Varian Medical Systems Inc
Q4 2007 Earnings Call Transcript

Published: 25 Oct 2007

[Operator:]

Good day, ladies and gentlemen and welcome to the FourthQuarter 2007 Varian Medical Systems Earnings Call. My name is Rob, and I willbe your coordinator for today. At this time, all participants are in alisten-only mode, however we will conducting a question-and-answer sessiontowards the end of this conference. (Operator Instructions). At this time, I'd now like to turn the presentation over toyour host for today's call, Mr. Spencer Sias.

[Spencer Sias:]

Thank you. Good afternoon and welcome to Varian MedicalSystems' conference call for the fourth quarter of fiscal year 2007. With meare Tim Guertin, President and CEO; Elisha Finney, CFO; and Tai Chen, ourCorporate Controller. Tim will start this afternoon by summarizing ourfinancial results and operational highlights for the quarter, and for thefiscal year, Elisha will detail the P&L and balance sheet, and Tim willfinish with the company's outlook for first quarter and full fiscal year 2008.We'll take your questions following the presentation. To simplify our discussion, unless otherwise stated, allreferences to the quarter or year are fiscal quarters and fiscal years.Quarterly comparisons are for the fourth quarter of fiscal year 2007 versus thefourth quarter of fiscal year 2006; annual comparisons are for the fiscal year 2007versus fiscal year 2006. Please be advised that this presentation and discussioncontains forward-looking statements. Our uses of the words and phrases such asoutlook, expect, should, prospect, intend, believe, opportunity, can, areconfident, anticipate, estimate and similar expressions are intended toidentify those statements which represent our current judgment on futureperformance or other future matters. While we believe them to be reasonablebased on information currently available to us these statements are subject torisk and uncertainties that could cause actual results to differ materially.Some of the important risk providing to our business are described in ourfourth quarter earnings release and in our filings with the SEC. We assume noobligation to update or revise the forward-looking statements in thispresentation and discussion because of new information, future events orotherwise. And now, here is Tim.

[Tim Guertin:]

Good afternoon and welcome. Today we are reporting solidresults for the fourth quarter of fiscal 2007, coupled with our third quarterperformance, we finished what has been a challenging year on a strong note thatgives us a positive outlook for fiscal year 2008 and beyond. To summarize the results of the fourth quarter and thefiscal year, net orders increased 17% for the quarter and 14% for the year. Inthat respect, we are now a $2 billion Company. More than three times our sizeeight years ago when we became a “stand alone” medical company. Our year ending backlog, including our acquisitionsincreased to 21% and 17% excluding the acquisitions. Revenues increased 15% forthe quarter and 11% for the year. Operating earnings increased 16% for thequarter and 8% for the year. Reported net earnings per diluted share were nearly equal tothe year-ago quarter, but were up 17% on an apples-to-apples basis afterexcluding the dilutive affects of acquisitions in fiscal year 2007 and thebenefits of some discreet events in fiscal 2006. Reported annual net earnings per diluted share increased by$0.02 per share, up 15% on a apples-to-apples basis that I mentioned a momentago. Elisha will give you the details, but all-in-all we are veryhappy with the numbers given our rough start in the first half of the fiscalyear. I will focus now on operational highlights for the quarterand comeback to you with our guidance for the first quarter and the full fiscal2008. Starting with Oncology Systems, fourth quarter net ordersgrew by 11% to $522 million including 3% growth in North America, where ordersgrew 25% in the year ago quarter and 27% growth in the international marketwhere orders decreased by about 4% in the year ago quarter. Oncology's fiscal year net orders were $1.6 billion, up 7%from the 2006 totals with 5% growth in North Americaand 9% growth in the international market. Fiscal year net orders hit recordhighs in North America, Europe, Asia and therest of the world. While we had gains in most oncology product lines, ordersfor our Image Guidance products continue to drive growth. Our On-Board Imageror OBI is now routinely included in nearly 100% of new machine orders in North America and better than 70% of total global ordersfor new high-energy machines. We had more than 630 OBI installations complete, or in progress,by the end of the quarter; we are far in a way the leader in deployment of thistechnology and we are opening up our lead. Contributing to our rapid expansion in the IGRT arena, is anincreasing OBI upgrade business. It's proving that our five-day OBI upgradeinstallation time meets customer requirements. We are now seeing customers, whopreviously ordered OBI on a new machine, beginning to upgrade some of theirother machines to give their clinics additional IGRT capability. As expected,orders for OBI upgrades are now taking the place of orders for IMRT upgrades. We also made nice gains in our total software business andour service business. Our service business in particular grew orders and salesby better than 15% for the quarter and for the year. We had some big winsduring the quarter that illustrate the ongoing success of our long-termstrategy to help radiation and medical oncology clinics beat cancer with acomplete set of reliable and versatile tools that can easily be integrated forfast, easy, effective and affordable treatments. To cite a few examples; TheKaiser Permanente Health System in Northern California, Barnes-Jewish ChristianHospital Group in St. Louis, Paul-Papin Cancer Center in France, BernardVerbeeten Institute in the Netherlands and [Acıbadem] Hospital in Istanbul. Allof awarded Varian with large multiple machine orders during the quarter,Trilogy orders were included in most of those orders. Sideline Health contracted with Varian for six OBI equippedaccelerators as well as our Eclipse Treatment Planning and [RS] offer forurology practices in the Southwest. Our treatment planning and information management software,and in particular our medical oncology management tool, helped us win a multimachine deal at (inaudible) City Medical Centerin Alabama.These are big centers that are banking on Varian to put them on the leadingedge of Cancer care now and in the future. In the past several weeks we have announced severalsignificant product developments and a key partnership that creates our mostcompelling offering for stereotactic radiosurgery. Together with BrainLAB we have created Novalis Tx aradiosurgery offering that combines our high-energy Trilogy accelerator,On-Board Imager, our new high definition 120 lead collimator and software for planning and information managementwith BrainLAB ExacTrac imaging system robotic couch and surgery planningsoftware. We believe thisoffering combines “best in class” capability for every element of radiosurgery,whether its planning, imaging, patient positioning, high resolution beamshaping or treatment speed. It's more versatile, affordable and more patientuser friendly than any other radiosurgery system on the market. Customers andpatients are already asking for it and I'm pleased to report that Varian and BrainLABhave taken their first orders for Novalis Tx configuration. We're alsogetting an excellent reception to the new Smart Segmentation capability in our Eclipsesoftware, for cutting treatment planning time by about 25%. You may have noticedrecent releases on new products that simplify and speed up breaking therapytreatment and planning. We expect that these products will help us to resumegrowth in this market. Most exciting, however, is the new product for a uniqueand highly advanced form of Volumetric Arc Therapy, which takes IMRT to thenext level by both measurably improving this accuracy of those distribution andspeeding of treatment time is by an order of magnitude. This is a win forpatients, a win for clinics and a win against competitors with slower morecumbersome approaches to IMRT. We are well ahead ofthe competition with this technology and we've already filed with the FDA for510(k) clearance on this product. Anearly version of this technology has already been used with the Varian acceleratorand multileaf collimator at the British Columbia Cancer Agency in Canadato deliver a prostate treatment in less than two minutes. It's a game changerand we will be talking more about this development at the Annual ASTRO Meetingin Los Angelesnext week. We realize that some clinics have been making buyingdecisions on the basis of being able to market unique treatments. We believeVarian can now offer these customers new Novalis Tx and volumetric arc products,that enabled them to differentiate themselves with true improvements in patientcare. We've already begun to be more active in the area of marketing withnewspaper ads and billboards, and you will be seeing more of this as we goforward. Our advanced treatment technology is getting some nice playin the media. Wall Street Journal Radio, which goes out to 120 stations acrossthe U.S., broadcast interview with (inaudible) 0

[Elisha Finney:]

Thanks, Tim, and hello everyone. As usual, I will walk youthrough the income statements attached to the press release, as well as cover afew balance sheet items. Let me state at the outset that my numbers include theeffects of our recent acquisitions of ACCEL and BIR. These acquisitionsincreased our top line by 2 points for the quarter and the year, and reducedearnings per share by $0.02 in the quarter and $0.06 for the year. We haveposted earnings per share reconciliation in a footnote attached to the pressrelease and on our website. As Tim pointed out, the company's fourth quarter revenuesincreased 15% to $522 million. Oncology Systems posted an increase of 12%,X-ray Products posted a gain of 12% and the other category, including the ACCELand SIP businesses, posted an increase to $16 million or 130%. For the full fiscal year, total company revenues are up 11%,with Oncology Systems posting gains of 8%, X-ray products climbing 13% and the othercategory rising $45 million or 135%. Gross margin for the quarter was 42% about even with theyear ago quarter. Oncology Systems gross margin was 43%, down a little lessthan half a point from the year ago quarter due to currency hedging contract. X-ray Products gross margin was 39% for the quarter, upnearly 4 points due to higher volume, a larger mix of flat panel and high-powerCT tube and cost reduction efforts. For the full year, the company achieved a gross margin of41% about even with the prior year. A nearly one point decline in the OncologySystems margin was offset by a five point gain in the X-Ray Products business.I should take a moment to point out as in the side that the SIP growth marginimproved about three points for the quarter and five points for the year. Thisimprovement was offset by the expected low margin from ACCEL. Fourth quarter SG&A expenses were 14% of revenue, animprovement of about half a point from the year ago quarter. Fourth quarterR&D expenses were 6% of revenues, even with the year ago quarter. For theyear we held combined operating expense at about even at 22% of revenue, and inspite of significant operating cost associated with ACCEL. Moving down the income statement, fourth quarter operatingearnings increased 16% to $113 million or 22% of revenues. Oncology Systems andX-Ray Products together contributed $124 million in operating earnings with theother segment and corporate consuming a net $11 million. For the year weachieved an 8% increase in operating earnings, and sustained an operatingmargin of 19% of revenues. Depreciation and amortization of intangibles totaled$9 million in the quarter and $32 million for the year. Net interest income totaled $1 million for the quarter and$7 million for the year, both down from the respected year-ago periods due tolower cash levels and higher borrowing associated with our share repurchaseprogram. Our annual effective tax rate was 30%, up significantly fromfiscal year 2006 when we benefited from the repatriation of cash under the JobsCreation Act of 2004 and from a tax true-up resulting from an adjustment ofdeferred tax asset differences. Average fully diluted shares outstanding for the year were131 million, down by about 5 million shares from the prior year, due largely tothe ongoing share repurchase program. We reported fully diluted GAAP earningsper share of $0.61 for the fourth quarter and $1.83 for the year. Turning to the balance sheet, we ended the quarter with $263million of cash, $90 million of combined short and long-term debt and $821million of stockholders equity. DSO for the fourth quarter was 88, animprovement of 6 days from the year ago quarter, resulting from higher salesvolume as well as strong collection activity. We achieved record quarterly cash flow from operations of$137 million, bringing total cash flow from operations for the year to $300million, about $60 million more than net earnings for the year. Other sourcesof cash in the quarter included $14 million from stock option proceeds. Primaryuses of cash were $85 million for the stock repurchase program and $23 millionfor capital expenditures. During the quarter, we repurchased 2 million shares,including 1 million that completed the 4.5 million share repurchase authorizationthat ended in the fourth quarter and another 1 million shares under a new 12million share repurchase authorization that extends through the end of calendaryear 2008. At the end of the fourth quarter 11 million shares remained underthe existing repurchase authorization. Since 2001 when we started stockbuybacks, we have repurchased 31 million shares at a weighted average price of$38 per share. Now I will turn it back to Tim for the outlook.

[Tim Guertin:]

Thanks Elisha. Our strong finish in fiscal 2007, togetherwith several important new product developments that we are announcing nextweek at the annual ASTRO meeting, positioned the company for continued growthin fiscal year 2008. We believe that for the first quarter of fiscal year 2008total company revenues should increase by 12% to 13% over the prior year andthat net earnings should be in the range of $0.39 to $0.40 per diluted share.For the full fiscal year 2008, we expect that company revenues should increaseby 10% to 11% over fiscal 2007 total, and that net earnings should be in therange of $2.04 to $2.06 per diluted share. Let me just say in closing that this has been a challengingyear, but we are confident that our long-term strategies for growth in ourOncology, X-Ray Product and Security businesses are succeeding. Thank you and we are now ready for questions.

[Operator:]

(Operator Instructions) And yourfirst question is from the line of Tycho Peterson of JP Morgan.

[Tycho Peterson:]

Hey, good afternoon,congratulations on the quarter.

[Tim Guertin:]

Thank you, Tycho.

[Elisha Finney:]

Thank you, Tycho.

[Tycho Peterson:]

I maybe jumping the gun littlebit on with the question on New York,but could you talk about it briefly. I am wondering if you could just give us asense as to how we should think about the upgrades paths here, what's involvedfor a customer and then to the extent any federal interest where its comesfrom?

[Tim Guertin:]

Let me talk about that a littlebit. I will say that Volumemetric Arc is something that I first saw us do in avery limited form in the early 1990s. And where we actually arced around thepatients, Arc which just refers to the machine we are taking around the patientand we move the multileaf as the arc. We didn’t call it Volumetric ModulatedArc, we called it dynamic arc but it comes to the same thing. And what we’ve done now is we’vemanaged to improve the speed of it dramatically and improve the treatmentplanning associated with it dramatically by some changes inside the Clinac andthe multileaf and by changes in our treatment planning system. And the resultis that for example a head and neck treatment that might have taken 12 to 14minutes and that’s with a fast customer can now, I’ve seen those plans run inless than a minute and a half, which is why we refer to the order of magnitudeimprovement. That’s where the most difficult cases, for prostate cases youwon’t see an order of magnitude, but a prostate case that used to take 5minutes will probably run in about a minute and a half now. So that’s asubstantial improvement in throughput and we think there are customers whodidn’t like it. The other nice thing is its notonly faster, but the treatment plans are much better. The Confirmality isgreater, the amount of dose that we give to critical structures. Criticalstructures meaning structures that you don’t want to give much dose to is muchbetter, we’re just giving a lot less dose. What was the second part of thatquestion?

[Tycho Peterson:]

Just the mechanics of upgradingand what that evolves from the customer standpoint?

[Tim Guertin:]

Initially Tycho we’re focusing onnew systems going out. The machines that we are making now are capable ofsupporting rapid arc providing that the customers alters their order to includerapid arc. So we are expecting some customers who have not yet taken deliveryto want to add rapid arc to their order and of course we will be talking tothem about that. In terms of upgrades, we want to see how rapid arc performsand it places additional demands on the machine and so the number of machinesthat we're likely to upgrade is pretty small because I expect this upgrade tobe fairly expensive right now.

[Tycho Peterson:]

Okay. And I guess on the Novalis introduction as well, ifyou could give some colors to where some of the early demand has come from? Andthen, you've gotten existing basis difference out there, presumably these arenot upgradeable, but how do you address, maybe some of those customers?

[Tim Guertin:]

Yeah, since we've announced it, we have gotten tremendousamount of interest from a number of customers. I think we've got as many as 15strong prospects for this and of course as we've already indicated, we havesome deals that have occurred already. It does create, I think the mostpowerful, versatile and affordable radiosurgery offering, because it takes thebest of what BrainLAB does and it takes the best of what Varian does and putsthem together, and it stops the kind of customers having to choose between whatwe offer and what BrainLAB offers. In our case, I mentioned the HD120 which is the highestprecision multi-leaf on the market, and the on-board imager which enables youto get cone beam CTs of the patient for image guidance, and from BrainLAB, the ExacTracwhich is a beautiful room-mounted system for imaging the patient and they havea wonderful stereotactic treatment planning system and a nice couch, they callthe 60-couch that enables you to position the patient not only up-down,in-and-out, and right-left but also angle the patient. So you get (inaudible)that gives you a lot more precision about how you do. So neurosurgeons are very interested in this, lots ofprospect interest of course will be reporting on this in future quarters how itgoes. This is not without work for BrainLAB and Varian to do, but we've beenworking together for long time. The Varian and BrainLAB relationship is quitean old relationship, and so I am very confident that this is the best possibleapproach for both companies.

[Tycho Peterson:]

Okay. And then just finally on the other businesses, youtalked about 15 million in cargo orders, can you give us a sense of where thosecame from in. Is this just the beginning of a cycle here or this kind of pilotstudies or how we look at that?

[Tim Guertin:]

Well, some of them are clearly pilot studies, especially theU.S.customs deals are pilot studies. These are things where -- I am not saying thatthey are small orders. They are not small, but compared to the level ofbusiness that we could get if all of customs objectives are achieved, well thenthat could be substantially more business. So, I can't tell you exactly where these are going to go,but they are pilot and training centers. And clearly if the pilot -- if thetraining centers workout and customs and border patrol is as impressed withthese things as we think they are going to be, then I would expect to see a lotmore business from that in the future, so the big increase was in the U.S.

[Tycho Peterson:]

Okay, great. Thank you.

[Tim Guertin:]

Thank you.

[Operator:]

And your next question comes from the line of Amit Hazan ofCIBC.

[Amit Hazan:]

Hey, good afternoon guys.

[Tim Guertin:]

Hello, Amit, how are you?

[Elisha Finney:]

Hi, Amit

[Amit Hazan:]

Very good. Just maybe, Elisha, I will start with you at thequestion on gross margin. It looks like it rebounded sequentially. But with thekind of growth we saw in revenues, I am just wondering if you can give us alittle bit more color apples to-apples on what we might expect with grossmargin going forward, in particular with oncology. Should we expect an increasethere or are you seeing kind of is it stable or do we think about that andwhat's happening at if you look at FX effects?

[Elisha Finney:]

Yeah. And that's the difficult part Amit is to really tryand put the center back in without the FX effects which has been ratherdifficult for this year. As a remainder for the quarter, we ended up at totalcompany with the flat margin at 42%, with gains in X-ray offsetting a verysmall decline in the oncology sector. What we saw there is 25% of our saleswere into Europe in the fourth quarter, was a very strong year in Europe. The Euro obviously helped our top line, but as wetalked in the past at the time we booking order we put a hedge in place toprotect the gross profit dollar. So when the sale materialized, the top linewas higher but I had an offsetting bank contract, and so the gross marginpercentage is lower, and that is virtually the entire effect you thought foroncology in the fourth quarter. So going forward, I can tell you, you've seen the guidancethat was in the press release, our belief is that EBIT will grow EBIT dollarsin the 13% to 145 range for '08 and that the EBIT margin will be up about 0.5point and some of that from gross margin and some of that from leveragingSG&A expenses.

[Amit Hazan:]

Okay, that's fair. And then in terms of what you werereferring to with regard to the OBI upgrades being a little bit stronger. Itsounds like from what you're talking about, can you give us a little bit moregranularity there as far as maybe general numbers as to how many upgradesyou're seeing and what we maybe might expect that kind of growth in that, inthe upgrade side?

[Elisha Finney:]

Yeah, I mean it was up year-over-year if I look at FY'06versus FY'07, it was up close to 40% in total dollars, so we are seeing prettysignificant growth. What happened as we expected is that the multi-leafcollimators became very penetrated as IMRT became penetrated. We stared to seea study decline of IMRT upgrades. Now that our install times are down to fivedays to an OBI upgrade, we are seeing the uptick and we had somewhere around 40OBI upgrades in the fourth quarter. I don't want to give you exact dollars, butit was pretty significant growth over the year ago quarter.

[Amit Hazan:]

And is it your sense from your install base, can you give usa sense of how many units of your install base out there should have IGRT if wethink about it over the long-term?

[Tim Guertin:]

Over the long-term I think IGRT will be fully penetrated.There is nothing, it's like IMRT is zipped pass the 50% point and is on its waywhat would the current.

[Elisha Finney:]

I think maybe one way to…

[Tim Guertin:]

I don't think we analyze that number lately. But I think itwill be upgraded, I mean what will happen is IGRT will become more and morepenetrated. Now, very old machines will probably be replaced in order for thatto happen. So, it's not going to happen overnight. But I would say that overthe course of the next few years, you will see this number probably run up to50%.

[Elisha Finney:]

And I think the most telling number in the quarter to meetwas 70% take rate on OBI with close to virtually a 100% in the U.S.So, clearly it has become mainstream.

[Amit Hazan:]

Okay, great. That's very helpful. And then I guess, off ofthat just if I can ask one last question, off of that. We have seen a couple ofyour competitors report now. It seems like the market growth, it continues tobe very strong. And I guess, I am just wondering if we kind of try to isolatereplacement units from new units or additional units into the market. Are weseeing because IGRT is being adopted, I am guessing throughput, at least thatthe margin is going down, are you seeing an increase in additional units cominginto the field are the request, or the purchase of additional units as opposeto replacement units?

[Tim Guertin:]

Yes. Can I add more color to that, but the answer is yes. Weare seeing more.

[Amit Hazan:]

Do you think it's because of the throughput issue?

[Tim Guertin:]

You mean in terms of our abilityto install them more quickly, or that they work more quickly. Yeah, I guess, Idon't think that's it. I think that as IGRT has caught on and has more peoplehave done IGRT, I think more people want to do it and they consider it part ofwhat they need for the future. And every version of IGRT we put out is fasterand more intuitive, we're going to announce some versions at this ASTRO thathave some very nice more intuitive approaches for acquiring and are muchfaster. My goal has been, I call this twoplus two to our organization internally and that is, I want to take two minutesfor imaging more or less and two minutes for treating more or less. And withthe introduction of the volumetric arc approach, we have achieved a less thantwo minutes for treating. And our latest versions of the on-board image arearound just a little bit over two minutes for imaging. And so, we actually ranthrough one the other day that took about three and a half minutes. So, I thinkthroughput counts, but I think the bigger effect is that people want this forclinical and as it's growing faster and has growing more intuitive to use theyfeel more confident that now is the time.

[Amit Hazan:]

Okay, that's very helpful. Thanksvery much.

[Tim Guertin:]

Thank you.

[Operator:]

And your next question comes fromthe line of Jason Wittes of Leerink Swann.

[Tim Guertin:]

Hello Jason.

[Jason Wittes:]

Hi. Guys how are you?

[Elisha Finney:]

Hey, good.

[Jason Wittes:]

Just to start a house-keepingquestion. In terms of the impact of currency on order rates, could you breakthat out for us for Oncology and X-Ray?

[Elisha Finney:]

Sure. For Oncology, we were 11%orders growth for the quarter in dollar, 10% local currency, and for the totalcompany it was 17% in dollar, 16% in local currency.

[Jason Wittes:]

That's for Oncology.

[Elisha Finney:]

That is for the…

[Tim Guertin:]

Total company…

[Jason Wittes:]

Total company has got it.

[Elisha Finney:]

Total company was 17 to 16.

[Jason Wittes:]

Got it, okay. And Tim, just kindof some more clarification on, it sounds like you are now out of every neworders, basically order with IGRT at this point?

[Tim Guertin:]

For the U.S.

[Jason Wittes:]

For the U.S., and how did that compare withlast quarter because I think you implied it was something like 70% or was thatthe worldwide number again?

[Tim Guertin:]

That was the worldwide number.

[Jason Wittes:]

So has it basically been the lastfew quarters, pretty steady about most people that order a systems will get itwith an IGRT in place?

[Tim Guertin:]

In U.S., it's been climbing towardsthe 100% and it's been asymptotically approaching a 100% for the last couple ofquarters but now its there.

[Jason Wittes:]

Okay. And in terms of the amountof time, sorry what was that?

[Tim Guertin:]

It was a cough.

[Jason Wittes:]

So in terms of the time it takesbetween when someone decides to upgrade and the time it gets to install. Itsbeen now narrowed down to about five days. Is that, figured that correctly andI guess…

[Tim Guertin:]

Five days means the amount oftime it takes to install it. So from the time we start putting it in until thetime that we can turn it over to them for clinical use is five days. They mayorder it months before that.

[Jason Wittes:]

You've kind of always said theOncology backlog is about 9 to 12 months, 9 I think is U.S., 12 maybe overseas? Can weassume if you order an onboard imager it takes about 9 months to get thatfilled?

[Tim Guertin:]

If you order it as an upgrade thecycle time is much faster than that. I don't know what the number is, but I amsure it's more on the order weeks than it is in months. And those averagenumbers that you are giving are for complete machines and that's a much longertime.

[Elisha Finney:]

And it has really moved up a lotcouple of quarters by about three months.

[Tim Guertin:]

Yeah exactly. What you saw earlier in the year when we hadthose trying quarters and quarters one and two was that we were seeing NorthAmerican the time from order to shipment, stretching out and so now its sort oflooking more like our international orders.

[Jason Wittes -Leerink Swann:]

Okay, but I mean this is the first quarter, I mean that youstarted to see the upgrades actually start to pick up and I guess the lot hasto do with the installation times. Is that a fair…?

[Elisha Finney:]

It's not the first quarter Jason, because again for the fullyear it was up close to 40%. So we've just seen steady pick up as we've gonethroughout the year helped by the fact that its only by clinical day we shutdown.

[Jason Wittes -Leerink Swann:]

Okay, that's fair. And so you have also in the past sort ofsaid that the people that are using IGRT right now, are kind of the earlieradaptors. Is there any evidence at this point from who is getting upgrades inthat that's going beyond the earlier adaptors here?

[Tim Guertin:]

Yeah, we are definitely moving beyond the earlier adaptorphase and at this point I would have to say that the upgrades demonstrate that,and the new orders proved that, and we are seeing a lot of papers beingpublished now and so all of those things lead me to believe that we are movingbeyond the earlier adaptors.

[Jason Wittes -Leerink Swann:]

Okay, and if I look at next year. I know you don’t giveguidance on order rates, but can we assume that your U.S order rates get backinto the double-digit 10% to 11% range for next year, especially with the newproduct flow. Is that the assumption we should be making here or is it a littletoo early to make that call?

[Tim Guertin:]

As one of those things I don’t do, but definitely Oncologyhas had better news lately than they've had before. They were up in the firsthalf 2% and they are up in the second half 11% and that's good, but beyond thatI am just reluctant to say.

[Jason Wittes -Leerink Swann:]

Okay, fair enough. And I guess one last question. Is it theright assumption to assume people that are upgrading to IGRT, it's about$500,000 add-in, is that the general cost?

[Tim Guertin:]

With some software features that people would want andthings like that. The hardware is less than that, but by the time people buyvarious other things that they might buy with IGRT they can get up into the range of $500,000.

[Jason Wittes -Leerink Swann:]

Okay, fair enough.Thank you.

[Tim Guertin:]

Thank you.

[Operator:]

And your nextquestion comes from the line of Dalton Chandler of Needham &Company.

[Dalton Chandler:]

Hi, first just a follow up on the earlier adopters in theIGRT. Could you talk where you think you are in the adoption curve on radiosurgery?

[Tim Guertin:]

Well radiosurgery is not a technique that a lot ofinstitutions yet offer its growing and that's what we are trying to do is tohead the curve here in terms of products. I will say that an increasing andsignificant percentage of our customers are buying this technology, which meansthey do intend to add stereotactic capability to our system. This is still aminority, but it's been a growing number especially the U.S. and so OBI is nearly 100% in the U.S. and Trilogy is what about 30% in the U.S.So clearly we are nowhere near the adoption level for stereotactic that we areat for image guidance, but I would expect that number to grow.

[Dalton Chandler:]

Okay so when you say 100% of your units were shipping withOBI that’s including 30% that's has been are Trilogy?

[Tim Guertin:]

Yes.

[Dalton Chandler:]

Okay.

[Tim Guertin:]

All Trilogy has been with OBI, but others here do as well.

[Dalton Chandler:]

All right, okay.

[Tim Guertin:]

And that 100% is a U.S. number.

[Dalton Chandler:]

Right, okay that’s helpful. And just on the U.S. Oncologyorders were up about 3% in North America, I know you had a really tough comp ayear ago and strong quarter, last quarter in North Americabut just wondered if there is anything else going on there with that numberbeing a little bit on the left side?

[Tim Guertin:]

I think it was just a comp. Ifyou take last year and this year and sell them together, it's like 28%, sowe're averaged 14% in combining those quarter for us in the U.S. And if you take last year andthis year, I think international was down 3% or 4% last year in the fourthquarter and was up 27%. So the average of 31% is about 15%. So, if you take theaverage of those two quarter for us and put them together, you got in the 14%to 15% range.

[Dalton Chandler:]

Right, okay. And then, just thelast question on guidance. Looking at your fiscal first quarter guidance versusthe full year, your revenue in the first quarter you're expecting to growfaster than your revenue for the full year, but if you annualize the earningit's much less than what you expect. So could you just talk about how you arelooking it probably?

[Elisha Finney:]

Yeah, the real thing there is,remember we have excelled the dilutive effect in this first quarter, we did nothave it in the year ago quarter. So if you were to correct for that, you willsee that the growth is more in line with the top line.

[Dalton Chandler:]

Okay. All right. Thanks verymuch.

[Operator:]

And your next question comes fromthe line Amit Bhalla of Citigroup.

[Amit Bhalla:]

Hi, thanks for taking thequestion. First one, can you talk a little bit about the new customers forNovalis Rx, I guess you mentioned in the Q&A that some deals have alreadytaken place. Are there brand new customers to Varian and are they goingdirectly into surgical side of the facility?

[Tim Guertin:]

They are customers that have been probably traditionalcustomers for Varian and BrainLAB. And they are customers who knew BrainLAB andthey knew Varian and they saw us as two companies that had competing offerings,it was our linear accelerators that BrainLAB was offering and was often brainBrainLab software that these customers were interested in. So BrainLab wasknown to both. Now BrainLab is probably better known to neurosurgeons, andVarian is better known to radiotherapist. So the combination of the two bringsthe company that's extremely well known to neurosurgeons BrainLab and attachesto customers that's well known to radiotherapist and that's a kind of one-twopunch for these institutions, because now the radiotherapist line up to do itand the neurosurgeons line up to do it. But I can't say that they are customersthat are unknown to us.

[Amit Bhalla:]

But I guess the orders that you have taken, so they aregoing directly to the neurosurgeons?

[Tim Guertin:]

Some of them do go directly to the neurosurgeon, and we dohave some neurosurgeons who have become good friends to us and are very helpfulto us and are helping us in several cases to figure out what our nextgeneration of products looks like. So, yes, we have a lot of customers that are neurosurgeons;however, I would have to say the majority of these machines still probablywined up being placed inside radio therapy departments, although theneurosurgeon is more active with these machines than they have been in thepast.

[Amit Bhalla:]

Can you talk a little bit about the number of units thatcustomers are looking to purchase in the oncology business both U.S.and OUS?

[Tim Guertin:]

The number of units?

[Amit Bhalla:]

Yeah, and given the order, are you seeing the number ofunits customers are looking to buy increasing or they general…?

[Elisha Finney:]

Average deal size.

[Amit Bhalla:]

Average deal size.

[Tim Guertin:]

I don't have that calculated, but based upon conversation Ihave had with sales management, yes, I would say that the average deal size isincreased and also the amount of it that has software involved has increased.

[Amit Bhalla:]

Okay. Just two more quick ones. Last quarter, you had someissues in the brachytherapy business to pricing it from a competitor and flatpanel orders as you saw some inventories coming down, are we through thoseissues?

[Elisha Finney:]

We saw slight decline in the Brachy in the year-over-yearquarter. It did not have any negative impact on the margin, no significantimpact on the oncology margin. And in terms of the flat panel inventoryadjustments with OEMs, that appears to be largely behind us and we were back tomore traditional growth in that business this quarter.

[Tim Guertin:]

Let me add that we will be introducing some newBrachytherapy products at ASTRO and I think those will help us in 2008 as well.So, I think we are going to arrest this slide and probably turn it around.

[Amit Bhalla:]

Okay, just a close out. You did mention in preparedcomments, there were record order numbers in oncology throughout all theregions. Can you give us a little bit more granularity there, where your ordergrowth a region?

[Tim Guertin:]

We don't break out the international territories. We saidthat just so that you would know that it was broad-based across all the territories.But in comparing the territories themselves, as we said North America was up3%, international was up 27% and I would have to say that that number is sortof like kind of like that same number in each of the territories.

[Elisha Finney:]

Yeah.

[Amit Bhalla:]

Okay, thank you.

[Tim Guertin:]

Thank you.

[Operator:]

And your next question comes from the line of Junaid Husainof Soleil Securities.

[Junaid Husain -Soleil Securities:]

Good afternoon guys.

[Elisha Finney:]

Thanks Junaid.

[Tim Guertin:]

Good afternoon.

[Junaid Husain -Soleil Securities:]

Elisha, help us understand your Asian business. Couple ofquestions for you. It's really been after the races, good growth with thisgeography. But as we get into next year, the costs are obviously are going toget tougher. So the first question for you is, do you get the sense that thisbusiness is going to slow down heading into '08? And then as a follow-up tothat, could you give us a sense about your new Chinese manufacturing facility.Where are you with capacity as you ramp up by the end of the quarter, or youhave 50% capacity, 60% capacity just if you can help us out of it?

[Elisha Finney:]

Let me answer the second question first, and I will take theeasy one. We are probably at about 5% capacity right now. So, we do haveorders, we have just started production in China which is very exciting. Butwe have room to grow for years and years and years in the China market and are lookingforward to that. In terms of the second question, I am not exactly sure,where you are headed with this. I can tell that our Far East business for the year was up in single digit. So, the compsfor next year, I would think it's not a terribly easy or tough comp, I guess isone way to look at it. Not sure, where you are going with that Junaid.

[Junaid Husain -Soleil Securities:]

Okay, thanks. Then Tim, could just a bit more color on yourcollaboration with BrainLAB with Novalis. You worked with BrainLAB for the last10 years. And I guess the sense that the success of this collaboration wassomewhat mix, that's debatable. Help us understand with the extension of thiscollaboration, what's new and how this collaboration different from years past?

[Tim Guertin:]

Well, in the past, for example Varian had a multi-leaf andBrainLAB had multi-leaf. And now we have an HD120 multi-leaf that Varian hasdeveloped and BrainLAB agrees that that is a good multi-leaf for stereotacticapplications. And it will probably create more colors of that multi-leaf goingforward. But this multi-leaf is a good one. So, rather than BrainLAB inventinganother multi-leaf to try and take that technology forward, they are going towork with us. At the same time, they've donesome beautiful work in the area of treatment planning and in the work ofcouches. We have a generalized treatment planning system. It can dostereotactic planning. But the BrainLAB treatment system was designed from theground up to appeal the neurosurgeons and they are pleased that neurosurgeonsare pleased to be able to use something that was designed to work with them. Wedesigned our treatment planning system. I would say to work with radiationtherapist and radiation therapy physicist and that's a different crowd thanneurosurgeons. And so, they like iPlan, and for the reason, the 6D couch andthe Exac Trac from BrainLAB grade and BrainLAB is well known to neurosurgeons.They create a thing called a operating room suite, you may have seen it in thepopular literature and it's a suite of applications that enable surgeons tofunction. So, they know BrainLAB very well.So now when surgeons come to BrainLAB or they come to Varian, rather thanseeing a Novalis being offered by BrainLAB, it's based upon our low energyplatform and it's trilogy from Varian based upon our high energy platform. Theysee one platform and one solution, and Varian and BrainLAB, have put the bestof both products on there. And plus, that BrainLAB has a really excellentsoftware organization, famous for their user interfaces and for theirsimplicity of use. So I think that is great. I've known their CEO for many manyyears, I think I safely can call him a friend and he and I have wanted to dothis for a while and it's just taking us a while to work out how it should bedone and the exact moment that it should be done.

[Junaid Husain -Soleil Securities:]

Sure, okay. That's helpful. Andthen, could you give us a sense of a number in Novalis machines in the U.S.and then maybe the number of Novalis machines OUS? That a number you can give?

[Tim Geurtin:]

I think there it's around 100 butI'm not exactly sure.

[Junaid Husain -Soleil Securities:]

And then, you know just givenyour 510(k) approval for your high-end collimator and then the expansion of theNovalis collaboration. I get a sense that you guys are starting to go hard instereotactic radiosurgery. So two questions for you. First, your customers viewthat Trilogy is a machine that can form SRS applications. And do you have asense for what percentage of procedures on Trilogy is, in fact for SRS? Andthen as a follow up to that, how do you view the market for SRS applicationsagainst say accurate CyberKnife. In your mind is the Trilogy and the CyberKnifereally going after the same patients in SRS or do you see it differently?

[Tim Guertin:]

Yeah. In terms of percentage oftreatments of course it's going to vary extremely, widely with the institution.Some people buy a Trilogy machine and certainly with the Novalis Tx, they aregoing to be buying a machine that is going to be used a lot for stereotacticapplications. The main beauty of the Trilogy per se is that it can dostereotactic and it can do traditional, which means that you can work in yourstereotactic patients and your traditional patients to get the maximum possiblerevenue. For those people who are going todo a lot of stereotactic patients and who therefore want very high throughputand they want everything state-of-the-art for stereotactic, because they aregoing to be doing a lot of them than the Novalis Tx makes sense for them. It'sprobably something that's never used 100% for stereotactic applications, butcertainly wouldn't take very many patients probably to justify the machineunder those circumstances, but I think it's the kind of machine that could beused exclusively if you choose to do so. Comparing CyberKnife with the Tx,they do sell to the same customers. They sell to the neurosurgeon and aradiation therapists and physicist have to describe the treatment and have toprove the quality of the treatment. They will treat the same patients and theadvantage of the Trilogy is that its general purpose and it's much, muchfaster, so its throughput is greater.

[Junaid Husain -Soleil Securities:]

Well, thanks. That's really helpful. And then Tim finalquestion for you. Help us understand your VMAT product, especially as itrelates to your presence at ASTRO. You recently hosted an event in New York with yourradiation oncology customers; you got Jim Morris giving the presentation atASTRO at your reception next week. How important is VMAT relative to ASTRO?Have you got a lot of customers calling up saying that they are interested intalking to you about it? And then as a follow up to that help us understandVMAT compares to Elekta VMAT? What is the key differentiator between the twoVMATs?

[Tim Guertin:]

I haven't seen the details on the Elekta VMAT, but I willcome back to that in a minute and give you my thoughts on it. In terms ofcustomer reaction to it, I've talked to some customers about it and our folkshave talked to customers about it. And my personal feeling is that we'll have arevolutionary effect on the way we treat some forms of cancer. Morespecifically head and neck cancers and prostate cancers, because you’d getbetter dose distribution and you get really fast treatment. So who wouldn't wantto do that. And I think it may enable our customer to do some things clinicallythat they've always wanted to do but it would take too much time. In terms of how customers behave when they hear about it, Iwas reading a note recently by one of our physicist Stuart who was present at apresentation in which a presentation was given about this technology, and shesaid that although it was given during a meal everybody went incredibly quite.All of the knives and forks start moving, you couldn’t hear anything and peoplewere in rap attention to the speaker. And that doesn’t happen if it's somethingthat they don’t care much about and their reaction to the treatment times thatwe were discussing and the fact it does the treatment in a single arc wasreally, very strong. In terms of what other people cando, I think the advantage that Varian has is we were actually modulatingseveral things at the same time. We can change the dose rate on the fly, wemove the multi-leaf on the fly and so we can change the beam shape and we canchange the rate at which the machine is rotating on the fly. So the fact that we can do thatmeans that we are completely optimized for speed. At any given time, everythingconfirms so that the machine achieves the maximum possible rate of speed. Andit does it, and the beautiful thing about the treatment planning approach hasbeen taken, is it provides a plan in a single arc so the machine only has torotate around one time and it treats the entire volume at once. So where somepeople just treat one slice or some people just treat a point, we are treatingthe whole volume of the tumor at once as we rotate. So in one 360 degree turnaroundthe patient you get the maximum conformality and you have the minimum amount oftime. So, to the best of knowledge no one else has anything like that. I'dcertainly never see anything like that demonstrated or talked about whereaswith this thing we seen it clinically used, we seen the treatment plans andwe’ve incorporated them in our design and we’ve got the 510(k). So, I thinkwe'd probably have a long lasting advantage here.

[Junaid Husain -Soleil Securities:]

Good, thanks so much guys. That’sall I’ve got, see you at ASTRO.

[Tim Guertin:]

See you there.

[Operator:]

And your next question comes fromthe line of Julie Hoggatt of Noble Financial

[Julie Hoggatt:]

Hi guys, thanks for taking myquestion. I was wondering if you could give any color on where you are withACCEL and if you – when or if you expect a proton system installation and whereyou are with the FDA with this product.

[Tim Guertin:]

Well with ACCEL what we’ve as we put the product togetherwe've discovered that in hardware terms we think that we are, we got a prettygood product. But we think that the software need some work. ACCEL is not asoftware company, but they were very, very high tech company in terms of Magnusand Cyclotrons, etcetera. So the core design is solid, but Varian is a companythat is a software company as well as a hardware company and we're a clinicalcompany. And so we want to produce a product that all of our customers aregoing to rave about. So, we're investing right now heavily in the business ofimproving the software on this product and also looking at the issues of costand how fast it takes us to install, etcetera. When we look at, when we talked to proton customers, what wediscovered is that they all have a lot of contingencies and ifs and ands andbuts in their deals. We decided after negotiating with lot of these folks thatwe really don't want to book an order until all those contingencies are clear.And so, although we have a lot of discussions underway, I expect it's going tobe a while and which is why I think I said in my remarks that I don't expectthat we'll be announcing, we'll probably be announcing that we're indiscussions, but we're not going to be announcing deal that we book intobacklog. This year, I would doubt it based upon the complexity of thesediscussions and the length of time that the projects go on. Typically, we are seeing a three- to four-year planningcycle for these customers, and that is quite a long planning cycle. And soalthough you saw earlier in this year that there were a lot of discussions withcustomers where they said they were sort of fixing to get ready to build theproton center. There haven't been a lot of booked orders this year. And sowe're going to be very careful about this. That being said, they aretremendously enthusiastic, they want proton centers, we're talking to a lot ofenormously powerful customers with access to tremendous resource if they wantthis. And I want to provide them with a product that's worthy of the Varianname and that's why I'm going to be spending the next year or two to puttogether.

[Julie Hoggatt:]

Okay. Your tax rate this quarter was a little below what Iwas expecting, can you give me guidance to that going forward?

[Elisha Finney:]

Yeah, Julie, I am glad you asked that. We did have arelatively low rate this year. It's based on a number of factors, most notably,where profit fall in various geographies. We also had in the third quarter astatute lapse on an open audit year that may or may not repeat itself in thefollowing fiscal year. So all of that said, and with the R&D tax creditthat is due to expire very soon, we're expecting somewhere between 31% and 32%for the FY'08 tax rate. So that's why you'll see that while the EBIT growth weare expecting is in the 13% to 14% range because of the higher tax rate, theEPS guidance is a little below that roughly.

[Julie Hoggatt:]

Okay, thanks. And the last question is, have you seen anymarket share changes this quarter that you can talk about?

[Tim Guertin:]

Well, certainly compared to the first part of the year, wethink we've seen a turnaround in our ability to hold on to market. It'sdifficult to know from any one quarter because you have to analyze the waypeople -- everybody has different booking rules etcetera. I think we probablyare still in the 59% to 60% range worldwide and we are probably in thetwo-thirds of the North American market range. Once again, we are a companythat sees all of radiation oncology which means the slow growing parts as wellas the fast growing parts. We are competing with some companies that are onlyin the fast growing part. So they grow pretty fast there but so do we. Thosesegments of our business are growing like crazy. But we are also seeing someparts of business that aren't growing like crazy and that makes our averagegrowth rate and just a sheer mathematics, I mean it means that your share ofthe overall market under those circumstances fell a little bit. But we think wethat the 14% order growth rate in '07 is equal to the 14% order growth rate in'06 for oncology, and so in all, we had some trouble in quarters. I think weare probably still the £800 [umbrella here].

[Julie Hoggatt:]

Great. One last question on the arc therapy, are you able toship orders right now or is it just that you are taking orders?

[Tim Guertin:]

No, we can't take orders until we have FDA approval. What weare announcing is that we have applied for FDA approval. We don't plan to shipanything even if we got FDA approval. We probably won't ship anything untilspring of next year, because we want to complete all of our testing process,etcetera. But the problem is, it works and one of our customers who have workedwith us on developing it is able to use it clinically until the time has cometo talk about it and it will be a feature in our next release. And our nextmajor release is for early spring.

[Julie Hoggatt:]

Okay, thank you.

[Tim Guertin:]

Thank you.

[Operator:]

And your next question comes from the line of Mark Richterof Jefferies & Co.

[Mark Richter -Jefferies & Co.:]

Hi, guys. Nice quarter.

[Elisha Finney:]

Hi, Mark

[Tim Guertin:]

Thank you, Mark.

[Mark Richter -Jefferies & Co.:]

Just in terms of Novalis, BrainLAB product and thatrelationship versus Trilogy. Can you talk about how these products can sort ofcoexist and market for stereotactic use that sort of in the past you talkedabout Trilogy being an all-in-one product. So what if anything has changed fromyour perspective and do you think this will cannibalize any Trilogy sale?

[Tim Guertin:]

Okay. No, I think it actually is better for Trilogy. Whatwas happening in the past was, Novalis was using a linear accelerator andBrainLAB was using a linear accelerator made by Varian and they were attachingtheir own accessories and software and selling it as a Novalis. We were sellinga Trilogy Tx which was a device made by Varian and with Varian software on itand some BrainLAB options and we would go into the marketplace and with kind ofthe basic same technology and beat the heck out of each other. And so what's happened is, our customers came to us andbasically said look you guys are partners and we want a machine that consistsof a solution from both of you that is the product that we want to buy. Wedon't want to have to listen to this argument over whether or not this machinemade by you or this machine made by you is the best machine. We want you to come forward with a combined solution that ismade by you. And so that's what we did. So it's sort of a decision to stopcompeting with ourselves in this case.

[Mark Richter -Jefferies & Co.:]

And then so how this is seen from a stereotactic use, isthat basically an emission that Trilogy cannot do full body stereotacticradiosurgery was one just better for the brain or can you just better help meunderstand how those are then marketed to the stereotactic part of the market?

[Tim Guertin:]

The truth is both machines were actually able to dostereotactic surgery faster and better than other any machine in the market.The difference is now it's even more so, because we took -- by taking the bestof theirs and the best of ours, you get all of these wonderful user friendlystuff from BrainLAB designed for neurosurgeons to use and you get all of thesewonderful stuff that Varian design to please radiotherapists and neurosurgeonsand you put them together, so you get the best of both worlds. But bothproducts were originally in my opinion better than the competitors products andthey were the optimum choices. It's just that in effect BrainLAB and Varianwill go in as partners and they are confusing our customers and now we're goingin as partners and not confusing our customers.

[Mark Richter -Jefferies & Co.:]

Okay, got you. And then, just the cargo screening businessshowed nice growth in the quarter, I know it's obviously tough to gauge thegovernment and how this business is going to shake out. But can you help usmaybe get a sense of your thoughts on growth going forward?

[Tim Geurtin:]

Yeah. Well, as we already announced, we got a major orderright after the end of the quarter that I mentioned in my announcements andthat was a pretty significant order. It was actually a huge portion of theorders that we were expecting for the quarter that happened in one week. So, ofcourse being the relentless guy that I am, I've gone back to our guys and said,don't think this let you up a hook, you can take the rest of the quarter off.So they are very optimistic that they are at the beginning of a period ofexpansion for their products, a lot of technologies they labored on this yearare now shippable. And so, the big hope for the future is that the technologiesthat we provided for these pilot programs are well accepted within the pilotprograms in the U.S.If they're well accepted as pilot programs in the U.S. and we were not convinced, I'mgoing to need more than 90 days to give you the answer to this. This is whatwe're going to be looking at over the course of the next 12 months. If they arewell accepted, that's going to set us up for huge growth in the future. So I expect to see growth in 2008. I expect to see a lotmore growth in 2009 as these technologies take place. We don't know what theeffect of 2008 as an election year is going to have on this business. You canmake an argument that it's going to help and you can make an argument that it'snot going to help, because there are so many distractions. But certainly whenyou consider the overall security situation of the United States, you know as Iwould predict the security is going to become more and more important factorfor the U.S. as well as other countries and we have a solution for X-rayingcargo containers and for trucks that pass through border processing as thecrossing that's the best solution that I know of and under those circumstancesI think the opportunities are quite large.

[Mark Richter -Jefferies & Co.:]

Perfect. And then on the last question, just a differentsort of way of asking of a prior question, but U.S. Oncology order growth wasobviously not really as robust and there was tough comps as international or isit just a sense of that the fourth quarter last year was just so strong from acomparable perspective or are you seeing more aggressive competition in theU.S. versus international markets.

[Tim Guertin:]

If you average the two quarters together, quarter four ayear ago with the quarter four now you are still looking at 14% numbersyear-over-year. That was an extremely strong blowout quarter in the U.S. ayear ago. We knew from the beginning it was going to be difficult comp. I thinkwe even mentioned it in the last conference call that it was going to be adifficult thing for us to do. So the fact that we improved over a 20 somethingpercent a year ago and the fact that we got 27% international where we had suchtrouble a year ago. I mean, those things that that I am feeling really good aboutthat.

[Elisha Finney:]

And than coupled with flat panel and security, which we arenot a one-trick pony, so ended up with strong growth.

[Tim Guertin:]

Yeah. I would have to say, one of the things that I said twoyears ago was that I wanted to add more legs to the stool. I want us to be inmore businesses, so that we have a more balanced company and I think you areseeing that start to happen now.

[Mark Richter -Jefferies & Co.:]

Perfect. Thanks, guys.

[Tim Guertin:]

Thank you.

[Operator:]

And at this point, this concludes our Q&A session. Iwould like to turn the call back over to management for closing remarks.

[Spencer Sias:]

Thank you for participating. For those who may have come inlate, this call has been taped and it will be available for replay beginning at4

[Operator:]

Ladies and gentlemen, this concludes the presentation. Thankyou for participation in today's conference and have a great day.