希悅爾 (SEE) 2008 Q4 法說會逐字稿

Welcome and thank you all for standing by. All participants will be on listen-only mode until the question and answer portion of today's conference call. (Operator Instructions).

I will now turn your call over to Ms. Lori Marin. Thank you, ma'am, you may begin.

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 31, 2008. I am joined on this call by Ed Lonergan, our President and Chief Executive Officer, Joe Smorada, our Executive Vice President and Chief Financial Officers, and Todd Herndon, our Vice President and Corporate Controller.

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 31, 2008, an overview of the balance sheet at December 31, 2008, an update on our restructuring program, and an update on the results for JohnsonDiversey Holdings.

Some of the statements that will be made 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 that we face.

The discussion today includes references 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 31, 2008, 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 DuBois Chemicals, and Chemical Methods Associates businesses, which are accounted for as discontinued operations in our financial statements.

Our Form 10-K reports for JohnsonDiversey and JohnsonDiversey Holdings were filed with the SEC on March 27 of 2009. They are also posted on our website at JohnsonDiversey.com, and can be assessed by clicking on the Investor Relations link, and selecting the relevant company.

JohnsonDiversey Holdings is a holding company whose sole asset is it's shares 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 essentially 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 update on the business.

Thanks, Lori, and I would like to thank you all for joining us today. We really appreciate your interest in our Company. Today I will provide an overview of our 2008 results, including some financial performance highlights. I will comment on how we see global economic conditions affecting our business, and how we are responding with innovations. Then Joe and his team will give you a more detailed financial review later in the call.

I am pleased to report JohnsonDiversey delivered 2008 in-line with our expectations, despite the global economic turmoil that ensued in the second half of the year. In addition we successfully executed the third year of our multi-year structuring program over delivering savings, while also managing restructuring construction costs consistent with the original plan. Our ability to navigate the choppy waters of late 2008 was the direct result of strategic choices we made over the last three years. I would like to briefly mention how those choices helped us weather the storm.

First, our global strategic sourcing initiative has partially mitigated the dramatic raw material inflation, caused by shortages in supplies of key ingredients. While the costs of oil derived raw materials began to recede late in the year, the cost of certain raw materials, such as caustic soda, chelates, and phosphates, spiked as a result of supply and demand issues. Our strategic sourcing efforts helped mitigate inflation and maintain supply, although our margins late in the year still reflected the effects of significant raw material inflation spikes.

Second, we began in 2006 to instill new pricing disciplines in the company. As a result the skill and speed with which we were able to spurned to market forces, enabled us to partially recover the cost of raw materials, protect our margins to the fullest extent possible, and to continue to grow our net sales. These pricing scales were not executed in isolation. They were integrated with innovation launches and customer focused value propositions that made the pricing stick. Significant and numerous price increases were fielded across the year with the last round executed for Q1 2009 delivery.

Finally our largest region, Europe, Middle East and Africa had another outstanding year in the face of many challenges, delivering significant growth at both the top and the bottom line. Turning to net sales, we grew net sales in 2008 by 3.5%, with pricing driving virtually all of the gain. All regions except Japan contributed to this growth, as price increases took hold in all major geographic areas and business sectors. This growth rate excludes one-time adjustments for currency, acquisitions, and divestitures, sales agency fees, and sales under the Unilever licensing agreement.

Gross profit increased by 3.8%, primarily as a result of the weakening US dollar versus the Euro and certain other currencies. Excluding the impact of sales agency fee income our gross profit percentage declined by 90 basis points in 2008 versus 2007, following an improvement of 70 basis points in 2007 versus 2006. Despite the improvement in our pricing capabilities, end year price increases simply did not keep pace with the unprecedented increases in certain raw materials that I mentioned earlier.

We also undertook a major working capital improvement plan early in the year, and as Joe will explain further, our efforts bore fruit as the year progressed. Our EBITDA increased in 2008 by $42.5 million. This increase was primarily the result of cost savings from our restructuring program, reduced one-time spending associated with the restructuring, and the proceeds from divestitures. Joe will give you more details on EBITDA in a moment, but I would like to add that I am quite pleased with our performance in reducing our base SG&A cost. Excluding period costs associated with the restructuring, our SG&A expenses as a percentage of net sales declined to 31.3% in 2008, versus 34.8% in 2007.

We will accomplish these savings while protecting, and in many cases enhancing the capabilities of our global sales force. We simply found smarter ways to work as a global company in order to reduce costs, while placing more of our assets in the field, working with our customers to drive value.

While we see many competitors protecting profits by cutting sales and service capabilities, we are enhancing sales and service by redesigning our company, and carefully consolidating support functions for speed and efficiency. Regarding restructuring, we continue to deliver ahead of our multi-year plan, while effectively managing costs associated with the program.

Now I would like to give you a regional perspective on our 2008 performance. As I mentioned earlier, our Europe, Middle East, and Africa business had another strong year. Our sales growth outpaced GDP growth in most economies, as customer retention and pricing actions took hold across the region. It is clear after successive years of strong results that we are building a formidable sustainable business in Europe. We have a strong leadership team with a deep bench, that is generating Best Practices for us to redeploy around the world.

In Latin America our double-digit increase reflected both the growth of these economies, as well as the strongly competitive operation we have there. In particular we saw gains in the indirect channel and growth in the food and beverage sector, where we hold substantial market positions. In Asia-Pacific our food and beverage and lodging sectors led growth, with outstanding results delivered across the board in India, where we have a vibrant business, and hold a strong market leading position.

Our North American business showed modest growth, with broad economic pressures resulting in volume decline in certain sectors, and significant inventory reductions by distributors late in the year. Net sales in our Japanese business declined in the low single digits, due to pressure from a declining price resistant economy, as a result of our continued efforts to shift business from direct to distribution, and due to our decision to exit certain low profit, non-core businesses. With have expanded our restructuring program in Japan, and have recruited a new leadership team to execute this plan. I am confident our new team has the right strategy and skills to accelerate the turnaround of this important business.

Let me comment on how we see global economic turmoil affecting our business, and how we are responding. First as many of you who have followed this industry have known for a long time, the cleaning and sanitation business is not particularly volatile. We have neither the high nor the lows of many industries, but no business that supplies products to other businesses is immune from the far reaching consequences of this global recession, including JohnsonDiversey.

We saw some declines in customer demand, especially in industries like lodging and foodservice, where traffic declined in the latter half of the year. And food and beverage plants executing year end shutdowns, and where we led and/or experienced distributor inventory reductions, as the world became more cautious in the face of emerging global recession. We have not seen a dramatic fall-off in demand. However, as our customers recognize they must maintain safe, healthy facilities, even as the demand for their offerings is softening.

We are responding to this economic crisis in three specific ways. First, we are keeping a razor-sharp focus on own costs, and will continue to find ways to work smarter. This includes a top to bottom review of every one of our work processes around the world, to further refine what work is necessary, what work can be simplified, and what work can be stopped. We know we can find additional efficiencies, while still protecting and enhancing the quality of our customer interface.

Second, we are addressing this global crisis by applying the systems and capabilities we have established over the past three years. For example, we are now completing rollout of our first-ever global database that captures profitability down to the customer and SKU level. We have better access to data at any point in our Company's history. This data will help us make critical choices about how to maintain and improve profitability across the Company.

Thirdly we are taking this crisis head on by staying close to our customers and understanding their needs. Over the past three years we have conducted deep attitudinal, behavioral, and ethnographic industry research, and performed segmentation analysis in all of our sectors. We know better than ever which customers to target with which value propositions, and our customers are responding.

This is where we see opportunity in the crisis. Many of our competitors, especially at the regional and local level, do not have access to this type of intelligence, nor the product and application expertise to deliver against it. We see opportunity to gain market share and share of wallet, as a result of the strain this global recession places on our industry.

One of the best examples of how we are responding to customer needs, is in how we are contributing to the sustainability movement. Customers are now keenly attuned to the need to consider the social and environmental impact of their operations. Our longstanding heritage of sustainability, and our public commitment to a cleaner, healthier future for our world, has attracted the attention of the industry.

Far from becoming yesterday's news, sustainable solutions are more in demand than ever, because at it's core sustainability is about reducing waste, and becoming more efficient with all resources, natural resources, human resources, and financial resources. In fact, one of our largest customers recently signed a new long-term global agreement with JohnsonDiversey, and attributed the new agreement to our sustainable facility care offering. They confirm that had they pursued the agreement with JD because of our longstanding commitment to sustainable solutions, and our ability to deliver those solutions consistently around the world.

We believe the combination of sustainable solutions and global reach are compelling, and that is why we are engaging with customers, to become their leading expert in superior and sustainable performance. This leadership position was enhanced in 2008 with JohnsonDiversey's acceptance into the World Wildlife Funds Climate Savers Program, the most rigorous climate change initiative of it's kind.

As part of our acceptance into Climate Savers, we made the commitment to an 8% actual reduction in greenhouse gas emissions, with our performance verified by a third party. The 8% reduction is a hard target, it does not float up with sales, which is what makes Climate Savers participation such a challenge. We identified a path to achieve our committed reductions, and we have estimated an attractive rate of return on our investments and emission reductions. That makes Joe just as excited about Climate Savers as me.

Our sustainability leadership position is also driving through to our innovation pipeline, in 2008 we launched innovations with exceptionally strong sustainability profiles, and customers are responding with the enthusiasm we expected. I would like to take a moment to describe just a few of these innovations. The first is ProSpeed a revolutionary floor finishing system. In the first three months it was on the market ProSpeed helped our customers reduce their water use by more than 71,400 gallons, and eliminated the waste of more than 8,200 gallons of floor finish.

ProSpeed helps building service contractors and other cleaning professionals, provide high quality, cost effective floor finishing results, in retail, healthcare, and education facilities. It reduces the environmental impact of floor finishing by eliminating the need for water cleanup, taking the guesswork out of how much floor finish to use, and improving indoor air quality over traditional systems. The system also protects workers from injury. An independent study showed that ProSpeed reduces total body effort by as much as 30% compared with conventional tools, and required 35% less exertion in working shoulder and lower back muscles.

The second innovation that directly addresses our customers need for efficient sustainable solutions is [ReboFlow]. We have built on our historical expertise in dispensing and dilution control, by inventing a new compact wall-mounted system, for dispensing precise automated doses of cleaning and sanitizing chemicals. It is designed specifically for our restaurant and laundry customers, providing accurate dosing and dispensing of both liquids and powders. The unique locking caps prevent user contact with cleaning chemicals, and dramatically reduce spillage and accidental mixing of chemicals. The super high product concentrates and recyclable packaging also reduce the environmental impact and costs, of making, transporting, and storing both products.

The fine innovation I will mention today is our new Optifill product, which simplifies manual dishwashing, and ensures consistent reliable results, with a substantially reduced environmental impact. Optifill automatically dispenses detergent or sanitizer in the exact dose, by using a patented pump system, that is activated by sink water flowing through the dispenser.

Correct dosing means consistently clean results with no waste or residue, and no worry about inadequate cleaning. The compact 2.5-liter bottle contains a super high concentrate product, that generates 1,600 gallons of usable solution, or about five times greater than the former best offer from JD, significantly reducing packaging and transportation costs and the package is fully recyclable once depleted.

We are excited about these three innovations, and how they demonstrate our expertise in superior and sustainable solutions. In addition to these examples we have also expanded our work in water management, and have built a compelling value proposition on the total cost of ownership of our portfolio in food and beverage plant hygiene.

Just to wrap up overall 2008 was a successful year in a volatile world. We continue to build critical capabilities, and enhance our leadership depth, while also finding new savings, and delivering the third consecutive year of our restructuring program. We honed our value propositions and delivered solid top and bottom line results, and we captured new strategic customers, while avoiding any material customer losses. These are uncertain days for all industries, and many challenges remain for JohnsonDiversey, but our results in a difficult 2008 are an affirmation that we have made the right choices and investments over the past three years, building our Company on a firm foundation, that can weather the storm of this global recession.

I would like to turn it over to Joe Smorada for more detailed comments on our results.

Thank you, Ed, and good morning. I would like to remind you 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 31, 2008, which of course can be accessed from our website.

On an as-reported basis net sales for the fiscal year end December 31, 2008 were $3.3 billion. This compares to $3.0 billion in the prior year. Excluding the impact of foreign currency exchange rates, acquisitions, divestitures, sales agency fee income, and sales from our master sublicense agreement, our net sales increased by 3.5% as compared to the prior year. This sales growth primarily resulted from the successful implementation of price increases in all global geographic areas and business sectors, and the continued expansion of developing markets around the world.

I would like to give you some additional perspective on our 2008 regional performance. As Ed mentioned earlier, our Europe, Middle East and Africa businesses had another strong year. Net sales increased 4.3% over 2007, driven primarily by pricing, growth in certain large western European countries, and continued expansion in developing markets in central and eastern Europe. In Latin America our net sales increased 10.4% over 2007, reflecting both pricing and volume growth in most geographies.

In Asia-Pacific net sales increased 7.7% versus 2007, with the preponderance of that growth driven by volume. China did not contribute as much growth as in past years, primarily as a result of natural disasters early in the year, food safety scares, and an economic slowdown late in the year, that has significantly impacted the lodging and foodservice sectors.

Our North American business grew by 1%, primarily the result of pricing. More rapid growth in our core building care business did not fully offset volume declines in other sectors, and inventory reductions by distributors. Economic turmoil appeared to have a greater impact in North America than in most other developed economies. Net sales in our Japanese business declined by low-single digits. Under the new leadership Ed mentioned, we have expanded our restructuring plans, to improve our cost structure and return to growth.

Based on net sales as reported, our gross profit percentage generally referred to as gross margin, declined by 200 basis points in 2008 versus the prior year. However, excluding the impact of sales agency fee income in both years, our gross profit percentage declined by only 90 basis points in '08 versus prior year. This decrease was a result of pricing actions taken during the latter half of 2008, which did not keep pace with increases in key raw material costs.

Unprecedented cost escalation occurred at the end of the second quarter, and continued well into the latter half of 2008, evidenced by significant increases in phosphorus materials, caustic soda, chelates, and other key raw materials. Certain materials derived from or used in the production of products for other markets, like automotive, housing, agriculture, drove significant cost increases, due to the scarcity of supply versus historical levels. Although our global strategic sourcing initiative reduced the impact of the material inflation caused by these shortages, our margins were still negatively impacted by these pressures.

In addition, volatile oil prices affected our acquisition costs of key materials, and our ability to deliver our products in a most cost effective manner. Further, materials inflation in the second half of 2008 hit faster than incremental new pricing actions could be taken, whereas we implemented significant new pricing to offset these rapidly rising costs, the timing of the implementation of these actions could simply not keep pace with inflation.

We believe the volatile raw material costs will continue to present significant challenges in 2009. We are addressing this pressure with three specific actions. Firstly, we are holding our pricing in the market. The cumulative impact of inflation over the last couple of years has yet to be overcome. In fact, as our gross margin fall-off suggests, we have not been able to maintain our margin rate. To address this, we have built a visible global system for monitoring price delivery, with regular reports and meetings too, with Ed and myself.

Secondly, our global strategic sourcing group has initiated an effort to reduce the number of formulations, and to consolidate the number of suppliers to our business. This action is giving us greater visibility our costs, and greater leverage in our raw material procurement. Finally, the innovations we launched in 2008 should provide for a stronger margin percentage than our existing portfolio, thus serving to protect and eventually improve our company-wide margin.

We believe that these actions along with the actions we are taking to reduce SG&A spending, will continue to position the Company for improved financial performance. As reported and excluding sales agency fee income, SG&A expenses as a percentage of net sales were 32.5% in 2008, as compared to 37.9% in 2007. This includes period costs associated with our restructuring program of $42.2 million in 2008, as compared to $91.6 million in 2007. After adjusting for these period costs, SG&A expenses were 31.3% of net sales in 2008, as compared to 34.8% in 2007, a 350 basis points improvement. This improvement was due to savings from our restructuring and controlled spending throughout the Company.

Restructuring expenses in 2008 were $57.3 million, compared to $27.2 million in 2007. Costs incurred in 2008 were largely driven by involuntary terminations incurred by our European and Japanese business segments. EBITDA in 2008 was $278 million, compared to $236 million in the prior year. This increase was primarily due to a $15.7 million decrease in restructuring costs, a $14.8 million gain on the sale of our Dubois Chemical business, and cost savings from our restructuring program, all of which contributed to the $66.6 million year-over-year increase in operating profits. This increase was partially offset by raw material increases not fully offset by pricing actions in the latter half of 2008.

The Company reported a net loss of $11.8 million in 2008, which compares to a net loss of $86.6 million in the prior year. This improvement was primarily due to a $66.6 million increase in operating profits, and $8.3 million decrease in the income tax provision, and a $7.6 million increase in income from discontinued operations, which was mainly due to the gain on the sale of the Dubois Industrial Chemical business.

JohnsonDiversey Holdings reported a net loss of $59.5 million in 2008, as compared to a net loss of $132 million in the prior year. As previously mentioned, the main differences between the results of JohnsonDiversey Holdings and JohnsonDiversey are interest expense, which we carry a pick note at JohnsonDiversey Holdings, and the provision for income taxes. Capital expenditures in 2008 were $121 million, compared to $111 million in 2007.

Before turning this over to Todd Herndon, our Vice President and Corporate Controller, to discuss the details of our restructuring program, I would like to expand on a few things that Ed mentioned earlier. In November 2005 we began our operational restructuring program in response to structural changes in raw material markets, that gave rise to significant increases in our input costs. We have now nearly completed the third year of this program, and have achieved savings in excess of targets.

As part of our plan we launched several major projects, aimed at improving our cost structure, and implemented the systems infrastructure and processes we needed to operate our business more efficiently and effectively, and have more potential to come. We have successfully completed the sale of all of the large properties identified in our divesture program, and have used these proceeds to either pay down debt, or to finance our restructuring expenditures.

During the latter half of 2008 we announced plans to move to an operating model organized around three regions. We will combine the North American Latin America regions into one Americas region, and we will combine Japan with the Asia-Pacific region.

We believe this reorganization will better position us to address trends among our customers, while enabling us to more effectively deploy resources toward the most compelling market and customer growth opportunities. We also believe this will allow us to more rapidly deploy innovation globally. We remain on target to complete this reorganization in fiscal 2009.

Lastly, I would like to take this moment to point out that despite the challenges of 2008, JohnsonDiversey successfully attained it's Sarbanes-Oxley Section 404 internal controls attestation. My compliments and appreciation to our entire organization.

With that, I would now like it turn the presentation over to Todd Herndon.

Thanks, Joe. 2008 was a very positive year for our restructuring program. We comfortably exceeded our cost savings targets within spending budgets. We implemented and completed a number of projects started in 2006 and 2007. Incremental cost savings to date are $192 million, which exceeded our target of achieving total program savings of approximately 160 million to $175 million by the end of fiscal year 2008. We expect to substantially complete the restructuring program by the end of 2009.

A number of key elements of the operational restructuring of our Company were progressed in the year, including the sale of our Dubois Industrial and Auto Chlor businesses, the consolidation of Japanese sales and marketing functions, and integration to one legal entity, further transition to one centrally-managed European region, the outsourcing of certain general ledger accounting functions in western Europe, and continued progress on various supply chain optimization projects to improve capacity utilization and efficiency.

Head count reductions throughout the end of fiscal 2008 under the restructuring program are about 2,600, of which about 1,300 are related to cost reduction initiatives and organizational redesign, with the remainder related to the shrinking of the service-oriented laundry and wear wash business in the US, and divestitures. These reductions are broadly in-line with our previously announced target of an overall 10% workforce reduction from the restructuring plan.

In 2008 the Company recorded $57.3 million in restructuring expenses consisting largely of severance costs, and $42.2 million of period costs in selling, general, and administrative expense related to restructuring actions. Of the amount recorded as period costs, $6.3 million related to long-lived asset impairments, and $2.6 million related to impairment of other tangible related noncash items. Of the total asset impairments $6.3 million were recorded as adjustments to depreciation and amortization, and are therefore not included in EBITDA.

Our other restructuring related period costs recorded in SG&A, include consulting and professional services, IT project costs, and human resource and employee benefits, such as retention, relocation, and outplacement. Cash spending for restructuring related activities totaled $77.4 million during the fiscal year 2008.

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 $60.1 million. This balance includes certain additional restructuring actions we identified, and in some cases implemented in the fourth quarter.

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 31, 2008, JohnsonDiversey's total debt balance was $1.1 billion. We held cash and cash equivalents of $107.8 million, as compared to $97.1 million at December 28, 2007. The increase was primarily due to cash generated from operations, including the impact of reductions in working capital, and proceeds from the sale of the Auto Chlor and the Dubois businesses. This cash generation was partially offset by capital expenditures of $121 million, and dividend payments of $43.4 million to JohnsonDiversey Holdings, that were used to fund the semi-annual interest payments on the senior discount notes issued by JohnsonDiversey Holdings.

As previously mentioned, the Company's cash flow was enhanced this year by a reduction in working capital. During 2008 the Company implemented programs designed to improve receivables and inventory turnover. As a result of these efforts, we made significant progress in the second semester reducing net working capital to 13.4% of net sales, adjusted for sales agency fee income, and excluding those receivables held by our conduit under our securitization program, the lowest in the Company's history.

These working capital initiatives are continuing in 2009, and are expected to provide further cash flow benefits. However, due to the seasonality of our business, we would expect our working capital balance to increase during the first half of the year, and then decrease during the second half.

In addition, in December 2008 we transferred $49.5 million into irrevocable trusts for the settlement of certain obligations, associated with the restructuring program that Todd mentioned previously. The majority of this cash will be used in 2009 to settle those obligations. This cash is classified as restricted cash on our balance sheet.

Usage under the securitization program at December 31, 2008, was $43.7 million. This program was successfully renewed this year, and the receivables of JohnsonDiversey Canada were added to the program. JohnsonDiversey Holdings' consolidated debt balance at December 31, 2008, was $1.5 billion, which includes $389 million of senior discount notes.

As of December 31, 2008, the Company had total credit availability of $170 million under our 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 assess 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 into 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 non-financial matters. Our contact information can be found on our website.

We will now move on to the question and answer session. Cindy?

Thank you. (Operator Instructions). Our first question is from Michael Levine of BB&T. Your line is open.

Good morning.

Good morning, Mike.

Since you restated '07 results for the sale of businesses, could we get what the Q4 sales and gross profits were?

I think the easiest way to talk this is through the course of the year in terms of our core business, and if you look at JD's progress through the quarters, we have held about 4% top line growth through each of the quarters at the year.

The dollars themselves are 792 million of sales, and 299 million of gross profit dollars.

Okay. And do you expect in the 2009 restructuring, can you quantify the results you expect out of that for '09 in addition to what you have already saved?

We usually don't like to give out such numbers, but suffice it to say, it is not a big expectation, it is in the magnitude of 20-some million dollars.

Okay. And I have seen some projections that caustic soda pricing is supposed to decline quite a bit, and as one of your major raw materials, can you give me an idea of either spend, percent, how to quantify how big caustic soda is as a percentage of cost of sales?

If we look at our material cost increases they definitely peaked in quarter four, and our pricing will peak in quarter one of 2009. The caustic chelates and phosphorus based products, phosphoric acids, are the primary issues that we see moving forward, while there are some reductions around the world, we still see shortages in supply, particularly in certain geographies, for example, in the UK, where we have one of our primary plants.

Joe, do you have a number for the percentage?

About half of our materials cost inputs are non-oil related. Those materials are impacted by both the production availability from our suppliers and alternative uses, so farming, auto, et cetera.

Prior, you said of cost of sales about 70% variable. Is that still about right, or maybe it changed a little bit with the raw materials going up?

Yes.

So 70 is about right?

Still in the 70 to 75 range.

Okay. Are you doing anything, or is the financial health of your customers a bigger issue now, and are you doing anything special to monitor that?

This is Todd Herndon, Corporate Controller. As part of our working capital efforts, on a monthly basis clearly we are looking at the quality of our AR, in terms of what is current within 30, as well as what's over that, and part of our significant improvement in our efforts in collections is to try to work that balance down, so by definition, we hope to mitigate the risk of future credit risk.

As of 12/31 we think we were adequately reserved for credit risk as it relates to our history, certainly the current financial market conditions would dictate that we keep a very close eye on that, and we are on a monthly basis monitoring that. We have established a monthly program management office that monitors the quality of credit risk across our largest customer base along our geographic segments, and have a pretty good handle on where we think our exposures are.

Okay. A couple more. If I can just back up to the sales question one more time, you mentioned destocking, and I have heard this a lot, that inventories have been drawn down, and that has kind of affecting sales for a lot of suppliers. Could you just maybe comment on that, and especially if you see a difference between North America and Europe?

Our distributor business is a fairly substantial part of our overall sales. What we saw primarily first in North America, and then spreading across the world is a drawdown of inventories pretty broadly, regardless of the classes of trade the distributors were serving in, and at the same time, we made some specific choices within JohnsonDiversey to mitigate our risk, by also working with distributors to draw down inventories, and we can see that in our Q4 results in particular, where pricing ended up being more than 100% of our growth in that quarter, where as normally we would expect to see 1 to 2% of organic growth in an average quarter. We actually went negative in organic in Q4.

Okay. And is Europe kind of, we heard from other people they think North America has kind of played out from destocking, but there is still more to go in Europe. Is that a fair representation for you guys?

Europe is a more direct business than JD than North America. Of course, North America is significantly through distribution for us. We took actions at the end of 2007 in our distributor heavy countries to reduce inventories, and we took actions again in 2008. I can't predict what will happen in the world, but we don't believe there are pockets of significant inventory remaining in JohnsonDiversey's distribution model today.

Okay. And not that I believe the Unilever put is any kind of a risk to you guys, but it seems like one deadline has maybe passed, with no action on their part. Does it expire at some point, and what happens to that, and maybe by 2010 when it seems to be the ultimate deadline?

This is Joe Smorada. What does expire, if you will in a matter of speaking, is their hard put, which is exercisable in May of 2010, and this is all spelled out as I am sure you know in our shareholder's agreement, which is part of our SEC filing, and at that point what you get is public knowledge is that there are a couple of things that could happen upon expiration were it to reach that point.

One is that you would assume that there would be a put, but we don't know that unequivocally. That put could be settled out in any number of ways going into the capital markets. That put can also be converted over 120-day period, if Unilever chose to do so, into a promissory note. So all of these things again are available to the readers through the SEC filings, and at this point there has been no put to the Company at this time.

Okay. So I guess what I was getting at is there are no discussions to maybe handle it before they get to a put, and renegotiate it or anything?

We are always in discussions.

Okay. And any discussions on your credit agreement coming up next year? Have those started or not yet?

Sure. Firstly, we have Lori and I amongst others always have regular meetings with our major institutions and our rating agencies, and we are certainly well into meetings with them, and have been since the beginning of the year. Yes, we are very conscious of the state of affairs in the capital markets.

Right. Okay. And just finally last two, are there any out stabbing letters of credit, or balance on capital leases at the end of the year?

Yes. We have letters of credit of about $5 million. That is why of our $175 million revolving credit facility, 170 million of that is available.

Okay. And are there any capital leases then?

Yes. We have $2.6 million of capital leases also at this time.

Okay. That is it for me. Thank you very much.

Thank you.

Our next question is from Jack Wagner of MJX Asset Management.

Yes. In the 10-K under the indebtedness and credit agreements, it says that there are no direct borrowings under the revolving credit, but when I look at the schedule under structure and borrowings, you have 26,448,000. Can you explain that?

Yes I can. We have working capital lines around the globe. As you know, we are in 160 different countries around the globe, and it is more efficient for some of our larger operating companies to have small working capital lines around the globe.

What is the total amount of your working capital commitments?

As you can see in our senior secured credit agreement that we have with our agented bank Citibank, we can have up to $150 million worth of working capital loans around the globe.

Of that 26 million is outstanding?

That is correct, at the end of the year.

Also, it says there is 100 million delayed draw that is due in 2010, and $175 million euro RC that is maturing in 2010. However, when you look at the schedule maturities of long term borrowings, you only show about 105 million maturing.

What we are showing there, is we are showing the delayed draw term loan, which is currently at $98 million, and we are showing one long-term piece that is in Japan, at one of our larger operating units. The 175 is the revolver. It is unutilized at this time.

Okay. But if I was to add that, there would be 275 million of say maybe of commitments.

Of commitments, yes.

All right. Thank you.

That is a dollar based facility by the way. I thought I night have inadvertently heard you say euro.

The revolving credit facility is a USD revolving credit facility, and as Joe mentioned, we have been speaking with our bank group and others, regarding the tenor of those facilities.

Do you have any hedging programs in place, where you hedge some of your input costs?

We have hedging programs in place mainly for FX and for interest rate. We do selective, but very little on some of our large raw material buys, because there are very expensive devices out there, and we are not actually utilizing the barrels of oil. We are using derivatives of them, and other derivative items that do not have what are called clean play hedges in the field.

Okay. Thank you.

You are very welcome.

Our next question is from [Matt Ragsdale of Elis] Partners.

Hi, Matt.

How are you?

We are great.

Great. Thank you for hosting the update call. Just a follow-on from some of the questions that were asked by the first person. Thanks for giving, I think you gave the '08 fourth quarter numbers of 792 on revenues, and 299 on gross profit, and you said that basically top line was up 4% pretty much through all of the quarters. Do you have the '07 fourth quarter numbers, rebased for the divesture that occurred in I believe September?

The '07 numbers as stated were 812 and 343 respectively.

Yes.

And those are unadjusted, however, for all of the others, so we would have to give you offline the response to that question.

Okay. All right. I will follow up offline and try to get the rebased numbers, and then in terms of you commented on a 20 million number of regarding restructuring in 2009. Is that what you believe the additional cash cost to the restructuring will be in 2009, or is that savings from actions that you are going to take in '09?

The 20 million is just one part of a four-pronged savings program, which I think is just too strongly forward-looking to honestly to give those numbers, so think of it as a part. In terms of the cash costs that we would expect to go out, think of it in the context of perhaps two to three times the number I mentioned.

Two to three X. All right. That seems fairly reasonable. And in terms of how it looked for this year, you said that organic growth went negative in the fourth quarter. Can you tell us what what extent organic growth went negative, ex price increases went negative in the fourth quarter, and to what extent you are seeing trends either at the same level, or better or worse into 2009?

Yes. This is Ed. If you look at the history of the year, it is really a tale of two semesters, and the first half of course we were planning on a set level of pricing, and then of course materials went crazy in May, June, July of the year, so we had set price increases out in the first and second quarter. We added a second round of price increases in the third and fourth quarter, and then a third round of price increases, generally effective early in the first quarter of the year.

What we saw through the course of the year is our revenue from price, our growth from price accelerating each quarter, and volume holding at about where it has historically through to the fourth quarter. And then in the fourth quarter we saw a pretty significant drawdown in distributor inventories, and we believe that is the majority of net volume decline.

Secondly, we saw a number of our food and beverage customers shut down plants at the end of the year for two to three weeks. In the first quarter obviously we don't make forward-looking statements in these calls, and we are in our budgeting being very prudent about what we see coming in the year, until we know more about the global economy, but we are planning in 2009 that pricing will be a majority of our incremental gain through the course of the year.

Okay. And you have the specific number for what the fourth quarter organic growth, or organic decline would have been excluding price increases?

Yes. Think of it as a range of 1 to 1.5% in volume decline, offset by 5 to 6% of pricing.

Okay. That is very helpful. Thank you. That is it for me. Thanks a lot, guys.

Sure.

Our next question is from [Yahin Chen] of MetLife.

Hi. I am sorry if you mentioned this before. Did you talk about cash contributions to the pension fund in '08, and what you expect in '09?

We did not cover that yet, but what we have done is in 2008 we contributed 44.5 million to our pension plans, and we expect for our defined benefit plans to put in between 34.3 million to 42.1 million, and this will keep us in compliance with all of our funding requirements in all of the countries in which we have plans.

Great. That is all I had. Thank you.

Thank you.

Our next question is from Bob Franklin of Prudential Financial.

Hi. On the cash flow statement for the year you put up 5 million of cash, and you spent on CapEx 110, 111 or so, and I guess you said that 77 million of the cash flow from operations outflow I guess was for the restructuring program, and if you are going to spend another whatever the number was you gave us, two or three times 20 million in '09, is it fair to assume you will be tapping the revolver at this time next year?

Firstly, do I expect that we would be in and out on occasion in the revolver, the answer is affirmative, yes. Have we been in the past, yes. So we do occasionally do use the revolver, and so that is not a particularly nefarious thing we don't think. Would you repeat your other question, please?

I am looking at the cash flow that you spend.

Right.

And unless you sell something off this year, you are going to need more money than you are cranking out.

I think the other part of what is not necessarily visible, or it is not coming through clearly, is that the end of last year, we took the proceeds from the sale of Dubois, and used our option to redeploy those numbers to pay for the balance of the restructuring requirements, so you will see restricted cash on the balance sheet to something in the magnitude of round figures 50 million, but we had a $62 million accrual that was available to do that. So it is not like we are going to have to use the revolver to pay for that 50. That 50 has already been set aside in an irrevocable trust to eradicate $50 million worth of restructuring. So in a manner of speaking you could take and add, you could think about $50 million of cash is already there to pay for the 50 million to 60 million, which is the two to three times I said times 20.

Okay. So if we take the 5 million that you generated last year, add back 50 million, that is 55, and unless you drastically improve, which you have done a great job so far, or you drastically cut your CapEx, it is getting tight?

Let me just suggest that we are absolutely managing on the fact that it could be a very challenging year, and tightness is in our view.

Let's add some commentary though, around CapEx in particular, that is one thing that is fully in our control at JohnsonDiversey, and so as we attacked working capital last year and will continue to do so this year, we are also taking a hard look at our CapEx spend, a significant portion of that is related to pumps and feeders, that dose and dispense our products, tight control over where and how we place those, and when we upgrade those pumps and feeders is pretty important, and then we have taken a look at every CapEx investment that we are making around the world, and determining whether it is necessary to do now, so we have some pretty significant controls in place in our team right now, to reduce the amount of cash going out the door, as well as the 2009 close of the three-year restructuring programs comes through, of course one-time costs will dissipate moving forward.

Okay. Thanks.

We have time for one more question from [Roman Katois] of ING.

Hi, guys, thank you for holding the call. Going back to the two numbers that you gave at the beginning of the Q&A, can you give us an idea of what was Q4 '08 EBITDA numbers, and how this compared to the Q4 '07?

No. I am sorry. That is not public information that we make available, and we have not historically made that number available.

Okay. Second question regarding the cash balance went from 182 million at the end of Q3, to 108 at the end of Q4.

That is correct.

You have around 50 million set aside for restricted cash accounts. Can you elaborate on the difference on the GAAP beside that?

We did a significant portion of that would be probably some of the pacing of the CapEx, I think, in the year, where we had quarter four investments in CapEx, that would have drained a good portion of that. That would probably be one of the primary drivers.

And we also did do some debt service that occurred, especially in fourth quarter. We pay for all of the interest expense for all of our facilities that are listed, plus we also do the dividend up to the holdings company, to pay for the interest on the bonds that are held up at JohnsonDiversey Holdings.

And as far as the working capital management, did you observe more like a usage or source coming from that between Q3 and Q4?

Between Q3 and Q4 we actually saw a nice source. As we mentioned, we have really put a lot of wonderful effort into watching what is happening with our receivables and inventory turns, and we have had a very successful working capital program in this Company, and we are going to continue working this through 2009 and our future.

Thank you. The last question is regarding the status on your covenants. Are you guys expecting to be in compliance at the end of 2009 with your covenants?

Yes, we do.

Thank you. That is it.

Thank you.

Thank you. This will conclude our call for today. We wanted to thank you very much for your time, your interest, and your support, and we look forward to speaking with you all soon. Have a very, very pleasant day.

This concludes today's teleconference. Thank you all for your attendance. You may disconnect at this time.