Rogers Corp (ROG) 2011 Q4 法說會逐字稿

Good morning. My name is Sarah and I will be your conference operator today. At this time I would like to welcome everyone to the Rogers Corporation 2011 fourth-quarter and year-end conference. 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)

I would now like to turn the call over to Mr. Bruce Hoechner, President and CEO. Mr. Hoechner, you may begin your conference.

Thank you. Good morning ladies and gentlemen. With me today are Dennis Loughran, Chief Financial Officer and Bob Daigle, Senior Vice President, CTO, and Vice President of Power Electronics Solutions. First, Dennis will dispense with the formalities and then we will get down to business.

Thank you Bruce. 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 any forward-looking statement. I will now turn it back over to Bruce.

Thanks, Dennis. Slowing demand and year-end inventory adjustments across many of our markets resulted in lower than originally anticipated sales and earnings for Rogers in the fourth quarter. Sequentially, sales volume declined in our Curamik power distribution systems and printed circuit materials business units. We believe the lower-than-expected demand was directly related to market uncertainty caused by the economic crisis in Europe as well as a slowing growth and spending in China, particularly on infrastructure projects in railway, as well as wind and solar power. In addition, lower demand in the wireless infrastructure market due to aggressive year-end inventory management across the supply chain curtailed end-of-year network infrastructure spending particularly in North America and Europe, adversely affecting our PCM sales. We do however remain very confident in the mid- and long-term strength of our markets.

Within our businesses, there were a number of positive results for Rogers during the quarter. Our high-performance phone sales for the quarter, while down sequentially from quarter three, seasonally our high quarter, were ahead of both Q1 and Q2 2011 sales. Our strong sales were driven by the Mobile Internet Device sector where Rogers continues to achieve new design wins and strong demand from some of our key customers. We also continue to see expansion in our applications for molded PORON into sports apparel and athletic equipment, achieving record quarterly sales in this rapidly growing segment. In our PCM business, while we had an overall slower sales quarter, we achieved record quarterly sales of our high-frequency circuit board products used for the 3G and 4G tower antennas, driven by demand in Asia. For the full year, Rogers reported all-time record revenue from continuing operations of $553.2 million, a sales increase of over 46%.

As we enter 2012, we are being cautious in the near-term about the general economic conditions around the world. However, we believe our customers' inventory-corrective actions that we saw across most of our businesses in Q4 and in early Q1 are now getting inventories in balance with demand. In a number of our markets, Rogers participates one to two steps back from the consuming OEM at the converter or board shop point of the supply chain. As such, we sometimes experience a delay in seeing our demand increase as inventories get corrected throughout the supply chain. Once this inventory imbalance is addressed, which we believe it now is in many cases, the underlying demand will now move through the supply chain network. We have recently seen a pickup in demand for wireless internet materials, particularly in China where phase 5 of the 3G rollout is now underway and in the US with the race by the service providers to upgrade their networks to 4G LTE.

However, this change is modest and we still do not see a steep recovery in demand at the current time. We believe it is coming but we just don't know exactly when. In the Industrial sector, we are seeing a slight pickup in the Curamik demand for our materials used for power control applications. In the Wind segment we have yet to see any significant demand recovery. This will translate to continued softer sales over the next few months for Curamik. In our high-performance phones, we continue to see strength in our sales into the mobile internet device applications as well as a recent pickup in orders in the Industrial sector.

To achieve our vision to be the leading high-technology materials solution provider for our chosen markets, we have embarked on a journey at Rogers to transform ourselves from a product-focused company into a high-growth solutions-based technology company. We will grow by continuing to focus on markets driven by global megatrends, realigning our organization to be more customer-centric and market-focused, investing in portfolio enhancements and acquisitions, driving excellence in operations, and enhancing the skills and capabilities of our team. During 2012, we will improve our performance by streamlining and simplifying our organization and processes, strengthening supply chain and manufacturing efficiencies, implementing rigorous portfolio management across our businesses.

We have already taken some initial decisive steps to cut costs and improve profitability. In mid-February, we realigned the senior leadership of the Company by consolidating a number of senior executive positions. After 37 years of dedicated service to Rogers, Mike Bessette, Senior Vice President and leader of the Advanced Circuit Materials business unit, decided to retire. We have appointed Jeff Grudzien, Vice President of Global Sales and Marketing to replace Mike as the Vice President of the ACM business. As part of this realignment, we will now imbed dedicated sales teams into each of our business units in order to further align our businesses with the needs of our customers and markets.

In addition, Pete Kaczmarek, Senior Vice President of our High-Performance Foams business, has left Rogers to pursue other opportunities. I will now take direct control of the leadership of the HPF business. We are pursuing other measures aimed at further streamlining our Company and improving our operating effectiveness in order to properly match our cost structure with the market environment. We project an annual run rate savings of at least $10 million by year-end under this initiative.

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 read in the press release, and heard in Bruce's comments, there were a lot of moving parts to the fourth quarter for Rogers. At the bottom of it all, is that our results came in slightly better than our previously announced reduced guidance, however still at levels below where we would all like them to be. The reporting of the results required some detailed explanations in the press release due to both the incurrence of discontinued operations accounting for the TMS shutdown and disclosure of one-time expenses.

All of our comparison periods have been fully restated for the discontinued operations. The high-end of our restated non-GAAP guidance was at $0.31 per diluted share. Our actual non-GAAP results as reflected on page 7 of our press release came in at $0.42 per diluted share. That improvement was due to slightly better gross margin performance by 140 basis points and lower expenses. That $0.42 per share non-GAAP performance is the basis for comparing to our first quarter 2012 guidance of $0.22 to $0.30 per diluted share. At the high-end of that range, we are projecting lower earnings with only slightly improved margins offset by higher SG&A related primarily to higher compensation costs in the quarter, lower JV income as well as the higher projected tax rate for the period.

While the markets work their way back, we are taking steps outlined by Bruce to ensure that our organization and management team are as efficient and cost effective as possible in managing our business opportunities in the megatrends. We have taken and will take further actions to streamline our manufacturing and overheads to improve our underlying cost structures to deliver the best level of shareholder return possible. For the fourth quarter of 2011, our businesses generated sales of $126.4 million, an increase of $29.4 million above last year's fourth quarter for a 30.3% improvement. With $28.6 million of that increase attributable to Curamik sales, our legacy businesses grew quarter-over-quarter by $0.8 million or 0.8%.

Our continuing core businesses, excluding Curamik, increased by $5.6 million or 6.2% increase year-over-year for the quarter. High-performance phones led the way with growth of 16.5%, while printed circuit materials increased a more modest 4.8%. Power distribution systems declined 22.3% having been significantly impacted by the temporary suspension of railway construction investments by the Ministry of Railways in China. Offsetting those results were significant declines in the end-of-life business at Durel and Polyimide Laminate Systems, which had a net quarter-over-quarter sales decline of $4.8 million. On a GAAP basis, Rogers reported a profit from continuing operations of $0.22 per diluted share for the fourth quarter of 2011, compared to a profit from continuing operations of $0.73 per diluted share for the same period in 2010.

As mentioned in our press release, we had one-time charges of $0.20 per diluted share in the fourth quarter of 2011, while the fourth quarter of 2010 was favorably impacted by one-time events totaling $0.21 per diluted share. Excluding the one-time items in both comparable periods, our non-GAAP results would be income from continuing operations of $0.42 per diluted share in the fourth quarter of 2011, as compared to $0.52 per diluted share in the fourth quarter of 2010. Gross margin for the fourth quarter of 2011 was 29.5%, as compared to 33.6% reported in the fourth 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 Curamik's business which has lower average gross margin than Rogers' other businesses.

The second factor affecting margin was lower absorption due to our efforts to bring inventories in line with the lower sales amounts resulting in an approximate 150 basis point reduction in overall margins. Selling and administrative expenses for the fourth quarter 2011 and 2010 were $26.7 million and $23.8 million, respectively. The fourth quarter 2011 includes $3.6 million of one-time charges as further described in the press release. Excluding those items, expenses were relatively flat year-over-year with the inclusion of Curamik in 2011 more than offset by lower incentive compensation costs.

We expect our SG&A to be in the $25 million to $26 million dollar range on an average quarterly basis as we start 2012. 2012 projections include approximately $1.4 million per quarter of increased costs related to our defined-benefit pension plan, which had been offset by lower compensation and other overhead. Also, in addition to our normal operating expenses, in the third quarter of 2012, we expect to recognize approximately $1.5 million in pension costs related to the retirement of our former CEO.

Research and development expenses were $5.4 million or 4.4% of sales in the fourth quarter of 2011 as compared to $4.8 million or 4.9% of sales in the fourth quarter of 2010. In the near term, we expect our R&D spending rate to be in the range of 4.5% to 5.0% of sales. Rogers 50%-owned high-performance joint ventures with INOAC Corporation had fourth-quarter 2011 sales totaling $18 million with equity income of $1.4 million, compared to $21.2 million of sales in equity income of $2.2 million in the fourth quarter 2010. As mentioned in the press release, joint venture sales this quarter were lower than last year's fourth quarter due to continued weakness in the Japanese domestic and export markets, particularly LCD TVs, domestic mobile phones and general industrial applications.

The annual tax rate for 2011 was 20.5%, having benefited from favorable resolution of certain tax matters during the year. We expect a normalized rate of approximately 27% during 2012. Rogers ended the fourth quarter with a cash and cash equivalent position of $79.7 million as compared to $71.1 million at September 30, 2011. Our improved cash position can be attributed primarily to strong cash collections throughout the year as well as reduced accounts receivable and inventory balances as a result of lower fourth quarter activity, partially offset by repayments on our debt facility of $6.1 million.

Capital expenditures were $8.8 million for the fourth quarter 2011 bringing the annual total for 2011 to $21.3 million. As outlined in the press release, we expect capital expenditures in 2012 to increase substantially to $45 million, due mostly to strategic capacity initiatives in our core businesses to support the anticipated strong growth rates in our mega trend markets. With regard to our balance sheet during the fourth quarter 2011, our net working capital position decreased by $11 million primarily related to decreases in accounts receivable and inventory, offset by a reduction in short-term liabilities, all related to the reduced fourth-quarter sales level and lower production activities.

In accounts receivable, days sales outstanding increased to 59.6 days, compared to 57.5 days at the end of the previous quarter, and slightly higher than our average performance over the past 24 months of approximately 58 days. Inventories decreased by $2.6 million during the quarter to $78.3 million as we focus on inventory management due to the declines in demand experienced during the quarter. Inventories are actually down by $6.5 million from its high point of $84.8 million in November. Our inventory tracking metric increased to approximately 11.2 weeks of supply versus last quarter's 10.8.

Overall, our current assets ended the quarter at almost 3.4 times current liabilities. At the end of the fourth quarter 2011, Rogers reported outstanding borrowings on its credit facilities of $122.5 million, which is entirely related to our purchase of Curamik at the beginning of the year. We have made payments of $22.5 million during the year including $6.1 million in the fourth 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 the call back over to Bruce.

Thanks Dennis. We will now entertain your questions.

(Operator Instructions) Daniel Moore, DJS Securities.

Good morning. Can you give us a little bit more detail around some of the streamlining initiatives that you mentioned in the press release and in your comments, Bruce?

Sure. Our intention with the streamlining initiative is to establish a cost structure at Rogers that we believe is sustainable for the long term but also supports our growth objectives as a high-tech supplier to the industries. Our savings are going to come from a number of different areas including operational efficiencies in our manufacturing units. We are now looking carefully at all of our manufacturing, looking at how we can improve operations and looking at lean and so forth. We are also looking across the supply chain for savings as well. We have also looked at our nonperforming assets and disposing of those items, and in some cases, some staff reductions. But our view is that our business remains very steady at Rogers and we have no real plans for any major workforce reductions.

Okay. I realize there is some nonrecurring, but maybe you can take a stab at quantifying costs likely incurred over the next couple of quarters in terms of severance restructuring?

We are basically starting at the very start of this process. We hope idea time that we report first-quarter results to have the more definitive analysis to base the disclosure on that kind of numbers on. So we will need six to eight weeks to get that done.

Okay. Maybe one more and I will jump back, given the departures that you mentioned, Mike and Pete. Bruce, is the team in place that you want now going forward? Is there a couple of gaps still needed to be filled? Just give us a sense of where you are in that process.

Sure. From the senior leadership perspective, we have Jeff Grudzein who had been leading our global sales and marketing organization and as I mentioned we moved him into the ACM leadership role. Jeff is a very accomplished, very experienced Rogers senior leader. And with that move what we have done is we have moved we have embedded the sales teams into each business unit, which again from our perspective as we move the Company to be more customer-centric, this is a much better way for us to get alignment across the business units with customer needs and so forth. In the High Performance Foams business, we have a very strong team at the second level of leadership. My involvement there is to get to know that team in a lot more detail and also to help guide that business, again not to be much more, but to be more customer- and market-oriented.

In addition, we are looking across the world as I look at our positioning in Asia -- we will continue to add our skills sets out there, particularly in the leadership areas around marketing and commercial activities. 50% of our sales are in that region and we need to continue to focus and develop out there. So I think, in summary to your question, I think we have a lot of good bench strength the next level down in the organization under the senior business leaders. We continue to develop, we will be out looking for some talent, but I like what I see in the team.

I'll jump back in the queue. Thank you.

Robert Spandau, ThinkEquity.

Good morning. Thanks for taking my question. I had a question about Q1 guidance. It looks like sales are flattish but you are looking for better earnings. Can you talk about sales mix in Q1 and where you think the better costs are going to show up. Is this a gross margin, is it OpEx?

The guidance is down, so comparing to the upper end, we're at an upper-end range of $0.30 per share versus the $0.42. At the upper end we are about comparable to where we were in the fourth quarter. I mentioned slightly improved margins -- we had 29.5% in the fourth quarter and I think we were just over 30% in that upper-end guidance range, so slightly improved. I believe that would likely be due to less unfavorable absorption, because we were doing a lot of production shut down and mitigation during the fourth quarter and that stable level is less of that. So, I think that would be the only piece of favorable improvement there. When you look at the rest of it, we are looking at a 27% tax rate versus a 22%, I believe. And the JV income is slightly lower related to the comments we made about the JVs in Japan. SG&A is up; some of that is related to the fact that during the fourth quarter we did have year end true-ups related to bonus compensation, as well as we were holding back due to a bad quarter just trying to curtail as much variable expense as we could. That's primarily the reason for about a $2 million increase in SG&A.

Okay. I look at the sales level and while it is down a little bit is not down by a whole lot. If you are looking at better utilization and increasing gross margins but your sales hasn't changed dramatically are you seeing undue price pressure in your end markets in Q1 or is this more of a mix issue?

From quarter to quarter, there is not much pricing action that takes place. So, if there are slight changes in margin, it can be product mix. We have a broad range of products out there in the marketplace but I'm thinking that with the de minimis amount of less than 50 basis points of margin improvement, there's really not much that we have gone in depth and looked and see if there's a problem or benefit.

Okay. Thanks so much.

Fred Buonocore, Rodman & Renshaw.

I just want to take a look at Robert's question and maybe ask it in a different way or from a different angle. In looking at the sales guidance, and the range that you have given, really the midpoint is looking for a sequential decline in revenue. But it sounded like in Bruce's prepared commentary that some of the end markets are starting to see at least modest improvements. I'm wondering why we would see some sequential decline in revenue if you are seeing some of the end markets perking up and if that's just attempting to be conservative or do you have some things going up but some things still retracting?

Our view is that we are seeing some pickup in our end markets and as I mentioned in the prepared text, the issue is how fast does it roll through the supply chain. So what we have said is we don't have clear visibility. We know it is coming. I think what we are saying in our guidance is that we are tempering that guidance until we see some real movement through the system.

Sure.

One thing I will comment though is that we continue to see some weakness in the Curamik business as we move through quarter one and that has to do certainly with the wind, particularly in Asia, but also in Europe where we had very strong sales last year. That has curtailed. We have not seen a recovery yet. We have seen on the industrial side some pickup on the control modules from the Curamik perspective. So, that is good news. One of the things we were very concerned about was the investment particularly in China in new equipment. That appears to be starting up again so that should flow through but overall, Curamik is going to have a slower quarter Q1 than certainly we had last year.

Great. That leads me to my next question as it relates to Curamik. Certainly, below the run rate that it has been at through much of the year and below what I was expecting. It sounds like in addition to wind you saw some down tick on the industrial motor drive business, the control modules. Can you give us a little more color on what happened there, what might be changing and where you see that market going in the more intermediate term?

I'm going to ask Bob Daigle who is the Vice President for that business to comment on what he sees in the market.

So Fred, if we step back to -- and I think this relates to your earlier question as well. Part of what the dynamic you saw in Q4 was really softening during the quarter, so we actually kicked off with the Curamik business pretty will in October and then we saw a trail-off during the quarter and part of the reversal you are seeing is really off a low base in December. The triggers for this, a couple of things we have mentioned before, one of the biggest areas of decline was related to the wind market, and in particular in China. I think there has been a fair amount of press out there about the issues that China has seen in terms of hooking up the wind turbines to the grid and having everything function properly.

There is a tremendous amount of investment today in China that is on track to get the wind capacity that is in place online, but what that has meant for the industry is really a lull in terms of putting wind turbines out in the marketplace. So you have that factor. The other thing that, as we have talked about before, is really related to the credit markets and in particular in China. We are all aware of the softness in Europe and the economic downturn. But something that you read about a bit but isn't nearly as visible is the Chinese government stepped on the brakes in the second half of 2011. That had some impact through the manufacturing sector in terms of CapEx spending which we believe is part of the reason we have seen some softness in demand in the industrial applications for Curamik.

Okay. Thanks Bob. Next question relates to the anticipated increase in CapEx. Can you give us a little bit more color on the investments that you are making there? And as a second part to that, going back to I guess early 2011, late 2010, you had investment in your Suzhou facility, as well as investment in Arizona. So can you talk about where you are going with CapEx and can you also talk about where we are with those previous investments in those two facilities and what's happening there?

I certainly can. I will start with the previous and bring you to date. The beginning of 2011 was basically the end of the capital project for putting in the China laminate facility for our circuit materials business. They built that mostly during 2010 and prior and 2011 was a ramp-up period, so a little capital spending. We had higher expenses during the year to ramp that facility up. So that is up and running; it is being qualified; it is shipping good product and we expect 2012 to be a year where that facility ramps up to a good level of capacity. The North American Power Distributions' Busbar facility was a fairly small capital expenditure of under a couple million dollars to start producing Busbar solutions in North America. That is in place and it was qualifying products during the second half of the year. Those were two fairly modest 2011 numbers.

The ramp up in the $45 million is approximately $37 million primarily related to major capacity expansions that need to be in place by mid- 2013. The first one is related to circuit materials, the high-speed digital project everybody knows about the THETA product with Hitachi, so we are moving ahead on bringing North American production of that product line to Rogers in 2013. Our PORON production lines have enough capacity to get us through about early to mid-2013 so we have a capital project that will put a PORON production line in place during 2012 and be ready to go by the middle to the end of 2013. And the last one is, basically with our Curamik business, it was growing just like the rest of the businesses over 20%. As we look at capacities for 2013 for bonding, for structuring, and ancillary capacities, that business will also need some capacity and we will be starting those 2013. The expenditure is in 2012, excuse me.

Great. No, that was a good summary. Thanks, Dennis. Finally, looking at the balance sheet, the pension liability jumped up sequentially to close to $70 million from $30 million-ish in Q3, does that have to do with your retired CEO's pension at least in part, or what are we seeing there?

No, not at all. I'm believing that all major corporations probably had some jump in that balance simply due to the fact that the measures that you are required to go through at the end of every year to calculate your present value, your future liabilities are dependent on several things. First of all, the discount rate which is typically picked by third parties and certified by your auditors, that is, the long-term high corporate bond rates, and that number dropped. So, you have a basically valuing a future liability discounting, and at a lower discount rate the present value goes up.

When you look at the portfolio yields we have been seeing over the last couple years, they have been dropping on our defined benefit portfolio and we were forced to take a, just by the practicality of the nature, a lower assumed interest earned on our portfolio. Those two things combined on a present value basis to generate about a $40 million-plus increase in that unfunded US GAAP liability on the balance sheet. We currently, with those calculations, we would still be over 90% funded on both of our plans and we will be looking this year in terms of our cash contributions to it. Last year we were at about 94% and we calculated roughly it would take probably an incremental $4.5 million to $5 million of contributions this year to bring us back up to our previous year level. The impact of that increase is amortized over about 15 years into expense, hence my comment to the $1.4 million per quarter of incremental expense.

Great. Thank you very much.

Think you.

Thanks.

Avinash Kant, DA Davidson.

Good morning Bruce, Bob, and Dennis. Maybe I didn't get the comments from Dennis right. Dennis, when you talked about the SG&A throughout 2012, being somewhere between $25 million to $26 million, that includes the pension contributions, right?

Absolutely -- the pension expense. Contribution is a cash payment.

Your contribution to the plan?

We accrue the expense of $1.4 million per quarter extra over 2011 so that is in our expenses for the income statement. The extra dollar value contribution is a cash payment that's made during the year to our pension portfolio is separate and apart from the accrual of the expense.

But you also talked about specific to Bob's plan, which quarter was that you said there will be another $1.5 million?

In the third quarter due to US GAAP considerations and when the termination of his service contract is, there will be an accrual of $1.5 million to close out the pension accounting for him. That is in addition to our normal not in that $1.4 million. Thank you, Avinash, for clearing that up.

Also historically, in Q1 you have had somewhat higher SG&A expenses due to stock comp and everything else. Should we expect something similar this year also?

Somewhat reduced this year due to less people of the age bracket that require immediate expensing. So it might be about half -- typically $1 million, it may be $500,000 in the first quarter and that's built into our numbers.

Okay.

Last year if you'll remember, we had options in the second quarter, this year we did them in the first quarter. So that was actually moved up when you compare it to last year we will be $500,000 higher expense versus the first quarter and when we get to the second quarter we will have lower.

Okay. Would you give us some idea -- when you acquired Curamik, you had talked about the contribution from Curamik for the year and everything. Now that you've finished a year what was the contribution from them in revenue or maybe even in EPS terms if you could talk about that?

I believe it was about $0.35 to $0.38 of incremental EPS.

And in revenue terms?

It was [133].

Okay.

We had originally estimated $0.20 to $0.30 when we originally did the acquisition.

And you talked about [115] to [125] in revenues. Exactly.

So it clearly came out better than what you had thought. Also, in terms of margin profile now that you have Curamik integrated, but at the same time you seem to be doing some streamlining efforts too -- how should we think of the margins? Do you have any margin model that adds so much in revenue as you would like to get to this kind of gross margins? At full capacity we would hope over a two- to three-year period of moving them closer to Rogers' average. They were I believe 27% to 28% exclusive of amortization related to the acquisition. So they have got a 3 to 4 percentage point improvement that they have to do.

Through the integration, Bob and his team are looking at ways to streamline some of those activities, especially in the very heavy people-related inspection processes. Over the next couple of years, we hope to ameliorate some of that cost. But we will remind you that on an operating profit basis they are at or slightly above Rogers' average so they have lower commercial expenses to offset what was a pretty high manufacturing cost.

[Outside as] business is concerned, where do you think you are in terms of, specifically in the foam side of the business, High Performance Foams?

For the High Performance Foams business, again we look at the mobile internet device applications as continuing to grow. We are seeing continued new tablets being rolled out and from our perspective we have been getting a number of design wins. So we believe that market should remain strong for us going forward. We are also seeing, on the industrial side strengthening there as well, so gasketing and so forth, we are seeing that pickup. So, I would characterize certainly for Q1 a good quarter for the foams business.

Okay. Final question, so the tax rate you guys talked about, 27% for the year, is it going to be steady all through or it's going to be depending on the mix of course, most likely I believe the sales team in Asia?

When asked for a range, tax people give you a range of 15% to 44%, Avinash. It always goes up and down because of certain income-related activities by quarter, so it has to do with where your mix of profitability is. We try to -- you have seen our rates plus or minus 3 or 4 percentage points off of an average. That's the best we can really do.

But what I'm trying to get from this one is, do you expect a meaningful change in mix of sales to regions throughout the year?

No. They have based their average based on our entity projections for the year so we think that's a fairly confident rate right now.

Okay. Perfect Thanks.

Shawn Severson, JMP Securities.

Thank you and good morning. I just wanted to dig in a little more on the inventory issue. I think you said you feel like things have cleared up a bit. I was wondering if you could talk a little bit more about why you feel that way. And then specifically, in the LTE side, when that market does come back and I know you are farther back in the supply chain, but how long is it from when you see an order versus when we would expect one of the 4G boxes to be installed in the US?

On the inventory side, the reasons that we see inventory being cleared out is we are starting to see some strength and pickup in some of the demand, particularly as I mentioned in the China area and also starting in North America on the circuit boards. So we know that that's cleaned out -- cleared out, the imbalance has improved, so we are starting to see that. I think the other point to make is on the industrial side at Curamik -- we do see those customers who are in those module areas starting to pick up. Now there is still, we believe in China, some materials backing up in the inventories on the wind and solar side, particularly in the wind. So overall, we see improvement and balancing on the inventories and the question really still remains, how fast will it ramp up in Q1 and into Q2? That again is our problem of where we sit in the supply chain. On the LTE side, I am going to turn it over to Bob.

Shawn, usually, and there's always some variability depending on how much product is in the supply chain for the OEMs, but generally speaking if they are getting, if they are ramping we see it pretty early. We are pretty far back in the supply chain. Our products end up in subassemblies that go to the OEMs, so they usually place orders pretty early on. But again, you always have the little bit of variability driven by how much inventory everybody has in the supply chain.

Back to Dennis' -- the question that was asked earlier I think by Fred about the whole CapEx spend and in particular what we are doing on the ACM side is really trying to address I think what you're getting at Shawn in that, if you read the market reports out there, there is an expectation that LTE will be very strong in 2012. I think iSuppli put numbers out there that looked at 100% increase in CapEx spending for LTE in 2012 versus 2011 and 2013. What I'm reading is that they are expecting LTE to really be the dominant spend and for us it's not just -- we have been in 3G for a long time, at pretty high share.

Our share is higher in 4G, but as we talked about before, our content in particular with one of the major OEMs their architecture can be three to four times in terms of the amount of content. We are trying to get ready for that and make sure we are prepared for when this ramp that everybody is talking about hits later this year, that we are prepared for that and that carries into 2013.

So if they wanted to install a box, let's say the end of April they wanted to deploy one in a particular market, would you be seeing that order when? At the end of February or end of March? Like a six week, eight week type lead time for you guys?

It's hard to say Shawn, but what we are hearing these days is the OEMs are pushed pretty hard for quick delivery. It's not like the old days where they'd put contracts out and it would be six months later. I think you are talking pretty short fuses and assuming that the inventories are down.

Okay. As you roll out this year with the CapEx, should we expect any impact on gross margins this year or is that more of a 2013 issue in regard to absorptions? I know you in the past, you go through cycles -- (multiple speakers) Go ahead.

2012 will be the expenditure year. There won't be any depreciation or facility going to live until maybe second or third quarter of 2013 depending on which project.

Okay. Then on High Performance Foams, I know you don't talk about specific customers, but we have had a lot of new products coming out in both tablets and smart phones over the last six months. I was wondering if you could give an update on programs, maybe a rough number or percentage of programs you're on or how you want to quantify it.

In terms of -- again we don't talk about specific applications or specific customers, but I will say for 2011 we had 68 design wins in production. That measured very well in terms of maintaining what we term as relatively high market share in the smart phone and in the tablet market. So we continue to get the wins. So that will translate into what we think will be solid sales in 2012.

Lastly, I wanted to clarify did you say that locomotive business has picked up in China already? I know you addressed the wind issues and there's still some problems there in the renewables, but the locomotive side, you are seeing reorders there now?

Yes. I think everybody still believes it's going to be later in the year before you see something significant. Although the Chinese government, I don't know if you read this Shawn, but they put out an announcement earlier in the year that basically said that, I think the Ministry of Rail announced that their CapEx budgets for 2012 were going to be about $63 billion, which is down about -- I think they are saying 15% from 2011 spend. For us, considering what has happened for us in Power Distribution where last year we had a very strong first half driven heavily by China and then we saw a lot of really poor (inaudible) fourth quarter, that as this thing ramps back up if they live up to what they are talking about in terms of rollouts in '12 we would expect things to come back as we move through the year.

Great. Thank you.

Thank you.

James Mosher, The Bulletin

Good morning, gentleman. You might have just addressed this in a general way, but us being your local newspaper, we are concerned about the plants in Rogers, Connecticut and Woodstock, Connecticut. Can you speak to the particulars of staff reductions at those facilities?

I won't really speak specifically about staff reductions, but as I mentioned, really what we are looking at is streamlining the organizations. We don't necessarily see any major staff reductions. What I will say, and this is related to the last question about the foams business, we are running very hard at our operations here at Woodstock. That is producing the foams. Demand continues to be very strong. We don't see any letup in that. As a matter of fact, we need to continue to add capacity and do de-bottlenecking, certainly de-bottlenecking here in Woodstock. From that perspective, from the production line perspective, I think we are in very good shape and will continue to push our team to make the products.

Thank you.

Jiwon Lee, Sidoti & Company.

Thank you. Wanted to talk about the revenue side for this year. Obviously the hope now is sequential improvement throughout the year and if we have to think about where could you possibly see some surprise upsides in the second half? Which area do you envision?

Well, from our perspective again, we are seeing some strength in the automotive side of our business. The x-by-wire has been a very strong growth for us in 2011. We think we will see that continuing in 2012. Will that be a surprise? I don't think it's a surprise if you look at how that market is moving. Rogers has about $4 per car -- I'm sorry Rogers has very good positioning under the hood as car companies move from the belt driven drives of the air conditioning and so forth to the motor driven and the electrical drives. So we will continue to see that as that migrates across the Atlantic to the US car makers; a lot of the Germans are doing it now. That's one area.

The other one that we see some strength in his the blind spot detection. This is the side view mirror notification of someone in a lane next you in a car. Rogers has about $4 per car of our circuit board material and what we are seeing is that market also taking off. Even Ford now in the Ford Focus is offering that as an option. So we see that market growing substantially over the next few years. By 2016, our understanding is that about 25% of the cars made will have that capability. Again, we have very high market share there so that's an upside for us.

Okay good. Back on the Curamik, Dennis, if the currency, if we're using constant currency, what would the 2011 revenue have been? Also going through what you are going through now with the Curamik, would you be still expecting growth from that business this year?

If you are saying, if we adjust to 2011 for what we are seeing in the rate now, we would probably see a 4% to 5% reduction in revenue from last years of that would be $5 million or $6 million top line reduction, so that would be down from last year. Your second question again? I'm sorry?

Would you still be expecting growth from Curamik this year? Just going through what you are going through now.

With their steep decline during the latter part of the fourth quarter and looking at the first and second quarters, and not seeing visibility in the second half, with the decline in the exchange rate and what they are seeing in the first half they could have a difficult year and possibly be down from the totals for 2011. Not seeing the full year, I can just say looking at first quarter they are down from the fourth quarter, quarter-over-quarter and hopefully if they can come back in the second quarter and beat first quarter, they'd be on the upward swing. But very difficult to project being at 2011 rates right now.

Additional comment on the Curamik. What could drive some upside here is how we see investment going in China, particularly in capital investment in factories and so forth. Significant part of that business is around the motor drives and so forth and as we see that pick up, that could pull through the rest of the year. Again, the visibility forward, early indications, few things that look good, but we just simply don't have that visibility and we will be watching carefully.

Jiwon, it's Bob Daigle. The industry reports I have been reading -- if you look at the biggest application, if you recall for Curamik is in the industrial motor drives, they are still looking over a multi-year period that this is a double-digit growth market. If you look at just '12 and a snapshot for '12 they are really talking about single-digit growth. And with the inventory correction issues that took place beginning in Q4 and we are seeing in Q1, that makes it harder frankly to come back up over 2011 revenue levels.

I think that's fair. Thank you. And then, on the CapEx, the $45 million for this year, did I hear correctly the biggest portion of the expansion would be the ACM, the circuit material side?

No. I mentioned a total of about $37 million of the $45 million being strategic capacity expansions. In that total the high-speed digital project and the PORON project are about equal and Curamik slightly less, but they are fairly comparable in terms of the kind of capacity percentages they need to add in 2013.

Terrific. Most of those high-speed digital and PORON capacity additions will be in China or here as well?

We are determining the right locations. Right now our high-speed digital model is to be producing laminates in the United States, with possible future expansions in Asia wherever the market takes us. Likely for the PORON product we have got to pick the location closest to our customers.

Terrific. That's all from me. Thank you.

(Operator Instructions) Daniel Moore, DJS Securities.

Thanks. I'll make it quick. I will take a stab at this at least. Interpolating your comments of, your argument for cautiousness in H1, but also some pickup in end markets and how that might roll through the supply chain. From what you see today, would we at least expect sequential improvement in Q2 over Q1 in revenue and earnings adjusting for some of those one-time items? Obviously just trying to get a sense of how you see the full year playing out.

We would see certainly sequentially and increased in Q2 over Q1. That is traditionally what we see also in the markets that we serve. But as I mentioned, we are seeing glimmers of the strength coming back. So our view is, as we've said before certainly first half is not as robust of this year certainly as it was in 2011, but sequentially we should see it move up.

That's helpful, thanks.

Fred Buonocore, Rodman & Renshaw.

Yes, just relative again to the CapEx expenditure, can you give us an update on the high-speed digital project and where you are with Hitachi on that? What the market looks like and maybe dimensionalize the revenues you are generating there now versus what you could expect to see a year or two years from now?

All right. Fred, this is Bob Daigle. As we've talked about, this is the -- I guess the way to think about what is going to drive the short-term for ACM, it's LTE. Then in the midterm, so really 2013, 2014, we would expect to see some impact from the high-speed digital. It is still a relatively small part of the business because we're, as we've mentioned in previous calls, we have been qualified at the OEM level. We have been qualified by the fabricators and the supply chain and we are in the process of being designed in. So, most of what you see ar qualification-size orders these days. We expect -- at least I would think, a lot of 2012 for high-speed digital is around that, getting qualified, teeing things up for growth in 2013.

I think what we have talked about is, if you go out a few years this could be a sizable piece of the ACM business, numbers around $40 million to $80 million; $80 million if you go out more like five years. So fairly substantial and impactful. What we are in the process of doing is, THETA was the first generation project and the collaboration is going very well with Hitachi in terms of developing and introducing a second product line offering that is even higher performance. We think that will be well received as well by the marketplace.

Great. Thank you.

And with no further questions in queue I turn the call back over to Mr. Hoechner for any closing remarks.

Thank you. In closing, I believe that Rogers is well-positioned to capitalize on the strong growth trends that we see in our core markets over the next several years. As we continue to transform our Company to be even more customer-centric and market-oriented I see Rogers as a Company of great promise that can deliver even greater value for customers and our stockholders in the years to come. Thanks for joining us today. Have a good day.

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