Spectrum Brands Holdings Inc (SPB) 2010 Q1 法說會逐字稿

Good afternoon. My name is Christopher, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands first quarter fiscal 2010 earnings conference call. (Operator Instructions). This conference is being recorded today, Tuesday, February 9th, 2010. Thank you. I would now like to introduce Ms. Carey Phelps, DVP of Investor Relations. Ms. Phelps, you may begin your conference.

Thanks Christopher. Good afternoon, and welcome to our first quarter fiscal 2010 earnings and investor update call. With me today are Kent Hussey, our Chief Executive Officer, and Tony Genito, Chief Financial Officer. In addition Terry Polistina, CEO of Russell Hobbs, is on the phone with us as well.

Before we begin, let me remind you that our comments today include forward-looking statements including our outlook for the full year of fiscal 2010 and beyond. 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 February 9, 2010, 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 measures during our remarks, including adjusted diluted earnings per share, adjusted EBITDA, and net sales excluding Foreign Exchange translation. Spectrum Brands management uses these metrics because it believes that they one, provide a means of analyzing the Company's current and future performance in 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 would like 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 the comparable GAAP metrics in Table Four of our press release issued this morning, which has been furnished on a Form 8-K filed with the SEC. A copy of the 8-K is also available on our website, www.spectrumbrands.com, under the Investor Relations section. We will provide reconciliations of net sales excluding foreign exchange during this call.

As a reminder and in connection with the Company's emergence from Chapter 11 on August 28, 2009, we adopted Fresh Start reporting on August 30, 2009. At that time the recorded amount of the Company's assets and liabilities were adjusted to reflect their fair value. As a result, the reported historical financial statements of the predecessor company are not comparable to those of the successor company, whose results encompass the results of operations on or after August 30, 2009. As a final note, during the course of our comments today unless we say otherwise, current year results relate to the fiscal first quarter of 2010, while any references to prior year results are for the fiscal first quarter of 2009. Thank you for your attention to these details. At this point I will turn the call over to Kent.

Thanks, Carey. Good afternoon, everybody. Thank you for joining us. Sorry we had to postpone our call that was scheduled for this morning to this afternoon. But as I am sure you can understand, we were somewhat busy today. In addition to our positive, extremely positive first quarter fiscal 2010 earnings news today we announced that we intend to add the Russell Hobbs Network of well-known and respected home appliance brands into the Spectrum operating structure, to form a new $3 billion global consumer products company. This is very exciting news for us, and we hope you share our enthusiasm for this transaction. As noted in our press release issued about this announcement, this combination will create a larger global consumer product company, with an expanded personal care and kitchen electric appliance segment to the strong balance sheet, significant synergies, and enhanced growth opportunities. We also will achieve an improved capital structure, with lower leverage, lower cost of combined debt, extended maturities and enhanced liquidity.

Both Spectrum Brands and Russell Hobbs offer consumers through top tier retail stores, some of the best-known products in their market categories. These include Remington, Rayovac, Varta, Hotshot, Cutter, Repel, Spectracide, Nature's Miracle, Dingo, Tetra, 8-in-1 and others in the Spectrum Brands portfolio. With me today is Terry Polistina, CEO of Russell Hobbs. Russell Hobbs brings consumers an array of products under the brands of Black & Decker, George Foreman, Russell Hobbs, and others that Terry will mention in a minute. He will tell us more about the company's products and key markets.

Before that let's look at more of the details of this transaction. This will be an all-stock transaction that values Spectrum at an enterprise value of $2.6 billion, or $31.50 per share net of Spectrum's outstanding indebtedness, and it values privately held Russell Hobbs at $675 million, or $661 million net of debt. The combined company will operate under the Spectrum Brands name, and the current management team will remain in place. Terry will then lead a fourth reporting segment, which will be made up of the existing Russell Hobbs portfolio of home appliance brands. Terry will also join our leadership team, currently composed of myself, Tony Genito, our CFO, Dave Lumley, President of Global Batteries, Personal Care, and Home & Garden, and John Heil, President of Global Pet Supplies.

Our remaining reporting segments, Global Batteries and Personal Care, Global Pet Supplies and Home & Garden, will continue to remain autonomous, and focused on achieving profitable growth under the current management structures. As I mentioned, this will create a new global consumer products company with solid growth opportunities. When you include Russell Hobbs' approximately $800 million in annual revenues, the combined company is expected to deliver approximately $3 billion in annual revenues, with between $430 million and $440 million of adjusted EBITDA in fiscal 2010. Synergies primarily related to administrative IT and supply chain functions are expected to total between $25 million and $30 million. We anticipate this level of cost reduction to be achievable within the next 24 months.

The transaction is expected to meaningfully improve Spectrum's leverage ratio, which stood at 4.7 times at the end of our fiscal first quarter ended January 3, 2010. Following the refinancing of our secured term debt and ABL facility, the new combined entity is expected to have a leverage ratio of approximately 3.8 times at the end of fiscal 2010. A new $300 million ABL facility, which will be available for working capital needs is expected to provide additional liquidity. Other key details of this transaction are in the press release that was distributed this morning, and in a presentation filed in an 8-K this afternoon which is also available on our website. Let me note that as part of this transaction the combined companies have received commitments from Credit Suisse, Bank of America, and Deutsche Bank, for approximately $1.8 billion in financing, in order to refinance Spectrum Brands' existing senior debt, a portion of Russell Hobbs' existing senior debt, through a combination of new term loans, new senior notes, and a new $300 million ABL revolving facility.

With current maturity dates of 2012 on Spectrum's current term loans and ABL, the refinancing contemplated as part of this transaction will provide loans that will expire in 2016, and notes that will expire in 2017. This will provide an enhanced long-term capital structure to support the combined companies' strategic business objectives. It is also expected, based on the economic profile of the Company, as well as the current market conditions, that we will achieve lower costs in our combined debt than we have today.

Upon closing, current shareholders of Spectrum will receive one share of the new combined company or newco for each share they hold in Spectrum Brands. We expect the deal to close this summer subject to shareholder and antitrust approvals, a 45-day go shop period, closing of the new financing, and other customary closing conditions. We also plan to relist Spectrum Brands' common stock on a major exchange, either the New York Stock Exchange or NASDAQ, before the transaction closes. As you know, we are now trading under the symbol SPEB on the over-the-counter bulletin board. I would like to turn the call over to Terry Polistina to tell you a little bit more about Russell Hobbs, before we come back and talk about our first quarter. Terry?

Thank you, Kent. This is exciting news for Russell Hobbs, the great thing about this deal is the strong brands each company brings to the picture, but there is more. Spectrum Brands', Russell Hobbs' retail customers, product lines, and supply chains are well-aligned, which allow the combined company greater operating synergies, as well as a broader portfolio of brands and products for our retail customers. The combination of this enhanced portfolio, the global distribution platforms that we each bring together, will enable us to deliver greater value to our consumers, our customers, and our shareholders. As Kent said, Russell Hobbs is a leader in the small appliance household industry. We have great brands and leading market share in many product categories.

Among our portfolio of well-recognized brand names are Black & Decker, George Foreman, Russell Hobbs, LitterMaid, Juiceman, Breadman, Toastmaster and Farberware. Like Spectrum, our customers include large mass merchandisers, specialty retailers, distributors in North America, South America, Europe, and Australia. We have long-standing relationships with our customer and supplier base, and a worldwide organization that has extensive experience in the consumer products industry, with specific experience in the small appliance sector. The Black & Decker brand for years has been the top single brand in our industry, with leading market share in irons and toaster ovens. George Foreman is the dominant brand with the #1 market share in the contact grill category. And we pioneered the growth of the automated litter box category under the LitterMaid brand through research, design and engineering in the pet category.

This deal will enable us to become part of a larger organization with a greater breadth of products, a strength in international presence, and an expanded retailer network. We believe that the combination will allow us to better realize the value of our existing assets, and take advantage of our strong brand equity. In addition, we and Spectrum share a dedication to the development of quality products that serve consumers' needs. We are confident this deal will enable us to continue to use our knowledge and ability to deliver exceptional benefits to customers, while offering stockholders the opportunity to participate in substantial value creation through the combined company. I look forward to working with the combined team to realize the significant opportunities. Kent?

Thanks, Terry. One of the key players in this transaction as I am sure you are all aware is Harbinger Capital Partners. Harbinger has been an investor and believer in both Spectrum Brands and Russell Hobbs for many years. They have expressed their confidence that the combination of these companies will over time deliver increased financial value to all stake holders. The increased liquidity and the enhanced capital structure of the emerging enterprise will enable management to enhance the financial value in the market share of these synergistic businesses. There are many steps ahead to completing this transaction. However with the financing commitments in place, and the clear financial benefits to the Company, we are confident that the transaction will succeed. We know you have many questions that over time we will do our best to answer.

We are very early in this process, and probably don't have the level of detail prepared that you are looking for today, but I assure you we will keep you updated through the various news releases and other communications in the weeks and months ahead. At this time though, let me move on to discuss what we were originally scheduled to talk about this morning, our first quarter fiscal 2010 earning results. Expanding upon the good news I shared with you a few weeks ago during our last conference call, the holiday season was a good one for Spectrum Brands.

Sales grew year-over-year in both the Global Battery and Personal Care segment, as well as in the Global Pet Supply segment, and importantly, the hard-work we have done to reduce costs across the board, brought the pickup in sales directly to our bottom-line. We reported a GAAP net loss of $60.2 million, which includes a number of nonrecurring items that Tony will explain later in the call. Relative to our ongoing operations, we reported sales growth of 7.9% over the first quarter of fiscal 2009, and consolidated adjusted EBITDA of $81.4 million, up 51.6% over the first quarter of fiscal 2009. This gain was most pronounced in our Global Battery and Personal Care segment, where our market share positions have improved over the past year. Consumers and our customers appear to be realizing the benefits of choosing Spectrum Brands' products, which as you know provide quality as good or better than our competitors at an attractive price.

So to sum up our results for the quarter, consolidated net sales for the first quarter of fiscal 2010 were $591.9 million, compared with $548.5 million for the same period last year. This growth was driven primarily by North American battery sales, strength in European shaving and grooming, and in Global Companion Animal, as well as the start of a recovery in Latin America. The Company also benefited from $28.9 million in positive Foreign Exchange impacts on our sales for the quarter. Excluding Foreign Exchange, our sales were up 2.7%. Including various items, many related to Fresh Start accounting, as well as costs related to the bankruptcy, we reported a GAAP net loss of $60.2 million for the quarter, compared with a net loss of $112.6 million for the same period last year.

Again, consolidated adjusted EBITDA for the quarter was $81.4 million, significantly above the adjusted EBITDA for the first quarter of fiscal 2009. Included in this quarter's results are $7.9 million of Foreign Exchange impacts. However, even excluding the pickup in Foreign Exchange, our adjusted EBITDA was up 36.9% over the same period last year. Our initiatives to right-size our business and cost structures have been successful. These measures coupled with top-line growth in many of our key product lines, have allowed us to deliver adjusted EBITDA results well ahead of last year, and ahead of our projections provided during our Chapter 11 case this past summer. I will get into some of the more specific detail on where we're seeing the most progress in my segment review.

As we look out further into the year, increased competitive pressures, particularly in the Global Battery and Personal Care segment, and the economic conditions will likely pressure our top line. I'll provide specific details on our expectations during my conclusion to the call. Let me turn to the segment reports. I'll start off with Global Batteries and Personal Care. Led by continuing strength in North American batteries, the Global Battery and Personal Care segment reported net sales of $428.6 million for the quarter, up 10.1% over the same period last year. Excluding positive Foreign Exchange impacts of $25 million, net sales for this segment were up 3.7%, with increases in Battery, Shaving and Grooming, and Women's Hair Care.

With double-digit increases in North American battery sales, Global Battery sales excluding Personal Care, this is just Global Battery sales for the quarter, were $243.7 million, up from $220.7 million for the same period last year. Foreign Exchange benefited these results by $14.2 million. By region, North America delivered battery sales of $97.4 million for the quarter, which was up 10.7% over the same period last year. This growth was even more remarkable as the battery category recorded a high single-digit decline during this period. European battery sales were positively impacted by Foreign Exchange of $10.3 million. However, our voluntary exit of unprofitable or marginally profitable SKUs and accounts offset that gain, resulting in first quarter sales of $100.8 million for European batteries, compared with $94.8 million for the same period last year. More importantly we have seen the shift to private label and Western Europe abate over the past year.

Specifically in Germany our largest market in Europe, we have achieved modest share gains at the expense of private label. We are also optimistic that we will see good growth in the foreseeable future across Eastern Europe, as we leverage our infrastructure across the region. In Latin America, as I said in our last call we have launched a new marketing campaign, which promotes our value positioning in that region as we have so successfully done here in the US. As a result of this initiative, as well as what appears to be an improving economic situation, Latin American battery sales were $45.5 million for the quarter, up 19.9% over the same period last year. Excluding positive Foreign Exchange impacts of $3.3 million, Latin American battery sales were up 11.3%. While we are still cautious about the overall economic situation in the region, we are optimistic with the early results of our shift in messaging, and believe that we are well-positioned to see continuing improvement in Latin America for the full year 2010.

We also saw strong results at Remington for the quarter. Net sales were $162.8 million, compared with $144.9 million for the same period last year. Foreign Exchange benefited these results by $9.7 million. Even excluding the Foreign Exchange impact, Remington sales were up a solid 5.7% over last year as a result of good holiday sales. Despite a slow economy our outstanding product innovation and design capabilities has helped us achieve success in several industry categories within Remington. For example, our US Hair Care product segment is the only growing retail brand over the last 52 weeks ended November 28th according to Nielsen Research. On the Men's side of the business, the successful launch of our Flex 360 Rotary and Pivot and Flex foil shavers has grown market share around the globe. This is particularly evident in the US, where Remington is now the #2 shaving brand over the last 52 weeks, ending 11/28.

During the holiday season we surpassed Braun as the #1 foil brand in the market. Remington US also has maintained its #1 slot in both Men's Grooming and Women's Shave and Grooming over the last 52 weeks. From a profitability standpoint, the GBPC team has done a tremendous job creating a Lean and highly efficient cost structure. As a result our increases in volume are directly benefiting our adjusted EBITDA. For the quarter the Global Battery and Personal Care segment delivered adjusted EBITDA of $70.2 million, compared with $53.2 million for the same period last year, up 31.9%. Foreign Exchange impacts benefited EBITDA by $7.3 million for the quarter.

Turning now to the Global Pet Supply segment, with solid growth in Companion Animal, led by strong sales of our Dingo and Nature's Miracle branded products, plus $3.8 million in positive Foreign Exchange impacts, we reported $137 million in sales for the Global Pet Supply segment for the first quarter. In comparison sales were $132 million for the same period last year. Within Companion Animal, domestic sales still account for greater than 90% of our revenue. However, we are quickly growing our international presence, leveraging our broad distribution channels at Tetra, in both Europe and Japan. Companion Animal sales were up 7.7% over the first quarter of last year.

Turning to the Aquatic side of our business, solid results in our consumable products, partially offset by ongoing declines in the higher price sales of equipment. Notably US aquatic sales were roughly flat and European aquatic sales were down slightly year-over-year. Overall aquatic sales were up 1% over last year for the quarter, due primarily to Foreign Exchange impacts. Adjusted EBITDA for the Global Pet Supply segment improved 25.7% for the quarter to $22.1 million, as we continue to benefit from aggressive operating expense reductions and pricing initiatives. In comparison adjusted EBITDA for the first quarter of fiscal 2009 was $17.6 million.

Turning now to our Home & Garden segment, due to the normal seasonality of this business, where our first quarter typically counts for less than 10% of annual sales, we reported $26.3 million of sales for the Home & Garden segment, essentially the same as the $26.8 million we reported for the same period last year.

From a profitability standpoint our expense management facility consolidation initiatives have clearly benefited the bottom line. As a result, we reported an adjusted EBITDA loss of $4.3 million this year, an improvement of 46.9% over last year, when we recorded an adjusted EBITDA loss of $8.2 million during the comparable quarter. So now after reviewing our three business units, let me turn the call over to Tony to give you some financial highlights. Tony?

Thanks, Kent. I would like to start by commending our teams for an outstanding quarter with strong growth in both sales and adjusted EBITDA. Let me begin the financial review with a brief discussion of a few unusual items that we recorded this quarter, which have been excluded from our calculation of adjusted earnings per share. First, during our call on January 6, I spoke at length regarding our adoption of Fresh Start reporting, which included a revaluation of all of our assets and liabilities. As a reminder, while these adjustments do not and will not have a cash impact, certain of the revaluations will impact operating results as the revalued assets or liabilities are depreciated or amortized through our operating results.

As of August 30, 2009 our inventory was revalued using an increase -- resulting in an increase of approximately $49 million. The impact of this revaluation is to decrease our gross profit and gross profit margin, as this higher-valued inventory rolls through our cost of goods sold. $16 million of this revaluation flowed through cost of goods sold during fiscal 2009, and $34.5 million pre-tax, or $22.4 million after tax, of this inventory revaluation was recorded during the first quarter of fiscal 2010. No further inventory revaluations associated with Fresh Start reporting will be recorded in future quarters.

You may recall that last quarter I estimated the amount for fiscal 2010 would be $33 million pre-tax. The small variance is due to the impact of Foreign Exchange. Also during the first quarter we recorded restructuring and related charges of $6.4 million pre-tax, or $4.2 million after tax, primarily driven by the global cost reduction efforts we initiated in 2009. During the quarter we also recorded $3.6 million pre-tax, or $2.4 million after tax, primarily related to professional fees related to our voluntary filing and subsequent emergence from Chapter 11. We anticipate that all significant charges associated with our Chapter 11 filing are now behind us.

We recorded a net loss of $2.7 million for the discontinued growing parts portion of the Home & Garden business, which we shut down earlier last year. During the quarter we also recorded a $34.7 million adjustment to income tax expense, to exclude the impact of the valuation allowance against deferred taxes and other tax-related items, in order to reflect a normalized, ongoing effective tax rate. We recorded a benefit of $4.7 million pre-tax, or a $3.1 million after tax, related to expiring taxes and related penalties associated with the Company's provision for presumed credits applied to the Brazilian excise tax on manufactured products which expired this quarter. And finally, we recorded $2.4 million pre-tax, or $1.6 million after tax, of legal and professional fees incurred during the quarter, in connection with the transaction we announced today. Once adjusted for these items I just discussed, our GAAP loss of $2.01 per share, turns to adjusted earnings per share of $0.16.

With those items behind us, let me move on to the remaining key elements of our operating results. Just as a reminder, as a result of our adoption of Fresh Start reporting, the revaluation of our assets upon emergence from Chapter 11 have resulted in higher depreciation and amortization expense for fiscal 2010 as compared with the prior year. This increased depreciation and amortization was also not included in our projections for fiscal 2011 and beyond. Since these higher depreciation costs are reflected in part in higher cost of goods sold, their impact will be to dampen gross profit and gross profit margin.

Operating expenses will also be impacted in part by the higher depreciation and by the higher amortization expense. As mentioned on our last call, we expect to record approximately $60 million of depreciation expense for fiscal 2010, compared with $35 million to $40 million annually for fiscal 2011 and beyond. Annual amortization expense associated with our intangible assets should be in the $40 million range for fiscal 2010 and beyond. Gross profit for the quarter, including the higher depreciation costs associated with the Fresh Start reporting was $184.5 million, compared with $189.9 million for the first quarter of fiscal 2009. Operating expenses for the first quarter were $165.7 million, slightly up from last year's level of $164.7 million. However, included in this quarter's operating expenses are approximately $7.1 million of negative Foreign Exchange impacts, and as I previously mentioned, the higher depreciation and amortization expense related to our adoption of Fresh Start reporting. Operating expenses as a percent of sales improved to 28% this quarter, from 30% for the same period last year.

Corporate expenses for the quarter increased to $12.3 million, compared with $8.5 million for the same period last year. This increase of $3.8 million, was primarily due to $3.2 million of restricted stock amortization recorded during the first quarter of fiscal 2010, coupled with $2.4 million of legal and professional fees associated with the transaction we announced today, offset by lower spending as we continue to keep a strong focus on cost control. Interest expense for the quarter was $49.5 million, down from $52.4 million during the first quarter of fiscal 2009, reflecting our new capital structure. Cash interest paid for the first quarter of fiscal 2010 was $24 million, compared with $57 million for the same period last year. We continue to expect 200 million in interest expense, and approximately $130 million in cash interest for the full year fiscal 2010.

Interest expense is higher than cash interest primarily due to the fact that we will accrue approximately $27 million in interest on our PIK notes during fiscal 2010, that in accordance with our credit agreements will be paid in kind rather than in cash. In addition, as I mentioned on our last call, in connection with the revaluation of our debt upon our exit from Chapter 11, we recorded a net discount of approximately $79 million, principally related to our term loan, which will be amortized over the life of the debt. As a result, there will be an accretion to the debt balance with a corresponding increase to interest expense, with the ultimate result being that debt is once again stated at par upon maturity. During fiscal 2010, the noncash amortization associated with this discount, which will be recorded as interest expense, will approximate $27 million.

Moving on to taxes, for the quarter we recorded $22.5 million of income tax expense related to continuing operations, compared with $15.6 million for the same period last year. I know it is not intuitive to have tax expense recorded when you have a GAAP book loss. But this is a function of the fact that we are a global company that has income in foreign jurisdictions and a loss in the US. Since we have recorded a valuation allowance against our US net operating losses, while we record tax expense on our foreign income, we are not able to benefit our loss incurred in the US. Cash taxes for the quarter were $4.3 million, compared with $5.7 million for the first quarter of fiscal 2009.

During our last call I spoke in length about our net operating loss carry-forwards. However, this an area where we have gotten quite a few questions, so let me help you better understand our tax position. As of September 30, 2009 we have 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 foreign 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, and based on the limitations imposed by Internal Revenue Code Section 382 concerning changes in ownership, we currently believe that we will be able to utilize approximately $450 million of our US federal net operating loss carry-forwards, and approximately $332 million of our state net operating loss carry-forwards.

Based on the NOLs available for future use and our internal financial projections, we do not expect to be a US taxpayer for at least the next five years. As mentioned on our last call, we continue to expect to incur approximately $34 million of cash taxes during fiscal 2010, and again this is predominantly related to foreign jurisdictions. For 2011 and beyond, I would anticipate our cash taxes to approximate $30 million a year. Let me now turn to liquidity. We ended the first quarter of fiscal 2010 with $63 million in cash. As of the end of the quarter, approximately $1,334 million was drawn under our senior term credit facilities, and approximately $72 million was drawn on our $242 million ABL facility. Now this includes the $197 million revolving loan commitment, and the $45 million supplemental loan commitment.

As we previously reported during fiscal 2009, we shut down the growing products portion of our Home & Garden business. This business had a voracious appetite for working capital. As a result of our exit from this business, and given the seasonality of our remaining businesses, we now expect a typical annual peak draw on our $242 million ABL to be approximately $110 million to $120 million, with that peak occurring in the April to May timeframe. In addition, we also anticipate generating annual free cash flow, which is defined as operating cash flow less capital expenditures, to be in excess of $100 million annually. However, for fiscal 2010 we are incurring significant cash payments that are a hangover from our 2009 Chapter 11 filing, that will not occur in the future. As a result, the peak draw on our $242 million ABL facility for fiscal 2010 will likely approximate $155 million to $165 million for the year, rather than the more typical levels I just discussed that we would expect for 2011 and beyond. We anticipate paying off our ABL, excluding the $45 million supplemental loan, by September 30 which is the end of our Fiscal Year, and represents the low point of our investment in working capital.

In summary, we started out fiscal 2010 with a very strong quarter. Despite a relatively weak economy, during the holidays customers appeared to appreciate the value brands we provide, giving us expanded market share in many of our key product categories. I am pleased with the hard work and dedication our teams have demonstrated, achieving a low-cost, but highly-efficient operating structure, we should continue to provide positive results for us in the quarters ahead. With that I will turn the call back over to Kent.

Thanks, Tony. Despite a strong start to fiscal 2010, the continuing stream of mixed messages concerning the economic recovery leads us to expect a year of slow growth. In addition, we have recently seen a step-up in promotional activity in the alkaline battery category. To be clear we will maintain our value positioning, which has been so successful for us in recent quarters by increasing our pack sizes to maintain the price differential we provide to the consumer. Thankfully, recent steps we have taken to consolidate our battery manufacturing, most notably closing our China plant, and lower material costs are helping to offset the increased promotional costs. We are also maintaining our disciplined control over SG&A costs that has contributed to our improved profitability over the past two years.

In spite of these pressures, I am pleased to be able to report that we currently expect our fiscal 2010 year-over-year net sales growth to be between 3% and 5%, and full year fiscal 2010 adjusted EBITDA to be between $335 million and $345 million. That is above our projection of $332 million provided last summer in connection with our Chapter 11 case. This would represent adjusted EBITDA growth of between 8% and 11% over fiscal 2009. It would also be the third straight year of growth of adjusted EBITDA. Changes in consumption, competitive activity and Foreign Exchange, could have significant impacts on our business, however, with one-fourth of the year behind us and many of our retail programs in place, we continue to be optimistic about 2010. Thanks for listening, and now we will open the call to questions. Operator?

Christopher. We lost our operator.

I do apologize for that small delay. There happened to be a technical difficulty. Are we prepared for questions?

Yes, we are.

Perfect. (Operator Instructions). We will pause for just a brief moment to compile the Q&A roster. Your first question comes from the line of Karru Martinson from Deutsche Bank. Your line is now open.

Good Evening.

Hi, how are you?

With the gains in distribution that you guys got during the holiday season, how much do you think that is sticking with you as you go forward to the year? Or was that more just kind of holiday displays that you had?

You know, what we have seen, if you look in North America in the battery business, we have had a good uptick in that business pretty consistently over the last 12 months. And I view that the share gains that we have enjoyed are going to stick with us going forward through 2010. In the case of Remington, as you know even though it is not as seasonal as it once was, there is a fair amount of promotional activity during the holiday season, particularly Men's Shaving and Grooming products. We did very well this holiday season. And I think the positioning of the products that we have, as I said earlier, the new Flex 360 and the very new Flex and Pivot foil shaver, as well as our universal cleaning system, also give us a very strong product offering. So I think we will be very competitive for the rest of the year in that category as well. Global Pet as you know is not seasonal; that business is very steady throughout the year. And clearly Home & Garden is extremely seasonal. And we are just about to enter into that season now, as our shipments are ramping up for the spring selling season.

Okay. And we have been hearing a lot from other consumer product companies about how there is increased trade spend, a very competitive environment. What are you guys running up against as you go to market?

Our business model has always been to win the consumer at the shelf. As you know, we do a nominal amount of media-type advertising as compared to many of the big premium brands. We have seen some of the competition shift their money from media to promotional activity. You know, and we have budgeted and plan to keep pace with that activity in the category. So we will take whatever steps are appropriate to maintain the value positioning of our products. It's most notable right now in the Battery category. We think we are well-positioned in our Shaving and Grooming business, our Home & Garden business, Pet less so because in Pet we actually have some of the premium brands. So it is a more competitive world that we are living in right now, obviously with the slow growth in a lot of the consumer categories. But that is the model that we thrive in that we always do very well competing in. So we are very comfortable with where we sit right now.

Okay. And coming out of the holiday season, how are you on inventories at retail?

I think inventories you will hear from most people are at all-time lows. Retailers have been focused on managing their inventory levels down, not just in the last quarter but in the last year or two depending on the category. And we think that the retail trade is going out of the holiday season, with about as healthy and as low an inventory level as we have experienced in recent history.

Okay. And just on the acquisition, as you guys going forward on all the hoops that you have to hop through, when is the next update that we should be expecting from you guys?

I don't have a specific date in mind. There are a lot of steps to go through. I am sure we will have some information out into the public domain, as we call it successfully knock down the individual hurdles that we have to get through. And hopefully we will have a lot of good news to report before we get to our next quarterly earnings call. I would suspect that that may be in the form of just some press releases, to give you a status as we finish some of the key steps.

Thank you very much. That will definitely be useful.

The other thing is along the way we will be doing a variety of public filings so there will be a lot of information getting into the public domain that way as well.

Thank you very much, guys.

Take care.

Your next question comes from the line of Ali Dibadj from Bernstein. Your line is now open.

Thanks for taking the question. Would love to dig down a little bit if we could to get some more granularity on Batteries. It looked like it grew very well this quarter. But first wanted to understand how do you think about the growth that you got in disaggregating it by early purchasing by retailers versus consumer takeaway? How should we think about that?

Again, I would go back and say if you look at our business over the last 12 months, I think that our share has been pretty consistent over I would say the last 10 to 12 months. We gained a fair amount of share last year. I think we hit a low about a year and a half ago. And then we kind of recovered. We have been fairly steady since then. Takeaway has been a little bit of a problem in the category. I think you have heard that. The alkaline category actually was down I think about 8% in the most recent quarter, and about 4% for the last 52 weeks. Some of the step up in promotional activity that we are seeing right now in the market place will probably have a bit of a dampening effect on the value growth in the category. But I personally think that is just a temporary phenomenon. And that as the overall economy begins to recover I think we will go back to a more normal retail environment.

And so what do you think going forward is really the consumer takeaway in batteries here over the next several quarters or year, both in terms of volumes and organic sales?

Well, volume has been flat to slightly down over the last several years, actually. And as I said a few minutes ago, I think because of the increase in promotional activity that will further depress the value growth in the category. But I really truly believe that as we see a general economic recovery, people begin spending more on call it electronic devices that will help stimulate consumption, unit consumption in the category again. So we are optimistic that as we get through 2010 that you will see a bit of a recovery in the category.

And just to help me gauge it, how much of battery sales do you see as being part of the cyclical trend, so kids' toys, consumer electronics, versus more of a replenishment thing like you are replacing batteries in your flashlight or something? Can you help me just think about that from a category perspective?

It is really hard to do. But we don't view it as a cyclical category. It is a disposable category. Is actually is reasonably steady over the long haul. We have seen a little bit of a slump in the category in the last year or two, but nowhere near as severe as you have seen call it the falloff in sales in many other consumer categories. So I think compared to a lot of other areas it is a little bit more, I wouldn't say it is recession proof but it certainly is less volatile than a lot of other consumer categories.

But you haven't seen a lot of categories get this negative 8 in stapled broadly let's say. So there is an element to your comment earlier on of cyclicality. It feels like if consumer electronics gets better, Batteries gets better. Is that the wrong way to think about it?

I think part of what you are seeing now also is again this increased promotional activity where the value per unit is being depressed a little bit on a temporary promotional basis. We also typically see, it is characteristic of the industry, more promotional activity during the holiday, the holiday season, because there is a slight increase in the overall takeaway during the season related to holiday purchases.

Okay. And if you were just to indulge me for one more question, try and understand the promotional activity that is going on, and first off, I don't know if it's promotional or if it's permanent in terms of pack size changes by one of your major competitors in a few sizes.

I don't either.

So would love to know first that, and secondly, how do you see that change impacting both quantitatively and qualitatively the category growth going forward here in the medium run?

Well, there has been a general trend over the last couple of years to shift consumers to larger pack sizes. If you go back in time, Rayovac actually was a pioneer in that movement. That was part of our value positioning, that we would encourage consumers to buy a larger pack size. And the way we did that was to give the consumer a lower price per battery, if you bought more at one time. We actually were the innovator 10 or 12 years ago with that. Over the last four or five years, major competitors have pretty much imitated that, and followed us with the same style. And so the consumer is actually benefiting because as he shifts his purchases to an 8-pack or a 16-pack, as opposed to a 4-pack, he will get a better value there per battery. And as a result, direct result of that, because the per battery price is actually declining over time as consumers shift to bigger pack sizes, that is really what is depressing some of the value growth in the category. Of late we have seen competitors add, two free batteries to their 8-packs, whether it is promotional or permanent I can't answer that. I think it is promotional. And one of our ways of competing is to typically give the consumer more batteries for the same price, as a way of providing significant value. And so during this particular cycle of promotional activity we will increase the number of our batteries, to maintain call it the value positioning, the value spread between us and the premium brands.

And so it sound like you think the battery growth gets depressed even further here, as this either promotional or permanent change happens with the pack sizes?

Well, I think obviously that has been a trend. And it is something we are living with right now.

Okay. Thanks.

Your next question comes from the line of Reza Vahabzadeh. Your line is now open.

Good afternoon.

Good afternoon.

So Kent, you mentioned POS for the category was off 8%, but obviously your sales were up in the quarter. So does that suggest that your POS was up for the quarter, or was that just a shift in shipments between quarters?

No, our POS has been up strongly pretty much every reporting period over the last 12 months or so. We have been outperforming the category. And remember another distinction about our business perhaps versus the competition, is we tend to be more concentrated in large mass merchandisers who have steadily themselves been gaining share, as opposed to some of the traditional channels. And so being in the right channels of distribution, and having good placement in those retailers is certainly helping grow our business right now.

Right. And so POS for let's just say the last two quarters for your products, would you say your, what range are you in the last two quarters in North America?

I don't have those numbers in front of me. But obviously if you look in the last quarter in North America we were up 10% versus the category that was down roughly 8%.

So would you say your POS has been basically in-line with your shipments the last two quarters?

Yes. Yes. There may have been a very slight shift between the fourth quarter last year and the first quarter of this year. We did see some retailers take holiday merchandise in a little later than they traditionally did. We would normally start shipping in August and September. We had some orders that slipped from September into October. I don't think that was a big number. But part of the impact that we saw in our Q1.

Right. Would you anticipate that price mix, net of all trade spending would remain flat year-over-year going forward in the Battery category, or would it turn negative because of the pack size changes, and the higher volume on promotion?

As I said to a question a little earlier, obviously if we are putting more batteries in a pack at the same retail selling price, ultimately you know the ring to buy a pack is the same, but it will spread out the interval at which people come back to buy replacement batteries, because they are getting more each time they purchase.

Right.

So it has to have some impact, negative impact on the value growth in the category.

Got it. And then on the cost side of the equation, how are we supposed to think about your input costs in zinc in particular?

Zinc went through a little -- it hit a low. It tracked back down to about $1,100 a ton, which was like a 20-year historical average that we saw until we saw the spike a few years ago. It then rallied up to the mid-$2,000 range, I think as people began to get concerned about a strong global economic recovery and China purchases. We have seen now that people are beginning to realize they were a little early and overexuberant. Commodities and metals are starting to back down. And zinc is around $1,900 now, and we are seeing a little weakness in the market, $1,900 to $2,000. As you know, we talked about this extensively. We have a very rigorous hedging program, where we hedge out actually two years in the future, which is essentially a cost averaging mechanism for us. So we basically are moderating over time some of the variations and the fluctuations you are seeing in zinc prices. Overall, costs are relatively stable right now. We are not seeing a significant cost increases or significant cost decreases. And I think other people in the industry are probably experiencing the same thing.

Got it. And then can you talk about the EBITDA on an LTM basis for Russell Hobbs?

Well, what we provided in the press release this morning is our projection for fiscal 2010, which is for us ends at the end of September.

Right.

We guided people to a range of $430 million to $440 million for the combined companies.

Right.

That does not include any synergies because we believe synergies won't really begin kicking in until the next Fiscal Year. So if you subtract the number that we have given you for Spectrum standalone, the LTM number through the end of September that is included in our projection is about $95 million.

And is that consistent with how the company has done historically, or is that higher?

That is higher. Clearly, and Terry can chime in here, over the last two years they have done a yeoman's job basically, of restructuring their costs, and have done a great job of improving the financial performance of the business. And so I think that has contributed to a much better financial outlook than perhaps people had in their minds from years ago.

Terry, any color?

Yes. Kent is exactly right. 25 months ago we put the Applica and Salton businesses together. And the thesis behind this was to take the contributions of the two businesses, and layer them on one fixed cost structure. And what you have seen over that time period is literally the fixed costs of all of the duplicate operations and activities being taken out. And that is really what is resulting in the strong improvement in EBITDA.

So the $95 million for this business is what kind of an increase from let's just say the prior year in ballpark terms?

Well, let me suggest that Hobbs is a private company today. As we go forward here with the financing activities and various securities filings, we will be providing a lot more visibility into the history here. So I would rather not get into a simplistic answer to what is really a very complex answer. But in summary, I think as Terry and I said, they have done a wonderful job of restructuring their business. They have done many of the same things that we did here at Spectrum to fix our cost structure, including rationalizing their product line, eliminating nonperforming brands, SKU rationalization, taking out significant overhead costs. So it really is a very different business today from what it was several years ago. And that is really one of the reasons that we found it an attractive strategic candidate to bring into the Company.

Fair enough. Thank you.

Your next question comes from the line of Bill Chappell from Suntrust. Your line is now open.

Hey, guys.

Hello, Bill.

This Mike Schwartz filling in for Bill.

All right. We will accept that.

Thanks. I appreciate it. A couple of quick questions. And I think all my questions on the Battery side have been answered. But with regards to the Pet business, we have heard about a lot of smaller retailers, mom and pop shops, exiting the business in Fiscal Year '09. Trying to just get a feel for how that business is holding up, and what you guys are seeing going into 2010 as far as your retail accounts. And if there are incremental retailer losses on that side, is that volume being made up by any of the larger retailers?

Yes, what you are seeing in the pet industry is exactly what you have seen in call it the home improvement business, the mass merchandiser business, the drugstore business. It is the larger, more sophisticated big box national retailers continue to gain share of the total market, and the small independent retailers consequently are suffering. We focus very heavily, and do a majority of our business with those large sophisticated retailers. We use distributors to help us service the small mom and pop shops. But it is a much, much smaller part of our overall business. And you are right. They have been harmed and hurt by this economic downturn. But the industry overall is fairly steady. And we have been very pleased to see particularly in our Companion Animal business good high single-digit growth. And actually even in the Aquatics business on the consumable portion of that business we have had reasonable growth. The only portion of that business that has underperformed so to speak is what we call equipment. These are large aquariums and pumps and accessories, that typically are somewhere north of $50 in terms of price points.

As I said in my call earlier, even in spite of the problems in the equipment end of the business being somewhat soft, our overall Aquatics business was basically flat this quarter. And as you recall if you go back a year or so ago, the Aquatics category was down 4% to 6% in many quarters. So there has been actually a reasonable recovery of the overall segment. And again in Companion Animal, that segment of the pet supply industry continues to grow very nicely. And our participation continues to be excellent.

Okay. Great. Thanks for the color there. And one last question on your remaining Garden business, how are early season orders shaping up? And are you guys seeing shelf space wins, any losses there? And just your general outlook for that category?

Yes. We could not be happier with that business. Obviously it was pretty traumatic, and a big challenge for us to exit 50% of our revenue and maintain good relationships with our key customers. We went out of our way last year to make sure that our customers were serviced during the transition. We are totally out of that business as of essentially one year ago we are anniversarying that right now at the end of January.

The good news is that retailers recognize that we have a very attractive offering. The value positioning, the product innovation, the delivery systems innovation, and the very creative point of sale merchandising that we do are very big drivers of the profitability of the category for major retailers. Our placements are up, both permanent in the sense of permanent during the key season, with most of our key retailers. And I would say that our promotional activity is dramatically stepped up coming up this season. So in terms of key promotions during the spring and summertime period for various are up very, very dramatically. We are very optimistic this will be an excellent year for our Home & Garden business, both top line and bottom line.

Okay. Great. Thanks for the response.

Your next question comes from the line of Matt [McKrosky] of Imperial Capital. Mary Gilbert: It is Mary Gilbert from Imperial Capital.

Hi, Mary.

I had a question following up on Russell Hobbs. I was actually one of those people that used to follow Salton. And is it appears that the cost savings that were realized just kind of roughly speaking looks like it was around 60 million?

I would say somewhere in the 40 million to 50 million range of SG&A savings over a couple year period is in the right range. Terry, do you agree with that?

I do.

Okay.

Okay. So 40 to 50. And then sort of the rest of it kind of reflects upper initiatives focusing on higher ROI SKUs, because I know that some of the product lines have been discontinued, and focusing on where do you see opportunities for growth? And then I thought maybe you could talk about how you are going to leverage the two businesses in the markets that you are serving? Could you talk specifically about what those might be, the new markets you are going to enter?

Let me give you one example if I could here. When we bought Remington it was a wonderful brand, very strong presence in North America, a small business but meaningful in the UK, zero presence in western Europe, okay? No business at all. That was in 2003. Our business then was 80% Men's Shaving and Grooming, maybe 20% Women's Hair Care. Our strategy basically was to take the Remington brand, the Remington product line, and carry it across all of Europe, leveraging the very extensive Varta battery infrastructure and customer relationships and sales and marketing platform in Europe, okay? Today almost half of our business is being conducted outside the United States. And about half the business is in Women's Hair Care, largely as a result of the strategy to capitalize on that existing infrastructure that we had in Europe.

So the ability to penetrate new markets and leverage existing call it infrastructure and customer relationships was really key to the success in growing that business. We see the exact same opportunity with Russell Hobbs. If you look at Russell Hobbs, I think like 65% of the revenue comes from North America. They have a smaller presence than we do. I think it is around 18 or 19% in Europe. And only about 14% of their business in Latin America, which is fairly close to what we have.

The difference is though, that we have extensive infrastructure in terms of distribution facilities, we have sales and marketing organizations and structures in virtually every country in Latin America, every country in western Europe, and every country in eastern Europe. Russell Hobbs has some, but probably not nearly as extensive and developed, as we do. So taking their product line through our infrastructure, our distribution structure, and our customer relationships with a lot of excellent brands and products that are very attractive to consumers over there, should enable us to very rapidly grow the size of that business.

By the way, the small kitchen appliance industry surprisingly is a $29 billion global business. That is actually bigger than the global consumer products business. It is about $5 billion in North America, it is actually $12 billion in Europe. It is significantly larger in Europe. And by the way the growth CAGR of that industry in Europe was 12%, compared to about a 2 to 3% CAGR here in North America during the period of '03 to '08. So if you just look at the size of the market, the growth rate of the market, and our extensive presence there, this is going to be a very exciting growth opportunity in a very short period of time.

Yes. What timeframe do you think we're talking about? And do you happen to have the growth statistics by the way for Europe, where you see some of the biggest growth opportunities going forward?

Well, it is their entire product line fits. Again if you look at Europe, it is a $12 billion market. It's actually the biggest single geographic market for small kitchen appliances. And if you understand Europe, they are very small housing units, they are smaller family units. They tend to cook at home. And so it is a great market for the entire product line in the Russell Hobbs portfolio. And again as I said, it grew at 12% over the period of '03 to '08.

Same thing in Latin America. Latin America is a much smaller market. It is I think $2 billion to $3 billion in size. But again, we have sales marketing organizations literally in every country in Latin America. These are products that would typically be sold through large global retailers that you find in the major metropolitan centers. We service all of those people in Latin America today. So they should be pretty straightforward process to begin to develop a relationship and sell these products in that part of the world.

It is one other example, as long as you have got me started here, is when you look at the supply chain side of our businesses, our Remington Personal Care business, we source finished goods in the Far East, they are sent on containers over to the West Coast of the United States, or to Latin America, or to Europe, there are packaged goods that typically get delivered to our major mass merchandiser customers and major big box retailers around the country. That exact model applies to the Russell Hobbs business as well. We have a standing infrastructure of distribution centers in all of these geographic areas. Russell Hobbs today outsources their distribution function. This is something we could easily assimilate into our infrastructure, and realize significant cost synergies and cost savings.

Oh, really. So you are considering outsourcing distribution?

No, no, no, no. We have our own distribution. They have outsourced distribution.

Okay. They would leverage off your distribution?

They would move into our platform.

Right. Now, some of your very, very large customers, do they pick up the products for example if you are sourcing in Asia, do they pick it up directly there, or does it come here, you take possession and then they pick it up?

I think in all of our cases we take it into our distribution center and then ship it on to the customer. I think in the case of Russell Hobbs, and Terry you can answer this, there are some customers who pick up. We have a few customers who actually pick up at our distribution centers. But by and large the typical mode is we import the goods into our distribution center, and then we ship it on and deliver it to the customer. Terry?

Yes. We have some direct ship from the Orient, but mostly it comes into the United States, and the customer either picks up or we ship from our distribution facilities.

Okay. And how can we look at working capital? So if we just assume the two businesses are merged together on a go-forward basis, it sounds like we are going to see an increase in working capital because of the growth opportunities year-over-year, correct?

Yes. Obviously you put two big businesses together there is going to be an increase in working capital. I think the good news is from what we have seen, they have, very comparable kinds of DSOs to us. They have a very good relationships with their retailers. And so we are in the early stages of working out all of those details. So the absolute number will go up. Obviously as you have a much bigger entity. But in terms of call it turnover ratios and so on, I think we will find we are fairly comparable.

Okay. That is very helpful. Thank you very much .

Your next question comes from Robert Gutman of Robotti & Company. Your line is now open. Robert Gutman: Hi. A lot of my questions were asked. But just to make sure I heard something right, the combined NOL is decreasing? Is it decreasing by several hundred million dollars? The number as a result of the transaction?

I will ask Tony to answer this. But what he was attempting to say is that there are certain regulations related to what is called a change of control of the business. It is Section 382 of the IRS code.

As defined by the Internal Revenue codes.

And as a result of that, it will limit, this is totally separate from Russell Hobbs, this is strictly Spectrum. We will essentially not be able to realize, call it the full gross amount of NOLs, that some of them actually will call it not be able to be utilized in the foreseeable future. But the number we still have is still very significant. It is over $300 million.

450.

450.

Yes. The numbers I cited were solely for Spectrum standalone. I can tell you that as Kent said, based on a deemed change in ownership as defined in the Internal Revenue code, we have gone through several ownership changes, and there is a section within the code that specifically goes through a very complex calculation, but it limits your ability to utilize NOLs depending upon when they were generated and such. With all that being said, what I was mentioning is that we have a $600 million NOL after we emerge from Chapter 11, and we applied the cancellation of debt income benefit against that NOL. And that ate up some of the NOL. So we are left with about $600 million of NOLs. And what I said is 150 of that will probably go based on our current calculations would go unused. So we will be able to utilize $450 million. And again based upon our current projections, and this the standalone company, we would not foresee being a US taxpayer for at least the next five years.

Okay. So the 150 that is going away, that is due to the transaction?

No.

It has nothing to do with Russell Hobbs. It has to do with the complexities of IRS codes.

Of the existing tax code.

Okay. Also just the combined CapEx, do you have any ideas?

Combined is fairly modest. Our number is 30 million to 35 million, and I think Russell Hobbs is 5 million to 10 million.

I can't speak for Russell Hobbs, but the numbers I cited on CapEx are just, which were actually in the last call which is about $30 million to $35 million is for Spectrum Brands standalone.

Okay. And then my last question, what would you say would be going forward your average cost of borrowing? Average interest expense?

I would like to give you a number. But until we actually get in the market and begin the process of placing the debt, I think it is a bit of a crap shoot. I think we all know that the credit markets are open now compared to where they were six months ago. And that interest rates have come down significantly from where they were 6 and 12 months ago. They are fairly attractive today. Hopefully we will be able to benefit from being in the market here in the not too distant future.

Okay. Thanks.

No problem.

Your next question comes from the line of Brian Carlson of Atlantic Investments. Your line is now open. Brian Carlson: Good evening, gentlemen. Thank you for taking my question.. I just had a couple. I guess you are still suffering a little bit from the exit that you have elected to do in Europe. When do you anticipate that being complete?

I think this year will be the end of it. Interestingly we found two things. One is the phenomena has abated. We were actually starting to regain share, and private label is abating. We saw that as I said most notably in Germany. This was part of our strategy that we have had for the last couple of years to, not my words, use our capital on revenues that don't generate a return. And the private label business in Europe was so competitive that many people were selling at cost or below. We actually had a lot of that business that dates back a couple of years. And we have decided to exit it, which we have. The interesting thing is some of the people who we have walked away from in the last one to two years are now coming back because they are not given the right level of quality or service from their alternative suppliers. So we are optimistic that we are at the end of that phenomena.

In terms of competitive activity within North America, I believe that Proctor has increased the number of batteries in their AAA and AA packs, and that is only in the US. Does that fit with what you are seeing?

Yes. Although we have seen a few instances of that in Europe as well.

Okay. You made the comment or the comment was made, that the belief is that this is promotional, it is temporary. Why do you believe that?

Maybe because I want to. (laughter)

If I quote from Proctor's last conference call, they said something like these pricing interventions are very targeted, versus being broad-based. We lower prices when competition has initiated pricing and promotional strategies that cause share loss over an extended period of time. It seems like they want to change their share position. And I feel it is more sort of longer-lasting.

You have to remember one thing. It is a zero sum game. I mean, if they are able to gain back share and invest a lot of money to do that, and we saw that happen in the industry back in 2001-2002, where everybody took their profits down in terms of a quest for one particular competitor to regain his market share, and that was a permanent blow to the battery category in North America. We have seen a more rational market place for the last several years. And then once again now because we have seen the contraction in the overall market because of economic conditions, and there has been a shift. We have been successful with our value positioning at performing, I think a little better than our competition over the last year. They may be wanting to abate some of our success in trying to get their share back. But the message I am sending you is we are not going to let them do that.

Yes. One of the ways that I was thinking about this is they talked about trade spend being inefficient in this category. That maybe they are using less trade spend and they are taking money out of that to be able to have a lower everyday price at high/low retailers. Net/net does that still have the same impact of lowering value growth in the category?

Yes, it does. If you put more batteries in the pack at the same price, it can. The ring per pack may be the same. But if you are giving the consumer two more batteries, then the number of times he comes back to buy batteries is going to be fewer.

No. I guess what I am suggesting is that money that they are giving to the retailers to offer promotional price points is not being used to offer promotional price points? So they are taking that money back--

What we are seeing is that the price points have stayed the same, but they are giving more batteries in the pack.

Yes.

So they are absorbing the cost of adding two batteries, so their cost of sales is up, but the retail ring is the same.

Okay. And then the last question, we are just entering the period where Walmart will start to do their resets here in February. I just wonder if you have any expectation for any potential shelf space gains, or anything like that?

Walk the stores when it is done.

Do you know when it will be done?

I thought it was more towards March, April. I may be wrong. I know they do a spring reset, and it kind of varies a little bit by category. I have to say, I am not sure whether our batteries is being changed right now. But I will just say that we are performing exceptionally well right now. The consumer sees us as providing a great value. We are able to tell the consumer our batteries perform as well as the competition. We are giving them a fairly significant value versus the premium brands. We have always believed that people try our batteries, and realize that what we are saying is true, we will get loyal customers back. And I think that is what we are seeing right now. So we think that if we are delivering not only for the end consumer but for our customer, the retailer, he will begin to grow his category and generate more profit dollars that he is going to be motivated to award us some more shelf space. So we are optimistic that we will continue to serve both the end consumer and our customer extremely well. As I said, the category has been in a bit of a decline here for the last year. And I think we have been the outperformer so to speak. Especially with our best customers. So I think that bodes well for us.

I guess just one last clarifying question. You mentioned that North American battery growth was 10.7% in the quarter?

That is correct.

Was that pretty similar in each of the months, or did that ramp up or ramp down? Is there any kind of color you can give about the progress to the quarter?

Typically the holiday season, again normally you would see shipments starting to go in in September for all of the placements during the entire holiday season. We saw a little bit of a delay in some of that. The other thing that we saw, I think you heard from a lot of retailers, is that at the end of the holiday season starting in about mid-December, they pull back in order to try and minimize the amount of inventory they were carrying out of the holiday season. So the first two months of the quarter when we were selling in for the holiday season were definitely stronger than the third month of the quarter. But that was entirely expected. That was not anything that surprised us.

Great. Thank you very much .

And your final question comes from the line of [Alex Yakmek, Janna] Partners. Your line is now open. Alex Yakmek: Thanks for taking the call. Just a quick question about CapEx for the new business. Should it run about the same as a percentage of revenue as Spectrum standalone, or what do you sort of anticipate?

Our answer is if you look at our businesses, because our Personal Care business is sourced from the Far East, we don't have manufacturing facilities. The capital requirements of that business are lower than in our other businesses where we actually do manufacturing. And I think Remington is very similar. Their CapEx is relatively modest. They have an $800 million business. And I think their CapEx, I don't know if you are still on Terry, is in the 5 million to $10 million range.

That is correct.

So that is one of the advantages of what we call virtual manufacturing where the supply base in China provides the capacity and makes the investments for you, and in return they have a very good customer who fills up their factories.

Got you. I appreciate it.

Okay. Thanks, everybody. I know we covered a lot of territory today. I hope we didn't confuse you. The message here is that Spectrum had we think a very good first quarter of the Fiscal Year. We have said this before, that we think the hard work we have done over the last couple of years is showing up in our financial results. That is relative to our cost structure. That is also relative to our focus on serving our customers extremely well. The value positioning is the right place to be right now. We own that space. We are going to protect it. And continue to make sure that we enjoy the benefits of the hard work we have done for the foreseeable future.

The other announcement today concerning bringing Russell Hobbs' substantial business into the Spectrum Brands portfolio we think is very exciting. They have of the 13 categories they compete in, they are in #1, #2 or #3 position in 10 of the 13. And in five of those categories they actually have the #1 market share in North America. So these are great brands. They have great distribution. They have done an absolutely fantastic job of reinventing themselves over the last couple of years, making a lot of hard decisions, as we did at Spectrum here to improve our business. And we think when people better understand what this combined business is going to look like and its potential, you will be as excited as we are. So look forward to posting you in the future. That is it. Thanks everybody, Bye bye.

Thanks everybody.

Thanks everybody.

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