Revvity Inc (RVTY) 2002 Q3 法說會逐字稿

Good day, everyone, and welcome to the PerkinElmer 2002 Earnings Conference Call. Today's call is being recorded at this time for opening remarks and introductions. I would like to turn the conference over to the Vice President of investor relation ands corporate, Ms. Diane Basile.

Good morning and welcome to the PerkinElmer Q3 2002 conference call. If you have not received a copy of our press release you can visit our web site www.perkinElmer.com on the network or from our toll free investor ought line 1-877-PKINYSE. Consistent with what we have done in prior quarters, we will focus on results on a continuing basis. In addition to reporting GAAP results, PerkinElmer reports cash earnings per share that exclude the amortization of intangibles and goodwill to provide a measure of business performance comparable to other companies in similar industries and to eliminate the impact of implementation of FAS-B 142 on period-period comparison. In accordance with FAS-B 142 PerkinElmer ceased amortizing goodwill beginning with 2002 fiscal year.

Before we begin we need to remind everyone of the following safe harbor statement. Certain remarks we may make about management's future expectations, plans and prospects constitute forward-looking statements, with the company's performance that involve important risks and uncertainties. These forward-looking statements are always predictions and actual results or events may differ materially from those indicated by these forward-looking statements. We disclaim any intention or obligation to update any forward looking statements that result from developments occurring after the date of this call. Please refer to you are antitrust release filed today and quarterly report on 10-Q quarter ended June 30, 2002 which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. I am now pleased to introduce the Chairman and Chief Executive Officer Greg Summe.

Good morning, everyone. I appreciate you taking the time to join us today to discuss PerkinElmer third quarter results. With us also today is Rob Friel our Chief Financial Officer. I'll begin by highlighting the third quarter and then Rob will talk in more detail about the company's financial results. We'll break for questions and answers then close the call. As described in our press release this morning. We reported revenues of $366 million, up 5 percent on a reported basis over last year and down 5 percent organically when excluding the impact of acquisitions divestitures and foreign exchange. The market for capital equipment continues to be challenging. Our service consumable reagent sales all posted positive growth rates while instrument sales were depressed. Our cash earnings per share was 11 cents a share which included 4 cents from fluid sciences and other income driven by early retirement of a portion of the convertible bond. We reclassified fluid sciences into continuing operations this quarter because we weren't satisfied with the potential sale proceeds. It is a very well run business strong cash flow and growth prospects and reintegrated in our operations. Our free cash flow at $69 million was very strong and resulted from improved operating processes. Our working capital generates $22 million of cash during the quarter.

We also made significant progress in improving the strength of our balance sheet. We paid down $114 million in debt through cash flow and repatriating overseas cash. Our net debt went down $67 million. the accreted value of our convertible bond at the of the quarter was $404 million and today sits at $389 million. To extend the maturities of our debt we entered into an agreement with Merrill Lynch whereby they will provide up to $445 million of senior secured debts including a five year revolver of $100,000,000. We will supplement this with subordinated debt as needed. We also announced this morning the formation of a new integrated business called Life and Analytical Sciences led by Peter Coggins (ph) who is currently the president of our life science business. This new organization with the billion dollars in sales, 2000 sales and service personnel and $65 million of annual R&D investment, will enable PerkinElmer to provide a single unified face to our customers in the biopharmaceutical and clinical diagnostics markets. As well as bring greater resources to our analytical customers. It enables us to better leverage R&D investment, our global sales and service network, and our operational capability. This simpler, more streamlined structures consistent with our strategy of developing a cost-effective customer oriented innovative organization. And is an important step in growth our health sciences businesses. We have invested significant resources in our global sales, service and customer care organizations. This combination will continue to strengthen those organizations while at the same time enabling us to improve our SG&A cost-effectiveness though reducing our support infrastructure and improving our administrative processes. We made good progress during the quarter in introducing new products. In life sciences we introduced the envision enhanced lymnessence (ph) multi label reader which is the only multi label reader capable of performing both radiometric and on radiometric assays. We also introduced the smart station integrated platform at the SBS (ph) show which provides a highly flexible integrative liquid handling, protection and plate management system for assay development, secondary screening and anti-tox applications. . In analytical instruments were made additional shipments of two new products, the Analyst 200 atomic absorption spectrometer and the the Claris 500 KS Chromatograph (ph) - both well received.

We also introduced the Optima 4300V (ph), a new vertical torch (ph) ICP in the hyper dse (ph) technique which improves the speed sensitivity of thermo-analysis. In opto-electronics, we introduced our new XHP high pressure mercury discharge lamps for the projection of for the projection display market and delivered our first production shipments of digital Angiometry detectors for heart lung applications. Also during the third quarter of fluid science business announced it had been selected by Airbus to develop and supply the advance time pressure hydraulic accumulators for the A300 aircraft, A380 aircraft. We're proud of the fact our products continue to gain industry recognition as well as customer acceptance. Our A cyclo-prine, florescent protection sniff protection system was recently named product of the year by readers of GO technology magazine. The auto system excel grass cromatograph was selected at 2002 readers choice award winner. We were also chosen as reader choice award winners finalists in the areas of chromatography data, spectroscopy systems for our total chrome and our spectrum spotlight imaging system. I will now turn the call over to Rob Friel who will discuss our financial results in greater detail then we'll move to questions.

Thank you Greg, and good morning. This morning I will provide some details on our third quarter results, including cash flow and changes in the balance sheet as well as discuss our plans to refinance our debt structure. Before I get into the specific details for the quarter, I want to point out that the results from continuing operations now include the fluid sciences business since due to the current market conditions we have decided to retain the business. Also I'd like to point out that the only difference between our adjusted or cash results and the GAAP results is the exclusion of the impact of the amortization of intangibles. As we did in the past, we provide a reconciliation on page 9 of the press release.

Turning to page 7 of the press release, you will see our income statement for the three months ending September 29th, 2002. Sales for the third quarter of 2002 were $366 million versus $348 million during the third quarter of 2001, representing an increase of $18 million or 5 percent. The increase reflects the inclusion of Packard which was acquired in November 2001, as well as the favorable impact of foreign exchange movements which contributed approximately 7 million in the quarter. Excluding the impact of acquisitions divestitures and foreign exchange, revenue was down 5 percent. We did experience some nice growth in a number of our businesses like genetic screening, digital imaging high through put screening and biomedical components as well as continued growth in service and consumables. However this was more than offset by significant declines year over year in sales of instruments as customers continues continue to scale back or defer capital expenditures. Sequentially revenue was down 5 percent consistent with our historical trend. Last year revenue was down 7 percent between Q2 and Q3. Third quarter cost of sales was 219 million or 60 percent of sales versus 189 million or 54 percent during the third quarter of 2001. Increase on a percentage basis reflects lower production volume and consequently lower capacity utilization as organic revenue was down 18 million and the change in inventory was 21 million year over year. Over the last three quarters our gross margins have been negatively impacted by both the lower organic revenue as well as the significant decrease in our inventory levels. Research and development expenses increased to 20.5 million in the third quarter of 2002 from 18.5 million in the third quarter of 2001, an increase of 2 million or 11 percent.

As a percentage of sales research and development expenses were 6 percent for the third quarter versus 5 percent for the third quarter of 2001. Increase reflects the inclusion of research and development efforts associated with the Packard business. SG&A expenses which exclude good will and intangible amortization were $102 million for the third quarter of 2002 versus $75 million for the same period in 2001. As a percentage of sales, SG&A expenses were 28 percent in the third quarter of 2002 versus 22 percent in the same period of 2001. The increase reflects the inclusion of SG&A expenses associated with Packard operations as well as investments made in the sales and marketing function. In addition, the strength of the Euro year over year inflates our European SG&A expenses in dollar terms. Sequentially SG&A was down 10 million from Q2 and down 150 basis points as a percentage of sales. The consolidation of life sciences and analytical instruments as Greg discussed previously as well as our plans to functionalize certain G&A functions across the country should further reduce SG&A as we continue to size our cost structure to reflect the current market environment.

Operating income for the third quarter was $23.8 million or 6.5 percent of sales, roughly the same dollar amount we achieved in Q2 on 17 million less revenue. Other expenses for the third quarter for 2002 was 5 million versus 8 million in the third quarter of 2001 representing a decrease of $3 million. This is due to a $6 million net gain realized on the buy back of a portion of the company's zero coupon convertible debentures and the expensing of cost associated with the proposed sale of Fluid Sciences of 2.3 million as well as higher foreign exchange costs to 500,000. The 4.9 million tax provision this quarter brings us to a 30 percent rate year to date due to the offsetting effects of the inclusion of fluid sciences and continuing operations and the favorable resolution of the state tax audit and our full year tack rate is now projected to be 30 percent. Net income from continuing operations was 14.2 million or 11 cents per share on 126.7 million shares which is up from 105 million last year due to the shares issued to purchase Packard.

Turning to page 8, I would like to now review our results by segment. In life sciences revenue for the quarter was 118 million up 57 percent over the third quarter of 2001 due to the inclusion of Packard Bioscience. Year over year revenue declined 7 percent organically. Sales within the genetic screening business continued to experience very strong results growing over 15 percent year-over-year in the quarter. We continue to leverage our position as the number one global provider of neonatal screening solutions while at the same time extending our reach to adjacent life stage market opportunities in geographies such as China and India. Sales in high throughput screening business grew single digits and we experienced growth in reagents and services across the life sciences unit.

Weak demand from pharmaceutical and biotech end markets continued to hamper growth for instrument sales which sales being down over 15 percent in the quarter. Operating margins for the quarter were 9 percent reflecting the impact of lower volume and product mix as well as investments in sales and marketing. Turning now to opto-electronics, revenue for the quarter way 84 million, down 3 percent organically from Q3 2001. Sequentially revenue was up slightly over the second quarter. Year over year sales to biomedical end markets grew double digits on continued strength in medical centers in excellent growth and digital imaging which was up 20 percent in the quarter. Overall sales were impacted by weakness in semiconductor and lighting year over year, however both businesses experienced sequential growth over Q2. Opto-electronics operating profit was 7.7 percent, an 80 basis point increase over the second quarter, but down significantly year over year due to lower production volume and mix. This business has gone through a difficult period over the last 12 months, however the end markets appear to be stabilizing and the difficult cost actions and the decisions to exit certain product lines are paying off and position us well going forward.

In analytical instruments revenue for the quarter was 115 million, down 12 percent from the same period in 2001. the adjusting for the impact of divestitures and foreign exchange it was down 5 percent organically. Service revenue was a strong across all geographies and our informatics (ph) offerings experienced mid teen growth. Operating margins were 4.9 percent as a result of lower volumes in competitive pricing pressure. During the third quarter fluid sciences reported revenue of 48 million, down 7 percent on a reported basis and down 4 percent organically compared to Q3 2001 reflecting continued weakness in the aerospace market. Sales from this business unit served two primary end markets, aerospace and semiconductor. Operating profits for the quarter were 11.6 percent as a result of the lower volume.

In looking at the fourth quarter for PerkinElmer, we have historically experienced revenue growth sequentially of 6 to 8 percent. However, given the current environment, we feel it is prudent to guide to a much wider range. Therefore we are forecasting fourth quarter EPS of between 12 cents and 16 cents from continued operations.

If you would turn to page 11, I would like to review our cash flow performance in the quarter. Greg pointed out the free cash flow from continued ops in the quarter was $69 million. On this page you see that it was fundamental due to four items. The tax fund we received for 27 million, improved working capital performance resulting in a 22 million source of cash, lower cash restructuring, and lower capital expenditures. -- we have also included a balance sheet this quarter so you could track our progress and working capital, debt reduction as well as any changes in the balance sheet. During the quarter we reduced outstanding debt by $114 million, in addition to the free cash flow we are also quite successful in repatriating over $90 million of cash from our overseas operations with very little tax attrition. This cash allowed us to retire a portion of the convertible as well as reduce the amount drawn under the revolver to 73 million at the end of the quarter from 100 million at the end of Q2. With the commitment we have received from Merrill Lynch for up to 445 million in senior secured debt, our current plan is to issue a combination of a secured term loan into the bank market with a maturity of six years, put in place a revolving credit facility of 100 million, with a maturity of five years, as well as issue a subordinated security with at least ten years maturity. The use of the financing is primarily to redeem the existing convertible as well as pay down certain other indebtedness. These actions will allow us to extend our average life of debt maturities to over five years where it is currently slightly over 12 months. Now let me open the call to your questions.

Today's question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone. Once again, that is star 1 if you do have a question today. If you are on a speakerphone please turnoff your mute function to your signal will reach our equipment. We'll pause for a moment to allow everyone a chance to respond. And today's first question comes from Lamshi Degoa at Salomon Smith Barney.

Degoa (ph): Hi. Just a couple of questions. First of all, what is the effective interest rate on the Merrill Lynch credit facility? And secondly, how long do you expect the integration of the life sciences and A I units to take and when do you think we might be able to see a meaningful impact on the SG&A line?

Why don't you first.

Interest rates on Merrill Lynch is really providing an underwriting facility, so they are back stopping the credit. So interest rate basically will be set by the market. So when we go to the market and raise the financing, what Merrill Lynch is providing a backstop in the event that there are some turmoil in the market and we're unable to issue the debt to market. So the marketing interest rate will be what the market rate is.

Degoa (ph): Okay. [inaudible].

On the integration side, life and analytical sciences, that is effective immediately, goes forward here. I mean part of the cost benefit of that, in addition to if you will the growth benefits and the customer benefits from the cleaner interface and the leverage across the R&D spend, there are some cost benefits on the SG&A side. Combining that business has about $300 million in SG&A meaning we can take out up to 15 percent of that and we think a significant portion of that will come out in '03.

Degoa (ph): Okay. Great. Thanks.

We'll take our next question from David Materly at Zazoff associates.

Materly (ph): Can you talk briefly about if you've done any work on what the cost would be in today's market and the timing of the issue?

If you look at the various components of it, the term loan, we're looking at something in the LIBOR plus 300 to 350 range. the subordinated security and of course this will be somewhat dependent on what we issue, but assuming it's a ten year note, we're probably looking at an interest rate in about the 9 percent range today.

Materly (ph): Great. Thanks.

We'll go next to Larry Neibor at Robert W. Baird.

Thank you. Good morning.

Good morning, Larry.

What kind of customer overlap do you have between weight and analytical sciences, analytical instruments, excuse me biosciences and analytical instruments?

The largest overlap is in biopharmaceuticals, so that would be the pharmaceutical companies, the biotech and the academic and medical research centers. So it's really in that part of the business. and particularly with where analytical instruments has been taking their product line, the [inaudible] being introduced which is now in beta test, the limbs laboratory information systems management system. So I would say about 40 percent of the analytical instruments revenue sort of fits into the overlap in the overlap category. The other area, of course, is the whole service. The whole service opportunity. Life sciences has never been as advanced or as mature in providing service out there as the analytical instrument business. Analytical instrument has been having -- being a more mature business is driven service harder. So the ratio service between the two is about 3 to 1. That is AI service is about three times the size of life sciences. So we think there is a tremendous kind of overlap or capability in the service network which combined is about 1200 people in the field in just service alone that we can leverage the customer and interface across.

Okay. How about on the manufacturing side?

The manufacturing side, when you look at the back end of analytical instruments and life sciences, they're virtually identical. I mean, the materials that are purchased and the factories, the way their factories are set up to provide instrumentation, some slight difference of course is life sciences also makes reagents, but certainly on the instrument side they're identical and today we do share manufacturing plant in Singapore. So I would say they're directly similar.

Do you see a continuing move of manufacturing to Southeast Asia?

We see a continuing move both material sourcing in the lower cost regions which for us is Southeast Asia, eastern Europe and Mexico, sort of depending on the component and what factories it is supporting. So I think that material move is going on. We've just recently taken steps to consolidated functionally consolidate our material purchasing across the corporation whereas before it was being done SBU by SBU (ph). and certainly from a production standpoint we continue to look at shifting production from higher cost environments into Southeast Asia.

Great. Thank you.

You're welcome.

We'll take our next question from Paul Knight at Thomas Weisel.

Good morning Paul.

Hi, Rob.

First of all, on a long debt line on your press release you have $439 million. What's the component of that? What part of that is the convert?

During this quarter, we recharacterized a portion of the convertible up the short term. So basically in the long term is the convert plus the 115 million of EGG '05 notes. So the convert I believe portion is the 439 less the 115, then the remaining portion of the convertible is up in the short term.

And you repurchased 85 million of the converts in the quarter, Rob?

We did on a cash basis. It was actually 91 million on an accreted value basis. What you see is quarter over quarter a reduction of 87 million of the convertible. We bought in 91 and of course it accretes 4 million every quarter. So if you think about it, the change quarter over quarter is 87, but we actually bought it in 91.

So the convert I believe total which is due August of '03 is $506 million?

That number at the end of the quarter was down to 404 and as Greg mentioned it's now actually below 400 million today.

Okay. So in effect we don't need to tap into all your credit line that you may have access to?

That's true to do the convertible, but our plan is to take out both the convertible as well as the outstanding -- the amount on the revolver.

Right.

So we really take out the convert as well as the 73 million under the revolver. That would be the intention.

On the consolidation of PerkinElmer analytical on the life science group, what are the steps over the next few months here that you have to do?

Well, let me answer that one, Paul.

Meaning, you know, the risk is you'd lose sales for awhile. How do you counter that risk?

Well, yeah. Let me sort of parse it apart for you. If you look at the infrastructure side, let's call that finance HT, IR, marcom (ph), etc., that's moving forward quickly and I think we can bring that to closure fairly quickly. Same with the production and the material area. On the R&D spend, it's not really a cost take out on R&D. R&D is really about leverage. So it's still having a greater technology pool. and frankly, better allocation of the R&D spend across, you know, from an ROI perspective across the full marketplace. So I think we'll get better utilization of the R&D spend that way. So the sense of the variant is the sales organization and how that comes together. We put in place some incentives for the fourth quarter. We are keeping the senior structure in place for both A I and life sciences through the fourth quarter and in their charter is really to put together the plan for integrating the two starting out in the first quarter. So we put -- we're putting some both sales incentive in place and we're also sort of, if you will, going through more of a pacinger slower integration on the front end sale side.

Thank you.

You're welcome.

We'll go next to Brian Ferguson at the Boston company.

Two questions. the first of which is there anticipated to be a structuring charge accompanying the combination of the analytics and the life sciences? And if so, how much of that would be cash and when would that occur? And the second question is you have an anticipated free cash flow number for the fourth quarter as well?

Let me take a shot of both of those. Greg talked about we're in the process right now of sort of sorting out the cost savings associated with the combination, so if you look at $300 million of the combined SG&A spend across the two businesses, we targeted something in the area of 15 percent reduction to take out. So call that $45 million. Generally, and again, it's a little early, Dave, but generally what we've seen, and this would be largely people. So what we've seen is generally you're going to spend somewhere in the 50 percent range, sort of get those costs out. of course on a cash perspective, it's not really incremental, because all you're going to do is continue to pay them their salary and so it's really the accounting charge only comes about because of the acceleration of the expense because you've taken the action. But sort of as a rough number, you know, I would use 50 percent of the cost take out.

Okay.

And the other thing to keep in mind, some portion of that would be charged back to the Packard reserve that we set up on the acquisition to the extent that the people coming out are related to the Packard acquisition, we have a liability established at the time of the acquisition, so that would not require a separate charge.

I think you mentioned 65 million in R&D. Is that different than the sum of the two R&Ds of those segments?

No, it's roughly the same.

Okay.

The synergy in R&D comes out with, you know, more new products faster as opposed to reducing the R&D expense.

Okay.

The second question on the free cash flow for the second quarter, we would forecast something now in the 20 to 25 million range.

We'll go next to Sarah Gallager (ph) at Bear Stearns.

Gallager (ph): Hi. I just wanted to clarify, the put is now sub-400 as opposed to 510 on August 7th in '03 and your plan is to combine that with the 73 million, so refinance that 473 million with the 445 plus cash before the put date.

Well, I actually would say our plans are to do -- the refinancing in the term loan put in a revolving back stock stop to replace our existing revolver credit facility and probably also do some subordinated financing as well. Because we don't want to just come up with enough financing, that sort of takes us out exactly to the amount of the financing require. We want to provide ourselves some liquidity on a going forward basis. So it's really all three of those financings that we would do and then use that to both take out the convertible, take out the revolving credit and provide some liquidity going forward.

Gallager (ph): But ideally your plan is to take out the entire convertible for the put date?

That's correct.

Gallager (ph): Okay. and the 225 in 10 year sub-debt, 100 million five year revolver and 125 and the six year term loan?

Well, the commitment right now is 445 -- up to 445 on the term loan.

Gallager (ph): Okay.

And that is basically encompasses the term loan and the revolver.

Gallager (ph): Oh, okay.

So they're secured facilities.

Gallager (ph): Okay, okay.

And subordinated would be unsecured.

Gallager (ph): And Merrill's commitment is contingent upon you doing that --

Doing the subordinated, it is.

Gallager (ph): And I think this was asked before and I apologize for this, but the timing on that is?

Well, I think the timing would be the close out within the next 90 days.

Gallager (ph): Okay. Do the financing with them in the next 90 days?

Yes.

Gallager (ph): Okay.

We'll go next to Bill Moore with Hamilton investments.

I want to clarify the Merrill Lynch. the commitment -- the agreements for 445 that's contingent on them selling 225 and they would take the remainder, is that the understanding?

No, it's 445 and 225.

Okay. So they would raise 225 and then take an additional 445 at the same terms?

No, they're actually separate. The 445, think of that as underwriting the revolver which is 100.

Okay.

And the term loan into the bank market. In addition we'll be raising 225 as a subordinated note. And the reason for that is if you take the 445 and subtract 100 for the revolver, that leaves you 345. That is not enough to take out the convertible and the 73 million under the revolver. All right. So let's say you're 150 short, right?

Right.

Okay. the thought was it didn't make sense to go out into the market with a note of that small because it would lack liquidity in the market. So our view was in order to get good execution on its security, it would have to be of a size of approximately 225 million. In addition, as I mentioned before we also wanted to provide some additional liquidity. So when you add it up, you get to a significantly, let's say, higher number than just the convert and the revolver.

So did I misunderstand your statement that you said the interest rate on the 445 would be set by whatever the market set it at?

It will be, but I said as an indication it's going to be in the LIBOR plus 3-3.5, and the 225 based on market conditions would be something in the 9 percent.

Right, okay. Thank you.

A piece of debt it's sort of 5 and a piece of the debt at 9.

Okay. I misunderstood you. Great. Thank you.

We'll take our next question from John Goodrich at First Albany.

Good morning. Just a few more questions on the debt profile. I was estimating that the cash requirement for the remaining LYONs at the put date would be a little over $380 million. Is that in the ballpark?

Yeah, I think it's a little low. It's close.

Okay.

I mean at the end of the quarter, we just took it the end of the quarter, it was 404, and it a crest roughly 4 million a quarter.

Okay. Thank you. and then I was just curious as to the rationale for putting the portion of the convert up in current and leaving the balance down in long term.

I think it's an accounting convention that says you've got to look at in essence your current availability of financing, so we look at the cash and we look at the availability under our existing revolver. And how do you spell of that can be termed out to a period longer than one year. And the portion that cannot has to be put in current.

Lastly as it relates to the 680 senior notes, will they share in the collateral package or will they remain unsecured? And have you had any preliminary discussions with the rating agencies?

They will share in the security package on a pari-pasu with the senior secured, that as well. We have had some discussions with Moody's and S&P.

Are you hopeful --

We'll be talking to Fitch today.

Are you hoping to retain an investment grade status?

I think we're always hopeful we'll retain investment grade and we'll just have to see where they come out.

Understood. Thank you very much.

You're welcome.

We'll go next to George Branski at Royal Bank of Canada.

Branski (ph): Let me just confirm the two unsecured facilities that are currently in place would be both the replace bond by the new facility if and when Merrill is providing?

When you say unsecured, are you talking about the revolver?

Branski (ph): The revolver and the five year term loan.

The five year term loan is unsecured, but it is pari-pasu with any debt that does get you secured. That will share in the security package.

Branski (ph): It is currently drawn the five year term loan, the facility?

I'm sorry say that again.

Branski (ph): Is it currently fully drawn?

You mean the '05 notes?

Branski (ph): Yes.

The '05 notes are fully drawn. the five year revolving credit facility is drawn to the tune of 73 million.

Branski (ph): Which will be taking [inaudible]. Thanks. On another subject, accrued expenses, can you offer an understanding a little bit more what's behind that on the balance sheet? It looks like substantial, accrued expenses at 345 at the end of September.

Accrued expenses would have a whole host of things. Let me sort of some of it. It houses a fair amount of accrued income tax is a big items. It has some of our accrued payroll -- some of the bigger ones. Some of the reserves or divestitures, deferred revenue. It's a list of probably 60 different items.

Branski (ph): Okay. That's good enough at the moment. Thanks.

It has some of our environmental and legal reserves.

And just as a reminder, we have a follow-up question from Larry Neibor at Robert W. Baird.

Hi, thank you. I was wondering if you could give us some indication of your order backlog or your book-to-bill ratio that you have currently, whether the return on orders is beginning to pick up or especially on the fluid science side, some [inaudible] -- you haven't talked about that for awhile.

I would say fluid sciences tends to run a little bit longer, sort of easier to look at it from a booking standpoint. I would say 90 percent of the quarter is probably booked, 90 percent of the fourth quarter is booked at this point. So if that gives you some sense. You know, semicon has been strengthening over the past say four, five months. There was some nervousness that came in the September time frame, I think because business had been built on or the industry had been projecting was a fairly significant ramp-up. And I think what you see is that while the business has improved in semicon, has not seen that the ramp up has been pushed out probably a couple quarters in teem of significant ramp-up. And they have been projecting very dramatic ramp up. And I think in September time frame with the nervousness that came out around that, that was a bit of a push out on that front.

Uh-huh.

So I don't know, I how are they holding up? I think they're doing fine. We project Q4 will be similar to Q3 in the fluid sciences business.

How about analytical instruments and the instrument [inaudible] --

Analytical instruments at life sciences don't have a long booking trend because it's very short turn over. You look at the reagent side, they ship overnight. So there isn't a big booking trend that we can track in either the AI or the life science business.

Thank you.

But I would say roughly that's A I is probably in the 65ish percent if you look at kind of recurring and book for the quarter. In that vicinity. We're taking the recurring revenue in the service and consumable side.

Uh-huh.

And we'll go next to Paul Knight at Thomas Weisel.

Rob, there was a 2.6 million charge on other item in the quarter on discontinued ops. What was that?

That relates to the entertainment lighting business that we have continued and discontinued, and we're in the process of trying to sell that.

Is that an ongoing operating loss at that division?

Yes, it's basically the operating loss in that business. That's the majority of it. There are a couple minor expenses associated with some of the businesses that we sold previously. And I would say we feel good about the progress we're making on that and at this point we expect that to close this quarter.

Okay. So an ongoing loss, not a onetime charge?

No, that's the on going loss of the business. Basically that's the only business that is in discontinued.

Okay.

One point I want to clarify, going back, I think there was a question whether the five- year term loan shared collateral, and the five- year loan on the revolver does not share in the collateral. That is unsecured. The '05 notes which are the EGG ten year notes share in the collateral. So I just wanted to clarify that. I didn't know if that was confusing before.

Thanks.

And we'll go to David Hanger (ph) at Kennedy Capital.

Hanger (ph): I was looking kind of out beyond the fourth quarter as y'all do your planning assumptions. Do you feel like with the efforts you're taking in terms of cost cutting, given a fairly flatten environment, do you feel you see some improvement in the bottom line going forward?

Well, '03, are you asking will '03 earnings be higher than '02?

Hanger (ph): Just trying to get a sense of in terms of your assumption, do you look at a pretty flatten environment going forward, you know, rather than looking at some kind of growth?

Our assumptions are that the economy stays the way it is going forward. We haven't seen the economy get any worse, we haven't really seen it get any better. I predicted on the capital equipment in the business investment side when the economy does get better it will be more of a ramp -- won't be a steep ramp, but it will be a gradual sort of reconfirming at least a couple quarters as people's business leaders confidence builds in the economy that's out there. Yes, we believe the earnings in '03 will clearly be higher than the '02 earnings driven by cost productivity across the business. So we feel, you know, we feel good about that.

Hanger (ph): In other words, at this point they're not assuming any big pick up in the business and you can't base your assumptions on that type of environment?

That's right. We are not planning on a pickup in the business.

Hanger (ph): Okay. Thanks.

Thanks.

Having no further questions at this time, I'd like to turn the conference back over to Mr. Summe for any additional or closing remarks.

Good okay thank you. As we stand back from the quarter, we're pleased with our momentum on a number of fronts and frankly we look forward to posting you on our continuing progress. So thanks for your time and interest today, and have a great day. This call is adjourned. Thank you.

Thank you. And you may disconnect at this time.