諾威品牌 (NWL) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, welcome to Newell Rubbermaid's fourth quarter 2007 earnings conference call. At this time, all participants are 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 is being webcast live at www.newellrubbermaid.com on the Investor Relations homepage under Events and Presentations. A slide presentation is also available for download. A digital replay will be available two hours following the call at area code 719-457-0820. Please provide the conference code 2663504 to access the replay.

I will 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 would like to remind you that 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 listing of major factors that could cause actual results to differ materially from those projected please refer to our most recent quarterly report on Form 10-Q, including Exhibit 99-1. We will also be referring to non-GAAP financial measures on 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 fourth quarter 2007 earnings call. I'm pleased to report that our fourth quarter and fiscal year results were in line with our previously released guidance.

I've said many times that full year results provide the most useful gauge of how our transformation is progressing. Looking over the past two fiscal years, we're proud of the success we've had driving the growth trifecta every quarter, higher top line sales, gross margin expansion and higher operating profit.

Since 2005, we have delivered 4% average annual internal sales growth and taken gross margin from 30% to 35%. We have achieved over $200 million in operating income improvement, increased normalized earnings per share by 46%, and delivered over $600 million in annual operating cash flow. Our significant gross margin expansion is fueling the investments we are making to build our long-term capabilities and achieve sustainable growth.

As we look forward to 2008, we expect to deliver this growth trifecta once again even in the face of a more difficult economic environment. I'll talk more about our outlook later in my remarks.

In 2007, total net sales rose 3.3%, led by significant growth in our Home and Family, Rubbermaid Commercial, Office Technology, and International Tools businesses. Gross margins for the year expanded 185 basis points to 35.2% of sales driven by continued strong productivity and mix. We are pleased to note that we achieved the 35% gross margin milestone in two years, one year ahead of our original schedule.

Excluding charges, 2007 earnings per diluted share were $1.97, compared to $1.88 in the prior year. When we exclude one-time tax benefits from both periods, normalized EPS was $1.82, a 20% improvement over last year. Operating income improved 14% to $826 million.

In 2006, we unveiled a vision and strategy to transform Newell Rubbermaid into a best-in-class consumer driven branding and marketing Company. Since then we have made considerable progress on several key initiatives that are the driving force behind our multi-year transformation.

As part of our marketing build and transform initiative, we have created a detailed blueprint and road map for achieving brand building excellence over time, complete with annual targets and measures. We have added to our management ranks top executive talent from some of the word's leading consumer products companies. We developed and launched a comprehensive series of marketing excellence training programs, covering both basic and advanced curriculums. In just two years, we have increased our investment in strategic brand building almost 60%, to 6.2% of sales.

This investment includes the key activities that lead to better consumer understanding, innovation, and demand creation. We have also made good progress in our efforts to achieve best cost and to leverage the power of one Newell Rubbermaid. Our project acceleration restructuring program remains on track with only eight facility closures remaining.

We recognized $60 million in cost savings this year, and expect to see another $60 million benefit in 2008. We have begun consolidating our distribution and transportation activities to achieve greater efficiency. With the recent announcement of our fifth multi-branded distribution facility, we continue to reduce our distribution facility footprint, going from almost 100 DCs in 2005, to fewer than 80 in 2007. We expect to drive the number down to approximately 50 by the end of 2009.

In October, we successfully launched SAP at our North American office products business. We have invested significant resources in this endeavor, and we are pleased to have had such a smooth transition to the new system. Our next go live is scheduled for the Home and Family segment in the second quarter of 2008. Our multi-year implementation of SAP will be a key enabler of best-in-class business processes across the organization.

Finally, we are continuing to drive the culture change necessary to become a top-tier consumer branding and marketing Company. In 2007, we identified and embraced a common set of Company values centered around consumer focused brand building, collaboration, diversity, and people development, and best-in-class results.

We co-located into single locations for our Paris EMEA headquarters, and in Hong Kong for our A-Pac headquarters. This summer we will co-locate several of our business units and corporate functions into our new global headquarters building in Atlanta. These moves will enable greater sharing of best practices and make it easier to leverage talent across the organization.

As we move forward in 2008, we will continue to build upon the achievements and the positive momentum of the past two years. For the year, we expect sales growth of 2% to 3%, gross margin expansion of 100-plus basis points, and normalized EPS in the range of $1.95 to $2.00. We recognize that macro economic conditions have deteriorated since we last provided guidance. We face additional headwinds from increased softness in the housing markets, and a weaker retail environment in the U.S.

We have taken down our top line expectations to acknowledge this market contraction. Despite these additional challenges, we believe we can still deliver on our previous gross margin and EPS guidance, and continue reinvesting in brand building and capability building SG&A. And by focusing on the many growth levers that are still in our control, we will continue to drive top line increases across all of our operating segments.

One key lever is our healthy pipeline of new products. For example, in our Office Products segment, we have 16 new product launches in markers and highlighters, and everyday writing planned for 2008. This compares to only five in 2007 when we actively limited the level of new product introductions in order to concentrate on executing the SAP conversion flawlessly, which we did.

During the course of this year, you will hear more about notable new product launches on several of our brands including Graco, Rubbermaid Commercial, Sharpie, Goody, LENOX, Parker, Waterman, and Rubbermaid Food. Another important growth lever is our ongoing investment in strategic brand building. In 2008, we will continue to increase spending to develop consumer insights, create meaningful innovation and support demand creation activities.

The innovations which will benefit from this investment include our Rubbermaid Easy Find lids, which are easier to see on store, and Rubbermaid produce saver storage containers, which keep produce fresher longer. Our Sharpie Ultra Fine Retractable markers allow for precise, permanent marking and writing with easy, one-handed operation.

At Rubbermaid Commercial we are expanding into yet another new category with a line of high quality, lightweight commercial-grade vacuum cleaners that integrate seamlessly with our cleaning carts and non-powered cleaning implements. Our Graco Sweetpeace Newborn Soothing Center reinvents the swing category by offering babies a multi-sensory experience that mimics the actual movements mothers use to soothe their infants. And our LENOX Q series band saw blades offer 60% longer blade life and faster cutting rates.

To offset some of the rise in our strategic spend, we will make targeted reductions in structural expenses, enabled by our shared services and other corporate initiatives. Growth and expansion outside of the U.S. will also be a significant growth lever. Global penetration by many of our brands is still low, which creates tremendous opportunities to expand internationally.

In 2007, we saw double-digit sales growth outside of the U.S. In 2008, we anticipate continued strong international growth to help offset weakness in the domestic market. In 2008, we expect to deliver healthy cash flow, in line with our performance in recent years. Our priorities for cash continue to be maintaining our current dividend followed by investing in strategic acquisitions. These include smaller bolt-on, as well as larger, more significant transactions.

Over recent years, successful major acquisitions, such as DYMO and LENOX, as well as smaller additions like Teutonia, Endicia, CardScan and United Receptacle have helped us drive innovation and expand into new markets and product categories. Given the current economic environment, the opportunity for strategic acquisitions continues to improve. We are doing active due diligence on several exciting possibilities, and are continually evaluating additional opportunities in our priority growth areas, Office Technology, Rubbermaid Commercial products, Industrial Tools and all three categories within Home and Family.

Before I turn the call over to Pat, I would like to thank all of our employees for their hard work and commitment to delivering solid results, especially in light of the challenges we are all facing. We have made great progress in advancing towards our vision of best-in-class and we will continue to make additional strides in 2008.

As we enter the third year of our multi-year transformation, we remain focused on driving our key strategic initiatives to deliver sustainable top line growth, healthy gross margin expansion, and solid operating income and EPS growth. So with that, let me turn the call over to Pat, who will walk through the detailed financials and updated guidance before I return to provide some summary comments. Pat?

Thanks, Mark, I'll start with our full year 2007 income statement on a normalized earnings basis. Net sales for the year were $6.4 billion, up 3.3% to last year, with foreign currency contributing approximately two points of growth for the year. For the second year in a row, all segments delivered positive growth.

This year's sales increase was led by high single-digit growth in our Home & Family segment and mid single-digit growth in Cleaning, Organization & Decor. Domestic sales were up 50 basis points. Our international businesses grew by 12% for the year.

Gross margin for the year was $2.3 billion, or 35.2% of net sales, representing a 185-basis-point expansion versus 2006. Ongoing productivity initiatives, savings from project acceleration, and favorable mix drove the improvement, with pricing offsetting raw material inflation for the year.

SG&A was $1.4 billion for the full year, up $84 million to last year. Brand building investments in all of our segments and other corporate initiatives including SAP and shared services drove the increase. Savings from project acceleration and other structural overhead reductions partially offset these investments.

Operating income for the year was $826 million, or 12.9% of sales, an improvement of $103 million, or 14% to last year driven by higher sales and gross margin improvement, partially offset by the increase investment in SG&A. Interest expense was approximately $28 million lower than 2006, reflecting the reduction in debt year-over-year, and slightly lower average borrowing rates.

The Company's continuing tax rate was 29% for the year, compared to 28.4% last year. In 2007, the Company recorded approximately $41 million, or $0.15 per share in period tax benefits, compared to $103 million, or $0.36 per share in the prior year. Normalized EPS for 2007 was $1.82, about 20% higher than last year's normalized EPS of $1.52 a share.

The Company recorded approximately $86 million, or $0.24 per share in restructuring charges related to project acceleration during the year, which are not included in continuing earnings described previously. Operating cash flow for the year was $655 million, compared to $643 million in the prior year. Capital spending was $157 million for the year, compared to $138 million last year, with the increase primarily related to our SAP initiative.

Now I'll take a few moments and talk about our full year 2007 segment information. In our Cleaning, Organization & Decor segment net sales increased 5%, or $101 million, to $2.1 billion. This increase was driven by double-digit growth in our Rubbermaid Commercial business, and low single-digit growth in the Rubbermaid Consumer and Levolor branded businesses.

Operating income for the segment was $273 million, or 13% of sales, an improvement of $64 million, or 31% versus a year ago. Sales growth driven by strategic SG&A investments, productivity gains and favorable mix drove the improvement. Office Products net sales improved by 0.5% on the year.

Strong growth in our Office Technology and International businesses was offset by softness here in the U.S., which was impacted by weaker foot traffic in the North American office retailers and inventory corrections taken within that same channel. Operating income improved 11% to $318 million, or 15.6% of sales, up 150 basis points to last year, resulting from favorable mix and pricing initiatives, partially offset by increased brand building and SG&A.

In our Tools & Hardware segment, net sales were $1.3 billion, up $27 million, or 2.1% versus a year ago. Growth in Europe and Latin America more than offset continued softness in our domestic Tool & Hardware businesses, affected by the U.S. residential construction market. We continue to see solid growth in our Irwin and LENOX branded products, which together yielded mid-single-digit growth for the year.

Operating income for the segment was $182 million, or 14.1% of sales, down $4 million, or 2% to last year, as top line growth and productivity initiatives were more than offset by investments in brand building. In our Home & Family segment net sales were $980 million, an improvement of $69 million, or 7.5%, with all three business units showing mid to high single-digit growth.

New product launches and better sellthrough resulting from demand creation activities drove the majority of the improvement. Top line sales growth supported by increased SG&A investments drove operating income of $136 million, or 13.8% of sales, up 15% from $118 million in the prior year.

Turning to our fourth quarter results, net sales were modestly positive to last year, at 30 basis points of growth, consistent with our revised guidance communicated in late November. Cleaning, Organization & Decor grew 5.9%, driven by continued strong performance in our Commercial business, which was up double digits for the third quarter in a row. Our Home & Family segment was up 5%, with growth in all three business units.

Our Tools & Hardware segment was up 60 basis points, with strong international growth offset by softness here in the U.S. And finally our Office Products segment was down 7.5%, reflecting inventory corrections taken at key office retailers in response to slower foot traffic, and about three points of sales shift for this segment from quarter four into quarter three relating to the pre-buy in advance of the Company's SAP go live in North America.

For the quarter, we delivered operating income of $205 million, a $22 million, or 12% improvement over last year, driven by gross margin expansion of 212 basis points, which represents our 11th consecutive quarter of gross margin expansion. Partially offsetting the expansion was increased SG&A, driven by investments in demand creation and other strategic corporate initiatives.

EPS was $0.47 versus $0.38 last year. Excluding the impact of period tax events in the fourth quarter of 2006, normalized EPS increased $0.05, or 11% from a year ago. Operating cash flow for the quarter was about $200 million, with capital spending of $47 million.

I'll now turn to the outlook for 2008. We expect to drive sales growth of between 2% and 3% for the year, which includes about 1 point of foreign currency benefit. This revised guidance reflects the worsening economic conditions in North America, which we do not expect to improve during 2008.

From a segment standpoint, we expect our Home & Family businesses to grow mid-single-digits, again, supported by new product introductions and demand creation activity. We expect our Cleaning, Organization & Decor segment to grow at or above the high end of the Company's range, driven by strong performance in the Rubbermaid Commercial business. The Tools & Hardware and Office Products segments are expected to be flat to up low single-digits.

Continued growth in our branded and international tool businesses will be dampened by the softening economic conditions we are now experiencing, particularly in North American housing, where our plans are based upon new housing starts in the 800,000 to 900,000 range. Office Technology is expected to contribute growth above the Company's range. However, our plans assume this improvement will be offset by continued softness in the North American office retail environment.

Savings from project acceleration, combined with ongoing productivity initiatives, and favorable product mix are expected to drive gross margin expansion in excess of 100 basis points. We expect to see increased pressure on margins as commodity inflation is expected to double versus 2007, largely due to rising resin costs. We saw resin costs increase approximately 25% between quarter 1 and quarter 4 of 2007.

Our 2008 plans assume that costs will remain at the quarter 4 2007 levels throughout the year. Therefore, we expect to see the greatest year-over-year increase from resin inflation in quarters 1 and 2, with very little impact in the fourth quarter of the year. We will maintain our strategy to offset raw material inflation with pricing actions, however, the timing of the two will not match in any given period as our pricing actions are slightly back half weighted during the year.

Despite the weakening economy, our strategy remains on track to reinvest about half of our gross margin expansion in brand building initiatives, including consumer understanding, innovation and demand creation, as well as other strategic corporate initiatives, including SAP, co-location and shared services.

The continuing tax rate for 2008 is expected to be between 28% and 29%. We are maintaining our original full year guidance range on normalized EPS of $1.95 to $2.00 a share. Operating income growth will drive approximately 75% of the year-over-year EPS improvement, with reductions in interest expense, and continuing tax rate accounting for the remainder. This outlook does not include pre-tax restructuring charges of between $150 million and $160 million, or $0.44 to $0.47 per share.

We anticipate generating cash flow from operations of between $600 million and $650 million, including approximately $100 million in restructuring cash payments. Capital expenditures are estimated in the $160 million to $180 million range, including expenditures for SAP. For the first quarter of 2008, we expect between 2% and 4% of sales growth for the total Company, driven by strong growth in our Home & Family and Rubbermaid Commercial businesses, as well as favorable currency.

We anticipate EPS to be approximately flat to last year's normalized $0.27 per share, as commodity inflation, particularly in resin, will hit us the hardest in the first quarter of the year. SG&A spending will be consistent with the fourth quarter of 2007, which will represent a sizable increase versus last year's first quarter.

Demand creation activities, particularly around Graco Sweetpeace, Sharpie Ultra Fine Retractable, and European technology platforms are all slated for the first quarter. Before we open the call for questions, Mark has some final comments.

Thank you, Pat. Before providing my summary comments, I would like to highlight the recent addition of Domenico De Sole to our board of directors. He is the Chairman of fashion retailer Tom Ford International and was previously the CEO of Gucci Group. Domenico brings extensive global marketing, retailing and operations experience to the board, and will contribute significant expertise as we execute our premium brand strategies worldwide.

So in closing, 2007 marked the second year of our transformation into a best-in-class consumer branding and marketing Company. We are very proud of the progress we have made in developing our brand building capabilities, improving our cost structure, coming together as one Company, and creating a culture of excellence, while delivering all of the financial commitments that we made.

In 2008, we look forward to building upon the foundations laid over the past two years. We remain confident that the diversity of our portfolio of businesses and the growth levers in our control will enable us to continue to deliver on our financial commitments. Driving top line sales growth, fueled by continued investments in new products and brand building activities. Delivering gross margin expansion, as we reap the ongoing benefits of higher productivity and improved product and channel mix. And growing operating income and EPS.

Lastly, we will continue generating strong cash flow, which will support our dividends and help finance strategic acquisitions. We face a more challenging economic environment than anticipated six months ago, or even two months ago.

You should know that we have developed comprehensive contingency plans to enable us to meet our EPS targets. We have flexibility in our investment decisions, and have implemented certain austerity measures to enable continued earnings growth.

Our disciplined approach to business planning achieves a healthy balance between driving current year results and continuing to invest in the Company's long-term success. As always, we thank all of our shareholders for their continued support. Thank you for joining today's call and I'll now ask the operator to open up the lines for questions.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) We'll pause one moment. Your first question comes from Chris Ferrara with Merrill Lynch.

Hey, guys. I was wondering if you could talk about or -- the comprehensive contingency plan you just mentioned, and, in that context, also, can you elaborate a little bit on your plans for strategic SG&A as you get into 2008? I mean, I understand the half reinvestment rate, but is that all strategic SG&A and just a little detail on the contingency? Thanks.

Okay. Let me start with the contingency then. I guess the best way to think of that is first of all, to begin with, our previous sales range was 3% to 5%, so you can think that we already had plans to deliver on our EPS numbers, even if we're at the low end of that range of 3%.

So now we have to figure out how to do that if we fall as low as 2%, and we're able to do that by doing a couple of things. The kinds of austerity measures that I talked about are the things you would expect probably any company to be doing. Things like reducing our travel and entertainment expenses, delaying new hires, and also I would have to tell you that certain variable SG&A expenses are, in fact, related to sales, so sales commissions and bonuses, obviously, also go down a little bit when our sales numbers go down.

The other thing you have to know is we actually had started anticipating this at the end of last year, and so we really had ramped up some of the activities to try and drive down structural SG&A towards the end of last year, and we'll reap some of the benefits of that in the first part of this year. And lastly, our strategic SG&A spending is something, as I said, we have some flexibility on. Flexibility on timing, to see how the year develops, and flexibility in terms of how much we invest behind any given initiative.

So we can do a little bit of a pay as you go, and, again, that's not something that's news to you. I've talked to you about that before.

On the second half of your question, Chris, which was the strategic -- the reinvestment, the answer is, yes, all of that reinvestment will continue to be on either brand building or long-term capability building for the Company.

Even more of the increase, if you will, is strategic spend because we do have some savings reading through from project acceleration and some of the austerity measures that Mark mentioned. We have about $60 million in savings from project acceleration for the year and anywhere from a quarter to a third of that will be on the SG&A line.

Thanks. And then just with respect to the two to three-year now, talking about, I guess, and the 1 to 2 points you had originally said was hitting you from a macro perspective, I guess, just if you can give a little color on how comfortable you are now with the 2 to 3, and is that 1 to 2 really [refreshed] really 2 to 3 now, and then also as it relates to sales. I guess the European business in the quarter was down 1.3%, I guess, on a local currency basis, and I just want to understand if that's something that is going to be driving growth, if International is going to be driving, what gives with the decline this quarter and why does that get better?

Well, let me go to your question. You had asked about the 1.5% to 2% drag we had talked about before. Yes, that's clearly going up. It's 3% or 4% versus what it would be if we were in a more normal economy. So that's what we've had to accommodate for.

But the answer is we are still confident of our ability to hit 2 to 3 in that environment for a number of reasons. One, I gave you the examples during my statements on Office Products, but it's true across the board. We really have an increased level of new product launches. Second, we are continuing to make investments in strategic SG&A, brand building SG&A. We haven't pulled back on our investments behind those launches and, in fact, will continue to invest at a higher rate during the year.

Third is the growth outside of the U.S. Those continue to be stronger than it is in the U.S., and it's strong not just because -- again, it's not just economy dependant over there, and I make the point and continue to make the point that in many cases we are expanding into new geographies or new product segments with our brands.

So a lot of the growth is coming from expansion in new markets, be it a new market meaning geography, or a new market meaning a new product segment. And that's why we're confident of our ability to grow International at a robust rate last year. And lastly, 2007 was affected by some of the service issues that we had related to our Office Products restructuring projects, and those were one time that shouldn't repeat this year, so we'll get a year-over-year help from that.

Thanks a lot, guys.

Okay.

Your next question comes from Budd Bugatch with Raymond James and Associates.

Yes, this is actually Joe [Herrick] with Gutterman Research. A couple of things for you guys. Mark, regarding your operational improvement initiatives for 2008, what are going to be your top initiatives regarding lean mean manufacturing, keeping in the Six Sigma? What effects do you see benefiting the bottom line?

Well, our normal productivity initiatives have been reading through, roughly we get about 3% productivity a year. We expect that same type of [read through] in '08. There is a little more pressure, I will say, from volume than there was in the past, of course our growth rates are down a little bit, but we still expect to get close to that 3% range.

The other thing I mentioned on previous calls has been the effort we're also putting into getting similar a kind of productivity level out of our supply base. So as we transition from being the manufacturer to more of a source model for a lot of our goods, we are now implementing those same kinds of techniques, Six Sigma and lean and so on, and teaching our top strategic suppliers those capabilities, as well, so we can expect that kind of ongoing productivity out of that supply base.

Your next question comes from Bill Schmitz with Deutsche Bank.

Hey, guys. First, this guy, Joe Gutterman, every conference call this quarter, he logs on as somebody's name and asks these crazy efficiency questions. So going forward keep in mind you should just disconnect him when he dials in. This is like the sixth call in a row he's done that. It's really annoying.

(laughter) I wish I had known that.

Just the best practice going forward. Why do you think the commercial business is going to be go forward next year if some of the employment numbers aren't so hot?

Well, because, again, one, it's a robust innovation, two, we continue to expand into new categories, and I think it's not just dependant on new construction, but there's a lot of, obviously, repeat business and upgrade business.

A lot of our products that we've done are products that are strong efficiency plays, so they allow you to clean a -- clean a lavatory, or an office building or an operating room more efficiently and more effectively, and those kinds of things play well in this current environment. So that business just continues to be extremely strong, and we don't see that changing because we're doing more of the same.

Great. And that business is well above the corporate average in terms of margin, correct?

It is above the average, yes.

Okay. Great, and then can you just sort of talk about the composition of sales growth next year, if you could break it down between volume, price, mix, and currency?

Well, currency is about 1 point, given the current rates as they exist today, and we assume they will remain there. Pricing is a bit of a moving target because the inflation keeps moving on us and getting higher, but you can expect the pricing to contribute close to a point, also pricing for the year.

Okay. So one, one, one to hit the high end about?

Yes.

Okay, great. And then how about the dollar amount of input cost pressure next year?

I'm sorry?

The dollar amount of input cost pressure, can you quantify that?

As far as raw material?

Yes.

Again, that's a bit of a moving target. It's about twice what we were foreseeing in '07 at the current resin cost that we are predicting, and so it will -- it will be, it could push $100 million, if resin costs stay high.

Okay. Great, and then, I've noticed that Staples is doing this 20% rebate thing. Is that being paid by them, or are the manufacturers subsidizing that, or how does that work?

I honestly don't know. I mean I can't tell you. As far as I know, we're not paying it.

Okay. All right, great, thanks very much.

Your next question comes from Patrick [Truccio] with BMO Capital.

First question is what is the level of Newell products at retail?

The level of Newell products at retail?

Yes.

As far as inventory levels?

Well, are there any categories where retailers hold too much inventory that would take a few quarters to sell through?

Let me just make sure I understand. You weren't asking what's the split between, like, retail and commercial, or B to B, in our product lineup you're asking what kind of inventories are our retailers holding? Is that --

Yes, exactly.

I guess the best way to -- I mean, that's impossible to answer on an average basis for the Company, because it varies so much by category and customer.

But I guess the question you may be asking is what do we see on the horizon in terms of inventory changes affecting sales, and what we can tell you is that our inventories at key retailers are actually in a little healthier position, meaning a little bit lower than they were starting the 2007 year, and so we don't anticipate any sudden moves.

But having said that, we're all -- we are always aware and, obviously, paying attention to that, so long story short, nothing on the horizon that we would know of that we're questioned about.

Okay. Great. And then Office Product sales were a little better than we thought. What was the balance between U.S. and international growth there? And is the inventory adjustment in U.S. superstores done, or does it have another quarter or two to go?

I'm looking up the breakout right now as a split between North America and -- (multiple speakers)

The second half of your question, again, that's one that we continue to follow closely, but we think the majority of that inventory takedown is -- has been done.

North America was down low double-digits for the quarter. So international was relatively flat.

Okay. Thanks very much.

Yes.

And your last question is a follow-up from Chris Ferrara with Merrill Lynch.

Hey, thanks, guys. I just wanted to ask about the Office Products margin. Right? So up about 324 basis points, something like that, that's despite a really, really tough sales and volume quarter.

So how do we think about that going forward? Did you just belt tighten in a really big way, or are there really some significant structural changes that would force us to expect that kind of margin going forward?

We have done a lot of the work in product acceleration has been in Office Products, so we are seeing some of that benefit in their gross margin line, and they did tighten belt in the fourth quarter, given the softness they saw in the sales. So -- but we do expect their margins to continue to expand in '08, property margins, despite what we think is going to be a tough environment, especially here in North America.

Can you give me an idea roughly of that 320 or so, how much of that was gross margin, I mean, like a third, a half, or less than that?

I'll tell you what, if you give me a couple of minutes, I can, if there's another question (inaudible).

Yes, that's fine, they perfect. And the next question, this one might be a few too, Pat, so I don't know if it's going to help you. A couple of things on related to cash flow. The Q -- the quarterly cash flow was at the low end of what you guys had expected.

Right.

Obviously, inventory is up like 10.5% or something in the quarter, and it looks like your '08 guidance calls for probably slightly down cash flow. Is there something going on there we should be looking for?

No, quarter 4 was affected by, our inventory levels were high, and that was related to, again, the take down in sales that we saw mid-quarter in Office Products. Okay? And we just couldn't adjust our manufacturing and sourcing enough to get that inventory out of the system, so it really is a reflection of that.

As far as 2008 is concerned, our spending on restructuring will be double what it was in '07, so we spent roughly $50 million in '07, and we'll spend roughly $100 million on cash restructuring in '08. So that's why it's down slightly year-over-year. So we were $650-ish million in operating cash flow, in '07, the mid-point of our guidance is $625 million, and if you adjust for that $50 million delta in restructuring cash spend, we would actually be up about $25 million.

Got it. That's helpful. And since I guess I'm the last question, I'll bug you guys again, if you don't mind.

On the international top line, you just said Office was flat internationally, and again, Europe is down 1.3 for the quarter, why -- I mean, like, what's going on there? Are there particular businesses in Europe that are weak right now? Is it -- are there some that are doing exceedingly well, and others that aren't? Could you just give a little color on the landscape?

Overall, we expect another good year in Europe in total next year, and I think it will be above the average growth rate for the total Company. I kind of look across the businesses, Rubbermaid Commercial continues to be strong there, our Tools business continues to grow there, and a lot of that is expansion into new geography, especially in our industrial tool segment.

We are investing continually in growing our Office Technology platform, and so we're making continued SG&A investments in building out that across there -- across the region. Teutonia helping us on our baby and parenting business, and so we anticipate that it will be a -- an above average grower relative to the Company's total growth rate.

Okay. Then I guess just more specifically, why -- I guess what didn't work this quarter, like why was Europe down 1.3 ex-currency?

You know, I don't know if that's -- I -- I don't have -- I can't give you that, a good detailed answer for that.

Okay. Thanks.

Hey, Chris, about three quarters of the margin expansion is gross margin in Office.

That's huge. Okay. So that would speak, given you probably had some pretty negative variances on manufacturing. That's --

Yes, but, again, we have productivity reading through, the mix was favorable, as our Technology business is actually still doing pretty darn well, and has great margins compared to our traditional Office business, and they're the main drivers. That mix impact, as well as productivity (inaudible)

Got it. Thanks a lot, guys. Sorry to be such a question hog.

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