SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
- ----------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
SALES AND INCOME
- ----------
Net Sales $123,168 $172,361 $182,352 $190,319 $174,948
Cost Reduction Charges -- (26,602) (2,774) (7,075) --
Income (Loss) Before Income Taxes
and Cumulative Effect of Accounting
Change 6,716 (28,005) (3,403) (3,632) 2,232
Cumulative Effect of Change in
Accounting for Postretirement
Benefits -- (6,241) -- -- --
Net Income (Loss) 6,670 (32,666) (2,320) (2,447) 1,607
PER SHARE DATA
- ----------
Income (Loss) Before Cumulative
Effect of Accounting Change* 2.09 (8.54) (.75) (.80) .53
Cumulative Effect of Change in
Accounting for Postretirement
Benefits* -- (2.02) -- -- --
Net Income (Loss)<F1> 2.09 (10.56) (.75) (.80) .53
Cash Dividends Declared -- -- .09 .12 .12
Book Value 8.66 6.15 16.85 17.84 18.20
FINANCIAL POSITION (YEAR-END)
- ----------
Current Assets 36,842 56,028 55,769 57,608 58,826
Current Liabilities 23,683 33,532 35,226 37,294 32,569
Ratio of Current Assets
to Current Liabilities 1.6 to 1 1.7 to 1 1.6 to 1 1.5 to 1 1.8 to 1
Working Capital 13,159 22,496 20,543 20,314 26,257
Property, Plant and
Equipment - Net 36,807 35,504 60,189 65,645 62,381
Total Assets 81,837 97,746 122,674 129,472 126,681
Long-Term Debt less Current
Maturities 14,190 24,197 26,336 27,526 30,647
Shareholders' Equity 27,891 19,083 51,983 54,859 55,763
Long-Term Debt as a Percentage
of Shareholders' Equity 51% 127% 51% 50% 55%
OTHER DATA
- ----------
Depreciation and Amortization 6,691 10,928 11,702 11,184 10,604
Research and Development Expenses<F2> 6,743 8,196 9,589 8,644 8,345
Capital Expenditures 8,582 9,061 11,710 13,601 11,425
Number of Employees (Average) 1,104<F3> 2,512 2,989 3,213 3,152
Sales per Employee 112 69 61 59 56
Number of Shares Outstanding at
Year-End 3,222,461 3,100,649 3,084,659 3,075,288 3,063,219
- ----------
<FN>
<F1>Based on weighted average number of shares and share equivalents outstanding for 1993 and
1989, and based on weighted average number of shares outstanding for 1992, 1991 and 1990.
<F2>After the deduction of outside funding for the multichip module development project of
$1,698 and $604 in 1990 and 1989, respectively.
<F3>Excludes employees of divested businesses.
17
F-36
CONSOLIDATED BALANCE SHEETS
- ----------
January 2, January 3,
(Dollars in Thousands) 1994 1993
---------- ------------
ASSETS
- ----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,533 $ 5,356
Accounts Receivable 15,008 14,811
Inventories:
Raw Materials 3,432 3,852
In-Process and Finished 5,404 6,104
Less LIFO Reserve (808) (707)
--------- ---------
Total Inventories 8,028 9,249
Current Deferred Income Taxes 1,820 6,384
Net Assets Held for Sale (Note B) 6,785 19,569
Prepaid Expenses 668 659
--------- ---------
Total Current Assets 36,842 56,028
--------- ---------
Property, Plant and Equipment, Net of
Accumulated Depreciation of $54,271
and $52,492 36,807 35,504
Investments in Unconsolidated Joint Ventures 3,051 2,299
Intangible Pension Asset 3,295 2,003
Other Assets 1,842 1,912
--------- ---------
Total Assets $ 81,837 $ 97,746
========= =========
18
F-37
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------
CURRENT LIABILITIES:
Accounts Payable $ 7,679 $ 7,617
Notes Payable to Banks -- 3,552
Notes Payable to Unconsolidated Joint
Ventures -- 991
Current Maturities of Long-Term Debt 3,140 6,640
Accrued Employee Benefits and Compensation 5,296 5,411
Accrued Cost Reduction Charges (Note B) 2,222 5,300
Accrued Interest 542 884
Other Accrued Liabilities 3,258 1,925
Taxes, Other than Federal and Foreign Income 1,546 1,212
--------- ---------
Total Current Liabilities 23,683 33,532
--------- ---------
Long-Term Debt, less Current Maturities 14,190 24,197
Noncurrent Deferred Income Taxes 2,055 6,568
Noncurrent Pension Liability 5,660 6,066
Noncurrent Retiree Health Care and Life
Insurance Benefits 6,122 6,062
Other Long-Term Liabilities 2,236 2,238
SHAREHOLDERS' EQUITY:
Capital Stock, $1 Par Value:
Authorized Shares 10,000,000; Issued
and Outstanding Shares 3,222,461 and
3,100,649 3,222 3,101
Additional Paid-In Capital 22,558 20,117
Equity Translation Adjustment 1,193 1,617
Retained Earnings (Deficit) 918 (5,752)
--------- ---------
Total Shareholders' Equity 27,891 19,083
--------- ---------
Total Liabilities and Shareholders'
Equity $ 81,837 $ 97,746
========= =========
- ----------
The accompanying notes are an integral part of the consolidated
financial statements.
19
F-38
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
- ----------
1993 1992 1991
(Dollars in Thousands, Except Per Share Amounts) (52 Weeks) (53 Weeks) (52 Weeks)
-------------------------------------
Net Sales $123,168 $172,361 $182,352
Cost of Sales 89,294 140,869 145,717
Selling and Administrative Expenses 18,787 22,084 25,322
Research and Development Expenses 6,743 8,196 9,589
Cost Reduction Charges (Note B) -- 26,602 2,774
------------------------------------
Total Costs and Expenses 114,824 197,751 183,402
------------------------------------
Operating Income (Loss) 8,344 (25,390) (1,050)
Other Income less Other Charges 988 460 896
Interest Expense - Net 2,616 3,075 3,249
------------------------------------
Income (Loss) Before Income Taxes (Benefit) and
Cumulative Effect of Accounting Change 6,716 (28,005) (3,403)
Income Taxes (Benefit) 46 (1,580) (1,083)
------------------------------------
Income (Loss) Before Cumulative Effect of
Accounting Change 6,670 (26,425) (2,320)
Cumulative Effect of Change in Accounting
for Postretirement Benefits (Note G) -- (6,241) --
-------------------------------------
Net Income (Loss) 6,670 (32,666) (2,320)
Retained Earnings (Deficit) at Beginning of
Year (5,752) 27,007 29,604
Cash Dividends -- 93 277
-------------------------------------
Retained Earnings (Deficit) at End of Year $ 918 $ (5,752) $ 27,007
=====================================
Income (Loss) per Share:
Primary:
Average Shares Outstanding and Common
Stock Equivalents 3,189,879 3,094,419 3,081,351
Income (Loss) Before Cumulative Effect
of Accounting Change $ 2.09 $ (8.54) $ (.75)
Cumulative Effect of Accounting Change -- (2.02) --
-------------------------------------
Income (Loss) Per Share $ 2.09 $ (10.56) $ (.75)
=====================================
Fully Diluted:
Average Shares Outstanding and Common
Stock Equivalents 3,250,457 3,094,419 3,081,351
Income (Loss) Before Cumulative Effect
of Accounting Change $ 2.05 $ (8.54) $ (.75)
Cumulative Effect of Accounting Change -- (2.02) --
-------------------------------------
Income (Loss) Per Share $ 2.05 $ (10.56) $ (.75)
=====================================
The accompanying notes are an integral part of the consolidated financial
statements.
20
F-39
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- ----------
1993 1992 1991
(52 weeks) (53 weeks) (52 weeks)
---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income (Loss) $ 6,670 $(32,666) $ (2,320)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 6,691 10,928 11,702
Benefit for Deferred Income Taxes -- (1,919) (2,391)
Equity in Undistributed (Income) Loss of Unconsolidated
Joint Ventures - Net 103 (49) (678)
Accrued Cost Reduction Charges -- 25,447 29
Cumulative Effect of Accounting Change -- 6,662 --
(Gain) Loss on Disposition of Assets 87 (142) 567
Other - Net (559) 2,731 1,609
Changes in Operating Assets and Liabilities Excluding
Effects of Acquisition and Disposition of Assets:
Accounts Receivable (573) 1,276 5,546
Accounts Receivable from Unconsolidated Joint Ventures (712) (2,584) 498
Inventories 1,116 1,060 1,353
Prepaid Expenses (30) 1 (115)
Accounts Payable and Accrued Expenses (868) (4,993) (4,229)
-----------------------------------------
Net Cash Provided by Operating Activities 11,925 5,752 11,571
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
- ----------
Capital Expenditures (8,582) (9,061) (11,710)
Proceeds from Sale of Businesses 10,899 4,985 1,553
Proceeds from Sale of Property, Plant and Equipment 179 963 141
Investment in Unconsolidated Joint Ventures -- (35) --
-----------------------------------------
Net Cash Provided by (Used in) Investing Activities 2,496 (3,148) (10,016)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
- ----------
Proceeds from Short- and Long-Term Borrowings 6,956 5,991 4,500
Repayments of Debt Principal (19,951) (5,470) (5,235)
Net Increase in Borrowings (Repayments) of Revolving Lines of
Credit (3,534) (4,387) 1,702
Proceeds from Sale of Capital Stock 1,063 293 208
Dividends Paid -- (93) (370)
-----------------------------------------
Net Cash Provided by (Used in) Financing Activities (15,466) (3,666) 805
-----------------------------------------
Effect of Exchange Rate Changes on Cash 222 (253) (78)
-----------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (823) (1,315) 2,282
Cash and Cash Equivalents at Beginning of Year 5,356 6,671 4,389
-----------------------------------------
Cash and Cash Equivalents at End of Year $ 4,533 $ 5,356 $ 6,671
=========================================
- ----------
The accompanying notes are an integral part of the consolidated financial statements.
21
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------
NOTE A-ACCOUNTING POLICIES
- ----------
PRINCIPLES OF CONSOLIDATION:
- ----------
The consolidated financial statements include the accounts of Rogers
Corporation and its wholly-owned subsidiaries (the Company), after
elimination of significant intercompany accounts and transactions.
CASH EQUIVALENTS:
- ----------
Cash equivalents are generally comprised of highly liquid investments with
an original maturity of three months or less. These investments are
stated at cost, which approximates market value.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES:
- ----------
The Company accounts for its investments in and advances to unconsolidated
joint ventures, all of which are 50% owned, using the equity method.
RELATED PARTY TRANSACTIONS:
- ----------
Sales to unconsolidated joint ventures are made on terms similar to those
prevailing with unrelated customers, except that for each joint venture,
payments to its owners may be deferred depending on the joint venture's
availability of funds, with payment priority given to parties other than
the owners of the venture.
FOREIGN CURRENCY TRANSLATION:
- ----------
All balance sheet accounts of foreign subsidiaries are translated at rates
of exchange in effect at each year-end, and income statement items are
translated at the average exchange rates for the year. Resulting
translation adjustments are made directly to a separate component of
shareholders' equity. Currency transaction adjustments are reported as
income or expense.
INVENTORIES:
- ----------
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method was used for determining the cost of approximately
39% of total Company inventories at January 2, 1994, 32% at January 3,
1993, and 22% at December 29, 1991. The cost of the remaining portion of
the inventories was principally determined on the basis of standard costs,
which approximate actual costs.
PROPERTY, PLANT AND EQUIPMENT:
- ----------
Property, plant and equipment is stated on the basis of cost, including
capitalized interest. For financial reporting purposes, provisions for
depreciation are calculated on a straight-line basis over the estimated
useful lives of the assets.
OTHER ASSETS:
- ----------
Purchased patents, licensed technology and other intangibles included in
other assets are capitalized and amortized on a straight-line basis over
their estimated useful lives, generally ranging from 2 to 17 years.
PENSIONS:
- ----------
The Company has noncontributory defined benefit plans covering
substantially all U.S. employees. Plans covering salaried employees
provide benefits based on salary, years of service and age, while those
covering hourly employees provide benefits of stated amounts for each year
of credited service with adjustments depending on age. The Company's
funding policy for all plans is to contribute amounts sufficient to meet
the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Company
may determine to be appropriate from time to time.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
- ----------
In 1992 the Company adopted Statement of Financial Accounting Standards
No. 106 (FAS 106), "Employers' Accounting for Postretirement Benefits
Other than Pensions," using the immediate recognition transition option.
This standard requires employers to recognize the expected cost of
providing postretirement benefits, such as health and life insurance,
during the years that the employees render service. Prior to 1992, the
Company recognized these benefit costs as a charge to income when claims
were paid. The Company continues to fund these postretirement benefits on
a pay-as-you-go basis.
22
F-41
INCOME TAXES:
- ----------
In the first quarter of 1993, the Company implemented the provisions of
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting
for Income Taxes." The adoption of FAS 109 changed the Company's method
of accounting for income taxes from the deferred method (Accounting
Principles Board Opinion 11) to the liability method. The liability
method requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. As permitted under
FAS 109, the Company has elected not to restate prior years' financial
statements.
No provision is made for income taxes on undistributed earnings of foreign
subsidiaries because such earnings are substantially reinvested in those
companies for an indefinite period.
NET INCOME (LOSS) PER SHARE:
- ----------
Net income per share is computed based on the weighted average number of
shares of capital stock and capital stock equivalents outstanding during
each year, while net loss per share is based only on the weighted average
number of shares of capital stock. Capital stock equivalents are
additional shares which may be issued upon the exercise of dilutive stock
options using the average market price of the Company's capital stock
during the year. Conversion of the convertible subordinated notes (see
Note I) is not assumed in the computation of fully diluted net income
(loss) per share because such conversion is antidilutive.
NOTE B-COST REDUCTION CHARGES
- ----------
During the fourth quarter of 1992, as part of a strategy to refocus and
build further on its existing specialty polymer composite materials
businesses, the Company identified restructuring measures that resulted in
a pretax charge of $26.6 million. The major component, $22.4 million, of
this charge was primarily for asset writedowns and employee severance
costs related to the divestiture of the Company's flexible
interconnections business, including the 50% interest in a related joint
venture, Smartflex Systems. This divestiture was completed on June 28,
1993 and the Company received a total of $10.9 million from the sale.
Also included in the 1992 pretax charge was $4.2 million of costs
associated with streamlining the U.S. sales force, consolidating European
sales and administrative functions, the reduction and consolidation of
certain corporate functions in the United States, restructuring the Power
Distribution Division, and adjustments of certain assets to net realizable
value.
At January 2, 1994, assets held for sale at net realizable value were $6.8
million, primarily consisting of the land and building being leased to the
buyer of the flexible interconnections business.
During the fourth quarter of 1991, the Company announced that in response
to the continuing recession-induced downturn in sales, it was taking a
number of cost reduction actions. These actions consisted of reductions
of salaried personnel and the divestiture of the Circuit Components
Division, completed near the end of the first quarter of 1992. This,
together with other product line pruning and various asset writedowns,
resulted in a pretax charge of $2.8 million.
NOTE C-INVENTORIES
- ----------
Certain inventories, amounting to $2,515,000 at January 2, 1994, and
$2,212,000 at January 3, 1993, are valued at the lower of cost, determined
by the last-in, first-out method, or market.
NOTE D-PROPERTY, PLANT AND EQUIPMENT
- ----------
January 2, January 3,
(Dollars in Thousands) 1994 1993
---------- ----------
Land $ 915 $ 841
Buildings and improvements 29,022 28,800
Machinery and equipment 48,039 47,532
Office equipment 9,865 10,155
Installations in process 3,237 668
---------- ----------
91,078 87,996
Less accumulated depreciation (54,271) (52,492)
---------- ----------
$ 36,807 $ 35,504
========== ==========
23
F-42
Depreciation expense was $6,574,000 in 1993, $10,609,000 in 1992, and
$11,119,000 in 1991. Included in 1992 and 1991 was depreciation expense
on assets of the flexible interconnections business which was sold in
1993. Interest costs incurred during the years 1993, 1992, and 1991 were
$3,016,000, $3,585,000, and $3,615,000, respectively, of which $126,000,
$29,000, and $68,000, respectively, have been capitalized as part of the
cost of new plant and equipment.
NOTE E-SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT VENTURES
AND RELATED PARTY TRANSACTIONS
- ----------
The following tables summarize combined financial information of the
Company's unconsolidated joint ventures which are accounted for by the
equity method. Amounts presented include the financial information
reported by: Rogers INOAC Corporation, located in Japan, and Durel
Corporation, located in Arizona, both of which are Polymer Products
ventures. Each of these ventures is 50% owned by the Company.
Additionally, 1992 and 1991 financial information for Smartflex Systems
and 1991 financial information for Rogers Coselbra Industrial, Ltda. has
been included in the following tables. The Company disposed of its
interest in Smartflex Systems, located in California, as of the beginning
of 1993. Its interest in Rogers Coselbra, located in Brazil, was disposed
of as of the beginning of 1992.
The difference between the Company's investment in unconsolidated joint
ventures and its one-half interest in the underlying shareholders' equity
of the joint ventures is due primarily to a deficit in shareholders'
equity of one of the joint ventures. This also results in a difference
between the Company's income (loss) from unconsolidated joint ventures and
its one-half share of the income of those joint ventures.
January 2, January 3,
(Dollars in Thousands) 1994 1993
---------- ----------
Current Assets $ 13,760 $ 23,172
Noncurrent Assets 3,359 1,903
Current Liabilities 9,204 15,839
Noncurrent Liabilities 3,362 2,562
Shareholders' Equity 4,553 6,674
Year Ended
----------------------------------------------
January 2, January 3, December 29,
(Dollars in Thousands) 1994 1993 1991
---------- ---------- ------------
Net Sales $ 41,538 $ 70,088 $ 59,187
Gross Profit 10,218 10,536 8,234
Net Income 3,208 1,973 766
Sales to unconsolidated joint ventures amounted to $363,000 in 1993,
$10,945,000 in 1992, and $8,499,000 in 1991. The significant decrease in
1993 is a result of the exclusion of sales to Smartflex Systems.
Loans from unconsolidated joint ventures amounting to $1,955,000 in 1993
and $991,000 in 1992 have been repaid in full during 1993.
NOTE F-PENSIONS
- -----------
The Company has three noncontributory defined benefit plans covering
substantially all U.S. employees. The discount rate assumptions used to
develop pension expense were 8.25% in each year presented. The expected
long-term rate of investment return assumptions were 9.5% for the salaried
pension plan and 9.0% for the remaining two plans in each year presented.
As a result of the divestiture of the flexible interconnections business
(see Note B), the Company recognized a curtailment gain of $1,361,000 as
part of the 1992 cost reduction charge.
24
F-43
Net pension cost consisted of the following components:
(Dollars in Thousands) 1993 1992 1991
--------- --------- ---------
Service cost (benefits earned during the period) $ 1,132 $ 1,369 $ 1,202
Plus: Interest cost on projected benefit obligation 2,754 2,667 2,579
Less: Actual return on plan assets (2,900) (2,690) (4,672)
Plus: Net amortization and deferral (276) (491) 1,692
--------- --------- ---------
Net pension cost $ 710 $ 855 $ 801
========= ========= =========
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets:
(Dollars in Thousands) January 2, 1994 January 3, 1993
---------------------------- ----------------------------
Plans Whose Plan Whose Plans Whose Plan Whose
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
---------------------------- ----------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 21,916 $ 8,792 $ 20,984 $ 6,131
============================ ============================
Accumulated benefit obligation $ 22,686 $ 8,928 $ 21,205 $ 6,192
============================ ============================
Projected benefit obligation $ (30,603) $ (8,928) $ (30,001) $ (6,192)
Plan assets at fair value 29,521 5,187 29,809 3,922
---------------------------- ----------------------------
Projected benefit obligation in excess of plan assets (1,082) (3,741) (192) (2,270)
Unrecognized net (gain) loss 880 2,008 (237) 858
Unrecognized prior service cost 1,174 1,319 999 1,003
Unrecognized net (asset) obligation, net of amortization (3,357) (32) (3,866) 142
Adjustment required to recognize minimum liability -- (3,295) -- (2,003)
---------------------------- ----------------------------
Net pension liability $ (2,385) $ (3,741) $ (3,296) $ (2,270)
============================ ============================
The net pension liability is included in the following balance sheet accounts:
Other assets $ -- $ -- $ 274 $ --
Accrued employee benefits and compensation -- (662) -- --
Noncurrent pension liability (2,385) (3,079) (3,570) (2,270)
---------------------------- ----------------------------
Net pension liability $ (2,385) $ (3,741) $ (3,296) $ (2,270)
============================ ============================
Also included in the noncurrent pension liability is an additional pension
liability of $196,000 and $226,000 in 1993 and 1992, respectively.
The discount rate used in determining the present value of benefit
obligations was 7.5% for 1993 and 8.25% for 1992. The long-term annual
rate of increase in compensation levels assumption was 5.0% in 1993 and
5.5% in 1992.
Plan assets consist of group annuity contracts with major insurance
companies and investments in equities and short- and long-term debt
instruments managed by various investment managers.
NOTE G-POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
- ----------
In addition to the Company's noncontributory defined benefit pension plans,
the Company sponsors three unfunded defined benefit health care and life
insurance plans for retirees. The plan for full-time U.S. salaried
employees provides medical and dental benefits to employees with a credited
service period of ten years beginning on or after age 45. These employees
also receive life insurance benefits if they retire before 1998. The plan
for U.S. unionized hourly employees provides medical and life insurance
benefits to employees
25
F-44
who have a credited service period of ten years on or after age 60 or 15
years on or after age 62, depending on the local union. The plan for
nonunion U.S. hourly employees provides life insurance benefit to employees
who retire before 1998 with a credited service period of years on or after
age 60. Only the union hourly plan is contributory. All medical and dental
plans contain deductible and coinsurance cost-sharing features.
As indicated in Note A, the Company changed its method of accounting for
postretirement benefits other than pensions in 1992 to conform with
Statement of Financial Accounting Standards No. 106 (FAS 106), "Employers'
Accounting for Postretirement Benefits Other than Pensions." The Company
elected to immediately recognize the accumulated liability, measured as of
December 30, 1991. This resulted in a one-time after-tax charge (no tax
benefit was attributable) of $6,241,000, or $2.02 per share. Aside from the
one-time effect of this adjustment, adoption of FAS 106 was not material to
1992 financial results. Postretirement benefit costs for 1991, which were
recorded on a cash basis, have not been restated.
Net periodic postretirement benefit cost includes the following components:
1993 1992
---------- -----------
Service cost $ 340 $ 394
Interest cost 478 522
Amortization of unrecognized net gain (9) --
---------- -----------
Net periodic postretirement benefit cost $ 809 $ 916
========== ===========
The discount rate assumption used to develop postretirement benefit expense
was 8.25% in 1993 and 1992.
The actuarial and recorded liabilities for these three plans, none of which
have been funded, were as follows:
January 2, January 3,
(Dollars in Thousands) 1994 1993
---------- -----------
Accumulated postretirement benefit obligation:
Retirees $ (3,209) $ (3,403)
Fully eligible active plan participants (718) (930)
Other active plan participants (1,826) (2,209)
---------- -----------
Accumulated postretirement benefit obligation (5,753) (6,542)
Unrecognized net gain (869) (120)
---------- -----------
Accrued postretirement benefit liability $ (6,622) $ (6,662)
========== ===========
Net periodic postretirement benefit liability of $6,622,000 in 1993 and
$6,662,000 in 1992 consists of a noncurrent liability of $6,122,000 and
$6,062,000, respectively, and a current postretirement benefit liability of
$500,000 and $600,000, respectively, which is included in accrued employee
benefits and compensation.
The annual assumed rate of increase in the per capita cost of covered health
benefits is 11% for 1994 and 13% for 1993 (15% assumed for 1992) and is
assumed to decrease by approximately one percentage point each year to 5.5%
in 2000 and remain at that level thereafter. The health care cost trend
rate assumption has the following effect on the amounts reported:
increasing the assumed health care cost trend rates by one percentage point
in each future year would increase the accumulated postretirement benefit
obligation for health benefits as of the beginning of 1994 by approximately
$399,000 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for 1993 by $81,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for 1993 and 8.25% for 1992.
Pay-as-you-go postretirement benefit costs other than pensions for 1991 were
$421,000.
As a result of the divestiture of the flexible interconnections business
(see Note B), the Company recognized a curtailment gain of $419,000 as part
of the 1992 cost reduction charge.
26
F-45
NOTE H-EMPLOYEE SAVINGS AND INVESTMENT PLANS
- ----------
The Company has three Employee Savings and Investment Plans (RESIP I, II,
and III) which meet the requirements contained in Section 401(k) of the
Internal Revenue Code. All regular U.S. salaried employees with at least
one year of service are eligible to participate in RESIP I, most other
regular U.S. employees with at least one year of service who are not
members of collective bargaining units are eligible to participate in
RESIP II, and members of some of the Company's collective bargaining units
are eligible to participate in RESIP III. With the exception of the
Company match, the plans are essentially identical and are designed to
encourage the Company's U.S. employees to save for retirement.
Contributions to the plans as well as earnings thereon benefit from tax
deferral. Participating employees generally may contribute up to 18% of
their salaries and wages. An employee's elective pretax contribution for
which a tax deferral is available is limited to the maximum allowed under
the Internal Revenue Code. To further encourage employee savings in RESIP
I and II, the Company matched employees' contributions up to 4% of
participating employees' annual compensation at a rate of 12.5% in 1993,
1992, and 1991. RESIP related expense amounted to $177,000 in 1993,
$210,000 in 1992, and $219,000 in 1991, including Company matching
contributions of $100,000, $125,000, and $120,000, respectively.
NOTE I-DEBT
- ----------
LONG-TERM DEBT:
January 2, January 3,
(Dollars in Thousands) 1994 1993
-----------------------
10.5% Senior Notes due 1994-1998 $ 3,125 $ 3,750
10.6% Senior Notes due 1994-2003 6,000 6,000
7.25% Industrial Development Bonds -- 1,040
7.63% Industrial Development Bonds -- 1,458
10.5% Convertible Subordinated Notes due
1995-1997 4,500 7,500
Term Note with interest at a maximum of 75 basis
points above prime -- 1,250
Secured Note with interest at prime -- 2,450
Term Note with interest at prime plus .25% -- 4,688
Term Note with interest at 4.9% due 1994-2000 3,637 --
Mortgages payable at interest rates ranging from
8% to 11.625% -- 1,398
Other 68 1,303
-----------------------
17,330 30,837
Less current maturities (3,140) (6,640)
-----------------------
$ 14,190 $ 24,197
=======================
In 1993 the Company entered into a $25 million revolving credit and term
loan arrangement with Fleet Bank, N.A. Using the proceeds from the sale
of the flexible interconnections business and proceeds from the Fleet
facility, the Company paid off a portion of its outstanding debt. Also,
the Company renegotiated agreements with other lenders with respect to
certain of its debt.
Under the terms of the Fleet agreement, the Company received a $5 million
term note, which had been reduced to $3.6 million by January 2, 1994 and
then prepaid in full on February 1, 1994. The Company may borrow up to a
maximum of $15 million under a revolving credit arrangement. Amounts
borrowed under this arrangement are to be repaid in full on April 14,
1996. Repayments on the revolving credit facility are necessary to the
extent the Company's collateral decreases to a level which does not
support borrowings under the facility, although this is not likely.
Interest is payable monthly at a rate no greater than prime plus .75
percentage points on amounts outstanding under the revolving credit
facility. In addition there are administrative fees associated with the
arrangement, as well as a commitment fee of 0.25% per annum on any
unborrowed funds which are available under the revolving credit facility.
At year-end 1993, there were no borrowings under this revolving credit
arrangement. Borrowings under the term loan and the revolving credit
facility are secured by virtually all of the Company's assets other than
real properties and intellectual property.
27
F-46
At January 2, 1994, the convertible subordinated notes are convertible
into capital stock of the Company at $22 per share (subject to
antidilution provisions) at the option of the lender anytime through
January 1, 1997. The Company may, however, force the conversion of the
notes into capital stock (in $50,000 multiples) without premium in whole
or in part, providing that the average of the closing prices for the sixty
consecutive business days preceding the date of prepayment is 140% of the
conversion price, or $30.80. On December 30, 1993, $1,500,000 of the
debentures were converted into 68,181 shares of capital stock.
MATURITIES:
- ----------
Required long-term debt principal repayments during the four years after
1994 are: 1995, $2,736,000; 1996, $2,737,000; 1997, $2,738,000; and 1998,
$1,227,000.
INTEREST PAID:
- ----------
Interest paid during the years 1993, 1992, and 1991 was $3,358,000,
$3,636,000, and $3,669,000, respectively.
NOTES PAYABLE TO BANKS:
- ----------
There were no notes payable to banks outstanding as of January 2, 1994.
At January 3, 1993, notes payable to banks amounted to $3,552,000. This
consisted of $3,000,000 from a fully utilized revolving credit arrangement
with a domestic bank and $552,000 from borrowings of one of the Company's
foreign subsidiaries with a foreign credit facility.
There are no compensating balance requirements.
NOTES PAYABLE TO UNCONSOLIDATED JOINT VENTURES:
- ----------
A $991,000 loan from one of the Company's unconsolidated joint ventures
was outstanding on January 3, 1993. No such loans were outstanding on
January 2, 1994.
PLEDGED ASSETS:
- ----------
At January 2, 1994, collateral for long-term debt consisted of personal
property and equipment totalling $18,182,000 and current assets amounting
to $19,693,000.
RESTRICTION ON PAYMENT OF DIVIDENDS:
- ----------
Certain covenants of the Company's loan agreements restrict the payment of
dividends based upon a specified level of retained earnings. At January
2, 1994, the level of retained earnings was not sufficient to permit the
declaration or payment of dividends.
NOTE J-INCOME TAXES
- ----------
Consolidated income (loss) before income taxes (benefit) and cumulative
effect of accounting change consists of:
(Dollars in Thousands) 1993 1992 1991
-----------------------------------
Domestic $ 5,980 $ (25,887) $ (1,742)
Foreign 736 (2,118) (1,661)
-----------------------------------
$ 6,716 $ (28,005) $ (3,403)
===================================
The income tax expense (benefit) before cumulative effect of accounting
change in the consolidated statements of operations consists of:
(Dollars in Thousands) Current Deferred Total
-----------------------------------
1993:
Federal $ (90) $ -- $ (90)
Foreign (6) -- (6)
State 142 -- 142
-----------------------------------
$ 46 $ -- $ 46
===================================
28
F-47
1992:
Federal $ 203 $ (1,771) $ (1,568)
Foreign 65 (148) (83)
State 71 -- 71
----------------------------------
$ 339 $ (1,919) $ (1,580)
==================================
1991:
Federal $ 947 $ (1,615) $ (668)
Foreign 136 (776) (640)
State 225 -- 225
----------------------------------
$ 1,308 $ (2,391) $ (1,083)
==================================
As indicated in Note A, in the first quarter of 1993 the Company
implemented the provisions of Statement of Financial Accounting Standards
No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of FAS 109
changed the Company's method of accounting for income taxes from the
deferred method to the liability method. The liability method requires
the recognition of deferred tax assets and liabilities for temporary
differences between the net book value and the tax basis of other assets
and liabilities. The deferred tax impact of these temporary differences
is measured using enacted statutory tax rates applicable to the year that
the temporary differences are expected to be realized for tax purposes.
FAS 109 also provides specific rules for recording valuation allowances
for potentially unrealizable deferred tax assets. Under the deferred
method, deferred taxes were recognized using the tax rate applicable to
the year of calculation and were not adjusted for subsequent changes in
tax rates. The deferred method did not impose specific requirements for
recording deferred tax asset valuation allowances.
The adoption of FAS 109 resulted in a reduction to both the Company's
current deferred tax asset and its noncurrent deferred tax liability of
approximately $2.5 million as of January 4, 1993. The net adjustment to
the Company's consolidated balance sheet did not have a material impact on
the Company's consolidated statement of operations and retained earnings.
As permitted under FAS 109, the Company has elected not to restate prior
years' financial statements.
Deferred tax assets and liabilities as of January 2, 1994 are comprised of
the following:
(Dollars in Thousands) January 2,
1994
----------
Deferred Tax Assets:
Accruals Not Currently Deductible for Tax Purposes:
Accrued Employee Benefits and Compensation $ 2,439
Accrued Postretirement Benefits 2,354
Other Accrued Liabilities and Reserves 982
Tax Loss Carryovers 3,885
Tax Credit Carryforwards 2,714
Accounts Receivable 985
Other 479
---------
Total Deferred Tax Assets 13,838
Less Deferred Tax Asset Valuation Allowance 10,095
---------
Net Deferred Tax Assets 3,743
Deferred Tax Liabilities:
Depreciation & Amortization 3,743
---------
Total Deferred Tax Liabilities 3,743
---------
Net Deferred Tax Liability $ 0
=========
29
F-48
Income tax expense (benefit) differs from the amount computed by applying
the U.S. statutory federal income tax rate to income (loss) before income
tax expense (benefit) and cumulative effect of accounting change. The
reasons for this difference are as follows:
(Dollars in Thousands) 1993 1992 1991
--------------------------------
Tax expense (benefit) at statutory rate $ 2,283 $ (9,522) $ (1,157)
State income taxes, net of federal benefit 92 47 148
Statutory rate differences, foreign and domestic 37 (81) (114)
Research and development tax credit -- -- (76)
Nontaxable Foreign Sales Corporation income (59) (30) (59)
Nondeductible portion of travel and entertainment expenses 25 65 78
Foreign deductions, credits, and research and investment
incentives -- (16) (202)
Losses producing no tax benefit 58 6,879 137
Tax loss carryovers (707) (72) --
Change in deferred tax valuation allowance (1,663) -- --
U.S. tax on foreign earnings -- 1,104 138
Other (20) 46 24
-------------------------------
Income tax expense (benefit) $ 46 $ (1,580) $ (1,083)
===============================
The $1,663,000 decrease in the deferred tax asset valuation allowance for
the current year relates primarily to the recognition for tax purposes in
1993 of certain accrued cost reduction expenses which were recognized for
financial reporting purposes in prior years.
At January 2, 1994, the Company had a U.S. net operating loss carryforward
of approximately $6,000,000 which expires in the year 2008. The Company
also has foreign net operating loss carryforwards of approximately
$4,000,000. Under the applicable foreign tax laws, these net operating
loss carryforwards have an indefinite carryforward period. The
utilization of U.S. and foreign net operating loss carryforwards is
dependent upon the future taxable earnings of the Company's U.S.
operations and each of the applicable foreign subsidiaries, respectively.
At January 2, 1994, the Company had Alternative Minimum Tax Credit
carryforwards of approximately $1,200,000 and General Business Credit
carryforwards of approximately $1,500,000. The use of these tax credit
carryforwards is limited to future taxable earnings of the Company. The
Alternative Minimum Tax Credit carryforwards have an indefinite
carryforward period. The Company's General Business Credit carryforwards
expire in annual increments of between $100,000 and $250,000 beginning in
1998 and ending in the year 2008.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. These earnings could
become subject to additional tax if they were remitted as dividends, if
foreign earnings were lent to the Company or a U.S. affiliate, or if the
Company should sell its stock in the subsidiaries. It is not practical to
estimate the amount of additional tax that might be payable on foreign
earnings; however, the Company believes that U.S. foreign tax credits
would largely eliminate any U.S. tax and offset any foreign tax.
Undistributed foreign earnings, before available tax credits and
deductions, amounted to $3,359,000 at January 2, 1994, $2,582,000 at
January 3, 1993, and $6,087,000 at December 29, 1991.
Income taxes paid (refunded) were $(193,000), $(352,000), and $1,523,000,
in 1993, 1992, and 1991, respectively.
30
F-49
NOTE K-SHAREHOLDERS' EQUITY AND STOCK OPTIONS
- ----------
Changes in shareholders' equity are shown below:
Capital
Stock Additional Equity Retained
(Number Paid-In Translation Earnings
(Dollars in Thousands) of Shares) Capital Adjustment (Deficit)
------------------------------------------------------
Balance at December 30, 1990 3,075,288 $19,641 $ 2,539 $ 29,604
------------------------------------------------------
Net loss for 1991 (2,320)
Cash dividends declared (277)
Stock options exercised 733 46
RESIP shares issued 8,638 153
Translation adjustment for 1991 (488)
------------------------------------------------------
Balance at December 29, 1991 3,084,659 19,840 2,051 27,007
------------------------------------------------------
Net loss for 1992 (32,666)
Cash dividends declared (93)
RESIP shares issued 15,990 277
Translation adjustment for 1992 (434)
------------------------------------------------------
Balance at January 3, 1993 3,100,649 20,117 1,617 (5,752)
------------------------------------------------------
Net income for 1993 6,670
Stock options exercised 38,655 785
RESIP shares issued 12,727 184
Conversion of convertible subordinated
notes into capital stock 68,181 1,432
Stock granted to officers 6,000 125
Shares reacquired and cancelled (3,751) (85)
Translation adjustment for 1993 (424)
------------------------------------------------------
Balance at January 2, 1994 3,222,461 $ 22,558 $ 1,193 $ 918
======================================================
The dollar amount of the capital stock ($1 par value) is equal to the
above indicated number of shares.
Under the terms of the Company's 1979 incentive stock option plan, each of
the options for the purchase of capital stock was granted to officers and
other key employees at a price not less than the market value of the
capital stock as of the date of grant. Options are exercisable within a
period of ten years from the date of grant. Options granted prior to 1987
are exercisable only if no previous option issued to that individual is
still outstanding. The Company does not intend to grant further options
under the 1979 plan.
In 1988 the Company adopted a new stock option plan, which permits the
granting of incentive stock options and nonqualified stock options to
officers and other key employees. Additionally, nonqualified stock
options can be granted to directors. Incentive stock option grants must
be at a price no less than the market value of the capital stock as of the
date of grant. Nonqualified stock options for officers and other key
employees must be granted at a price equal to at least 50% of the market
value of the capital stock as of the date of grant. To date, all options
granted to officers and other key employees have been at a price equal to
the market value of the capital stock as of the date of grant. Under
certain conditions, nonemployee directors and director emeriti may receive
nonqualified stock options at a discounted exercise price in lieu of a
corresponding amount of directors' fees. Currently existing options
issued under the plan are exercisable within a period of ten years from
the date of grant. In 1990 the Company adopted another stock option plan
which only permits the granting of nonqualified stock options to key
employees who are not officers or directors. In other respects, the 1990
plan is essentially the same as the one established in 1988.
31
F-50
Average
Number Option Aggregate
of Shares Price (000s)
-------------------------------
Outstanding at December 30, 1990 314,251 $ 23.55 $ 7,400
Granted 81,914 18.22 1,492
Exercised 733 17.50 13
Cancelled 12,550 28.59 359
Expired 2,000 24.94 50
-------------------------------
Outstanding at December 29, 1991 380,882 22.24 8,470
Granted 105,468 17.44 1,839
Cancelled 91,930 22.87 2,102
Expired 1,500 16.25 24
-------------------------------
Outstanding at January 3, 1993 392,920 20.83 8,183
Granted 205,468 17.98 3,695
Exercised 38,655 20.19 780
Cancelled 68,500 21.82 1,495
Expired 27,000 29.18 788
-------------------------------
Outstanding at January 2, 1994 464,233 $ 18.99 $ 8,815
-------------------------------
All officer and other key employee options outstanding at December 30,
1984, were exercisable as of that date, and employee options granted after
1984 become exercisable in increments beginning after two years from the
date of grant, unless otherwise approved by the Board of Directors.
Nonemployee director and director emeritus options become exercisable on
the first anniversary of the date of grant. The options outstanding on
January 2, 1994, expire on various dates, beginning March 26, 1994, and
ending on April 26, 2003. Options outstanding at January 2, 1994,
included 167,524 which were exercisable (170,890 at January 3, 1993).
At January 2, 1994, a total of 5,778,375 shares of capital stock was
reserved for possible future issuance: 246,819 shares for conversion of
the Company's convertible subordinated notes (234,375 shares at January 3,
1993); 464,233 shares for options granted (392,920 shares at January 3,
1993); 160,014 shares for options as yet ungranted (99,982 shares at
January 3, 1993); 56,891 shares for the Company's Employee Savings and
Investment Plans (69,618 shares at January 3, 1993); 100,000 shares
(exercisable at $27 per share during the period from June 30, 1993 through
June 29, 1996) for conversion of the warrant issued to PaineWebber R&D
Partners II in connection with the research and development arrangement
(100,000 shares at January 3, 1993); 4,500,418 shares for the Company's
Shareholders' Rights Plan (3,997,544 at January 3, 1993); and 250,000
shares for the Company's 1994 Stock Compensation Plan.
NOTE L-LEASES
- ----------
The Company's principal noncancellable operating lease obligations are for
buildings and vehicles. The leases generally provide that the Company pay
maintenance costs. The lease periods range from one to five years and
include purchase or renewal provisions at the Company's option. The
Company also has leases that are cancellable with minimal notice. Lease
expense was $1,469,000 in 1993, $1,895,000 in 1992, and $1,917,000 in
1991.
Future minimum lease payments under noncancellable operating leases at
January 2, 1994, aggregate $2,746,000. Of this amount, annual minimum
payments are $707,000, $389,000, $306,000, $308,000, and $313,000 for
years 1994 through 1998, respectively.
32
F-51
NOTE M-FOREIGN OPERATIONS
- ----------
The net assets of wholly-owned foreign subsidiaries were $6,941,000 at
January 2, 1994, and $6,766,000 at January 3, 1993. Net income (loss) of
these foreign subsidiaries was $820,000 in 1993, $(1,961,000) in 1992, and
$(702,000) in 1991, including net currency transaction gains (losses) of
$(38,000) in 1993, $225,000 in 1992, and $(30,000) in 1991.
NOTE N-CONTINGENCIES
- ----------
The Company is subject to federal, state and local laws and regulations
concerning the environment and is currently engaged in proceedings
involving a number of sites under these laws, usually as a participant in
a group of potentially responsible parties. Several of these proceedings
are at a preliminary stage and it is impossible to estimate the cost of
remediation, the timing and extent of remedial action which may be
required by governmental authorities, and the amount of liability, if any,
of the Company alone or in relation to that of any other responsible
parties. 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
made. Actual cost 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 condition.
In addition to the environmental issues, the nature and scope of the
Company's business bring it into regular contact with the general public
and a variety of businesses and government agencies. Such activities
inherently subject the Company to litigation which is defended and handled
in the ordinary course of business. The Company has established accruals
for matters for which management considers a loss to be probable and
reasonably estimable. It is the opinion of management that facts known at
the present time do not indicate that such litigation, after taking into
account insurance coverage and the aforementioned accruals, will have a
material adverse effect on the financial position of the Company.
NOTE O-BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
- ----------
The presentation of business segment information for the years 1991-1993
is generally reflective of the Company's current internal reporting
structure and has been divided into two segments: (1) Polymer Products,
which consists primarily of high performance elastomer materials and
components, and moldable composites; and (2) Electronic Products, which
consists primarily of high frequency materials and computer circuit
materials. The Electronic Products Group was referred to as the
Interconnection Products Group in 1991 and 1992. Products from the former
group also included interconnection circuits and components; however,
these product lines were sold as part of the 1993 sale of the flexible
interconnections business.
The Company markets its products throughout the United States and in
foreign markets directly and through distributors and agents.
Approximately 94% of the Company's net sales are sold through its own
domestic and foreign sales forces. In 1993, approximately 60% of total
sales were to the electronics industry. Sales to one unaffiliated
customer, consisting of 14 different products, accounted for approximately
7% of sales in 1993, 15% in 1992, and 23% in 1991.
At January 2, 1994, the electronics industry accounted for approximately
57% of total accounts receivable due from customers. Accounts receivable
due from customers located within the United States and Mexico accounted
for 73% of the total accounts receivable owed to the Company at the end of
1993. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
Receivables are generally due within 30 days. Credit losses relating to
customers have been minimal and have been within management's
expectations.
33
F-52
BUSINESS SEGMENT INFORMATION
(Dollars in Thousands) 1993 1992 1991
------------------------------------
Net sales:
Polymer Products $ 66,238 $ 62,396 $ 56,691
Electronic Products 56,930 109,965 125,661
------------------------------------
Total $ 123,168 $ 172,361 $ 182,352
====================================
Income (loss) before income taxes (benefit) and cumulative effect of
accounting change:<F1>
Polymer Products <F2> $ 8,755 $ 5,136 $ 2,621
Electronic Products <F3><F4> 1,044 (28,069) (2,962)
Unallocated corporate expenses (mainly interest expense - net) (3,083) (5,072) (3,062)
-------------------------------------
Total $ 6,716 $ (28,005) $ (3,403)
=====================================
Capital expenditures:
Polymer Products $ 6,534 $ 2,772 $ 3,169
Electronic Products 2,048 6,289 8,541
------------------------------------
Total $ 8,582 $ 9,061 $ 11,710
====================================
Depreciation:
Polymer Products $ 2,224 $ 2,753 $ 2,748
Electronic Products 4,350 7,856 8,371
------------------------------------
Total $ 6,574 $ 10,609 $ 11,119
====================================
Assets:
Polymer Products $ 36,717 $ 35,479 $ 34,833
Electronic Products <F5> 38,767 50,527 78,073
Unallocated corporate assets (mainly cash and investments) 6,353 11,740 9,768
------------------------------------
Total $ 81,837 $ 97,746 $ 122,674
====================================
GEOGRAPHIC INFORMATION
(Dollars in Thousands) North America Europe Total
--------------------------------------
1993:
Net sales $ 108,324 $ 14,844 $ 123,168
Income (loss) before income taxes (benefit) 5,980 736 6,716
Assets 72,046 9,791 81,837
======================================
1992:
Net sales $ 157,142 $ 15,219 $ 172,361
Loss before income tax benefit and cumulative effect of accounting
change <F6> (25,887) (2,118) (28,005)
Assets 87,345 10,401 97,746
======================================
1991:
Net sales $ 167,020 $ 15,332 $ 182,352
Loss before income taxes <F6> (1,742) (1,661) (3,403)
Assets 109,446 13,228 122,674
======================================
<F1>The allocation of the cumulative effect of accounting change in 1992 is $2.9 million for Polymer Products and
$3.3 million for Electronic Products.
<F2>Includes an allocation of $1.8 million and $0.2 million in 1992 and 1991, respectively, related to the cost
reduction charges.
<F3>Includes an allocation of $24.8 million and $2.6 million in 1992 and 1991, respectively, related to the cost
reduction charges.
<F4>Includes undistributed earnings of a previously owned unconsolidated joint venture of $0.8 million and $0.3
million in 1992 and 1991, respectively.
<F5>Includes an investment in a previously owned unconsolidated joint venture of $3.0 million and $2.2 million in
1992 and 1991, respectively.
<F6>Includes an allocation of $25.1 million and $2.7 million in 1992 and 1991, respectively, to North America and
$1.5 million and $0.1 million in 1992 and 1991, respectively, to Europe related to the $26.6 million and $2.8
million cost reduction charges.
The principal operations of the Company are located in North America
(United States and Mexico) and Europe. Inter-segment and inter-area
sales, which are generally priced with reference to costs or prevailing
market prices, are not material in relation to consolidated net sales and
have been eliminated from the above data.
34
F-53
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS
- ----------
Board of Directors and Shareholders
Rogers Corporation
- ----------
We have audited the accompanying consolidated balance sheets of Rogers
Corporation and subsidiaries as of January 2, 1994 and January 3, 1993,
and the related consolidated statements of operations and retained
earnings (deficit) and cash flows for each of the three fiscal years in
the period ended January 2, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rogers
Corporation and subsidiaries at January 2, 1994 and January 3, 1993, and
the consolidated results of their operations and their cash flows for each
of the three fiscal years in the period ended January 2, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes J and G to the financial statements, respectively,
in 1993 the Company changed its method of accounting for income taxes and
in 1992 the Company changes its method of accounting for postretirement
benefits other than pensions.
ERNST & YOUNG
Providence, Rhode Island
February 9, 1994
35
F-54
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------
(Dollars in Thousands, Except Per Share Amounts)
Net Manufacturing Net Net Income(Loss)
Quarter Sales Profit Income(Loss) Per Share
- --------------------------------------------------------------------------
1993 Fourth $ 29,138 $ 7,538 $ 1,705 $ .52
Third 30,312 8,491 1,712 .53
Second 30,939 8,282 1,612 .51
First 32,779 9,563 1,641 .53
- --------------------------------------------------------------------------
1992 Fourth* $ 46,847 $ 8,367 $ (26,489) $ (8.56)
Third 43,389 7,528 (148) (.05)
Second 40,325 7,468 123 .04
First** 41,800 8,129 (6,152) (1.99)
- --------------------------------------------------------------------------
* Fourth quarter 1992 net loss includes a nonrecurring cost reduction
charge of $26,602, of which the major portion was a disposal of the
flexible interconnections business (see Note B).
** First quarter 1992 net loss includes cumulative effect of change in
accounting for postretirement benefits other than pensions of $(6,241),
or $(2.02) per share.
CAPITAL STOCK MARKET PRICES
- ----------
The Company's capital stock is traded on the American and Pacific Stock
Exchanges. The following table sets forth the composite high and low
prices during each quarter of the last two years on a per share basis.
At March 1, 1994, there were 1,310 shareholders of record.
1993 1992
- --------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------
Fourth $29 $24-3/4 $ 15 $ 12
Third 27 19-3/8 16 11-1/2
Second 23-3/8 16 17-1/8 13-7/8
First 18-7/8 12-5/8 17-3/4 15-1/8
36
F-55
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED SALES AND OPERATIONS - 1993 TO 1992
In 1993 sales were $123.2 million compared with $172.4 million for
1992. The decline was primarily related to divestiture of the
flexible interconnections business which was completed June 28,
1993 (see Note B). Led by a substantial increase in high
performance elastomer products, sales of the Company's core
specialty polymer composite materials and components grew 10% in
1993. These gains were partially offset by decreases in the
domestic power distribution component sales which have dropped by
almost $10.0 million in the past two years. Higher sales of PORON
materials necessitated production line expansions in both the U.S.
and Japan which more than doubled capacity. A 10,000 square foot
expansion is being added to the Willimantic Division to support the
continuing growth in sales of ENDUR components for office
equipment.
Net income in 1993 was $6.7 million, or $2.09 per share, compared
to a net loss of $32.7 million in 1992. The loss in 1992 included
a fourth quarter restructuring charge of $26.6 million and an
additional $6.6 million charge related to the adoption of Statement
of Financial Accounting Standards No. 106 (FAS 106), "Employers'
Accounting for Postretirement Benefits Other than Pensions." The
financial results in 1993 exclude the sales and earnings of the
divested flexible interconnections business for the full year.
This divestiture, coupled with improved sales and performance in
Rogers' continuing businesses, was the major reason for the higher
profits in 1993.
In February 1994, the Company concluded an agreement to sell its
U.S. power distribution business to Methode Electronics, Inc., a
manufacturer of bus bar products based in Chicago, Illinois. In
addition to an initial cash payment, the Company will receive
royalties on sales for five years. Methode will integrate this
business into its own facilities, and the Company will sell
separately the production equipment and the building in Mesa,
Arizona. Transfer of operations to Methode is planned to be
complete before mid-1994. Reserves for reorganizing this business
were established in 1992 and 1993.
Manufacturing profit in 1993 was 28% of net sales, compared with
18% in 1992. This increase results primarily from divestiture of
the flexible interconnections business, which operated with poor
margins and at a substantial loss in 1992, and from improved profit
margins in continuing businesses.
Selling and administrative expense decreased 15% from 1992 to 1993.
However, because of much lower total sales, these expenses
increased from 13% of sales in 1992 to 15% in 1993.
Research and development expense decreased 18% from 1992, and was
approximately 5% of sales in both years. Significant product and
process developments during 1993 included: lower cost processing
of composite fluoropolymer laminates which resulted in the
introduction of RO3003 for the commercial microwave market; the
development of other low cost laminates designed for the commercial
microwave market; improved process equipment for improved ENDUR-C
LE conductive elastomer materials; PORON S-2000 silicone products
using proprietary process technology; and, faster-curing moldable
phenolic composite compounds.
Net interest expense in 1993 was 15% lower than in 1992 primarily
because of lower borrowing. Proceeds from the sale of the flexible
interconnections business, combined with improved levels of cash
from operations, permitted debt to be reduced from $35.4 million in
1992 to $17.3 million in 1993. Unless interest rates increase
substantially, management expects 1994 interest expense will
continue to decline.
In the first quarter of 1993, the Company implemented the
provisions of Statement of Financial Accounting Standards No. 109
(FAS 109) "Accounting for Income Taxes." The adoption of FAS 109
resulted in decreases in the Company's current deferred tax asset
and its noncurrent deferred tax liability of approximately $2.5
million. These reductions were due mainly to the effect of lower
prior United States Federal Income Tax statutory rates and to FAS
109's requirements for recording deferred tax asset valuation
allowances. The net adjustment to the Company's consolidated
balance sheet did not have a material impact on the Company's
consolidated statement of operations and retained earnings.
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, usually
as a participant in a group of potentially responsible parties.
Several of these proceedings are at a preliminary stage and it is
impossible to estimate the cost of remediation, the timing and
extent of remedial action which may be required by
37
F-56
governmental authorities, and the amount of liability, if any, of the
Company alone or in relation to that of any other responsible parties.
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 made. Actual cost 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 condition.
CONSOLIDATED SALES AND OPERATIONS - 1992 TO 1991
Net sales of $172.4 million were down 5% from the prior year volume
of $182.4 million. The 5% decline resulted from an 11% reduction
in sales of flexible circuits, substantially lower sales of power
distribution components for large mainframe computers, and the fall
off from the sales surge in early 1991 related to the Gulf War.
Sales of continuing products, after adjusting for the effect of the
anticipated divestiture of the flexible interconnections business
and the 1992 divestiture of the Circuit Components Division, were
approximately $118.0 million in both years. The 1992 net loss was
$32.7 million after a fourth quarter pretax restructuring charge of
$26.6 million, and an additional $6.6 million charge related to the
adoption of FAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." This compares to a 1991 net loss of
$2.3 million, which included a pretax restructuring charge of $2.8
million.
Effective the beginning of 1992, the Company adopted FAS 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions." This accounting standard requires employers to
recognize the expected cost of providing postretirement benefits,
such as health and life insurance, during the years employees
render service. The Company elected to immediately recognize the
accumulated liability resulting in a one-time non-cash charge of
$6.2 million, or $2.02 per share. In addition to this cumulative
effect, the Company's 1992 costs for postretirement benefits
increased $400,000 as a result of adopting this standard.
Manufacturing profit in 1992 was 18% of net sales, compared with
20% in 1991. This decline was primarily a result of the reduced
sales volume in 1992, coupled with a reduction in inventory levels.
Selling and administrative expense decreased 13% and research and
development costs were 15% lower in 1992 than in 1991. These
decreases were more than double the rate of sales decline and
resulted from a concentrated effort to reduce salaried personnel
and lower expenses.
Significant product and process developments during the year
included: new microwave laminate products specifically designed to
address the needs of the growing commercial microwave market; first
commercial sales of ultra thin films of highly filled
fluoropolymers; new cellular silicone materials to add to our line
of urethane products; enhancements to ENDUR-C LE elastomer
components which improve conductivity and durability; and expanded
prototyping capability and recycling capability of molded phenolic
materials.
Net interest expense in 1992 was 5% lower than in 1991 primarily
because of increased interest income resulting from federal and
state tax audit refunds for the years 1981-1987.
RESTRUCTURING/COST REDUCTION CHARGES
During 1992, it was decided that the Company's strategy should be
one of building further on its existing specialty polymer composite
material businesses. Actions were taken during 1992 and early 1993
to begin to implement this strategy. The major element of this
strategy was to withdraw from the business of producing and selling
custom designed flexible circuits and multimetal layer tape
automated bonding components. As of the end of 1992, the Company
shut down the Micro Interconnections unit which produced the
multimetal layer tape automated bonding components, and a letter of
intent was signed for the divestiture of the Flexible
Interconnections Division (FID), the Company's largest division, to
a limited partnership managed by Ampersand Ventures, a venture
capital firm based in Wellesley, Massachusetts. The divestiture,
which included the Company's 50% interest in a related joint
venture, Smartflex Systems, was completed in June 1993. The costs
associated with these two actions amounted to $22.4 million and
consisted primarily of a writedown of assets, employee severance at
both the divisional and corporate staff levels, professional fees,
and other related expenses. These represented the major components
of the 1992 restructuring charge.
38
F-57
In addition, several other steps were taken to set the new
strategic direction of the Company and to improve its operations
and future profitability. These steps added $4.2 million to the
charge and included costs associated with various asset writedowns,
streamlining the U.S. sales group, consolidating the European sales
and administrative functions, restructuring the Power Distribution
Division, and the reduction and consolidation of certain corporate
functions in the U.S.
The Company also absorbed cost reduction charges of $2.8 million
and $7.1 million in 1991 and 1990, respectively. The 1991 charge
included a reduction of approximately 4% of salaried personnel and
the divestment of the Company's Circuit Components Division which
was completed in 1992. The 1990 charge included a reduction in the
salaried work force through early retirement incentives and
terminations as well as the divestitures of the keyboard business
along with its manufacturing facility in France and the sale of the
printing plate matrix product line of the Molding Materials
Division.
During 1993, 1992 and 1991, $19.3 million, $6.2 million, and $2.7
million, respectively, were charged against these reserves and the
Company believes the net balance in the accrued cost reduction
reserve of $2.2 million, coupled with the valuation reserve in
assets held for sale of $1.5 million at January 2, 1994, are
adequate for the completion of the restructuring actions. The
majority of this remaining accrued reserve relates to workforce
reduction costs. The total employee population has decreased by
approximately 65% since 1990 primarily as a result of these cost
reduction programs.
When the disposition of assets held for sale and the payment of the
cost reduction liabilities (as both appear on our January 2, 1994
Balance Sheet) are completed, it is expected that there will be a
net increase in cash of approximately $5.0 million.
SEGMENT SALES AND OPERATIONS
Sales in the Polymer Products business segment increased 6%, 10%
and 5% in 1993, 1992 and 1991, respectively. Two divisions in this
business segment, Poron and Willimantic, recorded record sales in
both 1992 and 1993. The continuing growth in sales of PORON
materials was due to a variety of factors, including expanded
product offerings, strong support to distributors, and more
intensive market development activities in Europe. The Willimantic
sales gain came from new applications for ENDUR elastomer
components and strengthening demand for NITROPHYL floats in the
automotive industry. Shipments in 1991 increased for similar
reasons with notable growth in sales of fuser rolls. These segment
sales increases have led to improved operating profits in all three
years. The Polymer Products business segment generated operating
profits of $8.8 million in 1993, $6.9 million in 1992, and $2.8
million in 1991, before the allocation of cost reduction charges of
$1.8 million and $0.2 million in 1992 and 1991, respectively.
Electronic Products (formerly Interconnection Products) business
segment revenues decreased 48% in 1993. This decrease was
primarily attributable to the divestiture of the flexible
interconnections business. Excluding these sales from 1992, the
business segment experienced a 3% sales increase in 1993. In 1992,
sales declined 12% from 1991. About one-third of that change
resulted from the 1992 divestiture of the Circuit Components
Division with the balance due to lower flexible circuit and power
distribution component sales. Electronic Products sales had
decreased 8% in 1991.
European sales stated in local currencies, net of the divestiture
of the keyboard business, increased 3% in 1993 and decreased 1% and
25% in 1992 and 1991, respectively. Translated into U.S. currency,
these sales declined 2%, 4% and 26% in 1993, 1992 and 1991,
respectively.
The Electronic Products business segment showed operating income of
$1.0 million in 1993. This followed losses of $3.3 million in 1992
and $0.4 million in 1991, before the allocation of cost reduction
charges of $24.8 million and $2.6 million, respectively. The
higher operating income in 1993 was caused mainly by elimination of
the losses of the divested flexible interconnections business whose
results were not included as part of 1993. This segment was also
benefitted by higher sales of flexible laminate materials in 1993
and was negatively impacted by a decline in volume of microwave
materials for military uses and by a decrease in U.S. power
distribution component sales. Sale of this power distribution
business to Methode Electronics, Inc. was agreed upon in February
1994. In addition to the cost reduction charges, profits were
impacted in 1992 and 1991 by lower sales in both years and lower
joint venture income in 1991.
39
F-58
BACKLOG
The Company's backlog of firm orders was $22.9 million at January
2, 1994, $31.1 million at January 3, 1993 and $35.8 million at
December 29, 1991. Excluding the backlog for the flexible
interconnections business in 1992 of $9.2 million, the Company's
backlog increased slightly in 1993. The decrease in 1992 is
partially a reflection of business conditions, product line
changes, and continuing efforts to reduce cycle times which create
shorter lead times and reduce outstanding backlogs.
INFLATION
In general, the Company attempts to recover inflation-related
increases in operating costs through higher prices and efficiency
improvements. Since desired selling prices and prices that the
market will accept result from a variety of interrelated factors -
many of which change frequently - it is not possible to quantify
the Company's success in meeting this goal. Normally, however, a
combination of expense reductions, productivity and yield
improvements, and higher prices does permit recovery of
inflationary increases in manufacturing costs.
The Company also has partially recognized the effect of inflation
on cost of sales by adopting the LIFO method of costing inventory
within certain divisions. The effect of adopting this method is to
charge current inventory replacement costs to cost of sales. As a
result, year-end inventory balances are stated below current costs
by $0.8 million in 1993, $0.7 million in 1992, and $1.0 million in
1991.
SOURCES OF LIQUIDITY AND CAPITAL
Cash provided by the Company's operating activities amounted to
$11.9 million in 1993, $5.8 million in 1992, and $11.6 million in
1991. Capital expenditures in 1993 were $8.6 million compared with
$9.1 million and $11.7 million in 1992 and 1991, respectively. No
capital spending is included in 1993 for the divested flexible
interconnections business. If capital spending in 1992 is adjusted
to exclude spending for flexible interconnections activities, then
1993 would show an increase due mainly to the expansions in the
Poron and Willimantic divisions. The decreased level of 1992
spending from 1991 reflects the Company's efforts to contain
expenditures in line with the lower sales level.
The capital spending program in 1993 was exceeded by cash generated
from the Company's operating activities. Spending in 1992 and 1991
was financed primarily by cash generated from the Company's
operating activities and proceeds from the sale of businesses. For
1994, capital spending is expected to be about the same as in 1993,
and will focus on new process equipment, capacity expansions, cost
reductions and quality improvements. It is anticipated that this
spending will be financed with internally generated funds.
During 1993 the Company renegotiated, repaid or refinanced most of
its existing debt (see Note I). At January 2, 1994, the Company
was not using any of its revolving credit facility capacity with
its domestic bank (see Note I). European operations have unused
lines of credit with local banks that permit borrowing in various
currencies. There are no significant restrictions on the
remittance of funds by the Company's foreign subsidiaries to the
United States.
Among the provisions of the Company's loan agreements relating to
long-term debt are restrictions on the Company and its subsidiaries
with respect to additional borrowings, loans to other than
subsidiaries, payment of dividends, transactions in capital stock,
asset acquisitions and dispositions, and lease commitments. These
agreements also impose financial covenants requiring the Company to
maintain certain levels of working capital and net worth, and
specified leverage ratios.
Management believes that in the near term, internally generated
funds plus long-term and short-term financing will be sufficient to
meet the needs of the business. The Company continually reviews
and assesses its lending relationships and needs.
DIVIDEND POLICY
Through 1991, the Board of Directors continued a practice of paying
a small cash dividend, while reinvesting most of the Company's cash
flow in the business. In mid-February 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.
40
F-59