諾威品牌 (NWL) 2012 Q4 法說會逐字稿

Good morning. And welcome to Newell Rubbermaid's fourth-quarter 2012 earnings call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions. As a reminder, today's conference is being recorded. A live Webcast of this call is available at Newellrubbermaid.com on the Investor Relations home page under Events and Presentations. A slide presentation is also available for download.

I will now turn the call over to Nancy O'Donnell, Vice President of Investor Relations. Ms. O'Donnell, you may begin.

Thanks, Marley. Thank you, everyone, for joining us this morning. As usual, with me today is Newell Rubbermaid President and CEO, Mike Polk; and EVP and CFO, Doug Martin.

Let me remind you that, as we conduct this call, we will be making forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions. Actual results or trends could differ materially. Risk factors that may impact these statements are discussed in the risk factors section of our latest annual report on Form 10-K, and in the Company's other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

Please also note that any non-GAAP financial measures, including but not limited to, normalized operating margin and normalized earnings per share should be viewed in addition to, and not in lieu of, Newell Rubbermaid's GAAP results. A reconciliation of the non-GAAP financial measures to GAAP results is included in our financial summary slide decks on our website, and in today's Earnings Release.

With that, I'd like to turn the call over to Mike.

Thank you, Nancy. Good morning, everyone. And thanks for joining our call. We have two objectives today. First, we'll review our fourth-quarter and full-year results, and provide some perspective on that performance. Second, I'll give you some insights into our thinking about 2013 and provide guidance for the year. Let's get into the results.

Our Q4 results represent our sixth consecutive quarter of consistent delivery. Up against our strongest year-ago quarter, Q4 core sales grew 2.2%, in line with our expectations. We delivered normalized EPS of $0.43, about 7% ahead of prior year, and $0.01 ahead of consensus. Q4 normalized operating margin was 11.7%, down 10 basis points versus prior year. Increased advertising and promotion, continued investment in sales force feet on the street, and incremental customer programming associated with Q4 merchandising and 2013 new item sell-in was largely offset by productivity and structural SG&A reductions linked to Project Renewal. These investments were also enabled by good visibility into below the line benefits that gave us the flexibility to accept gross margin compression in the quarter.

Importantly, we generated operating cash flow of slightly over $261 million, capping off a very strong cash flow year. Our full-year results reinforce our commitment to steady sequential improvement of our performance. For the full year, we grew core sales by 2.2%, a 40 basis point sequential improvement in core growth rate versus last year. And a solid outcome in the face of tough economic conditions in Europe and challenges on our Decor business. Normalized operating margin expanded 10 basis points as productivity, positive pricing, and structural SG&A reductions more than covered a 30 basis point increase in strategic SG&A, related to sales force investment and increased advertising and promotion spending.

Normalized EPS was $1.70, 6.9% ahead of year-ago, despite having to overcome an $0.08 headwind, as we replenished management incentive compensation levels this year. Operating cash flow came in above the high end of our guidance range at nearly $619 million, 10.2% ahead of prior year. We nearly doubled our dividend from $0.32 per year to the current annualized rate of $0.60, which drove our payout ratio to the high end of our targeted range of 30% to 35%.

We also bought back nearly 5 million shares in 2012, at an average price of $18.62. And we strengthened our balance sheet by refinancing the QUIPS and the April 2013 notes. And extending our $800 million revolver. Exiting the year with an adjusted debt to EBITDA ratio of 2.2, down from 2.6 in 2011 and 2.7 in 2010. As a result, we significantly improved our return on invested capital to 13.3%, up 80 basis points versus last year, and up 140 basis points versus 2010. I'm proud of the organization for driving this delivery while simultaneously driving change.

During 2012, we executed the first phase of Project Renewal, taking steps to simplify our organization structure and helping to bridge 2011 to 2012. We launched the Growth Game Plan, our new strategy to make Newell Rubbermaid a larger, faster-growing, more global, more profitable Company. We launched a new European SAP platform that gives us better clarity into costs. We deployed a new selling structure across our US business with the creation of the customer development organization. We partnered with IBM to launch a new indirect procurement initiative, that delivered over $20 million of savings on the way to $50 million by the end of 2013. We announced phase two of Project Renewal, a major next step to drive the Growth Game Plan into action, with five new cost work streams. Including organization simplification, EMEA transformation, best cost finance, best cost back office, and new global supply chain.

We announced a big swing to align our structure to our strategy, reorganizing the Company around the Growth Game Plan. Further simplifying our structure to six business segments. And creating two focused organization pillars -- development and delivery. And lastly, we strengthened our executive leadership with key new appointments from both within and outside of the Company. My new team is now in place and they've hit the ground running.

So we've delivered a year of sequential improvement despite a number of headwind. And we've implemented a tremendous change agenda. Within these results, we've had some notable achievements. Our US business, which represents over 65% of our total revenue, delivered solid growth despite serious headwinds on Decor. Core growth across all of our US businesses was up 2.3%. Excluding the Decor business, core growth in the US was up 4%, driven by greater than 5% growth on Baby, Commercial Products and Tools.

Our emerging market core sales growth was nearly 12%, with core growth in Latin America up about 15%. Increased investment in sales force feet on the street helped fuel our Tools, Writing and Commercial Products businesses. Resulting in nearly 20% growth in Mexico, 18% in Andean, 14% in Brazil, and 12% in Southern Cone. The balance of our emerging markets grew over 9%.

Our Tools segment had another great year, delivering 7% core sales growth. 2012 represented Tools' fourth consecutive year of core sales growth greater than 5%. And almost 50% of the Tools growth was generated outside the United States. Our Writing segment also had significantly strong performance with Paper Mate InkJoy continuing its momentum, fueling both category and share growth in markets across the globe. Our Writing business delivered core sales growth of over 3%, with again markets outside the US delivering almost 50% of the Writing growth.

Our Baby segment turned the corner, with strong core sales growth and excellent margin improvement. The Baby business grew nearly 10% in 2012, with double-digit core growth in Asia and North America. Stronger new product innovation, and a more strategic approach to customer partnering, drove this growth and margin expansion. Operating income in this segment increased over 40%. While the year was not without challenges, most notably our Decor business in North America and our Fine Writing Business in Western Europe, I trust you'll all agree our teams have managed through these challenges well, and delivered a year we can be proud of.

I'd like to now turn to 2013 and our outlook for the year. Project Renewal and our other cost initiatives, when coupled with increasing impact of our new organization and functional capabilities, give us confidence that we can once again sequentially improve performance in 2013. As you recall from numerous presentations, we explained that in the delivery phase of the Growth Game Plan we would deliver 2% to 3% core sales growth and 3% to 6% EPS growth. And that our results would accelerate in the strategic phase to 3% to 4% core sales growth, and 5% to 8% EPS growth. 2013 will be a transition year as we move from the delivery phase of the Growth Game Plan to the strategic phase.

In the first half of 2013, we'll implement a series of changes as we drive the Growth Game Plan into action. These changes are related to the second phase of Project Renewal, which we announced on our quarter three earnings call. And reflect our commitment to build a best cost finance organization, and to simplify our structure. Organizing around the first two pillars of the Growth Game Plan, making our brands really matter and building an execution powerhouse. Or, as we have said, development and delivery.

These thrusts, when coupled with the 2013 new savings from the first phase of Project Renewal, will generate $75 million that progressively becomes available for investment from the second quarter onward. Most of this money will be reserved for second-half investment, as ideas like the US launch of Hilmor, our newly-announced HVAC tool brand, and yet-to-be-announced launches on Sharpie in North America, and Irwin in Brazil, flow to market. A portion of these savings will be reserved for continued investment in new capabilities and customer development, consumer insight, and design and R&D. And, of course, some of those savings will flow to earnings. Phasing of our results will reflect this transition from the delivery phase of the Growth Game Plan to the strategic phase. With slower core sales growth and earnings growth over the first half of 2013. And accelerating results through the second half.

Overall, our full-year guidance reflects sequential improvement in performance versus 2012. We'll deliver core sales growth of 2% to 4%. Normalized operating income margin expansion of up to 20 basis points. Normalized EPS growth of 5% to 8%, or $1.78 to $1.84. And operating cash flow of $575 million to $625 million. Our 2013 guidance assumes no material change in global economic conditions. With modest growth in North America, continued weakness in Western Europe, and continued strong growth in the emerging markets.

Our Win Bigger segments -- Tools, Commercial Products and Writing -- should deliver good growth in 2013 behind stronger innovations, geographic expansion, and continued strengthening of customer partnerships in North America. Our Baby business is on a roll. And we expect that to continue in 2013, with very strong new product acceptances in North America. And new merchandising concepts on the way to market with our retail partners. Home Solutions will continue to be burdened by the Decor business in the first half of the year. But stronger innovation and four new scale merchandising events should result in better full-year performance than in 2012.

Our geographic priorities will remain the same in 2013. Share growth in North America, double-digit growth in emerging markets, with primary focus in Latin America, and growth in line with our markets in EMEA. There are two factors that could influence the outcome. The first factor is the speed with which we unlock Project Renewal savings for reinvestment into brand support.

Gross margin will sequentially improve in Q1 from Q4. However, with the absence of positive price in Q1, as a result of the lapping of the 2011 pricing in Q4, our ability to step up brand investment will be governed by productivity, mix, and the timing of Project Renewal savings. We expect gross margins to improve progressively through the year as new price increases take hold in late Q1, and productivity delivery ramps up. However, the real accelerant for investment will be the flow-through of phase two Renewal savings from Q2 onward. Our growth opportunity and risk is associated with timing of those savings and the consequent investment.

The second factor is the macro environment. We've assumed that there is no material change in the environment and that risk associated with the recent negative news on GDP growth in the US and the UK and the potential consumer spending impact of tax increases in the US does not materially affect our business. Of course, this assumption could be wrong. But based on our Q4 US growth and a flat GDP environment, we feel like we've got the risk captured in our current guidance.

I want to take a quick moment to comment on phasing through the year. We expect core sales growth in the first half of the year to be in the lower end of our guidance range. And core growth in the second half to be in the upper half of our guidance range. Our growth will flow this way for three reasons.

First, Decor performance will continue to be a drag on results until JC Penney resets their home section. The current plan is for that to occur in Q2, with a potentially negative effect in late Q1, during the transition of formats. Second, our new innovation activity ships in late Q1, and obviously our brand support monies flow to these ideas and year two investment on the big launches from '12, like Paper Mate InkJoy, Parker Ingenuity, and Sharpie Metallics. Third, brand support investment flexibility increases from Q2 forward, as the savings from both phases of Project Renewal become increasingly available from that point on.

As you update your models, I'd like to remind you of two factors that will affect the phasing of sales, normalized EPS, and normalized operating margin in the first half of 2013. First, our Q1 core sales growth in Tools and Commercial Products benefited in 2012 from the early spring in the Eastern half of the US. We've assumed this dynamic does not repeat in 2013. Second, you'll recall in 2012 that we drove a pull-forward of roughly $28 million of revenue and about $0.035 of EPS from Q2 into Q1, in advance of our SAP go-live in Europe. The EPS impact is related to both the gross profit associated with the revenue pull-forward, and the overall spending slowdown implemented in Q1 to smooth demand in advance of the EMEA cut-over. This presents a Q1 2013 comp issue on core sales growth, normalized operating income margin, and normalized EPS. Which will obviously reverse in Q2.

With that, let me turn it over to Doug to provide more detail on our financial results and on our outlook.

Thanks, Mike, and good morning, everyone. I'll spend the next few minutes covering our fourth-quarter results. And after that I'll walk you through our outlook for 2013 and provide some color on the phasing of our Project Renewal cost savings and planned investments.

Starting with the Q4 results. Newell reported set sales for the quarter of $1.52 billion, a 1.6% improvement versus the prior year. Core sales, which excludes 60 basis points of unfavorable foreign currency, increased 2.2%. Which is consistent with our view from October when we indicated that sales would come in nearer the lower end of our annual guidance range. By portfolio roll, our Win Bigger businesses grew fourth-quarter sales by 3.8%, Incubate grew 5%, and Win Where We Are showed a slight decline of negative 0.2%, which is a sequential improvement over Win Where We Are results for the first three quarters of the year.

The Tools segment set the pace for us this quarter, with strong core sales growth of 6%, and reported sales growth of 3.6%. Tools grew across all geographies, with double-digit growth in Latin America and Asia. Irwin in Latin America was very robust. We are really beginning to see the payback on our selling investments in this region. And Lenox also had a strong quarter in both North America and China, where demand continues to be strong. Operating margin in Tools declined 360 basis points to 11.4%, as a result of our investments in the Latin America sales force, combined with increased merchandising activity at Irwin.

Core sales in our Commercial Products segment grew 1.3% against a challenging comparison to last year's 11.2% growth. Reported net sales grew 0.8%. Commercial product sales were strong in both North America and Asia, but were offset by declines in Europe and rest of world. In the US, our healthcare platform continues to generate double-digit core growth. Operating margin for this segment was 11.7%, a decline of 320 basis points. Largely due to additional SG&A investments in selling, and channel marketing in Latin America, the US healthcare sales force, as well as increased customer programs.

We delivered solid Q4 core results of 2.4% in the Writing segment. Reported sales grew 2%. Latin America is hitting on all cylinders with strong double-digit growth, driven by the strength of the InkJoy launch in the region. North America had a solid quarter, as well, growing year over year against a tough comparison with the North American InkJoy launch in Q4 of last year. InkJoy continues to perform well in the marketplace, and now has a 10.9 share of the US retail ballpoint pen market. We also benefited from a very successful promotional campaign at Sharpie this quarter. Parker and Waterman Sales in Europe continue to be soft. We saw a sequential slowdown in Asia. Q4 normalized operating margin in the Writing segment was 16.1%, compared with last year's 16.4%.

The Baby segment had a strong finish to the year, with Q4 core sales growth of 5.9% and reported sales growth of 4.2%. In North America, Graco grew nicely, driven by strong POS and new product introductions. Aprica continued to drive strong high single-digit growth in Japan on the success of our new products at retail. EMEA showed a sequential improvement to achieve a roughly flat fourth quarter year over year. Baby's Q4 operating margin was 6.9%, compared with last year's 7.6%. Driven by increased spending associated with R&D for new products, and merchandising activity to support new products.

Our Home Solutions segment delivered modestly positive core sales growth of 0.5%, which is good sequential improvement. And the first positive core sales growth quarter for this segment. Reported sales grew 0.8%. Decor continued to be a drag on performance, but was offset in the quarter by positive trends from Calphalon, Goody, and the Rubbermaid brands. Home Solutions Q4 normalized operating margin was 14.9%, a 220 basis point improvement versus the prior year. Driven primarily by better productivity from Decor, and the benefit of Renewal savings in this Win Where We Are segment.

In our Specialty segment, core sales declined by 1.3%, and reported sales declined by 2.2%. Solid performance from Dymo Office Labeling and strong results from Endicia, were more than offset by declines in hardware in Mimio. Operating margin in this segment improved dramatically from 10.9% last year to this quarter's 14.8%. Largely attributable to the impact of Renewal savings.

Looking at Q4 sales by geography, North American core sales grew 2.2%, driven by strong growth in Commercial Products and Baby & Parenting, offset by ongoing weakness in Decor. In EMEA, core sales declined 4.4%. With Tools being the only segment that grew, reflecting ongoing economic weakness in Western Europe. In Latin America, core sales grew a very strong 21.1%, with growth across all Win Bigger businesses. In the Asia-Pacific region, core sales grew 0.9%. Aprica in Japan continues to perform well. As does our Tool business in China. Offset by deceleration of Parker sales in China, and weakness in Australia across all businesses.

Our Company-wide gross margin on a normalized basis was 36.7%. A 50 basis point year over year decline in the quarter, as the Company made incremental investments in customer programs and merchandising. Normalized SG&A expense was flat in absolute dollars to last year, declining 40 basis points to 25%. Despite a $6 million headwind in the quarter from replenishing our incentive compensation programs, we were able to hold SG&A constant, and still increase strategic investment in our Win Bigger businesses. Including sales force expansion in focused growth areas like Tools and Commercial Products in Brazil, and healthcare in North America. We also invested to support the Sharpie One Direction campaign and the Parker 125th anniversary. We expect to further accelerate strategic spending behind our brands in 2013.

Reported Q4 operating margin of 10.1% compares with 8.4% in the prior year. On a normalized basis, Q4 operating margin was 11.7%, a 10 basis point decline from the prior year. Q4 interest expense was $17.4 million, compared with $21.2 million in the previous year. You'll recall that in Q2 we called and retired our outstanding quarterly income preferred securities, and refinanced them with lower-cost medium-term notes. We followed this up in Q4 when we paid down $500 million of early 2013 maturities, carrying a coupon of 5.5%, and refinanced them with $350 million of 2% five-year notes in commercial paper. These two transactions will result in annualized interest savings of about $16 million, or $0.04 per share going forward.

Our long-term debt was reduced by $366 million in 2012, with total debt declining by $258 million. Q4 reported earnings per share were $0.35, compared with $0.27 in the prior period. Normalized earnings per share were $0.43, $0.01 ahead of consensus, and 7.5% above a year ago. Operating income was essentially flat year over year. Operating cash flow in the quarter was $261.3 million. And for the full year we generated $618.5 million in operating cash flow. Above the high end of our guidance range, and an improvement of $57.2 million versus 2011.

DSO deteriorated by six days, driven largely by the timing of sales in Q4 versus the prior year. Inventory and DPO combined improved by seven days from the prior year. Outside of working capital, lower cash taxes helped drive the increase in operating cash flow. During Q4, we returned $67.8 million to shareholders in the form of $43.5 million of dividends, and $24.3 million for the repurchase of 1.1 million shares. During 2012 the Company repurchased a total of 4.9 million shares for $91.5 million.

Turning to the full-year outlook for 2013. As Mike mentioned earlier, we expect full-year core sales growth of 2% to 4%. We're estimating that currency rates will have a negative impact of about 100 basis points on sales, so reported net sales are expected to grow 1% to 3%. We expect normalized operating margin expansion of up to 20 basis points. And normalized earnings per share growth of between 5% and 8%, or $1.78 to $1.84 per share.

We're also guiding to operating cash flow in the range of $575 million to $625 million. Which includes a $100 million pension plan contribution made in January, which is $50 million higher than the 2012 contribution. We are planning for capital expenditures in the range between $175 million and $200 million. And we expect 2013 interest expense to come in between $60 million and $65 million. Normalized full-year effective tax rate for 2013 is projected to be between 25% and 26%.

Now let me take a few minutes to talk about our expectations for the quarterly phasing of 2013 results. As Mike mentioned, recall that we implemented SAP in EMEA in April of 2012. And about $28 million of revenue was pulled forward from Q2 into Q1 as a result of the conversion. So the first- and second-quarter growth rates should be adjusted to reflect that year over year comparison. We'll also likely start the year with core sales near the low end of our full guidance range, similar to the second half of 2012 rate. And finish the year out closer to the high end.

On the renewal cost savings side of things, we've made good progress on the first phase of renewal. And we're on track to capture $90 million to $100 million in cumulative savings by our target date of Q2 2013. Our 2012 results benefited from about $65 million in cost savings. The remaining $25 million to $35 million flows through the first half of 2013. Phase two of Project Renewal is expected to generate incremental annualized cost savings of $180 million to $225 million by the middle of 2015.

While we have seen some benefit from phase two today, we'll reach a more meaningful run rate by the second and third quarters of 2013, as projects are initiated. We intend for the majority of these savings to be invested back into strategic SG&A, so you won't see these flow straight through to the bottom line. Instead, there will be a continuation of the shift from structural SG&A to strategic SG&A that began in a meaningful way in Q4 of 2012. This shift to investment behind our Win Bigger brands drives the acceleration of core sales throughout the year. As a result, the normalized earnings per share growth rates by quarter will likely show a similar sequential acceleration throughout the year. The SAP related pull-forward last year has an impact on quarterly earnings per share growth rates in addition to sales. The earnings per share impact related to SAP was between $0.03 and $0.035. So you can anticipate that Q1 2013 normalized earnings per share are likely to be down versus last year's $0.33 normalized.

In summary, we're pleased with our Q4 results, as well as a solid year. We hit all the major financial goals that we laid out a year ago in a challenging economic environment, and despite significant challenges in our Decor business. The Growth Game Plan is changing the way we do business. And we believe it will drive tangible results next year and beyond through the acceleration of top-line growth, as well as good growth in normalized earnings per share.

Thanks very much. Now I'll hand the call back over to Mike.

Thanks, Doug. Let me close by providing some reflections on where we are and then we'll open it up to questions. Our people have gone all in to change this Company for the better. We can be proud of the progress we've made, while recognizing we still have tremendous untapped opportunity to leverage the potential of our brands and their latent equity with consumers for competitive advantage in our markets. The Growth Game Plan is the blueprint that will enable us to unlock that potential and establish Newell as a consistent top performer. We've made that commitment to consistent delivery while embracing an ambitious change agenda that will enable us to sequentially improve performance. Our confidence that we can drive forward at the pace we've been moving is strengthened by all that we've accomplished over the last 18 months.

We have made sharp, clear portfolio choices by category and by geography. We are reallocating resources to the best growth ideas. We're strengthening the capabilities that will drive competitive advantage in design, marketing and innovation, supply chain and customer development. We've built a leadership team comprised of top inside and outside talent who have been there and done it, and who bring real credentials to bear on our capability agendas. We're taking decisive action on cost to move money from structural SG&A into our brands. And we're extending the geographic footprint of the business, with great progress in Latin America. And an ambition to extend that success to Asia.

As we do all of this, we can offer our people much more ambitious projects to work on. And they'll grow through these experiences. That's the Growth Game Plan. It's energizing for me and my team, and a compelling opportunity for our shareholders. I'm confident we have way more opportunity ahead of us than behind. And we have a clear line of sight to making Newell, a larger, faster growing, more global, more profitable Company.

With that, let's open it up for questions.

(Operator Instructions)

John Faucher with JPMorgan.

Can you talk a little bit about the core sales outlook for next year in terms of -- you talked a little bit about the cadence. Can you break out the impact of the Decor business in terms of whether you think that's going to be up year-over-year? Or is that going to be just less of a drag or do you think it can be additive to growth? And then as you move from the structural investment on the SG&A side to the more marketing, let's say, how long do you think that pays off? And what's the run rate? Thanks.

Okay. John, I'll take those questions. On Decor, it's not likely to be a growth lever for us, although the overall Home Solutions segment should deliver growth in 2013, despite having Decor as a drag. The thing to remember on the Decor business is the flow through the year. So, we'll continue to have an issue in Q1 related to JC Penney, not so much related to our operational challenges from the manufacturing consolidation that we did.

That may get enhanced in the month of March as they do the conversion work in store to their home section reset in April, early April. So that's something we have to watch. We actually don't have as much clarity as you might think we would as to when exactly they're going to make that move. So there's some dynamic. We're going to have to look at that dynamically through the first quarter.

I would expect that that reset doesn't get traction until the second half of the year. So, the first half continues to be a bit of a challenge on Decor. But as I said in the script, the other parts of that segment are really beginning to do reasonably well. We've really stepped up the merchandising support and frequency in segments of the Rubbermaid consumer business, and we're seeing that respond. You could see that in our Home segment results in Q4.

We've established -- we actually have five dry periods set up that the new CDO will be able to merchandise around in 2013. One that's being executed right now around the Super Bowl, with our food and beverage portion of the consumer portfolio. Another that will happen in April connected to spring cleanup. One around the 4th of July, one around back-to-school, and then one around Black Friday. Four of those are new relative to prior year. So we're looking to play the other portions of the portfolio within Home Solutions, to compensate for what will be another challenged year, albeit the drag will not be as significant as it was in 2012.

With respect to your question on the flow-in of A&P support and other investments in capabilities, our flexibility to do that enhances as we go through the year. We've got, in the first half, the final tranche of renewal one savings that flow to the P&L. And we will manage that. It splits pretty evenly Q1, Q2. And then we see in Q2 the beginning of the more substantial flow-in of renewal two savings. Cumulatively, as I said in the script, we've got $75 million to work with. I would expect that spending to start to step up in Q2, but the majority of it will be back-half loaded. And that's why our core sales growth flows the way it does.

We do have rollover programming that we'll need to support through the entire year connected to InkJoy year two, connected to Parker Ingenuity year two. We've launched, in Q4, this terrific partnership with a bunch of different artists in music connected to Sharpie Self Expression platform, which kicked off with the launch of One Direction's tour in the US. And we've got Parker's 125th anniversary that we'll want to market through the first half of the year. So, it's not as simple as I laid out in the script. But the step-up will really happen in the back half of the year with the rollover of '12 initiatives getting more continuity of support through the first half.

Thanks.

Lauren Lieberman with Barclays.

Just in terms of Baby, revenue growth continued to be strong. You particularly commented on share gains in Graco, Aprica, being able to manage these tough comps. What progress have you made, though, on the cost structure? Because you've talked about limiting investment in that business until it earned the right to get investment dollars. If you could update us on that, it would be great.

You see the 40% increase in operating income in the year. Part of that's growth driven, part of that is us pulling back on cost structure. We did make an investment in Q4 to start to build out the brand agenda. And you see that reflected in the operating income margin stepback in that segment. That's upfront cost associated with advertising work in a new omni-channel project that cuts across -- is a marketing program that will cut across direct-to-consumer communication, but all the way in store. So that's upfront funding associated with that.

I'm cautious about putting too much money behind the Baby business, for a number of reasons. First of all, we've got tremendous innovation-driven momentum right now. And that continues into 2013. So, with scarce resources in advertising and promotion, I'm not sure I want to double down on Baby when our strategic priorities are really in Tools, Commercial Products, Writing and in our Home Solutions pillar. And they'd all come before Baby, in terms of my priorities.

But we've got tremendous momentum. The thing you've got to manage when you're looking at these things is whether it makes sense to double down and really play hard on Baby for growth now, as other businesses are gearing up for growth. And that's an option that we have. And I want to reserve the right to play it without getting boxed in too much. But we'll be cautious there because of where Baby stands relative to the others in terms of strategic priorities.

But as we've said, this business is on a roll. Kristie and her team have done an outstanding job of catalyzing the organization around the Baby recovery plan. And that momentum continued right through Q4 as we lapped Q4 2011 growth. If you recall, Q4 '11 grew 5% and we've now grown on growth, and we've got great momentum. In the US now, and we're really entering -- we're coming to the tail end of year two of momentum in Japan.

The environment as we go forward changes a little bit. We do have more competitive activity in Japan. So that growth rate will probably temper a little as we go through 2013. But we expect to still sustain growth, but not the third consecutive year of double-digit growth, but probably mid single digits. It's an open run in the US for us right now.

We're doing all the right things. And I'm excited about the prospects for the business there. Europe will continue to be a challenge, although Graco has stabilized in Europe. Our challenge in Europe is on Teutonia, which is our brand that's in Germany and Nordic and Poland. So that's the inside baseball view on Baby.

Thank you.

Jason Gere with RBC Capital Markets.

The first question, just thinking about the gross margin decline we saw in the fourth quarter, some of the merchandising efforts. The question I have is really about plans with retailers right now. Maybe it's a little bit more US-focused. Are you seeing that there's a need for increased cost of doing business or increased spending to drive some of the sales targets that you're looking to do, expansion of some of the planagrams, et cetera?

One, are you seeing that some of this increased spending might be an ongoing thing from time to time and weigh down on the gross margin progression that you're looking to do? And, two, as you exited 2012, were there any issues with any retailers in the US not wanting to take on any excess inventory or replenishment issues, just because of fiscal cliff or the payroll tax and such? So I'll leave it at that.

Let me answer the last part of your question first. These guys are rewarded on return on invested capital. That's how you guys measure their success. So they're very cautious on inventory positions. And they're always tight. The days where you could play -- work with them on their inventory, those are all long gone. So these guys are managing their inventories really tightly all the time. And they're always looking for angles to reduce their inventory position. As I would be if I were in their shoes.

So there's nothing unique going on there that I would ascribe to any of the external dynamics. A number of our retailers have their fiscal year end at the end of January. Most of our big partners do. And they're doing what they always do as they come into a year-end period. And so, it's not the absolute behavior that matters. It's the change in the change in behavior that matters to our revenue stream. And we don't see anything you unique there.

With respect to your question on merchandising frequency, which is really what we're focused on, not depth of price point but merchandising frequency, all of which impacts gross margin. We have some businesses that are infrequent purchase dynamic categories and they're discretionary. So if you can interrupt the shopping experience with the brand experience, you can drive incremental purchase.

A great example of that is our Food and Beverage Container business within Rubbermaid. It's not top of mind to think about replenishing or refreshing the drawer of food and beverage containers that you've got. So, if you can interrupt that experience with an off-shelf display that communicates something about the brand and the products, in connection with a moment in time where they're relevant, then that's something we should be doing. And we should be funding and we should accept the cost of doing that. That is a good thing for our Business, and will drive incremental growth. And I won't shy off getting that right.

Today, I think our frequency in Rubbermaid consumer merchandising is too low in that segment of the portfolio. And that's why we put these scale events in place. Merchandising right around Super Bowl, which is the biggest party day of the year, the biggest pizza consumption weekend of the year, and there's leftovers everywhere, well, of course we want our food and beverage products merchandised then.

Right after Easter, a brilliant time to merchandise. At July 4th, connection to picnics, a right time to merchandise. As mom refreshes her kitchenware in anticipation of back-to-school, a right time to merchandise. And, of course, at Thanksgiving, which is why we do Black Friday, the right time to merchandise. Four of those five windows are new merchandising events as we go forward into 2013. And it's the right thing to do for that business. It's not true in all of our businesses that we ought to be behaving that way. So it's sort of a horses for courses mindset that you have to have.

Your question -- behind your question is a concern about gross margin, and I think it's worth talking about that. Q4 is always a stepdown quarter for us in gross margin because of the seasonality of our Business and the production flow that correlates to it. So, you come off of the seasonal highs in Q2 and Q3 on many of our businesses. And you gear down on your manufacturing times before you gear back up in the first quarter as you build inventories back into the seasonal peaks of Q2 and Q3. What happens in Q4 is you get a fixed cost absorption issue in gross margin because we pull line time out of the manufacturing schedules. And it always steps down.

What was unique in Q4 for us is, first of all, we have stronger programming, which we wanted to have, behind Sharpie Music, a counter-seasonal platform, and behind the launch of Sharpie Metallics, which is a counter-seasonal relaunch. And you have a big merchandising event around Thanksgiving on Rubbermaid that we made bigger this year because it was the right thing to do. The sequential decline from Q3 to Q4 is related to the absence of positive price connected to the 2011 price increases. So we go through two quarters now, Q4 and Q1, where we won't have the benefit of positive price related to invoice price increases in gross margin.

But we have price increases -- and the reason we don't is because, if you remember, commodities dipped through 2012. And there's no way you can go price if there isn't a reason to go price. Now, commodities have spiked up a bit in the fourth quarter. And we will go out and price at the end of the first quarter, and we'll see the benefit of invoice price increases through the balance of the year.

So, these are the dynamics in business. This is why I didn't want to guide gross margin but I told you I'd provide clarity to it. And I intend not to guide gross margins again, because I'm not going to be handcuffed from making the right choices for the business in any given 90-day window. But strategically, we're going to always be focused on increasing gross margin and operating income margin. And on the full year we should be able to do it.

It will be driven by a mix of positive price that will start to creep in, in Q2, and through Q3, Q4, be driven by a commitment to deliver strong productivity. It will be delivered by an orientation to manage mix as best we can. And it will be driven by, over time, margin-accretive innovation, which has to come through the funnel. And I'm confident we'll manage to the outcome we need to manage to on the full year. But in any given quarter there's going to be moments like the one we're in, in Q4. And we're not going to shy off making the right choices for the brands for the sake of trying to manage the optics of that.

Okay. Great. Thank you.

Dara Mohsenian with Morgan Stanley.

Mike, do you think core sales growth will be up in Q1? Or do you think it's going to be down given the comparison issues?

I think the way to think about core sales growth is if you strip out the SAP pull-forward. You have to look at it on an apples-to-apples basis. So if you strip out the SAP pull-forward, and we've given you guys the numbers there so you can back that out and look at it, we should see core growth. I'd say probably in line with what we've been experiencing in the second half of 2012. Maybe a little bit stronger, but we'll see as the quarter unfolds.

Okay. That's helpful. And then on the SG&A line, it came in below what we expected for the second straight quarter. So, I'd just be curious, where did it come in versus your internal expectations? And can you also talk about where you boosted the strategic spending so far in the areas where you have spent? Are you starting to see a payback in terms of top-line growth or market share? And your level of comfort around that payback. Or is it a bit too early to judge here?

It's a good question. Let me give you some ratio numbers. We don't typically talk about this, but I think it's important so that you don't think we're making the wrong choices here. When we talk about structural SG&A, we only talk about the portion of our SG&A, our people costs and our administrative costs, that connect to the corporate functions. There are people costs in strategic SG&A. So, strategic SG&A sometimes blurs movements across lines within that segment. So, let me just give you the A&P numbers.

A&P in the fourth quarter was up 30 basis points versus prior year. So, we increased our advertising and promotion investment in the fourth quarter, I think by about $6 million. Within strategic SG&A, there were some costs that came out of the people side of the equation as we continued to restructure the Company. And so, we'll try to unpack this a little bit more for you guys so that you have visibility into this.

On the full year, advertising and promotion was up 40 basis points. We've been talking strategic SG&A, and we'll decide when we want to go to a more granular level, but I think it's worth highlighting that for you. We are going to continue to see the people costs in structural SG&A, and also in strategic SG&A, come down for the first phase of Project Renewal, and also in the second phase of Project Renewal. Providing you more visibility into the A&P investment I think is probably wise, so you don't jump to the wrong conclusion when you look at the SG&A metrics.

Now, a question about payback and whether we're getting a return and what we've been spending it on. As I've said through all of our calls in 2012, the first priority was to get the selling systems right. In Latin America it's a priority. And also in some of our strategic thrusts in North America. So we've put money behind feet on the street and selling expense in -- and that's not promotion, that's people expense -- in Latin America on Commercial Products on Writing and on Tools. And in North America, we've invested in selling expense on our medical business, Rubbermaid medical business. Because we have a lot of opportunity there that we want to pursue.

In the second half of the year we started to step up A&P investment. Where has our A&P investment gone? We focused our A&P investment behind our news. So, clearly there was A&P support behind InkJoy. There was A&P support behind Parker Ingenuity. There was A&P support behind the Sharpie Self Expression platform, and back-to-school, and the Metallics launch in Q4, and the Sharpie Music platform in Q4.

We put A&P behind the Irwin brand connected to a dry period we had in September around National Tradesmen Day. Remember, the positioning of that brand is to celebrate what the tradesmen do to build this country, and other countries around the world while also elevating their capabilities through great products. And so we put marketing monies behind -- A&P monies behind National Tradesmen Day in September.

And those are the types of bets you can expect us to make going forward into 2013. So, it will be year two InkJoy, it will be year two Sharpie Metallics. We have another platform launch on Sharpie. New item launch, line of products coming in Q2 into the back-to-school season. We have an Irwin launch in Brazil in the second half of the year. We've got Parker's 125th anniversary, which a number of us were in Shanghai last week to kick it off in China. These are the things our A&P will go against.

How do you measure a return on that? I'm going to shy off from giving you a financial return on those investments. The thing that I'll look at as a metric will be growth yield. And so far I feel pretty good about that. The 2.2% core sales growth in 2012 is a solid number.

If you strip out the Decor effect, and you look at that in both Q4 and on the full year, and you look at it in the US, for example, the US in Q4 delivered 2.2% core sales growth. You strip out Decor it was 3.5%. Well, 3.5% core sales growth in our portfolio in an environment of no GDP growth is a pretty good outcome. And if you look at the same numbers in the US on the full year, 2.3% core growth, ex-Decor 4% core growth, in an environment like 2012, I feel pretty darn good about that.

So are we getting a yield for the investments we're making? I'd argue we are. The best measure of that is in market share where we can measure it. But if I look at 4% growth ex-Decor in the US against GDP growth of around 2%, and I think about our Business, which has historically been pretty correlated to GDP, I feel okay about that. In fact, I feel pretty good about that, particularly in the context of everything we've been changing. So, that's a long answer to your question. I get accused of being really verbose. But I think it was worth probing around that a little bit.

Thanks. That's helpful.

You buying it?

Yes, comprehensive. That's good.

Chris Ferrara with Bank of America.

One real quick one and then another. So, one, what are you thinking on the 2013 tax rate? And then, Mike, you cited as one of the two risks to how the year looks, timing of savings. Historically it's a pretty predictable thing to figure out the sequencing of savings on restructuring. So, what are the moving parts that might have you particularly concerned about predicting that timing? Thanks.

Sure, Chris. This is Doug. On the first one, we expect the tax rate next year to be between 25% and 26%. And, as you know, in this area, as the year unfolds and activity takes place in the business, we have better visibility as the year progresses. Because it's so dependent, within a range, on the geographic mix of earnings. So, 25% to 26% is where I think I'd model.

On the flow of savings, Chris, you're right. We've got a very clear schedule of how the savings should flow in. What I've said all along is that -- and the things that underpin those savings are very clear. So we have that road map and that visibility by quarter. We know how the costs are going to come in, we know how the savings will come out.

The one thing I've said all along, with respect to the change agenda that we've got, is that our first priority is to deliver results, and deliver the growth, and deliver them consistently. And what we're embarking on now is a very comprehensive change to our organization design. And the first wave of savings that will come in are connected to Doug's initiatives on best cost finance, which are people related. And then the work to simplify our structures and to organize the Company around development and delivery. We've set that structure up at the top of the Company. But we're now going to drive that into action through the Company in the first quarter and into the second quarter.

The thing that I reserve the right to do is call an audible if I feel like that change agenda stretches the capacity of the organization too far such that they lose focus on execution. And so that's the wild card. Now, I don't expect that to be an issue, to be honest, because this group has blown me away with their capacity to embrace change and then drive change into action. So I'm cautiously optimistic that we'll be able to deliver exactly in the cadence we hope to. But the reason to highlight that as a risk is to preserve the right to call an audible if I feel like we're going to stress the organization too far and cause it to lose focus. And so that's the issue that I'm -- it's not an issue, it's the flexibility I'm putting on the table to you guys.

Thank you. That helps.

Bill Schmitz with Deutsche Bank.

Are you worried at all about the tenor of sales within each quarter? Because it seems like things are getting pushed back to the last month of the quarter, just looking at the DSOs.

No, I'm not really worried about that. I wish our profile was a little bit flatter. It would enable us to get working capital down. It's the cycle we're in and have been in for a while, so it's hard to break that without taking a pause. But there's nothing -- it's nothing unique. You know how these cycles get broken is by stepping away from a period. But I'm not prepared to do that.

So the challenge for us is to strengthen the consumption profile in our business so we're not as spikey in our shipment profiles. That's the short answer to your question, Bill. Once you're in that cycle you can't get out unless you take a quarter off. But there's no taking a quarter off. The key to unlocking that is to strengthen your consumption, your consumer take-away, and your sell-out. And that gives you the breathing room to work your way into a more level profile.

One of the things I've asked Mary Stevens to look at is just that. Because there are all kinds of costs that are associated with a more -- and opportunities in cost and in cash -- associated with a more level profile. We ought to be able to capture that progressively over time.

Okay. And then how did it look leaving December and January so far in terms of shipments?

We don't want to comment on where Q1 is, but I'm comfortable that we're right on track to where we need to be. We've got some nice businesses with momentum. And like you always do, you have some that aren't off to a flying start. But that will work its way out through the quarter. We've got some good things going on.

Like I said, we've put some merchandising activities and consumer-focused events in, in the beginning of the year, that really helped. As I mentioned, we were just in Shanghai last week for the launch of Parker 125th. And that program is going to roll across all of Parker's big markets. We've got the big event around Rubbermaid that's connected to Super Bowl, which looks like it went very well. The CDO executed that well. And we've launched Hilmor last week, which will start to contribute through the first half. So I'm not overly optimistic, but I'm not at all concerned.

Okay. Great. That's very helpful. Thanks so much.

Connie Maneaty with BMO Capital Markets.

Could you comment a little bit about the Hilmor opportunity? And just as background, to give us some perspective, how big are Irwin and Lenox in terms of sales? So, if this is maybe the third big brand in that segment, why do you have a right to be in it? And what's the size of the opportunity?

Yes. I won't get that specific, Connie, although I'm happy to provide you some background on why we've entered this segment. First of all, it will be the third leg -- the third brand leg of the Tools portfolio. HVAC's a particularly interesting category to us, not just in the US but around the world. As you see the move from rural living to urban living. And you see, particularly in many climates that are particularly warm, that's going on.

And so when you look at the -- you follow the development of some of our sister industries, air conditioning development's going to go with that infrastructure buildout. And so HVAC is a very interesting space to us in the Tools business because of that strategic reality over time. Now, we're going to develop the repeatable model in the US. But over time you should expect us to think about this as a global play for us, as part of our Tools program.

Hilmor is interestingly a brand that we've had in the UK, but not marketed, that we're bringing to the US. The beauty of this segment is the fact that the IP space is wide open. So, what we've designed here are a number of tools, 150 tools in the line. But a number of those tools have good proprietary points of difference. And so, we look at these segments and we map the IP space before we make a judgment as to whether we can get in. Because you don't want to enter with just a me-too product. You won't be able to protect the margin structure we expect out of these categories.

And so we've gone into this category, A, because we see the strategic value long-term much more broadly than the US. B, because the IP space was wide open. And the product development and the legal teams have done a great job of protecting and establishing a set of proprietary sets of difference in the product portfolio such that we can command a premium price and create a good value proposition for the user. And so, we're optimistic about how this brand can develop.

How big is the business? 2013 will be the seed year. What ends up happening in this category is typically the technicians will buy and retool their set of tools once a year. And so, we're entering -- we're launching this brand in the right trade windows. But the real benefit will come in second half of 2013 from a growth perspective and into 2014. Because we've really missed the heart of the 2013 sell-in season. We just weren't ready to come prior to the window we came in.

So this year will be modest in terms of the incremental revenue it generates. Although not small. And next year will be bigger. And we have an eye on a big business here globally over time because we've established these proprietary points of difference. So, we're optimistic.

The other thing that it does is that it leverages a common selling infrastructure that we've got. The Lenox distribution model, and the Hilmor distribution model, those channels intersect. So, I don't have to build a vertical specific sales force. Rich Wuerthele, who runs our Tools business, and formerly ran Industrial Products and Services, will be able to leverage a common sales force to be able to drive this thing to market. So, you get the efficiency and the flow-through of the margin benefit associated with that.

So it's going to be very interesting. I'm excited about it. I love the design work. A woman named Emily Bavaro is a director up in our IP&S business has been working on this for a number of years. And she's just done a remarkable job in terms of developing the portfolio of products. She and Rich Matthews, who is the VP of Marketing. And I'm very excited about what's going to happen. We're really proud of the launch and how that's gone, and we'll see how it gains traction through the year.

Okay. So, if core sales growth is 2% to 4% this year, what portion of it can we assign to a Hilmor sell-in? Like, is it 25% of the growth?

No, nowhere near that.

Nowhere near. Okay. Thanks.

Bill Chappell with SunTrust.

Just wanted to talk a little bit about Europe and what you're seeing. And a related question on currency. And have you seen any improvements, stabilization as we went through fourth quarter? And are you expecting anything in the first half in terms of just end markets? And then also just on the currency front, I think you're talking about a 100 basis point headwind. And you're just coming off a quarter where you had a 60 basis point headwind. I'm trying to figure out what you're looking at in terms of dollar to Euro and what else you're seeing. That seems a little conservative.

Bill, on the dollar to Euro, we're forecasting -- and the Euro's been jumping all around, as you know, it's somewhere between 1.31 and 1.35, is where we're thinking throughout the year.

A bigger issue for us is the yen. And then there's some other challenges in Latin America.

The Real.

But we don't know where that's going to play out, Bill. We've got a planning assumption which we've quoted to you. But, you may be right. We saw it all over the place this year, and it could be all over the place next. We're focused on core sales growth. And then we manage and hold the folks accountable to EPS, their portion of EPS delivery. So, if it breaks favorable to what we've assumed here, there would be some opportunity to either invest faster in the business or to let it flow through to EPS.

Okay. And then in terms of core growth you're seeing, or declines in Europe?

Europe continues to be a challenge for us. We have portions of our business that are actually really interesting. And we've got portions of our business there that are really difficult. We've got to look at -- what I've asked the team to look at is to look at each one of our category country cells and really ask themselves the strategic question about whether we should be doubling down and investing for growth in a more narrow section of Europe. And then how would you manage those portions of our European business that are not attractive for margin. And that's the work that's going on.

John Stipancich and the European leadership team are looking at that, as we speak. We've talked about Renewal Two having five work streams associated with it. One of those work streams is EMEA transformation. And the work they're doing to understand how to set up Europe for growth going forward, in the context of what I think is a structural headwind in terms of the macros, really has to be the outcome of that work. And that will inform the cost program and the way we spend our restructuring dollars in Europe.

Stay tuned on that one. We've got more work to do. But that becomes an important next thrust beyond simplifying our organization structure and driving for best cost finance. It's the third in the five work streams that we'll initiate.

Okay. And just one other. On the Latin American sales force you highlighted, was that just a this quarter event? And can you maybe give us a little color on what they're doing and when they should see a ramp?

Bill, we've been investing. It's really the end of a year's worth of investment. So, it's the rollover effect of choices we've made along the way, and we continue to layer and refine those choices. Remember, at the beginning of the year we said we're going to focus our Renewal One savings on sales force investment. And that was almost all Latin American focused. The exception to that was our Rubbermaid Medical Systems group where we wanted to strengthen coverage on the healthcare vertical here, because we have a great set of products and a great position in the Medical Carts business. So that's not new.

Okay. You just highlighted that so I was wondering.

No, I just wanted to make sure you knew that was a contributor to the overall investment.

Got it. Thanks so much.

Joe Altobello with Oppenheimer.

Good morning. First question, in terms of your outlook on '13 you mentioned earlier, Mike, that you guys are not assuming any major changes in terms of the macro. The homebuilders, obviously, are sounding a little more optimistic these days. Are you assuming any improvement at all on the housing side?

We've got that baked into our core guidance. If you look at our Tools business it's been performing quite well in a tough macro. And part of that is connected to the resurgence of housing in 2012. And we expect to be able to sustain very good growth into 2013 on our Tools business.

Commercial Products has benefited a little bit from that. The core of our Commercial Products business, not the cleaning side but the refuse side of that. And I suspect that will continue to do quite well. But that is clearly baked into our numbers. When I think about housing, those are the key benefiting categories. Decor could benefit from that over time if you see a real reset in housing. I think we've just bounced off the bottom now. But there are other issues facing that business that would probably mask whatever housing impact we've seen.

Okay. That's helpful. And just secondly, you mentioned earlier that you do reserve the right to call an audible this year. Last year, it's probably fair to say you probably did call an audible, as you worked through some of the issues. For example, at the core, in terms of turning on the strategic SG&A spigot. So, when you talk about the increase of step-up in the second half of this year, is there a catch-up component to that? Or is that going to be a normal step-up that you would have done anyway with the savings coming through?

I'm not going to randomly throw money at the brand, folks. I'm going to put money behind -- money flows to ideas. So we're going to -- with time here, we get the ability to properly resource our biggest ideas. And we're going to focus it on the things that are consistent with the portfolio role choices we've made through the Growth Game Plan. And the ideas that have the greatest right to deliver, to win in the marketplace and deliver a sustainable revenue stream for us over time. And so that's my philosophy.

Richard Davies joins us as the Head of the Marketing. All of the marketing teams now report to him. He's been on the ground for four weeks. He's sorting through all of what we've got in the funnel, and making some judgments about what's strong enough to place big bets on, and what's not. Bill Burke and Mark Tarchetti and Richard and Joe Cavaliere --so the Marketing, Sales, Operating Officer and the Development Officer have sat down and agreed on what our top 10 growth priorities ought to be for 2013. And we're going to right resource them.

If there's money left over -- because we do have a substantial amount of money, we've got a great line of sight to savings now through Q2 forward -- if that money is more than what we need to support those initiatives, I'll be very selective in terms of allocating incremental money out. I'm cautious about that because we need to consistently deliver competitive levels of EPS growth for us to be a credible investment option for all of your clients. And so, that's really important.

And while we talk about 2013 being the transition year between the delivery phase and the strategic phase of the Growth Game Plan, the reality of our current situation is that we have a lot of folks that are looking, but are cautious about putting their money into the Company. And we need to continue to build credibility with those folks. So, that's about consistent delivery and it's about consistent EPS delivery. And that probably trumps core sales acceleration in the very near term.

What I describe as the near term is certainly the first half of '13. We can't have a hiccup on EPS delivery because we get too excited about throwing money into the business. And so I'm very cautious about that. Maybe too cautious, some would accuse me of being. But I think it's in our interest to continue to rebuild that credibility with investors.

That's good to hear. Great. Thanks.

Wendy Nicholson with Citi Research.

Just going back to the cash flow side of things, I know you gave me the guidance for tax rate. But with the refinancing you did on the debt, is interest expense running at $17 million-ish a quarter? And then can you remind us, with your yield looking fairly competitive now, would excess cash flow be thrown more at share buybacks, do you think? Are you open to more acquisitions? Or is the dividend still a priority.

On the first item, Wendy, you're in the right zone on interest. We expect between $60 million and $65 million of interest expense next year. So, you're right about where that is. As you know, we saw some pretty good savings from the couple refinancings we did this year, and the general paydown of debt, and the continued low interest rate environment. So, that's all breaking our way.

It gave us the flexibility, Wendy. The line of sight to that was very helpful in Q4. As pricing rolled out of gross margin, it gave us the breathing room to make some choices. I didn't want to not bet on Sharpie Metallics, because one of the opportunities in Writing is to extend the shoulders of the Writing season so we're not so dependent in the back-to-school window. And these brands can develop in these windows with the right innovation and marketing programs. And so the line of sight to that interest benefit was actually quite helpful in making the choice, and the willingness to accept some gross margin compression to support the merchandising around that, the merchandising around Black Friday, and the A&P support behind Writing.

On the second piece there Wendy, as you know, we don't have any big maturities coming up until 2015, now that we've got nearly 2013 maturity out of the way. So, we're very comfortable that we've got CAPEX cash flow to fund our capital expenditure needs, and support our growth plans. Cash needs for Project Renewal is, obviously, a first call, and continues to be a first call for us. You're right, the dividend yield is in the range we want it to be in. We'll make steady progress again this year on our repurchase plan.

And the great flexibility we have, we have a very cash-generative business. But I will tell you that there's more working capital opportunity than we captured. We're going to work hard on that, having Mary join the Company as the Head of the Global Supply Chain. Creating a global function is going to be really quite helpful in driving complexity out, and getting working capital down. And also renegotiating terms with sourcing partners to continue to extend our payable days. So, I think there's more that we can do there.

So we find ourselves in the position, as we exit 2013 in quite a good place with respect to being at the optimal capital structure, and being quite cash-generative. It gives us the flexibility to put $100 million into the pension plan, as opposed to what we would normally expect to do -- $50 million. And it also gives us the opportunity to, as we get the business moving to an accelerated level of core growth, to start to think about bolt-on acquisitions, and potentially strengthen buybacks. Both.

That's all in front of us as opposed to the here and now, because Doug's comment about making sure we fund renewal properly is the first priority for cash. Beyond CapEx and the Business. But it's right around the corner, and we have a lot of work to do this year to think through it.

As we think about bolt-ons, our strategic priorities, the way you should think about how we think about bolt-ons is our Win Bigger categories plus our Home Solutions business is a big business, and we want to continue to work on strengthening that pillar as a cash-generating investment arm of our Business. So there's four critical pillars.

And then our Baby business is the one that's on the fringe of being a priority. And the reason that stands outside of the four core priorities is because the big opportunity on Baby, beyond continuing to sustain our great momentum, would be to place a bet on Asia. And that's a different type of bet than we can make with our other Win Bigger categories, because the market, the baby gear market, does not exist today, for example, in China.

So you would be investing to build it. And the A&P costs associated with building a market versus deploying your assets into an existing market are much different. The cost of growth is much higher. So that one, that business needs some strategic inflection to create the flexibility to make that bet. And I would not mortgage Writing, Commercial Products, Tools or Home Solutions for the sake of that play in China yet.

Fair. Terrific. Thanks for the color.

Budd Bugatch with Raymond James.

The call has lasted a long time so I'm not going to ask, hopefully, a long question. Just two housekeeping questions. One, explain if you would, Doug, the normalized tax rate for the fourth quarter. I'm not sure I understand what utilization of tax attributes means. And could you explain where the geographic mix of rates are?

Yes. Starting with the second one, Budd. Most of the countries that we operate in have differing tax rates. And they range from more attractive rates in Switzerland, for example, to less attractive rates like the US and Japan. So depending on where we source our growth from, and it's coming from all parts, obviously we're growing in Latin America, as well, and there are different growth rates there. So, depending upon where the growth flows in, and how the growth flows in.

And then, to your second point, whatever underlying attributes we may have in those jurisdictions, all that gets thrown into a pot and the final effective tax rate comes out the other end. So, for example, if there's a country that we've historically lost money in, and we are now beginning to make money, there's probably a net operating loss attribute that could flow through the rate.

So NOLs -- that's what you're calling an attribute. Is that most of the attributes, are NOLs?

That's a good example of one. Foreign tax credits, in general, would be another one.

Okay. And the second one -- and this may have to wait for the K -- but I think last year, between the domestic and the international plans, you were about $1.5 billion under-funded. Or that was $1.5 billion projection of the PBO. What's it look like this year? You're putting a lot more money to the pension plan. What does the unfunded and the PBO and the assets look like now?

We will wait until the K to give you those specific numbers, Budd. But we are making good progress on that. And obviously made the choice in January, just within the last couple weeks, to put a little extra money in the plans. In part, because the interest rate environment is so low. And the bond that we issued in the fourth quarter gave us the flexibility to put a little more money in there and close that funding gap.

But is it unfunded higher or lower than last year?

It should be -- including the January funding, it will be higher than last year.

The unfunded amount will be higher than last year?

It should be -- with the January funding that we're making. So, we'll sort it all out for you.

Okay. We'll be curious to see what it looks like in the K. Thank you very much.

Leigh Ferst with Wellington Shields.

Could you give us an update on your examples of success with your customer partnerships?

Yes, we've got some really interesting stuff unfolding. We've got tremendous growth in the food, drug mass channel. A guy named Keith Duncan we brought in to lead that channel, has closed an incredible number of distribution voids. The coverage model that the new customer development organization has enabled us to create, is helping us in that respect. And so we've got great momentum with our grocery channel customers, and with the dollar channel customers, as a result of that new coverage reach that we've gotten through the construction of the CDO.

We've talked about the Rubbermaid merchandising windows that we've got, enabled by good conversations with our customers about driving the food and beverage component of the Rubbermaid consumer business off the shelf and onto the floor. And good collaboration around the vehicles that we've created to do that. We've got really fast-growing e-tailing growth, both through our existing retailers who have established e-businesses, and through dedicated e-tailers. And that is a function of a different coverage model there. But it's very early days.

So I'm very excited about the continued upside that will come through the customer development organization. We are building that out in the US because we believe it's a repeatable model that can be applied in other countries around the world. And so our learning, both in terms of the design of the structure, and the impact of the business, will inform our choices on how we sequence deployment of that structure into new markets.

Probably not until 2014. We need to get a good full year of experience under our belt, under Joe Cavaliere's leadership. And then we think about what we do next. So, Leigh, I'm really pleased with the kind of impact it's had so far, and the possibilities going forward.

This concludes our question-and-answer period. If we were unable to get to your question, please call the Investor Relations team at 770-418-7075. I will now turn the call back to Mr. Polk for any concluding remarks.

I appreciate everybody hanging in there through the Q&As. As I said, we are very proud of the work we've done to both drive delivery in 2012, while also driving change. And that theme will continue into 2013. The transformation work associated with the second phase of Project Renewal is upon us. And the team that I have the privilege of leading has demonstrated to me that they've got the capacity to continue to drive delivery, while driving change going forward.

Thanks for all your support and for your questions. And we look forward to catching up with you at the next moment that we have an opportunity to do so. Thanks again. Bye.

Today's call will be available on the web at Newellrubbermaid.com. And on digital replay at 800-585-8367. With an access code of 89518342. Starting two hours followed by the end of today's call. This concludes our conference. You may now disconnect.