SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2003
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.)
P.O. Box 188, One Technology Drive, Rogers, Connecticut 06263-0188 (Address of
principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 774-9605
---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares outstanding of the Registrant's classes of common stock as
of April 18, 2003:
Capital Stock, $1 Par Value -- 15,943,898 shares
1
ROGERS CORPORATION AND CONSOLIDATED AFFILIATES
FORM 10-Q
March 30, 2003
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Statements of Income 3
Condensed Statements of Financial Position 4-5
Condensed Statement of Cash Flows 6
Supplementary Notes 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Reports on Form 8-K 19
Signatures 19
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 20-22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROGERS CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENTS OF INCOME
Three Months Ended March 30, 2003 and March 31, 2002 (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
2003 2002
---- ----
Net Sales $ 51,878 $ 54,558
Cost of Sales 35,390 38,315
Selling and Administrative Expenses 9,701 10,109
Research and Development Expenses 2,837 3,465
---------- ----------
Total Costs and Expenses 47,928 51,889
--------- ---------
Operating Income 3,949 2,669
Other Income less Other Charges 3,628 2,607
Interest Income (Expense), Net 75 (97)
------------ ------------
Income Before Income Taxes 7,652 5,179
Income Taxes 1,913 1,295
----- -----
Net Income $ 5,739 $ 3,884
========= =========
Net Income Per Share:
Basic $ .37 $ .25
========= ==========
Diluted $ .36 $ .24
=========== ===========
The accompanying notes are an integral part of the condensed financial statements.
3
ROGERS CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENTS OF FINANCIAL POSITION
ASSETS
(Dollars in Thousands)
(Unaudited)
March 30, December 29,
2003 2002
---- ----
Current Assets:
Cash and Cash Equivalents $ 28,187 $ 22,300
Short-term Investments 2,036 6,628
Accounts Receivable, Net 33,050 32,959
Account Receivable, Joint Ventures 1,829 1,414
Note Receivable, Current 2,100 --
Inventories:
Raw Materials 5,510 5,525
In-Process and Finished 12,562 12,544
------- -------
Total Inventories 18,072 18,069
Current Deferred Income Taxes 4,985 4,985
Other Current Assets 1,678 1,320
------- --------
Total Current Assets 91,937 87,675
------ -------
Note Receivable, Long-Term 9,900 12,000
Property, Plant and Equipment, Net of
Accumulated Depreciation of
$94,216 and $90,285 101,118 99,883
Investments in Unconsolidated Joint Ventures 22,684 21,860
Pension Asset 8,951 8,951
Goodwill and Other Intangibles, Net 22,200 22,204
Other Assets 5,145 5,128
---------- ----------
Total Assets $261,935 $257,701
======== ========
The accompanying notes are an integral part of the condensed financial statements.
4
ROGERS CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENTS OF FINANCIAL POSITION - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
March 30, December 29,
2003 2002
---- ----
Current Liabilities:
Accounts Payable $ 8,975 $ 10,125
Accrued Employee Benefits and
Compensation 8,489 10,414
Accrued Income Taxes Payable 10,314 8,249
Taxes, Other than Federal and Foreign
Income 108 542
Other Accrued Liabilities 6,905 5,450
----- -------
Total Current Liabilities 34,791 34,780
------ -------
Noncurrent Deferred Income Taxes 8,517 8,308
Noncurrent Pension Liability 19,614 22,658
Noncurrent Retiree Health Care and Life
Insurance Benefits 6,197 6,197
Other Long-Term Liabilities 2,444 2,720
Commitments and Contingencies -- --
Shareholders' Equity:
Capital Stock, $1 Par Value:
Authorized Shares 50,000,000; Issued
Shares 15,933,459 and 15,856,748 15,933 15,857
Additional Paid-In Capital 36,942 36,600
Retained Earnings 153,784 148,045
Accumulated Other Comprehensive Loss (3,853) (4,693)
Treasury Stock (346,836 and 360,487 shares) (12,434) (12,771)
-------- --------
Total Shareholders' Equity 190,372 183,038
------- --------
Total Liabilities and Shareholders' Equity $261,935 $257,701
======== ========
The accompanying notes are an integral part of the condensed financial statements.
5
ROGERS CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended (Unaudited)
March 30, March 31,
2003 2002
------- -------
OPERATING ACTIVITIES:
Net Income $ 5,739 $ 3,884
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 3,392 3,656
Expense for Deferred Income Taxes -- 34
Equity in Undistributed Income of Unconsolidated
Joint Ventures, Net (2,457) (1,713)
Loss on Disposition of Assets 250 --
Noncurrent Pension and Postretirement Benefits (3,043) (3,026)
Other, Net (195) (307)
Changes in Operating Assets and Liabilities
Accounts Receivable (3,090) (5,453)
Accounts Receivable, Joint Ventures (430) (1,338)
Inventories 175 (496)
Other Current Assets (334) (566)
Accounts Payable and Accrued Expenses __(118) 1,768
---- -------
Net Cash Used in Operating Activities (111) (3,557)
INVESTING ACTIVITIES:
Capital Expenditures (3,744) (2,470)
Acquisition of Business -- (8,000)
Divestiture of Business 3,069 --
Short-term Investments 4,592 --
Investments in Unconsolidated Joint Ventures and Affiliates 1,633 2,962
---------- -------
Net Cash Provided by (Used in) Investing Activities 5,550 (7,508)
FINANCING ACTIVITIES:
Proceeds from Short- and Long-Term Borrowings 10 3,322
Repayments of Debt Principal -- (1,724)
Repayment of Life Insurance Debt -- (3,081)
Proceeds from Disposition of Treasury Stock 258 214
Proceeds from Sale of Capital Stock, Net 404 268
------------ ------------
Net Cash Provided by (Used in) Financing Activities 672 (1,001)
Effect of Exchange Rate Changes on Cash (224) (213)
--------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 5,887 (12,279)
Cash and Cash Equivalents at Beginning of Year 22,300 20,891
------------- -------------
Cash and Cash Equivalents at End of Quarter $ 28,187 $ 8,612
============ ===========
The accompanying notes are an integral part of the condensed financial statements.
6
ROGERS CORPORATION AND CONSOLIDATED AFFILIATES
SUPPLEMENTARY NOTES
(Unaudited)
A. The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany transactions have been
eliminated. For further information regarding Rogers' accounting
policies, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-K for the fiscal year ended December 29, 2002.
B. Rogers effective tax rate was 25% for the three months ended March
30, 2003 and March 31, 2002. Income taxes paid were $99,000 and
$2,000 in the first three months of 2003 and 2002, respectively.
C. Comprehensive income, net of related tax, for the first three-months
ended were as follows:
(Dollars in Thousands) 2003 2002
---- ----
Net income $ 5,739 $ 3,884
Foreign currency translation adjustments 840 (296)
----------- ------------
Comprehensive income $ 6,579 $ 3,588
========= =========
Accumulated balances related to each component of Other Comprehensive Loss were
as follows:
March 31, December 29,
2003 2002
-----
Foreign currency translation adjustments $ 3,885 $ 3,045
Change in minimum pension liability (7,738) (7,738)
--------- -------
Accumulated Other Comprehensive Loss $ (3,853) $ (4,693)
========= =========
7
D. The following table sets forth the computation of basic and diluted
earnings per share in conformity with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" for the
first three months ended:
(Dollars in Thousands, Except Per Share Amounts) 2003 2002
---- -------
Numerator:
Net income $5,739 $3,884
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 15,572 15,403
Effect of stock options 466 646
--------- ----------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions $16,038 $16,049
======== ========
Basic earnings per share $ .37 $ .25
======== =========
Diluted earnings per share $ .36 $ .24
======== =========
E. Under various plans, the Company may grant stock and stock options to
directors, officers, and other key employees. Stock-based
compensation awards are accounted for using the intrinsic value
method prescribed in APB 25, "Accounting for Stock Issued to
Employees" and related interpretations. Stock-based compensation
costs for stock options are generally not reflected in net income as
options granted under the plans had an exercise price equal to market
value of the underlying common stock on the date of the grant.
Stock-based compensation costs for stock awards are reflected in net
income over the awards' vesting period.
The Company has adopted the disclosure-only provisions of SFAS 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 the three months ended, consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings
per share for the first three months ended would have been reduced to
the pro forma amounts indicated below:
8
(Dollars in Thousands, Except Per Share Amounts)
2003 2002
------------------ -----------------
Net income, as reported $5,739 $3,884
Less: Total stock-based compensation expense determined under Black-Scholes option
pricing model, net of related tax effect
645 589
------------------ ------- -----------------
Pro forma net income $ 5,094 $3,295
------------------ ------- -----------------
Basic earnings per share:
As Reported $.37 $.25
Pro Forma .33 .21
------------------ ------- -----------------
Diluted earnings per share:
As Reported $.36 $.24
Pro Forma .32 .20
------------------ ------- -----------------
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 three years was used for the assumption
regarding stock options issued. Regular options granted to officers
and other key U.S. employees usually become exercisable in one-third
increments beginning on the second anniversary of the grant date.
F. The following table sets forth the information about the Company's
operating segments in conformity with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" for the
first three months ended:
High Printed Polymer
(Dollars in Millions) Performance Circuit Materials &
Foams Materials Components Total
- --------------------------------------------------------------------------------------------------------------------
2003
Net Sales $17.3 $24.2 $10.4 $51.9
Operating Income 2.1 2.6 (0.7) 4.0
2002
Net Sales $15.7 $19.5 $19.4 $54.6
Operating Income 1.6 0.4 0.7 .7
Inter-segment sales, which are generally priced with reference to
costs or prevailing market prices, have been eliminated from the
sales data in the previous table.
9
G. The Company has four joint ventures, each 50% owned, which are
accounted for by the equity method. Equity income of $2,540,000 and
$1,769,000 for the first three months ended in 2003 and 2002 is
included in other income less other charges on the consolidated
statements of income. Each of the joint ventures is described below:
Joint Venture Location Business Segment
Durel Corporation U.S. Polymer Materials and Components
Rogers Inoac Corporation Japan High Performance Foams
Polyimide Laminate U.S. Printed Circuit Materials
Systems, LLC
Rogers Chang Chun Taiwan Printed Circuit Materials
Technology Co., Ltd.
The summarized financial information for these joint ventures is
included in the following table for the first three months ended.
Note that there is a difference between the Company's investment in
unconsolidated joint ventures and its one-half interest in the
underlying shareholders' equity of the joint ventures due primarily
to three factors. First, the Company's major initial contribution to
two joint ventures was technology that was valued differently by the
joint ventures than it was on the Company's books. Secondly, one of
the joint ventures had a negative retained earnings balance for a
period of time. Lastly, the translation of foreign currency at
current rates differs from that at historical rates. Correspondingly,
there is a difference between the Company's recorded income from
unconsolidated joint ventures and a 50% share of the income of those
joint ventures.
(Dollars in Thousands)
2003 2002
-------------------------- ----------------------------
Net Sales $34,037,000 $28,081,000
Gross Profit 12,930,000 9,283,000
Net Income 4,765,000 3,364,000
Sales made to unconsolidated joint ventures by the Company were
immaterial in all periods presented above.
H. The Company is subject to federal, state, and local laws and
regulations concerning the environment and is currently engaged in
proceedings related to such matters.
The Company is currently involved as a potentially responsible party
("PRP") in two cases involving waste disposal sites, both of which
are Superfund sites. These proceedings are at a stage where it is
still not possible to estimate the cost of remediation, the timing
and extent of remedial action that may be required by governmental
authorities, and the amount of liability, if any, of the Company
alone or in
10
relation to that of any other PRPs. 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 worked 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 completed clean-up efforts in 2000, monitored
the site in 2001 and 2002, and will continue to monitor the site for
the next three years. On the basis of estimates prepared by
environmental engineers and consultants, the Company had recorded a
provision of $2,600,000 in prior years. Prior to 2003, $2,300,000 was
charged against this provision. In the first quarter of 2003,
expenses of $100,000 have been charged against the provision. The
remaining reserve is primarily for testing, monitoring, sampling and
minor residual treatment activity. Management believes, based on
facts currently available, that the balance of this provision is
adequate to complete the project.
In this same matter the United States Environmental Protection Agency
("EPA") 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 reflected this fine in expense in 1998 but disputed the EPA
allegations and appealed the administrative law judge's findings and
penalty assessment. The original findings were upheld internally by
the EPA's Environmental Appeals Board, and the Company placed that
decision on appeal with the District of Columbia Federal Court of
Appeals in 2000. In early January of 2002, the Company was informed
that the Court of Appeals reversed the decision. As a result of this
favorable decision, the $300,000 reserve for the fine was taken into
income in 2001. However, subsequent to the favorable decision by the
Court of Appeals, the EPA continued to pursue this issue and
settlement discussions with the EPA were more protracted and
difficult than originally anticipated. As such, the Company recorded
$325,000 for legal and other costs associated with this matter in
2002. On January 16, 2003, a settlement agreement was signed with the
EPA. The costs associated with the settlement will not exceed the
provision recorded, which included a cash settlement payment to the
government of $45,000 plus a commitment to undertake some
energy-related environmental improvements at its facilities, as well
as assistance to a local Woodstock, Connecticut Fire Department for
emergency preparedness. Management believes, based on facts currently
available, that the provision recorded is adequate to cover the
requirements of the settlement.
On February 7, 2001, the Company entered into a definitive agreement
to purchase the Advanced Dielectric Division ("ADD") of Tonoga, Inc.
(commonly known as Taconic), which operates facilities in
Petersburgh, New York and Mullingar, Ireland. On May 11, 2001, the
Company announced that active discussions with Taconic to acquire the
ADD business had been suspended and it was not anticipated that the
acquisition would occur. Accordingly, $1,500,000 in costs associated
with this potential acquisition were written off during the second
quarter of 2001. On
11
October 23, 2001, the Company terminated the
acquisition agreement. On October 24, 2001, Taconic filed a breach of
contract lawsuit against the Company in the United States District
Court for the District of Connecticut seeking damages in the amount
of $25,000,000 or more, as well as specific performance and
attorneys' fees. In September 2002, a confidential settlement
agreement concerning all matters raised in this litigation was
negotiated and entered into. The settlement had no material impact on
the 2002 results.
There recently has been a significant increase in certain U.S. states
in asbestos-related product liability claims against numerous
industrial companies. The Company has been named, along with hundreds
of other industrial companies, as a defendant in some of these cases.
The Company strongly believes it has valid defenses to these claims
and intends to defend itself vigorously. In addition, the Company
believes that it has sufficient insurance to cover all costs
associated with these claims. Based upon past claims experience and
available insurance coverage, management believes these matters will
not have a material adverse effect on the financial position, results
of operations, or cash flows of the Company.
In addition to the above 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, including environmental and product liability matters
that are 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.
I. In 2002, the Company incurred restructuring charges of $2,150,000.
These charges were associated solely with the severance benefits for
62 employees of which 48 had been terminated prior to the 2002
year-end. The remaining employees were notified prior to year-end. The
separation date of these residual employees will occur on varied dates
in 2003. These workforce reductions were initiated in order to
appropriately align resources with the Company's business
requirements, given varied ongoing operational initiatives, including
non-strategic business unit consolidations, plant rationalizations,
outsourcing low value production and/or moving it to lower production
cost environments, and support function reorganizations to streamline
administrative activities. As of March 30, 2003, the balance in the
accrual for these charges was $1,200,000. Management believes, based
on current estimates, the residual provision will be adequate to cover
the future costs of these restructuring activities. The following
table summarizes activities related to the provision for the first
three months ended.
12
(Dollars in Thousands)
Balance in Provision at December 29, 2002 $1,600,000
Less Payments made for Severance Benefits (400,000)
Adjustments/Additional Provisions --
-----------
Balance in Provision at March 30, 2003 $ 1,200,000
===========
J. As of December 31, 2001 (fiscal year 2002), the Company acquired
certain assets of the high performance foam business of Cellect LLC
("Cellect")for approximately $10,000,000 in cash, plus a potential
earn-out in five years based upon performance. While there is no
contractual limitation on the earn-out, the actual earn-out will be
determined and affected by the sales and profitability growth through
2006 as compared to the base year of 2001. The assets acquired
included intellectual property rights, machinery and equipment, and
customer lists for portions of the Cellect plastomeric and
elastomeric high performance polyolefin foam business. The
acquisition was accounted for as a purchase pursuant to SFAS No.141,
"Business Combinations". As such, the purchase price was allocated to
property, plant and equipment and intangible assets based on their
respective fair values at the date of acquisition.
On November 18, 2002, the Company completed the divestiture of its
Moldable Composites Division ("MCD"), located in Manchester,
Connecticut. MCD, which was included in the Company's Polymer
Materials and Components segment, was sold to Vyncolit North America
Inc., a subsidiary of the Perstorp group, Sweden. Under the terms of
the agreement, the Company will receive a total of approximately
$21,000,000 for the business assets (excluding the intellectual
property) and a five-year royalty stream from the intellectual
property license. Half of the $21,000,000 was paid in cash upon
consummation of the transaction. A Note, which bears interest at the
rate of LIBOR plus 1%, was provided for the remainder of the sales
price, which will be paid over a five-year period. There was no
material gain or loss on the transaction.
K. In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46
clarifies the application of ARB No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from
other parties. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to existing variable interest entities in the interim
period beginning after June 15, 2003. The Company is reviewing FIN 46
to determine its impact, if any, on future reporting periods.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AND SEGMENT ANALYSIS
Net sales in the first quarter of 2003 were $51.9 million and were down about 5%
compared to $54.6 million in the first quarter of 2002, reflecting the
divestiture of MCD.
The Company considers its 50%-owned, unconsolidated joint ventures as an
integral part of its business. These joint ventures had total revenues in the
first quarter of 2003 of $34 million. Adding 50% of these joint venture sales to
the Company's net sales, Combined Sales were $68.9 million for the quarter
compared to $68.7 million reported in the first quarter of 2002. Combined Sales
were relatively flat with the first quarter of 2002 because of the MCD
divestiture. However, revenues across most of the Company's product lines and
joint ventures improved from the prior year and the fourth quarter of 2002 with
strong sales into key market niches.
(Dollars in Thousands) First Quarter
--------------------- ---- ---------------------
2003 2002
--------------------- ---------------------
Net Sales, as reported in this report and in accordance with $51.9 $54.6
generally acceptable accounting principles
50% of Rogers' Joint Venture Sales 17.0 14.1
- ---- - ----
Combined Sales $68.9 $68.7
===== =====
Sales of Printed Circuit Materials for the quarter totaled $24.2 million, an
increase of 24% compared to the first quarter of 2002. Revenue growth was driven
by strong sales of high frequency laminates into the satellite television and
cellular base station infrastructure markets as well as flexible laminates for
disk drive applications and increased penetration into cellular telephone
handsets.
High Performance Foam sales were $17.3 million for this year's first quarter, up
10% from quarter one last year. Revenues in this business segment increased, in
part, due to stronger sales into the industrial and imaging markets and
continued growth in the Company's polyolefin foam product line acquired in 2002.
Sales of Polymer Materials and Components totaled $10.4 million, down
significantly from the prior year period sales of $19.4 million. This decline
was primarily caused by the divestiture of MCD.
First quarter 2003 net income was $5.7 million and diluted earnings per share
were $.36, as compared to $3.9 million in net income and $.24 in diluted
earnings per share earned in last year's first three months. The increase was
due mostly to revenue growth in Rogers' higher margin businesses, improvement in
manufacturing margins, and better performance by Rogers' joint ventures.
14
Manufacturing profit as a percentage of sales was 32% in the first quarter of
2003 and 30% in the first quarter of 2002. The impact of higher revenues in
Rogers' higher margin businesses coupled with continued productivity
improvements continues to drive stronger manufacturing margins; however, a
portion of the gains have been reduced somewhat by the start up costs associated
with plant openings in China, Belgium, and Carol Stream, Illinois.
Selling and administrative expenses for the first three months of 2003 were down
in total dollars as compared to the first quarter of 2002, but consistent as a
percentage of sales. The decrease in total expenses was a result of continued
cost reductions.
Research and development expenses of $2.8 million in the first quarter of 2003
were lower than the $3.5 million in the comparable period in 2002. This decrease
is due to timing of developmental projects and the divestiture of the Moldable
Composites Division.
Other income was $3.6 million in the first quarter of 2003 compared to $2.6
million in the comparable period in 2002. The increase is due primarily to the
better performance of Rogers' joint ventures and increased royalties,
principally associated with the intellectual property license entered into in
connection with the divestiture of MCD. Rogers' joint ventures in total had a
very good first quarter. Revenues at Durel Corporation, Rogers' joint venture
with 3M, were almost 17% higher for the first quarter of 2003 compared to the
first quarter of 2002. Durel's sales to the automotive segment were up as
anticipated, and shipments for cell phones were better than expected.
The effective tax rate used in the first quarter of 2003 and 2002 was 25%. The
tax rate has continued to benefit from foreign tax credits, research and
development credits, nontaxable foreign sales income, and most recently a
reduction in the statutory tax rate in Belgium.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased during the first quarter by
approximately $1.3 million due primarily to dividends from the Rogers Inoac
Corporation joint venture and additional proceeds received for the MCD
divestiture, partially offset by capital expenditures in the quarter.
Trade receivables were up from the 2002 year-end due to the increased revenues
in the quarter. Inventories and current liabilities were relatively flat with
the 2002 year-end levels.
Net cash used by operating activities in the first three months of 2003 totaled
$0.1 million. This compares with $3.6 million used by operations for the
comparable 2002 period. This difference is primarily attributable to higher net
income in 2003 offset by an increase in trade receivables from the fourth
quarter of 2002.
In 2003, investments in capital equipment totaled $3.7 million in the first
quarter and are expected to approach $25.0 million for the year. In 2002,
capital expenditures in the first quarter were $2.5 million and finished at
$22.3 million for the year.
15
Management believes that cash on hand, and internally generated funds will be
sufficient to meet the near term, regular needs of the business. In addition,
the Company has an unsecured multi-currency revolving credit agreement with two
domestic banks and can borrow up to $50 million, or the equivalent in certain
other foreign currencies. There were no borrowings at March 30, 2003 under this
agreement.
In addition to the revolving credit agreement above, Rogers N.V., a Belgian
subsidiary of the Company, has an unsecured revolving credit agreement with a
European bank. Under this arrangement Rogers N.V. can borrow up to 6.2 million
Euro. There were no borrowings at March 30, 2003 under this agreement.
RESTRUCTURINGS
In 2002, the Company incurred restructuring charges of $2,150,000. These charges
were associated solely with the severance benefits for 62 employees of which 48
had been terminated prior to the 2002 year-end. The remaining employees were
notified prior to year-end. The separation date of these residual employees will
occur on varied dates in 2003. These workforce reductions were initiated in
order to appropriately align resources with the Company's business requirements,
given varied ongoing operational initiatives, including non-strategic business
unit consolidations, plant rationalizations, outsourcing low value production
and/or moving it to lower production cost environments, and support function
reorganizations to streamline administrative activities. As of March 30, 2003,
the balance in the accrual for these charges was $1,200,000. Management
believes, based on current estimates, the residual provision will be adequate to
cover the future costs of these restructuring activities. The following table
summarizes activities related to the provision for the first three months ended.
(Dollars in Thousands)
Balance in Provision at December 29, 2002 $1,600,000
Less Payments made for Severance Benefits (400,000)
Adjustments/Additional Provisions --
-----------
Balance in Provision at March 30, 2003 $1,200,000
==========
CONTINGENCIES
During the first quarter of 2003, there were no material developments relative
to environmental matters or other contingencies (Refer to Note H for ongoing
environmental and contingency matters). The Company has not had any material
recurring costs and capital expenditures relating to environmental matters,
except as specifically described in the preceding statements.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not strictly historical may be deemed to be
"forward-looking" statements which should be considered as subject to the many
uncertainties that exist in the Company's operations and environment. These
uncertainties, which include
16
economic conditions, market demand and pricing,
competitive and cost factors, rapid technological change, new product
introductions, and the like, are discussed in greater detail in Rogers' 2002
Form 10-K filed with the Securities and Exchange Commission and incorporated by
reference. Such factors could cause actual results to differ materially from
those in the forward-looking statements.
ITEM. 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 or
speculative 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 various borrowing facilities where the interest rates, although
not fixed, are relatively low. Currently, an increase in the associated interest
rates would not significantly impact interest expense on these facilities as the
Company has paid them off in full, thus the Company has no debt.
The fair value of the Company's investment portfolio or the related interest
income would not be significantly impacted by either a 100.0 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.
The Company's largest foreign currency exposure is against the Euro, primarily
because of its investments in its ongoing operations in Belgium. In addition to
the Euro exposure, commensurate with the Company's growth and expansion in Asia,
particularly China, the Company is experiencing an escalation of foreign
currency exposure against the currencies in countries such as China, Japan,
Taiwan, Korea, and Singapore. 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 can initiate hedging activities by entering into
foreign exchange forward contracts with third parties when the use of natural
hedges is not possible or desirable.
ITEM 4. CONTROLS AND PROCEDURES
a. Our Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934 (the "Exchange Act"), as of
a date within 90 days prior to the filing date of this quarterly
report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective in alerting our
management on a timely basis to material information required to
be disclosed in our reports filed under the Exchange Act.
b. There have been no significant changes in our internal controls
or in other factors that could significantly affect such
controls since the Evaluation Date.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved as a potentially responsible party ("PRP") in
two cases involving waste disposal sites, both of which are Superfund sites.
These proceedings are at a stage where it is still not possible to estimate the
cost of remediation, the timing and extent of remedial action that 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. 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 worked 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 completed
clean-up efforts in 2000, monitored the site in 2001 and 2002, and will continue
to monitor the site for the next three years. On the basis of estimates prepared
by environmental engineers and consultants, the Company had recorded a provision
of $2,600,000 in prior years. Prior to 2003, $2,300,000 was charged against this
provision. In the first quarter of 2003, expenses of $100,000 have been charged
against the provision. The remaining reserve is primarily for testing,
monitoring, sampling and minor residual treatment activity. Management believes,
based on facts currently available, that the balance of this provision is
adequate to complete the project.
There recently has been a significant increase in certain U.S. states in
asbestos-related product liability claims against numerous industrial companies.
The Company has been named, along with hundreds of other industrial companies,
as a defendant in some of these cases. The Company strongly believes it has
valid defenses to these claims and intends to defend itself vigorously. In
addition, the Company believes that it has sufficient insurance to cover all
costs associated with these claims. Based upon past claims experience and
available insurance coverage, management believes these matters will not have a
material adverse effect on the financial position, results of operations, or
cash flows of the Company.
In addition to the above 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, including environmental and product liability matters
that are 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.
18
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) There were no reports on Form 8-K filed for the three months ended
March 30, 2003.
SIGNATURES
Pursuant to the requirements 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)
/s/ James M. Rutledge
----------------------------------
James M. Rutledge
Vice President, Finance and
Chief Financial Officer
Dated: May 2, 2003
19
ROGERS CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Walter E. Boomer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Rogers
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
20
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Walter E. Boomer
-------------------
Walter E. Boomer
Chairman of the Board of Directors and Chief Executive Officer
May 2, 2003
CERTIFICATION
I, James M. Rutledge, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Rogers
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
21
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
/s/ James M. Rutledge
--------------------
James M. Rutledge
Vice President, Finance and Chief Financial Officer
May 2, 2003
22
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Rogers Corporation (the "Company") on
Form 10-Q for the period ending March 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Walter E. Boomer,
Chairman of the Board of Directors and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13 (a)
or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Walter E. Boomer
-------------------
Walter E. Boomer
Chairman of the Board of Directors and Chief Executive Officer
May 2, 2003
23
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Rogers Corporation (the "Company") on
Form 10-Q for the period ending March 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, James M. Rutledge,
Vice President, Finance and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of the Company.
/s/ James M. Rutledge
- ---------------------
James M. Rutledge
Vice President, Finance and Chief Financial Officer
May 2, 2003
24