Benchmark Electronics, Inc.
Q4 2007 Earnings Call Transcript

Published: 5 Feb 2008

[Operator:]

Welcome to the BenchmarkElectronics fourth quarter 2007 Earnings Call. (Operator Instructions) I would now like to turn theconference over to your host, Don Adam. Please go ahead.

[Don Adam:]

Good morning. Welcome to theBenchmark Electronics conference call to discuss our results for the fourthquarter and full year of 2007. I am Don Adam, Chief Financial Officer ofBenchmark Electronics. Today, we will begin our callwith Cary Fu, our CEO, providing a review of our third quarter and year and anoverview of the current marketplace, and we'll then continue with thediscussion of our estimates for first quarter of 2008 and our financial metricsfor Q4 in greater detail. After our prepared remarks, Gayla Delly, ourPresident, Cary and I will take time for your questions in our Q&A session.We will hold this call for one hour. During this conference call, wemay make projections or other forward-looking statements regarding futureevents or the future financial performance of the company. We would like tocaution you that those statements reflect our current expectations and thatactual events or results may differ materially. We would also like you to referto Benchmark's periodic reports that are filed from time to time with theSecurities and Exchange Commission, including the Company's 8-K and S-4filings, quarterly filings on Form 10-Q, and our annual report on Form 10-K. These documents containcautionary language and identify important risk factors, which could causeactual results to differ materially from our projections or forward-lookingstatements. We undertake no obligation to update those projections orforward-looking statements in the future. Now, I'd like to turn it over toCary Fu.

[Cary Fu:]

Good morning. Our fourth quarterresults rebounded as expected. We finished off 2007 with a solid result withboth Q4 revenue and EPS at a high end of guidance. I want to take thisopportunity to thank our team for working hard and driving to our goal for ourshareholders and the customers as we close our 2007. First of all, I'd like to discussour current view of this business environment. As we look into 2008, it appearsthere is a level of inconsistency in overall market. We see the financialmarkets have indicated slowdown; yet the demand from our customers has not yetslowed. Our Q4 customer demand wasstable. We also see stable Q1 demand, although Q1 will be impacted somehow bythe typical, but mild seasonality in the computing sectors. We will monitor thedemand level very closely in this uncertain environment. Now, I'd like to highlight someof our 2007 achievements. Number one, we expanded our customer base by addingadditional new customers. Our revenue concentration with our largest customerswas approximately 21% for Q4 and 22% for the full year. 2007 was a year ofstrong booking, which continued into Q4 and should give us the positivemomentum moving into 2008. The self (inaudible) for the newbusiness development was also very robust. Number two, we enhanced ourmanufacturing and engineering capability. We have added an additional 190design engineers, which allow us to expand our service offerings to ourcustomers. Number three, we completed ourglobal resource realignment. As you can see, our restructuring charges for Q4were higher than we had originally anticipated, as we [shifted operations] infive different locations. We should see the benefit of this realignmentactivity in 2008, and we anticipate no significant restructuring activity in2008. Number four, we generated cashflow from operations of approximate $285 million for the year. Our cash inshort-term investment positions increased by $158 million for the year afterpayouts of $72 million in debt and spending approximately $32 million for thestock repurchase plans. Overall, 2007 was a transitionalyear for Benchmark. We are delighted to have the heavy lifting behind us. Weare well-positioned to report a strong 2008. Now, I will turn it over to Donto provide comments on our first quarter guidance and the fourth results. Don?

[Don Adam:]

Thank you, Cary. As Cary mentioned, we did complete 2007 withrevenues and EPS at the high end of our guidance. Our results rebounded nicelyfrom Q3, and we continue to see stable demand from our customers. We bookedseven new programs during the fourth quarter, worth $64 million to $81 millionof potential annual revenues. We are pleased with the bookingswe have seen in total during 2007 and expect our bookings to remain strong inQ1 based on new bookings in January and a positive pipeline of opportunities infront of us due to program opportunities with both new and existing customersand from a mix of the industries that we serve, including industrial controls,computers, testing instrumentation and telecommunications. We anticipate that the revenueand earnings benefits of these new 2007 bookings will begin to be realized in2008 and into 2009. Keep in mind that these are estimates and actual revenuesmay differ significantly. Based on the current indicationsfrom our customers, including new program ramps in the currentmacro-environment, we expect first quarter revenues to be in the range of $700million to $725 million. The corresponding earnings per share is in the rangeof $0.33 to $0.37, which excludes stock-based compensation expenses ofapproximately $800,000 and the amortization of intangibles of $447,000. Pleasenote that the earnings per share guidance includes the impact of our stockrepurchase program. For the year 2008, we expecttopline growth of 5% to 8% for the year and earnings per share growth in therange of 15% to 20% excluding amortization of intangibles of $1.8 million andthe impact of stock-based compensation expenses of approximately $3.8 million.Please note that the earnings per share guidance provided includes the impactof our stock repurchase program. As Cary discussed, 2007 was a transitional yearfor Benchmark. Even with the challenges of the year, we also saw many positivetrends. Let me share some of those with you. We generated cash flows fromoperations of approximately $59 million for Q4 and $285 million for the year. As Cary noted, our revenue concentration withour top customer was approximately 21% in the fourth quarter and 22% for theyear. Operationally, we were able to handle a large number of customers withthe continued diversity of our customer base. We completed our plannedrealignment of our resources, and we had strong bookings that continuedthroughout the year. Please note that the fourthquarter results contained three special items. They are as follows

[Operator:]

(Operator Instructions) The first question comes from theline of Steven Fox from Merrill Lynch. Please go ahead.

[Gayla Delly:]

Good morning, Steven.

[Celeste Santangelo:]

Good morning. Actually, this isCeleste Santangelo for Steve. Just I had a question. Looking at yourexpectations for sales growth in '08, how much of wins from the new customersyou mentioned contributing to that growth were pure end demand?

[Gayla Delly:]

At this point in time, I believethat the majority of the growth is coming from new product introductions andnew sales wins that we've had over the last few months, because I don't thinkthat you see as much strength simply coming from unit increases and salesforecasted in the current environment. I don't have a specificpercentage to apply to that, but clearly we see part of our growth and asignificant portion of the reason we feel good about 2008 is because of thegroundwork that we laid in 2007, not because of the current environment.

[Celeste Santangelo:]

Okay. And then, just following upon that, can you provide a little more details around the new customers justmaybe how many wins and what kind of markets they're in?

[Gayla Delly:]

Yes, let me get Don to go backover the market wins.

[Don Adam:]

Yes. As we said for the fourthquarter, the wins were $64 million to $81 million.

[Gayla Delly:]

Right. But I think you said thosewere from new and existing, so I was just asking on the new customers?

[Don Adam:]

I guess I'm not following thequestion. Again let me just…

[Gayla Delly:]

Just a mix of (Multiple Speakers)

[Don Adam:]

The mix of new and --.

[Gayla Delly:]

So it's now half and halftypically in the given quarter.

[Celeste Santangelo:]

Okay. And then just one morequestion on the operating leverage in '08, how do you plan to hit the earningsgrowth targets of 15% to 20%?

[Gayla Delly:]

I think what you'll see as youmodel through the numbers that we have not anticipated, although our goal is toget greater leverage on the operating margin targeting back to 4.5%. If youmodel through the numbers, we have not put that out there in the currentenvironment. So, making it more consistent with the current performance andplanning for improvement, but not modeling the improvement in the numbers thatare expected, because the general environment and the NPI ramps that alwayshave cost associated with those.

[Celeste Santangelo:]

Okay. So, a bulk of it is fromthe realignment put in place in '07?

[Gayla Delly:]

Absolutely. We're reallyexpecting good leverage from that.

[Celeste Santangelo:]

Okay, great. Thank you.

[Gayla Delly:]

Thank you.

[Operator:]

Your next question comes from theline of Amit Daryanani from RBC Capital Markets. Please go ahead.

[Gayla Delly:]

Good morning.

[Amit Daryanani:]

Good morning. How are you guysdoing?

[Gayla Delly:]

Good.

[Don Adam:]

Good.

[Amit Daryanani:]

Hey, I just had a quick question.Just a follow up on the full year revenue guidance number; if I just look atthe wins you've had in the last four quarters, the trailing four quarters theaverage is about $465 million of incremental sales. If I take the mid-point ofyour guidance, it looks like sales will be up about $190 million. That seems alittle less than 40% convergent of the new wins sale. Are end markets that softor are we being a little bit conservative given what we have seen in themarkets and can you help explain the differential on those numbers I guess?

[Gayla Delly:]

Well, yes, we are trying to takeinto consideration the macro environment which of course we cant' escape, wehave to participate in. And then at the same time as you pointed out, it was anexcellent last year for new bookings, but the second thing there is always thetiming and the actual ramp to volume. So kind of when you take a mid-point andthen try to anticipate it, okay, where we are going to be on these ramps andlook at the macro environment. All of those have been considered in giving ourguidance and clearly we want to give closest to the pin capability. Wecertainly don't want t to fall short of the guidance we look forward to, so wewant to make sure that we consider everything that's available to us at anypoint in time when we give guidance.

[Amit Daryanani:]

Fair enough. And then just thenew wins number, it looks like things slowed down a little bit, I mean, youwere running north of $100 million pretty consistently for the whole of 2007.Q4 is a little bit shy. Is there anything meaningful to read into that or whatdrove that softness I guess?

[Gayla Delly:]

No, I think it's the lastthanksgiving to the end of the year is typically not a significant point oftime for the answer. So, I don't think that's unusually -- usually Q4 iswhatever is a fallout of leftovers for the Q3.

[Amit Daryanani:]

And then just finally, I've beensure you guys talk about the medical segment. I know we had some ST issues in2007 that imputed revenues, could you just update us on that?

[Don Adam:]

Yes, what we see is the issuesthat we faced in 2007 are behind us, and will not impact us going forward, orno anticipation impacting us going forward in '08.

[Gayla Delly:]

So yes, we do expect the medicalsector to be one of the higher growth sectors coming forth in 2008.

[Amit Daryanani:]

Alright, thanks a lot. And nicejob on the quarter, guys.

[Gayla Adam:]

Thanks.

[Don Adam:]

Thank you.

[Operator:]

Your next question comes from theline of Kevin Kessel from Bear Stearns. Please go ahead.

[Don Adam:]

Good morning, Kevin.

[Gayla Adam:]

Good morning.

[Kevin Kessel:]

Good morning, guys. I just wantedto ask a question here on the service and storage and market, that one was upof the most of all of your end markets, and your number one customer's upsignificantly on a sequential basis. It seems to me like it's even more than aseasonal bounce, can you maybe say what drove that, is that some of the, isthat maybe new program growth or?

[Gayla Delly:]

Again, we always perplexed on howto appropriately handle and respond to questions that are specific to a uniquecustomer, but we continue to have a good strength with our customer base andare committed to growing with our customer base, and aligning with them on verysuccessful products, and I think we are doing an excellent job of continuing tosupport our customers. So, I don't know the frame of reference or why you areshocked by our strong results there, but I think it was well planned.

[Amit Daryanani:]

Okay. And then, in terms of thePemstar integration, it's been actually a year since integration happened. Whatwould you say at this point is left to do and where would you say you are interms of originally there was an outlined cost savings target of around $20million. So where are we in that and what do you think about it going forward?

[Gayla Delly:]

I think as we said probably acouple of quarters ago, there is no separate entity, there is no segregation asthe -- it is clear lines reporting admissions. So, it's done and whatever wehave now to do is to continue to grow with each of our existing customers inthe combined organization and get the expected bookings that we're on path forthat and continue to expect more growth from the base.

[Cary Fu:]

Yes Kevin, we review the whole --every time we review the acquisition we would have review the transaction andthe year after that, and we did have a reasonable and we have a home loan,review that this particular transaction and we have seen that our operationsand the financial goal for that acquisition, as in the synergies are muchbetter than we anticipated. There is not any surprise for the transaction asGayla indicated, once you integrated the operation together, it's difficult tosegregate the information, but they are all very pleased with this transaction,and the only thing left will be, we still have to build intention, we'rewalking out and all the other issues which bring results, including therealigned activity has being complete, and we are very happy, don't have thatliving it behind us. So we, should we give us the interest stock for 2008.

[Amit Daryanani:]

Okay. And then just to clarify,when you guys are talking about your bookings like today when you referencedseven new programs and you give a range. Are these bookings also -- is itinclusive of certain programs that are going into life where you get the nextgeneration program or is it [additives]?

[Gayla Delly:]

No, we did not do a generationrefresh. That's included as a booking, that's expected performance.

[Amit Daryanani:]

That's expected. So, this issupposed to be all additive then?

[Cary Fu:]

It's in the new platform. For thecurrent customer base, it will be new platform or completing new programs.

[Amit Daryanani:]

New platform that does notreplace?

[Cary Fu:]

I'm sorry.

[Amit Daryanani:]

I was saying, you were sayinglike a new platform that does not replace an existing one, one that wouldcoexist.

[Cary Fu:]

That's correct, yes.

[Amit Daryanani:]

Okay.

[Gayla Delly:]

Well, it is designed bydefinition to be incremental revenue.

[Amit Daryanani:]

Incremental, got it. Okay. And Cary, you said the 190 newdesign engineers or 109?

[Cary Fu:]

190.

[Amit Daryanani:]

190.

[Cary Fu:]

Right.

[Amit Daryanani:]

Thank you.

[Operator:]

Your next question comes from theline of Will Stein from Credit Suisse. Please go ahead.

[Gayla Delly:]

Good morning, Will.

[Cary Fu:]

Good morning.

[Will Stein:]

Thanks. Good morning guys. I amjust wondering if you can help us think about the end market performance inMarch and for the full year. Can you give us idea as to which you'd expect tobe strong or strongest and then which you think might be a little bit weakerfor the quarter and for the year?

[Gayla Delly:]

Well, I think you'll see someconsistent dynamics as far as first quarter goes and that you'll see computingsegment is typically not at their strongest in Q1. Medical is going to be strongeras we are coming out and also because they are not as significantly impacted byQ4 versus the Q1 seasonality. Telecom, I expect to be fairly strong becausewe've been growing there and industrial control continues to be strong. OurTest and Instrumentation I would expect to be somewhat flattish, but maybe showsigns of trends going into Q2.

[Will Stein:]

Great. And then just thehousekeeping question. Can you update us on the tax rate? Should we expect thatto still -- I think traditionally we've been looking at 16% there. Is that whatwe should think for the full year and for next quarter?

[Don Adam:]

Well, for the full year we shouldbe at 14% to 15%.

[Will Stein:]

Great, thank you.

[Don Adam:]

Okay.

[Operator:]

Your next question comes from theline of Jim Suva from Citigroup. Please go ahead.

[Cary Fu:]

Good morning, Jim.

[Jim Suva:]

Great. Good morning. Can you just-- at the beginning of your opening comments, you made a couple of commentsaround the financial slowdown, what you've been seeing or whatever or at leastyou're reading about versus your demand hasn't slowed. Can you just be a littlemore clear on that? Is that where you've been hearing like in the newspapers orseeing or have your customers been talking to you or how can we kind of connectthose two?

[Cary Fu:]

Well, because we're looking atthe current uncertain markets on the financial side, as well as on the housingside, we have spent a lot of time to talk about customers and a major customerswealth, they talk about some suppliers, and the general consents that we gotback was that they we will not see a significant deteriorations of the demandso far and you'll be looking to all the press release and the earnings releasefor last couple of weeks. You will see a lot of tech com and do fairly well.And they will not see the significant deterioration. So, from that point ofview we saw a very stable Q4 demand and going to the start of 2008 in Q1 we sawthe demand still also stable. So, and that's why we see somehow they disconnectbetween the financial market and the manufacturing demand at this point oftime.

[Jim Suva:]

Great. That's very helpful. Andin past cycles the lead time when you picked up any changes, has it been acouple of quarters or a couple of months or what type of notifications did youreceive of potential slowdown?

[Gayla Delly:]

Here it's very rapid in activityas far as when there is slowdown, but again it is anticipated based on leadingindicators in the marketplace, kind of downstream or upstream and that's why Ithink all of us, both customers, suppliers, the marketplace is staying verytight out to look for any signs of weakening. What Cary was indicating, as you look around atall of the activities around you in technology, we are not seeing it. You seeit in housing, you see it financials as you see it in so many different areasof the consumer, but you are not seeing it in technology. So, you would see people react tothe changes very timely, but you would start hearing reverberations or concernby the data points that you keep in because and that's what we are looking forthat we have not seen yet.

[Jim Suva:]

Great. And a quick update on yourGreenfield site in China?

[Cary Fu:]

The facility came online in Q3this year, and we seen no stones reduced in China. We saw those slowly delay,but the construction team, they believe that can recover from that after takingto a Q3 opening start.

[Jim Suva:]

And was it planned to open in thefirst half of '08 and so it's bumped a quarter or two?

[Cary Fu:]

Right, Yes.

[Jim Suva:]

Okay. Thank you andcongratulations.

[Cary Fu:]

Thank you.

[Gayla Delly:]

Thank you.

[Operator:]

Your next question comes from theline of Sean Hannan from Needham Group. Please go ahead.

[Sean Hannan:]

Thank you. Just a quick question.In terms of the recent Chinese laws in terms of wages and other changes from acost standpoint, does that impact any of your current plans for your facilityin China?

[Gayla Delly:]

No.

[Cary Fu:]

No. I don't believe, there is alot of law changes, tax law changes throughout the world all the times, and thecurrent labor law change and the tax law changes may be a little bitsignificant, but is that all manufacturing companies are subject to, nobody hasan advantage, everybody will be operating in the same environment, and that'smy number one point. The second point will be our ARPUpoint in Chinais really a not significant portion of our total offering. And number three,we're looking for the demand standpoint of view, as a more and more end productconsumer in China, and thetech company will continue to invest in China to support the demand. So ifyou will combine those three factors, and I think the -- so the impact forBenchmark will be very significant, and they will continue to pursue activityin China.

[Sean Hannan:]

Okay. That's helpful, and if Icould just ask a little bit around the compute space and your top customerthere, your percentage with them has obviously pulled back as you havediversified over the last couple of quarters and years. Is it reasonable to nowexpect that we should continue to think of this customer in the low 20% rangeor do you perhaps see some further product transitions that could be disruptedthere?

[Gayla Delly:]

We continue to expect to haveopportunities to grow our revenue base with them, but we don't expect to takeit up as a percentage of that like to continue to see to growth in theremainder of our customer base as we've seen and therefore we would expect thatto stay at or below 20% as we grow the remainder of the customer base andcontinue to be committed in growing that customer also.

[Sean Hannan:]

Great, thank you.

[Operator:]

Your next question comes from theline of Yuri Krapavin from Lehman Brothers. Please go ahead.

[Yuri Krapavin:]

Good morning.

[Cary Fu:]

Good morning.

[Yuri Krapavin:]

Do you expect the pricingenvironment worsened and sort of the overall environment in the EMI space tobecome more competitive in 2008 and the reason I am question is that I thinkyour guidance implies basically a flat operating margin, both year-over-yearand relative to the December quarter and yet you'll see volume growth. I thinkyou expect to realize some additional benefit from Q4 restructuring. Youmentioned NPIs, but you always have NPIs. So, I guess I am a little bitsurprised that you know you're essentially guiding to flat up its margin here?

[Cary Fu:]

Well, I think -- we anticipatedthat the revenue will be the ramped in the second half, and definitely ourgrowth in margin will be increase from the first half to second half. And asGayla talked about earlier, and this is certainly an environment, we had totake into consideration of the impact of macro environment and the inefficiencyof the rental and neutral grants into our guidance. And as far as the pricingenvironment, we do not see a very significant change as the -- we see a severalmajor transaction happen in 2007 as a multiple, we are going to be taking itout of the capacity. So we should not see as a very significant deteriorationon the pricing of environmental.

[Yuri Krapavin:]

Okay. And can you review yourcapital expenditure plans for 2008?

[Don Adam:]

We should be in the $40 millionrange for 2008.

[Cary Fu:]

That's included in the buildingproject in China,Yes.

[Yuri Krapavin:]

Okay. And then the finalquestion. Can you give us the share count as of the end of 2007?

[Gayla Delly:]

Weighted average shares use?

[Yuri Krapavin:]

No. well, you give us weightedaverage, but do you know the count as of the end of the year?

[Don Adam:]

Oh, for the [Multiple Speakers]

[Yuri Krapavin:]

Factor in the buyback in the Q4.

[Gayla Delly:]

[Multiple Speakers] what's usedfor 2008, if that's what you're asking. If you need the actual count, thenwe'll have to look that up.

[Don Adam:]

The weighted average share is $70million.

[Yuri Krapavin:]

Okay. I'm sorry, that's $70million for Q1 or…

[Don Adam:]

For the year.

[Yuri Krapavin:]

For '08?

[Cary Fu:]

Yes.

[Don Adam:]

Yes.

[Yuri Krapavin:]

Okay. Thank you.

[Operator:]

Your next question comes from theline of Brian White from Jefferies. Please go ahead.

[Cary Fu:]

Good morning, Brian.

[Brian White:]

Hi Cary, hi Gayla.

[Gayla Delly:]

Hi there.

[Brian White:]

When we look at just the revenuegrowth for '08, what are a couple of the markets that you think will outperform? You mentioned medical growing nicely, but if you had to mention acouple, what do you think they are?

[Cary Fu:]

I think medical will definitelybe outperform, all the segments we participate in. We saw the issue behind us,as well as a lot of new products as one thing. And probably second, I willprobably still put into the computing side as we add in more customers in thatback to segment, and its unnecessary reflecting a strong recover market whichis the additional customers.

[Brian White:]

Okay. And if you had to thinkabout the growth rate and purse out between new programs and just yourcustomers growing. What type of percentage would that be?

[Gayla Delly:]

That's a hard one, I mean thatwould be just kind of guesstimating, but think of it this way, Brian. If Ithink out loud, the reality is we have a significant number of new programsthat over the last six to nine months that we are bringing on and that arecoming up in the upcoming months in the second half of 2008. So, I don't knowwhere you want to consider a new and old, but to me if I borrows the phrasefrom your belong in the two or three. We have more that are young programs,taking market share, growing, providing new solutions, and innovative ideas toour customer's customers, then we have long in the twos that are a portion ofour revenue. So, how we want to say that 50%, I don't know what I put in andthere was a percentage, but I have more products that I'm excited about thathave good upside opportunities, and I do worried about the all frame.

[Brian White:]

Okay. And just you know in thepast when companies went through big ramps in MS industry, it impacted margins.How should we think about that as you move through 2008?

[Cary Fu:]

I guess we covered that impactinto our numbers already. And you always have the some impact on your margin aswe ramp new programs and that's what the guidance we give into the -- isincorporated into our guidance now.

[Brian White:]

Okay. And Cary, if you had to quantify though, I meanwhat is it, your ramps, the 10 basis points a quarter or 20 basis points. Imean I know you incorporated, but what do you think it is? What do you thinkthe impact is?

[Gayla Delly:]

That's another hard one. I thinkas someone pointed out on the call earlier, without that, you would expect toget more leverage from having things in there. What is the right answer? 10 to15 basis points, I don't know. I'd be kind of guesstimating kind of with orwithout calculation.

[Brian White:]

Okay. And just finally appetitefor acquisitions, do we have any appetite for acquisitions in '08?

[Cary Fu:]

We have continued walking on theacquisition front. We had the team work very hard and diligently are looking atall opportunities available. Again, we're looking for certain assets which makesense for Benchmark in a longer-term and most likely we are looking closely fora skill related acquisition, i.e. the capability we don't have or capability wedon't have so well. So those are assets we're looking at and definitely thereis a lot of assets out there and it's difficult to find a good one, but then weare working very closely with them. The acquisition still is part of our focusat this point of time.

[Brian White:]

Okay, thank you.

[Operator:]

Your next question comes from theline of Alex Blanton from Ingalls & Snyder. Please go ahead.

[Cary Fu:]

Good morning.

[Operator:]

Alex Blanton, your line is open.

[Cary Fu:]

Operator, can you take the nextcall?

[Operator:]

Okay, your next question is afollow up from Amit Daryanani. Please go ahead.

[Amit Daryanani:]

Thanks. Hey, just a question;calendar '08 guidance, I mean you completed the entire $125 million buybackthat's authorized or what's built into that?

[Cary Fu:]

We are only -- basically theguideline will debate on $70 million share count for the year. We will buymore, we would reduce accordingly.

[Amit Daryanani:]

Okay. All right, and then justcome to follow-up on the last question now, in terms of acquisition, what's theappetite of potential you do more buyback versus acquisitions, I mean how doyou look at those two options right now?

[Cary Fu:]

We will continue to discuss withour board and the management team that what will be the best way to utilize ourIFF and SEC, our cash position was a significant and we'll look definitely todeploy those cash.

[Amit Daryanani:]

All right, and just looking atcash flow in 2008, 5% to 8% growth is certainly not a high amount of growth, sowould it be reasonable to expect you guys to continue to generate cash in '08?

[Don Adam:]

Yes, I think for '08, cash flowfrom operations prior to $75 million to $100 million.

[Amit Daryanani:]

All right. Thank s a lot guys.

[Don Adam:]

Thanks.

[Gayla Delly:]

I think we'll take one morequestion, operator?

[Operator:]

Okay. That question comes fromline of David Fondrey from Hartland Funds. Please go ahead.

[David Fondrey:]

Yes, good morning.

[Cary Fu:]

Good morning.

[Gayla Delly:]

Good morning.

[David Fondrey:]

Could you help me understand theincrease in SG&A expense that sequentially? It looks like it went fromabout $22 million to $24.5 million, a little over 10%?

[Don Adam:]

Well, as we said in the callnotes in the opening comments, we accelerated the facility closures and resultin some inefficiencies, and again just accelerated the closure, so we're wellpositioned to go into '08. So that's the primary reason, again, justaccelerating the closure of our five facilities.

[Gayla Delly:]

So there is costs associated withthe restructuring that are not technically restructuring costs that wereincremental to innovation costs.

[David Fondrey:]

Okay. And were there some costsof that nature also in the cost of sales.

[Cary Fu:]

Yes.

[David Fondrey:]

Okay. And then lastly if youwould please, could you give us an idea of the average cost at which you boughtback your shares, the average price that you bought back the shares?

[Gayla Delly:]

Well, I mean we can do the simplemath of -- you got the shares?

[Don Adam:]

With $74 million through February4th about the $3.9 million shares

[David Fondrey:]

Great, thank you very much

[Gayla Delly:]

Thank you operator, and thank youeveryone for joining us on the call today, and we look forward to see in thenear future.

[Operator:]

Ladies and gentlemen, that doesconclude our conference for today. Thanks for your participation and for usingAT&T Executive Teleconference. You may now disconnect.