UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021


☐			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)


Massachusetts			06-0513860
(State or Other Jurisdiction of			(I. R. S. Employer Identification No.)
Incorporation or Organization)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,

par value $1.00 per share

ROG

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s capital stock as of ~~July 27, 2020~~April 26, 2021 was ~~18,674,827.~~18,712,154.

ROGERS CORPORATION

FORM 10-Q

~~June 30, 2020~~March 31, 2021

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “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. Refer to “Forward-Looking Statements” in Item 2, Management’s Discussion and Analysis of Results of Operations and Financial Position for additional information.

Part I – Financial Information

Item 1. Financial Statements

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars and shares in thousands, except per share amounts)


		Three Months Ended						Six Months Ended							Three Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
Net sales	Net sales	$	191,157	$	242,852	$	389,967	$	482,650	Net sales	$	229,265	$	198,810
Cost of sales	Cost of sales	121,188		157,024		254,368		311,428		Cost of sales	139,766		133,180
Gross margin	Gross margin	69,969		85,828		135,599		171,222		Gross margin	89,499		65,630

Selling, general and administrative expenses	Selling, general and administrative expenses	41,694		43,649		82,024		86,901		Selling, general and administrative expenses	42,413		40,330
Research and development expenses	Research and development expenses	7,295		7,843		15,100		15,452		Research and development expenses	7,172		7,805
Restructuring and impairment charges	Restructuring and impairment charges	—		1,083		—		1,905		Restructuring and impairment charges	1,506		0
Other operating (income) expense, net	Other operating (income) expense, net	(112)		40		(92)		951		Other operating (income) expense, net	1,215		20
Operating income	Operating income	21,092		33,213		38,567		66,013		Operating income	37,193		17,475

Equity income in unconsolidated joint ventures	Equity income in unconsolidated joint ventures	1,022		1,742		2,240		2,579		Equity income in unconsolidated joint ventures	2,181		1,218
Pension settlement charges		(55)		—		(55)		—
Other (expense) income, net		634		(1,401)		(152)		3

Other income (expense), net										Other income (expense), net	2,968		(786)
Interest expense, net	Interest expense, net	(1,779)		(2,038)		(2,986)		(3,976)		Interest expense, net	(607)		(1,207)
Income before income tax expense	Income before income tax expense	20,914		31,516		37,614		64,619		Income before income tax expense	41,735		16,700
Income tax expense	Income tax expense	6,394		7,223		9,835		11,927		Income tax expense	10,517		3,441
Net income	Net income	$	14,520	$	24,293	$	27,779	$	52,692	Net income	$	31,218	$	13,259

Basic earnings per share	Basic earnings per share	$	0.78	$	1.31	$	1.49	$	2.84	Basic earnings per share	$	1.67	$	0.71
Diluted earnings per share	Diluted earnings per share	$	0.78	$	1.30	$	1.49	$	2.82	Diluted earnings per share	$	1.66	$	0.71

Shares used in computing:	Shares used in computing:									Shares used in computing:
Basic earnings per share	Basic earnings per share	18,676		18,568		18,673		18,562		Basic earnings per share	18,712		18,669
Diluted earnings per share	Diluted earnings per share	18,681		18,730		18,686		18,711		Diluted earnings per share	18,774		18,691

The accompanying notes are an integral part of the condensed consolidated financial statements.

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)


		Three Months Ended						Six Months Ended							Three Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
Net income	Net income	$	14,520	$	24,293	$	27,779	$	52,692	Net income	$	31,218	$	13,259

Foreign currency translation adjustment	Foreign currency translation adjustment	5,629		2,182		(1,265)		(2,075)		Foreign currency translation adjustment	(13,259)		(6,894)
Pension and other postretirement benefits:	Pension and other postretirement benefits:									Pension and other postretirement benefits:
Pension settlement benefits, net of tax (Note 4)		(48)		—		(48)		—
Actuarial net gain incurred, net of tax (Note 4)		626		—		626		—

Amortization of loss, net of tax (Note 4)	Amortization of loss, net of tax (Note 4)	67		157		133		313		Amortization of loss, net of tax (Note 4)	63		66
Derivative instrument designated as cash flow hedge:	Derivative instrument designated as cash flow hedge:									Derivative instrument designated as cash flow hedge:
Change in unrealized gain (loss) before reclassifications, net of tax (Note 4)		383		(810)		(866)		(1,204)
Change in unrealized loss before reclassifications, net of tax (Note 4)										Change in unrealized loss before reclassifications, net of tax (Note 4)	0		(1,249)
Unrealized gain reclassified into earnings, net of tax (Note 4)	Unrealized gain reclassified into earnings, net of tax (Note 4)	(267)		(62)		(334)		(156)		Unrealized gain reclassified into earnings, net of tax (Note 4)	0		(67)
Other comprehensive income (loss)	Other comprehensive income (loss)	6,390		1,467		(1,754)		(3,122)		Other comprehensive income (loss)	(13,196)		(8,144)
Comprehensive income	Comprehensive income	$	20,910	$	25,760	$	26,025	$	49,570	Comprehensive income	$	18,022	$	5,115

The accompanying notes are an integral part of the condensed consolidated financial statements.

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

(Dollars and shares in thousands, except par value)


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	298,742	$	166,849	Cash and cash equivalents	$	199,109	$	191,785
Accounts receivable, less allowance for doubtful accounts of $1,667 and $1,691		128,697		122,285
Accounts receivable, less allowance for credit losses of $1,310 and $1,682						Accounts receivable, less allowance for credit losses of $1,310 and $1,682	144,049		134,421
Contract assets	Contract assets	19,280		22,455		Contract assets	30,936		26,575
Inventories	Inventories	124,747		132,859		Inventories	106,706		102,360
Prepaid income taxes	Prepaid income taxes	3,801		4,524		Prepaid income taxes	2,854		2,960
Asbestos-related insurance receivables, current portion	Asbestos-related insurance receivables, current portion	4,292		4,292		Asbestos-related insurance receivables, current portion	2,986		2,986
Other current assets	Other current assets	11,131		10,838		Other current assets	19,140		13,088
Total current assets	Total current assets	590,690		464,102		Total current assets	505,780		474,175
Property, plant and equipment, net of accumulated depreciation of $361,541 and $341,119		263,051		260,246
Property, plant and equipment, net of accumulated depreciation of $364,239 and $365,844						Property, plant and equipment, net of accumulated depreciation of $364,239 and $365,844	267,041		272,378
Investments in unconsolidated joint ventures	Investments in unconsolidated joint ventures	16,907		16,461		Investments in unconsolidated joint ventures	14,948		15,248
Deferred income taxes	Deferred income taxes	25,474		17,117		Deferred income taxes	28,018		28,667
Goodwill	Goodwill	262,469		262,930		Goodwill	266,437		270,172
Other intangible assets, net of amortization	Other intangible assets, net of amortization	147,722		158,947		Other intangible assets, net of amortization	114,373		118,026
Pension assets	Pension assets	4,173		12,790		Pension assets	5,486		5,278
Asbestos-related insurance receivables, non-current portion	Asbestos-related insurance receivables, non-current portion	74,024		74,024		Asbestos-related insurance receivables, non-current portion	63,807		63,807
Other long-term assets	Other long-term assets	16,031		6,564		Other long-term assets	16,330		16,254
Total assets	Total assets	$	1,400,541	$	1,273,181	Total assets	$	1,282,220	$	1,264,005
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	35,616	$	33,019	Accounts payable	$	52,342	$	35,987
Accrued employee benefits and compensation	Accrued employee benefits and compensation	25,230		29,678		Accrued employee benefits and compensation	42,331		41,708
Accrued income taxes payable	Accrued income taxes payable	11,358		10,649		Accrued income taxes payable	7,629		8,558
Asbestos-related liabilities, current portion	Asbestos-related liabilities, current portion	5,007		5,007		Asbestos-related liabilities, current portion	3,615		3,615
Other accrued liabilities	Other accrued liabilities	19,654		21,872		Other accrued liabilities	23,645		21,641
Total current liabilities	Total current liabilities	96,865		100,225		Total current liabilities	129,562		111,509
Borrowings under revolving credit facility	Borrowings under revolving credit facility	223,000		123,000		Borrowings under revolving credit facility	4,000		25,000
Pension and other postretirement benefits liabilities	Pension and other postretirement benefits liabilities	1,625		1,567		Pension and other postretirement benefits liabilities	1,635		1,612
Asbestos-related liabilities, non-current portion	Asbestos-related liabilities, non-current portion	80,696		80,873		Asbestos-related liabilities, non-current portion	69,559		69,620
Non-current income tax	Non-current income tax	14,554		10,423		Non-current income tax	15,572		16,346
Deferred income taxes	Deferred income taxes	8,493		9,220		Deferred income taxes	9,229		8,375
Other long-term liabilities	Other long-term liabilities	12,726		13,973		Other long-term liabilities	11,808		10,788
Commitments and contingencies (Note 10 and Note 12)	Commitments and contingencies (Note 10 and Note 12)					Commitments and contingencies (Note 10 and Note 12)	0		0
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Capital stock - $1 par value; 50,000 authorized shares; 18,668 and 18,577 shares issued and outstanding		18,668		18,577
Capital stock - $1 par value; 50,000 authorized shares; 18,712 and 18,677 shares issued and outstanding						Capital stock - $1 par value; 50,000 authorized shares; 18,712 and 18,677 shares issued and outstanding	18,712		18,677
Additional paid-in capital	Additional paid-in capital	141,092		138,526		Additional paid-in capital	150,004		147,961
Retained earnings	Retained earnings	851,481		823,702		Retained earnings	904,910		873,692
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(48,659)		(46,905)		Accumulated other comprehensive loss	(32,771)		(19,575)
Total shareholders' equity	Total shareholders' equity	962,582		933,900		Total shareholders' equity	1,040,855		1,020,755
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	1,400,541	$	1,273,181	Total liabilities and shareholders' equity	$	1,282,220	$	1,264,005

The accompanying notes are an integral part of the condensed consolidated financial statements.

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


		Six Months Ended							Three Months Ended
		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
Operating Activities:	Operating Activities:					Operating Activities:
Net income	Net income	$	27,779	$	52,692	Net income	$	31,218	$	13,259
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	25,858		25,099		Depreciation and amortization	10,325		10,926
Equity compensation expense	Equity compensation expense	7,022		6,143		Equity compensation expense	4,006		3,127
Deferred income taxes	Deferred income taxes	(8,976)		(2,536)		Deferred income taxes	1,570		(851)
Equity in undistributed income of unconsolidated joint ventures	Equity in undistributed income of unconsolidated joint ventures	(2,240)		(2,579)		Equity in undistributed income of unconsolidated joint ventures	(2,181)		(1,218)
Dividends received from unconsolidated joint ventures	Dividends received from unconsolidated joint ventures	1,785		1,741		Dividends received from unconsolidated joint ventures	1,754		1,785
Pension settlement benefits		(63)		—

Pension and other postretirement benefits	Pension and other postretirement benefits	(100)		(346)		Pension and other postretirement benefits	(79)		(50)
Asbestos-related charges		—		67
Loss on sale or disposal of property, plant and equipment		53		276
Impairment charges		—		956
Provision (benefit) for doubtful accounts		54		(128)

(Gain) loss on sale or disposal of property, plant and equipment						(Gain) loss on sale or disposal of property, plant and equipment	(89)		20

UTIS fire fixed asset and inventory write-offs						UTIS fire fixed asset and inventory write-offs	1,171		0
Provision (benefit) for credit losses						Provision (benefit) for credit losses	(345)		128
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(6,623)		(12,747)		Accounts receivable	(11,397)		(22,981)
Contract assets	Contract assets	3,174		(2,845)		Contract assets	(4,361)		2,276
Inventories	Inventories	7,910		(2,845)		Inventories	(6,894)		4,095
Pension and postretirement benefit contributions	Pension and postretirement benefit contributions	(244)		(11)		Pension and postretirement benefit contributions	(147)		(64)
Other current assets	Other current assets	414		(1,211)		Other current assets	(6,132)		(1,558)
Accounts payable and other accrued expenses	Accounts payable and other accrued expenses	(6,129)		3,653		Accounts payable and other accrued expenses	17,967		(733)
Other, net	Other, net	5,285		2,122		Other, net	135		472
Net cash provided by operating activities	Net cash provided by operating activities	54,959		67,501		Net cash provided by operating activities	36,521		8,633

Investing Activities:	Investing Activities:					Investing Activities:

Capital expenditures	Capital expenditures	(18,150)		(24,026)		Capital expenditures	(3,602)		(11,160)
Proceeds from the sale of property, plant and equipment, net		—		9
Return of capital from unconsolidated joint ventures		—		2,625

Net cash used in investing activities	Net cash used in investing activities	(18,150)		(21,392)		Net cash used in investing activities	(3,602)		(11,160)

Financing Activities:	Financing Activities:					Financing Activities:
Proceeds from borrowings under revolving credit facility	Proceeds from borrowings under revolving credit facility	150,000		—		Proceeds from borrowings under revolving credit facility	0		150,000
Repayment of debt principal and finance lease obligations	Repayment of debt principal and finance lease obligations	(50,193)		(33,196)		Repayment of debt principal and finance lease obligations	(21,253)		(96)
Payments of taxes related to net share settlement of equity awards	Payments of taxes related to net share settlement of equity awards	(5,029)		(7,424)		Payments of taxes related to net share settlement of equity awards	(2,632)		(4,997)
Proceeds from the exercise of stock options, net		—		327
Proceeds from issuance of shares to employee stock purchase plan	Proceeds from issuance of shares to employee stock purchase plan	664		594		Proceeds from issuance of shares to employee stock purchase plan	704		664

Net cash provided by (used in) financing activities		95,442		(39,699)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(23,181)		145,571

Effect of exchange rate fluctuations on cash	Effect of exchange rate fluctuations on cash	(358)		(1,080)		Effect of exchange rate fluctuations on cash	(2,414)		(1,616)

Net increase (decrease) in cash and cash equivalents		131,893		5,330
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	7,324		141,428
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	166,849		167,738		Cash and cash equivalents at beginning of period	191,785		166,849
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	298,742	$	173,068	Cash and cash equivalents at end of period	$	199,109	$	308,277

Supplemental Disclosures:	Supplemental Disclosures:					Supplemental Disclosures:
Accrued capital additions	Accrued capital additions	$	4,144	$	2,119	Accrued capital additions	$	2,814	$	2,525
Cash paid during the year for:	Cash paid during the year for:					Cash paid during the year for:
Interest, net of amounts capitalized	Interest, net of amounts capitalized	$	3,311	$	4,440	Interest, net of amounts capitalized	$	607	$	1,386
Income taxes	Income taxes	$	15,644	$	9,164	Income taxes	$	9,337	$	13,218

The accompanying notes are an integral part of the condensed consolidated financial statements.

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars and shares in thousands)


		Three Months Ended						Six Months Ended							Three Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
Capital Stock	Capital Stock									Capital Stock
Balance, beginning of period	Balance, beginning of period	$	18,662	$	18,546	$	18,577	$	18,395	Balance, beginning of period	$	18,677	$	18,577
Shares issued for vested restricted stock units, net of shares withheld for taxes	Shares issued for vested restricted stock units, net of shares withheld for taxes	6		4		85		137		Shares issued for vested restricted stock units, net of shares withheld for taxes	28		79
Stock options exercised		—		2		—		10
Shares issued for employee stock purchase plan	Shares issued for employee stock purchase plan	—		—		6		7		Shares issued for employee stock purchase plan	7		6
Shares issued to directors		—		7		—		10

Balance, end of period	Balance, end of period	18,668		18,559		18,668		18,559		Balance, end of period	18,712		18,662
Additional Paid-In Capital	Additional Paid-In Capital									Additional Paid-In Capital
Balance, beginning of period	Balance, beginning of period	137,235		128,417		138,526		132,360		Balance, beginning of period	147,961		138,526
Shares issued for vested restricted stock units, net of shares withheld for taxes	Shares issued for vested restricted stock units, net of shares withheld for taxes	(38)		(288)		(5,114)		(7,561)		Shares issued for vested restricted stock units, net of shares withheld for taxes	(2,660)		(5,076)
Stock options exercised		—		40		—		317
Shares issued for employee stock purchase plan	Shares issued for employee stock purchase plan	—		7		658		587		Shares issued for employee stock purchase plan	697		658
Shares issued to directors		—		(7)		—		(10)

Equity compensation expense	Equity compensation expense	3,895		3,667		7,022		6,143		Equity compensation expense	4,006		3,127

Balance, end of period	Balance, end of period	141,092		131,836		141,092		131,836		Balance, end of period	150,004		137,235
Retained Earnings	Retained Earnings									Retained Earnings
Balance, beginning of period	Balance, beginning of period	836,961		804,782		823,702		776,403		Balance, beginning of period	873,692		823,702
Net income	Net income	14,520		24,293		27,779		52,692		Net income	31,218		13,259
Cumulative-effect adjustment for lease accounting		—		—		—		(20)
Balance, end of period	Balance, end of period	851,481		829,075		851,481		829,075		Balance, end of period	904,910		836,961
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss									Accumulated Other Comprehensive Loss
Balance, beginning of period	Balance, beginning of period	(55,049)		(83,423)		(46,905)		(78,834)		Balance, beginning of period	(19,575)		(46,905)
Other comprehensive income (loss)	Other comprehensive income (loss)	6,390		1,467		(1,754)		(3,122)		Other comprehensive income (loss)	(13,196)		(8,144)
Balance, end of period	Balance, end of period	(48,659)		(81,956)		(48,659)		(81,956)		Balance, end of period	(32,771)		(55,049)
Total Shareholders’ Equity	Total Shareholders’ Equity	$	962,582	$	897,514	$	962,582	$	897,514	Total Shareholders’ Equity	$	1,040,855	$	937,809

The accompanying notes are an integral part of the condensed consolidated financial statements.

ROGERS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

As used herein, the terms “Company,” “Rogers,” “we,” “us,” “our” and similar terms mean Rogers Corporation and its consolidated subsidiaries, unless the context indicates otherwise.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for their fair presentation in accordance with GAAP. All significant intercompany balances and transactions have been eliminated.

Interim results are not necessarily indicative of results for a full year. For further information regarding our accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Refer to the discussion below for our restructuring activities significant accounting policy.

~~We assessed certain accounting matters that generally require consideration~~Through the fourth quarter of ~~forecasted financial information in context~~2020, we operated 3 strategic operating segments: Advanced Connectivity Solutions (ACS), Elastomeric Material Solutions (EMS) and Power Electronics Solutions (PES), with the ~~information reasonably available to us and~~remaining operations, which represented our non-core businesses, being reported in a fourth operating segment, the ~~unknown future impacts~~Other operating segment. In the first quarter of ~~COVID-19 as of June 30, 2020 and through~~2021, we completed the ~~date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, equity compensation, the carrying value~~realignment of our ~~goodwill, other intangible assets as well as other long-lived assets,~~strategic business segments to reflect the combination of our ACS and PES businesses resulting in a new strategic business segment, Advanced Electronics Solutions (AES). The combination of these two complementary businesses with capabilities in both high power and high frequency applications is expected to enhance our overall value proposition to customers in multiple high-growth markets. As a result of our organizational and reporting structure changes, we re-evaluated the chief operating decision maker’s review and assessment of the Company’s operating performance for purposes of performance monitoring and resource allocation. We determined, based on the financial ~~assets, valuation allowances~~data utilized by the chief operating decision maker to assess segment performance and allocate resources among the Company’s strategic business segments, that we now have 3 operating segments under this new organizational and reporting structure: AES, EMS and Other. Reported results for ~~tax assets~~the AES operating segment prior to 2021 represent the aggregation of the results for our former ACS and ~~revenue recognition.~~PES operating segments.

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.

As a result of our pension termination and settlement efforts in late 2019 and the first half of 2020, we have a pension surplus investment balance, which is now accounted for as an available-for-sale investment as of June 2020. For additional information regarding this balance, refer to “Note 11 – Pension Benefits and Other Postretirement Benefits.” Available-for-sale investments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, were as follows:


		Available-for-Sale Investment at Fair Value as of June 30, 2020															Available-for-Sale Investment at Fair Value as of March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total		(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Pension surplus investment⁽¹⁾	Pension surplus investment⁽¹⁾	$	—	$	9,744	$	—	$	9,744	Pension surplus investment(1)	$	6,417	$	2,389	$	0	$	8,806

^{Available-for-Sale Investment at Fair Value as of December 31, 2020
(Dollars in thousands) Level 1 Level 2 Level 3 Total
Pension surplus investment(1) $ 6,706 $ 2,400 $ 0 $ 9,106}

(1) This balance was invested in ~~a fund~~funds comprised of short-term cash and fixed income ~~and short-term cash~~ securities, and was recorded in the “Other long-term assets” line item in the condensed consolidated statements of financial position. As of ~~June 30, 2020,~~March 31, 2021, the fair value of ~~this investment~~these investments approximated its carrying value.

From time to time we enter into various instruments that require fair value measurement, including foreign currency contracts and copper derivative ~~contracts and interest rate swaps.~~contracts. Derivative instruments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, were as follows:


		Derivative Instruments at Fair Value as of June 30, 2020															Derivative Instruments at Fair Value as of March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total⁽¹⁾		(Dollars in thousands)	Level 1		Level 2		Level 3		Total(1)
Foreign currency contracts	Foreign currency contracts	$	—	$	(95)	$	—	$	(95)	Foreign currency contracts	$	0	$	(58)	$	0	$	(58)
Copper derivative contracts	Copper derivative contracts	$	—	$	1,541	$	—	$	1,541	Copper derivative contracts	$	0	$	6,076	$	0	$	6,076
Interest rate swap contract		$	—	$	(2,770)	$	—	$	(2,770)


		Derivative Instruments at Fair Value as of December 31, 2019															Derivative Instruments at Fair Value as of December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Level 1		Level 2		Level 3		Total⁽¹⁾		(Dollars in thousands)	Level 1		Level 2		Level 3		Total(1)
Foreign currency contracts	Foreign currency contracts	$	—	$	(6)	$	—	$	(6)	Foreign currency contracts	$	0	$	(130)	$	0	$	(130)
Copper derivative contracts	Copper derivative contracts	$	—	$	1,147	$	—	$	1,147	Copper derivative contracts	$	0	$	4,785	$	0	$	4,785
Interest rate swap contract		$	—	$	(1,254)	$	—	$	(1,254)

⁽¹⁾ All balances were recorded in the “Other current assets” or “Other accrued liabilities” line items in the condensed consolidated statements of financial ~~position, except the 2020 and 2019 interest rate swap balance, which was recorded in the “Other long-term liabilities” line item.~~position.

For additional information on derivative contracts, refer to “Note 3 – Hedging Transactions and Derivative Financial Instruments.”

Note 3 – Hedging Transactions and Derivative Financial Instruments

We are exposed to certain risks related to our ongoing business operations. The primary risks being managed through our use of derivative instruments are foreign currency exchange rate risk and commodity pricing risk (primarily related to copper) ~~and interest rate risk.~~. We do not use derivative 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, which are collectively a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate and volatility. The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end. The time value valuation model incorporates changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative instrument’s strike price and the remaining time to the underlying copper derivative instrument’s expiration date from the period end date.

•~~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 counterparties 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 condensed consolidated statements of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies for hedge accounting treatment as defined under the applicable accounting guidance. For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in the condensed consolidated statements of comprehensive income (loss). This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. ~~As of June 30, 2020 and 2019, only our interest rate swap qualified for hedge accounting treatment as a cash flow hedge, and the hedge was highly effective.~~

Foreign Currency

During the three months ended ~~June 30, 2020,~~March 31, 2021, we entered into U.S. dollar, Korean won, and euro 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) ~~income,~~, net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.

As of ~~June 30, 2020,~~March 31, 2021, the notional values of the remaining foreign currency forward contracts were as follows:


Notional Values of Foreign Currency Derivatives
USD/CNH	$	~~25,492,958~~20,477,033
KRW/USD	₩	~~11,961,700,000~~11,317,100,000
EUR/USD	€	~~8,018,710~~6,788,458

Commodity

As of ~~June 30, 2020,~~March 31, 2021, we had 2614 outstanding contracts to hedge exposure related to the purchase of copper in our ~~Power Electronics Solutions (PES) and Advanced Connectivity Solutions (ACS)~~AES operating ~~segments.~~segment. These contracts are held with financial institutions and are intended to offset rising copper prices and do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense) ~~income,~~, net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.

As of ~~June 30, 2020,~~March 31, 2021, the volume of our copper contracts outstanding was as follows:


Volume of Copper Derivatives
~~July 2020 - September 2020~~			~~201 metric tons per month~~
~~October 2020 - December 2020~~			~~201 metric tons per month~~
~~January 2021 - March 2021~~			~~256 metric tons per month~~
April 2021 - June 2021			256 metric tons per month
July 2021 - September 2021			~~171~~222 metric tons per month
October 2021 - December 2021			222 metric tons per month
January 2022 - March 2022			213 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. For additional information regarding our revolving credit facility, refer to “Note 9 – Debt.”

Effects on Financial Statements

The impacts from our derivative instruments on the statement of operations and statements of comprehensive income (loss) were as follows:


			Three Months Ended						Six Months Ended								Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	Financial Statement Line Item	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	Financial Statement Line Item	March 31, 2021		March 31, 2020
Foreign Currency Contracts	Foreign Currency Contracts										Foreign Currency Contracts
Contracts not designated as hedging instruments	Contracts not designated as hedging instruments	Other (expense) income, net	$	(27)	$	125	$	(555)	$	(586)	Contracts not designated as hedging instruments	Other income (expense), net	$	(822)	$	(528)
Copper Derivative Contracts	Copper Derivative Contracts										Copper Derivative Contracts
Contracts not designated as hedging instruments	Contracts not designated as hedging instruments	Other (expense) income, net	$	964	$	(775)	$	(171)	$	(465)	Contracts not designated as hedging instruments	Other income (expense), net	$	2,547	$	(1,135)
Interest Rate Swap	Interest Rate Swap										Interest Rate Swap
Contract designated as hedging instrument	Contract designated as hedging instrument	Other comprehensive income (loss)	$	173	$	(1,113)	$	(1,517)	$	(1,745)	Contract designated as hedging instrument	Other comprehensive income (loss)	$	0	$	(1,690)

We estimate approximately $1.7 million of pre-tax net losses currently reported in accumulated other comprehensive loss in the condensed consolidated statements of financial position will be reclassified into the condensed consolidated statements of operations within the next 12 months.

Note 4 – Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component were as follows:


(Dollars and accompanying footnotes in thousands)	(Dollars and accompanying footnotes in thousands)	Foreign Currency Translation Adjustments		Pension and Other Postretirement Benefits⁽¹⁾		Derivative Instrument Designated as Cash Flow Hedge⁽²⁾		Total		(Dollars and accompanying footnotes in thousands)	Foreign Currency Translation Adjustments		Pension and Other Postretirement Benefits(1)		Derivative Instrument Designated as Cash Flow Hedge(2)		Total
Balance as of December 31, 2019		$	(35,478)	$	(10,455)	$	(972)	$	(46,905)
Balance as of December 31, 2020										Balance as of December 31, 2020	$	(10,571)	$	(9,004)	$	0	$	(19,575)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(1,265)		626		(866)		(1,505)		Other comprehensive income (loss) before reclassifications	(13,259)		0		0		(13,259)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	—		85		(334)		(249)		Amounts reclassified from accumulated other comprehensive loss	0		63		0		63
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	(1,265)		711		(1,200)		(1,754)		Net current-period other comprehensive income (loss)	(13,259)		63		0		(13,196)
Balance as of June 30, 2020		$	(36,743)	$	(9,744)	$	(2,172)	$	(48,659)
Balance as of March 31, 2021										Balance as of March 31, 2021	$	(23,830)	$	(8,941)	$	0	$	(32,771)

Balance as of December 31, 2018		$	(30,488)	$	(48,700)	$	354	$	(78,834)
Balance as of December 31, 2019										Balance as of December 31, 2019	$	(35,478)	$	(10,455)	$	(972)	$	(46,905)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(2,075)		—		(1,204)		(3,279)		Other comprehensive loss before reclassifications	(6,894)		0		(1,249)		(8,143)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	—		313		(156)		157		Amounts reclassified from accumulated other comprehensive loss	0		66		(67)		(1)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	(2,075)		313		(1,360)		(3,122)		Net current-period other comprehensive income (loss)	(6,894)		66		(1,316)		(8,144)
Balance as of June 30, 2019		$	(32,563)	$	(48,387)	$	(1,006)	$	(81,956)
Balance as of March 31, 2020										Balance as of March 31, 2020	$	(42,372)	$	(10,389)	$	(2,288)	$	(55,049)

⁽¹⁾ Net of taxes of ~~$2,172~~ $1,940 and ~~$2,368~~$1,951 as of ~~June 30,~~March 31, 2021 and December 31, 2020, respectively. Net of taxes of $2,349 and $2,368 as of March 31, 2020 and December 31, 2019, respectively. ~~Net of taxes of~~ ~~$9,893~~ ~~and~~ ~~$9,984~~ ~~as of June 30, 2019 and December 31, 2018, respectively.~~

⁽²⁾ Net of taxes of ~~$598~~ ~~and~~ ~~$282~~$0 as of ~~June 30,~~both March 31, 2021 and December 31, 2020. Net of taxes of $656 and $282 as of March 31, 2020 and December 31, 2019, ~~respectively. Net of taxes of~~ ~~$278~~ ~~and~~ ~~$(106)~~ ~~as of June 30, 2019 and December 31, 2018,~~ respectively.

Note 5 – Inventories

Inventories, which are valued at the lower of cost or net realizable value, consisted of the following:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019		(Dollars in thousands)	March 31, 2021		December 31, 2020
Raw materials	Raw materials	$	59,832	$	61,338	Raw materials	$	47,197	$	44,976
Work-in-process	Work-in-process	27,561		30,043		Work-in-process	29,243		25,291
Finished goods	Finished goods	37,354		41,478		Finished goods	30,266		32,093
Total inventories	Total inventories	$	124,747	$	132,859	Total inventories	$	106,706	$	102,360

Note 6 – Goodwill and Other Intangible Assets

Goodwill

The changes in the net carrying amount of goodwill by operating segment were as follows:


(Dollars in thousands)	(Dollars in thousands)	Advanced Connectivity Solutions		Elastomeric Material Solutions		Power Electronics Solutions		Other		Total		(Dollars in thousands)	Advanced Electronics Solutions		Elastomeric Material Solutions		Other		Total
December 31, 2019		$	51,694	$	142,030	$	66,982	$	2,224	$	262,930
December 31, 2020												December 31, 2020	$	124,927	$	143,021	$	2,224	$	270,172

Foreign currency translation adjustment	Foreign currency translation adjustment	—		(598)		137		—		$	(461)	Foreign currency translation adjustment	(3,075)		(660)		0		$	(3,735)
June 30, 2020		$	51,694	$	141,432	$	67,119	$	2,224	$	262,469
March 31, 2021												March 31, 2021	$	121,852	$	142,361	$	2,224	$	266,437

Other Intangible Assets

The gross and net carrying amounts, as well as the accumulated amortization of other intangible assets were as follows:


		June 30, 2020										December 31, 2019											March 31, 2021				December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	Customer relationships	$	149,180	$	46,109	$	103,071	$	149,317	$	39,018	$	110,299	Customer relationships	$	150,060	$	73,022	$	77,039	$	150,863	$	72,014	$	78,849
Technology	Technology	80,935		48,181		32,754		80,938		45,190		35,748		Technology	80,208		51,671		28,536		83,469		53,540		29,929
Trademarks and trade names	Trademarks and trade names	11,967		5,185		6,782		11,994		4,361		7,633		Trademarks and trade names	12,009		8,316		3,693		12,039		8,149		3,890
Covenants not to compete	Covenants not to compete	1,340		666		674		1,340		505		835		Covenants not to compete	1,340		877		463		1,340		827		513
Total definite-lived other intangible assets	Total definite-lived other intangible assets	243,422		100,141		143,281		243,589		89,074		154,515		Total definite-lived other intangible assets	243,617		133,886		109,731		247,711		134,530		113,181
Indefinite-lived other intangible asset	Indefinite-lived other intangible asset	4,441		—		4,441		4,432		—		4,432		Indefinite-lived other intangible asset	4,642		—		4,642		4,845		—		4,845
Total other intangible assets	Total other intangible assets	$	247,863	$	100,141	$	147,722	$	248,021	$	89,074	$	158,947	Total other intangible assets	$	248,259	$	133,886	$	114,373	$	252,556	$	134,530	$	118,026

In the table above, gross carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations.

Amortization expense was ~~$7.6~~$3.1 million and ~~$4.4~~$3.7 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and was $11.2 million and $8.9 million for the six months ended June 30, 2020 and 2019,~~ respectively. The estimated future amortization expense is ~~$30.8~~$9.3 million for the remainder of ~~2020~~2021 and ~~$12.3 million,~~ $11.8 million, ~~$11.2~~$11.3 million, $10.0 million and ~~$9.9~~$8.5 million for ~~2021,~~ 2022, 2023, 2024 and ~~2024,~~2025, respectively. The increase in amortization expense for the three and six months ended June 30, 2020, and decrease in forecasted amortization expense in future years, were due to the acceleration of amortization expense related to our Diversified Silicone Products, Inc. (DSP) customer relationships and trademarks and trade names definite-lived other intangible assets, which were both accelerated to be fully amortized by December 31, 2020. As part of our ongoing assessment of the useful lives of our definite-lived other intangible assets, we reviewed the deterioration of our DSP business and identified significant customer attrition, a sustained substantial decrease in net sales, as well as the planned phase-out of the DSP trademark and trade name by December 2020. Based on these events and circumstances, we concluded an adjustment to the remaining useful lives of our DSP customer relationships and trademarks and trade names definite-lived other intangible assets was warranted.

The weighted average amortization period as of ~~June 30, 2020,~~March 31, 2021, by definite-lived other intangible asset class, was as follows:


Definite-Lived Other Intangible Asset Class						Weighted Average Remaining Amortization Period
Customer relationships						~~5.0~~7.6 years
Technology						~~4.0~~3.8 years
Trademarks and trade names						~~3.2~~4.9 years
Covenants not to compete						~~1.4~~1.1 years
Total definite-lived other intangible assets						~~4.7~~6.5 years

Note 7 – Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding.

The following table sets forth the computation of basic and diluted earnings per share:

(Dollars and shares in thousands, except per share amounts) Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Numerator:
Net income $ 14,520 $ 24,293 $ 27,779 $ 52,692
Denominator:
Weighted-average shares outstanding - basic 18,676 18,568 18,673 18,562
Effect of dilutive shares 5 162 13 149
Weighted-average shares outstanding - diluted 18,681 18,730 18,686 18,711
Basic earnings per share $ 0.78 $ 1.31 $ 1.49 $ 2.84
Diluted earnings per share $ 0.78 $ 1.30 $ 1.49 $ 2.82


(Dollars and shares in thousands, except per share amounts)	Three Months Ended
	March 31, 2021		March 31, 2020
Numerator:
Net income	$	31,218	$	13,259
Denominator:
Weighted-average shares outstanding - basic	18,712		18,669
Effect of dilutive shares	62		22
Weighted-average shares outstanding - diluted	18,774		18,691
Basic earnings per share	$	1.67	$	0.71
Diluted earnings per share	$	1.66	$	0.71

Dilutive shares are calculated using the treasury stock method and primarily include unvested restricted stock units. Anti-dilutive shares are excluded from the calculation of diluted shares and diluted earnings per share. For the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, 55,961~~44,792 shares and ~~6,256~~127,106 shares were excluded, respectively.

Note 8 – Capital Stock and Equity Compensation

Equity Compensation

Performance-Based Restricted Stock Units

As of ~~June 30, 2020,~~March 31, 2021, we had performance-based restricted stock units from 2021, 2020, 2019 and 2018 outstanding. These awards generally cliff vest at the end of a ~~three-year~~three-year measurement period. However, employees whose employment terminates

during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the measurement ~~period.~~period, except as noted below in Chief Executive Officer’s 2021 Equity Award Grants. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures.

The outstanding awards have one measurement criterion: the three-year total shareholder return (TSR) on our capital stock as compared to that of a specified group of peer companies. The TSR measurement criterion of the awards is considered a market condition. As such, the fair value of this measurement criterion was determined on the grant date using a Monte Carlo simulation valuation model. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period with no changes for final projected payout of the awards. We account for forfeitures as they occur.

The following table sets forth the assumptions used in the Monte Carlo calculation for each material award granted in ~~2020~~2021 and ~~2019:~~2020:


		February 12, 2020	June 3, 2019	February 7, 2019		February 10, 2021	February 12, 2020
Expected volatility	Expected volatility	41.0%	39.7%	36.7%	Expected volatility	51.0%	41.0%
Expected term (in years)	Expected term (in years)	2.9	2.6	2.9	Expected term (in years)	2.9	2.9
Risk-free interest rate	Risk-free interest rate	1.41%	1.78%	2.43%	Risk-free interest rate	0.18%	1.41%

Expected volatility – In determining expected volatility, we have considered a number of factors, including historical volatility.

Expected term – We use the vesting period of the award to determine the expected term assumption for the Monte Carlo simulation valuation model.

Risk-free interest rate – We use an implied “spot rate” yield on U.S. Treasury Constant Maturity rates as of the grant date for our assumption of the risk-free interest rate.

Expected dividend yield – We do not currently pay dividends on our capital stock; therefore, a dividend yield of 0% was used in the Monte Carlo simulation valuation model.

A summary of activity of the outstanding performance-based restricted stock units for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is presented below:


			Performance-Based Restricted Stock Units
Awards outstanding as of December 31, ~~2019~~2020			~~106,943~~111,059
Awards granted			~~87,244~~38,570
Stock issued			~~(75,486)~~0
Awards ~~forfeited~~cancelled			~~(4,962)~~(20,493)
Awards outstanding as of ~~June 30, 2020~~March 31, 2021			~~113,739~~129,136

We recognized ~~$1.3~~$2.1 million and ~~$1.1~~$1.5 million of compensation expense for performance-based restricted stock units for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. We recognized $2.7 million and $2.0 million of compensation expense for performance-based restricted stock units for the six months ended June 30, 2020 and 2019,~~ respectively.

Time-Based Restricted Stock Units

As of ~~June 30, 2020,~~March 31, 2021, we had time-based restricted stock unit awards from 2021, 2020, 2019 ~~2018~~ and ~~2017~~2018 outstanding. The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed subsequent to the last grant anniversary ~~date.~~date, except as noted below in Chief Executive Officer’s 2021 Equity Award Grants. Each time-based restricted stock unit represents a right to receive ~~one~~1 share of Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize

compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur.

A summary of activity of the outstanding time-based restricted stock units for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is presented below:


			Time-Based Restricted Stock Units
Awards outstanding as of December 31, ~~2019~~2020			~~101,685~~102,142
Awards granted			~~58,042~~45,173
Stock issued			~~(47,197)~~(43,078)
Awards ~~forfeited~~cancelled			~~(3,585)~~(627)
Awards outstanding as of ~~June 30, 2020~~March 31, 2021			~~108,945~~103,610

We recognized ~~$1.5~~$1.8 million and ~~$1.4~~$1.5 million of compensation expense for time-based restricted stock units for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~We recognized $3.1 million and $2.9 million~~

Chief Executive Officer’s 2021 Equity Award Grants

The terms of ~~compensation expense for~~the performance-based and time-based restricted stock ~~units~~unit awards granted to our Chief Executive Officer (CEO), Bruce Hoechner, in February 2021 were modified from the standard language provisions from prior year awards to allow for accelerated vesting of the ~~six months ended June 30, 2020 and 2019, respectively.~~full awards provided certain criteria are met. Accounting Standards Codification (ASC) Topic 718: Compensation—Stock Compensation requires companies that allow for accelerated vesting of employees’ unvested equity upon retirement to recognize the expense from the date of grant to the date the employee becomes eligible to retire – regardless of whether or not the employee actually retires when he or she is eligible to. As a result, the $4.0 million of expense related to the awards granted on February 10, 2021 to our CEO, which provide for immediate vesting upon retirement, will be expensed from the date of the grant, February 10, 2021, through his retirement eligibility date, November 9, 2021.

Deferred Stock Units

We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13-month anniversary of the grant date unless the individual elects to defer the receipt of those shares. Each deferred stock unit results in the issuance of 1 share of Rogers’ capital stock. The grant of deferred stock units is typically done annually during the second quarter of each year. The fair value of the award is determined by the market value of the underlying stock price at the grant date.

A summary of activity of the outstanding deferred stock units for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is presented below:


			Deferred Stock Units
Awards outstanding as of December 31, ~~2019~~2020			~~7,150~~12,450
Awards granted			~~9,400~~0
Stock issued			~~(5,100)~~0
Awards outstanding as of ~~June 30, 2020~~March 31, 2021			~~11,450~~12,450

We recognized ~~$1.0 million of~~0 compensation expense related to deferred stock units for each of the ~~three~~three-month periods ended March 31, 2021 and ~~six months ended June 30,~~ 2020, ~~and $1.1 million of compensation expense for the three and six months ended June 30, 2019.~~respectively.

Note 9 – Debt

~~In February 2017,~~On October 16, 2020, we entered into ~~a secured~~ ~~five-year credit agreement~~the Fourth Amended and Restated Credit Agreement with JPMorgan Chase Bank, ~~N.A.,~~N.A, as administrative agent, and the lenders party thereto (the Fourth Amended Credit Agreement). The Fourth Amended Credit Agreement amends and restates the Third Amended Credit ~~Agreement), which increased the principal amount of our~~Agreement, and provides for a revolving credit facility towith up to a $450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, ~~and provided an additional~~in addition to a $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~~Fourth Amended Credit Agreement). The Fourth Amended Credit Agreement extends the maturity, the date on which all amounts borrowed or outstanding under the Fourth Amended Credit Agreement are due, from February 17, 2022 to March 31, 2024.

All obligations under the ~~Third~~Fourth Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the ~~Third~~Fourth Amended Credit Agreement (the Guarantors). The obligations are also secured by a ~~Third~~Fourth Amended and Restated Pledge and Security Agreement, dated as of ~~February 17, 2017,~~October 16, 2020, 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 our and the Guarantors’ non-real estate ~~assets of the Guarantors.~~assets. 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.~~

Borrowings under the ~~Third~~Fourth Amended Credit Agreement can be made as alternate base rate loans or euro-currency loans. Alternate base rate loans bear interest at a base reference rate plus a spread of ~~37.5~~62.5 to ~~75.0~~100.0 basis points, depending on our leverage ratio. The base reference rate is the greatest of (a) the prime rate in effect on such day, (b) the Federal Reserve Bank of New York ~~(NYFRB)~~ rate in effect on such day plus ½ of 1%, and (c) the adjusted LIBOR for a one month interest period in dollars on such day (or if such day is not a business day, the immediately preceding business day) plus 1%. Euro-currency loans bear interest based on adjusted LIBOR plus a spread of ~~137.5~~162.5 to ~~175.0~~200.0 basis points, depending on our leverage ratio. Based on our leverage ratio ~~as of June 30, 2020,~~on March 31, 2021, the spread was ~~150.0~~162.5 basis points.

In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the ~~Third~~Fourth Amended Credit Agreement, we are required to pay a quarterly fee of 2025 to 3035 basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the ~~Third~~Fourth Amended Credit Agreement.

The ~~Third~~Fourth Amended Credit Agreement contains customary representations and 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 total net leverage ratio of no more than 3.25 to 1.00, subject to ana one-time election to increase the maximum total net leverage ratio to 3.50 to 1.00 for ~~three~~one fiscal ~~quarters~~year in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than 3.00 to 1.00. We are permitted to net up to $50.0 million of unrestricted domestic cash and cash equivalents against indebtedness in the calculation of the total net leverage ratio.

The ~~Third~~Fourth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00. If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our total net leverage ratio did not exceed 2.75 to 1.00 as of ~~June 30, 2020.~~

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.~~31, 2021.

We did 0t borrow anything under the Fourth Amended Credit Agreement for the three months ended March 31, 2021. During the three months ended March 31, 2020, we borrowed $150.0 million under ~~our revolving credit facility~~the Third Amended Credit Agreement (prior to its restatement) as a precautionary measure in order to increase our cash position and preserve financial flexibility given current uncertainty in the global markets resulting from the COVID-19 ~~pandemic, during the three months ended March 31, 2020. We did not borrow anything further under our revolving credit facility during the three months ended June 30, 2020.~~pandemic. We are not required to make any quarterly principal payments under the ~~Third~~Fourth Amended Credit Agreement. ~~However, we~~We made ~~a $50.0~~$21.0 million of discretionary principal ~~payment~~payments on our revolving credit facility ~~during~~for the three months ended ~~June 30, 2020.~~ March 31, 2021.

We had ~~$223.0~~$4.0 million and $25.0 million in outstanding borrowings under our revolving credit facility as of ~~June 30, 2020.~~

March 31, 2021 and December 31, 2020, respectively. We made a $125.0 million discretionary principal payment on our revolving credit facility on July 29, 2020, reducing our outstanding borrowings under our revolving credit facility to $98.0 million as of our filing date.

~~We incurred interest expense on our outstanding debt, net of the impacts of our interest rate swap, of $1.7~~had $2.1 million and $2.1 million for the three months ended June 30, 2020 and 2019, respectively, and $2.9 million and $4.2 million for the six months ended June 30, 2020, and 2019, respectively. We incurred immaterial unused commitment fees for each of the three- and six-month periods ended June 30, 2020 and 2019.

~~We had $0.9 million and $1.2~~$2.3 million of outstanding line of credit issuance costs as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, which will be amortized over the life of the ~~Third~~Fourth Amended Credit Agreement. ~~We recognized an immaterial amount of amortization expense for each of the three- and six-month periods ended June 30, 2020 and 2019, related to these deferred costs.~~

Note 10 - Leases

We have a finance lease obligation related to our manufacturing facility in Eschenbach, Germany. Under the terms of the lease agreement, we have an option to purchase the property upon the expiration of the lease inon June 30, 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. We expect to exercise this purchase option. Our finance lease obligation related to this facility was ~~$4.4~~$4.2 million and $4.5 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The finance lease right-of-use asset balance for this facility was ~~$6.1~~$6.2 million and ~~$6.3~~$6.5 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. Accumulated amortization related to this finance lease right-of-use asset was ~~$3.9~~$4.3 million and ~~$3.8~~$4.5 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The aggregate of all other finance lease obligations, finance lease right-of-use assets and related accumulated amortization, were immaterial as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Amortization expense related to our finance lease right-of-use assets, which is primarily included in the “Cost of sales” line item of the condensed consolidated statements of operations, was immaterial for each of the ~~three-~~three months ended March 31, 2021 and ~~six-month periods ended June 30, 2020 and 2019.~~2020. Interest expense related to our finance lease obligations, which is included in the “Interest expense, net” line item of the condensed consolidated statements of operations, was immaterial for each of the ~~three- and six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020. Payments made on the principal portion of our finance lease obligations were immaterial for each of the ~~three- and six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

We have operating leases primarily related to building space and vehicles. Renewal options are included in the lease term to the extent we are reasonably certain to exercise the option. The exercise of lease renewal options is at our sole discretion. We account for lease components separately from non-lease components. The incremental borrowing rate represents our ability to borrow on a collateralized basis over a similar lease term.

Our expenses and payments for operating leases were as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Operating leases expense	Operating leases expense	$	694	$	775	$	1,422	$	1,493	Operating leases expense	$	681	$	728
Short-term leases expense	Short-term leases expense	$	107	$	43	$	230	$	82	Short-term leases expense	$	74	$	123
Payments on operating lease obligations	Payments on operating lease obligations	$	722	$	760	$	1,468	$	1,524	Payments on operating lease obligations	$	670	$	746

Our assets and liabilities balances related to finance and operating leases reflected in the condensed consolidated statements of financial position were as follows:


(Dollars in thousands)	(Dollars in thousands)	Location in Statements of Financial Position	June 30, 2020		December 31, 2019		(Dollars in thousands)	Location in Statements of Financial Position	March 31, 2021		December 31, 2020
Finance lease right-of-use assets	Finance lease right-of-use assets	Property, plant and equipment, net	$	6,125	$	6,280	Finance lease right-of-use assets	Property, plant and equipment, net	$	6,618	$	7,017
Operating lease right-of-use assets	Operating lease right-of-use assets	Other long-term assets	$	4,643	$	4,656	Operating lease right-of-use assets	Other long-term assets	$	4,802	$	4,216

Finance lease obligations, current portion	Finance lease obligations, current portion	Other accrued liabilities	$	4,350	$	400	Finance lease obligations, current portion	Other accrued liabilities	$	4,453	$	4,755
Finance lease obligations, non-current portion	Finance lease obligations, non-current portion	Other long-term liabilities	$	—	$	4,140	Finance lease obligations, non-current portion	Other long-term liabilities	$	184	$	322
Total finance lease obligations	Total finance lease obligations		$	4,350	$	4,540	Total finance lease obligations		$	4,637	$	5,077

Operating lease obligations, current portion	Operating lease obligations, current portion	Other accrued liabilities	$	2,326	$	2,343	Operating lease obligations, current portion	Other accrued liabilities	$	2,187	$	2,275
Operating lease obligations, non-current portion	Operating lease obligations, non-current portion	Other long-term liabilities	$	2,339	$	2,334	Operating lease obligations, non-current portion	Other long-term liabilities	$	2,644	$	2,219
Total operating lease obligations	Total operating lease obligations		$	4,665	$	4,677	Total operating lease obligations		$	4,831	$	4,494

Net Future Minimum Lease Payments

The following table includes future minimum lease payments under finance and operating leases together with the present value of the net future minimum lease payments as of ~~June 30, 2020:~~March 31, 2021:


		Finance										Operating							Finance	Operating
(Dollars in thousands)	(Dollars in thousands)	Leases Signed		Less: Leases Not Yet Commenced		Total Leases		Leases Signed		Less: Leases Not Yet Commenced		Total Leases		(Dollars in thousands)	Leases in Effect	Leases Signed	Less: Leases Not Yet Commenced	Leases in Effect
2020		$	266	$	—	$	266	$	1,362	$	(11)	$	1,351
2021	2021	4,445		(235)		4,210		1,970		(29)		1,941		2021	4,308	1,818	(52)	1,766
2022	2022	235		(235)		—		1,063		(29)		1,034		2022	194	1,930	(85)	1,845
2023	2023	211		(211)		—		433		(18)		415		2023	188	1,166	(49)	1,117
2024	2024	—		—		—		199		—		199		2024	0	306	(20)	286
2025														2025	0	38	0	38
Thereafter	Thereafter	—		—		—		5		—		5		Thereafter	0	3	0	3
Total lease payments	Total lease payments	5,157		(681)		4,476		5,032		(87)		4,945		Total lease payments	4,690	5,261	(206)	5,055
Less: Interest	Less: Interest	(212)		86		(126)		(285)		5		(280)		Less: Interest	(53)	(228)	4	(224)
Present Value of Net Future Minimum Lease Payments	Present Value of Net Future Minimum Lease Payments	$	4,945	$	(595)	$	4,350	$	4,747	$	(82)	$	4,665	Present Value of Net Future Minimum Lease Payments	4,637	5,033	(202)	4,831

The following table includes information regarding the lease term and discount rates utilized in the calculation of the present value of net future minimum lease payments:

Finance
Leases

Operating
Leases

Finance
Leases

Operating
Leases

Weighted Average Remaining Lease Term

1.0 year

2.5 years

Weighted Average Remaining Lease Term

0.5 years

2.5 years

Weighted Average Discount Rate

3.00%

4.97%

Weighted Average Discount Rate

3.06%

3.61%

Note 11 – Pension Benefits and Other Postretirement Benefits

Pension and Other Postretirement Benefit Plans

As of ~~December~~March 31, ~~2019,~~2021, we had 21 qualified noncontributory defined benefit pension ~~plans. In June 2020, we completed~~plan, the remaining settlement efforts for the Rogers Corporation Defined Benefit Pension Plan (following its merger with the Hourly Employees Pension Plan of Arlon LLC, Microwave Material and Silicone Technologies Divisions, Bear, Delaware (collectively, the Merged Plan)), which had been terminated and substantially settled in late 2019. As of June 30, 2020, only the

Rogers Corporation Employees’ Pension Plan (the Union Plan), which was frozen and ceased accruing benefits ~~remained. There are no plans to terminate the Union Plan.~~in 2013.

Additionally, we sponsor other postretirement benefit plans, including multiple fully insured or self-funded medical plans and life insurance plans for certain retirees. The measurement date for all plans is December 31^st for each respective plan year.

Pension ~~Plan~~ Termination ~~& Settlement~~Surplus Funds

~~During the second quarter of~~On October 17, 2019, ~~following receipt of a determination letter from the Internal Revenue Service (IRS), we amended the Merged Plan to (a) terminate the Merged Plan (subject to discretionary approval by~~ our Chief Executive ~~Officer) and (b) add a lump sum distribution option in connection with~~Officer approved the termination of the Rogers Corporation Defined Benefit Pension Plan (following its merger with the Hourly Employees Pension Plan of Arlon LLC, Microwave Material and Silicone Technologies Divisions, Bear, Delaware (collectively, the Merged ~~Plan, if approved.~~Plan)). We ~~subsequently~~ provided participants of the Merged Plan an option to elect either a lump sum distribution or an annuity.

~~On October 17, 2019, our Chief Executive Officer approved the termination of the Merged Plan.~~ A group annuity contract was purchased with an insurance company for all participants who did not elect a lump sum ~~distribution, for $123.3 million, with an initial cash settlement date of October 24, 2019, and a true-up cash settlement date of June 1, 2020.~~distribution. The insurance company became responsible for administering and paying pension benefit payments effective January 1, 2020.

~~Lump sum distributions~~Upon completion of ~~$38.9 million were paid out prior to December 31, 2019. The Merged Plan paid an additional $1.3 million of monthly~~the pension ~~benefit payments subsequent to the annuity purchase date during the transition period ending December 31, 2019.~~

~~In addition, we recorded a total non-cash pre-tax~~termination and settlement ~~charge in connection with the termination of~~processes for the Merged Plan, ~~of $53.2~~we had a $9.7 million during the fourth quarter of 2019, as well as an immaterial non-cash pre-tax settlement benefit during the second quarter of 2020. This net settlement amount recognized included the immediate recognition into expense of the related unrecognized losses within “Accumulated other comprehensive loss” on the consolidated statements of financial position as of the plan termination date. The pension settlement charge during the fourth quarter of 2019 was recognized in the “Pension settlement charges” line item in the consolidated statements of operations, and the pension settlement benefit during the second quarter of 2020 was recognized in the “Pension settlement charges” line item in the condensed consolidated statements of operations.

~~As of June 30, 2020, the~~ remaining pension surplus investment balance was approximately $9.7 million. We plan on using a portion of the funds to pay plan expenses, and moving the remainder funds from the pension trust to a defined contribution plan trust, where they will be used to fund certain employer contributions and pay plan expenses.

Onbalance. In July ~~27,~~ 2020, we transferred $7.4 million of the pension surplus investment balance to a suspense account held within a trust for the Rogers Employee Savings and Investment Plan (RESIP), a 401(k) plan for domestic employees. The investment balance not transferred to the trust suspense account will be used to pay any final plan expenses, after which the remainder of these funds will be moved to the RESIP trust suspense account. The funds in the RESIP trust suspense account have been, and will continue to be, used to fund certain employer contributions. In the second quarter of 2021, we will use $0.9 million of the pension surplus investment balance to pay a discretionary contribution to RESIP eligible employees, which was recognized to expense in the first quarter of 2021. As of March 31, 2021, the combined remaining pension surplus investment balance was approximately $8.8 million.

Components of Net Periodic Benefit (Credit) Cost

The components of net periodic benefit (credit) cost were as follows:


		Pension Benefits														Other Postretirement Benefits											Pension Benefits		Other Postretirement Benefits
		Three Months Ended						Six Months Ended						Three Months Ended								Six Months Ended	Three Months Ended					Three Months Ended
		June 30,						June 30,						June 30,								June 30,	March 31,					March 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Service cost	Service cost	$	—	$	—	$	—	$	—	$	17	$	18	$	34	$	36	Service cost	$	0	$	0	$	15	$	17
Interest cost	Interest cost	231		1,785		462		3,569		10		15		20		30		Interest cost	184		231		6		10
Expected return of plan assets	Expected return of plan assets	(393)		(2,192)		(786)		(4,384)		—		—		—		—		Expected return of plan assets	(390)		(393)		0		0
Amortization of prior service credit	Amortization of prior service credit	—		—		—		—		(28)		(253)		(56)		(506)		Amortization of prior service credit	0		0		(24)		(28)
Amortization of net loss	Amortization of net loss	114		456		228		910		—		—		—		—		Amortization of net loss	98		114		0		0
Settlement benefit		(63)		—		(63)		—		—		—		—		—

Net periodic benefit (credit) cost	Net periodic benefit (credit) cost	$	(111)	$	49	$	(159)	$	95	$	(1)	$	(220)	$	(2)	$	(440)	Net periodic benefit (credit) cost	$	(108)	$	(48)	$	(3)	$	(1)

Employer Contributions

There were 0 required or voluntary contributions made to ~~our~~the Union Plan or the Merged Plan for the three months ended March 31, 2021 and ~~six-month periods ended June 30, 2020 and 2019.~~2020. Additionally, ~~there were 0 required or voluntary contributions made to our Union Plan for the three and six-month periods ended June 30, 2020 and 2019, and~~ we are ~~not~~0t required to make additional contributions to ~~this plan~~the Union Plan for the remainder of ~~2020.~~2021.

As there is no funding requirement for the other postretirement benefit plans, we funded these benefit payments as incurred, which were immaterial for each of the ~~three and six-month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ using cash from operations.

Note 12 – Commitments and Contingencies

We are currently engaged in the following material environmental and legal proceedings:

Voluntary Corrective Action Program

Our location in Rogers, Connecticut is part of the Connecticut Voluntary Corrective Action Program (VCAP). As part of this program, we partnered with the Connecticut Department of Energy and Environmental Protection (CT DEEP) to determine the corrective actions to be taken at the site related to contamination issues. We evaluated this matter and completed internal due diligence work related to the site in the fourth quarter of 2015. Remediation activities on the site are ongoing and are recorded as reductions to the accrual as they are incurred. We incurred $1.7 million of aggregate remediation costs through ~~June 30, 2020,~~March 31, 2021, and the accrual for future remediation efforts is ~~$1.0~~$0.9 million.

Asbestos

Overview

We, like many other industrial companies, have been named as a defendant in a number of lawsuits filed in courts across the country by persons alleging personal injury from exposure to products containing asbestos. We have never mined, milled, manufactured or marketed asbestos; rather, we made and provided to industrial users a limited number of products that contained encapsulated asbestos, but we stopped manufacturing these products in the late 1980s. Most of the claims filed against us involve numerous defendants, sometimes as many as several hundred.

The following table summarizes the change in number of asbestos claims outstanding for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:


			Asbestos Claims
Claims outstanding as of January 1, 2020			~~592~~561
New claims filed			4727
Pending claims concluded⁽¹⁾			~~(83)~~(39)
Claims outstanding as of ~~June 30, 2020~~March 31, 2021			~~556~~549

⁽¹⁾For the ~~six~~three months ended ~~June 30, 2020, 69~~March 31, 2021, 37 claims were dismissed and 142 claims were settled. Settlements totaled approximately ~~$2.4~~$0.1 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Impact on Financial Statements

We recognize a liability for asbestos-related contingencies that are probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos-related matters, we record asbestos-related insurance receivables that are deemed probable.

The liability projection period covers all current and future indemnity and defense costs through 2064, which represents the expected end of our asbestos liability exposure with no further ongoing claims expected beyond that date. This conclusion was based on our history and experience with the claims data, the diminished volatility and consistency of observable claims data, the period of time that has elapsed since we stopped manufacturing products that contained encapsulated asbestos and an expected downward trend in claims due to the average age of our claimants, which is approaching the average life expectancy.

To date, the indemnity and defense costs of our asbestos-related product liability litigation have been substantially covered by insurance. Although we have exhausted coverage under some of our insurance policies, we believe that we have applicable primary, excess and/or umbrella coverage for claims arising with respect to most of the years during which we manufactured and marketed asbestos-containing products. In addition, we have entered into a cost sharing agreement with most of our primary, excess and umbrella insurance carriers to facilitate the ongoing administration and payment of claims covered by the carriers. The cost sharing agreement may be terminated by any party, but will continue until a party elects to terminate it. As of the filing date for this report, the agreement has not been terminated, and no carrier had informed us it intended to terminate the agreement. We expect to continue to exhaust individual primary, excess and umbrella coverages over time, and there is no assurance that such exhaustion will not accelerate due to additional claims, damages and settlements or that coverage will be available as expected. We are responsible for uninsured indemnity and defense costs, and we incurred an immaterial amount of expenses for each of the ~~three-~~three months ended March 31, 2021 and ~~six-month periods ended June 30,~~ 2020, ~~and 2019,~~ respectively, related to such costs.

The amounts recorded for the asbestos-related liability and the related insurance receivables are based on facts known at the time and a number of assumptions. However, projecting 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.

Changes recorded in the estimated liability and estimated insurance recovery based on projections of asbestos litigation and corresponding insurance coverage, result in the recognition of expense or income.

Our projected asbestos-related liabilities and insurance receivables were as follows:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019		(Dollars in thousands)	March 31, 2021		December 31, 2020
Asbestos-related liabilities	Asbestos-related liabilities	$	85,703	$	85,880	Asbestos-related liabilities	$	73,174	$	73,235
Asbestos-related insurance receivables	Asbestos-related insurance receivables	$	78,316	$	78,316	Asbestos-related insurance receivables	$	66,793	$	66,793

General

In addition to the above issues, the nature and scope of our business brings us in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject us to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. We have established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation will have a material adverse impact on our results of operations, financial position or cash flows.

Note 13 – Income Taxes

Our effective income tax rate was ~~30.6%~~25.2% and ~~22.9%~~20.6% for the three months ended ~~June 30,~~March 31, 2021 and 2020, and 2019, respectively. The increase from the second quarter of 2019 was primarily due to the increase in current quarter accruals of reserves for uncertain tax positions and higher tax impact on unremitted foreign earnings and profits, partially offset by the beneficial impact of changes in valuation allowance related to research and development (R&D) credits, pretax mix across jurisdictions with disparate tax rates and the international provisions from the U.S. tax reform enacted in 2017. Our effective income tax rate was 26.1% and 18.5% for the six months ended June 30, 2020 and 2019, respectively. The increase from the first ~~half~~quarter of ~~2019~~2020 was primarily due to the ~~increase~~decrease in the current quarter valuation allowance release and

decrease in current quarter ~~accruals~~reversals of ~~reserves for uncertain~~unrecognized tax positions, the decrease in excess tax deductions on stock-based compensation and higher tax impact on unremitted foreign earnings and profits, partially offset by the beneficial impact of changes in valuation allowance related to R&D credits and pretax mix across jurisdictions with disparate tax rates.benefits.

The total amount of unrecognized tax benefits as of ~~June 30, 2020~~March 31, 2021 was ~~$14.2~~$14.3 million, of which $13.8 million would affect our effective tax rate if recognized. Additionally, the balance of unrecognized tax benefits as of March 31, 2021 also included $0.5 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.

We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of ~~June 30, 2020,~~March 31, 2021, we had ~~$0.9~~$1.3 million accrued for the payment of interest.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2016 through 2020 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state, local and foreign examinations by tax authorities for the years ~~prior to 2015.~~before 2016.

Note 14 – Operating Segment Information

Our reporting structure is comprised of the following strategic operating segments: ~~ACS, Elastomeric Material Solutions (EMS)~~AES and ~~PES.~~EMS. The remaining operations, which represent 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.~~

Our ~~ACS~~AES operating segment designs, develops, manufactures and sells circuit materials, ceramic substrate materials, busbars and cooling solutions ~~enabling high-performance and high-reliability connectivity~~ for applications in electric and hybrid electric vehicles (EV/HEV), wireless infrastructure ~~(e.g.~~(i.e., power amplifiers, antennas and small cells), automotive ~~(e.g.~~(i.e., ~~ADAS,~~advanced driver assistance systems (ADAS), telematics and thermal solutions), aerospace and defense ~~(e.g.~~(i.e., antenna systems, communication systems and phased array radar systems), mass transit, clean energy (i.e., variable frequency drives, renewable energy), connected devices ~~(e.g.~~(i.e., mobile internet devices and thermal solutions) and wired infrastructure ~~(e.g.~~(i.e., computing and IP infrastructure) markets.

Our EMS operating segment designs, develops, manufactures and sells engineered material solutions for a wide variety of applications and markets. These include polyurethane and silicone materials used in cushioning, gasketing and sealing, and vibration management applications for general industrial, portable electronics, automotive, ~~electric and hybrid electric vehicles (EV/HEV),~~EV/HEV, mass transit, aerospace and defense, footwear and impact mitigation and printing markets; customized silicones used in flex heater and semiconductor thermal applications for general industrial, portable electronics, automotive, EV/HEV, mass transit, aerospace and defense and medical markets; polytetrafluoroethylene and ultra-high molecular weight polyethylene materials used in wire and cable protection, electrical insulation, conduction and shielding, hose and belt protection, vibration management, cushioning, gasketing and sealing, and venting applications for general industrial, automotive, EV/HEV and aerospace and defense markets.

Our PES operating segment designs, develops, manufactures and sells ceramic substrate materials, busbars and cooling solutions for a variety of applications in EV/HEV, mass transit, clean energy (i.e. variable frequency drives, renewable energy), general industrial, aerospace and defense and wired infrastructure markets. We sell our ceramic substrate materials and cooling solutions under the curamik^® ~~trade name and our busbars under the ROLINX~~^® ~~trade name.~~

~~Our~~ Other operating segment consists of elastomer components for applications in general industrial market, as well as elastomer floats for level sensing in fuel tanks, motors, and storage tanks applications in the general industrial and automotive markets. We sell our elastomer components under our ENDUR^® trade name and our floats under our NITROPHYL^® trade name.

The following table presents a disaggregation of revenue from contracts with customers and other pertinent financial information, for the periods indicated; inter-segment sales have been eliminated from the net sales data:


(Dollars in thousands)	(Dollars in thousands)	Advanced Connectivity Solutions		Elastomeric Material Solutions		Power Electronics Solutions		Other		Total		(Dollars in thousands)	Advanced Electronics Solutions		Elastomeric Material Solutions		Other		Total
Three Months Ended June 30, 2020
Three Months Ended March 31, 2021												Three Months Ended March 31, 2021
Net sales - recognized over time	Net sales - recognized over time	$	—	$	2,667	$	45,060	$	3,077	$	50,804	Net sales - recognized over time	$	54,814	$	2,687	$	5,212	$	62,713
Net sales - recognized at a point in time	Net sales - recognized at a point in time	70,940		68,959		160		294		140,353		Net sales - recognized at a point in time	77,078		89,162		312		166,552
Total net sales	Total net sales	$	70,940	$	71,626	$	45,220	$	3,371	$	191,157	Total net sales	$	131,892	$	91,849	$	5,524	$	229,265
Operating income	Operating income	$	15,624	$	2,995	$	1,446	$	1,027	$	21,092	Operating income	$	14,849	$	20,077	$	2,267	$	37,193

Three Months Ended June 30, 2019
Net sales - recognized over time		$	—	$	2,965	$	51,319	$	4,313	$	58,597
Net sales - recognized at a point in time		92,529		90,929		343		454		184,255
Total net sales		$	92,529	$	93,894	$	51,662	$	4,767	$	242,852
Operating income (loss)		$	18,458	$	15,326	$	(1,884)	$	1,313	$	33,213

Six Months Ended June 30, 2020
Three Months Ended March 31, 2020												Three Months Ended March 31, 2020
Net sales - recognized over time	Net sales - recognized over time	$	—	$	5,494	$	91,461	$	6,727	$	103,682	Net sales - recognized over time	$	46,401	$	2,827	$	3,650	$	52,878
Net sales - recognized at a point in time	Net sales - recognized at a point in time	135,493		149,658		480		654		286,285		Net sales - recognized at a point in time	64,873		80,699		360		145,932
Total net sales	Total net sales	$	135,493	$	155,152	$	91,941	$	7,381	$	389,967	Total net sales	$	111,274	$	83,526	$	4,010	$	198,810
Operating income	Operating income	$	21,086	$	14,512	$	762	$	2,207	$	38,567	Operating income	$	4,778	$	11,517	$	1,180	$	17,475

Six Months Ended June 30, 2019
Net sales - recognized over time		$	—	$	5,971	$	110,921	$	8,917	$	125,809
Net sales - recognized at a point in time		172,999		180,685		555		2,602		356,841
Total net sales		$	172,999	$	186,656	$	111,476	$	11,519	$	482,650
Operating income		$	31,522	$	28,757	$	2,383	$	3,351	$	66,013

2019

Net sales by operating segment and by geographic area were as follows:


(Dollars in thousands)	(Dollars in thousands)	Net Sales⁽¹⁾																		(Dollars in thousands)	Net Sales(1)
Region/Country	Region/Country	Advanced Connectivity Solutions		Elastomeric Material Solutions		Power Electronics Solutions		Other		Total		Region/Country	Advanced Electronics Solutions		Elastomeric Material Solutions		Other		Total
Three Months Ended June 30, 2020
Three Months Ended March 31, 2021												Three Months Ended March 31, 2021
United States	United States	$	17,396	$	30,073	$	5,489	$	707	$	53,665	United States	$	23,797	$	37,732	$	672	$	62,201
Other Americas	Other Americas	681		1,668		77		48		2,474		Other Americas	594		2,494		216		3,304
Total Americas	Total Americas	18,077		31,741		5,566		755		56,139		Total Americas	24,391		40,226		888		65,505
China	China	35,580		20,159		9,120		1,024		65,883		China	58,423		27,831		1,393		87,647
Other APAC	Other APAC	8,575		9,835		4,864		453		23,727		Other APAC	23,372		9,288		720		33,380
Total APAC	Total APAC	44,155		29,994		13,984		1,477		89,610		Total APAC	81,795		37,119		2,113		121,027
Germany	Germany	2,708		4,799		15,699		44		23,250		Germany	5,163		10,276		134		15,573
Other EMEA	Other EMEA	6,000		5,092		9,971		1,095		22,158		Other EMEA	20,543		4,228		2,389		27,160
Total EMEA	Total EMEA	8,708		9,891		25,670		1,139		45,408		Total EMEA	25,706		14,504		2,523		42,733
Total net sales	Total net sales	$	70,940	$	71,626	$	45,220	$	3,371	$	191,157	Total net sales	$	131,892	$	91,849	$	5,524	$	229,265
Three Months Ended June 30, 2019
Three Months Ended March 31, 2020												Three Months Ended March 31, 2020
United States	United States	$	16,272	$	41,370	$	8,208	$	1,079	$	66,929	United States	$	22,625	$	38,567	$	979	$	62,171
Other Americas	Other Americas	1,039		2,190		229		206		3,664		Other Americas	1,053		2,449		311		3,813
Total Americas	Total Americas	17,311		43,560		8,437		1,285		70,593		Total Americas	23,678		41,016		1,290		65,984
China	China	49,333		23,846		11,283		953		85,415		China	32,933		18,375		225		51,533
Other APAC	Other APAC	17,026		15,534		6,625		760		39,945		Other APAC	19,679		12,953		548		33,180
Total APAC	Total APAC	66,359		39,380		17,908		1,713		125,360		Total APAC	52,612		31,328		773		84,713
Germany	Germany	3,951		3,471		14,305		130		21,857		Germany	16,729		3,634		149		20,512
Other EMEA	Other EMEA	4,908		7,483		11,012		1,639		25,042		Other EMEA	18,255		7,548		1,798		27,601
Total EMEA	Total EMEA	8,859		10,954		25,317		1,769		46,899		Total EMEA	34,984		11,182		1,947		48,113
Total net sales	Total net sales	$	92,529	$	93,894	$	51,662	$	4,767	$	242,852	Total net sales	$	111,274	$	83,526	$	4,010	$	198,810

⁽¹⁾~~Net sales are allocated to countries based on the location of the customer. The table above lists individual countries with 10% or more of net sales for the periods indicated.~~

(Dollars in thousands)
Net Sales⁽¹⁾
Region/Country Advanced Connectivity Solutions Elastomeric Material Solutions Power Electronics Solutions Other Total
Six Months Ended June 30, 2020
United States $ 31,849 $ 68,640 $ 13,661 $ 1,686 $ 115,836
Other Americas 1,625 4,117 186 359 6,287
Total Americas 33,474 72,757 13,847 2,045 122,123
China 60,205 38,534 17,428 1,249 117,416
Other APAC 23,894 22,788 9,224 1,001 56,907
Total APAC 84,099 61,322 26,652 2,250 174,323
Germany 6,381 8,433 28,755 193 43,762
Other EMEA 11,539 12,640 22,687 2,893 49,759
Total EMEA 17,920 21,073 51,442 3,086 93,521
Total net sales $ 135,493 $ 155,152 $ 91,941 $ 7,381 $ 389,967
Six Months Ended June 30, 2019
United States $ 29,343 $ 84,835 $ 15,685 $ 2,369 $ 132,232
Other Americas 1,791 4,273 249 397 6,710
Total Americas 31,134 89,108 15,934 2,766 138,942
China 91,822 46,265 22,347 3,466 163,900
Other APAC 31,167 30,022 11,963 1,569 74,721
Total APAC 122,989 76,287 34,310 5,035 238,621
Germany 8,423 6,907 36,252 276 51,858
Other EMEA 10,453 14,354 24,980 3,442 53,229
Total EMEA 18,876 21,261 61,232 3,718 105,087
Total net sales $ 172,999 $ 186,656 $ 111,476 $ 11,519 $ 482,650

⁽¹⁾Net sales are allocated to countries based on the location of the customer. The table above lists individual countries with 10% or more of net sales for the periods indicated.

Revenue from Contracts with Customers

We have contract assets primarily related to unbilled revenue for revenue recognized related to products that are deemed to have no alternative use whereby we have the right to payment. Revenue is recognized in advance of billing to the customer in these circumstances as billing is typically performed at the time of shipment to the customer. The unbilled revenue is included in contract assets on the condensed consolidated statements of financial position.

Contract assets by operating segment were as follows:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019		(Dollars in thousands)	March 31, 2021		December 31, 2020
Advanced Connectivity Solutions		$	—	$	—
Advanced Electronics Solutions						Advanced Electronics Solutions	$	27,486	$	24,199
Elastomeric Material Solutions	Elastomeric Material Solutions	1,004		1,077		Elastomeric Material Solutions	1,102		887
Power Electronics Solutions		16,312		19,471
Other	Other	1,964		1,907		Other	2,348		1,489
Total contract assets	Total contract assets	$	19,280	$	22,455	Total contract assets	$	30,936	$	26,575

We did not have any contract liabilities as of ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. No impairment losses were recognized for ~~either of~~ the ~~three or six-month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, on any receivables or contract assets arising from our contracts with customers.

2220

Note 15 – Supplemental Financial Information

Restructuring and Impairment Charges

The components of “Restructuring and impairment charges” line item in the condensed consolidated statements of operations, which contains restructuring charges and related expenses, as well as impairment charges, were as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Restructuring Charges		$	—	$	143	$	—	$	949
Impairment charges		—		940		—		956
Restructuring charges										Restructuring charges
Manufacturing footprint optimization										Manufacturing footprint optimization	1,506		0

Total restructuring charges										Total restructuring charges	1,506		0

Total restructuring and impairment charges	Total restructuring and impairment charges	$	—	$	1,083	$	—	$	1,905	Total restructuring and impairment charges	$	1,506	$	0

~~Restructuring Charges~~

~~In 2018, we made the decision to consolidate our Santa Fe Springs, California operations into our facilities in Carol Stream, Illinois~~Our AES and ~~Bear, Delaware, which was completed as of December 31, 2019. We recorded $0.1~~EMS operating segments incurred $1.5 million and ~~$0.9 million~~an immaterial amount of ~~expense~~restructuring and impairment charges, respectively, for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2021.

Restructuring Charges & Related Expenses - Manufacturing Footprint Optimization

During the third quarter of 2020, we commenced manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations, primarily impacting our AES operating segment, in order to achieve greater cost competitiveness as well as align capacity with end market demand. We expect the majority of the restructuring activities to be completed by the end of the first half of 2021. We incurred restructuring charges and related ~~to this facility consolidation.~~

~~Impairment Charges~~

~~We recognized $0.9~~expenses of $1.5 million ~~and $1.0 million in impairment charges on certain assets in connection with the Isola USA Corp. (Isola) asset acquisition~~ for the three ~~and six~~ months ended ~~June 30, 2019, respectively.~~March 31, 2021, of which $0.5 million related to severance and related benefits. Severance and related benefits activity related to the manufacturing footprint optimization plan is presented in the table below for the three months ended March 31, 2021:


(Dollars in thousands)	Manufacturing Footprint Optimization Restructuring Severance
Balance as of December 31, 2020	$	11,003
Provisions	508
Payments	(779)
Foreign currency translation adjustment	(438)
Balance as of March 31, 2021	$	10,294

Other Operating (Income) Expense, Net

The components of “Other operating (income) expense, net” line item in the condensed consolidated statements of operations, were as follows:

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Lease income $ — $ (329) $ — $ (876)
Depreciation on leased assets — 366 — 1,551
Loss on sale or disposal of property, plant and equipment 33 3 53 276
Economic incentive grants (145) — (145) —
Total other operating (income) expense, net $ (112) $ 40 $ (92) $ 951


	Three Months Ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
UTIS fire
Fixed assets write-offs	891		0
Inventory charges	280		0
Professional services	522		0
Lease obligations	486		0
Compensation & benefits	244		0
Insurance recoveries	(1,119)		0
Total UTIS fire	1,304		0
(Gain) loss on sale or disposal of property, plant and equipment	(89)		20

Total other operating (income) expense, net	$	1,215	$	20

In early February 2021, there was a fire at our UTIS manufacturing facility in Ansan, South Korea, which manufactures eSorba® polyurethane foams used in portable electronics and display applications. The site was safely evacuated and there were no reported injuries; however, there was extensive damage to the manufacturing site and some damage to nearby property. The cause of the fire is still under investigation. Operations at this facility will be disrupted into at least late 2021. We are currently evaluating alternative facility options.

We recognized fixed asset write-offs and inventory charges of $0.9 million and $0.3 million, respectively, related to property destroyed in the fire for the three months ended March 31, 2021. Additionally, we recognized a $0.5 million contingent liability pertaining to our obligations for the fire damage to the building in connection with the underlying lease agreement. We have incurred $0.5 million of fees for various professional services for the three months ended March 31, 2021, in connection with the assessment of the fire and the efforts to rebuild and resume operations. Further, we incurred $0.2 million of compensation and benefits for UTIS manufacturing employees, subsequent to the fire, for the three months ended March 31, 2021. In connection with the ~~transitional leaseback~~UTIS fire, we have recognized anticipated insurance recoveries of ~~a portion~~$1.1 million related to our ongoing insurance claim for property damage and compensation and benefits of hourly employees, less the ~~facility and certain machinery and equipment acquired from Isola in August 2018, we recognized lease income of~~applicable $0.3 million ~~and $0.9 million~~deductible, for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2021.

Based on the facts and ~~related depreciation on leased assets~~circumstances known to us as of ~~$0.4 million and $1.6 million, respectively, for~~our filing, while we are aware of other potential liabilities, we are unable presently to estimate the ~~three and six months ended June 30, 2019.~~probability or amount of any further contingent liabilities associated with damages to nearby property or other potential costs due to the fire at our UTIS manufacturing facility. As such, no further reserves have been established at this time. We will continue to re-assess as additional information becomes available.

Interest Expense, Net

The components of “Interest expense, net” line item in the condensed consolidated statements of operations, were as follows:

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Interest on revolving credit facility $ 1,388 $ 2,179 $ 2,467 $ 4,430
Interest rate swap settlements 336 (79) 422 (201)
Line of credit fees 152 127 318 253
Debt issuance amortization costs 138 138 276 276
Interest on finance leases 32 31 65 63
Interest income (269) (375) (589) (864)
Other 2 17 27 19
Total interest expense, net $ 1,779 $ 2,038 $ 2,986 $ 3,976


	Three Months Ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
Interest on revolving credit facility	$	101	$	1,079
Interest rate swap settlements	0		86
Line of credit fees	273		166
Debt issuance amortization costs	179		138
Interest on finance leases	212		33
Interest income	(195)		(320)
Other	38		25
Total interest expense, net	$	608	$	1,207

Note 16 – Recent Accounting Standards

Recently ~~Issued~~Adopted Standards Reflected in Our 2021 Financial Statements

In ~~March~~August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~2020-04,~~2020-06, ~~Reference Rate Reform (Topic 848)~~Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): ~~Facilitation~~Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the ~~Effects of Reference Rate Reform on Financial Reporting. This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR~~standard requires using either the modified retrospective or another reference rate that is expected to be discontinued after reference rate reform. This ASU provides optional expedients and exceptions to accounting under GAAP for contract modifications that replace a reference rate affected by reference rate reform. The amendments in this update were effective as of March 12, 2020 and we may elect to apply the amendments to contract modifications or hedging relationships entered into through December 31, 2022. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

~~Recently Adopted Standards Reflected in Our 2020 Financial Statements~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~. This ASU replaces the incurred loss model with a new expected loss impairment model that applies to certain financial assets measured at amortized cost, including trade and other receivables and contract assets.retrospective approach. We adopted this ~~update~~standard in January ~~2020 using the modified-retrospective approach,~~2021, and it did not have a material ~~impact~~effect on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. Under ASU 2019-12, the new guidance removes certain exceptions to the general principles in Topic 740. The new guidance also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for our annual reporting periods beginning after December 15, 2020. The transition method (retrospective, modified retrospective, or prospective approach) related to this standard depends on the applicable guidance, and all amendments for which there is no transition guidance specified, are to be applied on a prospective basis. We adopted this standard in January 2021, and it did not have a material effect on our condensed consolidated financial statements.

2422

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Position

As used herein, the “Company,” “Rogers,” “we,” “us,” “our” and similar terms include Rogers Corporation and its subsidiaries, unless the context indicates otherwise.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such statements are generally accompanied by words such as “anticipate,” “assume,” “believe,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “seek,” “target” or similar expressions that convey uncertainty as to future events or outcomes. Forward-looking statements are based on assumptions and beliefs that we believe to be reasonable; however, assumed facts almost always vary from actual results, and the differences between assumed facts and actual results could be material depending upon the circumstances. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and based on assumptions believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur or be achieved or accomplished. Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:

•the duration and impacts of the novel coronavirus (COVID-19) global pandemic and efforts to contain its transmission and distribute vaccines, including the effect of these factors on our business, suppliers, customers, end users and economic conditions generally;

•failure to capitalize on, volatility within, or other adverse changes with respect to the Company’s growth drivers, including advanced mobility and advanced connectivity, such as delays in adoption or implementation of new technologies;

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

•the trade policy dynamics between the U.S. and China reflected in trade agreement negotiations and the imposition of tariffs and other trade restrictions, including trade restrictions on Huawei Technologies Co., Ltd. (Huawei);

•fluctuations in foreign currency exchange rates;

•our ability to develop innovative products and the extent to which they are incorporated into end-user products and systems;

•the extent to which end-user products and systems incorporating our products achieve commercial success;

•the ability of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner;

•intense global competition affecting both our existing products and products currently under development;

•business interruptions due to catastrophes or other similar events, such as natural disasters, war, terrorism or public health crises;

•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.

Our forward-looking statements are expressly qualified by these cautionary statements, which you should consider carefully, along with the risks discussed in this section and elsewhere in this report, including under the section entitled “Risk Factors” in Part II, Item 1A and in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the Annual Report) and our other reports filed with the Securities and Exchange Commission, any of which could cause actual results to differ materially from historical results or anticipated results. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes that appear elsewhere in this Form 10-Q along with our audited consolidated financial statements and the related notes thereto in our Annual Report.

2523

Company Background and Strategy

Rogers Corporation designs, develops, manufactures and sells high-performance and high-reliability engineered materials and components to meet our customers’ demanding challenges. We operate ~~three~~two strategic operating segments: Advanced ~~Connectivity~~Electronics Solutions ~~(ACS),~~(AES) and Elastomeric Material Solutions (EMS) ~~and Power Electronics Solutions (PES)~~. The remaining operations, which represent our non-core businesses, are reported in our Other operating segment. We have a history of innovation and have established Innovation Centers for our research and development (R&D) activities in Chandler, Arizona, Burlington, Massachusetts, Eschenbach, Germany and Suzhou, China. We are headquartered in Chandler, Arizona.

Our growth strategy is based upon the following principles: (1) market-driven organization, (2) innovation leadership, (3) synergistic mergers and acquisitions, and (4) operational excellence. As a market-driven organization, we are focused on growth drivers, including advanced mobility and advanced connectivity. More specifically, in addition to the impact of COVID-19 discussed below, the key medium- to long-term trends currently affecting our business include the increasing use of advanced driver assistance systems (ADAS) and increasing electrification of vehicles, including electric and hybrid electric vehicles (EV/HEV), in the automotive industry and ~~new technology adoption~~the growth of 5G smartphones in the ~~telecommunications industry, including next generation wireless infrastructure.~~portable electronics industry. In addition to our focus on advanced mobility and advanced connectivity in the automotive, portable electronics and telecommunications industries, we sell into a variety of other markets including general industrial, ~~connected devices,~~ aerospace and defense, mass transit, clean energy and ~~renewable energy.~~connected devices.

Our sales and marketing approach is based on addressing these trends, while our strategy focuses on factors for success as a manufacturer of engineered materials and components: performance, quality, service, cost, efficiency, innovation and technology. We have expanded our capabilities through organic investment and acquisitions and strive to ensure high quality solutions for our customers. We continue to review and re-align our manufacturing and engineering footprint in an effort to ~~attain~~maintain a leading competitive position globally. We have established or expanded our capabilities in various locations 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.

COVID-19 Update

The global COVID-19 pandemic has affected and continues to affect Rogers’ business and ~~operations.~~operations, although to a lesser extent than the first half of 2020. In response to the outbreak, Rogers prioritized the safety and well-being of its employees—including implementing social distancing initiatives in its facilities, providing remote working arrangements for certain employees, expanding personal protective equipment usage, enhancing plant hygiene processes, and extending employee benefits, which increased our ~~expenses in the quarter—~~expenses—while at the same time taking actions to preserve business continuity. Our non-manufacturing employees ~~have~~ transitioned seamlessly to remote working arrangements and are ~~maintaining effective collaboration,~~effectively collaborating both internally and with our customers.

~~Our China business and operations were the first~~ In some cases, based on local conditions, non-manufacturing employees have returned to be impacted by the virus, with the government temporarily suspending our operations, as well as the operations of most Chinese business, including our Chinese customers and suppliers, at the beginning of February. We resumed production in mid-February and reached full production capacity by early-March.

Our U.S. and European businesses were first impacted later in the first quarter, and the impact continued through the first and second quarter and continues through the date of this filing. In both the U.S. and Europe, we generally maintained operations at close to normal levels, with the additional employee safety precautions implemented at our facilities. We do not believe these additional precautions in the aggregate, had a material impact on our financial performance during the first and second quarter. In the U.S., exemptions from state-level “shelter in place” directives with respect to numerous sectors, including the Communications, Healthcare and Public Health, Defense Industrial Base, Critical Manufacturing and Information Technology sectors, have largely enabled us to continue our operations while those directives were in place, and as states began to reopen during the second quarter and through the date of this filing.

Our operations were not affected by any material shortages, as our inventory and supply chain met our manufacturing requirements. Global demand was broadly impacted in the second quarter by the COVID-19 pandemic. Automotive and certain industrial markets were especially affected by factory shutdowns and supply chain disruptions. Demand improved in some markets, such as aerospace and defense and wireless infrastructure. Geographically, China demand was stronger than other regions resulting from the resumption of 5G wireless infrastructure deployments and restrictions related to COVID-19 being eased earlier than other regions.

their worksites. We expect that the COVID-19 pandemic will have a continuing but uncertain impact on our business and operations in the short- and medium-term.

Due to the above circumstances and as described generally in this Form 10-Q, our results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

Executive Summary

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

•In the ~~second~~first quarter of ~~2020~~2021 as compared to the ~~second~~first quarter of ~~2019,~~2020, our net sales ~~decreased 21.3%~~increased 15.3% to ~~$191.2~~$229.3 million, our gross margin increased approximately ~~130~~600 basis points to ~~36.6%~~39.0% from ~~35.3%~~33.0%, and operating income ~~decreased~~increased approximately ~~270~~740 basis points to ~~11.0%~~16.2% from 13.7%. In the first half of 2020 as compared to the first half of 2019, our net sales decreased 19.2% to $390.0 million, our gross margin decreased approximately 70 basis points to 34.8% from 35.5%, and operating income decreased approximately 380 basis points to 9.9% from 13.7%8.8%.

•We ~~borrowed $150.0~~made $21.0 million ~~under~~of discretionary principal payments on our revolving credit facility during the first quarter of ~~2020 as a precautionary measure in order to increase our cash position and preserve financial flexibility given current uncertainty~~2021.

•We recognized $1.5 million of restructuring charges in the ~~global markets resulting~~first quarter of 2021 related to the manufacturing footprint optimization plans involving certain Europe and Asia manufacturing locations, primarily impacting our AES operating segment.

•In early February 2021, there was a fire at our UTIS manufacturing facility in Ansan, South Korea. This facility manufactures eSorba® polyurethane foams used in portable electronics and display applications. These operations will be disrupted into at least late 2021. We are currently evaluating alternative facility options. We recognized net expense

of $1.3 million related to the financial impacts from the ~~COVID-19 pandemic,~~fire, which consisted of write-offs of fixed assets and inventory destroyed and/or damaged in the fire, professional services, costs incurred due to obligations under our manufacturing facility lease agreement, compensation and benefits for certain of our UTIS employees, partially offset by ~~a $50.0 million discretionary principal payment on our revolving credit facility during~~ the ~~second quarter~~recognition of 2020. We made an additional $125.0 million discretionary principal payment on July 29, 2020, bringing our outstanding borrowings under our revolving credit facility to $98.0 million as of our filing date.certain anticipated insurance recoveries.

•We incurred incremental transaction costs of ~~$3.3~~$0.7 million in both the ~~second~~first quarter of ~~2020~~2021 and ~~$4.0 million in~~ the first half of 2020, due to COVID-19 pandemic. These costs primarily consist of temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as additional safety supplies. A substantial portion of the additional benefits under these programs expired in mid-June. We expect significantly lower costs associated with the remaining additional benefits, as well as safety supplies, during the second half of 2020.

•~~We recognized an additional $3.9 million of amortization expense in the second~~ quarter ~~of 2020, and will recognize an additional $11.7 million of amortization expense each quarter, for the third and fourth quarters~~ of 2020 due to the acceleration of amortization expense related to our Diversified Silicone Products, Inc. (DSP) customer relationships and trademarks and trade names definite-lived other intangible assets, which were both accelerated to be fully amortized by December 31, 2020.COVID-19 pandemic.

Results of Operations

The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales:


		Three Months Ended						Six Months Ended							Three Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			March 31, 2021		March 31, 2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%
Gross margin	Gross margin	36.6	%	35.3	%	34.8	%	35.5	%	Gross margin	39.0	%	33.0	%

Selling, general and administrative expenses	Selling, general and administrative expenses	21.8	%	18.0	%	21.0	%	18.0	%	Selling, general and administrative expenses	18.5	%	20.3	%
Research and development expenses	Research and development expenses	3.8	%	3.2	%	3.9	%	3.2	%	Research and development expenses	3.1	%	3.9	%
Restructuring and impairment charges	Restructuring and impairment charges	—	%	0.4	%	—	%	0.4	%	Restructuring and impairment charges	0.7	%	—	%
Other operating (income) expense, net	Other operating (income) expense, net	—	%	—	%	—	%	0.2	%	Other operating (income) expense, net	0.5	%	—	%
Operating income	Operating income	11.0	%	13.7	%	9.9	%	13.7	%	Operating income	16.2	%	8.8	%

Equity income in unconsolidated joint ventures	Equity income in unconsolidated joint ventures	0.5	%	0.7	%	0.6	%	0.5	%	Equity income in unconsolidated joint ventures	1.0	%	0.6	%
Other (expense) income, net		0.3	%	(0.6)	%	—	%	—	%
Other income (expense), net										Other income (expense), net	1.3	%	(0.4)	%
Interest expense, net	Interest expense, net	(0.9)	%	(0.8)	%	(0.8)	%	(0.8)	%	Interest expense, net	(0.3)	%	(0.6)	%
Income before income tax expense	Income before income tax expense	10.9	%	13.0	%	9.6	%	13.4	%	Income before income tax expense	18.2	%	8.4	%

Income tax expense	Income tax expense	3.3	%	3.0	%	2.5	%	2.5	%	Income tax expense	4.6	%	1.7	%

Net income	Net income	7.6	%	10.0	%	7.1	%	10.9	%	Net income	13.6	%	6.7	%


Net Sales and Gross Margin	Net Sales and Gross Margin																					Net Sales and Gross Margin
		Three Months Ended									Six Months Ended										Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			(Dollars in thousands)	March 31, 2021			March 31, 2020
Net sales	Net sales	$	191,157		$	242,852		$	389,967		$	482,650		Net sales	$	229,265		$	198,810
Gross margin	Gross margin	$	69,969		$	85,828		$	135,599		$	171,222		Gross margin	$	89,499		$	65,630
Percentage of net sales	Percentage of net sales	36.6		%	35.3		%	34.8		%	35.5		%	Percentage of net sales	39.0		%	33.0		%

Net sales ~~decreased~~increased by ~~21.3%~~15.3% in the ~~second~~first quarter of ~~2020~~2021 compared to the ~~second~~first quarter of ~~2019.~~2020. Our ~~EMS, ACS~~AES and ~~PES~~EMS operating segments had net sales ~~decreases~~increases of ~~23.7%, 23.3%~~18.5% and ~~12.5%~~10.0%, respectively. The ~~decrease~~increase in net sales was primarily ~~driven by significantly lower~~due to higher net sales in the 4GADAS, aerospace and ~~5G wireless infrastructure~~defense and clean energy markets in our AES operating segment and higher net sales in the EV/HEV, general industrial, consumer and automotive markets in our ~~ACS operating segment, lower net sales in the portable electronics, general industrial, consumer and mass transit markets in our~~ EMS operating segment and lower net sales in the mass transit, variable frequency drives and vehicle electrification markets in our PES operating segment. The decrease in net sales was partially offset by higher net sales in the aerospace and defense market in our ACS operating segment. Net sales were ~~unfavorably~~favorably impacted by foreign currency impacts of ~~$3.3~~$8.2 million, or ~~1.3%~~4.1%, due to the ~~depreciation~~appreciation in value of the ~~Chinese renminbi,~~ euro and ~~Korean won~~Chinese renminbi relative to the U.S. dollar.

Net sales decreased by 19.2% in the first half of 2020 compared to the first half of 2019. Our ACS, EMS and PES operating segments had net sales decreases of 21.7%, 16.9% and 17.5%, respectively. The decrease in net sales was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure and automotive markets in our ACS operating segment, lower net sales in the portable electronics, general industrial, consumer and mass transit markets in our EMS operating segment and lower net sales in the variable frequency drives, mass transit and vehicle electrification markets in our PES operating segment. The decrease in net sales was partially offset by higher net sales in the aerospace and defense market in our ACS operating segment. Net sales were unfavorably impacted by foreign currency impacts of $5.8 million, or 1.2%, due to the depreciation in value of the Chinese renminbi, euro and Korean won relative to the U.S. dollar.

The lower net sales in the 4G and 5G wireless infrastructure markets in our ACS operating segment reflected the cumulative effect of the pause in the 5G deployments in China due to the impacts from the COVID-19 pandemic, the waning of 4G infrastructure spending by telecommunications companies in anticipation of 5G, as well as the impacts of the trade restrictions on Huawei, increased competition and design changes by telecommunications equipment original equipment manufacturers (OEMs), which reduced our materials content in 5G base stations. The lower net sales in the automotive market was largely due to the impacts of COVID-19 pandemic.

The lower net sales in variable frequency drives market in our PES operating segment was due to a slowdown in industrial automation demand combined with customer inventory rebalancing, which began in mid-2019, and continued through the most

~~of the first half of 2020. The lower net sales in vehicle electrification market in our PES operating segment was due to the COVID-19 impacts on the automotive sector.~~

In our ACS operating segment, we anticipate lower net sales in the 4G and 5G wireless infrastructure and automotive markets year-over-year in the third quarter of 2020, on both a quarter-to-date and year-to-date basis, while we anticipate high net sales in the aerospace and defense market year-over-year on a quarter-to-date and year-to-date basis. On a sequential quarter basis, we experienced net sales growth in the 4G and 5G wireless infrastructure markets, however we anticipate net sales to decline into the third quarter of 2020 as a result of lower volumes, as more than half of the expected 2020 5G base station installations were completed in the first half of 2020, and from reductions in our material content used in 5G base stations. The effects of trade tensions, lower 5G base station content and the ongoing decline in 4G deployments are creating a great deal of uncertainty around our outlook for wireless infrastructure. As a result, we believe the growth opportunity in wireless infrastructure is substantially reduced going forward.

In our EMS operating segment, we anticipate lower net sales in the portable electronics and general industrial markets year-over-year in the second quarter of 2020, on both a quarter-to-date and year-to-date basis due to the impact from the COVID-19 pandemic. On a sequential quarter basis, we anticipate higher net sales in the portable electronics market primarily due to seasonality in the third quarter of 2020. On a sequential quarter basis, we experienced net sales growth in the EV/HEV market in the second quarter of 2020, and we anticipate this growth to continue into the third quarter of 2020 as a result of stronger demand in Europe.

In our PES operating segment, we anticipate lower net sales in the mass transit year-over-year in the second quarter of 2020, on both a quarter-to-date and year-to-date basis due to the impact from the COVID-19 pandemic. On a sequential quarter basis, we anticipate higher net sales in the EV/HEV market primarily due to manufacturing disruptions subsiding and stronger demand.

Gross margin as a percentage of net sales increased approximately ~~130~~600 basis points to ~~36.6%~~39.0% in the ~~second~~first quarter of ~~2020~~2021 compared to ~~35.3%~~33.0% in the ~~second~~first quarter of ~~2019.~~2020. Gross margin in the ~~second~~first quarter of ~~2020~~2021 was favorably impacted by ~~lower freight, duties and tariffs costs~~higher volume in our ~~ACS~~AES and EMS operating segments, ~~including the recognition of a $3.3 million expected recovery of previous duty taxes paid due to a change in Chinese tariff regulations in our ACS operating segment, as well as~~ favorable product mix in our ~~ACS,~~ EMS ~~and PES operating segments, yield improvements and favorable productivity performance in our PES~~ operating segment, ~~and lower fixed overhead costs in our EMS and PES operating segments. This was partially offset by lower volume and unfavorable~~favorable absorption of fixed overhead costs and favorable productivity improvements in our ~~ACS, EMS and PES operating segments, as well as unfavorable productivity performance in our ACS operating segment and an increase in inventory reserve provision in our EMS operating segment.~~

Gross margin as a percentage of net sales decreased approximately 70 basis points to 34.8% in the first half of 2020 compared to 35.5% in the first half of 2019. Gross margin in the first half of 2020 was unfavorably impacted by lower volume and unfavorable absorption of fixed overhead costs in our ACS, EMS and PES operating segments, an increase in inventory reserve provision in our EMS operating segment, as well as unfavorable productivity performance and higher fixed overhead costs in our ACS operating segment. This was partially offset by lower freight, duties and tariffs costs in our ACS, EMS and PES operating segments, including the recognition of a $3.3 million expected recovery of previous duty taxes paid due to a change in Chinese tariff regulations in our ACSAES operating segment, as well as yield improvements and ~~favorable productivity performance in our PES operating segment,~~a lower ~~fixed overhead costs~~inventory reserves provision in our EMS operating segment. This was partially offset by higher commodity costs and ~~PES operating segments and favorable~~unfavorable product mix in our AES operating segment and higher freight expenses in our EMS operating segment.

~~We incurred incremental transaction costs associated with~~Our UTIS net sales were only slightly impacted by the ~~temporary additional benefits established under~~fire at our ~~dependent care, premium pay and sick pay programs~~UTIS manufacturing facility in ~~response~~Ansan, South Korea as a result of selling our undamaged finished goods inventory during the remainder of the first quarter of 2021. In the second quarter of 2021, we expect a greater impact to our net sales due to the ~~COVID-19 pandemic,~~continued disruption to our UTIS operations.

In the first quarter of 2021, our net sales were largely unaffected by global supply chain disruptions, but we began seeing some greater impacts as well as additional safety supplies. These costs impacted our gross margin by approximately $3.0 million and $3.6 million on a quarter-to-date basis and year-to-date basis, respectively. A substantial portion ofwe exited the ~~additional benefits under these programs expired in mid-June. We expect significantly lower gross margin impacts associated with the remaining additional benefits, as well as safety supplies, during~~quarter. In the second ~~half~~quarter of ~~2020.~~2021, the lack of availability of certain raw materials,

2925

Selling, General and Administrative Expenses
Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Selling, general and administrative expenses $ 41,694 $ 43,649 $ 82,024 $ 86,901
Percentage of net sales 21.8 % 18.0 % 21.0 % 18.0 %
primarily due to the weather interruptions along the U.S. Gulf Coast, will likely somewhat temper our net sales growth and gross margin.


Selling, General and Administrative Expenses
	Three Months Ended
(Dollars in thousands)	March 31, 2021			March 31, 2020
Selling, general and administrative expenses	$	42,413		$	40,330
Percentage of net sales	18.5		%	20.3		%

Selling, general and administrative (SG&A) expenses ~~decreased 4.5%~~increased 5.2% in the ~~second~~first quarter of ~~2020~~2021 from the ~~second~~first quarter of ~~2019,~~2020, primarily due to a ~~$2.3~~$2.5 million ~~decrease~~increase in total compensation and benefits, a ~~$2.0~~$0.8 million increase in software expenses, a $0.2 million increase in environmental charges and a $0.1 million increase in recruiting/relocation/training expenses. This was partially offset by a $1.2 million decrease in travel and entertainment expenses, a ~~$0.7 million decrease in advertising expenses, a~~ $0.5 million decrease in depreciation, a $0.4 million decrease in software costs, a $0.4 million decrease in recruiting/relocation/training expenses and a $0.4 million decrease in environmental charges, partially offset by a $3.1 million increase in other intangible assets amortization and a ~~$1.8~~$0.1 million ~~increase~~decrease in ~~professional services.~~depreciation.

~~SG&A~~The decrease in travel and entertainment and recruiting/relocation/training expenses was primarily driven by the impacts of COVID-19.


Research and Development Expenses
	Three Months Ended
(Dollars in thousands)	March 31, 2021			March 31, 2020
Research and development expenses	$	7,172		$	7,805
Percentage of net sales	3.1		%	3.9		%

R&D expenses decreased ~~5.6%~~8.1% in the first ~~half~~quarter of ~~2020~~2021 from the first ~~half~~quarter of ~~2019, primarily~~2020 due to ~~a $2.4 million decrease~~decreases in professional services, travel and entertainment expenses, total compensation and benefits ~~a $2.1 million~~and laboratory expenses, partially offset by an increase in depreciation. The decrease in travel and entertainment expenses ~~a $0.9 million decrease in advertising~~was primarily driven by the impacts of COVID-19.


Restructuring and Impairment Charges and Other Operating (Income) Expense, Net
	Three Months Ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
Restructuring and impairment charges	$	1,506	$	—
Other operating (income) expense, net	$	1,215	$	20

We incurred restructuring charges and related expenses ~~a $0.8 million decrease in depreciation, a $0.6 million decrease in software costs, a $0.6 million decrease in recruiting/relocation/training expenses~~associated with our manufacturing footprint optimization plans involving certain Europe and ~~a $0.5 million decrease in environmental charges, partially offset by a $2.3 million increase in other intangible assets amortization and a $1.3 million increase in professional services.~~

The increase in amortization expense for the three and six months ended June 30, 2020 was due to the acceleration of amortization expense related to our DSP customer relationships and trademarks and trade names definite-lived other intangible assets, which were both accelerated to be fully amortized by December 31, 2020 due to an adjustment to their remaining useful lives.Asia manufacturing locations. We recognized ~~an additional $3.9~~$1.5 million of ~~amortization expense~~restructuring charges and related expenses pertaining to these restructuring projects in the ~~second~~first quarter of 2020, and will recognize an additional $11.7 million of amortization expense each quarter, for the third and fourth quarters of 2020. The increases in amortization expense in 2020 are offset by decreases in forecasted amortization expense in future years.2021. For additional information, refer to “Note 615 – ~~Goodwill and Other Intangible Assets”~~Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

~~The decrease in travel and entertainment and recruiting/relocation/training expenses, on both a quarter-to-date and year-to-date basis, was primarily driven by the impacts of COVID-19.~~

Research and Development Expenses
Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Research and development expenses $ 7,295 $ 7,843 $ 15,100 $ 15,452
Percentage of net sales 3.8 % 3.2 % 3.9 % 3.2 %

R&D expenses decreased 7.0% in the second quarter of 2020 from the second quarter of 2019 due to decreases in laboratory expenses as well as travel and entertainment expenses, partially offset by increases in total compensation and benefits as well as professional services. R&D expenses decreased 2.3% in the first half of 2020 from the first half of 2019 due to decreases in laboratory expenses as well as travel and entertainment expenses, partially offset by increases in total compensation and benefits as well as professional services.

Restructuring and Impairment Charges and Other Operating (Income) Expense, Net
Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Restructuring and impairment charges $ — $ 1,083 $ — $ 1,905
Other operating (income) expense, net $ (112) $ 40 $ (92) $ 951

We incurred restructuring charges associated with the consolidation of our Santa Fe Springs, California operations with the Company’s facilities in Carol Stream, Illinois and Bear, Delaware. We recognized no restructuring charges in the second quarter of 2020, and we recognized $0.1 million of restructuring charges related to our facility consolidation in the second quarter of 2019. We recognized no restructuring charges in the first half of 2020, and we recognized $0.9 million of restructuring charges related to our facility consolidation in the first half of 2019. We recognized $0.9 million and $1.0 million in impairment charges on certain assets in connection with the Isola USA Corp. (Isola) asset acquisition for the three and six months ended June 30, 2019, respectively.

With respect to other operating (income) expense, net, we recognized ~~income~~expense of ~~$0.1~~$1.2 million ~~from economic incentive grants~~primarily related to the ~~physical relocation~~financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea in the first quarter of 2021. This impact consisted of write-offs of fixed assets and inventory destroyed and/or damaged in the fire, professional services, costs incurred due to obligations under our manufacturing facility lease agreement, compensation and benefits for certain of our ~~global headquarters from Rogers, Connecticut~~UTIS employees, partially offset by the recognition of certain anticipated insurance recoveries. There may be other potential costs that cannot be reasonably foreseen or estimated at this time and we continue to ~~Chandler, Arizona, for~~evaluate information as it becomes available. For additional information, refer to “Note 15 – Supplemental Financial Information” to the ~~three and six months ended June 30, 2020. In connection with the transitional leaseback~~condensed consolidated financial statements in Part I, Item 1 of ~~a portion of the facility and certain machinery and equipment acquired from Isola in August 2018, we recognized lease income of $0.3 million and $0.9 million for the three~~this Form 10-Q.

~~and six months ended June 30, 2019, respectively, and related depreciation on leased assets of $0.4 million and $1.6 million, respectively, for the three and six months ended June 30, 2019.~~


Equity Income in Unconsolidated Joint Ventures	Equity Income in Unconsolidated Joint Ventures															Equity Income in Unconsolidated Joint Ventures
		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Equity income in unconsolidated joint ventures	Equity income in unconsolidated joint ventures	$	1,022	$	1,742	$	2,240	$	2,579	Equity income in unconsolidated joint ventures	$	2,181	$	1,218

As of ~~June 30, 2020,~~March 31, 2021, we had two unconsolidated joint ventures, each 50% owned: Rogers INOAC Corporation (RIC) and Rogers INOAC Suzhou Corporation (RIS). Equity income in those unconsolidated joint ventures ~~decreased 41.3% in the second quarter of 2020 from the second quarter of 2019, and decreased 13.1%~~increased 79.1% in the first ~~half~~quarter of ~~2020~~2021 from the first ~~half~~quarter of ~~2019.~~2020. On a quarter-to-date basis, the ~~decrease~~increase was due to ~~lower~~higher net sales, ~~due to~~driven by strong sales in the ~~COVID-19 pandemic, as well as declines in~~portable electronics market, and improved operational performance for both RIS and ~~RIC. On a year-to-date basis, the decrease was~~RIC, primarily due to ~~lower net sales in RIS due to the COVID-19 pandemic and declines in operational performance for both RIS and RIC.~~higher utilization of production capacity.

Pension Settlement Charges and Other (Expense) Income, Net
Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Pension settlement charges $ (55) $ — $ (55) $ —
Other (expense) income, net $ 634 $ (1,401) $ (152) $ 3

In the second quarter of 2020, we recorded an immaterial pre-tax settlement charge in connection with the remaining settlement efforts for the termination of the Rogers Corporation Defined Benefit Pension Plan (following its merger with the Hourly Employees Pension Plan of Arlon LLC, Microwave Material and Silicone Technologies Divisions, Bear, Delaware (collectively, the Merged Plan)). For additional information, refer to “Note 11 – Pension Benefits and Other Postretirement Benefits.”


Other Income (Expense), Net
	Three Months Ended
(Dollars in thousands)	March 31, 2021		March 31, 2020

Other income (expense), net	$	2,968	$	(786)

Other income (expense) ~~income,~~, net increased to income of ~~$0.6~~$3.0 million in the ~~second~~first quarter of ~~2020~~2021 from expense of ~~$1.4~~$0.8 million in the ~~second~~first quarter of ~~2019.~~2020. On a quarter-to-date basis, the increase was due to favorable impacts from our copper derivative contracts and foreign currency transactions, partially offset by ~~lower net periodic benefit credits associated with our defined benefit plans and~~ unfavorable impacts from our foreign currency derivative contracts.

Other (expense) income, net decreased to expense of $0.2 million in the first half of 2020 from a nominal amount of income in the first half of 2019. On a year-to-date basis, the decrease was due to lower net periodic benefit credits associated with our defined benefit plans, partially offset by favorable impacts from our copper derivative contracts and foreign currency transactions.


Interest Expense, Net	Interest Expense, Net															Interest Expense, Net
		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Interest expense, net	Interest expense, net	$	(1,779)	$	(2,038)	$	(2,986)	$	(3,976)	Interest expense, net	$	(607)	$	(1,207)

Interest expense, net, decreased by ~~12.7% in the second quarter of 2020 from the second quarter of 2019, and decreased by 24.9%~~49.7% in the first ~~half~~quarter of ~~2020~~2021 from the first ~~half~~quarter of ~~2019.~~2020. The decrease on ~~both~~ a quarter-to-date ~~and year-to-date~~ basis was primarily due to a lower ~~interest expense on~~weighted-average outstanding balance for our borrowings under our revolving credit facility, which was mainly attributable to a lower weighted-average interest rate year-over-year. The decrease, on both a quarter-to-date and year-to-date basis, was partially offset by unfavorable changes in our interest rate swap settlements.facility. We expect interest expense, net to decrease on ~~both a~~ quarter-to-date and year-to-date ~~basis~~bases in the ~~third~~second quarter of 2021 from the second quarter of 2020 ~~from the third quarter of 2019~~primarily due to ~~an anticipated lower weighted-average interest rate on and an anticipated~~a lower weighted-average outstanding balance for our borrowings under our revolving credit facility.


Income Taxes	Income Taxes																					Income Taxes
		Three Months Ended									Six Months Ended										Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			(Dollars in thousands)	March 31, 2021			March 31, 2020
Income tax expense	Income tax expense	$	6,394		$	7,223		$	9,835		$	11,927		Income tax expense	$	10,517		$	3,441
Effective tax rate	Effective tax rate	30.6		%	22.9		%	26.1		%	18.5		%	Effective tax rate	25.2		%	20.6		%

~~international provisions from the U.S. tax reform enacted in 2017. Our effective income tax rate was 26.1% and 18.5% for the six months ended June 30, 2020 and 2019,~~ respectively. The increase from the first ~~half~~quarter of ~~2019~~2020 was primarily due to the ~~increase~~decrease in the current quarter valuation allowance release and decrease in current quarter ~~accruals~~reversals of ~~reserves for uncertain~~unrecognized tax positions, the decrease in excess tax deductions on stock-based compensation and higher tax impact on unremitted foreign earnings and profits, partially offset by the beneficial impact of changes in valuation allowance related to R&D credits and pretax mix across jurisdictions with disparate tax rates.benefits.

Operating Segment Net Sales and Operating Income

Advanced ~~Connectivity~~Electronics Solutions


		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Net sales	Net sales	$	70,940	$	92,529	$	135,493	$	172,999	Net sales	$	131,892	$	111,274
Operating income	Operating income	$	15,624	$	18,458	$	21,086	$	31,522	Operating income	$	14,849	$	4,778

~~ACS~~AES net sales ~~decreased~~increased by ~~23.3%~~18.5% in the ~~second~~first quarter of ~~2020~~2021 compared to the ~~second~~first quarter of ~~2019.~~2020. The ~~decrease~~increase in net sales over the ~~second~~first quarter of ~~2019~~2020 was primarily driven ~~by significantly lower net sales in the 4G and 5G wireless infrastructure markets, as well as the automotive market, partially offset~~ by higher net sales in the ADAS, aerospace and defense ~~market.~~and clean energy markets. Net sales were ~~unfavorably~~favorably impacted by ~~$1.2~~foreign currency fluctuations of $5.3 million, or ~~1.2%~~4.8%, due to the ~~depreciation~~appreciation in value of the euro and Chinese renminbi ~~and euro~~ relative to the U.S. dollar.

~~ACS net sales decreased~~Operating income increased by ~~21.7%~~210.8% in the first half of 2020 compared to the first half of 2019. The decrease in net sales over the first half of 2019 was primarily driven by significantly lower net sales in the 4G and 5G wireless infrastructure markets, as well as the automotive market, partially offset by higher net sales in the aerospace and defense market. Net sales were unfavorably impacted by $1.7 million, or 1.0%, due to the depreciation in value of the Chinese renminbi and euro relative to the U.S. dollar.

~~In our ACS operating segment, we anticipate lower net sales in the 4G and 5G wireless infrastructure and automotive markets year-over-year in the third~~ quarter of 2020, on both a quarter-to-date and year-to-date basis, while we anticipate high net sales in the aerospace and defense market year-over-year on a quarter-to-date and year-to-date basis. On a sequential quarter basis, we experienced net sales growth in the 4G and 5G wireless infrastructure markets, however we anticipate net sales to continue into the third quarter of 2020 as a result of lower volumes and customers’ procurement of materials in the second quarter of 2020 in preparation for China’s planned 5G deployments in the second half 2020.

Operating income decreased by 15.4% in the second quarter of 2020 from the second quarter of 2019. As a percentage of net sales, operating income in the second quarter of 2020 was 22.0%, an approximately 210 basis point increase as compared to the 19.9% reported in the second quarter of 2019. The decrease in operating income was primarily due to lower volume, unfavorable absorption of fixed overhead costs and unfavorable productivity performance, partially offset by lower freight, duties and tariffs costs, including the recognition of a $3.3 million expected recovery of previous duty taxes paid due to a change in Chinese tariff regulations, and favorable product mix.

~~Operating income decreased by 33.1% in the first half of 2020~~2021 from the first ~~half~~quarter of ~~2019.~~2020. As a percentage of net sales, operating income in the first ~~half~~quarter of ~~2020~~2021 was ~~15.6%~~11.3%, an approximately ~~260~~700 basis point ~~decrease~~increase as compared to the ~~18.2%~~4.3% reported in the first ~~half~~quarter of ~~2019.~~2020. The ~~decrease~~increase in operating income was primarily due to ~~lower~~higher volume, unfavorable absorption of fixed overhead costs, unfavorable productivity performance and higher fixed overhead costs, partially offset by lower freight, duties and tariffs costs, including the recognition of a $3.3 million expected recovery of previous duty taxes paid due to a change in Chinese tariff regulations.

The incremental direct costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as the additional safety supplies, impacted ACS operating income by approximately $1.3 million and $1.5 million on a quarter-to-date basis and year-to-date basis, respectively.

~~Elastomeric Material Solutions~~

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Net sales $ 71,626 $ 93,894 $ 155,152 $ 186,656
Operating income $ 2,995 $ 15,326 $ 14,512 $ 28,757

EMS net sales decreased by 23.7% in the second quarter of 2020 compared to the second quarter of 2019. The decrease in net sales over the second quarter of 2019 was primarily driven by lower net sales in the portable electronics, general industrial, consumer and mass transit markets. Net sales were unfavorably impacted by $1.1 million, or 1.1%, due to the depreciation in value of the Chinese renminbi, Korean won and euro relative to the U.S. dollar.

EMS net sales decreased by 16.9% in the first half of 2020 compared to the first half of 2019. The decrease in net sales over the first half of 2019 was primarily driven by lower net sales in the portable electronics, general industrial, consumer and mass transit markets. Net sales were unfavorably impacted by $1.9 million, or 1.0%, due to the depreciation in value of the Chinese renminbi, Korean won and euro relative to the U.S. dollar.

Operating income decreased by 80.5% in the second quarter of 2020 from the second quarter of 2019. As a percentage of net sales, second quarter of 2020 operating income was 4.2%, an approximately 1,210 basis point decrease as compared to the 16.3% reported in the second quarter of 2019. The decrease in operating income was primarily due to lower volume, unfavorablefavorable absorption of fixed overhead costs and ~~an increase in inventory reserve provision,~~favorable productivity improvements. This was partially offset by ~~favorable product mix, lower freight, duties and tariffs~~higher commodity costs and ~~lower fixed overhead costs. As a result of the acceleration of amortization expense~~unfavorable product mix.

Additionally, we incurred restructuring charges and related ~~to the DSP customer relationships~~expenses associated with our manufacturing footprint optimization plans involving certain Europe and ~~trademarks and trade names definite-lived other intangible assets, we~~Asia manufacturing locations. We recognized ~~an additional $3.9~~$1.5 million of ~~amortization expense in the second quarter of 2020.~~

~~Operating income decreased by 49.5%~~restructuring charges and related expenses pertaining to these restructuring projects in the first ~~half of 2020 from the first half of 2019. As a percentage of net sales, second~~ quarter of 2020 operating income was 9.4%, an approximately 600 basis point decrease as compared to the 15.4% reported in the first half of 2019. The decrease in operating income was primarily due to lower volume, unfavorable absorption of fixed overhead costs and an increase in inventory reserve provision, partially offset by lower fixed overhead costs, favorable product mix and lower freight, duties and tariffs costs. As a result of the acceleration of amortization expense related to the DSP customer relationships and trademarks and trade names definite-lived other intangible assets, we recognized an additional $3.9 million of amortization expense in the first half of 2020.

The incremental direct costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as the additional safety supplies, impacted EMS operating income by approximately $1.3 million and $1.5 million on a quarter-to-date basis and year-to-date basis, respectively.

The increase in amortization expense for the three and six months ended June 30, 2020 was due to the acceleration of amortization expense related to our DSP customer relationships and trademarks and trade names definite-lived other intangible assets, which were both accelerated to be fully amortized by December 31, 2020 due to an adjustment to their remaining useful lives. We recognized an additional $3.9 million of amortization expense in the second quarter of 2020, and will recognize an additional $11.7 million of amortization expense each quarter, for the third and fourth quarters of 2020. The increases in amortization expense in 2020 are offset by decreases in forecasted amortization expense in future years.2021. For additional information, refer to “Note 615 – ~~Goodwill and Other Intangible Assets”~~Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

~~Power Electronics Solutions~~

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Net sales $ 45,220 $ 51,662 $ 91,941 $ 111,476
Operating income (loss) $ 1,446 $ (1,884) $ 762 $ 2,383

~~PES~~In the first quarter of 2021, our net sales ~~decreased~~were largely unaffected by ~~12.5% in~~global supply chain disruptions, but we began seeing some greater impacts as we exited the quarter. In the second quarter of ~~2020 from~~2021, the ~~second quarter~~lack of ~~2019. The decrease in~~availability of certain raw materials, primarily due to the weather interruptions along the U.S. Gulf Coast, will likely somewhat temper our net sales ~~over the second quarter of 2019 was primarily driven by lower net sales in mass transit, variable frequency drives~~growth and ~~vehicle~~gross margin.

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electrification markets. Net sales were unfavorably impacted by foreign currency fluctuations of $1.0 million, or 1.9%, due to the depreciation in value of the euro and Chinese renminbi relative to the U.S. dollar.Elastomeric Material Solutions

~~PES~~


	Three Months Ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
Net sales	$	91,849	$	83,526
Operating income	$	20,077	$	11,517

EMS net sales ~~decreased~~increased by ~~17.5%~~10.0% in the first ~~half~~quarter of ~~2020 from~~2021 compared to the first ~~half~~quarter of ~~2019.~~2020. The ~~decrease~~increase in net sales over the first ~~half~~quarter of ~~2019~~2020 was primarily driven by ~~lower~~higher net sales in ~~variable frequency drives, mass transit~~the EV/HEV, general industrial, consumer and ~~vehicle electrification markets. Net sales were unfavorably impacted~~automotive markets, partially offset by ~~foreign currency fluctuations of $2.1 million, or 1.9%, due to the depreciation in value of the euro and Chinese renminbi relative to the U.S. dollar.~~

The lower net sales in variable frequency drives market was due to a slowdown in industrial automation demand combined with customer inventory rebalancing, which began in mid-2019, and continued through the most of the first half of 2020. The lower net sales in vehicle electrification market in our PES operating segment was due to the COVID-19 impacts on the automotive sector.

~~In our PES operating segment, we anticipate~~ lower net sales in the mass transit ~~year-over-year in the second quarter~~market. Net sales were favorably impacted by foreign currency fluctuations of ~~2020, on both a quarter-to-date and year-to-date basis~~$2.7 million, or 3.3%, due to the ~~impact from~~appreciation in value of the ~~COVID-19 pandemic. On a sequential quarter basis, we anticipate higher net sales in~~Chinese renminbi and euro relative to the ~~EV/HEV market primarily due to manufacturing disruptions subsiding and stronger demand.~~U.S. dollar.

Operating income increased by ~~176.8%~~74.3% in the ~~second~~first quarter of ~~2020~~2021 from the ~~second~~first quarter of ~~2019.~~2020. As a percentage of net sales, ~~the second~~first quarter of ~~2020~~2021 operating income was ~~3.2%~~21.9%, an approximately 810 basis point increase as compared to the ~~3.6% for operating loss~~13.8% reported in the ~~second~~first quarter of ~~2019.~~2020. The increase in operating income was primarily due to higher volume, yield improvements ~~favorable product mix, favorable productivity performance~~ and a lower ~~fixed overhead costs,~~inventory reserves provision. This was partially offset by ~~lower volume.~~higher freight expenses.

~~Operating income decreased by 68.0%~~Additionally, we recognized expense of $1.3 million primarily related to the financial impacts from the fire at our UTIS manufacturing facility in Ansan, South Korea in the first ~~half~~quarter of ~~2020 from~~2021. This impact consisted of write-offs of fixed assets and inventory destroyed and/or damaged in the fire, professional services, costs incurred due to obligations under our manufacturing facility lease agreement, compensation and benefits for certain of our UTIS employees, partially offset by the recognition of certain anticipated insurance recoveries. There may be other potential costs that cannot be reasonably foreseen or estimated at this time and we continue to evaluate information as it becomes available. For additional information, refer to “Note 15 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Our UTIS net sales were only slightly impacted by the fire at our UTIS manufacturing facility in Ansan, South Korea as a result of selling our undamaged finished goods inventory during the remainder of the first ~~half~~quarter of ~~2019. As~~2021. In the second quarter of 2021, we expect a ~~percentage of~~greater impact to our net sales due to the continued disruption to our UTIS operations.

In the first ~~half~~quarter of ~~2020 operating income was 0.8%~~2021, our net sales were largely unaffected by global supply chain disruptions, but we began seeing some greater impacts as ~~compared to~~we exited the ~~2.1% for operating income reported in~~quarter. In the ~~first half~~second quarter of ~~2019. The decrease in operating income was~~2021, the lack of availability of certain raw materials, primarily due to ~~lower volume~~the weather interruptions along the U.S. Gulf Coast, will likely somewhat temper our net sales growth and ~~unfavorable absorption of fixed overhead costs, partially offset by yield improvements, favorable productivity performance, lower freight costs and lower fixed overhead costs.~~

The incremental transaction costs associated with the temporary additional benefits established under our dependent care, premium pay and sick pay programs in response to the COVID-19 pandemic, as well as the additional safety supplies, impacted PES operating income/loss by approximately $0.6 million and $0.8 million on a quarter-to-date basis and year-to-date basis, respectively.gross margin.

Other


		Three Months Ended						Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Net sales	Net sales	$	3,371	$	4,767	$	7,381	$	11,519	Net sales	$	5,524	$	4,010
Operating income	Operating income	$	1,027	$	1,313	$	2,207	$	3,351	Operating income	$	2,267	$	1,180

Net sales in this segment ~~decreased~~increased by ~~29.3%~~37.8% in the ~~second~~first quarter of ~~2020~~2021 from the ~~second~~first quarter of ~~2019.~~2020. The ~~decrease~~increase in net sales over the ~~second~~first quarter of ~~2019~~2020 was primarily driven by ~~lower~~higher demand in the automotive ~~market partially resulting from the COVID-19 pandemic.~~market. Net sales were ~~unfavorably~~favorably impacted by foreign currency fluctuations of ~~$0.1~~$0.2 million, or ~~1.2%~~4.4%, due to the ~~depreciation in value of the Chinese renminbi relative to the U.S. dollar.~~

Net sales in this segment decreased by 35.9% in the first half of 2020 from the first half of 2019. The decrease in net sales over the first half of 2019 was primarily driven by a non-recurring last time buy in the Durel business in the first quarter of 2019, as well as lower demand in the automotive market partially resulting from the COVID-19 pandemic. Net sales were unfavorably impacted by foreign currency fluctuations of $0.1 million, or 1.0%, due to the depreciationappreciation in value of the Chinese renminbi relative to the U.S. dollar.

Operating income ~~decreased 21.8%~~increased 92.1% in the ~~second~~first quarter of ~~2020~~2021 compared to the ~~second~~first quarter of ~~2019.~~2020. The ~~decrease~~increase in operating income was primarily driven by ~~lower~~higher volume, favorable product mix and ~~unfavorable~~favorable absorption of fixed overhead ~~costs, partially offset by lower fixed overhead~~ costs.

As a percentage of net sales, ~~second~~first quarter of ~~2020~~2021 operating income was ~~30.5%~~41.0%, a ~~300~~1,160 basis point increase as compared to the ~~27.5% reported in the second quarter of 2019.~~

Operating income decreased 34.1% in the first half of 2020 compared to the first half of 2019. The decrease in operating income was primarily driven by lower volume and unfavorable absorption of fixed overhead costs, partially offset by lower fixed overhead costs. As a percentage of net sales, the first half of 2020 operating income was 29.9%, an 80 basis point increase as compared to the 29.1%29.4% reported in the first ~~half~~quarter of ~~2019.~~2020.

Liquidity, Capital Resources and Financial Position

We believe that our existing sources of liquidity and cash flows that we expect to generate from our operations, together with our available credit facilities, will be sufficient to fund our operations, currently planned capital expenditures, research and development efforts and our debt service commitments, for at least the next 12 months. We regularly review and evaluate the

adequacy of our cash flows, borrowing facilities and banking relationships in an effort to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives.

The following table illustrates the location of our cash and cash equivalents by our three major geographic areas:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019		(Dollars in thousands)	March 31, 2021		December 31, 2020
United States	United States	$	186,551	$	39,354	United States	$	28,692	$	21,657
Europe	Europe	39,632		31,166		Europe	51,834		55,449
Asia	Asia	72,559		96,329		Asia	118,583		114,679
Total cash and cash equivalents	Total cash and cash equivalents	$	298,742	$	166,849	Total cash and cash equivalents	$	199,109	$	191,785

Approximately ~~$112.2~~$170.4 million of our cash and cash equivalents were held by non-U.S. subsidiaries as of ~~June 30, 2020.~~March 31, 2021. We did not make any changes in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 to our position on the permanent reinvestment of our earnings from foreign operations. With the exception of certain of our Chinese subsidiaries, where a substantial portion of our Asia cash and cash equivalents are held, we continue to assert that historical foreign earnings are indefinitely reinvested.


(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		December 31, 2019		(Dollars in thousands)	March 31, 2021		December 31, 2020
Key Financial Position Accounts:	Key Financial Position Accounts:					Key Financial Position Accounts:
Cash and cash equivalents	Cash and cash equivalents	$	298,742	$	166,849	Cash and cash equivalents	$	199,109	$	191,785
Accounts receivable, net	Accounts receivable, net	$	128,697	$	122,285	Accounts receivable, net	$	144,049	$	134,421
Inventories	Inventories	$	124,747	$	132,859	Inventories	$	106,706	$	102,360
Borrowings under revolving credit facility	Borrowings under revolving credit facility	$	223,000	$	123,000	Borrowings under revolving credit facility	$	4,000	$	25,000

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, ~~2019~~2020 to ~~June 30, 2020~~March 31, 2021 were as follows:

•Accounts receivable, net increased ~~5.2%~~7.2% to ~~$128.7~~$144.0 million as of ~~June 30, 2020,~~March 31, 2021 from ~~$122.3~~$134.4 million as of December 31, ~~2019.~~2020. The increase from year-end was primarily due to the recognition of a $3.3 million receivable related to the expected recovery of previous duty taxes paid due to a change in Chinese tariff regulations, an increase in our income taxes receivable, as well as an increase to our days sales outstanding, partially offset by lowerhigher net sales at the end of the ~~second~~first quarter of ~~2020~~2021 compared to at the end of ~~2019.~~2020.

•Inventories ~~decreased 6.1%~~increased 4.2% to ~~$124.7~~$106.7 million as of ~~June 30, 2020,~~March 31, 2021, from ~~$132.9~~$102.4 million as of December 31, ~~2019,~~2020, primarily driven by ~~primarily driven by an increase in inventory reserve provision within~~ the ~~EMS operating segment~~ramp up of raw material purchases and ~~a reduction of capitalized variances associated with the timing of volumes produced versus sold relative~~production efforts to ~~the end of 2019.~~meet anticipated demand.

•Borrowings under revolving credit facility ~~increased 81.3%~~decreased 84.0% to ~~$223.0~~$4.0 million as of ~~June 30, 2020,~~March 31, 2021, from ~~$123.0~~$25.0 million as of December 31, ~~2019,~~2020. This was as a result of ~~$150.0~~$21.0 million ~~in borrowings under~~of discretionary principal payments on our revolving credit facility during the first quarter of 2020 as a precautionary measure in order to increase our cash position and preserve financial flexibility given current uncertainty in the global markets resulting from the COVID-19 pandemic. This increase was partially offset by a $50.0 million discretionary principal payment on our revolving credit facility during the second quarter of 2020. Borrowings under revolving credit facility decreased to $98.0 million as of our filing date as a result of the $125.0 million discretionary principal payment on our revolving credit facility, on July 29, 2020.2021. For additional information regarding this facility and the ~~Third~~Fourth Amended Credit Agreement, refer to “Note 9 – Debt” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.


		Six Months Ended							Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2020		June 30, 2019		(Dollars in thousands)	March 31, 2021		March 31, 2020
Key Cash Flow Measures:	Key Cash Flow Measures:					Key Cash Flow Measures:
Net cash provided by operating activities	Net cash provided by operating activities	$	54,959	$	67,501	Net cash provided by operating activities	$	36,521	$	8,633
Net cash used in investing activities	Net cash used in investing activities	$	(18,150)	$	(21,392)	Net cash used in investing activities	$	(3,602)	$	(11,160)
Net cash provided by (used in) financing activities		$	95,442	$	(39,699)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	$	(23,181)	$	145,571

As of ~~June 30, 2020,~~March 31, 2021, cash and cash equivalents were ~~$298.7~~$199.1 million as compared to ~~$166.8~~$191.8 million as of December 31, ~~2019,~~2020, an increase of ~~$131.9~~$7.3 million, or ~~79.0%~~3.8%. This increase was primarily due to ~~the $150.0~~cash flows generated by operations, partially offset by $21.0 million ~~in borrowings under~~of discretionary principal payments on our revolving credit facility during the first quarter of 2020, supplemented by cash flows generated by operations. This increase was partially offset by a $50.0 million discretionary principal payment on our revolving credit facility during the second quarter of 2020, $18.22021, $3.6 million in capital expenditures and ~~$5.0~~$2.6 million in tax payments related to net share settlement of equity awards.

In 2021, we continue to expect capital spending to be in the range of approximately $70.0 million to $80.0 million, which we plan to fund with cash from operations. This range excludes the capital expenditures necessary to restore the UTIS operations, a significant portion of which we expect to be reimbursed by insurance proceeds.

Restrictions on Payment of Dividends

The ~~Third~~Fourth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00. If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during ~~the~~each fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our total net leverage ratio did not exceed 2.75 to 1.00 as of ~~June 30, 2020.~~March 31, 2021.

Contingencies

During the ~~second~~first quarter of ~~2020,~~2021, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters. Refer to “Note 12 – Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion of these contingencies.

Off-Balance Sheet Arrangements

As of ~~June 30, 2020,~~March 31, 2021, we did not have any off-balance sheet arrangements that have or are, in the opinion of management, reasonably likely to have a current or future material effect on our results of operations or financial position.

Critical Accounting Policies

There were no material changes in our critical accounting policies during the ~~second~~first quarter of ~~2020.~~2021.

Recent Accounting Pronouncements

Refer to “Note 16 – Recent Accounting Standards” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for discussion of recent accounting pronouncements including expected dates of adoption.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk during the ~~second~~first quarter of ~~2020~~.2021. For discussion of our exposure to market risk, refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company, with the participation of our Chief Executive Officer and Chief 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, 2020.~~March 31, 2021. 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~June 30, 2020.~~March 31, 2021.

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.

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Part II - Other Information

Item 1. Legal Proceedings

Refer to the discussion of certain environmental, asbestos and other litigation matters in “Note 12 – Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

~~Item 1A. Risk Factors~~

The COVID-19 pandemic and global responsive measures have impacted our business and results of operations and could materially adversely affect our business, results of operations and financial position in future periods.

The COVID-19 pandemic has now spread globally and resulted in governmental authorities implementing numerous responsive measures, such as travel bans and other restrictions, including quarantines, shelter-in-place and stay-home orders, transportation disruptions, closures and shutdowns. We maintain significant manufacturing and administrative operations in the U.S., China, Belgium, Germany, South Korea and Hungary, and each of these countries has been significantly affected by the outbreak and taken measures to try to contain it. We have also modified our business practices in an effort to ensure business continuity while promoting continued employee health and well-being. Collectively, these measures have impacted and are likely to continue to impact our workforce and operations. In addition, the outbreak and associated responsive measures have resulted in significant disruption of the global economy, leading to steep declines and increased volatility in the financial markets, and it is possible that a potentially severe global recession will follow.

There is considerable uncertainty regarding the effect of COVID-19 as well as current and future responsive measures on our business, including on our workforce and operations. We may experience sustained demand reductions for our products in certain end markets, be unable to satisfy customer demand and face increased operating costs, asset impairments and cash flow reductions, all of which could have a material adverse effect on our business, results of operations and financial position.

Item 6. Exhibits


List of Exhibits:

3.1			Restated Articles of Organization of Rogers Corporation, as amended, incorporated by reference to Exhibit 3a to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

3.2			Amended and Restated Bylaws of Rogers Corporation, effective February 11, 2016, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 26, 2016.

31.1			Certification of President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2			Certification of Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32			Certification of President and Chief Executive Officer (Principal Executive Officer) and Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

101			The following materials from Rogers Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2020~~March 31, 2021 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ (iii) Condensed Consolidated Statements of Financial Position as of ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and December 31, 2019,~~ (iv) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ (v) Condensed Consolidated Statements of Shareholders’ Equity for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2021 and ~~June 30, 2019,~~March 31, 2020, (vi) Notes to Condensed Consolidated Financial Statements and (vii) Cover Page.

104			The cover page from Rogers Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2020,~~March 31, 2021, formatted in iXBRL and contained in Exhibit 101.

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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.


ROGERS CORPORATION (Registrant)


/s/ Michael M. Ludwig
Michael M. Ludwig
Senior Vice President, Chief Financial Officer and Treasurer Principal Financial Officer
Dated: ~~July 30, 2020~~April 29, 2021

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