泰利福醫療 (TFX) 2010 Q3 法說會逐字稿

My name is Crystal. I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. If anytime you require operator assistance, please press star followed by zero and we'll be happy to assist you. I would like to turn the conference over to your host for today, Mr. Jake Elguicze, Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon, everyone. The press release and slides to accompany this call are available on our website at Teleflex.com. As a remember, this call will be available on our website and a replay will be available by calling 1-888-286-8010 or for international calls 617-800-1688 pass code 91604182

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'll open up the call to questions. Before we begin, I'd 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 two. 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'd like to turn the call over to Jeff.

Thanks and good afternoon, everyone. We're pleased to have you join us today as we report our results for the third quarter of 2010. I'd like to begin this afternoon's call with an update on our performance during the quarter. Revenues in the quarter were $443 million. On an as reported basis, revenues were up 1%, while on a constant currency basis revenues were up 4%. Medical constant currency revenue growth during the quarter was 2%, while our Aerospace and Commercial segments grew at constant currency rates of 5% and 15% respectively. When adjusting for the IV tubing recall that occurred earlier this year, our medical business grew at a constant currency rate of 3%. Turning to gross margins, they were strong, reaching approximately 46%, up significantly both year-over-year and sequentially. Moving to R&D, research and development spending exceeded $11 million during the quarter. I've stated in the past that -- and would like to reiterate now, that we're committed to continuing to increase R&D spending in the future, as I believe that it is a direct correlation between R&D spending and future revenue growth. Sequentially, we increased our R&D head count by about 3%, and these individuals will be focused on product areas that build clinical differentiation and allow Teleflex to partner with our customers on infection prevention initiatives. In addition to increasing our R&D, we continue to make targeted investments in sales and marketing. These investments are focused on continuing to build a more clinical sales capability while leveraging our call points and global presence and brands. As a result of these investments, our adjusted operating margins were 16%, down 70 basis points from the prior year quarter. We continue to believe that these investments are necessary to position us for further sustainable and profitable growth.

And finally, adjusted earnings per share from continuing operations for the third quarter of 2010 was $1.11, up 29% versus the third quarter of 2009. Randy will touch on it in more detail when he covers a review of the financials, but I would like to point out that during the third quarter of 2010 we had a tax adjustment that benefited the quarter by approximately $0.13. Moving to some other highlights for the quarter, although the corporate warning letter is still in place, much progress was made as evidenced by the fact that we received approval from the FDA on all CFG renewal requests and the fact that we received 510(k) market clearance for our new anti-microbial coded ArrowEVOLUTION PICC.

Touching on both of these items in a little more detail, getting a renewal for Lap CFGs will allow us to begin reshipping certain products back into certain Asian and Latin American countries. And although we do not expect this to have a material impact in 2010 revenues, this is a positive indication for 2011. While getting 510(k) approval on our anti-microbial PICC allows us to provide an innovative product to the market that meets unmet needs of the marketplace. More than 200,000 patients per year develop a central line associated bloodstream infection, and as many as 20% of the cases result in death.

The ArrowEVOLUTION PICC with Chlorag+ard™ is the only chlorohexidine treated PICC that provides the broad spectrum anti-microbial protection both intra and extra luminally for at least 30 days, and a proven 99.99% colonization reduction against gram positive and gram negative bacteria and fungi. In addition to the 510(k) approval on the anti-microbial PICC, other highlights for the quarter was the launch of a new passive humidification kit that is designed to promote best practices for ventilator associated pneumonia risk reductions.

The partnering with Access Scientific to become the US distributor of the PICC wand safety introducer and being awarded five GPO contracts extends some of our progress in the quarter. These GPO contract extensions provide continued negotiated access for a combination of surgical instrumentation, chest drainage, respiratory care and airway management products.

And finally, we also completed a series of refinancing transactions during the quarter. These refinancing transactions improved our near term liquidity and financial flexibility by extending our debt maturities, while keeping our cost of capital unchanged and positioned Teleflex for future growth opportunities.

Moving quickly through some of the year-to-date highlights, revenue was up 2% as reported, and up 3% on a constant currency basis over the first nine months of 2009. Aerospace and Commercial constant currency revenue growth was 5% and 19% respectively, while our medical business grew 1% on a year-to-date basis. Again, excluding the impact of the IV tubing recall that we announced in February of this year, our medical business constant currency revenue growth was 3%.

On a year-to-date basis, both our gross and operating margin expanded over 2009 levels, even while we continued to invest in R&D, sales, and marketing infrastructure that I mentioned earlier.

Turning to earnings per share, adjusted EPS was $3.03 in the first nine months of 2010, up 19% over the prior year period, while our adjusted cash flow from continuing operations was approximately $127 million.

Now I'd like to take you through our third quarter segment constant currency revenue results in a little bit more detail. Medical segment revenues in the third quarter were approximately $345 million, up 2% on a constant currency basis. From a product family standpoint, critical care was flat. Cardiac care was up 6%, OEM was up 7%, and we saw a rebound in sales in our surgical care products, which were up 3% over prior year levels. From a regional standpoint, the 53% of our medical revenue was in North America, while 34% was in Europe, and 13% was in Asia and Latin America. That said, let me walk you through our critical care portion of our medical business. Critical care sales were approximately $226 million in the third quarter of 2010, flat on a constant currency basis. During the quarter, sales of our respiratory products grew 7%, anesthesia products grew approximately 5%, while sales of our urology products grew 1% on a constant currency basis. This growth was somewhat offset by a 4% decline in sales of our Vascular Access products. Vascular Access sales were unfavorably affected by the IV tubing recall, which I've mentioned several times. As we look out to the fourth quarter, we expect critical care revenue to increase both year-over-year, as well as on a sequential basis.

Turning to surgical care, revenues in the third quarter were approximately $62 million, up 3% on a constant currency basis. This was in line with our expectations and led by sales of our higher margin ligation and closure devices. We continue to project additional constant currency revenue growth for surgical in the fourth quarter with particular strength in the OUS markets.

Moving to cardiac care, revenue in the third quarter was $17.4 million, up 6% on a constant currency basis. The improvement versus the third quarter of 2009 was primarily due to increased sales of intraaortic balloon pumps and catheters in the European markets. Our expectation is for constant currency sales growth to continue in the fourth quarter. And before I move to discussing the top line results of our non medical assets, let me close the discussion on our medical business by talking about our OEM business.

Revenue in the third quarter was approximately $40 million, up 7% on a constant currency basis. Similar to the first two quarters of the year, sales in our specialty products continued to be strong, while sales of our orthopedic product lines continued to be a drag. Now, I'd like to quickly turn your attention to the top line performance of our non medical businesses.

Aerospace revenues in the third quarter were approximately $47 million, up 5% on a constant currency basis. This segment continues to perform very well, and during the quarter we saw revenue growth due to an increase in the number of narrow body cargo-loading system units shipped, as well as an improved actuator and spare sales. In addition, for the second consecutive quarter we saw an increase in container sales due to loosened capital spending constraints by some of our airlines' customers. These positives were somewhat offset by reduced sales of wide-body cargo-loading systems to both Boeing and Airbus.

And finally, before I turn the call over to Randy let me quickly cover our Commercial group. Commercial revenue in the third quarter was approximately $51 million, up 15% on a constant currency basis. This was led by a significant increase in higher margin Marine after market sales, as well as strong year-over-year performance of sales of Marine products to OEMs. As we'd expected, this was somewhat offset by reduced sales of our modern burner unit to the US military. With that, I'd like to turn the call over to Randy and he'll walk you through the financials in more details. Randy?

Thanks, Jeff and good afternoon, everyone. Revenues for the third quarter were $443 million, up 1% over the third quarter last year. Constant currency revenue growth of 4% was offset by foreign currency exchange, which negatively impacted sales 2%, and the deconsolidation of an entity in our medical segment in the first quarter of 2010 that negatively impacted sales by 1%.

Adjusted gross profit and margins for the quarter were $203.1 million, and 45.8%. This compares to $196.7 million, or 44.6% in the prior year quarter.

We saw gross margin expansion in the quarter of our three segments with medical gross margins expanding to approximating 50% for the third quarter of 2010. Adjusted operating expenses for the quarter were $132.1 million, or 29.8% of sales compared to $123 million or 27.9% in the prior year quarter. The increase in operating expenses was principally due to our continued investment into our medical R&D and sales and marketing functions that Jeff mentioned earlier. As a result of these investments, adjusted operating income was $71 million or 16%, down from $73.7 million or 16.7% in 2009.

Pre tax special charges in the third quarter of 2010 were $3.5 million. These costs were primarily related to professional fees incurred in connection with the debt refinancing that occurred in the quarter.

Operating income on a GAAP basis was $67.7 million, relatively flat year-over-year.

That interest expense in the third quarter of 2010 was $19.8 million compared to $20.8 million in the prior year quarter. The decline in net interest expense was due to a reduction of approximately $123 million in average outstanding debt. In addition, during the third quarter of 2010, we recognized $30.4 million of losses on the extinguishment of debt as a result of our refinancing transactions. These costs were primarily associated with the prepayment of make whole fees. Moving to taxes, the negative affect of the income tax rate for the third quarter reflects the impact of beneficial discreet tax charges recorded during the third quarter of 2010 for the loss on extinguishment of debt, a reduction in the overall effective tax rate as a result of the shift in the mix of the 2010 worldwide taxable income toward a higher foreign concentration at lower statutory rates, as well as favorable tax adjustments associated with the filing of our 2009 Federal Income Tax Return.

The favorable adjustments associated with the filing of our 2009 Federal Income Tax Return impacted the third quarter 2010 earnings by $0.13. And finally, GAAP income and earnings per share from continuing operations attributable to common shareholders was $23.1 million or $0.57 per diluted shares as compared to $33.9 million or $0.85 in the prior year period.

Slide 18 provides a reconciliation of continuing operations GAAP income and diluted earnings per share attributable to common share holders to adjusted income and diluted earnings per share. Excluding special items, income from continuing operations was $44 million or $1.11 per diluted share compared with $34.3 million or $0.86 per diluted share in 2009, a per share increase of 29%.

Now, let's review some year-to-date performance. For the first nine months, revenues was $1.326 billion, up 2% for the first nine months over 2009. Constant currency revenues increased 3%, while the 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 nine months of 2010 were $606 million, or $606.2 million or 45.7% compared to $580.1 million or 44.8% in 2009. Adjusted operating expenses for the first nine months of 2010 were $386.3 million or 29.1% of sales compared to $371.4 million or 28.7% in the prior year.

Adjusted operating income was $219.9 million up approximately 5% from $208.7 million in 2009, while adjusted operating margins increased 50 basis points year-over-year. And finally, GAAP income and earnings per share from continuing operations attributable to the common shareholder was $100 million, or $2.48 per diluted share as compared to $89.9 million or $2.25 in the prior year period.

Slide 20 provides a reconciliation of continuing operations of 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 $121.9 million or $3.03 per diluted share compared to $101.2 million, or $2.54 per diluted share in 2009,an increase of 19%. Now, I would like to review with you our cash flow performance. For the first nine months of 2009 (sic - see Presentation Slides), GAAP operating cash flow from continuing operations was $146.8 million compared to $70.7 million in the prior year period. On an adjusted basis, year-to-date cash flow for 2010, was $127 million versus $168.3 million in 2009.

The adjustment made in 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 a $39.7 million impact resulting from the adoption of a new accounting pronouncement in the first quarter of 2010. The adjustment made in year-to-date 2009 cash flow from continuing operations, relates to a $97.5 million tax payment that was made on the gain on sale of the Aerospace business that was divested in 2009. In addition to these adjustments, I would also like to draw your attention to the fact that during the third quarter of 2010 the Company elected to make a $30 million cash contribution to the Teleflex retirement income plan for our pension fund to improve the funded status of our overall pension plan. This done was -- this was done as a function of the recapitalization and to further improve the quality of the Company's balance sheet.

And lastly, before we turn the call over for Q&A, I'd like to provide you with an update to our 2010 guidance. Assuming full-year average Euro rate of approximately $1.33 and medical constant currency rate revenue growth of approximately 2%, we are projecting full year 2010 sales of approximately $1.8 billion. Our medical constant currency growth revenue expectations are down slightly from our previous expectations of 3% due to reduced sales levels of the IV tubing product upon reentry into the market and slightly reduced estimates of surgical instrument revenue.

Turning to margins, our expectations are unchanged as we continue to expect total gross margin and operating margins to be approximately 46% and 17% for the year respectively. Moving to R&D, we expect to sequentially increase our R&D investment in the fourth quarter, resulting in a full year R&D as a percentage of total revenue of approximately 2.4%, essentially unchanged from the previous expectations. As a result of some tax favorability that occurred during the third quarter, we now expect our effective tax rate to be in the range of 28% to 29% for the full year. This equates in an adjusted earnings per share from continuing operations range of $4 to $4.10. This compares to our previously provided adjusted earnings per share from continuing operations range of $3.95 to $4.10.

And finally, from a cash flow perspective, we anticipate full-year 2010 adjusted cash flow from continuing operations, now to be in the $235 million to $245 million range from our previous expectation to be $265 million to $270 million range. The change in our cash flow outlook is primarily due to the $30 million pension payment that I mentioned earlier. With that, I would like now to turn the call over to the operator for questions. Operator?

(Operator Instructions). Today's first question comes from the line of Josh Jennings with Jefferies & Company. Please proceed.

Hi. Thanks. Good evening, gentleman.

Hi, Josh.

Good evening.

How you doing, Josh?

First off, just to touch on the medical segment guidance adjustment here, I understand that the IV tubing coming back into play didn't hit expectations. Just in terms of getting out to the 2% level for the year, and it looks like Q4 you'd have to hit a 4% constant currency growth rate to get out to that 2%. What are you guys seeing in the marketplace? What's giving you confidence that bogey? Is it new products being introduced and those sales? Is it the IV tubing ramping up? Or can you give us more color on that?

Josh, I think probably your estimate for the quarter probably is a little on the high side, but directionally I think you're right. But I do think the combination of the number of product launches that we have in the second half of the year, plus bringing back the IV tubing, although while not meeting some of the expectations for the full year that we originally anticipated, we do feel comfortable that we can get back to the 2% for the year growth rate.

Great. And just in terms of the IV tubing, my understanding is there's an $18 million run rate. Can you give us some color where you exited the third quarter in terms of annual run rate and where you expect to be bite end of the year?

Well, again, we just recently reentered that market in terms of getting back with some of the customers. So we really didn't have any revenue in the third quarter to speak of. And it is sort of a customer sort of expectation, and something that we're reviewing as we move out into the next year. Again, we had previously had about $18 million in revenue. This was kind of a specialty IV kit that we were providing to a number of our customers. We are sort of selectively going back in the market with this. So right now we're kind of looking at our 2011 forecast and operating plan to really evaluate what we're going to get. We don't anticipate, though, a significant amount of revenue in the fourth quarter. But again, from our previous guidance it should be added or contributed to the overall growth rate.

All right, great. And just in terms of drivers across the medical segment in general, and critical care specifically, we feel infection prevention and emerging markets are two of your biggest opportunities. Can you classify between those two, which you think is a bigger drive or whether they're both going to contribute, and which emerging markets right now are providing the most growth?

You hit on both of them. The infection prevention clearly is a longer cycle investment where we're both making investments on the R&D and the sales side. So I think we see that some of the foundation that we have, coupled with the launch of the ant-imicrobial PICC should help us there. In Asia, we still feel very good about our growth rates there. Clearly some of the CFG renewals will help us get more trajectory into next year. But we do anticipate a fairly robust fourth quarter in Asia as well.

All right, great. If I can get one last one, a combination question. If you're looking at some of the -- some of the CFGs, looking at getting some of the registration products. I know you're getting a ________ 30 day period or a three to four month period. Of the 80-plus CFGs approved, can you talk about any -- I know it's still early, but any progress that's been made and where you guys are in terms of a percentage of those CFGs in terms of getting back in those territories. Thanks a lot.

Yes, there again, Josh, the process is a fairly lengthy one while we submit the paperwork back into those countries. The time frame for approval of approval rations can go as far as 24 months or it go down to three months. I would say in the last week we've probably received our first approval of these CFGs in an Asian country, and we would hope that that will continue, but it will take -- it will take some time. And, quite frankly, I think we -- while we feel good about at least having them into the countries, I would tell you that these things move at their own pace. So I think we're a little conservative as to the impact.

Great. Thanks a lot.

Our next question comes from the line of Patrick Clingan with Lazard Capital Markets. Please proceed.

Hey, guys. Thanks for taking the question. First, I want to just ask a little bit about the medical operating margin for the quarter. I think you had mentioned that gross margins were up 50% with it being down about 180 dips. Is that all associated with R&D or was SG&A up as well in the quarter?

I think it's attributable to both sides of the equation. Our continued and ongoing investment in both sales and marketing, as well as some of the regulatory areas certainly impacted in the quarter. But again, I think it's attributable more to the investment. And we're starting to see some improvement, both the United States and Europe in terms of some of the top line growth, but until we start to see some of that leverage we feel very strongly that it's an important investment for us to make for future growth.

Yes. I think, Patrick, if you look the at the marketing investment, both for the anti-microbial PICC and the wand, we spent some significant investment dollars there, and really have not seen a revenue stream to add much contribution, but we would expect that we'll start to see some of that occurring in the fourth quarter.

To also add a little color, we did have some incremental remediation costs hit in the third quarter that did come through on the SG&A that did impact margins. But again, we think that will continue to be minimized on a go-forward basis. So we don't expect to see an ongoing effect of that.

And then on the five GPO contracts that you guys were able to renegotiate, what was pricing like on those? And then maybe give us any insight into what's going on with future contract cycles over the near term.

Yes,I would say since a lot of these were renewals, Patrick, the pricing environment, while it's challenging, I think we've held our own through most of these. And I think it really comes back to not only the strength of our brands, but, the fact we're also providing clinical -- we're doing the full-service into these organizations. So I think they do appreciate it. But there's no doubt that there's a heightened sense of pricing as you start to have these conversations, but clearly we understand that, and I think creating the demand out there, and also going forward brings some new innovation to the parties, to the GPOs, I think is going to be important to continue to ensure that we have pricing stability.

All right. And then last one, then I'll let others jump in, just on the updated guidance, did you guys know that you were going to get this $0.13 favorable tax benefit last quarter when you issued the $3.95 to $4.10?

No, we didn't. This was something that came about as we were filing and doing the finalization of our 2009 tax return. So this was something that really was a little bit of a surprise to us, but in all respects I'd rather have it be to the upside than the downside. But no, this was a bit of one of those happy surprises when filling out your tax returns.

Sure. So I guess if I think about on an apples to apples basis, then, I guess guidance came down just a little bit relative to what you'd been previously guiding?

No. I'd say this is right in the range. We had previously $3.95 to $4.10, and I think we basically had upside in terms of our interest expense on a going-forward basis. So I'd say there was -- on a net basis I think we're probably looking at sort of just raising the bottom end, just to sort of narrow the guidance going forward. So I think the -- we don't feel this was a lowering because of the offset of some of the things we did in the third quarter.

(Operator Instructions) Our next question comes from the line of Richard Newwitter with Lebring Swan Please go ahead.

Great. Thanks for taking the question. Hey, guys. Can you hear me okay?

Yes, sure.

Great. So maybe I just will start off on the medical segment. You guys clearly lowered your guidance for the year on a constant currency basis, and, specifically, I think your surgical segment came in a little bit light, notwithstanding the IV tubing recall and the critical care. I was just wondering if you'd give us some color on any trends that you saw between maybe August, September, and even into October, that would suggest, you know, signs of improving procedures or utilization rates. We've heard from others so far that there is a general procedure slow-down, but basically stable to improving. I'm wondering if you could provide some maybe color there?

Yes, Rich. I think, as we said on the second quarter call, we clearly saw the slow down in June, and it really kind of continued through -- through the August time period. Again, you can attribute that a lot of different factors. We saw September started to get sequentially better, but we do believe that procedures are down. And I would say that I think we're in line with the rest of the medical device world, that we're not sure if that's a blip or if that's the new -- the new low or a level in which we're going to be dealing with.

Okay. That's definitely helpful. Maybe just to switch to a product question, on the anti-microbial PICC that you recently got the approved and you'll probably be launching, what -- maybe you could tell us about your strategy here, particularly with respect to price. I know up to this point you've been basically been able to gain some share in the PICC segment through maintaining a low-cost position. So really my question is, now that you have newer, differentiated technology out there, how should we be thinking about the way you'll position this in terms of a premium to players like Bard and to your existing product line, which have already been at a lower price point? Where will that fall in that scheme?

Rich, I think you hit it right. That as we got into the market for the last few years, we truly tried to gain market share always in anticipation that some of the investments we've made in R&D, especially on the anti-microbial PICC, and then with our wand license agreement, that really we had a foundation. Now, we can bring in some new innovation. The intent on the anti-microbial PICC is to sell it at a premium to the industry leader, and we feel quite confident with some of the benefits of reduced colonization I think will bode well for that. The fact that you've got a 30-day period in which it provides that feature I think is very important. So clearly the strategy all along has been as gain market share, and now it's identify some new products, which kind of create a new different of us as an innovator in this marketplace.

And then maybe just to piggyback off of that, so, as we think about your ability to gain share in the PICC segment, and try to reconcile that with your 5% longer-term sales growth objective that you've put out there, what kind of market share position does that assume you eventually get to? Are we talking you move from a fivish percent share today to a eightish, ninish percent share, or are we talking about a meaning -- a more meaningful move to 13%, 14%, 15% share?

Yes. While, I am optimistic about the opportunities, I am reluctant to start putting out market share targets. Clearly, the industry leader has done a great job both in creating a market and bringing innovation. And I think our approach to continue to gain market share is going to be about innovation and creating the opportunities. And a lot of that will start with some of the GPO contracts, which come up for the opportunity over the next 12 to18 months.

Great. And then, actually, just one last question. Your guidance, I believe -- does that include the R&D tax credit at all?

For this year?

Yes, for this year.

Yes, we've attributed all of our tax planning in this. Although, we don't have a tremendous amount of tax credits that we enjoy through the R&D side, not that significant in number given our low spend rate, and where we spend.

Thanks so much.

Our next question comes from the line of Larry Keusch with Morgan Keegan. Please go ahead.

Good afternoon. Randy, you quantified the $0.13 benefit from the tax situation. I haven't had a chance to go through the numbers. What -- when you go back and look at the make whole payments and the other expenses associated with the debt refinancing, what did that cost you in the quarter?

Let me give you the exact number. From a cent basis it was about $0.52 adjustment up from -- on a GAAP basis we were about $0.57, and we still have that come up about $0.52 as a portion of that. A large portion of that was related to the make whole payment that we made with the balance of that coming through as just, you know, fees and transaction costs associated with the transactions.

Okay, terrific. And then on price, is there any way this you can help us quantify what the price impact was for the medical business in the quarter, and -- I know, Jeff, you indicated that, you know, obviously there's a heightened sense of pricing, but what's your outlook for where pricing goes as we move into 2011?

Yes. Let me just touch base first on Europe. Clearly, I think the challenge in Europe is with some of the countries struggling, there is, again, pricing pressure down. I would also say that reimbursement is being evaluated on a country-by-country basis. So I don't think we see that changing dramatically, and probably staying fairly constant as we go forward. So again, for the quarter Europe was down. Overall, medical was flat. So if Europe was down, clearly our others were up to offset it, which I think is kind of maybe indicative of what we had anticipated.

Okay.

And the concept of our mix.

Right, exactly. And Jeff, you're saying that as we move into 2011, you wouldn't anticipate that dynamic changing.

Well, I don't see it -- I don't see that -- I still see the pricing environment in Europe to be a challenging one. Again, in the US I think it still comes back to mix and providing innovative products. You know, I think we've always kind of said our pricing is either plus or minus 1%. And I would say as we look at 2011, and I'm not giving an outlook on 2011, but I think we see it in about that same neighborhood.

Okay. Just two other quick ones. I'm wondering if you guys just have the PICC growth for the third quarter year-over-year.

Why don't you give us a second on that.

Okay. Let me ask the other question then, if I could. Randy, I guess if I understand this correctly, the Aerospace business provides you guys with a pretty substantial level of natural hedging for the overall business. I guess the question is, at some point that business, obviously, gets divested. Is the thought at that point that you would have to pick up an increased level of synthetic hedging? I'm just sort of thinking about as you move forward to become a stand alone medical company, what could change structurally and sort of perhaps costs associated with that?

Would it be okay if I give you the growth rate of the PICC and then move on with the question? 4% to answer your first question.

Okay.

But that is clearly something that we're evaluating as we look out. I do appreciate that's is a nice way of asking us about what our divestiture strategy and the timing of that is. But Clearly our Aerospace business does give us a very nice, natural hedge. It is something that we're beginning to plan for as we look at 2011 and 2012 so that we are prepared for that eventuality when we have got to manager our currency exposure in a little different fashion. So I think it would be a combination of forward contracts and various hedging. We're looking at different ways to manage some of our currency exposure in terms of just looking at things like just dollarizing and basically managing some of our manufacturing costs so that we look at some of the standard costs that we have in sort of a dollar basis or a Euro basis. So I think we're just taking it all into consideration as we move forward into next year and 2012.

Sure.

Larry, just let me comment again. If you look at both our Aerospace and our Commercial business, if you remember where we started the year with both operating margins and contribution to our EPS, you can just see the improvement. It was --I don't want to say it was impressive, but to have almost 17+% operating margins in Aerospace, and then to get to 12+% in our Marine business. All along we've been preparing those businesses They make -- they've been a big part of our portfolio for a long time, but they do have a lot of value and the management and the real focus has been on not just take advantage of the market upticks, but to really drive the drop-through to make sure that when we do divest those businesses that they're going to create a lot of value for our shareholders going to a new party.

Yeah, absolutely, I recognize that. Thanks very much, guys. I appreciate it.

Thanks.

(Operator Instructions) Our next question comes from the line of Sean Bennett with Susquehanna. Please go ahead.

Thank you. Randy, I had a question about the pension contribution. Was that more one time in nature or do you guys expect to see more of these contributions going foward? And do you have any significant accruals going foward in terms of pension costs?

Sure. This was an opportunity to post the recapitalization to use some of the significant cash flow that we have just f bring our pension funding sort of up to, I think, appropriate levels so that future risk was significantly mitigated. Having said that, as I'm sure you recognized, we've got to plan out a number of years ahead about what pension funding will look like and how we're going to manage that. One of the reasons we did that was to have a little better handle on that moving forward. And so it was a much more manageable contribution. So to answer your question directly, I think it was more of a one-time nature. We feel very comfortable. We're at about 90% funded right now. Since the time we made this decision, a lot has been written about pension fund liabilities and obligations, but I think we a bit ahead of the curve right now. So we're very comfortable with where we are.

Okay. And then the question on infection prevention. I know in 2008 was when CMS instituted they were not going to reimburse hospitals for HAIs. I think initially you guys said that really wasn't being enforced. And I was wondering if that has changed over the last two years since that was implemented? And if you've seen hospitals that have been denied reimbursement for a hospital acquired infection.

Sean, I don't know if we could attribute it to an individual hospital. Clearly, the hospital, the management, has realized the value of infection prevention in terms of both their bottom line, as well as some of the reimbursement pressures that they'll be under in the upcoming years due to the healthcare reform. I think it's, again, created an opportunity to have a different conversation in the hospital management level, but I also, think that, again, it's not just about cost, it's also about patient care. So we still feel that it's moving in the right direction. Would we like to see it pick up pace? Yes. But again, I think as you get closer to some of the healthcare reform taking hold, I think you will see more and more hospitals saying the premium that they have to pay for infect prevention is probably well worth the savings to their bottom line.

Okay. Thank you guys.

(Operator Instructions) There are no further questions at this time. I would like to turn the call back to Mr. Elguicze for closing remarks.

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

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.