-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KHl+A1ZCrLjPbUeELpowHsXCo2Bkj3W7p97FzxaIIa6zRmRXZcrN9yiIfnFtiI6s kPZUteGD0LJHIQ+oLbMaQw== 0000084748-00-000004.txt : 20000411 0000084748-00-000004.hdr.sgml : 20000411 ACCESSION NUMBER: 0000084748-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROGERS CORP CENTRAL INDEX KEY: 0000084748 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 060513860 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04347 FILM NUMBER: 582005 BUSINESS ADDRESS: STREET 1: P.O. BOX 188 STREET 2: ONE TECHNOLOGY DRIVE CITY: ROGERS STATE: CT ZIP: 06263-0188 BUSINESS PHONE: 860 774-96 10-K 1 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 January 2, 2000 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 March 1, 2000 was $427,378,461. The number of shares of Capital Stock, $1 par value, outstanding as of March 1, 2000 was 7,393,179. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's annual report to shareholders for the fiscal year ended January 2, 2000 are incorporated by reference into Parts I and II. Portions of the proxy statement for the Registrant's 2000 annual meeting of stockholders to be held April 18, 2000, are incorporated by reference into Part III. TABLE OF CONTENTS PART I Item Page 1. Business 1 2. Properties 6 3. Legal Proceedings 6 4. Submission of Matters to a Vote of Security Holders 7 PART II 5. Market for Registrant's Common Equity 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 8 8. Financial Statements and Supplementary Data 8 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III 10. Directors and Executive Officers of the Registrant 8 11. Executive Compensation 8 12. Security Ownership of Certain Beneficial Owners and Management 8 13. Certain Relationships and Related Transactions 9 PART IV 14. Exhibits and Reports on Form 8-K 9 SIGNATURES Signatures 12 PART I Item 1. BUSINESS GENERAL Rogers Corporation (the Company), founded in 1832, is one of the oldest publicly traded U.S. companies in continuous operation. The Company has adapted its products over the years to meet changing market needs, moving from specialty paperboard to transformer boards for electrical insulation, and now predominantly to a range of specialty polymer composite materials for communications, imaging, computer, transportation, and consumer applications. New leadership in 1992 restructured the Company to focus on these materials based businesses -- 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. An increasingly large percentage of these materials are going into fast growth, high technology applications, such as cellular telephones and base stations, hand held computers and satellite television receivers. 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 January 2, 2000, 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. The Company's products are based on its core technologies in polymers, fillers, and adhesion. Most products are proprietary, or incorporate proprietary technology in their development and processing, and are sold under the Company's valuable brand names. POLYMER MATERIALS Polymer Materials include high performance elastomer materials, elastomer components, and high performance thermoset moldable composites. The Company's Polymer Materials have characteristics that offer functional advantages in many market applications, and serve to differentiate the Company's products from competitors' materials and from other commonly available materials. Polymer Materials are sold to fabricators, molders, printers and original equipment manufacturers for applications in imaging, communications, computer, transportation, consumer and other markets. Trade names for the Company's Polymer Materials include: PORON(R) urethane foams used for making high performance gaskets and seals in vehicles, communications devices, 1 computers and peripherals; PORON cushion insole materials for footwear and related products; PORON healthcare and medical materials for body cushioning, orthotic appliances, and artificial limbs; PORON silicone foams and sponges, used for making flame retardant gaskets and seals in aircraft, trains, cars and trucks; PORON silicone solids for shielding extreme temperature or flame; R/bak(R) compressible printing plate backing and mounting products for cushioning flexographic printing on packaging materials; NITROPHYL(R) floats for fill level sensing in fuel tanks, motors, and storage tanks; ENDUR(R) elastomer rollers and belts for document handling in copiers, computer printers, facsimile machines, mail sorting machines and automated teller machines; MPCR(R) phenolic-based and RX(R) epoxy-based thermoset moldable composites for molding engine and transmission parts used in vehicles, and for molding commutator hubs, brush holders, and other high performance parts that insulate electrical activity in electric motors, appliances, and tools. In January 1999, the Company acquired portions of the moldable composite business of Cytec Fiberite, broadening the line of thermoset moldable phenolic and epoxy composites that it can offer customers for high performance applications. Acquired products include brake piston formulations for molding disk brake pistons, and epoxy molding materials for making opto-electronics components. 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 Japan- based Inoac Corporation, manufactures high performance PORON elastomer materials and ENDUR components in Mie and Nagoya, Japan. The Durel Corporation, a 50% owned joint venture with 3M, manufactures DUREL electroluminescent lamps in Chandler, Arizona. ELECTRONIC MATERIALS Electronic Materials include printed circuit board laminates for high frequency circuits, flexible printed circuit board laminates for high performance flexible circuits, polyester based industrial laminates, composite materials, and power distribution bus bars. The Company's Electronic Materials have characteristics that offer performance and other advantages in many market applications, and serve to differentiate the Company's products from competitors' products and from commonly available materials. Electronic Materials are sold principally to independent and captive printed circuit board manufacturers who convert the Company's laminates to custom printed circuits. The polymer based dielectric layers of the Company's high frequency circuit board laminates are proprietary materials that provide highly specialized electrical and mechanical properties. Trade names for the Company's high frequency printed circuit board materials include RO3000(TM), RO4000(R), DUROID(R), RT/duroid(R), ULTRALAM(R), and TMM(R) laminates. All of these laminates are used for making circuitry that receive, transmit, and process high frequency communications signals. Each laminate addresses specific needs and applications within the communications market. High frequency circuits are used throughout the equipment and devices that comprise all wireless communications systems, including cellular communications, digital cellular communications, paging, direct broadcast television, global positioning, mobile radio communications, and radar. The flexible circuit materials that the Company manufactures are called R/flex(R) materials. They are mainly used to make interconnections for hard disk drives, portable computers, and miniaturized electronic devices. The performance characteristics of R/flex materials differentiate these laminates from commonly available flexible circuit materials. The adhesiveless flexible circuit materials that the Company sold to Hutchinson Technology Incorporated (HTI), for making TSA suspensions in magneto resistive hard disk drives, are called FLEX-I-MID(R) materials. FLEX-I-MID materials are manufactured by Mitsui Chemicals, Inc. of Japan, 2 under a technology license from Rogers Corporation. Effective January 3, 2000 the Company started a joint venture with Mitsui Chemicals, Inc. to eventually manufacture this flexible circuit board laminate in Chandler, Arizona. Beginning in 2000, this joint venture will make these sales to HTI rather than having the resale go through the Company and eventually it will provide HTI with a second source of supply thereby enabling the Company and Mitsui Chemicals to remain the sole source for these materials. Power distribution bus bars are manufactured by the Company under the MEKTRON(R) trade name. Bus bars are sold to manufacturers of high voltage electrical traction systems for use in mass transit and industrial applications, and to manufacturers of communication and computer equipment. Industrial laminates are manufactured by the Company under the Induflex(R) trade name. These polyester based laminates, with thin aluminum and copper cladding, are sold to telecommunications and data communication cable manufacturers for shielding electromagnetic and radio frequency interference, and to automotive component manufacturers for making flat, etched-foil heaters. The Company's nonwoven composite materials are manufactured for medical padding and bandaging, electrical and thermal insulation, and industrial pre-filtration applications. In October 1998, the Company acquired the dampening sleeve business of Imation, a former 3M business. These nonwoven composite roller covers, and related pressroom products, are consumable supplies used by the lithographic printing industry. BACKLOG Excluding joint venture activity, the backlog of firm orders for Polymer Materials was $16,476,000 at January 2, 2000 and $15,092,000 at January 3, 1999. The backlog of firm orders for Electronic Materials was $24,626,000 at January 2, 2000 and $21,931,000 at January 3, 1999. 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 that, if discontinued, could interrupt production. When this has occurred in the past, the Company has purchased sufficient quantities of the particular raw material to sustain production until alternative materials and production processes could be qualified with customers. Management believes that similar responses would mitigate any raw material availability issues in the future. EMPLOYEES The Company employed an average of 577 people in the Polymer Materials operations and 620 people in the Electronic Materials operations during 1999. 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 2,500 customers worldwide in 1999. 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 3 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 that compete with the Company across its full range of product lines. However, each of the Company's products faces competition in each business segment in domestic and foreign markets. Competition comes from firms of all sizes and types, including those with substantially more resources than the Company. The Company's strategy is to offer technically advanced products that are price competitive in their markets, and to link the offerings with market knowledge and customer service. The Company believes this serves to differentiate the Company's products in many markets. RESEARCH & DEVELOPMENT The Company has many domestic and foreign patents and licenses and has additional patent applications on file related to 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. The Company also owns a number of registered and unregistered trademarks that it believes to be of importance. During its fiscal year 1999, the Company spent $10,791,000 on research and development activities, compared with $10,352,000 in 1998, and $9,608,000 in 1997. These amounts include the cost of the corporate research and development effort in Rogers, Connecticut, which amounted to $7,491,000, $7,452,000, and $6,908,000 in 1999, 1998, and 1997, respectively. The balance was comprised of expenditures for product development and new process development activities in its operating units. ENVIRONMENTAL REGULATION During fiscal year 1999, the Company spent $1,300,000 on capital equipment necessary to comply with federal, state, and local environmental protection, health and safety regulations. Management estimates that 2000 expenditures needed for compliance with current environmental, health, and safety regulations will approximate $2,500,000 of which $1,800,000 has been accrued and $700,000 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. 4 EXECUTIVE OFFICERS OF THE REGISTRANT All officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholders or until successors are elected. There are no family relationships between or among executive officers and directors of the Company. Name, Age and Present Prior Business Experience in Past Served in Present Position Five Years Position Since - ------------------------------------------------------------------------------- Walter E. Boomer, 61 General in the U.S. Marine Corps from President and Chief June 1986 to August 1994; Senior Vice Executive Officer 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 Bruce G. Kosa, 60 Technical Director from August 1992 to Vice President, October 1994. October 1994 Technology John A. Richie, 52 Director of Human Resources from July Vice President, 1992 to October 1994. October 1994 Human Resources Frank H. Roland, 64 President of Halstead Industries, Inc. Vice President, from June 1991 to January 1995; Vice Finance; Chief President of RBX Corporation January Finance Officer and 1995 to October 1996; President of Secretary Rubatex Corporation April 1995 to October 1996; President and Chief Executive Officer of RBX Corporation October 1996 to July 1998. September 1998 Robert D. Wachob, 52 Vice President, Sales and Marketing Executive Vice from October 1990 to May 1997; Senior President Vice President, Sales and Marketing from May 1997 to January 2000. January 2000 Donald F. O'Leary, 56 Assistant Controller from April 1982 Corporate Controller to April 1995. April 1995 Executive Officer April 1996 Robert M. Soffer, 52 Treasurer and Assistant Secretary March 1987 Clerk February 1992 5 Item 2. PROPERTIES The Company owns its properties, except as noted below. The Company considers that its properties are well-maintained, in good operating condition, and suitable for its current and anticipated business. Operating capacity can be increased by additional worker hours at 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 9/07 Electronic Materials Chandler, Arizona 112,000 Manufacturing Owned 11,000 Warehouse Owned Chandler, Arizona* 142,000 Manufacturing Owned Rogers, Connecticut 290,000 Manufacturing Owned Ghent, Belgium Rogers NV 113,000 Manufacturing Owned Rogers Induflex NV 96,000 Manufacturing Owned Tokyo, Japan 2,000 Sales Office Leased through 8/01 Wanchai, Hong Kong 1,000 Sales Office Leased through 3/01 Taipei, Taiwan, R.O.C. 1,000 Sales Office Leased through 7/02 Seoul, Korea 1,000 Sales Office Leased through 2/01 Corporate Rogers, Connecticut 116,000 Corporate Headquarters/ Research & Development Owned * The Company is leasing this facility to the current owner of the flexible interconnections business, which was sold by the Company in 1993. Item 3. LEGAL PROCEEDINGS The Company is subject to federal, state, and local laws and regulations concerning the environment and is currently engaged in proceedings 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 two cases involving waste disposal sites, both of which are Superfund sites. 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. 6 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 actively involved in the removal of the contaminated soil and expects to complete this in 2000. 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, $600,000 in 1998, and $400,000 in 1999 for costs related to this matter. During 1995, $300,000 was charged against this provision and $200,000 per year was charged in 1996, 1997, and 1998. In 1999, $400,000 was charged. 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 (EPA) has alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but 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. 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 G on page 39, and under the caption "Dividend Policy" in the "Management's Discussion and Analysis" on page 26 of the 1999 annual report to shareholders. At February 22, 2000, there were 1,035 shareholders of record. Item 6. SELECTED FINANCIAL DATA Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Selected Financial Data" on page 17 of the 1999 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 18 through 27 of the 1999 annual report to shareholders. 7 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth under the caption "Market Risk" in the "Management's Discussion and Analysis" on page 25 of the 1999 annual report to shareholders. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pursuant to General Instruction G to Form 10-K, there is hereby incorporated by this reference the information set forth on pages 28 through 47 and under the caption "Quarterly Results of Operations (Unaudited)" on page 48 of the 1999 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 8, 2000, for its 2000 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 8, 2000, for its 2000 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 Rogers Stock" on page 4 of the Registrant's definitive proxy statement, dated March 8, 2000, for its 2000 annual meeting of stockholders filed pursuant to Section 14(a) of the Act. 8 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 "Termination of Employment and Change of Control Arrangements" and "Certain Relationships and Related Transactions" on page 14 of the Registrant's definitive proxy statement, dated March 8, 2000, for its 2000 annual meeting of stockholders filed pursuant to Section 14(a) of the Act. PART IV Item 14. EXHIBITS 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 January 2, 2000, are incorporated by reference in Item 8: Consolidated Balance Sheets--January 2, 2000 and January 3, 1999 Consolidated Statements of Income--Fiscal Years Ended January 2, 2000, January 3, 1999, and December 28, 1997 Consolidated Statement of Shareholders' Equity - Fiscal Years Ended January 2, 2000, January 3, 1999, and December 28, 1997 Consolidated Statements of Cash Flows--Fiscal Years Ended January 2, 2000, January 3, 1999, and December 28, 1997 Notes to Consolidated Financial Statements-January 2, 2000 All 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. 9 (3)Exhibits (numbered in accordance with Item 601 of Regulation S-K): 3a Restated Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on April 6, 1966, were filed as Exhibit 3a to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1989 (the 1988 Form 10-K)*. 3b Articles of Amendment to the Articles of Organization, filed with the Secretary of State of the Commonwealth of Massachusetts on August 10, 1966, were filed as Exhibit 3b to the 1988 Form 10-K*. 3c Articles of Merger of Parent and Subsidiary Corporations, filed with the Secretary of State of the Commonwealth of Massachusetts on December 29, 1975, were filed as Exhibit 3c to the 1988 Form 10-K*. 3d Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on March 29, 1979, were filed as Exhibit 3d to the 1988 Form 10-K*. 3e Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on March 29, 1979, were filed as Exhibit 3e to the 1988 Form 10-K*. 3f Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on April 2, 1982, were filed as Exhibit 3f to the 1988 Form 10-K*. 3g Articles of Merger of Parent and Subsidiary Corporations, filed with the Secretary of State of the Commonwealth of Massachusetts on December 31, 1984, were filed as Exhibit 3g to the 1988 Form 10-K*. 3h Articles of Amendment, filed with the Secretary of State of the Commonwealth of Massachusetts on April 6, 1988, were filed as Exhibit 3h to the 1988 Form 10-K*. 3i By-Laws of the Company as amended on March 28, 1991, September 10, 1991, and June 22, 1995 were filed as Exhibit 3i to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the 1995 Form 10-K)*. 3j Articles of Amendment, as filed with the Secretary of State of the Commonwealth of Massachusetts on May 24, 1994, were filed as Exhibit 3j to the 1995 Form 10-K*. 3k Articles of Amendment, as filed with the Secretary of State of the Commonwealth of Massachusetts on May 8, 1998 were filed as Exhibit 3k to the 1998 Form 10-K*. 4a 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*. 10 10e Rogers Corporation 1990 Stock Option Plan** (as restated and amended on October 18, 1996 and December 21, 1999). The October 18, 1996 restatement and amendment was filed as Registration Statement No. 333-14419 on Form S-8 dated October 18, 1996*. The December 21, 1999 amendment is filed herewith. 10f Rogers Corporation Deferred Compensation Plan** (1983) was filed as Exhibit O to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1984*. 10g Rogers Corporation Deferred Compensation Plan** (1986) was filed as Exhibit 10e to the 1987 Form 10-K*. 10h Rogers Corporation 1994 Stock Compensation Plan** (as restated and amended on October 17, 1996 and amended on December 18, 1997). The 1994 plan, as amended and restated on October 17, 1996, was filed as Exhibit 10h to the 1996 Form 10-K. The 1997 amendment was filed as Exhibit 10h to the 1997 Form 10-K*. 10i Rogers Corporation Voluntary Deferred Compensation Plan for Non-Employee Directors** (1994, as amended December 26, 1995, December 27, 1996 and as restated and amended December 21, 1999). The 1994 plan, the December 26, 1995 and December 27, 1996 amendments were filed as Exhibit 10i to the 1994 Form 10-K, 1995 Form 10-K, and 1996 Form 10-K, respectively*. The December 21, 1999 restatement and amendment are filed herewith. 10j Rogers Corporation Voluntary Deferred Compensation Plan for Key Employees** (1993, as amended on December 22, 1994, December 21, 1995, December 22, 1995, April 17, 1996 and as restated and amended on December 21, 1999). The 1993 plan and the 1994 amendments were filed as Exhibit 10j to the 1994 Form 10-K. The 1995 and 1996 amendments were filed as Exhibit 10j to the 1995 Form 10-K and 1996 Form 10-K, respectively*. The December 21, 1999 restatement and amendment are filed herewith. 10k Rogers Corporation Long-Term Enhancement Plan for Senior Executives of Rogers Corporation** dated December 18, 1997.* 10l Rogers Corporation 1998 Stock Incentive Plan (1998, as amended September 9, 1999 and December 21, 1999).** The 1998 Plan was filed as Registration Statement No. 333- 50901 on April 24, 1998*. The September 9, 1999 and December 21, 1999 amendments are filed herewith. 13 Portions of the Rogers Corporation 1999 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. * 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 January 2, 2000. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. 11 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 29, 2000 By /s/Frank H. Roland Frank H. Roland Vice President, Finance; Chief Financial Officer; and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 23, 2000, 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/Leonard M. Baker Director Leonard M. Baker By /s/Harry H. Birkenruth Director Harry H. Birkenruth By /s/Edward L. Diefenthal Director Edward L. Diefenthal By /s/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 12 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT Percentage of Voting Jurisdiction Securities of Incorporation Company Owned or Organization ------- ---------- ---------------- Rogers L-K Corp. 100% Delaware Rogers Japan, Inc. 100% Delaware Rogers Southeast Asia, Inc. 100% Delaware Rogers Taiwan, Inc. 100% Delaware Rogers Korea, Inc. 100% Delaware Rogers Specialty Materials 100% Delaware Corporation TL Properties, Inc. 100% Arizona World Properties, Inc. 100% Illinois Rogers Export Sales Corporation 100% Barbados Rogers Induflex N.V. 100% Belgium Rogers N.V. 100% Belgium Rogers GmbH 100% Germany Rogers (UK) LTD. 100% England Rogers S.A. 100% France * Rogers Inoac Corporation 50% Japan * Durel Corporation 50% Delaware * Polyimide Laminate Systems LLC 50% Delaware * These entities are unconsolidated joint ventures and accordingly are not consolidated in the consolidated financial statements of Rogers Corporation. F-1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Rogers Corporation of our report dated January 31, 2000, included in the 1999 Annual Report to Shareholders of Rogers Corporation. 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, 333-50901 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 January 31, 2000, 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 23, 2000 F-2 SELECTED FINANCIAL DATA (Dollars in Thousands, Except per Share Amounts) - ---------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- SALES AND INCOME - ---------- Net Sales $247,839 $216,574 $189,652 $141,476 $140,293 Income Before Income Taxes 25,877 19,126 22,005 17,657 15,390 Net Income 18,631 13,771 16,500 13,949 13,081 PER SHARE DATA - ---------- Basic 2.48 1.81 2.21 1.92 1.84 Diluted 2.38 1.74 2.10 1.83 1.69 Book Value 15.88 14.47 12.51 10.43 8.42 FINANCIAL POSITION (YEAR-END) - ---------- Current Assets 72,547 69,164 74,325 57,567 50,608 Current Liabilities 36,741 32,305 33,983 24,637 24,412 Ratio of Current Assets to Current Liabilities 2.0 to 1 2.1 to 1 2.2 to 1 2.3 to 1 2.1 to 1 Cash, Cash Equivalents, and Marketable Securuties 9,955 9,849 21,555 19,631 14,676 Working Capital 35,806 36,859 40,342 32,930 26,196 Property, Plant and Equipment - Net 84,652 79,969 57,359 41,772 41,631 Total Assets 183,406 176,174 158,440 119,227 102,516 Long-Term Debt less Current Maturities 9,740 13,687 13,660 3,600 4,200 Shareholders' Equity 116,417 110,231 94,378 77,212 60,098 Long-Term Debt as a Percentage of Shareholders' Equity 8% 12% 14% 5% 7% OTHER DATA - ---------- Depreciation and Amortization 10,375 8,439 6,614 5,781 5,738 Research and Development Expenses 10,791 10,352 9,608 9,184 9,320 Capital Expenditures 13,621 28,965 17,739 6,326 8,853 Number of Employees (Average) 1,197 1,122 993 854 928 Net Sales per Employee 207 193 191 166 151 Number of Shares Outstanding at Year-End 7,332,326 7,617,666 7,543,699 7,405,961 7,135,090 17 F-3 MANAGEMENT'S DISCUSSION AND ANALYSIS CONSOLIDATED SALES AND OPERATIONS - 1999 TO 1998 Net sales were $247.8 million for 1999, 14% higher than those reported in 1998. Combined Sales, which include 50% of the sales of the Company's two unconsolidated joint ventures, totaled $285.0 million, up 16% over 1998. A majority of the Company's major product groups achieved record sales in 1999 mainly as the result of unit volume increases. Worldwide sales of high frequency circuit materials accounted for a significant portion of the sales gain. Wireless communications infrastructure, satellite television receivers, and wireless communication antennas are the current primary uses for these materials. The year-over-year revenue improvement is partly attributable to higher sales of urethane and silicone foam materials, particularly for wireless communication and computer applications. The acquisition of most of the engineered molding compounds business of Cytec Fiberite in January 1999, and the purchase of the Imation lithographic printing dampening sleeve business in September 1998 also boosted 1999 sales. Effective January 1999, the Company acquired most of the engineered molding compounds business of Cytec Fiberite. This acquisition has added capabilities that have enhanced the Company's molding materials business. The transfer of Cytec Fiberite's manufacturing equipment is on schedule and will be completed during 2000. Income before income taxes rose 35% to a record $25.9 million in 1999 while after-tax profits also increased 35% to $18.6 million, also a record. Diluted earnings per share for the year were $2.38, up from $1.74 in 1998. Basic earnings per share were $2.48 in 1999 and $1.81 in 1998. The improvement in earnings was primarily the result of improved margins, higher sales, and increased joint venture income offset somewhat by the added spending to strengthen sales and marketing capabilities and further develop information systems. Also 1998 numbers include the results of disappointing second and third quarters that were adversely impacted by depressed conditions in Southeast Asia and in the computer disk drive industry. Durel Corporation, the Company's 50% owned joint venture with 3M in electroluminescent lamps, achieved 50% growth in sales which included late-year contracts from two of the largest manufacturers of cellular telephones. This growth was driven by a more than 130% increase in sales of Durel's products for wireless telephones and other hand held electronic devices. To meet this growing demand, a doubling of lamp manufacturing capacity is nearing completion. This will be followed by another significant increase in capacity in late 2000. The aforementioned sales gains helped Durel achieve record earnings despite a very significant increase in legal costs associated with the patent infringement lawsuit brought by Durel to protect its proprietary technology. After many delays this patent infringement lawsuit finally came to trial on January 24,2000 and on February 14,2000 in a jury decision in the United States District Court for the District of Arizona, $49 million in damages were awarded to Durel Corporation. These damages were assessed against Osram Sylvania, Inc., a subsidiary of Siemens AG of Munich, Germany for infringement of three exclusively licensed patents relating to technology for electroluminescent lamps. Osram Sylvania, Inc. may appeal this award. Rogers Inoac Corporation (RIC), the Company's 50% owned joint venture with Inoac Corporation of Japan, continues to improve. RIC was negatively impacted in 1998 by the loss of disk drive business and the poor economic conditions in Japan and Southeast Asia. In 1999, RIC successfully moved PORON materials into industrial applications and, with the Company, strengthened relationships with a leading footwear manufacturer. The Company's manufacturing profit was 29% in 1999 and 27% in 1998. The increase from 1998 to 1999 begins to reflect the attention paid to improving manufacturing yields over the 18 F-4 past several years. New equipment installed as part of a capital expansion campaign during the past couple of years has produced immediate process improvements with enhanced product flow and efficiency. Manufacturing profit percentages were held down by the lower margins on the sales of FLEX-I-MID materials to Hutchinson Technology Inc.(HTI). Such materials were produced for the Company by Mitsui Chemicals, Inc. in Japan and carry a lower margin than material that the Company manufactures. Effective January 3,2000 the Company started a joint venture with Mitsui Chemicals, Inc. to eventually manufacture this specialty flexible circuit board laminate in Chandler, Arizona. This joint venture will provide HTI with a second source of supply thereby enabling the Company and Mitsui Chemicals to remain the sole source for these materials. Beginning in 2000, this joint venture will make these sales to HTI rather than having the resale go through the Company. The Company expects to report a drop in net sales for the first quarter of 2000, compared with the first quarter of 1999, when the Company's sales to HTI were approximately $10 million. However, since the Company expects to earn the same commissions on the laminates sold to HTI, comparable levels of profitability will be achieved by the Company despite the fact that the sales themselves will be made through the joint venture. Full year sales to HTI were $30.7 million in 1999 and $27.6 million in 1998. Selling and Administrative expenses increased in total dollars and increased as a percentage of sales from 13% in 1998 to 15% in 1999. This increase in spending levels reflects the strengthening of sales and marketing capabilities at both the Corporate and 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 totaled $10.8 million in 1999 compared with $10.4 million in 1998. Greater R&D emphasis continues to be given to the development of new product platforms resulting in the creation of product families. An example of a product platform development is the Company's program to make Copper-LCP (Liquid Crystal Polymer) film laminates to be used in flexible circuits where superior electrical and physical properties are necessary. Good progress continued with this program which will remain in development during 2000. Major development activities in circuit materials included 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. RO4350B was developed for applications where an improved UL Thermal Index is required. In constructions of 0.020 inches or greater, RO4350B has a thermal index of 125 (degrees) Celsius or higher. Application of the Company's R&D capability in fillers allowed improved processing of fluoropolymer based laminates for the RO3000 line of products. Flexible circuit materials development efforts improved the processing of a new epoxy based adhesive system, R/flex Crystal. Manufacturing improvements designed to significantly improve the dimensional stability of all R/flex laminates continued. PORON materials development activities included commercialization of several new formulations for industrial and footwear applications. A thin soft PORON foam on PET (polyester) film was introduced for cell phone and other electronic applications where good sealing characteristics and shock protection are required. The first in a series of copper-polyester film laminates were introduced and found significant use as cell phone antennas. To better support the adoption of phenolic molding materials in automotive applications, more sophisticated FEA (finite element analysis) computer system support was acquired. 19 F-5 Corporate R&D emphasis on core capability improvement continued. Greater resources were applied to adhesion and better understanding of material dielectric properties during 1999. The Company expects these technical resources to benefit the development of new products for its circuit material and high performance foam product lines. Net interest income decreased almost $600,000 from 1998 to 1999. This decrease is primarily due to lower cash balances during the year, lower amounts of interest expense capitalized as part of long-term capital spending projects, and the prepayment penalty incurred in 1999 as a result of the payoff of debt which carried a 10.6% interest rate. Other income less other charges reflected a net income amount of $1.6 million in 1999 and a net expense amount of $1.0 million in 1998. This $2.6 million positive impact on earnings was caused primarily by a $1.6 million increase in joint venture income, and a $600,000 decrease in environmental expenses in 1999. 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 two cases involving waste disposal sites, both of which are Superfund sites. 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 actively involved in the removal of the contaminated soil and expects to complete this in 2000. 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, $600,000 in 1998, and $400,000 in 1999 for costs related to this matter. During 1995, $300,000 was charged against this provision and $200,000 per year was charged in 1996, 1997, and 1998. In 1999, $400,000 was charged. 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 (EPA) has alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but 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. 20 F-6 CONSOLIDATED SALES AND OPERATIONS - 1998 TO 1997 Net sales of $216.6 million in 1998 were 14% higher than the previous year. Combined Sales, which include one-half of the sales of the Company's two unconsolidated joint ventures totaled $245.3 million, up 11% from 1997. Several of the Company's major product groups achieved record sales in 1998 mainly as the result of unit volume increases. A majority of the year-to-year volume increase came from sales of a customized FLEX-I-MID material to Hutchinson Technology Inc. and from sales by Induflex, the European flexible laminates business the Company acquired at the end of September 1997. The 1998 sales increase was achieved despite a severely overbuilt market in hard disk drives that peaked in 1997 causing customers to draw down inventories through most of 1998. This resulted in a major customer losing nearly one-third of its business in 1998, an event that affected the Company's sales and profitability during the second and third quarters. The Company's strategy continued to emphasize growth by developing current markets, particularly through the introduction of new products, and by means of acquisitions. In 1998 the Company committed to a market-driven process for product development called Concurrent Product Development. CPD adds discipline to the process of bringing new products to market, forcing hard decisions relative to the commitment of people and resources. It helps the Company more effectively bring to market new products that have the properties customers need, and that the Company can manufacture. Effective September 30, 1998, the Company acquired a line of printing pressroom products from Imation Corp., formerly a business of 3M Corporation. This dampening sleeve business is integral to the water transfer and inking of many types of offset presses in use throughout the world. This acquisition complemented the Company's existing line of R/bak compressible plate mounting materials for flexography and resulted in better utilization of the Rogers, Connecticut facility. Net Income was $13.8 million or $1.74 per share on a diluted basis in 1998 compared with $2.10 per share in 1997. Basic earnings per share were $1.81 in 1998 and $2.21 in 1997. Before- tax profits declined 13% from $22.0 million in 1997 to $19.1 million in 1998. The effective tax rates were 28% and 25% in 1998 and 1997, respectively. The decrease in both before-tax profits and net income primarily can be attributed to the severe downturn in sales in 1998 of R/flex flexible circuit materials manufactured by the Company. The widely reported overbuilding by hard disk drive manufacturers coupled with the 32% reduction of sales to a major customer, the largest producer of flexible circuits in the United States, resulted in dramatic sales and profit reductions in this product group. Durel Corporation, the Company's 50% owned joint venture with 3M in electroluminescent lamps, was in the midst of a challenging transition to convert its processes to manufacture smaller, more complex pieces at higher volumes for the wireless communications market. In addition, Durel had significant business in Asia, and suffered from the decline in the Asian economy, the strong U.S. dollar, and increasing competition which caused customers to demand steep price reductions. Also, profits continued to be negatively impacted by costs related to the patent infringement suit brought by Durel in 1995 against Osram Sylvania. Rogers Inoac Corporation (RIC), the Company's 50% owned joint venture with Inoac Corporation of Japan, was negatively impacted by the loss of disk drive business and the poor economic conditions in Japan and Southeast Asia. While sales in local currency in 1998 decreased 10%, currency rate changes caused sales measured in U.S. dollars to decrease 20%. On the positive side, RIC positioned itself to broaden its product offerings in Asia. This included ongoing participation with Rogers 21 F-7 Corporation in a major marketing success of 1998, the incorporation of significant volumes of PORON materials into the products of one of the world's largest sports shoe companies. The Company's manufacturing profit was 27% in 1998 and 30% in 1997. This decrease was primarily due to the lower profit margins earned on resale of the specialty FLEX-I-MID material to Hutchinson Technology Inc., the world leader in suspension assemblies for hard disk drives. This material is manufactured by Mitsui Chemicals, Inc. under a technology license from the Company. The doubling of sales of this material to HTI during the year resulted in a 3 percentage point decrease in consolidated manufacturing profit. Selling and administrative expense increased in total dollars but decreased as a percentage of net sales to 13% in 1998 from 14% in 1997. The increase in dollars primarily reflected steps taken to strengthen the internal organization and to improve information systems. Research and development expense totaled $10.4 million in 1998 compared with $9.6 million in 1997. Greater R&D emphasis continued to be given to the development of product platforms resulting in the creation of product families, combined with increased resources applied to improving process capability to achieve lower cost and better controlled manufacturing operations. 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. Flexible circuit materials development efforts focused on the introduction of a new epoxy based adhesive system, R/flex Crystal, and on manufacturing improvements designed to significantly improve the dimensional stability of all R/flex laminates. PORON materials development activities included commercialization of several new formulations for industrial and footwear applications; in addition, new thinner adhesive-backed R/bak tapes were being developed for the flexographic printing market. Molding materials development continued to emphasize tougher, more dimensionally stable materials for small electric motor commutators. Net interest income decreased $100,000 from 1997 to 1998. This decrease was primarily due to the lower interest income earned as a result of the significant decrease in cash and marketable securities. Other income less other charges reflected a net income amount of $1.1 million in 1997 and a net expense amount of $1.0 million in 1998. This $2.1 million negative impact on earnings was caused primarily by a $600,000 decrease in royalties and income from joint ventures, a $700,000 change in gains/(losses) from disposal of assets, and $400,000 of additional environmental costs in 1998. SEGMENT SALES AND OPERATIONS Sales in the Polymer Materials business segment increased 27%, 4%, and 24% in 1999, 1998, and 1997 respectively. The increase from 1998 to 1999 is primarily attributable to the acquisition of most of the engineered molding compounds business of Cytec Fiberite in January 1999 and of the dampening sleeve business from Imation Corp. in September 1998. It also reflects significantly higher sales of urethane and silicone foam materials in 1999, particularly for wireless communications and computer applications. The increase from 1997 to 1998 was led by a record sales performance in the Elastomer Components Division. A new application for NITROPHYL floats for fuel 22 F-8 level sensing in propane tanks contributed to this sales growth. The moldable composites business was bolstered by increasing sales to Europe and by the addition of a major new U.S. customer for electric commutator materials. The major expansion completed in 1997 is effectively supporting the growth of moldable composites in Europe and in the United States. The Polymer Materials business segment generated operating income of $15.0 million in 1999, $10.7 million in 1998, and $8.9 million in 1997. Improvement in manufacturing yields and the higher sales of urethane and silicone foam materials coupled with the benefits from acquisitions resulted in the significant improvement from 1998 to 1999. Since the beginning of 1997 the Company has made three domestic acquisitions all of which are in the Polymer Materials segment. The purchase of the Imation dampening sleeve business and the Cytec Fiberite engineered molding compounds business have resulted in significant meaningful contributions to the Company's performance in 1999. The integration and improvement of the Bisco silicone foam business acquired at the beginning of 1997 has also reached this stage although it took longer than originally anticipated. Benefits related to the acquisition of the dampening sleeves business in September 1998, and significantly lower bonus expenses for the year 1998 were the primary contributors to the improved 1998 income levels. Revenues from the Electronic Materials business segment increased 3% in 1999, 26% in 1998, and 47% in 1997. Worldwide sales of high frequency circuit materials set a record in 1999. Sales to the consumer electronics market were particularly strong. This was significantly offset by the disappointing sales levels of R/flex materials that the Company manufactures, reflecting the softness in demand being experienced by its major customer for such flexible materials. Sales of FLEX-I-MID adhesiveless laminate materials to HTI dropped sharply in the fourth quarter 1999 as this customer continued to work off its inventories resulting in a smaller year over year increase. The addition of a full year of Induflex sales in 1998 accounted for 36% of the 1998 increase. Continuing growth of sales of FLEX-I-MID material to HTI in 1998 more than offset the decline in sales of flexible circuit materials manufactured in Chandler, Arizona. Production and sale of high frequency circuit materials continued an upward trend in 1998. This was made possible by the completion and startup of the new manufacturing facility in Arizona. This facility not only increased the Company's capacity to make high frequency laminates, but also enabled the Company to manufacture rather than purchase a critical material used in this product line. Also in 1998, Rogers N.V., a European manufacturing facility, strengthened its position in bus bars, used as power distribution components for trains and mass transit systems, as well as in cellular base stations. Already the market leader in Germany and Scandinavia, the Company made significant inroads toward gaining market share in England and France. Electronic Materials operating income was $9.4 million in 1999, $9.0 million in 1998, and $11.5 million in 1997. The small increase in 1999 reflects higher sales and improved margins of high frequency circuit materials significantly offset by the continued decline in sales of flexible circuit materials manufactured in Chandler, Arizona. The decline in sales of flexible circuit materials manufactured in Chandler, Arizona, is also the primary reason for the drop in operating income in 1998. Sales made through Rogers N.V. stated in local currencies increased 12% in 1999, 20% in 1998, and 42% in 1997. When translated into U.S. dollars these changes became gains of 7%, 18%, and 30% in 1999, 1998, and 1997, respectively. Over the past several years, the Company 23 F-9 has intensified its sales and marketing activities in Europe. This effort is now paying off handsomely with sales of almost all product lines in Europe increasing in 1998 and 1999. BACKLOG The Company's backlog of firm orders was $44.5 million at January 2, 2000, and $38.5 million at January 3, 1999. The increase is due primarily to the higher level of sales. SOURCES OF LIQUIDITY AND CAPITAL Net cash provided by operating activities amounted to $32.5 million in 1999, $17.9 million in 1998, and $19.2 million in 1997. Primary factors contributing to the year-to-year increase from 1998 to 1999 include increased earnings, a reduction in accounts receivable and a higher level of accounts payable and accrued expenses. The major reason for the decrease in 1998 is the lower level of income in that year. Capital expenditures totaled $13.6 million in 1999, $29.0 million in 1998, and $17.7 million in 1997. In terms of capacity in 1998, the Company built new production facilities and expanded production lines in the United States and Europe. In addition to the multi-million dollar expansion at the Microwave Materials Division in Chandler, Arizona, a new production line was built at the Poron Materials Unit in Woodstock, Connecticut. Also, in Ghent, Belgium, installation of the microwave laminates product line was virtually completed. In 1999 capital expenditures have been reduced to more traditional levels. Cash generated from the Company's operating activities exceeded capital spending in both 1997 and 1999. In 1998 capital expenditures exceeded cash generated from operating activities by $13.0 million and more than accounted for the $11.7 million reduction in cash and marketable securities during 1998. For 2000, it is anticipated that capital spending will approximate $25.0 million and that this will be financed by internally generated funds. Under the Company's unsecured multi-currency revolving credit agreement with Fleet National Bank, the Company can borrow up to $20.0 million, or the equivalent in Belgian francs and/or Japanese yen and eventually the Euro. Amounts borrowed under this agreement are to be paid in full by September 19, 2003. 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 3.47%. The carrying value of this debt approximates fair value as of January 2, 2000. In 1988 the Company borrowed $6,000,000 at 10.6% and principal payments of $600,000 per year were made through October 1999. On December 21, 1999, the Company prepaid the $2,400,000 remainder of the loan in full. Included in the provisions of the Company's long-term loan agreement 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. This agreement also imposes financial covenants requiring the Company to maintain a certain level of fixed charge coverage and net worth, and specified leverage ratios. At January 2, 2000, the Company had indirectly guaranteed 50% of a loan entered into by one of the unconsolidated joint ventures. The Company's proportionate 24 F-10 share of the outstanding principal under this guarantee was $4,636,000 at January 2, 2000 and $5,000,000 at January 3, 1999. 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. Management believes that in the near term, internally generated funds plus available lines of credit will be sufficient to meet the regular needs of the business. The Company continually reviews and assesses its lending relationships. MARKET RISK The Company is exposed to market risk from changes in interest rates and foreign exchange rates. The Company does not use derivative instruments for trading purposes. The Company monitors foreign exchange and interest rate risks and manages such risks on specific transactions. The risk management process primarily uses analytical techniques and sensitivity analysis. The Company has obligations where the interest rate, although not fixed, is relatively low compared to the prime interest rate. An increase in interest rates would not significantly increase interest expense due to the current makeup of the Company's debt obligations. Because of the size and structure of these obligations, a 100 basis point increase in the prime interest rate would not result in a material change in the Company's interest expense or in the fair value of the debt obligations. The fair value of the Company's investment portfolio or the related interest income would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due mainly to the size and short-term nature of the Company's investment portfolio and the relative insignificance of interest income to consolidated pretax income, respectively. The Company's largest foreign currency exposure is against the Belgian franc, primarily because of its investments in its ongoing operations in Belgium. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another. The Company also has a borrowing arrangement under which the Company has borrowed 390 million Belgian francs which is to be paid in full by September 19, 2003. This arrangement functions as a natural hedge against its other Belgian franc exposure. Additionally, the Company can initiate hedging activities by entering into foreign exchange forward contracts with third parties when the use of natural hedges is not possible. Relative to foreign currency exposures existing at January 2, 2000, a 10% unfavorable movement in the Belgian franc exchange rate would not significantly affect consolidated operating results, financial position or cash flows. In addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign currency sales prices as competitors' products become more or less attractive. The Company's sensitivity analysis does not factor in a potential change in sales levels or local currency selling prices. YEAR 2000 The year 2000 issue is the result of computer programs using two digits, rather than four, to define the applicable year. It was feared that computer programs with date-sensitive software, or equipment with embedded, date-sensitive technology, might misinterpret a two digit code, resulting in system or equipment failures and disruptions of operations. The Company completed its review of systems and operations prior to the end of 1999 and, through March 1, 2000, has not experienced any significant problems related to the year 2000 issue. The Company's compliance efforts were funded with cash 25 F-11 flows from operations, were expensed as incurred, and did not have a material adverse effect on the Company. 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. 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, economic, and political conditions both in the United States and in foreign countries; uncertainties and expenses associated with litigation and changes in laws, regulations, and policies of governmental entities; 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; any difficulties in integrating acquired businesses into the Company's operations; 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 wireless communication 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. 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 to meet the needs of this market, the Company's results may be affected by these factors. The Company's recently formed 50/50 joint venture with Mitsui Chemicals, Inc. is called Polyimide Laminate Systems. This joint venture now sells FLEX-I- MID circuit materials in the U.S. and Europe through an arrangement with Mitsui Chemicals which produces this material in Japan under a technology license from the Company. In this case, neither the Company nor Polyimide Laminate Systems have direct control over the manufacturing process, delivery dates or the impact of foreign exchange rates on the sale of FLEX-I-MID circuit materials. 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, 26 F-12 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. 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 2000 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 or modifications of 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. 27 F-13 CONSOLIDATED BALANCE SHEETS - ---------- January 2, January 3, (Dollars in Thousands) 2000 1999 ---------- ---------- ASSETS - ---------- Current Assets: Cash and Cash Equivalents $ 9,955 $ 9,593 Marketable Securities -- 256 Accounts Receivable, Net 33,884 32,590 Inventories: Raw Materials 10,566 10,392 In-Process and Finished 13,688 12,637 Less LIFO Reserve (935) (272) --------- --------- Total Inventories 23,319 22,757 Current Deferred Income Taxes 4,728 3,481 Other Current Assets 661 487 --------- --------- Total Current Assets 72,547 69,164 --------- --------- Property, Plant and Equipment, Net of Accumulated Depreciation of $75,069 and $69,051 84,652 79,969 Investment in Unconsolidated Joint Venture 5,294 5,467 Pension Asset 4,223 4,606 Goodwill and Other Intangible Assets 14,510 14,935 Other Assets 2,180 2,033 --------- --------- Total Assets $ 183,406 $ 176,174 ========= ========= 28 F-14 January 2, January 3, (Dollars in Thousands) 2000 1999 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY - ---------- Current Liabilities: Accounts Payable $ 14,855 $ 17,766 Current Maturities of Long-Term Debt -- 600 Accrued Employee Benefits and Compensation 10,782 6,577 Accrued Income Taxes Payable 4,341 1,059 Taxes, Other than Federal and Foreign Income 518 1,038 Other Accrued Liabilities 6,245 5,265 --------- --------- Total Current Liabilities 36,741 32,305 --------- --------- Long-Term Debt, less Current Maturities 9,740 13,687 Noncurrent Deferred Income Taxes 6,362 5,938 Noncurrent Pension Liability 4,215 3,703 Noncurrent Retiree Health Care and Life Insurance Benefits 5,966 6,268 Other Long-Term Liabilities 3,965 4,042 Shareholders' Equity: Capital Stock, $1 Par Value (Notes A & I): Authorized Shares 50,000,000; Issued Shares 7,715,226 and 7,630,466 7,715 7,630 Additional Paid-In Capital 34,716 33,323 Treasury Stock (382,900 and 12,800 shares) (Note A) (13,436) (423) Accumulated Other Comprehensive Income, Net of Tax (Note I) 438 1,348 Retained Earnings 86,984 68,353 --------- --------- Total Shareholders' Equity 116,417 110,231 --------- --------- Total Liabilities and Shareholders' Equity $ 183,406 $ 176,174 ========= ========= - ---------- The accompanying notes are an integral part of the consolidated financial statements. 29 F-15 CONSOLIDATED STATEMENTS OF INCOME - ---------- (Dollars in Thousands, Except Per Share Amounts) 1999 1998 1997 (52 weeks) (53 weeks) (52 weeks) ---------- --------- --------- Net Sales $ 247,839 $ 216,574 $ 189,652 Cost of Sales 175,964 158,509 133,653 Selling and Administrative Expenses 36,735 28,073 26,061 Research and Development Expenses 10,791 10,352 9,608 --------- --------- --------- Total Costs and Expenses 223,490 196,934 169,322 --------- --------- --------- Operating Income 24,349 19,640 20,330 Other Income less Other Charges 1,626 (981) 1,108 Interest Income (Expense), Net (98) 467 567 --------- --------- --------- Income Before Income Taxes 25,877 19,126 22,005 Income Taxes 7,246 5,355 5,505 --------- --------- --------- Net Income $ 18,631 $ 13,771 $ 16,500 ========= ========= ========= Net Income Per Share (Notes A & I): Basic $ 2.48 $ 1.81 $ 2.21 ========= ========= ========= Diluted $ 2.38 $ 1.74 $ 2.10 ========= ========= ========= Shares Used in Computing (Notes A & I): Basic 7,527,517 7,601,235 7,474,992 ========= ========= ========= Diluted 7,821,422 7,899,913 7,863,084 ========= ========= ========= - ---------- The accompanying notes are an integral part of the consolidated financial statements. 30 F-16 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ---------- Capital Accumulated Total Stock Additional Compre- Share- (Number Paid-In Retained hensive Treasury holders' of Shares) Capital Earnings Income Stock Equity ------------------------------------------------------------- Balance at December 29, 1996 7,405,961 $ 29,691 $ 38,082 $ 2,033 $ -- $ 77,212 -------------------------------------------------------------- Comprehensive Income: Net Income for 1997 16,500 16,500 Other Comprehensive Income(Loss) (878) (878) -------- Total Comprehensive Income 15,622 Stock Options Exercised 138,076 1,298 1,436 Stock Issued to Directors 2,506 92 95 Shares Reacquired and Cancelled (2,844) (103) (106) Tax Benefit on Stock Options Exercised 119 119 ------------------------------------------------------------- Balance at December 28, 1997 7,543,699 $ 31,097 $ 54,582 $ 1,155 $ -- $ 94,378 ------------------------------------------------------------- Comprehensive Income: Net Income for 1998 13,771 13,771 Other Comprehensive Income 193 193 -------- Total Comprehensive Income 13,964 Stock Options Exercised 90,167 884 974 Stock Issued to Directors 10,966 352 363 Shares Reacquired and Cancelled (14,366) (589) (604) Tax Benefit on Stock Options Exercised 1,579 1,579 Treasury Stock Acquisitions (12,800 Shares) (423) (423) ------------------------------------------------------------- Balance at January 3, 1999 7,630,466 $ 33,323 $ 68,353 $ 1,348 $ (423) $110,231 ------------------------------------------------------------- Comprehensive Income: Net Income for 1999 18,631 18,631 Other Comprehensive Income(Loss) (910) (910) -------- Total Comprehensive Income 17,721 Stock Options Exercised 85,889 867 953 Stock Issued to Directors 7,734 291 299 Shares Reacquired and Cancelled (8,863) (215) (224) Tax Benefit on Stock Options Exercised 450 450 Treasury Stock Acquisitions (382,900 Shares) (13,013) (13,013) -------------------------------------------------------------- Balance at January 2, 2000 7,715,226 $ 34,716 $ 86,984 $ 438 $(13,436) $116,417 ============================================================== The dollar amount of the capital stock ($1 par value) is equal to the indicated number of shares. - ---------- The accompanying notes are an integral part of the consolidated financial statements. 31 F-17 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: 1999 1998 1997 (52 weeks) (53 weeks) (52 weeks) - ---------- ---------- ---------- ---------- Net Income $ 18,631 $ 13,771 $ 16,500 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation and Amortization 10,375 8,439 6,614 (Benefit) Expense for Deferred Income Taxes (577) 2,009 2,543 Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (1,897) (414) (635) Loss on Disposition of Assets 304 249 52 Noncurrent Pension and Postretirement Benefits 441 (58) 1,610 Other, Net 247 (161) (688) Changes in Operating Assets and Liabilities Excluding Effects of Acquisition and Disposition of Assets: Accounts Receivable 264 (3,984) (6,683) Inventories (1,261) (912) (6,515) Prepaid Expenses (233) 124 (161) Accounts Payable and Accrued Expenses 6,203 (1,196) 6,533 -------- -------- -------- Net Cash Provided by Operating Activities 32,497 17,867 19,170 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: - ---------- Capital Expenditures (13,621) (28,965) (17,739) Acquisition of Businesses (4,302) (1,500) (11,589) Proceeds from Sale of Property, Plant and Equipment 118 100 59 Proceeds from Sale of Marketable Securities 256 2,508 -- Purchase of Marketable Securities -- -- (1,808) Investment in Unconsolidated Joint Ventures and Affiliates 737 333 386 -------- -------- -------- Net Cash Used in Investing Activities (16,812) (27,524) (30,691) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: - ---------- (Repayments) Proceeds from Short- and Long- Term Borrowings (16) 736 12,259 Repayments of Debt Principal (3,369) (603) (2,100) Acquisition of Treasury Stock (13,013) (423) -- Proceeds from Sale of Capital Stock - Net 729 370 1,330 -------- -------- -------- Net Cash Provided by (Used in) Financing Activities (15,669) 80 11,489 Effect of Exchange Rate Changes on Cash 346 379 148 -------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents 362 (9,198) 116 Cash and Cash Equivalents at Beginning of Year 9,593 18,791 18,675 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 9,955 $ 9,593 $ 18,791 ======== ======== ======== - ---------- The accompanying notes are an integral part of the consolidated financial statements. 32 F-18 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 1999 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 communications, computer, imaging, transportation, and consumer 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, communications, 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 $8,395,000 at January 2, 2000, and $7,965,000 at January 3, 1999, or 36% and 35% of total Company inventories in the respective periods, are valued at the lower of cost, determined by the last-in, first-out (LIFO) method, or market. The cost of the remaining portion of the inventories was determined principally on the basis of standard costs, which approximate actual first-in, first-out (FIFO) costs. 33 F-19 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 periods ranging from 10-40 years. Amortization charges to operations amounted to $625,000 in 1999 and $453,000 in 1998. 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 January 2, 2000. Purchased patents and licensed technology are capitalized and amortized on a straight-line basis over their estimated useful lives, generally from 2 to 17 years. PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS: - ---------- The Company adopted Statement of Financial Accounting Standards (FAS No. 132), "Employers' Disclosures about Pensions and Other Postretirement Benefits," in 1998. The provisions of FAS No. 132 revise employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of these plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. INCOME TAXES: - ---------- The Company recognizes income taxes under the liability method. No provision is made for U.S. income taxes on the undistributed earnings of consolidated foreign subsidiaries because such earnings are substantially reinvested in those companies for an indefinite period. Provision for the tax consequences of distributions, if any, from consolidated foreign subsidiaries is recorded in the year the distribution is declared. REVENUE RECOGNITION: - ---------- Revenue is recognized when goods are shipped. NET INCOME PER SHARE: - ---------- The following table sets forth the computation of basic and diluted earnings per share: (Dollars in Thousands, Except Per Share Amounts) 1999 1998 1997 Numerator: Net income $ 18,631 $ 13,771 $ 16,500 Denominator: Denominator for basic earnings per share - Weighted-average shares 7,527,517 7,601,235 7,474,992 Effect of stock options 293,905 298,678 388,092 --------- --------- --------- Denominator for diluted earnings per Share - adjusted weighted-average shares and assumed conversions 7,821,422 7,899,913 7,863,084 ========= ========= ========= Basic earnings per share $ 2.48 $ 1.81 $ 2.21 ========= ========= ========= Diluted earnings per share $ 2.38 $ 1.74 $ 2.10 ========= ========= ========= 34 F-20 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. TREASURY STOCK: - ---------- From time to time the Company's Board of Directors authorizes the repurchase, at management's discretion, of shares of the Company's capital stock. The most recent authorization was approved on August 19, 1999 and provided for the repurchase of up to an aggregate of $13.0 million in market value of such stock. On June 17, 1998, the Board of Directors adopted a policy that stated that all such subsequently repurchased stock be maintained as authorized and issued, but not outstanding shares (i.e., Treasury Shares) until transferred pursuant to authority previously or subsequently granted by the Board of Directors. Currently, Treasury Stock totals 382,900 shares and is shown at cost on the balance sheet as a reduction of Shareholders' Equity. RECLASSIFICATIONS: - ---------- Certain reclassifications were made for 1997 and 1998 to report results consistent with 1999 reporting practice. NOTE B-ACQUISITIONS AND DIVESTITURES - ---------- CYTEC ACQUISITION: - ----------------- Effective January 19, 1999, the Company acquired certain assets of the engineered molding compounds business of Cytec Industries, Inc. for approximately $4.3 million. These assets included machinery and equipment; intellectual property rights; accounts receivable and customer lists. This acquisition was accounted for as a purchase and, accordingly, results are included in the Company's consolidated financial statements since the date of acquisition. IMATION SLEEVES BUSINESS ACQUISITION: - ---------- Effective September 30, 1998, the Company acquired a line of printing pressroom products from Imation Corp., formerly a business of 3M Corporation, for $2.25 million. The acquisition included a line of dampening and ductor sleeves used in lithographic printing, along with related manufacturing assets and intellectual property rights. This acquisition was accounted for as a purchase and, accordingly, results are included in the Company's consolidated financial statements since the date of acquisition. 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 Company's consolidated financial statements since the date of acquisition. The aggregate purchase price of approximately $11.3 million, which included costs of acquisition, has been allocated to the assets of the Company based on 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 Multi-Currency Revolving Credit Agreement with Fleet National Bank, although at the time 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, 2003. 35 F-21 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., of the dampening sleeve business from Imation Corp. and of the engineered molding compounds business from Cytec Industries, Inc. had occurred as of the beginning of the fiscal year prior to acquisition: Pro Forma Years (Dollars in Thousands, Except Per Share (Unaudited) Amounts) -------------------------------- 1999 1998 1997 ---- ---- ---- Net sales $ 247,839 $238,310 $205,608 Net income 18,631 17,843 15,802 Net income per share: Basic $ 2.48 $ 2.08 $ 2.39 Diluted $ 2.38 $ 2.00 $ 2.27 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. NOTE C-PROPERTY, PLANT AND EQUIPMENT - ---------- January 2, January 3, (Dollars in Thousands) 2000 1999 ---------- ---------- Land $ 1,580 $ 1,674 Buildings and improvements 52,298 47,177 Machinery and equipment 85,829 76,142 Office equipment 11,169 7,915 Installations in process 8,845 16,112 -------- -------- 159,721 149,020 Accumulated depreciation (75,069) (69,051) --------- -------- $ 84,652 $ 79,969 ========== ========== Depreciation expense was $9,750,000 in 1999, $7,986,000 in 1998, and $6,169,000 in 1997. Interest costs incurred during the years 1999, 1998, and 1997 were $1,423,000, $1,358,000, and $1,033,000, respectively, of which $506,000 in 1999, $894,000 in 1998, and $251,000 in 1997 were capitalized as part of the cost of plant and equipment additions. 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) The Company's major initial contribution to each venture was technology which was valued differently by the joint venture than it was on the Company's books; 2) one of the joint 36 F-22 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. January 2, January 3, (Dollars in Thousands) 2000 1999 ---------- ---------- Current Assets $ 27,296 $ 19,691 Noncurrent Assets 13,628 12,171 Current Liabilities 12,392 6,758 Noncurrent Liabilities 12,287 12,468 Shareholders' Equity 16,245 12,636 Year Ended ----------------------------------------- January 2, January 3, December 28, (Dollars in Thousands) 2000 1999 1997 ---------- ---------- ---------- Net Sales $ 73,411 $ 58,570 $ 64,265 Gross Profit 20,909 18,530 21,234 Net Income 4,049 718 971 Note that in the tables above, Rogers Inoac Corporation is reported as of October 31 for the respective years. Sales to unconsolidated joint ventures amounted to $393,000 in 1999, $275,000 in 1998, and $659,000 in 1997. At January 2, 2000, 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 $4,636,000 at January 2, 2000 and $5,000,000 at January 3, 1999. 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. On September 24,1999, the Company agreed to lend Durel Corporation, one of its 50% owned joint ventures, up to $2.0 million at an interest rate of 8% on an unsecured basis. As of January 2, 2000, Durel had borrowed $500,000 under this facility. Borrowings must be made in increments of $250,000, and any amounts repaid by Durel may subsequently be re-borrowed during the term of the loan arrangement. The arrangement expires on September 24, 2000, unless extended at the sole discretion of the Company. Equity income from unconsolidated joint ventures is included in other income less other charges on the consolidated statements of operations. NOTE E-PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS - ---------- PENSIONS: - ---------- The Company has two qualified noncontributory defined benefit pension plans covering substantially all U.S. employees. The Company also has established a nonqualified unfunded noncontributory defined benefit pension plan to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans. In addition, the Company sponsors three unfunded defined benefit health care and life insurance plans for retirees. The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans: 37 F-23 Pension Benefits Other Postretirement Benefits ---------------------------- ----------------------------- (Dollars in Thousands) 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- --------- Components of net periodic benefits cost: Service cost $ 1,853 $ 1,569 $ 1,408 $ 218 $ 304 $ 267 Interest cost 4,257 3,791 3,627 264 354 341 Expected return on plan assets (5,359) (5,346) (4,507) -- -- -- Amortizations and deferrals 524 417 467 (152) (75) (97) Amortization of transition asset (335) (335) (335) -- -- -- -------- -------- -------- -------- -------- ------- Net periodic benefit costs $ 940 $ 96 $ 660 $ 330 $ 583 $ 511 ======== ======== ======== ======== ======== ======== Change in plan assets: Fair value of plan plan assets January 1 $ 58,211 $ 57,860 $ -- $ -- Actual return on plan assets 5,760 2,559 -- -- Employer contributions 268 87 632 492 Benefit payments (2,856) (2,295) (632) (492) -------- -------- -------- ------- Fair value of plan assets December 31 $ 61,383 $ 58,211 $ -- $ -- ======== ======== ======== ======== Change in benefit obligation: Benefit obligation at January 1 $ 63,548 $ 54,814 $ 5,288 $ 4,910 Service cost 1,853 1,569 218 304 Interest cost 4,257 3,791 264 354 Actuarial return on plan assets (10,247) 5,669 (1,743) 212 Benefit payments (2,856) (2,295) (632) (492) -------- -------- -------- -------- Benefit obligation at December 31 $ 56,555 $ 63,548 $ 3,395 $ 5,288 ======== ======== ======== ======== Reconciliation of funded status: Funded status $ 4,828 $ (5,337) $ (3,395) $ (5,288) Unrecognized net gain/(loss) (4,888) 5,941 (3,171) (1,580) Unrecognized prior service cost 1,736 2,079 -- -- Unrecognized transition (asset) (1,376) (1,712) -- -- -------- -------- -------- -------- Prepaid/(accrued) benefit cost at December 31 $ 300 $ 971 $ (6,566) $ (6,868) ======== ======== ======== ======== Assumptions as of December 31: Discount rate 8.00% 6.75% 8.00% 6.75% Rate of compensation increase 4.00% 4.00% -- -- The expected long-term rates of investment return were assumed to be 9.00% for the pension plan covering unionized hourly employees and 9.50% for the other pension plan in each year presented. The Company has one nonqualified unfunded pension plan with accumulated benefit obligations in excess of plan assets. Amounts applicable to this plan are: 1999 1998 --------- --------- Projected benefit obligation $ 1,284 $ 1,281 Accumulated benefit obligation 1,018 1,015 Fair value of plan assets -- -- 38 F-24 The assumed health care cost trend rate of increase is 4.5% for 2000 and 1999 and 5.5% for 1998. It is expected to continue at 4.5% after 2000. The health care cost trend rate assumption has the following effect on the amounts reported: increasing the assumed health care cost trend rates by one percentage point for each future year would increase the accumulated postretirement benefit obligation as of the beginning of 2000 by $255,000 and the aggregate of service cost and interest cost components of net periodic postretirement benefit cost for fiscal 1999 by $47,000; decreasing the assumed rates by one percentage point would decrease the accumulated postretirement benefit obligation at the beginning of 2000 by $231,000 and the aggregate of service cost and interest cost components of net periodic postretirement benefit cost for fiscal 1999 by $42,000. NOTE F-EMPLOYEE SAVINGS AND INVESTMENT PLAN - ---------- The Company sponsors the Rogers Employee Savings and Investment Plan (RESIP) for domestic employees. The plan allows such employees to contribute up to 18% of their compensation through payroll deductions. Currently up to 5% of an eligible employee's annual pre-tax contribution is matched at a rate of 50% by the Company. In 1999 and 1998, 100% of the Company's matching contribution was invested in Company stock. In 1997, one-half of the Company's matching contribution was invested in Company stock and the other half was invested at the employee's discretion. RESIP related expense amounted to $723,000 in 1999, $697,000 in 1998, and $654,000 in 1997, including Company matching contributions of $703,000, $686,000, and $501,000, respectively. NOTE G-DEBT - ---------- LONG-TERM DEBT: - ---------- In 1988 the Company borrowed $6,000,000 at 10.6% and principal payments of $600,000 per year were made through 1999. On December 21,1999, the Company prepaid the $2,400,000 remainder of the loan in full. Under the Company's unsecured multi-currency revolving credit agreement with Fleet National Bank, the Company can borrow up to $20.0 million, or the equivalent in Belgian francs and/or Japanese yen and eventually the Euro. Amounts borrowed under this agreement are to be paid in full by September 19, 2003. 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 are 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 was 3.47% as of January 2, 2000. The carrying value of this debt approximates fair value as of January 2, 2000. The loan agreement contains restrictive covenants primarily related to working capital, leverage, and net worth. The Company is in compliance with these covenants. MATURITIES: - ---------- Required long-term debt principal repayment due on September 19, 2003 is $9,740,000. INTEREST PAID: - ---------- Interest paid during the years 1999, 1998, and 1997, was $1,523,000, $1,362,000, and $1,003,000, respectively. RESTRICTION ON PAYMENT OF DIVIDENDS: - ---------- Pursuant to the aforementioned Fleet loan agreement, $44,466,000 of retained earnings was available at January 2, 2000, for cash dividends. 39 F-25 NOTE H-INCOME TAXES - ---------- Consolidated income before income taxes consists of: (Dollars in Thousands) 1999 1998 1997 ---------------------------------------- Domestic $ 21,523 $ 14,756 $ 18,168 Foreign 4,354 4,370 3,837 ---------------------------------------- $ 25,877 $ 19,126 $ 22,005 ======================================== The income tax expense (benefit) in the consolidated statements of income consists of: (Dollars in Thousands) Current Deferred Total ---------------------------------- 1999: Federal $ 6,365 $ (1074) $ 5,291 Foreign 1,338 408 1,746 State 120 89 209 ---------------------------------- $ 7,823 $ (577) $ 7,246 ================================== 1998: Federal $ 2,276 $ 1,322 $ 3,598 Foreign 1,066 687 1,753 State 4 -- 4 ---------------------------------- $ 3,346 $ 2,009 $ 5,355 ================================== 1997: Federal $ 2,477 $ 1,548 $ 4,025 Foreign 447 995 1,442 State 38 -- 38 ---------------------------------- $ 2,962 $ 2,543 $ 5,505 ================================== Deferred tax assets and liabilities as of January 2, 2000 and January 3, 1999, respectively, are comprised of the following: (Dollars in Thousands) January 2, January 3 2000 1999 ---------- ---------- Deferred tax assets: Accruals not currently deductible for tax purposes: Accrued employee benefits and compensation $ 2,110 $ 1,533 Accrued post-retirement benefits 2,228 2,020 Other accrued liabilities and reserves 2,015 1,346 Net investments in joint ventures 1,563 2,547 Other 262 107 --------- --------- Total deferred tax assets 8,178 7,553 Less deferred tax asset valuation allowance 1,053 3,327 --------- --------- Net deferred tax assets 7,125 4,226 --------- --------- Deferred tax liabilities: Depreciation and amortization 8,759 6,683 --------- --------- Total deferred tax liabilities 8,759 6,683 --------- --------- Net deferred tax asset (liability) $ (1,634) $ (2,457) ========= ========= 40 F-26 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) 1999 1998 1997 ------------------------------ Tax expense at statutory rate $ 9,056 $ 6,694 $ 7,702 Net U.S. tax (foreign tax credit) On foreign earnings (722) (326) (745) General business credits (446) (400) (500) Nontaxable foreign sales income (424) (421) (392) State income taxes, net of federal benefit 136 3 25 Other (354) (195) (585) ------------------------------ Income tax expense $ 7,246 $ 5,355 $ 5,505 =============================== The deferred tax asset valuation allowance decreased by $2,274,000 during 1999. The 1999 decrease resulted primarily from the Company's reassessment of its ability to claim foreign tax credits on undistributed profits from its Japanese joint venture. The valuation allowance remained unchanged during 1998 and 1997. Undistributed foreign earnings, before available tax credits and deductions, amounted to $10,956,000 at January 2, 2000, $8,601,000 at January 3, 1999, and $5,984,000 at December 28, 1997. Income taxes paid were $4,795,000, $4,442,000, and $3,090,000, in 1999, 1998, and 1997, respectively. NOTE I-SHAREHOLDERS' EQUITY AND STOCK OPTIONS - ---------- Components of Other Comprehensive Income (Loss) consist of the following: (Dollars in Thousands) 1999 1998 1997 ------- ------ ------- Foreign currency translation adjustments $ (683) $ 112 $ (875) Change in unrealized gains (losses) on marketable securities 2 3 (3) Change in minimum pension liability (229) 78 -- ------- ------ ------- Other comprehensive income (loss) $ (910) $ 193 $ (878) ======= ====== ======= Reclassification adjustments in each year are immaterial. Accumulated balances related to each component of Other Comprehensive Income (Loss) are as follows: (Dollars in Thousands) 1/2/00 1/3/99 ------- -------- Foreign currency translation adjustments $ 589 $ 1,272 Unrealized loss on marketable securities -- (2) Change in minimum pension liability (151) 78 ------- -------- Accumulated balance $ 438 $ 1,348 ======= ======== 41 F-27 Under various plans the Company may grant stock options to officers and other key employees at exercise prices that range as low as 50% of the fair market value of the Company's stock as of the date of grant. To date virtually all such options have been granted at an exercise price equal to the fair market value of the Company's stock as of the date of grant. In general, regular employee options become exercisable over a four-year period from the grant date and expire ten years after the date of the grant. Stock option grants are also made to non-employee directors, generally on a semi-annual basis. For such stock options, the exercise price is equal to the fair market value of the Company's stock and they are immediately exercisable and expire ten years after the date of grant. Stock grants in lieu of cash compensation are also made to non-employee directors. Shares of capital stock reserved for possible future issuance are as follows: January 2, January 3, 2000 1999 ----------- ----------- Shareholder Rights Plan 10,210,796 10,209,263 Stock options 2,334,222 2,435,711 Rogers Employee Savings and Investment Plan 84,522 84,522 Long-Term Enhancement Plan 64,951 68,242 Stock to be issued in lieu of deferred directors' fees 11,875 3,122 ----------- ----------- Total 12,706,366 12,800,860 =========== =========== The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (FAS No. 123), "Accounting for Stock- Based Compensation." Accordingly, no compensation cost has been recognized in the financial statements for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 1999, 1998, and 1997 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) 1999 1998 1997 --------------------------------------- Net income As Reported $18,631 $13,771 $16,500 Pro Forma 17,207 12,440 15,678 --------------------------------------- Basic earnings per share As Reported $ 2.48 $ 1.81 $ 2.21 Pro Forma 2.29 1.64 2.10 --------------------------------------- Diluted earnings per share As Reported $ 2.38 $ 1.74 $ 2.10 Pro Forma 2.21 1.56 1.99 --------------------------------------- The effects on pro forma net income and earnings per share of expensing the estimated fair value of stock options, are not necessarily representative of the effects on reported net income for future years, due to such things as the vesting period of the stock options, and the potential for issuance of additional stock options in future years. An average vesting period of 36 months was used for the assumption regarding stock options issued in 1999, 1998, and 1997. Regular options granted to officers and other key employees usually become exercisable in one-third increments beginning on the second anniversary of the grant date. 42 F-28 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: 1999 1998 1997 --------- --------- --------- Risk-free interest rate 6.42% 4.65% 5.7% Dividend yield 0% 0% 0% Volatility factor 30.6% 30.6% 28.2% Weighted-average expected life 5.8 years 5.5 years 5.3 years A summary of the status of the Company's stock option program at year-end 1999, 1998, and 1997, and changes during the years ended on those dates is presented below: 1999 1998 1997 ----------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Stock Options Shares Price Shares Price Shares Price ------------------------------------------------------------ Outstanding at beginning of year 1,190,323 $21.81 1,130,183 $20.54 1,063,277 $15.26 Granted 178,160 34.77 160,418 25.15 205,050 41.11 Exercised (85,889) 12.06 (90,167) 10.79 (138,076) 10.40 Cancelled (23,169) 39.53 (10,111) 30.32 (68) 47.90 ----------------------------------------------------------- Outstanding at end of year 1,259,425 23.99 1,190,323 21.81 1,130,183 20.54 =========================================================== Options exercisable at end of year 932,016 92,067 604,198 =========================================================== Weighted-average fair value of options granted during year $14.61 $9.36 $15.30 =========================================================== The following table summarizes information about stock options outstanding at January 2, 2000: -------------------------------------------------------------- Options Outstanding Options Exercisable -------------------------------------------------------------- Weighted- Average Weighted- Weighted- Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 01/02/00 Life in Years Price at 01/02/00 Price -------------------------------------------------------------- $7 to $22 450,650 3.5 $12.08 450,650 $12.08 $23 to $45 808,775 7.8 30.62 481,366 27.06 -------------------------------------------------------------- $7 to $45 1,259,425 6.3 $23.99 932,016 $19.82 ============================================================== 43 F-29 NOTE J-COMMITMENTS AND CONTINGENCIES - ---------- LEASES: - ---------- The Company's principal noncancellable operating lease obligations are for building space and vehicles. The leases generally provide that the Company pay maintenance costs. The lease periods range from one to five years and include purchase or renewal provisions at the Company's option. The Company also has leases that are cancellable with minimal notice. Lease expense was $1,076,000 in 1999, $975,000 in 1998, and $951,000 in 1997. Future minimum lease payments under noncancellable operating leases at January 2, 2000, aggregate $3,616,000. Of this amount, annual minimum payments are $760,000, $604,000, $504,000, $448,000, and $361,000 for years 2000 through 2004, respectively. PURCHASE COMMITMENTS: - ---------- At January 2, 2000, the Company had committed to capital expenditures of approximately $.6 million, to be used primarily for information systems improvement. 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 two cases involving waste disposal sites, both of which are Superfund sites. 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 actively involved in the removal of the contaminated soil and expects to complete this in 2000. 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, $600,000 in 1998, and $400,000 in 1999 for costs related to this matter. During 1995, $300,000 was charged against this provision and $200,000 per year was charged in 1996, 1997 and 1998. In 1999, $400,000 was charged. 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 (EPA) has alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputes the EPA allegations and has appealed the administrative law judge's findings and penalty assessment. 44 F-30 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 that is defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. NOTE K-BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION - ---------- The Company adopted Statement of Financial Accounting Standards (FAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information" in 1998 which changed the way the Company reported information about its operating segments. The Company's nine business units and two joint ventures have separate management teams and infrastructures that in most cases offer different products and services. The business units and joint ventures have been aggregated into two reportable segments, Polymer Materials, and Electronic Materials. Polymer Materials: This segment consists of five business units and two joint ventures. The products produced by these operations consist primarily of high performance elastomer foams and proprietary reinforced plastics that are engineered to perform to predetermined specifications where combinations of properties are needed to satisfy rigorous electrical, mechanical, and environmental requirements. The products, which can be in the form of either materials or components, are sold worldwide and for the most part are sold to fabricators and original equipment manufacturers. Electronic Materials: This segment consists of four business units. The products produced by these operations consist primarily of laminate materials and power distribution components used in electronics equipment for transmitting, receiving, and controlling electrical signals. These products tend to be proprietary materials which provide highly specialized electrical and mechanical properties to meet the demands imposed by increasing speed, complexity, and power of analog, digital, and microwave equipment. These materials are fabricated, coated and/or customized as necessary to meet customer demands and are sold worldwide. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income of the respective business units. The principal 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 1999, approximately 52% of total sales were to the electronics industry and one customer accounted for approximately 12% of total sales. Approximately 22% 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 9%, sales to Asia of 7%, and sales to Canada of 2%. At January 2, 2000, the electronics industry accounted for approximately 56% of the total accounts receivable due from customers. Accounts receivable due from customers located within the United States accounted for 72% of the total accounts receivable owed to the Company at the end of 1999. 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-31 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 Polymer Electronic (Dollars in Thousands) Materials Materials Other Total --------------------------------------------- 1999: Net sales $ 130,315 $ 117,524 $ 247,839 Operating income 14,954 9,395 24,349 Total assets 92,500 76,223 $ 14,683 183,406 Capital expenditures 6,304 7,317 13,621 Depreciation 4,978 4,772 9,750 ============================================ 1998: Net sales $ 102,450 $ 114,124 $ 216,574 Operating income 10,682 8,958 19,640 Total assets 72,155 90,689 $ 13,330 176,174 Capital expenditures 9,284 19,681 28,965 Depreciation 4,200 3,786 7,986 ============================================ 1997: Net sales $ 98,853 $ 90,799 $ 189,652 Operating income 8,850 11,480 20,330 Total assets 65,251 69,698 $ 23,491 158,440 Capital expenditures 9,857 7,882 17,739 Depreciation 3,820 2,349 6,169 ============================================ Information relating to the Company's operations by geographic area are as follows: Europe United (primarily (Dollars in Thousands) States Belgium) Total --------------------------------- 1999: Net sales $ 205,623 $ 42,216 $ 247,839 Long-lived assets 83,258 18,084 101,342 ================================= 1998: Net sales $ 173,694 $ 42,880 $ 216,574 Long-lived assets 78,032 18,905 96,937 ================================= 1997: Net sales $ 160,116 $ 29,536 $ 189,652 Long-lived assets 59,981 14,030 74,011 ================================= Net sales are attributed to the business unit making the sale. Long-lived assets are attributed to the location of the asset. The net assets of wholly-owned foreign subsidiaries were $16,916,000 at January 2, 2000, and $16,609,000 at January 3, 1999. Net income of these foreign subsidiaries was $2,600,000 in 1999, $2,631,000 in 1998, and $2,409,000 in 1997, including net currency transaction gains (losses) of ($51,000) in 1999, $62,000 in 1998, and $180,000 in 1997. 46 F-32 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 January 2, 2000 and January 3, 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 2, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rogers Corporation and subsidiaries at January 2, 2000 and January 3, 1999, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Providence, Rhode Island January 31, 2000 47 F-33 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 - ---------------------------------------------------------------------------- 1999 Fourth $ 59,058 $ 18,751 $ 4,985 $ .68 $ .65 Third 61,076 18,365 4,608 .60 .58 Second 62,801 16,425 4,341 .57 .55 First 64,904 18,334 4,697 .62 .60 - ---------------------------------------------------------------------------- 1998 Fourth $ 53,553 $ 15,928 $ 3,998 $ .53 $ .51 Third 51,319 12,910 2,693 .36 .34 Second 53,389 13,147 2,621 .35 .33 First 58,313 16,080 4,459 .59 .56 - ---------------------------------------------------------------------------- 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 closing prices during each quarter of the last two years on a per share basis. 1999 1998 - --------------------------------------------------------------------- Quarter High Low High Low - --------------------------------------------------------------------- Fourth $ 40-7/8 $ 36-1/8 $ 29-7/8 $ 22-7/16 Third 37-7/8 29-1/4 33-3/4 21-3/8 Second 32-3/8 24-7/8 46-1/2 30-1/8 First 31-7/8 23-3/4 41-1/2 37 - --------------------------------------------------------------------- 48 F-34 FIRST AMENDMENT TO THE ROGERS CORPORATION 1998 STOCK INCENTIVE PLAN The Rogers Corporation 1998 Stock Incentive Plan (the "Plan") is hereby amended as follows: 1. Effective as of January 1, 2000, Section 5(b)(i) of the Plan is amended by deleting the first sentence thereof and substituting therefor the following: "Each Non-Employee Director shall automatically be granted, as of each Retainer Payment Date, beginning with the Retainer Payment Date of June 2000, a Non- Qualified Stock Option to purchase 1,000 shares of Stock (or, with respect to any individual who has become or ceased to be a Non-Employee Director since the later of December 31, 1999 or the last Retainer Payment Date, an amount equal to a prorated portion of 1,000 shares as determined on an equitable basis by the Company (the 'Partial Retainer'))." 2. Effective August 19, 1999, Section 5(b)(i) of the Plan is further amended by adding the following sentence at the end of the first sentence thereof: "Further, each individual who is a Non-Employee Director on August 31, 1999 shall automatically be granted on such date a Non-Qualified Stock Option to purchase 5,000 shares of Stock." Executed this 9th day of September, 1999. ROGERS CORPORATION By:/s/ Robert M. Soffer Robert M. Soffer, Treasurer F-35 FIRST AMENDMENT TO THE ROGERS CORPORATION 1990 STOCK OPTION PLAN (Restatement No. 3) Pursuant to the powers reserved to it in Section 12 of the Rogers Corporation 1990 Stock Option Plan (Restatement No. 3) (the "Plan"), the Board of Directors of Rogers Corporation (the "Board") hereby amends the Plan, effective as of December 21, 1999, as follows: 1. Section 1 of the Plan is hereby amended by deleting the parenthetical "(the `Committee')" as it appears in the penultimate sentence of such section and inserting in lieu thereof the following: "(such committee, or any successor committee designated as such by the Board, being referred to hereinafter as the `Committee')" 2. Section 4 of the Plan is hereby amended by adding the following new sentence at the end of such section: "Notwithstanding any provision to the contrary elsewhere herein, the Board may take any action authorized to be taken by the Committee hereunder." 3. Section 7(a) of the Plan is hereby amended by adding the following parenthetical immediately after the word "available" as it appears in the last sentence of such section: "(or, if the Stock ceases to be traded on the American Stock Exchange, as determined based on such other method as is designated by the Committee)." 4. Section 7(e) of the Plan is hereby amended by adding the following sentence at the end of such subsection: "To the extent that an Optionee chooses to satisfy his or her tax withholding obligations by electing alternative (ii) described above, the Company shall not withhold more than the minimum number of shares required for tax withholding." 5. Section 7(g) of the Plan is hereby amended by inserting the following sentence immediately after the first sentence of such subsection: "Notwithstanding anything herein to the contrary, no shares of Stock shall be issued upon the exercise of an Option F-36 until all applicable securities law and other legal and stock exchange requirements have been satisfied." 6. The Plan is hereby amended by adding a new Section 7A immediately following the existing Section 7 of the Plan to read as follows: "7A. Stock Awards. (a) Stock Awards in Lieu of Compensation. Notwithstanding any provision elsewhere herein to the contrary, but subject to (i) the first sentence of Section 3 and (ii) Section 7A(b), each Employee who is eligible to participate in the Rogers Corporation Voluntary Deferred Compensation Plan For Key Employees, as amended from time to time (the "Employees' DC Plan") and who is either identified on Exhibit A attached hereto and made a part hereof or designated by the Board or the Committee from time to time in its sole discretion as eligible to participate in the Stock Award feature of the Plan (each, a "Designated Employee") shall be given the opportunity to elect, by the date(s) specified in the Employees' DC Plan, to receive, in lieu of up to 100 percent of the annual bonus and/or up to 50 percent of the annual salary otherwise due and payable in cash to such Designated Employee during the following calendar year (or such other period as the Board (or a duly authorized committee of the Board) may specify) and subject to the applicable minimum deferral requirement set forth in the Employees' DC Plan, a grant of shares of Stock free of any restrictions (except as otherwise provided in the Plan) (each, a "Stock Award"). The Board (or a duly authorized committee of the Board) may change the percentages described in the preceding sentence from time to time in its sole discretion, and reserves the right, in its sole discretion, to reject any Designated Employee's election to the extent it deems necessary to avoid any violation of any applicable securities law or any other applicable legal or stock exchange requirement. Each Stock Award granted under this Section 7A(a) shall be for the number of shares of Stock obtained by dividing the applicable dollar amount by the Fair Market Value per share of Stock as of the last day of the calendar month which includes the date on which such annual bonus or salary payment would have otherwise been paid to such Designated Employee, rounded up to the next higher whole number of shares. (b) Deferred Payment of Stock Awards. All Stock Awards granted to a Designated Employee pursuant to Section 7A(a) above shall be deferred and credited to F-37 an account or accounts maintained in terms of shares of Stock (each, a "stock-based account") for such Designated Employee under the Employees' DC Plan and shall be subject to the rules and procedures of the Employees' DC Plan. Notwithstanding the foregoing, the Board or the Committee may, in its sole discretion, allow a Designated Employee to elect, at the time of the election to receive a Stock Award pursuant to Section 7A(a), to receive payment of such Stock Award on a current, rather than a deferred, basis. (c) Matching Contributions. Each Designated Employee who elects to receive a Stock Award pursuant to Section 7A(a) which is payable on a deferred basis pursuant to Section 7A(b) shall be granted an additional Stock Award in an amount equal to the matching credit determined under Section 3(a) of the Employees' DC Plan. Each Stock Award granted under this Section 7A(c) shall be granted as of the same day as the Stock Award to which it relates was granted, and shall be for the number of shares of Stock obtained by dividing the amount of such matching credit under the Employees' DC Plan by the Fair Market Value per share of Stock as of the date of grant, rounded up to the next higher whole number of shares. Each Stock Award granted pursuant to this Section 7A(c) shall be credited to a separate account under the Employees' DC Plan and paid on the same basis as the Stock Award granted pursuant to Section 7A(a) to which it relates. (d) Conversion of Certain Cash Balances. Each Designated Employee shall have the right to elect, on or before December 31, 1999, to receive a Stock Award hereunder by converting, as of December 31, 1999, all or any part of the balance(s) maintained in cash-based account(s) for such Designated Employee under the Employees' DC Plan to an account or accounts maintained in terms of shares of Stock under the Employees' DC Plan, all in accordance with the provisions of the Employees' DC Plan. Each Stock Award granted under this Section 7A(d) shall be granted as of December 31, 1999, and shall be for the number of shares of Stock obtained by dividing the applicable dollar amount by the Fair Market Value per share of Stock as of December 31, 1999, rounded up to the next higher whole number of shares. (e) The provisions of Section 7(g) shall apply to the issuance of all shares of Stock to a Designated F-38 Employee (or beneficiary) pursuant to a Stock Award as if such shares were being acquired by such Designated Employee (or beneficiary) pursuant to an exercise of an Option." 7. Except as herein amended, the provisions of the Plan shall remain in full force and effect. 8. Executed as of the 21st day of December, 1999. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Treasurer F-39 Exhibit A Name Position 1. Dirk M. Baars Molding Materials Division Vice President 2. Walter E. Boomer President and Chief Executive Officer 3. Michael L. Cooper Chief Information Officer 4. Robert C. Daigle Microwave Materials Division Manager 5. Frank J. Gillern Elastomer Components Division Manager 6. Aarno A. Hassell Severance Arrangement 7. Peter G. Kaczmarek Circuit Materials Division Manager 8. Harry W. Kenworthy Poron Materials Division Vice President 9. Bruce G. Kosa Vice President, Technology 10. Donald F. O'Leary Corporate Controller 11. David W. Richardson Composite Materials Division Manager 12. John A. Richie Vice President, Human Resources 13. Ronald F. Robinson Consumer and Printing Markets Center Vice President 14. Frank H. Roland Vice President, Finance and Chief Financial Officer 15. William C. Schunmann International Marketing Vice President 16. W. Harry Short Vice President, Business Analysis and Planning 17. Robert M. Soffer Treasurer 18. Robert D. Wachob Senior Vice President, Sales and Marketing 12/99 F-40 SECOND AMENDMENT TO THE ROGERS CORPORATION 1998 STOCK INCENTIVE PLAN Pursuant to the powers reserved to it in Section 9 of the Rogers Corporation 1998 Stock Incentive Plan, as amended (the "Plan"), the Board of Directors of Rogers Corporation (the "Board") hereby amends the Plan, effective as of December 21, 1999, as follows: 1. The definition of "Committee" as it appears in Section 1 of the Plan is hereby amended by inserting the following words immediately before the word "fails" as it appears in such definition: "ceases to exist or" 2. Section 2 of the Plan is hereby amended by adding the following new sentence at the end of such section: "Notwithstanding any provision elsewhere herein to the contrary, the Board may take any action authorized to be taken by the Committee hereunder." 3. Section 6(a) of the Plan is hereby amended by deleting such section in its entirety and inserting the following in lieu thereof: "(a) Stock Awards. (i) Annual Retainer. Subject to Section 6(b) below, each Non-Employee Director shall be granted, as of each Retainer Payment Date, shares of Stock free of any restrictions (except as otherwise provided in the Plan) in lieu of all of the annual retainer fee due to such Non-Employee Director on such Retainer Payment Date. (ii) Meeting Fees. Subject to Section 6(b) below, each Non-Employee Director shall have the right to elect to receive, in lieu of all or a portion of the meeting fees due to such Non-Employee Director, a grant of shares of Stock free of any restrictions (except as otherwise provided in the Plan). (iii) Conversion of Certain Cash Balances. Each Non-Employee Director shall have the right to elect, on or before December 31, 1999, to receive an Award hereunder by converting, as of December 31, 1999, all or any part of the balance(s) F-41 maintained in cash-based account(s) for such Non- Employee Director under the Rogers Corporation Voluntary Deferred Compensation Plan For Non-Employee Directors, as amended from time to time (the "Directors' DC Plan") to an account or accounts maintained in terms of shares of Stock under the Directors' DC Plan, all in accordance with the provisions of the Directors' DC Plan. Each Award granted under this Section 6(a) shall be for the number of shares of Stock obtained by dividing the applicable dollar amount by the Fair Market Value per share of Stock (A) as of the date on which such fees would have otherwise been paid to such Non-Employee Director in the case of an Award under Sections 6(a)(i) or (ii), or (B) as of December 31, 1999 in the case of an Award under Section 6(a)(iii), in all cases rounded up to the next higher whole number of shares." 4. Section 6(b) of the Plan is hereby amended by deleting such section in its entirety and inserting the following in lieu thereof: "(b) Deferral of Awards. Each Non-Employee Director who is entitled to an Award under Section 6(a)(i) or (ii) above will have the right to elect to defer up to 100% of such Award in accordance with the rules and procedures of the Directors' DC Plan. Dividends, if any, which would have been paid on any Stock so deferred, but for such deferral, will be payable to the Non-Employee Director in accordance with the provisions of the Directors' DC Plan." 5. Section 7(b) of the Plan is hereby amended by deleting such subsection in its entirety and inserting the following in lieu thereof: "(b) Payment in Shares. Subject to the consent or disapproval of the Committee, a participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum required tax withholding amount due, or (ii) transferring to the Company shares of Stock owned by the participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due." 6. Except as herein amended, the provisions of the Plan F-42 shall remain in full force and effect. 7. Executed as of the 21st day of December, 1999. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Treasurer F-43 ROGERS CORPORATION VOLUNTARY DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 21, 1999 1. Name and Purpose. The name of this plan is the Rogers Corporation Voluntary Deferred Compensation Plan For Key Employees, as Amended and Restated Effective as of December 21, 1999 (the "Plan"). The purpose of the Plan is to permit each elected corporate officer or other key employee of Rogers Corporation (the "Company") or any subsidiary thereof (a "Subsidiary") who is designated by the President of the Company (in any case, a "Participant") to elect to defer a portion of his or her compensation from the Company or Subsidiary. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and shall be interpreted and administered to the extent possible in a manner consistent with that intent. 2. Right to Defer. Subject to the limitations set forth herein, each Participant may elect, for each calendar year, to defer payment of (i) the portion of (A) the Participant's salary otherwise payable for services rendered in such calendar year ("Salary") or (B) the Participant's bonus otherwise payable in such calendar year ("Bonus"), if any, payable to such Participant in shares of capital stock, $1 par value (the "Stock") of the Company (the "Stock Compensation") and/or (ii) the portion of (A) the Salary or (B) the Bonus, if any, payable to such Participant in cash (the "Cash Compensation"), for service as an employee of the Company or a Subsidiary F-44 during such calendar year. In the case of a Participant who has elected under the Rogers Corporation 1990 Stock Option Plan (Restatement No. 3), as amended and in effect from time to time (the "1990 Plan"), to receive a deferred Stock Award (as defined in the 1990 Plan), such Participant shall be deemed for purposes of this Plan to have elected to have deferred payment of Stock Compensation regardless of whether such Participant had any right to receive current payment of such Stock Award. A Participant's election to defer a portion of his or her Salary for any calendar year shall be limited to 50% of such Salary, but must be for a projected minimum Salary deferral of at least $4,000 determined based on the Participant's Salary at the time of such election. In addition, if a Participant's election to defer a portion of his or her Bonus for any calendar year does not result in a minimum Bonus deferral of at least $4,000, no portion of such Bonus shall be deferred. 3. Matching Credits (The Company Match). (a) The Company or Subsidiary, whichever is the employer for such Participant, shall as of the last day of each calendar month credit to a separate sub-account maintained under each Participant's Deferred Compensation Account (as defined in Section 5(a)), an additional amount determined as follows: For purposes of such determination, "eligible compensation" is the Participant's: (1) annual salary, (2) annual bonus, (3) payments made pursuant to the Long-Term Enhancement Plan For Senior Executives of Rogers Corporation, (4) auto allowance or imputed income related to autos, (5) any other imputed income included in the Participant's taxable income and (6) any other compensation determined by the Company, in its sole discretion, to be "eligible compensation" for such purpose. Once "eligible compensation" has been determined, this F-45 amount will be multiplied by the (1) "match level" as defined in the Rogers Employee Savings and Investment Plan, as amended from time to time (the "RESIP"), and (2) "Applicable Percentage" as defined in the RESIP, both as may be in effect from time to time. This multiplication produces the maximum total Company Match that can be paid under all deferred compensation programs of the Company. Compensation, as defined in the RESIP and to the extent eligible to be used to determine an actual Company Match credited under the RESIP, will then be subtracted from "eligible compensation" as determined hereunder and the difference will be multiplied by the "match level." The result of such multiplication (the "Product") will then be compared to the amount deferred pursuant to the Plan (the "Deferred Amount"). To the extent that the Deferred Amount is equal to or greater than the Product, the additional amount to be credited to the Participant's sub-account pursuant to this Section 3(a) will be equal to the Product multiplied by the "Applicable Percentage." To the extent that the Deferred Amount is less than the Product, then the additional amount to be credited to the Participant's sub-account pursuant to this Section 3(a) will be equal to the Deferred Amount multiplied by the "Applicable Percentage." To the extent such additional amount relates to deferred Stock Compensation, such amount shall be credited as a number of Shares determined by dividing such amount by the Fair Market Value (as defined in the 1990 Plan) per share of Stock as of the last day of such calendar month (rounded up to the next higher whole number of shares). To the extent such additional amount relates to deferred Cash Compensation, such amount shall be credited to a sub-account maintained in terms of dollars as of the last day of such calendar month. For purposes of the two foregoing sentences, the portion of such additional amount which relates to F-46 deferred Stock Compensation and the portion which relates to deferred Cash Compensation shall bear the same proportion to the total additional amount as the amount of deferred Stock Compensation for such calendar month and the amount of deferred Cash Compensation for such calendar month bear, respectively, to the Deferred Amount for such calendar month. Amounts credited under this Section 3(a) on account of deferred Stock Compensation shall constitute Stock Awards contemplated by Section 7(A)(c) of the 1990 Plan. (b) Notwithstanding the foregoing, any amount in a Participant's Deferred Compensation Account which is credited to a sub-account pursuant to Section 3(a) in any calendar year shall be payable to the Participant at the same time and in the same manner as the deferred Stock Compensation and/or Cash Compensation to which such amount relates; provided, however, that such distribution shall be made only to the extent the Participant has a vested interest in such "matching credit" amount as determined in accordance with the following schedule: Years of Continuous Service Vested Interest At Least But Less Than Percentage Less than 2 years 0% 2 years 3 years 25% 3 years 4 years 50% 4 years 5 years 75% 5 years or more 100% For purposes of this Plan, a Participant has the same number of Years of Continuous Service as he or she has been credited under the RESIP. Any portion of the amount credited to such Participant's Deferred Compensation Account pursuant to Section 3(a) above and all earnings and losses credited thereon in which the Participant is not vested (the "Non-Vested Amount") at the time of the Participant's termination of employment with the Company F-47 shall be forfeited. Any Non-Vested Amount which exists at the time payment hereunder would otherwise be made or commenced shall not be forfeited while the Participant is still employed by the Company or a Subsidiary and the Participant shall continue to vest in such amounts until his or her termination of employment. Any portion of the Non-Vested Amount which becomes payable pursuant to the preceding sentence shall be paid to the Participant as soon as practicable upon becoming vested. Notwithstanding the foregoing, a Participant shall have a 100% vested interest in his or her Deferred Compensation Account coincident with the occurrence of any event which results in such Participant becoming 100% vested in all amounts held under the RESIP on his or her behalf. Once a Participant's sub-account(s) created under this Section 3 have become 100% vested, such sub-account(s) may be combined with any other sub-account as long as all amounts in such combined sub-account are payable in the same medium (Stock or cash), at the same time and pursuant to the same method of payment and, in the case of cash, are being credited with the same rate of interest. (c) The Plan shall be construed in a manner which is consistent with the purposes described herein, including without limitation, the so-called "anti-conditioning" rules of Section 401(k)(4) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder. 4. Deferral Elections. A Participant's election to defer payments under Section 2 above (a "Deferral Election") shall be in writing and shall be deemed to have been made upon receipt and acceptance by the Company. Separate Deferral Elections shall be made under F-48 Section 2 with respect to Salary payable as Stock Compensation, Salary payable as Cash Compensation, Bonus payable as Stock Compensation and Bonus payable as Cash Compensation, in each case payable with respect to a calendar year. In order to be effective hereunder, a Deferral Election must be made not later than (i) the December 31 of the calendar year preceding the calendar year in which the affected Salary is to be paid and (ii) the October 31 (or, for a Deferral Election to be made with respect to a Bonus payable as Stock Compensation in calendar year 2000, December 31) of the calendar year preceding the calendar year in which the Bonus (if any) is otherwise payable, and in any case shall specify the time and method of payment pursuant to Section 6 below applicable to the amount(s) deferred hereunder. Notwithstanding the foregoing, any person who becomes a Participant during a calendar year may make Deferral Elections with respect to Salary to be earned during the remainder of such calendar year and/or Bonus payable for such calendar year at any time on or before the thirtieth (30th) day after the date he or she becomes a Participant. Notwithstanding the foregoing, any Deferral Election made by a Participant who is or may become subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"), with respect to Salary or Bonus payable as Stock Compensation shall be made in accordance with such rules and procedures as the Company deems necessary or appropriate to comply with the requirements of such Act. A Deferral Election made for a calendar year may not be revised after the last date on which it could have been made, except that any Deferral Election made with respect to a Participant's Salary (whether Stock Compensation, Cash Compensation or both) may be revoked in its entirety by the Participant at any time by filing a written notice of revocation with the Company, but only as to Salary which has not yet been earned and which is payable after receipt and acceptance by F-49 the Company of such revocation. A deferral made with respect to a Participant's Salary shall be effected by reducing the Participant's Salary payments (Stock Compensation, Cash Compensation or both, as applicable) in equal amounts or percentages for each pay period unless (i) the Company mandates another method of reduction, in its sole discretion or, (ii) the Participant elects another method of reduction which the Company has not determined to be administratively burdensome. In addition to the foregoing, each Participant shall be permitted to elect not later than December 31, 1999 to transfer as of December 31, 1999 up to 100% of the balance in such Participant's sub-account(s), if any, maintained in terms of dollars to a sub-account(s) maintained in terms of shares of Stock. Such transfer shall be accomplished by dividing such amount to be transferred by the Fair Market Value per share of Stock as of December 31, 1999, and crediting the resulting number of shares (rounded up to the next higher whole number of shares) of Stock to such new sub-account(s) maintained in terms of shares of Stock. Any such conversion election shall be irrevocable after December 31, 1999. All Deferral Elections previously made by such Participant with respect to the timing and method of payment pursuant to Section 6(a) and Section 6(c) with respect to the amount(s) converted shall remain in full force and effect. 5. Accounts; Crediting Interest; Additional Credits. (a) All amounts deferred by a Participant under Section 2 shall be credited by the Company or Subsidiary, whichever is the employer of the Participant, to a book account (a "Deferred Compensation Account") in the name of such Participant as of the last day of the calendar month during which such amounts would have been paid to the Participant but for his or her Deferral Election. Separate sub-accounts will be maintained for Salary and Bonus deferred F-50 for each calendar year pursuant to Section 2, and, in addition, separate sub-accounts will be maintained hereunder for deferred Stock Compensation (which sub-accounts will be maintained in terms of numbers of shares of Stock) and deferred Cash Compensation (which sub-accounts will be maintained in terms of dollars) for each calendar year; provided, however, that (i) all Salary and Bonus deferred pursuant to Section 2 as deferred Stock Compensation with respect to the same or different calendar years (including amounts converted pursuant to the last paragraph of Section 4) which are payable at the same time and pursuant to the same method may be combined into a separate sub-account and (ii) all Salary and Bonus deferred pursuant to Section 2 as deferred Cash Compensation with respect to the same or different calendar years which are payable at the same time and pursuant to the same method and which are being credited with the same rate of interest may be combined into a single account. (b) (i) Dividend Credits. An amount equal to the aggregate dividends that would have been paid on the number of shares of Stock credited to each Participant's sub-account(s) maintained in shares had such share credits been issued and outstanding shares of Stock, shall be credited to the Participant's Deferred Compensation Account as of the last day of the calendar month which includes the payable date that would have been applicable to such dividends had the related share credits been issued and outstanding shares of Stock. Such dividend equivalent amounts (i) shall be payable at the same time and pursuant to the same method as the shares of Stock to which they relate, (ii) shall be credited to one or more sub-accounts within such Participant's Deferred Compensation Account, which sub-account(s) shall be maintained in terms of dollars, and (iii) may be combined with a sub-account for deferred F-51 Cash Compensation which is payable at the same time and pursuant to the same method and which is being credited with the same rate of interest. (ii) Interest Credits. As of the last day of each calendar month, each sub-account within a Participant's Deferred Compensation Account which is being maintained in terms of dollars shall be credited with interest on the amount credited to such sub-account as of the last day of the preceding calendar month. The rate of interest to be used for this purpose during any calendar year shall be the 30-year U.S. Treasury bond rate in effect as of January 1 of such year. The foregoing rate shall be determined by reference to the first January issue of Barron's for such calendar year, or such other comparable publication as may be selected by the Company if Barron's is no longer published or no longer provides such information. (c) Notwithstanding the foregoing, the Pension Committee of the Board of Directors of the Company or any successor committee designated as such by the Board of Directors of the Company (the "Committee") may change the method of determining the rate of interest to be used under Section 5(b)(ii) above by written notice to each Participant (including former Participants who then have a Deferred Compensation Account which would be affected by such change), which notice shall specify the new rate of interest to be used under Section 5(b)(ii), the effective date of such change and the Deferred Compensation Accounts to which such new rate of interest or method shall apply; provided, however, that a new method of determining the rate of interest to be used under Section 5(b)(ii) shall not apply to any amounts deferred pursuant to a Deferral Election made by a Participant prior to the receipt by such Participant of notice of such change unless such Participant files a written consent to such change with the Company within sixty (60) days of his or her receipt of the notice of such change. F-52 (d) To the extent that any Participant's Deferral Election hereunder results in a reduction of the pension payments to be made to such Participant under the Company's qualified and non-qualified defined benefit pension plans, such reduction will be made up for in accordance with the terms of a non-qualified plan established by the Company for that purpose. 6. Time and Method of Payment. (a) Amounts standing to the credit of each sub-account within a Participant's Deferred Compensation Account shall be paid, or commence to be paid, in accordance with the Participant's Deferral Election(s). Each Deferral Election shall specify whether payments will commence on April 15 (or, if such day is not a business day, the first business day thereafter) first following: (i) the passage of the number of calendar years (not to exceed twenty (and in the case of Stock Compensation deferrals, not to be less than three) and including the year of deferral, which counts as year one) specified by the Participant in his or her Deferral Election(s) with respect to the amount credited to such sub-account, (ii) the calendar year in which the Participant ceases to be an employee of the Company and its Subsidiaries for any reason whatsoever or (iii) (A) the later of (i) or (ii) in the case of Cash Compensation (including amounts converted pursuant to the last paragraph of Section 4) or (B) the earlier of (i) or (ii) in the case of Stock Compensation. The amount of each such payment shall be determined by the amount credited to such sub-account as of the preceding March 31. (b) All amounts credited to each sub-account within the Participant's Deferred Compensation Account which is maintained in terms of numbers of shares of Stock shall be distributed in shares of Stock by the Company. All amounts credited to each sub-account within the Participant's Deferred Compensation Account which is maintained in terms of dollars shall be F-53 distributed in cash and shall be made by the Company or Subsidiary which credited such amounts to the Participant's Deferred Compensation Account. Each such sub-account shall be charged with the amount paid therefrom as of the date of payment. (c) All amounts credited to a sub-account within the Participant's Deferred Compensation Account shall be paid in either a single lump sum or in substantially equal quarterly or annual installments over a period not to exceed ten years (or over a period of 5 years in the case of an election made prior to October 18, 1994), as the Participant has specified in the Deferral Election(s) applicable to such sub-account. In the case of installment payments, (i) dividend and interest credits under Section 5(b), whichever is applicable, shall continue to be credited in accordance with Section 5(b) during the payment period, and (ii) the amount of the first payment and any other payments in the same year thereof shall be equal to the amount credited to the applicable sub-account as of the preceding March 31 divided by the number of payments remaining to be made, including the current payment, and the amount of each subsequent payment for subsequent years shall be equal to the amount credited to the applicable sub-account as of the preceding December 31 divided by the number of payments remaining to be made, including the current payment. Notwithstanding the foregoing, the final payment out of any sub-account shall be equal to 100% of the amount credited to such sub-account at the time of such payment. (d) All amounts credited to a Participant's Deferred Compensation Account shall be paid as they become due to the Participant if then living. All amounts credited to a Participant's Deferred Compensation Account at the time of his or her death shall be paid pursuant to Section 7. F-54 (e) Notwithstanding any provision hereof to the contrary, if a Participant or beneficiary believes he or she is suffering from a "hardship," an application may be made to the Committee for an acceleration of payments from one or more sub- accounts within such Participant's Deferred Compensation Account. "Hardship" for this purpose shall mean a need for financial assistance in meeting real emergencies which would cause substantial hardship to the Participant or any member of the Participant's immediate family, and which are beyond the Participant's control. If the Committee determines, in its sole discretion, that the Participant is suffering from a "hardship," the Committee may accelerate payment to the Participant of such portion of such sub-account(s) within the Participant's Deferred Compensation Account as the Committee may determine is required to alleviate such hardship, and each such sub-account shall be charged with the amount paid therefrom as of the date of payment. (f) Notwithstanding any provision hereof to the contrary, but subject to the approval of the Committee in its sole discretion, a Participant may request payment of all or a portion of any sub-account within his or her Deferred Compensation Account in different amounts and/or over a different period or periods of time (but in any event, consistent with payment options provided for under Section 6(c)) than that specified in the applicable Deferral Election. The Participant must communicate any such request to the Committee at least 4 months and 15 days prior to the initial date on which the amount credited to the sub-account to which such request relates would otherwise be paid or commence to be paid. The Committee may approve such request in its sole discretion at any time which is at least 3 months and 15 days prior to such initial payment date. If any such request is so approved by the Committee, the F-55 amount credited to the sub-account (or portion thereof) to which such request and approval relates shall be paid at the times and in the amounts specified in such request. 7. Payments After Death. Each Participant may designate, from time to time, a beneficiary or beneficiaries (who may be named contingently or successively) to whom any amounts which remain credited to the Participant's Deferred Compensation Account at the time of his or her death shall be paid. Each such designation shall revoke all prior designations by the same Participant, except to the extent otherwise specifically noted, shall be in a form acceptable to the Company, and shall be effective only when filed by the Participant in writing with the Company during his or her lifetime. Payments shall be made to a beneficiary hereunder in the same manner of distribution as was elected by the Participant pursuant to Section 6. Any amounts which remain credited to a Participant's Deferred Compensation Account at the time of his or her death which are not payable to a designated beneficiary shall be paid to the estate of such Participant in a single lump sum in accordance with Section 6(c) as soon as practicable after the death of such Participant. 8. No Funding Required. (a) Nothing in this Plan will be construed to create a trust or to obligate the Company, any Subsidiary or any other person to segregate a fund, purchase an insurance contract, or in any other way to fund currently the future payment of any benefits hereunder, nor will anything herein be construed to give any Participant or any other person rights to any specific assets of the Company, any Subsidiary or of any other person. A Participant who has elected to defer any portion of his or her Stock Compensation hereunder or to elect a conversion pursuant to the last paragraph of Section 4 shall have no stockholder rights with respect to the F-56 shares of Stock so deferred and/or credited until such shares of Stock are actually issued to such Participant as payment hereunder pursuant to Section 6. Except as provided in (b) below, any benefits which become payable hereunder shall be paid from the general assets of the Company or Subsidiary, whichever is applicable, in accordance with the terms hereof. (b) The Company, in its sole discretion, may establish (i) a grantor or other trust of which the Company is treated as the owner under the Internal Revenue Code of 1986, as amended, and the assets of which are subject to the claims of the Company's general creditors in the event of its insolvency, (ii) an insurance arrangement, or (iii) any other arrangement or arrangements designed to provide for the payment of benefits hereunder. Any such arrangement(s) shall be subject to such other terms and conditions as the Company may deem necessary or advisable to ensure (i) that benefits are not includible, by reason of the establishment of any such arrangement(s) or the funding of any such trust, in the income of the beneficiaries of such trust or other arrangement(s) prior to actual distribution or other payment and (ii) that the existence of such arrangement(s) does not cause the Plan or any other arrangement(s) to be considered funded for purposes of Title I of ERISA. The President, the Vice President, Finance or the Treasurer of the Company may act to establish a trust or other arrangement(s) pursuant to this Section 8(b). 9. Plan Administration and Interpretation. The Company shall have complete control over the administration of the Plan and complete control and authority to determine, in its sole discretion, the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, or other person having or claiming to have any interest under the Plan and the Company's determinations shall be conclusive and binding on F-57 all such parties. The Company shall be deemed to be the Plan administrator with the responsibility for complying with any reporting and disclosure requirements of ERISA. 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. To the extent that such officers are unable or unwilling to exercise any right or make any determination hereunder, then the Committee shall exercise such right or make such determination unless it is unable or unwilling to do so, in which case the Board of Directors of the Company (the "Board") shall exercise such right or make such determination. 10. Non-Assignable. Amounts payable under this Plan shall not be subject to alienation, assignment, garnishment, execution or levy of any kind, and any attempt to cause any such amount to be so subjected shall be null, void and of no effect and shall not be recognized by the Company or its Subsidiaries. 11. Termination and Modification. (a) The Committee may terminate or amend this Plan by written notice to each Participant participating herein. A termination of the Plan shall have no effect other than to eliminate the right of each Participant to defer further compensation. Except for such "prospective" termination, neither the Plan nor any Deferral Election in effect hereunder may be amended, modified, waived, discharged or terminated, except by mutual consent of the Committee and the Participant or Participants affected thereby, which consent shall be evidenced by an instrument in writing, signed by the party against which enforcement of such amendment, modification, waiver, discharge or termination is sought. Notwithstanding the foregoing, if, on or after January 1, 2000, (i) the Company's ratio of current assets to current liabilities as reflected F-58 on any quarterly or annual financial statements filed by the Company with the Securities and Exchange Commission falls below 1.4 to 1 for two consecutive quarters, (ii) the total of the Company's long-term debt for borrowed money (excluding the current portion thereof) exceeds 85% of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission or (iii) the Company is subject to a "change of control," this Plan shall immediately terminate and the Committee shall, in complete discharge of its obligations hereunder, distribute to each Participant the full amount then credited to his or her Deferred Compensation Account, such amount to be payable in shares of Stock and/or cash in a single lump sum in accordance with Section 6(c). (b) For purposes of this Section 11, "change of 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 Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (ii) persons who, as of November 30, 1999, constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to November F-59 30, 1999 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 the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than (a) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 12. Parties. The terms of this Plan shall be binding upon the Company, its Subsidiaries and their successors or assigns and each Participant participating herein and his or her beneficiaries, heirs, executors and administrators. 13. Liability of Company. Subject to its obligation to pay the amount credited to the Participant's Deferred Compensation Account at the time distribution is called for by the payment option in effect, none of the Company, its Subsidiaries nor any person acting on behalf of the F-60 Company or its Subsidiaries shall be liable to any Participant or any other person for any act performed or the failure to perform any act with respect to the Plan. 14. Notices. Notices, elections or designations by a Participant hereunder shall be addressed to the Company to the attention of the Treasurer of the Company or his or her designee or, in the absence of the Treasurer or his or her designee, to the Vice President of Human Resources of the Company. Notices by the Company to a Participant shall be addressed to the Participant at his or her most recent home address as reflected in the records of the Company or to such other address as the Participant may specify in writing to the Company. Requests made by a Participant or a beneficiary to the Committee hereunder shall be addressed to the attention of the Secretary of the Committee or the Clerk of the Company. 15. Unsecured General Creditors. No Participant or his or her legal representative or any beneficiary designated by him or her shall have any right, other than the right of an unsecured general creditor, against the Company or any Subsidiary in respect of the Deferred Compensation Account of such Participant established hereunder. 16. Severability. In case any provision or provisions of this Plan shall be held illegal, invalid or otherwise unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if the illegal, invalid or unenforceable provisions had never been inserted in the Plan. 17. Stock Dividends, etc. In the event of any change in the outstanding shares of Stock by reason of a stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares or other similar corporate change as to which the Company is a surviving F-61 corporation, the number and kind of shares of Stock credited to each such sub-account maintained in shares of Stock shall be appropriately adjusted by the Company, whose determination shall be conclusive. 18. Effective Date. This Plan, as amended and restated in its entirety as set forth herein, is effective as of December 21, 1999, and shall continue in existence until terminated pursuant to Section 11. All Deferred Compensation Accounts established under the Plan as in effect prior to such effective date, all amounts credited to such accounts (and sub-accounts) as of such date, and (subject to changes made after such date in accordance with the Plan) all elections (including elections regarding the time and method of payment) and beneficiary designations made under the Plan prior to such date shall remain in effect after such effective date. 19. Governing Law. This Plan shall be construed and enforced in accordance with, and governed by, the laws of the Commonwealth of Massachusetts. Executed as of the 21st day of December, 1999. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Treasurer F-62 ROGERS CORPORATION VOLUNTARY DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 21, 1999 1. Name and Purpose. The name of this plan is the Rogers Corporation Voluntary Deferred Compensation Plan For Non-Employee Directors, as Amended and Restated Effective as of December 21, 1999 (the "Plan"). The purpose of the Plan is to permit each member of the Board of Directors (the "Board") of Rogers Corporation (the "Company") who is not an employee of the Company or any subsidiary of the Company (each a "Director") to elect to defer all or a portion of his or her compensation from the Company. 2. Right to Defer. For each calendar year beginning on or after January 1, 2000, each Director may elect to defer payment of up to one-hundred percent (100%) of each of (i) the portion of (A) the annual retainer fee or (B) the meeting fees, if any, payable to such Director in shares of capital stock, $1 par value (the "Stock") of the Company (the "Stock Fees") and/or (ii) the portion of the meeting fees, if any, payable to such Director in cash (the "Cash Fees"), for service as a director of the Company during such calendar year. 3. Deferral Elections. A Director's election to defer payments hereunder (a "Deferral Election") shall be in writing and shall be deemed to have been made upon receipt and acceptance by the Company. In order to be effective hereunder, a Deferral Election for any calendar year must be made not later than December 31 of the preceding calendar year and shall specify the time and method of payment pursuant to Sections 5(a) and 5(c) below applicable to the amount(s) deferred thereunder; provided, however, that a person who becomes a Director during a calendar year may make a Deferral Election for such calendar year at any time on or F-63 before the thirtieth (30th) day after the date he or she becomes a Director. Notwithstanding the foregoing, any Deferral Election by a Director with respect to a Stock Fee shall be made in accordance with such rules and procedures as the Company deems necessary or appropriate to comply with the requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"). A Deferral Election made for a calendar year may not be revised after the last date on which it could have been made, except that any such Deferral Election may be revoked in its entirety by the Director at any time by filing a written notice of revocation with the Company, but only as to Cash Fees and Stock Fees which have not yet been earned and which are payable after receipt and acceptance by the Company of such revocation. 4. Accounts; Crediting of Dividend Equivalents and Interest. (a) All amounts deferred by a Director under this Plan shall be credited by the Company to a book account (a "Deferred Compensation Account") in the name of such Director as of the dates(s) which such amounts would have been paid to the Director but for his or her Deferral Election. Separate sub-accounts will be maintained for deferred Stock Fees (which sub-accounts shall be maintained in terms of numbers of shares of Stock) and deferred Cash Fees (which sub-accounts shall be maintained in terms of dollars) for each calendar year; provided, however, that (i) deferred Stock Fees with respect to the same or different calendar years (including amounts converted pursuant to the next following paragraph) which are payable at the same time and pursuant to the same method may be combined into a single sub- account and (ii) deferred Cash Fees with respect to the same or different calendar years which are payable at the same time and pursuant to the same method and which are being credited with the same rate of interest may be combined into a single sub-account. F-64 In addition to the foregoing, each Director shall be permitted to elect not later than December 31, 1999 to transfer as of December 31, 1999 up to 100% of the balance in such Director's sub-account(s), if any, maintained in terms of dollars for previously deferred Cash Fees to a sub-account(s) maintained in terms of shares of Stock. Such transfer shall be accomplished by dividing such amount to be transferred by the Fair Market Value (as defined in the Rogers Corporation 1998 Stock Incentive Plan) per share of Stock as of December 31, 1999, and crediting the resulting number of shares (rounded up to the next higher whole number of shares) of Stock to such new sub-account(s) maintained in terms of shares of Stock. Any such conversion election shall be irrevocable after December 31, 1999. All Deferral Elections previously made by such Director with respect to the timing and method of payment pursuant to Section 5(a) and Section 5(c) with respect to the amount(s) so converted shall remain in full force and effect. (b) An amount, equal to the aggregate dividends that would have been paid on the number of shares of Stock credited to each Director's sub-account(s) maintained in shares had such share credits been issued and outstanding shares of Stock, shall be credited to the Director's Deferred Compensation Account as of the payable date that would have been applicable to such dividends had the related share credits been issued and outstanding shares of Stock. Such dividend equivalent amounts (i) shall be payable to the Director at the same time and pursuant to the same method as the shares of Stock to which they relate, (ii) shall be credited to one or more sub-accounts within such Director's Deferred Compensation Account, which sub- account(s) shall be maintained in terms of dollars, and (iii) may be combined with a sub-account for deferred Cash Fees which are payable at the same time and pursuant to the same method and which are being credited with the same rate of interest. F-65 (c) As of the last day of each calendar month, the Company shall credit each sub-account within a Director's Deferred Compensation Account which is being maintained in terms of dollars with interest on the amount credited to such sub- account as of the sixteenth (16th) day of such calendar month. The rate of interest to be used for this purpose during any calendar year shall be the 30-year U.S. Treasury bond rate in effect as of January 1 of such year. The foregoing rate shall be determined by reference to the first January issue of Barron's for such calendar year, or such other comparable publication as may be selected by the Company if Barron's is no longer published or no longer provides such information. Notwithstanding the foregoing, the Company may increase (but not decrease) the rate of interest to be used under the Plan by written notice to each Director (including former Directors who then have a Deferred Compensation Account which would be affected by such change), which notice shall specify the new rate of interest to be used, the effective date of such change and the Deferred Compensation Accounts to which such new rate of interest shall apply. 5. Time and Method of Payment. (a) Amounts standing to the credit of each sub-account within a Director's Deferred Compensation Account shall be paid, or commence to be paid, in accordance with the Director's Deferral Election(s). Each Deferral Election shall specify whether payments will commence on January 15 (or, if such day is not a business day, the first business day thereafter) first following (i) the passage of the number of calendar years (not to exceed twenty (and in the case of deferred Stock Fees not to be less than three for elections made after November 1, 1999) and including the year of deferral, which counts as year one) specified by the Director in his or her Deferral Election(s) with respect to the amount credited to such sub-account, (ii) the calendar year in which the Director ceases to be a member of the Board for any reason whatsoever or (iii) F-66 (A) the later of (i) or (ii) in the case of Cash Fees (including amounts converted pursuant to the last paragraph of Section 4(a)) or (B) the earlier of (i) or (ii) in the case of Stock Fees. The amount of each such payment shall be determined by the amount credited to such sub-account as of the preceding December 31. (b) All amounts credited to each sub-account within the Director's Deferred Compensation Account which is maintained in terms of numbers of shares of Stock shall be distributed in shares of Stock. All amounts credited to each sub-account within the Director's Deferred Compensation Account which is maintained in terms of dollars shall be distributed in cash. Each such sub- account shall be charged with the amount paid therefrom as of the date of payment. (c) All amounts credited to a sub-account within the Director's Deferred Compensation Account shall be paid in either a single lump sum or in annual installments over a period not to exceed five years, as the Director has specified in the Deferral Election(s) applicable to such sub-account. In the case of installment payments, (i) dividend credits under Section 4(b) and interest credits under Section 4(c), whichever is applicable, shall continue to be credited in accordance with such sections during the payment period, and (ii) the amount of each payment shall be equal to the amount credited to the Deferred Compensation Account as of the preceding December 31 divided by the number of annual payments remaining to be made, including the current payment. Notwithstanding the foregoing, the final payment out of any sub-account shall be equal to 100% of the amount credited to such sub-account at the time of such payment. F-67 (d) All amounts credited to a Director's Deferred Compensation Account shall be paid as they become due to the Director if then living. All amounts credited to a Director's Deferred Compensation Account at the time of his or her death shall be paid pursuant to Section 6. (e) Notwithstanding any provision hereof to the contrary, if a Director believes he or she is suffering from a "hardship," an application may be made to the Company for an acceleration of payments from one or more sub-accounts within such Director's Deferred Compensation Account. "Hardship" for this purpose shall mean a need for financial assistance in meeting real emergencies which would cause substantial hardship to the Director or any member of the Director's immediate family, and which are beyond the Director's control. If the Company determines, in its sole discretion, that the Director is suffering from "hardship," the Company may accelerate payment to the Director of such portion of such sub-account(s) within the Director's Deferred Compensation Account as the Company may determine is required to alleviate such hardship, and each such sub-account shall be charged with the amount paid therefrom as of the date of payment. (f) Notwithstanding any provision hereof to the contrary, but subject to the approval of the Company in its sole discretion, a Director may request payment of all or a portion of any sub-account within his or her Deferred Compensation Account in different amounts and/or over a different period or periods of time than that specified in the applicable Deferral Election. The Director must communicate any such request to the Company at least 15 months prior to the initial date on which the amount credited to the sub-account to which such request relates would otherwise be paid or commence to be paid. The Company may approve such request in its sole discretion at any time which is at least 12 months and 15 days prior to such initial payment date. If any such request is so approved by the Company, the amount credited to the sub-account (or F-68 portion thereof) to which such request and approval relates shall be paid at the times and in the amounts specified in such request. 6. Payments After Death. Each Director may designate, from time to time, a beneficiary or beneficiaries (who may be named contingently or successively) to whom any amounts which remain credited to the Director's Deferred Compensation Account at the time of his or her death shall be paid. All such amounts shall be paid in a single lump sum in shares of Stock and/or cash in accordance with Section 5(b) as soon as practicable after such Director's death. Each such designation shall revoke all prior designations by the same Director, except to the extent otherwise specifically noted, shall be in a form acceptable to the Company, and shall be effective only when filed by the Director in writing with the Company during his or her lifetime. Any amounts which remain credited to a Director's Deferred Compensation Account at the time of his or her death which are not payable to a designated beneficiary shall be paid to the estate of such Director in a single lump sum in shares of Stock and/or cash in accordance with Section 5(b) as soon as practicable after the death of such Director. 7. No Funding Required. (a) Nothing in this Plan will be construed to create a trust or to obligate the Company or any other person to segregate a fund, purchase an insurance contract, or in any other way to fund currently the future payment of any benefits hereunder, nor will anything herein be construed to give any Director or any other person rights to any specific assets of the Company or of any other person. A Director who has elected to defer any portion of his or her Stock Fees hereunder or to elect a conversion pursuant to the last paragraph of Section 4(a) shall have no stockholder rights with respect to the shares of Stock so deferred and/or credited until such shares of Stock are actually issued to such Director as payment hereunder pursuant to Section 5. Except F-69 as provided in (b) below, any benefits which become payable hereunder shall be paid from the general assets of the Company in accordance with the terms hereof. (b) The Company, in its sole discretion, may establish (i) a grantor or other trust of which the Company is treated as the owner under the Internal Revenue Code of 1986, as amended, and the assets of which are subject to the claims of the Company's general creditors in the event of its insolvency, (ii) an insurance arrangement, or (iii) any other arrangement or arrangements designed to provide for the payment of benefits hereunder. Any such arrangement(s) shall be subject to such other terms and conditions as the Company may deem necessary or advisable to ensure that benefits are not includible, by reason of the establishment of any such arrangement(s) or the funding of any such trust, in the income of the beneficiaries of such trust or other arrangement(s) prior to actual distribution or other payment. The President, the Vice President, Finance or the Treasurer of the Company may act to establish a trust or other arrangement(s) pursuant to this Section 7(b). 8. Plan Administration and Interpretation. The Company shall have complete control over the administration of the Plan and complete control and authority to determine, in its sole discretion, the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Director, beneficiary, or other person having or claiming to have any interest under the Plan and the Company's determinations shall be conclusive and binding on all such parties. The rights of the Company hereunder shall be exercised by the Pension Committee of the Board or by any successor committee designated as such by the Board. To the extent that such committee is unable or unwilling to exercise any right or make any determination hereunder, however, the Board shall exercise such right or make such determination. F-70 9. Non-Assignable. Amounts payable under this Plan shall not be subject to alienation, assignment, garnishment, execution or levy of any kind, and any attempt to cause any such amount to be so subjected shall be null, void and of no effect and shall not be recognized by the Company. 10. Termination and Modification. (a) The Company may terminate or amend this Plan by written notice to each Director participating therein. A termination of the Plan shall have no effect other than to eliminate the right of each Director to defer further compensation. Except for such "prospective" termination, neither the Plan nor any Deferral Election in effect hereunder may be amended, modified, waived, discharged or terminated, except by mutual consent of the Company and the Director or Directors affected thereby, which consent shall be evidenced by an instrument in writing, signed by the party against which enforcement of such amendment, modification, waiver, discharge or termination is sought. Notwithstanding the foregoing, if, on or after January 1, 2000, (a) the Company's ratio of current assets to current liabilities as reflected on any quarterly or annual financial statements filed by the Company with the Securities and Exchange Commission falls below 1.4 to 1 for two consecutive quarters, (b) the total of the Company's long-term debt for borrowed money (excluding the current portion thereof) exceeds 85% of the Company's net worth as reflected in such statements filed with the Securities and Exchange Commission or (c) the Company is subject to a "change of control," this Plan shall immediately terminate and the Company shall, in complete discharge of its obligations hereunder, distribute to each Director the full amount then credited to his or her Deferred Compensation Account, such amount to be payable in shares of Stock and/or cash in accordance with Section 5(b). F-71 (b) For purposes of this Section 10, "change of 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 Act) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Act) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (ii) persons who, as of November 30, 1999, constituted the Company's Board (the "Incumbent Board") cease for any reason, including without limitation as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to November 30, 1999 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 the Company approve a merger or consolidation of the Company with any other corporation or other entity, other than (a) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a F-72 recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 11. Parties. The terms of this Plan shall be binding upon the Company and its successors or assigns and each Director participating herein and his or her beneficiaries, heirs, executors and administrators. 12. Liability of Company. Subject to its obligation to pay the amount credited to the Director's Deferred Compensation Account at the time distribution is called for by the payment option in effect, neither the Company nor any person acting on behalf of the Company shall be liable to any Director or any other person for any act performed or the failure to perform any act with respect to the Plan. 13. Notices. Notices, elections or designations by a Director to the Company hereunder shall be addressed to the Company to the attention of the Treasurer of the Company. Notices by the Company to a Director shall be addressed to the Director at his or her most recent home address as reflected in the records of the Company, or to such other address as the Director may specify in writing to the Company. 14. Unsecured General Creditors. No Director or his or her legal representative or any beneficiary designated by him or her shall have any right, other than the right of an unsecured general creditor, against the Company in respect of the Deferred Compensation Account of such Director established hereunder. F-73 15. Severability. In case any provision or provisions of this Plan shall be held illegal, invalid or otherwise unenforceable for any reason, the illegality, invalidity or unenforceability shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if the illegal, invalid or unenforceable provisions had never been inserted in the Plan. 16. Stock Dividends, etc. In the event of any change in the outstanding shares of Stock by reason of a stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares or other similar corporate change as to which the Company is a surviving corporation, the number and kind of shares of Stock credited to each sub-account maintained in shares of Stock shall be appropriately adjusted by the Company, whose determination shall be conclusive. 17. Effective Date. This Plan, as amended and restated in its entirety as set forth herein, is effective as of December 21, 1999, and shall continue in existence until terminated pursuant to Section 10. All Deferred Compensation Accounts established under the Plan as in effect prior to such effective date, all amounts credited to such accounts (and sub-accounts) as of such date, and (subject to changes made after such date in accordance with the Plan) all elections (including elections regarding the time and method of payment) and beneficiary designations made under the Plan prior to such date shall remain in effect after such effective date. 18. Governing Law. This Plan shall be construed and enforced in accordance with, and governed by, the laws of the Commonwealth of Massachusetts. F-74 Executed as of the 21st day of December, 1999. ROGERS CORPORATION By: /s/ Robert M. Soffer Robert M. Soffer Treasurer F-75 EX-27 2
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