Rogers Corp (ROG) 2006 Q1 法說會逐字稿

Good morning; my name is Michelle and I will be your conference operator today. At this time I would like to welcome everyone to the Rogers Corporation first-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 session. (OPERATOR INSTRUCTIONS). Mr. Wachob, you may begin your conference.

Good morning, ladies and gentlemen. With me at Rogers this morning are Dennis Loughran, our Chief Financial Officer and Vice President of Finance; Bob Soffer, Vice President, Treasurer and Secretary; Paul Middleton, Corporate Controller; Deb Granger, Director of Corporate Compliance; and Ed Joyce, Investor Relations Manager. Thank you for joining us this morning. First, Dennis will dispense with the formalities and then we will get right down to business.

Thank you, Bob. I would like to point out to all 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 the 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 the forward-looking statements. I'll now turn it back over to Bob.

Thanks, Dennis. It is a pleasure to be able to report record sales and earnings for the second consecutive quarter. And as you saw in the press release, sales were up 17% quarter over quarter, gross margin reached an elusive 35%, and profit after tax was 12.2%. The organizational changes, the capacity additions, the new factories in Asia and the other strategic initiatives that we have invested in over the last 24 months are beginning to generate returns. Fortunately we still have ample room for improvement in our operations, especially as our volume expands.

We expect to add resources in the coming quarters to our new business development efforts as we expand that activity into our three strategic business segments. By having more people investigating and validating new business opportunities, we expect to sustain and hopefully increase our growth rate over time. Because this was the first time during our conference call that we're reporting using our four new business segments I'd like to explain them to you in a little more detail than what was in our press release.

Reporting segments are -- one, printed circuit material, which includes our flexible and high frequency circuit materials products; custom electrical components, which is comprised of our electro luminescent lamps, inverters and power distribution components; high-performance foams, which contain our polyurethane and silicone foams; and fourth, other polymer products, which has our elastomer rollers, floats, polyolefin foams, nonwoven materials and our flexible laminants for electrical shielding. We will be posting on our website the quarterly sales for these segments over the last three years for you to use for comparative purposes.

While we don't have final profit numbers by segment at this time, we do know that the substantial losses incurred by the other polymer product segment, which was more than $5 million in Q1 of 2005, were virtually eliminated this quarter. Operating profits by reporting segment will be available in our 10-Q filing. As we said in the news release, we expect a strong second quarter and believe 2006 will be a breakout year with Rogers and our joint ventures setting new all-time sales and earnings records.

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

Thank you, Bob and good morning again to everyone on the call. Starting with net sales performance -- for the first quarter we achieved $103 million, which was up 17% compared to the $88 million sold in the first quarter of 2005 and up 5% sequentially from the fourth quarter of 2005. Our GAAP net income for the quarter -- for the first quarter at $12.6 million equates to $0.74 per diluted share. This amount includes $0.5 million of long-term equity-based incentive compensation expense.

Diluted EPS for the quarter exceeded the high end of our guidance which was $0.60 to $0.64 per share as indicated in the press release, more than double our first quarter 2005 of $0.30 per share. The strong operating results in the first quarter of 2006 stem primarily from the higher level of sales as well as favorable sales and significant operational improvements in China, all of which we expect to carry through 2006.

Taking a closer look at our operational performance, sales of Rogers' custom electrical components, sold into the portable communications device market, and high-performance foam, with strength across all of its markets, were key drivers of the overall volume growth in the first quarter. We did experience some advanced purchases in anticipation of an April 1 price increase for high-performance foams; however, the majority of our volume improvement for the quarter relates to our position in growing, high demand applications in markets related to cell phones, entertainment systems and a wide variety of industrial applications.

First-quarter gross margin was a record 35.2% versus 27% for the first quarter of 2005 and up sequentially from 31.7% in the fourth quarter of 2005. The improvement was driven by the facts, as indicated earlier, related to overall earnings and we do expect the gross margin percent to vary in line with sales levels throughout the year.

Selling and administrative expenses for the first quarter of 2006 totaled $17.4 million versus $14.4 million in the first quarter of 2005. The increase reflects higher incentive compensation including the expense recorded associated with the Company's adoption of new equity-based incentive compensation accounting rules as well as sales commissions and additional resources required to support increased marketing, business development and finance needs.

Research and development expenses for the first quarter of 2006 were $6 million as compared to $5 million for the first quarter last year. The R&D spending rate was 5.8%, virtually unchanged from the prior year first quarter.

Other income and expense, which includes income from our joint ventures and royalties less other expenses, amounted to $2.9 million in the first quarter of 2006 compared to $2.6 million in last year's first quarter. The change is due to lower royalty income, higher other expenses offset by a significant increase in equity income from our joint ventures.

Rogers' 50% owned joint ventures had record sales for the quarter and significantly contributed to Rogers' profits. For the quarter sales were $30 million, up 21% over the first quarter of 2005 and up 4% sequentially over the fourth quarter 2005 sales. Cellular handset and consumer product applications were key drivers of joint venture sales in the quarter. In addition joint venture equity income for the quarter was up 46% versus the first quarter of 2005 due to the increased sales volume and operating efficiencies we are experiencing now that our China high-performance foams material joint venture is running at three shifts.

In taxes we achieved a first-quarter effective tax rate of 22% which is in line with expectations for 2006 reflecting the benefits being realized with increased business and lower tax jurisdictions such as China.

Turning to our financial position -- Rogers continued to enjoy a strong cash position with our cash and short-term investment balance at the end of the first quarter at $65.2 million, up from the fourth-quarter total of $46.4 million. The substantial increase was driven primarily by earnings plus depreciation and $10 million in option exercised proceeds partially offset by net working capital increases. For the quarter capital expenditures were $2.4 million. We continue to expect our annual expenditures for capital to be approximately 30 to $35 million in 2006, all of which should be funded from operating cash flows.

The Company did not repurchase any shares during the quarter as the stock price exceeded our current authorization level for repurchases. However, we will request a change in that restriction and expect to repurchase shares as appropriate based on business conditions in 2006. We currently have authorization to purchase $21.4 million in additional shares.

Our balance sheet remains strong, we continue to have no debt and our current assets exceed current liabilities by three times. Inventory levels ended the quarter at $53 million compared to $43.5 million at the end of 2005. This increase relates to valuation increases due to raw material prices, buffer replenishments, in transit increases in line with our Asian sales increases, and higher levels of inventory to support quick delivery times for our Asia circuit materials and electrical components customers.

Accounts receivable ended with 57.6 days outstanding compared to 57.7 days at the end of 2005. While our metric has remained fairly steady, we do expect to experience increases in accounts receivable as our sales increase in geographies where our standard terms are 60 to 90 days.

As a final note, I'm happy to report that we have received confirmation from the SEC that their recent review has been completed and all issues are resolved. This concludes my financial remarks and I will now turn the call back to Bob.

Thanks, Dennis. We're now prepared to answer any questions.

(OPERATOR INSTRUCTIONS). Dana Walker, Kalmar Investments.

Good morning, everybody. Nice to see the very fine results. Can you talk about, given that you have not yet restated the quarters and you took an operation out of the printed circuit materials segment, how -- your sense for how those results in the mix of that business compare to Q4?

That business would have been down slightly from Q4.

As well as down slightly from Q1 a year ago?

Yes.

As you appraise what you're foreseeing in Q2, would you expect improvements, the same or a decline from where we stand in Q1?

I expect Q2 to be similar but then come Q3 and Q4 I'd expect some significant growth there.

Can you talk about the influences driving that growth?

One part of it is the seasonality in the cell phone business and the introduction of new products. And the other one is associated with the new high-definition TV which we expect the volumes to be larger in the second half than in the first. And then of course there's the one I've mentioned before which is the wild-card is when does China issue those licenses for 3G? It's going to have to happen relatively soon as they're going to be ready by the Olympics.

Bob, is there any noticeable moving around between flex and high frequency in the last quarter or two and as well in your Q2 outlook?

The business associated with infrastructure remains quite strong whereas we are still not able in the portable communication device area to replace all that business that we lost. So that area is weak while the infrastructure and the satellite TVs remain strong and are growing.

How does your core flex business compare to the activity levels at Chang Chun?

We believe that in some cases some of the cell phone companies are placing business with Taiwanese headquartered companies that they used to place with companies headquartered outside of Taiwan. And therefore, our joint venture is seeing record sales and earnings and we're not. We're not really losing it; it's just going to a different part of Rogers.

I'll ask one more question and then step back. Can you talk qualitatively about what is at work with Durel both in terms of lamps and inverters and compare your ability to take this incremental volume and translate it into profit versus where you think you ought to be?

In the custom electric component segment -- we feel pretty comfortable with the capacity we have available to address the portable communications market. We have yields that we are comfortable with. We do have some product transitions taking place, but we expect increased business in that area sequentially and every quarter this year.

When you use a word like 'yield', is that analogous to margin?

Improved yields always improve margins.

Unless the price is going the wrong way -- more so than expected.

Yes, as I've mentioned before, in the portable communication device area we certainly are trying to make sure that we utilize as much of our capacity on new program as possible and that we subcontract as much as we can of the mature and therefore programs which have declining prices to others.

When you use a phrase like "product transitions", which is always going on in your business, is there something in particular that we should bear note of or is this normal stuff?

Just normal kinds of things.

But is this a transition from keypad-based business to new updated keypad business?

No, we're actually just making some improvements in manufacturing that will, in this case with EL lamps, will reduce the number of layers.

Let me sneak in one more question. Can you talk about the relative utilization moving back to printed circuits for a moment of your three remanufacturing geographies? I believe there was reference to an intangible or an asset write-down related to your European printed circuit production location?

Sure. In the fourth quarter -- we have an old press in Europe that was our original production site for high frequency materials. And as you recall, several years ago we built a new site and then populated that with some very automated equipment and then expanded that by 50% in 2004. That old piece of equipment had been used sporadically, but it's a situation where if you don't use it all the time the expense associated with trying to get it cleaned up good enough to run again is just too great. So it had a little value on the books and do we chose to write it off and not hold it as spare capacity because it really wasn't turning out to be spare capacity.

Are you using that updated press at a reasonable level?

Oh, yes.

I'll step back. Thank you.

Jiwon Lee, Sidoti & Co.

Good morning, Bob and Dennis. I'll just tag along to Dana's last question in terms of the write-off of these old press machines in Europe, what percent of capacity did that represent?

It was unused and it was a very small percent of capacity as it was a small press and not automated. I'm surprised so many questions here -- this is a minor number. This is hundreds of thousands of dollars and represents a very small percentage of our capacity.

Okay. And I guess another sort of a similar question, in terms of the EL lamps; you talked qualitatively, but in terms of your margin potential where do you feel, Bob, that you are as opposed to the key potential margin or operating improvement? Can you tell us a little more about that?

Unfortunately, as you know, we're living in a new world and we're not able to comment about performance beyond the reportable segment level. We can talk qualitatively about things and about manufacturing new products, but not about results.

Could you then with your new segment comment a little bit more about the inverter business, the recent upticks or downticks?

That's a detail that we don't discuss as it's just one small part of the segment.

Then I'll ask one question to Dennis. The taxes -- it seems like you're benefiting from higher sales in China and what not. How should we look at it going forward in '06 and beyond? It looks like the 22% is sustainable.

We feel -- that is our current long-term production and we do feel it's sustainable. As sales roll off of the tax benefited periods, we do have new investments and new sales programs moving into tax holiday'd status. So that average of 22% for the medium-term is a good number we believe.

Okay. And just one housekeeping item. What was the depreciation for the quarter?

I've got $5.3 million.

Great, I'll jump back to the queue. Thank you.

(OPERATOR INSTRUCTIONS). Shawn Severson, Raymond James.

Good morning, gentlemen. Could you talk a little bit about how you think the contribution margin plays out from here? I know it fits kind of your intermediate-term target, but how much more leverage is in this business as revenues pick up through this year and into next year probably before you have to make some more capital investment?

Capital investment wise we'll continue to be making investments, but not multiple things at the same time. We do have additional capacity. That capacity -- we're in the position where that capacity, when it's utilized, well cause our gross margins to increase. One of the goals we haven't met, which is 15% after-tax profits. So there's multiple ways to get there. One is to expand that gross margin beyond the 35 or the other is to get SG&A as a percentage of sales down.

That was going to be my next question actually. Is SG&A -- kind of at your current investment level in SG&A what kind of sales level can you support?

I believe we could -- of course everything depends upon mix, right? But if things went in a normal way and most things grew, we should be able to get into the $500 million range with what we have.

Okay. And then just touching again back on that gross margin question. I know it's going to be a positive contribution margin, but is it fair to say that the curve is flattening out a little bit in terms of the contribution margin? Are you in the middle of the sweet spot or kind of at the tail end of the sweet spot of that rapid margin expansion?

Well, we're not likely. Since we went from 27 to 35 it's not likely we're going from 35 to 43.

Right, right, exactly. So is it 80% done kind of a thing or even more than that?

It's really going to depend upon how much volume we get because that's the position we're in. The margin is going to be driven very strongly by the volume. And of course also by what things are growing as custom electrical components, for example, have smaller margins than things such as high-performance foams. It was pretty obvious in the last 10-K.

Right. But you're not necessarily faced with anything over the near-term where you'd almost be running at inefficient levels, if you want to call it that, where you're going to have extra costs or overtime or things that might actually be a negative impact on the margin?

No, we have none of those. We are in a different world than we were in in 2004 when we had to do whatever it took to get out a little more product. We now have the capacity to deal with sales increases in a normal and logical manner.

And then just lastly, could you just give us some color on what's going on in raw materials and where you stand especially in copper and some of the other areas that are having a lot of rapid price increases and your contracts and how you're managing that through this next quarter or two?

We are seeing -- certainly in copper seeing price increases and in some other raw materials. Although the things associated with oil seem to have calmed down a little for the moment. But I expect in the coming quarters to see significant surcharges on shipping. It seems to me it's a favorite area of most suppliers to raise their prices. But so far we have managed to, for the most part, pass along those price increases that we've experienced; however, generally not at any margin or if we get some margin it's very small.

Thank you.

Bob Fetch, Lord Abbett.

Good morning. First question might be topical. Driving into work today I heard a commercial about people in their cars needing to stop every ten minutes to basically find where their huge size soda is in their Dodge Caliber I think it was. And basically talking about a cup holder that's illuminated with silhouette type of look. Is that an example of what you'd been hoping for for sometime in terms of some of the uses of Durel in terms of ambient lighting within vehicles?

Absolutely. That is us.

Okay. And how many programs or platforms might it be on at the moment and to what agree is there a pipeline of projects that that may be indicative of?

I believe it is two or three programs at the moment. And if it turns out that that's a popular feature, then of course it will be extended quite a bit more in the Chrysler line.

Any other manufacturers that you're working with?

On that application, not yet.

Okay, but others I mean?

Oh, yes, there are kinds of different applications.

And just curious since there have been times where the auto manufacturers have costed out products of slightly higher cost or things that they don't consider as a 'need' but as more of a 'want'. What is the cost to the manufacturer for adding that type of feature?

That type of feature I believe is in the $3.00 range.

Okay. Motorola had an extremely good quarter on the handset side. Do you feel your market share with them you've been maintaining?

Yes, we believe we have a stable market share with Motorola. However, with new programs we might see that increase.

More likely to increase than decrease?

Yes.

Okay. Your Poron machine that you've talked about having installed in China, do they still have -- does the line still have a revenue run rate potential of about $40 million?

Yes.

And how many shifts are you working there at the moment?

We're operating three shifts, but since we're early with this machine, this machine's not running at the rates of our other machines. So it has quite a bit of room for improvement and we'll be doing that because it's easiest to start one up running slow and then as everyone gets experienced and we start turning up the speed.

Okay. On some of the margin questions that you had earlier it sounded like one shouldn't necessarily expect the gross margin to show the sort of improvement that it did in a recent period here, which is understandable. At the same time, though, with higher utilization might we see significantly better operating margin improvement yet to come?

Yes, we get more utilization our margin will go up.

Okay. You've talked about shipping costs; there were some float issues over the past 12 to 24 months. Are they largely eliminated where you've not only gotten better yields but have been able to eliminate some of those quick shipments that were more costly than we would prefer?

On the float area, we are about -- still about 40% in the air as opposed to on chips. We expect that to end during the second quarter. So we've made significant progress there. Since our total shipping time is about eight weeks that means we had to build -- we're still trying to build in effect eight weeks of inventory that will be in transit. We're getting there but it takes a little while to do that. We're seeing good improvements in that whole area.

You had pointed out in the release the elimination of the $5 million loss that you had last year. Can you update us on what you're going to be likely doing with the facility in Illinois?

We're still making polyolefin foams and silicone foams in that facility. It's about 220,000 sq. ft. We have about 40,000 sq. ft. that's not being used. It's possible that we could try to rent down part of that, but we don't really look at it as much of a burden. The annual expenses for that building are actually less than the building we were leasing some years ago, even though this building is more than twice the size.

Okay. On the satellite side in the past or most periods you had some degree of seasonality and some recent years you didn't see what was often typical, how do you characterize the performance in that area and the move by folks like DirecTV towards HDTV and the impact that it might have on your sales and to settops?

We see the seasonality being much, much less than it was a couple years ago when the second half might be 50% greater than the first. But there is a little bit of seasonality still remaining there. And we believe the high-definition TV part of it is going to be a significant event in 2007, but it appears that in all of 2006 they're pursuing the strategy of picking off all the high-end users who are willing to pay whatever price and therefore the volumes will not be huge this year. But then that will change come 2007 as they begin to lower the prices or may even go to give it away if you sign a two-year contract.

In regards to one of your major customers on the handset side -- is your position with them in the non-flip phones, SLVRs and so forth as good as the flip phones -- RAZRs?

Yes, we have applications in both the candy bar style and the clamshell; although the clamshell phones use more of our materials than the candy bar types do.

And it might seem like a silly question, but your products are color independent?

Yes, if we think about electro luminescent lamps, the one color that is very difficult -- the only color that's very difficult is red.

But it doesn't matter what color the phone is?

No.

Going back to the margin. If you're able to sustain gross margins at these levels or slightly better, ought we get to a midteens net margin? Anything to restrain that from occurring?

If the volume continues to expand I would expect we'll be able to get to that 15% after-tax margin. But we'll probably need to be in the 110, $115 million per quarter range.

And how about JV contribution?

We have a pretty bright outlook for the joint ventures.

But I mean that contributes to that margin, though, as well which it's not captured in the topline sales level you just quoted?

That's right.

So at current or slightly better levels in terms of the JV contribution would sustain that profitability?

Yes.

Okay. And then lastly, can you kind of give us your sense, and based on how you feel your potential customers feel, in regards to the China and 3G? Whether it's tomorrow or six months from now, licenses are pretty much established. How long might it take subsequently for orders and shipments of related equipment to find itself into the marketplace?

I believe that it will be a very short period of time -- three to four months from the award of those licenses until people are putting systems in place. If they all know the target date and they all know the consequences of a country like that, of not meeting the desires of the government. So I think lots of the suppliers have already been chosen, systems have been tested and people -- take Erickson for example because they talk a lot about this -- is planning to invest $3 billion of which they already I think have committed $1 billion for manufacturing facilities in China.

So when and if that comes, that could have a meaningful impact and you have the capacity to support it?

Yes. Both a meaningful impact and we do have the capacity.

Well, it's been just very encouraging to see the breadth of performance across the product line here serving a broad number of markets and products and customers. It clearly provides you with an opportunity to have a stability in your business that few other companies have.

It's that breadth of applications and markets that makes us feel pretty confident about sustainability.

All right, thanks, Bob. Knock on wood.

Dana Walker, Kalmar Investments.

I'm not a fawner, but since I didn't say this the first time and have been a gross margin maven, I want to congratulate you on getting back to this number. That is a pleasant place to be.

Dana, it is a very pleasant place, although we've never been here before. This is the first time.

Well, you've been in the 34's.

Yes, we have. And now we're at 35 which, as you know, we've talked about that for a few years.

Well, when you're here in Wilmington a month or so from now I'd happy to bring a nice bottle of wine into the office. We'll drink a glass.

After five.

After five is fine. One of the things as I recall being talked about in trying to place more production in the Far East was to be able to better control the amount of product that you would have either in finished goods or in transits. Can you compare that by deal to where you think you are now given that inventory necessarily is rising because your revenue is rising, but compare those two thoughts, if you would?

Okay. At this point our wholly-owned manufacturing would amount to about 14, 15% of our sales. However, if we include our joint ventures we then approach having about half of what we sell in Asia manufactured in Asia. But since our wholly-owned manufacturing is still relatively low, we're actually making more in the U.S. and Europe that we're shipping to Asia, at least at this point in time. We have planned some expansions that will be completed in late 2007, for example such as polyurethane foams, which will up our percentage significantly.

Do you believe, though, that by being closer to the customer you're taking some of the ups and downs in your production rates to more level levels?

Yes. Yes, because they're not getting as many huge orders, instead more -- a larger number of smaller orders which of course is a good thing actually.

I would like to weave Dennis into this question theme. Are you of the mind, though, that the inventory relationship that you have to revenue right now is the appropriate one, or is it likely to diverge from where it is presently?

I just did a quick calculation and I'm thinking we are about -- I'm sorry, we're under 50 days of supply at the current rate we were running in the first quarter. And with the supply chain we have got, I think that is a pretty good level. I think as sales ramp up, we probably just like any other operation would have some inefficiencies at the beginning of the supply chain.

So I would expect in some of the areas to get better, especially as more of the production transitioned over to China for those Asian sales. So I think we are at 47 approximate days of supply at the run rate for the first quarter, and I think kind of sustainability basis, you would like to be a few days better than that.

You are not in a position to divorce yourself from the positive or the negative volatility in your end markets, but I suppose one of the softer intended consequences of going closer to your customers was to take some of the extreme volatility out of your order patterns. Are we closer to that as an ideal, or is that still way off?

We certainly see less volatility in the last two quarters than we did previously.

I think the focus of the sales and the marketing teams is on forecastability rather than the volatility of the orders. If the orders are volatile but you know that they are coming, you can respond to it with appropriate inventory builds and in transit inventory. So I think that is probably the key focus of the operations and the sales people to get more contact with the customer and make sure we have visibility to those changes, and that is where we need the most improvement.

Hello? Dana, are you there?

Sir, your line is still open.

He must have gotten disconnected.

Jiwon Lee, Sidoti and Company.

Just one quick follow-up question. If you could comment on '06 capital spending plans at all.

Yes, we still expect to be in the 30 to $35 million range as we have some significant buildings going up in China, and we plan on in our polyurethane facilities here in the U.S., we intend to do some significant modifications to one of the machines that is the older one, so that we can bring its speed and capacity up to the same level as the newest one. Because at the moment, we are not able to unload it fast enough to let it run at its designed speed. That will be an improvement in the capacity of that machine.

There will also be some significant capital in the 3 to $4 million range associated with the whole facility and the machine.

Are you saying, Bob, that you are actually increasing production capacity of polyurethane foam, or are you making a modification to make more with the same?

Yes, we will make more with the same in Woodstock, Connecticut, and we are planning on bringing on stream a brand-new machine in a brand-new facility on our site in Suzhou, but that will be a late 2007 event.

Right. Okay, great. Thank you.

You're welcome.

Dana Walker, Kalmar Investments.

Welcome back, Dana.

I didn't believe I went anywhere.

Did you miss that wonderful answer?

I wonder if there was a protocol issue as President Hu seemed to be having some difficulty with some hecklers yesterday. Maybe I was being heckled to go back. The new Poron line in Suzhou, will that be a RIC line or routers line?

It is likely that it will be operated by the management team that is in place in the joint venture, but operated for the sole benefit of Rogers. We're attempting to use one management structure to therefore minimize the overhead, yet allow ourselves to capture 99% of the profit.

That sounds like a good thing. I was trying to ask a question earlier about China and 3G. Given your high market share within the high frequency market, does it matter which vendors get the greater amount of orders?

We're happy if anyone gets them. But of course, there's one or two who actually have more of our material than others. And it's not just that they chose to design in a certain way that uses more of our type of material, not that anyone else is using a lot of someone else's.

Is it taboo to cite who you have more volume with rather than less?

Yes, they really don't like it, especially using their names. But we do like market leaders.

That helps.

Okay.

Earlier in the conference call you talked about a desire to deploy more resources to help you grow at a higher sustained level. Can you talk about what you believe you'll seek to do that you have not yet been able to do over time or that you've not chosen to do and why that would make a difference?

We historically have -- over the last decade have been able to grow about 11 to 12% a year. We would like to raise that rate to 15%. We think we can do that by having more resources focused on new opportunities and both investigating them and validating that they are real. We think that not only will that create more opportunities for us; it will improve the percentage of new products that actually turn out to be winners. Because most of the world starts with about -- I believe the number is 350 ideas and eventually they come up with one good product. We want to improve that and we believe we can.

We've been working on that process with some consultants now for several years. We have tried it in corporate where we have a new business development team that's truly been working on new things to Rogers, both new markets and totally new products, and we're pleased with what's going on there. Pleased enough that we're extending this activity now into the three strategic business segments because we believe there's quite a bit of opportunity there.

We've been at it in one of them for six months and found a dramatic improvement in the number of projects we have to work on, which is also causing us to hire more marketing people. We think in the end here this will generate significant new sales for us. Because, as you know, we have this goal to achieve $1 billion of profitable sales -- at least while I'm still here. And we can't just keep doing the same old things if we're going to get there. So this is one of the new initiatives.

Is it your point of view that your existing products are the least well exploited or that there are material platform technologies that you have not been able to take from lab to market that are least well exploited?

Really the majority of the grow in that 11 to 12% range will come from existing technologies that we have. And that that increment, the 3%, will come from very new things, both new markets and new products for existing markets -- new technologies for existing markets. We'll see. We haven't talked about this much because this all takes time and this isn't something you decide to do and three months later you show all the wonderful results. But we're getting close enough that we're ready to talk a little bit in this area.

One last question. Bob Fetch was (indiscernible) enough to see that there was a need for illuminating cup holders out there and might already have one in his car. But can you talk about other new initiatives that we have not yet talked about here on the call?

I think, Dana, if things go well by the next conference call we may be able to talk about one or two new things. I prefer not to talk about them until they have happened because until we actually introduce a product or make an acquisition or acquire a technology that there's always some uncertainty until it's done. I'd rather talk about it after we've completed it.

Thank you very much.

Shawn Severson, Raymond James.

Bob, could you just expand a little bit on what you're doing to protect IP in China? Obviously a lot of business and a lot of production moving over there and I know you have some pretty specific measures in place, but could you just remind me of what those are?

I'll give you an example with the polyurethane production line. We purchased all the specialty raw materials either in Japan or in the U.S., so we don't purchased those from the purchasing staff in China. We have those specialty materials mixed in a different facility controlled by our Japanese partner that is a significant distance away.

They come to the factory labeled A, B, C, D, E, F, and G. The machine in the factory has all the gauges are zero to 100 with no indication of whether it's pressure, temperature or whatever. The coating head itself is in a separate room that has access only to the one operator who is at the front end of the machine. The coating head itself is welded shut. There is a spare locked in a safe. When it needs maintenance it is removed and shipped to Japan and the new one is installed. In Japan it's unwelded; the maintenance is done, rewelded and shipped back.

So it's those kinds of things -- and there are no formulas that exist in China nor in any one except the Japanese engineer and the Japanese general manager get access to any computer storage device that contains the formula.

Are you sure that wasn't in the new Mission Impossible III?

Maybe. We and our partners have spent a lot of time thinking about how to protect what we have because, as we all know, if you lose it you never get it back.

Is that particular product line the most sensitive you think or the most at risk I guess? Or is it kind of diminished as you get through some other product categories where you don't worry about it so much?

Yes. Some we don't worry about nearly as much. We have little worries about floats for example. On the power distribution components, there we do all the design in Belgium and we electronically transfer the files to the CNC machines so that no one does any program in China. And then one of the most important parts is the film and adhesive insulation and that is all made in Belgium and shipped in rolls, so no one in China knows what it is. We make it for ourselves also which helps.

But yes, some it's less. Polyurethane is one we're most protective of. And when we put high frequency there we will not put a treating tower, we will keep the treating towers in the U.S. and in Belgium and therein lies all the important intellectual property that's associated with the formula that's used to treat the glass.

Thank you.

At this time there are no further questions. I'd now like to turn the call back to Mr. Wachob for closing remarks.

Thank you. I would like to leave you with one last thought. And that is that over the last two years we have significantly reshaped the Company and we're beginning to see some of those anticipated benefits. And it is absolutely our goal to continue delivering increased sales and earnings. Thank you for joining us today. Have a good day.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.