As used herein, the "Company", "Rogers", "we", "us", "our" and similar terms include Rogers Corporation and its subsidiaries, unless the context indicates otherwise.

Business Overview

We are a global enterprise that provides our customers with innovative solutions and industry leading products in a variety of markets, including portable communications, communications infrastructure, consumer products, consumer electronics, healthcare, semiconductors, mass transit, automotive, ground transportation, aerospace, defense and alternative energy. We generate revenues and cash flows through the development, manufacture, and distribution of specialty material-based products that are sold to multiple customers, primarily original equipment manufacturers (OEM's) and contract manufacturers that, in turn, produce component products that are sold to end-customers for use in various applications. As such, our business is highly dependent, although indirectly, on market demand for these end-user products. Our ability to forecast future sales growth is largely dependent on management's ability to anticipate changing market conditions and how our customers will react to these changing conditions. It is also highly limited due to the short lead times demanded by our customers and the dynamics of serving as a relatively small supplier in the overall supply chain for these end-user products. In addition, our sales represent a number of different products across a wide range of price points and distribution channels that do not always allow for meaningful quantitative analysis of changes in demand or price per unit with respect to the effect on sales and earnings.

Our current focus is on worldwide markets that have an increasing percentage of materials being used to support growing high technology applications, such as cellular base stations and antennas, handheld wireless devices, and mass transit. We continue to focus on business opportunities around the globe, particularly in the Asian marketplace, as evidenced by the continued investment in our facilities in Suzhou, China, which functions as our manufacturing base serving our customers in Asia. Our goal is to become the supplier of choice for our customers in all of the various markets in which we participate. To achieve this goal, we strive to make the best products in these respective markets and to deliver the highest level of service to our customers.

During the third quarter and first nine months of 2009, we continued to feel the impact of the global recession on our business as sales volumes declined by 15.9% and 25.4%, respectively, as compared to the comparable periods in 2008. However, we have experienced sequential strengthening of sales, particularly in the third quarter of 2009, as volumes increased approximately 20.3% as compared to the second quarter of 2009. We continue to believe that the remainder of 2009, as well as 2010, will continue to be a challenging time for us due to the continued uncertainty in the global economy and we are cautiously optimistic regarding improved business conditions in the coming months. In challenging times like these, we believe that our diversification and position in the overall supply chain help to mitigate the negative impact on our business, as we typically experience order declines later than many other companies that are closer to the ultimate consumer of the end-product. Historically, we recover faster than other companies, as we provide materials and component products to our customers who in turn sell to an end user, although past history is not an indication of the current marketplace nor a direct indication of what will occur in the future. We do believe that we are well positioned to sustain our business through these difficult times, as we have a strong balance sheet with no debt, strong cash flows, and a clear focus on working capital management.

In the third quarter of 2009, our business returned to profitability, achieving earnings per dilutive share of $0.40 on $81.0 million in sales as compared to $0.46 earnings per dilutive share in the third quarter of 2008 on $96.3 million in sales. Our results benefited from the increase in sales volumes, as well as the cost cutting measures and productivity improvements that began in the first quarter of 2009. Also, our third quarter 2009 results included certain one-time charges of approximately $0.6 million, or $0.04 per diluted share, comprised mostly of severance charges and other integration costs associated with the integration of certain assets of MTI Global Inc.'s (MTI Global) silicones business, which were acquired in the second quarter of 2009.

On a year-to-date basis, sales were $213.9 million in 2009 as compared to $286.8 million in 2008, a decline of 25.4%. For the first nine months of 2008, earnings per dilutive share were $1.35 as compared to a loss per share of $4.46 in the comparable period in 2009. Year-to-date 2009 results included certain one-time restructuring and other one-time charges amounting to approximately $68.1 million, or $4.35 per share. These charges included a $53.1 million charge related to a valuation allowance on our U.S. deferred tax assets; $13.4 million of impairment charges on certain fixed assets; $4.7 million in severance charges; and $0.8 million in incremental inventory reserves; partially offset by a $3.3 million deferred tax benefit related to certain impairment charges taken at our foreign locations and a $2.9 million gain on the acquisition of certain assets of MTI Global's silicones business. We also incurred a $1.9 million charge to accrue for a product liability claim in our Printed Circuit Materials operating segment, a $0.5 million charge to record an impairment on our auction rate securities in accordance with new accounting guidance that was adopted in the second quarter of 2009, $0.6 million of tax benefit on certain of these chages, as well as $0.7 million in incremental one-time costs associated with the integration of certain assets of MTI Global's silicones business. (For further discussion of these charges, see the "Restructuring and Impairment Charges" section in Item 2 and Note 14 in Item 1 of these condensed consolidated financial statements.)

The majority of these charges were taken as management reached certain conclusions about the future prospects of certain segments and products as a result of the strategic review our management team performed on various businesses during the second quarter of 2009. These decisions, coupled with the decline in operating performance in certain businesses and geographic locations, over the first half of 2009, were the primary drivers behind the conclusions to impair certain long-lived assets and incur other one-time non-cash charges.

For the remainder of 2009, we will continue to focus on positioning ourselves to take advantage of the potential opportunities that could arise as the economy continues to recover. We will focus on maintaining a strong balance sheet and lean working capital position, and believe that the impairments and other charges recorded during 2009 will better position us from a balance sheet and profitability perspective going forward. We will continue to focus on new business development initiatives as we pursue internal product extensions as well as external opportunities, as evidenced by the acquisition of certain assets of MTI Global's silicones business.in the second quarter of 2009 to enhance our silicone foam business, as well as our strategic investment in Solicore, Inc., a leader for embedded power solutions products, such as lithium polymer batteries for use in smart cards and controlled access cards, in the third quarter of 2009. These two ventures highlight the focus and importance we continue to place in seeking out new ways to grow our business and to expand our portfolio of products.

Results of Operations

The following table sets forth, for the periods indicated, selected operations
data expressed as a percentage of net sales.

                                                    Three Months Ended                       Nine Months Ended
                                            September 30,        September 28,       September 30,        September 28,
                                                2009                 2008                2009                 2008

Net sales                                            100.0 %              100.0 %             100.0 %              100.0 %
Manufacturing margins                                 30.4                 31.7                26.0                 32.2

Selling and administrative expenses                   20.2                 20.8                24.3                 19.5
Research and development expenses                      4.7                  5.9                 6.3                  5.9
Restructuring and impairment charges                   0.2                    -                 8.5                    -
Operating (loss) income                                5.3                  5.0               (13.1 )                6.8

Equity income in unconsolidated joint
ventures                                               2.8                  2.6                 1.6                  1.8
Other income (loss), net                               0.2                  0.6                (0.1 )                0.8
Net impairment losses                                    -                    -                (0.2 )                  -
Interest income, net                                   0.1                  0.6                 0.2                  0.7
Acquisition gain                                         -                    -                 1.4                    -
Income (loss) before income taxes                      8.4                  8.8               (10.2 )               10.1

Income tax (benefit) expense                           0.6                  1.5                22.5                  2.6

Net (loss) income                                      7.8 %                7.3 %             (32.7 )%               7.5 %

Net Sales

Net sales for the three month period ended September 30, 2009 were $81.0 million as compared to $96.3 million for the three month period ended September 28, 2008, a decrease of 15.9%, and $213.9 million versus $286.8 million for the respective nine month periods in 2009 and 2008, a decrease of 25.4%. The declines in the third quarter and year-to-date in 2009 were driven by declines across all of our reportable segments. See "Segment Sales and Operations" below for further discussion on segment performance.

Manufacturing Margins

Manufacturing margins as a percentage of sales decreased from 31.7% in the third quarter of 2008 to 30.4% in the second quarter of 2009 and from 32.2% to 26.0% for the first nine months of 2008 and 2009, respectively. The declines are primarily attributable to the overall decline in sales volumes in 2009 as compared to 2008 as all of our reportable segments experienced year over year declines in the respective periods, as well as the negative impact of lower levels of capacity utilization in our manufacturing facilities. However, margins improved from 25.3% in the second quarter of 2009 to 30.4% in the third quarter of 2009, which can be partly attributable to the sequential increase in sales as well as the cost cutting activities and productivity improvements initiated in the first quarter of 2009. See "Segment Sales and Operations" discussion below for additional information.

Selling and Administrative Expenses

Selling and administrative expenses declined 18.0% from $20.0 million in the third quarter of 2008 to $16.4 million in the third quarter of 2009 and 7.2% from $55.9 million in the first nine months of 2008 to $51.9 million in the first nine months of 2009. The quarter-over-quarter decline in expense experienced in 2009 as compared to 2008 can be primarily attributable to our overall cost reduction initiatives which began in the first half of 2009, as well as certain costs that were incurred in 2008 that did not reoccur in 2009, such as additional incentive compensation costs, expenditures related to global tax minimization projects, and incremental litigation costs; partially offset by $0.5 million of incremental pension and postretirement benefit costs, as the overall pension expense in 2009 increased due primarily to the poor asset portfolio performance in 2008 as a result of the global recession's impact on the stock market.

On a year-to-date basis, the decline in expense experienced in 2009 as compared to 2008 can be attributable to similar factors that drove the quarter-over-quarter declines, offset by additional charges incurred in 2009, including $1.9 million for certain product liability claims in our Printed Circuit Materials reportable segment, which we are currently evaluating for potential insurance recovery, and $2.3 million of incremental pension and postretirement benefit costs.

Research and Development Expenses

Research and development (R&D) expense declined from $5.7 million to $3.8 million in the third quarter of 2009 as compared to the third quarter of 2008 and from $16.9 million in the first nine months of 2008 to $13.5 million in the first nine months of 2009. As a percentage of sales, R&D expense was 4.7% in the third quarter of 2009 as compared to 5.9% in the third quarter of 2008. On a year-to-date basis, R&D expense as a percentage of sales increased slightly from 5.9% in 2008 to 6.3% in 2009. We continue to target a reinvestment percentage of approximately 6% of sales into R&D activities each year. We are focused on continually investing in R&D, both in our efforts to improve the technology and products in our current portfolio, as well as researching product extensions and new business development opportunities to further expand and grow our product portfolio. We believe that investment in technology and R&D initiatives are a fundamental strength of our company that has been a key driver to our past success and will be a key aspect to our continued success in the future.

Restructuring and Impairment Charges

In the third quarter of 2009, we recorded approximately $0.2 million in restructuring and impairment charges, which related primarily to severance charges associated with the workforce reduction from our acquisition of certain assets of MTI Global's silicones business as we relocate manufacturing from Richmond, Virginia to Carol Stream, Illinois. During the first nine months of 2009, we incurred approximately $16.1 million in restructuring and impairment charges, which were comprised of the following:

· $13.4 million in charges related to the impairment of certain long-lived assets in our Flexible Circuit Materials ($7.7 million), Durel ($4.6 million), Advanced Circuit Materials ($0.8 million), and Thermal Management Systems ($0.3 million) operations;

· $1.9 million in severance related to a workforce reduction; and

· $0.8 million in charges related to additional inventory reserves at Durel and Flexible Circuit Materials, which is recorded in "Cost of sales" on our condensed consolidated statements of operations.

The following section discusses these charges in further detail:

Asset Impairments

· Flexible Circuit Materials

In the second quarter of 2009 as part of our strategic planning process, our management team determined that we would exit the flexible circuit materials market and effectively discontinue any new product development or research in this area. Over the past several years, the flexible circuit materials market has experienced increased commoditization of its products, resulting in increased competition and extreme pricing pressures. In 2008, we took certain initial actions to streamline our flexible circuit materials business, including shifting production of certain products to our joint venture in Taiwan, and retaining only certain, higher margin products. However, we determined that the future markets for these products were very limited and did not fit with the strategic direction of the Company. Therefore, we determined that we would immediately stop production of certain remaining flexible circuit materials products and continue to support only select customers for a limited time period going forward, ultimately resulting in the abandonment of our wholly-owned flexible circuit materials business.

As a result of these management decisions, we determined it appropriate to evaluate the assets related to this business for valuation issues. This analysis resulted in an impairment charge related to specific equipment located in our Belgian facility. This equipment was to be used primarily for the development of certain flexible circuit materials-related products; however, based on the decision to abandon the business, this equipment is no longer of use to us. We recognized an impairment charge of approximately $6.0 million related to this equipment and wrote it down to an estimated salvage value of approximately $2.0 million. This charge is reported in the "Restructuring and impairment" line item in our condensed consolidated statements of operations.

We also recorded an impairment charge on a building located in Suzhou, China that was built to support our flexible circuit materials business in the Asian marketplace. We are currently marketing this building for sale and have classified it as an "asset held for sale" and recorded an impairment charge of approximately $1.6 million to reflect the current fair market value of the building less costs to sell. The remaining asset value of $4.0 million will be classified as an "asset held for sale" in the "current asset" section of our condensed consolidated statements of financial position. The impairment charge is reported in the "Restructuring and impairment" line item in our condensed consolidated statements of operations.

Further, as part of the decision to exit the flexible circuit materials business, we recorded additional reserves on certain inventory that will no longer be sold, of approximately $0.4 million. This charge is reported as part of cost of sales in our condensed consolidated statements of operations.

Lastly, we recorded an impairment charge on certain residual assets pertaining to the flexible circuit materials business in Asia of approximately $0.1 million, which is reported in the "Restructuring and impairment charges" line item in our condensed consolidated statements of operations.

These charges are reported in our Other Polymer Products reportable segment.

· Durel

Over the past few years, our Durel electroluminescent (EL) lamp business has steadily declined as new technologies have emerged to replace these lamps in cell phone and other related applications. In the second quarter of 2007, we took certain initial steps to restructure the Durel business for this decline, as we shifted the majority of our manufacturing to our China facility and recorded impairment charges on certain U.S. based assets. Since that time, we have continued to produce EL lamps out of our China facility at gradually declining volumes and our management team has initiated efforts to develop new product applications using our screen printing technology. Our initial forecasts indicated the potential for new applications to go to market in the second half of 2009; however, at this point we have not successfully developed any new applications that would generate material cash flows in the future. We concluded that this situation, plus the fact that our EL lamp production is now primarily limited to automotive applications as there are no longer material sales into the handheld market as of the second quarter of 2009, is an indicator of impairment. The resulting analysis concluded that these assets should be treated as "abandoned", as they are not in use and we do not anticipate the assets being placed in use in the near future. As such, these assets were written down to their current fair value, which in this case approximates salvage value as there is not a readily available market for these assets since the technology is becoming obsolete. Therefore, we recorded an impairment charge of approximately $4.6 million related to these assets, resulting in a remaining book value of approximately $0.7 million. This charge is reported in the "Restructuring and impairment" line item in our condensed consolidated statements of operations.

Further, as a result of reaching end of life on certain handheld applications, we recorded additional inventory reserves of approximately $0.4 million, as this inventory no longer has any value or future use. This charge is reported as part of "Cost of sales" in our condensed consolidated statements of operations.

These charges are reported in our Custom Electrical Components reportable segment.

· Advanced Circuit Materials

Early in 2008, management determined based on forecasts at that time that we would need additional capacity for our high frequency products later that year. Management had already undertaken initiatives to build additional capacity through a new facility on our China campus, which would be operational in early 2010, but needed a solution to fill interim capacity needs. Therefore, we initiated efforts to move idle equipment from our Belgian facility to our Arizona facility and incurred costs of approximately $0.8 million due to these efforts. At the end of 2008, our overall business began to decline due in part to the global recession, and management determined that we would not need this equipment at that time but that we would still need certain capacity later in 2009 prior to the China capacity coming on line. However, in 2009, business did not recover as quickly as anticipated and we now believe that we will not need this equipment as we currently have sufficient capacity to meet our current needs and the China facility will be available in time to satisfy any increase in demand. Therefore, we have determined that the costs incurred related to this relocation of this equipment should be impaired and equipment purchased or refurbished as part of the relocation should be written down to an estimated salvage value, resulting in a charge of approximately $0.8 million which is reflected in the "Restructuring and impairment" line item on our condensed consolidated statements of operations.

These charges are reported in our Printed Circuit Materials reportable segment.

· Thermal Management Systems

In the second quarter of 2009 as part of our strategic planning process, our management team determined that we would abandon the development of certain products related to our thermal management systems start up business, specifically products related to our thermal interface material (TIM). We have not been successful in developing this product and are not confident in its future market potential; therefore, we chose to abandon its development to focus solely on the development of aluminum silicon carbide products, which we believe have a stronger market potential. This decision resulted in a charge of approximately $0.3 million from the impairment of certain assets related to TIM production. This charge is reflected in the "Restructuring and impairment" line item on our condensed consolidated statements of operations.

These charges are reported in our Other Polymer Products reportable segment.

Severance

In the first half of 2009, we announced certain cost reduction initiatives that included a workforce reduction and a significant reduction in our operating and overhead expenses in an effort to better align our cost structure with the lower sales volumes experienced at the end of 2008 and in 2009. As a result, we recognized approximately $0.2 million and $4.7 million in severance charges in the third quarter and first nine months of 2009, respectively, and paid out approximately $1.1 million and $2.9 million related to severance in the third quarter and first nine months of 2009, respectively.

A summary of the activity in the severance accrual as of September 30, 2009 is as follows:

Balance at December 31, 2008    $      -
Provisions                         4,675
Payments                          (2,929 )
Balance at September 30, 2009   $  1,746

These charges are included in the "Restructuring and impairment charges" line item on our condensed consolidated statements of operations and are reported across all reportable segments.

Equity Income in Unconsolidated Joint Ventures

Equity income in unconsolidated joint ventures decreased from $2.5 million in the third quarter of 2008 to $2.3 million in the third quarter of 2009 and from $5.1 million in the first nine months of 2008 to $3.5 million in the first nine months of 2009. These declines were driven by significant volume declines in our foam joint ventures, Rogers Inoac Suzhou Corporation (RIS) in China and Rogers Inoac Corporation (RIC) in Japan, due in part to the global economic recession and excess inventory availability, which drove significant sales volume declines in the first half of 2009 and on a year-over-year and quarter-over-quarter comparative bases. However, volumes have improved over the course of 2009, as these ventures returned to profitability in the second quarter of 2009 and began to approach comparable period volume and profit levels in the third quarter of 2009.

Other Income (Loss), Net

Other income(loss) declined from income of $0.6 million in the third quarter of 2008 to income of $0.2 million in the third quarter of 2009 and, on a year-to-date basis, from income of 2.3 million in 2008 to a loss of $0.1 million in 2009. The decreases are driven primarily from the unfavorable foreign exchange impact due to the depreciation of the US dollar in 2009; partially offset by gains from our foreign currency hedging program.

Interest Income, Net

Interest income decreased from $0.6 million and $2.0 million, respectively, for the third quarter and first nine months of 2009 as compared to the prior year periods due primarily to the decline in interest rates as a result of the Federal government's actions to reduce rates in an effort to stimulate the recessionary economy.

Income Taxes

Our effective tax rate was 6.7% and 16.7%, respectively, for the three month periods ended September 30, 2009 and September 28, 2008, and (220.7%) and 26.1% respectively, for the nine month periods ended September 30, 2009 and September 28, 2008, respectively, as compared with the statutory rate of 35.0%. In both the three and nine month periods ended September 30, 2009, our tax rate continued to benefit from favorable tax rates on certain foreign business activity.

In the three month period ended June 30, 2009, we recorded income tax expense of $53.1 million associated with applying a valuation allowance to our U.S. deferred tax assets. We assess whether valuation allowances should be established against our deferred tax assets based upon the consideration of all available evidence, both positive and negative, using a "more likely than not" standard. As of September 30, 2009, we are in a three-year cumulative loss position in the U.S. which is expected to increase by year end. This three-year cumulative loss is significant negative evidence that is difficult to overcome on a "more likely than not" standard through objectively verifiable data. Accordingly, while our long-term financial outlook remains positive and we are analyzing certain tax planning strategies that could produce taxable income in the U.S. that may help us to realize our deferred tax assets, we have concluded that our ability to rely on our long-term outlook and forecasts as to . . .