ROG

Rogers Corporation 10-Q Summary: Period Ended June 30, 2009

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Rogers Corporation, a global enterprise providing specialty material-based products for markets including portable communications, consumer electronics, and aerospace. The report covers the three and six months ended June 30, 2009. The company is a large accelerated filer with no debt outstanding as of the reporting date.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 27% in the quarter and 30% year-to-date compared to 2008, driven by the global recession and volume declines across all segments (Custom Electrical Components down 50%, Printed Circuit Materials down 17%, High Performance Foams down 15%).
• Significant Losses: The company reported a net loss of $67.5 million for the quarter, compared to a net income of $6.9 million in the prior year quarter. This was primarily due to a $53.1 million valuation allowance charge on U.S. deferred tax assets and $15.9 million in restructuring and impairment charges.
• Impairments: Recorded $13.4 million in asset impairments related to exiting the flexible circuit materials market, declining Durel electroluminescent lamp business, and abandoned thermal management projects.
• Acquisition Gain: Recognized a $2.9 million gain on the acquisition of MTI Global Inc.'s silicones business, as the fair value of assets acquired exceeded the $7.4 million purchase price.

Guidance, Outlook, and Risks

Outlook: Management expects 2009 to remain challenging due to global economic uncertainty but anticipates incremental sales volume increases in the second half of the year. The company is focusing on cost reduction, working capital management, and new business development (e.g., a $5 million investment in Solicore, Inc. announced in July 2009).

Risks and Contingencies:

• Tax Valuation Allowance: The company recorded a $53.1 million charge because it now projects a significant three-year cumulative loss position in the U.S., making it "more likely than not" that deferred tax assets will not be realized.
• Auction Rate Securities: Held $48.0 million par value of auction rate securities. Recorded a $0.5 million credit loss in earnings and $5.2 million in other comprehensive income due to other-than-temporary impairment rules.
• Asbestos Litigation: Approximately 203 pending claims. Management believes insurance coverage is sufficient, but future costs could exceed reserves.
• Liquidity: While debt-free, the company noted that its ability to borrow against existing credit lines could be impaired due to financial results, though it believes internal funds are sufficient for the next 12 months.

Investor Verification Checklist

• Tax Asset Realizability: Verify the assumptions behind the $53.1 million valuation allowance and the company's strategy to generate future U.S. taxable income.
• Asset Impairment Scope: Confirm the extent of the exit from the flexible circuit materials and Durel businesses and the remaining value of assets held for sale.
• Auction Rate Securities Liquidity: Assess the timeline for redemption of the $48 million in illiquid auction rate securities and the impact on long-term liquidity.
• Segment Recovery: Monitor the recovery of the Custom Electrical Components segment, which saw a 50% sales decline, and the integration of the MTI Global acquisition.
• Asbestos Reserve Adequacy: Review the NERA and Marsh actuarial studies regarding future asbestos liabilities versus insurance recoveries.