惠而浦 (WHR) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the Whirlpool Corporation fourth quarter 2006 earnings release conference call. [OPERATOR INSTRUCTIONS]

And for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Larry Venturelli.

Please go ahead, sir.

Good morning, and welcome to our fourth quarter earnings conference call.

Our opening remarks will refer to a slide presentation, which is available on our investor web page.

During the call we will be making forward-looking statements to assist you in the understanding of our Company's future expectations.

Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K and 10-Q.

During the call we will be making comments on free cash flow, a non-GAAP measure.

Listeners are directed to slide 35 for additional disclosure regarding this item.

Now I'd like to turn the call over to our Chairman and Chief Executive Officer, Jeff Fettig, for his opening remarks.

Jeff?

Good morning to everyone, and thank you for joining us today.

Earlier this morning we released our full year and fourth quarter financial results.

I'll first provide comments on our annual performance, which starts on slide 2.

For the full-year 2006, we earned $6.35 per share from continuing operations, which compares to our previous high of $6.19 per share that we reported a year ago.

Our annual earnings from continuing operations, which included the operating results, the integration cost, and the purchase accounting impact from the acquisition of Maytag, were $486 million, which is 15% higher than last year's results.

For the year, annual sales of $18.1 billion increased 26%, reflecting the acquisition of Maytag and strong demand for our consumer preferred brands and product innovation.

Excluding the impact of Maytag, annual sales increased about 7%.

This was also a record year of new, innovative product launches for Whirlpool.

Customer response to these new products has been strong, especially in our laundry categories, and we will realize a full year's benefit from these major introduction -- innovation introductions in 2007.

For the full year, we generated $880 million in cash flow from continuing operations.

As a result of this strong cash generation, we are able to reduce our post-acquisition debt levels from $3 billion to $2.3 billion at year-end.

I'm moving on now to fourth quarter results that you'll see on slides 3 and 4.

We had sales of approximately $5 billion, which increased 25% over last year, again excluding Maytag, global sales increased by about 4%.

Earnings per share from continuing operations was $1.67, which compared to last year's results of $1.83.

Net earnings from continuing operations were $133 million, which reflected continued strong performance across our international businesses.

Each of our international businesses reported strong sales growth and operating profit performance during the quarter.

Our earnings from continuing ops also benefited from lower income taxes, lower restructuring and sundry expenses.

Our fourth quarter results were negatively impacted by significantly lower U.S. appliance demand, higher material costs, and higher interest expense.

During the quarter we completed the sale of Dixie-Narco and last week completed the sale of our Hoover business.

There's no gain or loss associated with either one of these transactions, the fourth quarter financial results for Hoover, Dixie Narco and Jade are included in our discontinued ops.

Total net earnings for the fourth quarter, including discontinued operations, was $109 million or $1.37 per share.

Moving on now to Maytag, the integration of Maytag is going very well and is on track with our original expectations.

To date, we've announced all phases of business integration necessary to realize our efficiency estimates and have executed or in the process of executing the majority of those plans.

We remain very confident in our ability to realize significant shareholder value from the Maytag acquisition.

And we do believe that the opportunities unique to this transaction will positively change our long-term performance capabilities.

Roy Templin will provide an update on the status of the acquisition efficiencies and integration cost estimates during our financial review.

Turning now to slide 5, looking ahead to 2007, first of all, we expect global demand to increase by about 2% this year.

For the year, we expect industry demand in the U.S. to be down 2% to 3%.

And within that year, we expect shipments of appliances in the U.S. to be down on a year-over-year basis during the first half of the year and with modest recovery and then growth in the second half of the year.

Prices for materials are expected to increase by approximately $400 million in 2007.

This is largely driven by significant increases in the prices of precious metals like copper, nickel and zinc, and substantial increases then in the component parts, which use these materials.

Steel is also expected to be higher during 2007.

To address these environmental factors and significantly improve our operating results, there are four areas of focus, which are listed on slide 6, where we expect to drive margin improvement and offset the substantial material price increases

The first of these is the Maytag efficiencies and [growth].

We expect to realize acquisition efficiencies of approximately $350 million to $400 million through 2007.

The realization of these efficiencies is expected to be more heavily weighted towards the second half of the year.

We will be introducing, and we're in the process of introducing new products to help revitalize the Maytag brand during 2007, which then combined with the expected cost efficiencies will significantly improve the profitability of this business and, very importantly, position the Maytag brand for growth.

The second area we're focused on is to continue to accelerate new product innovation globally, which will drive both revenue growth and margin improvement.

In 2007, we expect to realize over $2 billion in revenues directly coming from products out of our innovation pipeline.

Our third area of focus is to continue to drive strong levels of cost productivity in both the Whirlpool and remaining Maytag locations and leveraging our capabilities of our global operating platform.

And finally, we will continue to aggressively manage our overall mix of business of brands and innovation to improve our margins and implement cost-base price increases in many markets around the world.

Overall we believe these actions will enable us to improve our overall operating margins as we progress throughout the year.

Within this global operating environment, we continue to focus on executing our brand value creation strategy, which is focused on building our brand position and having the best brand and consumer position, the best trade position, and the best cost and quality position within the global appliance industry.

The addition of Maytag is a great fit for our strategy, and we expect to make very good progress in each and every element of our strategy during the course of this year.

Turning to slide 8, given the current environment that I have described, we expect full-year earnings per diluted share for the continuing operations to be in the $8 to $8.50 per share range.

The difference in this guidance from the preliminary $9 per share guidance provided last year is due to significantly higher material costs now forecasted for 2007, and a lower industry demand forecast for the U.S. market.

Additionally, we will continue to drive strong cash generation and expect free cash flow before dividends to be in the $600 million to $650 million range.

Joining me today on the call are Dave Swift, our President of our North American business, Mike Todman, our President of our international businesses, and Roy Templin, our CFO.

I will now going to turn it over to Dave Swift for his comments on North America.

Thanks, Jeff.

As seen on slide 9, our fourth quarter operating profit performance was below our expectations.

Whirlpool North America sales of $3.2 billion increased 29% versus the year-ago period, driven by the acquisition of Maytag.

Excluding the acquisition impact, sales declined approximately 4% during the quarter, largely driven by lower industry demand in the U.S.

During the quarter, the rate of decline in U.S. industry unit shipments accelerated, resulting in an abnormal year-over-year reduction of approximately 8%.

Fourth quarter operating profit of $148 million and our overall margin were negatively impacted by the combination of the significant rate of decline in the industry, higher material costs, and the addition of Maytag.

Lower industry shipments resulted in both reduced production during the quarter, as the Company aligned inventory levels with demand, and short-term increases in merchandising spending to address competitive activity.

Our quarterly results did benefit from acquisition efficiencies and positive mix from new innovative products offerings during -- introduced during 2006.

In the fourth quarter, our innovation continued with the introduction and launch of several new products in North America.

The Amana brand launched the Traditional Series, shown on slide 10 ,while the Whirlpool brand continued the largest product launch in our Company's history which included the full launch of the revolutionary new Cabrio washer and drier pair and the Whirlpool brand Duet Sport seen on slide 11.

And as you will see on slide 12, KitchenAid brand continued the launch of the new generation of Architect Series II appliances.

Now I'd like to turn to our outlook for 2007.

We are forecasting industry demand to decline by approximately 2% to 3% this year in the U.S.

We expect demand in the first half of the year to be down approximately 5%, and show modest growth during the second half of the year.

You may recall the first quarter of last year was up over 6%, flat from Q2 and negative beginning in Q3.

Comps are expected to be more favorable in the second half of the year.

For 2007, the assumptions driving our demand forecast, which are shown on slide 13, are: Number one, GDP growth of about 2.4%; stable mortgage rates averaging around 6.4%; housing starts down about 15%; existing home sales down in the low single digits; and unemployment rate just under 5%.

These assumptions are consistent with various economic benchmarks.

We expect Maytag efficiencies to be significantly higher during 2007, with the majority of the benefit coming in the second half.

We will benefit from a full-year's contribution of our 2006 record innovative product launches, as well as cost-based price adjustments, revitalization of the Maytag brand, and additional new product introductions during 2007.

In addition to these benefits, our operating platform will be stronger in 2007.

We will benefit from a full-year's production at our new Monterey, Mexico facility, which produces front-load washers, and new refrigeration plant in Ramos Arizpe in Mexico.

As you can see on slide 14, the basic outline of our 2007 business focus is: Realization of Maytag efficiencies; revitalizing the Maytag brand; improvement in margin realization through mix and cost-based price adjustments; introducing new product innovation to the market; delivering strong levels of productivity; and leveraging our asset base and increasing cash generation.

The weight of our Maytag transition and brand revitalization execution began in the fourth quarter, and will continue through the first half of 2007.

Our plans, which are well under way, include, number one, consolidation of Maytag's laundry manufacturing facilities into our existing Ohio facility.

Today, two of of the three laundry plants are closed, and the third plant will close later in 2007.

The first totally new Maytag brand washers and driers built from our expanded Ohio operations are being introduced this week.

Two, closure of Maytag headquarter facilities are all in transition, with final moves scheduled for the second half of 2007.

Three, the consolidation of sales forces and consumer and trade customer call centers are essentially complete.

Both of these activities allow us to service both consumers and the trade more efficiently.

Number four, expansion of the Amana Iowa refrigeration plant allows us to expand production of innovative bottom freezer/refrigerator models, while also driving productivity and efficiency.

And five, consolidation of Maytag service operations, order processing systems, and supply chain and logistics network are enabling us to seamlessly and efficiently fulfill customer orders.

Perhaps the most important step we took in the second half of 2006 was to undertake a complete review of the positioning and investment of the [grand nar portfolio].

For the Maytag brand in particular, that review was the first in a series of brand revitalization efforts designed to build and deliver on a heritage of quality and dependability.

Building from that differentiated position, the Maytag brand has begun an extensive and aggressive revitalization effort, including infusing appliances with innovations, and bolstering the brand with increased marketing and sales support.

Brand revitalization will include. number one the support to reinvigorate the longest-running, real-life advertising character on network television, the Maytag repairman.

Our marketing efforts will focus on reinforcing the brand positioning of dependability and reliability.

Number two, new national advertising for the Maytag brand will debut this coming spring, as will a newly updated Maytag .com website.

And number three, the month of May will again be Maytag month, featuring both trade customers and consumer promotions, sweepstakes and special offers.

The revitalization of the Maytag brand can already be seen in the products we are introducing this week at the International Builder's Show in Orlando.

Seen on slide 15, the new Maytag Centennial top-load washer and drier line marks not only the 100th anniversary of the first Maytag washing machine, but also the brand's lasting commitment to durability and dependability.

The Maytag Epic on slide 16 delivers the cleaning performance and capacity you expect from a high-efficiency, front-loading laundry pair, and the durability, dependability and proven performance the Maytag brand is known for.

The first French door refrigerator with ice and water on the door, we will soon launch the Maytag brand Ice20 counter-depth bottom freezer/refrigerator shown on slide 17.

The Maytag Gemini double-oven range shown on slide 18 offers consumers the ability to bake, broil, warm, or toast two different foods at two different temperatures.

The dependable Maytag Jetclean II and Jetclean III dishwashers shown on slide 19 uses more active spray jets than any other leading brand dishwasher.

The Maytag brand will continue to launch innovative new products in 2008, with an entirely new line of kitchen products.

Now I'd like to turn the call over to Mike Todman, President of Whirlpool International.

Mike?

Thanks, Dave.

For the year and fourth quarter, our international businesses reported higher sales and significantly higher operating profits.

Our European business, shown on slide 20, reported record fourth quarter and full-year revenue and operating profit during 2006.

Revenue increased 15% during the quarter to just under $1 billion, led by continued strong performance by the Company's Whirlpool brand and innovative new product offerings.

In local currency, sales increased approximately 7% during the quarter.

Overall, industry unit volume growth is estimated to have increased 1% to 2% for the fourth quarter.

Record fourth quarter operating profit is $61 million increased 32% over last year's reported results, led by strong market performance, lower administrative costs, and improved product mix.

The region's fourth quarter operating profit margin of 6.2% increased just under one percentage point from last year's results.

Internationally, our innovation cadence remains strong, and we continue to leverage our global operating platform and customer knowledge.

Slide 21, you will see that Whirlpool Europe introduced KitchenAid brand appliances.

KitchenAid appliances feature a European styling, coupled with leading-edge technology, will be available to European consumers now early in 2007.

This important addition to our brand portfolio represents a key introduction into the premium segment of the market and also further leverages our brands and innovation globally.

Whirlpool Europe also launched the Vitesse microwave ovens, seen on slide 22, with jet menu functions that allow consumers to cook frozen ready-made meals with one touch and a crisp function that allows for cooking, frying, or baking at microwave speeds.

Vitesse also also feature a steam function.

Based on current economic conditions, the Company expects full-year 2007 industry unit shipments to increase approximately 2% to 3% in Europe.

On slide 23, you will note that our European business focus during 2007 is to: One, continue to improve the overall mix of our business to expand margins; two continued improvement in manufacturing productivity and cost reduction; three, leveraging global product innovation that continues to outperform the industry; and fourth, increasing our cash generation.

Our business in Latin America, as shown on slide 24, reported record fourth quarter and full-year revenue and operating profits during 2006.

Sales improved 26% to $729 million during the quarter, reflecting continued strong momentum and demand for the Company's innovative brands, and favorable economic conditions in Brazil.

Excluding currency translations, sales increased approximately 20%.

During the quarter and for the full year, industry unit shipment growth for appliances is estimated to have increased approximately 25% and 22%m respectively.

Record fourth quarter operating profit of $84 million, which included the impact of currency, increased 49% from the prior year.

Regional operating profit margin of 11.5% continued to improve during the fourth quarter, and increased significantly from the 9.7% reported in the previous year.

Productivity improvements, cost controls and strong appliance demand drove the year-over-year improvement.

As you can see on slide 25, in Brazil, the Brastemp brand launched three stainless steel appliances; a refrigerator, range and microwave that are all sold together as a package.

Sales of stainless steel products nearly doubled in the quarter as a result of this sales approach.

Based on the current economic environment in Brazil, the Company expects full-year 2007 appliance industry shipments to increase from 10% to 12%.

As indicated on slide 26, our focus in Latin America during 2007 will be on: One, strong cost productivity; two, continued margin realization; and three, an acceleration of innovation launches.

On slide 27, fourth quarter sales of $123 million increased 12% from last year.

Excluding currency, sales increased approximately 11%.

Operating profit improved $8 million during the quarter, largely driven by strong performance in India, successful new product launches, productivity improvements, and a favorable product mix.

Based on current economic conditions, the Company expects 2007 industry unit shipments to increase 5% to 10%.

Slide 28, shows our primary business focus in Asia, during 2007, is to: One, extend our product offering and accelerate new product launches; two, expand distribution,- and leverage our global innovation;and three, continued expansion of China procurement and technology; and four, improving our manufacturing cost position and productivity.

Now, I'd like to turn it over to Roy Templin, our CFO, for his financial review.

Thanks, Mike. and good morning, everyone.

As Jeff discussed in his opening comments, we earned $486 million, or $6.35 per share, from continuing operations for the full year, and $133 million or $1.67 per share during the fourth quarter.

While our fourth quarter operating results reflected continued strong international performance, our performance in the U.S. declined year over year.

The reduction was primarily driven by an abnormal rate of industry demand decline, which impacted our production efficiencies and pricing effectiveness, coupled with continued rising material costs.

If you will turn to slide 29, I'll make some additional comments on our consolidated earnings performance.

Interest income and sundry improved approximately $29 million from 2005.

You may recall that during the fourth quarter of 2005, we increased our litigation reserves by $21 million, based on a review of active litigation across the globe.

The absence of this charge in the current year is the main driver of the favorable year-over-year comparison.

Interest expense increased $21 million from the prior year, reflecting the cost of incremental and assumed debt related to the Maytag acquisition.

Also during the fourth quarter, as required by Generally Accepted Accounting Principles, we finalized our effective tax rate for the year after taking into consideration fourth quarter development, such as: Our final global dispersion of income; global audit settlements and adjustments; tax planning; tax law changes; and changes in available tax credits and incentives.

Based on this review, our final effective tax rate for the year is 20.4%, compared to our previously expected rate of 26.4%.

Tax planning and tax law changes improved our rate by approximately 2.5 points, while adjustments from tax audits and the dispersion of income between the U.S. and international businesses, accounted for the remaining reduction.

Under current accounting rules, we are required to make a year-to-date adjustment during the fourth quarter to adjust to our annual effective tax rate.

If you will turn to slide 30, I'd like to provide an update on three elements of the Maytag acquisition, which we previously discussed with you, that have impacted our fourth quarter earnings per share.

First, as you'll recall, the Maytag acquisition was 50% cash, and 50% stock.

The stock portion of the transaction resulted in the issuance of additional shares, for which the associated dilution reduced our fourth quarter earnings by $0.22 per share.

Because the cash portion of the transaction was financed, and we also assume Maytag's existing debt, we incurred $0.27 per share of higher interest expense in the quarter, due to the acquisition.

Secondly, as we previously discussed with you, the preliminary allocation of purchase price and adjustment of Maytag assets and liabilities to their fair values for accounting purposes triggered prospective changes in depreciation, amortization, and expense recognition.

These adjustments lowered earnings by $0.04 per share during the fourth quarter.

Finally, one-time integration costs in the fourth quarter were $0.30 per share, and efficiencies recognized in the fourth quarter improved results by approximately $0.67 per share.

Turning to slide 31, I will briefly comment on our annual cash flow performance.

Strong cash provided by continuing operations of $880 million, which included cash cost for the integration of Maytag of approximately $75 million, was essentially equal to last year.

Overall, working capital levels as a percentage of sales ended the year at 11%.

Receivable days outstanding, improved approximately one day, positively impacting cash flow, and as a percentage of sales, declined from 14.5% to 14.2% of sales.

We finished the quarter with 55 days of inventory, down three days from the 58 days reported during the third quarter.

You'll note that overall inventories on a year-over-year basis increased $760 million.

About $500 million of the increase is due to the acquisition of Maytag, almost $100 million of the increase is due to currency translation, and the remainder is largely due to higher laundry inventory, as we transition this closure of two Maytag facilities to our Ohio locations.

Capital spending increased approximately $80 million from last year to support the Maytag integration and operations, new product innovation efforts, and expansion of our global operating platform.

Overall, free cash flow, which does not include the proceeds from the sales of Maytag discontinued businesses, was $426 million for the year.

We ended the year with 2.3 billion in debt, down from our post-acquisition debt level of $3 billion.

As Jeff previously discussed, our earnings per share guidance is $8 to $8.50 for 2007, and free cash flow is expected to be between $600 million and $650 million.

At this point, I would like to provide some details imbedded within our 2007 guidance.

As shown on slide 32, our new guidance for efficiencies during 2007 is $350 million to $400 million.

Since we realized $107 million in efficiencies during 2006, we expect incremental efficiencies of approximately $245 million, to $295 million in 2007.

Our actual cash integration cost, as shown on slide 33, in 2006 were $200 million, compared to our original plan of $280 million.

Of this difference, about $20 million carries over to 2007, and an additional $20 million carries over to 2008.

We now expect cash integration costs of approximately $170 million in 2007.

The portion of integration cost, which will be expensed through the P&L for 2007, is estimated to be $55 million compared to $89 million of expense in 2006.

Therefore, we will incur lower expense of approximately $35 million in 2007.

Our guidance includes restructuring cost of $75 million to $100 million related to the expansion of our global operating platform, and assumes an effective tax rate in the mid-20s.

The impact from new accounting rules for income taxes, FIN 48, will introduce much more volatility and quarterly reported tax expense.

Companies are now required to recognize the full impact of discrete items, such as tax is settlements, in the quarter in which the event occurs, versus smoothing these items over the remaining portion of the year.

We have assumed $625 million in capital spending in this guidance and expect pension contributions of approximately $190 million in 2006.

In summary, our two primary challenges as we enter 2007 relate to continuing rising material cost and demand trends in our U.S. market.

Offsetting these challenges are continued improvement in our international operations, significantly higher net Maytag efficiencies, strong productivity and cost controls, and the benefits from our continued cadence of introducing innovative products within our global markets, including revitalized Maytag products, over the first half of 2007.

The net effect of these offsetting actions will drive improvement in our 2007 operating margins, which has been built into our guidance.

I'll now turn the call back over to Jeff.

Thanks, Roy.

This has been what I would have called an historic year for Whirlpool Corporation.

During 2006, we completed the largest acquisition in the history of our Company and introduced a record number of new innovative products to the marketplace.

Additionally, our international businesses delivered record level of results.

While short-term demand trends in the U.S. and the material cost environment remain challenging, we remain very confident in our strategy and our ability to create additional value for our shareholders during 2007 and beyond.

When we decided to acquire Maytag, we discussed two key critical success factors.

The first was to improve the cost competitiveness of the Maytag business, and the second was to revitalize the brand product offerings and positioning these great brands for growth.

To date, we're very much on track with our plans.

We remain well positioned to realize significant efficiencies in excess of $400 million.

So all in all, we feel very good that this -- that the acquisition and the integration process is completely on track.

I'm going to stop here now, open this up to take your questions.

Operator, if you'd proceed with the Q&A portion of the call?

Thank you. [OPERATOR INSTRUCTIONS]

Any questions?

And our first will come from Sam Darkatsh with Raymond James.

Good morning, gentlemen.

Morning, Sam.

Two questions here, if you can hear me okay.

First off, you're saying that in '07, your global sales expectations are for sales up 2% and North America down 2% to 3%.

Could you help us with your product expectations versus those sales productions?

Yes, Sam, in regard to my comments, we expect global demand to be up about 2%.

Our sales actually would be certainly higher for two reasons.

One is the additional quarter of Maytag, and secondly it would depend on our growth rate, and in many of these markets around the world we've been exceeding industry demand.

So to your second question, our production volumes and inventories are pretty much in line, so I think our view is we would, in many markets, out-perform the market somewhat, and so you should expect our production trends to mirror our sales trends.

Our inventories we finished the year in good shape, so we don't really have any inventory issues.

We do have some artificially high inventory levels in those products that were transitioning at the beginning of the year, but absent that, our sales should reflect production.

That's what I was getting at.

I mean you have safety stock right now because of the transition and that wouldn't necessarily impair production next year to a meaningful level?

Sam, you might think of the incremental inventory that we have with respect to transition is approximately two days worth of inventory, Sam.

Okay, got you.

Second question, the $600 million to $650 million in free cash flow.

Talk about the potential usage of that and then would the effects of that usage be in your guidance at present?

Well, Sam, our rule on our cash priorities have not changed, as we communicated in the past.

The first is to fund the strategy of the business and given the capital and the investments we have talked about, we feel like we've adequately provided for that within the guidance that we've given you.

Secondly is to reduce debt, and as Roy said, we made very good progress last year.

We've got -- we typically have a pattern where we use cash in the first part of the year and generate cash in the second half of the year. so obviously that would be still a priority.

And then third is return to shareholders, either through share repurchase or dividend.

So those remain our priorities, and we continue to execute through each one.

But beyond that, we don't have any new guidance other than those are the priorities of the Company.

I guess what my point is, is that if you use $600 million, $650 million to pay down debt -- let's just assume it's all for debt -- that would lower your prospective interest expense. at least in the second half beginning. so is that in the guidance or is that outside of the guidance, Roy?

Sam, I would assume that is in the guidance that you're modeling.

Okay.

Very good.

Second -- third question, I guess, your bad debt allowance went down as a percent of gross.

Did that have a P&L impact?

No, Sam, let me give you the big pieces of that, because I know it does look a little bit confusing.

But if you look at the bad debt allowance year over year, so I will start with our beginning balance, which was about $76 million, it increased about $17 million, Sam, when we acquired Maytag.

We then took provisions, so expense in the P&L this year of $28 million, which of course increased the allowance, we had write offs over the course of the year of about $40 million, and we had about $4 million of rate, which will get you back right in that mid-80s, which is where we ended the year.

Okay.

Two more questions, then I will defer to others.

First off, you're raising prices as demand is getting softer in North America.

I guess the obvious question would be, your level of confidence with respect to the stickiness, if you could address that, Jeff?

Yes, Sam, let me address that at a global level.

First of all, I guess, putting the whole material cost situation in perspective, since mid 2004, through what now is our forecast, in 2007, we've absorbed about $1.6 billion of material and oil-related cost increases.

We've offset a significant portion of that through productivity cost reduction, margins through innovation, and some level of cost-based price increases. 2007 will be almost as impactive as 2005 was in terms of year-over-year cost price change.

So from our view, it is very important, and very appropriate that we pass -- in different levels, different products, different markets, but we pass a substantial portion of that to the marketplace and the rest we will offset with productivity.

So we're committed to that.

We think it's the right thing to do for the business.

Depending on the market dynamics, there's varying degrees of achievement of that, but this is not just unique to the U.S.

This is what we need to do in every market around the world.

So we do expect to have a positive price realization from the result of these efforts this year.

But having said that, we're taking steps to significantly drive productivity.

We have a very focused cost reduction effort throughout our global operations, and is really managing all of those elements which gives us great confidence in this guidance.

Last question, and then I'll defer to others.

Your raw materials, it is pretty pronounced inflation.

Does that turn to deflation at some point in the year because of lags and/or hedges that you had in place from last year?

Because as it stands now, spot prices are -- for many of your inputs are down, often appreciably on a year on year basis?

Well, Sam, I guess, really, that would depend upon what happens in the precious metals market.

Even though -- from the highs of late fall, they're down today, but on a year-over-year sequential basis, they were up last year and they're up again this year.

So -- and we do, as a standard business practice, hedge out precious metals and things like that.

So the curve will really depend on happens with the market between now and the end of the year.

We are projecting that some of these precious metal levels will go down from today's levels.

The components parts is really part of the value chain that's already absorbed a lot of that, so the pricing we have on components is pre pretty much fixed for the year.

And steel is largely fixed for the year, although it's indexed somewhat to the spot, but those are the three things that really drive this size of number.

And I would add the fact that our business -- you know, the $400 million is a very large number, obviously, but it's on a much bigger business than when we had a $550 million increase in 2005, which was on a much smaller business increase.

So as a percentage-wise, it is not as large but it's a big dollar number.

All in all equal though, doesn't it turn to deflation by the end of the year?

Or shouldn't it?

Again, it depends on what happens to --

If spot prices hold -- if current spot prices hold, you would expect it to turn to deflation in terms of the effects?

On a year-over-year basis, we would see improvement in the second half of the year, but a reminder, most of these prices started January 1, so on an annual basis, the number we gave you is the $400 million.

On a year-over-year comparison, they could improve, given what you just described in the late part of the year, in 2007.

Very good.

Thank you very much.

Thank you.

Other questions?

Next we will go to Laura Champine with Morgan Keegan.

Hi, Laura.

Good morning.

Jeff, you mentioned a few times in the press release that Whirlpool will manage mix up in 2007.

How does the Company propose to do that?

Is that just through the new products or is there something more specific going on in the channel?

Well, I think two things.

One is -- and again, I will take the case of North America.

If you look at the portfolio of our brands, Jenn-air, KitchenAid, Maytag, Whirlpool, Amana, those are all up market brands, if you will, so the more of our business that we do in those brands as a natural positive mix.

Secondly is innovation.

We're really putting -- our pipeline has grown dramatically every year, including this year, 2007.

We've talked about doing over -- approximately $1.2 billion in revenues -- new revenue from last year.

We're now believing that number will be over $2 billion this year.

Those are typically mid to higher-end type of products.

We're putting the focus of our advertising and communication in selling focus on these products, and the fact of the matter is the market likes these products and we continue to see brisk sales in this area.

So it would be fair to assume that our mix continues to move upward across our global business.

And you mentioned the price pass-throughs.

Can you disclose at this time the timing or amount of those?

It really varies around the world.

I mean obviously, the one -- we put some in place last year, which will have a partial year impact this year.

Others were announced last year for effective the beginning of the year.

Anything beyond that, we don't comment on forward-looking price increases.

Great.

Thank you.

Thank you.

And moving on, we'll go to David

Hello, David?

David MacGregor at Longbow Research.

Yes, thank you, It's David MacGregor at Longbow Research.

Can you hear me okay, Jeff?

Yes, we can.

On your volume guidance, T7 shipments in the second half of '06 was down 4%, that's with retailers carving down pretty hard on inventories, particularly the latter part of the quarter.

And now you're forecasting a 5% decline for the first half of '07.

Now I realize March is a tough comp and that probably, from my calculations, represents -- if we go back to '05 levels, about a 2% delta.

But you're still looking at 3% to 4% volume declines.

At a recent meeting you said you couldn't get to a 5% volume decline no matter how you configured your model without getting into goofy assumptions so I'm trying to understand, are retailers still carving down on inventories?

Is the positive mix costing you on low-end volume?

And I think a point you have to address on this call for people is are you losing share as a result -- or maybe losing a little more share than you thought as a result of the retailer -- particularly maybe more the moms and pops -- the retailer reaction to the combination?

David, let me take part of that question and then I'd ask Dave Swift to comment.

First of all, relative to my comment that you couldn't get to that number, for a year we still believe that.

With all of the changes and volatility last year, the fact of the matter is the market in the U.S. was down 1%.

Now, it was very uneven.

It was very rare to see a year where you have a first quarter which is up over 6% and a fourth quarter that's down 8%.

So the rate of change during the year was fairly profound.

And simply put, we tend to see this year as a mirror image in reverse of last year.

That momentum that we saw in the fourth quarter, a negative momentum, will continue in the first quarter, particularly when you consider the first quarter of '06 was up 6%.

So, as we look out through the year, as the comps change and so on and so forth, that's where we come up with weighted average of about -5% in the first half, and growth in the second half --

Jeff. if I could --

-- with a total decline of about 2% to 3%.

So, on an annual basis, it doesn't look very profound.

Within the quarter-over-quarter comparisons, we've already seen that in the fourth quarter and we expect to see that again in the first quarter.

Let me ask Dave Swift in to comment on our market share.

Yes, David, this is Dave Swift.

Just a couple of comments.

First of all, as you look at from Q3 to Q4, or year over year, the Whirlpool heritage brands redeemed share slightly.

If you look sequentially on the OEM business, we also gained some slight share gains.

In the Maytag family of brands, as we expected we would, there was some share loss.

And as we've said -- and I think in our last call, and certainly the work that we're doing to revitalize the Maytag brand -- we have to earn that share back, both with the [trade] and consumers.

Now, we started some of that with the launch of Epic last quarter, and that's the first step.

This quarter, as we bring out the Centennial product that we talked about in this call, that's going to significantly improve our Maytag-branded laundry portfolio, and we think that absolutely will earn us back share.

Our expectation for 2007 is that we will gain back share in the Maytag family, and that's being largely driven by these revitalization efforts and also the strong feedback that we've gotten from the trade.

So to your comment, are we seeing any issue with the trade around push-back on the amount of business we do?

No, at this point they just want to see Maytag revitalized and that's exactly what we're doing.

David, I would also add to that, from a market share perspective, you need to think of it in probably two or three phases.

One was kind of the decline that had been going on at Maytag, which although -- which was lower but had been somewhat stabilizing.

The second is this period of time we did expect to lose some market share, as we did two things.

One, radically transform the business in integration, which we're doing.

And I would say the peak of that was probably fourth quarter/first quarter.

So I think as we get through the first quarter, it will be dramatically less change than what we've seen over the last six months.

And the second one, and very importantly, and one of the critical reasons why we felt confident about -- and doing is it is really that we had both the capability and the innovation to quickly revitalize the Maytag brands which had not been appropriately, from a product standpoint, invested in.

So we got very little of that in the marketplace last year.

And so these products were losing their effectiveness on the dealer floors.

Retailers who we're showing this week -- and we've showed some last year -- the new products are very excited about the new Maytag, Amana, Jenn-air product.

But they're just beginning and will roll out throughout the course of the year.

And then in 2008, as we've said before, we will be fully -- have invested in products, new products for the Maytag brand.

So our view is we expected to lose some share.

We did.

We expect we will earn it back, relatively quickly.

There's no question, I think both consumers and trade want to see a strong set of Maytag brands and we're going to provide that for them.

The one other area I would just mention is our international business and ask Mike Todman to comment on our market share there.

Well, David, I think as I said in my comment, if you looked at our growth, we actually picked up share in every one of our international markets.

In Brazil, we had our Brastemp brand as well as our Consul brand perform very well, and we picked up share in Europe.

We've seen continued growth in our Whirlpool brand.

And in Asia and India particularly, we've regained some of the leadership position in the marketplace, against some of our competitors, and we believe that we'll continue to see that, as we go into 2007, with our new product innovation launches.

That's great progress in Europe.

Congratulations on that front.

Jeff, I just wanted to be perfectly clear on this.

Are inventories at the retail, are the retailers finished carving down on these inventories or is that going to continue to be a factor in the first quarter business?

David, I don't think we saw really any abnormal level of changes in retailer inventories.

I think if you go back to the fourth quarter and the progression -- the significant decline in both shipments and in demand in October I think caused everybody to quickly react.

It was a little less profound but very negative in November.

It was a little better in December.

From our view is retailer sales equals their orders, meaning that they're keeping it fairly stable, although everyone keeps leaner inventory levels, in the trade these days.

But I don't see any big abnormal changes across the industry as a whole.

Okay.

You had closed two plants in the quarter, and you were doing some rationalization down at Cleveland, Tennessee.

Maybe a question for Roy.

Can you just talk about the expected P&L impact in the first quarter from the closing of these two plants and the rationalization at Cleveland?

Well, David, as you know, we don't provide quarterly guidance, but let me give you some perspective in terms of where we're at on the Maytag integration restructuring.

As you will recall, we filed an 8-K that said we thought our total cost would be somewhere between $230 million and $260 million.

We've actually have accrued to date about $240 million, so we're about in the middle of that range.

Cash that we've actually expended to date -- we talked about this earlier -- is about $200 million, actual cash out the door related to the Maytag integration in 2007.

David, the thing I want to be clear about -- or excuse me, 2006.

The thing I want to be clear about as we go into 2007, you will recall that our original cash guidance was $150 million of total cash integration cost, and as I said in my script, David, we now think that will be $170 million, so there's $20 million of carry-over, from 2006.

While we cut our spending in 2006 to total cash from $280 million down to $200 million, $40 million of that was a real cut in cost, and $40 million of that will be deferred; $20 million in 2007 and $20 million in 2008.

Now, David, from a P&L perspective -- and again, I know sometimes there is is confusion around this -- from a P&L perspective the Maytag integration estimated P&L hit in 2007 we now think will be $55 million.

Now, that number will be about $25 million higher than what you've last seen, the last estimate we had was $30 million.

And that $25 million, David, is simply the reduction in spend that we had in '06, that now carries over into '07.

Now, that's separate and distinct from the guidance that I've given you around other restructuring efforts with our global operating platforms in other parts of the world, which again we estimate will be between $75 million and $100 million for the year.

Okay.

Good.

That's helpful.

Thank you.

And the last question, just the $2 billion you talked about in innovation, incremental revenue, up from I think it was $1.2 billion was the other number you gave from a year ago, how much of that is in North America?

My guess is a large portion, but can you quantify how up of that's North America?

I think the number in North America is in the $1.2 billion to $1.3 billion range of that $2 billion.

Thank you very much.

Other questions?

Moving on, we will go to Michael Rehaut with JPMorgan.

Hi, thanks.

Hi, Mike.

Good morning.

On the -- I know you don't -- are trying to get away from quarterly guidance but you did mention in the press release that you expected the '07 savings -- merger integration savings to accelerate in the second half.

Obviously, given that that's such a huge part of the puzzle here, could you kind of give us an idea what you expect in 1H '07 versus 2H '07?

And also on sort of that two periods where you would expect the biggest incremental cost from the inflation --cost inflation?

Michael, this is Roy.

Let me -- you're right.

We really -- we do not provide quarterly guidance, but let me give you some perspective in terms of the Maytag piece to help you with your model.

First of all, Michael, you're right, we assume that -- in our modeling that a majority of the efficiencies will be recognized in the second half of the year.

We really don't want to bifurcate that in terms of particular numbers but the majority will be in the second half of the year and that's because, as you know, we have our manufacturing transition over the first part of the year.

That leads to an important point that's also relevant to your question and than is, from a one-time cost perspective, I talked about the$55 million, and again, Michael, you ought to assume that the majority of the cost will be recognized in the first half of the year.

Because as you'll recall, one of the three key components in terms of cost to hit the P&L are manufacturing integration cost and manufacturing start-up cost and so, again, that's disproportionate.

You're seeing more costs in the first half versus the second half.

The only other thing, Michael, I'd add to that is you asked about the material side.

Largely speaking, material prices are affective at the beginning of the year, so that's with us day one.

Roy just described how it kind of -- a little color on how the Maytag efficiencies and one-time cost will fall.

And then the third element of that is our ongoing total cost productivity, which will have its normal distribution pattern, which means it ramps up throughout the course of the year.

So there's a lot of different moving parts, but those are the big ones I would say that impact the distribution over the course of the year.

Okay.

That's helpful.

I appreciate it.

As you look at '07 as a whole, though, overall, and I guess you have on the negative side from an operating margin perspective, the inflation costs and the merger costs -- I'm sorry, the integration costs, how would you prioritize the impact of offsetting those costs between the savings from Maytag productivity savings, as well as pricing benefits?

Michael, let me take a shot at that.

First of all, given the experience we've had in 2006, we're very confident in our ability to both deliver the Maytag efficiencies, and manage the one-time costs.

So I would view that as not a -- although it's a lot of work and it's a lot of effort, it's not a high risk area for us in terms of doing that.

Secondly the cost productivity and cost reductions, ex-materials, which is important.

I point out ex-materials is something which we've proven in the part, we normally deliver what we believe we will, and so I feel very good that we have a lot of attention in that area.

The third area is the innovation, and that depends on our ability to execute and so on and so forth, but we've got a pretty good track record of executing these products and getting credit for them in the marketplace.

And then the last area you talk about is the cost-based pricing and again, as I mentioned, we're very committed to that.

It's very important we do that.

But that. frankly speaking, is always market by market, also impacted by competitive dynamics, so that's less predictable but no less important.

Well, I guess what I was getting at more, Jeff, is the quantification of particularly the productivity and the cost-based pricing, in terms of how -- how you expect that to flow through '07 income statement?

Michael, I can't really break those in, because they really personally normally don't give that level of detail.

But second of all is they really vary by market, and timing, and other than the Maytag side, we will not provide specific numbers on those.

Okay.

And just lastly, on 4Q, sales, I think you said North America was down 4%.

Was that units or can you break out the price versus the units of that number?

Michael, this is Roy, let me give you a little bit of perspective., North America units -- again you're going Q4 to Q4 -- units are up 17%, if you back out the Maytag acquisition; however, units are down 3%, and again, sales, Michael, are actually down 4%.

-- market it was down almost 8%.

Right.

And you had said in the last call that you were implementing price increases of 6% to 12% on certain items.

So can you help reconcile, was there some negative mix going on?

Or were some of those price increases perhaps not as successful?

Michael, this is Dave Swift.

We did announce price increases back in the August time frame, and when we announced those price increases, it was just at the time that we were beginning to see the dramatic turn in the industry.

And it wasn't so much the absolute for the year, it was the rate of change.

And so we were successful in getting like-for-like pricing but because of the pretty dramatic change in the industry, [the very] significant slow down in Q4, we had to become more promotional to get the business we needed.

And then on top of that, as we've already talked about, because we don't yet have, and did not have at the time all of the Maytag product revitalized, we had to spend more to get the business we did, because the product was tired.

Thank you.

Thank you.

Other questions?

We've got time for a couple more.

And next we will go to Eric Bosshard with Cleveland Research Company.

Hi, Eric.

Good morning.

A couple of things.

In terms of pricing and then the comment you just made that the price increase in August was less than successful because of the weak market, can you just give us a sense of how your level of confidence in getting the $350 million to $400 million of price increases in '07 when considering what the environment looks like in the first half of the year?

First of all, Eric, I'm not sure about how you got to the $350 million to -- the number -- what I used for $350 million to $400 million was our -- the size of the Maytag efficiencies, which we expect to realize through 2007.

So I don't know if you picked up -- it's not pricing.

That was Maytag efficiencies.

Let me ask it differently is.

There an expectation of how much pricing you're going to get in 2007 to deal with the material cost pressure?

We're not breaking that out separately, but we do expect to have positive price realization in 2007, as one of the things we're doing to offset the material costs.

And again, the others are cost reduction, total cost productivity, and, of course, the Maytag efficiency.

And maybe just to comment on it, if you're asking the question, Eric, what is going to be different this quarter versus what we did in the fall, I think the difference is where we see the industry today, has stabilized.

We were going through a dramatic rate change at the end of Q3, and it was making it difficult to actually get at -- as I said we did get like-for-like but we had to put more promotional behind it..

Our expectation and what we're seeing today, in the marketplace is that's not going to be the case.

We don't have to put that same level of promotional support behind.

It the other piece is with the launch of our innovation, we expect to get significant benefit on mix as we've [already found it.]

Secondly, Maytag -- in looking through the numbers, it looks like the Maytag share performance was worse, or the year-over-year performance was worse in 4Q than in 3Q.

Is that accurate and if so, why?

Yes, I think we've already hit some of that, Eric, which is until we actually have the new lineup of Maytag with the innovation that Whirlpool can bring to it, there's nothing that's going to magically change the rate of how that product gets placed on the floor at retailers.

We have to earn that business with retailers.

And with the innovation that we've got coming forward and what we also have actually this quarter being launched this week at the Builder's Show, that going to allow us to get that product to be where it needs to be and the trade, as we've already said, is very excited about it.

And actually, if you look at the details behind the Stevenson data, Q3 to Q4 was the stabilization of the Maytag brand.

And the innovation shows up in the second half, is that correct?

You're going to start seeing the innovation show up right now this quarter in the Builder's Show.

And we start to ship the new Maytag laundry this week.

So it will -- but it'll come kind of evenly distributed through the course of the year, but starting with laundry, which is starting right now.

And then on inventories, the comment was made that you're comfortable with inventories -- and I know you walked through it -- but I guess I just look at a 48% increase in inventories and sales up 25%, at what point will inventory growth match sales growth?

Well, you know, Eric, I think maybe a couple of comments to try to put your relevant statistics into perspective.

One is, when you look at the $800 million in growth, again $500 million of that is due to Maytag, simply having Maytag in the inventory balance this year versus not having it in the inventory balance last year.

When you look at -- the next biggest item is actually translation and it is really REAIS and Euro rate appreciation, which again lifted inventories about $100 million, Eric, year over year.

And then as I said earlier, the third piece is the transitional inventory as we move production into our Ohio facility.

And then beyond that, there really isn't -- there really aren't any other significant items.

When you look at this on a relatively basis and inventory day perspective, we're up eight days, year over year.

Four of those days are related to simply having Maytag in the base this year.

And again, as I said earlier, Eric, if you look at the other four days, I would attribute two of them to rate and two of them to our product transition into Ohio.

So we actually feel pretty good with respect to our relative inventory levels.

And any of the anomalies will be flushed out in the first half of the year.

So the other point I make is that Maytag carried a higher level than we typically carried, and the more we get integrated the more we'll move to what I call Whirlpool standards.

Okay.

And then lastly, the international profits were up dramatically again in '07, especially Latin America.

And I know structurally you've done some things in Europe, but is there anything going on within the Latin America profit improvement?

Can you just highlight again what's going on there that's allowed the margins of that business to just explode to the upside?

I would just say, actually, there is nothing extraordinary other than we've had very, very strong performance in terms of units and shipments.

We've had great innovations coming into the product -- into the marketplace, I'm sorry, so new products that we've put into the marketplace.

And so we've just seen our margins expand, and we've had very strong cost controls, as well as price/mix improvements to offset materials.

So it is really driven by operating factors.

Okay.

Great.

Thank you.

I think we have time for one more question.

And our last question will come from Jeffrey Sprague with Citigroup.

Thank you very much.

Good morning.

Hi, Jeff.

I guess that I'd like to understand a little bit more of just your jumping off point on price, and I think the prior questioner was trying to get around it.

Just rough math, you're looking at cost increases that are now equal to the Maytag synergies.

And in fact, you got $100 million of synergies in '06, so the delta on your Maytag synergies is $300 million, so you're $100 million in the hole right there, that is $1 a share.

And then we're talking volume down, tax rate up, and Whirlpool restructuring up, roughly $2 higher EPS number for '07.

So it seems like you're very dependent on price.

I guess you would throw mix in there as maybe being more important than price.

But just looking at the price that you got in August, and what you put on for the beginning of the year,what's the roll forward impact of that?

Jeff, first of all, your first two numbers are approximately correct. $400million in materials.

The net number, depending on where we fall is, in that -- for Maytag is in that $300 million range, but then I think there's a couple of things you need to consider.

One is our normal, and in this case very focused productivity, above and beyond materials, which will add to that.

We have very specific cost reduction targets as well, so there's a big cost improvement play to help offset that.

Innovation and mix is a fairly substantial number.

I mean if you take -- if you get a half a point improvement mix on a $20 million business, it's $100 million.

And then cost-based pricing is another piece of that.

The reason we don't give out specific numbers on those is they do vary.

We know the materials pretty clearly.

We know the Maytag efficiencies very clearly and have you our guidance.

And some combination of those productivity cost reduction, mix, and pricing is why we have good confidence in the guidance we provided.

Roy, can you give on kind of the cash flow walk, some of the big buckets there?

I mean it seems like cash restructuring is about the same.

You are assuming higher net income, which obviously is going to affect operating cash flow, but there seems to be a couple hundred million additional delta there, bridging from '06 to '07.

Is it working capital?

Is it tax?

Is there something else going on in the numbers?

Yes, Jeff, I would say -- first of all you touched upon -- as I look at sort of the key buckets I think of one the increase with respect to higher earnings.

As you probably noticed in my script we are going to have higher pension funding in '07 relative to '06, again as we prepare for the pension protection act beginning in 2008.

But you're right, another key attribute with respect to the year-over-year walk-forward is in the working capital area.

As you'll recall, Jeff, we ended the year last year at 9.4% working capital percent of sales.

We came out of the year this year at 11%, and we are about halfway there in terms of what we plan to achieve with respect to Maytag efficiencies in the working capital area.

So as we continue to work through that, Jeff, we expect to see benefit working capital year over year, and that's what I will call the last big bucket in terms of the walk-forward year over year.

And then I'm just also wondering if from a big picture standpoint what you really think drove the volume decline in Q4?

You're probably seeing some of the work we've talked about on the replacement cycle.

If you think about it, obviously the new housing weakness had nothing to do with the retail weakness.

I'm just thinking about rolling forward into '07.

If you've got new starts down 15%, and that's 15% of the market, that's your 2% or 3% volume decline right there.

If there's some negative replacement dynamics or something else going on, it does feel like there could be downside in the volume.

So I mean I think the question on '07 is maybe unanswerable.

What do you think really happened in Q4 of '06?

Well, Jeff, I think three things.

One is actually housing, you're right, it had a small, not a large portion of that decline was housing.

And actually, the bigger part of the housing decline will be reflected in 2007 in terms of demand, year over year.

Secondly, again, I would remind that we had a -- we were going up against a significant year-over-year quarterly [bump], 6.5%, I believe.

And included in that were some anomalies like the Katrina FX, which had a fairly large impact and that's why October year over year was so strange looking in terms of comparisons.

But then the last thing, our view is, I think there was just -- we were coming out of the throes of a number of things going on in the economy, all generally negative.

The election.

So we believe that the consumer confidence really dipped, and that did dry up for a period of time other replacement markets, particularly in October and November.

We saw some come back in December.

So we don't believe the replacement market dynamics have changed very much at all.

We do think the housing is fairly predictable, given the things we've talked to them about.

And again, on an annual basis, our forecasts have been fairly within a point or two, pretty accurate.

On a quarterly basis, quarterly things can change, and our view is Q4 and Q1 are the trough of the demand cycle that we see here in the U.S.

And then just a couple of other housekeeping things.

Roy, I'm actually just -- maybe it's my forecasting error, but interest expense was a lot lower.

I understand the debt balances are going down, but interest expense is actually up in Q3 on a lower debt balance and then down in Q4 more than I would have guessed on the further decline of the debt balance.

Is there something with currency?

Is there something else going on in those numbers?

I think the only other piece might be the interest income.

Do you have that in your analysis, Jeff?

Maybe I missed on that.

Because again, there aren't any unusual movements other than cash flow that we're driving and bringing down our debt.

There really are no other unusual anomalies in the numbers.

I mean, net debt was drifting down throughout, but I will go back and look.

Well, Jeff, let me -- I think I might know what you're actually referencing here.

If you'll recall, in the third quarter, we did have interest on the tax settlements that we had in Brazil, and I suspect if you're modeling that, that might be what is throwing you off Q3 relative to Q4.

Got it.

I think that may have been around $15 million.

And just two last ones.

Was there an earnings benefit from FX in the quarter?

And I'm just wondering also on the -- kind of the legacy Maytag recall, is there any P&L effect?

Do you have to wait to see actually the consumer response for that, before there's any reaction that gets taken up in reserves or how do we think about that?

Jeff, let me respond to both of those questions.

The first question with respect to rate, rate had a very minor impact on the fourth quarter.

It was positive, it was -- I think it was 3% or 4% of net income in the quarter was rate-related.

With respect to warranty, again, keep in mind that that is a part of our purchase accounting and so the cost related to that have been booked into purchase accounting as a reserve estimate.

However, it is real cash flow.

And again, though, there is no P&L effect on that, Jeff, just to be clear on what we booked relative to that recall.

And any thought, though, on the cash flow impact of it?

The cash flow impact, again, we've now estimated will be $40 million.

And that is within our guidance, Jeff.

Thank you very much.

Okay.

Well, listen again, everyone, thank you for join can us today and we look forward to talking to you next time.

And that concludes today's conference.

We'd like to thank you all for your participation.