希悅爾 (SEE) 2007 Q4 法說會逐字稿

Good day and welcome to the JohnsonDiversey conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Lori Marin, Vice President and Corporate Treasurer. Please go ahead, ma'am.

Good morning. This is Lori Marin, Vice President and Corporate Treasurer of JohnsonDiversey. I would like to thank everyone for joining our investor call this morning. Today we will discuss our results for the fiscal year ended December 28, 2007.

I am joined on this call by Ed Lonergan, our President and Chief Executive Officer; Joe Smorada, our Executive Vice President and Chief Financial Officer; and Todd Herndon, our recently-appointed Vice President and Corporate Controller. Todd has been with the Company 19 years, most recently serving as the regional finance director for our North American region.

Todd has replaced Clive Newman, who has taken on a new role in the Company, leading finance and our restructuring program in our Europe, Middle East, and Africa region, which represents over 50% of the Company's business.

On this call we intend to provide an update on the general status of the business and the financial results for the fiscal year ended December 28, 2007; an overview of the balance sheet at December 28, 2007; an update on our restructuring program; and an update on the results for JohnsonDiversey Holdings.

Some of the statements that we will be making in this presentation are not historical facts and are forward-looking. These forward-looking statements are subject to risks and uncertainties, some of which are beyond our control. Please refer to the risk factors and cautionary statements concerning forward-looking statements in our Form 10-Q and Form 10-K reports for certain risks and uncertainties we face.

The discussion today includes reference to EBITDA for various periods. EBITDA is a non-GAAP measure within the meaning of the SEC's Regulation G. In accordance with Regulation G, our Form 10-K report includes a reconciliation of EBITDA for the fiscal year ended December 28, 2007, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to EBITDA. Except for comments regarding EBITDA, net income, and cash flow, or where specifically indicated, today's discussion reflects the results of continuing operations excluding the divested Polymer and Chemical Methods Associates businesses.

Our Form 10-K reports for JohnsonDiversey and JohnsonDiversey Holdings were filed with the Securities and Exchange Commission on March 19, 2008. They are also posted on our website at JohnsonDiversey.com and can be accessed by clicking on the Investor Relations link and selecting the relevant company. JohnsonDiversey Holdings is a holding company whose sole asset is its share of JohnsonDiversey.

Other than differences in net income due to interest expense for the JohnsonDiversey Holdings senior discount notes and the provision for income taxes, the consolidated financial results of the two companies are the same. Accordingly, we will address the results of both companies on this call.

I would now like to turn the call over to Ed Lonergan, our President and Chief Executive Officer, for a general business update.

Thanks, Lori, and thank you all for joining us today. Today I will provide an overview of our year, including some financial highlights and key business trends. Joe and the team will give you a more detailed financial review later in the call.

I am pleased to report today that JohnsonDiversey delivered solid sales and gross profit growth across the Company in 2007, while successfully executing the second year of our three-year restructuring program.

There were several key developments in 2007 that reaffirmed the strategic choices we made in 2006. Among the highlights were, one, a breakout year for our Europe, Middle East, and Africa region, which performed at a significantly higher level than anything we've seen in the prior five years.

Two, we saw continued rapid growth in developing markets, driven by product innovation, geographic penetration, and the leadership of some of our most entrepreneurial teams.

Three, we improved gross profit margin versus the prior year for the first time since the DiverseyLever acquisition in 2002.

Now turning to net sales, we grew net sales in our core business by 4.8% in the year with about two-thirds of that growth in volume and one-third in pricing. This growth rate excludes the impact of foreign currency, divestitures, sales agency fee income, and our decision to partially withdraw from certain segments of the former DiverseyLever business in the US. This solid growth was geographically broadbased and spanned virtually all our applications and sectors.

Gross profit increased 8.4%; and our gross profit as a percentage of net sales improved in the year by 60 basis points, the result of selective price increases and disciplined cost-savings initiatives. Gross profit increased in all regions except Japan, which I will address in a moment.

Our EBITDA performance was enhanced by ongoing management of selling, general, and administrative costs which declined by 270 basis points as a percentage of net sales. Joe will comment on EBITDA in greater details in a moment.

Regarding our restructuring program, we remained on course in 2007 to deliver the financial results of the restructuring announced in November of '05. I can assure you there has been no pullback in our commitment and focused execution of this program. 2007 saw the successful completion of targeted plant closures; the global outsourcing of IT support work; the redesign of our North American supply chain footprint; and the reorganization of our European operations to reduce complexity and focus the operation on customer development and marketing.

Another milestone in 2007 was the renegotiation of a new umbrella agreement with Unilever, which replaces our previous sales agency agreement. Just as a reminder, JD is the exclusive seller of Unilever brands into the professional markets, which gives us a unique proposition to certain types of end-user customers. These sales represent a significant business for our Company, in particular in the European region. Joe will cover more of the details later; but I am pleased with this new agreement, which positions JohnsonDiversey long-term as Unilever's channel to market for their branded cleaning and sanitation products.

Now for a regional perspective. Our Europe, Middle East, and Africa business had an exceptional year, delivering a net sales increase of 6.3% as compared to the prior year. Our growth in Europe was driven primarily by higher sales volume throughout most countries in Western Europe and strong growth in the emerging markets of Eastern Europe, the Middle East, and Africa. We are retaining customers at a greater level, capturing new customers, and growing through new product platforms.

This is a case of getting the business fundamentals right and driving them throughout the operation. Our regional President, Pedro Chidichimo, has taken the operational aptitude and entrepreneurial approach he developed in our Latin America business and renewed our European business, both organizationally and structurally, for sustainable growth.

In North America net sales in our core business grew by 2.2% compared to the prior year, after adjusting for the decision to withdraw from a portion of the former DiverseyLever US business. This net sales growth was also accompanied by a significant improvement in gross profit and EBITDA delivery.

Latin America continued its robust performance with a net sales increase of 9.8% compared to the prior year, driven primarily by higher sales volumes across the region. This region benefited from significant customer acquisition (technical difficulty) in our food and lodging, food and beverage, and retail sectors, and in addition to success within our indirect channel partners.

In Asia-Pacific net sales increased 10.8% compared to the prior year, led by strong sales volume growth across all sectors. We continue to benefit from our leading positions in key growth markets and the general increase in hygiene and cleaning standards in Southeast Asia.

Some of our strongest local operations are in this region and are highly focused on building long-term growth engines in these critical markets. We continue to invest in these markets, as well. We've increased our sales force across the region, brought a new manufacturing plant online in India, and added new plant capacity in China.

In Japan net sales decreased 3.8% compared to the prior year, due primarily to a challenging Japanese economy, declining consumption and distributor inventory in our facility solutions business, and a consolidation in the end-user foodservice business, offset slightly by renewed growth in the food and beverage business. We are responding to the market conditions in Japan with a new initiative to restructure the business for long-term growth and profitability.

Finally, I would like to address trends in our industry before handing it off to Joe for further financial details. There are three clear industry trends that create the backdrop for much of our near- and long-term thinking. I will briefly address each trend and how it is playing out across the world.

First, in the general global economic turmoil and pressure created by oil and natural gas prices. While our business is not as affected by economic swings as are some others, we do see the impact of economic uncertainty on our customers. They are under tight spending constraints, driving them to seek efficiency in every possible aspect of their business, including cleaning and hygiene. The cost of oil and natural gas is a double-hit for us, as we must deal with inflationary pressures in our own business at the same time as working with customers who are searching for ways to improve their efficiency.

We have been successful at pricing to recover much of our cost increases; but pricing will only get us so far. The real challenge is to present our customers with solutions that reduce their overall cost and risk while also growing our business. This has been a successful model in many of our key accounts, which partially explains our improved gross margins.

On the internal cost side we protected EBITDA by creatively reducing back-office costs while concurrently investing in enhancing our selling capability. Our restructuring, global strategic sourcing initiative, and lean manufacturing efforts have delivered thus far and will need to continue to provide us with the ability to fend off the effects of cost inflation.

The second trend I'd like to address is the general elevation of concern for public health. In 2007 we saw enormous attention paid to the MRSA issue in the United States, with incidence of community-acquired infections moving squarely into the public domain. In our case, we were ready with a differentiated solution based on our proprietary accelerated hydrogen peroxide platform. This line of cleaners and disinfectants has a kill time up to 10 times faster than traditional disinfectants. It is also quite safe to use, and it's green.

We had to move into emergency production on this line of products last fall, as our customers in schools, hospitals, health clubs, and other public facilities sought an effective answer for this stubborn bug. We continue to see growth in this line of cleaners and disinfectants, as the awareness and concern for community-acquired infections increases.

In addition to infection control, food safety continued to capture public attention because of well-publicized food contamination cases and meat processing concerns. In the UK, for example, we mobilized our dairy hygiene experts and increased our product availability in response to an outbreak of foot-and-mouth disease. We are finding that our customers need us to be in constant state of readiness to help them address these critical issues of public health, and we're pleased to have the capability to do so.

Finally, a trend that is affecting JohnsonDiversey -- as it is most businesses -- is the sustainability movement. We are fortunate to have a legacy of concern for the environment and our communities, and a history of concrete actions that have continually reduced the impact of our products and operations on the planet. So we have started from a position of strength as this movement has caught hold.

Today we're pleased to offer our customers products, expertise, and services that measurably reduce their environmental footprint and protect their workers and employees. For example, our low-temperature laundry technology, branded Bright Horizons, saved our customers 168 million gallons of water in 2007 and 8,900 tonnes of CO2, which is the equivalent of taking more than 1,400 passenger vehicles off the road for a full year. This product uses unique chemistry and dispensing to reduce electricity use by up to 35%; reduce wastewater by up to 25%; and reduce packaging by up to 50%; all while also killing harmful bacteria such as MRSA.

Another example of how we are innovating to address sustainability concerns is our Dry Tech line lubrication system. As you know, bottling plants use conveyors to move packages in the filling process. These conveyors are typically lubricated with a soapy water mixture. Our Dry Tech application uses up to 95% less water than conventional products, saving a typical bottling plant close to 2 million gallons of water per year in track treatment alone. This is just one element of a full portfolio proven to dramatically improve the environmental and economic profile of bottling plants.

Our value propositions today are built from technologies and capabilities that deliver significant operational efficiency and environmental impact benefits beyond the cost of chemicals and equipment. This suite of solutions is in demand all over the world, as our food and beverage customers seek new ways to make their operations safer, more efficient, and sustainable.

Our low-temperature laundry and bottling plant systems are just a couple of examples of actions we are taking to reduce the environmental impact of our customers' operations. All across our business we are bringing sustainability to life by improving our own operations as well as those of our customers.

In addition, we are improving our communities through philanthropic projects, most notably our Global Children's Initiative. Through this powerful program we've adopted about 30 schools around the world, improving the school facilities and providing cleaning products as well as hygiene education to thousands of kids. We are continuing to expand this program into every country in which we do business.

At JohnsonDiversey sustainability is more than a concept we talk about. It is part of the fabric of our Company, and we are excited to be our customers' partner in addressing these critical issues.

These three trends -- economic turmoil, concern for public health, and sustainability -- are presenting challenges for our business just as they are for so many companies. But thanks to our restructuring program, our innovations, and our values, we are well prepared to address these challenges and thrive in this environment.

Overall, 2007 was an important year as we took on the dual objective of growing our business at rates beyond our historical performance while also executing our restructuring program. Our results validate that we have set the right priorities and invested in the right places.

I continue to be encouraged by the development of our leadership team around the world and by our customers' response to our value proposition. We enjoyed significant new customer wins and a higher rate of retention in 2007, with no significant customer losses.

After two years at the helm here, I believe we are on the right course and prepared to seize the opportunities that lie ahead. Now I would like to turn it over to Joe Smorada for more detailed comments on our financial results.

Thank you, Ed. I would like to remind you that a reconciliation of EBITDA to net cash provided by operating activities can be found in our Form 10-K reports for the fiscal year ended December 28, 2007, which of course can be accessed from our website.

On an as-reported basis net sales for the fiscal year ended December 28, 2007, were $3.13 billion as compared to $2.93 billion in the prior year. Excluding the impact of foreign currency exchange rates, acquisitions and divestitures, and sales agency fee income, our net sales increased by 3.5% as compared to the prior year.

When the impact of the withdrawal from a majority of the service-oriented laundry and wear-washing business in the United States is also excluded, the growth rate was 4.8%. This sales growth primarily result from increased volume, pricing actions, and the continued expansion of developing markets around the world, partially offset by declining sales in Japan.

Net sales in North America decreased 2.3% as compared to the prior year, again excluding the impact of foreign currency, divestitures, and sales agency fee income. The sales decline reflects the impact of our withdrawal from the majority of the underperforming service-oriented laundry and wear washing business in the United States in March of 2006. Excluding the impact of this withdrawal and the divestiture of other noncore businesses, our North American operations grew 2.2% in 2007.

In our Europe, Middle East, and Africa region net sales increased 6.3% as compared to the prior year. This growth was primarily driven by higher sales volumes throughout most countries in our European region, resulting from top customer growth retention and growing new product platforms.

In Latin America our net sales increased 9.8% compared to the prior year, driven by increases in most geographic areas, with growth from the food and lodging, food and beverage, and retail sectors.

In Asia-Pacific net sales increased 10.8% as compared to prior year, primarily due to growth in the food and beverage, food and lodging, and retail sectors.

In Japan net sales decreased by 3.8% compared to the prior year. This decrease was primarily due to a challenging Japanese economy and a decline in the facility solutions business, driven by a change in the frequency of cleaning and a movement to different types of floor surfaces.

Our gross profit margin improved in 2007, increasing 60 basis points from 41.8% in 2006 to 42.4% in 2007. I'm pleased to report that this increase in gross margin reverses the previous trend of year-over-year declines, and is particularly significant given increasing raw material prices.

The improvement in gross margin was primarily due to our pricing excellence initiatives that we implemented throughout most of our regions; cost savings from various supply chain optimization projects; our global strategic sourcing initiative; and the favorable impact of our cost-reducing programs.

As reported, SG&A expenses as a percentage of net sales were 36.9% in 2007; this compares to 39.6% in 2006. This includes period costs associated with our restructuring program of $91.6 million in 2007 as compared to $122 million in 2006. After adjusting for these period costs, SG&A expenses were 34% of net sales in 2007 as compared to 34.4% in 2006. This is a 140-point decrease. This reduction was due to accelerated savings from our restructuring program and control spending in most of our regions.

On an as-reported basis, restructuring expenses in 2007 were $27.2 million as compared to $115 million in 2006. These costs consisted largely of involuntary terminations incurred by our North America and European businesses, as well as at our corporate center.

EBITDA in 2007 was $236 million compared to $465 million in 2006. This change was largely a result of the $353 million pretax gain recorded on the 2006 divestiture of our Polymer business, partially offset by a $93.8 million decrease in restructuring expense and period costs related to our restructuring program.

The Company reported a net loss of $86.6 million in 2007 compared to net income of $118 million in 2006. This difference was largely due to the divestiture of the Polymer business in June of 2006, which increased net income by $236 million. Further, our income tax provision increased by $157 million in 2007 as compared to '06, also largely related to the Polymer sale.

This was offset by decreased net interest expense of $11 million emanating from lower average debt balances; an increased operating profit of $187 million, which mainly resulting from a $123 million decrease in restructuring expenses and period costs associated with the restructuring program. We also had a $103 million increase in gross profit, while with controlled our SG&A spending.

JohnsonDiversey Holdings reported a net loss of $132 million in 2007, as compared to net income of $98 million in 2006. As previously mentioned, the main difference between the results of JohnsonDiversey Holdings and JohnsonDiversey Inc. are interest expense and the provision for income taxes.

Capital expenditures in 2007 were $111 million as compared to $93.4 million in 2006.

Before turning the program over to Todd Herndon to discuss the details of our restructuring program, I would like to expand on a few things that Ed mentioned earlier.

We are in the third year of our restructuring program and are committed to completing this endeavor on schedule, on budget, and with the savings delivery that we promised. As part of our plan we launched several major projects aimed at improving our cost structure and implementing the systems infrastructure and processes needed to operate our business efficiently and effectively.

We hold regular frequent meetings with the managers of these projects, and we have developed sophisticated recording and reporting processes that are in place. And we audit them regularly. We believe top management focus and global consistent, granular project management processes are the key reasons our restructuring has been successful. It has kept us on the course we charted and helped us avoid surprises.

Another important aspect of our cost-saving projects is our global strategic sourcing initiative, which is designed to optimize all organizational costs including production and nonproduction spending. Our GSSI program will continue to focus on supplier management, complexity reduction, and finished good SKU rationalization.

I would now like to ask Todd Herndon, our Vice President and Corporate Controller, to provide you with some further details with respect to our restructuring plan.

Thanks, Joe. 2007 was a very positive year for our restructuring program. We comfortably exceeded our internal cost-saving targets within spending budgets. We implemented and completed a number of projects started in 2006, and launched many new projects in 2007.

Incremental cost-savings to date are estimated at $136 million. We continue to expect a total program savings of approximately $160 million to $175 million by the end of fiscal-year 2008.

A number of key element of the operational restructuring of our Company were progressed in the year, including first, the completion of the global outsourcing for IT support work covering most of our major operating entities. Second, the outsourcing of accounts payable and travel and expense claim processing in Western Europe. Third, the announcement of a further redesign of our European operations, initiating the transition to one centrally-managed European region to strengthen the focus of our local organizations on sales and marketing execution, thereby delivering a nimbler, more efficient, and profitable organization.

In addition, we completed several significant restructurings in our manufacturing and warehousing footprint including, one, the redesign of our European manufacturing footprint to improve efficiency and cost. This included the closure of our manufacturing plants in Bobigny, France, and in Polinya, Spain, and the investment in our plants in Enschede, The Netherlands; Villefranche, France; and Valdemoro, Spain.

Second, the redesign of our North American supply chain footprint, including a reconfiguration of our manufacturing operations and the consolidation of a fragmented distribution infrastructure in the US into a new, highly-efficient, LEED-certified warehouse here in Sturtevant, Wisconsin.

Headcount reductions to date under the restructuring program are about 2,300, of which about 1,100 are related to cost-reduction initiatives and organizational redesign, with the remainder related to the exit from the service-oriented laundry and wear wash business in the US and divestiture activity, including the sale of Polymer. These reductions are broadly in line with our expectations.

In 2007 the Company recorded $27.2 million in restructuring expenses, consisting largely of severance costs, and $91.6 million of period costs in selling, general, and administrative expense related to restructuring actions. Of the amount recorded as period costs, $12.8 million related to long-lived asset impairments and $2 million related to the impairment of other tangible related non-cash items.

Of the total asset impairments, $12.8 million were recorded as adjustments to depreciation and amortization and are therefore not included in EBITDA.

Our restructuring related period costs recorded in SG&A include consulting and professional services, IT project costs, human resource and employee benefits such as retention, relocation, and outplacement.

Cash spending for restructuring-related activities totaled $127 million during fiscal year 2007. I would advise investors on the call that in determining the cash spend on restructuring-related activities we make the assumption that all period costs are paid in the period in which they are expensed. Restructuring reserves at the end of the year were $46.2 million.

I will now turn the call back over to Lori Marin, who will discuss the Company's cash and debt position.

Thank you, Todd. At December 28, 2007, JohnsonDiversey Inc.'s total debt balance was $1.1 billion. We held cash and cash equivalents of $97.1 million as compared to $208 million at December 29, 2006. The decrease in cash balances were primarily due to cash expenditures of $127 million related to our restructuring program and a dividend payment of $21.8 million to JohnsonDiversey Holdings that was used to fund the first cash interest payment on the senior discount notes in November.

Usage under the securitization program at December 28, 2007, was $53.9 million.

JohnsonDiversey Holdings' consolidated debt balance at December 28, 2007, was $1.5 billion, which includes $385 million of senior discount notes. As of December 28, 2007, the Company had total credit availability of $167 million under a revolving credit facility. Of the total credit available at the end of the year, we could borrow this full amount and still be in compliance with our financial covenants.

This concludes our presentation. I would like to remind you that our Investor Relations website can be found at JohnsonDiversey.com. We consider this website to be a key communication tool with the investment community, and we encourage you to periodically access this site.

Documents related to the JohnsonDiversey senior subordinated notes and the JohnsonDiversey Holdings senior discount notes, as well as both companies' financial results can also be found on the Investor Relations site.

A recording of this conference call will be available for replay for the next two weeks by dialing in to the numbers listed on the press release announcing this call.

Please direct questions related to our financial results to Kathy Powers or to me. John Matthews will continue to be the contact for all nonfinancial matters. Our contact information can be found on our website. We will now move on to the question-and-answer session.

(OPERATOR INSTRUCTIONS) [Kevin Zytes], Goldman Sachs.

Just to touch on the -- and first of all, thank you for holding the call. I just wanted to touch on your comments about the global economic conditions and input prices. Have you found it more difficult as the year went on, and maybe even as we are into this year, to pass along price increases?

This is Joe Smorada responding to that. I think most people in our industry have been out with price increases, and I think as a consequence -- given the severity of the raw materials -- a number of the price increases are sticking. So I think the simple answer to your question is we have been out in the marketplace with pricing, and we have found in many instances it has stuck.

Okay. Is your goal I guess to completely offset the input cost rise?

Yes.

I guess would you say for last year, did you achieve that?

Yes.

Okay. So I guess it would have a natural -- we're talking dollars here, right, not percentages, right? So you are just one for one trying to recapture the dollar cost increase.

We would obviously like to always maintain our margin rate and enhance it as such. It is difficult environment to do that. So pragmatically we are aggressively trying to ensure, if nothing else, that we recover our dollars.

Okay. Then could you -- as you are looking out over this year, do you have an expectation on how high your -- what percentage increase in your input cost you would expect on a sort of blended basis, and where the big hits are coming from?

I think it would be very difficult to say that. In all honesty we've seen it jack up to $112 just recently; and three days later it is $107 with oil. I don't think I can really answer that. It would just be such a wild guess.

I mean, are we talking much more than 10% or much less?

I think what we would look at is as oil prices continue to move we recalculate our input cost price increases in each of the regions. Of course it is different in each region depending upon supply. But our competition has mentioned about a 200 basis point increase in raw material prices in their last conference. I would say that is not out of line for the industry.

Okay, that is helpful. Then more touching on the economy and your comments about your consumers looking to be a little bit cautious here, are you seeing that? And sort of any kind of slowdown in demand patterns?

I think the answer is for us 75% our business is outside the United States. So there is a lot of discussion about what is happening in the economy here. But frankly in the European marketplace, in the developing markets, we see very little change in demand from our customers.

We were out in China a few weeks ago and the latest number is there is a 30-story office building coming online in China every 11 days. So this is our business. We are there to clean them.

So while we -- even in the United States most of our business is in building care, and those buildings have to be cleaned regardless of what is happening in terms of people's disposable incomes.

So we feel very well positioned in the marketplace today, and we think the economy in general in the world in our industry will continue to grow.

Okay. I'm not sure if you have ever disclosed before, or if you have it. But in terms of your client retention, where is that?

We don't disclose, but we did say in the discussion today that our rate of retention is improved and our acquisition of new customer rate has improved.

Okay, and the North American growth rate, I guess are you satisfied with that?

Never.

Okay.

Never satisfied with any growth rate, frankly, Kevin. Our objective is to continue to grow ahead of the industry. We do benchmark in each of the businesses that we play in. We believe in North America, in the businesses where we play that was a reasonable growth rate.

But we would like to see continued innovation drive continued sales ahead of the market.

Okay. Then just you mentioned the three big trends, and you talked about sustainability and some of the awareness issues. Do you have patents on most of those product innovations?

What is the cycle time to develop some of these products?

We generally would have patents on the innovations that we are in market with today and of course we are continuing to develop for the future.

The cycle time varies. In some cases we are launching products or we've launched products in 2007 that were in development for quite some time, because the technology and the engineering capability is significant.

The Dry Tech product that we talked about for example, we are on our -- I think our sixth iteration of that product today. It is not simple. It creates new problems for the manufacturing plants. Water is a great movement of debris into the waste stream. Without water in the lubrication of the lines, we have to invent new ways to clean.

So combining engineering expertise, dosing and dispensing expertise, and the ability to formulate product is not an easy thing. But we are able to deliver, and there aren't many that can.

That is helpful. So I guess Ecolab has talked about increasing their investment in Europe. Obviously it was a terrific source of growth for you this year. I guess, how sustainable do you think this new sort of level of growth in sort of the mid to high single digits is?

We tend not to spend a lot of time talking about the future. We spend a lot of time planning about it.

My point of view is about 70% of the marketplace out there including in Europe is not Ecolab and is not JohnsonDiversey. Most of those players tend to be very local or regional.

As our customer base continues to consolidate, they value the benefits that a player with global scale and global capabilities delivers. So I have high hopes.

I believe as well the investments we have made in people and in the organization of the region over time, from plant infrastructure through selling resources, and redesign of our sales organization will benefit long-term.

Okay, I guess moving on to the restructuring real quick and then I will free up the call. But I guess I am coming up with about somewhere around $100 million of remaining cash charges between what is in reserves plus -- I guess what I've estimated as the cash charges to date of around $300 million, versus what was initially indicated to be a $350 million cash plan.

Are those numbers in the ballpark? Sort of either way, what would you expect the layout of those expenses, those cash charges to be as we move through the final year? In other words, will they be more front-end loaded or spread out evenly?

Firstly, they will tend to spread out.

Secondly, they're in the magnitude of the amount that you spoke about.

Thirdly, they will continue to be similar types of cost that we've incurred for the prior two years, which has to do with severance, retention, consultative cost, plant closure cost, brokerage fees attendant to such, general disposal costs around properties, and occasional impairments, which tend to be non-cash oriented.

Okay. Then I just want to make sure I understood the numbers that were being put up. The $136 million of additional cost savings, that is I guess what you would expect to flow through 2008, is that (multiple speakers)?

That is the cumulative savings from the time the program started.

That would be in through 2007?

Those are in the results already.

Okay. So I guess my question is, it would seem that your EBITDA prior to -- and I guess with, adjusted for restructuring costs -- is not up by $136 million since the November plan was initiated. So I guess where are you seeing offsets, if I am right about that?

In some instances you're seeing offsets because we've divested of a number of businesses. So you are seeing material absolute reductions of EBITDA by design, by our vacating noncore businesses.

Okay. That would be the biggest source, you think?

That would, indeed.

Okay. I'll free up the call and then maybe jump back on later. Thank you.

Bob Franklin, Prudential Financial.

A few questions. One is going back to the $136 million number. Did all of that show up this year, or will we see more of that in '08?

It is actually -- if you read closely it is the program to date. We started the restructuring program specifically on October 1, 2005. There was negligible savings recorded in 2005. There was about $70-some-odd-million, off the top of my head, of the $136 million that was in '07. Think of $60 million in '06.

So as you reported numbers, there was actually $136 million that you reported that was because of the program that you are under?

Yes.

Okay. Let me see. It looks like the common stock subject to put and call was down about 40 million. Is that right? It looks like 531 million; it used to be about 570 million or so.

Are you talking about the nominal value of the equity on the balance sheet?

Yes, is that not -- yes. There is a number there called common stock subject to put and call It used to be 571 million, and now it is 531 million.

Yes, that's correct.

Okay.

That is subject to external review each year.

Right. What I'm wondering is, did that number go down because of your performance? Or did it go down because there is some exogenous variable that goes into the formula?

The latter.

Okay. Second, in the -- or I guess that's third now. In the 10-K there was discussion of the leverage ratio covenant going down from 4.75 now or so down to 4.25 times. As you calculate it, where are you right now?

We do not disclose that calculation.

Okay. Are you comfortable with your ability to meet it?

We are extremely comfortable with our ability to meet it.

Okay, thanks. Let me see. On the gross margin discussion that you had, is any of that improvement because you are running fewer costs through the cost of goods sold line? Fewer restructuring costs through that line, or is it all --?

No. It is pricing and mix.

All right. Then a couple of out-of-curiosity questions. Among the reasons you said that Japan was down, one was the change in the frequency of cleaning. Are people washing less there?

They are actually cleaning the facilities less frequently, waxing the floors less frequently, as we ride out 10 years of deflation in cleaning in Japan. It is fairly public data because they collect the information broadly. Facilities owners have simply decided that they will clean less frequently.

Okay. Just because I haven't been to China and you say there is a new office tower going up every 11 days. In your experience are these towers getting filled?

I can't speak on the Chinese economy. All I can tell you is that we are filling them with cleaning products.

Okay. So from your experience the answer is yes.

My experience is we are certainly able to see occupancy rates in lodging and in buildings that would suggest that -- based on cleaning chemical throughput that there's people using them.

Okay, great. Thank you very much.

Tom Wong, Oak Hill Advisors.

Thank you very much for having this call. Most of my questions have actually been answered. I just want to quickly ask, overall again on the restructuring side, as we look into 2008, is most of that $100 million going to be all in 2008? Or is that spread out even further?

The expense, Tom?

Cash spending.

We expect the majority of it to be in '08.

Got it, thank you. So as we think about for 2007's results, certainly you guys have done really well. As we look forward, what kind of inflation rate is inherent in your business from a fixed cost standpoint?

Secondly, do you mind walking us through a little bit what cost in your business -- what percentage of your cost is fixed versus variable?

Let's see. I would say about 70% is variable.

The inflation that I would use, Tom, is between 3.5% and 4%. The drivers of that tend to be human oriented with respect to salary adjustments, medical cost increases, changes in the pension rules, changes in pension rates.

Got it. Thank you. One last thing, one last question I have is just on the pension side. Do you mind walking us through what pension contributions you might need to make in '08 and going forward, and how that flows through P&L versus cash flow?

I want to answer historically, Tom, as opposed to prospectively. Firstly, I should tell you that we always honor the obligations of whatever is required, either the lower of the IRS minimum or PBGC.

Secondly, we have been contributing in the realm of 40, thereabouts, of cash contributions annually; and would not necessarily expect to deviate from that unless there is a fortuitous benefit from doing so.

That 40 comes from P&L? Or is it like an operating assets liabilities adjustment?

There is a piece that comes through P&L, Tom. There is a -- pension expense is a funny thing. It is really made up of amortization of historical gains and losses on assets; amortization of changes in assets; and annual service cost, which is Harry Smith gets 5% of whatever when he retires for his last five years. And then a book income component on that, which is effectively an accrual, (technical difficulty) from a present-valued actuarial number to ultimately reach a full nominal value for payout. Therefore the actual payout doesn't necessarily resemble precisely what you book for pension expense.

Right, right.

So what goes out on a cash basis annually can range anywhere from $10 million to $30 million.

On top of P&L?

On top of P&L. Now that is cash out. That is not pure P&L. P&L is less than that.

Got it. Okay, thank you very much, Joe.

Kevin Zytes, Goldman Sachs.

The divestitures, I think it was mentioned that there may be some more. Can you quantify what you would expect to get and when you would expect to get -- when you would expect to sell those businesses?

First, as you know from announcement we just did divest of one of our noncore businesses and our gross proceeds were $69.8 million.

We aren't in a position to disclose what we would expect to do prospectively. We have a property that we are in active discussions with some folks regarding. We are evaluating what we might do with any other property at this point. But I'm sorry I can't be more definitive than that.

That's fine. You had also -- there was some mention about the umbrella agreement versus the sales agency. Maybe you touched on this; I had to drop off for a second. But what kind of impact will that -- do you think that will have on your results going forward?

Is it just kind of moving things from the sales line or from the agency line into the top line? Or maybe you can --

We will tell you, because it is a hybrid.

This is Todd Herndon. I will just (technical difficulty) address the MSA MLA agreement. First of all, it is a long-term positive development for our business. The MSA agreement remains in four countries, primarily Ireland, the UK, Portugal, and Brazil. There is a new sublicense agreement granted to 31 of our subsidiaries, which allows us to produce and sell professional packs of Unilever consumer brands and cleaning products.

The good news is the initial term runs through December 31, 2017. We believe the economic impact of the new agreement is not material to JDI, as the deal positions us long-term for 10 years of healthy growth and opportunity.

There will be some marginal increase in sales because of the way the agreements are changing. But on an EBITDA basis not a significant change in the business.

Great. Then I was wondering if you could just talk about your cash flow expectations or priorities for going forward.

Well, one thing that I think is eminently clear, obviously we've got good cash flow coming from the inherent basic operations.

Secondarily, we have supplemental cash flow expectations, if you will, from some of our programs. But generally what happens is that those supplementals by design are used to fund the cash requirements attendant to the restructuring. So we expect to continue to have, for want of a better word, solid cash flow.

Okay. Would you -- you have got about $100 million in cash on the balance sheet. Is that a level that you need to run the business at? Or are you keeping extra or whatever reason?

If you look at what our CapEx needs are for the year, the minimum and everything else, that is more than enough for us to continue very comfortably through this year, especially because from our operations we also do produce cash.

Sure. So we would maybe expect that to go down as you pay out some of the restructuring, but not necessarily [build] into the revolver too much?

You know, if you just look at our cash year-over-year and some of the things that we have been doing, we anticipate that we have plenty of liquidity for the remainder of this year and for going out.

So would it be your intention to continue to pay the discount note in cash, then?

We will pay all of our obligation.

Okay, great. Then last question. The receivables seemed to be up a bit more than I guess I would have expected. Is that a function of the mix of your business moving into some of these emerging markets?

(multiple speakers) FX.

Primarily the result of currency.

Yes, it's currency.

Mostly currency. Okay.

Actually our days of receivables are lower than they were a year ago.

Okay, great. Thanks very much.

That will conclude today's question-and-answer session. For any additional or concluding remarks I would like to turn the conference back over to Lori Marin.

Thank you again. On behalf of everyone at JohnsonDiversey and JohnsonDiversey Holdings, I would like to you thank you for attending this conference call and for your continued support of our Companies. I hope you all have a wonderful day and a wonderful holiday weekend.

That concludes today's conference. Thank you for your participation.