Audited Financial Statements
and
Other Financial Information
Rogers Inoac Corporation
October 31, 1993
F-62
ROGERS INOAC CORPORATION
INDEX TO THE FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
Financial Statements:
Report of Independent Auditors
Balance sheets at October 31, 1993 and 1992
Statements of income and retained earnings for
the years ended October 31, 1993 and 1992 and
the eleven months ended October 31, 1991
Statements of cash flows for the years ended
October 31, 1993 and 1992 and the eleven months
ended October 31, 1991
Notes to financial statements
Schedule
number
--------
Financial Statement Schedules:
Valuation and qualifying accounts for the years
ended October 31, 1993 and 1992 and the eleven
months ended October 31, 1991 VIII
Short-term borrowings for the years ended October
31, 1993 and 1992 and the eleven months ended
October 31, 1991 IX
All other schedules have been omitted, as permitted by the rules and
regulations of the Securities and Exchange Commission, as the required
information is presented either in the financial statements or the notes
thereto, or as the schedule is not applicable.
F-63
Report of Independent Auditors
The Board of Directors and the Shareholders
Rogers Inoac Corporation
We have audited the balance sheets of Rogers Inoac Corporation as of October 31,
1993 and 1992, and the related statements of income and retained earnings and
cash flows for each of the two years in the period ended October 31, 1993 and
the eleven months ended October 31,1991. Our audits also included the financial
statement schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
the schedules are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and the schedules. 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 financial position of Rogers Inoac Corporation at
October 31, 1993 and 1992, and the results of its operations and its cash flows
for the each of two years in the period ended October 31, 1993 and the eleven
months ended October 31, 1991 in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Tokyo, Japan
December 22, 1993
F-64
Rogers Inoac Corporation
Balance Sheets
October 31,
1993 1992
---------------------------
(Thousands of yen)
Assets
Current assets:
Cash and cash equivalents 534,356 403,831
Receivables:
Trade receivables 4,385 32,130
Due from affiliates (Note 4) 343,101 353,023
------------------------------
347,486 385,153
Less allowance for doubtful accounts (2,000) (5,713)
------------------------------
345,486 379,440
Inventories:
Merchandise and finished goods 64,037 44,844
Work in process 48,941 82,915
Raw materials 79,607 98,624
------------------------------
192,585 226,383
Deferred income taxes (Note 3) 7,574 19,766
Prepaid expenses and other current assets 2,574 535
------------------------------
Total current assets 1,082,575 1,029,955
Plant and equipment:
Buildings and improvements 9,783 8,803
Machinery and equipment 183,920 170,311
Vehicles 4,006 4,006
Furniture and fixtures 29,171 25,501
Construction in progress (Note 8) 39,571 0
------------------------------
266,451 208,621
Accumulated depreciation (140,702) (109,181)
------------------------------
125,749 99,440
Other assets 1,241 1,148
------------------------------
Total assets 1,209,565 1,130,543
==============================
F-65
October 31,
1993 1992
-----------------------------
(Thousands of yen)
Liabilities and shareholders' equity
Current liabilities:
Trade payables 69,495 80,447
Due to affiliates (Note 4) 235,780 260,852
Income taxes payable (Note 3) 87,925 138,984
Accrued expenses and other liabilities 31,305 27,841
------------------------------
Total current liabilities 424,505 508,124
Shareholders' equity
Common stock, par value 50,000 yen per share:
Authorized - 3,200 shares;
Issued and outstanding - 880 shares 44,000 44,000
Legal reserve (Note 7) 11,000 11,000
Retained earnings (Notes 2 and 7) 730,060 567,419
------------------------------
Total shareholders' equity 785,060 622,419
Commitments (Note 8)
------------------------------
Total liabilities and shareholders' equity 1,209,565 1,130,543
==============================
See notes to financial statements.
F-66
Rogers Inoac Corporation
Statements of Income And Retained Earnings
Eleven Months
ended
Year Ended October 31, October 31,
1993 1992 1991
------------------------------------------
(Thousands of yen)
Net sales (Note 4) 3,568,764 3,590,199 3,013,607
Interest income (Note 4) 16,499 11,037 10,298
Other income 4,542 9,308 2,689
------------------------------------------
3,589,805 3,610,544 3,026,594
Costs and expenses (Notes 4 and 6):
Cost of products sold 2,895,112 2,857,145 2,406,264
Selling, general and administrative
expenses 315,057 321,212 267,601
Interest expense (Note 5) 1,232 101 936
Other 0 5 18
------------------------------------------
3,211,401 3,178,463 2,674,819
-----------------------------------------
Income before income taxes 378,404 432,081 351,775
Income taxes (Note 3):
Current 192,571 242,400 194,220
Deferred (credit) 12,192 (7,023) (2,667)
------------------------------------------
204,763 235,377 191,553
------------------------------------------
Net income (Note 2) 173,641 196,704 160,222
Retained earnings at beginning of
period (Note 2) 567,419 384,715 240,493
Cash dividends (11,000) (11,000) (11,000)
Transfer to legal reserve -- (3,000) (5,000)
------------------------------------------
Retained earnings at end of period
(Notes 2 and 7) 730,060 567,419 384,715
==========================================
Amounts per common share (Note 9):
Net income 197.32 223.53 182.07
Cash dividends 12.50 12.50 12.50
See notes to financial statements.
F-67
Rogers Inoac Corporation
Statements of Cash Flows
Eleven Months
ended
Year Ended October 31, October 31,
1993 1992 1991
----------------------------------------
(Thousands of yen)
Operating activities
Net income 173,641 196,704 160,222
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 31,571 30,400 25,035
Provision for deferred income taxes 12,192 (7,023) (2,667)
Changes in operating assets and
liabilities:
Receivables 33,954 (74,946) (54,665)
Inventories 33,798 (12,295) 3,819
Prepaid expenses and other current
assets (2,039) (125) 3,324
Trade payables and due to
affiliates (36,025) 52,273 39,937
Accrued expenses and other
liabilities and income taxes
payable (47,594) 25,343 21,086
----------------------------------------
Net cash provided by operating
activities 199,498 210,331 196,091
Investing activities
Purchases of plant and equipment (57,829) (48,360) (16,306)
Increase in other assets (144) 0 (257)
----------------------------------------
Net cash used in investing activities (57,973) (48,360) (16,563)
Financing activities
Repayment of long-term debt 0 (3,350) (23,650)
Dividends paid (11,000) (11,000) (11,000)
----------------------------------------
Net cash used in financing activities (11,000) (14,350) (34,650)
----------------------------------------
Increase in cash and cash equivalents 130,525 147,621 144,878
Cash and cash equivalents at beginning
of period 403,831 256,210 111,332
---------------------------------------
Cash and cash equivalents at end of
period 534,356 403,831 256,210
=======================================
See notes to financial statements.
F-68
Rogers Inoac Corporation
Notes to Financial Statements
October 31, 1993
1 Significant Account Policies
Basis of Financial Statements
The Company was incorporated under the Commercial Code of Japan in January
1984, and is owned 50% by Rogers Corporation (a U.S. corporation) and 50%
by Inoac Corporation (a Japanese corporation). Until 1990, the Company's
fiscal year end for the purpose of the Commercial Code of Japan was
December 31 and for the purpose of reporting to Rogers Corporation was
November 30. In 1991, the fiscal year end was changed to October 31 for
both reporting purposes.
The Company maintains its official accounting records and prepares its
financial statements for domestic purposes in yen in accordance with
Japanese accounting practices. The accompanying financial statements have
been prepared in conformity with accounting principles generally accepted
in the United States and differ from those issued for domestic purposes in
Japan. Accordingly, the financial statements reflect adjustments not
recorded in the Company's official accounting records. These adjustments
are explained in Note 2 to the financial statements.
Cash and Cash Equivalents
For the purpose of the statements of cash flow, the Company considers all
highly liquid debt instruments with a maturity of three months or less
when purchased to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method)
or market.
Plant and Equipment
Plant and equipment is stated on the basis of cost. Depreciation is
computed by the declining-balance method over the estimated useful lives
of the respective assets.
F-69
Rogers Inoac Corporation
Notes to Financial Statements (continued)
Income Taxes
The Company computes and records current income taxes payable based upon
its determination of taxable income which is different from pretax
accounting income. The differences relate principally to the adjustments
required to conform the accompanying financial statements to accounting
principles generally accepted in the United States. Deferred income taxes
arising from temporary differences are not recognized in the official
accounting records; however, they are included in the adjustments
explained in Note 2 to the financial statements.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in the year ended October 31, 1993. The
effect of this change on net income in the years presented is not
material.
2 Adjustments Not Reflected in the Official Accounting Records
The following adjustments, not reflected in the official accounting
records, have been made to conform the Company's Japanese yen-based
financial statements to accounting principles generally accepted in the
United States (U.S. GAAP):
Retained Retained
earnings at Net income earnings
beginning Appropria- for the at end of
of period tions period period
---------------------------------------------------------
(Thousands of Yen)
Year ended October 31, 1993:
As recorded in the official
accounting records 465,035 16,000 160,786 609,821
Japanese GAAP adjustments:
Income tax provision 98,000 0 19,000 117,000
---------------------------------------------------------
Per Japanese GAAP 563,035 16,000 179,786 726,821
U.S. GAAP adjustments:
Accrued compensated
absences (10,382) 0 (1,933) (12,315)
Accrued directors'
bonuses (5,000) (5,000) (5,000) (5,000)
Prepaid expenses 0 0 12,980 12,980
Deferred income taxes 19,766 0 (12,192) 7,574
----------------------------------------------------------
4,384 (5,000) (6,145) 3,239
----------------------------------------------------------
As adjusted to U.S. GAAP 567,419 11,000 173,641 730,060
==========================================================
F-70
Rogers Inoac Corporation
Notes to Financial Statements (continued)
3 Income Taxes
Income taxes include corporation, enterprise, and inhabitants' taxes
which, in the aggregate, resulted in a statutory tax rate of approximately
52.3% for 1993, 1992 and 1991. The Company made income tax payments of
243,630 thousand yen, 209,855 thousand yen and 176,174 thousand yen during 1993,
1992 and 1991, respectively.
For the years ended October 31, 1993 and 1992 and the eleven months ended
October 31, 1991, the differences between the statutory income tax rate
and the effective tax rates are reconciled as follows:
Eleven
months ended
Year ended October 31, October 31,
1993 1992 1991
------------------------------------------
(Thousands of yen)
Statutory income tax rate 52.3% 52.3% 52.3%
Tax effect of:
Expenses not deductible for
tax purposes 1.0 0.9 1.3
Other 0.8 1.3 0.9
------------------------------------------
PEffective tax rates 54.1% 54.5% 54.5%
=========================================
Net deferred tax assets and liabilities as of October 31, 1993 and 1992
were as follows:
1993 1992
-------------------------
(Thousands of yen)
Deferred tax assets 14,363 19,766
Deferred tax liabilities (6,789) 0
------------------------
7,574 19,766
========================
Temporary differences at October 31, 1993 and 1992 mainly consisted of
accrued expenses that gave rise to deferred tax assets, and prepaid
expenses that gave rise to deferred tax liabilities. The total tax effect
of these temporary differences is recognized in the statements of income
and retained earnings.
F-71
Rogers Inoac Corporation
Notes to Financial Statements (continued)
4 Transactions with Affiliates
A substantial portion of the Company's business is conducted through its
Japanese parent, Inoac Corporation ("Inoac") and its subsidiaries, which
purchase the Company's products for resale. Inoac also provided certain
services to the Company for which it charged a management service fee.
Balances due from and due to affiliates at October 31, 1993 and 1992, and
transactions with affiliates for the years ended October 31, 1993 and 1992
and the eleven months ended October 31, 1991 are as follows:
October 31,
1993 1992
--------------------------
(Thousands of yen)
Due from:
Inoac and its subsidiaries and
affiliates 343,101 353,023
==========================
Due to:
Inoac and its subsidiaries and
affiliates 234,122 260,213
Rogers Corporation 1,658 639
-------------------------
235,780 260,852
=========================
Eleven
months ended
Year ended October 31, October 31,
1993 1992 1991
-------------------------------------------
(Thousands of yen)
Inoac and its subsidiaries and
affiliates:
Sales to 3,450,295 3,517,731 2,998,288
Purchases from 1,423,172 1,419,962 1,096,223
Management service fee 53,591 59,993 47,103
Plant and office rent 49,501 47,736 43,758
Purchases of equipment 5,611 0 3,500
Subcontractors' fee 352,746 423,080 305,656
Rogers Corporation:
Commission income 819 4,113 2,265
Sales commission 7,340 9,496 11,464
Interest income 7,079 0 0
F-72
Rogers Inoac Corporation
Notes to Financial Statements (continued)
5 Interest Paid
Interest paid for the year ended October 31, 1993 and 1992 and the eleven
months ended October 31, 1991 amounted to 1,232 thousand yen, 101 thousand yen
and 936 thousand yen, respectively.
6 Pension Cost
All employees of the Company are seconded from its Japanese parent, Inoac,
and are covered by Inoac's pension plan and Inoac bears the ultimate
pension obligation for these employees. The Company reimburses Inoac for
the current pension cost for these employees. Amounts charged to the
Company by Inoac for its pension plan for the years ended October 31, 1993
and 1992, and the eleven months ended October 31, 1991 amounted to 5,050
thousand yen, 5,076 thousand yen and 4,263 thousand yen, respectively.
A director of the Company, who is also a director of Inoac, is not covered
by the pension plan. Payments of termination benefits to the directors
are at the discretion of the shareholders of the Company and are not
determinable in advance of a resolution by the shareholders covering such
payments. Consequently, no provision for the directors' termination
benefits has been included in the accompanying financial statements.
7 Retained Earnings and Legal Reserve
The amount of retained earnings available for distribution to the
shareholders is based on the financial statements prepared under the
Commercial Code of Japan. The Commercial Code of Japan provides that a
legal reserve be appropriated until such reserve equals 25% of stated
capital (common stock). The legal reserve is not available for dividends,
but may be used to reduce a deficit by resolution of the shareholders or
may be capitalized by resolution of the Board of Directors. The amount of
unrestricted retained earnings available at October 31, 1993 for dividends
was approximately 609,821 thousand yen.
F-73
Rogers Inoac Corporation
Notes to Financial Statements (Continued)
8 Commitments
The Company leases certain equipment under leases which are noncancelable.
Future minimum payments, by year and in the aggregate, for equipment under
noncancelable operating leases with terms of one year or more consisted of
the following at October 31, 1993:
Thousands of yen
----------------
1994 2,306
1995 868
1996 474
1997 63
-----------
3,711
===========
For the year ended October 31, 1993 and 1992 and the eleven months ended
October 31, 1991, total rental expense for all operating leases amounted
to 53,865 thousand yen, 53,715 thousand yen and 55,282 thousand yen,
respectively.
Under its capital expenditure program, the Company has estimated that a
total expenditure of 314,500 thousand yen, of which 39,571 thousand yen was
expended as of October 31, 1993, will be required for a new plant facility
which will be completed by the end of January 1994.
9 Amounts per Share
The computation of net income per share is based on the weighted average
number of shares (880 shares) of common stock outstanding during each
period.
Cash dividends per share represent the cash dividends proposed by the
Board of Directors as applicable to the respective periods.
F-74
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
ROGERS INOAC CORPORATION
Additions
--------------------
Balance at Charged to Charged Balance
beginning of costs and to other at end
Description period expenses accounts Deductions of period
- ------------------------------- ------------ ---------- -------- ---------- ---------
(Yen)
Year ended October 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts 5,713,994 0 0 3,713,994 2,000,000
Year ended October 31, 1992:
Deducted from asset accounts:
Allowance for doubtful accounts 3,719,716 1,994,278 0 0 5,713,994
Eleven months ended October 31,
1991:
Deducted from asset accounts:
Allowance for doubtful accounts 1,200,000 2,519,716 0 0 3,719,716
F-75
SCHEDULE IX
SHORT-TERM BORROWINGS
ROGERS INOAC CORPORATION
Average amount Weighted
Balance at Weighted Maximum amount outstanding average interest
Category of Aggregate end of average outstanding during during the rate during the
short-term borrowings period interest rate the period period <F2> period <F3>
- -------------------------------- --------- ------------- ------------------ -------------- ----------------
(Yen)
Year ended October 31, 1993:
Overdraft from bank <F1> 0 4.389% 80,000,000 26,666,667 4.618%
Year ended October 31, 1992 <F4>
Eleven months ended October 31,
1991 <F4>
<FN>
<F1> Notes payable to bank represent borrowings under line-of-credit arrangements which have no termination date but
are reviewed annually for renewal.
<F2> The average amount outstanding during the period was computed by dividing the total of the month-end outstanding
principal balances by 12.
<F3> The weighted average interest rate during the period was computed by dividing the actual interest expense by the
monthly average short-term debt outstanding during the period.
<F4> There were no short-term borrowings outstanding during the periods ended October 31, 1991 and 1992.
F-76