Good morning, everyone. My name is Sara, and I will be your conference operator today. At this time, I'd like to welcome you all to Rogers Corporation Second Quarter 2012 Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Mr. Bruce Hoechner, President and CEO.

Thank you, Sara. Good morning, ladies and gentlemen. With me today are Dennis Loughran, Vice President of Finance and CFO; and Bob Daigle, Senior Vice President, Power Electronics Solutions and CTO. First, Dennis will dispense with the formalities and then we'll 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. It should be considered 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 will 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 press release furnished with the current report on Form 8-K dated July 31, which is also available on Rogers' website in the Investor section. I'll now turn it back over to Bruce.

Thanks, Dennis. Despite challenging market conditions, our second quarter net sales and income were in line with our guidance. As expected, the continued global debt slowdown in our key markets of wireless infrastructure and clean technology as well as global economic uncertainty took their toll on our business in the second quarter of 2012. However, across our businesses there were a number of positive results for Rogers during the quarter, particularly in our newer technology and application areas. Our High Performance Foams business demonstrated continued leadership cushioning and sealing for tablet computer applications. We are also seeing high growth in extreme impact protection applications utilizing our unique PORON XRD foam technology for sporting goods equipment and apparel as well as handheld device protective covers. We believe both of these market areas will continue to be strong contributors to Rogers moving forward. In our Printed Circuit Materials business, we achieved significant market share gains with our Printed Circuit Materials developed specifically to enable the latest smart antenna technologies for wireless infrastructure. Strong sales growth continued in automotive blind spot detection applications, with sales in this segment expected to double this year as deployment becomes more mainstream across automotive platforms worldwide. In addition, market response to our recently launched Theta high-speed digital products for wired networks has been very positive from OEMs and fabricators, with qualifications continuing. In our Power Electronics Solutions business, we are seeing continued expansion and applications in automotive x-by-wire. This growth is driven by the replacement of traditionally mechanical systems, such as power steering and air conditioning, with electrically powered systems utilizing our Curamik direct bonded copper substrates. We are seeing continued opportunities in hybrid and electric vehicles for both our Power Electronic Solutions and High Performance Foams. Although, sales for HEV EV vehicles have not yet achieved…

Thank you, Bruce, and good morning again to everyone. Bruce provided an excellent overview of the quarter and the many changes going on at Rogers to improve our prospects for the future. So let's get down to the major financial factors that impacted our quarterly results. As we reported, GAAP results were a profit of $0.38 per diluted share. However, excluding one-time charges, we achieved $0.47 per diluted share on a non-GAAP basis, which is at the high end of our second quarter 2012 guidance of $0.37 to $0.47 per diluted share. One-time net charges totaling $0.09 per share or $1.4 million net of tax, resulted primarily from the ceasing of operations in our lease facility in Bremen, Germany. This action, along with the 2 other improvement actions I will discuss shortly, are in line with our comments in May that we will continue to streamline our operations and improve our cost on our way to achieving a targeted 15% operating profit margin by 2016. The Bremen closure and relocation of certain business activities to our Carol Stream, Illinois silicon manufacturing facility are expected to provide an estimated $1.4 million improvement in operating profits in 2013. Related to this activity, in Q3, as we complete this action, we expect additional one-time net charges totaling $0.07 per share or $1.1 million net of tax. In addition, the ceasing of production of our nonwoven composite materials products will not have a material impact on our operations, but will allow us to redeploy management and technical talents to other core growth businesses. Lastly, we believe that the plan to move the final inspection stage of our Curamik business to Hungary will enable more cost-effective performance of the inspection operations beginning sometime in 2013. We expect the move itself to be substantially complete by…

Thanks, Dennis. We'll now open up the phone lines for questions. Sara, if you could organize that for us?

[Operator Instructions] Your first question comes from Daniel Moore of CJS Securities.

The last quarter in Printed Circuit Materials, you've talked about a drawdown in inventories in defense related spending. Have you worked through that now? And what are your expectations for growth going forward in that vertical?

From -- on the defense side, we still see what I would say a flat to down second half of the year as demand tended to subside. We believe the inventory management is in place, but again the demand is relatively flat.

Got you. And Bruce, you're now up to $15 million or perhaps more with some of the additional initiatives in identified cost savings through restructuring. Do you see more opportunity going forward? Or at some point do you have to start to kind of reverse that and invest more dollars in marketing and R&D and start to invest a little bit more ahead of revenue?

Yes, I would say -- my view is that we've been frontloaded here on our cost savings approach in streamlining. This is a somewhat different tactic than I think Rogers has taken in the past where we would do things over a longer period of time. Coming into Rogers and looking at the opportunities that we had, we did a lot of work here in the first half of the year to streamline. My view is there's always things that we'll be looking at to improve, but I -- my view right now is that we've done a lot of the work already.

And lastly, R&D was a little lower than we had expected. I know the 3% to 5% is your guidance range. Is $4.5 million a number you're comfortable with going forward? Or do you start to have some concerns about sacrificing the longer-term opportunities for short-term performance?

Sure, yes, very good question. And we are -- my view is again that we'll be ramping up R&D over the course of the next 6 to 12 months. We're working now to get very clear definitions of longer-term programs and platforms that we will invest in. And as we do that analysis, we will then add the appropriate resources from a technology perspective to make sure that we're -- we've got it right. The other thing that we're doing aggressively is our program management and project management. So the stage-gate activities, the criteria that we're using and so on, that's being refined. So while the number looks low historically perhaps for Rogers, the view that we have is our productivity and outcomes are improving our hit rates. So with that management and as we continue to look out and look for newer opportunities, we will staff to provide the support that we need.

Your next question comes from Avinash Kant of D.A. Davidson & Co.

A few questions, so just some clarification. And I think you were talking about the charges in the third quarter. I think you indicated 2 different charges. And combining those 2 roughly it looks like it's a $0.16 impact. So do I understand it right that the GAAP guidance is basically $0.44 to $0.54?

Yes.

Okay. In the past you had talked about the retirement related charges being roughly $1.5 million. Is it $2.1 million, so -- was there some change there?

There was a little bit of change in actuarial assumption and we got the update right at the end of the quarter, so it did increase -- probably due to present value being a little bit higher with interest rates down. That would be my basic assumption of the actuarial numbers.

Okay. And also you talked about design wins improving. Could you give us the number -- in the past you've given us some numbers in terms of how many design wins, and do you have that number?

In terms of design wins, we -- what we've looked at -- we're looking at opportunities. And then as those opportunities get specified, they move into a design win number. The number of spec-ed in projects that we have for this quarter is 437 and that versus June a year ago of 274. So again, we've got these -- we're doing extremely well working with our customers and getting the wins in place. The real challenge is when do they actually go into production. And as we've described in the release and so on, what we're hearing from OEMs and from fabricators and so on is that, the second half of the year is flat in most of the areas, in most of our market areas. But we would anticipate some of these specs to move over into production during that timeframe. But that -- again, we've got a very strong pipeline of projects that have been specified. It's just a question of when they go into production.

And could you also give us some directionality about -- given the Q3 guidance that you have, what are you expecting from the various segments? Just up and down -- like do you expect Printed Circuit Materials, High Performance Foams, what do you expect of them sequentially?

In foams, we expect it to move slightly upward on Q3. And Q3 tends to be a strong quarter for that business on a normal year. So we expect that to hold this year as well. In the circuit business, we're also seeing quarter-on-quarter increasing there. That's also tends to be a stronger quarter for us in that business. Again, not as much as maybe anticipated earlier in the year, but certainly a step up from where we are in the second quarter. And in the power electronics slightly bit up, but basically flat going forward. The question of whether we bottomed out there, our view is we believe that the market is pretty much bottomed at this point. But we don't see any real drivers on the power electronic side that's going to really get into recovery until we start seeing more investment in equipment and construction going forward, which is a major driver for us in that business.

And finally, some housekeeping questions for Dennis, like could you give us the CapEx depreciation? And what's your expectation for 2012 and the tax rate in 2013 maybe? What should we think?

Starting with the tax rate in 2013, I won't know until we get closer. For CapEx, we did $6.6 million in the quarter. The estimate that was shown in the press release is down for annually, $32 million. It again is a sort of rationalization of timing of projects. The big decline last quarter had been the fact that we had been able to move out the anticipated expenditure of our PORON line into the latter half of 2013. And this latest decline also includes that project looking at land and building acquisitions also being pushed out a little bit on that project where we had preliminary listing it would be at the end of this year, now we've moved that into 2013. So overall, all the strategic projects are on track and under budget -- and on budget, excuse me. And so the high-speed digital, the Theta, which is the Theta project, as well as the treater [ph] line in China are the 2 other big projects that are underway and on track.

Okay, and depreciation?

We had $7.1 million of depreciation and amortization with $1.1 million of that being amortization for the quarter.

Your next question comes from Shawn Severson of JMP Securities.

Bruce, I have a question for you kind of on the -- and it's a big picture question. But obviously, you've had tremendous experience in China and very good knowledge of that market. And I just wanted to get your thoughts on where it stands as it impacts your business, what you expect there over the next 6 months and some of the actions that might be going on over there that can impact your business over the next 6 to 12 months?

Great question, Shawn. My view is that given the situation that China faces on GDP growth. The government -- and it's been talked about over the last few months, we'll be looking at some sort of stimulus approach. And historically for Rogers, when that happened back in 2009, we did pretty well coming out of that. Because a lot of that infrastructure, construction for Rogers that will drive -- for Rogers, it'll continue to drive the build out of 3G and 4G wireless infrastructure. It will also help us, we believe, on the rail side. Our latest intelligence is saying that as they reorganize the Ministry of Rail towards the end of the year, we'll start seeing a pickup certainly in bidding and business in China. And so that should translate into an upside for us going forward into 2013 in that area. And that, as you know, has been hit very, very hard over the last year or so. And of course, with the consumer spending, if that remains relatively strong for things like mobile Internet devices, we have such a good position in that globally, and certainly China is a part of that as the consumers buy. That will help us as well. But I do think that some stimulus will be coming. The market there has been relatively slow and certainly the government's concern. So that should help us.

Okay. Then now that you've got a chance to kind of look at the businesses and really dig in for the last 6, 7 months or so, what's the -- what's your take on the strategic vision? I mean, do you feel that you kind of have all the legs in piece that you want for growth? Or do you think that there is more opportunities for acquisition or other strategic direction?

Well, first of all, I think the core businesses and our focus on the mega trends, as we've outlined them, is a very strong driver as we move ahead. We will -- we continue to go out there and search for other opportunities in related areas. And our strategy is, let's see if we can build out where we're strong today in a more solutions approach. And that could drive some acquisitions closer in. And from my perspective, that's a lower risk approach in terms of acquisitions when you're buying them closer to home. The longer-term view is it would be great to have another major platform for the company. And we are endeavoring to identify specifically where that would be and how we would get there. But I think what we've got today is strong. We have, as we've identified some headwinds, but I think the core markets that we're in are very good markets. And as we continue to build out the vision of the company and we continue to grow, we will need most likely another leg of business and we're looking for it.

Your next question comes from Colin Rusch of ThinkEquity.

It's Noah Kaye in for Colin. I was wondering if you could a little bit about how you see the impact of the sales mix on gross margin, both for this and for the rest of the year?

This is Dennis. The bigger impact on gross margin is simply the contribution margin, as we improved during the year. So in our guidance, I believe, we're predicting that the midpoint of the range would be about a 32% gross margin versus the almost 30% that was in the second quarter. And of that, I had indicated in my comments about $1 million of improvement in gross margin related to the streamlining effort coming in. And that rest of it was the contribution on the incremental business, which typically is above 50%. So that does move the average up. As you look at our segments, the High Performance Foams segment is above our average. Circuit Materials is close to the average. And right now, the Power Electronics, at their level, is currently below our average. So as Bruce mentioned, with the High Performance Foams being the bigger end of the upside and Circuit Materials rising, but not as much, and Curamik, the Power Electronics being a little bit lower, we're getting a little bit favorable mix from that trend also.

Great. Do you think you can pull additional cost out of supply chain for Curamik? And how might that be achieved?

Well, the project that we're talking about is a fairly substantial effort underway and that is, part of that does move it partly closer to where its customer deliveries will be. But mainly it's a manufacturing cost play. As we look to leverage Curamik around the world, we have a supply chain efficiencies going in, in terms of the -- in the U.S. taking benefit of our supply chain there as well as in Asia. So overall, that was one of the synergies that we thought when we bought Curamik is as they grow in the rest of the world, they will get efficiencies that they wouldn't have had as an independent company.

That's helpful. And I guess the follow-up would be, how does that relate to kind of a -- can you give us a geographic breakdown of Curamik sales?

They are very heavy into Europe. And well, I think the number is 70% in Europe?

Yes. We're about 2/3 of the revenues coming out of Europe. And I think we've talked about this before where one of the opportunities we saw when we acquired Curamik, which we're executing on, is really to be more -- leverage the Rogers presence in Asia to grow the business more aggressively in the region. And that's where we're focused on. But today, it's heavily concentrated in Europe. Although, if you look at where our customers' products go, these are really global business. The customers we sell to, a lot of the product ends up in places like China and North America as well.

Your next question comes from Jiwon Lee of Sidoti & Company.

Just wanted to ask a quick questions about pricing side, wonder whether there were area where you've seeing some decent pricing or whether you have seen some pressure?

On the pricing side, to me -- we break it down into 2 areas. One is in our new products as we introduce them, we are continuing to push on what I would say value pricing from the standpoint of looking at the benefits that we provide to our customers and pricing accordingly. In existing areas, we continue to look for opportunities on -- to increase our pricing in line with markets and in line again with the value that we create for our customer base. So I'd say there's probably a bit of upside still on -- in some pricing activities for us over the next half of the year or so.

Okay, that's fair. And I guess, it's a more question for Dennis. It looks like you have reduced the CapEx goal for 2012, and I wonder which area that relates to more?

I think the predominant -- from the original beginning year, which was in the mid-$40 million or $45 million I believe was the starting number to the $32 million, Jiwon, is mainly moving the large project for the High Performance Foam's new line that will eventually be needed moving it out. I think between 6 and 12 months. Now the starting point for the entire project is moved into the first part of 2013 whereas it originally was intended to be starting in the second quarter. So that extra capacity we've negotiated to utilize out of the joint venture has helped us tremendously in deferring that capital expenditure.

Perfect. And Dennis, did you talk about the foreign exchange impact on the top and the bottom line?

I didn't specifically do it. In the press release, we had a total of about $3.6 million decline with 2/3 of that roughly being the Power Electronics with Curamik and the other being our other businesses that operate in Europe. And so that's the top line impact. With the bottom line impact, it's a fairly immaterial number because most of the costs of those operations are also in euros. And at the operating level and the position that Curamik's in, it actually benefited by lowering their operating loss, less than a few hundred thousand dollars of net impact on the bottom line.

Okay, great. And back to Bruce, if I may, we were sort of kind of halfway into the year, so if we think about these 3 mega trends, at the beginning of the year or at the end of last year and where we are now looking into the next 6 to 12 month, which area sort of kind of surprised you the most on the down side? And how do you think about kind of the outlook?

Well, without a question, I would say clean technology was the one disappointment for us so far this year. And that is primarily driven in one case with the Curamik business, which over 50% of that business is things like industrial equipment, motor drives and so on, which as capital investment has been reduced in the first half of this year, we've seen significant decline there in demand. And also in wind, which is not a huge part of our overall business, but certainly was a very strong part of our business in 2011. That really just pretty much blew away in the first part of the year. And so solar remains relatively stable for us. But again, overall clean technology has been somewhat of a disappointment. Bob, you might want to add?

Yes, I'd add, Jiwon, that the whole hybrid electric vehicle and the electrification of the automobile, as Bruce mentioned earlier, the x-by-wire applications are actually very positive. So I think the alternative energy is really the very weak spot in particular wind and to some degree solar. And the whole industrial drive area, the variable frequency drives, which are about energy efficiency. The fundamentals that remain very strong there in the medium and long term. But clearly, with the downturn in the European economy and also the slowdown in China that area has taken a hit.

Your next question comes from Stefan Mykytiuk of Pike Place Capital.

Just one thing on the PCM. Bruce, you talked about strength in the smart antennas, but that you weren't seeing much ramp in the base stations. On AT&T's call they talked about their CapEx going up pretty substantially in the second half versus the first half. Are you guys -- is there some reason why you wouldn't be seeing that in you base station business? Or is it that they're spending the money on something else or what -- any explanation there?

Well, absolutely, we will see it because we have -- it's a very strong share in 3G and 4G. We also have heard from Verizon that while they were down about 30% off of plan for their CapEx in the first half of the year, they are planning to recover in the second half. So that's going to be driving forward the demand in the U.S. Our tempering of our outlook is, we will believe it when we see it. And we had seen and heard both Verizon and AT&T saying, we're going to have strong spending in the first half of the year towards the end of last year, and it never really arrived the way we thought. So our view is we hear what's being said, we're hopeful, but we're realistic. And we'll see how it turns out. I will say also in China, we're seeing the 3G 6 rollout. That will commence. But that will only commence towards the end of this year and into early next year. So we'll start getting some boost from that and that'll take us through at least in China the 3G build out through 2014. And 4G in China is still going relatively slow, with our latest information is about 10 cities that are being tested. But again, they're looking at 2013 to add about 200,000 base stations on 4G. So we look out there. My confidence when China Mobile says something is pretty good. And so we think certainly in 2013, we'll see that Printed Circuit Material consumption going there.

Okay. So essentially you're saying for North America, you really haven't built in a ramp in the base stations, but if it happens that's gravy?

Yes, and you heard my reasoning for it. So when we see it, we will be happy.

Yes, I got it, I get it. The FX for -- I'm assuming the guidance for Q3 basically assumes kind of the euro stays at these levels. And you've got a bit of a headwind year-over-year from that?

Yes.

Okay, all right. And one last thing, was there -- Dennis, there was -- the $1.3 million of the -- you broke out the $800,000 in restructuring costs, and then was there another $1.3 million in cost of sales that -- for Q2?

Are you talking costs or you're talking benefits? I'm sorry, I didn't get the question.

No, no, no, of cost of...

In the restructuring charge?

No, no, in Q2, I'm sorry.

It was $1.1 million is in cost of sales. That was the after-tax impact.

That's -- I'm talking about pretax?

I think $1.4 million.

Okay. I'm just trying to get to kind of the adjusted gross margin for the quarter.

Yes.

[Operator Instructions] Your next question comes from Daniel Moore of CJS Securities.

Bruce, just curious what insights or maybe areas of opportunity have you gleaned from Helen Zhang since she's been onboard? Or is it just a little too early to tell?

Well, we -- actually, we've had some very good interactions and discussions in couple of areas. First, we're working very closely with other suppliers into the rail areas to set -- to help set national standards that will help both us and our customers provide high quality materials and performance. So she's got -- she's getting very involved with those ministries in China. And looking and understanding some of our local customers, certainly some of the bigger ones who are aspiring to be global in nature, building those relationships very strongly on a local language level. So in the time that she has been here, aside from a lot of internal activity in getting our organization right, she's been externally focused as well.

Your next question comes from Russ Piazza of Front Street Capital.

I was wondering what kind of R&D opportunities might there be to enhance the Curamik product line going forward?

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

Yes, there's a couple of major initiatives underway, one of which involves a new product line for us using a higher performance ceramic substrate that's being aimed for the hybrid electric vehicle market. We formed a partnership with a Japanese supplier, Hitachi Metals, where we're in the process of launching a silicon nitride substrate that's aimed for this particular marketplace that addresses the long-term reliability needs in that space. That's one particular area. The other thing that we see as an opportunity where in the Power Distribution business, one of the big areas for us has been in the mass transit area. That's a space where Curamik historically hasn't played. There are some new products which were in the process of developing, which are aimed at the power inverters that are used in that particular market space. So we see that as a potential growth opportunity. Other, I think, focus areas which we've talked about really are about making sure that we're very well positioned in the emerging areas in China, for example, as they grow in this power electronic area and new applications like the hybrid electric vehicles and the x-by-wire.

Your next question comes from Jim Schwartz of Harvey Partners.

A quick question here. Just on the Power Distribution Systems was a bit of a disappointment, but do you guys -- so the $11.6 million this quarter, does that come back next quarter? And also, just on next quarter, what's sort of the implied gross margin with the guidance that you gave?

In the guidance the PDS is I think relatively flat to slightly down in the guidance, so it certainly not increasing from where it was. And I believe -- we don't talk about the gross margins, but I think they would be below our average. We're at 32% and I think they're below that several hundred basis points. And Bob Daigle has a comment.

Yes, I can comment on that. The -- I think Bruce talked a little bit about it earlier, based on one of the questions. One of the big drivers or the biggest part of that business has been in the mass transit space. And that industry has been heavily driven by activity in China with the medium speed and the high speed rail. And as Bruce mentioned there's a transition going on with the Transportation Ministry taking over for the Ministry of Rail in China. And the expectation, if you look at what was spent through the first half versus what China was indicating, they were going to invest for the year, they're down. They spent about 1/3 of the total annual spend during the first half. So our belief is as they complete this transition from the Ministry of Rail to the basically their Ministry of Transportation that they start to invest more heavily in the mass transit area. Now the upside area in the medium term for our Power Distribution business has been our focus really in the EV HEV space. And we're expecting to see some ramp in that particular application space towards the end of this year and into next year, which will give us a little bit broader diversification for the business and then give us a new growth platform.

Okay, great. So for Q3, I guess, like a 30-ish percent gross margin will be right or a little higher or...

Probably a little bit lower. I really haven't looked at that particular business segment's number, but I'm suspecting it would be lower than that generally.

Exactly, yes.

I believe that's the last question. This is Dennis. I did want to correct the question that Stefan had asked about the one-time charges in the second quarter, I had overstated looking at a wrong number. It was $1.1 million of pretax impact in gross margins, Stefan, for the Bremen closure.

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

Okay. Thanks, Sara. With the ongoing uncertainty of the global economies, Rogers has focused on managing the areas that are within our control. As the technology leaders in our key businesses, we are strengthening our cost position, investing in innovation and improving our organizational effectiveness. As the global economies recover, Rogers should be in a strong position to leverage our improvements to deliver even greater value to our customers and shareholders in the years to come. Thanks for joining us today, and have a good day.

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