惠而浦 (WHR) 2001 Q1 法說會逐字稿

Good morning. My name is Emily and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Whirlpool first quarter earnings release conference call. Our lines have been placed to prevent any background noise. After the speakers remark, there will be a question and answer period. If you would like to ask a question during this time, simply press the #1 on your telephone keypad and questions will be taken in the order that they are received. If you would like to withdraw your question, press the abort key. Thank you Mr. Thomas Filstrup. You may begin your conference.

Good morning. I would like to welcome all of you to our first quarter conference call. Our opening remarks were referred to a slide presentation, which is available on our investor web page under presentations. This call and the slide presentation will also be archived on our web page for your convenience. During the call we would be making forward-looking statements to assist you while understanding our company's future expectations. Our actual results could differ materially from these statements due to many factors, which can be found in our latest 10K. Now, I would turn like to turn the call over to our Chairman and Chief Executive Officer, David Whitwam for his opening remarks. David.

Good morning and thank you for joining us today. A short while ago, we released first quarter 2001 operating and earnings performance. As we have previously indicated to you, we expected that our first and second quarter would lag last years record earnings performance, which was delivered in an industry environment that also holds the all-time record level, especially in our most important North American market. Actual earnings record of this morning were in line with our original guidance although, this digital performance as the high end of the own expectations. Primarily on the strength of a 1.8 point operating margin improvement over fourth quarter levels in our North American business. Recorded earnings of the dollar 10 cents per share, compares to the record of a dollar 53 cents of share in the first quarter of 2000. Revenues declined 2.8% that is approximately $2.5 billion as opposed to translation, revenues were essentially flat. We noted particular sale strength in our North American market with revenues of only 1.2% in an industry that is all unit sales fall nearly a 11% in the quarter and that 11% number is for 9 major appliances, which includes air conditioners and microwaves. The 7 majors were down between 71/2 and 8%. In our expectations for operating performance in our Latin American business as well as with our Asian operation from which expect continuing improving transaction throughout the course of the year with these two business. Our European business while showing of 2.1-point margin improvement in the fourth quarter levels continues to perform at levels well below our historical performance. We have previously indicated to you and we continue to believe that we will thrive quarter-by-quarter improvement as we move through the course of this year. Jeff Fettig will go on some more detail on each of these regional businesses in a few moments. Mark Brown will also shortly give you more details on the structuring activity that was announced at yearend. Let me say it, this important activity remains on track with our original plans and specific actions today would contribute approximately $35 million in savings to this year's P&L. Again, Jeff will provide details on our current expectations for industry performance in each of regional markets. Based on that outlook, we continue to believe that we will deliver our previously projected full year 15% year-over-year improvement in earnings per share and we expect to show up continued quarter-by-quarter improvement on a consolidated basis as we move through the year. Let me turn this over to Jeff Fettig at this moment.

Good morning. I will start with slide #4 in your deck with North America well as David mentioned, we are pleased with what we thought were solid results in a very difficult environment. Our revenues for the quarter were down to 1% to 0.2% in an industry, which was down 10.5% as they mentioned on 49 major appliances. Operating profits margins were down 2% versus last year then improved significantly by 1.8 points versus our fourth quarter results. I believe this positive performance in what was a very challenging market was driven by the demand for our brands in retail outlets where consumers continuously added value products in where they prefer to shop. We continued seeing very strong retail outlet share growth and that is about the value retailers such as Sears ______., as well as in several strong independent retailers. Consumers, who had previously shopped at CircuitCity in __________, continue to appear to be shifting to these added value formats and we saw same increments in the first quarter, which we saw on the fourth quarter of last year. Our continued growth and market share in the first quarter and our expansions in margins have been driven by product innovation that we have been bringing to the market for some time. We saw strong results from these new products introduced late last year, which included the new CALYPSO washer, which we introduced with Sears under the Kenmore brand name. The new conquest side-by-side refrigerator, which features an exclusive indoor ice design, and our new generation of tall tub dish washers, which has significantly increased interior capacity and better wash performance. These innovating new products are both greedy demand by consumers for our products and brands and have increased our overall mix and average selling prices in the market. If you turn to slide #5 our new CALYPSO washer, which we introduced only six months ago. It has already been rated the #1 top world of washing machine in the market by a leading consumer magazine, as well as we having received several awards for design and innovation from Good House Keeping and Popular Mechanics. In fact, last week, Whirlpool received the as a part of the year for innovation from Sears for our CALYPSO washing machine. Based on their view of its unique technology, its significant consumer appeal, and the real benefits that consumers receive when they purchase this product. Looking ahead, we do except the economic environment in North America will continue to be challenging and we are now forecasting industry demand to be down 3% to 4% in the second quarter and 2% for the full year. We do believe that even in this type of environment, we will continue to drive our operating performance improvements by achieving record-levels of productivity, reducing our SG&A expenses and continuing to bring more product innovations at the marketplace. Our new offerings to be introduced in the second quarter as shown on slide #6 and they include the Whirlpool brand CALYPSO washer and dryer, the KitchenAid brand Proline cooking series of products, a completely new line of energy saving refrigerators for the Whirlpool KitchenAid and Kinmo brands, and a newline of Kinmo microwave food products that they will offer in the marketplace. We do believe that these actions will enable us to continue to outperform a very challenging market environment, and to improve our operating results in the second quarter. Turning out to slide #7 in Europe, we saw positive operating improvements versus the fourth quarter of last year with operating margins improving by 2.1 point. Comparisons to the last year were negative with revenues down 10% and operating path of margins down 6 points. In that of currency translations in Europe, revenues were down 3%. During the quarter, we did see industry demand being very uneven across Europe, and we estimated the total market demand for the region was flat to slightly positive. The issues, which we did see, and talked about last quarter, have begun to change. Industry price pressures continue, but we did improve our average selling prices by 4% versus the last quarter largely through stronger mixed management, reduced promotions, and early effects of price increases, which we implemented across all markets. We have taken the appropriate actions to drift execution issues, which we talked about late last year and we do continue to aggressively focus our actions on price realization, reducing both product and non-product cost and reducing our working capital. Looking ahead, we continue to forecast market demands in the year in Europe at about 2%-3%. We will improve our operating performance on a quarter-by-quarter basis throughout the year. For the second quarter, we expect the actions that I previously discussed, will improve our operating margins by 1-11/2 points versus the first quarter. Turning to slide #8, in Latin America, we had solid results in the market environment, which we saw positive demand increasing by 5%. And despite a 14% devaluation in the Brazilian currency, our revenues were down only by 1% due to strong union shipments and improved realization. Our operating profits did improve to 6.9% up till several points versus last year. Also, included in these results, it does reflect the continuing benefits of tax credits. In one form or another, we have had these tax credits. They have been part of our Brazilian operations for the last ten years. Over this time, they have allowed us to effectively reduce the net operating tax charges of things like our sales taxes, payroll taxes, and property taxes. In the first quarter, for example, they amounted to about $17 million and we expect that run rate continue in this business for the foreseeable future. Overall, the economic environment in Brazil remains positive and we do continue to forecast a full year growth of 5%. Also, during the quarter in Latin America, we announced and successfully completed agreements to close a major refrigeration production facility and will begin making this transition in the second quarter of this year. We are forecasting continued growth in operating margin expansion in the second quarter. We expect revenues at today's exchange rates to be moderately higher in margins driven by productivity and price realization will continue to expand in the quarter and for the full year.

Now turning to slide #9 in Asia. Here too, we continue to improve both our market position and our operating results during the first quarter. Overall, revenues were flat during the quarter and operating margins improved to 4.7% or about 1.2 points better than last year. In India, we drew our unit shipments by 8% in an industry, which actually declined by almost 10%. We had a very robust market in China and we grew our revenues by 70% quarter-over-quarter versus last year. The Asia specific markets were very challenging both in terms of declining demand and currency devaluation's and our revenues were down for the quarter. Overall for the region, despite a much more challenging environment, we drew our unit shipments by 7%. Looking ahead in Asia, we do expect moderate roles in the second quarter with continued operating margin improvement driven largely through productivity savings. For the entire region, I think we are off to a good start and we expect to have a solid year growth in both revenues and operating results improvements. So, overall in total, the year is really start out in line with our expectations. We do have very challenging marketing conditions around the world. As we previously discussed, we are taking the following actions to address this environment. First of all, we will continue to accelerate bringing the product innovation to the market. Secondly we are driving productivity levels to new record levels for the company and finally we will continue to restructuring activities to ensure that we retain our long-term competitiveness. These actions are enabling us to both invest and value creating brilliant world conditioners while improving our overall results. I think we make progress in line with our expectations in the first quarter and we expect to concede the cycles of improvement in the second quarter and for the full year. I will turn it over to Mark Brown now to finish.

Jeff has just given you an overview of the operating performance and the environment in each of the regions. What I like to do now is to walk into the P&L from operating profits and their earnings and review several additional key financial metrics. As you can see on slide #10, the sum of net interest and sundry expenses amount to $49 million in line with last years first quarter. Our current outlook at these accounts will continue through approximate $50 millions for quarter going forward. If the expected tax rate for the quarter was 36.3%, which is where we currently think it will come in for the full year. The equity in the period changed from a charge of $2 million last year to a credit of $1 million this year as last years results were marginally affected by the right off of our brand wise Internet investment. I would like to spend some time now on several balance sheet topics as shown on slide #11. Working capital remains in good shape as inventories are down by $110 million versus this time a year ago. Our current accounts receivable quality remains in excellent shape with past year accounts at record lows and reserves in good shape. A brief comment on the small counter of course you will notice in our cash flow. We made two dividend payments in the first quarter December 31 of last year fell on a Sunday. So the wire transfer was processed the following day on Monday, January 1st. This occurs whenever the last day of the year falls on a Sunday. Pension plans remain in good shape, fully funded, and like many other companies, we are required by the accounting rules to continue to record gain approximately equal to last year or roughly 15 cents per quarter. Effective interest rates were down versus last years first quarter give primarily to the favorable impact of recent federal reserve action somewhat dampened by continued stress in the debt market affecting overall corporate spread. Our put options which we used to manage the dilutive effect in employees stock options remain somewhat immaterial and would probably mature in the money and there are other key indicators that such as interest coverage return on equity and return until capital remain in good shape despite the difficult operating environment. On slide #12, I would like to talk about the accounting changes associated with the recent phase 133. Basically, this statement requires us to change the way we account for a hedging instrument that affect us in two ways. On the P&L, we were required to recognize the one-time gain of 12 cents, which we will not be including in our core earnings reporting and secondly, we will be required to change the balancing classification of our hedge portfolio. We currently have hedging contracts with the banks that are locked into a favorable position. The positive value of these hedges amount over $200 million. Prior to phase 133. These contracts with the banks were noted with our bank debt and we are account for as reductions to our debt position. Forced as 133, they will be reflected as an asset on the balance sheet. This slide shows you the impact the phase 133 has in our balance sheet. None of these accounting changes our debt position has increased only marginally over yearend. In summary, our balance sheet remains very solid. My last slide, slide #13, reflects our restructuring initiatives as announced today. In the first quarter, we took a charge of $70 million of which $32 million approximately will be in cash. We have identified 2500 positions that will be eliminated and when fully implemented, these first quarter initiatives will result in savings and have an annual impact of approximately $50 million. Now I would like to turn it back to David for closing comments.

Thank you Mark. Now we turn it now to all of you for any questions that you might have.

At this time, I would like to remind everyone in order to ask a question, please press the #1 on your telephone keypad now.

The first question is from David McGregor.

Yes, Good morning. Congratulations on the good quarter. I just want know about the restructuring program. I guess I was under the impression that you would be rowing a detail with each passing quarter through the year and conspicuously absent for your presentation today as been detailed in the second quarter phase. Could you talk to that please?

David, this is Mark. The thing that we talked about in the past, kind of the rules, and the communication rules in particular have changed and we will leave out and communicate him at the same time that we communicate them with our employees. So, you know as we said before, when they are shaped up to communicate to employees then we announce them externally.

And David, we continue to rule forecast levels of $300 to $350 million restructuring charges as we did at the end of December and again we believed the saving that we projected will be there also. But this is just an consistent change in the current rules will prevent us at the beginning of every quarter of doing this.

When do you think you would be expecting to provide us with further detail in the next phase?

Even as we have all the details completed for any particular given project and we communicate it to our employees, at that point, simultaneously we will go with a public announcement of that particular restructuring activity. We were hopeful we can bundle them together and deal with the quarter in one bucket. We may have able to do that even as we deal with employment and people in the organization as they are finalized and we make the announcements to them. We will become public with those.

Okay. Just on the North American business, what are your comparison of making the observation that in one year of their business, your actually seeing retailers are migrating at a lower price points and in fact losing components that they can move product as premium price points in this environment. I was just wondering if in your retail channels, if you are seeing a similar phenomenon to develop around you or your affects.

David, you know the new products I talked about. The CALYPSO, catalyst washer we introduced last year, the CALYPSO washer, dryer, and the Conquest refrigerator. Those were all higher in price point products and they are selling extremely well. So, in fact our average selling values in total went up for the quarter. So we are not seeing that effect.

In addition David, we as look at our branded business, the single largest increase we have had in year-over-year sales improvement was with our KitchenAid brand which is the higher priced product in the market.

Okay great. Let this last question has to do with sanitary ware are you comfortable with the retail sale through is good.

Yeah, I would say, you know it has been retailed purchase in activities is been spotty, but in terms of trade inventory, I think in total they are going into the second quarter in a much more favorable position than they came into the first quarter.

Thanks very much.

The next question comes from Larry Horan.

Hello. I have a couple of questions. In terms of the $17 million in tax credits in Brazil, was that about the same number a year ago.

Larry, this is Mark. Let me just stand back on the _____ thing as to keeping this thing in perspective. As Jeff said, this things in around for a long time. Tax credits in Brazil, the physical powers are basically than in the US. There is a lot of taxes, the excise taxes, sales taxes design, property tax design, payroll tax visitors significantly different that they are in the US until these governmental changes tend to be more aggressive above the line than they are in the US. So, these taxes have been around forever. Basically, the underlying run rate in Brazil is about the same in the first quarter slightly improved actually a little in the bit in the first quarter of this year versus the first quarter of last year.

Okay, so maybe up a million or two in terms of the tax credits?

We expect this year to be up a couple of million, maybe as much as 5 million or higher for the full year than last year on the tax credit.

Okay, so per quarter, it is, you were talking about maybe a million bucks or less if you are talking about 2-5 for the year?

David, I just want to make sure we are not mis-communicating with. They do vary a lot by quarter.

Okay.

I think the key question is the underlying run rate of the business is up.

Okay, in terms of the pension gains, which you said of running about 15 cents a quarter. Was that good too last year.

Yeah, through the last year, they are going to about the same this year.

Okay, thanks a lot.

The next question is from Mat Grossman.

Hi, good morning.

Good morning.

Two quick questions for you. With cash flow from operations during the quarter, and what was the depreciation?

Cash flow was slightly negative for the quarter, but substantially better than the first quarter of last year as again we are having good success bringing the inventories where we want them. I think the appreciation is about little less than about a $100 million for the quarter.

So, last year in the quarter, your $-83 million cash flow amounts such as the time of reference?

No, last year we ate almost an 180 someday in which again in our business we can do eat a lot of cash in the first half of the year as we build refrigeration and more importantly, air control inventory and then we released it in the second half as we pull those inventories down.

Again I need the important numbers. We had about a $145 million improvement year-over-year quarter-over-quarter on cash.

Okay.

When we talk about cash flow, we talk after dividend and capital expenditure.

After dividends and capital expenditure?

Right.

I understand.

Yeah.

Okay Thank you.

The next question is from Nicole Parrot.

Yeah. I am just wondering if you could elaborate a little bit more on the European operations. You indicated that industry demand was uneven by country, could you elaborate further on that and also with respect to pricing and margin and kind of where this businesses relative to your revised forecast from last quarter, I mean as I see it based on my model, the output was a little bit weaker than I was looking for and I guess in terms of quantifying that, you know how far long you are fixing in the issues over there and with respect to the price increase as well.

Yeah Nicole, first of all market demand because you know in Europe we do not have quite the time. The only recording that we have in the US, we have updated from February so our estimates for the quarter is it will come in as I said between flat to +2%. In terms of countries, you know, I can just give you a couple of examples. Germany, as we think was particularly weak. Italy was weaker than last year, France was improving, and the UK was weaker than last year. So it really is a spotty picture. We saw big seasonal fluctuations in January versus February versus March. In general, it was weaker than we have forecasted and the one anticipated. Regarding our margin improvement in progress and improving the operating margin, you are correct. We came in a little bit lower than what we have thought when we indicated to you at the last meeting probably about a point to a point and a half lower than what we expected. That really has to do completely with the speed of achieving the price improvements #1 and #2, we did in a somewhat softer industry, pay gallop and take more production down these in the first quarter than we had originally expected which also affects the gross margin. So, going forward, given what we started in the first quarter, as I indicated, we expect to have quarter-over-quarter improvement, and as I indicated, we think that improvement in the second quarter would be one to one and half points higher than the first quarter.

I guess, do you have how many days were you down versus your adopt.

I do not have that available to me, but I would say that probably cost us between a half and 8/10 of a point of margin.

And, could you also just work us through for free cash flow for the full year as you look at the receivables from the annual last year they definitely ballooned and I am trying to understand why and I understand that your accounts receivable terms extended, could you just walk me through that and what do we see as a normalized receivable to sales rate over the course of the year. Is that work worth its way through?

This is Mark. Let me try to think. We have not extended terms with any of our customers. We have, I think as we talked about in the past, I have had a mixed change, we have had some customers, important to us that has really growing their business and so there is a mixed change going on the receivables. Fundamentally, that is a kind of behind us with a very big impact last year, but finally behind us. I think we communicated in previous that we were comfortable on the $350 to $400 million worth of free cash flow all over the year and we are still in that area.

Let me reemphasize the market side. We did not change credit terms with any of our resale accounts. We did have a very significant change in the mix of accounts for legal business last year in our growing up issue. So again it was not extending terms that which accounts are growing and what were the basic fundamentals term they had as they began to have higher growth rate.

Okay. Great. Yes, could you also just comment in general mean obviously we are seeing a shipment was going on out there, you are still forecasting shipments to be up in the second half and I guess that is assuming just difficult or easy comparison to our area. Could you comment on what you see, I guess in terms of distribution channel impact as well as just the macro environment we most definitely I think consumer confidence has been a lagging indicator and the appliance shipment was certainly down, could you just elaborate a little bit more in that and if you see it eroding further.

There is no question consumer confidence will be key to this as we look forward. We continue to believe and we use a lot of different metrics to forecast our own industry in North America and then so many metrics we are talking about. All those metrics continue to indicate to us with caution. I will say that that we are going to give solid role in the second half. Solid being up of the third quarter that may be up a couple of three points over last year and in the fourth quarter it may be up 5 or 6 points over the last year. Again as you recall we are an industry with that declined significantly and more rapidly in the last half than the last year than any one of us have detected. So we do not think we were heroic numbers, but again they are based absolutely on consumer confidence. We are as we tried to understand that environment although we can take the steps if this industry gets slashed in the second half we can take the steps inside of our business and the clause side to deal without effectively.

Great. Thanks.

At this time there are no further questions. There is a follow up question from David McGregor.

Yeah, it is too early to quit I thought I will throw a few more I think.... I wonder if you could talk a little bit about the Share Repurchase Program. You are still talking about the 15% ETF growth over a year. I am just wondering to what extent the Share Repurchase Program would be a element of that number.

It is David again. I think this we have said in the past that we are going to fund the share repurchase out of the free cash flow of the company and that is a kind of where we are at. There will be a carryover effect naturally from last year, when we brought out last of stock and we did not want think we have disclosed, where we are out on our shares with 66 something and the share is outstanding which is down substantially where we were a year ago and we will continue to see the benefit as we have run through the year, but the key point again as we said we would fund this out of the free cash flow and that is our intent.

Are there are any competing users for that cash other than the Share Repurchase Program.

No. We are in look at where is the most of value creating opportunities in the place that we put our cash and we continue to analyze that.

We continue to believe that our share price is undervalued. In general these markets indicated I think we started this program with the statement we are going to fund us how the cash flow and our balance sheet right now are going to continue to bring down the debt levels when we get to a point, that we are going to start back into the market because of her debt levels and coverage levels would be back in the market.

Yeah. I would like to say that in the call you just had a question I do not answer the second part of your question, which is the whole distribution change issue and what impact it has had in our revenues. We continue to rethink the benefited by the distribution change that is happening in the market. We are growing out business very significantly in the fourth quarter and in the first quarter compared to the industry, it was based on value-guided retailers that have stepped up and are supporting this strategy in growing the business they themselves that raised higher than the retail activities in the market place. So we have not been negatively impacted by any shifts in the distribution structure, retail structure, or cost more than that.

May I start it open line.

Yes you are.

I was wondering as well just further to your discussion of paying down debt or just buying back of stock if you could just give us an update on what is your later thinking in terms of ideal debt gap and then on a separate note, I was wondering that if you could just give us the sort the latest stated conditions report on we have just access with pertained to selling appliances in North America and you have got a contract to will just fix relationships in place I think this is the height to be on certainly right now within the investment community with respect to and how would just get this is playing out in the retail side of business. If you can just give us an update, I would appreciate it.

While we start over the debt collection and we will come back to or just ........

You know our comfort zone in the ratios is more in the mid- forties, I would think for our debt caps and that is kind of a key point for us.

Will the general plans for the year get us back to that kind of level?

No. Jeff came about we are just excited this, I would just say that we are not disadvantaged comparatively from all of just this capabilities down. Jeff, do you want a stand on it.

Yeah. David I guess I will make three points about first around the home delivery I guess this is probably the point you are talking about. As we talked about last year, by the end of last year we had national capability in odd doing for selected free partners who want that sureness and we did it as a service, home delivery across the country. So we have that capability. Again, I would remind that through our free partner network basically, every consumer in America has an opportunity with trade partners to get next day deliveries. So again from a consumer standpoint we will see this as a change at all. Secondly, I think the importance of our business is a way of building cost deserve, I would tell you availability levels today in North America are at the best levels ever. We are doing increasingly growing our capabilities in providing better availability to all of our customers across all channels and thirdly, I would continue into using productivity activities are operational excellent activities we continue to drive down our cost reserve to making this delivery. So, I would just say we are very satisfied with the progress we are making in the whole, we have just extends purchasing area.

You think more retailer is pushing back on you to according to the best buy, I guess this is the one that everybody is focussed on right now in terms of changing their moral pushing back on people like you to help them on which sticks on warehousing. Can you just give us an update on how that has relieved your problems?

Well in general, no we are not having now any pressure from our customers because most of them as added value retailers off that has point of service and so they are not asking us to do that. The best buy as David indicated publically in their calls and as we have in the past, we continue to work with the best buy to help them in areas where we can support them in improving their operations and in their sales. There are no definitive steps or decisions that have been taken we with them continue to identify where the best opportunities are and in the mean time we continue to significantly grow our business with them. So we are working on a lot of studies with them, but so far there is no firm changes that are taking part.

David, another issue that I need to be talked about this before. Consumers across America and does vary somehow by region of the country. That there are parts of the country where retail sales 30%-40% of that is taken with and are put into a van or pickup truck. Retailers who have inventory win in that kind of environment. So there need to be some combination of this and we have the capabilities to do both and again the chief capability we have today and our retailers have are helping us to grow our share.

Thanks.

The next question is from Day Copeck.

Hi. Another day from Cleveland here keeping this thing going. Did you just say that 40% of your nationwide sales are in an takeaway basis?

No, what I said is it varies region within the country.

Okay.

Some regions were 30%-40% of the transactions are takeaway as been on major appliances.

A couple of cash flow questions here, I believe this question was asked earlier I do not think we got a response, but sum of the depreciation and amortization in the quarter and capital spending in the quarter.

Trying to answer so that less than a 100 million in depreciable and about $96 million in depreciation in the first quarter. And what is your follow up on that.

Capital expenditure?

Capital expenditure will be a little bit less than that, again we would may the signs this will be in the 60-70 million dollar versus the first quarter number.

Okay. But I had one other question on the balance sheet. The allowance for doubtful dropping from 7.4% of gross receivables to 5.4% this year. Are you seeing some kind of change in your experience with collecting that led to that drop?

I am going to talk from the year end to now I think what is your question on that.

While I was going year over year I went from 7.4 to 5.4.

Again our receivables remain in very, very good shape and I need to get.

All we have to do is our we think our receivables today on the best rate has been a long time. They are record low levels than past year.

Okay. Thanks.

Here is a followup question from Nicole Parrot.

Could you also just elaborate a little bit more on raw materials, cost prices that are not only highlighted in Europe but also in North America.

Yeah Nicole. You know year-over-year a kind of carryover effect of what we saw last year continues to impact this year, probably more so in Europe than North America. We are beginning to see these longer term translations beginning to stabilize and some cases go down with exception of fuel based products, but that relative to last year we particularly in the second half last year we were seen much higher rates than we are seeing today as again we have this carryover effect year-over-year which will impact us in first half of the year and again we are starting to see the longer term material contract pricing. I would say stabilize at this point of time.

You know you all are familiar with probably a close full activity and then everyone of our business is around the world, think our plans and we will actually think that your plan are and we will execute our plan that will more than off certain material cost increases in a total flow of activity span.

Okay. Could you just go also since we have a little time talking about with this little notion Internet enabled appliances and what you are doing in that area.

Yes Nicole. We have announced I think sometime ago about our first major activity in the market place that is with developer and selling component with Altavista where it is a planned a 11,000 home community where we will be supplying them with Internet-enabled appliances a full kitchen set, and above all KitchenAid brands. We expect that to begin shipment in that area late in the year and then really ranking up early next year that is just to one major activity we are talking in discussion with several other developers to do some more thing and we have said we think that we will see a more of free standing retail application of that mid -2002 onward. And again our whole purpose in this area is really to bring more benefits to consumers and I think we have a kind of profile some of the things the capabilities everywhere from the basic things such as diagnostics to energy efficiency and so on but over time it is more on it useful information to the consumer.

I think certain services that we can provide them through the internet-enabled appliances.

So, we will be on the market late this year with it. We continue to upgrade and in an onset and if a distant of activate our business that we continue to move headwork.

Yes. What is the status of current industry standards with respect to that?

Well there is still lot of discussions and changes going on virtually in every respect to that. I would think there is not today a single industry standard we are working with all the appropriate bodies in our position publically as we are simply in favor off and will be working towards open standards for the industry, but today they really is not a standard as I said.

Thanks.

The next is question is from Shane McGrafth.

Yeah, as you guys had the purpose of persistence of your total R&D budget that you are allocating to the Internet appliances where would you say that is?

Relatively small. You know, I would say that it does not exceed 5% in total.

Of your total R&D budget?

Right.

Okay. Great. Thanks.

If there are any further questions please press the #1 on your telephone keypad now. There is a followup question from Nicole Parrot.

Sorry. One last question. Just in terms of observations are you seeing in terms of food traffic in a lot of new distribution channels, has there been any real change in terms of customer preference for how they purchase appliances i.e. we are just starting to get towards this, reduce the volume on the sales floor and inventory levels you we had a key our score less informed sales people. What is your take on that?

Well Nicole. In terms of again we have to go really customer by customer as we said we think retails like Sears and ___ and Best Buy have been fitted from the exodus in CircuitCity ______, and they seem that their business are in the full traffic. In terms of other new channels I guess Home Improvement would be the notable one, you know we saw again it really varies account by account we saw some flattening in the retail share and some of those formats in the fourth quarter they had ramped up off the small base but find not the fourth quarter. We are not seeing any dramatic shifts by format. We are seeing big improvements by several accounts and again such as Sears, Roebuck and Co. in terms of growing the business built from expansion and from capturing new customers left from Circuit City in _____, but no dramatic shifts in new formats.

Great. Thanks.

At this time there no further questions.

Okay. Let me bring us to a close. As we said in the press release we continue to be cautious about this year and there are lots of economic forecast that are with us and most have a different view. Having said that we have certain looking in our press release, we continue to deliver a year quarter-by-quarter improvement and then a year with approximately a 15% year-over-year improvement on operating performance in that earnings that would be of record levels, but we watched this market very close not just in the US but for every market we serve, there is uncertainty and we have plans in placed dual with any changes in the environment that we received. So we thank you very much for joining us today.

Thank you. This concludes today's conference you may all now disconnect.