Integer Holdings Corp (ITGR) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter Wilson Greatbatch Technologies earnings conference call. My name is David and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating our question-and-answer session towards the end of the conference. At any time during the call you require assistance key star, 0 and the coordinator will be happy to assist you.

Before we begin I would like to read the Safe Harbor statement. This presentation and our press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It involves a number of risks and uncertainties. These risks and uncertainties are described in the company's annual report and Form 10-K.

The statements are based upon Wilson Greatbatch Technologies current expectations and actual results could differ materially from those stated or implies. The company assumes no obligation to update forward-looking information included in this conference call to reflect change assumptions, the occurrence of unanticipated events or change necessary future operating results, financial conditions or prospects.

I would like to turn the call over to today's host, Treasurer and Director of Investor Relations, Anthony Borowicz. Please proceed, sir.

Thank you, Dave. Welcome to the Third Quarter Wilson Greatbatch Earnings conference call. With me on the call today are Edward Voboril, our Chairman, President and CEO, and Lawrence Reinhold, EVP and CFO.

In terms of the format for today's call, Ed will provide summary review of the results and discuss some of the key developments in the quarter. Larry will follow with detailed review of the financial results and provide a closing summary. At that point, we will then open up the call for q and a. As a reminder, we are providing slide visual to go along with the Web cast, which we hope you will find useful. These slides can be accessed in our Web site at www.greatbatch.com.

Let me turn the call over to Ed.

Thanks, Tony. And welcome everyone. Lets begin with an overview of the third quarter results. In terms of our financial performance sales increased by 24% compared to the third quarter last year to a record level of $56.3 million. The 24% growth reflects to organic growth as the third quarter marked the one-year anniversary of the Greatbatch group to acquisition.

Our top line in the stronger cast our entire medical products line lead by our ICD Barry and capacitor sales, which increased a combined 36%, compared to our SGF. Our gross margin improved to 42.4% in the quarter, which represents an 80 basis points improvement, compared to the first half of the year. This increase is a direct result of our lean manufacturing initiatives reducing our product cost and improving our manufacturing cycle times.

The record top line resulted in improved operating leverage across SG&A and RD&E areas. In addition we lowered our effective tax rates based on a number of tax funding projects that were completed in the quarter. These factors combined with our gross margin improvement resulted in record earnings per share in the quarter of 36 cents.

We also received some additional recognition in the market place with the inclusion of Wilson Greatbatch technologies in the SNPs small Caps 600 index. I will now provide an overview of our sales results in significant advance in the quarter then Larry will review the financial results later in the presentation.

Looking at our sales by product line total sales increased by 24% to $56.3 million Our ICD Barry sales increased by 39%, which represents strong growth across our Sriyan customer base. ICD capacitor sales also exhibited solid growth increasing by 34%. It is significant to note that we commence shipments to second capacitor customer during the quarter.

Pacemaker's battery revenue grew by 11% in the quarter. As we discussed in the previous quarters, we are continuing to see increased order flow from certain European customers in the current year. The same customers were reducing our inventory levels in 2002. This combination has resulted in higher than market rate of growth in the current year.

We continue to believe that the underline unit growth rate in the segment is in the mid single digits. Other medical battery sales were consisting mainly of serum related and neuro stimulated battery business increased by 14% in the quarter. Sales of antrolican (ph) system in the area throughout the year. Medical COM component sales increased by 28% in the third quarter.

As I mentioned earlier July marks the one-year anniversary of our Greatbatch globe acquisition. Therefore this increase reflects organic growth in our entire component product line. The major driver of the increase is our EMI (inaudible) product The new pacemakers and ICDs that are being sold by our customers include these sacred pieces which safeguard the device from outside the electro magnetic in reference.

Turning to our commercial segment sales increased by 1% in the quarter. Throughout the year we have seen a shipping demand for Barry pack configuration, which allows us to add more value to our products, and for our customers and should help our market position. As we have stated in the past, it is more meaningful if we look at our medical business over trailing 12 months period. In order to draw any conclusion on sales trends.

Our review goes trans as of this quarter. First in terms of our serum related business. ICD Barry sales have increased 42% over the trailing 12 months period. ICD capacitor sales have increased by 30% over this period. With nearly all of our sales coming from one customer.

With the addition of second and third customer along with strong underlined market demand we expect to be able to increase our market penetration we have proprietary (inaudible) capacitors in 2004. Our pacemaker Barry sales have increased by 11%, which is higher than the market rate of growth. This is due to the before mentioned European customer related activity.

Turning to medical components we have been able to achieve the higher than market rate of growth with sales increasing by 33% during this period. This increase is primarily due to organic growth in our enclosure (inaudible) product.

Looking at the other sales categories, our mid-ranked battery used in neurostimulator products has increased 12% from relatively low base. We would expect this rate of growth to increase over time as this technology gains wider acceptance in CRM and neurostimulator application.

Let me now update you on other important developments in the quarter. The third quarter march to commence from the ICD capacitors sales was back in capacitors customers. We remain in active discussions with the two additional CRM customer possibilities and anticipate adding these customers in the near future.

We also completed extension of our supply agreement with St. Jude Medical. This agreement, which extends through the end of 2006, covers all of our CRM products. This is an important agreement for the company and helps to reinforce the working relationship we have had with Institute for Supply Management St. Jude CRM operations for 25 years.

In terms of new product development, our primary focus for the next year is on development of our new Quasar battery technology. We expect to begin delivering this technology in the 1st quarter of 2005. The supply agreement signed with St. Jude includes Quasar battery technology.

We are in active discussions with the remaining CRM customers with respect to this technology. Another key development project underway is the development of higher working capacitors. These capacitors are targeted for device that is require different application to form factors.

Finally, in terms of other major development initiatives we are working on integrated filtered feed through. We manufacture the filter in two separate processes. By integrated these components in one assembly, we will improve product performance and lower our manufacturing costs.

Now let me turn over to Lawrence Reinhold, to discuss our financial results in greater detail.

Thank you. Our sales increased by 24% to $56.3 million in the quarter. Overall our medical sales were $49.6 million, an increase of 28% from the $38.7 million reported in Q3 of last year. Commercial sales were $6.7 million essentially flat compared to last year.

We achieved gross profit of $23.9 million in the quarter, which represents an increase of $27% over the same quarter last year. This faster than sales rate of growth has increased overall gross margin to 42.4%.

I will talk about where this improvement came from on the next slide. Operating expenses as a percentage of sales declined to 20.9% in the quarter mainly as a result of the improved operating leverage from the higher sales in the quarter.

As the result of improved gross margin, the leverage we were able to achieve at the operating expense line and a lower tax rate we reported record net income of $7.8 million in the quarter or 36 cents per diluted share. This compares to 12 cents per diluted share that we recorded in Q3 of last year. It is important to note that last year's third quarter included a 10-cent per share charge for the non-cash write-off of non-compete agreement and the non-cash write-off of impaired investment. Adding back these costs we still achieved 64% earnings growth.

As I mentioned we achieved significant improvement in gross margins in the third quarter. Compared to the first half of this year, our gross margins improved by 80 basis points to 42.4%. This increase is the result of our extensive lean manufacturing initiatives implemented throughout most of our manufacturing facilities.

We have been able to improve our manufacturing yields and our cycle times. This was particularly evident in the quarter at our Minneapolis enclosure plant and at our Carson City filter feed through plant. These two facilities accounted for majority of improvement in the quarter and we are continuing to rollout Lean manufacturing operations at all our facilities and expect to continue seeing the benefits across all of our operations in 2004.

In terms of operating expenses as previously mentioned, we lowered the ratio of operating expense to sales in the quarter to 21.5%. This is significantly lower than the 24.4% rate achieved in the second quarter of this year.

The decrease was due to several factors. RD&E expenses net were lower in the quarter primarily as we received partial reimbursement for engineering services from the accomplishment of certain medical technology development milestones in the quarter.

Additionally, we reported a $0.3 million one-time gain on an asset disposition in the quarter.

Finally, last year's third quarter OPEX were higher than normal due to the $1.7 million non-cash write-off of the non-compete agreement. In the third quarter, we completed a series of tax savings initiatives has resulted in reduction of nine-month year-to-date effective tax rate to 30.4%. This reduction was primarily due to the recognition of certain foreign tax credits as well as additional R&D and investment tax credits. In the first half of this year, we were utilizing estimated effective tax rate of 31.5%.

In order to bring the full year rate down to 30.4% we reduced the third quarter effective rate to 28.8%. In the fourth quarter, we will go back to accruing taxes at higher full-year rate of 30.4%. The reduction in our tax rate had the effect of improving earnings by about a penny a share in this quarter.

Turning to the balance sheet, we are seeing significant improvement in our operating cash flow. In the third quarter operating cash flow was $22.3 million, and for the year we have generated $42.1 million in operating cash flow, an increase of 166% from last year. Part of the improvement has come from significantly lower inventory levels. We steadily improved our inventory turns from around three at the end of 2002, to about 3.8 turns at the end of this quarter.

In absolute dollars we reduced inventory levels by over $4 million from the beginning of the year. This reduction is primarily due to improved manufacturing cycle times, which has lowered work in progress inventory. Additionally, the improvement in working capital is due to lower than historical levels of capital spending.

Year-to-date we have spent approximately $7.7 million on capital projects. As discussed last quarter, we anticipate a significantly higher level of spending in 2004. As we complete the manufacturing production lines for new Quasar battery technology.

In addition we will be continuing the implementation of various phases of ERP software project in 2004. We anticipate increased level of capital spending for both hardware and software in support of this implementation. As of quarter end the project is underway and proceeding as planned.

In terms of sales, we are reaffirming our top-line guidance of $215 million to $220 million for the full year. We are expecting medical sales to be in the range of $189 to $193 million. This estimate reflects anticipated inventory reductions by our CRM customers in the fourth quarter. We anticipate our commercial revenues will be in the range of $26 to $27 million.

Based on the improvements that we've seen in our gross margin and improved leverage at operating expense line we are raising our full year earnings per share outlook for 2003 by 5 cents per diluted share. We now expect earnings to be in the range of $1.08 to $1.12 per share.

Note that this earnings per share estimate is inclusive of the 5-cent special charge we took in the second quarter of this year for the early extinguishment of our bank debt when we did the convertible note financing.

In summary, we are very pleased with record sales and earnings we achieved in the quarter. For the year we are projecting to finish well ahead of the targets we set for ourselves at the beginning of this year. As we come up to the end of the year and look into 2004 we will continue focusing on a few key strategic areas.

First, the successful product launch of our new high-rate Quasar battery technology by end of 2004.

Second, the continuing evolution of our high voltage capacitor technology.

Third, improving our gross margin through extensive Lean manufacturing cost reduction programs and fourth, the successful implementation of our ARP projects. This concludes our prepared remarks; I will now turn the call over to the moderator to facilitate the Q and A.

Thank you, sir. Ladies and gentlemen, if you have a question at this time or a comment, key star, 1 on your phone. To withdraw the question or comment key star, 2. All questions or comments will be taken in the order they are received. We will pause for just a moment for the first question, please.

Our first question comes from Robert Hopkins from Lehman Brothers. Please go ahead, sir.

Hi, good afternoon.

Hi, Bob.

Hi. I want to clarify guidance for the fourth quarter. It looks like your guidance for the fourth quarter on EPS basis is somewhere between 21 and 25 cents, is that correct?

That is correct, Bob.

OK. Versus the consensus, it is about a nickel below current consensus thinking. It looks like given your revenue guidance that the outlook the Street had for medical revenues was a little bit more aggressive than what you guys have and in your press release cited inventory draw down by some customers.

I was wondering if you could elaborate here? This happens from time to time, this is sensitive time in the market place because there is split between the analysts as to what is going on in the CRM market place. I think your numbers would be scrutinized more than they would otherwise.

Can you comment on what is going on with inventory drawdown by your customers? Is that in battery or any level of specificity would be great.

Bob, it is Ed. I will take the first crack at that. We do think we see some inventory adjustments happening at -- I think it is one of those times where similar to what we have seen in the past. We have seen robust order pattern for most of the year.

I think people are evaluating inventory levels right now. I think it is too early to read anything into that as far as what the outlook might be for industry growth rates or for '04. But, you know, it isn't atypical year-end situation.

Is it mostly in components or in batteries?

I think we're seeing it in some ICD-related stuff. I think it really is some adjustment going on across the board in every product category.

OK. So pacemakers, defibrillators and components. OK. You mentioned on the call that you are hopeful in '04 you can have a third and fourth capacitor customer online. Previously you said that you had hoped you would have all five of the major CRM players as customers. I'm wondering if you could -

Let me clarify. We have three customers now. We're -- we started delivering product to the second customer in '04 we'll be delivering to a minimum of three customers. We're still optimistic that we'll be able to announce a fourth and fifth customer within the recent future.

OK. And then lastly, when will you be giving guidance for 2004 and I think consensus estimates are for about 15% top line and 25% bottom line. I was wondering if you could comment on any level of confidence with those numbers and when you will give formal guidance.

Over to Larry.

Hi, can upon bob. We're going to be anticipating issuing full year 2004 guidance in either late January or early February when we announce Q4.

OK. Any initial comments on level of comfort with the numbers that are out there now?

Bob, I think we will defer guiding on our results until that time.

OK. Thanks. I will get back in line.

Thank you. Our next question comes from Tim Nelson from US Bancorp Piper Jaffray. Please go ahead, sir.

Hi, guys. Couple questions. One on the feed through business. That seems to be really healthy this quarter. First quarter we have seen the intrinsic growth rate. Can you comment on the size of that opportunity going forward and what kind of share you think you have and if that is sustainable both initiatives?

We think we have over 50% market share. As we said at the time of making the acquisition of the CR business, we expect because there is an adoption cycle going on where new products essentially are all being filtered we believe there is the underlying market growth coupled with an adoption cycle. We expect that business to continue to grow faster than the market overall.

More than 50% share now, you think you can get significant larger chunk of that?

Yes, we do. We have important new technology coming along in filtered feed through over the next couple of years and we think that the adoption rate will -- of our technology will increase.

Do you have a size of the market you can think about in terms of dollars?

Uh, you know, it's -- I don't know if we've actually estimated a total market size. We'll have to give that more thought, Jim. We haven't sized that market.

On gross margin you talked more about taking the increase in the second half by 100 basis points on the medical business. Are you on track there? Is it 80, I believe you said, and will we see further improvement?

Compared to last year, yes.

Tim, if you recall from our last quarter, we anticipated improvement in gross margin in the second half of '03 and you see we delivered 80 basis point improvement in this quarter over the six month gross margin in the first half.

Right.

We anticipate, as we said a quarter ago and we are reiterating it today. We anticipate a 100 basis point improvement in gross margin really for your starting in '04.

OK. 100-basis point.

Full year '04 versus full year '03.

OK. For Q4, do we expect further improvement from this point?

We're not guiding on Q4. If you understand our business is impacted, lumpy and impacted by inventory movement in the mix of our products can really skew our gross margin sometimes in any particular quarter. So, we're just -- what we said, we expect second half to be improved margin over the first half and in Q3 we delivered on that.

Let me characterize the situation in a general way. We're very confident that our lean initiatives are paying dividends across every product line. Like Larry said, if mix shift that could have impact on aggregate gross margin, but we are very confident that we will see gross margin improvements in every product line fundamentally driven by the reduction in manufacturing costs that are being yielded from our Six Sigma and Lean initiatives.

Great. Given the inventory reduction then for fourth quarter it is uncertain in terms of bottom line margin?

Yes.

But, you are on track?

Absolutely.

Next question from Glenn Reicin from Morgan Stanley. Please go ahead.

Bunch of questions here. The first thing, scratching my head a little bit about this inventory comment. On the last guiding conference call, I think it was well balanced, well Fred and Ron that they were building strategic levels of inventory going forward of ICDs and we should expect inventory levels to go up. How does that sort of work out with what you're seeing in the marketplace in the fourth quarter? It doesn't sound like you are seeing that in the numbers.

Well, it depends on lead times, Glen. I'd be honest with you, I don't -- guidance hasn't discussed their overall inventory levels to finished product with us. But, I think typically if you look at the supply chain, if for example, if they were building inventory in the fourth quarter we would have probably delivered those components in the second or third quarter.

Right. That is fair. All right. Let me just ask a couple other questions here. If you look at the actual absolute spending on SG&A and R&D from second to third quarter. We are down over $1,500,000 or so. Was head count reduced or what is the source of the absolute spending coming down?

I'll let Larry handle that one.

There are a lot of individual elements to it. Let me point out a couple significant items. First, as I mentioned, we had a very little just because of our the way we do our product development programs with our customers, we had very little non-recurring engineering income, if you will, in the second quarter.

We completed significant activities in the third quarter that we were able to meet milestones, which allowed us to build. That results in a -- if you will, net reduction in what we call net RD&E. The gross RD&E dollars were not impacted by that.

Secondly, we had a gain of 300 plus thousand dollars one-time gain on asset disposition that there is no corresponding amount in the previous quarter.

Which asset was that?

It actually related to non-medical inventory that had been fully written off at some point in time and we were able to find a buyer for it.

OK.

And I think those are probably two of the larger individual items that resulted in the decrease in gross -- in the net spending on operating op-ex.

OK, so we are saying about fourth quarter, SG&A levels back around $8 million and R&D in the 4.5 to 5 million was normalized spending levels?

That is your model, but I think it is going -- I expect the decreases we saw in this quarter will not recur in the fourth quarter.

Let me put it another way, spending levels on R&D and SG&A should be more like Q2 than Q3?

I don't disagree with that.

Great. Also, can you give us some idea I usually try to model gross margin by product line? Can you give us an idea for same-store product growth for Globe? Just the growth rate.

Glen, in Q over Q it was certainly approaching the high rate CRM growth. It was significant improvement -- excuse me, significant volume gains at Globe.

Significant meaning -- can you give me a number, 36, 35, 40?

Not that high, it was over 25.

Significantly over 25?

(laughter.) Between 25 and 30. You pick the number, how is that?

Thank you very much. I'll get back in line. Thanks.

Our next question comes from Glenn Navaro from Banc of America Securities. Please go ahead, sir.

In the last week or two there has been concern in the marketplace about St. Jude signing a contract with a small company nanogram. I wonder if you could elaborate about Quasar and what you see are the benefits of Quasar to anything that that Nanogram Company can deliver for St. Jude? Thanks.

First of all, Glen, let me say that it is not clear what Nanogram is able to deliver. So, in terms of comparing to anything, we're not sure exactly what to compare it to. Now, I will say that we've had and worked with a couple different company that is provide Nano SVO material.

We've built batteries and have a strong patent position on one way of making nano SVO ourselves and compared to what we see in terms of Quasar performance we see little if any benefit of incorporating nano technology. That doesn't mean we won't continue to look at it. I think all of our customers are looking at new technology out there and all exploring different technologies. Of course, we are, too. Looking at nano technology, fuel sales.

So, the search is ongoing. If we look at any reasonable timeframe for incorporation of leadership battery technology into high rated CRM device we think that Quasar will be the best choice for significant period of time. It has extremely stable performance. It has substantial design flexibility. It can add significant longevity and we've got four years of real-time test data on hundreds and hundreds of batteries to back up our performance projections with real test database on years of experience. So, that's what we think we bring to the party.

Was the St. Jude signing with Nanogram, was that a surprise to you?

No, we knew St. Jude has been talking to Nanogram for years. We've been talking to Nanogram for years. Everybody has for years.

Did St. Jude elaborate as to why they signed a deal with Nanogram? Safety net or

It is what I said earlier, I haven't the patient to talk to Mike Coil, but I think they are out there looking at different technologies like all of our other customers and like we are.

One last follow-up. You've got St. Jude on board now; can you maybe comment on what you think you will get a second and third party?

We are very, very close to signing up our second customer and by that, I mean having a specific battery design that we're working on for delivery in the timeframe we indicated.

Great. I will get back in queue. Thank you.

Thank you. Our next question comes from Mark Landy from Leerink Swann & Company. Please go ahead, sir.

Hi, gentlemen. If you could break out for me CFX and the royalty or other line was?

CFX in the quarter approximately half a million.

OK, so, that's going to be at the same rate for almost the last two quarters, is that right?

That's correct, about the same rate each quarter this year.

OK. Expecting any material pick-up there?

Uh, we haven't guided for '04 yet.

OK. In terms of gross margin they kind of -- they are going to come up with guidance toward the Q1 area or higher, trim today down in Q2. Are you getting your arm around where gross margin can eventually settle down?

You know, Mark, gross margin is net of a lot of different things. We absolutely expect to deliver minimum of 100 basis point improvement in margin through cost reductions, manufacturing cost reductions per year starting in '04. The mix of product sold in any one quarter can significantly shift margins, composite margins that we report.

OK. So obviously the last question I have, with Globe stepping up have we seen improvement there, what improvement in gross margin there?

Significant gross margin improvement in Globe products. As we talked about earlier, the acquisition of Globe four quarters ago we initially had purchase accounting write-ups, if you will, that hit our gross margin in the third quarter of last year. We went through significant manufacturing changes at Globe and we had quite relatively speaking, low margins for a quarter or two and in Q2 and Q3 of this year they've been back to very strong margins, not yet to our corporate average. But, appropriate margin levels, but with more room to grow.

When do you anticipate getting them to corporate averaging?

You know what, Mark; I don't know if we ever well. Look at nature of enclosure product. There's not particularly great amount of R&D inherent in the product so it narrow -- naturally will not carry the same type of margins that corporate average more of our products are skewed toward heavy proprietary R&D content and accordingly carry higher margin. Products will probably always be in lower quar tile, if you will, of our product portfolio in a margin basis.

OK. Larry, dare I say electrify us?

Say what?

Electrify us.

That's an inside joke, only Tony and I understand that from the golf tournament. Thanks.

Thank you. Our next question comes from Derrick Winger (ph) from Jeffries and Company. Please go ahead, sir.

Three financial questions. Depreciation and amortization for the quarter, cap ex for the quarter, as well as guidance on CAPEX and gross interest expense for the quarter, as well.

OK. Let me -- hold on, I will have somebody look that number up for me. CAPEX in the quarter was $2.6 million. What was the third quarter?

CAPEX guidance going forward and interest expense for the quarter.

OK. Again, we anticipate higher than normal capital spending in Q4 and in certainly in 2004 we will provide detailed guidance for '04 at a later date. Our interest expense -- I'm sorry. It is on our press release. Where is it? Sorry, I'm flipping pages here. Interest expense was $1 million 154. Interest income was 253

1154 for the quarter and then depreciation and amortization.

You know, I don't have the number handy with me. Can we follow-up with you later on?

Sure. That's it.

Thank you. Our next question comes from Keay Nakae(ph) from Wedbush Morgan Securities. Please go ahead.

First question, in terms of Lean manufacturing initiatives, where would you say you are now with respect to ICD batteries compared to pacemakers batteries?

In terms of Lean implementation?

Correct.

We have I think gotten good results on our first pass with liquid iodine. We are just starting this quarter to implement Lean in the ICD battery manufacturing area.

Do you expect to complete that during the quarter?

I think by the year-end we'll be well along in our first pass, but my guess is the initiatives will continue on into the first quarter of 2004.

I was meaning specific to ICD batteries?

That is what I meant.

With respect to fourth quarter revenue guidance, normally we know your business can be lumpy, especially Q4 end of Q4. Is it fair to say that thus far the order flow is a little slower than expected?

Our order flow in the fourth quarter so far?

Yeah, you talked about the inventory situation at your customers. So, just trying to, you know, understand that statement, I guess.

Well, what we think might be happening out there is that our customers might be reducing some of their inventory levels. As a result, we're seeing a little softer fourth quarter than we otherwise might normally expect.

Beyond the fact you are also susceptible to order push-outs at end of the quarter?

Right.

Fair enough. Thank you.

Thank you. Our next question comes from Robert Hopkins from Lehman Brothers. Please go ahead, sir.

One quick follow-up. Back on the inventory issue. Is this focused in on one of your two main customers or across --?

We're seeing it a little bit in every place, Bob, across the board.

OK. And let's see -- I guess that's it. I will follow-up off-line. Thanks very much.

Thank you. We have a follow-up from Glenn Reicin from Morgan Stanley. Please go ahead, sir.

Couple small questions. You mentioned that across every business line you saw improvements in gross margins, I can't quite see that when I work through my numbers. Were there any exceptions to that or are you talk being improving sequentially from the second quarter? Can I push you on that statement?

This is for your saying

I think you heard --

Third quarter, I think, I think -- I don't have the line-by-line here. I think that in the third quarter we improved our gross margin in every product line compared to what it was in the second quarter.

OK. But not necessarily year-over-year?

Not all at the same rate. Maybe some was very small single digit and some was more.

Great. And those that were more were more like Globe and -- that seems to be the main one. It doesn't look like capacitors or batteries could have been all that -- probably could have been worse.

Let me underscore, Globe was one of the first places we went full bar online. What you will see as we move through 2004 is that as we are further along the leaning curve in the other product lines with the Lean and Six Sigma initiatives we will start to see fairly substantial improvement in those areas, as well.

Could you tell me whether capacitor gross margins were down sequentially and whether they're still up year-over-year in the third quarter.

You mean compared to third quarter last year?

Yeah..

Yeah, they're up.

Were they up compared to second quarter?

Yeah, I believe so.

OK. Thank you.

Thank you, sir. Once again Ladies and gentlemen, if you have a question or comment key "*1" on your touchtone phone.

Thanks, everybody.

Thank you, sir. And thank you, ladies and gentlemen, today for your participation. This concludes your conference call. You may now disconnect. Have a good day.