| Attached files | ||||||
| File | Filename | |||||
|---|---|---|---|---|---|---|
| EX-21 - EXHIBIT 21 - ROGERS CORP | a6179760ex21.htm | |||||
| EX-10.R - EXHIBIT 10R - ROGERS CORP | a6179760ex10r.htm | |||||
| EX-31.(A) - EXHIBIT 31(A) - ROGERS CORP | a6179760ex31a.htm | |||||
| EX-10.L - EXHIBIT 10L - ROGERS CORP | a6179760ex10l.htm | |||||
| EX-23.2 - EXHIBIT 23.2 - ROGERS CORP | a6179760ex232.htm | |||||
| EX-23.3 - EXHIBIT 23.3 - ROGERS CORP | a6179760ex233.htm | |||||
| EX-31.(B) - EXHIBIT 31(B) - ROGERS CORP | a6179760ex31b.htm | |||||
| EX-32.(A) - EXHIBIT 32(A) - ROGERS CORP | a6179760ex32a.htm | |||||
| EX-23.1 - EXHIBIT 23.1 - ROGERS CORP | a6179760ex231.htm | |||||
| People who read this document also read: | ||||||
| Document | ||||||
|---|---|---|---|---|---|---|
| CFS BANCORP INC - 10-K, Annual Report | ||||||
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
(Mark
One)
|
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2009
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
Commission
File No. 1-4347
____________________________________________
ROGERS
CORPORATION
(Exact
name of Registrant as specified in its charter)
|
Massachusetts
|
06-0513860
|
|
(State
or other jurisdiction of
|
(I.
R. S. Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
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:
|
Title
of Class
|
Name
of Each Exchange on Which Registered
|
|
Common
Stock, $1 Par Value
|
New
York Stock Exchange
|
|
Rights
to Purchase Capital Stock
|
New
York Stock Exchange
|
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
o
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
o 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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
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. x
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 o
|
Accelerated
Filer x
|
Non-accelerated
Filer o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the
Act) Yes
o No
x
The
aggregate market value of the voting common equity held by non-affiliates as of
June 30, 2009, the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately $317,237,979. Rogers has no
non-voting common equity.
The number
of shares outstanding of capital stock as of February 5, 2010 was
15,777,099.
Documents
Incorporated by Reference:
Portions
of Rogers’ definitive proxy statement for its Annual Meeting of Shareholders,
currently scheduled for May 12, 2010, are incorporated by reference into Part
III of this Report.
|
TABLE
OF CONTENTS
|
||
|
4
|
||
|
10
|
||
|
15
|
||
|
16
|
||
|
17
|
||
|
21
|
||
|
22
|
||
|
23
|
||
|
24
|
||
|
44
|
||
|
45
|
||
|
89
|
||
|
90
|
||
|
92
|
||
|
93
|
||
|
93
|
||
|
93
|
||
|
93
|
||
|
93
|
||
|
94
|
||
|
103
|
||
|
List
of Exhibits Filed Herewith:
|
||
|
Exhibit
10l
|
Multicurrency
Revolving Credit Agreement (as amended September 7, 2001 and October 25,
2002) dated December 8, 2000 (including all exhibits and
schedules)
|
||
|
Exhibit
10r
|
Schedule
of Indemnification Agreements for Officers
|
||
|
Exhibit
21
|
Subsidiaries
of Rogers Corporation
|
||
|
Exhibit
23.1
|
Consent
of National Economic Research Associates, Inc.
|
||
|
Exhibit
23.2
|
Consent
of Marsh USA, Inc.
|
||
|
Exhibit
23.3
|
Consent
of Independent Registered Public Accounting Firm
|
||
|
Exhibit
31(a)
|
Certification
of President and CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
||
|
Exhibit
31(b)
|
Certification
of Vice President, Finance and CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
|
Exhibit
32(a)
|
Certification
of President and CEO and Vice President, Finance and CFO Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
||
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 177 years of our history to meet the changing needs of the various markets
we have served and currently serve. We initially manufactured
specialty paperboard for use in early electrical applications, and today we
predominantly supply a wide range of specialty materials and components for the
portable communications, communications infrastructure, consumer electronics,
mass transit, automotive, defense, and sustainable 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, wind and solar energy applications, and hybrid, including
electric, vehicles. 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 16 of the
Consolidated Financial Statements on page 80of 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
trade names.
Printed
Circuit Materials
Our
Printed Circuit Materials reportable segment includes printed circuit board
laminate products 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 varying 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.
Our 50%
owned joint venture with Mitsui Chemicals, Inc. of Japan, Polyimide Laminate
Systems, LLC (PLS), extends and complements our Printed Circuit Materials
business. It was established in early 2000 to sell adhesiveless
flexible circuit material products to Hutchinson Technology Incorporated
(HTI). HTI uses these materials to make trace suspension assemblies
in magneto resistive hard disk drives.
High
Performance Foams
Our High
Performance Foams reportable segment includes polyurethane and silicone foam
products. These foams have characteristics that offer functional
advantages in many market applications, and serve to differentiate our products
from other commonly available materials.
4
High
Performance Foams are sold to fabricators, distributors and original equipment
manufacturers for applications in consumer electronics, mass transit, 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; and R/bak® compressible printing plate backing and mounting products
for cushioning flexographic plates for printing on packaging
materials. BISCO® silicone foams, solids, sponge and extrusion
products for making flame retardant gaskets and seals in communications
infrastructure equipment, aircraft, trains, cars and trucks, and for shielding
extreme temperature or flame.
In the
second quarter of 2009, we acquired certain assets of MTI Global Inc.’s
silicones business. MTI Global Inc. had established a solid presence
as a solutions provider in several key markets that we are targeting for future
growth, including mass transit and other markets requiring high reliability,
high performance materials. We believe that the addition of the
product lines from MTI Global Inc. will expand the opportunities for both our
existing products, as well as the acquired products, through exposure to new
markets and applications. We also plan to leverage the acquired
technologies to create even more innovative materials solutions.
Two of our
50% owned 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 polyurethane
foam materials in Mie and Nagoya, Japan to predominantly serve 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 polyurethane foam
materials primarily for the Chinese market.
Custom
Electrical Components
Our Custom
Electrical Components reportable segment includes power distribution component
products, electroluminescent lamps and inverters. We manufacture
power distribution components in Ghent, Belgium and Suzhou, China, under the
RO-LINX® trade name. We sell these RO-LINX® products to manufacturers of high
power electrical inverter and converter systems for use in mass transit (e.g.
high speed trains) and renewable energy generation (e.g. wind turbines). In the
industrial applications area, our RO-LINX® products are utilized in a large
variety of Variable Frequency Drives for high to mid power applications. We
manufacture DUREL® electroluminescent lamps (EL lamps) in Chandler, Arizona and
Suzhou, China and we also design and sell inverters that power the EL
lamps. EL lamps and inverters are sold primarily to OEMs and
fabricators that in turn sell to various other third parties that primarily
serve the portable communication and automotive markets.
Other
Polymer Products
Our Other
Polymer Products reportable segment includes elastomer components, nonwoven
composite materials, thermal management products, and distribution activity
related to flexible circuit material products.
Elastomer
components are sold to OEM’s for applications in ground transportation, office
equipment, consumer and other markets. Trade names for our elastomer
components include: NITROPHYL® floats for level sensing in fuel
tanks, motors, and storage tanks and ENDUR® elastomer rollers and belts for
document handling in copiers, printers, mail sorting machines and automated
teller machines.
Our
nonwoven composite materials are manufactured for use in medical padding,
industrial pre-filtration applications, and as consumable supplies in the
lithographic printing industry.
Our
thermal management business was formed in the fourth quarter of 2007 and is
targeted at serving markets where thermal heat management is a priority, such as
heat dissipation in electronic devices. This venture is still in its
start-up phase as no material sales have been generated to date.
In 2007,
we restructured our flexible circuit materials business and outsourced the
majority of the manufacturing activities related to this business to our
Taiwanese joint venture with Chang Chun Plastics, Co., Ltd., Rogers Chan Chun
Technologies, Inc. (RCCT). As part of this restructuring, we agreed
to act as a distributor for the certain products now manufactured at RCCT, the
sales for which are reported in this segment. RCCT was originally
established in late 2001 to manufacture flexible circuit material for customers
in Taiwan.
5
This
segment no longer includes our polyolefin foams operating segment, which was
divested in the third quarter of 2007, and our Induflex operating segment, which
was divested in the fourth quarter of 2008.
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 2,600 customers worldwide in
2009. 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
Our
strategic reportable segments – Printed Circuit Materials, High Performance
Foams and Custom Electrical Components – all participate in industries that are
characterized by strong competition from around the globe. The
competition, which is comprised not only of those companies which make directly
competing materials, but also those companies which make comparable and
therefore potentially substitutable materials, is typically from substantially
larger, multinational manufacturers that often have greater financial resources
than we do, as well as smaller regional producers with lower overhead costs and
profit requirements, particularly in Asia.
Our
overall strategy as a Company, which is implemented at each of our strategic
reportable segments, is to offer highly regarded, technologically advanced
products that are price competitive and to link our product offerings with
superior market knowledge and customer service. Further, we believe
that in order to provide outstanding customer support we must be geographically
close to our customers in order to provide local service, support and
distribution, which we address through our manufacturing facilities in the U.S.,
Europe and China, and our various sales offices around the globe. We
believe this serves to differentiate our products and services, and provides us
a competitive advantage. We further believe that our relative position is
dependent on our ability to maintain our technological advantage and the highest
levels of design and customer service support; however, there is no assurance
that we will be technologically competitive in the future, or that we will
continue to develop new products that are technologically
competitive.
The
following discusses the competitive landscape in each of our strategic business
segments in greater detail.
Printed
Circuit Materials
Our
Printed Circuit Materials reportable segment offers products which we believe
are leaders in most of the segments it serves, including communication
infrastructure, consumer electronics, and mass transit and defense. A
key strategy in this segment is to continue to develop and produce laminate
products that are technology leaders in the markets where they participate,
particularly as the need for more advanced application use is demanded, such as
in the wireless infrastructure where demand for data transmission capacities is
continuously growing. On a regional basis, this segment participates
in North America, Europe and Asia. It faces competition in each of
these locations from a wide variety of companies, from very large multinational
manufacturers to much smaller, regional companies. As with our other
segments, this segment must compete on quality, price and service, and must
address the continual threat of commoditization, particularly with respect to
products that have matured in their life cycle.
High
Performance Foams
Our High
Performance Foams reportable segment offers products that we believe are leaders
in most of the segments it serves, including portable communications, consumer
electronics, mass transit, and defense. We have a strong presence
worldwide, particularly in North America, Europe and Asia. Our
competition is comprised of companies from around the globe, including large
multinational companies, as well as small regional companies, particularly in
Asia. In these areas, we typically compete on price, as well as
quality and service, and we focus on protecting our intellectual property,
particularly in regions where such laws are not as strictly
enforced. We also strive to continuously differentiate our product
offerings, as commoditization of certain products is always a risk.
6
Custom
Electrical Components
Our Custom
Electrical Components reportable segment offers products that we believe are
leaders in most segments it operates in, including mass transit. We
have a strong presence in both Asia and Europe, which are the two primary
geographical areas for traction converter applications. Our
competition consists mainly of European companies, with some competition in the
U.S., and a growing competitive presence in Asia.
Research
and Development
Research
and development activities constitute an important and vital part of our overall
business strategy. Our overall focus is typically on niche segments
where we can differentiate, through technological advantage, our products from
our competition’s products. The markets we serve are typically
characterized by rapid technological changes and
advances. Accordingly, the success of our strategy is in part
dependent on our ability to develop market-leading products, which is primarily
driven by efforts in research and development.
Patents
and Other Intellectual Property Rights
We have
many domestic and foreign patents and licenses and have additional patent
applications on file related to all business segments. These patents
and licenses vary in duration and provide some protection from
competition. In some cases, the patents result in license
royalties. Although we have been awarded, have filed applications
for, or have been licensed under numerous patents in the U.S. and other
countries, there can be no assurance concerning the degree of protection
afforded by these patents or the likelihood that pending patents will be
issued.
While our
patents provide some advantage and protection, we believe our competitive
position and future success is largely determined by such factors as the
innovative skills, systems and process knowledge, and technological expertise of
our personnel; the range and success of new products we develop; and our
customer service and support. It is generally our policy to defend
our patents when we determine it is in our best interests and the best interests
of our shareholders to do so. 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.
We do
believe that our patents provide an important competitive advantage in many of
our businesses; however, in general, no single patent or group of patents is in
itself essential to the Company as a whole or to any of the Company’s business
segments.
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 Note 14 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
We are
required to purchase a wide variety of raw materials in order to manufacture our
various products and materials. Some of these raw materials are only
available through limited sources which, 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.
7
Seasonality
In our
opinion, generally, there is 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 31, 2009, we employed approximately 1,735 employees.
Backlog
Our
backlog of firm orders was $29.2 million at December 31, 2009, as compared to
$24.8 million at December 31, 2008. The increase at the end of 2009
was primarily related to the increase in sales in the High Performance Foams
reportable segment, as backlog for the polyurethane and silicone foam business,
primarily sold into the mass transit, portable communications and consumer
electronics markets, combined with the effect of the acquisition of certain
assets of MTI Global Inc., increased by approximately $5.4 million at year-end
2009 as compared to year-end 2008.
8
Executive
Officers
|
Name
|
Age
|
Present
Position
|
Year
Elected
to
Present
Position
|
Other
Positions Held During 2005-2009
|
||||
|
Robert
D. Wachob
|
62 |
President
and Chief Executive
Officer
|
2004 | |||||
|
Michael
D. Bessette
|
56 |
Vice
President, Advanced
Circuit Materials
|
2008 |
Vice
President, Durel Division from January 2004 to July
2008
|
||||
|
Michael
L. Cooper
|
57 |
Vice
President, Logistics
|
2009 |
Vice
President, Rogers Asia from May 2004 to July 2009
|
||||
|
Robert
C. Daigle
|
46 |
Senior
Vice President and Chief
Technology Officer |
2009 |
Vice
President, Research and Development and Chief Technology Officer from
October 2003 to June 2009
|
||||
|
Debra
J. Granger
|
50 |
Vice
President, Corporate Compliance
and Controls |
2007 |
Director,
Corporate Compliance and Controls of the Company from March 2003 to
February 2007
|
||||
|
Jeffrey
M. Grudzien
|
47 |
Vice
President, Sales
and Marketing
|
2007 |
Director
of Asia Sales from January 2007 to September 2007; Director of Marketing
from January 2005 to January 2007
|
||||
|
Peter
G. Kaczmarek
|
51 |
Senior
Vice President
|
2009 |
Vice
President, High Performance Foams and Information Technology from February
2007 to June 2009; Vice President, High Performance Foams Division from
August 2001 to February 2007
|
||||
|
Dennis
M. Loughran
|
52 |
Vice
President, Finance
and Chief
Financial
Officer, Principal
Financial Officer
|
2006 |
Vice
President, Finance and Supply Chain, Alcoa Consumer Products from June
2000 to January 2006
|
||||
|
Terrence
W. Mahoney
|
62 |
Vice
President and General Counsel
|
2009 |
Counsel,
McDermott Will & Emery from July 2008 to July 2009; Partner, Dewey
& LeBoeuf LLP from November 2001 to July 2008
|
||||
|
Paul
B. Middleton
|
42 |
Treasurer
|
2009 |
Principal
Accounting Officer from August 2007 to July 2009; Corporate Controller
from February 2006 to August 2007; Acting Chief Financial Officer and
Corporate Controller from March 2005 to February 2006; Corporate
Controller from December 2001 to March 2005
|
||||
|
Ronald
J. Pelletier
|
36 |
Corporate
Controller and
Principal Accounting Officer
|
2009 |
Corporate
Controller from September 2008 to July 2009; Manager Financial Reporting
from January 2004 to September 2008
|
9
|
Name
|
Age
|
Present
Position
|
Year
Elected
to
Present
Position
|
Other
Positions Held During 2005-2009
|
||||
|
Michael
N. Sehnert
|
46 |
Vice
President, Rogers Asia
|
2009 |
General
Manager, Elastomer Components Division from January 2006 to July 2009;
General Manager, Floats from March 2005 to January 2006
|
||||
|
Robert
M. Soffer
|
62 |
Vice
President and Secretary
|
2007 |
Vice
President, Secretary and Treasurer from March 2005 to August 2007; Vice
President and Secretary from December 2002 to March
2005
|
||||
|
Luc
Van Eenaeme
|
51 |
Vice
President, Rogers
Europe
|
2004 | |||||
Available
Information
We make
available through a link on our website (http://www.rogerscorp.com),
free of charge, 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 these 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
policies. 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
stock. 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.
Status
of the Global Economy
During
2009, the global economy continued to experience the repercussions of the
extreme disruptions that occurred in 2008. In general, this resulted
in severely diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates, and
uncertainty about economic stability, among other things. There can be no
assurance that there will not be further deterioration in credit and financial
markets and in confidence in economic conditions. These economic uncertainties
affect businesses such as ours in a number of ways, making it difficult to
accurately forecast and plan our future business
activities. Continuing adverse global economic conditions in our
markets will likely negatively impact our business, which could result in the
following conditions, among others:
|
•
|
Reduced
demand for our products;
|
|
•
|
Increased
price competition for our products;
|
|
•
|
Increased
credit or other financial difficulties at our suppliers that could result
in delays in their ability to supply us with necessary raw materials,
components or finished
products;
|
|
•
|
Increased
risk of excess and obsolete
inventories;
|
|
•
|
Increased
risk of the collectability of cash from our
customers;
|
|
•
|
Increased
risk in potential reserves for doubtful accounts and write-offs of
accounts receivable; and
|
|
•
|
Higher
operating costs as a percentage of
revenues.
|
10
Financial
and Credit Market Volatility
Continued
volatility in the financial markets could have a significant effect on our
business as it could impact the returns generated on our investment portfolio,
our ability to obtain financing, and consequently, our ability to further
diversify our business through strategic acquisitions or other alliances, and
our ability to obtain and hold insurance, among other things. As our
investments and certain other assets are impacted by market conditions, such as
factors that affect interest rates and the underlying liquidity of the related
investment banks through which we hold investments, any volatility in our or
their ability to liquidate our investments could negatively effect our financial
position. Undertaking acquisitions and divestitures is an important
component of our long-term growth strategy. The volatility of the
credit markets can significantly affect us from an acquisition standpoint,
through access to our line of credit and other forms of financing, and from a
divestiture standpoint, through the availability of funds to the potential
acquiring party.
Technology
and Product Development
Our future
results depend in part upon our ability to continue to develop new products and
improve our product and process technologies. Our success in these efforts will
be determined by our ability to anticipate market requirements in our product
development efforts, and the acceptance and continued commercial success of the
end user’s products. Additionally, our success depends upon our
ability to adapt to technological changes and to support established and
emerging industry standards.
In
particular, the portable 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. To continue to be successful in this area, we must be
able to consistently develop, produce and supply materials that meet the
demanding expectations of customers for quality, performance and reliability at
competitive prices. Our timely introduction of new products to meet
these needs 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 portable
communications and other electronic 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
consumer electronics 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, as we are currently experiencing. 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
From time
to time, we 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 potential
negative impacts 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 operating results and financial condition.
11
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. 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. In addition, our customers could be affected by certain
events, which could decrease demand for our products.
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 long-term
growth strategy. Accordingly, our future performance will be impacted
by our ability to identify appropriate businesses and technologies to acquire,
as well as effectively and efficiently integrating such acquisitions into
Rogers. There is no certainty that we will succeed in such
endeavors.
We also
continually review our current business and product portfolio to attempt to
maximize our business performance. We may in the future, deem it
appropriate to pursue the divestiture of product lines or businesses as
conditions dictate. These strategic decisions could have a potential
negative impact on our business.
Environmental
and Other Litigation
We are
subject to a variety of claims and lawsuits arising out of the conduct of our
business which could ultimately have a material adverse impact on our business,
including our results of operations, financial condition and cash
flows. Such claims could result from environmental issues, product
liability claims and general litigation, among others.
We are
currently engaged in proceedings involving a waste disposal superfund site, as a
participant in a group of potentially responsible parties
(PRP's). Our estimation of the environmental liability is based on an
evaluation of currently available information with respect to the 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 site, which we believe is de-minimis. In addition, we
believe we have sufficient insurance to cover all material costs of this
claim. However, there can be no assurances that our estimates will
not be disputed or that any ultimate liability concerning this site 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 recent years and involves hundreds of companies that have been
named as defendants. At December 31, 2009, there were approximately
167 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.
|
12
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. However, these reserves may not be adequate to cover
future write-downs or losses. These reserves are subject to
adjustment from time to time and are based on management’s best
estimates based on the facts and circumstances known at the time. Such reserves
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 depend in some cases
on our ability to obtain insurance covering potential losses.
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, increases in 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.
Expense Reduction and Cost
Containment Goals
In the
first half of 2009, as well as over the past few years, we implemented certain
restructuring plans in order to better align our cost structure with our
anticipated revenue stream in order to maximize the results of our operations
and to generate positive cash flows. However, we may not realize the
anticipated benefits of these restructuring plans and, to the extent that we do
not reach our objectives, we may be required to implement further restructuring
plans, which may lead us to incur material future charges. Further, our
restructuring plans could result in potentially adverse effect on employee
capabilities that could harm our efficiency and our ability to act quickly and
effectively in the rapidly changing technology markets in which we sell our
products.
Ability
to Access Capital Markets
By the end
of 2008, the volatility and disruption in the capital and credit markets had
reached unprecedented levels. This situation moderated slightly in
2009; however, if these conditions were to worsen, there can be no assurance
that we will not experience a material adverse effect on our ability to borrow
money, including under our existing credit facility, or have access to capital,
if needed. Although our lender has made commitments to make funds
available to us in a timely fashion, our lender may be unable or unwilling to
lend money. In addition, if we determine that it is appropriate or
necessary to raise capital in the future, the future cost of raising funds
through the debt or equity markets may be cost prohibitive or those markets may
lack sufficient liquidity to meet our needs. If we were unable to
raise funds through debt or equity markets, it could materially and adversely
affect our business, financial condition and results of
operations.
13
International
Nature of Our Business
Due to the
international nature of our business, political or economic changes could
negatively impact our future sales, expenses and financial
condition. Such international factors that could materially impact
our business include, but are not limited to the following:
|
·
|
changes
in a country’s or region’s political or economic
conditions;
|
|
·
|
longer
accounts receivable cycles;
|
|
·
|
trade
protection measures;
|
|
·
|
unexpected
changes in regulatory requirements;
|
|
·
|
differing
technology standards and/or customer requirements;
and
|
|
·
|
import
or export licensing requirements, which could affect our ability to obtain
favorable terms for components or lead to penalties or
restrictions.
|
For fiscal
2009, sales of our products to foreign customers accounted for approximately 72%
of our net sales. As of December 31, 2009, we employed approximately
1,000 employees overseas. In addition, a portion of our product and
component manufacturing, along with key suppliers, is located outside of the
United States, and also could be disrupted by some of the international factors
described above.
Our
Stock Price is Volatile
The market
price of our common stock has fluctuated widely from the beginning of fiscal
year 2007 through the end of fiscal year 2009 with our stock price experiencing
a high of $61.79 per share and a low of $14.60 per share during that time
period. Consequently, the current market price of our common stock may not be
indicative of future market prices, and we may be unable to sustain or increase
the value of an investment in our common stock. Factors affecting our stock
price may include, but are not limited to the following:
|
·
|
changes
in the long-term outlook for our Company in the markets we
serve;
|
|
·
|
variations
in operating results from quarter to
quarter;
|
|
·
|
changes
in earnings estimates by analysts or our failure to meet analysts’
expectations;
|
|
·
|
changes
in the market value of publicly traded customers or suppliers, which could
decrease their demand for our
products;
|
|
·
|
market
conditions in the industries and markets in which we
participate;
|
|
·
|
general
economic conditions;
|
|
·
|
political
changes, hostilities or natural disasters such as hurricanes and floods;
and
|
|
·
|
low
trading volume of our stock.
|
In
addition, the stock market has recently experienced significant price and volume
fluctuations and continued market fluctuations could adversely affect the market
price of our stock.
Auction
Rate Securities
No active
market currently exists for the auction rate securities (ARS) we hold and as a
result we may not be able to liquidate them at the current valuation, prior to
final maturity. As a result, we have written down the cost basis of these
securities to their estimated fair value and determined that the decline in fair
value is considered other-than-temporary, with the portion of the impairment
related to credit loss being recognized in earnings and the remainder of the
decline recorded in other comprehensive income, per the relevant accounting
guidance. Additional valuation allowances may have to be taken in the
future under certain scenarios based on market conditions at such
time.
We
currently hold $43.4 million of par value ARS. The estimated fair value of these
securities at December 31, 2009, was $38.3 million and they are rated as
investment grade securities. The contractual maturities of these securities
range from 4 to 37 years and are comprised predominately of student loan and
municipal securities. Prior to the first quarter of 2008, these
securities provided short-term liquidity through a Dutch auction process that
reset the applicable interest rate at pre-determined calendar intervals,
generally every 28 to 35 days. This mechanism allowed existing investors to
either retain or liquidate their holdings by selling such securities at
par. In the first quarter of 2008, the markets in which these
securities traded became illiquid, causing the change in how to obtain the fair
value.
14
We have
the intent and ability to hold these securities for an extended period of time
and continue to receive interest income when due. Given the continued
challenges in the financial markets and the prolonged credit crisis, we cannot
reasonably predict when these securities will liquidate or whether market
conditions will change resulting in the recovery of fair value on these auction
rate securities. It is also possible that a secondary market for auction rate
securities may emerge in which securities similar to our own would trade at
prices below our currently recorded fair values. Under such a scenario, or if
other events arise that impact the fair value of the securities, we may have to
recognize other-than temporary impairment charges, which would adversely impact
our financial position and results of operations.
None.
15
On
December 31, 2009, we operated various manufacturing facilities and sales
offices throughout the United States, Europe and Asia. The following
table provides certain information about our principal general offices and
manufacturing facilities:
|
Location
|
Floor
Space
(Square
Feet)
|
Type
of Facility
|
Leased
/ Owned
|
|||
|
United
States
|
||||||
|
Rogers,
Connecticut
|
506,000 |
Manufacturing
/ Administrative Offices
|
Owned
|
|||
|
Carol
Stream, Illinois
|
215,000 |
Manufacturing
|
Owned
|
|||
|
Chandler,
Arizona
|
156,000 |
Manufacturing
|
Owned
|
|||
|
Woodstock,
Connecticut
|
152,000 |
Manufacturing
|
Owned
|
|||
|
Chandler,
Arizona
|
142,000 |
Manufacturing
|
Owned
|
|||
|
Chandler,
Arizona
|
120,000 |
Manufacturing
|
Owned
|
|||
|
Windham,
Connecticut
|
88,000 |
Formerly
Manufacturing
|
Owned
|
|||
|
Richmond,
Virginia
|
36,000 |
Manufacturing
|
Owned
|
|||
|
|
||||||
|
Belgium
|
||||||
|
Ghent,
Belgium
|
75,000 |
Manufacturing
|
Owned
|
|||
|
Evergem,
Belgium
|
64,000 |
Manufacturing
|
Owned
|
|||
|
Germany
|
||||||
|
Bremen,
Germany
|
52,000 |
Manufacturing
/ Administrative Offices
|
Leased
through 10/18
|
|||
|
Asia
|
||||||
|
Suzhou,
China
|
324,000 |
Manufacturing
|
Owned
|
|||
|
Suzhou,
China
|
170,000 |
Manufacturing
/ Administrative Offices
|
Owned
|
|||
|
Suzhou,
China
|
130,000 |
Manufacturing
|
Owned
|
|||
|
Suzhou,
China
|
120,000 |
Manufacturing
|
Owned
|
|||
|
Suzhou,
China
|
93,000 |
Manufacturing
|
Leased
through 7/10
|
|||
|
Suzhou,
China
|
93,000 |
Manufacturing
|
Leased
through 7/10
|
|||
|
Tokyo,
Japan
|
2,000 |
Sales
Office
|
Leased
through 2/10
|
|||
|
Wanchai,
Hong Kong
|
1,000 |
Sales
Office
|
Leased
through 6/10
|
|||
|
Taipei,
Taiwan, R.O.C.
|
1,000 |
Sales
Office
|
Leased
through 7/10
|
|||
|
Hwasung
City, Korea
|
1,000 |
Sales
Office
|
Leased
through 8/10
|
|||
|
Singapore
|
1,000 |
Sales
Office
|
Leased
through 11/10
|
|||
|
Shanghai,
China
|
1,000 |
Sales
Office
|
Leased
through 7/11
|
|||
|
Shenzhen,
China
|
1,000 |
Sales
Office
|
Leased
through 6/10
|
|||
|
Beijing,
China
|
1,000 |
Sales
Office
|
Leased
through 12/10
|
|||
16
We are
currently engaged in the following environmental and legal
proceedings:
Superfund
Sites
We are
currently involved as a potentially responsible party (PRP) in one active case
involving a waste disposal site. Currently, this proceeding is 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 PRPs. However, the costs incurred since
inception for this claim have been immaterial and have been primarily covered by
insurance, for both legal and remediation costs. 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 $0.4
million as of December 31, 2009, which approximates our share of the low end of
the range.
In
relation to the current superfund case, 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 this case having a
material adverse effect on our results of operations, financial position or cash
flows is remote. This case has been ongoing for many years and we
believe that it will continue on for the indefinite future. No time
frame for completion can be estimated at the present time.
During
2009, we settled a second superfund case when we reached agreement with the
Connecticut Department of Environmental Protection (CT DEP) as a de minimis
party and paid approximately $0.1 million to settle our portion of the claim,
which released us from further involvement with the site.
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 small amount of residual contamination at the site, we proposed a plan of
Monitored Natural Attenuation, which was subsequently rejected by the CT
DEP. The CT DEP has additionally rejected two revised plans that were
submitted. During the second quarter of 2009, the CT DEP required us
to install additional wells on site to better determine the amount and location
of the residual contamination. As of the third quarter of 2009, one
of the additional wells had tested positive for PCBs, and we were therefore
required to install additional wells to continue to try and determine the extent
of the contamination. We have accrued a liability of $0.2 million as
of year end 2009, which approximates our best estimate for additional
remediation costs at this site. Also, we recently discovered
additional contamination related to PCBs in the facility that contained the
equipment that was the source of the original PCB
contamination. During the third quarter of 2009, it was concluded
that remediation of the contamination within the facility will cost between $0.2
million and $0.4 million; therefore, we recorded an additional liability of $0.2
million related to this issue as of year end 2009, which represents the low end
of the estimated range.
Since
inception, we have spent approximately $2.5 million in remediation and
monitoring costs related to PCB’s at 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
A
significant number of asbestos-related product liability claims have been
brought against numerous United States 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, such amount merely represents jurisdictional
amounts. 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 identified as to us.
17
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 the late 1980s.
|
·
|
Claims
|
We have
been named in asbestos litigation primarily in Illinois, Pennsylvania and
Mississippi. As of December 31, 2009, there were approximately 167
pending claims compared to approximately 163 pending
claims at December 31, 2008. The number of
open claims during a particular time can fluctuate significantly from period to
period depending on how successful we have been in getting these cases dismissed
or settled. Some jurisdictions prohibit specifying alleged damages in
personal injury tort cases such as these, other than a minimum jurisdictional
amount which may be required for such reasons as allowing the case to be
litigated in a jury trial (which the plaintiffs believe will be more favorable
to them than if heard only before a judge) or allowing the case to be litigated
in federal court. This is in contrast to commercial litigation, in
which specific alleged damage claims are often permitted. The
prohibition on specifying alleged damage sometimes applies not only to the suit
when filed but also during the trial – in some jurisdictions the plaintiff is
not actually permitted to specify to the jury during the course of the trial the
amount of alleged damages the plaintiff is claiming. Further, in
those jurisdictions in which plaintiffs are permitted to claim specific alleged
damages, many plaintiffs nonetheless still choose not to do so. In those cases
in which plaintiffs are permitted to and do choose to assert specific dollar
amounts in their complaints, we believe the amounts claimed are typically not
meaningful as an indicator of a company’s potential liability. This is because
(1) the amounts claimed may bear no relation to the level of the
plaintiff’s injury and are often used as part of the plaintiff’s litigation
strategy, (2) the complaints typically assert claims against numerous
defendants, and often the alleged damages are not allocated against specific
defendants, but rather the broad claim is made against all of the defendants as
a group, making it impossible for a particular defendant to quantify the alleged
damages that are being specifically claimed against it and therefore its
potential liability, and (3) many cases are brought on behalf of plaintiffs
who have not suffered any medical injury, and ultimately are resolved without
any payment or payment of a small fraction of the damages initially
claimed. Of the approximately 167 claims pending as of December 31,
2009, 55 claims do not specify the amount of damages sought, 109 claims cite
jurisdictional amounts, and only three (3) claims (or approximately 1.8% of the
pending claims) specify the amount of damages sought not based on jurisdictional
requirements. Of these three (3) claims, two (2) claims allege
compensatory and punitive damages of $20,000,000; and one (1) claim alleges
compensatory and punitive damages of $1,000,000, and an unspecified amount of
exemplary damages, interest and costs. These three (3) claims name
between nine (9) and seventy-six (76) defendants. However, for the reasons cited
above, we do not believe that this data allows for an accurate assessment of the
relation that the amount of alleged damages claimed might bear to the ultimate
disposition of these cases.
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 increased slightly in 2007, declined in
2008 but increased again in 2009.
|
·
|
Defenses
|
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 the asbestos-containing products that we
manufactured. Based on these and other factors, we have and will
continue to vigorously defend ourselves in asbestos-related
matters.
18
|
·
|
Dismissals
and Settlements
|
Cases
involving us 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. For the fiscal year ended December 31, 2009,
we were able to have approximately 96 claims dismissed and settled 22
claims. For the fiscal year ended December 31, 2008, approximately 83
claims were dismissed and 4 were settled. The majority of costs have
been paid by our insurance carriers, including the costs associated with the
small number of cases that have been settled. Such settlements
totaled approximately $7.6 million in 2009, compared to approximately $1.5
million for 2008. Although these figures provide some insight into
our experience with asbestos litigation, no guarantee can be made as to the
dismissal and settlement rate 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 the majority of such costs have been
paid by our insurance carriers. In addition, to date, we have not
been required to pay any punitive damage awards.
|
·
|
Potential
Liability
|
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 our 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, the limited
amount and variability of our 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.
|
·
|
Insurance
Coverage
|
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 are three such primary carriers and numerous excess
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.
19
|
·
|
Cost
Sharing Agreement
|
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. A definitive cost sharing agreement was
finalized on September 28, 2006. Under the definitive agreement, the
primary insurance carriers will continue to pay essentially all resolution and
defense costs associated with these claims until the coverage is
exhausted.
|
·
|
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. Based on the assumptions employed by and the report
prepared by NERA and other variables, NERA and Marsh updated their respective
analyses for year end 2009 and the estimated liability and estimated insurance
recovery as of December 31, 2009, for the five-year period through 2014, is
$27.5 million and $27.4 million, respectively. As of December 31,
2008 the estimated liability and estimated insurance recovery, for the five-year
period through 2013, was $24.3 and $24.0 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
|
·
|
In
2005, we began to market our manufacturing facility in 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. We determined that the potential remediation cost
would be between approximately $0.4 million to $1.0 million with the most
likely cost being the mid-point of this range and therefore, we recorded a
$0.7 million charge in the fourth quarter of 2005. The
remediation for this site was completed during 2008. Due to the
remediation not being as extensive as originally estimated, we reduced the
accrual by approximately $0.5 million and paid approximately $0.2 million
in costs associated with the remediation work. During 2009, we
entered into the post-remediation monitoring period, which is required to
continue for a minimum of four quarters up to a maximum of eight quarters
and will continue at least to the end of 2010, at which point the CT DEP
will evaluate the site and determine if any additional remediation work
will be necessary, or if the site can be closed. As of December
31, 2009 any costs associated with this monitoring are expected to be
minimal and will be expensed as
incurred.
|
20
|
·
|
On
May 16, 2007, CalAmp Corp. (CalAmp) filed a lawsuit against us for
unspecified damages. During the second quarter of 2008, CalAmp
responded to discovery requests in the litigation and stated that their
then current estimated total damages were $82.9 million. In the lawsuit,
which was filed in the United States District Court, Central District of
California, CalAmp alleged performance issues with certain printed circuit
board laminate materials we had provided for use in certain of their
products. In the first quarter of 2009 this lawsuit was settled
for $9.0 million. The settlement was reached through mediation mandated by
the United States District Court for the Central District of
California. Both parties acknowledged that Rogers admitted no
wrongdoing or liability for any claim made by CalAmp. We agreed to
settle this litigation solely to avoid the time, expense and inconvenience
of continued litigation. Under the settlement reached through
mediation mandated by the U.S. District Court for the Central District of
California, we paid CalAmp the $9.0 million settlement amount in January
2009. We had accrued $0.9 million related to this lawsuit in
2007 and recorded an additional $8.1 million in the fourth quarter of
2008. Legal and other costs related to this lawsuit were
approximately $1.8 million in 2008. In February 2009,
subsequent to the settlement with CalAmp, we reached an agreement with our
primary insurance carrier to recover costs associated with a portion of
the settlement ($1.0 million) as well as certain legal fees and other
defense costs associated with the lawsuit (approximately $1.0
million). Payment for these amounts was received in the first
quarter of 2009. On February 6, 2009, we filed suit in the
United States District Court for the District of Massachusetts against
Fireman’s Fund Insurance Company, our excess insurance carrier, seeking to
collect the remaining $8.0 million of the settlement amount. At
this time, we cannot determine the probability of recovery in this matter
and, consequently, have not recorded this amount as a
receivable.
|
In
addition to the above issues, 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 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 Note 14
to the Consolidated Financial Statements in Item 8 of this Form
10-K.
None.
21
Our common
stock is traded on the New York Stock Exchange under the symbol
“ROG”. As of the end of business on February 5, 2010, we had 642
shareholders of record. On the same date, the trading price of our
common stock closed at $24.20 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.
|
2009
|
2008
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
Fourth
|
$ | 31.31 | $ | 25.07 | $ | 38.10 | $ | 21.03 | ||||||||
|
Third
|
31.44 | 18.64 | 44.50 | 35.53 | ||||||||||||
|
Second
|
26.60 | 16.66 | 42.27 | 30.79 | ||||||||||||
|
First
|
28.50 | 14.60 | 45.59 | 29.14 | ||||||||||||
Dividend
Policy
We did not pay any dividends on our
common stock in fiscal 2009 and 2008. 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
From time
to time, the Board of Directors authorizes the repurchase, at management’s
discretion and/or pursuant to a corporate 10b5-1 trading plan, of shares of our
common stock. On February 15, 2007, the Board of Directors approved a
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, the Board of
Directors approved a new buyback program, under which we were authorized to
repurchase up to an aggregate of $30 million in market value of common stock
over a twelve-month period. Through the three months ended March 30, 2008 we had
repurchased 906,834 shares of common stock, for $30.0 million, which completed
this buyback program. There has been no stock buyback program in
place since March 30, 2008.
22
(Dollars
in thousands, except per share amounts)
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Sales
and Income From Continuing Operations
|
||||||||||||||||||||
|
Net
sales
|
$ | 291,821 | $ | 365,362 | $ | 412,698 | $ | 430,366 | $ | 335,543 | ||||||||||
|
Income
(loss) before income taxes
|
(20,149 | ) | 25,106 | 23,540 | 69,497 | 38,925 | ||||||||||||||
|
Net
income (loss)
|
(62,870 | ) | 21,617 | 20,625 | 55,167 | 33,268 | ||||||||||||||
|
Per
Share Data From Continuing Operations
|
||||||||||||||||||||
|
Basic
|
(4.01 | ) | 1.38 | 1.25 | 3.29 | 2.04 | ||||||||||||||
|
Diluted
|
(4.01 | ) | 1.36 | 1.23 | 3.19 | 2.01 | ||||||||||||||
|
Book
value
|
18.61 | 21.47 | 22.17 | 21.09 | 17.24 | |||||||||||||||
|
Financial
Position
|
||||||||||||||||||||
|
Current
assets
|
164,215 | 184,293 | 247,054 | 272,554 | 181,030 | |||||||||||||||
|
Current
liabilities
|
42,845 | 59,836 | 68,286 | 82,143 | 57,366 | |||||||||||||||
|
Ratio
of current assets to current
liabilities
|
3.8
to 1
|
3.1
to 1
|
3.6
to 1
|
3.3
to 1
|
3.2
to 1
|
|||||||||||||||
|
Cash,
cash equivalents and short-term
investments
|
58,137 | 70,625 | 89,628 | 81,823 | 46,401 | |||||||||||||||
|
Working
capital
|
121,370 | 124,457 | 178,768 | 190,411 | 123,664 | |||||||||||||||
|
Property,
plant and equipment, net
|
123,140 | 145,222 | 147,203 | 141,406 | 131,616 | |||||||||||||||
|
Total
assets
|
407,478 | 483,439 | 470,948 | 480,902 | 400,600 | |||||||||||||||
|
Long-term
debt less current maturities
|
-- | -- | -- | -- | -- | |||||||||||||||
|
Shareholders’
Equity
|
292,950 | 336,144 | 363,981 | 357,177 | 280,250 | |||||||||||||||
|
Long-term
debt as a percentage of shareholders’
equity
|
0 | % | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||||
|
Other
Data
|
||||||||||||||||||||
|
Depreciation
and amortization from continuing operations
|
17,961 | 18,397 | 24,296 | 18,276 | 16,853 | |||||||||||||||
|
Research
and development expenses from continuing operations
|
17,395 | 21,885 | 24,600 | 24,168 | 19,403 | |||||||||||||||
|
Capital
expenditures from continuing operations
|
12,087 | 21,004 | 30,885 | 20,639 | 28,482 | |||||||||||||||
|
Number
of employees (average)
|
1,735 | 1,960 | 2,100 | 2,416 | 1,975 | |||||||||||||||
|
Net
sales per employee
|
168 | 186 | 197 | 178 | 170 | |||||||||||||||
|
Number
of shares outstanding at year-end
|
15,743,491 | 15,654,123 | 16,414,918 | 16,937,523 | 16,255,024 | |||||||||||||||
23
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
Company
Background and Strategy
We are 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 electronics, mass
transit, automotive, ground transportation, 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 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 sales and earnings.
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, wind and solar energy applications and hybrid electric and
electric vehicles. We continue to focus on business opportunities
around the globe, particularly in the Asian marketplace, as evidenced by the
continued investment in our facilities in Suzhou, China, which functions as our
manufacturing base serving 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.
2009
Executive Summary
We began
2009 in the midst of the global economic recession, which had a significant
negative impact on our business, particularly in the first half of the
year. Our management team responded to the economic downturn early in
the year through aggressive cost cutting measures, including reductions in work
force, as well as strategic reviews of our businesses. These
strategic reviews led in part to the recognition of certain impairments and
other one-time charges in the second quarter of 2009. Overall in
2009, sales declined by approximately 20% from $365.4 million in 2008 to $291.8
million in 2009. In 2009, we incurred a net loss of $62.9 million, or
$4.01 per share as compared to net income from continuing operations of $21.6
million, or $1.36 per diluted share, in 2008. 2009 results included a
charge, in the second quarter, of $53.1 million related to the valuation
allowance on our U.S. deferred tax asset, as well as $17.0 million of other net
one-time charges, primarily related to asset impairments, severance and discrete
tax adjustments, partially offset by a $2.9 million gain on the acquisition of
certain assets of MTI Global, Inc. (Note 16 to the Consolidated Financial
Statements in Item 8 of this Form 10-K for further discussion). These
charges were primarily due to the impact the economic downturn had on certain
businesses, as well as strategic decisions made by management related to the
future direction of certain businesses and the reduction in the cost structure
and work force necessitated by the overall decline in our business.
Although
the first half of the year was a challenge from both a sales and operations
standpoint, we began to experience a rebound late in the second quarter of 2009
that carried through the end of the year. In the third and fourth
quarters, sales volumes increased approximately 20% as compared to the first and
second quarters (sales of $65.5 million and $67.4 million, respectively, in the
first and second quarters of 2009, compared to $81.0 million and $78.0 million
in the third and fourth quarters of 2009, respectively) and we returned to
profitability in the second half of the year. The reductions in the
workforce and the cost cutting measures that occurred in the first half of the
year allowed the Company to become much more streamlined, which further enabled
a return to profitability at much lower sales volumes than would have been
possible before such actions were taken. Although we will have to add
back certain costs in the coming years, due primarily to salary increases and
incentive compensation programs that were eliminated in 2009, we believe that
many costs will not return, which will enable us to become more profitable when
and if sales volumes grow, depending in large part on our future sales mix, both
from a geographic and product standpoint.
24
Strategically,
we continue to focus on growing our business as the economy
recovers. We have focused resources on our new business development
activities, which include exploring acquisition opportunities that range from
acquiring existing companies to making strategic investments in early growth
stage companies, as well as investing in technologies adjacent to our
own. In 2009, the efforts of this group led to the acquisition of
certain assets of MTI Global, Inc., a silicone foam manufacturer, in the second
quarter and a strategic investment in Solicore, Inc., a leader in embedded power
solutions, offering its patented Flexion™ advanced ultra-thin, flexible, lithium
polymer batteries for smart cards, controlled access cards, RFID tags, and
medical devices, in the third quarter. Our management team is also
focused on growing our business organically through existing and new products by
gaining market share in existing markets, expanding into new, developing
markets, as well as through product extensions in both existing and new
applications.
Our
management team believes that, although it seems that the most difficult times
are behind us, many challenges still lie ahead as the economy continues to
struggle to recover as we enter into 2010. However, based on the
strategic decisions and changes made in 2009, management believes it is well
positioned to take advantage of opportunities that are presented over the coming
months and years that will enable us to profitably grow Rogers in the
future.
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.
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Gross
margins
|
27.1 | % | 31.2 | % | 27.0 | % | ||||||
|
Selling
and administrative expenses
|
23.5 | % | 22.5 | % | 17.3 | % | ||||||
|
Research
and development expenses
|
6.0 | % | 6.0 | % | 6.0 | % | ||||||
|
Restructuring
and impairment charges
|
7.7 | % | - | 0.8 | % | |||||||
|
Operating
income (loss)
|
(10.1 | )% | 2.7 | % | 2.9 | % | ||||||
|
Equity
income in unconsolidated joint ventures
|
1.8 | % | 1.7 | % | 2.0 | % | ||||||
|
Other
income, net
|
0.4 | % | 1.7 | % | 0.4 | % | ||||||
|
Net
investment losses
|
(0.1 | )% | - | - | ||||||||
|
Interest
income, net
|
0.1 | % | 0.8 | % | 0.4 | % | ||||||
|
Acquisition
gain
|
1.0 | % | ||||||||||
|
Income
(loss) from continuing operations before income taxes
|
(6.9 | )% | 6.9 | % | 5.7 | % | ||||||
|
Income
tax expense
|
14.6 | % | 1.0 | % | 0.7 | % | ||||||
|
Income
(loss) from continuing operations
|
(21.5 | )% | 5.9 | % | 5.0 | % | ||||||
25
2009
vs. 2008
Net
Sales
Net sales
in 2009 were $291.8 million, a decrease of 20.1% from $365.4 million of sales in
2008. The decrease in sales is attributable to declines at all of our
reportable segments, most notably our Custom Electrical Components segment,
which declined by 45.2% year-over-year, our High Performance Foams reportable
segment, which declined by 12.3%, and our Printed Circuit Materials reportable
segment, which declined 8.4% as compared to the prior year. A primary
driver of these declines was the global economic recession that severely
impacted our volumes in 2009, particularly in the first half of the
year. Additional factors impacting these results are discussed in
greater detail in the “Segment Sales and Operations” section below.
Manufacturing
Margins
Manufacturing
margins decreased by approximately 390 basis points to 27.1% in 2009 from 31.2%
in 2008. Margins decreased at all three of our strategic reportable
segments, with the most significant declines occurring in our Custom Electrical
Components and High Performance Foams reportable segments with declines of 45.8%
and 15.2%, respectively, in 2009 as compared to 2008. These margins
were significantly impacted by the volume declines experienced during the year,
particularly in the beginning of the year as margins in the first quarter (our
low point for sales) were approximately 21.2%. As the year
progressed, volumes increased and the Company’s cost cutting efforts, which were
initiated in the first and second quarters of 2009, began to take effect, which
resulted in sequential margin improvement, as evidenced by fourth quarter
margins of 30.0%, which were more comparable to levels achieved during 2008,
albeit on lower average volumes. Our margins will continue to be
driven to a large extent by both our volume levels and product mix.
Selling and Administrative Expenses
Selling
and administrative expenses were $68.5 million in 2009, a decrease of $13.7
million from $82.2 million in 2008. 2009 expenses declined, partially
as a result of the cost cutting measures initiated during the first quarter of
2009 as a result of the global economic recession. 2009 results
included approximately $2.1 million of one-time costs related to a product
liability claim on our printed circuit material products and $1.1 million of
costs associated with the integration of MTI Global operations, as well as
approximately $2.8 million of incremental costs related to our deferred benefit
pension plan as a result of the decline in asset value during
2008. 2008 results included a one-time charge of approximately $8.0
million related to the settlement of and legal fees for our lawsuit with CalAmp
(see Note 12 to the Consolidated Financial Statements in Item 8 of this Form
10-K for further discussion), as well as incentive compensation expense of
approximately $11.4 million. As a percentage of sales, selling and
administrative expenses increased in 2009 to 23.5% from 22.5% in 2008, primarily
as a result of the significant decline in sales experienced in 2009 as compared
to the prior year.
Research and Development Expenses
Research
and development expenses decreased by 20.5% from $21.9 million in 2008 to $17.4
million in 2009. This decline was due in part to the timing of
expenditures, as well as overall cost reductions as part of the cost reduction
program initiated in the first half of 2009. As a percentage of
sales, expenses remained consistent at 6.0% for 2009 and 6.0% in
2008. 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, as well as existing technologies, that
we believe will complement our existing product portfolio.
26
Restructuring
and Impairment Charges
During
2009, we recorded approximately $23.7 million in restructuring and impairment
charges (of which $0.8 million is recorded in “Cost of Sales” on our
consolidated statements of operations). The restructuring and
impairment charges were comprised of the following:
|
·
|
$18.0
million in charges related to the impairment of certain long-lived assets
in our Flexible Circuit Materials ($7.7 million), Durel ($8.6 million),
Advanced Circuit Materials ($0.8 million), Thermal Management Systems
($0.3 million) and High Performance Foams operations ($0.6
million);
|
|
·
|
$4.9
million in severance related to a global workforce reduction;
and
|
|
·
|
$0.8
million in charges related to additional inventory reserves related to the
restructuring of our Durel and Flexible Circuit Materials operations,
which is recorded in “Cost of sales” on our consolidated statements of
operations.
|
These
charges are discussed in greater detail below.
|
·
|
Flexible
Circuit Materials
|
In the
second quarter of 2009 as part of our strategic planning process, our management
team determined that we would exit the flexible circuit materials market and
effectively discontinue any new product development or research in this
area. Over the past several years, the flexible circuit materials
market has experienced increased commoditization of its products, resulting in
increased competition and extreme pricing pressures. In 2008, we took
certain initial actions to streamline our flexible circuit materials business,
including shifting production of certain products to our joint venture in
Taiwan, and retaining only certain, higher margin products. However,
we determined that the future markets for these products were very limited and
did not fit with the strategic direction of the Company. Therefore,
we determined that we would immediately stop production of certain remaining
flexible circuit materials products and continue to support only select
customers for a limited time period going forward, ultimately resulting in the
abandonment of our wholly-owned flexible circuit materials
business.
As a
result of these management decisions, we determined it appropriate to evaluate
the assets related to this business for valuation issues. This
analysis resulted in an impairment charge related to specific equipment located
in our Belgian facility. This equipment was to be used primarily for
the development of certain flexible circuit materials-related products; however,
based on the decision to abandon the business, this equipment is no longer of
use to us. We recognized an impairment charge of approximately $6.0
million related to this equipment and wrote it down to an estimated salvage
value of approximately $2.0 million. This charge is reported in the
“Restructuring and impairment” line item in our consolidated statements of
operations and is contained in our Other Polymer Products reportable
segment.
We also
recorded an impairment charge on a building located in Suzhou, China that was
built to support our flexible circuit materials business in the Asian
marketplace. We are currently marketing this building for sale and
have classified it as an “asset held for sale” and recorded an impairment charge
of approximately $1.6 million to reflect the current fair market value of the
building less costs to sell. The remaining asset value of $4.0
million will be classified as an “asset held for sale” in the “current asset”
section of our consolidated statements of financial position. The
impairment charge is reported in the “Restructuring and impairment” line item in
our consolidated statements of operations and is contained in our Other Polymer
Products reportable segment.
Further,
as part of the decision to exit the flexible circuit materials business, we
recorded additional reserves on certain inventory that will no longer be sold,
of approximately $0.4 million. This charge is reported as part of
“Cost of sales” in our consolidated statements of operations and is contained in
our Printed Circuit Materials reportable segment.
We also
recorded an impairment charge on certain other assets pertaining to the flexible
circuit materials business in Asia of approximately $0.1 million, which is
reported in the “Restructuring and impairment” line item in our consolidated
statements of operations and is contained in our Other Polymer Products
reportable segment.
|
·
|
High
Performance Foams
|
During the
fourth quarter of 2009, we recorded an impairment charge of $0.6 million on our
manufacturing facility located in Richmond, Virginia which was acquired as part
of the acquisition of certain assets of MTI Inc. The building was
classified as an “asset held for sale” when acquired in the second quarter of
2009. Current market conditions resulted in the fourth quarter
impairment charge.
27
This
charge is in our High Performance Foams reportable segment.
|
·
|
Durel
|
Over the
past few years, our Durel electroluminescent (EL) lamp business has steadily
declined as new technologies have emerged to replace these lamps in cell phone
and other related applications. In the second quarter of 2007, we
took initial steps to restructure the Durel business for this decline, as we
shifted the majority of manufacturing to our China facility and recorded
impairment charges on certain U.S. based assets. Since that time, we
have continued to produce EL lamps out of our China facility at gradually
declining volumes and our management team has initiated efforts to develop new
product applications using our screen printing technology. Our
initial forecasts indicated the potential for new applications to go to market
in the second half of 2009; however, at this point we have not successfully
developed any new applications that we currently estimate would generate
material cash flows in the future. We concluded that this situation,
plus the fact that our EL lamp production is now primarily limited to automotive
applications as there are no longer material sales into the handheld market as
of the second quarter of 2009, is an indicator of
impairment. The resulting analysis concluded that these assets
should be treated as “abandoned”, as they are not in use and we do not
anticipate the assets being placed in use in the near future. As
such, these assets were written down to their current fair value, which in this
case approximates salvage value as there is not a readily available market for
these assets since the technology is becoming obsolete. Therefore, we
recorded an impairment charge of approximately $4.6 million related to these
assets, resulting in a remaining book value of approximately $0.7
million. This charge is reported in the “Restructuring and
impairment” line item in our consolidated statement of operations.
Further,
as a result of reaching end of life on certain handheld applications, we
recorded additional inventory reserves of approximately $0.4 million, as this
inventory no longer has any value or future use. This charge is
reported as part of “Cost of sales” in our consolidated statements of
operations.
During the
fourth quarter of 2009, as a result of the continued decline in the Durel
business, as described above, we made the decision to market for sale the Durel
facility located in Chandler, Arizona. As a result of this decision,
the fair value of the building was appraised at approximately $7.1 million,
resulting in an impairment charge of $4.0 million. This charge is
reported in the “Restructuring and impairment” line item in our consolidated
statement of operations. Technically, the building does not meet the
definition of an asset-held-for-sale, per the relevant accounting guidance, and
therefore it will continue to be classified as “Property, plant and equipment”
on our consolidated statement of financial position at December 31,
2009.
These
charges are reported in our Custom Electrical Components reportable
segment.
|
·
|
Advanced
Circuit Materials
|
Early in
2008, management determined based on forecasts at that time, that we would need
additional capacity for our high frequency products later that
year. Management had already undertaken initiatives to build
additional capacity through a new facility on our China campus, but needed a
solution to fill interim capacity needs. Therefore, we initiated
efforts to move idle equipment from our Belgian facility to our Arizona facility
and incurred costs of approximately $0.8 million due to these
efforts. At the end of 2008, our overall business began to decline
due in part to the global recession, and management determined that we would not
need this equipment at that time but that we would still need certain capacity
later in 2009 prior to the China capacity coming on line. However, in
2009, business did not recover as quickly as anticipated and we now believe that
we will not need this equipment as we currently have sufficient capacity to meet
our current needs and the China facility will be available in time to satisfy
any increase in demand. Therefore, we have determined that the costs
incurred related to the relocation of this equipment should be impaired and
equipment purchased or refurbished as part of the relocation should be written
down to an estimated salvage value, resulting in a charge of approximately $0.8
million, which is reflected in the “Restructuring and impairment” line item on
our consolidated statements of operations.
These
charges are reported in our Printed Circuit Materials reportable
segment.
28
|
·
|
Thermal
Management Systems
|
In the
second quarter of 2009 as part of our strategic planning process, our management
team determined that we would abandon the development of certain products
related to our thermal management systems start up business, specifically
products related to our thermal interface material (TIM). We have not
been successful in developing this product and are not confident in its future
market potential; therefore, we chose to abandon its development to focus solely
on the development of aluminum silicon carbide products, which we believe have a
stronger market potential. This decision resulted in a charge of
approximately $0.3 million from the impairment of certain assets related to TIM
production. This charge is reflected in the “Restructuring and
impairment” line item on our consolidated statements of operations.
These
charges are reported in our Other Polymer Products reportable
segment.
|
·
|
Severance
|
In the
first half of 2009, we announced certain cost reduction initiatives that
included a workforce reduction and a significant reduction in our operating and
overhead expenses in an effort to better align our cost structure with the lower
sales volumes experienced at the end of 2008 and in 2009. As a
result, we recognized approximately $4.9 million in severance charges in 2009,
and paid out approximately $3.8 million in severance during 2009.
A summary
of the activity in the severance accrual as of December 31, 2009 is as
follows:
|
Balance
at December 31, 2008
|
$ | - | ||
|
Provisions
|
4,920 | |||
|
Payments
|
(3,832 | ) | ||
|
Balance
at December 31, 2009
|
$ | 1,088 |
These
charges are included in the “Restructuring and impairment charges” line item on
our consolidated statements of operations and are reported across all reportable
segments.
Equity
Income in Unconsolidated Joint Ventures
Equity
income in unconsolidated joint ventures decreased $0.8 million from $6.2 million
in 2008 to $5.4 million in 2009. The decrease is primarily driven by
the continued decline of our flexible circuits joint venture in Taiwan, Rogers
Chang Chun Technology, Co., combined with the decline experienced in our
polyurethane foam joint venture with INOAC Corporation in China, which
experienced weakened demand, due primarily to the impact of the global
recession, as well as excess inventory in the supply chain, particularly in the
first half of the year. Sales improved in the third and fourth
quarters, particularly at RIS, primarily due to the improvement in the Chinese
economy in the second half of 2009.
Other
Income
Other
income decreased from $6.1 million in 2008 to $1.0 million in
2009. The decrease is due in part to the impact of foreign currency
fluctuations and our related hedging program that was implemented in 2008, which
collectively contributed approximately $1.2 million in unfavorable net
adjustments in 2009, compared to $2.0 million in favorable adjustments in 2008,
as well as a decrease in 2009 in commission income of $0.8 million related to
our PLS joint venture.
Income
Taxes
Our
effective tax rate was (212.0%) in 2009 and 13.9% in 2008. In 2009,
our effective tax rate was unfavorably impacted by recording a valuation
allowance charge of $57.3 million against our U.S. deferred tax
assets. This charge is comprised of an initial charge of $53.1
million in the second quarter and additional adjustments over the remainder of
2009, of $4.2 million. This charge was primarily due to the fact that
in 2009, we were in a significant three-year cumulative loss position in the
U.S. Also, in both 2009 and 2008, our tax rate was favorably impacted
by the tax benefit associated with certain discrete rate items recorded during
the year and continued to benefit from favorable tax rates on certain foreign
business activity.
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 followed by a reduced tax rate in subsequent
years. In 2009, the fifth year under this agreement, RSZ reported
pretax income of $0.3 million, which was subject to a tax rate of 10%, resulting
in a negligible decrease in our effective tax rate. In 2008, the
fourth year under this agreement, RSZ reported pretax income of $3.0 million,
which was subject to a tax rate of 9%, resulting in a decrease of 3 percentage
points in our effective tax rate. Under the business license
agreement granted to Rogers (Shanghai) International Trading Company Ltd. (RSH),
we were subject to a rate of tax of 20% in 2009, which resulted in a decrease of
5 percentage points in our effective tax rate based upon RSH’s pretax income of
$5.1 million. In 2008, RSH was subject to a rate of tax of 18%, which
resulted in a decrease of 5 percentage points in our effective tax rate based
upon their pretax income of $7.0 million.
29
Backlog
Our
backlog of firm orders was $29.2 million at December 31, 2009, as compared to
$24.8 million at December 31, 2008. The increase in the fourth quarter of 2009
was primarily related to the increase in sales in the High Performance Foams
reportable segment, as backlog for the polyurethane and silicone foam business,
primarily sold into the portable communications, mass transit and consumer
electronics markets, combined with the effect of the acquisition of certain
assets of MTI Global Inc. increased by approximately $5.4 million at year-end
2009 as compared to year-end 2008.
2008
vs. 2007
Net
Sales
Net sales
in 2008 were $365.4 million, a decrease of 11.5% from $412.7 million of sales in
2007. The decrease in sales was primarily due to a 31.4% decrease in
the Custom Electrical Components reportable segment from $135.1 million in 2007
to $92.6 million in 2008 and in the Printed Circuit Materials reportable segment
of $20.6 million, or 14.3%, from $143.8 million to $123.2 million, partially
offset by an increase in sales in our High Performance Foams reportable segment
of $8.9 million, or 8%, from $110.6 million to $119.5 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 increased approximately 420 basis points to 31.2% in 2008 from 27.0% in
2007. Margins increased at our three strategic segments – High
Performance Foams, Printed Circuit Materials and Custom Electrical Components -
due in part to our focus on cost containment measures as well as gaining
operational efficiencies in anticipation of the volume declines that occurred at
the end of 2008. Also, in 2007, we recognized certain charges
relating to our restructuring activities that included recognizing reserves on
certain inventories at our Durel and Flexible Circuit Materials operating
segments that negatively impacted our margins in 2007. A portion of
this inventory reserved in 2007 was sold in 2008, which positively impacted our
margins in 2008 by approximately 100 basis points.
Selling and Administrative Expenses
Selling
and administrative expenses were $82.2 million in 2008, an increase of $10.8
million from $71.4 million in 2007. The 2008 results included
approximately $8.0 million in charges related to the settlement of and legal
fees for our lawsuit with CalAmp (see Note 12 to the Consolidated Financial
Statements in Item 8 of this Form 10-K for further discussion), as well as
incentive compensation expense of approximately $11.4 million. These
2008 charges were partially offset by the cost containment initiatives and
operating efficiency measures that were implemented during the
year. The 2007 expense included approximately $2.4 million of charges
related to restructuring activities that were initiated in the second quarter of
2007 related to our Durel and Flexible Circuit Materials operating
segments. Overall selling and administrative expenses increased as a
percentage of sales from 17.3% in 2007 to 22.5% in
2008.
Research and Development Expenses
Research
and development expenses decreased from $24.6 million in 2007 to $21.9 million
in 2008. As a percentage of sales, expenses remained consistent at
6.0% in both 2008 and 2007. 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, as well as existing
technologies, that we believe will complement our existing product
portfolio.
30
Restructuring
and Impairment Charges
Restructuring
and impairment charges were $13.8 million in 2007, while there were no such
charges in 2008. The charges in 2007 related primarily to our Durel
and flexible circuit materials operating segments. The charges
consisted of (i) accelerated depreciation and amortization on fixed assets and
contracts ($5.0 million), (ii) an 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”. Further discussion of these amounts is as
follows:
|
·
|
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. As of year end 2008, substantially
all EL production, including lamps for the automotive industry, shifted to our
China facility. 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. The impairment analysis, which was completed as part of the
second quarter of 2007 closing process, led us to conclude that no impairment
charge associated with the Durel long-lived assets was necessary. As
such, we determined that it was appropriate to reduce the estimated useful lives
of EL lamp related equipment in Durel’s U.S. 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 incurred charges of approximately $0.4 million in 2008
related to these restructuring activities and sold approximately $2.7 million of
previously reserved inventory.
|
·
|
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 was 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, had become a commodity
product with increased global competition and pricing pressure driven by excess
capacity. This commoditization 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. The impairment analysis, which
was completed as part of the second quarter of 2007 closing process, concluded
that no impairment charge associated with the flexible circuit materials
long-lived assets was necessary. As such, we determined that it was
appropriate to reduce the estimated useful lives of the equipment related to the
flexible circuit materials operating 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 incurred minimal charges in 2008 related to these
restructuring activities and sold approximately $1.0 million of previously
reserved inventory.
|
·
|
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 had 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. The impairment analysis, which was completed as part of the
2007 second quarter closing process, 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.
31
|
·
|
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. This resulted in $3.0 million of severance charges
recorded in 2007. In addition, we made severance payments of $1.4
million in 2007 and the remaining $1.6 million was paid in 2008.
Equity
Income in Unconsolidated Joint Ventures
Equity
income in unconsolidated joint ventures decreased $1.9 million from $8.1 million
in 2007 to $6.2 million in 2008. Joint venture sales were down across
all businesses, which were primarily related to customers managing inventories
caused by the softening in consumer demand. Most impacted were our
polyurethane foam joint ventures with INOAC Corporation in Japan and China,
which experienced weakened demand, particularly in the gaming console and cell
phone markets.
Other
Income
Other
income increased from $1.7 million in 2007 to $6.1 million in
2008. The increase was due in part to our foreign currency hedging
program that was implemented in 2008, which contributed approximately $2.0
million in favorable foreign currency adjustments in 2008, as well as an
increase in commission income related to our PLS joint venture ($0.3 million)
and the inclusion of certain one-time charges associated with adjusting our
legal entity structure in China that negatively impacted 2007 results, as well
as certain other one-time charges, that did not occur in 2008.
Income
Taxes
Our
effective tax rate was 13.9% in 2008 and 12.4% in 2007. In 2008 and
2007, our tax rate was favorably impacted by the tax benefit associated with
certain discrete rate items recorded during the year and continued to benefit
from favorable tax rates on certain foreign business activity and general
business tax credits.
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 followed by a reduced tax rate in subsequent
years. In 2008, the fourth year under this agreement, RSZ reported
pretax income of $3.0 million, which was subject to a tax rate of 9%, resulting
in a decrease of 3 percentage points in our effective tax rate. In
2007, RSZ reported pretax income of $6.5 million, which was subject to a tax
rate of 7.5% and which resulted in a decrease to our effective tax rate of
7%. Under the business license agreement granted to Rogers (Shanghai)
International Trading Company Ltd. (RSH), we were subject to a rate of tax of
18% in 2008, which resulted in a decrease of 5 percentage points in our
effective tax rate based upon their pretax income of $7.0 million. In
2007, RSH reported pretax income of $8.8 million, which was subject to a tax
rate of 15% and which resulted in a decrease to our effective tax rate of
7%.
Backlog
Our
backlog of firm orders was $24.8 million at December 31, 2008, as compared to
$42.6 million at December 30, 2007. The decrease at the end of 2008 was
primarily related to the decrease in sales in the Custom Electrical Components
reportable segment, as backlog for electroluminescent lamps and inverters,
primarily sold to manufacturers of portable communications equipment and
automobiles, decreased by approximately $12.5 million at year-end 2008 as
compared to year-end 2007.
32
Segment
Sales and Operations
Printed
Circuit Materials
|
(Dollars
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 112.9 | $ | 123.2 | $ | 143.8 | ||||||
|
Operating
income (loss)
|
0.3 | (3.0 | ) | 1.2 | ||||||||
Our
Printed Circuit Materials (PCM) reportable segment is comprised of high
frequency circuit material products. Net sales in this segment
decreased by 8% in 2009 as compared to 2008 and by 14% in 2008 as compared to
2007. In 2009, the decline in sales was partially driven by the
economic recession, although not to the same extent as some of our other
businesses. This segment was also impacted by the overall worldwide
softness in the wireless infrastructure market and delays in spending on Third
Generation program awards in China. These declines were partially
offset by strong demand for high frequency materials into the satellite
television market for low noise block-down converters (LNBs) in China, with
moderate demand in the U.S. and Europe. Additionally, sales into the
defense and high reliability markets were up modestly, particularly in the
second half of the year. From an operating results perspective, 2009
included approximately $0.8 million of costs related to the impairment of
certain equipment, $0.4 million related to additional inventory reserves, $1.8
million related to a product liability claim and severance charges of $1.7
million. 2008 results included charges of approximately $8.0 million
related to the settlement of and legal fees for our lawsuit with
CalAmp.
From 2007
to 2008, the decline in sales was due primarily to the reduced sales volumes of
flexible circuit material products, which has effectively been eliminated from
our product portfolio as the market became commoditized over the past few
years. 2008 results also included approximately $8.0 million for
settlement costs and legal fees related to the CalAmp
litigation. 2007 results included one-time charges of 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.
High
Performance Foams
|
(Dollars
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 104.8 | $ | 119.5 | $ | 110.6 | ||||||
|
Operating
income
|
5.1 | 20.6 | 20.0 | |||||||||
Our High
Performance Foams (HPF) reportable segment is comprised of Poronâ urethane and
Biscoâ silicone
foam products. Net sales in this segment decreased by 12% in 2009 as
compared to 2008 and increased by approximately 8% in 2008 as compared to
2007. In 2009, HPF was impacted significantly by the recession,
particularly in the first half of the year, as weakened consumer spending and
supply chain inventory issues negatively impacted revenues across all end
markets. Cell phone applications in particular experienced
significant declines as manufacturers had excess inventory in the supply
chain. However, as the year progressed, sales into the portable
handset applications and consumer electronics market, improved as the supply
chain inventory corrections were completed and order rates
increased. In the second quarter of 2009, we completed our
acquisition of certain assets of the silicone foam business of MTI Global, Inc.,
which was accretive to our sales volumes over the second half of the
year. In the second half of 2009, we experienced sales volume
increases as compared to the first half of the year, particularly in cell phone
and consumer electronics markets. Additionally, orders improved for
our silicone foam materials into the mass transit and general industrial
markets, in part due to the acquisition of certain MTI Global, Inc.
assets. 2009 results include approximately $1.6 million of one-time
integration costs related to this purchase, as well as $2.0 million in severance
charges related to both the acquisition, as well as the worldwide workforce
reduction announced in the first half of the year. At the end of
2009, the integration of the assets of MTI Global, Inc. was substantially
complete.
In 2008 as
compared to 2007, sales and operating profits both increased year-over-year, as
the segment experienced growth driven 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. However, as 2008 came to a close, sales across
all markets declined as the global economic crisis and associated decline in
consumer spending began to impact the business.
33
Custom
Electrical Components
|
(Dollars
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 50.8 | $ | 92.6 | $ | 135.1 | ||||||
|
Operating
income (loss)
|
(21.2 | ) | (0.1 | ) | (4.1 | ) | ||||||
Our Custom
Electrical Components (CEC) reportable segment is comprised of
electroluminescent lamps, inverters, and power distribution systems
products. Net sales in this segment have decreased significantly
since 2007 as the segment experienced a decline of approximately 45% in 2009 as
compared to 2008 and approximately 31% in 2008 as compared to 2007, while
operating results continued to produce losses across all three
years. The consistent decline in sales is directly attributable to
the reduction in demand for EL backlighting in the portable communications
market. These declines have been partially offset by sales of power
distribution systems products into the mass transit market, as well as into
sustainable energy markets, particularly for wind turbine applications, where
demand continues to grow as more countries focus on alternative clean energy
sources. 2009 results included $8.6 million of asset impairment
charges related to the write-down of certain equipment and buildings, $0.4
million of incremental inventory reserves, and severance charges of
approximately $0.9 million related to our global workforce reduction in early
2009. Also, 2007 results included a net restructuring charge of $10.2
million, which was 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.) We are currently exploring other potential opportunities for
our EL technology, particularly in the consumer electronics markets, among
others.
Other
Polymer Products
|
(Dollars
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 23.3 | $ | 30.1 | $ | 23.1 | ||||||
|
Operating
income (loss)
|
(13.7 | ) | (7.6 | ) | (5.4 | ) | ||||||
Our Other
Polymer Products (OPP) reportable segment consists of the following
products: elastomer rollers, floats, non-woven materials, flexible
circuit materials (resale from RCCT) and thermal management
products. Net sales decreased in 2009 as compared to 2008 by 23% and
increased from 2007 to 2008 by approximately 30%. The declines in
2009 are primarily attributable to sales volume decreases of our elastomer
rollers and float products due mostly to the global recession and increased
competition in Asia. Also contributing to the declines, particularly
in operating results, were costs associated with our thermal management
products, which is still in its start up phase and has yet to generate material
sales volumes. From an operating results standpoint, 2009 results
included approximately $8.0 million in asset impairment charges related to
equipment and buildings and severance charges of $0.4 million. (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
increase in sales in 2008 as compared to 2007 was primarily due to the inclusion
of a new operating segment in this reportable segment. In 2008, as
previously disclosed, we restructured our Flexible Circuit Materials operating
segment and outsourced the majority of the manufacturing of these products to
our joint venture, RCCT. As part of this restructuring, we agreed to
distribute the products now produced by RCCT, the related sales for which are
included in this segment. Also as previously disclosed, we sold our
Induflex operating segment, which was previously reported in this reportable
segment but is now reported as a discontinued operation for financial reporting
purposes. The segment’s operating results declined in 2008 as
compared to 2007 primarily due to the start up costs associated with our Thermal
Management Systems operating segment, as well as losses associated with the new
Flexible Circuit Materials distribution segment mentioned above. In
2007, this segment’s results included approximately $0.5 million in
restructuring charges related to the impairment of goodwill related to our
composite materials business. Also 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.
34
We
continuously evaluate the viability of the product portfolio in this segment as
it relates to our long-term strategic and operational focus.
Joint
Ventures
Rogers
INOAC Corporation (RIC)
RIC, our
joint venture with Japan-based INOAC Corporation, was established over 25 years
ago and manufactures high performance PORONâ urethane foam
materials in Japan. Sales decreased 4% from 2008 to 2009 following an
increase of 6% from 2007 to 2008. The increase experienced in 2007
and early in 2008 was primarily driven by new LCD gasket design wins in portable
communications and electronic games for the domestic Japanese
market. However, sales volumes declined at the end of 2008 and
through 2009 due to softening demand, primarily as a result of the global
recession.
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 decreased
12% from 2008 to 2009, following a similar 12% decrease, from 2007 to
2008. The decline in sales for 2009 is a result of the global
recession and excess inventory in the supply chain, particularly in the first
half of 2009. Sales levels improved in the third and fourth quarters
of 2009 due primarily to the improvement in the Chinese economy.
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 27% from 2008 to 2009 and 7% from 2007 to
2008. The decreases experienced in 2009 and 2008 were primarily
driven by the overall global decline in the flexible circuit materials
market.
Polyimide
Laminate Systems, LLC (PLS)
PLS, our
joint venture with Mitsui Chemicals, Inc., sells adhesiveless laminates for
trace suspension assemblies. Sales declined 32% from 2008 to 2009 and
increased by 4% in 2008 as compared to 2007. The increase in 2008 was
due to strong demand in the first half of the year in the personal computer
market, however demand declined significantly by the end of 2008 and into 2009,
primarily as a result of the global recession which led to the sales decline and
excess inventories at our primary customer.
Discontinued
Operations
On October
31, 2008, we closed on an agreement to sell the shares of our Induflex
subsidiary to BV Capital Partners. Under the terms of the agreement,
Rogers received approximately 10.7 million euros (US$13.6 million at the October
31, 2008 spot price), which represented the purchase price of approximately 8.9
million euros plus other amounts due under the agreement. In addition to
this purchase price, there is an opportunity for Rogers to receive additional
earnout amounts for three years from the date of the sale based on the future
performance of the divested business.
This
subsidiary had been aggregated in our Other Polymer Products reportable
segment. Net income of $1.7 million and $1.2 million have been
reflected as discontinued operations in the accompanying consolidated statements
of income for the years ended December 31, 2008 and December 30, 2007,
respectively. The net gain reflected as discontinued operations at
December 31, 2008 includes a $3.2 million gain related to the sale of
Induflex. Net sales associated with the discontinued operations were
$16.7 million and $18.7 million for the years ended December 31, 2008 and
December 30, 2007, respectively. The tax related to the discontinued
operations was $0.2 million and $0.4 million of tax expense for December 31,
2008 and December 30, 2007, respectively. There was no effect to
operating results in 2009, as a result of this discontinued
operation.
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 year ended 2007, $0.3 million of
net income has been reflected as discontinued operations in the accompanying
consolidated statements of income. Net sales associated with the
discontinued operations were $1.9 million for 2007. 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 17 – Discontinued Operations” to the
Consolidated Financial Statements in Item 8 of this Form 10-K for further
discussion.
35
Product
and Market Development
Our
research and development team is dedicated to growing our businesses by
developing cost effective solutions that enable or improve the performance of
customers’ products. Research and development as a percentage of sales was
approximately 6.0% in 2009 as compared to 6.0% in 2008 and 6.0% in
2007. 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 expand
product offerings based on existing platforms, improving existing products and
developing new platforms.
We
introduced a variety of new products during 2009. For example, our
High Performance Foams business, we introduced a Poron product that enables
sports equipment and protective gear makers to improve impact protection, and
also new grades of thin, highly compressible dust seal materials to better
protect cell phone displays. In our Custom Electrical
Components business, we introduced an integrated circuit that drives
piezoelectric devices to enable tactile feedback on touchscreens and a product
that combines polymer dispersed light shutter technology with electroluminescent
lighting to enable reconfigurable keypads that are visible under a wide range of
lighting conditions. In our Printed Circuit Materials business, we
introduced two new products for cell phone base station antennas, a product that
allows the size of power amplifiers to be reduced and a family of
environmentally-friendly halogen free circuit materials for wired broadband
communications infrastructure.
Liquidity,
Capital Resources, and Financial Position
We believe
that our ability to generate cash from operations to reinvest in our business is
one of our fundamental strengths, as demonstrated by our financial position
remaining strong throughout 2009 in a year of declining sales. 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, our cash position and internally generated funds during the year will be
sufficient to meet the capital expenditures and ongoing financial needs of our
business. In addition, we continue to have access to a substantial
line of credit should any unforeseen need impact the business. We
continually review and evaluate the adequacy of our lending facilities and
banking relationships.
Cash
Flows from Operating, Investing and Financing Activities
At
December 31, 2009, December 31, 2008 and December 30, 2007 we had cash and cash
equivalents of $57.7 million, $70.2 million and $36.3 million, respectively, and
working capital of $121.4 million, $124.5 million and $178.8 million,
respectively.
Cash flows
from operating activities were $2.6 million in 2009 compared to $72.1 million in
2008 and $64.9 million in 2007. Significant items that impacted
operating cash flows included the following:
|
·
|
A
decrease in inventories of $10.0 million in 2009 as compared to $7.4
million in 2008 and $19.7 million in 2007. The continuing
decline from 2008 to 2009 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 as sales
declined significantly late in 2008 and through the first half of
2009.
|
|
·
|
An
increase in accounts receivable of $4.3 million in 2009 as compared to a
decrease of $29.5 million in 2008 and a decrease of $13.0 million in
2007. The increase in 2009, versus the decrease in 2008 and
2007, is primarily due to increased sales volumes in the second half of
2009, even though collections remained
strong.
|
|
·
|
A
decrease in accounts payable and other accrued liabilities of $18.0
million in 2009 as compared to a decrease of $7.0 million in 2008 and
$10.0 million in 2007. The decline in 2009 is primarily due to
the payout in 2009 of the 2008 annual incentive compensation plan and the
payout of $8.0 million related to the settlement of the CalAmp
lawsuit. Also contributing to the decrease was a decline in raw
material purchases related to the decreased production levels which is
further evidenced by the decrease in inventory balances over the
comparable periods as discussed above, driven by our efforts to maintain
cash flows in the face of lower sales in a declining
economy. Contributing to the decline in 2009 is the payout in
2009 of the 2008 annual incentive compensation plan and the payout of $8.0
million related to the settlement of the CalAmp
lawsuit.
|
36
During
2009, we used $17.9 million in cash for investing activities as compared to $7.2
million in 2008 and $17.0 million in 2007. In 2009 we used
approximately $7.4 million of cash for the acquisition of certain assets of the
MTI Global, Inc. business and for a $5.0 million investment in
Solicore. Additionally, 2008 had lower cash used in investing
activities because of $10.5 million of cash received related to the sale of the
Induflex business. Capital expenditures were $12.1 million, $21.0
million and $30.9 million in 2009, 2008 and 2007, respectively. The
higher 2007 capital spending was driven by our continued investment in
manufacturing capacity in Suzhou, China.
Net cash
provided by financing activities was $1.4 million in 2009 as compared to cash
used by financing activities of $26.6 million and $27.6 million in 2008 and
2007, respectively. The use of cash in 2008 and 2007 was driven
primarily by our stock repurchase program, as $30.0 million and $35.5 million
were spent to reacquire stock in 2008 and 2007, respectively. We did
not repurchase any stock in 2009.
Credit
Facilities
We have a
Multicurrency Revolving Credit Agreement with RBS Citizens, National Association
(Bank), a successor in interest to Citizens Bank of Connecticut (Credit
Agreement). On November 16, 2009, we entered into Amendment No. 5
(Amendment) to this Credit Agreement. Pursuant to this Amendment, the
total facility under the Credit Agreement was reduced from $100 million to $50
million, by eliminating the previously existing $25 million credit facility and
reducing the previously existing $75 million credit facility to $50
million. The current
$50 million credit facility (Credit Facility) is available for loans or letters
of credit. It is a multi-currency facility under which we may borrow
in U.S. dollars, Japanese Yen, Euros or any other currency freely convertible
into U.S. dollars and traded on a recognized interbank market. Under
the terms of the Credit Agreement, we have the right to incur additional
indebtedness outside of the Credit Agreement through additional borrowings in an
aggregate amount of up to $25 million.
The Credit
Facility expires on November 12, 2011. 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 a rate 200 basis points over
LIBOR. Under the arrangement, the ongoing commitment fee is 30
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.
There were
no borrowings pursuant to the Credit Agreement at December 31, 2009 and December
31, 2008, respectively. The Credit Agreement contains restrictive
covenants primarily related to total indebtedness, interest expense, and capital
expenditures. The Amendment modifies the definition of EBITDA
contained in the Credit Agreement by adding back into earnings non-cash stock
compensation charges and certain asset impairment charges, thereby relieving
certain restraints on our ability to borrow. We were in compliance
with all covenants at December 31, 2009 and December 31, 2008.
At
December 31, 2009 we had the following standby letters of credit (LOC) and
guarantees that were backed by the Credit Facility:
|
·
|
$1.0
million irrevocable standby LOC - to guarantee Rogers’ self insured
workers compensation plan
|
|
·
|
$0.2
million letter guarantee – to guarantee a payable obligation for a Chinese
subsidiary (Rogers Shanghai)
|
No amounts
were owed on the LOCs as of December 31, 2009 and December 31, 2008,
respectively.
The
volatility in the credit markets has generally diminished liquidity and capital
availability in worldwide markets. We are unable to predict the likely duration
and severity of the current disruptions in the credit and financial markets and
adverse global economic conditions. However, we believe that our existing
sources of liquidity and cash expected to be generated from future operations,
together with existing and anticipated available long-term financing, will be
sufficient to fund operations, capital expenditures, and research and
development efforts for at least the next twelve months.
37
Financial
Position
The
following discusses the significant fluctuations on our balance sheet at
December 31, 2009 as compared to December 31, 2008:
|
·
|
Decrease
in inventories of 18.7% 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.
|
|
·
|
Increase
in accounts receivable of 3.8% is primarily attributable to increased
sales volumes in the fourth quarter of 2009 as compared to the significant
decline in sales in the fourth quarter of 2008, offset by our concentrated
collection efforts in order to strengthen our cash and working capital
position.
|
|
·
|
Decrease
in accrued employee benefits and compensation of 37.6% is a result of the
annual incentive compensation and commission payouts for 2008, which were
not earned in 2009 as a result of the poor results of the
business.
|
|
·
|
Decrease
in accounts payable of 19.9% 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.
|
|
·
|
Increase
in additional paid-in capital of 30.6% is primarily related to equity
compensation combined with stock option
exercises.
|
Auction
Rate Securities
As of
December 31, 2009, we held approximately $43.4 million of auction rate
securities at par value as compared to approximately $50.0 million as of
December 31, 2008. At the end of 2007, these securities were
classified as available-for-sale and recorded at fair value based on market
valuations at that time (Level 1 input in accordance with accounting
guidance). However, in the first quarter of 2008, the markets in
which these securities traded became illiquid, causing us to reclassify these
securities from a Level 1 input to a Level 3 input, as an active market no
longer existed for these securities, and therefore we had to base our valuations
on unobservable inputs. Accordingly, our asset value was determined
considering several factors, including an estimated time horizon for redeeming
such securities, a discount factor to determine the present value of such
securities, as well as the quality of the underlying securities, most of which
were backed by investment grade student loans or municipalities. Our
initial valuations utilized a discount period of approximately two years, which
represented our best estimates of the time period over which these securities
would be redeemed. However, as 2008 progressed, we determined that,
based on the market conditions at the time that the estimated time horizon for
redemption of such securities would be greater than two years and, in the fourth
quarter of 2008, we adjusted our assumptions for this
consideration. The total fair value of the auction rate securities at
December 31, 2009, was $38.3 million. These securities are classified
as long-term assets, except for those that are scheduled to be redeemed within
the next three months, which are classified as short-term
investments.
The
impairment described above, as of year end 2009, is classified as an
other-than-temporary loss, separated into the amount representing the credit
loss and the amount related to all other factors. The amount
representing the credit loss is recognized in earnings, and as long as we do not
intend to sell the security or it is not more likely than not that we will be
required to sell the security before recovery of its cost basis, the remaining
amount is recorded in other comprehensive income. The amount
recognized in earnings as of December 31, 2009 was $0.4 million. The
assumptions utilized in the valuation will continue to be reviewed and, as
market conditions continue to evolve and change, we will adjust our assumptions
accordingly, which could result in either positive or negative valuation
adjustments in the future.
Currently,
we believe that we have the ability and intent to hold these securities until
recovery. We also do not believe that the illiquid nature of these
securities will negatively impact our business, as we believe we have the
ability to generate sufficient cash to fund the operations and future growth of
the business absent these securities.
38
Contractual
Obligations
The
following table summarizes our significant contractual obligations as of
December 31, 2009:
|
(Dollars
in thousands)
|
Payments
Due by Period
|
|||||||||||||||||||
|
Total
|
Within
1
Year
|
1-3
Years
|
3-5
Years
|
After
5
Years
|
||||||||||||||||
|
Operating
leases
|
$ | 2,795 | $ | 1,405 | $ | 1,112 | $ | 278 | $ | - | ||||||||||
|
Capital
commitments
|
555 | 555 | - | - | - | |||||||||||||||
|
Pension
and Retiree Health and Life Insurance Benefits (1)
|
94,095 | 9,025 | 18,334 | 16,813 | 49,923 | |||||||||||||||
|
Total
|
$ | 97,445 | $ | 10,985 | $ | 19,446 | $ | 17,091 | $ | 49,923 | ||||||||||
|
(1)
|
Pension
benefit payments, which amount to $83.4 million, are expected to be paid
through the utilization of pension plan assets; retiree health and life
insurance benefits, which amount to $10.7 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.
39
Recent
Accounting Standards
|
Effective
Date for
|
||||||||
|
Subject
|
Date
Issued
|
Summary
|
Effect
of Adoption
|
Rogers
|
||||
|
Consolidation
of Variable Interest Entities
|
June
2009
|
Requires
an analysis to determine whether a variable interest gives the entity a
controlling financial interest in a variable interest entity. This
standard also requires an ongoing reassessment of the primary beneficiary
of the variable interest entity and eliminates the quantitative approach
previously required for determining whether an entity is the primary
beneficiary.
|
Currently
assessing the potential effects of this standard on our consolidated
financial statements.
|
January
1, 2010
|
||||
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.
40
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. 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 31,
2009 of approximately $27.5 million, which is substantially offset by an
insurance receivable of $27.4 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 $10.0 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
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 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.
It is our
policy 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.
41
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 19% to 23% of gross inventory over the
last three years. A 100 basis point adjustment to the December 31,
2009 obsolescence reserve would change the reserve by approximately $0.4
million.
Goodwill
Our
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 are reasonable, but
inherently uncertain. The 2009 impairment test was performed in the
fourth quarter of 2009 on the two 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 $4.0 million to $9.7
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 $0.4 million to $7.4 million for each respective
operating segment. These valuations are based on a five year
discounted cash flow analysis, which utilized a discount rate of approximately
14% and a terminal year growth rate of 3%.
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. In 2009, we recorded impairment charges related to certain
long-lived assets in our Printed Circuit Materials, Custom Electrical Components
and High Performance Foams reportable segments. See the “Results of
Operations” section of Item 7 of this Form 10-K, for further
discussion.
Pension
and Other Postretirement Benefits
We provide
various defined benefit pension plans for our U.S. employees and sponsor three
defined benefit healthcare plans and a life insurance plan. 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 Note 9 of the
Consolidated Financial Statements of this Form 10-K. Each assumption
has different sensitivity characteristics. For the year ended
December 31, 2009, a 25 basis point increase in the discount rate would have
decreased our net benefit cost by approximately $0.4 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 $0.2 million.
42
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, additionally, we have credit insurance which mitigates some of
the risk of loss. Historically over the past three years, our allowance as a
percentage of total receivables has ranged from 1.8% to 9.6%. A 50
basis point increase in our current year allowance to receivable ratio would
increase our allowance reserve by approximately $0.3 million.
Stock-Based
Compensation
Stock-based
compensation expense associated with stock options and related awards is
recognized in the statement of income. Determining the amount of stock-based
compensation to be recorded requires us to develop estimates to be used in
calculating the grant-date fair value of stock options. We calculate the
grant-date fair values using the Black-Scholes valuation model. The use of
valuation models requires us to make estimates of the following
assumptions:
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.
The amount
of stock-based compensation expense recognized during a period is based on the
value of the portion of the awards that are ultimately expected to vest.
Forfeitures are 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. Based on an analysis of our
historical forfeitures, we have applied an annual forfeiture rate of 3% to all
unvested stock-based awards as of December 31, 2009. The rate of 3%
represents the portion that is expected to be forfeited each year over the
vesting period. This analysis is re-evaluated annually and the forfeiture rate
is adjusted as necessary. Ultimately, the actual expense recognized over the
vesting period will only be for those awards that vest.
43
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
currently 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 nature of our investment
portfolio.
At the
beginning of 2008 our short-term investments were comprised of auction-rate
securities. These investments had been classified as
available-for-sale due to the short-term nature of the investments however,
during the first quarter of 2008 we reclassified them to
long-term. Changes in market conditions caused us to change the
nature of these investments and record an impairment during the first quarter of
2008 and each subsequent quarter through 2009. At year end 2009 this
impairment is classified as an other-than-temporary loss, separated into the
amount representing the credit loss and the amount related to all other
factors. The amount representing the credit loss is recognized in
earnings, and as long as we do not intend to sell the security or it is not more
likely than not that we will be required to sell the security before recovery of
its cost basis, the remaining amount is recorded in other comprehensive
income. Due to the Company’s current liquidity and intent to hold the
investments until they recover, the amount of the impairment not related to
credit loss is recorded in other comprehensive income.
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. 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 2009, a 10%
increase/decrease in exchange rates would have resulted in an increase/decrease
to sales and net income of $9.0 million and $1.3 million,
respectively.
For
additional discussion on our market risk, see Notes 2 and 3 to the Consolidated
Financial Statements in Item 8 of this Form 10-K.
44
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 as of December 31, 2009 and December 31, 2008, and the related
consolidated statements of income, shareholders’ equity and cash flows for each
of the three fiscal years in the period ended December 31, 2009. 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 at
December 31, 2009 and December 31, 2008, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in the period
ended December 31, 2009, 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 2 to the consolidated financial statements, the Company
adopted the guidance originally issued in Financial Accounting Standards Board
Staff Position (FSP) Financial Accounting Standards (FAS) 115-2/124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (codified in FASB ASC Topic 320, Investments – Debt and Equity
Securities) effective April 1, 2009. As discussed in Note 4 to
the consolidated financial statements, the Company adopted the guidance
originally issued in FASB Statement No. 141(R), Business Combinations
(codified in FASB ASC Topic 805, Business Combinations)
effective January 1, 2009. As discussed in
Note 12 to the consolidated financial statements, the Company adopted the
guidance originally issued in Financial Accounting Standards Board
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income
Taxes (codified in FASB ASC Topic 740, Income Taxes) effective
January 1, 2007.
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 31, 2009, 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 19, 2010 expressed an unqualified opinion
thereon.
| /s/ ERNST & YOUNG LLP |
Providence,
Rhode Island
February
19, 2010
45
ROGERS
CORPORATION
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except share
amounts)
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 57,738 | $ | 70,170 | ||||
|
Short-term
investments
|
399 | 455 | ||||||
|
Accounts
receivable, less allowance for doubtful accounts of
$4,867 and $1,171
|
46,179 | 44,492 | ||||||
|
Accounts
receivable from joint ventures
|
2,654 | 3,185 | ||||||
|
Accounts
receivable, other
|
909 | 2,765 | ||||||
|
Taxes
receivable
|
2,677 | - | ||||||
|
Inventories
|
33,826 | 41,617 | ||||||
|
Prepaid
income taxes
|
1,949 | 1,579 | ||||||
|
Deferred
income taxes
|
484 | 9,803 | ||||||
|
Asbestos-related
insurance receivables
|
6,944 | 4,632 | ||||||
|
Assets
held for sale
|
5,841 | - | ||||||
|
Other
current assets
|
4,615 | 5,595 | ||||||
|
Total
current assets
|
164,215 | 184,293 | ||||||
|
Property,
plant and equipment, net of accumulated depreciation of
$173,033 and $165,701
|
123,140 | 145,222 | ||||||
|
Investments
in unconsolidated joint ventures
|
33,968 | 31,051 | ||||||
|
Deferred
income taxes
|
8,227 | 45,945 | ||||||
|
Goodwill
and other intangibles
|
10,340 | 9,634 | ||||||
|
Asbestos-related
insurance receivables
|
20,466 | 19,416 | ||||||
|
Long-term
marketable securities
|
37,908 | 42,945 | ||||||
|
Investments,
other
|
5,000 | - | ||||||
|
Other
long-term assets
|
4,214 | 4,933 | ||||||
|
Total
assets
|
$ | 407,478 | $ | 483,439 | ||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ | 9,308 | $ | 11,619 | ||||
|
Accrued
employee benefits and compensation
|
16,081 | 25,780 | ||||||
|
Accrued
income taxes payable
|
1,349 | 1,318 | ||||||
|
Asbestos-related
liabilities
|
6,944 | 4,632 | ||||||
|
Other
current liabilities
|
9,163 | 16,487 | ||||||
|
Total
current liabilities
|
42,845 | 59,836 | ||||||
|
Pension
liability
|
28,641 | 43,683 | ||||||
|
Retiree
health care and life insurance benefits
|
8,053 | 7,793 | ||||||
|
Asbestos-related
liabilities
|
20,587 | 19,644 | ||||||
|
Non-current
income tax
|
8,299 | 7,493 | ||||||
|
Deferred
income taxes
|
5,406 | 8,006 | ||||||
|
Other
long-term liabilities
|
697 | 840 | ||||||
|
Shareholders’
Equity
|
||||||||
|
Capital
Stock - $1 par value; 50,000,000 authorized shares; 15,743,491 and
15,654,123
shares issued and outstanding
|
15,743 | 15,654 | ||||||
|
Additional
paid-in capital
|
25,160 | 19,264 | ||||||
|
Retained
earnings
|
260,473 | 323,343 | ||||||
|
Accumulated
other comprehensive loss
|
(8,426 | ) | (22,117 | ) | ||||
|
Total
shareholders' equity
|
292,950 | 336,144 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 407,478 | $ | 483,439 | ||||
The
accompanying notes are an integral part of the consolidated financial
statements.
46
CONSOLIDATED
STATEMENTS OF INCOME
For each
of the fiscal years in the three-year period ended December 31,
2009
(Dollars
in thousands, except per share amounts)
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 291,821 | $ | 365,362 | $ | 412,698 | ||||||
|
Cost
of sales
|
212,546 | 251,399 | 301,393 | |||||||||
|
Gross
margin
|
79,275 | 113,963 | 111,305 | |||||||||
|
Selling
and administrative expenses
|
68,549 | 82,215 | 71,395 | |||||||||
|
Research
and development expenses
|
17,395 | 21,885 | 24,600 | |||||||||
|
Restructuring
and impairment charges
|
22,903 | - | 3,538 | |||||||||
|
Operating
income (loss)
|
(29,572 | ) | 9,863 | 11,772 | ||||||||
|
Equity
income in unconsolidated joint ventures
|
5,462 | 6,236 | 8,086 | |||||||||
|
Other
income, net
|
1,040 | 6,060 | 1,673 | |||||||||
|
Other-than-temporary
impairments
|
(5,093 | ) | - | - | ||||||||
|
Portion
of losses in other comprehensive income
|
4,729 | - | - | |||||||||
|
Net
investment gain (loss)
|
(364 | ) | - | - | ||||||||
|
Interest
income, net
|
377 | 2,947 | 2,009 | |||||||||
|
Acquisition
gain
|
2,908 | |||||||||||
|
Income
(loss) from continuing operations before income taxes
|
(20,149 | ) | 25,106 | 23,540 | ||||||||
|
Income
tax expense
|
42,721 | 3,489 | 2,915 | |||||||||
|
Income
(loss) from continuing operations
|
(62,870 | ) | 21,617 | 20,625 | ||||||||
|
Income
from discontinued operations, net of taxes
|
- | 1,676 | 1,499 | |||||||||
|
Gain
on sale of discontinued operations, net of taxes
|
- | 3,222 | - | |||||||||
|
Income
from discontinued operations, net of taxes
|
- | 4,898 | 1,499 | |||||||||
|
Net
income (loss)
|
$ | (62,870 | ) | $ | 26,515 | $ | 22,124 | |||||
|
Basic
net income (loss) per share:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$ | (4.01 | ) | $ | 1.38 | $ | 1.25 | |||||
|
Income
from discontinued operations, net
|
- | 0.31 | 0.09 | |||||||||
|
Net
income (loss)
|
$ | (4.01 | ) | $ | 1.69 | $ | 1.34 | |||||
|
|
||||||||||||
|
Diluted
net income (loss) per share:
|
||||||||||||
|
Income
(loss) from continuing operations
|
$ | (4.01 | ) | $ | 1.36 | $ | 1.23 | |||||
|
Income
from discontinued operations, net
|
- | 0.31 | 0.09 | |||||||||
|
Net
income (loss)
|
$ | (4.01 | ) | $ | 1.67 | $ | 1.32 | |||||
|
Shares
used in computing:
|
||||||||||||
|
Basic
|
15,691,579 | 15,714,884 | 16,555,656 | |||||||||
|
Diluted
|
15,691,579 | 15,924,172 | 16,749,337 | |||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
47
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 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 | |||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||