After spending the last few years investing in our platforms and lowering our cost structure, we have turned our focus to re-establishing our operating profit margin to 15% and increasing our capital efficiency by the 2012/2013 time frame as we accelerate our unit volume growth.

• 30% gross profit margin;
• 15% SG&A percent of net sales; yielding a
• 15% operating profit margin

We believe that successful execution of this profile will continue to yield free cash flow in excess of $300 million annually, or at 8% or 9% of net sales. Additionally, our earnings per common share growth is also expected to increase above a 15% compounded annual growth rate between 2010 and 2013.

We are directing focus in 3 key areas to achieve these results:

Focus 1: Operating leverage – the primary driver

By increasing our unit volume growth from an established 2% annual increase to 5% to 6% through the outlined growth strategies, we are able to maximize our incremental margin contribution. In 2010, unit volumes increased 5% annually, with a peak 7% increase in the fourth quarter – providing strong momentum into 2011. Combined with a robust product development pipeline, new, proprietary manufacturing processes, an expansive international footprint and a focus on accelerating developing region sales – we are well positioned to maintain momentum.

Focus 2: Ongoing productivity improvement through continuous improvement achieved as part of our World Class Manufacturing principles.

• In 2010, the Supply Chain organization achieved $100 million of productivity benefits through hundreds of facility-led programs that yielded record performance. These include record:
  • Yields;
  • Asset productivity;
  • Employee productivity; and
  • Safety
• Optimizing our strategic procurement programs and supplier management activities, including the expansion of e-procurement tools
• Leveraging new manufacturing processes, ongoing automation, and an efficient manufacturing platform in developing regions through the completed Global Manufacturing Strategy (GMS) program will further contribute to our productivity performance

Focus 3: Holding fixed overspend of approximately $1 billion relatively steady and increasing the return on investment of these expenses, will be an integral driver to reduce SG&A as a percent of net sales. Our goal is to achieve an average SG&A ratio of 15% by 2012/2013, as compared to the 16% to 17% range today.

We are focused on limiting SG&A expense growth to approximately 3% annually as we optimize several administrative areas including:

• Customer and SKU profitability through our “Cost to Serve” programs focused on reducing complexity in our processes and differentiating services based on customer preferences. By leveraging our “one instance” of SAP that now covers 90% of our revenue, we benefit from greater insight and the opportunity to rapidly address areas of opportunity.
• Through our transition to a “shared services” model, we are able to increase our return on investment in various automated technologies and processes – helping to streamline our operations and boost returns.
• Achieving the “perfect order” by optimizing accuracy and timeliness through the life cycle of an order. Our goal is to increase productivity and reduce the “cash-to-cash” cycle by using streamlined processes and new technologies to facilitate improved efficiencies and quality from initial order entry, through to manufacturing, inventory control and final fulfillment.

Successful execution of our growth strategies, which we expect will yield attractive incremental margin, combined with disciplined control of expenses and ongoing optimization of the business will drive improvement in our financial profile. We expect this to result in continued steady growth of our operating profit, with a return to an operating profit margin of 15% by the 2012/2013 time frame.