Rogers Corp (ROG) 2005 Q3 法說會逐字稿

Good morning. My name is April, and I will be your conference facilitator. At this time, I would like to welcome everyone to Rogers Corporation third-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

Mr. Wachob, you may begin your conference.

Thank you. Good morning, ladies and gentlemen. With me at Rogers this morning are Paul Middleton, acting Chief Financial Officer and Corporate Controller; Bob Soffer, Vice President, Treasurer and Secretary; Deb Granger, Director of Corporate Compliance; and Ed Joyce, Investor Relations Manager. Thank you for joining us.

First, I will turn it over to Paul to dispense with the formalities, and then we can get right down to business.

Thank you, Bob. I would like to point out to all of our listeners that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and should be considered as subject to many uncertainties that exist in Rogers' operations and environment. These uncertainties include economic conditions, market demands, and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement.

I will now turn it back over to Bob.

Thanks, Paul. We made significant progress during the quarter in several of our businesses, yet there remains work to be done as we see ample areas for improvement. Our high-performance foams business is a good example of the types of profits we can generate when our businesses are operating efficiently and we see some additional sales. Our PORON polyurethane foam product line drove most of the sales increase as we experienced strength in cellphone, consumer, and automotive markets, and we operated at about 97% of capacity. We expect to increase productivity to expand capacity while preparing our Rogers Inoac Suzhou joint venture to begin manufacturing for us in China to serve a portion of this rapidly growing market. The restructuring of our polyolefin product line added about $1 million in profit during Q3. With the implementation of a price increase, we expect the polyolefin product line to be profitable going forward. We are pursuing an automotive application in cushion dashboards to grow this product line in the future.

The Printed Circuit Materials business, which in 2004 grew by more than 50%, experienced decreasing sales year-over-year, driven almost completely by our flexible Printed Circuit Material product line. The flex product line did grow 15% sequentially in this quarter, and we expect an additional 15% sequential growth in 2000 -- in Q4, excuse me. The high frequency product line should exceed Q4 2004 by about 10% as the cellular infrastructure market and satellite TV market are expected to be stronger. In total, we expect Printed Circuit Materials sales and profits to be down in Q4 versus Q4 2004, but we will continue to narrow the gap versus the 2004 results. At this point, we have significant amounts of unused capacity both in the flex and high frequency product lines.

Our polymer materials and components business overall made good progress in improving operations, but Durel experienced a large number of rejects for a crease and curl attribute which did not have an agreed-upon specification with the customer. Upon resolution of an acceptable specification, a process that unfortunately took almost six weeks, and us adjusting some of our drying procedures to decrease the amount of crease and curl, our yields improved dramatically toward the end of the quarter.

Our contract electroluminescent lamp manufacturer ramped production at the end of the quarter and could produce more than 3 million lamps in Q4. Our new facility in China has submitted lamps for qualification, and we expect to begin shipments mid November for the first set of equipment. The two additional sets will be brought onstream at 30-day intervals. Our results in Q4 will depend greatly on how quickly and smoothly this ramp proceeds. To give ourselves the best chance of success, we have temporarily sent 28 experienced U.S. engineers and operators to do the startup and also train the new employees in Suzhou. The training will be complete by year-end.

Having so many experienced people in China, unfortunately, negatively affected our operation in Arizona during Q3. At this point, we continue to be capacity constrained, or said another way, we can sell everything we can make in Q4. Our other polymer materials component product lines, namely busbars and elastomer components, made steady progress in operations during the quarter. The busbar facility in China reached breakeven in September, and we expect increased volume profits there in Q4.

In Europe, our busbar sales declined as our biggest customer experienced an inventory correction. The elastomer component productline sales were down as last year our customers were building inventory in preparation for us closing our Connecticut facility. In summary, we expect a sequential quarterly sales increase and possibly a year-over-year sales increase in Q4, plus a $5 million year-over-year operating profit increase. Our sales will be in the rage of 85 to 88 million, and our earnings per share will be between 40 and 44.

I now turn it over to Paul for a closer look at the financial details of the quarter, and then we will be happy to answer your questions.

Thank you, Bob. For the third quarter we achieved 83.6 million in sales and generated 8.2 million in net income which equates to earnings of $0.49 per diluted share. This amount includes a net positive adjustment associated with a favorable internal revenue service determination on previous federal income tax filings associated with our Durel division of 1.6 million or about $0.10 per diluted share. Excluding this favorable tax adjustment, EPS for the quarter was near the high end of our guidance of $0.36 to $0.40. Looking at sales for the quarter in our Printed Circuit Materials business experienced a quarter-over-quarter decline of 21%. Sales of flex materials strengthened throughout the quarter but at a rate slower than originally anticipated, a number of programs were pushed to the fourth quarter.

High frequency circuit materials experienced softness in the cellular infrastructure applications early in the quarter but sales strengthened in September. In our polymer materials and components business sales were up 12% quarter-over-quarter. We saw continued success in our flexible keypad lamps and expect the keypad program to continue gaining momentum as we bring capacity online in China to meet our increasing customer order commitments.

Although slower than anticipated, the Company has made good progress in its production startup of busbars in China and expects to achieve additional customer qualifications in the fourth quarter enabling us to further leverage this new capacity investment. Sales of our high-performance foams business in the quarter was up by almost 19% quarter-over-quarter. Record sales of our PORON foam products drove this increase.

From a profitability standpoint the Company has also begun to realize the operating improvements anticipated from its second quarter restructuring of its polyolefin foam productline. Our 450% owned joint ventures had sales of 22.5 million for the quarter, down 6% quarter-over-quarter but up 6% sequentially from the second quarter in 2005. We experienced sequential strengthening in Rogers Chang Chun flexible laminate circuit material sales as they had continued market penetration and we expect this trend to continue into the fourth quarter.

Manufacturing margin as a percentage of sales was slightly over 29% for the quarter, which is a percentage point better than the third quarter last year and was achieved on less sales. Indicating a number of the productivity investments the Company has made are starting to yield results. Commercial expenses, which include selling, general, administrative and R&D expenses totaled 17.3 million or 20.7% of sales as compared to 20.3 million or 24.3% of sales in the second quarter of 2005. The decrease is primarily driven from cost control and timing of various administrative and professional service expenses.

Other income and expense, which includes our joint venture income, royalties and other miscellaneous items added $1 million in profits during the quarter as compared to 300,000 expensed last quarter. This positive variance was driven primarily by favorable mix change in sales of our joint ventures, yielding more equity income and the improvement in our foam ventures in Japan and China, which incurred significant costs in the second quarter associated with the starting of production in China.

Excluding the effect of the third quarter 2005 tax adjustment and the second quarter polyolefin impairment charge, our current annual predicted tax rate is 20%, which is consistent with our second quarter projections. Taking a look at our financial position, Rogers enjoyed another quarter of strong cash flows. The Company generated 10.8 million in operating cash flow and made additional progress in reducing inventories. The Company's cash and short-term investment position decreased by 2.2 million, due primarily to 13.2 million in capital expenditures.

The Company continues to remain debt free and able to fund capital expenditures from long-term operating cash flows. That concludes my financial remarks, and I will now turn the call back over to Bob.

Thank you, Paul. We would be happy to entertain any questions.

(OPERATOR INSTRUCTIONS) Jiwon Lee, Sidoti & Co.

My first question is could you give me some color on where or which business segment the capital spending was done in the last quarter?

Yes, the biggest chunk had to do with the acquiring of 18 acres in two buildings that comprised approximately 200,000 square feet in China. Going forward in the fourth quarter we will expect a major portion of the capital spending to be Durel. Some of it was in the third quarter as we brought on some of the equipment, the rest will happen in the fourth.

And in terms of high frequency circuit materials you mentioned that at the end of the quarter wireless infrastructure shows some strength. Can you sort of tell us where geographically you saw those trends? Was that here in the United States, or was that overseas? Or a little bit of both?

The vast majority of the circuits are manufactured overseas. Of course we don't know where the base stations end up. We just know where the fabricators are located. There is only one left in the U.S.

Fair enough. And a little more color on the flexible circuit materials, the business outlook. Why some of these programs are just kind of getting pushed out because it looks to me that the overall end market demand is quite strong.

Our growth here is, recovery actually, it's not growth. Our recovery is dependent upon new programs. And historically this is exactly what happens with new phones. They get pushed back from their target dates one to two quarters, and if in some cases you're going to miss the Christmas season they push them all the way out until the beginning of next year. But there are programs that have come on stream. That's why we were able to grow sequentially 15%, and we have others that have just begun. We think will drive the additional 15% sequential growth next quarter.

In other words, your sales are still driven by the design cycle?

Absolutely.

Okay, and you mentioned that there were some hiccups in Durel in Arizona. Was it Motorola or was it somebody else?

It affected -- the hiccups because we took all the experienced engineers and the best operators we lost a little focus on operations. And we fixed that now since we hired a few new engineers. And they are focusing on the process. But it affected all the lamps, and for lack of attention.

It was not for a particular model, per se?

No, the issue was crease and curl was a particular program. Just say it's the biggest selling cellphone right now.

Great. All for me. Thank you.

Dana Walker, Kalmar Investments.

Good morning, Bob. How does that quality issue affect you're ability to sell new programs?

Not at all.

Because?

Because we are using a different process and a different set of formulations, which were only approved about two weeks ago for the existing program. In other words, new programs we always use the best knowledge we have. In existing programs it is very difficult and time-consuming to get the OEMs to requalify if you change anything.

With the experience that you've just gone through in the quality issue, the something that was avoidable, or is this something that you consider to be a normal part of a startup?

It came about because of variation among various machines, and something we didn't understand affected the lamp until the issue came up. Now we have repaired, in effect, all the machines. They weren't the same, the prop.

So if there was a mystery, the mystery is resolved?

Yes.

So you're not just going through a run of good luck now? (multiple speakers) understand that you do understand it.

We absolutely understand the issue, and we are able to monitor it and keep it under control.

As we look to your Q4 you talked about how flex ought to be better. You talked about how potentially Durel and the components business could be better. But you seem to hedge somewhat. Maybe you could talk about your three segments and how you would expect them to directionally perform.

Yes, in the High Performance Foams I am a little cautious because we have just had a very significant sales increase and record sales and record profits. We would hope we could repeat that, but the fourth quarter is, as you know, pretty variable. It will depend on what happens the last week of the month of December. We have a 12 week quarter, or do we have a 13 week quarter. That is always the issue in Q4.

In the Printed Circuit Materials area we expect some growth, driven mostly by the flex and some year-over-year growth in high frequency. And the polymer materials and components will be driven mostly by Durel.

When you say year-over-year growth in circuit materials in high frequency, what about fourth quarter versus third quarter?

Flex will be up. High frequency we believe will be down.

And.

As it was last year.

Okay, so that is normal seasonality?

Well, I am beginning to wonder what is normal anymore. It seems the inventory adjustments, which become secrets, drive more things than it used to.

What is your sense for new program initiatives that will set the table for far better volumes in '06 compared to what we've seen more recently or lack thereof?

In the high frequency area there are a couple things which can drive volume. One will be the institution of the high-definition TV by DirecTV. It is my understanding that they accepted the turnover of the satellite from Boeing last week or the week before. And that they intend to build some units. I believe that they are not going to give away the hardware, at least, not at the beginning. So this will be a ramp, but it won't be some huge chunk. But eventually, of course, it will probably cause all of the existing hardware to be replaced. And then we expect that sometime during 2006 the Chinese government will issue the licenses for 3G cellphones. And some companies, like Ericsson and Nokia are predicting that it will be about 12 billion a year, I believe, in each of the first three years worth of infrastructure spending. But that would drive a significant amount of volume.

Within our High Performance Foams, looking to the future I would say some of our new products in polyurethane, we have in the past we used to think that 15 to 20 pounds per cubic foot density was the best we could do. But we have now introduced products that is the nine to twelve pound, which make them very soft and therefore very useful as gaskets. And in addition we are finishing the development of materials that are five to six cubic pounds per cubic foot. And in polymer materials and components, absolutely the flex lamp in keypads for cell telephones is going to drive huge amount of growth as we move forward here. And in a much longer term our alliance with IEE on the force sensitive resistors we believe will drive some significant growth in both in automotive and in cell telephones. But that is multiple years away.

Should we in '06 expect to see your components business in a double-digit margin range?

You mean operating margin?

Yes.

I don't think so. I don't think that the components businesses are going to be as profitable as the material.

Is that a capture or would that capture your view toward Durel as well given that Durel has been a very profitable business historically?

Durel has changed dramatically. It used to be that inverters in lamps were about 50-50; in some cases inverters were two-thirds of the business. That ratio has changed dramatically, and therefore, it will be less profitable going forward. Now that all could change if the lamp, the phone makers in Korea, for example, if they were to adopt EL in a big way in the keypad, then everything might switch.

Final question, how should the polyolefin issues that you've talked about and your working your way through evolve in a profit impact sense as we compare Q4 to Q3 and Q1 of '06 to Q3 and Q4?

In the current quarter our restructuring added about $0.04.5 per share. And looking forward to the fourth quarter, it would be about 2.5. I think previously I had said we expected $0.07, and that's how we will get there. And then that business I would expect for some time will hold steady until we see what happens with the automotive application. Our sales for that are multiple years away. But we will know within six months, nine months maybe, whether or not we are going to have success.

One last thing while I have the floor. The joint venture income which has been significant has moderated more recently based on flex and based on startup. What is your sense for the timeframe necessary to push you back towards higher climates?

I believe we will make some pretty good progress in Q4 and continue in Q1. I expect our joint venture, Rogers Inoac in Suzhou to have significant profits in 2006. And the flex joint venture in Taiwan, it continues to grow, but it is not quite as profitable as it was when it only had one machine and was at full capacity and the demand exceeded the supply. But it will continue to have its profits increase. Certainly we expect 2006 to be better than 2005.

Thank you very much.

Shawn Severson, Raymond James.

Bob, just looking at kind of the back of the envelope, if we assume that the EL business gets back up to breakeven, it would seem like you would have pretty significant improvement in the fourth quarter, and I am just trying to reconcile it. It's more cost that I'm missing or would it not be reasonable to think of it getting to breakeven?

No, we would expect -- the plan is for it to be a little better than breakeven.

Okay, so then how does that reconcile kind of with your bottom line guidance?

We expect -- I will give you one example. We have hedged our copper, as the hedge runs out in 30 days, and we will experience an 11.3% increase in copper. And we will not be able to pass that along.

That was going to be my next question actually.

We are seeing significant raw material price increases now. Most everyone is slapping surcharges onto their shipping. It varies. Some people are only putting on $20. Some people are adding $200 and some people are adding a significant percentage. Also expect that our SG&A will be up in the fourth quarter. The third quarter didn't have some expenses such as S-Ox fees related to the auditors and to the consultants that we used last year. The S-Ox effort will be ramping up in the fourth quarter. Had a lot of legal fees last year due to contracts and we are experiencing now more and more customers who were giving us these contracts, which of course, we won't sign because they are very one-sided. And they are replacing their standard terms and conditions with what they call contracts, which try to shove all liability to the supplier. So we expect to see more legal fees associated with that. And then lastly of course the fourth quarter, that is when we pay the most commissions to the sales force.

So last year when you experienced some raw material increases you didn't have too much of a problem putting that through at least in the rigid side of the business. Does it kind of depend on which products you are seeing the raw material increases or your ability I guess to put through ASP increases, can you kind of tell us where you can and can't out of your mix?

High Performance Foams we have put through several increases. I think maybe we've gone as far as we can, and we're going to experience more increases in raw materials. And in the Printed Circuit Material area last year of course there wasn't enough supply. So we could always pass along whatever price increase came. That's no longer the situation. So we think we can hold prices steady. But certainly not be able to raise them. And then in the polymer materials and components, those component businesses, they always expect price decreases. At least at the moment with Durel being at capacity that is not a factor, at least in the fourth quarter.

And kind of sticking with Durel, if we look out in normal seasonality would say that you have a very strong December quarter for handsets. But it seems like a number of suppliers is being pushed out into even in the March quarter. Would you expect a little more balanced ramp or stability in that business into the March quarter as opposed to seeing your normal sequential seasonal decline?

Yes, I think so, as we've had five programs move from the fourth quarter to the first. Some of that appears to be associated with some design issues, but also I don't know which components but they seem to have some difficulty with acquiring some components.

Okay, and then just lastly you said you're getting better than breakeven Durel in this upcoming quarter. Where, how much of that is going to continue to improve? What type of profitability level should we look for, assuming everything sticks in the December quarter and we get into the March quarter? Should we be up another couple million in profitability, or is that too much to think reasonable?

We expect Durel to continue to make progress each quarter here mostly as they improve the yields. And by now we've gained a fair amount of experience in making this new flexible lamp. And the yields are gradually rising. Our newer programs the yields seem to be much better as we have been able to incorporate all the things that we've learned. So I do expect it to continue to increase. Exactly how much, we never really break out individual productlines profitability.

And is there a number we can quantify the incremental cost due to sending those 28 people over to China or is that not significant enough to bother with in terms of cost? The addition when they come back out I guess in the March quarter?

If you look at $500,000, $600,000.

Okay.

Associated with trying to start up new equipment and keeping all the people over there.

Okay, great. Thank you.

Bob Fetch, Lord Abbett.

Can you give us some sense on how low utilization rates are in a number of those other product areas that high frequency and flex?

High frequency is probably in the 60% range, and flex is probably 45% to 50%. In High Performance Foams we've mentioned that the polyurethanes are at about 97%.

Do you have the capacity in place to support double-digit growth in foam next year?

Yes, remember we have the joint venture in China, in which that machine is not very well utilized at the moment. We have about 35 million worth of capacity there. So yes, we can support a large amount of growth.

And as far as a ramp, would you expect any issues at that JV? Like you have had in a number of other categories?

Well, we have experienced all those issues for the last nine months, and we think that is pretty much behind us. We have all of our products qualified on that equipment.

Okay. As far as the lamps for keypads, can you update us on the number of OEM's you have orders from and the number of models you are designed onto?

I'm hesitating, Bob. Let's say as far as the number of OEMs it's the same as what I mentioned before. We currently have nine models in production and five scheduled to go into production in the first quarter. We have 20 identified programs that we're working on. Of course that identified programs that we are working on changes almost weekly. Some come on, some die.

And the five additional, they're not substitutes for any of the current nine?

No, none of those are substitutes. During the quarter we did have a couple come to end of life.

And in regards to business in the flex area going into the printed circuit boards segment, that was off pretty good in some of the prior periods. Did that improve?

Yes, it was up sequentially up about 15%, and we expect that to be up another 15% in the fourth quarter.

And in regards to Dana's question, would you expect that continued up say next year?

I expect it to continue to grow in double-digit, probably low double-digit.

That was an area in the prior years prior to this year, was moving ahead fairly significantly.

Yes, it moved ahead, way ahead. And for it to get to that point we have to be lucky to be on a really high running program because that is what drove it last year. Three phones that were called the triplets, they were a family and they turned out to be the biggest selling phones for the year. And we were sole source. They reached into life at least for us on December 15th last year. So we've been slowly working our way back here. The good news at least I think it is good news, is that we have a large number of programs as opposed to one or two really big ones, which will add more stability. That is really the same story going forward for Durel, is that it has been driven by one huge program. But now we are having a much larger number. And of course the contract manufacturing part is we are using them to make just one part, and that is a portion of the really high-volume phones.

And that one huge program in Durel, though, where you had the curl issues, were they with other new models as opposed to the pre-existing one?

No, it was only the pre-existing one.

Okay.

And it wasn't with the OEM. It was with the company that we ship to.

So but it was still based on production of the product at your facility as opposed to theirs?

Yes. Yes, we had that resolved by the time our contract manufacturer was up and running in any significant amount.

Okay, and so you suggested I guess the Poly unit supply is not an issue currently?

No, we are continuing to see Poly unit film being out there in excess, and therefore the prices are coming down slowly. But they have not returned to pre-2004 levels.

So how much higher might they still be?

25%.

Versus '04 you said?

Versus '03.

Okay. As far as the termination of the polyolefin contract, did that end as expected and have all the costs been absorbed now?

Yes, we are working on a new contract. We have raised the price, and it has been accepted. We are close to signing a new one year contract.

So is that something you desired?

Yes.

Okay.

At the right price, and we got the right price.

Okay. And in regards to busbars, you had indicated there might have been a little inventory adjustment domestically there. Previously you had talked about that business potentially doubling in the next three years. Has that outlook changed at all?

No, we still believe that that can happen as the interest level we are experiencing due to the Chinese operation is really high; just takes a lot of time to get people to qualify. But we have even now received an order from India, which for a train application which surprised us. I don't expect that if we were only in Europe that we would have received that order.

It sounds as if the high depth satellite TV I guess set-top could be a very interesting opportunity. Could you give us some insight to the amount of material that you might have in that new box as we saw in the latest generation as you went to multiple TVs, you had talked about three times the amount of material I think it was from the original boxes. So what are we looking at during this replacement cycle?

There are multiple designs here, and some of which utilizes both sets of satellites. The most common one we believe will use about the same amount of material as the unit that had could drive three TVs previously. But it's about 27 square inches. And the units that drive one TV are about 5 square inches. And we are seeing significant growth in India and expect that sometime within the next 12 to 18 months the Chinese government will approve satellite TV. And then that, too, will become a high-growth marketplace.

So currently they don't have service at all?

No, they only have it on what is called the C band, which is the really low frequency, although apparently there are some people in China who do, but they have addresses in Hong Kong.

Give us some sense then on the high frequency materials; what percent of your volumes are going into satellite TV versus cellular applications.

The cellular infrastructure is the biggest single application and the second-biggest is the satellite TV.

Is cellular in order of magnitude three or four times?

Probably three times the size for the satellite TV.

And are your orders from, say, the equipment suppliers for 3G, or they beginning to reflect at all some of the expected growth either domestically or internationally? That some people have been forecasting?

Actually the orders, and they come from the printed circuit shops, are very sporadic. They are coming now in really large chunks to be shipped in very short periods of time. And then we go a month or two without any orders. So it's really hard to tell exactly what's going on here. The thing that we are looking forward to is getting a large number of these 3G base stations in place because they generally go out with one power amplifier, and they are set up to handle four. Once they are in place as they add subscribers, then they add power amplifier board. That is what will then make this business much smoother because there will be a very large amount of in effect spare parts or expansion within the existing boxes. But while we are in this initial buildout phase, it is very lumpy.

In regards to your cap spending is that still looking to come in 35 to 40 million this year? And are we now in a position where we ought to see that fall off pretty nicely next year?

I believe it will still come in at 35 or 40 million, but it is really going to depend on how smoothly this Durel startup goes. Do we get all that equipment running this year or not. It could slip into the first quarter. And then next year I expect it should be down some. But it will still be a capital spending greater than depreciation next year.

And is that again principally for more equipment next year?

Yes, more equipment and possibly a 250,000 square foot building in Suzhou.

So is that in the plans at this stage or is that still something that is subject to discussion?

We have been discussing it. And as you know, we had said we were going to build an 80,000 square foot building to house high frequency. But since we have plenty capacity, and we have multiple businesses that believe they are going to need significant square footage, we're going to build a larger building that will be able to do multiple things. It seems that it takes nine months to a year to get a building operational it is hard to see exactly what we will need so we are going to make something more multipurpose.

Can you update us on the float business and whether the issues that you had previously were totally resolved?

Float business is continuing to improve. We are qualifying at this moment 50% capacity expansion. As we have quite a list of new customers that would like to buy from us but since we are at capacity there, we've been unable to take on new business. And this new capacity will get us out of the situation of having to air ship, which is at very considerable cost every month.

So the if you're selling everything you are producing, why are you necessarily having to air ship?

Because we can't quite keep up with demand, and that's why we have to air ship it so we don't shutdown any of the customers.

So everybody wants whatever they can get yesterday?

Yes, because we can't make enough until we have this new expansion to in effect get four to five weeks of material on the water. A considerable amount of inventory actually that we have to build. When we are at capacity we can't do that.

Are your sales in the (indiscernible) market, are they still stable?

Yes, yes. Actually we would expect next year that we should see some growth as we expect to gain some additional market share with the new product.

Generally is PORON growing its share and the number of cellphones produced, or is that kind of at its high but stable level which you I guess previously had mentioned around 60% possibly?

Right, we believe we are continuing to be in a higher percentage of phones. That is part of one of the things that has been driving -- one of the things that has been driving the PORON growth.

I know the production of foams continues to expand pretty good here. And on the footwear side, is that still growing double-digit and likely to continue?

Yes it is continue to grow double-digits. And we certainly are doing everything we can to make it continue to do that.

And just in terms of your expectation for any repurchases in the future.

We will be asking for authorization to -- our current authorization runs out in a month or so. And we believe we will spend somewhere between 15 and 16 million of that authorization. And we will ask for another of similar size, and we expect to continue to use our excess cash to buy back stock.

Which begs the question with all the issues that have been discussed more likely to be focused on organic internal growth as opposed to much going on on the business development M&A side.

That's correct. There might be something small.

Steven Neil, with Jennison (ph).

I wanted to see if you would walk through the $2 million loss within the polymer material and components segment. If you can perhaps try and parse that out in terms of the quality issue cost, startup cost, etc.

We don't really break out the individual product lines. But I can say all three of those businesses lost money during the quarter.

But is it the majority of -- I guess X the quality issues was the business profitable?

No.

And how long do you expect the startup cost to linger for Durel?

As I said, I expect us to become profitable in the fourth quarter.

That's for the segment as a whole, or Durel or both?

It should get close to breakeven I believe, as a whole.

Okay, great. And what changes from Q3 to Q4 to drive that, call it breakeven level?

Expect yields to improve at Durel and sales to increase. Busbar sales should be increasing, and we are bringing on the new float capacity and expect it before the quarter is over we will stop air shipments. It is those events that will drive us close to breakeven for that business segment in the quarter.

I mean I know this Durel segment is very exciting given the end market, the handset end market and where the product is going and the type of volume we are seeing for those products. But as a component supplier in a way you are kind of experiencing profitless prosperity, and but is it -- are you guys expect that to change at some point I guess next year?

Yes, what the issue is is that the one really larger program was initially projected to be 1.2 million units a year. That to us seemed a very good fit because our flexible lamp technology was brand-new, and we had no production experience. So something that was going to cause us to make 100,000 lamps a month seemed like a good thing. We've learned and it wouldn't cost us too much money. But unfortunately it became 500,000 units a week. And we have added 50% to capacity and now adding another 100% on top of that and are experiencing all the issues you would expect when you try to increase capacity and you have a new technology. So it is the learning curve that is going to change this and get us back to more historical yields and productivity.

You expect to be able to hold price as you get the volume?

No. As soon as we are under control the price will come down. New programs will always have really good pricing. Mature programs will begin to deteriorate. That's how it works. And our job is to lower our costs faster than the price goes down.

So for this March program at what point would you expect to see that price inflection, so to speak?

I would rather not answer that based upon the diverse group of people listening here.

Fair enough. Also, you had commented that five programs moved from the fourth quarter to the first quarter. That is within Durel?

Yes.

Okay, and those moved because of other component shortages?

And design issues.

Okay.

It was not us. It is a good thing for us, though. It takes a little of the pressure off.

And then lastly can you just walk through again this whole the copper hedge running out and why you're not able to pass that on?

We are not able to pass it on because we have quite a bit of price competition going on out there at the moment, and everyone has plenty of capacity. So when you're in that situation it becomes very difficult to pass it along.

And that is within the high frequency business?

And the flexible materials business, both of them use copper.

Okay. All right. Thank you very much.

Michael Judd, Greenwich Consultants.

There is obviously natural gas and hydrocarbon costs have gone up a lot. There was a lot of force majeure issues because of the hurricanes and the basic petrochemicals and plastics. And I'm just interested in the foams area, are you able to get all of the raw materials that you need? Number one. And number two what size type pricing pressures are you seeing in the raw materials?

We have been fortunate in we have been able to get all the raw materials that we need. And we are seeing that prices going up in the range of 10 to 15% on some of the chemicals.

Okay, and is that basically through the third quarter? What is your anticipation in the fourth quarter?

That is a fourth-quarter anticipated price increases, things that have been announced but not implemented.

And what type of price protection do you have on some of these materials, not copper, but more of the hydrocarbon base materials?

Nowadays, none. No one will sign long-term contracts.

Okay, I am actually surprised that the increases aren't greater than 15%.

Well, there have been a steady stream of price increases throughout the year, which we have passed along most all those.

And just one other thing I'm trying to understand in an environment where you are under pressure to reduce your costs as you get more volumes, how does that work when you have higher raw material costs in some of these hydrocarbon materials? Have do you negotiate that?

Well, one of the things we do is increase the productivity of the equipment so that we can get more out per hour. Materials are generally not a huge component of our cost. It depends on the businesses. They range anywhere from only 10% of the selling price to as much as 30 or 35. And there will be a point at which we will raise prices regardless. And we are seeing some of that in the real commodity area. I just read that Nanya, which is a maker of the commodity FR4 laminates has raised their price to between 10 and 13% effective immediately. That end of the business where there are no margins they have decided to pass it along rather than lose money.

Would you implement surcharges?

It kind of depends on whether we think it's a temporary increase or it is permanent. So far I believe most of the things we've seen will last for some time. If they were raising them 30 and 40% then you would be looking at things that are more likely temporary.

Okay. Thank you.

Greg Weaver, Kern Capital.

Just on the Durel issue, was your customer constrained in anyway by your supply or lack of supply?

We don't know for sure. There is a difference between what they say they need and what they actually need. y belief is that there were weeks during the quarter where they may have been somewhat constrained, but in total for the quarter I don't think so.

And whose specs in the EL material? Is it the final phone manufacturer or the subassembly guy that you're dealing with?

No, the OEM. The OEM designer.

Is there a second source on this particular design?

We have set up a contract manufacturer, and we have licensed a second source.

Okay, but other than someone affiliated with Rogers, that's it?

That's correct.

And just on the high frequency laminate again I think you have addressed this but you said the business picked up at the end of the quarter yet you're expecting it to be down sequentially. I mean is that a function of conservatism and lack of visibility?

Yes.

But as far as what you've seen through the end of September and into October things are better?

Yes, we just have, as we always do, this concern about what happens in the last two weeks of December.

All right. Okay. Thank you very much.

Dana Walker, Kalmar Investments.

Can you talk about what is the winning selling argument for your new flex designs?

It does not interfere with the tactile feel of the keyboard, and it allows the phone thinner than any other method of lighting.

I am sorry, I mean the flexible circuit.

Oh, the flexible circuit. That is associated with being able to pass the tests for the hinge flex, the flex material going through the hinge. It has better flex life. And with the fabricators, our technical service engineers working with them in their facilities so that our material gives them higher yields than the competitors.

I believe you referenced this earlier in response to a question from Bob, but would you talk about how the TSA joint venture is going? And what your outlook is for that?

You mean the Polyimide Laminate Systems?

Yes.

That's going along just similar to last year, and we expect that next year we will gain a little share as we have a new generation of product that has been qualified and will be designed into more disk drives.

Final question. You mentioned how your polyurethane foam density manufacturing ability has broadened substantially. How does that broaden your addressable market, and in what timeframe might we see you exploit that?

The initial application is associated with cell telephones where this very low density material that is highly compressible that gets compressible up to 80% without having more than five pounds of force. That allows the cellphone people to buy cases from a wide range of people that vary dramatically within the tolerance of the specification. And the foam is the material that then takes up the gap. And being heavy in low density is really important because they can't have much force because they're trying to mold these things as thin as possible. They don't want to break the case.

Does that displace what your present foam application you have, or is that incremental?

Yes, both. It replaces some older stuff in new designs, and it has allowed us to have higher penetration. Now beyond cellphones, I believe that there are a lot of other applications, especially for large gaskets in cases where the closure force becomes an even bigger issue.

Do you need to have new manufacturing lines to make this material?

No, we have had to do a modification -- we added something to the line. But it does not require new lines.

When you use (indiscernible) site to make incremental PORON need you are foregoing some of the profit if you believe that is going to be stable revenue. Would it be your expectation that you will add to company-owned capacity?

Yes, by having some increment made at the joint venture we avoid adding capacity in the short-term. Typically when we do add capacity it sits idle all but a couple hours during the week. So it means we make a lot less money when we add capacity until we begin to fill the machine. So our approach here is two approaches actually. One is continue to increase the productivity of the existing machinery, and we believe we can raise that at a 10% year rate for at least another year, maybe longer. And then make it at the joint venture until we're making sufficient material in the joint venture so that a machine will be profitable -- one of our machines will be profitable from day one. So it is a little less profit in the short-term, but it should allow us to continually raise profits.

When you place a lower density foam in a phone, where you are presently serving that need now, does that end up being higher revenue content or lower revenue content?

Same to higher.

And can one presume that you don't go through diminution in margin? When the revenue is higher?

Yes.

That's all I have. Thank you.

At this time there are no further questions. Mr. Wachob, are there any closing remarks?

I thank all of you for attending today, and I hope you have a nice day. Goodbye.

This concludes today's Rogers Corporation third-quarter earnings conference call. You may now disconnect.