ChiefPrincipal Financial Officer, conducted an evaluation of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of June 30, 2017.2018. The Company’s disclosure controls and procedures are designed (i) to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to its management, including its Chief Executive Officer and ChiefPrincipal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and ChiefPrincipal Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2017.2018.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the Company’s internal control over financial reporting during its most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. This evaluation excluded the operations of DeWAL Industries LLC, which we acquired on November 23, 2016 and Diversified Silicone Products, Inc., which we acquired on January 6, 2017. As part of the ongoing integration activities for both acquisitions, we are completing an assessment of DeWAL’s and DSP’s existing controls and incorporating our controls and procedures into the acquired operations, as appropriate.
Part II - Other Information
See a discussion of environmental, asbestos and other litigation matters in Note 14, - “Commitments and Contingencies,” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Items 2 (a) and (b) are not applicable
(c) Share Repurchases
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(Dollars in thousands, except per share amounts) | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs |
March 1, 2018 to March 31, 2018 | | 23,138 |
| | $ | 129.62 |
| | 23,138 |
| | $ | 49,013 |
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April 1, 2018 to April 30, 2018 | | — |
| | $ | — |
| | — |
| | $ | 49,013 |
|
May 1, 2018 to May 31, 2018 | | — |
| | $ | — |
| | — |
| | $ | 49,013 |
|
June 1, 2018 to June 30, 2018 | | — |
| | $ | — |
| | — |
| | $ | 49,013 |
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During the six months ended June 30, 2018, we repurchased 23,138 shares of our capital stock for $3.0 million under a $100.0 million share repurchase program approved by our Board of Directors in 2015. The share repurchase program has no expiration date and may be suspended or discontinued at any time without notice. As of June 30, 2018, $49.0 million remained for repurchase under the share repurchase program. All repurchases were made using cash from operations. Our share repurchases may occur from time to time through open market purchases, privately negotiated transactions or plans designed to comply with Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended.
Item 6. Exhibits
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List of Exhibits: |
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3.1 | |
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3.2 | |
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31.1 | |
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31.2 | |
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32 | |
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101 | The following materials from Rogers Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 20172018 formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 20172018 and June 30, 2016,2017, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 20172018 and June 30, 2016,2017, (iii) Condensed Consolidated Statements of Financial Position at June, 30 20172018 and December 31, 2016,2017, (iv) Condensed Consolidated Statement of Shareholders’ Equity at June 30, 2017 and December 31, 2016, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20172018 and June 30, 20162017 and (vi)(v) Notes to Condensed Consolidated Financial Statements. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ROGERS CORPORATION (Registrant) |
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/s/ Janice E. StippMark Weaver | | |
Janice E. Stipp
Senior Mark Weaver Vice President, Finance and Chief Financial Officer, Principal Financial Officer,
Chief Accounting Officer and Principal Accounting OfficerCorporate Controller | | |
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Dated: August 1, 2017 July 31, 2018 | | |