Revvity Inc (RVTY) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to this PerkinElmer fourth-quarter 2004 earnings results 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 Relations and Corporate Communications, Daniel Sutherby. Please go ahead, sir.

Good morning and welcome to the PerkinElmer fourth quarter of 2004 earnings conference call. Today some of the materials that we will share with you will be forward-looking. They are based on our view of the world as we see it today, and of course that world can change. So we would ask that you interpret our comments in that light and refer to our factors affecting future performance included in our press release issued last evening and also the detailed risk factors and Safe Harbor provisions in our filings with the SEC. With that, I would like to turn it over to Greg Summe, our Chairman and Chief Executive Officer.

Thank you, Dan. Good morning, everyone. I appreciate you taking the time to join us today to talk about PerkinElmer's fourth-quarter and full-year 2004 results. With me also is Rob Friel, our Chief Financial Officer.

I will begin by reviewing the highlights of the fourth quarter and the year. Rob will then talk in more detail on the financial results; we will break for questions and answers, and then close the call.

Overall we were very pleased by our results this quarter, which completed a very successful year for PerkinElmer. In 2004 we delivered double-digit revenue growth and exceeded our earnings commitments, while delivering very strong cash flow. In the fourth quarter, our earnings per share were 29 cents on a GAAP basis and 33 cents excluding intangible amortization. We were pleased to deliver these results while also absorbing another 1 cent per share of costs associated with our $100 million of debt reduction during the quarter.

For the full year of 2004, our cash EPS of 91 cents was up 52 percent over 2003.

In the fourth quarter, our revenue was $479 million, up 11 percent year-over-year or 8 percent without the impact of foreign exchange fluctuations. From an end-market perspective our Health Sciences revenue grew 8.5 percent in Q4, driven by strong results in genetic screening, medical imaging, environmental, and service. Our Industrial Technologies businesses delivered 17 percent revenue growth with strong results across nearly all businesses, including aerospace, safety and security, and semiconductor.

Our full-year 2004 revenue grew 10 percent over 2003, with growth across all segments.

During the quarter, we continued to expand operating margins. Our fourth-quarter operating margins excluding intangible amortizations were about 15 percent. For the full year of 2004, our cash operating margins expanded 110 basis points to just over 12 percent. We increased research and development by about 4 million during the quarter as we continue to increase investment in our growth platforms.

Our earnings growth during the quarter was achieved through higher revenue, aggressive cost productivity, and more efficient operating processes.

Our fourth-quarter operating cash flow was 71 million and for the full year of 2004 was 201 million. We had free cash flow for the year of 182 million, which translates to approximately $1.40 per share.

We reduced our net debt by 181 million during 2004, which brings our net debt to total capital to just 11 percent. Our net debt ended at $177 million, which brings our net debt to EBITDA ratio to about 0.7. Our strong balance sheet provides us with an excellent capability to fund growth in 2005.

On growth, our genetic screening business continues to pick up momentum. In addition to California, we recently won another large state and expect to win several more during the next couple of quarters as all states move to 30-test standard of care. You may recall that 90 percent of the states today test for fewer than 10 conditions.

Our environmental business delivered another quarter of double-digit revenue growth and now has averaged 10 percent or higher growth for the past 6 quarters. The growth drivers are around air and water quality and bioterrorism.

Our service business continues to gain traction in the end markets and also delivered double-digit revenue growth during the quarter.

Our biopharma fourth-quarter revenues were roughly flat with the fourth quarter of last year. However we believe we have positioned the business for growth in 2005 with a good pipeline of new products in the higher growth applications such as biomarkers.

During the quarter, for example, we signed an exclusive distribution and comarketing agreement with Procognia to deliver the only complete solution for high-throughput and high-resolution analysis of the glycosylation of proteins. Procognia's lectin array based platform is being combined with PerkinElmer's protein array workstation and the recently introduced ProScanArray to offer the industry's first high-throughput high-resolution glyco analysis capability.

We've also created a powerful and novel biomarker discovery platform around our prOTOF mass spec, which we piloted in collaboration with the National Cancer Institute. We believe this platform will enable research to investigate and discover new, novel bio markers for numerous disease states which will ultimately enhance the potential for predictive testing of patients at risk.

Optoelectronics delivered a strong fourth quarter with double-digit growth in medical imaging and sensors. We continue to drive innovative in our flat panel technology in the diagnostic and therapeutic end markets, with our partners in these markets including GE Healthcare, Elekta, Siemens Oncology, and others. We also believe our consumer electronics platforms, including flash components for camera phones and our Cermax xenon light engine solutions, will be excellent growth opportunities in the latter half of 2005.

Fluid Sciences posted another very strong quarter of revenue and earnings growth as both our aerospace and semicon businesses continue to do well both from an OEM and aftermarket strength. Semicon has softened a bit and we expect that to continue through the first half of '05; but aerospace continues to be very strong.

I will now turn the call over to Rob, who will discuss our financial results in greater detail. Then we will move on to questions. Rob.

Thank you, Greg, and good morning. This morning I will provide some details on our revenue, costs, and cash flow for the fourth quarter and full year of 2004, then briefly discuss guidance for 2005 and Q1 '05 before I 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 2004, compared to the fourth quarter of 2003.

Turning first to revenue, as Greg mentioned, we finished the year strong, with sales for the fourth quarter of 2004 increasing 11 percent to 479 million, up from 432 million. By segment, reported revenue growth was 27 percent in Fluid Sciences, 12 percent in Optoelectronics, and 7 percent in Life and Analytical Sciences.

Contributing to this growth was the effect of a weaker dollar in Q4 2004 relative to Q4 2003 which we believe increased fourth-quarter sales by approximate 3 percent. This foreign exchange impact by segment was 3 percent in LAS, and about 1 percent in Optoelectronics and Fluid Sciences.

Also contributing to the growth in the quarter but to a much lesser extent was the fact that, due to our fiscal calendar, every 5 years we have a few additional business days in our fiscal year which was the case in 2004. We believe these additional days had an immaterial impact on our product revenue, but may have added approximately 2.8 million to our service revenue in the quarter, which is about 0.6 of 1 percent of our revenue in the quarter.

Geographically, we experienced growth across all regions in the fourth quarter. In the Americas, revenue was up 14 percent on a reported basis. Revenue in Europe, which represented about 35 percent of our revenue for the quarter, was up about 9 percent. And Asian revenue, representing about 14 percent over revenue for the quarter, was up 5 percent. Adjusting for the impact of currency, both Europe and Asia grew Q4 revenue about 3 percent.

For the full-year 2004, revenue was 1.69 billion or 10 percent higher than the 1.53 billion in 2003. For the full-year 2004 compared to 2003, Life and Analytical Sciences revenue grew 6 percent; Optoelectronics revenue grew 9 percent; and Fluid Sciences revenue grew 36 percent. The impact of the weaker dollar on full-year 2004 revenue was also about 3 percent.

The higher revenue in the fourth quarter drove an increase in operating income from continuing operations of 16 percent to 64.2 million from 55.4 million in Q4 '03. GAAP operating margin for Q4 was 13.4 percent, an increase of 60 basis points. However, adjusting for the loss on sale of assets in Q4 '04 and the gains in restructuring reversals in Q4 '03, operating income increased 20 percent and margins expanded 100 basis points. Excluding intangible amortization, Q4 '04 operating margin was 14.9 percent.

For the full-year 2004, operating income expanded 25 percent to 177.1 million from 141.8 million, which resulted in GAAP operating margin of 10.5 percent, up 120 basis points from last year. Excluding the gains and restructuring reversals in 2003, operating income expanded 31 percent and operating margins expanded 160 basis points in 2004 versus 2003.

Looking at expenses below operating income, interest expense net of interest income in Q4 of '04 was 8.6 million, down 3 million from Q4 '03 due to the significant debt reductions over the last 12 months and our strong cash flow.

Also during Q4, we incurred a 2.3 million charge relating to the extinguishment of debt. In Q4 we' repaid another 100 million of our term loan that resulted in a non-cash charge relating to the write-off of a portion of the original issuance cost. For the full year of 2004, debt was reduced by 175 million.

The tax provision of 13.9 million for the fourth quarter of 2004 reflects a Q4 rate of 27 percent. During the quarter, we had a favorable resolution of an IRS audit issue, which resulted in a $10 million favorable impact in our tax provision. Also during Q4, we recorded a $9 million charge for the tax cost of repatriating our overseas cash, given our recent decision to repatriate this cash as a result of the favorable treatment under the new tax law. The net benefit of $1 million is the reason for the lower rate of 27 percent in the quarter compared to our guidance of 28.

Q4 '04 net income from continuing operations was 37.9 million, up 37 percent from Q4 '03, when net income from continuing operations was 27.7. Q4 '04 GAAP EPS from continuing operations increased 32 percent to 29 cents, from 22 cents in Q4 '03. Excluding intangible amortization our EPS was 33 cents in Q4 '04, up from 25 cents in the same period last year, and 2 cents better than First Call consensus of 31 cents.

Full-year 2004 net income from continuing operations was 98.3 million, up 70 percent from 2003 when net income from continuing operations was 57.9. 2004 GAAP EPS from continuing operations increased 69 percent to 76 cents, from 45 cents in 2003. Excluding intangible amortization, our EPS was 91 cents in 2004, up 52 percent from 60 cents in 2003.

Now turning to our segment results, I will briefly describe our Q4 performance. All the revenue growth that I will discuss is on a reported basis and includes the impact of foreign exchange.

Turning first to LAS, revenue in the fourth quarter was 312 million, up 7 percent. On a GAAP basis, LAS operating profit for the fourth quarter of 2004 was 46.6 million or 14.9 percent of sales, up 70 basis points from Q4 '03. Excluding the asset write-offs and restructuring reversals I mentioned earlier, LAS Q4 operating margins would have expanded 130 basis points to 15.3 percent. Excluding intangible amortization and the asset write-off, LAS Q4 '04 operating margins were 17.4 percent.

In genetic screening, which was about 11 percent of LAS's revenue in the quarter, revenue was up 19 percent with all geographic regions delivering growth in the quarter. In the environmental and chemical productlines, which represented about 27 percent of LAS revenue in the quarter, revenue was up 11 percent. Strong atomic absorption, ICP, gas chromatography, and thermoanalysis revenues during the quarter drove the comparative increase, as both U.S. and international governments continue to improve air, water, and overall environmental quality and address bioterrorism concerns.

Biopharma sales, which represented 41 percent of LAS revenue in the quarter and includes drug discovery tools and pharmaceutical QAQC, but not the service revenue associated with those products, was down less than 1 percent. While generally we continue to face soft end-market conditions, certain of our biopharma businesses showed improved year-over-year revenue growth versus Q3. Specifically, liquid handling, high-throughput screening, and drug discoveries showed nice growth versus Q3 of '04.

Service, which represented about 21 percent of our LAS revenue in Q4 '04, grew 15 percent as we continue to see good attraction in our OneSource business. As I mentioned, we believe the impact of the extra few business days in our closing calendar benefited Q4 service revenue by about 5 percent. Therefore, on a comparable basis with Q4 of last year, service revenue grew 10 percent during Q4 this year. We continue to be pleased with the performance of the service business as our customers increasingly see the potential for vendor consolidation, thereby reducing complexity and realizing cost savings.

In Optoelectronics, revenue for the quarter was 101.5 million, up 12 percent. Optoelectronics GAAP operating profit for the fourth quarter of 2004 was 15.6 million or 15.4 percent of revenue. Excluding intangible amortization, operating margin was 15.7 percent.

Within Optoelectronics, imaging revenue grew about 26 percent during the quarter, driven by our digital x-ray technology which goes into both diagnostic and therapeutic end markets including radiotherapy, as well as industrial applications such as nondestructive testing.

Specialty lighting was down 6 percent compared to Q4 of last year, due mainly to lower photoflash sales in single use cameras, that offset growth in our Cermax xenon light engine business. The sensor revenue was up 23 percent, driven by growth in our general industrial and military end markets.

Turning to Fluid Sciences, Q4 revenue was 65 million, up 27 percent. GAAP operating profit increased to 10.4 million or 15.9 percent of revenue, up 260 basis points due to higher volume across all of our businesses and lower cost due to our increased Asian production. Operating profit excluding intangible amortization was 10.6 million for the fourth quarter, or 16.2 percent of revenue.

During Q4 '04, within Fluid Sciences the aerospace segment, which was about 57 percent of the revenue, was up 27 percent with solid contributions from both our OEM business and repair and overhaul. The semiconductor business, which represented about 28 percent of Fluid Sciences revenue in the quarter, was up about 5.1 million or 43 percent over Q4 '03.

Turning now to the balance sheet and cash flow, during the fourth quarter of 2004 we generated 71 million of operating cash flow due to the strong income and continued working capital turns improvement. Free cash flow, which we define as operating cash flow less capital expenditures of $6 million, was 65 million in Q4 '04.

During the full-year 2004 the Company generated operating cash flow of 201 million, equivalent to about $1.55 for each share outstanding. Increased net income, improved working capital turns, reduced restructuring outlays, and the timing of certain accruals drove the improved cash flow performance.

Free cash flow for 2004 was 182 million and was comprised of our operating cash flow less capital expenditures of 19 million.

We continued to delever the balance sheet in Q4 by repaying 100 million of our term loan, taking the balance down to 70 million at the end of Q4. Our total debt at the end of 2004 was 374 million, and cash and equivalents were 198 million; so total debt less cash and equivalents was 177 million.

The free cash flow we generated in 2004 of 182 million now exceeds our net debt of 177; and our total net debt, net of cash and equivalents, as a percentage of total capital is now 11 percent. So we enter 2005 with pretty good momentum on the operating side and a very strong balance sheet.

Now let me briefly discuss full-year 2005 and Q1 2005 guidance, and then I will open the call to your questions. For full-year 2005, we were forecasting cash EPS, which excludes intangible amortization, in the range of $1.05 to $1.10. The estimated impact of intangible amortization is forecasted to be 15 cents per share for the full-year 2005. Therefore, our forecasted GAAP EPS for 2005 is 90 to 95 cents per share. This would represent an increase over 2004 of 15 to 21 percent using cash EPS, or 18 to 25 percent using GAAP EPS.

For 2005 revenue we are forecasting organic growth of 5 to 7 percent. In addition we believe we can add another 2 to 3 percent top-line growth through productline and selective technology acquisitions.

We're forecasting 2005 operating margin expansion of about 100 basis points over our 2004 level, which would be from significant gross margin expansion, say about 150 basis points, partially offset by higher R&D spending. We plan to increase R&D about 20 percent this year to over $100 million and are forecasting that 2005 SG&A dollars will increase as we fund investment to growth but not grow as fast as revenues.

Interest and other expense are expected to be about 35 million in 2005, and our forecasted tax rate for this year is 28 percent. Free cash flow for 2005 is forecasted to be 165 million or about $1.25 a share.

For the first quarter of this year we're forecasting organic revenue growth of about 5 percent and EPS, excluding intangibles, of between 17 and 18 cents. With the estimated impact of intangibles of 4 cents, GAAP EPS is forecasted to be in the range of 13 to 14 cents per share. With that, let me now open it up to your questions.

(OPERATOR INSTRUCTIONS) John Harmon.

I have two questions for you. I apologize if you mentioned this, but could you walk us through again how operating margins, pro forma operating margins, deteriorated sequentially in Optoelectronics and Fluid Sciences, though those two businesses were up sequentially? Hello, can you hear me?

Say that again, John? Sorry.

Optoelectronics and Fluid Sciences revenues were up sequentially; yet your pro forma operating margins decreased somewhat. Can you talk about each segment and what hurt margins sequentially?

Yes; I guess what I am looking at, John, from LAS's perspective, sequentially operating margins are up pretty significantly. Also, are you looking at a sort of 17.9 to 17.1?

Yes. Looks like Fluid Sciences went down a little bit too, sequentially.

I think what you're going to see is we spent about $4 million more in R&D in the quarter. So that's -- we're starting to ramp up the R&D increase in '05 over '04. We started to experience some of that higher R&D spending in Q (technical difficulty).

Okay, thank you. My second question, you talked about flashes for cell phone cameras as being a second half of the year phenomenon. I know you are designed into a couple handsets already. Is this predicated by when these handsets ship in volume, or other new design wins?

John, I think it is more predicated by the volume growth in it. We have a fairly large volume base in here. So it is being driven by the adoption of higher-resolution CCD imagers and CMOS imagers into the phones, and that is underway now. We expect to see more benefit of that in the second half, by the time you get to (indiscernible) some type of a volume measurement.

It is -- we are being designed into a broad range of potential customers. So not just a couple, but significantly more than that. We think that is when you begin to see the volumes.

Okay, thank you very much.

Darryl Pardi.

In the prepared remarks you mentioned that you're seeing improved demand in liquid handling, high-throughput screening, and drug discovery. Could you elaborate on that? What customers? Is there quote activity? You're starting to see orders?

My comment, Darryl, was the fact that if you look at the growth in Q3 year-over-year versus Q4, or actually the contraction that we saw in Q3, all three of those businesses improved relative to Q3. I would say that probably the most significant improvement we saw was in liquid handling, where sequentially that business is up I would say over 50 percent.

I would say some of that is new products that we're starting to get out in the market. I think some of that we believe may have been some pent-up demand, that people decided to spend in Q4. So I would say that was the most significant one.

I would say in the case of our reagents and drug discovery, we have had a concerted effort to try and get back some market share we believe we lost earlier in the year; and we're starting to see that. That was up probably sequentially 20 percent in the quarter. In drug discovery, high throughput screening, I think we saw some really nice growth particularly in our EnVision productline, where we actually had a record shipment number of EnVisions, which I would say is a more modest price high throughput screening instrument.

So I think we are continuing to see nice growth there and hopefully continue to see that into the first half of '05.

I know we touched on this, Rob, on the December call, but the 2 to 3 percentage points of additional revenue growth you think you could get from acquisitions, that is not included in your EPS forecast for this year; is that correct?

It is not.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS) Paul Knight with Thomas Weisel.

What was the growth rate of your molecular diagnostics business?

You know, when you say electrodiagnostics, Paul, it is a small segment line. So we don't really break it out.

I guess I should describe it then as your diagnostics business in general, which I think is, what, over 100 million?

Okay. I would say the genetic screening business. I think Rob gave that number.

That was 19 percent, Paul.

Did you not land a large contract from the state of California? And when does that kick in?

We did, and the state of California takes about 6 months to get the laboratories fully up and running before they can go in into volume testing. So we expect that in the middle of the year.

Are you optimistic about any particular other state legislation or initiatives, Greg?

You know, we are. We're very optimistic about all the states, and about the market. But in many states they have not gone public with the discussions or they're in sensitive stages. So we don't like to comment on a particular state until then.

But I would say if you stand back from the marketplace, there is a very strong momentum to move everybody to a 30-test standard of care. As I mentioned earlier, 90 percent of the states test for 10 or less. So we see that ramping up quickly across a wide range of states.

Do you expect a typical level of seasonality on the analytical instruments side of your business, with the big sequential slowdown in Q1?

In that business, the strongest quarter is always the fourth quarter seasonally; the second strongest quarter is the second; the third is the third; and then the weakest is the first quarter.

And you see that still continuing?

Yes. I think it is sort of the rhythm. I think it's the rhythm in the marketplace that is out there. Part of it has to do with budget releases too, at the end of the year, which always comes through in the fourth quarter.

Any tone as well on the NIH budget side? And the change there in order flow in the fourth quarter? Also what is your thought on that NIH-driven market, Greg?

I don't think we saw much change in that, Paul, going out there. Overall I would say, first of all, we didn't see a lot of change in the NIH flow one or way or another. Our expectation here in the general market environment is that the economy continues on a tempered recovery overall, which helps most segments.

Within biopharmaceutical I think that is really driven more by new product introductions. Because I think while the biotechs and the academic research market continues to move along fairly consistently, that the pharmaceutical companies are really in the midst of a transition away from the big blockbuster model to a specialized medicine model.

So there is going to be restructuring going on in that industry for some period of time. We think therefore it is really driven around identifying the right growth segments and feeding them the new products. So I think that is really the recovery mechanism in that segment, where I think everything else has got a little bit more or a tailwind from an economic recovery.

Okay, thanks.

Larry Neibor with Robert Baird.

It's actually Tom Russo for Larry. A question going back to the neonatal screening market. One of your competitors today also spoke with optimism about that market. I was wondering if you could comment on the competitive landscape for capturing the growth of neonatal screening?

Who was that?

Waters.

Actually, Waters has been a partner with us going into the marketplace. So we agreed with their optimism. If you look at the California project, we did the California project in conjunction with Waters. They supply the tandem mass spectrometers and we supply the complete system. So we are using their tandem mass spectrometer instruments in our systems and a number of these new programs that are going into the state.

So I think what they said is parallel with what we're doing because we are using their instrumentation in a number of these installations.

Okay. Secondly, I just didn't catch the guidance on the interest expense line for 2005. Could you recap on that?

Interest and Other we're forecasting to be about 35 million. That would be down about 5 million from the level it was in '04.

Okay, thank you.

(OPERATOR INSTRUCTIONS) John Sullivan. with Leerink Swann Investments.

Congratulations on a terrific fourth quarter. I had a couple of quick questions. First regarding some of the fastest-growing markets that you have seen in recent quarters in Asia. Can you just comment on the growth rate in those markets? And are you seeing any change?

As I mentioned earlier, we saw Asia up about 3 percent organically in Q4. That is a little misleading in that one of the things that impacts that is the photoflash business, which was down fairly significantly. I think if you pull that out, we would have grown in Asia probably high single, low double digits.

I think going forward, I think we are fairly optimistic. If you look specifically in China and India, which is two countries that we spiked up, both of those grew sort of mid 25 percent in the fourth quarter. Granted, it is still off of a relatively low base; but we're still seeing very nice growth in a number of the areas within Asia.

Okay thanks. Shifting gears, regarding 2005 cash flow, is it your intention to continue to pay down debt? Or what are some of the other uses that you might have for free cash flow in 2005?

We are getting to the point where there is not much more debt to pay down. As I mentioned our balance on our term loan is 70 million. Beyond that, we would then have the subordinated note, which as may know is trading quite well in the market. So I would suspect we won't be buying that in.

Therefore, I think our priority really shifts more to the business development and acquisition side. As we have said in the past, I think there's a number of opportunities where we would like to make either productline extensions or technology add-ons. We have got a number in the pipeline that we hopefully can get concluded this year.

Okay, thanks. Last question, regarding digital flat-panel displays in Optoelectronics still being pretty strong. Can you just talk briefly about the competitive advantage that you may have in that particular product, that drives manufacturers to you in that product area?

We are largest in the marketplace, and so we have the industry-leading volumes; and I think we have the industry-leading products. It is an advantage that we have, that you will recall this product was codeveloped between us and our partner General Electric Healthcare over the last 10 years really. So we have a very significant presence in I will call it the manufacturer of the glass, the glass panels, in addition to the complete detectors.

So we have a fully integrated supply chain. We're kind of unique in that respect in the marketplace. We have a fully integrated supply chain to take it through to the complete detector level, and we have very significant volumes. We are the exclusive provider to General Electric, and we provide a number of other folks as well.

So you can look at a variety of technical measures in terms of frames per second or other speeds or sensitivity measures where we think the product is very good.

Thanks very much.

Steve Salamon with Infinium.

I just wanted to ask a little bit about tax; both what happened in the quarter and then if you could give us a sense of what you're expecting for the year; if you'd just go slowly through that explanation of the tax rate from this quarter that would be appreciated. Then any things that we should be looking for that might affect the tax rate one way or the other as we go through '05, please?

I think in the tax area we have had a lot of good things (technical difficulty) the last couple quarters. First of all we went into '04 with a lower rate than '03, largely driven by a better mix of income geographically and quite frankly more profitable. So as we became more profitable, we did not have foreign net operating losses overseas; and therefore that improves the tax rate.

So we went in thinking we were going to be down in sort of the 28 to 29 percent. I think as we got to midyear we felt were closer to 28.5, maybe 28. Then in Q4, we had a favorable resolution of a dispute we had with the IRS on some businesses we sold a number of years ago. That resulted in us being able to reverse the reserve that we had set up on the books back a number of years ago.

At the same time, as I'm sure you're aware, they passed a new law that allows corporations this year to repatriate one time foreign profits at a reduced rate. So instead of paying 35 percent you can now bring it back at 5.25. So we have made the decision to at this point repatriate the cash that is overseas. So if you think about the 5 percent cost of that, we provided that cost in the quarter as well.

That was about $1 million less than the benefit we received from the settlement of the IRS dispute. So therefore that impact was to reduce our rate in the quarter to something closer to 27 percent. For the full year, our tax rate will be 28.2. So it didn't have a material effect on the full-year tax rate but it provide us about $1 million of benefit in Q4.

Going forward, I think again because of the combination of our income as well as the benefit of bringing the cash back at the reduced rate, we think we can continue to put downward pressure on the tax rate. So as we go into '05 here, I'm fairly optimistic that the highest it will be is 28. I think there is an opportunity maybe to get it down to 27.5.

But we will just see how things go here as we enter into the year. Like I said, I think a number of positive things here on the tax side, and we continue to look to try and drive that rate down.

Just if I could follow-up with a couple of questions in terms of growth rate scenarios. Did you give the growth rate for instruments within LAS? Then consumables you said 20 percent; is that normally the consumable and reagent category that you refer to?

The 20 percent I gave was specific to the HTS or the drug discovery reagents. For reagents across LAS, the growth rate was about 8 percent. Instruments was 4 percent; and as I mentioned, service was 15. So that gets to the LAS growth of a little over 7 percent.

Got you. Then last quick thing, digital imaging as a percentage of Opto. Did you give that number?

I don't think we gave it, but it's about 25 percent roughly.

Thank you.

(OPERATOR INSTRUCTIONS) Vivek Khanna, with Argus Partners.

I was just wondering, can you give us the growth, if you might, between -- the differences between North America and Europe? Are you seeing any difference in pattern within those two economies or geographies, I guess?

I'll ask Rob to comment here as well; but I would say from an economic recovery standpoint we think Europe lags the U.S., I think, in the -- it sort of depends on which business you're looking at.

Maybe both, if you could talk about maybe industrial and then biopharma broadly.

I would just say relatively, I think for the LAS business we saw stronger growth in Europe than we did in the Americas this quarter. When you look at the Fluid Sciences and Opto business, they're heavily dominated by OEMs based in the U.S., of course, so we continue to see very strong growth in the U.S. there.

Vivek, across the Corporation, as I mentioned, the Americas grew much stronger on an organic basis than Europe and Asia. However if you look at it within the businesses, as Greg mentioned, in LAS Asia was the fastest-growing, Europe was second, and Americas was third.

In the case in Opto and Fluid clearly Americas were the fastest-growing by a significant measure. As I mentioned, particularly in Opto because of the decrease we are seeing in photoflash; that was actually down slightly in the quarter.

Okay. Great. Thank you very much.

Darryl Pardi, Merrill Lynch.

Rob, just first question, how many days were there additionally in the fourth quarter from the prior year?

There was 4 business days. Just to give you a sense of how that works, in '03, we closed the year on the 28th. In '04, we closed the year on the 2nd. So while there's 4 business days I want to point out that the days we're talking about are basically the --

Holidays.

-- if you think about it, the holidays. So that is why we don't think it is a material impact. In fact we have gone back and tested this. So it really had a minimal impact on product. The reason why it has some impact in service is some of our -- not all of our service business is contractual. So what we do is we amortize that over sort of a straight-line number of days.

So just the fact that there's more days provides some additional revenue. As I mentioned we think it is less than 1 percent of revenue. In fact, in the case of LAS, it doesn't even affect the percentage growth, because it still rounds to 7 percent even when you adjust for that service revenue.

So it was a fairly minor impact, but just wanted to make sure that people were aware that there was a couple extra days in the year.

That makes sense. With respect to the gross margins, your outlook for 150 basis points of gross margin expansion, besides the absence of some of the restructuring expenses you had this year, closing the Torrance, California, facility, what else leads you to that types of gross margin expansion? Is that (ph) 2 years of narrower gross margin?

I would say it is three things. It is first of all the point you mentioned, which is we had some cost in '04 that will not repeat in '05. I think the second aspect of it is the growth of, let's say, 6 percent organic generates just on a variable cost basis improved gross margin.

I think the third aspect of it is if you look at where we expect to grow in '05 -- so whether it is genetic screening or imaging or consumer electronics -- those have a tendency to be our higher-margin businesses. So we think if the growth works out the way we expect it to be next year or this year, we actually think we will have favorable mix on the gross margin line.

Okay. Thanks.

John Harmon.

I was looking at a couple of the growth rates in your LAS divisions, and the growth rates really accelerated in Q4. For example on the service business it picked up. Do you think you gained some share there?

Looking at genetic screening, the same thing happened. Do you think some of the states getting on board with the 30 tests could lead you to revise your intermediate-term growth rate for the business of 10 to 15 percent?

I think, just take both service and genetic screening, we feel very good about our competitive position there. There tends to be a little bit of lumpiness particularly in genetic screening just based on the timing of orders and so forth.

States' move into the tandem mass spec arena did not have a big impact for us in the fourth quarter. That is really more of an '05 type of a driver. So I would say, we remain cautiously optimistic on those businesses, but I will turn it back over to Rob. I don't think we are going to change any forecast at this point.

I think, John, as you pointed out, we feel great about the momentum we saw from Q2 to Q4 on the growth rate; but given it is only January it is probably a little early for us to start thinking about taking our forecast up. But the momentum is moving in the right direction for us; and we feel, as Greg mentioned, good about our competitive situation. It is a little tough this early, until other people come out with numbers, to really decide whether we're taking share yet.

Okay, thank you.

It appears that we have no further questions at this time. I will turn the conference back to Greg Summe for closing or additional comments.

Thanks, everyone, for your questions. We feel very good about the progress in 2004 and are optimistic about our prospects for 2005. We go into 2005 with a strong organization, efficient operations, a strong balance sheet, and a clear focus on our growth platforms. As we mentioned, we're increasing our investment in R&D by 20 percent to accelerate the innovation and growth in our most attractive opportunities.

So thanks for your time today and your interest in PerkinElmer. This call is adjourned. Have a great day.

Thank you, everyone. That does conclude today's conference. We do thank you for your participation. On behalf of today's speakers I would like to wish everyone a great day.