a5620596.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 30, 2007
Commission
file number 1-4347
ROGERS
CORPORATION
(Exact name of Registrant
as specified in its charter)
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Massachusetts
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06-0513860
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(State
or other jurisdiction of
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(I.
R. S. Employer
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incorporation
or organization)
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Identification
No.)
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P.O.
Box 188, One Technology Drive, Rogers, Connecticut 06263-0188
(860)
774-9605
(Address
and telephone number of principal executive offices)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $1 Par Value
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New
York Stock Exchange
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Rights
to Purchase Capital Stock
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New
York Stock Exchange
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Securities registered pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes ___ No _X_
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ___ No _X_
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes _X_ No ___
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes _X_ No ___
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “accelerated filer”, “large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer _X_ Accelerated
Filer ___
Non-accelerated Filer ___ (Do not check if a
smaller reporting
company) Smaller
reporting company ____
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the
Act) Yes ___ No _X_
The
aggregate market value of the voting common equity held by non-affiliates as of
July 1, 2007, the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately $600,417,130 Rogers has no non-voting
common equity.
The number
of shares outstanding of capital stock as of February 15, 2008 was
17,914,172.
Documents
Incorporated by Reference:
Portions
of Rogers’ definitive proxy statement for its Annual Meeting of Shareholders,
currently scheduled for May 9, 2008, are incorporated by reference into Part III
of this Report.
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TABLE
OF CONTENTS
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Part
I
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4
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9
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13
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13
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14
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18
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Part
II
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19
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20
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21
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39
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40
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80
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81
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83
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Part
III
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84
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84
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84
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84
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84
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Part
IV
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85
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92
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List
of Exhibits Filed Herewith:
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Exhibit
10r-9
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Amendment
No. 9 to Summary of Director and Executive Officer
Compensation
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Exhibit
10v-2
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Amendment
No. 2 to Schedule of Indemnification Agreements for
Officers
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Exhibit
10x-2
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Amendment
No. 2 to Schedule of Indemnification Agreements for
Directors
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Exhibit
21
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Subsidiaries
of Rogers Corporation
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Exhibit
23.1
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Consent
of Independent Registered Public Accounting Firm
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Exhibit
23.2
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Consent
of National Economic Research Associates, Inc.
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Exhibit
23.3
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Consent
of Marsh USA, Inc.
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Exhibit
31(a)
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Certification
of President and CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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Exhibit
31(b)
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Certification
of Vice President, Finance and CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Exhibit
32(a)
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Certification
of President and CEO and Vice President, Finance and CFO Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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PART
I
Industry
Rogers
Corporation, founded in 1832, is one of the oldest publicly traded U.S.
companies in continuous operation. We have adapted our products over
the 175 years of our history to meet changing market needs, moving from
originally manufacturing specialty paperboard for use in early electrical
applications, to today predominantly supplying a range of specialty materials
and components for the portable communications, communications infrastructure,
consumer electronics, healthcare, microprocessors, mass transit, automotive,
aerospace and defense, and alternative energy markets.
Our
current focus is on worldwide markets that have an increasing percentage of
materials being used to support growing high technology applications, such as
cellular base stations and antennas, handheld wireless devices, satellite
television receivers and automotive electronics. We continue to focus
on business opportunities around the globe and particularly in the Asian
marketplace, as evidenced by the continued investment in and expansion of our
manufacturing facilities in Suzhou, China, which function as the manufacturing
base to serve our customers in Asia.
As used
herein, the “Company”, “Rogers”, “we”, “our”, “us” and similar terms include
Rogers Corporation and its subsidiaries, unless the context indicates
otherwise.
Business
Segments & Products
We operate
in four reportable segments: Printed Circuit Materials, High Performance Foams,
Custom Electrical Components and Other Polymer Products. Financial
information by business segment and geographic area appears in Note 11 of the
Consolidated Financial Statements on pages 72 through 73 of this Form
10-K. Our products are based on our core technologies in polymers,
fillers, and adhesion. Most products are proprietary, or incorporate
proprietary technology in their development and processing, and are sold under
our valuable brand names.
Printed
Circuit Materials
Our
Printed Circuit Materials reportable segment includes rigid and flexible printed
circuit board laminates for high frequency, high performance
applications. Our Printed Circuit Materials have characteristics that
offer performance and other functional advantages in many market applications,
and serve to differentiate our products from other commonly available
materials.
Printed
Circuit Materials are sold principally to independent and captive printed
circuit board manufacturers who convert our laminates to custom printed
circuits.
The
polymer-based dielectric layers of our rigid circuit board laminates are
proprietary materials that provide highly specialized electrical and mechanical
properties. Trade names for our rigid printed circuit board materials
include RO3000®, RO4000®, DUROID®, RT/duroid®, ULTRALAM®, RO2800® and TMM®
laminates. All of these laminates are used for making circuitry that
receive, transmit, and process high frequency communications signals, yet each
laminate has variant properties that address specific needs and applications
within the communications market. High frequency circuits are used in
the equipment and devices that comprise wireless communications systems,
including cellular communications, digital cellular communications, paging,
direct broadcast television, global positioning, mobile radio communications,
and radar.
The
flexible circuit materials that we manufacture are called R/flex®
materials. They are mainly used to make interconnections for portable
electronic devices, especially in cell phones, handheld and laptop computers,
and hard disk drives.
Two of our
joint ventures extend and complement our worldwide Printed Circuit Materials
business. Polyimide Laminate Systems, LLC (PLS), our joint venture
with Mitsui Chemicals, Inc. of Japan, was established in early 2000 to sell
adhesiveless flexible circuit materials to Hutchinson Technology Incorporated
(HTI). HTI uses these materials to make trace suspension assemblies
in magneto resistive hard disk drives.
Rogers
Chang Chun Technology, Co., Ltd. (RCCT), our joint venture with Chang Chun
Plastics, Co., Ltd., was established in late 2001 to manufacture flexible
circuit material for customers in Taiwan.
High
Performance Foams
Our High
Performance Foams reportable segment includes urethane and silicone
foams. These foams have characteristics that offer functional
advantages in many market applications, and serve to differentiate our products
from other commonly available materials.
High
Performance Foams are sold to fabricators, distributors and original equipment
manufacturers for applications in consumer electronics, mass transit, aerospace
and defense and other markets. Trade names for our High Performance
Foams include: PORON® urethane foams used for making high performance
gaskets and seals in vehicles, portable communications devices, computers and
peripherals; PORON® cushion insole materials for footwear and related products;
PORON® healthcare and medical materials for body cushioning and orthotic
appliances; BISCO® silicone foams used for making flame retardant gaskets and
seals in communications infrastructure equipment, aircraft, trains, cars and
trucks, and for shielding extreme temperature or flame; and R/bak® compressible
printing plate backing and mounting products for cushioning flexographic plates
for printing on packaging materials.
Two of our
joint ventures extend and complement our worldwide business in High Performance
Foams. Rogers Inoac Corporation (RIC), a joint venture with
Japan-based Inoac Corporation, manufactures high performance PORON® urethane
foam materials in Mie and Nagoya, Japan to predominantly service the Japanese
market. In 2004, we further extended our relationship with Inoac
Corporation with the formation of another joint venture in Suzhou, China, Rogers
Inoac Suzhou Corporation (RIS), which also manufactures PORON® urethane foam
materials primarily for RIC and our wholly-owned PORON® urethane foam materials
business.
Custom
Electrical Components
Our Custom
Electrical Components reportable segment includes power distribution components
and electroluminescent lamps and inverters. We manufacture power
distribution components in Ghent, Belgium and Suzhou, China, under the MEKTRON®
trade name, which we sell to manufacturers of high power/high voltage electrical
inverter systems for use in mass transit and industrial applications, and to
manufacturers of communication and computer equipment. We manufacture
DUREL® electroluminescent lamps (EL lamps) in Chandler, Arizona and Suzhou,
China. We also design and sell inverters that drive EL
lamps. These EL lamps and inverters are sold primarily to
manufacturers of portable communications equipment and automobiles throughout
the world. During 2006 and 2005, production capacity was added in
China for both EL lamps and power distribution components, as we continue to
work to bring manufacturing operations closer to our customers.
Other
Polymer Products
Our Other
Polymer Products reportable segment includes elastomer components, composite
materials and industrial laminates. These products have characteristics that
offer functional advantages in many market applications that serve to
differentiate our products from those of our competitors and from other commonly
available products.
Elastomer
components are sold to original equipment manufacturers for applications in
ground transportation, computer and office equipment, consumer and other
markets. Trade names for the our elastomer components
include: NITROPHYL® floats for fill level sensing in fuel tanks,
motors, and storage tanks; and ENDUR® elastomer rollers and belts for document
handling in copiers, computer printers, mail sorting machines and automated
teller machines. In 2004, we moved production of our elastomer
components products from South Windham, Connecticut to our facility in Suzhou,
China in an effort to be closer to our customers in the Asian marketplace and to
improve production cost efficiencies. In 2006, to further improve
production leverage, we moved our Korean float manufacturing operations, which
we acquired in 2004, to our facilities in Suzhou, China.
Our
nonwoven composite materials are manufactured for medical padding, industrial
pre-filtration applications, and as consumable supplies in the lithographic
printing industry.
We
manufacture industrial laminates under the Induflexâ trade
name. These polyester-based laminates, produced with thin aluminum
and copper cladding, are sold mostly to telecommunications and data
communication cable manufacturers for shielding electromagnetic and radio
frequency interference, and to component manufacturers for making etched-foil
heating elements and mobile phone antennas.
This
segment no longer includes our polyolefin foams business, which was divested in
the third quarter of 2007.
Sales
and Marketing
Most of
our products are sold through direct sales channels positioned near major
concentrations of our customers throughout the Americas, Europe and
Asia. Our products were sold to over 2,700 customers worldwide in
2007. Although the loss of all the sales made to any one of our larger customers
would require a period of adjustment during which the business of a segment
would be adversely affected, we believe that such adjustment could be made over
a period of time due to the diversity of our customer base. We also
believe that our business relationships with the major customers within all of
our key markets are generally favorable, and that we are in a good position to
respond promptly to variations in customer requirements and technology
trends. However, the possibility exists of losing all of the business
of any major customer in any product line.
We market
our full range of products throughout the United States and in most foreign
markets. Almost all of our sales are facilitated through our own
worldwide sales force, with a small percentage facilitated through independent
agents and distributors.
Competition
There are
no firms that compete with us across our full range of product
lines. However, each of our products faces competition in each
business segment in domestic and foreign markets. Competition comes
from firms of all sizes and types, including those with substantially more
resources than us. Our strategy is to offer technologically advanced
products that are price competitive in our markets, and to link the product
offerings with market knowledge and customer service. We believe this
serves to differentiate our products in many markets.
Research
and Development
We have
many domestic and foreign patents and licenses and have additional patent
applications on file related to all business segments. In some cases,
the patents result in license royalties. The patents are of varying
duration and provide some protection from competition. Although we
vigorously defend our patents, we believe that our patents are most valuable
when combined with our equipment, technology, skills and market position. We
also own a number of registered and unregistered trademarks and have acquired
certain technology that we believe to be of importance to our
business.
Environment
The nature
and scope of our business brings us in regular contact with the general public
and a variety of businesses and government agencies. Such activities
inherently subject us to the possibility of litigation, including environmental
matters that are defended and handled in the ordinary course of
business. We have established accruals for matters for which
management considers a loss to be probable and reasonably
estimable. We do not believe that the outcome of any of these
environmental matters will have a material adverse effect on our results of
operations, financial position or cash flows, nor have we had any material
recurring costs or capital expenditures relating to environmental matters,
except as disclosed in Item 3 (“Legal Proceedings”) and Footnote 10 to the
Consolidated Financial Statements of this Form 10-K. However, there
can be no assurances that the ultimate liability concerning these matters will
not have a material adverse effect on us.
Raw
Materials
The
manufacture of our various products and materials requires a wide variety of
purchased raw materials. Some of these raw materials are available
only from limited sources of supply that, if discontinued, could interrupt
production. When this has occurred in the past, we have typically
purchased sufficient quantities of the particular raw material to sustain
production until alternative materials and production processes could be
qualified with customers. We believe that similar responses would
mitigate any raw material availability issues in the future.
Seasonality
In our
opinion, there is generally no material concentration of products or markets
within the business that are seasonal in nature, except for some minor
seasonality for those products used in cellular telephones due to the annual new
model launch timetable, which can vary slightly from year to year in terms of
timing and impact.
Employees
As of
December 30, 2007, we employed approximately 2,100 employees.
Backlog
Our
backlog of firm orders was $44.7 million at December 30, 2007, as compared to
$39.8 million at December 31, 2006. The increase at the end of 2007 was
primarily related to the increase in sales in the Custom Electrical Components
reportable segment, as backlog for power distribution components, primarily sold
in the ground transportation market, increased by approximately $4.0 million at
year-end 2007 as compared to year-end 2006.
Executive
Officers
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Name
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Age
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Present
Position
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Year
Elected
to
Present
Position
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Other
Positions Held During 2003-2007
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Robert
D. Wachob
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60
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President
and Chief Executive
Officer
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2004
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President
and Chief Operating Officer of the Company from April 2002 to April
2004
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Dennis
M. Loughran
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50
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Vice
President, Finance
and
Chief Financial
Officer
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2006
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Vice
President, Finance and Supply Chain, Alcoa Consumer Products from June
2000 to January 2006
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Paul
B. Middleton
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40
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Treasurer
and Principal Accounting
Officer
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2007
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Corporate
Controller from February 2006 to August 2007; Acting Chief Financial
Officer and Corporate Controller of the Company from March 2005 to
February 2006; Corporate Controller of the Company from December 2001 to
March 2005
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Robert
C. Daigle
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44
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Vice
President, Research
and
Development and Chief
Technology
Officer
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2003
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Vice
President and Manager, Advance Circuit Materials Division of the Company
from October 2001 to October 2003
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John
A. Richie
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60
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Vice
President, Human
Resources
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1994
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Robert
M. Soffer
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60
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Vice
President and Secretary
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2007
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Vice
President, Secretary and Treasurer from March 2005 to August 2007; Vice
President and Secretary of the Company from December 2002 to March
2005
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Debra
J. Granger
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48
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Vice
President, Corporate
Compliance
and Controls
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2007
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Director,
Corporate Compliance and Controls of the Company from March 2003 to
February 2007; Manager, Investor and Public Relations of the Company from
May 2000 to February 2003
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Jeffrey
M. Grudzien
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45
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Vice
President, Sales
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2007
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Director
of Asia Sales from January 2007 to September 2007; Director of Marketing
from January 2005 to January 2007; Marketing Manager, High Performance
Foams Division from February 2001 to December 2004
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Peter
G. Kaczmarek
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49
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Vice
President, High
Performance Foams
Division and Information Technology
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2007
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Vice
President, High Performance Foams Division from August 2001 to February
2007
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Frank
J. Gillern
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59
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Vice
President, Advanced
Circuit
Materials Division
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2003
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Vice
President and Operations Manager of Durel Corporation from November 2000
to September 2003
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Name
|
Age
|
Present
Position
|
Year
Elected
to
Present
Position
|
Other
Positions Held During 2003-2007
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Michael
D. Bessette
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54
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Vice
President, Durel
Division
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2003
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Director,
Product Development Polymers of the Company from June 2002 to December
2003
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Luc
Van Eenaeme
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49
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Vice
President, Rogers
Europe
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2004
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Acting
Vice President and Managing Director, Rogers Europe from May 2003 to
December 2003; New Business Development Manager of the Company from July
2002 to May 2003
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Michael
L. Cooper
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55
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Vice
President, Rogers
Asia
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2004
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Vice
President and Chief Information Officer of the Company from October 2001
to May 2004
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Available
Information
We make
available, free of charge on our website (http://www.rogerscorporation.com),
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, reports filed pursuant to Section 16 and amendments to those
reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (Exchange Act) as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and Exchange
Commission (SEC). In addition, the SEC maintains an internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC (http://www.sec.gov).
We also
make available on our website, in a printable format, the charters for a number
of our various Board of Director committees, including the Audit Committee,
Compensation and Organization Committee, and Nominating and Governance
Committee, in addition to our Corporate Governance Guidelines, Bylaws, Code of
Business Conduct and Ethics and Related Party Transactions
Policy. This information is available in print without charge, to any
shareholder who requests it, by sending a request to Rogers Corporation, One
Technology Drive, P.O. Box 188, Rogers, CT 06263-0188, Attn: Vice President
and Secretary. Our website is not incorporated into or a part of this
Form 10-K.
Our
business, financial condition and results of operations are subject to various
risks, including those discussed below, which may affect the value of our
securities. The risks discussed below are those that we believe are
currently the most significant, although additional risks not presently known to
us or that we currently deem less significant may also impact our business,
financial condition and results of operations, perhaps materially.
Technology
and Product Development
Our future
results depend upon our ability to continue to develop new products and improve
our product and process technologies. Our success in these efforts will depend
upon our ability to anticipate market requirements in our product development
efforts, and the acceptance and continued commercial success of the end user
products. Additionally, our success depends on our ability to adapt to
technological changes and to support established and emerging industry
standards.
In
particular, the communications market is characterized by frequent new product
introductions, evolving industry standards, rapid changes in product and process
technologies, price competition and many new potential
applications. The products that we manufacture and sell to the
communications market are relatively new. To continue to be
successful in this area, we must be able to consistently manufacture and supply
materials that meet the demanding expectations of customers for quality,
performance and reliability at competitive prices. Our timely
introduction of such new products could be affected by engineering or other
development program delays and problems in effectively and efficiently
increasing production to meet customer needs. In addition, rapid
technological change, significant pricing pressures and short lead times
characterize the markets for computers and related equipment, such as printers
and electronic portable hand-held devices. Because we manufacture and
sell our own materials to meet the needs of these markets, our results may be
negatively affected by these factors.
Volatility
of Demand
The
computer and related equipment industry and the communications industry have
historically been characterized by wide fluctuations in product supply and
demand. From time-to-time, these industries have experienced significant
downturns, often in connection with, or in anticipation of, maturing product
cycles and declines in general economic conditions. These downturns
have been characterized by diminished product demand, production over-capacity
and accelerated price erosion. Our business may in the future be
materially and adversely affected by such downturns.
Raw
Materials
We from
time to time must procure certain raw materials from single or limited sources
that expose us to price increases and inconsistent material
quality. In addition, our inability to obtain these materials in
required quantities could result in significant delays or reductions in our own
product shipments. In the past, we have been able to purchase
sufficient quantities of raw materials to sustain production until alternative
materials and production processes could be qualified with
customers. However, any inability to obtain timely deliveries of
materials of acceptable quantity or quality, or a significant increase in the
prices of materials, could have a material adverse affect on our operating
results.
Foreign
Manufacturing and Sales
Our
international manufacturing and sales involve risks, including imposition of
governmental controls, currency exchange fluctuation, potential insolvency of
international customers, reduced protection for intellectual property rights,
the impact of recessions in foreign countries, political instability, employee
selection and retention, and generally longer receivable collection periods, as
well as tariffs and other trade barriers. There can be no assurance
that these factors will not have an adverse effect on our future international
manufacturing and sales, and consequently, on our business, operating results
and financial condition.
Unanticipated
Events that are Beyond Our Control
Our
business and operating results may be affected by certain events that we cannot
anticipate and that are beyond our control, such as natural disasters and
national emergencies, which could disrupt production at our facilities and cause
delayed deliveries, cancelled orders and possibly loss of market
share. In addition, we purchase certain raw materials from single or
limited sources, and, even if our facilities are not directly affected by such
events, we could be affected by interruptions of production at our
suppliers.
Key
Personnel
Our
success depends to a significant extent upon the continued service of our
executive officers and key management and technical personnel, particularly our
experienced engineers, and on our ability to continue to attract and retain
qualified personnel. The loss of services of one or more of our key
personnel could have a material adverse effect on our operating
results. In addition, there could be a material adverse effect on our
operating results if the turnover rates for engineers and other key personnel
increase significantly or if we are unable to continue to attract and retain
qualified personnel.
Acquisitions
and Divestitures
Acquisitions
and investments in technologies are an important component of our growth
strategy. Accordingly, our future performance will be impacted by our
ability to identify appropriate businesses to acquire, negotiate favorable terms
for such acquisitions and then effectively and efficiently integrate such
acquisitions into our existing businesses. There is no certainty that
we will succeed in such endeavors.
In
relation to acquisitions and divestitures undertaken, it is common for us to
structure the transactions to include earn-out and/or intellectual property
royalty agreements that generally are tied to the performance of the underlying
products or businesses acquired or divested. Accordingly, our future
performance will be impacted by the respective performances of the products
and/or businesses divested and the successful utilization of products and/or
businesses acquired. In addition, there is no guarantee that these
underlying products and/or businesses will perform as anticipated at the time
the transactions were consummated.
Environmental
and Other Litigation
We are
subject to a variety of claims and lawsuits arising out of the conduct of our
business. We are currently engaged in proceedings involving four
waste disposal sites, as a participant in a group of potentially responsible
parties (PRP's). Our estimation of environmental liabilities is based
on an evaluation of currently available information with respect to each
individual situation, including existing technology, presently enacted laws and
regulations, and our past experience in addressing environmental
matters. Although current regulations impose potential joint and
several liability upon each named party at any superfund site, we expect our
contribution for cleanup to be limited due to the number of other PRP's, and our
share of the contributions of alleged waste to the sites, which we believe is
de-minimis. In addition, we believe we have sufficient insurance to
cover all material costs of these claims. However, there can be no
assurances that our estimates will not be disputed or that any ultimate
liability concerning these sites will not have a material adverse effect on
us.
We are
also involved in certain asbestos-related product liability
litigation. The level of such litigation has escalated in certain
U.S. states in the past several years and involves hundreds of companies that
have been named as defendants. At December 30, 2007, there were
approximately 175 claims pending against us. We expect that
additional claims will be brought against us in the future. Our
ultimate liability with respect to such pending and unasserted claims is subject
to various uncertainties, including the following:
|
·
|
the
number of claims that are brought in the
future;
|
|
·
|
the
costs of defending and settling these
claims;
|
|
·
|
the
risk of insolvencies among our insurance
carriers;
|
|
·
|
the
possibility that adverse jury verdicts could require us to pay damages in
amounts greater than the amounts for which we have historically settled
claims; and
|
|
·
|
the
risk of changes in the litigation environment of Federal and state law
governing the compensation of asbestos
claimants.
|
We believe
we have sufficient insurance to cover all material costs of these claims and
that we have valid defenses to these claims and intend to defend ourselves
vigorously in these matters. However, there can be no assurances that
the ultimate resolution of these matters will be consistent with our
expectations and will not have a material adverse effect on us.
Adequacy
of Reserve Levels
We
establish reserves to cover uncollectible accounts receivable, excess or
obsolete inventory, fair market value write-downs of certain assets, and various
liabilities, which may not be adequate to cover future write-downs or
losses. These reserves are subject to adjustment from time to time
depending on actual experience and are subject to many uncertainties, including
bankruptcy or other financial problems at key customers. In the case
of litigation matters for which reserves have not been established because the
loss is not deemed probable, it is reasonably possible such matters could be
decided against us and require the payment of damages or other expenditures in
amounts that are not presently estimable.
The
effects on our financial results of many of these factors depends in some cases
on our ability to obtain insurance covering potential losses at reasonable
rates.
Changes
in Tax Rates and Exposure to Additional Income Tax Liabilities
We are
subject to income taxes in both the United States and various foreign
jurisdictions, and our domestic and international tax liabilities are subject to
the allocation of income among these different jurisdictions. Our
effective tax rates could be adversely affected by changes in the mix of
earnings in countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities, or in tax laws, which could
affect our profitability. In particular, the carrying value of
deferred tax assets is dependent on our ability to generate future taxable
income. In addition, the amount of income taxes we pay is subject to
audits in various jurisdictions, and a material assessment by a tax authority
could affect profitability.
None.
On
December 30, 2007, we operated various manufacturing facilities and sales
offices throughout the United States, Europe and Asia. In general,
our facilities are in good condition, are considered to be adequate for the uses
to which they are being put, and are in the aggregate substantially in regular
use. The principal facilities and offices are listed below:
|
Location
|
Floor
Space
(Square
Feet)
|
Type
of Facility
|
Leased
/ Owned
|
|
|
|
|
|
|
United
States
|
|
|
|
|
Rogers, Connecticut
|
506,000
|
Manufacturing
/ Administrative Offices
|
Owned
|
|
Woodstock,
Connecticut
|
152,000
|
Manufacturing
|
Owned
|
|
Carol
Stream, Illinois
|
215,000
|
Manufacturing
|
Owned
|
|
Chandler,
Arizona
|
156,000
|
Manufacturing
|
Owned
|
|
Chandler,
Arizona
|
142,000
|
Manufacturing
|
Owned
|
|
Chandler,
Arizona
|
120,000
|
Manufacturing
|
Owned
|
|
South
Windham, Connecticut
|
88,000
|
Formerly
Manufacturing
|
Owned
|
|
|
|
|
|
|
Belgium
|
|
|
|
|
Evergem,
Belgium
|
64,000
|
Manufacturing
|
Owned
|
|
Ghent,
Belgium
|
90,000
|
Manufacturing
|
Owned
|
|
Ghent,
Belgium
|
56,000
|
Manufacturing
|
Owned
|
|
|
|
|
|
|
Asia
|
|
|
|
|
Suzhou,
China
|
200,000
|
Manufacturing
|
Owned
|
|
Suzhou,
China
|
93,000
|
Manufacturing
|
Leased
through 7/10
|
|
Suzhou,
China
|
93,000
|
Manufacturing
|
Leased
through 7/10
|
|
Suzhou,
China
|
215,000
|
Manufacturing
|
Owned
|
|
Suzhou,
China
|
10,000
|
Warehouse
|
Leased
through 9/08
|
|
Tsuen
Wan, Hong Kong
|
8,000
|
Warehouse
|
Leased
through 10/08
|
|
Tokyo,
Japan
|
2,000
|
Sales
Office
|
Leased
through 3/08
|
|
Wanchai,
Hong Kong
|
1,000
|
Sales
Office
|
Leased
through 6/08
|
|
Taipei,
Taiwan, R.O.C.
|
1,000
|
Sales
Office
|
Leased
through 7/08
|
|
Seoul,
Korea
|
1,000
|
Sales
Office
|
Leased
through 12/08
|
|
Singapore
|
1,000
|
Sales
Office
|
Leased
through 11/08
|
|
Shanghai,
China
|
1,000
|
Sales
Office
|
Leased
through 6/08
|
|
Shenzhen,
China
|
1,000
|
Sales
Office
|
Leased
through 6/08
|
|
Beijing,
China
|
1,000
|
Sales
Office
|
Leased
through 9/08
|
|
|
|
|
|
We are
currently engaged in the following environmental and legal
proceedings:
Environmental
Remediation in Manchester, Connecticut
In the
fourth quarter of 2002, we sold our Moldable Composites Division located in
Manchester, Connecticut to Vyncolit North America, Inc., at the time a
subsidiary of the Perstorp Group, located in Sweden. Subsequent to
the divestiture, certain environmental matters were discovered at the Manchester
location and we determined that, under the terms of the arrangement, we would be
responsible for estimated remediation costs of approximately $0.5
million. We recorded a reserve for this amount in 2002 in accordance
with SFAS No. 5, Accounting
for Contingencies (SFAS 5). The Connecticut Department of
Environmental Protection (CT DEP) accepted our Remedial Action Plan in February
2005. We completed the remediation activities in December 2005 and
started post-remediation groundwater monitoring in 2006. The cost of
the remediation approximated the reserve originally recorded in
2002. In 2007, we filed a waiver with the CT DEP to discontinue the
groundwater monitoring following favorable results indicating successful
remediation of the site and are awaiting a response from the CT
DEP. The cost of monitoring, which thus far has not been material and
is not expected to be material in the future, is treated as period expense when
incurred.
Superfund
Sites
We are
currently involved as a potentially responsible party (PRP) in four active cases
involving waste disposal sites. In certain cases, these proceedings
are at a stage where it is still not possible to estimate the ultimate cost of
remediation, the timing and extent of remedial action that may be required by
governmental authorities, and the amount of our liability, if any, alone or in
relation to that of any other PRP’s. However, the costs incurred
since inception for these claims have been immaterial and have been primarily
covered by insurance policies, for both legal and remediation
costs. In one particular case, we have been assessed a cost sharing
percentage of approximately 2% in relation to the range for estimated total
cleanup costs of $17 million to $24 million. We believe we have
sufficient insurance coverage to fully cover this liability and have recorded a
liability and related insurance receivable of approximately $0.3 million as of
December 30, 2007, which approximates our share of the low end of the
range.
In all of
our superfund cases, we believe we are a de-minimis participant and have only
been allocated an insignificant percentage of the total PRP cost sharing
responsibility. Based on facts presently known to us, we believe that
the potential for the final results of these cases having a material adverse
effect on our results of operations, financial position or cash flows is
remote. These cases have been ongoing for many years and we believe
that they will continue on for the indefinite future. No time frame
for completion can be estimated at the present time.
PCB
Contamination
We have
been working with the CT DEP and the United States Environmental Protection
Agency (EPA) Region I in connection with certain polychlorinated biphenyl (PCB)
contamination in the soil beneath a section of cement flooring at our Woodstock,
Connecticut facility. We completed clean-up efforts in 2000 in
accordance with a previously agreed upon remediation plan. To address
the residual contamination at the site, we proposed a plan of Monitored Natural
Attenuation, which was subsequently rejected by the CT DEP. A revised
plan was subsequently submitted to the CT DEP and also rejected. We
have submitted an amendment to the revised plan that includes the installation
and maintenance of a pump and treat system for a well at the
location. We are awaiting a decision from the CT DEP on the amendment
to the revised plan; however, we have estimated the cost of the system to be
approximately $0.1 million and have accrued for this liability. Since
inception, we have spent approximately $2.5 million in remediation and
monitoring costs related to the site. We believe that this situation
will continue for several more years and no time frame for completion can be
estimated at the present time.
Asbestos
Litigation
Over the
past several years, there has been an increase in certain U.S. states in
asbestos-related product liability claims brought against numerous industrial
companies where the third-party plaintiffs allege personal injury from exposure
to asbestos-containing products. We have been named, along with
hundreds of other companies, as a defendant in some of these
claims. In virtually all of these claims filed against us, the
plaintiffs are seeking unspecified damages, or, if an amount is specified, it
merely represents jurisdictional amounts or amounts to be proven at
trial. Even in those situations where specific damages are alleged,
the claims frequently seek the same amount of damages, irrespective of the
disease or injury. Plaintiffs’ lawyers often sue dozens or even
hundreds of defendants in individual lawsuits on behalf of hundreds or even
thousands of claimants. As a result, even when specific damages are
alleged with respect to a specific disease or injury, those damages are not
expressly linked to us.
We did not
mine, mill, manufacture or market asbestos; rather, we made some limited
products, which contained encapsulated asbestos. Such products were
provided to industrial users. We stopped manufacturing these products
in 1987.
We have
been named in asbestos litigation primarily in Pennsylvania, Illinois, and
Mississippi. As of December 30, 2007, there were approximately 175
pending claims compared to 148 pending claims at December 31, 2006. The number
of open claims during a particular time can fluctuate significantly from period
to period depending on how successful we are in getting these cases dismissed or
settled. In addition, most of these lawsuits do not include specific
dollar claims for damages, and many include a number of plaintiffs and multiple
defendants. Therefore, we cannot provide any meaningful disclosure about the
total amount of the damages sought.
The rate
at which plaintiffs filed asbestos-related suits against us increased in 2001,
2002, 2003 and 2004 because of increased activity on the part of plaintiffs to
identify those companies that sold asbestos containing products, but which did
not directly mine, mill or market asbestos. A significant increase in
the volume of asbestos-related bodily injury cases arose in Mississippi in
2002. This increase in the volume of claims in Mississippi was
apparently due to the passage of tort reform legislation (applicable to
asbestos-related injuries), which became effective on September 1, 2003 and
which resulted in a higher than average number of claims being filed in
Mississippi by plaintiffs seeking to ensure their claims would be governed by
the law in effect prior to the passage of tort reform. The number of
asbestos-related suits filed against us declined in 2005 and then again in 2006,
but increased in 2007.
In many
cases, plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of exposure to our asbestos-containing
products. We continue to believe that a majority of the claimants in
pending cases will not be able to demonstrate exposure or loss. This belief is
based in large part on two factors: the limited number of asbestos-related
products manufactured and sold by us and the fact that the asbestos was
encapsulated in such products. In addition, even at sites where the presence of
an alleged injured party can be verified during the same period those products
were used, our liability cannot be presumed because even if an individual
contracted an asbestos-related disease, not everyone who was employed at a site
was exposed to our asbestos-containing products. Based on these and other
factors, we have and will continue to vigorously defend ourselves in
asbestos-related matters.
|
·
|
Dismissals
and Settlements
|
Cases that
we are involved in typically name 50-300 defendants, although some cases have
had as few as one and as many as 833 defendants. We have obtained
dismissals of many of these claims. In 2007 and 2006, we were able to have
approximately 59 and 76 claims dismissed, respectively, and settled 12 and 15
claims, respectively. Our insurance carriers have paid the majority
of costs, including the majority of costs associated with the small number of
cases that have been settled. Such settlements totaled approximately
$2 million in 2007 and approximately $5.1 million in 2006. Although
these figures provide some insight into our experience with asbestos litigation,
no guarantee can be made as to the dismissal and settlement rates that we will
experience in the future.
Settlements
are made without any admission of liability. Settlement amounts may vary
depending upon a number of factors, including the jurisdiction where the action
was brought, the nature and extent of the disease alleged and the associated
medical evidence, the age and occupation of the claimant, the existence or
absence of other possible causes of the alleged illness of the alleged injured
party, and the availability of legal defenses, as well as whether the action is
brought alone or as part of a group of claimants. To date, we have
been successful in obtaining dismissals for many of the claims and have settled
only a limited number. The majority of settled claims were settled for
immaterial amounts, and our insurance carriers have paid the majority of such
costs. In addition, to date, we have not been required to pay any
punitive damage awards.
In late
2004, we determined that it was reasonably prudent, based on facts and
circumstances known to us at that time, to have a formal analysis performed to
determine our potential future liability and related insurance coverage for
asbestos-related matters. This determination was made based on
several factors, including the growing number of asbestos-related claims, at the
time, and the related settlement history. As a result, National
Economic Research Associates, Inc. (NERA), a consulting firm with expertise in
the field of evaluating mass tort litigation asbestos bodily-injury claims, was
engaged to assist us in projecting the Company’s future asbestos-related
liabilities and defense costs with regard to pending claims and future
unasserted claims. Projecting future asbestos costs is subject to
numerous variables that are extremely difficult to predict, including the number
of claims that might be received, the type and severity of the disease alleged
by each claimant, the long latency period associated with asbestos exposure,
dismissal rates, costs of medical treatment, the financial resources of other
companies that are co-defendants in claims, uncertainties surrounding the
litigation process from jurisdiction to jurisdiction and from case to case, and
the impact of potential changes in legislative or judicial standards, including
potential tort reform. Furthermore, any predictions with respect to these
variables are subject to even greater uncertainty as the projection period
lengthens. In light of these inherent uncertainties, our limited
claims history and consultations with NERA, we believe that five years is the
most reasonable period for recognizing a reserve for future costs, and that
costs that might be incurred after that period are not reasonably estimable at
this time. As a result, we also believe that our ultimate net
asbestos-related contingent liability (i.e., our indemnity or other claim
disposition costs plus related legal fees) cannot be estimated with
certainty.
Our
applicable insurance policies generally provide coverage for asbestos liability
costs, including coverage for both resolution and defense
costs. Following the initiation of asbestos litigation, an effort was
made to identify all of our primary and excess insurance carriers that provided
applicable coverage beginning in the 1950s through the
mid-1980s. There appear to be three such primary carriers, all of
which were put on notice of the litigation. In late 2004, Marsh Risk Consulting
(Marsh), a consulting firm with expertise in the field of evaluating insurance
coverage and the likelihood of recovery for asbestos-related claims, was engaged
to work with us to project our insurance coverage for asbestos-related claims.
Marsh’s conclusions were based primarily on a review of our coverage history,
application of reasonable assumptions on the allocation of coverage consistent
with industry standards, an assessment of the creditworthiness of the insurance
carriers, analysis of applicable deductibles, retentions and policy limits, the
experience of NERA and a review of NERA’s reports.
To date,
our primary insurance carriers have provided for substantially all of the
settlement and defense costs associated with our asbestos-related
claims. However, as claims continued, we determined, along with our
primary insurance carriers, that it would be appropriate to enter into a cost
sharing agreement to clearly define the cost sharing relationship among such
carriers and ourselves. As of November 5, 2004, an interim cost
sharing agreement was established that provided that the primary insurance
carriers would continue to pay all resolution and defense costs associated with
these claims until a definitive cost sharing agreement was
consummated. This interim agreement was superseded by a definitive
cost sharing agreement, which was finalized on September 28,
2006. The cost sharing formula in the definitive agreement is
essentially the same as in the formula in the interim agreement.
|
·
|
Impact
on Financial Statements
|
Given the
inherent uncertainty in making future projections, we have had the projections
of current and future asbestos claims periodically re-examined, and we will have
them updated if needed based on our experience, changes in the underlying
assumptions that formed the basis for NERA’s and Marsh’s models, and other
relevant factors, such as changes in the tort system, the number of claims
brought against us and our success in resolving claims. In 2006,
based on the assumptions employed by and the updated report prepared by NERA and
other variables, we recorded a reserve for our estimated bodily injury
liabilities for asbestos-related matters, including projected indemnity and
legal costs, for the five-year period through 2011 in the undiscounted amount of
$22.9 million. Likewise, based on the updated analysis prepared by
Marsh, we recorded a receivable for our estimated insurance recovery of $22.7
million. NERA and Marsh updated their respective analyses for 2007
and the estimated liability and estimated insurance recovery, for the five-year
period through 2012, is $23.6 and $23.5 million, respectively.
The
amounts that we have recorded for the asbestos-related liability and the related
insurance receivables described above were based on currently known facts and a
number of assumptions. Projecting future events, such as the number
of new claims to be filed each year, the average cost of disposing of such
claims, coverage issues among insurers, and the continuing solvency of various
insurance companies, as well as the numerous uncertainties surrounding asbestos
litigation in the United States, could cause the actual liability and insurance
recoveries for us to be higher or lower than those projected or
recorded.
There can
be no assurance that our accrued asbestos liabilities will approximate our
actual asbestos-related settlement and defense costs, or that our accrued
insurance recoveries will be realized. We believe that it is reasonably possible
that we will incur additional charges for our asbestos liabilities and defense
costs in the future, which could exceed existing reserves, but such excess
amounts cannot be estimated at this time. We will continue to vigorously defend
ourselves and believe we have substantial unutilized insurance coverage to
mitigate future costs related to this matter.
Other
Environmental and General Litigation Matters
|
·
|
In
2004, we became aware of a potential environmental matter at our facility
in Korea involving possible soil contamination. An initial
assessment of the site was completed and confirmed that there was
contamination. We believe that such contamination is historical
and occurred prior to our occupation of the facility. As of
December 30, 2007, we are no longer occupying this site and it has been
returned to the prior owner. Based on our assessment, we
believe that we are under no obligation to remediate the
site.
|
|
·
|
We
became aware of a potential environmental matter involving soil
contamination at one of our European facilities. We believe
that the contamination is a historical issue attributed to the former
owner of the site. Early in 2007, we completed a Descriptive
Soil Investigation (DSI) at the site, and the contamination appeared to be
localized in the area of the former underground storage
tanks. We subsequently received approval of our Remedial Action
Plan from the OVAM, the applicable Belgian regulatory
agency. As of December 30, 2007, the site has been remediated
per our approved Remedial Action Plan and we have no future obligations
related to this site.
|
|
·
|
In
2005, we began to market our manufacturing facility in South Windham,
Connecticut to find potential interested buyers. This facility
was formerly the location of the manufacturing operations of our elastomer
component and float businesses prior to the relocation of these businesses
to Suzhou, China in the fall of 2004. As part of our due
diligence in preparing the site for sale, we determined that there were
several environmental issues at the site and, although under no legal
obligation to voluntarily remediate the site, we believed that remediation
procedures would have to be performed in order to successfully sell the
property. Therefore, we obtained an independent third-party
assessment on the site, which determined that the potential remediation
cost range would be approximately $0.4 million to $1.0
million. In accordance with SFAS 5, we determined that the
potential remediation would most likely approximate the mid-point of this
range and recorded a $0.7 million charge in the fourth quarter of 2005,
which remains recorded at December 30,
2007.
|
|
·
|
On
May 16, 2007, CalAmp Corp. (CalAmp) filed a lawsuit against us for
unspecified damages. In the lawsuit, which was filed in the
United States District Court, Central District of California, CalAmp
alleges performance issues with certain printed circuit board laminate
materials we had provided for use in certain of their
products. In connection with this dispute, we had previously
filed a lawsuit against CalAmp in the United States District Court,
District of Massachusetts, seeking a declaratory judgment affirming that
we are not liable to CalAmp. Our lawsuit against CalAmp was
dismissed because a California venue was deemed the most appropriate forum
to address the parties’ dispute. The dismissal of our
Massachusetts action did not address or affect the merits of any claims or
defenses. CalAmp’s suit against us is proceeding, although a
trial date has not yet been set. We intend to vigorously defend
ourselves against these allegations. Based on facts and
circumstances known to us at the present time, we cannot determine the
probability of success in such defenses or the range of any potential loss
that may occur as a result of these
proceedings.
|
In
addition to the above issues, the nature and scope of our business bring us in
regular contact with the general public and a variety of businesses and
government agencies. Such activities inherently subject us to the
possibility of litigation, including environmental and product liability matters
that are defended and handled in the ordinary course of business. We
have 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 impact on our results of operations, financial position, or
cash flows.
For
additional discussion on our environmental and litigation matters, see Footnote
10 to the consolidated financial statements in Item 8 of this Form
10-K.
None.
PART
II
Our common
stock is traded on the New York Stock Exchange under the symbol
“ROG”. As of the end of business on February 15, 2008, we had 689
shareholders of record. On the same date, the trading price of our
common stock closed at $31.69 per share.
Capital
Stock Market Prices
The
following table sets forth the high and low prices during each quarter of the
last two years on a per share basis.
|
|
|
2007
|
|
|
2006
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
|
|
$ |
50.00 |
|
|
$ |
40.20 |
|
|
$ |
75.00 |
|
|
$ |
58.80 |
|
|
Third
|
|
|
46.32 |
|
|
|
34.70 |
|
|
|
65.01 |
|
|
|
51.61 |
|
|
Second
|
|
|
49.30 |
|
|
|
36.69 |
|
|
|
64.30 |
|
|
|
49.47 |
|
|
First
|
|
|
61.79 |
|
|
|
44.00 |
|
|
|
56.04 |
|
|
|
38.50 |
|
Dividend
Policy
We did not pay any dividends on our
common stock in fiscal 2007 and 2006. We periodically evaluate the
desirability of paying a dividend; however, at present, we expect to maintain a
policy of emphasizing longer-term growth of capital rather than immediate
dividend income.
Issuer
Purchases of Equity Securities
|
Period
|
|
Total
Number
of
Shares
(or
Units)
Purchased
|
|
|
Average
Price
Paid
per
Share
(or
Unit)
|
|
|
Total
Number of Shares (or Units) Purchased as Part
of
Publicly Announced Plans
or
Programs
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be
Purchased under
the
Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1, 2007 through October 28, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
17,355,091 |
|
|
October
29, 2007 through November 25, 2007
|
|
|
21,100 |
|
|
$ |
41.43 |
|
|
|
21,100 |
|
|
|
16,480,929 |
|
|
November
26, 2007 through December 30, 2007
|
|
|
46,300 |
|
|
|
43.64 |
|
|
|
46,300 |
|
|
|
14,460,306 |
|
|
Total
|
|
|
67,400 |
|
|
$ |
42.95 |
|
|
|
67,400 |
|
|
$ |
14,460,306 |
|
On October
27, 2005, our Board of Directors approved a buyback program, under which we were
authorized to repurchase up to an aggregate of $25 million in market value of
common stock over a twelve-month period. In 2005, under this buyback
program, we repurchased approximately 95,000 shares of common stock at an
aggregate purchase price of $3.6 million. There were no repurchases
in 2006, and in October 2006 the program expired with authorization to
repurchase approximately $21.4 million of common stock remaining. On
February 15, 2007, the Board of Directors approved a new buyback program, under
which we are authorized to repurchase up to an aggregate of $50 million in
market value of common stock over a twelve-month period. During 2007,
we repurchased a total of 810,380 shares of common stock, for a total of $35.5
million. On February 15, 2008, the Board of Directors approved a new buyback
program, under which we are authorized to repurchase up to an aggregate of $30
million in market value of common stock over a twelve-month period. Under this
most recent buyback program, the Board of Directors has also authorized us to
enter into one or more 10b5-1 Trading Plans to operate under the buyback
program. The terms of any such 10b5-1 Trading Plans will be
determined if and when they are entered into.
(Dollars
in thousands, except per share amounts)
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2003*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
431,354 |
|
|
$ |
445,750 |
|
|
$ |
348,678 |
|
|
$ |
360,139 |
|
|
$ |
235,498 |
|
|
Income
before income taxes
|
|
|
25,185 |
|
|
|
65,394 |
|
|
|
39,741 |
|
|
|
55,401 |
|
|
|
39,121 |
|
|
Net
income
|
|
|
21,868 |
|
|
|
50,835 |
|
|
|
33,772 |
|
|
|
39,415 |
|
|
|
28,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.32 |
|
|
|
3.04 |
|
|
|
2.07 |
|
|
|
2.41 |
|
|
|
1.83 |
|
|
Diluted
|
|
|
1.31 |
|
|
|
2.94 |
|
|
|
2.02 |
|
|
|
2.30 |
|
|
|
1.77 |
|
|
Book
value
|
|
|
22.17 |
|
|
|
21.09 |
|
|
|
17.24 |
|
|
|
17.12 |
|
|
|
14.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
247,054 |
|
|
|
271,692 |
|
|
|
179,580 |
|
|
|
170,009 |
|
|
|
123,510 |
|
|
Current
liabilities
|
|
|
68,286 |
|
|
|
80,227 |
|
|
|
57,349 |
|
|
|
57,024 |
|
|
|
49,755 |
|
|
Ratio
of current assets to current
liabilities
|
|
3.6
to 1
|
|
|
3.4
to 1
|
|
|
3.1
to 1
|
|
|
3.0
to 1
|
|
|
2.5
to 1
|
|
|
Cash,
cash equivalents and short-term
investments
|
|
|
89,628 |
|
|
|
81,823 |
|
|
|
46,401 |
|
|
|
39,967 |
|
|
|
34,481 |
|
|
Working
capital
|
|
|
178,768 |
|
|
|
191,465 |
|
|
|
122,231 |
|
|
|
112,985 |
|
|
|
73,755 |
|
|
Property,
plant and equipment, net
|
|
|
147,203 |
|
|
|
141,406 |
|
|
|
130,980 |
|
|
|
125,718 |
|
|
|
121,407 |
|
|
Total
assets
|
|
|
470,948 |
|
|
|
479,718 |
|
|
|
398,514 |
|
|
|
387,604 |
|
|
|
301,103 |
|
|
Long-term
debt less current maturities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Shareholders’
Equity
|
|
|
363,981 |
|
|
|
357,177 |
|
|
|
280,250 |
|
|
|
281,495 |
|
|
|
233,026 |
|
|
Long-term
debt as a percentage of
shareholders’
equity
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
25,718 |
|
|
|
19,203 |
|
|
|
16,853 |
|
|
|
17,149 |
|
|
|
13,365 |
|
|
Research
and development expenses
|
|
|
24,658 |
|
|
|
24,223 |
|
|
|
19,494 |
|
|
|
18,925 |
|
|
|
13,201 |
|
|
Capital
expenditures
|
|
|
30,989 |
|
|
|
23,062 |
|
|
|
28,613 |
|
|
|
22,296 |
|
|
|
10,420 |
|
|
Number
of employees (average)
|
|
|
2,100 |
|
|
|
2,416 |
|
|
|
1,975 |
|
|
|
1,728 |
|
|
|
1,197 |
|
|
Net
sales per employee
|
|
|
205 |
|
|
|
184 |
|
|
|
177 |
|
|
|
208 |
|
|
|
197 |
|
|
Number
of shares outstanding at year-end
|
|
|
16,414,918 |
|
|
|
16,937,523 |
|
|
|
16,255,024 |
|
|
|
16,437,790 |
|
|
|
15,995,713 |
|
* 2003
consolidated results include three months of operations of Durel Corporation
(acquired on September 30, 2003).
The
following discussion and analysis of our financial condition and results of
operations should be read together with the Selected Financial Data and our
Consolidated Financial Statements and the related notes that appear elsewhere in
this Form 10-K.
Business
Overview
Rogers
Corporation is a global enterprise that provides our customers with innovative
solutions and industry leading products in a variety of markets, including
portable communications, communications infrastructure, consumer products,
consumer electronics, healthcare, micro processors, mass transit, automotive,
ground transportation, and aerospace and defense and alternative
energy. We generate revenues and cash flows through the development,
manufacture, and distribution of specialty material-based products that are sold
to multiple customers, primarily original equipment manufacturers (OEM’s) and
contract manufacturers that, in turn, produce component products that are sold
to end-customers for use in various applications. As such, our
business is highly dependent, although indirectly, on market demand for these
end-user products. Our ability to forecast future sales growth is
largely dependent on management’s ability to anticipate changing market
conditions and how our customers will react to these changing conditions; it is
also highly limited due to the short lead times demanded by our customers and
the dynamics of serving as a relatively small supplier in the overall supply
chain for these end-user products. In addition, our sales represent a
number of different products across a wide range of price points and
distribution channels that do not always allow for meaningful quantitative
analysis of changes in demand or price per unit with respect to the effect on
net sales.
Our
current focus is on worldwide markets that have an increasing percentage of
materials being used to support growing high technology applications, such as
cellular base stations and antennas, handheld wireless devices, satellite
television receivers and automotive electronics. We continue to focus
on business opportunities around the globe and particularly in the Asian
marketplace, as evidenced by the continued investment in and expansion of our
manufacturing facilities in Suzhou, China, which functions as our manufacturing
base to serve our customers in Asia. Our goal is to become the
supplier of choice for our customers in all of the various markets in which we
participate. To achieve this goal, we strive to make the best
products in these respective markets and to deliver the highest level of service
to our customers.
In the
past few years, we have worked to better align our business with our customers,
which includes having manufacturing capacity close to our customers in order to
be responsive to their needs and to manufacture the highest quality
products. To reach these goals, we have invested significantly in our
operations in China as many of our products, including electroluminescent (EL)
lamps, power distribution system products, elastomer components and floats are
now being manufactured at our Suzhou, China facility. We continue to
focus on the expansion of this facility, particularly as demand for our products
increases in the Asian marketplace. In 2007, we added additional
capacity in our polyurethane foam products at our Suzhou facility through our
Rogers Inoac Suzhou Corporation (RIS) joint venture to better meet the demand
for our high-end foam products in the Asian marketplace. We are also
planning to add manufacturing capacity for our printed circuit material products
in the future. Much of our recent growth can be attributable to our
efforts related to our China operations.
Our 2007
operating results were not as strong as initially expected, as we experienced a
decline in sales and profits in certain businesses. The primary
driver of these declines were program terminations in the portable
communications market related to Custom Electrical Component products, which
occurred at a pace greater than initially expected, as well as the continued
decline in our flexible circuit materials business. These events,
along with the reduced outlook for future market demand for these products, led
to the restructuring of the organization in the second quarter of 2007 in an
effort to better align our business strategy and overhead structure with the
expected sales. These efforts resulted in a net pre-tax restructuring
charge of approximately $13.8 million in 2007, which included severance costs
associated with a company-wide headcount reduction, a shortening of the
estimated useful lives of certain machinery and equipment and contracts, an
increase in reserves associated with potentially unsaleable inventory and costs
associated with the impairment of certain long-lived assets. We also
took additional steps to control discretionary spending and improve our working
capital position through focused inventory reduction efforts. Also,
in the third quarter of 2007, we formally exited our polyolefin foam business,
which has been treated as a discontinued operation for financial reporting
purposes and prior periods have been restated to reflect our results from
continuing operations. Partially offsetting these declines, our power
distribution systems operating segment experienced record sales levels in 2007
and our other core businesses in our High Performance Foams reportable segment,
as well as our high frequency materials products, continue to perform
well. We believe these core businesses will provide us with a solid
foundation to grow our business in the future.
Overall,
we believe that, as a result of the efforts we have undertaken in 2007, we are
better positioned to take advantage of future opportunities in our strategic
businesses, as well as opportunities in our new business development
efforts. However, we also believe that 2008 will be a difficult year,
particularly in light of the tumultuous economic environment we are now
operating in. We will make every effort to position ourselves to take
advantage of the long-term future opportunities we believe exist for both our
current product portfolio, as well as for the new products we are developing as
part of our R&D efforts and the new business opportunities we are pursuing
through our focused business development efforts. In the short-term,
we will focus on continuing to control costs and on operating as efficiently as
possible. We will also continue to focus on positioning our current
portfolio of products for future success, which includes evaluating strategic
options for certain products, such as flexible circuits and EL lamps, in order
to better align these businesses with the long-term strategic goals of our
Company.
Results
of Continuing Operations
The
following table sets forth, for the last three fiscal years, selected Company
operating data expressed as a percentage of net sales.
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Manufacturing
margins
|
|
|
26.8 |
% |
|
|
31.6 |
% |
|
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
17.0 |
% |
|
|
13.9 |
% |
|
|
15.8 |
% |
|
Research
and development expenses
|
|
|
5.7 |
% |
|
|
5.4 |
% |
|
|
5.6 |
% |
|
Restructuring
and impairment charges
|
|
|
0.8 |
% |
|
|
1.1 |
% |
|
|
0.2 |
% |
|
Operating
income
|
|
|
3.3 |
% |
|
|
11.1 |
% |
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
income in unconsolidated joint ventures
|
|
|
1.9 |
% |
|
|
1.9 |
% |
|
|
1.5 |
% |
|
Other
income
|
|
|
0.7 |
% |
|
|
1.7 |
% |
|
|
0.5 |
% |
|
Income
from continuing operations before income taxes
|
|
|
5.8 |
% |
|
|
14.7 |
% |
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
0.8 |
% |
|
|
3.3 |
% |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
5.1 |
% |
|
|
11.4 |
% |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
vs. 2006
Net
Sales
Net sales
in 2007 were $431.4 million, a decrease of 3.2% from $445.8 million of sales in
2006. The decrease in sales is primarily due to a 9.6% decrease in
the Custom Electrical Components reportable segment from $149.4 million in 2006
to $135.1 million in 2007 and in the Printed Circuit Materials reportable
segment of $9.8 million, or 6%, from $153.6 million to $143.8 million, partially
offset by an increase in sales in our High Performance Foams reportable segment
of $7.4 million, or 7%, from $103.2 million to $110.6 million. The factors
resulting in these changes in sales are discussed in greater detail in the
“Segment Sales and Operations” section below.
Manufacturing
Margins
Manufacturing
margins decreased approximately 480 basis points to 26.8% in 2007 from 31.6% in
2006. Margins decreased for all segments but primarily in the Custom
Electrical Components reportable segment, where lower volumes and increased
pricing pressures eroded margins. Also, we encountered increased
material costs across several of our businesses, as well as decreased operating
leverage, particularly in our flexible materials business, which further
impacted margins.
Selling
and Administrative Expenses
Selling
and administrative expenses were $73.2 million in 2007, an increase of $11.0
million from $62.2 million in 2006. The 2007 results included $2.3
million in costs associated with the acceleration of certain contract expenses
and the accelerated depreciation of certain assets related to the second and
third quarter restructuring activities. The 2007 results also
included additional costs related to professional services fees, contract
expenses and stock compensation expense, partially offset by a decline in
incentive compensation expense in 2007 as compared to 2006. Overall
selling and administrative expenses increased as a percentage of sales from
13.9% in 2006 to 17.0% in 2007.
Research
and Development Expenses
Research
and development expenses had a minimal increase from $24.2 million in 2006 to
$24.7 million in 2007. As a percentage of sales, expenses increased
slightly in 2007 to 5.7% as compared to 5.4% in 2006. Our strategic
plan is to invest an average of 6% of net sales annually into research and
development and it is expected that future expenditures will be consistent with
this targeted investment level. We continue to invest in research and
development to improve our existing technologies and find new applications for
these materials; as well as to explore new, emerging technologies that we
believe will complement our existing product portfolio.
Restructuring
and Impairment Charges
Restructuring
and impairment charges in 2007 were $13.8 million as compared to $5.0 million in
2006. The charges in 2007 related primarily to our Durel and flexible
circuit materials businesses. The charges consisted of (i)
accelerated depreciation and amortization on fixed assets and contracts ($5.0
million), (ii) increase in inventory reserves ($5.3 million), (iii) severance
costs related to a company-wide headcount reduction ($3.0 million), and (iv) the
impairment of goodwill related to our composite materials operating segment
($0.5 million). For income statement presentation purposes,
approximately $7.9 million of these charges are included in “Cost of sales”,
$2.4 million are included in “Selling and administrative expenses” and $3.5
million are included in “Restructuring and impairment charges”. The
charge in 2006 of $5.0 million is related to the impairment of goodwill
associated with our polyester-based industrial laminates business and is
included in “Restructuring and impairment charges” in our statements of
income. Further discussion of these amounts is as
follows:
In 2007,
we recorded a non-cash pre-tax charge of $9.4 million related to our Durel
operating segment, which is aggregated into our Custom Electrical Components
reportable segment. This charge included a $7.6 million restructuring
charge related to the write down of inventory and accelerated depreciation on
machinery and equipment related to the Durel business and a $1.8 million charge
related to the accelerated expense recognition of a prepaid license associated
with a certain flexible electroluminescent (EL) lamp product. These
charges were partially offset by the sale of approximately $1.0 million of
inventory previously reserved for in the second quarter of
2007. These charges resulted from a significant change in the current
outlook for existing and future EL lamp programs during the second quarter of
2007 based on information related to certain program terminations from our most
significant customer of EL lamps in the portable communications
market. As a result of this change in business conditions, all
remaining production of EL lamps for the portable communications market that was
located at Durel’s manufacturing facility in Arizona was shifted to China by the
end of the second quarter of 2007. We also expect to have
substantially all EL production, including lamps for the automotive industry,
shifted to our China facility by the end of the second quarter of fiscal year
2008. The significant change in the outlook of EL programs and the
planned shift in EL production to China was an indicator of impairment that
triggered an impairment analysis on the long-lived assets of the Durel business
in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). The impairment
analysis, which was completed as part of the second quarter of 2007 closing
process with the assistance of an independent third-party appraisal firm, led us
to conclude that no impairment charge associated with the Durel long-lived
assets was necessary. As such, in accordance with SFAS 144, we
determined that it was appropriate to reduce the estimated useful lives of EL
lamp related equipment in Durel’s US manufacturing facility. In
addition, the reduced forecast of EL lamp sales, specifically related to
flexible EL lamps for the portable communications market, caused us to
accelerate the expense recognition of a prepaid license associated with flexible
EL lamps based on the current forecasted revenues. We expect to incur
additional charges of approximately $0.4 million in the first quarter of 2008
related to these restructuring activities.
|
·
|
Flexible
Circuit Materials
|
In 2007,
we recorded a non-cash pre-tax charge of $3.1 million related to our flexible
circuit materials operating segment, which is aggregated into our Printed
Circuit Materials reportable segment. This charge related to the
write down of inventory and accelerated depreciation on machinery and equipment
related to the flexible circuit materials business and was partially offset by
the sale of approximately $1.3 million of inventory previously reserved for in
the second quarter of 2007. Flexible circuit materials, which are
used in a variety of consumer electronic products, have become a commodity
product with increased global competition and pricing pressure driven by excess
capacity. This commoditization has caused the operating results of
the flexible circuit materials business to significantly decline in recent
periods, which resulted in our revaluation of the strategic future viability of
this business. We determined that these market factors were an
indicator of impairment that triggered an analysis of the long-lived assets
related to the flexible circuit materials business in accordance with SFAS
144. The impairment analysis, which was completed as part of the
second quarter of 2007 closing process with the assistance of an independent
third-party appraisal firm, concluded that no impairment charge associated with
the flexible circuit materials long-lived assets was necessary. As
such, in accordance with SFAS 144, we determined that it was appropriate to
reduce the estimated useful lives of the equipment related to the flexible
circuit materials segment. We also determined, based on business
conditions at that time, that certain inventories associated with this business
would not be saleable, and we reserved for these inventories
accordingly. We expect to incur minimal charges in the first quarter
of 2008 related to these restructuring activities.
In 2007,
we recorded a non-cash pre-tax charge of $0.5 million related to the impairment
of the goodwill associated with the composite materials operating segment, which
is aggregated into our Other Polymer Products reportable segment. The
operating results of the composite materials business have gradually declined
over the past few years. During the second quarter of 2007, a
government program, which was material to the sales and earnings of the
composite materials business, expired. We determined that the loss of
this program, which we had previously thought would be replaced with new
business, was an indicator of impairment due to the significance of the program
on the long-term revenues of this business. Consequently, we
performed an impairment analysis on the composite materials operating segment
under SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142). The impairment
analysis, which was completed as part of the 2007 second quarter closing process
with the assistance of an independent third-party appraisal firm, resulted in us
recording an impairment charge of $0.5 million related to the goodwill
associated with this business. The analysis did not result in the
impairment of any of the business’ other long-lived assets. No
additional charges related to the impairment of the goodwill associated with the
composite materials operating segment were recorded during the remainder of
2007.
|
·
|
Polyester-Based
Industrial Laminates
|
In the
second quarter of 2006, we recorded a non-cash pre-tax charge of $5.0 million
related to the impairment of the goodwill related to the polyester-based
industrial laminates (PBIL) operating segment, which is aggregated into our
Other Polymer Products reportable segment. This operating segment has
historically focused its product offerings in the cable market, which is a
market that has become more commodity-based with increased competition, and has
experienced significant raw material price increases, particularly in copper and
aluminum. Over the past few years, we chose to change our strategic
focus and long-term operational plans to the non-cable industry, which we
believed would yield higher margins and less competition. In the
second quarter of 2006, a customer notified us that a key program related to a
new, emerging technology had been cancelled. This customer, a major
automotive manufacturer, had initially designed our new product into one of its
programs, but decided to incorporate a different, less expensive technology into
the program instead. This program was a key strategic initiative
related to the long-term growth of this operating segment in the non-cable
industry. The nature of this product required a design-in period of
at least a few years in advance of the end product becoming available to
consumers; therefore, the cancellation of this program significantly affected
the long-term forecasts and projections of the business and consequently, the
fair value of the business at that time. We determined that the
cancellation of this program was an indicator of impairment due to the
significance of the program on the long-term revenue and margin growth of this
business. Consequently, we performed an impairment analysis on the
PBIL operating segment under SFAS 142. In the previous impairment
analysis prepared by us related to the PBIL operating segment in the fourth
quarter of 2005 as part of our annual valuation performed in accordance with
SFAS 142, we utilized annual revenue growth rates of approximately 5%, which
considered the future sales of this new technology in the program it was
designed into at that time. As a result of the cancellation of the
program, we revised our growth projections to approximately 2% annually and also
revised our projected margin levels for the revised product mix projections and
higher than expected raw material prices. The impairment analysis,
which was completed as part of the 2006 second quarter closing process with the
assistance of an independent third-party appraisal firm, resulted in us
recording an impairment charge of $5.0 million related to the goodwill
associated with this business. The analysis did not result in the
impairment of any of the business’ other long-lived assets.
In 2007,
as part of the restructuring activities previously discussed, we took a number
of actions to reduce costs, including a company-wide headcount
reduction. In accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, and SFAS No. 112, Employers’ Accounting for
Postemployment Benefits, we recorded $3.0 million of severance charges in
2007. In addition, we made severance payments of $1.3 million in
2007.
Equity
Income in Unconsolidated Joint Ventures
Equity
income in unconsolidated joint ventures decreased $0.5 million from $8.6 million
in 2006 to $8.1 million in 2007. This was primarily driven by a
decline in our flexible circuit joint venture in Taiwan, RCCT, which is
consistent with the results of our wholly owned flexible materials
business. This decline was partially offset by the strong performance
of our foam joint ventures in Japan and China.
Other
Income (Expense)
Other
income decreased from $5.1 million in 2006 to $0.8 million in
2007. This decrease is primarily related to reduced royalty income as
certain royalty agreements expired at the end of 2006 and certain one-time costs
associated with adjusting our legal entity structure in China.
Income
Taxes
Our
effective tax rate was 13.2% in 2007 and 22.3% in 2006. In 2007, our
tax rate was favorably impacted by the tax benefit associated with the
restructuring, impairment and other one-time charges as well as certain other
discrete rate items recorded during the year. Also in 2007, the
effective tax rate continued to benefit from favorable tax rates on certain
foreign business activity and general business tax credits. In 2006,
the effective tax rate benefited from favorable tax rates on certain foreign
business activity as well as non-taxable foreign sales income and research and
general business tax credits.
It is our
policy, in accordance with APB 23, that no U.S. taxes are provided on
undistributed earnings of certain wholly-owned foreign subsidiaries because
substantially all such earnings are expected to be reinvested
indefinitely. We provide deferred taxes for the undistributed
earnings of our Japanese high performance foams joint venture as well as our
Taiwanese flexible circuit materials joint venture.
We are
eligible for a tax holiday on the earnings of our subsidiaries in
China. Under the business license agreement granted to Rogers
Technologies (Suzhou) Company (RSZ), a wholly-owned subsidiary, the first two
years of cumulatively profitable operations were taxed at a zero percent tax
rate. In 2007, the third year under this agreement, RSZ reported
pretax income of $6.5 million, which was subject to a tax rate of 7.5%,
resulting in a decrease in our effective tax rate of 7 percentage
points. In 2008, the tax rate in effect will be 9% and will increase
each subsequent year until reaching the full rate of 25% in 2012, subject to
local government approval. Under the business license agreement
granted to Rogers (Shanghai) International Trading Company Ltd. (RSH), we were
subject to a rate of tax of 15% in 2007, which resulted in a decrease in our
effective tax rate of 7% based upon their pretax income of $8.8
million. In 2008, the tax rate in effect will be 18%, and will
increase each subsequent year until reaching the full rate of 25% in 2012,
subject to local government approval.
Backlog
Our
backlog of firm orders was $44.7 million at December 30, 2007, as compared to
$39.8 million at December 31, 2006. The increase at the end of 2007 was
primarily related to the increase in sales in the Custom Electrical Components
reportable segment, as backlog for power distribution components, primarily sold
in the ground transportation market, increased by approximately $4.0 million at
year-end 2007 as compared to year-end 2006.
2006
vs. 2005
Net
Sales
We
experienced record sales in 2006 of $445.8 million, an increase of 28% from the
$348.7 million of sales in 2005. The increase in sales is primarily
due to an 86.8% increase in sales in the Custom Electrical Components reportable
segment from $80.0 million in 2005 to $149.4 million in 2006 as well as slight
increases in sales in each of our three other reportable
segments. The factors resulting in these sales increases are
discussed in greater detail in the “Segment Sales and Operations” section
below.
Manufacturing
Margins
Manufacturing
margins increased to 31.6% in 2006 from 30.9% in 2005. The increase
in margins is primarily attributable to an increase of 12.1 percentage points in
margins in the Custom Electrical Components reportable segment to 26.7% in 2006
from 14.6% in 2005. This increase is primarily driven from the
increase in operating leverages due to the sales growth mentioned above, as well
as improved production efficiencies, particularly in the new manufacturing
operations in China. Manufacturing margins in the High Performance
Foams and Printed Circuit Materials reportable segments were relatively flat
year over year.
Selling
and Administrative Expenses
Selling
and administrative expenses were $62.2 million in 2006, an increase of $7.2
million from $55.0 million in 2005. The increase was driven by
additional incentive compensation expense in 2006, primarily related to the
increase in sales volume and operating results in 2006, as well as the expensing
of stock options and other equity awards as a result of the adoption of SFAS No.
123 (Revised 2004), Share-Based Payment (SFAS
123R), in the first quarter of 2006. Overall selling and
administrative expenses decreased slightly as a percentage of sales from 15.8%
in 2005 to 13.9% in 2006.
Research
and Development Expenses
Research
and development expenses increased $4.7 million from $19.5 million in 2005 to
$24.2 million in 2006. As a percentage of sales, expenses decreased
slightly in 2006 to 5.4% as compared to 5.6% in 2005. Our strategic
plan is to invest an average of 6% of net sales annually into research and
development and it is expected that future expenditures will be consistent with
this targeted investment level. We continue to invest in research and
development to improve our existing technologies and find new applications for
these materials; as well as to explore new, emerging technologies that we
believe will complement our existing product portfolio.
Restructuring
and Impairment Charges
Restructuring
and impairment charges in 2006 were $5.0 million as compared to $0.7 million in
2005. The 2006 charges were related to the impairment of goodwill
associated with the polyester-based industrial laminates
business. The 2005 charges were for the impairment of certain
machinery and equipment associated with our high frequency materials
business. Further discussion of these amounts is as
follows:
|
·
|
Polyester-Based
Industrial Laminates
|
In the
second quarter of 2006, we recorded a non-cash pre-tax charge of $5.0 million
related to the impairment of the goodwill associated with the polyester-based
industrial laminates (PBIL) business, which is aggregated into the Company’s
Other Polymer Products reportable segment. This business has
historically focused its product offerings in the cable market, which is a
market that has become more commodity-based with increased competition, and has
experienced significant raw material price increases, particularly in copper and
aluminum. Over the past few years, we chose to change our strategic
focus and long-term operational plans to the non-cable industry, which we
believed would yield higher margins and less competition. In the
second quarter of 2006, a customer notified us that a key program related to a
new, emerging technology had been cancelled. This customer, a major
automotive manufacturer, had initially designed our new product into one of its
programs, but decided to incorporate a different, less expensive technology into
the program instead. This program was a key strategic initiative
related to the long-term growth of this business in the non-cable
industry. We are currently evaluating other potential customers for
this technology, but it is currently not designed into any specific
programs. The nature of this product requires a design-in period of
at least a few years in advance of the end product becoming available to
consumers; therefore, the cancellation of this program significantly impacted
the long-term forecasts and projections of the business and consequently, the
fair value of the business. We determined that the cancellation of
this program was an indicator of impairment due to the significance of the
program on the long-term revenue and margin growth of this
business. Consequently, we performed an impairment analysis on the
PBIL business under SFAS 142. In the previous impairment analysis
prepared in the fourth quarter of 2005 as part of our annual valuation performed
in accordance with SFAS 142, we utilized annual revenue growth rates of
approximately 5%, which considered the future sales of this new technology in
the program it was designed into at that time. As a result of the
cancellation of the program, we revised our growth projections to approximately
2% annually and also revised our projected margin levels for the revised product
mix projections and higher than expected raw material prices. The
impairment analysis, which was completed as part of the second quarter 2006
closing process, resulted in recording an impairment charge of $5.0 million
related to the goodwill associated with this business. The analysis
did not result in the impairment of any of the entity’s other long-lived
assets. At December 31, 2006, the PBIL business has a remaining book
value of approximately $7.2 million, comprised primarily of accounts receivable,
inventory, fixed assets and residual goodwill of approximately $0.5
million.
|
·
|
High
Frequency Materials
|
In 2005,
an impairment charge of approximately $0.7 million was recorded in the fourth
quarter on certain manufacturing equipment related to the high frequency
materials operating segment. Specifically, the charge related to
certain idle presses used in the high frequency manufacturing
processes. At the end of 2005, we had no current plan to
use the equipment in the near future; therefore, we determined that recording
the impairment charge in the fourth quarter of 2005 was
appropriate.
Equity
Income in Unconsolidated Joint Ventures
Equity
income in unconsolidated joint ventures increased $3.3 million from $5.3 million
in 2005 to $8.6 million in 2006. The increase was primarily due
to the success of Rogers Inoac Suzhou Corporation (RIS), our high performance
foams joint venture in Suzhou, China. RIS started operations in China
in early 2005 and experienced operating losses in the first half of that
year. RIS began to contribute positively to our results in the fourth
quarter of 2005 and has continued this positive trend throughout
2006. Results at our other joint ventures were relatively flat year
over year.
Other
Income (Expense)
Other
income increased from $0.9 million in 2005 to $5.1 million in
2006. This increase is attributable primarily to certain charges in
2005 which did not recur in 2006, including a $0.7 million charge for certain
environmental remediation matters at our facility in South Windham, Connecticut
and a $0.7 million charge related to the buy-out of certain tenant lease
arrangements in our Suzhou, China facilities.
Income
Taxes
Our
effective tax rate was 22.3% in 2006 and 15.0% in 2005. In 2006, the
effective tax rate benefited from profits generated in jurisdictions with low
tax rates as well as non-taxable foreign sales income and general business
credits. In 2005, the effective tax rate benefited from non-taxable
foreign sales income, profits generated in jurisdictions with low tax rates as
well as an adjustment to reconcile the 2004 tax return as filed in the third
quarter of 2005 to the year-end projections.
It is our
policy, in accordance with APB 23, that no U.S. taxes are provided on
undistributed earnings of certain wholly-owned foreign subsidiaries because
substantially all such earnings are expected to be reinvested
indefinitely. We provide deferred taxes for the undistributed
earnings of our Japanese high performance foams joint venture as well as our
Taiwanese flexible circuits material joint venture. The net deferred
tax asset for foreign tax credits available in excess of the expected tax on the
undistributed income is entirely offset by a corresponding valuation allowance
due to the future uncertainty of the recognition of such credits as they may be
limited under the U.S. tax code.
We also
claim a U.S. benefit for nontaxable foreign sales income as allowed under the
current extraterritorial income exclusion (ETI). The World Trade
Organization has upheld a challenge of this regime by the European Union and, in
response, the U.S. has enacted the American Jobs Creation Act of 2004 that
repealed ETI and created a manufacturers activity deduction. ETI will
be phased out by limiting the calculated deduction to 80% in 2005, 60% in 2006
and 0% thereafter. The manufacturing deduction is in the process of
being phased in as a 3% deduction on the income from certain qualifying
activities in 2005 and increasing to a 9% deduction in 2010. We have determined
that the net effect of these items will not materially affect our tax rate in
the short-term, but may have an impact, given the nature of our international
business, once these changes are fully phased in. The decrease in the
effective tax rate attributable to ETI is two percentage points and six
percentage points for 2006 and 2005, respectively. The decrease in
the effective tax rate attributable to the manufacturers’ activity deduction is
less than one percentage point in both 2006 and 2005, respectively.
We are
eligible for a tax holiday on our earnings in China. Under the
business license agreement granted to Rogers Technologies (Suzhou) Company
(RSZ), a wholly-owned subsidiary, the first two years of cumulatively profitable
operations are taxed at a zero percent tax rate. In 2006, the second
year under this agreement, RSZ reported pretax income of $23.6 million, which
was subject to the zero percent tax rate, resulting in a decrease of 13
percentage points in our effective tax rate. In 2007, the tax rate in
effect was 7.5% and it will increase each subsequent year until reaching the
full rate of 25% in 2012, subject to local government approval. Under
the business license agreement granted to Rogers (Shanghai) International
Trading Company Ltd. (RSH), we were subject to a rate of tax of 11.5% in 2006,
which resulted in a decrease in our effective tax rate of 5% based upon their
pretax income of $13.7 million. In 2007, the tax rate in effect will
be 15%, and will increase each subsequent year until reaching the full rate of
25% in 2012, subject to local government approval.
Backlog
Our
backlog of firm orders was $39.8 million at December 31, 2006, as compared to
$32.9 million at January 1, 2006. The increase at the end of 2006 was primarily
related to the increase in sales in the Custom Electrical Components reportable
segment, as backlog for electroluminescent lamps, primarily into the portable
handheld communication device market, increased by approximately $4.0 million at
year-end 2006 as compared to year-end 2005, in addition to increases in the
backlog for other products sold in that segment.
Segment
Sales and Operations
Printed
Circuit Materials
|
(Dollars
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
143.8 |
|
|
$ |
153.6 |
|
|
$ |
143.3 |
|
|
Operating
income
|
|
|
1.2 |
|
|
|
13.3 |
|
|
|
19.5 |
|
Our
Printed Circuit Materials (PCM) reportable segment is comprised of flexible and
high frequency circuit material products. Net sales in this segment decreased by
6% in 2007 as compared to 2006 and operating profits declined by approximately
$12.1 million. These operating results included approximately $2.6
million of net restructuring charges related to accelerated depreciation on
certain equipment used to manufacture flexible circuit materials in the U.S., an
increase in inventory reserves, and severance costs. (For further
discussion of these charges, see “Restructuring and Impairment Charges” section
in Item 7 - Management’s
Discussion and Analysis of Financial Condition and Results of Operations
in this Form 10-K.) The decline in sales and operating profits were
primarily driven by reduced sales volumes of flexible circuit material
products. Over time, the flexible circuit materials market has become
more commoditized as global competition has increased, which has caused pricing
pressures partially driven by excess capacity, which has caused our sales
volumes and margins to decline. In an effort to address these issues,
we are pursuing alternatives related to these products, including the transfer
of production of commodity-based flexible circuit material products
to our joint venture in Taiwan, RCCT. The sales declines experienced
in the flexible circuits operating segment were partially offset by an increase
in sales in our high frequency products, as we continue to benefit from the
satellite television market’s addition of new high definition service, and
increased penetration into digital applications.
From 2006
to 2005, sales in this reportable segment increased by 7%, while operating
profits decreased by 32%. The sales increase was driven by sales into
the segment’s key strategic end markets – cellular communications infrastructure
and satellite dishes for television reception. The decline in
operating profits is partially attributed to stock compensation and other
incentive compensation costs of $5.1 million that were recognized in 2006 but
not in 2005, as well as declining operating results related to our flexible
circuit materials products.
Custom
Electrical Components
|
(Dollars
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
135.1 |
|
|
$ |
149.4 |
|
|
$ |
80.0 |
|
|
Operating
income (loss)
|
|
|
(4.1 |
) |
|
|
14.8 |
|
|
|
(4.3 |
) |
Our Custom
Electrical Components (CEC) reportable segment is comprised of the following
products: electroluminescent lamps, inverters, and power distribution
systems products. Net sales in this segment decreased by almost 10%
in 2007 as compared to 2006, while operating results declined substantially from
a profit of $14.8 million in 2006 to a loss of $4.1 million in
2007. The 2007 results included net restructuring charges of $10.2
million, which were comprised of increased inventory reserves, accelerated
depreciation related to idle equipment in the U.S., accelerated expense
recognition of a prepaid license associated with certain EL lamp product sales,
and severance costs. (For further discussion of these charges, see
“Restructuring and Impairment Charges” section in Item 7 - Management’s Discussion and Analysis
of Financial Condition and Results of Operations in this Form
10-K.) The sales and operating results declines are primarily driven
by the diminishing demand for EL backlighting in the portable communications
market, as program terminations accelerated at a greater pace than was initially
expected. In order to maximize the residual lamp business, we shifted
the majority of EL lamp production to China, leaving only a small amount of
manufacturing in the U.S, primarily related to the automotive
market. We believe that the demand for EL lamps will continue to
lessen in the portable communications market and we are currently exploring
other potential opportunities for this technology in advertising, as well as in
the automotive and consumer electronics markets, among others. These declines
were partially offset by increased sales and profits in the power distribution
systems business, as strong demand for these products helped drive sales in
North America, Europe, and, particularly, in Asia.
In 2006,
sales in this segment increased by 87% as compared to 2005 and operating results
improved by $19.1 million. These results were driven primarily by
sales of EL lamps into the portable handheld communication device market,
particularly in cell phone applications. Much of the sales growth was
attributable to capacity expansion in China that enabled us to meet the market
demand for these products at that time. Sales of our power
distribution systems products were also strong as we began to utilize the
capacity added in China late in 2005 to further penetrate the Asian
marketplace.
High
Performance Foams
|
(Dollars
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
110.6 |
|
|
$ |
103.2 |
|
|
$ |
88.9 |
|
|
Operating
income
|
|
|
20.0 |
|
|
|
21.8 |
|
|
|
24.6 |
|
Our High
Performance Foams (HPF) reportable segment is comprised of our Poronâ urethane and Biscoâ silicone foam
products. Net sales in this segment increased by approximately 7% in
2007 as compared to 2006, while operating profits declined slightly due to an
unfavorable sales mix and decreased operating leverage due to declines in
production levels of certain products. This segment continues
to perform well with consistent year-over-year growth driven in 2007 by strong
demand in the portable communications and transportation markets. In
2007, we added a second urethane foam manufacturing line in our Suzhou, China
campus under the management of our RIS joint venture in order to better meet
customer demand in the Asian marketplace.
In 2006,
this segment’s net sales increased by 16% as compared to 2005, while operating
profits declined by 11%. The sales growth can be attributable to the
continued success in the urethane foam product sales, as well as our silicone
foam products. These materials are sold into almost every market
segment we serve, and most showed strength in 2006. The decline in
operating income is primarily attributable to the inclusion of stock
compensation and other incentive compensation expense in 2006 of $5.9 million,
which was not incurred in 2005.
Other
Polymer Products
|
(Dollars
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
41.8 |
|
|
$ |
39.6 |
|
|
$ |
36.5 |
|
|
Operating
loss
|
|
|
(2.9 |
) |
|
|
(0.4 |
) |
|
|
(7.1 |
) |
Our Other
Polymer Products (OPP) reportable segment consists of the following
products: elastomer rollers, floats, non-woven materials and
polyester-based industrial laminates. Net sales in this segment
increased slightly from 2006 to 2007, while operating results
declined. This segment’s 2007 results included approximately $0.5
million in restructuring charges related to the impairment of goodwill related
to our composite materials business. (For further discussion of these
charges, see the “Restructuring and Impairment Charges” section in Item 7 -
Management’s Discussion and
Analysis of Financial Condition and Results of Operations - in this Form
10-K.) In 2007, we formally divested our polyolefin foam operation,
which is now classified as a discontinued operation for financial reporting
purposes and is not included in the results presented here. The sales
increase in 2007 can be attributable primarily to the strong performance of our
polyester-based industrial laminates operating segment, offset by the continued
decline in our elastomer rollers products. We continue to evaluate
the viability of the product portfolio in this segment as it relates to our
long-term strategic and operational focus.
In 2006,
net sales in this segment increased slightly from $36.5 million to $39.6 million
while operating results improved dramatically, from a loss of $7.1 million in
2005 to a loss of $0.4 million in 2006. The improved operating
results in 2006 are primarily attributable to the increase in sales across the
various operating segments that comprise this reportable segment.
Joint
Ventures
Rogers
Inoac Corporation (RIC)
RIC, our
joint venture with Japan-based Inoac Corporation, was established over 20 years
ago and manufactures high performance PORONâ urethane foam materials in
Japan. Sales increased 12% from 2006 to 2007 and decreased 14% from
2005 to 2006. The increase experienced in 2007 was primarily driven
by new LCD gasket design wins in portable communications and electronic games
for the domestic Japanese market.
Rogers
Inoac Suzhou Corporation (RIS)
RIS, our
joint venture agreement with Inoac Corporation for the purpose of manufacturing
PORONâ urethane foam
materials in China, began operations in 2004. Sales increased 41%
from 2006 to 2007 and 195% from 2005 to 2006. The increase
experienced in 2007 was primarily driven by growth in portable communication
applications in Taiwan, and solid growth in a broad range of industrial footpad
applications.
Rogers
Chang Chun Technology Co., Ltd. (RCCT)
RCCT, our
joint venture with Chang Chun Plastics Co., Ltd., was established in late 2001
to manufacture flexible circuit materials for customers in
Taiwan. Sales decreased 19% from 2006 to 2007 and increased 12% from
2005 to 2006. The decrease experienced in 2007 was primarily driven
by the overall global decline in the flexible materials market. This
is supported by the sales performance issues also experienced by our
wholly-owned Flex operations, as increased competition and excess global
capacity have resulted in similar volume declines. The increase
experienced in 2006 was primarily related to continued growth and penetration in
the Taiwanese flexible circuits market.
Polyimide
Laminate Systems, LLC (PLS)
PLS, the
Company’s joint venture with Mitsui Chemicals, Inc., sells adhesiveless
laminates for trace suspension assemblies. Sales decreased by 4% in
2007 as compared to 2006 and increased by 2% in 2006 as compared to
2005. The decrease in 2007 is due to end of life and product cycle
phase outs of maturing first generation programs and a slight delay in volume
production increases of second generation programs. Sales
increased slightly in 2006 as orders from the joint venture’s sole customer
increased due to increased market demand for its products.
Discontinued
Operations
On July
27, 2007, we completed the closure of the operations of the polyolefin foams
operating segment, which had been aggregated in our Other Polymer Products
reportable segment. For the fiscal years ended 2007, 2006 and 2005,
$0.3 million of operating income, $4.4 million of operating loss and $17.3
million of operating loss, respectively, net of tax, have been reflected as
discontinued operations in the accompanying consolidated statements of
income. Net sales associated with the discontinued operations were
$1.9 million, $8.8 million and $7.4 million for 2007, 2006 and 2005,
respectively. In the third quarter of 2007, we ceased operations of the
polyolefin foams operating segment and there were no net sales associated with
the discontinued operations for the second half of 2007. See “Note 13
– Discontinued Operations” for further discussion.
Product
and Market Development
Our
research and development team is dedicated to growing our businesses by
developing cost effective solutions that improve the performance of customers’
products. Research and development as a percentage of sales was approximately
5.7% in 2007 as compared to 5.4% in 2006 and 5.6% in 2005. Our
strategic plan is to invest an average of 6% of net sales annually into research
and development and it is expected that future expenditures will be consistent
with this targeted investment level. We continue to invest in
research and development to improve our existing technologies and find new
applications for these materials; as well as to explore new, emerging
technologies that we believe will complement our existing product
portfolio.
We
introduced a variety of new products during 2007. For the newly
established thermal management solutions business, we introduced ALSiC metal
matrix composites that provide the high thermal conductivity and low thermal
expansion needed for applications such as semiconductor package lids and
insulated gate bipolar transistor base plates. An insulated metal
substrate material with low thermal impedance was also introduced for
applications such as LED array packages and intelligent motor
controls. New printed circuit materials included new RO4000® products
with lower conductor losses and a new high flow prepreg that provides a broad
process window for complex multilayer circuit board
manufacturing. New high performance foam products included thinner
(0.5mm) softseal PORONâ gasketing materials to
provide dust seals for the latest generation of thin phones and a new R/bakâ print cushion material
designed for use with composite printing sleeves. A new silicone foam
product that meets new European requirements for low smoke, flame and toxicity
in mass transit applications was also introduced. New
electroluminescent lamp products included a flexible keypad lamp with 70% higher
brightness and efficiency and a new IC driver that is insensitive to the size of
the lit area of the keypad.
Liquidity,
Capital Resources, and Financial Position
We believe
that our ability to generate cash from operations to reinvest in the business is
one of our fundamental strengths, as demonstrated by our financial position
remaining strong throughout 2007. We have remained debt free since 2002 and
continue to finance our operational needs through internally generated
funds. We believe that over the next twelve months, internally
generated funds plus available lines of credit will be sufficient to meet the
capital expenditures and ongoing financial needs of the
business. However, we continually review and evaluate the adequacy of
our lending facilities and relationships.
Cash
Flows from Operating, Investing and Financing Activities
At
December 30, 2007, December 31, 2006 and January 1, 2006 we had cash and cash
equivalents of $36.3 million, $13.6 million and $22.0 million, respectively, and
working capital of $178.8 million, $191.5 million and $122.2 million,
respectively.
Cash flows
from operating activities were $68.4 million in 2007 compared to $29.2 million
in 2006 and $42.7 million in 2005. Significant items that impacted
operating cash flows included the following:
|
·
|
A
decrease in inventories of $20.2 million in 2007 as compared to an
increase of $26.6 million in 2006 and a decrease of $1.7 million in
2005. The decrease in 2007 is the result of the sales declines
in the Customer Electrical Components and Printed Circuit Materials
reportable segments, as well as a focused effort to reduce inventory
levels to improve cash flows and strengthen our working capital
position.
|
|
·
|
A
decrease in accounts receivable of $13.2 million in 2007 as compared to an
increase of $22.7 million in 2006 and $7.3 million in 2005. The
decrease in 2007 versus the prior increases in 2005 and 2006 is evidence
of the concentrated collection efforts made in order to strengthen our
working capital position.
|
|
·
|
A
decrease in accounts payable and other accrued liabilities of $9.5 million
in 2007 as compared to an increase of $21.7 million in 2006 and a decrease
of $2.6 million in 2005. The decrease in 2007 is primarily
attributable to the decrease in raw material purchases related to the
decreased production levels which is further evidenced by the decrease in
inventory balances over the comparable period as discussed
above.
|
During
2007, we used $17.1 million in cash for investing activities as compared to
$67.1 million in 2006 and $23.8 million in 2005. The decrease in cash
used for investing activities in 2007 is primarily attributable to the sale of
short-term investments during the year, as we had short-term investments of
$53.3 million and $68.2 million at December 30, 2007 and December 31, 2006,
respectively. In addition, capital expenditures were $30.9 million,
$23.1 million and $28.6 million in 2007, 2006 and 2005,
respectively. The 2007 capital spending was driven by our continuing
investment in China, as we continued to build manufacturing capacity in Suzhou,
China. Cash generated from our operating activities exceeded capital spending in
all three years, and spending was financed through these internally generated
funds.
Net cash
used in financing activities was $27.6 million in 2007 as compared to cash
provided by financing activities of $23.5 million in 2006 and cash used in
financing activities of $12.5 million in 2005. The use of cash in
2007 and 2005 was driven primarily by our stock repurchase program, as $35.5
million and $15.9 million were spent to reacquire stock in 2007 and 2005,
respectively. We did not repurchase stock in 2006. The
activity in 2006, of $17.8 million, is primarily related to the proceeds from
the sale of capital stock, as a result of the exercise of stock
options.
We,
together with certain of our wholly-owned subsidiaries, Rogers Technologies
(Barbados) SRL, Rogers (China) Investment Co., Ltd., Rogers N.V., and Rogers
Technologies (Suzhou) Co. Ltd. have a Multicurrency Revolving Credit Agreement
with Citizens Bank of Connecticut (Credit Agreement). The Credit
Agreement provides for an unsecured five-year revolving multi-currency credit
facility of $75 million (Credit Facility A), and an unsecured 364-day revolving
multi-currency credit facility of $25 million (Credit Facility
B). The Credit Agreement includes a letter of credit sub-facility of
up to $75 million. Under the terms of the Credit Agreement, the
Borrowers have the right to incur additional indebtedness through additional
borrowings in an aggregate amount of up to $25 million.
Credit
Facility A expires on November 13, 2011. Credit Facility B was
renewed on November 11, 2007, and is expected to be renewed
annually. The rate of interest charged on any outstanding loans can,
at the Borrower’s option and subject to certain restrictions, be based on the
prime rate or at rates from 40 to 87.5 basis points over a LIBOR loan
rate. The spreads over the LIBOR rate are based on our leverage
ratio. Under the arrangement, the ongoing commitment fee varies from
zero to 25 basis points of the maximum amount that can be borrowed, net of any
outstanding borrowings and the maximum amount that beneficiaries may draw under
outstanding letters of credit.
In
conjunction with the execution of the Credit Agreement, on November 13, 2006, we
terminated an unsecured revolving multi-currency credit facility of $50 million
(Prior Agreement). Borrowings under the Prior Agreement were subject
to interest based upon the prime rate or a Eurocurrency loan rate and required
us to pay a commitment fee of 30.0 to 37.5 basis points on the maximum
borrowings available net of any outstanding borrowings.
There were
no borrowings pursuant to the Credit Agreement at December 30, 2007 and December
31, 2006, respectively. The Credit Agreement contains restrictive
covenants primarily related to total indebtedness, interest expense, and capital
expenditures. We were in compliance with these covenants at December
30, 2007 and December 31, 2006.
Additionally,
we were obligated under an irrevocable standby letter of credit, which
guarantees our self- insured workers compensation plan in the amount of $1.3
million at December 30, 2007. There were no amounts outstanding on
this letter of credit as of December 30, 2007.
Financial
Position
The
following discusses the significant fluctuations on our balance sheet at
December 30, 2007 as compared to December 31, 2006:
|
·
|
Decrease
in inventories of 27% is the result of our efforts to reduce inventory
levels in order to strengthen our working capital position and better
align our inventory levels with our expected sales
levels.
|
|
·
|
Decrease
in accounts receivable of 10% is primarily attributable to our
concentrated collection efforts in order to strengthen our working capital
position.
|
|
·
|
Decrease
in accrued employee benefits and compensation of 45% is a result of the
increased annual incentive compensation and commission payouts for 2006,
which did not repeat in 2007.
|
|
·
|
Decrease
in accounts payable of 14% is primarily attributable to the decrease in
raw material purchases to support current production levels as further
evidenced by the decrease in inventory balances over the comparable period
as discussed above, as well as the timing of payments at
year-end.
|
|
·
|
Decrease
in additional paid-in capital of 37% is primarily related to the stock
repurchases that we made during the
year.
|
Contractual
Obligations
The
following table summarizes our significant contractual obligations as of
December 30, 2007:
|
(Dollars
in thousands)
|
|
Payments
Due by Period
|
|
|
|
|
Total
|
|
|
Within
1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
After
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$ |
2,282 |
|
|
$ |
1,187 |
|
|
$ |
850 |
|
|
$ |
172 |
|
|
$ |
73 |
|
|
Inventory
purchase obligations
|
|
|
4,360 |
|
|
|
4,360 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Capital
commitments
|
|
|
7,028 |
|
|
|
7,028 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Pension
and Retiree Health and Life Insurance Benefits (1)
|
|
|
83,138 |
|
|
|
6,522 |
|
|
|
13,651 |
|
|
|
15,509 |
|
|
|
47,456 |
|
|
Total
|
|
$ |
96,808 |
|
|
$ |
19,097 |
|
|
$ |
14,501 |
|
|
$ |
15,681 |
|
|
$ |
47,529 |
|
(1) Pension
benefit payments, which amount to $74.8 million, are expected to be paid through
the utilization of pension plan assets; retiree health and life insurance
benefits, which amount to $8.3 million, are expected to be paid from
operating cash flows.
Effects
of Inflation
We do not
believe that inflation has had a material impact on our business, sales, or
operating results during the periods presented.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have, or are in the opinion of
management reasonably likely to have, a current or future effect on our
financial condition or results of operations.
Recent
Accounting Standards
Accounting
for Uncertainty in Income Taxes
In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB No. 109 (FIN 48). FIN 48
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The amount recognized is measured as the largest amount
of benefit that is greater than 50 percent likely of being realized upon
settlement. FIN 48 is effective for accounting periods commencing
after December 15, 2006.
We adopted
the provisions of FIN 48 on January 1, 2007. Upon adoption, an
increase of $2.7 million was recorded in the liability for unrecognized tax
benefits, which was recorded through a decrease in retained
earnings. At December 30, 2007, we had gross tax-affected
unrecognized tax benefits of $8.4 million, all of which if recognized, would
have a favorable impact on our effective tax rate. In addition, at
December 30, 2007 we have approximately $0.6 million of accrued interest related
to uncertain tax positions. Our accounting policy is to account for
interest expense and penalties relating to income tax issues as income tax
expense.
Accounting
for Fair Value Measurements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (SFAS 157). SFAS 157 replaces multiple existing definitions
of fair value with a single definition, establishes a consistent framework for
measuring fair value and expands financial statement disclosures regarding fair
value measurements. This Statement applies only to fair value measurements that
already are required or permitted by other accounting standards and does not
require any new fair value measurements. SFAS No. 157 is effective in the first
quarter of 2008, and we do not expect the adoption will have a material impact
on our financial position or results of operations.
Accounting
for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115 (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 is effective
in the first quarter of 2008, and we do not expect the adoption will have a
material impact on our financial position or results of
operations.
Critical
Accounting Policies
Our
Consolidated Financial Statements are prepared in accordance with U.S. generally
accepted accounting principles, which require management to make estimates,
judgments and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances and believe that appropriate reserves have
been established based on reasonable methodologies and appropriate assumptions
based on facts and circumstances that are known; however, actual results may
differ from these estimates under different assumptions or
conditions. An accounting policy is deemed to be critical if it
requires an accounting estimate to be made based on assumptions that are highly
judgmental and uncertain at the time the estimate is made, if different
estimates could reasonably have been used; or if changes to those estimates are
reasonably likely to periodically occur that could affect the amounts carried in
the financial statements. These critical accounting policies are as
follows:
Environmental
and Product Liabilities
We accrue
for our environmental investigation, remediation, operating and maintenance
costs when it is probable that a liability has been incurred and the amount can
be reasonably estimated. For environmental matters, the most likely
cost to be incurred is accrued based on an evaluation of currently available
facts with respect to each individual site, including existing technology,
current laws and regulations and prior remediation experience. For
sites with multiple potential responsible parties (PRP’s), we consider our
likely proportionate share of the anticipated remediation costs and the ability
of the other parties to fulfill their obligations in establishing a provision
for those costs. Where no amount within a range of estimates is more
likely to occur than another, the minimum is accrued. When future
liabilities are determined to be reimbursable by insurance coverage, an accrual
is recorded for the potential liability and a receivable is recorded for the
estimated insurance reimbursement amount. We are exposed to the
uncertain nature inherent in such remediation and the possibility that initial
estimates will not reflect the final outcome of a matter.
In late
2004, we determined that it was reasonably prudent, based on facts and
circumstances known to us at that time, to perform a formal analysis to
determine our potential future liability and related insurance coverage for
asbestos-related matters. The determination to perform this study was
made based on several factors, including the growing number of asbestos-related
claims and recent settlement history. Projecting future asbestos
costs is subject to numerous variables that are extremely difficult to predict,
including the number of claims that might be received, the type and severity of
the disease alleged by each claimant, the long latency period associated with
asbestos exposure, dismissal rates, costs of medical treatment, the financial
resources of other companies that are co-defendants in claims, uncertainties
surrounding the litigation process from jurisdiction to jurisdiction and from
case to case, and the impact of potential changes in legislative or judicial
standards, including potential tort reform. Furthermore, any
predictions with respect to these variables are subject to even greater
uncertainty as the projection period lengthens. In light of these
inherent uncertainties, our limited claims history and consultations with
National Economic Research Associates, Inc. (NERA), we believe that five years
is the most reasonable period for recognizing a reserve for future costs, and
that costs that might be incurred after that period are not reasonably estimable
at this time. As a result, we also believe that our ultimate net
asbestos-related contingent liability (i.e., its indemnity or other claim
disposition costs plus related legal fees) cannot be estimated with
certainty.
The models
developed for determining the potential exposure and related insurance coverage
were developed by outside consultants deemed to be experts in their respective
fields. The models required us to make numerous assumptions that
significantly impacted the results generated by the models. We
believe the assumptions made are reasonable at the present time, but are subject
to uncertainty based on the actual future outcome of our asbestos
litigation. The original liability model determined our future
liability annually for a 50-year period and was updated at the end of
2005. We believe, based on the limited amount of settlement and
claims history currently known to us, that a reasonable future time frame to
quantify our liability is five years, resulting in a liability at December 30,
2007 of approximately $23.6 million, which is substantially offset by an
insurance receivable of $23.5 million. If we were to
adjust our assumptions related to the determination of these amounts, the impact
of increasing the time frame for projected claims from five years to seven years
would be an increase to the liability of $9.8 million, which we believe would be
substantially covered by insurance; conversely, the impact of changing this
assumption from five years to three years would be a decrease to the liability
of $9.9 million.
Given the
inherent uncertainty in making future projections, we plan to have the
projections of current and future asbestos claims periodically re-examined, and
we will update them if needed based on our experience, changes in the underlying
assumptions that formed the basis for NERA’s and Marsh Risk Consulting’s (Marsh)
models, and other relevant factors, such as changes in the tort
system. There can be no assurance that our accrued asbestos
liabilities will approximate our actual asbestos-related settlement and defense
costs, or that our accrued insurance recoveries will be realized. We believe
that it is reasonably possible that we will incur additional charges for our
asbestos liabilities and defense costs in the future, which could exceed
existing reserves, but cannot estimate such excess amounts at this
time.
Income
Taxes
SFAS No.
109, Accounting for Income
Taxes (SFAS 109), establishes financial accounting and reporting
standards to be used in determining the effect of income taxes. The
objective of accounting for income taxes is to recognize the amount of taxes
payable or refundable for the current fiscal year and the deferred tax assets
and liabilities for the future tax consequences of events that have been
recognized in our Financial Statements. Deferred tax assets and
liabilities reflect temporary differences between amounts of assets and
liabilities for financial and tax reporting. Such amounts are
adjusted, as appropriate, to reflect changes in tax rates expected to be in
effect when the temporary differences reverse. We establish a
valuation allowance to offset any deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The determination of the amount of a valuation
allowance to be provided on recorded deferred tax assets involves estimates
regarding (1) the timing and amount of the reversal of taxable temporary
differences, (2) expected future taxable income, and (3) the impact of tax
planning strategies. In assessing the need for a valuation allowance,
we consider all available positive and negative evidence, including past
operating results, projections of future taxable income and the feasibility of
ongoing tax planning strategies. The projections of future taxable
income include a number of estimates and assumptions regarding our volume,
pricing and costs. Additionally, valuation allowances related to
deferred tax assets can be impacted by changes to tax laws.
Significant
judgment is required in determining income tax provisions under SFAS 109 and in
evaluating tax positions. We establish additional provisions for
income taxes when, despite the belief that tax positions are fully supportable,
there remain certain positions that are likely to be challenged and that may not
be sustained on review by tax authorities. In the normal course of
business, we are examined by various Federal, State and foreign tax
authorities. We regularly assess the potential outcomes of these and
any future examinations for the current or prior years in determining the
adequacy of our provision for income taxes. We continually assess the
likelihood and amount of potential adjustments and adjust the income tax
provision, the current tax liability and deferred taxes in the period in which
the facts that give rise to a revision become known.
Inventory
Allowances
We
maintain a reserve for obsolete and slow-moving inventory. Products
and materials that are specifically identified as obsolete are fully
reserved. In general, most products that have been held in inventory
greater than one year are fully reserved unless there are mitigating
circumstances, including forecasted sales or current orders for the
product. The remainder of the allowance is based on our estimates,
and fluctuates with market conditions, design cycles and other economic
factors. Risks associated with this allowance include unforeseen
changes in business cycles that could affect the marketability of certain
products and an unforecasted decline in current production. We
closely monitor the market place and related inventory levels and have
historically maintained reasonably accurate allowance levels. In addition, we
value certain inventories using the last-in, first-out (“LIFO”)
method. Accordingly, a LIFO valuation reserve is calculated using the
link chain index method and is maintained to properly value these inventories.
Our obsolescence reserve has ranged from 10% to 13% of gross inventory over the
last three years. A 100 basis point adjustment to the December 30,
2007 obsolescence reserve would change the reserve by approximately $0.9
million.
Goodwill
In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), goodwill is subject to annual impairment tests, or
earlier if events or changes in circumstances indicate the carrying value may
have been impaired. Determining the fair value of an operating
segment is judgmental in nature and requires the use of significant estimates
and assumptions, including revenue growth rates and operating margins, discount
rates, and future market conditions, among others. We believe that
the assumptions and rates used in our annual impairment test under SFAS 142 are
reasonable, but inherently uncertain. The 2007 impairment test was
performed in the fourth quarter of 2007 on the three operating segments for
which we had goodwill recorded at that time and it did not result in an
impairment charge. The excess of fair value over carrying value for
these operating segments ranged from approximately $10.6 million to $24.7
million. In order to estimate the sensitivity of the analysis
performed, we applied a hypothetical 10% decrease to the fair values of
each operating segment, which resulted in excess fair value over carrying value
ranging from approximately $8.2 million to $20.4 million for each respective
operating segment.
Long-Lived
Assets
We review
property, plant and equipment and identified intangible assets for impairment
whenever events or changes in circumstances indicate the carrying value of
assets may not be recoverable. Recoverability of these assets is
measured by comparison of their carrying value to future undiscounted cash flows
the assets are expected to generate over their remaining economic
lives. If such assets are considered to be impaired, the impairment
to be recognized in earnings equals the amount by which the carrying value of
the assets exceeds their market value determined by either a quoted market
price, if available, or a value determined by utilizing a discounted cash flow
analysis. Although we did not record any impairment charges in 2007
related to our property, plant and equipment and identified intangible assets,
we did reduce the useful lives on certain long-lived assets primarily related to
our flexible materials and Durel divisions, as a result of the uncertain future
outlook of these segments, which is further evidenced by the restructuring
charges taken related to these segments in 2007. Actual future
operating results and the remaining economic lives could differ from those used
in calculating the expected future undiscounted cash flows, which could have a
material adverse impact on our results of operations. In addition in
certain instances assets may not be impaired, but their estimated useful lives
may have decreased. In these situations, the remaining net book value
is amortized over the revised useful lives.
Pension
and Other Postretirement Benefits
We provide
various defined benefit pension plans for our U.S. employees and sponsor
three defined benefit healthcare and life insurance plans. The costs
and obligations associated with these plans are dependent upon various actuarial
assumptions used in calculating such amounts. These assumptions
include discount rates, salary growth, long-term rate of return on plan assets,
mortality rates and other factors. The assumptions used were
determined as follows: (i) the discount rate used is based on comparisons to the
Citigroup index and, to a lesser extent, the Moody’s AA bond index; (ii)
the salary growth is based on our historical and projected level of salary
increases; and (iii) the long-term rate of return on plan assets is determined
based on historical portfolio results, market conditions and our expectations of
future returns. The rates used to determine our costs and obligations
under our pension and postretirement plans are disclosed in Footnote 5 of the
Consolidated Financial Statements of this Form 10-K. Each assumption
has different sensitivity characteristics. For the year ended
December 30, 2007, a 25 basis point increase in the discount rate would have
decreased our net benefit cost by approximately $0.2 million and a 25 basis
point reduction in the long-term rate of return on plan assets would have
increased our net benefit cost by approximately $0.3 million.
Allowance
for Doubtful Accounts
Our
allowance for doubtful accounts is determined based on a variety of factors that
affect the potential collectibility of receivables, including length of time
receivables are past due, customer credit ratings, financial stability of
customers, specific one-time events and past customer history. In
addition, in circumstances when we are made aware of a specific customer’s
inability to meet its financial obligations, a specific allowance is
established. The majority of accounts are individually evaluated on a
regular basis and appropriate reserves are established as deemed appropriate
based on the criteria previously mentioned. The remainder of the reserve is
based on our estimates and takes into consideration historical trends, market
conditions and the composition of our customer base. The risk with
this estimate is associated with failure to become aware of potential
collectibility issues related to specific accounts and thereby become exposed to
potential unreserved losses. Historically, our estimates and
assumptions around the allowance have been reasonably accurate and we have
processes and controls in place to closely monitor customers and potential
credit issues. Historically over the past three years, our allowance as a
percentage of total receivables has ranged from 1.8% to 2.9%. A 50
basis point increase in our current year allowance to receivable ratio would
increase our allowance reserve by approximately $0.4 million.
Forward-Looking
Information
Certain
statements in this Annual Report on Form 10-K may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are based on management’s
expectations, estimates, projections and assumptions. Words such as
“expects,” “anticipates,” “intends,” “believes,” “estimates,” and variations of
such words and similar expressions are intended to identify such forward-looking
statements. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause our actual results or
performance to be materially different from any future results or performance
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, changing business, economic, and political conditions
both in the United States and in foreign countries; increasing competition;
changes in product mix; the development of new products and manufacturing
processes and the inherent risks associated with such efforts; the outcome of
current and future litigation; the accuracy of our analysis of our potential
asbestos-related exposure and insurance coverage; changes in the availability
and cost of raw materials; fluctuations in foreign currency exchange rates; and
any difficulties in integrating acquired businesses into our
operations. Such factors also apply to our joint
ventures. We make no commitment to update any forward-looking
statement or to disclose any facts, events, or circumstances after the date
hereof that may affect the accuracy of any forward-looking statements, unless
required by law. Additional information about certain factors that could cause
actual results to differ from such forward-looking statements include, but are
not limited to, those items described in Item 1A to this Form 10-K, “Risk
Factors”.
Market
Risk
Currently,
we are exposed to market risk from changes in foreign exchange
rates. We currently do not use derivative instruments for trading or
speculative purposes. We monitor foreign exchange and interest rate
risks and manage such risks on specific transactions. The risk
management process primarily uses analytical techniques and sensitivity
analysis.
We have
various borrowing facilities where the interest rates, although not fixed, are
relatively low. Currently, an increase in the associated interest
rates would not significantly impact interest expense on these facilities, as we
currently have no debt.
The fair
value of our investment portfolio or the related interest income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the size and short-term nature of our investment
portfolio.
Our
short-term investments are comprised of auction-rate securities, which are
classified as available-for-sale due to the short-term nature of the
investment. However, changes in market conditions could result in us
having to hold these investments until maturity, which is typically at least 20
years, thereby negatively impacting our liquidity.
Our
financial results are affected by changes in foreign exchange rates and economic
conditions in foreign countries in which we do business. Our primary
overseas markets are in Europe and Asia; thus exposing us to exchange rate risk
from fluctuations in the Euro and the various currencies used in the Far
East. Exposure to variability in currency exchange rates is
mitigated, when possible, through the use of natural hedges, whereby purchases
and sales in the same foreign currency and with similar maturity dates offset
one another; however, no such material hedges were outstanding at
year-end. We can initiate hedging activities by entering into foreign
exchange forward contracts with third parties when the use of natural hedges is
not possible or desirable. In 2007, a 10% increase/decrease in
exchange rates would have resulted in an increase/decrease to sales and net
income of $11.9 million and $0.8 million, respectively.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Rogers
Corporation
We have
audited the accompanying consolidated statements of financial position of Rogers
Corporation and subsidiaries as of December 30, 2007 and December 31, 2006, and
the related consolidated statements of income, shareholders’ equity and cash
flows for each of the three fiscal years in the period ended December 30, 2007.
Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 December 30, 2007 and December 31, 2006, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 30, 2007, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, effective January
1, 2007, Rogers Corporation adopted Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes. Also, as discussed in Note 5 to the consolidated financial
statements, effective December 31, 2006, Rogers Corporation adopted Statement of
Financial Accounting Standards No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Nos. 87,
88, 106 and 132(R), and as discussed in Note 1 to the consolidated
financial statements, effective January 2, 2006, adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share Based
Payment.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Rogers Corporation’s
internal control over financial reporting as of December 30, 2007, based on
criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 22, 2008 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG
LLP
Boston,
Massachusetts
February
22, 2008
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(Dollars
in thousands, except per share amounts)
|
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
36,328 |
|
|
$ |
13,638 |
|
|
Short-term
investments
|
|
|
53,300 |
|
|
|
68,185 |
|
|
Accounts
receivable, less allowance for doubtful accounts
of
$1,433 and $1,797
|
|
|
76,965 |
|
|
|
85,556 |
|
|
Accounts
receivable from joint ventures
|
|
|
3,368 |
|
|
|
5,437 |
|
|
Accounts
receivable, other
|
|
|
2,319 |
|
|
|
3,552 |
|
|
Note
receivable, current
|
|
|
- |
|
|
|
2,100 |
|
|
Inventories
|
|
|
51,243 |
|
|
|
70,135 |
|
|
Prepaid
income taxes
|
|
|
5,160 |
|
|
|
5,554 |
|
|
Deferred
income taxes
|
|
|
10,180 |
|
|
|
9,876 |
|
|
Asbestos-related
insurance receivables
|
|
|
4,303 |
|
|
|
4,244 |
|
|
Other
current assets
|
|
|
3,888 |
|
|
|
3,415 |
|
|
Assets
of discontinued operations
|
|
|
- |
|
|
|
862 |
|
|
Total
current assets
|
|
|
247,054 |
|
|
|
272,554 |
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation
of
$160,396 and $139,818
|
|
|
147,203 |
|
|
|
141,406 |
|
|
Investments
in unconsolidated joint ventures
|
|
|
30,556 |
|
|
|
26,629 |
|
|
Deferred
income taxes
|
|
|
9,984 |
|
|
|
4,828 |
|
|
Pension
asset
|
|
|
2,173 |
|
|
|
974 |
|
|
Goodwill
and other intangibles
|
|
|
10,131 |
|
|
|
11,110 |
|
|
Asbestos-related
insurance receivables
|
|
|
19,149 |
|
|
|
18,503 |
|
|
Other
long-term assets
|
|
|
4,698 |
|
|
|
4,576 |
|
|
Assets
of discontinued operations
|
|
|
- |
|
|
|
322 |
|
|
Total
assets
|
|
$ |
470,948 |
|
|
$ |
480,902 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
22,127 |
|
|
$ |
25,712 |
|
|
Accrued
employee benefits and compensation
|
|
|
14,991 |
|
|
|
27,322 |
|
|
Accrued
income taxes payable
|
|
|
6,326 |
|
|
|
9,970 |
|
|
Asbestos-related
liabilities
|
|
|
4,303 |
|
|
|
4,244 |
|
|
Other
current liabilities
|
|
|
20,539 |
|
|
|
12,979 |
|
|
Liabilities
of discontinued operations
|
|
|
- |
|
|
|
1,916 |
|
|
Total
current liabilities
|
|
|
68,286 |
|
|
|
82,143 |
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
|
8,009 |
|
|
|
11,698 |
|
|
Retiree
health care and life insurance benefits
|
|
|
6,288 |
|
|
|
10,021 |
|
|
Asbestos-related
liabilities
|
|
|
19,341 |
|
|
|
18,694 |
|
|
Other
long-term liabilities
|
|
|
5,043 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
Capital
Stock - $1 par value; 50,000,000 authorized shares; 16,414,918
and
16,937,523
shares issued and outstanding
|
|
|
16,415 |
|
|
|
16,938 |
|
|
Additional
paid-in capital
|
|
|
37,636 |
|
|
|
59,352 |
|
|
Retained
earnings
|
|
|
296,828 |
|
|
|
277,442 |
|
|
Accumulated
other comprehensive income
|
|
|
13,102 |
|
|
|
3,445 |
|
|
Total
shareholders' equity
|
|
|
363,981 |
|
|
|
357,177 |
|
|
Total
liabilities and shareholders' equity
|
|
$ |
470,948 |
|
|
$ |
480,902 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF INCOME
For each
of the fiscal years in the three-year period ended December 30,
2007
(Dollars
in thousands, except per share amounts)
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
431,354 |
|
|
$ |
445,750 |
|
|
$ |
348,678 |
|
|
Cost
of sales
|
|
|
315,717 |
|
|
|
304,882 |
|
|
|
240,839 |
|
|
Gross
margin
|
|
|
115,637 |
|
|
|
140,868 |
|
|
|
107,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
73,185 |
|
|
|
62,210 |
|
|
|
55,000 |
|
|
Research
and development expenses
|
|
|
24,658 |
|
|
|
24,223 |
|
|
|
19,494 |
|
|
Restructuring
and impairment charges
|
|
|
3,538 |
|
|
|
5,013 |
|
|
|
652 |
|
|
Operating
income
|
|
|
14,256 |
|
|
|
49,422 |
|
|
|
32,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
income in unconsolidated joint ventures
|
|
|
8,087 |
|
|
|
8,563 |
|
|
|
5,251 |
|
|
Other
income, net
|
|
|
765 |
|
|
|
5,056 |
|
|
|
886 |
|
|
Interest
income, net
|
|
|
2,077 |
|
|
|
2,353 |
|
|
|
911 |
|
|
Income
from continuing operations before income taxes
|
|
|
25,185 |
|
|
|
65,394 |
|
|
|
39,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
3,317 |
|
|
|
14,559 |
|
|
|
5,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
21,868 |
|
|
|
50,835 |
|
|
|
33,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of taxes
|
|
|
256 |
|
|
|
(4,379 |
) |
|
|
(17,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
22,124 |
|
|
$ |
46,456 |
|
|
$ |
16,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
1.32 |
|
|
$ |
3.04 |
|
|
$ |
2.07 |
|
|
Income
(loss) from discontinued operations, net
|
|
|
0.02 |
|
|
|
(0.27 |
) |
|
|
(1.06 |
) |
|
Net
income
|
|
$ |
1.34 |
|
|
$ |
2.77 |
|
|
$ |
1.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
1.31 |
|
|
$ |
2.94 |
|
|
$ |
2.02 |
|
|
Income
(loss) from discontinued operations, net
|
|
|
0.01 |
|
|
|
(0.25 |
) |
|
|
(1.04 |
) |
|
Net
income
|
|
$ |
1.32 |
|
|
$ |
2.69 |
|
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,555,656 |
|
|
|
16,747,444 |
|
|
|
16,306,314 |
|
|
Diluted
|
|
|
16,749,337 |
|
|
|
17,287,837 |
|
|
|
16,724,397 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
(Dollars
in thousands)
|
|
Capital
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
Total
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 2, 2005
|
|
$ |
16,437 |
|
|
$ |
41,769 |
|
|
$ |
214,546 |
|
|
$ |
8,743 |
|
|
$ |
281,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
16,440 |
|
|
|
- |
|
|
|
16,440 |
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,891 |
) |
|
|
(6,891 |
) |
|
Minimum
pension liability, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
|
|
(63 |
) |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,486 |
|
|
Stock
options exercised
|
|
|
285 |
|
|
|
6,422 |
|
|
|
- |
|
|
|
- |
|
|
|
6,707 |
|
|
Stock
issued to directors
|
|
|
20 |
|
|
|
256 |
|
|
|
- |
|
|
|
- |
|
|
|
276 |
|
|
Shares
reacquired
|
|
|
(105 |
) |
|
|
(4,119 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4,224 |
) |
|
Shares
issued
|
|
|
25 |
|
|
|
872 |
|
|
|
- |
|
|
|
- |
|
|
|
897 |
|
|
Share
buyback
|
|
|
(407 |
) |
|
|
(15,492 |
) |
|
|
- |
|
|
|
- |
|
|
|
(15,899 |
) |
|
Tax
benefit on stock options exercised
|
|
|
- |
|
|
|
1,512 |
|
|
|
- |
|
|
|
- |
|
|
|
1,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
16,255 |
|
|
|
31,220 |
|
|
|
230,986 |
|
|
|
1,789 |
|
|
|
280,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
46,456 |
|
|
|
- |
|
|
|
46,456 |
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,579 |
|
|
|
7,579 |
|
|
Minimum
pension liability, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(50 |
) |
|
|
(50 |
) |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,985 |
|
|
Adjustment
to initially apply SFAS 158, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,873 |
) |
|
|
(5,873 |
) |
|
Stock
options exercised
|
|
|
630 |
|
|
|
17,200 |
|
|
|
- |
|
|
|
- |
|
|
|
17,830 |
|
|
Stock
issued to directors
|
|
|
8 |
|
|
|
398 |
|
|
|
- |
|
|
|
- |
|
|
|
406 |
|
|
Shares
issued
|
|
|
45 |
|
|
|
713 |
|
|
|
- |
|
|
|
- |
|
|
|
758 |
|
|
Stock-based
compensation expense
|
|
|
- |
|
|
|
4,875 |
|
|
|
- |
|
|
|
- |
|
|
|
4,875 |
|
|
Tax
benefit on stock options exercised
|
|
|
- |
|
|
|
4,946 |
|
|
|
- |
|
|
|
- |
|
|
|
4,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
16,938 |
|
|
|
59,352 |
|
|
|
277,442 |
|
|
|
3,445 |
|
|
|
357,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
22,124 |
|
|
|
- |
|
|
|
22,124 |
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,480 |
|
|
|
4,480 |
|
|
Pension
and OPEB, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,177 |
|
|
|
5,177 |
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,781 |
|
|
Adoption
of FIN 48
|
|
|
- |
|
|
|
- |
|
|
|
(2,738 |
) |
|
|
- |
|
|
|
(2,738 |
) |
|
Stock
options exercised
|
|
|
265 |
|
|
|
6,738 |
|
|
|
- |
|
|
|
- |
|
|
|
7,003 |
|
|
Stock
issued to directors
|
|
|
1 |
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
141 |
|
|
Shares
issued
|
|
|
21 |
|
|
|
934 |
|
|
|
- |
|
|
|
- |
|
|
|
955 |
|
|
Share
buyback
|
|
|
(810 |
) |
|
|
(34,730 |
) |
|
|
|
|
|
|
|
|
|
|
(35,540 |
) |
|
Stock-based
compensation expense
|
|
|
- |
|
|
|
5,202 |
|
|
|
- |
|
|
|
- |
|
|
|
5,202 |
|
|
Tax
benefit on stock options exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2007
|
|
$ |
16,415 |
|
|
$ |
37,636 |
|
|
$ |
296,828 |
|
|
$ |
13,102 |
|
|
$ |
363,981 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For each
of the fiscal years in the three-year period ended December 30,
2007
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
22,124 |
|
|
$ |
46,456 |
|
|
$ |
16,440 |
|
|
Loss
(income) from discontinued operations
|
|
|
(256 |
) |
|
|
4,379 |
|
|
|
17,332 |
|
|
Adjustments
to reconcile net income to net cash provided by
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
25,718 |
|
|
|
19,203 |
|
|
|
16,853 |
|
|
Stock-based
compensation expense
|
|
|
5,202 |
|
|
|
4,875 |
|
|
|
- |
|
|
Deferred
income taxes
|
|
|
(5,460 |
) |
|
|
(9,597 |
) |
|
|
(4,637 |
) |
|
Excess
tax benefit related to stock award plans
|
|
|
- |
|
|
|
(4,946 |
) |
|
|
- |
|
|
Tax
benefit related to stock award plans
|
|
|
- |
|
|
|
- |
|
|
|
1,512 |
|
|
Equity
in undistributed income of unconsolidated joint ventures,
net
|
|
|
(8,087 |
) |
|
|
(8,563 |
) |
|
|
(5,251 |
) |
|
Dividends
received from unconsolidated joint ventures
|
|
|
5,808 |
|
|
|
3,351 |
|
|
|
4,018 |
|
|
Loss
on disposition / sale of assets
|
|
|
- |
|
|
|
- |
|
|
|
84 |
|
|
Pension
and postretirement benefits
|
|
|
(3,444 |
) |
|
|
(1,731 |
) |
|
|
2,055 |
|
|
Impairment
charges
|
|
|
525 |
|
|
|
5,013 |
|
|
|
652 |
|
|
Other,
net
|
|
|
332 |
|
|
|
(1,210 |
) |
|
|
1,922 |
|
|
Changes
in operating assets and liabilities excluding effects of
acquisition
and disposition of businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
13,172 |
|
|
|
(22,668 |
) |
|
|
(7,278 |
) |
|
Accounts
receivable from joint ventures
|
|
|
2,069 |
|
|
|
133 |
|
|
|
(394 |
) |
|
Inventories
|
|
|
20,212 |
|
|
|
(26,628 |
) |
|
|
1,712 |
|
|
Other
current assets
|
|
|
11 |
|
|
|
(596 |
) |
|
|
264 |
|
|
Accounts
payable and other accrued liabilities
|
|
|
(9,536 |
) |
|
|
21,730 |
|
|
|
(2,580 |
) |
|
Net
cash provided by operating activities of continuing
operations
|
|
|
68,390 |
|
|
|
29,201 |
|
|
|
42,704 |
|
|
Net
cash provided by (used in) operating activities of discontinued
operations
|
|
|
(476 |
) |
|
|
4,693 |
|
|
|
5,793 |
|
|
Net
cash provided by operating activities
|
|
|
67,914 |
|
|
|
33,894 |
|
|
|
48,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(30,989 |
) |
|
|
(23,062 |
) |
|
|
(28,613 |
) |
|
Purchases
of short-term investments
|
|
|
(1,135,430 |
) |
|
|
(1,349,668 |
) |
|
|
(721,381 |
) |
|
Maturities
of short-term investments
|
|
|
1,150,315 |
|
|
|
1,305,883 |
|
|
|
726,231 |
|
|
Investment
in unconsolidated joint ventures, net
|
|
|
(1,000 |
) |
|
|
(250 |
) |
|
|
- |
|
|
Net
cash provided by (used in) investing activities of continuing
operations
|
|
|
(17,104 |
) |
|
|
(67,097 |
) |
|
|
(23,763 |
) |
|
Net
cash provided by (used in) investing activities of discontinued
operations
|
|
|
- |
|
|
|
(12 |
) |
|
|
- |
|
|
Net
cash provided by (used in) investing activities
|
|
|
(17,104 |
) |
|
|
(67,109 |
) |
|
|
(23,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of capital stock, net
|
|
|
7,056 |
|
|
|
17,830 |
|
|
|
2,483 |
|
|
Excess
tax benefit related to stock award plans
|
|
|
- |
|
|
|
4,946 |
|
|
|
- |
|
|
Proceeds
from issuance of shares to employee stock purchase plan
|
|
|
901 |
|
|
|
758 |
|
|
|
897 |
|
|
Purchase
of stock from shareholders
|
|
|
(35,540 |
) |
|
|
- |
|
|
|
(15,899 |
) |
|
Net
cash (used in) provided by financing activities
|
|
|
(27,583 |
) |
|
|
23,534 |
|
|
|
(12,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate fluctuations on cash
|
|
|
(537 |
) |
|
|
1,318 |
|
|
|
(931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
22,690 |
|
|
|
(8,363 |
) |
|
|
11,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
13,638 |
|
|
|
22,001 |
|
|
|
10,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$ |
36,328 |
|
|
$ |
13,638 |
|
|
$ |
22,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of shares to fund employee stock purchase plan
|
|
$ |
934 |
|
|
$ |
954 |
|
|
$ |
825 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Rogers
Corporation manufactures specialty materials, which are sold to targeted markets
around the world. These specialty materials are grouped into four
reportable segments: Printed Circuit Materials, which includes rigid
circuit board laminates for high frequency printed circuits and flexible circuit
board laminates for flexible interconnections, which are sold principally to
printed circuit board manufacturers and equipment manufacturers for applications
in the computer, portable communication device, communications infrastructure,
aerospace and defense, and consumer markets; High Performance Foams, which
includes urethane foams and silicone materials that are sold principally to
manufacturers in the portable communication device, communication
infrastructure, computer, ground transportation, aerospace and consumer markets;
Custom Electrical Components, which includes electroluminescent lamps,
inverters, and power distributions system products that are sold principally to
the ground transportation and portable communication device markets; and Other
Polymer Products, which is comprised of industrial laminates, elastomer rollers,
nitrophyl floats, and nonwoven materials, that are sold into a variety of
markets.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and our
wholly-owned subsidiaries, after elimination of intercompany accounts and
transactions.
We operate
on a 52 or 53-week fiscal year. Fiscal 2007, 2006 and 2005 were
52-week fiscal years.
Reclassification
Certain
prior period amounts have been reclassified to conform to the current year
presentation.
For all
periods and amounts presented, reclassifications have been made for discontinued
operations. On July 27, 2007, we completed the closure of the
operations of the polyolefin foams operating segment, which had been aggregated
in our Other Polymer Products reportable segment. See “Note 13
– Discontinued Operations” for further discussion.
Additionally,
for fiscal 2006, we reclassified an amount of $5.6 million from current deferred
tax asset to prepaid income tax.
Cash
Equivalents
Highly
liquid investments with original maturities of three months or less are
considered cash equivalents. These investments are stated at cost, which
approximates market value.
Short-Term
Investments
We account
for short-term investments in accordance with Statement of Financial Accounting
Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS
115). We determine the appropriate classification of debt securities
at the time of purchase and reevaluate such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when we have
the positive intent and ability to hold the securities to
maturity. Marketable equity securities and debt securities not
classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair
value with interest on such securities included in “Interest income” on our
consolidated statements of income. If the market values of individual
securities are determined to be “other than temporarily” impaired, the carrying
amount of such investments are written down to market value through “Other
income, net” in our consolidated statements of income. We have not
recorded any such write down in the years ended December 30, 2007, December 31,
2006 and January 1, 2006, respectively.
Our
short-term investments are comprised of auction-rate securities
(ARSs). The securities we typically invest in are high quality
Aaa-rated government-backed securities with interest rates typically ranging
from 7.5% to 8.5% that have approximate maturities of at least 20
years. However, because of the short-term nature of our investment in
these securities, they have been classified as available-for-sale and included
in short-term investments on our consolidated balance sheet. Our
holdings of auction rate securities at year-end 2007 and 2006 were $53.3 million
and $68.2 million, respectively, recorded at fair value, which approximates
cost.
Subsequent
to December 30, 2007, several of our securities failed at auction; however, none
of the securities that failed were held on December 30, 2007 as all of our
holdings as of that date succeeded in at least the first auction subsequent to
year-end and, therefore, did not impact the valuation of our securities at
year-end 2007. In 2008, the total amount of such failures to date are
approximately $34.8 million. As a result of these failed auctions, we
have the potential to benefit from a penalty feature in our interest rates,
which allows us to earn an additional 1.0% to 12.5% of interest on these
securities until the next auction is set to occur. However, there is
also a risk that there could be a failure in the bond insurance market that
insured these securities, which could lead to a downgrade in rating of these
securities and possibly a writedown in their value. All of our
investments are high quality, Aaa-rated government backed securities and have
the ability to potentially be sold in a secondary market. Based on
the underlying market conditions and liquidity of the capital markets, we will
determine the appropriate valuation treatment and financial statement
classification of these securities in the first quarter of 2008.
Investments
in Unconsolidated Joint Ventures
We account
for our investments in and advances to unconsolidated joint ventures, all of
which are 50% owned, using the equity method.
Foreign
Currency
All
balance sheet accounts of foreign subsidiaries are translated or remeasured 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 for those entities that operate under the local currency are made
directly to a separate component of shareholders' equity, while remeasurement
adjustments for those entities that operate under the parent’s functional
currency are made to the income statement as a component of “Other income,
net”. Currency transaction adjustments are reported as income or
expense and resulted in gains of $0.8 million, $0.1 million and $0.3 million for
the fiscal years ended 2007, 2006 and 2005, respectively.
Allowance
for Doubtful Accounts
Our
allowance for doubtful accounts is determined based on a variety of factors that
affect the potential collectibility of the related receivables, including the
length of time receivables are past due, customer credit ratings, financial
stability of customers, specific one-time events and past customer
history. In addition, in circumstances where we are made aware of a
specific customer’s inability to meet its financial obligations, a specific
allowance is established. The majority of accounts are individually
evaluated on a regular basis and appropriate reserves are established as deemed
appropriate based on the criteria previously mentioned. The remainder of the
reserve is based on management’s estimates and takes into consideration
historical trends, market conditions and the composition of our customer
base.
Inventories
Inventories
are valued at the lower of cost or market. Certain inventories, amounting to
$7.1 million and $9.6 million at December 30, 2007 and December 31, 2006,
respectively, are valued by the last-in, first-out (“LIFO”)
method. These inventories accounted for 14% of total inventory for
both years. The cost of the remaining portion of the inventories was
determined principally on the basis of actual first-in, first-out (“FIFO”)
costs.
Inventories
consist of the following:
|
(Dollars
in thousands)
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
11,102 |
|
|
$ |
16,170 |
|
|
Work-in-process
|
|
|
6,172 |
|
|
|
8,201 |
|
|
Finished
goods
|
|
|
33,969 |
|
|
|
45,764 |
|
|
|
|
$ |
51,243 |
|
|
$ |
70,135 |
|
Property,
Plant and Equipment
Property,
plant and equipment is stated on the basis of cost. For financial
reporting purposes, provisions for depreciation are calculated on a
straight-line basis over the following estimated useful lives of the
assets:
|
|
Years
|
|
Buildings
and improvements
|
10-25
|
|
Machinery
and equipment
|
5-15
|
|
Office
equipment
|
3-10
|
Goodwill
and Intangible Assets
SFAS No.
142, Goodwill and Other
Intangible Assets (SFAS 142), classifies intangible assets into three
categories: (1) intangible assets with definite lives subject to
amortization; (2) intangible assets with indefinite lives not subject to
amortization; and (3) goodwill. We review goodwill and intangible
assets with indefinite lives for impairment annually and/or if events or changes
in circumstances indicate the carrying value of an asset may have been
impaired. We review intangible assets with definite lives for
impairment whenever conditions exist that indicate the carrying value may not be
recoverable, such as economic downturn in a market or a change in the assessment
of future operations.
Goodwill
and intangible assets are considered to be impaired when the net book value of a
reporting unit exceeds its estimated fair value. Fair values are
typically established using a discounted cash flow methodology. The
determination of discounted cash flows is based on the business’ strategic plans
and long-range operating forecasts. The revenue growth rates included
in the plans are management’s best estimates based on current and forecasted
market conditions, and the profit margin assumptions are projected by each
segment based on the current cost structure and anticipated cost
changes.
Purchased
patents, covenants-not-to-compete and licensed technology are capitalized and
amortized on a straight-line basis over their estimated useful lives, generally
from 3 to 17 years.
Environmental
and Product Liabilities
We accrue
for our environmental investigation, remediation, operating and maintenance
costs when it is probable that a liability has been incurred and the amount can
be reasonably estimated. For environmental matters, the most likely
cost to be incurred is accrued based on an evaluation of currently available
facts with respect to each individual site, including existing technology,
current laws and regulations and prior remediation experience. For
sites with multiple potential responsible parties (PRP’s), we consider our
likely proportionate share of the anticipated remediation costs and the ability
of the other parties to fulfill their obligations in establishing a provision
for those costs. Where no amount within a range of estimates is more
likely to occur than another, the minimum is accrued. When future
liabilities are determined to be reimbursable by insurance coverage, an accrual
is recorded for the potential liability and a receivable is recorded for the
estimated insurance reimbursement amount. We are exposed to the
uncertain nature inherent in such remediation and the possibility that initial
estimates will not reflect the final outcome of a matter.
In late
2004, we determined that it was reasonably prudent, based on facts and
circumstances known to us at that time, to perform a formal analysis to
determine our potential future liability and related insurance coverage for
asbestos-related matters. The determination to perform this study was
made based on several factors, including the growing number of asbestos-related
claims and recent settlement history. Projecting future asbestos
costs is subject to numerous variables that are extremely difficult to predict,
including the number of claims that might be received, the type and severity of
the disease alleged by each claimant, the long latency period associated with
asbestos exposure, dismissal rates, costs of medical treatment, the financial
resources of other companies that are co-defendants in claims, uncertainties
surrounding the litigation process from jurisdiction to jurisdiction and from
case to case, and the impact of potential changes in legislative or judicial
standards, including potential tort reform. Furthermore, any
predictions with respect to these variables are subject to even greater
uncertainty as the projection period lengthens. In light of these
inherent uncertainties, our limited claims history and consultations with
National Economic Research Associates, Inc. (NERA), we believe that five years
is the most reasonable period for recognizing a reserve for future costs, and
that costs that might be incurred after that period are not reasonably estimable
at this time. As a result, we also believe that our ultimate net
asbestos-related contingent liability (i.e., its indemnity or other claim
disposition costs plus related legal fees) cannot be estimated with
certainty.
The models
developed for determining the potential exposure and related insurance coverage
were developed by outside consultants deemed to be experts in their respective
fields. The models required us to make numerous assumptions that
significantly impacted the results generated by the models. We
believe the assumptions made are reasonable at the present time, but are subject
to uncertainty based on the actual future outcome of our asbestos
litigation. The original liability model determined our future
liability annually for a 50-year period and was updated at the end of
2005. We believe, based on the limited amount of settlement and
claims history currently known to us, that a reasonable future time frame to
quantify our liability is five years.
Given the
inherent uncertainty in making future projections, we plan to have the
projections of current and future asbestos claims periodically re-examined, and
we will update them if needed based on our experience, changes in the underlying
assumptions that formed the basis for NERA’s and Marsh Risk Consulting’s (Marsh)
models, and other relevant factors, such as changes in the tort
system. There can be no assurance that our accrued asbestos
liabilities will approximate our actual asbestos-related settlement and defense
costs, or that our accrued insurance recoveries will be realized. We believe
that it is reasonably possible that we will incur additional charges for our
asbestos liabilities and defense costs in the future, which could exceed
existing reserves, but cannot estimate such excess amounts at this
time.
Fair
Value of Financial Instruments
Management
believes that the carrying values of financial instruments, including cash and
cash equivalents, short-term investments, accounts receivable, accounts payable,
and accrued liabilities approximate fair value as a result of the short-term
maturities of these instruments.
Concentration
of Credit and Investment Risk
We extend
credit on an uncollateralized basis to almost all
customers. Concentration of credit and geographic risk with respect
to accounts receivable is limited due to the large number and general dispersion
of accounts that constitute our customer base. We periodically
perform credit evaluations on our customers. At December 30, 2007
there was not one customer who accounted for more than ten percent of the total
accounts receivable and at December 31, 2006 there was one customer that
accounted for approximately 12% of our accounts receivable. No other
individual customer comprised more than ten percent of the total accounts
receivable balance December 31, 2006. We did not experience
significant credit losses on customers’ accounts in 2007, 2006, or
2005.
We invest
our excess cash principally in investment grade government and corporate debt
securities. We have established guidelines relative to
diversification and maturities that maintain safety and
liquidity. These guidelines are periodically reviewed and modified to
reflect changes in market conditions. We did not experience any
significant losses on our cash equivalents or short-term investments in 2007,
2006, or 2005.
Income
Taxes
We account
for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes,
which establishes financial accounting and reporting standards for the effect of
income taxes. The objective of accounting for income taxes is to
recognize the amount of taxes payable or refundable for the current year and the
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the entity’s financial statements. We
are subject to income taxes in the United States and in numerous foreign
jurisdictions. No provision is made for U.S. income taxes on the
undistributed earnings of our wholly-owned foreign subsidiaries because
substantially all such earnings are indefinitely reinvested in those
companies. Provision for the tax consequences of distributions, if
any, from consolidated foreign subsidiaries is recorded in the year the
distribution is declared.
We have
provided for potential liabilities due in various jurisdictions. In
the ordinary course of global business, there are many transactions and
calculations where the ultimate tax outcome is uncertain. Some of
these uncertainties arise as a consequence of cost reimbursement arrangements
among related entities. Although we believe our estimates are
reasonable, no assurance can be given that the final tax outcome of these
matters will not be different than that which is reflected in the historical
income tax provisions and accruals. Such differences could have a
material impact on our income tax provision and operating results in the period
in which such determination is made.
Revenue
Recognition
Revenue is
recognized upon delivery of products and transfer of title to customers, when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, and collection is reasonably assured.
Shipping
and Handling Charges
Costs that
we incur for shipping and handling charges are charged to “Cost of sales” and
payments received from our customers for shipping and handling charges are
included in “Net sales” on our consolidated statements of income.
Pension
and Retiree Healthcare and Life Insurance Benefits
We provide
various defined benefit pension plans for our U.S. employees and sponsor three
defined benefit healthcare and life insurance plans for our U.S.
retirees. The costs and obligations associated with these plans are
dependent upon various actuarial assumptions used in calculating such
amounts. These assumptions include discount rates, salary growth,
long-term rate of return on plan assets, mortality rates, and other
factors. The assumptions used by us are determined as follows: (i)
the discount rate used is based on comparisons to the Citigroup index and, to a
lesser extent, the Moody’s AA bond index; (ii) the salary growth is based on our
historical and projected level of salary increases; (iii) the long-term rate of
return on plan assets is determined based on historical portfolio results,
market results and our expectations of future returns, as well as current market
assumptions related to long-term return rates; and (iv) the mortality rate is
based on a mortality projection that estimates current longevity rates and their
impact on the long-term plan obligations. We review these assumptions
periodically throughout the year.
Earnings
Per Share
The
following table sets forth the computation of basic and diluted earnings per
share:
|
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
21,868 |
|
|
$ |
50,835 |
|
|
$ |
33,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share –
weighted
averages shares
|
|
|
16,555,656 |
|
|
|
16,747,444 |
|
|
|
16,306,314 |
|
|
Effect
of stock options
|
|
|
193,681 |
|
|
|
540,393 |
|
|
|
418,083 |
|
|
Denominator
for diluted earnings per share –
adjusted
weighted-average shares and assumed
conversions
|
|
|
16,749,337 |
|
|
|
17,287,837 |
|
|
|
16,724,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
1.32 |
|
|
$ |
3.04 |
|
|
$ |
2.07 |
|
|
Diluted
net income per share
|
|
$ |
1.31 |
|
|
$ |
2.94 |
|
|
$ |
2.02 |
|
Use
of Estimates
The
preparation of financial statements, in conformity with U.S. generally accepted
accounting principles 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.
Hedging
Activity
We, on
occasion, use derivative instruments to manage certain foreign currency
exposures. Derivative instruments are viewed as risk management tools
and are not used for trading or speculative purposes. Derivatives
used for hedging purposes must be designated and effective as a hedge of the
identified risk exposure at the inception of the contract. Accordingly, changes
in fair value of the derivative contract must be highly correlated with changes
in the fair value of the underlying hedged item at inception of the hedge and
over the life of the hedge contract.
Derivatives
used to hedge forecasted cash flows associated with foreign currency commitments
or forecasted commodity purchases are accounted for as cash flow
hedges. Gains and losses on derivatives designated as cash flow
hedges are recorded in other comprehensive income and reclassified to earnings
in a manner that matches the timing of the earnings impact of the hedged
transactions. The ineffective portion of all hedges, if any, is
recognized currently in earnings.
On
December 30, 2007, we had no forward contracts in effect. On December
31, 2006, we had outstanding forward contracts used to hedge foreign currency
transactional exposures. The fair value of such investments was not
material at December 31, 2006. The effects of these contracts are
recorded directly to our statement of income as these items have not been
designated as hedges. As of December 30, 2007 and December 31, 2006,
we did not have any instruments outstanding that would require hedge accounting
treatment.
Advertising
Costs
Advertising
is expensed as incurred and amounted to $1.8 million for 2007 and $1.5 million
for both 2006 and 2005.
Variable-Interest
Entities
In
December 2003, the Financial Accounting Standards Board (FASB) issued FIN No. 46
(revised December 2003), Consolidation of Variable Interest
Entities (FIN 46R) to address certain FIN 46 implementation
issues. We adopted the provisions of FIN 46R in the first quarter of
2004. As a result of our review, we determined that we had one
variable interest entity (VIE); however, we determined that we were not the
primary beneficiary and, as such, did not consolidate the entity in accordance
with FIN 46R. The VIE identified is Polyimide Laminate Systems, LLC
(PLS), a 50% owned joint venture with Mitsui Chemicals, Inc. The
joint venture sells adhesiveless laminates for trace suspension assemblies and
was established in October 1999. Sales of PLS were approximately
$19.7 million, $20.4 million and $20.0 million in 2007, 2006 and 2005
respectively. Our maximum exposure to loss as a result of our
involvement with PLS is limited to our equity investment, which was
approximately $40,000 at December 30, 2007, and to its outstanding receivables
if those amounts were to become uncollectible for various financial reasons,
such as insolvency, which amounted to $3.0 million and $2.5 million at December
30, 2007 and December 31, 2006 respectively. In accordance with FIN
46R, we review our FIN 46R compliance whenever a reconsideration event occurs or
a new situation exists that was not previously considered under FIN
46R.
Stock-Based
Compensation
On
December 16, 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS
123R), which is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123R supersedes APB No. 25,
Accounting for Stock Issued to
Employees, and amends SFAS No. 95, Statement of Cash
Flows. SFAS 123R requires all share-based payments, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure is no longer an
alternative.
On January
2, 2006 (the first day of the 2006 fiscal year), we adopted SFAS 123R using the
modified prospective application as permitted under SFAS 123R. Under
this transition method, compensation cost recognized in 2006 includes the
following: (i) compensation cost for all share-based payments granted prior to
but not yet vested as of January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123; and (ii) compensation
cost for all share-based payments granted subsequent to January 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of SFAS
123R. In accordance with the modified prospective method of adoption,
our results of operations and financial position for prior periods have not been
restated.
Recent
Accounting Standards
Accounting
for Uncertainty in Income Taxes
In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB No. 109 (FIN 48). FIN 48
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The amount recognized is measured as the largest amount
of benefit that is greater than 50 percent likely of being realized upon
settlement. FIN 48 is effective for accounting periods commencing
after December 15, 2006.
We adopted
the provisions of FIN 48 on January 1, 2007. Upon adoption, we
recognized an increase of $2.7 million in the liability for unrecognized tax
benefits, which was recorded through a decrease in retained
earnings. At December 30, 2007, we had gross tax-affected
unrecognized tax benefits of $8.4 million, all of which if recognized, would
have a favorable impact on our effective tax rate. In addition, at
December 30, 2007 we have approximately $0.6 million of accrued interest related
to uncertain tax positions. Our accounting policy is to account for
interest expense and penalties relating to income tax issues as income tax
expense.
Accounting
for Fair Value Measurements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (SFAS 157). SFAS 157 replaces multiple existing definitions
of fair value with a single definition, establishes a consistent framework for
measuring fair value and expands financial statement disclosures regarding fair
value measurements. This Statement applies only to fair value measurements that
already are required or permitted by other accounting standards and does not
require any new fair value measurements. SFAS 157 is effective in the first
quarter of 2008, and we do not expect the adoption will have a material impact
on our financial position or results of operations.
Accounting
for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115 (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 is effective in
the first quarter of 2008, and we do not expect the adoption will have a
material impact on our financial position or results of
operations.
NOTE
2 - PROPERTY, PLANT AND EQUIPMENT
|
(Dollars
in thousands)
|
|
December
30, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
15,616 |
|
|
$ |
11,860 |
|
|
Buildings
and improvements
|
|
|
115,342 |
|
|
|
101,789 |
|
|
Machinery
and equipment
|
|
|
137,665 |
|
|
|
124,855 |
|
|
Office
equipment
|
|
|
21,747 |
|
|
|
26,515 |
|
|
Equipment
in process
|
|
|
17,229 |
|
|
|
16,205 |
|
|
|
|
|
307,599 |
|
|
|
281,224 |
|
|
Accumulated
depreciation
|
|
|
(160,396 |
) |
|
|
(139,818 |
) |
|
Total
property, plant and equipment, net
|
|
$ |
147,203 |
|
|
$ |
141,406 |
|
Depreciation
expense was $25.3 million in 2007, $18.9 million in 2006, and $16.5 million in
2005.
NOTE
3 - GOODWILL AND OTHER INTANGIBLE ASSETS
Identifiable
intangible assets are comprised of the following:
|
(Dollars
in thousands)
|
|
December
30, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and patents
|
|
$ |
1,022 |
|
|
$ |
1,022 |
|
|
Technology
|
|
|
786 |
|
|
|
786 |
|
|
Covenant-not-to-compete
|
|
|
625 |
|
|
|
625 |
|
|
|
|
|
2,433 |
|
|
|
2,433 |
|
|
Accumulated
amortization
|
|
|
(2,433 |
) |
|
|
(1,979 |
) |
|
Total
goodwill and other intangible assets
|
|
$ |
- |
|
|
$ |
454 |
|
Amortization
expense for 2007, 2006, and 2005, amounted to approximately $0.4 million, $0.3
million, and $0.3 million, respectively. In 2005, we recorded a
purchase accounting adjustment related to our acquisition of the 50% of Durel
Corporation which we did not already own, to reduce certain intangible assets as
a result of the resolution of certain income tax
contingencies.
In 2006,
we recorded a non-cash pre-tax charge related to the impairment of goodwill in
the polyester-based industrial laminates operating segment in the amount $5.0
million. This amount is included in the restructuring and impairment
charges on our statements of income.
In the
second quarter of 2007, we recorded an additional non-cash pre-tax charge
related to the impairment of the goodwill associated with the composite
materials operating segment of $0.5 million. This charge is included in
“Restructuring and impairment charges” on our consolidated statements of
income.
The
changes in the carrying amount of goodwill for the period ending December 30,
2007, by segment, are as follows:
|
(Dollars
in thousands)
|
|
Printed
Circuit
Materials
|
|
|
High
Performance
Foams
|
|
|
Custom
Electrical
Components
|
|
|
Other
Polymer
Products
|
|
|
Total
|
|
|
Balance
as of January 1, 2006
|
|
$ |
- |
|
|
$ |
7,410 |
|
|
$ |
- |
|
|
$ |
8,259 |
|
|
$ |
15,669 |
|
|
Polyester-based
industrial
laminates
impairment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,013 |
) |
|
|
(5,013 |
) |
|
Balance
as of December 31, 2006
|
|
$ |
- |
|
|
$ |
7,410 |
|
|
$ |
- |
|
|
$ |
3,246 |
|
|
$ |
10,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite
materials impairment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(525 |
) |
|
|
(525 |
) |
|
Balance
as of December 30, 2007
|
|
$ |
- |
|
|
$ |
7,410 |
|
|
$ |
- |
|
|
$ |
2,721 |
|
|
$ |
10,131 |
|
NOTE
4 - SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED JOINT
VENTURES
As of
December 30, 2007, we had four joint ventures, each 50% owned, that are
accounted for under the equity method of accounting.
|
Joint
Venture
|
Location
|
Reportable
Segment
|
Fiscal
Year-End
|
|
|
|
|
|
|
Rogers
Inoac Corporation
|
Japan
|
High
Performance Foams
|
October
31
|
|
Rogers
Inoac Suzhou Corporation
|
China
|
High
Performance Foams
|
December
31
|
|
Rogers
Chang Chun Technology Co., Ltd.
|
Taiwan
|
Printed
Circuit Materials
|
December
31
|
|
Polyimide
Laminate Systems, LLC
|
U.S.
|
Printed
Circuit Materials
|
December
31
|
Equity
income related to our share of the underlying net income of the joint ventures
amounted to $8.1 million, $8.6 million and $5.3 million for 2007, 2006 and 2005,
respectively. We had commission income from PLS of $2.2 million, $2.0
million and $2.3 million for 2007, 2006 and 2005, respectively, which is
included in “Other income, net” on our consolidated statements of
income.
The
summarized financial information for these joint ventures is included in the
following tables. Note that there is a difference between our
investment in unconsolidated joint ventures and a one-half interest in the
underlying shareholders’ equity of the joint ventures due primarily to two
factors. First, our major initial contribution to one of the joint
ventures was technology that was valued differently by the joint venture than it
was on our books. Second, the translation of foreign currency at
current rates differs from that at historical rates.
Summarized
Information for Joint Ventures:
|
(Dollars
in thousands)
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
47,282 |
|
|
$ |
57,600 |
|
|
|
|
|
Noncurrent
assets
|
|
|
30,909 |
|
|
|
16,804 |
|
|
|
|
|
Current
liabilities
|
|
|
16,976 |
|
|
|
20,773 |
|
|
|
|
|
Noncurrent
liabilities
|
|
|
- |
|
|
|
2,050 |
|
|
|
|
|
Shareholders’
equity
|
|
|
61,214 |
|
|
|
51,581 |
|
|
|
|
| |
|
|
|
|
For
the years ended:
|
|
|
(Dollars
in thousands)
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
January
1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
115,016 |
|
|
$ |
109,765 |
|
|
$ |
98,678 |
|
|
Gross
profit
|
|
|
28,470 |
|
|
|
29,271 |
|
|
|
27,549 |
|
|
Net
income
|
|
|
16,174 |
|
|
|
17,126 |
|
|
|
10,502 |
|
The effect
of sales made between the unconsolidated joint ventures and us were
appropriately accounted for on a consolidated basis. Receivables from
joint ventures arise during the normal course of business from transactions
between us and the joint ventures, typically from the joint venture purchasing
raw materials from us to produce end products, which are sold to third
parties.
NOTE
5 - PENSION BENEFITS AND RETIREMENT HEALTH AND LIFE INSURANCE
BENEFITS
We have
two qualified noncontributory defined benefit pension plans covering
substantially all U.S. employees. We also have established a nonqualified
unfunded noncontributory defined benefit pension plan to restore certain
retirement benefits that might otherwise be lost due to limitations imposed by
federal law on qualified pension plans, as well as to provide supplemental
retirement benefits for certain senior executives of the Company.
In
addition, we sponsor three unfunded defined benefit health care and medical and
life insurance plans for retirees. The measurement date for all plans
for 2007 and 2006 is December 30, 2007 and December 31, 2006,
respectively.
On
December 31, 2006, we adopted SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and other Postretirement Plans – An amendment of FASB Statement Nos.
87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires an
employer to: (a) recognize in its statement of financial position an asset for a
plan’s overfunded status or a liability for a plan’s underfunded status; (b)
measure a plan’s assets and its obligations that determine its funded status as
of the end of the employer’s fiscal year; and (c) recognize changes in the
funded status of a defined benefit postretirement plan in the year in which the
changes occur and report these changes in comprehensive income. The
measurement date provisions did not impact us as all of the plans had a
measurement date of December 31, 2006 in the previous fiscal year.
The impact
of implementing SFAS 158 in 2006 reduced total assets by $2.6 million, increased
total liabilities by $6.9 million and reduced shareholders’ equity (decrease in
accumulated other comprehensive income) by $5.9 million, net of deferred taxes
of $3.6 million. The adoption did not affect the consolidated balance
sheet at January 1, 2006 or the consolidated statements of income for each of
the three fiscal years in the period ended December 31, 2006.
The
adjustment to accumulated other comprehensive income upon the adoption of SFAS
158 in 2006 represented the net unrecognized actuarial losses, unrecognized
prior service costs (credits) and unrecognized transition obligation remaining
from the initial adoption of SFAS No. 87, Employer’s Accounting for
Pensions (SFAS 87). These amounts were previously netted
against the plan’s funded status in the consolidated balance
sheet. We will recognize these amounts in future periods as net
periodic pension cost pursuant to the accounting policy for amortizing such
amounts.
In
addition, with the adoption of this Statement, actuarial gains and losses that
are not immediately recognized as net periodic pension cost will be recognized
as a component of other comprehensive income and amortized into net periodic
pension cost in future periods.
Defined
Benefit Pension Plan and Retiree Medical Plan Amendments
On July
16, 2007, we announced to our employees and retirees that the defined benefit
pension and retiree medical plans would be amended effective January 1,
2008. As of January 1, 2008, newly hired and rehired employees are no
longer eligible for the defined benefit pension plan. However, the
amendment to the defined benefit pension plan did not impact the benefits to
plan participants as of December 31, 2007. The amendment to the
retiree medical plan did not impact the benefits for employees who are age 50 or
older as of December 31, 2007, as long as they meet certain eligibility
requirements. However, employees who are less than age 50 as of
December 31, 2007 are no longer eligible for retiree medical
benefits. This plan amendment has resulted in a reduction to the
accumulated benefit obligation, which will be accounted for as a reduction to
prior service cost based on a plan amendment and amortized over the expected
remaining service period of the ongoing active plan participants until they
become fully eligible, beginning in the third quarter of 2007. In
2007, we recognized approximately $0.2 million as a reduction to prior service
cost as a result of the amendment.
Obligations
and Funded Status
|
(Dollars
in thousands)
|
|
Pension
Benefits
|
|
|
Retirement
Health and Life
Insurance
Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$ |
127,555 |
|
|
$ |
127,027 |
|
|
$ |
10,958 |
|
|
$ |
10,860 |
|
|
Service
cost
|
|
|
5,152 |
|
|
|
4,534 |
|
|
|
666 |
|
|
|
778 |
|
|
Interest
cost
|
|
|
7,289 |
|
|
|
6,820 |
|
|
|
449 |
|
|
|
565 |
|
|
Actuarial
(gain) loss
|
|
|
(3,698 |
) |
|
|
(4,930 |
) |
|
|
(23 |
) |
|
|
(396 |
) |
|
Benefit
payments
|
|
|
(6,173 |
) |
|
|
(6,198 |
) |
|
|
(971 |
) |
|
|
(849 |
) |
|
Plan
amendments
|
|
|
176 |
|
|
|
302 |
|
|
|
(4,009 |
) |
|
|
- |
|
|
Benefit
obligation at end of year
|
|
$ |
130,301 |
|
|
$ |
127,555 |
|
|
$ |
7,070 |
|
|
$ |
10,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
116,831 |
|
|
$ |
100,197 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Actual
return on plan assets
|
|
|
10,300 |
|
|
|
12,386 |
|
|
|
- |
|
|
|
- |
|
|
Employer
contributions
|
|
|
3,246 |
|
|
|
10,446 |
|
|
|
971 |
|
|
|
849 |
|
|
Benefit
payments
|
|
|
(6,173 |
) |
|
|
(6,198 |
) |
|
|
(971 |
) |
|
|
(849 |
) |
|
Fair
value of plan assets at end of year
|
|
$ |
124,204 |
|
|
$ |
116,831 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$ |
(6,097 |
) |
|
$ |
(10,724 |
) |
|
$ |
(7,070 |
) |
|
$ |
(10,958 |
) |
Amounts
recognized in the consolidated balance sheets consist of:
|
(Dollars
in thousands)
|
|
Pension
Benefits
|
|
|
Retirement
Health and Life
Insurance
Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
$ |
2,173 |
|
|
$ |
974 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Current
liabilities
|
|
|
(261 |
) |
|
|
- |
|
|
|
(782 |
) |
|
|
(937 |
) |
|
Non-current
liabilities
|
|
|
(8,009 |
) |
|
|
(11,698 |
) |
|
|
(6,288 |
) |
|
|
(10,021 |
) |
|
Net
amount recognized at end of year
|
|
$ |
(6,097 |
) |
|
$ |
(10,724 |
) |
|
$ |
(7,070 |
) |
|
$ |
(10,958 |
) |
Amounts
recognized in accumulated other comprehensive income consist
of:
|
(Dollars
in thousands)
|
|
Pension
Benefits
|
|
|
Retirement
Health and Life
Insurance
Benefits
|
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Net
Actuarial Loss
|
|
$ |
5,765 |
|
|
$ |
2,207 |
|
|
Prior
Service Cost
|
|
|
3,153 |
|
|
|
(3,545 |
) |
|
Net
amount recognized at end of year
|
|
$ |
8,918 |
|
|
$ |
(1,338 |
) |
The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets for the pension plans with an accumulated benefit obligation in
excess of plan assets were $4.1 million, $3.4 million and $0.0 million,
respectively, as of December 30, 2007 and $4.1 million, $3.0 million and $0.0
million, respectively, as of December 31, 2006.
Components
of Net Periodic Benefit Cost
|
|
|
Pension
Benefits
|
|
|
Postretirement
Health and Life Insurance
Benefits
|
|
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
5,152 |
|
|
$ |
4,534 |
|
|
$ |
4,168 |
|
|
$ |
666 |
|
|
$ |
778 |
|
|
$ |
674 |
|
|
Interest
cost
|
|
|
7,289 |
|
|
|
6,820 |
|
|
|
6,501 |
|
|
|
449 |
|
|
|
565 |
|
|
|
563 |
|
|
Expected
return of plan assets
|
|
|
(9,924 |
) |
|
|
(8,706 |
) |
|
|
(8,045 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Amortization
of prior service cost
|
|
|
518 |
|
|
|
461 |
|
|
|
461 |
|
|
|
(465 |
) |
|
|
- |
|
|
|
- |
|
|
Amortization
of net loss
|
|
|
240 |
|
|
|
565 |
|
|
|
659 |
|
|
|
126 |
|
|
|
162 |
|
|
|
163 |
|
|
Curtailment loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Settlement
gain
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net
periodic benefit cost
|
|
$ |
3,275 |
|
|
$ |
3,674 |
|
|
$ |
3,744 |
|
|
$ |
776 |
|
|
$ |
1,505 |
|
|
$ |
1,400 |
|
The
estimated net loss and prior service cost for the defined benefit pension plans
that will be amortized from other comprehensive income into net periodic benefit
cost over the next fiscal year are $0.1 million and $0.5 million,
respectively. The estimated net loss (gain) and prior service cost
for the defined benefit postretirement plans that will be amortized from other
comprehensive income into net periodic benefit cost over the next fiscal year
are $0.2 million and ($0.7 million).
Weighted-average
assumptions used to determine benefit obligations at
year-end:
|
|
|
Pension
Benefits
|
|
|
Retirement
Health and
Life
Insurance
Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.25 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
5.75 |
% |
|
Rate
of compensation increase
|
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
- |
|
|
|
- |
|
Weighted-average
assumptions used to determine net benefit cost for years
ended:
| |
|
Pension
Benefits
|
|
|
Retirement
Health and
Life
Insurance Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.75 |
% |
|
|
5.50 |
% |
|
|
5.75 |
% |
|
|
5.50 |
% |
|
Expected
long-term rate of return on plan assets
|
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
- |
|
|
|
- |
|
|
Rate
of compensation increase
|
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
measurement purposes as of December 30, 2007, we assumed annual healthcare cost
trend rates of 10% and 11.5% for covered healthcare benefits in 2007 for
retirees pre-age 65 and post-age 65, respectively. The rates were
assumed to decrease gradually to 5% and 5.5%, respectively, in 2013 and remain
at those levels thereafter. As of December 31, 2006, we assumed an
annual healthcare cost trend rate of 9% for covered healthcare benefits in
2007. The rate was assumed to decrease gradually to 5% in 2010 and
remain at that level thereafter. Assumed health care cost trend rates
have a significant effect on the amounts reported for the health care
plans. A one-percentage point change in assumed health care cost
trend rates would have the following effects:
|
|
|
One
Percentage Point
|
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
|
|
|
|
|
|
|
Effect
on total of service and interest cost
|
|
$ |
82,929 |
|
|
$ |
(74,916 |
) |
|
Effect
on other postretirement benefit obligations
|
|
|
408,238 |
|
|
|
(378,230 |
) |
Plan
Assets
Our
pension plan weighted-average asset allocations at December 30, 2007 and
December 31, 2006, by asset category, are as follows:
|
|
|
|
|
Plan
Assets at Year-End
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
75%
|
|
68%
|
|
68%
|
|
Debt
securities
|
|
25%
|
|
28%
|
|
32%
|
|
Other
|
|
-
|
|
4%
|
|
-
|
|
Total
|
|
100%
|
|
100%
|
|
100%
|
Investment
Strategy
Our
defined benefit pension assets are invested with the objective of achieving a
total rate of return over the long-term that is sufficient to fund future
pension obligations. Overall investment risk is mitigated by
maintaining a diversified portfolio of assets as reflected in the above
tables.
Asset
allocation target ranges were established to meet our investment
objectives. The expected long-term rate of return on plan assets is
based on several factors, including the plans’ asset allocation targets, the
historical and projected performance on those asset classes, and on the plans’
current asset composition.
Cash
Flows
Contributions
At the
current time, we have met the minimum funding requirements for our qualified
defined benefit pension plans and are therefore not required to make a
contribution to the plans in 2008 for any past years. In 2007 and
2006, we made annual contributions to the pension plans of approximately $3.2
million and $10.4 million,
respectively. We will most likely make a contribution to the pension
plans in 2008, but we cannot estimate the amount at this time. As
there is no funding requirement for the nonqualified defined benefit plans and
the Retiree Health and Life Insurance benefit plans, we will contribute the
amount of benefit payments made during the year consistent with past
practices.
Estimated
Future Payments
The
following pension benefit payments, which reflect expected future employee
service, as appropriate, are expected to be paid through the utilization of plan
assets for the funded plans and from operating cash flows for the unfunded
plans. The Retiree Health and Life Insurance benefits, for which no
funding has been made, are expected to be paid from operating cash
flows. The benefit payments are based on the same assumptions used to
measure our benefit obligation at the end of fiscal 2007.
(Dollars
in thousands)
| |
|
Pension
Benefits
|
|
|
Retiree
Health and
Life
Insurance
Benefits
|
|
| |
|
|
|
|
|
|
|
2008
|
|
$ |
5,740 |
|
|
$ |
782 |
|
|
2009
|
|
|
5,913 |
|
|
|
778 |
|
|
2010
|
|
|
6,165 |
|
|
|
795 |
|
|
2011
|
|
|
6,547 |
|
|
|
812 |
|
|
2012
|
|
|
7,350 |
|
|
|
800 |
|
| 2013-2017 |
|
|
43,124 |
|
|
|
4,332 |
|
NOTE
6 - EMPLOYEE SAVINGS AND INVESTMENT PLAN
We sponsor
the Rogers Employee Savings and Investment Plan (RESIP), a 401(k) plan for
domestic employees. Employees can defer an amount they choose, up to
the yearly IRS limit, which is $15,500 in 2006 and 2007. Certain eligible
participants are also allowed to contribute the maximum catch-up contribution
per IRS regulations. Currently we match up to 5% of an eligible
employee’s annual pre-tax contribution at a rate of 50%. In 2007,
2006 and 2005, 100% of our matching contribution was invested in Company stock.
RESIP related expense amounted to $1.3 million in 2007 and $1.1 million in 2006
and 2005, which related solely to our matching contributions.
NOTE
7 - DEBT
Long-Term
Debt
We,
together with certain of our wholly-owned subsidiaries, Rogers Technologies
(Barbados) SRL, Rogers (China) Investment Co., Ltd., Rogers N.V., and Rogers
Technologies (Suzhou) Co. Ltd. have a Multicurrency Revolving Credit Agreement
with Citizens Bank of Connecticut (Credit Agreement). The Credit
Agreement provides for an unsecured five-year revolving multi-currency credit
facility of $75 million (Credit Facility A) and an unsecured 364-day revolving
multi-currency credit facility of $25 million (Credit Facility
B). The Credit Agreement includes a letter of credit sub-facility of
up to $75 million. Under the terms of the Credit Agreement, we have
the right to incur additional indebtedness through additional borrowings in an
aggregate amount of up to $25 million.
Credit
Facility A expires on November 13, 2011. Credit Facility B was
renewed on November 11, 2007, and is expected to be renewed
annually. The rate of interest charged on any outstanding loans can,
at our option and subject to certain restrictions, be based on the prime rate or
at rates from 40 to 87.5 basis points over a LIBOR loan
rate. The spreads over the LIBOR rate are based on our leverage
ratio. Under the arrangement, the ongoing commitment fee varies from
zero to 25 basis points of the maximum amount that can be borrowed, net of any
outstanding borrowings and the maximum amount that beneficiaries may draw under
outstanding letters of credit.
In
conjunction with the execution of the Credit Agreement, on November 13, 2006, we
terminated an unsecured revolving multi-currency credit facility of $50 million
(Prior Agreement). Borrowings under the Prior Agreement were subject
to interest based upon the prime rate or a Eurocurrency loan rate and required
us to pay a commitment fee of 30.0 to 37.5 basis points on the maximum
borrowings available net of any outstanding borrowings.
There were
no borrowings pursuant to the Credit Agreement at December 30, 2007 and December
31, 2006, respectively. The Credit Agreement contains restrictive
covenants primarily related to total indebtedness, interest expense, and capital
expenditures. We were in compliance with those covenants at December
30, 2007 and December 31, 2006.
Additionally,
we were obligated under an irrevocable standby letter of credit, which
guarantees our self-insured workers compensation plan in the amount of $1.3
million at December 30, 2007. There were no amounts outstanding on
this letter of credit as of December 30, 2007.
Interest
For 2007,
we have not incurred any interest costs or bank fees on bank commitments and
debt. In 2006, this amount was $0.1 million.
Restriction
on Payment of Dividends
Pursuant
to the multi-currency revolving credit loan agreement, we cannot make a cash
dividend payment if a default or event of default has occurred and is continuing
or shall result from the cash dividend payment.
NOTE
8 - INCOME TAXES
Consolidated
income (loss) from continuing operations before income taxes consists
of:
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Domestic
|
|
$ |
(3,213 |
) |
|
$ |
31,816 |
|
|
$ |
35,615 |
|
|
International
|
|
|
28,398 |
|
|
|
33,578 |
|
|
|
4,126 |
|
|
Total
|
|
$ |
25,185 |
|
|
$ |
65,394 |
|
|
$ |
39,741 |
|
The income
tax expense (benefit) in the consolidated statements of income consists
of:
|
(Dollars
in thousands)
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
421 |
|
|
$ |
(4,851 |
) |
|
$ |
(4,430 |
) |
|
International
|
|
|
9,203 |
|
|
|
(1,285 |
) |
|
|
7,918 |
|
|
State
|
|
|
252 |
|
|
|
(423 |
) |
|
|
(171 |
) |
|
Total
|
|
$ |
9,876 |
|
|
$ |
(6,559 |
) |
|
$ |
3,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
14,581 |
|
|
$ |
(7,521 |
) |
|
$ |
7,060 |
|
|
International
|
|
|
9,109 |
|
|
|
(1,203 |
) |
|
|
7,906 |
|
|
State
|
|
|
466 |
|
|
|
(873 |
) |
|
|
(407 |
) |
|
Total
|
|
$ |
24,156 |
|
|
$ |
(9,597 |
) |
|
$ |
14,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
6,878 |
|
|
$ |
(3,900 |
) |
|
$ |
2,978 |
|
|
International
|
|
|
2,708 |
|
|
|
225 |
|
|
|
2,933 |
|
|
State
|
|
|
1,020 |
|
|
|
(962 |
) |
|
|
58 |
|
|
Total
|
|
$ |
10,606 |
|
|
$ |
(4,637 |
) |
|
$ |
5,969 |
|
Deferred
tax assets and liabilities as of December 30, 2007 and December 31, 2006,
respectively, are comprised of the following:
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
Accrued
employee benefits and compensation
|
|
$ |
7,209 |
|
|
$ |
9,519 |
|
|
Accrued
postretirement benefits
|
|
|
3,195 |
|
|
|
6,316 |
|
|
Other
postretirement benefits
|
|
|
4,795 |
|
|
|
3,269 |
|
|
Investment
in joint ventures, net
|
|
|
782 |
|
|
|
214 |
|
|
Tax
credit carryforwards
|
|
|
3,230 |
|
|
|
- |
|
|
Restructure
charges
|
|
|
2,039 |
|
|
|
- |
|
|
Other
|
|
|
2,436 |
|
|
|
2,583 |
|
|
Total
deferred tax assets
|
|
|
23,686 |
|
|
|
21,901 |
|
|
Less
deferred tax asset valuation allowance
|
|
|
- |
|
|
|
960 |
|
|
Total
deferred tax assets, net of valuation allowance
|
|
|
23,686 |
|
|
|
20,941 |
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,522 |
|
|
|
6,237 |
|
|
Total
deferred tax liabilities
|
|
|
3,522 |
|
|
|
6,237 |
|
|
Net
deferred tax asset
|
|
$ |
20,164 |
|
|
$ |
14,704 |
|
Deferred
taxes are classified on the consolidated balance sheet at December 30, 2007 and
December 31, 2006 as a net current deferred tax asset of $10.2 million and $9.9
million, respectively, and a net long-term deferred tax asset of $10.0 million
and $4.8 million, respectively.
Income tax
expense differs from the amount computed by applying the United States federal
statutory income tax rate to income before income taxes. The reasons
for this difference are as follows:
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
expense at Federal statutory income tax rate
|
|
$ |
8,814 |
|
|
$ |
22,888 |
|
|
$ |
13,909 |
|
|
International
tax rate differential
|
|
|
(2,021 |
) |
|
|
(6,648 |
) |
|
|
(1,617 |
) |
|
Foreign
tax credit
|
|
|
(670 |
) |
|
|
1,885 |
|
|
|
(1,174 |
) |
|
General
business credits
|
|
|
(926 |
) |
|
|
(648 |
) |
|
|
(712 |
) |
|
Nontaxable
foreign sales income
|
|
|
- |
|
|
|
(1,233 |
) |
|
|
(2,365 |
) |
|
Manufacturer’s
deduction
|
|
|
(195 |
) |
|
|
(87 |
) |
|
|
(259 |
) |
|
State
income tax expense (benefit), net of federal benefit
|
|
|
(111 |
) |
|
|
(225 |
) |
|
|
231 |
|
|
Impairment
of nondeductible goodwill
|
|
|
- |
|
|
|
1,840 |
|
|
|
- |
|
|
Valuation
allowance change
|
|
|
(960 |
) |
|
|
(12 |
) |
|
|
(60 |
) |
|
Provision
to return adjustment
|
|
|
(520 |
) |
|
|
- |
|
|
|
(1,956 |
) |
|
Audit
settlement reserve adjustment
|
|
|
- |
|
|
|
(2,800 |
) |
|
|
- |
|
|
Other
|
|
|
(94 |
) |
|
|
(401 |
) |
|
|
(28 |
) |
|
Income
tax expense
|
|
$ |
3,317 |
|
|
$ |
14,559 |
|
|
$ |
5,969 |
|
We are
eligible for a tax holiday on the earnings of our subsidiaries in
China. Under the business license agreement granted to Rogers
Technologies (Suzhou) Company (RSZ), a wholly-owned subsidiary of ours, the
first two years of cumulatively profitable operations were taxed at a zero
percent tax rate. In 2007, the third year under this agreement, RSZ
reported pretax income of $6.5 million, which was subject to a tax rate of 7.5%,
resulting in a decrease of 7 percentage points in our effective tax
rate. In 2008, the tax rate in effect will be 9% and will increase
each subsequent year until reaching the full rate of 25% in 2012, subject to
local government approval. Under the business license agreement
granted to Rogers (Shanghai) International Trading Company Ltd. (RSH), we were
subject to a rate of tax of 15% in 2007, which resulted in a decrease of 7
percentage points in our effective tax rate based upon their pretax income of
$8.8 million. In 2008, the tax rate in effect will be 18%, and will
increase each subsequent year until reaching the full rate of 25% in 2012,
subject to local government approval.
There was
no valuation allowance recorded against our deferred tax assets at December 30,
2007. At December 31, 2006 a valuation allowance of $1.0 million was
recorded for the net U.S. deferred tax asset associated with the excess foreign
tax credits from undistributed foreign earnings available to offset resulting
U.S. tax on future foreign source income. As those credits were
utilized during the year ended December 30, 2007, the valuation allowance was
released, the effect of which has been reflected in the effective tax rate
reconciliation in the adjustment for foreign tax credits. We perform
an annual assessment of the realization of our deferred tax assets considering
all of the available evidence, both positive and negative. We then
record a valuation allowance against the deferred tax assets, which we believe
based on the weight of available evidence, will more likely than not be
realized.
Through
December 30, 2007, we have not provided U.S. income taxes on approximately
$102.0 million of unremitted foreign earnings because substantially all such
earnings were intended to be reinvested indefinitely outside the
U.S.
There were
no tax benefits arising from the exercise of stock options in
2007. The tax benefits in 2006 and 2005 were $4.9 million and $1.5
million, respectively. These tax benefits have been allocated to
additional paid-in-capital in stockholder’s equity when realized.
Income
taxes paid, net of refunds, were $9.3 million, $12.7 million and $2.6 million in
2007, 2006 and 2005, respectively.
We adopted
the provisions of Financial Accounting Standards Board (FASB) Interpretation No.
48, Accounting for Uncertainty
in Income Taxes (FIN 48) on January 1, 2007. Upon adoption, we
recognized an increase of $2.7 million in the liability for unrecognized tax
benefits, which was recorded through a decrease in retained
earnings. At December 30, 2007, we had gross tax-affected
unrecognized tax benefits of $8.4 million, all of which if recognized, would
impact the effective tax rate. In addition, at December 30, 2007 we
have approximately $0.6 million of accrued interest related to uncertain tax
positions. A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
(Dollars
in thousands)
|
|
Unrecognized
Tax
Benefits
|
|
|
Balance
as of January 1, 2007
|
|
$ |
12,291 |
|
|
Gross
increases - tax positions in prior period
|
|
|
4,193 |
|
|
Gross
decreases - tax positions in prior period
|
|
|
(3,834 |
) |
|
Gross
increases - current period tax positions
|
|
|
245 |
|
|
Settlements
|
|
|
(4,448 |
) |
|
Lapse
of statute of limitations
|
|
|
- |
|
|
Balance
as of December 30, 2007
|
|
$ |
8,447 |
|
It is
reasonably possible that a reduction of unrecognized tax benefits in a range of
$3 million to $5 million may occur within 12 months as a result of projected
resolutions of worldwide tax disputes or the expiration of the statute of
limitations.
We are
subject to taxation in the U.S. and various state and foreign
jurisdictions. Our tax years from 2004 through 2007 are subject to
examination by the tax authorities. With few exceptions, we are no
longer subject to U.S. federal, state, local and foreign examinations by tax
authorities for the years before 2004.
NOTE
9 - SHAREHOLDERS' EQUITY AND STOCK OPTIONS
Accumulated
Other Comprehensive Income
Accumulated
balances related to each component of accumulated other comprehensive income are
as follows:
|
(Dollars
in thousands)
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
$ |
17,802 |
|
|
$ |
13,322 |
|
|
Funded
status of pension plans and other post retirement benefits, net of
$2,880
and
$6,053 in deferred taxes in 2007 and 2006, respectively
|
|
|
(4,700 |
) |
|
|
(9,877 |
) |
|
Accumulated
other comprehensive income
|
|
$ |
13,102 |
|
|
$ |
3,445 |
|
Capital
Stock and Equity Compensation Awards
Under
various plans we may grant stock options to officers, directors, and other key
employees at exercise prices that range as low as 50% of the fair market value
of our stock as of the date of grant. However, to date, virtually all
such options have been granted at an exercise price equal to the fair market
value of our stock as of the date of grant. Except for grants made in
2004 and 2005, regular employee options in the United States generally become
exercisable over a four-year period from the grant date and expire ten years
after the date of grant. Stock option grants are also made to
non-employee directors, generally on a semi-annual basis. For such director
stock options, the exercise price is equal to the fair market value of our stock
as of the grant date and they are immediately exercisable and expire ten years
after the date of grant. The Company’s 2005 Equity Compensation Plan also
permits the granting of restricted stock and certain other forms of equity
awards to officers and other key employees. Stock grants in lieu of
cash compensation are also made to non-employee directors.
Shares of
capital stock reserved for possible future issuance are as follows:
|
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
2,486,574 |
|
|
|
2,754,456 |
|
|
Rogers
Employee Savings and Investment Plan
|
|
|
170,246 |
|
|
|
168,205 |
|
|
Rogers
Corporation Global Stock Ownership Plan for Employees
|
|
|
350,740 |
|
|
|
374,998 |
|
|
Stock
to be issued in lieu of deferred compensation
|
|
|
30,561 |
|
|
|
31,282 |
|
|
Total
|
|
|
3,038,121 |
|
|
|
3,328,941 |
|
Each
outstanding share of Rogers capital stock has attached to it a stock purchase
right. One stock purchase right entitles the holder to buy one share
of Rogers capital stock at an exercise price of $240.00 per
share. The rights become exercisable only under certain circumstances
related to a person or group acquiring or offering to acquire a substantial
block of Rogers capital stock. In certain circumstances, holders may
acquire Rogers stock, or in some cases the stock of an acquiring entity, with a
value equal to twice the exercise price. The rights expire on March
30, 2017 but may be exchanged or redeemed earlier. If such rights are
redeemed, the redemption price would be $0.01 per right.
Stock
Options
We
currently grant stock options under various equity compensation
plans. While we may grant to employees options that become
exercisable at different times or within different periods, we have generally
granted to employees options that vest and become exercisable in one-third
increments on the 2nd, 3rd and 4th anniversaries of the grant
dates. The maximum contractual term for all options is ten
years.
In 2004,
prior to the adoption of SFAS 123R, we immediately vested options for a total of
316,000 shares that were granted that year. The effect of this vesting increased
2004 pro-forma stock-based compensation expense by approximately $5.8
million. In November 2005, we accelerated the vesting of certain
out-of-the money unvested non-qualified stock options granted in 2003, which
increased 2005 pro-forma stock-based compensation expense by approximately $2.3
million. Also in 2005, we accelerated certain outstanding
in-the-money unvested non-qualified stock options granted in 2002, which
increased 2005 pro-forma stock-based compensation expense by approximately $0.5
million and resulted in an immaterial charge to earnings in
2005. Additionally, we immediately vested options for a total of
419,000 shares that were granted in 2005, which increased pro-forma stock-based
compensation expense by approximately $6.9 million. For those stock
options that were immediately vested in 2004 and 2005, shares obtained through
these grants cannot be sold until after the fourth anniversary of the respective
grant date, unless the individual’s employment is ended due to retirement,
disability, death or involuntary termination. For those stock options
with vesting schedules that were accelerated in 2005, any shares acquired
pursuant to such accelerated vesting schedules cannot be sold until the original
vesting date, unless the individual’s employment is ended due to retirement,
disability, death or involuntary termination. Options issued to our
Belgian employees and incentive stock options (ISOs) issued prior to the
adoption of SFAS 123R were not accelerated. The primary purpose for modifying
the terms of these options to accelerate their vesting was to eliminate future
compensation expense that we would otherwise have been required to recognize in
its statements of income beginning in the first quarter of 2006 in accordance
with SFAS 123R.
We use the
Black-Scholes option-pricing model to calculate the grant-date fair value of an
option. The fair value of options granted in 2007, 2006 and 2005 were
calculated using the following weighted average assumptions:
|
|
|
December
30,
2007
|
|
|
December
31,
2006
|
|
|
January
1,
2006
|
|
|
Options
granted
|
|
|
250,736 |
|
|
|
203,679 |
|
|
|
500,499 |
|
|
Weighted
average exercise price
|
|
|
50.70 |
|
|
|
51.09 |
|
|
|
36.91 |
|
|
Weighted-average
grant date fair value
|
|
|
24.13 |
|
|
|
23.52 |
|
|
|
16.51 |
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
36.75 |
% |
|
|
38.5 |
% |
|
|
39.7 |
% |
|
Expected
term (in years)
|
|
|
7.0 |
|
|
|
6.3 |
|
|
|
6.3 |
|
|
Risk-free
interest rate
|
|
|
4.67 |
% |
|
|
4.67 |
% |
|
|
2.96 |
% |
|
Expected
dividend yield
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expected volatility – In
determining expected volatility, we have considered a number of factors,
including historical volatility and implied volatility.
Expected term – We use
historical employee exercise data to estimate the expected term assumption for
the Black-Scholes valuation.
Risk-free interest rate – We
use the yield on zero-coupon U.S. Treasury securities for a period commensurate
with the expected term assumption as its risk-free interest rate.
Expected dividend yield – We
currently do not pay dividends on our common stock; therefore, a dividend yield
of 0% was used in the Black-Scholes model.
In most
cases, we recognize expense using the straight-line attribution method for both
pre- and post-adoption grants. The amount of stock-based compensation
recognized during a period is based on the value of the portion of the awards
that are ultimately expected to vest. SFAS 123R requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The term
“forfeitures” is distinct from “cancellations” or “expirations” and represents
only the unvested portion of the surrendered option. We currently
expect, based on an analysis of its historical forfeitures, a forfeiture rate of
approximately 3% and applied that rate to grants issued subsequent to adoption
of SFAS 123R. This assumption will be reviewed periodically and the
rate will be adjusted as necessary based on these
reviews. Ultimately, the actual expense recognized over the vesting
period will only be for those shares that vest.
Our
employee stock option agreements contain a retirement provision, which results
in the vesting of any unvested options immediately upon
retirement. This provision effects the timing of option expense
recognition for optionees meeting the criteria for
retirement. In accordance with SFAS 123R, we are recognizing
compensation expense over the period from the date of grant to the date
retirement eligibility is met if it is shorter than the required service period
or upon grant if the employee is eligible for retirement.
A summary
of the activity under our stock option plans as of December 30, 2007 and changes
during the year then ended, is presented below:
|
|
|
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
Per
Share
|
|
|
Weighted-
Average
Remaining
Contractual
Life
in
Years
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Options
outstanding at December 31, 2006
|
|
|
2,118,631 |
|
|
$ |
37.94 |
|
|
|
|
|
|
|
|
Options
granted
|
|
|
250,736 |
|
|
|
50.70 |
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(264,531 |
) |
|
|
26.91 |
|
|
|
|
|
|
|
|
Options
cancelled
|
|
|
(115,190 |
) |
|
|
48.08 |
|
|
|
|
|
|
|
|
Options
outstanding at December 30, 2007
|
|
|
1,989,646 |
|
|
|
40.39 |
|
|
|
6.2 |
|
|
$ |
16,418,453 |
|
|
Options
exercisable at December 30, 2007
|
|
|
1,653,331 |
|
|
|
38.27 |
|
|
|
5.7 |
|
|
|
16,373,617 |
|
|
Options
vested or expected to vest at December 30, 2007 *
|
|
|
1,958,822 |
|
|
|
40.21 |
|
|
|
6.2 |
|
|
|
16,415,454 |
|
* In
addition to the vested options, we expect a portion of the unvested options to
vest at some point in the future. Options expected to vest are
calculated by applying an estimated forfeiture rate to the unvested
options.
During the
year ended December 30, 2007, the total intrinsic value of options exercised
(i.e. the difference between the market price at time of exercise and the price
paid by the individual to exercise the options) was $3.4 million, and the total
amount of cash received from the exercise of these options was $6.7 million. The
total grant-date fair value of stock options that vested during the year ended
December 30, 2007 was approximately $4.2 million.
As of
December 30, 2007, there was $3.2 million of total unrecognized compensation
cost related to unvested stock option awards. That cost is expected
to be recognized over a weighted-average period of 1.8 years.
A summary
of activity under the stock options plans for the fiscal years ended 2007, 2006
and 2005 is presented below:
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
2,118,631 |
|
|
$ |
37.94 |
|
|
|
2,565,813 |
|
|
$ |
34.63 |
|
|
|
2,371,937 |
|
|
$ |
32.86 |
|
|
Granted
|
|
|
250,736 |
|
|
|
50.70 |
|
|
|
203,679 |
|
|
|
51.09 |
|
|
|
500,499 |
|
|
|
36.91 |
|
|
Exercised
|
|
|
(264,531 |
) |
|
|
26.91 |
|
|
|
(636,579 |
) |
|
|
28.62 |
|
|
|
(284,971 |
) |
|
|
23.53 |
|
|
Cancelled
|
|
|
(115,190 |
) |
|
|
48.08 |
|
|
|
(14,282 |
) |
|
|
46.13 |
|
|
|
(21,652 |
) |
|
|
39.76 |
|
|
Outstanding
at year-end
|
|
|
1,989,646 |
|
|
$ |
40.39 |
|
|
|
2,118,631 |
|
|
$ |
37.94 |
|
|
|
2,565,813 |
|
|
$ |
34.63 |
|
|
Options
exercisable at end of year
|
|
|
1,653,331 |
|
|
|
|
|
|
|
1,916,387 |
|
|
|
|
|
|
|
2,502,595 |
|
|
|
|
|
Restricted
Stock
In the
first quarter of 2006, we started granting restricted stock to certain key
executives. This restricted stock program is a performance based plan
that awards shares of common stock of the Company at the end of a three-year
measurement period. Awards associated with this program cliff vest at
the end of the three-year period and eligible participants can be awarded shares
ranging from 0% to 200% of the original award amount, based on defined
performance measures associated with earnings per share.
We
recognize compensation expense on these awards ratably over the vesting
period. The fair value of the award is determined based on the market
value of the underlying stock price at the grant date. The amount of
compensation expense recognized over the vesting period will be based on our
projections of the performance of earnings per share over the requisite service
period and, ultimately, how that performance compares to the defined performance
measure. If, at any point during the vesting period, we conclude that
the ultimate result of this measure will change from that originally projected,
we will adjust the compensation expense accordingly and recognize the difference
ratably over the remaining vesting period. We granted restricted
stock awards for 22,700 and 23,900 shares in 2007 and 2006,
respectively. We recognized $0.6 million and $0.7 million of
compensation expense related to restricted stock awards in the years ended
December 30, 2007 and December 31, 2006, respectively. The 2007
expense represents a projected payout of 160% of the award granted in 2006 and
0% of the award granted in 2007. The expense in 2006 represents a
projected payout of 200% of the award granted in 2006.
As of
December 30, 2007, there was $0.7 million of total unrecognized compensation
cost related to unvested restricted stock. That cost is expected to
be recognized over a weighted-average period of 1.1 years.
Employee
Stock Purchase Plan
We have an
employee stock purchase plan (ESPP) that allows eligible employees to purchase,
through payroll deductions, shares of our common stock at 85% of the fair market
value. The ESPP has two six-month offering periods per year, the
first beginning in January and ending in June and the second beginning in July
and ending in December. The ESPP contains a look-back feature that allows the
employee to acquire stock at a 15% discount from the underlying market price at
the beginning or end of the respective period, whichever is
lower. Under SFAS 123R, we recognize compensation expense on this
plan ratably over the offering period based on the fair value of the anticipated
number of shares that will be issued at the end of each respective
period. Compensation expense is adjusted at the end of each offering
period for the actual number of shares issued. Fair value is
determined based on two factors: (i) the 15% discount amount on the underlying
stock’s market value on the first day of the respective plan period, and (ii)
the fair value of the look-back feature determined by using the Black-Scholes
model. We recognized approximately $0.5 million of compensation
expense associated with the plan in each of the years ended December 30, 2007
and December 31, 2006.
Common
Stock Repurchase Plan
On October
27, 2005, our Board of Directors approved a buyback program, under which we were
authorized to repurchase up to an aggregate of $25 million in market value of
common stock over a twelve-month period. Under this buyback program,
we repurchased approximately 95,000 shares of common stock at an aggregate
purchase price of $3.6 million. There were no repurchases in 2006,
and in October 2006 the program expired with authorization to repurchase
approximately $21.4 million of common stock remaining. On February
15, 2007, our Board of Directors approved a new buyback program, under which we
were authorized to repurchase up to an aggregate of $50 million in market value
of common stock over a twelve-month period. During 2007, we
repurchased a total of 810,380 shares of common stock, for a total of $35.5
million. On February 15, 2008, our Board of Directors approved a new
buyback program, under which we are authorized to repurchase up to an aggregate
of $30 million in market value of common stock over a twelve-month period. Under
this most recent buyback program, the Board of Directors has also authorized us
to enter into one or more 10b5-1 Trading Plans to operate under the buyback
program. The terms of any such 10b5-1 Trading Plans will be
determined if and when they are entered into.
Liability
Based Awards
Stock
Appreciation Rights
Prior to the third quarter of 2006, we
offered stock appreciation rights (SARs) to certain employees. These
rights vested in one-third increments on the 2nd, 3rd and 4th anniversary dates
of the grant and expire on the 10th anniversary of the grant date or three
months after termination, whichever occurs first. These rights could
only be settled in cash and, therefore, qualified as liability-based awards
under SFAS 123R. We recognized compensation expense on these rights
ratably over the vesting period. The fair value of the award was
determined using the Black-Scholes option-pricing model and, since these awards
were liability awards, the awards were revalued at each reporting period and
compensation expense was adjusted accordingly. The expense recorded
during 2006 related to this program was minimal. As of the third
quarter of 2006, the SAR program was discontinued and replaced by a cash-based
incentive program based on service time with the Company.
Impact
on Earnings
As a
result of adopting SFAS 123R on January 2, 2006, our net income before taxes for
the year ended December 31, 2006 was lower by $3.7 million, and net income was
lower by $2.2 million, than if we had continued to account for share-based
compensation under APB 25. Cash flow from operations was lower by
$4.9 million and the cash flow from financing activities was higher by $4.9
million. Basic and diluted earnings per share were lower for the year
by $0.13 and $0.13 than if we had continued to account for share-based
compensation under APB 25.
The
following table details the effect on net income and earnings per share had
stock-based compensation expense been recorded for the year ended January 1,
2006, based on the fair-value method under SFAS 123.
|
(Dollars
in thousands, except per share amounts)
|
|
January
1,
2006
|
|
|
Net
income, as reported
|
|
$ |
16,440 |
|
|
Less:
Total stock-based compensation expense determined under
Black-Scholes
option pricing model, net of related tax effect
|
|
|
7,344 |
|
|
Pro-forma
net income
|
|
$ |
9,096 |
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
|
|
|
As
reported
|
|
$ |
1.01 |
|
|
Pro-forma
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
As
reported
|
|
$ |
0.98 |
|
|
Pro-forma
|
|
$ |
0.54 |
|
NOTE
10 - COMMITMENTS AND CONTINGENCIES
Leases
Our
principal noncancellable operating lease obligations are for building space and
vehicles. The leases generally provide that we pay maintenance costs.
The lease periods range from one to five years and include purchase or renewal
provisions. We also have leases that are cancellable with minimal
notice. Leases are accounted for under SFAS 13, Accounting for
Leases. Lease expense was $1.9 million in 2007, $1.5 million
in 2006, and $1.6 million in 2005.
Future
minimum lease payments under noncancellable operating leases at December 30,
2007, aggregated, are $2.3 million. Of this amount, annual minimum
payments are $1.2 million, $0.6 million, $0.3 million, and $0.1 million for
years 2008 through 2011, respectively.
Environmental
Activities and General Litigation
We are
currently engaged in the following environmental and legal
proceedings:
Environmental
Remediation in Manchester, Connecticut
In the
fourth quarter of 2002, we sold our Moldable Composites Division located in
Manchester, Connecticut to Vyncolit North America, Inc., at the time a
subsidiary of the Perstorp Group, located in Sweden. Subsequent to
the divestiture, certain environmental matters were discovered at the Manchester
location and we determined that, under the terms of the arrangement, we would be
responsible for estimated remediation costs of approximately $0.5
million. We recorded a reserve for this amount in 2002 in accordance
with SFAS No. 5, Accounting
for Contingencies (SFAS 5). The Connecticut Department of
Environmental Protection (CT DEP) accepted our Remedial Action Plan in February
2005. We completed the remediation activities in December 2005 and
started post-remediation groundwater monitoring in 2006. The cost of
the remediation approximated the reserve originally recorded in
2002. In 2007, we filed a waiver with the CT DEP to discontinue the
groundwater monitoring following favorable results indicating successful
remediation of the site and are awaiting a response from the CT
DEP. The cost of monitoring, which thus far has not been material and
is not expected to be material in the future, is treated as period expense when
incurred.
Superfund
Sites
We are
currently involved as a potentially responsible party (PRP) in four active cases
involving waste disposal sites. In certain cases, these proceedings
are at a stage where it is still not possible to estimate the ultimate cost of
remediation, the timing and extent of remedial action that may be required by
governmental authorities, and the amount of our liability, if any, alone or in
relation to that of any other PRP’s. However, the costs incurred
since inception for these claims have been immaterial and have been primarily
covered by insurance policies, for both legal and remediation
costs. In one particular case, we have been assessed a cost sharing
percentage of approximately 2% in relation to the range for estimated total
cleanup costs of $17 million to $24 million. We believe we have
sufficient insurance coverage to fully cover this liability and have recorded a
liability and related insurance receivable of approximately $0.3 million as of
December 30, 2007, which approximates our share of the low end of the
range.
In all our
superfund cases, we believe we are a de-minimis participant and have only been
allocated an insignificant percentage of the total PRP cost sharing
responsibility. Based on facts presently known to us, we believe that
the potential for the final results of these cases having a material adverse
effect on our results of operations, financial position or cash flows is
remote. These cases have been ongoing for many years and we believe
that they will continue on for the indefinite future. No time frame
for completion can be estimated at the present time.
PCB
Contamination
We have
been working with the CT DEP and the United States Environmental Protection
Agency (EPA) Region I in connection with certain polychlorinated biphenyl (PCB)
contamination in the soil beneath a section of cement flooring at our Woodstock,
Connecticut facility. We completed clean-up efforts in 2000 in
accordance with a previously agreed upon remediation plan. To address
the residual contamination at the site, we proposed a plan of Monitored Natural
Attenuation, which was subsequently rejected by the CT DEP. A revised
plan was subsequently submitted to the CT DEP and also rejected. We
have submitted an amendment to the revised plan, which includes the installation
and maintenance of a pump and treat system for a well at the
location. We are awaiting a decision from the CT DEP on the amendment
to the revised plan; however, we have estimated the cost of the system to be
approximately $0.1 million and have accrued for this liability. Since
inception, we have spent approximately $2.5 million in remediation and
monitoring costs related to the site. We believe that this situation
will continue for several more years and no time frame for completion can be
estimated at the present time.
Asbestos
Litigation
Over the
past several years, there has been an increase in certain U.S. states in
asbestos-related product liability claims brought against numerous industrial
companies where the third-party plaintiffs allege personal injury from exposure
to asbestos-containing products. We have been named, along with
hundreds of other companies, as a defendant in some of these
claims. In virtually all of these claims filed against us, the
plaintiffs are seeking unspecified damages, or, if an amount is specified, it
merely represents jurisdictional amounts or amounts to be proven at
trial. Even in those situations where specific damages are alleged,
the claims frequently seek the same amount of damages, irrespective of the
disease or injury. Plaintiffs’ lawyers often sue dozens or even
hundreds of defendants in individual lawsuits on behalf of hundreds or even
thousands of claimants. As a result, even when specific damages are
alleged with respect to a specific disease or injury, those damages are not
expressly linked to us.
We did not
mine, mill, manufacture or market asbestos; rather, we made some limited
products, which contained encapsulated asbestos. Such products were
provided to industrial users. We stopped manufacturing these products
in 1987.
We have
been named in asbestos litigation primarily in Pennsylvania, Illinois, and
Mississippi. As of December 30, 2007, there were approximately 175
pending claims compared to 148 pending claims at December 31, 2006. The number
of open claims during a particular time can fluctuate significantly from period
to period depending on how successful we are in getting these cases dismissed or
settled. In addition, most of these lawsuits do not include specific
dollar claims for damages, and many include a number of plaintiffs and multiple
defendants. Therefore, we cannot provide any meaningful disclosure about the
total amount of the damages sought.
The rate
at which plaintiffs filed asbestos-related suits against us increased in 2001,
2002, 2003 and 2004 because of increased activity on the part of plaintiffs to
identify those companies that sold asbestos containing products, but which did
not directly mine, mill or market asbestos. A significant increase in
the volume of asbestos-related bodily injury cases arose in Mississippi in
2002. This increase in the volume of claims in Mississippi was
apparently due to the passage of tort reform legislation (applicable to
asbestos-related injuries), which became effective on September 1, 2003 and
which resulted in a higher than average number of claims being filed in
Mississippi by plaintiffs seeking to ensure their claims would be governed by
the law in effect prior to the passage of tort reform. The number of
asbestos-related suits filed against us declined in 2005 and then again in 2006,
but increased slightly in 2007.
In many
cases, plaintiffs are unable to demonstrate that they have suffered any
compensable loss as a result of exposure to our asbestos-containing
products. We continue to believe that a majority of the claimants in
pending cases will not be able to demonstrate exposure or loss. This belief is
based in large part on two factors: the limited number of asbestos-related
products manufactured and sold by us and the fact that the asbestos was
encapsulated in such products. In addition, even at sites where the presence of
an alleged injured party can be verified during the same period those products
were used, our liability cannot be presumed because even if an individual
contracted an asbestos-related disease, not everyone who was employed at a site
was exposed to our asbestos-containing products. Based on these and other
factors, we have and will continue to vigorously defend ourselves in
asbestos-related matters.
|
·
|
Dismissals
and Settlements
|
Cases that
we are involved in typically name 50-300 defendants, although some cases have
had as few as one and as many as 833 defendants. We have obtained
dismissals of many of these claims. In 2007 and 2006, we were able to have
approximately 59 and 76 claims dismissed, respectively, and settled 12 and 15
claims, respectively. Our insurance carriers have paid the majority
of costs, including the majority of costs associated with the small number of
cases that have been settled. Such settlements totaled approximately
$2 million in 2007 and approximately $5.1 million in 2006. Although
these figures provide some insight into our experience with asbestos litigation,
no guarantee can be made as to the dismissal and settlement rates that we will
experience in the future.
Settlements
are made without any admission of liability. Settlement amounts may vary
depending upon a number of factors, including the jurisdiction where the action
was brought, the nature and extent of the disease alleged and the associated
medical evidence, the age and occupation of the claimant, the existence or
absence of other possible causes of the alleged illness of the alleged injured
party, and the availability of legal defenses, as well as whether the action is
brought alone or as part of a group of claimants. To date, we have
been successful in obtaining dismissals for many of the claims and have settled
only a limited number. The majority of settled claims were settled for
immaterial amounts, and our insurance carriers have paid the majority of such
costs. In addition, to date, we have not been required to pay any punitive
damage awards.
In late
2004, we determined that it was reasonably prudent, based on facts and
circumstances known to us at that time, to have a formal analysis performed to
determine our potential future liability and related insurance coverage for
asbestos-related matters. This determination was made based on
several factors, including the growing number of asbestos-related claims, at the
time, and the related settlement history. As a result, National
Economic Research Associates, Inc. (NERA), a consulting firm with expertise in
the field of evaluating mass tort litigation asbestos bodily-injury claims, was
engaged to assist us in projecting the Company’s future asbestos-related
liabilities and defense costs with regard to pending claims and future
unasserted claims. Projecting future asbestos costs is subject to
numerous variables that are extremely difficult to predict, including the number
of claims that might be received, the type and severity of the disease alleged
by each claimant, the long latency period associated with asbestos exposure,
dismissal rates, costs of medical treatment, the financial resources of other
companies that are co-defendants in claims, uncertainties surrounding the
litigation process from jurisdiction to jurisdiction and from case to case, and
the impact of potential changes in legislative or judicial standards, including
potential tort reform. Furthermore, any predictions with respect to these
variables are subject to even greater uncertainty as the projection period
lengthens. In light of these inherent uncertainties, our limited
claims history and consultations with NERA, we believe that five years is the
most reasonable period for recognizing a reserve for future costs, and that
costs that might be incurred after that period are not reasonably estimable at
this time. As a result, we also believe that our ultimate net
asbestos-related contingent liability (i.e., our indemnity or other claim
disposition costs plus related legal fees) cannot be estimated with
certainty.
Our
applicable insurance policies generally provide coverage for asbestos liability
costs, including coverage for both resolution and defense
costs. Following the initiation of asbestos litigation, an effort was
made to identify all of our primary and excess insurance carriers that provided
applicable coverage beginning in the 1950s through the
mid-1980s. There appear to be three such primary carriers, all of
which were put on notice of the litigation. In late 2004, Marsh Risk Consulting
(Marsh), a consulting firm with expertise in the field of evaluating insurance
coverage and the likelihood of recovery for asbestos-related claims, was engaged
to work with us to project our insurance coverage for asbestos-related claims.
Marsh’s conclusions were based primarily on a review of our coverage history,
application of reasonable assumptions on the allocation of coverage consistent
with industry standards, an assessment of the creditworthiness of the insurance
carriers, analysis of applicable deductibles, retentions and policy limits, the
experience of NERA and a review of NERA’s reports.
To date,
our primary insurance carriers have provided for substantially all of the
settlement and defense costs associated with our asbestos-related
claims. However, as claims continued, we determined, along with our
primary insurance carriers, that it would be appropriate to enter into a cost
sharing agreement to clearly define the cost sharing relationship among such
carriers and ourselves. As of November 5, 2004, an interim cost
sharing agreement was established that provided that the primary insurance
carriers would continue to pay all resolution and defense costs associated with
these claims until a definitive cost sharing arrangement was
consummated. This interim agreement was superseded by a definitive
cost sharing agreement, which was finalized on September 28,
2006. The cost sharing formula in the definitive agreement is
essentially the same as in the formula in the interim agreement.
|
·
|
Impact
on Financial Statements
|
Given the
inherent uncertainty in making future projections, we have had the projections
of current and future asbestos claims periodically re-examined, and we will have
them updated if needed based on our experience, changes in the underlying
assumptions that formed the basis for NERA’s and Marsh’s models, and other
relevant factors, such as changes in the tort system and our success in
resolving claims. In 2006, based on the assumptions employed by and
the updated report prepared by NERA and other variables we recorded a reserve
for our estimated bodily injury liabilities for asbestos-related matters,
including projected indemnity and legal costs, for the five-year period through
2011 in the undiscounted amount of $22.9 million. Likewise, based on
the updated analysis prepared by Marsh, we recorded a receivable for our
estimated insurance recovery of $22.7 million. NERA and Marsh updated
their respective analyses for 2007 and the estimated liability and estimated
insurance recovery, for the five-year period through 2012, is $23.6 and $23.5
million, respectively.
The
amounts that we have recorded for the asbestos-related liability and the related
insurance receivables described above were based on currently known facts and a
number of assumptions. Projecting future events, such as the number
of new claims to be filed each year, the average cost of disposing of such
claims, coverage issues among insurers, and the continuing solvency of various
insurance companies, as well as the numerous uncertainties surrounding asbestos
litigation in the United States, could cause the actual liability and insurance
recoveries for us to be higher or lower than those projected or
recorded.
There can
be no assurance that our accrued asbestos liabilities will approximate our
actual asbestos-related settlement and defense costs, or that our accrued
insurance recoveries will be realized. We believe that it is reasonably possible
that we will incur additional charges for our asbestos liabilities and defense
costs in the future, which could exceed existing reserves, but such excess
amounts cannot be estimated at this time. We will continue to vigorously defend
ourselves and believe we have substantial unutilized insurance coverage to
mitigate future costs related to this matter.
Other
Environmental and General Litigation Matters
|
·
|
In
2004, we became aware of a potential environmental matter at our facility
in Korea involving possible soil contamination. An initial
assessment of the site was completed and confirmed that there is
contamination. We believe that such contamination is historical
and occurred prior to our occupation of the facility. As of
December 30 2007, we are no longer occupying this site and it has been
returned to the prior owner. Based on our assessment, we
believe that we are under no obligation to remediate the
site.
|
|
·
|
We
became aware of a potential environmental matter involving soil
contamination at one of our European facilities. We believe
that the contamination is a historical issue attributed to the former
owner of the site. Early 2007 we completed a Descriptive Soil
Investigation (DSI) at the site, and the contamination appeared to be
localized in the area of the former underground storage
tanks. We subsequently received approval of our Remedial Action
Plan from the OVAM, the applicable Belgian regulatory
agency. As of December 30, 2007, the site has been remediated
per our approved Remedial Action Plan and we have no future obligation
related to this site.
|
|
·
|
In
2005, we began to market our manufacturing facility in South Windham,
Connecticut to find potential interested buyers. This facility
was formerly the location of the manufacturing operations of our elastomer
component and float businesses prior to the relocation of these businesses
to Suzhou, China in the fall of 2004. As part of our due
diligence in preparing the site for sale, we determined that there were
several environmental issues at the site and, although under no legal
obligation to voluntarily remediate the site, we believed that remediation
procedures would have to be performed in order to successfully sell the
property. Therefore, we obtained an independent third-party
assessment on the site, which determined that the potential remediation
cost range would be approximately $0.4 million to $1.0
million. In accordance with SFAS 5, we determined that the
potential remediation would most likely approximate the mid-point of this
range and recorded a $0.7 million charge in the fourth quarter of 2005,
which remains accrued at December 30,
2007.
|
|
·
|
On
May 16, 2007, CalAmp Corp. (CalAmp) filed a lawsuit against us for
unspecified damages. In the lawsuit, which was filed in the
United States District Court, Central District of California, CalAmp
alleges performance issues with certain printed circuit board laminate
materials we had provided for use in certain of their
products. In connection with this dispute, we had previously
filed a lawsuit against CalAmp in the United States District Court,
District of Massachusetts, seeking a declaratory judgment affirming that
we are not liable to CalAmp. Our lawsuit against CalAmp was
dismissed because a California venue was deemed the most appropriate forum
to address the parties’ dispute. The dismissal of our
Massachusetts action did not address or affect the merits of any claims or
defenses. . CalAmp’s suit against us is proceeding,
although a trial date has not yet been set. We intend to
vigorously defend ourselves against these allegations. Based on
facts and circumstances known to us at the present time, we cannot
determine the probability of success in such defenses or the range of any
potential loss that may occur as a result of these
proceedings.
|
In
addition to the above issues, the nature and scope of our business bring us in
regular contact with the general public and a variety of businesses and
government agencies. Such activities inherently subject us to the
possibility of litigation, including environmental and product liability matters
that are defended and handled in the ordinary course of business. We
have 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 impact on our results of operations, financial position, or
cash flows.
NOTE
11 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
As of
December 30, 2007, we have identified nine operating segments and have
aggregated those segments into four reportable segments as follows: Printed
Circuit Materials, High Performance Foams, Custom Electrical Components, and
Other Polymer Products. The following is a description of each
reportable segment.
Printed Circuit
Materials: This reportable segment is comprised of two
operating segments and two joint ventures that produce laminate materials, which
are primarily fabricated by others into circuits and used in electronic
equipment for transmitting, receiving, and controlling electrical signals. These
products tend to be proprietary materials that provide highly specialized
electrical and mechanical properties to meet the demands imposed by increasing
speed, complexity, and power in analog, digital, and microwave
equipment. These materials are fabricated, coated and/or customized
as necessary to meet customer demands and are sold worldwide.
High Performance
Foams: This reportable segment consists of two operating
segments and two joint ventures that manufacture products consisting primarily
of high-performance urethane and silicone foams. These foams are
designed to perform to predetermined specifications where combinations of
properties are needed to satisfy rigorous mechanical and environmental
requirements. These materials are sold primarily though fabricators
and original equipment manufacturers on a worldwide basis.
Custom Electrical
Components: This reportable segment is comprised of two
operating segments that produce electroluminescent lamps, inverters and power
distribution components. These products are custom designed
electronic components tailored to the specific need of each of a wide range of
applications and sold primarily to electronic subsystem assemblers and original
equipment manufacturers primarily in the ground transportation and
telecommunication markets on a worldwide basis.
Other Polymer
Products: This reportable segment consists of three operating
segments that produce the following products: elastomer component
products, which include floats for fill level sensing in fuel tanks, motors and
storage tanks and elastomer rollers and belts for document handling in copiers,
computer printers, mail sorting machines, and automated teller machines;
nonwoven composite materials that are manufactured for medical padding,
industrial prefiltration applications, and consumable supplies in the
lithographic printing industry and polyester based industrial laminates that are
sold mostly to telecommunications and data communication cable manufacturers for
shielding electromagnetic and radio frequency interference and to automotive
component manufacturers for making flat, etch-foil heaters.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. We evaluate performance
based on many factors including sales, sales trends, margins and operating
performance.
Inter-company
transactions, which are generally priced with reference to costs or prevailing
market prices, have been eliminated from the data reported in the following
tables.
Reportable
Segment Information
|
(Dollars
in thousands)
|
|
Printed
Circuit
Materials
|
|
|
High
Performance
Foams
|
|
|
Custom
Electrical
Components
|
|
|
Other
Polymer
Products
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
143,820 |
|
|
$ |
110,592 |
|
|
$ |
135,142 |
|
|
$ |
41,800 |
|
|
$ |
431,354 |
|
|
Operating
income (loss)
|
|
|
1,214 |
|
|
|
20,037 |
|
|
|
(4,068 |
) |
|
|
(2,927 |
) |
|
|
14,256 |
|
|
Total
assets
|
|
|
186,496 |
|
|
|
119,442 |
|
|
|
125,395 |
|
|
|
39,615 |
|
|
|
470,948 |
|
|
Capital
expenditures
|
|
|
15,463 |
|
|
|
6,057 |
|
|
|
5,943 |
|
|
|
3,526 |
|
|
|
30,989 |
|
|
Depreciation
|
|
|
5,247 |
|
|
|
3,623 |
|
|
|
14,179 |
|
|
|
2,215 |
|
|
|
25,264 |
|
|
Equity
income in unconsolidated
joint
ventures
|
|
|
250 |
|
|
|
7,837 |
|
|
|
- |
|
|
|
- |
|
|
|
8,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
153,552 |
|
|
$ |
103,207 |
|
|
$ |
149,364 |
|
|
$ |
39,627 |
|
|
$ |
445,750 |
|
|
Operating
income (loss)
|
|
|
13,295 |
|
|
|
21,817 |
|
|
|
14,744 |
|
|
|
(434 |
) |
|
|
49,422 |
|
|
Total
assets
|
|
|
210,121 |
|
|
|
117,688 |
|
|
|
114,526 |
|
|
|
37,383 |
|
|
|
479,718 |
|
|
Capital
expenditures
|
|
|
5,188 |
|
|
|
4,481 |
|
|
|
10,673 |
|
|
|
2,720 |
|
|
|
23,062 |
|
|
Depreciation
|
|
|
3,993 |
|
|
|
3,357 |
|
|
|
11,375 |
|
|
|
168 |
|
|
|
18,893 |
|
|
Equity
income in unconsolidated
joint
ventures
|
|
|
2,396 |
|
|
|
6,167 |
|
|
|
- |
|
|
|
- |
|
|
|
8,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
143,278 |
|
|
$ |
88,912 |
|
|
$ |
79,995 |
|
|
$ |
36,493 |
|
|
$ |
348,678 |
|
|
Operating
income (loss)
|
|
|
19,519 |
|
|
|
24,598 |
|
|
|
(4,311 |
) |
|
|
(7,113 |
) |
|
|
32,693 |
|
|
Total
assets
|
|
|
185,226 |
|
|
|
88,361 |
|
|
|
103,901 |
|
|
|
21,026 |
|
|
|
398,514 |
|
|
Capital
expenditures
|
|
|
3,747 |
|
|
|
2,965 |
|
|
|
16,940 |
|
|
|
4,961 |
|
|
|
28,613 |
|
|
Depreciation
|
|
|
4,712 |
|
|
|
3,844 |
|
|
|
6,199 |
|
|
|
1,792 |
|
|
|
16,547 |
|
|
Equity
income in unconsolidated
joint
ventures
|
|
|
2,943 |
|
|
|
2,308 |
|
|
|
- |
|
|
|
- |
|
|
|
5,251 |
|
Information
relating to our operations by geographic area is as follows:
|
|
|
Net
Sales (1)
|
|
|
Long-lived
Assets (2)
|
|
|
(Dollars
in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
119,979 |
|
|
$ |
121,072 |
|
|
$ |
110,380 |
|
|
$ |
69,879 |
|
|
$ |
75,591 |
|
|
Asia
|
|
|
201,051 |
|
|
|
228,494 |
|
|
|
165,316 |
|
|
|
50,574 |
|
|
|
44,841 |
|
|
Europe
|
|
|
88,503 |
|
|
|
83,487 |
|
|
|
64,674 |
|
|
|
36,881 |
|
|
|
32,084 |
|
|
Other
|
|
|
21,821 |
|
|
|
12,697 |
|
|
|
8,308 |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
$ |
431,354 |
|
|
$ |
445,750 |
|
|
$ |
348,678 |
|
|
$ |
157,334 |
|
|
$ |
152,516 |
|
(1) Net
sales are attributed to countries based on the location of the
customer.
(2)
Long-lived assets are based on the location of the asset and include goodwill
and other intangibles and property, plant and equipment.
NOTE
12 - RESTRUCTURING / IMPAIRMENT CHARGES
The following table summarizes the
restructuring and impairment charges (recoveries) recorded in income from
continuing operations for each of the fiscal years in the
three-year period ended December 30, 2007:
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Inventory
charges (1)
|
|
|
|
|
|
|
|
|
|
|
Printed
Circuit Materials
|
|
$ |
2,500 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
Custom
Electrical Components
|
|
|
5,062 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
7,562 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
recoveries (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed
Circuit Materials
|
|
|
(1,278 |
) |
|
|
-- |
|
|
|
-- |
|
|
Custom
Electrical Components
|
|
|
(971 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
(2,249 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment charges (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed
Circuit Materials
|
|
|
630 |
|
|
|
-- |
|
|
|
652 |
|
|
Custom
Electrical Components
|
|
|
2,500 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
3,130 |
|
|
|
-- |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
license charges (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom
Electrical Components
|
|
|
1,843 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
1,843 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Polymer Materials
|
|
|
525 |
|
|
|
5,013 |
|
|
|
-- |
|
|
|
|
|
525 |
|
|
|
5,013 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
(3)
|
|
|
3,013 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
charges
|
|
$ |
13,824 |
|
|
$ |
5,013 |
|
|
$ |
652 |
|
|
(1)
|
These
amounts are included in cost of sales on our condensed consolidated
statements of income with the exception of a) $0.5 million in the Custom
Electrical Components reportable segment in 2007 which is recorded in
selling and administrative expenses on our condensed consolidated
statements of income and b) $0.7 million in the Printed Circuit Materials
reportable segment in 2005 which is included in restructuring and
impairment charges on our condensed consolidated statements of
income.
|
|
(2)
|
These
amounts are included in selling and administrative expenses on our
condensed consolidated statements of
income.
|
|
(3)
|
These
amounts are included in restructuring and impairment charges on our
condensed consolidated statements of
income.
|
Durel
In 2007,
we recorded a non-cash pre-tax charge of $9.4 million related to our Durel
operating segment, which is aggregated into our Custom Electrical Components
reportable segment. This charge included a $7.6 million restructuring
charge related to the write down of inventory and accelerated depreciation on
machinery and equipment related to the Durel business and a $1.8 million charge
related to the accelerated expense recognition of a prepaid license associated
with a certain flexible electroluminescent (EL) lamp product. These
charges were partially offset by the sale of approximately $1.0 million of
inventory previously reserved for in the second quarter of
2007. These charges resulted from a significant change in the current
outlook for existing and future EL lamp programs during the second quarter of
2007 based on information related to certain program terminations from our most
significant customer of EL lamps in the portable communications
market. As a result of this change in business conditions, all
remaining production of EL lamps for the portable communications market that was
located at Durel’s manufacturing facility in Arizona was shifted to China by the
end of the second quarter of 2007. We also expect to have
substantially all EL production, including lamps for the automotive industry,
shifted to our China facility by the end of the second quarter of fiscal year
2008. The significant change in the outlook of EL programs and the
planned shift in EL production to China was an indicator of impairment that
triggered an impairment analysis on the long-lived assets of the Durel business
in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). The impairment
analysis, which was completed as part of the second quarter of 2007 closing
process with the assistance of an independent third-party appraisal firm, led us
to conclude that no impairment charge associated with the Durel long-lived
assets was necessary. As such, in accordance with SFAS 144, we
determined that it was appropriate to reduce the estimated useful lives of EL
lamp related equipment in Durel’s US manufacturing facility. In
addition, the reduced forecast of EL lamp sales, specifically related to
flexible EL lamps for the portable communications market, caused us to
accelerate the expense recognition of a prepaid license associated with flexible
EL lamps based on the current forecasted revenues. We expect to incur
additional charges of approximately $0.4 million in the first quarter of 2008
related to these restructuring activities.
Flexible
Circuit Materials
In 2007,
we recorded a non-cash pre-tax charge of $3.1 million related to our flexible
circuit materials operating segment, which is aggregated into our Printed
Circuit Materials reportable segment. This charge was related to the
write down of inventory and accelerated depreciation on machinery and equipment
related to the flexible circuit material business and was partially offset by
the sale of approximately $1.3 million of inventory previously reserved for in
the second quarter of 2007. Flexible circuit materials, which are
used in a variety of consumer electronic products, have become a commodity
product with increased global competition and pricing pressure driven by excess
capacity. This commoditization has caused the operating results of
the flexible circuit materials business to significantly decline in recent
periods, which resulted in our revaluation of the strategic future viability of
this business. We determined that these market factors were an
indicator of impairment that triggered an analysis of the long-lived assets
related to the flexible circuit materials business in accordance with SFAS
144. The impairment analysis, which was completed as part of the
second quarter of 2007 closing process with the assistance of an independent
third-party appraisal firm, concluded that no impairment charge associated with
the flexible circuit materials long-lived assets was necessary. As
such, in accordance with SFAS 144, we determined that it was appropriate to
reduce the estimated useful lives of the equipment related to the flexible
circuit materials segment. We also determined, based on business
conditions at that time that certain inventories associated with this business
would not be saleable, and we reserved for these inventories
accordingly. We expect to incur minimal charges in the first quarter
of 2008 related to these restructuring activities.
Composite
Materials
In 2007,
we recorded a non-cash pre-tax charge of $0.5 million related to the impairment
of the goodwill associated with the composite materials operating segment, which
is aggregated into our Other Polymer Products reportable segment. The
operating results of the composite materials business have gradually declined
over the past few years. During the second quarter of 2007, a
government program, which was material to the sales and earnings of the
composite materials business, expired. We determined that the loss of
this program, which we had previously thought would be replaced with new
business, was an indicator of impairment due to the significance of the program
on the long-term revenues of this business. Consequently, we
performed an impairment analysis on the composite materials operating segment
under SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142). The impairment
analysis, which was completed as part of the second quarter of 2007 closing
process with the assistance of an independent third-party appraisal firm,
resulted in us recording an impairment charge of $0.5 million related to the
goodwill associated with this business. The analysis did not result
in the impairment of any of the business’ other long-lived assets. No
additional charges related to the impairment of the goodwill associated with the
composite materials operating segment were recorded during the remainder of
2007.
Polyester-Based
Industrial Laminates
In the
second quarter of 2006, we recorded a non-cash pre-tax charge of $5.0 million
related to the impairment of the goodwill related to the polyester-based
industrial laminates (PBIL) operating segment, which is aggregated into our
Other Polymer Products reportable segment. This operating segment has
historically focused its product offerings in the cable market, which is a
market that has become more commodity-based with increased competition, and has
experienced significant raw material price increases, particularly in copper and
aluminum. Over the past few years, we chose to change our strategic
focus and long-term operational plans to the non-cable industry, which we
believed would yield higher margins and less competition. In the
second quarter of 2006, a customer notified us that a key program related to a
new, emerging technology had been cancelled. This customer, a major
automotive manufacturer, had initially designed our new product into one of its
programs, but decided to incorporate a different, less expensive technology into
the program instead. This program was a key strategic initiative
related to the long-term growth of this operating segment in the non-cable
industry. The nature of this product required a design-in period of
at least a few years in advance of the end product becoming available to
consumers; therefore, the cancellation of this program significantly affected
the long-term forecasts and projections of the business and consequently, the
fair value of the business at that time. We determined that the
cancellation of this program was an indicator of impairment due to the
significance of the program on the long-term revenue and margin growth of this
business. Consequently, we performed an impairment analysis on the
PBIL operating segment under SFAS 142. In the previous impairment
analysis prepared by us related to the PBIL operating segment in the fourth
quarter of 2005 as part of our annual valuation performed in accordance with
SFAS 142, we utilized annual revenue growth rates of approximately 5%, which
considered the future sales of this new technology in the program it was
designed into at that time. As a result of the cancellation of the
program, we revised our growth projections to approximately 2% annually and also
revised our projected margin levels for the revised product mix projections and
higher than expected raw material prices. The impairment analysis,
which was completed as part of the second quarter of 2006 closing process with
the assistance of an independent third-party appraisal firm, resulted in us
recording an impairment charge of $5.0 million related to the goodwill
associated with this business. The analysis did not result in the
impairment of any of the business’ other long-lived assets.
High
Frequency Materials
In
accordance with SFAS 144, an impairment charge of approximately $0.7 million was
recorded in 2005 on certain manufacturing equipment related to the high
frequency materials operating segment. Specifically, the charge
relates to certain idle presses used in the high frequency manufacturing
processes. At the end of 2005, we determined that there were no
alternative uses for this equipment and no market was available to sell
it. Accordingly, an impairment charge was recorded to write the
equipment down to its estimated fair value.
Severance
In 2007,
as part of the restructuring activities previously discussed, we took a number
of actions to reduce costs, including a company-wide headcount
reduction. In accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, and SFAS No. 112, Employers’ Accounting for
Postemployment Benefits, we recorded $3.0 million of severance charges in
2007. In addition, we made severance payments of $1.3 million in
2007.
A summary
of the activity in the accrual for severance is as follows:
|
(Dollars
in thousands)
|
|
|
|
|
Balance
at December 31, 2006
|
|
$ |
-- |
|
|
Provisions
|
|
|
3,013 |
|
|
Payments
|
|
|
(1,289 |
) |
|
Other
Adjustments
|
|
|
(152 |
) |
|
Balance
at December 30, 2007
|
|
$ |
1,572 |
|
NOTE 13 - DISCONTINUED
OPERATIONS
On July
27, 2007, we completed the closure of the operations of the polyolefin foams
operating segment, which had been aggregated in our Other Polymer Products
reportable segment. Operating income of $0.3 million and operating
losses of $4.4 million and $17.3 million, all net of tax, have been reflected as
discontinued operations in the accompanying consolidated statements of income
for the years ended December 30, 2007, December 31, 2006 and January 1, 2006,
respectively. Net sales associated with the discontinued
operations were $1.9 million, $8.8 million and $7.4 million for the years ended
December 30, 2007, December 31, 2006 and January 1, 2006,
respectively. The tax related to the discontinued operations was $0.2
million of tax expense for December 30, 2007 and $2.7 million and $10.6 million
of tax benefit for December 31, 2006 and January 1, 2006,
respectively.
Previously,
in 2005, we recorded a non-cash pre-tax charge of $22.0 million, which has been
included in the loss from discontinued operations shown for the year in our
condensed consolidated statements of income, related to the polyolefin foams
operating segment. This charge included a $20.4 million impairment
charge on certain long-lived assets and $1.6 million in charges related to the
write down of inventory and receivables related to the polyolefin foam
business. These charges were the result of the cumulative events that
occurred since the purchase of the polyolefin foam business in the beginning of
fiscal year 2002. At that time, we acquired certain assets of the
polyolefin foam business, including intellectual property rights, inventory,
machinery and equipment, and customer lists from Cellect LLC. We
migrated the manufacturing process to our Carol Stream, Illinois facility, which
we completed at the end of the third quarter of 2004. This migration
included the development of new process technology and the purchase of custom
machinery, which we believed at the time would allow us to gain efficiencies in
the manufacturing process and improvements in product quality. After
completing this transition, we focused on realizing these previously anticipated
efficiencies and improvements, but encountered a variety of business issues,
including changing customer requirements in the polyolefin marketplace, a
significant increase in raw material costs, and other quality and delivery
issues. In light of these circumstances, we commenced a study in the
first quarter of 2005 to update our market understanding and assess the
long-term viability of the polyolefin foam business. This study was
completed in the second quarter of 2005 and confirmed that the business
environment surrounding the polyolefin foam business had changed from the time
of our initial purchase in 2002, which caused us to revisit our business plan
for the polyolefin foam business. At that time, the polyolefin foam
business was experiencing significant operating losses and, during the second
quarter of 2005, we concluded that under the existing circumstances it would be
very difficult and cost prohibitive to produce the current polyolefin products
on a profitable basis and decided to scale back on the business by shedding
unprofitable customers and concentrating on developing new, more profitable
polyolefin products. This conclusion led to the performance of an
impairment analysis that was conducted in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144) and SFAS 142 and resulted
in the $22.0 million charge recorded in 2005.
Subsequently,
we worked to improve the operating performance and cash flows of the newly
restructured business. We shed the most unprofitable product lines,
which resulted in the retention of only one significant customer. In
order to achieve acceptable profitability levels, we negotiated a prospective
arrangement with this customer, which included a significant pricing increase
and preferred supplier status for this particular product. This
agreement would be effective for a one-year period beginning in January
2006. However, given the apparent mutually beneficial relationship
with this customer at that time, we believed that this arrangement would be
sustained for a longer period of time, which would generate sufficient cash
flows to allow further growth in this business. In particular,
we believed that the related polyolefin products being purchased by this
customer had a distinct technological advantage in the
marketplace. At the end of 2005, the long-term projections associated
with this business were based on the newly negotiated contract, the assumption
that this contract would be renewed at the end of 2006, and the organic growth
we had experienced with this customer since the acquisition of the business,
which we believed would continue in the future. The anticipated
improvements in the business were further validated by the significant
improvements in operating results and cash flows in the second half of 2005 as
compared to the first half of the year and the further improvement achieved in
the first half of 2006. Overall, these projections supported the
recoverability of the residual asset base of the polyolefin foam business and we
determined that no additional impairment charges were necessary at the end of
2005.
In the
second quarter of 2006, however, this customer approached us with a demand to
significantly reduce the pricing of our products, as well as to reduce volume
levels of purchases from us. Although this demand was not prohibited
under the terms of the existing supply agreement, compliance would have resulted
in immediate and significant reductions in profitability levels that were
inconsistent with previous projections. This led us to begin
negotiations on a new contract that would be effective after the existing
contract expired at the end of 2006. We believed that, even under the
most favorable outcome, the results of this negotiation would have a significant
negative impact on the long-term outlook of our polyolefin foam business as the
business would be impacted by both lower product pricing and lower volume
levels, resulting in lower long-term revenues and operating
margins. We concluded that this pending contract and change in the
business relationship with this customer was an indicator of impairment that
triggered an impairment analysis on the remaining assets of the polyolefin foam
business under SFAS 144 and SFAS 142. The impairment analysis, which
was completed as part of the second quarter 2006 closing process with the
assistance of an independent third-party appraisal firm, resulted in us
recording an impairment charge of $6.3 million in 2006 related to the goodwill
associated with this business. This $6.3 million charge is included
in the loss from discontinued operations shown for 2006 in our condensed
consolidated statements of income.
Additionally,
in the second quarter of 2006, a former customer of our polyolefin foam business
filed suit against us for a multitude of alleged improprieties, including breach
of contract, although we were not formally served in this lawsuit. In
the third quarter of 2007, we reached a final settlement agreement with this
former customer that included the transfer of ownership of substantially all the
remaining assets of the polyolefin foam business, as well as the payment of
approximately $1.9 million to this customer, which had been previously
accrued. As a result of this agreement, we will no longer participate
in the polyolefin foam marketplace. Subsequently, in the third
quarter of 2007, we ceased operations of the polyolefin foams operating
segment.
NOTE
14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The
following is a summary of the unaudited quarterly results of operations for
fiscal 2007 and 2006. The first quarter 2007 and third quarter 2007
diluted net income per share amounts have been adjusted from amounts previously
reported, to reflect a correction in our diluted share calculation for
2007.
|
|
|
2007
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
April
1,
2007
|
|
|
July
1,
2007
|
|
|
September
30,
2007
|
|
|
December
30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
115,071 |
|
|
$ |
97,891 |
|
|
$ |
109,626 |
|
|
$ |
108,766 |
|
|
Cost
of sales
|
|
|
79,994 |
|
|
|
82,246 |
|
|
|
78,448 |
|
|
|
75,029 |
|
|
Gross
Margin
|
|
|
35,077 |
|
|
|
15,645 |
|
|
|
31,178 |
|
|
|
33,737 |
|
|
Net
income (loss) from continuing operations
|
|
|
9,441 |
|
|
|
(4,665 |
) |
|
|
9,096 |
|
|
|
7,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of tax
|
|
|
70 |
|
|
|
335 |
|
|
|
(146 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
9,511 |
|
|
$ |
(4,330 |
) |
|
$ |
8,950 |
|
|
$ |
7,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.56 |
|
|
$ |
(0.28 |
) |
|
$ |
0.55 |
|
|
$ |
0.49 |
|
|
Income
(loss) from discontinued operations, net
|
|
|
- |
|
|
|
0.02 |
|
|
|
(0.01 |
) |
|
|
- |
|
|
Net
income
|
|
$ |
0.56 |
|
|
$ |
(0.26 |
) |
|
$ |
0.54 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.55 |
|
|
$ |
(0.28 |
) |
|
$ |
0.55 |
|
|
$ |
0.48 |
|
|
Income
(loss) from discontinued operations, net
|
|
|
- |
|
|
|
0.2 |
|
|
|
(0.01 |
) |
|
|
- |
|
|
Net
income
|
|
$ |
0.55 |
|
|
$ |
(0.26 |
) |
|
$ |
0.54 |
|
|
$ |
0.48 |
|
|
|
|
2006
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
April
2,
2006
|
|
|
July
2,
2006
|
|
|
October
1,
2006
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
100,797 |
|
|
$ |
102,500 |
|
|
$ |
121,588 |
|
|
$ |
120,865 |
|
|
Cost
of sales
|
|
|
65,328 |
|
|
|
69,106 |
|
|
|
83,948 |
|
|
|
86,500 |
|
|
Gross
Margin
|
|
|
35,469 |
|
|
|
33,394 |
|
|
|
37,640 |
|
|
|
34,365 |
|
|
Net
income from continuing operations
|
|
|
12,424 |
|
|
|
7,509 |
|
|
|
16,741 |
|
|
|
14,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of tax
|
|
|
183 |
|
|
|
(3,512 |
) |
|
|
438 |
|
|
|
(1,489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,607 |
|
|
$ |
3,997 |
|
|
$ |
17,179 |
|
|
$ |
12,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.75 |
|
|
$ |
0.45 |
|
|
$ |
0.99 |
|
|
$ |
0.84 |
|
|
Income
(loss) from discontinued operations, net
|
|
|
0.01 |
|
|
|
(0.21 |
) |
|
|
0.03 |
|
|
|
(0.09 |
) |
|
Net
income
|
|
$ |
0.76 |
|
|
$ |
0.24 |
|
|
$ |
1.02 |
|
|
$ |
0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.73 |
|
|
$ |
0.43 |
|
|
$ |
0.97 |
|
|
$ |
0.80 |
|
|
Income
(loss) from discontinued operations, net
|
|
|
0.01 |
|
|
|
(0.20 |
) |
|
|
0.02 |
|
|
|
(0.08 |
) |
|
Net
income
|
|
$ |
0.74 |
|
|
$ |
0.23 |
|
|
$ |
0.99 |
|
|
$ |
0.72 |
|
SCHEDULE
II
ROGERS
CORPORATION AND CONSOLIDATED SUBSIDIARIES
Valuation
and Qualifying Accounts
|
(Dollars
in thousands)
|
|
Balance
at
Beginning
of
Period
|
|
|
Charged
to
(Reduction
of)
Costs
and
Expenses
|
|
|
Taken
Against
Allowance
|
|
|
Other
(Deductions)
Recoveries
|
|
|
Balance
at
End of
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
30, 2007
|
|
$ |
1,797 |
|
|
$ |
283 |
|
|
$ |
(659 |
) |
|
$ |
12 |
|
|
$ |
1,433 |
|
|
December
31, 2006
|
|
|
1,483 |
|
|
|
277 |
|
|
|
(7 |
) |
|
|
44 |
|
|
|
1,797 |
|
|
January
1, 2006
|
|
|
1,767 |
|
|
|
266 |
|
|
|
(436 |
) |
|
|
(114 |
) |
|
|
1,483 |
|
None.
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
The
Company, with the participation of our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the design and operation of our
disclosure controls and procedures, as defined under Rule 13a-15(e) and
15d-15(e) under the Exchange Act of 1934, as amended (the ‘Exchange Act”), as of
December 30, 2007. The Company’s disclosure controls and procedures
are designed (i) to ensure that information required to be disclosed by it in
the reports that it files or submits under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) to ensure that information required to be
disclosed in the reports the Company files or submits under the Exchange Act is
accumulated and communicated to its management, including its Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure
controls and procedures were effective as of December 30, 2007 in alerting
management on a timely basis to information required to be included in the
Company’s submissions and filings under the Act.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as is defined in Exchange Act
Rules 13a-15(f) and 15(d)-15(f). The Company’s internal control
system was designed to provide reasonable assurance to the Company’s management,
Board of Directors and shareholders regarding the preparation and fair
presentation of the Company’s published financial statements in accordance with
generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that:
|
–
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
–
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made
only in accordance with authorizations of our management;
and
|
|
–
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 30, 2007. In making its assessment of
internal control over financial reporting, management used the criteria issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control—Integrated
Framework. Based on the results of this assessment,
management, including our Chief Executive Officer and our Chief Financial
Officer, has concluded that, as of December 30, 2007, our internal control over
financial reporting was effective.
The
Company’s independent registered public accounting firm, Ernst & Young LLP,
has also issued an audit report on the Company’s internal control over financial
reporting, which report appears below.
| |
ROGERS
CORPORATION |
| Rogers,
Connecticut |
|
| February 27,
2008 |
|
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The
Company completed the implementation of a new Enterprise Resource Planning
("ERP") system at its Asian subsidiaries during the fourth quarter of
2007. The implementation is part of a Company-wide initiative to
replace its many stand-alone legacy computer systems with a more efficient fully
integrated global system. As a matter of course in such
implementations, certain internal controls surrounding the inputting, processing
and accessing of information ultimately used in financial reporting were
changed. The ERP system implemented in Asia was previously
successfully implemented by the Company in certain of its U.S. facilities as
well as its facility in Belgium. The phased-in approach the Company is taking
reduces the risks associated with making these changes, and in addition, the
Company is taking the necessary steps to monitor and maintain appropriate
internal controls during these implementations. These steps include
deploying resources to mitigate internal control risks and performing additional
verifications and testing to ensure data integrity. Except for the
ERP implementation discussed, there were no changes in the Company's internal
control over financial reporting during the quarter ended December 30, 2007 that
have materially affected or are reasonably likely to materially affect its
internal control over financial reporting, as defined in Rule 13a-15(f) under
the Exchange Act.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of Rogers Corporation
We have
audited Rogers Corporation’s internal control over financial reporting as of
December 30, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Rogers Corporation’s management is responsible
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying management’s report on internal control over
financial reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Rogers Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 30, 2007, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial
position of Rogers Corporation and subsidiaries as of December 30, 2007 and
December 31, 2006, and the related consolidated statements of income,
shareholders’ equity and cash flows for each of the three fiscal years in the
period ended December 30, 2007 of Rogers Corporation and our report dated
February 22, 2008 expressed an unqualified opinion thereon.
|
|
/s/ ERNST & YOUNG
LLP |
| Boston,
Massachusetts |
|
| February 22,
2008 |
|
None.
PART
III
Pursuant
to General Instruction G to Form 10-K, there is hereby incorporated by this
reference the information with respect to the Directors, Executive Officers and
Corporate Governance set forth under the captions “Nominees for Director”,
“Section 16(a) Beneficial Ownership Reporting Compliance” and “Meetings; Certain
Committees” in our definitive proxy statement for our 2008 Annual Meeting of
Shareholders that will be filed within 120 days after the end of our fiscal year
pursuant to Section 14(a) of the Exchange Act. Information with
respect to Executive Officers of the Company is presented in Part I, Item 1 of
this report and is set forth in our Proxy Statement for our 2008 Annual Meeting
of Shareholders that will be filed within 120 days after the close of our fiscal
year pursuant to Section 14(a) of the Exchange Act.
Code
of Ethics
We have
adopted a code of business conduct and ethics, which applies to all employees,
officers and directors of Rogers. The code of business conduct and
ethics is posted on our website at http://www.rogerscorporation.com
and is also available in print without charge to any shareholder who requests
it by sending a request to Rogers Corporation, One Technology Drive, P. O.
Box 188, Rogers, CT 06263-0188, Attn: Vice President and
Secretary. We intend to satisfy the disclosure requirements regarding
any amendment to, or waiver of, a provision of the code of business conduct and
ethics for the Chief Executive Officer, Principal Financial Officer and
Principal Accounting Officer (or others performing similar functions) by posting
such information on our website. Our website is not incorporated into
or a part of this Form 10-K.
Pursuant
to General Instruction G to Form 10-K, there is hereby incorporated by this
reference the information with respect to Executive Compensation set forth under
the captions “Directors’ Compensation”, “Meetings; Certain Committees”,
“Compensation Discussion and Analysis”, “Compensation and Organization Committee
Report” and "Executive Compensation" in our Proxy Statement for our 2008 Annual
Meeting of Shareholders that will be filed within 120 days after the end of our
fiscal year pursuant to Section 14(a) of the Exchange Act.
Pursuant
to General Instruction G to Form 10-K, there is hereby incorporated by this
reference the information with respect to Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters set forth under
the captions "Stock Ownership of Management", "Beneficial Ownership of More Than
Five Percent of Rogers Stock", and “Equity Compensation Plan Information” in our
Proxy Statement for our 2008 Annual Meeting of Shareholders that will be filed
within 120 days after the end of our fiscal year pursuant to Section 14(a) of
the Exchange Act.
Pursuant
to General Instruction G to Form 10-K, there is hereby incorporated by this
reference the information with respect to Certain Relationships and Related
Transactions and Director Independence as set forth under the captions “Related
Person Transactions” and “Director Independence” in our Proxy Statement for our
2008 Annual Meeting of Shareholders that will be filed within 120 days after the
end of our fiscal year pursuant to Section 14(a) of the Exchange
Act.
Pursuant
to General Instruction G to Form 10-K, there is hereby incorporated by this
reference the information with respect to Accountant Fees set forth under the
caption “Fees of Independent Registered Public Accounting Firm” in our Proxy
Statement for our 2008 Annual Meeting of Shareholders that will be filed within
120 days after the end of our fiscal year pursuant to Section 14(a) of the
Exchange Act.
(a) (1)
and (2) Financial Statements and Schedules – See Item 8.
(3)
Exhibit Index:
The
following list of exhibits includes exhibits submitted with this Form 10-K as
filed with the SEC and those incorporated by reference to other
filings.
|
|
2
|
Stock
Purchase Agreement, dated September 30, 2003, among 3M Company, 3M
Innovative Properties Company, Durel Corporation and Rogers Corporation
for the purchase of Durel Corporation was filed as Exhibit 2.1 to the
Registrant’s Form 8-K filed on October 15,
2003*.
|
|
|
3a
|
Restated
Articles of Organization of Rogers Corporation, as amended, filed as
Exhibit 3a to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2006*.
|
|
|
3b
|
Amended
and Restated Bylaws of Rogers Corporation, effective February 21, 2007,
filed as Exhibit 3.1 to the Registrant’s Current Report on Form
8-K filed on February 22, 2007*.
|
|
|
4a
|
Certain
Long-Term Debt Instruments, each representing indebtedness in an amount
equal to less than 10 percent of the Registrant’s total consolidated
assets, have not been filed as exhibits to this Annual Report on Form
10-K. The Registrant hereby agrees to furnish these instruments
with the Commission upon request.
|
|
|
4b
|
Shareholder
Rights Agreement, dated as of February 22, 2007, between Rogers
Corporation and Registrar and Transfer Company, as Rights Agent, filed as
Exhibit 4.1 to the Registrant’s registration statement on form 8-A filed
on February 23, 2007*.
|
|
|
10b
|
Description
of the Company's Life Insurance Program**, filed as Exhibit K to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
28, 1980*.
|
|
|
10c
|
Rogers
Corporation 2004 Annual Incentive Compensation Plan** (2004), filed as
Exhibit 10c to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 28,
2003*.
|
|
|
10d
|
Rogers
Corporation 1988 Stock Option Plan** (as amended December 17, 1988,
September 14, 1989, October 23, 1996, April 18, 2000, June 21, 2001,
August 22, 2002, December 5, 2002 and October 27, 2006). The
1988 plan, the 1988 amendment, and the 1989 amendment were filed as
Exhibit 10d to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended January 1, 1995 (the 1994 Form 10-K)*. The 1996
amendment was filed as Exhibit 10d to the 1996 Form 10-K*. The
April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002
amendment and December 5, 2002 were filed as Exhibit 10d to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
28, 2003*. The October 27, 2006 amendment was filed as Exhibit
10aab to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31,
2006*.
|
|
|
10e
|
Rogers
Corporation 1990 Stock Option Plan** (as restated and amended on October
18, 1996, December 21, 1999, amended on April 18, 2000, June 21, 2001,
August 22, 2002, October 7, 2002, December 4, 2002 and October 27,
2006). The October 18, 1996 restatement and amendment was filed
as Registration Statement No. 333-14419 on Form S-8 dated October 18,
1996*. The December 21, 1999 amendment was filed as Exhibit 10e
to the 1999 Form 10-K*. The October 7, 2002 amendment was filed
as Exhibit 10e to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 29, 2002*. The April 18, 2000
amendment, June 21, 2001 amendment, August 22, 2002 amendment and December
5, 2002 amendment was filed as Exhibit 10e to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 28,
2003*. The October 27, 2006 amendment was filed as Exhibit
10aab to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2006*.
|
|
|
10f
|
Rogers
Corporation Deferred Compensation Plan** (1983) was filed as Exhibit O to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended
January 1, 1984*.
|
|
|
10g
|
Rogers
Corporation Deferred Compensation Plan** (1986) was filed as Exhibit 10e
to the Registrant’s Annual Report on Form 10-K for the 1987 fiscal year.
*
|
|
|
10h
|
Rogers
Corporation 1994 Stock Compensation Plan** (as restated and amended on
October 17, 1996, amended on December 18, 1997, April 18, 2000, June 21,
2001, August 22, 2002, December 5, 2002 and October 27,
2006). The 1994 plan, as amended and restated on October 17,
1996, was filed as Exhibit 10h to the 1996 Form 10-K*. The 1997
amendment was filed as Exhibit 10h to the 1997 Form 10-K*. The
April 18, 2000 amendment, June 21, 2001 amendment, August 22, 2002
amendment, and December 5, 2002 amendment were filed as Exhibit 10h to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
28, 2003*. The October 27, 2006 amendment was filed as Exhibit
10aab to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2006*.
|
|
|
10i
|
Rogers
Corporation Voluntary Deferred Compensation Plan for Non-Employee
Directors** (1994, as amended December 26, 1995, December 27, 1996 and as
restated and amended December 21, 1999, October 7, 2002, and December 5,
2002). The 1994 plan, the December 26, 1995 and December 27,
1996 amendments were filed as Exhibit 10i to the 1994 Form 10-K, 1995 Form
10-K, and 1996 Form 10-K, respectively*. The December 21, 1999
restatement and amendment were filed as Exhibit 10i to the 1999 Form
10-K*. The October 7, 2002 amendment was filed as Exhibit 10i
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 29, 2002*. The December 5, 2002 amendment was filed as
Exhibit 10i to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 28, 2003*. The December 18, 2006 amendment
was filed as Exhibit 10i to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2006*. The October 24, 2007
amendment and restatement was filed as Exhibit 10i to the Registrant’s
Quarterly Report on Form 10-Q filed November 8,
2007*.
|
|
|
10j
|
Rogers
Corporation Voluntary Deferred Compensation Plan for Key Employees**
(1993, as amended on December 22, 1994, December 21, 1995, December 22,
1995, April 17, 1996 and as restated and amended on December 21, 1999,
October 7, 2002, and December 5, 2002). The 1993 plan and the
1994 amendments were filed as Exhibit 10j to the 1994 Form
10-K*. The 1995 and 1996 amendments were filed as Exhibit 10j
to the 1995 Form 10-K and 1996 Form 10-K, respectively*. The
December 21, 1999 restatement and amendment were filed as Exhibit 10j to
the 1999 Form 10-K*. The October 7, 2002 amendment was filed as
Exhibit 10j to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 29, 2002 *. The December 5, 2002 amendment
was filed as Exhibit 10j to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 28, 2003*. The October 24, 2007
amendment and restatement was filed as Exhibit 10j to the Registrant’s
Quarterly Report on Form 10-Q filed November 8,
2007*.
|
|
|
10k
|
Rogers
Corporation Long-Term Enhancement Plan for Senior Executives of Rogers
Corporation** (December 18, 1997*, as amended April 4, 2000, October 7,
2002, and December 5, 2002). The April 4, 2000 amendment was
file as Exhibit 10k to the 2000 Form 10-K*. The October
7, 2002 amendment was filed as Exhibit 10k to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 29,
2002*. The December 5, 2002 amendment was filed as Exhibit 10k
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 28, 2003*.
|
|
|
10l
|
Rogers
Corporation 1998 Stock Incentive Plan**(1998, as amended September 9,
1999, December 21, 1999, April 18, 2000, June 21, 2001, October 10, 2001,
August 22, 2002, November 7, 2002, December 5, 2002, February 19, 2004,
and October 27, 2006). The 1998 Plan was filed as Registration Statement
No. 333-50901 on April 24, 1998*. The September 9, 1999 and
December 21, 1999 amendments were filed as Exhibit 10l to the 1999 Form
10-K*. The October 10, 2001 and November 7, 2002 amendments
were filed as Exhibit 10l to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 29, 2002 *. The April 18,
2000 amendment, June 21, 2001 amendment, August 22, 2002 amendment,
December 5, 2002 amendment and February 19, 2004 amendment were filed as
Exhibit 10l to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 28, 2003*. The October 27, 2006 amendment
was filed as Exhibit 10aab to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31,
2006*.
|
|
|
101-1
|
Amendment,
effective April 28, 2005 to 1998 Stock Incentive Plan**, filed as Exhibit
10.8 to the Registrant’s Current Report on Form 8-K filed on May 2,
2005*.
|
|
|
10m
|
Multicurrency
Revolving Credit Agreement (as amended September 7, 2001 and October 25,
2002) dated December 8, 2000 was filed as Exhibit 10m to the 2000 Form
10-K*. The September 7, 2001 and October 25, 2002 amendments
were filed as Exhibit 10m-1 and Exhibit 10m-2, respectively to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
2, 2005*. A December 22, 2005 amendment was filed as Exhibit
10m-3 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended January 1, 2006 * and fourth amendment dated March 31, 2006 was
filed as Exhibit 10m-4 to the Registrant’s Quarterly Report on Form 10-Q
filed May 12, 2006*.
|
|
|
10n
|
Rogers
Corporation Executive Supplemental Agreement** (as amended April 29, 2004)
for the Chairman of the Board and Chief Executive Officer, dated December
5, 2002, was filed as Exhibit 10n to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 29, 2002*. The
April 29, 2004 amendment was filed as Exhibit 10n to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10o
|
Rogers
Corporation Pension Restoration Plan** (as amended and restated March 10,
2004). The March 10, 2004 Rogers Corporation Amended and
Restated Pension Plan ** was filed as Exhibit 10o to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 28,
2003*.
|
|
|
10o-1
|
First
Amendment to Rogers Corporation Amended and Restated Pension Restoration
Plan**, dated February 27, 2006, filed as Exhibit 10o-1 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
1, 2006*.
|
|
|
10p
|
2002
Financial Statements for the Company’s former joint venture with 3M, Durel
Corporation, were filed as Exhibit 99.3 to the Registrant’s Annual Report
on Form 10-K for the fiscal year-ended December 29,
2002*.
|
|
|
10q
|
Unaudited
Financial Statements for the nine-month period ended September 30, 2003
for the Company’s former joint venture with 3M, Durel Corporation were
filed as Exhibit 33b to the Registrant’s Annual Report on Form 10-K for
the fiscal year-ended December 28,
2003*.
|
|
|
10r
|
Summary
of Director and Executive Officer Compensation**, filed as Exhibit 10r to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended
January 2, 2005*.
|
|
|
10r-1
|
Amendment
No. 1 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-1 to Registrant’s Quarterly Report on Form 10-Q filed on
May 9, 2005*.
|
|
|
10r-2
|
Amendment
No. 2 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-2 to Registrant’s Quarterly Report on Form 10-Q filed on
August 10, 2005*.
|
|
|
10r-3
|
Amendment
No. 3 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-3 to the Registrant’s Current Report on Form 8-K filed on
February 23, 2006*.
|
|
|
10r-4
|
Amendment No. 4 to Summary of Director and Executive Officer
Compensation**, filed as Exhibit 10r-4 to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended January 1,
2006*. |
|
|
10r-5
|
Amendment
No. 5 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-5 to the Registrant’s Quarterly Report on Form 10-Q filed
May 12, 2006*.
|
|
|
10r-6
|
Amendment
No. 6 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-6 to the Registrant’s Quarterly Report on Form 10-Q filed
November 20, 2006*.
|
|
|
10r-7
|
Amendment
No. 7 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-7 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31,
2006*.
|
|
|
10r-8
|
Amendment
No. 8 to Summary of Director and Executive Officer Compensation**, filed
as Exhibit 10r-8 to the Registrant’s Quarterly Report on Form 10-Q filed
May 4, 2007*.
|
|
|
10r-9
|
Amendment
No. 9 to Summary of Director and Executive Officer Compensation**, filed
herewith*.
|
|
|
10s
|
Form
of 1991 Special Severance Agreement**, filed as Exhibit 10s to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
2, 2005*.
|
|
|
10t
|
Schedule
of 1991 Special Severance Agreements**, filed as Exhibit 10t to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
2, 2005*.
|
|
|
10u
|
Form
of Indemnification Agreement for Officers**, filed as Exhibit 99.2 to the
Registrant’s Current Report on Form 8-K on December 14,
2004*.
|
|
|
10v
|
Schedule
of Indemnification Agreements for Officers**, filed as Exhibit 10v to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
2, 2005*.
|
|
|
10v-1
|
Amendment
No. 1 to Schedule of Indemnification Agreements for Officers**, filed as
Exhibit 10v-1 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended January 1,
2006*.
|
|
|
10v-2
|
Amendment
No. 2 to Schedule of Indemnification Agreements for Officers**, filed
herewith.
|
|
|
10w
|
Form
of Indemnification Agreement for Directors**, filed as Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K on December 14,
2004*.
|
|
|
10x
|
Schedule
of Indemnification Agreements for Directors**, filed as Exhibit 10x to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
2, 2005*.
|
|
|
10x-1
|
Amendment
No. 1 to Schedule of Indemnification Agreements for Directors**, filed as
Exhibit 10x-1 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended January 1,
2006*.
|
|
|
10x-2
|
Amendment
No. 2 to Schedule of Indemnification Agreements for Directors**, filed
herewith.
|
|
|
10y
|
Change
in Control Severance Agreement**, dated March 3, 2004, by and between the
Company and Robert C. Daigle, filed as Exhibit 10y to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10z
|
Change
in Control Severance Agreement**, dated October 2, 1991, by and between
the Company and Robert D. Wachob, filed as Exhibit 10z to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10aa
|
Change
in Control Severance Agreement**, dated October 2, 1991, by and between
the Company and Robert M. Soffer, filed as Exhibit 10aa to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
2, 2005*.
|
|
|
10ab
|
Change
in Control Severance Agreement**, dated March 3, 1996, by and between the
Company and John A. Richie, filed as Exhibit 10ab to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10ac
|
Change
in Control Severance Agreement**, dated March 3, 2004, by and between the
Company and Paul B. Middleton, filed as Exhibit 10ac to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10ad
|
Guaranty
to Multicurrency Revolving Credit Agreement by Rogers China, Inc., dated
April 3, 2001, filed as Exhibit 10ad to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10ae
|
Guaranty
to Multicurrency Revolving Credit Agreement by Rogers KF, Inc., dated
February 18, 2004, filed as Exhibit 10ae to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended January 2,
2005*.
|
|
|
10af
|
Officer
Special Severance Agreement**, dated February 1, 2006, by and between
Rogers and Dennis M. Loughran, filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed on February 6,
2006*.
|
|
|
10ag
|
Revised
Form of Incentive Stock Option Agreement under the 2005 Plan**, filed as
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on
February 23, 2006*.
|
|
|
10ag-1
|
Revised
Form of Incentive Stock Option Agreement under the 2005 Plan**, filed as
Exhibit 10ag-1 to the Registrant’s Quarterly Report on Form 10-Q filed May
12, 2006*.
|
|
|
10ah
|
Form
of Non-Qualified Stock Option Agreement (For Officers and Employees, with
vesting) under the 2005 Plan**, filed as Exhibit 10.3 to the Registrant’s
registration statement on Form S-8 dated April 28, 2005, and filed on
April 29, 2005)*.
|
|
|
10ah-1
|
Revised
Form of Non-Qualified Stock Option Agreement (for Officers and Employees,
with vesting) under the 2005 Plan**, filed as Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K filed on February 23,
2006*.
|
|
|
10ah-2
|
Revised
Form of Non-Qualified Stock Option Agreement (for Officers and Employees,
with vesting) under the 2005 Plan**, filed as Exhibit 10ah-2 to the
Registrant’s Quarterly Report on Form 10-Q filed May 12,
2006*.
|
|
|
10ai
|
Revised
Form of Restricted Stock Agreement under the 2005 Plan**, filed as Exhibit
10.7 to the Registrant’s Current Report on Form 8-K filed on February 23,
2006*.
|
|
|
10aj
|
Rogers
Corporation 2005 Equity Compensation Plan** (the “2005 Plan”) filed as
Exhibit 10.1 to the Registrant’s registration statement on Form S-8 filed
on April 29, 2005*. First Amendment to the 2005 Plan, filed as
Exhibit 10aj-1 to the Registrant’s Quarterly Report on Form 10-Q filed
November 10, 2006*. Second Amendment to the 2005 Plan, filed as
Exhibit 10aj-2 to the Registrant’s Quarterly Report on Form 10-Q filed
November 10, 2006*.
|
|
|
10ak
|
Form
of Incentive Stock Option Agreement under the 2005 Plan**, filed as
Exhibit 10.2 to the Registrant’s registration statement on Form S-8 filed
on April 29, 2005*.
|
|
|
10al
|
Form
on Non-Qualified Stock Option Agreement (for Officers and Employees,
without vesting) under the 2005 Plan**, filed as Exhibit 10.4 to the
Registrant’s registration statement on Form S-8 filed on April 20,
2005*.
|
|
|
10al-1
|
Amended
Form of Non-Qualified Stock Option Agreement (for Officers and Employees,
without vesting) under the 2005 Plan**, filed as Exhibit 10al-1 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended January
1, 2006*.
|
|
|
10al-2
|
Amended
Form of Non-Qualified Stock Option Agreement (for Officers and Employees,
without vesting) under the 2005 Plan**, filed as Exhibit 10al-2 to the
Registrant’s Quarterly Report on Form 10-Q filed May 12,
2006*.
|
|
|
10am
|
Form
of Non-Qualified Stock Option Agreement (for Non-Employee Directors) under
the 2005 Plan**, filed as Exhibit 10.5 to the Registrant’s registration
statement on Form S-8 filed on April 29,
2005*.
|
|
|
10am-1
|
Revised
Form of Non-Qualified Stock Option Agreement (for Non-Employee Directors)
under the 2005 Plan**, filed as Exhibit 10am-1 to the Registrant’s
Quarterly Report on Form 10-Q filed May 12,
2006*.
|
|
|
10an
|
Form
of Stock Appreciation Right Agreement under the 2005 Plan**, filed as
Exhibit 10.6 to the Registrant’s registration statement on Form S-8 filed
April 29, 2005*.
|
|
|
10ao
|
Form
of Restricted Stock Agreement under the 2005 Plan**, filed as Exhibit 10.7
to the Registrant’s registration statement on Form S-8 filed April 29,
2005*.
|
|
|
10ap
|
Form
of Performance-Based Restricted Stock Award Agreement under the 2005
Plan**, filed as Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed on March 22, 2006 and as amended on Form 8-K/A filed on May 10,
2006*.
|
|
|
10aq
|
Form
of Non-Qualified Stock Option Agreement (without vesting) under the 1988
Plan**, filed as Exhibit 10aq to the Registrant’s Quarterly Report on Form
10-Q filed May 12,
2006*.
|
|
|
10ar
|
Form
of Non-Qualified Stock Option Agreement (with vesting) under the 1988
Plan**, filed as Exhibit 10ar to the Registrant’s Quarterly Report on Form
10-Q filed May 12,
2006*.
|
|
|
10as
|
Form
of Non-Qualified Stock Option Agreement (with vesting) under the 1988
Plan**, filed as Exhibit 10as to the Registrant’s Quarterly Report on Form
10-Q filed May 12, 2006*.
|
|
|
10at
|
Form
of Non-Qualified Stock Option Agreement (for Officers, Employees, and
Other Key Persons, with vesting) under the 1988 Plan**, filed as Exhibit
10at to the Registrant’s Quarterly Report on Form 10-Q filed May 12,
2006*.
|
|
|
10au
|
Form
of Non-Qualified Stock Option Agreement (for Officers, Employees, and
Other Key Persons, without vesting) under the 1988 Plan**, filed as
Exhibit 10au to the Registrant’s Quarterly Report on Form 10-Q filed May
12, 2006*.
|
|
|
10av
|
Form
of Non-Qualified Stock Option Agreement (without vesting) under the 1990
Plan**, filed as Exhibit 10av to the Registrant’s Quarterly Report on Form
10-Q filed May 12,
2006*.
|
|
|
10aw
|
Form
of Non-Qualified Stock Option Agreement (for Employees, with vesting)
under the 1994 Plan**, filed as Exhibit 10aw to the Registrant’s Quarterly
Report on Form 10-Q filed May 12,
2006*.
|
|
|
10ax
|
Form
of Non-Qualified Stock Option Agreement (for Employees, without vesting)
under the 1994 Plan**, filed as Exhibit 10ax to the Registrant’s Quarterly
Report on Form 10-Q filed May 12,
2006*.
|
|
|
10ay
|
Form
of Non-Qualified Stock Option Agreement (for Officers and Employees, with
vesting) under the 2005 Plan**, filed as Exhibit 10ay to the Registrant’s
Quarterly Report on Form 10-Q filed May 12,
2006*.
|
|
|
10az
|
Form
of Incentive Stock Option Agreement (with vesting) under the 2005 Plan**,
filed as Exhibit 10az to the Registrant’s Quarterly Report on Form 10-Q
filed May 12, 2006*.
|
|
|
10aaa
|
Multicurrency
Revolving Credit Agreement with Citizens Bank of Connecticut dated
November 13, 2006, filed as Exhibit 10aaa to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2006*+.
|
|
|
10aab
|
Summary
of October 27, 2006 Board of Directors Approved Amendments to (i) Rogers
Corporation 1988 Stock Option Plan, as amended, (ii) Rogers Corporation
1990 Stock Option Plan, as restated and amended, (iii) Rogers Corporation
1994 Stock Compensation Plan, as restated and amended and (iv) Rogers
Corporation 1998 Stock Incentive Plan, as amended, and to Certain Other
Employee Benefit or Compensation Plans**, filed as Exhibit 10aab to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2006*.
|
|
|
10aac
|
Form
of Nonqualified Stock Option Agreement (for Key Employees, with vesting)
under the Rogers Corporation 1990 Stock Option Plan, as amended**, filed
as Exhibit 10aac to the Registrant’s Quarterly Report on Form 10-Q filed
May 4, 2007*.
|
|
|
21
|
Subsidiaries
of the Registrant, filed
herewith.
|
|
|
23.1
|
Consent
of Ernst & Young LLP, Independent Registered Public Accounting Firm,
filed herewith.
|
|
|
23.2
|
Consent
of National Economic Research Associates, Inc., filed
herewith.
|
|
|
23.3
|
Consent
of Marsh U.S.A., Inc., filed
herewith.
|
|
|
31(a)
|
Certification
of President and Chief Executive Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed
herewith.
|
|
|
31(b)
|
Certification
of Vice President, Finance and Chief Financial Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
|
|
32(a)
|
Certification
of President and Chief Executive Officer and Vice President, Finance and
Chief Financial Officer Pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
|
|
*
|
In
accordance with Rule 12b-23 and Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, reference is made to the documents previously
filed with the SEC, which documents are hereby incorporated by
reference.
|
|
|
+
|
Confidential
Treatment granted for the deleted portion of this
Exhibit.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ROGERS
CORPORATION
|
|
|
| (Registrant) |
|
|
| |
|
|
|
/s/
Dennis M. Loughran
|
|
/s/
Paul B. Middleton
|
|
Dennis
M. Loughran
|
|
Paul
B. Middleton
|
|
Vice
President, Finance and Chief Financial Officer
|
|
Treasurer
and
|
|
Principal
Financial Officer
|
|
Principal
Accounting Officer
|
Dated: February
27, 2008
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on February 27, 2008, by the following persons on behalf of the
Registrant and in the capacities indicated.
|
/s/
Robert D. Wachob
|
|
/s/
Gregory B. Howey
|
|
Robert
D. Wachob
President
and Chief Executive Officer
Director
Principal
Executive Officer
|
|
Gregory
B. Howey
Director
|
| |
|
|
|
/s/
Dennis M. Loughran
|
|
/s/
Leonard R. Jaskol
|
|
Dennis
M. Loughran
Vice
President, Finance and Chief Financial Officer
Principal
Financial Officer
|
|
Leonard
R. Jaskol
Director
|
| |
|
|
|
/s/
Paul B. Middleton
|
|
/s/
Carol R. Jensen
|
|
Paul
B. Middleton
Treasurer
and
Principal
Accounting Officer
|
|
Carol
R. Jensen
Director
|
| |
|
|
|
/s/
Leonard M. Baker
|
|
/s/
Eileen S. Kraus
|
|
Leonard
M. Baker
Director
|
|
Eileen
S. Kraus
Director
|
| |
|
|
|
/s/
Walter E. Boomer
|
|
/s/
J. Carl Hsu
|
|
Walter
E. Boomer
Director
|
|
J.
Carl Hsu
Director
|
| |
|
|
|
/s/
Charles M. Brennan, III
|
|
/s/
Robert G. Paul
|
|
Charles
M. Brennan, III
Director
|
|
Robert
G. Paul
Director
|
92