Steve Austenfeld - Former Vice President of Investor Relations Lawrence S. Peiros - Chief Operating Officer and Executive Vice President Stephen M. Robb - Chief Financial Officer and Senior Vice President Donald R. Knauss - Chairman, Chief Executive Officer and Chairman of Executive Committee

Alice Beebe Longley - The Buckingham Research Group Incorporated Linda Bolton-Weiser - Caris & Company, Inc., Research Division Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division John A. Faucher - JP Morgan Chase & Co, Research Division Wendy Nicholson - Citigroup Inc, Research Division Javier Escalante - Consumer Edge Research, LLC Timothy A. Conder - Wells Fargo Securities, LLC, Research Division Nik Modi - UBS Investment Bank, Research Division William Schmitz - Deutsche Bank AG, Research Division Constance Marie Maneaty - BMO Capital Markets U.S. Christopher Ferrara - BofA Merrill Lynch, Research Division Lauren R. Lieberman - Barclays Capital, Research Division Ian Gordon Jason Gere - RBC Capital Markets, LLC, Research Division

Thank you for standing by. Good day, ladies and gentlemen, and welcome to The Clorox Company's Fourth Quarter Fiscal Year 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you may begin the conference.

Great. Thank you. Welcome, everyone, and thank you for joining Clorox's fourth quarter conference call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; Larry Peiros, our Executive Vice President and Chief Operating Officer; and Steve Robb, our Chief Financial Officer. We're broadcasting this call over the Internet, and a replay of the call will be available for 7 days at our website, thecloroxcompany.com. Let me remind you that on today's call, we will refer to certain non-GAAP financial measures including, but not limited to, free cash flow, EBIT margin, debt-to-EBITDA and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today’s press release, this webcast's prepared remarks or in supplemental information available in the Financial Results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today's earnings release. Please recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements. Today, Larry will start with a discussion of our volume and sales results. Steve will follow with a review of our financial performance for the quarter and fiscal year, as well as discuss our current outlook for fiscal year '13. And finally, before turning to Q&A, Don will close, commenting on some areas of strategic focus for the fiscal year. With that, let me turn it over to Larry.

Thanks, Steve, and hello to everybody on the call. Overall, our fourth quarter top line performance was strong, and we finished fiscal '12 in good fashion. We delivered sales growth of 4% on top of 4% sales growth in the year-ago quarter. Even without the recent acquisitions, sales grew about 2.5%, and sales were up in all 4 of our business segments. Turning to volumes. Q4 volume was up 2%, about half the rate of sales growth, due to the benefit of price increases across most of the portfolio. Our new product innovation program delivered record levels in fiscal '12, with over 3 points of incremental sales growth. And our integrated marketing plans continued to drive strong market share results. We feel great about the quarter and the progress we are making in driving top line growth in a tough economic climate. In our U.S. business, our all-outlet retail market share reached a record high. We were up about 0.5 share points over the past 52 weeks to a 28.1% share. Moreover, we gained or held share in every one of our U.S. categories. These share results are particularly encouraging given recent price increases on almost every U.S. brand. The other good news is that our U.S. categories are getting healthier as pricing takes hold and the economy recovers. Overall category consumption on an all-outlet basis was up about 0.5 points for the past 52 weeks. This is the first consumption growth we have seen in our U.S. categories in the past 3 years. Our Cleaning segment delivered a very strong quarter, with volume up 5% and sales up 7% behind volume gains and pricing. Home Care volume increased behind double-digit increases in our portfolio of Clorox-branded cleaning products, including strong gains in Clorox Disinfecting Wipes due to strong merchandising…

Thanks, Larry, and hello, everyone. I'm going to review our fourth quarter and fiscal year results and discuss our outlook for fiscal '13. Starting with the fourth quarter. Sales grew 4%. We had gains in all 4 reportable segments. Excluding the impact of the Aplicare and HealthLink acquisitions, sales were up more than 2%, driven by the benefits of pricing and base volume growth. These benefits were partially offset by unfavorable foreign exchange rates and higher trade spending, both of which impacted sales by nearly 1 point. As expected, our fourth quarter gross margin decreased 80 basis points to 42.7% versus 43.5% in the year ago quarter. While pricing and cost savings more than offset higher commodity costs, increased costs for compensation, manufacturing and logistics had a material impact on margin. Mix also had a negative impact on margin of about 80 basis points, but less than we saw in the third quarter, when we had particularly strong merchandising events. Turning to selling and administrative expense. The rate of spending came in pretty much as we expected at about 14% of sales. The year-over-year increase reflected higher compensation expenses and our investments in IT systems and new R&D facilities. Net of all these factors, we delivered earnings from continuing operations of $174 million or $1.32 of diluted earnings per share. This compares with $169 million or $1.26 in the year-ago quarter, an increase of 5% diluted EPS. Next, I'll turn to our results for the full fiscal year. Sales were up a strong 5% for the fiscal year, with gains in all 4 segments. This reflects improving U.S. categories, strong results on our base business, a very successful pricing execution and the benefits of the recent acquisitions. Excluding the impact of acquisitions, sales grew a healthy 4%. Fiscal '12 gross…

Okay. Thanks, Steve, and hello, everyone. I, too, certainly feel great about the strong finish to the fiscal year. As we've talked -- as Larry and Steve have talked, we grew sales 4% on the top of the 4% sales growth that we had in the prior year quarter and also grow earnings per share of 5%, and that was on top of 20% growth in earnings per share last year in the same quarter. So I think those results are a good testimony to the strength of our brands and our innovation and, really, our people's excellent execution of the strategy we talked to you about in late May. And I think it's pretty impressive when we consider the challenges I know you're all aware of that every company is facing in this tough economy. So looking forward, we're going to continue to execute against the strategic initiatives we outlined at the Analyst Meeting in late May. First, we're focused on those 3 growth colors. Recall U.S. retail, which represents about 75% of our portfolio, Professional Products, and then the International side of our business. In our U.S. retail business, it's all about this continuing excellent execution of our 3D demand driving programs with breakthrough advertising, collaborating with our retail customers to win at the shelf and, then of course, continuing to accelerate innovation to build our brands and categories. And as Larry noted, we've got a strong pipeline for fiscal '13 in innovation, as well as we had in fiscal '12. In Professional Products, our plan is to leverage our brands and technologies to grow our Healthcare business organically and expand inorganically through bolt-on acquisitions like we did with Aplicare and HealthLink. And finally, in International, we're focused on growing in the current markets where we have significant…

[Operator Instructions] And our first question will come from Alice Longley of Buckingham Research.

I'm just trying to look at what the performance of the U.S. alone in the quarter, I'm backing out that maybe volume here was down 2%, and price mix was a positive 3%? Is that right? Or could you correct that?

No. To be honest, I don't have those numbers off the top of my head because we don't look at the U.S. business independently. Sounds about right, but I think we’d have to get back to you on the specific.

And we'll take our next question from Linda Bolton-Weiser with Caris. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: Just on the mix issue. I mean, you did mention very specifically that the 80-basis-point gross margin impact was better than last quarter. But I don't recall actually getting a specific quantification last quarter. Could you just give us that? And also, the mix impact on sales, I guess, this quarter was negative 2%. And what was that in the March quarter as well? And then related to that, mix -- still the 80-basis-point impact, even though it's improved, it's still pretty negative. And how should we just think about this over the very long term? Is this a real secular issue that's just going to be a drag on your gross margin kind of on a real long-term basis? Or maybe could you just talk about the whole issue a little bit more?

Yes, this is Steve Robb. I can provide some color on this. So I believe we did provide the mix impact in the third quarter. But as a reminder, it was a 140-basis-point drag on our third quarter gross margins, and just as a reminder, part of the reason that was larger than we've historically seen as we had -- because we had some unusually strong merchandising events that went on during the quarter, which increased it. As we have previously communicated, we’d expected mix to continue to be a drag, but not the same extent that we have seen in the third quarter. So for the fourth quarter of this fiscal year, fiscal '12, what we saw was that mix was an impact of about 80 basis points. Now looking forward, a couple of things. First, we do continue to anticipate that mix will be unfavorable, but we don't expect that it will be unfavorable at the same level that we've seen in fiscal '12, in part, because some of the negative mix is already in the base and in part because we're starting to anniversary some of the particularly strong merchandising events that we saw in fiscal '12. But this long-term trend where consumers are trading up to larger, more value-oriented sizes is going to continue, which is why as we shared in May, we're going to continue to focus on taking a sharp eye to price curves to make sure that we take pricing where appropriate, continue to drive hard against our cost savings and then, finally, focus on margin-accretive innovation. And we think those things, over time, will help us mitigate some of the negative impact on mix. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: Great. And can I just ask one other one on the gross margin? You quantified the other piece of the mix, other impact, and the increase in incentive comp was a pretty big impact. I think it was something like 100 basis points. Why is there so much of that in gross margin? Usually, I would expect to see that in SG&A.

Yes. So keep in mind that the incentive-based compensation is actually split between SG&A but also gross margin. It gets into the accounting and where the people reside and how it gets classified in the P&L, so that's not unusual. But let me step back and provide a perspective on incentive compensation. So just stepping back, our short-term incentive compensation program really has 2 metrics: first is sales growth, and the second is economic profit growth. Now in fiscal '11, the base year, that was the year when we established goals for ourselves, and we simply did not achieve all of our goals. And as a result, we are a pay-for-performance company. So we simply did not pay out at 100% against those objectives. Fiscal '12, by contrast, has been a much stronger year. And we have met, and in many instances exceeded, the goals we have set for ourselves. So really, what you're looking at is a low-based period in fiscal '11, a higher number in fiscal '12. I think you should start to go to fiscal '13, we would expect it’ll have more of a normalized look.

I think the other thing you should note is that our product supply organization, where we have over 50% of our employees, everyone in the manufacturing side of our business now is eligible for an annual incentive. And we shifted funds around from other buckets, for example, pension, to give people more of a potential earn cash in the current year. So you're seeing what Steve said, which was a depressed year ago, obviously better performance in FY '12 against targets, but you're also seeing now a much larger swathe of people in manufacturing eligible for a cash incentive, which we think drives cost savings long-term.

And we'll go next to Ali Dibadj of Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Just wanted to get underneath your decision around advertising versus trade spend a little bit. So what categories specifically was the shift happening? You certainly mentioned advertising in Latin America, but was that aligned with trade spend or are there other things at play? So for example, competition, was that trying to take advantage of some of the anticipated commodity release? And moreover, the trade spend, if it was in the U.S. or North America business, it didn't really drive a lot of volume, I guess. So trying to understand the almost trade spend elasticity in some sense as well.

So 2 big buckets, I think we talked about the International bucket, which is about half of the reduction year-over-year, and that's just because of a -- we have a very difficult situation with price controls, bad economies, just doesn't make sense to spend a lot of money in those kind of environments. And in fact, in some cases, we're supply-constrained in those environments. So that's a fairly, I think, clear decision for all the right reasons. On the trade spending side in the U.S., I would say there's one business that did have a material impact in terms of the shift between advertising and trade, and that was the Glad business. And so we are starting to see as resin has come down fairly significantly, competitors are starting to spend back, starting with the private label, and it’s migrating to some of the branded competitors. And so we are starting to spend back on Glad a little bit to essentially kind of maintain reasonable price gaps versus competition. So I would say that's the one category, and that was a fairly material part of the number. So those 2 buckets, I think, explain probably about 3/4 of the change.

And the one thing I would add -- Ali, this is Don. -- is that when you look at the U.S. advertising spending for the year, it's right in the middle of our 9% to 10% range, so I wouldn't get too fixated on 1 quarter given that, obviously, these things will move around quarter-to-quarter. But we are committed to hanging into that range as we go into fiscal '13. I think the other thing is our -- as I think Larry mentioned, our ROI on marketing spend is up significantly. We're getting better and getting more impactful advertising. Our advanced analytic models are working very well. And I think the proof’s in the pudding in the sense that we're gaining share. And our shares being at an all-time high, we think we're reinvesting at the appropriate level and with the right mechanisms. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay. That's helpful in terms of how you think about it. So if you take that and roll it forward, in the 2% to 4% top line for next fiscal year, how does that break out in terms of volume and price as best you can tell right now? And it sounds like that's different in the different halves of the year, quarters of the year, so if you can give us some clarity there, that will be helpful.

Let me give you -- let me start, Ali, and I'll let Steve and Larry jump in. If you think about how we built that algorithm, basically, we've got about 3 points of growth from new items, new innovation from our pipeline. We've got about 1 point of acquisitions, and we've got about 1 point of pricing, most of that being in international markets and high-inflation markets. So you've got about 5 points of growth there. But we've got about 2 points of foreign exchange headwind, so you strip it out, and we're right in the middle of our 2% to 4% range. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then I don’t know if Steve wants to add, but cadence around the quarters or halves.

I think it's fairly aligned with -- as Steve said, the first half we look at is fairly consistent with the 2% to 4% outlook for the full year. We don't see a lot of volatility quarter-to-quarter on the top line. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then my last one is around free cash flow. You mentioned -- Steve mentioned, I guess, it's going to continue to improve going forward. Can you give us a sense of that? I mean, is that in line with EPS growth in some sense? Are there things you're doing to improve working capital base so it gives it a little bit of a boost? And then all of that spend, how do you think about, as you mentioned, returning it to shareholders, so dividend, obviously, share buybacks. But also, how much should we think about it driving that 1 point of acquisition that you're expecting to drive the top line?

So let me just step back and first comment on free cash flow, then we can talk about the uses of cash. So the free cash flow, the outlook for fiscal '13 is, as I mentioned a few minutes ago in my opening comments, we anticipate it should be about 9% of sales. Now that is a little bit lower than we’ve historically seen, where free cash flow has historically been around 10% or north of 10%. The reason it's just a little bit lower than the historical average is because of these infrastructure investments that we’ve talked about and the fact that margins have come down, and we're still in the process now of rebuilding margins. I think as we look to fiscal '14 and beyond, Ali, we fully expect that free cash flow as a percentage of sales should be about 10%, maybe better than that, as we anniversary the infrastructure investments and as we continue to take the actions that we've talked about to improve our margins. Now in terms of how we deploy that cash, we're really not changing the algorithm that we have for the company. We'll continue to support organic growth and inorganic bolt-on acquisitions. We'll continue to support the dividend, which I think as we've talked before has increased for a number of years, and it generally increases at the rate of growth in operating profit over time. And we'll continue to pay down our debt. Our debt-to-EBITDA, as I've mentioned, is about 2.5 right now to 1, and we'd like to see that get closer to the middle of our range. Now as we go through the year, if after having done those 3 things, we have excess cash that's starting to pool up on our balance sheet, I think consistent with what we've done in the past, we will work in partnership with our board, and we will look for efficient ways to get that back to our shareholders. And that could include buying back some additional shares, either to offset stock option dilution or just to do some discretionary share repurchases. But I think at this point, we need to get further in the year before we make any more assumptions around that.

Ali, just one other point of clarification. When Don talked about 1 point of benefit next year at the top line from acquisitions, that isn't presuming at this point any new acquisitions, just the carryover the benefit from the acquisitions we made mid-last year, like Aplicare and HealthLink. So there's no presumed funding required for those. Those businesses have already been purchased.

This is Larry. I want to come back to Alice's, the first question around performance in the U.S. That will help some of my colleagues here. So from a U.S. perspective, volume was up just above 1%, and sales were up 4%. They're reflecting the difference in pricing essentially.

We'll go next to John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: Two questions here. So the first one’s a little bit of a pushback, following Ali's question which related to the advertising, which is you would expect the shift from advertising to trade promotion would improve market shares in the short term. So I guess, can you talk a little bit about how closely you can monitor share of voice and things like that, so we can feel comfortable that you're really not sort of using the seed corn here? And then secondly, could you just sort of clarify your first half guidance? Because I think margin expectations may be a little bit high potentially for the first quarter, so if you could just sort of give us a little more color there.

John, let me start on the advertising, and then I'll turn it over to Larry. I think you can take some real comfort as our investors should from the fact that if you look back over the last 4 full years, we've gained 1.9 share points, private label has gained 1.2, and our branded competitors have lost over 3 share points combined. So I think we've done a really good job of -- over the long term, of gaining the share. It wasn't like an episodic from 1 quarter to the next. I feel confident about the advanced analytic models we use. We obviously monitor this month to month in terms of our share of voice. We're looking at it constantly. We're also looking at, obviously, the price gaps, and given the economic environment, and we obviously look at this by category. But when you get into the trash bag category, for example, it's obviously highly sensitive to price gaps. So I think you should take comfort in the fact that these share gains, which reached an all-time high for the last 52 weeks, have been on a real roll for the last 4 years.

I think would just build on that to say is there is absolutely no indication that either our sales or shares results have been hurt by what is a fairly modest amount of spending reduction.

The other thing I would add, John, is if you look at the full fiscal year '12 for the U.S. business, it was right smack in the middle of our 9% to 10% range. So the International thing really added some -- a little bit of complexity the last quarter. But given the volatility in Argentina, Venezuela, the price control situation, which was ambiguous, we didn't think it was a prudent spend of our investors' money to go in there and spend advertising when the consumer is sitting on the sidelines.

John, this is Steve. Let me take the second half of your question, which really talks to margins, and see if I can clarify. So for the full year, there's a couple of things that we believe at this point, based on the recent softness we're seeing in commodities. First and foremost is that gross margins are going to begin to stabilize and improve. And in fact, we are looking for modest gross margin expansion over the year. And we fully expect that gross margins will begin to show some consecutive improvement even as we go into the first half of fiscal '13. Now EBIT margin is expected to expand about 25 to 50 basis points for the full year, kind of consistent with our long-term aspirations. But we do expect it to be down somewhat in the first half. And the reason for that is because the infrastructure investments, this $50 million to $55 million that we've talked about, a disproportionate amount of that is going to fall to the first half because we're completing our implementation of SAP in Latin America in the first half of this calendar year, and we've got significant investments as we rebuild our R&D facilities in the first half. So you should be looking for gross margins showing some improvement. But that is going to be offset by higher SG&A and other expenses, which is why we think EBIT margin will be down. And importantly, as we get to the second half of the fiscal year, we would anticipate that EBIT margins will be coming up and that, for the full year, will be up this 25 to 50 basis points. John A. Faucher - JP Morgan Chase & Co, Research Division: Okay, so and not to belabor this point, there's a lot of volatility sort of in the operating margin comps, sort of Q1, Q2, Q3, Q4, and probably pay less attention to that and a little bit more to the cadence in the spending that you talked about. Is that fair?

I think that's right.

And we go next to Wendy Nicholson with Citi Research.

I just want to try and be crystal clear, so there's isn't any confusion. If you're looking for that much margin contraction in the first half and the 2% to 4% on the top line, are we -- should we be modeling earnings down in both the first and the second quarter bottom line EPS?

I would say that with a negative EBIT margin in the first half, yes, that, certainly, the operating results are going to be challenged in the first half.

Got it. My second question is with regard to the higher level of promotional spending on the Glad business, is there a point at which the resin prices have come down so much that you'd expect to see negative pricing there or a change in the count per box or anything like that?

So if you look at Glad over time, we’ve taken pricing up [indiscernible]. We've also taken some price declines. I don’t think we’re at this point close to where you would consider to take a price rollback. So it's more likely to come in the form of trade spending increases versus actual rollback in terms of charcoal price. But over the long term, you might expect ups and downs in the category like Glad.

Got it. And then the second question I had just on the advertising and promo. You've given us guidance on -- I think on the advertising line for next year. But since promo has ticked up, would you assume that the aggregate level or the absolute level of promo spending stays flat? Or will there be an offset, and that will come down as advertising goes up? So net-net, total marketing reinvestment, does that go up next year? Or is it just the flip back into advertising, if you will?

So I think trade spending will probably be about flat versus this year, and advertising will be up just a bit. [indiscernible].

It's kind of a modest increase, Wendy, in total demand spending.

We'll go next to Javier Escalante with Consumer Edge Research.

I would like to understand your forecast for commodities. You are talking about that they are deflating. Could you give us a sense whether if there even is an area where you're going to have a benefit, that commodities could be a benefit in the gross margin? Number two, if commodities are deflating, you took significant amount of pricing in the fourth quarter, at least the Pine-Sol, 17% and all that, and that led to about 230 basis points of favorable impact in the gross margin line. Shouldn't you have a very significant gross margin expansion in the first 2 quarters, taking into account the cadence of commodities and all these extra pricing that you took in May, between May and July?

Okay, Javier, this is Steve. Let me take that in part. So let's start with the outlook for commodities. I think the good news is -- and we started talking this in May. Two things needed to be true for the rate of increase for commodities to slow. We need to see energy prices come down and stay down. We've actually seen that over the last few months, which is very good news. In addition to that, and this is probably more important, in some commodity groups, particularly resin, we've seen a softening in demand, and inventories are up a bit. So the combination of lower energy prices and softening demand, in particular, into resin is actually causing the price to be down. And in fact, on a year-over-year basis, at this point, we do anticipate the resin costs are expected to be modestly lower. That said, when we look at the balance of the commodities, we're not seeing deflation. What we're seeing is the commodities are likely flat to up slightly. So we need to step back and look at our outlook for commodities in total. Again, we would say that it's not a deflationary scenario. Commodity costs will probably still go up modestly, but certainly at a much slower rate than we saw in fiscal '12. I would also just point out that other inflationary pressures on wages, benefits and other supply-chain costs continue to go up. So in total, we're still anticipating some headwinds. As it relates to pricing, as I mentioned a few minutes ago, I think we do believe that the benefit of cost savings and pricing will help gross margins in the first half of the fiscal because we expect that, that will overcome the commodity costs, which are expected to be -- and other inflationary pressures, which are a lot less than what we saw in the year-ago period.

Javier, I'll just add one thing. Larry mentioned that none of the brands which have taken pricing on right now -- it doesn't suggest we need to reverse those prices at this point. You'd pointed Pine-Sol. You're right, we're taking a pretty significant increase, or we did back in April. But one of the commodities that's causing our commodity pictures still to look unfavorable for next year, maybe flat to unfavorable, is pine oil, which is the primary ingredient in Pine-Sol. And that's still up dramatically. So again, these increases have been cost- or price-justified, either commodity-related or inflationary-related, and even on that Pine-Sol increases, it’s not something where we think we're going to reverse it at this point.

And I think the other thing, Javier, that we want to be mindful of as we go into the year is, and when you look at what's happening with corn pricing, and obviously, we use cornstarch in Kingsford; and you look at soybean oil, which we use in Hidden Valley Ranch salad dressing, those commodities are up significantly. So we want to be mindful. We have some -- we've got some -- certainly, some good news on resin, but as Steve and Steve have said, we got some pressure on these other ones so...

Understood. And I have another question because you have been alluded before in the call, and it has to do with these advertising spending and whether there was good quarter is a bad quality quarter or not. Could you talk about the IT spending, how much this IT spending was in the quarter? So to help understand -- people understand to what extent is what’s a high-quality quarter or it's not a high-quality quarter.

Let me just say this before I turn it to Steve. In terms of a high-quality quarter, I think when your demand spending is basically flat, because again, we look at total demand spending, not just advertising or trade promotions. So we look at the whole bucket. We look at it as flat. And the fact that we have gained share, I think, says to me it's a pretty high quality quarter. But with that, I'll turn it to Steve.

Yes, Javier, just stepping back on fiscal 12. What we had previously communicated is we thought that infrastructure and other related costs would be in this range of $50 million to $55 million. We ended the year at about $50 million. And certainly, a significant portion of that did flow through the fourth quarter and is reflected in the number. We don't typically break it out by quarter, but I would just say that we did see about $50 million in costs associated with these projects.

But when you say a significant amount could be significant, meaning 1/4 of it? 30% of it? 50% of it? Could you be a little bit more specific because the whole undertone of certain questions has been that you caught advertising spending to beat the number. So if you can clarify that, that will be very helpful.

Javier, of the $50 million, which again includes not only the IT projects, implementing SAP and International, but it also includes the incremental spending for the R&D facility and fewer other smaller projects. Of the $50 million, more than 1/4 of it did get expensed in the fourth quarter. And again, it's not all in one line item. It's across a few lines of the P&L, but it was more than 1 quarter, the $50 million spend.

I just want to reiterate, Javier -- yes, thanks, Javier. But I just want to reiterate, though, we did not cut demand spending. So I mean I think you do have to look at the total bucket, not just the advertising.

No, that was clear in the release. I just wanted to make sure that we understood the other IT spending issue.

We go next to Tim Conder with Wells Fargo Securities.

Just to stay on the commodity side, you've given some good details so far, and thank you very much. But gentlemen, any thoughts or just give us a little bit of an update or color if you’ve looked at hedging, any of those commodities that have come down or your exposure to those commodities that have come down. If you’ve looked at taking that pullback and maybe locking that in at this point? And if so, just some details on that.

Yes, we talked to this before. And we do, do some financial hedging of our commodities. We've got some fairly modest hedge positions in place that were put in place a little while ago on some agricultural commodities. But one of the challenges that we have, and I don't think we're alone in this, is that one of the largest buys that we have is in resins and certain packaging materials. And there just really isn't a market to put financial hedges in place for that. And if you were to do private-party transactions, it would be very expensive because of the underlying volatility of those commodities. So what we tend to do is partner with our suppliers. And we sometimes have contractual terms that allows us to lag a little bit on price movements either up or down. But we don't have significant financial hedging positions in place against the commodity exposure. It's just too expensive to do it.

And I would think that you’d have the same types of flexibility clauses in your contracts with your logistics providers?

Yes, I don't want to get into that. I would just say that what we've consistently said is that as you see day-to-day and month-to-month movements in energy prices and commodities, that doesn't immediately translate into changes in our P&L. It can take 1 quarter or 2 before that will come through.

Okay. And then maybe just a little bit broader question here, given the way the current tax laws are looked to see tax rate increase, and granted, it's an issue primarily for more individual shareholders. But has there been any preliminary discussions at the board level as far as looking at the way you will return capital going forward, if some of the allocations may change a little bit in the weightings of those different buckets?

We are always working in partnership with our board and the finance committee to look at what's the most efficient way to return cash back to our shareholders. And I think, again, what we've continued to commit to is continuing to support the dividend in a strong way; and then over time, continue to reevaluate different options for returning cash back to our shareholders if we have excess cash that's building up. I think we've got to go look at what's really going to happen with the fiscal cliff and what's going to happen with the tax reform. I think there's a lot of uncertainty at this point, so it's probably premature to speculate. But I would say that we are always having active discussions with our board and looking to do the things in the best interest of our shareholders.

And I think, Tim, once we get past the election, obviously, in our November and/or February board meetings, it’ll, obviously, be a topic for discussion. But as Steve said, it's always about how we get the cash back to the shareholders in the most efficient way.

We'll go next to Nik Modi with UBS.

Just Don, would like to get your viewpoint on the consumer. I mean, no offense to Clorox, but your categories have not been known to be the fastest-growing out there, yet you seem to be doing pretty well with the categories. So I'm just trying to get an understanding. Is this partly a function of the way Clorox is actually addressing the categories in which they compete, i.e. you guys are actually helping grow the categories, or is there some kind of consumer dynamic out there that -- it doesn't match up to what we see on CNN?

Yes, no I think we still have a very fragile consumer out there, Nik. It's interesting. We're now seeing about -- over -- slightly over 80% of the shopping trips are what we define as fill-in shopping trips, where people are buying less than 15 items. It's still less than -- slightly less than 50% of the total spend. Obviously, people are still doing pantry-loading trips, but it's interesting how many people now are flipping between channels and using these fill-in trips to modulate their cash outlays. So -- and if you look at our categories, I mean, when we hit the low point in December of '10 at negative 2%, we've seen that steady climb back. In the last 3 months, we've hung in very tightly at a plus 0.5. Now that difference between that negative 2% to plus 0.5% in our categories is about $500 million of increased consumption. So I mean, it's modest, but again, you can get lost in the averages too. I mean, we've got the trash categories up plus 2% now; the food category, up plus 2%; Charcoal starting to improve but relatively flat. Home Care is down 1.5%, but it's really dilutables that are driving that down. Spray cleaners are up 4%, where we're strong. So there's a lot -- you can get lost in the averages. But net-net, we're seeing a fragile consumer. They’re shopping with these fill-in trips more frequently. As gasoline spikes, and it had the highest spike last month in 12 years on a monthly basis, we tend to see our categories do a bit better because people stay home more, and we're a stay-home company. So we'll see how it plays out. But the good news for us is I think there is real stabilization in these categories.

And, Don, just quickly, as you kind of viewed the business as the quarter progress, did you see any significant changes in consumer behavior? I don't know if your analysts can pick that up that quickly, but just as I look at kind of what's been going on out there, it seems like there was something that happened at some point in the midpoint of the quarter. I'm just curious if you saw something similar.

We didn't see -- I'll let Larry opine on this as well. We didn't see anything in our categories or our particular brands if there was any step function change. We are continuing to see people move into the value channels. Clearly, the Dollar segment continues to be pretty robust. We're continuing to see people where they do pantry-load going to the club channel. So I mean, nothing dramatic for our categories or our brands, Nik, in the middle of the quarter.

I'd say the same thing. No big hurdles one way or the other.

We'll go next to Bill Schmitz with Deutsche Bank.

Did you say what Hidden Valley Ranch did in the quarter?

Hidden Valley was up mid-singles.

Okay. It just wasn’t in the written commentary, so I didn't know if there was a problem there. So the S&A costs, broadly speaking, if you kind of look back historically, they kind of hovered in sort of like a 12% of sales range. And now it looks like they're kind of permanently at sort of 14% x the R&D and the SAP spending. Is there opportunity to get that ratio down? Or is there something changed in your philosophy in that line item?

I think that historically we’ve been in, call it, the range of, well, 12% to 13.5%. I mean, 12% is probably the low watermark. We absolutely believe, as we anniversary this infrastructure spending in fiscal '13, that as we get to fiscal '14 and beyond, there's clearly the opportunity to lower that. And I think what we've said pretty consistently is we’d like to get it to 14% or less. And I think, ideally, we would like to get that less. The fact that it's up is in part because of infrastructure. And also, remember that when we sold the auto business, we had some dis-synergies and some stranded overhead that were there. So over the long run, our expectation is that growth, anniversary-ing the infrastructure investments and even bolt-on acquisitions to give us growth that we can extract synergies from, all of that should help us get the SG&A back to levels that we think in the long-term [ph].

Okay, great. And then the year-over-year change in the other expense income line, it went from income to expense year-over-year. What drove that? Is it going to be an expense next year? Or do have any color on that?

Yes, on a full year basis, the biggest driver -- there's really 2. One is we had some asset sales in -- you’re talking fiscal '11 versus '12. We had some asset sales in fiscal '11 that didn't repeat, and that threw off over $10 million. We also had some TSA income. This is transition services income from the auto business that's been slowly winding down, so that's the biggest change. I think as you look to next year, it should get to more of a historical normal level.

So like the $4 million a quarter is kind of the right number?

Bill, it's really hard to project because, hence its name, other income and expenses, there’s just a myriad of things that go through it every quarter. It's really hard to predict. Probably, if you want to peg it at about flat but recognizing it could be plus or minus $5 million in a quarter. That's probably the best we can guide you to at this point.

Okay, great. And then as kind of you look at the split between volume and sales as the next year progresses, is it fair to say the back half is going to be much more volume-weighted? Because I think most of the big price increases roll off next quarter, at least in a year-over-year basis. I mean, there’s some incremental Pine-Sol stuff, but is that a fair assumption?

Yes, at this point, we really don't see -- I think this comment was made earlier as well in relation to sales. But I would say the same is true in volume in that we're not really expecting to see dramatic variances quarter-to-quarter. Part of it may be that -- we do have some pricing still planned for this next year, which may have a moderating effect on volume in some categories where we take it. As we noted, it's not going to be as high or as extensive as it was in fiscal '12 at least as we see it right now. But that may be causing some of the moderation as well. And the fiscal year’s got a long way to go. I think the best we can say at this point is each quarter's volumes are going to be roughly within the same range as the full year.

Got you. Why wouldn't the volumes snap back if the pricing was rolling off? Because it was big pricing that’s lapping.

Well, in some categories, we're expecting that it will. But in others, you may not see that. And again, International is low right now, particularly with some of the Latin American economies. That may be at a slower growth rate than what we've seen recently because of some of their economic challenges.

Okay, got you. And then one last one, if I can. Now that we get sort of the multichannel data from Nielsen and IRI, have you guys taken a stab at what percentage of your U.S. business will now be tracked? I know you used to say it was below 40% or something, but do you know what the new number is now?

I haven't seen all the data. I'm actually scheduled to see it next week. But it should be about probably 70% to 75%. So the places that it will be excluded will be places like a home hardware, like Home Depot and Lowe's. I think it may be a portion of the Dollar channel, and Costco would probably be the big misses.

Okay. And the reason I asked is that there was actually -- so we got the data for the quarter, and it actually showed much weaker sales in your reported. So is there a little difference between sell-in and sell-through in the quarter?

No.

I don't understand.

I don't understand that, Bill. But...

Yes, maybe the data’s just -- they’re still working through it, so it’s…

We’re still cleaning the data. And what we always find when you go to a different data source, you always have skews and things that are miscategorized. So we will have better information on the next call in terms of what we look like and probably be able to give you some comparisons in terms of coverage and difference in trends. Overall, based on what we know, the trends are relatively the same. Can't speak to a single quarter, but over the long term, they're relatively the same.

Bill, just to clarify your question on Hidden Valley, I want to make sure we're clear. The business did grow mid singles for the full year. It was flattish in the quarter.

And we'll go next to Connie Maneaty with BMO Capital Markets.

My questions have been answered.

Then we'll go to Chris Ferrara with Bank of America.

Guys, can you talk a little bit more about International? I know we have a number of different issues going on. But can you just talk about some of the big ones and put a little more color around them? I guess, talk about -- is there any need for more structural change in any of these markets?

I think we talked about the overall International strategy when we had the analyst meeting. And I think overall, we feel good about the past growth trends on the top line, and we feel good about what looks like good from top line growth over the long-term future. But we do have a margin challenge. And it really, probably, ties mostly to the fact that we have 2 big businesses in Latin America that just have a difficult kind of economic situation. It's a combination of very high inflation, usually double digits, often more than 20% and some form of price controls within those countries that affect our ability to price, as well as sometimes affect our supply chain. So that's really the issue. So our International folks are incredibly focused on trying to build sustainable structural margin. Obviously, the SAP implementation that we're going through today will be a key enabler to that over the long term. We’re in the go-live phase this year. But as that system comes on stream, it will give us a lot more visibility and a lot more capability to go after the cost side of the business. But that's essentially what's going on. The good news is the consumer demand is still there. The categories, particularly in Latin America, are still pretty healthy from a dollar sales standpoint. The volume is not quite as strong, but still it's increasing. So kind of the consumer fundamentals are good. It's the difficult government policies and economic factors that are getting in our way.

Yes. I think what we feel good about, Chris, is the fact that, as Larry said, the categories are still fairly robust growing in the mid-singles. Our own sales numbers, despite Venezuela, are in the mid-high-singles, so we still feel good about that, and we gained almost 1 full share point in Latin America in the last year. So -- and that's 2/3 of our International business, as you know. So I think we still feel very good about that. I think, to Larry's point, once we get our SAP implementation done, and that will be done by the end of this calendar year, we'll feel very good about the value capture we can get out of that. [indiscernible]

Yes, that's good. I appreciate the color. And on the manufacturing logistics line, I mean, obviously, diesel’s a big piece of that, right, and we saw it tick down in Q4. It looks like it's running with diesel prices. I mean, is there a reason to think -- is there a reason why that line of diesel does what it's been doing, why -- as we flatten out at least, not that diesel’s going down, but as it flattened, that it wouldn't look more like the fiscal '11 kind of rate of change in manufacturing logistics?

Well, if diesel prices in fact continue to -- if they start to soften and continue to soften, you'll get some relief on that line, and you might -- we might start getting back to the numbers we saw 1 year or 2 ago. I would also just mention, though, in that line, it includes a lot of inflationary pressures, big portion of which is coming from International. And as Larry commented, we're looking at a lot of countries we operate in with double-digit inflation. So we fully expect that you're going to see costs on that line continue to march up, driven primarily by inflation. And then we’ll have to see how the diesel plays through.

We go next to Lauren Lieberman with Barclays.

I'll just keep it brief. I was curious about why there was mention of lower merchandising in both Bleach and Cat Litter in the quarter. I'm guessing Bleach was maybe ahead of holding back the spending until you move forward with the concentrated launch. So I wondered if that's correct. And then pacing for that launch, how much of the country can you cover in 1 or 2 quarters, and then the merchandising in Cat Litter?

Yes, the merchandising shifts are what I would call kind of the normal ebb and flow. And maybe, because you have particularly good events in the base period, and you’re not replicating that, but I would say I would not describe it as anything fundamental nor would I describe it as preparation for moving to the concentrated formula of bleach or anything like that. But it is a typical, normal ebb and flow that we get with different customers just based on our merchandising plans or competitive plans or whatever it might be. Specific to the conversion on Clorox liquid bleach, I think we laid out all the detail on that in the analyst meeting, but it's a four-wave kind of roll out over the course of this year. So the first wave is going out, essentially as we speak, to the Midwest. And then the last wave goes out in March. So by the end of the year, we'll be fully converted, but the nature of the supply chain and the difficulty in changing shelf sets and things like that basically necessitates that we do this over 4 waves versus all at once.

I think, Lauren, just to add some more color to that, I think the trade reaction we talked a little bit about has been very supportive of this. Obviously, we're getting about 25% more pack out on the shelf with the reduction in the package size. But the new planograms are integrating new items as well, and I think this will eliminate one of the big issues we always talk about, which is weekend out-of-stocks on bleach. So the trade is very supportive, and we're seeing everybody else move as well, so which is a good thing.

And we go to the Northeast in January, so you'll be able to see it in January on the shelf.

Good. One thing that surprised me was, Don, you said you see others moving as well. Do others have the technology? Does the private label have the technology?

They don't have the technology that we have, but they can offer a bleach which is similar to ours. It just won’t have the stability on the shelf over time that ours does. So we will have an advantage, particularly as the product ages. But they can produce a product that’s a little bit more concentrated in a smaller bottle.

And we'll go next to Ian Gordon with S&P Capital IQ.

Just on the bleach rollout, so are you physically losing shelf space? Or you kind of alluded to putting more stuff in there and how might the consumer perceive some of that? And I just want to ask on Venezuela. If you can help us understand why it's still down double digits. I think one is your world care competitors saw that phenomenon in the March quarter when the retailers were holding back their orders in advance of -- they didn't know what the prices were going to be, but then it seems to have normalized in the June quarter. So I'm wondering if you can just give us a little clarity on that.

So what we're seeing in terms of the bleach shelf sets, and obviously, we're just rolling out -- what we're seeing is essentially the shelf size has maintained. In other words, the bleach section hasn't changed in size, but their ability to get packed out on the shelf, number of bottles on the shelf is obviously increased by about 1/3, which is the concentration rate. And bleach is one of those -- our 96-ounce current Clorox Bleach is one of the fastest-selling unit items in grocery stores. So the out-of-stock issues over weekends can be a problem, so this is going to be a big boon just in terms of reducing out-of-stock. So what we're seeing is we typically have as much and sometimes more shelf space, and the overall set about the same. In terms of Venezuela, I was there just last week. It's a fun place to visit. Essentially, what we're seeing is the consumer demand is not robust at this point. Consumers are a lot -- are under a lot of economic pressure. We also had some supply constraints, particularly in one part of our business that was imported from another Latin American country, which the government no longer allowed. So there was some issue with some supply shortages, which we've fixed. That's part of the equation as well. But I would say that the underlying consumption by consumers is pretty flattish at best. So what we haven't seen is the reduced pricing generated the incremental sales in that country as yet, and that’s I think because the overall economic picture with [indiscernible] consumers is not that positive.

And I think the other thing I would say is that the price control implementation was staggered by category, it wasn't all done at the same time. So depends on what category you're competing in, whether it was implemented in March, April, May, so there was some variability too. So I think, the time we get into this quarter, we'll start to see what the impact on consumption is.

Just building on that for clarity. So while the business is down substantially on the full year, the fourth quarter, it was down, but it was down a lot less than what we saw in the third quarter. So I would say that the trends are improving, but still a long way to go.

We go next to Jason Gere with RBC Capital Markets.

Just a follow-up, I guess, on the Laundry category. I know you talked about the Bleach and the merchandising as part of, I guess, the shortfall in the volumes there. But on Clorox 2, you did talk about the price impacts and how that's still affecting the category. And I guess, I was just wondering how much Clorox 2 was actually down. Compare that to last quarter, is sequentially the category getting better? Or is this one of those categories where you're really just seeing the economic environment pushing people away from the category, and obviously, the pricing that you took a year ago kind of led people on that path?

Category volume is soft, and our business is soft in Q -- on Clorox 2. It's soft from a volume standpoint, but we're up from a sales standpoint. And so essentially, what you're seeing there is the just typical profile of a price increase, where you do see some volume decline, there is some sensitivity to price increases, but you're making up for it in your pricing.

Okay. Are there categories within the portfolio that are having the same type of impact as with Clorox 2? Is this really kind of an isolated incident, where, I mean, you've seen -- typically, when you take price volume, obviously, suffers near term, but usually it's after 1 quarter or 2 that the volumes start to come back, people adjust to the pricing. This one, obviously, you've said that it's taking a little bit longer. So is this really kind of an isolated incident? Or is there any other category that you want to call out that you're still going through some of the pains as well?

No. Actually, I wouldn't say that it ends in a quarter or even 2 -- unless all of our brands. I mean, typically, we linger for a year as the pricing takes effect, and it's only year 2 where we typically see a full recovery.

Okay. Maybe your innovation is that good that it just disguises it in my mind.

I think in both the topical stain remover category and bleach, these categories really hit a low, Jason, about late 2010, when they were both down in the 8% to 10%, 12% range. And now they're both -- bleach, for example, has been up about -- flattish to up 1% to 2%. Now this is in sales dollars about for the last couple of months. And the stain removers have been from negative almost 12% 1.5 years ago to about negative 2%. And so we're seeing quite a bit of improvement and stabilization in the category. But to Larry’s point, I think it takes a while to sort it out.

We'll take a follow-up from Alice Longley with Buckingham Research.

Just a follow-up to the -- to your follow-up, I'm a little confused about you saying that volume in the U.S. was up 1. Does that include the acquisitions?

Yes.

And without the acquisitions, would it have been negative 1?

It would have been, I think, 0.5 point down, something like that.

Okay. And then the other question, and I don't think you commented on this, did you -- have you seen any deterioration in your business starting in June or into July in terms of weakening at the consumer level or increased promotional activity? Just any change recently?

Actually nothing fundamental. I think the only that's been changing a little bit, as we've talked about the Glad category, we’ve seen a little bit more trade dealing. But no big fundamental consumer change, at least based on what we can see, in our category.

Okay. Well, thanks, everyone, for joining the call today. As I said earlier, we obviously feel very good about the close to the fiscal year, and we certainly are confident about the plans we have for fiscal '13, and we’ll look forward to updating everyone later this fall. Take care.

And that does conclude today's call. Again, thank you for your participation. Have a good day.