奇異 (GE) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the ZENON fourth-quarter earnings results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS).

I would like to remind everyone that this conference call is being recorded on Thursday, March 10, 2005 at 10:00 AM Eastern Time.

I will now turn the conference over to Mr. Andrew Benedek, Chairman and CEO. Please go ahead.

Good morning ladies and gentlemen. It is a pleasure to report positive results once again to you. We had a very good quarter from every point of view -- in particular, in the bookings area. We had a $101 million in booking in the quarter, bringing our backlog to 309, up 36 percent for the year. And what is also nice is that our bookings are spread on all five continents. Our globalization efforts are continuing to pay off. And overall, we pretty much are continuing the direction, as we have always told you.

One final small comment before I hand this over to John Barker -- I want to thank you as Chairman and CEO of the Company for recognizing Nazeli Seferian, who is here with me, who managed to win one category and was number two in a lot of categories in Investor Relations awards for midsize companies in Canada. We thank you for that.

And I will pass it on to John Barker, our Chief Financial Officer.

Thank you, Andrew. It is nice to be reporting, as you said, good results again. Just one comment to correct Andrew that the backlog is 301 million, and the bookings are 309 million. You had reversed those, Andrew.

Thank you for correcting me, John.

But the percentages were correct, 36 percent for backlog and 27 percent for bookings. Going into our revenues in the quarter, we were about the same as last year. But I think the nice thing to look at -- at revenues for the quarter was that our margin was better. And I think the margin reflects some better product mix. There was less third-party components being involved in our revenue for the quarter. So margin at quarter was 37.4 percent compared to 33.7 percent last year.

On the year-to-date, revenues at 233 million are 27 percent ahead, which is meeting our expectations. And the margin at 38.2 percent is right where management has been comfortable with. It is down slightly from last year.

In selling, general and administration expense, I think the big item to talk about there is our legal expenses in the quarter. Total legal expenses in the quarter were 2.9 million and for the year were 4.6 million.

SG&A as a result of those legal expenses was a bit higher than our targets. For the quarter, it was 25.6 percent and 25.4 year-to-date. However, if we exclude the legal expenses, which are the way I like to look at just our operating expenses, we were 21 percent in the quarter and 23.4 percent on the year -- which is right where we have been focusing to be.

Legal expenses that I commented on were for two court cases. One is the U.S. Filter, which we comment on every quarter and tell our shareholders the amount that we are spending. The other one is a court case with Enviroquip, which we incurred 1.1 million of legal fees this quarter, 1.6 million for the year. And during the year, these have not been that significant, but they hit us significantly in the quarter. Rafael Simon is going to talk to us more on this during his comments.

That gave us an operating profit of 7.8 percent for the quarter. And just to comment without legal fees, it was 12.2 percent. And on a year-to-date, it was 7.6. And without those legal fees, it was 9.6 percent -- a significant improvement over last year. For the year, we were at 7.3 percent.

For our taxes, once again, we came in with a very low tax rate for the year at 4.5 percent. We had some resolutions of some tax uncertainties in the quarter and at the end of the year that brought our tax rate down to that level. Excluding those uncertainties, we were looking at a tax rate of 16 percent, which is still slightly ahead of our estimated rates that we come in before around the 20 percent. But I think we are going to be running in the 16 to 20 percent in the future.

So net income, a great number, 6.6 million in the quarter and 16.99, almost 17 million for the year. That is a 36-percent improvement in net income year-over-year -- and giving us a $0.56 basic earnings per share. So we are very pleased with the overall results and posting those improvements.

Just quickly on the cash flow -- I think the only major issue there was the -- we saw less money going into working capital in the quarter. We saw some movement in our unbilled revenues going up. This was offset by Accounts Receivable going down. As I have said in past quarters, there's always a balance between these two numbers.

At the end of the year, our unbilled revenues were higher than last year and accounted for most of our working capital change. But it is consistent and actually shows improvement if you look at it as a percentage of our revenues. So it is not abnormal, and it reflects some of the growth of the business and our ability or need to invest in working capital.

We did put $35 million in marketable securities. That was just trying to maximize our interest.

So in the end, a very strong quarter again.

Thank you, John. Rafael Simon, Chief Operating Officer.

We are continuing our process of strengthening our operations, especially in Europe and Asia, as we move towards our goal of being able to assemble and deliver systems locally on every continent. We are continuing with our membrane manufacturing expansions, both in Hungary and in Canada. And in the next few months, we will see some additional FASB in both of those plants. And this will be required to keep up with our growing backlog.

We announced a few weeks ago, a recent acquisition of a company in Germany. And this was the largest acquisition that ZENON has done in its history. And we are very excited about the prospects of this acquisition to both reduce our manufacturing costs and to help develop new products with the new range of membrane technology.

Finally, to comment a bit on our legal situation, we have recently in the U.S. Filter case had a victory against the summary judgment motion that was filed by U.S. Filter.

And on the Enviroquip case, again some background on this -- this was a case that was started last year, where we were sued by a competitor for antitrust. And we have always believed that this case was frivolous. In the fourth quarter, as John mentioned, some of the expenses in the case started to ramp up. But some good news there as well in that Enviroquip has asked the judge for a voluntary dismissal of the case. So going forward now, we are in the process of trying to recover some of our expenses in that case. But up until now, we have had to expense them as they have occurred.

Thank you very much, Rafael. We are standing by for your questions.

(OPERATOR INSTRUCTIONS). Patrick Tomalin, Orion Securities.

A few questions here -- first of all, and I think John you might have already touched on this, but can you comment a bit on the product mix in the quarter and how that impacted your reported gross margin?

Generally, our product mix is just a standard mix. I do not think there was anything that was influencing it. I think if we looked at our revenues compared to last year, we did see higher revenues coming in from Europe -- but margin-wise, just sort of normal standard margins. I think the impact was more 2003, where we had more third-party parts being shipped to sites in the quarter.

Okay. Just secondly, can you comment a bit on the state of your currency hedges? And I guess in a broader sense, how that plays into your gross margin guidance for next year?

Yes, we have significant hedges to cover contracts over this year and next year. Our basic policy on hedging is -- we looked to hedge as soon as we receive orders and to protect our margin on those orders.

Can you give a sense of what the average rate is for 2005 or for I guess on your existing hedges?

It's about $1.30.

Okay and how will that compare to what we have seen over the past year -- the effective rate that you have been using?

We have seen the rate decrease. Probably at the end of 2003, we were sitting on rates of approximately $1.40 -- just a little higher than $1.40. And we are just a little higher than $1.30. I don't have those exact numbers in front of me.

Okay. But ballpark, that's where you are?

Yes, and I think in those terms we are able to -- we're still holding margins. And it's based on the prior -- our policy of hedging as soon as we get the order to come.

Yes, that makes sense. What about legal expenses going forward? I know that is something that stood out in the quarter, and I guess more so in Q4 than throughout the earlier parts of the year. How should we be looking at that in 2005?

Well, the expenses were very high in Q4. But as I mentioned with our one case with Enviroquip, expenses going forward should be small. And in fact, we believe there is a very strong chance that we are actually going to get some reversal and get some upside from that.

With U.S. Filter, there's still a way to go. So there will be continuing expenses on that one.

Okay. Just a last question, if I may, on -- hoping to get a bit of color on the state of the Homespring product -- how things are rolling out there?

It's not going quite as well as you would like. In Canada, we do have a distribution. In the U.S., we have started making some sales as well in selected areas. We are dependent very much on Maytag to deliver these sales. And Maytag has had significant internal turmoil -- in our view, insufficient focus on selling this product. We are in the process of discussing what they can do to improve their performance with us.

Do you think there's any jeopardy to the relationship as it stands right now? Or would that be getting way ahead of ourselves?

It would be getting way ahead of yourself. We want to make it happen. They believe in the product. And we believe in their ability to be a good partner to us.

Avi Dalfen, First Associates.

Hey, question for Rafael -- specifically with regards to that Enviroquip lawsuit, can you give a bit more information in terms of what it is that they are seeking from you? Obviously, because it distributes Comboda (ph) equipment, there must be a competitive situation where you came up against them. Does it relate to one particular situation? Or is this a broader issue?

I think from their point of view, I can only guess that we have a strong position in selling membranes for wastewater. And they view that that was a market in itself. Where we have always looked at the market as being the entire market for wastewater treatment equipment, and membranes as just being a segment within that market.

So they asserted that we had a monopoly and went after us under antitrust. (technical difficulty) We believed that that was frivolous from the beginning. And recently, they have also now started to voluntary dismissal the case on their own.

Okay, so there is no --

But, when you're faced with very serious charges like that, even if they are frivolous, you have to defend yourself. So that costs some money.

Okay, so again, because it appears that this suit may be frivolous, you're expecting to recoup all of the legal costs?

I didn't say that. We are seeking to recoup all of them, but you don't know what is going to happen in the courts. We definitely believe we have a basis to recoup at least some of our costs.

Doug Cooper, Paradigm Capital.

A couple of questions quickly -- what is your CapEx budget for next year?

We do not usually give out our CapEx budgets for next year. But next year, we will see expansions in FASB.

So it was 23 million, I think, this year that you spent, correct?

Yes, just 24 million.

24 million -- so it would be if your capacity -- expanded capacity in Canada and Hungary should sort of be in line with that or more or less than that?

I think they will probably be -- given the growth that we are seeing and both in our revenues and in our investment abroad, we would expect it probably to be higher than that.

Okay, and just with all of the cash you have, 150 million, you're targeting Asia as a growth area. Would you be building a facility there, you think?

I will answer that Doug. Definitely, we intend to -- we are moving to a structure where we have regional "hubs" we call them. As you know, we have been building this one up in Europe. And next stage for us is to do the exact same in Asia.

Okay. Just the composition of the backlog -- can you comment on what the composition is in there?

Well, it is very much similar to previous years. And I don't have the number in front of me, Doug -- a little bit more outside of North America.

Yes, I think we have seen growth in Europe with Bummisent (ph).

Okay. And just a 301 million backlog, without (ph) expect to be deliverable over what period I guess and sort of what is the capacity as it stands now? And what do you think capacity can be when you finish your program?

You know, we have been fairly consistent, particular the last few years. Typically, our backlog number becomes our revenue for the year or some plus or minus variations. And I would think that that wouldn't change dramatically this year either.

Okay, perfect -- and just finally -- just one -- just out of curiosity, a quick question on the F-ex, there is an F-ex gain of $480,000 odd in the quarter. Is that from the euro? Or is where is that accruing from?

Not too much in the euro -- Hungarian forints.

The Hungarian forint?

Obviously, in our Company balances.

And that is included in SG&A as a gain, is those what it said in the notes?

Thank you, Doug.

Okay, thank you.

John Chu, Research Capital.

Was there any timing issues related to sales for the quarter that maybe you thought you were going to book some revenue, but it may get pushed back to Q2?

In general terms, we do not control the timing of the orders and customers do. And when you are a smaller company, they can make dramatic difference. Get bigger and bigger -- the normal fluctuations and delays tend to be -- kind of dampened. We're still not so large that it will make any difference, and we would not get any variations quarter-to-quarter. But we seem to have been doing not too much slippage. In other words, if you do not -- let's say we are low in a quarter, we typically catch up in the next quarter.

Right. Speaking of which, I think in Q3, you mentioned that there was a fairly large order that was originally to be recorded for Q3 but was booked in Q4. Can you give us a little more color on that? Because I think you came in a bit low in Q3, and I think you mentioned in the conference call that had that order been recorded in Q3, that would have put your earnings more in line. So I'm just try to get a sense of --

That did turn back in.

I'm sorry?

That is exactly what happened.

Right, can you give us an idea of what size of that order? I'm thinking the impact on earnings may have been anywhere from $0.03 to $0.06 for --

Something like $10 million, John.

$10 million was the size, okay.

As we grow, $5 million orders -- 5 to 10 is not unusual for us.

Right, can you give us a sense on how sales were in Asia specifically? Or can you break that out for us?

I don't have a breakout in front of me. Although you will get -- you would have that in the Annual --

Oh, in the Annual, okay.

There is some information on that -- region specific.

I think if you looked at our breakdown for the rest of the world, the rest of the world is mainly Asia -- Asia, Australia.

Okay.

We have had a fairly balanced -- the sort of 10-percent number is sort of balanced between Australia and New Zealand and mainly China and I am including Taiwan. We see more and more growth in China like everybody else does. We are investing in that area -- adding people. I have a better staffed office in Beijing. And we started also looking at investing in some limited manufacturing in the country.

Right, and just drawing on that, you mentioned you were establishing hubs in Hungary and Asia. Now, have you established -- I think you said you established hubs -- a hub in Hungary already or another one.

Let me explain that, John. A hub for us means a place that we control a region. And typically, we also manufacture membranes in that region.

Right, so obviously, you are being incurring some costs to establish those hubs. So can we assume that will be reflected in the CapEx for '05?

I think the major investment in Asia will not occur in '05. It will probably occur in '06 or later.

Okay, and just one last question -- can you give us a breakdown of the orders by region?

I don't have it in front of me. But there will be some breakdown in the Annual Report. On that, we are not going to break things out further. We are already the most transparent membrane company in the world.

Okay, but it was spread across all of the regions, you were saying earlier?

Pretty much spread with an increase in Europe over what it would have been last year.

Right, okay, thank you very much.

We report our revenues by the areas. We don't report back that way.

Kurt Powell, BMO Nesbitt Burns.

Thanks, it's Bert. Just a question for you on sales for the year, what was the percentage that was delivered through licensees?

I don't have that number.

Okay.

I do not have an actual number. I guess common is -- it was lower than 2003. Yes, 2003, we had stronger licensee revenues. And typically, the licensee revenues we have stronger margins on.

And what has happened now in terms of the number of licensees that you have? Has that gone down? Has that gone up? As you start to expand in Asia, what happens with the relationships with the folks like Hyflux?

We are currently null. The licensee at Hyflux expired.

So that's done.

We had added one in China. But overall, we're not adding many new licensees. We do not want to overcrowd the market.

Okay, so right now, the number of licensees out there is flat.

Yes, more or less.

Okay, and just -- I'm wondering if we can get a breakdown in terms of -- for the sales for the year. How much was drinking water versus wastewater versus industrial process versus industrial wastewater? I think you have broken that out in the past.

I don't think so. But in general terms, we have mentioned it. And what we have been doing is -- that is pretty much consistent. We have been balancing roughly evenly between drinking water and wastewater. And we typically have about two-thirds municipal and one-third non-municipal.

Okay and what has been the experience for ZENON in terms of salt water RO pre-treatment? Is that in the backlog at this point? Or is that an area that you're focusing on?

It is an area that we're focusing on. And we have some in the backlog. We have what we believe is the largest project already booked in China for this. And we hope to do more.

Okay, and could you maybe speak a little bit to the concentration in the backlog? I mean 101 million. Is there anybody that is in there that is a 10 or 15 percent or better?

I do not think so. John?

No.

No, it is rather mixed.

It is rather mixed. And I'm not sure if you have this number, but it would be interesting to know what -- in terms of the orders, the 310 million orders this year, how many millions of gallons per day are represented in that order flow versus how many millions of gallons per day are in the order flow that we saw in the bookings of 243 million in 2003?

You are giving us challenges. But they are interesting ones. We will try to find out. But if I can give you a general guidance, most likely it will be more. Every year for the last 10 years, our revenue per gallon has come down. But our overall revenue and profit has gone up, which is the nature of the game.

Yes, at some point, I wouldn't mind just kind of digging into that data just a little bit.

We will try to do that because it is interesting. We're looking at it. If I can just keep going -- what happens in any market -- as the market is created, you wind up with people that want to share in the potential. And in particular, this field, which is so strategic, so critical for the global water business.

So what a good supplier does, it continues to lower the cost to the customer but maintains or improves his margin if he can by investing in technology.

Right, okay in the order book this year compared to last year, in terms of the scope of undertakings that you are doing for projects -- is it similar? And what really what I'm try to get at is -- if you think about building a project, membranes are x percentage of the total project. Has your approach remained fairly consistent in terms of the amount of work that you do? Or are you starting to carve out more of building the whole water treatment plant?

No, we have been fairly consistent in the sort of different modes of gaining revenue. Our primary has always been and stays -- is membrane system delivery but not the building and not the other things around the membrane. We have been sticking to our knitting, so to speak.

Okay, and one last question and then I will get off. R&D for the year -- last year I think net of credits was 8 million. What is it this year?

Substantially more -- we are in the neighborhood of 12 million.

12 million -- and that's all -- John, where is that booked? That's all in G&A?

Some of it is in G&A; some of it is on the --

Some of it is capitalized?

Capitalized.

Okay, and that shows up on the cash flow statement in terms of additions to patents and other assets?

Assets, yes.

Okay, so how much was expense, and how much was capitalized?

Oh, I don't have that number in front of me.

Okay, perhaps we can circle back with that as well, John?

Yes.

Avi Dalfen, First Associates.

Okay, question for John Barker -- the table on page 5 of the release is very helpful understanding what the impact on earnings from extraneous items is. But I just want to run through something here with you. You are showing $0.20 for the fourth quarter versus $0.10. If you exclude the recovery of reserves and the legals -- and that's a good way to look at what the quarter would have been if not for the extraneous items.

But if I wanted to include the impact of the extra legal costs and call that normalized -- my normalized number. Would I be right in calculating a normalized earnings for the quarter, something like $0.14 versus $0.10 in the fourth quarter of last year? John?

That would be about right, yes.

Okay. So there is nothing else I am missing here that has to be taken out in order to come up with that normalized number?

In 2004, no.

Anoop Prihar, GMP Securities.

Your G&A guidance going forward for 25 percent, is that inclusive of any legal expenses you might incur?

On the SG&A of 25 percent -- that was the question, Anoop?

I think you said in the release that you expect G&A to be within your guidance of 25 percent of revenues for 2005. I'm just trying to understand -- in your mind, is that 25 percent number inclusive of any legal expenses you might incur? Or would that be over and above the 25?

Oh, yes it is.

It is inclusive?

Yes. I mean we were basically there this year.

Okay and then the tax uncertainty in the quarter, which led you to the reversal of the reserves -- can you just give us a bit of insight as to what the issue there is?

I think it is just -- we take reserves on tax issues where we feel there may be some problems. And as those tax issues expire due to timing or resolved through audits, they do get released.

And you said going forward, a 16 to 20-percent tax rate is a reasonable expectation?

Yes, I think on a normal tax rate right now that's a normal expectation for us.

Okay and then just finally on U.S. Filter, are we still on track to have the case heard sometime this month?

Rafael?

Yes, I'm not sure it is going to be sometime this month. These dates are always influx, so do not want to -- you do not want to count on any of them happening. It depends on a lot of factors.

But it is reasonable to assume that it is going to happen sooner rather than later?

They is -- like I said, we had a hearing last week -- or this week actually. You have different processes happening all the time, which can impact the eventual trial dates. So I don't want to guarantee when a trial date is actually going to happen.

Okay and is that being heard by a judge or is it a jury or some combination of the two?

Right now, it's been in a judge. But the actual trial will be a jury trial.

It will be a jury trial? Okay, thank you.

Lawrence Cass (ph), M (ph) Capital Partners.

Just a supplemental question related to the tax issue -- was the tax recovery in the quarter more of a one-time event? Or is it related to an ongoing issue? And supplemental to that, can you comment on the relationship between the geographical mix and the tax rate?

Could you repeat that last part just --

Could you comment on the relationship between the geographical mix? In other words, what parts of the world you are doing business and the overall tax rate?

Okay I think we are always going to have ongoing -- some tax issues or some tax adjustments just because of the complexity of ZENON. Put ZENON in perspective, we have over 20 companies registered in probably 15 different countries. So we are a complicated business.

This was more one-time related issues that I do not see it being ongoing issues. But as I say, I think we will continue to have one-time issues. I do not think there was any trend in any of the reversals we had.

I think geographically, our major focuses are North America and Europe at this point. And the tax rates in Europe are different. We see lower tax rates in Hungary as an example.

Lawrence, if I can add one thing to John's answer -- if he doesn't see any trend, I do. It is called the John Barker conservative factor.

Sara Elford, Canaccord Capital.

A lot of questions obviously have already been asked, but there's only one other thing, Andrew, that if you could comment on is -- some of the management changes I see, Daryl Wilson has left the Company. And I guess what I'm curious about is whether you can add any insight into that.

And secondly, and I right to read this correctly that Rafael will be assuming his responsibilities? Or is that not right?

First, we have benefited from -- Daryl stayed with us. A lot of the experience that he brought to us from Toyota has been absorbed and institutionalized in the Company.

At this particular time, we are undergoing some restructuring to get us more nimble and get us focused on some issues that are important going forward. The marketplace is increasingly competitive. We have to now use the framework that we have and proceed -- move quickly. And we need to also continue to improve the Company. This is our job as managers.

Rafael will be able now to spend more time than he has in the past -- Rafael just spread too thin. And he used to run the membrane Company prior to assuming the Chief Operating Officer role. So he is very familiar with that whole area. It is a critical area for us. And with Rafael focusing, there was no need for two people to do that. And Rafael of course will be developing and restructuring his team to continue to go from strength to strength.

Okay and then just to clarify on the -- I guess you obviously say that there's some issues in restructuring that you want to work through. Is there anything from our vantage point as analysts and investors that we will notice as far as your margins or anything else on that side? Or really nothing to report on that?

Nothing major -- these are normal variations. We have just -- in the interest of good disclosure, we disclosed these. But they will be normal in any company. And there is no significant impact one way or the other.

Okay and then final question just on the same theme -- Diana obviously appointed to the position of Senior Vice President with responsibility for sales activity in the Americas. Will she be based in Canada or the U.S.? Or I mean I'm assuming that is the case. I do not know and perhaps you can comment on that.

And then secondly, is this a new position as you describe it in that she is not replacing anybody? She is just adding to the team?

Right, first, just before I get off the subject of Daryl Wilson -- he left on mutually acceptable terms. So that is important.

And as far as Diana's position -- is a new position. Basically, a position that is necessary and is part of the structure that we are developing in Europe. And we're basically having one hub regional manager for each region. And as far as location, this position obviously has to be in North America. So she is definitely in the process of relocating here.

Okay and I think then I guess my only other final question is -- is just to confirm -- you know, historically, you haven't given very specific guidance, but you have given a range in terms of annual target ranges for revenue growth. And I would assume that for 2005, we are still comfortable with that 20 to 35-percent growth based on where your backlog is. Is that a fair statement?

Well, I haven't calculated with this past year included. But we have only been doing 24-percent compounded annual growth. Some years have a little more. Some years have a little last. The guidance we have been giving you is -- our aim is for 20 to 30. Given the 36-percent growth in revenue -- in backlog, my apologies, we should be able to be within that range quite handily.

Michael Schneider, Robert W. Baird.

I am wondering if you could just comment on the status of the North America market. Listening to all of the water players, it appears as though there has been some marked improvement just in order trends and project trends kind of starting probably in mid 2004. Can you give us your thoughts as to maybe if you agree with that comment and observation? And maybe what is driving it? Is it just better economics in North America? Or is there something else occurring?

Pretty much in agreement with what you just said -- when you look at real estate prices and real estate investments, they are all increasing. The overall economy is increasing. Most of our customers are growing. A lot of them are in the Southwest and the Southeast, where people are moving to -- the water short areas. And we in fact are -- we see very good opportunities continuing to grow in the U.S.

And is it that there has been some release of major project funding, either from the municipal level or even the federal level? Or is it just broad based and more a function of the economy?

You know, I should correct this. When the economy was not doing so well, we did not see any downturn. There were no projects canceled. Maybe it's partly because we are replacing conventional technology and not just growing by the growth of the market. We are growing by replacement of other technologies primarily.

We also don't see dramatic improvements. We see the trends that we have seen for years. It just continued to grow. Once again because it is a replacement of other things that we're doing primarily.

Okay and then I guess a separate question just on another company in this space. A company named Wetacko (ph) has openly admitted to problems in shipment and productivity of product. I'm wondering if that has helped you or even hindered you in some of the projects, maybe where you are working together with them.

My apologies, would you mind repeating the question?

The question is -- Wetacko, which is a company based over in Germany but does a fair amount of work in the U.S., has admitted to just some shipment problems and production problems. I am wondering if that has actually helped you in some of your competitive bids or maybe even hindered your productivity and your shipments in any projects where you work together with them on the UV side.

We very rarely work with them. It is had no impact on us whatsoever.

Okay, thank you very much.

You are most welcome.

Perhaps if you could limit this to one more question in view of everybody's interest on time.

Bert Powell, BMO Nesbitt Burns.

Just one question on G&A -- just want to clarify -- the rate for the year was 23.6 if we back out all the legal expenses. Going into next year, we are likely to have some legal expenses and you have alluded to in the press release some increased costs with some beefing up in different territories. Are we likely to be closer to the 25 percent of sales in '05? Or should we be in around the same level? I am just trying to get a gauge as to what level of expenditure you are looking at for those expansions.

I think our target is always to try to improve SG&A every year. And I would say the improvements will offset some of the additional investments. So, I believe we are going to a soft (ph) to 25 percent if we take legal out of it.

If we take legal out. Okay, thanks a lot.

Mr. Benedek, there are no further questions at this time. Please continue.

Thank you very much for tuning in. We appreciate your questions. We tried our best to answer them. And we look forward to talking to you at the end of next quarter or in between as well. Thank you once again. Bye-bye.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.