Moog Inc (MOG.A) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Moog first-quarter earnings conference call. At this time all lines are in a listen-only mode. Later there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's call is being recorded. At this time I'd like to turn the conference over to Ann Luhr of Moog Inc. Please go ahead.

Good morning. Before we begin we call your attention to the fact that we may make forward looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements.

A description of these risks, uncertainties and other factors is contained in our news release of February 1, 2010, our most recent Form 8-K filed on February 1, 2010, and in certain of our other public filings with the SEC.

We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our investor relations homepage and webcast page at www.Moog.com. Bob?

Thanks, Ann. Good morning, everyone; thanks for joining us again. This morning we'll report on the first quarter of '10 and we'll affirm our guidance for the year. We have seen some shifts in sales mix in our various segments, but we're still comfortable with the overall guidance that we've provided for 2010.

By now you've probably seen our results for the quarter -- sales $495 million, up 11%; net earnings $21.6 million were down from last year and earnings per share of $0.47 were two-thirds of the $0.70 we made in the first quarter of '09. We might expect adverse comparisons for the first quarter of '09, that was the last pre-recession quarter for our company.

In that quarter we had a solid mix of business, a low tax rate, net earnings of 6.8% of sales. At $0.70 a share it was the strongest quarter of our fiscal '09. By the second quarter the global recession had found us; our earnings came down quarter by quarter throughout the year such that in the last quarter of '09 we made $0.35 a share.

In our guidance for 2010 we're projecting a year of recovery; we think we're off to a good start. Our first-quarter earnings per share of $0.47 are up nicely from the preceding quarter of $0.35. A look at the P&L tells you that sales were up 11%. Gross profit is lower as a percentage of sales than last year, reflecting a somewhat less favorable product mix.

About $81 million of this quarter's revenue are from recent acquisitions including the GE Flight Controls business in Wolverhampton. Purchase accounting hit those sales depressing the operating margin somewhat. R&D for the quarter was actually down, but SG&A expenses were up almost $9 million. Most of the increase in SG&A is that component of the recently acquired companies.

Interest expense up $1.1 million. Last year we also had the benefit of $2.5 million of other income that included the profits from our minority investment in LTi REEnergy. At that time, you may remember, we owned 40% of that company; we were not consolidating sales, we were simply taking our portion of the profits into other income. This year we own the whole company; sales and cost for those products are consolidated. Also in the first quarter of 09 we had an extraordinary low tax rate and this year we're back to a more normal 26.8%.

Now let me go to the segments -- aircraft, total aircraft sales $175 million, up 7%, and the increase provided by the recent acquisitions. In the military aircraft business our OEM production volume was about the same as last year. The F-35 development programs, on the other hand, were running at less than half of last year. But sales at Wolverhampton and an increase in the aftermarket more than made up for that decline.

On the commercial side, excluding Wolverhampton, sales to Boeing and Airbus were in total about the same as last year. $10.7 million of sales in Wolverhampton offset a $5 million decline in business jets and $4 million decline in the commercial aftermarket. Sales of navigational aids were up $6.3 million in the quarter and the majority of that increase was revenue from the Fernau acquisition which we completed late in the second quarter of fiscal '09.

For the balance of 2010 we're anticipating slightly higher sales in aircraft controls; we're now forecasting a total for the year of $742 million. In total military aircraft sales will continue at about the same rate as the first quarter and we're expecting a modest increase in OEM sales to Boeing Commercial and in the commercial aftermarket. And we will have substantial sales on the 787 later in the year. We also expect increased sales in navigational aids.

Margins -- in the quarter hour aircraft group expensed $1.2 million in restructuring. Prior to the restructuring expense margins were 10.7%, considerably stronger than the 8.6% of fiscal '09 and the 8.7% that we had projected for this year. After restructuring margins were 10.1% and, based on the strong first-quarter results, we're revising our margin expectation for aircraft for 2010 up from 8.3% in our previous guidance to 8.6%. Improvement in margins is the result of improved cost performance on some production programs.

R&D in the aircraft group, excluding Wolverhampton, was down about 10% in the quarter to $13.9 million. However, this was mostly a shift of expense from R&D into bid and proposal and we expect that in the quarters to come R&D will increase as the A350 development hardware gets built. So when we add in the rather modest R&D expenditure at Wolverhampton we're now forecasting total R&D for the aircraft group at just under $63 million for the year.

Space and Defense -- Space and Defense had a strong first quarter and a good start for the year. Quarter sales at $69.5 million suffered by comparison to last year only because in last year's first quarter we shipped almost a year's worth of systems for the Driver's Vision Enhancer program. This is the pan and tilt mechanism that goes in the MRAP vehicles. Orders for this system come sporadically and they generally require delivery in a great rush.

The rest of the Space and Defense business was strong in the quarter. Part of the business which I call the legacy business, which includes controls for steering the rockets that launch satellites, controls that position satellites on orbit, steering controls for strategic and tactical missiles and missile defense, taken all together provided $36.9 million in sales for the quarter, a 26% increase from a year ago.

Satellite controls are over 40% of the legacy total and they're up reflecting consistent demand for both military and commercial satellites. The launch vehicle business is up because of activity on the ATK CASTOR solid rocket motor and the Aerojet instance engines, both on the Orbital Sciences Taurus II launch vehicle. Taurus II is one of the launch vehicles that's considered a commercial launcher, the sort of launcher that apparently the administration is rumored to favor.

The legacy business is also up because of increased production volume on Hellfire, the missile that's been used extensively in the Mideast. Our NASA work, which is primarily on the Constellation program, was up somewhat in this quarter from a year ago.

Defense controls, primarily positioning systems for guns on military vehicles, is pretty consistent year to year, excluding the impact of the Driver's Vision Enhancer. We've seen some reduced revenue in the US as a result of the cancellation of future combat systems; however, we have increased activity on a program called GATOR, this is the ground-based task order radar for the Marines. We also have growing sales on a number of programs in Europe, particularly the FLW200 remote weapon station in Germany, and we have a number of applications in the Pacific rim.

Some use ago we acquired the Flo-Tork Corp. in Orrville, Ohio as an entry point into the supply of controls for the Navy. That business continues to grow because of increased production for the Virginia class submarines. Also last year we purchased the company Videoalarm to expand our participation in security and surveillance and that part of our business is growing as well.

As we look out over the balance of 2010 we're projecting a fairly consistent level of activity in the legacy business and in defense controls, in naval applications and security and surveillance. We were looking for increased revenue from the Constellation program and perhaps we still are. We've recently signed contracts for a number of new applications; these are cost plus development contracts having to do primarily with the Ares I launch vehicle and the Orion crew vehicle.

A couple of months ago when the results of the Augustine Commission hit the Street we worried about the future of the Constellation program and particularly Ares I. Since then it seems that the Congress has come alive and provided funding for the current year and, in addition, Senator Shelby got language into the bill that requires that the administration come back to Congress before they can alter the course of the space program during 2010.

It seems that in the Congress there is considerable support for the current program. However, last week and early this morning there are news reports that the administration will not fund the Constellation program in next year's budget. So that certainly puts the current plan for 2010 somewhat in doubt, we've been planning on another $26 million in NASA Billings on Constellation in 2010. And at this point we don't know how much, if any of that, will be affected.

NASA may attempt to continue to work to a reasonable conclusion. In evaluating the potential impact on our year it's important for you to remember that this NASA work is cost plus development work with mid-single-digit award fee.

On a brighter note, we do have new orders for Driver's Vision Enhancer systems. These systems are part of the family of systems program and we have orders from both the products, they are BAE and DRS. And we're quite confident in our updated forecast for the DVE. In total then, we're still bullish on our forecast for the year of the $320 million in sales for Space and Defense, an increase of 17% over '09.

Margins -- Space and Defense margins, 10.8%, were very close to the 11.3% we had been projecting for the year. Last year in the first quarter we generated stratospheric margins of 19% and we explained at that time that we had some very nice end of program profit pickups in that quarter and, in addition, huge production volume of the DVE program which provided a nice profit kicker. So we said at that time we don't think of 19% as typical margin performance in Space and Defense.

Given what's been achieved in the first quarter, and our expectation that the balance of the year may see a larger proportion of cost plus development work, we moderated our margin projection for the year for Space and Defense to 10.2%.

Industrial -- the first quarter of last year Industrial sales were $110 million; they were down 10% from the year previous. And then excluding the effect of our wind energy acquisitions, Industrial sales continued to decline to a low point in the third quarter of about $84 million. That portfolio of legacy products improved slightly in the fourth quarter to $88 million, and improved again in the first quarter of this year to over $91 million.

In addition, we made the acquisitions in the wind energy business so that our sales in the quarter, $136.4 million, were up 24% from quarter one of '09. In the quarter the wind energy product lines generated $44.9 million in sales; the rest of the business was still off compared to the quarter a year ago by almost $20 million.

The good news is that some parts of that business are showing signs of life. Sales of controls for plastic making machinery, which are part of our capital equipment category, were almost $13 million in the quarter compared to less than $10 million a quarter ago and $8 million at the low point in the spring of '09.

So we're cautiously optimistic about our first cut at guidance for 2010 for Industrial; we have protected our Industrial business at $573 million; our original forecast included $220 million in wind energy. We have seen some delays in wind energy projects in Europe and so we've moderated the wind energy forecast to $190 million.

It seems though that there's seasonality in the wind business. Turbines don't need to be delivered if the weather is not suitable for construction. In some parts of our legacy business though we are feeling better and so we believe we can still hold the total forecast at $573 million.

Margins -- in thinking about the current state of our Industrial business it's important to remember that in fiscal '08 our industry of segment, with margins of 13.8%, generated more profit than any of our other segments. In the past this has been a strong business. Fiscal '09 though was a tough year for profitability in the Industrial business. In the fourth quarter of '09 Industrial margins before restructuring were down to 7%, after restructuring 5.5%.

For all of last year Industrial margins were 6.8% after restructuring. In this first quarter margins were 8.5% before restructuring and the restructuring charge of $400,000 had a minimal affect. Anticipating that there is still some restructuring to go, we're now projecting Industrial margins for the year at 8.6%. In our prior guidance for 2010 we had been projecting Industrial for the year at 7.4% after restructuring.

Components Group -- Components Group sales in the quarter, $84.9 million, were up 4%, $3.4 million from a year ago. And the increase is all in the Aircraft and Defense businesses. The drivers in the Aircraft business are deliveries of fiber optic controls used on the Eurofighter, a modest increase in deliveries on the Northrop Grumman Guardian system, and much increased activity on deicing systems for that Black Hawk helicopter and the V22 tilt rotor. We believe that a lot of the equipment used on deicing of the Black Hawk is related to the conflict in the Mideast.

The Defense business growth driver is a new contract with a company, Kongsberg, to provide a slip ring system on a system called CROWS. CROWS is the Commonly Remotely Operated Weapons Station. This quarter we delivered almost $2 million worth of equipment on this new program.

Once we leave Military Aircraft and Defense, sales comparisons for the Components Group go the other way. Sales of Marine products, which are primarily slip rings and fiber optic rotary joints used an undersea vehicles, are down 30%. We've said in the past that the demand for this equipment seems to track the price of oil and we seem to be feeling the effects of the retreat from the peak that was generated in fiscal '08 when oil was over $100 a barrel.

Sales in the medical market are also down; it would appear that sales of sleep apnea equipment and Respironics and sales of CT scan machines are subject to recessionary pressures. We are selling to Respironics a lower cost, lower priced motor blower assembly, but unit volume is also down from a year ago. Similarly, our sales of slip rings to manufacturers of CAT scan machines are about the same level as a year ago.

Sales in the quarter of components used in industrial equipment were down 8% from a year ago and about the same level as last quarter, and that quarter was actually an improvement over the previous two quarters. And we have real excitement in our Industrial products in the Components Group in that we've won a very large order for slip rings used on wind turbines by a company named Sinovel, the largest manufacturer of wind turbines in China. That contract provided sales in the quarter of almost $2 million. That's about the same level as the previous quarter, but a year ago this company was not even a customer.

So, we're cautiously optimistic about prospects for the Components Group in 2010. We're looking for sales increases over the next three quarters in aircraft products. And in the medical market because we have some new opportunities in the CT scan business. Our Industrial business will see an increase simply as a result of the continued volume of slip rings delivered to Sinovel for the wind turbines. Marine business is expected to maintain about the same level as the first quarter, but we do anticipate some reductions in our defense controls business primarily related to armored vehicles.

Component Group margins -- in the quarter Component Group operating margins were 14.3%. This is the most profitable segment in our company. The 14.3%, however, does not compare well to the 18.4% in the first quarter of '09. It is, however, an improvement over 12.3% in the last quarter of '09.

Components Group margins have always been strong, but as the mix shifts more towards Military Aircraft and Defense products, away from Industrial and particularly Marine products, the average operating margins moderate some. And that's what we're experiencing this year. We are expecting, however, that there will be some improvement over the balance of the year and we're projecting margins for the year of 15.1%, pretty close to the 15.3% of our previous guidance.

Medical Devices -- after a very tough fiscal '09 we are hoping for and we've forecasted a turn around year for Medical Devices. We think we've gotten off to a reasonable start; sales in the quarter were up by a whopping 47% from a year ago. Admittedly though, the revenue this year includes acquisitions, not part of our first quarter in '09. But even without the revenue from those acquisitions sales were up 17%.

Sales of pumps were up $2.6 million; about half of the increase was the addition of the syringe pump product line from our Aitecs acquisition, but there was a real increase also in the sales volume of IV infusion pumps primarily sold by the B. Braun organization. Our set revenue was up 16% and the rest of our business was influenced by the volume of sensors and handpieces and delivery of service and other accessories.

Compared to the first quarter we're expecting only modest increases in pump sales over the balance of the year and we expect the increase will be in each of the various products. We're projecting a similarly modest increase in sales of admin sets of sensors and handpieces and other associated equipment, so we're still projecting for the year $129 million in sales, an increase of 16% over fiscal '09.

Margins -- you may recall that in '09 Medical Devices' margins were in negative territory. We've projected a turnaround for this year. In the first quarter we at least broke into the black in terms of operating profit and generated about $100,000. As I mentioned, we're projecting a modest increase in sales over the balance of the year and that should provide some marginal profitability.

In addition, we're anticipating that we'll have some cost improvement in the back half of the year as our new production facility for disposable comes on line. So we're still optimistic that Medical Devices will be in the black for the year. We're now projecting operating profit for the year of 3.5%.

So in summary, we're holding our sales forecast for 2010 at $2.12 billion, we've revised our overall operating margin forecast ever so slightly, we're now at 9.6%, previous guidance was 9.5%. That increase will cover a modest increase in corporate expense and we're still projecting net earnings of $102.9 million or $2.25 a share which we'll remind you is a 14% increase over '09. We still think that a range of plus or minus $0.10 should be adequate, around the $2.25.

We had forecasted EPS for the next three quarters at $0.53, $0.59 and $0.66. Considering the seasonality that we expect in the wind business, and some other potential program delays perhaps including Constellation, it's possible that quarter two could be $0.50 and quarter three $0.62. But time will tell. Now, John Scannell has some interesting news on our cash flow and so here's John.

Thanks, Bob, good morning. This quarter we can report very strong cash flow. Net debt decreased by $47 million while our free cash flow in the quarter was positive $44 million. Reductions in inventories and receivables produced $38 million of cash offset somewhat by a decrease in payables of $11 million. Capital expenditures in the quarter were relatively low at $12 million while depreciation and amortization was $23 million.

This very strong performance was helped somewhat by some favorable timing of receipts and expenditures. These will reverse in the second quarter. Interest payments totaled $11 million, but our cash tax payments were $4 million.

Some other items from the balance sheet. Our effective tax rate in the quarter was a pretty normal 26.8%, non-cash stock compensation expense was $2.8 million. Contract reserves decreased by $6 million from the prior quarter, primarily the result of the utilization of reserves associated with the Wolverhampton business we purchased from GE at the end of Q4 '09. We continued funding our US pension obligations at our $6 million per quarter run rate.

Our leverage ratio, defined as net debt divided by an adjusted EBITDA, decreased this quarter to under 2.75%, down from 2.94% at the end of Q4. We anticipate that our ratio will continue to improve over the balance of fiscal '10 as our earnings recover and our free cash flow continues. At the end of December our net debt to total capitalization stood at 39.3%.

The forecast for fiscal '10 -- given the strong performance in the first quarter we're increasing our forecast of free cash flow for the year to $75 million, up from our last forecast of $60 million just 90 days ago. We anticipate capital expenditures will accelerate from the low point in Q1 as we move through the year, so we are maintaining our full year forecast for capital expenditures at $75 million.

Depreciation and amortization should end the year at $93 million and we are revising our effective tax rate down slightly to 27.1%. Finally, there's no change in our forecast for interest expense for the year at $39 million. Now let me pass you back to Bob to lead the Q&A discussion.

Kent, we'll go to Q&A please.

(Operator Instructions). Cai von Rumohr, Cowen and Company.

Good job on the cash flow.

Thank you, Cai.

Where are we in our discussions with Boeing regarding equitable adjustment and what's the chance that you might get that done this year given they seem to be settling up with other folks?

We're in negotiations; it goes in fits and starts. But I'm -- I agree with your characterization; it does seem that Boeing wants to get these issues resolved. So, let's see, we're in February, I would expect that the issues we have with Boeing will be resolved by the end of this quarter, certainly by the end of June.

Okay. And what have you assumed in your guidance here for both EPS and for cash flow regarding any resolutions there.

Excuse me, did you ask me -- did you just ask me what yield we expect and have plugged into our financials that we expect to earn out of our negotiating -- negotiations with Boeing?

I think so, yes.

I don't think that we are going to announce what it is that we're betting.

But I mean, have you changed your numbers even though you don't want to -- I can understand that you don't want to talk about it, but how these cash flow at numbers which are stronger and have the earnings numbers (multiple speakers).

On the cash flow, Cai, we haven't fundamentally changed the assumption about what we might earn from Boeing. And I think even if we do have a resolution with Boeing, I don't imagine that the impact in this particular financial year would be very significant. So -- I think it's probably in the noise that there are too many other moving parts on the cash flow to put that one in as a major element.

Got it. Okay. And then I guess I'm a little confused in Space and Defense that the margins are going to get worse when last year all of your DVE was in the first quarter and you did 19%. And this year all of it's going to be in the last nine months. And you're going to do worse than you did in the first quarter.

Yes, I think that's a reasonable question. The DVE business is this year somewhat more competitive than it was in previous years. And our forecast for the balance of the year does rely more heavily on the cost-plus development work that we're planning on in the Constellation program. But it could be that it's a somewhat conservative prediction of what's going to occur.

Okay. And then the last one and I'll let someone else go, what do your forecasts now include for restructuring at both Industrial and Aircraft for the balance of the year?

Let's see, for the balance of the year --.

Or for the total year, either way.

Total year we're -- we have built in $5.7 million and the first quarter was $1.8 million.

Okay, terrific. Thank you very much.

Thank you.

Mike Ciarmoli, Boenning & Scattergood.

Good morning, guys, thanks for taking my questions. I guess, Bob, just on the wind business, understanding that you're still fairly new in this market, the outlook has come down. I think when you were first looking at the full year it was about $235 million, now it's about $191 million, I guess you said. Some of the other guys out there are seeing some weakness, granted they're more on the structure side talking about inventory corrections, drawdown.

Can you help me understand how you're seeing this business? Is there still some level of uncertainty? And given that you're more on the systems side of it, away from the actual structures, how much of your revenues can be, I guess, more visible, maybe they're recurring in nature due to servicing. Can you just help me understand a little bit more about that market?

Yes. I think the major variable in our business is geography. Of the $190 million that we're forecasting now, which as you point out is down from some of our earlier forecasts, over half of it is business in China. And in China there doesn't seem to be any slowdown; these are government sponsored, government financed projects and the growth is absolutely incredible. There are now, we're told, 80 companies manufacturing wind turbines in China. Nobody expects that there will be 80 companies making turbines a few years from now, but this business is just going nuts.

Almost all of the rest of our business is in Europe. And that's where our forecast has been moderating over the last few months, was probably a little optimistic at the outset. But we have run into some program delays which may have to do with financing, we're not sure what the cause is. But we're reasonably confident in that part of our forecast. Almost none of our forecast is related to the wind energy business in the US. So to the extent that there are slowdowns associated particularly with financing in the US, that won't have any impact on our forecast. So, at $190 million we're reasonably confident.

Okay. And just out of that $190 million, can you give us a sense as to how much is related to new builds versus aftermarket servicing?

I don't have a percentage handy --.

Okay.

Almost -- I would say the vast majority is new build.

Okay.

The aftermarket business is still pretty incidental for us.

Okay, that's helpful. And then just on NASA, Constellation shuttle, obviously still uncertainty. There's probably going to be a long fight in Congress there. But are you anticipating obviously the launch vehicle Ares I looks to be at risk. It seems like they want to preserve the Orion crew capsule. Our of your $26 million in billings that you're anticipating this year, did you get a sense as to -- or do you have an understanding how much is related to the Orion capsule where you still might have a high probability of seeing those billings?

Yes. Orion is -- let's see, I would say about half of what's -- yes, maybe between one-third and one-half of the $25 million to $26 million we have left. It is an interesting situation to be in. As you may know, at the moment NASA and Boeing are proceeding aggressively in awarding contracts, schedules are being held, there's a lot of pressure to keep the program of record, I'll call it, on course and on schedule -- just as if the administration was supporting this program.

Now, Obama announces in his budget that he doesn't intend to fund it next year. What does that mean? Does that mean that he's going to -- that either the program changes or the Congress has to decide to fund the program and then he'll be able to blame the Congress for the deficit. In addition, we believe that even if Ares I -- if they pull the plug on Ares I, there will be another launcher, Ares V light or some other heavy lift launcher, that will probably use all of the equipment that we were designing and building for Ares I and Ares V.

And so I think the question may be less how much business are we going to do, but when is it going to occur and that will depend on how the NASA organization responds to what appears to be a change in direction coming out of the administration.

Sure, okay. And then one last question and I'll get out of the way here. The Taurus II program, Orbital Sciences, you've got content there. How do you envision your revenue ramping? They're still obviously in a development program, they want to get to I think four or five launches per year. It seems like that could be fairly significant for you guys in a couple years.

Yes, it could be. But you probably have a better forecast for Taurus II than we do.

Okay. What's your revenue per platform there? If you can say.

We probably could, but I don't have it at hand. We'll get back to you on that.

Okay, great. Thanks a lot, guys.

Eric Hugel, Stephens.

Good morning, guys. Just a couple of quick ones. Last quarter we talked about in your commercial aftermarket you're starting to see a bit of a sequential improvement, but you were sort of nervous about going there. Just wanted to -- in this quarter how that did that trend fare?

Not well. The commercial aftermarket was way down in this quarter. So I'd go back to I think -- many times in discussion of the commercial aftermarket in these calls I've talked about the volatility. And that certainly happened this quarter. The commercial aftermarket was down to $18.4 million, it was almost $22 million in the previous quarter. On the other hand, in quarter two of '09 it was $18.8 million. So it bounces around. I don't know that we have data that describes a trend.

Okay, fair enough. I know you're not going to comment on what you have incorporated in terms of your expectations for Boeing and Airbus production rates. But I just wanted to get your perspective on what you're seeing in the overall economy and what you've seen maybe over the last three months as to whether you think a rate decrease is more or less likely. Has anything happened in your business that you see that you could translate into potential rate cuts being more or less likely to occur?

No. We don't have a better guess than anybody else. I think that there have been -- there's a lot of speculation of the rates on the 737. As I think you know, the 737 is not a platform on which we have high dollar volume. So we're not all that concerned about it. But we're pretty much -- I shouldn't say pretty much. We are conforming our production plan to what Boeing is saying at the moment, we're not trying to second-guess it.

Sure, sure. On Medical, in terms of the margins you still have to consider them over unacceptably weak levels. I know you have a recovery plan in process. But can you outline for us what is your bit longer term level that you would consider acceptable and how do you get there and over what kind of timeframe?

Well, when we got into this business I shot my mouth off about making 20% margins and I wish I had the opportunity to do that over. We still think though that this is a business that should be able to generate margins in the neighborhood of 15% and that's -- we'll be targeting that at least. I don't know that we'll make that in 2011, but I would expect 2011 to be a year much better than 2010. And by 2012 we ought to have -- hit our ongoing pace.

With regards to your B. Braun, the distribution relationship. When does that roll over? It has been around for a while. Is there a date at which you've got to decide what to do with that?

There is a date when the arrangement that was in place when we acquired the Curlin company -- there is a date when that arrangement comes to a close. But we are in continuing negotiations with B. Braun, exploring the possibility of continuing a relationship one fashion or another. So, I would not point to a date at the moment when that relationship will be over, still talking.

Okay. And just lastly, just sort of housekeeping. The corporate and other line seemed a bit heavy this quarter. Was there anything in there?

We changed in this quarter our projection for equity-based compensation.

So that was a cumulative catch-up type of thing?

Yes.

Okay and that will flatten out around what, like $1 million in the --?

Yes, the last three quarters it's just under $1 million a quarter.

Okay. So the option expense number stays flat and the corporate overhead line stays at about that $4 million range? So I think you were looking for about $16 million last year in the prior guidance.

Yes. And the only real difference is, as Bob says, is the equity-based compensation.

Great. Thanks, guys.

(Operator Instructions). And at this time I'm showing no further questions in queue.

Okay. Thanks, everybody, for coming and we'll talk again in the quarter.

Great, thank you. And ladies and gentlemen, this conference will be available for replay starting today, Monday, February 1 at noon Eastern Time and it will be available through Monday, March 1 at midnight Eastern Time. You may access the AT&T Executive Playback service by dialing 1-800-475-6701 within the United States or Canada and then enter the access code of 144-323. (Operator Instructions). And that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive Teleconference. You may now disconnect.