H.B. Fuller Company (FUL) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the H.B. Fuller Fourth Quarter 2012 Investor Conference Call. This event has been scheduled for 1 hour. [Operator Instructions] Management in attendance on today's call includes Mr. Jim Owens, President and Chief Executive Officer; Mr. Jim Giertz, Senior Vice President and Chief Financial Officer; and Mr. Maximillian Marcy, Senior Investor Relations Manager. At this time, I'll turn the meeting over to Mr. Maximillian Marcy. Sir, you may begin.

Thank you, James, and welcome, everyone. Today's conference call is being webcast live and will also be archived on our website for future listening. Before beginning, I would like to inform everyone that certain matters discussed during this call will include forward-looking statements, as that term is defined under the Private Securities Litigation Reform Act of 1995. Since such statements reflect our current expectations, actual results may differ. In addition, during today's conference call, we will be discussing certain non-GAAP financial measures, specifically, adjusted earnings per diluted share from continuing operations, regional operating income; and earnings before interest expense, taxes, depreciation expense and amortization expense or EBITDA. Regional operating income is defined as gross profit, less SG&A expense; and EBITDA is defined as gross profit less SG&A expense plus depreciation and amortization expense. All of the non-GAAP measures discussed today should not be construed as an alternative to reported results, determined in accordance with GAAP. Management believes that the discussion of these measures is useful to investors because it assists in understanding the operating performance of the company and its operating segments, as well as the comparability of results. The non-GAAP information discussed today may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results on the last pages of our presentation. For more information, please refer to our recent press release; quarterly reports on Form 10-Q, dated October 5, July 6 and March 26, 2012; and annual report for the year ended December 3, 2011, on Form 10-K, filed with the Securities and Exchange Commission. These documents are available on our website at www.hbfuller.com in the Investor Relations section. I will now turn the call over to our President and CEO, Jim Owens.

Thanks, Max, and thank you, everyone. [Technical Difficulty] Okay. Thanks, everyone, for joining us today, and sorry for that little technical difficulty. 2012 has been a transformative year for H.B. Fuller, and I'm pleased to report that while transforming the company, we had a record year in revenue, a record year in earnings per share and a record year in EBITDA. We are delivering on 3 specific interrelated sets of financial goals, which we've communicated to our shareholders. These are our annual 2012 earnings guidance, our synergy targets related to our Forbo business integration project and our 2015 strategic targets. In 2012, we hit or beat our marks on all 3. We beat our upgraded earnings guidance that we had committed to at midyear, following the Forbo acquisition. The integration project remained on track. Our execution on this integration work was a key driver of the performance improvement we saw in the fourth quarter. And clearly, the actions taken this quarter combined with the strong finish of the year demonstrates we are on track to meet our 2015 growth goal and margin goal of 15% EBITDA. Our goal is to be the best adhesive company in the world and in 2012, we took a huge step forward as we elevated our performance. It's human nature at the end of the year to look back and reflect on what has happened in the past 12 months. As we look back this year, we're excited about how much we accomplished, by how effectively the initiatives were executed and by the positive financial performance that resulted from all of this effort. Here's a brief recap of what has happened in H.B. Fuller in the last 12 months. We made our business bigger and better with the acquisition of Forbo industrial adhesives business, the most significant acquisition in the history of H.B. Fuller. To date, through the acquisition, we have a broader and stronger product offering for our customers, a more efficient manufacturing network, a best-in-industry commercial organization and interesting new technologies. Our integration activity was well planned and so far, all actions have been well executed in a timely manner. The financial benefits of the acquisition are already clearly evident in the results of our North America adhesive business, with the bulk of the benefits in our European region to follow in 2013. In 2012, we focused our portfolio through the strategic divestiture of our Central American Paints business. This action was often discussed and much appreciated by long-term followers of H.B. Fuller. This was a good deal for both the buyer and the seller, and 2[ph] could acquire a strategic asset, and we got a very good price. Now, we truly are a pure-play adhesive company. And although the focus of 2012 was clearly the acquisition of Forbo and the divestiture of our Paints business, this is not all we did. We continued to move forward with solid organic growth on our key markets of focus: hygiene, packaging and durable assembly. We strengthened our adhesive business in Latin America, and the work of our teams there has resulted in strong increase in margin, a key strategic objective for the company. We commissioned a new manufacturing facility in Pune, India, and we posted strong growth in that emerging market. We completed the engine acquisition and made other investments to begin positioning ourselves to be a credible player in the electronics market globally. And of course, we delivered strong financial results as well. Revenue increased 30.6%, with organic revenue up 6.2%. Operating income increased 39%. The EBITDA margin expanded by 90 basis points. This 90-basis-point expansion is especially noteworthy when you consider the acquired business from Forbo, granted a 6% margin in the year before the acquisition. And all things being equal should have diluted our margin by around 100 basis points. Our EPS grew by 28%, and our stock price advanced from just over $22 at the beginning of the year, just slightly under $33 in the last day of the year, an increase of approximately 50%. And the year ended on a high note. During the fourth quarter, we continued to deliver strong operating performance with 3% organic growth, 36% operating earning improvement and 23% EPS improvement on a comparable 13-week basis. We exited the year with a 12.4% EBITDA margin. This is the most visible sign that the business integration project is working, and that we are well on track to deliver our 2015 margin target of 15%. And we have laid out plans to do more in 2013. Our guidance for 2013 calls for revenue growth of over 10% and operating income growth of about 20%. Our EBITDA margin, a key strategic metric, is expected to increase by nearly 100 basis points in 2013 to a target level of 12.5%. And the business integration efforts to be completed in 2013 will delay[ph] the foundation for additional growth and margin expansion in 2014 and beyond. So we see 2012 as an eventful and successful year. This past year has been transformative, building the platform for future growth and moving us another step closer to be the best adhesive company in the world, with EBITDA margins of 15% and strong compounded annual organic growth. Now, I'll dig a bit deeper on some of the key results and trends from the fourth quarter in each of our operating segments. Let's start at the top. We delivered 3% organic growth this quarter, our 12th consecutive quarter of organic growth. This track record of consistent organic growth is a confirmation that something different and good is happening inside H.B. Fuller and that our focused strategy is producing results. Pricing was about 1% above last year's fourth quarter levels and was primarily driven by a more surgical price positioning actions, rather than broad pricing actions common over the last several years of persistent raw material inflation. Volume was up 2% in the quarter versus last year on a comparable 13-week basis. This is once again good performance as the markets we serve continue to be sluggish. In our North America Construction Products business segment, we grew a volume of over 17% in the fourth quarter, primarily through share gains with existing customers, as we introduce new products and new technology. In addition, it appears that the underlying end market is slowly starting to improve. On the North American adhesive side, organic revenue was flat with volume slightly down and pricing slightly up. These markets have been very soft over the past few years, but our teams here have been continually working to gain share and secure new business. We are also seeing positive momentum from the integration of Forbo, as our stronger product offering and revamped commercial organization have been introduced to the market. In Latin America, organic revenue was up 2.8%, driven by modest price improvements and solid volume gains with key customers in key end markets. Asia Pacific organic revenue was flat with modestly lower pricing and positive volume. China continues to produce good volume growth, albeit at a slower -- a slightly slower mid-single digit level as the economy has slowed in recent months. Our Australia business remains weak due to the unfavorable macroeconomic conditions, but we see this bottoming out at this point, and better performance is expected in the coming quarters. In recent quarters in Southeast Asia, our teams have been working to shift the mix of our business, with respect to technology content and value. And in doing so, we have lost volume while generating margins. That volume loss trend has now stopped, and we delivered volume growth of around 10% in this quarter. Overall, the result in the Asia region was far better than last quarter, and we are back on track to deliver on our growth goals. Lastly, EIMEA continue to grow organically. This quarter, price contributed 1%, and volume was up over 2%. The favorable results reflect a relatively strong performance in the emerging economies of the region, offset somewhat by lower growth rates in the mature markets of Western Europe. In addition, in EIMEA -- EIMEA has had great success in driving growth in our key focus markets, especially hygiene and packaging. And this has supported our organic growth performance across the entire region. So far, the integration work has not distracted us from running the core business, and we have maintained strong revenue momentum. This speaks highly of the teams and structure we have put in place to ensure we are able to manage multiple priorities. Now turning to the results of the company overall, our gross profit margin percentage came in at 28% in the fourth quarter, a 120-basis-point improvement versus the prior quarter. The improvement was the result of the quick action taken in North America to integrate the Forbo business and improve margins, plus the generally more favorable raw material cost environment globally. The margin performance in the fourth quarter was ahead of our own expectations and reflects the pull-forward of certain synergy realization. Selling, general and administrative expense from continuing operations ended as a percentage of net revenue from 19.1% in last year's fourth quarter to 18.6% this quarter, a 50-basis-point reduction. The primary driver of the thinning SG&A is the inclusion of the Forbo business, which historically ran at a lower level of operating expense as a percentage of net revenue. Over the long term, we believe that SG&A expense as a percentage of revenue can be maintained closer to 18%. The temporary increases in spending to support extra activity related to the extensive business integration project, particularly in Europe, could cause the ratio to be a bit higher in some periods. Then end result of solid organic growth, strong gross margin management and thinning of SG&A led to a regional operating income improvement of 36% versus last year's fourth quarter. This translated to adjusted diluted earnings per share from continuing operations of $0.64 in the fourth quarter, a 23% decrease on a comparable basis from last year. It's important to recall that last year's fourth quarter had 14 operating weeks compared to the normal 13 operating weeks that we had in this year's fourth quarter. Absent last year's extra week, EPS growth would have been higher approximately 23%. I will now talk very briefly about our raw material cost environment. As you can see from the slide currently being displayed, or Slide 5, if you downloaded the deck, raw material costs fell just over 1% sequentially. Although some of this decline is due to a better raw material landscape, much of the decline was driven by us as we work diligently to drive harmonization and improved our bulk purchasing opportunities as part of the business integration project. The raw materials we buy remain in a balanced supply situation. As we have said previously, because of the specialty nature of our raw materials, the cost of the materials we buy is much more dependent on supply and demand dynamics than the cost of upstream feed stocks. Going forward into 2013, we expect a fairly benign raw material cost environment in the first half of next year, with some modest upward pressure in the second half of the year. Let's move on to a discussion of the business integration. The short version of our status report is that we are on track or ahead of schedule on all of the business integration activities in all of the regions. The progress is evident in our results, which as I said earlier, were better than our internal expectations. Let's quickly walk through the plan on each region and what we have accomplished thus far. In North America, we announced our intentions to close 6 production facilities. To date, 4 of those plants are closed, and we expect the final 2 to be closed early in the 2013 fiscal year. That being said, we have shifted 80% of total production volume from the Forbo plants to their new[ph] and home and existing H.B. Fuller facilities. The new commercial organization is producing results and help the North American adhesive business maintain market share. R&D and customer service functions are fully integrated and the benefit of scaling functional growth is creating value. The integration helped to elevate EBITDA margins to 17% for the quarter. The plan is nearly complete, and we feel confident we can maintain profitability at or above the current levels. In the EIMEA business segment, the integration is also progressing as planned. As we discussed during the last call, many actions have already been taken to fully plan out the integration. In addition to the actions we discussed last quarter, we have completed the implementation of our pan European sales organization and have broken ground on a new reactors facility in Niemberg, Germany. The completion of the sales reorganization includes the exit of 60 employees as originally planned. The cost savings associated with these departures will show fully on our first quarter results. The groundbreaking of our new facility in Niemberg is also a positive sign that things are progressing as planned in the region's integration plan. Lastly, in China, all plans are now in place. We announced the reorganization of our sales teams in July, and shortly after the fourth quarter started, we decided on our final footprint plans for the country. With the acquisition of Forbo, we now have 4 facilities in China, 2 of which are very modern and newly constructed; and 2 that are older and in need of incremental capital. We have decided to close the older 2 facilities, 1 from legacy H.B. Fuller, and 1 from legacy Forbo, and we will add to our existing capacity at the 2 newer facilities. These closure and investment should be completed by the middle of 2014 fiscal year. So in short, the business integration is right on track to realize and retain the synergy benefits that we committed to at the time of the acquisition. In addition, with each passing month, we become more optimistic about how the integrated business will be a stronger partner for our customers and a solid platform for growth in the future, as we leverage the technology we acquired from Forbo to grow. At this point, I'd like to turn the call over to Jim Giertz to discuss in more detail our financial results and our guidance for next year. Jim?

Okay, thanks, Jim. I'll start with just a few more comments on the fourth quarter and full-year results. Turning at the top, organic growth in the fourth quarter was again positive in comparison to a 13-week quarter last year, with a 2% improvement in volume and 1% higher in price. For the full year, organic growth was 6% on a comparable 52-week basis. Our organic growth rate was within or above our strategic target range of 5% to 8% per annum growth for the third year in a row and I think was a solid result, given the generally sluggish end market conditions that we have faced. I would also note that at the beginning of 2012, we provided our net revenue guidance of growth of 6% to 9%, and we hit that forecast despite all the distraction of the acquisition and divestiture activity in 2012. Now moving to gross margin, we've made considerable progress during the year. We finished the fourth quarter at 28%, which was a 120-basis-point improvement versus the previous quarter. The large majority of this margin improvement is in the contribution margin. The benefit of lower manufacturing conversion costs expected from the extensive rework and consolidation of our manufacturing network will be primarily realized in future periods. For the full year, gross margin fell by 40 basis points. But considering the significant dilution we experienced when adding the Forbo business in the second quarter, this is an impressive result and certainly provides evidence that the price positioning and sourcing work we are pursuing as a part of our business integration project are working as anticipated. Regarding SG&A, the performance in the fourth quarter was generally consistent with the previous quarter. Spending was up versus the prior year, but thinned by 50 basis points as a percentage of revenue, primarily as a result of the inclusion of the lower operating expense Forbo business. For the full year, SG&A was up 24%, but was down 110 basis points as a percentage of net revenue to 18.8%. Part of the business integration plan is to save approximately $30 million on this line, and we expect those savings to drive this metric down closer to 18% over the next 2 years. All of these factors working together drove EBITDA margin improvement in the quarter and the year of 90 basis points, a good incremental step toward our 2015 goal, a 15% EBITDA margin. Now some comments on our guidance for the upcoming 2013 fiscal year. We expect modest organic growth in the mid-single digits, built on an assumption that current end market conditions will not change dramatically in the key markets we serve. Net revenue growth will be about 7 percentage points higher than organic growth, due to the addition of a full year of the Forbo business, which was a part of H.B. Fuller for only the final 3 quarters of 2012. The revenue growth will be driven by volume and mix, not pricing. Foreign exchange is expected to be a small positive in 2013 relative to 2012, with our plans built on $1 to euro exchange rate of 1.30. We are targeting an EBITDA margin in 2013 of 12.5%, about 100 basis points higher than the 2012 results. Our EBITDA target is between $260 million and $265 million. On the bottom line, we anticipate achieving earnings per diluted share of between $2.55 and $2.65, which represents growth of 16% to 20%. We expect the ongoing core tax rate, which excludes discreet items, to be 30% for the 2013 fiscal year. As part of our business integration plans and our overall strategic plan, we intend to spend approximately $250 million in capital during the 2012 through 2015 fiscal years. In 2012, we spent $39 million, slightly lower than we initially expected. In 2013, we plan to spend approximately $110 million in capital as the bulk of the investment for the business integration project is completed. The remaining $100 million in capital will be allocated in 2014 and 2015 to complete the last pieces of the business integration and to fund ongoing requirements for growth. At the time of the acquisition, we indicated that our capital spending outlook was $65 million per year for the 3 years of the integration project, for a total of $195 million. The more specific forecast I just indicated are in line with this previous forecast, just modified to reflect the better estimate of timing of expenditures, and extended to the end of our current 5-year strategic plan. We believe our 2013 guidance provides a outlook for solid organic growth and margin expansion, leveraging operating profit growth. Our results in 2013 should represent another significant step towards our 2015 strategic goals. And with that, I'll turn the call back to Jim Owens to wrap this up.

Thanks, Jim. We finished the year strong, stronger than our initial budgets, stronger even than our recast budgets, post Forbo and Paint, which we announced midyear. It was a record year in sales and a record year in profits. We accomplished this over performance while working to integrate the largest acquisition in the company's history, and while divesting a profitable asset intertwined with our Latin American operations. The changes we have made inside the company over the past few years are enabling us to drive this performance, while completing the M&A activities. We have been using the term "elevate" inside Fuller. This is not specific to our relative size or financial performance, but applies to everything we do. We are building the best commercial teams, and operational efficient organizational structure, a fine-tuned strategy, an upgraded functional teams and a strong culture of accountability. The functional and commercial teams are led by world-class leaders, who are experts in their specific areas. Talented people with hundreds of years of combined depth in the adhesive industry are leading this company. Many coming to Fuller from suppliers, customers, competitors and other leading companies. We have truly built a great team and elevated our strategy. This elevation has created momentum that will carry us through the ongoing business integration and to our 2015 goals. We have performed consistently strong over the past 3 years, despite numerous changes and challenges in internal and external environments. We are a team that is winning and is well poised to create more years of record profits and record revenue, as we continue our success in 2013 and beyond. Please join us at our Investor Day on February 7 in New York at the Grand Hyatt to meet some of our leadership team and learn more about our strategy and specifics about the various work streams of our business integration. Thank you for joining us today. Now I'd like to open the call up for your questions.

[Operator Instructions] And we'll take our first question today from Mike Sison with KeyBanc.

In terms of your organic sales growth continue to be impressed that, that turning positive in all regions given the environment, is some of the growth essentially in the bag, if you will, since you've taken share or generate new products that the visibility for that heading into '13 is pretty good?

Yes, I would say this organic growth is one of those things that's a momentum builder, Mike. So as you do it quarter after quarter, of course, you have rollover growth that comes through that. So yes, I mean, there are definitely wins that happened in the second half of this year that are leading into 2013. I think most important for us, though, is we're building, we built organizations that understand how to win in the markets, and we're focused. So it's a big broad world where we can sell adhesives. There are targeted segments where we're winning and targeted customers where we continue to win, and those are the drivers. So I don't know that I used the term "in the bag," but I think we have really good momentum that's going and that should build on itself as we go forward.

Okay. And it sounds like the integration of Forbo is going well. Do you have this good detail in terms of what has been done so far? Is the $90-million number still the right number that tracking a little bit better, potentially? [indiscernible] kind of synergy number?

Well, I think Jim Giertz makes this point all the time in terms of how we measure the integration. So we have specific trackers that analyze each detail of the integration. And on each line in each region, we're on or above the targeted level. So yes, when we look at the projected number, we're at or above the $90 million. But the key metric for us is this EBITDA target. There's a lot of things, as you do the integration, that happen in your business. So within each region and within each business, making certain that we're delivering that bottom line EBITDA performance is the key metric we look at and make certain that it really comes back to shareholders. So the short answer is, yes. We're -- well, as I said, we're at or above on every single line of our integration detail plan. But I think the important metric is the EBITDA. Jim, do you want to add anything there?

Okay, and just last question, your CapEx is going up a lot this year. Any -- can you just give us a little bit detail of where you're going to be spending that and what projects are going to be tackled this year?

Okay. We'll cover a lot of this at the Investor Day so I'll try and cover it briefly. In North America, the integration project was to take volume from 6 plants. They happen to be 6 in the Forbo plants, and move that into North American plants. Each one of those plants had a capacity upgrade that was needed as a part of that. Two of the largest plants are coming forward in this first quarter so that's where some of the capital is going. In Europe's the bigger transformation. There weren't a lot of plants that could just absorb the volume. So a big part of the project there is to take 2 or 3 plants and consolidate them into a plant that requires more substantial capital investment. And really, there is a transformation in terms of the capital structure of our business in Europe. I mentioned Niemberg in the script. That's 1 site where we have a significant project to take a site that's a long-term Fuller site. And we're putting in a new reactor facility. We used to make reactives in 5 facilities across Europe, and we're going to make them in 1 in a state-of-the-art facility, much like we do in North America and Asia. So it's that kind of investment that's happening, but it's happening across a number of sites within Europe, so that we have these Centers of Excellence in Europe instead of a patchy network. And then, of course, we have the consolidations I've mentioned in China, which is both a consolidation of the volume, but also we're building capacity for expansion in China as part of the project. So, Jim, anything else on it? But yes, that's where we're at on this, Mike.

Next, we'll hear from Mike Ritzenthaler with Piper Jaffray.

My first question's on -- one aspect of the quarter I thought was interesting is the volume component growth, at 2% versus 1% on price organically. Clearly, the construction end markets were one that you had highlighted in your prepared comments, but I guess, can you speak to which technologies were particularly strong outside of that? Or really, was that the big driver for volume?

Yes, I think when you look at the size of our construction products, it wasn't a huge driver of volume. It was in our core segments, so we did well on the Hygiene business, where we're-- where it's a good solid growth market, and we continue to gain share. Around the world, we did well on the packaging market. And durable assembly was a little bit stronger. But packaging and hygiene, in particular, as I mentioned in Europe, they did particularly well. So those markets, where we're focusing our resources and our strategy from a -- are the ones that are getting the greater volume growth.

Sure. And then, one question is sort of a broad one about Asia-Pacific. One of the things we've spoken about in the past is how growth in Asia will better fill out the cost structure in that geography. You touched on this a little bit in your prepared remarks, but the 4Q results show progress on margins better than we had expected, certainly. And my question is, I guess, how important to the 100-basis-points of EBITDA margin expansion for '13 is Asia? And I guess, I would include Australia in there as well, right? But how important is Asia in growing into its cost structure as it reaches for that sort of $250 million, $300 million in revenue milestone?

Yes. So when you look at the size of our Asia business, right, the movement of Asia is not a big driver in our overall business because of the relative size. So I would say, for us in 2013, what we want to see is that volume and organic growth move. So that will drive some improvement, but I don't think we're going to see -- this plant isn't built on a dramatic change in Europe. We do want to see it change, particularly strategically in the growth trajectory of our business there, and as I said in the script, and Australia has really dragged us down, as well as some of the things that happened strategically in Southeast Asia through the first part of this year. We see Australia stabilizing, good signs in what we're doing in the business. The investments we've made this year are really starting to come about. And then, I see accelerated growth for us in China next year. So I'm optimistic that we're going to get on the right path, but I would say for the overall corporation, that's not a huge driver of our numbers for next year.

That makes sense, that makes sense. And then just lastly, for me, the explosion at the super-absorbent polymer plant in Japan, I can't remember, was that in October? I guess it was. Was there any sort of idiosyncratic driver within the EU results that were a result of diaper supply issues or I suppose, fear of supply issues? Or did it more serve to kind of drive interest in material minimization technologies that you guys bring to the table?

Yes, I would say that there was no impact in our European business, and really, not much in the -- in our Asian business outside of Japan and our strong position with certain customers. It was a net positive for us in our JV in Japan, but no big huge impact from the SAP shortages here, except as you point out, makes people aware of the importance of having a supplier they can rely on. And I think our key strategic partners recognize how important that is with key raw materials.

Our next question comes from David Begleiter with Deutsche Bank.

You've done a very good job taking share. Are you seeing any competitive response from your competitors in response to your share gains?

Yes. I mean, competitors are always responding, right, to competitive market. I think the key for us is to make certain that the share gains we do are based on providing real value. So -- and when you look at the shares of our position in these markets, it's incremental movements in shares. So it's not like we're dramatically transforming the share, but we're incrementally taking share in various segments. So now, I wouldn't say there's some -- I mean, there's plenty of competitive responses in various segments, but nothing dramatic that I could point to.

And in North America, Jim, how much faster than the markets do you guys -- do you think you guys can grow the next 2 or 3 years? And what is the growth of the market in your estimation?

Yes. So it's a great question in terms of the growth of the market the next couple of years. I don't know that I have a good answer for that. The -- I think there's a volume drag in a lot of the consumer goods markets that we're in. So while revenue for some of our customers is still holding up, the volume drag on all kinds of consumer and packaged goods, if you dig into the numbers of a lot of our customers, is -- it's not strong, and that should improve, right? I mean, that should as the economy picks up. And what we like to do is beat that by a couple points. So our goal, overall, is 5% to 8% organic in the long run, and that means that we're meeting -- we're beating the growth rates in our markets by a few points in each one of our core markets.

Next, we'll hear from Rosemarie Morbelli with Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Jim, looking at your -- what you just said about 5% to 8% organic growth, this, based on your definition of organic, is volume plus price. With raw material cost having stabilized, you won't get much in terms of pricing. Do you think that? What do you need in order to get a 5% to 8% volume growth? What do you need to do?

Well, I guess couple of comments on the 5%. I mean, 5% to 8% is our compounded annual growth rate target over the cycle of the plant. And as you know, Rosemarie, last couple of years, we've been above the top of the 8%. This year, we're right in the middle of it. It's going to vary based on the conditions internally and externally, and I think in tough economic times and where there's no price raw material movement, and particularly, when we're doing some of the things we're doing to reposition the Forbo products. We'll have less growth than we would in times where it's a little different. So I don't think -- I think the price component will change, depending on the market conditions. And the market conditions right now are any price movement that we're going to get is going to be about strategic repositioning. And some of that strategic repositioning that we'll do with Forbo will lead to some attrition of business, as we strategically realign their business. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. So this is continuing to improve the mix?

Correct. Rosemarie J. Morbelli - Gabelli & Company, Inc.: All right. And I was wondering, when you say that you are ahead of your $90 million worth of savings from the restructuring and integration, I guess the combination of both, right? Should then that translate into a 2015 margin above 15%, if you get more in terms of savings?

Okay, yes. So I would say, when I say above, I don't mean we're way above, Rosemarie, right. I would say, each one of the numbers is on or above. So -- but I'd love to exceed the 15%, certainly. But I think that's a good strong stretch target for us in 2015, and we're stepping along nicely to it. So -- but yes, when I said in my previous answer, we're on target. We're slightly above on each one of them. But I think the $90 million is the right number to think about. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And one last question, if I may. You're building a new plant in Germany. Is that a good location? Isn't that a high-cost location?

Well, we have a plant in Germany. In fact, we have a number of plants in Germany. So net through the plan, Rosemarie, we will be down 1 plant in Germany. So between us and Forbo, there were 3. And through this consolidation, we'll actually close 1 plant in Germany and 1 plant in Austria. So I think that our strategic footprint is moving in the right direction. The plants that we've added the last couple years, when you look at countries we've added to, it's been Malaysia, Egypt, India, which we opened up this year. So yes, I think the shift of our portfolio of plants is a good one. And moving from 3 to 2 plants, and moving to a more efficient plant in Germany, is a good move.

Our next question comes from Jeff Zekauskas with JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: You have that very helpful raw material table. And when I look at it, it looks like your raw materials were down about 10% year-over-year, or at least 10% in the table. Does the table represent what you actually spend? Or is it an industry basket? And are you doing better than the table? Or does the table represent what you've done?

Yes, I was -- I knew you'd be asking me a question that I could turn it over to Jim Giertz for Jeff. So I'm going to let him try and give you a little bit of explanation on the table.

Well, I'll answer your specific question, and then you can ask more to Jim. But the graphs that we show are internal basket. So we -- it's a theoretical measure of what a basket of raw materials that we have recently purchased would cost us in the marketplace. And then, our actual raw material cost is generally better than that because we do all sorts of things to reformulate or otherwise, mitigate the cost that we see coming that would be indicated in the index. And then actually, when we file our K next week, you see much -- you'll see the actual numbers of our raw material cost by segment in total. You get a much better look at the details when we publish our SEC documents for you.

But in terms of what's happening, Jeff, to our raw material cost, is we've done good work on the price harmonization, so taking the best of both of our price and the Forbo price. That's helped us from a raw material standpoint. We're also leveraging the fact that we have multiple suppliers, and consolidating in certain product categories. And we're also moving to some bulk materials. So there's a few things of we're doing on raw materials that are really positive. And I would say, in terms of the environment itself, it's definitely flat to maybe slightly down. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And in terms of the -- so you've indicated that you've spent or you've booked $57 million in cash cost. How much have you actually spent of the $57 million to date?

Yes, the special charges, we call them cash cost because, just to clarify, I think you know this, but we call them cash cost because they're ultimately going to be cash out the door. And then, we have another column that's noncash, which is more like accelerated depreciation. But to your question, for the full year of 2012, the cash portion of the restructuring cost or the special charges was approximately $24 million. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: $24 million, okay. And so, you've been talking about this $90 million in synergies that you're going to achieve. What was the run rate of the synergies as you left fiscal '12? And how much did you achieve in the fourth quarter?

So, yes -- we -- and you know, I'm sure you'll appreciate this, Jeff, these things get integrated with your numbers. So to get a specific number on that would be tough to actually give you. But I would say, overall, if I were to sort of try and give you a sense of where things are from a run rate standpoint, certainly, more than half of the synergies are left for us to deliver when you consider the fact that our -- most of the bulk of our manufacturing benefits in Europe are to come. Part of the benefits of the manufacturing benefits in North America, and then some of the margin improvement numbers are there. So it's a -- the early stages, we've got consolidation on some of the SG&A and a big piece of some of the contribution margin effects of raw material increases, and then some of the price positioning this year. And then, the returns on the manufacturing piece will come on a later phase of the project. So it's not a number for you, Jeff, but it conceptually gives you a sense of where we're at. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: And then lastly, your profits in Europe went from $6 million to $12 million, sequentially. How did you do that? And is the $12 million number, all things being equal, a run rate number? Now -- I mean, obviously, your first quarter revenues in '13 will be down from where you were in the fourth quarter of '12, and so there'll be some adjustment downward because the revenue growth or the total number of revenues was lower. But order of magnitude is that sort of where we are going forward for that revenue total, for that kind of quarterly revenue total?

So let me tackle it in a broad way, and then maybe Jim can give you a little more color. I think the first thing, Jeff, is particularly the way our calendar year is set up. Q4 is a lot stronger than Q3 because our Q4 has August in Europe and the whole summer. And I mean, our Q3 has August, and our Q4 does not have December. So for a lot of companies, they have this third and fourth quarter that are relatively similar because they have 2-week months. We don't. We have a pretty weak month summer period, and then a fourth quarter that doesn't have a Christmas holiday for Europe. So I think that's a natural trend in our business that's there, that you should always see a stronger fourth quarter. With that said, and I would say, if you look at our numbers overall over the last couple of years in Europe, there's good progression, and then you add that to the fact that we've seen the first phase of some of the Forbo integration work. And we're making -- we're starting to make the progress that we expect. So there's nothing exceptional or unusual in fourth quarter. We will have normal seasonal patterns, but we've said for some time that the driving the European performance is the key driver to reaching our 15% target. The work we're doing is happening in a good way. We're keeping the organic revenue, while we're doing all the restructuring work. And it's really impressive. When you dig into the details of all the actions of all the things we're doing to drive that business forward in Europe, it is an impressive performance. And I'm looking forward to the Investor Day because Steve will be there to present directly, Steve Kenny. And you'll get a sense to talk to him, and he'll be presenting some of the details. And you'll get a chance to taste it. But yes, good progress in Europe this year, and we're going to have even better progress next year. I mean, Europe's a key performance driver for our business, '13 and '14. And we're on good track. So Jim, was there anything specific to add?

Steve Schwartz, with First Analysis, has our next question.

Jim G. mentioned like $30 million in savings is a target for SG&A. And Jim, you mentioned in Europe the headcount reduction that should kick in, in 1Q '13. So just build a little on Jeff's question prior, how much savings is there? And how does that impact the profitability in Europe for the next few quarters?

So -- I mean again, I'm not going to dig into the details of every number on our synergy target, but at 60 people, you could imagine that being $6 billion annually. And some of that came in this quarter, and the most of it will start hitting next quarter, right? So -- and then one of the things about this transformation project we talked about early on, there are many, many pieces to this. So each one of those pieces is being executed in as quick a fashion as we can. So -- and as each one of those comes, they provide incremental benefits for the business. So yes, so that one in particular, that's, I think, a way to look at it.

Yes. No, that's very helpful, though. The $6 million number helps. And then, just as my follow-up, I think we all understand that adhesives and paint plants typically run at a low utilization. But given that you're taking so many plants out and expanding other plants, how do we think about your capacity once this is all done? Will there be a net add? Or are you reducing?

So I would say it's a net reduction. I mean, as you say, it's not an item we talk a lot about because it's not the key driver of the costs, and because it's not an overly capital-intensive kind of chemical business. But, yes, overall, in North America, a lot of capacity came out. If you combined us and Forbo and closed 6 plants. But we did expand to add some in certain areas, but overall, that was a net consolidation in capacity. The same thing will happen in Europe. In Asia, it will probably be a net plus when you get to the end of the project because of some of the things we're doing. But in both cases, we're taking out overall capacity in the industry.

Next, we'll hear from Dmitry Silversteyn with Longbow Research.

A couple of questions, if I may. First of all, kind of what Jim thought of you when you look at the numbers, both for the fourth quarter and the year, was that your best performing region seem to have been Europe, which everybody always thinks of being the worst region from an economic point of view certainly in 2012. So can you talk about where your strength in Europe is coming from, especially in light of the Forbo integration, and that being primarily European business than you would expect? Or it's typical to expect when companies are merging and customers are merging that you're going to have some customer loss. So you would think that Europe would actually be sort of a weaker than economic conditions would suggest for you. And yet, it's been not only stronger, but it's the strongest all of your regions. So can you talk a little about your successes in Europe?

Yes. Well, before you go there, I don't want to -- I have to say that the North American performance is pretty good as well, right? So they did a great job of integrating and driving, and we're a high-performing business. But I think you're right, and your point is spot on. It's very impressive what's happened in Europe. And I think -- well, a few things, right? Fundamentally, some good work was done in 2010 and 2011 to improve the organization. We structured ourselves to be focused on core markets that allowed us to win and focus on customers. But we did some good investments in Egypt, and we had now have one in India, which is all part of the region, to make certain that we are positioned well to serve customers there. And we build a culture of winning an organic growth, which we've seen coming into the acquisition. And then when we went into the acquisition, we knew it was a big undertaking, so the team structured themselves so that they could focus a lot of resources on getting the acquisition and the integration right, while we continued to drive the business forward. And it's minimizing that distraction that has really helped them, right? They're able to manage both of those very big, tough initiatives in a tough economic environment, as you point out. So I think it's about leadership and organizational structure that really enabled it. In terms of end markets and where we're winning and losing, clearly, the, as I mentioned, packaging and hygiene are 2 businesses where our teams are doing a particularly good job of introducing technology, adding value for customers. And then geographically, the Middle East and India are stronger than our business from Western Europe.

Okay, that's helpful. I didn't realize that India was also a part of your European business. Secondly, can you talk a little bit about this small electronic adhesives company that you bought, sort of where in the electronics -- it's a fairly broad definition of a market? So where in the electronics do they play? And sort of what are your strategic plans for this asset? Are we going to be hearing 3 to 5 years from now of another leg to your targeted market still emerge, in addition to the hygiene packaging and durable assembly with electronics? Or was it just a opportunistic business to sort off dip your toe into the electronics market and see how things go?

Yes. So I would say, what we're trying to do is build for our future. So this isn't something that you're going to see -- big transformations between now and 2015. But when we come to '15, we're going to have to lay out a plan for the next 5 years, and part of that is building a foundation. And strategically, we see electronics will continue to evolve and grow as a market, with new and different needs. What Engent brought to us was some very talented individuals and some unique capabilities to analyze and assess the technologies as they emerge in the market. So combined with that, we're making other investments in personnel and gaining some business with customers. All of those are relatively small at this point, but I think you will see, over time, a more focused. But that's more extended, I would say. It's not in terms of hitting the numbers over the next couple of years a big driver. But certainly, as we look out into the future, we should be a -- our long-term intention is to be a sizable player in that segment. So hopefully, that gives you a sense of the timing of what we're trying to do. But this is capability building that enables us to be able to make the right decisions on where and how to grow in that market as it continues to change.

That's helpful, Jim, and then thanks for further laying out that. But the only follow-up I would have is just if you can address where in the electronics market does this business currently play? Is it in finished product assembly? Is it -- I mean, how do you -- electronics' a pretty broad marketplace.

Right, right, right, yes. I think, the biggest or earlier opportunities for us are in finished product assembly. So it's assembling products, and some of the technologies associated with that are things that we're good at and some of the areas where some of that chemistry is moving. For instance, reactive hot melts is an area of strength for us. More of that is being used in the electronics space than had been in the past. So -- but that doesn't mean that's all we'll do, but I think that's a good early entry point for us. It's good extension from where we are in assembly, leveraging technology, but doing it in a different way to win in electronics.

The next question comes from Christopher Butler with Sidoti & Company. Christopher W. Butler - Sidoti & Company, LLC: A few questions, kind of piggybacking on previous questions that were asked, can you quantify the synergies that you think were pulled forward a little bit into the fourth quarter? And were those -- it sound like specific to Europe?

Yes, I would say, again, it's tough to quantify. But I would say the synergy pull-forward was more North America than in Europe. And then, more of it was on what we were able to do on the good procurement side than some of the other areas. Christopher W. Butler - Sidoti & Company, LLC: And staying on that topic then, if we're looking at the favorable raw material costs that you talked about in the quarter, were those then specific to North America as well then?

No. I think we saw a better raw material environment around the world, generally. So... Christopher W. Butler - Sidoti & Company, LLC: And shifting gears a little bit to growth, with good growth in Europe relatively in 2012, as you look forward with your forecast, do you see volume growth organically, again, this year in Europe, with all of the restructuring that you have going on?

Yes, that's what the team is driving for, right? I think we're -- they have good momentum on organic, and the drive is to continue to do that. As we've said in the past, we have factored in the fact that all of this disruption could create some attrition. So that's part of our plan, is to consider that some of that may happen as well. But it's a volume growth, again, in Europe for us. Christopher W. Butler - Sidoti & Company, LLC: And looking to 2013, expectations on your pension costs and how that -- they may change contributions that we could expect, and then also well on sort of lumping these all together, the restructuring cash cost that you're looking for in 2013?

Okay. So let me let Jim go into some detail.

Yes, Chris, Jim G. I don't have the number in front of me. Pension costs are going to be higher in 2013. I'm thinking it's a number around $5 million or something higher. As you can maybe recall, we've actually had pretty favorable pension expense recent history for various reasons. And I think we're kind of reverting back to the norm with a more normal pension expense load. So we'll -- but that's all absorbed in our guidance, of course. We're recovering all of that and though -- but it's in that order of magnitude. Oh cash cost of special charges, I don't have that number. It's -- the cash -- you can see from the chart where we're going to spend the money, but the bulk of the restructuring cost that we have in front of us are severance payments. So those are going to be timed out as we close facilities. These are primarily in Europe. So it's based on the timing of closures. So my guess is it's pretty much back-loaded into end of 2013, end of '14, is when the cash is actually going to be going out the door in bulk. But I don't have a specific number, but that will give you some idea. Christopher W. Butler - Sidoti & Company, LLC: Any contribution to the pension plan this year?

I think they would be modest. We had modest contributions, less than $10 million this year, into our pension plans, globally. And I think the number for next year would be lower or about the same to that. We make [indiscernible] home from time to time, so, yes.

At this time, we'll turn the conference over to Mr. Owens for any additional closing comments.

Okay, thanks, everybody, for your time. And we do really look forward to you joining us for our Investor Day on February 7. Bye now.

Thank you. Ladies and gentlemen, this does conclude today's H.B. Fuller Fourth Quarter 2012 Investor Conference Call. You may now disconnect.