Spectrum Brands Holdings Inc (SPB) 2008 Q4 法說會逐字稿

Good afternoon. My name is Tim, and I will your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands fourth quarter fiscal 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question and answer period. (OPERATOR INSTRUCTIONS) As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday November 11th, 2008. Thank you. I would now like to introduce Ms. Carey Phelps, DVP of Investor Relations. Ms. Phelps, you may begin your conference.

Thank you, Tim. Good afternoon, everyone. Welcome to the Spectrum Brands fourth quarter conference call. With me today are Kent Hussey, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer. By now you should have had an opportunity to read Spectrum Brands' news release, which is available on our website at www.spectrumbrands.com and will be filed with the SEC when its system reopens tomorrow morning. This conference call is intended to complement that release.

Before we begin, let me remind you that our comments this afternoon may include forward-looking statements which are based on management's current expectations, projections, and assumption, and are by nature uncertain. Actual results may differ materially from those expectations, projections, and assumptions. So we encourage you to review the risk factors and cautionary statements outlined in the press release, and in Spectrum Brands' SEC filings, including the most recent 10-Q and 10-K. Spectrum Brands assumes no obligation to update any forward-looking statements. Additionally, please note we will discuss certain non-GAAP financial measuring during our remarks, including adjusted diluted earnings per share, adjusted EBITDA, adjusted gross profit margin, and net sales excluding foreign exchange translations. Spectrum Brands management uses these non-GAAP measures in its internal analysis of operational performance, and believes that non-GAAP measures may assist investors in analyzing the impact of events and results and identifying trends in the company's business. While management believes that these non-GAAP financial measures are useful supplemental information, such adjusted results are not intended to replace the company's GAAP financial results and should be read in conjunction with those GAAP results. Reconciliation of these adjusted results to comparable GAAP financial results are available in the press release and also posted on our website at www.spectrumbrands.com in the Investor Relations section. With that, I'll turn the call over to Kent.

Thanks, Carey. Good afternoon, everybody, and welcome to our conference call. Pleased to report that we closed out our fiscal year with over 7% consolidated revenue growth for the fourth quarter, led by market share gained and expanded distribution of our battery and personal care categories, as well as foreign exchange benefits. Excluding foreign exchange, our sales for the quarter were up 5% with growth in every business unit. For the full year, revenue grew 5% due mainly to foreign exchange. Sales were up 1% excluding foreign exchange. Consolidated adjusted EBITDA was $281.3 million for the year, up slightly over last year. Of note, our largest business unit, Global Batteries & Personal Care, exceeded our expectation for annual adjusted EBITDA, delivering year-over-year growth of 12.4% for fiscal 2008.

Before getting into any more specifics for our quarter, let me discuss the notice we received last week stating we had fallen below one of the minimum criteria to maintain our listing with the New York Stock Exchange. As a result of the dramatic decline of our stock price over the past several months, our 30-day trading average market capitalization has fallen below the minimum environment of $75 million, while at the same time our latest reported shareholders equity was below the required $75 million, causing us to be below the Exchange's minimum criteria. Per New York Stock Exchange rules, we intend to submit a plan as to how we propose to remedy our deficiency within the required period.

While obviously a very disappointing development, I strongly believe the recent declines in our stock price are not commensurate with the viability, strength, and performance of our businesses. Rather, as you are all too painfully aware, the recent credit meltdown global financial crisis has resulted in an almost unparalleled drop in stock prices over the past couple of months. Companies such as Spectrum, which have high levels of debt, have been even more severely impacted as investors have made a flight to security in these unsettled times. This problem was exacerbated the recent distribution of over 12 million shares or almost 25% of our total number of shares outstanding by the T.H. Lee Company, formerly our largest shareholder, as they were winding down the fund that held our stock. These distributions obviously created a severe supply/demand imbalance, which coupled with the volatile market conditions, created in essence the perfect storm on our stock.

In addition, unfortunately, as a direct result of the dramatic decline in the market value of both our debt and equity, we were required under GAAP to book another large impairment charge this quarter. As you are all well aware, we have lots of company. As I've said before, these are non-cash accounting charges that have no direct impact on our operations or liquidity, and Tony will walk you through some of the details later in the call.

However, we believe our company is performing well, gaining share in many product segments as the combination of exciting new products, our traditional value positioning, and a more cautious consumer are all working to our advantage. All three of our business units are profitable, generate cash, and are meaningful competitors in their respective industries. And while as a corporation we are burdened with a high level of debt, our operating businesses have been generating positive cash flow, enabling us to service our debt, and to continue to invest for the future.

Notwithstanding the recent share price movements, I'm very pleased with the momentum I'm seeing in many of our lines of business, and we are taking aggressive steps to remedy the one area that's not working. Our largest segment, Global Batteries & Personal Care, delivered outstanding results for the year. Our Global Pet Supplies segment, despite enormous distractions with a now terminated sale process, also delivered very solid results. Our controls products within our Home & Garden business unit generated growth in sales and positive adjusted EBITDA for the year. Our only noticeable disappointment was in the growing product segment within our Home & Garden business unit. As we stated on our last call, a sluggish housing market, tight inventories at retailers, low levels of foot traffic, and unprecedented commodity cost increases caused our growing products category to be a drag on the profitability of this segment and on our consolidated results.

In spite of intense efforts over the past year to restore profitability by raising prices and introducing higher margin value-added products, the margins and return on investment capital on what are essentially private-label products are have not been at minimally acceptable levels. Despite recent declines in the price of urea, DAP, and potash remain at historically high levels. And more importantly, the level of volatility in these input costs coupled with the extremely seasonal nature of this business and its significant working capital demands creates a level of risk on our business that we believe is unacceptable under current circumstances.

As a result, and consistent with what we have done in other areas of our business to eliminate unprofitable products from our portfolio, our Board has approved the shutdown of the growing products segment of our Home & Garden, which includes fertilizers, soils, mulch, and grass seed. This decision was made only after our attempts to sell this segment in whole or in part were unsuccessful. We believe the inability of interested buyers to obtain the necessary working capital financing proved to be an insurmountable issue. Our growing products segment require a working capital investment in the peak of the production cycle of nearly $100 million. While these products delivered revenues of $267 million for fiscal 2008, gross margins for the growing products business were down 16% year-over-year, creating a significant drag on the rest of our businesses. Adjusted EBITDA for our growing products in 2008 was a loss of $11.3 million. Including allocated overheads of approximately $9 million, the loss was over $20 million.

We believe that the shutdown of this business, one, eliminates an unnecessary level of risk in our business, thereby strengthening the overall portfolio; two, is consistent with our previously communicated strategy of focusing on profitable growth; and three, improves corporate liquidity by eliminating a significant working capital investment. We are working diligently with our customers to ensure a smooth transition of this business to new suppliers to minimize disruptions in supply for the upcoming season.

I should point out, however, we remain committed to the controls portion of our Home & Garden business, which generated over $300 million in revenue during 2008, and is composed of indoor and outdoor insecticides, pesticides, herbicides, and personal repellents. This segment has been characterized by high gross margins, less seasonality, and therefore less peak working capital investment, and broader retail distribution. We market our value position products under national brands such as Spectracide, Hot Shot, Cutter, and Repel, which has allowed us to more effectively leverage our marketing spending on a national basis. This segment is also more akin to our other businesses as it is a more traditional packaged-goods business.

With that, let me move on to our segment results for the fourth quarter, starting with Global Batteries & Personal Care. Led by strong growth in outgoing shipments in North America, as well as continued double-digit growth in women's hair care, sales in our Global Batteries & Personal Care segment increased 5.8% to $423.6 million. Excluding exchange, revenues were up 2.1%. Global Batteries sales were $261.5 million, up 5.9% over last year, due primarily to strong performance in North America and to foreign exchange benefits. With the quarter highlighted by market share gains, expanded distribution, and encouraging placement wins in several of our major retailers, North American battery sales improved nicely, growing almost 20% over the fourth quarter of last year. That's right, 20%, in spite of sluggish category sales. North American battery sales accounted for over 30% of our total battery revenues in 2008. During these tough economic times, as consumers are increasingly searching for ways to save money, we believe the Rayovac value positioning, same or better performance at a lower price, is proving to be a winning strategy. Additionally, we expect that our presence in the largest discount retailers and recent additions of off-shelf displace and promotions, showcasing our value positioning, should help us to continue to deliver good results through the holiday season. As in other consumer product categories, we believe the consumers are discovering that the value alternative, such as our value position Rayovac battery brand, is just as good as the premium brand. We have always believed that once consumers try our product they will become loyal customers. After all, we are selling energy in a can. So if we last as long as the other guys, why pay more? There appears to be a sea change in consumer attitudes, shifting from conspicuous consumption to smart shopping and saving money. I believe this trend will benefit many of our product categories where we are the branded value alternative.

Turning now to sales in Europe. European battery sales were down 1.3% for the quarter, primarily due to our decision to exit some low margin private label accounts, as well as a tough comp in alkaline where we saw a very strong sell in during the fourth quarter of fiscal 2007. We believe the growth of private labels has stabilized, and we are continuing our efforts to promote profitable growth and therefore expect to continue to exit certain low-margin business as appropriate to create a more favorable mix of branded versus private label in our European operations.

Before moving on, I should also mention that the closure of our Ningbo, China battery manufacturing facility announced last quarter is on track, and we expect to be completed by January 2009. As a reminder, as a result of higher transportation costs, rapidly rising material cost in country, and new labor and tax legislation in China, this plant became non-competitive, resulting in our decision to shut down this facility and move its production to our alkaline plants in both Germany and Wisconsin. We're currently converting WIP inventory into finished product to fill remaining orders, and expect to cease manufacturing activity this month. Key equipment has been and will be relocated to other Spectrum Brands facilities, and we intend to divest the remaining assets including the facility within the next 12 months.

Latin America battery sales, which accounted for nearly 20% of the segment's annual battery revenues in 2008, were down 1% for the fourth quarter. Where nearly 40% in alkaline was offset by a decrease in zinc carbon batteries as consumers in this region switched to the better-performing alkaline products. However, softening commodity markets appear to be taking their toll on economies in this region of the work, which we expect will affect consumer spending going forward. In prior periods of economic slowdown in this region, consumers reversed course and converted their battery purchases back to less expensive zinc carbon products. We believe this could benefit us, as we are the market share leader in the zinc carbon segment.

Turning to our personal care business, Remington sales were $132.2 million, up 3%, including about $2.2 million of foreign exchange benefits. Women's hair care continues to lead the way with nearly 30% sales growth in North America, and we have seen nice growth in continental Europe as well. We have experienced continuing success with our straightener lines, particularly our Wet 2 Straight products, and as a result have gained increased distribution at our major retailers. We have been the fastest-growing women's hair care brand in the US for 11 straight months, a trend which based on placement secured through next spring we believe should continue. Cindy Crawford will continue as our spokesperson in this category. For the full year, women's hair care grew an impressive 16% with global revenue of $231 million, almost equal to our shaving and grooming business.

Shaving and grooming sales were down 6% for the quarter, where we faced a tough comp in the UK as a result of aggressive promotional activity a year ago and a decline in the US as we transition to our new rotary shaving models. This transition is now complete and has positioned our shaving and grooming segment for what we believe will be a more robust holiday and first half of 2009 versus last year. Our optimism has been bolstered by early POS results for our new Flex 360 rotary shavers, which are up 30% to 40% compared to last year. Designed to appeal to the traditional Remington customer, engineered to provide the closest and most comfortable shave ever, and value priced, we believe the Flex 360 is a winner. We recently signed Marisa Miller, a cover model and number one internet search celebrity for males 18 to 34, to bolster marketing activity and drive volume to our website for our shaving products. Our goal this season is to regain some of the share which we lost over the past two years.

Turning to our Global Pet business, with the distraction of the now terminated sale process completely behind us, our Global Pet grew sales 7.7% for the quarter to $159.2 million, with strong gains in companion animal and European aquatics. Our top line also benefited from pricing taken earlier in the year. With expanded marketing share and powerful brand names, sales in North American companion animal were up 13.6%. Our Dingo dog treat products continue to lead the way, with sales up 38% year-over-year for the quarter. Growth in this segment should continue as we continue to expand the product line and leverage the Dingo brand. I'm also pleased to report for the first time in five quarters North American aquatics saw positive year-over-year growth for the fourth quarter. Sales were up almost 1%, reflecting a slow but stabilizing market.

Internationally, we experienced solid sales growth during the quarter of 11.9%, and 6.8% in Europe and the Pac Rim respectively, as we continue to see growth in aquatics in both regions, positive trends in Eastern Europe, and the launch of companion animal in Europe, which is now gaining traction. As you know, we invested significant marketing funds during 2008 to support the launch of companion animal and are receiving good reception so far in the marketplace. Overall, I'm very pleased with the performance of our Global Pet segment. During 2008, this team faced tremendous distractions, but delivered very solid results. Full-year revenue grew by 6% over 2007 and was up 3% excluding foreign exchange, led again by companion animal, which was up an impressive 11%.

Looking ahead to 2009, many of the input costs in this business are still at relatively high levels. As a result, we have developed a number of initiatives, some of which have already been implemented to streamline our organization structure and reduce overhead costs. We expect that fiscal year 2009 should also benefit from pricing, averaging approximately 3% across a broad range of products implemented earlier this year. Fortunately pet products, particularly consumables, such as dog treats, birdseed, fish food and so on, tend to hold up well regardless of economic conditions. However, like many companies, we are seeing weakness in our more expensive aquatic equipment products.

Moving on to home and garden, as I mentioned a few moments ago, major changes are underway in this segment. However, including the products we are discontinuing, this business delivered revenues of $123.7 million for the fourth quarter, up 11.5% over the same period last year. Revenue growth was driven by our growing products, which as I said earlier, expanded their market share this year, but also experienced dramatic declines in profitability. Revenues for our indoor and outdoor control products were $84 million for the quarter versus $78.2 million for the fourth quarter of fiscal 2007, representing an increase of 7.4%. Gross profit for the controls products during the quarter was $36.4 million, compared to $32.9 million during the same period last year, resulting in a nearly 100 basis point improvement in gross profit margins for the quarter for these products. For the full fiscal year, revenues for our control products were $328.7 million. With that, let me turn the call over to Tony to discuss some of the details of our results, and when he's done I'll come back with some concluding remarks.

Thanks, Kent. Good afternoon, everybody. I would like to start off with a review of a number of unusual items we recorded this quarter, which have been excluded from our calculation of adjusted earnings per share. Table 3 in our press release provides a full reconciliation of our GAAP loss per share to our adjusted diluted earnings per share. First, as a result of the decline in the company's stock price and the decline in the fair value of our debt securities, the company in accordance with Statement of Financial Accounting Standards Number 142 reported a goodwill and trade non-cash impairment charge of $550.4 million or $459.9 million net of taxes. Second, the company recorded net tax adjustments of $31 million to exclude the effect of certain adjustments made to our valuation allowance against deferred taxes and other tax-related items. Third, we recorded $6.2 million net of tax of restructuring and related charges in connection with our decision to exit our Ningbo battery manufacturing facility in China, as well as other company-wide cost reduction initiatives. Fourth, our general and administrative expenses this quarter included $2.2 million net of tax primarily related to the termination fee incurred in connection with the previously proposed pet sales, which was terminated in July. And finally, during the fourth quarter, we had a benefit associated with expiring taxes and penalties in our Brazilian subsidiary of $2.3 million. This benefit has been excluded for purposes of calculating adjusted earnings per share.

Also before moving on, I should remind you that for GAAP earnings per share, the basic share count of 50.9 million shares was used for both basic and fully diluted earnings per share as we incurred a GAAP loss. However, once adjusted for the items I just discussed, our GAAP loss turns to income and therefore we used our fully diluted share count of 52.8 million shares to calculate adjusted fully diluted earnings per share.

With those items behind us, let me move on to our income statement. Our fourth quarter adjusted diluted earnings per share, which again excludes the amount I just covered, was $0.06 per share compared to $0.11 per share last year. Gross profit for the quarter was $254.9 million, up 7.2% from last year's level of $237.7 million. Gross profit margin for the quarter was $36.1%, the same as last year. Within cost of sales, we incurred restructuring and related charges of approximately $2.2 million, primarily related to our decision to exit our Ningbo battery manufacturing facility, which negatively impacted this quarter's margin by 30 basis points. During the fourth quarter of fiscal 2007, cost of sales included approximately $14.6 million of restructuring and related charges, primarily related to the global reorganization announced last year, which negatively impacted that quarter's margin by over 200 basis points. Excluding restructuring and related charges from both periods, our adjusted gross profit margin was 36.4% this year, compared to 38.3% last year. This reduction in adjusted gross profit margin was primarily driven by the significant inflation we saw in the raw material input cost of our growing products business within our Home & Garden segment, coupled with to a lesser extent product and customer mix issues in our Global Pet supply segment.

Operating expenses for the fourth quarter were $750 million, which included the non-cash, goodwill, and intangibles impairment of $550.4 million and restructuring and related charges of $6.8 million. Last year, operating expenses for the fourth quarter were $351.3 million, which included goodwill and intangibles impairments of $148.4 million, and restructuring and related charges of $25 million. So after considering those items, operating expenses increased $15 million, year-over-year. Of this $15 million increase, approximately $6 million was due to the impact of foreign exchange translation, approximately $3 million was related to cost associated with the Pet sale effort, which was terminated in July of 2008. Approximately $2 million relates to the nonrecurring curtailment gain related to an employee benefit plan that was terminated during the fourth quarter of 2007. And lastly, approximately $3 million relates to depreciation and amortization expense for our Home & Garden business. As you'll recall, D&A related to Home & Garden was not included in last year's expenses, as that business was reflected as a discontinued operation, and hence per GAAP, we stopped recording D&A for that business.

Turning now to profitability, recently we have seen some declines in commodity and transportation costs. However, for the bulk of the fourth quarter, input costs were still at near record highs. Despite this we saw growth over the fourth quarter of last year in adjusted EBITDA in our global batteries and personal care segment, offset by a slight decline in Pet and a 15% drop in our Home & Garden segment. The spike in input cost coupled with the selling and marketing investments we've made in the Home & garden segment resulted in a sharp decline in year-over-year adjusted EBITDA. As Kent just mentioned, we are exiting our growing product lines. While growing products delivered an adjusted EBITDA loss of $11.9 million for the fourth quarter, our control product delivered positive adjusted EBITDA of $17.1 million.

Consolidated adjusted EBITDA for the quarter was $84.8 million versus $93.3 million for the fourth quarter of last year, with the largest decline coming from our growing products business within Home & Garden segment. Full fiscal year 2008 consolidated adjusted EBITDA was $281.3 million, representing a 1.3% increase over last year. And that's despite the drag of our growing products business, challenging economic times, and extremely volatile commodity markets.

Our Global Batteries & Personal Care business unit, which benefited greatly from our global restructuring initiatives announced in 2007, as well as from intensive spending controls and SKU reduction initiatives during 2008, contributed adjusted EBITDA of $63.1 million, as compared to $61.2 million of segment level adjusted EBITDA contribution during the fourth quarter of last year. This represents the seventh consecutive quarter of year-over-year adjusted EBITDA improvement in this segment. Global Batteries & Personal Care generated segment profits of $57.9 million during the quarter, a 6% increase over last year's results.

As an aside, in connection with the SKU reduction initiative that I just mentioned, during 2008 our Global Batteries & Personal Care management team has been able to eliminate 47% of our Remington SKUs and 64% of our Remington models, which has resulted in both operational and cost efficiencies as well as reduction in inventory levels and better working capital management. Inventory turnover hit an all-time high of 4.4 times this quarter, evidence that our product line simplification efforts are working. For the full fiscal year 2008, Global Batteries & Personal Care delivered adjusted EBITDA of $185.2 million, up from $164.7 million last year. That's a 12% increase.

With regard to our hedges in the Global Batteries & Personal Care segment, we are currently 65% hedged for our zinc needs for 2009. In recent weeks, the spot price of zinc has dropped dramatically, along with other of the world's commodities. The current stock price for zinc is now around $1,100 per metric ton, which is significantly lower than it has been in the previous quarters, and lower than the average cost of our hedges. As a result, we are in the process of layering in additional zinc hedges to take advantage of these depressed prices. At this time, we have also hedged about 32% of our 2010 needs for zinc. Our ongoing hedging program will allow us to continue to average down if zinc prices remain at current levels. Let me remind you that in addition to zinc, other key inputs in battery manufacturing include nickel, manganese ore, and steel. While zinc and nickel have returned to more normal historical levels, manganese ore is still at record highs. We expect this material to follow the trends of the other [cross] and eventually come down in price, as one of the primary users for this is the manufacture of steel, which is clearly in decline. For now, though prices remain at an all-time high, resulting in approximately $26 million of projected cost increases for 2009 versus 2008. Consistent with the industry in North America, we have implemented selective pricing that went into effect in mid-September to help us maintain our margins.

Our Global Pet Supplies segment generated adjusted EBITDA for the quarter of $26.8 million, down 2.4%(Sic-see press release) from last year's adjusted EBITDA level of $27.3 million for the same period. The Global Pet Supplies segment generated segment profits of $20.1 million for the fourth quarter, as compared to $21.9 million for the same period last year. Reduction of segment profitability was due to the non-recurrence of a credit adjustment of $2.5 million recorded during the fourth quarter of last year, which represented a true-up of allocated corporate overhead expenses. Excluding the impact of this reclassification, Global Pet segments are ahead of last year by 3.6%. Looking ahead, considering the ongoing volatility of input costs, we have taken selective pricing for 2009, and as Kent mentioned earlier, we have some restructuring initiatives underway to reduce costs.

Moving on to Home & Garden, with the lion's share of the 2008 lawn and garden season past us as of the end of the third quarter, for the fourth quarter, the segment delivered adjusted EBITDA of $5.2 million in Q4 of '08 versus $6.1 million last year. The Home & Garden segment generated profits of $1.8 million for the quarter, versus $6.2 million last year. This variance is primarily due to depreciation and amortization expense of approximately $4 million that was not included in the 2007 fourth quarter segment profit, as the business was reflected as discontinued operations at that time.

As Kent mentioned, we will be shutting down the growing products business. In connection with this shutdown, we currently expect annualized savings in the range of $15 million to $20 million. In addition, exiting this business will improve corporate liquidity by eliminating a significant working capital investment of close to $100 million. Charges associated with the this shutdown are currently estimated to range between [$60] million to $75 million, primarily representing severance costs, lease obligations, and asset impairments, of which $30 million to $35 million of those charges are estimated to be cash charges. Furthermore, we estimate that approximately $20 million of those cash charges will be incurred during fiscal year 2009.

Moving on, fourth quarter corporate expenses were $15.4 million versus $8.2 million for the same period last year. This year's corporate expenses included $3.4 million in professional fees associated with the terminated Pet sale, as well as the non-recurrence of a curtailment gain of $2.3 million, which again was recorded last year in connection with the termination of an employee benefit plan during the fourth quarter of 2007. Interest expense for the quarter was $56.5 million compared to $64.3 million during the same period last year.

This decrease in interest expense was really driven by several factors. First, we saw lower market rates on our term debt in the fourth quarter of 2008 versus the fourth quarter of 2007. Second, you'll recall we paid off $200 million of term debt and implemented an AVL revolver at the end of the fourth quarter of 2007. The revolver has a lower-interest rate spread and the average outstanding balance for the fourth quarter of 2008 was less than $200 million of term debt replaced from 2007. Third, in association with the prepayment of the $200 million term debt, we incurred a non-cash expense in the fourth quarter of 2007, which was related to the write-off of deferred financing fees that did not recur in 2008. Finally, the interest rate on the PIK [positive] notes was higher in 2008 versus 2007, thus slightly tempering the year-over-year reduction in interest expense. For the full year fiscal 2009, we anticipate total interest expense of approximately $234 million, and the average interest rate for the year to be approximately 8.9%. For fiscal 2009, approximately 55% of our total debt is fixed rate or has been hedged.

Fourth quarter depreciation and amortization expense was $21.8 million, which included D&A of $8.8 million for Global Batteries & Personal Care, $6 million for Global Pet, and $3.5 million for Home & Garden, and $3.5 million at corporate.

Turning now to cash flow, our fiscal year 2008 free cash flow was the use of approximately $16 million, beating our prior estimate of the use of $50 million to $60 million primarily due to focused inventory management and favorable timing of year-end cash receipts. With respect to our previously provided cash flow estimate for fiscal 2009, while the favorable timing of cash receipts in fiscal 2008 will impact 2009 cash flow, we continue to expect positive operating cash flow in 2009, and subsequent to the discontinuance of the growing products business, positive free cash flow for the year. We made capital expenditures of $21.6 million during fiscal 2008, and received proceeds from our sale of our Canadian Home & Garden business of $15 million.

Turning to our balance sheet and liquidity position, at the end of the quarter, we had $104.8 million of cash on hand, and our ABL facility was drawn down by $80 million, and we have drawn down additional funds since quarter end on that ABL. Our quarter end cash balance was driven by two factors. First, as mentioned last quarter, we have been carrying higher cash balances primarily at our foreign subsidiaries, which represents a substitution for various overdraft and other credit lines which we previously had in place prior to our refinancing last year. And secondly, aggressive collection efforts by all of our business units resulted in significant cash receipts at quarter end. As we stated previously, we feel good about our liquidity position and believe we have sufficient funds to operate our business.

Outstanding net debt at quarter end was approximately $2.4 billion. Our senior leverage ratio, which represents our only significant financial covenant, was 5.0 times, which was well within the 6.25 times maximum ratio allowed under our senior credit facility. As a reminder, the maximum ratio allowed under our credit facility drops to 5.7 times for fiscal 2009, and then drops to 5 times for fiscal 2010 and thereafter. We currently do not perceive any issues with maintaining compliance with this covenant. Total leverage as of September 30th for informational purposes was 8.2 times.

So in summary, with the exception of the growing products business which we are aggressively addressing, we are very pleased with the solid results the business delivered for 2008. Keep in mind that these solid results were in the face of rising input costs, a weak economic environment, tight inventory controls at retailers, and in the case of our Global Pet Supplies some major distractions. We believe that our value positioning will continue to be a positive for us in these harsh economic times as consumers are realizing the value of buying Spectrum Brands products. With that, I'll now turn the call back to Kent for his concluding remarks.

Thanks. Tony. As we look to the future, it's clear we are in a recession. The question is, how deep? And how long? We believe the recent catastrophic credit and equity market meltdown, rising unemployment, and drop in consumer confidence will depress consumption for at least the next 12 months. The historic and unprecedented actions taken by governments around the world appear to be working, but we believe the turn to economic growth is likely to take some time. In the face of this adversity, we're actually working on a number of fronts to adapt. Let me walk you through these.

First, expect that we'll continue to exit unprofitable or marginally profitable products, SKUs, and customers. We're very focused on achieving acceptable returns on invested capital, and we'll continue to seek to margin up. The decision to exit the growing products portion of our Home & Garden business is the most prominent example of this strategy. In other product lines or customers, we're pricing up to achieve minimal acceptable margins, and we'll evaluate exiting the related business if we are not successful with our pricing initiatives.

Second, we'll continue to selectively price where appropriate; however, keeping the need to maintain our value positioning in place, especially in these more cost-conscious times.

Third, we will channel more of our marketing dollars to in-store, on-shelf merchandising and promotions and to maintaining critical price points rather than spending on increasingly ineffective national media. Winning the consumer at the shelf has been a hallmark of our marketing success in the past, and is even more important today. Making sure the consumer sees us and understanding our value proposition is critical. Attractive packaging, signage, displays, and attaining high visibility in high traffic locations in the stores will be our focus. In addition, our initial efforts towards web-based marketing have proved to be highly effective at targeting our customers and we're planning to expand them in 2009.

Fourth, as I mentioned on our last call, we do not currently have single big restructuring opportunity planned -- that is, other than exiting growing products -- to achieve a $50 million cost savings as we did with the restructuring of the company back in 2007. However, we do have many singles and doubles that are being implemented across the entire corporation that in total we believe should exceed that figure by 2010. Lean manufacturing, suppliers who embrace lean principles, and a lean overhead structure will all contribute to this goal. We expect to continue to consolidate manufacturing wherever possible to improve capacity utilization and reduced fixed overhead.

Fifth, we will continue to focus on our largest remaining working capital reduction opportunity, inventory. We expect the exit from growing products will be the biggest single contributor. However, ongoing SKU reduction in every business should also be a major contributor.

And finally, we expect that the transfer of battery production back to our Western plants will reduce both work in progress on a global basis as well as inventory in transit. In total, and excluding the impact of the exit from growing products, our goal is to reduce inventory by $30 million, or 7% on average in 2009.

As I look in to 2009, I see one of our biggest challenges as finding offsets for the significant foreign exchange translation changes at today's foreign exchange rates. With the recent dramatically strengthening US dollar, our earnings in foreign currencies, including the euro, pound, yen, Australian dollar, Brazilian real, and Canadian dollar -- among others -- may impact our reported operating profit and adjusted EBITDA going forward by as much as 10% to 15%. Exactly where these currencies will go is anyone's guess. The most recent forecast we have seen from our banking group projects a modest weakening of the dollar over the next 12 months. Fortunately, we do have some natural hedges on our transaction exposure and have most of the remaining transaction exposure hedged for 2009.

The second challenge we face is rapidly responding to consumer-spending changes and the impact on our customers. Major retailers have been reducing their inventory levels and delaying purchases to the last minute possible over the past year as the economy weakened. We believe we are now operating close to a true consumption model, where point of sale, up or down, quickly impacts order patterns. Our SKU reduction program has made it easier to plan requirements, and has enabled us to operate with the right inventory and respond more quickly to changes in the market. Going forward, speed and agility will be key.

Offsetting these two challenges are the myriad of product cost improvement, productivity, and cost reduction initiatives we have underway and planned for 2009. We're taking steps now to reduce our cost structure, trying to get ahead of the curve, so to speak.

Finally, the silver lining in the global economic slowdown is a decline in commodity prices in oil. While we are not be able to reap the full benefit in 2009 of the zinc declines due to our hedging program, we are locking in what could be $30 million to $40 million of favorability in this commodity in 2010 compared to 2008. Also, while manganese ore is currently a significant cost increase for 2009, we expect this to correct itself by 2010 at the latest. Obviously we expect a dramatic drop in oil resulting in lower transportation costs than the past six months as well as less pressure on oil-based materials.

All in all 2009 will be an extremely challenging year. However, I believe the actions we have taken and are taking should enable us to weather the storm. I'm confident we'll be able to leverage favorable commodity and input cost tailwinds instead of headwinds for a change, a lower cost organization structure, and continuing productivity improvements as we head into 2010. Hopefully with the resumption in economic growth and consumer spending, the bottom line impact could be impressive. In the meantime, we'll continue with our stated strategies and tactics, which currently give us the liquidity we need to operate our businesses and make the ongoing critical investments for the future. I'll now open the call to your questions.

(OPERATOR INSTRUCTIONS) Our first question from Karru Martinson from Deutsche Bank.

Good afternoon. When I look at your Home & Garden EBITDA -- so the right way to look at this is about $48 million for the year, and then seasonally, will we still see a loss in the first quarter?

That's correct.

Okay. So we will still see a loss in the first quarter?

Yes, it's almost the lowest quarter of the year, I believe. The fixed overhead results in a loss. That's comparable to other competitors in the industry.

Okay. In terms of the divestiture -- or the closing here -- I mean, are you going to retain the rights to the brands -- one of your competitors is saying they are looking to provide the private label already.

We are currently retaining the rights, but we are working to ultimately transfer these to the retail customers who have used these brands in the past.

Okay. And then -- that doesn't sound like there's any compensation for the brands coming.

We're still working on that.

Okay. And -- and I'm sorry if I missed it. I didn't hear what the average zinc hedge was right now.

We didn't give it.

Okay.

We gave how much was hedged, which was about 65% for 2009.

Okay. And in terms of the working capital draw down here, I mean last year -- or last quarter you guys were talking about $40 million to $50 million of free cash flow -- ?

Negative.

Well, for this year. But for 2009 you were saying $40 million to $50 million, and you had rattled off we should get $20 million to $25 million for the FX urea hedges rolling off, we should see continued improvement on the lack of restructuring. Obviously we're not going to have that. And if you back out these one-time items, do you still feel that the core business, gets to these levels in 2009?

To the $40 million to $50 million level, Karru?

Correct.

Keep in mind, in 2008, we originally thought we were going to be in a use of $50 million to $60 million, which we came in at about $60 million -- just to do the math real easy so we improved, in the neighborhood, say we came in at $20 million, so a use of $20 million, so you're talking about $30 million to $40 million improvement. A portion of that timing clearly is now going to impact 2009, because we did have some strong working capital management, but it was predominantly driven by, as I said inventory reduction, but mainly late cash receipts that came in at the end of the quarter.

Let me just add on here, that we do believe this company will have free cash flow for next year. In the crazy environment we're in now, we're somewhat reluctant to give you an exact number, but clearly we're taking all of the steps necessary to make sure we can achieve that objective for next year. We will be free cash flow positive. The exact number is a little bit difficult to call, given the volatility that we're seeing. The big unknown for all of us, I mentioned is FX. Maybe that's settling out now, but the question what is going to happen to the consumer in the next 12 months. And we're assuming a downturn in the economy, not only here but in Europe. And we're taking steps now to change our cost structure to protect the bottom line, so to speak, and then ultimately protect cash flow of the business.

All right. Thank you very much, guys.

And your next question is from Bob Wetenhall from the Royal Bank of Canada.

Hey, guys, how are you?

Good.

Hey, Bob.

Just couple of house-keeping items, $234 million cash interest for next year?

Oh, how much less than the total expense?

Yes, that's -- actually it's -- for next year, we're probably be -- I think it'll stop at about $226 million, $225 million.

$225 million. Where is CapEx for next year?

It's probably going to be at consistent levels to --

We're looking at around $25 million for next year.

Yes.

Okay. And -- you had a lot of moving pieces on this press release here. Obviously taking some pretty aggressive measures, and I'm lost in the -- lost -- just to go back big picture. Net net working capital, including the discontinued operations, you are going to get some cash back. What is the net number you guys are looking at?

We don't want to give you all of that granularity, so you can start backing into numbers here.

I'm not asking you for a free cash -- I mean, you got to provide a little -- not too much granularity but a little help would be appreciated.

Just say that we expect -- well, you saw the amount -- well, we're not going to invest the peak. I'm not sure what the right number is today in the growing product segment that we'll get back as we phase out of the business, so let's defer a specific number there and let Tony get back to you.

Fair enough. And you just -- when you said 10% to 15% decline in operating profit and EBITDA due to FX. You are $280 million for this year and 10% is roughly $30 million, are you -- are you suggesting $250 million -- ?

Don't take this the wrong way. I'm not giving you a forecast of EBITDA. What I am saying, though, is, were we not to take any other actions, were we just to allow -- run the business at the same level, translating euros, pounds and all of those other currencies back in to US dollars would result in a 10% to 15% lower US EBITDA. We are aware of that issue, and that's why I said we're taking a huge number of steps to try to offset that. Now the unknown for us right now is the dollar going to strengthen further, or it is going to now back off a little bit, and weaken a little bit? We don't know. That's why I'm telling you a range of -- we think maybe 10% to 15% is -- call it something that we have to find a way to offset in order to maintain the level of profitability in our business.

This goes back to your point, which is our point as well, which is there's a lot of moving pieces. The FX comment that Kent made was exactly that. If everything was to be held constant, that's what the impact would be. However, as we said in our prepared remarks, zinc, we will benefit with lower-priced zinc. We're not going to benefit as much as we would if we didn't have our hedging program. But, again, our hedging program is all about removing variability and we'll ultimately see that, but that's an element that is going to help us to an extent. You talk about manganese ore, which -- that's one commodity that has not moved in tandem with the other commodities, and that's hanging out there to unfortunately bite us right now, which is going the opposite way. And then, in addition we talked about FX, but we're looking at ways to -- obviously that's what we get paid for -- is to take all of those, and say, okay, how do we come to something that is an EBITDA level that is acceptable for us and to continue to grow this business, and with that, we -- as you said there's a lot of moving parts, and that FX was just one piece of it.

Well, just to follow, you are getting back $30 million to $40 million in cash flow on lower zinc costs even with your 65% hedge in '09, correct?

No.

No.

Okay. Can you please clarify that on the zinc side?

Where do you get that number from? I think in 2010 as I said in my remarks, assuming we can continue to hedge at the current price, there's a $30 million to $40 million benefit in 2010, versus where we were this year. Okay?

Okay.

2009 is a transition year because we're about -- roughly a little bit more than one-third already hedged at something significantly higher than the current $1,100 a ton.

2009 it is more than that, we are at about 65%.

Oh, 65%. I'm sorry.

Great. Okay. Guys, thanks very much.

Draw a line somewhere -- do some interpolation.

All right. I will.

Thanks, Bob.

My pleasure.

Your next question comes from Joe Galzerano from Babson Capital.

I just wanted to get your definition of free cash flow so that we all know what to expect -- so your free cash flow after cash interest, CapEx, cash restructuring, taxes, working capital?

Exactly. Our definition of free cash flow is the cash that is available to reduce debt.

Okay. And then the other thing -- can you just give me -- you made the comment that you are taking all steps, I believe you said -- to continue to be free cash flow; is that right?

Correct.

And then I just wanted to ask, is that really the case if you continue to pay interest on the PIK notes?

Yes, that is the case. We have no intention of [PIKing] the notes. Currently. My lawyer is looking at me. But the number that you were given for interest assumes we continue to pay the cash interest on the PIK notes.

Okay. And isn't that -- I mean, that just seems like you struggle each year to be plus or minus $10 million to $20 million, but isn't that like $80 million to $90 million? We're talking about $10 million to $20 million or possibly break even -- every year we do this, and yet it just seems like an easy way to be free cash flow positive.

Well, one thing I have to point out to you, that my General Counsel has reminded me -- under the terms of the indenture we can't PIK the notes if the average price of our stock is below $3. That option is not available to us currently. I hope we have that option in the future, though.

Okay. Thank you.

And your next question comes from Bill Chappell from SunTrust.

Hi, Bill.

Hi, good afternoon. Just on the battery business, maybe I missed it, was there any benefit from hurricanes, or was that really all just core year-over-year growth?

That was core growth. There was probably a bit of a pickup. I know one of our competitors said he got a big boost, but we really didn't. I think you are seeing for us is selling in, in some of our key retailers where we have better distribution going in to the holiday season.

I guess with regards to that, where -- can you talk about any distribution gains you got, specifics, or I mean -- and how much was better consumer takeaway to your existing accounts?

If you look at our market share, actually through the end of September, it is up slightly versus last year, okay? So we haven't really seen it yet. I think the very, very strong numbers that you saw are a result of us being -- getting expanded distribution at several of our key retailers and getting that stuff shipped in place for the holiday season. You know where we do our business -- just walk through a couple of those stores and walk around, and you'll see we have a pretty good presence for the holiday season. And I think, many retailers -- you see all this all of the time now in the last 30 days -- are focused on the value alternatives. That's what they are pushing, they are promoting, they are advertising. Again, as the value alternative here, I think's there's a very logical reason why we're getting a little more play, so to speak, during the season.

On the pet business, have you seen any incremental weakening as we've moved into October, early November of that business, or has it remained pretty stable?

Particularly the equipment side has gotten a little weak. People are not going out and spending a lot of money for a big new aquarium and filters and equipment. Up through the middle of October, the rest of the business seemed to be pretty normal. The last two weeks, we actually have seen somewhat of a slowdown, because retailers, as I said now, are deferring purchases until the last possible minute waiting to see what the consumer is going to do in their stores.

Got it. Thank you.

And your next question comes from Reza Rahabzadeh from Barclays Capital.

Good afternoon.

Hello.

Just on the comments you made regarding inventory, the stocking, Kent, I mean, is that something that you are already seeing in the fourth calendar quarter?

You mean at retailers?

Yes.

That has been going on for well over a year.

Right. But is it accelerating?

No. What I'm saying is that the retailers have been doing this for so long that they really are getting to levels where there isn't much more to destock in many cases. So they are watching their POS on a daily, weekly basis, and they are relying on key suppliers like us and other major consumer product companies to carry the inventory to be able to fulfill those orders in 48 hours to replenish their shelves.

Okay.

And so we're in a very, very dynamic environment where depending on what the sales are from week to week it has very big impact on order patterns that we're seeing. We traditionally -- in old days many of the retailers would bring in a large amount of inventory in anticipation or advance for the holiday season, so they would have it available to set the stores and do their own replenishment. We're not seeing that now. We're seeing a very, very tight inventory situation at the key retailers.

Got it. So are the order patterns, or POS patterns any more volatile than in the past?

Yes, they are, actually. I mean if you talk to guys in the business, you can have good weeks and then the week that actually is down surprisingly. So far, again, as I talked about during my call in a number of our key businesses, be they batteries, or Remington and even in pet supplies -- at least through the end of September and I would say continuing on in October, we have had pretty good POS results.

Okay. Do you think that the incremental shelf space/display space you have with some of your key customers, can that offset, perhaps slowing POS in this quarter?

Yes, it certainly will help.

Okay.

But I would just be very frank with you, though I think we are in as good of position as we could be going in to the holiday season in virtually all of our businesses. The unknown is, as you saw GM announce in October, their sales just stopped. They were down 45%, and so what we can't predict going forward here is what is the holiday season going to be like? I think it is going to be okay, but my real concern is come January, after all of the pressure to continue to spend, will we see a dramatic falloff of consumption around the world starting then? That's my biggest concern.

Right. I hear you. And in terms of Europe, I mean, are you seeing POS slowdown at your key customers there, whether it's on the Remington side or the battery side?

The only place where we have seen a marked slowdown is in the UK. Their economy has got a lot of the same issues that we do relative to real estate, so the UK has been very soft. And continental Europe, though, Varda and Remington are performing reasonably well. The battery category is down slightly in Europe, which is affecting all of us, but our share is pretty steady there right now.

I know many of your product lines are already basically value product lines, and that can benefit from trading down from premium brands, but within your product lines, are you seeing any trade down?

No, I -- in terms of like going from a $50 shaver to a $20 shaver?

Yes.

No. No.

Okay. You have more -- a new spokesperson, by the way for Remington. On the other hand you said that you are going to be more POS -- point of sale oriented in terms of merchandising. I had a hard time reconciling why you have new spokesperson, but you really want to be more point of sale and merchandising oriented.

One of the other things I said in addition to being focused on in-store merchandising activity --

Right.

We are moving away from what I call national media, TV advertising.

Right.

And trying to utilize the internet to target specific customers.

Okay.

That individual happens to be a huge draw for young men, who are our target customers for Remington shaving and grooming products.

I get it.

It's very cost effective, so.

And last question was what was the cash restructuring spend for 2009? You mentioned it. But I missed it.

For 2009. No, we didn't mention it.

You didn't mention it. Okay. Can I get it?

We're actually in the process of doing some revision to that, based on the very recent decision to discontinue the growing products business. So we're back refining those numbers, so we would prefer to have you call here in maybe in a week or so. We'll give you a better handle on it.

Right.

I did mention in the prepared remarks that was that we anticipated that with -- in connection with the shutdown of the [growing] business, we're saying about $20 million of those charges would be -- would be cash in 2009, cash expenditures in 2009. But we didn't give a combined cash restructuring number, which goes to the point that Kent raised that although we're not going to -- something of a single restructuring event, similar to what we had in 2007 -- that would help, as you put it, some singles and doubles, which over the next two years would add up to about that number. And we haven't provided the total cash prestructuring number.

Right. Kent, when do you think you will be in a position to talk about what are the offsets, the potential offsets to the FX headwind?

I think probably the next call I will give you a little more granularity on that. Some things have already have been done. Others are being implemented. We would prefer that things that affect employees that we deal with those first before we go talking public. I find that it very uncomfortable with corporations announcing major headcount reduction, thousands and thousands of people, before the people in the business, even know if they are going to be effected. So we're looking at actions in a number of areas of the business as we continue to find ways to reduce our operating costs, and as Tony said, we think if you add up the things being done in a variety of different places around the company -- and this is not a -- again, a one-time event. This will be initiatives that will take place over the next 12 months, that we believe on an annualized basis this will exceed the $50 million in savings that we got out of the big 2007 restructuring of the organization.

Thank you much.

And your next question comes from Connie Maneaty from BMO Capital Markets.

Hey, Connie.

Hey, it's actually [Dee Kramer] for Connie. Hi. I guess I have a follow-up question on currency. You guys talked about the 15% hit to EBITDA if you ran the business at the same levels. I guess I'm trying to figure out what the impact would be to the top line, and I guess sort of what the margin impact of currency is, given the current rates.

The revenue would probably be approximately the same. If you look at -- if you looked in the Wall Street Journal, it says in the last 52 weeks, the Euro has weakened about 12%, and the dollar versus this basket of foreign currencies that are key trading partners is down roughly 11% right now. So you are going to be translating the top line at those kinds of changes in exchange rates for our foreign-based businesses, which is roughly -- I'm looking at Tony -- 60% of our revenue -- ?

About 60%.

But, again, we do business all over the world, so the pound is different from the Australian dollar, is different from the Brazilian real and the Mexican peso, so it's hard to take a -- that's why I gave you a range in terms of granularity here.

Right.

And keep in mind it's not only translation of the P&L which obviously moving sales and expenses going in the opposite direction, but we have got transactions gains and losses. As the dollar was weak ending throughout fiscal 2008, and we were getting some large transaction gains because, keep in mind, our Remington product is sourced from Asia, and we're purchasing that in dollars. So when our European business are purchasing that Remington product in dollars, it basically costs them less euro, and therefore, we had a transaction gain in 2008. So the numbers that Kent was talking includes also an impact for the transaction impact as well in 2009.

Okay. And then I guess moving on to the growing media business, are you guys going to participate at all in the beginning of the season?

We are transitioning to make sure the key retailers are not left without product, so the process of transitioning their requirements to other suppliers is taking place as we speak, but will take them a while to get up to speed. That's why it will take us probably about 60 days to wind down our manufacturing, fill all of their open orders through this quarter, and then hopefully they'll be in a position to start getting supply from other people come January.

Okay. So that means there -- the shelf space in growing media has been allocated to others already?

They are in the process of doing that.

Okay. Thank you.

Okay.

And your next question is from Marianne Manzolillo from Angelo Gordon.

Maybe if you should shed a little more light of your cash balance of $104 million at the end of the year. You said it's higher because of the cash you need to keep at the foreign subs. About how much do you need to keep at those foreign subs and how much really is available?

Again, that's a good question. Probably I would say of that balance, probably one-third was related to cash that was necessary to be used in the operations of the business, and two-thirds was between timing -- we got a plethora of late receipts in the quarter, which we just weren't able to apply against the ABL, probably a significant amount in the US --

Running about $50 million in cash typically.

Yes. Our typical quarter -- historically our cash balance is about $30 million, but it's been about $50 million to $60 million because of additional form requirements and just making sure that we have the cash available.

So then, the year-end balance in '07 when the cash was $69 million, how much of that was related to cash you needed to keep in foreign subsidiaries?

Very, very small.

Very small?

Yes.

So it went up by about $30 million, that requirement?

That was the result of the change in the credit facility.

Right. Okay.

Taking place.

And then some bigger-picture questions, regarding the battery business in Latin America, and I know that's a very profitable business for you, is there something we should read in to the fact that the zinc sales declined and the alkaline grew? You had a smaller share in the alkaline business?

That's correct.

And is it as possible as the zinc business? Could you shed a little more light on what's going on there?

Again, probably one of the healthier economies that is still in that part of the world is Brazil, and we happen to be the alkaline leader in Brazil. And in some of the other countries, this conversion of zinc carbon to alkaline is somewhat driven by the retailers. Alkaline is about the same profitability as zinc carbon in the region. So I guess we were a little surprised by the strengths of alkaline in this quarter, but as I always said in my comments, the last time we went through an economic slowdown, we actually saw consumers shift back to the less expensive zinc carbon for about a year. So we may expect to see some of that in 2009.

Are you indifferent?

Yes, basically indifferent, to be honest with you.

A lot of articles lately regarding Wal-Mart's growth plans in Latin America. Do you have a similar presence in Wal-Mart as you do with the smaller mom and pop shops in Latin America?

We do in some countries, we do primarily in Mexico, which is one of their largest operations, and I think we have a little bit in Brazil right now. We have traditionally gone -- not 100% of the cases, but as Wal-Mart has expanded internationally, we try to follow them and remain a supplier wherever they go. Probably the two examples where that hasn't place so far is in Japan or in the UK where we are not in ASDA, which is owned by Wal-Mart.

Okay. And then a question regarding Pet as well, and in a similar vein, Wal-Mart says it is going to increase its interest in the pet business. There again, do you have similar kind of exposure to the pet business through Wal-Mart as you do through some of the specialty retailers?

Yes, Wal-Mart is a very significant customer. We have very good distribution there. I think one of the things that we have done as a company in the last 18 months or so was realized that we were spreading our resources too thin, and so we have now concentrated more resources in support of Wal-Mart in Bentonville. We have put higher power people in place there and are trying to work extremely closely with them as they implement some of their new strategies, particularly their clarity initiatives, which is really aimed at making the shopping experience better for their consumers by simplifying the number of SKUs and the number of price points. And to date, we have been relatively successful at being on the positive side of some of those moves, as they're going forward in a number of categories, including batteries, flashlights, and pet products. We are an important supplier with high service levels to them. We are very committed to them to bring them new products and maintain those levels of service. Knock on wood, hopefully we will continue in that role with them and they continue to focus on those categories.

Okay. Great. Thank you.

And your next question is from Jason Gere from Wachovia Securities.

Thanks, good afternoon.

Hey, Jason.

Hey, just a quick question on the pricing that your competitors took on the manganese ore, I think in August. When did you guys follow, or have you followed with that price increase?

I would use the term we have selectively followed. I want to remind you that we are very cognizant of maintaining our value positioning at this particular point in time, and so we did not do an across the board significant price increase, and I don't know the details of what the competitors have done. I know they announced pretty big price increases. We have been very selective at which SKUs, which customers, and how we have done the pricing. Again, aimed at trying to protect our margins, as I said, but at the same time protecting our value positioning in these current economic times.

Do you know how much the price gap between yourself and the premium players widened I guess over the period.

Again, it depends on retailers. We traditionally like to be at least 15% to 20% lower, but I would say that in certain retailers that is probably expanded by as much as 5 to 10 points.

Thanks. Next question, one of your commentaries is about -- I think it was referring to Latin America, the softening commodities hurting the economies. I guess just a little bit more generally speaking what you are seeing so far at this point through the end of October, and can you talk maybe just about past experiences that you guys have seen maybe from the late '90s in terms of when currencies start to devalue at some point -- how well you guys performed, especially with the battery business?

As I said earlier, one of the things we saw was the consumer would switch back to zinc carbon batteries and move away from the higher-priced alkaline. It's -- because of the -- call it the lack of infrastructure, many parts of Latin America where we actually have good distribution, the consumer still is very dependent on consumer batteries for his way of life. And so while the big economic drivers can start to go down, you'll see more of an impact in the metropolitan areas. And in a lot of the rural areas where we have good distribution, there isn't as big of an impact. So it's not as severe as you might imagine.

Okay. Great. And then just -- I guess the last question I have is on personal care. Really, on the US, .I guess how much -- in the fourth quarter, I guess when you think about the holiday season, how much of the sell-in happens there as opposed to maybe the beginning of the first fiscal quarter? And then if you could just talk -- maybe differentiate between the women's side and the men's side. I guess in my view -- I'm not a woman, so I don't know what drives a woman to keep buying the straighteners, but I certainly know on the men's side when you think about the rotary shavers -- those might be areas where people might not -- might forgo in this economic cycle. So wondering if you could just give your comfort level between women's and men's.

Men's for us is a combination of men's shaving and men's grooming. And shaving, we're the only company in the world that makes both foil and rotary shavers. Okay. We launched a whole new line of rotary shavers that just is in distribution this fall, which is a significant improvement in terms of its performance. One of our earlier strategies in years gone by was trying to push -- ourselves up into higher and higher price points to compete more with Norelco and Braun, and that really didn't work very well. So our new product line is positioned basically in the sweet spot of value positioning, which is the place that we think we do best. You watch TV and you see advertising for Braun and Norelco, a lot of the products that they are advertising for the holiday season cost well over $100. I think maybe the halo effect brings the consumer in to look for their brand, but again our packaging and point of sale material is really, really key to get that consumer.

The other interesting point that the grooming side of the business, not shaving the face, but mustache, beard trimmers, hair trimmers, body hair groomers, et cetera, et cetera, are the fastest growing segment in men's care. We have the number one selling SKU in America, and we're seeing that while shavers tends to be -- or has been very flat to slightly down in terms of unit sales and dollar sales the last couple of years, as the retailers have kind of stopped pushing that as a holiday gift item, our promotional activity surrounding the grooming part of the business has that growing very, very rapidly. So it's now beginning to replace shaving as the growth segment for men. In women's hair care, it's about product innovation. It's about having a variety of sub brands at different price points, and again, great packaging, great shelf -- because if you walk in to many retailers, you'll find 15 women's hairdryers there. So how do they pick out the one they want? The packaging has a lot to do with the selling message there, as I said, and that's something our company excels in.

Can you talk about the price points, maybe on the men's shaving, the low to high, just how it differentiates now, and I guess the holidays are very important for this business -- ?

Not as important as they used to be. Again, we used to do 80% of our profits during the Christmas holidays. That's not the case anymore. The business is really becoming more of an ongoing replacement business and less of a gifting business at least in our segment. The traditional male consumer who buys a shaver -- basically his wears out. He throws it away and buys new one, every -- it depends -- three to five years. And our price points are typically at the very low end. We have products that sell in the teens, some grooming products and low-end travel shavers that are like $20. And probably the top end of our best rotary shavers, maybe $69 -- ?

$59 to $69.

$59 to $69. Now Norelco has some products that overlap with us, but a lot of their product line is well above that, and Braun is well above us in terms of their price point as well.

The first question I guess in terms of the sell-in in the fourth quarter for some of the new products, I was just wondering how much came in there -- ?

I can't give you a specific amount. We did start shipping those products in Q4, but a lot has gone in in Q1 as well.

Great. Good luck, guys.

Thank you.

Your next question is from [Gentry Klein from Seekus].

You mentioned in the release that there are some cost increases on the pet side. Can you just explain a little bit what those were?

A lot of those came out of our suppliers in China. We talked about the fact that our battery plant in China saw a significant, like 30% cost increases due a whole variety of different factors. Those same macroeconomic trends that affected our battery business are affecting our other products that are sourced in China. So that was one area of cost increase. Another one was in grains, because of the runup in grain costs, and because we sell a certain amount of food products for birds and other animals we saw an increase there. I think you've heard some of our competitors talk about the impact on their business as well. And then transportation cost in the last year has been significantly increased. We're hoping now with oil coming down, we'll get some relief in 2009.

And are you seeing increased competition from exports out of China in the pet side?

No.

Okay. On the control products business, is that still going to be run by management of the batteries and personal care group?

What we are doing right now is Dave Lumley and Tom Walzer and three or four other of the talented people in that business are helping reorganize and run our remaining controls business, and after we get through this transition period, we'll make decisions about what the permanent management structure will be. We have identified the key management team that will be in place running the controls business. It will continue to operate as an independent stand-alone entity, although obviously a much smaller one than it is today, but in terms of long -- I think you can assume that Dave and some of his other key staff will be overseeing that business in the short-term, and as we get in to 2009, we'll make more permanent decisions.

On the Energizer dispute, what is the dollar amount of lithium batteries that you're selling -- ?

Let me -- obviously lithium batteries, is an important product to Energizer. They have a nice portfolio of intellectual property surrounding those products. They have owned that space, which has grown very nicely in the last couple of years. We like to offer the consumer a valuable alternative, so we identify this as a -- something that we were interested in trying to enter that segment. We did extensive research on their patent portfolio. We believe firmly, that the product that we were introduced did not infringe. Obviously the court disagreed with us. But we were at the point of only doing some limited testing of that product with one retailer, and actually at the time they filed their suit against us, we actually had zero product being sold into the marketplace. We did have some plans to roll it out over time, but those now have been suspended. We're studying the situation, and we have not yet made a final decision about what we should do. Obviously a long drawn-out fight with Energizer could be expensive, and it is a very small niche category, so I would just say we believe we do not infringe any of their intellectual property. We are convinced of that. We have done our homework. Obviously we would have to stay in court and fight and win that ultimate battle, and again, we haven't decided exactly what we're going to do yet.

Thank you. Lastly, can you give us the US dollar amount of the Euro tranche in the term loan?

I think 375 million?

$369 million.

$370 million at the end of the year.

Okay. Thanks a lot.

And your last question comes from Henry [Kaplan] from Oppenheimer.

Hello. Good afternoon. Just -- I had a question about the -- was wondering if the stress on the credit markets has impacted your suppliers at all? Have you had any issues with that?

No, we have not. We have been very diligent at maintaining terms with our key suppliers. The only thing that has happened, which we have talked about, is some of our foreign suppliers have traditionally relied on credit insurance, and several of the major insurers have now withdrawn or significantly reduced their participation in that market. And so we have lost a little bit of the credit insurance that was in place as we have gone through perhaps this last six or eight months. That's really the only specific thing we have seen impacting our business as a result of the credit problems.

Okay. Great. Thank you, very much.

Okay. Well, thank you, everybody. I know we spent a lot of time going through a lot of detail. There is a lot of complexity in our business. We tried to give you a very candid detailed overview of where we are at. As I said before, 2009 is going to be challenging year, but we're up for the challenge and we're actively and aggressively working in a number of different areas of the business. And as I pointed out, I think once we get through 2009, hopefully we'll have tremendous opportunity for continuing improvements in our business when we get to 2010. In the meantime, we appreciate your interest and support, and we'll talk to you again in a couple of months. Good evening.

This concludes today's conference call. You may now disconnect.