Spectrum Brands Holdings Inc (SPB) 2007 Q3 法說會逐字稿

Good morning, my name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands' Third Quarter 2007 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the speaker's remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Thank you. Ms. O'Donnell you may begin

Thank you. Good morning, everyone. We appreciate your participation in today's call and your interest in Spectrum Brands. In just a moment I will turn the call over to Kent Hussey, our Chief Executive Officer and Tony Genito our Chief Financial Officer who will provide a strategic overview and a detailed review of Q3 financial results. First, however, let me remind you that we will be making forward-looking statements as part of today's call. These statements are based on management's current assumptions and projections, and they do contain an element of uncertainty. There can be no assurance that future results will occur as anticipated and may in fact differ materially from current expectations. We encourage you to review the risk factors and cautionary statements outlined in our most recently filed Form 10-K and 10-Q in order to better understand those risks. We assume no obligation to update any forward-looking statements that we make today. So at this point, I will turn the call over to Kent.

Thanks, Nancy. Good morning, everyone. While I have been a participant in Spectrum Brand's earnings calls for many years, in fact, almost 11. This is my first as a Chief Executive Officer of the Company. As a new CEO with a grand total of 10-weeks under my belt, I would like to start our call by sharing with you my thoughts on where the Company stands today and my vision of where we are going.

First, the Company today has the right organizational structure. In January of this year we announced a reorganization of our Company into three fully functional free standing business units. Global Batteries and Personal Care, Global Pet Supply, and Home and Garden. The work to de-integrate or un-integrate, if you will, these businesses that were partially integrated here in North America is now essentially complete. The few remaining projects should all be complete by the end fiscal 2007. Each business now has its own fully staffed management team. It's own new product design and development capability. Its own manufacturing and distribution facilities. Each business unit has its own back office capability as well, including finance, IT, HR, customer service, et cetera. While on the surface it would appear this un-integration would increase cost, quite the contrary is true. The integration of our global operations organization into the business units has resulted in a flatter, leaner, more efficient structure that's been a major contributor to our $50 million cost reduction program. The business unit leaders now have control over and responsibility for every functional element of their business and a razor sharp focus across the organization on the key success drivers both in internal operations and more importantly in the marketplace. You should be aware that over 90% of the initiatives required to deliver the projected $50 million in savings have already been implemented. Much of the saving, is attributable to the significant head count reductions that have taken place literally to the top to the bottom of this Company. Fiscal '07 is benefiting to the tune of over $15 million. And fiscal '08 will further benefit from the incremental remaining $35 million.

Second, we have the right management team in place. As I'm sure you are aware I moved quickly to build my own team, having been a Senior Executive for Spectrum for almost 11 years I have my own ideas about the skill sets needed to execute our strategic plans and to drive the performance of our business back to historical and more attractive levels. With the full support of the board that I have been able to quickly make the changes I thought were necessary and can now focus all of my energy on our critical business issues. From my perspective, Spectrum has the best slate of business unit in corporate executives in its history.

The Spectrum Leadership Team, which is charged with leading the business forward is composed of Dave Lumley, President of Global Batteries and Personal Care and Co-Chief Operating Officer; John Heil, President of Global Pet Supply and Chief Operating Officer; Amy Yoder, Executive Vice-President Home and Garden; Tony Genito, Senior Vice President & CFO and myself. This small energetic group is locked at the hip and moved quickly to right this ship.

Dave Lumley, as many of you know, came to us from New Rubbermaid where he led the turnaround of the Rubbermaid business. Dave has been with us for a little over a year, assumed responsibility for our European and Latin American battery and personal care business in January. And has recently completed major structural changes around the world that have contributed significantly to our cost reduction program. In addition, he has centralized our brand marketing and increased our speed and agility throughout the organization. Dave has over 25 years of experience in the consumer products industry and has led turnarounds at Wilson Sporting Goods, Brunswick Bicycles and EAS prior to Rubbermaid. Dave loves a challenge.

John Heil, has been an Executive in the Pet Food or Pet Supply business for most of his career, having spent many years in the Pet segment of Hines Corporation before joining the United Pet Group. He came to us as part of the United Industries acquisition. John is acknowledged to be one of the most knowledgeable hands-on executives in this highly fragmented industry. He's never met a dog or cat he didn't like or a bird or a ferret, for that matter. As an aside in case you didn't see last week's business week, the cover story was on the rapidly growing Global Pet business. I highly recommend you take a look.

Amy came us to four months ago from Chemtura Corporation, where she headed their biolab Consumer Products business. She has 15 years of experience in the Agricultural and Home and Garden industries. In the short time she has been with us, she has filled out her management team with some great new talent. Identified the drains on Home and Garden profitability and has actions in motion already to improve margins and bottom line profitability.

Finally, Tony Genito, has been our SVP Finance and Chief Accounting Officer for the past three years. So his step-up to CFO was a natural progression. Tony has a detailed understanding of each of our businesses and is widely respected throughout the organization. Tony is in the gym every morning at 6:00 a.m. getting pumped up to face the challenges we are dealing with here at Spectrum every day.

Before I get into the third quarter results, I would like to address some concerns that I know in the minds of our investors given that our debt in equity are trading at all time lows.

First and foremost we have sufficient liquidity to operate our business in the normal course for the foreseeable future. Let me emphasize that this is the case even without factoring in the sale of any strategic assets. We have just completed a thorough reforecast of our business by quarter through fiscal '08 and have more than sufficient liquidity to meet our normal seasonal peak working capital requirement which occurs every April with a very reasonable cushion. In fact, well over $100 million. As Mark Twain said many years ago, "The rumors of our demise are greatly exaggerated."

Secondly, our operating businesses are healthy. Their performances improving and they all generate good cash flow. The favorable impact of the full realization of cost reduction initiatives already implemented pricing in all business units, a rich pipeline of new and innovative products and a commitment to continued advertising and promotion to support our brands and new products bodes well for improving profitability. Yes, we like everyone else are facing continuing commodity raw material and purchasing cost increases will eat into our profit. However, commodity costs appear to be stabilizing, although unfortunately at historically high-levels. We continue to hedge our most important commodity materials, such as zinc and uria, to lock in these costs for fiscal 2008.

Finally, in addition to restructuring cost reduction activity in our business units, we significantly downsized our Corporate staff and Corporate overhead costs. So with a stable world economy, I'm confident we will deliver healthy profit growth next year. And finally, I want to reconfirm our commitment to reduce our debt level and reduce leverage through the sale of assets. The restructuring in a fully autonomous business units with separate audited financials that I described at the beginning of the call has obvious advantages as we move forward on this commitment. We just completed a fresh strategic review of our Company with the help of Goldman Sachs. And at our board meeting last week we made a decision to move forward with the sale of a strategic asset. That decision was taken in the context of current debt markets. the level of overt strategic interest in our businesses and the desire to complete a transaction by the end of this calendar year. Work has been underway in anticipation of this decision. And we will begin an active sale process in a matter of weeks. And once underway we will provide visibility as to which asset was selected to all of our investors. I can assure you a lot of work is going on behind the scenes since we completed our refinancing at the end of March to return this Company to a healthy state with a good future. With those macro issues addressed, let me turn to a report on how our business units are doing.

Overall, Q3 was a disappointment. With all three business units under performing expectations mainly due to lower than anticipated sales. An overriding causal factor in North America was less than robust retail sales and very tight control over retail inventory levels. We saw orders reduced or held back as we approached quarter end in a number of our businesses. Great cost controls and good progress on our cost reduction initiatives were not enough to offset the lost margin and continuing materials cost pressures relative to our expectation. However, we did show significant year-over-year EBITDA improvement in our continuing operations, up $12 million or 34% versus last year. EBITDA for Home and Garden was down $7 million, or 13% as a result of the poor weather conditions during the quarter. Overall top line growth was 3.4% with Q3 net sales of $442 million from continuing operations. Excluding FX of $15.9 million during the quarter, sales were flat year-over-year.

Looking at revenue by business segment, Global Batteries and Personal Care generated sales growth of 4% this quarter. The biggest growth driver was our Remington Shaving and Personal Care products which increased 8% year-over-year. Remington's International sales continued to be very robust with double-digit growth, while North American sales of Remington products were down about 5%. Global Battery sales increased 2% versus last year. Latin America was our best performer with sales growth of 20% driven largely by pricing and product mix. Foreign exchange helped Battery sales in Europe turning a slight decline on a constant currency basis into a slight gain.

North America was actually down this quarter, which we attribute primarily to some shipment timing issues and a desire in the part of certain retailers to very carefully manage inventory on a week-to-week basis. Retail sales in the Alkaline Battery category in North America were up about 9% during the quarter. Rayovac Alkaline point-of-sale, also improved about 9% and our market share was stable versus last year.

Looking forward we have increased our shelf presence at important retailers for the upcoming Holiday Season. I'm happy to report that Rayovac Batteries will have prominent positioning on the holiday battery power centers at Wal-Mart this Holiday Season for the first time in several years. In Europe, we were launching the World's Best Performing Alkaline Battery and we will utilize Boris Becker as our marketing spokes person. We intend to defend our profitable [bar-of] branded business with this campaign. And finally we will be announcing an exciting new licensing agreement with one of the World's Leading Entertainment companies in the very near future. We believe this partnership will enable us to capture unique marketing opportunities and one of the few remaining growth segments for Alkaline Batteries, which is toys. Global Pet generated Q3 sales growth of 2%. We saw continued strong performance from the Companion Animal business with growth of 8% and from our Tetra Aquatic business in Europe we are driving growth with new product rollouts and increased distribution in new markets. We were also assisted in Europe by strong currencies versus the U.S. Dollar. North American Aquatic continues to be sluggish and on a global business, Aquatic sales were flat in Q3.

Our Home and Garden business reported in discontinued Ops, suffered from poor weather conditions this quarter as we previously talked about. And sales declined by 4.7% to $258 million. This Lawn and Garden season has actually been one of the worst in recent memory and as you know the entire industry has been challenged. Insect repellents showed growth, although less than our expectations, but our broader outdoor controls business was hard hit by the drought conditions in the south and we saw year-over-year decline. No rain equals no bugs. We did see a lessening of drought conditions in July and, therefore expect a more normal Q4 as a result. The positive news on our Home and Garden business, is that the cost issues we struggled with in fiscal Q1 and Q2 are behind us now. In addition, performance metrics like on-time shipments and complete shipments were in the high 90s throughout the season, demonstrating to our key retail customers that our operating problems last year had been put to rest. Perhaps most importantly, we maintained our improved market share in most categories including fertilizer, seed, insect repellents and select control products.

Looking to the future, our initial line reviews for next year are going well. And we were currently communicating with retailers about new price increases for next season that range from 2 to 3% in control products to 10 to 12% in fertilizer, growing media and seed, where current margins are not acceptable due to high-input and transportation costs. In addition, after several years of heavy investment and trade support programs, we're redirecting some funds to support and build our core national brands like Cutter, Spectracide, Hot Shot and Garden Safe. We know from past experience that targeted advertising can be a significant driver of sales of these high-margin products. Overall, we were not satisfied with sales performance this quarter; however, I'm confident we are doing the right things to drive growth in the upcoming quarters. Now turn the call over to Tony to go over a few details.

Thanks, Ken. Good morning, everybody. Before I start my financial overview, I want to mention that in addition to our reported numbers, I will also discuss certain non-GAAP financial measures including adjusted diluted earnings per share, adjusted gross and operating margins and EBITDA. We believe these non-GAAP metrics provide incremental helpful information about results from our operations and serve as one means to analyze the Company's financial performance and identify trends and operating results. Non-GAAP metrics, while useful supplemental information are not intended to replace the Company's GAAP results and should be read in conjunction with those GAAP results. We provided a reconciliation of adjusted diluted EPS to GAAP results in Table 3, of today's press release. In addition, a bridge to all non-GAAP measures used in today's call will be posted on our website within 48 hours. Okay, with that out of the way let me begin our financial overview.

As Kent noted earlier, we generated net sales of $442 million this quarter, a 3.4% improvement over last year's third quarter sales. Our gross margin was 37.1%, a year-over-year improvement of 50 basis points. Operating income of $3.7 million this quarter compares with $10.5 million last year. Largely as a result of significant restructuring costs incurred during the quarter in connection with our Global Realignment and Streamlining initiatives that were announced last January. After income from discontinued operations of $22.8 million, we incurred a net loss of $7.4 million for the quarter, or $0.15 per share. We incurred total reinstruction and related charges of $30.6 million in the third quarter, $4.1million of which were included in cost-of-sales and the balance in operating expense. These charges related primarily to significant head count reductions at all levels within the organization. This downsizing resulted from our Global Realignment initiatives and were designed to reduce the Global Operations and Corporate Structure of the business.

In Q3 of last year, we incurred $6.8 million in restructuring and related charges. After excluding restructuring and related charges from both years, gross margin for the quarter was 38.1%, representing an improvement of approximately 100 basis points versus last year. Fueling much of the benefits, were manufacturing cost cutting and downsizing initiatives across the organization. Also contributing to the improvement , were the successful battery pricing actions take in North America and Latin America earlier this year. Operating expenses in the quarter were $134 million excluding restructuring and related charges or 30.3% of sales as compared with $142 million or 33.1% of sales last year. The biggest driver of the improvement was the benefit we saw from the Global Realignment cost-saving initiatives. Excluding restructuring and related charges, third quarter operating income was $34 million, double last year's $17 million. Operating income improved by approximately 400 basis points to 7.8%. This improvement represents real and ongoing change to our overall business model that will continue to benefit our results throughout fiscal 2008. As Kent mentioned, we expect incremental cost savings of $35 million in fiscal 2008.

Moving on to segment profitability. Global Batteries and Personal Care segment profitability more than doubled to $27 million or 8.9% of sales. This compares with $10 million or 3.4% of sales last year. The significant improvement was driven by cost savings from our fiscal 2006 European restructuring initiatives as well as the benefit of the 2007 Global Realignment initiatives. Profitability was also helped by the pricing actions mentioned earlier. Our Global Pet Supply segment generated profits of $14.4 million representing 10.7% of sales compared with last year's $17.7 million or 13.4% of sales. As we predicted during the last earnings call, this increased -- the increased distribution cost we experienced last quarter as a result of the consolidation of our Pet Supply Chain Organization and Distribution Infrastructure continued in Q3 to the tune of 3 to $4 million. While the lion's share of these costs are behind us, we were likely to feel some lingering impact in Q4; however, not to the same degree. We also increased our marketing and advertising spend versus last year and support of sales growth with an investment to further development our Companion Animal distribution in Europe. Corporate expense was $7.5 million versus last year's $10.4 million as a result of cost savings across the board. Third quarter interest expense was $41 million compared to $31 million last year.

We anticipate that full year fiscal '07 interest expense will come in at approximately $220 million of which a portion of that is allocated to discontinued operations in accordance to GAAP accounting. For your modeling purposes, remember included in our $200 million of interest expense is approximately $10 million representing amortization of debt issuance costs which is a non-cash expense.

Our fiscal year 2007 average interest rate is approximately 8.5% and will average approximately 9% in fiscal 2008. At this point, we have affixed the rates on about 75% of our total debt for 2008. Depreciation and Amortization expense was $24 million in Q3. Next year we were anticipating a substantial reduction in D&A, where total D&A will be in the neighborhood of $60 million. This decrease is the result of lower capital spending levels this year as well as next and reduction in restricted stock amortization. On a GAAP basis, we recorded a tax benefit on continuing operations of approximately 21%. Exclusive of the impairment charge we took back in our second quarter, we would have reported a greater tax benefit for the quarter and nine-month period. Including the Home and Garden business, our operating cash flow in Q3 was $88 million. We spent $6 million on capital expenditures, $4 million on cash taxes, and $9 million in cash restructuring. This resulted in net free cash flow of $69 million. We still anticipate full-year cash tax payments in the range of 20 to $25 million, which I think is a good run rate to use for next year.

Full-year fiscal '07 cash restructuring costs should come in at approximately 55 to $60 million and are expected to decline in fiscal '08 to around $45 million. Outstanding net debt at quarter-end was $2.479 billion including cash on hand of $176 million. Our senior leverage ratio at quarter-end was 5.63 times. This was well within the 7.5 maximum allowable senior level ratio under our senior credit facility. We anticipate closing our New Asset-Back Loan facility during the fourth quarter. At closing we will use cash on hand to pay down the term loan by approximately $200 million. We expect to end the year with a net debt position of approximately $2.4 billion and full availability under the ABL facility as it will remain undrawn. This should be more than sufficient to meet all anticipated cash flow needs in fiscal 2008 including the inventory build in the Home and Garden business and cash payment of interest on our [callable] notes.

In summary, although we are still working through some challenging times, our third quarter results showed significant improvement from an EBITDA standpoint. A 35% improvement. This improvement is a result of the hard work we have done and we are continuing to do to operate more efficiently. The $35 million in cost improvements we are anticipating next fiscal year, should more than offset an estimated 13 to $50 million increase in commodity cost before factoring in any assumed top line growth in our business. So, as we reap the cumulative benefit of the work currently in progress, we expect the EBITDA improvement we saw in Q3 to continue in the fourth quarter and to accelerate in fiscal 2008. This concludes my prepared remarks. I will turn it over to Kent for some concluding

Thanks, Tony. I know we have take an few extra minutes to go through our prepared remarks this morning. So we will extend the call today to get in as many of your questions as we can. However, before I turn the call over to the operator I would like to recap a couple of important points.

Number one, Spectrum Brands' has sufficient cash flow this year and next to meet all our obligations even without any asset sale. Tony just walked you through our plans to put in place an ABL facility by the end of this fiscal year. I would like to remind you also that our current fiscal year was unfavorably impacted by over $15 million in cash refinancing costs plus unusually high cash restructuring costs as a result of significant restructuring activity we are just completing. Cash impact in fiscal 2008 will be significantly less.

Number two, while we expect measurable improvement and profitability from cost settings next year, we also plan on growing our top line. I'm well aware that for us to survive and prosper, we must improve our growth across all business units. We have a keen focus on revenue growth enhanced by new product focus structure and a number of exciting programs in place to drive growth, including pricing initiatives, new product rollouts and targeted marketing and advertising which we are confident will generate positive results. Our new products, I believe we have some the most exciting new products coming to market this fall in years. Just focusing on Remington for a moment, we have revamped the marketing program for a new line of rotary shavers that we call Everest and believe we will do a much better job of connecting with consumers this Christmas.

In addition, we are launching a product called Clean Exchange. Which is the world's first foil shaver with a replaceable shaving head cartridge offering the convenience of dry shave with a comfort and hygiene of a replaceable shaving head. We are also rolling out the first electric shaver designed expressly for the youth market providing a comfortable close shave for a young man's face. In women's hair care, you will see the World's First hair drier that dries and conditions at the same time. So it's all about innovation. New products that better meet consumer's needs. We have comparable exciting new product rollouts in every business unit.

Number three. You saw the improvements in our cost structure reflected in the Q3 gross and operating margins before restructuring expenses. You will see further improvement in Q4 and in fiscal 2008 benefiting from an incremental $35 million in cost savings. Our expectation's that you will see significant growth in both EBITDA and free cash flow in fiscal '08 versus current year levels. Some very good news is that the ongoing drag on earnings and cash flow is a result of the almost continuous restructuring initiatives over the last few years is coming to an end. Yes, you heard that correctly. With no acquisitions on the horizon, and our realignment into business units and the downsizing of our overall structure almost complete, there will be only modest additional actions and charges beyond what has already been announced for 2008. This is good not only for our financial results, especially cash flow, but even more so for our organization, which has been in an almost constant state of flux for the past few years. And lastly, we are committed to reducing our debt level significantly through the sale of one or more assets. We have a number of valuable properties with strong levels of interest and we are confident that we can consummate a deleveraging transaction in a reasonable time period. One that will result in a more normal capital structure for the remaining businesses going forward.

I know many of you are frustrated with the current trading prices of our securities and we are, too. But I truly believe the market is underestimating the earnings power of our businesses, the strength of our cash situation, and the value inherent in our portfolio businesses. I hope I have given you a little more confidence in the future of our business this morning. At this point, I'll turn the call over to the operator to take questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Bill Chappell from SunTrust Robinson Humphrey.

Good Morning.

Hello, Bill.

The first question, I understand you aren't going give us exactly what you are looking to sell. Can you tell us when you talk about the number of things that could be an opportunity, are we looking at three business units? Or are you willing to split up the business units for potential sale?

I think we said that we would prefer to have a significant transaction rather than parceling out one of our business units in pieces. That's a better way to look at what we were planning on doing.

Okay. The second, on the Pet business, can you give us an update on where Wal-Mart stands in terms of getting out of live fish and if there is any changes to that and what you see going forward there?

John Heil met with the folks down at Wal-Mart about a week ago. Met with the buyer and one of the middle management people in charge of the pet department. What we understand is they have stopped at 605 stores. We have made a proposal to Wal-Mart that we think is a great interest to them in terms of maintaining live fish in the rest of their stores. There is a test planned on the proposal that we have in front of them and they plan to allow us to run the tests to see the results of that before they mange any further decisions. For right now, they have stopped taking live fish out of any additional stores.

And then, finally just on the Garden business, Scotts' mentioned last week they felt pretty good about even though it's typically a slower quarter, the fiscal fourth quarter in terms of bugs and weeds have kind of come back. I know you have easy comparisons for the bug control business in the fourth quarter. What is your outlook there?

I think as we said in the remarks this morning we had a lot more rain in the southeast now, so the bugs are out and therefore we predict I would describe as a more normal Q4. So I think the poor performance of the entire industry experienced in Q3 hopefully will not repeat in Q4.

And I guess I thought Scotts might actually step up some marketing and advertising in the fourth quarter. Would you look to do that or let the season play out?

I think we will let the season play out.

Great. Thanks a lot.

Your next question comes from Karru Martinson with Deutsche.

I believe it is Karru Martinson. In terms of EBITDA for Home and Garden, I'm sorry if I missed that, did you give that breakout?

We gave the EBITDA for the quarter. I believe the quarter came in -- I'm looking at Tony, at $43 million.

Yes, $43 million in EBITDA for Home and Garden.

Which was down about $7 million from last year. And all of that shortfall was related to lower sales volume.

Okay. And then in terms of the hedging for 2008, how much are you hedged right now on zinc and on uria?

Tony?

Sure, right now with zinc we are hedged at 62% with an average price of $3,315 a metric ton. We're looking to be hedged at 75% by the end of this fiscal year. We are seeing right now in the marketplace a stabilization, slight decrease in the price of zinc. So we are looking to jump in on that, watch it very, very closely and go from 62 to 75% within the next month and a half. With respect to uria, we were hedged at 31% at an average price of $323 a ton. And the reason why that's lower than the zinc is because with uria you are only allowed to go out and hedge six months forward. We are going to be at 75% again on a hedge basis of our requirements for '08 by the end of the fiscal year.

Okay. In terms of some of your competitors, T&G has talked about, wanting to maintain margins on Braun and Duracell and so forth. Are you seeing a more rational pricing environment with these raw materials being up?

You are talking about Braun?

In terms of your competitors both on batteries and on Remington as well.

I think if you look at the battery industry, the industry has priced up here the last couple of years. And unfortunately as we said zinc is stabilized but at a historically fairly high level. There has been a little weakness in the last couple of weeks because of some of the uncertainty in I guess the markets. But I would hope that the industry leaders would continue to look at trying to price in the future which we would clearly follow as an opportunity to cover those costs increases and perhaps recapture some the margin than we lost. I know in Latin America where we are the leader in many of the countries down there we have been very aggressive. We have been the leader in pricing and actually priced several times during the past year in order to recapture some of the lost margin due to commodity cost increases. And in the case of products like Remington where we virtually source all of those products in the far east that segment of our business is basically driven by product innovation. When we actually design the product to bring it to market, it's designed to sell it at specific retail price point and we are trying to design a product where we have a known cost that allows us to predict improving margins and we have been reasonably successful at doing that over the last several years.

And just in terms of the battery market in Europe, what changed with your expectations there and how do you see that going forward?

I think we have been candid about Europe being the most difficult market. The biggest macro factor in Europe that makes it different from the rest of the world is the prevalence of private label. There has always been a high level of private label. With the growth in the deep discounters, the Aldis the Lidls and some of the pan European discounters and chains we have seen even further growth in the private label segment. Depending upon what statistic you look at, we believe that of all of the Alkaline Batteries sold in Europe today, somewhere between 50 and 60% are private label on a volume basis. However, it only accounts for about 30% of the value of the market in Europe.

That really has been the dynamic that has prevented most if not all of us from pricing the intense competition. Private label really prevents from pricing up branded batteries so we seen relative stability or slight decline in the pricing of our branded product over the last several years mainly as the retailers that carry branded batteries have got to be competitive with private labels. So we've actually seen about 5% price erosion over the last three years of Alkaline Branded Batteries in Europe. The thing that had the most dramatic impact of our business was that when we bought VARTA in 2002, as a German Battery Company, 100-year-old German Battery Company, we will have a 50 share of that market with our branded VARTA product and over the last several years there has been a dramatic shift of consumers moving towards the deep discounters like Aldi and Lidl that carry private label. As a consequence, private label has grown significantly in central Europe primarily in Germany and our share today in the Alkaline market is about 35%. Virtually all of that share loss that's taken place has been lost to private label.

I think if I heard you correctly you expect to have the asset sale complete by the end of this calendar year, correct?

That's our goal.

Thank you very much, guys.

Your next question comes from Bill Schmitz with Deutsche Bank.

Good morning.

Good morning.

It looks like you did all of the modeling work for '08. Can you give us a range for free cash flow or cash flow from operations that you are thinking?

Well, let me just say it this way, it's in excess of $100 million.

Free cash flow?

Yes.

Okay. That a good start things. Is McKenzie's work done in Europe and what were the findings and also, are you lapping because they are pretty expensive obviously. When do you start lapping the McKenzie costs?

Mckenzie has been over for well over a year and that was not a huge expense. It was in total between North American and Europe about $1.5 million. So relatively insignificant versus the size of the business. And we have been implementing many recommendations that came out of that. They looked at Europe, they saw the biggest growth opportunities in eastern Europe. We've already had a significant presence in eastern Europe and we have devoted more resources to gaining business in those markets. They also made recommendations relative to realigning our sales and marketing to be better attuned to serving the growing channels of distribution which are called food and mass. And less resources devoted to the specialized trade of the smaller retailers that are becoming much less significant in the European marketplace.

Great. And then how did you get back on the quad at Wal-Mart and are you going to start getting the private label back in front of the store.

Private label has gone from Wal-Mart. It's been gone for I think about two years now. They put it in. They had it in. I think for four or five years in generally we are not satisfied with the performance of that product. So it has been gone for sometime now. To our advantage now, we are the opening price point product there. So they basically have Duracell and Energizer as the two premium brands and then we are the value position brand and I think you've seen Wal-Mart talk recently about maybe getting more focused on their roots which is low prices every day. Value prices for consumers. And we think that bodes well for our positioning as the value priced alternative to the premium brands in Wal-Mart. And we think that also contributed to them putting us on the quad for the Holiday Season.

Got it. Is that a profitable business for you?

Yes, it's very profitable.

And lastly, has anything changed with the current sort of CDO market, high yield market, people nervous about getting financial deals done? Are kind of leaning more toward strategic buyers now?

I think quite obviously, anybody that reads the papers know the financial markets are in a state of turmoil. I think most people expect that over time things will calm down. And I think the predictions that I'm reading are that we will get back to a more normal kind of debt markets that good deals will continue to get done but deals will get done with probably slightly higher pricing in the leverage end of the market. A better relationship between risk and interest rate and probably more normal historical levels of leverage on transactions than we have seen perhaps in the last six months. I feel pretty good that there will be credit available for good transactions. But obviously in thinking about probability of getting a transaction done, a strategic buyer that has synergy type opportunities and perhaps a better capital structure is probably higher probability in terms of getting a large transaction done than a pure financial sponsor in the current world we are living in.

Great. Thank you so much.

Bill, before you get off. And I apologize for this, guys because this is me being the anal finance guy.

You have to correct it.

I want to clarify for understanding what the definitions are. When you asked for free cash flow, what Kent gave you is we expect our operating cash flow to be in the range of the $100 million mark next year. But keep in mind as I mentioned earlier in my prepared remarks, that we are looking at restructuring charges, cash restructuring charges of about $35 million as well as our capital expenditures which I didn't mention this year there will be about $30 million. We expect a slight increase in CapEx next year. Work that into your model.

Cash flow operations of $100 million to $35 million of cash restructuring and $30 million of CapEx to get to your sort of real sort of cash balance sort of number?

Correct. And I will say it's in a range of $100 million. And I think that's what Kent was referring to.

Cash flow from operations was in a range of 100?

Yes, sir.

Okay, great. Thank you.

Thanks.

Your next question comes from Jason Gere with AG Edwards.

Good morning. I was wondering can you talk about the marketing spending in the quarter. I didn't think it was supposed to be up that much. And in general with a lot of the new products. Can you talk about the ROI that you are getting and especially going forward with some of these kind of new initiatives out there. I think originally you were talking about marketing spending to moderate next year and is that still the case?

I think we're still in early stage of developing call it the detailed operating plan for next year. As a general statement, we think it's important in the consumer products space particularly when you are launching significant new products to make sure that you connect with the consumer. For instance in Remington this fall, we have a lot of new product in the marketplace. We want to make sure that the consumer is aware of those products and benefits of the product so we would have what I would call relatively normal advertising levels in support of the Remington product.

We have done a limited amount of advertising for Rayovac and VARTA, we think particularly during the Holiday Season when our competitors are exteremly active we have to keep our name in front of the consumers as well as the value position brand here, in North America we don't spend anywhere near what the two major competitors do. And I mentioned in Home and Garden that we have invested heavily in trade support programs for the last several years. But we realized that we have some very valuable national brands in the portfolio. We need to funnel more of our spending to things like Cutter and Spectracide which are our National Brands to re-establish awareness of those brands as well as a lot of new products coming out that have those brand names on them.

In total would you -- if you look at next year, are you looking for marketing spending to exceed your top line growth or somewhere comparable?

I would say comparable.

And then just I guess kind of bigger picture if you look at this quarter, I know you were disappointed with the top line performance. Can you break that down between maybe competition, just market conditions. And then maybe how much maybe of the sales shortfall came from management spending a lot of time with restructuring changes and kind of getting the corporate structure lower? I'm wondering if you look at the time you are spending in terms of revamping the corporate structure. Were there maybe some execution issues in there and how do you look at that going forward?

I don't think what we have been doing to restructure the Company has impacted the guys in the field with execution. Just let me say I think the good news is what we are trying to tell you is that we have the structure in place. We have the organization in place. So all of that activity is behind us. And I think a lot of that activity consumes some of the Senior Management's time and I don't think it impacted the guys in the field who were out there selling. Relative to the business Home and Garden. It was weather. The entire industry experienced a very, very poor outdoor lawn and garden season due to a cold wet weather in April and the drought through much of the quarter. I think had we had a more normal weather pattern, I think we would have seen some reasonably nice growth because we actually had gained share and all of our new products did well in the marketplace this year. Home and Garden is strictly an industry issue relative to weather. Latin America continues to post strong double-digit gains, we are the industry leader down there. A lot of positive news.

Europe, basically is stabilizing. And as we said all along that we view batteries as not being a growth opportunity for us. It's dominated by private label. We were a major supplier of those private label batteries. We are trying to color our portfolio to basically continue to produce quality private label product that allows us to make a modest margin. And continue to support and protect our VARTA branded business which is still a very high margin battery business. But overall, that is not really a big growth opportunity. Remington continues to do extremely well. Remington in Europe or in our Europe rest-of-world business unit will approach $200 million in revenues by the end of this fiscal year. That's almost double what it was when we bought Remington back in 2003. So our strategy about taking products and putting them through our distribution system around the world has worked exceptionally well. I will say that we have spent significant funds in the last two years to build that distribution. And one of the opportunities I think we have as a business going into 2008 is now that we have built up the brand recognition, built up the distribution in Europe, have a pipeline of exciting new product, we can tailor back some of that investment spending we have been making and drop more of the growth of Remington to the bottom line. So I think that will be a major contributor to our profit expansion in Europe in fiscal 2008. North America has been in a recovery mode for the last year and a half. This quarter was a disappointment. We think a lot of that was due to the extreme caution on the part of retailers relative to taking in product during somewhat soft period in terms of retail sales. And I talked about all of the things that we have in place for the Fall Holiday Season. A lot of new stuff for our Company that we think bodes well for good performance in Q4 and in Q1 of fiscal 2008.

And then just lastly, if I understand this right, the sale of Home and Garden and this other strategic asset will both occur I guess in the fall, that's correct?

Incorrect.

Incorrect?

Incorrect. If you read the press release what I said in the press release is that Home and Garden is an asset still held for sale. Discontinued operation. Although we have not made the decision about when to step up active marketing of that business unit. We were actually forging ahead with the sale of a different business unit post Labor Day this year. Home and Garden is still for sale, but we will focus all of our energy on a business unit that's going on the market essentially right after Labor Day and we are finishing up the work to make that happen.

Okay. Thanks.

Your next question comes from Carla Cassella with JP Morgan.

I have one housekeeping item. Depreciation and amortization seem to jump by about $6 million, quarter-over-quarter. Is there a one time item in there or should we look to -- ?

There is, Carla. Cash. Our D&A was $24 million this year. There was about a --

Quarter.

--in the quarter. I'm sorry. $24 million. And there was about close to $10 million of what I would say is a one time charge. It's in our restructuring number in our P&L under OpEx and that represents the acceleration of amortization on restricted stock. This relates to the head count, the terminations that we had within the organization and as you can appreciate at the higher levels individuals had contracts that the stock that was granted them-- to them was to be retained even if they were terminated. So we had to accelerate that amortization. So just to put this into perspective, our true D&A for the quarter was $14 million if you take out that $10 million and how that compares to the other quarters, Q1 we had D&A of 18, as you are well aware, 19 in Q2, 14 in Q3. And we should end the year at about the $67 million range. Does that help?

It's very helpful. Then on the battery front, with this new program at Wal-Mart, do you expect to see some give back in the margin improvement you got this quarter?

From what specifically?

I guess I'm asking is it lower margin to do the special programs with Wal-Mart at year-end and how that would compare to last year's. I'm wondering if you will see -- if you are giving up margins to get the additional space?

No, I think the space I think -- the space that we gained on the quad, on the Power Island is my perspective because I think the emphasis on value is resonating more strongly with the Wal-Mart this year than perhaps it has in the last several years. I think we are the value proposition both for the consumer and for Wal-Mart. And I think that's helped us in that positioning. There was no special consideration to get on the Battery Island. I just would say that typically in the fourth calendar quarter of the year, the Holiday Season, there is a step-up in promotional activity in general in the industry and I would expect to see some special promotional activity at Wal-Mart as all of the other key retailers in the country. But that's very normal for the Holiday Season. We don't see anything out of the ordinary occurring this year versus last year.

Okay, great. And then you gave EBITDA for Lawn and Garden, did you give it for the other divisions as well? I think I may have missed it.

Yes. The total EBITDA for the quarter was $89 million of which $43 million was in Home and Garden. And the difference was from our continuing operations.

Do you break that out between Pet and Battery, Personal care?

No, we do not.

Okay. That's it. Thanks a lot.

Okay.

Thank you.

Your next question comes from Joe Altobello with CIBC World Markets.

Hey, guys, good morning.

Good morning.

First question is I'm going to go back to the asset sale. Sounds like Home and Garden is taking a back seat to this other strategic asset. I was curious if it's because you getting more interest in this other asset? Or something you decided internally?

I tried to characterize it as the level of strategic interest, probability of consummating a sale in the current environment. And then potential the significance of the impact on both the debt and leverage of the Company.

Okay. Okay. And then I think Kent you said that you're more likely to see a strategic bar than financial. Is that speculation on your part? (Inaudible)

Yes, it is. I'm speculating.

Want to be sure. On the Wal-Mart side you said you made a proposal to Wal-Mart about their live fish business. Can you elaborate that a little bit?

John Heil who runs the business asked me not to for competitive reasons. Obviously the competition is in there making their own pitches. I would just tell you it's an innovative approach that allows the stores to maintain live fish which many people believe is a real draw and helps stimulate sales of a lot of products. And we think it's a win-win. Allows us to keep the fish in and deals with the issues particularly issues they had with from the operations department in the store that's very difficult to maintain live fish. Let me just leave it at that. We think it's interest enough to the people in Wal-Mart that they are taking the time to test it and see if, in fact, we can deliver the value to them that we believe we can from this new approach.

Okay. You will be taking more of a hands on approach to managing that category .

Absolutely. That's part of it.

Okay and then lastly on the interest expense side, I want to make sure I think you said $200 million in interest expense this year, is that correct?

Yes, 220.

220.

I'm sorry. I apologize for that. Just recap, $220 million of interest expense and remember that we have about $10 million of non-cash interest in that number which represents the amortization of our debt issuance clause. Now keep in mind that of the 220, we do allocate that between continuing- Ops and dis-Ops in accordance with GAAP and of that 220 about $150 million will be in continuing operations and dis-Ops will have about $70 million of interest.

Okay. And then lastly, I apologize. The 11.25% coupon, will that be paid in kind?

That will be paid in cash.

Cash, cash.

In cash. Okay. Perfect, thanks.

Your next question comes from Alice Longley with Buckingham Research.

Just two questions I guess on Remington. Can you break out what the growth is outside the U.S. and how much it is in the quarter ex-currency.

Remington grew 8% and that was basically -- I think I said Remington in the quarter in North America was down about 5 and up about 8% Internationally which is basically Europe.

It was up more than that.

It would have to be up more than that.

You are right. All right. That's right. It was 8 -- so it was 15% growth in Europe. 15 in Europe.

And how much in local currencies? In Europe?

You have Euros on there?

Actually, 15% was local currency.

15% in Euros.

18 in U.S. Dollars.

Smoking

Okay. Great. On Lawn and Garden, could you just verify that your numbers excluding discontinued operations are still assuming that Lawn and Garden sold for $800 million and if so could you update us on how you are justifying that price and maybe what is the normalize level of EBITDA you are using to justify that price for Lawn and Garden?

Let me make a few comments. Number one, I think the number is 750.

Correct.

That's a number that we were close to consummating last year. While this year has bit of a disappointment because of the weather, we believe that in the more normal environment, particularly with the way we are running the business, the efficiency of the operation normalize number would be into the 70s for that business.

Into the 70s for EBITDA?

Correct. And let me make the following comments. That business today is significantly stronger and healthier than it was a year ago when we were selling it. We have a very strong General Manager in Amy Yoder. We have supplemented the management team with some very significant new talent in terms of a CFO, Supply Chain Leader and some various people in the marketing organization. From that perspective, dramatic improvement in the business. Number two, some of the operational issues we experienced back in '06 we are all cleared up by the end of that fiscal year and we had, I don't want to use the term flawless but we had execution at industry leading levels in terms of customer service levels and execution during the season this year. From an operational point of view the business performed exceptionally well. And then number three, while we seen dramatic increases in the cost of uria and there isn't a lot of abatement in that because of the abate in that just because of the demand for fertilizers, because of all the corn that's been planted to produce ethanol. The year-over-year increases are basically moderating versus some of the earlier increases and we are taking the tact with the industry that we have to recover all of those cost increases in the form of pricing and the industry is beginning -- the retail beginning is beginning to recognize that is just a fact, that they are going to have to live with. Overall, I think the business is really much better shape than it was a year ago. Should also point out that a year ago the business still was -- had a fair amount of integration with our North American business unit and we now have basically called it un-integrated it. It has its own distribution system. Has its own complete independent manufacturing. Its own management team and back office. Is it truly stand alone business unit that can be sold to a buyer who can take possession of the business that can deliver audit and know he is getting the EBITDA that we are projecting for the business. On a lot of fronts I think it's a more valuable asset today than it was a year ago.

Just my last question. I know this is an aberrational year but could you update us what EBITDA from Lawn and Garden is likely to be this year?

I think the full year is going to be about $50 million. But let me just comment. There are about 10 to $12 million of call it, unusual one-time expenses that actually date back to F'O6. So I would say if you think about our business from a normalize point of view this year is in the low 60s. And we believe with all of the improvements in the business we can see very clearly this is a mid-70s' business in fiscal '08, just assuming a fairly normal year in the Lawn and Garden business.

Yes, low 60s with a terrible season. Pick your number. Worst season in 10 or 20 years depending on who you speak with. And when you go up that low 60 number, we can have -- we can see sustainable bridge that gets us to the 70, mid-70 number for EBITDA for that business.

What's the D&A for that business?

Well, just keep that is the perspective the D&A is not in the P&L because it's under dis-accounting. We don't have D&A in the numbers; however, that's an '07. In '06, our D&A was about $17 million for the year, about $7.5 million of D and about $9.5 million of A.

Excellent. Thanks.

Thank you.

Your next question comes from Reza Vahabzadeh with Lehman Brothers.

Good morning.

Good morning.

The restructuring charges of roughly $30.6 million in this quarter, is that all just for the continuing operations?

Yes.

Yes, most of that is either Global Batteries and Personal Care or Corporate.

Yes.

There's virtually-- there's none for Home and Garden and I think virtually---.

There's about 5.5 million for pet. And then as Kent said the remainder is really between the Corporate Organization and the Global Battery and Personal Care. Which includes the various initiatives that we embarked upon. We have the finalization of some cost coming through for the '06 initiatives in Europe which is our streamline of the manufacturing as well as the sales and marketing organization. As well as -- and a big chunk of expense that we are seeing of the $30.6 million is coming from what we are calling our Global Realignment that we announced in early January of this year where we had pretty much a "sea change" in the structure of our business embedding global operations which was our R&D global supply chain, et cetera, into the business units to create stand alone self-sustainable businesses that stand on their own P&L. And that's what's really driving the big increase this quarter and restructuring and related charges.

And then D&A of 24 also is for just discontinuing operation.

No, no, the $24 million includes -- well, it's for the continuing business but included in that $24 million of expense is about $10 million just shy of $10 million of restructuring related to the acceleration of amortization of restricted stock that went with some some of the terminated individuals.

I see. Okay. And then when you were talking about cash flow from Ops, it was a little bit hard to figure it out. But cash flow from Ops for fiscal '07 for the entire company, do you have a number for that?

For full year fiscal '07?

Yes, for the whole company.

Sure. Let's take it in pieces.

Okay.

We are looking at an operating cash flow which will be a negative $44 million and that includes capital expenditures of about $30 million. So then keep in mind that this year we had some significant costs around the refinancing in the second quarter, $50-plus million in cash cost there and we have significant restructuring cash cost this year of $57 million. Our net free cash out flow for this year will be in the 150 negative range and that is again driven by the substantial cost-- cash cost associated with the reify and restructuring.

And that's including continuing and discontinued Ops?

That's everything including the Home and Garden business, yes.

Will working capital be a source or use or neutral?

This year?

Yes.

Working capital will be a use this year.

Okay. And why is that? I thought it was a use last year and that we would improve upon that this year? Is it the inventory? Is it the AR, is it the AP?

It's primarily AP. And it's basically our -- we are paying our payables quicker.

Right, and do you have an idea of the use of working capital this year?

Net-net for the year it will be about a $50 million range use.

And then lastly from just a purely accounting classification standpoint, will this other business also be classified as a discontinued Ops?

I can only say that we will follow GAAP accounting as we always do and once this business is identified as a discontinued operation it will be reported as a discontinued operation.

Thank you much.

Thank you.

Your next question comes from Connie Maneaty with BMO Capital Markets.

Good morning.

Hi, Connie.

Could you tell us what you think a normal capital structure is for Spectrum given where the leverage is right now?

I would like to see it below six times. For us that's normal. Maybe for a lot of companies that's high. But clearly that's -- we need to drive in that direction as fast as we can and then continue to drive it down from there. Ultimately in a perfect world I like to see it below four times and I think that's historically we have levered up to around six times and always had a goal to get down below four times as quickly as possible. We were obviously in uncharted territory right now. But I think a significant asset sale will push us back down into the six range pretty quickly.

So is it one asset sale or the sale of Home and Garden that gets you to the six?

One asset sale.

One asset sale. Okay. On Lawn and Garden, when you talked about the price increases for next year, are you leading or following?

We were the leader this year. And I credit that Amy Yoder who came in and looked at some of our businesses and realized that we were generating a lot of revenue, supplying a lot of quality products to our customers but we were not earning very much on them. And there is a "see-change" in the attitude here in the business is that our goal is to maximize the profitability and cash flow of our Company, it is not to maximize sales at any cost and so we are willing to walk away from sales, be they private label sales in Europe at negative margin. Or the sale of fertilizer or grass seed products here in North America at negative margin. In order to improve the profitability. We have a lot of money tied up in inventory and working capital. And if it's not generating a fair return on assets, I have told people we were not going to do that any more. We have gone out aggressively and explained the story to our key customers. We were the leaders and we led it this year and said, guys, we have to make at least a nominal level of margin and profitability on these products or we are not going to be able to supply you in the long-term. One of the nice things is that they really don't have too many alternatives. There are only two people in the Lawn and Garden business that have the production and distribution capability to supply big retailers around the country. It's either Scotts or us. So we are not trying to throw our weight around we are trying to be treated fairly by our retail customers and they understand that we have to make a decent return on assets and so we are meeting with not open arms but they recognize that that's just part of the cost structure of the industry today and I think we were relatively successful at accomplishing the price increases that we need to.

When you said that you led price increases this year, you meant in fiscal '07?

I'm saying prices for next year.

For next year.

That's right. We were the first ones to go out and begin to tell our story to retailers. Think we were out before the industry leader and I think they are also in the marketplace now with fairly significant pricing actions as well.

And what kind of pricing did you realize in fiscal '07?

'07 was much more modest. I think we went out and were in terms of caught fertilizer and growing media in the mid-single-digits. The total amount of impact on the business I think was less than $10 million between the U.S. and Canada from all of our pricing and we are going out for dramatically more in terms of price impact on our business for fiscal '08. Dramatically more than that.

Okay. Let's see. If you consider an asset sale, it sounds like it's likely to be one of your more attractive businesses. How do you see the portfolio that remains? What is the tradeoff between selling something that could have grown for you versus this capital structure?

I like all three of our businesses, Connie. I really think they all outstanding with great potential. So it's really hard to choose. But the reality is that we have an unacceptable level of leverage. And we have to take some dramatic action to deal with that. And so we may have to give up an asset prize and we think has great growth potential. However, if we are not able to realize all of the value inherent in that business because we can't invest in it because we were capital constrained, then we have to face into that and make the tough decision. If we sell one of our prize assets, I think we still have a business that has -- we can be well in excess of $2 billion in a business that is dramatically improving its profitability as a much healthier capital structure and could be a business that has I think a very prosperous and good future even without this one business unit as part of a portfolio. So it's the right strategic move for our Company. And I think the future is going to be great post spinning that business off.

If you get -- if you sell a strategic asset that gets your leverage down to six, will you keep Lawn and Garden?

It's still an asset held for sale. It certainly gives my board of directions the option to -- it gives them options and gives them what I call the luxury of time to make the right strategic decisions going forward. We did decide to sell that business. But the world changes from month-to-month and week-to-week. So I think right now it's still held for sale. The intent is to sell it. Will the board reconsider at some point in time in the future they certainly have the option to do that.

If I could just ask one more. The business you are going to be blessed with presumably still includes European battery business. And the trends there are secular. They may be stabilizing now, but I don't have confidence they will get better. What's your cost structure in that business going to be a year or two from now?

We already took some dramatic steps. We just remind you that we had a project to downsize our manufacturing packaging and centers in Europe and so we went from capacity of 1.2 billion batteries a year down to $600 million. So basically what we are producing in Europe now are our Branded Batteries and sourcing most of the private label from our factory in China. Or to a certain extent a little bit still in Germany. So we take than big step. Last year we downsized selling, marketing and G&A. And already in the 10-weeks have I been in this position we made management changes in Europe. We took another slice out of what had become a bloated sales and marketing organization. As I said, commented earlier I think we had over invested in building our Remington business.

Dave Lumley and I spent some time looking at the structures in Europe for the size of the business versus our structures in North America and it was clear that bloated was the right word to describe the structures there. So we took 41 people out here about three weeks ago in Europe. And we are continuing to study the structure in Europe. You have to remember VARTA is 100-year-old company, it grew up basically, focusing on the traditional European specialized trade of a lots of little retailers in every country across all of western Europe and it has a very high cost to serve those specialized trade. As the world has moved toward commodity-type batteries, deep discounters, mass merchandisers, we have to adapt to that. I think we are slow to do that and I think that's probably the final step that we will have to take in order to come up with a much leaner sales marketing and distribution organization on the battery side of the business in Europe. I agree with you, batteries is going to continue to be a flat and tough market in Europe. And the only solution for us is to put a infrastructure, a cost to serve structure in place that's appropriate for the profitability of that segment of our business.

So that -- was -- does that I guess in your comments you said there would be a little bit more restructuring or modest charges. Would that relate to any changes you might have to make to the European --

That's exactly right. That's really the last frontier. I think we have done a great job in corporate. We are about as lean and mean as you can get here. Dave has done great job in North America. We actually put a little more meat on the bone in Home and Garden as I described earlier. But the one area that we have more work to do is in Europe. With new leadership there I think and some of the work that Dave is doing on centralizing Battery and Remington marketing on a global basis, we can cut back on some of the levels of marketing and sales activity that we had in Europe. That's probably the one place there is more work to be done.

Thanks so much.

Your next question comes from Peter Barry with Bear Stearns.

Good morning.

Hey, Peter. How are you.

I'm well. How are you?

Good.

Refocus on the sale of that strategic asset. I don't want to put words in your mouth, but --

Then don't, Peter!

As it relates to revenue and cash flow growth, one would have to assume that if it is one of the luminaries in the portfolio, that trajectory would have to be lowered. My specific question is I assume you modeled for fiscal '08, with or without whatever that asset is. Share with us what the variances might prove to be.

I think I have given as much detail as I can give right now. It will all become perfectly clear if it isn't already in a several weeks what we will be doing.

And the other question, could you give us any more detail on that $35 million in cost savings you are looking for in fiscal '08. Is it more of the same basically?

It's basically what we already done. If you look at this organization, we started as we mentioned in January with this major restructuring in the three business units and to be perfectly candid, under our old structure, we were letting cost get ahead of the revenue growth curve and that was particularly true in our operations organization where we had visions of being a $5 billion global business and rather than being a very efficient way of running our business which it was when we were a global battery business as we became more diversified and more complex. Cost began to out strip the efficiencies we were gaining from that organization. So the restructuring we took place to get into the three stand-alone business units and the massive number of people from -- and as I said from the top to the bottom of the business. We didn't exit just a bunch of Indians. We took out a significant number of vice-presidential and above level positions in our operations organization in North America and in Europe and in the corporate headquarters. And so I think I don't remember if I reported it but of that $50 million worth of savings, I think as I said earlier about 90% of the actions are already complete. They are done. The people are exited. They are out the door. Or other spending cut backs that we put in place that will benefit next year. So this is not on the come. The there is a little left to do but virtually it's all in hand so that's why we feel confident when talking about the numbers for next year.

The last one for me, did per chance outside interests help you identify that strategic asset might be up for sale?

That was a decision actually made by management in the board. The outside experts who love the analytical work that helps us make the decision but the decision was our.

I meant was there a buyer that approached you as --

Oh.

In terms of their outside interest.

There are a lot of buyers that have approached us. We have a queue of people waiting to buy many of the valuable assets in this business, be it business units or segments of our business units. There is -- I wouldn't say the vultures are circling. That's not the right description, but certainly there has been a lot of interest in what I think are a lot of extremely valuable assets. Including the one now that we have decided that were going to sell.

That's it for me. Good luck to you, Kent.

Thank you, Peter.

Your next question comes from Chris Ferrara with Merrill Lynch.

Hey, Kent.

Hey, Chris.

I get that in this environment it makes more sense to sell Pet to a strategic buyer than it does to sell Lawn and Garden to a financial buyer. Does that mean the Home and Garden books aren't going to be put out at this point and if that's the case is it because it's that difficult to have two sets of books out at once. I'm trying to get more color around that?

We just want to can on one transaction at a time. And one that we think is the best one for the business to implement in the short-term. Let's put it that way.

So does that mean you aren't putting the books out on Home and Garden?

We have a book, as I said in the press release. We have not made the decision what the right time is to actually commence a more active process.

Got it. And then just totally moving off the topic. North American Batteries. You guys have talked about some inventory issues in North America, caution at retail. And you hearing something different from the competition I guess, Energizer is doing well. They are saying there is trade up in the category . Duracell is saying it is heavy competition, but they are

I'm not saying that there is excess inventory, I'm saying the retailers are controlling inventory very tightly, extremely tightly. So actually inventory levels in Batteries are at historic lows at retail. There in single-digits. But there is this obsessive focus on controlling inventories so that it has had some impact on sell-in in the recent quarter.

Got it., and we are hurricane selling any different than you thought it was going to be in this quarter?

There has been no hurricane selling because there have been no hurricanes. It's a horrible thing to say. But there are some scares of hurricanes in Q4. Yes, virtually no activity -- basically what you do is you stage inventory and have it ready to go. And when a hurricane threat becomes more imminent, then typically the orders start flowing and you ship very quickly into the areas of the country that are likely to be affected. It affects both Flashlight and Batteries. So we have hurricane programs in place but there was virtually no hurricane activity and therefore the stuff is still sitting in warehouses.

Got it, and just on a European Battery side, as we go through and try to value this business, has EBITDA dropped -- I guess what is EBITDA in European Batteries? Is it as low as $20 million?

Much higher than that. We talk about how horrible the European business is, but at the end of the day while Europe is down significantly in the last couple of years it's still an extremely profitable business unit and Batteries is still an extremely profitable part of the overall mix over there. So our Branded Batteries do well in terms of margins, although the sales volume is down significantly of our Branded Batteries. And remember we have a very profitable Hearing Aid Battery business in Europe and we were still the industry leader in Rechargeable Batteries in Europe as well. So we focus strictly on Alkaline Batteries that are commodity or it's the dominant factor in Europe but we have a very diversified portfolio business there that some of these things we don't talk about very often are major contributors to the overall profitability. So it is still a very profitable business.

I have one other one, can you give what ever color your are willing to on what the margin differential is in Remington between Europe and North America?

They are really not that different. I'm looking at Tony, overall Remington is high 30s margin.

Yes, yes and it is about comparable.

Great, thanks a lot. Very helpful.

Your final question comes from David Moore with Harbinger.

Hi, sorry about the background. I actually in an airport. Just trying to summarize the call. If you look at 2008, am I hearing that 260 in EBITDA right now but you got 35 million additional cost savings that are going to flow through, plus you are trying to grow revenue. Tell me, just correct my math, but shouldn't this company be, assuming you don't sell a thing, 300 million plus in EBITDA and shouldn't you be able to do what I call true free cash flow of about $50 million bucks. If I use 200 in interest expense or 210 you pick the number, 30 in CapEx and 20 to 30 million to the government---

Hey, David you are a good mathematician, I ready to complement you. [Laughter]

No, seriously, I am looking for a little clarity on the true earnings power of the business because I do think that the markets a little confused on it.

I think you are exactly in the right hunt. If you factor in $35 million of incrementally cost savings, you factor in some agressive pricing , particularly in Home and Garden and perhaps in some of our other business. FActor in a little bit of top line growth and than you have to offset that with continuing commodity cost inflation, we are looking at 10 to $15 million between zinc and uria. And probably some other purchase material cost increases , including stuff coming out of China is getting more expensive. So net-net, a number in excess, with a 3 in front of it

Very good, best of luck. Thank you.

Thank you, I guess that was the final question. So let me just summarize, I think we tried to give you guys an extra half hour to answer as many questions as we could today. From my perspective as the new incoming CEO and somebody who started here as the CFO and than was the COO for many years, I know this business inside and out. I know the people, I know the issues we have been dealing with and I am 100% confident that we are well on our way, if not in total recovery into better performance as we go into fiscal 2008.

We have talked about a lot of the factors that will drive our business. I think the good news, I just want to repeat once again, delivered structuring activity of getting this business into a stable, logical , highly efficient structure is done. Got some great management on board. A lot of things are going in the right direction in terms of improving our margins and there is a renewed focus on top line growth in the business but we are going to focus on top line growth that generates significant improvements in profitability. We will continue to walk away from business that is not generating a satisfactory return on the assets in the business. So if we invest our money in assets we want to make sure we get a fair return on it. Cash is not an issue for our Company, we have the resources to operate it, even if we don't sell an asset, can't say that enough to you guys on the street but we are realizing that we want to change the capital structure of the business now. We have made the tough decession we are going to face into it. We intend to get a transaction done by the end of the year. Assuming we have some kind of rational debt market here after Labor Day, which I think we will and I think it is the beginning of a bright new future for Spectrum Brands. Thank you for listening in today and we look forward to talking to you again

This concludes today's Spectrum Brands' Third Quarter 2007 Earnings Conference Call. You may now disconnect.