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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4347
ROGERS CORPORATION
[Exact name of Registrant as specified in its charter]
Massachusetts 06-0513860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Technology Drive
P.O. Box 188
Rogers, Connecticut 06263-0188
(Address of principal executive offices) (Zip Code)
(860) 774-9605
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange on
Title of each class which registered
- ------------------- ----------------
Capital Stock, $1 Par Value American Stock Exchange, Inc.
Pacific Exchange, Inc.
Rights to Purchase Capital Stock American Stock Exchange, Inc.
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Capital Stock, $1 par
value, held by non-affiliates of the Registrant as of February 25,
1998 was $291,442,062.
The number of shares of Capital Stock, $1 par value,
outstanding as of February 25, 1998 was 7,595,063.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's annual report to shareholders for
the fiscal year ended December 28, 1997 are incorporated by
reference into Parts I and II.
Portions of the proxy statement for the Registrant's 1998 annual
meeting of stockholders to be held April 23, 1998, are
incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
PART I
Item Page
1. Business 1
2. Properties 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security-Holders 6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
6. Selected Financial Data 7
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
7A. Quantitative and Qualitative Disclosures About Market
Risk 7
8. Financial Statements and Supplementary Data 7
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
10. Directors and Executive Officers of the Registrant 8
11. Executive Compensation 8
12. Security Ownership of Certain Beneficial Owners and
Management 8
13. Certain Relationships and Related Transactions 8
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 9
SIGNATURES
Signatures 13
<PAGE>
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 communication, imaging, computer, transportation, and
consumer applications.
New leadership in 1992 restructured the Company to focus on these
materials based businesses -- circuit materials, high performance
elastomers, and moldable composites. The Company's management,
operations, sales and marketing, and technology development
activities were redirected to efforts intended to grow the
materials based businesses. In so doing, the Company takes
advantage of its core competencies in polymers, fillers, and
adhesion, and applies its related materials technologies to
identified market needs. Materials based businesses were the
core businesses responsible for the Company's strong growth in
the 1960's and 1970's, and provided most of the Company's profits
in the 1980's. During that time, the profits from the materials
based businesses were often offset by substantial losses in the
Company's former electronic components businesses, which are now
divested.
The materials based businesses are guided by clearly developed
strategic business plans for profitable growth. The current
focus is on worldwide markets for elastomeric materials and
related components, high frequency and flexible circuit
materials, moldable composite materials, and the
electroluminescent lamp joint venture with 3M.
DUROID(R), ENDUR(R), FLEX-I-MID(R), Induflex(R), LEAD/lock(R),
MEKTRON(R), MPC(R), NITROPHYL(R), PORON(R), PORON PERMAFRESH(R),
RO3000(TM), RO4000(R), Rogers Express(TM), RT/duroid(R), RX(R),
R/bak(R), R/flex(R), TMM(R), and ULTRALAM(R) are licensed
trademarks of Rogers Corporation.
DUREL(R) is a trademark of Durel Corporation.
BUSINESS SEGMENT FINANCIAL AND GEOGRAPHIC INFORMATION
"Business Segment and Geographic Information" on pages 45-46 of
the annual report to shareholders for the year ended December 28,
1997, is incorporated herein by reference.
PRODUCTS
Rogers Corporation manufactures and sells specialty polymer
composite materials and components which it develops for growing
markets and applications around the world. The Company has two
business segments: Polymer Materials and Electronic Materials.
Most products are based on the Company's technology in polymer
composite materials.
POLYMER MATERIALS
Polymer Materials include high performance elastomer materials,
high performance elastomer components, and moldable composite
materials. The Company's Polymer Materials have high performance
characteristics, allowing them to offer functional advantages in
many market applications, and serving to differentiate the
Company's products from competitive or other commonly available
materials.
Trade names for the Company's Polymer Materials include: PORON
urethane and silicone foams used for gaskets and seals in
vehicles, commercial aircraft, communication devices, computers,
and footwear and foot comfort products; R/bak plate backing and
mounting products for cushioning flexographic printing plates;
NITROPHYL floats for fuel level sensing in cars, trucks, and
marine motors; ENDUR elastomer rollers and belts for document
handling in copiers, computer printers,
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and ATMs; and, MPC and RX moldable composites for engine and
transmission parts in vehicles, and for insulating parts in
electric motors, appliances, and tools. Polymer Materials are
sold to manufacturers in the imaging, communication, computer,
transportation, and consumer products markets.
The Company's two joint ventures extend and complement the
Company's worldwide businesses in Polymer Materials. The Rogers
INOAC Corporation (RIC), a 50% owned joint venture with INOAC
Corporation of Japan, manufactures high performance elastomer
materials and components in Mie and Nagoya, Japan, and in
Malaysia. The Durel Corporation, a 50% owned joint venture with
Minnesota Mining and Manufacturing Company (3M), manufactures
electroluminescent lamps in Chandler, Arizona.
The Company acquired the Bisco Products silicone foam business,
based in Elk Grove Village, Illinois, from a subsidiary of Dow
Corning Corporation at the beginning of 1997. The high
performance silicone foam products of this business have heat
shielding and gasketing applications in transportation markets.
These materials are now sold under the PORON trademark.
ELECTRONIC MATERIALS
Electronic Materials include laminate materials for use in high
frequency and microwave printed circuit boards, flexible printed
circuit board laminates, and power distribution bus bars. The
Company's laminate materials have special performance advantages
that are specific to targeted market applications. In
particular, the polymer based dielectric layers of the Company's
laminates are proprietary materials which provide highly
specialized electrical and mechanical properties. These
attributes also serve to differentiate the Company's products
from standard circuit board laminates that are more widely
available.
Trade names for the Company's high frequency printed circuit
board materials include RO3000 and RO4000 commercial laminates,
which are for circuitry in commercial wireless transmitters,
receivers, pagers, and telephones. Trade names for other high
frequency or microwave printed circuit board materials include
DUROID, RT/duroid, and TMM laminates, which are used for
circuitry in high performance or military transmitters,
receivers, radar, and guidance systems. Trade names for flexible
circuit materials include FLEX-I-MID, a product marketed under a
partnership agreement with Mitsui Chemicals, Inc. of Japan, and
R/flex circuit materials. These flexible materials are used to
make dynamic interconnections for rigid disk drives, portable
computers, and miniaturized electronic devices. Electronic
Materials are sold principally to independent and captive printed
circuit board manufacturers who convert the Company's laminates
to custom printed circuits.
Power distribution bus bars are manufactured by Rogers N.V. in
Europe under the trade name MEKTRON, and sold to manufacturers of
communication equipment and high voltage electrical traction
systems.
Purchased from European conglomerate UCB SA on September 30,
1997, Rogers Induflex N.V. manufactures thin aluminum and copper
clad industrial laminates for shielding electromagnetic and radio
frequency interference in telecommunication and data
communication applications.
BACKLOG
Excluding joint venture activity, the backlog of firm orders for
Polymer Materials was $13,173,000 at December 28, 1997 and
$12,236,000 at December 29, 1996. The backlog of firm orders for
Electronic Materials was $21,585,000 at December 28, 1997 and
$13,942,000 at December 29,
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1996. The increase in backlog for Electronic Materials from 1996
to 1997 primarily reflects the higher sales level of FLEX-I-MID
circuit material used with magneto-resistive (MR) heads in hard
disk drives. The amount of unfilled orders is reasonably stable
throughout the year.
RAW MATERIALS
The manufacture of both Polymer and Electronic Materials requires
a wide variety of purchased raw materials. Some of these raw
materials are available only from limited sources of supply
which, 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 525 people in the Polymer
Materials operations and 468 people in the Electronic Materials
operations during 1997.
SEASONALITY
In the Company's opinion, neither the Polymer Materials business
nor the Electronics Materials business is seasonal.
CUSTOMERS & MARKETING
The Company's products were sold to approximately 2,200 customers
worldwide in 1997. Sales to ADFlex Solutions, Inc. accounted for
11% of sales during 1997. Although the loss of all the sales
made to any one of the Company's major customers would require a
period of adjustment during which the business of a segment would
be adversely affected, the Company believes that such adjustment
could be made over a period of time. The Company also believes
that its business relationships with the major customers within
both 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 85% of the
Company's sales are sold through the Company's own domestic and
foreign sales force, with the balance sold through independent
agents and distributors.
COMPETITION
There are no firms which 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 which 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.
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RESEARCH & DEVELOPMENT
The Company has many domestic and foreign patents and licenses
and has additional patent applications on file related to both
business segments. In some cases, the patents result in license
royalties. The patents are of varying duration and provide some
protection. Although the Company vigorously defends its patents,
the Company believes that its patents have most value in
combination with its equipment, technology, skills, and market
position. Early in 1996, the Company successfully settled an
infringement suit it brought against a competitor in the field of
high frequency circuit materials. The settlement established the
validity of the patent which covers basic technology in that
field, and the competitor is paying the Company royalties on its
sales of certain of its products. The Company also owns a number
of registered and unregistered trademarks which it believes to be
of importance.
During its fiscal year 1997, the Company spent $9,608,000 on
research and development activities, compared with $9,184,000 in
1996, and $9,320,000 in 1995. These amounts include the cost of
the corporate research and development effort in Rogers,
Connecticut, which amounted to $6,908,000, $6,484,000, and
$6,820,000 in 1997, 1996, and 1995, respectively. The balance
was comprised of expenditures for product development and new
process development activities in its operating units.
ENVIRONMENTAL REGULATION
During fiscal year 1997, the Company spent $630,000 on capital
equipment necessary to comply with federal, state, and local
environmental protection, health and safety regulations.
Management estimates that 1998 expenditures needed for compliance
with current environmental, health, and safety regulations will
approximate $2,200,000, of which $880,000 has been accrued and
$900,000 is expected to be capitalized. These capital
expenditures will generally be depreciated on a straight-line
basis over a period of from 5 to 10 years.
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EXECUTIVE OFFICERS OF THE REGISTRANT
All officers hold office until the first meeting of the Board of
Directors following the annual meeting of stockholders or until
successors are elected.
There are no family relationships between or among executive
officers and directors of the Company.
Name, Age Prior Business Experience Served in Present
and Present Position in Past Five Years Position Since
- ----------------------------------------------------------------------------
Harry H. Birkenruth, 66 President and Chief Executive
Chairman of the Board Officer from April 1992 to
of Directors March 1997. March 1997
Walter E. Boomer, 59 General in the U.S. Marine Corps
President and Chief from June 1986 to August 1994;
Financial Officer Senior Vice President and Chief
Project Management Officer of
McDermott International, Inc. to
February 1995; President of
Babcock & Wilcox Power Generation
Group and Executive Vice President
of McDermott International, Inc.
to October 1996. March 1997
Aarno A. Hassell, 58 Vice President, Circuit Materials
Vice President, Market Group from January 1988 until
Development August 1994. August 1994
Bruce G. Kosa, 58 Technical Director from August
Vice President, 1992 to October 1994.
Technology October 1994
Dale S. Shepherd, 50 Vice President and Secretary at
Vice President, Finance; Kawasaki LNP Inc. from July 1991
Chief Financial Officer; to October 1997.
and Secretary October 1997
John A. Richie, 50 Director of Human Resources from
Vice President July 1992 to October 1994.
Human Resources October 1994
Robert D. Wachob, 50 Vice President, Sales and Marketing
Senior Vice President from October 1990 to May 1997.
Sales and Marketing May 1997
Robert M. Soffer, 50
Treasurer and Assistant
Secretary March 1987
Clerk February 1992
Donald F. O'Leary, 54 Assistant Controller from April
Corporate Controller 1982 to April 1995. April 1995
Executive Officer April 1996
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Item 2. PROPERTIES
The Company owns its properties, except as noted below. The
Company considers that its properties are well-maintained, in
good operating condition, and suitable for its current and
anticipated business. Manufacturing capacity was added to the
facilities located in Chandler, Arizona, and Manchester,
Connecticut, during 1997. Expansions of the Chandler, Arizona,
Ghent, Belgium, and Woodstock, Connecticut, processes and
facilities were begun in 1997 and are expected to be completed in
1998. Operating capacity can be increased by additional worker
hours at these and at several of the Company's other locations.
Also, adequate land is available for foreseeable future
requirements at each of the Company's owned plants.
Floor Space
(Square Feet) Type of Facility Leased/Owned
------------- ---------------- ------------
Polymer Materials
- -----------------
Manchester, Connecticut 128,000 Manufacturing Owned
38,000 Warehouse Owned
South Windham, Connecticut 88,000 Manufacturing Owned
Woodstock, Connecticut 116,000 Manufacturing Owned
Elk Grove Village, Illinois 93,000 Manufacturing Leased
through 9/01
Electronic Materials
- --------------------
Chandler, Arizona 56,000 Manufacturing Owned
47,000 Warehouse Owned
Chandler, Arizona* 142,000 Manufacturing
Facility Held
for Sale Owned
Rogers, Connecticut 290,000 Manufacturing Owned
Ghent, Belgium
Rogers NV 85,000 Manufacturing Owned
Rogers Induflex NV 96,000 Manufacturing Owned
Tokyo, Japan 1,500 Sales Office Leased
through 8/98
Wanchai, Hong Kong 1,300 Sales Office Leased
through 3/99
Corporate
Rogers, Connecticut 116,000 Corporate
Headquarters/
Research &
Development Owned
* The company is leasing this facility to the purchaser of the
flexible interconnections business, which was sold in 1993.
Item 3. LEGAL PROCEEDINGS
The Company is subject to federal, state, and local laws and
regulations concerning the environment and is currently engaged
in proceedings involving a number of sites under these laws, as a
participant in a group of potentially responsible parties (PRPs).
The Company is currently involved as a PRP in four cases
involving waste disposal sites, all of which are Superfund sites.
Several of these proceedings are at a preliminary stage and it is
impossible to estimate the cost of remediation, the timing and
extent of remedial action which may be required by governmental
authorities, and the amount of liability, if any, of the Company
alone or in relation to that of any other PRPs. The Company also
has been seeking to identify insurance coverage with respect to
these matters. Where it has been possible to make a reasonable
estimate of the Company's liability, a provision has been
established. Insurance proceeds have only been taken into
account when they have been confirmed by or received from the
insurance company. Actual costs to be incurred in future periods
may vary from these estimates. Based on facts presently known to
it, the Company does not believe that the outcome of these
proceedings will have a material adverse effect on its financial
position.
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In addition to the above proceedings, the Company has been
actively working with the Connecticut Department of Environmental
Protection (CT DEP) related to certain polychlorinated biphenyl
(PCB) contamination in the soil beneath a section of cement
flooring at its Woodstock, Connecticut facility. The Company is
developing a remediation plan with CT DEP. On the basis of
estimates prepared by environmental engineers and consultants,
the Company recorded a provision of approximately $900,000 in
1994 and based on updated estimates provided an additional
$700,000 in 1997 for costs related to this matter. During 1995,
$300,000 was charged against this provision and $200,000 was
charged in both 1996 and 1997. Management believes, based on
facts currently available, that the implementation of the
aforementioned remediation will not have a material additional
adverse impact on earnings.
In this same matter, the United States Environmental Protection
Agency (the "EPA") originally sought an administrative penalty of
$227,000, which was later changed to $300,000. The EPA has
alleged that the Company improperly disposed of PCBs. An
administrative law judge found the Company liable for this
alleged disposal, but a penalty hearing has not yet been held.
The Company disputes the allegations and intends to contest the
assessment of any penalty.
The Company is not involved in any other litigation which
management believes will materially and adversely affect its
financial condition or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Pursuant to General Instruction G to Form 10-K, there is hereby
incorporated by this reference the information set forth under
the caption "Capital Stock Market Prices" on page 48, under the
caption "Restriction on Payment of Dividends" in Note H on page
39, and under the caption "Dividend Policy" in the "Management's
Discussion and Analysis" on page 54 of the 1997 annual report to
shareholders.
At February 25, 1998, there were 1,109 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 25 of the 1997
annual report to shareholders, but specifically excluding from
said incorporation by reference the information contained therein
and set forth under the subcaption "Other Data."
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instruction G to Form 10-K, there is hereby
incorporated by this reference the information set forth under
the caption "Management's Discussion and Analysis" on pages 49
through 56 of the 1997 annual report to shareholders.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
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
26 through 47 and under the caption "Quarterly Results of
Operations (Unaudited)" on page 48 of the 1997 annual report to
shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G to Form 10-K, there is hereby
incorporated by this reference the information with respect to
the Directors of the Registrant set forth under the caption
"Nominees for Director" on page 2 of the Registrant's definitive
proxy statement dated March 16, 1998, for its 1998 annual meeting
of stockholders filed pursuant to Section 14(a) of the Act.
Information with respect to Executive Officers of the Registrant
is presented in Part I.
Item 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G to Form 10-K, there is hereby
incorporated by this reference the information set forth under
the captions "Directors' Compensation" on page 5 and "Executive
Compensation" on pages 6 through 13 of the Registrant's
definitive proxy statement, dated March 16, 1998, for its 1998
annual meeting of stockholders filed pursuant to Section 14(a) of
the Act.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction G to Form 10-K, there is hereby
incorporated by this reference the information with respect to
Security Ownership of Certain Beneficial Owners and Management
set forth under the captions "Stock Ownership of Management" on
page 3 and "Beneficial Ownership of More than Five Percent of the
Corporation's Stock" on page 4 of the Registrant's definitive
proxy statement, dated March 16, 1998, for its 1998 annual
meeting of stockholders filed pursuant to Section 14(a) of the
Act.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G to Form 10-K, there is hereby
incorporated by this reference the information with respect to
certain relationships and related transactions included under the
captions "Other Arrangements and Payments" and "Certain
Relationships and Related Transactions" on page 14 of the
Registrant's definitive proxy statement, dated March 16, 1998,
for its 1998 annual meeting of stockholders filed pursuant to
Section 14(a) of the Act.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) - The following consolidated financial statements of
Rogers Corporation and Subsidiaries, included in the
Annual Report of the Registrant to its shareholders for
the fiscal year ended December 28, 1997, are incorporated
by reference in Item 8:
Consolidated Balance Sheets--December 28, 1997 and
December 29, 1996
Consolidated Statements of Income and Retained Earnings--
Fiscal Years Ended December 28, 1997, December 29,
1996, and December 31, 1995
Consolidated Statements of Cash Flows--Fiscal Years Ended
December 28, 1997, December 29, 1996, and December 31, 1995
Notes to Consolidated Financial Statements--December 28, 1997
(2) - The following consolidated financial statement
schedule of Rogers Corporation and consolidated
subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
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(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
3a Restated Articles of Organization, filed with the
Secretary of State of the Commonwealth of Massachusetts on
April 6, 1966, were filed as Exhibit 3a to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 1, 1989 (the 1988 Form 10-K)*.
3b Articles of Amendment, filed with the Secretary of State
of the Commonwealth of Massachusetts on August 10, 1966,
were filed as Exhibit 3b to the 1988 Form 10-K*.
3c Articles of Merger of Parent and Subsidiary
Corporations, filed with the Secretary of State of the
Commonwealth of Massachusetts on December 29, 1975, were
filed as Exhibit 3c to the 1988 Form 10-K*.
3d Articles of Amendment, filed with the Secretary of State
of the Commonwealth of Massachusetts on March 29, 1979,
were filed as Exhibit 3d to the 1988 Form 10-K*.
3e Articles of Amendment, filed with the Secretary of State
of the Commonwealth of Massachusetts on March 29, 1979,
were filed as Exhibit 3e to the 1988 Form 10-K*.
3f Articles of Amendment, filed with the Secretary of State
of the Commonwealth of Massachusetts on April 2, 1982,
were filed as Exhibit 3f to the 1988 Form 10-K*.
3g Articles of Merger of Parent and Subsidiary
Corporations, filed with the Secretary of State of the
Commonwealth of Massachusetts on December 31, 1984, were
filed as Exhibit 3g to the 1988 Form 10-K*.
3h Articles of Amendment, filed with the Secretary of State
of the Commonwealth of Massachusetts on April 6, 1988,
were filed as Exhibit 3h to the 1988 Form 10-K*.
3i By-Laws of the Company as amended on March 28, 1991,
September 10, 1991, and June 22, 1995 were filed as
Exhibit 3i to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (the 1995 Form
10-K)*.
3j Articles of Amendment, as filed with the Secretary of
State of the Commonwealth of Massachusetts on May 24,
1994, were filed as Exhibit 3j to the 1995 Form 10-K*.
4a Certain Long-Term Debt Instruments, each representing
indebtedness in an amount equal to less than 10 percent of
the Registrant's total consolidated assets, have not been
filed as exhibits to this Annual Report on Form 10-K. The
Registrant hereby undertakes to file these instruments
with the Commission upon request.
4b 1997 Shareholder Rights Plan was filed on Form 8-A dated
March 24, 1997. The June 19, 1997 and July 7, 1997
amendments were filed on Form 8-A/A dated July 21, 1997*.
10a Rogers Corporation Incentive Stock Option Plan** (1979, as
amended July 9, 1987 and October 23, 1996). The 1979 plan
and the July 9, 1987 amendment were filed as Exhibit 10c
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1988 (the 1987 Form 10-K).
The October 23, 1996 amendment was filed as Exhibit 10a to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1996 (the 1996 Form 10-K)*.
10b Description of the Company's Life Insurance Program**, was
filed as Exhibit K to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 1980*.
10c Rogers Corporation Annual Incentive Compensation Plan**
(as restated and amended on December 18, 1996) was filed
as Exhibit 10c to the 1996 Form 10-K*.
10d Rogers Corporation 1988 Stock Option Plan** (as amended
December 17, 1988, September 14, 1989, and October 23,
1996). The 1988 plan, the 1988 amendment, and the 1989
amendment were filed as Exhibit 10d to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 1, 1995 (the 1994 Form 10-K)*. The 1996 amendment
was filed as Exhibit 10d to the 1996 Form 10-K*.
10e Rogers Corporation 1990 Stock Option Plan** (as restated
and amended on October 18, 1996), was filed as
Registration Statement No. 333-14419 on Form S-8 dated
October 18, 1996*.
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10f Rogers Corporation Deferred Compensation Plan** (1983) was
filed as Exhibit O to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 1, 1984*.
10g Rogers Corporation Deferred Compensation Plan** (1986) was
filed as Exhibit 10e to the 1987 Form 10-K*.
10h Rogers Corporation 1994 Stock Compensation Plan** (as
restated and amended on December 6, 1996 and amended on
December 18, 1997). The 1996 plan, as amended and restated
on December 6, 1996, was filed as Exhibit 10h to the 1996
Form 10-K*. The 1997 amendment is filed herewith.
10i Rogers Corporation Voluntary Deferred Compensation Plan
for Non-Employee Directors** (1994, as amended December
26, 1995 and December 27, 1996). The 1994 plan, the
December 26, 1995 and December 27, 1996 amendments were
filed as Exhibit 10i to the 1994 Form 10-K, 1995 Form 10-K,
and 1996 Form 10-K, respectively*.
10j Rogers Corporation Voluntary Deferred Compensation Plan
for Key Employees** (1993, as amended on October 18, 1994,
December 22, 1994, December 21, 1995, December 22, 1995,
and April 16, 1996). The 1993 plan and the 1994 amendments
were filed as Exhibit 10j to the 1994 Form 10-K. The 1995
and 1996 amendments were filed as Exhibit 10j to the 1995
Form 10-K and 1996 Form 10-K, respectively*.
10k Rogers Corporation Long-Term Enhancement Plan for Senior
Executives of Rogers Corporation** dated December 18,
1997.
13 Portions of the Rogers Corporation 1997 Annual Report to
Shareholders which are specifically incorporated by
reference in this Annual Report on Form 10-K.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule (Restated Fiscal Year-Ends 1995 and 1996).
27.3 Financial Data Schedule (Restated Quarters 1, 2, and 3 of 1996).
27.4 Financial Data Schedule (Restated Quarters 1, 2, and 3 of 1997).
* In accordance with Rule 12b-23 and Rule 12b-32 under the
Securities Exchange Act of 1934, as amended, reference is made
to the documents previously filed with the Securities and
Exchange Commission, which documents are hereby incorporated
by reference.
** Management Contract.
(b) No reports on Form 8-K were filed during the three months
ended December 28, 1997.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report.
11
<PAGE>
(d) Financial Statement Schedule
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ROGERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
(Dollars in Thousands) Additions Balance
Balance at Charged to Charged at End
Beginning Costs and to Other Other of
Description of Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------
Year ended Dec. 28, 1997:
Deducted from asset
accounts:
Net realizable value
allowance for assets
held for sale $ 492 $ -- $ -- $ -- $ 492
Year ended Dec. 29, 1996:
Deducted from asset
accounts:
Net realizable value
allowance for assets
held for sale $ 2,032 $ -- $ -- $ 1,540* $ 492
Year ended Dec. 31, 1995:
Deducted from asset
accounts:
Net realizable value
allowance for assets
held for sale $ 1,587 $ -- $ 445 $ -- $ 2,032
* Allowance applicable to assets sold during 1996 at approximate book value.
12
<PAGE>
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 20, 1998 by /s/DALE S. SHEPHERD
Dale S. Shepherd
Vice President, Finance; Chief
Financial Officer; and
Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 18, 1998, by the
following persons on behalf of the Registrant and in the
capacities indicated.
By /s/WALTER E. BOOMER President (Principal Executive
Walter E. Boomer Officer) and Director
By /s/HARRY H. BIRKENRUTH Chairman of the Board
Harry H. Birkenruth
By /s/LEONID V. AZAROFF Director
Leonid V. Azaroff
By /s/LEONARD M. BAKER Director
Leonard M. Baker
By /s/WALLACE BARNES Director
Wallace Barnes
By /s/MILDRED S. DRESSELHAUS Director
Mildred S. Dresselhaus
By /s/DONALD J. HARPER Director
Donald J. Harper
By /s/GREGORY B. HOWEY Director
Gregory B. Howey
By /s/LEONARD R. JASKOL Director
Leonard R. Jaskol
By /s/WILLIAM E. MITCHELL Director
William E. Mitchell
13
<PAGE>
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Percentage
of Voting Jurisdiction
Securities of Incorporation
Company Owned or Organization
------- ---------- ----------------
Rogers L-K Corp. 100% Delaware
Rogers Japan, Inc. 100% Delaware
Rogers Southeast Asia, Inc. 100% Delaware
TL Properties, Inc. 100% Arizona
World Properties, Inc. 100% Illinois
Rogers Export Sales Corporation 100% Barbados
Rogers Induflex N.V. 100% Belgium
Rogers N.V. 100% Belgium
Rogers GmbH 100% Germany
Rogers (UK) LTD. 100% England
Rogers S.A. 100% France
* Rogers INOAC Corporation 50% Japan
* Durel Corporation 50% Delaware
* These entities are unconsolidated joint ventures and
accordingly are not consolidated in the consolidated financial
statements of Rogers Corporation.
F-1
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Rogers Corporation of our report dated
February 2, 1998, included in the 1997 Annual Report to
Shareholders of Rogers Corporation.
Our audits also included the financial statement schedule of
Rogers Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.
We also consent to the incorporation by reference in Registration
Statements (Form S-8 Nos. 2-84992, 33-15119, 33-21121, 33-38219,
33-64314, 33-44087, 33-53353, 333-14419, and 333-42545, and Form
S-3 No. 33-53369) pertaining to various stock option and employee
savings plans, and stock grants, of Rogers Corporation of our
report dated February 2, 1998, with respect to the consolidated
financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the
financial statement schedule included in this Annual Report (Form
10-K) of Rogers Corporation.
ERNST & YOUNG LLP
Providence, Rhode Island
March 16, 1998
F-2
<PAGE>
AMENDMENT TO THE
ROGERS CORPORATION 1994 STOCK COMPENSATION PLAN
AS RESTATED OCTOBER 17, 1996
The Rogers Corporation 1994 Stock Compensation Plan, as restated
October 17, 1996 (the "Plan"), is hereby further amended as
follows:
1. Section 5(b)(i) of the Plan is hereby amended by adding the
following sentence at the end thereof:
"Notwithstanding the foregoing, on and after the date the
Rogers Corporation 1998 Stock Incentive Plan is
approved by the stockholders of the Company, no Non-
Qualified Stock Options would be granted to Non-
Employee Directors pursuant to the provisions of this
Section 5(b)(i)."
2. Section 6(a) of the Plan is hereby amended be adding the
following sentence at the end thereof:
"Notwithstanding the foregoing, on and after the date the
Rogers Corporation 1998 Stock Incentive Plan is
approved by the stockholders of the Company, no Stock
Awards would be granted to Non-Employee Directors
pursuant to the provisions of this Section 6(a)."
3. Section 11(b)(iii) of the Plan is hereby amended by deleting
the reference to "80%" and substituting in lieu thereof the
reference to "60%." Such amendment shall be effective with
respect to Awards granted on or after December 17, 1997.
Executed this 18th day of December, 1997.
ROGERS CORPORATION
By: /s/ Robert M. Soffer
Robert M. Soffer, Treasurer
F-3
<PAGE>
LONG-TERM ENHANCEMENT PLAN
FOR SENIOR EXECUTIVES
OF
ROGERS CORPORATION
1. Purpose. This Plan is intended as a long-term income enhancement plan
for a select group of senior executive employees of the Company.
2. Definitions. Capitalized terms not otherwise defined herein shall
have the meanings set forth below:
a) "Award" shall mean, for any Participant, the amount granted to a
Participant as an Enhancement Payment or Transition Payment pursuant
to Section 5(a), 5(b) or 5(c).
b) "Capital Stock" shall mean the capital (common) stock, $1.00 par
value, of Rogers Corporation.
c) "Committee" shall mean the Pension Committee of the Board of Directors
of Rogers Corporation. However, each member of the Committee who does
not qualify as a "non-employee director" within the meaning of Rule
16b-3(b)(3)(i) of the Securities Exchange Act of 1934, as amended,
will either abstain or recuse himself or herself from exercising
discretionary power with respect to the Plan.
d) "Company" shall mean Rogers Corporation, and any corporation,
partnership or other organization as to which Rogers Corporation owns
fifty percent or more of the economic interest.
e) "Effective Date" shall mean December 17, 1997.
f) "Employee" shall mean an employee who is a senior executive employee
of the Company.
g) "Enhancement Payment" shall mean the amount granted to a Participant
pursuant to Section 5(a) or 5(b).
h) "Participant" shall mean an Employee designated by the Committee
pursuant to Section 4 to participate herein.
i) "Plan" shall mean the Long-Term Enhancement Plan for Senior Executives
of Rogers Corporation as set forth herein, as amended from time to
time.
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F-4
<PAGE>
j) "Transition Payment" shall mean the amount granted to a Participant
pursuant to Section 5(c).
3. Administration. The Committee shall have sole discretionary power to
interpret the provisions of the Plan, to administer the Plan and to make
all decisions and exercise all rights of the Company with respect to the
Plan. The Committee shall have final authority to apply the provisions
of the Plan and to determine, in its sole discretion, the amount of any
Award to be paid to Participants hereunder. The Committee shall also
have the exclusive discretionary authority to make all other
determinations (including, without limitation, the interpretation and
construction of the Plan and the determination of relevant facts)
regarding the entitlement to benefits hereunder and the amount of
benefits to be paid under the Plan. The Committee's exercise of this
discretionary authority shall at all times be in accordance with the
terms of the Plan and shall be entitled to deference upon review by any
court, agency or other entity empowered to review its decision, and shall
be enforced, provided that it is not arbitrary, capricious or fraudulent.
The rights of the Company hereunder which have not been delegated to
the Committee shall be exercised by the elected corporate officers of
the Company. If the Committee were to be disbanded or terminated for
any reason whatsoever, the powers and duties granted to the Committee
under this Plan shall be exercised instead by a specially designated
committee appointed by the full Board of Directors of the Company.
4. Eligibility. Participants in the Plan shall be those Employees who
are recommended for participation in the Plan by the President of the
Company and who receive the Committee's approval for participation in
the Plan. The Participants in the Plan shall be identified on Exhibit A
attached hereto, as the same may be amended by the Committee from time to
time.
5. Awards.
a) Annual Enhancement Payments. It is expected that with respect to
fiscal year 1997 and each subsequent fiscal year, an Award shall be
made to each Participant in an amount equal to ten percent (10%) of
the annual bonus earned by such Participant for such fiscal year
(each, an "Enhancement Payment"). Notwithstanding the foregoing, the
Committee must
authorize each Enhancement Payment hereunder and shall retain the
authority, exercisable in its sole discretion, to reduce or eliminate
the Enhancement Payment for any Participant(s) with respect to any
fiscal year.
b) 1996 Enhancement Payments. An Award shall be made in January, 1998 to
each of the Participants listed on the attached Exhibit A in an amount
equal to 10% of the bonus paid to each such Participant with respect
to fiscal year 1996 (each, an "Enhancement Payment").
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F-5
<PAGE>
c) Transition Payments.
i) An Award shall be made on the timetable described in Section
5(c)(ii) with respect to fiscal years 1993, 1994 and 1995 (each,
a "Transition Payment") to each of the Participants listed on the
attached Exhibit A in an amount equal to 10% of the bonus paid to
each such Participant for each such fiscal year, increased by 10%
(compounded annually) on each January 1 beyond which payment is
deferred from when it would have been made had the Plan then been
in effect.
ii) Each Transition Payment shall be made as soon as possible after
July 1 of the calendar year which is five years after the fiscal
year with respect to which such Transition Payment is being made
(for example, July 1, 1998 for the Transition Payment with respect
to fiscal year 1993), provided the Participant is still employed
by the Company on such July 1.
6. Form of Awards.
a) Method of Payment of Awards. The Awards granted under this Plan
generally shall be payable in the form of shares of Capital Stock;
provided, however, that Harry H. Birkenruth and Howard A. Raphaelson
(and such other Participants as may be determined in the sole
discretion of the Committee) shall receive their Enhancement Payments
and Transition Payments in cash. Each fractional share which results
from the determination of an Award shall be payable as a full share
of Capital Stock.
b) Notwithstanding the foregoing, no shares of Capital Stock shall be
issued pursuant to an Award until all applicable securities law and
other legal and stock exchange requirements have been satisfied.
Furthermore, if, after reasonable efforts, the Company is unable to
comply with all applicable securities law and other legal and stock
exchange requirements with respect to a Participant, the Awards
granted under this Plan shall be payable in cash to such Participant,
subject to approval by the Committee.
c) Timing of Payment of Awards. Each Enhancement Payment which is
authorized by the Committee (other than the Enhancement Payment with
respect to the bonus earned for fiscal year 1996) shall be made by
June 30 of the calendar year following the fiscal year with respect
to which such Enhancement Payment was earned. Each Enhancement
Payment with respect to the bonus earned for fiscal year 1996 shall
be made in January, 1998, or as soon thereafter as is practical. Each
Transition Payment shall be made as soon as possible after July 1 of
the calendar year which is five years after the fiscal year with
respect to which such Transition Payment is being made, provided the
Participant is still employed by the Company on such July 1.
3 of 7
F-6
<PAGE>
d) Valuation of Capital Stock. In determining the number of shares of
Capital Stock to be issued with respect to each Enhancement Payment
(other than the Enhancement Payment with respect to the bonus earned
for fiscal year 1996), such Capital Stock shall be valued at the
average of the closing prices of such Capital Stock on the 15
business days immediately preceding the date the Committee
authorizes such Enhancement Payment. In determining the number of
shares of Capital Stock to be issued with respect to each
Enhancement Payment with respect to the bonus earned for fiscal
year 1996, such Capital Stock shall be valued at the average of the
closing prices of such Capital Stock on the last 15 business days
of the calendar month of December, 1997. In determining the number
of shares of Capital Stock to be issued with respect to each
Transition Payment, such Capital Stock shall be valued at the
average of the closing prices of such Capital Stock on the 15
business days immediately preceding July 1 of the calendar year
in which such Transition Payment is made.
e) In the event that the Capital Stock does not trade on an established
market on any of the 15 business days preceding the dates specified
above, such day or days shall be disregarded in determining the
average closing price of such Capital Stock and the number of days
used for this purpose shall be the actual number of days on which
such Capital Stock was traded.
f) Nature of Awards. Until such time as the actual payment of an Award
is made under this Plan, Awards shall not constitute or be treated
as property or as a trust fund of any kind or as capital stock of
the Company, stock options or any other form of equity interest.
A Participant shall have only those rights set forth in this Plan
with respect to any Award granted to such Participant and shall have
no rights as a stockholder or creditor of the Company by virtue of
having been granted such Award or Awards until actual receipt by
such Participant of the shares of Capital Stock contemplated by
such Award or Awards.
g) Withholding From Payments to Participants. Notwithstanding anything
to the contrary elsewhere herein, all payments required to be made
by the Company hereunder shall be subject to the withholding of
such amounts as the Company reasonably may determine to be required
to be withheld for tax purposes pursuant to applicable federal,
state or local law or regulation. The Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant, including, in
the sole discretion of the Company, by withholding shares of Capital
Stock otherwise distributable hereunder.
7. Certification of Ownership. Each Participant shall be required, prior
to March 31 of each calendar year beginning in calendar year 1998, to
certify to the Committee that he or she has not sold, transferred or
otherwise encumbered any of the shares of Capital Stock which had
previously been distributed to him or her as an Award under the Plan.
4 of 7
F-7
<PAGE>
Such certification of ownership shall be made substantially in the form
of Exhibit B attached hereto. Failure to make such certification shall
render the Participant ineligible for any grants of future Awards or
distributions under the Plan, except as otherwise determined by the
Committee in its sole discretion.
8. Termination of Employment. A Participant whose employment with the
Company terminates for any reason prior to the authorization by the
Committee of the Enhancement Payment with respect to any fiscal year
pursuant to Section 5(a) shall forfeit all rights to any Award with
respect to such fiscal year; provided, however, that the Committee may
elect, in its sole discretion, to provide for the payment of all or any
portion of an Award to such a Participant with respect to such fiscal
year. A Participant whose employment terminates for any reason prior to
the July 1 as of which any Transition Payment is to be made shall forfeit
all rights to such Award. Notwithstanding the foregoing, (a) if a
Participant who is entitled to receive one or more Transition Payments
under the Plan dies, becomes permanently disabled, or retires at or after
obtaining age sixty-five before receiving any such Transition Payment,
such Transition Payment(s) shall be made in shares of Capital Stock to
such Participant (or his beneficiary) within 90 days of his termination
of employment, based upon the average of the closing prices of such
Capital Stock on the 15 business days immediately preceding such event
and (b) the aggregate Transition Payments to Harry H. Birkenruth and
Howard A. Raphaelson shall be paid to such Participants in cash in
January, 1998.
9. Change In Control. Notwithstanding anything to the contrary elsewhere
herein, if a Change in Control shall occur, (a) all Participants who are
employed by the Company on the date such Change in Control occurs shall
receive payment of all remaining Transition Payments in cash as soon as
practicable following such occurrence and (b) no Participant shall be
required to submit a certificate pursuant to Section 7 after such Change
in Control occurs. "Change in Control" shall mean the occurrence of any
one of the following events:
i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) becomes a "beneficial
owner" (as such term is defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended) (other than
Rogers Corporation, 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
Rogers Corporation in substantially the same proportions as their
ownership of stock of Rogers Corporation) directly or indirectly,
of securities of Rogers Corporation representing twenty percent
(20%) or more of the combined voting power of Rogers Corporation's
then outstanding securities; or
ii) persons who, as of the Effective Date, constitute Rogers
Corporation's Board of Directors (the "Incumbent Board") cease
for any reason,
5 of 7
F-8
<PAGE>
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 of Directors, provided that any
person becoming a Director of Rogers Corporation subsequent to
the Effective Date 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
iii) the stockholders of Rogers Corporation approve a merger or
consolidation of Rogers Corporation with any other corporation or
other entity, other than (a) a merger or consolidation which
would result in the voting securities of Rogers Corporation
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 Rogers
Corporation or such surviving entity outstanding immediately
after such merger or consolidation or (b) a merger or
consolidation effected to implement a recapitalization of Rogers
Corporation (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 20% of the combined
voting power of Rogers Corporation's then outstanding securities;
or
iv) the stockholders of Rogers Corporation approve a plan of complete
liquidation of Rogers Corporation or an agreement for the sale or
disposition by Rogers Corporation of all or substantially all of
the assets of Rogers Corporation.
10. Amendment or Termination of Plan. The Committee may amend or
terminate this Plan at any time or from time to time; provided, however,
that no such amendment or termination shall in any material adverse way
affect the rights of any Participant with respect to any remaining
Transition Payments.
11. Limitation of Liability. Subject to its obligation to make payments
as provided for hereunder, neither the Company, the Committee nor any
other person acting on behalf of the Company shall be liable for any act
performed or the failure to perform any act with respect to this Plan,
except in the event that there has been a judicial determination of
willful misconduct on the part of the Company, the Committee or such
other person. The Company is under no obligation to fund any of the
payments required to be made hereunder in advance of their actual
payment. No Participant, his or her estate, beneficiary or
beneficiaries, or the estate of any of his or her beneficiaries shall
have any right, other than the right of an unsecured general creditor,
against the Company in respect of the benefits to be paid hereunder.
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<PAGE>
12. Assignability. Except as otherwise provided by law, no benefit
hereunder shall be assignable, or subject to alienation, garnishment,
execution or levy of any kind, and any attempt to cause any benefit to
be so subject shall be void.
13. No Contract for Continuing Services. This Plan shall not be construed
as creating any contract for continued services between the Company and
any Participant and nothing herein contained shall give any Participant
the right to be retained as an Employee of the Company.
14. Governing Law. This Plan shall be construed, administered, and
enforced in accordance with the laws of the Commonwealth of
Massachusetts.
EXECUTED this 18th day of December, 1997.
ROGERS CORPORATION
By: /s/ Robert M. Soffer
Robert M. Soffer, Treasurer
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F-10
<PAGE>
EXHIBIT A
Initial Participants in the Long-Term Enhancement Plan for
Senior Executives of Rogers Corporation
Name Position
---- --------
1. Dirk M. Baars Molding Materials Division Vice President
2. Harry H. Birkenruth Chairman of the Board of Directors
3. Walter E. Boomer President and Chief Executive Officer
4. Robert C. Daigle Microwave Materials Division Manager
5. Aarno A. Hassell Vice President, Market and Venture Development
6. Harry W. Kenworthy High Performance Elastomers Division Vice
President
7. Bruce G. Kosa Vice President, Technology
8. Donald F. O'Leary Corporate Controller
9. Howard A. Raphaelson Director, Risk Management
10. David W. Richardson Composite Materials Division Manager
11. John A. Richie Vice President, Human Resources
12. Ronald F. Robinson Vice President, Consumer & Printing Markets
Center
13. William C. Schunmann International Marketing Vice President
14. Dale S. Shepherd Vice President, Finance
15. W. Harry Short Director, Corporate Operations
16. Robert M. Soffer Treasurer
17. Robert D. Wachob Senior Vice President, Sales & Marketing
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EXHIBIT B
CERTIFICATION OF OWNERSHIP
I, ______________________, hereby certify to the Pension Committee of
the Board of Directors of Rogers Corporation that I have not sold,
transferred or otherwise encumbered any of the shares of Capital Stock of
Rogers Corporation which I have received as an Enhancement Payment or
Transition Payment under the Long-Term Enhancement Plan for Senior
Executives of Rogers Corporation.
Signed,
____________________ ______________________________
Date [Name of Participant]
F-12
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in Thousands, Except per Share Amounts)
- ----------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
SALES AND INCOME
- ----------
Net Sales $189,652 $141,476 $140,293 $133,866 $123,168
Income Before Income
Taxes 22,005 17,657 15,390 10,712 6,716
Net Income 16,500 13,949 13,081 10,134 6,670
PER SHARE DATA
- ----------
Basic* 2.21 1.92 1.84 1.50 1.07
Diluted* 2.10 1.83 1.69 1.41 1.05
Book Value 12.51 10.43 8.42 6.41 4.33
FINANCIAL POSITION
(YEAR-END)
- ----------
Current Assets 79,483 62,725 55,766 47,720 36,842
Current Liabilities 33,983 24,637 24,412 23,016 23,683
Ratio of Current Assets
to Current Liabilities 2.3 to 1 2.5 to 1 2.3 to 1 2.1 to 1 1.6 to 1
Cash, Cash Equivalents,
and Marketable
Securities 21,555 19,631 14,676 13,851 4,533
Working Capital 45,500 38,088 31,354 24,704 13,159
Property, Plant and
Equipment - Net 52,201 36,614 36,473 34,061 36,807
Total Assets 158,440 119,227 102,516 89,443 81,837
Long-Term Debt less
Current Maturities 13,660 3,600 4,200 6,675 14,190
Shareholders' Equity 94,378 77,212 60,098 45,125 27,891
Long-Term Debt as a
Percentage of
Shareholders' Equity 14% 5% 7% 15% 51%
OTHER DATA
- ----------
Depreciation and
Amortization 6,614 5,781 5,738 6,680 6,691
Research and Development
Expenses 9,608 9,184 9,320 9,230 9,495
Capital Expenditures 17,739 6,326 8,853 4,648 8,582
Number of Employees
(Average) 993 854 928 977 1,104
Net Sales per Employee 191 166 151 137 112
Number of Shares
Outstanding at
Year-End 7,543,699 7,405,961 7,135,090 7,045,270 6,444,922
* The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
(FAS) No. 128, Earnings per Share. For further discussion of earnings
per share and the impact of FAS No. 128, see "Net Income Per Share" in
Note A.
25
F-13
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ----------
December 28, December 29,
(Dollars in Thousands) 1997 1996
---------- ----------
ASSETS
- ----------
Current Assets:
Cash and Cash Equivalents $ 18,791 $ 18,675
Marketable Securities 2,764 956
Accounts Receivable, Net 28,658 21,108
Inventories:
Raw Materials 10,262 6,183
In-Process and Finished 12,446 7,539
Less LIFO Reserve (1,123) (1,049)
--------- ---------
Total Inventories 21,585 12,673
Current Deferred Income Taxes 1,936 2,807
Assets Held for Sale, Net of Valuation
Reserves of $492 in each year (Note B) 5,158 5,158
Other Current Assets (Note B) 591 1,348
--------- ---------
Total Current Assets 79,483 62,725
--------- ---------
Property, Plant and Equipment, Net of
Accumulated Depreciation of $63,855
and $57,928 52,201 36,614
Investment in Unconsolidated Joint Venture 5,373 4,975
Pension Asset 4,731 3,851
Acquisition Escrow (Note B) -- 8,994
Goodwill and Other Intangible Assets 14,500 129
Other Assets 2,152 1,939
--------- ---------
Total Assets $ 158,440 $ 119,227
========= =========
26
F-14
<PAGE>
December 28, December 29,
(Dollars in Thousands) 1997 1996
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------
Current Liabilities:
Accounts Payable $ 16,771 $ 9,726
Current Maturities of Long-Term Debt 600 600
Accrued Employee Benefits and Compensation 8,098 5,880
Accrued Income Taxes Payable 3,628 3,345
Taxes, Other than Federal and Foreign Income 839 1,175
Other Accrued Liabilities 4,047 3,911
--------- ---------
Total Current Liabilities 33,983 24,637
--------- ---------
Long-Term Debt, less Current Maturities 13,660 3,600
Noncurrent Deferred Income Taxes 2,311 419
Noncurrent Pension Liability 3,900 3,615
Noncurrent Retiree Health Care and Life
Insurance Benefits 6,277 6,342
Other Long-Term Liabilities 3,931 3,402
Shareholders' Equity:
Capital Stock, $1 Par Value (Notes A & J):
Authorized Shares 25,000,000; Issued and
Outstanding Shares 7,543,699 and 7,405,961 7,544 7,406
Additional Paid-In Capital 31,097 29,691
Unrealized Loss on Marketable Securities (5) (2)
Currency Translation Adjustment 1,160 2,035
Retained Earnings 54,582 38,082
--------- ---------
Total Shareholders' Equity 94,378 77,212
--------- ---------
Total Liabilities and Shareholders'
Equity $ 158,440 $ 119,227
========= =========
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
27
F-15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
- ----------
(Dollars in Thousands, Except Per 1997 1996 1995
Share Amounts) --------- --------- ---------
Net Sales $ 189,652 $ 141,476 $ 140,293
Cost of Sales 133,653 97,279 96,457
Selling and Administrative Expenses 26,061 21,285 21,501
Research and Development Expenses 9,608 9,184 9,320
--------- --------- ---------
Total Costs and Expenses 169,322 127,748 127,278
--------- --------- ---------
Operating Income 20,330 13,728 13,015
Other Income less Other Charges 1,108 3,415 2,440
Interest Income (Expense), Net 567 514 (65)
--------- --------- ---------
Income Before Income Taxes 22,005 17,657 15,390
Income Taxes 5,505 3,708 2,309
--------- --------- ---------
Net Income 16,500 13,949 13,081
Retained Earnings at Beginning of Year 38,082 24,133 11,052
--------- --------- ---------
Retained Earnings at End of Year $ 54,582 $ 38,082 $ 24,133
========= ========= =========
Net Income Per Share (Notes A & J):
Basic $ 2.21 $ 1.92 $ 1.84
--------- --------- ---------
Diluted $ 2.10 $ 1.83 $ 1.69
--------- --------- ---------
Shares Used in Computing (Notes A & J):
Basic 7,474,992 7,283,625 7,103,428
--------- --------- ---------
Diluted 7,863,084 7,627,184 7,719,094
========= ========= =========
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
28
F-16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES: 1997 1996 1995
- ---------- -------- -------- --------
Net Income $ 16,500 $ 13,949 $ 13,081
Adjustments to Reconcile Net Income
to Cash Provided by Operating Activities:
Depreciation and Amortization 6,614 5,781 5,738
(Benefit) Expense for Deferred Income Taxes 2,543 (1,439) (768)
Equity in Undistributed (Income) of
Unconsolidated Joint Ventures, Net (635) (1,555) (556)
(Gain) Loss on Disposition of Assets 52 (10) 129
Noncurrent Pension and Postretirement
Benefits 1,610 1,482 1,455
Other, Net (783) 202 1,674
Changes in Operating Assets and Liabilities
Excluding Effects of Acquisition and
Disposition of Assets:
Accounts Receivable (6,683) (2,173) (1,881)
Inventories (6,515) (2,000) (2,847)
Prepaid Expenses (161) 3 (7)
Accounts Payable and Accrued Expenses 6,414 46 (4,148)
-------- -------- --------
Net Cash Provided by Operating
Activities 18,956 14,286 11,870
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
- ----------
Capital Expenditures (17,739) (6,326) (8,853)
Proceeds from Sale of Business -- 2,567 --
Acquisition of Businesses (11,589) (9,690) --
Proceeds from Sale of Property, Plant and
Equipment 59 946 11
Proceeds from Sale of Marketable Securities -- 609 --
Purchase of Marketable Securities (1,808) -- (1,565)
Investment in Unconsolidated Joint Ventures
and Affiliates 386 490 --
-------- -------- --------
Net Cash Used in Investing
Activities (30,691) (11,404) (10,407)
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
- ----------
Proceeds from Short- and Long-Term Borrowings 12,259 -- --
Repayments of Debt Principal (2,100) (600) (3,100)
Proceeds from Sale of Capital Stock 1,544 3,427 810
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities 11,703 2,827 (2,290)
Effect of Exchange Rate Changes on Cash 148 (145) 87
-------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents 116 5,564 (740)
Cash and Cash Equivalents at Beginning of
Year 18,675 13,111 13,851
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 18,791 $ 18,675 $ 13,111
======== ======== ========
- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
29
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------
NOTE A-ACCOUNTING POLICIES
- ----------
ORGANIZATION:
- ----------
Rogers Corporation manufactures specialty
materials, which it sells to targeted markets
around the world.
In 1997 Rogers had two business segments which
were about equal in size based on sales and
assets. Polymer Materials included high
performance elastomer materials and components,
and moldable composite materials. Polymer
Materials were sold principally to manufacturers
in the imaging, transportation, consumer,
communication, and computer markets. Electronic
Materials included circuit board laminates for
high frequency printed circuits, flexible circuit
board laminates for interconnections, industrial
laminates for shielding of electromagnetic
interference, and bus bars for power distribution.
Electronic Materials were sold principally to
printed circuit board manufacturers and equipment
manufacturers for applications in the computer,
communication, transportation, and consumer
markets.
PRINCIPLES OF CONSOLIDATION:
- ----------
The consolidated financial statements include the
accounts of Rogers Corporation and its
wholly-owned subsidiaries (the Company), after
elimination of significant intercompany accounts
and transactions.
CASH EQUIVALENTS:
- ----------
Cash equivalents include commercial paper and U.S.
government and federal agency securities with an
original maturity of three months or less. These
investments are stated at cost, which approximates
market value.
MARKETABLE SECURITIES:
- ----------
The Company's marketable securities are classified
as available-for-sale and are reported at fair
value (based on quoted market prices) on the
Company's consolidated balance sheet. Marketable
securities are comprised of commercial paper, U.S.
treasury notes, and corporate bonds. Unrealized
gains and losses on such securities are reflected,
net of tax, in shareholders' equity.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES:
- ----------
The Company accounts for its investments in and
advances to unconsolidated joint ventures, both of
which are 50% owned, using the equity method.
RELATED PARTY TRANSACTIONS:
- ----------
Sales to unconsolidated joint ventures are made on
terms similar to those prevailing with unrelated
customers. However, payment terms for amounts
owed by the joint ventures may be extended.
FOREIGN CURRENCY TRANSLATION:
- ----------
All balance sheet accounts of foreign subsidiaries
are translated at rates of exchange in effect at
each year-end, and income statement items are
translated at the average exchange rates for the
year. Resulting translation adjustments are made
directly to a separate component of shareholders'
equity. Currency transaction adjustments are
reported as income or expense.
INVENTORIES:
- ----------
Inventories are valued at the lower of cost or
market. Certain inventories, amounting to
$6,028,000 at December 28, 1997, and $4,994,000 at
December 29, 1996, or 28% and 39% of total Company
inventories in the respective periods, are valued
at the lower of cost, determined by the last-in,
first-out method, or market. The cost of the
remaining portion of the inventories was
determined principally on the basis of standard
costs, which approximate actual first-in, first-
out (FIFO) costs.
30
F-18
<PAGE>
PROPERTY, PLANT AND EQUIPMENT:
- ----------
Property, plant and equipment is stated on the
basis of cost, including capitalized interest.
For financial reporting purposes, provisions for
depreciation are calculated on a straight-line
basis over the following estimated useful lives of
the assets:
Years
-------------------------------------
Buildings 30 -- 45
Building improvements 10 -- 25
Machinery and equipment 5 -- 15
Office equipment 3 -- 10
INTANGIBLE ASSETS:
- ----------
Goodwill, representing the excess of the cost over
the net tangible and identifiable assets of
acquired businesses, is stated at cost. Goodwill
is being amortized on a straight-line method over
40 years. Amortization charges to operations
amounted to $258,000 in 1997. When events and
circumstances so indicate, all long-term assets
are assessed for recoverability based upon cash
flow forecasts. Based on its most recent
analysis, the Company believes that no material
impairment of goodwill exists at December 28,
1997.
Purchased patents and licensed technology are
capitalized and amortized on a straight-line basis
over their estimated useful lives, generally from
2 to 17 years.
PENSIONS:
- ----------
The Company has two qualified noncontributory
defined benefit pension plans covering
substantially all U.S. employees. The plan
covering salaried employees provides benefits
based on salary, years of service, and age, while
those plans covering hourly employees provide
benefits based on stated amounts for each year of
credited service with adjustments depending on
age. The Company's funding policy for its
qualified plans is to contribute amounts
sufficient to meet the minimum funding
requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional
amounts as the Company may determine to be
appropriate from time to time.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
- ----------
The Company recognizes the cost of postretirement
benefits other than pensions over the years of
service in which such benefits are earned. The
Company funds these postretirement benefits on a
pay-as-you-go basis.
INCOME TAXES:
- ----------
The Company recognizes income taxes under the
liability method. No provision is made for U.S.
income taxes on the undistributed earnings of
consolidated foreign subsidiaries because such
earnings are substantially reinvested in those
companies for an indefinite period. Provision for
the tax consequences of distributions, if any,
from consolidated foreign subsidiaries is recorded
in the year the distribution is declared.
REVENUE RECOGNITION:
- ----------
Revenue is recognized when goods are shipped.
NET INCOME PER SHARE:
- ----------
In 1997, the Financial Accounting Standards Board
issued Statement No. 128 (FAS No. 128), "Earnings
per Share." FAS No. 128 replaced the calculation
of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per
share excludes any dilutive effects of options,
warrants and convertible securities. Diluted
earnings per share is very similar to the
previously reported fully diluted earnings per
share. All earnings per share amounts for all
periods presented have been restated to conform to
the FAS No. 128 requirements.
31
F-19
<PAGE>
The following table sets forth the computation of
basic and diluted earnings per share:
(Dollars in Thousands, Except Per
Share Amounts) 1997 1996 1995
---------- ---------- ----------
Numerator:
Net income $ 16,500 $ 13,949 $ 13,081
Denominator:
Denominator for basic earnings per
share - weighted-average shares 7,474,992 7,283,625 7,103,428
Effect of stock options 388,092 343,559 615,666
---------- ---------- ----------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 7,863,084 7,627,184 7,719,094
========== ========== ==========
Basic earnings per share $ 2.21 $ 1.92 $ 1.84
========== ========== ==========
Diluted earnings per share $ 2.10 $ 1.83 $ 1.69
========== ========== ==========
USE OF ESTIMATES:
- ----------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ
from those estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
- ----------
The Company has not yet adopted Statement of Financial
Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income", or FAS No. 131, "Disclosures
About Segments of an Enterprise and Related
Information", which are effective for fiscal year 1998.
Management has not completed its review of these
Statements, but does not anticipate that either
Statement will have a material effect on the Company's
financial statements.
NOTE B-ACQUISITIONS AND DIVESTITURES
- ----------
ROGERS INDUFLEX N.V. ACQUISITION:
- ----------
The Company acquired UCB Induflex N.V. of Ghent,
Belgium from UCB S.A. on September 30, 1997. Induflex,
which is now known as Rogers Induflex N.V.,
manufactures thin aluminum and copper laminates for
shielding electromagnetic and radio frequency
interference, primarily in telecommunication and data
communication applications. The purchase included the
business and its Ghent, Belgium facility.
For financial statement purposes, the acquisition was
accounted for as a purchase and, accordingly, Rogers
Induflex N.V.'s results are included in the
consolidated financial statements since the date of
acquisition. The aggregate purchase price of
approximately $11.3 million, which includes costs of
acquisition, has been allocated to the assets of the
Company based upon their respective fair market values.
The excess of the purchase price over assets acquired
(Goodwill) approximated $6.1 million and is being
amortized over 40 years.
The majority of the purchase price was funded through a
new Multi-Currency Revolving Credit Agreement with
Fleet National Bank, although the Company could have
drawn down its cash position to make the purchase. The
Company borrowed 390.2 million Belgian francs ($10.8
million) in September 1997, which is payable in full on
or before September 19, 2002.
32
F-20
<PAGE>
BISCO ACQUISITION:
- ----------
Effective January 1, 1997, the Company completed the
acquisition of the Bisco Products silicone foam
materials business based in the Chicago area, from a
wholly-owned subsidiary of Dow Corning Corporation for
approximately $11.0 million. The acquisition included
machinery and equipment and other fixed assets;
inventories of supplies, merchandise, materials, and
products; intellectual property rights; books, records
and computer software; and all unfilled customer
orders. The Company did not acquire the cash and
accounts receivable of the Seller and did not assume
the liabilities of the Seller.
The acquisition was accounted for as a purchase in
1997, and the results for the entire fiscal year were
included in the Company's statements. Goodwill
approximated $8.5 million and is being amortized over
40 years.
In connection with this acquisition, $9.8 million was
placed in escrow as of year-end 1996, of which $8.9
million was classified as a Long-Term Asset and $0.9
million as a Current Asset. In addition to the escrow
fund, a note payable of $1.5 million payable in six
months bearing 8% annual interest was used to finance
the purchase. This note was prepaid in January 1997.
PRO FORMA RESULTS (UNAUDITED):
- ----------
The following unaudited pro forma consolidated results
of operations have been prepared as if the acquisitions
of Rogers Induflex N.V. and Bisco had occurred as of
the beginning of fiscal 1996:
Pro Forma Years
(Dollars in Thousands, (Unaudited)
Except Per Share Amounts) ---------------------
1997 1996
-------- --------
Net sales $196,949 $164,610
Net income 16,662 14,443
Net income per share:
Basic $ 2.23 $ 1.98
Diluted $ 2.12 $ 1.89
The pro forma consolidated results do not purport to be
indicative of results that would have occurred had the
acquisitions been in effect for the period presented,
nor do they purport to be indicative of the results
that will be obtained in the future.
SOLADYNE DIVISION DIVESTITURE:
- ----------
On December 31, 1995, the Company completed the sale of
its Soladyne Division to Merix Corporation for $2.6
million which was received in January 1996. This sale
did not include this division's trade accounts
receivable which were retained by the Company. The
proceeds from this divestiture modestly exceeded the
carrying value of the assets plus the costs related to
disposition.
ASSETS HELD FOR SALE:
- ----------
At December 28, 1997, assets held for sale at estimated
net realizable value were $5.2 million, consisting of
the land and building being leased to the buyer of the
Company's divested flexible interconnections business.
33
F-21
<PAGE>
NOTE C-PROPERTY, PLANT AND EQUIPMENT
- ----------
December 28, December 29,
(Dollars in Thousands) 1997 1996
---------- ----------
Land $ 1,426 $ 1,031
Buildings and improvements 35,217 31,430
Machinery and equipment 63,129 52,234
Office equipment 7,766 7,756
Installations in process 8,518 2,091
---------- ----------
116,056 94,542
Accumulated depreciation (63,855) (57,928)
---------- ----------
$ 52,201 $ 36,614
========== ==========
Depreciation expense was $6,169,000 in 1997, $5,752,000
in 1996, and $5,676,000 in 1995. Interest costs
incurred during the years 1997, 1996, and 1995 were
$1,033,000, $765,000, and $1,154,000, respectively, of
which $251,000 in 1997, $116,000 in 1996, and $45,000
in 1995 were capitalized as part of the cost of the new
plant and equipment.
NOTE D-SUMMARIZED FINANCIAL INFORMATION OF
UNCONSOLIDATED JOINT VENTURES AND RELATED PARTY TRANSACTIONS
- ----------
The tables shown below summarize combined financial
information of the Company's unconsolidated joint
ventures which are accounted for by the equity method.
Amounts presented include the financial information
reported by Rogers INOAC Corporation, located in Japan,
and Durel Corporation, located in Arizona, both of
which are Polymer Materials ventures. Each of these
ventures is 50% owned by the Company.
The difference between the Company's investment in
unconsolidated joint ventures and its one-half interest
in the underlying shareholders' equity of the joint
ventures is due primarily to the following factors: 1)
Rogers major initial contribution to each venture was
technology which was valued differently by the joint
venture than it was on Rogers books; 2) one of the
joint ventures has a negative retained earnings
balance; and 3) translation of foreign currency at
current rates differs from that at historical rates.
This also results in a difference between the Company's
recorded income from unconsolidated joint ventures and
a 50% share of the income of those joint ventures
listed on the following page.
34
F-22
<PAGE>
December 28, December 29,
(Dollars in Thousands) 1997 1996
---------- ----------
Current Assets $ 21,232 $ 20,105
Noncurrent Assets 13,339 14,385
Current Liabilities 9,903 8,437
Noncurrent Liabilities 12,120 13,359
Shareholders' Equity 12,548 12,694
Year Ended
---------------------------------------
December 28, December 29, December 31,
(Dollars in Thousands) 1997 1996 1995
---------- ---------- ----------
Net Sales $ 64,265 $ 64,850 $ 62,164
Gross Profit 21,384 22,058 12,748
Net Income 1,268 3,995 322
Note that in the tables above, Rogers INOAC Corporation
is reported as of October 31 for the respective years.
Also, 1995 amounts have been adjusted to reflect the
Durel audit completed in April 1996, creating timing
differences between the net income reported above and
Rogers 50% share of income reported in its financial
statements.
Sales to unconsolidated joint ventures amounted to
$659,000 in 1997, $710,000 in 1996, and $471,000 in
1995.
At December 28, 1997, the Company had indirectly
guaranteed 50% of a loan entered into by one of the
unconsolidated joint ventures. The Company's
proportionate share of the outstanding principal under
this guarantee was $4,750,000 at December 28, 1997 and
December 29, 1996. The Company believes that the
unconsolidated joint venture will be able to meet its
obligations under this financing arrangement and
accordingly no payments will be required and no losses
will be incurred under this guarantee.
Equity income from unconsolidated joint ventures is
included in other income less other charges on the
consolidated statements of income and retained
earnings.
NOTE E-PENSIONS
- -----------
The Company has two qualified noncontributory defined
benefit pension plans covering substantially all U.S.
employees. The discount rate assumptions used to
develop pension expense were 7.25% in both 1997 and
1996, and 8.5% in 1995. The expected long-term rates
of investment return were assumed to be primarily 9.0%
for the pension plan covering unionized hourly
employees and 9.5% for the other pension plan in each
year presented.
35
F-23
<PAGE>
Net pension cost consisted of the following components:
(Dollars in Thousands) 1997 1996 1995
-------- -------- --------
Service cost (benefits earned during
the period) $ 1,360 $ 1,305 $ 1,012
Interest cost on projected benefit
obligation 3,559 3,374 3,008
Actual investment (gain) on plan assets (10,430) (6,512) (7,461)
Net amortization and deferral 5,992 2,601 4,224
--------- -------- --------
Net pension cost $ 481 $ 768 $ 783
======== ======== ========
The following table sets forth the funded status of the
plans and amounts recognized in the Company's
consolidated balance sheets:
(Dollars in Thousands) December 28, December 29,
1997 1996
----------- -----------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 44,115 $ 40,942
========== ==========
Accumulated benefit obligation
$ 44,435 $ 41,254
========== ==========
Projected benefit obligation $ (53,725) $ (50,184)
Plan assets at fair value 57,860 48,519
---------- ----------
Plan assets in excess of (less
than) projected 4,135 (1,665)
benefit obligation
Unrecognized net (gain) loss (2,744) 2,775
Unrecognized prior service cost 2,284 2,132
Unrecognized net (asset)
obligation, net of amortization (2,047) (2,383)
---------- ----------
Net pension liability recognized
in the consolidated balance
sheets $ 1,628 $ 859
========== ==========
The net pension liability is included in the following
balance sheet accounts:
(Dollars in Thousands) December 28, December 29,
1997 1996
---------- ----------
Noncurrent pension asset $ 4,731 $ 3,851
Noncurrent pension liability (3,103) (2,992)
---------- ----------
Net pension liability $ 1,628 $ 859
========== ==========
Also included in the noncurrent pension liability is an
additional pension liability of $797,000 and $623,000
in 1997 and 1996, respectively.
The discount rate used in determining the present value
of benefit obligations was 7.0% in 1997 and 7.25% in
1996. The long-term annual rate of increase in the
compensation levels assumption was 4.5% in 1997 and
5.0% in 1996.
Plan assets consist of investments in equities and
short- and long-term debt instruments managed by
various investment managers.
36
F-24
<PAGE>
NOTE F-POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
- ----------
In addition to the Company's noncontributory defined
benefit pension plans, the Company sponsors three
unfunded defined benefit health care and life insurance
plans for retirees. The plan for full-time U.S. salaried
employees provides medical benefits to employees who have
a credited service period of ten years beginning on or
after age 45. These benefits cease at age 70. These
employees also receive life insurance benefits if they
retired before 1998. The plan for U.S. unionized hourly
employees provides medical and life insurance benefits to
employees who have a credited service period of ten years
prior to retirement. Medical benefits cease at age 65.
The plan for non-union U.S. hourly employees provides
life insurance benefits to employees who retired before
1998 with a credited service period of ten years on or
after age 60. Only the union hourly plan is
contributory. All medical plans contain deductible and/or
coinsurance cost-sharing features.
Net periodic postretirement benefit cost includes the
following components:
(Dollars in Thousands) 1997 1996 1995
-------- -------- --------
Service cost $ 267 $ 245 $ 219
Interest cost 341 336 367
Amortization of unrecognized net gain (97) (89) (129)
-------- -------- --------
Net periodic postretirement benefit cost $ 511 $ 492 $ 457
======== ======== ========
The discount rate assumption used to develop postretirement benefit
expense was 7.25% in 1997 and 1996, and 8.5% in 1995.
The actuarial and recorded liabilities for these three plans, none of
which have been funded, were as follows:
December 28, December 29,
(Dollars in Thousands) 1997 1996
---------- ----------
Accumulated postretirement benefit obligation:
Retirees $ (2,387) $ (2,618)
Fully eligible active plan participants (1,118) (1,035)
Other active plan participants (1,405) (1,222)
---------- ----------
Accumulated postretirement benefit obligation (4,910) (4,875)
Unrecognized net gain (1,867) (1,867)
---------- ----------
Accrued postretirement benefit liability $ (6,777) $ (6,742)
========== ==========
The net periodic postretirement benefit liability of $6,777,000 in 1997
and $6,742,000 in 1996 consists of a noncurrent liability of $6,277,000
and $6,342,000, respectively, and a current postretirement benefit
liability of $500,000 and $400,000, respectively, which is included in
accrued employee benefits and compensation.
The annual assumed rate of increase in the per capita cost of covered
health benefits is 5.5% for 1998 (6.5% and 7.5% assumed for 1997 and
1996, respectively), and is assumed to decrease by approximately one
percentage point to 4.5% in 1999 and remain at that level thereafter.
The health care cost trend rate assumption has the following effect on
the amounts reported: increasing the assumed health care cost trend
rates by one percentage point in each future year would increase the
accumulated postretirement benefit obligation for health benefits as of
the beginning of 1998 by approximately $342,000 and the aggregate of the
service and interest cost components of net periodic postretirement
benefit cost for 1997 by $58,000. Postretirement benefit costs and
obligations are decreasing due to declining estimated health care cost
trend rates.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% for 1997 and 7.25% for 1996.
37
F-25
<PAGE>
NOTE G-EMPLOYEE SAVINGS AND INVESTMENT PLAN
- ----------
The Rogers Employee Savings and Investment Plan (RESIP) meets the
requirements contained in Section 401(k) of the Internal Revenue Code.
All regular U.S. employees with at least one month of service are
eligible to participate. The plan is designed to encourage the
Company's U.S. employees to save for retirement. Contributions to the
plan as well as earnings thereon benefit from tax deferral.
Participating employees generally may contribute up to 18% of their
salaries and wages. An employee's elective pretax contribution for
which a tax deferral is available is limited to the maximum allowed
under the Internal Revenue Code. To further encourage employee
savings, the Company matched employee contributions up to 4% of a
participant's deferred eligible annual compensation subject to IRS
limitations, at a rate of 50% in 1997 and 1996, and 40% in 1995, for
all participants other than those in collective bargaining units. One-
half of the Company's contribution was invested in Company stock and
the other half was invested at the employee's discretion. RESIP
related expense amounted to $654,000 in 1997, $427,000 in 1996, and
$396,000 in 1995, including Company matching contributions of
$501,000, $415,000, and $349,000, respectively.
NOTE H-DEBT
- ----------
LONG-TERM DEBT:
- ----------
In 1988 the Company borrowed $6,000,000 at 10.6%.
Principal repayments of $600,000 per year began in 1994
and are scheduled to continue until 2003. At December
28, 1997, $3,600,000 of this debt was still outstanding
($4,200,000 at December 29, 1996). In general,
interest rates are lower today than they were in 1988
and this, in conjunction with the reduced number of
years remaining on the loan, result in an estimated
market value for this debt of approximately $4,005,000.
Subject to certain loan agreement limitations, the
Company has the right to prepay this loan in whole or
in part, but the Company has not yet chosen to do so
because of the prepayment penalty.
In September 1997 the Company cancelled its $5.0
million unsecured revolving credit agreement with Fleet
National Bank and replaced it with an unsecured multi-
currency revolving credit agreement, also with Fleet.
Under the new arrangement, the Company can borrow up to
$15.0 million, or the equivalent in Belgian francs
and/or Japanese yen. Amounts borrowed under this
agreement are to be paid in full by September 19, 2002.
The Company borrowed 390,207,039 Belgian francs (the
equivalent of $10,660,000 as of December 28, 1997)
under the new arrangement to facilitate the Rogers
Induflex N.V. acquisition in Belgium. Under the
arrangement, the ongoing facility fee varies from 17.5
to 30 basis points of the maximum amount that can be
borrowed. The rate of interest charged on outstanding
loans can, at the Company's option and subject to
certain restrictions, be based on the prime rate, or at
rates from 45 to 65 basis points over either London
Interbank Offered Rate (LIBOR) quoted in U.S. dollars
or Japanese yen, or Belgian Interbank Offered Rate
(BIBOR) quoted in Belgian francs. The spreads over
LIBOR and BIBOR and the level of facility fees is based
on a measure of the Company's financial strength. The
borrowing at year-end was denominated in Belgian francs
and the interest rate on the loan at that time was
4.2%. The carrying value of this debt approximates
fair value as of December 28, 1997.
The loan agreements contain restrictive covenants
primarily related to working capital, leverage, and net
worth. The Company is in compliance with these
covenants.
38
F-26
<PAGE>
MATURITIES:
- ----------
Required long-term debt principal repayments due during
the years after 1997 are: 1998-2001, $600,000 each year;
2002, $11,260,000; 2003, $600,000.
INTEREST PAID:
- ----------
Interest paid during the years 1997, 1996, and 1995,
was $1,003,000, $935,000, and $1,235,000, respectively.
RESTRICTION ON PAYMENT OF DIVIDENDS:
- ----------
Under the most restrictive covenant of the loan
agreements, $28,265,000 of retained earnings was
available at December 28, 1997, for cash dividends.
NOTE I-INCOME TAXES
- ----------
Consolidated income before income taxes consists of:
(Dollars in Thousands) 1997 1996 1995
-------------------------------
Domestic $ 18,168 $ 17,114 $ 13,342
Foreign 3,837 543 2,048
-------------------------------
$ 22,005 $ 17,657 $ 15,390
===============================
The income tax expense (benefit) in the consolidated statements
of income consists of:
(Dollars in Thousands) Current Deferred Total
-------------------------------
1997:
Federal $ 2,477 $ 1,548 $ 4,025
Foreign 447 995 1,442
State 38 -- 38
-------------------------------
$ 2,962 $ 2,543 $ 5,505
===============================
1996:
Federal $ 4,872 $ (1,481) $ 3,391
Foreign 53 42 95
State 222 -- 222
-------------------------------
$ 5,147 $ (1,439) $ 3,708
===============================
1995:
Federal $ 1,824 $ (976) $ 848
Foreign 613 208 821
State 640 -- 640
-------------------------------
$ 3,077 $ (768) $ 2,309
===============================
39
F-27
<PAGE>
Deferred tax assets and liabilities as of December 28, 1997 and
December 29, 1996, respectively, are comprised of the following:
(Dollars in Thousands) December 28, December 29,
1997 1996
---------- ----------
Deferred tax assets:
Accruals not currently deductible for tax
purposes:
Accrued employee benefits and compensation $ 1,433 $ 1,331
Accrued postretirement benefits 1,977 2,081
Other accrued liabilities and reserves 754 1,254
Investments in and advances to joint ventures 2,794 2,596
Tax credit carryforwards 70 1,577
Tax loss carryforwards -- 728
Other 165 131
-------- ---------
Total deferred tax assets 7,193 9,698
Less deferred tax asset valuation allowance 3,327 3,327
-------- ---------
Net deferred tax assets 3,866 6,371
Deferred tax liabilities:
Depreciation and amortization 4,241 3,983
-------- ---------
Total deferred tax liabilities 4,241 3,983
-------- ---------
Net deferred tax asset (liability) $ (375) $ 2,388
======== =========
Income tax expense differs from the amount computed by applying the
U.S. statutory federal income tax rate to income before income tax
expense. The reasons for this difference are as follows:
(Dollars in Thousands) 1997 1996 1995
--------------------------------
Tax expense at statutory rate $ 7,702 $ 6,180 $ 5,386
Net U.S. tax (foreign tax credit) on
foreign earnings (745) 314 712
General business credits (500) (375) --
Nontaxable foreign sales income (392) (280) (64)
State income taxes, net of federal benefit 25 144 417
Net deferred tax benefits utilized in the
current year:
General business credit carryforwards -- -- (829)
Employee benefits and compensation -- 111 (918)
Other net temporary differences -- (200) (618)
Tax loss carryforwards -- -- (500)
Net deferred tax benefits to be used in
future years -- (2,114) (976)
Other (585) (72) (301)
--------------------------------
Income tax expense $ 5,505 $ 3,708 $ 2,309
================================
The deferred tax asset valuation allowance decreased by $3,425,000
during 1996. The 1996 decrease resulted primarily from the
recognition for financial reporting purposes in 1996 of tax credit
carryforwards which the Company utilized for tax purposes in 1996 and
1997.
40
F-28
<PAGE>
Undistributed foreign earnings, before available tax credits and
deductions, amounted to $5,984,000 at December 28, 1997, $3,589,000
at December 29, 1996, and $4,627,000 at
December 31, 1995.
Income taxes paid were $3,090,000, $2,554,000, and $1,952,000, in
1997, 1996, and 1995, respectively.
NOTE J-SHAREHOLDERS' EQUITY AND STOCK OPTIONS
- ----------
Changes in shareholders' equity are shown below:
(Dollars in Thousands)
Capital Unrealized
Stock Additional Loss on Currency
(Number Paid-In Marketable Translation Retained
of Shares) Capital Securities Adjustment Earnings
-------------------------------------------------------
Balance at January 1,
1995 7,045,270 $ 25,110 $ 1,918 $ 11,052
-------------------------------------------------------
Net income for 1995 13,081
Stock options exercised 84,743 725
RESIP shares issued 2,762 70
Stock issued to directors 3,864 91
Shares reacquired and
cancelled (1,549) (46)
Tax benefit on stock options
exercised 336
Translation adjustment for
1995 626
-------------------------------------------------------
Balance at December 31,
1995 7,135,090 $ 26,286 $ 2,544 $ 24,133
-------------------------------------------------------
Net income for 1996 13,949
Stock options exercised 70,854 656
Stock issued to directors 3,661 92
Shares reacquired and
cancelled (3,644) (106)
Warrants exercised 200,000 2,500
Tax benefit on stock options
exercised 263
Translation adjustment for
1996 (509)
Unrealized loss on marketable
securities (2)
-------------------------------------------------------
Balance at December 29,
1996 7,405,961 $ 29,691 $ (2) $ 2,035 $ 38,082
-------------------------------------------------------
Net income for 1997 16,500
Stock options exercised 138,076 1,298
Stock issued to directors 2,506 92
Shares reacquired and
cancelled (2,844) (103)
Tax benefit on stock options
exercised 119
Translation adjustment for
1997 (875)
Unrealized loss on
marketable securities (3)
-------------------------------------------------------
Balance at December 28,
1997 7,543,699 $ 31,097 $ (5) $ 1,160 $ 54,582
=======================================================
The dollar amount of the capital stock ($1 par value) is equal to the
above indicated number of shares.
41
F-29
<PAGE>
In 1988 the Company adopted a stock option plan which permits granting
a total of 380,000 incentive stock options and nonqualified stock
options to officers and other key employees. Additionally,
nonqualified stock options can be granted to directors. Incentive
stock option grants must be at a price no less than the market value
of the capital stock as of the date of grant. Nonqualified stock
options for officers and other key employees must be granted at a
price equal to at least 50% of the market value of the capital stock
as of the date of grant.
To date, all options granted to officers and other key employees under
the plan have been at a price equal to the market value of the capital
stock as of the date of grant. Under certain conditions, non-employee
directors were able to receive nonqualified stock options at a
discounted exercise price in lieu of a corresponding amount of
directors' fees pursuant to the 1988 plan. Currently existing options
issued under the plan are exercisable within a period of ten years
from the date of grant.
In 1990 the Company adopted another stock option plan which only
permits the granting of nonqualified stock options. Options for a
total of 1,370,000 shares have been authorized for issuance under this
1990 plan.
In 1994, shareholders approved the 1994 Stock Compensation Plan which
permits granting a total of 500,000 incentive stock options and
nonqualified stock options to officers and other key employees.
Additionally, the plan requires that the retainer fee for non-employee
directors be paid semi-annually in shares of Rogers capital stock with
the number of shares of stock granted based on its then fair market
value. Stock options also are granted to non-employee directors twice
a year. The number of shares in each six-month non-employee director
stock option grant is determined by dividing $6,750 (half of the
annual director retainer fee at the time the plan was established) by
the fair market value of a share of the Company's capital stock as of
the date of grant. Nonqualified stock options for officers and other
key employees must be granted at a price equal to at least 85% of the
fair market value of the capital stock as of the date of grant. To
date, all options granted under this plan have been at an exercise
price equal to the fair market value of the capital stock as of the
date of grant. Currently existing stock options issued under this
plan are exercisable within a period of ten years from date of grant.
In general, stock options granted to officers and employees have ten-
year terms and become exercisable in one-third increments beginning on
the second anniversary of the grant date. Non-employee director
options granted under the 1988 plan became exercisable on the first
anniversary of the date of grant, while options to such individuals
granted pursuant to the 1994 plan become exercisable six months and
one day after the date of grant. The options outstanding on December
28, 1997, expire on various dates, beginning April 11, 1998, and
ending on October 26, 2007.
Shares of capital stock reserved for possible future issuance are as
follows:
December 28, December 29,
1997 1996
----------- ----------
Shareholder Rights Plan 9,726,696 9,652,034
Stock options 2,020,606 2,159,040
Rogers Employee Savings and
Investment Plan 84,522 84,522
Long-Term Enhancement Plan 75,000 --
Stock to be issued in lieu of
deferred directors' fees 2,869 2,511
----------- ----------
Total 11,909,693 11,898,107
=========== ==========
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS No. 123), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized in the financial statements for the stock option plans. Had
compensation cost for the Company's stock option plans been determined
42
F-30
<PAGE>
based on the fair value at the grant date for awards in 1997, 1996,
and 1995 consistent with the provisions of FAS No. 123, the Company's
net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
(Dollars in Thousands, Except Per Share Amounts)
1997 1996 1995
------------------------------------------
Net income As Reported $16,500 $13,949 $13,081
Pro Forma 15,678 13,551 13,012
------------------------------------------
Basic earnings per share As Reported $ 2.21 $ 1.92 $ 1.84
Pro Forma 2.10 1.86 1.83
------------------------------------------
Diluted earnings per share As Reported $ 2.10 $ 1.83 $ 1.69
Pro Forma 1.99 1.78 1.69
------------------------------------------
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. Additionally, because FAS No. 123 is applicable only to
options granted subsequent to December 31, 1994, its pro forma effect
will not be fully reflected until 1998.
An average vesting period of 36 months was used for the assumption
regarding stock options issued in 1997, 1996, and 1995. Options
usually become exercisable in one-third increments beginning on the
second anniversary of the grant date.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants:
1997 1996 1995
-------------------------------
Risk-free interest rate 5.7% 6.0% 6.0%
Dividend yield 0% 0% 0%
Volatility factor 28.2% 30.5% 30.5%
Weighted-average expected life 5.3 years 4.7 years 4.7 years
A summary of the status of the Company's stock option program at year-
end 1997, 1996, and 1995, and changes during the years ended on those
dates is presented below:
--------------------------------------------------------
1997 1996 1995
--------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
--------------------------------------------------------
Outstanding at
beginning of year 1,063,277 $15.26 995,437 $13.35 920,230 $11.06
Granted 205,050 41.11 143,061 26.04 175,716 23.57
Exercised (138,076) 10.40 (72,354) 10.26 (84,743) 9.55
Cancelled (68) 47.90 (2,400) 19.55 (15,766) 13.88
Expired -- -- (467) 8.38 -- --
--------------------------------------------------------
Outstanding at end
of year 1,130,183 20.54 1,063,277 15.26 995,437 13.35
========================================================
Options exercisable
at end of year 604,198 533,480 390,575
========================================================
Weighted-average fair
value of options
granted during year $15.30 $ 9.52 $ 8.63
========================================================
43
F-31
<PAGE>
The following table summarizes information about stock options
outstanding at December 28, 1997:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/28/97 Life in Years Price at 12/28/97 Price
- ----------------------------------------------------------------------------
$7 to $22 610,407 5.1 $11.49 548,677 $10.81
$23 to $45 519,776 8.8 31.17 55,521 23.56
------------------------------------------------------------
$7 to $45 1,130,183 6.8 $20.54 604,198 $11.98
============================================================
NOTE K-COMMITMENTS AND CONTINGENCIES
- ----------
LEASES:
- ----------
The Company's principal noncancellable operating lease obligations are
for building space and vehicles. The leases generally provide that
the Company pay maintenance costs. The lease periods range from one to
five years and include purchase or renewal provisions at the Company's
option. The Company also has leases that are cancellable with minimal
notice. Lease expense was $951,000 in 1997, $581,000 in 1996, and
$782,000 in 1995.
Future minimum lease payments under noncancellable operating leases at
December 28, 1997, aggregate $4,424,000. Of this amount, annual
minimum payments are $941,000, $660,000, $463,000, $348,000, and
$358,000 for years 1998 through 2002, respectively.
PURCHASE COMMITMENTS:
- ----------
At December 28, 1997, the Company had committed to capital
expenditures of approximately $8.5 million, to be used primarily for
the construction of facilities and related machinery and equipment.
CONTINGENCIES:
- ----------
The Company is subject to federal, state, and local laws and
regulations concerning the environment and is currently engaged in
proceedings involving a number of sites under these laws, as a
participant in a group of potentially responsible parties (PRPs). The
Company is currently involved as a PRP in four cases involving waste
disposal sites, all of which are Superfund sites. Several of these
proceedings are at a preliminary stage and it is impossible to
estimate the cost of remediation, the timing and extent of remedial
action which may be required by governmental authorities, and the
amount of liability, if any, of the Company alone or in relation to
that of any other PRPs. The Company also has been seeking to identify
insurance coverage with respect to these matters. Where it has been
possible to make a reasonable estimate of the Company's liability, a
provision has been established. Insurance proceeds have only been
taken into account when they have been confirmed by or received from
the insurance company. Actual costs to be incurred in future periods
may vary from these estimates. Based on facts presently known to it,
the Company does not believe that the outcome of these proceedings
will have a material adverse effect on its financial position.
In addition to the above proceedings, the Company has been actively
working with the Connecticut Department of Environmental Protection
(CT DEP) related to certain polychlorinated biphenyl (PCB)
contamination in the soil beneath a section of cement flooring at its
Woodstock, Connecticut facility. The Company is developing a
remediation plan with CT DEP. On the
44
F-32
<PAGE>
basis of estimates prepared by environmental engineers and consultants,
the Company recorded a provision of approximately $900,000 in 1994
and based on updated estimates, provided an additional $700,000 in 1997
for costs related to this matter. During 1995, $300,000 was charged
against this provision and $200,000 was charged in both 1996 and 1997.
Management believes, based on facts currently available, that the
implementation of the aforementioned remediation will not have a material
additional adverse impact on earnings.
In addition to the environmental issues, the nature and scope of the
Company's business bring it in regular contact with the general public
and a variety of businesses and government agencies. Such activities
inherently subject the Company to the possibility of litigation which
is defended and handled in the ordinary course of business. The
Company has established accruals for matters for which management
considers a loss to be probable and reasonably estimable. It is the
opinion of management that facts known at the present time do not
indicate that such litigation, after taking into account insurance
coverage and the aforementioned accruals, will have a material adverse
effect on the financial position of the Company.
NOTE L-FOREIGN OPERATIONS
- ----------
The net assets of wholly-owned foreign subsidiaries were $13,118,000
at December 28, 1997, and $8,188,000 at December 29, 1996. Net income
of these foreign subsidiaries was $2,409,000 in 1997, $462,000 in
1996, and $1,262,000 in 1995, including net currency transaction gains
(losses) of $180,000 in 1997, ($23,000) in 1996, and ($45,000) in
1995.
NOTE M-BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
- ----------
The presentation of business segment information for the years
1995-1997 is generally reflective of the Company's current internal
reporting structure and has been divided into two segments, Polymer
Materials and Electronic Materials. Polymer Materials consists of
high performance elastomer materials and components, and moldable
composites. Equity from Rogers INOAC Corporation and Durel
Corporation is also included in income for Polymer Materials.
Electronic Materials is comprised primarily of high frequency circuit
board materials, flexible circuit materials, bus bars, and industrial
laminates for shielding of electromagnetic interference.
The principal operations of the Company are located in the United
States and Europe. The Company markets its products throughout the
United States and sells in foreign markets directly, through
distributors and agents, and through its 50% owned joint venture in
Japan. In 1997, approximately 49% of total sales were to the
electronics industry and one customer accounted for approximately 11%
of total sales. Approximately 19% of the Company's sales of products
manufactured by U.S. divisions were made to customers located in
foreign countries. This includes sales to Europe of 12%, sales to
Asia of 4%, and sales to Canada of 2%.
At December 28, 1997, the electronics industry accounted for
approximately 68% of and two customers accounted for approximately 16%
and 12%, respectively, of total accounts receivable due from
customers. Accounts receivable due from customers located within the
United States accounted for 81% of the total accounts receivable owed
to the Company at the end of 1997. The Company performs periodic
credit evaluations of its customers' financial condition and generally
does not require collateral. Receivables are generally due within 30
days. Credit losses relating to customers have been minimal and have
been within management's expectations.
45
F-33
<PAGE>
Inter-segment and inter-area sales, which are generally priced with
reference to costs or prevailing market prices, are not material in
relation to consolidated net sales and have been eliminated from the
sales data reported in the following tables.
BUSINESS SEGMENT INFORMATION
(Dollars in Thousands) 1997 1996 1995
--------------------------------
Net sales:
Polymer Materials $ 98,853 $ 79,867 $ 74,693
Electronic Materials 90,799 61,609 65,600
--------------------------------
Total $ 189,652 $ 141,476 $ 140,293
================================
Income before income taxes:
Polymer Materials $ 9,468 $ 9,425 $ 4,644
Electronic Materials 12,034 7,952 11,186
Unallocated corporate expenses
[mainly interest income
(expense), net] 503 280 (440)
--------------------------------
Total $ 22,005 $ 17,657 $ 15,390
================================
Capital expenditures:
Polymer Materials $ 9,857 $ 3,286 $ 2,248
Electronic Materials 7,882 3,040 6,605
--------------------------------
Total $ 17,739 $ 6,326 $ 8,853
================================
Depreciation:
Polymer Materials $ 3,820 $ 3,080 $ 2,971
Electronic Materials 2,349 2,672 2,705
--------------------------------
Total $ 6,169 $ 5,752 $ 5,676
================================
Assets:
Polymer Materials $ 65,251 $ 53,123 $ 42,416
Electronic Materials 69,698 43,666 42,864
Unallocated corporate assets
(mainly cash and cash
equivalents) 23,491 22,438 17,236
--------------------------------
Total $ 158,440 $ 119,227 $ 102,516
================================
Information about the Company's operations in different geographic
locations is shown below:
North
(Dollars in Thousands) America Europe Total
--------------------------------
1997:
Net sales $ 160,116 $ 29,536 $ 189,652
Income before income taxes 18,129 3,876 22,005
Assets 139,147 19,293 158,440
================================
1996:
Net sales $ 121,973 $ 19,503 $ 141,476
Income before income taxes 16,952 705 17,657
Assets 108,463 10,764 119,227
================================
1995:
Net sales $ 120,409 $ 19,884 $ 140,293
Income before income taxes 13,332 2,058 15,390
Assets 89,765 12,751 102,516
================================
46
F-34
<PAGE>
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, 1997 and December 29,
1996, and the related consolidated statements of income and retained
earnings and cash flows for each of the three fiscal years in the
period ended December 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Rogers Corporation and subsidiaries at December 28, 1997 and
December 29, 1996, and the consolidated results of their operations
and their cash flows for each of the three fiscal years in the period
ended December 28, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Providence, Rhode Island
February 2, 1998
47
F-35
<PAGE>
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*
- ----------------------------------------------------------------------------
1997 Fourth $ 51,772 $ 14,927 $ 4,017 $ .53 $ .50
Third 47,752 14,393 4,338 .58 .55
Second 45,788 13,605 4,105 .55 .53
First 44,340 13,074 4,040 .54 .52
- ----------------------------------------------------------------------------
1996 Fourth $ 37,142 $ 10,886 $ 3,805 $ .51 $ .49
Third 33,972 10,511 3,321 .45 .43
Second 35,424 11,279 3,540 .49 .47
First 34,938 11,521 3,283 .46 .44
- ----------------------------------------------------------------------------
* The 1996 and first three quarters of 1997 earnings per share
amounts have been restated to comply with Statement of Financial
Accounting Standards No. 128, "Earnings per Share."
CAPITAL STOCK MARKET PRICES
- ----------
The Company's capital stock is traded on the American and Pacific
Stock Exchanges. The following table sets forth the composite high
and low prices during each quarter of the last two years on a per
share basis.
1997 1996
- --------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------
Fourth $ 46-1/2 $ 35-7/8 $ 29 $ 23-3/4
Third 44 33-1/4 25-5/8 23-3/4
Second 35-7/8 27 26-1/2 23-1/4
First 28-1/2 25-3/4 23-3/8 20
- --------------------------------------------------------------------
48
F-36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED SALES AND OPERATIONS - 1997 TO 1996
Net sales were $189.7 million for 1997, 34% higher than those reported
in 1996. Combined Sales, which include 50% of the sales of the
Company's two unconsolidated joint ventures, were $220.9 million, up
27% over 1996. For the fiscal year ended December 28, 1997, each of
the Company's divisions recorded sales gains, mainly the result of
unit volume increases.
The Company's strategy is to achieve growth by developing current
markets and by means of acquisition. In 1997 many opportunities for
RO3000 and RO4000 high frequency laminates were realized in wireless
communications. The growing application of a custom adhesiveless
laminate into the suspension assemblies of Hutchinson Technology, Inc.
(HTI), the world's leading supplier of suspension assemblies for hard
disk drives, was another major growth area. This represented the
first year of full-scale commercialization of this technology. Mitsui
Chemicals, Inc. manufactures these laminates in Japan under a
technology license from the Company. The Company also strengthened
its position in the dynamic wireless communication market with the
reformulation of PORON urethane.
Effective January 1, 1997, the Company completed the acquisition of
the Bisco Products silicone foam materials business, based in the
Chicago area, from a wholly-owned subsidiary of Dow Corning
Corporation for approximately $11 million. This acquisition enhances
the Company's position as a leading supplier of high performance foam
materials. It broadens the product range and provides a strong
foothold in Europe's commercial aerospace industry.
On September 30, 1997, the Company completed the acquisition of
Induflex, located in Ghent, Belgium, the existing headquarters of the
Company's European operations, from manufacturer UCB S.A. The
company, now known as Rogers Induflex N.V., manufactures laminates for
shielding of electromagnetic and radio frequency interference. During
1997, significant efforts were expended in the integration of the
Bisco and Induflex acquisitions into the Company.
Full year before-tax profits rose 25% to a record $22.0 million in
1997, while after-tax profits improved 18% to $16.5 million, also a
record. Basic earnings per share for the year were $2.21, up from
$1.92 in 1996. Diluted earnings per share for the year were $2.10, up
from $1.83 in 1996. Significantly higher sales, and operating income
growth exceeding the rate of sales increase, were the major
contributing factors to the improvement in before-tax income. After-
tax profits reflect a 25% tax rate in 1997 and a 21% tax rate in 1996.
Durel Corporation, the Company's 50% owned joint venture with 3M in
electroluminescent lamps, is continuing to make the transition from
automotive to wireless communication applications. Durel sales
decreased very slightly from 1996 with several large manufacturing
programs being replaced by new projects in a start-up phase. Profits
were negatively impacted due to inventory adjustments by a major
customer in the fourth quarter and by increased costs related to the
patent infringement lawsuit brought by Durel to protect its
proprietary technology.
Rogers INOAC Corporation, the Company's 50% owned joint venture with
INOAC Corporation of Japan, further developed new low-airflow PORON
material grades for disk-drive cover gaskets. While sales in local
currency in 1997 increased 7%, currency rate changes caused sales
measured in U.S. dollars to decrease 3%.
The Company's manufacturing profit was 30% of sales in 1997 and 31% in
1996. The decrease from 1996 to 1997 reflects the integration costs
related to the acquisitions of the Bisco Materials Unit and Rogers
Induflex N.V., and the lower profit margins on a custom adhesive
laminate sold to HTI because the Company acts in a technical sales and
distributor capacity for these laminates. It also reflects a decline
in average sales price per square foot for laminates as the microwave
business continues to shift to lower-priced higher volume wireless
communication applications.
49
F-37
<PAGE>
Selling and administrative expense increased in total dollars, but
decreased as a percentage of net sales to 14% in 1997 from 15% in
1996.
Research and development expense totaled $9.6 million in 1997 compared
to $9.2 million in 1996. Overall, greater R&D emphasis is being given
to the development of product platforms from which families of
products result, rather than individual, less related products. This
emphasis is intended to provide greater leverage for growth.
Increased corporate resources were also applied to improving process
capability to achieve lower cost and better controlled manufacturing
operations.
Major development activities in Electronic Materials included process
and product improvements to the RO3000 and RO4000 high frequency
circuit board materials, which are designed for use in high volume,
low cost commercial wireless communication applications. The
development of these products and their extensions represents the
Company's most significant commitment of technology resources. In
flexible circuit materials, development efforts focused on improved
adhesives.
During the year, Polymer Materials activity included the
commercialization of a controlled response PORON urethane material for
the foot comfort market, as well as improvements to a variety of other
PORON materials for industrial and printing applications. A new ENDUR
component formulation was developed to provide improved friction
properties and longevity in document transport applications. Finally,
higher strength phenolic composites were developed for demanding
applications in automotive powertrains and electric motors.
The Company's core technical capabilities in polymers, fillers and
adhesion continued to improve with these specialized technologies now
applied to immediate as well as longer term development tasks.
Net interest income for 1997 increased slightly from 1996. Interest
earned increased because of a higher level of cash equivalents and
marketable securities; however, this income was partially offset by
interest expense paid on debt incurred in September 1997 for the
Induflex acquisition. Average debt outstanding during 1997 was $7.0
million, compared with $4.5 million for 1996.
Other income less other charges decreased to $1.1 million for 1997
from $3.4 million for 1996. Lower royalty income and lower joint
venture income were the major contributors to this decrease.
The Company is subject to federal, state, and local laws and
regulations concerning the environment and is currently engaged in
proceedings involving a number of sites under these laws, as a
participant in a group of potentially responsible parties (PRPs). The
Company is currently involved as a PRP in four cases involving waste
disposal sites, all of which are Superfund sites. Several of these
proceedings are at a preliminary stage and it is impossible to
estimate the cost of remediation, the timing and extent of remedial
action which may be required by governmental authorities, and the
amount of liability, if any, of the Company alone or in relation to
that of any other PRPs. The Company also has been seeking to identify
insurance coverage with respect to these matters. Where it has been
possible to make a reasonable estimate of the Company's liability, a
provision has been established. Insurance proceeds have only been
taken into account when they have been confirmed by or received from
the insurance company. Actual costs to be incurred in future periods
may vary from these estimates. Based on facts presently known to it,
the Company does not believe that the outcome of these proceedings
will have a material adverse effect on its financial position.
50
F-38
<PAGE>
In addition to the above proceedings, the Company has been actively
working with the Connecticut Department of Environmental Protection
(CT DEP) related to certain polychlorinated biphenyl (PCB)
contamination in the soil beneath a section of cement flooring at its
Woodstock, Connecticut facility. The Company is developing a
remediation plan with CT DEP. On the basis of estimates prepared by
environmental engineers and consultants, the Company recorded a
provision of approximately $900,000 in 1994 and based on updated
estimates provided an additional $700,000 in 1997 for costs related to
this matter. During 1995, $300,000 was charged against this provision
and $200,000 was charged in both 1996 and 1997. Management believes,
based on facts currently available, that the implementation of the
aforementioned remediation will not have a material additional adverse
impact on earnings.
The Company has not had any material recurring costs and capital
expenditures relating to environmental matters, except as
specifically described in the preceding statements.
CONSOLIDATED SALES AND OPERATIONS - 1996 TO 1995
Net sales were $141.5 million for 1996, an increase of 6% over the
prior year after adjusting for the 1995 divestiture of the Soladyne
Division and for currency rate changes. Combined Sales, which include
half of the sales of the Company's two unconsolidated joint ventures,
grew an adjusted 8% over sales in 1995. These sales gains were mainly
the result of unit volume increases.
Key improvements in 1996 included the acceleration of worldwide sales
of PORON urethane foam products, particularly for printing,
transportation and computer applications, and improved results at
Durel Corporation, which made significant gains in both sales and
profits. In addition, flexible circuit materials sales recovered in
the second half of the year after having relatively weak sales into
the disk drive market in the first half of 1996.
Full year before-tax profits rose 15% to $17.7 million in 1996, while
after-tax profits improved 7% to $13.9 million. Basic earnings per
share for the year were $1.92, up from $1.84 in 1995, and diluted
earnings per share were $1.83, up from $1.69 in 1995. Higher sales,
greater contribution from unconsolidated joint ventures, and increased
interest income were the major contributing factors to the improvement
in before-tax income. After-tax profits reflected a 21% tax rate in
1996 and a 15% tax rate in 1995. These rates resulted from the use in
1995 of the Company's domestic tax loss carryforwards and the
recognition in 1996 and 1995 of a significant amount of domestic tax
credit carryforwards.
Durel Corporation sales growth, which exceeded 20% in 1996, was fueled
by penetration into the personal organizer/data bank market in
Southeast Asia. Significant progress was made introducing DUREL
technology to key customers. Leading worldwide manufacturers of
global positioning systems (GPS), watches, and pagers have
incorporated DUREL lamps and inverters in their products. Durel also
made substantial profit progress, reflecting the impact of increased
productivity, reduced costs of standard lamp constructions, and
shortened lead times. These gains continued to be reduced by
significant ongoing costs associated with the patent infringement
lawsuit brought by Durel to protect its proprietary technology.
Rogers INOAC Corporation had a strong year based primarily on
continued sales growth of PORON urethane products in the Far East.
While sales in local currency increased 9%, currency rate changes
caused sales measured in U.S. dollars to decrease 6%.
51
F-39
<PAGE>
The Company's manufacturing profit was 31% of sales in both 1996 and
in 1995. Favorable changes in product mix and production cost
improvements in certain domestic product lines offset start-up costs
and high early stage processing expenses associated with our newer
commercial high frequency laminate materials. The ongoing shift of
the microwave business to lower priced wireless communication
applications continues to result in a decline in average sales price
per square foot for laminates.
Selling and administrative expense decreased slightly but as a
percentage of net sales was 15% in both 1996 and 1995.
Research and development expense totaled $9.2 million in 1996 compared
to $9.3 million in 1995. Significant product and process development
activities in 1996 included: process and product development for
RO4000 high frequency circuit materials for commercial applications
with particular emphasis on improved high volume manufacturing
processes; process and product improvements to enhance performance of
RO3000 laminates; process and formulation support directed towards
PORON formulations which are low outgassing and flame retardant;
improved molding materials; and ENDUR product development and
application testing to support its use in new printer applications.
Core technical capabilities in polymers, fillers, and adhesion were
strengthened through added organizational focus and new analytical
equipment and facilities. These R&D capabilities were valuable in
providing specialized technology to support the development activities
listed above.
Net interest income for 1996 increased from 1995 due mainly to lower
borrowings and the interest earned on the higher level of cash
equivalents and marketable securities. Average debt outstanding
during 1996 was $4.5 million compared with $6.4 million for 1995.
Other income less other charges was $3.4 million for 1996 compared
with $2.4 million for the same period in 1995. The primary factor
contributing to this increase was higher joint venture income.
At December 29, 1996, other accrued liabilities were lower than at
year-end 1995, primarily due to the decrease in the cost reduction
reserve and the utilization of certain environmental reserves
established prior to 1995.
SEGMENT SALES AND OPERATIONS
Sales in the Polymer Materials business segment increased 24%, 7%, and
4%, in 1997, 1996, and 1995, respectively. The addition of the Bisco
Materials Unit accounted for one-half of the increase from 1996 to
1997. Also, elastomer components sales far exceeded figures from the
previous year. PORON cellular urethanes had a record year of
worldwide sales in 1996, led by strong sales of R/bak compressible
materials for the rapidly growing flexographic printing market, and
accelerated sales of industrial PORON urethanes for use in the
transportation, communication and computer markets.
The Polymer Materials business segment generated profits of $9.5
million in 1997, $9.4 million in 1996, and $4.6 million in 1995. For
1997, elastomer components profits were substantially higher than
1996, a result of improved manufacturing performance made possible by
enhancements in automation that allowed the unit to fabricate products
more cost-competitively for industry leaders in document handling.
However, 1997 profit improvement was held down by the lower level of
joint venture income and by the additional reserve for environmental
compliance. The increase from 1995 to 1996 was due mainly to the
earnings resulting from the record year of worldwide sales of the
Poron Materials Unit, higher joint venture income, and a strong
performance by molding materials.
52
F-40
<PAGE>
Revenues from the Electronic Materials business segment, adjusted for
divestitures, increased 47% in 1997, 3% in 1996, and 17% in 1995. The
majority of high frequency laminate sales occurred in the
communications market in 1997, with particularly healthy growth taking
place in the RO3000 and RO4000 laminate product lines. Unit volume
increased 50% in 1997, while dollar sales increased by more than 33%.
Sales figures also increased due to the continuing growth in sales of
custom FLEX-I-MID adhesiveless materials to HTI for hard disk drives.
European sales of high frequency circuit materials continued to grow
in 1997 with the proliferation of cellular base stations throughout
Europe.
Sales of flexible circuit materials rose from 1995 to 1996 with
particularly strong second half shipments to both existing and new
customers in the computer market. The application for FLEX-I-MID
materials with HTI contributed to this improvement. Demand increased
for high frequency laminate materials for wireless communication
applications. However, this growth was more significantly reflected
in units than in dollars. These gains were substantially offset by
decreased bus bar sales in Europe, primarily due to inventory
adjustments by key customers of Rogers N.V.
Electronic Materials operating income was $12.0 million in 1997, $8.0
million in 1996 and $11.2 million in 1995. Profits from Rogers N.V.
sales of bus bars and flexible circuit materials grew significantly in
1997. The contributing factors to the decrease from 1995 to 1996 were
the substantial investments in people, capacity, and start-up costs to
bring new high frequency circuit materials to commercial production,
and the lower sales of bus bars at Rogers N.V.
Sales made through Rogers N.V., stated in local currencies, increased
42% in 1997, 8% in 1996, and 5% in 1995. When translated into U.S.
dollars, these changes became gains of 30%, 5%, and 15% in 1997, 1996,
and 1995, respectively. European sales of high frequency circuit
materials continued to grow in 1997 with the proliferation of cellular
base stations throughout Europe. Sales of Rogers RO3000 and RO4000
high frequency laminates for commercial wireless applications
experienced tremendous growth in 1997. Sales of ENDUR components were
also strong in Europe in 1997. New applications in power distribution
devices for cellular telephone base stations and large power equipment
accounted for most of the higher sales figures in 1996. Large
customer inventories at the beginning of 1996 were drawn down,
partially offsetting these 1996 sales increases.
BACKLOG
The Company's backlog of firm orders was $34.8 million at December 28,
1997, and $26.2 million at December 29, 1996. The increase is due
primarily to the higher level of sales.
SOURCES OF LIQUIDITY AND CAPITAL
Net cash provided by operating activities amounted to $19.0 million in
1997, $14.3 million in 1996, and $11.9 million in 1995. Primary
factors contributing to the year-to-year increase from 1996 to 1997
include increased earnings, a benefit from deferred income taxes, and
a higher level of accounts payable and accrued expenses. Contributing
to the year-to-year increase from 1995 to 1996 were higher earnings,
substantial loan repayments from our Durel joint venture, and a lower
contribution to the Company's domestic pension plan for unionized
employees.
53
F-41
<PAGE>
Capital expenditures totaled $17.7 million in 1997, $6.3 million in
1996, and $8.9 million in 1995. In terms of capacity, the Company has
built new production facilities and expanded production lines in the
United States and in Europe. The PORON manufacturing facility in
Woodstock, Connecticut was expanded in December 1997. Ground has
been broken on new production facilities for high frequency laminates
scheduled for completion in 1998 in Chandler, Arizona and Ghent,
Belgium. The Chandler expansion will mark a tripling of domestic
capacity for high frequency circuit materials production, while the
new manufacturing facility in Ghent positions the Company more
appropriately to service Europe with locally manufactured products.
The Company also completed the tripling of capacity for flexible
circuit materials manufacturing in 1997, with the conclusion of the
Chandler plant expansion begun two years ago. In addition, a major
expansion of its moldable composites plant in Manchester, Connecticut
was completed in July 1997.
Capital spending was exceeded by cash generated from the Company's
operating activities in all three years presented. For 1998, it is
anticipated that capital spending will approximate $30.0 million. In
1998, significant expenditures will be made to continue both the
Woodstock and Chandler expansions and the new high frequency circuit
board production facility in Ghent, Belgium. It is anticipated that
this spending will be financed with internally generated funds.
Net cash used in investing activities in 1997 was $30.7 million. The
Company had a high level of capital expenditures and Rogers Induflex
N.V. was purchased during the year.
In September 1997 the Company cancelled its $5.0 million unsecured
revolving credit agreement with Fleet National Bank and replaced it
with an unsecured multi-currency revolving credit agreement, also with
Fleet. Under the new arrangement, the Company can borrow up to $15.0
million, or the equivalent in Belgian francs and/or Japanese yen.
Amounts borrowed under this agreement are to be paid in full by
September 19, 2002. The Company borrowed 390,207,039 Belgian francs
(the equivalent of U.S. $10,660,000 as of December 28, 1997) under the
new arrangement to facilitate the Rogers Induflex N.V. acquisition in
Belgium, although the Company could have drawn down its cash position
to make the purchase.
Included in the provisions of the Company's long-term loan agreements
are restrictions on the Company and its subsidiaries with respect to
additional borrowings, loans to others except for subsidiaries,
payment of dividends, transactions in capital stock, asset
acquisitions and dispositions, and lease commitments. These
agreements also impose financial covenants requiring the Company to
maintain certain levels of working capital and net worth, and
specified leverage ratios.
Management believes that in the near term, internally generated funds
will be sufficient to meet the needs of the business. The Company
continually reviews and assesses its lending relationships.
The Company has completed an assessment and has modified or replaced
portions of its internally generated software so that its computer
systems will function properly with respect to dates in the year 2000
and thereafter. The Company also uses software purchased from
vendors. Each vendor was contacted and all software packages are year
2000 compliant. The only costs that will be incurred in the future
will be for rigorous testing of the software, and these costs are
expected to be insignificant.
DIVIDEND POLICY
In 1992, the Board of Directors voted to discontinue cash dividends.
At present, the Company expects to maintain a policy of emphasizing
longer-term growth of capital rather than immediate dividend income.
54
F-42
<PAGE>
FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis
section and in other parts of this annual report may constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other
factors which may cause the actual results or performance of the
Company to be materially different from any future results or
performance expressed or implied by such forward-looking statements.
Such risks include changing business and economic conditions,
uncertainties and expenses associated with litigation, increasing
competition, changes in product mix, the development of new products
and manufacturing processes and the inherent risks associated with
such efforts, changes in the availability and cost of raw materials,
fluctuations in foreign currency exchange rates and the pace of
technological change. Additional information about certain factors
that could cause actual results to differ from such forward-looking
statements include the following:
The hard disk drive market for personal computers is characterized by
volatility in demand, rapid technological change, significant pricing
pressures and short lead times. Since the Company manufactures and
sells its own circuit materials and high performance elastomers to
meet the needs of this market, the Company's results may be affected
by these factors. The Company also sells FLEX-I-MID circuit materials
in the U.S. and Europe through an arrangement with Mitsui Chemicals,
Inc. which produces this material in Japan under a technology license
from the Company. In this case, the Company has no direct control
over the manufacturing process, delivery dates or the impact of
foreign exchange rates on its sale of FLEX-I-MID circuit materials.
The wireless communications market is characterized by frequent new
product introductions, evolving industry standards, rapid changes in
product and process technologies, price competition and many new
potential applications. The RO4000 laminates and other circuit
materials that the Company manufactures and sells to this market are
relatively new. To be successful in this area, the Company must be
able to consistently manufacture and supply high frequency circuit
materials that meet the demanding expectations of customers for
quality, performance and reliability at competitive prices. The
timely introduction by the Company of such new products could be
affected by engineering or other development program slippages and
problems in effectively and efficiently ramping up production to meet
customer needs.
While the personal computer industry and the wireless communications
industry have in the past experienced overall growth, these industries
historically have been characterized by wide fluctuations in product
supply and demand. From time to time, the industries have experienced
significant downturns, often in connection with, or in anticipation
of, maturing product cycles and declines in general economic
conditions. These downturns have been characterized by diminished
product demand, production over-capacity and subsequent accelerated
price erosion. The Company's business may in the future be materially
and adversely affected by downturns.
The Company's future results depend upon its ability to continue to
develop new products and improve its product and process technologies.
The Company's success in this effort will depend upon the Company's
ability to anticipate market requirements in its product development
efforts, the acceptance and continued commercial success of the end
user products for which the Company's products have been designed, and
the ability to adapt to technological changes and to support
established and emerging industry standards.
55
F-43
<PAGE>
The Company has been actively working with the Connecticut Department
of Environmental Protection related to certain polychlorinated
biphenyl contamination in the soil beneath a small section of cement
flooring at its Woodstock, Connecticut facility. The Company is
developing a remediation plan with the Connecticut Department of
Environmental Protection. While the Company believes that the
implementation of the remediation activities will not have a material
adverse impact on the Company's results, there can be no assurance
that unanticipated costs will not arise.
In addition, the Company is currently engaged in proceedings involving
a number of Superfund sites, as a participant in a group of
potentially responsible parties. The Company's estimation of
environmental liabilities is based on an evaluation of currently
available information with respect to each individual situation,
including existing technology, presently enacted laws and regulations
and the Company's experience in the addressing of such environmental
matters. While current regulations impose potential joint and several
liability upon each named party at any Superfund site, the Company's
contribution for cleanup is expected to be limited due to the number
of other potentially responsible parties, and the Company's share of
the volume contributions of alleged waste to the sites, which the
Company believes is de minimis. However, there can be no assurances
that the Company's estimates will not be disputed or that any ultimate
liability concerning these sites will not have a material adverse
effect on the Company.
The level of anticipated 1998 capital expenditures could differ
significantly from the forecasted amount due to a number of factors,
including but not limited to changes in design, differences between
the anticipated and actual delivery dates for new machinery and
equipment, problems with the installation and start-up of such
machinery and equipment, delays in the construction of new buildings
and delays caused by the need to address other business priorities.
The Company from time to time must procure certain raw materials from
single or limited sources which involves certain risks, including
vulnerability to price increases and the quality of the material. In
addition, the inability of the Company to obtain these materials in
required quantities could result in significant delays or reductions
in its own product shipments. When such problems have occurred in
the past, the Company has been able to purchase sufficient quantities
of the particular raw material to sustain production until alternative
materials and production processes could be requalified with
customers. However, any inability of the Company to obtain timely
deliveries of materials of acceptable quantity or quality, or a
significant increase in the prices of materials, could materially and
adversely affect the Company's operating results.
The Company's international sales involve a number of inherent risks,
including imposition of governmental controls, currency exchange
fluctuations, potential insolvency of international customers, reduced
protection for intellectual property rights in some areas, the impact
of recessions in foreign countries, political instability and
generally longer receivables collection periods, as well as tariffs
and other trade barriers. There can be no assurance that these
factors will not have an adverse effect on the Company's future
international sales, and consequently, on the Company's business,
operating results and financial condition.
The Company believes that its existing software, including recently
acquired software, is year 2000 compliant. However, rigorous testing
of this software has not yet taken place and computer problems could
develop as the year 2000 grows closer.
56
F-44
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