Celestica Inc (CLS) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Celestica's fourth quarter results conference call.

(Operator Instructions).

I will now turn the conference call over to Paul Carpino, Vice President of Investor Relations.

Please go ahead.

Thank you, Jose.

Good afternoon, everyone.

Thank you for joining us on Celestica's fourth quarter conference call.

On our conference call today will be Craig Muhlhauser, President and Chief Executive Officer and Paul Nicoletti, Chief Financial Officer.

Craig and Paul will provide some brief comments on the quarter and then we will open up the call for Q&A.

Copies of the supporting slides from this webcast can be viewed at celestica.com during this conference call.

We know this is a busy day, so this call will last approximately 45 minutes.

However, we can be reached for follow up questions at any time this evening.

During the Q&A, please limit yourself to one question and one follow up to ensure that everyone on the call who would like to ask a question, has the opportunity to do so.

You are welcome to get back in the que after you ask your question.

Before we begin, I would like to remind everyone that during this call, we will make forward-looking statements related to our future growth, trends in our industry, and our financial and operational results and performance that are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.

We refer you to the risk factors and uncertainties discussed in the Company's various public filings, which contain and identify factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

These filings include our form 20-F and subsequent reports on form 6-K filed with the Securities and Exchange Commission, which can be accessed at sedar.com and sec.gov.

Please note that we will refer to certain non-GAAP financial measures during this call.

The corresponding GAAP information in reconciliation to the non-GAAP measures are included in our press release, which is available at celestica.com.

I will now turn the call over to Craig Muhlhauser, President and CEO.

Thank you, Paul, and good afternoon, everyone.

Two years ago, Celestica embarked on a major transformation of our Company.

Our objective was to drive significant improvement in areas such as customer satisfaction, operational excellence, operating margins, working capital efficiency and the strength of our balance sheet.

By driving improvements in these key focus areas, I'm pleased to report that in the fourth quarter, as we have for the past eight quarters, Celestica continued to deliver on our guidance to the investment community.

For the fourth quarter of 2008, our revenue was above the Company's mid-point, a result of higher revenues in our Consumer, Industrial/Defense/Aerospace business, and our Telecom segments.

Our gross margins were 7.3% , which represented the second consecutive quarter over 7%.

The consistency of this result reflects the tremendous progress we've made in our operational execution, and our efficiencies worldwide and the benefits of exiting or fixing unprofitable aspects of our business.

We we initiated our major transformation in January of 2007, our first quarter gross margins that year were 4.3% and 5.3% for the full year.

In 2008, gross margins for the year were 7%, making this the first full year at this level since 2001.

Operating margins in Q4 this year were 3.2%.

These results were achieved despite the significant volatility in foreign currency in the fourth quarter, which has negatively impacted our SG&A by approximately $13 million, consistent with the third quarter.

By contrast, in the first quarter of 2007, we began this journey.

Our operating margins were .3%.

In 2008 our operating margins for the full year were 3%.

Our strong performance in working capital [metrix] and balance sheet strength also continued in our fourth quarter.

Inventory returns remain strong in the fourth quarter at 8.8 turns.

This positioned Celestica as the top performing company in inventory turnover compared to our North American competitors for five consecutive quarters.

For the past 24 months, we've delivered continuous improvement in our inventory turnover.

In 2006, we averaged inventory turns of approximately seven turns and in 2008 we are a full 1.8 turns higher, averaging 8.8 turns this past year.

In terms of financial strength, Celestica is among the strongest in our industry.

We ended 2008 with $84 million more cash than we did at the end of 2007.

We spent $30 million in cash to repurchase a portion of our long term debt, and we reduced the use of our accounts receivable sales program to zero in the fourth quarter, compared to $225 million at the start of this year.

If you compare with our balance sheet of two years ago, we've increased our cash balances by almost $400 million despite using $360 million to reduce our sales program and repay a portion of our long term debt.

During the same time frame, we've also improved our cash cycle by four days, and generated free cash flow for two straight years, totaling $434 million.

As a result of this performance, we have the highest net cash position in our industry.

A very conservative capital structure and the strength and flexibility to manage through these very turbulent economic environments.

Overall, these past 24 months has resulted in significant improvements in profitability, working capital performance, and asset utilization, leading to a strong balance sheet for future investment.

We have become among the best in the industry in terms of operating and financial performance, which has built confidence with our current and new customers, that we have the ability and the financial strength to support them during these challenging times.

We now believe we've earned the right to grow, and we are targeting to make selective investments in key markets, customers and industries to drive our future growth.

Celestica's revenue is down about 13% over the past two years.

This decline has been driven by customer and program disengagements, as well as weakness in some of our more traditional markets and key customers.

We've offset some of this decrease with increases in segments such as our consumer segment, which is benefited from new program ramps and increased by 26% over these two years.

The current outlook for our end market is weak, and the economic environment is uncertain.

We expect customers to carefully review their supply chain partners to ensure they are working with the very best performing companies, both operationally and financially with the ability to invest in their future.

We expect to benefit as customers realign their partners.

However, with this backdrop we have determined that all of our remaining goodwill was impaired, based on our current market capitalization and the uncertain economic environment in associated lower demand in this environment.

The remaining goodwill on our balance sheet was primarily a result of acquisition of Omni Industries during a period when growth rates and valuations were significantly above those in our current environment.

Today, customer supply chains in the majority of our segments are experiencing demand reductions and volatility with limited visibility.

Since we are unable to predict the future, we see an opportunity to help our customers adapt in the current environment and prepare for unexpected changes by delivering agile and flexible end-to-end supply chain solutions that enable our customer's success.

The solutions must eliminate waste, bring new products to market very quickly, reduce total cost of ownership over the entire lifecycle of the products and dramatically increase our customer's ability to generate free cashflow and drive the return on their invested capital.

End markets will eventually recover and when they do, the companies that remain disciplined and aggressive in managing cost and cash in this current environment will be the ones to gain market share and emerge even stronger as a result of the tough disciplined actions in investments in customer focused innovation.

In this environment we will be disciplined in targeting and securing profitable revenue opportunities as well as delivering further improvements in customer satisfaction, operational execution and financial performance.

In our outlook for the coming quarter, we have seen weakness across all market segments beyond normal seasonality with the consumer segment showing the largest decline.

As I speak to customers today, they are unsure of their demand and we are responding quickly to adapt to these changes, while maintaining our quality and service levels in support of these customers.

We are accelerating our current restructuring plans to underpin our financial performance, ensuring we continue to deliver operational excellence in this difficult environment.

Over the past two years we've worked hard to build a leaner, more variable cost Celestica.

At the midpoint of our Q1 2009 guidance, our operating margins would be approximately 2.3% despite a 22% sequential design -- decline in revenue.

By comparison, in the first and second quarters of 2003, when Celestica had similar levels of revenue, approximately $1.6 billion, our operating margins ranged from minus 1% to slightly above break even.

As we move forward into the uncertainty of 2009, Celestica is a stronger, more focused, more flexible company.

We will be working to maintain healthy profitability, despite the significant lower revenue and the only constant in this industry is change.

And end markets will change, they will change quickly and they will change frequently.

As we navigate through this challenging environment, our intent is to position Celestica in ways in which we can talk about how we've successfully maintained our performance.

No doubt end market demand will play an important role in our future performance, but today Celestica is in a significantly better position to deal with this environment.

That concludes my remarks.

Now let me turn the call over to

Thanks, Craig, and good afternoon to everyone.

Revenues for the fourth quarter was 1.935 billion, down 5% sequentially from the third quarter and down 12% from the fourth quarter of last year.

This was above the midpoint of our guidance at Telecom, Industrial/Defense/Aerospace and the Consumer segment shows sequential growth offset by expected declines in enterprise communications, servers and storage.

Telecom strength came from increased volumes from existing programs due to a customer-specific buildout while the Consumer and Industrial/Defense/Aerospace segment benefited from ramps of previously won new programs.

Looking at our revenues by end markets in Q4.

Our Consumer segment represented 30% of our business.

Enterprise communications represented 22%.

Telecom was 17%.

The server segment represented 13%.

Storage was 9%.

And finally Industrial/Aerospace/Defense came in at 9% of revenue.

Moving to our Customer Concentrations.

Our top ten customers represented 66% of revenue for the fourth quarter.

Our top five were 43% of sales.

And one customer in the Consumer segment slightly exceeded over 10% of total revenue in the quarter.

GAAP loss in the fourth quarter of 2008 was $822.2 million, or $3.58 per share, compared to a GAAP net loss of $11.7 million or a loss of $0.05 per share for the same period last year.

GAAP loss in the fourth quarter of 2008 included the writeoff of our entire goodwill balance of $851 million.

The goodwill impairment testing, which occurs annually in the fourth quarter, includes a review of our market capitalization relative to our book value, as well as assessing fair value using market multiples and discounted cash flows, the latter of which uses revenue and expense projections and risk adjusted discount rates.

The goodwill writeoff is non-cash in nature and does not affect our liquidity, cash flows from operating activities or our compliance with debt covenants.

The charge is non-deductible for income tax purposes and, therefore, we have not recorded a corresponding tax benefit in 2008.

Other charges also included an $8 million gain on the repurchase of our debt, as well as $9 million charge associated with long lived asset impairments.

Adjusted net earnings for the quarter were $59.1 million or $0.26 per share including a $15.5 million or $0.07 per share benefit associated with a lower adjusted tax rate for the year.

Excluding the tax benefit, adjusted earnings per share was $0.19, in line with our fourth quarter guidance.

Lower tax rate for 2008 included some one time benefits, including favorable resolutions of historical tax audits and benefits from tax deductible foreign exchange losses recognized in Q4.

For 2009, we believe a 10% tax rate to be more appropriate annual rate for adjusted earnings.

These result,s compared to adjusted net earnings of $37.2 million or $0.16 per share for the same period last year.

The stronger adjusted earnings year-over-year were driven primarily by improvements in our Mexican and European operations, which were not profitable in 2007.

Despite the 12% year-over-year revenue reductions, gross margins improved to 7.3% compared to 6% for the same period in 2007.

SG&A in the fourth quarter, excluding option expenses, was $79 million or 4.1% of revenue.

The volatility in exchange rates for certain foreign currencies continued in the fourth quarter and resulted in an unfavorable foreign exchange loss of $13 million, which was approximately the same impact as in the third quarter of 2008.

Most of the foreign exchange losses were unrealized and resulted from the translation of foreign currency denominated assets and liabilities to US dollars at December 31, 2008.

While we continue to expect volatility, we believe that we have stabilized the impact going forward.

Despite the impact of higher SG&A, operating margins came in at 3.2%.

The more severe fluctuation in currency over the past few quarters has had a more noticeable impact on SG&A.

However, our more typical SG&A is in the $70 million to $75 million range per quarter.

In terms of a restructuring update, we recorded charges of $12 million in the fourth quarter.

In 2008, we recorded $35 million of the anticipated $50 million to $75 million restructuring charges that we announced at the beginning of 2008.

Given the current environment, we expect we will be at the high end of the previously announced range as we move more aggressively to take out costs and capacity.

As always, we will continue to review our overall infrastructure to make sure we maintain an optimal cost structure.

Moving to working capital in the balance sheet.

Celestica continues to deliver excellent results and enjoys the strongest net cash position in the industry.

Cash at year end was $1.2 billion and long term debt was $733 million.

During the quarter, we spent over $100 million to repurchase a portion of our 2011 and 2013 notes and to reduce our accounts receivable sale program to zero.

Our decision to reduce the accounts receivable program to zero reflects our ability to self-fund our working capital, our consistency in generating free cash flow and the overall strength of our balance sheet.

Overall, our balance sheet is an exceptional shape and gives us the opportunity to deal comfortably with a weaker revenue environment and to invest in future growth opportunities.

In addition to the significant cash position, we have a $300 million credit facility which remains undrawn and is fully available.

This facility expires in April of 2009, and we are currently reviewing the merits of extending all or some portion of it.

We have never drawn in this facility in the ten years Celestica has been a public company.

Given the current state of the credit market in our very strong liquidity position, we are assessing whether this facility is necessary in our capital structure.

Cap Ex in the fourth quarter was $26 million.

As we completed some additional capital requirements for recently won programs.

Cash flow from operations was slightly positive.

And as noted, we used over $75 million in excess cash to reduce our accounts receivable program by $75 million to zero and repurchased $38 million of debt.

The cash cycle for the quarter was 12 days and inventory turns were 8.8 times.

Inventory was down $56 million sequentially, primarily driven by lower revenue expectations going into the first quarter.

Looking ahead at our first quarter guidance.

Demand across multiple industries has continued to weaken and visibility remains low.

For the first quarter, we are guiding revenue between $1.4 billion to $1.6 billion which at the midpoint will represent a sequential decline of 22%.

Typically, we would expect a seasonal decline closer to 15%.

We expected adjusted net earnings per share between $0.07 and $0.13 in the first quarter and at the midpoint of our revenue and earnings per share guidance, operating margins would be in the 2.3% range.

We are entering 2009 with an exceptionally strong financial position, and as Craig mentioned, we will be working aggressively to protect profitability despite lower revenue.

If we meet the midpoint of our Q1 guidance, margins would be only slightly lower on the year-over-year basis despite what would be an 18% decline in revenue year-over-year.

Our model is more robust today and our focus will be on protecting profitability.

That concludes our remarks, and I will now ask the operator to start the question-and-answer session.

Thank you.

(Operator Instructions).

Your first question comes from Brian White from Collin Stewart.

Please go ahead.

I'm wondering if you could talk a little bit about what you are seeing on the outsourcing front?

It's pretty clear end markets are very challenged.

Are customers wanting to outsource more or are you also having customers insource?

Brian, this is Craig Muhlhauser.

We are actually seeing both trends.

We are seeing some customers taking the opportunity to insource as they are filling capacity in their own operations and we see the other side of that, which is companies looking to actually reduce the number of suppliers as they work to take advantage of both the combination of the market as well as the potential pricing environment.

So, both trends.

We also see companies looking for a support on supply chain side in terms of working capital improvements as well as cost reductions and materials supply.

Okay.

The outsourcing piece of it versus the insourcing, I assume, is a higher percentage as a net positive?

The outsource -- yes, I would say so.

And the insourcing activity that we see will be largely end market such as Europe where the structural cost of restructuring are relatively high.

Is there any -- just looking at the inventory balance, you did a decent job here, it declines sequentially, almost a little more than your sales.

If we look into the March quarter, how should we expect inventory to trend relative to the dip you are expecting in sales?

Similar, less?

More?

It's Paul.

I would expect absolute inventory to go down in the March quarter.

Certainly, the revenue guidance for Q1 is as -- as I mentioned a bit higher than usual.

We have seen some demand reduction that's been more recent in nature.

So we have some inventory that's inbound that will take us a bit of time to work through.

But nevertheless we do expect absolute dollars to be down as of March.

Did you think it could be close to what you are looking for sales?

Or would be less than that ,at that 22% decline?

I think it would be a little less than that, Brian.

Thank you.

Thank you.

Your next question comes from Amit Daryanani from RBC Capital Markets.

Please go ahead.

Good afternoon, guys.

Just a question that you guys talked about refocusing back on growth and, just giving the strength on your balance sheet, at this point which is fairly solid, please help us understand how do you expect to grow the business at this point?

Are we talking acquisitions, are we talking about building internal capabilities and maybe start with what end markets you may focus on at this point.

We were looking at a range of options, starting primarily with organic growth is the primary target, the combination of our current markets.

So, virtually every one of our customers offers an opportunity for us to expand our service offerings across a wider range of offerings and we have the ability with new customers then, to offer the similar types of services.

I would say the industries that we are targeting, obviously, range across our IT enterprise space.

Significant opportunities in the communications space for us, as well as some of the industry markets such as alternative energy, health care, industry and commercial aerospace and defense.

It's pretty wide and pretty broad.

And it fits with the basic business model we have here at Celestica.

And it's Paul.

If I could add one comment to Craig's remark's.

One thing that we are seeing and we have seen it from more than one customer where frankly, they are moving away from suppliers where they are concerned with financially and just taking advantage of -- obviously we have a very strong balance sheet and no liquidity concerns here whatsoever.

So that's also something that we see as the year progresses is going to accelerate.

We think there is a lot of OEMs are looking at the health of their supply chain and are making sourcing decisions accordingly.

Absolutely.

And I guess could you maybe just talk about -- OEM, which I think was over 10% sales this quarter for you guys.

Is the relationship there -- the program's -- they are fully ramped or is there more to come into your pipeline going forward from there?

We typically don't talk specifically about customers in terms of the opportunities we have in the segment.

They continue to grow for us.

All right.

Just a clarification.

Did you say the Telco business was 17% which means is up 15% sequentially?

Yes, I did.

And what drove that?

That shows pretty good growth in a fairly tight end market.

Just as I mentioned, one particular customer had a particular buildout.

What we have seen is it's more choppy.

So our Telecom customers get a big order.

And it flushes through us and then it will fall off.

So, in Q4, a particular customer, we were helping them satisfy an order they had and we certainly were pleased to take that revenue.

Thanks a lot, guys.

Thanks, Amit.

Your next question comes from Jim Suva from Citi.

Please, go ahead.

Great, thanks very much.

Within those potential opportunities to grow, are you looking more at like building out some of your equipment or more R&D or actually making acquisitions or acquisitions of some of your competitors or acquisitions of OEM assets?

How should we think about that strategy going forward, Craig?

Jim, we are thinking a range of options, primarily around the organic growth of the company in target markets that represent growth opportunities as I mentioned, in the alternative energy space, the health care space, the industry space, commercial aerospace and defense, selective opportunities and consumer and communications and broadening our service offerings in the IT enterprise space to become more of a system integration-type place.

Frankly, in the near term we see substantial opportunity to build on our infrastructure.

We don't see the value in near term acquisitions of related companies, if you will.

In that they represent opportunity to expand our customer base, but not necessarily at the levels of performance that we have internally.

So, it's largely around organic growth targeted target markets in areas of the businesses that are growing faster than the overall markets.

And as Paul mentioned, with the backdrop of the economic environment, the ability for customers to consolidate their supply base is something they are considering.

As they look at their alternatives, obviously, our financial strength and our operational performance factors in and makes us a more attractive partner to become one of the consolidators on behalf of our customer rather than by their company, if you will.

Great.

And as a quick follow-up, can you talk about pricing in industry as now we look at a more pressured demand environment?

Do you think pricing is going to increase since some of your peers are not performing quite as well and they are losing business and just kind of the excess capacity that we have out there?

Yes.

Jim, I think you are right on.

The pricing environment is very aggressive.

And, obviously, with excess capacity and some weak competitors obviously, we have to make sure that we are diligent in targeting the right opportunities and maintaining discipline around our pricing.

Thanks very much.

Thank you.

Your next question comes from Todd Coupland from CIBC World Markets.

Please go ahead.

Good afternoon, everyone.

Hey, Todd.

Hi, Todd.

I missed this part of the presentation, so I apologize if this is a repeat.

But I think the [Comm IT] business was up sequentially and I just wondering if there is any color you can provide in what's going on there.

Todd, which section, the enterprise communications or just want to make sure I got your question properly.

Yes, the enterprise communications section.

The section that was up was Telecom, Todd, not Enterprisecom.

As I mentioned a few moments ago just in relation to a particular buildout to a customer.

Okay.

And if I could ask one more question.

At this point do you feel that Q1 will be the low quarter for 2009?

Is there any color you can provide on that?

Todd, our visibility is really limited to about the three month time period, I would say.

So, right now we can get no visibility beyond the first quarter.

Okay.

Great.

Thanks very much.

Thank you.

Your next question comes from William Stein from Credit Suisse.

Please go ahead.

Thanks.

Wondering if you could talk about inventory trends at your OEM customers.

Are you seeing any issues there.

Are you seeing destocking that could be hiding some potential future growth potentially?

Well, it's not something we have seen.

The inventory overall in the entire supply chain has been actually fairly healthy as represented certainly by our churn.

So we've not seen anything like that -- uses that, in this environment lead times are pretty short.

So it's led to less buildup and better able to respond right across the board to the demand reductions.

For Q1, can you talk about which segments you expect to be stronger versus what you'd normally (inaudible) basis.

So, I think Craig mentioned that we are falling off -- so first we are down 22% overall.

Craig commented on consumer.

They are all about the same, I will say.

Consumer perhaps, is a small spike up.

It's pretty pervasive.

Not one is sticking out over the other when I look out over the end market segments, they pretty equal.

Thank you.

Thank you.

Your next question comes from Steven Fox from Merrill Lynch.

Please go ahead.

Good afternoon.

Just maybe, this might be the same question asked a different way.

Going back over the production schedules you saw during the last quarter.

How much did you wind up getting cuts versus original expectations?

I know you guys provided a pretty wide guidance but didn't come back in December and lower that range.

And then when you looked at the March quarter, is it a lag relative to inventories that were created?

Or is it expected demand that your customers are talking about as opposed to in terms of why demand is weaker than normal.

First on the fourth quarter, you know, as you said, we gave wide range.

Pleased to be above the midpoint.

We actually had a good quarter.

Things unfolded pretty much as we expected.

I would say over the last 30 days things have deteriorated.

It feels like everyone came back from the holidays and decided to take demand down.

We saw things hung in pretty well --

Through the end of the year.

Is that based on expected demand or there was pushouts in the last quarter, so the production scheduled from last quarter turned out to be too optimistic.

No, I think our production schedules for the fourth quarter were in line with our forecast and our expectations so the surprises came as we entered, as Paul mentioned, when we came back from the holidays and people began to take closer looks at their Q1 outlooks.

And they became a more conservative view of the expectations were versus where we were before the end of the year.

Got it.

And just in terms of your European footprint, where do you stand with that this year if you are looking at a little bit more restructuring actions.

Is that one area of focus?

Can you just sort of talk about what is going to be targeted in terms of taking the footprint down a little bit during 2009?

Sure.

As I mentioned, we are not increasing or adding any restructuring.

We are going to go to the high end of what we discussed.

We don't discuss site specific actions until they've been announced.

So I will just say we have four sites on the EMS side in Europe, one in Ireland, I guess five sites in total.

All perform different range of services for different customers.

And we will take them and right now we think it's the right footprint.

Okay.

Thank you.

Thank you.

(Operator Instructions).

Your next question comes from Brian White from Collins Stewart.

Please go ahead.

Curious on the Telecom area, are you participating in the big 3G buildout in China in 2009?

We don't make specific comments.

We are participating in a wide range of technologies across a number of customers but we don't make specific comments on where.

Okay.

Thanks.

Your next question comes from from Sundar Daravarajan from Celestica.

Please go ahead.

Hello, I'm actually from Deutsche Bank.

Quick question.

I noticed that you guys participated in open market purchases and took out some debt.

Given where your debt is trading do you expect to continue to be opportunistic in this regard?

Or given that you might choose not to, or not to -- or perhaps downsize your credit do you think you will be more conservative with your balance sheet?

Any color on that front will be helpful.

I'm sorry.

My apologies.

We had a hard time hearing you.

Could you repeat your question?

No worries.

I saw that you reduced your debt this quarter by $30 billion on some open market purchases and all that's reduced your off balance sheet [ADRFLB].

Can we expect to see more of that in the future or given that you're considering that, to downsize your credit facility perhaps, you may choose to be more conservative and keep kind of cash on the balance sheet?

Yes, so listen, our objective is to take the cash and invest in the business, particularly as we generate the returns that we were generating.

So that's the primary goal.

We were opportunistic in Q4.

We will stay close to that and monitor it in a week by week just seeing what we see.

Our goal is to invest in the business.

As you said, one thing that Celestica has been known for is staying conservative on the balance sheet and that's certainly something we would expect to do.

But have no further plans at this time beyond what we had done in Q4.

Great, thank you.

Okay.

Thank you.

Your next question comes from Matthew Sheerin from Thomas Weisel Partners.

Please go ahead.

Yes, thanks.

Just want to ask another question just regarding demand in your outlook.

You talked about seeing order rates drop in January.

Do you get a sense at all that it's really true demand or your customers are in fact working down inventory, finished goods inventory, because December was weak, so they have to work through that before you get a better sense of what the true demand is?

I think it varies across the customer base.

I think you will see some related to bleed over on the inventory from the end of the year and you're going to see some related to their outlook for the demand environment.

So I don't have a specific percentage but I would say both factors are at play here.

Okay.

Thanks very much.

You bet.

Your next question comes from Joe Whitten from Longbow Research.

Go ahead.

Just a quick question really, about your guidance.

You mentioned that end point of the March quarter guidance (inaudible) imply a 3.2% in operating margin.

My question is, what's -- what run rate would be required to breach the low end of your long-term operating margin goals of 3% to 3.5%.

Will the low end of the March quarter guidance kind of reach that level?

Have you looked at that in your model, I guess?

I just want to clarify.

We said that at the midpoint of the Q1 it would imply operating margins of 2.3%.

I think your question which is posed saying it's 3.2%.

So, just to clarify at the midpoint of our guidance at 1.5 it's around 2.3%.

As far as our shorter-term objective, between 3% and 3.5%, it really depends on the mix.

You are seeing a pretty strong margin performance here in Q4 with $1.9 billion.

And it depends on your view on some of the one timers on FX.

Obviously a strong performance -- could we get up to 3% at the high end of the range?

It's possible.

But I think more realistically between 2.5% and 3%.

Okay, thanks a lot.

Okay.

Your next question comes from Frank Jarman from Goldman Sachs.

Please go ahead.

Thanks guys, just one quick follow-up on the debt repurchase.

Could you guys just give us some more details regarding how much of each issue you repurchased and sort of what the average price paid was.

Thanks.

So we repurchased about 11million of the 11's and the balance on the 13's.

And they were just bought at market in the December time frame, so they were bought at a range of prices.

As we will see in our statements, we retired $38 million worth of the face value of the notes and we spent $31 million.

So, fairly reasonable return on that investment.

Great.

Thanks.

That's all I have.

Thank you.

There are no further questions at this time.

Please continue.

Okay, if there are no further questions I would like to thank everybody for their interest and support and we look forward to our upcoming call at the end of the first quarter.

Thank you very much.

Thank you.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating.

Please disconnect your lines.