泰利福醫療 (TFX) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the quarter one 2005 Teleflex Incorporated Earnings Conference Call.

My name is John, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. If at anytime during the call you require assistance, please press "star" followed by "zero" and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Ms. Julie McDowell, Vice President of Corporate Communications. Please proceed, ma'am.

Thank you, John and good morning everybody. Teleflex issued a news release yesterday, reporting financial results for first quarter 2005. The release is available on the Investor Relations page of our corporate website at Teleflex.com. We have also posted accompanying slides and in the historical information section of our site, you'll find an updated schedule for discontinued operations.

I'd 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 35920608.

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 some forward-looking statements including but not limited to statements regarding earnings, conditions in the markets that we serve, economic assumptions, expected volumes and alike.

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 out a 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 maybe contemplated in 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 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 as described in Teleflex's filings with the Securities & 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 for the great intro that we really appreciate. Good morning, everyone. Overall, this is a good quarter for Teleflex with our key metrics headed in the right direction. Our business performed inline with plans for the year, revenue was up and cash flow was very strong. We had double-digit operating profit growth in aerospace and medical with commercial segment coming in right where we had planned, again, all good news.

During the quarter, we also made good progress on our restructuring and divestiture plan. Accelerating the integration of HudsonRCI and completing the successful sale of Sermatech International in our aerospace segment. We've got a lot of detail to cover this morning. I'll start with an overview focused on continuing operations and our initiatives. After my remarks, Martin will walk you through the detailed summary of the financial results for the quarter.

As noted here, earnings from continuing operations were inline with our plan for the year. We were pleased to see the strong performance in aerospace. Market conditions continue to improve and we are beginning to see the impact of the exit of industrial gas turbine services.

Medical had another solid quarter with good core growth and the integration of Hudson proceeding well. To-date, the integration of HudsonRCI and our complementary roost (ph) disposable medical product business has stayed ahead of our schedule. In January, we announced plans to close two North American manufacturing facilities over the next year and consolidate operations into existing sites.

As expected, commercial segment profit declined. We had a tough comp here. In the first quarter of 2004, we had contributions from commercial businesses that were divested later in the year, and you may remember that it wasn't until the second quarter of 2004 when we made significant adjustments to accommodate material and other cost increases and changes in customer pricing.

The big story looking at our first quarter numbers was the cash flow. Operating cash flow was 59 million, up significantly from 17 million just a year ago. Free cash flow, which we define as operating cash flow less dividend and CapEx was 37 million versus a negative 6 million in last year's first quarter, obviously, we're off to a good start.

We exited the quarter with 165 million of cash. More importantly, our net debt to total cap of 32.6% at quarter end was the lowest level since we closed the HudsonRCI acquisition early in the third quarter of 2004, marking a second consecutive quarter of leverage reduction. Martin will go through details in a moment about our working capital management continue to improve, thanks to some of the initiatives that Martin and his team has put in place over the past few quarters.

Overall, first quarter revenues increased 8% in the quarter and our core growth were 3%, with first quarter orders growing about 11%. Aerospace and medical were particularly strong with both segments posting double-digit order growth during the quarter.

Let's go through the segment revenue results in detail. In commercial, we had 5% core growth with the strongest contributions from sales into industrial market. Sales of auxiliary power units for trucks and driver controls for industrial vehicles led the increase. Our new power steering products and our new engine management products like power trim until are doing well in keeping us ahead of the overall marine OEM market. It has had a difficult year-over-year comp, but the marine aftermarket got off to a slow start compared to the first quarter of last year. It's still early in the season to say this is a trend, but we'd like to continue to see good weather on the weekends and rain during the week.

Tier 1 automotive businesses were on plan. We have benefited from having higher content on some of the overachieving platforms, both in Europe and North America, although, revenues declined compared to last year as a result of previously identified divestitures. In the first quarter, we had stronger than expected production numbers and more favorable product mix for several platforms, both in Europe and North America. This offset the adjustments we had to make in our tier two business for a couple of North American auto platforms that experienced brief shutdowns during the quarter.

With all the news out on some of our automotive customers, you can imagine, we are monitoring production changes and our cost containment efforts very closely. As illustrated in the first quarter, our position on some of the hot automotive platforms help us sustain volume. This gives us confidence that we can offset some of the weaknesses that we have seen as automakers make changes going forward.

We continue to transition our automotive business to be more geographically diverse and spread across a broader sense of customers. This enables us to reduce our dependence on any one customer and to mitigate the risk associated with the success or failure of any one single platform.

In medical, we had nice gain in core growth, 11%, once again, the largest percentage gains were for specialty devices. These are instruments from medical device manufacturers. This year, our growth in the medical arena has been driven by increased demand for products used in orthopedic procedures. In particular, spinal and back procedures, as well as our traditional products used for urology, anesthesia and interventional cardiology.

In medical, the introduction of new product continues to be an important part of our overall strategy. During the first quarter, there were approximately 20 new products that contributed revenue in a small, but meaningful way. They range from disposable medical products in urology and anesthesia that did well in Europe, the cardiovascular devices and instruments and specialty sutures.

In aerospace, we continue to see market improvement. Repair products continue its good core growth and we've increased sales of narrow-body cargo loading and cargo handling systems from passenger to freighter conversions. In particular, we launched a new sliding cargo loading system for regional and narrow-body jets had good initial penetration in the marketplace. These were both offset by the declines related to the exit of the IGT services. Orders continue to be strong and have been for more than two quarters now.

During the quarter, we also moved ahead with our strategic actions we are taking to improve profitability. We are now five months into the restructuring and divestiture program announced in November. We have much of the heavy listing still ahead of us, but to-date, the process is advancing and we are encouraged by our progress, although, there had been usable expected bumps in the road, but none have been significant to this point.

The sale process for automotive pedal systems business continues to move along. Obviously, this is a tough environment in which to sell a tier one automotive business. On the good side, the automotive pedal systems management team has made dramatic improvements in the overall business fundamental and appeared to be making progress on a worldwide basis.

We had now have been exited the industrial gas turbine service all the behind us. We are down to one facility completing the manufacture of parts for customers; as a result, we are beginning to see better results in our aerospace segment. Our restructuring plan is moving ahead and inline with our plans. Many of our planned facility consolidations began in the first quarter. With a few exceptions, it'll be spread over the next 6 to 12 month period.

In the press release we outlined a restructuring prospect segment for the quarter. Let me just give you a little perspective. Aerospace was approximately $4.6 million and majority of which were non-cash write-downs of assets and inventory. We consolidated two facilities into one and moving some of the inventories did not make any economic sense.

Commercial was approximately $0.5 million, primarily HR related expenses, severance day bonuses and alike. We have the greatest number of consolidations taking place within our medical segment for a smaller facility, many of them with less than a 100 employees and moving operations to larger manufacturing centers.

Medical restructuring costs for the quarter were $4.2 million; again, this was largely HR related expenses. There was actually a lot more action in the medical segment that is indicated by these expense levels as many of the first quarter actions were accrued for in the fourth quarter of 2004. It's still too early to see significant cost benefits, but again, we are making this move gradually to make the transition as seamless as possible for customers and to limit disruptions.

We expect to begin to see meaningful benefits from these consolidations during the second quarter. Benefits should accelerate as the year progresses and into next year, as we complete moves and expand the shared service model.

Let me talk about some of the portfolio activity. We talked about the exit of the IGT services and the planned divestiture of the automotive pedal systems in connection with our restructuring and divestiture program. During the quarter, we also completed the successful sale of our Sermatech International business previously part of our aerospace segment. It was a profitable business that served the industrial gas turbines and aerospace customers, yet it was also our only chemical processing business.

During our portfolio evaluation process, we looked at the potential return, the expertise and the required investments needed to grow this business and decided to consider other options. We are pleased with the price that we received for this business, and we wish all of our employees from Sermatech well in the future. 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 preparing for growth.

Portfolio evaluation will also enable us to focus our efforts and our resources where we can grow most profitably, and we want to invest in other businesses that offer a strong cash return on investment, sustainable business models and positions in markets with opportunity for growth.

Over all, we are pleased with the first quarter results and we remain comfortable with the guidance we gave in our December outlook. Over the past few quarters, we have been dealing with our so-called problem businesses, IGT and the automotive pedal systems. Pruning our portfolio, as appropriate, and aggressively monitoring the business outlook for each segments and making adjustments, as necessary. While this has been somewhat of a painful process, it's also been a healthy process for us as a company. And we think we should see much less volatile operating results going forward.

Just to give you a broader sense of how we are thinking about the business today in the commercial segment. We expect modest core growth combined with the margin improvement on balance in 2005. Again, this is due to actions we have taken over the last 12 months, divestitures and the like as well as expected and planned for decreases in automotive revenues. We have done a good job of cost containment in the commercial segment and a good job of adjusting on the fly to change in customer demand. While the first quarter operating profits, comps were unfavorable, we should see better comps for the balance of 2005 with favorable comps in the back half of the year.

In the medical segment, the story is already a good one. With strong core revenue growth and good, but not great operating profit margins, but as the year plays out, we expect to see a steady acceleration of operating profits as the restructuring program drives cost savings to the bottom-line. We still have a lot to accomplish to reach these goals, but we think that we have carefully planned the transition to minimize risk and maximize our ability to react to any rough spots along the way.

In the aerospace business, we have been seeing better order rates for a few quarters now, particularly for new bills. In the IGT exit is almost complete. That's a recipe for good things going forward and we should see a very positive story unfolding in terms of comps for the balance of the year from an operating profit standpoint. Here again, though, we do expect lower revenues on a year-over-year basis in 2005, this being a direct result of the IGT exit. We expect the strong topline evidence in the first quarter from cargo and precision manufacturing businesses to continue.

Finally, I would caution you to remember that our outlook did not include gains, losses or other costs associated with further portfolio adjustments that may occur. In total for the year, we continue to expect diluted earnings per share from continuing operations, excluding special charges of $3.60 to $3.80 per share. This translates to diluted earnings per share from continuing operations including special charges of $2.76 to $3 per share. The team at Teleflex is working hard to make Teleflex a stronger company for its shareholders. One, to deliver steady and measured growth, consistent operating results and strong cash flow while providing a consistent return of capital to our shareholders. With this quarter's results, we think we made a good start on this goal.

With all that said, let me turn over to Martin for him to add more details to the information. Martin?

Thank you very much, Jeff. Turning to slide 12, which summarizes our first quarter continued and discontinued operations summary. We had a very solid quarter at Teleflex. We earned 31.2 million or 77 cents per share from continuing operations. This is a good start in what is always a weaker first quarter because of market dynamics in the commercial segment. Additionally, our corporate calendar results in effectively a dead week to the new fiscal year.

The chart from page two of press release represented a slide 12 provides a path through the fricative numbers associated with our restructuring and divestiture programs. On a GAAP basis from continuing operations, we reported 61 cents. These results included, firstly, restructuring costs of 7.3 million pre-tax, which translates to 12 cents per share on an after-tax basis. And secondly, the cost of goods sold included 2 million or 3-cents from writing off inventory, but was not moved during an aerospace facility's consolidation.

The results from continuing operations do not include either the operating results of the Sermatech International coatings business that was sold in late February nor do they include the significant gains arising on that transaction. Our results from discontinued operations were net income of 13.7 million or 34 cents per share. The gain on the sale of Sermatech was 34.4 million or 58 cents per share, and we wrote down further the value of assets held for sale by 12.9 million or 23 cents per share, resulting in the operating activities of the discontinued operations, reporting a minor loss with losses in the automotive pedals business nearly offset by profits in the Sermatech International coatings business.

Turning to slide 13, restructuring and divestiture charges both in the first quarter were 22.2 million with 9.3 million recognized against continuing operations and as I referred to before, 12.9 million recognized against discontinued operations.

The 12.9 million non-cash charge recognized against discontinued operations is incremental to the guidance we provided in February for restructuring charges of 48 to 57 million in 2005 and reflects a revision downwards in the expected recoverable value for the automotive pedal systems business. That process continues on course, at least become clear to us that our initial proceeds target will not be met.

Elsewhere, the estimates for cash restructuring charges for 20005 remain in line with prior estimates and guidance. The relative modest amount for restructuring in continuing ops this quarter is not a reflection of the activity levels as much of the current activity was accrued for in the fourth quarter of 2004.

The following slide presents a summary of our financial performance. As Jeff mentioned, it was a solid quarter for the company. Revenues increased 8% on an over all basis. This includes a healthy 3% core growth component and 8% from acquisitions. The year-on-year weakening of the US dollar contributed 2% to reported revenue growth and the impact of dispositions, most notably the three commercial segment, divestitures in the second quarter of 2004 contributed a decline of 6%.

For the quarter, gross margins were 28.1% on an adjusted basis, excluding charges related to the restructuring program, roughly comparable to the margins in the first quarter of 2004. Material cost increases during 2004 that were not passed on to the automotive OEM customers stole the gross margin benefits from ongoing productivity and cost reduction programs. These pressures will be relatively limited as we are successfully passing through all our material cost increases in our medical and aerospace businesses and for many of our commercial product lines.

On an operating basis, margins were slightly higher than last year after adjusting for restructuring cost. We expect continued improvement here with some volume leverage in the seasonally strong second quarter and as the impact of the restructuring program takes hold later in the year.

Turning to slide 15, our strong cash flow demonstrated out the focus on the entire operation on cash flow, delivered results with cash flow from operations and free cash flow above historical levels for first quarter.

Non-cash charges in the first quarter included depreciation and amortization of 25.8 million. We would expect depreciation and amortization for the full year to be in the range of 110 to 115 million. We generated 1.5 million from continuing the reduction of our investment in net operating assets and this was achieved despite ramping up some inventory balances to effectively execute various product line moves.

But we continue to carefully manage capital expenditures, which was over 2% of sales for the quarter. We've held back -- we have not held back any justifiable expenditures and we continue to invest in internal growth opportunities; however, the disciplines of approval processes and the focus on cash returns from our investments are taking hold. Some restructuring-related expenditures later in the year will likely drive expenditures up to the range of 80 to 85 million for the full year.

Over all, free cash flow, our definition being cash flow from operations, less capital expenditures and dividends grew to 36.9 million or 90 cents per share. It also represents a $43 million upswing from last year's first quarter.

Turning to slide 16, as you know, we focus on asset velocity. The components of net working capital expressed as percentage of annualized quarter revenues, as a yardstick of our effectiveness of managing working capital.

Our accounts receivable improved to 19.5% compared to 19.7% at yearend. Incidentally making these comparisons, we have taken the impact of like period revenues in the fourth quarter and also adjusted to treat the divested coatings business on a comparable basis. Our accounts payable and procurement practices have stressed cash management and as a result, accounts payable improved to 7.6% of sales from 7% at yearend.

We invested in building certain inventories to support their product line moves and plant closures. This drove inventory asset velocity up to 16.9% from 16.5% at yearend and was the primary and the planned reason, why a more significant reduction in net working capital velocity was not attained. Despite this, net working capital velocity improved to 21.8% from 21.9% at yearend. And our goal continues to be to drive this down towards the 20% range by yearend.

Looking at the balance sheet on slide 17, a healthy cash flow has strengthened our balance sheet. By the end of the quarter, net debt capital improved to 32.6%, continuing the trend of lowering gearing since the HudsonRCI acquisition was closed. As we work through the divestiture activities, we are now turning our attention outwardly to acquisition opportunities to enhance future growth and returns.

Our balance sheet clearly makes most opportunities easily financeable. We exited the quarter with 165.4 million in cash, virtually all offshore. The repartition of which will be addressed during our ongoing plans to take advantage of the provisions of the American Job Creation Act. This time the size and timing of repatriation is not being determined.

We now turn to the segment of slide 18 such that the commercial segment and the results for the quarter. This is or largest segment. The full year revenues as, Jeff referred to were down 3% to 303.8 million as a result of significant divestitures from the segment in 2004. These divestures represented 10% of the segment first quarter 2004 revenues.

Core growth in the segment was a solid 5% and currency provided an additional 2%. As Jeff mentioned, strength in the commercial segment came from OEM, industrial and marine products and the ultimate we saw (ph) in marine aftermarket was somewhat soft during the quarter. In the automotive business, this was expected and we planned, and we were able to plan for decline. But obviously there are volume related margin contractions as a result of this.

Operating profits were down 22% for the commercial segment. The comp sale was up because the automotive results in the first quarter of 2004 were before significant material cost increases and customer price givebacks we faced in the latter half part of the year. Also first quarter margins are seasonally impacted by mix that has lower marine content, which was magnified by the soft aftermarket business in the current quarter. The segment also has some significant US dollar revenues with high Canadian dollar cost content and we saw some margin contraction as the US dollar weakened over 2004. Sourcing programs are underway to recover these declines.

Turning to page 19. On the medical segment, the medical segment revenues increased by 41% year-over-year with 7% core growth. The balance of growth came from acquisitions, 30% in currency and 3%. Revenues are particularly strong in Europe and from our specialty device sales.

Operating profits were up 44% and produced margins of 15.6% ahead of the first quarter 2004 margins of 15.2%. Incremental costs associated with restructuring activities and with titanium sourcing grow down margins on a sequential basis. We consider both the issues to be temporary issues and we expect to see margin expansion recover nicely during the second quarter.

We continue to model titanium availability and look for additional sources. We think we have solved the problem in the short-term by leveraging suppliers who we work with in other areas of our business. The segment is deep into restructuring activities and integration activities associated with the HudsonRCI acquisition. There were bumps in the road during the quarter, but the planning and monitoring focus enabled relatively quick recovery. Lessons have been learned and we believe the appropriate resources are being deployed. Although we are starting to see cash benefits from the extensive medical activities, they will not ground down to the bottom line until later in 2005.

Turning to the Aerospace segment, the $9 million impact to the top line from the wind down of the loss making industrial gas turbine aftermarket business resulted in reporting revenues being down 5%, elsewhere the overall health of the markets and the strong positions for growth. Reductions in precision machined components revenues were the results of pruning problematic pieces of the businesses since the first quarter of 2004. Operating profits were up from $1.4 million to $4 million after adjusting for all of the restructuring related charges in the segment this quarter. Operating margins improved to 4%. The strategic wind down of the IGT business also -- obviously benefited the segments results and the segment completed critical facilities consolidation in California this quarter, when we expect to see the benefits of this flow through in the second half of the year.

So to summarize on slide 21, the first quarter displays good progress on all fronts. We generated strong performance from core businesses and continue to execute our portfolio transition. Progress was completely consistent with reiterated guidance from results from core operations. Margins with corporate expenses and excluding restructuring expenses -- expanded sequentially. The divestiture of Sermatech generated liquidity; improved our balance sheet and reduced further investment requirements. Our free cash flow was outstanding and reflects increasing sound fundamentals in the business.

Now, let me turn back to Jeff to talk about the 2005 outlook and for the closing comments.

Thanks, Martin. I think this quarter can best be categorized as where, which we made very good progress towards some of our goals, which we've outlined for you over the 12 months. Our employees know objectives and are focused on what we need to do to make this vision a reality. Energizing our sales, efforts and delivering profitable business to the top line and remain vigilant on the expense side of the equation continuing to carefully manage our working capital and sticking to CapEx budgets. These initiatives have energized the company's cash generating abilities. Well, we're pleased with the first quarter financial results. We are expecting better things going-forward.

With that, I will turn it back over to Julie.

Operator, before we take questions, I would like to ask participants to please limit questions to one and a follow-up.

And then we will cycle around again.

I appreciate your consideration on this and we will take questions now.

Ladies and gentlemen, if you wish to ask a question, you may press "star" followed by "one" on your touch-tone telephone. If your question has been answered or you wish to withdraw your question you may press "star" followed by "two". Please press "star" "one" to begin.

And your first question comes from the line of Jim Lucas of Janney Montgomery Scott.

Thanks. Good morning.

Good morning, Jim.

A two questions. First, twice in the prepared remarks, once when talking about the restructuring and then the Hudson integration you talked about bumps in the road and lessons learned. I was wondering if you can expand there. And secondly, as the balance sheet continues to get stronger and you talk about the acquisitions, can you talk about potentially where you see that size type just give us a little bit more color on what you are thinking about on the acquisition side?

Yes, Jim. If I kind of referred to the bumps in the road, I'll give you a couple of examples, one of which would relate to just the difficulty of getting regulatory approval for a distribution center to move that resulted in the distribution centers staying open for a longer period than we planned and that's incurrent duplicate cost for a period.

Obviously, that taught us the level about accelerating the manner in which we approached the regulatory authorities and I think that's now built into the detailed plans for all our future activities.

Other examples were related to the ability to have some supply chain support that resulted in some delays in the supply and manufacture of a particular product line moved into Mexico. Again, the -- segment recovered from that later on in the quarter, but it was a kind of a bump to the January performance and it's one that we put out resources from our corporate teams, as well as from just the segment teams to deal with and handle precisely those issues.

Yes. I think Jim; also, as we have bumps, what we have committed to is meeting the customer commitment. So, we had to expedite some freight, especially as some of these facilities are serving global customers. So that impact has been there but again we hope that those are minimal in learning lessons behind us.

On the acquisition side, I will till you that, we are still out there in the marketplace. We have a lot of operating people. I would refer to as a lot of those as really the bolt-on to our current structure. And we still feel that we have the capacity and the capability to integrate and create value in those types of deals.

We really understand both from our investors and from our Board, our first focus here is we have to drive the execution of the restructuring divestiture plan. I think we have shown the progress there. So again, bolt-ons I think we're comfortable moving forward, but we believe that we do have to look at larger transactions going-forward to kind of create the value that most of our investors are looking for.

And on the bigger side when you make reference in your last comment, do you feel that your current management structure is adequate to support?

Well, I think in -- I will tell you; I think pockets of our business, yes. I would say that those who are heavily involved in restructuring, we are waiting to probably see another quarter of progress before we would get too serious about something of size. Again, I mean, from a balance sheet standpoint, we feel comfortable with size -- size for the sake of size doesn't do as much good. So I think, hopefully, by the end of the second and into the third, we believe that most of our groups will be able to graph and take on some acquisitions of size.

Okay. Thanks.

Your next question comes from the line of Deane Dray of Goldman Sachs. Please proceed.

Thank you. Good morning. On the medical segment, are you comfortable with your 20% margin run rate exit by yearend and what should be the pace? You said it was -- you had some integration issues for the first quarter, but you thought you would get some recovery in the second. But what should the pace be on the margin improvement for the year?

Yes. I'll touch on the macro. Now, let Martin kind to got back down to the pace side. Deane, I think we still feel comfortable with the 20% exiting out of the fourth quarter.

And I appreciate that from where we have been in the 15 to 16 range of getting that kind of increase is a radical improvement, but again, even some of the bumps, I don't think, have taken our expectations for profitability down. Those I think are minor at best. But we've had a lot of people who have tried to throw a lifeline on moving those margins down. Our management team at Medical, who are doing an outstanding job, frankly, we've offered them the opportunity to lower the expectations and they are not willing to do it and neither are we. Martin, you want to touch on some of the detail.

Yes. I think basically if you are looking here kind of something like 350 basis points improvement over the course of the next three quarters that you could expect to see that that improvement would come along roughly equally.

Okay. And then, Martin, while I have you, what about on the corporate expense side, one of your points, as I recall from last quarter, were trying to gauge the run rate and we were looking for something around 10 million and it came in pretty significantly under that. So what should the growth rate or the run rate be on corporate expense? And what's the explanation on the lower number this quarter?

The run rate that we have for this quarter, I should say, may be very slightly on the low side, but should be something similar to that that we should be expecting for the remaining quarters of the year. There are two things. One is that we have been looking into our costs very carefully and diligently.

And secondly, we have embarked on a tax strategy and a tax-planning exercise that identified that -- it will be beneficial for some more of the expenses to be charged out into the operations and that is indeed what we have done during the course of the quarter. If you were to say what's our spending levels? Our spending levels are slightly below, excluding this kind of reallocation, our spending levels are slightly below what we previously guided to.

So I hear you say that some of that 3 million delta between looking for around 10 million and seeing 7 in the quarter...

Reallocated into the operations. So, you know, the underlying performance of the operations on a margin basis would appear to be harmed slightly by that.

I understand. Thank you.

As a reminder, ladies and gentlemen, to ask a question, you may press "star" followed by "one." And your next question comes from the line of Wendy Caplan of Wachovia Securities. Please proceed.

Good morning.

Good morning, Wendy.

Could we talk about auto a bit? I was a bit, actually, surprised to read that the revenue was simply impacted by the sale of the cables business. Can you talk about what we are seeing on the topline? What your expectations are for production? How penetration will -- your increased penetration will offset that? And also, can you quantify for us revenue and profit expectations for this year in auto? What's your production expectation, etcetera?

Well, Wendy, in terms of where we have been, we have been on some of the stronger programs. It's all very much program-specific. Whilst we had some interruption from a couple of programs that were -- where the lines were shutdown in part during the course of the first quarter. This has been more than made up for strength on some programs such as a new model introduction out for GM that's, in fact, was very strong, which had our cable and shifters on it.

And very strong business levels in Europe on particular programs we are on. One of the things that you see in our automotive business now is that our big three customers are no longer the three customers located in Troy, Michigan, as we had increased penetration and the increased growth of some of the key European auto players.

And that is very much a strengthening to our business. So we don't tend to look on the outlook from the basis of what total auto production is, but we are looking at individual programs and the individual program projections and we kind of correlate, get them from two different sources.

And clearly, we remain concerned that the increase in gas prices can clearly have another shoe effect on larger SUV programs as the year progresses. But we think we are also well positioned on smaller SUV'S, which at the moment appear to be benefiting from those macro pressures on the larger SUV programs.

Our strengthening position with the European automakers is managing to compensate for, obviously, the likely weakness in GM and Ford outlooks. Although, I've got to say that's still not translated down to the program level at this juncture.

And Wendy, we also have a fair amount of restructuring taking place in our automotive business. So we don't want to leave you to the impression that, again, it's always a mix issue in auto, where do you have your business, but more importantly, I think, we were in the midst of transitioning some of our business to lower cost manufacturing centers, which we've talked about for the last few years.

And we believe that that should at least provide us some, what I will refer to as a safety net going forward. But I got to tell you, when we got into this year and we looked at our automotive business, we were very conservative after coming off of the strength that we've had for the last few years. I think to our benefit, typically we have been optimist, I think, being conservative and pessimistic, I think, has really been to our benefit.

Thanks, Jeff. And my follow-up is, should we be expecting more announcements about divestitures over the next quarter or so?

I would say that I don't classify it over the quarter. I would say we still have a fair amount of our portfolio that we identified for disposition. Some of that is, again, tied to the market cycle. So I think at this point we believe by the end of the year there is still some significant revenues, which will be divested of. And again, I will tell you that that is not just in our commercial segment, it's also in our other segments as well.

Thank you.

Thank you.

Once again, ladies and gentlemen, to ask a question, you may press "star" "one." And we will pause a moment to compile a list of additional questions. Thank you. This concludes today's question and answer session. I will now turn the call back over to management for closing remarks.

This was a busy conference call morning, so thank you all for joining us. Again, a replay of the call will be available on the Teleflex website or by phone.

For those of you who may have dialed in late or would like to review, let me give you the number again.

The replay number is 888-286-8010 or for international calls 617-801-6888. The passcode number is 35920608.

Thanks.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.

Have a great day.