-----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, VE6+eAIHnf5Ud2ttTdZkrOVHn1kOe84jm+ceZh52Dac0MYllDlYeRsrFhQfZX6yz vdlLGeplBdEMi93tr60KHw== 0001157523-03-001596.txt : 20030502 0001157523-03-001596.hdr.sgml : 20030502 20030502114732 ACCESSION NUMBER: 0001157523-03-001596 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROGERS CORP CENTRAL INDEX KEY: 0000084748 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 060513860 STATE OF INCORPORATION: MA FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04347 FILM NUMBER: 03678630 BUSINESS ADDRESS: STREET 1: P.O. BOX 188 STREET 2: ONE TECHNOLOGY DRIVE CITY: ROGERS STATE: CT ZIP: 06263-0188 BUSINESS PHONE: 8607749605 10-Q 1 a4388805.txt ROGERS CORP. 10-Q 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 March 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _______________________ Commission file number 1-4347 ________________________________ROGERS CORPORATION_____________________________ (Exact name of Registrant as specified in its charter) Massachusetts 06-0513860 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 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 April 18, 2003: Capital Stock, $1 Par Value -- 15,943,898 shares 1 ROGERS CORPORATION AND CONSOLIDATED AFFILIATES FORM 10-Q March 30, 2003 INDEX
Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Statements of Income 3 Condensed Statements of Financial Position 4-5 Condensed Statement of Cash Flows 6 Supplementary Notes 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Item 4. Controls and Procedures 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Reports on Form 8-K 19 Signatures 19 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 20-22
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ROGERS CORPORATION AND CONSOLIDATED AFFILIATES CONDENSED STATEMENTS OF INCOME Three Months Ended March 30, 2003 and March 31, 2002 (Unaudited) (Dollars in Thousands Except Per Share Amounts)
2003 2002 ---- ---- Net Sales $ 51,878 $ 54,558 Cost of Sales 35,390 38,315 Selling and Administrative Expenses 9,701 10,109 Research and Development Expenses 2,837 3,465 ---------- ---------- Total Costs and Expenses 47,928 51,889 --------- --------- Operating Income 3,949 2,669 Other Income less Other Charges 3,628 2,607 Interest Income (Expense), Net 75 (97) ------------ ------------ Income Before Income Taxes 7,652 5,179 Income Taxes 1,913 1,295 ----- ----- Net Income $ 5,739 $ 3,884 ========= ========= Net Income Per Share: Basic $ .37 $ .25 ========= ========== Diluted $ .36 $ .24 =========== =========== The accompanying notes are an integral part of the condensed financial statements.
3 ROGERS CORPORATION AND CONSOLIDATED AFFILIATES CONDENSED STATEMENTS OF FINANCIAL POSITION ASSETS (Dollars in Thousands) (Unaudited)
March 30, December 29, 2003 2002 ---- ---- Current Assets: Cash and Cash Equivalents $ 28,187 $ 22,300 Short-term Investments 2,036 6,628 Accounts Receivable, Net 33,050 32,959 Account Receivable, Joint Ventures 1,829 1,414 Note Receivable, Current 2,100 -- Inventories: Raw Materials 5,510 5,525 In-Process and Finished 12,562 12,544 ------- ------- Total Inventories 18,072 18,069 Current Deferred Income Taxes 4,985 4,985 Other Current Assets 1,678 1,320 ------- -------- Total Current Assets 91,937 87,675 ------ ------- Note Receivable, Long-Term 9,900 12,000 Property, Plant and Equipment, Net of Accumulated Depreciation of $94,216 and $90,285 101,118 99,883 Investments in Unconsolidated Joint Ventures 22,684 21,860 Pension Asset 8,951 8,951 Goodwill and Other Intangibles, Net 22,200 22,204 Other Assets 5,145 5,128 ---------- ---------- Total Assets $261,935 $257,701 ======== ======== The accompanying notes are an integral part of the condensed financial statements.
4 ROGERS CORPORATION AND CONSOLIDATED AFFILIATES CONDENSED STATEMENTS OF FINANCIAL POSITION - CONTINUED LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in Thousands) (Unaudited)
March 30, December 29, 2003 2002 ---- ---- Current Liabilities: Accounts Payable $ 8,975 $ 10,125 Accrued Employee Benefits and Compensation 8,489 10,414 Accrued Income Taxes Payable 10,314 8,249 Taxes, Other than Federal and Foreign Income 108 542 Other Accrued Liabilities 6,905 5,450 ----- ------- Total Current Liabilities 34,791 34,780 ------ ------- Noncurrent Deferred Income Taxes 8,517 8,308 Noncurrent Pension Liability 19,614 22,658 Noncurrent Retiree Health Care and Life Insurance Benefits 6,197 6,197 Other Long-Term Liabilities 2,444 2,720 Commitments and Contingencies -- -- Shareholders' Equity: Capital Stock, $1 Par Value: Authorized Shares 50,000,000; Issued Shares 15,933,459 and 15,856,748 15,933 15,857 Additional Paid-In Capital 36,942 36,600 Retained Earnings 153,784 148,045 Accumulated Other Comprehensive Loss (3,853) (4,693) Treasury Stock (346,836 and 360,487 shares) (12,434) (12,771) -------- -------- Total Shareholders' Equity 190,372 183,038 ------- -------- Total Liabilities and Shareholders' Equity $261,935 $257,701 ======== ======== The accompanying notes are an integral part of the condensed financial statements.
5 ROGERS CORPORATION AND CONSOLIDATED AFFILIATES CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended (Unaudited) March 30, March 31, 2003 2002 ------- ------- OPERATING ACTIVITIES: Net Income $ 5,739 $ 3,884 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 3,392 3,656 Expense for Deferred Income Taxes -- 34 Equity in Undistributed Income of Unconsolidated Joint Ventures, Net (2,457) (1,713) Loss on Disposition of Assets 250 -- Noncurrent Pension and Postretirement Benefits (3,043) (3,026) Other, Net (195) (307) Changes in Operating Assets and Liabilities Accounts Receivable (3,090) (5,453) Accounts Receivable, Joint Ventures (430) (1,338) Inventories 175 (496) Other Current Assets (334) (566) Accounts Payable and Accrued Expenses __(118) 1,768 ---- ------- Net Cash Used in Operating Activities (111) (3,557) INVESTING ACTIVITIES: Capital Expenditures (3,744) (2,470) Acquisition of Business -- (8,000) Divestiture of Business 3,069 -- Short-term Investments 4,592 -- Investments in Unconsolidated Joint Ventures and Affiliates 1,633 2,962 ---------- ------- Net Cash Provided by (Used in) Investing Activities 5,550 (7,508) FINANCING ACTIVITIES: Proceeds from Short- and Long-Term Borrowings 10 3,322 Repayments of Debt Principal -- (1,724) Repayment of Life Insurance Debt -- (3,081) Proceeds from Disposition of Treasury Stock 258 214 Proceeds from Sale of Capital Stock, Net 404 268 ------------ ------------ Net Cash Provided by (Used in) Financing Activities 672 (1,001) Effect of Exchange Rate Changes on Cash (224) (213) --------------- -------------- Net Increase (Decrease) in Cash and Cash Equivalents 5,887 (12,279) Cash and Cash Equivalents at Beginning of Year 22,300 20,891 ------------- ------------- Cash and Cash Equivalents at End of Quarter $ 28,187 $ 8,612 ============ =========== The accompanying notes are an integral part of the condensed financial statements.
6 ROGERS CORPORATION AND CONSOLIDATED AFFILIATES SUPPLEMENTARY NOTES (Unaudited) A. The accompanying unaudited condensed 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. All significant intercompany transactions have been eliminated. For further information regarding Rogers' accounting policies, 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 29, 2002. B. Rogers effective tax rate was 25% for the three months ended March 30, 2003 and March 31, 2002. Income taxes paid were $99,000 and $2,000 in the first three months of 2003 and 2002, respectively. C. Comprehensive income, net of related tax, for the first three-months ended were as follows:
(Dollars in Thousands) 2003 2002 ---- ---- Net income $ 5,739 $ 3,884 Foreign currency translation adjustments 840 (296) ----------- ------------ Comprehensive income $ 6,579 $ 3,588 ========= =========
Accumulated balances related to each component of Other Comprehensive Loss were as follows:
March 31, December 29, 2003 2002 ----- Foreign currency translation adjustments $ 3,885 $ 3,045 Change in minimum pension liability (7,738) (7,738) --------- ------- Accumulated Other Comprehensive Loss $ (3,853) $ (4,693) ========= =========
7 D. The following table sets forth the computation of basic and diluted earnings per share in conformity with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" for the first three months ended:
(Dollars in Thousands, Except Per Share Amounts) 2003 2002 ---- ------- Numerator: Net income $5,739 $3,884 Denominator: Denominator for basic earnings per share - Weighted-average shares 15,572 15,403 Effect of stock options 466 646 --------- ---------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions $16,038 $16,049 ======== ======== Basic earnings per share $ .37 $ .25 ======== ========= Diluted earnings per share $ .36 $ .24 ======== =========
E. Under various plans, the Company may grant stock and stock options to directors, officers, and other key employees. Stock-based compensation awards are accounted for using the intrinsic value method prescribed in APB 25, "Accounting for Stock Issued to Employees" and related interpretations. Stock-based compensation costs for stock options are generally not reflected in net income as options granted under the plans had an exercise price equal to market value of the underlying common stock on the date of the grant. Stock-based compensation costs for stock awards are reflected in net income over the awards' vesting period. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized in the financial statements for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in the three months ended, consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share for the first three months ended would have been reduced to the pro forma amounts indicated below: 8
(Dollars in Thousands, Except Per Share Amounts) 2003 2002 ------------------ ----------------- Net income, as reported $5,739 $3,884 Less: Total stock-based compensation expense determined under Black-Scholes option pricing model, net of related tax effect 645 589 ------------------ ------- ----------------- Pro forma net income $ 5,094 $3,295 ------------------ ------- ----------------- Basic earnings per share: As Reported $.37 $.25 Pro Forma .33 .21 ------------------ ------- ----------------- Diluted earnings per share: As Reported $.36 $.24 Pro Forma .32 .20 ------------------ ------- -----------------
The effects on pro forma net income and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net income for future years, due to such things as the vesting period of the stock options, and the potential for issuance of additional stock options in future years. An average vesting period of three years was used for the assumption regarding stock options issued. Regular options granted to officers and other key U.S. employees usually become exercisable in one-third increments beginning on the second anniversary of the grant date. F. The following table sets forth the information about the Company's operating segments in conformity with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" for the first three months ended:
High Printed Polymer (Dollars in Millions) Performance Circuit Materials & Foams Materials Components Total - -------------------------------------------------------------------------------------------------------------------- 2003 Net Sales $17.3 $24.2 $10.4 $51.9 Operating Income 2.1 2.6 (0.7) 4.0 2002 Net Sales $15.7 $19.5 $19.4 $54.6 Operating Income 1.6 0.4 0.7 .7
Inter-segment sales, which are generally priced with reference to costs or prevailing market prices, have been eliminated from the sales data in the previous table. 9 G. The Company has four joint ventures, each 50% owned, which are accounted for by the equity method. Equity income of $2,540,000 and $1,769,000 for the first three months ended in 2003 and 2002 is included in other income less other charges on the consolidated statements of income. Each of the joint ventures is described below:
Joint Venture Location Business Segment Durel Corporation U.S. Polymer Materials and Components Rogers Inoac Corporation Japan High Performance Foams Polyimide Laminate U.S. Printed Circuit Materials Systems, LLC Rogers Chang Chun Taiwan Printed Circuit Materials Technology Co., Ltd.
The summarized financial information for these joint ventures is included in the following table for the first three months ended. Note that there is a difference between the Company's investment in unconsolidated joint ventures and its one-half interest in the underlying shareholders' equity of the joint ventures due primarily to three factors. First, the Company's major initial contribution to two joint ventures was technology that was valued differently by the joint ventures than it was on the Company's books. Secondly, one of the joint ventures had a negative retained earnings balance for a period of time. Lastly, the translation of foreign currency at current rates differs from that at historical rates. Correspondingly, there is a difference between the Company's recorded income from unconsolidated joint ventures and a 50% share of the income of those joint ventures.
(Dollars in Thousands) 2003 2002 -------------------------- ---------------------------- Net Sales $34,037,000 $28,081,000 Gross Profit 12,930,000 9,283,000 Net Income 4,765,000 3,364,000
Sales made to unconsolidated joint ventures by the Company were immaterial in all periods presented above. H. The Company is subject to federal, state, and local laws and regulations concerning the environment and is currently engaged in proceedings related to such matters. The Company is currently involved as a potentially responsible party ("PRP") in two cases involving waste disposal sites, both of which are Superfund sites. These proceedings are at a stage where it is still not possible to estimate the cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in 10 relation to that of any other PRPs. 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 worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000, monitored the site in 2001 and 2002, and will continue to monitor the site for the next three years. On the basis of estimates prepared by environmental engineers and consultants, the Company had recorded a provision of $2,600,000 in prior years. Prior to 2003, $2,300,000 was charged against this provision. In the first quarter of 2003, expenses of $100,000 have been charged against the provision. The remaining reserve is primarily for testing, monitoring, sampling and minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. In this same matter the United States Environmental Protection Agency ("EPA") alleged that the Company improperly disposed of PCBs. An administrative law judge found the Company liable for this alleged disposal and assessed a penalty of approximately $300,000. The Company reflected this fine in expense in 1998 but disputed the EPA allegations and appealed the administrative law judge's findings and penalty assessment. The original findings were upheld internally by the EPA's Environmental Appeals Board, and the Company placed that decision on appeal with the District of Columbia Federal Court of Appeals in 2000. In early January of 2002, the Company was informed that the Court of Appeals reversed the decision. As a result of this favorable decision, the $300,000 reserve for the fine was taken into income in 2001. However, subsequent to the favorable decision by the Court of Appeals, the EPA continued to pursue this issue and settlement discussions with the EPA were more protracted and difficult than originally anticipated. As such, the Company recorded $325,000 for legal and other costs associated with this matter in 2002. On January 16, 2003, a settlement agreement was signed with the EPA. The costs associated with the settlement will not exceed the provision recorded, which included a cash settlement payment to the government of $45,000 plus a commitment to undertake some energy-related environmental improvements at its facilities, as well as assistance to a local Woodstock, Connecticut Fire Department for emergency preparedness. Management believes, based on facts currently available, that the provision recorded is adequate to cover the requirements of the settlement. On February 7, 2001, the Company entered into a definitive agreement to purchase the Advanced Dielectric Division ("ADD") of Tonoga, Inc. (commonly known as Taconic), which operates facilities in Petersburgh, New York and Mullingar, Ireland. On May 11, 2001, the Company announced that active discussions with Taconic to acquire the ADD business had been suspended and it was not anticipated that the acquisition would occur. Accordingly, $1,500,000 in costs associated with this potential acquisition were written off during the second quarter of 2001. On 11 October 23, 2001, the Company terminated the acquisition agreement. On October 24, 2001, Taconic filed a breach of contract lawsuit against the Company in the United States District Court for the District of Connecticut seeking damages in the amount of $25,000,000 or more, as well as specific performance and attorneys' fees. In September 2002, a confidential settlement agreement concerning all matters raised in this litigation was negotiated and entered into. The settlement had no material impact on the 2002 results. There recently has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes these matters will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. I. In 2002, the Company incurred restructuring charges of $2,150,000. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to the 2002 year-end. The remaining employees were notified prior to year-end. The separation date of these residual employees will occur on varied dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of March 30, 2003, the balance in the accrual for these charges was $1,200,000. Management believes, based on current estimates, the residual provision will be adequate to cover the future costs of these restructuring activities. The following table summarizes activities related to the provision for the first three months ended. 12
(Dollars in Thousands) Balance in Provision at December 29, 2002 $1,600,000 Less Payments made for Severance Benefits (400,000) Adjustments/Additional Provisions -- ----------- Balance in Provision at March 30, 2003 $ 1,200,000 ===========
J. As of December 31, 2001 (fiscal year 2002), the Company acquired certain assets of the high performance foam business of Cellect LLC ("Cellect")for approximately $10,000,000 in cash, plus a potential earn-out in five years based upon performance. While there is no contractual limitation on the earn-out, the actual earn-out will be determined and affected by the sales and profitability growth through 2006 as compared to the base year of 2001. The assets acquired included intellectual property rights, machinery and equipment, and customer lists for portions of the Cellect plastomeric and elastomeric high performance polyolefin foam business. The acquisition was accounted for as a purchase pursuant to SFAS No.141, "Business Combinations". As such, the purchase price was allocated to property, plant and equipment and intangible assets based on their respective fair values at the date of acquisition. On November 18, 2002, the Company completed the divestiture of its Moldable Composites Division ("MCD"), located in Manchester, Connecticut. MCD, which was included in the Company's Polymer Materials and Components segment, was sold to Vyncolit North America Inc., a subsidiary of the Perstorp group, Sweden. Under the terms of the agreement, the Company will receive a total of approximately $21,000,000 for the business assets (excluding the intellectual property) and a five-year royalty stream from the intellectual property license. Half of the $21,000,000 was paid in cash upon consummation of the transaction. A Note, which bears interest at the rate of LIBOR plus 1%, was provided for the remainder of the sales price, which will be paid over a five-year period. There was no material gain or loss on the transaction. K. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46 clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to existing variable interest entities in the interim period beginning after June 15, 2003. The Company is reviewing FIN 46 to determine its impact, if any, on future reporting periods. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS AND SEGMENT ANALYSIS Net sales in the first quarter of 2003 were $51.9 million and were down about 5% compared to $54.6 million in the first quarter of 2002, reflecting the divestiture of MCD. The Company considers its 50%-owned, unconsolidated joint ventures as an integral part of its business. These joint ventures had total revenues in the first quarter of 2003 of $34 million. Adding 50% of these joint venture sales to the Company's net sales, Combined Sales were $68.9 million for the quarter compared to $68.7 million reported in the first quarter of 2002. Combined Sales were relatively flat with the first quarter of 2002 because of the MCD divestiture. However, revenues across most of the Company's product lines and joint ventures improved from the prior year and the fourth quarter of 2002 with strong sales into key market niches.
(Dollars in Thousands) First Quarter --------------------- ---- --------------------- 2003 2002 --------------------- --------------------- Net Sales, as reported in this report and in accordance with $51.9 $54.6 generally acceptable accounting principles 50% of Rogers' Joint Venture Sales 17.0 14.1 - ---- - ---- Combined Sales $68.9 $68.7 ===== =====
Sales of Printed Circuit Materials for the quarter totaled $24.2 million, an increase of 24% compared to the first quarter of 2002. Revenue growth was driven by strong sales of high frequency laminates into the satellite television and cellular base station infrastructure markets as well as flexible laminates for disk drive applications and increased penetration into cellular telephone handsets. High Performance Foam sales were $17.3 million for this year's first quarter, up 10% from quarter one last year. Revenues in this business segment increased, in part, due to stronger sales into the industrial and imaging markets and continued growth in the Company's polyolefin foam product line acquired in 2002. Sales of Polymer Materials and Components totaled $10.4 million, down significantly from the prior year period sales of $19.4 million. This decline was primarily caused by the divestiture of MCD. First quarter 2003 net income was $5.7 million and diluted earnings per share were $.36, as compared to $3.9 million in net income and $.24 in diluted earnings per share earned in last year's first three months. The increase was due mostly to revenue growth in Rogers' higher margin businesses, improvement in manufacturing margins, and better performance by Rogers' joint ventures. 14 Manufacturing profit as a percentage of sales was 32% in the first quarter of 2003 and 30% in the first quarter of 2002. The impact of higher revenues in Rogers' higher margin businesses coupled with continued productivity improvements continues to drive stronger manufacturing margins; however, a portion of the gains have been reduced somewhat by the start up costs associated with plant openings in China, Belgium, and Carol Stream, Illinois. Selling and administrative expenses for the first three months of 2003 were down in total dollars as compared to the first quarter of 2002, but consistent as a percentage of sales. The decrease in total expenses was a result of continued cost reductions. Research and development expenses of $2.8 million in the first quarter of 2003 were lower than the $3.5 million in the comparable period in 2002. This decrease is due to timing of developmental projects and the divestiture of the Moldable Composites Division. Other income was $3.6 million in the first quarter of 2003 compared to $2.6 million in the comparable period in 2002. The increase is due primarily to the better performance of Rogers' joint ventures and increased royalties, principally associated with the intellectual property license entered into in connection with the divestiture of MCD. Rogers' joint ventures in total had a very good first quarter. Revenues at Durel Corporation, Rogers' joint venture with 3M, were almost 17% higher for the first quarter of 2003 compared to the first quarter of 2002. Durel's sales to the automotive segment were up as anticipated, and shipments for cell phones were better than expected. The effective tax rate used in the first quarter of 2003 and 2002 was 25%. The tax rate has continued to benefit from foreign tax credits, research and development credits, nontaxable foreign sales income, and most recently a reduction in the statutory tax rate in Belgium. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments increased during the first quarter by approximately $1.3 million due primarily to dividends from the Rogers Inoac Corporation joint venture and additional proceeds received for the MCD divestiture, partially offset by capital expenditures in the quarter. Trade receivables were up from the 2002 year-end due to the increased revenues in the quarter. Inventories and current liabilities were relatively flat with the 2002 year-end levels. Net cash used by operating activities in the first three months of 2003 totaled $0.1 million. This compares with $3.6 million used by operations for the comparable 2002 period. This difference is primarily attributable to higher net income in 2003 offset by an increase in trade receivables from the fourth quarter of 2002. In 2003, investments in capital equipment totaled $3.7 million in the first quarter and are expected to approach $25.0 million for the year. In 2002, capital expenditures in the first quarter were $2.5 million and finished at $22.3 million for the year. 15 Management believes that cash on hand, and internally generated funds will be sufficient to meet the near term, regular needs of the business. In addition, the Company has an unsecured multi-currency revolving credit agreement with two domestic banks and can borrow up to $50 million, or the equivalent in certain other foreign currencies. There were no borrowings at March 30, 2003 under this agreement. In addition to the revolving credit agreement above, Rogers N.V., a Belgian subsidiary of the Company, has an unsecured revolving credit agreement with a European bank. Under this arrangement Rogers N.V. can borrow up to 6.2 million Euro. There were no borrowings at March 30, 2003 under this agreement. RESTRUCTURINGS In 2002, the Company incurred restructuring charges of $2,150,000. These charges were associated solely with the severance benefits for 62 employees of which 48 had been terminated prior to the 2002 year-end. The remaining employees were notified prior to year-end. The separation date of these residual employees will occur on varied dates in 2003. These workforce reductions were initiated in order to appropriately align resources with the Company's business requirements, given varied ongoing operational initiatives, including non-strategic business unit consolidations, plant rationalizations, outsourcing low value production and/or moving it to lower production cost environments, and support function reorganizations to streamline administrative activities. As of March 30, 2003, the balance in the accrual for these charges was $1,200,000. Management believes, based on current estimates, the residual provision will be adequate to cover the future costs of these restructuring activities. The following table summarizes activities related to the provision for the first three months ended.
(Dollars in Thousands) Balance in Provision at December 29, 2002 $1,600,000 Less Payments made for Severance Benefits (400,000) Adjustments/Additional Provisions -- ----------- Balance in Provision at March 30, 2003 $1,200,000 ==========
CONTINGENCIES During the first quarter of 2003, there were no material developments relative to environmental matters or other contingencies (Refer to Note H for ongoing environmental and contingency matters). The Company has not had any material recurring costs and capital expenditures relating to environmental matters, except as specifically described in the preceding statements. FORWARD-LOOKING STATEMENTS Statements in this report that are not strictly historical may be deemed to be "forward-looking" statements which should be considered as subject to the many uncertainties that exist in the Company's operations and environment. These uncertainties, which include 16 economic conditions, market demand and pricing, competitive and cost factors, rapid technological change, new product introductions, and the like, are discussed in greater detail in Rogers' 2002 Form 10-K filed with the Securities and Exchange Commission and incorporated by reference. Such factors could cause actual results to differ materially from those in the forward-looking statements. ITEM. 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates and foreign exchange rates. The Company does not use derivative instruments for trading or speculative purposes. The Company monitors foreign exchange and interest rate risks and manages such risks on specific transactions. The risk management process primarily uses analytical techniques and sensitivity analysis. The Company has various borrowing facilities where the interest rates, although not fixed, are relatively low. Currently, an increase in the associated interest rates would not significantly impact interest expense on these facilities as the Company has paid them off in full, thus the Company has no debt. The fair value of the Company's investment portfolio or the related interest income would not be significantly impacted by either a 100.0 basis point increase or decrease in interest rates due mainly to the size and short-term nature of the Company's investment portfolio and the relative insignificance of interest income to consolidated pretax income. The Company's largest foreign currency exposure is against the Euro, primarily because of its investments in its ongoing operations in Belgium. In addition to the Euro exposure, commensurate with the Company's growth and expansion in Asia, particularly China, the Company is experiencing an escalation of foreign currency exposure against the currencies in countries such as China, Japan, Taiwan, Korea, and Singapore. Exposure to variability in currency exchange rates is mitigated, when possible, through the use of natural hedges, whereby purchases and sales in the same foreign currency and with similar maturity dates offset one another. The Company can initiate hedging activities by entering into foreign exchange forward contracts with third parties when the use of natural hedges is not possible or desirable. ITEM 4. CONTROLS AND PROCEDURES a. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"), as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting our management on a timely basis to material information required to be disclosed in our reports filed under the Exchange Act. b. There have been no significant changes in our internal controls or in other factors that could significantly affect such controls since the Evaluation Date. 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is currently involved as a potentially responsible party ("PRP") in two cases involving waste disposal sites, both of which are Superfund sites. These proceedings are at a stage where it is still not possible to estimate the cost of remediation, the timing and extent of remedial action that may be required by governmental authorities, and the amount of liability, if any, of the Company alone or in relation to that of any other PRPs. Where it has been possible to make a reasonable estimate of the Company's liability, a provision has been established. Insurance proceeds have only been taken into account when they have been confirmed by or received from the insurance company. Actual costs to be incurred in future periods may vary from these estimates. Based on facts presently known to it, the Company does not believe that the outcome of these proceedings will have a material adverse effect on its financial position. In addition to the above proceedings, the Company worked with the Connecticut Department of Environmental Protection ("CT DEP") related to certain polychlorinated biphenyl ("PCB") contamination in the soil beneath a section of cement flooring at its Woodstock, Connecticut facility. The Company completed clean-up efforts in 2000, monitored the site in 2001 and 2002, and will continue to monitor the site for the next three years. On the basis of estimates prepared by environmental engineers and consultants, the Company had recorded a provision of $2,600,000 in prior years. Prior to 2003, $2,300,000 was charged against this provision. In the first quarter of 2003, expenses of $100,000 have been charged against the provision. The remaining reserve is primarily for testing, monitoring, sampling and minor residual treatment activity. Management believes, based on facts currently available, that the balance of this provision is adequate to complete the project. There recently has been a significant increase in certain U.S. states in asbestos-related product liability claims against numerous industrial companies. The Company has been named, along with hundreds of other industrial companies, as a defendant in some of these cases. The Company strongly believes it has valid defenses to these claims and intends to defend itself vigorously. In addition, the Company believes that it has sufficient insurance to cover all costs associated with these claims. Based upon past claims experience and available insurance coverage, management believes these matters will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. In addition to the above issues, the nature and scope of the Company's business bring it in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject the Company to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse effect on the financial position of the Company. 18 Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits: Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) There were no reports on Form 8-K filed for the three months ended March 30, 2003. 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/ James M. Rutledge ---------------------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer Dated: May 2, 2003 19 ROGERS CORPORATION CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Walter E. Boomer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rogers Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and 20 b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Walter E. Boomer ------------------- Walter E. Boomer Chairman of the Board of Directors and Chief Executive Officer May 2, 2003 CERTIFICATION I, James M. Rutledge, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rogers Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and 21 c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ James M. Rutledge -------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer May 2, 2003 22 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Rogers Corporation (the "Company") on Form 10-Q for the period ending March 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter E. Boomer, Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Walter E. Boomer ------------------- Walter E. Boomer Chairman of the Board of Directors and Chief Executive Officer May 2, 2003 23 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Rogers Corporation (the "Company") on Form 10-Q for the period ending March 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. Rutledge, Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James M. Rutledge - --------------------- James M. Rutledge Vice President, Finance and Chief Financial Officer May 2, 2003 24 -----END PRIVACY-ENHANCED MESSAGE-----