新聚思 (SNX) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the SYNNEX Corp fiscal 2007 fourth quarter and year end results conference call. At this time, all participants are in a listen-only mode. Later there will be a question and answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Laura Crowley, the Director of Investor Relations. You may begin your conference.

Thank you, Adrienne. Good afternoon, and welcome to the SYNNEX Corporation fiscal 2007 fourth quarter earnings conference call. Joining us on today's call are Dennis Polk, Chief Operating Officer, and Thomas Alsborg, Chief Financial Officer. Bob Huang unfortunately has a short term illness and is not able to join us today, as talking without coughing is difficult for him right now. We expect Bob will be fully recovered in the next few days.

Before we begin I would like to announce that statements on today's call which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements include, but are not limited to, statements regarding our Canadian consolidation expenses, our strategy for investing in higher growth businesses, seasonality, growth of our consumer electronics division, expectations of our revenues, gross margins, SG&A, net income, EPS and return on invested capital for the first quarter of fiscal 2008, our growth and profitability, the future benefits of our recent acquisitions, our goals for return on invested capital are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in these forward-looking statements. Please refer to today's press release in documents filed with the Securities and Exchange Commission, specifically our most recent Form 10(Q) for information on risk factors that could cause actual results to differ materially from those discussed in these forward-looking statements.

Additionally this conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without specific written permission from the company. Now I would like to turn the call over to Thomas Alsborg for a financial update on our financial performance. Thomas?

Thank you, Laura. Good afternoon, everyone and thank you for joining our call today. I am going to begin by summarizing our results of operations for the quarter. Total revenues for the fourth quarter of 2007 were $1.97 billion, a 13% increase over the fourth quarter of 2006 and a 12% increase sequentially. These results well exceeded our stated guidance and analyst consensus for the quarter. Both our U.S. and Canadian operations performed above expectations for the quarter, which largely drove our strong increase in revenues.

Fourth quarter net income was $20.2 million, or $0.61 per diluted share, also surpassing guidance and consensus.

In the fourth quarter of our fiscal 2007 year, our gross margin once again expanded significantly to reach 5.35%. This represents an increase of 79 basis points compared to the prior year quarter and an increase of 17 basis points sequentially. Our core distribution business and our other businesses, process services, all contributed to our increased gross margin percentage for the fourth quarter, illustrating continuing success of our transitioning business strategy and model. As always, we remain focused and committed to improving all drivers of our gross margin.

Execution of this plan is in part the reason we had company-wide gross profit to expense ratio of 1.54 in the fourth quarter, up 17 basis points from the third quarter.

Fourth quarter 2007 selling, general and administrative expense was $68.6 million, or 3.48% of revenues, compared to $51.2 million, or 2.9% in the fourth quarter of fiscal 2006. This change as a percentage of revenues is in large part driven by our business process services acquisitions, which have a greater SG&A and gross margin profile than our core distribution business.

I would like to report that the Canadian warehouse consolidation is nearly complete and any remaining expected cost-of-completion are diminutive.

Income from operations was $36.9 million, or 1.87% of revenues for the fourth quarter, compared to results of $28.1 million, or 1.62% of revenues in the prior year, and $24.5 million, or 1.39% of revenues in the fiscal third quarter of 2007.

With respect to net, the total for the fourth quarter of 2007 was $4.6 million, a $900,000 increase from the prior year quarter of $3.7 million.

Net interest expense and finance charges were $3.5 million in the fiscal third quarter of 2007. Within this figure, interest expense primarily increased as a result of increased borrowings to support the growth in sales during the quarter.

The effective tax rate for the fourth quarter of fiscal 2007 was 37.5%. Turning to our balance sheet, information and metrics, accounts receivable totaled $730 million at November 30, 2007. DSO, including the receivables from the off-balance sheet program was 44 days. Inventory totaled $643 million at the end of the quarter, translating to 31 days of inventory supply. Days payable outstanding was 32 days. So, our cash conversion cycle was 43 days, consistent with the normal fourth quarter seasonality.

Other fourth quarter data and metrics of note are as follows: Depreciation expense was $2.2 million. Amortization expense was $1.9 million. Capital expenditures for the quarter were $2.7 million. Cash flow used in operations was approximately $155 million for the quarter. From a distribution product line standpoint, peripherals accounted for approximately 31 to 35% of sales, system components accounted for 17 to 21%, IT systems accounted for 29 to 33%, software accounted for 8 to 12% and networking accounted for 5 to 9% of total distribution revenues. Hewlett Packard, at approximately 27% of sales was the only vendor accounting for more than 10% of our revenues during the fourth quarter of 2007. Our total company associates are 6,616 at November 30. This consists of 6,052 permanent employees and 564 temporary personnel.

Moving to our first quarter 2008 expectations, for Q1 2008, we expect revenues will be in the range of $1.73 billion to $1.78 billion, reflecting seasonality trends. Net income is expected to be in the range of 16.2 million to $16.9 million, and diluted earnings per share is anticipated to be in the range of $0.49 to $0.51 per share. Our first quarter guidance reflects the impact to our strategy of investing in businesses and lines that are more weighted toward our fiscal Q4 from sensitivity, or seasonality perspective. And, hence, as this business expands, we will experience a stronger seasonality to our business. You should expect to see a more dramatic lift in seasonality in our fiscal 2008 fourth quarter similar to what we experienced in 2007. Our forecasted diluted earnings per share are based on the estimated weighted-average diluted share count of approximately 33.1 million shares. As a reminder, all of these statements are forward-looking statements and actual results may differ materially.

I will now turn the call over to Dennis Polk for his perspective on the business and the quarterly results. Dennis?

Thank you, Thomas. Good afternoon to everyone. As Laura noted, Bob is not on the call today due to a short term bug, nothing more. Please do not read anything into his absence. He looks forward to visiting with you in the near future to further discuss our solid results for this quarter.

Regarding our performance for the fourth quarter of 2007, SYNNEX produced several record breaking financial milestones. Our revenue was $1.97 billion, the highest in the company's public history. Our gross margin was 5.35% for the quarter, also the highest in the company's public history. We achieved an operating margin of 1.87%, likewise the highest in the company's public history. We increased our continuing operations earnings per share by approximately 27% year-over-year to $0.61 also a record. And finally we closed 2007 with ROIC of 9% and ROE of 14% in the fourth quarter; a solid reflection of the value we are creating for our investors.

As Thomas noted, our core U.S. and Canadian distribution operations drove results past our expectations. However, we received very nice contributions from our recently acquired businesses as well. With regard to customer or product mix, we did not see any material differences from historical patterns or from what is being reported in the marketplaces marketplace today.

We would not be achieving these routes without the continued hard work and dedication of our employees, and the continued business and support from our customers and suppliers. I want to take this motel to recognize and thank them. With the completion of our fourth quarter of 2007, SYNNEX achieved our 82nd consecutive quarter of profitability, 20 plus years of profits.

I would like to begin our business update by providing some perspective on what we have accomplished at SYNNEX over the past several years. Afterwards I would share with you our expectations for the company looking forward.

Over the past three years, we have focused on consistently growing the profitability of the company and with each passing quarter, we continue to gain momentum in this endeavor. Late in 2004, we made a conscious decision to replace less profitable business with investments at higher margin and more profitable lines, such as supplies, technology solutions and consumer electronics. This decision has helped drive our gross margins from 4.18% in 2004 to 5.35% this quarter, which is a more than 100 basis point or 20% plus increase in margin percentage.

Further, in 2006 we embarked on our strategy to transform our company into a more diverse business process service provider. As a result, we now offer our customers and vendors services such as demand generation and call center technical support. As well, by refocusing and leveraging our distribution services we now offer enhanced design registration, system integration services, logistics services, financing services and supply chain management capabilities, including refurbished and end of life product solutions for our vendors.

We have also selectively grown our business geographically. We have enhanced our services in Canada through several strategic acquisitions and today we are one of the largest distributors in Canada. Our strategic investment in Hi China, a Web portal and Web hosting services company enables SYNNEX to participate in the growth opportunities in China while minimizing our risks. As a result of our strategic direction, SYNNEX has grown its GAAP EPS from continuing operations from $1.27 in FY '05 to $1.93 in 2007.

As we began fiscal 2007, Bob shared with you our strategy to continue to grow our market share by adding more value-added services and leveraging our efficient business model.

Bob also stated that we would continue to invest in our new distribution businesses such as our technology solutions division and our consumer electronics business. Additionally, he mentioned that we would further invest in our business process outsourcing operations. And, finally, we committed to do growing our returns to our investors. As is evident by our results today, we are very pleased to report that we have accomplished each of these goals, providing SYNNEX a solid foundation for 2008 and beyond.

Now, I would like to update you specifically on the progress we have made during the fourth quarter on some of our larger initiatives. All of our recent acquisitions from 2007 are performing as planned and these acquisitions are on track with regards to delivering a double-digit ROIC contribution that we expect. Regarding our technology solutions division, which includes our higher value-added services and higher margin lines such as networking, auto I.D., enterprise, document management, security and telephony businesses, we remain pleased with our progress in growing this business, and we are executing on our stated growth to return goals for this division. Our growing consumer electronics division branded under the NEXCE name, also exceeded our internal projections for the fourth quarter, and has continued to ramp up nicely since its inception in September of 2006.

We have also made excellent progress in the integration of RGC and our restructuring activities associated with our Canadian operations. With the restructuring and integration essentially behind us, our Canadian operation is well-positioned as a market leader in commercial, consumer electronics and retail distribution. With all these activities, SYNNEX is well on its way to becoming a company that can truly service our vendors through the entire life cycle of their products. From demand generation to supply chain management to assembly and distribution and technical support. With regard to our Q1 guidance and 2008 expectations, at the midpoint of our Q1 guidance, we are projecting a more than 10% increase in sales and a 16% increase in our EPS.

With regard to our revenue, as Thomas noted, the change in revenue from our fourth quarter to our first quarter reflects the effect of higher seasonality in our fourth quarter. This is a result of our strategy to invest in consumer electronics and retail businesses in Canada and the U.S., followed by normal revenue trends in our fiscal first quarter that do not have the bump from the CE seasonality and other typical fourth quarter revenue streams. The higher growth rate of our earnings is reflective of our continued focus of growing our business profitably.

For fiscal 2008, we believe we will once again continue to grow faster than the overall channel. As a result, we expect our EPS will increase by more than 15% for the fiscal year. This reflects the full impact of our mid-year acquisition, the increased contributions due to continuing synergies, and additional company-wide improvements in efficiency and productivity. With a successful 2008, our goal of 10% ROIC by 2010 with $100 million net profit is attainable and within reach. Internally, we are shooting to reach 10% ROIC in Q4 of this year.

Before I turn the call over for questions, I want to emphasize that we are pleased with the current results and the opportunities we have going forward. We are also cognizant of the external issues currently affecting the macroeconomic environment. While we are not experiencing a material impact at the moment, as is evident by our results reported today, we are, as are all of you listening today, monitoring the environment for any signs of material change. Lastly, I would also like to recognize our board member Dave Rynne. Dave let us know recently that he would not stand for reelection to the SYNNEX board in the next term. Dave provided extraordinary service to SYNNEX as we transitioned from a private company to a public entity over the past five years, and we appreciate his service on behalf of SYNNEX. Dave, thank you very much.

Thanks again for your time today and your continued interest and investment in SYNNEX. Laura?

Thank you, Dennis. Adrienne, let's go ahead and open up the line for questions, please.

(OPERATOR INSTRUCTIONS). The first question is from Richard Gardner from Citigroup.

Thank you very much. Dennis and Thomas, the consensus from your competition is that there is at least some modest slowing in the U.S. small to mid-size business market. I think some have talked about maybe a point or two of slowing in the end markets but definitely a discernible slowing. And we've also heard that Dell, for example, having a tough time in the U.S. corporate market. It doesn't sound like you've seen anything but could you just talk about whether you've seen any discernible change in the market at all in this quarter that we just had? And then as a follow on to that, it looks like, excluding acquisitions, you may have accelerated the growth of your U.S. distribution business at the same time that you expanded gross margins. And I'd just like some perspective on how you achieved that.

Sure. Let me take the first part of that question and then maybe Tom will jump in on the second part. Regarding the SMB marketplace in North America, as far as Q4 is concerned we tend to have a mix shift in our business toward larger deals and larger customers because of the government selling season and the fact that we have a large retail business as well. So our SMB business tends to become a smaller component of our business in Q4.

That being said, I think it is fair to say and echo the comments of our competitors that there is a, I'll call it a slight change in the demand patterns of the SMB. I wouldn't call it a weakness necessarily by any stretch but the business, the SMB business market, is not as strong as it was last year at this time. As far as the growth of our core business I will let Thomas take that question.

I would just comment, Rich, that as you can see from the numbers, our core business did indeed grow particularly as we commented in North America, the U.S. and Canadian distribution. We talked about it on the call, the seasonality of the consumer electronics and retail business that we experienced this quarter and we'll expect to experience in the fourth quarter of each of our coming fiscal years. And I would tell you frankly that we are executing very well in this company so our growth in the business comes from good execution on all fronts with regards to both the core distribution business as well as the recent acquisitions that we made for the company. To be clear, then, there are no special or one time circumstances that would have drove this other than ongoing operations.

Okay. Thank you.

Your next question is from Sean Hannan from Needham and Company.

Yes, hi, this is actually Rich Kugele. You've done a very good job over the years integrating a number of acquisitions. And I was just hoping that now that we are far along in so many of them, you could update us on your ability to bring your IT systems, your internally developed IT systems to bear on these companies and how much as we look at your Opex which has not been rising as fast as sales, you've been able to keep that contained, how much of that is really driven by those systems? And I guess in a broader sense, how much of your cost do you think today are driven by your total IT costs?

Sure, I'll take that one, this is Dennis. From our acquisitions in 2007 from an integration standpoint, I think it's best to look at them in two categories. We have the PCW acquisition and the RGC acquisition in Canada. Those are both distribution-centric businesses and for both of those businesses, we did integrate them very quickly especially from an IT standpoint, because IT is at the core of our low cost operations. We leverage that quite well. Each of those businesses again was integrated very quickly. They've been in our IT systems almost since day one and we are realizing the benefits of our IT systems and the integration of those businesses as is evident by our results today. The other camp of acquisitions, Link2Support and HiChina, those businesses are in different service categories and thus we don't use our IT system as much in those businesses but we are looking at ways to leverage our IT system and further gain synergies and drive down the cost in those businesses.

Rich, this is Thomas. The only thing I would add to that as you're aware in this business, primarily the core distribution business, our IT system is a significant part of the backbone of the company and a significant part of the cost structure. I would just point out that I think you may be sensing our IT system and the fact that we have an inhouse system that we developed over the years as a hugely competitive differentiator in our space and it is one of the key driving reasons that we have such a low SG&A profile and, moreover, that we have a highly competitive operating margin compared to the other players in the space.

That's helpful. And I guess just lastly, if we, whether we are going into a recession or whatever you want to call it or we just have a continuation of relatively stable to small digit spending in the U.S., as you get to be a bigger company, do you think that you should be readdressing perhaps your participation in Asia in a different way? And if you have any thoughts there on potentially expanding out there.

Right now our goal is still to grow our North American business, distribution business. Again, faster than the marketplace. We have been able to do that for many, many years in a row. We still have a lot of opportunity to continue to do so. As far as from a distribution perspective, investing in Asia is not on our radar right now. We did mention on the call we are doing business in China through our HiChina business as well as our internal business process outsourcing services. So our goal and our focus is to remain a leading North American distributor while looking at opportunities outside North America in businesses that are contributory to distribution and synergistic to distribution but not in a distribution environment.

Okay. Thank you very much.

Your next question is from Ananda Baruah from Banc of America.

I was wondering if we could drill down on gross margins a little bit more. You mentioned that you saw incremental, I guess margin expansion from both distribution and from services. I was wondering if you could speak more specifically to some of the areas in both of those categories?

Pleasure. I would point out because we know that the newly acquired businesses are, if you will, from a (integration perspective the fact that they weren't here all the year long is a bit of a noise factor when you try to look at gross margin but the first thing I point out to you is our gross margin improvement was primarily driven by the core operations of the business. We had very nice complementary contributions from our recent acquisitions but I want to be clear that the gross margin is driven by the core business of SYNNEX. Having said that also, I'd just point out that many of the various initiatives that we talked about and Dennis highlighted recently in this call are taking hold and they are making nice contributions. So again, the consumer electronics and the retail space is growing very nicely with nice, higher than average margins. Our technology solutions distribution service is also growing with very nice margins. So the only way I could characterize it is that again we are executing very well and this company is operating on all eight cylinders.

And just one follow up if I could, it seems like each quarter for the last, I don't know if it's been four quarters now or so, you have at least beat our estimates on the gross margin line, and I was just wondering if it exceeds your own internal expectations and, well, I will just stop there and get your thoughts.

As far as our gross margin we have done quite well in the past year plus. Frankly speaking, though, we are really focused on the operating income line. The 1.87% that we posted today is obviously a very solid result and our goal is to continue to focus on that metric and drive that metric higher.

Do you guys still maintain the goal of, I think it's five basis points annual expansion operating margins?

As you think about that goal, that is a goal that we put out, the number actually was five basis points for annual operating margin expansion. We put that out there a couple of years ago as a data point for you. I would tell you that as we think about the business model now, it's important to take into consideration the strategy and the applications of becoming a business process services company. That, while that goal would still exist perhaps with the core distribution business, notwithstanding my earlier comments about how we are growing margins within that business as you look at SYNNEX as a business process services company I think it's time to start rethinking the model. For example, you compare our operating margin this quarter versus last year or this year versus last year, we were up substantially more than five basis points as you can see. And as we look forward as Dennis said, our model changes so we are focusing on generating increasing operating margins and I would expect to see that those operating margins in 2008 would be a multiple of two or three times what you are referring to by basis points.

Okay. Great. Thank you.

(OPERATOR INSTRUCTIONS). Our next question is from Ben Radinsky from Bear Stearns.

Hi, good afternoon. Can I dig to that question just a little bit further, if you look at your guidance for Q1, I think the implication is somewhere like a 1.7% operating margin, which would be down sequentially, but it still would be pretty nice, pretty nice operating margin relative to where you have been in the past. What should we think of now as the base line? Is Q4 a base line for where you think your business can be? Or do you think that that was really just a great quarter, and not that it's an anomaly, not saying that it's another business, but perhaps the base line has materially changed?

Yes and yes. Q4 was a great quarter, but the base line is materially changing. I wouldn't focus your analysis, Ben, so much on a quarter to quarter basis. Again, we just talked about the fact that we are going to see increased seasonality in this business. One of the reasons we've shared with you some of our annual targets now for 2008 in terms of EPS growing by more than 15% is because we want to draw your attention to the fact that this business model is changing. And as I look out over 2008 and I look at the business model, it looks a lot more like our Q4 results does than it would prior quarters or for that matter fiscal 2007.

Just to be real clear, Ben, Q4 was not an anomaly quarter at all. We executed very well and posted very strong results but we feel like we continue to do that moving forward.

Okay. The next question is, just I guess more of how we should think about your business if the economy were to turn. If we entered into a recession, do you think that you would be able to maintain your EPS target simply by margin expansion?

This is Dennis. Whatever the market conditions are, we obviously couldn't use that as an excuse. We have a fairly large market that we are a participant in and we are not that large of a player currently. So we think we can execute in almost all conditions. Albeit we have to be very cognizant of the market going into a recessionary type, to a recessionary type environment, excuse me. So we are, as we look forward to 2008, we are planning for the market to be more challenging, but again, we feel through our execution we can hit the revenue and EPS guidance we talked about in Q1 and the EPS guidance for the full year.

Okay. Two last questions for me. The first is, assuming the numbers that you've given us for 2008 you will be generating a nice amount of free cash flow. With that presumption, what do you think you will do, what are your primary uses of that free cash flow? What would you do with the cash you generate?

Well, obviously we are going to invest that cash to help achieve the higher double-digit returns that we've been talking about all this time. On the short run in some cases that will mean just reducing our debt within the company but over the longer term, we are going to be making continued investments in this business that drive ROIC.

To add to that, we always are looking at acquisitions to improve our business and where we see opportunity, we will definitely invest our free cash flow in that.

Okay. Then the last question is, your guidance for Q4 was substantially lower than where you actually came in. What would you attribute the greatest variance to? Where was your budget materially different than the actual results?

Well from a top line perspective, Ben, the revenue achievement came from the distribution business. And it came from both sides of the border in North America. Our Canadian and our U.S. distribution both executed very well and achieved results above our expectations for the quarter.

Then on the margin side?

Consistent with the revenue comment as well. I think it's important to note--

I guess where I'm trying to go, was there a specific acquisition that outperformed? Was there something in specific that you could attribute it to other than saying just the business is great?

There really is no outlier that I could contribute to the revenue or earnings achievement that we have. Again, we have a consistent performance to our core businesses as well as our new businesses that we added, including the RGC business in Canada, Link2Support, HiChina and PCW. The key things, the message we are trying to get across here, is our services and our business model is working very well here. And it's being recognized by our customers. We received an award during the quarter from CDW. We received an award during the quarter from Sun and we also received an award in the quarter acknowledging our government services. So all the initiatives that we are working on are starting to bear fruit.

That's it for me. Thanks.

Thank you.

Your next question is from Brian Alexander from Raymond James.

Thanks, guys, and nice job. I just have one clarification and a few questions. So on the Q1 guidance, if I hear you correctly, the entire Delta in terms of the sequential decline being below normal historical patterns is new seasonality driven by some of the acquisitions you've made and more exposure to consumer and retail and is not due to any weakness in demand, although you did say you are seeing signs of weakness. So I'm just trying to figure out whether you factored into your guidance the weakness that you talked about.

I think it's fair to say that of your question there is more weight on the seasonality aspect of that statement. But we always are cognizant of the marketplace.

And on that change in demand patterns as you characterize it, Dennis, could you just give us a sense for when you started to see that? Is it cross product lines and verticals or is it concentrated in any particular area?

I'm sorry, Brian, was that a linearity question for Q4 or was that Q1?

In general when you say demand patterns have softened a little bit I'm just wondering when you started to see that.

I'm not suggesting that demands patterns have softened. I think you're referring to the first question about the SMB marketplace.

So the demand patterns within the SMB sector.

Again, as Bob noted on our call in the last quarter, Q3, we did see some indications of that and that continued through Q4. But again it's just a lower growth pattern, not suggesting a weakness necessarily in SMB.

Okay. And then if we switch gears to the full year growing EPS by 15% or more implies you are going to do or you hope to do $2.22 or thereabouts, or higher than that, which is well above consensus. If we drill into that 15% EPS growth, can you just kind of help us prioritize how much of the growth would come from your core distribution business, how much of it would come from your specialty distribution, i.e. PSD, and how much do you think will come from BPO? If you are not going to quantify, maybe just help us think about where you expect the most meaningful growth to come from?

Yes, I'm not going to break down the growth from those categories, necessarily, but I can say that each one of those categories is contributing to the growth. As Thomas mentioned earlier in one of his responses our core distribution is growing nicely. Our TSD business is continuing to grow nicely and we continue to get solid benefits from our acquisitions. And on top of that, our Canadian business is growing nicely from a core distribution perspective as well.

The only thing I would like to add to that, Brian, is as we talked about the model before, again, in addition to just the revenue opportunities that we have, we are seeing good margin expansion which we expect to continue to see, and so as we look out over the whole fiscal year of 2008 you would expect to see substantially nicer operating margins, again, not dissimilar to what we were experiencing just currently in Q4 of 2007.

But if the likelihood of a meaningfully slower U.S. IT environment materializes where industry growth instead of 5 to 7% drops down to low single digits? It sounds like you are still very confident you can grow EPS 15%. So I'm just trying to understand, is there a base revenue growth that you would need to feel, to still maintain that confidence? In other words, if industry growth dropped to 1 or 2%, it sounds like you're still confident you could drive that level of EPS growth and I'm not sure how that would materialize.

Of course, I'm not going to present to you a particular minimum growth rate for revenue that we expect to incur in order to achieve our goals. I want to bring you back to the comments that Dennis said which is we are committed to driving the results that we've described to you. We have a history of growing at or above the rate of the distribution channel in the market overall. You can expect SYNNEX to continue to do that responsibly. But the reason that we are giving you guidance not so much on a top line basis but on an EPS basis and ROIC basis is because we are trying to bring your attention to where our focus is and we are committed to profitable revenue growth. We are committed to growing our EPS and we are committed to growing ROIC. Those are our top priorities.

And just a final clarification on that 15% target, I assume that does not include any future acquisitions that you haven't already announced.

That's correct, that does not include any future acquisitions.

Okay. Thanks a lot.

Thank you.

Appreciate your comments.

(OPERATOR INSTRUCTIONS). There are no further questions.

Okay. Great. Thank you, Adrienne. We will go ahead and conclude our conference call today. Thank you for joining our fourth quarter earnings conference call. We will have an instant replay of this call available for two weeks beginning today at approximately 5 p.m. pacific time through January 24, 2008. And as always, should you have any follow up questions, both Thomas and I are available to take your call. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.