Quarterly Report (10-q)

Date : 08/01/2019 @ 10:11AM
Source : Edgar (US Regulatory)
Stock : Rogers Corp (ROG)
Quote : 127.64  -0.46 (-0.36%) @ 12:59AM
Rogers share price Chart
After Hours
Last Trade
Last $ 127.64 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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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, 2019
or
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 CORP ORATION
(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 ý No o
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 ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ý
The number of shares outstanding of the registrant’s capital stock as of July 26, 2019 was 18,559,612 .






ROGERS CORPORATION
FORM 10-Q

June 30, 2019

TABLE OF CONTENTS
Part I – Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II – Other Information
 
 
 
 
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.

2



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
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Net sales
$
242,852

 
$
214,675

 
$
482,650

 
$
429,286

Cost of sales
157,024

 
138,003

 
311,428

 
276,007

Gross margin
85,828

 
76,672

 
171,222

 
153,279

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
43,649

 
42,540

 
86,901

 
83,137

Research and development expenses
7,843

 
8,750

 
15,452

 
16,884

Restructuring and impairment charges
1,083

 
541

 
1,905

 
963

Other operating (income) expense, net
40

 
(383
)
 
951

 
(3,974
)
Operating income
33,213

 
25,224

 
66,013

 
56,269

 
 
 
 
 
 
 
 
Equity income in unconsolidated joint ventures
1,742

 
1,804

 
2,579

 
2,811

Other income (expense), net
(1,401
)
 
(34
)
 
3

 
32

Interest expense, net
(2,038
)
 
(1,292
)
 
(3,976
)
 
(2,503
)
Income before income tax expense
31,516


25,702

 
64,619

 
56,609

Income tax expense
7,223

 
8,373

 
11,927

 
13,144

Net income
$
24,293

 
$
17,329

 
$
52,692

 
$
43,465

 
 
 
 
 
 
 
 
Basic earnings per share
$
1.31

 
$
0.94

 
$
2.84

 
$
2.37

Diluted earnings per share
$
1.30

 
$
0.93

 
$
2.82

 
$
2.33

 
 
 
 
 
 
 
 
Shares used in computing:
 

 
 

 
 
 
 
Basic earnings per share
18,568

 
18,389

 
18,562

 
18,338

Diluted earnings per share
18,730

 
18,660

 
18,711

 
18,635


The accompanying notes are an integral part of the condensed consolidated financial statements.
3

ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)


 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Net income
$
24,293

 
$
17,329

 
$
52,692

 
$
43,465

 
 
 
 
 
 
 
 
Foreign currency translation adjustment
2,182

 
(15,294
)
 
(2,075
)
 
(8,293
)
Derivative instrument designated as cash flow hedge:
 
 
 
 
 
 
 
Change in unrealized gain (loss) before reclassifications, net of tax (Note 4)
(810
)
 
349

 
(1,204
)
 
1,153

Unrealized (gain) loss reclassified into earnings, net of tax (Note 4)
(62
)
 
(29
)
 
(156
)
 
(56
)
Pension and other postretirement benefits:
 
 
 
 
 
 
 
Amortization of loss, net of tax (Note 4)
157

 
44

 
313

 
87

Other comprehensive income (loss)
1,467

 
(14,930
)
 
(3,122
)
 
(7,109
)
Comprehensive income
$
25,760

 
$
2,399

 
$
49,570

 
$
36,356



The accompanying notes are an integral part of the condensed consolidated financial statements.
4

ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(Dollars and shares in thousands, except par value )

 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
173,068

 
$
167,738

Accounts receivable, less allowance for doubtful accounts of $1,215 and $1,354
156,924

 
144,623

Contract assets
25,573

 
22,728

Inventories
135,067

 
132,637

Prepaid income taxes
4,275

 
3,093

Asbestos-related insurance receivables, current portion
4,138

 
4,138

Other current assets
10,814

 
10,829

Total current assets
509,859

 
485,786

Property, plant and equipment, net of accumulated depreciation of $331,553 and $317,414
248,309

 
242,759

Investments in unconsolidated joint ventures
17,534

 
18,667

Deferred income taxes
11,080

 
8,236

Goodwill
263,804

 
264,885

Other intangible assets, net of amortization
167,985

 
177,008

Pension assets
19,918

 
19,273

Asbestos-related insurance receivables, non-current portion
60,247

 
59,685

Other long-term assets
8,617

 
3,045

Total assets
$
1,307,353

 
$
1,279,344

Liabilities and Shareholders’ Equity
 

 
 

Current liabilities
 

 
 

Accounts payable
$
42,214

 
$
40,321

Accrued employee benefits and compensation
31,798

 
30,491

Accrued income taxes payable
9,048

 
7,032

Asbestos-related liabilities, current portion
5,547

 
5,547

Other accrued liabilities
24,085

 
23,789

Total current liabilities
112,692

 
107,180

Borrowings under revolving credit facility
195,482

 
228,482

Pension and other postretirement benefits liabilities
1,739

 
1,739

Asbestos-related liabilities, non-current portion
65,226

 
64,799

Non-current income tax
8,554

 
8,418

Deferred income taxes
10,768

 
10,806

Other long-term liabilities
15,378

 
9,596

Commitments and contingencies (Note 13)


 


Shareholders’ equity
 

 
 

Capital stock - $1 par value; 50,000 authorized shares; 18,559 and 18,395 shares issued and outstanding
18,559

 
18,395

Additional paid-in capital
131,836

 
132,360

Retained earnings
829,075

 
776,403

Accumulated other comprehensive loss
(81,956
)
 
(78,834
)
Total shareholders' equity
897,514

 
848,324

Total liabilities and shareholders' equity
$
1,307,353

 
$
1,279,344


The accompanying notes are an integral part of the condensed consolidated financial statements.
5

ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars and shares in thousands)

 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
Operating Activities:
 
 
 
Net income
$
52,692

 
$
43,465

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
25,099

 
22,084

Equity compensation expense
6,143

 
5,814

Deferred income taxes
(2,536
)
 
3,879

Equity in undistributed income of unconsolidated joint ventures
(2,579
)
 
(2,811
)
Dividends received from unconsolidated joint ventures
1,741

 
1,809

Pension and other postretirement benefits
(346
)
 
(796
)
Asbestos-related charges
67

 

Loss (gain) on sale or disposal of property, plant and equipment
276

 
(383
)
Impairment charges
956

 

Benefit for doubtful accounts
(128
)
 
(190
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(12,747
)
 
(9,446
)
Contract assets
(2,845
)
 
(21,933
)
Inventories
(2,845
)
 
(6,489
)
Pension and postretirement benefit contributions
(11
)
 
(338
)
Other current assets
(1,211
)
 
(1,299
)
Accounts payable and other accrued expenses
3,653

 
(13,835
)
Other, net
2,122

 
3,287

Net cash provided by operating activities
67,501

 
22,818

 
 
 
 
Investing Activities:
 
 
 
Capital expenditures
(24,026
)
 
(20,177
)
Proceeds from the sale of property, plant and equipment, net
9

 
1,027

Return of capital from unconsolidated joint ventures
2,625

 

Net cash used in investing activities
(21,392
)
 
(19,150
)
 
 
 
 
Financing Activities:
 
 
 
Repayment of debt principal and finance lease obligations
(33,196
)
 
(291
)
Payments of taxes related to net share settlement of equity awards
(7,424
)
 
(6,427
)
Proceeds from the exercise of stock options, net
327

 
698

Proceeds from issuance of shares to employee stock purchase plan
594

 
558

Share repurchases

 
(2,999
)
Net cash used in financing activities
(39,699
)
 
(8,461
)
 
 
 
 
Effect of exchange rate fluctuations on cash
(1,080
)
 
(1,666
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
5,330

 
(6,459
)
Cash and cash equivalents at beginning of period
167,738

 
181,159

Cash and cash equivalents at end of period
$
173,068

 
$
174,700

 
 
 
 
Supplemental Disclosures:
 
 
 
Accrued capital additions
$
2,119

 
$
1,881

Cash paid during the year for:
 
 
 
Interest, net of amounts capitalized
$
4,440

 
$
2,631

Income taxes
$
9,164

 
$
14,040


The accompanying notes are an integral part of the condensed consolidated financial statements.
6

ROGERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands)




 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Capital Stock
 
 
 
 
 
 
 
Balance, beginning of period
$
18,546

 
$
18,365

 
$
18,395

 
$
18,255

Shares issued for vested restricted stock units, net of cancellations for tax withholding
4

 

 
137

 
113

Stock options exercised
2

 
7

 
10

 
18

Shares issued for employee stock purchase plan

 

 
7

 
6

Shares issued to directors
7

 
8

 
10

 
11

Shares repurchased

 

 

 
(23
)
Balance, end of period
18,559

 
18,380

 
18,559

 
18,380

Additional Paid-In Capital
 
 
 
 
 
 
 
Balance, beginning of period
128,417

 
123,104

 
132,360

 
128,933

Shares issued for vested restricted stock units, net of cancellations for tax withholding
(288
)
 
(20
)
 
(7,561
)
 
(6,540
)
Stock options exercised
40

 
218

 
317

 
680

Shares issued for employee stock purchase plan
7

 
17

 
587

 
552

Shares issued to directors
(7
)
 
(8
)
 
(10
)
 
(11
)
Equity compensation expense
3,667

 
3,141

 
6,143

 
5,814

Shares repurchased

 

 

 
(2,976
)
Balance, end of period
131,836

 
126,452

 
131,836

 
126,452

Retained Earnings
 
 
 
 
 
 
 
Balance, beginning of period
804,782

 
714,888

 
776,403

 
684,540

Net income
24,293

 
17,329

 
52,692

 
43,465

Cumulative-effect adjustment for lease accounting

 

 
(20
)
 

Cumulative-effect adjustment of revenue recognition

 

 

 
4,212

Balance, end of period
829,075

 
732,217

 
829,075

 
732,217

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Balance, beginning of period
(83,423
)
 
(57,334
)
 
(78,834
)
 
(65,155
)
Other comprehensive income (loss)
1,467

 
(14,930
)
 
(3,122
)
 
(7,109
)
Balance, end of period
(81,956
)
 
(72,264
)
 
(81,956
)
 
(72,264
)
Total Shareholders’ Equity
$
897,514

 
$
804,785

 
$
897,514

 
$
804,785



The accompanying notes are an integral part of the condensed consolidated financial statements.
7



ROGERS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Basis of Presentation
As used herein, the terms “Company,” “Rogers,” “we,” “us,” “our” and similar terms mean Rogers Corporation and its subsidiaries, unless the context indicates otherwise.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for their fair presentation in accordance with GAAP. All significant intercompany transactions have been eliminated.
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, 2018 .
Note 2 – Fair Value Measurements
The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
From time to time we enter into various instruments that require fair value measurement, including foreign currency contracts, copper derivative contracts and interest rate swaps. Derivative instruments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, include:
 
Derivative Instruments at Fair Value as of June 30, 2019
(Dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Foreign currency contracts
$

 
$
(184
)
 
$

 
$
(184
)
Copper derivative contracts
$

 
$
762

 
$

 
$
762

Interest rate swap
$

 
$
(1,284
)
 
$

 
$
(1,284
)
 
Derivative Instruments at Fair Value as of December 31, 2018
(Dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Foreign currency contracts
$

 
$
522

 
$

 
$
522

Copper derivative contracts
$

 
$
583

 
$

 
$
583

Interest rate swap
$

 
$
461

 
$

 
$
461


For further discussion on our 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). During 2017, we entered into an interest rate swap to hedge interest rate risk. We do not use derivative financial instruments for trading or speculative purposes. The valuation of derivative contracts used to manage each of these risks is described below:
Foreign Currency - The fair value of any foreign currency option derivative is based upon valuation models applied to current market information such as strike price, spot rate, maturity date and volatility, and by reference to market values resulting from an over-the-counter market or obtaining market data for similar instruments with similar characteristics.

8



Commodity - The fair value of copper derivatives is computed using a combination of intrinsic and time value valuation models, which are collectively a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate and volatility. The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end. The time value valuation model incorporates changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative instrument’s strike price and the remaining time to the underlying copper derivative instrument’s expiration date from the period end date.
Interest Rates - The fair value of interest rate swap instruments is derived by comparing the present value of the interest rate forward curve against the present value of the swap rate, relative to the notional amount of the swap. The net value represents the estimated amount we would receive or pay to terminate the agreements. Settlement amounts for an “in the money” swap would be adjusted down to compensate the counterparty for cost of funds, and the adjustment is directly related to the counterparties’ credit ratings.
The guidance for the accounting and disclosure of derivatives and hedging transactions requires companies to recognize all of their derivative instruments as either assets or liabilities at fair value in the statements of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies for hedge accounting treatment as defined under the applicable accounting guidance. For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss). This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. As of June 30, 2019 and 2018 , 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, 2019 , we entered into Chinese Renminbi, 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), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.
As of June 30, 2019 , the notional values of the remaining foreign currency forward contracts were:
Notional Values of Foreign Currency Derivatives
USD/CNY
$
33,351,869

KRW/USD
4,620,000,000

EUR/USD
8,750,874


Commodity
As of June 30, 2019 , we had 26 outstanding contracts to hedge exposure related to the purchase of copper in our Power Electronics Solutions (PES) and Advanced Connectivity Solutions (ACS) operating segments. These contracts are held with financial institutions and are intended to offset rising copper prices and do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred. As of June 30, 2019 , the volume of our copper contracts outstanding was as follows:
Volume of Copper Derivatives
July 2019 - September 2019
191 metric tons per month
October 2019 - December 2019
195 metric tons per month
January 2020 - March 2020
202 metric tons per month
April 2020 - June 2020
202 metric tons per month
July 2020 - September 2020
201 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 10 – Debt .”

9



Effects on Financial Statements
(Dollars in thousands)
 
 
 
The Effect of Current Derivative Instruments on the Financial Statements for the Period Ended June 30, 2019
 
Fair Values of Derivative Instruments as of June 30, 2019
 
 
 
 
Gain (Loss)
 
Other Assets/
(Other Liabilities) (1)
 
 
Location
 
Three Months Ended
 
Six Months Ended
 
 
Foreign Currency Contracts
 
 
 
 
 
 
 
 
Contracts not designated as hedging instruments
 
Other income (expense), net
 
$
125

 
$
(586
)
 
$
(184
)
Copper Derivative Contracts
 
 
 
 
 
 
 
 
Contracts not designated as hedging instruments
 
Other income (expense), net
 
$
(775
)
 
$
(465
)
 
$
762

Interest Rate Swap
 
 
 
 
 
 
 
 
Contract designated as hedging instrument
 
Other comprehensive income (loss)
 
$
(1,113
)
 
$
(1,745
)
 
$
(1,284
)
(Dollars in thousands)
 
 
 
The Effect of Current Derivative Instruments on the Financial Statements for the Period Ended June 30, 2018
 
Fair Values of Derivative Instruments as of June 30, 2018
 
 
 
 
Gain (Loss)
 
Other Assets/(Other Liabilities) (1)
 
 
Location
 
Three Months Ended
 
Six Months Ended
 
 
Foreign Currency Contracts
 
 
 
 
 
 
 
 
Contracts not designated as hedging instruments
 
Other income (expense), net
 
$
(60
)
 
$
(124
)
 
$
118

Copper Derivative Contracts
 
 
 
 
 
 
 
 
Contracts not designated as hedging instruments
 
Other income (expense), net
 
$
(363
)
 
$
(1,185
)
 
$
827

Interest Rate Swap
 
 
 
 
 
 
 
 
Contract designated as hedging instrument
 
Other comprehensive income (loss)
 
$
410

 
$
1,399

 
$
1,439


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

10



Note 4 – Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component for the six months ended June 30, 2019 and 2018 were as follows:
(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, 2018
$
(30,488
)
 
$
(48,700
)
 
$
354

 
$
(78,834
)
Other comprehensive income (loss) before reclassifications
(2,075
)
 

 
(1,204
)
 
(3,279
)
Amounts reclassified from accumulated other comprehensive loss

 
313

 
(156
)
 
157

Net current-period other comprehensive income (loss)
(2,075
)
 
313

 
(1,360
)
 
(3,122
)
Balance as of June 30, 2019
$
(32,563
)
 
$
(48,387
)
 
$
(1,006
)
 
$
(81,956
)
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
$
(17,983
)
 
$
(47,198
)
 
$
26

 
$
(65,155
)
Other comprehensive income (loss) before reclassifications
(8,293
)
 

 
1,153

 
(7,140
)
Amounts reclassified from accumulated other comprehensive loss

 
87

 
(56
)
 
31

Net current-period other comprehensive income (loss)
(8,293
)
 
87

 
1,097

 
(7,109
)
Balance as of June 30, 2018
$
(26,276
)
 
$
(47,111
)
 
$
1,123

 
$
(72,264
)
(1) Net of tax benefits of $9,893 and $9,984 as of June 30, 2019 and December 31, 2018 , respectively. Net of tax benefits of $9,536 and $9,563 as of June 30, 2018 and December 31, 2017 , respectively.
(2) Net of tax benefits (expenses) of $278 and ($106) as of June 30, 2019 and December 31, 2018 , respectively. Net of tax benefits (expenses) of ($316) and ($15) as of June 30, 2018 and December 31, 2017 , respectively.
Note 5 – Acquisitions
Griswold LLC
On July 6, 2018, we acquired 100% of the membership interests in Griswold LLC (Griswold) for an aggregate purchase price of $78.0 million , net of cash acquired.
Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations of Rogers and Griswold as if the Griswold acquisition had occurred on January 1, 2017. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the Griswold acquisition been completed as of January 1, 2017, and should not be taken as indicative of our future consolidated results of operations.
 
Three Months Ended
 
Six Months Ended
(Dollars in thousands)
June 30, 2018
 
June 30, 2018
Net sales
$
222,350

 
$
444,073

Net income
16,554

 
42,436


Note 6 – Inventories
Inventories are valued at the lower of cost or net realizable value. Inventories consisted of the following:
(Dollars in thousands)
June 30, 2019
 
December 31, 2018
Raw materials
$
63,931

 
$
59,321

Work-in-process
31,646

 
30,086

Finished goods
39,490

 
43,230

Total inventories
$
135,067

 
$
132,637



11



Note 7 – Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill from December 31, 2018 to June 30, 2019 by operating segment, were as follows:
(Dollars in thousands)
Advanced Connectivity Solutions
 
Elastomeric Material Solutions
 
Power Electronics Solutions
 
Other
 
Total
December 31, 2018
$
51,693

 
$
142,589

 
$
68,379

 
$
2,224

 
$
264,885

Foreign currency translation adjustment

 
(538
)
 
(543
)
 

 
(1,081
)
June 30, 2019
$
51,693

 
$
142,051

 
$
67,836

 
$
2,224

 
$
263,804


Other Intangible Assets
The gross carrying amount, accumulated amortization and net carrying amount of other intangible assets as of June 30, 2019 and December 31, 2018 by classification type, were as follows:
 
June 30, 2019
 
December 31, 2018
(Dollars in thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Customer relationships
$
149,496

 
$
34,508

 
$
114,988

 
$
149,753

 
$
30,078

 
$
119,675

Technology
81,273

 
41,943

 
39,330

 
81,535

 
38,624

 
42,911

Trademarks and trade names
11,995

 
3,779

 
8,216

 
12,019

 
3,213

 
8,806

Covenants not to compete
1,340

 
377

 
963

 
1,340

 
249

 
1,091

Total definite-lived other intangible assets
244,104

 
80,607

 
163,497

 
244,647

 
72,164

 
172,483

Indefinite-lived other intangible asset
4,488

 

 
4,488

 
4,525

 

 
4,525

Total other intangible assets
$
248,592

 
$
80,607

 
$
167,985

 
$
249,172

 
$
72,164

 
$
177,008


In the table above, gross carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations.
Amortization expense for the three and six months ended June 30, 2019 was approximately $4.4 million and $8.9 million , respectively. Amortization expense for the three and six months ended June 30, 2018 was approximately $3.8 million and $7.7 million , respectively. The estimated future amortization expense is $8.9 million for the remainder of 2019 and $14.6 million , $13.8 million , $13.3 million and $12.7 million for 2020, 2021, 2022 and 2023, respectively.
The weighted average amortization period as of June 30, 2019 , by definite-lived other intangible asset class, is presented in the table below:
Definite-Lived Other Intangible Asset Class
 
Weighted Average Remaining Amortization Period
Customer relationships
 
7.4 years
Technology
 
4.2 years
Trademarks and trade names
 
4.9 years
Covenants not to compete
 
1.8 years
Total definite-lived other intangible assets
 
6.5 years


12



Note 8 – 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 for the periods indicated:
(In thousands, except per share amounts)
Three Months Ended
 
Six Months Ended
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Numerator:
 
 
 
 
 
 
 
Net income
$
24,293

 
$
17,329

 
$
52,692

 
$
43,465

Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
18,568

 
18,389

 
18,562

 
18,338

Effect of dilutive shares
162

 
271

 
149

 
297

Weighted-average shares outstanding - diluted
18,730

 
18,660

 
18,711

 
18,635

Basic earnings per share
$
1.31

 
$
0.94

 
$
2.84

 
$
2.37

Diluted earnings per share
$
1.30

 
$
0.93

 
$
2.82

 
$
2.33


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, 2019 and 2018 , 6,256 shares and 27,145 shares were excluded, respectively.
Note 9 – Capital Stock and Equity Compensation
Equity Compensation
Performance-Based Restricted Stock Units
As of June 30, 2019 , we had performance-based restricted stock units from 2019, 2018 and 2017 outstanding. These awards generally cliff vest at the end of a three year measurement period. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed during the measurement period. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures.
The outstanding awards have one measurement criterion: the three year total shareholder return (TSR) on our capital stock as compared to that of a specified group of peer companies. The TSR measurement criterion of the awards is considered a market condition. As such, the fair value of this measurement criterion was determined on the grant date using a Monte Carlo simulation valuation model. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period with no changes for final projected payout of the awards. We account for forfeitures as they occur.
Below are the assumptions used in the Monte Carlo calculation on the respective grant dates for awards granted in 2019 and 2018:
 
June 3, 2019
 
February 7, 2019
 
September 17, 2018
 
February 8, 2018
Expected volatility
39.7%
 
36.7%
 
36.6%
 
34.8%
Expected term (in years)
2.6
 
2.9
 
3.0
 
3.0
Risk-free interest rate
1.78%
 
2.43%
 
2.85%
 
2.28%

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.

13



The following table summarizes the change in number of performance-based restricted stock units outstanding for the six months ended June 30, 2019 :
 
Performance-Based
Restricted Stock Units
Awards outstanding as of December 31, 2018
142,434

Awards granted
111,087

Stock issued
(131,650
)
Awards forfeited
(11,549
)
Awards outstanding as of June 30, 2019
110,322


We recognized $1.1 million and $2.0 million of compensation expense for performance-based restricted stock units during the three and six months ended June 30, 2019 , respectively. We recognized $0.8 million and $1.8 million of compensation expense for performance-based restricted stock units during the three and six months ended June 30, 2018 , respectively.
Time-Based Restricted Stock Units
As of June 30, 2019 , we had time-based restricted stock unit awards from 2019, 2018, 2017 and 2016 outstanding. The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed subsequent to the last grant anniversary date. Each time-based restricted stock unit represents a right to receive one share of Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur.
A summary of activity of the outstanding time-based restricted stock units for the six months ended June 30, 2019 is presented below:
 
Time-Based
Restricted Stock Units
Awards outstanding as of December 31, 2018
117,476

Awards granted
59,561

Stock issued
(64,536
)
Awards forfeited
(7,596
)
Awards outstanding as of June 30, 2019
104,905


We recognized $1.4 million and $2.9 million of compensation expense for time-based restricted stock units during the three and six months ended June 30, 2019 , respectively. We recognized $1.3 million and $2.9 million of compensation expense for time-based restricted stock units during the three and six months ended June 30, 2018 , respectively.
Deferred Stock Units
We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13-month anniversary of the grant date unless the individual elects to defer the receipt of those shares. Each deferred stock unit results in the issuance of one share of Rogers’ capital stock. The grant of deferred stock units is typically done annually during the second quarter of each year. The fair value of the award is determined by the market value of the underlying stock price at the grant date.
The following table summarizes the change in number of deferred stock units outstanding during the six months ended June 30, 2019 :
 
Deferred Stock Units
Awards outstanding as of December 31, 2018
8,400

Awards granted
5,950

Stock issued
(7,200
)
Awards outstanding as of June 30, 2019
7,150


We recognized $1.1 million of compensation expense related to deferred stock units for the three and six months ended June 30, 2019 , and $0.9 million of compensation expense for the three and six months ended June 30, 2018 .

14



Stock Options
Stock options have been granted under various equity compensation plans. The maximum contractual term for all options is normally 10 years . All outstanding options are fully vested and exercisable. We have no t granted any stock options since the first quarter of 2012.
During the six months ended June 30, 2019 , the total intrinsic value of options exercised (i.e., the difference between the market price at time of exercise and the price paid by the individual to exercise the options) was $1.1 million , and the total amount of cash received from the exercise of these options was $0.3 million .
A summary of the activity under our stock option plans for the six months ended June 30, 2019 is presented below:
 
Options Outstanding
 
Weighted- Average Exercise Price Per Share
 
Weighted-Average Remaining Contractual Life in Years
 
Aggregate Intrinsic Value
Options outstanding, vested and exercisable as of December 31, 2018
10,950

 
$
31.99

 
2.0
 
$
734,469

Options exercised
(10,000
)
 
$
32.74

 
 
 
 
Options expired
(300
)
 
$
23.86

 
 
 
 
Options outstanding, vested and exercisable as of June 30, 2019
650

 
$
24.20

 
0.6
 
$
96,447


Employee Stock Purchase Plan
We have an employee stock purchase plan (ESPP) that allows eligible employees to purchase, through payroll deductions, shares of our capital stock at a discount to fair market value. The ESPP has two six -month offering periods each year, the first beginning in January and ending in June and the second beginning in July and ending in December. The ESPP contains a look-back feature that allows the employee to acquire shares of our capital stock at a 15% discount from the underlying market price at the beginning or end of the applicable period, whichever is lower. We recognize compensation expense on this plan ratably over the offering period based on the fair value of the anticipated number of shares that will be issued at the end of each offering period. Compensation expense is adjusted at the end of each offering period for the actual number of shares issued. Fair value is determined based on two factors: (i) the 15% discount on the underlying stock’s market value on the first day of the applicable offering period, and (ii) the fair value of the look-back feature determined by using the Black-Scholes model. We recognized an immaterial amount of equity compensation expense associated with the ESPP for each of the three- and six-month periods ended June 30, 2019 and 2018 .
Note 10 – Debt
In 2017, we entered into a secured five year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Third Amended Credit Agreement), which increased the principal amount of our revolving credit facility to up to $450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, and provided an additional $175.0 million accordion feature. Borrowings may be used to finance working capital needs, for letters of credit and for general corporate purposes in the ordinary course of business, including the financing of permitted acquisitions (as defined in the Third Amended Credit Agreement).
In 2018, we borrowed  $82.5 million  under our revolving credit facility to fund the acquisition of Griswold and an additional $20.0 million  to fund the Rogers Corporation Defined Benefit Pension Plan (Merged Plan) as part of the proposed plan termination process.
Borrowings under the Third Amended Credit Agreement can be made as alternate base rate loans or euro-currency loans. Alternate base rate loans bear interest at a base reference rate plus a spread of 37.5 to 75.0 basis points, depending on our leverage ratio. The base reference rate is the greater of the prime rate; federal funds effective rate (or the overnight bank funding rate, if greater) plus 50 basis points. Euro-currency loans bear interest based on adjusted LIBOR plus a spread of 137.5 to 175.0 basis points, depending on our leverage ratio. Based on our leverage ratio as of June 30, 2019 , the spread was 150.0 basis points.
We incurred interest expense on our outstanding debt of $2.1 million , and $1.1 million during the three months ended June 30, 2019 and 2018 , respectively, and $4.2 million and $2.0 million during the six months ended June 30, 2019 and 2018 , respectively.
In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Third Amended Credit Agreement, we are required to pay a quarterly fee of 20 to 30 basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the Third Amended Credit Agreement. We incurred immaterial unused commitment fees in each of the three- and six-month periods ended June 30, 2019 and 2018 .

15



The Third Amended Credit Agreement contains customary representations, warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated. If an event of default occurs, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The financial covenants include requirements to maintain (1) a leverage ratio of no more than 3.25 to 1.00, subject to an election to increase the maximum leverage ratio to 3.50 to 1.00 for one fiscal year in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than 3.00 to 1.00.
All obligations under the Third Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Third Amended Credit Agreement (the Guarantors). The obligations are also secured by a Third Amended and Restated Pledge and Security Agreement, dated as of February 17, 2017, entered into by us and the Guarantors which grants to the administrative agent, for the benefit of the lenders, a security interest, subject to certain exceptions, in substantially all of the non-real estate assets of the Guarantors. These assets include, but are not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries.
All revolving loans are due on the maturity date, February 17, 2022. We are not required to make any quarterly principal payments under the Third Amended Credit Agreement, and as of June 30, 2019 we had $195.5 million in outstanding borrowings under our revolving credit facility. However, we made discretionary principal payments totaling $33.0 million on our revolving credit facility during the six months ended June 30, 2019 .
As of June 30, 2019 , we had $1.4 million of outstanding line of credit issuance costs that will be amortized over the life of the Third Amended Credit Agreement. We recognized an immaterial amount of amortization expense for each of the three- and six-month periods ended June 30, 2019 and 2018 , related to these deferred costs.
In March 2017, we entered into an interest rate swap to hedge the variable interest rate on $75.0 million of our $450.0 million revolving credit facility. For further information regarding the interest rate swap, refer to “ Note 3 – Hedging Transactions and Derivative Financial Instruments .”
Restriction on Payment of Dividends
Our Third Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our leverage ratio does not exceed 2.75 to 1.00 . If our leverage ratio exceeds 2.75 to 1.00 , we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2019 .
Note 11 - 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 in 2021 at a price which is the greater of (i) the then-current market value or (ii) the residual book value of the land including the buildings and installations thereon. Our finance lease obligation related to this facility was $4.8 million and $5.0 million as of June 30, 2019 and December 31, 2018 , respectively. The finance lease right-of-use asset balance for this facility was $6.5 million and $6.7 million as of June 30, 2019 and December 31, 2018 , respectively. All other finance lease obligations and finance lease right-of-use assets were cumulatively immaterial as of June 30, 2019 and December 31, 2018 . Accumulated amortization related to our finance lease right-of-use assets was $3.7 million and $3.5 million as of June 30, 2019 and December 31, 2018 , respectively.
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- and six-month periods ended June 30, 2019 and 2018 . 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 periods ended June 30, 2019 and 2018 . Payments made on the principal portion of our finance lease obligations were immaterial for each of the three-and six-month periods ended June 30, 2019 and 2018 .
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.

16



The following table includes our expenses and payments for operating leases for the three and six months ended June 30, 2019 :
(Dollars in thousands)
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2019
Operating leases expense
775

 
1,493

Short-term leases expense
43

 
82

Payments on operating lease obligations
760

 
1,524


As of June 30, 2019 and December 31, 2018 , our assets and liabilities balances related to finance and operating leases were as follows:
(Dollars in thousands)
Location in Statements of Financial Position
 
June 30, 2019
 
December 31, 2018
Finance lease right-of-use assets
Property, plant and equipment, net
 
$
6,529

 
$
6,750

Operating lease right-of-use assets
Other long-term assets
 
$
6,285

 
$

 
 
 
 
 
 
Finance lease obligations, current portion
Other accrued liabilities
 
$
420

 
$
420

Finance lease obligations, non-current portion
Other long-term liabilities
 
$
4,394

 
$
4,629

Total finance lease obligations
 
 
$
4,814

 
$
5,049

 
 
 
 
 
 
Operating lease obligations, current portion
Other accrued liabilities
 
$
2,594

 
$

Operating lease obligations, non-current portion
Other long-term liabilities
 
$
3,710

 
$

Total operating lease obligations
 
 
$
6,304

 
$


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, 2019 :
(Dollars in thousands)
Finance
 
Operating
 
Leases
 
Leases Signed
 
Less: Leases Not Yet Commenced
 
Leases
2019
$
278

 
$
1,478

 
$

 
$
1,478

2020
521

 
2,713

 

 
2,713

2021
4,238

 
1,589

 

 
1,589

2022

 
822

 

 
822

2023

 
229

 

 
229

Thereafter

 
30

 

 
30

Total Lease Payments
5,037

 
6,861

 

 
6,861

Less: Interest
(223
)
 
(557
)
 

 
(557
)
Present Value of Net Future Minimum Lease Payments
$
4,814

 
$
6,304

 
$

 
$
6,304


The following table includes information regarding the lease term and discount rates utilized in the calculation of the present value of net future minimum lease payments:
 
Finance Leases
 
Operating Leases
Weighted Average Remaining Lease Term
2.0 years
 
2.7 years
Weighted Average Discount Rate
2.55%
 
6.09%

Transition
We adopted Accounting Standards Codification (ASC) 842, Leases , in the first quarter of 2019 using the optional transition method, which applies the new lease requirements through a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restatement of comparative periods. The guidance was applied to all leases that were not completed at the date of implementation. The adoption primarily affected our condensed consolidated statements of financial position through the recognition of $6.2 million of operating lease right-of-use assets and $6.2 million of operating lease obligations, as well as an immaterial impact to retained earnings, as of January 1, 2019. We recognized an additional $0.1 million of operating lease right-

17



of-use assets and $0.1 million operating lease obligations during the three months ended June 30, 2019 . We recognized an additional $0.8 million of operating lease right-of-use assets and $0.8 million operating lease obligations during the six months ended June 30, 2019 . The total operating lease right-of use assets and operating lease obligations recognized was $7.0 million and $7.0 million , respectively.
Practical Expedients
We have elected to recognize lease payments in the condensed consolidated statements of operations on a straight-line basis over the term of the lease for short-term leases. We also elected the package of practical expedients that allows us to carry forward the historical lease classification and accounting for indirect costs for any existing leases.
Note 12 – Pension Benefits and Other Postretirement Benefit Plans
As of June 30, 2019 , we had two qualified noncontributory defined benefit pension plans: 1) the Rogers Corporation Employees’ Pension Plan (the Union Plan) and 2) the Rogers Corporation Defined Benefit Pension Plan for (i) all other U.S. employees hired before December 31, 2007 who are salaried employees or non-union hourly employees and (ii) employees of the acquired Arlon business (the Merged Plan).
The Company also maintains the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2004 and the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2005 (collectively, the Nonqualified Plans). The Nonqualified Plans serve to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans, as well as to provide supplemental retirement benefits, for certain senior executives of the Company. In addition, we sponsor multiple fully insured or self-funded medical plans and life insurance plans for certain retirees. The measurement date for all plans is December 31 st for each respective plan year.
We are required, as an employer, to: (a) recognize in our consolidated statements of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and our obligations that determine our funded status as of the end of the year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur and report these changes in accumulated other comprehensive loss. In addition, actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of accumulated other comprehensive loss and amortized into net periodic pension cost in future periods.
Pension Plan Proposed Termination
The Company currently intends to terminate the Merged Plan and has received a determination letter from the Internal Revenue Service (IRS). On June 10, 2019, the Company amended the Plan to (a) terminate the Plan (subject to discretionary approval by the Company’s Chief Executive Officer) and (b) add a lump sum distribution option in connection with the termination of the Plan, if approved. The Company plans to provide participants an option to elect either a lump sum distribution or an annuity. One or more group annuity contracts with one or more insurance companies will be purchased to settle our obligations for those participants who do not receive a lump sum. The Merged Plan is fully-funded on a GAAP basis, however, in order to terminate the plan in accordance with IRS and Pension Benefit Guaranty Corporation requirements, the Company will be required to contribute additional assets, if necessary, to settle all of the Merged Plan’s obligations. The amount necessary to do so is not yet known. In addition, the Company expects to record a pension settlement charge at plan termination. This settlement charge will include, as a non-cash charge, the immediate recognition into expense of the unrecognized losses within accumulated other comprehensive loss on the statement of financial position as of the plan termination date. The Company does not have a current estimate of these future charges, however, the pre-tax accumulated other comprehensive loss related to the Merged Plan was approximately $47 million as of June 30, 2019 . We currently estimate that if the plan termination is approved by the Chief Executive Officer, it will be completed during the second half of 2019, when lump sum distributions are expected to occur and one or more annuity contracts are expected to be purchased. At this time, there are no plans to terminate the Union Plan.

18



Components of Net Periodic (Benefit) Cost
The components of net periodic (benefit) cost for the periods indicated were:
 
Pension Benefits
 
Retirement Health and Life Insurance Benefits
(Dollars in thousands)
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
June 30,
 
June 30,
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Service cost
$

 
$

 
$

 
$

 
$
18

 
$
17

 
$
36

 
$
38

Interest cost
1,785

 
1,692

 
3,569

 
3,372

 
15

 
16

 
30

 
31

Expected return of plan assets
(2,192
)
 
(2,164
)
 
(4,384
)
 
(4,333
)
 

 

 

 

Amortization of prior service credit

 

 

 

 
(253
)
 
(400
)
 
(506
)
 
(801
)
Amortization of net loss
456

 
457

 
910

 
913

 

 

 

 

Net periodic cost (benefit)
$
49

 
$
(15
)
 
$
95

 
$
(48
)
 
$
(220
)
 
$
(367
)

$
(440
)
 
$
(732
)

Employer Contributions
There were no required contributions to our qualified defined benefit pension plans for the three- or six-month periods ended June 30, 2019 and 2018 , and we are not required to make additional contributions to these plans for the remainder of 2019 . No voluntary contributions were made to our qualified defined benefit pension plans for each of the three- and six-month periods ended June 30, 2019 and 2018 .
As there is no funding requirement for the Nonqualified Plans or the Retiree Health and Life Insurance benefit plans, we fund the amount of benefit payments made during the year, which were immaterial for each of the three- and six-month periods ended June 30, 2019 and 2018 .
Note 13 – Commitments and Contingencies
We are currently engaged in the following 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 an immaterial amount of aggregate remediation costs through June 30, 2019 , and the accrual for future remediation efforts is $1.6 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 during the six months ended June 30, 2019 :
 
Asbestos Claims
Claims outstanding as of December 31, 2018
745

New claims filed
165

Pending claims concluded (1)
(106
)
Claims outstanding as of June 30, 2019
804


(1) For the six months ended June 30, 2019 , 98 claims were dismissed and 8 claims were settled. Settlements totaled approximately $0.7 million for the six months ended June 30, 2019 .

19



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 claims through 2058, 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 defense and settlement 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 defense, indemnity and settlement costs, and we incurred an immaterial amount of expenses for each of the three- and six-month periods ended June 30, 2019 and 2018 , respectively, related primarily 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.
As of June 30, 2019 and December 31, 2018 , our projected asbestos-related claims and insurance receivables were as follows:
(Dollars in millions)
June 30, 2019
 
December 31, 2018
Asbestos-related claims
$
70.8

 
$
70.3

Asbestos-related insurance receivables
$
64.4

 
$
63.8


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 14 – Income Taxes
Our effective income tax rate was 22.9% and 32.6% for the three months ended June 30, 2019 and 2018 , respectively. The decrease from the second quarter of 2018 was primarily due to the beneficial impact of the international tax provisions from U.S. tax reform as a result of administrative guidance issued during the second half of 2018, changes in valuation allowance related to R&D credits and a lower tax impact on unremitted foreign earnings and profits. Our effective income tax rate was 18.5% and 23.2% for the six months ended June 30, 2019 and 2018 , respectively. The decrease from the first half of 2018 was primarily due to the beneficial impact of the international tax provisions from U.S. tax reform as a result of administrative guidance issued during the second half of 2018 and a lower tax impact on unremitted foreign earnings and profits, partially offset by a decrease in current year release of reserves for uncertain tax positions.
The total amount of unrecognized tax benefits as of June 30, 2019 was $9.8 million , of which $9.6 million would affect our effective tax rate if recognized. It is reasonably possible that approximately $1.4 million of our unrecognized tax benefits as of June 30, 2019 will reverse within the next 12 months.
We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of June 30, 2019 , we had $0.6 million accrued for the payment of interest.

20



We are subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years prior to 2014.
Note 15 – Segment Information
Our reporting structure is comprised of the following strategic operating segments: ACS, EMS and PES. 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.
On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers . For additional information regarding the impacts of this accounting guidance, refer to “ Note 16 – Revenue from Contracts with Customers .” We sell products to fabricators and distributors who then sell directly into various end markets. End markets within our ACS operating segment include wireless infrastructure, aerospace and defense, automotive, connected devices, wired infrastructure and consumer electronics. End markets within our EMS operating segment include portable electronics, mass transit, automotive, consumer and general industrial. End markets within our PES operating segment include e-mobility, industrial, renewable energy, mass transit, and micro channel coolers. End markets in our Other operating segment include automotive and industrial.
The following table presents a disaggregation of revenue from contracts with customers and other pertinent financial information, for the periods indicated; inter-segment sales have been eliminated from the net sales data:
(Dollars in thousands)
 
Advanced Connectivity Solutions
 
Elastomeric Material Solutions
 
Power Electronics Solutions
 
Other
 
Total
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
 
$
18,458

 
$
15,326

 
$
(1,884
)
 
$
1,313

 
$
33,213

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Net sales - recognized over time
 
$

 
$
907

 
$
53,052

 
$
4,616

 
$
58,575

Net sales - recognized at a point in time
 
76,376

 
78,309

 
595

 
820

 
156,100

Total net sales
 
$
76,376

 
$
79,216

 
$
53,647

 
$
5,436

 
$
214,675

Operating income
 
$
10,594

 
$
8,421

 
$
4,239

 
$
1,970

 
$
25,224

 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Net sales - recognized over time
 
$

 
$
1,941

 
$
110,451

 
$
9,265

 
$
121,657

Net sales - recognized at a point in time
 
149,831

 
155,358

 
909

 
1,531

 
307,629

Total net sales
 
$
149,831

 
$
157,299

 
$
111,360

 
$
10,796