Rogers (ROG) - 2021 Q4 - Annual Report

Part I Business Rogers Corporation designs and manufactures high-performance engineered materials for advanced mobility and connectivity, with a pending DuPont merger and COVID-19 impacts - Rogers Corporation operates two strategic segments: Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS), plus an 'Other' segment for non-core businesses[11] - The company's growth strategy is based on four principles: market-driven organization, innovation leadership, synergistic mergers and acquisitions, and operational excellence[12] - Key medium- to long-term trends affecting the business include increasing electrification of vehicles (EV/HEV) and advanced driver assistance systems (ADAS) in automotive, and the growth of 5G smartphones in portable electronics[12] - Rogers aims to double annual revenues over the next five years, supported by participation in fast-growing markets like advanced mobility (EV/HEV >25% CAGR, ADAS >15% CAGR)[15] - On November 1, 2021, Rogers entered into a definitive merger agreement to be acquired by DuPont in an all-cash transaction at $277.00 per share, expected to close by the end of Q2 2022[17] - The global COVID-19 pandemic continues to affect business, operations, and customer demand, though to a lesser extent than in 2020 due to vaccinations[18][19] Risk Factors The company faces significant risks from the pending DuPont merger, ongoing COVID-19 impacts, international operations, supply chain dependencies, intense competition, and various legal and regulatory challenges - Risks related to the DuPont merger include potential termination fees ($135.0 million), contractual restrictions on business actions, and customer/employee uncertainty[47][48][49] - The COVID-19 pandemic continues to impact the business, potentially leading to sustained demand reductions, inability to satisfy customer demand, increased operating costs, and cash flow reductions[50][52] - Approximately 72% of net sales in 2021 were from foreign markets (47% Asia, 24% Europe), exposing the company to foreign currency fluctuations, economic instability, trade policies (U.S.-China), and compliance challenges[54][55] - Dependence on sole or limited source suppliers for key raw materials (e.g., copper, polymers, silicones) could lead to supply disruptions or increased costs[30][31][60] - The company faces intense global competition based on innovation, product quality, reliability, performance, price, technical support, product line breadth, and manufacturing capabilities[25][63] - Legal risks include ongoing asbestos-related product liability litigation, with estimated liabilities of $68.3 million and insurance recoveries of $62.6 million as of December 31, 2021[87][88][152] Unresolved Staff Comments There are no unresolved staff comments from the SEC Properties Rogers Corporation operates various general offices and manufacturing facilities across the U.S., Europe, and Asia, with significant owned and leased properties supporting its Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS) segments Material General Offices and Manufacturing Facilities (Selected) | Location | Floor Space (Square Feet) | Type of Facility | Leased / Owned | Operating Segment | | :--- | :--- | :--- | :--- | :--- | | Chandler, Arizona | 147,000 | Manufacturing | Owned | AES | | Rogers, Connecticut | 388,100 | Manufacturing / Administrative Offices | Owned | All | | Moosup, Connecticut | 185,500 | Manufacturing | Owned | EMS | | Eschenbach, Germany | 149,000 | Manufacturing / Administrative Offices | Owned | AES | | Evergem, Belgium | 122,000 | Manufacturing / Administrative Offices | Owned | All | | Suzhou, China | 821,000 | Manufacturing / Administrative Offices | Owned | All | Legal Proceedings Rogers Corporation is involved in asbestos-related product liability litigation, with 543 cases outstanding and estimated liabilities of $68.3 million largely covered by insurance - As of December 31, 2021, Rogers Corporation was a defendant in 543 asbestos-related product liability cases, a decrease from 561 cases in 2020[87][302] - The company stopped manufacturing products containing encapsulated asbestos in the late 1980s[87][301] Asbestos-Related Claims Summary | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Claims outstanding as of January 1 | 561 | 592 | | New claims filed | 125 | 115 | | Pending claims concluded | (143) | (146) | | Claims outstanding as of December 31 | 543 | 561 | | Settlements (total) | $2.1 million | $5.4 million | Asbestos-Related Projected Financials (as of December 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Asbestos-related liabilities | $68,332 | $73,235 | | Asbestos-related insurance receivables | $62,567 | $66,793 | - The net accrual of estimated asbestos-related expenses exceeding insurance coverage was $5.8 million as of December 31, 2021[88] Mine Safety Disclosures This item is not applicable to Rogers Corporation Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Rogers Corporation's common stock trades on the NYSE, with no history or plans for cash dividends, and a $49.0 million share repurchase program balance - Rogers Corporation's common stock is traded on the New York Stock Exchange (NYSE) under the symbol 'ROG'[3] - The company retains all earnings for business operations, expansion, and debt repayment, and has never declared or paid cash dividends, with no plans for future dividends[93] - A share repurchase program, initiated in 2015 for up to $100.0 million, had $49.0 million remaining as of December 31, 2021, with no share repurchases made in 2021[95] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Results of Operations and Financial Position Rogers Corporation reported 16.2% net sales growth to $932.9 million in 2021, with improved gross and operating margins driven by advanced mobility and connectivity, despite supply chain issues, while preparing for the DuPont merger and significant capital expenditures Key Financial Highlights (2021 vs. 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net sales | $932.9 million | $802.6 million | +16.2% | | Gross margin | 37.4% | 36.4% | +100 bps | | Operating income as % of net sales | 12.6% | 8.4% | +420 bps | - A fire at the UTIS manufacturing facility in Ansan, South Korea, in February 2021, resulted in $6.2 million net expense in 2021 and will disrupt operations into the first half of 2023[105][117][333] - Acquired Silicone Engineering Ltd. for $172.3 million in October 2021, expanding the EMS segment and funded primarily by $190.0 million in borrowings under the existing credit facility[105][339] - Global supply chain disruptions, including semiconductor chip shortages and raw material constraints, tempered net sales and gross margin in 2021 and are expected to continue into 2022[110] Net Sales and Gross Margin (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $932,886 | $802,583 | 16.2% | | Gross margin | $349,139 | $291,820 | 19.6% | | Gross margin % of net sales | 37.4% | 36.4% | +100 bps | - Net sales benefited from favorable foreign currency impacts of $22.3 million (2.8%) due to the appreciation of the euro and Chinese renminbi[107] Operating Segment Net Sales (2021 vs. 2020) | Segment | 2021 Net Sales (in thousands) | 2020 Net Sales (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Advanced Electronics Solutions (AES) | $534,429 | $458,679 | 16.5% | | Elastomeric Material Solutions (EMS) | $378,017 | $328,177 | 15.2% | | Other | $20,440 | $15,727 | 30.0% | Operating Segment Operating Income (2021 vs. 2020) | Segment | 2021 Operating Income (in thousands) | 2020 Operating Income (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Advanced Electronics Solutions (AES) | $50,198 | $32,023 | 56.8% | | Elastomeric Material Solutions (EMS) | $60,051 | $30,817 | 94.9% | | Other | $6,933 | $4,494 | 54.3% | Key Financial Position Accounts (as of December 31) | Account | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $232,296 | $191,785 | 21.1% | | Accounts receivable, net | $163,092 | $134,421 | 21.3% | | Inventories | $133,384 | $102,360 | 30.3% | | Borrowings under revolving credit facility | $190,000 | $25,000 | 660.0% | - Capital spending is expected to be in the range of $155.0 million to $165.0 million in 2022, a significant increase from $71.1 million in 2021[139][141] Company Background and Strategy Rogers Corporation designs, develops, manufactures, and sells high-performance engineered materials and components through its Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS) segments, with a growth strategy focused on advanced mobility and connectivity - Rogers Corporation designs, develops, manufactures, and sells high-performance engineered materials and components through its Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS) segments[98] - The company's growth strategy focuses on advanced mobility (EV/HEV, ADAS) and advanced connectivity (5G smartphones), aiming to double annual revenues over the next five years[99][102] - A manufacturing expansion plan is underway, requiring significant capital spending and increased operating expenses to support projected revenue growth[103] Proposed Merger with DuPont Rogers entered a definitive merger agreement to be acquired by DuPont for $277.00 per share in an all-cash transaction, approved by shareholders and expected to close by Q2 2022 - On November 1, 2021, Rogers entered into a definitive merger agreement to be acquired by DuPont de Nemours, Inc. for $277.00 per share in an all-cash transaction[104] - Company shareholders approved the merger agreement on January 25, 2022, with the merger expected to close by the end of the second quarter of 2022, subject to regulatory approvals[104] Executive Summary The executive summary highlights 16.2% net sales growth in 2021, improved gross and operating margins, impacts from a South Korea facility fire, the Silicone Engineering acquisition, and ongoing supply chain disruptions 2021 Key Financial Highlights vs. 2020 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net sales | $932.9 million | $802.6 million | +16.2% | | Gross margin | 37.4% | 36.4% | +100 bps | | Operating income as % of net sales | 12.6% | 8.4% | +420 bps | - A fire at the UTIS manufacturing facility in South Korea in February 2021 resulted in a net expense of $6.2 million in 2021, with operations disrupted into the first half of 2023[105] - The acquisition of Silicone Engineering Ltd. for $172.3 million in October 2021 was primarily funded by $190.0 million in borrowings[105] - Global supply chain disruptions tempered 2021 net sales and gross margin, with these impacts expected to continue into 2022[105] - Restructuring charges decreased to $3.1 million in 2021 from $12.3 million in 2020, related to manufacturing footprint optimization[105] - Expenses related to the DuPont merger totaled $6.9 million in 2021[105] Results of Operations Net sales increased by 16.2% in 2021, driven by advanced mobility and connectivity markets, with gross margin improving by 100 basis points despite higher commodity costs, while SG&A and R&D expenses saw moderate changes Selected Operations Data as Percentage of Net Sales | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | 100.0 % | 100.0 % | | Gross margin | 37.4 % | 36.4 % | | Selling, general and administrative expenses | 20.6 % | 22.7 % | | Research and development expenses | 3.2 % | 3.7 % | | Operating income | 12.6 % | 8.4 % | | Net income | 11.6 % | 6.2 % | Net Sales and Gross Margin (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $932,886 | $802,583 | 16.2% | | Gross margin | $349,139 | $291,820 | 19.6% | | Gross margin % of net sales | 37.4% | 36.4% | +100 bps | - Net sales increased by 16.2% in 2021, driven by higher sales in EV/HEV, clean energy, aerospace and defense, and ADAS markets for AES, and general industrial, EV/HEV, consumer, and automotive markets for EMS[107] - Gross margin improved by 100 basis points due to higher volume, favorable absorption of fixed overhead, and lower inventory reserve provisions, partially offset by higher commodity and raw material costs[108] - Selling, general and administrative (SG&A) expenses increased by 6.0% in 2021, primarily due to higher compensation and professional services, partially offset by a $27.9 million decrease in intangible asset amortization[112] - Research and development (R&D) expenses increased by 2.0% in 2021 to $29.9 million[114] - Restructuring charges decreased to $3.1 million in 2021 from $12.3 million in 2020, related to manufacturing footprint optimization[115] - Equity income in unconsolidated joint ventures increased by 44.2% in 2021 to $7.0 million, driven by strong sales in portable electronics and general industrial markets[118] - Interest expense, net, decreased by 64.5% in 2021 to $(2.5) million, primarily due to a lower weighted-average outstanding balance on the revolving credit facility and a 2020 acceleration of interest expense[121] - The effective income tax rate decreased to 14.4% in 2021 from 27.1% in 2020, mainly due to increased reversals of unrecognized tax positions in China[122] Operating Segment Net Sales and Operating Income Advanced Electronics Solutions (AES) and Elastomeric Material Solutions (EMS) segments both reported strong net sales and operating income growth in 2021, driven by key market demands and acquisition impacts Advanced Electronics Solutions (AES) Performance (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $534,429 | $458,679 | 16.5% | | Operating income | $50,198 | $32,023 | 56.8% | | Operating income as % of net sales | 9.4% | 7.0% | +240 bps | - AES net sales growth was primarily driven by higher sales in EV/HEV, clean energy, aerospace and defense, and ADAS markets, with a 2.9% benefit from foreign currency fluctuations[123] Elastomeric Material Solutions (EMS) Performance (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $378,017 | $328,177 | 15.2% | | Operating income | $60,051 | $30,817 | 94.9% | | Operating income as % of net sales | 15.9% | 9.4% | +650 bps | - EMS net sales increased due to higher sales in general industrial, EV/HEV, consumer, and automotive markets, including an $8.3 million impact from the Silicone Engineering acquisition[128] - EMS operating income significantly increased by 94.9%, primarily due to a $27.6 million decrease in other intangible assets amortization expense[129][130] Other Operating Segment Performance (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $20,440 | $15,727 | 30.0% | | Operating income | $6,933 | $4,494 | 54.3% | | Operating income as % of net sales | 33.9% | 28.6% | +530 bps | - The 'Other' segment's net sales increased by 30.0% due to higher demand in the automotive market[133] Liquidity, Capital Resources and Financial Position The company maintains strong liquidity with $232.3 million in cash, an increase in working capital, and significant projected capital expenditures of $155.0 million to $165.0 million for 2022 - Existing liquidity and cash flows are believed to be sufficient to fund operations, planned capital expenditures, R&D, and debt service for at least the next 12 months[135] Cash and Cash Equivalents by Geographic Area (as of December 31) | Region | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | United States | $76,621 | $21,657 | | Europe | $56,034 | $55,449 | | Asia | $99,641 | $114,679 | | Total | $232,296 | $191,785 | - Net working capital increased to $420.1 million in 2021 from $362.7 million in 2020[136] - Accounts receivable increased by 21.3% to $163.1 million, primarily due to higher net sales and the Silicone Engineering acquisition[138] - Inventories increased by 30.3% to $133.4 million, driven by raw material cost increases and efforts to meet anticipated demand[138] - Borrowings under the revolving credit facility increased to $190.0 million in 2021 from $25.0 million in 2020, mainly to fund the Silicone Engineering acquisition[138] Key Cash Flow Measures (Years Ended December 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $124,363 | $165,056 | | Net cash used in investing activities | $(238,615) | $(40,385) | | Net cash (used in) provided by financing activities | $159,057 | $(104,189) | - Capital spending is projected to be $155.0 million to $165.0 million in 2022, significantly higher than $71.1 million in 2021[141] Restriction on Payment of Dividends The credit agreement permits cash dividends if no default exists and the total net leverage ratio does not exceed 2.75 to 1.00, but the DuPont merger agreement restricts dividend payments without prior approval - The Fourth Amended Credit Agreement permits cash dividends if no default exists and the total net leverage ratio does not exceed 2.75 to 1.00[144] - Under the DuPont merger agreement, Rogers is restricted from paying dividends or materially modifying its dividend policy without DuPont's prior approval[144] Critical Accounting Estimates Critical accounting estimates involve product liabilities, particularly asbestos-related claims, and the complex purchase price allocation for business combinations like Silicone Engineering - Critical accounting estimates include product liabilities (especially asbestos-related claims) and business combination purchase price allocation[145] - Asbestos-related liabilities and insurance receivables are based on third-party claim projection and insurance usage analyses, covering costs through 2064[148][149] - Business combination purchase price allocation involves significant judgment in determining fair values of acquired assets and liabilities, using income, market, and/or cost approaches[153] Quantitative and Qualitative Disclosures About Market Risk Rogers Corporation is exposed to foreign currency risk, primarily from the euro and Chinese renminbi, interest rate risk from variable-rate borrowings, and commodity risk, particularly for copper, managed through hedging strategies - Foreign currency risk is primarily from fluctuations in the euro, Chinese renminbi, and other currencies, mitigated by natural hedges and foreign exchange forward contracts[155] - A 10% strengthening of the U.S. dollar would decrease net sales by approximately $39 million and net income by $6 million; a 10% weakening would increase net sales by $48 million and net income by $7 million[155] - Interest rate risk stems from $190.0 million in outstanding variable-rate borrowings as of December 31, 2021; a 100 basis point increase in LIBOR would have increased 2021 interest expense by approximately $0.4 million[156] - Commodity risk, particularly for copper, is managed through hedging strategies, but other commodity-based raw materials are not currently hedged[157] Part III Financial Statements and Supplementary Data This section presents Rogers Corporation's audited consolidated financial statements, with an unqualified opinion from PricewaterhouseCoopers LLP, highlighting critical audit matters related to asbestos liabilities and the Silicone Engineering acquisition valuation - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[160] - The audit of internal control over financial reporting excluded Silicone Engineering Ltd., acquired in 2021, which represented 2.0% of total assets and 0.9% of total revenues[164] - Critical audit matters included the significant judgment in determining asbestos-related liabilities ($68.3 million) and insurance receivables ($62.6 million) and the valuation of the $48.9 million customer relationships intangible asset from the Silicone Engineering acquisition[169][170][172][174] Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net sales | $932,886 | $802,583 | $898,260 | | Gross margin | $349,139 | $291,820 | $314,292 | | Operating income | $117,182 | $67,334 | $110,481 | | Income before income tax expense | $126,280 | $68,534 | $55,126 | | Net income | $108,133 | $49,990 | $47,319 | | Basic earnings per share | $5.77 | $2.68 | $2.55 | | Diluted earnings per share | $5.73 | $2.67 | $2.53 | Consolidated Statements of Financial Position (as of December 31, in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total current assets | $584,065 | $474,175 | | Total assets | $1,598,566 | $1,264,005 | | Total current liabilities | $163,949 | $111,509 | | Borrowings under revolving credit facility | $190,000 | $25,000 | | Total shareholders' equity | $1,118,895 | $1,020,755 | Consolidated Statements of Cash Flows (in thousands) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $124,363 | $165,056 | $161,323 | | Net cash used in investing activities | $(238,615) | $(40,385) | $(48,963) | | Net cash (used in) provided by financing activities | $159,057 | $(104,189) | $(111,843) | | Net increase (decrease) in cash and cash equivalents | $40,511 | $24,936 | $(889) | Note 1 – Basis of Presentation, Organization and Summary of Significant Accounting Policies This note outlines Rogers' segment realignment into AES, EMS, and Other, and details key accounting policies for inventories, software capitalization, goodwill impairment, and revenue recognition - In Q1 2021, Rogers realigned its strategic business segments, combining Advanced Connectivity Solutions (ACS) and Power Electronics Solutions (PES) into a new segment, Advanced Electronics Solutions (AES)[189] - The company now operates three segments: AES, Elastomeric Material Solutions (EMS), and Other[189] - Key accounting policies include stating inventories at the lower of cost or net realizable value (FIFO basis) and capitalizing certain internal and external software costs, amortized over 3-5 years[197][200] - Goodwill and indefinite-lived intangible assets are evaluated for impairment annually, or more frequently if circumstances indicate impairment, using qualitative and quantitative assessments[202][203] - Revenue is recognized when a customer obtains control of promised goods or services, with some customized products recognized over time[221][222] Note 2 – Fair Value Measurements Fair value measurements are categorized into a three-tier hierarchy, with the pension surplus investment and derivative instruments primarily classified as Level 1 and Level 2 respectively - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[232][233] Available-for-Sale Investment at Fair Value (as of December 31, 2021) | (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Pension surplus investment | $6,638 | $— | $— | $6,638 | Derivative Instruments at Fair Value (as of December 31, 2021) | (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Foreign currency contracts | $— | $(16) | $— | $(16) | | Copper derivative contracts | $— | $1,344 | $— | $1,344 | Note 3 – Hedging Transactions and Derivative Financial Instruments Rogers uses derivative instruments to manage foreign currency and copper commodity risks, with fair value adjustments recorded in 'Other income (expense), net' as no contracts qualified for hedge accounting in 2021 - Rogers uses derivative instruments to manage foreign currency exchange rate risk and commodity pricing risk (primarily copper), not for trading or speculative purposes[235] - As of December 31, 2021, no derivative contracts qualified for hedge accounting treatment; fair value adjustments are recorded in 'Other income (expense), net'[236] Impact of Derivative Instruments on Statements of Operations (in thousands) | Financial Statement Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Foreign Currency Contracts (Other income (expense), net) | $(2,890) | $(1,981) | $(779) | | Copper Derivatives Contracts (Other income (expense), net) | $3,914 | $3,610 | $(716) | Note 4 – Accumulated Other Comprehensive Loss Accumulated other comprehensive loss increased to $(45.2 million) in 2021, primarily due to negative foreign currency translation adjustments and pension benefit changes Changes in Accumulated Other Comprehensive Loss (in thousands) | Component | Balance as of Dec 31, 2019 | Net OCI (Loss) for 2020 | Balance as of Dec 31, 2020 | Net OCI (Loss) for 2021 | Balance as of Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Foreign Currency Translation Adjustments | $(35,478) | $24,907 | $(10,571) | $(25,070) | $(35,641) | | Pension and Other Postretirement Benefits | $(10,455) | $1,451 | $(9,004) | $(598) | $(9,602) | | Derivative Instrument Designated as Cash Flow Hedge | $(972) | $972 | $— | $— | $— | | Total | $(46,905) | $27,330 | $(19,575) | $(25,668) | $(45,243) | Note 5 – Property, Plant and Equipment Net property, plant, and equipment increased to $327.0 million in 2021, driven by a significant increase in equipment in process, with depreciation expense at $29.0 million Property, Plant and Equipment, Net (as of December 31, in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Land and improvements | $24,804 | $22,589 | | Buildings and improvements | $163,920 | $155,669 | | Machinery and equipment | $322,653 | $324,773 | | Office equipment | $57,156 | $59,001 | | Property plant and equipment, gross | $568,533 | $562,032 | | Accumulated depreciation | $(367,850) | $(365,844) | | Property, plant and equipment, net | $200,683 | $196,188 | | Equipment in process | $126,284 | $76,190 | | Total property, plant and equipment, net | $326,967 | $272,378 | - Depreciation expense was $29.0 million in 2021, $29.3 million in 2020, and $31.4 million in 2019[246] Note 6 – Goodwill and Other Intangible Assets Goodwill increased by $107.2 million in 2021 due to the Silicone Engineering acquisition, while amortization expense significantly decreased to $14.3 million Goodwill by Operating Segment (as of December 31, in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Advanced Electronics Solutions | $119,567 | $124,927 | | Elastomeric Material Solutions | $248,398 | $143,021 | | Other | $2,224 | $2,224 | | Total | $370,189 | $270,172 | - Goodwill increased by $107.2 million in 2021 due to the acquisition of Silicone Engineering Ltd[247] Other Intangible Assets, Net (as of December 31, in thousands) | Asset Class | 2021 Net Carrying Amount | 2020 Net Carrying Amount | | :--- | :--- | :--- | | Customer relationships | $120,225 | $78,849 | | Technology | $33,545 | $29,929 | | Trademarks and trade names | $16,536 | $3,890 | | Covenants not to compete | $1,556 | $513 | | Total definite-lived other intangible assets | $171,862 | $113,181 | | Indefinite-lived other intangible asset | $4,491 | $4,845 | | Total other intangible assets | $176,353 | $118,026 | - Amortization expense was $14.3 million in 2021, significantly lower than $42.1 million in 2020, due to the accelerated amortization of DSP customer relationships and trademarks in 2020[249][250] - Estimated annual future amortization expense is $17.0 million in 2022, $16.0 million in 2023, $14.6 million in 2024, $12.7 million in 2025, and $12.1 million in 2026[249] Note 7 – Earnings Per Share Net income increased to $108.1 million in 2021, resulting in basic earnings per share of $5.77 and diluted earnings per share of $5.73 Earnings Per Share Computation (in thousands, except per share amounts) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net income | $108,133 | $49,990 | $47,319 | | Weighted average shares outstanding - basic | 18,731 | 18,681 | 18,573 | | Weighted average shares outstanding - diluted | 18,863 | 18,706 | 18,713 | | Basic earnings per share | $5.77 | $2.68 | $2.55 | | Diluted earnings per share | $5.73 | $2.67 | $2.53 | - Dilutive shares are calculated using the treasury stock method and primarily include unvested restricted stock units[253] Note 8 – Capital Stock and Equity Compensation The company has reserved 1.2 million shares for future issuance under equity compensation plans, with performance-based RSUs tied to three-year total shareholder return and no share repurchases in 2021 Shares Reserved for Future Issuance (as of December 31) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Shares reserved for issuance under outstanding restricted stock unit awards | 320,381 | 324,260 | | Additional shares reserved for issuance under Rogers Corporation 2019 Long-Term Equity Compensation Plan | 869,516 | 918,809 | | Total | 1,204,949 | 1,334,462 | - Performance-based restricted stock units cliff vest at the end of a three-year measurement period, with payouts ranging from 0% to 200% based on total shareholder return (TSR) relative to a peer group[256][257] - Time-based restricted stock units ratably vest on the first, second, and third anniversaries of the grant date, emphasizing retention[261] - Deferred stock units granted to non-management directors are fully vested on the grant date[263] - Compensation expense for performance-based RSUs was $7.7 million in 2021, and for time-based RSUs was $7.6 million in 2021[260][262] - The share repurchase program had $49.0 million remaining as of December 31, 2021, with no repurchases in 2021, 2020, or 2019[265] Note 9 – Debt Rogers' revolving credit facility provides up to $450.0 million borrowing capacity, with $190.0 million outstanding as of December 31, 2021, primarily for the Silicone Engineering acquisition - In October 2020, Rogers entered into the Fourth Amended and Restated Credit Agreement, providing a revolving credit facility with up to $450.0 million borrowing capacity, maturing on March 31, 2024[266] - Borrowings bear interest based on alternate base rate, euro-currency loans (adjusted LIBOR plus spread), or RFR loans (SONIA plus spread), with the spread depending on the leverage ratio[270] - Financial covenants require maintaining a total net leverage ratio of no more than 3.25 to 1.00 and an interest coverage ratio of no less than 3.00 to 1.00[272] - In 2021, $190.0 million was borrowed under the revolving credit facility, primarily to fund the Silicone Engineering acquisition, partially offset by $25.0 million in principal payments[274] - Outstanding borrowings under the revolving credit facility were $190.0 million as of December 31, 2021, compared to $25.0 million as of December 31, 2020[275] Note 10 – Leases The company exercised a purchase option for its Eschenbach facility, extinguishing a $4.2 million finance lease, while operating lease right-of-use assets increased to $17.2 million - Rogers exercised a purchase option for its Eschenbach, Germany manufacturing facility on June 30, 2021, extinguishing a $4.2 million finance lease obligation[277] Lease Balances in Statements of Financial Position (as of December 31, in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Finance lease right-of-use assets | $389 | $7,017 | | Operating lease right-of-use assets | $17,161 | $4,216 | | Total finance lease obligations | $407 | $5,077 | | Total operating lease obligations | $17,775 | $4,494 | Operating Leases Expense and Payments (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating leases expense | $3,002 | $3,257 | $3,119 | | Payments on operating lease obligations | $2,784 | $2,893 | $2,967 | Note 11 – Pension Benefits, Other Postretirement Benefits and Employee Savings and Investment Plan Rogers sponsors defined benefit pension and postretirement plans, with a remaining pension surplus of $6.6 million funding 401(k) contributions, and a net periodic benefit credit in 2021 - Rogers sponsors one qualified noncontributory defined benefit pension plan (Union Plan) and non-qualified noncontributory defined benefit pension plans and postretirement benefit plans[283] - The Merged Plan was terminated and substantially settled in late 2019, with a $0.5 million pre-tax settlement charge recorded in 2021 for further settlement efforts[285] - A remaining pension surplus investment balance of $6.6 million as of December 31, 2021, is being used to fund employer contributions to the RESIP 401(k) plan[286] Pension and Other Postretirement Benefits (as of December 31, in thousands) | Metric | Pension Benefits 2021 | Pension Benefits 2020 | Other Postretirement Benefits 2021 | Other Postretirement Benefits 2020 | | :--- | :--- | :--- | :--- | :--- | | Net assets (liabilities) | $4,810 | $5,007 | $(1,444) | $(1,503) | | Accumulated Other Comprehensive Loss | $(11,807) | $(11,171) | $80 | $216 | Net Periodic Benefit Cost (Credit) (in thousands) | Metric | Pension Benefits 2021 | Pension Benefits 2020 | Pension Benefits 2019 | Other Postretirement Benefits 2021 | Other Postretirement Benefits 2020 | Other Postretirement Benefits 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net periodic benefit cost (credit) | $(439) | $(302) | $53,436 | $(30) | $(16) | $(891) | - RESIP (401(k) plan) related expense amounted to $5.6 million in 2021, $4.9 million in 2020, and $4.4 million in 2019[299] Note 12 – Commitments and Contingencies Rogers is involved in environmental remediation and asbestos-related product liability litigation, with 543 cases outstanding and $68.3 million in estimated liabilities largely covered by insurance - Rogers is participating in the Connecticut Voluntary Corrective Action Program, with $1.8 million in remediation costs incurred through December 31, 2021, and an accrual of $0.9 million for future efforts[300] - As of December 31, 2021, there were 543 asbestos-related product liability cases outstanding, with settlements totaling approximately $2.1 million in 2021[302] Asbestos-Related Projected Claims and Insurance Receivables (as of December 31, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Asbestos-related liabilities | $68,332 | $73,235 | | Asbestos-related insurance receivables | $62,567 | $66,793 | - The company recognized income of $0.2 million in 2021 related to asbestos-related provisions, primarily due to a favorable change in indemnity cost assumptions[308] Note 13 – Income Taxes The effective income tax rate decreased to 14.4% in 2021, primarily due to beneficial reversals of unrecognized tax positions in China, with international income significantly contributing to pre-tax earnings Income Before Income Tax Expense by Geography (in thousands) | Geography | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Domestic | $34,435 | $(4,371) | $(18,711) | | International | $91,845 | $72,905 | $73,837 | | Total | $126,280 | $68,534 | $55,126 | Income Tax Expense by Type (in thousands) | Type | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Current | $21,342 | $31,950 | $25,356 | | Deferred | $(3,195) | $(13,406) | $(17,549) | | Total | $18,147 | $18,544 | $7,807 | - The effective income tax rate decreased to 14.4% in 2021 from 27.1% in 2020, primarily due to beneficial reversals of unrecognized tax positions in China[315] Unrecognized Tax Benefits (excluding interest and penalties, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Beginning balance as of January 1 | $15,688 | $10,217 | | Ending balance as of December 31 | $6,583 | $15,688 | - It is reasonably possible that unrecognized tax benefits related to foreign exposures may decrease by up to $1.2 million within the coming year[317] Note 14 – Operating Segment and Geographic Information This note provides a breakdown of net sales by operating segment (AES, EMS, Other) and geographic area (Americas, APAC, EMEA), along with long-lived assets by region Total Net Sales by Operating Segment (in thousands) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Advanced Electronics Solutions | $534,429 | $458,679 | $515,127 | | Elastomeric Material Solutions | $378,017 | $328,177 | $361,603 | | Other | $20,440 | $15,727 | $21,530 | | Total net sales | $932,886 | $802,583 | $898,260 | Total Net Sales by Geographic Area (in thousands) | Region/Country | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Americas | $273,360 | $234,910 | $274,886 | | Total APAC | $435,511 | $380,673 | $437,437 | | Total EMEA | $224,015 | $187,000 | $185,937 | | Total net sales | $932,886 | $802,583 | $898,260 | Long-Lived Assets by Geographic Area (as of December 31, in thousands) | Region/Country | 2021 | 2020 | | :--- | :--- | :--- | | United States | $454,531 | $433,870 | | England | $188,859 | $— | | Germany | $133,546 | $133,873 | | Other | $113,734 | $97,049 | | Total long-lived assets | $890,670 | $664,792 | Note 15 – Supplemental Financial Information Supplemental financial information includes restructuring charges of $3.1 million in 2021, details on the $6.2 million net expense from the UTIS facility fire, and a breakdown of interest expense Restructuring and Impairment Charges (in thousands) | Charge Type | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Restructuring charges | $3,115 | $12,348 | $948 | | Impairment charges | $455 | $639 | $1,537 | | Total | $3,570 | $12,987 | $2,485 | - Manufacturing footprint optimization plans, primarily impacting the AES segment, resulted in $3.1 million in restructuring charges in 2021[328] - A fire at the UTIS manufacturing facility in South Korea in February 2021 resulted in $6.2 million in net operating expense, including fixed asset write-offs, inventory charges, and professional services, partially offset by $6.9 million in anticipated insurance recoveries[332][333][334] Interest Expense, Net (in thousands) | Component | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Interest on revolving credit facility | $892 | $3,294 | $7,378 | | Interest rate swap settlements | $— | $3,191 | $(200) | | Total interest expense, net | $2,536 | $7,135 | $6,869 | Note 16 – Recent Accounting Standards Rogers adopted ASU 2020-06 and ASU 2019-12 in January 2021, neither of which had a material effect on the consolidated financial statements - Rogers adopted ASU 2020-06 (Accounting for Convertible Instruments) and ASU 2019-12 (Simplifying the Accounting for Income Taxes) in January 2021, neither of which had a material effect on the consolidated financial statements[337][338] Note 17 – Mergers and Acquisitions Rogers acquired Silicone Engineering Ltd. for $172.3 million in October 2021, recognizing $107.2 million in goodwill, and entered a definitive merger agreement to be acquired by DuPont for $277.00 per share - On October 8, 2021, Rogers acquired Silicone Engineering Ltd. for a combined purchase price of $172.3 million, net of cash acquired, expanding its EMS segment[339] - The acquisition resulted in the recognition of $107.2 million in goodwill and $73.6 million in other intangible assets, including $48.9 million for customer relationships[340][342] - Transaction costs of $3.9 million related to the Silicone Engineering acquisition were recorded in SG&A expenses in 2021[344] - Silicone Engineering contributed $8.3 million in net sales to Rogers' consolidated financial statements for the period from October 8 to December 31, 2021[345] - On November 1, 2021, Rogers entered into a definitive merger agreement to be acquired by DuPont for $277.00 per share, with shareholder approval obtained on January 25, 2022, and closing expected in Q2 2022[348] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal control over financial reporting, excluding the recently acquired Silicone Engineering Ltd - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[353] - No material changes in internal control over financial reporting occurred during Q4 2021, excluding the operations of Silicone Engineering Ltd., which was acquired on October 8, 2021[354][357] - Management assessed the effectiveness of internal control over financial reporting as effective, based on COSO criteria[356] Other Information This item reports that there is no other information to disclose Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Rogers Corporation Part IV Directors, Executive Officers and Corporate Governance This section details Rogers Corporation's executive officers and directors, their qualifications, and the company's Code of Business Ethics, with the Audit Committee overseeing financial reporting and identifying financial experts - The company's executive officers include Bruce D. Hoechner (President and CEO), Ramakumar Mayampurath (SVP and CFO), Randall C. Gouveia (SVP and GM, EMS), Jonathan J. Rowntree (SVP and GM, AES), Peter B. Williams (SVP, Global Operations and Supply Chain), Robert C. Daigle (SVP and CTO), Jay B. Knoll (SVP, Corporate Development, General Counsel, Chief Sustainability Officer and Secretary), and Benjamin M. Buckley (VP and Chief Human Resources Officer)[43] - The Board of Directors includes members with diverse experience in global technology manufacturing, finance, strategic planning, and innovation[364][365][366][367][368][369][370] - Rogers has adopted a Code of Business Ethics for all employees, officers, and directors, prohibiting conflicts of interest[373] - The Audit Committee is composed of independent directors, with Ms. Simonet (Chair), Ms. Faust, Mr. Larson, and Mr. Moorthy identified as 'audit committee financial experts'[374] Executive Compensation Rogers Corporation's executive compensation strategy combines base salary, annual incentives, and long-term equity awards, with a significant portion at-risk and performance-based, and the DuPont merger will modify outstanding equity awards - The executive compensation philosophy focuses on attracting, retaining, and motivating talented executives to achieve outstanding business performance and shareholder value at a reasonable cost[376] - At-risk compensation made up approximately 83% of the CEO's target total direct compensation and 67% for other NEOs in 2021[377] - Performance-based pay constituted approximately 57% of the CEO's target compensation and 43% for other NEOs in 2021[377] - The Annual Incentive Compensation Plan (AICP) awards are based on positive operating income, corporate/business unit performance measures (net sales, operating income), and individual performance metrics (MBOs)[390][391][392] - The Long-Term Incentive Program (LTIP) uses a combination of performance-based restricted stock units (tied to three-year Total Shareholder Return relative to a peer index) and time-based restricted stock units[395][398] - For the 2019-2021 performance period, the payout percentage for performance-based restricted stock units was 180.7% of target[403] - The DuPont merger agreement provides for modifications to equity awards, generally resulting in full vesting of Company RSUs and PSUs (at 120% of target for PSUs) or conversion into DuPont restricted stock units[407] Fiscal Year 2021 Summary Compensation Table (in thousands) | Named Executive Officer | Salary | Stock Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Bruce D. Hoechner | $749,737 | $4,028,787 | $965,068 | $48,846 | $5,792,438 | | Ramakumar Mayampurath | $334,297 | $713,798 | $320,033 | $21,171 | $1,389,299 | | Randall C. Gouveia | $409,646 | $1,072,551 | $328,021 | $41,271 | $1,851,489 | | Jonathan J. Rowntree | $404,394 | $1,059,576 | $300,025 | $24,131 | $1,788,126 | | Peter B. Williams | $400,288 | $1,050,926 | $272,010 | $23,551 | $1,746,775 | | Michael M. Ludwig (Former CFO) | $213,360 | $— | $— | $34,406 | $247,766 | - Non-management directors receive an annual retainer (e.g., $65,000 base) and deferred stock unit awards, with the Board Chair receiving an additional $60,000 retainer[448][449][450] - The CEO Pay Ratio for 2021 was 141.2 to 1, with the median employee's annual total compensation at $42,078 and the CEO's at $5,941,687[456][457] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details security ownership, with directors and executive officers collectively owning 1.02%, and BlackRock, Inc. and The Vanguard Group holding over 5% each, ahead of the pending all-cash acquisition by DuPont Equity Compensation Plans (as of December 31, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Number of securities remaining available for future issuance | | :--- | :--- | :--- | | Rogers Corporation 2009 Long-Term Equity Compensation Plan | 68,383 | — | | Rogers Corporation 2019 Long-Term Equity Compensation Plan | 261,498 | 869,516 | | Rogers Corporation Global Stock Ownership Plan For Employees | 5,552 | — | | Total | 335,433 | 869,516 | - As of February 17, 2022, all current directors and executive officers as a group beneficially owned 192,544 shares, representing 1.02% of the outstanding capital stock[460] Beneficial Ownership of More than Five Percent of Capital Stock (as of February 17, 2022) | Name of Beneficial Owner | Shares Beneficially Owned | Percent of Class | | :--- | :--- | :--- | | BlackRock, Inc. | 3,273,574 | 17.4 % | | The Vanguard Group | 2,042,551 | 10.9 % | - The pending merger with DuPont involves an all-cash acquisition of Rogers Corporation at $277.00 per share, expected to close in Q2 2022[464] Certain Relationships and Related Transactions, and Director Independence Rogers Corporation's policy requires review and approval of related party transactions, and the Board of Directors has determined that all current directors, except the CEO, are independent - Since January 1, 2021, Rogers has not participated in any material related party transactions[465] - The company's Related Party Transactions Policy requires review and approval by the Nominating, Governance & Sustainability Committee for transactions exceeding $120,000 involving a related party[467][468] - The Board of Directors determined that all current directors, except the President and CEO, Mr. Hoechner, are independent according to NYSE listing standards and internal corporate governance guidelines[471] Principal Accountant Fees and Services This section details fees paid to PricewaterhouseCoopers LLP for audit and non-audit services, all of which are pre-approved by the Audit Committee Fees of Independent Auditor (PwC) (in thousands) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $3,078,500 | $2,791,750 | | Audit-Related Fees | $18,550 | $15,255 | | Tax Fees | $63,803 | $55,073 | | All Other Fees | $7,900 | $6,900 | | Total | $3,168,753 | $2,868,978 | - Audit fees include services for the audit of consolidated annual financial statements, review of interim statements, statutory/regulatory filings, and audit of internal control over financial reporting[472] - All audit and non-audit services provided by PwC are pre-approved by the Audit Committee[473] Exhibits, Financial Statement Schedules This section lists the consolidated financial statements and schedules included in Item 8, along with a comprehensive list of exhibits filed with the SEC, including key corporate and merger documents - Includes consolidated financial statements (Statements of Operations, Comprehensive Income, Financial Position, Shareholders' Equity, Cash Flows, and Notes) and Schedule II (Valuation and Qualifying Accounts)[474] - A detailed list of exhibits is provided, incorporating by reference various corporate documents, compensation plans, credit agreements, and the Agreement and Plan of Merger with DuPont[475][476][477][479] Form 10-K Summary This item is not applicable to Rogers Corporation