Ladies and gentlemen thank you for standing by, and welcome to the First Quarter of Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded. And starting off today we have Paul Reyelts. Please go ahead sir.

Good morning everyone, welcome to our first-quarter earnings conference call. Bill Mansfield, our Chairman, President and CEO; and Lori Walker, our Treasurer and Controller are with me on our call this morning. A couple of brief comments before we begin. First, I would direct your attention to the press release we issued this morning, which contains much of the information that we’ll be covering in the call. Also a reminder that in our comments this morning we’ll be making statements that reflect our current use and estimates about future performance and financial results and that these comments are based on certain assumptions and expectations, that are subject to risk and uncertainties. Our Form 10-K filing lists, some of the most important risk factors that could cause actual results to differ from our predictions. This morning, I will review our first-quarter results. Bill will comment on our outlook for the rest of the year and then we will get to your questions. We turned in a good performance for the first quarter, essentially our results were in line with our expectations. First quarter sales totaled $765.1 million, up 10.2% from last year, driven by growth in our packaging, industrial and architectural product lines and the performance of acquisitions. Adjusted for currency and acquisitions, sales were up 3.6%. Net income for the quarter was $24 million. Adjusted earnings per share were $0.24 for the quarter, which excludes a non-cash adjustment of $0.03 per share for Huarun minority interest shares. Reported earnings per share were $0.21. In 2007, first-quarter net income was $23.6 million or adjusted earnings per share of $0.23, which excluded a $0.05 per share non-cash adjustment for Huarun minority interest shares. In addition, last year's results included a $0.01 per share gain for favorable tax adjustments. So, excluding the adjustments…

Thanks, Paul and good morning everyone. We are pleased with the quarter. The Valspar employees including our management team did a good job in delivering on our expectations. Our international performance, our core growth, our new business generation, gains from our recent acquisitions, and prudent management of expenses have combined to give us a good start to the year. The performance of our global packaging business was strong with sales for the quarter up mid teens following high single-digit improvement in 2007. Our strong technology base combined with a global reach of this business are the primary drivers of the growth. New business gains across our U.S. Coil U.S. General Industrial and our US Architectural business offset weaknesses in the US markets. Year-over-year volume in our architectural business increased due to new home center store growth, new business from line extensions and product programs, both of which are result of our branding initiatives. Overall, our U.S. sales were up low single digits. International sales for the quarter increased 20% and accounted for nearly 45% of total company sales. Looking ahead, as you saw in our press release, we continue to expect our earnings for the year to be in the $1.65 to $1.75 per share range. We believe the company is well positioned to deliver our expected results for the balance of 2008. Our businesses are focused on new business generation, operational excellence and productivity improvements through our global Lean Six Sigma initiative. We expect raw material increases in the 3% to 5% range and are implementing price increases in all of our business to offset these cost increases. We believe the architectural paint market in the U.S. declined by approximately 8% last year, last year being calendar 2007. We have incorporated a similar market performance in our planning for…

Operator Instructions]. One moment for the first question. We do have a question from the line of David Begleiter of Deutsche Bank. Please go ahead.

Good morning.

Good morning, David.

Bill, what was the gap in between prices and raw materials in Q1?

Most of our pricing, David, went into effect in January and there will be further pricing that goes into effect as we move through the second quarter. So, if you recall, our months are November, December, January. So, we saw de minimus impact of our pricing in our first quarter results.

Do you have a number, [inaudible] what that gap was in Q1?

Maybe a couple of percent.

Okay. And the gains in packaging, very strong in Q1. Is that sustainable for the year and what's really driving those gains on the top line?

Well, number one, yes I believe it is sustainable. Number two, as I said in my comments what’s driving it is our technology, particularly our water based technology as a lot of our customers look to sustainability and green issues. Our water-based technology is a perfect solution for those kinds of challenges and we're seeing… we're seeing that technology penetrate not only in the U.S but also in Europe, South Africa, Asia, around the globe.

And lastly, the M&A pipeline post-Aries. How does it look for the rest of the year?

Well, there is always… there is always deals to be looked at. But, quite frankly David, at today's share price, I'm more inclined to acquire Valspar's stock.

Thank you very much.

You're welcome.

The next question is from the line of Bob Koort, Goldman Sachs. Please go ahead?

Good morning. This is Emily Jean [ph], sitting for Bob. Two question, the first question is related to the Coatings business. The momentum obviously looked pretty strong during the quarter, and then driven by packaging and industrial coatings. Can you just give us a little bit more color on the performance of the General Industrial, Coil and the Wood Coating? And also what's your outlook for this Industrial Coating division within the context of a potential economic recession in the U.S going forward?

Let me comment first on the three businesses you mentioned. In both our General Industrial and Coil business, we benefited in the first quarter from several things. One is our global presence and the growth that we're able to generate outside the U.S, our acquisitions and inside the US from new business generation. With respect to our wood business, that business is one that has been negatively impacted in 2007 by the downturn in housing. And I would tell you that, we would have similar comments on our Wood Coatings' business as I had in my opening remarks with respect to architectural, in that we do not see any improvement in the wood coatings market in 2008. Going forward, with respect to our Industrial businesses, General Industrial and Coil, we certainly hear and read the same things that you're commenting on with respect to slowdown. We had a good quarter, we did not see that manifested in our business and I think one of the reasons is the high success we've had in generating new business. But, we are concerned going forward relative to what I would tell you is the health of the core business in the US for both General Industrial and Coil. But, have also incorporated those concerns into our guidance for 2008.

Okay great. And then my second question is related to the, Reyelts pricing and volume dynamics that you're pushing off pretty aggressive pricing to offset a high raw materials cost going forward, but, you also expect a further demand and weakness in the US paint markets. So, can you help me understand the pricing and the volume dynamics for your paint business over the next maybe several quarters? Although you have to give up some thin volumes for pricing. So, and then helpfully that pricing will have some impact, some positive impact on margin, thin margins?

Pricing is always an interesting conversation with customers, but there are some overriding economics when crude oil is up $20 a barrel year-over-year and the global supply and demand situation on a number of materials is snug. Our customers have some understanding of those dynamics. We expect that we will be able to recover our raw material cost in 2008 from the 3% to 5% projection that I made. I think this issue of traling [ph] off volume, I think that was the word that you used. That's an almost customer-by-customer, market-by-market situation and I really don't have any overall comments about that.

Okay. Thank you very much.

You are welcome.

Next question is from the line of Jeff Zekauskas, JP Morgan. Please go ahead.

Hi. Good morning.

Good morning, Jeff.

Hi, Jeff.

Hi. A couple of things. I guess I am surprised that your operating profit in paints is down because titanium dioxide prices were down and acrylic's pricing aren't going anywhere and epoxies price increases have sort of stalled and you've got relatively good volume. So, why are operating profits down?

One of the dynamics that’s operating in paints, Jeff is, in our automotive refinish business, particularly in Europe last year, the market was going through a change from solvent base to water base and there was a... we had a big first quarter as a result of customers buying in solvent based inventory because if they had it in their operations they could continue to use it even after the regulation went into effect. And so we had an extraordinary first quarter last year with respect to our solvent based automotive refinish sales in Europe and now this is the first quarter ’08 and we are selling water based products and we are not... obviously quarter-over-quarter had a drop in that business.

Okay. That's helpful. So domestic paints is holding in there?

It is, Jeff.

What is the cash flow from operations and the CapEx for the quarter?

Well we don't have our cash flow statement done yet because we announced results within two weeks of the end but it should be up significantly from last year. Our EBITDA is also up a fair amount because of the amount of depreciation we had in the quarter relative to what we had last year, but we don't have that number, Jeff. As we soon as we have it we will be glad to get it to you.

And CapEx for the quarter, Jeff, was $8.6 million.

$8.6 million. Last year you spent a lot to do your promotions at Lowe's. Was there a reasonable benefit in the current quarter?

On a percent basis, Jeff, in my opinion on a percent basis the number is misleading because it is down about 30%. But I got to try it on a dollars basis, it's maybe down by $0.5 million to $1 million. Most of the benefit on the branding we should see in the second half of the year, the branding reduction.

We didn't have media spending in the first quarter last year, it didn't start I think until the second quarter.

What about incentive comp this year? Is it going... is it likely to be up or down versus last year, is that change meaningful?

We hope up a lot.

We have reasonable incentive compensation build into our guidance, Jeff.

Reasonable incentive comp. Lastly, so, can you explain to me again why raw materials should be up 3% to 5% this year?

3% to 5% is our forecast. There has... there was some movement in December and January. I think our forecast is frankly consistent with the other major coatings companies. Now do I think it has the potential to change on a dynamics basis, yes, perhaps.

Okay. Thank you very much.

You're welcome. Jeff.

Your next question is from the line of Don Carson, Merrill Lynch. Please go ahead.

Good morning this is Adam Milkovich [ph] in for Don Carson. How are you doing?

Good morning, Adam.

I was wondering, two questions on the margin lines. One, the gross margin and the SG&A as a percent of sales. Do you think that this 100 basis point decline in SG&A as a percent of sales is a level that is sustainable over the course of the year or will that narrow as well with seasonality over time? And then the second question, given the delay in pricing versus the raw material movement in the first quarter of '08, do you think that the '07 margins towards the back half of this year are achievable or will you probably remain a little behind them due to the dynamics of cost increases and price realizations? Thank you.

Let me start with the margin question first, I think that or not... I think, our expectation is that we’ll be reasonably close to the prior year margins through the second, third, and fourth quarter.

And Adam, on your question on SG&A, yes, I think that that will narrow too, over the course of the year, that gap will narrow.

And maybe on the international, now that they are 40%, 50% of sales, do they have a different margin profile from the U.S. business? I think we've talked about in the past about being slightly different. I was wondering if that might be true still?

Yes, it is. Our U.S. margins are typically higher than our... on an operating margin basis, they are typically higher than those outside the U.S. And that would also be true for international gross margins also.

All right, thank you guys.

You're welcome.

Our next question is from the line of Mike Hamilton, RBC Dain. Please go ahead.

Good morning.

Good morning, Mike.

Hi, Mike.

Bill, first of all, could you give a little bit of picture of what you are seeing in the Architectural in terms of the assessment of customer inventory position and expectation of play out here and the seasonal strengths?

I think the inventories are in reasonably good shape relative to demand. Certainly they are... historically there been a pick up in business as our customers prepare and build their inventories for the spring and summer painting season. And I would expect we'll see that same dynamic play out.

If you recall that, that pick up was delayed about a month last year.

But that... we haven't seen that delay this year it’s... but I would tell you on an overall basis, it would appear to us that our customers’ inventories are in pretty good shape.

Thanks. And then if we could shift gears, your assessment of what you're seeing out of Huarun and kind of tactically what you're trying to accomplish here in '08?

Well, in the case of Huarun, they had a good first quarter, and they continue on their performance track of double-digit sales and profit growth. Certainly we are making some good progress in the architectural paint area with the Huarun brand and we are quite pleased with that. So far the wood coatings business of Huarun does has... hasn't been affected anywhere near the amount that the wood coatings business in the U.S. has been impacted. Looking forward, we expect Huarun to deliver another good year in 2008. The recent headlines about winter weather certainly could have an impact in our second quarter. However, I think that most of those weather problems occurred around Chinese New Year and for all intents and purposes we do de minimus business in China around the Chinese New Year holidays. So, we don't think that impact will be too significant.

Then finally anything on the cross-marketing side there in terms of product initiatives coming from Valspar operations into China?

We're still making progress on the automotive refinish area, which we are pleased with. We are still taking advantage of the Huarun manufacturing infrastructure to continue to optimize our other businesses in China, non-Huarun businesses in China in terms of cost structure. And the Huarun management team continue to take more and more responsibility for Valspar Asia business, which we are pleased with also.

Thank you, Bill, that’s it for me.

You're welcome, Mike.

Next question is from Saul Ludwig, KeyBanc. Please go ahead.

Thanks. Bill, I'm glad to hear about the new business, could you add little more color on that, say on architectural. Where... where we now find Valspar product that we didn't find it before, and in non-architectural area what was the type of new business that you obtained?

Well, in the case of architectural, we were successful in placing additional Cabot brand product into the box channel. Cabot interior which we're pleased with and there were a number of other Valspar branded products also placed in the big box. We started to ship those during our first quarter and we would expect to ship some additional here in the beginning of the second quarter. So, in architectural that was the primary...

There is more business with Lowe’s in the interior Cabot brand and other Valspar products there.

We also made some in-roads in our consumer brands to sell, in our dealers business with additional penetration with the Cabot brand.

Okay, great. And then the other segments?

Well, on the other segments... we have two issues with the new business generation. One is new business outside the U.S. some of which is a function of market growth because we are positioned in some fast-growing markets, which we are pleased with. I'm particularly pleased, as I said in my comments, with the packaging business that really is a statement to the strength of that businesses’ technology. And when we're looking at the U.S. economy back last year and planning for 2008, we put a lot emphasis and… on generating new business because where we were unsure as to what was going to be the state of affairs of core business in a slowing U.S. economy and I think that's a good strategy and it's a strategy that clearly has paid off for us in the first quarter of 2008.

In the packaging business, where you said you were up mid-double digits, was... was there any acquisitions in there or that was just core of packaging business was up say 15%?

No acquisitions. So that was pure organic one.

Do you think that pace is going to continue for the best of the year?

No, some of it is clearly currency. There is some currency because it's a global business and so I think the currency piece would probably slowdown through the year.

Okay. And the raw materials, was there any increase which you say from the fourth quarter to the first quarter, were they pretty level?

No, Saul January 1, our fourth quarter to our first quarter is probably not the right issue. The chemical industry still operates on calendar quarters and we did see some increase in our material cost January 1.

So for the quarter, it'll be pretty modest.

Correct, Saul.

Okay. And Huarun, how much do you have revenues increased year-over-year?

Saul, it’s probably around 10%.

Is that consistent with the pace you've expected or is that moderating a bit though?

No it was exactly what we expected, it was consistent with our expectations.

Okay. Very good thank you very much.

Saul, one more, let me go back to something. On the raw material cost, I want to clarify my comment, certainly we saw January 1 which was… which we only had a month... but we already... what we saw also was moment from last October that did affect our entire quarter in the first quarter.

What's your estimate that increase might have been, Bill?

That could have been 1% or 2% back in October.

Okay. And then back… you mentioned that the core business of volume price and mix was up 3.6% in the quarter that you said Paul and you said most of that was volumes, does that mean… should we interpret that something like 2% to 3% of it was volume?

That's exactly right.

Okay. Great thank you very much.

You're welcome Saul.

Our next question is from the line of Steve Schwartz First Analyst. Please go ahead.

Hi, good morning everyone.

Good morning, Steve.

Paul did you say acquisition contributed 2.4% in the quarter?

Yes.

To that, for some reasons that sounds low to me, it was three... you got 3 million form this latest Aries acquisition and I think Technos... and Technos was also in there as well. So is there something going on that you only got like $5 million from on the top line from acquisition?

That doesn't sound right, that math doesn’t sound right.

Okay.

It's definitely more than that.

2.4%, last year sales were...

694.

Okay, 7.

So it is counted as $16.5 million, $17 million.

Yes.

Okay. That sounds right. You're right. You got me there then. Okay.

Phew.

I'll go back. Question number one. So, in the industrial, you were doing a plant downsizing.

Correct.

And we're still seeing EBIT margins in Coatings down slightly year-over-year. Can we expect to see an improvement there from the downsizing going forward?

I don't know if it's from the downsizing. I think going forward, with respect to the dynamic of pricing and raw-material, leverage from... on the SG&A line from acquisition impact. I think they will be more meaningful input into the operating margins.

Okay. And then in Europe, mixed signals from what's happening there with the economy. Are you seeing any impact at this point downward, I think so on sideways, what's your view?

Our biggest business in Europe is our packaging, can coatings business. And that business has historically, ever since I've been involved in, which is 30 years has performed consistent through the ups and downs of the economic cycle. I think for us it's too early to call us to whether we're seeing any pronounced weakness in Europe outside of our can coatings business, which is as I said has performed very well.

Okay. Great. Thank you.

You're welcome.

One moment please, for the next question. The next question is from Dmitry Silversteyn. Please go ahead. Please announce your company name sir.

Longbow Research. Good morning.

Good morning, Dmitry.

Lot of my questions have been answered. I guess, the one question that I still have around pricing. You talked about implementing some price increases effective January 1st. Should we assume that most of this is in the industrial sector, perhaps a little bit in packaging and very little in architectural or are you able to get business or price increases across-the-board?

Our pricing initiatives are across all the business, across-the-board and across the globe. That's really about all I could say with respect to that.

Okay. Is it... are we likely to see more success in the industrial side than in the architecture inside, or do you think you'll be pretty successful in the architectural site as well?

It's another... Dmitry it's another way of asking that same question, which I really am reluctant at this point to comment on.

Okay. All right. Fair enough. You talked about the fact that, not the fact but your opinion that given the current price of the stock and where you are in the acquisition pipeline that you're likely to, more likely to spend the cash on buying back shares than in making acquisitions. As we look towards the second half of the year and you kind of work through your remaining... I think it's 3 million shares or so that you have outstanding under this current authorization. Should we expect to see another authorization come along that that's a little bit more meaningful in size. Because even if your stock rebounds materially, I can argue that it’s still significantly undervalued even in the mid-20s. And I'm assuming we would want to continue to buy the shares at that price. So should we see a more meaningful share repurchases given that you are still generating pretty strong cash and the markets is not rewarding you for the resiliency of the company?

Well as you know, we traditionally have had, well, every year for the last 15 or 20 years, we have had an authorization in October. We are a little bit in a situation where we can't pre-judge what the Board would decide. I think it's possible that the Board would decide to move in the direction you just indicated but we will just have to wait and see.

Okay, Paul. Thank you. And then just a final, a more strategic question, with the large deals happening in the.... particularly in architectural paint side, but in coating industry in general, you have done a couple of smaller deals obviously expanding your geographic reach, which given your North American centric business model was probably a good thing to do to get more international. But are you looking at larger deals? Do you feel that there is some pressure on you to do a larger deal just because of the way the market has consolidated or are you going to remain disciplined and continue to look at more of bolt-ons and technology acquisitions rather than just pure size or reach?

Number one, I do not feel any pressure whatever to do a large deal. I think that our... I think our acquisition strategy, which has been highly focused and as you point out has been for intents and purposes other than Huarun a bolt-on strategy has served us very well. And we would expect to continue to participate in the market in that way. That is not to say however that if a compelling proposition came along that we felt was good for shareholders that was larger than the size of the deals we have done over the last four years, we'd certainly consider it. However, in today's marketplace, and today's world, I think our strategy has been a perfect strategy and has worked very well for us.

All right. Well, thank you. It's difficult to argue with success. Thank you guys.

Thank you, Dmitry.

Our next question is from the line of PJ. Juvekar, Citibank. Please go ahead.

Yes, good morning.

Good morning.

Bill, you mentioned that industry volumes in architectural were down 8% last year, can you give us what was the comparable number for you?

Our volumes were not down 8%.

Were they down half of that? I mean just give us a ballpark number.

They were down somewhere between 0% to 4%.

Okay. And is that what is built in for '08 in your forecast?

In '08 there is a number dynamics. Number one, that as I mentioned in my opening comments, that we think the market will perform similar in '08 as it did in '07, but we have a number of other different dynamics that go into our business model. As I mentioned, new store growth, some new business penetrations as a result of branding and I am reluctant to talk specifically about that… those assumptions or what they ended up being other than to say we think we took pretty conservative view in our guidance for our architectural business in 2008.

Okay. And Bill, I think few months ago you had talked about seeing some signs of commercial slowdown following the residential slowdown, can you update us on what you are seeing right now in commercial side?.

You know it's a mixed, we are not confused, but we can’t get a clear understanding frankly.

Sure.

We hear things about slowdown, I can only judge the results, we had a pretty good first quarter in our coil businesses in the U.S. So, it certainly has not manifested itself yet.

Okay. And you mentioned that packaging business is held up quite well. Is that because of its consumer orientations or is it anything going on in packaging?

Well, I think two dynamics. Number one, as I mentioned before, that business has performed consistently through ups and downs of economic cycles. Secondly, in our particular case, the strength of our technology particularly our water-based technology on a global basis, as our customers strive to meet sustainability challenges and strive to meet green challenges. Our water-based technology is finding a significant place and we are quite pleased that it is delivering the kind of value proposition to our customers that's manifested in our results.

Okay, thank you.

You're welcome.

Your next question is from the line of Rosemarie Morbelli, I&S. Please go ahead. Rosemarie Morbelli - Ingalls & Snyder: Good morning all.

Good morning, Rosemarie. Rosemarie Morbelli - Ingalls & Snyder: Thank you for allowing me to make it. Based on some of the comments that you made, Bill, regarding the sales of more water-based versus solvent. If I understood, what you said probably it sounds those water-based businesses has the lower margin than the solvent, and therefore it is going to continue affecting coatings until we are on an apples-to-apples basis. Is that correct?

No. I was talking about our packaging business, which is one component of our coatings business. And what was driving growth in our packaging business and frankly we are quite pleased with the profitability of our water technology. Rosemarie Morbelli - Ingalls & Snyder: I guess, I was going back to Jeff's question when he compared the coatings margin this year versus last year and you talked about people... customers' building, solvent, inventory, particularly in Europe so they can use it as long as it was in the inventories and that had an effect in the margin?

Sorry, automotive refinish. Rosemarie Morbelli - Ingalls & Snyder: Automotive refinish, sorry, are you [inaudible] somewhere in there?

No, no, I am sorry. Rosemarie Morbelli - Ingalls & Snyder: No, my mistake. We'll see some impact in the second quarter; it should wash through by the end of the second quarter though. So, second half of the year should be more apples-to-apples. Rosemarie Morbelli - Ingalls & Snyder: Okay, all right. And then packaging rule obviously at a high rate of 15%, can you pull out the effects from it?

What the effects was… Rosemarie Morbelli - Ingalls & Snyder: You have some 15%. I am sorry.

5%. Rosemarie Morbelli - Ingalls & Snyder: 5% for the things.

5%, right. Rosemarie Morbelli - Ingalls & Snyder: And the 10%, is it mostly volume and you still... we still didn't see much of the price increases announced in January?

It's a strong business; we are very pleased with how it performed in the first quarter. Rosemarie Morbelli - Ingalls & Snyder: I guess, we are not going anywhere. We are not getting any more details than that. On the Aries acquisition. Did you acquire any manufacturing facilities and now you're moving some Valspar into those potentially newer plants or is it the other way around?

No. We acquired a quite a good facility. In fact I would classify it as excellent facility in Monterrey. And we are in the process now of integrating. We also had facilities reasonably close to the Aries facility. So we're now in the process of optimizing that, but we're... we certainly are very pleased with the manufacturing facility, it will allow us a lot of capacity to grow in the future. And also gave us some capabilities in Mexico that we did not have before, particularly resin or polymer manufacturing and also some really good laboratories. Rosemarie Morbelli - Ingalls & Snyder: But did I understand probably you are shutting down the Valspar plant and moving that production into the Aries plant.

No. We are in the process of integrating the facilities right now. I did not say that we are going to shut down the Valspar facility. Rosemarie Morbelli - Ingalls & Snyder: Okay. So you are only shuffling what you are making at both places. Is that?

That's right Rosemarie. It's a traditional acquisition in the sense that there is a lot of synergies in terms of raw material savings, in terms of focusing the production of one type of product in one plant versus the other, so that you get efficiencies in manufacturing. And of course there should be some SG&A overlap as well. So, it's a very traditional type of transaction for us in a very good market. Rosemarie Morbelli - Ingalls & Snyder: Okay. And then lastly, Aries had $40 million in revenues. What were their EBIT?

We didn't announce that. Rosemarie Morbelli - Ingalls & Snyder: No, but I thought you might want to talk about it.

It's similar to that other question.

Some places are really uncomfortable to go. Rosemarie Morbelli - Ingalls & Snyder: All right. And when we talked about slight... you addressed the overseas market in terms of slowdown. I think you mostly talked about your European packaging business. Could you extend your observations as to what is going on overseas in other markets and other regions?

Well, Asia remains quite robust. And we are certainly pleased with that, China continues and our South East Asia business continues well. Australia, that economy continues to do well. Our business continues to do well there. In South Africa, we have primarily a packaging business and that's doing well. The Brazilian economy continues strong. And our business results reflect that. I think that the comment that I made before was relative to any assessment we might have of coil coating, general industrial coating, architectural coatings in Europe. And what I meant to convey was... our biggest business is Can Coatings, packaging and for us I think it's too early for us to have any kind of a view on those other markets. Rosemarie Morbelli - Ingalls & Snyder: Okay.

In Europe. Rosemarie Morbelli - Ingalls & Snyder: All right. Thanks a lot.

You are welcome. Rosemarie Morbelli - Ingalls & Snyder: Continue the good job.

Thank you.

Our next question is from the line of John McNulty of Credit Suisse. Please go ahead?

Hi good morning.

Good morning John.

Just a quick question, with regard to the recent big acquisitions in the space overall, are you benefiting from some of your competitors' acquisitions right now, as they are trying to kind of clean things up and customers are maybe looking for alternative suppliers, are you seeing incremental pressure. Can you just give us a feel for what the competitive environment may be looking like right now and how you are dealing with it?

Quite frankly, we've seen no impact, that I'm able to do so, either positive or negative. Maybe it's too early, but I'm… frankly I suspect that's what I all answer to that question a year from now.

Okay. And thanks a lot.

Okay, John.

[Operator Instructions]. We do have a follow up questions from the line of Don Carson, Merrill Lynch. Please go ahead.

Hi, it's Adam Mickiewicz from Moretime [ph]. Just wanted to understand, maybe a question for Paul on the outlook for the debt at the end of the year. Obviously, rising it from what was previously. Can you just explain your desired debt-to-cap or debt-to-EBITDA and net-debt-to-EBITDA target that as you see it, just if EBITDA is rising year-over-year, what would be the impetus to step down the debt levels, in favor of share repurchases or something else? Thank you.

Well, that's a good question. I've something, that I think are... will continue to look at over the rest of this year and next year. But, basically we've got a sort of 40% to 50% debt-to-cap objective. And we're in that right now. I think it's fair to say that we need to continue to grow our funds from operations and once that's at the appropriate levels then we'll have more degrees of freedom in terms of what we might do in terms of either paying down debt or leaving a word is or even potentially increasing it. But, we we're right where we want to be in terms of debt-to-cap ratio right now.

Right. It would seem like the cash was previously in your last five years plus was for acquisitions and the debt level rose with the rise in EBITDA and the capitalization. So, just with the idea that may be your emergence in Valspar's shares than someone else's sales, it would look like that that should not be decreasing... how much the guidance for flat shares in second quarters based on no share repurchases.

Yes. I think, what the best way to look at it is, we've got free cash flow that's pretty significant. And we can either spend it on acquisitions or on our stock. I think Bill commented on what his preference would be at these levels. But having said that, we don't know if there is something that comes up, acquisition wise down the road. My guesses is that, with we spend a just on those two items and didn't pay down debt, we would be we'd be able to stay in the range that we want to be in, in terms of debt-to-capital and in terms of our investment grade rating.

Thank you.

Next question is to follow from the line of Jeff Zekauskas, JP Morgan, Please go ahead.

Thank Tim. A few questions. What parts of your wood business are doing well and which parts are not doing so well, and is there anything you can do to effect the rate of change in wood or have all the steps that you can take been taken and so you're waiting for various upturns in the economy?

It's an interesting question, Jeff. I would tell you first the first part, which is what's doing well, what’s relatively well, I think this is a relative answer. Certainly, our wood business in Huarun continues to perform well. Our business in Southern China, Vietnam, other parts of South East Asia, which has been primarily for export back to the U.S, and on a historical basis has been high end furniture coatings, but over the last probably 24 months, we have made some inroads in what I will call a middle market strategy, coatings for lower price furniture. It’s the impact of what's going on in the U.S, but we seem to be able to perform reasonably well. Our problem are inside the U.S and frankly, I think we are at a point now where this is just a question of we have taken all the right steps to right size the cost structure and I think there is no more steps that I can see that are clear to me that we should take. There are some small... some parts of the wood business that are doing better than others. Our wood business in the U.S. is building products. We've talked in the past, James Hardie is a major customer, their business seems to be holding up on a comparative basis well. Other parts of building products are as you might expect tied primarily to new construction and have really been hurt badly. And one of the things that has occurred, the kitchen cabinet business for us held up reasonably well in 2007... in the first half of 2007 and that now has gotten soft. So, I think we have got the right cost structure in place that when this turns and it will turn… now, which year is a discussion we can have, I meant that a little bit tongue and cheek, it will turn. We have tremendous upside leverage relative to our cost structure. So, I don't see any more obvious things to do, Jeff.

Thank you, that was helpful. Did you say Bill at a point that you expected your interest expense for the year to be down 5% to 10% if you didn't buy back any stock or did I miss here that?

No, I said assuming that we bought back the 3,250,000 shares, assuming that took place, we would expect our interest expense to be 5% to 10% below that of 2007.

Okay, good. I appreciate that. Thank you very much.

You're welcome Jeff.

Okay. Our next question in queue is a follow-up also from Saul Ludwig, KeyBanc. Please go ahead.

If we look at the manufacturing costs, in other words all costs excluding raw materials. What happened to that pattern of cost and what do you think might happen in the balance of the year?

So, I think we are doing a reasonably good job there if you are talking about all other costs, I presume you're talking about SG&A and...

No, no, everything that would go into cost of goods other than the cost of raw materials.

Yes, on a relative basis quarter-to-quarter I think we did a pretty good job in the first quarter.

And would you track that is that something you track and have a definitive answer too?

Yes in terms of quantitative answer.

Yes.

That's basically flat, year-over-year.

Okay and do you think you can keep that flat even with... you know you had a little more volume?

Yes I think that's a reasonable proposition I think we should be able to manage that, that's one of the focus areas we should be able to manage that well through the balance of the year.

And then on the operating expenses where in the first quarter you were up from about 148 to 155 you are up 7 million bucks or maybe that's around 5%. You think that pulse of increase is what we should look for, including the savings that you are going to get from the lower promotional expenditures?

Give me a second here, Saul. Yes probably something in that range makes sense.

Okay and then I just this morning Sherwin-Lambs just announced that they are acquiring a company over in Asia that is in the wood products that's targeted furniture, flooring, cabinets, company called Inchem.

Yes out of Singapore.

Is that one that you were looking at that would have been conjectural to what you are doing with program?

No we were not looking at that's all.

Okay great thank you very much.

You are welcome.

One moment for the next question. We have a question from David Saks [ph] Hockey Capital. Please go ahead.

Two questions one simple, the earnings guidance range for this year, did that assume the buyback of the 3 million share I thought you said it may [inaudible] assume the interest expenses as if it was?

We never include in buybacks at least exclusively and any guidance we give...

Okay but the comment on the interest expense would be down 5% to 10% if the peers were bought back, so in theory it would be down more than that?

That's true. I think if you did include it in the guidance it would be de minimus.

Right in '08, but it'll help '09.

Yes.

Okay. Second question, which is just to give you a chance to expand on this with some latitude, can you talk a little bit about your multi-year strategy, your targets for operating margins for the different segments of the company? We’ve experienced unusual demand situation over the last couple of years for coating and the painting side. And also raw material pressures that have held back margins, so just curiously where do you think a normalized or sustainable operating margins can be once raw material headwind cost have been recovered and we get back to it what might being considered and normal housing environment.

I think on a multi-year sort of a look out, all three to five years to five years, several things. One, as we grow outside the U.S. we are going to leveraging up our international cost structure. In some areas of the world where we have built infrastructure we still have a lot of room to grow into that infrastructure we should be able to leverage. And that's an overall international comment. With respect to our architectural business, which is one that certainly absorbed the pressure as you point out of raw material increases over the last few years. But also --.

As the brand on there as well.

Yes. Also felt the pressure of the branding initiative, of the branding investment. It's our belief, as we come out of the housing recession for lack of a better word and overall multiyear period as a result of growing a richer mix because, we're growing at the premium price points. We're transitioning most if not all of our business over the premium price points. As a result of that top line growth, we will be able to leverage both the brand spend, which will decrease over time and also lever the other SG&A, which will not increase as quickly as sales. Bottom line is I believe that we should be able to increase our operating margins in the Paints segment by 500 basis points over a five-year period.

That would be 14% of so percent and then you look at companies like Bare Paints [ph], which is delivering operating margins in the mid 20s selling to essentially one customer.

Right.

Is the difference there just that they have got concentrated volume with consistent production flows or how does that. How do you justify them making 24%, 25% operating margins compared to your business doing dramatically different now?

Frankly I don't justify it. Tongue and cheek I think it's a question for the customer and the supplier on that side of the equation to answer. We think we can move towards there, I don't pretend to understand it completely, total nature of the other relationship. It is a benchmark that we think we can move our business towards.

But if you got to a 14% margin in paints that would be obviously considerable grant from here, and what about on the coatings business, does that get back to 11.5, 12 where we've --

Yes. It should and 12 and 12, 13...

And is that you're going to buy what you're talking early about your proprietary technologies or new products or is that just leveraging the capacity or footprint as you grow or expand globally?

It is a function of recovering the wood business, it is a function as we bring our technology in other businesses other than our packaging business to bear in the international markets and also as we continue to lever upon expense.

And is there anything that you've seen over the course of the last year or two that would make you question that company's historical approach to kind of top line planning or the business normally grew sort of 5% to 6% organically or 5% to 7% organically and then had acquisitions... the tuck-in acquisitions sort of doubling that growth rate. Is that 5% or 7% organic growth still seem reasonable to you over a three year to five year look or is that aggressive just given what did you see happening in the U.S. economy or elsewhere.

Yes. I think that is the difference between short-term and long-term. I think...lets presume... lets make couple of assumptions. Number one, let's assume the U.S. goes into recession and so we have 60% of our business in the U.S., 40% outside I think you could argue that 5% organic is pretty very tough roll at there. But looking at on a longer-term perspective, I think that is a sustainable growth number...organic growth number in that 5% range.

Because if we do or don't go into recession, the U.S. paint categories going from, I think over the last 40 years there was only one year where that paint sales in unit volumes was down 1% for you in '06. And now in '06 it was done 1, '07, it was down '08... '08 it could be down mid single-digits for the industry, so kind of unprecedented declines, it would seem like you've already won the brunt of that at least in the coatings business... or the paint, excuse me, business?

We've borne a good piece it, you're right.

Okay. Thank you very much.

You're welcome, David. Operator: Our next question is from the line of Mark Havey of Spectra Advisory Research [ph]. Please go ahead.

This has been heck of a good call. Congratulations to both management and the people who have asked questions. I guess, I have somewhat the mirror image of the other call of the last question, which is, how vulnerable obviously your expertise at cost cutting is very helpful, but let's assume none of us knows sure what's in store for us that the coatings business worldwide goes... is hit by a fairly long economic... period of economic decline, let's say in the 2% or 3% range for several years at what point... have you looked at that kind of hopefully worst case scenario and seeing the impact and the steps that you would be able to take in response to such a economic decline? In other words something similar to what the world experience may be in the mid 70s?

Well, the first reaction I would have is that you're going to see raw material cost ease up and that's half of our cost structure. So, in previous deep recessions where we have had our normal sort of supply demand balance, we've actually seen margin expansion help offset top line decline. That happened in the early 80s, I think it may have happened in the early 90s as well. So, that'll be the first reaction and second thing is as you shrink your top line, you're going to take money out of working capital and reduce your debt, so forth. The coatings business is not capital intensive and it is pretty resilient. You're describing a scenario that I think hopefully as the worst case scenario, but one that I think we would survive and I say we, not only we as a company but probably other companies in our industry that are well-managed, we probably survive better than many other companies in other industries.

Okay. That's an interesting perspective. Thanks a lot.

You are welcome.

Okay. Speakers at this time, we have no further questions in queue.

Well thank you everyone for your participation and for questions today, just quickly summarizing we had a good quarter, we are pleased. Our international business is quite strong, our U.S. business performed well. We are in a process of implementing price increases and our businesses are focused on generating new business and operational excellence. And we look forward to being with you all again in our second quarter conference call in May. Thank you.

Ladies and gentlemen, that does conclude your conference. We do thank you for joining, while using an AT&T Executive Teleconference. You may now disconnect. Have a good day.