Spectrum Brands Holdings Inc (SPB) 2009 Q4 法說會逐字稿

Good afternoon. I will be your operator today. At this time I would like to welcome everyone to the Spectrum Brands investors update and fiscal 2009 financial review call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, January 6, 2010.

I would like to introduce Ms. Carey Phelps, DVP of Investor Relations. Ms. Phelps, you may begin your conference.

Thanks, Latoya. Good afternoon, everyone, and welcome to today's investor call. With me today are Kent Hussey, our Chief Executive Officer, and Tony Genito, our Chief Financial Officer.

Before we begin, let me remind you that our comments this afternoon include forward-looking statements, including our outlook for the first quarter and full year of fiscal 2010. These statements are based on management's current expectations, projections and assumptions, and are by nature uncertain. Actual results may differ materially.

Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated December 30, 2009, and in our most recent form 10-K. We assume no obligation to update any forward-looking statements.

Additionally, please note that we will discuss certain non-GAAP financial measures during our remarks, including adjusted EBITDA, net sales excluding foreign exchange translation, and SG&A excluding impairment charges. Spectrum Brands' management uses these metrics because it believes that they, one, provide a means of analyzing the Company's current and future performance and identifying trends, and two, provide further insight into our operating performance because they eliminate certain items that are not comparable either from one period to the next or from one Company to another.

Additionally, I should point out that adjusted EBITDA can also be a useful measure of a company's ability to service debt, and is one of the measures used for determining the Company's debt covenant compliance. While Spectrum Brands' management believes that these non-GAAP financial measures I just mentioned 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.

I want to caution the audience that although net income is the GAAP measure from which adjusted EBITDA is derived, projected adjusted EBITDA results discussed during this call may differ significantly from net income results, due to factors not included in the calculation of adjusted EBITDA.

For completed quarters, we provided reconciliations of adjusted EBITDA to their comparable GAAP results in table three of our press release dated December 30, 2009, which has been furnished on a form 8-K filed with the SEC. A copy of that 8-K is available on our website, www.spectrumbands.com, under the Investor Relations section. And we will provide reconciliations of net sales excluding foreign exchange, and SG&A excluding impairment charges, during this call.

As a final note, during the course of our comments today, unless we say otherwise, current year results relate to the fiscal fourth quarter or fiscal full year 2009. While any references to prior year results are for fiscal fourth quarter or fiscal full year 2008. Thank you for your attention to these details.

At this point I'll turn the call over to Kent.

Thanks, Carey. As I said in our press release last week, 2009 was a watershed year for Spectrum Brands, during which we overcame enormous challenges and emerged a stronger organization, a stronger competitor, and a financially healthier Company. It's great to be back with you today to tell you firsthand about our remarkable accomplishments this year, and why I feel good about our outlook for the future.

Over the past few years, we successfully implemented numerous company-wide operational restructuring initiatives, including among other things, one, reorganizing our business into three product-focused, fully autonomous business units, two, streamlining our sales and marketing efforts around our brands and product lines, three, eliminating marginally unprofitable or unprofitable skews, four, broad based G&A cost reductions, and five, shutting down the wildly volatile and unprofitable growing products business line.

These moves put into place what I believe are the right people, the right organization, and the right cost structure for success, leaving at the end of calendar year 2008 one more major obstacle, our significantly over-leveraged balance sheet. As a result, as most of you know, on February 3, 2009, we made the very tough decision to voluntarily file for Chapter 11. While a difficult choice, I believe that this option provided us with the best opportunity to achieve a significant debt reduction, while causing minimal disruption to our operations, which enabled us to strengthen our Company and better position our brands for future success.

This successful and fast track effort enabled us to eliminate $840 million of subordinated debt, pay our suppliers in full, deliver our products to our customers without interruption, and retain all of our key employees, all while some of our primary product lines took market share from our competitors, and our businesses delivered improved profitability.

I owe thanks to both our customers and suppliers who were incredibly supportive throughout this process. We were able to navigate Chapter 11 with no disruption in our supply chain or in our delivery to our customers. And finally, I couldn't be more pleased with the tremendous committment shown by our employees, and their dedication to this Company's success.

In the face of both the restructuring process and the worst global economic recession in approximately 80 years, our team stayed focused, we executed our business plans, and delivered excellent financial results for fiscal 2009. For the full year, we reported consolidated net sales of $2.2 billion, down from $2.4 billion in 2008, due primarily to the negative impact of foreign exchange of $129.4 million.

Looking at profitability, full year net income was $943.2 million, however this was largely the result of the accounting treatments required and related to the bankruptcy. Tony will go through some of the drivers behind the numbers in his section.

Relative to our ongoing operations, each of our three business segments delivered improved full year adjusted EBITDA over fiscal 2008. Full year fiscal 2009 consolidated adjusted EBITDA was $309.9 million, up 4.2% over fiscal 2008. Foreign exchange negatively impacted adjusted EBITDA by $23.9 million for the year. As a result, on a constant currency basis, adjusted EBITDA was up 12.4% over 2008 levels, as we exercise tight cost controls and continue with our skew rationalization initiatives.

Overall, I'm very pleased with our fiscal 2009 results. Our businesses directly in the face of significant challenges performed well, as our value positioning and a more cautious consumer work to our advantage.

Now let me move to provide an overview of our segment level performance before turning the call over to Tony for a more detailed look at our consolidated financial results this year, including the very complex impacts of fresh start accounting. I'll start with our largest and most profitable segment, global battery and personal care. This segment continued to do well through the end of the fourth quarter, picking up additional market share over last year's levels in many of its product lines. This segment delivered 2009 sales of $1.3 billion, down from $1.5 billion in 2008.

While we were very pleased with this segment delivered growth in North America for 2009, the positive trend in this region was offset by negative foreign exchange impacts of $118.3 million, and climbs overseas driven by weak macroeconomic environments in Latin America and Europe.

By geography, North America, which benefited from expanded market share in its battery sales, delivered approximately 43% of the segment's total revenues for fiscal 2009, and was up slightly over fiscal 2008 levels despite negative growth in the battery category. Europe and Latin America, whose revenues were impacted by weak local economies, delivered 42% and 15% of this segment's total 2009 revenues, respectively.

Global battery sales for 2009 were $818.6 million, where solid market share increases in North America were offset by weakness in the economic climate overseas, and $70.2 million of negative foreign exchange impact. 2008 global battery sales were $916.2 million. The solid share increases lead to an improvement in North American battery sales for fiscal 2009 of 12.3% over fiscal 2008, including a small negative foreign exchange of $2.4 million.

European battery sales were down 15.2%, as the Company continued to exit unprofitable and marginally profitable skews and accounts, and as the local economies were slowed dramatically, particularly in Eastern Europe, which has been a region of good growth in the recent past. European battery sales were also negatively impacted by foreign exchange of $44.4 million.

Latin American battery sales were affected by weak macroeconomic trends, and by inventory destocking in the region particularly in Brazil, where sales for the region were down 31.7% for fiscal 2009, including a negative foreign exchange impact of $23.4 million. The good news is that the economies in the region, especially Brazil, appear to be recovering. More importantly, we've launched a new marketing program mirroring our value brand messaging in North America, which we believe will improve our results in the region. Early indications in the quarter just ended are that this new program is working.

In spite of the sluggish economy, and inventory pressures by retailers, global full year fiscal 2009 sales of our Remington branded products were roughly flat year-over-year when you remove the impacts of foreign exchange. Including $42.8 million of negative foreign exchange impacts, Remington reported $436.4 million for fiscal 2009, versus $477.8 million for fiscal 2008.

Looking more specifically at our product categories at Remington, and I'll use Nielsen market research data as of November 28, 2009, which is the last period I have available at this time to share with you, I'll be able to share with you some of our strong trends here in the US.

Our US women's hair care product line is at an all-time market share high, and continues to be the fastest growing retail brand with a two point dollar share increase versus a year ago. We've also maintained our number one position in the women's shave groom categories with a four point dollar share increase over the last 24 weeks ending November 28.

Our men's product lines in the US have also performed well. The successful launch of our Flex 360 rotary shaver last year was followed by our new line of pivot and flex foil shavers this year. These launches, and expanded distribution of both lines, enabled us to regain some lost market share, and solidified our number two position in the category.

In addition, our Remington products have maintained our number one position in men's grooming, as we've continued to use innovation to introduce new personal groomers, body hair trimmers and an entire new line of hair clippers.

Outside of the US, using GfK Roper's market share research in Australia, for the year-ended October 2009, Remington held the number one market share position with growth in all categories, including the number one position in hair care, women's shave, and men's grooming. Our products also held a strong number two ranking in men's shave in Australia for that time period.

In the UK, Remington has become the number two shaver brand for the three consecutive months ending October 2009, and maintains the number one selling groomer and hair clipper in the market for the time period January through September 2009. Overall, I'm very pleased with the results of the global battery and personal care segment.

In a very tough economic climate, our brands delivered solid sales results and strong profitability. With disciplined expense management and despite a large negative foreign exchange impact, this segment delivered full year adjusted EBITDA of $192.8 million, up from $185.2 million in 2008. Excluding $32 million of negative foreign exchange impact, adjusted EBITDA for the global battery and personal care segment for fiscal 2009 would have been $224.8 million or up 21.4% over fiscal 2008.

Moving now to our global pet supply segment. Global pet supply segment continued to show good results despite the economic conditions, driven by its consumable products such as dog treats, and food for fish and small animals. Dingo, Nature's Miracle and Tetra branded products lead the way for this segment sales during fiscal 2009. For the full year of fiscal 2009, the aquatics category was down year-over-year, resulting in decreased sales for this segment due mainly to lower sales of higher priced equipment.

Global Pet Supplies reported net sales of $573.9 million for fiscal 2009, compared with $598.6 million for fiscal 2008. Weakness in aquatics, along with inventory destocking at retailers, was partially offset by notable strength in the Company's sales of its Dingo and Nature's Miracle branded products in the companion animal category.

Foreign exchange had a negative impact of $11 million on the full year fiscal 2009 net sales. Accounting for just over 37% of the segment's total sales, companion animal products were up $12.9 million or 6.4% over last year, as Dingo and Nature's Miracle posted positive results.

Aquatic sales, which were negatively impacted by weak equipment sales, weak economic conditions in the Pac Rim, negative foreign exchange, and inventory destocking and a shorter pond season in Europe, were down $37.7 million or 9.5% from 2008 levels. Excluding the foreign exchange impact of $10.8 million, the full year aquatic sales were down 6.8% from 2008. Despite continuing softness in equipment sales, we have seen a steady improvement in our aquatics business over the past six months, and therefore, we estimate returning to flat year-over-year sales for aquatics in our fiscal first quarter of 2010.

By geography, the US delivered 72% of the segment's sales in fiscal 2009, and saw nearly flat sales versus fiscal 2008 despite the tougher economy. Excluding negative foreign exchange impacts of $15.8 million, European sales were down 5.8% for the full fiscal year. In the Pac Rim, full fiscal year sales were up 6.3% due to positive foreign exchange impacts of $4.8 million.

Benefiting from aggressive operating expense reductions and pricing initiatives, adjusted EBITDA for the global pet supply segment improved to $93.2 million for the full fiscal year 2009, compared to $92.1 million for fiscal 2008.

And finally, let me move to our home & garden segment, where during fiscal 2009 we successfully completed the shut down of the unprofitable growing products business with minimal impact to our remaining controls business. Sales for our ongoing controls business were $321.6 million for fiscal 2009, compared with $334.1 million for fiscal 2008. We believe the Company's products held their share of positions in their respective categories during the year.

The decrease in revenues were driven primarily by the loss of some placements at a major retailer due to aggressive pricing actions by a major competitor, and by our decision to decrease skews in order to cut costs and improve segment level efficiencies. Full fiscal year adjusted EBITDA, the home & garden segment improved to $53.9 million, compared with $52.6 million for fiscal 2008.

Going forward, I'm optimistic about the outlook for our home & garden segment. Based on the results of recent line reviews with our customers, we expect to gain volume as well as additional promotional support during fiscal 2010 at all three of our largest retailers in this segment.

In Summary, I could not be more pleased with our business unit teams who faced very tough conditions this year, not only internally but at the retailers as well. Despite these challenges, each business unit delivered improved full fiscal year adjusted EBITDA, the measure that we feel is most indicative of the profitability of our businesses. I'm very pleased with the cost structures that we have in place, and feel that we are well positioned to succeed regardless of the macroeconomic trends.

Now I'd like to turn the call over to Tony to go through some of our financial information in more detail. Then I'll come back to close our call and give you a sneak peak at our expected Q1 results for fiscal 2010, and tell you why I feel so good about Spectrum Brands going forward.

Thanks, Kent, and good afternoon, everyone. I too would like to start by expressing my heartfelt thanks to all of our customers and suppliers for all of their support during a very challenging fiscal 2009. Also I'd like to commend the tremendous efforts of all of our employees for delivering very solid financial results, especially during such difficult times.

Our success during 2009 is both a testament to the outstanding committment of our teams at all of our business units, as well as the strong brands that we offer. These brands, which have solid reputations and market leading positions in many categories, provide quality and value to customers worldwide.

Before we get into the details of our financial review, I'd like to briefly touch on the single biggest accounting event that impacted us during fiscal 2009. In connection with our emergence from Chapter 11 on August 28, 2009, in accordance with US Generally Accepted Accounting Principles we adopted fresh start reporting. Under fresh start reporting, which we implemented as of August 30, 2009, as that represented our financial period close for the month of August, a new reporting entity referred to as the successor company was deemed to be created.

The results of successor company, which encompass the one month ended September 30, 2009, had been presented separately in our financial statements from results of the predecessor company, which encompasses our results of the 11 months from October 1, 2008, through August 30, 2009. Because of various adjustments to our financial statements as a result of adopting fresh start reporting, which included asset and liability reevaluation adjustments, changes to our capital structure, and the recognition of cancellation of indebtedness income, reported historical financial statements of the successor company are not comparable to those of the predecessor company.

As I just mentioned, as a result of adopting fresh start reporting, we revalued all of our assets and liabilities. While these fresh start adjustments will have no cash impact, certain of these revaluations have impacted our fiscal 2009 operating results, and will impact future operating results as the revalued assets or liabilities are amortized through our operating results. The most notable impacts will result from the revaluations associated with our inventory, property, plant and equipment, intangible assets subject to amortization, and debt.

Inventory balances were revalued as of August 30, resulting in an increase in those balances of approximately $49 million. As a result of the inventory revaluation, the successor company recognized $16 million in additional cost of goods sold for the one month period ended September 30, 2009. The remaining $33 million of the inventory revaluation will be recorded during the first quarter of fiscal 2010. We revalued our property, plant and equipment as of August 30, 2009, which resulted in an increase to those assets of approximately $35 million.

Taking into account this revaluation, and fiscal 2010 projected capital expenditures in the range of $30 million to $35 million, fiscal 2010 depreciation expense shared approximately $60 million. Since a significant portion of our revalued fixed assets were deemed to have a short, useful life, we would anticipate depreciation expense in fiscal 2011 and beyond, again assuming a more normal level of annual capital spend in the $30 million to $35 million range, that the depreciation expense in 2011 would be in the $35 million to $40 million range.

As of August 30, we also revalued our intangible assets subject to amortization, which includes proprietary technology, customer relationships, and certain trade names. This revaluation resulted in an increase to those assets of approximately $610 million, and as a result, our annual amortization expense for fiscal 2010 and beyond should approximate $41.5 million per year.

Lastly, in connection with the revaluation of our debt, we recorded a net discount of approximately $79 million, principally related to our term loan. This discount will be amortized over the life of the debt resulting in an accretion to the debt balance but a corresponding increase to interest expense, with the ultimate result that debt is once again stated at par upon maturity. During fiscal 2010, amortization associated with this discount, which would be recorded as interest expense, will approximate $27 million. I'll get you into more details with respect to interest expense in just a moment. Again, just to recap, all of these charges, all of the charges associated with these revaluation adjustments are non-cash charges.

Now, with that said, let me start our financial review by first talking about some of the more significant items that impacted our financial results during fiscal 2009. These items include the net impact of reorganization items, restructuring and related charges, and an impairment related to certain of our trade names.

During fiscal 2009, in connection with our reorganization under Chapter 11, we recorded reorganization items net, which represents income of approximately $1.139 billion. These reorganization items included a $147 million gain on cancellation of the old senior subordinated notes that were exchanged for nearly all of the equity of new Spectrum, along with the issuance of the new 12% senior subordinated toggle notes due 2019.

A $1.088 billion benefit to our P&L representing the net positive impact of all fresh start reporting adjustments, that is the net impact of all of the revaluations to our assets and liabilities, these amounts were reduced by $11 million representing the write-off of deferred financing fees related to the predecessor company's senior subordinated notes. Which as previously mentioned were exchanged for our new equity and our 12% senior subordinated toggle notes, $6 million representing a provision for certain leases, which we rejected while in Chapter 11, and $79 million of professional expenses, principally representing legal, financial, and accounting advisory services that were incurred as of or subsequent to our Chapter 11 petition date.

Going forward, we do not anticipate incurring significant charges related to professional fees associated with our Chapter 11 process.

As to our restructuring efforts during fiscal 2009, we recorded restructuring and related charges of $45.8 million, of which $13.4 million is reflected in cost of goods sold, and $32.4 million was included in operating expenses. These charges primarily related to, a $20 million related to our 2009 global cost reduction initiatives, which consisted of $7.5 million to evaluate our capital structure prior to our Chapter 11 petition date, $6.8 million related to severance costs as a result of headcount reductions, and the remaining costs were due to the exit of certain facilities. $10.8 million related to exit our battery manufacturing facility in Ningbo, China, which were primarily non-cash impairments to assets, and $11.8 million related to our 2007 global realignment, which includes severance cost of $7.4 million.

Going forward, we anticipate recording approximately $34 million of P&L charges through 2013 related to identified cost reduction initiatives, which relate to certain organizational restructurings, the strategic consolidation of certain of our facilities, as well as a restructuring of our remaining home & garden business distribution infrastructure.

Lastly, in accordance with GAAP, we test our goodwill and indefinite live intangible assets for impairment annually, or more often if an event or circumstance indicates that an impairment loss may have been incurred. During fiscal 2009, in connection with our annual impairment testing, we recorded a non-cash pre-tax impairment charge of $34 million in the predecessor company. This non-cash charge reflects the writedown of certain trade name intangible assets primarily related to the global pet supply segment and the global batteries and personal care segment.

Now, let's take a look at the remaining key elements making up our operating results, beginning with operating expenses. Operating expenses for fiscal 2009 improved to $659 million versus $1.605 billion for fiscal 2008. This $946 million decrease in operating expenses for fiscal 2009 was primarily driven by lower impairment charges recorded in fiscal 2009 versus fiscal 2008.

During fiscal 2009, we recorded non-cash impairment charges of $34 million, while in fiscal 2008 we recorded non-cash impairment charges of $861 million. The decrease in operating expenses in fiscal 2009 is also attributed to the positive impact related to foreign exchange of $37 million in fiscal 2009, coupled with the non-recurrence of a charge in fiscal 2008 of $18 million associated with the depreciation and amortization related to the assets of the home & garden business incurred as a result of our reclassification of that business from discontinued operations to continuing operations.

I do want to take a moment to acknowledge the terrific job all of our businesses are doing in controlling expenses. For the full year of fiscal 2009, our SG&A as a percentage of sales, excluding the impairment charges I discussed a moment ago, improved to 25.5% down from 28.7% in 2008.

Since 2007, our teams have successfully implemented numerous initiatives, touching each business segment, as well as our corporate cost structure aimed at reducing costs and improving efficiencies. As a result, we've achieved what I believe is a highly efficient and lien cost structure, which will allow future volume increases to directly benefit our bottom line.

Our corporate expense in fiscal 2009 decreased to $34.4 million from $45.3 million in fiscal 2008. Our corporate expense as a percentage of consolidated net sales in fiscal 2009 decreased to 1.5% from 1.9% in fiscal 2008. In addition to several cost reduction initiatives, the decrease in expense is partially a result of the non-recurrence of a $4 million charge incurred in fiscal 2008 to write off professional fees incurred in connection with the termination of substantive negotiations with a potential purchaser of our global pet supplies business.

Interest expense in fiscal 2009 decreased to $189.9 million from $229 million in fiscal 2008. The year-over-year decrease is primarily due to ceasing the accrual of interest on the predecessor company's senior subordinated notes following our Chapter 11 filing in February, partially offset by the accrual of default interest on our US dollar term B loan and Euro facility, as well as expense related to interest rate derivative contracts terminated in connection with our emergence from Chapter 11.

Furthermore, approximately $32 million of interest on the predecessor company's senior subordinated notes accrued during fiscal 2009 prior to our Chapter 11 filing, and included in the $189.9 million of interest expense, was not paid in cash and consequently was reversed in the fresh start reporting process. As a result, our cash interest for fiscal 2009 was approximately $164 million, compared to approximately $227 million for fiscal 2008.

For fiscal 2010, we expect to incur interest expense of approximately $200 million, of which $130 million is expected to be cash interest. The principle items making up the difference between cash and non-cash interest in fiscal 2010 is payment in kind interest on the 12% senior subordinated toggle notes, amortization of the discount reported in fresh start reporting that I previously mentioned, and amortization of deferred financing fees. I should also note that we anticipate lower interest costs in future years, which should enable us to invest more in our businesses going forward.

Now, turning to income taxes. As of September 30, 2009, we had US Federal and State net operating loss carry forwards of $598 million and $643 million, respectively, which will expire between 2010 and 2029. We also have four net operating loss carry forwards of $138 million, which will expire beginning 2010, however, certain of these foreign net operating loss carry forwards have indefinite carry forward periods.

As a result of several deemed changes in ownership over the past year, based on the limitations imposed by the Internal Revenue code Section 382 concerning changes in ownership, we currently believe that we'll be able to utilize approximately $450 million of our US net operating loss carry forwards, and approximately $332 million of our State net operating loss carry forwards.

Our cash taxes, which primarily relate to foreign jurisdictions, total approximately $20 million for fiscal 2009. For fiscal 2010, we anticipate cash taxes to approximate $34 million.

As a result of all of the above, we reported consolidated net income of $943.2 million for the full year fiscal 2009. With only one month of history for the Common Stock that was issued upon the Company's emergence from Chapter 11, there's really no comparable period available for the earnings per share calculation that we showed in the Earnings Release dated December 30, 2009.

Before turning the call back to Kent, let me focus on our liquidity for a moment. Given both our cash position, as well as the ability of our businesses to generate sufficient free cash flow, we feel good about our liquidity position as we move into fiscal 2010. We closed out fiscal 2009 with approximately $97.8 million in cash. A majority of this cash is located in our foreign subsidiaries.

While a significant portion of this cash is required by our foreign subsidiaries' ongoing operations, the balance did include additional cash due to the timing of certain payments and receipts by certain of those subsidiaries. However, through November, we subsequently repatriated approximately $33 million from our foreign sister companies and applied it to our ABL facility. Approximately $1.345 billion was drawn under our senior term credit facilities, $78.2 million was drawn on our $242 million ABL facility at the end of fiscal 2009.

As of the end of our fiscal first quarter of 2010, our draw on the ABL facility was $26.6 million. As I'm sure you're all aware, in connection with our emergence from Chapter 11, we did amend our senior term credit facility. The more salient points of the amendments include a LIBOR floor of 150 basis points, and an increase in the interest rate spreads of 250 basis points on both the US and European tranches of our debt.

As a result, our minimum interest rates on the US and European tranches are 8% and 8.5%, respectively. In addition, the maturity on the facility was shortened by nine months, from March 2013 to June 2012. Lastly, the maximum senior leverage requirement was increased to 5.75 times for fiscal 2010, 5.5 times for fiscal 2011, and 5.0 times for the remaining term.

For fiscal 2009, combining the predecessor and successor companies, we delivered $65.8 million in free cash flow, which I've calculated by taking our net cash provided by operating activities of $76.6 million, less $10.8 million in capital expenditures. While we held back on some capital expenditures during fiscal 2009 due to our Chapter 11 process, as I said earlier, we expect to resume to a more normal level of capital spending going forward, which I would estimate to be in the range of $30 million to $35 million on an annual basis.

In Summary, despite a very tough economy and significant internal challenges associated with the Chapter 11 process, our teams remain committed to our success and our operations are strong. Dave Lumley and John Heil are both to be credited for their vigorous focus on cost management, while still pushing for and subsequently achieving expanded market share and distribution for many of our key product lines.

Now, let me turn the call back to Kent so that he can share with you some very positive momentum we're seeing as we enter 2010, and why we're so optimistic about the quarters ahead. Kent?

Thank you, Tony. As you can probably gather from Tony's discussion, our accounting, finance and tax teams have spent an extraordinary amount of time and effort implementing the various accounting rules associated with filing, and subsequently emerging from Chapter 11. They've been relentless in their dedication and did a terrific job of getting our 10-K out for 2009. If any of you have missed it, it's a wonderful 200 page tome that makes great reading when you go to bed at night.

I really would like to thank the accounting people. In my 41 years in business, I've never seen a more dedicated team of people take on a more daunting challenge than that finance organization has done in the past 12 months.

Before closing out our call, let me talk for a minute about the reality of the environment we are facing. Our businesses performed remarkably well this year in the face of enormous obstacles. From an internal standpoint during 2009, we made notable strides in improving our cost structure and balance sheet, creating a better base from which to operate.

The external environment will likely remain challenging in the near term, as we expect retailers to continue in their efforts to reduce and minimize inventory, and reduce the number of skews they carry. As a result, we remain firm in our committment to provide the best value, not only to the end consumer but also as importantly to provide the best value directed to our customers, the retailers. Our goal is to win expanded shelf space and new customers, and drive POS and ultimately our share of the market.

On a very positive note, while the full results of our fiscal first quarter are not yet in, early indications show that our holiday promotions and value proposition continue to resonate with today's value conscience consumer. I'm very pleased to share with you that when we next report earnings, I expect to be able to report top line sales growth for the first fiscal quarter of over 7% compared to the first fiscal quarter in 2009.

In addition, with the tremendous accomplishments in cost cutting and improved efficiencies at our business units, I believe that our adjusted EBITDA for the first fiscal quarter will be significantly above last year. These positive trends are an excellent way to start out fiscal 2010, and put us on track to solidly beat our previously provided projections of sales and adjusted EBITDA for the full fiscal year of 2010.

I'll discuss our first quarter fiscal 2010 performance in more detail once our books are closed, and when we next release earnings, which I expect will be in early February.

I believe that our value positioning and focused execution played a large role in our success during fiscal 2009, as what will enable us to continue producing solid results as we go forward. I believe that 2010 is off to a fantastic start, and we look forward to continuing that positive momentum as we move into our fiscal second quarter.

At this point, I'll open up the call to questions.

Latoya?

(Operator Instructions). Your first question comes from the line of Reza Vahabzadeh from Barclays Capital. Your line is now open.

Good afternoon.

Hi.

Welcome back.

Thank you.

It's been a while.

It has been. Obviously a fairly comprehensive discussion of what's been going on, but there are still a couple of questions I was wondering you could help us with. You talked about the retailer order timing shift affecting your fourth quarter as well as the first quarter. What's the order of magnitude for that?

I really can't give you a specific number, but I think you saw in the press, in a number of places, that retailers were pretty cautious during the holiday relative to inventory, and we saw some orders that would normally ship in September were actually not placed with us until sometime in October. I don't think it's a huge amount but it certainly did affect those two quarters.

If you net out the hurricane activity of prior year, as well as the timing of orders, what's the underlying business doing for your North America battery business, I guess is what I'm trying to get at?

Well, I think we talked about the business for the year in North America, where we had some good share gains in alkaline and in rechargeables and in our hearing aid battery business, was up about 12%.

Right.

Which was pretty solid performance. In first quarter of 2010, we're also seeing positive momentum continue, and I think to calibrate that, you have to look at what the industry, the battery industry has done.

I don't have the final numbers for the current quarter, but if you go back through about I think the end of October, the total dollar value of the battery category was down some 6% plus for the year, so the category actually was down and yet, we were up fairly nicely for the year.

But if you wanted to just kind of average the fourth quarter and first quarter with the net of that, would it be in the mid-single digits positive, in your view?

I don't have all of those numbers in front of me.

But it would be positive?

It would be positive.

Yes, it would be positive.

Okay. And then on the European side of the equation, I know it's a smaller business, but do you still see the impact of the weaker economy on the eastern European part of it?

Yes, that really hasn't, western Europe has shown signs of recovery but eastern Europe is still suffering. I think the one bright spot we've talked for a number of years about, the growth of private label in western Europe, in this past year, I think we have seen that slow dramatically. And in fact I can tell you that in Germany, which is our home market obviously, where we were hurt pretty bad over the last two to three years with the growth of private label, private label actually decreased a couple share points and we gained a few share points in our branded business, and that's a first in about three years.

Got it. As far as cost savings, what type of cost savings do you have carrying into F10?

I think one of the bigger areas that we're going to benefit from this year is, as you know, we closed down our growing products business.

Right.

That's been treated as a discontinued operation, but obviously we've taken the opportunity to do what I would call a major overhaul of the core controls business, and that business dates back to the late 1960s. And it suffered I think along with the overall business with a lack of attention while we were trying to grow the growing products business for the last few years.

The good thing there that I'd like to report is that the core management team that's running that business today are the same people who have been with the controls business for many, many years, and so we've slimmed that organization down significantly in terms of the infrastructure.

And one of the other things that we're doing right now is we're basically dismantling a very, call it broad-based regional distribution system that we had in place, and going back to a centralized distribution system. And in fact going to a 3 PL provider, and so we took advantage during the bankruptcy of rejecting some of the leases on facilities that we had taken on that we really didn't need anymore.

And one of the key things to remember is that our controls business, all of those products are made in one plant in St. Louis, and they're all distributed out of St. Louis, so we have a much more efficient cost structure to operate that business. And by shedding all of those old distribution centers and moving to a 3 PL, we expect to get some fairly significant savings flowing in 2010.

In our pit business, we are still working on some, call it rationalization and consolidation of our manufacturing footprint, as well as our back office operations. The key there is getting SAP implemented in a number of locations. We just recently implemented SAP in our Blacksburg, Virginia, which is our North American headquarters for aquatics, and so as we standardize on one IT system across that business, it will give us some further opportunities to optimize the organization structure.

Got it, and last but not least, how do we feel about input costs in F10 versus F09?

I think things were going fairly well when we were going through the depths of the recession, and I think the one area that we're all seeing now is a pretty rapid rise in some of the commodity costs. It just seems that, as soon as people sniff a little bit of economic recovery, particularly in China, which appears to be leading the pack so to speak, the various commodities begin jumping fairly quickly.

The reality is that, while we do have an aggressive program, a very disciplined program, to hedge zinc, the reality is is zinc has basically doubled in price over about the last six to eight months.

That's correct. Back in February and March time frame of 2009, zinc was probably at its new low of about $1,100 a metric ton, and just to give you lever off what Ken said, zinc currently this week is at about the $2,500 a metric ton. Last week was at $2,300 a metric ton, so it's a rather significant increase just week over week.

Now that's kind of the one commodity that we do hedge in our global batteries and personal care business, we do have other commodities that impact us as well that unfortunately we don't hedge because we just don't have, we can't get hedge accounting for it or they're unhedgeable. In the case of home & garden, probably the single biggest impact is tin plate, but we feel pretty good about that, we might have gotten ahead of the curve on that this year, so that's probably the, it's basically commodity costs driven by heavy metals and such.

In summary I would say that in general the economic slowdown has put a cap on pricing and cost increases, and in fact in some cases we've been able to negotiate price reductions over the last 12 months. But the only sore spot so to speak that is something that we can't control are these commodities, particularly the metals, and I think whether it's copper, zinc, steel, oil, those are all subject to a lot of market factors well beyond our control.

Can you talk about, Tony, how much coverage you have on zinc?

Sure. We're currently about 60% hedged on zinc for 2010.

Okay, and would you anticipate maintaining that kind of hedging coverage?

Yes. We have a very disciplined hedging program where we layer in, it's effectively dollar cost averaging when you think about it, every quarter we layer in a fixed amount, and then obviously if the market behaves or we believe that it's moving in the right direction or we think it's an opportunity, we can make a discretionary hedge above that amount. Which, based on, for what it's worth and we'll see what happens within the commodity marketplace itself, but there is some talk amongst (inaudible) it's the smart money that we could see some softness in zinc prices over the next several, week or two, so we stay very focused on it but we're currently 60% hedged for 2010, and a much lower percentage, 11% for 2011.

Got it. Thank you.

Sure.

Your next question comes from Karru Martinson from Deutsche Bank. Your line's now open.

Good afternoon, guys, welcome back.

Thank you, Karru. Good to be back.

Glad to have you guys back.

Well, we were pretty busy here for the last year.

I could only imagine.

We figured we would wait until we actually could start talking about some good stuff to get back in the public domain but we're back now and we'll be talking every quarter.

Excellent. In terms of the market share gains that you're seeing on battery, where is that coming from? Is that coming from your branded competitors or is that from private label shifts, and how sustainable do you feel that is going forward?

It's across-the-board actually. Our value proposition as I think we've said pretty consistently, we think is the right product offering and the right value proposition at the right time, and that certainly has helped us. We have distribution in the retail channels that seem to be the ones that are performing better, and so I think that's helped us as well. And I think we've done some good things in our marketing programs both here and abroad now that are helping build our business.

Is it sustainable? Yes, I think so. I think people have gravitated towards the value position brand here in this Country, and once they try it, we certainly believe that they will come to recognize that it's energy in a can, why would you pay more.

We've also, I think I've noticed personally that the premium brands are not advertising as much as they have historically, which helps us. And I think we'll go through some obviously response from competitors. We've seen some of that already in terms of some increases in promotional activity, but I think the industry has behaved fairly rationally for the last of couple years, and hopefully it will continue down that path.

When you look at the price gap between yourselves and the branded guys here, Duracell and Energizer, are we still looking at a 20% type price point differential?

Yes, it's 20 and in some cases in some retailers it could be as much as 30, and again it depends on certain price points, pack sizes, but historically we used to be in the 15 to 20 and I would say probably today we're more in the 20 to 25.

Okay, and then you mentioned in the 10-K here, I think Wal-Mart or certain retailers destocking aquatics. We know Wal-Mart has historically done that. Is that program accelerating or are there also additional retailers that are bringing down aquatics?

I think if you look at retailing in general, it's not just the biggest most sophisticated. I think almost all of the big box retailers have been very cautious given the economic situation, and tried to shrink their inventory levels to make sure they go out of the holiday season with levels that are more appropriate for the economic environment we're in, so we saw it pretty much across-the-board.

And then when we think of inventory levels at retail, obviously they've been bringing them down for quite some time across-the-board here. What do you feel that weeks of inventory at retail are kind of versus the sell-through? Are retailers giving up sales at this point?

No, I think it's pretty balanced now. Again, I think I've said this in the past. One of the things I think that is a strength of our Company is the sophistication of our supply chain, and we're an SAP platform Company, so we have very good information systems, very good supply chain distribution capability.

And the large retailers rely on sophisticated suppliers to stock goods and be able to respond quickly when they place orders, and so we pride ourselves at doing a good job of that. We pride ourselves at trying to maintain 98% order shipped first time, on time complete, and that has I think enabled and facilitated some of the more, what I would call sophisticated inventory management at retail in the modern era. And that's why I think you're going to see more consolidation into the large, more sophisticated suppliers, and some of the smaller suppliers that don't have that capability will have a difficult time competing in the world as we go forward.

All right, thank you very much. Look forward to the first quarter call, guys.

I'm looking forward to it, too.

Take care, Karru.

Take care, guys.

Your next question comes from Mary Gilbert from Imperial Capital. Your line is now open.

Yes, good afternoon. I wondered if you could talk about some of the new product introductions for this year, kind of looking at some of the other business segments, the pipeline of new product introductions slated for 2010, and the performance of new product introductions that occurred in 2009 and 2008.

I'll just chat about Remington first, as an example. We had a somewhat disastrous product launch a couple of years ago of a new line of men's rotary shavers. We scrambled, redesigned, learned from our mistakes, and last year we launched a line of rotary shavers called Flex 360, and that product has performed exceptionally well from the day it was introduced. Sell-through rates are up anywhere from 30% to 50% over the prior generation of products.

This year, we launched a new line of flex and pivot foil shavers, and Remington was one of the world's pioneers in foil shavers, in case you don't know that, and it was very well received as well. We actually now have surpassed Braun in terms of the number of units of foil shavers sold in North America.

In the women's hair care side, there's a steady stream of innovative products in all of the different segments we compete in, and our most notable has been wet 2 straight. We are the undisputed leader in that little sub-category, both in the US and in Europe. We have well over a 50 share there, and we continue to innovate, redesign and improve upon those kinds of products, which enables us to have something new on the shelf for the retailer, and continue to get the consumer to buy our products.

The state of that whole category is one of not revolution but really is evolution that takes place continuously to give more features, more benefits, better industrial design, etc, etc. So that flow of interesting looking new products, both in men's shaving and grooming, which is call it less dynamic, we now have a platform that will probably be reasonably stable for a few years, but in the women's side where we have to change almost every year is really what's enabled us to grow that business dramatically, both in the US and in Europe.

In our home & garden business, we've been known for years as the innovator in the category, and we compete against two very large, I'd call them somewhat staid competitors in the controls business in Scotts and SC Johnson. They're great companies, they're innovators, but we tend to be more nimble, we bring more new products to the market, and a new product could be a new delivery system, a new package size, an improved active ingredient, etc, etc. So we tend to bring out a fairly steady stream every season for the home & garden business.

In the battery business, obviously there's not a lot of revolutionary new products. The alkaline battery and zinc carbon batteries have been around for a long, long time, but we continuously upgrade the improvement of those products, and we're competitive with our major global competitors and we intend to remain so.

We are the world's leader in hearing aid batteries, and this past year the major innovation for us there is, we became the first Company I think to launch on a, call it product-wide basis, product line-wide basis, we're rolling out mercury free. Zinc hearing aid batteries had very miniscule amounts of mercury, which is the heavy metal. They were critical to the performance of the hearing aid battery, and so it's been quite a technical challenge to remove those little traces of mercury, and yet maintain the very high level of performance.

We have been able to do that. We have the best performing product in the market. We're kind of the pioneer there, and so it's an example of how in a category that isn't known for a lot of, call it radically new products, we do continue to stay ahead of the competition.

In pet supplies, it's just a very creative marketing group, both in the aquatics and the companion animal side that continue to find interesting new ways to package products, new formulations. And as John Heil says, who is the head of that business unit, any interesting innovative new product that's introduced for the human consumption ultimately can be adapted for sale in the pet industry, and so they've done a wonderful job of growing their product lines in terms of health and beauty aides, shampoo, etc, etc.

As an example, we have always been in what we call health and beauty aides, which is vitamins and various other products for the care of dogs and cats. Last year, maybe 18 months ago, we reintroduced a line of those products or a kind of new line under the Dr. Jeff label for some of our specific retailers. He is apparently a very well known veterinarian who appears on TV, and as a result of that new, call it sub-brand we've been able to capture some additional distribution and grow our market share as well.

So we're in an industry that doesn't typically have revolutionary products. Most of them are evolutionary. We occasionally do bring out something that is kind of revolutionary, and I think the most prominent example of that historically was the wet 2 straight product that was launched initially in the UK and then brought to the US. We are launching another product in Europe this year, and will ultimately bring to the US, which is a home laser hair removal system, which we believe will address a really, tremendously unsatisfied need for the female segment in terms of hair removal. So hopefully that will be as big a home run for us as the wet 2 straight was several years ago.

Okay, so that's kind of like the major introduction for 2010 then?

Correct.

In that category?

Correct.

Okay, and then anything to note in any of the others, or just, there's just an ongoing evolution as you said for each one of those products. Also, can you give us an idea in the battery business in Latin America, there was some issues, and I guess it's primarily Brazil really, the inventory destocking going on at the retailers, where that stands today?

That actually was not only retailers but it was even more so in the distribution system. We use a lot of distributors in various countries in Latin America, and we saw the distributors because of the economic slowdown all wanting to kind of destock themselves, so all the way through the supply chain there was kind of a ripple effect.

We also had a marketing program that was launched in Brazil about a year and a half ago that quite frankly did not do very well. We made some changes in the sales and marketing organization. We redesigned the marketing program, particularly in Brazil and some of the other countries that use a lot of alkaline product, mirrored that program after the value positioned marketing that we use here in North America, and that, call it new marketing campaign was launched in September, and the early indications are it's doing extremely well.

We're starting to regain market share. The economies are recovering. So while we had what I would call a disastrous year in Latin America in 2009, we're pretty optimistic we'll see some reasonable growth and recapture the market share down there in 2010.

Okay, when we kind of look at sort of everything that's been discussed so far on the call, do you feel pretty good about the planned projections then for 2010 in terms of EBITDA?

I feel about as confident as I guess you could be. In fact, if you go back to my comment at the end of the prepared remarks, we currently, again we don't have the quarter closed and we didn't know what the close was for October and November. Based on that and the revenue that we've seen for the quarter, we feel very good that we're going to have significant improvement in EBITDA this quarter.

We know there have been a lot of positive events that have occurred that we think will bode well for our performance as we go through the year. We don't know what foreign exchange is going to do. That's a wild card. We don't know what the competitors are going to do, that's another wild card, and we're not still certain about what the consumer is going to do, whether he is going to go back into hiding or keep buying like he apparently did during the holiday season, which they typically always do.

But assuming those things don't turn out to be a disaster, what we're saying is we believe we will beat the projections that we have previously provided people.

Okay, that's very helpful, thank you.

Your next question comes from Marianne Manzolillo from Angelo, Gordon. Your line is now open.

Yes, hi. Another question regarding the Latin American business. You are saying you use a lot of distributors down there. Do you have the same sense of, the same presence at Wal-Mart in Latin America that you have here in the US?

It varies by country. We have a great presence in Mexico. Mexico is a very big market, so we do very well there. We're in Wal-Mart in other countries, but again, it varies by country.

And what about in Brazil?

I'm not certain as to exactly what our position is in, specifically in Brazil with any Wal-Mart.

I know Wal-Mart is planning a big expansion.

Well, we would certainly hope that as they grow in that region, that we will continue to grow with them. As I said, we've done very well in certain markets, and I know notably in Mexico, we have very good distribution with them, so that's certainly if we're not there will be a goal for us to continue to move in that direction.

And then have you brought the prices of your batteries down in Latin America, because you're saying you're repositioning it?

No. What the problem was is I think we priced them up too many times in 2008 and early 2009, so the pricing is stable, we're not going to be pricing I think for a little while down there. But I think the whole messaging, the advertising campaign, we are still actually priced believe it or not in the value position in countries like Brazil, we're somewhere between Panasonic, which plays in that market place to a certain extent, that's kind of the price brand, and then Duracell who is the premium brand, so we are actually value positioned. The problem was is that we didn't count that in our sales and marketing activities.

I see. Okay, great, and then just regarding, you gave us different kind of the cash uses in fiscal 2010 regarding the cash interest taxes and CapEx. What about working capital and any type of restructuring expenses?

Sure. Our working capital for next year should relatively be flat when you look at the receivables inventory and payables. With respect to restructuring and cash restructuring for next year, that number is going to approximate $20 million, and that's driven by actions that were really implemented previously, and that's the tail of those, as well as some of those new initiatives that I had talked about in my prepared remarks.

Okay, great. Thank you very much.

No problem.

Your last question comes from Bill Chappell from SunTrust. Your line is now open.

Good afternoon.

Hi, Bill. How are you?

Good. How are you?

Good.

I guess a couple of questions on the battery sector and then kind of your comments on first quarter 2010. I mean, with what's going on with zinc and other commodities, are you seeing any chance of a price increase in the US, and then kind of that same vein, are you at any disadvantage or advantage versus your competitors in terms of hedging?

We shouldn't be disadvantaged. We don't know exactly what their programs are. The commodity prices are the commodity prices, and whether they're buying at spot or they have a sophisticated hedging program I can't comment, but ultimately as Tony said, it's really a cost averaging scheme that gives you the ability to average out over time the fluctuations in the market and give you more predictability in terms of running your business. And I would assume they're very smart, sophisticated people, they have programs similar to ours, so I think we're probably in the same position there.

What was the other question, I'm sorry, Bill?

Do you see any chance of a price increase, and then maybe I guess with that, what are you seeing in terms of promotional levels during the holidays?

Yes, I personally don't think you'll see pricing. I think we're still in a pretty subdued, I'll just call it a subdued economy. Remember the category actually was down in 2009. The dollar value of battery sales was down. I think it actually was down like 6% for the year, and it was actually down more than that as we got towards the end of the year. So I think with that kind of a economic and industry outlook, it's unlikely that you'll see anybody aggressively trying to raise prices.

On the promotional front, obviously we did pretty well last year in terms of share, as I said both in alkaline and rechargeables, and the big guys are smart, they're sophisticated, and if you walk around you'll see that there is, there has been over the last 60 days an increase in promotional activity, which is not unusual for the holidays. We did see some value packs from one of our major competitors and, but they should be smart enough to understand that we know we have to maintain our, call it price spread and our value positioning, and so we responded appropriately.

Got it, and then in terms of just looking at 2010, you're going to have an FX benefit, and I'm just trying to understand when you talk about doing better than 7% in the first quarter, what does that look like excluding the FX benefit?

It's like 3% to 3.5% without any FX, and again I think that's in a relatively subdued economy and in some categories that actually are negative. So while it doesn't sound like a huge number, I think in today's world and given the segments that we compete in, we feel pretty good about that.

And one last if I may, on the aquatics category, should we look at this as it's bottomed or is it actually growing again?

It's not growing. It's just not shrinking like it was. I think if you go back like 18 months ago, we were seeing negative comps of 4% or 5% or more in some quarters, and that's gradually improved now, and I think we're going to see in Q1 basically a flat business, which is a big improvement from where it's been. It's not growing yet.

The thing that's still depressing the overall category is equipment. People just aren't going out and spending, call it $50 plus on new equipment for aquatics. What's sustaining the category though is people have their hobbies, they have fish, they have to feed them, they have to change the filters, they have to take care of the water, etc, etc.

Got it. Thanks so much.

Okay, Bill. Look forward to talking to you again.

We do have another caller calling into queue. Mary Gilbert, your line is now open.

Yes, I just had a follow-up question. In looking at the various businesses, are there any strategic opportunities that you've identified looking at the disparate businesses at all, particularly when you have some pretty strong growth attributes, like for example on the hearing aid side?

Not sure I understand the question. We have three businesses that we like. They're each unique and different. They all have different, call it industry growth characteristics, and our own positioning within them.

In terms of strategic opportunities, if you mean acquisitions, no. There's really nothing that we're thinking about right now. I think we did a lot of work to, call it refine our business models, refine our cost structure, get ourselves organized into these three business units. The execution is outstanding now. We've been connected with our customers, and I think the consumers, and I think we feel very good about running the business as it currently exists for the foreseeable future.

Okay, and no other dispositions, either?

Absolutely not. These businesses are doing very well. We're very pleased with it, and we took a big step forward in terms of fixing the capital structure. It's still not where it ultimately needs to be, but I think we're going to grow into a better capital structure over time through improved profitability, and at some point perhaps accessing capital markets. So while the leverage is still kind of at the upper end of where we would like to be in terms of a consumer product company and compared to our direct competitors, we're going to catch up to them before you know it.

Okay, and actually, in terms of the financial markets, it seems like there are attractive opportunities there. Is that something that you could be visiting this year, particularly with regard to the term loan and addressing the pick on the notes there?

Obviously, we think about that and talk about it with the Board. The question is will a market stay open, etc, etc. So there's nothing that's kind of imminent, but obviously it's something that's under active thought, consideration and discussion.

Okay, great. Thank you so much.

All right, bye-bye.

All right, well, thank you for joining us. It's been a while since we've talked to everybody. I think we put a very difficult year behind us. We did well. We know that Q1 is demonstrating the momentum that we've got going forward into 2010, and we're very optimistic that this will be a year of good growth of the Company, and all the key metrics.

So look forward to chatting with you in early February so we can give you the download on the holiday season, which we think turned out pretty well for us. Talk to you then.

Operator, do you have any closing remarks?

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