泰利福醫療 (TFX) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2010 Teleflex Incorporated earnings conference call. My name is Shamika, and I will be your operator for today. (Operator Instructions). 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 call, Mr. Jake Elguicze, Vice President of Investor Relations. Please proceed.

Thank you, operator, and good afternoon, everyone.

The press release and slides to accompany this call are available on our website at www.teleflex.com. And as a reminder, this call will be available on our website, and a replay will be available by dialing 888-286-8010, or for international calls, 617-801-6888, passcode 80213544.

Participating on today's call are Jeff Black, Teleflex Chairman and Chief Executive Officer, and Randy Meier, Teleflex Executive Vice President and Chief Financial Officer. Jeff and Randy will make brief prepared remarks, and then we will open up the call to questions.

Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined on slide 2. We wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially.

The factors that could cause actual results or events to differ materially include but are not limited to factors made in our press release today, as well as our filing with the SEC, including our Form 10-K, which can be accessed on our website.

With that, I would like to turn the call over to Jeff.

Thanks, Jake. Good afternoon, everyone. We are pleased to have you join us today as we reported our results for the second quarter of 2010.

The second quarter of 2010 was a good quarter for Teleflex. On an as-reported basis, revenues were up 5% compared to the second quarter of 2009, while on a constant-currency basis revenues were up 7%. Each of our three businesses performed well.

On a constant-currency basis, medical was up 2%, while our aerospace and commercial segments grew 32% and 25%, respectively.

Adjusted operating margins exceeded 17%, up 70 basis points from the prior-year quarter, despite significant investments that we made in our R&D and sales and marketing functions, investments necessary to position us for further sustainable and profitable growth.

And adjusted earnings per share from continuing operations for the second quarter of 2010 was $1.04, up 4% versus the second quarter in 2009.

During the quarter, we continued to make progress with the FDA. And although we cannot give an exact date as to when the corporate warning letter will be lifted, I'm extremely pleased to tell you that the Company has submitted all CFG requests to the FDA for approval, and the FDA has begun the approval process in respect to the CFG requests.

For those of you who are not familiar with CFGs, certain foreign countries without a full regulatory infrastructure require these certificates to accompany imported products. Getting a renewal for lapsed CFGs will allow us to begin reshipping certain products back into certain Asian and Latin American countries.

Although we do not expect this to have a material impact on 2010 revenues, this is a positive indication for 2011. Clearly, we are extremely pleased with this recent news.

In addition to making progress with the FDA during the quarter, we continued the transformation of the Company from a portfolio company to an operating entity. We divested our rigging service business, an entity that was heavily tied to a very cyclical oil and gas industry, for $55 million, resulting in an after-tax gain to our shareholders of approximately $17 million.

And this afternoon, we announced some organizational and leadership changes associated with the Company's transition to becoming a medical technology business. We've consolidated our corporate and medical executive management teams to create a single Teleflex leadership team. The new structure and leadership are designed to support our recently announced longer-term growth and profitability objectives, which I will go into more detail a little bit later.

As a result of these changes, the position of President of Teleflex Medical has been eliminated, and Ernest Waaser will be leaving the Company. I would like to take a brief minute to knowledge Ernest for all of his hard work and dedication over the last four years. We've worked closely together to execute integration plans, complete FDA audits related to the corporate warning letter, and enhance quality and IT systems. I speak for all of your friends and colleagues at Teleflex in saying thank you, and we wish you well in your future endeavors.

Moving to some of our year-to-date highlights, revenue on both an as-reported and constant-currency basis was up 3% over the first six months of 2009. Aerospace and commercial constant-currency growth was 4% and 21%, respectively, a sign that the end markets those businesses operate in are beginning to rebound.

While our medical business grew 1% on a year-to-date basis excluding the impact of the IV tubing product recall that we announced in February of this year, our medical business achieved core revenue growth of 2% as compared to the first six months of 2009. And continuing upon the margin expansion that we have driven for the past few years, our year-to-date 2010 results showed further expansion of both our consolidated and adjusted gross and operating margins.

Turning to earnings per share, adjusted EPS was $ 1.92 in the first six months of 2010, up 15% over the prior-year period, while our adjusted cash flow from continuing operations reached approximately $80 million, also up 15% over 2009 levels.

Now let me take you through our second-quarter segment constant-currency revenue results in a little more detail.

Medical segment revenues in the second quarter were approximately $358 million, up 2% on a constant-currency basis. Critical care was up 2%, cardiac care was up 1%, OEM was up 4%, while our surgical care products was down 1%. And before I move into a more detailed discussion of each of those areas, I think it's important for people to understand what the growth drivers will be for our medical business.

Our medical business will be driven by continued emphasis from hospitals and our government towards the improvement of service levels and the reduction of costs and hospital-acquired infections. It will also be driven by the continued movement towards minimally invasive surgical techniques, as well as the expansion of emerging markets and the overall aging of the global population.

That said, let me walk you through the critical care portion of our medical business. Critical care sales were approximately $234 million in the second quarter of 2010, up 2% on a constant-currency basis. This was led by upper-single-digit constant-currency sales growth of our respiratory products, mid-single-digit sales growth in our urology products, and low-single-digit growth of our anesthesia product offerings.

This growth was somewhat offset by a 1% constant-currency sales decline of our vascular access products. Vascular access sales were unfavorably affected by the IV tubing recall that I mentioned earlier.

On a positive note, we've received FDA approval to bring our IV tubing sets back to the market, and we will be filling our inventory pipeline and restarting shipments of IV tubing sets during the third quarter.

Turning to surgical care, revenues in the second quarter were approximately $66 million or down 1% on a constant-currency basis. This was in line with our expectations and an improvement from the constant-currency declines that we had been seeing in these products for the last three quarters.

This business is relatively equally divided between surgical instrumentation, ligation, closure and chest drainage products. It is also pretty evenly split between North America and the rest-of-the-world markets. And our expectation is for constant-currency sales growth in the third and fourth quarters, with particular strength in the OUS markets.

Moving to cardiac care, revenues in the second quarter were approximately $19 million, up 1% on a constant-currency basis. The 1% constant-currency sales improvement versus the second quarter of 2009 was led by increased sales of interaortic balloon pumps and catheters in the Asian markets.

Our expectation is for constant-currency sales growth to continue in the third and fourth quarters, primarily in emerging markets. And before I move on to discussing the topline results of our nonmedical assets, let me close with a discussion about -- talking about our OEM business.

During the first six months of 2010, our OEM business has performed well. Revenues in the second quarter were approximately $39 million, up 4% on a constant-currency basis. Similar to the trend we have seen for the past few quarters, sales of our specialty products continue to be strong, while there continues to be weakness in sales of our orthopedic product lines.

Future growth in OEM will be driven by our ability to be at the forefront of technology advancement and through working with our customer base to bring products to markets quickly. Another key driver will be an increased level of regulatory scrutiny that will be placed on suppliers.

Given the fact that we are one of the larger OEM manufacturers out there, we believe that our size and scale will allow us to take additional market share from many of our smaller competitors.

With that, let me turn your attention to the very strong topline performance of our nonmedical business. In aerospace, aerospace revenues in the second quarter were approximately $48 million, up 32% on a constant-currency basis. The end-market growth drivers impacting our aerospace business are flight hours, passenger-to-freighter conversions, aftermarket spare and repair revenue, and the Boeing 747-8 and the Airbus 330, 340 and 350 platforms.

Many of these items positively impacted our business in the second quarter, leading to an impressive constant-currency growth rate that we posted. During the quarter, we saw an increase of sales of wide-body cargo-loading systems to both Boeing and Airbus. We also saw an increase in aftermarket conversions, improved actuator and spare sales, and an increase in container sales due to the slightly loosened capital spending constraints by many of our airline customers.

And finally, from a topline perspective, let me quickly touch on commercial. As I mentioned earlier in the presentation, during the second quarter we divested our rigging services business, and as a result, rigging has been included in discontinued operations for all applicable periods. That said, commercial revenues in the second quarter were approximately $55 million, up 25% on a constant-currency basis. This was led by a doubling of sales to marine OEMs and a significant improvement in aftermarket sales. This was somewhat offset by reduced sales of our modern burner unit to the US military.

Before I turn the call over to Randy for a detailed review of our financials, let me just provide you with a brief R&D update. Our R&D efforts continue to be on developing products that provide less-invasive access and improve patient and provider safety. We have been focused on developing products in higher-growth segments where clinician preference is a primary decision factor.

Our R&D spending and resources have been and will continue to be put in areas such as developing leading vascular vessel health and preservation products; on developing the most comprehensive range of consumable products for anesthesiologists; on developing urology products that prevent urinary tract infections; and on developing technologically leading fiber optic cardiac products.

And during the second quarter, we continued to introduce products to the market in these areas. Two recent new product introductions I would like to call your attention to are the PICC WAND and the Gibeck Humid-Flo passive humidification kit.

The PICC WAND safety introducer is a device that will enable clinicians to insert a peelable sheath for PICC or midline catheter placement using the Accelerated Seldinger Technique. At the end of the second quarter, we had a limited market release of this device, and we will have a full market release of this product during the second half of 2010.

In addition to launching the PICC WAND, a single-use disposable vascular product, we also launched our new Gibeck Humid-Flo passive humidification kit. This new respiratory product offering is an integrated system that promotes best practices for ventilator-acquired pneumonia risk reduction. It contains all the necessary components to initiate passive humidification for mechanically ventilated patients.

Some upcoming product launches that I would like to call your attention to are the anti-microbial PICC, the Crystal Clear Plus Trac, and the TracFlex Plus. These products are expected to launch in the second half of 2010 and will help us continue to gain market share in the vascular and respiratory markets.

And finally, I would like to highlight for you the fact that during the second quarter we were awarded several GPO agreements for respiratory, chest drainage, laryngoscope, and ligation and skin-stapling products.

With that, I will turn it over to Randy to walk you through the financials.

Thanks, Jeff, and good afternoon, everyone.

Revenues for the second quarter were $461.7 million, up 5% over the second quarter of last year. Core revenues for the quarter increased 7%, offset by foreign currency translation, which negatively impacted sales 1%. And the deconsolidation of a variable-interest entity in the medical segment in the first quarter of 2010 due to the adoption of the new accounting guidance caused an additional 1% decline.

Adjusted gross profit and margins for the quarter were $208.8 million or 45.2%. This compares to $198.4 million or 45.2% in the prior-year quarter. Gross margin increased in each of our three segments, yet at the consolidated level, gross margins were flat to the prior year due to the fact that aerospace and commercial revenues comprised a larger piece of the overall Company sales in the second quarter of 2010.

Aerospace and commercial gross margins were below the consolidated Company gross margins, while medical gross profit margins were approximately 50% for the second quarter of 2010.

Adjusted operating expenses for the quarter were $129.4 million or 28% of sales compared to $125.9 million or 28.7% in the prior-year quarter. The increase in operating expenses were principally due to our continued investment in our medical R&D, sales and marketing functions. This was somewhat offset by reduced corporate spending, synergies achieved from the Arrow integration, and lower spending on the FDA remediation efforts.

Adjusted operating income was $79.4 million, up approximately 10% from $72.5 million in 2009. Adjusted operating margins of 17.2% reflect an increase of 70 basis points compared to last year.

Pretax special charges in the second quarter of 2010 were down significantly and totaled $0.1 million as compared to $13.4 million in the prior year. Those costs relate to the expenses associated with the Arrow integration program.

Operating income on a GAAP basis was $79.4 million, up from approximately -- excuse me, up approximately 34% from the prior-year quarter, primarily due to the items I referred to above, as well as the large year-over-year reduction in terms of special charges that were incurred.

Net interest expense in the second quarter of 2010 was $19.4 million compared to $20.5 million in the prior-year quarter. The decline in net interest expense was due to a reduction of approximately $126 million in average outstanding debt.

Taxes on income from continuing operations increased to $17.6 million compared to $5.4 million in the prior-year quarter. The effective income tax rate for the second quarter of 2010 was approximately 28.2% as compared to 14.1% in the second quarter of 2009.

The increase in the effective tax rate is due to the large inclusion of a foreign income taxable in the United States that was previously excluded under tax regulations prior to 2010, and an increase in discrete tax charges in 2010 as compared to 2009. These increases were in part offset by a larger benefit from the reduced foreign taxes.

And finally, GAAP income and earnings per share from continuing operations attributable to common shareholders was $42 million or $1.04 per diluted share as compared to $32.8 million or $0.82 in the prior-year period.

Slide 20 provides a reconciliation of continuing operations' GAAP income to diluted earnings per share attributable to common shareholders to adjusted income and diluted earnings per share. Excluding special items, income from continuing operations was $41.9 million or $1.04 per diluted share compared with $39.9 million or $1 per diluted share in 2009, a per-share increase of 4%.

Now let's review our year-to-date performance. For the first six months, revenues were $882.9 million, up 3% over the first six months of 2009. Core revenues increased 3%, foreign currency translated added 1%, while disposition of a product line in the commercial segment in the first quarter of 2009 and the deconsolidation of variable-interest entity I mentioned earlier together accounted for a 1% decline in revenues.

Adjusted gross profit and margins for the first six months of 2010 were $403.2 million or 45.7%. This compares to $383.1 million or 44.9% in the first six months of 2009.

On a year-to-date basis, gross margins expanded in each of our three segments. Adjusted operating expenses for the first six months of 2010 were $254.2 million or 28.8% of sales compared to $248.2 million or 29.1% in the prior year. Similar to what I described in the second quarter, year-to-date increase in operating expenses was due to our investment in research and development and sales and marketing functions.

Adjusted operating income was $148.9 million, up approximately 10% from $135 million in 2009, while our adjusted operating margins increased 110 basis points to just under 17%.

Similar to the second quarter, pretax special charges in the first six months of 2010 were down significantly and totaled $0.5 million compared to $19.1 million in the prior year.

Operating -- on a GAAP basis -- operating income on a GAAP basis was $148.4 million, up approximately 28% from the prior year, primarily due to the items I referred to above. Net interest expense in the first six months of 2010 was $38.2 million compared to $45.7 million in the prior-year period, with the decline in net interest expense due to the reduction in average outstanding debt.

Taxes on income from continuing operations increased to $32.6 million as compared to $13.6 million in the first six months of 2009. The effective tax rate for the first six months ended June 2010 was 29%.

And finally, GAAP income and earnings per share from continuing operations attributable to common shareholders was $76.9 million or $1.91 per diluted share as compared to $56 million or $1.40 per share in the prior period.

Slide 22 provides a reconciliation of continuing operations' GAAP income and diluted earnings per share attributable to common shareholders to adjusted income and diluted earnings per share on a year-to-date basis. Excluding special items, income from continuing operations was $77.2 million or $1.92 per diluted share compared to $66.8 million or $1.67 per share in 2009, a per-share increase of 15%.

Now I'd like to review with you our cash flow performance. For the first six months of 2010, GAAP operating cash flow from continuing operations was $100.2 million as compared to a use of cash of $27.8 million in the prior-year period. On an adjusted basis, year-to-date 2000 (sic) cash flow was $80.4 million versus $69.8 million, a healthy 15% increase.

The adjustments made to GAAP cash flow in 2010 relate to a $59.5 million tax refund that the Company received in the first six months of 2010, offset by the $39.7 million impact resulting from the adoption of a new accounting pronouncement in the first quarter of 2010. The adjustment made to the year-to-date 2009 cash flow from continuing operations relates to the $97.5 million tax payment that was made on the gain on sale of an aerospace business that was divested in 2009.

Now I'd like to turn to our 2010 guidance. Post the divestiture of our rigging services business and assuming a full-year average euro rate of approximately $1.30, we are now projecting full-year 2000 (sic) revenues of approximately $1.8 billion and gross margins of approximately 46% for the full year. Our expectations for gross margins in each of our segments continue to expand over the levels that we achieved in the second quarter of this year.

We also expect increase in our R&D investment over the next two quarters, resulting in a full-year R&D as a percentage of total revenue of approximately 2.5%. Total Company operating margins are expected to be approximately 17%. And we continue to expect our effective tax rate to be approximately 30% for the full year.

This equates to an adjusted earnings per share from our continuing operations in a range of $1.95 to $4.10. Our adjusted cash earnings per share from continuing operations range is $5.07 to $5.22.

From a cash flow perspective, we anticipate a full-year 2010 adjusted cash flow from continuing operations to be in the $265 million to $270 million range.

And finally, we continue to expect full-year constant-currency revenue growth in our medical segment to be 3% and for the medical segment operating margins to be approximately 22%.

With that, I'd like to turn the call back over to Jeff.

Thanks, Randy. Before I move on to the Q&A portion of the call, I'd like to close by providing you with a strategic look of where the Company is headed.

With the portfolio transition in healthcare continuing, we've increased our focus on delivering revenue growth. And as part of these efforts, at a healthcare conference that we recently attended, we announced some longer-term metrics that I would like to share with you now.

We as a company are targeting the achievement of the following objectives within the next five years -- consolidated organic revenue growth of approximately 5%, consolidated gross margins of approximately 55%, consolidated research and development expense of approximately 5%, and consolidated operating margins of approximately 25%.

Within Teleflex, we refer to these as "the high fives." In achieving these objectives, we believe that revenue growth will be driven by new products and product line extensions, expanding our geographical reach, leveraging our existing distribution channels, and further investment in our global sales and marketing groups.

Margin expansion will be driven by various initiatives, which may include consolidation of distribution facilities, efficiencies gained from the reduction of third-party vendors, consolidation and productivity improvements in manufacturing locations and customer service, and further rationalization of general and administrative expenses.

Our long-term strategic and financial goals for this Company are clear, and we believe that we have a significant opportunity to stimulate sales growth, leverage our global sales channel, expand in emerging markets, and create innovative new products that serve our customers and their patients.

With that, I will turn it back to Jake.

Operator, we are now ready to take questions.

(Operator Instructions). Dave Turkaly, SIG.

Congrats on the FDA news. I just wanted to ask you, are you still expecting some formal documentation from them that could come near term, or do you think this actually does put the whole issue to bed?

No, Dave, we would expect with -- continued release of CFGs over the time period, and we would also expect that at some point we will be issued a letter which would address the actual corporate warning letter itself.

And in terms of just the sheer -- the number of those, have you ever disclosed how many you needed to -- how many you have resubmitted to them so far in total?

No, we have not, but it is more than 50.

Oh, okay. And I guess the strong showing on the industrial side, but to stay focused sort of on the medical side, I know you had the recall in the IV tubing. So did you quantify the dollar amount impact on that, or did that lead to -- I think you said negatvie 1%? Was that the impact of that recall in the quarter?

Yes, Dave. In the quarter, we quantified that as about a $3.1 million impact, again. But I think as Jeff pointed out, we have received clearance from the FDA in the quarter, and we are beginning to start shipping the product. And we should be putting that behind us throughout the third quarter.

And Dave, let me just touch a minute -- I think the performance of our non-healthcare portfolio was solid. Clearly, the management of those organizations deserve a lot of credit. I think over the last two years, we have taken a lot of costs out, and you can see the operating leverage that we are getting on the revenue increase. And clearly, the markets are returning.

So those businesses we actually feel fairly strong about. They are very unique franchises, and our hope is that they will continue to perform for the remainder of the year in line with our expectations, which are quite high.

I would imagine that, and if they are going to go at some point, having some good performance would help that. But thanks for the time.

(Operator Instructions). Patrick Clingan, Lazard Capital Markets.

I wanted to start off with the medical division and the topline growth rate. It looked like the core rate was about 2%. If I go back and think about when you started off the year, you were looking for 3% to 4% growth.

Could you maybe tell us if you are where you thought you would be at this point in the year, and if not, maybe what hasn't lived up to what your expectations were?

Yes, Dave, I think we are about in line with where we expected if you take the IV tubing out of the picture. So again, I think we have some new product launches, and clearly some of the investments we've made, both in the salesforce, marketing and R&D, we would expect to drive a more robust topline in the back half.

So I remember -- I think if I remember this right, it was about 2% of your year's growth was going to come from new products. Is that still something we should be looking for, and is that part of what increases the back end of the year?

Yes, I think it's probably more 1%. And I guess I can tell you that getting approvals through the FDA I think is taking a little longer. I don't think that is unusual; I think a lot of other medical device people are experiencing that. So I think as we continue to work through there, there's probably about a 1% in the back half.

Okay, great. Thanks. And then in terms of maybe bridging us towards the high prize of 5% revenue growth, maybe walk me through a few of the things that have to fall into place, and whether, when we talk long term, are rethinking long term like five years, or are we talking long term like something we may be needing to start factoring into the models out a couple of years?

Well, clearly, I think getting a more robust R&D pipeline is truly going to add to the topline. Us doing some technology partnerships, as we have with the PICC WAND, will also help. And clearly, the emerging markets now, with the CFGs, will also drive a more robust topline.

So it's not one single thing, Patrick; I think it is a multiple of all of those things. And I would be remiss to tell you that while we're saying 5%, clearly the investments we are making are looking to drive our topline growth well beyond 5%. But due to some of our lack of topline growth over the last few years, we think 5% is a good target to get there from a consistency standpoint. But many of our markets are growing slightly beyond that. Many of our markets are growing slightly less than that. So I think you have to look at it as an aggregate.

All right, fair enough. And then last question from me is, it looks like you guys used maybe about $10 million to $13 million to pay down debt in the quarter. I just wanted to just get a read on whether you are in the position now with your debt covenants to reduce your borrowing rate on your term loan, or are you going to have to substantially increase the size of your debt repurchase to get there?

Yes, you're absolutely correct that we did reduce debt by about $13 million in the quarter. We continue to position ourselves to enjoy a variety of different step-downs across our capital structure. So there's nothing that we are going to need to do on a more aggressive fashion moving out here. So I think some modest step-downs we should be achieving over the course of the second half of the year.

All right. Great. Thanks for taking the questions.

Larry Keusch, Morgan

This is [Constantine] in for Larry. Just wanted to touch on, if you could just talk about once you guys have some kind of a resolution with the FDA, what is in place to drive the gross margin improvement? Can you give us some color on how fast can you consolidate some plants and move manufacturing to lower-cost countries?

I think one of the things you're talking about -- I think this is kind of a little bit of a mixed question. I think from a gross profit margin perspective, I think the lifting or the reaccess or the providing of the CFGs is more of a revenue opportunity. Ultimately, the lifting of the corporate warning letter would give us some opportunities to pursue some further consolidation of systems and operating platforms.

So I think there is probably a bit of a mix between topline growth opportunities, improved mix geographically, as well as continuing to improve the overall capacity utilization, as well as just overall system integration and consolidation. So I think it is a little bit of a two-sided answer there.

Right. And how should we think about the ramp in changing your manufacturing footprint?

Well, again, as I am sure you are aware, changing any manufacturing in healthcare is sort of a process over time, and certainly between just sort of shifting the manufacturing locations, but the validation and re-registration of products in various jurisdictions. So I would say it is probably something that we are going to continue to explore over, at a minimum, over the next 12 to 36 months.

I think there's a lot of things that we can begin doing, but there is no single thing that could occur that would drive something or a one-off that's going to drive an improvement on a quarterly basis. It's just a process, and the overall corporate objectives and the high fives that Jeff just talked about sort of incorporate many of those opportunities.

Got you. And then, can you guys just provide some color on the environment that you are seeing in Europe with regards to pricing, and then just kind of overall macroenvironment on procedures?

Yes, I think in Europe, again, as you get towards the summer, you are typically going to see a slowdown. Also, I think there is an austerity program going on in many countries due to their current financial situation.

I think we saw a slight slowdown at the end of the second quarter. But I would say that we still remain fairly confident that our position there as both a distributor into the marketplace and the manufacturer puts us in a little different value proposition than a few other people who provide into that marketplace. We also, again, if you look at a lot of our business over there, it is tender-related as opposed to just on a daily pricing situation.

Perfect. Thank you.

(Operator Instructions). Paul Mammola, Sidoti & Company.

If we can start in medical, it looks like mix was similar year over year. So can you give us a sense of what was pressuring margins sequentially and year over year as well? Is that really all tubing?

A little bit was tubing, but I think some of it was just sort of geographic mix. Some different places around the world just had a slight different mix of business. So I think that's probably mostly attributable to a little bit of the pressure.

Okay, so based on the margin guidance, you don't expect that mix from this quarter to continue, correct?

No, we wouldn't expect to do that. No, we do have a little bit of seasonality throughout our business, depending on geography. So again, as we move into the third quarter, you will see a little weaker business over in Europe, and then you get sort of a very strong fourth quarter pretty much across all of our regions.

Okay, understood on the seasonality. Good news on the FDA front. Assuming all of the 50 CFGs come back next year, is the impact on revenue in the range of $20 million? I think that was the number that was thrown out before.

I think, Paul, if you go back to our original guidance at the year, we talked about a 1% impact. So I would probably move you more towards the $15 million. Now, let me just caution you that even though we have these CFGs being approved, we still need to go into the various countries and register the products. And in each country, that registration process can go from a 30-day to a three- to four-month process.

So, again, it's not like just because we have these CFGs that we are going to all of a sudden have the revenue. We've still got to go and get the registrations approved in the various countries throughout Asia.

Okay. Do you by any chance have the PICC comp from 2Q '09?

I think it was flat, to be honest with you.

Okay. And then, on the ARROWgard-coated PICC, have you talked to investors at all about what you think rough year-one sales could be like for that product?

You know, I don't think we have gone out there. I will tell you that we have really developed this product in conjunction with some of our customers. So I will tell you that having a PICC product line out there, we've gotten some market share. But many of our customers have openly stated that once they see the ARROWgard blue coating on it that they will be much more interested in the product, because they clearly have a history with the product and the efficacy of it.

Okay, so on the same line, how far away do you think you are from applying ARROWgard to another Teleflex legacy product? Do you think it is, are we in a six-month range, year range?

To be honest with you, I would love to see the performance off of the PICC before we get too carried away, Paul. I think we are probably six months, six to nine months away from seeing it go on a few other products.

Okay, understood. Thanks for your time.

(Operator Instructions). Josh Jennings, Jefferies & Company.

Thanks for taking the questions. Just first of all, just back on pricing, you guys just re-upped some GPO contracts. Can you give us any color in terms of is there were any pricing headwinds there on those contract negotiations?

And then secondarily, in terms of your guidance, is it still sort of the expectation for pricing in that plus to minus 1 percentage range?

Yes, Josh, I think, again, I would say overall pricing remains to be neutral in some of our product lines. I still think it is minus 1%; in others, I think we are in the plus 1%. So overall, across, I would say we are probably fairly neutral and feel pretty strong that that should remain the case.

Great, thanks. And then just in terms of your guidance, that $1.8 billion -- with new products coming out in the back half, have you incorporated any revenues from those new products being launched into the guidance level here?

Yes. Yes, we have. And just -- I think one of the things that we wanted to point out there, I think the reason the revenue might not be a little stronger is, again, we have taken into consideration where currency is in the second half of the year and where some of the expectation was relative to the first half of the year. So we are still comfortable with the $1.8 million. But I will say we did guide to a lower currency expectation for the year, which is down about $0.05 from where we had been.

Okay. Can you give us an exact number on what your expectation or the level the euro is in those expectations?

Yes. Our full-year average for 2010 is a euro-to-dollar rate of 1.3.

Okay, great. And if you could just review for me your guidance, your hedging strategy, natural and synthetic, if that's all right. Thanks a lot for taking the questions.

Sure. For the most part, we enjoy a natural hedge due to our nonassets. As I'm sure most of you know, we have significant operations overseas in our aerospace business that, because of the way the accounting works on that and the dollar basis of it, they provide a natural hedge.

But we do some very specific hedging on the cash flow side so we can meet our obligations and future repatriation needs out into the future. So as of today, we are fairly well covered with regard to some of the exposure to foreign currency fluctuations.

(Operator Instructions). Larry Keusch, Morgan Keegan.

This is Constantine again. Can you talk about -- you know, on the last call you kind of provided some guidance about a possible resolution with the FDA with regards to the corporate warning letter in mid-2010.

I know you kind of didn't provide the exact timeline, but what are your latest thoughts on when there could be some resolution on that?

Yes, Constantine, I still think that the CFGs is probably the most positive aspect we have seen towards resolution of that. I will tell you that I can't imagine the FDA would be issuing CFGs if there was still a huge concern regarding -- but again, I think it's a matter of the FDA working through their process.

I have been wrong for two-and-a-half years on this, but the timeline is getting sooner than later. So I would fully expect that potentially in the next 90 days we would be able to communicate something out to our investors as to the status.

But I think in the past, the FDA has never really had a letter that went out to suppliers telling them they were no longer under a corporate warning letter. I think that process changed in the last three to four months. So we may be the first ones who have to experience the process of what that means and the timing it takes.

But overall, I think we feel pretty confident. But also, the sooner we can get that, the better we will feel.

Got you, thank you. And then, you guys posted some very good numbers in the aerospace and commercial. How do you guys now think kind of with posting better results -- does that move up the timeline for divestitures? And does that change in any ways how you are approaching business development activities now?

Yes, Constantine, unfortunately, one month does not make a streak, or one quarter does not make a streak. But I do think that the improvement, both on the top line and the bottom line, bodes well for those businesses.

You know, the management we have running those businesses is very focused on operating the business and not necessarily what could happen over the long term. So I think we have been pretty clear with investors that at the right time, at the right value, we will definitely have to make some decisions with those. But I would tell you that I think a few more quarters of good improvement I think would bode well for that.

But in the meantime, I can tell you that we do get calls on those properties on a daily basis. And I think as we had a fairly weak first quarter in both of those businesses, I think this should bode well. If people are interested, they know our phone number.

Makes sense. And one last question from me is, how are you guys thinking about your capital structure? I mean, what is the optimal capital structure for Teleflex?

You know, we have a fairly reasonable capital structure right now, with the amount of cash flow that we generate. I think there is always opportunity to look at it and take a view of what the alternatives are.

We certainly do have some maturities that are coming up, and it gives us something to consider. But I think right now, we continue to explore our different options and what we might do with it. But generally speaking, as you've noticed, we have continued to pay down debt fairly aggressively over the past couple of years.

So at a little bit more than $1 billion on the balance sheet, we are not uncomfortable with that amount. But certainly, with the continued increase in cash flow, I think we are more than capable of continuing to pay it down.

(Operator Instructions). And this concludes the Q&A portion of today's conference. I would like to turn the call back over to Mr. Jake Elguicze. Please proceed.

Thanks, operator, and thank you for joining us today. This concludes the Teleflex Incorporated second-quarter 2010 earnings conference call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.