諾威品牌 (NWL) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Newell Rubbermaid's fourth quarter 2006 earnings conference call. At this time all participants in a listen-only mode. After a brief discussion by management, we'll open up the call for questions. Just a reminder today's conference will be recorded. Today's call and accompanying slide show are being web cast live at www.NewellRubbermaid.com. I'll repeat that, that's www.NewellRubbermaid.com on the investor relations home page under events and presentations. The slide presentation is also available for download. A digital replay will be available two hours following the call at 719-457-0820. I'll repeat that number 719-457-0820. Please provide the conference code 6241860 to access the replay. I'll now turn the call over to Mr. Ron Hardnock, Vice President of Investor Relations. Mr. Hardnock, you may begin.

Thank you, and good morning. Before we begin, I'd like to take a moment to read our forward-looking statements. The statements made in this conference call that are not historical in nature are forward-looking statements.

These statements are not guarantees and actual results could differ materially from those expressed or implied. For a list of major factors that could cause actual results to differ materially from those projected, please refer to our most recently quarterly report on Form 10-Q, including Exhibit 991. We will also be referring to non-GAAP financial measures in this call. A reconciliation of these financial measures to the most directly comparable financial measures calculated in accordance with GAAP is available under the investor relations section of our website at NewellRubbermaid.com. Let me now turn the call over to our President and CEO, Mark Ketchum.

Thank you, Ron, and good morning, everyone. Thank you for joining us on our earnings call. I know today is a very busy day. I've acknowledged to you in the past that Newell Rubbermaid numbers are not easy to understand. We have a lot of moving parts and explanation is required. That's why I'm going to start today with a discussion of the full year. While we had a good Q4, beating previously released guidance, the real story is told by looking at the full 2006 year.

I am pleased to report strong fiscal year 2006 results, characterized by what I referred to as the growth trifecta, healthy top line sales growth, gross margin expansion, and higher operating profit. I'm even more pleased to report that this performance was broad based, with all of our segments achieving both top and bottom-line growth.

Total net sales were $6.2 billion, up 8.5% from last year. Internal sales grew 4.7%, driven by significant growth in our Home & Family, Office Products, and Cleaning, Organization & Decor segments. Gross margins for the year expanded 260 basis points to 33.4% of sales, putting us one year ahead of schedule in our plan to achieve 35% gross margins. This expansion was driven by continued strong productivity, pricing and mix.

For the year, earnings per diluted share excluding charges were $1.88, up 18%, compared to $1.60 last year. On a normalized basis, excluding charges and one-time items, earnings per diluted share were $1.52, up almost 22% over 2005. It's noteworthy that operating income rose over $100 million, or 17% to $723 million. So before I continue, I'd like to thank all of our employees for their hard work and commitment to delivering these very good results.

2006 was a transformational year for our Company. As I've said many times, this is truly a new Newell Rubbermaid. In addition to a step change in results, we have made notable progress on several key strategies that are driving our evolution into a global Company of "Brands That Matter", and great people known for best-in-class results.

The cornerstone of this transformation is our focus on consumer-driven branding. The new Newell is embracing consumer-full marketing, with innovation fueled by consumer insight, concept development, and then validation. In 2006, we launched the first two phases of our three-phase engagement with Publicis, a leading global ad agency. In these initial phases, we assessed our top 16 brands, using the uniform methodology, and then fielded incremental consumer and brand research to fill in knowledge gaps and verify our hypotheses regarding segmentation, consumer targeting and brand equity.

As we begin 2007, we have entered into the third phase, during which we are developing formalized training and development programs to help foster the skills and talents necessary to achieve best-in-class consumer branding capability. In 2006, we also ramped up our investment in consumer understanding, innovation, and demand creation, which we refer to collectively as strategic brand building. We invested 5.5% of sales in strategic brand building, a 40% increase over last year and a key contributor to our healthy sales growth.

In 2006, we also made excellent progress on strengthening our portfolio of businesses. We completed the integration of DYMO, finalized the divestitures of Little Tikes and Home Decor Europe, and returned North American Window Fashions to investment status. To maintain and build a healthy portfolio, we screen businesses to have consumer-meaningful brands that will respond to innovation, strong sales and margin growth potential, favorable customer and channel dynamics, and global product categories.

During the year, we also made significant progress in restructuring our manufacturing and sourcing footprint to optimize our total delivered cost. To achieve a best-in-class cost structure, we are increasing capacity utilization, locating more production in low-cost countries, and balancing Company-owned manufacturing with the strategic use of third party sourcing partners. Our restructuring program, Project Acceleration, is on track. To date we have announced two-thirds of the anticipated closings and consolidations. The savings from Project Acceleration will begin flowing through the financials in this first quarter of 2007.

Also indicative of our transformation are the many ways we are leveraging "One Newell Rubbermaid." We have made horizontal integration across business units, a key component of our overall corporate strategy. Leveraging "One Newell Rubbermaid" allows us to improve efficiency, reduce costs, and recognize synergies across the Company. In 2006, we established a shared services center in Europe, and we're approximately two-thirds complete in transitioning of services to this new entity. We are investigating expanding the scope of our existing shared services center in North America.

On the procurement side, we are realizing cost savings from the consolidation of suppliers, driven by our center-led procurement process. We are developing specific plans to centralize and consolidate our distribution and transportation activities. In 2007, we will begin the first implementation of our multi-year rollout of SAP. This implementation of standardized information technology will enable best-in-class business processes across the organization.

In 2006, we also announced the building of a new headquarters building in Atlanta, which will bring together several of our business units and functions, further supporting our cultural transformation. At the new Newell Rubbermaid, we want to foster a Company culture that embraces consumer centric innovation and branding, collaboration and team work, training and development, diversity in all its forms, and best-in-class performance.

2006 was a watershed year for us. This was the first year since 2002 that we simultaneously delivered organic sales growth, gross margin growth, and operating profit growth. As we look forward to 2007, we expect a continuation of this growth trifecta, with low to mid-single digit internal sales growth, 125 to 175 basis points of gross margin expansion, and an 11% to 15% increase in normalized EPS.

Our continued focus on investing and strategic brand building, optimizing our cost structure, leveraging the benefits of one company, and building a culture of excellence will ensure that this growth remains sustainable and broad based. With that, let me turn the call over to Pat who will walk through the detailed quarter and fiscal financials and updated guidance. And then I will return to provide some summary comments.

Thanks, Mark. I'll start with our fourth quarter P&L on a continuing earnings basis. Net scales for the quarter were $1.6 billion, up $55 million or 3.5% over a year ago. Excluding DYMO sales, internal sales grew $14 million, or about 1%, exceeding our guidance of flat sales performance. As we mentioned in the last earnings call, fourth quarter sales reflect the effects of two non-recurring year-over-year comparisons.

First, our electronic tool business delivered most of its 2005 sales in the fourth quarter. These sales did not repeat in quarter 4 2006, as this product line has neared the end of its life cycle. The impact to the Company was approximately 2 points of negative growth in the quarter. This will be the final quarter of negative comps for this product line as the run rate entering 2007 will be essentially flat for this year.

Second, the Rubbermaid Home Product sales declined double digits in the quarter due to a change in the seasonality of promotional volume which was spread more evenly throughout the year in 2006, versus more fourth quarter weighted in 2005. The net result was an approximate 3-point dilution in the Company's growth rate in the fourth quarter.

Internal sales growth, excluding these items, was 5.9% in total and 4.7% excluding foreign currency impact. Driving this improvement were core sales growth and favorable pricing, led by high single digit improvement in our Office Products and Home & Family segments.

Gross margin in the quarter was $540 million or 32.9% of net sales, representing a 260-basis point expansion versus 2005. Productivity, pricing, and mix drove the year-over-year improvement. Favorability in resin accounted for the higher than anticipated margin expansion, but was partially offset by other non-resin related raw material inflation, particularly in metals.

SG& A was $357 million up $49 million from last year or $43 million excluding the impact of foreign currency. About half the increase is related to acquisitions and the impact of expensing stock options. Driving the remaining increase was additional strategic brand building investments in our Office Products, Home & Family, and Rubbermaid commercial businesses.

Operating income for the quarter was $183 million or 11.2% of sales, an improvement of $10 million or about 6% from last year. As mentioned during our last call, the fourth quarter of 2005 included approximately $0.05 of one-time other income which did not repeat in our fourth quarter 2006 results. Our effective tax rate for the quarter was 31%, which included $13 million of one-time tax expense. Our continuing tax rate, excluding this one-time event, was 22.5%, driven by the divestiture of our European Home Decor business.

EPS for the quarter was $0.38, $0.02 above the midpoint of our guidance as a result of the better than expected sales growth and gross margin expansion. The Company recorded approximately $16 million in restructuring charges related to Project Acceleration in the quarter. These charges are not included in continuing earnings described previously.

In the fourth quarter, the Company recognized a net gain from discontinued operations of $9.9 million, reflecting the results and disposal of the Home Decor Europe and Little Tikes businesses. This gain is not included in continuing earnings described previously. Operating cash flow for the quarter was $239 million, compared to $190 million in cash generated in the prior year. Capital spending was $44 million in the quarter versus $22 million last year. The increase in CapEx was driven by investment in our SAP initiative.

For the full year, total sales increased 8.5% and internal sales grew by 4.7%, or approximately $268 million, with our invest businesses up 4.9% and our fixed businesses up 4% the last year. Foreign exchange and pricing accounted for about two points of the overall sales increase. We ended the year with gross margins of 33.4%, representing a 260-basis-point improvement versus the prior year, with productivity of 2.6%, pricing of approximately 1.5%, and favorable mix, partially offset by raw material inflation of about 1.5%.

SG&A expenses increased by $229 million from the prior year. About 40% of the increase was due to acquisitions, 40% represented increased investment in strategic brand building, and the remainder resulted from the impact of foreign currency, stock option accounting, and the pension curtailment benefit recognized in 2005. We delivered operating income of $723 million, up $104 million or 16.8% the last year. EPS was $1.88 per share versus $1.60 a year ago. Excluding one-time tax benefits and other non-repeating income events from each year, normalized EPS increased from $1.25 in 2005 to $1.52 in 2006, an increase of $0.27 or 21.6% for the year, virtually all from operations.

Our continuing tax rate for the year was approximately 28.5%, an improvement of 2.5 points to our previous guidance, due primarily to the divestiture of our European Home Decor business and its effect on profitability in certain European countries. The Company recorded approximately $66 million or $0.17 per share in restructuring charges related to Project Acceleration for the year. These charges are not included in the continuing earnings described previously. Project Acceleration is on track to deliver annualized savings of $120 million per year by 2008.

Operating cash flow was $643 million, compared to $642 million last year. Capital spending was $138 million, an increase of $46 million over last year, driven by spending on our SAP initiative.

I'll now take a few moments to talk about our full year 2006 segment information. In the fourth quarter, we combined our Cleaning & Organization and Home Fashion segments for public reporting purposes, as these businesses sell to similar major customers, produce products that are used in and around the home, and leverage the same management structure. In our Cleaning, Organization, and Decor segment, net sales were $2 billion, up 4% from 2005, driven by mid single-digit growth in Rubbermaid commercial and Rubbermaid home products.

New product innovation, a strong back to campus season, a successful year in insulated, and strong sales in the size and store and custom blind products drove the sales improvement. Partially offsetting this increase were low-margin product line exits specifically related to basic drapery hardware. Operating income for the segment was $208 million or 10.4% of sales, an improvement of $62 million versus a year ago. Fueling this margin improvement were the volume increases described above, coupled with productivity initiatives and pricing actions put in place to offset raw material inflation.

Office Products net sales increased $318 million to $2 billion, an increase of 18.6% versus last year. Internal sales grew about 6%, as the momentum we experienced in the back to school season, carried into the fourth quarter, led by strong performance in our everyday writing and marker businesses. Operating income was $288 million or 14.2% of sales, up $22 million to last year. Additional income from acquisitions and the sales volume increase were partially offset by strategic brand building spending, restructuring related inefficiencies and acquisition related start-up costs.

In our Tools and Hardware segments, net sales were $1.3 billion, an increase of $2 million or 20 basis points, as mid single-digit growth in our Irwin and Lenox branded tools was offset by the decline in our consumer electronic tool business. As we have communicated in the past, this product line has neared the end of its life cycle. Excluding this product line, sales increased about 3% in the segment. Operating income for the segment was $183 million or 14.5% of sales, bettering 2005's performance by $12 million or 7.1%, as productivity initiatives were partially offset by strategic brand-building investment and raw material inflation, particularly in aluminum, zinc, and brass.

In our Home & Family segment, net sales were $920 million, an improvement of $89 million, or 10.8% versus last year, as we experienced broad based success in all three business units fueled by new products and consumer demand, driven by targeted strategic SG&A investments. Operating income for the group was $117 million or 12.9% of sales, representing a $14 million or 13% improvement over the prior year. Driving the favorability was the increase in sales and productivity, partially offset by increased SG&A investment.

Before I turn to the 2007 outlook, please note that we will provide further detail on the assumptions used to build this guidance during our February analyst day. For the year, we continue to expect low to mid single-digit sales growth driven primarily by core sales improvement, with favorable foreign currency contributing between 25 and 50 basis points. We anticipate pricing to be flat to slightly negative as resin costs moderate. Our expectations for economic growth are low to moderate, with a cautious outlook for the first half and some improvement anticipated in the back half of the year.

Gross margins are estimated to expand by between 125 and 175 basis points, representing a 25-basis-point improvement to our previous outlook. Productivity between 2.5% and 3%, resulting from Project Acceleration savings and ongoing initiatives, combined with favorable mix will drive the margin expansion. Raw material inflation is expected to be slightly negative for the year as cost increases in metals and packaging will be largely offset by favorability expected in resin. We are maintaining our strategy to reinvest a portion of the gross margin improvement in strategic brand building initiatives, such as customer understanding, innovation and demand creation, as well as strategic corporate initiatives, including shared services and the SAP implementation.

We now believe this reinvestment will be approximately 60% of our gross margin expansion, compared to the 50% estimate provided on the last call. The sales growth margin expansion and SG&A investment will yield low double-digit percentage improvement in operating profit. The effective tax rate for 2007 will be between 29% and 30%, and EPS for the year will be in the range of $1.69 and $1.75 per share. This outlook does not include pre-tax restructuring charges of approximately $100 million to $130 million or $0.30 to $0.39 a share.

Cash flow from operations is expected to be between $575 million and $625 million, including approximately $100 million to $125 million of cash restructuring payments. Capital expenditures are estimated to be in the $140 million to $160 million range, including spend related to SAP.

In summary, our plans for 2007 remain consistent with those provided on our last call. We plan to drive internal sales growth and significant gross margin expansion, which allows us to fund strategic investments in our future, while achieving double digit operating income and EPS improvement and strong cash flow.

Turning now to the Quarter 1 2007 outlook, we expect sales to increase low single digits, driven by core sales growth and foreign currency benefit. Recall that Quarter 1 2006 sales included some one-time benefits. We communicated at that time that the Window Fashion business benefited from the addition of a new warehouse at a key retailer and January low customer inventories coming into a year, and a portion of the sales increase in Home & Family related to the timing of promotions and plan-o-gram changes at retailers. These events are not expected to repeat in the first quarter of 2007.

For Quarter 1, we expect earnings to be in the range of $0.21 to $0.23 per share, compared to $0.50 per share in the year-ago period. As you recall in the first quarter of 2006, the Company recorded approximately $0.28 per share relating to the resolution of tax contingencies. This favorability will not repeat in the first quarter of 2007. Raw materials and pricing will offset one another from a profit perspective.

Savings from Project Acceleration activities, along with other ongoing productivity initiatives will read through to improve gross margins by 150 to 200 basis points. We expect SG&A expense to increase between $30 million and $35 million in the quarter, about equal to our gross margin improvement. The first quarter increase in SG&A is expected to be the largest of the year as we have not yet annualized the ramp up in strategic spending initiated in 2006. Driving the increased spend in the first quarter will be demand creation activities, primarily in the Office Products, Home & Family, and Cleaning, Organization and Decor segments.

Corporate initiatives will also contribute to the increase as we support such activities as the SAP and shared service implementations. The sales growth and gross margin expansion will be offset by our investment in SG&A resulting in flat operating income for the quarter versus the prior year. This outlook does not include pre-tax restructuring charges of approximately $20 million to $40 million, or $0.06 to $0.12 per share.

Finally, operating cash flow is expected to be in the range of minus $25 million to plus $25 million in the quarter, compared to minus $12 million a year ago, with capital expenditures of $35 million to $45 million. Similar to last quarter, we have posted a brief supporting slide presentation on our website, www.NewellRubbermaid.com under quarterly earnings in the investor relations section. Before we open the call for questions, Mark has some final comments.

Thanks, Pat. Before providing my summary comments, I would like to highlight the recent addition of Michael Todman from Whirlpool to our board of directors. Michael brings an extensive background in international operations and sales and marketing leadership. His experience in growing sales and profits and achieving leading brand positions in international markets will be invaluable as we focus on building "Brands That Matter" across the globe.

I would also like to thank Allan Newell, who has elected to retire from the board, for his many years of service. The Company has benefited from his insights and dedication over the past 25 years, and we wish him all the best.

So in closing, 2006 marked the first year of our transformation into a leading innovation, marketing and branding Company. We are proud of the progress we have made thus far and excited about the potential that's still in front of us. The complete transformation will take several years, but the good news is we'll be reaping benefits every year along the way. Continued gross margin expansion is the key. It will provide the fuel for us to implement our key transformational strategies and invest strategically in longer term initiatives that will ensure the Company's long-term success.

We look forward to speaking with you in more detail about these strategies and initiatives at our February 13, 2007, analyst day. So thank you for joining today's call, and I will now ask the operator to open the line for questions.

Thank you. We will now begin the question-and-answer session. [OPERATOR INSTRUCTIONS] We'll pause for one moment as we assemble the roster. Our first question comes from Budd Bugatch with Raymond James Financial.

Good morning, Mark. Good morning, Pat. I guess my first question would have to do with the outlook and the guidance. First quarter understandably more restrained because of some of the seasonal impacts from last year. Can you kind of maybe give us a high level look of what the seasonality of earnings and revenues might look for the balance of the year, and how the quarters might unfold and what would be a normal pattern for seasonality for Newell going forward?

Well, from the top line standpoint, I think -- I'll talk about front half/back half, if we can. Front half and back half will be similar. There will be mid single-digit growth in both, with the first quarter being a little lighter than the second, but roughly the same growth rate in the front and back half. Maybe slightly better in the back half. From a profit standpoint, it will be more back-half skewed than that, because our SG&A investment is relatively equal across the year, and has a significant impact on the first quarter profitability in particular, because it's our lowest sales quarter of the year.

We do about 22% of our sales in the first quarter and roughly 26% in each of the other quarters during the year. If you look at our SG&A spend last year, it ramped up from about $313 million in the first quarter and then for the rest of the year ran in the $340 million to $350 million range each quarter, and you can expect that to be more -- you know, a little flatter this year across the year. So the first quarter is being more impacted year-over-year change from a profit standpoint. So the first half of the year will probably be about a third of the operating profit improvement and the back half about two-thirds.

Okay. Thank you on that. And can you give us a little more granularity about the SG&A expenditures and the persistence of that. I know you got SAP, I know it's the strategic SG&A, but can you kind of parse that for us for how much of that is going into the efficiency improvements like SAP and how much is going into demand creation?

Sure.

And what's the persistence of that deficiency spend in the out years?

Okay. Well, about two-thirds of the investment will be in the strategic brand building type of initiatives, and about one-third of the increase year-over-year will be in the, I'll call it, corporatewide initiatives like SAP and shared services. And we'll talk to you a little bit more about that, I think, on analyst day and about what we expect to come from those corporate initiatives.

Okay. Thank you very much.

Thanks, Budd.

Our next question comes from Chris Ferrara with Merrill Lynch

Hey, guys. Ask about gross margin. You guys said for '07 guidance what 2.5 to 3 points of productivity, I think, is it, just so I'm getting that right, Pat, is that, like, $113 million or 180 basis points? Is that the way to think about? Like 2.5 percentage points of COGS from last year?

Yes, 2.5% to 3% of cost of goods sold. That's right.

Okay. And so does that mean that -- and that includes restructuring and base cost productivity savings? Right?

That's right. And we still expect about $50 million in benefit from Acceleration in the year.

Okay. So, I mean, is it fair, then, I guess, that level of sort of, you know, fall off of base productivity, excluding Project Acceleration, I know the waters get muddy as you move forward in trying to parse out which is which, but is it fair that the base -- either the base cost savings program is tapering off a little bit and being replaced by Project Acceleration?

A little bit. I think part of that has to do with our shifting model to sourcing model and, frankly, developing the expertise and talent inside to work with our suppliers to get that same kind of productivity we've been generating through our own plants and get that from them. So as we shift more to it this 50/50 model, manufacturing and sourcing, we have to get the right suppliers that can develop and share that productivity with us just like we were developing in our own manufacturing sites.

Got it. And just on SAP, could you just revisit for a second the timeline and, you know, the pioneer businesses and what the rollout is going to look like?

Well, I don't want to talk about the specific rollout. We'll give you some more information about SAP again in a couple weeks. We are going to start up with one business in 2007, and then we'll follow that with some more NOA, but we'll give you more information, again, in two weeks about -- not specifics, but some more information around the SAP roll.

This will take a number of years, though, and that's the way to think about it. We're going to do this in several ways in North America and then pick up the international locations in a couple waves. So this is not something we're going to try to rush through. There's a lot of work to do to make sure that we do this right and don't stumble in terms of customer service.

Thank you.

Your next question comes from Eric Bosshard with Cleveland Research.

Good morning.

Good morning, Eric.

The Office margin throughout the year, at least three of the four quarters was down. Can you talk a little bit about what's going on there, if it's investment or if it's a change in the end market and how we should think about that segment's margin performing as we move forward?

Well, I think, Eric this is Pat. The things that held us back in 2006 were, really three things. One was the investment in strategic SG&A that suppressed the margins a little bit, and it's showing up in the top line right now. We had some pretty good growth in that segment for the year. The second was we did have inefficiencies around Project Acceleration and that business which is suppressing the margins also. And the third is we have start-up costs related to the integration of the DYMO acquisition. So I think you can look for those margins to turn around and start to improve again in 2007, but those three things suppressed the percentage margins in '06.

And we're beyond those things at this point? Is that accurate?

Well, we're going to continue to invest in the strategic SG&A piece. I think -- and I'm not going to say we're behind in the Acceleration. We have some significant plans for Project Acceleration in that segment that have to be executed in '07, but the year-over-year change should be -- shouldn't be as big. In other words, we had -- you know, there's hits that hit us in '06, and they'll probably continue in '07, but they'll be flat, if you will, the impact of those, and, of course, the DYMO integration is behind us.

I think another way to think of it is the single biggest impact of integration in the past year was in the Office Products business.

Yes.

And then, secondly, Mark, as you think about the strategic SG&A investment that you're making, I think you characterized it as 60% of the gross margin improvement, did you look forward in time, what rate of sales growth do you need to be able to then net out some operating margin improvement?

Oh, I -- it will be low to single -- low to mid-single digits. We'll do that. I think -- as we've talked before, our long-term expectation, our long-term strategy always all point to growing reliably in that order of magnitude on the top line and continuing to drive gross margin progress as well so that we can afford to do this and continue to, you know, create a virtuous cycle of reinvestment in our brands, growing the top line, but also dropping some through to the bottom line.

Is there a -- it's not a terminal target, but is there an expectation of where the operating margin in this business should get to, or should we be more focused on the stability of low to mid-single digit top line growth?

I think that's what you ought to be focused on for now. Again, we'll provide additional comments and perspective on that in the analyst day two weeks from now. So I'd like to save that more detailed discussion for that point in time.

Thank you.

Your next question will come from Bill Schmitz with Deutsche Bank.

Hi. Good morning.

Good morning.

The $120 million of Project Acceleration savings, is that exclusive of any transportation and distribution savings you might have?

It is right now. That's right. We'll talk about that, again, in two weeks, but, yes, that's still in the original plan that we gave you, whatever, a year and a half ago.

Okay. Got you. Again, you said that two-thirds sort of brand driving SG&A and one-third SAP and others, of that two-thirds, how much of that is still kind of brand mapping, consumer insights and how much of that is really traditional media spending? Are we going to start to see a big uptick in media spending now that a lot of the base spending has been done on a lot of the brand mapping stuff?

The answer is the brand mapping has to continue to accelerate. We're still only scratching the surface there. But the majority won't be for brand mapping. The majority will be for what I'd call working advertising and promotion and R&D.

But some of that will be in R&D, and, frankly, it will be probably an incorrect perception to think of us as a large, traditional media spender going forward, because business by business, that really looks different.

Direct to consumer is the most important way to get through to our Graco business, our baby care moms. The tools and hardware business is, you know -- belly to belly is the way we think of it, on the job sites and at the places where that consumer is buying their tools. And so that doesn't look like traditional media. But the point is, you know, of that two-thirds, the majority will go towards working -- what I call working investment, and that's in R&D and advertising and promotion, but not necessarily traditional media.

Okay. Great. Thanks. And then, you know, just in terms of the initial brand mapping you've done -- well, actually, no, let me ask you a different question. SAP, can you not do global sourcing or promotional efficiency until your SAP is up and running, is that something we should wait for two or three years out, or can we start seeing benefits now, especially on the promotional side?

We can see some benefits now, but SAP is an enabler for us to do that in an efficient way, and it will help that initiative.

Okay. Great. Thanks very much.

[OPERATOR INSTRUCTIONS] Our next question will come from Linda Bolton Weiser with Oppenheimer.

Thanks. Mark, I was wondering if you could just talk about this concept of the surcharge with your pricing, and is that still something that you're operating with, in terms of how you're dealing with retailers, and do you think going forward you're going to kind of just pull back from that concept a little bit? That would be question Number 1. And question Number 2 would be just your current thoughts on acquisitions and whether you feel that that will be something you'll be prioritizing in '07? And if you don't do any acquisitions, then what would be your most likely use for the free cash flow you will generate in '07?

Let me take those one at a time. The first one was regarding the surcharge to our pricing on our resin-based products. The answer is, yes, we will continue to use that concept. We go in and make any adjustments that we're going to make once every six months, and the other thing we have to look at in that is you have to look at the long term, and the long term on resin, frankly, we're still behind in terms of getting, totally recouping the resin inflation for the last four years. So while we've been successful in offsetting it for the last two years from a longer perspective, we're still behind.

There's no question that we won't -- we're unlikely to see further increases, and there will be some pressure on that going the other direction. But as I said, we'll look at the long term in making any decisions on surcharge pricing.

The second question was relative to acquisitions, and we don't comment specifically, other than I'd tell you that after paying our dividend, that is second priority for our use of cash. We see acquisitions as being an important part of our growth going forward, but I can't give you any specifics. And as always, you know acquisitions are somewhat opportunistic. So while we have active programmers out looking in the areas of interest to us, they either come available or they don't, and we're not just going to go buy for the sake of buying.

Okay. Thank you.

Yes.

Your next question comes from [Henry Kaplan] with CIBC World Markets.

Hello. Good afternoon. I was wondering if you could talk about the current breakdown of owned versus third party manufacturing? I know you're targeting 50/50, and I was wondering how far away you are from that, achieving that level?

I think we're about -- at this point about 60/40 on our way to 50/50.

We'll up date that and be able to answer that more specifically at analyst day.

Okay. And then my second question has to do with cost of goods sold and raw materials. You mentioned that you're seeing some relief on the resin side, but metals, including aluminum and zinc have gone up. I was wondering if you could give us a percentage of COGS made up by metals and then resin at this point?

I can do resin. We're going to buy about 700 million pounds of resin this year. It's about a $400 million buy, and you can do that math.

Okay.

And then I don't have that number for metals. I'd have to have Ron get back to you. Okay?

Okay.

It's split across a lot of different metals.

Yes, I was going to say, I don't know if that would be a particularly helpful number in any case, Henry. I think because we're buying, you know, aluminum and steel and both, you know, kind of basic steel and stainless steel, we're buying precious metals like gold. We're buying brass and zinc for our hardware business, for our Amerock cabinet hardware business.

Right.

And those metals don't all go in sync. Some spike while others are flat or going down.

Okay. Great. Thank you very much.

We have time for one final question. That final question will be a follow-up from Budd Bugatch with Raymond James Financial.

Yes, hi. I just wanted to follow up a little bit on Linda's question about acquisitions, Mark. I know you don't want to talk with any granularity on it, but maybe on a higher level, could you tell us what kind of -- where they might come in terms of would you consider a new segment or do they want to be inside one of the existing segments and kind of size frames, or what would be some of the criteria that might be useful to think about that?

Well, let me just be direct. I wouldn't rule out new segments, but what we're really looking for is a set of criteria, and that criteria would go something like this: It would be a business that -- where brands are important, where the consumer in that space responds to innovation and branding and marketing.

It would be one where we think we have favorable dynamics with customers and channels, one where we think there is global growth opportunities, categories where the -- where the category and/or brand is -- has good growth potential around the world. And those are the key criteria.

The ones that fit best and usually turn out to be the best investments for us are the ones that also have synergies with our existing business. So, as I said, while I wouldn't rule out new categories, the ones that have some synergy with our current customer base, our current, you know, manufacturing capabilities, our current technologies, any of those kinds of things would be ones that would be preferable, and they would be preferable just because there's better synergies, and therefore would give us better return.

Okay. My last question refers to Project Acceleration. If I read the guidance, you've lowered, I think, this year the expected charges by somewhere around $30 million, if I bracketed it properly. How long will Project Acceleration now continue? What is the terminal date or has that slid a little bit farther into 2008?

I don't think it has slid. But if you look, we're about two-thirds through the announcements of the sites we're going to close, where we expected to be. As you're aware, I mean, these charges come in chunks, right, so a couple weeks [INAUDIBLE] in an announcement with a shut down of a facility can actually move pretty large chunks of charge from one quarter to the next. We're still anticipating from the savings side that we'll get $120 million a year by 2008, with $50 million of that reading through in '07, and we're all on track to deliver that savings, and then we'll up date you a little more on some of the other projects around distribution and transportation and shared services in two weeks. Okay?

And the total charge is still 350 to 400?

That's correct.

And you think the last charge will be booked, is it first quarter of '08, or is it now second or third, or how do you -- how should we think about that to put in our models?

I tell you what. I don't know which quarter, because I told you they come in chunks. I think it will be in '08, and probably -- I'm not going to say a quarter.

Okay. I'll try to pin you down further later.

All right. Very good.

Thank you, all.

If we were unable to get to your question during this call, please call Newell Rubbermaid Investor Relations at 770-407-3994. Again that is 770-407-3994. Today's call will be available on the web at www.NewellRubbermaid.com. And on digital replay at area code 719-457-0820. I'll repeat that number that's 719-457-0820. With a confirmation code of 6241860. I'll repeat that code 6241860, starting two hours following the conclusion of today's call and ending February 13. This concludes today's conference. You may disconnect.