ROG

Rogers Corporation 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for Rogers Corporation, covering the three and nine-month periods ended October 2, 2005. Rogers is a global enterprise operating in three segments: Printed Circuit Materials, High Performance Foams, and Polymer Materials & Components. The company serves markets including portable communications, automotive, and aerospace.

Key Financial Metrics

Note: Operating loss for the nine-month period is primarily driven by a $21.4 million non-cash impairment charge recorded in the second quarter.

Material Changes vs. Prior Period

• Revenue: Net sales declined 3.6% in the quarter and 8.7% year-to-date compared to 2004. The decline was driven by an 18.4% drop in Printed Circuit Materials and a 6.5% drop in Polymer Materials & Components, partially offset by a 9.2% increase in High Performance Foams.
• Profitability: Operating income increased 29% in the quarter to $7.1 million but swung to a $5.0 million loss for the nine-month period due to the $21.4 million impairment charge related to the polyolefin foam business.
• Margins: Manufacturing margins improved to 29.1% in the quarter from 28.0% in 2004, but decreased to 28.4% year-to-date from 32.2% in 2004.
• Balance Sheet: Inventories decreased by $7.2 million year-to-date due to write-downs and planned reductions in flexible circuit materials. Cash decreased by $6.1 million, largely due to $12.3 million in stock repurchases and $25.3 million in capital expenditures.

Guidance, Outlook, and Risks

• Outlook: Management expects improved operating results in the fourth quarter of 2005, driven by cost-saving initiatives (Six Sigma), the restructuring of the polyolefin business, and new programs in the Printed Circuit Materials segment. The company remains optimistic about growth in Asian markets.
• Impairment & Restructuring: A $21.4 million charge was taken in Q2 2005 for the polyolefin foam business due to changing market conditions and high raw material costs. The company is scaling back unprofitable customers and focusing on new product development.
• Legal & Contingencies: The company faces ongoing asbestos litigation with approximately 212 pending claims. A reserve of $36.2 million and a corresponding insurance receivable of $36.0 million were established in late 2004. Management believes the ultimate net liability cannot be estimated with certainty but expects insurance to cover the majority of costs.
• Internal Controls: The company disclosed a material weakness in internal controls regarding the accounting for deferred income taxes. Remediation efforts are underway, with full remediation expected in the fourth quarter of 2005.
• Stock Repurchase: The company repurchased $12.3 million of stock in the first nine months. A new $25 million buyback program was authorized in late October 2005.

Investor Verification Checklist

• Verify the sustainability of the $21.4 million impairment charge and the timeline for profitability in the restructured polyolefin foam business.
• Monitor the progress of remediation for the material weakness in deferred income tax accounting controls.
• Assess the impact of the 18% year-to-date sales decline in the Printed Circuit Materials segment and the success of new product programs expected in Q4.
• Review the status of asbestos litigation settlements and the solvency of insurance carriers covering the $36 million liability.
• Confirm the execution of the new $25 million stock repurchase program authorized in October 2005.