泰利福醫療 (TFX) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter and year-end 2004 Teleflex Incorporated earnings conference call. My name is Mia, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference is being recorded for replay purposes. I will now turn the presentation over to Julie McDowell, Vice President of Corporate Communications. Please proceed.

Thank you, Mia, and good morning, everybody. Telefax issued a news release yesterday reporting financial results for fourth quarter and year-end 2004. The release is available on the Investor Relations page of our corporate website at Teleflex.com. I would like to remind you that today's call is being webcast in a listen-only mode. In addition, a replay webcast will be archived and available on our website. An audio replay will also be available by dialing the following phone number 888-286-8010 or for international calls 617-801-6888. The passcode number is 28192454.

First, Jeff Black, President and Chief Executive Officer of Teleflex, will discuss the results and update you on Teleflex's strategic initiatives. Then Martin Headley, Teleflex's Executive Vice President and Chief Financial Officer, will outline the details of the financial information in the press release. After formal comments as usual, Jeff and Martin will take your questions. Before we begin, I want to remind you that our comments today will contain forward-looking statements including but not limited to statements regarding earnings conditions in the markets that we serve, economic assumptions, expected volumes, and the like. Comments will certainly contain forward-looking statements relating to planned actions under the restructuring program, cost benefits, expected reductions in locations and workforce, timing of divestitures, phase our consolidation of Teleflex's businesses, charges related to the restructuring program and expected diluted earnings per share from operations before and after giving the effect of charges related to restructuring.

Please remember these statements are subject to various factors that could cause actual future results to differ materially from those that may be contemplated into today's statements. Among other things, inability to sell businesses at prices or within time periods anticipated by management, unanticipated expenditures in connection with the effectuation (sic) of restructuring programs, cost and length of time required to comply with legal requirements applicable to certain aspects of the restructuring program, unanticipated difficulties in connection with consolidation of the manufacturing and administrative functions, and other factors described in Teleflex's filings with the Securities and Exchange Commission. For more information, please review our most recent Form 10-K and other SEC filings. And with that, I will now turn it over to Jeff.

Thanks, Julie. I would like to begin with a few remarks about the quarter and the year. I also want to share some of my thoughts on the progress that we made in 2004 and the action steps that we're taking to make Teleflex more profitable and competitive in the years ahead. This is our first quarter following restructuring and divestiture announcement in the classification of our automotive pedal systems business as a discontinued operation. We have a lot of detail to cover to help you understand all of the moving pieces. After my remarks, Martin will walk you through the detailed summary of the financial results for the quarter as well as the year.

While our results obviously were overshadowed by charges related to the restructuring and divestiture program, I want to make it clear that despite all the noise, our core business in continuing operations delivered a very solid quarter. Revenue growth was 18 percent for the quarter. And once again, we had good core revenue growth of 6 percent.

Let me share some of the core growth highlights for the quarter. In commercial, we had growth in a wide variety of markets and product categories. Sales of products of motion controlled for mobile power equipment, auxiliary power units for trucks, and driver controls for industrial vehicles had the highest percentage growth over the fourth quarter of last year. New products and platforms and stronger markets contributed here as well. Driver controls from marine OEM markets and fluid management systems in Europe also grew significantly on a percentage basis.

In medical, the largest percentage gain was for specialty devices. New sutcher (ph) products and instruments for medical device manufacturers -- a number of new products combined with increasing demand for medical device OEMs. We also had good growth in disposable medical products in Europe as well.

In aerospace, prepared products continued to double-digit core growth. Orders for Teleflex overall in the fourth quarter were up 25 percent compared with the fourth quarter last year with strong increases in aerospace -- and medical and commercial relatively flat.

For the full year, revenues were up 15 percent. Core growth was up 5 percent. Cash flow from operations was a very good story -- a record 254 million up from 225 million last year. Free cash flow was an even better story, increasing more than 44 percent when compared to 2003 results. The balance sheet is in good shape. As we move into 2005, we are in good position to invest in future growth, both internally as well as through acquisitions.

I am pleased with the progress we've made since the announcement of the restructuring and divestiture program in November. From my vantage point, we are moving very quickly. The automotive pedal systems business is operating as a stand-alone business unit. And the management team there has made some real strides in improving productivity. The sale process for the pedal systems business is moving along as expected. Yet, we all realize it will take some time, but we are making progress there.

In the fourth quarter, we substantially exited the IGT aftermarket services business -- closing facilities and offices, eliminating positions resolving outstanding customer obligations, and beginning to market the residual assets. Closing of business is always difficult. But in general, this was an orderly wind down. And we believe we have most of the activity behind us.

In the past 3 months, we also made an announcement that the vast majority of the facilities that will be impacted by consolidation. Plans are in place for gradual product line move in a phased approach throughout the '05 year. With a few exceptions, product line moves will generally begin this quarter and be spread over the next 6 to 12 month period. We expect to see meaningful cost benefits from these consolidations beginning in the second quarter and for benefits to accelerate in the second half of 2005 and into next year, as we complete the moves and continue to expand the shared services model that we talked about. Yet, consolidation isn't just about cost reduction. It is making Teleflex more competitive for the long haul. With the restructuring and divestiture program and our shared service initiative, we're simplifying our complex and costly infrastructure.

Early in 2004, we initiated a portfolio evaluation program. This program was a review across all of our segments to identify businesses and product lines for divestiture, exit or phase out. We have talked about the exit out of the IGT aftermarket services and the plan divestiture of automotive pedal systems in connection with the restructuring and divestiture program. During the year, we also divested a total of 6 small non-strategic businesses and product lines -- four in commercial, one in aerospace -- and in the fourth quarter, a divestiture in medical of an European medical business that made private label disposable products.

We continue to take action to deal with businesses that are very small contributors to the Company with limited long-term potential. In the past few weeks, we continued with the sale of three additional small product lines in Europe -- one in commercial, an industrial cable business, and two in medical. Both of which were related to disposable medical products. These transactions were very small and are not expected to result in a material gain or loss. I expect additional changes in 2005, as we continue to work through this process and position the Company for greater profitability. We needed to take these actions now to focus our resources on opportunities for growth.

But portfolio evaluation isn't just about divestiture. The acquisition of HudsonRCI respiratory care products was significant to Teleflex strategically. We expanded the size and scope of our medical business and its role in our portfolio. In 2004, the medical segment accounted for 30 percent of Teleflex revenues and 54 percent of Teleflex operating profit. To-date, the integration of HudsonRCI and our complementary roofs (ph) disposable medical products business has stayed ahead of schedule. In January, we announced plans to close two North American manufacturing facilities and consolidate operations into existing sites.

Portfolio evaluation will also enable us to focus our efforts and our resources where we can grow most profitably. Areas like interventional and diagnostic medical devices, clean energy products, electronics and vehicle management, and new technologies for aerospace turbine engine manufacturer as well as repair. We want to make sure that we invest in other businesses that also offer strong cash returns on investment, sustainable business models and positions in markets with opportunities for long-term growth.

In all, 2004 was a year of change. After much planning and preparation, 2005 will be a year of execution. We have made great progress so far, but we still have a lot left to accomplish. Our challenge now is to continue to execute on both the initiatives for growth and our efforts to streamline and operate more efficiently.

We're holding our view of financial performance expectations, which we gave in the December outlook. Same factors, progressive benefits and the integration of HudsonRCI, cost benefits and the restructuring and divestiture program and other portfolio actions we have discussed previously. Please remember, our outlook did not include gains, losses or other costs associated with further portfolio adjustments, which may occur.

At the close of 2005, we fully expect Teleflex to be a much stronger company to achieve cost benefits in the restructuring program and create a portfolio that positions us for future growth. With that, let me turn it over to Martin for more details on the quarter, the year, as well as our expectations. Martin?

Thank you very much, Jeff. Given the many moving parts, I thought it useful to start my remarks with a summary of our prior earnings guidance and how our actual performance compares with our guidance. Turning to slide 10, in October, we reported our third-quarter guidance. We amended our previous estimates to reflect the tax benefit booked in the third quarter and noted that in addition to the $2 reported year-to-date through the third quarter that we expected fourth-quarter earnings of $0.64 to $0.74 for the fourth quarter. We had reporting of our automotive OEM pedals business as a discontinued operation. We now have two reported results to reconcile to.

As we noted in our press release, the actual performance of continuing operations, excluding special charges associated with the restructuring and divestiture program, was $0.82 per diluted share for the quarter. The discontinued operations reported a $0.15 loss on a similar basis for the quarter. Thus, together, continuing and discontinued operations, returned $0.67 per diluted share before the special charges related to the restructuring and divestiture program. But if we do the apples-to-apples comparison with our $0.64 to $0.74, 67 is the comparison.

The principal matters driving us from reported earnings at the top end of our range was the occurrence of additional costs associated with Sarbanes-Oxley Section 404. This impact was approximately $0.03 cents -- and the live reporting change that brought in December losses in some of our European operations that reduced earnings by approximately $0.02. This is probably an appropriate time to detour slightly. I mentioned that while the Sarbanes-Oxley process is not complete until our Board approves our Form 10-K in a couple of weeks time, we have no material weaknesses identified at this juncture that would affect our Sarbanes-Oxley reporting.

Back to guidance clarification on slide 11 -- we provided full-year GAAP guidance from continuing operations in December, as we provided the market with our first fiscal 2005 outlook. This guidance was $0.80 to $1.07 per diluted share. As we stated at the time, the guidance excluded any gains, losses or charges associated with further divestitures. Our reported earnings from continuing operations were $1.69. Through divestiture-related charges was a loss arising on the sale of assets of one of our European medical product lines, as Jeff previously discussed, and the asset impairment charge taken in anticipation of the sale of the European cable business. Together, these depressed reported results by $0.14.

Also, the reported results from continuing operations did not include the asset write-down associated with our pedals business but was actually reported in discontinued operations, as a result of a technical GAAP interpretation. Accordingly, the comparable results to our guidance for full-year earnings from continuing operations are $0.82. Again, the matters driving us down in the range were additional Sarbanes-Oxley costs, the live reporting, and the unplanned asset impairment. Without these items, we would have been at $0.99.

To provide some explanation of the special charges set out in our press release last night, I will talk through slide 12. First, walking down special charges reflected in continuing operations, restructuring costs reflect that income statement line and were 67.6 million with effective tax benefits on these items at 32.7 percent. The net impacts on reported earnings were $1.12.

Next, our cost of goods sold included 17 million of charges from the program. These were primarily inventory adjustments and certain charges related to the exit of the industrial gas turbine services business -- most notably, some contract settlement cost. With effective tax benefits on these charges at 34.3 percent, the net impact on reported earnings was $0.28.

Finally, for continuing operations, the loss on the sale of the European medical product line was 1.8 million with a high effective tax benefit from the loss because of the tax jurisdiction it is in resulted in a $0.02 impact. The income from continuing operations, excluding special charges, was $0.82 per diluted share in the fourth quarter, as compared to $0.86 per diluted share in the fourth quarter of 2003. As noted in the press release, we incurred $0.04 of Sarbanes-Oxley related costs in the fourth quarter, where there were obviously no such costs in the prior year. The automotive OEM shifter in cables business was also weaker than in 2003. These factors offset core earnings growth in our medical segment and those product lines serving marine, industrial and transportation markets in our commercial segment.

Earnings from the discontinued operations, the write-down of assets related to the automotive pedal systems business, were 50.7 million. The effective tax rate on the write-down is a modest 19 percent because of the inability currently to utilize losses in certain tax jurisdictions. The net earnings impact of the loss was $1.01. Excluding special charges, performance of the pedals business improved sequentially. And significant improvements are underway in anticipation of sales. As a result of the above, the earnings after special charges related to the restructuring and divestiture program were income of $0.82 per diluted share from continuing operations and losses of $0.15 per diluted share from discontinued operations.

To provide further details on the restructuring and divestiture charges, we turn to slide 13. 2004 restructuring and divestiture charges were 135 million with 85 million recognized against continuing operations and 50 million recognized against discontinued operations. This compares with our original November plans for charges to be recognized in 2004 of 102 to 107 million. The restructuring costs were actually slightly higher than we told you all. Approximately 16 million of charges were accelerated into 2004 from 2005 because of the progress we had made with various actions, particularly workers council negotiations and negotiating the exit from various IGT service contracts.

Based on charges arose from the unplanned asset impairments associated with the European cables business, where the business should have been sold in the quarter. Additionally, high contract settlement costs and the strengthening of the euro and Canadian dollar, both added to higher restructuring and divestiture related costs.

With a reduction in anticipated costs from moving 15 million between years and after the slightly adverse term fee impact, we now expect 2005 and 2006 restructuring cost to be 55 to 63 million of which 48 to 57 million should be incurred in 2005. With many of the most difficult-to-estimate charges behind us, such as contract settlement and impairment to assets, we have a higher confidence in the range of the remaining spending; although, currency could continue to be a bit of a wild-card.

Turning to slide 14 -- reviewing the overall financial performance from operations in the year and the quarter. Full-year revenues were up 15 percent, excluding the impact of including the thirteenth month for some of our European medical and aerospace operations to coincide the timing of reporting with all other operations. Digital agafect (ph) had the impact of including 16.9 million of revenues or 1.1 million of pre-tax losses in the fourth quarter. The other components of topline growth were 5 percent core growth, 4 percent from currency and 5 percent from acquisitions net of divestitures. For the fourth-quarter revenue growth of 18 percent consisted of 6 percent core growth, 4 percent from currency, 5 percent from acquisitions net of dispositions, and the light impact in the quarter had a 3-percent impact.

For the fourth quarter, gross margins reached 30 percent on an adjusted basis, excluding charges related to the restructuring program, and improved from 27.6 percent in fiscal 2003 to 28.8 percent for fiscal 2004 on the same basis. This represents nice progress in a difficult cost environment and will be further enhanced by the full-year impact of the higher gross margin medical acquisitions and the benefits of our restructuring actions.

Sarbanes-Oxley costs had a direct year-on-year impact on margins of 40-basis points in the fourth quarter and approximately 250basis points in the full year. These direct costs of the 404 compliance work exclude the other increases in costs, expense of corporate and throughout the organization on enhanced compliance and controls activities.

On balance, resource stable operating margins, despite 2004 headwinds -- and we see the path to significant improvements through this restructuring and divestiture program. Our strength is our cash flow. And slide 16 sets out the components for both our cash flow from operations and free cash flow.

Non-cash charges in 2004 included depreciation and amortization of 114.6 million and impairment charges related to the restructuring and divestiture program of 44 million. We generated 15 million from net operating assets with substantial working capital reductions, as we improved the velocity at which our working capital turned -- more of this in a moment. The reduction represented a $33 million swing in cash flows from changes in operation assets. We also reduced capital expenditures by 25 million in 2004 to 56 million or 2.2 percent of revenues. Overall free cash flow of 164.3 million increased by 44 percent and represents $4.05 per diluted share.

Turning to slide 16, I'll address our working capital asset velocity. The components of net working capital expressed as a percentage of annualized quarter revenues -- you can see marked improvements in each of the principal components with accounts receivable improving from 19.9 percent to 19.2 percent, inventory improving from 18.8 to 16.1 percent, and accounts payable and accrued liabilities improving through an increase to 14.7 percent, as compared to 13.9 percent.

These gains are results of operations progress in many areas of our business with a focus on managing working capital and executing improvement programs gaining traction. In addition, it includes some of the benefits to be gained from the restructuring and divestiture program. Overall, net working capital improved to 22.4 percent of sales. Our target by the end of 2005 is to close in on 20 percent.

Turning to slide 17, we have a strong balance sheet to support our future growth. Net debt-to-cap was 37.7 percent at the end of the year. This compares with net debt-to-cap of 40 percent early in the third quarter when we acquired our HudsonRCI for 457 million. Our debt structure has a significant portion of lower rate fixed interest debt with longer maturities. And we are continually working to optimize our current borrowing sources.

Turning to slide 18, I will begin my commentary on segment results with our largest segment, the commercial segment. Full-year revenues were up 5 percent to 1.2 billion. Full growth was 8 percent, currency provided 4 percent and acquisitions 1 percent. Divestitures represented an 8-percent decrease in revenues. Marine outdoor power equipment and industrial vehicle markets were the strongest during 2004 with new programs in enhanced content taking hold. Operating margins in the segments on an adjusted basis slipped 100 points from costs associated with cancellation of automotive alternative fuel programs in the U.S., raw material costs, and pricing the mix on cable and shifted programs to the auto OEM's. Sequentially, we returned much higher margin rates in the fourth quarter.

Turning to the medical segment on slide 19, medical segment revenues increased by 40 percent year-over-year with 6 percent core growth. The balance of the growth came from acquisitions 24 percent, currency 5 percent, lag reporting 3 percent, and the consolidation of variable interest entities 2 percent. Operating profits were up 37 percent -- but 40-percent increase if you exclude the 3.2 million of inventory related purchase accounting reductions that we noted during the third quarter. This segment started restructuring activities with most announcements already made. One close was completed early in the quarter and the completion of the business process reengineering project to form the foundation of process consolidation in the segment.

Turning to the aerospace segment on slide 20, we had double-digit growth in repair services in precision machine components during 2004. These were offset principally by the phase-out of the IGT services business -- first from the wind down of the construction service business early in the year and finally from the balance of this business during the fourth quarter. Also we encountered a decline in cargo handling systems revenues in 2004. However, as we reported in the third quarter, we have a strong order inflow and backlog to support a solid 2005 in this business.

We incurred 12.5 million of one-time charges related to the exit of IGT in the fourth quarter. Excluding these charges, adjusted operating profit was 6.2 million in 2004, which was heavily weighed down by 15 million of operating profit on 28 million of revenues for the IGT business. Excluding IGT services, which will be completely shut down by the end of the first quarter, aerospace reported profits of 21 million on 510 million of revenues in 2004.

Turning to slide 21, 2004 and 2005 will be clearly transition years for the business. We will have continued realignments of the business portfolio. And 2005 will start to realize the benefits from 2004 actions. Our restructuring and divestiture efforts are well underway and will have a much less financial impact in 2005. Continued strong cash flow driven by working capital, CapEx and debt reduction efforts, proceeds from sale of businesses and the elimination of problem businesses will further enhance the cash flow returns of our business.

With that, I will turn over to you, Julie.

Operator, we will be ready to take questions in a minute. But before we take questions, I would like to ask our participants to please limit questions to one and a follow-up. And we will cycle around again. I appreciate your consideration on this.

(OPERATOR INSTRUCTIONS). Deane Dray, Goldman Sachs.

For Hudson and for the medical segment as a whole, could you revisit what your margin goals are even during this transition year? You are also in the integration process of the business. But could you revisit the goals of 20 percent at the time of the acquisition?

In terms of this segment as a whole, we continue to believe that we can achieve 20-percent operating margins for the segments as a whole going out to 2005, as a result of both executing the Hudson integration plans as well as the restructuring activities underway as part of the restructuring and divestiture plan. It is a little hard to segregate the two because the activities are interlinking things that we're doing between the two. But our best assessment is that we are performing slightly ahead on an operating margin basis for Hudson, as compared with our original estimates before we made the acquisition.

And Martin, just to clarify -- what point do you feel you will be approaching that 20 percent?

We believe we will be approaching that as we go -- at that level as we leave the year, so in the fourth quarter.

Great. And then just give us a sense on raw material costs overall for Teleflex by each segment if you could -- and then, how much pricing as either offset some of that.

The raw material impact is really only of any great significance in the commercial segment. That is also where we have in most of the areas the greatest difficulty passing that through not exclusively. We've got some markets where raw material surcharges clearly can be passed onto our customers. I don't have an overall estimate at this time of what the impact year-on-year would be.

I was abiding by the one question, one follow-up. Thank you.

Thank you; I appreciate.

Jim Lucas, Janney Montgomery and Scott.

Two questions -- first, if we could take a look at Hudson, you have talked on the integration being ahead of schedule. Could you give us a little more color on what's going on there? You talked in the past about the integration process. But given the cash flow, obviously acquisitions will still be an important part of the growth. I am just trying to get our arms around what exactly the Teleflex integration process is now and hopefully Hudson can be a model for that.

Sure, Jim. I think we started really very quickly once we had done the acquisition last year on the front end of the business. And I would say that sales and marketing really was probably the first 4 or 5 months of them being part of Teleflex. Again, we have made an announcement that we're shutting down several of the Hudson facilities and moving those into some of our larger manufacturing campuses. So again, I think, we felt it was most important -- especially with the strong brand name of Hudson to deal with the front end of the business -- the customers, the interface, the salespeople. And now we are dealing with the back end. And that will take probably 12 months -- not quite 12 months but probably the better part of this year to work through a lot of the manufacturing.

But as you know, we have put some fairly large facilities in place for low-cost manufacturing. And those investments that we have made in the past 18 months to 24 months in facilities are more than capable of receiving a lot of the product that will be moved down there.

So I would say overall, we feel very good in terms of the integration. I will say this -- we continue to learn through the process in things that we need to do better going forward. But overall, I think we feel pretty good about it. And I was recently just out at one of their sales meetings. And the sales force is fired up seeing the Rusch brand and the Hudson brand together -- really gives them a lot more product breadth to go into their customers. And I think it has been well received. Again, two great brands coming together to truly create some value with synergies.

And just a follow-up on the last comment when you talk about the sales meeting -- was that the combined sales force, as you talk about Hudson being excited about Rusch? Could you talk about it from the other side?

I will tell you it is the first unified sales meeting between our organization. Again, most of our business is in medical use to operate. Even within the medical, they were fairly well-defined in terms of -- you would have the med anesthesia side and then you would have the surgical. They were really neat and different. Again, what we realized is there are benefits of having those groups working closely together. And this was also the first opportunity where the groups came together under the new brand recognition of Teleflex Medical, as opposed to the individual brand equities that we have.

So I've got to tell you, it's exciting. And I think there's a lot of work to be done, but I got to tell you -- at the end of the day, the salespeople are fired up. They feel it is the right opportunity, especially with some consolidation that we believe will take place within the medical channels. So we feel pretty good about it.

Okay. That is very helpful. And if we switch gears and -- 2004, 2005 being transition years and clearly there's still a few more moving parts on the disposition side. But when we get a look at the new Teleflex, the new and improved Teleflex in 2006, and you got the three segments -- could you give us an idea of what the expected growth rates of the businesses and what realistically the margins expectations would be just so we can kind of get a framework of what the earnings power of the Company will be?

Well, I think kind of a global sense, we talked about our medical business being a) not particularly a cyclical business, so it should be steady and continued growth. But we would expect that the growth expectations, excluding acquisitions, should be in kind of the 4 to 7-percent range. And our margins buzz (ph) would leave this year should be at 20 percent. And we see some limited upside potential, as we get full-year impacts of various things going forward and beyond that. It's clearly not going to be as high a margin business as some of the medical business is by nature of some of the products that we have in our portfolio. But it should be a nice 20 percent plus operation margin business.

I think on our aerospace business -- this is a business that is highly dependent upon the nature of those end markets. I think we can see that in the near-term, there are some strong opportunities on projects associated with cargo systems. We continue to have strong growth in our repairs business, probably more modest growth in our coatings and our precision manufacturing businesses. If you look at this business, it has historically been as high as into double-digit operating margins. We would consider that we are unlikely to achieve those highs given some changes, particularly in the repairs business, where we have more material pass-throughs that have driven down the operating margin rates as well as in the cargo systems business. At least in the near-term, we've got more lower margin rate of conversion from the higher margin repairs and service that follow on that. But we would say in the longer term, we ought to be able to see that this business should be returning to mid to slightly higher operate -- single-digit operating margins.

The commercial segment is a wide variety of pieces if you were to kind of blend it over time. Again, we would see this is definitely a GDP plus growth business. And we see margins approaching 10 percent, as we go out of this year. We've got restructuring actions to take a hold here. We should be seeing this be in the kind of low teens -- the kind of 12, 14-percent kind of range operating margins in the longer return.

Wendy Caplan, Wachovia Securities.

Martin, I have a couple of questions. First, your leverage ratio at the end of Q4 was 3.3 times if we put in the right numbers. Given the covenant of 3.5 times, do you anticipate any issues relative to tripping this covenant within the next year? And how limited are you relative to -- financially relative to acquisitions given this covenant? And my second quick one is -- did cash flow in Q4 include the GE venture?

Firstly, the vast majority of the restructuring program is excluded from our covenants under that program. We have plenty of capacity under that program, and we're not going to be limited in anyway or in any realistic meaningful way as a result of that, Wendy. As it relates to the GE joint venture, it is included in exactly the same way. And the cash flows are handled exactly the same way in cash flow from operations. So there is no change. This reflects our reflection of our share of the GE joint venture.

Okay. And I guess the question would be then for you, Jeff. In terms of your stated ability or desire to do acquisitions, Martin has informed us that financially you have the capacity. Can you talk about -- given all the moving parts that we're seeing today whether -- from the restructuring programs, whether you believe that in terms of managerial capacity that you can handle significant additional acquisitions over the next 12 months?

Yes, I would say, Wendy, I don't think we have a concern there. And the only place that I would say is if it was out of our current space, I think we might have some limitations. But I think within the current markets that we are currently playing in, I don't have a question as -- do we have the management depth or the capacity. Again, if you look back at our restructuring, we phased it out over the year so that no one group was heavily encumbered throughout the year. It was really kind of either front end or back end loaded.

So I think we are still out there in the marketplace actively looking for acquisitions. Our goal is that we will be opportunists as they come up. But I think we are trying to be a lot more strategic in the direction we want to go with acquisitions, especially as we look at asset velocity and cash return on investments.

So could we go do a huge deal? I do not think that is in our best interests right now. I think right now, we realize the biggest benefit we can provide to our shareholders is executing on the divestiture and restructuring plan. But at the same time, we're feeling pretty good about '05. We really got to start getting more focused on where is the growth in '06. But when I look at our core growth in our businesses and the new products that are coming out across our organization, I feel pretty good that we have got a pipeline for core growth. But again, for where we need to go, we are going to have to do some acquisitions.

Okay and one last thing if I can just get it in, Julie -- the core growth expectations for '05? Thanks.

Wendy, I do not think we have provided that going forward -- so.

Are you going to be giving us that? Or is that -- you did 5 percent in '04, I guess. Well, do you expect it to be roughly that level or above or below?

I think that is a good proxy for our expectations at the moment, Wendy.

Deane Dray.

Thank you. Just to come back to the potential for business disruptions in all of these facility closures -- could you talk us through in what you're doing in the way of either adding some potential buffer inventory to make sure you don't have stockouts during that transition process? And if you are doing that, what sort of working capital impact might there be?

I think, Dean, we have got some buffers in there. Again, and the first thing I will tell you is -- anyone who has ever done these moves, the timing is always a little longer than you would expect. And therefore, I think our goal is -- we've got to keep the supply chain full. And our goal is that we're willing to bring in some additional inventory to ensure that we do not have those disruptions. Again, we are trying to make this as seamless as we possibly can to customers. The last thing we want to do is have shortages of products.

And in terms of impact on working capital, yes, you would see increases in inventory over the course of the next couple of quarters. And then it starting to filter back down. The buffers stocks will likely be built during that period. And we should be feeding off them into the back end of the year.

So Martin, does that reconcile with being able to bring the working capital sales to 20 percent or would you --

Down towards 20 percent by the end of the year. You won't see continued progression on the inventory side of that during the course of the year for exactly the reasons you brought up in terms of building the buffer.

That's very helpful. And then, give us a sense on your book and cash tax expectations for the year.

Obviously, there is a complication in terms of -- we continue to work through the impact of the new tax bill and how much cash we will finally repatriate from overseas operations. And that's a little bit of a wild-card at the moment. As you are probably aware, that would hit as a one-time event. At the time that we actually make a final decision on that program, that would likely happen in terms of decision-making in the front half of the year because of the need for the time for the cash to filter back.

Should we adopt such a program? It is our best estimate that our effective tax rate excluding that matter should probably be in the range of 29 to 31 percent for 2005. And cash taxes will be a fairly nice benefit from that. We obviously have by virtue of the charges that we took in the fourth quarter, we have generated some losses that will result in lesser tax payments in the early part of the year as we have some refunds. And we will also have some continued benefits from the Hudson transaction that we threw into 2005.

I can't really, given all the different pieces, give you a very good cash tax rate. I think that could be very misleading if I gave it to you at this juncture.

I appreciate that. And then, you have reaffirmed guidance for '05. Is there any sense of how we should be thinking about the first quarter in light of all these moving parts?

I think that we probably will be saying -- the first quarter we're not going to see any benefits from the restructuring program of any consequence. We first would see probably a modest first half and a buildup in the back half of the year in terms of the timing of this. As you recollect -- as you look at that, you probably see a modest first quarter, improvements in the second quarter, third quarter is somewhat tempered by the close down period particularly in our automotive businesses, and a strong fourth quarter. So we will be back end loaded.

Good. And did you say what capital spending expectations are for '05?

What we said in December -- we said about 75 to 80 was our projection. At this time, we're not revisiting those expectations.

And that is running about 20 below D&A?

In terms of D&A, D&A will be running us about 120 to 125 based on -- you saw that D&A was 27 million in the fourth quarter.

And then, for your accounting for employee stock options -- where do you stand on that?

Well, we are obviously evaluating the actions that are going to be taken with certain awards that would typically be taken at around this time of the year. Our Board has not made the final decision on that. So anything I give to you is tentative and subject to their input in those regards.

But if you were to look at the impact that it's been in the past through our footnote disclosures and assuming no significant change from that pattern, it would be about $0.05 for a half-year impact in the third and fourth quarters.

That is very helpful. And last question on Sarb-Ox -- is the quarter -- fourth quarter charge, the expense that we saw, is that reflective of a run rate basis? Or is that exceptionally higher because of the divestitures and discontinued operation in reviews?

Well, it is higher because our program was extremely back end loaded. We will have though some fairly significant costs, not at that level -- but still fairly significant in the first quarter because a substantial amount of the Sarbanes-Oxley work has gone on into the January/February period, particularly from our auditors. And we reflected on a when incurred basis. In terms of -- implicit in the numbers I gave you was that Sarbanes-Oxley has cost us about $6 million this year. It is our objective that that cost will be cut by at least 20 percent in 2005.

Jim Lucas.

Martin, on that CapEx outlook of 75 to 80 million, if you look at the cash flow for '04, your CapEx ended up being reported 56 million. Can you give us a little help on where the discrepancy is there? Or where the additional spending is going to take place?

Well, obviously we'll have a full year -- for instance the Hudson acquisition, which does need some level of capital investment. And it was a very modest amount in the back half of the year.

Secondly, there will be capital expenditures associated with supporting the restructuring program. And those will be 10 -- give or take 10 million or so. So those are the two principal components that drive us from the run rate we are at now, Jim.

Okay. That is helpful. And if we take a look at your earnings from continuing operations in '04 -- were roughly 310, if I did the math correct. And your guidance is 360 to 370. Can you kind of walk us through the bridge of how of that is growth? How much of that are restructuring benefits? And if there are any other variables in there?

In terms of -- well, as we kind of walk through versus the -- in our December call, we kind of had said this about 5 percent or so core growth. We are going to have to make some additional corporate expense investments to support the consolidation activities. And those don't get charged up against restructuring. We will have the benefits from taking out IGT, which clearly identified, was 15 million that was charged off against here. It will clearly be the impact of the stock option accounting. Deane asked us the question about global impact the back half of the year.

We will comparatively speaking -- in the front half of the year, we didn't have the same impact of raw material pricing and some price down pressures in the -- particularly the auto area that will impact us adversely on a comparative basis in the front half of the year. And I think those are the principal dynamics there, Jim.

But what I'm trying to get at with that question is -- you guys have gone out with a range. Jeff, in your comments, you alluded to having some comfort with that -- and just trying to get somewhat of an earnings bridge of how you're getting there. So when you look -- the restructuring benefits, even though you upped the spending a little bit, you have not changed your expected benefits at this point, correct?

No, right.

And then, finally on the acquisition pipeline, if I heard your comments earlier, it sounds like a Hudson-sized acquisition isn't necessarily what you would be looking for at this point and more of product line extensions or filling in the void. Can you talk about what you're seeing from a pipeline perspective, multiples, etc.?

I don't want to imply -- and if I implied that the Hudson deal was too large for us to move forward -- that was not what the intent was. The intent was doing a 5 to $700 million deal is not what we're looking at. But again, I think we have demonstrated that we can digest a deal. But every deal has its own nuances to it -- number of facilities, locations. So I think again, we are comfortable -- Hudson 175, 185 million. We would not struggle with that again as long as it was within somewhat of our current space.

Pipeline, it's interesting. Because again, obviously we are out there trying to sell as well as to look into some acquisitions. So it is always interesting, especially when you deal with investment bankers. When you are selling, they like to keep your goals fairly modest in terms of the multiple. Yet, when you come to buy, there is normally a fairly much higher multiple. So you know, it is interesting.

Again, Teleflex in the last year, we sold several pieces of property. We still believe even though we paid 10 times EBITDA for Hudson -- that we still believe in most of our markets, you're looking at anywhere from 6 to 9 percent for what we would consider to be something that is going to provide a fair amount of return for our shareholders.

We have time for one more question. David Thoreau, T. Rowe Price.

I just wanted to make sure that I understood. When we think about -- I think Jim said, $3.00 or $3.10. The continuing operations number is closer to sort of a $3.00 number? Is that correct? Or is it really the $3.10?

$3.05.

$3.05.

$3.05 is the continuing number. And that continuing number, that is actually inclusive of the $15 million of IGT losses? Those IGT losses go away next year.

They go away next year, yes.

So the real sort of base that we are thinking about is $3.05 plus whatever -- with $0.30 or something like that. So the real base is something like --

Right.

So just want to make sure I understood that. The guidance is $3.60 through 80, not $3.60 through 70. That's correct still?

Yes, $3.80.

I just want to make sure that was correct. And can you just talk a little about maybe just general corporate expense? And is Sarbanes going down a little bit because of some investments we have to make? I guess, one, are those investments going to continue beyond the restructuring actions? What is sort of the right run rate on corporate expenses going forward?

I think we're continuing to evaluate that one, David. I think you will probably see that the corporate expense line in the past has been substantially less than we would currently have going forward. I would say kind of a run rate that is about the level of our fourth quarter would not be unusual.

I apologize. And what was the fourth-quarter number? I apologize, just trying to get a -- so that would --

The fourth quarter was about -- in total for the full year was 32 million. So the fourth-quarter run rate was 11. That's probably slightly high.

With Sarbanes.

With Sarbanes.

So maybe something like a $10 million kind of run rate?

Yes.

And Mark, the tax rate, that 29 to 31, it's up relative to the '04 level. Is that sort of a sustainable tax rate going forward as we get those margins? Like you said -- the 20 percent in medical, the 12, 14 in commercial, and then mid to high single digits in aerospace? Does the tax rate go up as you vastly improve profitability? Or does the tax rate sort of stay at these kind of levels?

It will tend to be around a higher end of that range that I gave you on a sustainable basis. The losses in certain areas have substantially dampened down the tax rate. And the effective tax rate for this year is very low because we have kind of a fixed permanent tax deduction that is spread across the very low variable income. So that is why you see a very low effective tax rate in the current year.

And just one last question -- again going back to the guidance, I think you talked about doing $325 million of operating cash flow in '05. Is that still the expectation with some higher restructuring?

We are certainly seeking to get somewhat close to that number. Yes, David.

Right, we are over our time. So again, a replay of the call will be available on the Teleflex web site or by phone. For those of you who may have dialed in late or would like to review the replay number, it is 888-286-8010 or for international calls 617-801-6888. The passcode number is 28192454. Thanks.

This concludes your conference. You may now disconnect. Have a great day.