SELECTED FINANCIAL DATA
(Dollars in Thousands, Except per Share Amounts)
- ----------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
SALES AND INCOME
- ----------
Net Sales $248,215 $247,839 $216,574 $189,652 $141,476
Income Before Income
Taxes 37,634 25,877 19,126 22,005 17,657
Net Income 26,720 18,631 13,771 16,500 13,949
PER SHARE DATA*
- ----------
Basic 1.79 1.24 .91 1.10 .96
Diluted 1.69 1.19 .87 1.05 .91
Book Value 9.65 7.94 7.24 6.26 5.21
FINANCIAL POSITION (YEAR-END)
- ----------
Current Assets 92,849 72,547 69,164 74,325 57,567
Current Liabilities 38,745 36,741 32,305 33,983 24,637
Ratio of Current Assets
to Current
Liabilities 2.4 to 1 2.0 to 1 2.1 to 1 2.2 to 1 2.3 to 1
Cash, Cash Equivalents, and
Marketable Securities 10,100 9,955 9,849 21,555 19,631
Working Capital 54,104 35,806 36,859 40,342 32,930
Property, Plant and
Equipment - Net 94,199 84,652 79,969 57,359 41,772
Total Assets 221,514 183,406 176,174 158,440 119,227
Long-Term Debt less Current
Maturities 9,116 9,740 13,687 13,660 3,600
Shareholders' Equity 145,813 116,417 110,231 94,378 77,212
Long-Term Debt as a Percentage
of Shareholders' Equity 6% 8% 12% 14% 5%
OTHER DATA
- ----------
Depreciation and
Amortization 12,507 10,375 8,439 6,614 5,781
Research and Development
Expenses 12,493 10,791 10,352 9,608 9,184
Capital Expenditures 22,744 13,621 28,965 17,739 6,326
Number of Employees
(Average) 1,358 1,197 1,122 993 854
Net Sales per Employee 183 207 193 191 166
Number of Shares Outstanding
at Year-End* 15,102,670 14,664,652 15,235,332 15,087,398 14,811,922
*Restated for the two-for-one stock split in May 2000.
13
F-3
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
For the year 2000, net sales were $248.2 million, up from $247.8
in 1999. Combined Sales, which include half of the sales of
Rogers unconsolidated 50% owned joint ventures, totaled $316.8
million. Beginning in January 2000, sales of a specialty flexible
circuit laminate sold to Hutchinson Technology, Inc. (HTI), were
sold through Polyimide Laminate Systems, LLC (PLS), Rogers joint
venture with Mitsui Chemicals, Inc. Previous to the formation of
this joint venture, these sales were included in Rogers net
sales. If these sales had been sold through the joint venture
during both periods, Rogers net sales would have shown an
increase of 14.3% in 2000 as compared to 1999. On the same
basis, Combined Sales would have shown an increase of 17.5% in
2000 over 1999.
Income before income taxes rose 45% to a record $37.6 million
while after-tax profits increased 43% to $26.7 million, also a
record. Diluted earnings per share for the year were $1.69, up
from $1.19 in 1999 and basic earnings per share were $1.79 in
2000, up from $1.24 in 1999. These numbers reflect the two-for-
one stock split which occurred in the second quarter of 2000.
The improvement in earnings resulted from sales growth, improved
margins and increased joint venture income, offset somewhat by
the added spending to further strengthen sales and marketing
capabilities and to further develop information systems.
Sales and Operating Profits
Sales - 2000 over 1999
Net sales were $248.2 million in 2000, up slightly from $247.8
million in 1999. Combined Sales, which include half of the sales
of Rogers unconsolidated 50% owned joint ventures, totaled $316.8
million, compared to $285.0 million in 1999. As noted above, if
sales of a specialty flexible circuit board laminate sold to HTI
were treated the same way as reported in 1999, Rogers net sales
would have shown an increase of 14.3% in 2000 from 1999. On the
same basis, Combined Sales would have shown an increase of 17.5%
in 2000 over 1999. The Company's favorable 2000 results are
primarily attributable to strong sales to the computer and
wireless communication markets. Sales of silicone and urethane
materials and high-frequency circuit materials were at record
levels during 2000.
Sales - 1999 over 1998
Net sales were $247.8 million for 1999, 14% higher than those
reported in 1998. Combined Sales totaled $285.0 million in 1999,
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 primary
uses for these materials.
14
F-4
Revenue improvement is also attributable to higher sales of urethane
and silicone foam materials, particularly for wireless communications
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.
Operating Income - 2000 over 1999
Manufacturing margins rose from 29% in 1999 to 33% in 2000. The
2000 margins continue the improvement started in 1999 and are the
best in the Company's history. This increase is due to a
continuing effort to install new, more productive equipment and
to increase the utilization of existing equipment. Additionally,
in 1999 manufacturing profit was held down by the lower margins
from sales of FLEX-I-MID materials to HTI. These materials were
produced for the Company by Mitsui Chemicals, Inc., in Japan, and
carried a lower margin than materials that the Company
manufactures. In 2000, these sales were made directly by PLS.
Selling and administrative expenses, as a percentage of sales,
increased slightly from 15% in 1999 to 16% in 2000. A higher
level of information systems expenses was incurred to improve
performance for all users. Also incurred in 2000 were one-time
licensing and consulting costs. We continued to strengthen our
global sales and marketing capabilities particularly through
expansion. Rogers Korea, Inc., a sales and marketing office with
warehousing facilities, officially opened in Seoul, Korea, in the
second quarter of 2000. Rogers Technologies Singapore, Inc., a
sales and marketing office with warehousing facilities,
officially opened in Singapore in the third quarter of 2000. The
local presence provided by these operations allows the Company to
more effectively service its growing customer base in these
areas.
Research and development expenses were $12.5 million in 2000
compared to $10.8 million for the comparable period in 1999, a
16% increase. This reflects an increase in technical staff that
allows us to continue improvement in core capabilities, while
also placing greater emphasis on new product development.
Operating Income - 1999 over 1998
The Company's manufacturing margin 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 past
several years. New equipment installed as part of a capital
expansion program has produced process improvements with enhanced
product flow and efficiency. Manufacturing profit percentages
were held down by the lower margins on the Company's sales of
FLEX-I-MID materials to HTI.
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.
15
F-5
Research and development expense totaled $10.8 million in 1999
compared with $10.4 million in 1998. R&D emphasis on new product
platforms for the creation of product families continued from
1998 to 1999.
Other Income and Expense - 2000 over 1999
Net interest income increased approximately $400,000 from 1999 to
2000. The decrease in interest expense accounted for most of
this change. Specifically, long-term debt declined in 2000 as
1999 interest expense was higher due to a penalty associated
with the early payment of debt.
Other income less other charges increased $6.2 million from 1999
to 2000. Joint venture income and commission income received
from the Company's joint ventures accounted for this increase.
The income from the newly formed PLS joint venture was included
in manufacturing profit in 1999.
Other Income and Expense - 1999 over 1998
Net interest income decreased almost $600,000 from 1998 to 1999.
This decrease is primarily due to lower cash balances during the
year, the prepayment penalty incurred in 1999 as a result of the
payoff of debt which carried a 10.6% interest rate, and lower
amounts of interest expense capitalized as part of long-term
capital spending projects.
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 remediation expenses in
1999.
Income Taxes
The effective tax rates were 29% in 2000, and 28% in 1999 and
1998. In 2000, the tax rate benefited primarily from foreign tax
credits, research and development credits, and nontaxable foreign
sales income. In 1999 and 1998, the Company had similar benefits
reducing the effective tax rate. In 1999, the Company also
incurred current taxes on its foreign joint venture income that
had an offsetting decrease to deferred taxes due to the related
reduction in the valuation allowance deemed to be necessary by
the Company under FAS No. 109. The deferred tax valuation
allowance is recorded on the net deferred tax asset associated
with its foreign joint venture income.
Backlog
The Company's backlog of firm orders was $31.8 million at
December 31, 2000 and $37.5 million at January 2, 2000. The
decrease is due primarily to the elimination of backlog of HTI
sales that were shifted to the PLS joint venture and to
transitional sales from a molding materials acquisition made in
1999.
16
F-6
Segment Sales and Operations
Business segments were changed in 2000, and they are High
Performance Foams, Printed Circuit Materials, and Polymer
Materials and Components. Top management and the Board of
Directors have been using these new segments to better evaluate
the businesses.
Sales in the High Performance Foams business segment increased
15%, 11% and 0% in 2000, 1999, and 1998, respectively. The
increases reflect significantly higher sales of urethane and
silicone foam materials in both 2000 and 1999, particularly for
wireless communications and computer applications.
The High Performance Foams business segment generated operating
income of $11.2 million in 2000, $7.8 million in 1999, and $5.5
million in 1998. Improvement in manufacturing yields and the
higher sales volume resulted in the significant improvement from
1999 to 2000.
Sales from the Printed Circuit Materials business segment
decreased 5% in 2000, due to the aforementioned shift in sales
from the Company to the PLS joint venture. Sales increased by 8%
in 1999 and 23% in 1998. If 1999 sales data were restated to
exclude the sales to HTI,the sales increase would have been 34%
in 2000. Worldwide sales of high-frequency circuit materials far
exceeded the Company's expectations in 2000. Rogers has become a
leading supplier of such materials to the computer and wireless
communications markets. Wireless communication infrastructure,
satellite television receivers, and wireless communication
antennas are the current primary uses for these materials.
Worldwide sales of high-frequency circuit materials had also set
a record in 1999. Sales to the wireless communications 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 a significant portion of the 1998 increase.
Printed Circuit Materials operating income was $12.2 million in
2000, $7.5 million in 1999, and $6.2 million in 1998.
Significantly higher sales, excluding HTI sales now made by PLS,
coupled with more efficient manufacturing facilities, caused the
increase in operating income in 2000. New equipment has produced
immediate process improvements with enhanced product flow and
efficiency and increased utilization of equipment has also
contributed to the improvement. 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.
Sales of Polymer Materials and Components decreased 2% in 2000,
but increased by 25% and 13% in 1999 and 1998, respectively.
The increase from 1998 to 2000 has been 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. Also in
1998, Rogers N.V., a European manufacturing facility,
strengthened its
17
F-7
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. The dampening sleeve business was bought because of the
high profit margins, but sales are expected to decline year-over-year
as evidenced in 2000 results. Additionally, sales from our Elastomer
Components Division were lower in 2000 due to softness in demand being
experienced by a couple of major customers.
Polymer Materials and Components operating income was $6.1
million, $9.1 million, and $8.0 million for 2000, 1999, and 1998,
respectively. Lower sales, especially those with high
contribution margins, were the cause of the decrease in operating
income in 2000. The purchase of the Imation dampening sleeve
business and the Cytec Fiberite engineered molding compounds
business resulted in significant contributions to the Company's
performance in 1999.
Joint Ventures
Durel Corporation, the Company's 50% owned joint venture with 3M
in electroluminescent lamps, had record sales in 2000, which were
78% higher than 1999. These higher sales, along with lower
expenses associated with the Osram Sylvania litigation, have
resulted in a significant increase in Durel's profitability.
Continued penetration of the cellular telephone handset market is
driving this growth. Durel has doubled manufacturing capacity
since the beginning of 2000. To meet the demand from this rapidly
growing market, Durel has also begun construction of a 75,000
square foot addition to be completed by the first quarter of
2001. In February of 2000, Durel achieved a court victory over
Osram Sylvania, Inc. In that long pending lawsuit, Durel was
awarded $49 million of damages in a jury decision in federal
court. Durel had sued Osram Sylvania for patent infringement.
Although Osram Sylvania is appealing the jury's decision, the
February victory moves Durel significantly closer to successful
resolution of this dispute. On April 29, 2000, the court awarded
Durel an additional $13 million in interest on the damages of $49
million awarded earlier. Durel achieved 50% growth in sales in
1999 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 handheld electronic devices. These
sales gains helped Durel achieve record earnings in 1999 despite
a very significant increase in legal costs associated with the
patent infringement lawsuit.
Profits of Rogers Inoac Corporation(RIC), the Company's joint
venture with Inoac Corporation in Japan, improved significantly
due to increasing sales of urethane foams for hand-held
electronic devices and general overall economic strength in
Southeast Asia. In 1999, RIC was successful in moving PORON
materials into industrial applications and, along with the
Company, strengthened relationships with a leading footwear
manufacturer.
In 1999, Rogers sales included $30.7 million of sales of a
specialty flexible circuit board laminate to HTI. In 2000, this
product, which is manufactured by Mitsui Chemicals, Inc. under a
Rogers technology license, is being sold by our new PLS joint
18
F-8
venture. Since PLS is making these sales directly, Rogers share
of such sales are reported in Combined Sales rather than in net
sales.
On June 29, 2000, Rogers signed a joint venture agreement with
Chang Chun Plastics Co., Ltd. (CCP), a $1.1 billion Taiwanese
specialty chemical manufacturer. Combining Rogers leading-edge
flexible circuit materials technology with CCP's outstanding
manufacturing capabilities and long established market position
in Taiwan will enable the joint venture to be a leading flexible
circuit materials supplier in Taiwan.
Acquisitions
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. The
transaction is subject to regulatory and government review and is
expected to be made final during the second quarter of 2001. ADD
is a worldwide leader in the manufacture of
polytetrafluoroethylene-based laminates used in the wireless
communications and high-speed digital markets. The purchase
price of approximately $70 million will be paid for partially in
Rogers stock and partially with cash from the recently negotiated
credit facility. The acquisition will be accounted for as a
purchase; accordingly, the purchase price will be allocated to
the underlying assets and liabilities based on their respective
estimated fair values at the date of acquisition.
Effective January 1999, the Company acquired the engineered
molding compounds business of Cytec Fiberite. This acquisition
has added capabilities that have enhanced the Company's molding
materials business.
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.
Sources of Liquidity and Capital
Net cash provided by operating activities amounted to $23.7
million in 2000, $32.5 million in 1999 and $17.9 million in 1998.
The year-to-year decrease from 1999 to 2000 was due to a $6.0
million loan granted to one of the Company's unconsolidated joint
ventures and a higher level of inventories, offset partially by
increased profits and depreciation. Inventories have increased
to support higher customer demand and in particular at the
Molding Materials Division where inventory was increased in
anticipation of the final move of the
19
F-9
Cytec equipment from Winona, Minnesota to Manchester, Connecticut.
The Cytec business and equipment were acquired in late January 1999.
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.
Capital expenditures totaled $22.7 million in 2000, $13.6 million
in 1999 and $29.0 million in 1998. This increase in 2000 is
directly related to higher sales of products manufactured by the
Company. To satisfy this growing demand, the Company completed a
50% capacity increase in Arizona for the RO4000 high-frequency
circuit materials. The Company has also begun construction of a
building addition in Arizona and has acquired additional acreage
in both Arizona and Ghent, Belgium. In 1999 capital expenditures
were at more traditional levels and no major expansion projects
were initiated and completed during the year. 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 Advanced
Dielectric 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 high-frequency
microwave laminates product line was virtually completed.
Cash generated from the Company's operating activities exceeded
capital spending in both 2000 and 1999. In 1998 capital
expenditures exceeded cash generated from operating activities by
$11.1 million that nearly accounted for the $11.7 million
reduction in cash and marketable securities during 1998. For
2001, it is anticipated that capital spending will approximate
$30 million and that it will be financed by internally generated
funds.
In December 2000 the Company cancelled its $20.0 million
unsecured multi-currency revolving credit agreement with one
domestic bank and replaced it with an unsecured multi-currency
revolving credit agreement with two domestic banks. Under the
new arrangement, the Company can borrow up to $75 million, or the
equivalent in certain other foreign currencies. Amounts borrowed
under this agreement are to be paid in full by December 8, 2005.
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 50 to 112.5 basis points over a
Eurocurrency loan rate. The spreads over the Eurocurrency rate
are based on the Company's leverage ratio. Under the
arrangement, the ongoing commitment fee varies from 30.0 to 37.5
basis points of the maximum amount that can be borrowed, net of
any outstanding borrowings and the maximum amount that
beneficiaries may draw under outstanding letters of credit. The
borrowing at December 31, 2000 was denominated in Belgian francs
and the interest rate on the loan was 5.47%. The carrying value
of this debt approximates fair value as of December 31, 2000.
The loan agreement contains restrictive covenants primarily
related to total indebtedness, interest expense, capital
expenditures and net worth. The Company is in compliance with
these covenants.
The Company has designated 390.2 million Belgian francs ($9.1
million) as a hedge of its net investment in a foreign subsidiary
in Belgium. Realized and unrealized gains and losses from this
hedge are not included in the Statements of Income, but are shown
in the cumulative translation adjustment account included in
other comprehensive income. During
20
F-10
the year ended December 31, 2000, the Company recorded $600,000
of net gains in the cumulative translation adjustment related to
the hedge.
As of December 31, 2000, the Company had loaned $6.5 million to
Durel Corporation. Borrowings must be made in increments of
$250,000, may not exceed $8.0 million in the aggregate, will be
at the prime rate of interest, and any amounts repaid by Durel
may subsequently be re-borrowed during the term of the loan
arrangement. The arrangement expires in September of 2001,
unless extended at the sole discretion of the Company.
At December 31, 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 $4.3 million at December 31,
2000 and $4.6 million at January 2, 2000. 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 over the next twelve months, 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.
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.
Environmental Activities
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.
21
F-11
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 three years. On the basis of
estimates prepared by environmental engineers and consultants,
the Company recorded a provision of $1.6 million 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 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 or capital
expenditures relating to environmental matters, except as
specifically described in the preceding statements.
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 current
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.
22
F-12
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 December 8, 2005. This arrangement
functions as a hedge of its net investment in its Belgian
subsidiaries. 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.
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 that 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 factors include changing business, economic,
and political conditions both in the United States and in foreign
countries; increasing competition; changes in product mix; the
development of new products and manufacturing processes and the
inherent risks associated with such efforts; changes in the
availability and cost of raw materials; fluctuations in foreign
currency exchange rates; and any difficulties in integrating
acquired businesses into the Company's operations. Additional
information about certain factors that could cause actual results
to differ from such forward-looking statements include the
following:
Technology and Product Development
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 Company's ability
to adapt to technological changes and to support established and
emerging industry standards.
In particular, the wireless communications market is
characterized by frequent new product introductions, evolving
industry standards, rapid changes in product and process
technologies, price competition and many new potential
applications. The products that the Company manufactures and
sells to the wireless communications 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
23
F-13
introduction by the Company of such new products could be
affected by engineering or other development program slippages
and problems in effectively and efficiently increasing production to
meet customer needs. In addition, the market for computers is
characterized by rapid technological change, significant pricing
pressures and short lead times. Because 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.
Volatility of Demand
Although the computer industry and the wireless communications
industry have experienced overall growth in the recent past,
these industries historically have been characterized by wide
fluctuations in product supply and demand. From time to time, the
industries have experienced significant downturns, often in
connection with, or in anticipation of, maturing product cycles
and declines in general economic conditions. These downturns
have been characterized by diminished product demand, production
over-capacity and accelerated price erosion. The Company's
business may in the future be materially and adversely affected
by such downturns.
Environmental Litigation
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 past experience in the addressing
of environmental matters. Although current regulations impose
potential joint and several liability upon each named party at
any Superfund site, the Company's expects its contribution for
cleanup to be limited due to the number of other potentially
responsible parties, and the Company's share of the 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.
Capital Expenditures
The level of anticipated 2001 capital expenditures and the
anticipated benefits to be derived from such 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. Similar risks are
inherent in joint venture operations.
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F-14
Raw Materials
The Company from time to time must procure certain raw materials
from single or limited sources that expose the Company to
vulnerability to price increases and the varying 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. 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.
Foreign Sales
The Company's international sales involve risks, including
imposition of governmental controls, currency exchange
fluctuation, potential insolvency of international customers,
reduced protection for intellectual property rights, 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.
Acquisitions
The Company's recent growth has been partly the result of
acquisitions and more acquisitions are anticipated. Accordingly,
the Company's future performance will depend on its ability to
correctly identify appropriate businesses to acquire, negotiate
favorable terms for such acquisitions and then effectively and
efficiently integrate such acquisitions into the Company's
existing businesses. There is no certainty that the Company will
succeed in such endeavors.
The foregoing list of important factors does not include all such
factors that could cause actual results to differ from forward-
looking statements contained in this report, nor are such factors
necessarily presented in order of importance.
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F-15