10-Q 1 edg2q0110q.txt Total pages included - 13 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4347 ROGERS CORPORATION (Exact name of Registrant as specified in its charter) Massachusetts 06-0513860 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 188, One Technology Drive, Rogers, Connecticut 06263-0188 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (860) 774-9605 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the Registrant's classes of common stock as of July 29, 2001: Capital Stock, $1 Par Value-15,638,867 shares ROGERS CORPORATION AND SUBSIDIARIES FORM 10-Q July 1, 2001 INDEX Page No. PART I--FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Consolidated Statements of Income-- Three Months and Six Months Ended July 1, 2001 and July 2, 2000 3 Consolidated Balance Sheets-- July 1, 2001 and December 31, 2000 4-5 Consolidated Statements of Cash Flows-- Six Months Ended July 1, 2001 and July 2, 2000 6 Supplementary Notes 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 PART II--OTHER INFORMATION Item 5. Other Information 13 Item 6. Reports on Form 8-K 13 SIGNATURES 13 -2- PART I - FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS ROGERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands Except for Per Share Amounts) Three Months Ended: Six Months Ended: ---------------------- ------------------------ July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ---------------------- ------------------------ Net Sales $ 53,162 $ 61,266 $116,912 $124,906 Cost of Sales 37,361 41,194 80,457 83,687 Selling and Administrative Expenses 9,912 9,709 20,057 19,894 Acquisition/Restructuring Costs 1,995 -- 1,995 -- Research and Development Expenses 2,965 3,246 6,090 6,175 -------- -------- -------- -------- Total Costs and Expenses 52,233 54,149 108,599 109,756 -------- -------- -------- -------- Operating Income 929 7,117 8,313 15,150 Other Income less Other Charges 1,750 1,846 3,869 2,058 Interest Income, Net 26 110 125 186 -------- -------- -------- -------- Income Before Income Taxes 2,705 9,073 12,307 17,394 Income Taxes: Federal and Foreign 784 2,540 3,569 4,870 State 27 91 123 174 -------- -------- -------- -------- Net Income $ 1,894 $ 6,442 $ 8,615 $ 12,350 ======== ======== ======== ======== Net Income Per Share (Note E): Basic $ 0.12 $ 0.43 $ 0.57 $ 0.84 ======== ======== ======== ======== Diluted $ 0.12 $ 0.41 $ 0.54 $ 0.78 ======== ======== ======== ======== Shares Used in Computing (Note E): Basic 15,243,000 14,814,000 15,211,000 14,758,000 ========== ========== ========== ========== Diluted 15,842,000 15,773,000 15,932,000 15,783,000 ========== ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. -3- ROGERS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in Thousands) July 1, 2001 December 31, 2000 -------------- ----------------- Current Assets: Cash and Cash Equivalents $ 17,309 $ 10,100 Accounts Receivable, Net 30,799 35,067 Accounts Receivable, Joint Ventures 9,352 11,198 Inventories: Raw Materials 14,009 12,702 In-Process and Finished 17,393 17,721 -------------- --------------- Total Inventories 31,402 30,423 Current Deferred Income Taxes 5,000 5,000 Other Current Assets 1,826 1,061 -------------- --------------- Total Current Assets 95,688 92,849 -------------- --------------- Property, Plant and Equipment, Net of Accumulated Depreciation of $84,523 and $78,319 93,927 94,199 Investment in Unconsolidated Joint Ventures 14,314 11,577 Pension Asset 6,407 6,407 Goodwill and Other Intangibles, Net 13,828 14,068 Other Assets 2,376 2,414 -------------- --------------- Total Assets $226,540 $221,514 ============== =============== The accompanying notes are an integral part of the consolidated financial statements. -4- ROGERS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in Thousands) July 1, 2001 December 31, 2000 ----------------- ----------------- Current Liabilities: Accounts Payable $ 12,746 $ 12,418 Accrued Employee Benefits and Compensation 7,711 12,830 Accrued Income Taxes Payable 8,179 5,554 Taxes, Other than Federal and Foreign Income 1,341 1,643 Other Accrued Liabilities 6,627 6,300 ---------------- ---------------- Total Current Liabilities 36,604 38,745 ---------------- ---------------- Long-Term Debt 9,116 9,116 Noncurrent Deferred Income Taxes 8,427 8,626 Noncurrent Pension Liability 9,676 9,676 Noncurrent Retiree Health Care and Life Insurance Benefits 5,990 5,990 Other Long-Term Liabilities 3,459 3,548 Shareholders' Equity: Capital Stock, $1 Par Value: Authorized Shares 50,000,000; Issued Shares 15,626,140 and 15,485,570 15,626 15,486 Additional Paid-In Capital 32,417 32,262 Treasury Stock (382,900 shares) (13,436) (13,436) Accumulated Other Comprehensive Loss (3,658) (2,203) Retained Earnings 122,319 113,704 ---------------- --------------- Total Shareholders' Equity 153,268 145,813 --------------- --------------- Total Liabilities and Shareholders' Equity $226,540 $221,514 =============== =============== The accompanying notes are an integral part of the consolidated financial statements. -5- ROGERS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Six Months Ended: --------------------------- July 1, July 2, 2001 2000 -------- --------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net Income $ 8,615 $ 12,350 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 7,594 6,517 Expense for Deferred Income Taxes -- 13 Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (1,241) (1,238) Loss on Disposition of Assets -- 325 Noncurrent Pension and Postretirement Benefits 226 43 Other, Net (271) (30) Changes in Operating Assets and Liabilities: Accounts Receivable 3,265 (6,052) Accounts Receivable - Affiliates 1,846 (3,104) Inventories (1,499) (6,231) Prepaid Expenses (844) (276) Accounts Payable and Accrued Expenses (1,000) 6,254 -------- -------- Net Cash Provided by Operating Activities 16,691 8,571 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Capital Expenditures (7,705) (9,776) Investment in Unconsolidated Joint Ventures and Affiliates (1,495) 882 -------- -------- Net Cash (Used in) Investing Activities (9,200) (8,894) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from Short and Long-Term Borrowings 66 377 Repayments of Debt Principal (395) (306) Proceeds from Sale of Capital Stock (31) 1,045 -------- -------- Net Cash Provided by (Used in) Financing Activities (360) 1,116 Effect of Exchange Rate Changes on Cash 78 90 -------- -------- Net Increase in Cash and Cash Equivalents 7,209 883 Cash and Cash Equivalents at Beginning of Year 10,100 9,955 -------- -------- Cash and Cash Equivalents at End of Quarter $ 17,309 $ 10,838 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. -6- ROGERS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY NOTES A. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2000. B. Interest paid during the first six months of 2001 and 2000 was $495,000. and $442,000, respectively. C. Income taxes paid were $255,000 and $378,000 in the first six months of 2001 and 2000, respectively. D. The components of comprehensive income, net of related tax, are as follows: Three Months Ended: Six Months Ended: -------------------- ------------------ (Dollars In Thousands) July 1, July 2, July 1, July2, 2001 2000 2001 2000 -------------------------------------------- Net income $ 1,894 $ 6,442 $ 8,615 $12,350 Foreign currency translation adjustments (951) (47) (1,455) (536) -------------------- ------------------ Comprehensive Income $ 943 $ 6,395 $ 7,160 $11,814 ==================== ================== Accumulated balances related to each component of Other Comprehensive Loss are as follows: July 1, 2001 December 31, 2000 Foreign currency translation adjustments $(1,789) $ (334) Minimum pension liability, net of $1,145 in taxes (1,869) (1,869) -------------- --------------- $(3,658) $(2,203) ============== =============== -7- SUPPLEMENTARY NOTES, CONTINUED E. The following table sets forth the computation of basic and diluted earnings per share in conformity with Statement of Financial Accounting Standards No. 128, "Earnings per Share": Three Months Ended: Six Months Ended: ------------------- ------------------- (Dollars in Thousands, Except Per Share Amounts) July 1, July 2, July 1, July 2, 2001 2000 2001 2000 ------------------- ------------------- Numerator: Net income $ 1,894 $ 6,442 $ 8,615 $12,350 Denominator: Denominator for basic earnings per share - weighted-average shares 15,243 14,814 15,211 14,758 Effect of stock options 599 959 721 1,025 ------------------- ------------------- Denominator for diluted earnings per share - adjusted weighted- average shares and assumed conversions 15,842 15,773 15,932 15,783 =================== =================== Basic earnings per share $ 0.12 $ 0.43 $ 0.57 $ 0.84 =================== =================== Diluted earnings per share $ 0.12 $ 0.41 $ 0.54 $ 0.78 =================== =================== F. Segment information has been prepared in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (FAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." Certain reclassifications were made in 2000 to reflect the way that the business segments are viewed by top management and the Board of Directors. The prior year information presented has been restated to reflect these reclassifications. The quarterly information required by FAS No. 131 is presented below. (Dollars in Millions) High Printed Polymer Performance Circuit Materials & Foams Materials Components Total --------------------------------------------------------------------------- Three months ended July 1, 2001 Net Sales $ 12.0 $ 21.6 $ 19.6 $ 53.2 Operating Income 0.5 0.1 0.3 0.9 Three months ended July 2, 2000 Net Sales $ 14.8 $ 23.3 $ 23.2 $ 61.3 Operating Income 3.0 2.7 1.4 7.1 Six months ended July 1, 2001 Net Sales $ 25.8 $ 48.8 $ 42.3 $116.9 Operating Income 2.2 4.5 1.6 8.3 Six months ended July 2, 2000 Net Sales $ 29.5 $ 48.5 $ 46.9 $124.9 Operating Income 5.7 6.7 2.8 15.2 Inter-segment sales, which are generally priced with reference to costs or prevailing market prices, are not material in relation to consolidated net sales and have been eliminated from the sales data in the previous tables. -8- SUPPLEMENTARY NOTES, CONTINUED G. 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 an early 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 an insurance company. Actual costs to be incurred in future periods may vary from these estimates. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial position. In addition to the above proceedings, the Company has been actively working with the Connecticut Department of Environmental Protection (CT DEP) related to certain polychlorinated biphenyl (PCB) contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000 and will be continually monitoring the site for the next several years. On the basis of estimates prepared by environmental engineers and consultants, the Company recorded a provision of approximately $1,600,000 prior to 1998, and based on updated estimates provided an additional $600,000 in 1998 and $400,000 in 1999 for costs related to this matter. Prior to 1998, $700,000 was charged against this provision. In 1998, 1999, and 2000, expenses of $200,000, $400,000, and $900,000 were charged, respectively against the provision. The remaining amount in the reserve is primarily for testing, monitoring, sampling and any minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. In this same matter the United States Environmental Protection Agency (EPA) has alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputes the EPA allegations and has appealed the administrative law judge's findings and penalty assessment. The original findings were upheld internally by the EPA's Environmental Appeals Board, and the Company has now placed that decision on appeal with the District of Columbia Federal Court of Appeals. The Company has not had any material recurring costs and capital expenditures relating to environmental matters, except as specifically described in the preceding statements. H. To help widen the distribution and enhance the marketability of the Company's Capital Stock, the Board of Directors, effected a two-for-one stock split in the form of a 100% stock dividend on May 12, 2000. All references in the financial statements to number of shares and per share amounts have been restated to reflect the increased number of capital shares outstanding. -9- SUPPLEMENTARY NOTES, CONTINUED I. On August 17, 2000, the Board of Directors authorized the Company to repurchase up to $2.0 million of its common stock. No shares have been repurchased pursuant to this authority. J. On February 7, 2001, the Company entered into a definitive agreement to purchase the Advanced Dielectric Division (ADD) of Tonoga, Inc. (commonly known as Taconic), which operates facilities in Petersburgh, New York and Mullingar, Ireland. On May 11, 2001, the Company announced that active discussions with Taconic to acquire the ADD business have been suspended and it is not anticipated that the acquisition will occur. Accordingly, $1.5 million in costs associated with this potential acquisition were written off during the second quarter. K. Other income less other charges was $3.9 million in the first half of 2001 compared to $2.1 million in the same period in 2000. The increase is primarily due to the performance of Rogers joint ventures, particularly Polyimide Laminate Systems, LLC (PLS) and Rogers Inoac Corporation (RIC) and higher royalty income. L. In the second quarter of 2001, the Company incurred a restructuring charge in the amount of $500,000. This amount primarily consists of $300,000 in severance benefits for the termination of 20 employees at the Printed Circuit Materials segment and $200,000 in costs associated with the merging of two business units within the segment. All 20 of these employees were terminated during the second quarter and $400,000 of this charge remains accrued at July 1, 2001. M. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the provisions of the Statements is not expected to have a material impact. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales of $53.2 million in the second quarter and $116.9 million for the first half of 2001 were down 13% and 6%, respectively, from the comparable periods in 2000. Combined Sales which include one-half of the sales from three of Rogers 50% owned joint ventures, were $67.2 million for the quarter and $146.5 million for the first half, down 14% and 6%, respectively, over the same periods in 2000. The decrease in sales is primarily attributable to the widespread slowdown in wireless communications, specifically associated with cellular phones, infrastructure, and a temporary reduction in satellite television-related sales. Weak sales to the automotive market also contributed to the lower revenues. High Performance Foam sales were $12.0 million and $25.8 million for this year's second quarter and first half, down 19% and 13%, respectively from the comparable periods in 2000. Sales in this segment -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED suffered from the dramatic inventory correction that is occurring in cellular phone handsets and from the softness in the automotive market. Sales of these products into Europe were especially soft. Sales of Printed Circuit Materials for the second quarter and first half totaled $21.6 million and $48.8 million, respectively, a decrease of 7% and an increase of 1% compared to the second quarter and first half of 2000. Sales in this segment of the Company's business were led by high-frequency circuit laminates, which continue to see high rates of adoption in wireless communication devices and infrastructure but are being negatively impacted by the slowdown in these markets that has now spread worldwide. Sales of flexible circuit laminates were significantly affected, declining over 20% in quarter two of 2001 compared to last year's second quarter. However sales of Rogers Induflex(R) EMI/RFI cable shielding materials experienced year-over-year first half growth of 21%. In May, the Company merged two of its operating units within this segment, a move that is expected to save in excess of $1.0 million annually. Sales of Polymer Materials and Components were $19.6 million and $42.3 million, respectively for the second quarter and first half of 2001, a decrease of 15% and 10%, respectively, from the comparable 2000 periods. The largest factor contributing to lower revenues in this segment of the Company's business was decreased sales of molding compounds to the automotive market. Profits and earning per share for the second quarter and the first half of 2001 were down from the comparable periods of 2000. Compared with the second quarter and first half of last year, earnings decreased by 71% and 30%, respectively, to $1.9 million and $8.6 million. This decrease reflected a one-time pre-tax charge of $2.0 million in the second quarter of 2001. Without this charge, the Company's earnings would have been $3.3 million for the second quarter and $10.0 million for the first half. Diluted earnings per share for the second quarter were $0.12 after the $0.09 per share one-time pre-tax charge, down from the $0.41 earned in the second quarter of 2000. For the first half of 2001, diluted earnings per share were $0.54 after the $0.09 per share one-time pre-tax charge, down from the $0.78 earned in the first half of 2000. Manufacturing profit as a percentage of sales in the first six months of 2001 and 2000 was 31% and 33%, respectively. This decrease continues the trend of the first quarter and can be attributed to the lower sales volumes caused by the slowdown in wireless communications and automotive markets. Selling and administrative expenses for the second quarter and first half of 2001 increased slightly in both total dollars and as a percentage of sales. The increases are primarily due to the cost of added salaried employees during 2000. Acquisition/Restructuring costs for the second quarter and first six months of 2001 were $2.0 million. These expenses are new for this year and are attributed to the suspended Taconic acquisition and the merging of two business units within the Company's Printed Circuit Materials segment. This amount primarily consists of $300,000 in severance benefits and $200,000 in costs associated with the merging of business units and $1.5 million for the suspended Taconic acquisition. Research and development expenses of $6.1 million for the first six months of 2001 were down slightly from the $6.2 million incurred in the first half of 2000. The slight decrease is attributed to cost savings techniques being carried out throughout the Company. -11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Net interest income for 2001 remained about the same as the comparable period in 2000. Other income was $3.9 million in the first half of 2001 compared to $2.1 million in the comparable period in 2000. The increase is primarily due to the performance of Rogers joint ventures, particularly PLS and RIC and higher royalty income. On June 28, 2001, Durel Corporation, the Company's 50% owned joint venture with 3M, was informed that the patent infringement lawsuit it filed against Osram Sylvania Inc., which had been decided in Durel's favor in February 2000, had been reversed by the U.S. Court of Appeals. Durel does not anticipate that this judgement will have any substantive effect on its business now or in the future. Durel intends to petition the appellate court for a rehearing. Net cash provided by operating activities in the first six months of 2001 totaled $16.7 million. This compares with $8.6 million provided by operations for the comparable 2000 period. This difference is primarily attributable to lower accounts receivable and inventory levels offset by lower net income. In 2001, investments in capital equipment totaled $7.7 million in the first six months and are expected to approach $24 million for the year. In 2000 capital expenditures in the first six months were $9.8 million and they finished at $22.7 million for the year. Despite the economic climate, Rogers is continuing to invest in its long-term future. Work is proceeding as planned on the Ghent facility and it should be operational in the fourth quarter. The Rogers Chang Chun Technology building in Taiwan is now complete. The equipment for this new joint venture facility has arrived and is being installed. Startup for this plant, that will produce flexible circuit laminates for the Taiwanese market, is still planned for late this fall. 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 currently has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $75 million, or the equivalent in certain other foreign currencies. The borrowing at July 1, 2001 was for 390.2 million Belgian francs ($9.1 million) and the interest rate on the loan was 5.07%. Shortly after the end of the second quarter this loan was repaid in full. During the second quarter of 2001 there were no material developments relative to environmental matters or other contingencies. Refer to Note G. Statements in this report that are not strictly historical may be deemed to be "forward-looking" statements which should be considered as subject to the many uncertainties that exist in the Company's operations and environment. These uncertainties, which include economic conditions, market demand and pricing, competitive and cost factors, rapid technological change, new product introductions, and the like, are incorporated by reference in the Rogers Corporation 2000 Form 10-K filed with the Securities and Exchange Commission. Such factors could cause actual results to differ materially from those in the forward-looking statements. -12- PART II - OTHER INFORMATION Item 5. Other Information On May 11, 2001, the Company announced that active discussions with Taconic to acquire their Advanced Dielectric Division business have been suspended and it is not anticipated that the acquisition will occur. Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits: (b) There were no reports on Form 8-K filed for the three months ended July 1, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROGERS CORPORATION (Registrant) /s/ Frank H. Roland ---------------------------- Frank H. Roland Vice President, Finance and Chief Financial Officer Dated: August 10, 2001 -12-