Exhibit 33b
Durel Corporation
Statement of Income
(Dollars in thousands)
For the Nine-
Months Ended September 28,
2003
(unaudited)
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Net sales $51,331
Cost of goods sold 29,243
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Gross Profit 22,088
Costs and expenses:
Selling and administrative 6,377
Research and development 2,410
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Income from operations 13,301
Other (expense) income:
Interest income 77
Other (154)
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Income before income taxes 13,224
Provision for income taxes (3,968)
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Net income $9,256
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The accompanying notes are an integral part of these financial statements.
Durel Corporation
Statement of Cash Flows
(Dollars in thousands)
For the Nine-
Months Ended September 28,
2003
(unaudited)
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Operating Activities
Net income $9,256
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 2,201
Changes in operating assets and liabilities:
Accounts receivable 3,212
Inventories 1,751
Prepaid expenses and other (285)
Accounts payable and accrued liabilities (4,421)
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Net cash provided by operating activities 11,714
Investing Activities
Purchase of property, plant and equipment (328)
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Net cash used in investing activities (328)
Financing Activities
Repayments of borrowings from shareholders (656)
Dividends to shareholders (6,000)
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Net cash used in financing activities (6,656)
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Net increase in cash and cash equivalents 4,730
Cash and cash equivalents at the beginning of the
period 3,614
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Cash and cash equivalents and the end of the period $8,344
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The accompanying notes are an integral part of these financial statements.
Durel Corporation
Notes to Financial Statements
1. Accounting Policies
Description of Business
Durel Corporation (the "Company") was incorporated on June 1, 1988, in the state
of Delaware. The Company operates in one operating segment and engages primarily
in the research, development, manufacture and sale of electroluminescent
products. The Company is a joint venture of Rogers Corporation and Minnesota
Mining and Manufacturing Company (the "Shareholders"), with each owning 50% of
the outstanding common stock.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized upon delivery of goods to customers, when persuasive
evidence of an arrangement exists, the price is fixed or determinable, and
collection is reasonably assured.
Shipping Costs
Costs of shipping products to customers are included in costs of goods sold.
2. Transactions with Shareholders
In connection with the sale of the Company's products, the Company reimburses
one of the Shareholders for selling costs and pays no commission. Selling costs
reimbursed to this Shareholder were approximately $235,000 for the nine-month
period ended September 28, 2003. The other Shareholder bears a large portion of
all selling costs and receives a commission ranging from 2.5 to 5 percent.
Commissions earned by this Shareholder were approximately $2,149,000 for the
nine-month period ended September 28, 2003.
The financial statements of the Company include allocations from the
Shareholders for direct expenditures made on its behalf. In addition, the
Shareholders have charged the Company costs for research and development,
marketing, and general corporate overhead based upon estimates of expenses
incurred for the benefit of the Company. Amounts paid to the shareholders for
these respective costs were approximately $352,000 for the nine-month period
ended September 28, 2003.
In February 2003, the Company paid the Shareholders $656,557 to satisfy its
obligation under a long-term payable to the Shareholders that represented
charges for past services provided by the Shareholders to the Company.
3. Income Taxes
Durel's effective tax rate was 30% for the first nine months of 2003. The
effective tax rate is lower than the statutory rate due to various tax benefits,
including nontaxable foreign sales income and research and development credits.
Income taxes paid were $5.6 million in the first nine months of 2003.
4. Concentrations of Credit Risk
The Company's revenue is derived from customer primarily in North America, the
Pacific Rim and Europe. The amount of total export sales by geographic area was
as follows:
Nine Month
Period Ended September 28,
2003
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Pacific Rim $ 41,904,302
Europe 621,043
Other 269,505
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Total export sales $ 42,794,850
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The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The following
individual customers comprised more than 10 percent of net sales and accounts
receivable:
Nine Month
Period Ended September 28,
2003
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Net Sales:
Customer:
A 26%
B 12
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38%
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Net accounts receivable:
Customer:
A 37%
B 13
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50%
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5. Retirement Plan
The Company sponsors a noncontributory defined benefit pension plan (the "Plan")
covering all employees meeting eligibility requirements. The information
presented below is as of December 28, 2003 (subsequent to the September 30, 2003
acquisition by Rogers Corporation ("Rogers")) and represents the amounts used
related to Durel in Rogers' 2003 annual report.
2003
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Change in Benefit Obligation:
Benefit obligation at beginning of year $ -
Service cost 129,756
Interest cost 241,469
Benefit payments (111,284)
Acquisitions 4,698,717
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Benefit obligation at end of year $ 4,958,658
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Change in plan assets:
Fair value of plan assets at beginning of year $ -
Actual return on plan assets 408,138
Benefit payments (111,284)
Acquisitions 3,281,829
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Fair value of plan assets at end of year $ 3,578,683
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Reconciliation of funded status:
Funded status $(1,379,975)
Unrecognized gain (335,549)
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Net amount recognized at end of year $(1,715,524)
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Amounts recognized in the statement of financial position consist of:
Accrued benefit liability $ (1,715,524)
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Net amount recognized at year end $ (1,715,524)
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Components of pension cost:
Service cost $ 129,756
Interest cost 241,469
Expected return on plan assets (72,589)
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Net periodic pension cost $ 298,636
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Assumptions:
Discount rate 5.20%
Expected return on plan assets 9.00%
Rogers Corporation terminated the Durel pension plan effective December 31,2003
and eligible Durel employees will be able to participate in Rogers' defined
benefit pension plan starting on January 1, 2004. Former Durel plan participants
will have the option of either rolling over their pension into the Rogers 401(k)
plan, an individual retirement account, or an annuity, or taking a lump-sum
distribution.
6. Employee Benefit Plans
The Company maintains a 4 01(k) Retirement Plan (the "401(k) Plan") covering all
employees effective upon hire. Under the terms of the 401(k) Plan, employees may
contribute up to 18 percent of their annual compensation, subject to Internal
Revenue Service limitations. During the 9 month period ended September 28, 2003,
the Company matched 50 percent of employee contributions up to 6 percent of the
employee's compensation for the pay period for which such contribution was made.
Contribution expense for the nine-month period ended September 28, 2003 was
$164,563. The Company's plan was frozen on December 28, 2003 and eligible Durel
employees were accepted into the Rogers' 401(k) plan on December 29, 2003.
Durel's plan is in the process of being merged with the Rogers' plan. Rogers
anticipates this merger will occur in the second quarter of 2004.
Certain employees also participate in short-term and long-term incentive plans
(the "Incentive Plans"). Under the terms of the Incentive Plans, eligible
employees are compensated based on profits, as defined, and the cumulative
return on investment of the Company, as defined, as well as an additional
compensation component based on the appreciation in the prices of the
Shareholders' stock. The Company recognized expense of $934,077 for the nine
month period ended September 28, 2003. As a result of the Company's acquisition,
Rogers paid out amounts owed to participating employees in the first quarter of
2004. Durel employees are now eligible to participate in the various short- and
long-term incentive plans offered by Rogers.
7. Contingencies
The nature and scope of the Company's business bring it in regular contact with
the general public and a variety of businesses and government agencies. Such
activities inherently subject the Company to the possibility of litigation,
including environmental and product liability matters that are defended and
handled in the ordinary course of business. The Company has established accruals
for matters for which management considers a loss to be probable and reasonably
estimable. It is the opinion of management that facts known at the present time
do not indicate that any such matters, after taking into account insurance
coverage and the aforementioned accruals, would have a material adverse effect
on the financial position of the Company.
8. Subsequent Events
On September 30, 2003, Rogers Corporation acquired from 3M Company ("3M") its
50% interest in Durel giving Rogers a 100% ownership interest in Durel.
Effective September 30, 2003, Durel's operations were fully integrated and
consolidated into Rogers.