ROGERS CORP [ROG] Filings

10-Q 1 rog-20220630.htm 10-Q rog-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________


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

For the quarterly period ended June 30, 2022


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

For the transition period from _______________ to _______________

Commission file number 1-4347

_______________________________

ROGERS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

_______________________________


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

2225 W. Chandler Blvd., Chandler, Arizona 85224-6155

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (480) 917-6000

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


Title of each class		Trading Symbol(s)	Name of each exchange on which registered
Common Stock,	par value $1.00 per share	ROG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the registrant’s capital stock as of August 1, 2022 was 18,811,052.

ROGERS CORPORATION

FORM 10-Q

June 30, 2022


TABLE OF CONTENTS
Part I – Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited):
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Comprehensive Income (Loss)	4
		Condensed Consolidated Statements of Financial Position	5
		Condensed Consolidated Statements of Cash Flows	6
		Condensed Consolidated Statements of Shareholders’ Equity	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Position	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	36

Part II – Other Information
	Item 6.	Exhibits	37
		Signatures	38

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Refer to “Forward-Looking Statements” in Item 2, Management’s Discussion and Analysis of Results of Operations and Financial Position for additional information.

Part I – Financial Information

Item 1. Financial Statements

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net sales	$	251,970	$	234,906	$	500,236	$	464,171
Cost of sales	165,452		145,073		328,324		284,839
Gross margin	86,518		89,833		171,912		179,332

Selling, general and administrative expenses	56,138		44,959		113,843		87,372
Research and development expenses	8,050		7,492		16,310		14,664
Restructuring and impairment charges	677		747		746		2,253
Other operating (income) expense, net	(1,743)		890		(2,274)		2,105
Operating income	23,396		35,745		43,287		72,938

Equity income in unconsolidated joint ventures	1,800		1,930		3,075		4,111

Other income (expense), net	319		1,239		586		4,207
Interest expense, net	(1,548)		(404)		(2,617)		(1,011)
Income before income tax expense	23,967		38,510		44,331		80,245
Income tax expense	6,084		9,855		9,848		20,372
Net income	$	17,883	$	28,655	$	34,483	$	59,873

Basic earnings per share	$	0.95	$	1.53	$	1.83	$	3.20
Diluted earnings per share	$	0.94	$	1.52	$	1.82	$	3.18

Shares used in computing:
Basic earnings per share	18,813		18,729		18,797		18,721
Diluted earnings per share	18,992		18,846		18,996		18,810

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

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net income	$	17,883	$	28,655	$	34,483	$	59,873

Foreign currency translation adjustment	(33,591)		2,758		(45,348)		(10,501)
Pension and other postretirement benefits:

Actuarial net gain incurred, net of tax (Note 4)	(15)		—		(15)		—
Amortization of loss, net of tax (Note 4)	87		58		173		121



Other comprehensive income (loss)	(33,519)		2,816		(45,190)		(10,380)
Comprehensive income (loss)	$	(15,636)	$	31,471	$	(10,707)	$	49,493

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

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

(Dollars and shares in thousands, except par value)


	June 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	225,332	$	232,296
Accounts receivable, less allowance for credit losses of $1,031 and $1,223	176,642		163,092
Contract assets	38,373		36,610
Inventories	171,129		133,384
Prepaid income taxes	3,036		1,921
Asbestos-related insurance receivables, current portion	3,361		3,176
Other current assets	17,823		13,586
Total current assets	635,696		584,065
Property, plant and equipment, net of accumulated depreciation of $366,088 and $367,850	360,085		326,967
Investments in unconsolidated joint ventures	15,931		16,328
Deferred income taxes	38,021		32,671
Goodwill	351,811		370,189
Other intangible assets, net of amortization	159,978		176,353
Pension assets	5,310		5,123
Asbestos-related insurance receivables, non-current portion	55,516		59,391
Other long-term assets	9,922		27,479
Total assets	$	1,632,270	$	1,598,566
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	76,840	$	64,660
Accrued employee benefits and compensation	33,006		48,196
Accrued income taxes payable	5,815		9,632
Asbestos-related liabilities, current portion	4,048		3,841
Other accrued liabilities	35,239		37,620
Total current liabilities	154,948		163,949
Borrowings under revolving credit facility	260,000		190,000
Pension and other postretirement benefits liabilities	1,475		1,618
Asbestos-related liabilities, non-current portion	60,248		64,491
Non-current income tax	9,079		7,131
Deferred income taxes	26,351		29,451
Other long-term liabilities	13,598		23,031
Commitments and contingencies (Note 10 and Note 12)
Shareholders’ equity
Capital stock - $1 par value; 50,000 authorized shares; 18,811 and 18,730 shares issued and outstanding	18,811		18,730
Additional paid-in capital	161,885		163,583
Retained earnings	1,016,308		981,825
Accumulated other comprehensive loss	(90,433)		(45,243)
Total shareholders' equity	1,106,571		1,118,895
Total liabilities and shareholders' equity	$	1,632,270	$	1,598,566

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

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Six Months Ended
	June 30, 2022		June 30, 2021
Operating Activities:
Net income	$	34,483	$	59,873
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	22,980		20,997
Equity compensation expense	8,056		8,394
Deferred income taxes	(8,728)		3,881
Equity in undistributed income of unconsolidated joint ventures	(3,075)		(4,111)
Dividends received from unconsolidated joint ventures	1,509		1,754

Pension and other postretirement benefits	23		(190)

(Gain) loss on sale or disposal of property, plant and equipment	(18)		(682)
Impairment charges	212		—
UTIS fire fixed asset and inventory write-offs	200		1,211
Provision (benefit) for credit losses	89		(342)
Changes in assets and liabilities:
Accounts receivable	(27,116)		(24,609)
Proceeds from insurance/government subsidies related to operations	334		148
Contract assets	(3,964)		(3,710)
Inventories	(41,702)		(10,527)
Pension and postretirement benefit contributions	(117)		(151)
Other current assets	(5,962)		(3,767)
Accounts payable and other accrued expenses	(1,976)		14,547
Other, net	13,096		3,490
Net cash (used in) provided by operating activities	(11,676)		66,206

Investing Activities:
Acquisition of business, net of cash received	(1,300)		—
Capital expenditures	(53,205)		(21,415)
Proceeds from the sale of property, plant and equipment, net	—		714
Proceeds from insurance claims	2,262		—

Net cash used in investing activities	(52,243)		(20,701)

Financing Activities:
Proceeds from borrowings under revolving credit facility	70,000		—
Repayment of debt principal and finance lease obligations	(143)		(29,652)
Payments of taxes related to net share settlement of equity awards	(10,623)		(2,684)
Proceeds from issuance of shares to employee stock purchase plan	950		704

Net cash provided by (used in) financing activities	60,184		(31,632)

Effect of exchange rate fluctuations on cash	(3,229)		(1,713)

Net (decrease) increase in cash and cash equivalents	(6,964)		12,160
Cash and cash equivalents at beginning of period	232,296		191,785
Cash and cash equivalents at end of period	$	225,332	$	203,945

Supplemental Disclosures:
Accrued capital additions	$	13,527	$	7,403
Cash paid during the year for:
Interest, net of amounts capitalized	$	2,550	$	964
Income taxes	$	13,426	$	18,036

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

ROGERS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars and shares in thousands)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Capital Stock
Balance, beginning of period	$	18,803	$	18,712	$	18,730	$	18,677
Shares issued for vested restricted stock units, net of shares withheld for taxes	1		—		68		28
Shares issued for employee stock purchase plan	—		—		6		7
Shares issued to directors	7		10		7		10

Balance, end of period	18,811		18,722		18,811		18,722
Additional Paid-In Capital
Balance, beginning of period	157,164		150,004		163,583		147,961
Shares issued for vested restricted stock units, net of shares withheld for taxes	(126)		(52)		(10,691)		(2,712)
Shares issued for employee stock purchase plan	—		—		944		697
Shares issued to directors	(7)		(10)		(7)		(10)
Equity compensation expense	4,854		4,388		8,056		8,394

Balance, end of period	161,885		154,330		161,885		154,330
Retained Earnings
Balance, beginning of period	998,425		904,910		981,825		873,692
Net income	17,883		28,655		34,483		59,873
Balance, end of period	1,016,308		933,565		1,016,308		933,565
Accumulated Other Comprehensive Loss
Balance, beginning of period	(56,914)		(32,771)		(45,243)		(19,575)
Other comprehensive income (loss)	(33,519)		2,816		(45,190)		(10,380)
Balance, end of period	(90,433)		(29,955)		(90,433)		(29,955)
Total Shareholders’ Equity	$	1,106,571	$	1,076,662	$	1,106,571	$	1,076,662

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

ROGERS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

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

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

Interim results are not necessarily indicative of results for a full year. For further information regarding our accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Refer to the discussion below for our restructuring activities significant accounting policy.

Note 2 – Fair Value Measurements

The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:

•Level 1 – Quoted prices in active markets for identical assets or liabilities.

•Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As a result of our pension termination and settlement efforts in late 2019 and the first half of 2020, we had a pension surplus investment balance, which was accounted for as an available-for-sale investment as of June 2020. At the end of April, 2022, the entirety of the balance was paid out as a one-time discretionary contribution to all participants of the Rogers Employees Savings Investment Plan. For additional information regarding this balance, refer to “Note 11 – Pension Benefits and Other Postretirement Benefits.” Available-for-sale investments measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, were as follows:

Available-for-Sale Investment at Fair Value as of June 30, 2022

(Dollars in thousands)

Level 1

Level 2

Level 3

Total

Pension surplus investment(1)

—


	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(1)	$	6,638	$	—	$	—	$	6,638

(1) This balance was invested in funds comprised of short-term cash and fixed income securities, and was recorded in the “Other long-term assets” line item in the condensed consolidated statements of financial position as of December 31, 2021. The fair value of these investments approximated its carrying value as of December 31, 2021.

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


	Derivative Instruments at Fair Value as of June 30, 2022
(Dollars in thousands)	Level 1		Level 2		Level 3		Total(1)
Foreign currency contracts	$	—	$	(130)	$	—	$	(130)
Copper derivative contracts	$	—	$	181	$	—	$	181


	Derivative Instruments at Fair Value as of December 31, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Total(1)
Foreign currency contracts	$	—	$	(16)	$	—	$	(16)
Copper derivative contracts	$	—	$	1,344	$	—	$	1,344

(1) All balances were recorded in the “Other current assets” or “Other accrued liabilities” line items in the condensed consolidated statements of financial position.

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

Note 3 – Hedging Transactions and Derivative Financial Instruments

We are exposed to certain risks related to our ongoing business operations. The primary risks being managed through our use of derivative instruments are foreign currency exchange rate risk and commodity pricing risk (primarily related to copper). We do not use derivative instruments for trading or speculative purposes. The valuation of derivative contracts used to manage each of these risks is described below:

•Foreign Currency – The fair value of any foreign currency option derivative is based upon valuation models applied to current market information such as strike price, spot rate, maturity date and volatility, and by reference to market values resulting from an over-the-counter market or obtaining market data for similar instruments with similar characteristics.

•Commodity – The fair value of copper derivatives is computed using a combination of intrinsic and time value valuation models, which are collectively a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate and volatility. The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end. The time value valuation model incorporates changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative instrument’s strike price and the remaining time to the underlying copper derivative instrument’s expiration date from the period end date.

The guidance for the accounting and disclosure of derivatives and hedging transactions requires companies to recognize all of their derivative instruments as either assets or liabilities at fair value in the condensed consolidated statements of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies for hedge accounting treatment as defined under the applicable accounting guidance. For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in the condensed consolidated statements of comprehensive income (loss). This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

Foreign Currency

During the three months ended June 30, 2022, we entered into U.S. dollar, euro, and Korean won forward contracts. We entered into these foreign currency forward contracts to mitigate certain global transactional exposures. These contracts do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.

As of June 30, 2022, the notional values of the remaining foreign currency forward contracts were as follows:


Notional Values of Foreign Currency Derivatives
USD/CNH	$	8,640,104
EUR/USD	€	14,213,070
KRW/USD	₩	7,702,800,000

Commodity

As of June 30, 2022, we had 12 outstanding contracts to hedge exposure related to the purchase of copper in our AES operating segment. These contracts are held with financial institutions and are intended to offset rising copper prices and do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred.

As of June 30, 2022, the volume of our copper contracts outstanding was as follows:


Volume of Copper Derivatives
July 2022 - September 2022			69 metric tons per month
October 2022 - December 2022			69 metric tons per month
January 2023 - March 2023			69 metric tons per month
April 2023 - June 2023			69 metric tons per month

Effects on Financial Statements

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


		Three Months Ended				Six Months Ended
(Dollars in thousands)	Financial Statement Line Item	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Foreign Currency Contracts
Contracts not designated as hedging instruments	Other income (expense), net	$	(236)	$	(400)	$	(918)	$	(1,222)
Copper Derivative Contracts
Contracts not designated as hedging instruments	Other income (expense), net	$	(1,129)	$	1,313	$	(798)	$	3,860

Note 4 – Accumulated Other Comprehensive Loss

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


(Dollars and accompanying footnotes in thousands)	Foreign Currency Translation Adjustments		Pension and Other Postretirement Benefits(1)		Total
Balance as of December 31, 2021	$	(35,641)	$	(9,602)	$	(45,243)
Other comprehensive income (loss) before reclassifications	(45,348)		—		(45,348)
Amounts reclassified from accumulated other comprehensive loss	—		158		158
Net current-period other comprehensive income (loss)	(45,348)		158		(45,190)
Balance as of June 30, 2022	$	(80,989)	$	(9,444)	$	(90,433)

Balance as of December 31, 2020	$	(10,571)	$	(9,004)	$	(19,575)
Other comprehensive income (loss) before reclassifications	(10,501)		—		(10,501)
Amounts reclassified from accumulated other comprehensive loss	—		121		121
Net current-period other comprehensive income (loss)	(10,501)		121		(10,380)
Balance as of June 30, 2021	$	(21,072)	$	(8,883)	$	(29,955)

(1) Net of taxes of $2,081 and $2,125 as of June 30, 2022 and December 31, 2021, respectively. Net of taxes of $1,923 and $1,951 as of June 30, 2021 and December 31, 2020, respectively.

Note 5 – Inventories

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


(Dollars in thousands)	June 30, 2022		December 31, 2021
Raw materials	$	80,496	$	60,208
Work-in-process	43,088		29,078
Finished goods	47,545		44,098
Total inventories	$	171,129	$	133,384

Note 6 – Goodwill and Other Intangible Assets

Goodwill

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


(Dollars in thousands)	Advanced Electronics Solutions		Elastomeric Material Solutions		Other		Total
December 31, 2021	$	119,567	$	248,398	$	2,224	$	370,189
Purchase accounting adjustment	—		(925)		—		(925)

Foreign currency translation adjustment	(5,409)		(12,044)		—		$	(17,453)
June 30, 2022	$	114,158	$	235,429	$	2,224	$	351,811

Other Intangible Assets

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


	June 30, 2022						December 31, 2021
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	191,708	$	81,086	$	110,622	$	198,095	$	77,870	$	120,225
Technology	85,282		55,792		29,490		88,445		54,900		33,545
Trademarks and trade names	24,071		9,473		14,598		25,504		8,968		16,536
Covenants not to compete	2,556		1,421		1,135		2,693		1,137		1,556
Total definite-lived other intangible assets	303,617		147,772		155,845		314,737		142,875		171,862
Indefinite-lived other intangible asset	4,133		—		4,133		4,491		—		4,491
Total other intangible assets	$	307,750	$	147,772	$	159,978	$	319,228	$	142,875	$	176,353

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

Amortization expense was $4.2 million and $3.1 million for the three months ended June 30, 2022 and 2021, respectively, and $8.5 million and $6.3 million for the six months ended June 30, 2022 and 2021, respectively. The estimated future amortization expense is $8.1 million for the remainder of 2022 and $15.4 million, $14.0 million, $12.2 million and $11.6 million for 2023, 2024, 2025 and 2026, respectively.

The weighted average amortization period as of June 30, 2022, by definite-lived other intangible asset class, was as follows:


Definite-Lived Other Intangible Asset Class						Weighted Average Remaining Amortization Period
Customer relationships						7.9 years
Technology						3.5 years
Trademarks and trade names						2.1 years
Covenants not to compete						1.1 years
Total definite-lived other intangible assets						6.5 years

Note 7 – Earnings Per Share

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

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


(Dollars and shares in thousands, except per share amounts)	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Numerator:
Net income	$	17,883	$	28,655	$	34,483	$	59,873
Denominator:
Weighted-average shares outstanding - basic	18,813		18,729		18,797		18,721
Effect of dilutive shares	179		117		199		89
Weighted-average shares outstanding - diluted	18,992		18,846		18,996		18,810
Basic earnings per share	$	0.95	$	1.53	$	1.83	$	3.20
Diluted earnings per share	$	0.94	$	1.52	$	1.82	$	3.18

Dilutive shares are calculated using the treasury stock method and primarily include unvested restricted stock units. Anti-dilutive shares are excluded from the calculation of diluted shares and diluted earnings per share. For the three months ended June 30, 2022 and 2021, 226 shares and 1,769 shares were excluded, respectively.

Note 8 – Capital Stock and Equity Compensation

Equity Compensation

Performance-Based Restricted Stock Units

As of June 30, 2022, we had performance-based restricted stock units from 2021 and 2020 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, except as noted below in Chief Executive Officer’s 2021 Equity Award Grants. Participants are eligible to be awarded shares ranging from 0% to 200% of the original award amount, based on certain defined performance measures.

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

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


			February 10, 2021
Expected volatility			51.0%
Expected term (in years)			2.9
Risk-free interest rate			0.18%

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

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

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

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

A summary of activity of the outstanding performance-based restricted stock units for the six months ended June 30, 2022 is presented below:


			Performance-Based Restricted Stock Units
Awards outstanding as of December 31, 2021			114,554
Awards granted			26,819
Stock issued			(60,053)
Awards cancelled			(1,415)
Awards outstanding as of June 30, 2022			79,905

We recognized $1.1 million and $1.1 million of compensation expense for performance-based restricted stock units for the three months ended June 30, 2022 and 2021, respectively. We recognized $2.2 million and $3.2 million of compensation expense for performance-based restricted stock units for the six months ended June 30, 2022 and 2021, respectively.

Time-Based Restricted Stock Units

As of June 30, 2022, we had time-based restricted stock unit awards from 2022, 2021, 2020 and 2019 outstanding. The outstanding awards all ratably vest on the first, second and third anniversaries of the original grant date. However, employees whose employment terminates during the measurement period due to death, disability, or, in certain cases, retirement may receive a pro-rata payout based on the number of days they were employed subsequent to the last grant anniversary date, except as noted below in Chief Executive Officer’s 2021 Equity Award Grants. Each time-based restricted stock unit represents a right to receive one share of Rogers’ capital stock at the end of the vesting period. The fair value of the award is determined by the market value of the underlying stock price at the grant date. We recognize compensation expense on all of these awards on a straight-line basis over the vesting period. We account for forfeitures as they occur.

A summary of activity of the outstanding time-based restricted stock units for the six months ended June 30, 2022 is presented below:


			Time-Based Restricted Stock Units
Awards outstanding as of December 31, 2021			96,989
Awards granted			62,510
Stock issued			(46,222)
Awards cancelled			(2,021)
Awards outstanding as of June 30, 2022			111,256

We recognized $2.5 million and $1.9 million of compensation expense for time-based restricted stock units for the three months ended June 30, 2022 and 2021, respectively. We recognized $4.6 million and $3.7 million of compensation expense for time-based restricted stock units for the six months ended June 30, 2022 and 2021, respectively.

Chief Executive Officer’s 2021 Equity Award Grants

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

Deferred Stock Units

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

A summary of activity of the outstanding deferred stock units for the six months ended June 30, 2022 is presented below:


			Deferred Stock Units
Awards outstanding as of December 31, 2021			9,500
Awards granted			4,800
Stock issued			(7,450)
Awards outstanding as of June 30, 2022			6,850

We recognized $1.3 million compensation expense for deferred stock units for the three and six months ended June 30, 2022 and $1.2 million of compensation expense for the three and six months ended June 30, 2021.

Note 9 – Debt

On October 16, 2020, we entered into the Fourth Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the Fourth Amended Credit Agreement). The Fourth Amended Credit Agreement amends and restates the Third Amended Credit Agreement, and provides for a revolving credit facility with up to a $450.0 million borrowing capacity, with sublimits for multicurrency borrowings, letters of credit and swing-line notes, in addition to a $175.0 million accordion feature. Borrowings may be used to finance working capital needs, for letters of credit and for general corporate purposes in the ordinary course of business, including the financing of permitted acquisitions (as defined in the Fourth Amended Credit Agreement). The Fourth Amended Credit Agreement extends the maturity, the date on which all amounts borrowed or outstanding under the Fourth Amended Credit Agreement are due, from February 17, 2022 to March 31, 2024.

All obligations under the Fourth Amended Credit Agreement are guaranteed by each of our existing and future material domestic subsidiaries, as defined in the Fourth Amended Credit Agreement (the Guarantors). The obligations are also secured by a Fourth Amended and Restated Pledge and Security Agreement, dated as of October 16, 2020, entered into by us and the Guarantors which grants to the administrative agent, for the benefit of the lenders, a security interest, subject to certain exceptions, in substantially all of our and the Guarantors’ non-real estate assets. These assets include, but are not limited to, receivables, equipment, intellectual property, inventory, and stock in certain subsidiaries.

On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) publicly announced that immediately after December 31, 2021, publication of most Euro, Swiss Franc, Japanese Yen and Pound Sterling LIBOR settings will permanently cease. On October 15, 2021, Rogers Corporation and JPMorgan Chase Bank, N.A. entered into an amendment (Amendment No. 1) to the Fourth Amended Credit Agreement to adopt a new benchmark interest rate to replace the discontinued LIBOR reference rates.

Borrowings under the Fourth Amended Credit Agreement can be made as alternate base rate loans, euro-currency loans, or RFR loans. Alternate base rate loans bear interest at a base reference rate plus a spread of 62.5 to 100.0 basis points, depending on our leverage ratio. The base reference rate is the greatest of (a) the prime rate in effect on such day, (b) the NYFRB rate in effect on such day plus ½ of 1%, and (c) the adjusted LIBOR for a one month interest period in dollars on such day (or if such day is not a business day, the immediately preceding business day) plus 1%. Euro-currency loans bear interest based on adjusted LIBOR plus a spread of 162.5 to 200.0 basis points, depending on our leverage ratio. RFR loans bears interest based upon the Sterling Overnight Index Average (SONIA) plus 0.0326% plus a spread of 162.5 to 200.0 basis points. Based on our leverage ratio as of June 30, 2022, the spread was 162.5 basis points.

In addition to interest payable on the principal amount of indebtedness outstanding, we incur an annual fee of 25 to 35 basis points (based upon our leverage ratio), paid quarterly, of the unused amount of the lenders’ commitments under the Fourth Amended Credit Agreement.

The Fourth Amended Credit Agreement contains customary representations and warranties, covenants, mandatory prepayments and events of default under which our payment obligations may be accelerated. If an event of default occurs, the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees. The financial covenants include requirements to maintain (1) a total net leverage ratio of no more than 3.25 to 1.00, subject to a one-time election to increase the maximum total net 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. We are permitted to net up to $50.0 million of unrestricted domestic cash and cash equivalents against indebtedness in the calculation of the total net leverage ratio.

The Fourth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00. If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our total net leverage ratio did not exceed 2.75 to 1.00 as of June 30, 2022.

We borrowed $70.0 million under the Fourth Amended Credit Agreement for the three and six months ended June 30, 2022. There were no borrowings for the three and six months ended June 30, 2021. We are not required to make any quarterly principal payments under the Fourth Amended Credit Agreement. We made no payments for the three and six months ended June 30, 2022, and $4.0 million and $25.0 million of discretionary principal payments on our revolving credit facility for the for the three and six months ended June 30, 2021, respectively.

We had $260.0 million outstanding borrowings under our revolving credit facility as of June 30, 2022, and $190.0 million as of December 31, 2021. We had $1.3 million and $1.6 million of outstanding line of credit issuance costs as of June 30, 2022 and December 31, 2021, respectively, which will be amortized over the life of the Fourth Amended Credit Agreement.

Note 10 - Leases

Amortization expense related to our finance lease right-of-use assets, which is primarily included in the “Cost of sales” line item of the condensed consolidated statements of operations, was immaterial for each of the three- and six-month periods ended June 30, 2022 and 2021. Interest expense related to our finance lease obligations, which is included in the “Interest expense, net” line item of the condensed consolidated statements of operations, was immaterial for each of the three- and six-month periods ended June 30, 2022 and 2021. Payments made on the principal portion of our finance lease obligations were immaterial for each of the three- and six-month periods ended June 30, 2022 and 2021, excluding the $5.0 million net cash payment to exercise the Eschenbach, Germany manufacturing facility purchase option.

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

Our expenses and payments for operating leases were as follows: