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.
We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of March 31, 2020 and through 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 of our goodwill, other intangible assets as well as other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the three months ended March 31, 2020, resulting from our assessments, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.
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, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments at Fair Value as of March 31, 2020
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total(1)
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
(120)
|
|
|
$
|
—
|
|
|
$
|
(120)
|
|
|
Copper derivative contracts
|
$
|
—
|
|
|
$
|
341
|
|
|
$
|
—
|
|
|
$
|
341
|
|
|
Interest rate swap contract
|
$
|
—
|
|
|
$
|
(2,944)
|
|
|
$
|
—
|
|
|
$
|
(2,944)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments at Fair Value as of December 31, 2019
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total(1)
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
—
|
|
|
$
|
(6)
|
|
|
Copper derivative contracts
|
$
|
—
|
|
|
$
|
1,147
|
|
|
$
|
—
|
|
|
$
|
1,147
|
|
|
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.
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, 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 March 31, 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 March 31, 2020, we entered into U.S. dollar, euro, Korean won, and Japanese yen 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 (expense) income, net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.
As of March 31, 2020, the notional values of the remaining foreign currency forward contracts were as follows:
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|
|
|
|
|
Notional Values of Foreign Currency Derivatives
|
|
|
USD/CNH
|
$
|
20,439,416
|
|
|
EUR/USD
|
€
|
13,510,979
|
|
|
KRW/USD
|
₩
|
9,669,600,000
|
|
|
JPY/EUR
|
¥
|
360,000,000
|
|
Commodity
As of March 31, 2020, we had 30 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 (expense) income, net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.
As of March 31, 2020, the volume of our copper contracts outstanding was as follows:
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|
|
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|
|
Volume of Copper Derivatives
|
|
|
April 2020 - June 2020
|
202 metric tons per month
|
|
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
|
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Financial Statement Line Item
|
|
March 31, 2020
|
|
March 31, 2019
|
|
|
|
|
|
Foreign Currency Contracts
|
|
|
|
|
|
|
|
|
|
|
Contracts not designated as hedging instruments
|
Other (expense) income, net
|
|
$
|
(528)
|
|
|
$
|
(711)
|
|
|
|
|
|
|
Copper Derivative Contracts
|
|
|
|
|
|
|
|
|
|
|
Contracts not designated as hedging instruments
|
Other (expense) income, net
|
|
$
|
(1,135)
|
|
|
$
|
310
|
|
|
|
|
|
|
Interest Rate Swap
|
|
|
|
|
|
|
|
|
|
|
Contract designated as hedging instrument
|
Other comprehensive loss
|
|
$
|
(1,690)
|
|
|
$
|
(632)
|
|
|
|
|
|
We estimate approximately $1.4 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:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
|
Other comprehensive loss before reclassifications
|
(6,894)
|
|
|
—
|
|
|
(1,249)
|
|
|
(8,143)
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
66
|
|
|
(67)
|
|
|
(1)
|
|
|
Net current-period other comprehensive income (loss)
|
(6,894)
|
|
|
66
|
|
|
(1,316)
|
|
|
(8,144)
|
|
|
Balance as of March 31, 2020
|
$
|
(42,372)
|
|
|
$
|
(10,389)
|
|
|
$
|
(2,288)
|
|
|
$
|
(55,049)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
$
|
(30,488)
|
|
|
$
|
(48,700)
|
|
|
$
|
354
|
|
|
$
|
(78,834)
|
|
|
Other comprehensive loss before reclassifications
|
(4,257)
|
|
|
—
|
|
|
(394)
|
|
|
(4,651)
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
156
|
|
|
(94)
|
|
|
62
|
|
|
Net current-period other comprehensive income (loss)
|
(4,257)
|
|
|
156
|
|
|
(488)
|
|
|
(4,589)
|
|
|
Balance as of March 31, 2019
|
$
|
(34,745)
|
|
|
$
|
(48,544)
|
|
|
$
|
(134)
|
|
|
$
|
(83,423)
|
|
(1) Net of taxes of $2,349 and $2,368 as of March 31, 2020 and December 31, 2019, respectively. Net of taxes of $9,938 and $9,984 as of March 31, 2019 and December 31, 2018, respectively.
(2) Net of taxes of $656 and $282 as of March 31, 2020 and December 31, 2019, respectively. Net of taxes of $37 and $(106) as of March 31, 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)
|
March 31, 2020
|
|
December 31, 2019
|
|
Raw materials
|
$
|
62,004
|
|
|
$
|
61,338
|
|
|
Work-in-process
|
29,999
|
|
|
30,043
|
|
|
Finished goods
|
35,514
|
|
|
41,478
|
|
|
Total inventories
|
$
|
127,517
|
|
|
$
|
132,859
|
|
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)
|
Advanced Connectivity Solutions
|
|
Elastomeric Material Solutions
|
|
Power Electronics Solutions
|
|
Other
|
|
Total
|
|
December 31, 2019
|
$
|
51,694
|
|
|
$
|
142,030
|
|
|
$
|
66,982
|
|
|
$
|
2,224
|
|
|
$
|
262,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
(788)
|
|
|
(1,272)
|
|
|
—
|
|
|
$
|
(2,060)
|
|
|
March 31, 2020
|
$
|
51,694
|
|
|
$
|
141,242
|
|
|
$
|
65,710
|
|
|
$
|
2,224
|
|
|
$
|
260,870
|
|
Other Intangible Assets
The gross and net carrying amounts, as well as the accumulated amortization of other intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
(Dollars in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Customer relationships
|
$
|
148,844
|
|
|
$
|
40,546
|
|
|
$
|
108,298
|
|
|
$
|
149,317
|
|
|
$
|
39,018
|
|
|
$
|
110,299
|
|
|
Technology
|
80,368
|
|
|
46,168
|
|
|
34,200
|
|
|
80,938
|
|
|
45,190
|
|
|
35,748
|
|
|
Trademarks and trade names
|
11,958
|
|
|
4,555
|
|
|
7,403
|
|
|
11,994
|
|
|
4,361
|
|
|
7,633
|
|
|
Covenants not to compete
|
1,340
|
|
|
585
|
|
|
755
|
|
|
1,340
|
|
|
505
|
|
|
835
|
|
|
Total definite-lived other intangible assets
|
242,510
|
|
|
91,854
|
|
|
150,656
|
|
|
243,589
|
|
|
89,074
|
|
|
154,515
|
|
|
Indefinite-lived other intangible asset
|
4,348
|
|
|
—
|
|
|
4,348
|
|
|
4,432
|
|
|
—
|
|
|
4,432
|
|
|
Total other intangible assets
|
$
|
246,858
|
|
|
$
|
91,854
|
|
|
$
|
155,004
|
|
|
$
|
248,021
|
|
|
$
|
89,074
|
|
|
$
|
158,947
|
|
In the table above, gross carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations.
Amortization expense was $3.7 million and $4.4 million, for the three months ended March 31, 2020 and 2019, respectively. The estimated future amortization expense is $10.9 million for the remainder of 2020 and $13.8 million, $13.3 million, $12.7 million and $11.4 million for 2021, 2022, 2023 and 2024, respectively.
The weighted average amortization period as of March 31, 2020, by definite-lived other intangible asset class, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Definite-Lived Other Intangible Asset Class
|
|
Weighted Average Remaining Amortization Period
|
|
Customer relationships
|
|
7.2 years
|
|
Technology
|
|
4.1 years
|
|
Trademarks and trade names
|
|
4.8 years
|
|
Covenants not to compete
|
|
1.5 years
|
|
Total definite-lived other intangible assets
|
|
6.3 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
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
13,259
|
|
|
$
|
28,399
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
18,669
|
|
|
18,557
|
|
|
|
|
|
|
Effect of dilutive shares
|
22
|
|
|
135
|
|
|
|
|
|
|
Weighted-average shares outstanding - diluted
|
18,691
|
|
|
18,692
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.71
|
|
|
$
|
1.53
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.71
|
|
|
$
|
1.52
|
|
|
|
|
|
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 March 31, 2020 and 2019, 127,106 shares and 23,081 shares were excluded, respectively.
Note 8 – Capital Stock and Equity Compensation
Equity Compensation
Performance-Based Restricted Stock Units
As of March 31, 2020, we had performance-based restricted stock units from 2020, 2019, and 2018 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.
The following table sets forth the assumptions used in the Monte Carlo calculation for each material award granted in 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 12, 2020
|
|
June 3, 2019
|
|
February 7, 2019
|
|
Expected volatility
|
41.0%
|
|
39.7%
|
|
36.7%
|
|
Expected term (in years)
|
2.9
|
|
2.6
|
|
2.9
|
|
Risk-free interest rate
|
1.41%
|
|
1.78%
|
|
2.43%
|
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 three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
Performance-Based
Restricted Stock Units
|
|
Awards outstanding as of December 31, 2019
|
106,943
|
|
|
Awards granted
|
87,244
|
|
|
Stock issued
|
(75,486)
|
|
|
Awards forfeited
|
(774)
|
|
|
Awards outstanding as of March 31, 2020
|
117,927
|
|
We recognized $1.5 million and $0.9 million of compensation expense for performance-based restricted stock units for the three months ended March 31, 2020 and 2019, respectively.
Time-Based Restricted Stock Units
As of March 31, 2020, we had time-based restricted stock unit awards from 2020, 2019, 2018 and 2017 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 three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
Time-Based
Restricted Stock Units
|
|
Awards outstanding as of December 31, 2019
|
101,685
|
|
|
Awards granted
|
57,387
|
|
|
Stock issued
|
(46,220)
|
|
|
Awards forfeited
|
(1,147)
|
|
|
Awards outstanding as of March 31, 2020
|
111,705
|
|
We recognized $1.5 million of compensation expense for time-based restricted stock units for each of the three-month periods ended March 31, 2020 and 2019, 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.
A summary of activity of the outstanding deferred stock units for the three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
Deferred Stock Units
|
|
Awards outstanding as of December 31, 2019
|
7,150
|
|
|
Awards granted
|
—
|
|
|
Stock issued
|
|
—
|
|
|
Awards outstanding as of March 31, 2020
|
7,150
|
|
We recognized no compensation expense related to deferred stock units for each of the three-month periods ended March 31, 2020 and 2019, respectively.
Note 9 – Debt
In February 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).
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.
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 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 to 175.0 basis points, depending on our leverage ratio. Based on our leverage ratio as of March 31, 2020, the spread was 162.5 basis points.
In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Third Amended Credit Agreement, we are required to pay a quarterly fee of 20 to 30 basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the Third Amended Credit Agreement.
The Third Amended Credit Agreement contains customary representations, warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated. If an event of default occurs, the lenders may,
among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The financial covenants include requirements to maintain (1) a leverage ratio of no more than 3.25 to 1.00, subject to an election to increase the maximum leverage ratio to 3.50 to 1.00 for three fiscal quarters in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than 3.00 to 1.00.
The 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 March 31, 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.
We borrowed $150.0 million under our revolving credit facility 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 novel coronavirus (COVID-19) pandemic, during the three months ended March 31, 2020. We are not required to make any quarterly principal payments under the Third Amended Credit Agreement. We made no discretionary principal payments on our revolving credit facility during the three months ended March 31, 2020 and we made $5.0 million of discretionary principal payments during the three months ended March 31, 2019. We had $273.0 million in outstanding borrowings under our revolving credit facility as of March 31, 2020.
We incurred interest expense on our outstanding debt, net of the impacts of our interest rate swap, of $1.2 million and $2.1 million for the three months ended March 31, 2020 and 2019, respectively. We incurred immaterial unused commitment fees for the three months ended March 31, 2020 and 2019.
We had $1.0 million and $1.2 million of outstanding line of credit issuance costs as of March 31, 2020 and December 31, 2019, respectively, which will be amortized over the life of the Third Amended Credit Agreement. We recognized an immaterial amount of amortization expense for the three months ended March 31, 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 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 $4.4 million and $4.5 million as of March 31, 2020 and December 31, 2019, respectively. The finance lease right-of-use asset balance for this facility was $6.1 million and $6.3 million as of March 31, 2020 and December 31, 2019, respectively. Accumulated amortization related to this finance lease right-of-use asset was $3.8 million and $3.8 million as of March 31, 2020 and December 31, 2019, respectively. The aggregate of all other finance lease obligations, finance lease right-of-use assets and related accumulated amortization, were immaterial as of March 31, 2020 and December 31, 2019.
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-month periods ended March 31, 2020 and 2019. 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-month periods ended March 31, 2020 and 2019. Payments made on the principal portion of our finance lease obligations were immaterial for each of the three-month periods ended March 31, 2020 and 2019.
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
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
March 31, 2019
|
|
|
|
|
|
Operating leases expense
|
$
|
728
|
|
|
$
|
718
|
|
|
|
|
|
|
Short-term leases expense
|
$
|
123
|
|
|
$
|
39
|
|
|
|
|
|
|
Payments on operating lease obligations
|
$
|
746
|
|
|
$
|
764
|
|
|
|
|
|
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)
|
Location in Statements of Financial Position
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Finance lease right-of-use assets
|
Property, plant and equipment, net
|
|
$
|
6,079
|
|
|
$
|
6,280
|
|
|
Operating lease right-of-use assets
|
Other long-term assets
|
|
$
|
5,072
|
|
|
$
|
4,656
|
|
|
|
|
|
|
|
|
|
Finance lease obligations, current portion
|
Other accrued liabilities
|
|
$
|
396
|
|
|
$
|
400
|
|
|
Finance lease obligations, non-current portion
|
Other long-term liabilities
|
|
$
|
3,963
|
|
|
$
|
4,140
|
|
|
Total finance lease obligations
|
|
|
$
|
4,359
|
|
|
$
|
4,540
|
|
|
|
|
|
|
|
|
|
Operating lease obligations, current portion
|
Other accrued liabilities
|
|
$
|
2,401
|
|
|
$
|
2,343
|
|
|
Operating lease obligations, non-current portion
|
Other long-term liabilities
|
|
$
|
2,693
|
|
|
$
|
2,334
|
|
|
Total operating lease obligations
|
|
|
$
|
5,094
|
|
|
$
|
4,677
|
|
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 March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
Operating
|
|
|
|
|
|
(Dollars in thousands)
|
Leases
|
|
Leases Signed
|
|
Less: Leases Not Yet Commenced
|
|
Leases
|
|
2020
|
$
|
394
|
|
|
$
|
2,013
|
|
|
$
|
—
|
|
|
$
|
2,013
|
|
|
2021
|
4,121
|
|
|
1,867
|
|
|
—
|
|
|
1,867
|
|
|
2022
|
—
|
|
|
968
|
|
|
—
|
|
|
968
|
|
|
2023
|
—
|
|
|
390
|
|
|
—
|
|
|
390
|
|
|
2024
|
—
|
|
|
185
|
|
|
—
|
|
|
185
|
|
|
Thereafter
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
Total lease payments
|
4,515
|
|
|
5,428
|
|
|
—
|
|
|
5,428
|
|
|
Less: Interest
|
(156)
|
|
|
(334)
|
|
|
—
|
|
|
(334)
|
|
|
Present Value of Net Future Minimum Lease Payments
|
$
|
4,359
|
|
|
$
|
5,094
|
|
|
$
|
—
|
|
|
$
|
5,094
|
|
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
|
1.3 years
|
|
2.6 years
|
|
Weighted Average Discount Rate
|
3.00%
|
|
5.13%
|
Note 11 – Pension Benefits and Other Postretirement Benefits
Pension and Other Postretirement Benefit Plans
As of March 31, 2020, we had two qualified noncontributory defined benefit pension plans, the Rogers Corporation Employees’ Pension Plan (the Union Plan) and 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 were frozen and had ceased accruing benefits. The Merged Plan was terminated and substantially settled in late 2019, with remaining settlement efforts expected to be completed in the second quarter of 2020. There are no plans to terminate the Union Plan.
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 31st for each respective plan year.
Pension Plan Termination & Settlement
During the second quarter of 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 the termination of the Merged Plan, if approved. 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 $123.5 million, with a cash settlement date of October 24, 2019. The insurance company became responsible for administering and paying pension benefit payments effective January 1, 2020.
The lump sum distributions of $38.9 million were paid out prior to December 31, 2019. The Merged Plan paid an additional $1.3 million of monthly pension benefit payments subsequent to the annuity purchase date during the transition period ending December 31, 2019. As of March 31, 2020, the Merged Plan had sufficient assets to satisfy all transaction obligations and had $9.0 million of net assets remaining.
In addition, we recorded a total non-cash pre-tax settlement charge in connection with the termination of the Merged Plan of $53.2 million during the fourth quarter of 2019. This settlement charge 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 settlement charge was recognized in “Pension settlement charges” in the consolidated statements of operations. We expect to incur an additional non-cash pre-tax settlement charge in connection with the remaining settlement efforts of the Merged Plan of approximately $0.7 million during the second quarter of 2020.
Components of Net Periodic Benefit (Credit) Cost
The components of net periodic benefit (credit) cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
17
|
|
|
$
|
18
|
|
|
|
|
|
|
Interest cost
|
231
|
|
|
1,784
|
|
|
|
|
|
|
10
|
|
|
15
|
|
|
|
|
|
|
Expected return of plan assets
|
(393)
|
|
|
(2,192)
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
|
|
|
|
(28)
|
|
|
(253)
|
|
|
|
|
|
|
Amortization of net loss
|
114
|
|
|
454
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Net periodic benefit (credit) cost
|
$
|
(48)
|
|
|
$
|
46
|
|
|
|
|
|
|
$
|
(1)
|
|
|
$
|
(220)
|
|
|
|
|
|
Employer Contributions
There were no required contributions to our qualified defined benefit pension plan for the three-month periods ended March 31, 2020 and 2019, and we are not required to make additional contributions to these plans for the remainder of 2020. No voluntary contributions were made to our qualified defined benefit pension plans for either of the three-month periods ended March 31, 2020 and 2019.
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-month periods ended March 31, 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 March 31, 2020, and the accrual for future remediation efforts is $1.0 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 three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
Asbestos Claims
|
|
Claims outstanding as of January 1, 2020
|
592
|
|
|
New claims filed
|
20
|
|
|
Pending claims concluded(1)
|
(38)
|
|
|
Claims outstanding as of March 31, 2020
|
574
|
|
(1) For the three months ended March 31, 2020, 34 claims were dismissed and 4 claims were settled. Settlements totaled approximately $1.6 million for the three months ended March 31, 2020.
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 the three months ended March 31, 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)
|
March 31, 2020
|
|
December 31, 2019
|
|
Asbestos-related liabilities
|
$
|
85,774
|
|
|
$
|
85,880
|
|
|
Asbestos-related insurance receivables
|
$
|
78,316
|
|
|
$
|
78,316
|
|
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 20.6% and 14.2% for the three months ended March 31, 2020 and 2019, respectively. The increase from the first quarter of 2019 was primarily due to the decrease in current quarter reversals of reserves for uncertain tax
positions and the decrease in excess tax deductions on stock-based compensation, partially offset by the beneficial impact of changes in valuation allowance against deferred tax assets associated with carried over research and development credits.
The total amount of unrecognized tax benefits as of March 31, 2020 was $11.0 million, of which $10.6 million would affect our effective tax rate if recognized.
We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of March 31, 2020, we had $0.9 million accrued for the payment of interest.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years prior to 2015.
Note 14 – Operating Segment Information
Our reporting structure is comprised of the following strategic operating segments: ACS, Elastomeric Material Solutions (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.
Our ACS operating segment designs, develops, manufactures and sells circuit materials and solutions enabling high-performance and high-reliability connectivity for applications in wireless infrastructure (e.g., power amplifiers, antennas and small cells), automotive (e.g., ADAS, telematics and thermal solutions), aerospace and defense (e.g. antenna systems, communication systems and phased array radar systems), connected devices (e.g., mobile internet devices and thermal solutions) and wired infrastructure (e.g., 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), 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:
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(Dollars in thousands)
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Advanced Connectivity Solutions
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Elastomeric Material Solutions
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Power Electronics Solutions
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Other
|
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Total
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Three Months Ended March 31, 2020
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|
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|
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|
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Net sales - recognized over time
|
|
$
|
—
|
|
|
$
|
2,827
|
|
|
$
|
46,401
|
|
|
$
|
3,650
|
|
|
$
|
52,878
|
|
|
Net sales - recognized at a point in time
|
|
64,553
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|
|
80,699
|
|
|
320
|
|
|
360
|
|
|
145,932
|
|
|
Total net sales
|
|
$
|
64,553
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|
|
$
|
83,526
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|
|
$
|
46,721
|
|
|
$
|
4,010
|
|
|
$
|
198,810
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|
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Operating income (loss)
|
|
$
|
5,462
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|
|
$
|
11,517
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|
|
$
|
(684)
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|
|
$
|
1,180
|
|
|
$
|
17,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
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|
|
|
|
|
|
|
|
|
|
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Net sales - recognized over time
|
|
$
|
—
|
|
|
$
|
3,006
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|
|
$
|
59,602
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|
|
$
|
4,604
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|
|
$
|
67,212
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|
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Net sales - recognized at a point in time
|
|
80,470
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|
|
89,756
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|
|
212
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|
|
2,148
|
|
|
172,586
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|
|
Total net sales
|
|
$
|
80,470
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|
|
$
|
92,762
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|
|
$
|
59,814
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|
|
$
|
6,752
|
|
|
$
|
239,798
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|
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Operating income
|
|
$
|
13,064
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|
|
$
|
13,431
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|
|
$
|
4,267
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|
|
$
|
2,038
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|
|
$
|
32,800
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|
|
|
|
|
|
|
|
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Net sales by operating segment and by geographic area was as follows:
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(Dollars in thousands)
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Net Sales (1)
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Region/Country
|
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Advanced Connectivity Solutions
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Elastomeric Material Solutions
|
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Power Electronics Solutions
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Other
|
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Total
|
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Three Months Ended March 31, 2020
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|
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United States
|
|
$
|
14,453
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|
|
|
$
|
38,567
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|
|
|
$
|
8,172
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|
|
|
$
|
979
|
|
|
|
$
|
62,171
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|
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Other Americas
|
|
944
|
|
|
|
2,449
|
|
|
|
109
|
|
|
|
311
|
|
|
|
3,813
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|
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Total Americas
|
|
15,397
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|
|
|
41,016
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|
|
|
8,281
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|
|
|
1,290
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|
|
|
65,984
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|
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China
|
|
24,625
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|
|
|
18,375
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|
|
|
8,308
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|
|
|
225
|
|
|
|
51,533
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|
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Other APAC
|
|
15,319
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|
|
|
12,953
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|
|
|
4,360
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|
|
|
548
|
|
|
|
33,180
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|
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Total APAC
|
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39,944
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|
|
|
31,328
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|
|
|
12,668
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|
|
|
773
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|
|
|
84,713
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Germany
|
|
3,673
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|
|
|
3,634
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|
|
|
13,056
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|
|
|
149
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|
|
|
20,512
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Other EMEA
|
|
5,539
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|
|
|
7,548
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|
|
|
12,716
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|
|
|
1,798
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|
|
|
27,601
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Total EMEA
|
|
9,212
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|
|
|
11,182
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|
|
|
25,772
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|
|
|
1,947
|
|
|
|
48,113
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|
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Total net sales
|
|
$
|
64,553
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|
|
|
$
|
83,526
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|
|
|
$
|
46,721
|
|
|
|
$
|
4,010
|
|
|
|
$
|
198,810
|
|
|
Three Months Ended March 31, 2019
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|
|
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|
|
|
|
|
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United States
|
|
$
|
13,071
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|
|
$
|
43,465
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|
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$
|
7,477
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|
|
$
|
1,290
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|
|
$
|
65,303
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|
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Other Americas
|
|
752
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|
|
2,083
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|
|
20
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|
|
191
|
|
|
3,046
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|
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Total Americas
|
|
13,823
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|
|
45,548
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|
|
7,497
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|
|
1,481
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|
|
68,349
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|
|
China
|
|
42,489
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|
|
22,419
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|
|
11,064
|
|
|
2,513
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|
|
78,485
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|
|
Other APAC
|
|
14,141
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|
|
14,488
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|
|
5,338
|
|
|
809
|
|
|
34,776
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|
|
Total APAC
|
|
56,630
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|
|
36,907
|
|
|
16,402
|
|
|
3,322
|
|
|
113,261
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|
|
Germany
|
|
4,472
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|
|
3,436
|
|
|
21,947
|
|
|
146
|
|
|
30,001
|
|
|
Other EMEA
|
|
5,545
|
|
|
6,871
|
|
|
13,968
|
|
|
1,803
|
|
|
28,187
|
|
|
Total EMEA
|
|
10,017
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|
|
10,307
|
|
|
35,915
|
|
|
1,949
|
|
|
58,188
|
|
|
Total net sales
|
|
$
|
80,470
|
|
|
$
|
92,762
|
|
|
$
|
59,814
|
|
|
$
|
6,752
|
|
|
$
|
239,798
|
|
(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:
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|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
|
Advanced Connectivity Solutions
|
$
|
—
|
|
|
$
|
—
|
|
|
Elastomeric Material Solutions
|
1,207
|
|
|
1,077
|
|
|
Power Electronics Solutions
|
17,456
|
|
|
19,471
|
|
|
Other
|
1,515
|
|
|
1,907
|
|
|
Total contract assets
|
$
|
20,178
|
|
|
$
|
22,455
|
|
We did not have any contract liabilities as of March 31, 2020 or December 31, 2019. No impairment losses were recognized for either of the three-month periods ended March 31, 2020 and 2019, respectively, on any receivables or contract assets arising from our contracts with customers.
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, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
March 31, 2019
|
|
|
|
|
|
Restructuring Charges
|
$
|
—
|
|
|
$
|
806
|
|
|
|
|
|
|
Impairment charges
|
—
|
|
|
16
|
|
|
|
|
|
Total restructuring and impairment charges
|
$
|
—
|
|
|
$
|
822
|
|
|
|
|
|
Restructuring Charges
In 2018, we made the decision to consolidate our Santa Fe Springs, California operations into our facilities in Carol Stream, Illinois and Bear, Delaware, which was completed as of December 31, 2019. We recorded $0.8 million of expense for the three months ended March 31, 2019 related to this facility consolidation.
Other Operating Expense, Net
The components of “Other operating expense, net” line item in the condensed consolidated statements of operations, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
March 31, 2019
|
|
|
|
|
|
Lease income
|
$
|
—
|
|
|
$
|
(547)
|
|
|
|
|
|
|
Depreciation on leased assets
|
—
|
|
|
1,185
|
|
|
|
|
|
|
Loss on sale or disposal of property, plant and equipment
|
20
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expense, net
|
$
|
20
|
|
|
$
|
911
|
|
|
|
|
|
In connection with the transitional leaseback of a portion of the facility and certain machinery and equipment acquired from Isola USA (Isola) in August 2018, we recognized lease income and related depreciation on leased assets of $0.5 million and $1.2 million, respectively, for the three months ended March 31, 2019.
Interest Expense, Net
The components of “Interest expense, net” line item in the condensed consolidated statements of operations, were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31, 2020
|
|
March 31, 2019
|
|
|
|
|
|
Interest on revolving credit facility
|
$
|
1,079
|
|
|
$
|
2,251
|
|
|
|
|
|
|
Interest rate swap settlements
|
86
|
|
|
(122)
|
|
|
|
|
|
|
Line of credit fees
|
166
|
|
|
126
|
|
|
|
|
|
|
Debt issuance amortization costs
|
138
|
|
|
138
|
|
|
|
|
|
|
Interest on finance leases
|
33
|
|
|
32
|
|
|
|
|
|
|
Interest income
|
(320)
|
|
|
(489)
|
|
|
|
|
|
|
Other
|
25
|
|
|
2
|
|
|
|
|
|
|
Total interest expense, net
|
$
|
1,207
|
|
|
$
|
1,938
|
|
|
|
|
|
Note 16 – Recent Accounting Standards
Recently Issued Standards
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR 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. We adopted this update in January 2020 using the modified-retrospective approach, and it did not have a material impact on our condensed consolidated financial statements.