Revvity Inc (RVTY) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to this PerkinElmer fourth quarter 2003 earnings results conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Vice President of Investor Relations and Corporate Communications, Mr. Daniel J. Sotherby. Please go ahead, sir.

Good morning and welcome to the PerkinElmer fourth quarter 2003 earnings conference call. If you have not received a copy of our earnings press release, you may obtain one by visiting our website at www.perkinelmer.com. On the first call network or from our toll-free investor hotline 1-877-PKINYSE. Before we begin, we need to remind every one of the following Safe Harbor statements. Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the private securities litigation reform act, of 1995. Actual results or events may differ materially from those inicated by these forward-looking statements as a result of various important factors, including those discussed in our earnings press release filed today and on our most recently filed annual report on form 10-K and in our most recently filed quarterly report on form 10-Q all of which are on file with the SEC. In addition, any forward-looking statements represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change, so you should not rely on any of today's forward-looking statements as representing our views as of any date after today. To the extent we refer to non-GAAP financial measures during this call, we will provide reconciliations during the call of the non-GAAP financial measure to the most directly comparable GAAP measure or we will provide a reconciliation in the investor corner section of our website. I am now pleased to introduce the Chairman and Chief Executive Officer, of PerkinElmer, Greg Summe.

Thank you, Dan. Good morning, everyone. First off I appreciate you taking the time to join us today to discuss our fourth quarter and full year 2003 results. With me also today is Rob Friel, our Chief Financial Officer. I'll begin by reviewing the highlights of the fourth quarter, Rob will then talk in more detail on the financial results and the guidance for 2004. We'll break for questions and then close the call.

Overall we were very pleased by results this quarter as we continued to achieve our financial goals to improving our cost structure, our operating processes and introducing new products. Our fourth quarter EPS was 21 cents on a GAAP basis and 24 cents excliuding intangible amortizations and this was at the high end of our range of 17-21 cent GAAP guidance for the quarter. Our fourth quarter revenue was 433 million up 6% reported. As all segments delivered revenue growth year-over-year. However, most of it was due to the foreign exchange impact of the weakening dollar. Overall we saw pockets of improvement in the quarter and generally more optimism among our customers. As we saw last quarter during Q4, we continued to experience increased shipments and increased orders on our larger instruments in the life science end markets. This would include instruments such as our ViewLox, UltraVIEW, and the ICP mass spec instruments.

We also saw the semiconductor equipment market improve along with continued strength in the industrial and service sectors. During the quarter we were pleased with our gross margin expansion of 160 basis points year-over-year, and very significant operating margin expansion. Each business unit delivered operating margin expansion of at least 350 basis points year-over-year. We achieved these results through higher revenue, aggressive cost productivity and more efficient operating processes. Our SG&A was down $44 million for the full year 2003 compared to last year. Our operating cash flow was very strong for the quarter and the year. Principally through excellent working capital performance. Our working capital turns were up about a full turn for the year. Strong cash generation brings our net debt to total capital to 21% and our net debt ended about $358 million, or down $130 million for the year.

On the growth front, we announced $250 million revenue deal with General Electric to be their exclusive supplier of flat panel digital X-ray detectors both for medical and nonmedical applications. This is a terrific confirmation of our performance and the strength of the 10-year-old relationship we have with General Electric. We are also pleased with the growths of our one sourceservice business. Fourth quarter revenue growth in service reached double digits for the first time. Customer feedback has been very positive and we believe we are uniquely positioned to help our customers improve their productivity and help them solve their problems. We'll continue to invest in this business as a strategic driver of growth for us in 2004. Other growth initiatives we're emphasizing in '04 are broadening the reach of our genetic screen business, expanding the breadth of our medical image and product line and continuing the strength and our capabilities in drug discovery. Especially continuing to building our cellular imaging business.

In 2004 we will keep our focus on cost productivity, quality, and process improvements much as we did in '03. Also new product innovations in customer satisfaction. Continued progress on these initiatives plus the carry over affects of our 2003 progress should enable us to deliver significant EPS growth with excellent cash flow. We are anticipating our 2004 EPS to be up over 40% over our 2003 results. I'm now going to turn the call over to Rob who will talk about our financial results and guidance for 2004 in greater detail. Then we'll move on to the questions, Rob?

Thank you, Greg. Good morning. This morning I will provide some details on our financial results for our fourth quarter 2003 discuss guidance for 2004 and Q1 '04 and then open the call to your questions. Before I get into the specifics, I want to clarify that whenever I talk about a particular measure being up or down, I am referring to an increase or decrease in that measure during the fourth quarter of 2003 compared to the fourth quarter of 2002 unless I say otherwise. If you would turn to the income statement, sales for the fourth quarter of 2003 were 433 million up 6% from 410 million in Q4 of last year. The translation of our foreign currency denominated revenue at the higher exchange rate has the impact of increasing sales during the fourth quarter of 2003 by approximately 6%. For the full year 2003 revenue was 1.54 billion or 2% higher than the 1.51 billion in 2002. The impact of the weaker dollar on full year 2003 revenue was roughly 5%.

Geographically Europe which represented about 35% of our revenue for Q4 experienced growth during the fourth quarter of 17% on a reported basis. Revenue in the Americas which represented about half of our revenue for the quarter was up 2% and Asia revenue representing about 15% of our revenue for the quarter was down 6% largely due to a large order we received last year. Cost of sales for the fourth quarter was 248 million and gross margin was 185 million or 42.7% of sales with gross margin as a percentage of sales increasing 160 basis points. Improved gross margin was due to improved factory performance the benefits of prior period restructuring actions and the lower dollar. Research and development expenses were 20 million in the fourth quarter of 2003 or approximately 5% of sales down slightly in dollars. For Q4 '03 SG&A expenses were 104 million down $4 million despite the impact of the lower dollar increasing our foreign currency denominated SG&A in the quarter. As a percentage of revenue, SG&A was 24.1% in Q4, 2003 representing a reduction of 230 basis points. For the full year 2003, SG&A expenses were down roughly $44 million as compared to 2002. As a percentage of sales, SG&A was 25.2% for 2003 as compared to 28.7 in 2002 or a reduction of 350 basis points. A key priority of ours when we entered 2003 was to significantly lower our cost base to both increased operating margins during 2003 as well as improve our operating leverage potential in 2004.

And while we feel good about our progress last year, cost productivity remains a key area of focus across the organization as we enter 2004. During the quarter, we reported an adjustment to our restructuring reserves of about 500,000 due to lower than expected actual severance costs and we also recorded a 600,000 net gain from the sale of real estate. Continuing down the income statement, amortization of intangible assets was 7.1 million in the quarter approximately flat with the fourth quarter of 2002. This is a non-cash charge related to intangible assets like trade names and core technology that are attributable mostly to the Packard Bio and any EndLife sciences acquisitions concluded in 2000 and 2001. Operating income from continuing operations was 54.1 million for the fourth quarter of 2003 or 12.5% of revenue up from 5.1 million or 1.2% of revenue. The Q4 2002 operating profit includes a restructuring charge of 26.5 million or 6.5% as a percentage of sales for the period. This charge was recorded in Q4 of last year relating to the integration of the LAS business where we combined our life sciences and analytical instruments businesses to reduce cost and to take advantage of synergies across the two businesses. Excluding amortization of intangibles, operating margin for the fourth quarter 2003 was 14.1%. GAAP operating income for the full year 2003 was 137.3 million or 8.9% of revenue with the impact of intangible amortization of 190 basis points.

You will note that this quarter we have broken out the line that previously included interest and other expenses into five separate lines to get more transparency into the components. Extinguishment of debt includes gains, losses and expenses associated with retiring or restructuring our debt. In Q4 2003 we repaid 20 million of our term loan and consequently we expensed a proportionate share of the original issuance cost which had been capitalized at the time the debt was issued. In addition, in this quarter we repriced our term loan which I will discuss later to take advantage of favorable moments in the interest rate market environment and our improved credit statistics. The fees associated with the repricing are also included in this line. During the quarter, we wrote off an equity investment of 1.1 million and you can see that we are now separately showing interest income and interest expense. The tax provision of 12.6 million for the fourth quarter of 2003 reflects a tax rate of 32% roughly in line with our guidance.

Net income from continued operations for Q4 '03 was 26.9 million or 21 cents per share up considerably even if you adjust for the impact of the LAS restructuring charge taken last year. Net income from continued operations for the full year 2003 was 55 million or 43 cents per share. During the quarter we had several transactions impacting our discontinued operations including the settlement of outstanding items relating to our technical services sale that were settled more favorably than originally estimated. The net result in Q4 was roughly $1 million of net income or 1 cent per share, therefore total net income for Q4 '03 was 27.9 million or 22 cents per share. In the box at the bottom of the income statement, we have presented our EPS excluding intangibles amortization. As you can see, EPS from continued operations excluding intangible amortization was 24 cents, 2 cents per share higher than our first call consensus estimates for Q4 and for the year, EPS excluding intangible amortization was 58 cents per share.

If you would now turn to segment results, we have presented results for the fourth quarter and full year 2003 compared to the comparable 2002 period. All of the revenue growth that I will discuss is on a reported basis and includes the impact of foreign exchange. In LAS, revenue in the fourth quarter of 2003 was 290 million up 6%. On a GAAP basis, LAS operating profit for the fourth quarter of 2003 was 41.1 million, up from an operating loss of 2.8 million. The fourth quarter of 2002, operating loss included the restructuring charge of 26.5 million related to the LAS integration. Excluding this restructuring charge in Q4 '02 as a percentage of sales, operating margin for Q4 '03 was up 560 basis points to 14.2%. Amortization expense was 6.6 million and 5.9 million for Q4 '03 and Q4 '02 respectively. Excluding intangibles amortization, Q4 '03 operating profit was 47.7 million or16.4% as a percentage of revenue up significantly from last year even if you exclude the restructuring charge. The improved operating margin was due to cost productivity initiatives both in the factories as well as in our selling and administrative areas.

Instrument sales which represented about 51% of the sales for the quarter in the LAS segment were up about 1%. This quarter we continue to experience growth in environmental and chemical end markets as well as the academic markets within Biopharma. Instrument sales in both Pharma and Biotech customers were down; however, we did see some areas of growth particularly in the higher end screening instruments. Sales of re-agents and consumeables which made up of 29% of LAS's sales in the quarter continued to grow and were up 12%. (INAUDIBLE) which represented about 20% of LAS's revenue in Q4 grew 11% with our one source offering continuing to build momentum in the marketplace.

Looking a at our growth by product lines, sales of our Biopharma business which represents 44% of LAS's revenue in the quarter and includes drug discovery and pharmaceutical QA and QC but excludes the service revenue associated with those products was up about 1%. As I mentioned, our higher end instruments did well in the quarter. For example, we shipped a record number of our ViewLux ultra-high throughput screening instruments in the quarter and also experienced strong demand for our UltraVIEW instrument which provides our customers the ability to do live cell imaging. Offsetting this growth was declines in radio chemical agents and liquid handling instruments. In the environmental and chemical product lines which represent about 26% of our LAS revenue in the quarter, revenue was up 10%. Strong market acceptance of new products recently introduced is driving market share gains including a large order we recently announced from the centers for disease control to help monitor air and water quality across the U.S. We are also experiencing growth in the (INAUDIBLE) with our inorganic product lines as these countries invest in their infrastructure to improve the quality of their environment. In genetic screening which is 10% of LAS's revenue in the quarter, Q4 '03 revenue was up 13% with strong growth continuing in the neonatal end markets. As we have mentioned, China, India and other parts of Asia continue to be key areas of growth potential and focus for us.

Turning now to optoelectronics, revenue for the quarter was 91 million up 4%. Optoelectronics GAAP operating profits for the fourth quarter of 2003 was 11.6 million or 12.7% of revenue up from operating profit of 7.7 million or 8.8% of revenues. Both periods included intangible amortization of about 300,000. This 390 basis point expansion in operating margins quarter over quarter was driven by higher revenues and lower SG&A. Excluding intangibles amortization, operating profit during Q4 was 11.9 million or 13% as a percentage of revenue. In every quarter of 2003, Optoelectronics has increased revenue and expanded operating margin over the respective periods of 2002. The revenue growth in Optoelectronics in Q4 this year was driven by the digital imaging business which represented about 32% of Optoelectronics revenue and which grew over 25%. As we mentioned last quarter, we continue to see growth in diagnostic and radio therapy digital X-ray business as well as our nonmedical applications. In specialty lighting which was roughly 35% of Opto's revenue this quarter, sales were down 4% and in the sensors business which represented about 30% of the Q4 revenue, revenue was down about 11%. Due to market softness and a few industrial applications as well as difficult comparisons with last year.

Turning to Fluid Sciences, revenue was 51 million up 5%. Fluid Sciences GAAP operating profit for the fourth quarter of 2003 increased to 6.8 million or 13.3% of revenues, an improvement of 350 basis points. Q4 '03 and Q4 '02 operating profit included intangibles amortization of 200,000 and 900,000 respectively. Excluding intangible amortization, operating profit during Q4 was 7 million or 13.7% as a percent of revenue for the period. Higher revenue and manufacturing cost savings were the reasons for the improved operating margins over Q4 last year. During Q4 '03 within Fluid Sciences, the aerospace segment which was 57% of total revenue was up 10% with solid contributions from both our OEM business and with parent overhall. The semiconductor business which represented 25% of the revenue in the quarter was down 1%; however, sequentially we experienced growth of 18%. In Q4 2003 we clearly saw indications that the demand in semiconductor end market is improving and we are cautiously optimistic that we are at the beginning of a long-awaited recovery.

Now I would like to turn to the cash flow statement. During the fourth quarter 2003, we generated 77.9 million of operating cash flow. Free cash flow which we define as operating cash flow less capital expenditures of 5.4 million equaled 72.5 million in the quarter. A large driver of this cash flow has been our ability to continue to improve our processes to allow us to operate with less working capital. Since the beginning of 2003, we have generated about 72 million through working capital improvement. Versus Q4 '02, our inventory cycle days are down 12%. As well our DSO's have also been reduced by 12% and this includes the benefit of increasing the amount outstanding under our account receivable securitization program by $16 million.

Precash flow for the full year 2003 was 150.9 million representing 167.5 million in operating cash flow minus 16.6 million in capital expenditures. This is more than double 2002 free cash flow of 69.9 million representing 107.7 million in operating cash flow minus 37.8 million in capital expenditures. Higher profitability, improvement in working capital and lower capital expenditures were among the largest contributors to the improvement in free cash flow. In the financing activities portion of the cash flow statement, you will note that during the quarter we paid down 20 million of the term loan as well as paid our quarterly dividend of roughly $9 million. For the full year 2003, we paid down $70 million of the term loan. As I mentioned previously, during Q4 2003 we repriced our term loan. The pricing of the facility has changed from liable or plus 400 basis points to liable or plus 225 basis points which steps down further to liable or plus 200 basis points when our debt to EBITDA is below 2.5 times. We viewed this as a confirmation of our improving credit position as evidenced by the fact that we needed and received 100% approval from the holders of the term loan to achieve this reduction in price.

Turning now to guidance for Q1 '04 and full year 2004, we are encouraged by certain signs of market recoveries as we close 2003 and enter 2004. However, we continue to remain cautious relative the top line growth particularly as we believe the stronger U.S. dollar could impact the pace of global recovery particularly in Europe. Consequently for 2004, our revenue growth for the year will be in the range of 3-5% with Optoelectronics and LAS growing in the low single digits and Fluid Sciences forecasted to grow revenue in the high single digits. We expect 2004 operating margins on a GAAP basis to expand by 100-200 basis points and to be in the range of 10-11% with each of the segments driving toward 100-200 basis point expansion for the year. We are forecasting gross margin expansion of about 100-150 basis points for the year driven by the higher revenue and improving operating leverage. We anticipate increasing our R&D investments in 2004 to around 6% of sales which would represent an increase of about 15% over the 2003 levels. We are forecasting SG&A excluding amortization as a percentage of revenue to be around 25 -- 24% by the end of 2004 with improvements on a quarterly basis through the year. This will be achieved through continued focus on productivity and cost controls to assure that costs are aligned with the anticipated revenue projectory as the year progresses.

The lower level of debt and the Q4 '03 debt repricing I discussed previously, is forecast as a result in pretax savings of interest of roughly $10 million for the year in 2004. This will result in GAAP EPS in the 62-67 cent range, an increase of over 40% from 2003 GAAP EPS. The estimated EPS impact of intangible amortization should be 15 cents in 2004 and EPS excluding amortization is forecasted to be in the 77-82 cent range. For 2004 free cash flow guidance, we were forecasting the range of 110-130 million with depreciation and amortization around 80-85 million and capital expenditures for the year estimated to be 35-40 million. Restructuring cash outflows will be about 10 million and we are forecasting our working capital turns to be in the range of 5.5 to 6 times.

Turning to the first quarter, we expect that revenue will be up in the low single digits with GAAP operating margins around 6-8%. This will translate in the GAAP EPS in the range of 6-10 cents, including the effects of intangible amortization of 4 cents per share. Excluding intangible amortization, we are forecasting EPS for Q1 '04 in the range of 10-14 cents per share. As we get more visibility into our end markets of 2004, we will hopefully be more optimistic about growth and due to our cost structure we would expect to see excellent income conversion. But at this time we feel it is prudent to forecast conservatively. However, having said that, our 2004 full year forecast for GAAP EPS is up over 40% from 2003. I would now like to open the call to your questions.

Thank you. The question and answer session will be conducted electronically. To ask a question, you may do so by pressing the star key followed by the digit 1 on your touchtone telephone. If you are using a speaker phone, please make sure your mute button is released, to allow your signal to reach our equipment. Once again that's star 1 at this time for a question. We'll pause for just a moment to assemble the queue. And our first question comes from Larry Neibor with Robert W. Baird.

Good morning Larry.

Good morning, how are you?

Good.

Going back to your segment breakdown in the live analytical science area, your instrument business was up 1% with, I think the comment was your higher cost instruments were doing better than that. Could you expand a little bit on the range of product there and the outlook for that range of product in 2004?

I think what we are commenting on there, Larry, is if you go back to '03, what we saw is that in the beginning of the year, there was a great deal of pressure on capital spending on instruments especially in the first two quarters and really that market was hit very hard and so there was significant double digit declines. As we went through the year, the instrument business sequentially got better. We were particularly encouraged by the fact that the higher end instruments which range in price from $200,000 to half a million dollars a pop, had gained strength themselves. So we don't put out numbers on specific product lines like that just because of the competitive aspects of those products but, I think we've been very pleased with UltraVIEW which is the lifestyle imaging, we've been very pleased with ViewLux which is a very ultr-high frequence screener as you know and so some of those items have gathered a fair amount of strength and continue to do well. So I think, we looked at those segments and their and their kind of positive V area there is high end and so we view that as both, sort of , good product positioning and some recovery in the capital spending environment. But let me ask Rob, any other comments you want to make on that?

No, I think the other thing we are seeing that the pharmaceutical company and some of the biotechs are increasing their investment in the screening area particularly. And so what we are seeing is good demand in those areas through the sort of the higher throughput screening.

And that was an area of weakness all through the year for you, wasn't it?

It was particularly weak in the first half.

Right. Okay. Thank you.

You're welcome.

And we'll go next to John Harmon with Needham and Company.

Good morning, John.

Good morning. A couple of questions, please. Looking at the uptick in your political sciences business from the semiconductor industry, would that increase in orders pretty much cancel out a seasonally weak Q1 or what do you think it will do in Q1?

I think semicon, we are expecting semicon to be very healthy in Q1. And you know when you look at the semicon bookings sequentially, they were up significantly as we went through the year. They were flattish relative the prior year because the prior year we had this double dip phenomena. Where it had been weak and it recovered. It jumped up Q3 and Q4 and then it got very weak again in Q1, Q2 and Q3. So, I think, what we are seeing now is a more sustained recovery in the semiconductor so we expect for Q1 and for the whole year for semiconductor to be up fairly strongly.

Okay. Thank you. And secondly, in previous quarters you talked about the dollar savings you can achieve or plan to achieve from the LAS integration. What's your estimate for 2004 now?

Well we've talked in the past is that by the end of 2004 we thought we could achieve 45 million of savings. We still think we're on that tract to at least do that now a little bit better and in 2003 we probably did in the 25-30 million amount. I would suspect that when you take the full year benefit of the actions we've taken in '03 combined with some incremental actions we're doing in the first quarter and possibly carrying on into the second quarter, you'll see savings year-over-year incrementally of probably $15 million.

Okay, thank you. And you said that foreign exchange gains were 6% overall year over year. Can you break them down by segment?

I can. In the case of LAS, it was 7%. In the case of Opto it was 4. In the case of Fluid it was 1.

Okay. Thank you. One final one, please. How is the GE contract going to affect Opto revenue over the year. My understanding is that it will grow throughout the year? It's been about a 10% grow year-over-year? And what should you do to it?

Yeah the GE contract is a very important part of our overall digital imaging business which grew very well this year. We had a little bit of softness in the lighting and sensors but imaging more than offset that. So I think the outlook, our outlook really is for the overall digital imaging business in '04 and '05 and beyond and we think that's very good. Not only because the GE contract which is in the medical diagnostics part but also the in the medical therapeutics part, that is in radio therapy for example, cancer treatments and so forth and then in some of the nonmedical applications. We expect that business to continue to grow well and the GE contract provides very nice support of the business and, I think, maybe even more importantly is a comment on our technical and delivery capabilities of our business in this marketplace because certainly this is an extremely important set of products for General Electric and the fact that we're their exclusive provider of these digital imaging panels, flat panel displays that go into their X-ray, mammography, cardiac, angiography equipment, which is a rapidly growing product line for them. I think is just great confirmation of our competitiveness in this product.

You know, I think the other thing to point there, as I think you know, John, this is a sort of economics around a Fab. So you basically have fixed cost and the more volume you can put through the fab, the lower the cost of the panels so this provides a great opportunity to fill up the volume of the FAB. And therefore as we drive the cost of the incremental panels down, that will continue to open up more markets to us. So as we can drive the cost of the panels down, we think not only does it help us in the medical applications, it helps us in a lot of nonmedical applications that open up because of the reducing cost of the panel.

Okay, thank you. One more if I may. Can you give us some guidance on interest expense since you've renegotiated the term loan and what about the debt you have at Fab.

I would say for '04 to assume about $10 million a quarter for interest expense so that would include the term loan, it would include the subordinated note as well as the amortization of our issuance cost. As I mentioned previously, the cost we incurred when we issued the debt gets amortized as well.

All right. Thank you very much.

You're welcome.

And as a reminder, please press star one for a question. We'll take our next question from Darryl Party with Merrill Lynch.

Good morning. Hey does your--the revenue guidance you guys just gave, does that include foreign exchange or is that organic?

That would be organic.

That's organic? The 3.5%?

Yes.

Okay. And within LAS, can you give some more color on your outlook for the Biopharma aspect of LAS versus industrial?

Yeah. I mean, I think, you know Biopharma is comprised of the pharmaceutical, the biotech, and the academic and medical research in customer segments and it's both drug discovery and also the manufacturing QA/QC area for us, and that's the whole quilt of what's in there. We think it's a terrific marketplace and will be over the longer term just because of the whole power of the drug discovery and what's coming down both in the personalized and preventive medicine arenas. So we are very bullish about that in the longer term. I think in the short-term particularly with some of the pharmaceutical companies are wrestling with some issues of their own, although having said that, which, of course, puts pressure on the marketplace. And I think, you saw in just this past week announcements, the earnings announcements of some of the pharma's, some doing really terrific and some having some significant problems in the short-term. So I think that puts pressure on the market in terms of their acquisition particularly of capital equipment, that is the instrument side, much less pressure on the consumables re-agents in the service piece. So we expect consumables, re-agents, and service to continue to grow. We expect instruments to, albeit a little more tempered outlook, slower expansion in there and that's going to be partly driven by our ability to get new product out there and continue to innovate. It's clear that the pharma companies are trying to drive productivity in the R&D side aggressively, that's going to be the answer ultimately to their value creation which they are working on now. It's not a shortage of funds out there, but it's kind of a wrestling, I think, with a number of people exactly, what is the right recipe for them to get their productivity up in the research and development side?

Okay. And then on the industrial side?

The industrial side, I think, is a mix of a couple things. You have I'll call it cyclical recovery in industrial as the GNP is expanding and continues to grow? You also have some applications like the environmental portion which is being driven, I think, higher than is cyclical recovery because of concerns about air and water quality particularly in the developing world and bioterrorism in the developed world.

Okay. So can I interpret that as sort of flat to slight growth on the Biopharma side and say mid-single digit growth on the industrial side for '04?

I think so. Yes, directionally.

One other question on the debt reduction. Expect you guys to keep up the same sort of pace through '04? 15-20 million a quarter?

Yeah. I think that would be our expectation to continue to as we generate free cash to pay down the term loan. I think probably a number 15-20 million a quarter is probably pretty good estimate.

Great. Thanks.

You're welcome.

As a final reminder, please press star 1 at this time if you have a question. We'll move now to Paul Knight, with Thomas Weisel Partners.

Hey, guys, this is actually Ross for Paul. First on a geographic basis. One of your competitors recently mentioned a firming in instrument demand in North American markets. Can you comment on whether or not you guys have seen this yet in your LAS business?

I think the answer is, yes. If you looked at our North American revenue growth this year, Q4 was the first quarter where we saw positive revenue growth so, I think we are cautiously optimistic with what we are seeing in the North America marketplace and it was largely across all the businesses but particularly in LAS we did see growth in North America in Q4.

Great. Also on the geographic basis, can you expand on what you're seeing in the pac-rim markets and, you know, are there specific pockets of growth among your businesses or is it kind of widespread throughout the three divisions.

Well, I think China continues to be a good growth area. We mentioned a bit about their investment in the infrastructure so clearly. Environmental chemical area that's growing nicely and the genetic screening area that's also been an area where we're seeing particularly nice growth there. I would say in Q4, the general LAS business was down a little bit and I refer to we had a very large order in Q4 of '02 to the government of Malaysia, so you're seeing a little bit of a difficult comparison year-over-year. But I would say generally the far east is holding in pretty good for us and we see some very exciting pockets of growth particularly in China and India, I would say.

What was the growth for China approximately and India for the fourth quarter?

I don't have that number right here. We can get that.

Okay. And has the sales force yet, been rolled out in China? The direct sales force?

Yes.

When did that occur?

That occurred over a year ago, so I think what we did this year was we continued to invest. We continue to build it. We continue to bring application support capabilities in. We set up a separate customer care center in (waigutshau) which is just outside of Shanghai. We basically this year was continuing to kind of build, build on direct sales force in China.

And how many people do you have on the ground there now?

Well, I don't know. I mean, employees in China, we have about 13-1,400. But obviously they're not all in sales and marketing but we do a fair amount of manufacturing and have for literally decades over there so we have a fairly significant presence.

Great. Thanks, guys.

You're welcome.

And John Sullivan with Stephens has our next question.

Hey guys, John Sullivan and Dave Parmesano here. Two quick questions. First of all, can you help us regarding currency effect on revenues by business unit by any chance? And then the second question is what can we expect for new genetic screening test products in 2004 qualitatively and then kind of quantitatively how will that compare to 2003?

I'll start with the genetic screening and then I'll ask Rob to comment on the foreign currency affect. I think, what you'll see from us in genetic screening is we'll continue to put out some products. We just launched the DelphiaExpress product out there. But I think, you're going to just see,continue to see an expansion of the rest of re-agents that we have out there. You'll also continue to see the geographic expansion so we continue to develop the European and North American markets, I think the Masstech technology continues to open up, a wider range of conditions we test for. Now some 31 on the neonatal side. You'll also continue to see a strong push in India and China to continue to develop that business. I mean this was the first year we began to place our system in India. We have been doing it for some time in China and as you know that's ultimately where most of the babies are born. So I think what you'll see from us this year is where our expectation has continued to see double digit growth in that business. Geographic expansion in China and India and continued development through broader re-agent portfolio and within the North America and European markets.

John, let me give you some numbers on the FX impact, in LAS it was 7% and Opto it was 4 and Fluid it was 1.

Thanks very much, guys.

And we have a follow-up question from Larry Neibor.

Thank you. You mentioned that R&D spending is going to be up in the mid-teens this year to about 6% of sales. What areas are you going to be focusing on and what will be the long-term goals for your R&D spending?

You know, Larry, it's difficult for me to spike that out. I go back and say, you know, we are clearly trying to drive what we think the highest growth is. So within LAS clearly the genetic screening area is getting a fair amount of share. Drug discovery continues to get share. Environmental chemical will get, you know, still significant funding on this. With Optoelectronics we are doing some very good things in the lighting arena particularly around camera phones, projection televisions, I think are target areas for us, medical imaging, continue to expand that product line and then some sensor applications and within Fluid Sciences, it's really around expanding our portfolio within the after markets of semiconductor in aerospace. That's the breadth of it. Our goal in research and development is to get more yield out of the span even while we are beginning to increase the span but continue to get more products out in a shorter period of time so it's kind of timed to market focus within those categories.

Great. Thank you.

You're welcome.

Our next question comes from Rachel Golder with Goldman Sachs.

Good morning. Just a real quick one, do you have anything outstanding on (INAUDIBLE) securitization?

We do we have 45 million which is actually down 5 million for the end of Q3. We had 50 at the end of Q3 we have 45 million at the end of Q4 and my intention would be to leave that at about that level. That's as we talked about in the past, our most cost-effective way of raising money and so I think we'll continue to keep that at the 45-50 million level and then use our excess cash to take down the term loan. Even with the repricing of the term loan, the air securitization is still our most cost-effective of borrowing.

Makes good sense. Everything is looking wonderful. Thanks.

And it does appear we have no further questions at this time. I'd like to turn the conference back to Greg Summe for any additional or closing remarks.

Great, thank you operator. Thanks everyone, for joining us today and for your good questions. We feel good about our progress in 2003 and are optimistic about 2004. The actions we took in 2003 have positioned the company well and we believe will translate into greater customer and shareholder value in 2004 and beyond. So thanks for your time today and your interest in PerkinElmer. This call is adjourned and have a great day. Good bye.

That concludes today's conference call. Thank you for your participation. You may now disconnect.