-----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, U5dFQSYl3cw8BOeenYJgZSy0Fo0FJPDjJhkFWYETjqKzLcDBm89S73mLBhJ1iBEV FjFmwBVj1Mg2OXbGCJ0h3w== 0001157523-04-002303.txt : 20040312 0001157523-04-002303.hdr.sgml : 20040312 20040312144031 ACCESSION NUMBER: 0001157523-04-002303 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20040311 FILED AS OF DATE: 20040312 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: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04347 FILM NUMBER: 04665718 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 a4592426.txt ROGERS CORPORATION 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 28, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-4347 ROGERS CORPORATION [Exact name of Registrant as specified in its charter] Massachusetts 06-0513860 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes X No The aggregate market value of the voting common equity held by non-affiliates of the Registrant as of Rogers' most recently completed second fiscal quarter, June 29, 2003, was approximately $516,832,034. Rogers has no non-voting common equity. The number of shares of Capital Stock, $1 par value, outstanding as of February 28, 2004 was 16,495,072. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's annual report to shareholders for the fiscal year ended December 28, 2003 are incorporated by reference into Parts I and II. Portions of the proxy statement for the Registrant's 2004 annual meeting of stockholders to be held April 29, 2004, are incorporated by reference into Part III. TABLE OF CONTENTS PART I Item Page 1. Business 1 2. Properties 6 3. Legal Proceedings 6 4. Submission of Matters to a Vote of Security Holders 7 PART II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 8 6. Selected Financial Data 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 9a. Controls and Procedures 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 and Related Stockholder Matters 9 13. Certain Relationships and Related Transactions 9 14. Principal Accountant Fees and Services 9 PART IV 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10 SIGNATURES Signatures 14 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 17 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 20 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 its materials based businesses, which include printed circuit materials, high performance foams, and polymer materials and components. The Company divested most of its electronic components related businesses and 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. 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, high performance foams, and polymer materials and components. An increasingly large percentage of these materials are going into growing 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 54-55 of the annual report to shareholders for the year ended December 28, 2003, 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, silicone foams, and polyolefin 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; PORON cushion insole materials for footwear and related products; PORON healthcare and medical materials for body cushioning and orthotic appliances; BISCO(R) 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 plates for printing on packaging materials. The Company's polyolefin foams are used in a range of industrial and consumer applications. One of the Company's joint ventures extends and complements the Company's worldwide business in High Performance Foams. Rogers Inoac Corporation ("RIC"), a joint venture with Japan-based Inoac Corporation, manufactures high performance PORON urethane foam materials in Mie and Nagoya, Japan. 1 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 other 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), RO2800(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 and laptop computers, portable electronic devices, and hard disk drives. The performance characteristics of R/flex materials differentiate these laminates from commonly available flexible circuit 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 mostly to telecommunications and data communication cable manufacturers for shielding electromagnetic and radio frequency interference, and to automotive component manufacturers for making flat, etched-foil heaters. The adhesiveless flexible circuit materials that the Company sold to Hutchinson Technology Incorporated ("HTI"), for making trace suspension assemblies in magneto resistive hard disk drives, are called SSLAM materials. SSLAM materials are manufactured by Mitsui Chemicals, Inc. of Japan. 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. Rogers Chang Chun Technology, Co., Ltd. ("RCCT"), the Company's joint venture with Chang Chun Plastics, Co., Ltd., which was established in late 2001 to manufacture flexible circuit material for customers in Taiwan, saw its first sales in 2002 and continued to grow in 2003 as RCCT had significant application wins in late 2003 in the Taiwan market that the Company expects will drive additional sales in fiscal 2004. The Company also plans to utilize this facility to alleviate some of the manufacturing capacity constraints it has experienced due to the overall increase in the Company's business. POLYMER MATERIALS AND COMPONENTS Polymer Materials and Components include high performance elastomer components, composite materials, power distribution busbars, electroluminescent lamps and inverters. 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 those of its competitors' and from other commonly available products. Elastomer components are sold to original equipment manufacturers for applications in transportation, communications, imaging, computer, consumer and other markets. Trade names for the Company's elastomer components include: NITROPHYL(R) floats for fill level sensing in fuel tanks, motors, and storage tanks; and ENDUR(R) elastomer rollers and belts for document handling in copiers, computer printers, mail sorting machines and automated teller machines. 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. 2 The Company's nonwoven composite materials are manufactured for medical padding, industrial pre-filtration applications, and as consumable supplies in the lithographic printing industry. In the fourth quarter of 2003, the Company acquired the remaining interest in its former joint venture, Durel Corporation, from 3M. Durel manufactures DUREL(R) electroluminescent lamps ("EL lamps") and phosphor, in Chandler, Arizona. The Company also designs and sells inverters that power EL lamps. BACKLOG Excluding joint venture activity, the backlog of firm orders for High Performance Foams was $4.8 million at December 28, 2003 and $5.8 million at December 29, 2002. The backlog of firm orders for Printed Circuit Materials was $23.6 million at December 28, 2003 and $7.3 million at December 29, 2002. The backlog of firm orders for Polymer Materials and Components was $19.9 million at December 28, 2003 and $8.6 million at December 29, 2002. The increase in 2003 is primarily due to the acquisition of Durel and growth in orders in the Printed Circuit Materials segment. 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. EMPLOYEES The Company employed an average of 229 people in the High Performance Foams operations, 445 people in the Printed Circuit Materials operations and 523 people in the Polymer Materials and Components operations. SEASONALITY In the Company's opinion, there is no material concentration of products or markets within the business that is seasonal in nature except for some minor seasonality for those products sold into satellite television receivers due to holiday build-up and cellular telephones due to the annual new model launch timetable which can vary slightly year to year in terms of timing and impact. CUSTOMERS & MARKETING The Company's products were sold to approximately 4,400 customers worldwide in 2003. 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. 3 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. ENVIRONMENTAL REGULATION The nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. The Company does not believe that the outcome of any of these 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 Item 3 of this report. However, there can be no assurances that the ultimate liability concerning these matters will not have a material adverse effect on the Company. AVAILABLE INFORMATION The Company's internet website is http://rogerscorporation.com/. The Company makes available free of charge on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, reports filed pursuant to Section 16 and amendments to those reports as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission. 4 EXECUTIVE OFFICERS OF THE REGISTRANT All officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholders or until successors are elected. There are no family relationships between or among executive officers and directors of the Company.
Name, Age and Present Served in Present Position Prior Business Experience in Past Five Years Position Since - ---------------------------------- ------------------------------------------------------------ ---------------------- Walter E. Boomer, 65 President and Chief Executive Officer of the Company from April 2002 Chairman of the Board of March 1997 to April 2002 Directors and Chief Executive Officer Robert D. Wachob, 56 Executive Vice President of the Company from January 2000 April 2002 President and Chief Operating to April 2002; Senior Vice President, Sales and Marketing Officer of the Company from May 1997 to January 2000. James M. Rutledge, 51 Vice President, Finance and Chief Financial Officer of the December 2002 Vice President, Finance and Company from June 2002 to December 2002; Vice President, Chief Financial Officer and Finance and Chief Financial Officer and Secretary of the Treasurer Company from January 2002 to June 2002; Chief Financial Officer of Baldwin Technology Company, Inc. from January 2000 to July 2001; Vice President Finance and Taxes of Rayonier, Inc. from March 2000 to January 2000; Vice President and Treasurer of Witco Corporation from October 1990 to March 1999. Robert C. Daigle, 40 Vice President and Manager, Advanced Circuit Materials October 2003 Vice President of Research and Division of the Company from October 2001 to October 2003; Development and Chief Technology Manager, Advance Circuit Materials Division of the Company Officer from June 2001 to October 2001; Manager, Microwave Materials Division of the Company from May 1997 to June 2001 John A. Richie, 56 October 1994 Vice President, Human Resources Robert M. Soffer, 56 Vice President, Secretary, Treasurer and Clerk of the December 2002 Vice President and Secretary and Company from June 2002 to December 2002; Vice President, Clerk Assistant Secretary, Treasurer and Clerk of the Company from April 2000 to June 2002; Treasurer and Assistant Secretary and Clerk of the Company from February 1992 to April 2000. Paul B. Middleton, 36 Division Controller for Cooper Industries from November December 2001 Corporate Controller 1999 to December 2001; Internal Audit Manager of Cooper Industries from December 1997 to November 1999; Audit Manager for KPMG Peat Marwick from April 1996 to December 1997.
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.
Floor Space (Square Feet) Type of Facility Leased/Owned --------------- ---------------- ------------ High Performance Foams - ---------------------- Woodstock, Connecticut 152,000 Manufacturing Owned Carol Stream, Illinois 215,000 Manufacturing Owned 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 113,000 Manufacturing Owned Polymer Materials and Components - -------------------------------- South Windham, Connecticut 88,000 Manufacturing Owned Rogers, Connecticut 290,000 Manufacturing Owned Ghent, Belgium 96,000 Manufacturing Owned Chandler, Arizona 120,000 Manufacturing Owned Korea 10,000 Manufacturing Leased through 2/06 Other - ----- Rogers, Connecticut 116,000 Corporate Headquarters/ Research & Development Owned Chandler, Arizona 160,000 Manufacturing Owned Suzhou, China 93,000 Manufacturing Leased through 6/05 Suzhou, China 93,000 Manufacturing Leased through 6/05 Tokyo, Japan 2,000 Sales Office Leased through 9/04 Wanchai, Hong Kong 1,000 Sales Office Leased through 4/04 Guangzhou, China 1,000 Sales Office Leased through 9/04 Taipei, Taiwan, R.O.C. 1,000 Sales Office Leased through 9/04 Seoul, Korea 1,000 Sales Office Leased through 2/08 50 Warehouse Leased through 5/04 Singapore 1,000 Sales Office Leased through 6/04 Shanghai, China 1,000 Sales Office Leased through 9/05
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 four active cases involving waste disposal sites. These proceedings are generally at a stage where it is still not possible to estimate the cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. Where it has been possible to make a reasonable estimate of the Company's probable liability, a provision has been established. Insurance proceeds have only been taken into account when they have been confirmed by or received from the insurance company. Actual costs to be incurred in future periods may vary from these estimates. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial position. 6 In addition to the above proceedings, the Company has worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000, monitored the site in 2001, 2002 and 2003, 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 $2.2 million prior to 1999 and based on updated estimates provided an additional $400,000 in 1999 for costs related to this matter. Prior to 2003, $2.5 million was charged against this provision. In 2003 expenses of $65,000 were charged against the provision. The remaining amount in the reserve is primarily for testing, monitoring, sampling and minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. In this same matter the United States Environmental Protection Agency ("EPA") alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputed the EPA allegations and appealed the administrative law judge's findings and penalty assessment. The original findings were upheld internally by the EPA's Environmental Appeals Board, and the Company placed that decision on appeal with the District of Columbia Federal Court of Appeals in 2000. In early January of 2002, the Company was informed that the Court of Appeals reversed the decision. As a result of this favorable decision, the $300,000 reserve for the fine was taken into income in 2001. However, subsequent to the favorable decision by the Court of Appeals, the EPA continued to pursue this issue and settlement discussions with the EPA were more protracted and difficult than originally anticipated. As such, the Company recorded $325,000 for legal and other costs associated with this matter in 2002. On January 16, 2003, a settlement agreement was signed with the EPA. The costs associated with the settlement included a cash settlement payment to the government of $45,000, which has been paid, a commitment to undertake two energy-related environmental improvements at its facilities, one of which has been completed, and a financial commitment for assistance to a local Woodstock, Connecticut Fire Department for emergency preparedness, which has also been completed. As such, the provision recorded is expected to be adequate to cover the requirements of the settlement. Over the past several years, there has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all material costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes that the resolution of these matters will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 7 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 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 the inside back cover, under the caption "Restriction on Payment of Dividends" in Note G on page 48, and under the caption "Dividend Policy" in the "Management's Discussion and Analysis" on page 26 of the 2003 annual report to shareholders. At February 28, 2004 there were 901 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 17 of the 2003 annual report to shareholders. 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 18 through 31 of the 2003 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 pages 29-30 of the 2003 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 32 through 58 and under the caption "Quarterly Results of Operations" on the inside back cover of the 2003 annual report to shareholders. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9a. CONTROLS AND PROCEDURES a. The Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered by this Annual Report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting the Company's management on a timely basis to material information required to be disclosed in the Company's reports filed under the Exchange Act. b. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect such controls since the Evaluation Date. 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 Company set forth under the caption "Nominees for Director" in the Company's definitive proxy statement for its 2004 annual meeting of stockholders that is anticipated to be filed on March 15, 2004 pursuant to Section 14(a) of the Exchange Act. Information with respect to Executive Officers of the Company is presented in Part I, Item 1 of this report and is set forth in the Company's definitive proxy statement for its 2004 annual meeting of stockholders that is anticipated to be filed on March 15, 2004 pursuant to Section 14(a) of the Exchange Act. Code of Ethics The Company has adopted a code of business conduct and ethics, which applies to all employees, officers and directors of Rogers. The code of business conduct and ethics is posted on the Company's website at http://rogerscorporation.com/. The Company intends to satisfy the disclosure requirements regarding any amendment to, or waiver of, a provision of the code of business conduct and ethics for the Chief Executive Officer, principal financial officer and principal accounting officer (or others performing similar functions) by posting such information on its website. 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" and "Executive Compensation" in the Company's definitive proxy statement for its 2004 annual meeting of stockholders that is anticipated to be filed on March 15, 2004 pursuant to Section 14(a) of the Exchange Act. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 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 and Related Stockholder Matters set forth under the captions "Stock Ownership of Management", "Beneficial Ownership of More Than Five Percent of Rogers Stock", and "Equity Compensation Plan Information" in the Company's definitive proxy statement for its 2004 annual meeting of stockholders that is anticipated to be filed on March 15, 2004 pursuant to Section 14(a) of the Exchange Act. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G to form 10-K, there is hereby incorporated by reference the information with respect to certain relationships and related transactions set forth in Note D under the caption "Summarized Financial Information of Unconsolidated Joint Ventures and Related Party Transactions" on pages 43-44 of the 2003 annual report to shareholders. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information with respect to Accountant Fees set forth under the caption "Fees of Independent Auditors" in the Company's definitive proxy statement for its 2004 annual meeting of stockholders that is anticipated to be filed on March 15, 2004 pursuant to Section 14(a) of the Exchange Act. 9 PART IV Item 15. 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 28, 2003 are incorporated by reference in Item 8: Consolidated Balance Sheets - December 28, 2003 and December 29, 2002 Consolidated Statements of Income - Fiscal Years Ended December 28, 2003, December 29, 2002, and December 30, 2001 Consolidated Statements of Shareholders' Equity - Fiscal Years Ended December 28, 2003, December 29, 2002, and December 30, 2001 Consolidated Statements of Cash Flows - Fiscal Years Ended December 28, 2003, December 29, 2002, and December 30, 2001 Notes to Consolidated Financial Statements - December 28, 2003 The following consolidated financial statement schedule of Rogers Corporation and Subsidiaries is included in Item 15 (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. (3) Exhibits required to be filed by Item 601 of Regulation S-K, and by Item 15-c below: 2 Stock Purchase Agreement, dated September 30, 2003, among 3M Company, 3M Innovative Properties Company, Durel Corporation and Rogers Corporation for the purchase of Durel Corporation was filed as Exhibit 2.1 to the Registrant's Form 8-K filed on October 15, 2003*. 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, June 22, 1995, April 25, 2002 and June 19, 2002. The March 28, 1991, September 10, 1991 and June 22, 1995, amendments 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)*. The April 25, and June 19, 2002 amendments were filed as Exhibit 3i to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002*. 10 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. 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 2004 Annual Incentive Compensation Plan** (2004) is filed herewith. 10d Rogers Corporation 1988 Stock Option Plan** (as amended December 17, 1988, September 14, 1989, October 23, 1996, April 18, 2000, June 21, 2001, August 22, 2002, and December 5, 2002). 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*. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment and December 5, 2002 amendment are filed herewith. 10e Rogers Corporation 1990 Stock Option Plan** (as restated and amended on October 18, 1996, December 21, 1999, amended on April 18, 2000, June 21, 2001, August 22, 2002, October 7, 2002, and December 5, 2002). 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*. The October 7, 2002 amendment was filed as Exhibit 10e to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002*. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment and December 5, 2002 amendment are filed herewith. 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, amended on December 18, 1997, April 18, 2000, June 21, 2001, August 22, 2002, and December 5, 2002). 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*. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment, and December 5, 2002 amendment are filed herewith. 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, October 7, 2002, and December 5, 2002). 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*. The October 7, 2002 amendment was filed as Exhibit 10i to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. The December 5, 2002 amendment is filed herewith. 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, October 7, 2002, and December 5, 2002). 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*. The October 7, 2002 amendment was filed as Exhibit 10j to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. The December 5, 2002 amendment is filed herewith. 10k Rogers Corporation Long-Term Enhancement Plan for Senior Executives of Rogers Corporation** (December 18, 1997*, as amended April 4, 2000, October 7, 2002, and December 5, 2002). The April 4, 2000 amendment was file as Exhibit 10k to the 2000 Form 10-K*. The October 7, 2002 amendment was filed as Exhibit 10k to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002*. The December 5, 2002 amendment is filed herewith. 10l Rogers Corporation 1998 Stock Incentive Plan**(1998, as amended September 9, 1999, December 21, 1999, April 18, 2000, June 21, 2001, October 10, 2001, August 22, 2002, November 7, 2002, December 5, 2002 and February 19, 2004). 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*. The October 10, 2001 and November 7, 2002 amendments were filed as Exhibit 10l to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. The April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment, December 5, 2002 amendment and February 19, 2004 amendment is filed herewith. 11 10m Multicurrency Revolving Credit Agreement dated December 8, 2000 was filed as Exhibit 10m to the 2000 Form 10-K*. 10n Rogers Corporation Executive Supplemental Agreement** for the Chairman of the Board and Chief Executive Officer, dated December 5, 2002, was filed as Exhibit 10n to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2002 *. 10o Rogers Corporation Pension and Restoration Plan** (as amended and restated March 10, 2004). The March 10, 2004 amendment is filed herewith. 13 Portions of the Rogers Corporation 2003 Annual Report to Shareholders which are specifically incorporated by reference in this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant. 23a Consent of Independent Auditors. 23b Consent of Independent Auditors. 31a Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 31b Rule 13a-14(a)/15d-14(a) Certification of Chief Operating Officer. 31c Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Office. 32a Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32b Certification of Chief Operating Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32c Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 33a 2002 Financial Statements for the Company's former joint venture with 3M, Durel Corporation, were filed as the Exhibit 99.3 to Registrant's Annual Report on Form 10-K for the fiscal year-ended December 29, 2002*. 33b Unaudited Financial Statements for the nine-month period ended September 30, 2003 for the Company's former joint venture with 3M, Durel Corporation. * 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) Reports on Form 8-K filed for the three months ended December 28, 2003: An amended Form 8-K was filed on December 12, 2003 with respect to the Company's acquisition of Durel Corporation. An amended Form 8-K was filed on November 21, 2003 with respect to the Company's Third Quarter Earnings Release. A Form 8-K was filed on October 15, 2003 with respect to the Company's Third Quarter Earnings Release. A Form 8-K was filed on October 15, 2003 with respect to the Company's acquisition of Durel Corporation. (c) Exhibits - The response to this portion of Item 15 is submitted within Item 15(a)(3) of this report. (d) Financial Statement Schedule 12 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
Charged to Charges Balance at (Reduction of) Taken Other Balance at Beginning of Costs and Expenses Against (Deductions) End of (Dollars in thousands) Period Allowance Recoveries Period ---------------- --------------------- ------------- ---------------- ------------- Allowance for Doubtful Accounts: December 28, 2003 $1,102 $349 $(41) $(36) $1,446 December 29, 2002 1,363 (200) (154) 93 1,102 December 30, 2001 1,804 (390) (80) 29 1,363
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 12, 2003 By /s/James M. Rutledge -------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 12, 2003, by the following persons on behalf of the Registrant and in the capacities indicated. By /s/ Walter E. Boomer Chairman of the Board of Directors and -------------------- Chief Executive Officer Walter E. Boomer By /s/ Robert D. Wachob President and Chief Operating Officer -------------------- Robert D. Wachob By /s/ James M. Rutledge Vice President, Finance and Chief --------------------- Financial Officer James M. Rutledge (Principal Financial and Accounting Officer) 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 EX-21 3 a4592426ex21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Percentage of Jurisdiction of Voting Incorporation or Securities Organization Company Owned - -------------------------------------------------------------------------------------------------------------------- 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, Incorporated 100% Delaware Rogers Technologies (Suzhou) Co., Ltd. 100% China TL Properties, Inc. 100% Arizona World Properties, Inc. 100% Illinois Rogers Technologies (Barbados) SRL 100% Barbados Rogers Induflex N.V. 100% Belgium Rogers N.V. 100% Belgium Rogers GmbH 100% Germany Rogers (U.K.) Ltd. 100% England Rogers S.A. 100% France Rogers (Shanghai) International Trading Co., Ltd. 100% China Rogers KF, Inc. 100% Delaware KF Inc. 100% Korea Rogers Inoac Corporation * 50% Japan Rogers Inoac Suzhou Corporation * 50% China 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 included in the consolidated financial statements of Rogers Corporation, except to the extent required by the equity method of accounting. 15 EX-23 4 a4592426ex23a.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23a 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 3, 2004, included in the 2003 Annual Report to Shareholders of Rogers Corporation. Our audits also included the financial statement schedule of Rogers Corporation listed in Item 15(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 the 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 3, 2004, 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) for the year ended December 28, 2003. ERNST & YOUNG LLP Boston, Massachusetts March 8, 2004 EXHIBIT 23b CONSENT OF INDEPENDENT AUDITORS We 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 March 14, 2003, with respect to the financial statements of Durel Corporation, included in the Annual Report (Form 10-K) of Rogers Corporation for the year ended December 29, 2002. ERNST & YOUNG LLP Phoenix, Arizona March 8, 2004 EX-31 5 a4592426ex31a.txt CERTIFICATION Exhibit 31a ROGERS CORPORATION CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Walter E. Boomer, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Walter E. Boomer -------------------------------- Walter E. Boomer Chairman of the Board of Directors and Chief Executive Officer March 12, 2004 EX-31 6 a4592426ex31b.txt CERTIFICATION Exhibit 31b ROGERS CORPORATION CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Robert D. Wachob, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Robert D. Wachob -------------------------------- Robert D. Wachob President and Chief Operating Officer March 12, 2004 EX-31 7 a4592426ex31c.txt CERTIFICATION Exhibit 31c ROGERS CORPORATION CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, James M. Rutledge, certify that: 1. I have reviewed this annual report on Form 10-K of Rogers Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ James M. Rutledge -------------------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer March 12, 2004 EX-32 8 a4592426ex32a.txt CERTIFICATION Exhibit 32a ROGERS CORPORATION CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Walter E. Boomer, Chairman of the Board of Directors and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Annual Report on Form 10-K of the Company for the annual period ended December 28, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Walter E. Boomer -------------------------------- Walter E. Boomer Chairman of the Board of Directors and Chief Executive Officer March 12, 2004 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 9 a4592426ex32b.txt CERTIFICATION Exhibit 32b ROGERS CORPORATION CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Robert D. Wachob, President and Chief Operating Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Annual Report on Form 10-K of the Company for the annual period ended December 28, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert D. Wachob -------------------------------- Robert D. Wachob President and Chief Operating Officer March 12, 2004 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 10 a4592426ex32c.txt CERTIFICATION Exhibit 32c ROGERS CORPORATION CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, James M. Rutledge, Vice President, Finance and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Annual Report on Form 10-K of the Company for the annual period ended December 28, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James M. Rutledge -------------------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer March 12, 2004 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-10 11 a4592426ex10c.txt 2004 ANNUAL INCENTIVE COMPENSATION PLAN Exhibit 10c ROGERS CORPORATION 2004 ANNUAL INCENTIVE COMPENSATION PLAN (The "Plan") Plan Year: 1.1 Fiscal year of Rogers Corporation Participants: 2.1 Those managers and professionals who directly affect the profitability of the Company are eligible for nomination as Participants in this Plan. Participants for each Plan Year must be approved by the CEO. Sales Engineers, Regional Sales Managers, and any other employees who are eligible for commissions or similar incentive compensation plans are excluded from this Plan. Exceptions to this may be approved by the CEO. Target Award 3.1 Upon achievement of targeted financial goals, Opportunity: Participants will be eligible for a specified Target Award. Target Awards by Participant group are as follows: Target Award As a Percent of Base Position Salary --------------------------------------------------- CEO 60 to 75% Division VP's, Elected Corporate Officers, and other Corporate Executives 25% to 45% Other Division and Corporate Participants 5% - 25% Basic Award 4.1 Each Plan Year, a set percentage of the Determinant: Participant's Target Award will be determined by Corporate performance and another set percentage will be determined by Division performance. In general, those Participants whose actions affect the entire Company will have a higher Corporate performance weighting while those whose actions have a greater impact on an individual Division will have a higher Division performance weighting. Page 1 of 5 4.2 Performance weights by Participant group are as follows: Corporate Division/Group Position Performance Performance --------------------------------------------------- Elected Corporate Officers 100%1 0% Other Corporate Participants 50% 50%2 Division Vice Presidents 40% - 70% 60% - 30% Other Division Participants 30% 70% 4.3 The Corporate portion of a Participant's annual incentive award is based on after tax profit (as reflected in earnings per share). Performance goals will be established at the beginning of each Plan Year by the Compensation and Organization Committee of the Board of Directors, and expressed in an award schedule that prescribes the percentage of Corporate Target Award paid out at each level of performance achievement. 4.4 The Divisional portion of a Participant's annual incentive award is based on Division profit (operating profit before Corporate charges). Performance goals will be established at the beginning of each Plan Year by the CEO, and expressed in an award schedule that prescribes the percentage of the Division Target Award paid out at each level of performance achievement. 4.5 Calculations of the actual percentage of Corporate and Division Target Awards will be made by interpolating between points on the Performance Measurement Schedule. 4.6 Soon after the end of the Plan Year, the CEO will evaluate how well each Division accomplished its objective(s). The CEO may alter the division bonus pool on the basis of that evaluation, as he deems appropriate. 1 Exceptions may be made by the CEO. 2 The 50% Division Performance portion for each Corporate Report will be determined by multiplying 50% of his or her Target Award by the ratio obtained by dividing all divisional profit related to Divisional Performance by the total divisional profit if every Division had achieved their plan for the year. Page 2 of 5 Annual 5.1 Each year the Compensation and Organization Performance Committee will establish annual Performance Targets: Targets. The general principles for establishing Annual Performance Targets will be that the previous year's Earnings Per Share results will be the threshold for beginning to earn a bonus for the following Plan Year. At approximately the 10% EPS improvement level a 100% target bonus will be earned, and at approximately a 20% EPS improvement level a 200% target bonus will be earned. Then, at approximately a 30% EPS improvement level a 250% target bonus will be earned, and at approximately a 40% ESP improvement level the maximum 300% target bonus will be earned. (See section 6.2 for maximum payment under this plan.) 5.2 Changes or exceptions to the general principles for establishing Annual Performance Targets based on economic or other factors must be made by the Compensation and Organization Committee. Award 6.1 The annual bonus award for any Participant will be Limitation: limited to 300% of their Target Award. 6.2 Except as noted below, the maximum amount of the incentive bonus pool, including payments made to non-Participants under this Plan, will be limited to 20% of profit or $250,000, whichever is more. Such profit is calculated before deductions for taxes and bonuses. If the calculation of awards indicates that these limits will be exceeded, awards will be reduced proportionally to conform to the limit. 6.3 If any Division would have received 100% or more of the Division portion of their Target Awards and the above 20% limit causes a reduction in earned awards, the following shall apply. 6.3.1 The reductions of those Divisions' portions of the Target Awards will be restored and Corporate Reports' awards increased accordingly. (This does not apply to the elected Corporate officers.) 6.3.2 The total of such restored and increased amounts shall not exceed $250,000. If necessary, reductions will be made proportionally. Personal 7.1 Managers may recommend to the CEO that Performance: Participants' awards in their respective Divisions or Corporate Departments be modified to reflect individual performance differences. Page 3 of 5 7.2 The CEO has the right to modify or eliminate the total annual incentive award for any Participant to reflect individual performance differences. Input of 8.1 In comparing actual performance against the Extraordinary performance goals, management may exclude from and Non- such comparison any extraordinary or nonrecurring recurring gains, losses, charges, or credits that appear on Items: the Company's books and records, as it deems appropriate. 8.2 An extraordinary or nonrecurring item may include, without limiting the generality of the foregoing, an item in the Company's financial statements reflecting a change in an accounting rule or methodology, tax law, or actuarial assumption, not taken into consideration in the establishment of performance goals. The Compensation and Organization Committee of the Board of Directors must approve this adjustment. Less Than 9.1 An individual, who is made a Participant in the Full-Year Plan after the beginning of the Plan Year, but Plan before October 1st of that year, may receive a Participation: pro-rated award based on the number of full weeks of eligibility during the Plan Year. Individuals hired after October 1st normally will not participate in the Plan that year. 9.2 If a Participant's employment is terminated during a Plan Year because of death, disability, or normal retirement, a tentative award will be determined based on performance as of the end of the Plan Year. The final award will be prorated by multiplying the tentative award by the number of full weeks of employment divided by fifty-two. 9.3 If a Participant's employment is terminated involuntarily, not for cause, the Participant may be paid a prorated bonus if approved by the CEO. Form and 10.1 All awards will be paid in cash, less withholding Timing of requirements, as soon as possible following the Payment: end of the Plan Year. However, the CEO may request authorization from the Compensation and Organization Committee of the Board of Directors to pay a portion of the estimated Plan Year's awards before the end of the Plan Year. Bonus 11.1 For each Division or Corporate Department that Opportunity earns an award under this Plan, a pool will be Non- created for distribution to non-Participants in Participants that Division or Corporate Department only. Such pool will be equal to 1.0% of the aggregate annual salaries of the non-Participants, exempt from the payment of overtime and who are not paid overtime by Company policy or practice, in that Division or Corporate Department at the end of the Plan Year. Such pool will be adjusted up or down proportionally to the award earned in that Division or Corporate Department. The Division Manager or the Corporate Department Vice President will determine the recipients and amounts of such bonuses subject to the approval of the CEO. These bonuses are intended for non- Participants who have made significant contributions to the success of the Division or Page 4 of 5 Corporate Department during the Plan Year; this bonus pool is not intended for distribution to all non-Participants in the unit. Any undistributed funds from this pool will be returned to the Company and may not be distributed to other units. 11.2 For each Corporate Department, a pool will be created for distribution to exempt and non-exempt non-Participants equal to 1% of their aggregate annual salaries. This pool represents a gainsharing bonus for the Corporate staff employees and is based on the overall Division Performance (defined on page 2, footnote 2). Each Corporate Department Vice President will determine the recipients for their department, and amounts of such bonus subject to the approval of the CEO. Approved by the Compensation and Organization Committee of the Board of Directors. December 10, 2003 Page 5 of 5 EX-10 12 a4592426ex10diamend.txt AMENDMENT TO PLANS Exhibit 10d-i, Exhibit 10e-i, Exhibit 10h-i, Exhibit 10l-i AMENDMENT TO PLANS On August 22, 2002, the Company's Board of Directors approved an amendment to the Rogers Corporation: (i) 1988 Stock Option Plan, as restated September 14, 1989, (ii) 1990 Stock Option Plan-Restatement No. 3, (iii) 1994 Stock Compensation Plan, as restated October 17, 1996, and (iv) 1998 Stock Incentive Plan. Capitalized terms used in this description and not otherwise defined have the meaning set forth in the respective plans. The purpose of the amendment was to clarify and confirm that the definition of "fair market value" of the Company's Capital Stock shall be equal to the "last" selling price, the price at "close", or such other equivalent reported price, in each case as quoted in the New York Stock Exchange Composite Transactions section of "The Wall Street Journal" newspaper for the business day immediately preceding the valuation and in the event there is no such reported price then as determined in good faith by the Company. EX-10 13 a4592426ex10damend.txt AMENDMENT TO PLANS Exhibit 10d, Exhibit 10e, Exhibit 10h, Exhibit 10l AMENDMENT TO PLANS On June 21, 2001, the Company's Board of Directors approved an amendment to the Rogers Corporation: (i) 1988 Stock Option Plan, as restated September 14, 1989, (ii) 1990 Stock Option Plan-Restatement No. 3, (iii) 1994 Stock Compensation Plan, as restated October 17, 1996, and (iv) 1998 Stock Incentive Plan. Capitalized terms used in this description and not otherwise defined have the meaning set forth in the respective plans. The purpose of the amendment was to change the definition of "fair market value" of the Company's Capital Stock as follows: (a) for the period beginning on April 30, 2001 and ending on June 30, 2001, the mean of the highest and lowest selling prices for the Company's Capital Stock as quoted on the business day immediately preceding the valuation day as reported on the Yahoo! Finance Internet website and (b) thereafter, the "last" selling price for the Company's Capital Stock as quoted in the New York Stock Exchange Composite Transactions section of "The Wall Street Journal" newspaper for the business day immediately preceding the valuation day; and in the event that there is no such reported price then as determined in good faith by the Company. EX-10 14 a4592426ex10diiamend.txt AMENDMENT TO PLANS Exhibit 10d-ii, Exhibit 10e-ii, Exhibit 10h-ii, Exhibit 10i, Exhibit 10j, Exhibit 10k, Exhibit 10l-ii AMENDMENT TO PLANS On December 5, 2002, the Company's Board of Directors approved an amendment to the Rogers Corporation: (i) 1988 Stock Option Plan, as restated September 14, 1989, (ii) 1990 Stock Option Plan-Restatement No. 3, (iii) 1994 Stock Compensation Plan, as restated October 17, 1996, (iv) 1998 Stock Incentive Plan, (v) Voluntary Deferred Compensation Plan For Non-Employee Directors, as amended and restated effective as of December 21, 1999, (vi) Voluntary Deferred Compensation Plan For Key Employees, as amended and restated effective as of December 21, 1999, and (vii) Long-Term Enhancement Plan for Senior Executives, (collectively, the "Plans"). Capitalized terms used in this description and not otherwise defined have the meaning set forth in the respective Plans. The Plans were amended so that in each place in the Plans that there was a reference to the "Treasurer" or the "Vice President and Treasurer" of the Company, there was added a reference in the disjunctive (i.e., "or"), to the "Vice President and Secretary" of the Company. This change was deemed necessary since the Vice President, Treasurer and Secretary of the Company, as of December 5, 2002, ceased to be the Company's Treasurer, yet this corporate officer needed to continue his responsibilities related to the Plans. EX-10 15 a4592426ex10diiiamend.txt AMENDMENT TO PLANS Exhibit 10d-iii, Exhibit 10e-iii, Exhibit 10h-iii, Exhibit 10l-iii AMENDMENT TO PLANS On April 18, 2000, the Company's Board of Directors approved an amendment to the Rogers Corporation: (i) 1988 Stock Option Plan, as restated September 14, 1989, (ii) 1990 Stock Option Plan-Restatement No. 3, (iii) 1994 Stock Compensation Plan, as restated October 17, 1996, and (iv) 1998 Stock Incentive Plan. The purpose of this amendment was to change any and all references to the American Stock Exchange to the New York Stock Exchange and if the Company's Capital Stock ceases to be traded on the New York Stock Exchange then stock valuations will be based on such other method as is designated by the committee of the Board of Directors that is responsible for the administration of the aforementioned plans. On April 18, 2000 that Board of Directors also approved an amendment to the plans listed below so that the Finance Committee of the Board of Directors would replace the Pension Committee of the Board of Directors in the exercise of all rights and the fulfillment of all responsibilities previously delegated to the Pension Committee, together with any additional rights and responsibilities delegated to the Finance Committee by the Board of Directors with respect to the Company's: (i) Voluntary Deferred Compensation Plan for Non-Employee Directors, amended and restated, effective as of December 21, 1999, (ii) Voluntary Deferred Compensation Plan for Key Employees, amended and restated, effective as of December 21, 1999, and (iii) Long-Term Enhancement Plan for Senior Executives. On August 17, 2000, the Board of Directors further amended the immediately aforementioned plans by transferring these aforementioned Finance Committee responsibilities to the Compensation and Organizational Committee of the Board of Directors. Capitalized terms used in this description and not otherwise defined have the meaning set forth in the respective plans. EX-10 16 a4592426ex10liv.txt 1998 STOCK INCENTIVE PLAN Exhibit 10l-iv ROGERS CORPORATION 1998 STOCK INCENTIVE PLAN, AS AMENDED Seventh Amendment Pursuant to the powers and procedures for amendment of the Rogers Corporation 1998 Stock Incentive Plan, as amended (the "Plan"), described in Section 9 of the Plan, the Board of Directors of Rogers Corporation (the "Board") hereby further amends the Plan as follows: 1. Effective as of June 30, 2003, Section 3(a) is amended by deleting the first sentence thereof in its entirety and substituting therefore the following: "The maximum number of shares of Stock reserved and available for issuance under the Plan shall be the sum of (a) 750,000 shares of Stock (before giving effect to any adjustments made to such number after the initial effective date of the Plan); plus (b) the shares of Stock underlying any Awards which are forfeited, cancelled, satisfied without the issuance of Stock or otherwise terminated (other than by exercise); plus (c) any shares of Stock equal to the number of shares held back from the exercise of an Option by the Company at the request of the optionee in payment of all or a portion of the withholding taxes due upon the exercise of such Option issued under the Plan. 2. Except as so amended, the Plan in all other respects is hereby confirmed. IN WITNESS WHEREOF, the Board has caused this Seventh Amendment to the Plan to be duly executed on this 19th day of February, 2004. ROGERS CORPORATION By: /s/ Robert M. Soffer ----------------------------------- Robert M. Soffer Vice President and Secretary 1 of 1 EX-99 17 a4592426ex332.txt
Exhibit 33b Durel Corporation Statement of Income (Dollars in thousands) For the Nine- Months Ended September 28, 2003 (unaudited) ----------------------------- ----------------------------- Net sales $51,331 Cost of goods sold 29,243 ----------------------------- ----------------------------- Gross Profit 22,088 Costs and expenses: Selling and administrative 6,377 Research and development 2,410 ----------------------------- ----------------------------- Income from operations 13,301 Other (expense) income: Interest income 77 Other (154) ----------------------------- ----------------------------- Income before income taxes 13,224 Provision for income taxes (3,968) ----------------------------- ----------------------------- Net income $9,256 ============================= =============================
The accompanying notes are an integral part of these financial statements.
Durel Corporation Statement of Cash Flows (Dollars in thousands) For the Nine- Months Ended September 28, 2003 (unaudited) ------------------------------ ------------------------------ Operating Activities Net income $9,256 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,201 Changes in operating assets and liabilities: Accounts receivable 3,212 Inventories 1,751 Prepaid expenses and other (285) Accounts payable and accrued liabilities (4,421) ------------------------------ ------------------------------ Net cash provided by operating activities 11,714 Investing Activities Purchase of property, plant and equipment (328) ------------------------------ ------------------------------ Net cash used in investing activities (328) Financing Activities Repayments of borrowings from shareholders (656) Dividends to shareholders (6,000) ------------------------------ ------------------------------ Net cash used in financing activities (6,656) ------------------------------ ------------------------------ Net increase in cash and cash equivalents 4,730 Cash and cash equivalents at the beginning of the period 3,614 ------------------------------ ------------------------------ Cash and cash equivalents and the end of the period $8,344 ============================== The accompanying notes are an integral part of these financial statements.
Durel Corporation Notes to Financial Statements 1. Accounting Policies Description of Business Durel Corporation (the "Company") was incorporated on June 1, 1988, in the state of Delaware. The Company operates in one operating segment and engages primarily in the research, development, manufacture and sale of electroluminescent products. The Company is a joint venture of Rogers Corporation and Minnesota Mining and Manufacturing Company (the "Shareholders"), with each owning 50% of the outstanding common stock. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Revenue Recognition Revenue is recognized upon delivery of goods to customers, when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection is reasonably assured. Shipping Costs Costs of shipping products to customers are included in costs of goods sold. 2. Transactions with Shareholders In connection with the sale of the Company's products, the Company reimburses one of the Shareholders for selling costs and pays no commission. Selling costs reimbursed to this Shareholder were approximately $235,000 for the nine-month period ended September 28, 2003. The other Shareholder bears a large portion of all selling costs and receives a commission ranging from 2.5 to 5 percent. Commissions earned by this Shareholder were approximately $2,149,000 for the nine-month period ended September 28, 2003. The financial statements of the Company include allocations from the Shareholders for direct expenditures made on its behalf. In addition, the Shareholders have charged the Company costs for research and development, marketing, and general corporate overhead based upon estimates of expenses incurred for the benefit of the Company. Amounts paid to the shareholders for these respective costs were approximately $352,000 for the nine-month period ended September 28, 2003. In February 2003, the Company paid the Shareholders $656,557 to satisfy its obligation under a long-term payable to the Shareholders that represented charges for past services provided by the Shareholders to the Company. 3. Income Taxes Durel's effective tax rate was 30% for the first nine months of 2003. The effective tax rate is lower than the statutory rate due to various tax benefits, including nontaxable foreign sales income and research and development credits. Income taxes paid were $5.6 million in the first nine months of 2003. 4. Concentrations of Credit Risk The Company's revenue is derived from customer primarily in North America, the Pacific Rim and Europe. The amount of total export sales by geographic area was as follows: Nine Month Period Ended September 28, 2003 ------------------------------ ------------------------------ Pacific Rim $ 41,904,302 Europe 621,043 Other 269,505 ------------------------------ ------------------------------ Total export sales $ 42,794,850 ============================== The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. The following individual customers comprised more than 10 percent of net sales and accounts receivable: Nine Month Period Ended September 28, 2003 ------------------------------ ------------------------------ Net Sales: Customer: A 26% B 12 ------------------------------ 38% ============================== ============================== Net accounts receivable: Customer: A 37% B 13 ------------------------------ 50% ============================== 5. Retirement Plan The Company sponsors a noncontributory defined benefit pension plan (the "Plan") covering all employees meeting eligibility requirements. The information presented below is as of December 28, 2003 (subsequent to the September 30, 2003 acquisition by Rogers Corporation ("Rogers")) and represents the amounts used related to Durel in Rogers' 2003 annual report.
2003 ----------------------- ----------------------- Change in Benefit Obligation: Benefit obligation at beginning of year $ - Service cost 129,756 Interest cost 241,469 Benefit payments (111,284) Acquisitions 4,698,717 ----------------------- ----------------------- Benefit obligation at end of year $ 4,958,658 ======================= ======================= Change in plan assets: Fair value of plan assets at beginning of year $ - Actual return on plan assets 408,138 Benefit payments (111,284) Acquisitions 3,281,829 ----------------------- ----------------------- Fair value of plan assets at end of year $ 3,578,683 ======================= ======================= Reconciliation of funded status: Funded status $(1,379,975) Unrecognized gain (335,549) ----------------------- ----------------------- Net amount recognized at end of year $(1,715,524) ======================= Amounts recognized in the statement of financial position consist of: Accrued benefit liability $ (1,715,524) ----------------------- ----------------------- Net amount recognized at year end $ (1,715,524) ======================= ======================= Components of pension cost: Service cost $ 129,756 Interest cost 241,469 Expected return on plan assets (72,589) ----------------------- ----------------------- Net periodic pension cost $ 298,636 ======================= ======================= Assumptions: Discount rate 5.20% Expected return on plan assets 9.00%
Rogers Corporation terminated the Durel pension plan effective December 31,2003 and eligible Durel employees will be able to participate in Rogers' defined benefit pension plan starting on January 1, 2004. Former Durel plan participants will have the option of either rolling over their pension into the Rogers 401(k) plan, an individual retirement account, or an annuity, or taking a lump-sum distribution. 6. Employee Benefit Plans The Company maintains a 4 01(k) Retirement Plan (the "401(k) Plan") covering all employees effective upon hire. Under the terms of the 401(k) Plan, employees may contribute up to 18 percent of their annual compensation, subject to Internal Revenue Service limitations. During the 9 month period ended September 28, 2003, the Company matched 50 percent of employee contributions up to 6 percent of the employee's compensation for the pay period for which such contribution was made. Contribution expense for the nine-month period ended September 28, 2003 was $164,563. The Company's plan was frozen on December 28, 2003 and eligible Durel employees were accepted into the Rogers' 401(k) plan on December 29, 2003. Durel's plan is in the process of being merged with the Rogers' plan. Rogers anticipates this merger will occur in the second quarter of 2004. Certain employees also participate in short-term and long-term incentive plans (the "Incentive Plans"). Under the terms of the Incentive Plans, eligible employees are compensated based on profits, as defined, and the cumulative return on investment of the Company, as defined, as well as an additional compensation component based on the appreciation in the prices of the Shareholders' stock. The Company recognized expense of $934,077 for the nine month period ended September 28, 2003. As a result of the Company's acquisition, Rogers paid out amounts owed to participating employees in the first quarter of 2004. Durel employees are now eligible to participate in the various short- and long-term incentive plans offered by Rogers. 7. Contingencies The nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that any such matters, after taking into account insurance coverage and the aforementioned accruals, would have a material adverse effect on the financial position of the Company. 8. Subsequent Events On September 30, 2003, Rogers Corporation acquired from 3M Company ("3M") its 50% interest in Durel giving Rogers a 100% ownership interest in Durel. Effective September 30, 2003, Durel's operations were fully integrated and consolidated into Rogers. EX-10 18 a4592426_ex10o.txt PENSION RESTORATION PLAN Exhibit 10o ROGERS CORPORATION AMENDED AND RESTATED PENSION RESTORATION PLAN Name and Purpose ---------------- The name of this Plan is the Rogers Corporation Pension Restoration Plan, as amended and restated effective as of January 1, 2004. The purpose of this Plan is to attract, retain, and motivate qualified management personnel and provide retirement and survivor income for management personnel and/or their beneficiaries by providing for the replacement of benefits that are not paid under the Basic Plan due to (a) the Limitations and/or (b) deferrals made under a Deferral Plan. In addition, for certain management personnel and/or their beneficiaries, this Plan provides for the payment of (i) certain benefits that are not accrued under the Basic Plan due to the exclusion of bonus compensation and/or (ii) other supplemental benefits as determined from time to time by the Committee on a case by case basis in its sole discretion. Without limiting the discretion of the Committee hereunder, it is intended, by way of example, that the Committee may consider providing supplemental benefits hereunder to senior executives that are hired by the Company during or after the middle of their working career by, for example, crediting additional years of deemed service. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and Section 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and shall be interpreted and administered to the extent possible in a manner consistent with that intent. In addition, the Plan has been designed based on the final average pay benefit formula used under the Basic Plan. Accordingly, in the event the benefit formula under the Basic Plan is changed in the future, the benefit formula under this Plan may need to be modified to maintain the purpose of this Plan; provided, however, that nothing in this paragraph shall expand or limit the Committee's authority to terminate or amend this Plan pursuant to Section 6.1. Article I - Definitions ----------------------- Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: 1.1 "Actuarial Equivalent" (a) as it relates to the determination of a lump sum or a series of installment amounts, means a form of benefit that, as of a Participant's Annuity Starting Date, has a value equivalent to the Normal Form of benefit when computed using an interest rate equal to (i) with respect to calendar years after 2003, the average of the annual interest rates on 10-year U.S. Treasury notes plus 20 basis points, and (ii) with respect to calendar years before 2004, the average of the annual interest rates on 30-year U.S. Treasury securities, all such rates being determined as in effect as of the November 1 (September 1 for calendar years after 2003) of the five consecutive calendar years preceding the Plan Year in which occurs the Participant's Annuity Starting Date and the mortality assumptions required under Section 417(e)(3) of the Code, and (b) for purposes of determining any other form of benefit, has the meaning given to that term in Section 2.2 of the Basic Plan. 1.2 "Annuity Starting Date" has the meaning given to that term in Section 2.4 of the Basic Plan. 1.3 "Basic Plan" means the Rogers Corporation Defined Benefit Pension Plan (formerly known as the Rogers Corporation Pension Plan for Salaried Employees), as amended from time to time. Reference to any Article or Section of the Basic Plan shall include reference to any comparable or successor provisions of the Basic Plan as amended from time to time. 2 1.4 "Beneficiary" has the meaning given to that term in Section 2.6 of the Basic Plan. 1.5 "Board of Directors" means the Board of Directors of the Company. 1.6 "Code" means the Internal Revenue Code of 1986, as amended, and any successor code, and related rules, regulations and interpretations. 1.7 "Committee" means the Compensation and Organization Committee of the Board of Directors. 1.8 "Company" means Rogers Corporation, a Massachusetts corporation, and any successor to all or a major portion of its assets or business which assumes the obligations of the Company under the Plan. 1.9 "Deferral Plan" means the Rogers Corporation Voluntary Deferred Compensation Plan for Key Employees, as amended from time to time, and any other nonqualified deferral plan maintained from time to time by the Company or any other Participating Employer. 1.10 "Effective Date" means, with respect to this amendment and restatement of the Plan, January 1, 2004, and with respect to the original Plan, January 1, 1989. 1.11 "Eligible Bonus Amount" means, for any Participant for any Plan Year commencing on or after January 1, 2004, one-twelfth (1/12) of the bonus(es) paid to such Participant during such Plan Year (including any bonus(es) that would have been paid to such Participant but for a deferral under a Deferral Plan) to the extent such bonus(es) are not included in determining such Participant's Average Monthly Compensation under the Basic Plan; provided, however, that (i) the Eligible Bonus Amount for any such Plan Year shall be zero if such Participant is not employed by the Company on June 1 of such Plan Year, (ii) the Eligible Bonus Amount shall be zero for any Plan Year commencing before January 1, 2004, (iii) the Eligible Bonus Amount shall not include any amount(s) paid during a Plan Year that are 3 attributable to bonus(es) that would have been paid in prior Plan Year(s) but for the deferral of such payment under a Deferral Plan, (iv) for any Participant added to Schedule B hereto after the date hereof, the Eligible Bonus Amount shall be zero for any Plan Year prior to the Plan Year during which such Participant was added to Schedule B and (v) for any Participant added to Schedule B hereto after the date hereof, the Eligible Bonus Amount for the Plan Year during which such Participant was added to Schedule B shall not include any bonus(es) paid to such Participant during such Plan Year prior to the date such Participant was added to Schedule B. Notwithstanding the foregoing, upon and following (i) a Participant's termination of employment due to such Participant's death, (ii) a Participant's termination of employment due to such Participant's disability (as defined in Section 2.13 of the Basic Plan), (iii) a Participant's termination of employment if, and only if, such Participant receives severance from the Company (or another Participating Employer) with respect to such termination, or (iv) a Termination Event (as defined in Section 6.1) that occurs while a Participant is employed by a Participating Employer, such Participant's Eligible Bonus Amounts shall include, for each applicable Plan Year and subject to clause (iii) of the preceding sentence, one-twelfth (1/12) of any bonuses that were paid (or that would have been paid but for a deferral under a Deferral Plan) during each Plan Year commencing before January 1, 2004 to the extent such bonuses are not included in determining such Participant's Average Monthly Compensation under the Basic Plan. 1.12 "Limitations" means the limitations imposed under Sections 401(a)(17) and 415 of the Code and any similar statutory limitation which may, at any time, be imposed by the Code on the accrual or payment of benefits under the Basic Plan including, without 4 limitation, any instance where the accrual formula under the Basic Plan is frozen with respect to a Participant in order to avoid violating any discrimination or coverage requirement of the Code. 1.13 "Normal Form" means, for any Participant, a single life annuity. 1.14 "Normal Retirement Date" has the meaning given to that term in Section 2.29 of the Basic Plan. 1.15 "Participant" means any employee of the Company who participates in the Plan in accordance with Article II. 1.16 "Participating Employer" means the Company and any affiliate or subsidiary of the Company which is an Employer as defined in the Basic Plan. 1.17 "Plan" means the Rogers Corporation Pension Restoration Plan as amended and restated as set forth herein, as the same may be further amended from time to time. 1.18 "Plan Year" means the 12-month period ending each December 31. 1.19 "Supplemental Benefit" means, for any Participant listed on Schedule A hereto, the incremental monthly benefit that is either specified on Schedule A for such Participant or determined by applying the adjustment methodology specified on Schedule A for such Participant; provided, however, that in applying any such adjustment methodology with respect to a Participant, the adjustments contemplated by clause (x) of Sections 4.1, 4.2, 4.3 or 4.5, whichever is applicable, shall be applied first to obtain a preliminary benefit amount and the Supplemental Benefit shall be equal to the incremental monthly benefit that is determined when such preliminary benefit amount is further adjusted by the applicable adjustment methodology. Article II - Participation -------------------------- 2.1 Eligibility to Participate. Any individual who is an employee of the Company (or another Participating Employer) on or after January 1, 1989, shall automatically become a Participant in the Plan in the Plan Year in which occurs the earliest of (a) the Participant's 5 compensation in any Plan Year which would be taken into account under the Basic Plan exceeds the limit imposed on such compensation under Section 401(a)(17) of the Code, (b) the Participant's benefit under the Basic Plan becomes limited in accordance with Section 415 of the Code, (c) the Participant enters into a salary deferral arrangement with the Company under a Deferral Plan, (d) the Participant is listed on Schedule A hereto, (e) the Participant is listed on Schedule B hereto, or (f) the Participant is listed on Schedule C hereto and a Change of Control (as defined in Section 6.2) has occurred. 2.2 Termination of Participant Status. Notwithstanding any other provision of the Plan to the contrary, the Committee may terminate the right of any Participant to participate in the Plan if the Committee determines, in its sole discretion, that such action is necessary to preserve the status of the Plan as "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. In the event a Participant's participation is terminated under this Section 2.2, the Participant shall not be entitled to any benefits under the Plan except to the extent such benefits would be protected under Article VI if the Plan were then terminated. The Committee may, in its discretion, direct such Participant's Participating Employer to pay to such Participant a single lump sum payment which is the Actuarial Equivalent of any such protected benefit, or to provide for payment of such benefits through another plan, or may direct a combination of the foregoing, in lieu of providing such benefits under this Plan, and such payment or provision (or both) shall be in complete satisfaction of such Participant's rights under this Plan. Article III - Payment of Benefits --------------------------------- 3.1 No Funding Required. Nothing in this Plan will be construed to create a trust or to obligate the Company or any other Participating Employer or any other person to segregate a fund, purchase an 6 insurance contract, or in any other way to fund currently the future payment of any benefits hereunder, nor will anything herein be construed to give any employee of the Company or any other Participating Employer or any other person rights to any specific assets of the Company or any other Participating Employers or of any other person. Any benefits which become payable to a Participant hereunder shall be paid from the general assets of such Participant's Participating Employer, except as provided in Section 3.2. 3.2 Payment Methods. The Company, in its sole discretion, may establish (a) a grantor or other trust of which the Company (or a Participating Employer) is treated as the owner under the Code and the assets of which are subject to the claims of the Company's (or such Participating Employer's) general creditors in the event of its insolvency, (b) an insurance arrangement, or (c) any other arrangement or arrangements designed to provide for the payment of benefits hereunder; provided that no such trust or arrangement may be established without the consent of the Committee. Any such arrangement shall be subject to such other terms and conditions as the Company may deem necessary or advisable to ensure (i) that benefits are not includible, by reason of the establishment of any such arrangement or the funding of any such trust, in the income of the beneficiaries of such trust or other arrangement prior to actual distribution or other payment and (ii) that the existence of such arrangement does not cause the Plan to be considered funded for purposes of Title I of ERISA. Article IV - Retirement Benefits -------------------------------- 4.1 Normal or Late Retirement Benefit. A Participant who retires on or after his or her Normal Retirement Date shall be entitled to a benefit paid pursuant to Section 4.6, 4.7 or 4.8, whichever is applicable, equal to the Actuarial Equivalent of a monthly benefit payable in the Normal Form, commencing on the same date as the commencement of such Participant's normal or late retirement benefit 7 under the Basic Plan. Such monthly benefit will be equal to (a) minus (b), but not less than zero, where: (a) is the sum of (x) the amount of the monthly benefit the Participant would have been entitled to receive in the Normal Form, commencing at his or her normal or late retirement commencement date, under the Basic Plan if (i) the Limitations (and the provisions of the Basic Plan applying the Limitations) did not exist, (ii) the Participant's Average Monthly Compensation under the Basic Plan was determined as if all amounts deferred by the Participant under a Deferral Plan had been paid at the time they would have been paid but for such deferral and (iii) for the Participants that (A) have attained age 55, (B) have completed at least one Hour of Service (as defined in Section 2.22 of the Basic Plan) after attainment of age 55, and (C) are listed on Schedule B hereto, such Participant's Average Monthly Compensation under the Basic Plan was determined by including such Participant's Eligible Bonus Amounts (i.e., such Participant's Eligible Bonus Amount for each Plan Year is added to such Participant's corresponding basic monthly compensation for such Plan Year when determining the five consecutive Plan Years that produce the highest average and when determining such average) plus (y) such Participant's Supplemental Benefit, if any; and (b) is the monthly benefit payable in the Normal Form to the Participant under the Basic Plan. 4.2 Early Retirement Benefit. A Participant who has satisfied the requirements for an early retirement benefit under the Basic Plan and who retires thereafter (but prior to his or her Normal Retirement Date) shall be entitled to a benefit paid pursuant to Section 4.6, 4.7 or 4.8, whichever is applicable, equal to the Actuarial Equivalent of a monthly benefit payable in the Normal Form commencing on the same date as the commencement of such Participant's early retirement 8 benefit under the Basic Plan. Such monthly benefit will be equal to (a) minus (b), but not less than zero, where: (a) is the sum of (x) the amount of the monthly benefit the Participant would have been entitled to receive in the Normal Form, commencing at his or her early retirement commencement date, under the Basic Plan if (i) the Limitations (and the provisions of the Basic Plan applying the Limitations) did not exist, (ii) the Participant's Average Monthly Compensation under the Basic Plan was determined as if all amounts deferred by the Participant under a Deferral Plan had been paid at the time they would have been paid but for such deferral and (iii) for the Participants that (A) have attained age 55, (B) have completed at least one Hour of Service (as defined in Section 2.22 of the Basic Plan) after attainment of age 55, and (C) are listed on Schedule B hereto, such Participant's Average Monthly Compensation under the Basic Plan was determined by including such Participant's Eligible Bonus Amounts (i.e., such Participant's Eligible Bonus Amount for each Plan Year is added to such Participant's corresponding basic monthly compensation for such Plan Year when determining the five consecutive Plan Years that produce the highest average and when determining such average) and (y) such Participant's Supplemental Benefit, if any; and (b) is the Participant's monthly early retirement benefit under the Basic Plan payable in the Normal Form. 4.3 Vested Termination Benefit. Any Participant who has a termination of employment after he or she has satisfied the requirements for a deferred vested benefit under the Basic Plan but before he or she has satisfied the requirements for early retirement thereunder shall be entitled to a benefit paid pursuant to Section 4.6, 4.7 or 4.8, whichever is applicable, equal to the Actuarial Equivalent of a monthly benefit payable under the Plan in the Normal 9 Form, commencing on the same date as the commencement of such Participant's vested benefit under the Basic Plan. Such monthly benefit will be equal to (a) minus (b), but not less than zero, where: (a) is the sum of (x) the amount of the monthly benefit the Participant would have been entitled to receive in the Normal Form, commencing at his or her vested benefit commencement date, under the Basic Plan if (i) the Limitations (and the provisions of the Basic Plan applying the Limitations) did not exist, (ii) the Participant's Average Monthly Compensation under the Basic Plan was determined as if all amounts deferred by the Participant under a Deferral Plan had been paid at the time they would have been paid but for such deferral and (iii) for the Participants that (A) have attained age 55, (B) have completed at least one Hour of Service (as defined in Section 2.22 of the Basic Plan) after attainment of age 55, and (C) are listed on Schedule B hereto, such Participant's Average Monthly Compensation under the Basic Plan was determined by including such Participant's Eligible Bonus Amounts (i.e., such Participant's Eligible Bonus Amount for each Plan Year is added to such Participant's corresponding basic monthly compensation for such Plan Year when determining the five consecutive Plan Years that produce the highest average and when determining such average) and (y) such Participant's Supplemental Benefit, if any; and (b) is the monthly benefit payable in the Normal Form to the Participant under the Basic Plan. 4.4 Other Termination of Employment; Death. If a Participant has a termination of employment for any reason prior to the time he or she is eligible for a retirement or vested benefit under Section 4.1, 4.2, or 4.3, no benefit shall be payable to such Participant under the Plan. In the event a Participant dies prior to his or her Annuity Starting Date, then except as provided in Section 4.5 no benefits 10 shall be payable under the Plan with respect to such Participant. 4.5 Pre-Retirement Death Benefit. In the event a Participant dies on or after the earliest date as of which he or she becomes eligible for a benefit under Section 4.1, 4.2, or 4.3, but prior to his or her Annuity Starting Date, and the Participant's spouse or other Beneficiary (or each of them) is entitled to a benefit under the Basic Plan, such spouse or other Beneficiary shall be entitled to a benefit paid pursuant to Section 4.6, 4.7 or 4.8, whichever is applicable, equal to the Actuarial Equivalent of a monthly benefit payable under the Plan in the same form as the monthly survivor benefit payable under the Basic Plan, commencing on the same date as the commencement of such Participant's spouse's or other Beneficiary's survivor benefit under the Basic Plan. Such monthly benefit will be equal to (a) minus (b), but not less than zero, where: (a) is the sum of (x) the amount of the monthly survivor annuity the spouse or other Beneficiary would have been entitled to receive, in the same form and commencing on the same date as the monthly survivor annuity, under the Basic Plan if (i) the Limitations (and the provisions of the Basic Plan applying the Limitations) did not exist, (ii) the Participant's Average Monthly Compensation under the Basic Plan was determined as if all amounts deferred by the Participant under a Deferral Plan had been paid at the time they would have been paid but for such deferral and (iii) for the Participants that (A) have attained age 55, (B) have completed at least one Hour of Service (as defined in Section 2.22 of the Basic Plan) after attainment of age 55, and (C) are listed on Schedule B hereto, such Participant's Average Monthly Compensation under the Basic Plan was determined by including such Participant's Eligible Bonus Amounts (i.e., such Participant's Eligible Bonus Amount for each Plan Year is added to 11 such Participant's corresponding basic monthly compensation for such Plan Year when determining the five consecutive Plan Years that produce the highest average and when determining such average) and (y) the incremental amount of the monthly survivor annuity, the spouse or other Beneficiary would have been entitled to receive, in the same form and commencing the same date as the monthly survivor annuity, under the Basic Plan if such Participant's Basic Plan benefit were increased by such Participant's Supplemental Benefit, if any; and (b) is the amount of the monthly survivor annuity actually payable to the spouse or other Beneficiary under the Basic Plan. 4.6 Pre-1998 Annuity Starting Dates. Subject to Section 4.8, any Participant whose retirement, death or other termination of employment and Annuity Starting Date occurred before January 1, 1998, shall be paid a benefit of Actuarial Equivalent value in the same form of benefit actually paid to the Participant under the Basic Plan. 4.7 Post-1997 Annuity Starting Dates. (a) Any Participant whose (i) retirement, death or other termination of employment occurs after December 31, 1997 or (ii) whose retirement, death or other termination of employment occurs before January 1, 1998 and whose Annuity Starting Date occurs after December 31, 1997, shall be paid or, in the event of such Participant's death, his or her spouse or other Beneficiary shall be paid, a benefit of Actuarial Equivalent value in substantially equal annual payments in accordance with the schedule set forth in (d) below. (b) The initial benefit installment payable under this Section 4.7 for a Participant whose retirement, death or other termination of employment occurs after December 31, 1997 but before January 1, 1999, shall be made in the January of the year following the year in which occurred the Participant's Annuity Starting Date, and any payments 12 made subsequent to the initial installment shall be payable in the January of each year for which an amount is payable hereunder. All amounts payable to Participants or spouses or other Beneficiaries under this Section 4.7(b) shall be credited with interest from the Participant's Annuity Starting Date to the date of payment at a rate of interest equal to the interest rate determined pursuant to Section 1.1(a) in calculating the Actuarial Equivalent value for such Participant's benefit hereunder. (c) The initial benefit installment payable under this Section 4.7 for a Participant whose retirement, death or other termination of employment occurs (i) before January 1, 1998 and whose Annuity Starting Date occurs after December 31, 1997, or (ii) before May 1, 2004 and after December 31, 1998, shall be made coincident with such Participant's Annuity Starting Date, and any payments made subsequent to the initial installment shall be made on the anniversary of the Participant's retirement, death or other termination of employment which occurs in a year for which an amount is payable hereunder. (d) The initial benefit installment payable under this Section 4.7 for a Participant whose retirement, death or other termination of employment occurs after May 1, 2004 shall be made coincident with such Participant's Annuity Starting Date, and any payments made subsequent to the initial installment shall be payable in the January of each year for which an amount is payable hereunder. (e) The number of installment payments to be made shall be determined in accordance with the following schedule. 13 Lump Sum Actuarial Number of Equivalent Value of Benefits Annual Installments ----------------------------- ------------------- $50,000 or less Paid pursuant to Section 4.8 $100,000 or less, but greater than $50,000 2 $150,000 or less, but greater than $100,000 3 $200,000 or less, but greater than $150,000 4 Greater than $200,000 5 (f) If any Participant entitled to receive payments pursuant to this Section 4.7 should die prior to receiving all payments to be made hereunder, the remaining installments shall be paid to such Participant's spouse or other Beneficiary in accordance with the schedule set forth in (e) above and at the times set forth in (a), (b), (c) or (d) above, as the case may be. 4.8 Certain Lump Sum Settlements. Notwithstanding any other provision of the Plan to the contrary, if the lump sum Actuarial Equivalent value of the benefit payable under the Plan to any Participant, spouse or Beneficiary is $50,000 or less, determined prior to the initial payment of any such benefit to the Participant, spouse or Beneficiary, such Participant's benefit under the Plan shall instead be paid in a single lump sum payment of Actuarial Equivalent value as soon possible following the Participant's retirement, death or other termination of employment. 4.9 Reemployment After Retirement. If a Participant receiving payment of benefits hereunder is reemployed by a Participating Employer, his or her benefit payments hereunder shall not be suspended or adjusted during the period of such reemployment. Following the end of such period of reemployment, the retirement benefit payable to such Participant shall be recomputed in accordance with the terms of the Basic Plan and this Article IV to take into account such Participant's additional service and compensation for such period of reemployment, but shall not be less than the benefit to which he or she was entitled immediately prior to his or her reemployment; any increase in such benefit resulting from such reemployment shall be reduced by the 14 Actuarial Equivalent of any payments previously made under the Plan prior to such Participant's Normal Retirement Date or of any lump sum payment. Any increase in a Participant's benefit which results from a recomputation made pursuant to the preceding sentence which has a lump sum Actuarial Equivalent value of $10,000 ($50,000 on or after January 1, 2004) or less shall be paid to the Participant in one lump sum as soon as practicable following such recomputation. 4.10 Employment Taxes. In addition to any benefit payable under the Plan, each Participant shall be entitled to receive an additional payment for each Plan Year, beginning after December 31, 1993, equal to the amount of such Participant's net out-of-pocket expenses related to any employment or similar tax which results from benefits accrued under the Plan and any payment made under this Section 4.10. Article V - Plan Administration and Interpretation -------------------------------------------------- The Company shall have complete control over the administration of the Plan and complete control and authority to determine, in its sole discretion, the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan with respect to any Participant, surviving spouse, Beneficiary, or other person having or claiming to have any interest under the Plan and the Company's determinations shall be conclusive and binding on all such parties. The Company shall be deemed to be the Plan administrator with the responsibility for complying with any reporting and disclosure requirements of ERISA. Any rights of the Company hereunder which have not been delegated to the Committee shall be exercised by the Chief Executive Officer, the President, the Vice President, Finance or the Vice President and Secretary of the Company. To the extent that such officers are unable or unwilling to exercise any right hereunder or to make any such determination hereunder, however, the Committee shall exercise such right or make such determination. 15 Article VI - Amendment and Termination -------------------------------------- 6.1 Amendment and Termination. The Committee may terminate or amend this Plan (including Schedule A, Schedule B and/or Schedule C hereto) by written notice to each affected Participant; provided that no termination or amendment of this Plan shall reduce the Actuarial Equivalent value, or materially change the timing of the payment, of the benefit payable to or on behalf of a Participant hereunder, determined immediately prior to such termination or amendment, without the written consent of such Participant. Notwithstanding the foregoing, the Plan may be amended or modified without the consent of the Participant or Participants affected thereby if the Committee determines in good faith, following receipt of written advice from external counsel on such matter, that such amendment or modification (i) is de minimus with respect to each affected Participant or (ii) is required by applicable law. Further notwithstanding the foregoing, if, on or after January 1, 2004, (a) the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual financial statements filed by the Company with the Securities and Exchange Commission falls below 1.4 to 1 for two consecutive quarters, (b) the total of the Company's long-term debt for borrowed money (excluding the current portion thereof) exceeds 85% of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission or (c) the Company is subject to a "change of control" (each of the events described in (a), (b) and (c) above, a "Termination Event"), this Plan shall immediately terminate and the Committee shall, in complete discharge of its and the Company's obligations hereunder, distribute to each Participant the benefit that would have been payable to him or her hereunder had such Participant retired or otherwise terminated employment and commenced receiving such benefit immediately prior to the termination of the Plan; such benefit shall be paid in a single lump sum of Actuarial Equivalent value. 16 6.2 Change of Control. For purposes of this Article VI, "change of control" shall mean the occurrence of any one of the following events: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act")) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (b) persons who, as of January 1, 2004, constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to January 1, 2004 whose nomination or election was approved by at least a majority of the directors then comprising the Incumbent Board shall, for purposes of this Plan, be considered a member of the Incumbent Board; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such 17 merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 6.3 Certain Change of Control Benefits. Notwithstanding any provision elsewhere herein to the contrary (except Section 6.4), upon and following a change of control (as defined in Section 6.2) each Participant who is listed on Schedule C and who is employed by a Participating Employer on the date such change of control occurs shall be entitled to receive a benefit hereunder pursuant to Section 4.1, 4.2, 4.3 or 4.5, whichever is applicable, which benefit shall be determined as if such Schedule C Participant (i) had attained age 55 on the date such change of control occurred, (ii) had completed at least one Hour of Service (as defined in Section 2.22 of the Basic Plan) after attainment of age 55, and (iii) had been listed on Schedule B commencing on such date. 6.4 Additional Limitation. Notwithstanding any provision elsewhere herein to the contrary, in the event that any compensation, payment or distribution by the Company to or for the benefit of any Participant, whether paid or payable or distributed or distributable pursuant to the terms of the Plan or otherwise (the "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code, then the benefit payable under the Plan to or for the benefit of such Participant shall be reduced (but not below zero) to the extent necessary so that the aggregate Payments shall not exceed the Threshold Amount. For purposes of this Section 6.4, "Threshold Amount" shall mean three times such Participant's "base amount" within the 18 meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00); and "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code. Article VII - Miscellaneous --------------------------- 7.1 Nonassignability. None of the benefits, payments, proceeds or claims of any Participant, surviving spouse or Beneficiary shall be subject to any claim of any creditor of such individual and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any such creditor, nor shall any Participant, surviving spouse or Beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he or she may expect to receive, contingently or otherwise, under this Plan. 7.2 Limitation on Participants' Rights. Participation in this Plan shall not give any Participant the right to be retained in the employ of a Participating Employer or any right or interest in the Plan other than as herein provided. Each of the Company and the other Participating Employers reserve the right to dismiss any Participant without any liability for any claim against the Participating Employer, except to the extent provided herein or elsewhere. 7.3 Parties Bound. The terms of this Plan shall be binding upon the Company, the other Participating Employers and their successors or assigns and each Participant participating herein and his or her surviving spouse, Beneficiaries, heirs, executors and administrators. Subject to the foregoing, any action with respect to this Plan taken by the Committee, the Company, or any other Participating Employer, or any action authorized by or taken at the direction or on behalf of the Committee, the Company, or any other Participating Employer shall be conclusive upon all Participants, surviving spouses and Beneficiaries entitled to benefits under the Plan. 19 7.4 Receipt and Release. Any payment to any Participant, surviving spouse or Beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company and any other Participating Employer, and the Committee may require such Participant, surviving spouse or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant, surviving spouse or Beneficiary is determined by the Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Committee may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Committee, the Company, or any other Participating Employer to follow the application of such funds. 7.5 Liability of Participating Employers. Subject to its obligation to pay the amount contemplated by the Plan at the time contemplated by the Plan, none of the Company, any other Participating Employer, or any person acting on behalf of the Company or any other Participating Employer shall be liable to any Participant, surviving spouse, Beneficiary or any other person for any act performed, or the failure to perform any act, with respect to the Plan. 7.6 Notices. Elections or designations by a Participant to the Company hereunder shall be addressed to the Company to the attention of the Vice President of Human Resources of the Company or his or her designee or, in the absence of the Vice President of Human Resources or his or her designee, to the Vice President and Secretary of the Company. Notices by the Company to a Participant shall be addressed to the Participant at his or her most recent home address as reflected in the records of the Company. 7.7 Unsecured General Creditors. No Participant, surviving spouse or Beneficiary and none of their legal representatives shall have any right, other than the right of an unsecured general creditor, against 20 the Company or any other Participating Employer in respect of any benefit payable hereunder. 7.8 Severability. In case any provision or provisions of this Plan shall be held illegal, invalid or otherwise unenforceable for any reason such illegality, invalidity or unenforceability shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if the illegal, invalid or unenforceable provisions had not been included in the Plan. 7.9 Governing Law. This Plan shall be construed, administered, and governed in all respects under and by the laws of the Commonwealth of Massachusetts, except to the extent that such laws may be preempted by ERISA. 7.10 Headings and Subheadings. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this amended and restated Plan to be executed by its duly authorized officer this 10th day of March, 2004. ROGERS CORPORATION By: /s/ Walter E. Boomer -------------------------------------- Walter E. Boomer Chairman of the Board of Directors and Chief Executive Officer 21 SCHEDULE A ---------- Supplemental Benefit Participant Amount/Adjustment Methodology ----------- ----------------------------- 22 SCHEDULE B ---------- Participant (Date of Birth) --------------------------- Frank J. Gillern (02/11/48) Harry W. Kenworthy (11/15/47) Bruce G. Kosa (10/28/39) David W. Richardson (05/23/48) John A. Richie (11/08/47) Robert M. Soffer (11/08/47) Robert D. Wachob (06/28/47) 23 SCHEDULE C ---------- The individuals described below shall be deemed listed on this Schedule C as if their names were actually listed hereon; provided that any such individuals who are listed on Schedule B hereto shall not also be listed on this Schedule C: - -- All United States-based elected corporate officers of Rogers Corporation. - -- All United States-based Vice Presidents (or higher) of Rogers Corporation. LIBB/1207345.16 24 EX-99 19 a4592426ex99manage.txt MANAGMENT'S DISCUSSION AND ANALYSIS MANAGEMENT'S DISCUSSION AND ANALYSIS Overview Rogers Corporation is a global enterprise with manufacturing facilities located in the United States, Europe, China and Korea and sales offices in the United States, Europe, China, Japan, Hong Kong, Taiwan, Korea and Singapore. The Company also has joint ventures with two Japanese Companies, Inoac Corporation and Mitsui Chemicals, Inc., and Chang Chun Plastics, Co., Ltd in Taiwan. The Company's revenues and cash flows are driven by the development, manufacturing, and distribution of specialty materials that are focused on the communications, computer, imaging, transportation and consumer markets. These 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, high performance foams, and polymer materials and components. An increasingly large percentage of these materials support growing high technology applications, such as cellular base stations and antennas, handheld wireless devices, satellite television receivers, hard disk drives, and automotive electronics. The Company's future market opportunities and business growth are dependent in part upon its ability to drive research and development efforts to favorably position itself in emerging markets and commercialize new materials to enable next generation technologies. In this regard, the Company is focused on such markets as third generation ("3G") cellular telephone base stations; feature-rich cellular telephones; near object detection and adaptive cruise control technology for the automotive market; and the satellite television market driven by the introduction of new three and four room dish packages. The Company faces many challenges to successfully take advantage of its business plan. These challenges include staying in the forefront of new and emerging technologies through research and development and in managing manufacturing capacity due to volatility in its target markets, as evident by the recent surge in the Company's printed circuit materials business. The Company is addressing these challenges by its continuing commitment of resources to research and development with a strategic target of investing 6% of sales annually and by establishing new manufacturing facilities in Carol Stream, Illinois and Suzhou, China, expanding its Belgium manufacturing facilities, and leveraging available capacity with its joint ventures. The Company will continue to focus on these opportunities and attempt to favorably position itself in accordance with its strategic business plan. The Company uses a 52- or 53-week fiscal year calendar ending on the Sunday closest to the last day in December of each year. Fiscal 2003 was a 52-week year ending on December 28, 2003. Fiscal 2004 is a 53-week year ending on January 2, 2005. The Company will include the extra week in its first quarter ending April 4, 2004. 1
Results of Operations - ------------ 2003 vs. 2002: ------------ --------------- ---------------- ----------------- (Dollars in Millions) 2003 2002 Change % Change ------------ --------------- ---------------- ----------------- Net Sales $243.3 $219.4 $23.9 11% Manufacturing Margins 32.3% 31.6% 0.7% 2% Selling and Administrative 43.3 39.3 4.0 10% Research and Development 13.7 13.6 0.1 1% Operating Income 21.6 14.2 7.4 52% Equity Income in Unconsolidated Joint Ventures 6.6 8.7 (2.1) (24)% Other Income Less Other Charges 6.6 2.2 4.4 200%
Sales Net sales increased by 11% to $243.3 million in 2003 from $219.4 million in 2002. 2002 net sales included $30.3 million from the Moldable Composites Division ("MCD") that was divested in 2002. Excluding MCD, net sales increased $54.2 million, or 29%, from 2002 to 2003. The major cause of the increase was the growth in sales in the Printed Circuit Materials ($31.8 million, or 39%) and High Performance Foams ($4.4 million, or 7%) segments, and from the fourth quarter acquisition of the 50% of Durel Corporation ("Durel") that the Company did not already own ($20.8 million of sales included in consolidated net sales during the year ended December 28, 2003). The growth in Printed Circuit Materials stemmed mainly from increased sales of flexible circuit materials into the cellular and handheld mobile device markets and high frequency materials into the satellite television and base station markets. The increase in the High Performance Foams segment was due to increased sales of urethane foams used in various industrial applications. Manufacturing Margins Manufacturing margins increased from 31.6% in 2002 to 32.3% in 2003. The impact of higher revenues in Rogers' higher margin businesses coupled with productivity improvements continues to drive stronger manufacturing margins; however, the gains have been somewhat offset by the continued start-up investment associated with the Company's plant openings in Suzhou, China and Carol Stream, Illinois. The start-up costs will most likely continue at varying levels through the second quarter of 2004. Selling and Administrative Expenses Selling and administrative expenses increased from $39.3 million in 2002 to $43.3 million in 2003, but remained approximately the same as a percentage of net sales, at 18%. This increase was driven primarily by the inclusion of costs for the recently acquired Durel business ($1.0 million), increased support of the Asian operations ($2.8 million), and higher incentive compensation expenses ($1.1 million). 2 Restructuring Charges In 2002, the Company incurred restructuring charges of approximately $2.2 million. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to the end of fiscal 2002. The remaining employees were notified prior to year-end and subsequently terminated at various dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of December 28, 2003, there was no balance remaining in the restructuring accrual as all of the accrual was used for its intended purpose. Research and Development Research and development expenses in 2003 were consistent with 2002. As a percentage of sales, 2003 costs are slightly lower when compared to 2002, 5.6% to 6.2%, respectively. This decrease is due primarily to the timing of developmental projects. The Company's strategic plan is to invest an average of 6% of sales annually into research and development and it is expected that future expenditures will be consistent with this targeted investment level, particularly with the planned ramp up for the recent Durel acquisition and the start-up of the new polyolefin operations in Carol Stream. Equity Income in Unconsolidated Joint Ventures Equity income in unconsolidated joint ventures decreased $2.1 million from $8.7 million in 2002 to $6.6 million in 2003. The decrease was primarily due to the acquisition of Durel, the Company's former 50% joint venture, and its inclusion in the Company's consolidated results in the fourth quarter of 2003 (Durel's equity income in the fourth quarter of 2002 was approximately $2.0 million). Equity income from the Company's joint ventures other than Durel remained reasonably consistent from 2003 to 2002. The operations and the performance of the joint ventures are described further in the "Joint Ventures" section below. Other Income Less Other Charges Other income less other charges increased from $2.2 million in 2002 to $6.6 million in 2003. This increase was primarily due to increased royalties, principally associated with the intellectual property license entered into in connection with the divestiture of MCD ($3.4 million). Income Taxes The effective tax rate was 25% in 2003 and 2002. In 2003, as in 2002, the effective tax rate continued to benefit from foreign tax credits, research and development credits, and nontaxable foreign sales income. 3 In December 2002, the Belgian government enacted a tax rate decrease effective for years ending in 2003 or later. All ending deferred tax balances attributable to Belgian operations were modified from the 40.17% tax rate to the new 33.99% tax rate for U.S. GAAP purposes to reflect this change. The effect of this change on 2003 earnings of Belgian operations was approximately a $284,000 decrease in current tax expense. The Company had used the equity method of accounting for the profit and loss of its 50% ownership of Durel Corporation prior to September 30, 2003. A deferred tax liability was provided on historical earnings annually. Prior to the acquisition by Rogers of the remaining 50% of Durel's stock, Durel, as anticipated, paid a $3 million dividend to Rogers that qualified for the dividend received deduction benefit. Therefore, 80% of the dividend was not subject to U.S. tax and the corresponding deferred tax liability for the distribution of equity was eliminated, resulting in a net tax benefit of $840,000. Also, in conjunction with the acquisition accounting for the purchase, the remaining deferred tax liability for the undistributed earnings of Durel was accounted for as a decrease to goodwill as the deferred tax liability was no longer required. It is the Company's policy that no U.S. taxes are provided on undistributed earnings of consolidated foreign subsidiaries because such earnings are expected to be permanently reinvested. The Company provides deferred taxes for the undistributed earnings of its Japanese high performance foams joint venture. The net deferred tax asset for foreign tax credits available in excess of the expected tax on the undistributed income is entirely offset by a corresponding valuation allowance due to the future uncertainty of the recognition of such credits as they may be limited under the U.S. tax code. The Company also claims a U.S. benefit for nontaxable foreign sales income as allowed under the current extraterritorial income exclusion ("ETI"). The World Trade Organization has upheld a challenge of this directive by the European Union and the U.S. is currently considering alternatives to replace it. Without knowing the outcome, the impact this issue will have on future earnings is uncertain. If ETI is repealed and new legislation is enacted that does not replace the ETI benefit to the Company, the lost benefit may adversely affect the Company's overall effective tax rate and therefore earnings. The decrease in the effective tax rate attributable to this item is 3.5% and 4.5% for 2003 and 2002, respectively. Backlog The Company's backlog of firm orders was $48.3 million at December 28, 2003 and $21.7 million at December 29, 2002. The increase in 2003 is due primarily to the acquisition of Durel and growth in orders in the Printed Circuit Materials segment. 2002 vs. 2001:
--------------- -------------- ----------------- ----------------- (Dollars in Millions) 2002 2001 Change % Change --------------- -------------- ----------------- ----------------- Net Sales $219.4 $216.0 $3.4 2% Manufacturing Margins 31.6% 30.9% 0.7% 2%
4
Selling and Administrative 39.3 39.2 0.1 0% Research and Development 13.6 12.6 1.0 8% Operating Income 14.2 13.0 1.2 9% Equity Income in Unconsolidated Joint Ventures 8.7 3.1 5.6 181% Other Income Less Other Charges 2.2 4.8 (2.6) (54)%
Sales Net sales were $219.4 million in 2002, up from $216.0 million in 2001. The major cause of the increase in revenue was due to the increase in sales in the High Performance Foams segment mitigated by overall decreases in the Company's other two business segments. The increase in sales in High Performance Foams stemmed from increased sales of urethane foam products in the industrial and printing markets and the polyolefin foam acquisition. The decreases in the other two segments were due, in part, to the continued softness in the wireless infrastructure market and the divestiture of MCD in November 2002. Manufacturing Margins Manufacturing margins increased from 30.9% in 2001 to 31.6% in 2002. This was due primarily to the continued cost saving initiatives implemented in 2001 and 2002. Some of these cost saving measures included: Six Sigma, lean manufacturing, raw material cost reductions, business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and workforce reductions. Selling and Administrative Selling and administrative expenses remained approximately the same in both total dollars and as a percentage of sales, at 18%. Restructuring In 2002 the Company incurred restructuring charges of $2.2 million. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to year-end. The remaining employees were notified prior to year-end. The separation date of these residual employees occurred on varied dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. Restructuring charges in 2001 totaled $500,000 that related primarily to severance benefits for employees terminated within the Printed Circuit Materials segment, which stemmed from the merging of two business units within the segment. 5 Research and Development Research and development expenses were $13.6 million in 2002 compared to $12.6 million in 2001. This increase was due to the cost of additional technical personnel commensurate with the continuing increased focus on new product development. Equity Income in Unconsolidated Joint Ventures Equity income in unconsolidated joint ventures increased $5.6 million from $3.1 million in 2001 to $8.7 million in 2002. The increase was due to a significant increase in joint venture income, primarily from Durel (as described further in the joint venture section below). Other Income Less Other Charges Other income less other charges decreased to $2.2 million in 2002 from $4.8 million in 2001. This decrease was largely due to lower royalty income in 2002. Income Taxes The effective tax rate was 25% in both 2002 and 2001. In 2002, as in 2001, the effective tax rate continued to benefit from foreign tax credits, research and development credits, and nontaxable foreign sales income. In December 2002, the Belgian government enacted a tax rate decrease effective for years ending in 2003 or later. All ending deferred tax balances in 2002 attributable to Belgian operations were modified from the 40.17% tax rate to the new 33.99% tax rate for U.S. GAAP purposes to reflect this change. Backlog The Company's backlog of firm orders was $21.7 million at December 29, 2002 and $23.3 million at December 30, 2001. The decrease in 2002 versus 2001 was due primarily to the divestiture of MCD, partially offset by increased orders in the majority of the Company's ongoing businesses. Segment Sales and Operations
PRINTED CIRCUIT MATERIALS: ------------- ------------- ---------------- (Dollars in Millions) 2003 2002 2001 ------------- ------------- ---------------- Net Sales $114.2 $82.4 $88.3 Operating Income 15.3 4.8 6.1
Sales of Printed Circuit Materials increased a record 39% in 2003 to $114.2 million from $82.4 million in 2002. Sales decreased 7% in 2002. Sales in 2003 were driven by increased flexible circuit laminate revenues of 61% as the cellular and handheld mobile device markets surged and the Company achieved growth in market share. High frequency material revenue increased 35% as the Company experienced strong sales in the satellite television market, as well as 6 accelerating wireless infrastructure sales as more 3G base stations were built. Sales in 2002 were negatively impacted by the softness in the wireless infrastructure market. While overall sales were down in 2002, sales were only slightly off from the Company's overall expectations, due to increased market share for high frequency materials in satellite television receivers, design wins in flexible laminates for cell phone applications and sales to a major U.S. customer seeking increased flexible circuit sales into the hard disk drive industry. Printed Circuit Materials operating income was $15.3 million in 2003 and $4.8 million in 2002. The increase was attributable to higher sales volume (as discussed above) and productivity improvements. In 2002, operating income was lower by $1.3 million than in the prior year. The lower level of sales was the major factor leading to the decrease in 2002. HIGH PERFORMANCE FOAMS: ------------- ------------- ---------------- (Dollars in Millions) 2003 2002 2001 ------------- ------------- ---------------- Net Sales $69.5 $65.1 $49.7 Operating Income 2.6 8.1 4.6 Sales of High Performance Foams were $69.5 million, up 7% from $65.1 million in 2002. This increase was attributable to the improvement in sales of urethane and silicone foams into the cellular telephone, automotive and wireless infrastructure markets; as well as sales growth in China. These increases were partially offset by a decrease in sales of polyolefin foams due to specification issues in several applications and declines in the Bun product line to a level leading the Company to announce in January 2004 its intention to suspend sales of this product line. Favorable developments in this segment included the Company's initiation of plans and efforts to co-develop increased capacity for its urethane products with its Japanese joint venture, the expeditious move of its silicone product operations into the new Carol Stream facility in Illinois early in the year without disruption to its customers, and the start-up of its first new polyolefin production line in Carol Stream late in 2003, which was based on a completely new process technology. In addition, the new polyolefin line, in conjunction with a new pilot line also established in late 2003 in the Company's central research and development center, has set the stage for a ramp up in product development and new customer product trials which are well underway at key customers. The Company remains committed to and is optimistic about the technologies acquired in the polyolefin technology acquisition. High Performance Foams revenue increased 31% in 2002 as the Company's urethane foams realized increased sales due to better penetration in the electronic handheld device and printing markets. The new polyolefin foam business, which was acquired in early 2002, also contributed to the year's improved sales. Despite the severe downturn in the aircraft industry, silicone foam sales only experienced a moderate decrease. Operating income from High Performance Foams was $2.6 million in 2003 and $8.1 million in 2002. The decrease in operating income in 2003 was primarily due to significantly higher than planned transition costs associated with the move of 7 polyolefin production from St. Johnsville, New York to the Carol Stream facility and an unfavorable sales mix. Operating profit was higher in 2002 by $3.5 million as compared to 2001 primarily due to the higher level of urethane product sales, the incremental sales due to the polyolefin acquisition, and improvement in manufacturing operations. POLYMER MATERIALS AND COMPONENTS: ------------- ------------- ---------------- (Dollars in Millions) 2003 2002 2001 ------------- ------------- ---------------- Net Sales $59.6 $71.9 $78.0 Operating Income 3.7 1.3 2.3 Sales of Polymer Materials and Components decreased 17% in 2003 and 8% in 2002. 2002 sales included $30.3 million of sales from MCD that was divested in November 2002. Excluding MCD, sales were up $18.0 million, or 43%, over 2002. This increase was driven by higher sales of the busbar and non-woven businesses and the consolidation of the Durel Division (formerly a 50% owned joint venture with 3M), with sales of $20.8 million in the fourth quarter of 2003, offset by a decrease in elastomer components products. In 2002, sales decreased from 2001 due to the divestiture of MCD in November 2002 (2001 included a full year of MCD sales) and a continued decline in the Company's elastomer components products. Polymer Materials and Components operating income increased $2.4 million to $3.7 million in 2003 from $1.3 million in 2002. Operating income decreased $1.0 million in 2002. The increase in 2003 was mainly attributable to the Durel acquisition and commensurate inclusion of Durel's operating income in the Company's consolidated fourth quarter results (Durel's results for the first three quarters of 2003 were previously recorded in equity income in unconsolidated joint ventures for the Company's proportional equity income share), offset by a decrease in sales of the elastomer components products. Lower sales were the primary cause of the decrease in operating income in 2002. Joint Ventures Durel Corporation: Durel manufactures electroluminescent lamps and designs and sells semiconductor inverters. Durel was a 50% owned joint venture with 3M until the Company acquired the remaining 50% interest on September 30, 2003 (see "Acquisitions and Divestitures"). Through the first three quarters of 2003, Durel recorded sales of $51.3 million as compared to $59.0 million for the comparable period in 2002. The decrease from 2002 to 2003 stemmed from the impact of the continued shift of cell phones and hand held devices to color displays. In the second half of 2003, several new programs, such as keypad backlighting applications for flexible lamps as well as various automotive applications, were further developed and are expected to positively impact Durel's operations in fiscal 2004. Sales in the fourth quarter totaled $20.8 million (as compared to $25.0 million in the fourth quarter of 2002) and are included in the Company's consolidated results. Durel recorded sales in 2002 that were 41% higher than in 2001. Both sales and profits set new yearly records in 2002. The record year was the result of newly 8 adopted automotive applications and well-timed design wins in new cell phone models. Rogers Inoac Corporation ("RIC"): Sales increased 36% in 2003 from 2002. This increase was driven by a number of application wins resulting in market share growth in various industrial markets, including cell phones and automotive. In January 2002, RIC sold its elastomer components product line to the Company's Japanese joint venture partner, Inoac Corporation ("Inoac"). The sale has allowed the joint venture to focus solely on its high performance foams business. This transaction has had no significant impact on earnings. Sales of RIC decreased by 38% from 2001 to 2002. This decrease is attributed to RIC selling its elastomer components product line to Inoac Corporation. Comparing 2002 to 2001, without the elastomer components product line, sales would have increased by 20%. RIC's high performance foam sales benefited in 2002 from increased activity in Asia in the industrial portion of its business. Polyimide Laminate Systems, LLC ("PLS"): Sales of PLS, the Company's joint venture with Mitsui Chemicals, Inc. that sells adhesiveless laminates for trace suspension assemblies, were 15% lower in 2003 and 1% higher in 2002. Sales decreased in 2003 due to a ramp up in the fourth quarter of 2002 by its sole customer coupled with the fact that this customer increased its allocation of purchases to other suppliers in 2003 to further mitigate its risk of reliance on a sole supplier. PLS has retained a significant portion of this customer's business and anticipates activity with this customer will continue to be significant in the future. The increase in sales in 2002 was due to increased orders from its customer which experienced a substantial increase in demand in the fourth quarter, resulting in record fourth quarter sales. This substantial increase was due to lower yields at some end users who were transitioning to higher density disk drive recording heads. Rogers Chang Chun Technology Co., Ltd. ("RCCT"): RCCT, the Company's joint venture with Chang Chun Plastics Co., Ltd. that was established in late 2001 to manufacture flexible circuit material for customers in Taiwan, experienced its first sales in 2002. Sales increased in 2003 by 71% from 2002. This increase was due to significant application wins late in 2003 in the Taiwan market that are expected to drive sales growth even further in fiscal 2004. The Company also plans to utilize this facility to alleviate some of the capacity constraints it has experienced in the United States due to the overall increase in the Company's flexible laminate business. Product and Market Development 9 Rogers' research and development team is dedicated to growing the Company's businesses by developing cost effective products that improve the performance of customers' products. Research and development as a percentage of sales was approximately 6% in 2003, 2002, and 2001. The Company's investment in technology resulted in several new product launches during 2003. A more compressible Poron(R) grade was developed and launched to address more demanding needs in cell phone applications and has resulted in several new adoptions of the material in customer's products. The LCP (Liquid Crystalline Polymer) platform was expanded in 2003 with the launch of R/Flex(R) 3850, a two copper layer, more temperature resistant flexible laminate product that will allow customers to build thin multilayer constructions. The RO4000(R) family continued to be expanded with the introduction of RO4350i(R), a high frequency laminate product with enhanced copper bond and a new lower cost grade for satellite receiver applications. In addition, Senflex(R)F, a new higher performance elastomeric grade was developed to expand the product offerings of our recently acquired polyolefin foams business. Acquisitions and Divestitures On January 30, 2004, the Company announced its acquisition of KF Inc. ("KF"), a Korean manufacturer of liquid level sensing devices for the automotive market, through a stock purchase agreement of approximately $3.5 million. In fiscal 2003, sales of KF were approximately $3 million. Under the terms of the agreement, KF has become a wholly owned subsidiary of Rogers and will be included in Rogers consolidated results in the first quarter of fiscal 2004. The acquisition will be accounted for as a purchase pursuant to Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". As such, the purchase price will be allocated to assets and liabilities based on their respective fair values at the date of acquisition in accordance with accounting principles generally accepted in the United States. On September 30, 2003, the Company acquired from 3M Company its 50% interest in Durel Corporation, a joint venture of Rogers and 3M, for $26 million in cash. Effective September 30, 2003, the operations of Durel were fully integrated and consolidated into Rogers Corporation. The new business unit is being called the Durel Division and its financial and operating results are being included as part of Rogers' Polymer Materials and Components business segment. The acquisition has been accounted for as a purchase pursuant to SFAS No. 141. In early 2002, the Company acquired much of the intellectual property and most of the polyolefin foam product lines of Cellect LLC. This polyolefin foam business is being integrated into Rogers High Performance Foams operations in Carol Stream, Illinois. This business was modestly accretive to earnings in 2002; however, in 2003, the Company had greater than planned lead times and transition costs in integrating production into the Carol Stream facility, thus negatively impacting product sales and earnings. The Company anticipates that this transition will be complete in the second quarter of 2004 and expects that sales and profitability of this polyolefin foam business will significantly 10 increase as a result. Continued market response to this acquisition has been very positive. On November 18, 2002, the Company completed the divestiture of MCD, located in Manchester, Connecticut. MCD was sold to Vyncolit North America Inc., a subsidiary of the Perstorp Group, Sweden. Under the terms of the agreement, the Company expects to receive a total of approximately $21.0 million for the business assets (excluding the intellectual property) and a five-year royalty stream from the intellectual property license. Half of the $21.0 million was paid in cash upon consummation of the transaction. A note receivable was provided for the remainder of the proceeds that will be paid over a five-year period. The first installment of $2.1 million plus accrued interest was received in the fourth quarter of 2003. There was no material gain or loss on the sale transaction. In early 2001, the Company had entered into a definitive agreement to purchase the Advanced Dielectric Division ("ADD") of Tonoga, Inc. (commonly known as Taconic). In May 2001, the Company announced that active discussions with Taconic to acquire the ADD business had been suspended and it was anticipated that the acquisition would not occur. Accordingly, $1.5 million in costs associated with this potential acquisition were written off during the second quarter of 2001. In October 2001, the Company formally terminated the acquisition agreement. Liquidity and Capital Resources Rogers' financial position continued to be strong at the end of 2003 and included cash and cash equivalents of $31.5 million compared to $22.3 million at the end of 2002. The $9.2 million increase in cash in 2003 included a $26.0 million cash payment for the purchase of Durel in the fourth quarter which was partially offset by cash acquired in the acquisition of $8.7 million and by a voluntary contribution of $5.6 million to the Company's pension plans. During 2003, the Company's cash flows from operations of $29.7 million (compared to $26.0 million in 2002) were the primary source of funds for the Company's operating and capital needs, as the Company has no outstanding debt. The 2002 cash flow was driven by the strength in cash provided by from operations, strong cash flows from the joint ventures that enabled Durel Corporation to pay down its working capital loan from the Company, and positive results from the continuation of the company-wide initiative to reduce inventory levels. Capital expenditures totaled $18.0 million in 2003 and $22.7 million in 2002. In 2003, the Company continued its expansion at the facilities opened in 2002 that included the purchase of a new building in Carol Stream, Illinois to accommodate the then newly acquired polyolefin product lines and the existing silicone foam business. The Company also invested in its new manufacturing campus in Suzhou, China, which was also initiated in 2002. During 2002 and 2001, the Company established a new manufacturing facility for high frequency laminates in Ghent, Belgium. This facility became operational in January 2003 and expanded to full capacity in late 2003. 11 Cash generated from the Company's operating activities exceeded capital spending in both years, 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 $50.0 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 50.0 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 28, 2003. 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. In September 2001, Rogers N.V., a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. This agreement had a credit limit of 6.2 million Euros and an original expiration date of May 2005. All outstanding balances owed under this credit agreement were repaid in 2002 and the agreement was subsequently cancelled in 2003. Capital expenditures in 2004 are forecasted to approximate between $30-$35 million. Management believes that over the next twelve months, internally generated funds plus available lines of credit will be sufficient to meet the capital expenditures and ongoing needs of the business. However, the Company continually reviews and evaluates the adequacy of its lending facilities and relationships. Contractual Obligations The following table summarizes the Company's significant contractual obligations as of December 28, 2003:
Payments Due by Period ----------------------------------------------------------------------- --------------- ------------- ----------- ------------- --------------- Within 1 1-3 Years 3-5 Years After 5 Years (Dollars in Thousands) Total Year --------------- ------------- ----------- ------------- --------------- --------------- ------------- ----------- ------------- --------------- Operating Leases $1,347 $616 $533 $117 $81 Purchase Obligations 1,505 1,505 -- -- -- Capital Commitments 6,978 6,978 -- -- -- --------------- ------------- ----------- ------------- --------------- Total $9,830 $9,099 $533 $117 $81 =============== ============= =========== ============= ===============
The Company entered into a stock purchase agreement on January 30, 2004 to acquire KF Inc. for approximately $3.5 million. The cash outlay for this commitment occurred in the first quarter of 2004. The Company's capital commitments include a capital investment of $2.1 million into the Company's expanded joint venture activities with Inoac in Suzhou, China. 12 Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that have, or are in the opinion of management reasonably likely to have, a current or future effect on the Company's financial condition or results of operations. Dividend Policy The Company evaluates from time-to-time the desirability of paying a dividend; however, at present, the Company expects to maintain a policy of emphasizing longer-term growth of capital rather than immediate dividend income. Environmental Activities and General Litigation 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 four active cases involving waste disposal 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 settled a dispute, in January 2003, regarding the alleged improper disposal of PCB's by the Company at the Woodstock facility. 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 $25.0 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 lawsuit was associated with the Company's termination, in October 2001, of an acquisition agreement for the purchase of ADD of Taconic (see "Acquisitions and Divestitures"). In September 2002, a confidential settlement agreement concerning all matters raised in this litigation was negotiated and entered into. The settlement had no material financial impact. Over the past several years, there has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all material costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes that these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. 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 13 and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. 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 or product liability matters, except as disclosed in the Notes to Consolidated Financial Statements. Refer to Note J of the Notes to Consolidated Financial Statements for a discussion of the above matters and the related costs. New Accounting Standards FASB Interpretation No. 46 In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46 clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN No. 46 (revised December 2003),"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special purpose entities ("SPEs") created prior to February 1, 2003: The Company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003: The Company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an SPE, which were created subsequent to January 31, 2003: The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. The Company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have a material impact on the Company's financial statements as the Company did not enter into any such arrangements subsequent to January 31, 2003. For arrangement existing prior to 14 January 31, 2003, the Company determined that it had one variable interest entity; however, the Company was not the primary beneficiary and, as such, did not have to consolidate in accordance with FIN 46. The Company is currently evaluating the impact of adopting FIN 46-R applicable to non-SPEs created prior to February 1, 2003, but does not expect a material impact. FASB Staff Position No. 150-3 In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 requires that an issuer classify certain financial instruments as liabilities. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and was effective at the beginning of the first interim period beginning after June 15, 2003 for all other instruments. The adoption of the statement in July 2003 did not have a material impact on the Company's results of operations or financial position. Subsequent to adoption, on November 7, 2003, the FASB issued FASB Staff Position ("FSP") 150-3, "Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". FSP 150-3 deferred the effective date of SFAS No. 150 for certain mandatorily redeemable non-controlling interests until the first quarter of 2004. The adoption of FSP 150-3 will have no impact on Rogers' results of operations or 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 for those involving significant estimation. 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, an allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate reserves are established as deemed appropriate. The remainder of the reserve is based on management's estimates and takes into consideration historical trends and current market assessments. The risk associated with this estimate is that the Company would not become aware of potential collectibility issues related to specific accounts and become exposed to potential unreserved losses. Historically, the Company's estimates and assumptions around the allowance have been reasonably accurate and the Company has processes and controls in place to closely monitor customers and potential 15 credit issues. For additional information, see related party discussion that follows regarding Cellect. Inventory allowances: The Company maintains an obsolescence and slow-moving allowance for inventory. Products and materials that are specifically identified as obsolete are fully reserved. Most products that have been held in inventory greater than one year are fully reserved unless there are mitigating circumstances, including forecasted sales or current orders for the product. The remainder of the allowance is based on management's estimates and fluctuates with market conditions, design cycles and other economic factors. Risks associated with this allowance include unforeseen changes in business cycles that could affect the marketability of certain products and an unforecasted decline in current production. Management closely monitors the market place and related inventory levels and has historically maintained reasonably accurate allowance levels. 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. Environmental and Product Liability: The Company accrues for its environmental investigation, remediation, operating and maintenance costs when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple PRPs , the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. Accrued environmental liabilities are only reduced by potential insurance reimbursements when they have been confirmed or received from the insurance company. The Company is exposed to the uncertain nature inherent in such remediation and the possibility that initial estimates are too conservative. To mitigate these risks, the Company closely monitors existing and potential environmental matters and has historically been reasonably accurate in its assumptions and estimates. Product liability claims are accrued on the occurrence method based on insurance coverage and deductibles in effect at the date of the incident and management's assessment of the probability of loss when reasonably estimable. Risk factors include the uncertain nature of new product liability claims and unfavorable resolutions to existing claims that could have an adverse effect on the Company. Goodwill: Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are primarily established using a discounted cash flow methodology. The determination of discounted cash flows is based on the businesses' strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are 16 management's best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each segment based on the current cost structure and anticipated cost reductions. There are inherent uncertainties related to these factors and management's judgment in applying them to the goodwill valuation analysis. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and could result in impairment being assessed, which in turn would be required to be recorded. Pension and Other Postretirement Benefits: The Company provides various defined benefit pension plans for its U.S. employees and sponsors three defined benefit healthcare and life insurance plans for its U.S. retirees. As a result of the overall decline in market interest rates, the Company used a lower discount rate to measure the projected benefit obligation on the plans as of the 2003 measurement date. This resulted in an increase to the projected benefit obligation for all plans that was offset by the Company's contributions to the plans in 2003 and the market growth of the plans' assets in 2003. These factors culminated in a net positive result to the reported obligations, expense, and funding status for the plans in 2003. In 2002, stock market declines experienced since the 2002 measurement date reduced the fair value of plan assets and the Company reduced its discount rate as a result of the overall decline in market interest rates. As a result, these combined factors had a negative financial reporting effect in 2002 in terms of reported obligations, expense, and funding status for the plans. Given the sensitivity of the projected benefit obligation to changes in the discount rate and of the fair value of assets for the plans based on the market's actual performance, future changes in market rates and variances in actual market performance versus forecasted market performance for plan assets may significantly impact, positively or negatively, the funding status and funding requirements of the plans and the expense and obligations reported on for the plans in the future. Foreign Currency: The Company's financial results are affected by changes in foreign exchange rates and economic conditions in foreign countries in which the Company does business. The Company's primary overseas markets are in Europe and the Far East; thus exposing the Company to exchange rate risk from fluctuations in the Euro and the various currencies used in the Far East. For fiscal 2003, a 10% increase/decrease in exchange rates would have resulted in an increase/decrease to sales of approximately $5.5 million and to net income of approximately $0.5 million. Related Parties In 2001, the Company acquired certain assets of Cellect LLC, including intellectual property rights, inventory and customer lists. In connection with this acquisition, the Company entered into various operating and financing agreements with Cellect to purchase certain production from Cellect while the Company completed construction of a plant facility in Carol Stream to manufacture the products acquired from Cellect. The Company has a note receivable and accounts receivable of $1.8 million and $2.9 million, respectively, at December 28, 2003 from Cellect associated with these agreements that stem from the Company funding the operation to support Cellect's supply requirements. Any residual amount in accounts receivable is due at the 17 conclusion of the supply agreement (currently June 30, 2004). The note receivable is due in January 2007, which corresponds to the date upon which any earn-out payments under the acquisition agreement are due. The risk of collection on these balances is mitigated by the production purchases from Cellect, right of offset on production purchases and any earn-out payments, as well as the Company's security interest in substantially all the assets of Cellect as collateral on the note arrangement. Market Risk The Company is exposed to market risk from changes in interest rates and foreign exchange rates. The Company does not use derivative instruments for trading or speculative purposes. The Company monitors foreign exchange and interest rate risks and manages such risks on specific transactions. The risk management process primarily uses analytical techniques and sensitivity analysis. The Company has various borrowing facilities where the interest rates, although not fixed, are relatively low. Currently, an increase in the associated interest rates would not significantly impact interest expense on these facilities, as the Company currently has no debt. The fair value of the Company's investment portfolio or the related interest income would not be significantly impacted by either a 100.0 basis point increase or decrease in interest rates due mainly to the size and short-term nature of the Company's investment portfolio and the relative insignificance of interest income to consolidated pretax income. The Company's largest foreign currency exposure is against the Euro, primarily because of its investments in its ongoing operations in Belgium. In addition to the Euro exposure, commensurate with the Company's growth and expansion in Asia, particularly China, the Company is experiencing an escalation of foreign currency exposure against the currencies in countries such as China, Japan, Taiwan, Korea, and Singapore. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another; however, no such material hedges were outstanding at year-end. 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 18 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. Additional information about certain factors that could cause actual results to differ from such forward-looking statements include, but are not limited to, 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 continue to be successful in this area, the Company must be able to consistently manufacture and supply 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 markets for computers and related equipment, such as printers and electronic hand-held devices, are characterized by rapid technological change, significant pricing pressures and short lead times. Because the Company manufactures and sells its own materials to meet the needs of these markets, the Company's results may be affected by these factors. Volatility of Demand The computer and related equipment industry and the wireless communications industry have historically been characterized by wide fluctuations in product supply and demand. From time-to-time, these 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 and Product Liability Litigation The Company is currently engaged in proceedings involving four waste disposal sites, as a participant in a group of PRPs. The Company's estimation of environmental liabilities is based on an evaluation of currently available 19 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 PRPs, 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. The Company is also involved in certain asbestos-related product liability litigation. The level of such litigation has escalated in certain U.S. states in the past several years and involves hundreds of companies that have been named as defendants. The Company believes it has sufficient insurance to cover all material costs of these claims and that it has valid defenses to these claims and intends to defend itself vigorously in these matters. However, there can be no assurances that the ultimate resolution of these matters will be consistent with Company expectations and will not have a material adverse effect on the Company. Capital Expenditures The level of anticipated 2004 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. 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 Manufacturing and Sales The Company's international manufacturing and sales involve risks, including imposition of governmental controls, currency exchange fluctuation, potential insolvency of international customers, reduced protection for intellectual 20 property rights, the impact of recessions in foreign countries, political instability, employee selection and retention 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 manufacturing and sales, and consequently, on the Company's business, operating results and financial condition. Acquisitions and Divestitures Acquisitions are an important component of the Company's growth strategy. Accordingly, the Company's future performance will be impacted by its ability to 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. In relation to acquisitions and divestitures undertaken, it is common for the Company to structure the transactions to include earn-out and/or intellectual property royalty agreements that generally are tied to the performance of the underlying products or business acquired or divested. Accordingly, the Company's future performance will be impacted by respective performance of the products and/or businesses divested and the successful utilization of products and/or businesses acquired. In addition, there is no guarantee that these underlying products and/or businesses will perform as forecasted at the time the associated transactions were consummated. 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. 21 EX-99 20 a4592426ex99notes.txt NOTES
SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2003* 2002** 2001 2000 1999 ---------------------------------------------------------------------- SALES AND INCOME Net Sales $243,329 $219,438 $216,037 $248,215 $247,839 Income Before Income Taxes 35,034 24,809 20,979 37,634 25,877 Net Income 26,275 18,607 15,734 26,720 18,631 PER SHARE DATA Basic 1.67 1.20 1.03 1.79 1.24 Diluted 1.61 1.16 .98 1.69 1.19 Book Value 14.18 11.81 10.62 9.65 7.94 FINANCIAL POSITION (YEAR END) Current Assets 127,097 89,775 84,916 92,849 72,547 Current Liabilities 50,023 34,780 29,692 38,745 36,741 Ratio of Current Assets to Current Liabilities 2.5 to 1 2.5 to 1 2.9 to 1 2.4 to 1 2.0 to 1 Cash, Cash Equivalents, and Short-Term Investments 34,481 28,928 20,891 10,100 9,955 Working Capital 77,074 54,995 55,224 54,104 35,806 Property, Plant and Equipment- Net 131,157 99,883 98,454 94,199 84,652 Total Assets 314,440 257,701 223,809 221,514 183,406 Long-Term Debt less Current Maturities -- -- 1,315 9,116 9,740 Shareholders' Equity 226,869 183,038 163,062 145,813 116,417 Long-Term Debt as a Percentage of Shareholders' Equity 0% 0% 1% 6% 8% OTHER DATA Depreciation and Amortization 13,615 13,571 13,712 12,507 10,375 Research and Development Expenses 13,665 13,596 12,570 12,493 10,791 Capital Expenditures 17,951 22,682 18,032 22,744 13,621 Number of Employees (Average) 1,197 1,251 1,376 1,358 1,197 Net Sales per Employee 203 175 157 183 207 Number of Shares Outstanding at Year-End 15,995,713 15,496,261 15,356,284 15,102,670 14,664,652
* 2003 consolidated results include three months of operations of Durel Corporation (acquired on September 30, 2003). ** Moldable Composites Division was divested in the fourth quarter of 2002. CONSOLIDATED BALANCE SHEETS 1
CONSOLIDATED BALANCE SHEETS December 28, December 29, (Dollars in Thousands, except per share amounts) 2003 2002 ----------------------------------- ASSETS Current Assets: Cash and Cash Equivalents $31,476 $22,300 Short-Term Investments 3,005 6,628 Accounts Receivable, Less Allowance for Doubtful Accounts of $1,446 and $1,102 52,981 32,959 Accounts Receivable, Joint Ventures 3,178 1,414 Note Receivable, Current 2,100 2,100 Inventories 27,501 18,069 Current Deferred Income Taxes 4,914 4,985 Other Current Assets 1,942 1,320 ---------------- ---------------- Total Current Assets 127,097 89,775 Notes Receivable 7,800 9,900 Property, Plant and Equipment, Net of Accumulated Depreciation of $104,885 and $90,285 131,157 99,883 Investments in Unconsolidated Joint Ventures 10,741 21,860 Pension Asset 6,886 8,951 Goodwill 16,697 16,697 Other Intangible Assets 8,424 5,507 Other Assets 5,638 5,128 ---------------- ---------------- Total Assets $314,440 $257,701 ================ ================
2
(Dollars in Thousands, except per share amounts) December 28, December 29, 2003 2002 ---------------- ---------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $20,442 $10,125 Accrued Employee Benefits and Compensation 13,359 10,414 Accrued Income Taxes Payable 9,104 8,249 Other Accrued Liabilities 7,118 5,992 ---------------- ---------------- Total Current Liabilities 50,023 34,780 Noncurrent Deferred Income Taxes 14,058 8,308 Noncurrent Pension Liability 14,909 22,658 Noncurrent Retiree Health Care and Life Insurance Benefits 6,198 6,197 Other Long-Term Liabilities 2,383 2,720 Commitments and Contingencies - - Shareholders' Equity: Capital Stock, $1 Par Value: Authorized Shares 50,000,000; Issued Shares 16,326,229 and 15,856,748 16,326 15,857 Additional Paid-In Capital 43,261 36,600 Retained Earnings 174,320 148,045 Accumulated Other Comprehensive Income (Loss), Net of Taxes 4,895 (4,693) Treasury Stock (330,516 and 360,487 shares) (11,933) (12,771) ---------------- ---------------- Total Shareholders' Equity 226,869 183,038 ---------------- ---------------- Total Liabilities and Shareholders' Equity $314,440 $257,701 ================ ================
The accompanying notes are an integral part of the consolidated financial statements. 3
CONSOLIDATED STATEMENTS OF INCOME For each of the years in the three-year period ended December 28, 2003 (Dollars in Thousands, Except Per Share Amounts) 2003 2002 2001 ------------- ---------------- -------------- Net Sales $243,329 $219,438 $216,037 Cost of Sales 164,789 150,183 149,179 Selling and Administrative Expenses 43,304 39,335 39,247 Research and Development Expenses 13,665 13,596 12,570 Acquisition and Restructuring Costs -- 2,150 1,995 ------------- ---------------- -------------- Total Costs and Expenses 221,758 205,264 202,991 ------------- ---------------- -------------- Operating Income 21,571 14,174 13,046 Equity Income in Unconsolidated Joint Ventures 6,571 8,705 3,123 Other Income Less Other Charges 6,572 2,156 4,830 Interest Income (Expense), Net 320 (226) (20) ------------- ---------------- -------------- Income Before Income Taxes 35,034 24,809 20,979 Income Taxes 8,759 6,202 5,245 ------------- ---------------- -------------- Net Income $26,275 $18,607 $15,734 ============= ================ ============== Net Income Per Share: Basic $1.67 $1.20 $1.03 ------------- ---------------- -------------- Diluted $1.61 $1.16 $0.98 ------------- ---------------- -------------- Shares Used in Computing: Basic 15,774,744 15,470,697 15,274,479 ------------- ---------------- -------------- Diluted 16,318,885 16,023,273 16,001,965 ------------- ---------------- --------------
The accompanying notes are an integral part of the consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For each of the years in the three-year period ended December 28, 2003 (Dollars in Thousands, Except Capital Stock Amounts) Accumulated Additional Other Total Capital Stock Paid-In Retained Comprehensive Treasury Shareholders' Capital Earnings Income (Loss) Stock Equity - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 2000 $15,485,570 $32,262 $113,704 $(2,203) $(13,436) $145,813 Comprehensive Income: Net Income 15,734 15,734 Other Comprehensive Loss: Foreign currency translation (793) (793) Minimum pension liability (1,034) (1,034) ---------------- 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 Comprehensive Income: Net Income 18,607 18,607 Other Comprehensive Income (Loss): Foreign currency translation 4,172 4,172 Minimum pension liability (4,835) (4,835) ---------------- Total Comprehensive Income 17,944 Stock Options Exercised 152,177 1,697 1,849 Stock Issued to Directors 6,908 319 326 Shares Reacquired and Cancelled (41,521) (1,262) (1,303) Treasury Stock Issuance (139) 665 526 Tax Benefit on Stock Options Exercised 634 634 - ------------------------------------------------------------------------------------------------------------------ Balance at December 29, 2002 15,856,748 36,600 148,045 (4,693) (12,771) 183,038 Comprehensive Income: Net Income 26,275 26,275 Other Comprehensive Income: Foreign currency translation 5,864 5,864 Minimum pension liability 3,724 3,724 ---------------- Total Comprehensive Income 35,863 Stock Options Exercised 561,610 6,528 7,089 Stock Issued to Directors 7,734 232 240 Shares Reacquired and Cancelled (99,863) (3,307) (3,407) Treasury Stock Issuance (259) 838 579 Tax Benefit on Stock Options Exercised 3,467 3,467 - ------------------------------------------------------------------------------------------------------------------ Balance at December 28, 2003 $16,326,229 $43,261 $174,320 $4,895 $(11,933) $226,869 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS For each of the years in the three-year period ended December 28, 2003 (Dollars in thousands) 2003 2002 2001 ------------------------------------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net Income $26,275 $18,607 $15,734 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation and Amortization 13,615 13,571 13,712 Deferred Income Taxes 4,828 2,561 (395) Tax Benefit Related to Stock Award Plans 3,467 634 2,143 Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (6,571) (8,705) (3,123) Loss (Gain) on Disposition of Assets 250 860 (103) Noncurrent Pension and Postretirement Benefits (3,559) 2,954 1,489 Other, Net (241) (908) (584) Changes in Operating Assets and Liabilities Excluding Effects of Acquisition and Disposition of Assets: Accounts Receivable (11,579) (10,207) 13,158 Inventories (1,664) 3,627 4,771 Other Current Assets (453) (170) 14 Accounts Payable and Other Accrued Liabilities 5,294 3,203 (7,801) ------------------------------------- Net Cash Provided by Operating Activities 29,662 26,027 39,015 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Capital Expenditures (17,951) (22,682) (18,032) Acquisition of Business, Net of Cash Acquired (17,656) (8,060) (2,000) Disposition of Business -- 10,300 -- Proceeds from Repayments of Loans to Joint Ventures -- 5,000 -- Proceeds from (Investment in) Notes Receivable 2,100 (1,500) -- Proceeds from (Purchase of) Short-Term Investments 3,624 (6,628) -- Proceeds from Sale of Property, Plant and Equipment -- -- 225 Dividends Received from (Investment in) Unconsolidated Joint Ventures 4,494 2,962 (1,417) Proceeds from Other Investing Activities 568 -- -- ------------------------------------- Net Cash Used in Investing Activities (24,821) (20,608) (21,224) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from Short- and Long-Term Borrowings -- 4,463 1,830 Repayments of Debt Principal -- (6,522) (9,733) Repayment of Life Insurance Loans -- (3,087) -- Proceeds from Disposition of Treasury Stock 579 526 -- Proceeds from Sale of Capital Stock, Net 3,682 673 729 ------------------------------------- Net Cash Provided by (Used in) Financing Activities 4,261 (3,947) (7,174) Effect of Exchange Rate Changes on Cash 74 (63) 174 ------------------------------------- Net Increase in Cash and Cash Equivalents 9,176 1,409 10,791 Cash and Cash Equivalents at Beginning of Year 22,300 20,891 10,100 ------------------------------------- Cash and Cash Equivalents at End of Year $31,476 $22,300 $20,891 ------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: Note Received from Sale of Business $-- $10,500 $-- Escrow Associated with Divestiture of Business -- 200 -- Receivable for Closing Balance Sheet Adjustments -- 509 --
The accompanying notes are an integral part of the consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT 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 K). High Performance Foams include urethane foams, silicone materials, and polyolefin foams. 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, nitrophyl floats, electroluminescent lamps and inverters, nonwoven materials, and busbars 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. Certain prior period amounts have been reclassified to conform to the current year presentation. CASH EQUIVALENTS Highly liquid investments with original maturities of three months or less are considered cash equivalents. These investments are stated at cost, which approximates market value. SHORT-TERM INVESTMENTS Short-term investments represent investments in fixed and floating rate financial instruments with maturities of twelve months or less from time of purchase. They are classified as held-to-maturity as the Company has the ability and intent to hold these investments to the maturity date and they are recorded at amortized cost. The fair market value of held-to-maturity securities approximates amortized cost at December 28, 2003 and December 29, 2002. 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. 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, which are not material, are reported as income or expense. ALLOWANCE FOR DOUBTFUL ACCOUNTS In circumstances where the Company is aware of a specific customer's inability to meet its financial obligations, an allowance is established. The majority of accounts are individually evaluated on a regular basis and appropriate allowances are established as deemed appropriate. The remainder of the allowance is based upon historical trends and current market assessments. 7 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED INVENTORIES Inventories are valued at the lower of cost or market. Certain inventories, amounting to $1,853,000 at December 28, 2003, and $3,302,000 at December 29, 2002, or 7% and 18% of total Company inventories in the respective periods, are valued by the last-in, first-out ("LIFO") method. 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. Inventories consist of the following: (Dollars in thousands) December 28, December 29, 2003 2002 -------------------------------- Raw materials $6,230 $4,438 Work-in-process 13,190 5,606 Finished goods 8,081 8,025 -------------------------------- $27,501 $18,069 ================================ 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 GOODWILL AND INTANGIBLE ASSETS Goodwill, representing the excess of the cost over the net tangible and identifiable assets of acquired businesses, is stated at cost. Prior to 2002, goodwill was being amortized on a straight-line method over periods ranging from 10-40 years. Beginning with the first quarter of 2002 the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. The statement requires that these assets be reviewed for impairment at least annually. All other intangible assets are amortized over their estimated useful lives. The Company performed its impairment analysis during 2003 and 2002 and determined that the long-lived assets were not impaired. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are primarily established using a discounted cash flow methodology. The determination of discounted cash flows is based on the businesses' strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are management's best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each segment based on the current cost structure and anticipated cost reductions. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different and could result in impairment being assessed, which would be required to be recorded. 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. 8 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED The following table presents the Company's results of operations to exclude amounts no longer being amortized under SFAS No. 142:
(Dollars in Thousands, except per share amounts) 2003 2002 2001 --------------------------------------------- Reported net income $26,275 $18,607 $15,734 Adjustment: Goodwill amortization - - 765 --------------------------------------------- Adjusted net income $26,275 $18,607 $16,499 --------------------------------------------- Basic net income per share Reported $1.67 $1.20 $1.03 Adjusted 1.67 1.20 1.08 Diluted net income per share Reported 1.61 1.16 0.98 Adjusted 1.61 1.16 1.03
ENVIRONMENTAL AND PRODUCT LIABILITY Environmental investigatory, remediation, operating, and maintenance costs are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations, and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple potential responsible parties, the Company considers its likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. Accrued environmental liabilities are only reduced by potential insurance reimbursements when they have been confirmed or received from the insurance company. Product liability claims are accrued on the occurrence method based on insurance coverage and deductibles in effect at the date of the incident and management's assessment of the probability of loss when reasonably estimable. FAIR VALUE OF FINANCIAL INSTRUMENTS Management believes that the carrying values of financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. CONCENTRATION OF CREDIT RISK The Company extends credit on an uncollateralized basis to almost all customers. Concentration of credit and geographic risk with respect to accounts receivable is limited due to the large number and general dispersion of accounts which constitute the Company's customer base. The Company periodically performs credit evaluations of its customers. At December 28, 2003 and December 29, 2002, there were no customers accounting for greater than ten percent of the Company's accounts receivable. The Company has not experienced significant credit losses on customers' accounts. The Company invests its excess cash principally in investment grade government and corporate debt securities. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to reflect changes in market conditions. The Company has not experienced any significant losses on its cash equivalents or short-term investments. 9 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED 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 upon delivery of goods and transfer of title to customers, when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection is reasonably assured. 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) 2003 2002 2001 --------------------------------------------- Numerator: Net income $26,275 $18,607 $15,734 Denominator: Denominator for basic earnings per share - weighted-average shares 15,774,744 15,470,697 15,274,479 Effect of stock options 544,141 552,576 727,486 --------------------------------------------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 16,318,885 16,023,273 16,001,965 ============================================= Basic earnings per share $1.67 $1.20 $1.03 ============================================= Diluted earnings per share $1.61 $1.16 $0.98 =============================================
USE OF ESTIMATES The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, 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. HEDGING ACTIVITY The Company, on occasion, uses derivative instruments, including swaps, forward contracts, and options, to manage certain foreign currency and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. Derivatives used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases are accounted for as cash flow hedges. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized currently in earnings. ADVERTISING COSTS Advertising is expensed as incurred and amounted to $1,387,000, $1,303,000, and $1,694,000 for 2003, 2002, and 2001, respectively. 10 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED 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 I), an employee stock purchase plan, with shares of such stock. In 2003, a total of 29,971 shares of Treasury Stock were used to fund the Company's obligation for the Rogers Corporation Global Stock Ownership Plan For Employees. At December 28, 2003 and December 29, 2002, Treasury Stock totaled 330,516 and 360,487 shares, respectively, and is shown at cost on the balance sheet as a reduction of Shareholders' Equity. STOCK-BASED COMPENSATION Under various plans, the Company may grant stock and stock options to directors, officers, and other key employees. Stock-based compensation awards are accounted for using the intrinsic value method prescribed in APB 25, "Accounting for Stock Issued to Employees" and related interpretations. Stock-based compensation costs for stock options are not reflected in net income as all options granted under the plans had an exercise price equal to market value of the underlying common stock on the date of the grant. Stock-based compensation costs for stock awards are reflected in net income over the awards' vesting period. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized in the financial statements for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2003, 2002, and 2001, consistent with the provisions of SFAS 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) 2003 2002 2001 ----------------------------------------- Net income, as reported $26,275 $18,607 $15,734 Less: Total stock-based compensation expense determined under Black-Scholes option pricing model, net of related tax effect 2,694 2,283 2,965 ----------------------------------------- Pro forma net income $23,581 $16,324 $12,769 ----------------------------------------- Basic earnings per share: As Reported $1.67 $1.20 $1.03 Pro Forma 1.49 1.06 0.84 Diluted earnings per share: As Reported 1.61 1.16 0.98 Pro Forma 1.45 1.01 0.80
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 2003, 2002, and 2001. Regular options granted to officers and other key U.S. employees usually become exercisable in one-third increments beginning on the second anniversary of the grant date. 11 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED RECENT ACCOUNTING STANDARDS FASB Interpretation No. 46 In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46 clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN No. 46 (revised December 2003),"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special purpose entities ("SPEs") created prior to February 1, 2003: The Company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003: The Company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether an SPE, that were created subsequent to January 31, 2003: The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. The Company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have a material impact on the Company's financial statements as the Company did not enter into any such arrangements subsequent to January 31, 2003. For arrangements existing prior to January 31, 2003, the Company determined that it had one variable interest entity; however, the Company was not the primary beneficiary and, as such, did not have to consolidate in accordance with FIN 46. The Company is currently evaluating the impact of adopting FIN 46-R applicable to non-SPEs created prior to February 1, 2003, but does not expect a material impact. FASB Staff Position No. 150-3 In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 requires that an issuer classify certain financial instruments as liabilities. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and was effective at the beginning of the first interim period beginning after June 15, 2003 for all other instruments. The adoption of the statement in July 2003 did not have a material impact on the Company's results of operations or financial position. Subsequent to adoption, on November 7, 2003, the FASB issued FASB Staff Position ("FSP") 150-3, "Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". FSP 150-3 deferred the effective date of SFAS No. 150 for certain mandatorily redeemable non-controlling interests until the first quarter of 2004. The adoption of FSP 150-3 will have no impact on Rogers' results of operations or financial position. 12 NOTE B - PROPERTY, PLANT AND EQUIPMENT (Dollars in Thousands) December 28, December 29, 2003 2002 ---------------- ---------------- Land $10,978 $5,433 Buildings and improvements 89,372 61,905 Machinery and equipment 103,815 83,357 Office equipment 19,466 17,242 Installations in process 12,411 22,231 ---------------- ---------------- 236,042 190,168 Accumulated depreciation (104,885) (90,285) ---------------- ---------------- $131,157 $99,883 ================ ================ Depreciation expense was $13,522,000 in 2003, $13,521,000 in 2002, and $12,947,000 in 2001. 13 NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS Identifiable intangible assets are comprised of the following: - -0- December 28, 2003 December 29, 2002 (Dollars in Thousands) ------------------------------------ Trademarks and patents $2,724 $1,579 Technology 5,684 4,200 Covenant not to compete 981 600 ------------------------------------ 9,389 6,379 Accumulated amortization (965) (872) ------------------------------------ $8,424 $5,507 ==================================== Amortization expense for 2003, 2002, and 2001 amounted to $93,000, $50,000, and $765,000, respectively. Estimated amortization expense during each of the next 5 years is expected to be between $100,000 and $150,000. The changes in the carrying amount of goodwill for the two-year period ended December 28, 2003, by segment, is as follows:
Polymer High Printed Materials and Performance Circuit Components (Dollars in Thousands) Foams Materials Total --------------------------------------------------------- Balance as of December 30, 2001 $8,500 $6,100 $764 $15,364 Polyolefin foam acquisition in fiscal 2002 (Note M) 2,626 -- -- 2,626 --------------------------------------------------------- Balance as of December 29, 2002 and December 28,2003 $ 11,126 $ 6,100 $ 764 $ 17,990 =========================================================
14 NOTE D - SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT VENTURES AND RELATED PARTY TRANSACTIONS As of December 28, 2003, the Company has three joint ventures, each 50% owned, that are accounted for by the equity method. On September 30, 2003, the Company acquired the remaining 50% interest in Durel Corporation ("Durel") from 3M and, as of the acquisition date, included Durel's operations in the Company's consolidated results. Equity income of $6,571,000, $8,705,000, and $3,123,000 for 2003, 2002 and 2001, respectively, relates to the following joint ventures:
Joint Venture Location Business Segment Fiscal Year-End - ---------------------------------------------------------------------------------------------------------- Rogers Inoac Corporation ("RIC") Japan High Performance Foams October 31 Polymide Laminate Systems, LLC ("PLS") U.S. Printed Circuit Materials December 31 Rogers Chang Chun Technology Co., Ltd. ("RCCT") Taiwan Printed Circuit Materials December 31
Equity income related to Durel is included for the first nine months of 2003 and the full year 2002 and 2001. 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 two factors. First, the Company's major initial contribution to one of the joint ventures was technology that was valued differently by the joint venture than it was on the Company's books. Secondly, the translation of foreign currency at current rates differs from that at historical rates. Correspondingly, there is a difference between the Company's recorded investment in unconsolidated joint ventures and a 50% share of the equity of those joint ventures. Also, financial information for the years-ended December 28, 2003 and December 29, 2002 includes nine months and twelve months of Durel's results of operations, respectively. Finally, the balance sheet information as of December 28, 2003 excludes Durel amounts, which were consolidated as of September 30, 2003. SUMMARIZED INFORMATION FOR JOINT VENTURES (Dollars in Thousands) December 28, December 29, 2003 2002 --------------- --------------- Current Assets $24,360 $44,386 Noncurrent Assets 7,619 30,218 Current Liabilities 9,817 24,412 Noncurrent Liabilities 5 668 Shareholders' Equity 22,158 49,524
(Dollars in Thousands) Year Ended ---------------------------------------------------- December December December 30, 28,2003 29,2002 2001 --------------- --------------- ---------------- Net Sales $106,432 $136,861 $121,763 Gross Profit 38,558 50,836 33,050 Net Income 13,033 17,790 5,928
Other Information: (Dollars in Thousands) 2003 2002 2001 -------------- --------------- --------------- Commission Income from PLS $3,472 $3,601 $3,811 50% Loan Guarantee for Durel Corporation -- -- 3,877 Loan to Durel Corporation -- -- 5,000
15 NOTE D - SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT VENTURES AND RELATED PARTY TRANSACTIONS, CONTINUED Durel Corporation, which had a 50% indirect loan guarantee from the Company, met its obligations under the financing arrangement during the second half of 2002. No payments were required and no losses were incurred under this guarantee by the Company. This guarantee was terminated with the repayment of this debt. Durel repaid its loan in full to the Company during 2002. The arrangement expired in September of 2002 and was not extended. Sales made between the unconsolidated joint ventures and the Company were immaterial in all years presented above. 16 NOTE E - PENSION BENEFITS AND OTHER POSTRETIREMENT BENEFIT PLANS PENSIONS The Company has two qualified noncontributory defined benefit pension plans covering substantially all U.S. employees. The plans provide defined benefits based on years of service and final average salary. 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. Also, Durel had a qualified noncontributory defined benefit pension plan covering substantially all of its employees. As a result of the acquisition, the Company terminated the Durel plan effective December 31, 2003 and brought qualified employees into the Rogers' defined benefit plan beginning on January 1, 2004. In addition, the Company sponsors three unfunded defined benefit health care and medical and life insurance plans for retirees. The measurement date for all plans for 2003 and 2002 is December 28, 2003 and December 29, 2002, respectively.
Obligations and Funded Status Other Pension Benefits Postretirement Benefits ---------------------- ----------------------- (In Thousands) 2003 2002 2003 2002 ---------------------- ----------------------- Change in benefit obligation: Benefit obligation at beginning of year $88,832 $74,090 $6,328 $5,654 Service cost 2,731 2,518 412 389 Interest cost 6,118 5,571 458 407 Actuarial losses 7,695 9,571 2,382 524 Benefit payments (4,243) (3,644) (669) (433) Acquisitions 4,699 -- -- -- Curtailment -- (1,742) -- (213) Plan amendments (6) 2,468 -- -- ---------------------- ----------------------- Benefit obligation at end of year $105,826 $88,832 $8,911 $6,328 ====================== ======================= Change in plan assets: Fair value of plan assets at beginning of year $60,542 $65,160 $-- $-- Actual return on plan assets 18,455 (4,474) -- -- Employer contributions 5,824 3,449 669 433 Benefit payments (4,243) (3,593) (669) (433) Acquisitions 3,282 -- -- -- ---------------------- ----------------------- Fair value of plan assets at end of year $83,860 $60,542 $-- $-- ====================== ======================= Funded status $(21,966) $(28,291) $(8,911) $(6,328) Unrecognized net (gain)/loss 16,627 22,783 2,013 (369) Unrecognized prior service cost 4,019 4,734 -- -- Unrecognized transition asset -- (314) -- -- ---------------------- ----------------------- Accrued benefit cost at end of year $(1,320) $(1,088) $(6,898) $(6,697) ====================== =======================
Amounts recognized in the statement of financial position consist of:
Other Pension Benefits Postretirement Benefits ---------------------- ----------------------- (In Thousands) 2003 2002 2003 2002 ---------------------- ----------------------- Prepaid benefit cost $4,567 $4,294 $-- $-- Accrued benefit liability (14,680) (22,701) (6,898) (6,697) Intangible asset 2,319 4,838 -- -- Deferred tax asset 2,460 4,743 -- -- Accumulated other comprehensive Loss 4,014 7,738 -- -- ---------------------- ----------------------- Net amount recognized at end of year $(1,320) $(1,088) $(6,898) $(6,697) ====================== =======================
NOTE E - PENSION BENEFITS AND OTHER POSTRETIREMENT BENEFIT PLANS, CONTINUED The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with an accumulated benefit obligation in excess of plan assets were $105,826,000 $92,781,000 and $83,860,000, respectively, as of December 28, 2003, and $88,832,000, $78,948,000 and $60,542,000, respectively, as of December 29, 2002.
Components of Net Periodic Benefit Cost Other Pension Benefits Postretirement Benefits ---------------------------- --------------------------- (In Thousands) 2003 2002 2001 2003 2002 2001 --------------------------- --------------------------- Service cost $2,731 $2,518 $2,120 $412 $389 $282 Interest cost 6,112 5,571 4,897 458 407 359 Expected return on plan assets (5,730) (6,191) (5,819) -- -- -- Amortization of prior service cost 715 969 509 -- (5) (92) Amortization of net (gain) loss 1,125 219 156 -- -- -- Transition cost (314) (356) (355) -- -- -- Curtailment (Gain)/Loss -- 613 -- -- (213) -- --------------------------- --------------------------- Net periodic benefit costs $4,639 $3,343 $1,508 $870 $578 $549 =========================== ===========================
Additional Information Other Pension Benefits Postretirement Benefits ------------------------------ ----------------------------- (In Thousands) 2003 2002 2001 2003 2002 2001 ------------------------------ ----------------------------- (Decrease) increase in minimum liability included in other comprehensive income $(6,007) $7,799 $-- $-- $-- $--
Assumptions Weighted-average assumptions used to determine benefit obligations at year end: Other Pension Benefits Postretirement Benefits --------------------------------- --------------------------------- 2003 2002 2003 2002 --------------------------------- --------------------------------- Discount rate 6.25% 6.75% 6.25% 6.75% Rate of compensation increase 4.00% 4.00% -- --
Weighted-average assumptions used to determine net benefit cost for years ended: Other Pension Benefits Postretirement Benefits --------------------------------- --------------------------------- 2003 2002 2003 2002 --------------------------------- --------------------------------- Discount rate 6.75% 7.25% 6.75% 7.25% Expected long-term rate of return on plan assets 9.00% 9.40% -- -- Rate of compensation increase 4.00% 4.00% -- --
For measurement purposes as of December 28, 2003, Rogers assumed an annual healthcare cost trend rate of 10% for covered healthcare benefits in 2004. The rate was assumed to decrease gradually to 5% in 2009 and remain at that level thereafter. As of December 29, 2002, Rogers assumed an annual healthcare cost trend rate of 8.5% for covered healthcare benefits in 2003. The rate was assumed to decrease gradually to 5% in 2008 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
One-Percentage- One-Percentage- Point Increase Point Decrease -------------------------------------- Effect on total of service and interest cost $96,495 $(84,514) Effect on other postretirement benefit obligation $537,713 $(497,227)
18 NOTE E - PENSION BENEFITS AND OTHER POSTRETIREMENT BENEFIT PLANS, CONTINUED Plan Assets Rogers' pension plan weighted-average asset allocations at December 28, 2003 and December 29, 2002, by asset category are as follows: Current Target Allocation Plan Assets Asset Category at December - -------------------------------------------------------------------------- 2004 2003 2002 - -------------------------------------------------------------------------- Equity securities 65% 67% 49% Debt securities 35% 33% 51% ---------------------------------- Total 100% 100% ================================== Investment Strategy Rogers' pension assets are invested with the objective of achieving a total rate of return over the long-term that is sufficient to fund future pension obligations. Overall investment risk is mitigated by maintaining a diversified portfolio of assets (as reflected in the above tables). Asset allocation target ranges were established to meet the Company's investment objectives. The Company determined the long-term rate of return on plan assets based on several factors, including its asset allocation targets and the historical and projected performance on those asset classes and on the plan's current asset composition. Medicare Prescription Drug, Improvement and Modernization Act of 2003 On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law. The Act expands Medicare, primarily adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. The Company anticipates that the benefits it pays after 2006 will be lower as a result of the new Medicare provisions; however, the retiree medical obligations and costs reported herein do not reflect the impact of this legislation. Financial Accounting Standards Board Staff Position No. 106-1 permits Company's to defer the recognition of the new Medicare provisions' impact due to unresolved questions about some of the new Medicare provisions and a lack of authoritative accounting guidance about certain matters related to the Act. The final accounting guidance, once available, could require changes to previously reported information. Cash Flows Contributions At the current time, the Company has met the minimum funding requirements for its qualified defined benefit pension plans and is therefore not required to make a contribution to the plans in 2004. In 2003 and 2002, the Company made voluntary annual contributions to the pension plans of approximately $5.6 million and $3.2 million, respectively. The Company will most likely make a voluntary contribution to the pension plans in 2004 for an amount consistent with the trend established in prior years. For the nonqualified defined benefit plans and the postretirement welfare plan, the Company will contribute the amount of benefit payments made during the year. 19 NOTE E - PENSION BENEFITS AND OTHER POSTRETIREMENT BENEFIT PLANS, CONTINUED Estimated Future Payments The following benefit payments, which reflect expected future employee service, as appropriate, are expected to be paid through the utilization of plan assets. The benefit payments are based on the same assumptions used to measure the Company's benefit obligation at the end of fiscal 2003. (Dollars in thousands) Other Postretirement Pension Benefits Benefits -------------------------------------------------- 2004 $3,823 $658 2005 4,071 670 2006 4,311 707 2007 4,503 740 2008 4,713 775 2009-2013 28,692 3,961 20 NOTE F - EMPLOYEE SAVINGS AND INVESTMENT PLAN The Company sponsors the Rogers Employee Savings and Investment Plan ("RESIP") for domestic employees. Prior to 2003, the plan allowed such employees to contribute up to 18% of their compensation through payroll deductions. Effective January 1, 2003, the plan limitation of 18% on employee pretax contributions was eliminated. Employees are now able to defer a percentage or flat amount they choose, up to the yearly IRS limit, which is $12,000 in 2003 and $13,000 in 2004. Currently up to 5% of an eligible employee's annual pre-tax contribution is matched at a rate of 50% by the Company. In 2003, 2002 and 2001, 100% of the Company's matching contribution was invested in Company stock. RESIP related expense amounted to $771,000 in 2003, $813,000 in 2002, and $934,000 in 2001, including Company matching contributions of $771,000, $813,000, and $903,000, respectively. Also effective January 1, 2003, the Company implemented the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA") Age 50 Catch-Up provision. Participants that reached age 50 (or older) by December 31, 2003 were eligible to contribute an additional $2,000 in 2003 and $3,000 in 2004. Therefore, for employees eligible under EGTRRA, the maximum total amount that could be contributed to the RESIP in 2003 and 2004 amounted to $14,000 and $16,000, respectively. There is no Company match for the Catch-Up provision. 21 NOTE G - DEBT LONG-TERM DEBT The Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $50 million, or the equivalent, in certain other foreign currencies. 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 28, 2003 and December 29, 2002. 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 a 390.2 million Belgian franc loan as a hedge of its net investment in its foreign subsidiaries in Belgium (US$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 US$8.2 million. During 2001, the Company recorded $900,000 of net pretax gains related to the hedge in other comprehensive income. In September 2001, Rogers N.V., a Belgian subsidiary of the Company, signed an unsecured revolving credit agreement with a European bank. This arrangement had a credit limit of 6.2 million Euros and an original expiration date of May 2005. All outstanding balances owed under this credit agreement were repaid in 2002 and the agreement was subsequently cancelled in 2003. INTEREST Interest costs incurred during the years 2003, 2002, and 2001 were $340,000, $695,000, and $1,070,000, respectively. Interest paid during the years 2003, 2002, and 2001, was $154,000, $698,000, and $1,050,000, respectively. 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. 22 NOTE H - INCOME TAXES
Consolidated income before income taxes consists of: (Dollars in Thousands) 2003 2002 2001 ------------- ------------- --------------- Domestic $28,071 $20,488 $13,144 International 6,963 4,321 7,835 ------------- ------------- --------------- $35,034 $24,809 $20,979 ============= ============= ===============
The income tax expense (benefit) in the consolidated statements of income consists of: (Dollars in Thousands) Current Deferred Total ------------- -------------- --------------- 2003: Federal $1,693 $3,624 $5,317 International 2,238 778 3,016 State -- 426 426 ------------- -------------- --------------- $3,931 $4,828 $8,759 ============= ============== =============== 2002: Federal $2,946 $1,844 $4,790 International 615 621 1,236 State 80 96 176 ------------- -------------- --------------- $3,641 $2,561 $6,202 ============= ============== =============== 2001: Federal $3,029 $(1,093) $1,936 International 1,951 1,533 3,484 State 26 (201) (175) ------------- -------------- --------------- $5,006 $239 $5,245 ============= ============== ===============
Deferred tax assets and liabilities as of December 28, 2003 and December 29, 2002, respectively, are comprised of the following: (Dollars in Thousands) December 28, December 29, 2003 2002 ---------------- ---------------- Deferred tax assets: Accrued employee benefits and compensation $3,985 $7,211 Accrued postretirement benefits 2,181 2,105 Other accrued liabilities and allowances 3,182 2,807 Investments in joint ventures, net 1,371 -- Tax credit carry forwards 1,988 2,531 Other 203 -- ---------------- ---------------- Total deferred tax assets 12,910 14,654 Less deferred tax asset valuation allowance 1,323 506 ---------------- ---------------- Net deferred tax assets 11,587 14,148 ---------------- ---------------- Deferred tax liabilities: Depreciation and amortization 20,731 13,711 Investments in joint ventures, net -- 3,713 Other -- 47 ---------------- ---------------- Total deferred tax liabilities 20,731 17,471 ---------------- ---------------- Net deferred tax liability $(9,144) $(3,323) ================ ================
Deferred taxes are classified on the consolidated balance sheet at December 28, 2003 and December 29, 2002 as a net short-term deferred tax asset of $4,914,000 and $4,985,000, respectively, and a net long-term deferred tax liability of $14,058,000 and $8,308,000, respectively. 23 NOTE H - INCOME TAXES, CONTINUED 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) 2003 2002 2001 ------------ ------------ ------------ Tax expense at Federal statutory income tax rate $12,262 $8,683 $7,342 International tax rate differential (62) (619) 409 Net U.S. tax (foreign tax credit) on foreign earnings (1,442) (926) (1,058) General business credits (900) (582) (400) Nontaxable foreign sales income (1,225) (1,120) (1,213) State income taxes, net of Federal benefit 276 114 102 Nontaxable dividend income from joint venture (840) -- -- Valuation allowance change 817 122 (375) Other (127) 530 438 ------------ ------------ ------------ Income tax expense $8,759 $6,202 $5,245 ============ ============ ============
In December 2002, the Belgian government enacted a tax rate decrease effective for years ending in 2003 and later. All ending deferred tax balances attributable to Belgian operations were modified from the 40.17% tax rate to the new 33.99% tax rate for U.S. GAAP purposes to reflect this change. The 2002 international tax rate differential includes this reduction to the deferred international tax expense of $813,000, net of the current international tax expense in excess of the U.S. statutory tax rate of $194,000. The tax credit carry forwards consist of general business credits of $447,000, $990,000 and $1,145,000, and alternative minimum tax credits of $1,541,000, $1,541,000 and $732,000 at December 28, 2003, December 29, 2002 and December 30, 2001, respectively. The general business credits begin to expire in 2023, the alternative minimum tax credits have no expiration. A valuation allowance of $982,000, $420,000 and $384,000 at December 28, 2003, December 29, 2002 and December 30, 2001, respectively, is recorded for the net U.S. deferred tax asset associated with the excess foreign tax credits from undistributed foreign earnings available to offset resulting U. S. tax on future foreign source income. It is uncertain whether the net asset will be realized in future years due to the various foreign tax credit limitations imposed by the U.S. tax code. The Company also has recorded a valuation allowance of $341,000 and $86,000 at December 28, 2003 and December 29, 2002, respectively, for the net operating losses generated by the China subsidiary since its operations began in 2002. No tax benefit has been provided on the deferred tax asset since the subsidiary is in a cumulative loss position. The deferred tax asset valuation allowance increased by $817,000, $122,000 and decreased by $375,000 during 2003, 2002 and 2001, respectively. The Company recognized a U.S. deferred tax asset in 2003, 2002 and 2001 of $120,000, $2,080,000 and $1,319,000, respectively, based on the Company's assessment of the realizability of deferred tax assets on a more likely than not basis. Undistributed international earnings, on which United States income tax had not been provided, before available tax credits and deductions, amounted to $26,767,000 at December 28, 2003, $22,864,000 at December 29, 2002, and $19,569,000 at December 30, 2001. Tax has not been provided on these undistributed earnings as it is the Company's practice and intention to continue to reinvest these earnings. Income taxes paid were $2,218,000, $1,471,000, and $2,918,000, in 2003, 2002, and 2001, respectively. 24 NOTE I - SHAREHOLDERS' EQUITY AND STOCK OPTIONS
Accumulated balances related to each component of Accumulated Other Comprehensive Income (Loss) are as follows: December 28, December 29, (Dollars in Thousands) 2003 2002 ------------------------------------- Foreign currency translation adjustments $8,909 $3,045 Minimum pension liability, net of $2,460 and $4,743 in taxes in 2003 and 2002 (4,014) (7,738) ------------------------------------- Accumulated other comprehensive income (loss) $4,895 $(4,693) =====================================
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 in the United States 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.
Shares of capital stock reserved for possible future issuance are as follows: December 28, December 29, 2003 2002 ---------------- ---------------- Shareholder Rights Plan 20,681,915 20,243,264 Stock options 3,096,802 3,663,642 Rogers Employee Savings and Investment Plan 89,906 88,344 Rogers Corporation Global Stock Ownership Plan For Employees 447,616 477,587 Long-Term Enhancement Plan 111,771 115,308 Stock to be issued in lieu of deferred compensation 42,730 41,635 ---------------- ---------------- Total 24,470,740 24,629,780 ================ ================
Each outstanding share of Rogers' capital stock has attached to it a stock purchase right. One stock purchase right entitles the holder to buy one share of Rogers' capital stock at an exercise price of $60 per share. The rights become exercisable only under certain circumstances related to a person or group acquiring or offering to acquire a substantial block of Rogers' capital stock. In certain circumstances, holders may acquire Rogers' stock, or in some cases the stock of an acquiring entity, with a value equal to twice the exercise price. The rights expire on March 30, 2007 but may be exchanged or redeemed earlier. If such rights are redeemed the redemption price would be $ 0.005 per right. 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:
2003 2002 2001 -------------------------------------------------- Risk-free interest rate 3.76% 3.11% 4.67% Dividend yield 0% 0% 0% Volatility factor 38.0% 36.3% 33.6% Weighted-average expected life 6.8 years 6.1 years 6.1 years
25 NOTE I - SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) A summary of the status of the Company's stock option program at year-end 2003, 2002, and 2001, and changes during the years ended on those dates is presented below:
2003 2002 2001 ---------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Exercise Average Average Stock Options Shares Price Shares Exercise Price Shares Exercise Price - --------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 2,688,037 $21.66 2,314,821 $20.04 2,357,214 $17.12 Granted 452,100 37.98 528,560 26.07 270,809 33.24 Exercised (561,610) 12.52 (152,177) 12.15 (307,051) 9.19 Cancelled (48,586) 28.65 (3,167) 30.44 (6,151) 22.84 ---------------------------------------------------------------------------------- Outstanding at end of year 2,529,941 $26.47 2,688,037 $21.66 2,314,821 $20.04 ================================================================================== Options exercisable at end of year 1,471,271 1,807,673 1,668,843 ================================================================================== Weighted-average fair value of options granted during year $17.65 $9.38 $13.97 ==================================================================================
The following table summarizes information about stock options outstanding at December 28, 2003:
Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------------------- Weighted-Average Weighted- Weighted- Range of Remaining Average Average Exercise Number Outstanding Contractual Exercise Number Exercisable Exercise Prices at December 28, 2003 Life in Years Price at December 28, 2003 Price - ----------------------------------------------------------------------------------------------- $3 to $11 68,118 0.7 $8.78 68,118 $8.78 $12 to $28 1,401,301 6.0 $20.26 951,852 $17.63 $29 to $43 1,060,522 8.3 $35.82 451,301 $34.34 - ----------------------------------------------------------------------------------------------- $3 to $43 2,529,941 6.8 $26.47 1,471,271 $22.35 - -----------------------------------------------------------------------------------------------
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. 26 NOTE J - COMMITMENTS AND CONTINGENCIES LEASES The Company's principal noncancellable operating lease obligations are for building space and vehicles. The leases generally provide that the Company pays 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 $1,063,000 in 2003, $1,481,000 in 2002, and $1,320,000 in 2001. Future minimum lease payments under noncancellable operating leases at December 28, 2003, aggregate $1,347,000. Of this amount, annual minimum payments are $616,000, $382,000, $151,000, $65,000, and $52,000 for years 2004 through 2008, 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 four active cases involving waste disposal sites. These proceedings are generally at a stage where it is still not possible to estimate the cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. Where it has been possible to make a reasonable estimate of the Company's probable liability, a provision has been established. Insurance proceeds have only been taken into account when they have been confirmed by or received from the insurance company. Actual costs to be incurred in future periods may vary from these estimates. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial position. In addition to the above proceedings, the Company worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000, monitored the site in 2001, 2002 and 2003, 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 $2.2 million prior to 1999 and based on updated estimates provided an additional $400,000 in 1999 for costs related to this matter. Prior to 2003, $2.5 million was charged against this provision. In 2003, expenses of $65,000 were charged 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") alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputed the EPA allegations and appealed the administrative law judge's findings and penalty assessment. The original findings were upheld internally by the EPA's Environmental Appeals Board, and the Company placed that decision on appeal with the District of Columbia Federal Court of Appeals in 2000. In early January of 2002, the Company was informed that the Court of Appeals reversed the decision. As a result of this favorable decision, the $300,000 reserve for the fine was taken into income in 2001. However, subsequent to the favorable decision by the Court of Appeals, the EPA continued to pursue this issue and settlement discussions with the EPA were more protracted and difficult than originally anticipated. As such, the Company recorded $325,000 for legal and other costs associated with this matter in 2002. On January 16, 2003, a settlement agreement was signed with the EPA. The costs associated with the settlement included a cash settlement payment to the government of $45,000, which has been paid, a commitment to undertake two energy-related environmental improvements at its facilities, one of which has been completed, and a financial commitment for assistance to a local Woodstock, Connecticut Fire Department for emergency preparedness, which has also been completed. As such, the provision recorded is expected to be adequate to cover the requirements of the settlement. 27 NOTE J - COMMITMENTS AND CONTINGENCIES, CONTINUED 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 of 2001. On October 23, 2001, the Company terminated the acquisition agreement. On October 24, 2001, Taconic filed a breach of contract lawsuit against the Company in the United States District Court for the District of Connecticut seeking damages in the amount of $25 million or more, as well as specific performance and attorneys' fees. In September 2002, a confidential settlement agreement concerning all matters raised in this litigation was negotiated and entered into. The settlement had no material impact on the 2002 results. Over the past several years, there has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all material costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes that the resolution of these matters will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. 28 NOTE K - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION As of December 28, 2003, the Company has ten business units and three joint ventures. The business units and joint ventures have been aggregated into three reportable segments: High Performance Foams, Printed Circuit Materials, and Polymer Materials and Components. Each segment has common management oversight, share common infrastructures, and each offers different products and services. Printed Circuit Materials: There are three business units and two joint ventures in this segment. Laminate materials, that are primarily fabricated by others into circuits which are then used in electronic 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. High Performance Foams: This segment consists of three business units and one joint venture. The products produced by these operations consist primarily of high-performance urethane, silicone and polyolefin 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. Polymer Materials and Components: This segment is comprised of four business units. The products produced by these operations consist primarily of molded elastomer components, power distribution components, electroluminescent lamps and inverters 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 many factors including sales and operating income of the segments, the business units and the joint ventures. The principal manufacturing operations of the Company are located in the United States, Europe and Asia. 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. Approximately 71%, 55%, and 57% of total sales were to the electronics industry in 2003, 2002, and 2001, respectively. Approximately 42%, 33%, and 34% of the Company's sales of products manufactured by U.S. divisions were made to customers located in foreign countries in 2003, 2002, and 2001, respectively. This includes sales to Europe of 8%, 12%, and 17%, sales to Asia of 31%, 18%, and 15%, and sales to Canada of 2%, 2%, and 1% in 2003, 2002, and 2001, respectively. The electronics industry accounted for approximately 53%, 62%, and 63% at the end of 2003, 2002 and 2001, respectively, of the total accounts receivable due from customers. Accounts receivable due from customers located within the United States accounted for 32%, 45%, and 71% of the total accounts receivable owed to the Company at the end of 2003, 2002 and 2001, respectively. Inter-segment and inter-area sales, which are generally priced with reference to costs or prevailing market prices, have been eliminated from the data reported in the following tables. 29 NOTE K - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION, CONTINUED BUSINESS SEGMENT INFORMATION
(Dollars in thousands) Polymer High Printed Materials and Performance Circuit Components Foams Materials Total - ---------------------------------------------------------------------------------------------------- 2003: Net sales $69,482 $114,244 $59,603 $243,329 Operating income 2,611 15,230 3,730 21,571 Total assets 57,926 175,117 81,397 314,440 Capital expenditures 12,415 2,615 2,921 17,951 Depreciation 2,593 7,945 2,984 13,522 Joint venture equity income (loss) 2,161 (218) 4,628 6,571 - ---------------------------------------------------------------------------------------------------- 2002: Net sales $65,084 $82,419 $71,935 $219,438 Operating income 8,052 4,802 1,320 14,174 Total assets 59,520 135,062 63,119 257,701 Capital expenditures 13,877 7,072 1,733 22,682 Depreciation 1,996 6,700 4,825 13,521 Joint venture equity income (loss) 1,778 (351) 7,278 8,705 - ---------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------
Information relating to the Company's operations by geographic area is as follows: (Dollars in thousands) Europe United States (primarily Belgium) Asia Total - ---------------------------------------------------------------------------------------------------- 2003: Net sales $157,276 $50,984 $35,069 $243,329 Long-lived assets 119,062 39,497 3,357 161,916 - ---------------------------------------------------------------------------------------------------- 2002: Net sales $163,127 $41,834 $14,477 $219,438 Long-lived assets 91,274 34,707 1,234 127,215 - ---------------------------------------------------------------------------------------------------- 2001: Net sales $165,321 $45,913 $4,803 $216,037 Long-lived assets 90,129 26,340 -- 116,469 - ----------------------------------------------------------------------------------------------------
The net assets of wholly-owned foreign subsidiaries were $46,861,000 at December 28, 2003 $30,268,000 at December 29, 2002, and $23,691,000 at December 30, 2001. Net income of these foreign subsidiaries was $4,725,000 in 2003, $2,744,000 in 2002, and $4,819,000 in 2001, including net currency transaction gains of $17,000 in 2003, $2,000 in 2002, and $117,000 in 2001. 30 NOTE L-RESTRUCTURING COSTS In 2002, the Company incurred restructuring charges of approximately $2.2 million. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to the end of fiscal 2002. The remaining employees were notified prior to year-end and subsequently terminated at various dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of December 28, 2003, there was no balance remaining in the restructuring accrual as all of the accrual was used for its intended purpose. In 2001 the Company incurred a restructuring charge in the amount of $500,000. This amount was primarily related to severance benefits for the termination of 19 employees in the Printed Circuit Materials segment which was associated with the merging of two business units within that segment. As of December 28, 2003, there was no balance remaining with respect to this charge. 31 NOTE M-ACQUISITIONS AND DIVESTITURES Acquisitions Durel Corporation On September 30, 2003, the Company acquired from 3M Company ("3M") its 50% interest in Durel Corporation, a joint venture of Rogers and 3M, for $26 million in cash plus $0.5 million in closing costs. The acquisition allows Rogers to expand its market presence in Durel's core business lines, to position the Company for further growth in Durel's markets and gives the Company proprietary ownership over Durel's research and development capabilities. Effective September 30, 2003, the operations of Durel were fully integrated and consolidated into Rogers Corporation. The new business unit is called the Durel Division and its financial and operating results are included as part of Rogers' Polymer Materials and Components business segment. The acquisition has been accounted for as a purchase pursuant to SFAS No. 141, "Business Combinations". As such, the purchase price has been allocated to assets and liabilities based on their respective fair values at the date of acquisition. The following table contains the fair market value assigned to the respective assets and liabilities of Durel that were acquired by Rogers in the transaction. (Dollars in thousands) Cash $4,172 Accounts receivable, net 4,353 Inventory, net 4,525 Property, plant and equipment, net 11,367 Intangible assets 3,108 Other assets 1,363 --------------- Total assets 28,888 Accounts payable and other accruals 3,800 Accrued income taxes payable 1,111 Pension liability 2,363 Deferred tax liability 1,799 --------------- Total liabilities 9,073 --------------- Fair value of net assets acquired 19,815 Basis difference in carrying value of Durel 3,387 Elimination of deferred tax liability related to Durel 3,298 --------------- Purchase price $26,500 =============== In accordance with the purchase accounting rules of SFAS No. 141, the Company accounted for approximately $865,000 of negative goodwill that resulted from the transaction by allocating this goodwill to the acquired long-term assets proportionately based on their respective fair market values. Of the intangible assets acquired, only the trademark is considered to have an indefinite life. Accordingly, the remaining intangibles will be amortized over their estimated useful lives. The amortization period for the non-compete agreement is four years and developed technology is thirteen years, which represents the average remaining useful life of the underlying patents. In-process research and development was amortized immediately in the fourth quarter of 2003. In connection with the Company's purchase price allocation, the Company eliminated the basis difference between the carrying value of its investment in Durel and its one-half interest in the underlying shareholders' equity of Durel as of the acquisition date, which was due primarily to the Company's initial contribution to the joint venture that represented technology and was valued differently by the joint venture than it was on the Company's books. Consequently, this difference of $3.4 million was accounted for as part of the purchase price allocation. At the acquisition date, the Company had a cumulative deferred tax liability of approximately $3.3 million related to the equity income from Durel that was recorded for book purposes, but was not yet taxable. This amount was eliminated as part of the purchase accounting as Rogers will not be liable for this amount. The following table contains pro-forma financial information for the Company's consolidated results of operations assuming the Company had owned Durel for the two-year period ending December 28, 2003: 32 2003 2002 --------------------------------- Net sales $294,660 $303,500 Operating income 29,553 35,560 Net income 30,867 27,388 Earnings per share Basic $1.96 $1.77 Diluted 1.89 1.71 Cellect LLC As of December 31, 2001 (the beginning of fiscal year 2002), the Company acquired certain assets of the high performance foam business of Cellect LLC ("Cellect") for approximately $10 million in cash, plus a potential earn-out in five years based upon performance. While there is no contractual limitation on the earn-out, the actual earn-out will be determined and affected by the sales and profitability growth through 2006 as compared to the base year of 2001. 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 was accounted for as a purchase pursuant to SFAS No. 141. As such, the purchase price has been allocated to property, plant and equipment and intangible assets based on their respective fair values at the date of acquisition. The following table summarizes the estimated fair values of the acquired assets on the date of acquisition: In thousands ------------------ Purchase price $10,000 Acquisition costs 226 ------------------ 10,226 Less identified tangible/intangible assets: Property, plant and equipment 1,600 Trademarks 1,200 Technology 4,200 Covenant not-to-compete 600 ------------------ 7,600 ------------------ Goodwill $2,626 ================== Of the intangible assets acquired, only the covenant not-to-compete is considered to not have an indefinite life. Accordingly, the remaining intangibles will not be amortized, but will be reviewed for impairment on an annual basis. The amortization period for the covenant not-to-compete is three years and amortization commences in 2007, subsequent to the completion of the earn-out period. In connection with this acquisition, the Company entered into various operating and financing agreements with Cellect to purchase certain production from Cellect while the Company completed construction of a plant facility in Carol Stream to manufacture the products acquired from Cellect. The Company has a note receivable and accounts receivable of $1.8 million and $2.9 million, respectively, at December 28, 2003 from Cellect associated with these agreements that stem from the Company funding the operation to support Cellect's supply requirements. Any residual amount in accounts receivable is due at the conclusion of the supply agreement (currently June 30, 2004). The note receivable is due in January 2007, which corresponds to the date upon which any earn-out payments under the acquisition agreement are due. The risk of collection on these balances is mitigated by the production purchases from Cellect, right of offset on production purchases and any earn-out payments, as well as the Company's security interest in substantially all the assets of Cellect as collateral on the note arrangement. Divestitures Moldable Composites Division On November 18, 2002, the Company completed the divestiture of its Moldable Composites Division ("MCD"), located in Manchester, Connecticut. MCD, which was included in the Company's Polymer Materials and Components segment, was sold to Vyncolit North America Inc., a subsidiary of the Perstorp Group, Sweden. Under the terms of the agreement, the Company expects to receive a total of approximately $21.0 million for the business assets (excluding the intellectual property) and a five-year royalty stream from the intellectual property license. Half of the $21.0 million was paid in cash upon consummation of the transaction. A note receivable, which bears interest at the rate of LIBOR plus 1%, was provided for the remainder of the sales price which will be paid over a five-year period. The first installment of $2.1 million plus accrued interest was received in the fourth quarter of 2003. There was no material gain or loss on the sale transaction. 34 NOTE N - SUBSEQUENT EVENTS Acquisition of KF Inc. On January 30, 2004, the Company announced its acquisition of KF Inc. ("KF"), a Korean manufacturer of liquid level sensing devices for the automotive market, through a stock purchase agreement of approximately $3.5 million. In fiscal 2003, sales of KF were approximately $3 million. Under the terms of the agreement, KF has become a wholly owned subsidiary of Rogers and will be included in Rogers' consolidated results in the first quarter of fiscal 2004. The acquisition will be accounted for as a purchase pursuant to SFAS No. 141. As such, the purchase price will be allocated to assets and liabilities based on their respective fair values at the date of acquisition. Windham, Connecticut Plant Closure On January 21, 2004, the Company announced that it would cease operations at its Windham, Connecticut facility by the end of 2004. The manufacturing operations for Rogers molded polyurethane materials and its nitrile rubber floats, currently manufactured at the plant, will be relocated to the Company's facility in Suzhou, China. Charges associated with the transaction are projected to be slightly above $2 million and are expected to be recognized in the financial statements during the course of 2004, which are anticipated to be partially offset by related cost savings. 35 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 28, 2003 and December 29, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended December 28, 2003. 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 28, 2003 and December 29, 2002, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 2003, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, effective December 31, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." ERNST & YOUNG LLP Boston, Massachusetts February 3, 2004 36 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (Dollars in Thousands, Except Per Share Amounts)
Basic Diluted Net Manufacturing Net Net Income Net Income Quarter Sales Profit Income Per Share Per Share - ----------------------------------------------------------------------------------- 2003 Fourth* $ 85,795 $ 28,621 $ 8,995 $ .57 $ .54 Third 56,497 18,706 6,329 .40 .39 Second 49,159 14,726 5,212 .33 .32 First 51,878 16,488 5,739 .37 .36 - ----------------------------------------------------------------------------------- 2002 Fourth $ 51,516 $ 17,853 $ 5,422 $ .35 $ .34 Third 56,034 17,463 4,770 .31 .30 Second 57,330 17,696 4,531 .29 .28 First 54,558 16,243 3,884 .25 .24 - -----------------------------------------------------------------------------------
* Results of operations of Durel are included in the Company's 2003 fourth quarter consolidated results of operations. Durel's net sales included in the Company's consolidated results for this period were $20.8 million. 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. 2003 2002 - -------------------------------------------------------------------- Quarter High Low High Low - -------------------------------------------------------------------- Fourth $ 45.75 $ 30.63 $ 26.39 $ 20.65 Third 33.70 27.27 28.85 23.35 Second 34.50 29.72 35.80 26.25 First 31.14 23.10 34.00 27.20 37 -----END PRIVACY-ENHANCED MESSAGE-----