Rogers Corp (ROG) 2012 Q4 法說會逐字稿

Good morning, everyone. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome you all to the Rogers Corporation 2012 fourth-quarter and year-end results 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)

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

Thank you, Sarah. Good morning, everyone. Thanks for joining us today. Slides for today's call can be found on our website's investor section, along with the news release that was issued yesterday. With me, today, are Dennis Loughran, Vice President, Finance, and Chief Financial Officer; and Bob Daigle, Senior Vice President and Chief Technology Officer. I will now turn it over to Dennis to dispense with the formalities.

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 consider as subject to the many uncertainties that exist in Rogers' operation 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.

Also, the discussions during this conference call can include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call that can be found on our website investor section.

I will now turn it back over to Bruce.

Thanks, Dennis. On slide 4, you will find an overview of our fourth-quarter performance by market and megatrend. Rogers continues to be well diversified by market, as you can see by the pie chart. The markets that represent our megatrend focus areas of Internet growth, mass transit, and clean technology, drove 55% of net sales in the quarter, and we continue to believe they will help accelerate the Company's growth going forward.

In markets supporting Internet growth, consumer demand for higher functionality, speed, and bandwidth drove sales growth for Rogers solutions in both Internet devices and infrastructure applications, with sales up 11% quarter over quarter, Q4 of 2012 versus Q4 of 2011. In mobile-internet devices, we continue to have a market-leading position in cushioning and sealing for tablet computers and smartphone applications. In Internet-infrastructure applications, sales of Printed Circuit Materials used in base station power amps, as well as smart antenna systems, were up substantially due to wireless telecom network builds.

In mass transit, sales were basically even with the same quarter of last year. China's Ministry of rail recently announced aggressive plans for increasing rail investment, which may drive higher demand for our Power Distribution Systems for high-speed rail traction motors as programs begin to ramp up later this year.

Still impacted by the global slowdown of capital and infrastructure spending, clean technology sales were substantially lower than Q4 of last year. Sequentially, however, we saw improvement in demand for some clean technology applications versus Q3. We have also seen an increase in our order backlog for industrial motor drives and other applications, which would seem to indicate growing customer confidence in these markets.

In other markets, we achieved double-digit growth, quarter over quarter and sequentially, for our innovative cushioning and impact protection materials for personal protection. Growing adoption of automotive safety sensors continued to boost demand for Rogers' high-frequency printed circuit materials, with sales into this emerging technology area up significantly versus Q4 2011. More stringent safety requirements are being adopted in Europe in order for cars to receive the five-star safety rating. As radar systems will help automakers achieve these coveted ratings, we believe the more demanding requirements will accelerate adoption of these systems.

Moving to slide 5. We continue to build a solid pipeline of design opportunities across all three megatrend categories. At the end of the fourth quarter, we were working on 716 major design opportunities, with 427 design-in wins. During the quarter, we saw many programs move out of design and into production. Our Q4 2012 opportunity pipeline compares favorably versus Q4 2011, when we were working on 623 opportunities with 362 design-in wins. As the materials technology supplier of choice to many of our world-leading innovators, we remain focused on partnering with customers in their design process for next-generation products.

Turning to slide 6. Our net sales were $124.2 million, a decline of 1% over last year's fourth quarter and 4% sequentially. Q4 2012 versus Q4 2011, our two large business segments performed well, with High Performance Foam revenues up 7% and Printed Circuit Materials up 4%. In Power Electronic Solutions, our Power Distribution Systems business was up 8%, due primarily to strong demand in the automotive market. This growth was offset by a 23% decline in the curamik substrates portion of our business, as clean technology investments continued to be way down by the ongoing European fiscal crisis and clean technology regulatory and policy uncertainties in the US and other markets.

Looking at the businesses sequentially versus Q3 2012, High Performance Foams demand was relatively flat, due to some seasonality and a shift in display technology that reduced overall cushioning content per device for some platforms. Printed Circuit Materials revenues were down 11%, due primarily to year-end inventory corrections to match demand in LNB satellite TV applications. In the Power Electronic Solutions segment, we saw improvement over Q3. Power Distribution Systems sales were up 11%, as demand continued to ramp in several key markets, related to automotive and clean technology. Revenues for Curamik Electronic Solutions were basically flat over Q3.

I will now turn it over to Dennis to report our financial highlights. Dennis?

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

As reported in the press release, we achieved earnings from continuing operations of $0.30 per diluted share, which includes net special charges of $0.28 per diluted share. The press release provided a descriptive breakout of those net special charges; however, I would like to provide a little more clarity in relation to the impact on our income statement for the fourth quarter. The $0.28-per-share impact is included in our fourth-quarter income statement as follows. Cost of sales was impacted favorably by $1.7 million, related primarily to the favorable $2.1 million inventory valuation, offset by $0.4 million of Hungary move-related costs. Selling and administrative expenses included one-time charges of $2.95 million related to the asbestos liability adjustment and $0.8 million related primarily to the Hungary move. The restructuring and impairment line included $4.1 million in charges related primarily to the Hungary move and Bremen closure.

In other income and expense, two impacts offset each other, with the FX and copperheads valuation declines of $1.1 million, offset by a $1.1 million gain booked on the disposal of equipment related to the Bremen facility closure. Our underlying non-GAAP result of $0.58 per diluted share was in line with the upper end of our recently restated Q4 guidance, although it did represent a shortfall to our original expectations for the quarter. This shortfall was related, almost exclusively, to lost contribution on lower sales, as we were able to maintain cost at expected levels, with our 2012 streamlining efforts delivering the estimated $5 million in profitability improvement we projected, allowing us to achieve approximately $11.5 million in improved profits in 2012.

Turning to slide 8. You will see that our streamlining activities continued on pace and made significant favorable impact on our results, with $5 million in quarterly cost benefit. Of that total, about $3 million benefited manufacturing margin and $2 million represented lower SG&A. We believe that this quarterly benefit will continue into 2013, delivering a total of $8.5 million in improved profitability over what we achieved in 2012. In addition, we will start to realize annualized benefits of approximately $1.4 million, starting in the second quarter 2013, related to the shutdown of the manufacturing facility in Bremen, Germany and the closure of the composite materials business. We are also making good progress related to the relocation of our Curamik inspection operations from Germany to Hungary. This move will begin to favorably impact our results in the fourth quarter of 2013, and we expect to achieve approximately $2 million in annual benefits as a result of this move.

On slide 9, our gross margins for the last five quarters are depicted, with the fourth quarter 2012 at 34.4%, as compared to 29.7% reported in the fourth quarter of 2011. Approximately 300 basis points of this improvement is a result of $3 million in streamlining benefits in our operations for the quarter. An additional 170 basis points of the increase was due to the one-time benefits recorded in this year's fourth quarter related to a favorable inventory adjustment.

On slide 10, excluding special charges, selling and administrative expenses, as a percent of sales for the fourth quarter 2012 and 2011 were 18.8% and 18.3%, respectfully. We were able to maintain a relatively consistent spend rate in 2012 on the strength of over $6 million in streamlining expense savings, which acted to offset sales volume declines, which would have negatively impacted results by 180 basis points. Over the past two years, we have achieved consistent improvement, with SG&A spend lower, by over 400 basis points, when compared to the levels of 23% to 24% of sales incurred in the 2009 and 2010 timeframe.

Research and development expenses were 3.8% of sales in the fourth quarter 2012, relatively similar to the previous two post-streamlining quarters and lower than the 4.3% in the fourth quarter of 2011. In the near term, we expect our R&D spending rate to remain in the range of 3.5% to 4% of sales.

Turning to slide 11. Rogers ended the fourth quarter with a cash and cash equivalents position of $114.9 million, as compared to $91.1 million at September 30, 2012. As represented in the slide, we have continued to manage cash in a manner to maintain sufficient liquidity reserves for our current and future needs. Despite the overall depressed economic conditions in our market, in the past year we have improved our net-debt metric to a positive $16.9 million position, representing an almost $60 million improvement.

For the fourth quarter of 2012, the net increase in cash was primarily attributable to strong cash generated from operations of approximately $26 million, including an over $15 million improvement in working capital, primarily related to reductions in accounts receivable. Those amounts were offset by capital expenditures of $7.3 million and long-term debt repayments totaling $8 million, of which, $5.5 million represented a discretionary repayment against our credit revolver and $2.5 million was a scheduled repayment against our term loan facility. We currently have $98 million of long-term debt outstanding, down from $122.5 million at the end of 2011.

Turning to slide 12. For the first quarter of 2013, we forecast net sales between $129 million to $133 million and earnings from continuing operations, on a non-GAAP basis, excluding any special charges, between $0.57 and $0.61 per diluted share. At the midpoint, this guidance represents an over $10 million, or 8.8%, sales improvement, versus Q1 2012 sales from continuing operations. From a profit perspective, earnings per share are projected to be $0.33 per share higher, a 126% increase when compared to the $0.26 in non-GAAP EPS reported for the prior-year first quarter.

These improvements are derived from a projected $8 million increase in pre-tax income, which is primarily attributable to three factors -- margin contributions of $5 million, or 47% of the forecasted sales increase, which is approximately 3% lower than our average contribution of 50%, due to a slightly negative mix from prior-year Q1; operating profit improvement of $5 million, related to our annualized benefits from our streamlining programs; with those offset by approximately $2 million of higher commercial spending, driven by investments in sales and marketing aimed at driving our efforts toward double-digit growth, as well as higher scheduled intangible amortization expense related to our Curamik acquisition, higher compensation costs, and other general inflation.

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

Thanks, Dennis. We will now open up the call for questions. Sarah?

(Operator Instructions)

Daniel Moore, CJS Securities.

First, can you perhaps talk a little bit about -- you constantly have new products ramping up in terms of production and volume, while at the same time, older legacy products winding down. As you look at the current portfolio, could you maybe highlight one or two of the new products or applications that are moving from testing into production? And at the same time, are there any significant products that are expected to decline at an accelerating rate as we look out to 2013?

Great question. On the new products side, we have talked in the past -- and this past year, we saw some very good developments with our smart antenna systems, so we will continue to see that evolve and we continue to come out with newer products to build out in that market area. Similar situation over in the molded PORON -- the consumer side of our foams business where we saw doubling -- essentially, doubling of the sales during 2012 versus 2011, up to over $8 million in sales from $4 million the previous year. We continue to introduce new grades of material there, to address needs that the sporting goods and the apparel makers have. We have also introduced casting foam on fabric, which is an interesting opportunity for us as we move forward in that market.

As I look at products that are going away, actually, I look at it from a market perspective, and I would say the markets that we look at and we are a little bit more concerned about would be the areas of wind and solar, particularly wind, where we have seen some significant decline over the past year in that market. So those would be -- I'd focus more on how we are doing in the markets and the decline that might go on in a specific market. Rogers has had a very good history of finding applications for our technology in new markets; so as these markets decline, we go out and utilize our technology in other areas and apply it there. We have many things that are still moving through our R&D and out into production that we tend not to talk about until we get it out there, but related to those growth areas in those markets that we talked about.

And just as a quick follow-up, in terms of wind and solar, we haven't talked too much about those. Do you see those having bottomed out or potential for additional declines as we get into 2013?

We think things have pretty much bottomed out there. Wind and solar only account, totally, for Rogers of about 5% of our sales, and we've seen, specifically over in the solar side, I would say some pick up here, not really significant pickup, but certainly stabilization. And, we've seen some applications that we believe will come through, particularly CPV, during 2013.

On the wind side, it's a very tough market, there. We will see some sales going there this year in 2013, mostly around building out some of the infrastructure that was in China that needed to have better grid connections, so we will get some business there. But generally, we see those markets as bottomed and moving along sideways.

Lastly, with 4G improving, China infrastructure spend maybe coming through later in the back half of the year, auto-detection systems -- I guess, is there any reason not to expect revenue to increase sequentially as we move out throughout the year? Obviously, things can change, but as you look at it right now?

Yes. This is an exciting area for us. We are very positive on the continued buildout -- first of all, of 3G in China, the conversion of some of the 3G in China to 4G, and then significant buildout as well, not only in China, but by the US providers -- AT&T, Sprint, T-Mobile, and so forth. We know their capital spending will come in this year. Of course, things can always change if conditions change, but this is a very positive area for us.

The other one that we are very excited about, in the PCM side, the circuit board side, is in blind-spot detection. We saw a lot of focus on that in 2012. We know, based on some of the safety regulatory areas, particularly in Europe, this is going to be an application that will get a lot more attention.

We also had some very good breakthroughs and application work done, over the past six months, moving from the 24-gigahertz systems to the 77-gigahertz systems, and Rogers is in both areas -- both application areas, well positioned for growth. So, whether the automakers choose one or the other, we are in great shape.

Helpful. I will jump back in queue.

Shawn Severson, JMP Securities.

I was wondering if you could differentiate a little bit between, I guess, with talking about clean tech business and in China and tying that back to Curamik, versus industrial activity levels and the recovery in China. I'm just trying to understand, as we look at an economic recovery and stimulus program in China, what that means for general industrial activity, and how you are seeing that today, and what you expect for that in the next quarter?

Great. I'm going to ask Bob Daigle to take that one.

Good morning, Shawn, it's Bob Daigle. I guess dissecting that a little bit, I think part of what we talked about in the past and I think is relevant to this discussion is, a lot of the headwinds we faced in 2012 in this business were also attributable to inventory that had built up throughout the supply chain. It wasn't just our substrate at the semiconductor fabs, it was also inventory at the equipment makers, so we've got that that's cleaned up.

In terms of how China plays out, yes, absolutely. I think if we start -- as we start to see more infrastructure spend, more capital spend in places like China, that will clearly benefit the -- we would expect that to benefit the power semiconductor industry. And, with our high share of that market, we would expect to see that flow through. As Bruce mentioned in his earlier comments, again, we are starting to see more confidence build amongst our direct customers and that our backlog has been coming up nicely at Curamik.

It's safe to say it didn't have much impact, certainly, in the December quarter. But, there is some recovery built into the guidance for the first quarter, and that specifically, through China in that comment?

Yes, we are still being pretty cautious, Shawn, but I would -- the backlog improvements really start to show up second half of December and have continued to look favorable.

Second, Bruce, I know one of the initiatives you try to put through the organization has been more cognizant of pricing and potential pricing power with your products. I'm just wondering if that has -- where you are in that process? Have you put anything through yet, or is this something still being analyzed and then expected to be put through sometime late this year? And, I know it is going to be bit by bit, but just where you are in the process?

We have put through, in the last I'd say six months or so, some pricing moves in some of our businesses. Now, as we know, moving prices is never an easy thing. And really, what we're doing is some of our existing products we found undervalued and we moved them up, but a lot of the work is going in as we introduce new products to make sure that we are value-priced appropriately for the performance that we are giving our customers and what we are enabling them to do.

So this is, I think as you rightly point out, a longer-term activity, but it is something that we continue to be focused on and in our current product mix where we can move, we have. And, I'd say we probably moved maybe 5% of our business, 5% to 10% of our business on pricing in the last six months. And that has been across the businesses, not any specific one.

Lastly, just an update on data, high-speed networking market -- things that are happening on that front? I know, again, that was something in 2013, we should see more of a pick up, but just an update would be great. Thanks.

We talked about this, I think, last quarter around our high-speed digital strategy. What we had found, as we looked at the market, was that the market was moving very rapidly to ultra-low loss requirements, so the speeds were increasing. And, what we found is that our Theta product, which is targeted for mid loss, is adequate, but what we believe we need to do is spend more time and effort on the research side to develop the ultra-low loss performance. We have pulled back from the investment that we had set up for our Arizona facility for, what I would say, mid loss, and we are now evaluating what we want to do in that market and really focus much more on developing the right products to where the market is going, not to where it is today. We think we've got some good leads there.

We think we will be, certainly, leading edge in that area. So, I would not expect a lot of strong growth on the high-speed digital this year. We will continue to support Theta and continue to develop those customer relationships, but our real focus is probably one to two years out on the ultra-low loss.

Okay, and I guess that was kind of my question -- will we expect testing this year? Or, are we expecting testing more in 2014 in a real commercial product like you said two year -- a couple years out?

I'm going to ask Bob to take that one as CTO.

Shawn, we are in the process of customer evaluations, but this is usually a multi-year process in that we would expect qualifications to begin in the next 12, 18 months, and then it starts to roll out. What we are really trying to do is, as Bruce pointed out, is really position Rogers in an area in which we think there is going to be, frankly, more value than at the low end, and that overlaps quite well, frankly, with our capabilities from a technology standpoint. Since there is -- this is an emerging industry, the goal is always to try to position ourselves so we can gain a pretty large share of this as it emerges, but we shouldn't be thinking of this as impactful in the next 18, 24 months. This is a little bit further out.

Great. Thank you.

Avinash Kant, DA Davidson & Company.

A few questions -- first, trying to understand the new program opportunity that you provide us. It looks like, on a sequential basis, the new programs actually went down from 793 to 716, which does mean that it looks like many of them may have been converted into products. Could you give us some more color, in terms of how this works, and what's the magnitude of business that you could get from these newly converted products?

You are exactly right, Avinash. What happened in going from Q3 to Q4 was a lot of our design-ins went into production, which is obviously, good news. The comparison that I made was a year-on-year comparison, so our funnel of new opportunities continues to grow. When we look at the amount of money that is there, it will vary by product application and so on, so it's very hard to hone in on specifically. There's $50 million in the funnel, because that moves around depending on what we are doing on the application side.

What I would take away from this is that we continue to get the wins with our OEMs and with our customers, that we believe position us well. As I said, a lot moved into production over the last quarter, so what we should see is, going into 2013, those opportunities getting built out, and we will see them in the bottom line --

So, what I wanted to understand is that if there is ever a change in this number, is it only because the products went into production, or there could be some other factor that could impact this number too?

Yes, and again, in true transparency, we did some cleanup going from the third quarter to the fourth quarter. Some of the opportunities that had been in the hopper for, maybe, 18 months to 2 years, we pulled them out. And, what we have done to the process is, instead of having this being more of an annual process, where we have our sales team and our applications team clean it up, we are going to a quarterly cleanup process. So the noise, quarter to quarter, should be less, and certainly, not to some of the magnitude that we saw going from Q3 to Q4. So, that's a little bit of our learning and our fixing of our process. But, I would say the majority went into production, and some of these other ones just got pulled out because they were canceled by the customer.

Right, because that's what I was going to ask -- of the 77 products that got taken out sequentially, if you could give us some idea about how much was the cleanup and how much were new products?

The cleanup was -- let's see -- about 43 went into -- exactly 43 went into production, so the rest was a cleanup.

Very good. In terms of the -- you talked a little bit about the content was reduced in some of the electronics products for the cushioning applications. Could you give us some idea of what do you mean in terms of the opportunity per device before and now?

In terms of the opportunity, what we have seen over the last, I'd say, year to 18 months, particularly in the smartphone area, is the movement to a display AMOLED, which is the active matrix organic LED displays, which don't require a gasket. So, that has removed from the opportunity for our gasketing material. What we are doing is we are working very closely with the OEMs because these handsets still require cushioning and impact performance, so we are now developing products, and have come out with a few products that address this. And, it's more overall cushioning that's required in the backside of the unit, rather than around the display. So, it reduces some of the content level that we might have had, maybe, two years ago or so on a smartphone, but we still have reasonable content there.

And of course, on the tablet computers, we continue to see very strong growth there and our performance in market share is very high, and we continue to see wins there. There's been a shift in some of that technology, like I said, on the smartphones; but overall, the gasketing is still moving along quite nicely for us.

A few numbers, actually -- could you give us the depreciation and amortization number for the quarter?

Sure, Avinash, this is Dennis. Q4 depreciation, $5.2 million; Q4 amortization, $1.1 million, for a total of $6.3 million.

One final question, it looks like the charges in the Q1 are expected to be roughly $0.03. Is this pretty much the end of charges we will see, or we could see further charges going forward based on some of the moves you already have planned?

When we announced and discussed the Hungary move for Curamik, we had indicated there was about $750,000 because we have about three quarters worth of moving people and continuing to restructure a little bit -- most of that being severance and just relo and training charges as we move through. That's typically what we have in the $0.03. There was a little bit of severance related to some position reductions in the first quarter. We don't expect that to continue, so we are looking at about $0.01 to $0.015 per quarter for three quarters related to Curamik.

Perfect. Thanks so much, Dennis; thanks, Bruce.

Jiwon Lee, Sidoti & Company.

Bruce, I wanted to quickly go back to the PCM side of things and wonder if you can compare your growth expectations between 3G and 4G, and perhaps, the automotive radar applications?

3G and 4G is a little bit tough to compare, although I -- let me make a couple of statements here, of leading indicators. In our higher content 4G application, where we have with one OEM, we are starting to see that take off, so we will start seeing that impact this year. In terms of 4G and 3G comparisons -- what we are seeing, particularly in China, is that we know that the Chinese will deploy -- or they claim they will deploy about 200,000 base stations. We have heard, informally, that it could be as high as 400,000 base stations. Now, of those base stations, some of those are 3G and some of those are 4G, and even the 3Gs are getting upgraded to TD-LTE capability. Some of that will impact the need for our circuit-board technology. Some of that is done with software. So, it's a very difficult prognosis to look out across 2013 and say with certainty, here is the 3G, here is the 4G because there's the mixture of the technologies with some of the work that the Chinese, particularly, have done in moving from a 3G to 4G base station. But I will say, overall, we have a very positive outlook this year on the growth in that market.

For blind spots, I will also say that we are very positive on that, as well -- as well as the antenna systems, and we believe the smart antenna systems that are going into the 4G will be even a higher-percentage growth rate than what we are seeing for the base stations because we are winning market share away from bent metal. So in that case, we will see even a higher growth rate for that application.

That's helpful. Thank you. Kind of moving back onto the foam side -- could you take a swing at your market share in smartphones versus the tablet? And, I thought your comments on the AMOLED was very helpful.

In terms of market share, we participate, I would say, in almost every handheld device that's out there. The real question becomes, what is the content in each of those devices? In the tablet computers, because, as I mentioned, they require the gasketing around the display, we have a much higher content per unit than we would have in a smartphone where our cushioning would be on the backside or around the microphone or around the camera. And that would be, certainly, less than what you would see in content on the tablets. And, the amount varies. I would guesstimate, or estimate, that the content in a tablet would be anywhere from $0.30 to $0.50 per unit, and on a smartphone it can be anywhere from $0.05 up to $0.25 to $0.30, depending on what the technology is for the display and the use of our foam technology in other needed areas in the smartphone.

Is it fair to say, Bruce, in each of these markets, you have up to 50% of the market share, especially, on the smartphone -- or more on the tablet side, do you think?

Certainly, on the tablets, we would say closer to 90%. On the smartphones, I would say in the 60%s.

Okay, very helpful. Sometimes the Company took a swipe at the annual revenue outlook -- would you care to take a swing at what that might look like for this year?

Actually, we like to do quarter by quarter because, as demonstrated last year and even going into Q4 of 2011, the visibility of more than one quarter out is very difficult for us. And, a lot will turn this year on industrial capital spending -- that could have a huge impact going forward, particularly in our Curamik business. So, it's very difficult for us to do more than one quarter at a time.

Okay, fair enough. Lastly, for Bruce, if I may, the CapEx last year was under $25 million. What's the plan for this year and where?

We are doing -- I tell you, for 2013, it's about $28 million is the current expectation. That will be mostly across the board in terms of our growth. We are finishing the treater in circuit materials. We will likely start spending on installation of a press -- the one that we looked at related to the high-speed digital delay, that press will likely start to go in at some location later in the year. Our polyurethane foams will likely start, late in the year, to look at the initial capital spend on what they would need for new capacity at the end of 2014 or into 2015. We won't need much capital expenditures in Curamik because we are running at such a low pace. We will spend a little capital to install equipment as they move into Hungary. So in general, that $28 million has a little bit of growth capital in it, and our normal maintenance capital, which is probably in the $15-million to $16-million range, replacement and reconfiguration of those kind of things, Jiwon.

Very good. Thank you so much.

Dana Walker, Kalmar Investments.

Dennis, let's start with you. Could you, in the same way that you provided the year-over-year relationship, taking -- starting with the top line and working down through the P&L, can you do that for the first quarter versus the fourth quarter comparison? Is all that commercial spend -- is that a $2 million delta versus the fourth-quarter level?

I can certainly do that for you, Dana. We are looking in the first quarter, first of all, sales and contribution -- at the midpoint of the range, we would be up about $6.5 million, from the -- we are looking at the, obviously, the continuing operation sale in the fourth quarter of $124 million up to $131 million. We have a contribution built in of about 53%, so generating $3.5 million, which is about average for us. When you look at commercial spend, we will be up about $1.8 million, in total.

In the first quarter -- so as I describe our year, let me start with that first, and then we'll talk about the first quarter, because it is slightly heavier in the first quarter. We spent about $94 million of SG&A in 2012 on a non-GAAP, ex one timers, basis. We will be up about $11.5 million, in total, in 2012. Of that $11.5 million, $6.6 million will be annual incentive compensation against, what we believe will be significantly improved sales and profitability, so we need to start accruing for that. It's obviously a self-funding program, so if we don't make the targets, it would go away. We had nothing of that expense in 2012.

We have $1.3 million, in total, related to the scheduled amortization of intangibles related to Curamik. Each year, there's a different level that was preset when we acquired the business, so about $350,000 a quarter related to that. And then, you have about $4 million to $4.5 million of inflationary costs and program costs in sales and marketing and admin, with about $3 million of that $4 million related to sales and marketing and $1 million related to admin.

The $1 million is the controllable costs that we streamline down to, and we are holding to about 2 percentage points of inflation, even though we have merit pools and then looking at other inflationary costs through the system. So, we think we are really holding onto those costs, but with targeting double-digit growth, that $3 million of spend on sales and marketing is what we believe is investment-based spending to make sure that we are behind those kind of programs. So when you look at that, it's about $3 million a quarter, average. We're going to be at about $2 million to $2.5 million in the first quarter because -- payroll taxes, for example, are heavied up in the first quarter. Not only are people starting to pay FICA again at the full rate and also above the Medicare rate, we will also have FICA related to equity compensation accrual. So, you have between $300,000 and $600,000 related to that.

We have, certainly, kicked off marketing programs and things that were not in the fourth quarter, so I believe we have between $500,000 and $700,000 of whether it is customer meetings, conventions, those kinds of things that kick off the new year. So, it is a little bit heavier in relation to the sales total going in, but when you look at subtracting that net of about $1.9 million from the contribution, we will be up about $1.8 million of operating income on $6.5 million, $7 million of sales, or about a 27% operating profit contribution.

We do have two other -- below that line, we have two negatives -- JV income and other income -- and other expenses will be about $0.5 million negative to the fourth quarter. RIC volumes are down in Japan a little bit. That is a very volatile set of gaming applications. We are spending a little bit more in other income because we have implemented, as we discussed in the fourth quarter, impact of copper hedging and FX. We are putting a little bit money into option contracts, related to copper and hedge, to offset some of those exposures that we have, compared to the fourth quarter.

The last big impact is taxes. We ended up in the fourth quarter with about a -- when you look at excluding discrete and one-time items because the GAAP rate was a big double hundred-digit rate, we had about a 21% non-GAAP tax rate, excluding one timers. We are projecting 28% for the year because -- basically, in talking with our tax folks, we are going to be earning more money in higher tax jurisdictions during 2013 than we did in 2012. So, we've got about a $1.2 million negative tax impact quarter to quarter because it is all being accrued at 28% as opposed to the 21%.

Now, going through the year, we have certain things that happen that end up as discrete items -- late in the year true ups and those kind of things that may differ with that rate, but we start out at a statutory rate minus the benefits that we know about and can accrue for, starting in the year, Dana. So, we've got about a $0.01 improvement. Excluding the taxes and the JVs, we would have gotten about an $0.08 improvement, which would have been about expected.

Dennis, in all my 30 years, that is the most fulsomely, comprehensive answer I have ever heard. I love it.

You're welcome.

I don't have anymore questions related to that. I can't think even think of one (laughter). But, let me move to something else. Would you folks believe that from a printed circuit board capacity standpoint that you are relatively set to address this up cycle?

Yes. We believe that we are in very good shape. We have got -- with the treater coming on, in terms of capacity, in China, that will come up -- we are doing the start up now -- or I should say, into March, so will come up full in mid summer, and we will do customer qualifications, so we will be in very good shape. That was a capacity-limiting factor for us was the treater.

The next thing that we will be looking at is the press, and we actually have the press already built. It's just a question of where we are going to put it. So, I think the upside is coming. We believe it, and we are getting ready, from the capacity perspective, to make sure that we don't disappoint anyone, including us. I think we are in great shape.

From a technology perspective, we continue to evolve and develop products that are responding to the dielectric needs that our customers have expressed to us. Some of this stuff is not so easy, and we've made some good inroads.

You describe, in a rosy sense, your view of blind-spot detection market. As you assess the opportunities there and/or the number of platforms that that might be on car wise, how does that number compare today, versus what you might have -- how you might have responded one year or so ago?

In terms of the units, our belief is that it's going to accelerate. We had thought that by 2016 we would start seeing some real uptake at the midmarket level. What we are seeing now is, we believe in 2013 and 2014, we will see some real significant growth in the midmarket and lower markets.

We talked about, a little bit about, the five-star rating that the Europeans are talking about and need to have these radar systems as almost part of getting that five-star rating. We believe that approach will show up here in the US as well, so that will drive down into the midmarket.

We can look at industry data -- automotive industry data, I'm sure we can pull that out and specifically look at the units that people are projecting, but I would say I'm much more optimistic than even one year ago in how this is going to accelerate up. We still believe -- and right now, we are not doing anything different than projecting about a $3 to $4 per car unit use of our materials.

Bruce, is it your view that your material has advantages and that you are not likely to see a competitive incursion in that market?

Yes, I'm going to ask Bob to comment on that.

Yes, Dana. We have -- which has often been the case with when we target a particular application area and develop the products, we have solutions that are very much differentiated and very much enable some of these systems from a cost standpoint for the OEMs. We have managed to capture -- definitely, we think, north of 80% or 90% share in these instances at the 24 gigahertz. As Bruce talked about earlier, is we've put a lot of effort, frankly, to make sure we won in a similar fashion in the 77-gigahertz system, so that regardless of what the OEMs chose to utilize, we'd be in good shape.

Again, it gets back to you see market studies out there that have some pretty high penetration projections out in 2016 and this recent news where, at least what I've been reading, in Europe, their goal is to reduce fatalities by 50% in Europe from 2010 to 2020, with the new star rating system that they are adopting, they definitely start to raise the bar in 2014, and it continues to rise through 2020. Even in 2014, they are looking at data, frankly, that says these active driver assistance systems are very effective in reducing accident rates, and they've increased the weighting of these systems and how they score for five stars, so that's all very positive for us.

With all the social spending requirements, they can't afford to let people die (laughter). Two last quickies -- perhaps someone can tackle the dynamics that you see in your non-mobile handset, mobile device phone business, as you look out over the next several years.

Industrial --

Industrial and consumer -- okay, so on the --

And aerospace, I presume.

Aerospace. On the industrial side, we see continued strong position for our materials in the foam area. XRD was introduced there, and it has been accepted quite well. So, that -- it's an industrial growth, so we are talking, probably high-single digits for those kinds of applications.

I would say, certainly, on the molded PORON, where I spoke a little bit earlier about consumer side, we see this as a real upside for us. We are, right now, installing a new machine in our Woodstock facility to make molded PORON. This is our second machine. The demand there is -- I should say, maybe, outstripping our capacity at this point, but we are busily investing there as well. So, that's a real upside for us.

And, it will require us -- part of the spending that we're talking about here on the marketing side, is for us to understand much more about the consumer market. So, we are investing there, in market studies and so on, so we can put together a comprehensive strategy on the consumer side that will help us to grow even in a greater position, and also balance out the portfolio versus industrial and handheld -- the handheld side.

And final thought would be this -- on Theta, as you think about the way the market has worked away from mid loss towards ultra-low loss, and you talk about your marksmanship on figuring out where markets have gone in the past in some of your core areas, did you -- how do you feel internally about the way you scoped this market out, and whether this is really a good market for Rogers from a specialization standpoint?

I will ask Bob to comment on that.

Dana, if you think about what has driven our success in the wireless space, and whether it's infrastructure and base stations, antennas, or these radar systems, what we are providing to customers is electrical performance -- it's premium electrical performance. As we start to -- as we've studied the market, and we are looking at where things are going in the digital world, everyone is trying to drive towards the 30-gigabit towards 100-gigabit-per-second switches. And, why are they doing that? Because of data traffic. You have got wireless data traffic pretty much doubling every year. You've got the Internet backbone, with video on demand, demand driving up 30% per year.

So, they are driving the higher speed switches, which plays very much to our strength because the frequencies, the switching speeds they are talking about, require higher electrical performance materials than what's out on the market today. This intersects very well with our core technology capabilities, and we think this is a space that we are, frankly, well positioned to carve out a strong position for Rogers. But again, it's a three year kind of -- three to five year kind of process, here, for that to become the mainstream.

My question, though, I suppose focuses on the fact that you thought that the mid-loss would be opportune for you, and now that is looking less so. I'm not sure I'm asking the right question, but is there something there about the targeting of where the opportunity is and/or where you can competitively protect yourself? Is this likely to be a different market compared to what you've specialized in in the past?

I think what our learning was, as we look at the mid-loss market, it's a pretty crowded field, and more competitively intense than even we thought, coming into it. That is part of our re-look at the strategy.

I think the second thing is, there is a big technical hurdle here for ultra-low loss, and we believe we have the capability to address the technology needs; whereas at mid-loss, there's many players in there. So, we think this technology hurdle in ultra-low loss plus our now greater knowledge of the high-speed digital market because of our foray, over the last year or so into that market at mid-loss, positions us well in the longer term. To be clear, I would not expect much performance from us on a sales side in high-speed digital over the next year to 18 months as we get focused on the ultra-low loss and move that market forward.

Thank you, and good luck.

Thanks.

[Ralph Reese], Private Investor.

I've asked this question before, and each time get the same answer -- we're looking at it. And, that is the dividends?

Ralph, again, the answer -- from a fiduciary responsibility -- this is the Board needs to look at this every year, and they do look at it every year. Let me step back, though, and say that Rogers is a growth company, and we continue to make investments in our growth, and that requires the use of cash for that. In addition, our strategy is inclusive of acquisitions. Again, to do that in the right approach, requires us to use our cash, as well as debt, moving forward.

So, this is -- your question is brought before the Board every year, and we look at, from a strategic perspective, what we are trying to accomplish as a company, and then the Board makes its determination on how they want us to proceed.

Daniel Moore, CJS Securities.

Balance sheet in as good shape as it has been since any time prior to the Curamik acquisition -- $15 million in net cash and growing -- what does the acquisition pipeline look like? And, barring that, I guess as a follow-up, how long would you be comfortable building cash on the balance sheet?

From an acquisition perspective, in a broad sense, we continue -- and we have a team working on this on a daily basis, to analyze and review opportunities for acquisitions, whether they are acquisitions that help us build out in our current markets and give us a better position, whether they are also technology acquisitions that might not have a lot of sales but have some interesting technologies that we believe we can apply in our markets moving forward.

So I would say the strategy, certainly over the next 12 to 18 months around acquisitions, is looking closer into what we do and trying to build our position, whether from a market-based perspective or from a technology perspective. We will continue to build our capability to make those acquisitions. As I said, this is part of our forward-looking strategy, in addition to the organic growth side.

Okay. Thank you.

(Operator Instructions)

Alan Mitrani, Sylvan Lake Asset Management.

Just to follow-up on the acquisition size -- can you give us a sense of what size acquisitions you are looking at? And also, are you seeing multiples going up? It seems like we are hearing that from other companies.

Generally, we are looking at acquisition sizes, in terms of revenue, between $50 million and $150 million. $150 million would certainly be the top end. We are not so interested, unless it's a very specific technology, to do something smaller than that because the work involved in integrating any acquisition is the same, whether it's -- generally, whether it's a $50 million or a $20 million. So, that's the approach that we are looking at.

We have seen multiples starting to move. We've heard it; we've seen it. And, any time that we look at an acquisition, we will be looking for the value that we can bring, and our position is -- we are not going to pay for any synergy that is brought to Rogers -- we will pay what is a fair price, but we are going to be pretty tough on what we pay.

Great. Do you think you are close to any acquisitions for 2013?

We don't comment specifically on whether we are close or not because of the sensitivity of anything like that.

Okay. Also, on the second question -- can you talk about the wireless business -- the wireless base station business and others -- what percentage, or how much of your business is in North America?

For that business, I would say about 25% or so. A lot of that business is global, both Europe and, probably the majority, in Asia.

Okay. You referenced -- earlier on, you were talking about, you expect AT&T and other ones to start spending money on CapEx this year to upgrade more of those sites -- cell sites and others. Are you seeing that spending now? It seems like those big companies start early, and if they are going to spend, build through the year, especially into the summer months. Can you tell us where they stand in terms of their spending? Are you seeing it already stepping up --?

Again, it comes through the OEMs -- the manufacturers of the base stations, and we are starting to see some uptick there, so that will flow through. Now, from Rogers' perspective, the manufacturing of a lot of these base stations is done in Asia, so we would see the sales coming through our Asia organization through some of those global OEMs. So, whether it is an AT&T, or whether it's a China Mobile, the demand would be placed on Rogers, most likely, in Asia.

Great. Lastly, you talked about having really only visibility for one quarter. What metrics do you look at on a week-to-week or month-to-month basis to be able to see that your business is gaining the right momentum, or that you are on track to be able to meet or exceed your estimates? Is it weekly sales data you are getting? Is it backlog numbers, new orders -- can you just give us a sense so that we can be able to understand how you see your business?

Part of it is backlog. We do look at backlog as a predictor of the future. As I mentioned, certainly on the Curamik side, we've started to see the backlogs increase. So that, to me, gives me some confidence that certainly things have stabilized in that business, and moving forward, we should hopefully see some uptick there.

We also look very carefully at our design wins, and as I mentioned, in Q4 we saw design wins moving over into production. We have a very good understanding of which of those design wins are moving over, generally, so we can build that into our forward planning. Again, the visibility beyond the quarter is very difficult, so those are the two major areas of focus for us.

This is Dennis. I will additionally comment, and I think you are probably new to our calls. The design wins that Bruce talks about was the new incremental ones, but our position in many of our markets is predicated on the design wins from the past. So, when we talk about over 90% share of 4G and over 65% share of 3G, that gives us -- the flow is we can look at external metrics for cap spending in those areas and look at market forecasts, and we know what our share is, so we can follow and link to public data on that kind of stuff to give us the confidence, further out, that there is either strength or no strength, in many of our markets.

Thank you. I appreciate that. I am roughly new to your calls, so I appreciate the color. Also, on backlog -- do you give backlog quarterly? I'm looking at it, off the press release, I don't see it.

No, we do not give out quarterly.

Is that something that you think is not relevant just because it's a book-and-bill business, most of it, or is that something you might give in the future?

It doesn't correlate very well by -- business by business, it is very different because we have four segments that all operate a little bit differently, and we haven't found one metric that would make any sense to disclose at this point.

Great. Thank you.

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

Thanks, Sarah. Moving forward, we are seeing positive indicators, as we have talked about during the call today, across several of our markets, particularly those supporting Internet growth, mass transit, and automotive safety. The streamlining and operational improvements we began in 2012 have positioned us well as markets improve. We believe that all of our businesses have strong growth prospects as we look towards the future. We remain disciplined in our focus on delivering greater value to our customers, and to our shareholders, in 2013 and for years to come. Thanks a lot for joining us today. Lots of good questions, and we will talk to you next quarter.

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