NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
As used herein, the terms “Company,” “Rogers,” “we,” “us,” “our” and similar terms mean Rogers Corporation and its subsidiaries, unless the context indicates otherwise.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for their fair presentation in accordance with GAAP. All significant intercompany transactions have been eliminated.
On January 1, 2018, the Company adopted ASU 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost
. Upon adoption, the Company reclassified
$0.4 million
and
$0.8 million
in net periodic pension benefits from Selling, general and administrative expenses to Other income (expense), net for the
three and six months ended June 30, 2017
, respectively. See Note 21, “Recent Accounting Standards” for further information.
Interim results are not necessarily indicative of results for a full year. For further information regarding our accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
.
Note 2 – Fair Value Measurements
The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
|
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
From time to time we enter into various instruments that require fair value measurement, 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, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments at Fair Value as of June 30, 2018
|
(Dollars in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
118
|
|
|
$
|
—
|
|
|
$
|
118
|
|
Copper derivative contracts
|
$
|
—
|
|
|
$
|
827
|
|
|
$
|
—
|
|
|
$
|
827
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
1,439
|
|
|
$
|
—
|
|
|
$
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments at Fair Value as of December 31, 2017
|
(Dollars in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
(396
|
)
|
|
$
|
—
|
|
|
$
|
(396
|
)
|
Copper derivative contracts
|
$
|
—
|
|
|
$
|
2,016
|
|
|
$
|
—
|
|
|
$
|
2,016
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Note 3 – Hedging Transactions and Derivative Financial Instruments
We are exposed to certain risks related to our ongoing business operations. The primary risks being managed through our use of derivative instruments are foreign currency exchange rate risk and commodity pricing risk (primarily related to copper). During 2017, we entered into an interest rate swap to hedge interest rate risk. We do not use derivative financial instruments for trading or speculative purposes. The valuation of derivative contracts used to manage each of these risks is described below:
|
|
•
|
Foreign Currency
- The fair value of any foreign currency option derivative is based upon valuation models applied to current market information such as strike price, spot rate, maturity date and volatility, and by reference to market values resulting from an over-the-counter market or obtaining market data for similar instruments with similar characteristics.
|
|
|
•
|
Commodity -
The fair value of copper derivatives is computed using a combination of intrinsic and time value valuation models. The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end. The time value valuation model incorporates the constant changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative instrument’s strike price and the remaining time to the underlying copper derivative instrument’s expiration date from the period end date. Overall, fair value is a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate, and volatility.
|
|
|
•
|
Interest Rates
- The fair value of interest rate swap instruments is derived by comparing the present value of the interest rate forward curve against the present value of the swap rate, relative to the notional amount of the swap. The net value represents the estimated amount we would receive or pay to terminate the agreements. Settlement amounts for an “in the money” swap would be adjusted down to compensate the counterparty for cost of funds, and the adjustment is directly related to the counterparties’ credit ratings.
|
The guidance for the accounting and disclosure of derivatives and hedging transactions requires companies to recognize all of their derivative instruments as either assets or liabilities at fair value in the statements of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies for hedge accounting treatment as defined under the applicable accounting guidance. For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss). This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. As of
June 30, 2018
, only our interest rate swap qualified for hedge accounting treatment as a cash flow hedge. For the
six months ended June 30, 2018
and
2017
, the hedge was highly effective.
Foreign Currency
During the
three months ended June 30, 2018
, we entered into Korean Won, Japanese Yen, Euro, Hungarian Forint and Chinese Renminbi forward contracts. We entered into these foreign currency forward contracts to mitigate certain global transactional exposures. These contracts do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations.
As of
June 30, 2018
the notional values of these foreign currency forward contracts were:
|
|
|
|
|
|
Notional Values of Foreign Currency Derivatives
|
KRW/USD
|
|
₩
|
3,454,400,000
|
|
JPY/EUR
|
|
¥
|
335,000,000
|
|
EUR/USD
|
|
€
|
12,822,491
|
|
EUR/HUF
|
|
€
|
1,132,697
|
|
USD/CNY
|
|
$
|
10,637,837
|
|
Commodity
We currently have
25
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. These contracts provide some coverage over the forecasted 2018 and 2019 monthly copper exposure and do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurs. The notional values of our copper contracts outstanding as of
June 30, 2018
were:
|
|
|
Volume of Copper Derivatives
|
July 2018 - September 2018
|
153 metric tons per month
|
October 2018 - December 2018
|
153 metric tons per month
|
January 2019 - March 2019
|
189 metric tons per month
|
April 2019 - June 2019
|
188 metric tons per month
|
July 2019 - September 2019
|
145 metric tons per month
|
Interest Rates
In 2017, we entered into an interest rate swap to hedge the variable interest rate on
$75.0 million
of our
$450.0 million
revolving credit facility. This transaction has been designated as a cash flow hedge and qualifies for hedge accounting treatment. See Note 12, “Debt” for further discussion regarding the credit facility.
Effects on Statements of Operations and of Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
The Effect of Current Derivative Instruments on the Financial Statements for the period ended June 30, 2018
|
|
Fair Values of Derivative Instruments as of June 30, 2018
|
|
|
|
|
Gain (Loss)
|
|
Other Assets (Liabilities)
|
Foreign Exchange Contracts
|
|
Location
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
Contracts not designated as hedging instruments
|
|
Other income (expense), net
|
|
$
|
(60
|
)
|
|
$
|
(124
|
)
|
|
$
|
118
|
|
Copper Derivatives
|
|
|
|
|
|
|
|
|
Contracts not designated as hedging instruments
|
|
Other income (expense), net
|
|
$
|
(363
|
)
|
|
$
|
(1,185
|
)
|
|
$
|
827
|
|
Interest Rate Swap
|
|
|
|
|
|
|
|
|
Contracts designated as hedging instruments
|
|
Other comprehensive income (loss)
|
|
$
|
410
|
|
|
$
|
1,399
|
|
|
$
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
The Effect of Current Derivative Instruments on the Financial Statements for the period ended
June 30, 2017
|
|
Fair Values of Derivative Instruments as of June 30, 2017
|
|
|
|
|
Gain (Loss)
|
|
Other Assets (Liabilities)
|
Foreign Exchange Contracts
|
|
Location
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
Contracts not designated as hedging instruments
|
|
Other income (expense), net
|
|
$
|
(312
|
)
|
|
$
|
(291
|
)
|
|
$
|
(312
|
)
|
Copper Derivatives
|
|
|
|
|
|
|
|
|
Contracts not designated as hedging instruments
|
|
Other income (expense), net
|
|
$
|
71
|
|
|
$
|
205
|
|
|
$
|
1,331
|
|
Interest Rate Swap
|
|
|
|
|
|
|
|
|
Contracts designated as hedging instruments
|
|
Other comprehensive income (loss)
|
|
$
|
(335
|
)
|
|
$
|
(515
|
)
|
|
$
|
(622
|
)
|
Note 4 – Inventories
Inventories are valued at the lower of cost or market. Inventories were as follows at the end of the periods noted below:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
June 30, 2018
|
|
December 31, 2017
|
Raw materials
|
$
|
51,370
|
|
|
$
|
43,092
|
|
Work-in-process
|
29,150
|
|
|
28,133
|
|
Finished goods
|
37,219
|
|
|
41,332
|
|
Total inventories
|
$
|
117,739
|
|
|
$
|
112,557
|
|
Note 5 – Acquisitions
Diversified Silicone Products
On January 6, 2017, we acquired the principal operating assets of Diversified Silicone Products, Inc. (DSP), pursuant to the terms of the Asset Purchase Agreement by and among the Company, DSP and the principal shareholders of DSP (the Purchase Agreement). Pursuant to the terms of the Purchase Agreement, we acquired certain assets and assumed certain liabilities of DSP for a total purchase price of approximately
$60.2 million
.
We used borrowings of
$30.0 million
under our credit facility in addition to cash on hand to fund the acquisition.
DSP is a custom silicone product development and manufacturing business and expands the portfolio of our Elastomeric Material Solutions (EMS) operating segment in cellular sponge and specialty extruded silicone profile technologies, while strengthening existing expertise in precision-calendered silicone and silicone formulating and compounding.
The results of DSP have been included in our condensed consolidated financial statements only for the periods subsequent to the completion of our acquisition on January 6, 2017.
Note 6 – Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component for the
six months ended June 30, 2018
and
2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and accompanying footnotes in thousands)
|
Foreign currency translation adjustments
|
|
Funded status of pension plans and other postretirement benefits
(1)
|
|
Unrealized gain (loss) on derivative instruments
(2)
|
|
Total
|
Beginning Balance December 31, 2017
|
$
|
(17,983
|
)
|
|
$
|
(47,198
|
)
|
|
$
|
26
|
|
|
$
|
(65,155
|
)
|
Other comprehensive income (loss) before reclassifications
|
(8,293
|
)
|
|
—
|
|
|
1,097
|
|
|
(7,196
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
87
|
|
|
—
|
|
|
87
|
|
Net current-period other comprehensive income (loss)
|
(8,293
|
)
|
|
87
|
|
|
1,097
|
|
|
(7,109
|
)
|
Ending Balance June 30, 2018
|
$
|
(26,276
|
)
|
|
$
|
(47,111
|
)
|
|
$
|
1,123
|
|
|
$
|
(72,264
|
)
|
|
|
|
|
|
|
|
|
Beginning Balance December 31, 2016
|
$
|
(46,446
|
)
|
|
$
|
(45,816
|
)
|
|
$
|
—
|
|
|
$
|
(92,262
|
)
|
Other comprehensive income (loss) before reclassifications
|
16,730
|
|
|
—
|
|
|
(435
|
)
|
|
16,295
|
|
Actuarial net gain incurred in the fiscal year
|
—
|
|
|
334
|
|
|
—
|
|
|
334
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
36
|
|
|
107
|
|
|
143
|
|
Net current-period other comprehensive income (loss)
|
16,730
|
|
|
370
|
|
|
(328
|
)
|
|
16,772
|
|
Ending Balance June 30, 2017
|
$
|
(29,716
|
)
|
|
$
|
(45,446
|
)
|
|
$
|
(328
|
)
|
|
$
|
(75,490
|
)
|
(1) Net of taxes of
$9,536
and
$9,563
as of
June 30, 2018
and
December 31, 2017
, respectively. Net of taxes of
$8,961
and
$9,160
as of
June 30, 2017
and
December 31, 2016
, respectively.
(2) Net of taxes of
$316
and
$15
as of
June 30, 2018
and
December 31, 2017
, respectively. Net of taxes of
$187
and
$0
as of
June 30, 2017
and
December 31, 2016
, respectively.
Note 7 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
and shares
in thousands,
except per share amounts)
|
Three Months Ended
|
|
Six Months Ended
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
17,329
|
|
|
$
|
20,896
|
|
|
$
|
43,465
|
|
|
$
|
47,928
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
18,389
|
|
|
18,140
|
|
|
18,338
|
|
|
18,098
|
|
Effect of dilutive shares
|
271
|
|
|
407
|
|
|
297
|
|
|
362
|
|
Weighted-average shares outstanding - diluted
|
18,660
|
|
|
18,547
|
|
|
18,635
|
|
|
18,460
|
|
Basic earnings per share
|
$
|
0.94
|
|
|
$
|
1.15
|
|
|
$
|
2.37
|
|
|
$
|
2.65
|
|
Diluted earnings per share
|
$
|
0.93
|
|
|
$
|
1.13
|
|
|
$
|
2.33
|
|
|
$
|
2.60
|
|
Certain potential options to purchase shares may be excluded from the calculation of diluted weighted-average shares outstanding where their exercise price is greater than the average market price of our capital stock during the relevant reporting period. For the
three months ended June 30, 2018
,
27,145
shares were excluded. For the
three months ended June 30, 2017
,
no
shares were excluded.
Note 8 – Equity Compensation
Performance-Based Restricted Stock Units
As of
June 30, 2018
, we had performance-based restricted stock units from 2016, 2017 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 2016, 2017 and 2018 awards have one measurement criteria: the three year total shareholder return (TSR) on the performance of our capital stock as compared to that of a specified group of peer companies. The TSR measurement criteria of the awards is considered a market condition. As such, the fair value of this measurement criteria was determined on the grant date using a Monte Carlo simulation valuation model. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period with no changes for final projected payout of the awards. We account for forfeitures as they occur.
Below were the assumptions used in the Monte Carlo calculation:
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
Expected volatility
|
34.8%
|
|
33.6%
|
Expected term (in years)
|
3.0
|
|
3.0
|
Risk-free interest rate
|
2.28%
|
|
1.38%
|
Expected volatility
– In determining expected volatility, we have considered a number of factors, including historical volatility.
Expected term
– We use the measurement 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.
The following table summarizes the change in number of performance-based restricted stock units outstanding for the
six months ended June 30, 2018
:
|
|
|
|
|
Performance-Based
Restricted Stock Units
|
Awards outstanding at December 31, 2017
|
169,202
|
|
Awards granted
|
72,160
|
|
Stock issued
|
(81,230
|
)
|
Awards forfeited
|
(17,489
|
)
|
Awards outstanding at June 30, 2018
|
142,643
|
|
During the
three and six months ended June 30, 2018
, we recognized compensation expense for performance-based restricted stock units of approximately
$0.8 million
and
$1.8 million
, respectively. During the
three and six months ended June 30, 2017
, we recognized compensation expense for performance-based restricted stock units of approximately
$1.6 million
and
$1.5 million
, respectively.
Time-Based Restricted Stock Units
As of June 30, 2018, we had time-based restricted stock unit awards from 2014, 2015, 2016, 2017 and 2018 outstanding. The 2015, 2016, 2017 and 2018 grants all ratably vest on the first, second and third anniversaries of the original grant date. The remaining outstanding 2014 grants cliff vest on December 17, 2018, the fourth anniversary of the original grant date. Each restricted stock unit represents a right to receive one share of the Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur.
The following table summarizes the change in number of time-based restricted stock units outstanding for the
six months ended June 30, 2018
:
|
|
|
|
|
Time-Based
Restricted Stock Units
|
Awards outstanding at December 31, 2017
|
173,331
|
|
Awards granted
|
41,310
|
|
Stock issued
|
(77,513
|
)
|
Awards forfeited
|
(14,627
|
)
|
Awards outstanding at June 30, 2018
|
122,501
|
|
During the
three and six months ended June 30, 2018
we recognized compensation expense for time-based restricted stock units of approximately
$1.3 million
and
$2.9 million
, respectively. During the
three and six months ended June 30, 2017
we recognized compensation expense for time-based restricted stock units of approximately
$1.7 million
and
$2.7 million
, respectively.
Deferred Stock Units
We grant deferred stock units to non-management directors. These awards are fully vested on the date of grant and the related shares are generally issued on the 13-month anniversary of the grant date unless the individual elects to defer the receipt of those shares. Each deferred stock unit results in the issuance of
one
share of Rogers’ capital stock. The grant of deferred stock units is typically done annually during the second quarter of each year. The fair value of the award is determined by the market value of the underlying stock price at the grant date.
The following table summarizes the change in number of deferred stock units outstanding during the
six months ended June 30, 2018
:
|
|
|
|
|
Deferred Stock Units
|
Awards outstanding at December 31, 2017
|
9,250
|
|
Awards granted
|
8,400
|
|
Stock issued
|
(8,400
|
)
|
Awards outstanding at June 30, 2018
|
9,250
|
|
During each of the three- and six-month periods ended
June 30, 2018
and
2017
, we recognized compensation expense associated with the deferred stock units of
$0.9 million
.
Stock Options
Stock options have been granted under various equity compensation plans, and they generally became exercisable in one-third increments on the second, third and fourth anniversaries of the grant dates. The maximum contractual term for all options was normally
ten years
. We used the Black-Scholes option-pricing model to calculate the grant-date fair value of an option. We have
no
t granted any stock options since the first quarter of 2012.
The following table summarizes the change in number of stock options outstanding for the
six months ended June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Weighted- Average Exercise Price Per Share
|
|
Weighted-Average Remaining Contractual Life in Years
|
|
Aggregate Intrinsic Value
|
Outstanding at December 31, 2017
|
33,283
|
|
|
$
|
36.40
|
|
|
2.2
|
|
$
|
4,177,655
|
|
Options exercised
|
(17,683
|
)
|
|
$
|
39.48
|
|
|
|
|
|
Options forfeited
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Options outstanding at June 30, 2018
|
15,600
|
|
|
$
|
32.91
|
|
|
2.5
|
|
$
|
1,225,308
|
|
Options exercisable at June 30, 2018
|
15,600
|
|
|
$
|
32.91
|
|
|
2.5
|
|
$
|
1,225,308
|
|
Options vested at June 30, 2018
|
15,600
|
|
|
$
|
32.91
|
|
|
2.5
|
|
$
|
1,225,308
|
|
During the
six months ended June 30, 2018
, the total intrinsic value of options exercised (i.e., the difference between the market price at time of exercise and the price paid by the individual to exercise the options) was
$2.0 million
, and the total amount of cash received from the exercise of these options was
$0.7 million
.
Employee Stock Purchase Plan
We have an employee stock purchase plan (ESPP) that allows eligible employees to purchase, through payroll deductions, shares of our capital stock at a discount to fair market value. The ESPP has
two
six
month offering periods each year, the first beginning in January and ending in June and the second beginning in July and ending in December. The ESPP contains a look-back feature that allows the employee to acquire shares of our capital stock at a
15%
discount from the underlying market price at the beginning or end of the applicable period, whichever is lower. We recognize compensation expense on this plan ratably over the offering period based on the fair value of the anticipated number of shares that will be issued at the end of each offering period. Compensation expense is adjusted at the end of each offering period for the actual number of shares issued. Fair value is determined based on two factors: (i) the
15%
discount on the underlying stock’s market value on the first day of the applicable offering period and (ii) the fair value of the look-back feature determined by using the Black-Scholes option-pricing model. We recognized approximately
$0.1 million
of compensation expense associated with the plan in each of the three-month periods ended
June 30, 2018
and
2017
and approximately
$0.2 million
of compensation expense associated with each of the six-month periods ended
June 30, 2018
and
2017
.
Note 9 – Pension Benefits and Other Postretirement Benefit Plans
We have
two
qualified noncontributory defined benefit pension plans: 1) the Rogers Corporation Employee’s Pension Plan for unionized hourly employees (the Union Plan); and 2) the Rogers Corporation Defined Benefit Pension Plan for (i) all other U.S. employees hired before December 31, 2007 who are salaried employees or non-union hourly employees and (ii) employees of the acquired Arlon business (the Rogers Plan).
The Company also maintains the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2004 and the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2005 (collectively, the Nonqualified Plans). The Nonqualified Plans serve to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans, as well as to provide supplemental retirement benefits, for certain senior executives of the Company.
In addition, we sponsor multiple fully insured or self-funded medical plans and life insurance plans for certain retirees. The measurement date for all plans is December 31 for each respective plan year.
Pension Plan Proposed Termination
The Company currently intends to terminate the Rogers Plan and has requested a determination letter from the Internal Revenue Service (IRS). The termination of the Rogers Plan remains subject to final approval by both management and the IRS. The Company plans to provide for lump sum distributions or annuity payments in connection with the termination of the Rogers Plan and we expect the settlement process to be completed in early 2019. The Company lacks sufficient information as of
June 30, 2018
to determine the financial impact of the proposed plan termination. At this time, there are no plans to terminate the Union Plan.
Components of Net Periodic (Benefit) Cost
The components of net periodic (benefit) cost for the periods indicated were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Retirement Health and
Life Insurance Benefits
|
(Dollars in thousands)
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
Change in benefit obligation:
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
17
|
|
|
$
|
38
|
|
|
$
|
56
|
|
Interest cost
|
1,692
|
|
|
1,841
|
|
|
3,372
|
|
|
3,682
|
|
|
16
|
|
|
13
|
|
|
31
|
|
|
31
|
|
Expected return on plan assets
|
(2,164
|
)
|
|
(2,309
|
)
|
|
(4,333
|
)
|
|
(4,618
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(400
|
)
|
|
(407
|
)
|
|
(801
|
)
|
|
(780
|
)
|
Amortization of net loss (gain)
|
457
|
|
|
433
|
|
|
913
|
|
|
866
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(31
|
)
|
Net periodic (benefit) cost
|
$
|
(15
|
)
|
|
$
|
(35
|
)
|
|
$
|
(48
|
)
|
|
$
|
(70
|
)
|
|
$
|
(367
|
)
|
|
$
|
(394
|
)
|
|
$
|
(732
|
)
|
|
$
|
(724
|
)
|
Employer Contributions
There were no required contributions to our qualified defined benefit pension plans for the
three and six months ended June 30, 2018
, and we are not required to make additional contributions to these plans for the remainder of
2018
. We paid
$0.1 million
of required contributions to our qualified defined benefit pension plans for the
three and six months ended June 30, 2017
. No voluntary contributions were made to our qualified defined benefit pension plans for the
three and six months ended June 30, 2018
and
2017
. We anticipate making an estimated payment of $25.0 million to the Rogers Plan during the third quarter of
2018
as part of the termination process.
As there is no funding requirement for the non-qualified unfunded noncontributory defined benefit pension plan or the retiree health and life insurance benefit plans, benefit payments made during the year are funded directly by the Company.
Note 10 – Segment Information
Our reporting structure is comprised of the following operating segments: ACS, EMS and PES. Our non-core businesses are reported in the Other operating segment. We believe this structure aligns our external reporting presentation with how we currently manage and view our business internally.
On January 1, 2018, we adopted ASU 2014-09,
Revenue from Contracts with Customers
. See Note 19, “Revenue from Contracts with Customers” for further information about this adoption. The Company sells products to fabricators and distributors who then sell directly into various end markets. End markets within the ACS operating segment include wireless infrastructure, aerospace and defense, auto safety and connectivity, and consumer electronics. End markets within the EMS operating segment include general industrial, portable electronics, mass transit, and automotive. End markets within the PES operating segment include industrial, e-mobility, renewable energy, mass transit, and micro channel coolers. End markets in the Other operating segment include automotive and industrial. The following table presents a disaggregation of revenue from contracts with customers for the periods indicated; inter-segment sales have been eliminated from the net sales data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Advanced Connectivity Solutions
|
|
Elastomeric Material Solutions
|
|
Power Electronics Solutions
|
|
Other
|
|
Total
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Net sales - recognized over time
|
|
$
|
—
|
|
|
$
|
907
|
|
|
$
|
53,052
|
|
|
$
|
4,616
|
|
|
$
|
58,575
|
|
Net sales - recognized at a point in time
|
|
76,376
|
|
|
78,309
|
|
|
595
|
|
|
820
|
|
|
156,100
|
|
Total net sales
|
|
$
|
76,376
|
|
|
$
|
79,216
|
|
|
$
|
53,647
|
|
|
$
|
5,436
|
|
|
$
|
214,675
|
|
Operating income
|
|
$
|
10,594
|
|
|
$
|
8,421
|
|
|
$
|
4,239
|
|
|
$
|
1,970
|
|
|
$
|
25,224
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
(1)
|
|
|
|
|
|
|
|
|
|
|
Net sales - recognized over time
|
|
$
|
—
|
|
|
$
|
415
|
|
|
$
|
43,409
|
|
|
$
|
4,741
|
|
|
$
|
48,565
|
|
Net sales - recognized at a point in time
|
|
74,340
|
|
|
77,170
|
|
|
496
|
|
|
853
|
|
|
152,859
|
|
Total net sales
|
|
$
|
74,340
|
|
|
$
|
77,585
|
|
|
$
|
43,905
|
|
|
$
|
5,594
|
|
|
$
|
201,424
|
|
Operating income
|
|
$
|
12,997
|
|
|
$
|
13,934
|
|
|
$
|
3,560
|
|
|
$
|
1,823
|
|
|
$
|
32,314
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Net sales - recognized over time
|
|
$
|
—
|
|
|
$
|
1,941
|
|
|
$
|
110,451
|
|
|
$
|
9,265
|
|
|
$
|
121,657
|
|
Net sales - recognized at a point in time
|
|
149,831
|
|
|
155,358
|
|
|
909
|
|
|
1,531
|
|
|
307,629
|
|
Total net sales
|
|
$
|
149,831
|
|
|
$
|
157,299
|
|
|
$
|
111,360
|
|
|
$
|
10,796
|
|
|
$
|
429,286
|
|
Operating income
|
|
$
|
18,496
|
|
|
$
|
22,581
|
|
|
$
|
11,260
|
|
|
$
|
3,932
|
|
|
$
|
56,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
(1)
|
|
|
|
|
|
|
|
|
|
|
Net sales - recognized over time
|
|
$
|
—
|
|
|
$
|
1,082
|
|
|
$
|
85,681
|
|
|
$
|
9,838
|
|
|
$
|
96,601
|
|
Net sales - recognized at a point in time
|
|
152,882
|
|
|
153,352
|
|
|
876
|
|
|
1,541
|
|
|
308,651
|
|
Total net sales
|
|
$
|
152,882
|
|
|
$
|
154,434
|
|
|
$
|
86,557
|
|
|
$
|
11,379
|
|
|
$
|
405,252
|
|
Operating income
|
|
$
|
32,495
|
|
|
$
|
26,724
|
|
|
$
|
8,404
|
|
|
$
|
3,728
|
|
|
$
|
71,351
|
|
(1)
For comparison purposes, this table reflects the disaggregation of 2017 revenue in accordance with Accounting Standards Codification 606,
Revenue from Contracts with Customers
(ASC 606)
.
Information relating to our segment operations by geographic area for the
three months ended June 30, 2018
and
2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
(1)
|
Region/Country
|
|
Advanced Connectivity Solutions
|
|
Elastomeric Material Solutions
|
|
Power Electronics Solutions
|
|
Other
|
|
Total
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
14,447
|
|
|
35,777
|
|
|
8,279
|
|
|
866
|
|
|
59,369
|
|
Other Americas
|
|
758
|
|
|
2,179
|
|
|
323
|
|
|
725
|
|
|
3,985
|
|
Total Americas
|
|
15,205
|
|
|
37,956
|
|
|
8,602
|
|
|
1,591
|
|
|
63,354
|
|
China
|
|
32,032
|
|
|
24,071
|
|
|
8,940
|
|
|
1,410
|
|
|
66,453
|
|
Other APAC
|
|
18,588
|
|
|
8,324
|
|
|
7,092
|
|
|
649
|
|
|
34,653
|
|
Total APAC
|
|
50,620
|
|
|
32,395
|
|
|
16,032
|
|
|
2,059
|
|
|
101,106
|
|
Germany
|
|
4,823
|
|
|
2,595
|
|
|
16,524
|
|
|
163
|
|
|
24,105
|
|
Other EMEA
|
|
5,728
|
|
|
6,270
|
|
|
12,489
|
|
|
1,623
|
|
|
26,110
|
|
Total EMEA
|
|
10,551
|
|
|
8,865
|
|
|
29,013
|
|
|
1,786
|
|
|
50,215
|
|
Total Net sales
|
|
76,376
|
|
|
79,216
|
|
|
53,647
|
|
|
5,436
|
|
|
214,675
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
11,372
|
|
|
35,904
|
|
|
7,118
|
|
|
1,348
|
|
|
55,742
|
|
Other Americas
|
|
1,158
|
|
|
2,989
|
|
|
258
|
|
|
193
|
|
|
4,598
|
|
Total Americas
|
|
12,530
|
|
|
38,893
|
|
|
7,376
|
|
|
1,541
|
|
|
60,340
|
|
China
|
|
33,949
|
|
|
22,556
|
|
|
7,884
|
|
|
1,072
|
|
|
65,461
|
|
Other APAC
|
|
16,984
|
|
|
8,693
|
|
|
5,156
|
|
|
1,002
|
|
|
31,835
|
|
Total APAC
|
|
50,933
|
|
|
31,249
|
|
|
13,040
|
|
|
2,074
|
|
|
97,296
|
|
Germany
|
|
6,786
|
|
|
2,355
|
|
|
13,380
|
|
|
158
|
|
|
22,679
|
|
Other EMEA
|
|
4,091
|
|
|
5,088
|
|
|
10,109
|
|
|
1,821
|
|
|
21,109
|
|
Total EMEA
|
|
10,877
|
|
|
7,443
|
|
|
23,489
|
|
|
1,979
|
|
|
43,788
|
|
Total Net sales
|
|
74,340
|
|
|
77,585
|
|
|
43,905
|
|
|
5,594
|
|
|
201,424
|
|
|
|
(1)
|
Net sales are allocated to countries based on the location of the customer. The table above includes countries with 10% or more of net sales for the periods indicated.
|
Information relating to our segment operations by geographic area for the
six months ended June 30, 2018
and
2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
(1)
|
Region/Country
|
|
Advanced Connectivity Solutions
|
|
Elastomeric Material Solutions
|
|
Power Electronics Solutions
|
|
Other
|
|
Total
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
26,725
|
|
|
73,469
|
|
|
16,857
|
|
|
2,123
|
|
|
119,174
|
|
Other Americas
|
|
1,584
|
|
|
3,980
|
|
|
681
|
|
|
555
|
|
|
6,800
|
|
Total Americas
|
|
28,309
|
|
|
77,449
|
|
|
17,538
|
|
|
2,678
|
|
|
125,974
|
|
China
|
|
65,539
|
|
|
44,865
|
|
|
18,362
|
|
|
2,727
|
|
|
131,493
|
|
Other APAC
|
|
33,926
|
|
|
17,484
|
|
|
13,543
|
|
|
1,442
|
|
|
66,395
|
|
Total APAC
|
|
99,465
|
|
|
62,349
|
|
|
31,905
|
|
|
4,169
|
|
|
197,888
|
|
Germany
|
|
11,073
|
|
|
5,337
|
|
|
31,234
|
|
|
332
|
|
|
47,976
|
|
Other EMEA
|
|
10,984
|
|
|
12,164
|
|
|
30,683
|
|
|
3,617
|
|
|
57,448
|
|
Total EMEA
|
|
22,057
|
|
|
17,501
|
|
|
61,917
|
|
|
3,949
|
|
|
105,424
|
|
Total Net sales
|
|
149,831
|
|
|
157,299
|
|
|
111,360
|
|
|
10,796
|
|
|
429,286
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
24,595
|
|
|
74,000
|
|
|
15,708
|
|
|
2,563
|
|
|
116,866
|
|
Other Americas
|
|
1,725
|
|
|
5,461
|
|
|
561
|
|
|
377
|
|
|
8,124
|
|
Total Americas
|
|
26,320
|
|
|
79,461
|
|
|
16,269
|
|
|
2,940
|
|
|
124,990
|
|
China
|
|
71,378
|
|
|
39,468
|
|
|
14,251
|
|
|
2,414
|
|
|
127,511
|
|
Other APAC
|
|
32,911
|
|
|
18,635
|
|
|
10,275
|
|
|
1,917
|
|
|
63,738
|
|
Total APAC
|
|
104,289
|
|
|
58,103
|
|
|
24,526
|
|
|
4,331
|
|
|
191,249
|
|
Germany
|
|
12,862
|
|
|
4,648
|
|
|
25,315
|
|
|
341
|
|
|
43,166
|
|
Other EMEA
|
|
9,411
|
|
|
12,222
|
|
|
20,447
|
|
|
3,767
|
|
|
45,847
|
|
Total EMEA
|
|
22,273
|
|
|
16,870
|
|
|
45,762
|
|
|
4,108
|
|
|
89,013
|
|
Total Net sales
|
|
152,882
|
|
|
154,434
|
|
|
86,557
|
|
|
11,379
|
|
|
405,252
|
|
|
|
(1)
|
Net sales are allocated to countries based on the location of the customer. The table above includes countries with 10% or more of net sales for the periods indicated.
|
Note 11 – Joint Ventures
As of
June 30, 2018
, we had
two
joint ventures, each
50%
owned, which were accounted for under the equity method of accounting.
|
|
|
|
|
Joint Venture
|
Location
|
Operating Segment
|
Fiscal Year-End
|
Rogers INOAC Corporation (RIC)
|
Japan
|
Elastomeric Material Solutions
|
October 31
|
Rogers INOAC Suzhou Corporation (RIS)
|
China
|
Elastomeric Material Solutions
|
December 31
|
We recognized equity income related to the joint ventures of
$1.8 million
and
$2.8 million
for the
three and six months ended June 30, 2018
, respectively. We recognized equity income related to the joint ventures of
$1.0 million
and
$2.0 million
for the
three and six months ended June 30, 2017
, respectively. These amounts are included in the condensed consolidated statements of operations.
The summarized financial information for the joint ventures for the periods indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(Dollars in thousands)
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
Net sales
|
$
|
14,907
|
|
|
$
|
12,846
|
|
|
$
|
28,232
|
|
|
$
|
24,270
|
|
Gross profit
|
$
|
5,608
|
|
|
$
|
4,706
|
|
|
$
|
11,081
|
|
|
$
|
9,142
|
|
Net income
|
$
|
3,609
|
|
|
$
|
1,932
|
|
|
$
|
5,622
|
|
|
$
|
3,952
|
|
Receivables from and payables to joint ventures arise during the normal course of business from transactions between us and the joint ventures. As of
June 30, 2018
and
December 31, 2017
, we had receivables of
$3.0 million
and
$3.7 million
, respectively, due from RIC, RIS, our affiliated partner in the joint ventures, as well as its subsidiaries. As of
June 30, 2018
and
December 31, 2017
, we owed payables of
$1.9 million
and
$2.1 million
, respectively, to RIC and RIS.
Note 12 – Debt
On February 17, 2017, we entered into a secured
five
year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Third Amended Credit Agreement), which 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).
Borrowings under the Third Amended Credit Agreement can be made as alternate base rate loans or euro-currency loans. Alternate base rate loans bear interest that includes a base reference rate plus a spread of
37.5
to
75.0
basis points, depending on our leverage ratio.
The base reference rate is the greater of the prime rate; federal funds effective rate (or the overnight bank funding rate, if greater) plus 50 basis points; or adjusted 1-month LIBOR plus 100 basis points.
Euro-currency loans bear interest based on adjusted LIBOR plus a spread of
137.5
to
175.0
basis points, depending on our leverage ratio.
In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Third Amended Credit Agreement, we are required to pay a quarterly fee of
20
to
30
basis points (based upon our leverage ratio) of the unused amount of the lenders’ commitments under the Third Amended Credit Agreement.
The Third Amended Credit Agreement contains customary representations, warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated. If an event of default occurs, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The financial covenants include requirements to maintain (1) a leverage ratio of no more than
3.25
to 1.00, subject to an election to increase the maximum leverage ratio to
3.50
to 1.00 for one fiscal year in connection with a permitted acquisition, and (2) an interest coverage ratio of no less than
3.00
to 1.00.
All obligations under the Third Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Third Amended Credit Agreement (the Guarantors). The obligations are also secured by a Third Amended and Restated Pledge and Security Agreement, dated as of February 17, 2017, entered into by us and the Guarantors which grants to the administrative agent, for the benefit of the lenders, a security interest, subject to certain exceptions, in substantially all of the non-real estate assets of the Guarantors. These assets include, but are not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries.
All revolving loans are due on the maturity date, February 17, 2022. We are not required to make any quarterly principal payments under the Third Amended Credit Agreement, and as of
June 30, 2018
we have
$131.0 million
in outstanding borrowings under our credit facility.
At
June 30, 2018
, we have
$2.0 million
of outstanding line of credit issuance costs that will be amortized over the life of the Third Amended Credit Agreement, which will terminate in February 2022. We recorded amortization expense of
$0.1 million
for each of the three-month periods ended
June 30, 2018
and
2017
, and
$0.3 million
and
$0.2 million
for the
six months ended June 30, 2018
and
2017
, respectively, related to these deferred costs.
In March 2017, we entered into an interest rate swap to hedge the variable interest rate on
$75.0 million
of our
$450.0 million
revolving credit facility. See further discussion in Note 3, “Hedging Transactions and Derivative Financial Instruments.”
Restriction on Payment of Dividends
Our Third Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our leverage ratio does not exceed
2.75
to
1.00
. If our leverage ratio exceeds
2.75
to
1.00
, we may nonetheless make up to
$20.0 million
in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our leverage ratio did not exceed
2.75
to
1.00
as of
June 30, 2018
.
Capital Leases
We have a capital lease obligation related to our manufacturing facility in Eschenbach, Germany. Under the terms of the leasing agreement, we have an option to purchase the property upon the expiration of the lease in
2021
at a price which is the greater of (i) the then-current market value or (ii) the residual book value of the land including the buildings and installations thereon. The total obligation recorded for the lease as of
June 30, 2018
is
$5.3 million
. Depreciation expense related to this capital lease was
$0.1 million
for each of the three-month periods ended
June 30, 2018
and
2017
, and was
$0.2 million
for each of the six-month periods ended
June 30, 2018
and
2017
. These expenses are included as depreciation expense in cost of sales on our condensed consolidated statements of operations. Accumulated depreciation at
June 30, 2018
and
December 31, 2017
was
$3.1 million
and
$3.3 million
, respectively.
We also incurred interest expense on this capital lease of
$0.1 million
for each of the three-month periods ended
June 30, 2018
and
2017
and
$0.1 million
for each of the six-month periods ended
June 30, 2018
and
2017
. Interest expense related to the debt recorded on the capital lease is included in interest expense on the condensed consolidated statements of operations.
In
2017
, we entered into
two
additional capital lease agreements for office related equipment in various worldwide locations. The total obligation recorded for the capital leases as of
June 30, 2018
was
$0.7 million
. Depreciation expense related to the capital leases was
$0.1 million
for the
three and six months ended June 30, 2018
. These expenses are included as depreciation expense in selling, general and administrative expenses on the condensed consolidated statements of operations. Accumulated depreciation as of
June 30, 2018
was
$0.2 million
.
Note 13 – Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the period ending
June 30, 2018
, by operating segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Advanced Connectivity Solutions
|
|
Elastomeric Material Solutions
|
|
Power Electronics Solutions
|
|
Other
|
|
Total
|
December 31, 2017
|
$
|
51,693
|
|
|
$
|
111,575
|
|
|
$
|
71,615
|
|
|
$
|
2,224
|
|
|
$
|
237,107
|
|
Foreign currency translation adjustment
|
—
|
|
|
(707
|
)
|
|
(2,113
|
)
|
|
—
|
|
|
(2,820
|
)
|
June 30, 2018
|
$
|
51,693
|
|
|
$
|
110,868
|
|
|
$
|
69,502
|
|
|
$
|
2,224
|
|
|
$
|
234,287
|
|
Other Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
(Dollars in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Customer relationships
|
$
|
127,885
|
|
|
$
|
25,815
|
|
|
$
|
102,070
|
|
|
$
|
128,907
|
|
|
$
|
22,514
|
|
|
$
|
106,393
|
|
Technology
|
72,374
|
|
|
35,175
|
|
|
37,199
|
|
|
73,891
|
|
|
33,491
|
|
|
40,400
|
|
Trademarks and trade names
|
10,180
|
|
|
2,649
|
|
|
7,531
|
|
|
10,213
|
|
|
2,157
|
|
|
8,056
|
|
Covenants not to compete
|
760
|
|
|
150
|
|
|
610
|
|
|
1,799
|
|
|
1,108
|
|
|
691
|
|
Total definite-lived other intangible assets
|
211,199
|
|
|
63,789
|
|
|
147,410
|
|
|
214,810
|
|
|
59,270
|
|
|
155,540
|
|
Indefinite-lived other intangible asset
|
4,599
|
|
|
—
|
|
|
4,599
|
|
|
4,738
|
|
|
—
|
|
|
4,738
|
|
Total other intangible assets
|
$
|
215,798
|
|
|
$
|
63,789
|
|
|
$
|
152,009
|
|
|
$
|
219,548
|
|
|
$
|
59,270
|
|
|
$
|
160,278
|
|
Gross and net carrying amounts and accumulated amortization may differ from prior periods due to foreign exchange rate fluctuations.
Amortization expense for the
three and six months ended June 30, 2018
was approximately
$3.8 million
and
$7.7 million
, respectively. Amortization expense for the
three and six months ended June 30, 2017
was approximately
$3.8 million
and
$7.1 million
, respectively. The estimated future amortization expense is
$7.6 million
for the remainder of 2018 and
$15.0 million
,
$11.7 million
,
$11.0 million
and
$10.6 million
for 2019, 2020, 2021 and 2022, respectively.
The indefinite-lived other intangible asset was acquired as part of the acquisition of Curamik Electronics GmbH. This asset is assessed for impairment annually, and between annual assessments if an event occurs or circumstances change that indicate the carrying value may not be recoverable.
The definite-lived other intangible assets are amortized using a fair value methodology that is based on the projected economic use of the related underlying asset. The weighted average remaining amortization period as of
June 30, 2018
, by definite-lived other intangible asset class, is presented in the table below:
|
|
|
|
Definite-Lived Other Intangible Asset Class
|
|
Weighted Average Remaining Amortization Period
|
Customer relationships
|
|
8.9
|
Technology
|
|
4.8
|
Trademarks and trade names
|
|
5.9
|
Covenants not to compete
|
|
1.7
|
Total definite-lived other intangible assets
|
|
7.7
|
Note 14 – Commitments and Contingencies
Descriptions of the principal environmental and legal proceedings in which we are engaged are set forth below:
Voluntary Corrective Action Program
Our location in Rogers, Connecticut is part of the Connecticut Voluntary Corrective Action Program (VCAP). As part of this program, we partnered with the Connecticut Department of Energy and Environmental Protection (CT DEEP) to determine the corrective actions to be taken at the site related to contamination issues. We evaluated this matter and completed internal due diligence work related to the site in the fourth quarter of 2015. Remediation activities on the site are ongoing and are recorded as reductions to the accrual as they are incurred. We have incurred aggregate remediation costs of
$0.7 million
through
June 30, 2018
, and the accrual for future remediation efforts is
$1.7 million
.
PCB Contamination
We have been working with CT DEEP and the United States Environmental Protection Agency, Region I, in connection with certain polychlorinated biphenyl (PCB) contamination at our facility in Woodstock, Connecticut. The issue was originally discovered in the soil at the facility in the late 1990s, which has been remediated. Further contamination was later found in the groundwater beneath the property, which was addressed with the installation of a pump and treat system in 2011. The future costs related to the maintenance of the groundwater pump and treat system now in place at the site are expected to be minimal. We believe that the remaining remediation activity will continue for several more years and no time frame for completion can be estimated at the present time.
PCB contamination at this facility was also found in the buildings and courtyards original to the site, in addition to surrounding areas, including an on-site pond. We have completed remediation activities for the buildings and courtyards. We currently have a reserve of
$0.2 million
for the pond remediation recorded in our condensed consolidated statements of financial position. We believe this reserve will be adequate to cover the remaining remediation work related to the pond contamination based on the information known at this time. However, if additional contamination is found, the cost of the remaining remediation may increase.
Asbestos Litigation
We, like many other industrial companies, have been named as a defendant in a number of lawsuits filed in courts across the country by persons alleging personal injury from exposure to products containing asbestos. We have never mined, milled, manufactured or marketed asbestos; rather, we made and provided to industrial users a limited number of products that contained encapsulated asbestos, but we stopped manufacturing these products in the late 1980s. Most of the claims filed against us involve numerous defendants, sometimes as many as several hundred.
The following table summarizes the change in number of asbestos claims outstanding during the
six months ended June 30, 2018
:
|
|
|
|
|
Asbestos Claims
|
Claims outstanding at December 31, 2017
|
687
|
|
New claims filed
|
126
|
|
Pending claims concluded
|
(127
|
)
|
Claims outstanding at June 30, 2018
|
686
|
|
For the
six months ended June 30, 2018
,
110
claims were dismissed and
17
claims were settled. Settlements totaled approximately
$4.9 million
for the
six months ended June 30, 2018
.
We recognize a liability for asbestos-related contingencies that are probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos related matters, we record asbestos-related insurance receivables that are deemed probable. Our estimates of asbestos-related contingent liabilities and related insurance receivables are based on an independent actuarial analysis and an independent insurance usage analysis prepared annually by third parties. The actuarial analysis contains numerous assumptions, including general assumptions regarding the asbestos-related product liability litigation environment and company-specific assumptions regarding claims rates (including diseases alleged), dismissal rates, average settlement costs and average defense costs. The insurance usage analysis considers, among other things, applicable deductibles, retentions and policy limits, the solvency and historical payment experience of various insurance carriers, the likelihood of recovery as estimated by external legal counsel and existing insurance settlements.
We review our asbestos-related forecasts annually in the fourth quarter of each year unless facts and circumstances materially change during the year, at which time we would analyze these forecasts. During 2017, we reviewed the projections of our current and future asbestos claims, and determined it was appropriate to extend the liability projection period to cover all current and future claims through 2058. We based our conclusion on our history and experience with the claims data, the diminished volatility and consistency of observable claims data, the period of time that has elapsed since we stopped manufacturing products that contained encapsulated asbestos and an expectation of a downward trend in claims due to the average age of our claimants, which is approaching the average life expectancy. As a result, we believe we are now able to make a reasonable estimate of the actuarially determined liability for current and future asbestos claims through 2058, the expected end of our asbestos liability exposure.
As of
December 31, 2017
, the balances of the asbestos-related claims and insurance receivables, which are projected to cover all current and future claims through 2058, were
$76.2 million
and
$69.2 million
, respectively. To date, the defense and settlement costs of our asbestos-related product liability litigation have been substantially covered by insurance. We have identified continuous coverage for primary, excess and umbrella insurance from the 1950s through the mid-1980s, except for a period in the early 1960s, with respect to which we have entered into an agreement for primary, but not excess or umbrella, coverage. In addition, we have entered into a cost sharing agreement with most of our primary, excess and umbrella insurance carriers to facilitate the ongoing administration and payment of claims by the carriers. The cost sharing agreement may be terminated by any party, but will continue until a party elects to terminate it. As of the filing date for this report, the agreement has not been terminated. During the first quarter of
2018
, we received notice that primary coverage for a period of
eight
years and excess coverage for a period of
two
years had been exhausted, and as a result, we incurred indemnity and defense costs of
$0.2 million
and
$0.5 million
for the
three and six months ended June 30, 2018
, respectively. These costs reduced our existing asbestos-related liabilities to
$75.7 million
as of
June 30, 2018
. We expect to exhaust individual primary, excess and umbrella coverages over time, and there is no assurance that such exhaustion will not accelerate due to additional claims, damages and settlements or that coverage will be available as expected.
The amounts recorded for the asbestos-related liabilities and the related insurance receivables described above were based on facts known at the time and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of such claims, the length of time it takes to dispose of such claims, coverage issues among insurers and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States could cause the actual liability and insurance recoveries for us to be higher or lower than those projected or recorded.
There can be no assurance that our accrued asbestos liabilities will approximate our actual asbestos-related settlement and defense costs, or that our accrued insurance recoveries will be realized. We believe that it is reasonably possible that we may incur additional charges for our asbestos liabilities and defense costs in the future, which could exceed existing reserves and insurance recovery, but we are unable to estimate the amount of such additional liabilities and costs. We will continue to vigorously defend ourselves and believe we have substantial unutilized insurance coverage to mitigate future costs related to this matter.
General Litigation
In addition to the above issues, the nature and scope of our business brings us in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject us to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. We have established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position or cash flows.
Note 15 – Share Repurchases
On
August 6, 2015
, we initiated a share repurchase program (the Program) of up to
$100.0 million
of the Company’s capital stock. We initiated the Program to mitigate dilutive effects of stock option exercises and vesting of restricted stock units granted by the Company, in addition to enhancing shareholder value. The Program has no expiration date, and may be suspended or discontinued at any time without notice. As of
June 30, 2018
,
$49.0 million
remained available for repurchase under the Program.
We repurchased the following shares of capital stock during the
three and six months ended June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(Dollars in thousands)
|
June 30, 2018
|
|
June 30, 2018
|
Shares of capital stock repurchased
|
—
|
|
|
23,138
|
|
Value of capital stock repurchased
|
$
|
—
|
|
|
$
|
2,999
|
|
All repurchases were made using cash from operations.
Note 16 – Income Taxes
Our effective income tax rate was
32.6%
and
33.9%
for the
three months ended June 30, 2018
and
2017
, respectively. The decrease was primarily due to a lower U.S. effective tax rate, as a result of U.S. tax reform, and changes in pretax mix across jurisdictions with disparate tax rates, partially offset by an increase in current year accruals for uncertain tax positions. Our effective income tax rate was
23.2%
and
33.0%
for the
six months ended June 30, 2018
and
2017
, respectively. The decrease was primarily due to a lower U.S. effective tax rate, as a result of U.S. tax reform, changes in pretax mix across jurisdictions with disparate tax rates, excess tax deductions on equity compensation, R&D credits and a release of reserves for uncertain tax positions, partially offset by an increase in current year accruals for uncertain tax positions.
The total amount of unrecognized tax benefits as of
June 30, 2018
was
$12.4 million
, of which
$10.9 million
would affect our effective tax rate if recognized. It is reasonably possible that approximately
$3.6 million
of our unrecognized tax benefits as of
June 30, 2018
will reverse within the next twelve months.
We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of
June 30, 2018
, we had
$0.7 million
accrued for the payment of interest.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years prior to 2013.
Note 17 – Restructuring and Impairment Charges
Global Headquarters Relocation
In the second quarter of
2017
, we completed the physical relocation of our global headquarters from Rogers, Connecticut to Chandler, Arizona. We recorded
$0.1 million
and
$1.1 million
of expense related to this project in the
three months ended June 30, 2018
and
2017
, respectively and
$0.5 million
and
$1.8 million
in the
six months ended June 30, 2018
and
2017
, respectively. Severance activity related to the headquarters relocation is presented in the table below for the
six months ended June 30, 2018
:
|
|
|
|
|
(Dollars in thousands)
|
Severance Related to Headquarters Relocation
|
Balance at December 31, 2017
|
$
|
183
|
|
Provisions
|
99
|
|
Payments
|
(244
|
)
|
Balance at June 30, 2018
|
$
|
38
|
|
The fair value of the total severance benefits to be paid (including payments already made) in connection with the relocation is
$1.1 million
, of which we expensed
$0.0 million
and
$0.1 million
in the
three months ended June 30, 2018
and
2017
, respectively and
$0.1 million
and
$0.3 million
in the
six months ended June 30, 2018
and
2017
, respectively. The total severance costs are being expensed ratably over the required service period for the affected employees.
Facility Consolidation
On April 24, 2018, we made the decision to relocate our Santa Fe Springs, California operations to the Company’s facilities in Carol Stream, Illinois and Bear, Delaware. We expect to incur restructuring expenses of approximately
$2.0 million
in connection with the closure and transfer of production capabilities to the Carol Stream, Illinois and Bear, Delaware facilities. These costs include approximately
$0.8 million
in severance and retention expenses and
$1.2 million
of costs related to the relocation of equipment. The Company estimates that approximately
$1.5 million
and
$0.5 million
of the costs will be incurred in fiscal years 2018 and 2019, respectively.
Completion of the transfer, and start-up of production at the Carol Stream, Illinois and Bear, Delaware facilities, is expected to require capital expenditures of approximately
$1.2 million
to
$1.4 million
. We recorded
$0.5 million
of expense related to this project in the
three and six months ended June 30, 2018
, respectively. Severance activity related to the facility consolidation is presented in the table below for the
six months ended June 30, 2018
:
|
|
|
|
|
(Dollars in thousands)
|
Severance Related to Facility Consolidation
|
Balance at December 31, 2017
|
$
|
—
|
|
Provisions
|
316
|
|
Payments
|
(14
|
)
|
Balance at June 30, 2018
|
$
|
302
|
|
The fair value of the total severance benefits to be paid (including payments already made) in connection with the relocation is
$0.8 million
. This total is being expensed ratably over the required service period for the affected employees. We incurred
$0.3 million
of severance related expenses during the
three and six months ended June 30, 2018
.
Note 18 – Assets Held for Sale
In the second quarter of 2017, we began actively marketing for sale unutilized property in Chandler, Arizona, consisting of a building and two adjacent parcels of land with an aggregate net book value of
$0.9 million
. In the
second quarter of 2018
, we completed the sale of the building and one parcel of land and recognized a gain on sale of approximately
$0.4 million
in operating income. The remaining parcel of land being classified as held for sale has a net book value of
$0.4 million
.
Note 19 – Revenue from Contracts with Customers
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, to achieve a consistent application of revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We recognize revenue when all of the following criteria are met: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of our shipping terms permit us to recognize revenue at point of shipment. Some shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, revenue is not recognized until either the customer has received the goods or they have passed through customs, depending on the circumstances. Shipping and handling costs are treated as fulfillment costs. Sales tax or VAT are excluded from the measurement of the transaction price.
The Company manufactures some products to customer specifications which are customized to such a degree that it is unlikely that another entity would purchase these products or that we could modify these products for another customer. These products are deemed to have no alternative use to the Company whereby we have an enforceable right to payment evidenced by contractual termination clauses. In accordance with ASC 606, for those circumstances we recognize revenue on an over-time basis. Revenue recognition does not occur until the product meets the definition of “no alternative use” and therefore, items that have not yet reached that point in the production process are not included in the population of items with over-time revenue recognition.
As appropriate, we record estimated reductions to revenue for customer returns, allowances, and warranty claims. Provisions for such reductions are made at the time of sale and are typically derived from historical trends and other relevant information.
Performance Obligations
Manufactured goods are our primary performance obligations. Revenue related to our performance obligations is predominantly recognized at a point in time consistent with our shipping terms. For certain products that meet the criteria of no alternative use whereby the Company has the right to payment, we recognize revenue on an over-time basis.
The selection of a method to measure progress toward completion of a contract requires judgment and is based on the nature of the products or services to be provided. We use the cost incurred method to measure the progress of our contracts with no alternative use products whereby the Company has the right to payment as we believe it is the best depiction of the transferring of value to the customer. Under the cost incurred method, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the contract. Contract costs include labor, materials and subcontractors costs, as well as an allocation of indirect costs. Revenues, including estimated fees or profits, are recorded as costs are incurred.
Performance obligations are typically satisfied within three months of receipt of a customer order; therefore, a change in cost estimates will not have a material impact on the percentage of completion noted at the prior quarter end. Our typical payment terms with customers range from
30
days to
105
days. Product pricing is determined and negotiated on a standalone basis. Product pricing is determined without consideration for the pricing, margin, or other information specific to other products that the same customer or other parties related to that customer may also purchase, whether in the same or a different contract. Management allocates the transaction price to its performance obligations primarily based on stand-alone selling prices that may have been developed via specific customer quote for no alternative use products and non-standard products or standard price lists for standard products. The accounting for the estimate of variable consideration is consistent with our current practice.
Contract modifications occur when there is a change to the products, price, or both. Contract modifications are treated as a separate contract if there are additions to promised goods and services that are distinct and if the price for that separate performance obligation reflects the stand-alone selling price for those goods or services. However, if the obligations in the contract modification are not distinct and are part of a single performance obligation that is only partially satisfied, the contract is not determined to be a separate contract and is accounted for as a revision to an existing contract. These modifications are accounted for prospectively when remaining promises are distinct from those previously transferred, or through a cumulative catch-up adjustment.
Contract Balances
The Company has contract assets primarily related to unbilled revenue for revenue recognized related to products that are deemed to have no alternative use whereby we have the right to payment. Revenue is recognized in advance of billing to the customer in these circumstances as billing is typically performed at the time of shipment to the customer. The unbilled revenue is included in the contract assets on the condensed consolidated statements of financial position.
The Company did not have any contract liabilities as of
June 30, 2018
.
The following table presents contract assets by operating segment as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
(Dollars in thousands)
|
Advanced Connectivity Solutions
|
|
Elastomeric Material Solutions
|
|
Power Electronics Solutions
|
|
Other
|
|
Total
|
Contract Assets
|
—
|
|
|
384
|
|
|
18,126
|
|
|
3,423
|
|
|
21,933
|
|
No impairment losses were recognized during the
three and six months ended June 30, 2018
on any receivables or contract assets arising from our contracts with customers.
Transition
We adopted ASU 2014-09 in the first quarter of 2018 retrospectively with the cumulative effect of applying the standard recognized at the date of implementation and without restatement of comparative periods. This application of the new standard resulted in an increase to the January 1, 2018 balance of retained earnings of approximately
$4.2 million
, net of tax.
The guidance was applied to all contracts that were not completed at the date of implementation. The primary reason for the impact of adoption is due to over-time revenue recognition.
If the criteria for over-time recognition are not met, revenue is recognized at a point in time. In considering at what point in time control of the product or service has transferred to the customer, we consider qualitative factors such as: 1) present right to payment; 2) legal title to the asset; 3) physical possession; 4) risks and rewards of ownership; and, 5) customer acceptance.
The impact of adoption using the modified retrospective method on the Company’s condensed consolidated financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
Condensed Consolidated Statements of Financial Position:
|
December 31, 2017
|
|
|
|
January 1, 2018
|
(Dollars in thousands)
|
Under ASC 605
|
|
Impact of Adoption
|
|
Under ASC 606
|
Contract assets
|
$
|
—
|
|
|
$
|
18,099
|
|
|
$
|
18,099
|
|
Inventories
|
112,557
|
|
|
(12,307
|
)
|
|
100,250
|
|
Deferred income taxes
|
10,706
|
|
|
1,580
|
|
|
12,286
|
|
Retained earnings
|
684,540
|
|
|
4,212
|
|
|
688,752
|
|
The following tables set forth the amount by which each financial statement line item is affected in the current reporting period by the application of ASC 606, as compared to the guidance that was in effect before its adoption. The impact of adoption on the condensed consolidated financial statements as of and for the
three and six months ended June 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations:
|
Three Months Ended
|
June 30, 2018
|
|
|
|
June 30, 2018
|
(In thousands, except per share amounts)
|
Under ASC 605
|
|
Impact of Adoption
|
|
Under ASC 606
|
Net sales
|
$
|
214,782
|
|
|
$
|
(107
|
)
|
|
$
|
214,675
|
|
Cost of sales
|
138,076
|
|
|
(73
|
)
|
|
138,003
|
|
Income tax expense
|
8,373
|
|
|
—
|
|
|
8,373
|
|
Net income
|
17,363
|
|
|
(34
|
)
|
|
17,329
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.94
|
|
|
$
|
—
|
|
|
$
|
0.94
|
|
Diluted earnings per share
|
$
|
0.93
|
|
|
$
|
—
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations:
|
Six Months Ended
|
June 30, 2018
|
|
|
|
June 30, 2018
|
(In thousands, except per share amounts)
|
Under ASC 605
|
|
Impact of Adoption
|
|
Under ASC 606
|
Net sales
|
$
|
425,452
|
|
|
$
|
3,834
|
|
|
$
|
429,286
|
|
Cost of sales
|
273,400
|
|
|
2,607
|
|
|
276,007
|
|
Income tax expense
|
12,811
|
|
|
333
|
|
|
13,144
|
|
Net income
|
42,571
|
|
|
894
|
|
|
43,465
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
2.32
|
|
|
$
|
0.05
|
|
|
$
|
2.37
|
|
Diluted earnings per share
|
$
|
2.28
|
|
|
$
|
0.05
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
Condensed Consolidated Statements of Financial Position:
|
June 30, 2018
|
|
|
|
June 30, 2018
|
(Dollars in thousands)
|
Under ASC 605
|
|
Impact of Adoption
|
|
Under ASC 606
|
Contract assets
|
$
|
—
|
|
|
$
|
21,933
|
|
|
$
|
21,933
|
|
Inventories
|
132,653
|
|
|
(14,914
|
)
|
|
117,739
|
|
Deferred income taxes
|
1,588
|
|
|
1,913
|
|
|
3,501
|
|
Retained earnings
|
727,111
|
|
|
5,106
|
|
|
732,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows:
|
Six Months Ended
|
June 30, 2018
|
|
|
|
June 30, 2018
|
(Dollars in thousands)
|
Under ASC 605
|
|
Impact of Adoption
|
|
Under ASC 606
|
Cash provided by operating activities:
|
|
|
|
|
|
Net income
|
$
|
42,571
|
|
|
$
|
894
|
|
|
$
|
43,465
|
|
Deferred income taxes
|
3,546
|
|
|
333
|
|
|
3,879
|
|
Contract assets
|
—
|
|
|
(21,933
|
)
|
|
(21,933
|
)
|
Inventories
|
(21,403
|
)
|
|
14,914
|
|
|
(6,489
|
)
|
Other, net
|
(2,505
|
)
|
|
5,792
|
|
|
3,287
|
|
Net cash provided by operating activities
|
22,818
|
|
|
—
|
|
|
22,818
|
|
Practical Expedients
The Company will recognize the incremental costs of obtaining a contract as an expense when incurred as the amortization period of the asset is expected to be one year or less. The Company will not adjust the promised amount of consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when the transfer of goods to our customer occurs and when the customer fully pays for the goods will be one year or less. We do not disclose the Company’s unsatisfied performance obligations as they are part of contracts that have an original expected duration of one year or less.
Note 20 – Supplemental Financial Information
The components of Other operating (income) expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(Dollars in thousands)
|
June 30, 2018
|
|
June 30, 2017
|
|
June 30, 2018
|
|
June 30, 2017
|
Gain from antitrust litigation settlement
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3,591
|
)
|
|
$
|
—
|
|
Gain on sale of long-lived assets
|
$
|
(383
|
)
|
|
$
|
—
|
|
|
$
|
(383
|
)
|
|
$
|
(942
|
)
|
In the first quarter of
2018
, we recorded a gain from the settlement of antitrust litigation in the amount of
$3.6 million
as a result of the settlement of a class action lawsuit, filed in 2005, which alleged that Dow Chemical Company and other urethane raw material suppliers unlawfully agreed to fix, raise, maintain or stabilize the prices of Polyether Polyol Products sold in the United States from January 1, 1999 through December 31, 2004 in violation of the federal antitrust laws.
In the second quarter of
2018
, we completed the sale of a building and a parcel of land in Arizona that had been classified as held for sale as of June 30, 2017 and recognized a gain on sale of approximately
$0.4 million
.
In the first quarter of 2017, we completed the sale of a parcel of land in Belgium that had been classified as held for sale as of December 31, 2016 and recognized a gain on sale of approximately
$0.9 million
.
Note 21 – Recent Accounting Standards
In March 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-05,
Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
. This ASU adds guidance that answers questions regarding how certain income tax effects from the Tax Cuts and Jobs Act (the Act) should be applied to companies’ financial statements. The guidance also lists which financial statement disclosures are required under a measurement period approach.
In February 2018, the FASB issued ASU No. 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. This ASU allows for reclassification of stranded tax effects resulting from the Act from accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the method and impact the adoption of ASU 2018-02 will have on the Company’s consolidated financial statements and disclosures.
In January 2018, the FASB released guidance on the accounting for tax on the Global Intangible Low Tax Income (GILTI) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. Effective in the first quarter of 2018, the Company has elected to treat any potential GILTI inclusions as a period cost.
In December 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we recorded provisional estimates for the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and tax expense associated with the mandatory deemed repatriation of foreign earnings at
December 31, 2017
. Management has continued to gather and analyze information associated with these provisional estimates and did not record any adjustments during the
three and six months ended June 30, 2018
. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.
This ASU clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU No. 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017. Adoption of this standard will be applied prospectively to awards modified on or after the adoption date. The impact of this new standard will depend on the extent and nature of future changes to the terms and conditions of the Company’s share-based payment awards. The Company adopted this standard on January 1, 2018, which did not have a material effect on the condensed consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost
. The changes to the standard require employers to report the service cost component in the same line item as other compensation costs arising from services rendered by employees during the reporting period. The other components of net periodic pension benefit costs will be presented in the statement of operations separately from the service cost and outside of a subtotal of operating income from operations. In addition, only the service cost component may be eligible for capitalization where applicable. ASU 2017-07 became effective for annual periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. In conjunction with the adoption of this guidance, the Company reclassified
$0.4 million
and
$0.8 million
in net periodic pension benefits from Selling, general and administrative expenses to Other income (expense), net for the three and six months ended
June 30, 2017
, respectively.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to classify leases as either finance or operating leases and record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. An accounting policy election may be made to account for leases with a term of 12 months or less similar to existing guidance for operating leases today. ASU No. 2016-02 supersedes the existing guidance on accounting for leases. The standard is effective for interim and annual reporting periods for fiscal years beginning after December 15, 2018. Early adoption of this standard is permitted and it is to be adopted using a modified retrospective approach. The Company has established an inventory of existing leases and is in the process of evaluating the classification of each lease and quantifying the accounting impact in accordance with the new standard. The Company expects to adopt this accounting standard beginning in fiscal year 2019.
Note 22 – Subsequent Events
Acquisition
On July 6, 2018, we acquired
100%
of the membership interests of Griswold LLC (Griswold), a leading manufacturer of a wide range of high-performance engineered cellular elastomer and microcellular polyurethane products and solutions, for a cash-free, debt-free purchase price of
$77.9 million
plus an earn-out capped at
$3.0 million
based on certain of Griswold’s 2018 product sales. We used
$82.5 million
in borrowings under our existing credit facility to fund the transaction. Griswold, headquartered in Moosup, Connecticut, sells to customers across the automotive, transportation, medical, office products, printing and electronics industries.
Due to the timing of the acquisition, disclosures relating to the acquisition, including the allocation of the purchase price, have been omitted because the initial accounting for the transaction was incomplete as of the filing date of this report.