Mettler-Toledo International Inc (MTD) 2002 Q1 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Mettler Toledo first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. The company would like to remind you that statements made during this conference call, which are not historical facts, may be consider forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to Mettler Toledo quarterly earnings release annual reports and periodic filings with the Security and Exchange Commission. I would know like to introduce our host for today's conference, Mr. Robert F. Spoerry. Mr. Spoerry you may began.

Good afternoon every body. I am Robert Spoerry, the Chairman and CEO of Mettler Toledo, and I want to welcome you to this call. I am in Chicago, and joining me on the call are William P. Donnelly, our CFO currently, and Dennis W. Braun, who most of you know recently joined us and will take over Bill responsibilities in June. Marry T. Finnegan, Investor Relation, is also with us. This call will be webcasted and is available for replay in our website www.mt.com. A copy of the press release the issue this afternoon is also available on our website. There are five key messages from today's call that I want to highlight in the beginning. First, we reported a solid first quarter given the challenging global economy. Market conditions were more difficult than we expected at the beginning of the year, but we executed well on our cost initiatives and achieved another quarter of earnings growth. We achieved these results while continuing to make healthy investments in R&D and despite facing strong currency headway. Second, we are not counting on a strong economy recovery for the rest of 2002. Consequently, we are implementing additional restructuring to permanently eliminate between $12 million and $15 million from our cost structure. The weak economy and it impact to our end markets are proving difficult and we did not want to wait and hope for recovery. The actions we take now to further improve our operating structure will further enhance our cost leadership efficiency in a very sustainable way. We will take a charge in the second quarter related to this restructuring action. Third, in the short term we cannot fully compensate for the weak mark condition with cost space. Therefore, it is necessary for us to modestly reduce our 2002 earning guidance by 4%, and also the amount is not significant. I really want to apologize that this is necessary to makes this change. Fourth, we just completed a tax restructuring, which reduces our tax rate for the coming year and will provide a long-term tax gain in the second quarter. Finally, we are convinced that through our continued diligent execution of our business strategy, our substantial commitment to R&D investments, and the actions taken now to reduce our cost structure, it will be solidly positioned to further strong growth once the economy recovers. With these key points in mind lets now move into the detail. Bill will start by taking you through the financial aspects of the quarter and the plans for restructuring. I will then give you an insight into our current business environment and the outlook, and discuss restructuring in more detail. Finally, I will also update you on our strategic initiative. You will of course have time for questions at the end of the call. I will now turn over to Bill.

Thanks Robert, and good afternoon everybody. We had earnings per share of $0.41 per share in the quarter, which was equal to consensus estimates and 21% greater than last year's amount of $0.34. It is based on 45.5 million shares outstanding. If we ProForma the first quarter of 2001 for the new goodwill accounting rule the increase was 11%. I will come back a little later with some further analysis and earnings growth, but let me start from the top of the P&L and take you through the rest. Sales for the quarter amounted to $273 million, representing a 5% increase in local currency, partly offset by a 2% currency impact. If we adjust for acquisitions our sales were down 2%. Let me give you some additional information about our sales growth by regions. First of all, organic growth was -9% in Europe, +1% in the Americas, and 11% in Asia and rest of the world, for the -2% I previously referred to. In total we were down 7% in Europe, +16% in the Americas, of course driven by Rainin, and +11% in Asia and rest of world where total growth in local currency was up 5%. Now let me give you a few comments about that sales growth that covered more about the business areas. So, first of all in our lab business; our lab business grew by mid single digits in the quarter. It increased double-digits in the United States and Asia, but was down actually double digits in Europe, principally because Germany is quite weak. We feel this reflects the uncertainty surrounding the European, but particularly the German economy, as well as some ongoing disputes that perhaps you have read about regarding tariff agreements in Germany or labor agreements in Germany. Within lab our drug discovery business grew mid-teens, and again was stronger in U.S. but somewhat weaker in Europe, especially Germany. We believe for Q1 our European lab business was somewhat of an aberration. While we do not expect a very strong come back in the short term, it certainly will be better in the rest of the years than it was in Q1. Next, our industrial business; our industrial businesses include both packaging and our industrial instruments, and they were down mid single digits in the quarter. The only area of industrial growth for us was in Asia. While we expect our packaging business to improve in the second half; actually we saw good order growth in that business, the traditional industrial instrument is not yet showing some signs of improvement. In retail, our retail business was flat in total during the quarter. We grew nicely in the U.S., but were down in Europe. Asia is not really a big part of our retail business yet. While we expect to slow down in the post-European conversion period, it was a substantial drop off that we encountered in the month of March, which has continued into April. We believe the weak European retail business would continue for the rest of the year and be partly offset by growth in our U.S. business. Just a moment I will step away from our organic business and maybe make a brief comment on Rainin. Rainin performed quite well in the quarter. They had a double-digit sales growth and are on track for the full year target. Integration in Europe is off to a good start, and actually Robert will touch that a little bit later. Moving next to gross margins, we achieve 45.8% in the quarter. This represents 130 basis point improvements versus the prior year's quarter, and reflects the continued cost productivity improvements we have been making, as well as the favorable sales mix. We should be able to continue to deliver strong gross margins for the rest of the year. Continuing down the P&L, R&D expenditures in local currency grew by 15%-6.1% in sales. Rainin increased the number here, but even excluding Rainin R&D grew by more than 10% in the quarter versus the prior year quarter. Looking ahead, R&D will continue to be a priority investment for us. However, it might not hold the same pace that we have seen this quarter and in some of the recent quarters. SG&A in the quarter amounted to $75.8 million or 27.8% of sales. EBITDA or earnings before interest, taxes, and amortization increased by 7% to $32.6 million. This translates into a margin of 11.9 %, 50 basis points more than Q1 of 2001. EBITDA was impacted by the lower sales volume, our significant investment in R&D, as well as some adverse currency movements. To give you a feel, currencies hurt us, specifically the Swiss Franc versus the Euro, as well as to a lesser extent the Yen verus the Dollar, by about $2 million in the quarter or about $0.025 per share. Further down the P&L, amortization amounted to $1.8 million and interest expense was $4.4 million. As Robert mentioned, we also completed tax reorganization during the quarter to lower our effective tax rate. Over the last several years we initiated a series of steps in an effort to improve not only our effective rate but our cashflow in terms of lower tax payments, and as well as our ability to repatriate cash from Europe into the United States. The structural changes have now been completed and will provide us with a sustainable reduction on our tax rate and taxes paid for the coming year. The new tax rate is 30%, and it is reflected in this quarter. Absent in the acquisition, significant acquisitions that might not have positive tax characteristics and any other changes in the tax law, this rate should be maintained for the foreseeable future. Now turning to cashflow; LTM EBITDA amounted to $190.5 million. Net debt was $345.1 million, resulting in a net debt to EBITDA ratio of 1.8 times and an interest coverage of 11.8. Free cashflow for the quarter was solid. It was $4 million just compared to a $0.5 million last year. As a reminder, we defined free cashflow as aftertaxes, working capital, cap ex, but before restructuring payments and acquisition. Higher earnings and better management of working capital were able to offset higher cap ex levels. Cap ex was up $3 million in the quarter as we invested $4 million in the new manufacturing facility for Rainin. I think we mentioned this to you on previous call that we are going to invest a total of $7 million this year in Rainin's new production facilities. This project will be completed in Q2. At quarter end DSO was 55.5 days, below our target of 60 days, while ITO remains constant at 3.5 times. We spent $16.5 million in acquisitions during the quarter. Robert is going to speak about SoftTechnics, the software company we acquired to enhance our solutions capabilities for food retailers. We also paid an earn-out for Berger, the acquisition we made in 2000, and paid some legal expenses in connection with Rainin. As I mentioned earlier, I wanted to take you through the earnings per share number in a little bit more detail. We reported earnings per share of $0.41 during the quarter. This was in line with consensus, but consensus expectations assumed a 33% tax rate and we reported a 30% tax rate. The rate change therefore benefited us by about $0.02 per share. However, the benefit of the tax rate change was offset by the impact of the currency movements during the quarter. As mentioned, foreign currency cost us about $0.025 per share in the quarter. Turning to our restructuring initiatives now, Robert will speak in more detail on the specifics of what we are doing, but I wanted to cover with you the financial aspects. We have started a series of cost restructuring programs, and in total we expect to obtain from these programs an ongoing savings in the range of $12-$15 million on an annual basis. We will take one-time pretax restructuring charge in the second quarter of approximately $22-$24 million. About two-thirds of this, maybe a little less, will be cash, and substantially all of that are employees' severance payments. The non-cash fee is principally related to manufacturing consolidation and further production ships to China. We have also had some non-cash charges arising from an early retirement plan. Next, in conjunction with our tax restructuring we will receive in the second quarter final clearance from the relevant tax authorities, and will record a one-time gain in excess of $20 million. The tax credit will exceed the restructuring charge on a book basis. The cash benefit of the tax credit will offset a large portion of the cost through restructuring plan, but not all of it. Although earnings per share will have a modest positive impact from these two one-time items, we have excluded both of them in our guidance assumptions. Now moving to the remainder of the year, let us talk about our revised guidance. Specifically, our revised guidance for 2002 is a range of our earnings per share of $2.35-$2.45. This compares to consensus expectations currently of $2.48 per share. I want to give you some of the key assumptions that we used in making this estimate into our forecast. We estimate that total sales growth in local currency for the remaining three quarters of this year will be in the range of +2% to +5%. What this means in terms of our organic growth in our business is we are assuming a negative organic growth in the remaining three quarters between -2% and -4%. When we made this forecast we did not assume an economic recovery for the rest of this year, but we did assume our normal seasonality where the fourth quarter has more sales than any other quarters during the year. Now that is our sales assumption. In terms of EBITDA, our EBITDA numbers should be in the $180 million range. As discussed earlier we assumed the tax rate of about 30%. Finally, we forecasted the cash flows will be solid, and we believe that before acquisitions and restructuring costs we should generate the cash flow in the $80 million range. Now I know that there are a couple of different factors going on in terms of our earnings per share growth when we analyze our 2002 forecast now versus what we had in 2001. In addition to the impact of FAS-142, we have the change in our tax rate and the impact of the currency exchange environment. If you adjust for all of these items on a comparable basis in 2001 our earnings per share would have been $2.23. We therefore are assuming a growth rate for this year, including all three of those items, in the range of 5-10% depending on the top end or the bottom end of the range. Okay. That is it for me for now. And I am going to turn it back over to Robert.

Thanks Bill. Before I move to our outlook I want to say that my management team and I are disappointed that we will not reach our original 2002 targets. But I want to tell you that our strategy and the effusion execution are excellent. For example, our various cost-saving initiatives like procurement in China are well on track. Also, we just rolled out a very strong offering of new products at [_____], and various competitions frankly talked me to tell any area and find any areas where we are not gaining market shares. But the market is to market and they stopped right now. So with those comments let me take you to how I see the marketplace today and through the outlook for the remainder of the year. In terms of geographic regions, in Europe we face two challenges; a significant deterioration in the economy and in particular in Germany, and the sizable fall off in the retail business due to the completion of the Euro conversion. In the Americas, while our lab business is still doing well and our retail business is solid, we see no momentum in the economy and therefore our investor business continues to be weak. In Asia, most regions are product lines are solid, but we are watching Japan closely as our growth has slowed down there. Now let me walk you to our all outlook by business area. First of all in the labs. We see our lab business remaining at the same mid-single digit growth level we experienced in the first quarter. While Europe was slight weak in the first quarter, actually minus double digits, we expect this to recover as the year progresses. We have not seen yet the impact of slowed down pharma spending, which is experienced by many other instrument companies. We have built into our US lab numbers some additional cautiousness for the remainder of the year. In the industrial business we see no signs in the U.S. or Europe of a recovery, and therefore an improvement in the manufacturing sector. Europe, and in particular Germany, might actually be getting even worse. We have assumed no improvement for the rest of this year in now based U.S. and European investor business. Packaging was down in both Q4 and Q1, with European being especially weak. Here we have some good news. The order book has much improved and we expect mid-single digit growth for the rest of the year. In the retails, the European retail business is where we are facing the most difficult market environment. Last year our consolidated retail business grew by approximately 15%, benefitting largely from the conversion to the Euro in Europe. In the first quarter, as previously mentioned, retail was flat. However, in March our order rate was -20% and this level continued into April. U.S. retail is performing solidly, but certainty not enough to compensate for the European weakness. We are assuming that our retail business continues at this -20% for the rest of this year based on the post-Euro falloff. In sum, as Bill already mentioned, we are not counting on a strong rebound in near terms. Our profits have a short order cycle, but we believe customers will continue to demonstrate cautiousness in their buying patterns throughout the remainder of the year. Quotation levels continued to be very strong. Though we feel that the demand is there, however, these quotes have failed to turn into orders, and I do not think we can use our traditional quote to order ratios to forecast turnaround. While the markets remain soft, our cost-saving initiatives remain highly effective. By our restructuring program, we will further improve our cost base and still expect EPS to grow this year on a comparable basis. We are committed to stronger earning growth in 2003, absence of further weakening of the global economy. Let me talk now a little more about the cost rationalization program. It is not warranted to just cut discretionary spending. Rather we want to make sustainable or very fundamental permanent reductions in our cost structure. Therefore, we will consolidate a number of production lines, and more aggressively utilize our Chinese manufacturing capabilities. The case from perspective of this impact, we expect to increase manufacturing volume out of China by 50% from today's level, which is the most. I should also mention that we expect to add approximately 50 people in China this year. This is necessary given the increased volume of their business. Secondly, we will reduce head count at various manufacturing locations in administrative and back-office functions. In total, we expect to reduce our head count by approximately 3% or 300 people. The reduction will be focussed in those areas most impacted by the slowdown, with minimal impact to our sales, service, and R&D organizations. In total, these various items will result in a sustainable annual cost savings in the $12-15 million range. We expect to realize about half of this this year. These actions are not easy, but we believe they are critical and will make us even stronger for the future. Furthermore, we are convinced that when the global economy does recover we will be in a very good position for strong growth, not only because our cost structure is solid but also because we continue to make excellent progress in other areas. I want to spend a few minutes on the various offensive measures in place currently. First, we have made significant R&D investment over the last few years and have continued this into the first quarter this year, as you have heard from Bill. As a result, we have a record level of new product launches scheduled for 2002 and 2003. For those of you who were able to attempt [_____], the large analytical instrument ratio, you saw firsthand some of the new laboratory offerings. We showed our new line of automative titrators and our new LabX software, which is compliant with federal regulations on traceability of electronic data. Other products you will see in the next 12 months include highly cost effective pH meter and balances. On the drug discovery side, we are launching our new modular process development software that will allow pharma customers to optimize process conditions by applying multiple analytical technologies simultaneously, with numerous more drug discovery launches slated for the next 12 months. On the industrial side, we also have had several exciting new product launches. You may have seen the press release that was issued recently with Procter & Gamble concerning the introduction of QSI, a revolutionary new software that can substantially increase the accuracy and productivity of material transfer control and continuous process application. This software builds a metrical model of the material transfer process that can predict with high level of accuracy how to ensure proper cutoff with slowing the process. Benefits include high manufacturing throughput, eliminating of costly raw material areas, and controlling optimal delivery of materials. It is used on [_____] screen terminals, and has proven track records with P&G and has relatively passed paybacks. In addition to R&D investments, strategic acquisition positions us very well for the future. We continue to be very pleased with Rainin and are moving to capitalize on the opportunities in Europe. We are taking this step by step to establish the right infrastructure and strategy to successfully extend our products to this market. We are off to an excellent start in key countries such as Germany, Holland, and France. But it will take a little time before we see the true potential in these markets. Rainin's business also continues to produce excellent results. The recent acquisition of SoftTechnics is a great strategic addition to our perishable food management offering to food retails. As most of you know, we are the worldwide leader in perishable food management solutions. Our solutions range from pre-pack applications, PC-based networks, ringed terminals, to data management software. SoftTechnic is a leading provider of in-store software, which can provide real time management, which allows food retailers to more accurately match inventory levels with demand at local levels. Especially in perishable goods, improved inventory management is an important driver for food to retails profit and asset management improvement. Although we share many of the same customers we can leverage our relationship, as SoftTechnic and Compaq are more IT focussed, which is clearly the direction of our solution. We see tremendous opportunities in developing integrated solutions that could provide the [_____] management solutions for food retailers. This acquisition is timely as it coincides with the launch of our new Unicorn retail scale, a second-generation PC-based network solution for the food retail. Unicorn is our posthumous connectivity and the ability to communicate and integrate information globally. Furthermore, it will allow them to replicate processes on a global basis as the hardware and software platform are standards. We are uniquely positioned in the market with globalized products such as Unicorn, and have the ability to provide a comprehensive in-store software solution through SoftTechnics. Let me conclude by saying that we are convinced that metropolitive franchise is strong and that it will finish 2002 even stronger. The old marks of our franchise remain intact, specifically our market leading positions, the technology leadership, the global presence, and the excellent brands. In addition, despite the difficult environment, we are continuing to strengthen this franchise due to the diligent execution of our business strategy. Furthermore, we are now taking steps to permanently reduce our cost structure. In sum, this measure would further enhance our franchise, and once the global economy recovers it will be in an excellent position for strong growth. That's it from our side, and I would like now to open the line for questions. Operator, can you open up the line please?

Thank you. If you have a question at this time, please press the 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Once again, if you do have a question please press the number 1. Our first question comes from Donna G. Takeda of Merrill Lynch.

Thank you. Good afternoon everybody.

Good afternoon Donna.

Robert, could you walk us through in a little bit more detail in what's going on in the various areas within the industrial sector, the logistics of pharmaceutical production and the food production and so forth?

Okay. Maybe starting off with transportation logistics, that's still a good marketplace for us. That is mainly due to new products which we just launched, a new [_____] products. We have received multiple orders from UK and are truly going about. Other industry sectors, pharma; in pharma we see significant opportunities with our software packages which we just launched, namely for formulation; very big prospects actually and very much as well. Not only opportunities at the given site but customers are talking about much more internationally once they agreed on the concept. Our industrial pharma business, however, has not done so well. It had been impacted by the global economy trend. Particularly in Germany we have suffering quite a bit. I think, in general Donna, what I want to say is that the industrial business is very much linked to manufacturing output, and that manufacturing output has not picked up yet. That business is still suffering. That's why when I covered the outlook, I did say that we actually had built into our model for the rest of the year, profit declines in course of the next quarters, and then bottoming out in Q4. So I think we are trying to be very cautious and not count on any economic recovery. In case it happens, that will be good news. The one business, which does quite well, is the drug scale business. The drug scale business is again back to [_____] no profit yet there.

So that business has actually recovered after five weak quarters?

Absolutely. Yes.

On the retail, the weakness that you are seeing right now, the 20% declines, and I guess you said the month of March and April so far; is it just that the customers have finished everything they wanted to do and they have stopped buying, or is there a competitive issue involved here?

Not at all a competitive issue. Actually in this whole Euro conversion we gained a lot of market share. As you know, we had a strong retail business last year, far beyond just the Euro conversion. So we have had a great year. We are little bit now in a position where we are the victims of our own success. As we had a tremendous last year, that's now the flip side. The shortcomings in Europe are coming faster than expected. This Euro conversion, Im sure you have read a lot about that; actually went much looser and faster than originally expected. Sometimes what we actually tell there might be a carryover, but part of that in this year that is not happening. So that's why Europe is dropping off fast. At the same time we have a long list of products, and Im sure within a reasonable timeframe the business will come back. The US retail business is showing signs of life. As I said before, its performing solidly in Q1. We are working on some big opportunities, which could make the picture look very different, but we first need to look at the orders.

One last question; you have discussed a lot of new products coming out, and I guess more to come this year and next. Is there a way to quantify how many of these are replacements or upgrades to your current line, and how many of these will provide incremental sales?

Kind of traditionally, we told you, we are turning over our profits each and every four years, typically 25%. In certain segments we actually are in a very fortunate position right now. Actually the offerings in all the items; our sales this year will be made on products just launched this year. We are really in a proving phase there. One thing I maybe want to tell you; I mentioned it of course before; in spite of all the difficult market challenges we have continued as the market leader to make significant investments. That puts us in an even stronger position. Adding that to all the other cost initiatives I think being the technology leader and the cost leader is a tough formula for us. You did ask if we did lose any market share in retail. I would just want to say that we have not lost market share in any of the other businesses. We are actually doing very well versus the competition.

Great. Thanks a lot.

Welcome.

Our next question comes from Scott Jones of AG Edwards.

Good evening.

Hi Scott.

Did any of you compare the current quarter and the next few quarters of guidance to any period in history? When was the last time you experienced this sort of slowdown?

Well, historically we had gone down. I think it was 12 years ago when it was the last time we had a down year on the organic business. This will be, in terms of sales growth, the worst year. Obviously our profitability levels will be much higher than it has been in the past. But if you assume that there has been an economic slide over the last 12 years, this would be for us the bottom.

How many quarters did you show down organic growth, back down as you listed out?

It was only about -1%. So I didn't really look at it by quarter to be honest.

_____]: Probably it was a period of a year or so.

Okay. So it did last for four quarters, maybe?

No. I mean, not all four quarters within it would have been down.

Yes. Absolutely not.

Our next question comes from Richard Eastman of Robert W. Baird.

Hi Bill. I just want to make sure I come away from the call here clear. If we look at the organic decline of 2% in LC, lab was up mid-single digits?

Yes.

Okay. Industrial was where in total?

Industrial was down 5-10%. Retail was down about 5%. The packaging was up low single digits.

Okay. You split that out of industrial?

Yes.

Up low single digits?

Yes.

Okay. So let me ask you; the food retailing business, just roughly, the split would then be; is Europe a third of that business right now?

No, Europe is half.

Okay. Then, within the lab piece of the business, what came in above this? Is it the process analytics or the automated chemistry, is that still running above this mid-single digit break?

One of the comments I made on the phone was actually that US and Asia were up double digits in total, and that included very good growth in auto chem. Overall chem. on a global basis was up 14-15% from the net base.

Okay. So that still remains the driver there. So that business is, generally speaking, on track. So the industrial business weakened a little bit and food retailing did as well.

Yes. We are maybe being a little bit more cautious for some of the rest of the year with regard to the lab business. We do hear what others are saying about pharma spending. So we built in some cautiousness for the rest of the year in lab. But I think in Robert's words, we haven't really seen it to date. But if you look at our whole lab portfolio we are probably lower priced, shorter turnaround, and you see it a little bit later maybe than some of the other guys.

Okay. Two other things; the $12-15 million in cost savings, is that pretax or not?

That's pretax.

Okay. Last question. If I tried to adjust the OP line for Rainin, how would you characterize the savings there versus the mix versus the volume? It looks like it was down to me maybe by $4 million or so.

Do you mean the organic piece of the business?

Yes. The operating margin.

Our operating profit was down not that much in the base business, and there was a currency impact within that number. But clearly our operating profits in the base business on an apples to apples basis was down modestly, I think about 5% or so.

Okay. That would include; I can back the FX up to that line?

Correct.

Maybe the FX plus just volume?

Correct. A lot of that has to do with just a marginal profitability of the products. When the product sales are down, on a marginal contribution basis you could probably assume like it is $0.02 on a dollar in the short-term period.

Okay. All right, thank you.

Our next question comes from Sherry Walker of Deutsch Bank.

Good afternoon. I was just wondering if you could give me that cap ex and DNA number.

Yes, I can. Do you have another question while I am looking for it?

Sure. Looking forward with the growth margins of 2002, do you still expect to see some continued improvement?

In the gross margins?

Yes.

On a year on year basis we will continue to add improvements there.

Okay. Then some more detail on the lab product lines, can you go over some of the performance from the other lines? There we have talked about auto chem.

Auto chem. was up nicely, and the other analytical instrument business is up high single digits, and the balance business was relatively flat. It was up in the service piece of the balance business, but down modestly in the product piece.

Great. Thank you.

Our next question comes from [Rob Halsey] of CRS Capital.

ROB HALSEY]: Thank you. I was just wondering if you talk a little bit more about the weakness you are seeing in Germany on the lab side and the couple of specific customers. You actually mentioned economic impact there, and could you talk a little bit more about that?

In Germany we have seen across all businesses a very difficult start. In Germany, I don't know how much you read about, tariffs agreements which are the midst of negotiations. That is usually a process where companies paralyze themselves, and that's kind of tricky for whole pack investment parties. The other parties of course, German companies exporting are seeing a slowdown in their export. We have seen that impacting our business quite a lot, but actually in the week completed it improved nicely.

ROB HALSEY]: Is that specifically also what you are seeing in the labs?

Yes, even in the labs. Even pharma companies kind of just say with the two-month release budget that is going to take.

ROB HALSEY]: Could you just give us the dollar amount of sales for Rainin during the quarter?

18-19 million.

ROB HALSEY]: Great. Thanks.

To answer the question Sherry had, depreciation was $6 million and the cap ex was $9.3 million.

Thank you. Our next question comes from Paul Knight of Thomas Weisel.

Hi Robert.

Hi Paul.

Could you reiterate some of your color on the lab side? At one point I think you said on the call that pharma demand was okay, yet Europe is weak. Is that the way I should read that?

So far from our understanding it was a very solid market. We all did count continuing to increasing the investments. We had seen, as Bill has been saying, nice results in the first quarter in the labs business. But at the same time we are trying to be cautious in light of the other companies and with the forecast for the lab business for the rest of the year. Talking to some people from the pharma industry, I think you hear pretty much the same as the efforts from other industries in the past; kind of pressure on pricing because of patent explorations. Therefore that saw holding back from investments. At the same time these people in the pharma industry say that if you want to really our objectives you need to find growth. Therefore we that type, and therefore the fundamentals of that industry are going to be very much okay. That's my view on it. We are in the temporary, maybe investments freeze year, maybe a little more difficult. But I think that ultimately they have to come back to buy this type of equipment. We have bene lucky so far with the number. All the time actually it grew Q1 by 15%. That probably has a lot to do with our strong product offering. As I told you in the past, we have been spending a lot of money in that field and that's not the rewards we get.

Even within that auto chem. number, the new product introductions we are talking about really aren't in that number yet.

The other question is on Rainin. I think they are unable to do some marketing of product in Europe. Is that changing soon? How do you address that issue?

They are not able to do marketing in Europe?

I thought there was a license agreement with a manufacturer in Europe on limiting their marketing. Is that true or not?

No, that's not true. The Rainin products we can freely sell run to the whole group.

_____]: I think Paul, the confusion is probably; they are the distributor of a product in North America only. But that is a small piece.

Will the Metler thigh pads distributed through the Rainin direct force?

No. Ultimately the Metler thigh pads will be phased out and be replaced by Rainin thigh pads. As I said before, we are in the midst of launching directly. Actually this week we have a big show in Germany just to launch the Rainin thigh pads.

Okay. Thank you.

Our next question comes from Scott Wilkin of SG Cowen.

Thank you. Just a few more details on the cost savings initiatives or the charge. What specific product lines are you talking about rationalizing here? I did the math and I think it is $0.20 aftertax per share, and you said half of it this year. So is that safe to assume you are getting $0.10 from the restructuring? I also have a couple of followups.

I will take the first part of your question about which product lines. Of course, we deal; the business is what we have the issues, and that's mainly industrial and retail. That's where we cut our costs. Now Bill, specifically about the savings?

You are correct in your calculation. You should assume that the 30% rate will get about half of it, and the shares outstanding will still be in the 45.6%.

Okay. That's $0.10 per share. Just on the acquisition announced of SoftTechnics, was there any sales there?

Okay. On your guidance, I am wondering if you could just say what you are assuming for FX in that?

We basically built it off of end of March rates.

Okay. So for the year what is that, a couple of percent?

It is a little bit less than that because it starts getting; like it would be a couple of percent in the beginning but less than that when you get to the end.

Okay. Just a sort of bigger-picture question on the retail business; your sharp downward guidance was down 20, I think, if I heard it heard. I am just trying to understand why this has surprised us now. It seems like there must be something more going on here than just Euro. If could you just elaborate a bit more, because this seems like a pretty dramatic change given that we knew the Euro was coming.

I think it's always tough to judge these things. We will see at the end of the year whether we were right in our forecast or whether we were not conservative enough or too conservative. But our thought process is as follows. We have taken a look at what we have seen in March and April, and took a look at the drop-off. Just to give you a feeling our retail business grew about 15% or so; 13-15% kind of arranged last year. We are actually assuming a negative growth rate, obviously more than that level. Is that something we should have expected, especially if you think that Europe is only half our business? I am not so sure. But when we look at what the order rates and the sales rates were for the last five months up till March, because a lot of the Euro conversions was like we just got the orders in December. We felt that the US and the European retail business was going to be down but not to the kind of level that would bring our whole retail business down 20%.

So this is just basically the added, sort of whammy of the economy on top of the Euro problem?

Yes. I think it's the economy. I think its us trying to make a prediction from where we are sitting today. I hope we are too cautious, but when you make a decision to take a look at a forecast value you need to think about it, and I think that's just our current outlook based on what we are seeing in the last seven to eight weeks.

Okay. Thanks a lot.

Our next question comes from Vijay Mohan of Origin Capital Management.

Thanks for taking my call. Sure I understand the new guidance range for the year is 235-245. I was just wondering if you could provide some qualitative and quantitative feedback as far as what you think the downside potential is for that current forecast. Is this kind of a most likely scenario that you projected? If you could provide some color there that would be appreciated.

Of course it's the most likely forecast. At the same time its very hard to forecast the economy. As I have said at many other times, a lot of smart people forecast the economy and the only outcome is that they are mostly wrong. Our assumption, I think, we made them pretty transparent. This I would just like to repeat. In the retail business we really expect a sharp drop-off in Europe, and that is still negative of course, and then in the industrial sector bottoming out towards the end of the year. In the lab business where we had good growth rate in Q2, that got a little slower with time, because looking at all the other companies' announcements and their comments about their slowdown in this business, we [_____] same sector. That's the way we have filled our forecast.

In the global level, with many of our businesses having some level of economic impact we are assuming no recovery in the economy.

Thank you.

Our next question comes from Jason Williams of [_____].

Hi. Thanks for taking my call. I missed the cash flow from operations number, and was wondering if you could just give it to me. My other questions have been answered.

It was $4 million and that compared to $0.5 million last year. We are seasonally low in Q1 always in cash flow.

Okay. So $4 million cash flow from ops.

Cash flow from ops as compared to $0.5 million in the same period last year.

Great. Okay. Thanks so much.

Our next question comes from Martin Sankey of Goldman Sachs.

Hi. How are you Bob?

Fine. Thanks. And you?

Okay. The SoftTechnics' acquisition; it seems like it eluded me as far as what revenues of the business is and how much you paid for it.

It will have revenues on an annualized basis in the range of $10 million. We paid about $12 million for it, and we should get contribution from it beginning in April.

Okay. Do you mean revenue or accretion?

Revenue. I think its relatively neutral in terms of earnings per share. I mean, the numbers aren't big enough to make a difference.

You mentioned that acquisitions overall cost you $50 million in the quarter?

No. I am pulling out my script; $15 million I think.

Okay. So the Rainin and [_____] were about $3 million?

I think the merger earn out was a little over $2 million, and maybe there was a $0.5 million. It was basically legal, but maybe there were a couple of other filing fees or some other things in that number. We had it like filing in State of California too.

Okay. Do you have any other big earn outs coming in this year? I know the Rainin back-end is next year.

Rainin would be next year. Well, I could answer quickly; if the answer for the definition of big is more than $2 million, the answer is no. In some of the small ones we might have ran out of $0.5 million or $1 million.

Okay. One other item; the restructuring that you are taking in the second quarter, this represents I think the fourth restructuring in five years. It seems like these kinds of activities are becoming an annual event. Does it make more sense that these should be incorporated on an ongoing basis as part of the earnings?

I think both of us probably will give you a quick feedback here. I think in terms of; just to be clear where they are incorporated we break the numbers out and give you transparency on them, including what the nature of them are. It is not that we are putting in the numbers "funny things". But I think Martin, you and other people can make your decision. We present you the amounts, we show them or present to you, and you can make your own analysis on how you want to evaluate things. I think we try to give you some transparency.

Martin, if I may add my perspective. This is not squeezing the lemon here and there. As soon as you release the pressure, the cost base spike to where it was before. We are only making some fundamental changes to the corporate structure here. We are taking entities out and putting the company on a sustainable by cost efficiency. This is certainly not ongoing and everyday or every year exercise. This is very special in its nature.

Okay.

Our next question comes from [Rob Halsey] of CRS Capital.

ROB HALSEY]: Thanks. Just a quick followup. You said retail in Europe would be down 20%, but the US is still growing nicely. So overall would you expect retail to be down about 10%?

Actually the -20% assumption is the net number, and it is up, I think a positive almost 10% in the US piece.

ROB HALSEY]: Okay. Thank you very much.

Those are all the questions we show at this time. I would like to turn the program back to you.

We want to thank you all for listening to the call. We are sorry that it was a little bit later than usual today. It was due to scheduling. We wish you a good rest of the evening and rest of the week. Thank you.

Thanks for turning. Bye bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a nice day.