諾威品牌 (NWL) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Newell Rubbermaid's second quarter earnings release conference call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we'll open the call for questions. Just a reminder, today's conference will be recorded, and will also be available, live, via audio webcast at www.NewellRubbermaid.com; and a digital replay two hours following the call at area code 888-203-1112, for domestic participants and area code 719-457-0820 for international participants. Please provide the conference number 551200 to access the replay. I will now turn the call over to Mr. Jesse Herron, Vice President of Investor Relations. Mr. Herron, you may now begin.

Thank you. Welcome to Newell Rubbermaid's second quarter conference call. Before we begin, let me take a moment to read the obligatory forward-looking statement. The statements made in this conference call, that are not historical in nature, are forward-looking statements. Forward-looking statements are not guaranteed since they are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of major factors that could cause actual results to differ materially from those projected, please refer to our 2004 first quarter Form 10-Q. Additional financial information about the Company's 2004 second quarter results are available under the Investor Relations section of our website. With that being said, let me now turn the call over to our CEO, Joe Galli. Joe?

Thank you, Jesse and good morning, everyone. I'm pleased to tell you that in the second quarter of 2004 Newell Rubbermaid made excellent progress across many fronts in spite of a very challenging external operating market. Here in the second quarter we faced significant raw material inflation. we continued implementing broad based restructuring activity worldwide and we did experience softness in our office products business; however we still turned into a solid quarter on both EPS and free cash flow. Most importantly we have positioned this company, we believe, for a very strong future beyond 2004. Let's take a look at the results in Q2. Our EPS came in at 38 cents a share, that's 3 cents above consensus and at the high end of our range of 34 to 38 cents. We are encouraged by that performance, given than raw materials continued to inflate here in the quarter beyond a level that we had projected three months ago. We saw raw material inflate $18 million over the last year in Q2 alone. That was 6 million above our most recent estimate.

The inflation incurred in resin, which was up 7 million over last year, and ferrous and non-ferrous metals which are up 8 million over last year; and also corrugate and was up 3 million. So that totalled 18 million and we offset that at a level where we were still able to deliver on this earnings guidance here in Q2. We do expect the pressure in raw materials to continue for the balance of the year. That's reflected on our estimate and in our guidance and I'll comment on that in a moment.

In free cash flow, we had an excellent quarter here in Q2. Free cash flow came in at $52 million, of course that's after we pay our dividend. That's-- versus the guidance that we had issued three months ago of a range of between a use of $15 million and the generation of $15 million in cash. So we came in at $52 million, well above the range in guidance. Our performance in Q2 was $104 million better than last year and year-to-date we're running now $113 million better than last year in free cash flow. There's two key drivers here in free cash flow that I wanted to comment on. The first is in fixed capital where we are very consciously reducing the capital-- the fixed capital we invest in businesses that were formerly capital intensive in the Company. This is consistent with our model to do more outsourcing, to procure fixed capital equipment more frugally, and to reduce risk as it relates to building up fixed capital in western Europe and North America. In fact our fixed capital spend was $118 million lower than one year ago. That's a trend that will continue. Pat Robinson will share our guidance in fixed capital.

The other element of free cash flow where we saw progress was in working capital. We came in at 24% of sales in working cap versus last year's 25. That was as a result of inventory, which came down three full days in the quarter versus last year; we finished up at 75 days versus 78. That was encouraging given the amount of product line discontinuance in the company and it shows progress when it comes to working capital management. If you take a look at our overall priorities this year, we are very much on track, and doing what we set out to do in 2004. There's four key areas I wanted to highlight here in terms of our progress for 2004.

First of all, divestitures, secondly- restructuring and third- product line exits, and finally the implementation of NWL OPEX. If you look at our first priority here, divestitures, we have now completely the previously announced divestiture program that we set out to do last fall. Buddy Blaha has done an excellent job of leading this effort. We sold off $860 million of low-margin revenue businesses. This program was completed with the successful sale of the Little Tikes commercial play systems business which we announced this quarter. This divestiture program has been complete a full -- completed a full six months before we anticipated at the beginning of the year. And the gross proceeds are well within the range that we set out to achieve. In terms of restructuring, this is--Q2 of 2004 is the final quarter of recording below the line restructuring charges for our previously announced restructuring program. Pat will give you the full details on the charges, but this is the last quarter where we record those charges and it's been a busy quarter, indeed in the company.

We now have closed 84 facilities in western Europe and North America. This reflects a staggering amount of heavy lifting throughout the company and I'm pleased that we were still able to deliver EPS in the range, given all this there heavy lifting. Now we certainly have had challenges along the way in restructuring and it's affected some of our businesses in the short term, but we are encouraged here because we're doing exactly the right thing for the long term. That will lower this company's manufacturing costs and to put us in a position where we're doing more sourcing versus making and more low-cost country producing versus high cost country supply chain activity, which is what we had in the past.

Turning toward product exits, our third priority this year, we are on track to discontinue and exit $250 million worth of low margin products worldwide in the company. Those $250 million worth of product line exits are largely in Rubbermaid Home products where David Lumley, our President, and his team have done an excellent job putting the Rubbermaid Home Products business on a path to success long-term. And they have implemented the product line exit strategy the way we set out to do it here at the beginning of the year. We also are seeing some product lines discontinuance progress in our Office Products business, focused on Eldon, where our resin-based Eldon products in some cases are products we're moving out of and also we have some window fashions businesses that we're -- where we've discontinued those products this year. So, again, we're on track to discontinue $250 million worth of products. Again, I'm pleased that our inventory performance came in at the level where it finished up in the second quarter given all this product line discontinuance activity.

And the fourth priority this year, which is the implementation of Newell operational excellence, which is designed to generate productivity or reduce our cost of goods sold here in the Company. We have mixed progress here throughout the Company. We have, in Jim Roberts areas of responsibilities, which is our Tools and Hardware segment, our Window Fashion segment and our Cleaning and Organization segment-our Rubbermaid; in those three segments we've experienced outstanding productivity progress in the second quarter and throughout 2004. In fact, Jim's team has delivered between 3 and 5% productivity before raw material inflation across the board and, in some of his business units the productivity runs well above that. Most importantly the momentum, the operating rhythm, the rigor here in terms of NWL OPEX and productivity is just outstanding and it's very encouraging because we believe that that same kind of performance is something that the entire company is capable of and that's exactly what we intend to do is to continue to deploy NWL OPEX throughout the balance of the company.

In the fourth reporting segment, Home and Family, which is now led by group president, Tim Jahnke; we have made some progress here this year, but the productivity before inflation is less than 1%. That's not enough. Tim has appointed an outstanding productivity leader for his group, Howard Heck is formerly the president of Goody where Howard performed brilliantly in implementing NWL OPEX and achieving outstanding productivity results. Howard will now serve as Tim's productivity driver, for his entire group, which we believe will put that group on a path to achieving the same kind of productivity we're seeing in Jim Roberts' system-- in his three reporting segments.

Then the final area is Office Products. Here our productivity results this year have not been good. We actually have seen costs increase 1% before raw material inflation, and we need -- we have some work to do here. We have got to implement NWL OPEX throughout our worldwide writing instrument businesses. In order to make this happen, we've appointed Ray Johnson, our top productivity leader in Jim Roberts network, and we've name Ray Head of Operations for Worldwide Writing Instruments, reporting directly to me in this capacity; and we believe Ray will achieve the same kind of productivity results in the writing instrument business that he's achieved in so many other parts the company where he's been very successful. So we've made good progress in NWL OPEX, in summary, we still have some work to do in parts of the company; but we are convinced that we can implement these programs and deliver the kind of results we need, certainly to achieve guidance this year and put on the right path for the future.

Turning towards the balance of the year we are introducing guidance today for Q3 of 32 to 36 cents a year and we've refined our full year to a level of $1.36 to $1.41 a share. So we cut off the high end of that range and now we're in the $1.36 to $1.41 a share. We believe we'll deliver this guidance given the challenges that we have, we think that'll be a strong performance for the company this year, but we do have a plan and feel comfortable that we will turn in that guidance. We are also reaffirming our free cash flow guidance, originally we were at 2.25 to 2.75 for free cash flow and we're actually going to tighten the range here to a level of 2.50 to 2.75. So our cash flow performance this year has been strong. We will deliver our guidance for the year and we now believe that that cash flow performance will fall in the high end of that original range. If you look at our sales guidance for the year, we remain committed to a level where our sales will decline between 1 and 3%. That does reflect a lot of the product line discontinuance activity throughout the company and Q3 will also go through a decline of between is and 3%. Of course our sales performance varies widely by operating unit based on the strategies those units are deploying and their effectiveness in the market place.

Our guidance for the year does reflect the fact that raw materials will inflate based on our current projection, including the current oil price, and all other data points that we've got; at a level of $70 million versus last year. So raw materials will inflate $70 million over 2003 and a full $50 million over our original budget for this year. We -- and we're -- we have reflected this in our estimate, and we, again, are very committed to our guidance because we have been able to achieve the pricing levels in the marketplace that will allow us to offset enough of this raw material inflation so that we can still deliver. Just to give you some perspective on our -- what we are seeing in raw material inflation by quarter. In Q1, raw materials inflated $21 million, in Q2 it was $18 million. So that thing came down a little bit over last year. Q3 we assumed $18 million, in Q4 we're assuming $14 million, remembering that last year oil prices began to surge in the fourth quarter and so the comps are not as tough in Q4. So right now, $70 million is our assumption for raw material inflation.

Again, we've been working hard on implementing pricing worldwide to offset as much of the $70 million as we possibly can. We got a bit of a late start in the first half this year and that's reflected in our gross margin performance in the second quarter; however, as we turn toward the back half, we are pleased that we've been able to implement pricing across many of our businesses that will offset enough of this raw material for us to deliver on our guidance. If you turn toward the second half, you'll also see in Q3 alone that our SG&A investment in the company will go up $25 million versus 2003. That's largely in our writing instrument business, and that reflects our commitment to continue to invest in the right strategic steps that will position this company to win long-term.

In writing instruments specifically, we are building out a product development system, and investing in some global marketing initiatives that are necessary for us to capitalize on the high potential that business has with many of these power brands that are in our portfolio. That SG&A investment in writing instruments in Q3 will continue in on Q4 and on into next year and we think it's key to reverse the trend we're seeing in our low end or everyday writing instrument business where we've lost market share. And it's also important for us to build the kind of product development machine in writing instruments that we now have in our tool businesses in many other parts of the company. Our second half will include a series of key new products that have been launched or are about to be launched. I just wanted to touch on some of the new products.

There are -- there's a lot of new product flow in the Company and there will be a lot more as we move into 2005. But just in the back half, what people can look forward to, in terms of new products includes the Little Tikes Hummer series. This is a -- a highly successful rollout in our Little Tikes business unit, where we have children's motorized ride-on vehicles that are now in the marketplace selling through well and this area holds great promise for the company. Margins are excellent, consumer response is great and we're very excited about the Little Tikes business in general, and specifically this Hummer rollout. In our Calphalon business unit, the Calphalon One non-stick rolls out in the second half. We rolled out the first phase of Calphalon One in the first half. It was very successful and that product line rollout will continue. In writing instruments, our Sharpie retractable series is now in the marketplace. It just shipped late in the second quarter and will continue to ship here in Q3 and this is yet another extension of the highly successful Sharpie franchise that we'll be bolstered by this new product rollout.

In our tool businesses, we have an awful lot of new product activity in the second half. Just some of the highlights include a rollout of our new generation, new technology utility knives. We've actually pioneered a utility knife blade technology that gives us a blade that's virtually unbreakable, and has much longer life than existing blades. This program will be rolled out under the Irwin brand with the Irwin blue series utility knife which is on the shelves today and already selling through well. We're also are rolling out the Lenox gold series. This is a virtually unbreakable blade that also features the titanium nitride coating that extends the life of this Lenox blade. This is very exciting technology in a large market where we have almost no share. There will be excellent results here that are generated from this rollout.

In our Strait-line family of laser tools we are rolling out our next generation here in the second half. That product line is very exciting. You'll see it on the shelves here as we move into the fourth quarter, and finally in our Lenox family of products we rolled out our Lenox torches. These are torches designed by our BernzOmatic R&D but now will be rolled out to the Lenox distribution channels where we have such strong position and we have excellent margins and this reflects some great collaboration on the part of Jim Roberts and Bill Burke's tool group. There are a lot of other new products that'll give you a sense thought that there's some very exciting products activity that will flow here in the fourth quarter--in the third and the fourth quarter. At this point I'd like to turn over to Pat Robinson to cover more detail here on our financial results. Patrick.

Thanks, Joe and I'll start with the second quarter P&L on a continuing earnings basis. Net sales for the quarter were $1.7 billion, down $60 million, or 3.3%, for last year which consisted of the following:. We had favorable currency translation of 28 million, which lifted sales by 1.6 points; unfavorable pricing of 15 million, which had an 80 basis point impact-- negative impact on sales; product line rationalization was negative 65 million, or minus 3.6 points; and our core sales were negative 8 million, or minus 50 basis points. In total sales declined, again, 60 million or 3.3%. Gross margin in the quarter was 498 million, or 28.7% of net sales, down 0.6 of a point to last year.

The decrease in gross margins is a result of the following: unfavorable pricing of 80 basis points or $15 million impacted margins negatively by 60 basis points; raw material inflation of 18 million, 7 of which was in resin, 8 in steel, and 3 in other, had a negative 1 point impact on gross margins; gross productivity in the quarter was 32 million, or 2.8%, however this was largely offset by restructuring related costs of $25 million. The combination of these two lifted margins by 40 basis points. And finally favorable mix driven by the rationalization of unprofitable product lines in our Rubbermaid Home Products business improved margins by 60 basis points. So, again, in total margins declined by 0.6 of a point. This was a little worse than we had anticipated primarily as a result of raw material inflation being about $6 million higher than we anticipated.

SG&A for the quarter was 327 million, or 18.8% of sales, up 8 million to last year. This increase in SG&A reflects a currency impact of $7 million and a pension cost increase of $4 million. So all other SG&A was down about $3 million, with our streamline initiatives offsetting continued investments in the business. Operating income for the quarter was 171 million, or 9.9% of sales, down 36 million to the prior year.

Now I'll take a couple of minutes and talk about our segment information. In our Cleaning and Organization segment net sales were 469 million, down 44 million, or 8.5% to last year; driven primarily by a double-digit decline in our Home Products business, due to the planned product line rationalization. Operating income for the group was 14 million, or 3% of sales, compared to 21 million, or 4% of sales, last year. This decrease in operating income is the result of higher raw material costs, lost absorption in our manufacturing facilities and one-time charges related to restructuring. In our Office Product segment net sales were 489 million, down 18 million, or 3.6% to last year; driven primarily by market share losses in the everyday writing category, the exit of some low-margin resin-based products in our Eldon office products business, and about a $10 million shift of back-to-school sales from quarter 2 to quarter 3. We expect sales in this segment to be flat to slightly up in the back half of 2004. On a full year basis, if you break the segment down between writing and Eldon office products, the writing part of the business should be up about 1% for the year, our Eldon office products down 6%. Overall the segment will be down about 0.3 of a point for the year.

Operating income for the Office Products segment was 96 million, or 19.6% of sales, compared to 115 million, or 22.6% last year. The decrease from the prior year is primarily the result of the following: the sales shortfall in the quarter negatively impacted operating income by about 7 million; we had negative productivity in the segment of 1.2%, or $6 million. This excludes the impact of raw material inflation. Now as Jim mentioned, we have named the new head of operations for the Office Products segment and Ray is leading the deployment of Newell Operational Excellence here; and we believe there's significant untapped potential in this segment and we expect productivity performance to begin to improve as we go forward. Finally raw material inflation of about $5 million, primarily in resin and transportation costs negatively impacted earnings.

In our Tools and Hardware segment, net sales were 300 million, up 6 million, or 2% to the last year; driven by high single-digit sales increases in Lenox and BernzOmatic. Operating for the group was essentially flat at 47 million, or 15.5% of sales. Operating income improvement driven by the sales increase and very strong productivity was offset by increases in raw material costs, particularly steel in this segment; restructuring related costs; and an increase in SG&A spending and investment of $8 million in the quarter. In our Home Fashions segment, net sales were 224 million, down 4 million, or 1.6 points to last year. The sales decrease was primarily the result of a single-digit decline and our Levolor business due to soft sales in the low margin stock blind part of the business. Operating income for the group was flat compared to last year at 9 million, or 4% of sales. In our Other segment or our Home and Family segment, net sales were 253 million, up 1 million, or 0.3 of a point to last year. Operating income for the group was 15 million, or 6% of sales, compared to 20 million, or 8% of sales, last year. The operating income decreased primarily as the result of raw material inflation and restructuring-related costs.

Turning now to cash flow in the third quarter. We did generate 52 million of positive cash flow in the third quarter, up 104 million to last year. The major drivers for free cash flow in the quarter were net income from continuing operations plus depreciation of 167 million. We had a change in accruals of positive 47 million, and a favorable impact from deferred taxes 51 million. For total sources of cash of 265 million. In uses of cash, we used 94 million in working capital, primarily in accounts receivable and inventory. Our capital spending was 34 million. Our dividend payment was 58 million, and restructuring cash payments for the quarter were 27 million. For a total use of cash for 213 million. The restructuring in the second quarter, the Company completed its accounting charges associated with the restructuring plan announced in May, 2001. In the second quarter we recorded a restructuring charge of 25 million, bringing our total charges to 462 million. In total we have exited 84 facilities and have reduced head count by about 12,000 employees.

Since the last earnings call the Company completed its previously announced divestiture program. Effective April 12th, 2004, the Company sold its U.S. picture frame business, its Anchor Hocking glassware business and Mirro cookware business. And on May 30th, 2004, the Company entered into a definitive agreement to sell substantially all the assets and liabilities of Little Tikes commercial playground systems. The company will retain the consumer portion of its Little Tikes division. The effective date of the sale is July 1st, 2004. The Company expects to recognize a pretax gain on the sale of business between 10 and $15 million, which will be recorded in the third quarter. For the second quarter the results of Little Tikes commercial business has been reported in discontinued operations. In total, in the second quarter the Company recognized a $3.4 million gain, or income, in discontinued ops. Also in the second quarter the Company reported a non-cash pretax impairment loss of $25 million. These charges were required to write down certain assets held for sale at the fair value, and to write off intangible assets related to certain product lines that we are exiting.

So just to recap our one-time charges in the quarter, we recognized total non-recurring charges of $60 million, or 17 cents a share; restructuring was 25 million; one-time product line costs of 13 million; an impairment charge of 25 million; and then we had a positive gain from discontinued ops of 3 million. Our previous guidance anticipated the sale of Little Tikes Commercial Play in the second quarter; however, because the sale did not occur until July 1st, the expected pretax gain of 10 to 15 million, or 2 to 4 cents a share, will be recorded in the third quarter.

Turning now to the income taxes in the second quarter. The company recognized a net $6.4 million tax benefit, related to the resolution of issues in tax years for which the statute of limitations has expired. This was partially offset by adjustments to the company's valuation allowance, relating to net operating losses primarily in Europe.

I will now turn to the year-to-date results. Net sales were 3.3 billion, down 75 million, or 2.2% to last year. Internal sales declined by 65 million, or 1.9 points, consisting of the following: We had favorable currency translation year-to-date of 85 million, or 2.5 points; unfavorable pricing of 28 million, or negative 80 basis points; product line rationalization was a negative 125 million, or 3.6 points; and our core sales were up 3 million year-to-date. Bringing the total change for internal sales to negative 65 million, or 1.9%. Gross margin year-to-date was 911 million, or 29% of net sales, down 90 basis points to last year. This decrease in gross margin is a result of the following: unfavorable pricing of 80 basis points, or 28 million, had a negative 60 basis point impact on gross margin. Raw material inflation of 39 million: resin 23, steel 12 and other inflation of 4 million; reduced margins by 1.2 points. Gross productivity of 57 million, or 2.7%, was mostly offset by restructuring related costs of 51 million. The net impact being an increase of 10 basis points in gross margin. And finally, favorable mix, driven by our rationalization of unfavorable product lines in our Rubbermaid Home Products business, lifted margins by 80 basis points. Our total margin decline, again, was 0.9 of a point.

SG&A year-to-date is 637 million, or 19.5% sales, up $31 million to last year. And this increase reflects a currency impact of 23 million and a pension cost increase of 8 million. Year-to-date operating operating income is 275 million, or 8.4% of sales.

Turning now to the third quarter outlook we expect sales to decline 1 to 3 points driven by the following: the product line rationalization is expected to reduce sales by $60 million to last year; pricing in the quarter is expected to be flat; and foreign currency translation and sales growth in our core businesses are expected to increase sales by about 25 million. For the third quarter, we expect continuing earnings to be in the range of 32 to 36 cents down from 39 cents last year. The midpoint of the range represents a five cent decline as follows: steel, resin, and other commodity inflation is expected to have a negative 18 million, or 4 cent, impact on the earnings for the quarter; SG&A expenses are expected to increase 25 million, or 6 cents a share, driven largely by investments in our Office Products segment, specifically in the areas of marketing, product development and R&D; other additional SG&A expenses are due -- increases are due to currency translation, pension and insurance cost increases, and absorption of overhead costs previously charged to the divested businesses.

Gross productivity of 2.6% in the quarter, or 30 million, will be partially offset by restructuring-related charges of 12 million, resulting in a net improvement of 4 cents to last year. And finally interest and favorable mix will improve earnings by about 1 cent in the quarter. And, again, the mix improvement comes from the continued rationalization of low-margin product lines. The net impact of these changes is an approximate 5 cent per share decline in EPS in the third quarter. Third quarter cash flow is expected to be between 110 and 140 million with a breakdown as follows: continuing net income, plus depreciation will contribute 158 million in cash; we expect working capital to contribute between 30 and 60 million of cash; our change in accruals will be a positive 15 million; and deferred taxes and other a positive 50 million; for total sources to be in the range of 253 to 283 million. Our uses of cash will be for restructuring of 35 million, capital spending of 50 million, and our dividend payment of 58 million; for total uses of 143 million.

Turning now to the fourth quarter. In this quarter we expect continued earnings to increase significantly to last year driven by the following. We expect to have a positive impact from pricing year-over-year in the fourth quarter, as the pricing actions taken to offset raw material inflation read through on a broad scale. We also expect significant reduction in structure-related expenses as we near completion of our restructuring activity. We also expect continuation of the favorable mix, primarily from the rationalization of low-margin product lines in Rubbermaid Home Products. We have the impact of new products that Joe reviewed earlier. And finally last year's earnings included the unfavorable impact from the tornado at our Wooster, Ohio facility providing a favorable comp year-on-year.

So our full-year summary turning -- we continue to expect sales to decline 1 to 3% for the year. We are tightening our earnings guidance from $1.36 to $1.41 driven primarily by the increase in raw material costs to our last estimate and also tightening our cash flow guidance to the high end of range to $2.50 to $2.75, driven primarily by a reduction in capital spending. I will now turn it back over to Joe for some additional comments.

Thanks, Patrick. In summary, I just wanted to touch on our Office Products area where we recognize that our performance has been soft. And we have some steps that need to be taken here to achieve the full potential in this business. I just wanted to share that, having spent a lot of time in this business together with Pat over the last quarter, we believe strongly in this business' future. This is a business filled with great brands. Our market share positions are relatively low worldwide. There's a lot of low hanging fruit here when it comes to our productivity opportunities. And there's a lot of basics and fundamentals in terms of new product development that just need to be installed. But we are very, very bullish on this business long term. As we shared today, we have named the company's top productivity leader, Ray Johnson, who now heads up the worldwide supply chain for writing instruments and this is a very positive step. We are working hard on putting the new product development process in place in our Office Products business.

This is being driven by Rory Layton who put the product development system in Little Tikes which is flourishing today. Rory has been in the Writing Instrument group for about eight months and he's leading the charge to put the right kind of rigor in place when it comes to new product development. As Pat and I mentioned earlier, we are investing heavily in new product development here in terms R&D, product development and the right kind of project management systems. We also, in this last quarter, had our first ever worldwide product development summit, where representatives from Europe, Asia, Latin America, and North America writing instruments all met together for a week looking at the many obvious opportunities we have to eliminate redundancy and focus on global product development versus strictly regional. All these steps are encouraging for the future and will have a significant positive impact as we move into 2005. The most acute issue in writing instruments is in the everyday writing sector. This is the Paper Mate area. It also includes Liquid Paper and some of the other lesser known brands around the world.

The reality here is that we've been losing share for the past three years. The good news here is our market share is less than 15%. There's a lot of upside potential, if we develop the right kind of products that are compelling to the consumer worldwide. We are hard at work on this. We believe that we can get -- revitalize this Paper Mate brand, with the right kind of product development. We also believe we can be global cost leaders when it comes to manufacturing, whether it's a stick pen or a more value added everyday writing product; we believe whether we make these products in China or India, which are two current sources we will get ourselves to a position where we are cost leaders. And that'll allow us to serve this market, both with our own brands, like Paper Mate and also to serve private label elements of this market, which also can be profitable for the company. But to be clear, the everyday writing is the part of that worldwide readiness in the business that's soft. And we are very focused here and we believe we have a good road map for the future. But it will take some time to reverse the trend and begin to take market share in this space.

If you look organizationally, we are working actively to fill the worldwide writing instrument president role. And as I announced earlier that we expect that search to be completed by year end. In the last quarter we moved Ray Johnson into the worldwide supply chain role. We also named Rob Turner to the position of CFO of writing instruments worldwide. And both Rob and Ray are now hard at work in writing instruments in helping to develop the plans that we need for the future.

If you summarize the whole company's position, coming out of second quarter, we are encouraged about the overall progress that we've made in implementing the plan to transform Newell Rubbermaid into a strong financial performer long-term. As I mentioned, we are now completed with this restructuring effort that we set out--embarked on, here, several years ago. The below-the-line charge phase is over. We still have a lot of the activity in the system and wrapping up the final elements of that restructuring plan, but the team has made excellent progress here. We have completed our divestiture program that we announced last fall. We are on track in exiting product lines that had low margins, that's very much on track. And we are rolling out Newell Operational Excellence throughout the Company, as I outlined earlier. Importantly our new product development pipeline in the Company is filled with exciting, innovative new products that will make a significant difference in our growth and our margins moving into 2005 and beyond. You'll see good examples of new products flow in the back half but, frankly, the pipeline does accelerate as a very positive way as you move into 2005. There are many, many items in the pipeline that will certainly help this company. So at this point we'd like to turn it over for Q&A.

Thank you. We will now begin the question-and-answer session. [Caller Instructions] If we are unable to get to your question during the conference call, please contact Newell Rubbermaid investor relations at 770-407-3994 after the conclusion of the conference call. [Caller Instructions] And it looks like our first question today -- one moment. Our first question today will come from Joseph Altobello.

Thanks. Good morning. I just wanted to ask a question on the tax benefit. If you could give a little more color there. And I also was curious, was that expected or was it not in your guidance? And what's the rate we should be using for the second half?

We're using a 31% rate in the back half of the year, which will bring our blended rate for the year to about 30%. And the color around the tax, if you wouldn't mind handling that offline with Jeff. It's rather complicated, actually and I think it would be best to handle that offline.

Okay. So in terms of guidance, the $1.36 to $1.41, now you're at the low end. Other than raw materials costs has there been any major change in your thinking from, let's say April to now?

The -- Joe, if you look at now versus April, we have some businesses that have more traction than others, and this guidance reflects that. Writing instruments, as we have discussed, is a bit softer than we had hoped three months ago. Some of that is the -- the channels of distribution were a bit soft in the quarter, and some of it is we need to get our act together in the everyday writing zone. On the other hand we have other businesses like Little Tikes or Lenox or Calphalon that are moving along at a faster than expected pace. So as we look at the businesses, the estimate reflects the blend of how all our businesses are doing in a tougher environment of raw materials.

Okay. And one question on writing instruments. I think Wal-Mart recently said that their back-to-school season is off to a pretty good start. Would you concur with that? Because it seems like with the shift from 3Q to 3Q with some of your sales that that may not be the case for you.

I think it's too early to make any declaration about back-to-school. I think, you know, if you look at the retail channels of distribution, our performance is -- is really blended. In areas where we have outstanding momentum like Sharpie, Accent, Expo, Uniball, we're seeing excellent, excellent POS. In the case of everyday writing we're seeing POS that's disappointing and reflecting the fact that we're losing some ground. So for us, no matter what the back-to-school environment is, our results will be mixed, based on that assessment.

Okay. And just finally if I could, one last question, by the end of '04, you'll have a pretty decent balance sheet. Should we look for acquisitions in '05 or it's still way too early to, kind of, figure that out at this point?

It is way preliminary to comment and speculate on potential acquisitions. I think we have done a good job with our divestiture program. As you said, we've strengthened our balance sheet, our free cash flow is well ahead of guidance; and that's all good news and, you know, that strong balance sheet is certainly a positive as we move into 2005.

Just thought I'd ask. Thanks.

And moving on, we'll now take the question from Wendy Nicholson.

Hi. Good morning.

Hi, Wendy.

My first question relates to the price increases that you suggested you'd start to take and that would positively impact the fourth quarter. Which businesses specifically do you expect to take those price increases in?

Wendy, we're not commenting specifically, but, you know, I can tell you it's across the company worldwide. And, you know, you knew at the beginning of the year that we had to reposition the our Rubbermaid Home Products business; that's been the area that's most active. And by the way, let's be clear here. We have already taken, Wendy, these increases. These are not price increases that are still in the works. We have worked very hard over the last four months implementing price increases throughout the world, across a wide spectrum of our businesses. And these price increases are in place, and are tied into the estimate. So it's not wishful thinking here, we've already got this done. But it is more than just Rubbermaid, it's across the company.

Have you seen competition in private label follow your price increases? I mean I guess the risk is, you know that you raise your prices too much and market shares fall. How due feel about, sort of, the risk of that?

Well, I -- the answer is, yes, we've seen other folks also price up. And in some cases, other people haven't moved as much. So I'd say it's mixed and it's really based on the business. But, you know, any risk inherent with that is reflected in the estimate. I think that's the key. You know, in many cases when we have low margin or even negative margin products there was really nothing to lose with our pricing, Wendy. You know, we were in a position where either took a price increase or we would exit a product line and, in many cases, our retail partners have worked with us in a very collaborative way to come up with solutions that allow us both to continue to market products in certain categories. That's been very gratifying and there's been a lot of hard work done by our sales and marketing folks over the last three months, but I would say the risk is behind us and these price increases are in place.

Okay. And then my second question, just turning to the Tools and Hardware business. The fact that the margin was down year-over-year, that business I thought had sort of been the poster child for NWL OPEX and whatnot. So to have margins down surprised me a little bit. Is that a temporary phenomenon?

Yes, it is temporary, and really the margins are down based on some raw material inflation. We also had significant restructuring-related charges and the SG&A line was up about $8 million in that segment as we continue to invest in that growth part of the business. But you can expect those margins to turn around, certainly in the fourth quarter, and -- and that's what we expect.

And, Wendy, just to comment on Tools and Hardware. This is a business with fantastic momentum, operating rhythm; Jim Roberts really has done a great job and now Bill Burke, as Group President of Tools, is flourishing in that role. And I think you will see over the back half and on into '05, that business continue to perform in an outstanding fashion.

Okay and just one last question. I know it was -- I think, what, last December that you announced the $250 million kind of SKU rationalization and how most of that was going to come out of Rubbermaid. Now that you're, what, six, seven, eight months into that; do you think that number needs to go up? Do you think there's more room for SKU rationalization or are we, kind of, at the right size now?

I would say in terms of product line exit that 250's still the right number. We established the target in the fourth quarter and it's -- it's proven to be a very accurate number. Most of it's RHP, some Eldon, some Window. Now, with that said, you know, when you look at the Company, Wendy, there is still a lot of room for business simplification here, okay? If you look at Writing Instruments and you ask the question why aren't we getting productivity. One of the issues we have in Writing Instruments is we have far too many SKUs, far too many brands worldwide. We have regional brands and not global, et cetera.

And we need to go through the process which is -- which we have done already in many parts of the company to streamline that business and take out SKUs that aren't necessary. If you look, it's interesting, 1% of the sales in Writing Instruments comes from a number that's well over 20% of the SKUs. So you know, it's not going to be material from a sales standpoint to clean up the SKUs we don't need there; but it's a lot of hard work and we are very much focused on that going forward.

Terrific. Thank you very much.

And our next question will come from Budd Bugatch.

Yes, a couple of questions, Joe. If you look at the fourth quarter, on the implication of the guidance for the year, it looks like the operating margin, if I do my math right, has gotta be significantly above 11% in that quarter. Is that right, Pat? Does that get-- that math looking right?

It's a big growth quarter for us and that is about right, yes.

And could you give us some clarification then, what was the tornado cost last year? I don't think you quantify what you expect in pricing in the fourth quarter.

I don't want to give specifics on each of the items, Budd, other than the tornado was about 12 million. But the other items I'm not going to be specific about, but they include the positive impact of pricing. It's been negative in the front half, it'll be neutral in the third quarter and then as all of these pricing actions take hold, it'll actually be positive in the fourth quarter for us. Again, our restructuring related charges go down significantly in the fourth quarter as that activity comes to an end. The favorable mix from RHP product line rationalization will continue through the fourth quarter. And then Joe discussed some new product launches that have the biggest impact in the fourth quarter, and that combined with the tornado is why we get that lift.

Budd, I will just add, the new product assumptions are conservative. Most of the new products I outlined are in the markets now. We already have a preliminary read on POS and so the estimate reflects what we believe are conservative assumptions on new products.

Okay. And you are not expecting much change in sales? I mean you are looking at --

No.

Sales -- The sales will also be down 1 to 3 again in the fourth quarter, again, primarily driven by the product line rationalization. Now the other significant change there is we do not get the lift from currency in the fourth quarter that we have gotten in the front half of the year, okay? So that's being replaced by core sales growth.

Okay. Well that's --

Which is driven by the new products.

--that sounds better than not. I'm confused about one other thing. If we could look at writing instruments and, Joe, I know you may be reluctant to do some segmenting of it; but we've got fine writing instruments, we've got everyday, you've got markers and you've got Eldon and a couple of other smaller subsegments. We've been told in the past, at least my memory tells me, that we've been told that the worldwide writing instrument market share was well above 30% and you said I think less than 15%.

In everyday, Budd-- everyday writing. As we -- we're rolling up the worldwide numbers now. We had our first ever worldwide summit meeting. I think in the past our numbers were directionally correct, but we want to be much more analytical here in this business; but I think in everyday writing, Budd, it's clear. And that's the Paper Mate zone, which is the zone that struggled the most over the last several years. There it's clear, we're well under 20%.

I see and you had told me, I thought, in the past that you were probably not going to look for a worldwide writing instrument president until sometime in the first quarter of next year. You just sound like you're accelerating that process.

Yeah, I -- what I intended to communicate in the past was that we wouldn't -- we would announce it by January 1 but we've been very active, Budd, in assessing our organization and identifying candidates. So, I'm optimistic that by January 1st we will have that worldwide leader in place. Okay? But it could happen soon.

Okay. Alright. Thank you very much. I'll let some others talk.

And our next question will come from Ann Gillin of Lehman Brothers.

Thanks. Good morning.

Hi, Ann.

Hello everyone. Pat, just a question on the Q3 guidance. Does the Little Tikes gain on sale, is that included in the 32 to 36?

It is not.

Okay. So exclude. Thanks. And then I just wondered if, Joe, you might break out if there's any other place that the SG&A investment is rising, aside from the 8 million in Tools? Specifically, in your kind of invest categories?

Not in the second quarter, but in the third quarter it rises significantly in our Writing Instrument business. In the second quarter, though, mostly all of the investment was in the Tools and Hardware segment and then we had also some other increases from currency as I mentioned and pension, and the increase in the Tools and Hardware segment was offset by some SG&A streamlining in Rubbermaid Home Products and Window Fashion businesses primarily.

Alright. And is there any reason, Pat that it wouldn't be more consistent in the quarters? I mean is there that much seasonality or is this just sort of as you are making adjustments?

Well, one -- in Writing Instruments we're ramping up, an R&D system. We're building it almost from scratch so you don't have a lot of head counting infrastructure-related SG&A that is -- is -- is -- is being built up here and will reflect in the third quarter. Patrick, do you have any other?

No, and I think that's right. And, I think, the Tools and Hardware segment began this investment in their R&D, and marketing area sooner and so their comps start to get more flat year-on-year in the back half of the year in SG&A; whereas, again, Joe just mentioned we're making some significant new investments in the Writing Instrument business which we believe has a lot of potential for us going forward in the third quarter.

You know, Ann if you look at the businesses that are tracking best in the marketplace, these are areas where several years ago, we dug in and built a product development system, put the SG&A in and now you're seeing an awful lot of results. That's Irwin and Lenox and Little Tikes and Calphalon and the whole Tool and Hardware area. So we are now working hard and doing the same strategy in Writing Instruments. We're excited about it but we're -- we're maybe a couple of years behind here.

So, Joe, if we think about kind of a shift to organic growth, the nirvana of '05 forward.

Yeah.

Will it be staged in terms of what areas we start to see it from first?

There are so many moving parts. You know I think -- I do think you will see different levels of performance by a group, so there'll be a wide range and we guided conservatively next year, low single-digit organic growth for the company worldwide. But it will vary by unit, but, you know, if you have a situation --you know, Writing Instruments, because the channel is a bit soft this year, could you bounce back nicely in '05 just as the channel gets strong. So there are a lot of different factors that go into organic growth, right.

Okay. That's helpful, thanks. Then if I could just go back to the pricing question, how do you monitor the, kind of, as your pricing takes hold how you are relative to the floor in the category?

The floor meaning the low price or private label folks?

Yeah, whomever it is, the lowest price in the category.

I think, Ann, it's clear that several years ago we didn't have the kind of rigor and discipline in pricing management in the company that we need. And I think we've made, Pat, excellent progress here and I'm actually impressed with how the team has implemented pricing actions this year that have not been easy. But I would say Patrick that the controls and pricing here have improved a lot but we still have some work to do on some business units.

So, Joe, if you put a price out there and you don't see others follow, or -- or, let's even say that they pull back on price.

Yeah.

How do you catch it and how do you react?

This is -- you know the responsibility of the president and the marketing sales system in each business. In some cases, Ann, you price up and, you know, you need to control your destiny, and if you're doing the right kind of marketing on a brand, even if competitors don't follow in the short term, you know it's still the right thing to stay the course. So, you know, we're -- and I will tell you this, the stronger the brand, the less reactive we are to what competitors do. Our brands that are doing best in the marketplace took their pricing, it wasn't easy, our retail partners worked with us, and they're doing just fine.

The weaker a brand gets, the more your question is relevant. And our solution long term, here, is make these brands stronger with compelling products and the right kind of marketing. So I hope that helps. If we have a position of weakness in a business area, we will pull back on pricing, and we've done that in a couple of cases, but mostly we've held our ground here in pricing.

Okay. And then this is my last question, which you sort of led into, as you think about the new products, are the growth margins of the new products higher to support the higher SG&A spend--

Yes.

That you are going to put behind them.

Yes.

Okay. So they're higher than average in their segments?

Yeah, we have an internal goal, Ann, that a new product has to deliver a gross margin that's 10 points higher than products that it would cannibalize. Our performance year has been a range but it's, in every case, been higher and the range is more like 4% to 20%. Literally. In some cases there's new products in the pipeline that will surge even more than 20 points where we've changed radically a product platform. So new product is so key for our gross margin future because of the gross margins that these products carry.

Okay. Thanks much.

And our next question will come from David Jerrow of T. Rowe Price.

Hi.

Hi, David.

Hi How are you doing?

Good.

Just a question on sort of the restructuring-related costs. I mean, I guess part of -- part of Q4, being so strong is restructured-related costs sort of going away and you look at the first half of the year and I guess the Q3 guidance if you were to assume, sort of, for the full year of $65 million in restructuring-related costs. Should we think about those costs really going away as we think about '05?

Well, I -- specifically related to restructuring, yes. Now, our -- what those costs represent is generally duplicate costs as you are closing down one factory and setting another factory up; or closing down one DC and moving the inventory to another DC. Those inefficiencies and those movement costs are not -- it does not get a restructuring treatment. Okay? So, yeah, as our restructuring activity declines, it declines significantly in the fourth quarter, and it's virtually done at the end of the year. There will be some that trickles into '05 but very little. Those types of charges will go away.

I guess what I'm just getting at, Pat, is $65 million of expense this year that probably--of duplicate expense is that issues hitting the continuing operations P&L that will be going away in '05. I just want to make sure that I'm understanding that correctly.

That's correct.

Okay. I guess the other thing is -- and this was brought up earlier. You know, the Company, if you look at a more traditional, sort of, free cash flow definition of operating cash flow minus CapEx, end you up $1.80 per share this year, and you should end the year at, sort of, net debt, you know, close to 2.2 billion. Can you maybe just spend a more-- maybe a minute on capital allocation and then how you are thinking about that given that the balance sheet's in so much better shape and the cash flow is pretty strong?

You have to rephrase that for me. What's our cash priorities going forward?

No, I mean more capital allocation. I mean, the point would be that your -- as you end this year at, sort of, net debt to --net debt of 2.2, $2.3 billion, you know, your free cash flow is $1.80 per share, sort of, operating cash flow minus CapEx. I'm just wondering if you could talk a little bit about priorities for that --you have the allocation of that capital if you would.

David, you know, we are very committed to this dividend, as you know, and that's a priority, and improving the balance sheet is-- is something we focused on this year. As we move into 2005, we'll continue to be highly committed to the dividend, but we will have a position of strength on our balance sheet, relative to the last several years and that'll give us an opportunity to consider strategic accretive acquisitions and acquisitions will be part of the company's long-term strategy. So I hope that helps. We're not looking at a stock buyback. That's not on the agenda.

At any price, Joe?

Well, not -- I mean, at this point, although the stock, we believe, is trading at a very low level, we just think it's -- it's better for us to put this capital to use in other ways. We think that'll create more long-term value.

If that's the best return on investment we can get -- we look at all of our options and we just don't believe that -- at this time, we believe we have options that'll have a better return than buying back our own stock.

And is --

If we decide that's the best return for our shareholders, you know, we consider all our options.

Just one last question, could you give us an update on the restructuring at Rubbermaid, the closing of some of the facilities and where we are in that process?

Yeah, well, directionally, David that has -- Dave Lumley, as President of Rubbermaid Home Products has really done a nice job with Jim Roberts and we have closed these facilities on time and achieved our savings targets. In fact, their productivity in the Rubbermaid system has been excellent and we really didn't see productivity in that business over the last three years. So, you know, they're very much on track. They've discontinued the products they've committed to. The facilities specifically have been exited, they've moved their headquarters and, you know, everything's looking great at Rubbermaid relative to the plan we set out to do this year.

That's great. Thank you.

And our next question will come from Linda Bolton Weiser of Oppenheimer.

Thank you. You know, Joe, I remember, you know a couple of years ago when the Gillette writing instrument business was first completed, and sitting there and, kind of, hearing about all the plans for repackaging Paper Mate and it all looked pretty good and everything. And I'm just kind of wondering, how it happens that things can sort of deteriorate and then kind of come upon us as being a big, kind of, negative surprise situation so quickly when I thought this had been a business that had been taken care of a couple of years ago.

Yeah, Linda, let's talk about that. First of all, it wasn't two years ago. The company acquired the Gillette writing instruments business in the latter part of year 2000. And in the year 2001 and '2, while there was new packaging that was developed, Linda, I think what we did the best job here is reducing the SG&A that was part of that business at Gillette. And we achieved the cost savings. We integrated that business into our supply chain and for the most part we maintained acceptable service levels in the marketplace. We also, as a result of that acquisition, got ourselves in an excellent position in Asia and Latin America and strengthened our infrastructure in Europe. So we, with that move, became a much more global writing instrument company; which is good news for the future.

The Paper Mate brand, though in North America specifically -- although it did go through some packaging changes, the fundamental new product that's needed to revitalize that brand hasn't been part of our performance yet--our results yet. We've been late on some new products. We rolled out the Pendulum here 18 months ago and that was a misfire. Okay? And there was a lot of effort there to roll that out and pull it back and that, you know, led us to conclusion that we just have the kind of robust product development system in place here that we have in other parts of the company. So we uncovered this and we are putting the process this place, we know how to do it. We've got good people working on it. But on the Paper Mate side, everyday writing, we need a flow of new product that will revitalize that brand.

The good news here, Linda, is that that pipeline is gaining momentum. You will see in '05, an array of new products targeting that area that will begin to reverse a trend that's been going on for a while. By the way this declining trend in the Paper Mate, or the every day writing area, has been going on since I've been with the Company. It really was also something that started in the late '90s. So this has been going on for a while. And it's not, in our view, going to be that hard to reverse it but we just need the right new product.

Okay. Thanks. That's helpful.

And our next question will come from Eric Bosshard from Midwest Research.

Good morning.

Good morning, Eric.

Two questions. First of all, on the sales line, looking between 1Q and 2Q, and depending on if you include the business you walked away from or not, the sales momentum slowed in 2Q versus 1Q on a year-over-year basis and the expectation in the second half doesn't sound like it's changes a lot. Can you give us a little sense of what the overall--what's going on in terms of the sales momentum of the business and why it is not building at this point?

Most of that change was in Writing Instruments that we talked about earlier, Eric. The everyday writing was soft. And the -- we did have a shift of about $10 million from Q2 to Q3, but I believe we'll pick that $10 million back up in Q3. The overall growth rates in the back half, again, we expect to be between 1 and 3% down. And there is a shift, I said as the core growth picks up from new product, we see less favorable impact from currency in the back half; but most of the softness we saw in Q2 was from the writing instrument piece, in everyday writing.

But, I guess, even as we look at the second half and there continues to be incremental SG&A spending and the top line continues to be in negative territory at what point do we get favorable payback on the sales line from the incremental SG&A spending?

Yeah, Eric, that's going to depend on the business. I think it's difficult to draw overarching conclusions about poor sales growth because the different businesses and brands are performing so much differently in the marketplace. You know we have brands that are growing double-digit, performing nicely, where the payback on SG&A has been terrific and we're trying to file more SG&A and continue to fuel that kind of growth. We have other cases, and we've identified everyday writing gear, as a part of writing instruments; where we don't have that kind of traction yet. But that's a business we believe in long-term. It's the right thing in our view to invest this SG&A in the business because we think that SG&A's focused on the R&D and the new product need.

And I think we are seeing some payback already, Eric, you know in our invest category businesses. They've done pretty well the last few years. That's been masked or hidden by the decline in Rubbermaid Home products and the businesses we divested. We're going to see positive sales trends next year. We're committed to that at the analyst day and then going forward we're saying 2 to 4% for the total company moving forward.

Eric where we're encouraged and we're reviewing these businesses very carefully, but where we've been at it for several years, where we put the product development in place invested the SG&A, got the right kind of skills in place; we've seen excellent traction whether that's Calphalon, or Lenox, or Irwin, or the Little Tikes business or many of our European businesses. We have seen the kind of results that we're looking for for the whole company but there's other parts of the Company where we still have work to do and we believe we know what process to put in place. But those results haven't surfaced yet, because we are a bit behind the leading parts of the company

I guess that is the bigger issue for me, and that is that you've walked away, divested the worst pieces of business. You indicate that you're having success in a number of areas of the piece of the business. It is still netting out as negative. And the question is you've said you are done with divestitures but it would appear based on the mixed performance that there still are the haves and have nots. Is the divestiture program truly done, are you truly satisfied with the portfolio as it exists today, or is there another traunch to go through to clear out what is dragging down the positive performance from some of your segments?

Well, Eric, I'm going to let Joe answer the second part. But first part, I think this is a transition year for the company. Our focus is -- was on divesting those businesses, on rationalizing the product lines in Rubbermaid Home Products and we're well on the way to do that. This is a transition year for us and this is a year from which we come out a lot leaner. The restructuring program comes to an end, that's putting a drag on our numbers right now. But we're coming out of that and I think as we discussed in May, you know, this is the -- the transition year, or the inflection year for us.

And Eric, you know, in terms of -- if our divestiture is done for the company, well our view here is that we have to continuously assess our portfolio and we have very high expectations for the businesses that make up this company. If a business seems to fall short of the long-term potential that we feel is essential to be a member of the company, then -- then we will continue to divest those sorts of underachieving businesses. So I think it's -- I think we've completed the previously announced divestiture program and that's 6 months early and I'm pleased with that performance. We will continue, though, to assess, with a lot of scrutiny, all the businesses in the company, and we'll -- over the next 5 years we'll continue to fine tune it and upgrade this portfolio, as necessary.

Great. And then second question, real simply, you talked about pricing as an important delta in the second half of the year. You indicated you've been working hard on pricing over the last four months. The price realization in 2Q year-over-year was identical to 1Q, it was negative in the first quarter, negative in the second quarter. Why would that have not shown up in 2Q and why does it show up in the second half?

Well, we started taking our -- you know, taking those pricing actions or meeting with our retail partners in the first half of the year. A lot of that pricing was not scheduled to click in until Q3, and some of it, frankly isn't scheduled until Q4. So that's -- that's the seasonalization of it and we'll begin to see the impact in Q3, as I mentioned it, and then more of the full fledged, or the broader scopes pricing in Q4.

Eric, you know, there could be a question of why didn't we move sooner with raw materials inflating, and the answer is we really tried to work collaboratively with our retail partners. Pricing discussions are never easy and we're in a whole different environment than we were even a year ago. But what our team tried to do is sit down and develop plans with retail partners that would enable us to achieve a win/win end result. In some cases that required some time. And that's why pricing, Pat, flops into the back half and in some cases fourth quarter; but we are pleased with what we've been able to achieve here in pricing.

Great. Thank you.

And our last question today will come from Connie Maneaty of Prudential Securities.

Hi, good morning.

Hi, Connie.

I'm a little surprised on the gross margin that the closure of facilities isn't having more of an impact. So a couple of questions on it. I think you said you closed 84 facilities, and in the past you have said that you would close 100. Is 100 still the number and do those get closed during the rest of the year?

100 was an estimate, Connie. We believe we'll end up about in the mid-80s when we are finished here. 84 is our estimate now.

Yeah, Connie, I think it's important to note the 84 is linked to the previously announced restructuring program, however as the company moves forward we'll continue to assess our supply chain and we will reconfigure, as necessary, and I'm sure there will be facilities, pat, that close over the next three years. They're just not going to be identified as below the line charges. They will be part of the ongoing management of the company.

And just to fresh our memory, it seems as though the gross margin hinges only on raw material cost changes. So what percentage of cost of sales are raw materials right now?

Raw materials, it varies a lot by business but in total, it's about -- in the mid-50s.

Connie, remember also, when we restructure when we close facilities in western Europe or North America and open up a supply chain in low cost countries like China, there is a unfortunately, a period of time where we have redundancy and some non-recurring costs that's associated with maintaining services levels in association with a ramp-up that's less efficient than when we get into a rhythm and that's, Pat, reflected very much in the gross margin performance as well. In the second quarter there was a ton of heavy lifting, a ton of restructuring activity throughout the company; and there'll be activity in the third quarter and fourth quarter as well. So, you know, you don't get the full benefit of gross margin until you have your new supply chain established and running with some kind of a rhythm.

And what do you think the right gross margin is for Newell?

What year? You know if you look five years out, as we've shared in the past, we certainly believe this company should operate in the mid-30s in gross margin. We need some time to get there but we have plenty of businesses, Connie, as you know that are well over that level and we have others that lag. So that's sort of the zone five years out that I feel we need to be in in gross margin.

Okay. One final question. Often on your calls you tell us who's has moved around to what kind of position. Have there been any senior departures?

No, Connie, actually in the second quarter there was a lot less activity than what we've gone through in the last three years. We did identify Ray Johnson's move which was key. But, you know, the fact is as we said all along, we are in a different phase in terms of transforming this company. We are -- you know we have a lot more stability organizationally. We're getting into an operating rhythm. We're finishing up on our restructuring programs, et cetera. There will always be, as in any company, there will always be some level of change but nothing like what you've seen us go through in the last three years.

Are all of your presidents for your retail channels, are they still with you?

Yes. Yeah, Rick, Paul and Steven are very much in place and very busy.

Okay. Great. Thank you.

Thank you very much, and we'll look forward to our next conference call next quarter.

And if we were unable to get to your question during this call please call Newell Rubbermaid investor relations at 770-407-3994. Today's call will be available on the web at www.NewellRubbermaid.com, and on digital replay at area code 888-203-1112, domestically, and area code 719-457-0820, internationally; with a confirmation code of 551200, two hours following the conclusion of today's conference for 30 days, ending on August 27th, 2004. This concludes today's conference. You may now disconnect.