宣偉 (SHW) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Sherwin Williams Company fourth quarter 2005 earning results conference call. Today's call is being recorded. At this time for opening remarks I would like to turn the call over to Conway Ivy, Senior Vice President, Corporate Planning and Development. After his remarks, Chris Connor, Chairman, President, and Chief Executive Officer; Sean Hennessy, Chief Financial Officer; John Ault, Vice President, Corporate Controller; and Bob Wells, Vice President, Corporate Communications and Public Affairs will be available for questions. Gentlemen, you may begin.

Thank you for joining us today for our review of fourth quarter and full-year 2005 results and our expectations for 2006. This conference call is being webcast simultaneously on the Company's website, www.Sherwin.com and on VCall's investor calendar at www.investorcalendar.com. An archived replay of this webcast will be available at Sherwin.com at approximately two hours after this call concludes. The archived replay will be available until Wednesday, February 8, 2006 at 5:00 p.m. eastern time.

Before proceeding, I would like to remind you that during this conference call we will make certain forward looking statements as defined under the U.S. federal security laws with respect to sales, earnings, and other matters. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events, or otherwise. A full declaration regarding forward-looking statements is provided in our earnings release transmitted earlier this morning. After the review of our fourth quarter and full-year results we will open this session to questions. In order to allow more time for questions, we have provided balance sheet items and other statistical data on our website, www.Sherwin.com under Investor Relations, January 26, press release.

First, I would like to review consolidated company performance for the fourth quarter and full year 2005. Sales for the fourth quarter of 2005 were up 14.1% to $1.71 billion. For the full year sales grew 17.6% to $7.19 billion from 6.11 billion in 2004. The effect of acquisitions on sales was negligible in the quarter and increased consolidated net sales by $369.7 million or 6% in the full year. Volume increases for the quarter and full year came primarily from strong architectural paint sales to contractors and improving sales and market conditions in industrial maintenance, product finishes, and international sales in the automotive finishes and international coating segments.

Gross margin in the fourth quarter decreased to 43.4% of sales versus 44.3% in the fourth quarter of 2004. For the year, gross margin declined to 42.8% of sales versus 44.2% in 2004. A reduction in gross margin for the quarter and the full year was due primarily to raw material cost increases that were partially offset by price increases and better factory utilization resulting from higher volume. Selling, general, and administrative expense as a percent of sales for the quarter decreased to 34.4% from 36.2% in the fourth quarter last year. For the 2005 year to 32.4% of sales from 33.8 % in 2004 primarily due to the strong sales increase. Profit before tax in the fourth quarter increased to $110 million from a $101 million in 2004. Improved operating results in the fourth quarter this year were partially offset by a goodwill impairment charge of $22 million due to an anticipated reduction in business with a major retail customer beginning in 2006.

For the year profit before tax increased 13.1% to $656.2 million, from $580.2 million last year. Interest expense for the year increased by $9.6 million to 49.6 million. Diluted net income per common share for the fourth quarter was $0.54 per share compared to $0.57 in the fourth quarter 2004. As a reminder, fourth quarter 2004 results were favorably impacted by approximately $0.08 per share due to a reduction in the effective tax rate. Improved operating results in the fourth quarter this year were partially offset by the previously mentioned goodwill impairment charge in the amount of $0.10 per share. Acquisitions had no impact on diluted earnings per share in the fourth quarter of 2005. For the year, net income increased 17.8% to $463.3 million from 393.3 million in 2004. Diluted income per common share increased 20.6% to $3.28 per share from $2.72 per share in 2004. Acquisitions increased diluted net income per common share approximately $0.14 per share for the full year 2005.

I would now like to review our performance by segment. In our paint store segment fourth quarter net sales increased 16.2% to $1.18 billion. For the year, net sales increased 21.9% to $4.85 billion from $3.98 billion in 2004. The acquisition of Duron Incorporated added approximately 6.7% to the full-year net sales. Comparable store sales increased 14.8% in the quarter and 13.6% for the year compared to prior year.

Regionally in the fourth quarter, southwestern division led all divisions followed by southeastern division, midwestern division, and eastern division. In the fourth quarter operating profit for the paint store segment increased 22.9% to $141.8 million. For the year, operating profit increased 23.4% to $592.5 million. Strong sales volume and expense control in the quarter and throughout the year was partially offset by rapidly rising raw material costs.

Turning now to the consumer segment, external net sales in the consumer segment increased 11.4% to 291.3 million for the fourth quarter and increased 7.7% to $1.4 billion for the year versus the same periods last year. Acquisitions increased consumer segment net sales in the quarter by 2.2%. Fourth quarter net sales last year were reduced by a charge equal to 3.9% of sales for the impairment of a customer sales incentive program. The remaining increase in fourth quarter 2005 resulted from an increase in buying activity by existing customers following inventory adjustments in the prior quarter. For the year acquisitions increased net sales by 7.7% compared to 2004. Operating profit for the fourth quarter decreased 14.1 million to $200,000. For the year, operating profit decreased 18.6 million or 9.9% to $169.1 million. For the quarter and the year operating profit was adversely impacted by increased raw material costs and the $22 million fourth quarter goodwill impairment charge.

For our automotive finishes segment, net sales in the fourth quarter were essentially flat with last year at $131.8 million. Sales for the year increased 7.1% to $550.8 million. The fourth quarter sales comparison was negatively impacted by the disposition of the majority interest in a joint venture in China during the third quarter of this year. This joint venture contributed approximately 7.1 million to net sales for the segment in the fourth quarter of 2004. For the year, the sales increase was driven by new product line introductions and strong international sales. Currency exchange fluctuations increased sales by 2.8% for the quarter and the year. Operating profit for the automotive finishes segment increased 1.1% in the fourth quarter to $15.2 million. The disposition of the China joint venture had a negative impact on the fourth quarter operating profit comparison of 8.7%. Operating profit for the full year declined $800,000 or 1.4% to $57.2 million. This includes a third quarter 2005 loss of $7.9 million sustained in the disposition of the China joint venture that was only partially offset by operating profit of the joint venture. Currency exchange fluctuations favorably impacted operating profit in the quarter by 6.1%, and 5% for the year.

Turning now to our international coating segment, fourth quarter net sales increased 19.1% to $101.8 million from 85.5 million in the fourth quarter last year. Sales for the year grew 21.8% to $388 million. Favorable currency exchange rates increased international segment sales 5.9% in the fourth quarter and 9.8% in the full year. Operating profit for the quarter was $7.8 million compared to 7.6 million in the fourth quarter of 2004. Operating profit improvements in South America were partially offset by declines in the United Kingdom. Operating profit for the year grew to 23.6 million from 18 million in 2004. An increase of 30.6%. This was primarily the result of higher sales volumes, operating efficiencies resulting from manufacturing volume increases, tight expense control, and favorable currency exchange rate fluctuations in South America.

I would now like to comment briefly on our balance sheet items. You will find more of the information on our website under Sherwin.com Investor Relations press releases. The Company's financial condition improved in 2005, giving us continued capacity to invest in our business and service our debt. Total debt outstanding was 621.2 million at December 31, 2005, versus $738.3 million at the end of last year. Total debt as a percentage of total capitalization decreased to 26.2% in 2005, from 30.9% at the end of 2004. Net operating cash flow in 2005 helped provide the funds necessary to support capital expenditures of $143.1 million, cash dividend payments of $113.6 million, and treasury stock purchases of $360.7 million during 2005.

During 2005 the Company purchased 8.1 million shares of its common stock in the open market. Of that amount, 2.1 million shares were purchased in the fourth quarter of 2005. The purchase authorization remaining at the end of 2005 was 18.4 million shares. We intend to purchase shares of the Company stock for treasury in the open market from time to time as we believe our stock is a good investment. In November of 2005, Standard & Poor's upgraded Sherwin-Williams debt rating to A plus from A and in December Moody's changed our outlook on our company to positive from stable. Both of these moves were the result of our strengthening financial position, their confidence in management and their outlook on our prospects going forward.

Looking now to 2006, capital expenditures for the year will be approximately $160 million. The predominant share of the incremental increase in capital expenditures will go towards expanding our manufacturing capacity, including the completion of a new emulsion plant in the western United States. Depreciation will be about $133 million versus 120 million in 2005. And amortization will be 24 million versus 23 million in 2005.

I would like to now give you a brief update on the status of our lead litigation. The retrial of the State of Rhode Island's public nuisance case against former lead pigment manufacturers began in November of 2005. As a remainder, this trial will cover all issues and damages in the case including rather old lead paint on structures constituting a public nuisance and, if so, whether each defendant contributed to this nuisance, whether the state incurred damages, what the remedy should be and whether punitive damages should be assessed. A verdict in the case requires a unanimous decision by a six-member jury. We believe the State is close to resting their case. After that, the Court will consider various motions that may be made by the defendants and the plaintiffs before the defendants proceed.

In the New Jersey case, the Appellate Court had previously ruled the plaintiff cities could proceed in their public nuisance claims against former lead pigment manufacturers. The defendants have asked the State Supreme Court to review the Appellate Court ruling and the Supreme Court has recently agreed to do so. We do not know the timing of this review by the New Jersey State Supreme Court. In St. Louis, the defendant's motions to dismiss the case in the city of St. Louis public nuisance case against former manufacturers of lead pigment and lead-based paint, was granted by the Missouri Circuit Court. So that case is now dismissed and we have to see what, if anything, the plaintiffs may do in regards to that ruling. As we mentioned in the past, a case in California that was dismissed by the Trial Court is under appeal to the higher State Court. Oral arguments have been made and it is possible that a decision on this appeal could be rendered before the end of this quarter.

As a reminder, to date we've had less than 100 lead litigation cases filed since 1987, excluding the most recent cases over 85% have been dismissed, none have ever been settled and only one, Rhode Island, has ever come to trial. This now completes my review of our results for the fourth quarter and full year 2005, and now I would like to turn the session over to Chris Connor who will make some general comments and highlight our expectations for 2006. We will then open the call to questions. Chris.

Thanks, Conway, good morning, everybody, and thanks for joining us today. For those of you who listened in on our year end conference call last year my remarks this morning may sound familiar. For the second consecutive year we achieved double digit growth in revenue and volume. Last year in this call we reported annual sales above the $6 billion mark for the first time in our company's history. This year we celebrate the first $1 billion annual sales increase in our history, closing the year at over $7 billion in revenues. Our paint store segment posted a second consecutive year of double digit comp store sales growth, consolidated net income for the year increased more than 18% and earnings per share more than 20% to a record $3.28 per share. We're very proud of this performance particularly in light of the difficult comparisons we faced from 2004 and the unrelenting raw material cost pressures that have plagued our industry over the past eight quarters. I think our 2005 results are a testament to the hard work and dedication of our 30,000 employees around the world.

Conway reviewed the numbers with you. I'd like to take a few minutes to highlight some of the numbers behind the numbers, because I think they help to illustrate the strength of our results for the year. For example, EBITDA earnings before interest, taxes, depreciation, and amortization increased more than $100 million in 2005 to just under $850 million for the [INAUDIBLE - audio difficulties] a reflection of our success in flowing through the strong incremental sales from our paint store segment and of our progress to date and integrated to two large acquisitions we completed late in 2004. Although the latter will not repeat in 2006, we remain confident in our ability to continue to drive earnings improvement through strong sales and volume growth, prudent pricing actions and tight expense controls. However, our outlook is tempered somewhat by our view that raw material cost pressures will persist at least through the first half of the coming year.

Another number that stands out in my mind is our working capital ratio. Defined as accounts receivable, plus inventories, plus accounts payables to sales, our working capital rates improved to 12.5% in 2005 from 13.8% in 2004. These rates were based on 12 months of sales and average working capital. You might recall our working capital increased in 2004 to 13.8% of sales from 11% in 2003, due primarily to the incremental working capital from the acquisition of Duron paint and Paint Sundry Brands. Our significant improvements this year, primarily the inventory days in payables are further evidence of the strides we have made in integrating these two acquisitions. Going forward we expect working capital to continue to improve as a percent of sales. However, the rate of improvement is likely to moderate as we approach our optimal range of around 11%.

On the strength of our earnings performance and working capital management in 2005 we generated $717 million in net operating cash from operations, roughly 10% of sales. Effective cash management is a longstanding discipline of our management team and we're equally disciplined in how we deploy the Company's cash to create value for our shareholders. For example, we will continue to invest cash to grow our capacity and expand our distribution. In 2006 we're excited to complete the construction and begin operation of a new emulsion plant in the western United States. We will also accelerate our pace of organic store growth. Paint store segments ended 2005 with 3,078 stores in operation in North America compared to 2,983 stores at the end of '04. During 2005 we opened 100 new stores and closed 5 resulting in a net increase of 95 stores for the year. This year, we will continue to aggressively pursue our goal of 3% annual growth in store count opening in the range of 100-plus net new stores.

We're equally committed to returning a portion of the cash we generate to shareholders through treasury stock purchase and dividends. Conway already commented on our share repurchase activity last year bringing in 2.1 million shares in the fourth quarter for a total of 8.1 million shares for the year. 2005 marks our 27th consecutive year of dividend increases, as well. A string we intend to continue. In 2006 I will recommend to our Board of Directors a continuation of our policy of paying out 30% of prior year's net income in the form of a cash dividend. This will generate a quarterly dividend of $0.25 per share or $1 per share for the year, an increase of 22% over the $0.82 we paid out as a dividend in 2005.

Looking forward to 2006 we anticipate the first quarter net sales will increase in the high single to low double-digits versus the first quarter of 2005. We estimate the diluted net income per common share in the first quarter will be in the range of $0.56 to $0.61 per share compared to $0.58 per share earned in the first quarter of 2005. In the first quarter of 2006, the Company will record an additional expense related to its stock option plans and we expect our effective tax rate to be higher than in the first quarter of 2005. These items will have a combined effect on diluted number per shares of $0.08 per share in the quarter. For the full year 2006, we expect net sales will increase in the high single to low double-digits over 2005. With annual sales at that level we anticipated diluted net income per common share for 2006 will be in the $3.60 to $3.75 per share, compared to $3.28 per share earned in 2005. Our expectations for '06 includes estimated $0.08 per share charge for the additional expense relating to stock options, we expect our annual effective tax rate in 2006 to be slightly higher than the annual rate recognized in 2005. On Tuesday, May 2, 2006, we will host our annual financial community presentation at our headquarters location in Cleveland, Ohio. The morning program will be followed by a reception and lunch where you'll have an opportunity to meet with all of our operating level management. We'll be sending out invitations and related information in a few weeks.

Fortune magazine published their 2006 list of America's 100 best companies to work for. And we were pleased to once again to be named to this list. This year Sherwin-Williams climbed to the number [INAUDIBLE - audio difficulties] spot up from 99 last year. Approximately 1,500 companies applied or retruded to participate in the selection process. To us, this is more than a popularity contest. Our continued growth depends on our ability to attract and retain the nation's best and brightest talent. [INAUDIBLE - audio difficulties] of four year college campuses across the country, being named to this prestigious list carries significant weight with prospective employees and affirms that our current employees recognize the quality work environment we have all worked so hard to create.

Before I open up the call for questions I'd like to take a moment to analyze the contributions of a valued member of our management team over the past quarter century. Since 1979 Conway Ivy has been a valuable member of our executive management team and for many of those years was the voice of the Sherwin-Williams Company to the investment community. During that time Conway has brought a reputation for credibility and integrity that has served as the model for our company. I'm sure that all of you on this call who know Conway appreciate his straightforward manner and intellectual honesty.

For the past three years Conway has been grooming Bob Wells to assume responsibility for Investor Relations for our company. Following this reporting period, Bob will take over Investor Relations and Conway will shift his full attention to managing our corporate planning and development activities as he winds down his impressive career. Conway will be with us on May 2, on our financial community presentation. He will have the opportunity to express his appreciation to all of you in person. I wanted to take this opportunity to thank Conway on behalf of our company and its shareholders for his many contributions in the area of Investor Relations. I'd also like to thank him personally for the sage advice and counsel he has provided me in my current role. I know Conway will continue to bring significant value to our shareholders just as he has for the past 28 years. With that we'd be happy to take your questions.

[OPERATOR INSTRUCTIONS] First question is coming from Jeffrey Zekauskas from JP Morgan.

Good morning. This is Silka Acuc] for Jeff. Can you quantify the impact of pricing and volume for the Company as a whole in the quarter and can you also break it out for the paint store segment and the consumer segment?

Well, in total we really don't break it out by segment but we will comment in total. If you take a look at our fourth quarter gain and for the year approximately 50% of it was volume and 50% of it was price.

That was really in paint stores.

Right. We don't break it out for the full company, because after the acquisition of Paint Sundry Brands you start getting involved with the units and for a while here it is hard to break out units versus gallons. So what we try to do is basically just give you a flavor for the source.

Can you talk about what drove the strength in the paint business, in the stores business?

Yes. I think, earlier on the call I -- last week I was asked whether weather had a impact on our sales, but in terms of looking at our exterior paint sales and interior paint sales were both very [INAUDIBLE - audio difficulties] going through the quarter. I think, as we mentioned, I think in terms of the price volume mix that Sean mentioned, that has been pretty consistent, so that were the underlying facts to the strength. However, the consumer segment and international segments ended up with much stronger volume increases than we had anticipated, and part of the volume increases in the consumer segment, as I mentioned, were really due, we think, to the order patterns that were placed, I think, Sika, if you recall in the third quarter, we mentioned there was some inventory corrections going on and I think that came back in the fourth quarter.

Yes. Thanks very much.

Yes.

Our next question is coming from Armando Lopez of Morgan Stanley.

Hi, good morning, everybody. Just a couple of quick questions. First, I was -- in the quarter looks like there was the provision from environmental reserves of about 12.6 million. Could you just talk a little bit about that? And because I thought we had taken a charge or a reserve in the second quarter of this year.

We took about $12.9 million back in the second quarter, an additional charge in the fourth quarter based upon some new facts that we received during the fourth quarter as these investigations and remediations are going on at the operating sites. Those numbers do change from time to time.

Okay. All right. So like looking for forward, then, would you expect it to be like a 24, is that the run rate going forward or?

I would think 24 million was unusually high for us and expect it to drop back into a more normal rate.

Okay. And then, second, on the consumer business, you had mentioned product ordering patterns and stuff and you had seen some pull-down of inventory, I guess, in the third quarter, and seeing the reordering now in the fourth quarter. How are inventories in the channel right now? What is your sense.

My sense is that the inventories in the channel have leveled out and if you take a look at the third and fourth quarter combined, as well as how the January is starting out I would tell you that it's I would say it is normal, normalized.

Okay. And with respect to the lost or -- the charge related to the lost business at a large retailer, the consumer business showed year-over-year growth excluding acquisitions this quarter. I mean, should we continue to expect that in 2006, or will there be periods where we see like negative comparison as a result of this business?

Well, I think in, we will -- I think when I spoke with everyone after the pre-earnings release, I indicated we would give you more color on that. The portion of the business that was transferred from us was some private label. Not all of the private label business that we had at Wal-Mart. Wal-Mart still remains a very significant customer for us. We still have important growing branded businesses there. The amount of the sales impact going forward from this transferred business would be approximately 25 million in annual sales or the sales for the business transferred sales in 2005. Looking out, we would look for the consumer segment for the year to have a sales increase in the low single digits. However, because it will take some time for that transferred business to cycle out, we would expect consumer segment sales in the first quarter to be low to mid-single digits.

Okay. And then one last one. In terms of like the raw material environment, you were expecting I think 15 to 18% for this year. How should we think about that for 2006?

Our estimate for industry, raw material costs for the full year 2006, versus 2005, would be that those costs would be up 7 to 10%. And I think we're seeing better supply availability as a lot of the petrochemical complexes that were impacted by the hurricanes on the Gulf Coast, they're coming back on stream. The TIO2 supply should improve as a major TIO2 plant comes back on stream. But even with those factors we expect year-over-year increases to be in the 7 to 10% range.

Okay. Great. Nice quarter. Thanks a lot guys.

Thank you, Armando.

Our next question is coming from Chuck Cerankosky of Key McDonald.

Good morning, everyone, great quarter, great year. First question is, Chris, can you talk about customer price receptivity, or receptivity to price increases among your various customers? And would you say you did better in the second half of the year than you thought given some of the shocks from things like the hurricanes?

Yes. Because we commented throughout our calls last year, you're aware that we had put in a round of price increases in the first quarter. I think we had commented as the year went on about our penetration, on those price increases getting up into the 50 to 80% range I think was the last guidance we gave. Fourth quarter of this year we went out with the next ground, some of those are just going in as we speak and we will have to see how they go as time goes on.

Do you see specifically for the consumer division, Chris, did you see any ordering in the fourth quarter that might have been in anticipation of price increases?

No.

So there was pretty goody demand?

Yes, as Sean commented, we saw the third quarter slow down the fourth quarter rebound and into the first part of this year and as he commented on normalizing inventories we would be able to track out the door performance at these retailers versus their ordering and they're in line with where they should be right now.

Okay. And finally, any comment on the acquisition market. You guys probably aren't the only one in goody demand trends for paint. What do you think some of the sellers are expecting now for pricing as you look at acquisitions?

Well, Chuck, the sellers always pick the maximum transaction price. That is their expectation. But there is a deal flow right now, and with the market being pretty good in 2005, there is some of owners are considering the sale of their business. In terms of the impact on that, on the overall pricing I think it's really going to depend on each individual situation. And the nature of those businesses.

All right. Thank you.

Thank you.

Our next question is coming from Ivy Zellman from Credit Suisse.

Hi, guys. Actually it's Dennis McGill. Just a couple quick ones on follow-on questions. The guidance for '06 is it a similar between breakout between units and price as what you had commented on in the fourth quarter?

I think it's a little early to say that. We'll give you that color as the year goes on.

Okay. With respect to the trial, can you maybe talk about the plaintiff cases that are close to wrapping up. Has there been any evidence or witnesses that they've presented this time around that was not part of the initial trial?

I think in term of the initial trial was only on one aspect. It was limited to the question of whether lead paint was a public nuisance or not. The other aspects that were being considered in this trial were, of course, excluded from the first trial. So this trial really includes all of the traditional complaints that you would find in a traditional trial.

Okay. So there were additional witnesses on the plaintiff's side?

Oh, sure.

Yes.

If they do wrap up, close, is there any sense how long the defense would take if it does proceed on to the defense side and when we might get a conclusion to that?

Well, I think we believe that the State is close to completing their argument and I think we will wait and defer to see what happens on several motions and that and I think we can give better color to that probably after the plaintiffs wrap up their trial and we see what happens on some motions.

Okay. Do you have insurance-related to the trial at all? For the outcome?

We've never commented on our insurance position regarding this.

Okay. Just have one final one. If you could kind of talk about, we get a lot of questions with the home centers push into installation of a lot of product and depot's push recently into the professional side of the business. The question is always presented as to whether that is a challenge to you guys. I wonder if you wouldn't mind talking about how you view the home centers' push into some of the installation side of the business and why you would continue to have a competitive advantage with a lot of your contractors?

I think our approach, Dennis, has always been to recognize that each one of these 3,000-plus Sherwin-Williams stores enjoys literally hundreds of painting contractors in their neighborhoods that would consider that their place of purchase. It's been our decision not to go forward with an installed sale program because we support the selling efforts and business models, all of these independent painting contractors out there. We think the strength of that model in our community is the right way to approach this, and we'll just watch and see how these installed programs perform.

Okay. But you still believe, obviously, that your service levels is why you're able to keep that contractor in there as a competitive advantage as to why they would not be willing to or looking to go to a home scepter.

Service along with a whole host of other items, including the quality of the product, the caliber of the people, credit policies, all the things that we've gone through over the years with you.

Very good, guys. Congrats to you Conway.

Our next question is coming from Eric Bosshard of Midwest Research.

Good morning, guys. It's actually Mark Hrbek stepping in for Eric. Most of the questions have been answered but I was just hoping you guys could maybe comment a little bit more on your overall margin expectations for 2006. What should we expect for growth and operating? And then within that, what are your keys to achieving the margin targets?

Well, let me start with the gross margin first for you, Mark. When we take a look at our full year gross margins we're anticipating that our 2006 growth margin will be slightly above the gross margin we reported in 2005 of 42.8. So with the pricing actions we've taken, we believe we're going to be up slightly. When you look at the margins, in total we believe our margins will be, as always, we're trying to improve our margins by each segment and by total and we believe our margin in total will be up.

Okay. How about -- can you guys speak in terms of sales momentum thus far in the first quarter? How it compares to what you saw in the fourth quarter.

I would tell you that we have seen nothing that changes the guidance that we've published today.

And I think what we're seeing so far this month in our forecast going into February, is really reflected in our -- the sales expectations we've given for the quarter.

Okay. One last question. As we move into a year of potentially softer housing activity, how should we, and how do you guys think about the cyclicality of your business?

Okay. When we talk about the housing market we've always reminded the Street to remember that 80 to 90% of all paint and coatings are used to maintain and redecorate existing structures. And the new construction market constitutes then the 10 to 20% that remains. Within that 10 to 20%, we have new commercial construction, as well as new residential construction. So the impact of this important customer base is relatively minor in the whole grand scheme of things and it would take a colossal fall off the map to have an impact. We don't see that coming. We think that we've been through the cyclicality of these housing issues many times over the last decades, and the Company has always managed to continue to increase sales, comp store performance and we're not particularly concerned about it given our guidance going forward.

Thanks gentlemen, congratulations, again.

Thank you, Mark.

Our next question is coming from Barbara Allen of Avondale Partners.

I wanted first to compliment you guys on the same-store sales performance. It has just been incredible and I compare that, was it 14.8%?

Yes.

To the home improvement retailers and clearly your strategy is working extremely well. Congratulations.

Thank you.

Secondly on a personal note I have to say, Conway, I'm devastated and the only thing that will keep my heart from breaking is if you dress up as a paint can at the investor conference. That will help me a little bit.

Well, Barbara, I'll still be here.

I'm looking forward to seeing you and thanks for all your help over the years.

Thank you.

So that was all I had was compliments and thank you for doing another great job. Appreciate it.

Thanks, Barbara.

Our next question is coming from Lawrence Horan of Janney Montgomery Scott.

What tax rate are you assuming in your guidance? Can you give us a narrow range?

I will give you a pretty good narrow range. We believe our tax rate for the year will be at 30% and we believe the first quarter will be at 30% and we feel each quarter will be pretty close to that. We know for a full year 30 and for the first quarter it's 30. If you want I'll just remind you, the first quarter last year was 22.4%.

I know. It was all over the map that quarter that is why I'm asking. The year before that it was 32.

Right.

And so what have you done to manage your lower tax burden?

I think we have looked at just different tax investments and just structuring different things we used the Homeland Act to our advantage and so forth. So we feel pretty good about that tax rate.

Do you think it would be sustainable in years beyond '06?

I believe that we will over -- will be in the low 30's.

And going beyond 2006.

Okay. Thanks a lot.

Our next question question is coming from Steve O'Neil from Hilliard Lyons.

Good morning, gentlemen, great quarter.

Thanks, Steve.

Just a couple of housekeeping items. Could you give me the after-tax impact of the -- in dollars of the $22 million charge. Second question, is the $0.08 from stock option expensing all going to occur in the first quarter or did I misread that? And then, finally, could you talk about the performance of, I guess industrial coatings and its impact on the paint stores results? Thanks.

I'll take the stock option very quick. The $0.08 is a full year number. It will be $0.02 per quarter. When you look at the impairment what we said after tax is, right around $14 million.

And then, Steve, the comment on your industrial coatings question relative to its performance inside our store segment, is that your question?

Yes.

I think that the guidance that we've given for our store's performance would include pretty consistent results from architectural and industrial coatings so it is performing nicely.

We haven't seen any down-turn there, because sometimes those sales can be a coincident indicator in the economy. But that business still remains good for us.

Great. Thanks a lot.

Thank you, Steve.

[OPERATOR INSTRUCTIONS] Our next question is coming from Ivy Zellman of credit Swiss.

Just a quick follow-up. On the contractors' sales at the paint stores, do you have any sense where they're going when they leave their store? I know you had talked about the mix between new construction and repair of models. Do you have any sense between residential and commercial structures as to where a lot of the maintenance is occurring?

I think both of those segments have been good for us throughout the year, so and actually we've seen a good DIY business, as well.

I think on that break-out between the commercial and residential, Dennis, on new construction we commented it is about 50/50, on the repaint market it is skewed a little heavier to the residential.

Okay. And then just real quickly on the store front. When you open a new store, how much would that store generate in revenues in its first year relative to what an established store would be doing?

If you take a look at it the new store would generate on average right around 35% the first year and then will ramp up quickly and by the third year will be at 80%.

You're saying of what--?

Of the entire volume.

Perfect. Great. Thanks again, guys.

Gentlemen, it appears there are no further questions at this time. Do you have any closing comments?

Yes, and as all of you know, Bob Wells and I will be available the rest of the day for any of you that would have any follow-up questions and I also would like to express my appreciation to everybody. I very much have enjoyed our relationship over the years and it's been one of the very nice part of my job is the -- always a visiting with you all each quarter, and I do look forward to seeing you at our financial community presentation. So Bob and I will be happy to receive any follow-up calls this afternoon, tomorrow, and ongoing. Thank you.

Thank you, ladies and gentlemen, for your participation in today's teleconference. You may disconnect your lines at this time and have a wonderful day.