泰利福醫療 (TFX) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Teleflex Incorporated first quarter 2008 earnings conference call. My name is Sean and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Ms. Julie McDowell, Vice President of Corporate Communications.

Good morning. I would like to welcome you to this conference call to discuss Teleflex' first quarter 2008 financial results. The press release was distributed this morning. That release and a set of slides to accompany our remarks on this call are posted on the Teleflex website. Please note that this call will be available on our website, and an audio replay will be available by dialing 888-286-8010, or for international callers, 617-801-6888, pass code number 82788079.

Participating on today's call is Jeff Black, Teleflex' Chairman and Chief Executive Officer, and Kevin Gordon, Teleflex' Executive Vice President and Chief Financial Officer. Jeff and Kevin will make brief prepared remarks and then we open up the call for questions.

Before we begin, I would like remind you that some of the matters discussed on this conference will contain forward-looking statements, including but not limited to statements as noted on the slide. These comments relate to revenue growth, expected full year diluted earnings per share from operations before and after given the effect of special charges, forecasts regarding operation performance, restructuring and other charges, cash flow from operations, segment performance, and operating profit margin percentage growth.

We wish to caution you that the statements are in fact forward-looking in nature and are subject to risks and uncertainties. Actual results could differ materially from those in these forward-looking statements.

Factors that can cause actual results to differ materially from those forward-looking statements we make today are included in our press release and in our filings with the SEC, which can be accessed at www.SEC.gov. I will turn it over now to Jeff Black.

Good morning everyone. Thanks for joining us. I will start with a quick summary, a solid quarter for a Teleflex and a great start to the year. Revenues for the quarter were $604 million, up 37% on acquisitions and currency. EPS,, excluding special charges, was $0.85, clearly in line with our guidance and expectations for the full year.

The medical segment delivered a strong performance on the bottom line, more than offsetting weaker operating profit in the aerospace and commercial groups. Adjusted medical segment operating margins were 20.9% for the quarter. The Arrow integration is delivering results, and we are benefiting from operation efficiencies sooner than we expected. One of the positive takeaways of the pace of the integration efforts and this margin improvement is that it enables us to start ramping up investment in research and development ahead of our original timetable.

Overall, both aerospace and commercial performed as expected, although aerospace margins were pressured a little by investment costs and accelerated delivery of new systems, and commercial struggled with loss in power systems.

Core revenue for Teleflex overall declined 2% on a big swing in sales in our auxiliary power units for the North American truck market compared to the strong quarter just a year ago.

Overall operating margins before special charges for the year were 14.6%, up 30 basis points. Cash flow from operations, adjusted for the tax payment on the gain of the sale of our automotive and industrial business, was $41 million. So overall we have made good progress in the quarter and we're reaffirming our full year guidance of $3.70 to $3.90 for 2008.

Let me give you the first quarter highlights of our medical segment and then spend a few minutes detailing the composition of the segment with the addition of Arrow. Revenue growth in medical this quarter was from the acquisition and currency. Core revenue declined 1% compared to last year, but improved sequentially.

There were a number of puts and takes across the various productlines that Kevin will detail in his commentary. But in short, we had nice growth in Europe for surgical products in both Europe and the Asian markets. In North America core revenues were down slightly impacted by lower volumes for surgical products, as we have seen a reduction in elective surgical procedures and continued price pressure and volume declines in urology. We saw some benefit from recently introduced Arrow products, and introduced a new product for hemodialysis as well.

In the OEM business we saw the order backlog for the OEM business improve towards the end of the quarter, a very positive sign for our orthopedic instrument productlines. And we have been achieving our integration plans even with the significant resources dedicated to the FDA compliance initiatives. We have teams of people actively engaged in bringing our quality systems to full compliance, and expect this effort to continue through the remainder of the year. I am pleased with this progress here, but it is important that we keep this as a top priority for our organization.

On the last call we were asked for some perspective on the medical revenue by region and product group. This slide will detail the way in which we look at our business. 90% of our revenues come from the critical care surgical cardiac products sold to hospitals and health care providers. Roughly evenly divided between North America and the rest of the world, but clearly with room for growth in places like Asia, Latin America and Eastern Europe.

10% of our revenues come from the sales of products to medical device manufacturers as components of products sold worldwide. These are reflected in this slide as OEM, which stands for original equipment manufacturers.

Critical care products are the largest product group, representing 63% of sales. With Arrow, we added vascular access, regional anesthesia products to our clerical critical care lines, and we added a cardiac care product category as well. Again, it should be noted that well over 80% of our total revenues come from disposable or single use products.

On our last call we also mentioned some of the recent Arrow product introductions that are expected to contribute to the growth this year. Shown on this slide are just a few of the recently introduced Arrow products that are expected to contribute to future sales.

The pressure injectable central venous catheter launched earlier this year has the additional indication for pressure injectable up to 10 ml per second, giving clinicians who perform CT scans the option of using an indwelling Arrow CVC without having to insert another catheter for the CT scan. This joins the pressure injectable PICC line Arrow introduced last year, and shown here as well. Both products are available in the Maximal Barrier Precaution Trays.

Most recently at the Society of Interventional Radiology meeting we introduced the NextStep Chronic Hemodialysis Catheter for release in the United States. It is nice to see the products with new products continuing during the period of integration, and we will continue to look forward to more.

Regarding integration, we are on track to achieve our targets for 2008 of pre-tax synergies, and in fact, have increased the expected savings to a range between $35 million and $40 million, and a runrate on an annual pre-tax synergies of $70 million to $75 million by 2010.

We have completed the first of our planned productline transfers, and have announced plans for larger scale product transfers or facility consolidations, but are still early in the process, and expect them to occur over the next 18 months or so. It is also relatively early for any significant revenue synergies from changes in sales channels.

To date most of the activity has been in solidifying the leadership team, eliminating duplicate costs, such as public company expense, reorganizing functional departments, and streamlining operations. I will move on to the aerospace and commercial highlights, and then Kevin will give you a little bit more detail on the financials.

The highlights for aerospace was the first shipment for the Boeing 767 special freighter and the Airbus 330/340. We are pleased to see the growing installed base for new systems on a wider array of airframes as we capitalize on our technology leadership in this market.

As we mentioned on the year-end call, we have also been selected as SFE on the Boeing 747-8 scheduled for first delivery at the end of 2008, and also on the future Airbus A350 platform. We continue to invest here for new platforms and the surge in deliveries scheduled for 2009 and beyond.

In commercial, despite the down cycle in the marine market and a tough comp from last year, marine aftermarket and international sales delivered 2% core growth. Oil drilling activity in the Gulf region drove revenue growth in the rigging services as well. The weak spot was power systems where reduced demand for auxiliary power units contributed to a 45% decline in revenues compared to a strong quarter last year.

Overall, a good quarter with medical performance offsetting the challenges in our smaller, more cyclical businesses. With that, let me turn it over to Kevin for a little more detail.

Good morning everyone. Let's begin with the operating results for the quarter. Slide 12 provides a summary of results from continuing operations, noting the adjustments related to special charges in the quarter.

As Jeff indicated, revenues for the first quarter were $604 million, up 37% over the first quarter of 2007. Gross profit for the quarter increased 300 basis points to 39.7% as we benefited from the portfolio changes and the Arrow contributions in our medical segment.

Operating expenses of $151.6 million represented 25.1% of sales, a slight improvement from the fourth quarter of 2007 as we continue our Arrow integration efforts and invest in new technologies.

Operating income before special charges was $88.2 million, up 40% from $63.1 million in 2007. Adjusted operating margins of 14.6% represented an increase of 30 basis points compared to last year. Special charges in the quarter totaled $16.1 million. And operating income was $72 million, up 13.6%.

The slide 13 provides the reconciliation to the $0.85 EPS number from income from continuing operations before special charges. As we discussed the special charges, it is important to note that they relate entirely to the Arrow integration and medical segment consolidation efforts. There is a committed focus on achieving the expected benefits from the portfolio emphasis on health care.

Restructuring costs in the quarter totaled $8.9 million, or $6 million net of tax. We also had additional costs related largely to the Arrow integration of $294,000 or $219,000 net of tax, which were recorded in cost of sales and operating expenses.

As we mentioned on the year-end call, in the first quarter we had an additional transaction related charge, noncash in the first quarter of 2008 for a fair market value inventory adjustment of $6.9 million, or $4.4 million net of tax. This charge reduced reported gross profit, and is the last of such charges to be recorded in connection with the Arrow acquisition. Excluding these charges, income from continuing operations was $33.6 million, or $0.85 per diluted share compared to $0.85 per diluted share in 2007.

Slide 14 provides some perspective on the earnings number compared to prior year and the positive impact of our portfolio changes. First quarter 2007 earnings per share excluding special charges was $0.85. For the same period in 2008 operations contributed an additional $0.62 per share, which was offset by higher interest expense and a higher tax rate of $0.55 and $0.07 per share, respectively.

This provides you a sense of the underlying performance of our operations, particularly the 61% increase in our medical segment adjusted operating profit, and the impact this is expected to have as we reduce outstanding debt and effectively integrate Arrow into our tax structure.

Continued expansion of the operating margins of the business and effective cash management will provide opportunity to reduce the debt and expand earnings growth. Total outstanding debt was reduced $2.5 million in the first quarter of 2008, and net debt to capital as of the end of the first quarter was 53%.

Moving to cash flow, as we discussed on our outlook call in January, we're making income tax payments in the first and second quarters of 2008 related to the December 2007 gain on sale of our automotive and industrial businesses. These payments total approximately $90 million. Excluding the impact of the $47 million tax payment related to this gain in the fourth quarter, cash flow from operations was $41 million in the first quarter of 2008, a 6% increase over the first quarter of 2007. And free cash flow increased 16% over the comparable quarter in 2007.

Operating cash flow for the full year 2008 will also be impacted by integration and restructuring costs of over $40 million. With that said, we expect to see continued strong cash flows as the year goes on. And we're comfortable with our guidance of over $250 million in cash flow from operations for 2008, excluding the aforementioned tax payments.

On the working capital front, the acquisitions of Arrow and Nordisk in the fourth quarter of 2007 negatively impacted our historical working capital metrics, but we are working to implement our strong cash management disciplines across these organizations.

We made improvements in inventory management across the entire Company in the quarter, however, we experienced disappointing results in the area of Accounts Receivable. Naturally, there was the seasonality of certain businesses, such as marine, timing with large systems shipments in the cargo systems business near the end of the first quarter, and certain significant customer payments received in early April. Regardless, with a renewed focus in these areas, we of course see this as an opportunity to continue to drive and improve the strong cash flow of the Company.

CapEx for the year we continue to expect to be in the previously provided range of $60 million to $70 million. Let's now look at first quarter results for the operating segments.

Medical segment revenues increased 65% from $226.9 million first quarter of '07 to $374.1 million in the first quarter of 2008. Core revenues declined 1% compared to first quarter last year, but improved sequentially, growing approximately 3% over the fourth quarter of 2007.

We have added a chart to illustrate revenue contribution by product category on a comparative basis. For critical care the primary contributor to growth was the Arrow acquisition, with vascular access and regional anesthesia products adding $112.8 million in revenue. We also saw nice core growth for anesthesia and airway management products in Europe and for respiratory care products in North America and Asia.

Urology products continued to see price pressure and lower volumes, particularly in alternate sites in North America, while sales in European markets were up slightly.

Surgical products had a good core growth in Europe and Asia across all productlines. This contrasted with the decline in surgical products sales in North America, where we had a strong finish to the fourth quarter. With the Arrow acquisition we added a cardiac care product category and $21.7 million in revenues.

And in the OEM business we saw strength in specialty sutures, and at the end of the quarter a growing order book for orthopedic instruments. An encouraging side after several rough quarters.

When compared with the prior comparable period, Arrow product sales grew 4%. This was largely North American growth. Revenues in Asia were impacted by a change in shipping terms to our Asian and Latin American distributors that reduced costs but delayed product deliveries and revenue recognition in the first quarter. We're still early in our sales channel changes in some of our other international markets.

Operating profit for this segment, excluding acquisition related charges, was $78.1 million compared to $48.6 million in last year's first quarter. Adjusted segment operating margins were 20.9%, reaching the 20% level early in the year. As Jeff mentioned, we're achieving operational efficiencies and benefits from the Arrow integration ahead of schedule, and this provides us with the opportunity to ramp up investment in R&D projects sooner than we had planned. We will begin this ramp up in earnest in the second half of 2008.

In aerospace revenues increased 17% in the quarter from $110.3 million to $128.7 million, principally as a result of a $14 million contribution from the Nordisk acquisition, which expanded our cargo containers business. Core growth was 3% for this segment.

A strong quarter for cargo systems sales were the first deliveries of the Boeing 767 and the Airbus 330/340 systems. We also had an uptick in deliveries of narrow body cargo loading systems and an increase year-over-year in aftermarket spares. Repair products and service revenues declined slightly on the phase out of the lower margin products that occurred in the first third quarter of 2007 with our facility consolidations.

Operating profit was $12.3 million compared to $12.6 million in last year's first quarter. The segment operating margins were 9.5% in the quarter, and included a contribution to earnings from the joint venture entered into with Snecma Services in 2007.

The delivery schedule for A330/340 systems for this year was accelerated during the quarter, and will add shipments of additional systems in the coming quarters. This change will increase core revenue growth more than originally forecasted this year. At the same time, the delivery of a higher proportion of new systems and the investment in 747-8 scheduled to launch at the end of the year creates some margin pressure in this quarter, and will for the next few quarters.

All in all we're expecting low double-digit aerospace margins this year, as we invest for future growth and continue to expand the installed base of systems. At this point higher margin aftermarkets spares sales still represent less than 25% of cargo systems revenues. And we would expect to see revenues grow as our installed base ages and the proportion of spare sales increases.

Commercial segment revenues in the quarter were $101.8 million compared to $103.2 million in the prior year. As we noted earlier, marine core revenues grew 2%, even as we face increasingly difficult market conditions. Rigging services core revenues increased 11% on stronger sales in the Gulf region. However, this was more than offset by a decrease of 45% in revenues from the power systems business, most notably truck auxiliary power units, which was worse than we had expected, and as compared to their strong revenue and profitability in the first quarter of 2007.

Overall commercial segment operating profit declined from $5.5 million to $2.8 million for the quarter, and operating margins slid from 5.4% in '07 to 2.8% in 2008 due to the reduced volume, commodity pricing and technology investments in the alternative fuel business.

During the quarter we ramped up for deliveries of new alternative fuel systems on a new contract in Latin America. Looking ahead, we expect to see margin improvement as the year progresses as we benefit from cost-containment and operational efficiencies we have put in place to deal with the market conditions.

Turning to the outlook. Clearly a very good first quarter, and we are reaffirming our full year guidance. Before special charges, we're forecasting an EPS range of $3.70 to $3.90 per diluted share for 2008, an increase of 14 to 20% over the $3.24 per share in 2007.

Special charges, which principally relate to charges from the Arrow integration and the fair market value adjustments to inventory, are currently forecasted at $0.60 to $0.67 per share. Earnings per share from continuing operations including special charges are expected to be in the range of $3.03 to $3.30 per diluted share in 2008.

With that, I will turn it back to Jeff with more on the outlook for the year.

There is no doubt we're facing some uncertain times with the economy, and we will certainly have some headwinds in some of our businesses. However, 2008 promises to be a strong year for Teleflex. The changes we have made to our businesses over the last few years, divestiture of lower margin, more cyclical businesses, and most importantly the strengthening of our medical business with the acquisition of Arrow, has positioned us well to compete and grow profitably in this difficult environment.

Revenues are expected to exceed $2.4 billion in 2008. Overall segment operating margins are expected to be in the mid teens for a year, a significant improvement over the margins prior to the changes in our portfolio.

We see overall revenues and operating profit growth accelerating as the year progresses, resulting in a strong second half of the year. In medical we expect revenue growth to be driven by sales in international markets, continued penetration in critical care products, and improvements in our OEM business on better orthopedic device and instruments sales, the signs of which we have already begun to see.

Medical segment operating margins on an adjusted basis have been in the 20% range, and we expect to maintain those levels for the full year. We still have a heavy emphasis on integration activities and investments in the next few quarters to ensure that we maximize the synergies from the acquisition, and we will be investing in research and development and FDA compliance as well.

With the focus on integration of Arrow and the combination of the leadership teams we have made great progress on the synergy execution. As a result, we now see pretax synergies in 2008 in the $35 million to $40 million range. We expect our early successes to carry through to generate the increased savings as the year progresses.

In aerospace we now expect to see somewhat higher core revenue growth for the full year than we forecasted in January. Revenue growth will somewhat be predominately related to the cargo containers acquisition, but we will see an increase in the new systems sales on the Airbus 330/340 system delivery schedule as the schedule accelerates throughout the year.

As we said, we continue to expect margins in aerospace to be in the low double-digit range, driven in part by the benefits of the consolidation in the repair business last year and the synergies related to the Nordisk acquisition. However, there will be offsetting pressures from the higher mix of new system deliveries.

In commercial, no doubt we're dealing with tough end markets in the marine and truck, and we have been very cautious on our outlook as a result. On the revenue side we expect to be relatively flat, with growth in rigging services offsetting the declined in power systems.

We also expect to see full year margins improve year-on-year with a stronger second half compared to last year when we saw the downturn in the power systems occur. Margin improvement will largely be the result of cost-containment and operating initiatives.

In conclusions, it was a solid first quarter for Teleflex. We have been focused on integration activities and on creating a strong foundation, and this will continue to be our top priority throughout the year.

While we have made significant progress on the integration of Arrow, we are also reaping the benefit of the synergies. At the same time, we are turning to the investments we need to start to drive the top line and create future growth for our medical group.

Looking ahead, we are excited about the opportunities we see and feel good about the path to get there. With that, I will turn it back to Julie.

We can take question now.

(OPERATOR INSTRUCTIONS). Deane Dray, Goldman Sachs.

The progress that you have made in operating margins in medical right out of the blocks, comfortably above 20%. You have mentioned -- both of you mentioned the idea that you will be able to ramp up R&D ahead of schedule. Just to make sure we have the numbers right, you had been talking previously about a 2008 target of a blend of around 4% of R&D spend. Where might that R&D number go for the second half? And what areas, and how do you allocate this additional capital?

Let me first touch -- one of things we have done is we have identified obviously a great market opportunity in antimicrobial coatings. We have committed to continue to invest in that segment. I think as we have explained to investors since we have done acquisition of taking some of those antimicrobial coatings across our broader product range is we're going to stay focused right off the bat. I would say that that will be our focus. We see that as the greatest opportunity. And I think we feel pretty good that we have a pretty solid foundation to build off of there.

The idea is you have the ability to drive margins higher in medical, or you will just take that additional profit and reinvest in the R&D side? So we should still be thinking low 20s is a sustainable level?

I think that is the right answer. We're going to reallocate some of that and get into the R&D spending a little bit sooner. Naturally as we do that, we are in the process of bringing in the right people and identifying them. It is going to take a little bit of time, but it is going to ramp up over the second half of the year.

I think we have seen -- we see opportunities to obviously drive margin improvement. I think we have come to a point that we feel good with our initial integration that we can really start moving towards investing. And I think at the end of the day, while I think we could drive the margins higher than what we have talked about, we really need to start to drive the top line, and that is going to require a fairly significant investment. And quite frankly I would love to sit here and just say you turn the spigot on and you get new products. Especially with where we're focused in medical, it is really an 18 month process. And I think we feel it is important we continue to invest as we see the opportunity going forward.

Just as a follow-up to that, two points. Jeff, remind us of what has changed in the market regarding the reimbursement for infections in hospitals, and why the antimicrobial initiative looks promising?

Then, Kevin, one of the ways we will be measuring the success of R&D is new products. And maybe -- I don't know if you have a product vitality index or an indication of what percent of revenue has come from new products, is that something that you would be able to provide?

I will touch on the first -- on the market driver for the opportunity. Last October, whether it be just a stroke of genius or luck, literally two weeks after we had acquired Arrow, CMS, which is the Medicaid/Medicare identified that they will no longer reimburse for hospital acquired infections effectively of October of this year. They do have a ramp in as to which procedures they will focus on.

It is interesting, some of the conversation we have heard since then is that they are even -- and again I don't know this is Medicaid or this is further downstream -- but that people are saying they may not reimburse them for hospital acquired infection, and they may not reimburse them for the original procedure which provided the infection. I think those things all still need to be worked out.

I will tell you there is a lot of activity in the hospital organizations of how do they deal with this dynamic, both from an understanding, measuring, containment and more importantly protecting their bottom line. Again, I think we feel we are well-positioned. I think if you look in the medical device market, we see many of our competitors also moving towards that area as well, because we think it is not only going to drive buying behaviors, but also provide margin enhancement.

In terms of the vitality index question, it is a good question as we move more -- we have moved more toward the healthcare side. Over the course of the last quarter we have been having that discussion internally as to what is the best measure of that vitality index. I think we've got our parameters set up around that, and as we go forward we will be introducing that.

Terrific. How about the idea, and I guess we shouldn't be surprised given the economic pressures, but your comment on some of the elective surgical procedures seeing some softness there. What specifically is going on, and if you could put some numbers around it?

I just think, you know, we always talk about the economy not having a whole lot of impact on -- totally on the healthcare. But when you had an elective opportunity sometimes people make different choices. I think we have seen a little bit of softness in our surgical side of our business in North America as a a result of that.

Which productlines?

It is the surgical products. So when you look at surgical instrumentation in that area in particular.

It is not surprising because you have seen both LASIK procedures following off and some dental procedures. So I guess that is in the same boat. Just to wrap up here, update us on the FDA compliance and SAP please.

I will deal with FDA, Kevin can deal with SAP. FDA, we're still moving forward. We recently met with our senior management team from the RAQA. It is a very detailed plan of driving -- getting to that compliance. I would tell you that I think our attitude is, no question the sooner we can get there, the better off we will be. But at this point we feel pretty confident that we're dealing with the issues. Again, if you go back and remember a lot of our issues were training records, process records, how do you deal with customer complaints, and some of those issues.

Some of those things have been in place. What we are now trying to do is measure them and see if we have gained the kind of effectively that we had hoped for. I think we feel pretty good about it. That does not mean to say that we do not have a lot of work still ahead of us. I think as both Kevin and I have tried to imply, there are some costs associated with that, which will -- while we have seen good growth on our margins in medical, it will put a little pressure on them going forward in the year. We just want our investors to understand that.

In relation to SAP, the implementation, as we said back in October, went reasonably well. There was some bumps along the way. We continue to operate pretty well with the system. Naturally when you put in a system of that complexity there is some learning curve, and there is some efficiency loss that potentially you have in the early part of it. There is no doubt we have experienced that. But all told I would say our experience so far has been very positive. And we continue to move forward with the system doing quite well, as you can see from the operating results.

I think the one thing we would not want to do is with our issue with receivables or a lack of collecting, we're not blaming on SAP.

When do you cross that inflection point from the learning curve to actually the SAP efficiencies?

Well, we hope so soon. I think there's a bit more training that we're looking at doing and investing in that. But we went from relatively unsophisticated systems to the complexity of SAP. So getting all the people ramped up all the way through the fully integrated system has taken a little bit of time. But I think we're making good progress.

(OPERATOR INSTRUCTIONS). Jim Lucas, Janney Montgomery Scott.

A first question on the medical revenues. Were there any voluntary productline rationalizations that impacted the core sales?

Yes, they were a couple. You may recall midyear last year we exited our guidewire business. I think we mentioned that probably midyear last year. We had a couple of other smaller lines that dropped out.

Cumulatively would that have a material impact on the core number that you reported?

Probably for the first half of this year it is about $3 million to $4 million.

Then on the R&D you commented that it is an 18 month process. Could you provide a little bit more color there as to how much of that is the internal development process versus the compliance -- getting the certification?

To be honest with you, I think most of it is internal. I would say you get to the last four to six months is when you're dealing with the external and our filings. But most of it is truly internal. I think again we have talked before about Arrow has taken a holistic approach towards R&D. So within their R&D they have RAQA, they have the technical files. They really had taken a very professional approach. And that in and of itself takes time to work through the system.

Myself, as being a sales guy, 18 months is an eternity. But I think that is just the nature. And I think if you're going to come out with products that are critical to saving people's lives, 18 months probably doesn't seem like that long of a time period.

Hence my question to you was that does seem like a long time, but that is a very fair point. Following up on the geographical dichotomy that seems to be out there, when you take a look -- Arrow, very strong North America. Their core is strong. The core -- the historical Teleflex medical business seems to have a much stronger presence internationally. When you talk about the medical results in the quarter, that dichotomy was there, that you continue to struggle in North America. Could you talk a little bit more about what you are seeing there besides the potential slowdown on the elective surgeries?

In terms of -- you're right -- the growth that we saw from Arrow, I think we mentioned, was about 4% year-on-year, was North American-based. We continue to have strength there as we got through the integration. In terms of the core Teleflex productline, Europe and our Asian and Latin American markets certainly are leading the way for us. Certainly urology is the bigger component of the European market, which is not a big piece of our U.S. sales. Much more focused on the anesthesia and respiratory lines here.

As we have proceeded with Arrow, good strength here, consistent with the past. As we have seen in the North American side, it has been little bit of pressure I think in terms of price on some of the HUDSON product offering. But our folks are working through that well in the marketplace.

Europe, very strong in our product. It continues to be strong. We launched a couple of new products there. A couple of the acquisition acquisitions that we did, [Tot] for example, added good strength to that and to North America. But we continue to focus on getting new contracts, working with GPOs and signing up longer-term deals here in North America.

With regards to the integration that seems to be going relatively well, where have the positive surprises come from so far? Have there been any one or two areas that really stand out or has it can fundamentally fundamental blocking and tackling?

No, I would say to me one of the biggest positives is the salesforce. What we have found is Arrow has a very clinically oriented salesforce, very capable of picking up some of our products, our anesthesia products -- and where they have that call point in anesthesia anyway. I would just say, sometimes when you bring two organizations together you get salespeople looking over their shoulder. I do not believe we had taken any feet off the street. And I know they would like to add more feet.

To me when you see the enthusiasm, when you see -- our people are thirsting for new products. And I think it is really our job to continue to invest to get them some of that stream coming at them.

Most salespeople say, how this is going to impact me? At this point I think -- we had our national sales meeting a month ago or so, and very positive, very upbeat. I think the reality is sometimes when you see new salespeople come in who are motivated and invigorated, it drives some of your current salespeople to move a little faster. Competition is a great thing, whether it is internal or external. But I would say, to be honest with you, what we have seen in the salesforce has probably been the biggest positive.

On the commercial side, when you were talking about the weakness on the APUs, you said most notably truck. Could you talk -- are you also seeing weakness on the train side as well?

I guess that point was I was referring to the decline, I think, of about 45% in revenue. Most notably the truck APU impacted that. But year-on-year actually the rail business is up. We actually -- the biggest decline came from there and a little bit in our Europe -- our alternative fuels business. But the good news on the Europe alternative fuels business is we're ramping up this order to go into Latin America, which is bringing in some nice revenue as we look forward.

(OPERATOR INSTRUCTIONS). Michael El Hadj, JP Morgan.

A couple of quick questions, if I may, really centered on the balance sheet. With receivables obviously, as you stated, running a little bit ahead of where you would like them to be, are you able to provide any guidance as to where on a sort of blended basis the working capital number should ultimately end up for you guys, now that you have got an increased share of the medical in the overall mix?

We have always had a strong desire -- I think we had a working capital measure that we put out there in the past -- that actually I guess we haven't included here in the last couple of quarters. But as we look at what we call our working capital or our asset philosophy index, we're trying to get that down to the mid teens. And that should be the target that we drive to.

Now that -- certainly the portfolio mix has changed a little bit since we set that objective, with Arrow coming and Nordisk coming in and our commercial group -- a big piece of our commercial group dropping out with the sale. So we're looking at that metric and we have a goal to continue to drive towards that mid teens number.

The timelines around that goal would be sort of 2010 and beyond in keeping with your other metrics for that time period?

I would say that we would feel pretty good about driving there as fast as we can, and 2010 is probably not an unrealistic goal for us to set.

I am also curious with the acquisitions now you're sitting on quite an extensive real estate portfolio. Can you articulate your plans about releasing capital from that portfolio, if there are any plans?

I would tell you we don't really get into real estate strategies here, but I would say our real estate -- actually, the portfolio actually decreased with the portfolio transition that we made last year. The number of locations that went away with the divestiture compared to what we brought in on an acquisition basis actually positioned us a little better.

The Board has given you approval for a $300 million stock buyback program. Is there an expiration to that program?

There is not.

Does the bank agreement you have limit payments to equityholders?

I think we have disclosed that pretty clearly in our financial filings that there are restrictions on certain of those transactions, yes.

Last question, if I may. How should we be looking at the sort of effective tax rate that you will be faced with over the next couple of years? Would 30% be reasonable?

Our projection for this year is in the 27 to 29% range. I think you'll see in the first quarter we were right in that range. I think for '08 that is where we're pretty comfortable at the moment. Naturally with the acquisitions, we will be driving integration and working on improving that.

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