泰利福醫療 (TFX) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2003 Teleflex Incorporated earnings conference call. My name is Carol and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We'll be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please star followed by zero and a coordinator will be happy to assist you. As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's call, Ms. Julie McDowell, Vice President of Corporate Communications. Ma'am, please go ahead.

Thank you Carol, and good morning everyone. This is Julie McDowell. We released our fourth quarter and year-end results yesterday after the close. The news release is available for you on the Investor Relations website in our corporate website. Today's call is being web cast in listen-only mode, but in addition a replay web cast will be archived and it will be available on our website. An audio replay will also be available by dialing the following number 1888-286-8010 or for our international callers 617-801-6888 and the pass code number is 243-769-13. This morning Jeff Black, President and Chief Executive Officer of Teleflex will start off with his comments on the quarter, our outlook and our strategic initiative, John Sickler, Vice-Chairman and our Chief Financial Officer will review our results and outlook in more detail. After their formal comments, as usual we'll take your questions. To facilitate the process, please keep your questions to one question and then follow-up. We'll . Before we begin, I want to remind you that our comments today will contain some forward-looking statements concerning earnings, conditions in the market, economic assumptions, expected volumes and the like. Please remember these statements reflect current conditions and are subject to various factors that could cause actual future results to differ materially from those and maybe contemplated in today's statement. And with that I'll now turn it over to Jeff.

Thanks Julie. Good morning everyone. I'd like to make a few remarks about the quarter, then comment on the year and more importantly our strategic direction for 2004 and beyond. John Sickler will then provide you with a more detailed summary of the business segment results for the quarter and as well our expectations for 2004. Overall, Teleflex had a good fourth quarter. While we exceeded many of the Street's expectations, we did not achieve our own internal goal of $0.76 on an EPS basis for the fourth quarter. Yet, we're very pleased to see the revenue growth in all three segments. Most satisfying was the revenue growth in our core business after several quarters of core growth decline. The gain in Marine products, strong contributions in Automotive from driver controls for the European market and pedal systems, growth in Asia, core growth in Medical from surgical device sales. All very positive. Operating profit improved double-digits in both Aerospace and Medical.

In Aerospace the Industrial Gas Turbine business was in line with our plan. Still too early to say our market is improving, but obviously very encouraging. This is the first time we have reported improved quarterly performance in Aerospace in some time. And Medical had strong gains, integration of the cardiothoracic is little better than anticipated. But we were disappointed with operating results in commercial. We had higher than expected startup cost for new global program launch in automotive and the business was still adjusting to reduce production of alternative fuel vehicles due to the lack of passing of the energy bill. For the year, cash flow from operations was a record $225m, up from $201m last year, again a healthy increase and positive sign. The balance sheet is in great shape as we move into '04 and we're in better position to invest in future growth. At this time, with a little pick up from the economy and continued trends in markets, we see earnings in the range of $3.10 to $3.20 for '04. John will walk you through our expectations and results for each business segment in more detail. I'd like to spend a few minutes on the progress of our strategic initiatives. In the press release, we mentioned our ongoing efforts to improve profitability in global competitiveness.

Let me put the initiatives into perspective. Teleflex strives on niche technical markets. Our success is based on constantly creating new products, reinventing for new markets, and acquiring new technologies. As products become commodities, which happens much more faster today than in the past, we need to compare just deal with issue. This requires investment in research and development, flexibility in manufacturing, and the resources to acquire and invest as the opportunities arise. Our efforts to streamline operations are designed to enable us to put our resources where we can grow most profitably. Areas like electronics, engine management where we completed an acquisition last year, advanced driver controls, interventional and diagnostic medical devices, and new technologies for turbine engine manufacture and repair. As an organization, we need to constantly rebalance and focus on what we do best and that is developing innovative specialty products. Yesterday, Teleflex has a complex and costly infrastructure of over 100 facility and operating units. Those of you who have been following us this year and the past have heard us talk about programs we have put in place to streamline and standardize throughout the organization. These would include strategic development, global sourcing programs, and more importantly, aligning our businesses around customers and markets. So, this isn't just about cost reductions, it's about making Teleflex easier to do business with and in growing in the markets in which we currently participate. In medical for example, we combined sales and customer service and distribution of our surgical product lines.

In addition, each quarter, we've talked about facility closings and consolidation. In 2003, we moved product lines and closed or significantly curtailed 11 facilities. We closed 29 facilities in the past three years. This is not something that we're particularly proud of, but it truly is a reality of some of the market dynamics in which we participate. We have been consolidating facilities into manufacturing campuses that could support multiple product lines. Our campus approach enables us to take advantage of economies of scale and shared staff and support services. As an example, on the third quarter call, I talked about our campus in Slovakia where we manufacture automotive, industrial, and medical products under the same roof. We now have full-scale campuses in Mexico and Slovakia and several other locations where we are manufacturing diverse product lines. Even at the corporate line, we have taken our corporate office and relocated it into a campus environment with both our Aerospace and Marine businesses. Our future goal is fewer larger facilities with more flexibility and shared resources. We are reducing the redundancy and complexity of our organization, but this doesn't happen overnight. And we've also been expanding our global footprint. We need to be near emerging market opportunities and we need to stay cost competitive. As an example, we now have facilities in three regions in China, near major automotive manufacturers and automotive products manufactured in China and Asia contributed to core growth in the fourth quarter. While I believe we've established a strong global footprint in North America, Europe and Asia, we are not taking full advantage of this yet.

Our goal is to think and execute globally, sourcing, manufacturing, and distributing our products more cost effectively. My focus is on improving our competitive position and our profitability and just as importantly to apply our resources to areas where we can grow. In the press release, we also mentioned the repositioning of some of our product lines. We believe that our combination of Commercial, Medical, and Aerospace business segments is one of our strengths. Balance and diversification remains an important part of our strategy. However, we need to be continually balance our product lines technologies to maintain our focus on businesses where we can have and maintain a strong competitive position. Obviously keep moving on to new products that create new valued propositions for our customers. In each of these segments, we've acquired to develop products and technologies that are very small contributors to the company, certain markets where we have little or no other product presence for use older technologies. Over the next year, we will address our options, and roll these product lines and we may face outlines, reduce SKUs or even divest where that is the appropriate step. Not an unusual step but not typical for Teleflex. Again, refocusing our resources and streamlining our organization are all there to position us to grow where we can have a long-term competitive advantage.

Going into 2004, I know we made considerable progress on creating a more unified global organization. Our challenge now is to continue to execute on both our initiative for growth and our efforts to streamline and operate more efficiently. At this point, I would like to turn it over to John Sickler. John is our Vice Chairman of Teleflex and our Interim Chief Financial Officer. John has been with Teleflex for more than 30 years and even during that tenure, he was our Chief Financial Officer. With that, I'll introduce John Sickler.

Thank you Jeff. I am very pleased to be here with you today. Revenues in the quarter were extremely strong, up 18%. Earnings from operations were actually ahead of last year's quarter not counting the special gains of 16%, $0.16 per share realized a year ago. Revenues showed improvement on all three segments with gains exceeding 20% in both Medical and Commercial. Advances in Aerospace were limited to 5% as improvements in manufactured components and repairs were offset by declines in turbo-machinery services and cargo. Operating profit increased for the first time this year reflecting an increase of 8% during new period. Aerospace showed improved results on both the sequential and comparable quarter basis indicating that the bottom has been reached and prospects for 2004 look more promising. Medical recognized its strongest advance for the year with gains of 25% aided by acquisitions in currency. The transition to a new business model gives us confidence that additional progress is possible.

As Jeff has already said, Commercial was basic good news, bad news story. Strong automotive sales in Europe were offset by launch costs in one of our first global platforms funds. Industrial gains and sales were aided by acquisition, but impacted by declines in the core alternate fuel units and new program expenses. Indeed the clients were offset by a turn in our marine business that carries into the first quarter. When one considers that the quarter included two plant closings in medical, we feel satisfied with the overall results. Let me offer some frequently asked data before proceeding further. Gross profit was 26.2 in 2003. International operations contributed 49% to both sales and operating profit. Total debt as a percent of total capital is 30% down from 32%. Facility consolidations for the year included 11 locations with an aggregate cost of $9m. Capex, which equaled $94m in 2003, should actually decline by at least $14m next year. Working capital remained steady at 25% of sales. And we always see much stronger corporate emphasis during this coming year. Our long-term goals are to be closer to the lower-20s, as a percent of sales.

Now, let's reflect on 2003 in the prospects for this year. Aerospace as you know was the victim of major declines in its major market sectors, commercial aviation and industrial gas turbines. Core sales declined to 4% were reduced by currency gains of 2%. As previously reported to you, although the overall sales decline was nominal profitability in the turbo machining sector was adversely affected by service contracts and major investments in new parts. The repairs business is the only product line not experiencing declines for the year. Medicals robust year was extenuated by a successful acquisition, which contributed 10% of sales. With further gains of 8% and 1% from currency and core growth respectively. New product introductions for healthcare supply should contribute the core growth expansion next year. We have united our specialty instruments group with OEM group that focus on spinal, orthopedic and invasive access devices to provide a full range of product offerings to this sector of the market. Commercial sales were up 12% for the year including 6% from acquisition, 5% from currency, and 1% in core growth. Automotive and industrial realized double-digit growth.

All of the automotive gains came from outside of North America from new product introductions. Although launch costs tampered returns late in the year, we are encouraged about improved prospects next year. Most of the increases in industrial came from acquisitions. As we expanded our commitment to alternative fuels in Europe and began to expand our electrical electronic capabilities in North America. Weather was not a friend to our traditional marine market in the early half of the year. The aftermarket segment was adversely affected, not withstanding new product introductions. Our technical staff from this group contributed the opportunities in the RV bus and truck market as our commitment to balance and diversification in each of our businesses continues. And yes the sun came out in the fourth quarter and the trends for this group is healthy going into 2004. So the year in a record are over. The results were not to our satisfaction. But we are very encouraged about the strength in the fourth quarter.

Let's return to the issue of guidance for 2004. Let me first address the first quarter before moving to the full year. Operating profit should increase after absorbing cost for a plant closing in aerospace. A favorable tax rate will partially offset those special gains included in last year's quarter. The guidance reflected in the press release relates to the earnings as reported for that quarter. Overall, we see sales growing by close to 10% next year with aerospace in low-single digits, and medical and commercial continuing at the same level as the full year for 2003. At the operating profit level it's a typical Teleflex mixed bag. Aerospace will finally realize the benefits of actions taken during 2003, particularly in the turbo-machinery sector as evident by their performance in the fourth quarter. It is possible for us to look for a double in that segment in the fore coming year. The momentum in medical will continue with new products, acquisition benefits, and penetration in group purchasing organizations. Operating results should match the level of sales increase. And commercial should capitalize on the momentum achieved on new product launches late in the year aided by margin improvement for a more normalized shipments schedule. Further, profit improvement should also result from consolidation efforts in 2003, and therefore match the sales increase. As you know, we never forecast special gains or acquisitions in our guidance. That is the case here. However, corporate expenses may increase by as much as 15% to 20% as we foresee down the road with the rest of corporate America to meet the new and yet unclear demands of compliance and governance. So, a new era begins at Teleflex.

We have the benefit and respect of a rich history, and the financial resources for future growth. The whole world in our specific markets has changed dramatically over the last two to three years. Our vision for a competitive global footprint is becoming more clear everyday. As we streamline our internal cost structure, let us not forget growth. We expect to increase our spending in product development to assure continuous advance in core growth. And a final word on acquisitions and external growth. We have a long record of product additions for expanded distribution in new technology. We recognize that such transactions continue to be important, but will not fully provide the necessary growth as we reach towards $3b to $4b. It will be necessary for us then to race the bar on transaction size for us to meet those goals. Back to you Julie.

Operator, we will now take questions. And then again, we ask the questioners to limit to one question and then a follow-up and then we will cycle around again

Thank you Ms. Mc Dowell. Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch-tone telephone. If your question has been answered or you wish to withdraw your question, press star followed by two. Questions will be taken in the order they have been received. Your first question comes from Deane Dray of Goldman Sachs.

Dean?

Yes. Can you hear me?

Yes. Go ahead.

Yes. Good morning. The question relates to the guidance for '04 and specifically could you walk us through what the organic growth rate assumption is broadly, or if you want to give it to us by segment that would be better. How much restructuring is -- you said there is going to be a one plant closure in the first quarter, what else are you thinking about for the balance of the year? And just so, John you were careful to say there is no gains in that number at all, and what's your FX assumption? Please.

Well, let me try and take all of this. For the moment, I think that we see the continuation of core growth at approximately the 5% level. And then there is still some carry over benefit obviously from last year on the acquisition. So, we are looking for acquisitions less currency to provide another 5%. And so our overall look at revenues for the year falls in the range of 10%. As it relates to anticipated closings, the one that I've mentioned already is the only one that we have forecasted in our guidance, which is a manufacturing facility in the aerospace group and that will occur as I said in the first quarter. And to answer your question I will confirm that we have enough special gains or anticipate any in this guidance.

Okay. And then if I could follow-up with the -- on the aerospace side, just give us a sense of where the restructuring still needs to go on in that business? What sort of -- what steps have been taken so far and where do you expect the payback? And will you see the savings occurring this year, and now there are pricing pressures and where does that stand?

Dean, I would say that up to this point we've had plant closing, I would say across the board in all four-product lines. Some of those may have been service stations or smaller facilities but I think we've not -- it's not just been restricted to the IGT even though we've seen a lot of the action has been geared towards IGT. John?

Yes. I would like to add to that. I think that to get right at that question, Dean after this first quarter we anticipate no other major activity and the savings from what we've seen in the contracts that we've previously discussed as well as the actions taken next year can contribute as much as $7m in 2004.

Is that back end loaded at all or is that starting to hit now?

It really starts to hit in the second quarter and the balance of the year.

Okay. I will get back in line. Thank you.

Thank you sir. Your next question comes from Jim Lucas of Janney Montgomery Scott. Your question please.

Thanks. Good morning. Two housekeeping questions. John, you are kind enough to anticipate lot of the numbers, but could you give us the D&A for 2003 and what's your outlook for 2004?

It is about a $104m and $116m.

Okay. And the gross profit for the fourth quarter?

Give me a second to grab that.

Okay. And I will go to the big picture question here. When you look at the CAPEX that has been going on, you are one of the few companies that we've seen that have actually been raising your CAPEX budget in the last couple of years. Can you talk about where the investments are being made and can you talk about the need for CAPEX going down in 2004? And where do you see a sustainable level for Teleflex going forward?

Jim, I think the CAPEX, the last few years, I think has been fairly consistent as a percent of sales. I will tell you that as we take a look at that and break it down, much more was spent in the last probably 18 months on facilities and truly -- again ensuring that we're well structured in low-cost manufacturing environment before we start moving, I think John's comment on a lower CAPEX for '04 is well in line with our overall drive for continuing to focus on cash. But we've actually said -- I think some of the CAPEX that we've seen Jim has really been supplier owned tooling, I don't know if you remember a few years ago, the automotive customers thought it was best to move tooling over on to their suppliers balance sheet. So that took place a few years ago and I think frankly, a lot of the spending that we've had for the last two years in automotive has really been supplier owned tooling and just say you can understand as a lot of that tooling we have standardized so that we have the ability to truly take it across other platforms and not have it just dedicated to one customer. But at the end of the day, we're very cognizant that we spent a fair amount in terms of CAPEX and again when you start to take a look at where we're getting our returns, I think we've really taken a much more proactive role in '04 to say. If you're not meeting certain criteria, there is not much capital available and I think that's just a discipline that we're trying to drive throughout the organization.

Okay.

Jim, back to the housekeeping, the GP was 26.5 in the fourth quarter.

Okay and final question, any -- not that we don't like having you back John, but any update on the CFO search?

John's done such a fine job on the year end -- it is hard for me to look beyond, but yes Jim, we're actively engaged in a search. We've had a verity of candidates, we've looked at, I will tell you, I'm very pleasantly surprised with the quality and the caliber of some of the people who we've already talked to. So -- but I will tell you that I'm not quick to make a decision here again with John being in his role and his experience, I just feel that, this is like marriage I only expect to have one CFO going forward and I'm going to make sure that I'm very diligent through the process. As well as, the candidates are going to be diligent as well in today's environment.

Okay, great. Thanks.

Thank you sir. Gentlemen your next question comes from Cliff of Ransen Research . Your question please.

Thanks. Nice turn around guys, I appreciate that. How do feel about your margins and return on capital in medical today? And if you want to split that response between sort of the hardware side and service side, I'm sure we would all appreciate that.

Well, I think that margins in general was slowed in the middle of the year, we talked about that or at least the company did on prior calls because of the acquisition of CT. We've done better than we expected at the end of the year. So, our margins are at back to where they were at the end of last year. We see them continuing to increase and for the moment given the performance of the group on relevant basis Cliff return on assets at least generally are as good as they are in any of our segments and they've increased by four percentage point over last year.

And the split between the hardware side and the service initiatives. If it's meaningful, if it's not, I'll withdraw it?

Do you mind wants to clarify for us, Cliff, but the .....

Okay. I'll call you afterwards. Let me ask a different question. The brake pedal business, is that a profitable business line today and can you talk about returns on capital in that product line?

Yes, I'll talk in general regarding that Cliff. I would say that what we have today is we have two different variations; one is our genuine, which was the original design, which we launched almost four, maybe even five years ago. Again, capital intent, a fair amount of manufacturing variability to it, as you know welding is, got a fair amount of variability. So, we've since and I'd say it's been now the last 18 months we've been launching our Gen II, which I think takes our total manufacturability dramatically reduced both in terms, I think, we used to have 16 well sites, I think we now have one. We can basically assemble our Gen II pedals on a tabletop as opposed to having a full assembly line. So, again I think this if you look at the return on invested capital Cliff, it was an option, as they have been de-contenting vehicles and again their ability to forecast has obviously not given us the return we anticipated. Yet, I will tell you that I think we are very strong about where we are with our electronic throttle control and the returns we are getting on that. So, when you look at our pedal business, it's really three businesses in that you have fixed pedals, which you have to supply if you are going to supply adjustables, and then you can have just an electronic throttle control. So, the return in invested capital is different for each and every one but I'll tell you the one that we are feeling good about is obviously our Gen II and our ETC investments.

Just as a last question, what qualities have you put highest on your CFO's search? What are the characteristics that are high on your preference list in that search?

Well, integrity. If I ask him what two and two equals and if he says what's your answer, he is not only, he's no longer a candidate. So, I think we are obviously looking for someone with some international, because obviously the Teleflex portfolio has become much more international; manufacturing skill set, obviously we are looking for someone who has had experience with the Street as well as our bankers. So, I think what you would find typically, but again we are in a unique situation, I think Teleflex while many people know who we are really don't understand the complexity of the portfolio and so again, we are looking for someone who is not truly been just a single market focus and probably has some broader experiences.

Thank you very much.

Thank you sir. Gentlemen, your next question comes from Wendy Caplan of Wachovia Securities. Your question please.

Hi. It's actually Julie LaPunzina for Wendy. Can you tell us how much you spend on R&D in '03 and what your plans are for '04, please?

Yes, Julie, I think historically -- I don't know if I have that number right off but, I mean, we're about 3% of sales and again that's historically, I think we've realized that it's 3%, but when it's fragmented out across as many units as we have, the affectivity of it is probably not what it needs to be. So, we are looking at increasing that and for us, if it's 1% to 2%, again to me it's not just the amount that you increase, I think it is how you are going to change your structure to ensure that the pipeline of new products is starting to fill up.

Do you have any type of goal like products introduced in the last three years should represent x amount of sales or something like that?

We do. We typically say it's about half of our growth. Again, I think our financial objectives for the last three years have remained at 15% to 20%. I will tell you that as an organization, we are analyzing our financial objective and it's not to diminish the focus on growth, but it is to probably put greater emphasis on the operating income side. So, I don't think there is one answer I could give you, to be honest with you.

Let me add, each of the operating group that's separate on their own but across all the different product lines.

Okay. Thank you.

Thank you ma'am. Your next question comes from Steve Wilson of Rich . Your question please.

Good morning. Could you just remind us in 2003 the magnitude of the losses that we experienced in the IGT business and the alternative fuels whether both of them are breakeven or positive in '04?

The numbers that that relates to the IGT was approximately $14m and that was the same number that I think we talked about in the fourth quarter. So, from that standpoint, we clearly turned the corner and just about we are at breakeven in the fourth quarter, which is part of the reason that we have some strong feeling this coming year. And in IGT the change was $3m all fuels, excuse me, and that has pretty much ended as well.

Yes Steve, on the all fuel side, I think what we are seeing is the transition from -- that has been somewhat of a tier II, tier III auto play to this year where we really start to turn that into an industrial play again servicing the forklift and some other transportation markets that are being impacted by the clean air legislation. That's again back-end loaded in third and fourth.

Okay. So, $17m of losses in '03, should be something noticeably above breakeven in '04?

Well, I won't go noticeably above. I would prefer to say if we begin to breakeven we have done a remarkable job and you know, Steve, as you know having watched Teleflex for a long time, just when you are thinking at something fixed much like what we found in the fourth quarter, then you find you have an automotive launch problem. So, it's while we think we have one resolve then we will also find that there it has tendency to be some additions. Hopefully nothing to the magnitude in that we saw in either the IGT or the all fuels in '03.

Okay. The second question is that working capital goal of -- you are now at 25%, you want to lower it, is that something that's a hockey stick or it takes a year or two of effort before you see results or is that every quarter we should see progress there?

We'd like to say that we are going to see progress throughout the year. In certain cases, the reason that we haven't achieved our goals this past year was that we built inventory as we made these most to consolidate facilities. Now, that much of that is over, we expect to see ourselves in a position where we can realize the results, and a part of it also affected by the fact that the growth in our total business overseas, where you know, that the receivable average days is different, and it isn't in North America is a factor that we have to climb against though. But it's not as though that it is at the end of next year.

Steve, I think, we can talk about working capital, I will tell you that whether it be transitioning and moving facilities, or whether it is just a seasonality, I will tell you as I have seen here in the middle, we are not happy with the amount of cash that we have left and probably aren't getting good utilization of it in working capital. So, it is a focus for the organization, we are driving this organization for additional cash this year, and I think it is just -- we have a lot of reasons like why haven't addressed it, but frankly none of them are acceptable, and believe me from a corporate level this is one of our key objectives for '04 and beyond. But will it happen overnight? No, but if we don't see progress, then we will address that very quickly.

Thank you very much.

Thank you sir. Your next question is a follow-up question from Deane Dray of Goldman Sachs. Your question please.

Yes, thank you. For the Aerospace business, just a clarification. In your prepared remarks you talked about some issues where the Turbo machining process, and that having issues with service contracts. Is that related all to the problems in '03, where you had some improper book contracts and those were written off or is that something different?

No, no. That's exactly the same.

So, I thought those contracts were written off or written down. So, why would there be incremental pressure in the fourth quarter?

No, this, I'm not sure. What we talked about is that the entire group in ITT was basically at breakeven after sustaining the losses in the first three quarters of the year. And so, that meant that those contracts were essentially complete. Now, I would tell you that they are 95% complete at the end of the year, one is a 100% complete deal, the other two are 95% complete with no impact in either the fourth quarter or the first quarter of '04. But, I think Deane, we did say in the third quarter that we had anticipated the completion of those contracts by year-end, and as John just said, we are not quite through, and therefore it is -- I won't say it is a drag going into the first, but it is still just out there.

Okay. So, there is some residual effect in the first quarter?

Not really.

Not a great deal one way or another.

There are a hand full of people in two locations just doing French follow-up. We are pretty much where we expected to be on all those projects.

Okay, and then to circle back on the CFO search for a moment. What potential is there or have you considered that whoever is hired will have necessarily the same sort of game plan or vision on the unified global organization? Will there be any sort of rethink on the process, potential disruption or is going to be a -- is your expectation that it will be a seamless transition as this person comes on board?

Well, obviously that's all part of the process, but I will tell you that the strategy in the vision that we put forth from the senior management about 18 months ago, I am not changing, I am not looking to make those changes because frankly myself and the senior management believe it is the right thing for the organization. Hopefully, our goal is to bring someone in who can help with the speed and execution of some of those, someone who is already been there and done that. So, our goal is really, we know where we want to go, we are looking for a strong partner to come in and really help us speed up the ability for us to drive some of those changes, and more importantly to drive some of those saving to the bottom line.

Okay. And John, just a clarification again on the potential for capital gains in '04. You had said that there was $50m that could be harvested at some point. What is the timing on those, and how should we be thinking about the potential for those because you do include those in your reported result?

Absurd Dean, you heard me totally lost. You talked about capital gains.

Yes. So it's a different topic. Capital gains and the potential, because you talked about in '03, a question on the call is, what you have for potential capital gains on the balance sheet that could be harvested at your discretion? So, with that in mind, how are you think about the potential for those during the course of the year, and since you include them in your results, but they're not included your guidance, how might we be thinking about potential upside there?

Dean, I had to tell, I'll have to get back to you, and I'm sorry you caught me totally flat for it.

Okay, I'll circle back offline. Thanks.

All right, thanks.

Thank you, your next question is an additional follow-up from Jim Lucas of Janney Montgomery Scott. Your question please.

Thanks. First on another housekeeping. When you look the tax rate ending the year around 28%, you talked about a little bit of benefit in the first quarter. Where do you see the tax rate for the full year in your 3.10% to 3.20% guidance?

We're going to see that 28%, and that's our assumption. And last year in the first quarter, we were about 29.6% as I recall. So, that's why we said that there should be .

Okay, and Jeff, with all of the changes that are going on in the increase, you're placing new emphasis, quite frankly they're new for a lot of areas of Teleflex. Have you made any significant changes to your incentive comp plan for 2004?

Yes, we have, but I guess the one thing I will tell you Jim is, I think a few years ago the corporation started going to very much formula driven, and again I think, it's always been 60% on operating profit, 20% on either working capital, or a cash component, and then 20% on individual. Our businesses are all in different points in their own cycles, and I think, frankly when you try to plug people into a formula, you're really not dealing with the reality. So, I guess we've taken a pretty solid look at it. And I think formula don't work, if they work they work for a year and then they're basically obsolete. So, I think we're trying to say in our Aerospace group where there is somewhat limited growth opportunities, we're saying let's incentivize and to really drive the cash back to the corporation where we can either reinvest it back into our operations, or go out and do acquisition. So, I think this is a little bit different, but again the dynamics in our organizations, as you know from one market to the next are so different that formulas don't work.

Okay, and finally with the CT acquisition integration. This is one of your first, if I remember correctly in past conversation when the first time you've gone in to an acquisition was a detailed integration plan. Can you talk about what you've learnt from this and what you'll be able to carry over with future acquisition?

I will comment on that, because I had some experience in the distance. I think that the intent was to use it as a data test for, quite frankly all of our future acquisition, to the extent that we had an intensive weekly follow-through session with people from around the world on conference calls, and the list of objectives with each persons name assigned to them participated in those calls, and actually were accountable for making entries on a global knowledge network. So, that everyone in the group could access the data and understand the progress that was being made. And also it meant that your performance related there too is visible to everyone else in the organization. The fact is that's been as I said earlier, if were in the call that we exceeded our attempts to bring the margins there up to the standards of the medical group. And we feel confident that there's a disciplined exercise in those process were part of the reason for that success. And so now we have our own basic software program, if I could call at that to utilize going forward, and we feel very good that we'll see earlier benefits and synergies in the future.

Jim, I think on every acquisition, we've done since CT, and on Siemens, and , everyone of them has the same process, they're all online, senior management can view everyone of them. So again, I think it drives the accountability, and more importantly it drives the synergies and the savings to justify the price that we paid. So again, I think we're really do starting to utilize technologies, but business being in global companies to drive people, and more importantly to ensure that all of our assumptions that we make at the beginning in these processes are either validated or at least we understand why they haven't been fulfilled.

Okay. Great, thanks a lot.

Thank you sir. Your final question comes as a follow-up question from Cliff of Ransem Research . What's you question please?

Thank you. You had a kind of a line -- first of all John, thank you very much, I have been around when you have been CFO at least twice before. So, I look forward to that again. And thank you ever so much for not starting with the sports comment and we won't miss that part. Why is corporate expense going to go up 15% in '04? It struck me as a very high number, what am I missing?

Part of it is the uncertainties that's out there today and I guess we've all read about it as to what exactly what all are the requirements are relating to compliance with the Sarbanes Oxley in the way. So, we have seen in the early days clothes from outside professional service firms that indicates that fees in that neighborhood would probably be 5% to 7% of total corporate spending and then on top of that the programs that, Jeff described in our strategic initiatives are in the early stages being funded incorporate and so I think for the moment you see the cost there with the benefits coming across at the operating line so both of those pieces would be in the 5% area and then like everyone else in the world we are seeing the healthcare cost and product and property insurance and the like has inflationary factors so those are the three major components.

Good. That helps. Thank you very much.

Thank you. Ladies and gentlemen this concludes the question and answer portion of today's call. I will now the turn the program to back to Julie McDowell for her closing remarks.

Thank you operator. Again a replay of the call will be available on the Teleflex website, or phone the replay number is 188-286-8010 or for international call 617-801-6888 and pass code number is 24376913, thank you for joining us.

Ladies and gentlemen thank you for you participation in today's conference. This concludes the presentation and you may now disconnect, have a good day.