Rogers Corp (ROG) 2011 Q3 法說會逐字稿

Good morning. My name is Matthew and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation Third Quarter 2011 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). Thank you. President and CEO, Bruce Hoechner, you may begin your conference.

Thank you. Good morning ladies and gentlemen. With me are Robert Wachob, Chairman of the Board, and Dennis Loughran, Chief Financial Officer. First, Dennis will dispense with the formalities and then we will get right down to business.

Thank you, Bruce. 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 the many uncertainties that exist in Rogers' operations and environment.

These uncertainties include economic conditions, market demand 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 Bruce.

Thanks, Dennis. Before we get into my commentary, I would like to say that I'm extremely pleased and proud to be a part of the Rogers team. I look forward to helping guide the Company to achieve its exciting growth opportunities in the years ahead.

I joined Rogers in early October after over 30 years with specialty chemical maker Rohm & Haas, now part of Dow Chemical. I believe my many years of broad leadership experience across numerous businesses, functions and geographies having lived and worked in Asia ten out of the past 20 years, has position me well to help guide Rogers to successfully achieve its growth potential. Now, let's get on with the business at hand.

The third quarter of 2011 was marked by record sales and profits in all of our core businesses as we continued to make progress on our strategic growth initiatives. The acquisition of Keramik has delivered strong results in the first nine months of 2011. Our efforts at Keramik continue to be focused on leveraging our organization to increase our operational efficiencies as well as to expand Keramik's base into new regions and customers to help drive its future growth.

We've also made significant progress on customer qualifications from our new manufacturing facilities in Suzhou, China as well as -- Suzhou, China for our PCM business and in Arizona for our PDS operation.

As we have mentioned in the past, we are focused on markets that are benefiting from three significant economic and social megatrends. They are the growth of the Internet, the expansion of mass transit and the investment in clean technology. We are having considerable success in these areas, as over 60% of our sales in the first three quarters were into these megatrend markets, up from 40% last year. Activity in these megatrends continues at a brisk pace with 40 new programs in earning production in the third quarter of this year and 101 in the first three quarters.

To keep the momentum going, we have added salespeople in China, Europe, India and the United States. According to Cisco, the proliferation of smartphones and tablet computers are causing wireless data to grow at about 100% per year. To keep up with this growth, the infrastructure for wireless communications is having to expand at a rapid rate. Rogers is benefiting greatly from these trends.

During the quarter, we also extended and expanded our relationship with Hitachi Chemical beyond the THETA digital product line. With this new arrangement in place, we have exclusive marketing and lamination rights, excluding a small number of Hitachi-retained customers, to all future high-speed digital products. This agreement makes us even more confident in our sales projections in the digital market for 2013 and beyond.

Last quarter we announced new major design wins at two major wireless infrastructure original equipment manufacturers. Those programs are progressing nicely, with some growth expected in 2012 but significant growth anticipated in 2013.

Not all of our opportunities are in megatrends. Our PORON XRD product is used for shock absorption in a wide range of applications in very large markets that we are only beginning to penetrate. A few applications include motocross clothing; hockey, baseball, football and lacrosse helmets; baseball gloves; catchers' chest protectors, knee and elbow protection. We now have the capability to mold this material into three-dimensional shapes, which opens a whole new set of applications.

Although we continue to see an enormous amount of opportunity to expand and grow our business, we are cautious about the general economic situation around the world in the near-term. We're also concerned about the effect on our business from safety and financial issues stemming from the China Railway incidents and the wind and solar grid connection issues in China. Our belief is that these issues will be addressed in the short term, and in the end, their resolution could turn out to benefit Rogers because of our significant participation in quality products and systems that address these concerns.

I believe that we're well-positioned to capitalize on the strong growth trends we see in our core markets over the next several years. I am very optimistic about our prospects. In the meantime, we will continue to focus quarter to quarter on excellent execution while continuing to make strategic investments in our future. I will now turn it over to Dennis, who will provide details of the quarter. Dennis?

Thank you, Bruce, and good morning again to everyone.

As you can all tell from Bruce's comments and our press release, our third-quarter results continues to show that we are benefiting from having positioned Rogers in markets that are growing, resulting in businesses that are achieving records in topline sales and translating those records into expected bottom-line results.

For the third quarter of 2011, our businesses generated sales of $147.6 million, an increase of $46.3 million above last year's third quarter for a 46% improvement. With $36.8 million of that increase attributable to Keramik sales, our legacy businesses grew quarter over quarter by $9.5 million or 9.4%.

All of our core business segments showed significant improvement, averaging 18% as a group. High-performance phones and Keramik led the way with growth rates of 23% and 20% respectively. Printed circuit materials grew at 15% and power distribution systems grew at 9%.

Rogers reported a profit of $0.85 per diluted share for the third quarter of 2011 compared to a profit of $0.55 per diluted share for the same period of 2010.

As mentioned in our press release, we did have two nonrecurring impacts related to taxes and commodity hedging which positively impacted our results on a net basis by approximately $0.04 per diluted share. Excluding the impact of those two items, our results would still total to a 47% improvement versus last year's third quarter.

Gross margin for the third quarter 2011 was 33.8% as compared to the record 36.4% reported in the third quarter of 2010. As reported in previous quarters this year, a major factor affecting the margin comparison to the previous year's results is a 250 basis point impact related to the inclusion of Keramik's business, which has a lower average gross margin than Rogers' other businesses.

As has been discussed previously, Keramik's lower gross margin is offset by its lower commercial expenses, resulting in operating margins comparable to Rogers. With the impact from Keramik and the strategic capacity expansion initiatives in printed circuit materials and Power Distribution Systems, we expect our near-term average gross margin percentage to be in the 32% to 34% range.

Selling and administrative expenses for the third quarter of 2011 and 2010 were $27.9 million and $20.8 million respectively. The increase, the $7.1 million in SG&A expense, was attributable to the inclusion of Keramik which is comprised of $3.2 million in normal operating SG&A costs as well as approximately $1 million of acquisition-related non-cash amortization expense.

In addition, we invested more in our sales and marketing activities during the quarter, which contributed an additional $2.2 million in costs as compared to last year while compensation-related costs added $0.5 million during the quarter.

As a percentage of sales including the Keramik contributions, SG&A expense actually decreased from 20.5% in Q3 2010 to 18.9% in the third quarter of 2011, as we were able to support our increased sales volumes with our existing infrastructure while still investing in our sales and marketing initiatives to support our current businesses as well as to set the stage for future growth. We expect our SG&A to be in the $26 million to $27 million range in the fourth quarter of 2011.

Research and development expenses were $5.4 million or 3.7% of sales in the third quarter of 2011 as compared to $4.8 million or 4.7% of sales in the third quarter of 2010. In the near-term we expect our R&D spending rate will be around 4.0% to 4.5% of sales.

Rogers' 50%-owned high-performance joint ventures with INOAC Corporation had third quarter 2011 sales totaling $18.1 million with equity income of $1.3 million, compared to $20.1 million of sales and equity income of $2.1 million in the third quarter of 2010.

As mentioned in the press release, joint venture sales this quarter were lower than last year's third quarter due to continued weakness in the Japanese domestic and export markets, particularly LCD TVs, domestic mobile phones and general industrial applications.

Other income and expense which includes income from royalties, commissions and other fees, less other expenses, amounted to income of $0.3 million in the third quarter of 2011 compared to a loss of $0.8 million in last year's third quarter. The net improvement is primarily related to more favorable exchange rate activity during the third quarter of 2011 as compared to last year's third quarter, resulting in incremental income of $1.1 million during the quarter as well as a gain of $0.7 million reported on a sale of land in Belgium. These favorable items were partially offset by $0.4 million of higher commission expenses and $0.4 million of unfavorable mark-to-market adjustments on our copper hedge contracts.

The projected annual tax rate for 2011 decreased in the third quarter from approximately 24% to 21%, having been benefited by certain favorable tax items. In the third quarter we adjusted for this change, which drove the rate down to approximately 15.2%.

Rogers ended the second quarter with a cash and cash equivalents position of $71.1 million as compared to $75.4 million at June 30, 2011. Our slightly reduced cash position can be attributed primarily to capital expenditures of $4.5 million, $6.3 million of payments against our debt obligations and a $5 million pension contribution partially offset by positive cash flows from operations.

Capital expenditures were $4.5 million for the third quarter of 2011. As outlined in the press release, Rogers now expects capital expenditures of approximately $25 million for the full-year 2011, down from our previously announced estimate of $35 million. The decrease is based primarily on timing of several large expenditures moving from this year into next year's spending projections.

With regard to our balance sheet, during the second quarter of 2011 our net working capital position increased by $2.2 million primarily related to increases in accounts receivable and inventory, offset by short-term liabilities, all related to the improved sales levels and normal business activities. In accounts receivable, days sales outstanding increased to 57.5 days compared to 56 days at the end of the previous quarter, well in line with our average [performance] over the past 24 months of approximately 58 days.

Inventories increased by $9.4 million during the quarter to $80.9 million, due primarily to normal business growth and incremental levels required to support the start-up of our China laminate facility. As a result, our inventory tracking metric increased to approximately 10.8 weeks of supplies versus last year's quarter's 9.6 weeks.

Overall, our current assets ended the quarter at slightly more than 3.1 times current liabilities.

At the end of the second quarter of 2011, Rogers reported outstanding borrowings on its credit facilities of $129.5 million which is entirely related to our purchase of Keramik at the beginning of the year. We have made payments of $16.25 million during the year, including $6.25 million in the third quarter. We incurred approximately $1 million of interest expense on the debt during the quarter at a rate of approximately 3%.

This concludes my remarks, and I will now turn it back over to Bruce.

Thanks, Dennis. Now we will be pleased to take questions from our audience.

(Operator Instructions) Avinash Kant, DA Davidson & Co.

Good morning Bruce, Bob and Dennis. A few questions; you may -- I think you did give the percentage contribution from the three megatrends over the past three quarters. But could you give us the number for the current quarter, how much was it?

It was just over 60%. I believe it was about 61%, if my numbers are correct here.

Okay. You talked about the operating numbers, the operating margin numbers being stable here. Now, and you give us some guidance about the gross margin. In the near-term you talked about 32% to 34%. Is that the gross margin number in the guidance for Q4 at this point?

Yes.

Okay. And the tax rate going into 2012, would that also stay at 21%? How should we think of it?

Well, we haven't gone and done that calculation. In our long-term planning we always said a mid-25s tax rate for long-term planning would be about appropriate. We've had some one-time impacts that are averaging into that 21% rate for the year. So, long-term it should be around mid-20%s is the decent range we have for now without doing more detailed analysis.

Mid-20%?

Mid-20%s, yes.

Did you give the depreciation and amortization number for the quarter?

$6.9 million.

Okay. And now, of course, the opportunities that you are talking about, we've talked about THETA in the past and just wanted to see how the progress on THETA was going. And how do you think the opportunity could pan out maybe in 2012? And if you could comment a little bit on the China situation, that would be good.

Okay. Well, in THETA we continue to see that moving along and we -- our plans continue as we've outlined previously. Let me spend a couple of minutes just talking about China, and maybe on a broader scale talk about some of the situations that we have in the Q4 here because they're all related.

Obviously, the release of Q4 guidance was caused by what we would term as very much assignable cause that we think are short-term related. So let me start -- we'll start with China, but there is a couple of other things I would like to cover.

First of all, the investigation, the safety investigations in the mass transit area, that will continue probably into the first half. And that has slowed ordering and so forth by the ministries and certainly by our customers. So we will see that hopefully resolve itself in Q1 or Q2.

In some of the other assignable causes, specifically we believe around the fourth quarter here are in the PCM business. In China, the greater government controls on spending have delayed the China 3G fifth wave rollout until early 2012.

Also, things in India -- the investigation on the 2G spectrum allocations scam, the decision-making of the government has slowed down, so no new decisions or allocations are happening over the last few months. We think again that will get resolved over the course of the first half of next year.

The other thing, in North America we're seeing end-of-year budget shortfalls that are affecting or delaying installations and spend. And again, we see that a quarterly -- typical quarterly downturn in smartphone computer tablet after a very strong Q3, which is typical for fourth quarter. So, those areas are again affecting some of our outlook just around Q4.

The other thing that I will mention is on the solar power. The government in China is looking into the quality of the power management coming out of solar and wind. And so the frequency and voltage specifications are being reviewed, and that should be resolved in Q1 and Q2. And from our perspective, this favors Rogers because of our power management solutions in busbar and Keramik IGBT systems.

That's what we see, again expanding your question as to what our situation is in Q4.

Thanks so much, Bruce, thanks for your time.

Fred Buonocore, Rodman and Renshaw.

Yes, good morning.

Good morning, Fred.

And just kind of following on Avinash's question, on the railway issue and the clean energy grid connection issue in China, can you talk about maybe how this impacts Rogers? I mean, how much roughly revenue does this impact for you? And then on the flipside, what the opportunity is going forward just in some sort of order of magnitude kind of sense?

In terms of the effect on Rogers, we believe it is about $3 million to $4 million per quarter affected by the solar and wind situation in China.

Okay. And then you mentioned in the [release] (technical difficulty) this kind of turns around, and as they resolve these issues that there would be an opportunity for Rogers going forward I guess to be part of helping to resolve these problems. Or can you give a little more color on that please?

Certainly on the grid situation, the problem that we understand is that the frequency and voltage specifications are too broad. And so, as the solar -- the wind systems connect into the grid, it's not matching up. And so actually what we have understood is that about one-third of the Power Systems from wind are not able to connect into the grid. This is a major issue for the Chinese authorities and that's why they need to resolve the power management systems.

Okay. And then related to the slowdown in wireless infrastructure demand, you explained the reasons. What gives you any sort of sense as to when that could, that situation could resolve itself? Or you are just kind of in a holding pattern for now until the government pushes for activity to resume? Do you have any sense for when it could resume?

Again, our view on that is that it starts to come back in Q1 and ramp up over the first half of the year.

The situation with the 3G rollout, the fifth wave of the 3G rollout in China, we think that is a budgetary situation going on in China and that the demand is there without a doubt, and that they will have to start rolling this back out in Q1, Q2 to keep the service that they need.

Okay. So you are getting your kind of timing estimate just based on where you think they are positioned to keep doing what they need to do, for the demand that they are seeing from wireless customers as opposed to -- are you getting any feedback from your customers on what they are thinking? I'm just trying to get a sense for the source of your estimates for timing as to when this could start up again.

We -- what -- our source of information is from the OEMs. That is based on their understanding from the government and their contacts in the various ministries.

Great. And the CapEx coming in lower than had been anticipated earlier in the year and sort of the move of some of that spending into 2012, I assume some of that is related to the slowdown in activity in a couple of these markets that you have talked about. Is that correct?

No, completely unrelated. Literally, when we increased our estimates earlier in the year we had some capacity projects mainly for ACM and our PORON facilities that -- really it's the timing of engineering, getting things done. And it really has nothing to do -- those are for long-term capacity outlays that will impact late 2012, 2013 for us, so it has nothing to do with the short term.

Okay, good. And then just finally shifting gears, Bruce, you mentioned that you were with Rohm & Haas for many years, spending a lot of your time in Asia. Can you just give us a little more on your business background and primarily what attracted you to come to Rogers? Had you dealt with Rogers in the past while with Rohm & Haas? Just interested a little bit more on that (inaudible).

Sure. Certainly from Rohm & Haas perspective, we knew Rogers; had a number of projects with Rogers over the years with our electronics materials business. I would say, again, my background is in the Specialty Chemicals area really focusing on adding value through technology and strong relationships with customers. And I think equally important, understanding the trends in the markets that we are serving and our customers are participating in.

So when I looked at Rogers, it's a very similar model in the sense that it is application-oriented, technology and innovation-based. And the relationship -- the strong relationship and partnership with customers is essential to success. And so this is that model I'm very, very familiar with.

I was involved for numbers of years in different businesses, including the coatings business at Rohm & Haas as well as the home and personal care, biocides and dispersants and so forth, as well as paper, textiles, leather, non-wovens and building and construction chemicals; so, a wide array of industries. But the model is very similar where it is very technically oriented and specialty oriented where we create, at Rogers, the benefit to our customers so they can compete effectively in the market.

So that is what I'm familiar with. That is what attracted me to Rogers. I will also say, the leadership that Rogers had in their markets and market share where they participate is very inviting, and again, allows us to develop adjacencies because of our knowledge of markets and customers.

Okay, thank you.

Robert Spandau, ThinkEquity.

Hi, good morning. Thank you for taking my question. We're looking at guidance for Q4. How much of that was impacted by lower volumes? And how much was impacted by lower prices or any prices at all? Can you give us some description of how that mix played out?

Yes, Robert. It really is a complete volume play. There's no pricing action going on within the quarter at all in terms of the guidance, so the businesses are looking at the normal seasonal volatility. So, our pricing/margin relationship -- it's all volume.

As people have heard from Rogers in the past, on the downswing you do have negative absorption. We're looking at an inventory levels that are at a 10.8 weeks of supply going into the fourth quarter. We would like to come out of it under 10. So that means we've probably got about a $0.10 per share impact in the guidance due to negative inventory absorption, i.e. lower production volumes adding to what was normal margin loss on the sales decline.

Great, thank you. And then, I'm a little confused about your comments about the Chinese concerns in mass transit and renewable industry energy. On one hand you highlighted it as a concern, but then you say that it is unrelated to the Company's current products and it might help you on -- when these things are resolved.

So are you being impacted by this in the near-term? Or is your -- is the benefit you're going to see just a resumption of the business later on? Or is there incremental business that you expect to get from the resolution of these Chinese concerns?

Okay. So the situation is that the slowdown in those sectors has affected our business. We supply in those sectors.

The issues that have been brought forth and the concerns are not based upon any of the Rogers products. So that is what we mean by we are not -- it's not part of the Rogers -- it is not any blame on Rogers. It is all about slowdown that has affected our current sales, and when we see this pick back up we will then slide back in to where we had been participating.

And actually, as I pointed out earlier around the specifications of frequency and voltage, this is something that our products -- given the reliability and the capabilities, have special -- will add to the capabilities of the system. So we think that will give us some retrofit opportunities as we move forward in those systems.

Okay, great. And then last thing, with the CEC regulation now clarified for low voltage [right] through and reactive power functionality [to end] inverters, do you think you can take share in the solar and wind inverter market when these concerns are resolved?

Well, our share is already very high in those areas, so possibly a little bit more, but we're pretty high now.

Great, thanks. I will hop back into the queue.

Shawn Severson, JMP Securities.

Thank you, good morning gentlemen.

Hi Shawn.

I was wondering if you could talk a little bit about the quarter, how it progressed and kind of what you were seeing in the business trends. And kind of carrying through into that, you talked about some specific sector and application weakness. But I was wondering if you could address some more general areas around the economy, variable frequency drives with (inaudible) motors, some the things that we would think would be more economically sensitive versus the application of specific things that you talked about previously.

Sure, this is Bob. In the variable frequency drive area we are, in Asia, seeing a slowdown. It appears to be tied into the cautiousness and the Chinese government trying to slow the economy a little bit. We think this is pretty temporary.

Otherwise, with the rest of the business, it doesn't seem to be affected much by the general economic stuff. Everything seems to be going along pretty smoothly. Certainly, the cell phones and the mobile Internet devices in the fourth quarter almost always see a seasonal drop from the third quarter. But [you] think 4% to 7% kind of thing, and we're going to see that again. It is happening; just what we expect.

And have you seen any indications of how inventory levels are in out in the channel? I know obviously you are working through an inventory reduction yourself. But any of kind of the customer behavior out there, aside from normal seasonal patterns into the fourth quarter? Are you seeing a broad-based inventory reduction through the customer channel?

I think as far as inventories are concerned, a lot of our customers are in the situation we are. They build a little bit of inventory. No one is out of control. And as they see sales declining some, they're going to pull back on the inventories.

So, we get a double hit there in our sales. Some of it is real and some of it is an inventory reduction, which of course, as you know what happens, as soon as things pick up, then there is this instant demand and they generally clean out our warehouses. And I expect that to happen again; just we don't know exactly when. But it's not the fourth quarter.

Great. And then just lastly, could you remind us what you typically see from the seasonal uptick in the first quarter? What's the normal pattern for your business?

I think normally the first quarter is 3% to 5% better than the fourth.

Jiwon Lee, Sidoti & Co.

Thank you and good morning gentlemen. Just wanted to quickly go back and ask about those circuit materials. I gather obviously the wireless infrastructure is kind of the weak spot now. But previously, the auto market -- the pollution detection market was kind of coming back a little bit. I wonder what that outlook is like now. If you could, also talk a little bit about your 4G, especially on the LTE side of the opportunities that you see [now].

Let me talk about the detection systems, the automotive detection systems. We're seeing continued growth there. And actually, what we're hearing from industry experts is that 25% of the cars next year will have -- or over the next couple of years will have these detection systems in them.

But our sales are up this year at least 20% to 25% into that application. So it continues to be one of upside, and certainly as the adoption rate continues, we should grow right along with it. And I'm sorry; you had a second question?

Yes, Bruce. The question is about the 4G especially on the LTE standard.

This is Bob. 4G we continue to have an extremely high marketshare. And we have actually recently won over several designs from the only significant player who wasn't in our camp. So for -- my view is LTE is a huge winner for Rogers. We just have to wait until they put more of them out there. We know that is coming.

Yes, it has been a little bit drawn out. I understand that. And any of you, Bob or Bruce, could answer this question.

Since the beginning of this year, how has your specialty foam penetration or the market share tracked in Korean markets in particular? And the second part of the question on that business segment is with the tablets continuing to grow, could you sort of quantify the market opportunity there as well?

Okay, on the Korean foam business, we have seen significant growth during the year of 2011. And we continue to integrate that acquisition into Rogers. So that has gone quite well.

In terms of the tablet market, we are spec'd into between 8 and 12 tablet Internet systems, and our material sale into each of those tablets is between 20% and 30% -- or $0.20 to $0.30 per unit, and we have very, very high marketshare across that segment.

Okay, terrific. And lastly for me, obviously when you are guiding the fourth-quarter revenue down as much as 7% to 11%, there would be some weak spots on [churning] front as well. Particularly, where do you see the near-term weak spots there?

The biggest weak spot for Keramik is in solar and in wind turbines where their aluminum nitrite products have an extremely high share, and therefore they are seeing quite a slowdown.

Okay. But the industrial market on the Keramik side is so far trending okay. Is that right, Bob?

Yes, but there is a little bit of decline over in Asia in the motor controls, but relatively small.

Thanks so much.

(Operator Instructions) Dana Walker, Kalmar Investments.

Thank you, good morning.

Good morning.

Dennis, did you cite an accretion figure from Keramik in the quarter?

I didn't cite it, but it was about $0.18 to $0.19, Dana. I think from (multiple speakers) roughly double that year to date.

Very well. As you think about Keramik, recognizing that you're in the midst of some inventory correction and some moderation in trend and broad economic, world economic growth, how would you think about Keramik growth next year?

We're -- I will talk from the financial standpoint. In terms of our core businesses, we're looking at anywhere from -- we've been telling people from 12% to 15% in a range for a strategic period of time. And we're thinking, exclusive of these comments that Bruce will have related to coming down -- coming up off of this fourth quarter, [so are the expectations].

Just to add to that. Certainly Bob pointed out about wind and solar and motor control -- slightly weak. But the rebound should come as we talked about earlier today in the first half of next year.

And both of your comments there are about the total Company, not just Keramik?

Correct.

Correct, okay. And as you think about Keramik growth for next year, do you have enough visibility to believe that Keramik will be a double-digit revenue growth vehicle for you?

Yes, that is our belief.

In '12?

In '12.

If the accretion on just a little bit more revenue sequentially went from $0.13 to $0.18 to $0.19, do you view that as a mix issue? Or do you view that as beginning to make strides towards lowering structural costs at Keramik?

Their capacity improvements will impact next year for sure. They obviously -- the capacity utilization has improved throughout the year. I don't have the specific gross margins for that business, but I do believe their margins have improved each quarter.

They're still well below Rogers' average, but yes, they are certainly improving their absorption and getting their costs lower incrementally. And then we obviously will have more capacity on stream for the capital we're putting in this year for next year, so we do believe that will get better.

Two last things from me. First one, you talked about 30 new programs in the quarter. Are you in a position to talk about any of them just to give a sense for what it is topical for customers?

Sure. This is Bob.

You can look at some of the hybrid electric vehicles. They've gone into production here. We now have this year eight in total that have gone to production.

And we have had some new planes go into production which has helped significantly, and of course, as Bruce mentioned, a lot of different tablets. We're doing quite well in the tablet area. That is helping considerably.

My other question had to do with HEVs. Bob, it sounds like you have just covered that. Are you getting a sense that -- maybe you could talk about your marketshare on programs that appear to be progressing.

Where we have been designed in, we have 100% share. We don't share anything with anyone.

And how would you describe your design-in portion of that which is going on?

Probably 50% to 60% in the US and Europe, and not so well in Asia, except for one program in China. Recently we did learn that Keramik is a multiple cars in Japan. We just didn't know it because we are too many steps removed.

Thank you very much.

Robert Spandau, ThinkEquity.

Thanks for taking my follow-up. Can you talk a little bit more about your CapEx expectations for the coming two quarters? You touched a little bit on it briefly, but in particular you have mentioned that in the past Keramik is butting up against capacity. So, I'm kind of curious to how you view new CapEx by segment in the coming quarters and how much of this decline that you are guiding to, in relation to the past, is more just delaying CapEx or is it -- anyway (inaudible)

Okay. Our expectations of our capital outlays (inaudible) we have guided to people that a 6% to 8% of sales range would be a normal planning average. When you look at what we're coming to this year, when I mentioned Keramik, we put in I think $3 million to $4 million of CapEx into 2011, which they are implementing, so that will come on stream in 2012. They may have some incrementals next year, but that was their biggest planned activity as we acquired them.

When you look at what we mentioned in the third quarter related to projects for printed circuit materials, they are seeing accelerated growth related to THETA, to normal 3G and 4G activity, as well as high-speed digital. So we put in some projects that will be spent throughout 2012. We had simply put in a chunk of money into the fourth quarter that we thought would be related to deposits on equipment and initial engineering that had been slightly delayed, not by any activity of hours other than just planning for those activities.

From our phones business, every couple of years you have to put in a line. Those lines run from $10 million to $15 million, higher end if there is a building involved. And sometime during 2012 we will start on a capacity expansion for our phones to impact 2013. So those are the three main segments and the things that might drive our spending to the higher end of that 6% to 8% range when several those projects hit all in one year.

Okay, great. Thanks. So then Keramik, if you put in updated the CapEx for its expansion, how much does that get you in terms of additional potential sales in relation to what you have reported over the past couple of quarters?

$20 million to $25 million is what is being quoted here in terms of extra capacity, what we plan for this year to impact next year.

I'm sorry, so if you look at Keramik sales, you were close to $37 million this past quarter, $35 million last quarter. The CapEx that you put in this year (multiple speakers)

About $5 million a quarter incremental capacity.

Okay, great. Thank you.

Stefan Mykytiuk, Pike Place Capital.

Hi, good morning. I'm just trying to understand, when I plug the guidance for Q4 revenues and gross margins, it seems to me that you've got to come into the low end of that 32% to 34% gross margin to get the EPS down to your range. Is there something else? Because you're basically saying SG&A is kind of flat sequentially and R&D may be flattish to slightly up sequentially, so is there anything else that I'm missing?

I think if you said you plug in the lower end of that range that may work for all other aspects of your model in there. We build a midpoint around the low and the high-end. And I think that 32% number is probably right for the midpoint.

Okay.

That is impacted by the inventory absorption that we talked about, where you have a couple million dollars of lower operating -- I mean gross margin related to negative absorption for the quarter.

Right. You've got roughly $10 million of revenue reduction sequentially and plus you are running at lower utilization in order to draw down your inventory. So it's kind of like a double whammy in the quarter.

Which is why we do ranges.

Right, right. I guess then going into Q1 -- from Q4 to Q1, I think it was Bob who said earlier typically you get some sequential improvement in revenues, just ex what else is going on in the economy or the macro right now, plus you are going to get the $0.10 back from that inventory drawdown.

Is that fair?

Those assumptions sound reasonable.

Okay. And has the -- in Q3 had you burned off any of the drag from the Suzhou and the new plant in Arizona? Had that drag gone away by Q3?

As I didn't highlight in my comments, it was a fairly small marginal impact offset by other things. So it wasn't as big as previous quarters for sure. They are shipping product out of Suzhou and absorbing some of their costs, so the impact was definitely less. The same thing for PVS.

Okay, but that goes from -- in Q3 you call it neutral. As we get into 2012, those plants become productive in terms of revenue and profits.

Exactly. Not a drag, exactly.

Okay, great. Thanks so much.

Thank you, Stefan.

(Operator Instructions) [Ralph Reese], a private investor.

Good morning.

Good morning.

I'm going to bring up the same subject again and that is the dividend. (inaudible) salary, options, retirement benefits. The owners of the business have not gotten anything (inaudible) at least 20 years. The management has no risk.

The owner is taking all the risk, now indicating that the investors want companies with a growing dividend. The idea of being a growth company, not paying (inaudible) for the owner (inaudible) happening with the major corporations. [Stable] economic growth has not happened. I would like to know when we are going to start paying a dividend to the owners of the Company.

The dividend policy for Rogers gets reviewed by the Board of Directors, and we are periodically reviewing that and we will review that in 2012.

It's been reviewed for the last 30 years and nothing has been done.

This is Dennis Loughran. As Bruce said, it's a fairly rigorous review of where we should be going in utilization of our cash. In periods of time we have bought back shares and we have considered dividends.

From the Board's perspective and the Company's perspective, at least at the current moment, we're looking at trying to fund fairly high growth rates to the betterment of the shareholders. And we think the utilization of cash, we try to maintain currently at about 10% of our assets in cash so that we have enough dry powder for anticipated transactions, as well as conservatively monitoring our balance sheet so that if there are potential downturns, that we can fiscally be responsible for the Corporation, pay bills and do those things if sales and profits elude us during really bad downturns.

And so, for all of those reasons, we think we're in the right position. The Board reviewed it. And for 2011 they decided not to, and they will do it again next year and we will present those findings to the shareholders as we make that decision again next year.

It seems like other growth companies -- Apple, IBM -- don't agree with you.

I know. They have their own specific situations to deal with, too, Ralph.

I vehemently disagree.

Okay. Thank you.

Russ Piazza, Front Street Capital.

Good morning.

Good morning.

I was wondering if you could talk a little more about what you see the outlook for the electric hybrid vehicle market might be next year? Did I hear you say that you have 8 -- you're in 8 -- engineered into 8 production models? Just a little more color on how you think that might develop next year and which products in particular have more visibility maybe than others going into this area?

We are, as we pointed out earlier, we are engineered into 8 and we've got those applications. The first year potential, we believe, for those 8 is around $2 million, $2.5 million. We also in total have about 74 opportunities that we are currently pursuing across the hybrid electric vehicle world. So this is continuing to be one of our bigger focus areas from a new project perspective, and so we continue to see that moving ahead.

Is that mostly in the foam area or --?

No, Russ. I might add we also have 26 programs we have been designed into. This is -- the foams are typically in the battery, both the urethane foams as battery separators and the silicone as the seal for the case. And then the busbars and the Keramik [parts] are used in the inverter and also the converter. So it is possible to have more than one application per vehicle.

At this point, I believe there's only one or two where we have had both. We're pretty optimistic about this as we move forward. We just have to wait and see how many they sell. And certainly here in the US I believe someone projected 40,000 this year and I believe they are at 5000.

We just have to wait. Our job is to get designed in. And if we get the designs that when someone starts selling a lot, we will also.

Thank you Bob.

There are no further questions at this time. I will now turn the call back over to Mr. Hoechner for any closing remarks.

Thank you. Just a few closing comments. I've been at Rogers only out of a month. And I've already been to many of our facilities around the world and met a large number of our people.

I would say I'm most impressed with our people. Their depth of experience, market, product and technology knowledge as well as their customer intimacy create a strong competitive advantage for us. I've also seen firsthand what Bob Wachob and the Board told me during my interview process that the Rogers' management team is top-notch.

In closing, would like to say Rogers is well-positioned for growth. We have the right people, technologies and customer reach. Our strong focus on the megatrend markets will help us drive that growth.

In the coming weeks and months, I look forward to meeting and working with many of our investors and analysts to share the great things that Rogers is doing to drive profitable growth.

Thank you for joining us today and goodbye everyone.

This concludes today's conference call. You may now disconnect.