Waters Corp (WAT) 2003 Q1 法說會逐字稿

Good morning and welcome to the first quarter financial results conference call. All participants will be on listen-only until the question-and-answer session of the call. At that time, you will be instructed on how to ask a question. This conference call is being recorded this morning. If there are any objections you may disconnect at this time. I would like to introduce your host, Chairman and CEO of Waters Corporation Mr. Douglas Berthiaume. You may begin when ready.

Thank you. Good morning and welcome to the Waters Corporation first quarter 2003 conference call. With me on the call this morning is John Nelson, Executive Vice President and Chief Technology Officer, John Ornell, Company CFO and Gene Cassis, the Vice President Investor Relations. As is normal practice, I will cover first quarter results and then John Ornell will take you through the financial details of the second quarter and full-year 2003 forecast. Then, we will open up for Q and A. Before I begin, I would like to ask John to cover the Safe Harbor language. John-

During the course of this conference call we may make forward-looking statements regarding future events or future financial performance of the company. In particular, we will provide guidance regarding possible future income statement results of the company, this time for Q2 and full year 2003. We caution you that all such statements are only predictions and that actual events or results may differ materially. For detailed discussion of some of the risks that could cause actual performance to differ significantly from our present expectations, see our 10-K annual report for fiscal year ended December 31, 2002, in part 1 under the caption Business Risk Factors. We caution you the company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding future income statement results, except during regularly scheduled quarterly earnings release conference call and web cast. The next call is planned for July, 2003.

Thank you, John. In the first quarter we continue to see what I call a cautious attitude on the part of our large pharmaceutical customers. Really, a continuation of the climate that we saw in the fourth quarter of 2002.

On the other hand, we continue to experience good demand from the industrial segment of our customer base. To remind you, this segment consists of our industrial chemical companies, food and beverage accounts and environmental labs. This, too, is a continuation of the dynamics we saw in the latter part of 2002. The university and government sector was generally soft in the first quarter of '03, with revenues declining in the low single digits versus last year. If you will look at our major product line groups, HPLC growth came in flat, although the service and chemical consumable segments continue to grow nicely within the instruments category, although hardware sales were challenging in this tough economic climate, large network data products are stronger.

We believe there is significant pinned up demand for high-end data products and believe this will be a strong segment for us as we move through the year.

Overall, we expect the second quarter 2003 business climate to be pretty similar to the first quarter. But, we do see glimpses of optimism that suggest an improving environment as we move into the second half. Our mass spectrometry product segment performed a little better than budget with revenue also flat in the first quarter 2002. We do see encouraging signs here, however. Even though we won't be introducing a nigh high-performance Triple Quad System until June at ASMS, our triple quad revenues increased versus the first quarter of 2002, due to the strength of our well-accepted Quattro Micro Triple Quad. That is encouraging.

On the other hand, we still see an early stage drug discovery segment and protomics (ph) applications which cut across biotech and government sponsored entities (inaudible) being the slowest area of life science spending currently. And that, also, looks like it will continue soft for the near term.

Spending in later stage drug development and QAQC has held up much better. As we move through the next year or so, we are optimistic with combined technologies, we will introduce systems that target this healthy area of pharmaceutical drug development and manufacturing.

In terms of the short-term prospects from Aspect (ph), we do plan to introduce a new triple quad full-based instrument in June at ASMS. This system is aimed at regulated bio-analysis segment of the pharmaceutical industry. We feel good about the prospects for this instrument and will look forward to talking about it in more detail at ASMS and thereafter.

Our TA Instrument division had a solid quarter following a good fourth quarter of 2002. Revenues before the remetrics (ph) realogy (ph) product line acquisition in late January were up about 10%. We continue to see encouraging signs worldwide for this business.

In summary, in large measure, we believe 2003 is unfolding substantially along the lines we budgeted as we came into the year. We anticipated difficult economic conditions and a cautious pharmaceutical industry and we have seen those conditions persist during the first quarter. We believe this business climate will continue in the second quarter and as we move into the second half, we think the market will marginally improve.

As we survey the pharmaceutical industry, we are beginning to pick up signals from the largest accounts that they are becoming more optimistic about their second half responding levels. We continue to conservatively forecast this impact.

Finally, many of you may have noticed that I introduced John Nelson as Executive Vice President and Chief Technology Officer. That wasn't a typo I was reading from, but a change that is manifestation in the change of strategy and structure we began to execute last year with restructuring of the HPLC and Mass spec organization and realization it was important to have a presence overseeing near-term product developments as well as long-term strategic technology positions. John is uniquely suited for this assignment with long experience in chromatography development and his ongoing responsibility for mass-spec (ph) and thermal product development. I am delighted that John will now be more intensely focused on this important element of our future success.

Also, while I am talking about senior management, I would like to inform you that Mark Bowdwin (ph) is joining us in the role of Vice President and General Counsel for Waters. Now, at this point, over to John Ornell for his financial summary.

Thank you, Doug and good morning. Results for first quarter net our expectation with earnings per diluted share of 30 cents before unusual charges for the quarter versus 27 cents before unusual charges in the prior period. On GAAP-reported basis, earnings were 26 cents per diluted share versus 26 cents in the prior year. Sales for the were slightly favorable to expectations as result of 8% foreign exchange impact on the top line. In spite of a difficult economic environment, gross margins held up well with only slight decline for the quarter versus prior year resulting from lower HPLC overhead absorption and small change in product mix.

We expect margins to improve as the year continues, resulting from disposal of the inorganic mass-spec chromatography (ph) product line and benefits anticipated from leveraging our manufacturing supply chain.

Operating expenses came in as expected and were even with sales growth, both heavily affected by currency. Foreign currency translation is responsible for about 2/3rds of the SG&A increase this quarter and at current rates we expect favorable SG&A comparisons in future quarters.

We anticipate future quarters to benefit from additional cost savings from our field operations integration activities. Our effective tax rate remains the same as last year at 23%, before tax affecting special charges, sustainable for the foreseeable future. Our reported effective tax rate was 22%. We took charges this quarter relating to the following four events.

Firstly, in late January we successfully integrated the Raonmetrics (ph) products into the TA (ph) Instruments business. This integration gone well and contributed about a point to sales growth for the quarter. We continue to expect the business to be accretive to earnings this year.

We reported restructuring charge of approximately $200,000 this quarter, relating to severance payments and other costs associated with this transaction. As we review operations and further integrate activities, there will be additional restructuring charges. This transaction increased intangible assets of goodwill by approximately $20 million.

Second, in late March we completed sale of Mass Chromatography to GV Instruments. The latest on this transaction is loss on sale of assets of $5 million, which includes restructuring charges. This product line represents about $14 million of full year sales and no contribution to earnings. Because this was break-even business, we anticipate no future impact from removal of this product line.

Third, we spoke last year about combining HPLC and mass spec field operations to create a single face to the customer for system offerings incorporating these technologies. We knew this technology would be completed in phases with the largest and most difficult phase completed by the end of last year. As previously discussed, we continue to review several areas of opportunity for additional savings on an ongoing basis that will be implemented throughout the remainder of this year. During Q1 we took restructuring charge of $1.1 million for the second phase of integration efforts. We will continue to review operation efficiencies as integration matures over the next few quarters.

Fourth, we have booked additional $1.5 million provision relating principally to outstanding environmental matter with agencies of the Commonwealth of Massachusetts regarding our facility. We booked a provision last year for this matter, our best estimate at the time of the cost of resolution. Since then, we have been engaged in negotiations with the Common Wealth and determined remedial actions to be more costly than originally planned. We believe this issue to be close to final resolution with no material future impact on operations.

I am pleased to report we completed $200 million stock buyback plan sooner than planned with 8 passport 4 million shares in total for the program. We continue to maintain a strong balance sheet and we generated $30 million of free cash flow for the quarter.

I do want to inform you of a balance sheet reclassification we have made this quarter, our balance sheet reflects a reclassification made to harmonize our accounting practice for demo equipment within our newly combined HPLC and mass spec businesses. Previously our mass spec demo equipment was classified as fixed assets while HPLC equipment was classified as inventory. While this reclassification all of our demo equipment will be classified as inventory. This results in approximately a $15 million increase to inventory and equal reduction to fixed assets for both the 331 and 12/31 periods reported. Inventory before this reclassification increased modestly this quarter.

Accounts receivable DSOs stood at 81 days versus 76 days last time this year. The majority of the increase is the result of foreign exchange dynamics and the addition of the radiology (ph) business receivables.

As we look at the remainder of 2003, we continue to see a cautious economic environment. We remain confident of our original 9% sales growth estimate for the year. This growth rate assumes exchange rates remain at today's levels and would add approximately 4% to sales growth for 2003.

At this estimated sales volume, we do not see other factors that would cause us to deviate from original projections. We leave our full-year guidance unchanged at $1.43 per diluted share with 1 to 2 cents tolerance before unusual charges. For second quarter, we expect sales growth in high single digits, which includes estimated 4% impact from foreign currency at today's rates. Earnings for fully diluted share is estimated to be 32 cents with a normal 1 to 2 (inaudible) tolerance for the quarter. Back to Doug.

Thank you, John. Richard, I think we can open up for Q and A.

Yes, sir, I am sorry. I was out for just a second. I am so sorry. We are ready to begin the Q and A. If you would like to ask a question, press * 1 on your touch-tone phone. You will be announced prior to asking the question. To withdraw, press * 2. To ask a question, * 1 at this time. We'll just take a moment to tally the questions.

Our first question comes from Scott Wilken (ph). Your line is open, sir.

Thank you. Just had a couple questions on gross margin. John, can you lay out for us how much of a benefit in the second quarter and remainder of the year you expect to get in gross margin just from the divestiture of the inorganic business? Then, could you put meat on the bone of what FX (ph) will add and this overhead issue in HPLC, if you could flush that out so I can better understand the margin expansion in the rest of the year?

Yeah, I think with the disposal of the mass spec inorganic product line, you are looking at couple of 10ths of improvement relating to that transaction. If we look at Q1. We had a relatively light quarter as it relates to HPLC manufacturers. So, I think the issue on that front goes away rather quickly in the second quarter. I don't think that is a repeater. I think we will see gross margins expanding perhaps half a point versus prior year as we look at the full year this year.

As it relates to foreign exchange, certainly the first quarter had the largest benefit on the sales line and cost down in operating expenses. That gets cut almost in half, I would say for the second quarter and then it tails off again in Q3 and Q4. So, the first quarter saw perhaps approximately 4 cents of pass-through to earnings. I would expect that to drop by about half in the second quarter and tail off in the third and fourth.

How much did FX add to gross margin line for the quarter? I would think it would help that, as well?

It didn't have a huge impact on gross margin line. It was more of an impact on the expenses, the flow through from sales really didn't have a huge impact as it relates to gross margin performance.

This is on the gross margin percent you are talking about?

Correct.

Is that just the delayed effect inventory (inaudible) through the P&L (ph) or would it start to have a benefit going forward?

Generally I don't think you get for foreign sales you get 100% impact of change for foreign denominated sales. Then, you get impact of cost of sales line that is related to US source. So, the HPLC business is now mostly sourced by manufacturing, but we had significant manufacturing in Ireland these days.

So, that is a Euro-based manufacturing and all of our mass specs are manufactured in the UK. So, what you are seeing there is essentially you know, like 30% cost effect and so, when you are talking about 65% gross margins, you are seeing like 100% FX affected for top line, roughly 30 plus percent of locally sourced expenses leaving you something just like our normal gross margins flowing through on the FX line.

Right. Okay. Just one follow-up on Q-toss (ph), you didn't address that piece of the business. Could you talk about Q-toss?

Roughly comparable to the overall mass spec. They said we are clearly seeing separate dynamics going on in the early stage drug discovery and protomics segment of the market, which is the weaker part of the life science pharmaceutical industry as opposed to later stage drug development in QAQC. Q-toss seems to be more weighted toward front-end than the back-end. So, that business was relatively softer.

Okay. Thank you.

All right, sir. Our next question is coming from Meirav Chovav at from UBS Warburg.

Hi, it is Meirav. First I have a clarification question. I am little bit confused about the numbers. Correct me if I am wrong, but generally mass spec and HPLC were relatively flat relative to a year ago levels. Turmoil was up 10%. Then, we add radiology acquisition. So, do you mean flat in local currencies or flat when you discount? Otherwise, the numbers don't make sense.

Flat in local currencies. When we talk about relative dynamics, we are really talking about local currencies because we think that is what is more meaningful.

Okay. That explains it. Derrick.

In terms of the global introduction, is that slated for later this year?

No, the triple quad will be reintroduced this year. Our plan has always been that the next Q-toss evolution will come in '04.

Okay. Great. Thanks.

All right. Our next question is from Edmond Debler (ph) from Millennium Partners. Your line is open, sir.

Thank you. You indicated to us some of the sense of business with large pharma, you mentioned the word 'cautious'. Can you give us a little bit of sense, does that include biotech spending and what they are doing? Also, with regard to NIH and budgets, can you update what you are seeing there?

Yeah, I would say take the last first. The NIH budget certainly has some impact on us. But, relatively small compared to all the other dynamics. We obviously prefer a faster and more conclusive NIH budgeting, but it does not have a tremendous impact on our run rate. The biotech dynamics, I would say, are pretty similar to pharmaceutical. They were about the same. That means that may were flattish. So, we didn't see a lot of strength. We didn't see them fall out of bed, but definitely didn't see strong dynamic from biotech companies.

When you indicated some hope for the second half is that based on anything you have got directly from the companies or just looking in terms of in your own analysis of how the life cycle?

No, I would say we are seeing it directly in the sense of the level of quotes and leads that we are generating through those type of companies. And that's both a quantitative and qualitative sense. So, specific examples, we are probably working more large network data opportunities than we have in a couple of years. So, multimillion dollar opportunities that we are pretty convinced are in final stages as opposed to just kicking tires sort of things.

We are also seeing, I would say, barely fairly quantitative levels of near-term expectation or optimism coming from the European sector of the large pharma. I would say it is spottier in the US, but still compared to where we were coming into this quarter, it is looking marginally better as we look at and grow the sales people and look at the actual where the interest is coming from. I would say that is quantitatively on the positive side, I don't mean to say extraordinarily so. I do think this is -- we clearly believe in the fourth quarter and first quarter we have hit a trough with that and expect a slow acceleration moving on from here.

Great. Thank you.

All right, sir. We do have a follow-up question from Meirav Chovav from UBS Warburg.

Hi, this is Derrick. You said you have done some of the micro placements, how much of these are -- I know you said in earlier calls that you were hyping the micros as to tide people over to induce the triple quad. How much of the ones you currently place now are ones people are going to swap out for the newer instrument?

We don't think that will be a major dynamic. I can't say there won't be a few here and there. But, there is not a concentrated program to move them into the Quattro Micro awaiting the new triple quad. So, what we are really seeing on the Quattro Micro, is that this system is -- was always one that kind of sat nearer the general chromatography sales force area of expertise as well as in the more traditional high-end mass spec communicate. What has happened in the first quarter, this system has become available to be sold by the entire sales force that breadth of the water sales force worldwide has taken and run with that product and that is I think the principal dynamic we are seeing and the success of the product line.

Thank you.

All right, sir. Several more questions that did pop into the queue. First, from Cheri Walker from Deutsche Bank Securities, Inc. Your line is open.

Good morning. Just a quick housekeeping question. Could you get the capex and also, a little understanding about why notes payable increased so much in the quarter?

Yeah, the cash from ops is 39.2. capex 9.2, free cash $30 million. That is the figures. As it relates to the note, that was really out there to subsidize in the short term the buyback. We weren't able to move cash geographically the way we needed during the quarter and we will be able to, I think, satisfy that note in the second quarter as cash planning techniques come into play.

So, that should decrease next quarter?

Yes.

Then, just a little more flavor on the dynamics you were talking about? On the (inaudible) call they said they had sales pushed into April and they were seeing pick-up in April in instrument sales. Are you seeing the same phenomenon?

Well, you know, it is awfully early. We are three weeks into the quarter. I would say we are not unhappy with how we started the quarter, but Cheri, it is too early to make a whole quarter of that.

Sure. I was just wondering if you heard the same thing from customers about delayed buying and service being pushed back at end of March?

We hear about it every quarter. You typically hear from salesmen who missed last week. Undoubtedly, some is true, but I wouldn't say there is anything order of magnitude that makes me feel like it was a significant attribute of the first quarter close.

Okay. Then, quick question about the tough market. Do you think that slowdown is also combination of the age of the product and when you do introduce a new product in '04 you could see uprates (ph) and some strength more strength in the marketplace?

Well, I think our overall level, I mean, we clearly had a transition year last year where in the US we have pulled the product off the market for a while and reintroduced it. And I have been working very hard to bring that product in the US back to where we want it to be. At one point we thought in the second half we would be further along than that. But, we clearly now are targeting 2004 for -- I guess the original target would have been somewhat of a band aid approach on the Q-toss and what is going to come in '04 is a much more substantial next-generation of Q-toss technology. That was the trade-off that we made basically in deciding to go to '04. I think what we are seeing in the marketplace today is probably a combination of both dynamics.

We are still working through the transition in our product technology, but clearly I think we are seeing in that segment of the marketplace, the most significant slowdown in pharmaceutical spending in that front-end stage. So, right now it is hard to call how much is one dynamic versus the other, but we are clearly seeing can the proteeomics (ph) companies in the more difficult segment of this market.

Great. Thank you.

All right, sir. Our next question is from Lawrence Neibor. I hope I am pronouncing that right, from Robert Baird and Company.

Thank you. Good morning. Could you give us some idea of where you are seeing strength in the industrial sector in terms of geography?

I think geography is pretty widespread. We are seeing it in the US and Europe and Asia. I'd say it's -- we are not seeing as much strength in the traditional industrial chemical applications. But, we are seeing it in food and beverage and in environmental. I guess, are the two areas that I would hold on. Also, electronics, which is another sub-classification of industrial, is also perking up a bit.

Again, you know, it is not the biggest part of our revenue base, roughly talking about 20 plus percent of our overall revenue. It is an area for many years has been very difficult and over the last six or nine months we are seeing consistent good performance out of this segment. We think that's going to continue. We also see it coming out of in general the TA Instruments product line is one we characterize as industrial technology as oppose to life science and pharmaceutical and over the last six months we have seen good performance out of TA Instruments. So, those are encouraging factors.

And your backlog is building there and your book-to-bill ratio is improving?

Well, we don't talk specifically about backlog, Larry, but the underlying order performance there is right in line with our sales performance. So, yeah, I think we are -- I think this is a demand function and this is a positive one.

Okay. One other follow-up, please. Could you give us some idea of your local currency sales growth for Europe, Asia, Japan and US?

Yeah, I think the Asia sales growth was the strongest. And John, that was --

Asia was up double digits for the quarter.

Yeah, Europe was flat. North America was down a bit.

Right.

Yeah, and finally how was your lead generation at Pitcom (ph)?

Pitcom was reasonably good. You know, it's really we calibrate it five different ways, Larry. I am cautious about giving any specific data. It was up, but it was held in a new location this year. It had been held in New Orleans for several years and then moved to Florida. You have a somewhat different walk-in trade. You know, the actual number of customers who come to Pitcom has been declining over the last several years. So, I would say it is getting less and less interpretable as to what you see at Pitcom. If you look at raw numbers you get a level of enthusiasm, but I would caution you that is a very, very gross statistic. Even though it was up, we will see where this put us over the next couple of quarters. Maybe a little bit more optimism out of this conference than last year might be relevant.

Okay. Thank you.

All right, sir. We have several more questions. First from Kenneth Goldman from Lehman Brothers. Your line is open.

Good morning. Congratulations. One question about the HPLC business. I take it on a reported basis, it grew somewhere in the neighborhood of 9 to 10%. So, if you could just confirm that, I would appreciate it. Secondly, if in fact on a local basis it was flat, do you see that as indicative of the entire marketplace for HPLC? Do you think the market was flat this year for this quarter is this

First, Ken, your assumption is right. HPLC growth was up in high single digits with currency. Then, it is the whole market soft. It is fair to say that couple of facts. We and the industry believe that we have by far the highest market share in HPLC. Within that overall market for HPLC we have a relatively higher number. When the pharmaceutical number is in the dull drums as it is now, our business probably gets impacted a little bit more than the industry in average. So, it wouldn't surprise me if we got hit a little bit more. Having said that, I think overall the industry is not significantly out performing us in this timeframe. So, it maybe you see a small dynamic on some of the competitors, but I don't think it is big enough to be broadly something you will see.

Thanks.

All right, sir. Next question is coming from John Sullivan from Stephens, Inc..

Couple of quick ones. Can you talk about the benefits you have seen so far in integration of HPLC and MS sales and support? I would assume those benefits would occur more with bigger customers, can you just comment on what you are seeing?

I think so far, John, we have seen the benefit in the Quattro Micro, the focus on that technology and how we are seeing sales respond in that area. That is always been one where the general Waters sales force was drooling at the opportunity to sell that product line and the opportunity to kind of in many cases upsale (ph) from single quad technology, up to the triple quad. That was much harder to do when one product was in one sales force hands and the other was in the others. So, I would say that is encouraging.

We are certainly on the intangible side, I think, have a much better feeling and ability to kind of understand the underlying market dynamics now. The forecasting and budgeting is coming through the same organization. It is following the same criteria. We came in kind of right where we expected and that is going back 3 or 4 months. Now, I don't expect to get a Nobel Prize for that, but this is a difficult market climate and we call it the field call their expectations pretty precisely. So, I think that will pay a lot of dividends, too.

Clearly, when we get this product line now more complete in the second half of the year, I think you will see us well positioned to push that further ahead. I think obviously we have also seen a much more cost-effective dynamic. Take you back to last year before we did this. We had the patent case. We were coming off multiple years of very strong growth and we were expecting strong growth prior to that patent case. And we were funding an organization to take advantage of that strong growth. So, then all of a sudden, we no longer were seeing very strong double-digit growth.

We were seeing actually a decline in our business. We made the decision at that point that we weren't going to dessimate (ph) the field organization in the short-term that we had to try to cut costs around the edges while we still kept in tact the core organization to attack that marketplace when we had a full product line. So, we struggled through last year. You will remember our SG&A continued to grow faster than sales.

We told you that that dynamic would turn around this year. Well, I think the first quarter you have seen that dynamic take a hold as you basically are seeing SG&A growth and sales growth come into harmony and we see the opportunities we go through the rest of the year being able to leverage that so that we anticipate sales will grow faster than operating expense growth as we go through the year. That is kind of a combination of dynamic of all the changes we made last year.

Great. Thanks. Just to follow-up on one part of your response, when you talked about general sales guys being able to sell-up a customer that they sell a traditional single quad to a Triple Quad product, what sort of customers are they traditionally, industrial or drug development or what are they?

They are -- one classical example is in the University arena, where often times you may be dealing with first-time users to mass spectrometry and they may be examining, "Gee, if I have this amount of money, what can you offer me?" I am dealing with these compounds. Maybe today I am looking for something a single quad might get there, but over time that customer can be educated with how much more capability he can get with the next phase of mass spec.

And it's often the case that the right system for them to take care of a 3 or 4 year need is a higher powered system. So, we are finding those kinds of opportunities are fairly common. They also run the full gamut of the pharmaceutical and industrial world, too. Just the one that specifically dealing with probably in the last month or two have been in the university area.

Okay. Great. Thanks. One more quick question. Regarding the stock repurchase, getting completed sooner than you might have expected. Is there any strong rationally behind that and any reason why further stock repurchase won't be considered?

First of all, no strong reason why further stock repurchases won't be considered. And John, do you want to cover -

On the buyback, we were relatively comfortable with the price we saw in the marketplace the first quarter and decided to just take advantage of that and get the program over sooner than we had anticipated. Nothing more than that.

Okay. Thanks very much.

All right, sir. We have our next question come David Diamond (ph) from High Rock Capital (ph). Your line is open, sir.

Thank you very much. I apologize. I am on a cell phone. John, two things. One in the future, maybe you guys consider holding analysts to one question t. is frustrating when people go off here. Going back to your point about the optimism or sort of change your tone in a more favorable sense to the second half? What kind of margin contribution we should expect to see in terms of positive leverage, whether there is mix issues North America versus Europe or early-stage versus late-stage development? Maybe you can quantify those margin potentials up for the back half and into '04?

Yeah, I think what you are talking about is marginally improved volume-driven favorability to the margin line. It is not as much a mix dynamic, perhaps, as much as it is just volume of business. That coupled with the lack of inorganic mass spectrometry sales going forward really translates to kind of the half a point or so improvement in margins were anticipate as we move through the year.

Did you get pick-up from introduction of new system, especially into '04?

Well, no doubt we are anticipating the triple quad will be shipping in some volume in the fourth quarter. Generally, when we introduce a new product it is mot at lower margins than products we have in the pipeline. That will be incremental improvement. We are not banking on large sums of shipments of the product in the fourth quarter that will have a huge dynamic on margin. I hold to half a point swing, if you will.

Thank you.

Our next question comes from Chris Shube Tony (ph) from J.P. Morgan.

20% of business is in Asia and Japan and the impact of SARS for opportunity on the environmental front in China?

On the opportunity front, I would say that nothing that significantly noticeable right now. Of course, you know, high-end mass specs are being used and protein analysis applications for SARS but, I wouldn't say we characterize any piece of business that is noticeable at this point. In terms of the effect on our business, we haven't seen any. By far the biggest piece of the business is in Japan, although China is an important market for us. But, it is much smaller than Japan. So, in Japan, I would say we haven't see any influence from the SARS. Through the rest of Asia, nothing through the end of the first quarter. And nothing that we have heard in the last several weeks. We clearly a month -- a whole bunch of people are being careful about people traveling into the region, but doesn't seem to impact our run rate at this point.

Thank you.

We now have a question from Scott Wilken from SG Cowen Securities Corp. .

Thank you. Just a follow-up. Can you guys be helpful in talking about your thinking for growth for the segments? I am looking at HPLC mass spec and a lot of moving parts here. You have comps in third and second quarter. Mass spec the inorganic business goes away in second quarter and the new product in fourth quarter. Can you talk about what your thinking is organic reach for the year and how it looks from second quarter to year-end?

Well, I think we will do it, Scott, and I will let John carry it through in detail. One thing I want to warn you about is that one of the impacts of this field reorganization, as well as marketing changes and position of these product lines, we are getting much more into system focus here as we look at the advantages of HPLC, both hardware, software, chemistry and service. As we introduce new systems, we're really trying to move away from a specific technology focus to a systems focus, which is taking in all aspects. So, you will hear us talking much more about bio-characterization or bio-analysis, which is going to take advantage of improved HPLC systems in data, as well as mass spec. It's going to be a little bit harder to characterize just a straight mass spec product line and straight HPLC product line. We'll be able to probably make some transitional steps to help you there, but we're also going to have to find a new way to communicate by market by application and probably not be quite so added to product focus. That having been said, you know, we can give you some idea of what we are looking at in the product arena throughout the rest of this year.

Scott, what I would say is we look at the full year of this stage. We are looking at HPLC for the year being in the mid-single digits coming off slower start and looking for improvements as we move through the quarters. Mass spec being flat as a result both of the inorganic product disposition as well as slow start, perhaps upside to that as we go out of the year obviously with the triple quad. The biggest dynamic there is pulling out a 14 million dollar product line. TA kind of mid to high single digits, we think it will continue. On top of that, we believe we will add somewhere around maybe 16 or $17 million full year from Raometrics (ph) or perhaps more of that. That gets you in mid-single growth range organically, organically for all of this. And currency full year will be few points or better of growth, 4 points is what we modeled last. You are looking at growth somewhere in the high single digits for the year on a reported basis.

I think it is important to note HPLC had a fine first quarter last year. It was not a weak base that they are comparing to. So, we are -- we think we are in reasonably good shape. When we talk about this, we think there is improvement coming, improvement may be better than we are currently budgeting or providing in our outlook, since until we actually see that reflected in our business rate, we are being more cautious than maybe the noise that we are hearing from the customer base.

Great. Thanks.

All right. Our next question is from Lakshimi Bhojraj from Salomon Smith Barney.

What was the revenue growth in each of the businesses, you mentioned growth and HPLC. Could you provide the other two? That would be helpful. To put numbers around the trends you have been talking about in the HPLC business, what was growth revenue growth on the consumables and service side of the business versus instruments, as well as growth in the industrial side of the business? Finally, now that you are done with your share buyback program, what are your plans in general for the cash that you are generating, both near-term and long-term? Thanks.

Okay. The industrial I think we are comfortable with saying the industrial business grew in the double digits. The consumable and service business, I think consumables were in high single digits. Again, this is organic. And the service business was in the low double digits.

Great.

And in terms of use of cash, you know, we continue to believe that there are opportunities to expand the portfolio. I think in the last quarter or two there have been a number of businesses that are probably available for sale that we have decided not to pursue. I think that's a dynamic that is going to continue. There will be more that are available. I wouldn't say at this point -- there are some we'd be very interested in and others we haven't been interested in. I would say that is absolutely a potential use of cash and we continue to look at everything. But, I would say that at this point in time, it is just as likely we will continue to examine whether buybacks continue to make sense. And we will investigate that. We're coming up to one-year anniversary of our last program. I think we will look at that and make a determination whether it makes sense to pursue that again.

All right. And John, did you have the reported revenue growth?

For the first quarter?

Yes.

On reported basis, look at HPLC in high single digits. Mass spec roughly in the same place. TA in low double digits and then, kicker or add-on for the Raometrics represents a point of growth, as well.

Great. Thank you.

Sir, we have another question from Bob Bridges (ph) from Sterling Capital Management. Your line is open.

Just getting back to the industrial strike in HPLC, would it be fair to characterize you are making taking share over the 6 to 9 month period you have been witnessing the strength and tacked into your comment earlier that the strike you have been seeing you think is sustainable for the foreseeable future, can you give us a sense as to why you think that?

Well, I think how much share differential is reflected in this performance is hard to quantitate. Particularly on a quarter to quarter basis, it's somewhat easier to look at these market cuts in a year or two-year timeframe. It's harder to characterize a quarter-to-quarter swing and be confident about what you are doing. If we look at where our performance is coming from, a couple of years ago we introduced a system that was specifically aimed in the HPLC arena, at the more easy-to-use application that is we would say are more common in the industrial segment as opposed to the most sophisticated systems that tend to fall into areas of pharmaceutical industry. This is our Breeze System, which had has had a real impact in us gaining business in the industrial segment. We've seen that system penetrate into things like beverage quality control applications.

We have been very successful with large quads in that application. I think if you will look at the where the applications are that we are seeing a lot of success, that being food and beverage and environmental and some extent this cross-over is there because we are selling systems into an agricultural company for monitoring pesticides or monitoring other environmental-sensitive compounds. There is a great deal of interest there. That is just a function of both increased regulation and increased risk in terms of product what is getting into the food chain. And so, we are seeing probably our strongest results coming out of those kind of applications. I think we have got the right product at the right time. But, I expect we are probably seeing our competitors having their best results over in that segment, too.

Okay. John, can you give depreciation plan for the full year and capex for the full year?

, That would be roughly $40 million between cap software and PPE. Roughly flat with previous years.

Great. Thanks.

Sorry. That was capex. For depreciation and amortization, that was about $8 and-a-half million in the first quarter so probably $36 million full year.

Great. Thanks.

All right, sir. And that is it for questions in the queue. Would you like me to give the instructions one more time?

No, I think the instructions are probably understood. If there are no further questions. Very good. Thank you all for participating and we'll hopefully hear from you again on the next call. Good night.

Thank you. That does conclude today's conference call. All participants may disconnect at this time, please.