-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uv583dUMusWNumOOW0KOh2AIDTO2dIiK0ywehz6hq/9bRuddFAIj83kGX8wLKulx DG9PNUVPnIPMbd2pnVQw+w== 0000084748-02-000011.txt : 20020415 0000084748-02-000011.hdr.sgml : 20020415 ACCESSION NUMBER: 0000084748-02-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011230 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROGERS CORP CENTRAL INDEX KEY: 0000084748 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 060513860 STATE OF INCORPORATION: MA FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04347 FILM NUMBER: 02587388 BUSINESS ADDRESS: STREET 1: P.O. BOX 188 STREET 2: ONE TECHNOLOGY DRIVE CITY: ROGERS STATE: CT ZIP: 06263-0188 BUSINESS PHONE: 8607749605 10-K 1 edg10k2001.txt 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 December 30, 2001 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 New York Stock Exchange, Inc. Rights to Purchase Capital Stock New York Stock 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 March 1, 2002 was $480,476,656. The number of shares of Capital Stock, $1 par value, outstanding as of March 1, 2002 was 15,180,937. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's annual report to shareholders for the fiscal year ended December 30, 2001 are incorporated by reference into Parts I and II. Portions of the proxy statement for the Registrant's 2002 annual meeting of stockholders to be held April 25, 2002, 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 8 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 6. Selected Financial Data 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 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 9 11. Executive Compensation 9 12. Security Ownership of Certain Beneficial Owners and Management 9 PART IV 14. Exhibits and Reports on Form 8-K 10 SIGNATURES Signatures 14 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 - printed circuit materials, high performance foams, and other polymer materials and components. 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 printed circuit materials, especially high frequency circuit materials; high performance urethane and silicone foams; and the electroluminescent lamp joint venture with 3M. An increasingly large percentage of these materials are going into fast growth, high technology applications, such as cell telephone base stations and antennas, handheld wireless devices and satellite television receivers. BUSINESS SEGMENT FINANCIAL AND GEOGRAPHIC INFORMATION "Business Segment and Geographic Information" on pages 39-41 of the annual report to shareholders for the year ended December 30, 2001, 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 three business segments: High Performance Foams, Printed Circuit Materials, and Polymer Materials and Components. 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. HIGH PERFORMANCE FOAMS High Performance Foams include urethane foams and silicone foams. The Company's High Performance Foams 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. High Performance Foams are sold to fabricators, printers and original equipment manufacturers for applications in imaging, communications, computer, transportation, consumer and other markets. Trade names for the Company's High Performance Foams include: PORON (R) urethane foams used for making high performance gaskets and seals in vehicles, communications devices, computers and peripherals; 1 PORON cushion insole materials for footwear and related products; PORON healthcare and medical materials for body cushioning, orthotic appliances; BISCO (TM) silicone foams, used for making flame retardant gaskets and seals in aircraft, trains, cars and trucks, and for shielding extreme temperature or flame; and R/bak (R) compressible printing plate backing and mounting products for cushioning flexographic printing on packaging materials. One of the Company's joint ventures extends and complements the Company's worldwide business in High Performance Foams. Rogers Inoac Corporation (RIC), a 50% owned joint venture with Japan-based Inoac Corporation, manufactures high performance PORON urethane foam materials in Mie and Nagoya, Japan. PRINTED CIRCUIT MATERIALS Printed Circuit Materials include printed circuit board laminates for high frequency circuits, flexible printed circuit board laminates for high performance flexible circuits, and polyester based industrial laminates. The Company's Printed Circuit 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. Printed Circuit 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 RO3000 (R), RO4000 (R), DUROID (R), RT/duroid (R), ULTRALAM (R), and TMM (R) laminates. All of these laminates are used for making circuitry that receive, transmit, and process 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 wireless communications systems, including 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 handheld computers, portable electronic devices, and hard disk drives. The performance characteristics of R/flex materials differentiate these laminates from commonly available flexible circuit materials. The adhesiveless flexible circuit materials that the Company sold to Hutchinson Technology Incorporated (HTI), for making TSA suspensions in magneto resistive hard disk drives, are called SSLAM materials. SSLAM materials are manufactured by Mitsui Chemicals, Inc. of Japan, under a technology license from Rogers Corporation. Effective January 3, 2000 the Company started a joint venture with Mitsui Chemicals, Inc. to eventually manufacture this flexible circuit board laminate in Chandler, Arizona. Beginning in 2000, this joint venture, Polyimide Laminate Systems, LLC (PLS) made these sales to HTI rather than having the resale go through the Company. Eventually PLS will provide HTI with a second source of supply thereby enabling the Company and Mitsui Chemicals to remain the sole source for these materials. 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. 2 POLYMER MATERIALS AND COMPONENTS Polymer Materials and Components include high performance elastomer components, composite materials, high performance thermoset moldable composites, and power distribution bus bars. The Company's Polymer Materials and Components 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 and Components are sold to molders, printers and original equipment manufacturers for applications in transportation, communications, imaging, computer, consumer and other markets. Trade names for the Company's Polymer Materials and Components include: 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 brake pistons, and epoxy molding materials for making optoelectronics components. 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. The Company's nonwoven composite materials are manufactured for medical padding and bandaging, and industrial pre-filtration applications. In October 1998, the Company acquired the dampening sleeve business from Imation, a former 3M business. These nonwoven composite roller covers, and related pressroom products, are consumable supplies used by the lithographic printing industry. One of the Company's joint ventures complements the Company's worldwide business in Polymer Materials and Components. This is Durel Corporation, a 50% owned venture with 3M, which manufactures DUREL electroluminescent lamps and phosphor, in Chandler, Arizona. BACKLOG Excluding joint venture activity, the backlog of firm orders for High Performance Foams was $3,611,000 at December 30, 2001 and $2,860,000 at December 31, 2000. The backlog of firm orders for Printed Circuit Materials was $7,384,000 at December 30, 2001 and $7,689,000 at December 31, 2000. The backlog of firm orders for Polymer Materials and Components was $12,273,000 at December 30, 2001 and $21,257,000 at December 31, 2000. The amount of unfilled orders is reasonably stable throughout the year. RAW MATERIALS The manufacture of High Performance Foams, Printed Circuit Materials and Polymer Materials and Components 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. 3 EMPLOYEES The Company employed an average of 217 people in the High Performance Foams operations, 480 people in the Printed Circuit Materials operations, and 679 people in the Polymer and Materials operations during 2001. SEASONALITY In the Company's opinion, none of the business is seasonal. CUSTOMERS & MARKETING The Company's products were sold to approximately 2,500 customers worldwide in 2001. 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 all of 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. The Company markets its full range of products throughout the United States and in most foreign markets. Over 90% 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 all 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 that it believes to be of importance. During its fiscal year 2001, the Company spent $12,570,000 on research and development activities, compared with $12,493,000 in 2000, and $10,791,000 in 1999. These amounts include the cost of the corporate research and development effort in Rogers, Connecticut, which amounted to $8,670,000, $8,892,000, and $7,491,000 in 2001, 2000, and 1999, respectively. The balance was comprised of expenditures for product development and new process development activities in its operating units. 4 ENVIRONMENTAL REGULATION During fiscal year 2001, the Company spent $400,000 on capital equipment necessary to comply with federal, state, and local environmental protection, health and safety regulations. Management estimates that 2002 expenditures needed for compliance with current environmental, health, and safety regulations will approximate $900,000 of which $600,000 has been accrued and $300,000 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. 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. Name, Age Prior Business Experience Served in Present and Present Position in Past Five Years Position Since - ------------------------------------------------------------------------------ Walter E. Boomer, 63 President of Babcock & Wilcox President and Chief Power Generation Group and Executive Executive Officer Vice President of McDermott International, Inc. to October 1996. March 1997 Bruce G. Kosa, 62 Vice President, Technology October 1994 John A. Richie, 54 Vice President, Human Resources October 1994 Frank H. Roland, 66 Vice President of RBX Corporation Vice President, January 1995 to October 1996; Finance; Chief President of Rubatex Corporation Financial Officer; April 1995 to October 1996; and Secretary President and Chief Executive Officer of RBX Corporation October 1996 to July 1998. September 1998 Robert D. Wachob, 54 Vice President, Sales and Marketing Executive Vice from October 1990 to May 1997; President Senior Vice President, Sales and Marketing from May 1997 to January 2000. January 2000 Robert M. Soffer, 54 Treasurer March 1987 Assistant Secretary and Clerk February 1992 Vice President April 2000 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. Operating capacity can be increased by additional worker hours at several of the Company's 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 ------------- ---------------- ------------ High Performance Foams - ---------------------- Woodstock, Connecticut 152,000 Manufacturing Owned Elk Grove Village, Illinois 93,000 Manufacturing Leased through 9/07 Printed Circuit Materials - ------------------------- Chandler, Arizona 156,000 Manufacturing Owned 4,000 Warehouse Owned 11,000 Rental Property Owned Chandler, Arizona* 142,000 Manufacturing Owned Evergem, Belgium 80,000 Manufacturing Owned Ghent, Belgium Rogers NV 17,000 Manufacturing Owned Rogers Induflex NV 96,000 Manufacturing Owned Polymer Materials and Components - -------------------------------- Manchester, Connecticut 150,000 Manufacturing Owned 38,000 Warehouse Owned South Windham, Connecticut 88,000 Manufacturing Owned Rogers, Connecticut 290,000 Manufacturing Owned Ghent, Belgium Rogers NV 96,000 Manufacturing Owned Other - ----- Rogers, Connecticut 116,000 Corporate Headquarters/ Research & Development Owned Tokyo, Japan 2,000 Sales Office Leased through 9/03 Wanchai, Hong Kong 1,000 Sales Office Leased through 3/03 Guangzhou, China 1,000 Sales Office Leased through 3/03 Taipei, Taiwan, R.O.C. 1,000 Sales Office Leased through 7/03 Seoul, Korea 1,000 Sales Office Leased through 2/03 50 Warehouse Leased through 5/03 Singapore 1,000 Sales Office Leased through 6/03 *The Company is leasing this facility to the current owner of the flexible interconnections business, which was sold by the Company 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 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 6 possible 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 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 completed clean-up efforts in 2000, monitored the site in 2001, and will continue to monitor the site for the next two years. On the basis of estimates prepared by environmental engineers and consultants, the Company recorded a provision of $2,200,000 prior to 1999 and based on updated estimates provided an additional $400,000 in 1999 for costs related to this matter. Prior to 1999, $900,000 was charged against this provision. In 1999, 2000, and 2001 expenses of $400,000, $900,000, and $100,000 were charged, respectively, against the provision. The remaining amount in the reserve is primarily for testing, monitoring, sampling and any 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) 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 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 as the Company intends to vigorously resist any future attempts by the government to impose a substantial fine. 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. On October 23, 2001, the Company terminated the acquisition agreement. On October 24, 2001, a breach of contract lawsuit was filed 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 (Tonoga, Ltd., d/b/a Taconic Plastics Ltd., Tonoga, Inc., Andrew G. Russell, and James M. Russell v. Rogers Corporation). The complaint alleges that the Company breached its agreement to purchase Taconic's Advanced Dielectric Division. The Company believes that several conditions precedent to a closing contained in the relevant agreement were not satisfied by Taconic, and that the litigation is without merit. The Company intends to vigorously defend the lawsuit. 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 that is defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to 7 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. 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 21, under the caption "Restriction on Payment of Dividends" in Note F on page 35, and under the caption "Dividend Policy" in the "Management's Discussion and Analysis" on page 21 of the 2001 annual report to shareholders. At March 1, 2002, there were 956 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 15 of the 2001 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 16 through 23 of the 2001 annual report to shareholders. 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 22 of the 2001 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 24 through 41 and under the caption "Quarterly Results of Operations" in the "Management's Discussion and Analysis" on page 19 of the 2001 annual report to shareholders. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 8 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 3 of the Registrant's definitive proxy statement dated March 18, 2002, for its 2002 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 6 and 7 and "Executive Compensation" on pages 8 through 16 of the Registrant's definitive proxy statement, dated March 18, 2002, for its 2002 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 4 and "Beneficial Ownership of More Than Five Percent of Rogers Stock" on page 5 of the Registrant's definitive proxy statement, dated March 18, 2002, for its 2002 annual meeting of stockholders filed pursuant to Section 14(a) of the Act. 9 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2)- 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 December 30, 2001, are incorporated by reference in Item 8: Consolidated Balance Sheets - December 30, 2001 and December 31, 2000 Consolidated Statements of Income - Fiscal Years Ended December 30, 2001, December 31, 2000, and January 2, 2000 Consolidated Statement of Shareholders' Equity - Fiscal Years Ended December 30, 2001, December 31, 2000, and January 2, 2000 Consolidated Statements of Cash Flows - Fiscal Years Ended December 30, 2001, December 31, 2000, and January 2, 2000 Notes to Consolidated Financial Statements - December 30, 2001 The following consolidated financial statement schedule of Rogers Corporation and 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. Separate financial statements of Rogers Corporation's joint ventures are omitted because none of the individual joint ventures have met the materiality thresholds. 10 (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 to the Articles of Organization, 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 were filed as Exhibit 3k to the 1998 Form 10-K*. 4a 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*. 4b 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. 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*. 11 10e Rogers Corporation 1990 Stock Option Plan** (as restated and amended on October 18, 1996 and December 21, 1999). The October 18, 1996 restatement and amendment was filed as Registration Statement No. 333-14419 on Form S-8 dated October 18, 1996*. The December 21, 1999 amendment was filed as Exhibit 10e to the 1999 Form 10-K*. 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 October 17, 1996 and amended on December 18, 1997). The 1994 plan, as amended and restated on October 17, 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, December 27, 1996 and as restated and amended December 21, 1999). 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. The December 21, 1999 restatement and amendment were filed as Exhibit 10i to the 1999 Form 10-K*. 10j Rogers Corporation Voluntary Deferred Compensation Plan for Key Employees** (1993, as amended on December 22, 1994, December 21, 1995, December 22, 1995, April 17, 1996 and as restated and amended on December 21, 1999). 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. The December 21, 1999 restatement and amendment were filed as Exhibit 10j to the 1999 Form 10-K*. 10k Rogers Corporation Long-Term Enhancement Plan for Senior Executives of Rogers Corporation** (December 18, 1997*, as amended April 4, 2000) . The April 4, 2000 amendment was file as Exhibit 10k to the 2000 Form 10-K*. 10l Rogers Corporation 1998 Stock Incentive Plan (1998, as amended September 9, 1999 and December 21, 1999).** The 1998 Plan was filed as Registration Statement No. 333-50901 on April 24, 1998*. The September 9, 1999 and December 21, 1999 amendments were filed as Exhibit 10l to the 1999 Form 10-K*. 10m Multicurrency Revolving Credit Agreement dated December 8, 2000 was filed as Exhibit 10m to the 2000 Form 10-K*. 13 Portions of the Rogers Corporation 2001 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. * 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 December 30, 2001. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. 12 (d) Financial Statement Schedule SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES (Dollars in Thousands) Balance Balance at Charged to at End Beginning Costs and Other of Description of Period Expenses Deductions Period - -------------------------------------------------------------------------- December 30, 2001: Allowance for doubtful accounts $ 1,804 -- $ (441) $ 1,363 December 31, 2000: Allowance for doubtful accounts $ 794 $ 987 $ (23) $ 1,804 January 2, 2000: Allowance for doubtful accounts $ 318 $ 520 $ 44 $ 794 13 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 27, 2002 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 25, 2002, by the following persons on behalf of the Registrant and in the capacities indicated. By /s/Walter E. Boomer President (Principal Executive Officer) - ---------------------- and Director Walter E. Boomer 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/Gregory B. Howey Director - ----------------------- Gregory B. Howey By /s/Leonard R. Jaskol Director - ----------------------- Leonard R. Jaskol By /s/Eileen S. Kraus Director - --------------------- Eileen S. Kraus By /s/William E. Mitchell Director - ------------------------- William E. Mitchell By /s/Robert G. Paul Director - -------------------- Robert G. Paul 14 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 Rogers Korea, Inc. 100% Delaware Rogers China, Inc. 100% Delaware Rogers Technologies Singapore, Inc. 100% Delaware Rogers Specialty Materials Corporation 100% Delaware Rogers Circuit Materials, 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 * Polyimide Laminate Systems, LLC 50% Delaware * Rogers Chang Chun Technology Co., LTD 50% Taiwan, R.O.C. * 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 this Annual Report (Form 10-K) of Rogers Corporation of our report dated February 1, 2002, included in the 2001 Annual Report to Shareholders of Rogers Corporation. Our audits also included the financial statement schedule 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 forth therein. We also consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 2-84992, 33-21121, 33-38219, 33-38920, 33-64314, 33-44087, 33-53353, 333-14419, 333-42545, 333-50901, and 333-59634 and Form S-3 No. 33-53369) pertaining to various stock option plans, employee savings plans, employee stock ownership plans, and stock grants, of Rogers Corporation of our report dated February 1, 2002, 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 25, 2002 F-2 EX-1 3 mda2001.txt SELECTED FINANCIAL DATA (Dollars in Thousands, Except per Share Amounts) - ---------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- SALES AND INCOME - ---------- Net Sales $216,037 $248,215 $247,839 $216,574 $189,652 Income Before Income Taxes 20,979 37,634 25,877 19,126 22,005 Net Income 15,734 26,720 18,631 13,771 16,500 PER SHARE DATA - ---------- Basic 1.03 1.79 1.24 .91 1.10 Diluted .98 1.69 1.19 .87 1.05 Book Value 10.62 9.65 7.94 7.24 6.26 FINANCIAL POSITION (YEAR-END) - ---------- Current Assets 84,916 92,849 72,547 69,164 74,325 Current Liabilities 29,692 38,745 36,741 32,305 33,983 Ratio of Current Assets to Current Liabilities 2.9 to 1 2.4 to 1 2.0 to 1 2.1 to 1 2.2 to 1 Cash, Cash Equivalents, and Marketable Securities 20,891 10,100 9,955 9,849 21,555 Working Capital 55,224 54,104 35,806 36,859 40,342 Property, Plant and Equipment - Net 98,454 94,199 84,652 79,969 57,359 Total Assets 223,809 221,514 183,406 176,174 158,440 Long-Term Debt less Current Maturities 1,315 9,116 9,740 13,687 13,660 Shareholders' Equity 163,062 145,813 116,417 110,231 94,378 Long-Term Debt as a Percentage of Shareholders' Equity 1% 6% 8% 12% 14% OTHER DATA - ---------- Depreciation and Amortization 13,712 12,507 10,375 8,439 6,614 Research and Development Expenses 12,570 12,493 10,791 10,352 9,608 Capital Expenditures 18,032 22,744 13,621 28,965 17,739 Number of Employees (Average) 1,376 1,358 1,197 1,122 993 Net Sales per Employee 157 183 207 193 191 Number of Shares Outstanding at Year-End 15,356,284 15,102,670 14,664,652 15,235,332 15,087,398 15 F-3 MANAGEMENT'S DISCUSSION AND ANALYSIS Overview For the year 2001, net sales were $216.0 million, down 13% from $248.2 million in 2000. Combined Sales, which include half of the sales of Rogers' four unconsolidated 50% owned joint ventures, totaled $276.2 million. Income before income taxes declined 44% to $21.0 million while net profits decreased 41% to $15.7 million. Diluted earnings per share for the year were $0.98, down from $1.69 in 2000 and basic earnings per share were $1.03 in 2001, down from $1.79 in 2000. Lower than expected income taxes resulting from a combination of lower income and increased tax credits yielded an effective tax rate of only 25% for the Company for 2001. Excluding a one-time charge of $0.09 for professional fees and restructuring charges taken in the second quarter of 2001, and the positive $0.06 realized in the fourth quarter from a decrease in taxes and a resulting increase in net profits, diluted earnings per share for 2001 would have been $1.01. The decrease in earnings resulted primarily from the lower level of sales along with reduced net joint venture income. Sales and Operating Profits Sales - 2001 over 2000 Net sales were $216.0 million in 2001, down from $248.2 million in 2000. Combined Sales, which include half of the sales of Rogers' four unconsolidated 50% owned joint ventures, totaled $276.2 million, compared to $316.8 million in 2000. The major causes of the decrease in revenue were the widespread slowdown in the wireless communications industry and the general downturn in the overall global economy. Sales - 2000 over 1999 Net sales were $248.2 million in 2000, up slightly from $247.8 million in 1999. Combined Sales totaled $316.8 million, compared to $285.0 million in 1999. Beginning in January 2000, sales of a specialty flexible circuit laminate sold to Hutchinson Technology, Inc. (HTI), were invoiced through Polyimide Laminate Systems, LLC (PLS), Rogers' joint venture with Mitsui Chemicals, Inc. If these sales were treated the same way as reported in 1999, Rogers' net sales would have shown an increase of 14.3% in 2000 from 1999. On the same basis, Combined Sales would have shown an increase of 17.5% in 2000 over 1999. The Company's favorable 2000 results were primarily attributable to strong sales to the computer and wireless communication markets. Sales of silicone and urethane materials and high frequency circuit materials were at record levels during 2000. Operating Income - 2001 over 2000 Manufacturing margins declined from 33% in 2000 to 31% in 2001. The Company was able to sustain good manufacturing margins, even with significantly lower revenues, due to implementation of a number of cost saving initiatives. Some of these measures included: production furloughs, receiving discounts for early payment of payables, reduced raw material pricing and the closing of most facilities during the last week of the year. Selling and administrative expenses decreased slightly in total dollars, but increased as a percentage of sales from 16% in 2000 to 18% in 2001. The increase in percentage of sales is primarily due to the decreased sales volume experienced by the Company. Acquisition/Restructuring costs for 2001 were $2.0 million. 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, $1.5 million in costs associated with this potential acquisition were written off during the second quarter. On October 23, 2001, the Company terminated the acquisition agreement. 16 F-4 On October 24, 2001, a breach of contract lawsuit was filed against the Company in the United States District Court for the District of Connecticut seeking damages in the amount of $25 million or more, as well as specific performance and attorneys' fees (Tonoga, Ltd., d/b/a Taconic Plastics Ltd., Tonoga, Inc., Andrew G. Russell, and James M. Russell v. Rogers Corporation). The complaint alleges that the Company breached its agreement to purchase Taconic's Advanced Dielectric Division. The Company believes several conditions precedent to a closing contained in the relevant agreement were not satisfied by Taconic, and that the litigation is without merit. The Company intends to vigorously defend the lawsuit. In the second quarter of 2001, the Company incurred a restructuring charge in the amount of $500,000. This amount primarily consists of $300,000 in severance benefits for the termination of 19 employees in the Printed Circuit Materials segment and $200,000 in costs associated with the merging of two business units within the segment. All 19 of these employees were terminated during the second quarter. The balance in the accrual at December 30, 2001 was $25,000. Research and development (R&D) expenses were $12.6 million in 2001 compared to $12.5 million for the same period in 2000. This increase is due to the cost of technical employees added in 2000. Such spending is being maintained so as to preserve the R&D infrastructure to keep the Company well positioned for growth in the future. Operating Income - 2000 over 1999 Manufacturing margins rose from 29% in 1999 to 33% in 2000. The 2000 margins continued the improvement started in 1999 and were the best in the Company's history. This increase was due to a continuing effort to install new, more productive equipment and to increase the utilization of existing equipment. Additionally, in 1999 manufacturing profit was held down by the lower margins from sales of FLEX-I-MID materials to HTI. These materials were produced for the Company by Mitsui Chemicals, Inc., in Japan, and carried a lower margin than materials that the Company manufactures. In 2000, these sales were made directly by PLS. Selling and administrative expenses, as a percentage of sales, increased slightly from 15% in 1999 to 16% in 2000. A higher level of information systems expenses was incurred to improve performance for all users. Also incurred in 2000 were one-time licensing and consulting costs. The Company continued to strengthen its global sales and marketing capabilities particularly through expansion. Rogers Korea, Inc., a sales and marketing office with warehousing facilities, officially opened in Seoul, Korea, in the second quarter of 2000. Rogers Technologies Singapore, Inc., a sales and marketing office with warehousing facilities, officially opened in Singapore in the third quarter of 2000. The local presence provided by these operations allows the Company to more effectively service its growing customer base in these areas. Research and development expenses were $12.5 million in 2000 compared to $10.8 million for the comparable period in 1999, a 16% increase. This reflects an increase in technical staff that allowed the Company to continue improvement in core capabilities, while also placing greater emphasis on new product development. Other Income and Expense - 2001 over 2000 Net interest income for 2001 was lower than 2000 due to lower rates earned on excess available cash and less interest being capitalized. The amount of capitalized interest for 2000 was approximately $400,000 higher than in 2001. Other income less other charges increased slightly from 2000 to 2001. Commission income from PLS and joint venture income earned was $2.5 million less in 2001. This decrease was more than offset by an increase in royalty income, a one-time licensing fee, and changes in various reserves. Other Income and Expense - 2000 over 1999 Net interest income increased approximately $400,000 from 1999 to 2000. The decrease in interest expense accounted for most of this change. This resulted from a reduction of long-term debt in 2000 and higher 1999 interest expense due to a penalty associated with the early payment of debt. Other income less other charges increased $6.2 million from 1999 to 2000. Joint venture income and commission income earned from the Company's joint ventures accounted for this increase. The income from the newly formed PLS joint venture was included in manufacturing profit in 1999. Income Taxes The effective tax rates were 25% in 2001, 29% in 2000, and 28% in 1999. In 2001, the tax rate benefited primarily from foreign tax credits, research and development credits, and nontaxable foreign sales income. In 2000 and 1999, the Company had similar benefits reducing the effective tax rate. In 1999, the Company also incurred current taxes on its foreign joint venture income that had an offsetting decrease to deferred taxes due to the related reduction in the valuation allowance deemed to be necessary by the Company under FAS No. 109. The deferred tax valuation allowance is recorded on the net deferred tax asset associated with its foreign joint venture income. 17 F-5 Backlog The Company's backlog of firm orders was $23.3 million at December 30, 2001 and $31.8 million at December 31, 2000. The decrease is due primarily to reduced orders. Segment Sales and Operations Sales of High Performance Foams decreased 16% in 2001. This same segment increased 15% and 11% in 2000 and 1999, respectively. While foam revenues continued to be lower in the second half of 2001, sales of these materials into cellular phone handsets began to rebound with the elimination of the inventory overhang that was present throughout the first half of the year. The increases in both 1999 and 2000 were due to significantly higher sales of both urethane and silicone foam materials, particularly for wireless communications and computer applications. Operating Income from High Performance Foams was $4.6 million in 2001, $11.2 million in 2000, and $7.8 million in 1999. The decrease in operating income in 2001 was primarily due to the lower level of sales. Improvement in manufacturing yields and the higher sales volume resulted in the significant improvement from 1999 to 2000. Sales of Printed Circuit Materials decreased 12% in 2001 and 5% in 2000, while there was an increase of 8% in 1999. If 1999 sales data were restated to exclude the sales to HTI, the sales increase would have been 34% in 2000. Due to the widespread economic downturn in 2001, sales into the wireless area were lower than in 2000. Worldwide sales of high frequency circuit materials far exceeded the Company's expectations in 2000. Rogers has become a leading supplier of such materials to the computer and wireless communications markets. Wireless communication base stations, satellite television receivers, and wireless communication antennas are the current primary uses for these materials. Worldwide sales of high frequency circuit materials had also set a record in 1999. Sales to the wireless communications market were particularly strong. This was significantly offset by the disappointing sales levels of flexible materials that the Company manufactures, reflecting the softness in demand being experienced by its major customer for such materials. Sales of FLEX-I-MID adhesiveless laminate materials to HTI dropped sharply in the fourth quarter of 1999 as this customer continued to work off its inventories resulting in a smaller year-over-year increase. Printed Circuit Materials operating income was $6.2 million in 2001, $12.2 million in 2000, and $7.5 million in 1999. The lower level of sales was the major factor leading to the decrease in 2001. Additionally, the restructuring charge of $500,000 was included in this segment in 2001. It is expected that this initiative will save in excess of $1.0 million annually. Significantly higher sales, excluding HTI sales now made by PLS, coupled with more efficient manufacturing facilities, led to the increase in operating income in 2000. New equipment has produced immediate process improvements with enhanced product flow and efficiency and increased utilization of equipment has also contributed to the improvement. Sales of Polymer Materials and Components decreased 12% in 2001 and 2% in 2000, respectively, but increased by 25% in 1999. The sales decrease in 2001 was due to the general economic climate, not to a known decrease in market share. The increase in 1999 was primarily attributable to the acquisition of most of the engineered molding compounds business of Cytec Fiberite in January 1999. The dampening sleeve business was purchased from Imation Corp. in late 1998 and also contributed to the sales increase in 1999. Polymer Materials and Components operating income was $2.3 million, $6.1 million, and $9.1 million for 2001, 2000, and 1999, respectively. Lower sales, especially those with high contribution margins, were the cause of the decrease in operating income in both 2001 and 2000. Additionally, the last phase of the transition of the Cytec Fiberite business was completed in 2001, which involved start-up costs. The purchase of the dampening sleeve business and the engineered molding compounds business resulted in significant contributions to the Company's performance in 1999. Joint Ventures Durel Corporation: Durel Corporation, the Company's 50% owned joint venture with 3M in electroluminescent lamps, recorded sales in 2001 which were 20% lower than in 2000. New cell phone models featuring Durel products, whose introduction had been delayed during the first nine months of 2001 due to an inventory glut, started to ramp into production in the fourth quarter of 2001. Durel's profits for 2001 were also lower but were higher in the fourth quarter than in all of the previous three quarters of 2001 combined. On June 28, 2001, Durel was informed that the patent infringement lawsuit it filed against Osram Sylvania Inc., which had been decided in Durel's favor in February 2000, had been reversed by the U.S. Court of Appeals. In December 2001, Durel and Osram Sylvania agreed to a worldwide cross-licensing of the disputed patents and an agreement not to assert future patents against either company's existing products. Durel experienced record sales in 2000 and, along with lower expenses associated with the Osram Sylvania litigation, had a significant increase in profitability. Continued penetration of the cellular telephone handset market drove the growth during 2000. Durel dou- 18 F-6 bled manufacturing capacity in 2000. To meet the demand from this rapidly growing market, Durel also began construction of a 75,000 square foot addition that was completed in 2001. Durel achieved 50% growth in sales in 1999 that included late- year contracts from two of the largest manufacturers of cellular telephones. This growth was driven by a more than 130% increase in sales of Durel's products for wireless telephones and other handheld electronic devices. These sales gains helped Durel achieve record earnings in 1999 despite a very significant increase in legal costs associated with the patent infringement lawsuit. Rogers Inoac Corporation (RIC): Sales of RIC, the Company's joint venture with Inoac Corporation in Japan, decreased 14% from 2000 to 2001 due to general economic conditions. In January 2002, RIC sold its Endur product line to the Company's joint venture partner, Inoac Corporation. The sale allows the joint venture to focus on high performance foams, which is consistent with the Company's strategy. No significant earnings impact will result from this transaction. Profits in 2000 were significantly higher than in 1999 due to increasing sales of urethane foams for handheld electronic devices and general overall economic strength in Southeast Asia. In 1999, RIC was successful in moving PORON materials into more industrial applications. Polyimide Laminate Systems, LLC (PLS): Sales from our PLS joint venture were 17% higher in 2001. In 2001 and 2000, this product, which is manufactured by Mitsui Chemicals, Inc. under a Rogers' technology license, was sold by PLS. Since PLS is now making these sales directly, Rogers' share of such sales is reported in Combined Sales rather than in net sales. In 1999, Rogers' net sales included $30.7 million of sales of a specialty flexible circuit board laminate to HTI. Rogers Chang Chun Technology Co., Ltd. (RCCT): On June 29, 2000, Rogers signed a joint venture agreement with Chang Chun Plastics Co., Ltd. (CCP), a $1.1 billion Taiwanese specialty chemical manufacturer. Combining Rogers' leading-edge flexible circuit materials technology with CCP's outstanding manufacturing capabilities and long established market position in Taiwan will enable the joint venture to be a leading flexible circuit materials supplier in Taiwan. This joint venture had a smooth and successful start-up of its manufacturing operations during the fourth quarter of 2001 and should begin shipping production materials and generating sales early in the second quarter of 2002. QUARTERLY RESULTS OF OPERATIONS - ---------- (Dollars in Thousands, Except Per Share Amounts) Basic Diluted Net Manufacturing Net Net Income Net Income Quarter Sales Profit Income Per Share Per Share - ---------------------------------------------------------------------------- 2001 Fourth $ 48,094 $ 14,611 $ 3,900 $ .25 $ .24 Third 51,031 15,792 3,219 .21 .20 Second 53,162 15,801 1,894 .12 .12 First 63,750 20,654 6,721 .44 .42 - ---------------------------------------------------------------------------- 2000 Fourth $ 60,952 $ 20,591 $ 7,434 $ .49 $ .47 Third 62,357 20,695 6,936 .46 .44 Second 61,266 20,072 6,442 .43 .41 First 63,640 21,147 5,908 .40 .37 - ---------------------------------------------------------------------------- The results of operations in the fourth quarter of 2001 include a benefit of approximately $1 million resulting from an adjustment to the Company's effective income tax rate. Acquisitions As of December 31, 2001 (fiscal year 2002), the Company acquired much of the intellectual property and most of the polyolefin foam product lines of Cellect LLC. This polyolefin foam business will be integrated into Rogers 19 F-7 High Performance Foams and later combined with an existing Rogers' business in Illinois. It is expected that this new business will be modestly accretive to earnings in 2002. Initial market response to this purchase has been very positive. Effective January 1999, the Company acquired the engineered molding compounds business of Cytec Fiberite. This acquisition has added capabilities that have enhanced the Company's moldable composites business. Sources of Liquidity and Capital Net cash provided by operating activities amounted to $39.0 million in 2001, $23.7 million in 2000 and $32.5 million in 1999. The year-to-year increase from 2000 to 2001 was due primarily to the lower level of accounts receivable and a company-wide initiative put in place to reduce inventory levels. The decrease from 1999 to 2000 was due to a $6.0 million loan granted to one of the Company's unconsolidated joint ventures and a higher level of inventories, offset partially by increased profits and depreciation. Inventories were increased to support higher customer demand and in particular at the Moldable Composites Division where inventory was increased in anticipation of the final move of the Cytec Fiberite equipment from Winona, Minnesota to Manchester, Connecticut. Capital expenditures totaled $18.0 million in 2001, $22.7 million in 2000 and $13.6 million in 1999. Despite the economic climate, the Company continued to invest in its long-term future. The Company completed the construction of a building addition in Arizona that was started in 2000. Additional press capacity for high frequency materials was installed late in 2001 and will come on line early in 2002. The Company has slowed the qualification of the new Ghent, Belgium high frequency circuit laminate facility to match the current needs of the marketplace. This facility will be brought on line as needs warrant. The increase in expenditures in 2000 was directly related to higher sales of products manufactured by the Company. To satisfy this growing demand, the Company completed a 50% capacity increase in Arizona for its RO4000 high frequency circuit materials. The Company began construction of the building addition in Arizona and acquired additional acreage in both Arizona and Ghent, Belgium in 2000. In 1999 capital expenditures were at more traditional levels and no major expansion projects were initiated and completed during the year. Cash generated from the Company's operating activities exceeded capital spending in all three years presented, and spending was financed through these internally generated funds. The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $75 million, or the equivalent in certain other foreign currencies. Amounts borrowed under this agreement are to be paid in full by December 8, 2005. 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 50 to 112.5 basis points over a Eurocurrency loan rate. The spreads over the Eurocurrency rate are based on the Company's leverage ratio. Under the arrangement, the ongoing commitment fee varies from 30.0 to 37.5 basis points of the maximum amount that can be borrowed, net of any outstanding borrowings and the maximum amount that beneficiaries may draw under outstanding letters of credit. There were no borrowings pursuant to this arrangement at December 30, 2001. The loan agreement contains restrictive covenants primarily related to total indebtedness, interest expense, capital expenditures and net worth. The Company is in compliance with these covenants. The Company had designated 390.2 million Belgian francs as a hedge of its net investment in a foreign subsidiary in Belgium ($9.1 million at December 31, 2000). On July 6, 2001, the Company repaid the debt at the then current Belgian franc rate, amounting to $8.2 million. During the years 2001 and 2000, the Company recorded $900,000 and $600,000, respectively, of net pretax gains related to the hedge in other comprehensive income in shareholders' equity. In September 2001, Rogers NV, a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. Under this arrangement Rogers NV now can borrow up to 6,200,000 Euro. Amounts borrowed under this agreement are to be repaid in full by May 1, 2005. The rate of interest charged on outstanding loans is based on the Euribor plus 25 basis points. At December 30, 2001, Rogers NV had borrowings of 1,487,361 Euro ($1,315,000) under this agreement. As of December 30, 2001, the Company had loaned $5.0 million to Durel Corporation. Borrowings must be made in increments of $250,000, may not exceed $8.0 million in the aggregate, will be at the prime rate of interest, and any amounts repaid by Durel may subsequently be re-borrowed during the term of the loan arrangement. The arrangement expires in September of 2002, unless extended at the sole discretion of the Company. At December 30, 2001, the Company had indirectly guaranteed 50% of a loan entered into by Durel. The Company's proportionate share of the outstanding principal under this guarantee was $3.9 million at December 30, 2001 and $4.3 million at December 31, 2000. The Company believes that Durel 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. Management believes that over the next twelve months, internally generated funds plus available lines of credit will be sufficient to meet the regular needs of 20 F-8 the business. The Company continually reviews and assesses its lending relationships. 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. CAPITAL STOCK MARKET PRICES - ---------- The Company's capital stock is traded on the New York Stock Exchange. 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. 2001 2000 - -------------------------------------------------------------------- Quarter High Low High Low - -------------------------------------------------------------------- Fourth $ 35.80 $ 27.80 $ 45.25 $ 29.06 Third 31.30 24.95 38.94 31.38 Second 35.60 23.90 39.50 29.84 First 42.00 31.75 35.25 18.03 Environmental Activities The Company is subject to federal, state, and local laws and regulations concerning the environment and is involved in the following matters: 1) the Company is currently involved as a potentially responsible party (PRP) in two Superfund sites; 2) the Company is working with consultants and the Connecticut Department of Environmental Protection to monitor the area where remediation work was completed to address historic polychlorinated biphenyl (PCB) contamination at its Woodstock, Connecticut facility; and 3) The Company and the United States Environmental Protection Agency have been involved in a dispute about the alleged improper disposal of PCB's by the Company. The Company does not believe that the outcome of any of the above matters will have a material adverse effect on its financial position nor has the Company had any material recurring costs or capital expenditures relating to environmental matters, except as disclosed in the Notes to Consolidated Financial Statements. Refer to Note I of the Notes to Consolidated Financial Statements for a discussion of the above matters and the related costs. New Accounting Standards Refer to Note A of the Notes to Consolidated Financial Statements for a discussion of the new accounting pronouncements and the potential impact to the Company's consolidated results of operations and consolidated financial position. Critical Accounting Policies Management is required to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on accounting policies that have been consistently applied and are in accordance with accounting principles generally accepted in the United States. The policies that are deemed critical are those that could have different valuations if another methodology was used. The Company deems, however, that appropriate reserves have been established and other methodologies would not yield results that are materially different. These critical accounting policies are listed below. Allowance for Doubtful Accounts: In circumstances where the Company is made aware of a specific customer's inability to meet its financial obligations, a reserve is established. The accounts that have balances outstanding for more than 60 days are individually evaluated and appropriate reserves are established. The remainder of the reserve is general in nature and is based upon historical trends and current market assessments. Inventories: The Company maintains an obsolescence and slow- moving reserve. Products and materials that are specifically identified as obsolete are fully 21 F-9 reserved. Most products that have been held in inventory greater than one year are fully reserved unless there are mitigating circumstances. The remainder of the reserve is general in nature and fluctuates with market conditions, design cycles and other economic factors. In addition, the Company values certain inventories using the last-in, first-out (LIFO) method. Accordingly, a LIFO valuation reserve is calculated using the link chain index method and is maintained to properly value these inventories. Investments in Unconsolidated Joint Ventures: The Company accounts for its investments in and advances to unconsolidated joint ventures, all of which are 50% owned, using the equity method. This method was chosen due to the level of investment and because the Company has the ability to exercise significant influence, but not control, over the joint ventures' operating and financial policies. 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 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 current 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 Euro, 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 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. 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 that 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 factors include changing business, economic, and political conditions both in the United States and in foreign countries; 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; and any difficulties in integrating acquired businesses into the Company's operations. Such factors also apply to the Company's joint ventures where the Company is able to exercise significant influence, but not control, over such 50/50 operations. Additional information about certain factors that could cause actual results to differ from such forward-looking statements include the following: Technology and Product Development 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 Company's ability to adapt to technological changes and to support established and emerging industry standards. In particular, 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 products that the Company manufactures and sells to the wireless communications 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 increasing production to meet customer needs. In addition, the market for computers is characterized by rapid technological change, significant pricing pressures and short 22 F-10 lead times. Because 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. Volatility of Demand The computer industry and the wireless communications industry have historically 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 accelerated price erosion. The Company's business may in the future be materially and adversely affected by such downturns. Environmental Litigation The Company is currently engaged in proceedings involving two 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 each individual situation, including existing technology, presently enacted laws and regulations, and the Company's past experience in the addressing of environmental matters. Although current regulations impose potential joint and several liability upon each named party at any Superfund site, the Company expects its contribution for cleanup to be limited due to the number of other potentially responsible parties, and the Company's share of the 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. Capital Expenditures The level of anticipated 2002 capital expenditures and the anticipated benefits to be derived from such expenditures could differ significantly from the forecasted amounts 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, as well as changes in customer demand for the products the Company manufactures. Similar risks are inherent in the Company's joint venture operations. Raw Materials The Company from time to time must procure certain raw materials from single or limited sources that expose the Company to vulnerability to price increases and the varying 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. 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. Foreign Sales The Company's international sales involve risks, including imposition of governmental controls, currency exchange fluctuation, potential insolvency of international customers, reduced protection for intellectual property rights, 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. Acquisitions Acquisitions are an important component of the Company's growth strategy. Accordingly, the Company's future performance will depend on its ability to correctly identify appropriate businesses to acquire, negotiate favorable terms for such acquisitions and then effectively and efficiently integrate such acquisitions into the Company's existing businesses. There is no certainty that the Company will succeed in such endeavors. Other Information The foregoing list of important factors does not include all such factors that could cause actual results to differ from forward- looking statements contained in this report, nor are such factors necessarily presented in order of importance. 23 F-11 EX-2 4 notes2001.txt CONSOLIDATED BALANCE SHEETS December 30, December 31, (Dollars in Thousands) 2001 2000 ------------ ---------- ASSETS Current Assets: Cash and Cash Equivalents $ 20,891 $ 10,100 Accounts Receivable, Less Allowance for Doubtful Accounts of $1,363 and $1,804 27,460 35,067 Accounts Receivable, Joint Ventures 5,123 11,198 Inventories: Raw Materials 10,003 12,702 In-Process and Finished 16,805 19,145 Less LIFO Reserve (1,433) (1,424) ---------- ---------- Total Inventories 25,375 30,423 Current Deferred Income Taxes 5,041 5,000 Other Current Assets 1,026 1,061 ---------- ---------- Total Current Assets 84,916 92,849 ---------- ---------- Property, Plant and Equipment, Net of Accumulated Depreciation of $90,015 and $78,319 98,454 94,199 Investments in Unconsolidated Joint Ventures 16,116 11,577 Penison Assets 6,308 6,407 Goodwill and Other Intangible Assets 13,588 14,068 Other Assets 4,427 2,414 ----------- ---------- Total Assets $ 223,809 $ 221,514 =========== ========== 24 December 30, December 31, (Dollars in Thousands) 2001 2000 ----------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 12,009 $ 12,418 Accrued Employee Benefits and Compensation 6,974 12,830 Accrued Income Taxes Payable 6,337 5,554 Taxes, Other than Federal and Foreign Income 441 1,643 Other Accrued Liabilities 3,931 6,300 ---------- --------- Total Current Liabilities 29,692 38,745 ---------- --------- Long-Term Debt 1,315 9,116 Noncurrent Deferred Income Taxes 8,152 8,626 Noncurrent Pension Liability 12,371 9,676 Noncurrent Retiree Health Care and Life Insurance Benefits 6,052 5,990 Other Long-Term Liabilities 3,165 3,548 Shareholders' Equity: Capital Stock, $1 Par Value (Notes A & H): Authorized Shares 50,000,000; Issued Shares 15,739,184 and 15,485,570 15,739 15,486 Additional Paid-In Capital 35,351 32,262 Retained Earnings 129,438 113,704 Accumulated Other Comprehensive Income (Loss), Net of Tax (Note H) (4,030) (2,203) Treasury Stock (382,900 shares for both years)(Note A) (13,436) (13,436) ---------- --------- Total Shareholders' Equity 163,062 145,813 ---------- --------- Total Liabilities and Shareholders' Equity $ 223,809 $ 221,514 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 25 CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts) 2001 2000 1999 ---------- ---------- ---------- Net Sales $ 216,037 $ 248,215 $ 247,839 Cost of Sales 149,179 165,710 175,964 Selling and Administrative Expenses 39,247 40,529 36,735 Acquistion/Restructuring Costs (Notes I & K) 1,995 -- -- Research and Development Expenses 12,570 12,493 10,791 ---------- -------- -------- Total Costs and Expenses 202,991 218,732 223,490 ---------- -------- -------- Operating Income 13,046 29,483 24,349 Other Income less Other Charges 7,953 7,838 1,626 Interest Income (Expense), Net (20) 313 (98) ---------- --------- -------- Income Before Income Taxes 20,979 37,634 25,877 Income Taxes 5,245 10,914 7,246 ---------- --------- -------- Net Income $ 15,734 $ 26,720 $ 18,631 ========== ========= ======== Net Income Per Share (Notes A & H): Basic $ 1.03 $ 1.79 $ 1.24 ---------- --------- -------- Diluted $ .98 $ 1.69 $ 1.19 ---------- --------- -------- Shares Used in Computing (Notes A & H): Basic 15,274,479 14,896,227 15,055,034 ---------- ---------- ---------- Diluted 16,001,965 15,848,736 15,642,844 ---------- ---------- ---------- The accompanying notes are an integral part of the consolidated financial statements. 26 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands, Accumulated Except Other Com- Capital Additional prehensive Share- Stock Capital Paid-In Retained Income Treasury holders' Amounts) Stock Capital Earnings (Loss) Stock Equity ---------------------------------------------------------- Balance at January 3, 1999 $15,248,132 $ 25,705 $ 68,353 $ 1,348 $ (423) $110,231 ---------------------------------------------------------- Comprehensive Income: Net Income for 1999 18,631 18,631 Other Comprehensive Income (Loss) (910) (910) ----------- Total Comprehensive Income 17,721 Stock Options Exercised 171,778 781 953 Stock Issued to Directors 15,468 283 299 Shares Reacquired and Cancelled (17,726) (206) (224) Tax Benefit on Stock Options Exercised 450 450 Treasury Stock Acquisitions (370,100 Shares) (13,013) (13,013) Stock Split Impact on Treasury Stock (370,100) 370 ---------------------------------------------------------- Balance at January 2, 2000 $15,047,552 $ 27,383 $ 86,984 $ 438 $(13,436) $116,417 ---------------------------------------------------------- Comprehensive Income: Net Income for 2000 26,720 26,720 Other Comprehensive Income(Loss) (2,641) (2,641) -------- Total Comprehensive Income 24,079 Stock Options Exercised 513,511 3,120 3,633 Stock Issued to Directors 12,993 1,000 1,013 Shares Reacquired and Cancelled (88,486) (2,848) (2,936) Tax Benefit on Stock Options Exercised 3,607 3,607 ---------------------------------------------------------- Balance at December 31, 2000 $15,485,570 $ 32,262 $113,704 $(2,203) $(13,436)$145,813 ---------------------------------------------------------- Comprehensive Income: Net Income for 2001 15,734 15,734 Other Comprehensive Income(Loss) (1,827) (1,827) ------- Total Comprehensive Income 13,907 Stock Options Exercised 307,051 2,519 2,826 Stock Issued to Directors 11,571 459 470 Shares Reacquired and Cancelled (65,008) (2,032) (2,097) Tax Benefit on Stock Options Exercised 2,143 2,143 ---------------------------------------------------------- Balance at December 30, 2001 $15,739,184 $ 35,351 $129,438 $(4,030) $(13,436) $163,062 ========================================================== The number of shares is equal to the dollar amount of the capital stock ($1 par value). The accompanying notes are an integral part of the consolidated financial statements. 27 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: 2001 2000 1999 ------------------------------------------- Net Income $ 15,734 $ 26,720 $ 18,631 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation and Amortization 13,712 12,507 10,375 (Benefit) Expense for Deferred Income Taxes (395) 3,299 (577) Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (3,123) (5,945) (1,897) (Gain) Loss on Disposition of Assets (103) 546 304 Noncurrent Pension and Postretirement Benefits 1,489 1,215 441 Other, Net (584) 376 247 Changes in Operating Assets and Liabilities Excluding Effects of Acquisition and Disposition of Assets: Accounts Receivable 13,158 (11,946) 264 Inventories 4,771 (7,465) (1,261) Prepaid Expenses 14 (436) (233) Accounts Payable and Accrued Expenses (5,658) 4,843 6,203 ------------------------------------------ Net Cash Provided by Operating Activities 39,015 23,714 32,497 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Capital Expenditures (18,032) (22,744) (13,621) Acquisition of Businesses (2,000) (252) (4,302) Proceeds from Sale of Property, Plant and Equipment 225 83 118 Proceeds from Sale of Marketable Securities -- -- 256 Investment in Unconsolidated Joint Ventures and Affiliates (1,417) (1,592) 737 ------------------------------------------ Net Cash Used in Investing Activities (21,224) (24,505) (16,812) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds (Repayments) from Short- and Long-Term Borrowings 1,830 296 (16) Repayments of Debt Principal (9,733) -- (3,369) Acquisition of Treasury Stock -- -- (13,013) Proceeds from Sale of Capital Stock - Net 729 697 729 ------------------------------------------ Net Cash Provided by (Used in) Financing Activities (7,174) 993 (15,669) Effect of Exchange Rate Changes on Cash 174 (57) 346 ------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents 10,791 145 362 Cash and Cash Equivalents at Beginning of Year 10,100 9,955 9,593 ------------------------------------------ Cash and Cash Equivalents at End of Year $ 20,891 $ 10,100 $ 9,955 ========================================== The accompanying notes are an integral part of the consolidated financial statements. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A-ACCOUNTING POLICIES ORGANIZATION: Rogers Corporation manufactures specialty materials, which are sold to targeted markets around the world. These specialty materials are grouped into three distinct business segments (see Note J). High Performance Foams include urethane foams and silicone materials. These foams are sold principally to manufacturers in the communications, computer, imaging, transportation, and consumer markets. Printed Circuit Materials include circuit board laminates for high frequency printed circuits, flexible circuit board laminates for flexible interconnections, and industrial laminates for shielding of radio and electromagnetic interference. Printed Circuit Materials are sold principally to printed circuit board manufacturers and equipment manufacturers for applications in the computer, communications, and consumer markets. Polymer Materials and Components are composed of elastomer components, moldable composite materials, nitrophyl floats, nonwoven materials, and bus bars for power distribution. Polymer Materials and Components are sold principally to the imaging, transportation, consumer and communications 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: Highly liquid investments with original maturities of three months or less are considered cash equivilents. These investments are stated at cost, which approximates market value. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES: The Company accounts for its investments in and advances to unconsolidated joint ventures, all 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. INVENTORIES: Inventories are valued at the lower of cost or market. Certain inventories, amounting to $8,720,000 at December 30, 2001, and $11,095,000 at December 31, 2000, or 34% and 36% 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 20 -- 45 Building improvements 10 -- 25 Machinery and equipment 5 -- 15 Office equipment 3 -- 10 29 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 $765,000 in 2001 and $851,000 in 2000. 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. When events and circumstances so indicate, all long-lived assets are assessed for recoverability based upon cash flow forecasts. Based on its most recent analysis, the Company believes that no material impairment of intangible assets or long-lived assets exists at December 30, 2001. 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. NET INCOME PER SHARE: The following table sets forth the computation of basic and diluted earnings per share: (Dollars in Thousands, Except Per Share Amounts) 2001 2000 1999 -------------------------------------------- Numerator: Net income $ 15,734 $ 26,720 $ 18,631 Denominator: Denominator for basic earnings per share weighted-average shares 15,274,479 14,896,227 15,055,034 Effect of stock options 727,486 952,509 587,810 -------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 16,001,965 15,848,736 15,642,844 ============================================ Basic earnings per share $ 1.03 $ 1.79 $ 1.24 ============================================ Diluted earnings per share $ .98 $ 1.69 $ 1.19 ============================================ STOCK SPLIT: To help widen the distribution and enhance the marketability of the Company's capital stock, the Board of Directors effected a two-for-one stock split in the form of a 100% stock dividend on May 12, 2000. Treasury Stock was not doubled. All references in the financial statements to the number of shares and per share amounts have been restated to reflect the increased number of capital shares outstanding. 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. ADVERTISING COSTS: Advertising is expensed as incurred and amounted to $1,694,000, $2,128,000, and $1,901,000 for 2001, 2000 and 1999, respectively. 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 regular authorization was approved on August 17, 2000 and provided for the repurchase of up to an aggregate of $2,000,000 in market value of such stock. On October 24, 2001, the Company's Board of Directors authorized, at management's discretion, the repurchase of shares of the Company's capital stock in order to provide participants in the Rogers Corporation Global Stock Ownership Plan For Employees (see Note H), an employee stock purchase plan, with shares of such stock. This is just one of the ways shares can be provided to plan participants. At year-end, neither authorization had been used to repurchase stock. Treasury Stock totals 382,900 shares and is shown at cost on the balance sheet as a reduction of Shareholders' Equity. 30 RECLASSIFICATIONS: Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 presentation. NEW ACCOUNTING STANDARDS: In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The Company will apply Statements 141 and 142 beginning in the first quarter of 2002. Application of the nonamortization provisions of Statement 142 is expected to result in an increase in net income of $331,000 in 2002. The Company does not expect any impairment of intangible assets upon the adoption of Statement 142. NOTE B-PROPERTY, PLANT AND EQUIPMENT December 30, December 31, (Dollars in Thousands) 2001 2000 ---------- ----------- Land $ 5,265 $ 5,709 Buildings and improvements 60,839 58,118 Machinery and equipment 94,484 89,711 Office equipment 16,209 15,442 Installations in process 11,672 3,538 ---------- ---------- 188,469 172,518 Accumulated depreciation (90,015) (78,319) ---------- ---------- $ 98,454 94,199 ========== ========== Depreciation expense was $12,947,000 in 2001, $11,656,000 in 2000, and $9,750,000 in 1999. Interest costs incurred during the years 2001, 2000, and 1999 were $1,070,000, $1,080,000, and $1,423,000, respectively, of which $57,000 in 2001, $457,000 in 2000, and $506,000 in 1999 were capitalized as part of the cost of plant and equipment additions. NOTE C-SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT VENTURES AND RELATED PARTY TRANSACTIONS The Company has four joint ventures, each 50% owned, which are accounted for by the equity method. Equity income of $3,123,000, $5,945,000 and $1,897,000 for 2001, 2000 and 1999, respectively, is included in other income less other charges on the consolidated statements of income. Each of the joint ventures is described below: Fiscal Joint Venture Location Business Segment Year-End - ------------------------------------------------------------------------------ Durel Corporation U.S. Polymer Materials and Components December 31 Rogers Inoac Corporation Japan High Performance Foams (RIC) /Polymer Materials and Components October 31 Polyimide Laminate Systems, LLC (PLS) U.S. Printed Circuit Materials December 31 Rogers Chang Chun Technology Co. Ltd. Taiwan Printed Circuit (RCCT) Materials December 31 Fiscal The summarized financial information for these joint ventures is included in the following tables. 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. 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. December 30, December 31, (Dollars in Thousands) 2001 2000 ----------- ---------- Current Assets $ 39,843 $ 48,808 Noncurrent Assets 33,213 26,312 Current Liabilities 25,309 32,403 Noncurrent Liabilities 11,344 14,646 Shareholders' Equity 36,403 28,071 Year Ended ----------------------------------------------- December 30, December 31, January 2, (Dollars in Thousands) 2001 2000 2000 ----------------------------------------------- Net Sales $ 121,763 $ 138,006 $ 73,411 Gross Profit 33,050 39,809 20,909 Net Income 5,928 11,608 4,049 Other Information: (Dollars in Thousands) 2001 2000 1999 -------------------------------------- Commissions Income from PLS $3,811 $3,430 $ -- 50% Loan Guarantee for Durel Corporation 3,877 4,286 4,636 Loan to Durel Corporation 5,000 6,500 500 The Company believes that Durel Corporation, which has a 50% loan guarantee will be able to meet its obligations under the financing arrangement and accordingly no payments will be required and no losses will be incurred under this guarantee by the Company. Terms for the loan to Durel Corporation: Borrowings must be made in increments of $250,000, may not exceed $8,000,000 in the aggregate, will be at the prime rate of interest, and any amounts repaid by Durel may subsequently be re-borrowed during the term of the loan arrangement. The arrangement expires in September of 2002, unless extended at the sole discretion of the Company. Sales made to unconsolidated joint ventures were immaterial in all years presented above. NOTE D-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: 32 Other Pension Benefits Postretirement Benefits (Dollars ---------------------------------------------------------- in Thousands) 2001 2000 1999 2001 2000 1999 ---------------------------------------------------------- Components of net periodic benefits cost: Service cost $ 2,120 $ 1,641 $ 1,853 $ 282 $ 228 $ 218 Interest cost 4,897 4,643 4,257 359 331 264 Expected return on plan assets (5,819) (5,644) (5,359) -- -- -- Amortizations and deferrals 509 485 524 (92) (117) (152) Amortization of transition asset (199) (352) (335) -- -- -- ---------------------------------------------------------- Net periodic benefit costs $ 1,508 $ 773 $ 940 $ 549 $ 442 $ 330 ========================================================== Change in plan assets: Fair value of plan assets January 1 $63,304 $61,383 $58,211 $ -- $ -- $ -- Actual return on plan assets 4,943 4,724 5,760 -- -- -- Employer contributions 381 356 268 486 518 632 Benefit payments (3,468) (3,160) (2,856) (486) (518) (632) --------------------------------------------------------- Fair value of plan assets December 31 $65,160 $63,303 $61,383 $ -- $ -- $ -- ========================================================== Change in benefit obligation: Benefit obligation at January 1 $66,867 $56,555 $63,548 $ 4,332 $ 3,395 $ 5,288 Service cost 2,120 1,641 1,853 282 228 218 Interest cost 4,897 4,643 4,257 359 332 264 Actuarial losses (gains) 2,483 5,271 (10,247) 1,167 895 (1,743) Benefit payments (3,468) (3,160) (2,856) (486) (518) (632) Plan amendments 1,189 1,917 -- -- -- -- ---------------------------------------------------------- Benefit obligation at December 31 $74,088 $66,867 $56,555 $ 5,654 $ 4,332 $ 3,395 ========================================================== Reconciliation of funded status: Funded status $(8,929) (3,564) $ 4,828 $(5,654) $(4,332) $(3,395) Unrecognized net gain/(loss) 4,506 1,304 (4,888) (899) (2,158) (3,171) Unrecognized prior service cost 3,848 3,168 1,736 -- -- -- Unrecognized transition asset (670) (1,025) (1,376) -- -- -- ----------------------------------------------------------- Prepaid/(accrued) benefit cost at December 31 $(1,245) $ (117) $ 300 $(6,553) $(6,490) $(6,566) =========================================================== Amounts recognized in the Balance Sheet consist of: Prepaid benefit cost $ 2,752 $ 3,638 $ 4,223 $ -- $ -- $ -- Accrued benefit liability (12,235) (9,538) (4,157) (6,553) (6,490) (6,566) Intangible asset 3,556 2,769 83 -- -- -- Deferred tax asset 1,779 1,145 -- -- -- -- Accumulated other comprehensive income 2,903 1,869 151 -- -- -- ----------------------------------------------------------- Net amount recognized at December 31 $(1,245) $ (117) $ 300 $(6,553) $(6,490) $(6,566) =========================================================== In accordance with FASB Statement No. 87, the Company has recorded an additional minimum pension liability for underfunded plans of $8,238,000 and $5,783,000 for 2001 and 2000, respectively, representing the excess of unfunded accumulated benefit obligations over previously recorded pension liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net transition obligation, in which case the increase in liabilities is charged directly to shareholders' equity, net of taxes. Other Pension Benefits Postretirement Benefits --------------------------------------------- Assumptions as of December 31: 2001 2000 2001 2000 --------------------------------------------- Discount rate 7.25% 7.50% 7.25% 7.50% Rate of compensation increase 4.00% 4.00% -- -- 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. 33 The Company has two pension plans with accumulated benefit obligations in excess of plan assets in both 2001 and 2000. Amounts applicable are: (Dollars in Thousands) 2001 2000 --------------------------- Projected benefit obligation $18,240 $15,649 Accumulated benefit obligation 17,831 15,427 Fair value of plan assets 11,888 12,667 OTHER POSTRETIREMENT BENEFITS: The assumed health care cost trend rate of increase was 4.5% for 2000 - 2001 and it was increased to 9.5% for 2002. The rate was assumed to decrease gradually to 5.0% for 2008 and remain at that level thereafter. 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 2002 by $276,000 and the aggregate of service cost and interest cost components of net periodic postretirement benefit cost for fiscal 2001 by $61,000; decreasing the assumed rates by one percentage point would decrease the accumulated postretirement benefit obligation at the beginning of 2002 by $260,000 and the aggregate of service cost and interest cost components of net periodic postretirement benefit cost for fiscal 2001 by $55,000. NOTE E-EMPLOYEE SAVINGS AND INVESTMENT PLAN The Company sponsors the Rogers Employee Savings and Investment Plan (RESIP) for domestic employees. The plan allows such employees to contribute up to 18% of their compensation through payroll deductions. Currently up to 5% of an eligible employee's annual pre-tax contribution is matched at a rate of 50% by the Company. In 2001 and 2000, 100% of the Company's matching contribution was invested in Company stock. RESIP related expense amounted to $934,000 in 2001, $859,000 in 2000, and $723,000 in 1999, including Company matching contributions of $903,000, $813,000, and $703,000, respectively. NOTE F-DEBT LONG-TERM DEBT: The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $75,000,000, or the equivalent in certain other foreign currencies. Amounts borrowed under this agreement are to be paid in full by December 8, 2005. 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 50 to 112.5 basis points over a Eurocurrency loan rate. The spreads over the Eurocurrency rate are based on the Company's leverage ratio. Under the arrangement, the ongoing commitment fee varies from 30.0 to 37.5 basis points of the maximum amount that can be borrowed, net of any outstanding borrowings and the maximum amount that beneficiaries may draw under outstanding letters of credit. There were no borrowings pursuant to this arrangement at December 30, 2001. The loan agreement contains restrictive covenants primarily related to total indebtedness, interest expense, capital expenditures and net worth. The Company is in compliance with these covenants. The Company had designated 390,200,000 million Belgian francs as a hedge of its net investment in a foreign subsidiary in Belgium ($9,100,000 at December 31, 2000). On July 6, 2001, the Company repaid the debt at the then current Belgian franc rate, amounting to $8,200,000 million. During the years 2001 and 2000, the Company recorded $900,000 and $600,000, respectively, of net gains related to the hedge in other comprehensive income. In September 2001, Rogers NV, a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. Under this arrangement Rogers NV now can borrow up to 6,200,000 Euro. Amounts borrowed under this agreement are to be repaid in full by May 1, 2005. The rate of interest charged on outstanding loans is based on the Euribor plus 25 basis points. At December 30, 2001, Rogers NV had borrowings of 1,487,361 Euro ($1,315,000) under this agreement. INTEREST PAID: Interest paid during the years 2001, 2000, and 1999, was $1,050,000, $1,132,000, and $1,523,000, respectively. 34 RESTRICTION ON PAYMENT OF DIVIDENDS: Pursuant to the multi-currency revolving credit loan agreement, the Company cannot make a cash dividend payment if a default or event of default has occurred and is continuing or shall result from the cash dividend payment. NOTE G-INCOME TAXES Consolidated income before income taxes consists of: (Dollars in Thousands) 2001 2000 1999 ----------------------------- Domestic $13,144 $30,263 $21,523 International 7,835 7,371 4,354 ----------------------------- $20,979 $37,634 $25,877 ============================= The income tax expense (benefit) in the consolidated statements of income consists of: (Dollars in Thousands) Current Deferred Total ------------------------------------ 2001: Federal $ 3,029 $ (1,093) $ 1,936 International 1,951 1,533 3,484 State 26 (201) (175) ------------------------------------ $ 5,006 $ 239 $ 5,245 ==================================== 2000: Federal $ 5,050 $ 2,507 $ 7,557 International 2,665 299 2,964 State (100) 493 393 ------------------------------------ $ 7,615 $ 3,299 $ 10,914 ==================================== 1999: Federal $ 6,365 $ (1,074) $ 5,291 International 1,338 408 1,746 State 120 89 209 ------------------------------------ $ 7,823 $ (577) $ 7,246 ==================================== Deferred tax assets and liabilities as of December 30, 2001 and December 31, 2000, respectively, are comprised of the following: (Dollars in Thousands) December 30, December 31, 2001 2000 ------------ ------------ Deferred tax assets: Accruals not currently deductible for tax purposes: Accrued employee benefits and compensation $ 4,655 $ 3,610 Accrued postretirement benefits 2,021 1,964 Other accrued liabilities and reserves 2,699 2,553 Tax credit carry-forwards 3,232 654 -------------------------------- Total deferred tax assets 12,607 8,781 Less deferred tax asset valuation allowance 384 759 -------------------------------- Net deferred tax assets 12,223 8,022 -------------------------------- Deferred tax liabilities: Depreciation and amortization 14,141 11,287 Investments in joint ventures, net 1,064 235 Other 129 126 -------------------------------- Total deferred tax liabilities 15,334 11,648 -------------------------------- Net deferred tax liability $(3,111) $(3,626) ================================ Deferred taxes are classified on the consolidated balance sheet at December 30, 2001 and December 31, 2000 as a net short-term deferred tax asset of $5,041,000 and $5,000,000, respectively, and a net long-term deferred tax liability of $8,152,000 and $8,626,000, respectively. 35 Income tax expense differs from the amount computed by applying the United States Federal statutory income tax rate to income before income tax expense. The reasons for this difference are as follows: (Dollars in Thousands) 2001 2000 1999 -------------------------------- Tax expense at Federal statutory income tax rate $ 7,342 $13,172 $ 9,056 Net U.S. tax (foreign tax credit) on foreign earnings (1,058) (799) 1,552 General business credits (400) (537) (446) Nontaxable foreign sales company income (1,213) (861) (424) State income taxes, net of Federal benefit 102 256 136 Valuation allowance (375) (294) (2,274) Other 847 (23) (354) --------------------------------- Income tax expense $ 5,245 $10,914 $ 7,246 ================================= The tax credit carry-forwards consist of general business credits of $1,145,000 that begin to expire in 2016, foreign tax credits of $1,355,000 that begin to expire in 2007, and alternative minimum tax credits of $732,000 that have no expiration date. The deferred tax asset valuation allowance decreased by $375,000 and $294,000 during 2001 and 2000, respectively. The decreases resulted primarily from the Company's utilization of foreign tax credits on undistributed profits from its Japanese joint venture. The deferred tax asset valuation allowance decreased for the same reason by $2,274,000 during 1999. Undistributed foreign earnings, on which United States income tax had not been provided, before available tax credits and deductions, amounted to $19,569,000 at December 30, 2001, $15,429,000 at December 31, 2000, and $10,956,000 at January 2, 2000. Income taxes paid were $2,918,000, $3,598,000, and $4,795,000, in 2001, 2000, and 1999, respectively. NOTE H-SHAREHOLDERS' EQUITY AND STOCK OPTIONS Components of Other Comprehensive Income (Loss) consist of the following: (Dollars in Thousands) 2001 2000 1999 ----------------------------------- Foreign currency translation adjustments $ (793) $ (923) $ (683) Change in unrealized gains on marketable securities -- -- 2 Change in minimum pension liability, net of $634 and $1,053 in taxes in 2001 and 2000 (1,034) (1,718) (299) ------------------------------------ Other comprehensive income (loss) $(1,827) $(2,641) $ (910) ==================================== Accumulated balances related to each component of Other Comprehensive Income (Loss) are as follows: (Dollars in Thousands) December 30, December 31, 2001 2000 --------------------------------- Foreign currency translation adjustments $(1,127) $ (334) Minimum pension liability, net of $1,779 and $1,145 in taxes in 2001 and 2000 (2,903) (1,869) --------------------------------- Accumulated balance $(4,030) $(2,203) ================================= Under various plans the Company may grant stock options to officers and other key employees at exercise prices that range as low as 50% of the fair market value of the Company's stock as of the date of grant. To date virtually all such options have been granted at an exercise price equal to the fair market value of the Company's stock as of the date of grant. In general, regular employee options become exercisable over a four-year period from the grant date and expire ten years after the date of grant. Stock option grants are also made to non-employee directors, generally on a semi-annual basis. For such stock options, the exercise price is equal to the fair market value of the Company's stock and they are immediately exercisable and expire ten years after the date of grant. Stock grants in lieu of cash compensation are also made to non-employee directors. 36 Shares of capital stock reserved for possible future issuance are as follows: December 30, December 31, 2000 2001 ----------------------------------- Shareholder Rights Plan 20,385,363 19,949,400 Stock options 3,824,145 4,141,519 Rogers Employee Savings and Investment Plan 169,044 169,044 Rogers Corporation Global Stock Ownership Plan For Employees 500,000 -- Long-Term Enhancement Plan 115,308 119,625 Stock to be issued in lieu of deferred compensation 37,682 33,642 ----------------------------------- Total 25,031,542 24,413,230 =================================== 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 2001, 2000, and 1999 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) 2001 2000 1999 ----------------------------------------------- Net income As Reported $15,734 $26,720 $18,631 Pro Forma 12,769 24,234 17,207 ----------------------------------------------- Basic earnings per share As Reported $ 1.03 $ 1.79 $ 1.24 Pro Forma .84 1.63 1.15 ----------------------------------------------- Diluted earnings per share As Reported $ .98 $ 1.69 $ 1.19 Pro Forma .80 1.62 1.11 ----------------------------------------------- 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 in 2001, 2000, and 1999. Regular options granted to officers and other key employees usually become exercisable in one-third increments beginning on the second anniversary of the grant date. 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: 2001 2000 1999 ------------------------------ Risk-free interest rate 4.67% 5.14% 6.42% Dividend yield 0% 0% 0% Volatility factor 33.6% 33.2% 30.6% Weighted-average expected life 6.1 years 6.1 years 5.8 years A summary of the status of the Company's stock option program at year-end 2001, 2000, and 1999, and changes during the years ended on those dates is presented below: 2001 2000 1999 -------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Stock Options Shares Price Shares Price Shares Price ------------------------------------------------------------- Outstanding at beginning of year 2,357,214 $17.12 2,518,850 $12.00 2,380,646 $10.91 Granted 270,809 33.24 429,479 32.56 356,320 17.69 Exercised (307,051) 9.19 (513,511) 6.94 (171,778) 6.03 Cancelled (6,151) 22.84 (77,604) 5.12 (46,338) 19.77 ------------------------------------------------------------- Outstanding at end of year 2,314,821 $20.04 2,357,214 $17.12 2,518,850 $12.00 ============================================================= Options exercisable at end of year 1,668,843 1,496,710 1,864,032 ============================================================= Weighted-average fair value of options granted during year $13.97 $13.97 $ 7.31 ============================================================= 38 The following table summarizes information about stock options outstanding at December 30, 2001: Options Outstanding Options Exercisable Weighted- Average Weighted- Weighted- Number Remaining Average Number Average Range of Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/30/01 Life in Years Price at 12/30/01 Price - ------------------------------------------------------------------------------ $3 to $11 241,950 2.4 $ 7.86 241,950 $ 7.86 $12 to $28 1,441,433 6.1 $15.92 1,196,028 $15.89 $29 to $43 631,438 9.1 $34.11 230,865 $34.02 ------------------------------------------------------------ $3 to $43 2,314,821 6.5 $20.04 1,668,843 $17.23 ============================================================ In 2001, shareholders approved the Rogers Corporation Global Stock Ownership Plan For Employees, an employee stock purchase plan. The plan provides for the issuance of up to 500,000 shares of Company stock. Shares may be purchased by participating employees through payroll deductions that are made during prescribed offering periods with the actual purchases made at the end of each offering period. Currently, shares may be purchased at 85% of the stock's closing price at the beginning or end of each offering period, whichever is lower and other rules have been established for participation in the plan. NOTE I-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 $1,320,000 in 2001, $1,084,000 in 2000, and $1,076,000 in 1999. Future minimum lease payments under noncancellable operating leases at December 30, 2001, aggregate $3,347,000. Of this amount, annual minimum payments are $1,028,000, $868,000, $485,000, $384,000, and $326,000 for years 2002 through 2006, respectively. CONTINGENCIES: 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 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 these matters. In the past, when 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 completed clean-up efforts in 2000, monitored the site in 2001, and will continue to monitor the site for the next two years. On the basis of estimates prepared by environmental engineers and consultants, the Company recorded a provision of $2,200,000 prior to 1999 and based on updated estimates provided an additional $400,000 in 1999 for costs related to this matter. Prior to 1999, $900,000 was charged against this provision. In 1999, 2000, and 2001 expenses of $400,000, $900,000, and $100,000 were charged, respectively, against the provision. The remaining amount in the reserve is primarily for testing, monitoring, sampling and any minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. 38 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 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 as the Company intends to vigorously resist any future attempts by the government to impose a substantial fine. 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. On October 23, 2001, the Company terminated the acquisition agreement. On October 24, 2001, a breach of contract lawsuit was filed 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 (Tonoga, Ltd., d/b/a Taconic Plastics Ltd., Tonoga, Inc., Andrew G. Russell, and James M. Russell v. Rogers Corporation). The complaint alleges that the Company breached its agreement to purchase Taconic's Advanced Dielectric Division. The Company believes that several conditions precedent to a closing contained in the relevant agreement were not satisfied by Taconic, and that the litigation is without merit. The Company intends to vigorously defend the lawsuit. 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 that 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 J-BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company's eight business units and four 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 three reportable segments: High Performance Foams, Printed Circuit Materials, and Polymer Materials and Components. Certain reclassifications were made in 2000 to reflect the way that the business segments are viewed by top management and the Board of Directors. The prior year information presented has been restated to reflect these reclassifications. High Performance Foams: This segment consists of two business units and 50% of one joint venture. The products produced by these operations consist primarily of high-performance urethane and silicone foams that are designed to perform to predetermined specifications where combinations of properties are needed to satisfy rigorous mechanical and environmental requirements. These materials are sold worldwide and for the most part are sold to fabricators and original equipment manufacturers. Printed Circuit Materials: There are two business units and two joint ventures in this segment. Laminate materials used in electronics equipment for transmitting, receiving, and controlling electrical signals are the products produced by these operations. 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 in analog, digital, and microwave equipment. These materials are fabricated, coated and/or customized as necessary to meet customer demands and are sold worldwide. 39 Polymer Materials and Components: This segment is comprised of four business units, one joint venture and 50% of another joint venture. The products produced by these operations consist primarily of molded elastomer components, reinforced plastics, power distribution components and nonwoven materials. These products have been engineered to provide special performance characteristics to suit a wide range of markets and applications. These products are sold worldwide to a varied customer base. 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 manufacturing 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, through distributors and agents, and through its 50% owned joint ventures in Asia. In 2001, approximately 57% of total sales were to the electronics industry. Approximately 34% 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 17%, sales to Asia of 15%, and sales to Canada of 1%. At December 30, 2001, the electronics industry accounted for approximately 63% of the total accounts receivable due from customers. Accounts receivable due from customers located within the United States accounted for 71% of the total accounts receivable owed to the Company at the end of 2001. 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 (Dollars in Thousands) High Printed Polymer Performance Circuit Materials and Foams Materials * Components Total -------------------------------------------------------- 2001: Net sales $ 49,745 $ 88,342 $ 77,950 $ 216,037 Operating income 4,583 6,170 2,293 13,046 Total assets 44,908 101,539 77,362 223,809 Capital expenditures 955 15,242 1,835 18,032 Depreciation 2,165 6,152 4,630 12,947 Joint venture equity income (loss) 1,557 (428) 1,994 3,123 ======================================================== 2000: Net sales $ 58,877 $ 100,701 $ 88,637 $ 248,215 Operating income 11,191 12,189 6,103 29,483 Total assets 44,171 93,809 83,534 221,514 Capital expenditures 1,185 15,122 6,437 22,744 Depreciation 2,106 5,306 4,244 11,656 Joint venture equity income 994 -- 4,951 5,945 ======================================================== 1999: Net sales $ 51,364 $ 105,897 $ 90,578 $ 247,839 Operating income 7,758 7,468 9,123 24,349 Total assets 44,418 73,979 65,009 183,406 Capital expenditures 1,508 5,459 6,654 13,621 Depreciation 1,869 4,136 3,745 9,750 Joint venture equity income 342 -- 1,555 1,897 ======================================================== * Beginning in January 2000, sales of a specialty flexible circuit board laminate sold to Hutchinson Technology, Inc. (HTI) are reported in the Polyimide Laminate Systems, LLC joint venture. Sales of $30,700,000 in 1999 were included in net sales in the Printed Circuit Materials business segment. 40 Information relating to the Company's operations by geographic area is as follows: Europe United (primarily (Dollars in Thousands) States Belgium) Total ---------------------------------------------- 2001: Net sales $ 170,124 $ 45,913 $ 216,037 Long-lived assets 90,129 26,340 116,469 ============================================== 2000: Net sales $ 197,954 $ 50,261 $ 248,215 Long-lived assets 91,333 19,347 110,680 ============================================== 1999: Net sales $ 202,505 $ 45,334 $ 247,839 Long-lived assets 83,258 18,084 101,342 ============================================== 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 $23,691,000 at December 30, 2001, and $19,698,000 at December 31, 2000. Net income of these foreign subsidiaries was $4,819,000 in 2001, $4,399,000 in 2000, and $2,600,000 in 1999, including net currency transaction gains (losses) of $117,000 in 2001, $61,000 in 2000, and $(51,000) in 1999. NOTE K - RESTRUCTURING COSTS In the second quarter of 2001, the Company incurred a restructuring charge in the amount of $500,000. This amount primarily consists of $300,000 in severance benefits for the termination of 19 employees in the Printed Circuit Materials segment and $200,000 in costs associated with the merging of two business units within the segment. All 19 of these employees were terminated during the second quarter. The balance in the accrual at December 30, 2001 was $25,000. NOTE L - SUBSEQUENT EVENTS As of December 31, 2001 (fiscal year 2002), the Company acquired certain assets of the high performance foam business of Cellect LLC for approximately $10,000,000 in cash, plus a potential earn out in five years based upon performance. These assets included intellectual property rights, machinery and equipment, inventory, and customer lists for portions of the Cellect plastomeric and elastomeric high performance polyolefin foam business. The acquisition will be accounted for as a purchase; accordingly, the purchase price will be allocated to the underlying assets based on their respective fair values at the date of acquisition. Other assets at December 30, 2001 included a $2,000,000 advance payment relating to this acquisition. 41 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 December 30, 2001 and December 31, 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended December 30, 2001. 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 auditing standards generally accepted in the United States. 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 December 30, 2001 and December 31, 2000, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2001, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Providence, Rhode Island February 1, 2002 -----END PRIVACY-ENHANCED MESSAGE-----