Rogers Corp. has a market cap of $656.1 million; its shares were traded at around $40.13 with a P/E ratio of 15.5 and P/S ratio of 1.7.
Highlight of Business Operations:2011 was another very strong year for Rogers, particularly over the first three quarters of the year. Overall, our sales for 2011 were $553.2 million, an increase of 46.3% from the $378.2 million achieved in 2010. 2011 sales included $132.9 million for Curamik Electronics Solutions (CES), a record sales year for the business. Excluding CES, sales growth attributable to our legacy business was $42.1 million, or 11.1%. This growth was driven by double digit percentage sales growth across all of our Core Strategic operating segments, led by High Performance Foams (HPF) at 18.6%, Printed Circuit Materials (PCM) at 18.0% and Power Distribution Systems (PDS) at 12.6%, while being partially offset by the loss of approximately $13.5 million in sales from distribution activities related to our former joint venture with Mitsui Chemicals, Inc. of Japan, Polyimide Laminate Systems, LLC (PLS) distribution business, which came to end of life late in 2010. We also increased our profitability, as we achieved $2.62 of earnings per diluted share from continuing operations as compared to $2.39 in 2010.
Net sales in 2011 were $553.2 million, an increase of 46.3% from $378.2 million of sales in 2010. 2011 sales included approximately $132.9 million related to Curamik, which was acquired at the beginning of 2011. Excluding Curamik, organic growth was approximately $42.1 million, or 11.1%. This sales increase was attributable to volume improvement across all of our Core Strategic segments, led by High Performance Foams, which increased by 18.6% from $149.7 million in 2010 to $177.6 million in 2011; Printed Circuit Materials, which increased by 18.0% from $141.1 million in 2010 to $166.4 million in 2011; and the Power Distribution Systems segment, which increased by 12.6% from $42.1 million to $47.3 million. A primary driver of these increases was the strong demand for the industry leading products and materials produced by these segments, particularly over the first nine months of 2011, as volumes declined in the fourth quarter (as discussed in the “Executive Summary” section above). Additional factors impacting these results are discussed in greater detail in the “Segment Sales and Operations” section below.
These charges were included in the “Restructuring and impairment charges” line item on our consolidated statements of operations and were reported across all segments. We did not record any restructuring or impairment charges during 2010. Equity Income in Unconsolidated Joint Ventures Equity income in unconsolidated joint ventures increased $3.2 million from $5.5 million in 2009 to $8.7 million in 2010. The year over year increase was primarily attributable to the strong performance of our foam joint ventures, Rogers INOAC Suzhou (RIS) in China and Rogers INOAC Corporation (RIC) in Japan, as business rebounded significantly from the recession driven declines and excess inventory levels experienced in 2009. During 2010, we sold our 50% interest in RCCT to our partner, Chang Chun Plastics, Ltd. in the fourth quarter of 2010, effectively completing our exit of the flexible circuit materials business. Prior to the sale of our 50% interest, RCCT was slightly accretive to our results in 2010. Other Income (Expense), Net Other income increased from $1.1 million in 2009 to $1.4 million in 2010. The increase was primarily due to the impact of foreign currency fluctuations and our related hedging program, which collectively contributed approximately $1.2 million in unfavorable net adjustments in 2009, compared to $0.3 million in favorable net adjustments in 2010. The foreign currency fluctuations were offset by the PLS commission activity for each year. We dissolved the PLS joint venture in the first quarter of 2010, resulting in only $0.6 million in commission income for 2010, compared to $1.8 million in 2009. Realized Investment Loss Realized investment loss is the portion of the auction rate security impairment that relates to credit losses. The amount increased 51.9% in 2010 from a loss of $0.4 million to a loss of $0.6 million. The change was attributable to market conditions surrounding the underlying securities of the auction rate securities. 35 Income Taxes Our effective tax rate was 13.0% in 2010, and (260.9%) in 2009. In 2010, our effective tax rate was favorably impacted by the release of a portion of the valuation allowance against our U.S. deferred tax assets. In the fourth quarter of 2010, we developed a tax planning strategy that would allow us to recognize certain deferred tax assets, resulting in a partial reduction of our valuation allowance. We believe that this strategy is reasonable, prudent, and feasible, and we will implement this strategy, if need be, to ensure that this portion of our deferred tax asset does not expire. In both 2010 and 2009, we had cumulative losses in the U.S. As the realization of deferred taxes is principally dependent upon the achievement of future taxable income, the estimation of which requires significant management judgment, we concluded that given the weight of both positive and negative evidence, a valuation allowance should be placed against the remainder of our U.S. deferred tax assets, for which there is neither a tax planning strategy nor source of taxable income against which it would offset. In 2009, our effective tax rate was unfavorably impacted by recording a valuation allowance charge of $57.3 million against our U.S. deferred tax asset. Also, in both 2010 and 2009, our tax rate was favorably impacted by the tax benefit associated with certain discrete rate items recorded during the year and continued to benefit from favorable tax rates on certain foreign business activity. Our tax holiday on the earnings of our subsidiaries in China expired at the end of 2011. Under the business license agreement granted to Rogers Technologies (Suzhou) Company (RSZ), a wholly-owned subsidiary of ours, the first two years of cumulatively profitable operations were taxed at a zero percent tax rate followed by a reduced tax rate in subsequent years that gradually increased to the 25% full rate of tax beginning in 2012. In 2010, RSZ reported pretax income of $18.1 million, which was subject to a tax rate of 22%. In 2009, RSZ reported pretax income of $4.6 million which was subject to a tax rate of 10%. Under the business license agreement granted to Rogers (Shanghai) International Trading Company Ltd. (RSH), also a wholly-owned subsidiary of ours, RSH was subject to a reduced rate of tax that gradually increased to the 25% full rate of tax beginning in 2012. In 2010, RSH reported pretax income of $4.8 million which was subject to a tax rate of 22%. In 2009, RSH reported pretax income of $1.9 million which was subject to a tax rate of 20%. Backlog Our backlog of firm orders was $38.7 million at December 31, 2010, as compared to $29.2 million at December 31, 2009. The increase at the end of 2010 was primarily related to the increased customer demand reflected in the increase in sales in the Printed Circuit Materials and Power Distribution Systems operating segments. Backlog for Printed Circuit Materials increased by approximately $5.4 million at year end 2010 as compared to year end 2009, while backlog for Power Distribution Systems increased by approximately $2.9 million at year end 2010 as compared to year end 2009. Segment Sales and Operations Core Strategic High Performance Foams
Our High Performance Foams operating segment is comprised of our polyurethane and silicone foam products. 2011 vs. 2010 – Net sales in this segment increased by 18.6%, from $149.7 million in 2010 to $177.6 million in 2011. Operating profits increased significantly as well, improving by approximately 62.6% from $17.4 million in 2010 to $28.3 million in 2011. The 2010 results include approximately $0.9 million of integration costs associated with the acquisition of Utis in the second quarter of 2010. 2011 results were driven by strong demand for the segment s foams across almost all product lines and in geographic regions. In particular, we continue to experience success with our polyurethane foam products in cushioning, sealing and energy management for portable electronic devices, particularly large touch-screen mobile internet devices. Sales of our silicone foams gained momentum in 2011 due to increased demand in various markets, including aircraft, communications infrastructure, solar power, and hybrid electric vehicle applications. HPF also gained traction in one of its newest product lines, PORON® molded components, primarily for applications in sports and impact apparel, as well as mobile internet devices. Like most of our other segments, HPF experienced a decline in sales volumes in the Fourth quarter of 2011, which we believe is driven by the rationalizing of inventory in the marketplace, as well as the global economic trends discussed in the “Executive Summary” section above. We also believe this decline to be temporary and expect volumes to increase again in the middle to second half of 2012. 36 2010 vs. 2009 – Net sales in this segment increased by over 40% from $104.8 million in 2009 to $149.7 million in 2010. Operating profits also increased substantially, more than tripling in 2010 to $17.4 million as compared to $5.1 million in 2009. The 2010 results include approximately $0.9 million of integration costs associated with the acquisition of Utis in the second quarter of 2010 and 2009 results include approximately $1.5 million of integration costs associated with the acquisition of certain assets of MTI Global, Inc. (MTI). 2009 also includes severance costs of approximately $2.0 million related to the MTI asset acquisition and the worldwide workforce reduction initiated in the first half of the year. 2010 results were driven by strong demand for the segment s foams across almost all product lines and in all geographic regions. In particular, our industry-leading products for cushioning, sealing and protecting sensitive components in mobile internet devices were in high demand, specifically in large touch screen display tablets. Additionally, sales of products that meet stringent industry standards in the mass transit market, particularly seating and sealing applications, were strong during 2010 as compared to 2009. In 2009, sales levels reached their lowest point in the first half of the year during the peak of the recession. During the second half of 2009, we began to experience a turnaround in the market as our sales and operating results began to improve. This trend continued in 2010 as markets continued to improve, resulting in increasing sales volumes and profits during the year. Printed Circuit Materials
Our Other reportable segment consists of our elastomer rollers, floats, and non-woven composite materials products; as well as our inverter distribution activities. 2011 vs. 2010 – In 2011, sales in the segment declined by approximately 36.6% from $45.4 million in 2010 to $28.8 million in 2011. 2010 results included approximately $13.5 million in sales from distribution activities related to our former joint venture with Mitsui Chemicals, Inc. of Japan, Polyimide Laminate Systems, LLC (PLS) distribution activities, which reached end of life in 2010. The remainder of the decline was related to the further decline in the electroluminescent lamps (EL) sales. However, even though volumes declined, operating profit improved from breakeven in 2010 to $2.1 million in 2011. The improvement was driven by sales of inverter products, offset by the end of the PLS distribution sales 2010 vs. 2009 - In 2010, net sales increased from $33.6 million to $45.4 million, primarily due to the inclusion of PLS, which achieved $13.5 million in sales in 2010, partially offset by the elimination of $3.9 million of sales in 2009 related to our flexible circuit materials business, which ceased activities prior to the start of 2010. The remaining increase is due to the improved performance of our elastomer rollers and floats products. The segment also became slightly profitable in 2010, mainly due to the strong performance of the elastomer component and floats products and the inclusion of PLS. 2009 results included approximately $16.8 million in asset impairment charges related to equipment and buildings and severance charges of $0.6 million. We continuously evaluate the viability of the product portfolio in this segment as it relates to our long-term strategic and operational focus. Joint Ventures Rogers INOAC Corporation (RIC) RIC, our joint venture with Japan-based INOAC Corporation, was established over 25 years ago and manufactures high performance PORONâ urethane foam materials in Japan. Sales decreased 9% from 2010 to 2011, following an increase of 12% from 2009 to 2010. The decline in sales in 2011 was due primarily to the continued weakness in the Japanese domestic and export markets, particularly LCD TV s, domestic mobile phones and general industrial applications. Sales in 2010 increased significantly due to increases in demand in the communications market. Rogers INOAC Suzhou Corporation (RIS) RIS, our joint venture agreement with INOAC Corporation for the purpose of manufacturing PORONâ urethane foam materials in China, began operations in 2004. Sales declined 12% from 2010 to 2011, from an increase of 31% from 2009 to 2010. Sales levels improved in 2010 due primarily to the improvement in the Chinese economy, however, in 2011, sales declined due to increased softening in the Asian markets it serves. Rogers Chang Chun Technology Co., Ltd. (RCCT) RCCT, our joint venture with Chang Chun Plastics Co., Ltd., was established in late 2001 to manufacture flexible circuit materials for customers in Taiwan. In the fourth quarter of 2010, we sold our 50% interest in this joint venture to our joint venture partner for $9.3 million, resulting in a gain of $3.2 million. 39 Polyimide Laminate Systems, LLC (PLS) PLS, our joint venture with Mitsui Chemicals, Inc., sold adhesiveless laminates for trace suspension assemblies. In the first quarter of 2010, this joint venture was dissolved and we assumed any outstanding assets and liabilities of PLS. We also agreed that, going forward, all distribution activity that PLS had previously engaged in would be conducted through Rogers. As of December 31, 2010, this distribution activity was minimal and has since come to end of life entirely. Discontinued Operations In the fourth quarter of 2011, we made the strategic decision to end the operations of our Thermal Management Solutions operating segment. We had invested in its operations in the previous few years, but had difficulty gaining traction in the market and working through issues in the manufacturing process. Therefore, we believed, at that time, that we would not achieve future success in this operation and chose to end operations rather than invest further. In the fourth quarter of 2011, we recorded an impairment charge of $1.3 million, related to this discontinued operation. For the fiscal years 2011, 2010 and 2009, respectively, $6.8 million, $3.8 million, and $3.7 million of operating losses, net of tax, have been reflected as discontinued operations in the accompanying consolidated statements of operations. Net sales associated with the discontinued operation were $0.9 million, $1.0 million and $0.2 million, respectively, for fiscal 2011, 2010 and 2009. Product and Market Development Our research and development team is dedicated to growing our businesses by developing cost effective solutions that enable or improve upon the performance of customers products, as well as identifying business and technology acquisition opportunities to expand our market presence. Our plan is to invest in the range of 4.0% of net sales annually into research and development. Going forward, we will continue to invest in research and development to leverage our existing technology to expand our portfolio of product offerings to address customer needs as well as explore new technologies to broaden our product portfolio. We introduced a variety of new products during 2011. For example, our High Performance Foams business introduced molded PORON® products for various impact protection applications, adhesive backed PORON® products to enhance performance and ease of use in mobile internet device sealing and cushioning applications and a new generation of low smoke, toxicity and flammability products for mass transit passenger cars. Our Printed Circuit Materials business introduced a new high performance circuit material for 4G base station antennas and a new bonding material that enables higher performance multilayer circuit boards in wireless and wired infrastructure applications. Our power distribution business introduced a new RO-LINX POWERCIRCUIT™ product platform that provides high performance electrical interconnects in hybrid and electric vehicle applications. Liquidity, Capital Resources, and Financial Position We believe that our ability to generate cash from operations to reinvest in our business is one of our fundamental strengths, as demonstrated by our financial position in 2011. For the first time since 2002, we have debt on our balance sheet, as we borrowed $145.0 million against our credit facilities in the first quarter of 2011 to fund the strategic acquisition of Curamik. While the world financial markets have grown more stable since the global recession in 2008, significant volatility still remains and credit markets in general have diminished liquidity and capital availability globally. We believe that our existing sources of liquidity and future cash flows that are expected to be generated from operations, together with our available credit facilities, will be sufficient to fund our operations, capital expenditures, research and development efforts, and debt service commitments, as well as our other operating and investing needs, for at least the next twelve months. We continue to have access to the remaining portion of the recently increased line of credit should any issue or strategic opportunity impact the business. We continually review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives. 40 Cash Flows from Operating, Investing and Financing Activities At December 31, 2011, 2010 and 2009 we had cash and cash equivalents of $79.7 million, $80.1 million and $57.7 million, respectively. The following table illustrates the regional location of our cash and cash equivalents:
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