Total pages included - 14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________________
Commission file number 1-4347
ROGERS CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 06-0513860
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
P.O. Box 188, One Technology Drive, Rogers, Connecticut 06263-0188
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 774-9605
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
The number of shares outstanding of the Registrant's classes of common
stock as of May 2, 1999:
Capital Stock, $1 Par Value - 7,644,340 shares
<PAGE>
ROGERS CORPORATION AND SUBSIDIARIES
FORM 10-Q
April 4, 1999
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Income --
Three Months Ended April 4, 1999 and
April 5, 1998 3
Consolidated Balance Sheets --
April 4, 1999 and January 3, 1999 4-5
Consolidated Statements of Cash Flows --
Three Months Ended April 4, 1999 and
April 5, 1998 6
Supplementary Notes 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 6. Reports on Form 8-K 13
SIGNATURES 13
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROGERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended:
April 4, 1999 April 5, 1998
(13 weeks) (14 weeks)
Net Sales $ 64,904 $ 58,313
Cost of Sales 46,570 42,233
Selling and Administrative Expenses 8,853 7,272
Research and Development Expenses 2,624 2,611
Total Costs and Expenses 58,047 52,116
Operating Income 6,857 6,197
Other Income less Other Charges (392) (148)
Interest Income, Net 58 231
Income Before Income Taxes 6,523 6,280
Income Taxes:
Federal and Foreign 1,787 1,696
State 39 125
Net Income $ 4,697 $ 4,459
Net Income Per Share (Note G):
Basic $ .62 $ .59
Diluted $ .60 $ .56
Shares Used in Computing (Note G):
Basic 7,613,000 7,586,000
Diluted 7,842,000 7,960,000
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE>
ROGERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
April 4, 1999 January 3, 1999
Current Assets:
Cash and Cash Equivalents $ 10,712 $ 9,593
Marketable Securities -- 256
Accounts Receivable, Net 39,741 32,590
Inventories:
Raw Materials 7,736 10,392
In-Process and Finished 13,142 12,365
Total Inventories 20,878 22,757
Current Deferred Income Taxes 3,444 3,481
Assets Held for Sale, Net of Valuation
Reserves of $492 in each period
(Note B) 5,158 5,158
Other Current Assets 652 487
Total Current Assets 80,585 74,322
Property, Plant and Equipment, Net of
Accumulated Depreciation of
$71,136 and $69,051 77,088 74,811
Investment in Unconsolidated Joint
Venture 4,843 5,467
Pension Asset 4,606 4,606
Goodwill and Other Intangibles, Net 14,855 14,935
Other Assets 1,936 2,033
Total Assets $183,913 $176,174
The accompanying notes are an integral part of the consolidated
financial statements.
- 4 -
<PAGE>
ROGERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in Thousands)
April 4, 1999 January 3, 1999
Current Liabilities:
Accounts Payable $ 17,204 $ 17,766
Current Maturities of Long-Term Debt 600 600
Accrued Employee Benefits and
Compensation 8,377 6,577
Accrued Income Taxes Payable 2,770 1,059
Taxes, Other than Federal and Foreign
Income 1,623 1,038
Other Accrued Liabilities 6,739 5,265
Total Current Liabilities 37,313 32,305
Long-Term Debt, less Current Maturities 13,687 13,687
Noncurrent Deferred Income Taxes 5,781 5,938
Noncurrent Pension Liability 3,703 3,703
Noncurrent Retiree Health Care and Life
Insurance Benefits 6,268 6,268
Other Long-Term Liabilities 3,817 4,042
Shareholders' Equity:
Capital Stock, $1 Par Value:
Authorized Shares 50,000,000; Issued
Shares 7,643,766 and 7,630,466 7,644 7,630
Additional Paid-In Capital 33,432 33,323
Unrealized Gain/(Loss) on
Marketable Securities -- (2)
Minimum Pension Liability 78 78
Treasury Stock (38,400 and
12,800 shares) (1,058) (423)
Currency Translation Adjustment 199 1,272
Retained Earnings 73,049 68,353
Total Shareholders' Equity 113,344 110,231
Total Liabilities and
Shareholders' Equity $183,913 $176,174
The accompanying notes are an integral part of the consolidated
financial statements.
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<PAGE>
ROGERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended:
April 4, April 5,
1999 1998
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income $ 4,697 $ 4,459
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,980 2,236
Equity in Undistributed (Income) Loss of
Unconsolidated Joint Ventures, Net 51 42
Noncurrent Pension and Postretirement Benefits 75 531
Other, Net (180) 247
Changes in Operating Assets and Liabilities Excluding
Effects of Acquisition of Assets:
Accounts Receivable (6,248) (4,493)
Inventories 1,514 (1,217)
Prepaid Expenses (192) (32)
Accounts Payable and Accrued Expenses 5,147 771
Net Cash Provided by Operating Activities 7,844 2,544
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital Expenditures (2,898) (7,397)
Acquisition of Business (4,302) --
Proceeds from Sale of Property, Plant and Equipment 4 --
Proceeds from Sale of Marketable Securities 256 --
Purchase of Marketable Securities -- (258)
Investment in Unconsolidated Joint Ventures and Affiliates 737 333
Net Cash (Used in) Investing Activities (6,203) (7,322)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from Short and Long-Term Borrowings 164 284
Repayments of Debt Principal -- (265)
Acquisition of Treasury Stock (635) --
Proceeds from Sale of Capital Stock 123 630
Net Cash Provided by (Used in) Financing
Activities (348) 649
Effect of Exchange Rate Changes on Cash (173) (399)
Net Increase/(Decrease) in Cash and Cash Equivalents 1,120 (4,528)
Cash and Cash Equivalents at Beginning of Year 9,592 18,791
Cash and Cash Equivalents at End of Quarter $ 10,712 $ 14,263
The accompanying notes are an integral part of the consolidated
financial statements.
- 6 -
<PAGE>
ROGERS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY NOTES
A. The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
For further information, refer to the audited consolidated
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended
January 3, 1999.
B. Net Assets Held for Sale consist of land and a building in
Chandler, Arizona, currently being leased to the purchaser of the
Company's Flexible Interconnections Business in 1993.
C. 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 under the new
arrangement to facilitate the Rogers Induflex acquisition in
Belgium in September 1997.
D. Interest paid during the first three months of 1999 and 1998 was
$153,000 and $231,000, respectively.
E. Income taxes paid were $100,256 and $79,634 in the first three
months of 1999 and 1998, respectively.
F. The components of comprehensive income, net of related tax, for
the three month periods ended April 4, 1999 and April 5, 1998 are
as follows:
Three Months Ended
(Dollars in Thousands)
April 4, 1999 April 5, 1998
Net income $ 4,697 $ 4,459
Foreign currency translation adjustments (1,073) (945)
Unrealized gains on securities 2 3
Comprehensive income $ 3,626 $ 3,517
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<PAGE>
SUPPLEMENTARY NOTES, CONTINUED
G. The following table sets forth the computation of basic and
diluted earnings per share in conformity with Statement of
Financial Accounting Standards No. 128, "Earnings per Share":
(Dollars in Thousands, Except Per Share Amounts)
April 4, April 5,
1999 1998
Numerator:
Net income $4,697 $4,459
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,613 7,586
Effect of stock options 229 374
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 7,842 7,960
Basic earnings per share $ .62 $ .59
Diluted earnings per share $ .60 $ .56
H. The Company's fiscal year begins on the Monday nearest January 1
and ends on the Sunday nearest December 31. The fiscal year
ending January 2, 2000 is a 52 week year and the quarter ending
April 4, 1999 is a 13 week quarter. The fiscal year ended January
3, 1999 was a 53 week year and the quarter ended April 5, 1998
was a 14 week quarter.
I. The Company adopted Statement of Financial Accounting Standards
(FAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in 1998 which changes the way the Company
reports information about its operating segments. The quarterly
information required by FAS No. 131 is presented below.
Polymer Electronic
Materials Materials Total
(Dollars in Millions)
Three Months ended April 4, 1999
Net Sales $32.5 $32.4 $64.9
Operating Income 4.1 2.8 6.9
Three Months ended April 5, 1998
Net Sales $29.8 $28.5 $58.3
Operating Income 2.7 3.5 6.2
Inter-segment 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 in
the previous tables.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net Sales of $65 million were up 11% over the record results of the
first quarter of 1998. Combined Sales, which include one-half of the
sales from the Company's two 50% owned joint ventures, grew 10% to $72
million for the quarter. The sales increase is primarily attributable
to the rapid growth in sales of a customized FLEX-I-MID material to
Hutchinson Technology Incorporated (HTI) and to the sales coming from
two acquisitions completed since September 1998.
Sales of Polymer Materials for the first three months increased 9%
from the comparable 1998 period. Contributing to this increase in
almost equal amounts were the Imation dampening sleeve business
acquired at the end of September, 1998, and the engineered molding
compounds business acquired from Cytec Fiberite in January of 1999.
Both businesses have also had a positive impact on earnings in 1999.
These more than offset the slight decline in sales of nitrophyl floats
and the impact of several major programs of our silicone materials
business unit reaching end-of-life status during 1998.
Sales of Electronic Materials for the first quarter increased 14% over
the same period in 1998. Sales of FLEX-I-MID adhesiveless laminate
materials to HTI, the world leader in suspension assemblies for hard
disk drives, continued to grow rapidly making an increasingly
important contribution to sales. However, percentage margins on these
sales are lower than for products Rogers manufactures. The materials
are supplied by Mitsui Chemicals, Inc. under a Rogers technology
license. The Company in turn resells the materials to HTI for its
trace suspension assemblies which are used in advanced disk drives.
First quarter sales of flexible circuit materials that Rogers
manufactures were down 17% from the first three months of 1998. The
largest producer of flexible circuits in the United States, and a
major customer, experienced a decline in sales in 1998. Sales of
flexible circuit materials to other customers increased dramatically
but were not able to make up the difference. High frequency circuit
material sales for wireless communications applications were at a
record level in 1999 helped by growing demand in Europe and Asia.
European needs for the Company's commercial microwave materials will
now be primarily met by the recently completed laminating facility at
the Company's Ghent, Belgium, operation.
Profits before and after tax and earnings per share for the first
three months of 1999 were the highest for any quarter in the Company's
history. Compared with the record first quarter last year, earnings
rose 5% from $4.5 million to $4.7 million. Diluted earnings per share
for the quarter were $.60, up from $.56 in the first three months of
1998, an increase of 7%.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Manufacturing profit as a percentage of sales was 28% in the first
quarter of both 1998 and 1999. This percentage continues to be held
down by the lower margin on the sales of FLEX-I-MID materials to HTI.
Selling and administrative expenses for the first three months of 1999
increased in both dollars and as a percentage of sales over the
comparable 1998 period. The increase primarily reflects the
strengthening of Sales and Marketing capabilities at both the
Corporate and the divisional levels, and the continued development of
information systems. It also includes higher payroll costs related to
bonus accruals and terminations.
Research and Development expense was approximately the same in the
first three months of 1999 ($ 2,624,000) and 1998 ($2,611,000). Major
development activities in circuit materials included process and
product improvements to the RO3000 and RO4000 high frequency circuit
board materials which are designed for use in high volume, low cost
commercial wireless communication applications. These activities
included the development of a bondply addition to the RO4000 family
that will allow multi-layer circuit boards to be made using RO4000
laminates, as well as the development of materials with improved
thermal properties. Flexible circuit materials development efforts
focused on the introduction of a new epoxy based adhesive system,
R/flex Crystal, on manufacturing improvements designed to
significantly improve the dimensional stability of R/flex laminates,
and on development of new flexible circuit materials. PORON materials
development activities included formulations for industrial footwear,
and healthcare applications; in addition, new thinner adhesive-backed
R/bak tapes are being developed for the flexographic printing market.
Molding materials development continued to emphasize tougher, more
dimensionally stable materials for small electrical motor commutators
and integration of the Cytec acquisition technology into Rogers.
Net interest income for 1999 decreased significantly from 1998 due
mainly to the lower cash balances in 1999. The 1998 balance also
included a refund of interest received from the Internal Revenue
Service.
Under present arrangements the Company can borrow up to $15.0 million
or the equivalent in Belgian Francs and/or Japanese Yen under an
unsecured multi-currency revolving credit agreement with Fleet
National Bank. Amounts borrowed under this agreement are to be repaid
in full by September 19, 2002. The Company has borrowed 390 million
Belgian Francs under this agreement as of April 4, 1999.
- 10 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Other income less other charges decreased by more than $200,000 when
comparing 1999 first quarter with the comparable 1998 period. Lower
royalty and joint venture income account for a significant portion of
this decrease. Profits of Rogers Inoac Corporation, the Company's
joint venture with Inoac Corporation, are improving despite continued
weakness in the Japanese economy and the loss last year of a major
customer in the disk drive industry. Durel Corporation, our joint
venture with 3M in electroluminescent lamps had record first quarter
sales in 1999; however, the substantial costs associated with the
patent infringement lawsuit brought by Durel to protect its
proprietary technology resulted in a first quarter loss for this joint
venture and overall lower joint venture income for the Company. The
Durel lawsuit trial is scheduled to begin in June and the Company
remains hopeful of a favorable income.
Net cash provided by operating activities in the first three months of
1999 totaled $7.8 million compared with $2.5 million in the comparable
1998 period. This increase is attributable to the change in the level
of Accrued Expenses, lower inventory levels and higher depreciation
expense in 1999.
In 1998 investments in capital equipment topped $7 million in the
first quarter and finished at $29 million for the year. In 1999
capital expenditures will be reduced to more traditional levels and
the first quarter totaled $2.9 million. Management anticipates that
capital spending for 1999, primarily for new process equipment and new
information systems capability will total about $15 million. It is
anticipated that this spending will be financed with internally
generated funds.
Management expects strong operating cash flow for 1999 and believes
that in the near term internally generated funds and its credit
facility with Fleet National Bank will be sufficient to meet the needs
of the business. The Company continually reviews and assesses its
lending relationships.
The year 2000 issue is the result of computer programs using two
digits rather than four to define the applicable year. Such software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failures or miscalculations
leading to disruptions in a company's activities and operations. If a
company, its significant customers, or suppliers fail to make
necessary modifications and conversions on a timely basis, the year
2000 issue could have a material adverse effect on a company's
operations.
The Company is conducting a review of its systems and operations,
including systems currently being implemented, to identify computer
hardware, software, and process control systems that do not properly
recognize dates after December 31, 1999, including those linked to
third party systems. The Company is now in the process of
- 11 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
reprogramming or replacing hardware, software, and process control
systems as necessary to ensure compliance with year 2000 requirements.
The Company is confident that its own internal systems are year 2000
compliant or planned upgrades will be in place. The Company has also
initiated communications, primarily in the form of questionnaires,
with third parties whose computer systems' functionality could
directly impact the operations of the Company.
The costs of the Company's year 2000 compliance efforts are being
funded with cash flows from operations and are being expensed as
incurred. In total these costs are not expected to be substantially
different from the normal, recurring costs that are incurred for
systems development and implementation.
Although the Company is not aware of any material operational issues
or costs associated with preparing its internal systems for the year
2000, there can be no assurance that the Company will not experience
serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its
internal operating systems which are composed predominantly of third
party software and hardware technology.
Non-compliance by any of the Company's major distributors, suppliers,
customers, vendors, or financial organizations could result in
business disruptions that could have a material adverse effect on the
Company's results of operations, liquidity and financial condition.
The Company will develop a contingency plan based on its assessment of
significant third party compliance. The goal of the contingency plan
will be to minimize the Company's exposure to work slowdowns or
business disruptions and any adverse effects on the Company's results
of operations.
The Company is subject to federal, state, and local laws and
regulations concerning the environment and is currently engaged in
proceedings involving a number of sites under these laws, as a
participant in a group of potentially responsible parties (PRPs).
The Company is currently involved as a PRP in five cases involving
waste disposal sites, all of which are Superfund sites. Several of
these proceedings are at a preliminary stage and it is impossible to
estimate the cost of remediation, the timing and extent of remedial
action which may be required by governmental authorities, and the
amount of liability, if any, of the Company alone or in relation to
that of any other PRPs. The Company also has been seeking to identify
insurance coverage with respect to several of these matters. Where it
has been possible to make a reasonable estimate of the Company's
liability, a reserve 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
- 12 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
presently known to it, the Company does not believe that the outcome
of these proceedings will have a material adverse effect on its
financial position.
In addition to the above proceedings, the Company has been actively
working with the Connecticut Department of Environmental Protection
(CT DEP) related to certain polychlorinated biphenyl (PCB)
contamination in the soil beneath a section of cement flooring at its
Woodstock, Connecticut facility. The Company has developed a
remediation plan which has been approved by the CT DEP, and it is
expected that removal of soil contamination will be completed in 1999.
On the basis of estimates prepared by environmental engineers and
consultants, the Company recorded a reserve of approximately $900,000
in 1994, and based on updated estimates provided an additional
$700,000 in 1997 and $600,000 in 1998 for costs related to this
matter. During 1995, $300,000 was charged against this reserve and
$200,000 per year was charged in 1996, 1997 and 1998. Management
believes, based on facts currently available, that the implementation
of the aforementioned remediation will not have a material additional
adverse impact on earnings.
In this same matter the Unites States Environmental Protection Agency
(EPA) has alleged that the Company improperly disposed of PCBs. An
administrative law judge found the Company liable for this alleged
disposal and assessed a penalty of approximately $300,000. The
Company has reflected this fine in expense in 1998 but disputes the
EPA allegations and has appealed the administrative law judge's
findings and penalty assessment.
The Company has not had any material recurring costs and capital
expenditures relating to environmental matters, except as specifically
described in the preceding statements.
Statements in this report that are not strictly historical may be
deemed to be "forward-Looking" statements which should be considered
as subject to the many uncertainties that exist in the Company's
operations and environment. These uncertainties, which include
economic conditions, market demand and pricing, competitive and cost
factors, and the like, are incorporated by reference in the Rogers
Corporation 1998 Form 10-K filed with the Securities and Exchange
Commission. Such factors could cause actual results to differ
materially from those in the forward-looking statements.
- 13 -
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed for the three
months ended April 4, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ROGERS CORPORATION
(Registrant)
s/ Frank H. Roland
__________________________________
Frank H. Roland
Vice President, Finance and
Chief Financial Officer
Dated: May 14, 1999
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