Rogers Corp (ROG) 2008 Q4 法說會逐字稿

Good morning any name is Sarah, and I will be th conference operator today. At this time I'd like to welcome everyone to the 2008 year end and fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a Q&A session. (Operator Instructions). Thank you.

Mr. Wachob, you may begin your conference.

Thanks you. Good morning ladies and gentlemen. With me are Dennis Loughran, Chief Financial Officer. Doug Granger, Vice President Corporate Compliance and Controls. Bob Middleton, Treasurer; Bob Soffer, Vice President and Secretary; Ron Pelletier, Corporate Controller; and Bill Tryon, Manager of Investor and Public Relations. First, Dennis will dispense with the formalities then we will get right down to business.

Thank you, Bob. I would like to point out to all our listeners that statements in the 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 the 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 statements.

I will now turn it back over to Bob.

Thanks Dennis. Q4 2008 certainly turned out much differently than we thought in late October. In early November our order rates slowed dramatically and in December, it dropped again. The hardest hit segment of our business was anything associated with cell phones. As there was and is clearly a glut of product in process and finished goods within the supply chain. As we expect, Durel saw end of life on multiple phone programs resulting in a 75% year-over-year sales decline. Our strongest business was power distribution systems down only 3% from Q4 2007. Mass transit and wind turban markets remain strong worldwide.

In 2008 our sales of new products introduced in the last five years were 30 % of our total sales. During the year, we introduced 16 new products, that we expect will make contributions to the 2010 and beyond results. Our new product pipeline contains over 30 projects, so far in Q1, all products related to cell phone applications remain weak and high performance phone and Durel, some customers having not placed any orders since October. I don't know when the inventory correction ends, but it won't last forever because people are continuing to buy phones even though it is currently only at 75 or 80% at the pace of 2008.

One piece of anecdotal evidence that the correction may by nearing an end is that two suppliers of printed circuit boards that go into cell phones reported they received rush orders last week. In the meantime, we are maintaining our work force by working three or four days in some businesses, when the turn comes we will be ready to respond. I said several times before that difficult times were coming. We just didn't know exactly when. There is no doubt they have arrived and in late January we reduced our salaried work force by 10%, and reduced annualize expenses by approximately $27 million.

All the efforts we made in 2008 to make sure our balance sheet was in pristine condition will yield significant benefits during the downturn as we have the flexibility and resources to take advantage of the opportunities that we believe will present themselves. In Q1 we expect the mass transit wind turbine markets will remain robust for the our power distribution system business. Printed circuit materials will benefit from the recently announced 3G infrastructure buildout in China. Which will go a long way toward offsetting the continued weakness in the communication infrastructure in the rest of the world.

We have already received a rush order from a major bay station supplier for China. A good indication that the pipeline was very low. We are continuing to find our strategic initiatives including our new business development efforts. We are, however, remaining vigilant and will take the necessary measures to keep Rogers a viable entity.

I will now turn it over to Dennis for the detailed results.

Thank you, Bob. Good morning, again, to everyone. In the face of widespread declines in the global economy, and disappointing results being reported in all sectors, Rogers finished the quarter matching our updated guidance for top line sales, but improving bottom line EPS beyond expectations. In sales, our fourth quarter achieved a level of $78.6 million within our updated guidance range, but at a level equal to 82%, of our past three quarter average of approximately $96 million.

Showing the impact of mid quarter four, demand shifts across most businesses with the exception of power distribution systems, which maintained comparable billing strength and printed circuit materials for low noise, lockdown converters LNBs, into the satellite TV market where previous quarters have already seen weakness due to the downturn in the housing market and the weakened economy. Excluding the restructured businesses, Durrell and Flexible Circuit materials, are top line for fourth quarter 2008, was down approximately 4.6, from a year ago results, well off the 7.8% improvement for that same metric reported for the third quarter.

Earnings per share from continuing operations of $0.01, reflects the impact of $0.43, in cost related to the CalAmp settlement but a lowered manufacturing margin of 27.4% related to lower production levels required to match lower sales levels. Our balance sheet continues to provide strong liquidity with cash and short-term investments growing during the quarter, to $70.6 million, from $48.7 million at the end of Q3. And with AR DSOs maintaining strong year-over-year improvement and inventories declining quarter on quarter. Both of those working capital assets aggregated to levels of approximately $37 million lower than a year ago.

Overall, for the fourth quarter 2008, Rogers reported earnings of $0.24 per diluted share including discontinued operations. This compares to income of $0.48 per diluted share in the fourth quarter of 2007. The year-over-year change is attributable primarily to the 2008 impact of the CalAmp settlement, of $0.43 per share, offset by the favorable indeflex divestiture impact of $0.20 per share as well as lower sales and operating profits across most business segments.

The fourth quarter of 2008 sales total of $78.6 million, represent a decrease of 24.8% from sales of 104.5 million, in the same period in 2007. With the decline being driven primarily by lower revenues in our restructured businesses Durel and flexible circuit materials, and declines in high performance phones, power distribution systems achieved sales only slightly below year ago levels.

Fourth quarter 2008 gross margin, was 27.4%, versus 31.6% for the fourth quarter of 2007. In the quarter, margins declined across our strategic business segments, for our continued focus on cost containment was offset by the impact of lower production levels, required to maintain lean inventory levels. The one exception to note is other polymer products as those businesses in total were able to report improved gross margins in the face of slightly declining sales.

Selling and administrative expenses for the fourth quarter 2008 and 2007 were $26.3 million, and $19.2 million respectively. This increase was driven primarily by one time costs related to the CalAmp settlement of approximately $7.1 million.

Research and development expenses were $5 million in the fourth quarter 2008, as compared to $7.3 million in the fourth quarter 2007. As a percentage of sales, research and development expenses were 6.3% in the fourth quarter 2008, as compared to 7% in the fourth quarter of 2007. For both full years of 2008 and 2007, we achieved our target R&D spending level of 6% of sales. Other income and expense, which includes income from our joint ventures and royalties less other expenses, amounted to $4.9 million in the fourth quarter 2008, compared to $3.7 million in last years fourth quarter. The net improvement is primarily related to increases in other income, on the strength of favorable net foreign exchange impacts totaling approximately $2 million. Attributable in part to our global currency hedging program. Approximately $1 million related to other one-time charges incurred in 2007. Including charges associated with the changes to our legal entity structure in China of $600,000. Which offset declines in joint venture income of $2.1 million, due to lower sales and profits reported for our flexible circuit material and polyurethane foam joint ventures. Rogers 50% owned joint ventures had fourth quarter sales totaling $26.2 million, down 25.8%, from $35.3 million, in the fourth quarter of 2007, primarily on weakness in our flexible circuit material and two polyurethane foam joint ventures. As a result, overall equity income and unconsolidated joint ventures in the fourth quarter of 2008 as compared to fourth quarter 2007 declined by $2.1 million.

The Company's 2008 annual affected tax rate came in at 13.9%. Which resulted in a favorable impact in the fourth quarter due to year end true up against previous estimates. The lower tax rate for the year, resulted primarily from a greater portion of overall earnings coming from lower tax jurisdictions than was previously projected. In addition, the rate was also impacted, lower when the affective one-time discreet tax adjustments recorded earlier in the year were recalculated using the revised proportions of income from lower tax jurisdictions resulting in a favorable impact on the overall affected tax rate. We continue to expect the benefits of our long-term tax planning initiatives announced during the fourth quarter to achieve favorable impact on the international tax component of our rate restructure for 2009 and beyond. You currently expect our 2009 annualized tax rate to be in the 21% range.

Turning to our financial positions, Rogers ended the fourth quarter with a cash and short-term investment position, of $70.6 million, compared to $48.7 million at the end of the third of 2008. That improvement related primarily to further reductions in accounts receivable and inventory during the quarter. During the fourth quarter the status of the Company's investments in auction rate securities changed as the Company received par value redemptions of $4.4 million.

During the quarter, the Company also recorded additional balance sheet valuation reserves, bringing the position to a fair value of $43.4 million, against a par value of $50 million. Capital expenditures were approximately $6.6 million for the quarter, bringing capital expenditures in 2008 to a total of approximately $21 million. In 2009, we expect capital expenditures in the range of $20 million.

From a balance sheet perspective we continue to have no outstanding long term debts. although we are supported by available credit facilities totaling $100 million. Our current assets were 3.1 times current liabilities, and inventory levels ended the quarter at $41.6 million, compared to $49.1 million at the end of the fourth quarter 2007. Accounts receivable ended with 65.9 days outstanding, an improvement from 67.3 days reported at the end of the fourth quarter 2007. Our focus on efficient cash management, has rewarded us handsomely with solid balance sheet and it will continue to begin a forefront of our fiscal efforts. This concludes my remarks, I will now turn the call back over to Bob Wachob.

Thank you Dennis. Now we will entertain any questions.

(Operator Instructions) Your first question comes from the line of Fred Buonocore, your line is now open.

Good morning,.

Good morning.

Understanding that you're dealing with a extremely challenging environment with less visibility than normal, given the fast moving nature of our end markets, any sense for what the full year revenue change could be? You gave good comments in your press release about where sales are now year-over-year, but can you give us any sense for what your thoughts might be for the full year.

I don't think I can do that until the inventory reduction cycle is over. While that is going on we don't know what a normal level is going to be.

Right. Do you have any -- any sort of visibility in to what is out there right now?

We had talked to fair number of our preferred fabricator high performance phone and it varies. The ones in Europe mostly said they have two months of inventory in the current sales rate. That's after not buying anything since October. The ones in the southern part of the US said their sales are down 20 to 30%. And we are -- have a senior manager in Asia now discussing with some of the asian fabricator who all are basically shutdown.

Right. Any sort of, for those of us on the outside looking in, any sort of inflection point or any sort of sign posts that we should be looking forward to see where things may change. When they change they will change fast.

Right. There really aren't, because no one talks about well we have depleted inventories. It's where someone will report that they have just received rush orders for example. When that happens and we start reading more of that, we know it's real close to the end. For us we know that it will be a significant step change up. As our performance phone business for example will probably be down 50% year-over-year, a number will probably be down 50% year-over-year, a number that I have never seen in 25 years. Normally in recessions it drops 25. Comes back pretty quick. But this time is quite amazing the magnitude.

Your next question comes from the line of Jay Harris. Your line is open.

Thank you for taking my questions. Two areas I would like to hear you comment on. Given the lower tax rate, it occurs to me that on a continuing the lower tax rate, it occurs to me that on a continuing operations basis you probably lost money in the United States and maybe other areas. I would like to hear some color on what it's going to take to get back to profitability and what kind of revenues you will need to break even. That's the first question.

This is Dennis, I will address the tax rate issues then Bob, I think can talk about where he thinks the inflection point is on sales break even. With regard to tax rate, we had a stronger mix of earnings in lower tax jurisdictions, we did not lose money on a annualized basis in the United States.

All right. Go ahead, I'm sorry.

Go ahead. Expand on what your question is.

I guess I was focusing on the fourth quarter. (inaudible)

The tax rate is a year-oddly true up against all jurisdictions, and I can't tell you specifically for the fourth quarter with regard to the 13.9% tax rate, but certainly the most important factors are your long-term earning potential in the United States verse lower tax jurisdictions to maintain the viability of long-term deferred assets, and we are currently in a strong position there over the last three years our US versus foreign have been very strong, 2009 will obviously be a challenging year. Our projections indicate we will be profitable in the US, more profitable in foreign, that is the benefit Rogers established for our shareholders. We set up organizations where we moved significant amount of production in profitability to the extent allowable by the US tax laws offshore, US tax still accrues significant amount of income from the foreign significant amount of income from the foreign jurisdictions, it's not necessarily just what is a based in the US, they are taxing foreign income from us, it's a strong position for us.

As far as the break even point the actions we took in January, should cause us to -- mix is always a factor -- but in the 67 to $70 million range we should make money.

Okay. Second area and capital spending, I'm guessing that your maintenance capital spending is something in the mid teens. So at $20 million, you're putting some expansion some place, can you comment on both of those issues?

I think in the low teens is a good estimate for maintenance capital, and we do currently have plans to complete during 2009 our high frequency production facilities in China. That is obviously all based on our expectation that 2010 will require that capacity. So we are finishing the building as we speak infrastructure will go in on a pace pattern, that is primarily the biggest -- we have other health and safety kind of capital projects that are above our maintenance kind of thing that will go in. We can certainly manage like we did in 2008 to the most lean required to keep the Company's cash flows viable.

Thank you.

Your next question comes from the line of Avinas Kant. Your line is now open.

Good morning Bob and Dennis. Few housekeeping questions first, depreciation and amortization number for the quarter.

I think we were in the 5 million range. I think we were 18.something for the year. So 5 would be about right on that.

I think the charges in this quarter were roughly, $0.23, so excluding the charges your EPS would have been $0.47, right?

Excluding --

23 net the ILD was 20 favorable and the $0.43 -- net of 23 unfavorable.

Excluding -(inaudible) your EPS would have been $0.47?

Correct.

Now when I look at the release, though, when you're talking about $0.20 after tax earnings on the sale of the subsidiary, the number there actually comes down to roughly $0.23.

When you do the discontinued operations you pull out not only the gain, but also the normal operating profit contribution after tax of the ILD operations for the period that we had during the year, which is the $0.03 difference.

Which line item is that incorporated?

Discontinued operations it's all totaled together.

I see, not broken.

You have to pull it together in one discontinued operations summary for the year and restate it prior years for that line item too.

I see. I see. Okay. The CalAmp settlement, pretax was 7.1 million.

That is the net impact.

Net impact SG&A.

Pretax net impact of SG&A.

What is the effective tax rate for that?

We -- it's at the 13.9% affected tax rate bottom line. Could you highlight about -- (Inaudible -highly accented) what kind of buildout or what percentage of buildout, how much of an opportunity could there have been for somebody like you?

Three companies in China receiving licenses have announced that China Mobile has announced they will install 150,000 bay stations 75,000 in 2009 and the balance in 2010, China Telecom and China Unicom together, they have different systems and don't need as many bay stations in total, they will install 100,000 units, 50,000 this year and 50,000 next year. Content -- is anywhere between $25, and $160, depending upon the complexity of the station, and who makes it. That's tough for us to know what the revenues are because of the range of usage is so large. The good news is we are designed in to all the major players.

China Mobile will be 150,000 bay stations, China Telecom roughly 100K, how about China Unicom?

China Telecom and China Unicom combines 50,000 each.

Who is competing with you on this one? What kind of market share could we think of?

Market share exceeding 75%. Maybe as high as 90.

Okay. You talked about the rush order you see during the quarter -- do you think, is that big enough to move the needle in terms of the fact that -- shipments will be in the March quarter or June quarter?

We already shipped.

Okay.

We have led times of 5 days.

March quarter guidance does include that already?

Yes it does, all this activity is in affect almost making up for the decline everywhere else.

Right. Okay. So do we have reason to believe the June quarter could be higher than the March quarter at this point?

More associated with things other than 3G bay stations in China.

Could I get an idea in terms of the March guidance what percentage of that is 3G?

Maybe 2%, 3%.

Okay. The break even that you talk about you could achieve that from the second quarter on ward?

Yes.

On the 67 to 70 million, that's the EPS break even, right?

Yes.

That's good enough for me right now,.

Thank you.

Your next question comes from the line of Fred Buonocore, your line is now open.

Just a quick follow up for Dennis. Can you give me a sense for how much was the tax true up, just trying to get a sense or had you not had that in the quarter, what the quarter would have looked like. Can you give me a sense for what the tax true up is?

We had gone in to the quarter assuming a 25% tax rate, I think we ended up at -- affected tax rate for the fourth quarter was 103%, with a favorable number. Maybe we can go offline and give you the exact impact of it. It went from a basically a tax to a tax credit during the quarter.

Sure. Okay. Got it. Then just the follow up on the Avinas question about the 3G opportunity. In PDS, what would be the biggest opportunity there, are we talking about trains -- how should we think about the infrastructure opportunity I guess is what I'm going after outside of bay station expansion?

The biggest single thing in PDS is trains.

And any sense for I would imagine that may be in a longer-term or more stretched out?

Yes. But also -- it is the business where we have by far the most visibility because we hold order, that will be fulfilled over two or three year periods and we know how many trains.

Any substantial amount coming in 2009 or more of a 2010 expectation?

This business has been growing quite nicely as we penetrated Japan and we are the first player in China. I expect it to hold its own. I'm not sure there will be a lot of growth this year.

Right.

Although I do expect significant growth in the wind turban area.

Really? In 2008, the wind turban was a rounding era, but growing to something more material in 2009?

Yes, it's -- more than 2% of our total sales.

Great.

This is Dennis, as a follow up to your tax question if you look at page five of the press release for the income statement for the fourth quarter, the income tax line is $4 million of a credit. At the 25% rate that would have been a little over a $1 million, so roughly, $3 million would represent the fourth quarter true up benefit.

Great, that makes sense. Thank you very much.

You're welcome.

Your next question comes from the line of Dana Walker, your line is now open.

Good morning everybody.

Good morning.

Could you address when you took the steps that you took to prepare your expense profile while you chose the level that you chose?

At the point we did that we had a forecast for the quarter of about $72 million. So we made the moves to make sure we would be profitable, at that forecast level. Unfortunately within a few weeks the forecast changed dramatically. That put us in the position of not having cut quite enough yet.

What portion of that 27 would you hope to benefit from in Q1?

Probably a 1.5 million, 2 million at the most.

Of what will be a 6 to 7 million run rate per quarter?

Yes. We will get the rest of that in the Q2.

We will see that from a line item standpoint, roughly how?.

You got of the 27 million about -- excuse me 11 million of it was SG&A, overhead and business unit SG&A, the other 16 was operating cost improvement that would be seen in operating profit of the business units. Mainly in gross margin.

Recognizing this is subjective that is the answer, can you describe since you have been investing in your business over the last several years to what degree do the steps your taking impair your ability to drive your new product initiatives.

Although we made reductions in R&S we have the ability to keep going on all of our projects. We are not impaired on the R&D side. That's the part we would really want to protect is the whoever introduces a lot of new products during these kinds of cycles comes down stronger in the end.

Since the new product involves initiative on your end but it also involves appraisal, and change on the customer end, given that the world has changed, do you suppose that your customers are going to be more or less receptive to the steps necessary to incorporate new products?

They will be slower than they were. Except for those who have are in the process of designing new products in which they have some issue. Then they will be very receptive in new products.

The -- we have been focusing more on your above the line type numbers, given the weakness that you own all or half of them are likely to face what's the JV experience likely to be in Q1 in the early part of 09? Are you going to lose money there?

Yes. The polyethylene naphthalate systems join venture for example, will have no sales, in the first quarter. Never had that experience before. But the customer built such a big inventory he doesn't need to take anything. Polyurethane foam joint venture is down about 60%. Japan seems to be in much worse condition than we are. Joint venture in Taiwan is extremely slow. Operating a couple of days a week.

You don't have a cost structure of consequence supporting PLS, that's more a royalty isn't it?

Yes. It just means the income we have been used to for so long wont be there. Because it's a commission royalty. No sales, no royalty.

We've had lots of opportunities both on our side of the fence and perhaps on your side of the fence to reflect over what the world's change might mean as you think about it on your end, how has it changed the opportunity for your business content wise, value added wise and volume wise?

I think for a while the volume is going to be lower. And this could take a couple of years to get out of this. It certainly isn't going to be in three months the economy isn't going to be back that quick. So for us we think that the products is what can drive our growth. There will be some decline in the older things, we should be able to grow beginning in 2010.

This is Dennis, we take strength in the fact that infrastructure spend, whether in the energy management or in our high frequency materials to support the infrastructure growth at least announcements have been with government supporting those types of things and fairly strong for us in the first quarter too. We take positive note that we have fairly significant piece of our strategic businesses focused in that direction.

I believe recently there was an enter view with the CEO Sprint who said they intend to roll out WiMAX beginning in 2009, beyond the test city which is Baltimore, that will be a plus for us, and also what is called long-term evolution, LTE, which is what Verizon and AT&T will adopt, seems to be a 2010 beginning event, which their most suppliers of bay stations have completed their design for LTE. Believe they have software to do but they should be ready for demonstrations in the latter part of the 2009 and some potential shipments in 2010. That will be a plus.

Plus, in what fashion?

We will have a whole new set of bay stations around the world. Add one more layer.

Would you content per bay station recognizing that if there is no need to update a bay station, there is no business, at least in a reflect and address in the install base, but would you content per bay station, everything else being equal be about the same.

I think it would be about the same. What people are excited about in the new systems what is called 4g, whether it be LTE or WiMAX, they will have the capability of significance amount of video. Video will drive that. Extent is a lot of video content than people will need to install those kinds of systems they will run much faster on the data side.

The question was asked earlier about your expected market share on the Chinese business how would you expect to stand competitively on 4G-type initiatives market share wise?

I believe we are in a similar situation. That 75 to potentially as high a 90% range.

The CalAmp issue, could you describe what happened CalAmp -- to the degree that you can?

I really can't describe the reasons for the settlement, clearly was a dispute as to who was at fault. We came to an agreement I believe lawsuit was for $82 million. We came to an agreement that we thought was in the best interest of Rogers to get this behind us and to stop massive legal expense making lawyers rich.

How was this, if at all affected you with customers as well as with this customer?

Believe we are still doing business with this customer although it's hard to tell because they don't buy from us, they buy from a printed circuit board fabricator who everyone else buys from also and they all use the same material. This had no affect on our business with our other customers. Except for people thinking they should get a discount once we made a settlement and they saw a size they thought they should get a piece of the pie but we didn't give anything to anyone.

Two last questions, can you address your sense for how the market mix of cell phones as it stands recognizing it's going to be evolutionary but how that might affect your content and can you talk about what might be on the horizon in your LNB business given you benefited from a big upgrade there a year or so ago, whether there is something in the offering in the next couple that might help that side?.

That's a steady state kind of business going forward. Since they have all the satellites up, what could change this is when China decides to allow to have satellite TV, to be legal in China. Then there will be a significant piece of business there obviously because there are so many. There is some business there now because people some how get their hands on these systems and point them towards the Philippines and Singapore and pick up those satellite signals, we are aware that the Chinese Government announces when they are going to do the inspections. Everyone takes them down. We see no change in technology.

And the content, question about content on cell phones?

Our content on cell phones is declining to the point in which it's just the future is going to be almost completely high performance phones. And there see no real change except for the fact that when they go to a much larger display and need a much larger LTD gasket and that certainly benefits us.

Your Durel and your flex exposure presently to the cell phone market is roughly how large? In Q1? Your sense for the programs you're still on.

Durel is almost all on automotive. We have some chips. So Q1 sales 2% might be Durel, 2% not of Durrell but 2% of our sales might go in to cell phones associated with Durel. In flex it is inconsequential. The business is almost over. Koreans have lowered the price in which it doesn't make sense for us to sell stuff. That change in the Korean wan is a big impact. Now 13 or 1400 to the dollar, 900 or so. Allowed them to lower their prices dramatically everywhere.

Thank you I will step back.

Thank you.

You're welcome, Dana.

Your next question is from Ralph Reis, your line is now open.

Good morning. What is the maturity of the auction rate securities?

We have probably 15 or so traunchs of that stuff that range anywhere from 10 to 20 plus years.

You won't be getting any of that for the next ten years?

That would be redemption from the original issuer, we have seen an increase in activity of redemptions against the type of investments we have which are student loan government backed type traunchs, and we would hope the estimates we have would be that the whole portfolio has a chance of being redeemed in the 5 to 7 year time frame, which that sort of where we expect the redemptions to take place in advance of the original maturity dates of the issues.

Secondly, can you explain the huge increase in non-current pension liabilities?

This would impact everyone's balance sheet that has defined pension plans that under performed. In 2008, we would have expected the portfolio on a statutory calculation-base to grow 8.5%, it declined 15 to 18%. That entire GAAP in performance as compared to the present value of the benefit obligation, that's the -- what you're seeing on the balance sheet is that recorded liability on a deferred basis is not an income statement item because due to the regulations you are allowed to amortize the GAAP over a 10 year period. So as we are projecting 2009, we are looking at increasing our pension expense of about $4.5 million, which would be 1/10 of the GAAP that was created in 2008.

Thank you.

Your welcome.

You next question comes form the line of Jiwon Lee. Your line is now open.

I had trouble with my line during the Q&A so I apologize in advance if I am repeating some of the earlier questions. First of all I wanted to get a little more color on the first quarter guidance, whether or not the high performance forms (inaudible - highly accented). Whether or not there was some extra expense going into the first quarter.

Well, the first quarter has 2.5 million charge for severance. The high performance phones versus the the first quarter of 2008 will experience greater than 50% decline.

Okay. That's fair enough. Then, did you give more color on how the $27 million cost savings break down on operating model?

Yes, real quickly it's about $11 million of SG&A, $16 million in operating profit-type of improvements, we don't expect the first quarter to get any more than maybe a $2 million benefit but that would be offset by the restructuring and the run rate of about 6 to $6.5 million per quarter will be fully impacted in the second quarter.

When you talk about $16 million in operating profit benefit, where does that fall?

In the gross margin arena. Cost of sales basically, they reduced their head count in operations, lowered operating costs, some material cost savings, and obviously professional services travel, the whole gamut of leverable expense controls is what was hit in the $27 million.

Onto the high performance forms could you help us qualitatively of how much of the sales is tied to hand sets and other hand-held devices?

Maybe 40%.

Okay. Particularly, out of that area in Asia you were seeing orders just right out.

Next to no orders.

Out of Asia obviously there is still no clear sign, although I would imagine inventory level is (inaudible - highly accented) than what they have in Europe and domestic markets.

I don't know that's what we have somebody over there now to understand what the inventory level is.

With the oil prices coming down does that affect the pricing side of your high performance forms at all?

Well, we have a a lot of pressure to lower prices, but if you are not going to buy anything we are not going to lower the price. Yes some of the raw materials are in some ways tied to oil.

Okay.

Probably -- if question is quite difficult to answer because I will be frank, there are customers listening, there are purchasing agents listening, you will never get a straight answer to that question, you can understand why.

We are just doing your job.

I know you are. I did it once and I learned, don't ever answer that question.

Finally, on the bus bar, obviously, the mass transit programs you are seeing a lot of strength, but could you give us a little more sense as to where you are in terms of dollars or wind power applications and where you think you can go with that business?

It's in the neighborhood of 2% of sales.

Okay.

It's been growing at 40, 50% a year. It gets bigger if you can keep the percentages up.

Okay, that's all for me, thank you very much.

You're welcome.

Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Russ Piazza , your line is now

Good morning, Bob. I wondered if you could give us update on the thermal management products and from a technical end or any kind of interaction you had with potential customers?

Yes. We have one program for LID for a CHIP package, but that parts growing really slow now. Semiconductor industry being in such a funk, no one is introducing new stuff, no one is going to go back and redesign anything. That sits not doing so well. Where we are making progress on the evaluation side are the base plates for IGBTs, this are called integrative gate bipolar transistors, they are used to switch high power in hybrid cars, in trains, and large motor controls, we see that as quite a lucrative area, and it's also the same area where bus bars are used in the trains for example. We expect this to be a small business this year, 1 to $2 million kind of range.

On the CHIP side is there a catalyst that would force the industry to move faster on this new product or something that would move it along?

Someone starts buying new things from them. That would be the catalyst.

Not a technology change or anything on their part?

No. Just cutting back with sales down whatever, 15 or 20%, trying to save on expenses and one way is to -- if no one else developing new products, there is no pressure.

Appreciate all your efforts, guys.

You're welcome.

Your next question comes from the line of Greg Weaver, your line is now open.

Just on the Q1, if you ignore the severance charge, what's the pretax operating loss in dollars?

Sure. Let's see. It's probably about 7, $8 million.

Okay. I didn't know what the tax implications were, whether there was a credit in the first quarter?

We are looking at 21% that we gave in the guidance talk, would be the rate we will assume for the year and the quarter. May come out slightly different than that but about a 7 or $8 million loss.

Okay. I guess if I work backwards I could figure it out.

I can't do -- vary detail because we give a range the number I just gave you is sort of maybe the mid point of a range.

Okay. Just so from a gross margin perspective, then where does that range put you? Obviously the top line to the range too.

We really don't give that out.

Okay.

We also don't really know at this point.

Okay.

There really isn't one of those things that we use to run the business day-to-day.

Okay. Appreciate it, thank you.

You're welcome.

Again if you will like to ask a question, please press star then the number one on your telephone keypad. There are no further questions at this time.

Thank you. Couple of closing comments, by continuing to invest in new product development and diversifying into new markets, we believe we are laying the foundation for a faster growth and increase profitability when the world economy revives. In the meantime, we are tightly controlling our expenses and maintaining a strong balance sheet and looking for new opportunities. Thank you for your attention this morning. Good-bye to everyone.

This concludes today's conference call you may now disconnect