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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-4347
ROGERS CORPORATION
[Exact name of Registrant as specified in its charter]
Massachusetts 06-0513860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Technology Drive
P.O. Box 188
Rogers, Connecticut 06263-0188
(Address of principal executive offices) (Zip Code)
(860) 774-9605
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Capital Stock, $1 Par Value American Stock Exchange, Inc.
Pacific Exchange, Inc.
Rights to Purchase Capital Stock American Stock Exchange, Inc.
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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 periods that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Capital Stock, $1 par value, held by
non-affiliates of the Registrant as of February 25, 1999 was $194,740,286.
The number of shares of Capital Stock, $1 par value, outstanding as of
February 25, 1999 was 7,621,266.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's annual report to shareholders for the fiscal
year ended January 3, 1999 are incorporated by reference into Parts I and II.
Portions of the proxy statement for the Registrant's 1999 annual meeting of
stockholders to be held April 22, 1999, are incorporated by reference into
Part III.
TABLE OF CONTENTS
PART I
Item Page
1. Business 1
2. Properties 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters 7
6. Selected Financial Data 7
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
7A. Quantitative and Qualitative Disclosures About Market Risk 8
8. Financial Statements and Supplementary Data 8
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 8
PART III
10. Directors and Executive Officers of the Registrant 8
11. Executive Compensation 8
12. Security Ownership of Certain Beneficial Owners and Management 8
13. Certain Relationships and Related Transactions 9
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 9
SIGNATURES
Signatures 13
PART I
Item 1. BUSINESS
GENERAL
Rogers Corporation (the Company), founded in 1832, is one of the oldest publicly
traded U.S. companies in continuous operation. The Company has adapted its
products over the years to meet changing market needs, moving from specialty
paperboard to transformer boards for electrical insulation, and now
predominantly to a range of specialty polymer composite materials for
communications, imaging, computer, transportation, and consumer applications.
New leadership in 1992 restructured the Company to focus on these materials
based businesses -- circuit materials, high performance elastomers, and
moldable composites. The Company's management, operations, sales and
marketing, and technology development activities were redirected to efforts
intended to grow the materials based businesses. In so doing, the Company
takes advantage of its core competencies in polymers, fillers, and adhesion,
and applies its related materials technologies to identified market needs.
Materials based businesses were the core businesses responsible for the
Company's strong growth in the 1960's and 1970's, and provided most of the
Company's profits in the 1980's. During that time, the profits from the
materials based businesses were often offset by substantial losses in the
Company's former electronic components businesses, which are now divested.
The materials based businesses are guided by clearly developed strategic
business plans for profitable growth. The current focus is on worldwide
markets for elastomeric materials and related components, high frequency and
flexible circuit materials, moldable composite materials, and the
electroluminescent lamp joint venture with 3M.
BUSINESS SEGMENT FINANCIAL AND GEOGRAPHIC INFORMATION
"Business Segment and Geographic Information" on pages 41-43 of the annual
report to shareholders for the year ended January 3, 1999, is incorporated
herein by reference.
PRODUCTS
Rogers Corporation manufactures and sells specialty polymer composite
materials and components which it develops for growing markets and
applications around the world. The Company has two business segments:
Polymer Materials and Electronic Materials. The Company's products are based
on its core technologies in polymers, fillers, and adhesion. Most products
are proprietary, or incorporate proprietary technology in their development
and processing, and are sold under the Company's valuable brand names.
POLYMER MATERIALS
Polymer Materials include high performance elastomer materials, elastomer
components, and high performance thermoset moldable composites. The
Company's Polymer Materials have characteristics that offer functional
advantages in many market applications, and serve to differentiate the
Company's products from competitors' materials and from other commonly
available materials.
Polymer Materials are sold to fabricators, molders, printers and original
equipment manufacturers for applications in imaging, communications,
computer, transportation, consumer and other markets. Trade names for the
Company's Polymer Materials include: PORON(R) urethane foams used for making
high performance gaskets and seals in vehicles, communications devices,
computers and peripherals; PORON cushion insole materials for footwear and
related products;
1
PORON healthcare and medical materials for body cushioning, orthotic
appliances, and artificial limbs; PORON silicone foams and sponges, used for
making flame retardant gaskets and seals in aircraft, trains, cars and
trucks; PORON silicone solids for shielding extreme temperature or flame;
R/bak(R) compressible printing plate backing and mounting products for
cushioning flexographic printing on packaging materials; NITROPHYL(R) floats
for fill level sensing in fuel tanks, motors, and storage tanks; ENDUR(R)
elastomer rollers and belts for document handling in copiers, computer
printers, facsimile machines, mail sorting machines and automated teller
machines; MPC(R) phenolic-based and RX(R) epoxy-based thermoset moldable
composites for molding engine and transmission parts used in vehicles, and
for molding commutator hubs, brush holders, and other high performance parts
that insulate electrical activity in electric motors, appliances, and tools.
In January 1999, the Company acquired portions of the moldable composite
business of Cytec Fiberite, broadening the line of thermoset moldable
phenolic and epoxy composites that it can offer customers for high
performance applications. Acquired products include brake piston
formulations for molding disk brakes, and toughened epoxy engineered
composites for molding opto-electronics components.
The Company's two joint ventures extend and complement the Company's
worldwide businesses in Polymer Materials. The Rogers Inoac Corporation
(RIC), a 50% owned joint venture with Japan-based Inoac Corporation,
manufactures high performance PORON elastomer materials and ENDUR components
in Mie and Nagoya, Japan. The Durel Corporation, a 50% owned joint venture
with 3M, manufactures DUREL electroluminescent lamps in Chandler, Arizona.
ELECTRONIC MATERIALS
Electronic Materials include printed circuit board laminates for high
frequency circuits, flexible printed circuit board laminates for high
performance flexible circuits, polyester based industrial laminates,
composite materials, and power distribution bus bars. The Company's
Electronic Materials have characteristics that offer performance and other
advantages in many market applications, and serve to differentiate the
Company's products from competitors' products and from commonly available
materials.
Electronic Materials are sold principally to independent and captive printed
circuit board manufacturers who convert the Company's laminates to custom
printed circuits.
The polymer based dielectric layers of the Company's high frequency circuit
board laminates are proprietary materials that provide highly specialized
electrical and mechanical properties. Trade names for the Company's high
frequency printed circuit board materials include RO3000TM, RO4000TM,
DUROID(R), RT/duroid(R), ULTRALAM(R), and TMM(R) laminates. All of these
laminates are used for making circuitry that receives, transmits, and
processes high frequency communications signals. Each laminate addresses
specific needs and applications within the communications market. High
frequency circuits are used throughout the equipment and devices that
comprise all wireless communications systems, including for cellular
communications, digital cellular communications, paging, direct broadcast
television, global positioning, mobile radio communications, and radar.
The flexible circuit materials that the Company manufactures are called
R/flex(R) materials. They are mainly used to make interconnections for hard
disk drives, portable computers, and miniaturized electronic devices. The
performance characteristics of R/flex materials differentiate these laminates
from commonly available flexible circuit materials.
The adhesiveless flexible circuit materials that the Company sells to
Hutchinson Technology Incorporated, for making TSA suspensions in magneto
resistive hard disk drives, are called FLEX-I-MID(R) materials. FLEX-I-MID
materials are manufactured by Mitsui Chemicals, Inc. of Japan, under a
technology license from Rogers Corporation.
2
Power distribution bus bars are manufactured by the Company under the
MEKTRON(R) trade name. Bus bars are sold to manufacturers of high voltage
electrical traction systems for use in mass transit and industrial
applications, and to manufacturers of communication and computer equipment.
Industrial laminates are manufactured by the Company under the Induflex(R)
trade name. These polyester based laminates, with thin aluminum and copper
cladding, are sold to telecommunications and data communication cable
manufacturers for shielding electromagnetic and radio frequency interference,
and to automotive component manufacturers for making flat, etched-foil heaters.
The Company's nonwoven composite materials are manufactured for medical
padding and bandaging, electrical and thermal insulation, and industrial
pre-filtration applications. In October 1998, the Company acquired the
dampening sleeve business of Imation, a former 3M business. These nonwoven
composite roller covers, and related pressroom products, are consumable
supplies used by the lithographic printing industry.
BACKLOG
Excluding joint venture activity, the backlog of firm orders for Polymer
Materials was $15,092,000 at January 3, 1999 and $13,173,000 at December 28,
1997. The backlog of firm orders for Electronic Materials was $21,931,000 at
January 3, 1999 and $21,585,000 at December 28, 1997. The amount of unfilled
orders is reasonably stable throughout the year.
RAW MATERIALS
The manufacture of both Polymer and Electronic Materials requires a wide
variety of purchased raw materials. Some of these raw materials are
available only from limited sources of supply that, if discontinued, could
interrupt production. When this has occurred in the past, the Company has
purchased sufficient quantities of the particular raw material to sustain
production until alternative materials and production processes could be
qualified with customers. Management believes that similar responses would
mitigate any raw material availability issues in the future.
EMPLOYEES
The Company employed an average of 553 people in the Polymer Materials
operations and 568 people in the Electronic Materials operations during 1998.
SEASONALITY
In the Company's opinion, neither the Polymer Materials business nor the
Electronics Materials business is seasonal.
CUSTOMERS & MARKETING
The Company's products were sold to approximately 2,300 customers worldwide
in 1998. Sales to Hutchinson Technology Incorporated accounted for 13% of
sales during 1998. Although the loss of all the sales made to any one of the
Company's major customers would require a period of adjustment during which
the business of a segment would be adversely affected, the Company believes
that such adjustment could be made over a period of time. The Company also
believes that its business relationships with the major customers within both
its segments are generally favorable, and that it is in a good position to
respond promptly to variations in customer requirements. However, the
possibility exists of losing all the business of any major customer as to any
product line. Likewise, the possibility exists of losing all the business of
any single customer.
3
The Company markets its full range of products throughout the United States
and in most foreign markets. Over 85% of the Company's sales are sold
through the Company's own domestic and foreign sales force, with the balance
sold through independent agents and distributors.
COMPETITION
There are no firms that compete with the Company across its full range of
product lines. However, each of the Company's products faces competition in
each business segment in domestic and foreign markets. Competition comes
from firms of all sizes and types, including those with substantially more
resources than the Company. The Company's strategy is to offer technically
advanced products that are price competitive in their markets, and to link
the offerings with market knowledge and customer service. The Company believes
this serves to differentiate the Company's products in many markets.
RESEARCH & DEVELOPMENT
The Company has many domestic and foreign patents and licenses and has
additional patent applications on file related to both business segments. In
some cases, the patents result in license royalties. The patents are of
varying duration and provide some protection. Although the Company vigorously
defends its patents, the Company believes that its patents have most value in
combination with its equipment, technology, skills, and market position. The
Company also owns a number of registered and unregistered trademarks which it
believes to be of importance.
During its fiscal year 1998, the Company spent $10,352,000 on research and
development activities, compared with $9,608,000 in 1997, and $9,184,000 in
1996. These amounts include the cost of the corporate research and
development effort in Rogers, Connecticut, which amounted to $7,452,000,
$6,908,000, and $6,484,000 in 1998, 1997, and 1996, respectively. The balance
was comprised of expenditures for product development and new process
development activities in its operating units.
ENVIRONMENTAL REGULATION
During fiscal year 1998, the Company spent $930,000 on capital equipment
necessary to comply with federal, state, and local environmental protection,
health and safety regulations. Management estimates that 1999 expenditures
needed for compliance with current environmental, health, and safety
regulations will approximate $2,900,000 of which $1,600,000 has been accrued
and $1,200,000 is expected to be capitalized. These capital expenditures will
generally be depreciated on a straight-line basis over a period of from 5 to
10 years.
4
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers hold office until the first meeting of the Board of Directors
following the annual meeting of stockholders or until successors are elected.
There are no family relationships between or among executive officers and
directors of the Company.
Served in
Name, Age and Present Posi-
Present Position Prior Business Experience in Past Five Years tion Since
- ---------------- --------------------------------------------- ------------
Walter E. Boomer, General in the U.S. Marine Corps from June 1986
61, President and to August 1994; Senior Vice President and
Chief Executive Chief Project Management Officer of McDermott
Officer International, Inc. to February 1995; President
of Babcock & Wilcox Power Generation Group and
Executive Vice President of McDermott
International, Inc. to October 1996. March 1997
Aarno A. Hassell, Vice President, Circuit Materials Group from
59, Vice President, January 1988 to August 1994. August 1994
Market Development
Bruce G. Kosa, 59 Technical Director from August 1992 to October
Vice President, 1994. October 1994
Technology
Frank H. Roland, President of Halstead Industries, Inc. from
63, Vice June 1991 to January 1995; Vice President of
President, RBX Corporation January 1995 to October 1996;
Finance; Chief President of Rubatex Corporation April 1995 to
Financial Officer; October 1996; President and Chief Executive
and Secretary of RBX Corporation October 1996 to July 1998. Sept. 1998
John A. Richie, Director of Human Resources from July 1992 to
51, Vice October 1994. October 1994
President, Human
Resources
Robert D. Wachob, Vice President, Sales and Marketing from October
51, Senior Vice 1990 to May 1997. May 1997
President, Sales
and Marketing
Donald F. O'Leary, Assistant Controller from April 1982 to April
55, Corporate 1995. April 1995
Controller
Executive Officer April 1996
Robert M. Soffer, 51
Treasurer and Assistant
Secretary March 1987
Clerk February 1992
5
Item 2. PROPERTIES
The Company owns its properties, except as noted below. The Company considers
that its properties are well-maintained, in good operating condition, and
suitable for its current and anticipated business. Manufacturing capacity was
added to the facilities located in Chandler, Arizona, Ghent, Belgium, and
Woodstock, Connecticut, during 1998. Operating capacity can be increased by
additional worker hours at these and at several of the Company's other
locations. Also, adequate land is available for foreseeable future
requirements at each of the Company's owned plants.
Floor Space
(Square Feet) Type of Facility Leased/Owned
Polymer Materials
Manchester, Connecticut 128,000 Manufacturing Owned
38,000 Warehouse Owned
South Windham, Connecticut 88,000 Manufacturing Owned
Woodstock, Connecticut 116,000 Manufacturing Owned
Elk Grove Village, Illinois 93,000 Manufacturing Leased through
9/01
Electronic Materials
Chandler, Arizona 112,000 Manufacturing Owned
11,000 Warehouse Owned
Chandler, Arizona* 142,000 Manufacturing Facility
Held for Sale Owned
Rogers, Connecticut 290,000 Manufacturing Owned
Ghent, Belgium
Rogers NV 98,000 Manufacturing Owned
Rogers Induflex NV 96,000 Manufacturing Owned
Tokyo, Japan 2,000 Sales Office Leased through
8/99
Wanchai, Hong Kong 1,000 Sales Office Leased through
3/00
Taipei, Taiwan, R.O.C. 1,000 Sales Office Leased through
7/00
Corporate
Rogers, Connecticut 116,000 Corporate Headquarters/
Research & Development Owned
* The company is leasing this facility to the purchaser of the flexible
interconnections business, which was sold in 1993.
Item 3. LEGAL PROCEEDINGS
The Company is subject to federal, state, and local laws and regulations
concerning the environment and is currently engaged in proceedings involving
a number of sites under these laws, as a participant in a group of potentially
responsible parties (PRPs). The Company is currently involved as a PRP in five
cases involving waste disposal sites, all of which are Superfund sites. Several
of these proceedings are at a preliminary stage and it is impossible to estimate
the cost of remediation, the timing and extent of remedial action which may be
required by governmental authorities, and the amount of liability, if any, of
the Company alone or in relation to that of any other PRPs. The Company also
has been seeking to identify insurance coverage with respect to several of
these matters. Where it has been possible to make a reasonable estimate of the
Company's liability, a provision has been established. Insurance proceeds have
only been taken into account when they have been confirmed by or received from
the insurance company. Actual costs to be incurred in future periods may vary
from these estimates. Based on facts presently known to it, the Company does
not believe that the outcome of these proceedings will have a material adverse
effect on its financial position.
6
In addition to the above proceedings, the Company has been actively working
with the Connecticut Department of Environmental Protection (CT DEP) related
to certain polychlorinated biphenyl (PCB) contamination in the soil beneath a
section of cement flooring at its Woodstock, Connecticut facility. The
Company has developed a remediation plan that has been approved by the CT DEP,
and it is expected that removal of soil contamination will be completed in
1999. On the basis of estimates prepared by environmental engineers and
consultants, the Company recorded a provision of approximately $900,000 in
1994, and based on updated estimates provided an additional $700,000 in 1997
and $600,000 in 1998 for costs related to this matter. During 1995, $300,000
was charged against this provision and $200,000 per year was charged in 1996,
1997 and 1998. Management believes, based on facts currently available, that
the implementation of the aforementioned remediation will not have a material
additional adverse impact on earnings.
In this same matter the United States Environmental Protection Agency (EPA)
has alleged that the Company improperly disposed of PCBs. An administrative
law judge found the Company liable for this alleged disposal and assessed a
penalty of approximately $300,000. The Company has reflected this fine in
expense in 1998 but vigorously disputes the EPA allegations and has appealed
the administrative law judge's findings and penalty assessment.
The Company has not had any material recurring costs and capital expenditures
relating to environmental matters, except as specifically described in the
preceding statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information set forth under the caption "Capital Stock
Market Prices" on page 45, under the caption "Restriction on Payment of
Dividends" in Note G on page 33, and under the caption "Dividend Policy" in
the "Management's Discussion and Analysis" on page 54 of the 1998 annual
report to shareholders.
At February 25, 1999, there were 1,060 shareholders of record.
Item 6. SELECTED FINANCIAL DATA
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information set forth under the caption "Selected
Financial Data" on page 19 of the 1998 annual report to shareholders, but
specifically excluding from said incorporation by reference the information
contained therein and set forth under the subcaption "Other Data."
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information set forth under the caption "Management's
Discussion and Analysis" on pages 46 through 56 of the 1998 annual report to
shareholders.
7
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information set forth under the caption "Market Risk" in
the "Management's Discussion and Analysis" on page 53 of the 1998 annual report
to shareholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information set forth on pages 20 through 44 and under
the caption "Quarterly Results of Operations (Unaudited)" on page 45 of the
1998 annual report to shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information with respect to the Directors of the
Registrant set forth under the caption "Nominees for Director" on page 2 of
the Registrant's definitive proxy statement dated March 17, 1999, for its 1998
annual meeting of stockholders filed pursuant to Section 14(a) of the Act.
Information with respect to Executive Officers of the Registrant is presented
in Part I.
Item 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information set forth under the captions "Directors'
Compensation" on page 5 and "Executive Compensation" on pages 6 through 13 of
the Registrant's definitive proxy statement, dated March 17, 1999, for its
1999 annual meeting of stockholders filed pursuant to Section 14(a) of the Act.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information with respect to Security Ownership of
Certain Beneficial Owners and Management set forth under the captions "Stock
Ownership of Management" on page 3 and "Beneficial Ownership of More Than Five
Percent of the Corporation's Stock" on page 4 of the Registrant's definitive
proxy statement, dated March 17, 1999, for its 1999 annual meeting of
stockholders filed pursuant to Section 14(a) of the Act.
8
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G to Form 10-K, there is hereby incorporated
by this reference the information with respect to certain relationships and
related transactions included under the captions "Other Arrangements and
Payments" and "Certain Relationships and Related Transactions" on page 14 of
the Registrant's definitive proxy statement, dated March 17, 1999, for its
1999 annual meeting of stockholders filed pursuant to Section 14(a) of the Act.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) - The following consolidated financial statements of Rogers Corporation
and Subsidiaries, included in the Annual Report of the Registrant to its
shareholders for the fiscal year ended January 3, 1999, are incorporated by
reference in Item 8:
Consolidated Balance Sheets-January 3, 1999 and December 28, 1997
Consolidated Statements of Income -- Fiscal Years Ended January 3, 1999,
December 28, 1997, and December 29, 1996
Consolidated Statement of Shareholders' Equity -- January 3, 1999, December
28, 1997, and December 29, 1996
Consolidated Statements of Cash Flows--Fiscal Years Ended
January 3, 1999, December 28, 1997, and December 29, 1996
Notes to Consolidated Financial Statements-January 3, 1999
(2) - The following consolidated financial statement schedule of Rogers
Corporation and consolidated subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
9
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
3a Restated Articles of Organization, filed with the Secretary of State of
the Commonwealth of Massachusetts on April 6, 1966, were filed as Exhibit
3a to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 1, 1989 (the 1988 Form 10-K)*.
3b Articles of Amendment, filed with the Secretary of State of the Commonwealth
of Massachusetts on August 10, 1966, were filed as Exhibit 3b to the 1988
Form 10-K*.
3c Articles of Merger of Parent and Subsidiary Corporations, filed with the
Secretary of State of the Commonwealth of Massachusetts on December 29,
1975, were filed as Exhibit 3c to the 1988 Form 10-K*.
3d Articles of Amendment, filed with the Secretary of State of the Commonwealth
of Massachusetts on March 29, 1979, were filed as Exhibit 3d to the 1988
Form 10-K*.
3e Articles of Amendment, filed with the Secretary of State of the Commonwealth
of Massachusetts on March 29, 1979, were filed as Exhibit 3e to the 1988
Form 10-K*.
3f Articles of Amendment, filed with the Secretary of State of the Commonwealth
of Massachusetts on April 2, 1982, were filed as Exhibit 3f to the 1988
Form 10-K*.
3g Articles of Merger of Parent and Subsidiary Corporations, filed with the
Secretary of State of the Commonwealth of Massachusetts on December 31,
1984, were filed as Exhibit 3g to the 1988 Form 10-K*.
3h Articles of Amendment, filed with the Secretary of State of the Commonwealth
of Massachusetts on April 6, 1988, were filed as Exhibit 3h to the 1988
Form 10-K*.
3i By-Laws of the Company as amended on March 28, 1991, September 10, 1991,
and June 22, 1995 were filed as Exhibit 3i to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 (the 1995 Form
10-K)*.
3j Articles of Amendment, as filed with the Secretary of State of the
Commonwealth of Massachusetts on May 24, 1994, were filed as Exhibit 3j to
the 1995 Form 10-K*.
3k Articles of Amendment, as filed with the Secretary of State of the
Commonwealth of Massachusetts on May 8, 1998 are filed herewith.
4a Certain Long-Term Debt Instruments, each representing indebtedness in an
amount equal to less than 10 percent of the Registrant's total consolidated
assets, have not been filed as exhibits to this Annual Report on Form 10-K.
The Registrant hereby undertakes to file these instruments with the
Commission upon request.
4b 1997 Shareholder Rights Plan was filed on Form 8-A dated March 24, 1997.
The June 19, 1997 and July 7, 1997 amendments were filed on Form 8-A/A
dated July 21, 1997*.
10a Rogers Corporation Incentive Stock Option Plan** (1979, as amended July 9,
1987 and October 23, 1996). The 1979 plan and the July 9, 1987 amendment
were filed as Exhibit 10c to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1988 (the 1987 Form 10-K). The October
23, 1996 amendment was filed as Exhibit 10a to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29, 1996 (the 1996
Form 10-K)*.
10b Description of the Company's Life Insurance Program**, was filed as Exhibit
K to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 28, 1980*.
10c Rogers Corporation Annual Incentive Compensation Plan** (as restated and
amended on December 18, 1996) was filed as Exhibit 10c to the 1996 Form
10-K*.
10d Rogers Corporation 1988 Stock Option Plan** (as amended December 17, 1988,
September 14, 1989, and October 23, 1996). The 1988 plan, the 1988
amendment, and the 1989 amendment were filed as Exhibit 10d to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January
1, 1995 (the 1994 Form 10-K)*. The 1996 amendment was filed as Exhibit
10d to the 1996 Form 10-K*.
10e Rogers Corporation 1990 Stock Option Plan** (as restated and amended on
October 18, 1996), was filed as Registration Statement No. 333-14419 on
Form S-8 dated October 18, 1996*.
10
10f Rogers Corporation Deferred Compensation Plan** (1983) was filed as
Exhibit O to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 1, 1984*.
10g Rogers Corporation Deferred Compensation Plan** (1986) was filed as Exhibit
10e to the 1987 Form 10-K*.
10h Rogers Corporation 1994 Stock Compensation Plan** (as restated and amended
on December 6, 1996 and amended on December 18, 1997). The 1996 plan, as
amended and restated on December 6, 1996, was filed as Exhibit 10h to the
1996 Form 10-K. The 1997 amendment was filed as Exhibit 10h to the 1997
Form 10-K*.
10i Rogers Corporation Voluntary Deferred Compensation Plan for Non-Employee
Directors** (1994, as amended December 26, 1995 and December 27, 1996).
The 1994 plan, the December 26, 1995 and December 27, 1996 amendments were
filed as Exhibit 10i to the 1994 Form 10-K, 1995 Form 10-K, and 1996 Form
10-K, respectively*.
10j Rogers Corporation Voluntary Deferred Compensation Plan for Key Employees**
(1993, as amended on October 18, 1994, December 22, 1994, December 21, 1995,
December 22, 1995, and April 16, 1996). The 1993 plan and the 1994
amendments were filed as Exhibit 10j to the 1994 Form 10-K. The 1995 and
1996 amendments were filed as Exhibit 10j to the 1995 Form 10-K and 1996
Form 10-K, respectively*.
10k Rogers Corporation Long-Term Enhancement Plan for Senior Executives of
Rogers Corporation** dated December 18, 1997.
10l Rogers Corporation 1998 Stock Incentive Plan** was filed as Registration
Statement No. 333-50901 on April 24, 1998*.
13 Portions of the Rogers Corporation 1998 Annual Report to Shareholders which
are specifically incorporated by reference in this Annual Report on Form
10-K.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule.
* In accordance with Rule 12b-23 and Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, reference is made to the documents previously filed
with the Securities and Exchange Commission, which documents are hereby
incorporated by reference.
** Management Contract.
(b) No reports on Form 8-K were filed during the three months ended January 3,
1999.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
11
(d) Financial Statement Schedule
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
(Dollars in Thousands) Additions Balance
Balance at Charged to Charged at End
Beginning Costs and to Other Other of
Description of Period Expenses Accounts Deductions Period
Year ended Jan. 3,1999:
Deducted from asset
accounts:
Net realizable value
allowance for assets
held for sale $ 492 $ -- $ -- $ -- $ 492
Year ended Dec. 28, 1997:
Deducted from asset
accounts:
Net realizable value
allowance for assets
held for sale $ 492 $ -- $ -- $ -- $ 492
Year ended Dec. 29, 1996:
Deducted from asset
accounts:
Net realizable value
allowance for assets
held for sale $ 2,032 $ -- $ -- $ 1,540* $ 492
* Allowance applicable to assets sold during 1996 at approximate book value.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROGERS CORPORATION
(Registrant)
Date: March 25, 1999 By /s/FRANK H. ROLAND
Frank H. Roland
Vice President, Finance; Chief Financial
Officer; and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 23, 1999, by the following persons on
behalf of the Registrant and in the capacities indicated.
By /s/WALTER E. BOOMER President (Principal Executive Officer)
Walter E. Boomer and Director
By /s/LEONID V. AZAROFF Director
Leonid V. Azaroff
By /s/LEONARD M. BAKER Director
Leonard M. Baker
By /s/HARRY H. BIRKENRUTH Director
Harry H. Birkenruth
By /s/EDWARD L. DIEFENTHAL Director
Edward L. Diefenthal
By /s/MILDRED S. DRESSELHAUS Director
Mildred S. Dresselhaus
By /s/DONALD J. HARPER Director
Donald J. Harper
By /s/GREGORY B. HOWEY Director
Gregory B. Howey
By /s/LEONARD R. JASKOL Director
Leonard R. Jaskol
By /s/WILLIAM E. MITCHELL Director
William E. Mitchell
13
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Percentage
of Voting Jurisdiction
Securities of Incorporation
Company Owned or Organization
Rogers L-K Corp. 100% Delaware
Rogers Japan, Inc. 100% Delaware
Rogers Southeast Asia, Inc. 100% Delaware
Rogers Taiwan, Inc. 100% Delaware
TL Properties, Inc. 100% Arizona
World Properties, Inc. 100% Illinois
Rogers Export Sales Corporation 100% Barbados
Rogers Induflex N.V. 100% Belgium
Rogers N.V. 100% Belgium
Rogers GmbH 100% Germany
Rogers (UK) LTD. 100% England
Rogers S.A. 100% France
* Rogers Inoac Corporation 50% Japan
* Durel Corporation 50% Delaware
*These entities are unconsolidated joint ventures and accordingly are not
consolidated in the consolidated financial statements of Rogers Corporation.
F-1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K)
of Rogers Corporation of our report dated February 22, 1999, included in the
1998 Annual Report to Shareholders of Rogers Corporation.
Our audits also included the financial statement schedules of Rogers Corporation
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set form therein.
We also consent to the incorporation by reference in Registration Statements
(Forms S-8 Nos. 2-84992, 33-15119, 33-21121, 33-38219, 33-64314, 33-44087,
33-53353, 333-14419, and 333-42545, 333-50901 and Form S-3 No. 33-53369)
pertaining to various stock option and employee savings plans, and stock
grants, of Rogers Corporation of our report dated February 2, 1999, with
respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect
to the financial statement schedule included in this Annual Report (Form
10-K) of Rogers Corporation.
ERNST & YOUNG LLP
Providence, Rhode Island
March 23, 1999
F-2
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Walter E. Boomer, President
----------------
and Robert M. Soffer, Treasurer
----------------
of Rogers Corporation
------------------
(Exact name of corporation)
located at c/o Abrams, Roberts & Klickstein, 265 Franklin Street, Boston, MA
02110 ----------------------------------------------------------------
- ----- (Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
- ---
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on April
23, 1998, by vote of:
6,423,290 shares of Capital Stock, $1.00 per share par value of 7,591,730
- --------- ------------------------------------------------------
shares outstanding,
(type, class & series, if any)
being at least a majority of each type, class or series outstanding and'
entitled to vote thereon:
F-3
The Commonwealth of Massachusetts
Articles of Amendment
(General Laws, Chapter 156B, Section 72)
I hereby approve the within Articles of Amendment and, the filing fee in the
amount of $25,000 having been paid, said articles are deemed to have been
filed with me this 8th day of May, 1998.
Effective date:
/s/ William Francis Galvin
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Steven R. London, Esquire
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02110
F-4
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 23rd day of April, 1998.
/s/ Walter E. Boomer, President
/s/ Robert M. Soffer, Clerk
F-5
To change the number of shares and the par value (if any) of any type, class
or series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
Common: Common:
Capital 25,000,000 $1.00
Preferred: Preferred:
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
Common: Common:
Capital 50,000,000 $1.00
Preferred: Preferred:
F-6
SELECTED FINANCIAL DATA
(Dollars in Thousands, Except per Share Amounts)
- ----------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
SALES AND INCOME
- ----------
Net Sales $216,574 $189,652 $141,476 $140,293 $133,866
Income Before Income Taxes 19,126 22,005 17,657 15,390 10,712
Net Income 13,771 16,500 13,949 13,081 10,134
PER SHARE DATA
- ----------
Basic 1.81 2.21 1.92 1.84 1.50
Diluted 1.74 2.10 1.83 1.69 1.41
Book Value 14.47 12.51 10.43 8.42 6.41
FINANCIAL POSITION (YEAR-END)
- ----------
Current Assets 74,322 79,483 62,725 55,766 47,720
Current Liabilities 32,305 33,983 24,637 24,412 23,016
Ratio of Current Assets
to Current Liabilities 2.3 to 1 2.3 to 1 2.5 to 1 2.3 to 1 2.1 to 1
Cash, Cash Equivalents, and
Marketable Securities 9,849 21,555 19,631 14,676 13,851
Working Capital 42,017 45,500 38,088 31,354 24,704
Property, Plant and
Equipment - Net 74,811 52,201 36,614 36,473 34,061
Total Assets 176,174 158,440 119,227 102,516 89,443
Long-Term Debt less Current
Maturities 13,687 13,660 3,600 4,200 6,675
Shareholders' Equity 110,231 94,378 77,212 60,098 45,125
Long-Term Debt as a
Percentage of Shareholders'
Equity 12% 14% 5% 7% 15%
OTHER DATA
- ----------
Depreciation and
Amortization 8,439 6,614 5,781 5,738 6,680
Research and Development
Expenses 10,352 9,608 9,184 9,320 9,230
Capital Expenditures 28,965 17,739 6,326 8,853 4,648
Number of Employees
(Average) 1,122 993 854 928 977
Net Sales per Employee 193 191 166 151 137
Number of Shares
Outstanding at Year-End 7,617,666 7,543,699 7,405,961 7,135,090 7,045,270
19
F-7
CONSOLIDATED STATEMENTS OF INCOME
- ----------
(Dollars in Thousands, Except Per Share 1998 1997 1996
Amounts) (53 weeks) (52 weeks) (52 weeks)
---------- ---------- ----------
Net Sales $ 216,574 $ 189,652 $ 141,476
Cost of Sales 158,509 133,653 97,279
Selling and Administrative Expenses 28,073 26,061 21,285
Research and Development Expenses 10,352 9,608 9,184
--------- --------- ---------
Total Costs and Expenses 196,934 169,322 127,748
--------- --------- ---------
Operating Income 19,640 20,330 13,728
Other Income less Other Charges (981) 1,108 3,415
Interest Income, Net 467 567 514
--------- --------- ---------
Income Before Income Taxes 19,126 22,005 17,657
Income Taxes 5,355 5,505 3,708
--------- --------- ---------
Net Income $ 13,771 $ 16,500 $ 13,949
========= ========= =========
Net Income Per Share (Notes A & I):
Basic $ 1.81 $ 2.21 $ 1.92
--------- --------- ---------
Diluted $ 1.74 $ 2.10 $ 1.83
--------- --------- ---------
Shares Used in Computing (Notes A & I):
Basic 7,601,235 7,474,992 7,283,625
--------- --------- ---------
Diluted 7,899,913 7,863,084 7,627,184
========= ========= =========
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
22
F-8
CONSOLIDATED BALANCE SHEETS
- ----------
January 3, December 28,
(Dollars in Thousands) 1999 1997
---------- ----------
ASSETS
- ----------
Current Assets:
Cash and Cash Equivalents $ 9,593 $ 18,791
Marketable Securities 256 2,764
Accounts Receivable, Net 32,590 28,658
Inventories:
Raw Materials 10,392 10,262
In-Process and Finished 12,637 12,446
Less LIFO Reserve (272) (1,123)
--------- ---------
Total Inventories 22,757 21,585
Current Deferred Income Taxes 3,481 1,936
Assets Held for Sale, Net of Valuation
Reserves of $492 in each year (Note B) 5,158 5,158
Other Current Assets 487 591
--------- ---------
Total Current Assets 74,322 79,483
--------- ---------
Property, Plant and Equipment, Net of
Accumulated Depreciation of $69,051
and $63,855 74,811 52,201
Investment in Unconsolidated Joint Venture 5,467 5,373
Pension Asset 4,606 4,731
Goodwill and Other Intangible Assets 14,935 14,500
Other Assets 2,033 2,152
--------- ---------
Total Assets $ 176,174 $ 158,440
========= =========
20
F-9
January 3, December 28,
(Dollars in Thousands) 1999 1997
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------
Current Liabilities:
Accounts Payable $ 17,766 $ 16,771
Current Maturities of Long-Term Debt 600 600
Accrued Employee Benefits and Compensation 6,577 8,098
Accrued Income Taxes Payable 1,059 3,628
Taxes, Other than Federal and Foreign Income 1,038 839
Other Accrued Liabilities 5,265 4,047
--------- ---------
Total Current Liabilities 32,305 33,983
--------- ---------
Long-Term Debt, less Current Maturities 13,687 13,660
Noncurrent Deferred Income Taxes 5,938 2,311
Noncurrent Pension Liability 3,703 3,900
Noncurrent Retiree Health Care and Life
Insurance Benefits 6,268 6,277
Other Long-Term Liabilities 4,042 3,931
Shareholders' Equity:
Capital Stock, $1 Par Value (Notes A & I):
Authorized Shares 50,000,000; Issued
Shares 7,630,466 and 7,543,699 7,630 7,544
Additional Paid-In Capital 33,323 31,097
Treasury Stock (12,800 shares) (Note A) (423) --
Accumulated Other Comprehensive Income,
Net of Tax (Note I) 1,348 1,155
Retained Earnings 68,353 54,582
--------- ---------
Total Shareholders' Equity 110,231 94,378
--------- ---------
Total Liabilities and Shareholders'
Equity $ 176,174 $ 158,440
========= =========
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
21
F-10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ----------
Capital Accumulated Total
(Dollars in Thousands, Stock Additional Other Share-
Except Capital Stock (Number Paid-in Retained Comprehensive holders'
Amounts) of Shares) Capital Earnings Income Equity
------------------------------------------------------
Balance at December 31,
1995 7,135,090 $ 26,286 $ 24,133 $ 2,544 $ 60,098
------------------------------------------------------
Comprehensive Income:
Net Income for 1996 13,949 13,949
Other Comprehensive
Income (511) (511)
--------
Total Comprehensive
Income 13,438
Stock Options
Exercised 70,854 656 727
Stock Issued to
Directors 3,661 92 96
Shares Reacquired
and Cancelled (3,644) (106) (110)
Warrants Exercised 200,000 2,500 2,700
Tax Benefit on
Stock Options
Exercised 263 263
------------------------------------------------------
Balance at December 29,
1996 7,405,961 $ 29,691 $ 38,082 $ 2,033 $ 77,212
-------------------------------------------------------
Comprehensive Income:
Net Income for 1997 16,500 16,500
Other Comprehensive
Income (878) (878)
--------
Total Comprehensive
Income 15,622
Stock Options
Exercised 138,076 1,298 1,436
Stock Issued to
Directors 2,506 92 95
Shares Reacquired
and Cancelled (2,844) (103) (106)
Tax Benefit on Stock
Options Exercised 119 119
------------------------------------------------------
Balance at December 28,
1997 7,543,699 $ 31,097 $ 54,582 $ 1,155 $ 94,378
------------------------------------------------------
Comprehensive Income:
Net Income for 1998 13,771 13,771
Other Comprehensive
Income 193 193
--------
Total Comprehensive
Income 13,964
Stock Options
Exercised 90,167 884 974
Stock Issued to
Directors 10,966 352 363
Shares Reacquired
and Cancelled (14,366) (589) (604)
Tax Benefit on
Stock Options
Exercised 1,579 1,579
Treasury Stock
Acquisitions
(12,800 Shares) (423)
------------------------------------------------------
Balance at January 3,
1999 7,630,466 $ 33,323 $ 68,353 $ 1,348 $110,231
======================================================
The dollar amount of the capital stock ($1 par value) is equal to the
indicated number of shares.
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
23
F-11
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING 1998 1997 1996
ACTIVITIES: (53 weeks) (52 weeks) (52 weeks)
----------------------------------
- ----------
Net Income $ 13,771 $ 16,500 $ 13,949
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 8,439 6,614 5,781
(Benefit) Expense for Deferred Income
Taxes 2,009 2,543 (1,439)
Equity in Undistributed (Income) of
Unconsolidated Joint Ventures, Net (414) (635) (1,555)
(Gain) Loss on Disposition of Assets 249 52 (10)
Noncurrent Pension and Postretirement
Benefits (58) 1,610 1,482
Other, Net (524) (783) 202
Changes in Operating Assets and
Liabilities Excluding Effects of
Acquisition and Disposition of Assets:
Accounts Receivable (3,984) (6,683) (2,173)
Inventories (912) (6,515) (2,000)
Prepaid Expenses 124 (161) 3
Accounts Payable and Accrued
Expenses (2,775) 6,414 46
----------------------------------
Net Cash Provided by Operating
Activities 15,925 18,956 14,286
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
- ----------
Capital Expenditures (28,965) (17,739) (6,326)
Proceeds from Sale of Business -- -- 2,567
Acquisition of Businesses (1,500) (11,589) (9,690)
Proceeds from Sale of Property, Plant and
Equipment 100 59 946
Proceeds from Sale of Marketable Securities 2,508 -- 609
Purchase of Marketable Securities -- (1,808) --
Investment in Unconsolidated Joint Ventures
and Affiliates 333 386 490
----------------------------------
Net Cash Used in Investing
Activities (27,524) (30,691) (11,404)
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
- ----------
Proceeds from Short- and Long-Term
Borrowings 736 12,259 --
Repayments of Debt Principal (603) (2,100) (600)
Acquisition of Treasury Stock (423) -- --
Proceeds from Sale of Capital Stock 2,313 1,544 3,427
----------------------------------
Net Cash Provided by Financing
Activities 2,023 11,703 2,827
Effect of Exchange Rate Changes on Cash 378 148 (145)
----------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents (9,198) 116 5,564
Cash and Cash Equivalents at Beginning
of Year 18,791 18,675 13,111
----------------------------------
Cash and Cash Equivalents at End of Year $ 9,593 $ 18,791 $ 18,675
==================================
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
24
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------
NOTE A-ACCOUNTING POLICIES
- ----------
ORGANIZATION:
- ----------
Rogers Corporation manufactures specialty materials, which it sells to
targeted markets around the world.
In 1998 Rogers had two business segments which were about equal in
size based on sales and assets. Polymer Materials included high
performance elastomer materials and components, and moldable composite
materials. Polymer Materials were sold principally to manufacturers
in the imaging, transportation, consumer, communications, and computer
markets. Electronic Materials included circuit board laminates for
high frequency printed circuits, flexible circuit board laminates for
interconnections, industrial laminates for shielding of
electromagnetic interference, and bus bars for power distribution.
Electronic Materials were sold principally to printed circuit board
manufacturers and equipment manufacturers for applications in the
computer, communications, transportation, and consumer markets.
PRINCIPLES OF CONSOLIDATION:
- ----------
The consolidated financial statements include the accounts of Rogers
Corporation and its wholly-owned subsidiaries (the Company), after
elimination of significant intercompany accounts and transactions.
CASH EQUIVALENTS:
- ----------
Cash equivalents include commercial paper and U.S. government and
federal agency securities with an original maturity of three months or
less. These investments are stated at cost, which approximates market
value.
MARKETABLE SECURITIES:
- ----------
The Company's marketable securities are classified as available-for-
sale and are reported at fair value (based on quoted market prices) on
the Company's consolidated balance sheet. Marketable securities are
comprised of commercial paper, U.S. treasury notes, and corporate
bonds. Unrealized gains and losses on such securities are reflected,
net of tax, in shareholders' equity.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES:
- ----------
The Company accounts for its investments in and advances to
unconsolidated joint ventures, both of which are 50% owned, using the
equity method.
RELATED PARTY TRANSACTIONS:
- ----------
Sales to unconsolidated joint ventures are made on terms similar to
those prevailing with unrelated customers. However, payment terms for
amounts owed by the joint ventures may be extended.
FOREIGN CURRENCY TRANSLATION:
- ----------
All balance sheet accounts of foreign subsidiaries are translated at
rates of exchange in effect at each year-end, and income statement
items are translated at the average exchange rates for the year.
Resulting translation adjustments are made directly to a separate
component of shareholders' equity. Currency transaction adjustments
are reported as income or expense.
25
F-13
INVENTORIES:
- ----------
Inventories are valued at the lower of cost or market. Certain
inventories, amounting to $7,965,000 at January 3, 1999, and
$6,028,000 at December 28, 1997, or 35% and 28% of total Company
inventories in the respective periods, are valued at the lower of
cost, determined by the last-in, first-out (LIFO) method, or market.
The cost of the remaining portion of the inventories was determined
principally on the basis of standard costs, which approximate actual
first-in, first-out (FIFO) costs.
PROPERTY, PLANT AND EQUIPMENT:
- ----------
Property, plant and equipment is stated on the basis of cost,
including capitalized interest. For financial reporting purposes,
provisions for depreciation are calculated on a straight-line basis
over the following estimated useful lives of the assets:
Years
-------------------------------------
Buildings 30 -- 45
Building improvements 10 -- 25
Machinery and equipment 5 -- 15
Office equipment 3 -- 10
INTANGIBLE ASSETS:
- ----------
Goodwill, representing the excess of the cost over the net tangible
and identifiable assets of acquired businesses, is stated at cost.
Goodwill is being amortized on a straight-line method over periods
ranging from 10-40 years. Amortization charges to operations amounted
to $453,000 in 1998 and $258,000 in 1997. When events and
circumstances so indicate, all long-term assets are assessed for
recoverability based upon cash flow forecasts. Based on its most
recent analysis, the Company believes that no material impairment of
goodwill exists at January 3, 1999.
Purchased patents and licensed technology are capitalized and
amortized on a straight-line basis over their estimated useful lives,
generally from 2 to 17 years.
PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS:
- ----------
The Company adopted Statement of Financial Accounting Standards (FAS
No. 132), "Employers' Disclosures about Pensions and Other
Postretirement Benefits," in 1998. The provisions of FAS No. 132
revise employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of
these plans. It standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable.
INCOME TAXES:
- ----------
The Company recognizes income taxes under the liability method. No
provision is made for U.S. income taxes on the undistributed earnings
of consolidated foreign subsidiaries because such earnings are
substantially reinvested in those companies for an indefinite period.
Provision for the tax consequences of distributions, if any, from
consolidated foreign subsidiaries is recorded in the year the
distribution is declared.
REVENUE RECOGNITION:
- ----------
Revenue is recognized when goods are shipped.
26
NET INCOME PER SHARE:
- ----------
The following table sets forth the computation of basic and diluted
earnings per share:
(Dollars in Thousands, Except Per Share 1998 1997 1996
Amounts) ----------------------------------
Numerator:
Net income $ 13,771 $ 16,500 $ 13,949
Denominator:
Denominator for basic earnings per
share - weighted average shares 7,601,235 7,474,992 7,283,625
Effect of stock options 298,678 388,092 343,559
----------------------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 7,899,913 7,863,084 7,627,184
==================================
Basic earnings per share $ 1.81 $ 2.21 $ 1.92
==================================
Diluted earnings per share $ 1.74 $ 2.10 $ 1.83
==================================
USE OF ESTIMATES:
- ----------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
TREASURY STOCK:
- ----------
From time to time the Company's Board of Directors authorizes the
repurchase, at management's discretion, of shares of the Company's
capital stock. The most recent authorization was approved on April
23, 1998 and provided for the repurchase of up to an aggregate of $2.0
million in market value of such stock. On June 17, 1998, the Board of
Directors adopted a policy that stated that all such subsequently
repurchased stock be maintained as authorized and issued, but not
outstanding shares (i.e., Treasury Shares) until transferred pursuant
to authority previously or subsequently granted by the Board of
Directors. Currently, Treasury Stock totals 12,800 shares and is
shown at cost on the balance sheet as a reduction of Shareholders'
Equity.
NOTE B-ACQUISITIONS AND DIVESTITURES
- ----------
IMATION SLEEVES BUSINESS ACQUISITION:
- ----------
Effective September 30, 1998, the Company acquired a line of printing
pressroom products from Imation Corp., formerly a business of 3M
Corporation, for $2.25 million, of which $.75 million is due in March
1999. The acquisition included a line of dampening and ductor sleeves
used in lithographic printing, along with related manufacturing assets
and intellectual property rights. This acquisition was accounted for
as a purchase and, accordingly, results are included in the Company's
consolidated financial statements since the date of acquisition.
27
F-15
ROGERS INDUFLEX N.V. ACQUISITION:
- ----------
The Company acquired UCB Induflex N.V. of Ghent, Belgium from UCB S.A.
on September 30, 1997. Induflex, which is now known as Rogers
Induflex N.V., manufactures thin aluminum and copper laminates for
shielding electromagnetic and radio frequency interference, primarily
in telecommunication and data communication applications. The
purchase included the business and its Ghent, Belgium facility.
For financial statement purposes, the acquisition was accounted for as
a purchase and, accordingly, Rogers Induflex N.V.'s results are
included in the Company's consolidated financial statements since the
date of acquisition. The aggregate purchase price of approximately
$11.3 million, which included costs of acquisition, has been allocated
to the assets of the Company based on their respective fair market
values. The excess of the purchase price over assets acquired
(Goodwill) approximated $6.1 million and is being amortized over 40
years.
The majority of the purchase price was funded through a new Multi-
Currency Revolving Credit Agreement with Fleet National Bank, although
at the time the Company could have drawn down its cash position to
make the purchase. The Company borrowed 390.2 million Belgian francs
($10.8 million) in September 1997, which is payable in full on or
before September 19, 2002.
BISCO ACQUISITION:
- ----------
Effective January 1, 1997, the Company completed the acquisition of
the Bisco Products silicone foam materials business based in the
Chicago area, from a wholly-owned subsidiary of Dow Corning
Corporation for approximately $11.0 million. The acquisition included
machinery and equipment and other fixed assets; inventories of
supplies, merchandise, materials, and products; intellectual property
rights; books, records and computer software; and all unfilled
customer orders. The Company did not acquire the cash and accounts
receivable of the Seller and did not assume the liabilities of the
Seller.
The acquisition was accounted for as a purchase in 1997, and the
results for the entire fiscal year were included in the Company's
consolidated financial statements. Goodwill approximated $8.5 million
and is being amortized over 40 years.
PRO FORMA RESULTS (UNAUDITED):
- ----------
The following unaudited pro forma consolidated results of operations
have been prepared as if the acquisitions of Rogers Induflex N.V. and
of the dampening sleeve business from Imation Corp. had occurred as of
the beginning of fiscal 1997:
(Dollars in Thousands, Except Per Share Pro Forma Years
Amounts (Unaudited)
---------------------
1998 1997
---------------------
Net sales $ 223,782 $ 205,608
Net income 14,610 17,843
Net income per share:
Basic $ 1.92 $ 2.39
Diluted $ 1.85 $ 2.27
28
F-16
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisitions been in effect
for the period presented, nor do they purport to be indicative of the
results that will be obtained in the future.
ASSETS HELD FOR SALE:
- ----------
At January 3, 1999, assets held for sale at estimated net realizable
value were $5.2 million, consisting of the land and building being
leased to the buyer of the Company's divested flexible
interconnections business.
NOTE C-PROPERTY, PLANT AND EQUIPMENT
- ----------
January 3, December 28,
(Dollars in Thousands) 1999 1997
---------- ----------
Land $ 1,605 $ 1,426
Buildings and improvements 42,088 35,217
Machinery and equipment 76,142 63,129
Office equipment 7,915 7,766
Installations in process 16,112 8,518
---------- ----------
143,862 116,056
Accumulated depreciation (69,051) (63,855)
---------- ----------
$ 74,811 $ 52,201
========== ==========
Depreciation expense was $8,029,000 in 1998, $6,169,000 in 1997, and
$5,752,000 in 1996. Interest costs incurred during the years 1998,
1997, and 1996 were $1,781,000, $1,033,000, and $765,000,
respectively, of which $894,000 in 1998, $251,000 in 1997, and
$116,000 in 1996 were capitalized as part of the cost of plant and
equipment additions.
NOTE D-SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT
VENTURES AND RELATED PARTY TRANSACTIONS
- ----------
The tables shown below summarize combined financial information of the
Company's unconsolidated joint ventures which are accounted for by the
equity method. Amounts presented include the financial information
reported by Rogers Inoac Corporation, located in Japan, and Durel
Corporation, located in Arizona, both of which are Polymer Materials
ventures. Each of these ventures is 50% owned by the Company.
29
F-17
The difference between the Company's investment in unconsolidated
joint ventures and its one-half interest in the underlying
shareholders' equity of the joint ventures is due primarily to the
following factors: 1) The Company's major initial contribution to
each venture was technology which was valued differently by the joint
venture than it was on the Company's books; 2) one of the joint
ventures has a negative retained earnings balance; and 3) translation
of foreign currency at current rates differs from that at historical
rates. This also results in a difference between the Company's
recorded income from unconsolidated joint ventures and a 50% share of
the income of those joint ventures.
January 3, December 28,
(Dollars in Thousands) 1999 1997
---------- ----------
Current Assets $ 19,691 $ 21,062
Noncurrent Assets 12,171 13,339
Current Liabilities 6,758 9,903
Noncurrent Liabilities 12,468 12,247
Shareholders' Equity 12,636 12,251
Year Ended
----------------------------------------
January 3, December 28, December 29,
(Dollars in Thousands) 1999 1997 1996
---------- ---------- ----------
Net Sales $ 58,570 $ 64,265 $ 64,850
Gross Profit 18,530 21,234 22,058
Net Income 718 971 3,995
Note that in the tables above, Rogers Inoac Corporation is reported as
of October 31 for the respective years.
Sales to unconsolidated joint ventures amounted to $275,000 in 1998,
$659,000 in 1997, and $710,000 in 1996.
At January 3, 1999, the Company had indirectly guaranteed 50% of a
loan entered into by one of the unconsolidated joint ventures. The
Company's proportionate share of the outstanding principal under this
guarantee was $5,000,000 at January 3, 1999 and $4,750,000 at December
28, 1997. The Company believes that the unconsolidated joint venture
will be able to meet its obligations under this financing arrangement
and accordingly no payments will be required and no losses will be
incurred under this guarantee.
Equity income from unconsolidated joint ventures is included in other
income less other charges on the consolidated statements of
operations.
30
F-18
NOTE E-PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS
- ----------
PENSIONS:
- ----------
The Company has two qualified noncontributory defined benefit pension
plans covering substantially all U.S. employees. The Company also has
established a nonqualified unfunded noncontributory defined benefit
pension plan to restore certain retirement benefits that might
otherwise be lost due to limitations imposed by federal law on
qualified pension plans. In addition, the Company sponsors three
unfunded defined benefit health care and life insurance plans for
retirees. The following provides a reconciliation of benefit
obligations, plan assets, and funded status of the plans:
Other
Pension Benefits Postretirement Benefits
(Dollars in Thousands) 1998 1997 1998 1997
--------- --------- --------- ---------
Components of net periodic
benefits cost:
Service cost $ 1,569 $ 1,408 $ 304 $ 267
Interest cost 3,791 3,627 354 341
Expected return on plan
assets (5,346) (4,507) -- --
Amortizations and deferrals 417 467 (75) (97)
Amortization of transition
asset (335) (335) -- --
--------- --------- --------- ---------
Net periodic benefit costs $ 96 $ 660 $ 583 $ 511
========= ========= ========= =========
Change in plan assets:
Fair value of plan assets
January 1 $ 57,860 $ 48,516 $ -- $ --
Actual return on plan assets 2,559 10,104 -- --
Employer contributions 87 1,253 492 476
Benefit payments (2,295) (2,013) (492) (476)
--------- --------- --------- ---------
Fair value of plan assets
December 31 $ 58,211 $ 57,860 $ -- $ --
========= ========= ========= =========
Change in benefit obligation:
Benefit obligation at
January 1 $ 54,814 $ 50,920 $ 4,910 $ 4,875
Service cost 1,569 1,408 304 267
Interest cost 3,791 3,627 354 341
Actuarial return on plan
assets 5,669 872 212 (97)
Benefit payments (2,295) (2,013) (492) (476)
--------- --------- --------- ---------
Benefit obligation at
December 31 $ 63,548 $ 54,814 $ 5,288 $ 4,910
========= ========= ========= =========
Reconciliation of funded
status:
Funded status $ (5,337) $ 3,046 $ (5,288) $ (4,910)
Unrecognized net gain/
(loss) 5,941 (2,441) (1,580) (1,867)
Unrecognized prior service
cost 2,079 2,421 -- --
Unrecognized transition
(asset) (1,712) (2,047) -- --
--------- --------- --------- ---------
Prepaid/(accrued) benefit
cost at December 31 $ 971 $ 979 $ (6,868) $ (6,777)
========= ========= ========= =========
Assumptions as of December 31:
Discount rate 6.75% 7.00% 6.75% 7.00%
Rate of compensation increase 4.00% 4.50% -- --
31
F-19
The expected long-term rates of investment return were assumed to be
9.00% for the pension plan covering unionized hourly employees and
9.50% for the other pension plan in each year presented.
The Company has one nonqualified unfunded pension plan with
accumulated benefit obligations in excess of plan assets. Amounts
applicable to this plan are:
1998 1997
--------- ---------
Projected benefit obligation $ 1,281 $ 1,089
Accumulated benefit obligation 1,015 705
Fair value of plan assets -- --
OTHER POSTRETIREMENT BENEFITS:
- ----------
The assumed health care cost trend rate of increase is 4.5% for 1999,
5.5% for 1998 and 6.5% for 1997. It is expected to continue at 4.5%
after 1999. The health care cost trend rate assumption has the
following effect on the amounts reported: increasing the assumed
health care cost trend rates by one percentage point for each future
year would increase the accumulated postretirement benefit obligation
as of the beginning of 1999 by $374,000 and the aggregate of service
cost and interest cost components of net periodic postretirement
benefit cost for fiscal 1998 by $64,000; decreasing the assumed rates
by one percentage point would decrease the accumulated postretirement
benefit obligation at the beginning of 1999 by $338,000 and the
aggregate of service cost and interest cost components of net periodic
postretirement benefit cost for fiscal 1998 by $57,000.
NOTE F-EMPLOYEE SAVINGS AND INVESTMENT PLAN
- ----------
The Rogers Employee Savings and Investment Plan (RESIP) meets the
requirements contained in Section 401(k) of the Internal Revenue Code.
All regular U.S. employees with at least one month of service are
eligible to participate. The plan is designed to encourage the
Company's U.S. employees to save for retirement. Contributions to the
plan as well as earnings thereon benefit from tax deferral.
Participating employees generally may contribute up to 18% of their
salaries and wages. An employee's elective pretax contribution for
which a tax deferral is available is limited to the maximum allowed
under the Internal Revenue Code. To further encourage employee
savings, the Company matched employee contributions up to 5% of a
participant's deferred eligible annual compensation subject to IRS
limitations, at a rate of 50% in 1998, for all participants other than
those in collective bargaining units. The Company matched employee
contributions up to 4% of a participant's deferred eligible annual
compensation subject to IRS limitations, at a rate of 50% in 1997 and
1996, for all participants other than those in collective bargaining
units. In 1998, 100% of the Company's contribution was invested in
Company stock. In 1997 and 1996, one-half of the Company's
contribution was invested in Company stock and the other half was
invested at the employee's discretion. RESIP related expense amounted
to $697,000 in 1998, $654,000 in 1997, and $427,000 in 1996, including
Company matching contributions of $686,000, $501,000, and $415,000,
respectively.
32
F-20
NOTE G-DEBT
- ----------
LONG-TERM DEBT:
- ----------
In 1988 the Company borrowed $6,000,000 at 10.6%. Principal
repayments of $600,000 per year began in 1994 and are scheduled to
continue until 2003. At January 3, 1999, $3,000,000 of this debt was
still outstanding ($3,600,000 at December 28, 1997). In general,
interest rates are lower today than they were in 1988 and this, in
conjunction with the reduced number of years remaining on the loan,
result in an estimated market value for this debt of approximately
$3,130,000. Subject to certain loan agreement limitations, the Company
has the right to prepay this loan in whole or in part, but the Company
has not yet chosen to do so because of the prepayment penalty.
In September 1997 the Company cancelled its $5.0 million unsecured
revolving credit agreement with Fleet National Bank and replaced it
with an unsecured multi-currency revolving credit agreement, also with
Fleet. Under the new arrangement, the Company can borrow up to $15.0
million, or the equivalent in Belgian francs and/or Japanese yen.
Amounts borrowed under this agreement are to be paid in full by
September 19, 2002. The Company borrowed 390,207,039 Belgian francs
(the equivalent of $11,290,000 as of January 3, 1999 and of
$10,660,000 as of December 28, 1997) under the new arrangement to
facilitate the Rogers Induflex N.V. acquisition in Belgium. Under the
arrangement, the ongoing facility fee varies from 17.5 to 30 basis
points of the maximum amount that can be borrowed. The rate of
interest charged on outstanding loans can, at the Company's option and
subject to certain restrictions, be based on the prime rate, or at
rates from 45 to 65 basis points over either London Interbank Offered
Rate (LIBOR) quoted in U.S. dollars or Japanese yen, or Belgian
Interbank Offered Rate (BIBOR) quoted in Belgian francs. The spreads
over LIBOR and BIBOR and the level of facility fees are based on a
measure of the Company's financial strength. The borrowing at year-end
was denominated in Belgian francs and the interest rate on the loan
was 3.85% as of January 3, 1999. The carrying value of this debt
approximates fair value as of January 3, 1999.
The loan agreements contain restrictive covenants primarily related to
working capital, leverage, and net worth. The Company is in
compliance with these covenants.
MATURITIES:
- ----------
Required long-term debt principal repayments due during the years
after 1998 are: 1999-2001, $600,000 each year; 2002, $11,890,000;
2003, $600,000.
INTEREST PAID:
- ----------
Interest paid during the years 1998, 1997, and 1996, was $1,362,000,
$1,003,000, and $935,000, respectively.
RESTRICTION ON PAYMENT OF DIVIDENDS:
- ----------
Under the most restrictive covenant of the loan agreements,
$35,150,000 of retained earnings was available at January 3, 1999, for
cash dividends.
33
F-21
NOTE H-INCOME TAXES
- ----------
Consolidated income before income taxes consists of:
(Dollars in Thousands) 1998 1997 1996
------------------------------------
Domestic $ 14,756 $ 18,168 $ 17,114
Foreign 4,370 3,837 543
------------------------------------
$ 19,126 $ 22,005 $ 17,657
====================================
The income tax expense (benefit) in the consolidated statements of
income consists of:
(Dollars in Thousands) Current Deferred Total
------------------------------------
1998:
Federal $ 2,276 $ 1,322 $ 3,598
Foreign 1,066 687 1,753
State 4 -- 4
------------------------------------
$ 3,346 $ 2,009 $ 5,355
====================================
1997:
Federal $ 2,477 $ 1,548 $ 4,025
Foreign 447 995 1,442
State 38 -- 38
------------------------------------
$ 2,962 $ 2,543 $ 5,505
====================================
1996:
Federal $ 4,872 $ (1,481) $ 3,391
Foreign 53 42 95
State 222 -- 222
------------------------------------
$ 5,147 $ (1,439) $ 3,708
====================================
34
F-22
Deferred tax assets and liabilities as of January 3, 1999 and
December 28, 1997, respectively, are comprised of the following:
(Dollars in Thousands) January 3, December 28,
1999 1997
---------- ----------
Deferred tax assets:
Accruals not currently deductible for tax
purposes:
Accrued employee benefits and
compensation $ 1,533 $ 1,433
Accrued postretirement benefits 2,020 1,977
Other accrued liabilities and reserves 1,346 754
Net investments in joint ventures 2,547 2,794
Tax credit carryforwards -- 70
Other 107 165
--------- ---------
Total deferred tax assets 7,553 7,193
Less deferred tax asset valuation allowance 3,327 3,327
--------- ---------
Net deferred tax assets 4,226 3,866
--------- ---------
Deferred tax liabilities:
Depreciation and amortization 6,683 4,241
--------- ---------
Total deferred tax liabilities 6,683 4,241
--------- ---------
Net deferred tax asset (liability) $ (2,457) $ (375)
========= =========
Income tax expense differs from the amount computed by applying the U.S.
statutory federal income tax rate to income before income tax expense.
The reasons for this difference are as follows:
(Dollars in Thousands) 1998 1997 1996
--------------------------------
Tax expense at statutory rate $ 6,694 $ 7,702 $ 6,180
Net U.S. tax (foreign tax credit) on
foreign earnings (326) (745) 314
General business credits (400) (500) (375)
Nontaxable foreign sales income (421) (392) (280)
State income taxes, net of federal benefit 3 25 144
Net deferred tax benefits utilized in the
current year:
Employee benefits and compensation -- -- 111
Other net temporary differences -- -- (200)
Net deferred tax benefits to be used in
future years -- -- (2,114)
Other (195) (585) (72)
--------------------------------
Income tax expense $ 5,355 $ 5,505 $ 3,708
================================
35
F-23
The deferred tax asset valuation allowance remained unchanged for 1998
and 1997. The valuation allowance decreased by $3,425,000 during
1996. The 1996 decrease resulted primarily from the recognition for
financial reporting purposes in 1996 of tax credit carryforwards which
the Company utilized for tax purposes in 1996 and 1997.
Undistributed foreign earnings, before available tax credits and
deductions, amounted to $8,601,000 at January 3, 1999, $5,984,000 at
December 28, 1997, and $3,589,000 at December 29, 1996.
Income taxes paid were $4,442,000, $3,090,000, and $2,554,000, in
1998, 1997, and 1996, respectively.
NOTE I-SHAREHOLDERS' EQUITY AND STOCK OPTIONS
- ----------
As of January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130 (FAS No. 130), "Reporting Comprehensive
Income". FAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net income
or shareholders' equity. FAS No. 130 requires unrealized gains or
losses on the Company's available-for-sale securities, foreign
currency translation adjustments, and changes in certain minimum
pension liabilities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to
the requirements of FAS No. 130.
Components of Other Comprehensive Income (Loss) consist of the
following:
(Dollars in Thousands) 1998 1997 1996
------------------------------
Foreign currency translation adjustments $ 112 $ (875) $ (509)
Change in unrealized gains (losses) on
marketable securities 3 (3) (2)
Change in minimum pension liability 78 -- --
Income tax benefit -- -- --
------------------------------
Other comprehensive income (loss) $ 193 $ (878) $ (511)
==============================
Reclassification adjustments in each year are immaterial.
Accumulated balances related to each component of Other Comprehensive Income
(Loss) are as follows:
(Dollars in Thousands) 1/3/99 12/28/97
----------------------
Foreign currency translation adjustments $ 1,272 $ 1,160
Unrealized loss on marketable securities (2) (5)
Change in minimum pension liability 78 --
----------------------
Accumulated balance $ 1,348 $ 1,155
======================
36
F-24
In 1988, shareholders approved the 1988 Stock Option Plan including
the reservation of 380,000 shares of capital stock for the granting of
stock options. Incentive stock options and nonqualified stock options
may be granted to officers and other key employees. Additionally,
nonqualified stock options can be granted to directors. Incentive
stock option grants must be at a price no less than the fair market
value of the capital stock as of the date of grant. Nonqualified
stock options for officers and other key employees must be granted at
a price equal to at least 50% of the fair market value of the capital
stock as of the date of grant. To date, all options granted to
officers and other key employees under the plan have been at a price
equal to the fair market value of the capital stock as of the date of
grant. Under certain conditions, non-employee directors were able to
receive nonqualified stock options at a discounted exercise price in
lieu of a corresponding amount of directors' fees pursuant to the 1988
plan. Currently existing options issued under the plan are
exercisable within a period of ten years from the date of grant. In
the future, only nonqualified stock options may be granted pursuant to
this plan.
In 1990, the Company adopted another stock option plan which only
permits the granting of nonqualified stock options. Options for a
total of 1,370,000 shares have been authorized for issuance under this
1990 plan.
In 1994, shareholders approved the 1994 Stock Compensation Plan
including the reservation of 500,000 shares of capital stock for stock
option grants and stock grants. The plan permits the granting of
incentive stock options and nonqualified stock options to officers and
other key employees. Additionally, until the approval of the 1998
Stock Incentive Plan (described below), this plan required that the
retainer fee for non-employee directors be paid semi-annually in
shares of the Company's capital stock with the number of shares of
stock granted based on its then fair market value. Stock options also
were granted to non-employee directors twice a year. The number of
shares in each six-month non-employee director stock option grant was
determined by dividing $6,750 (half of the annual director retainer
fee at the time the plan was established) by the fair market value of
a share of the Company's capital stock as of the date of grant.
Nonqualified stock options for officers and other key employees must
be granted at a price equal to at least 85% of the fair market value
of the capital stock as of the date of grant. To date, virtually all
options granted under this plan have been at an exercise price equal
to the fair market value of the capital stock as of the date of grant.
Currently existing stock options issued under this plan are
exercisable within a period of ten years from date of grant.
In 1998, shareholders approved the 1998 Stock Incentive Plan including
the reservation of 750,000 shares of capital stock for stock option
grants and stock grants. The plan permits the granting of incentive
stock options and nonqualified stock options to officers and other key
employees. Additionally, the plan requires that the retainer fee for
non-employee directors be paid semi-annually in shares of the
Company's capital stock with the number of shares of stock granted
based on its then fair market value. Each non-employee director also
receives a 500 share stock option grant twice a year. The exercise
price for such non-employee director stock option grants is equal to
the then fair market value of a share of capital stock. Nonqualified
stock options for officers and other key employees must be granted at
a price equal to at least 85% of the fair market value of the capital
stock as of the date of grant. To date, all options granted under
this plan have been at an exercise price equal to the fair market
value of the capital stock as of the date of grant.
37
F-25
In general, regular stock options granted to officers and employees
have ten-year terms and become exercisable in one-third increments
beginning on the second anniversary of the grant date. Non-employee
director options granted under the 1988 plan became exercisable on the
first anniversary of the date of grant, while options to such
individuals granted pursuant to the 1994 plan became exercisable six
months and one day after the date of grant. Options granted to non-
employee directors pursuant to the 1998 Stock Incentive Plan are
immediately exercisable. The options outstanding on January 3, 1999
expire on various dates, beginning March 8, 1999 and ending on
December 15, 2008.
Shares of capital stock reserved for possible future issuance are as
follows:
January 3, December 28,
1999 1997
----------- -----------
Shareholder Rights Plan 10,209,263 9,726,696
Stock options 2,435,711 2,020,606
Rogers Employee Savings and Investment Plan 84,522 84,522
Long-Term Enhancement Plan 68,242 75,000
Stock to be issued in lieu of deferred
directors' fees 3,122 2,869
----------- -----------
Total 12,800,860 11,909,693
=========== ===========
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS No. 123), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized in the financial statements for the stock option plans. Had
compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1998, 1997,
and 1996 consistent with the provisions of FAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
(Dollars in Thousands,
Except Per Share Amounts) 1998 1997 1996
-------------------------------------------
Net income As Reported $13,771 $16,500 $13,949
Pro Forma 12,440 15,678 13,551
-------------------------------------------
Basic earnings per share As Reported $ 1.81 $ 2.21 $ 1.92
Pro Forma 1.64 2.10 1.86
-------------------------------------------
Diluted earnings per share As Reported $ 1.74 $ 2.10 $ 1.83
Pro Forma 1.56 1.99 1.78
-------------------------------------------
The effects on pro forma net income and earnings per share of
expensing the estimated fair value of stock options are not
necessarily representative of the effects on reported net income for
future years due to such things as the vesting period of the stock
options and the potential for issuance of additional stock options in
future years.
An average vesting period of 36 months was used for the assumption
regarding stock options issued in 1998, 1997, and 1996. Options
usually become exercisable in one-third increments beginning on the
second anniversary of the grant date.
38
F-26
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants:
1998 1997 1996
----------------------------------
Risk-free interest rate 4.65% 5.7% 6.0%
Dividend yield 0% 0% 0%
Volatility factor 30.6% 28.2% 30.5%
Weighted-average expected life 5.5 years 5.3 years 4.7 years
A summary of the status of the Company's stock option program at year-end 1998,
1997, and 1996, and changes during the years ended on those dates is presented
below:
-----------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
-----------------------------------------------------------
Outstanding at
beginning of
year 1,130,183 $20.54 1,063,277 $15.26 995,437 $13.35
Granted 160,418 25.15 205,050 41.11 143,061 26.04
Exercised (90,167) 10.79 (138,076) 10.40 (72,354) 10.26
Cancelled (10,111) 30.32 (68) 47.90 (2,400) 19.55
Expired -- -- -- -- (467) 8.38
-----------------------------------------------------------
Outstanding at
end of year 1,190,323 21.81 1,130,183 20.54 1,063,277 15.26
===========================================================
Options exercisable
at end of year 692,067 604,198 533,480
===========================================================
Weighted-average
fair value of
options granted
during year $9.36 $15.30 $9.52
===========================================================
The following table summarizes information about stock options outstanding at
January 3, 1999:
---------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 01/03/99 Life in Years Price at 01/03/99 Price
--------------------------------------------------------------
$7 to $22 524,426 4.3 $11.75 524,426 $11.75
$23 to $45 665,897 8.3 29.74 167,641 24.50
--------------------------------------------------------------
$7 to $45 1,190,323 6.5 $21.81 692,067 $14.84
==============================================================
39
F-27
NOTE J-COMMITMENTS AND CONTINGENCIES
- ----------
LEASES:
- ----------
The Company's principal noncancellable operating lease obligations are
for building space and vehicles. The leases generally provide that
the Company pay maintenance costs. The lease periods range from one to
five years and include purchase or renewal provisions at the Company's
option. The Company also has leases that are cancellable with minimal
notice. Lease expense was $975,000 in 1998, $951,000 in 1997, and
$581,000 in 1996.
Future minimum lease payments under noncancellable operating leases at
January 3, 1999, aggregate $3,978,000. Of this amount, annual minimum
payments are $805,000, $600,000, $484,000, $400,000, and $369,000 for
years 1999 through 2003, respectively.
PURCHASE COMMITMENTS:
- ----------
At January 3, 1999, the Company had committed to capital expenditures
of approximately $1.3 million, to be used primarily for the
construction of facilities and related machinery and equipment.
CONTINGENCIES:
- ----------
The Company is subject to federal, state, and local laws and
regulations concerning the environment and is currently engaged in
proceedings involving a number of sites under these laws, as a
participant in a group of potentially responsible parties (PRPs). The
Company is currently involved as a PRP in five cases involving waste
disposal sites, all of which are Superfund sites. Several of these
proceedings are at a preliminary stage and it is impossible to
estimate the cost of remediation, the timing and extent of remedial
action which may be required by governmental authorities, and the
amount of liability, if any, of the Company alone or in relation to
that of any other PRPs. The Company also has been seeking to identify
insurance coverage with respect to several of these matters. Where it
has been possible to make a reasonable estimate of the Company's
liability, a provision has been established. Insurance proceeds have
only been taken into account when they have been confirmed by or
received from the insurance company. Actual costs to be incurred in
future periods may vary from these estimates. Based on facts
presently known to it, the Company does not believe that the outcome
of these proceedings will have a material adverse effect on its
financial position.
In addition to the above proceedings, the Company has been actively
working with the Connecticut Department of Environmental Protection
(CT DEP) related to certain polychlorinated biphenyl (PCB)
contamination in the soil beneath a section of cement flooring at its
Woodstock, Connecticut facility. The Company has developed a
remediation plan which has been approved by the CT DEP, and it is
expected that removal of soil contamination will be completed in 1999.
On the basis of estimates prepared by environmental engineers and
consultants, the Company recorded a provision of approximately
$900,000 in 1994, and based on updated estimates provided an
additional $700,000 in 1997 and $600,000 in 1998 for costs related to
this matter. During 1995, $300,000 was charged against this provision
and $200,000 per year was charged in 1996, 1997 and 1998. Management
believes, based on facts currently available, that the implementation
of the aforementioned remediation will not have a material additional
adverse impact on earnings.
In this same matter the United States Environmental Protection Agency
(EPA) has alleged that the Company improperly disposed of PCBs. An
administrative law judge found the Company liable for this alleged
disposal and assessed a penalty of approximately $300,000. The
Company has
40
F-28
reflected this fine in expense in 1998 but vigorously disputes the EPA
allegations and has appealed the administrative law judge's findings and
penalty assessment.
In addition to the environmental issues, the nature and scope of the
Company's business bring it in regular contact with the general public
and a variety of businesses and government agencies. Such activities
inherently subject the Company to the possibility of litigation which
is defended and handled in the ordinary course of business. The
Company has 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
effect on the financial position of the Company.
NOTE K-BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
- ----------
The Company has adopted Statement of Financial Accounting Standards
(FAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in 1998 which changes the way the Company reports
information about its operating segments. The information for 1997
and 1996 has been restated from the prior year's presentation in order
to conform to the presentation required by FAS No. 131.
The Company's nine business units and two joint ventures have separate
management teams and infrastructures that in most cases offer
different products and services. The business units and joint
ventures have been aggregated into two reportable segments, Polymer
Materials, and Electronic Materials.
Polymer Materials: This segment consists of four business units and
two joint ventures. The products produced by these operations consist
primarily of high performance elastomer foams and proprietary
reinforced plastics that are engineered to perform to predetermined
specifications where combinations of properties are needed to satisfy
rigorous electrical, mechanical, and environmental requirements. The
products, which can be in the form of either materials or components,
are sold worldwide and for the most part are sold to fabricators and
original equipment manufacturers.
Electronic Materials: This segment consists of five business units.
The products produced by these operations consist primarily of
laminate materials and power distribution components used in
electronics equipment for transmitting, receiving, and controlling
electrical signals. These products tend to be proprietary materials
which provide highly specialized electrical and mechanical properties
to meet the demands imposed by increasing speed, complexity, and power
of analog, digital, and microwave equipment. These materials are
fabricated, coated and/or customized as necessary to meet customer
demands and are sold worldwide.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based on operating income of the
respective business units.
The principal operations of the Company are located in the United
States and Europe. The Company markets its products throughout the
United States and sells in foreign markets directly,
41
F-29
through distributors and agents, and through its 50% owned joint venture in
Japan. In 1998, approximately 53% of total sales were to the
electronics industry and one customer accounted for approximately 13%
of total sales. Approximately 18% of the Company's sales of products
manufactured by U.S. divisions were made to customers located in
foreign countries. This includes sales to Europe of 11%, sales to
Asia of 4%, and sales to Canada of 2%.
At January 3, 1999, the electronics industry accounted for
approximately 66% of, and one customer accounted for approximately 20%
of, total accounts receivable due from customers. Accounts receivable
due from customers located within the United States accounted for 83%
of the total accounts receivable owed to the Company at the end of
1998. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require
collateral. Receivables are generally due within 30 days. Credit
losses relating to customers have been minimal and have been within
management's expectations.
Inter-segment and inter-area sales, which are generally priced with
reference to costs or prevailing market prices, are not material in
relation to consolidated net sales and have been eliminated from the
sales data reported in the following tables.
BUSINESS SEGMENT
INFORMATION Polymer Electronic
(Dollars in Thousands) Materials Materials Other Total
--------------------------------------------
1998:
Net sales $ 102,450 $ 114,124 $ 216,574
Operating income 10,682 8,958 19,640
Total assets 72,155 90,689 $ 13,330 176,174
Capital expenditures 9,284 19,681 28,965
Depreciation 4,200 3,829 8,029
============================================
1997:
Net sales $ 98,853 $ 90,799 $ 189,652
Operating income 8,850 11,480 20,330
Total assets 65,251 69,698 $ 23,491 158,440
Capital expenditures 9,857 7,882 17,739
Depreciation 3,820 2,349 6,169
============================================
1996:
Net sales $ 79,867 $ 61,609 $ 141,476
Operating income 7,485 6,243 13,728
Total assets 53,123 43,666 $ 22,438 119,227
Capital expenditures 3,286 3,040 6,326
Depreciation 3,080 2,672 5,752
============================================
42
F-30
Information relating to the Company's operations by geographic area are as
follows:
Europe
United (primarily
(Dollars in Thousands) States Belgium) Total
--------------------------------------------
1998:
Net sales $ 173,694 $ 42,880 $ 216,574
Long-lived assets 72,874 18,905 91,779
============================================
1997:
Net sales $ 160,116 $ 29,536 $ 189,652
Long-lived assets 54,823 14,030 68,853
============================================
1996:
Net sales $ 121,973 $ 19,503 $ 141,476
Long-lived assets 43,917 3,759 47,676
============================================
Net sales are attributed to the business unit making the sale. Long-
lived assets are attributed to the location of the asset.
The net assets of wholly-owned foreign subsidiaries were $16,609,000
at January 3, 1999, and $13,118,000 at December 28, 1997. Net income
of these foreign subsidiaries was $2,631,000 in 1998, $2,409,000 in
1997, and $462,000 in 1996, including net currency transaction gains
(losses) of $62,000 in 1998, $180,000 in 1997, and ($23,000) in 1996.
43
F-31
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
- ----------
Board of Directors and Shareholders
Rogers Corporation
- ----------
We have audited the accompanying consolidated balance sheets of Rogers
Corporation and subsidiaries as of January 3, 1999 and December 28,
1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three fiscal years in the period
ended January 3, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Rogers Corporation and subsidiaries at January 3, 1999 and December
28, 1997, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended
January 3, 1999, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Providence, Rhode Island
February 2, 1999
44
F-32
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------
(Dollars in Thousands, Except Per Share Amounts)
Basic Diluted
Net Manufacturing Net Net Income Net Income
Quarter Sales Profit Income Per Share Per Share
- ---------------------------------------------------------------------------
1998 Fourth $ 53,553 $ 15,928 $ 3,998 $ .51 $ .51
Third 51,319 12,910 2,693 .36 .34
Second 53,389 13,147 2,621 .35 .33
First 58,313 16,080 4,459 .59 .56
- ---------------------------------------------------------------------------
1997 Fourth $ 51,772 $ 14,927 $ 4,017 $ .53 $ .50
Third 47,752 14,393 4,338 .58 .55
Second 45,788 13,605 4,105 .55 .53
First 44,340 13,074 4,040 .54 .52
- ----------------------------------------------------------------------------
CAPITAL STOCK MARKET PRICES
- ----------
The Company's capital stock is traded on the American and Pacific Stock
Exchanges. The following table sets forth the composite high and low closing
prices during each quarter of the last two years on a per share basis.
1998 1997
- --------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------
Fourth $ 29-7/8 $ 22-7/16 $ 46-1/2 $ 35-7/8
Third 33-3/4 21-3/8 44 33-1/4
Second 46-1/2 30-1/8 35-7/8 27
First 41-1/2 37 28-1/2 25-3/4
- --------------------------------------------------------------------
45
F-33
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED SALES AND OPERATIONS - 1998 TO 1997
Net sales of $216.6 million in 1998 were 14% higher than the previous year.
Combined Sales, which include one-half of the sales of the Company's two
unconsolidated joint ventures totaled $245.3 million, up 11% from 1997.
Several of the Company's major product groups achieved record sales in 1998
mainly as the result of unit volume increases. A majority of the year-to-
year volume increase came from sales of a customized FLEX-I-MID material to
Hutchinson Technology Incorporated and from sales by Induflex, the European
flexible laminates business Rogers acquired at the end of September 1997.
The 1998 sales increase was achieved despite a severely overbuilt market in
hard disk drives that peaked in 1997 causing customers to draw down
inventories through most of 1998. This resulted in a major customer losing
nearly one-third of its business in 1998, an event that affected the
Company's sales and profitability during the second and third quarters.
The Company's strategy continues to emphasize growth by developing current
markets, particularly through the introduction of new products, and by means
of acquisitions. In 1998 Rogers committed to a market-driven process for
product development called Concurrent Product Development (CPD). CPD adds
discipline to the process of bringing new products to market, forcing hard
decisions relative to the commitment of people and resources. It should help
the Company more effectively bring to market new products that have the
properties customers need, and that the Company can manufacture.
Effective September 30, 1998, the Company acquired a line of printing
pressroom products from Imation Corp., formerly a business of 3M Corporation.
This dampening sleeve business is integral to the water transfer and inking
of many types of offset presses in use throughout the world. This
acquisition complements the Company's existing line of R/bak compressible
plate mounting materials for flexography and will permit better utilization
of the Rogers, Connecticut facility.
Net Income was $13.8 million or $1.74 per share on a diluted basis in 1998
compared with $2.10 per share in 1997. Basic earnings per share were $1.81
in 1998 and $2.21 in 1997. Before-tax profits declined 13% from $22.0
million in 1997 to $19.1 million in 1998. The effective tax rates were 28%
and 25% in 1998 and 1997, respectively. The decrease in both before-tax
profits and net income primarily can be attributed to the severe downturn in
sales in 1998 of R/flex flexible circuit materials manufactured by the
Company. The widely reported overbuilding by hard disk drive manufacturers
coupled with the 32% reduction of sales to a major customer, the largest
producer of flexible circuits in the United States, resulted in dramatic
sales and profit reductions in this product group.
Durel Corporation, the Company's 50% owned joint venture with 3M in
electroluminescent lamps, is in the midst of a challenging transition to
convert its processes to manufacture smaller, more complex pieces at higher
volumes for the wireless communications market. In addition, Durel has
significant business in Asia, and has suffered from the decline in the Asian
economy, the strong U.S. dollar, and increasing competition causing customers
to demand steep price reductions.
46
F-34
Also, profits continue to be negatively impacted by costs related to the
patent infringement suit brought by Durel in 1995 against Osram Sylvania.
It now appears that this long-delayed court case will go to trial in 1999.
Rogers Inoac Corporation (RIC), the Company's 50% owned joint venture with
Inoac Corporation of Japan, has been negatively impacted by the loss of disk
drive business and the poor economic conditions in Japan and Southeast Asia.
While sales in local currency in 1998 decreased 10%, currency rate changes
caused sales measured in U.S. dollars to decrease 20%. On the positive side,
RIC is positioning itself to broaden its product offerings in Asia. This
includes ongoing participation with Rogers Corporation in a major marketing
success of 1998, the incorporation of significant volumes of PORON materials
into the products of one of the world's largest sports-shoe companies.
The Company's manufacturing profit was 27% in 1998 and 30% in 1997. This
decrease was primarily due to the lower profit margins earned on resale of
the specialty FLEX-I-MID material to Hutchinson Technology Incorporated
(HTI), the world leader in suspension assemblies for hard disk drives. This
material is manufactured by Mitsui Chemicals, Inc. under a technology license
from the Company. The doubling of sales of this material to HTI during the
year resulted in a 3 percentage point decrease in consolidated manufacturing
profit.
Selling and administrative expense increased in total dollars but decreased
as a percentage of net sales to 13% in 1998 from 14% in 1997. The increase
in dollars primarily reflects steps taken to strengthen the internal
organization and to improve information systems.
Research and development expense totaled $10.4 million in 1998 compared with
$9.6 million in 1997. Greater R&D emphasis continues to be given to the
development of product platforms resulting in the creation of product
families, combined with increased resources applied to improving process
capability to achieve lower cost and better controlled manufacturing
operations.
Major development activities in circuit materials included process and
product improvements to the RO3000 and RO4000 high frequency circuit board
materials which are designed for use in high volume, low cost commercial
wireless communication applications. These activities included the
development of a bondply addition to the RO4000 family that will allow multi-
layer circuit boards to be made using RO4000 laminates. Flexible circuit
materials development efforts focused on the introduction of a new epoxy
based adhesive system, R/flex Crystal, and on manufacturing improvements
designed to significantly improve the dimensional stability of all R/flex
laminates. PORON materials development activities included commercialization
of several new formulations for industrial and footware applications; in
addition, new thinner adhesive-backed R/bak tapes were developed for the
flexographic printing market. Molding materials development continued to
emphasize tougher, more dimensionally stable materials for small electrical
motor commutators.
Net interest income decreased $100,000 from 1997 to 1998. This decrease is
primarily due to the lower interest income earned as a result of the
significant decrease in cash and marketable securities.
47
F-35
Other income less other charges reflected a net income amount of $1.1 million
in 1997 and a net expense amount of $1.0 million in 1998. This $2.1 million
negative impact on earnings was caused primarily by a $600,000 decrease in
royalties and income from joint ventures, a $700,000 change in gains/(losses)
from disposal of assets, and $400,000 of additional environmental costs in
1998.
The Company is subject to federal, state, and local laws and regulations
concerning the environment and is currently engaged in proceedings involving
a number of sites under these laws, as a participant in a group of
potentially responsible parties (PRPs). The Company is currently involved as
a PRP in five cases involving waste disposal sites, all of which are
Superfund sites. Several of these proceedings are at a preliminary stage and
it is impossible to estimate the cost of remediation, the timing and extent
of remedial action which may be required by governmental authorities, and the
amount of liability, if any, of the Company alone or in relation to that of
any other PRPs. The Company also has been seeking to identify insurance
coverage with respect to several of these matters. Where it has been
possible to make a reasonable estimate of the Company's liability, a
provision has been established. Insurance proceeds have only been taken into
account when they have been confirmed by or received from the insurance
company. Actual costs to be incurred in future periods may vary from these
estimates. Based on facts presently known to it, the Company does not
believe that the outcome of these proceedings will have a material adverse
effect on its financial position.
In addition to the above proceedings, the Company has been actively working
with the Connecticut Department of Environmental Protection (CT DEP) related
to certain polychlorinated biphenyl (PCB) contamination in the soil beneath a
section of cement flooring at its Woodstock, Connecticut facility. The
Company has developed a remediation plan which has been approved by the CT
DEP, and it is expected that removal of soil contamination will be completed
in 1999. On the basis of estimates prepared by environmental engineers and
consultants, the Company recorded a provision of approximately $900,000 in
1994, and based on updated estimates provided an additional $700,000 in 1997
and $600,000 in 1998 for costs related to this matter. During 1995, $300,000
was charged against this provision and $200,000 per year was charged in 1996,
1997 and 1998. Management believes, based on facts currently available, that
the implementation of the aforementioned remediation will not have a material
additional adverse impact on earnings.
In this same matter the United States Environmental Protection Agency (EPA)
has alleged that the Company improperly disposed of PCBs. An administrative
law judge found the Company liable for this alleged disposal and assessed a
penalty of approximately $300,000. The Company has reflected this fine in
expense in 1998 but vigorously disputes the EPA allegations and has appealed
the administrative law judge's findings and penalty assessment.
The Company has not had any material recurring costs and capital expenditures
relating to environmental matters, except as specifically described in the
preceding statements.
CONSOLIDATED SALES AND OPERATIONS - 1997 TO 1996
Net sales were $189.7 million for 1997, 34% higher than those reported in
1996. Combined Sales, which include 50% of the sales of the Company's two
unconsolidated joint ventures, were $220.9 million, up 27% over 1996. For
the fiscal year ended December 28, 1997, each of the Company's divisions
recorded sales gains, mainly the result of unit volume increases.
48
F-36
The Company's strategy is to achieve growth by developing current markets and
by means of acquisitions. In 1997 many opportunities for RO3000 and RO4000
high frequency laminates were realized in wireless communications. The
growing application of a custom adhesiveless laminate into the suspension
assemblies of Hutchinson Technology Incorporated (HTI), the world's leading
supplier of suspension assemblies for hard disk drives, was another major
growth area. This represented the first year of full-scale commercialization
of this technology. Mitsui Chemicals, Inc. manufactures these laminates in
Japan under a technology license from the Company. The Company also
strengthened its position in the dynamic wireless communication market with
the reformulation of PORON urethane foam materials.
Effective January 1, 1997, the Company completed the acquisition of the Bisco
Products silicone foam materials business, based in the Chicago area, from a
wholly-owned subsidiary of Dow Corning Corporation for approximately $11
million. This acquisition enhanced the Company's position as a leading
supplier of high performance foam materials. It broadened the product range
and provided a strong foothold in Europe's commercial aerospace industry.
On September 30, 1997, the Company completed the acquisition of Induflex,
located in Ghent, Belgium, the existing headquarters of the Company's
European operations, from manufacturer UCB S.A. The company, now known as
Rogers Induflex N.V., manufactures laminates for shielding of electromagnetic
and radio frequency interference. During 1997, significant efforts were
expended in the integration of the Bisco and Induflex acquisitions into the
Company.
Full year before-tax profits rose 25% to a record $22.0 million in 1997,
while after-tax profits improved 18% to $16.5 million, also a record. Basic
earnings per share for the year were $2.21, up from $1.92 in 1996. Diluted
earnings per share for the year were $2.10, up from $1.83 in 1996.
Significantly higher sales, and operating income growth exceeding the rate of
sales increase, were the major contributing factors to the improvement in
before-tax income. After-tax profits reflect a 25% tax rate in 1997 and a
21% tax rate in 1996.
Durel Corporation continued to make the transition from automotive to
wireless communication applications. Durel sales decreased very slightly from
1996 with several large manufacturing programs being replaced by new projects
in a start-up phase. Profits were negatively impacted due to inventory
adjustments by a major customer in the fourth quarter and by increased costs
related to the patent infringement lawsuit brought by Durel to protect its
proprietary technology.
Rogers Inoac Corporation further developed new low-airflow PORON material
grades for disk-drive cover gaskets. While sales in local currency in 1997
increased 7%, currency rate changes caused sales measured in U.S. dollars to
decrease 3%.
The Company's manufacturing profit was 30% of sales in 1997 and 31% in 1996.
The decrease from 1996 to 1997 reflects the integration costs related to the
acquisitions of the Bisco Materials Unit and Rogers Induflex N.V., and the
lower profit margins on a custom adhesive laminate sold to HTI. It also
reflected a decline in average sales price per square foot for laminates as
the microwave business continued to shift to lower-priced higher volume
wireless communication applications.
Selling and administrative expense increased in total dollars, but decreased
as a percentage of net sales to 14% in 1997 from 15% in 1996.
49
F-37
Research and development expense totaled $9.6 million in 1997 compared to
$9.2 million in 1996. Overall, greater R&D emphasis was given to the
development of product platforms from which families of products result,
rather than individual, less related products. This emphasis is intended to
provide greater leverage for growth. Increased corporate resources were also
applied to improving process capability to achieve lower costs and better
controlled manufacturing operations.
Major development activities in Electronic Materials included process and
product improvements to the RO3000 and RO4000 high frequency circuit board
materials, which are designed for use in high volume, low cost commercial
wireless communication applications. The development of these products and
their extensions represented the Company's most significant commitment of
technology resources in 1997. In flexible circuit materials, development
efforts focused on improved adhesives.
During the year, Polymer Materials activity included the commercialization of
a controlled response PORON urethane material for the foot comfort market, as
well as improvements to a variety of other PORON materials for industrial and
printing applications. A new ENDUR component formulation was developed to
provide improved friction properties and longevity in document transport
applications. Finally, higher strength phenolic composites were developed
for demanding applications in automotive powertrains and electric motors.
The Company's core technical capabilities in polymers, fillers and adhesion
continued to improve with these specialized technologies now applied to
immediate as well as longer term development tasks.
Net interest income for 1997 increased slightly from 1996. Interest earned
increased because of a higher level of cash equivalents and marketable
securities; however, this income was partially offset by interest expense
paid on debt incurred in September 1997 for the Induflex acquisition.
Average debt outstanding during 1997 was $7.0 million, compared with $4.5
million for 1996.
Other income less other charges decreased to $1.1 million for 1997 from $3.4
million for 1996. Lower royalty income and lower joint venture income were
the major contributors to this decrease.
SEGMENT SALES AND OPERATIONS
Sales in the Polymer Materials business segment increased 4%, 24%, and 7%, in
1998, 1997, and 1996, respectively. The increase from 1997 to 1998 was led
by a record sales performance in the Elastomer Components Unit. A new
application for nitrophyl floats for fuel level sensing in propane tanks
contributed to this sales growth. The moldable composites business was
bolstered by increasing sales to Europe and by the addition of a major new
U.S. customer for electrical commutator materials. The major expansion
completed in 1997 is now effectively supporting the growth of moldable
composites in Europe and in the United States. The addition of the Bisco
Materials Unit accounted for one-half of the increase from 1996 to 1997.
Also in 1997 elastomer components sales far exceeded figures from the
previous year.
50
F-38
The Polymer Materials business segment generated operating income of $10.7
million in 1998, $8.9 million in 1997, and $7.5 million in 1996. Benefits
related to the acquisition of the dampening sleeves business in September
1998, and significantly lower bonus expenses for the year 1998 were the
primary contributors to the improved 1998 income levels. For 1997 elastomer
components profits were substantially higher than 1996, a result of improved
manufacturing performance made possible by enhancements in automation that
allowed the unit to fabricate products more cost competitively for industry
leaders in document handling.
Revenues from the Electronic Materials business segment increased 26% in
1998, 47% in 1997, and 3% in 1996. The addition of a full year of Induflex
sales in 1998 accounted for 36% of the increase. Continuing growth of sales
of FLEX-I-MID material to HTI more than offset the decline in sales of
flexible circuit materials manufactured in Chandler, Arizona. Production and
sale of high frequency circuit materials continued an upward trend in 1998.
This was made possible by the completion and startup of the new manufacturing
facility in Arizona. This facility not only increases the Company's capacity
to make high frequency laminates, but now the Company is able to manufacture
rather than purchase a critical material used in this product line. Also in
1998, Rogers N.V., a European manufacturing facility, strengthened its
position in bus bars, used as power distribution components for trains and
mass transit systems, as well as in cellular base stations. Already the
market leader in Germany and Scandinavia, the Company made significant
inroads toward gaining market share in England and France.
In 1997 the majority of high frequency laminate sales occurred in the
communications market with particularly healthy growth taking place in the
RO3000 and RO4000 laminate product lines. Unit volume increased 50% in 1997,
while dollar sales increased by more than 33%. Sales figures in 1997 also
increased due to the continuing growth in sales of FLEX-I-MID materials to
HTI for hard disk drives. European sales of high frequency circuit materials
grew in 1997 with the proliferation of cellular base stations throughout
Europe.
Electronic Materials operating income was $9.0 million in 1998, $11.5 million
in 1997 and $6.2 million in 1996. The decline in sales of flexible circuit
materials manufactured in Chandler, Arizona, is the primary reason for the
drop in operating income in 1998. Profits from Rogers N.V. sales of bus bars
and flexible circuit materials grew significantly in 1997.
Sales made through Rogers N.V. stated in local currencies increased 20% in
1998, 42% in 1997, and 8% in 1996. When translated into U.S. dollars these
changes became gains of 18%, 30%, and 5% in 1998, 1997, and 1996,
respectively. Over the past several years, the Company has intensified its
sales and marketing activities in Europe. This effort is now paying off
handsomely with sales of almost all product lines in Europe increasing in
1998. Sales of high frequency circuit materials and sales of Endur
components were very strong in 1997.
BACKLOG
The Company's backlog of firm orders was $38.5 million at January 3, 1999,
and $34.8 million at December 28, 1997. The increase is due primarily to the
higher level of sales.
51
F-39
SOURCES OF LIQUIDITY AND CAPITAL
Net cash provided by operating activities amounted to $15.9 million in 1998,
$19.0 million in 1997, and $14.3 million in 1996. The major reason for the
decrease in 1998 is the lower level of income in that year. Primary factors
contributing to the year-to-year increase from 1996 to 1997 include increased
earnings, a benefit from deferred taxes, and a higher level of accounts
payable and accrued expenses.
Capital expenditures totaled $29.0 million in 1998, $17.7 million in 1997,
and $6.3 million in 1996. In terms of capacity in 1998, the Company has
built new production facilities and expanded production lines in the United
States and Europe. In addition to the multi-million dollar expansion at the
Microwave Materials Division in Chandler, Arizona, a new production line was
built at the Poron Materials Unit in Woodstock, Connecticut. Also, in Ghent,
Belgium, installation of the microwave laminates product line is virtually
completed with manufacturing scheduled to begin in the first quarter of 1999.
Capital spending was exceeded by cash generated from the Company's operating
activities in both 1997 and 1996. In 1998 capital expenditures exceeded cash
generated from operating activities by $13.0 million and more than accounted
for the $11.7 million reduction in cash and marketable securities during
1998. For 1999, it is anticipated that capital spending will approximate
$15.0 million and that this will be financed by internally generated funds.
In September 1997 the Company canceled its $5.0 million unsecured revolving
credit agreement with Fleet National Bank and replaced it with an unsecured
multi-currency revolving credit agreement, also with Fleet. Under the new
arrangement, the Company can borrow up to $15.0 million, or the equivalent in
Belgian francs and/or Japanese yen. Amounts borrowed under this agreement
are to be paid in full by September 19, 2002. The Company borrowed
390,207,039 Belgian francs (the equivalent of $11,290,000 as of January 3,
1999) under the new arrangement to facilitate the Rogers Induflex N.V.
acquisition in Belgium. Under the arrangement, the ongoing facility fee
varies from 17.5 to 30 basis points of the maximum amount that can be
borrowed. The rate of interest charged on outstanding loans can, at the
Company's option and subject to certain restrictions, be based on the prime
rate, or at rates from 45 to 65 basis points over either London Interbank
Offered Rate (LIBOR) quoted in U.S. dollars or Japanese yen, or Belgian
Interbank Offered Rate (BIBOR) quoted in Belgian francs. The spreads over
LIBOR and BIBOR and the level of facility fees is based on a measure of the
Company's financial strength. The borrowing at year-end was denominated in
Belgian francs and the interest rate on the loan at that time was 3.85%. The
carrying value of this debt approximates fair value as of January 3, 1999.
Included in the provisions of the Company's long-term loan agreements are
restrictions on the Company and its subsidiaries with respect to additional
borrowings, loans to others except for subsidiaries, payment of dividends,
transactions in capital stock, asset acquisitions and dispositions, and lease
commitments. These agreements also impose financial covenants requiring the
Company to maintain certain levels of working capital and net worth, and
specified leverage ratios.
Management believes that in the near term, internally generated funds plus
available lines of credit will be sufficient to meet the needs of the
business. The Company continually reviews and assesses its lending
relationships.
52
F-40
MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign exchange rates. The Company does not use derivative instruments for
trading purposes. The Company monitors foreign exchange and interest rate
risks and manages such risks on specific transactions. The risk management
process primarily uses analytical techniques and sensitivity analysis.
The Company has fixed rate debt obligations and obligations where the
interest rate, although not fixed, is relatively low compared to the prime
interest rate. An increase in interest rates would not significantly
increase interest expense due to the current makeup of the Company's debt
obligations. Because of the size and structure of these obligations, a 100
basis point increase in the prime interest rate would not result in a
material change in the Company's interest expense or in the fair value of the
debt obligations. The fair value of the Company's investment portfolio or
the related interest income would not be significantly impacted by either a
100 basis point increase or decrease in interest rates due mainly to the size
and short-term nature of the Company's investment portfolio and the relative
insignificance of interest income to consolidated pretax income,
respectively.
The Company's largest foreign currency exposure is against the Belgian franc,
primarily because of its investments in its ongoing operations in Belgium.
Exposure to variability in currency exchange rates is mitigated, when
possible, through the use of natural hedges, whereby purchases and sales in
the same foreign currency and with similar maturity dates offset one another.
The Company also has a borrowing arrangement under which the Company has
borrowed 390 million Belgian francs which is to be paid in full by September
19, 2002. This arrangement functions as a natural hedge against its other
Belgian franc exposure. Additionally, the Company can initiate hedging
activities by entering into foreign exchange forward contracts with third
parties when the use of natural hedges is not possible.
Relative to foreign currency exposures existing at January 3, 1999, a 10%
unfavorable movement in the Belgian franc exchange rate would not
significantly affect consolidated operating results, financial position or
cash flows. In addition to the direct effects of changes in exchange rates,
such changes typically affect the volume of sales or the foreign currency
sales prices as competitors' products become more or less attractive. The
Company's sensitivity analysis does not factor in a potential change in sales
levels or local currency selling prices.
YEAR 2000
The year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Such software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in systems failures or miscalculations leading to disruptions in a
company's activities and operations. If a company, its significant
customers, or suppliers fail to make necessary modifications and conversions
on a timely basis, the year 2000 issue could have a material adverse effect
on a company's operations.
The Company is conducting a review of its systems and operations, including
systems currently being implemented, to identify computer hardware, software,
and process control systems that do not properly recognize dates after
December 31, 1999, including those linked to third party systems. The
Company is now in the process of reprogramming or replacing hardware,
software, and process
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control systems as necessary to ensure compliance with year 2000 requirements.
The Company is confident that its own internal systems are year 2000 compliant
or planned upgrades will be in place. The Company has also initiated
communications, primarily in the form of questionnaires, with third parties
whose computer systems' functionality could directly impact the operations of
the Company.
The costs of the Company's year 2000 compliance efforts are being funded with
cash flows from operations and are being expensed as incurred. In total
these costs are not expected to be substantially different from the normal,
recurring costs that are incurred for systems development and implementation.
Although the Company is not aware of any material operational issues or costs
associated with preparing its internal systems for the year 2000, there can
be no assurance that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in its internal operating systems which are
composed predominantly of third party software and hardware technology.
Non-compliance by any of the Company's major distributors, suppliers,
customers, vendors, or financial organizations could result in business
disruptions that could have a material adverse effect on the Company's
results of operations, liquidity and financial condition. The Company will
develop a contingency plan based on its assessment of significant third party
compliance. The goal of the contingency plan will be to minimize the
Company's exposure to work slowdowns or business disruptions and any adverse
effects on the Company's results of operations.
DIVIDEND POLICY
In 1992, the Board of Directors voted to discontinue cash dividends. At
present, the Company expects to maintain a policy of emphasizing longer-term
growth of capital rather than immediate dividend income.
FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis section and
in other parts of this annual report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors which may cause the actual results or
performance of the Company to be materially different from any future results
or performance expressed or implied by such forward-looking statements. Such
risks include changing business, economic, and political conditions both in
the United States and in foreign countries; uncertainties and expenses
associated with litigation and changes in laws, regulations, and policies of
governmental entities; increasing competition; changes in product mix; the
development of new products and manufacturing processes and the inherent
risks associated with such efforts; changes in the availability and cost of
raw materials; fluctuations in foreign currency exchange rates; any
difficulties in integrating acquired businesses into the Company's
operations; and the pace of technological change. Additional information
about certain factors that could cause actual results to differ from such
forward-looking statements include the following:
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The hard disk drive market for personal computers is characterized by
volatility in demand, rapid technological change, significant pricing
pressures and short lead times. Since the Company manufactures and sells its
own circuit materials to meet the needs of this market, the Company's results
may be affected by these factors. The Company also sells FLEX-I-MID circuit
materials in the U.S. and Europe through an arrangement with Mitsui
Chemicals, Inc. which produces this material in Japan under a technology
license from the Company. In this case, the Company has no direct control
over the manufacturing process, delivery dates or the impact of foreign
exchange rates on its sale of FLEX-I-MID circuit materials.
The wireless communications market is characterized by frequent new product
introductions, evolving industry standards, rapid changes in product and
process technologies, price competition and many new potential applications.
The RO4000 laminates and other circuit materials that the Company
manufactures and sells to this market are relatively new. To be successful
in this area, the Company must be able to consistently manufacture and supply
high frequency circuit materials that meet the demanding expectations of
customers for quality, performance and reliability at competitive prices.
The timely introduction by the Company of such new products could be affected
by engineering or other development program slippages and problems in
effectively and efficiently ramping up production to meet customer needs.
While the personal computer industry and the wireless communications industry
have in the past experienced overall growth, these industries historically
have been characterized by wide fluctuations in product supply and demand.
From time to time, the industries have experienced significant downturns,
often in connection with, or in anticipation of, maturing product cycles and
declines in general economic conditions. These downturns have been
characterized by diminished product demand, production over-capacity and
subsequent accelerated price erosion. The Company's business may in the
future be materially and adversely affected by downturns.
The Company's future results depend upon its ability to continue to develop
new products and improve its product and process technologies. The Company's
success in this effort will depend upon the Company's ability to anticipate
market requirements in its product development efforts, the acceptance and
continued commercial success of the end user products for which the Company's
products have been designed, and the ability to adapt to technological
changes and to support established and emerging industry standards.
The Company has been actively working with the Connecticut Department of
Environmental Protection related to certain polychlorinated biphenyl
contamination in the soil beneath a small section of cement flooring at its
Woodstock, Connecticut facility. The Company has developed a remediation
plan, which has been approved by the Connecticut Department of Environmental
Protection, and it is expected that removal of soil contamination will be
completed in 1999. While the Company believes that the implementation of the
remediation activities will not have a material adverse impact on the
Company's results, there can be no assurance that unanticipated costs will
not arise.
In addition, the Company is currently engaged in proceedings involving a
number of Superfund sites, as a participant in a group of potentially
responsible parties. The Company's estimation of environmental liabilities
is based on an evaluation of currently available information with respect to
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each individual situation, including existing technology, presently enacted
laws and regulations and the Company's experience in the addressing of such
environmental matters. While current regulations impose potential joint and
several liability upon each named party at any Superfund site, the Company's
contribution for cleanup is expected to be limited due to the number of other
potentially responsible parties, and the Company's share of the volume
contributions of alleged waste to the sites, which the Company believes is de
minimis. However, there can be no assurances that the Company's estimates
will not be disputed or that any ultimate liability concerning these sites
will not have a material adverse effect on the Company.
The level of anticipated 1999 capital expenditures could differ significantly
from the forecasted amount due to a number of factors, including but not
limited to changes in design, differences between the anticipated and actual
delivery dates for new machinery and equipment, problems with the
installation and start-up of such machinery and equipment, delays in the
construction or modifications of buildings and delays caused by the need to
address other business priorities.
The Company from time to time must procure certain raw materials from single
or limited sources which involves certain risks, including vulnerability to
price increases and the quality of the material. In addition, the inability
of the Company to obtain these materials in required quantities could result
in significant delays or reductions in its own product shipments. When such
problems have occurred in the past, the Company has been able to purchase
sufficient quantities of the particular raw material to sustain production
until alternative materials and production processes could be requalified
with customers. However, any inability of the Company to obtain timely
deliveries of materials of acceptable quantity or quality, or a significant
increase in the prices of materials, could materially and adversely affect
the Company's operating results.
The Company's international sales involve a number of inherent risks,
including imposition of governmental controls, currency exchange
fluctuations, potential insolvency of international customers, reduced
protection for intellectual property rights in some areas, the impact of
recessions in foreign countries, political instability and generally longer
receivables collection periods, as well as tariffs and other trade barriers.
There can be no assurance that these factors will not have an adverse effect
on the Company's future international sales, and consequently, on the
Company's business, operating results and financial condition.
The Company is in the process of reprogramming or replacing hardware,
software, and process control systems to address year 2000 compliance issues.
Although the Company is not aware of any material operational issues or costs
associated with preparing its internal systems for the year 2000, there can
be no assurance that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in its internal operating systems which are
composed predominantly of third party software and hardware technology.
The Company has also initiated communications, primarily in the form of
questionnaires, with third parties, including vendors, suppliers, and major
customers whose computer systems' functionality could directly impact the
operations of the Company. Third party non-compliance with year 2000 issues
could have a material adverse effect on the Company's operations.
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