切遲杜威 (CHD) 2011 Q4 法說會逐字稿

Please stand by for the Church & Dwight fourth quarter earnings conference call.

Good afternoon, everyone. Welcome. My name is Matt Farrell. I'm the CFO of Church & Dwight. Before we begin, this conference call will include forward-looking statements. These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from these statements.

For information about certain factors that could cause such differences, investors should consult our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions Risk Factors and Cautionary Statement on forward-looking statements.

We will discuss organic sales growth including -- pardon me, excluding foreign exchange effective tax rate, acquisitions and divestitures. We will also discuss gross profit margin, operating profit, net income and earnings per share, excluding the impact of the one-time items described in today's press release. A full reconciliation with the corresponding GAAP measures is included in the press release and is posted on the Investor Relations section of our website at www.churchdwight.com. Now let me turn the podium over to Jim Craigie for his opening remarks.

Thank you, Matt, for covering that exciting part of the presentation today. I want to say good afternoon to all of you and welcome to the epicenter of capitalism on Planet Earth here in the boardroom of the New York Stock Exchange. I know we had some great Q4 results, but throwing us a parade was just over the top. (laughter) I really appreciate that. So since I am a big Giants fan, I'm sorry, but I have to wear my hat up here. It was very good.

I'm going start today's presentation by doing something a little different. Since we are in New York, I'm going to give you an executive summary of the entire presentation in what they call a New York minute, or two minutes. If you pay attention for the next 60 to 120 seconds you are going to hear a summary of the five key points that are going to be made today.

Then Matt and I will give you a longer version of the presentation without the pretty charts which help support these points. We'll then open the floor to you for questions. We'll do our best to answer those questions. So sit back, if you haven't finished your lunch, keep enjoying it. If you want to go back for seconds, go back there and get some. And Matt and I will tell you about our great Company.

So here's the executive summary. Here's the five things, I want you to take away. First, if you follow the Giants, one of the great things the Giants talked about this year, their coach was Finish. Finish the game. Fight all four quarters to the very end.

So Finish is a great thing we believe in at Church & Dwight, and we had a great Finish. Q4 results were outstanding. 23% adjusted EPS growth, 7% organic revenue growth. Let me say that again. 7% organic revenue growth.

We exited the year with great momentum. All the four corners, our organic revenue growth went from basically 1% to 3% to 5% to 7%. Something that's really monumental to me, Arm & Hammer liquid laundry detergent became the Number Two-selling laundry detergent in America on a dollar basis. We passed all, and we passed Gain. So, big news for our Company. I'll talk more about that in a minute.

Number two the great fourth quarter was the end to a terrific year. We had very strong total 2011 results. 12% adjusted EPS growth, 4% organic revenue growth, strong free cash flow, 112% of net income, and 35% of total shareholder return. Kind of funny, one of your cohorts today said to me, your dividend yield is only up 1.5%. Well, we did double last year to get to 2%, then we had that unfortunate problem that our stock ran about 30%, so we're sorry about that. For all of you who had a hold or a sell on the Company, you had a bad year.

Anyway, looking forward, we expect a very continued tough business environment in 2012. Despite what I think you read in the papers that's not our opinion. We expect continued weak consumer spending, continued volatility in commodities, continued competitive pressures and continued struggle for retailers, so it's a tough environment ahead as we face the last year or two.

As far as 2012 targets, we've set aggressive, but what we think are achievable targets. We're calling 3% to 4% organic revenue growth, 25 to 50 basis points of gross improvement, we've been slightly down the last two years. We're going to tell you why we think we can get that engine growing again. Then 9% to 10% adjusted EPS growth.

Last but not least, we are going to leverage our great cash machine. We are going to generate $1 billion in free cash flow over the next three years. On top of doubling our dividend last year, we're raising another 41% this year to get to a 2% yield. We're also taking that great cash flow to build a new plant out in California which will open up -- start full speed in the second quarter this year. We are continuing, I want to emphasize, to aggressively pursue good acquisitions.

Do not misread the dividend increase as we're no longer an aggressive Company and looking for acquisitions. We are looking for acquisitions, it's hard as ever before. I'll talk about that more in a few minutes.

So again, in summary, excellent Q4, great year, but continued tough environment ahead. We've set what we think are very aggressive but achievable targets. I think some of the most aggressive targets in our industry, coming off a good year. Those who have set -- only one company I know has set similar targets coming off a bad year. We are going to continue to leverage our great cash machine.

So you sit back and say, how does Church & Dwight do it? If you have been investing with us for the past, now 11 years you love us. If you haven't, get on board. These are the numbers of how we've done versus the S&P 500. If I showed you the chart which we have of us versus our competitors we are Number One in every one of these time frames, as far as total shareholder return.

And how we do it, is we have top ten TSR drivers. These are not new. I have been telling you these for several years. It's the same 10, just briefly recession resist product portfolio. We know how to build power brands. We know how to ferociously defend our brands when we're attacked. We know how to drive international growth, great record there. We know how to expand gross margins, it's been a little backwards a year or two. But I'll show you some charts over the last five years. Nobody has come close to us.

We have got a superior overhead management system to keep our overheads down, the Best In Class in the industry. We have got an expert management team, something very unique about Churchill & Dwight. We keep our top people in the same jobs forever, and that pays off in tough times, and it pays off out with not making mistakes in our businesses. We have got a great proven track record in acquisitions. We're Best In Class for free cash flow conversion and bottom line, you add that all up, we're all about being total shareholder return junkies.

Now today, I'm only going to talk about the Number One ones, because in a few weeks most of you will probably go down to CAGNY and at CAGNY I'm going to talk about all ten. But Number One's the most important one right now, as far as any new news, I want to show you some fascinating things going on there. So let's talk about our recession-resistant product portfolio.

As you know, or if you don't know our portfolio is the most unique in the consumer packaging industry. 50% of our portfolio is premium, like most of tier players, but unlike most of the rest, 40% of our portfolio are value brands. Our value brands thrive in recessionary economy. You've heard me say before, I'm probably the only CEO in this industry who wishes this recession would last another decade or two, because it plays to our favor.

You might say if you don't know it, how value-oriented are your brands? Here's our biggest category, liquid laundry detergent, $6 billion category. If you index Tide, the nearest player against Tide is 100. You can see that our brands are roughly 0.5 to roughly a third of the price of Tide. The recession has just been wonderful for us. It's accelerated the shift from premium mid-tier brands to value brands. Look at that growth as the households are shifting into the value segment.

The value tier is the only growth tier and has now passed -- big news, we've now passed the mid-price tier to become the Number Two price tier with 28.5% of the dollar value in this category. Bigger than that, when it comes down to what do people actually do in wash loads at home, more US households buy a value detergent than premium or mid-tier products, so we are truly the Number One most-used category by households.

Now everybody knows the great Procter & Gamble leads the premium mid-tier segment with a 70% share. But Church & Dwight is the clear leader in the value segment with 46% share. In fact, we have gained 7 points since 2007 and we're now 68% bigger than the Number Two player. Church & Dwight is the only liquid laundry detergent manufacturer reporting significant share growth since 2007. We're up 4 points in that category.

In fact, in 2011, latest year, we grew more share than any manufacturer, up a 1.5 points. Big chart here. Church & Dwight is now second only to Procter & Gamble total wash loads.

I love this chart again. You can talk units, you can talk dollars, at the end of the day what's actually going in the washing machine out there, having passed Sun products, and coming up the tail of Proctor and Gamble with big jumps since 2007. Let Matt get up here. I'll be back in a little while to give you a little more color on our 2012 outlook. But let me have Matt get up here and take you through 2011.

Okay, thanks, Jim. As you saw in the release we had a terrific fourth quarter, due to 5.4% volume and the difference of course is price/mix 1.7%. Gross margin down 120 basis points but if you paid attention to the release you saw we had a tremendous quarter in household, and household of course, has lower gross margins than personal care.

Obviously it affected our operating margin, as well and EPS up 23%, and I will say a little bit about cash flow on the full-year basis in a minute. Here are the numbers, if you want to run your eyes down the page. You can see that reported net sales are up 11.3%, but we had a number of adjustments as we described in the release related to a change in accounting period for International, and the effect of the early customer orders, as a result of implementing SAP. In Jan 1, some customers ordered early.

Stripped all that out and that's how we got to 7% organic growth versus the 11% reported. So here are the full-year numbers. As everyone knows we have an evergreen target of 3% to 4% organic growth, and, once again we are able to achieve that this year, 4.1% organic. Gross margin was down 50 basis points.

If you were here last year you probably know we were calling up 50 to 100 basis points, but it didn't happen for us this year largely because of commodities and also because of mix. Because household not only had a big fourth quarter, also had a big year for us. If you run your eyes down the page you can see free cash flow down 4%. We're going to hit that in a minute.

Again, here are the numbers on a reported basis. Net sales up 6%, organic up 4%. So, here's the history. Now you can see -- you've heard Jim talk about -- we've had double-digit EPS growth 10 years in a row, and now this is the 11th. So, we're 11 for 11 with 12% EPS up in 2011.

Here's the history. So, when you hear us talk about 3% to 4% organic growth. Here's how it's been the last three years. So, you see 7%, 5%, 3% in 2010 and now 4% in 2011. So, we're very consistent deliverers of organic growth.

Now, here's how the quarters looked this past year. We accelerated the organic growth year-over-year 1%, 3%, 5% then at 7% in the fourth quarter. Now, obviously what this means is we're going to have very easy comps in 2012 in the first and second quarter, and wicked comps in the second half of 2012. But I'm sure we'll talk about that more in the Q&A.

Here's how price looked on a full-year basis. Remember that 4% we talked about for organic. That's largely all volume on a full-year basis. The only place where we got priced was in the specialty business. You may recall, at the specialty business, we're essentially just passing through cost increases to our customer, so that's what's driving the 7%. Here's gross margin history, as well. We had a huge up in 2009, over 400 basis points to get to us 44.8%.

2010 we lost 10 basis points and this past year we lost 50, but we're pretty proud of our record and hanging on to such high gross margins in spite of significant commodity cost increases over this period of time. And here's how it shook out this past year. So, we were able to offset the commodities, the 200 basis points of hurt with cost savings, but really the mix is what drove us down to a negative 50.

And here's marketing. The marketing history, as well. So, you remember in 2009 where our gross margins expanded more than 400 basis points? That's the same year we took up our marketing 190 basis points, right in the teeth of the start of the recession.

Over the past year from 2010 to 2012 you can see we shaved it by 20 basis points but it's pretty obvious that it had no effect on our organic growth rate, considering the fact that we came out over 4% on a full-year basis. So, marketing is relative, and one of the metrics we spent a lot of time looking at is share of voice versus share of market.

Here's how ended the year. We track our eight power brands and look at how well we're growing our shares. As you can see in this case we maintained or grew shares of five of our eight power brands. Here's free cash flow. So, free cash flow, once again as Jim pointed out, if you'll look along the bottom of this slide you can see that we've had free cash flow conversion in excess of 100%. $361 million, as compared to $375 million the prior year.

Something to keep in mind here is that we had $9 million more higher CapEx in 2012 than -- pardon me, 2011 versus 2010, and we also had a swing, about $30 million hurt year-over-year in components of working capital. Here's, as far as the days go -- our cash conversion cycle is pretty solid, under 30 days. It's really the timing of a lot of the purchases of inventory and receivables and payables that created that increase in year-over-year working capital.

Oh, here's minimum capital investment. This is something we track very carefully, as well. Typically we bang around between 2% and 2.5%. That's CapEx as a percentage of sales. You can see this past year we were at $73 million. I'm sure one of the questions on people's minds is what are we going to be calling for next year. Next year is going to be $70 million to $75 million. A big chunk of that, about $24 million of that, has to do with this West Coast plant that we'll be completing early this year.

Here's the balance sheet. As many of you know we've been pretty much unlevered since the fourth quarter of 2010. We're leveraged 0.5 total debt to EBITDA. We're BBB rated and we have lots of dry powder. So, lots of cash on hand and lots of availability of our credit lines.

We're very deliberate about the destination for cash flow at Church & Dwight. So, we've spent a lot of time thinking about this slide. So, TSR is number one for us. As Jim said, we have a lot of cake to build here. We haven't bought anything large in a couple of years, but we're very fussy, and that's not going to change.

Run your eyes down the page. You see new products would be number two. Then CapEx for organic growth and our G-to-G program, which is Good to Great. Return of cash to shareholders. That, of course, is dividends, which you saw this morning, we increased. I will say a little bit more about that in a second.

We also bought back $80 million worth of stock late in the year, November - December. It didn't have much of an effect on the 2011 versus 2010 numbers, but it starts us off at a lower number going into 2012. And our expectations, we'll at least spend as much on share buybacks in 2012 as we did in 2011, and likely more, and we certainly have the cash to do it.

And this is, just to give you a graphic with respect to the dividend. So, we took the dividend up this morning 41%. You probably know we would have taken it up 12% anyway, because we always increase the dividend commensurate with the prior year's EPS increase, which was 12%. So, we took it up a little bit higher.

So, now we're to 40% payout which we think is a comfortable payout for us. We also think the dividend yield of 2.1% is a meaningful dividend to investors. We're not going to chase it so the 40% payout right now is more of a principle that we are going to be following. I'm going to turn it right back over to Jim right now.

Thanks, Matt. Truly awesome numbers. Very proud to look at those myself again and again. 2012, what are we talking about in the business [inaudible]. I said before, we think it's going to stay very tough. We expect commodity costs to stay high, [inaudible], but you asked three questions. Will commodity costs get worse or better? Will competitive price wars continue or end? Will consumer spending improve or get worse?

Our attitude is, I should say pretty dismal on this. We don't expect consumer spending to get better. We expect to stay weak. We expect commodity costs to stay high. We expect continued price wars out there.

So as we always do, we have a motto in house, we plan for the worst but we hope for better. Let me talk about six key points on 2012, which is our strategic outlook on the business. First of all, the new product pipeline. On the table here in the center of the room is our new product pipeline. I think it's the best, and I'll say it again, the best new product pipeline we've ever had in the Company.

Let me take you through a few of the key ones. Arm & Hammer laundry detergent, we had very good success in 2011 bringing out a skin-sensitive version, our best ever on that. 2012 you all know is going to be the year of the unit dose. We are the first ones in the market with it. The product's right over there on the table.

All of our competitors are launching their products. Over the next few months, you are going to see what happens to the industry. I think it's going to be a very interesting situation as to how much of the marketplace unit dose becomes, how it shakes out and everything. But 2012 will be the year of the unit dose product from all competitors. We have a great product over there.

Cat litter. Double Duty was the most successful new cat litter in the past five years in the cat litter industry. In 2012 everybody else is catching up to Double Duty. We're launching a great new product called Ultra Last which gives you longer lasting odor protection for that. So everybody keeps catching up to us, we're staying a step ahead. The new product is just terrific.

Toothpaste. Now I will admit we've been a little delinquent on toothpaste as Proctor, Colgate and Glaxo have been very aggressive out there with new toothpaste. Well, finally, I think we've hit a home run. We're taking two of our power brands and putting them together, the great Arm & Hammer toothpaste brand and Orajel, which is Number One brand in tooth sensitivity to come out with a new sensitive toothpaste. This is just launching. This is brand new news. I will tell you, this is my -- I'm parochial, I know, I'm Chairman of Church & Dwight, but I think this is the best new toothpaste in the marketplace. There are samples over there. You'll see it showing up in your stores shortly. But I think it's a fantastic new sensitive toothpaste.

Nair. If you go in spas these days, Brazilian spa clay is very hot. So we're taking this great new idea and bringing it out for the retail market. I think it will be a great new addition for the Nair line.

Trojan, interesting new product, Trojan Charged. Intensified experience from beginning to end with heating, cooling, and tingling. There's interesting ingredients there. So if you want to charge up your sex life, give Trojan Charged, example there.

Now, something a little bit new for us. We're entering three, with that term, I know we love it, they call white space categories. Those are new categories for us. I know they're not white space categories for some of our competitors, but they are white space categories. We're entering the manual toothbrush business, which is an $800 million category. We're entering dish washing additive, $140 million category, and we're continuing to enter the vibrations category.

Let me tell you the products. First of all Arm & Hammer Tooth Tunes. I know we launched this last year. We had a little technical problem. So, we held it back. I truly think this is the biggest thing in manual toothbrush since they put bristles on a plastic stick. This is proprietary technology that delivers music while you brush.

You can't hear it if you hold it outside your mouth. It actually goes through to your jawbone up to your ear. Plays two minutes, so you can get your kids to brush their teeth for two minutes. We have got some very hot artists from Black-Eyed Peas to Queen to Selena Gomez. So a hot new product we'll be launching into the marketplace. I really think it's the biggest thing in manual toothbrush in a long time.

OxiClean dish washing booster. You many not know this, but a year or so ago all the guys in dish washing liquids were told the get the phosphates out of their product by the government. Phosphates can be bad things, they pollute the waterways. And they had to take phosphates out of all their great brands. As a result their product can't clean as well or certainly get the spots off of glasses and that, so it was a great chance for us.

We had OxiClean, the Number One product in laundry additive. Let's bring that into dish washing additive. So, right in front of me on the table right here, is a great new product, a booster product you put in with your detergent to get cleaner, spotless glasses out there. So, a great new way to expand the OxiClean brand.

Trojan Midnight Collection. We've started into the category. We launched full size vibrators last year. This year we're taking those products into the largest vibration channel, which is the adult class of trade. So, any of you would like to go out on store checks with me, sign up. It'll be lots of fun this year.

Distribution. Hey, great products are nice but if you don't get distribution, you're fighting upstream on this one. This is a chart we've shown in the past. If you index where we've stood in 2005 in these categories, I won't give you specific numbers because that would be great insights for my competitors. But that indexed where we are today in 2011, last year.

You can see we've made great strides. I will just tell you right now based on what we know about 2012 we have grown distribution in almost every one of these power categories. We have a great insight in 2012 and our distribution base is growing, driven largely by these great new products.

Marketing spending. We have increased marketing spending by over 50% since 2001 through 2011. We did have great break-out year in 2009, where we just had so much growth in gross margin, we investment spend and since then we've held around 13%.

Now, two prospectives from this thing. 13% in 2011 or 12.9%, that's more than any of our competitors out there. It's a bigger change since 2007 than any of our competitors. But I'm going to show you now something for the first time we've never revealed. Because some you may say 12.9%, 11.3%, 10.9% not a big deal.

Here's some new news for you. You break up that 12.9%, actually domestically we spend 13.9%. Break it up. On the premium side we actually spend 20% of net revenue on marketing and the value side we only spend 5%.

So, remember that if you go back to this chart now, imagine putting Church & Dwight compared to our competitors there, who are almost all premium products, we're really at 20%, they're at 11%, 10%, whatever. So we are significantly advantaged to most of them on the premium side of the category and growing. So that's new news, folks.

We have never revealed that little insight to you before about Church & Dwight but it's a big factor why we have been able to grow our businesses. As you can see from this chart, by spending more than our competitors our share of (inaudible) share market has exceeded 100%, 19 out of 21 times since 2009, a key reason why we've been able to grow our shares quite steadily.

Improved gross margin. Gross margin, our goal is to go 25 to 50 basis points. We've been struggling with this one the last two years after having an enormous jump in 2009. But I will show to you that we delivered more growth over the last two years -- our gross margin's not increased in the past two years. We've had greater gross margin growth than anybody else over the past four years. Nobody is even close.

We've been at 510 basis points, next closest is the [rate record] company, it was 120. So, we've had to drop in progress but we're going to get it back. We're going to get the mojo back in gross margin.

The four key drivers of that have always been the four key drivers, but we've stepped on the gas even harder. What we call our Good to Great cost optimization program, reformulating, reducing packaging, reducing SKUs. It's harder than ever. Supply chain restructuring, we are starting up a new plant in California the second quarter of this year.

Acquisition synergies, if we do make a major acquisition we'll certainly drive a lot of synergies there to help our margins by buying higher margin businesses and taking the costs out Then price mix. We are launching all the new products I talked to you about, certainly the personal care side are all high margin. All those white space three categories are all high margin for us, so we love those.

If you look at gross margin next year, I said you have cost savings. We've really started stepping on the peddle, offset somewhat by raw materials, and price mix in total will be neutral for us. So net, we believe we can get 25 to 50 basis points of gross margin. Building cash position, we are just a cash machine, folks. We are just doing -- Matt...

When I first came to this Company back in 2004, I think we were generating $150 million of cash flow a year. Now we're well over $300 million a year. $1 billion over three years. So, we've got cash coming out of our ears right now.

Acquisitions, again. We've had a great history on this over time. It's been a great builder of our Company. We know how to do acquisitions, we know how to drive synergies, we know how to make them accretive to the Company.

As Matt said before, we're very disciplined and very tight on this thing. We will not do an acquisition unless it meets these guidelines. It has to be a Number One or Two share brand, it has to have higher growth, higher margin. We want asset light. We don't want to pick up headquarters and plants and that.

We want to leverage our capital base and manufacturing, (inaudible) and purchasing by taking those businesses and putting them on the backs of our Business and we want to deliver sustainable competitive advantage, taking brands we think we can continue to build.

We've made a couple of little bolt-on acquisitions the last two years. They were terrific. Simply Saline, the Number One brand in the nasal hygiene. A great growth category as people are looking for more and more natural solutions instead of drugs to put in kids noses and adult noses to take care of their colds and allergies.

Feline Pine was a bolt-on to our cat litter business. It's the Number One natural cat litter out there. And Batiste, it's a funny one for us. It's a UK product mostly. It's dry shampoo, an interesting product, very hot over there.

It is the Number One driver of the shampoo business in the UK. This one is on fire. We can barely keep up with demand on this product. It's just been terrific. We love it. We may even have some future growth potential outside of the UK on this one.

Matt told you, we've got tons of firepower. Even though we took our dividend up 40%, even though we're buying back stock, we've got tons and tons of cash, so there's nothing beyond our reach in terms of acquisition would make. We could easily make $1 billion acquisition but it has to fit our criteria and we're very stingy about that.

So let me wrap that up in terms of 2012 business targets. As Matt said to you, we're calling 3% to 4%. That's our evergreen target. We've always at least met that. Gross margin, we've been sliding a little sideways the last two years. We are adamant about trying to make this goal in 2012. We believe gross margin is the gas to the engine. We need to get gross margin growing again. We have an all-out effort to get it growing again, get it back to at least the 2010 levels.

Marketing spending, as I told you, we're keeping it relatively flat, but I showed you the secret sauce on that today. 12.7%, really isn't 12.7% on our premium brands. It's more like 20% on our premium brands, so we have almost twice the spending power of our competitive brands in those categories. If price wars break-out of that, we could afford to shave that a little bit if we had to over the course of the year and still be way above our competitors in terms of marketing spending. Adjusted EPS growth 9% to 10%.

We're shooting for our 12th straight year of at least 10% growth and we're calling 9% to 10% in total. But again most of our competitors, you know where they are, we've seen them, down in the low to mid single digits range and that. So we're looking for another very good year, top of the pack within the CPG industry.

Wrapping it up, there's all five of the targets including the dividend getting back up to 2.1% yield. So again, we want to do another 10% year. If you haven't been on board the Church & Dwight train, get on it. We're 11 for 11 right now, we're going for 12 for 12. We plan on delivering that target. So let me open the floor now. Let Matt, join me up here. Questions you may have about what we've told you?

Bill. Talk loud. Except you can't talk about Green -- nobody about Green Mountain Coffee, okay?

Not today. Going back to the gross margin, two questions. One, I'm a little surprised you kind of said that price/mix would be flat just because we've heard P&G talk about maybe raising prices again or altering prices in the detergent category. Also it would seem like with your growth that mix would continue to be a drag on gross margin indefinitely. So maybe you could talk about that. Then also, a few years ago, there was a goal of 50% gross margin. Is that really out of the question kind of in today's landscape, or do you need an acquisition to get there? How should we look at that long-term?

Bill, as far as the 50% long-term target, that's still in the cards for us. There's lots of ways to get there. Obviously organic is the piece, but acquisition is also an important piece. I would say for the last two years we've had a detour on that but that's largely because, if you look at the schedules I release, that household really has been growing tremendously. Double-digit growth in 2011, and if you look at how 2012 is starting out, certainly the first quarter, first quarter is starting to look like a replay of Q4 2011. So again, we have a little bit of a detour with respect to the gross margin but not with respect to profits.

Plus all these new products are gross margin accretive so we're very feeling good about it.

Right, so we don't have an infatuation with just the gross margin percentage. As Jim said, it's very important to the Company. We have four metrics. It's one of the four. We've got a doughnut on that one this past year. It's very motivating for next year. So I think it is the secret sauce to the Company, and it's probably not going to go away.

As far as gross margin goes for next year, many of you know we entered 2011 with almost 50% of our most volatile commodities hedged. Going into 2012 we have 6, almost 60% hedged. Now, the hedges that we had in place going into 2011 actually provided us a fair amount of benefit to gross margin this past year. Now remember, they roll off. So obviously we are going to have a little bit of a bigger hurdle year-over-year, 2011 going into 2012, in covering commodity costs so that is baked into to our numbers of 20 to 25 to 50 basis points up.

The other thing, too, is Pods. Pods are being made outhouse right now. Third-party co-packer. So until we get them in-house that's going to be a bit of a drag for us, as well, on margins on the first half of the year. Mix is really -- is the wild card for 2012. Alice?

My question is about the weighting of the quarters. From what you are saying it sounds as though organic sales might be exceptionally strong and accelerating in the first quarter, then decelerating through the year but that gross margins might go in the other direction, maybe being down still at the beginning and then up to the year. Could you tell us about the quarterly weightings?

Yes, if you go back to the slide that we had, 1%, 3%, 5% and 7% was organic. So we're going to have an easy comp in the first quarter so you're right organic is going to be skewed towards the first half of the year versus second half and gross margins, just given how we're starting out, Q1 looks like Q4. So we expect to be down in the first quarter in gross margin year-over-year. As far as out of the EPS works for the year, this past year we were slightly skewed to the first half of the year, it was 52%, 48%. And for 2012 it looks more like 49%, 51%, if that helps you.

I guess I'm still confused about why gross margins are going up, given there's all kinds of reasons to be concerned about it. You're not getting any pricing, the hedging has worn off. What makes gross -- And you say the California plant doesn't really help until 2013, or is that wrong?

I don't know if everybody is aware of this, but we have a California plant that's going to be coming on-line midyear. We're going to turn it on around March, April, but it won't really ramp up full bore until late June, early July. This plant is one-third the size of our plant in York, Pennsylvania, so consequently not nearly the same contribution that you would have from a plant the size of York. And we do have charges this year with respect to severance and write-off of assets, because we're moving operations for cat litter from Green River, Wyoming, out to Victorville.

As far as commodities, your question is 25 to 50 basis points as aggressive for 2012? Number One, you wouldn't be aware of what hedges we have in place. Number Two, our Good-to-Great program is something that's alive and well, and that is, if you look at these slides we've put up for each of the last few years, and you look at commodities and you see savings. Savings come from the efforts in the plants largely to reduce our cost per unit. We have a lot of efforts going on right now in our personal care plants. Lakewood and also the folks in the UK.

Yes, Alice. You're right, gross margin is going to be our toughest thing to turn around because it's a turnaround for us in the last two years. I would tell you in two different -- in terms of all the projects we have going on. We have two relatively new things in this industry we're doing. One, we're combining our purchasing power with non competing companies and across various commodities where we feel we've done a great job of maxing our purchasing power based on 2.7 billion of revenues, we're talking to other companies and common ingredients in trying to boost purchasing power, and that's off to a good start. It takes some time to put those grievance together, but we're doing that.

Secondly we're continuing a project we call project simplification, which is ripping apart all of our various businesses into how many SKUs, how many tax sizes, how many formulas, how many different ingredients in that and trying to simplify that to save money across different categories. It's a tough one but we are committed. We have the projects and the organizations committed. As Matt said earlier, it's 25% of our bonuses. We got a goose egg on that one this past year as far as bonus payout. So I've got a very motivated organization to take all those efforts of cost savings, project simplification, combining purchasing power in everything to get the gross margin growing again. We must make that happen for our future success. I think we have the right amount of programs and focus in the Company to go do it.

Alice, just a follow-up to your question, because somebody is probably going to ask this. We had the SAP implementation on January 1, so consequently there were some sales, customers ordered early in anticipation of Jan 1, just to make sure they were protected. That would create an additional sales and profits in the fourth quarter, which we spent back in marketing, so it didn't help our EPS in Q4. But it is out of Q1. So it's probably a couple of cents. It's one reason why we would say we're probably going to be $0.01 to $0.02 below consensus for Q1.

I just want to say, too, that SAP start-up was a major start-up. We went in Canada on October 1. We did the US on January 2 or 3. I've been involved with SAP as start-up from the past that have almost brought a company to its knees. That project, I won't use the word flawless but it was remarkable. We didn't miss one order. Everything was on time and my organization, particularly the operations and finance groups did a spectacular job. We've had people working seven days a week, 15, 20 hours a day since October, November of last year. We only gave them Christmas Day off. They were back at work and they did an absolutely phenomenal job, and we haven't had one customer complaint about a missed order. I think if in the past, I know companies like Hershey at one point in time, Fruit of the Loom, other companies have been brought to their knees by an SAP start-up so kudos to my organization for making a major change.

That new system will help us a lot in the future as far as better insights in the data, better management of our working capital and everything else. So kudos to my Church & Dwight team. One thing I'm proud of, Mark Conish, in the back of the room there, heads the Operations Group, came to me about the middle of January and said to me, Jim you know what's most remarkable about this? It's not that we've done a great start-up, he said, not one person complained about working so hard. And that's the Church & Dwight way. And I had, I don't know, Mark, we had 50, 100 people working on this almost full time. It was absolutely spectacular. So I just have got to brag for my corporation a little bit. SAP start-ups have brought a lot of companies to their knees, and again, we didn't miss one order. Mr Smith.

You're feeling fairly charitable about disclosure, now that we know that 20% of your ad spending is in personal care. Can you break down the gross margin differential between the personal care side of the US business and the household side? Then maybe how much that's impacting the total Company gross margin?

No. (Laughter)

I mean, close?

Nice try, Bill. We're not going to go into that kind of detail. Most people walking around numbers you would say that households are going to be lower than personal care. So there's probably 20 basis points -- actually 20%, 2,000 basis points difference between average personal care and average household.

Now along those lines, what do you think is driving the softness in the personal care business? How much of it is cyclical and what do you have to do to move the categories again?

I think, Bill, it's just largely the recession. I really just think the personal care products -- actually the ones that are, I'd hate to say more necessary in life, the toothpaste category has been relatively strong, it's been positive. Other categories I think people are just using less or not using at all, and it's more discretionary. You've got to wash your clothes, your cat needs cat litter, you need cleaning products for the house. But I hate to say it, but do you have to use as much underarm deodorant, or do you [chince] on some of the personal care stuff and they're expensive. I think people have just cut back in this recessionary time. I think it's just largely a recession impact. We're seeing that across the board for most of our competitors in that. So I think it's recession.

Then just lastly, maybe some more details on the laundry pricing environment. I know a couple of your value competitors are being pretty aggressive later in the year. Do you think that's going to normalize over time? Then maybe P&G and powder which talked about a price rollback there.

I would just say the category has been relatively stabilized on our terms in terms of promotion spending and that. Actually we saw a little less spending on our part in Q4 on trade spending and that but you know the history on this one. There was a price war kicked off by Proctor in 2010. They were a winner that year. We were a winner that year, also in terms of share growth but the guys who lost, guys like Henkel with Purex came back with a vengeance in 2011 and continued the war. That was even more pertinent to us because they're value competitors. We had to be competitive with them within our price gaps, so we had another great year, they came back a little bit and guys like Proctor lost some. So laundry detergent is one of the most aggressive categories for [right] spending. You've got to keep your price gaps, you've got to be out there with your merchandising.

My team does an awesome job with that as far as managing price points, pack sizes, everything else like that. Then we have a great pipeline of new product so we expected that category to stay aggressive. We'll see what PODS does. I think it's a very fascinating product. All the competitors have it now. You will be seeing it hitting the shelves. We were out there first. Everybody else had their products out there I think in the next 30 to 60 days. We'll see how the retailers set it. Do they put them together? Do they break them up by brands?

We will see whether it's co-merchandise or separately merchandised. You'll see the incentives, all the manufacturing offerings. It's going to be quite an interesting game in 2012. Again it's the higher margin product, long-term for everybody so if it wins, it wins. But it's also interesting launching the highest priced laundry detergent in the face of recession. So I look forward to a Harvard Business School case being written on this in two or three years from now to see what it does. We all know that PODS is a driver. Unit dose has been tried many times in the United States on laundry detergent without success. Times are different, things are different, new products, we'll see. We're very happy with the products we have out there. We're putting them out there with maintaining the price gaps we have on the liquid side. We'll see what happens.

(inaudible)?

Who? Proctor? Talk to Proctor. (multiple speakers) Said probably what? Good for them. We like -- our powder business is doing just fine. Jason?

Just a quick question about that advertising split. So the 20% of sales spent on the premium part of the portfolio, a lot of what's in there is also personal care and is also the power brands where share is actually down so not just that categories are weak, but shares are down. So can you just talk a little bit about that? It seems like a disproportionate amount of spending with not the same kind of return that you get on the value portion of the portfolio.

I see what you're saying but really there's not a linkage there. Three of the brands are down. Trojan was one, we're off a couple of tenths. It's nothing big. In that category -- overall sales are fine, profits are fine, gross margins are up in that category for us. So it's just awful hard to grow share when you're a 75 plus share. The one brand that had a little trouble is Orajel. Private Label's been very aggressive in that category. We're dealing with that but we're keeping our spending power up on that side. The third one was Nair. Nair was kind of a weird one this past year.

Proctor entered the depilatory category with a very high-priced lip hair removal product. I mean, way up high. Good to them. It seems to be very successful but we did the appropriate thing. We built that into the category. We changed the whole category dynamics. If the category-- if they didn't enter the category we would have had a bright green light on Nair. We had an awesome year on Nair. We were up on sales and everything was going well there, but as we adjust the category to take Proctor into effect we had to go to a yellow. The other one was Spinbrush. Spinbrush was down a little bit.

There was a lot of competitive spending in there by other guys we're dealing with [and that so]. But we got the launch of Tooth Tunes this year in there we're very happy with. We're going to keep our spending up high -- so different factors were going on in that and we feel we have the spending power. It was mostly a Private Label issue, more of a pricing issue was going on there that we're going deal with but we're not going to necessarily pull back our spending to do in that those categories.

Okay. I would never want to suggest that it's a good idea to pull back on marketing spending. That's not something that all of us are allowed to think but does it seem like 20% of sales is a really high number on businesses that are -- even the size of categories are so challenged right now. Do you think that the categories re-accelerate to be more attractive categories? Is there anything that you think you guys can do to stimulate category growth in a different way with that kind of money going after it?

Yes, we hope the new product pipeline will do that. We think we have some of the best new products ever in those category. We are going to keep the spending up high. We think we're dealing with the price point issues out there, but it's a new news category. They are premium categories. We're going to keep the spending power up there. I think with this new product pipeline that we have, we will stimulate product -- category growth. Again, it's a recession.

We're fighting a massive tidal wave of these recession hit categories and that, but we're not going to give up. I'll say it a hundred times, I'm very happy about the new product pipeline. Put the advertising spending behind that and we should see some terrific results. Yes, ma'am.

Just following on that, though, you've got this awesome new product pipeline and yet you're still only looking for 3% to 4% organic sales growth this year. If I'm not mistaken, 2012 the 9% to 10% EPS range is lower than you've seen over the last 10 years. I think it's the first time you will have maybe put up high single-digit earnings growth. So as you think out, not about 2012, but as 2013, 2014, as you think about your capital spending plan and what you see for 5-year long-term growth rate, do you think 9% to 10% is the new range and 3% to 4% is the new range on the top line, or do you think it gets better?

That's a very good question. I think part of it depends on the economy. As long as we're in a recessionary time that's going to be tough. Part of it depends on competition. We were honestly quite surprised to see some of the calls by some of our major competitors in low single digits. That makes us think, and they've talked about increasing marketing spending in some case. If they are going to accept low single digits and try to increase marketing spending, we've got to deal with that. It would be a little out of line to call 12% to 15% earnings growth when they're investing in marketing and coming back to get their share back and sacrificing EPS.

So I think those are the two biggest factors. We just see a continued tough time in the economy for any kind of premium products out there, and we see competitors doing things we're a little wary of that they may be trying to get their shares back at the expense of earnings that we can't be blinded at. We have got to be able to defend against that and grow our businesses. I hope long-term the economy gets better. I hope long-term our competitors want to be a little more profit oriented. We'll see. So right now, I think -- there's only one company I know of in the industry who is calling better than that, and they're coming off a pretty down year. We're the only guys off a good year, promising another double-digit year.

Absolutely, but does it make you think differently or more aggressively about the international opportunity for acquisitions? Batiste sounds like it's a one-off being a UK business, but if you assume maybe that the mature markets really are going to be dead in the water for quite some time. Potentially do you say, wow, we need to be a little bit more aggressive about Latin America or other emerging markets?

We're absolutely aggressive. I think we spend more time working on acquisitions this year than any year I've been involved with the Company the past years. Just nothing came in that would fit our criteria. We don't feel we missed anything that got bought by somebody else. I can't go into some of the things I looked at, it might have surprised you we were looking at. That fit our criteria, other categories.

As far as international I will take it if it's international versus domestic. I don't care where it is if it fits the criteria. That's where Batiste -- you know my history, I've always kind of pooh-poohed the hair category. I never really loved it. I thought it was too competitive and that. We found this one little niche brand over there that's just rocking the market in the UK and we couldn't resist it, and I'm glad we didn't because it's off to a fantastic start for us. It has also built our UK business by 25%, given us more scale in that country. No, we'll look anywhere in the world. I will tell you the emerging markets, there's going to be a case study written on that one very shortly. The emerging markets have become extremely competitive. The acquisition prices are sky-high.

I think some of the guys who put their toe in the water out there in one of these markets and paid ridiculous prices. They're now in price wars with everything else going on. I will tell you, in my heart, I think there's good sense to focusing on the domestic market here and mining your gold at home. You can make a lot more money and get a lot more growth in the US in terms of consumer spending that's per some of these foreign markets. That said, I'm not stupid. I know long-term the growth is in the emerging markets. We are looking at it. If we find the right opportunity we'll take it. But we're not going to say the next one has to be emerging markets because that's where the growth is. We'll take the next one if it fits the criteria anywhere.

Something else that might be useful when you think about the 9% to 10% call for 2012 is that the 2% drag. 1%, a little more than 1% is FX year-over-year. The other is -- are JVs. So you may remember, we had a press release we put out that we're getting into the air pollution game. Made a three-way joint venture with TATA and FMC. If you look on our JV line year-over-year that's a drag as well. So that 9% to 10% has got a couple of other things netted in there so we think it's a pretty strong call. Jason?

What was the contribution from innovation in 2011 and just trying to think about 2012, obviously it seems you're strongest and certainly looking at the products most interesting than we've seen in a few years. So I'm trying to think about the success of innovation over the last few years, especially in an economic downturn versus still opportunity for distribution gains and what type of share gains are you building into that 3% to 4%.

I would tell you in general, new products have represented about 50% of our organic growth over the last couple years. I haven't seen a final number in 2011 because the laundry business did quite well but the sensitive-skin part of that was a good contributor. In general we're looking for at least 50% of our organic growth as we've done the last couple years from new products which I think is pretty great. Great number out there. So my group Steve Cugine is here over there, who leads new product for us now for quite a few years. I think I've got a fantastic new product team. Like other guys these ideas are coming both in-house and out of house. We've signed some deals with companies from great new technology that are part of the products here, part of things you'll see in the future we haven't revealed yet. I'm very happy -- when I came here in 2004 the new product pipeline was pretty paltry. Today I think we have one of the best new product pipelines in the industry and it's a key contributor to our great organic growth numbers.

Then just a follow-up. What was the guidance at the beginning of 2011 that you set for the year on a pre-split basis?

For guidance for what?

For 2011. What did you set the year at? What did you start the year at?

EPS, you're talking?

Yes, EPS.

It would be 4 something. Lauren, how's your memory?

You were up 35% for the year.

No I meant EPS. (multiple speakers) Is this a quiz, Jason?

No, I'm not testing your memory. No, I guess the point is you're making these commentaries that you're planning for the worst. So the old Church & Dwight that we know usually provides conservative guidance, so while not trying to spook anybody about a 9% number out there, if you look just based on how --

Oh, you're asking what did we call for the year. We called 10% to 11% EPS.

Jason, at the start of last year, did you have a buy or a hold on us?

Buy.

Good man. All of you had a hold, raise your hand.

Joe Lachky with Wells Fargo. Jim, I hope this isn't a touchy subject or anything but I guess, given the recent disclosures, how would you gauge the Board's support of you and your management team? Then just a follow-up for Matt. Was there any -- how much was the benefit to EPS from any sort of compensation accrual reversal in the fourth quarter?

Let me just say I think the 8-K we issued speaks for itself. Other than that, we really can't comment on any kind of litigation going on. I think your comment about EPS is --

Yes, it's less than half a penny.

If you would like to give it back to me I would be glad to see you afterwards. (laughter)

Other questions? Bill?

Just on cash usage, you said we're kind of done for the dividend for this year. Trying to understand, as we go through the year one quarter, two quarters, three quarters and you're building cash, would you step up share repurchase? You said $80 million is what you did last year. You will do at least that much this year. Will that be front end loaded? How should we look at use of cash versus earning 0.1%?

Yes, just so everybody is aware we have a $300 million authorization with no endpoint. We bought back $80 million of shares late in 2011, and what I said earlier was that we would buy a minimum of $80 million in 2012, and to get the benefit of that obviously we'd need to be front end loaded. Yes, we would go above in that 2012. I don't expect that we would exceed our authorization level, though, in 2012.

And then just one follow-up. On the PODS, since you were one of the first ones out, can you give us -- 45 days in, kind of what you have seen out of consumer acceptance? Has it been better, worse? How should we look at?

Bill, honestly, we don't have any consumer feedback data on it right now. The battle is really going to heat up over the next 90 days. We've been the only guys out there in some accounts. We're now building distribution on all accounts. The competitors are launching their product in all accounts. So I just -- I found it a fascinating thing. I'm going to be fascinated watching what happens in this category, how much the category takes. I'm somewhat worried about negative impact on overdosing on the liquids side because this is a quantity control versus people tend to use as much liquid. They tend to use more liquid than they're supposed to. This one, give me a controlled dose, it cannibalizes liquid, does it reduce liquid? I'm afraid the liquid category could even have a negative year because of this. We'll see. It's a recession.

If consumers want to buy something that's the most premium priced laundry detergent ever for all of us on a per dose basis, I applaud Proctor. I love innovation. I love to fight an innovation story. I don't like to fight pricing wars, we're good at it. The best thing to do for the whole industry is to bring out a lot of great innovation. So I applaud them, us and all the firsts for following this. Great innovation is great. We have a whole table full in front of you here. Rather that any day of the week than fighting a price war. We'll see. I think it's going to be fascinating, what happens in the category. I don't know all the competitors' plans yet for what they plan to spend or things like that. We don't know -- the first interesting read is going to happen in the next again, 90 days, is how does the retailer set the shelves.

How many products show up from every one of the suppliers, are they put all together into a POD section, are they separately put next to the brands? Introductory trial programs, advertising spending, promotional spending, a lot of stuff is going to be -- the next time we see you we will have a lot more insight into what happens in the category, and it will be interesting. But I would rather -- I like this way in laundry. I'd love to get out of price wars. I'd like to get into innovation. We'd love that any of day of the week so it's a good direction. Yes, sir.

Jim, I guess to what extent did the single dose initiative hit P&L this quarter if at all? Are you going to see that as you go through and as the sales come through next quarter?

You mean as far as the pipe for PODS in the December --?

Or the upfront cost for that matter and from a capital perspective too.

The shipments weren't a whole lot. It's probably less than $1 million just for PODS. I think between PODS and the Ultra Last probably $1.5 million to $2 million of sales, so not a whole lot. Because we got this going in December, so it wouldn't necessarily be a whole lot of dough. It may have a little bit of sliding associated with that too which would depress the margins.

In Q4.

In Q4. This is all in Q4.

That's more of the question from a cost side or just getting the organization ramped up to have a decent amount of capacity ready to get out there. Has that been material at all?

We're developing that now so we're not in-house just yet. So we're actually going to be bringing it in-house but, yes, it will be a few million dollars of capital for sure, but it's not a double-digit number.

Okay, and then I guess on acquisitions, your wish list is pretty long for what you want. As the organization has gotten stronger and obviously a lot bigger, how realistic is it to think that you can do a deal that's niche, that's margin enhancing, that's low capital requirements that's also leading share in high growth opportunity for a $2.7 billion Company? How optimistic do you feel that could happen over the near-term?

Are you saying as my organization's ability to handle them or finding them?

No, finding them at the size that you are, that would have been immaterial, it'd also bring you everything you want.

Yes. It's funny in the acquisition world every day of the week I walk in, Brian Buchert who is the room here -- is at your table back there. Brian's our conduit for all the divestment bankers out there. Every day is a new day in an acquisitions and things like that. The phone rings, interesting calls. We've been all over the country listening to presentations. It's totally unpredictable.

If you talk to the investment bankers they are not happy with the lack of acquisitions in the industry in the past 12 to 24 months. They're not making a lot of money. I think we're starting to see winds that there's going to be more opportunities for companies either being sold or selling off parts in the year. But again, I kind of felt that last year, too, honestly. But we're seeing some winds right now start to blow that there may be more opportunities for acquisitions for us this year in terms of people selling stuff, but again, it's never over until the calorically challenged y-chromosome talks there -- old Yogi term, sorry. We'll see. We'll see what happens in the industry, but I'm a little optimistic right now. We'll have more opportunities coming up. We're ready.

My organization is drooling for an acquisition right now. Especially -- to tell you the truth, it was actually -- maybe it wasn't the worst thing in the world as we were doing the SAP start-up to not have an acquisition on top of it. So the SAP start-up a lot of the heavy lifting's behind us. Because a lot of the same people would have been involved with an acquisition. So maybe we caught a lucky window where we didn't pick up a massive acquisition on top of an SAP start-up. We could focus a lot on the SAP start-up. So now we're ready and waiting. We've got the cash, we've got the wherewithal. We know how to do acquisitions great, so we just need the right one. But I won't do the wrong one. I just won't do the wrong one. We've passed on some junk out there. I could have maybe made some people in this room happy by doing a big acquisition with a lower margin Number Five brand in some country where I don't really want to be, and don't have scale and power, but I just won't do that.

My question was similar. Given that you have all this cash and you said that you're reviewing so many acquisitions. Are you willing to accept some dilution in the first year or two if you find the right thing that makes sense in the long run?

Possible, it's possible. We really don't like to. We like to be accretive one within year. Because when we get there, usually it's very aggressive on the synergies, both organizationally and manufacturing. But if there was something really, really awesome long-term for my Company, that was a guaranteed winner, would we accept the solution? Yes, it's possible but it usually doesn't happen. Because we have a policy usually within 90 days we make all the people changes. We get rid of the majority of the people in the company we acquire. Within one year, we bring their production in-house.

Usually after a year, we sometimes double or more the profit of a company just with synergies, then we target the growth potential after that. I didn't show the story today of OxiClean. OxiClean, we doubled the profits within 12 months in the business. It was a great business. Within two or three years we took the share up 50% using our marking muscle in new products. So we've got a pretty good track record of how we handle acquisitions and we won't overpay. We pay very fair prices, so it's kind of hard to imagine how it would be dilutive given our aggressiveness on cost savings on synergies. But if it's something -- I never say never but I don't love dilutive deals because the world changes.

I'm going to say never though.

All right. I just always worry the world changes, and you take something you think is a great acquisition, and all of a sudden some major competitor enters the category three years out and you've waited for three years to become accretive and you lost your window so we're just very aggressive on synergies.

Something to keep in mind there, is that's only one criteria, is it accretive to EPS. That wouldn't be too high on the list. Accretive to free cash flow would be higher. Also internal rate of return is a big metric for us, so typically we're looking for 12% internal rate of return on anything. Certainly on any large deal that we would do.

We're looking hard. There's not one acquisition that happened that I look back at and say, I wish we had made that one. We missed it. Nothing we've missed that we wish we hadn't. I see a hand in the back. Lauren has run away there.

SAP. So we know it's, to say the least, early days, but what's the timeframe for when you think you'll start tapping into savings? Is it kind of a 2013? Is it gross margins first or is it SG&A? Where do you think the biggest bucket are that you'll go after first?

One thing about -- I've been through an SAP implementation in another life, and in the other life we had -- did not have good discipline around working capital. We had mountains of it. And not a lot of visibility to it. If you look at the financial statements for Church & Dwight, it's pretty apparent that when you have cash conversion cycle under 30 days, there isn't going to be a whole lot that you're going to be pulling out of the balance sheet to fund it. The second thing is, our SG&A. Our SG&A in comparison to virtually all of our peers, save one is below us in the industry. So we have -- we're ending the year with 3,500 employees. We ended the previous year, 2010, with 3,600. You go back a few more years it was 3,800. So our trend is down in people.

You probably heard Jim before talk about sales per employee, profits per employee, et cetera, so we're very lean. What SAP does for us is it's going to be good for our supply chain folks. They are going to have a lot more access to data more quickly and the whole goal here is to be able to continue to grow the top line without growing the employee base, frankly. So we'll be able to continue doing what we've been doing for a number of years to come. So that's how we think about it. Any more questions?

Well, I would like to save Maureen a hundred calls, so our effective tax rate for 2012 (laughter) --

Look at the pens move, wow.

We came in at I guess, 34.8% for 2011. Going back to 2010 we were 35.3%. So 35% for 2012 if you are working on models. SG&A, is also -- we're expecting more leverage on SG&A so we came in at 13.4% this past year. So we plan to be down another 20 to 30 basis points in 2012.

Let me just end by telling you, I recently told my Board at my Board meeting a week or so ago that I never cease to be amazed at the resiliency of my team. I have an awesome team. Over the years we just have a knack of being able to pull the right levers between organic growth, acquisitions, financial, engineering, things like that, to always get to 10%. We know how to fight price wars. We know how to grow our power brands. We know how to defend our brands. It's a really terrific team. I really think the best team in the industry. We will fight our way to do what hardly anybody else is doing this year is to get double-digit EPS growth again in a very tough environment. I'm very proud of them, and they're all in the room here today, I see.

I'd just tell you that 2012 is going to be a very challenging year I think for everybody. I told some people earlier I've seen some economic forecasts that says this country will be in a recession by mid summer. Not as long and deep as before, but I tend to be a pessimist. I disregard all the things about employment right now. I think this trouble is headed for more trouble short-term than not. But my team will pull the right levers and get through that and deliver good quality earnings growth. I hope to see you here or see you over the phones and hear you over the phones in the next 90 days and we'll start to tell you about. So thank you very much for coming down here today. I hope you enjoyed the parade we threw out front and I hope you get home safely among all the millions of people outside. And go Giants. Now go Yankees. (Applause)