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Rogers Corporation Reports Fourth Quarter 2018 and Full Year Results

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Rogers Delivers Strong Q4 Earnings; Accelerates Capacity
Investments

Rogers
Corporation
(NYSE:ROG) today announced financial results for the
2018 fourth quarter and full year.

Fourth quarter 2018
The Company
reported 2018 fourth quarter net sales of $222.9 million compared to
2018 third quarter net sales of $226.9 million and 2017 fourth quarter
net sales of $209.0 million. Net sales for the 2018 fourth quarter were
above midpoint of the Company's previously announced guidance of $215 to
$225 million. Currency exchange rates unfavorably impacted 2018 fourth
quarter net sales by $2.1 million due to weakening in the Euro and
Renminbi compared to 2018 third quarter net sales and $3.1 million
compared to 2017 fourth quarter net sales.

Earnings for the 2018 fourth quarter were $1.31 per diluted share
compared to $1.06 per diluted share in the third quarter of 2018 and
$0.37 per diluted share in the fourth quarter of 2017. Earnings per
diluted share were above the Company's guidance range of $0.84 to $0.99.
On an adjusted basis, earnings were $1.67 per diluted share for the 2018
fourth quarter compared to adjusted earnings of $1.42 per diluted share
in the third quarter of 2018 and $1.36 per diluted share in the fourth
quarter of 2017. Adjusted earnings were above the Company's guidance of
$1.20 to $1.35 per diluted share. Earnings for the 2018 fourth quarter
were influenced by a significantly lower effective tax rate (see
"Effective tax rate" section below).

Fourth quarter 2018 net income was $24.5 million compared to $19.7
million in the third quarter of 2018 and $7.0 million in the fourth
quarter of 2017. Adjusted EBITDA was $44.0 million for the fourth
quarter of 2018 compared to $47.5 million reported in the third quarter
of 2018 and $38.1 million reported in the fourth quarter of 2017.

Gross margin was 35.2% in the fourth quarter of 2018 compared to 34.9%
in the third quarter of 2018 and 36.1% in the fourth quarter of 2017.
Operating margin was 12.0% in the fourth quarter of 2018 compared to
13.1% in the third quarter of 2018 and 8.9% in the fourth quarter of
2017. Adjusted operating margin was 16.0% in the fourth quarter of 2018
compared to 17.0% in the third quarter of 2018 and 13.0% in the fourth
quarter of 2017.

Full year 2018
The company
reported 2018 net sales of $879.1 million. Net sales for the full year
2017 were $821.0 million. Net sales during 2018 were favorably impacted
by $15.5 million as a result of currency fluctuations, due to a stronger
Euro and Renminbi.

Earnings for full year 2018 were $4.70 per diluted share, compared to
$4.34 per diluted share for full year 2017. On an adjusted basis,
earnings were $5.77 per diluted share for full year 2018, compared to
$5.76 for full year 2017. Earnings for full year 2018 were influenced by
a significantly lower effective tax rate (see "Effective tax rate"
section below).

Full year 2018 net income was $87.7 million, compared to $80.5 million
for full year 2017. Adjusted EBITDA was $173.6 million for full year
2018, versus $189.7 million for full year 2017.

Gross margin was 35.4% in 2018, compared to 38.8% in 2017. Operating
margin was 12.8% for full year 2018, compared to 15.7% in the full year
of 2017. Adjusted operating margin was 15.8% in the full year of 2018,
compared to 18.3% in the full year of 2017.

"In 2018, we accelerated capacity investments as the outlook for key
applications in Advanced Connectivity and Advanced Mobility strengthened
significantly," stated Bruce D. Hoechner, Rogers' President and CEO.
"Margins were challenged by the operational initiatives underway as we
prepare for the significant growth opportunities in 5G wireless
infrastructure, EV/HEV and Advanced Driver Assistance Systems. While we
saw some softness in Q4 2018 demand that will carry forward into Q1
2019, the investments we are making today across the enterprise will
enable Rogers to capitalize on these opportunities that we see
accelerating in 2019."

Business segment discussion

Advanced Connectivity Solutions (ACS)
Advanced
Connectivity Solutions reported 2018 fourth quarter net sales of $72.5
million, a 0.9% increase compared to 2018 third quarter net sales of
$71.9 million and a 4.0% decrease compared to 2017 fourth quarter net
sales of $75.5 million. The sequential increase in 2018 fourth quarter
net sales was largely driven by growth in high frequency circuit
materials for 5G antenna and aerospace and defense applications,
partially offset by lower demand for wireless 4G LTE power amplifiers.
Fourth quarter 2018 net sales were unfavorably impacted by $0.8 million
due to fluctuations in currency exchange rates compared to 2018 third
quarter net sales and by $1.0 million compared to 2017 fourth quarter
net sales.

Elastomeric Material Solutions (EMS)
Elastomeric
Material Solutions reported 2018 fourth quarter net sales of $88.3
million, a 7.8% decrease compared to 2018 third quarter net sales of
$95.8 million and a 16.2% increase compared to 2017 fourth quarter net
sales of $76.0 million. The sequential decrease in 2018 fourth quarter
net sales was due to lower seasonal demand in portable electronics as
well as weaker demand in general industrial and automotive applications.
Fluctuations in currency exchange rates unfavorably impacted net sales
by $0.7 million in the 2018 fourth quarter compared to 2018 third
quarter net sales and by $0.9 million compared to 2017 fourth quarter
net sales.

Power Electronics Solutions (PES)
Power
Electronics Solutions reported 2018 fourth quarter net sales of $56.8
million, a 2.8% increase compared to 2018 third quarter net sales of
$55.2 million and a 9.2% increase compared to 2017 fourth quarter net
sales of $52.0 million. The 2018 fourth quarter sequential increase was
due to higher demand for rail applications, partially offset by lower
demand for variable frequency motor drives. Fourth quarter 2018 net
sales were unfavorably impacted by $0.6 million due to fluctuations in
currency exchange rates compared to 2018 third quarter net sales and by
$1.1 million compared to 2017 fourth quarter net sales.

Other
Other reported 2018
fourth quarter net sales of $5.4 million, up $1.4 million compared to
the third quarter of 2018 sales of $4.0 million.

Balance sheet and other highlights

Cash position
Rogers ended the
fourth quarter of 2018 with cash and cash equivalents of $167.7 million,
a decrease of $13.5 million from $181.2 million at December 31, 2017.
The primary drivers of the lower cash balance were acquisitions
completed in the third quarter of 2018 for approximately $121.4 million
and capital expenditures of $47.1 million, partially offset by increase
in net borrowings of $96.3 million and net cash provided from operating
activities of $66.8 million.

Effective tax rate
Rogers'
effective tax rate was 3.6% for the fourth quarter of 2018, compared to
31.0% for the third quarter of 2018. The decrease was primarily due to
the implementation of tax strategies late in the fourth quarter which
significantly lowered our foreign taxes and facilitated the reversal of
reserves associated with uncertain tax positions. Recently issued U.S.
tax legislation benefited our 2018 fourth quarter tax rate.

Rogers' effective tax rate for 2018 was 20.7% compared to 39.5% in 2017.
The 2018 rate decrease was primarily due to a lower U.S. statutory tax
rate and the absence of the transition tax impact on the current year,
as a result of U.S. Tax Reform, as well as the benefits impacting the
fourth quarter discussed in the above paragraph.

Financial outlook
Rogers guides
its 2019 first quarter net sales to a range of $220 to $230 million and
gross margin to a range of 35% to 36%. Rogers guides its 2019 first
quarter earnings to a range of $0.97 to $1.12 per diluted share.
Adjusted earnings are guided to a range of $1.25 to $1.40 per diluted
share. Rogers guides its 2019 effective tax rate to be approximately
27-28%.

For the full year 2019, Rogers expects capital expenditures to be in a
range of $50 to $60 million.

About Rogers Corporation
Rogers
Corporation (NYSE:ROG) is a global leader in engineered materials to
power, protect, and connect our world. With more than 180 years of
materials science experience, Rogers delivers high-performance solutions
that enable clean energy, internet connectivity, and safety and
protection applications, as well as other technologies where reliability
is critical. Rogers delivers Power Electronics Solutions for
energy-efficient motor drives, e-Mobility and renewable energy;
Elastomeric Material Solutions for sealing, vibration management and
impact protection in mobile devices, transportation interiors,
industrial equipment and performance apparel; and Advanced Connectivity
Solutions for wireless infrastructure, automotive safety and radar
systems. Headquartered in Arizona (USA), Rogers operates manufacturing
facilities in the United States, China, Germany, Belgium, Hungary, and
South Korea, with joint ventures and sales offices worldwide.

Safe Harbor Statement
This
release contains forward-looking statements, which may concern our
plans, objectives, outlook, goals, strategies, future events, future net
sales or performance, capital expenditures, financing needs, future
restructuring, plans or intentions relating to expansions, business
trends and other information that is not historical information. All
forward-looking statements are based upon information available to us on
the date of this release and are subject to risks, uncertainties and
other factors, many of which are outside of our control, which could
cause actual results to differ materially from the results discussed in
the forward-looking statements. Risks and uncertainties that could cause
such results to differ include: failure to capitalize on, volatility
within, or other adverse changes with respect to the Company's growth
drivers, including advanced mobility and advanced connectivity, such as
delays in adoption or implementation of new technologies; uncertain
business, economic and political conditions in the United States and
abroad, particularly in China, South Korea, Germany, Hungary and
Belgium, where we maintain significant manufacturing, sales or
administrative operations; the ongoing trade policy dispute between the
United States and China, as well as adverse changes in trade policy,
tariff regulation or other trade restrictions; fluctuations in foreign
currency exchange rates; the results of our research and development
efforts; adverse competitive developments; business development
transactions and related integration considerations, including failure
to realize, or delays in the realization of anticipated benefits of such
transactions; the outcome of ongoing and future litigation, including
our asbestos-related product liability litigation; inability to obtain
raw materials, including commodities, from single or limited source
suppliers in a timely and cost effective manner; and changes in laws and
regulations applicable to our business. For additional information about
the risks, uncertainties and other factors that may affect our business,
please see our most recent annual report on Form 10-K and any subsequent
reports filed with the Securities and Exchange Commission, including
quarterly reports on Form 10-Q. Rogers Corporation assumes no
responsibility to update any forward-looking statements contained herein
except as required by law.

Conference call and additional information

A conference call to discuss 2018 fourth quarter results will take place
today, Wednesday February 20, 2019 at 5 pm ET.

A live webcast and slide presentation will be available under the
investors section of www.rogerscorp.com/ir.

To participate, please dial:

1-800-574-8929 Toll-free in the United States
1-973-935-8524
Internationally
There is no passcode for the live teleconference.

If you are unable to attend, a conference call playback will be
available from February 20, 2019 at approximately 8 pm ET through March
6, 2019 at 11:59 pm ET, by dialing 1-855-859-2056 from the United
States, and 1-404-537-3406 from outside of the US, each with passcode
3169706.

Additionally, the archived webcast will be available on the Rogers
website at approximately 8 pm ET February 21, 2019.

Additional information
Please contact the Company directly
via email or visit the Rogers website.

(Financial statements follow)

 

Condensed Consolidated Statements of Operations (Unaudited)

             
Three Months Ended Year Ended
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

December 31,
2018

   

December 31,
2017

December 31,
2018

   

December 31,
2017

Net sales $ 222,942 $ 209,008 $ 879,091 $ 821,043
Cost of sales 144,567   133,517   568,308   502,468  
Gross margin 78,375 75,491 310,783 318,575
Selling, general and administrative expenses 40,966 48,061 164,046 161,651
Research and development expenses 8,561 8,035 33,075 29,547
Restructuring and impairment charges 2,023 800 4,038 3,567
Other operating (income) expense, net 24     (3,087 ) (5,329 )
Operating income 26,801 18,595 112,711 129,139
Equity income in unconsolidated joint ventures 1,048 1,539 5,501 4,898
Other income (expense), net (347 ) 1,649 (994 ) 5,019
Interest expense, net (2,126 ) (1,297 ) (6,629 ) (6,131 )
Income before income tax expense 25,376 20,486 110,589 132,925
 
Income tax expense 924   13,487   22,938   52,466  
Net income $ 24,452   $ 6,999   $ 87,651   $ 80,459  
       
Basic earnings per share $ 1.33   $ 0.38   $ 4.77   $ 4.43  
       
Diluted earnings per share $ 1.31   $ 0.37   $ 4.70   $ 4.34  
 
Shares used in computing:
Basic earnings per share 18,385 18,239 18,374 18,154
Diluted earnings per share       18,687       18,682       18,659       18,547  
 

Please note for adoption of ASU 2017-07, Rogers has reclassified fourth
quarter and year to date 2017 pension and OPEB income, in the amounts of
$396 and $1,640 thousand, respectively, from Selling, general and
administrative expense to Other income (expense), net, in the condensed
consolidated statements of operations above.

         

Condensed Consolidated Statements of Financial Position
(Unaudited)

 
(IN THOUSANDS) December 31, 2018 December 31, 2017
Assets
Current assets
Cash and cash equivalents $ 167,738 $ 181,159
Accounts receivable, less allowance for doubtful accounts of $1,354
and $1,525
144,623 140,562
Contract assets 22,728
Inventories 132,637 112,557
Prepaid income taxes 3,093 3,087
Asbestos-related insurance receivables, current portion 4,138 5,682
Assets held for sale 896
Other current assets 10,829   10,580  
Total current assets 485,786 454,523
Property, plant and equipment, net of accumulated depreciation of
$317,414 and $289,909
242,759 179,611
Investments in unconsolidated joint ventures 18,667 18,324
Deferred income taxes 8,236 6,008
Goodwill 264,885 237,107
Other intangible assets, net of amortization 177,008 160,278
Asbestos-related insurance receivables, non-current portion 59,685 63,511
Other long-term assets 22,318   5,772  
Total assets $ 1,279,344   $ 1,125,134  
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 40,321 $ 36,116
Accrued employee benefits and compensation 30,491 39,394
Accrued income taxes payable 7,032 6,408
Capital lease obligations, current portion 420 579
Asbestos-related liabilities, current portion 5,547 5,682
Other accrued liabilities 23,369   25,629  
Total current liabilities 107,180 113,808
Borrowings under revolving credit facility 228,482 130,982
Capital lease obligations, non-current portion 4,629 5,873
Pension liability 270 8,720
Retiree health care and life insurance benefits 1,469 1,685
Asbestos-related liabilities, non-current portion 64,799 70,500
Non-current income tax 8,418 12,823
Deferred income taxes 10,806 10,706
Other long-term liabilities 4,967 3,464
Shareholders' equity
Capital stock - $1 par value; 50,000 authorized shares; 18,395 and
18,255 shares issued and outstanding
18,395 18,255
Additional paid-in capital 132,360 128,933
Retained earnings 776,403 684,540
Accumulated other comprehensive loss (78,834 ) (65,155 )
Total shareholders' equity 848,324   766,573  
Total liabilities and shareholders' equity $ 1,279,344   $ 1,125,134  
 

Reconciliation of non-GAAP financial measures to the comparable
GAAP measures

Non-GAAP financial measures:

This earnings release includes the following financial measures that are
not presented in accordance with generally accepted accounting
principles in the United States of America ("GAAP"):

(1) Adjusted earnings per diluted share, which the Company defines as
earnings per diluted share excluding acquisition-related amortization of
intangible assets and discrete items, such as restructuring expenses,
asbestos litigation-related charges, gain from antitrust litigation
settlement, acquisition and related integration costs, tax expense
related to United States tax reform, transition services related to the
asset acquisition, purchase accounting inventory adjustments, and gains
or losses on asset or business dispositions (collectively, "Discrete
Items");

(2) Adjusted EBITDA, which the Company defines as net income excluding
interest expense, income tax expense, depreciation and amortization, and
Discrete Items; and

(3) Adjusted operating margin, which the Company defines as operating
margin excluding acquisition-related amortization of intangible assets
and Discrete Items.

Management believes each of these measures is useful to investors
because they allow for comparison to the Company's performance in prior
periods without the effect of items that, by their nature, tend to
obscure the Company's core operating results due to the potential
variability across periods based on the timing, frequency and magnitude.
As a result, management believes that adjusted earnings per diluted
share, adjusted EBITDA and adjusted operating margin enhance the ability
of investors to analyze trends in the Company's business and evaluate
the Company's performance relative to peer companies. However, non-GAAP
financial measures have limitations as analytical tools and should not
be considered in isolation from, or solely as alternatives to, financial
measures prepared in accordance with GAAP. In addition, these non-GAAP
financial measures may differ from similarly named measures used by
other companies. Reconciliations of the differences between these
non-GAAP financial measures and their most directly comparable financial
measures calculated in accordance with GAAP are set forth below.

**2017 financial measures below have been adjusted for the adoption of
ASU 2017-07, and have been adjusted for the Company's reclassification
of pension and OPEB income from selling, general and administrative
expense to other income (expense), net.

         

Reconciliation of GAAP earnings per diluted share to
adjusted earnings per diluted share for the fourth quarter*:

 
        2018     2017
Earnings per diluted share       Q4     Q3     YTD     Q4     YTD
GAAP earnings per diluted share $ 1.31     $ 1.06     $ 4.70 $ 0.37     $ 4.34
 
Restructuring, severance, impairment and other related costs 0.11 0.11 0.37 0.03 0.13
Acquisition and related integration costs 0.02 0.04 0.11 0.02 0.11
Tax expense primarily related to U.S. tax reform 0.69 0.69
Gain from antitrust litigation settlement (0.06 ) (0.21 )
Loss (gain) on sale of long-lived assets (0.02 ) (0.19 )
Purchase accounting inventory adjustment 0.02 0.01 0.05
Asbestos related charges 0.03 0.03 0.12 0.12
Transition services, net         0.08         0.03         0.11                  
Total discrete items       $ 0.18       $ 0.19       $ 0.40       $ 0.86       $ 0.91  
Earnings per diluted share adjusted for discrete items       $ 1.49       $ 1.24       $ 5.10       $ 1.23       $ 5.25  
 
Acquisition intangible amortization 0.18 0.18 0.67 0.13 0.51
                                 
Adjusted earnings per diluted share       $ 1.67       $ 1.42       $ 5.77       $ 1.36       $ 5.76  
 
         

Reconciliation of GAAP net income to adjusted EBITDA for the
fourth quarter*:

 
        2018     2017
(amounts in millions)       Q4     Q3     YTD     Q4     YTD
Net income $ 24.5     $ 19.7     $ 87.7 $ 7.0     $ 80.5
 
Interest expense, net 2.1 2.0 6.6 1.3 6.1
Income tax expense 0.9 8.9 22.9 13.5 52.5
Depreciation 10.3 8.8 33.5 7.6 29.3
Amortization 4.4 4.4 16.5 3.8 14.8
Restructuring, severance, impairment and other related costs 2.7 2.7 9.0 0.8 3.6
Acquisition and related integration costs 0.4 0.9 2.6 0.7 3.2
Gain from antitrust litigation settlement (1.3 ) (4.9 )
Asbestos-related charges 0.7 0.7 3.4 3.4
Loss (gain) on sale of long-lived assets (0.4 ) 0.0 (5.3 )
Purchase accounting inventory adjustment 0.3 0.3 1.6
Transition services lease income         (0.7 )       (0.2 )       (1.0 )                
Adjusted EBITDA       $ 44.0       $ 47.5       $ 173.6       $ 38.1       $ 189.7  
 

*Values in table may not add due to rounding.

 

         

Reconciliation of GAAP operating margin to adjusted
operating margin for the fourth quarter*:

 
        2018     2017
Operating margin       Q4     Q3     YTD     Q4     YTD
**GAAP operating margin 12.0 %     13.1 %     12.8 % 8.9 %     15.7 %
 
Restructuring, severance, impairment and other related costs 1.2 % 1.2 % 1.0 % 0.4 % 0.4 %
Acquisition and related integration costs 0.2 % 0.4 % 0.3 % 0.3 % 0.4 %
Asbestos-related charges 0.3 % % 0.1 % 1.6 % 0.4 %
Gain from antitrust litigation settlement (0.6 )% % (0.6 )% % %
Loss (gain) on sale of long-lived assets % % (0.1 )% % (0.6 )%
Purchase accounting inventory adjustment % 0.1 % % % 0.2 %
Transition services, net       0.9 %     0.3 %     0.3 %     %     %
Total discrete Items       2.0 %     2.0 %     1.0 %     2.3 %     0.8 %
Operating margin adjusted for discrete items       14.0 %     15.1 %     13.8 %     11.2 %     16.5 %
 
Acquisition intangible amortization 2.0 % 1.9 % 1.9 % 1.8 % 1.8 %
                                 
Adjusted operating margin       16.0 %     17.0 %     15.8 %     13.0 %     18.3 %
 

*Percentages in table may not add due to rounding.

 
 

Reconciliation of GAAP earnings per diluted share to
adjusted earnings per diluted share guidance for the 2018 fourth
quarter:

     
        Guidance
Q4 2018
GAAP earnings per diluted share $0.84 - $0.99
 
Discrete items $0.18
 
Acquisition intangible amortization $0.18
         
Adjusted earnings per diluted share       $1.20 - $1.35
 
     

Reconciliation of GAAP earnings per diluted share to
adjusted earnings per diluted share guidance for the 2019 first
quarter:

 
       

Guidance
Q1 2019

GAAP earnings per diluted share $0.97 - $1.12
 
Discrete items $0.10
 
Acquisition intangible amortization $0.18
         
Adjusted earnings per diluted share       $1.25 - $1.40
 

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