Spectrum Brands Holdings Inc (SPB) 2010 Q4 法說會逐字稿

Good afternoon. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands fiscal 2010 full-year and fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I'll turn the call over to Mr. David Prichard, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon. And welcome to Spectrum Brands' fiscal 2010 full-year and fourth quarter earnings conference call and audio webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and your moderator for today's call. With me this afternoon to lead the call are Dave Lumley, our Chief Executive Officer, and Tony Genito, our Chief Financial Officer. Also with us today for the Q&A session are Terry Polistina, President, Global Small Appliances, and John Heil, President of our Global Pet Supplies segment.

Our comments today include forward-looking statements, including our outlook for fiscal 2011 and beyond. These statements are based upon 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 6, 2010, and our most recent SEC filings, and Spectrum Brands Inc.'s most recent 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 diluted earnings per share, adjusted EBITDA, free cash flow and net sales, excluding foreign exchange translation. Spectrum Brands management uses these metrics because it believes they 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, 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 covenants compliance.

Also, Management believes that free cash flow is useful to both Management and investors in their analysis of the Company's ability to service and repay its debt and meet its working capital requirements. Free cash flow should not be considered in isolation or as a substitute for pretax income or loss, net income or loss, cash provided by or used in operating activities, or other statement of operations or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt, and therefore, does not reflect funds available for investment or discretionary uses.

While Spectrum Brands' Management believes that these non-GAAP financial measures are useful supplemental information, such adjusted results are not intended to replace the Company's GAAP financial results, and should be read in conjunction with those GAAP results. 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. In our press release dated December 6, 2010, which has been furnished on a Form 8-K filed with the SEC, we have provided the reconciliations for the following non-GAAP information in the tables indicated.

First, in table three, a complete reconciliation of diluted loss per share on a GAAP basis to adjusted earnings per share. Second, in table four, a reconciliation of GAAP net income or loss to adjusted EBITDA for the three and 12 months ended September 30, 2010. Three, in table six, a reconciliation of GAAP net income to adjusted EBITDA on a consolidated prospective basis for the 12 months ending September 30, 2011. And fourth, in table seven, a reconciliation of net cash provided from operating activities to free cash flow for the 12 months ending September 30, 2011. A copy of the 8-K is 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, 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 amounts 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 and after August 30, 2009.

Now, let me take a moment to quickly review our GAAP results. The Company reported a net loss of $190 million for fiscal 2010, or $5.28 per diluted loss per share, which included significant costs incurred as a result of the Russell Hobbs transaction and related financing. For fiscal 2009, the Company reported net income of $943 million. By segment for fiscal 2010, Global Batteries & Personal Care reported net income of $137 million in fiscal 2010, versus $126 million the year earlier. Global Pet Supplies reported net income of $50 million in 2010, versus net income of $41 million in fiscal 2009. Home & Garden reported net income of $40 million in fiscal 2010, versus a net loss of $51 million in fiscal 2009. And finally, Small Appliances reported net income of $400,000 in fiscal 2010, and in fiscal 2009, Russell Hobbs reported a net loss of $47 million.

For the fourth quarter of fiscal 2010, the Company reported a net loss of $24 million or $0.48 per diluted loss per share, versus net income of $1.153 billion in fiscal 2009, which included a gain of $1.223 billion from various reorganization items, which represents expenses, income, gains, and losses that the Company has identified as directly relating to our Chapter 11 filing. By segment for the fourth quarter, Global Batteries & Personal Care reported net income of $36 million in the fourth quarter of fiscal 2010, versus $26 million a year earlier. Global Pet Supplies reported net income of $14 million in the fourth quarter of fiscal 2010, versus a net loss of $1 million in the same period in fiscal 2009. Home & Garden reported net income of $9 million in the fourth quarter of fiscal 2010, versus a net loss of $1 million in the comparable quarter of fiscal 2009. And finally, Small Appliances recorded a net loss of $1 million in the fourth quarter of fiscal 2010, and in the fourth quarter of fiscal 2009, Russell Hobbs reported net income of $2.4 million.

During the course of our comments today, unless we say otherwise, current year results relate to the fiscal fourth quarter of 2010 or full-year fiscal 2010, while any references to prior year results are for the fiscal fourth quarter of 2009 or full-year fiscal 2009. Also, unless we state otherwise, all results provided today for the quarter and for other periods are provided on a pro forma basis, assuming that Russell Hobbs' results of operations had been included in Spectrum Brands' portfolio since the beginning of the respective periods discussed. With that, I am pleased now to turn the call over to our Chief Executive Officer, Dave Lumley.

Thanks, Dave. And thank you all for joining us this afternoon. It's a pleasure to speak with you today. We've just completed a solid fourth quarter and fiscal 2010, and are moving with optimism into our fiscal 2011. Spectrum Brands is now $3.1 billion global consumer products Company that's on the move again with well-trusted, well-known brands, providing quality and value to retailers and consumers worldwide.

We accomplished a lot in fiscal 2010, but there is still a lot to do. We entered 2011 with momentum, and a strong focus on our strategic operational and financial goals. We have compelling opportunities for market share and EBITDA growth. We also have the capacity to generate strong free cash flow, built on our diversified revenue stream, attractive margins, and top number one, two, or three global market positions with strong brand names. We now also have a clear road map and a multi-year strategy in place. We are on track or ahead of schedule to meet the financial objectives we have laid out last quarter, which, by the way, do not depend on any meaningful consumer spending rebound.

Adjusted EBITDA for fiscal 2010 was a strong $432 million, approximately an 11% increase versus the $391 million last year, and again, in line with our guidance. All of our segments reported increased adjusted EBITDA year-over-year -- most notably, our Home & Garden division with an impressive 24% improvement. Importantly, as announced today, we have just made a voluntary prepayment of $50 million to reduce our $750 million senior secured term loan to $700 million, as a result of our strong EBITDA in fiscal 2010. This is a start of an aggressive debt paydown program to reach our target leverage of three times or less over the next two years. We anticipate cumulative debt reduction on our term loan of at least $200 million during fiscal 2011.

Our results for the year, which Tony will review next in some detail, were strong, with 3.4% top-line growth for fiscal 2010, including the Russell Hobbs business for the entire year. Our Global Batteries & Personal Care and Home & Garden segments led the way in sales growth, and we saw significant market share gains in key product categories. I talked last quarter about the effectiveness of our Spectrum value model. We are confident our businesses are moving in the right direction, leveraging our Spectrum value model to drive success. This model emphasizes providing value to the consumer, with products that work as well as or better than our competition for a lower cost, while also providing higher retailer margins. We concentrate our efforts to win at point of sale and on creating and maintaining a low-cost, efficient operating structure that allows our top-line growth to contribute directly to our profitability.

On the third quarter earnings call, we spent some time explaining our exciting acquisition of the Russell Hobbs small appliances business on June 16 and the widely respected brands and leading market positions this business enjoys. The Russell Hobbs acquisition significantly improved the financial profile of our Company. We are also pleased at the pace of the integration of Russell Hobbs, and are confident of achieving and possibly exceeding the $25 million to $30 million level of cost synergies we had projected over the next several years. We believe there are additional opportunities to capture revenue and new product development synergies as we begin leveraging each Company's regional strength in complementary categories.

In addition to Russell Hobbs, we have three other significant integrations occurring at this time, with our Global Pet business, our Home & Garden division, and our corporate team as we finish the relocation of our headquarters from Atlanta to Madison, Wisconsin. We now have an organization that is aligned along four global business units, using a shared service offering. In addition to organic growth in our business segments, and a focus on driving more volume through fewer plants to improve capacity utilization rates, we are looking to grow our Pet Supplies and Home & Garden segments through small, targeted, bolt-on acquisitions.

To that end, we announced today our pet business has completed an accretive $12.5 million acquisition of Seed Resources of Michigan, also known as Birdola, a leader in attractive domestic wild bird seed cake business. This well-known Birdola premium brand. We expect to expand distribution channels for Birdola and Seed Resources' other products by leveraging our strong and extensive retailer base. We continue to evaluate other synergistic tuck-in acquisitions for both pet and the Home & Garden division, to expand or enhance their products lines and/or geographic footprints.

Two other recent items of note. First, our Russell Hobbs George Foreman brand has launched the George Foreman Healthy Cooking product line including grills, smart multi-cookers, skillets, panini press and ovens, as a complement to the brand's original commitment to a healthy lifestyle. This includes six new products designed for everyday home cooking. Second, our Remington Personal Care division has signed a multi-year agreement with the King of Shaves in the United Kingdom. We will launch the Remington/King of Shaves Azor wet shave razor system in the US next spring, along with other King of Shaves men's wet goods grooming products. We think this will be a strong partnership. In fact, King of Shaves is the fastest growing brand in its market segment in the United Kingdom.

In summary, we are very pleased with the success of our superior value brand strategy is driving. We're maintaining or growing share in most of our key product categories, and we're continuing to target driving our cost structure down, and intend to move aggressively to strengthen our balance sheet with further debt-reduction payments. Let me turn it over to Tony now for a full financial review.

Thanks, Dave, and good afternoon. We ended fiscal 2010 well positioned for further operating and financial progress in fiscal 2011. The Company reported consolidated GAAP net sales of $2.6 billion for fiscal 2010, up 15.1% from $2.2 billion for fiscal 2009. The addition of Russell Hobbs as of June 16, 2010, and sales growth in both the Global Batteries & Personal Care and Home & Garden segments of 6.9% and 6%, respectively, drove the increase. Results were impacted negatively by approximately $27 million of foreign exchange.

While we include 2010 and 2009 full year results for Russell Hobbs, net sales for fiscal 2010 were $3.1 billion versus $3 billion in 2009, An increase of 3.4% which was in line with our guidance. For fiscal 2010, the Company reported a GAAP net loss of $190 million or $5.28 per diluted share, versus net income of $943 million in fiscal 2009, which included a significant gain on cancellation of debt related to our prior year Chapter 11 filing. Adjusted for certain items Management believes are not indicative of the Company's ongoing normalized operations, the Company generated adjusted diluted earnings per share of $1.21, a non-GAAP number for fiscal 2010. These items, which aggregated $6.49 per diluted share, are spelled out in the Earnings Release. So in the interest of time, I won't go through them here.

As Dave mentioned, our progress in fiscal 2010 is most apparent through our strong increase in consolidated adjusted EBITDA to $432 million versus $391 million in fiscal 2009, an increase of approximately 11%. Again, in line with our guidance. These results include Russell Hobbs as if it was combined with Spectrum at the beginning of both fiscal years. Furthermore, all of our segments showed year-over-year adjusted EBITDA improvements, led by Home & Garden at an impressive 24%, Small Appliances at 11%, Global Batteries & Personal Care at about 7%, and Global Pet Supplies at 5%.

Let's turn to a review of our fourth quarter, including each of our segments. Consolidated GAAP net sales totaled $789 million for the fourth quarter, which included six fewer shipping days, compared to $589 million for the same period last year. This increase of 34% was driven principally by the addition of Russell Hobbs. Sales were negatively impacted by $12 million of foreign exchange. Including Russell Hobbs in last year's fourth quarter, net sales of $789 million for the fiscal 2010 fourth quarter fell slightly from $801 million a year ago, primarily due to the fewer shipping days in the quarter. The Company's gross profit for the quarter improved to $275 million, up 30% from $211 million for the same period last year.

Total operating expenses for the fourth quarter were $230 million, up from $196 million for the same period last year. The increase of $34 million was principally driven by $44 million related to the addition of the Russell Hobbs business, $16 million primarily related to acquisition and integration charges incurred in connection with the Russell Hobbs transaction, and $11 million of increased selling expenses, driven by increased sales volume and a number of our product categories leading to higher variable costs. Offsetting these increases were approximately $4 million of savings associated with previously announced cost-reduction initiatives, and the non-recurrence of a non-cash intangibles impairment charge incurred in fiscal 2009.

Corporate expenses for the quarter increased to $12 million, compared with $10 million for the same period last year. An increase in the value of new restricted stock grants of $3.8 million was partially offset by a decline in incentive compensation expense of $2.5 million. For the fourth quarter, the Company generated adjusted diluted earnings per share of $0.25, a non-GAAP number. These adjustments which aggregated to $0.73 per diluted share, are also spelled out in our release.

Consolidated adjusted EBITDA for the fourth quarter was $100 million, compared with $116 million in the same period last year, which includes Russell Hobbs as if combined with Spectrum as of the beginning of last year's fourth quarter. Excluding $11 million of negative foreign exchange impact, adjusted EBITDA was down about 4%, primarily due to the six fewer shipping days. Of note was the Home & Garden segment's strong 43% improvement in adjusted EBITDA for the quarter.

Now let's quickly review our fourth quarter segment results. Let's begin with our largest segment, Global Batteries & Personal Care. Led by double-digit, top-line growth for batteries in both North America and Latin America, segment-level sales were $372 million for the fourth quarter, up 3% over the same period last year. Excluding a negative foreign exchange impact of $11 million, sales were up a strong 6%. Global battery sales were $238 million for the quarter, up 4% from the same period last year. Excluding a negative foreign exchange impact of $6 million, sales in Global Batteries were up about 7% for the quarter.

By region, despite continuing competitive pressures in North America, battery sales in this region were $104 million for the quarter, up 15% over the same period last year. This amount included a $400,000 positive impact from foreign exchange. We also now have market share gains in more outlets, be it mass merchandisers, home improvement centers, food and drug, or industrial, than any other time this decade. In Europe, where we were impacted by negative foreign exchange and where we continue to exit low-margin, private label SKUs, our battery sales declined to $75 million from $88 million a year ago. Excluding the negative foreign exchange impact of $6.5 million, sales declined about 7% for the quarter.

As stated before, our continued exit of private label is part of an ongoing effort to focus only on profitable growth. In fact, since its peak several years ago, we have voluntarily shrunk our private label battery product segment in Europe from close to 26% to less than 14% today. Meanwhile, our sales of our VARTA branded alkaline battery remain strong and profitable. For the quarter, sales of our branded alkaline batteries in Europe were up 13% over the fourth quarter of fiscal 2009. As a result, profits in Europe were also up, a very positive sign that our strategies there are working.

Moving to Latin America, results in this region remain a bright spot. Battery sales were $58.5 million for the fourth quarter, up a solid 18% compared with last year. Foreign exchange positively impacted these results by $400,000. The value proposition is working well in Latin America. Leveraging our successful US marketing strategy in Latin America continues to be the right way to go. That is, packaging that proclaims our products work as well as or better than our competitors and with a lower price point per battery.

Turning now to our Personal Care products. Global Remington branded product sales were $111 million in the fourth quarter, versus $112 million last year. Excluding a negative foreign exchange impact of $4 million, Remington sales were up approximately 3% in the quarter. Of note at Remington this quarter was that we continued to hold the number-one shaver brand position foil -- the number one foil shaver brand position here in the US, and the overall success of our Flex & Pivot Shaver as it continues to gain share in various regions across the globe.

In addition, new technology such as our Frizz Therapy straighteners and fashion-forward print designs for dryers and straighteners led to solid growth here in our US personal care market. In Europe, our successful recent launch of the i-LIGHT at-home hair-removal treatment product is helping to drive growth in key categories within Remington's European business, and was the first to market in many countries in that region.

Our Global Batteries & Personal Care segment continues to be the key performer for Spectrum, with solid market shares globally, a strong consumer value proposition, product innovations, and a low cost structure. Adjusted EBITDA for this segment was $50 million, compared with $60 million last year. Excluding a negative foreign exchange impact of $11 million, adjusted EBITDA for the Global Batteries & Personal Care segment was up 3% over last year's fourth quarter.

Turning now to the Global Pet Supplies segment, driven by six fewer shipping days and a product recall in the companion animal category, this segment delivered net sales of $140 million in the fourth quarter, compared with $155 million for the same period last year. Foreign exchange negatively impacted these results by $2 million. Both the companion animal and aquatic industry categories in this segment had comparable percentage declines in sales in the quarter. We continue to see success from our efforts to create a low cost structure through closure and consolidation of several pet facilities and major improvements in product mix. We continue to view the business as a growth segment, especially as consumers are showing renewed interest in the category as the recession eases.

As Dave mentioned today, we announced that on December 3, Global Pet Supplies completed an accretive $12.5 billion(Sic-see press release) bolt-on acquisition of Seed Resources, a leading domestic wild bird seed cake producer through its well-known Birdola premium brand. This was completed at an accretive -- at an attractive EBITDA multiple. Given the reduced sales and the approximate $4 million impact from the product recall, which has since been resolved, adjusted EBITDA was $25 million for the quarter, compared with $30 million last year. Foreign exchange had a slight negative impact of $800,000. As we continue to consolidate some of our operations and facilities within this business segment, we anticipate capturing an additional $7 million to $11 million in cost savings between now and the end of fiscal 2012.

Moving to our Home & Garden segment, with the successful extension of the 2010 season, highlighted by strong promotional activity and solid distribution gains, this segment delivered sales of $75 million, up 3% from last year. We continue to benefit from strong relationships with our top customers and their active promotional programs. As noted earlier, revenue growth combined with operational excellence initiatives drove a strong improvement in adjusted EBITDA for the quarter of $13 million, an increase of 43% from $9 million a year ago. The story remains bright at Home & Garden, and we remain very optimistic about this business for 2011 and beyond.

And finally, our newest segment, Small Appliances, consisting of the Russell Hobbs brands and products. For our fiscal fourth quarter, the Small Appliance segment reported sales of $202 million, versus $211 million reported by Russell Hobbs last year. The sales decline was primarily due to category softness in North America, partially offset by strength in international markets, primarily in Europe. With a focus on extending our presence in the healthy cooking category and leveraging the strength of the George Foreman brand, increased promotional spending and lower sales resulted in a decline in adjusted EBITDA for the Small Appliance segment to approximately $20 million in the fourth quarter of fiscal 2010, compared with $24 million last year. Foreign exchange was a slight positive impact of $800,000.

As Dave mentioned, integration activity is progressing well. We are confident we will achieve $25 million to $30 million of cost synergies, and are optimistic we will end up exceeding that amount when it is all said and done. We also believe Russell Hobbs will fit very well into the Spectrum value model and reap EBITDA and sales benefits for fiscal 2011. Let me hit on a few more full-year items in our financial statements. Interest expense for the fiscal 2010 was $277 million, compared with $190 million for the same period last year.

This variance was primarily due to several unusual items, totaling $82 million, related to the refinancing associated with the Russell Hobbs combination. These items include -- $61 million of non-cash costs related to the write-off of unamortized net discounts and financing fees on the Company's previously existing debt that was paid off at the time of our closing of the Russell Hobbs transaction, $4 million in cash costs related to prepayment fees for the Company's ABL and supplemental loans paid off at closing, $13 million of cash costs related to fees primarily for the unused bridge loan and backstop commitments, and lastly, $4 million of cash costs primarily related to the early termination of an interest rate swap relating to our previously outstanding debt that was paid off at closing.

Cash interest for the fiscal year, excluding the unusual items noted above, was approximately $119 million, compared to approximately $164 million for fiscal 2009. Cash payments for fiscal 2010 were lower primarily due to the elimination of debt in connection with our Chapter 11 filing in 2009. The difference between interest expense and cash interest for fiscal 2010 was made up of the following items -- the $82 million of unusual items I mentioned earlier, PIK interest on our 12% notes of $27 million, and by the way, going forward we plan on paying this interest in cash as opposed to payment in kind, $26 million primarily for amortization of financing fees and fair value adjustments primarily relating to our previously issued debt, and lastly, $23 million which relates to higher interest accruals at the end of fiscal 2010 versus fiscal 2009.

Tax expense for the year was $63 million, compared with $74 million for the same period last year. Cash taxes for the year were approximately $37 million, compared with $20 million for fiscal 2009, as we experienced some improvements in profits in some of our foreign entities, the inclusion of Russell Hobbs for a portion of fiscal 2010, as well as various timing differences in payments year-over-year. As I've said previously, based on the level of NOLs we expect to be able to utilize, including those that were at the Russell Hobbs entities, we do not anticipate being a US federal taxpayer for at least the next five years. We will, however, continue to incur foreign and a very small amount of state taxes. Cash taxes are expected to approximate $45 million to $50 million in fiscal 2011.

Now let's turn to our strong year-end liquidity position. We finished fiscal 2010 with zero cash drawn on our ABL facility, and with a cash balance of $171 million. As of the end of our fiscal year, total debt was $1.77 billion, which consisted of a senior secured term loan of $750 million, senior secured notes of $750 million, subordinated notes of $245 million, and other debt, primarily foreign, of $25 million. As a result of the significant cash costs we incurred in connection with the Russell Hobbs merger and the related financing, as well as residual from the prior year Chapter 11 filing -- which together those items were in excess of $200 million, our fiscal 2010 free cash flow was a use of $69 million. So in our third quarter earnings call, we projected our fiscal 2010 free cash flow would be a use of $100 million.

This better than forecasted performance was primarily due to the timing of our working capital. Regarding our cash flow projections, we previously said that given the strong cash flow potential of our business, we expect to generate between $155 million and $165 million in free cash flow for fiscal 2011, and $200 million plus for fiscal 2012 and beyond. We see capital expenditures approximating $40 million in fiscal 2011.

As Dave mentioned, given our very solid adjusted EBITDA in 2010 and our strong liquidity position, we are pleased to have just made a voluntary prepayment of $50 million to reduce our $750 million senior secured term loan to $700 million. This is the start of implementing our primary corporate financial objective, using our strong free cash flow to aggressively pay down debt, thereby reaching our target leverage of three times or less in the next two years. As part of that plan, we are targeting a cumulative debt reduction of $200 million in fiscal 2011. Let me point out that the difference between our $200 million cumulative debt reduction target in fiscal 2011 and our estimated free cash flow of $155 million to $165 million is due to a reduction in our cash balance.

In summary, despite all of the unusual items impacting our GAAP results, we ended 2010 in solid fashion, with our businesses performing well and with excellent operating and financial momentum going into fiscal 2011. We expect to see top-line growth of 3% to 4% in fiscal 2011. We also expect increased adjusted EBITDA next year of $455 million to $465 million. And, as we have mentioned, we see free cash flow reaching $155 million to $165 million in fiscal 2011, and at least $200 million in fiscal 2012 and beyond. This will allow us to set the stage for additional debt prepayments, even as we continue to expand our businesses with new product developments and line extensions and create a low-cost and efficient operating structure. With that, I'll turn the call back to Dave for a few closing remarks before Q&A.

Thanks, Tony. We're excited about Spectrum Brands' future. We believe our Company is well positioned to continue its strong financial results as a global value proposition leader in our space. As our Earnings Release said, and Tony described, we expect another year of improved sales in fiscal 2011 and solid increases in adjusted EBITDA and free cash flow. Macroeconomic trends are most likely going to remain challenging worldwide, and we are not banking on any meaningful economic recovery or improvement in consumer spending in giving you our outlook for fiscal 2011.

That being said, one of our strengths is that most of our products are nondiscretionary, replacement products, needed by consumers in their everyday lives. Given this, we believe by providing superior margins to our customers and offering consumers the same performance at a better price or better product performance at the same price is the winning strategy. We will continue to invest in our business, reduce our cost structure, and provide strong free cash flow generation. Again, we believe our businesses will allow us to pay down debt by at least $200 million this year, and grow adjusted EBITDA to $455 million to $465 million in fiscal 2011. This will allow us to reduce our leverage to three times or less in the next two years. Thank you all for calling in. We will now go to questions. David?

Operator, you may now begin the question-and-answer period, please.

(Operator Instructions) And your first question comes from the line of Bill Chappell with SunTrust. Your line is open.

Good afternoon.

Hey, Bill.

I guess, first, just digging into the guidance a little bit. Maybe help me on the 3% to 4%. Are you expecting all the businesses to kind of hover around that range? And does that include currency? And then, also, maybe you could remind me, does 2011 have the same number of days as 2010?

Bill, this is Dave Lumley. Let me answer the first part of your question. All of our projections includes currency. I think you'll -- we believe in that 3% to 4% number is that Batteries and Pets will be on the low end of zero to 4%, and Home & Garden and Appliances will be a little bit on the higher end. What was the second part of your question?

Just trying to understand, I guess I wasn't fully aware that the fourth quarter had six less days, and I can't remember if there was a quarter in 2010 that had six more days, or if we're having an apples-to-apples comparison going into 2011.

Yes, that is -- obviously for the full year we had the same number of days. Last time I checked the Julian calendar I think it was 365 days. Obviously, because of the way our fiscal quarters close, we had six less shipping days in the fourth quarter. In the first quarter, we had six higher shipping days. But when -- we've gone through some internal calculations -- again, this is based upon our estimate of average daily sales. And when you adjust for FX, basically what we saw is that the fourth quarter, when you adjust for those six less shipping days, and the FX was a growth of 5% based on our calculation.

Okay. And then, just on the battery business, Energizer has already come out and said they're going to end the bonus packs after -- move to January, February. Are you looking to follow suit?

This is Dave Lumley. Once we see what the competitors do, then we'll react.

You're not opposed to doing that?

No, not opposed.

And then, just help me on the acquisition front. Obviously it's a small acquisition, but just a little bit surprised that you chose for the bird seed when that category's kind of struggled overall over the past year, and seems like something like aquatics or reptile would make more sense.

All right, Tony?

Maybe I can start. We do have John Heil on the line, who can obviously add more color. But actually, I would disagree, or the Company would disagree, I think, in that take on that, Bill. Only because this is exactly what we said that we wanted to do. We identified really from a growth standpoint, we saw the Home & Garden business and the Pet business as being those segments that we see as growth, and what we were looking for is what we call small -- and small being defined as somewhere between $10 million and $25 million in revenues, that would be able to tuck in or bolt on to the existing business. And being in the form of a product line, more likely than not, as opposed to a large acquisition. And what we also talked about was not only picking up the benefits of the sales and the EBITDA from the acquisition, but also through the manufacturing ops side of the business, where we would be able to maximize efficiencies within the plant, i.e., volume variances, which would then give a double whipsaw benefit to the acquisition. John, maybe you can comment on the bird seed category in general to address some of Bill's concerns.

Sure, Bill. Bill, first of all, this is in wild bird, not domestic bird.

Right.

Super premium segment, more of a bird treat than bird food. It has shown some nice growth over the years, and as Tony said, we do have a relatively nice bird stick business in the domestic side, which is currently outsourced. We'll be able to bring this inside, so there's some very nice operation savings that are included as well.

Okay. And then, just one last question, maybe this is for Terry. Can you talk a little bit about the holiday season? It seems like we're off to a pretty solid start. And I know this is pretty key for the appliance business in general. Can you maybe give some more color on what you're seeing so far?

Yes. We're seeing -- we had a very good Black Friday. POS, I think, is strong in a lot of locations, but then there's some places out there where POS has not been as strong. So I think on balance, we're going to be ahead, especially on units for the -- from this part forward in the holiday season. But we're feeling pretty bullish about our numbers.

Great. Thanks so much.

Thank you, Bill.

Your next question comes from the line of Karru Martinson from Deutsche Bank. Your line is now open.

Good afternoon.

Hi, Karru.

Just to follow up on that line of questioning, are you seeing inventories at retail down significantly given the strong POS, and in reorders, or are you feeling that retailers are comfortable holding the line until they see what consumers do here?

This is Dave Lumley. It's hard to answer that across all five of our brands. But I can tell you that retailers spent the last two years watching their inventory very tight. But in products that are sold at holiday, like (inaudible) appliances, the Personal Care like Remington, batteries, flashlights, things like that, we're seeing actually an aggressive step-up in store inventories to make sure they have what's needed. So I think that's a good sign, and people are buying more this year than last year pretty much across the board, in at least the businesses we're in.

Okay. And in terms of the strong battery growth that you're seeing for North America, where does your market share stand today in the US, for example? And how do you see that trend going forward, even if Energizer does take a step back from its competitive stance?

Well, our alkaline market share hit 16.5%, as measured by outside service when you include everybody. That's the highest we've been at. And we've had really good growth in rechargeables, which is almost two times that market share, and our hearing aid business, which you know we're the leader worldwide in globally. You know, if I can diverse for a minute, the battery business, I think, is rebounding. And I think it's important that everyone understands one thing about the battery business. The amount of cells, the actual battery, the cell, not the package or the dollars, are actually slightly up on a year basis. Okay? About a little over 1%.

So, it's not so much that the business is so bad, except for the extreme discounting that's gone on for the last year. As that subsides and things return to normal, the business should rebound quite well for all our retailers as well as the manufacturers. So I'm, as you know, very bullish on the battery business from the standpoint of how steady it is. And it kind of grows with the GDP and device use. And finally, on device use, you know, if you're selling 1% more sales this year than last year, I don't see how devices are having a lot of impact on it.

Okay. Just in terms of the line reviews, have you guys wrapped those up for Home & Garden for the spring season, and how do those look?

This is Dave Lumley again. Yes. All the line reviews for Home & Garden and wrapped up. Everyone is busy making the products, as you know, over the winter, as we'll begin shipping in the early spring. Obviously, that was a very great start last year, and then it kind of balanced out a little bit better overall for the year. We -- our value proposition played very well last year, as we aggressively promoted products at the point of sale. And we had a very good year in the line reviews and in our distribution gain, which is a big reason we're bullish on growing next year's sales and EBITDA through the strength of that business. So we're very optimistic on it. Of course, it's somewhat dependent on whether to some extent in home, home building, but overall since we're in basically the chemical side of the business, as long as there are bugs and weeds, we should do just fine.

Okay. Just lastly, in terms of the debt reduction here for 2011, what is your ability to address kind of the bottom part of your cap structure or even the first lien bonds here?

Well, when you say the bottom part of our capital structure, Karru, just for clarity, are you talking about the 12% notes?

Correct. Yes.

Obviously, there's a no -- we can't call those. ere's a no-call provision, I believe, until August of 2012, and I think it's at 106. And then it goes to -- it drops at August 2013. Let me just validate that, though. But obviously, we're very cognizant of the fact that we have that 12% debt out on our books, and our focus right now, in all candor, is to keep our head down, to make our numbers, to continue to do what we're doing. And with that, we would be able to pay down the term loan, which obviously there's no -- obviously any prepayments we make.

But yes, going back to the pick notes, just for clarity's sake, the pick notes, there's a no-call through end of August of 2012, and there's a 106 premium at -- beginning in 2012, and then at 2013 it drops to 103. 2014, they can be called at par. So, right now it would be cost prohibitive to do anything with those pick notes. However, they are on our radar screen, and we -- but we figure that the best thing to do right now is to run our business, generate a lot of cash, which these businesses do, and take down the term loan as aggressively as we possibly can to reach our target leverage ratios.

All right. Thank you very much, guys. Appreciate it.

Thank you, Karru.

Thank you.

Your next question comes from the line of Torin Eastburn from CJS Securities. Your line is open.

Good evening.

Hey, Torin.

My first question is on the pet side. Can you elaborate on or quantify the effect of the recall you had there? And then, it looks like, even adjusting for the days, this was the second quarter in a row where the revenues were down year-over-year. Can you give any insight on what you think is causing that?

Well, let me start with the recall, and then maybe John Heil can jump in. As we mentioned in the prepared remarks, the impact of the recall on EBITDA in our pet business was about $4 million. That's the bad news. The good news is that the recall's behind us. This had to do with a -- an issue that came from a supplier, and we -- when we manufactured our product, went out to our customers, and we detected the issue and so we did the -- we had to do a recall, which is the right thing to do, obviously.

The good news, as I said, is that the recall is behind us. But it did have a negative impact on our sales, as well as costs associated with the recall, which translated to approximately $4 million of negative activity impacting our companion animal piece of the business, and hence, our pet segment. John, I don't know if you want to add anything more than what I just said, but -- John Heil? We might have lost John Heil.

I would say the -- no, no, I'm sorry, I pushed the wrong button. The $4 million was the cost of the recall. We also lost some volume during the quarter. That was part of the shortfall, by the way. And the good news is, though, we held on to all the distribution, and we did the right thing and got through the recall successfully from that perspective. In terms of volume, our volume was up 2% in the first quarter, a little over 4% in the second quarter. And on an LTM basis through the third quarter, we were still positive.

We did lose some business on our shampoo business that has affected our third and fourth quarter. It will affect our first and second quarter this year as well. But we are feeling very good about our latest new product presentations that we made, and we feel good about our revenue, especially in the second half of this year with our new products plan.

Okay. And then, just two questions on guidance. First, the 3% to 4%, how do you -- in your mind, how does that break down between volume and price? And second, Dave, I think you mentioned you feel very good about batteries right now, but I think it was either you or Tony who also said you thought it would be at the low end of the zero to 4% growth range. How do you reconcile those two statements?

Okay. So let's start with -- the 3% to 4% on sales was mostly buying and distribution gains. I don't think you're going to see a lot of pricing in there. The batteries, I have it at -- cautiously at 1% to 2%, because we have to still go through the next -- well, this whole first quarter of ours and the whole second quarter of ours before all the pricing and extra batteries that are out there works its way through the marketplace. So that kind of dampens half of it. So, I think you would be back to a normal 3% to 4% on batteries that we've seen before, but I cut that in half because half the year is still going to suffer through this deal inventory that's out there during this period of all these very aggressive promotions and pricing.

Okay. That's helpful. Thank you.

Okay, next question, operator?

Your next question comes from the line of Mary Gilbert with Imperial Capital. Your line is open.

Good afternoon.

Hey, Mary.

Hi, Mary.

Hey. On the battery side, kind of following up and also with some of the other segments, when we're looking out to next year, are you gaining any distribution? So for example, in Home & Garden, last year you benefited from additional distribution. Are we seeing any further penetration in terms of new accounts on -- sort of going through each one of the segments?

Mary, this is Dave Lumley. Absolutely. In Home & Garden, it's heavily concentrated in three big accounts, and you gain and lose SKUs here depending on each line review and basically how you sell through. It's a very efficient system. We sell through last year, so we gained new distribution in Home & Garden. Remington has had a string of almost 24 months in a row where it has gained significant distribution of both men's and women through the new product introduction. They should have another good year.

In batteries, we are now -- remember, we started only like 9% alkaline distribution market share two or three years ago. We are in more mass merchants, food and drug, home centers, industrial accounts than we've ever been in, whether it be specialty batteries, alkaline batteries, heavy duty batteries, hearing aid batteries. As a value proposition, it's starting to finally break through as consumers are finding out that our batteries last as long as premium batteries. So we're bullish about that as people continue to go through that. Private label for batteries has had its ups and downs. It continues to be about 10% of the market. But for the most part, with the rare exception of one of the big warehouse clubs, private label batteries sourced from Asia are going through some very challenging times due to the rising costs and the containers and the quality and the ability to have a certain performance.

So I think all those things add to up pretty good news there. John Heil just addressed pet, and I think in terms of appliances, Black & Decker, George Foreman, with its new products and a chance for them to be part of a much bigger Company like ours, and have the opportunity to present not only in the United States but more importantly, around the world, where we're stronger, where they really didn't have much distribution like in Eastern Europe and Latin -- other places like that. So I think we have a good chance to improve distribution everywhere right now. The consumer is easing back in. The consumer is a lot smarter. They tend to watch every penny they spend, and they want value. It better perform right at a good price or they aren't going to buy it. That's a long answer, but I was trying -- we have five businesses. Is that what you were looking for?

Yes, yes, I was. So in other words, you're still gaining distribution, and that's what I was wondering. And it seems like in batteries, it seems like there's still opportunity because it's not like you see Rayovac everywhere.

Correct.

So I felt like there were some additional opportunities there. And then I wondered in Home & Garden, going against tough comparisons last year where you made significant inroads in gaining distribution, if there was continued opportunity to increase.

Let me clarify that for you. Last --

Shelf space, I guess.

What happened last year was there was significant early take-away which created extra shipments for all the manufacturers. Okay? We had gained some good distribution but it was really the fast take-away, which created extra shipments for all the manufacturers, okay? We had gained some good distribution, but it was really the fast take-away, all right, and reorders that drove the early numbers for everybody. This year, we've actually added more SKUs on the shelf at our key customers. So, if we had five of item A, we might have seven this year. We may have one or two items in a category we didn't even have last year.

So remember, that business of ours breaks down into three areas in Home & Garden. We -- we tend to go after insects inside the house or households is our Hot Shot brand, and that competes with SC Johnson's Raid. We tend to compete directly with the Scotts Company and [Behr] outside. That would be our Spectracide brand. That would go against Roundup and many other of their brands. And then we're very strong in insect repellent. There's SC Johnson's Off, and there's our Cutter and Repel brands, and we're very close there.

And as more people move outdoors, they stay home more, they don't want to see an insect in their house. They don't want to see a weed in the back, and they sure the heck don't want to get bit by a mosquito. So we try to help them with all those things. So, I think your instincts are right. I think that's a business that most of our customers feel good about, the whole Home & Garden, outdoor living, and even related things, whether it's candles or patio furniture and all that. So it's -- I think it's a good, solid, long-term business.

Okay. Great. That's helpful there. The other thing is, when we look at your cash position, you ended the year with -- I think you said $171 million in cash.

That's right, Mary.

Yes. So when we look at cash that you need to support operations, I mean, that number obviously fluctuates, but is it around the $75 million or $80 million level? What's the number? Because it looks like you're sitting --

Yes, let me try to address that one. We ended the year with $171 million in cash. To run our businesses, we need less than $171 million cash. All kidding aside, Mary, probably the right number is somewhere about $50 million to $70 million, but I like to -- if I had my druthers, I'd like to run the business with $1 of cash and that would be it. The reality is, is that with the -- why we ended with such a large cash balance, probably about $30 million of that was timing, which I mentioned in my prepared remarks was the cash flow being better than we projected. Even though it was a use of $69 million, we originally in the third quarter, based on the forecast at the time, we were looking at a use of $100 million. So it was about $30 million of timing.

The other piece is, we knew that we wanted to make a prepayment on the senior note in November. And so we were bringing that -- so that cash was being held for that or started to be accumulated for that. On top of that, we have the build-up of the working capital season for our Global Batteries, Personal Care and to an extent, the Russell Hobbs business. So we had to have that cash on hand to facilitate our working capital needs. So to answer your question, though, we think that the right amount of cash is about $50 million.

Now, keep in mind, we have, we have -- back in 2007, just as a history lesson -- I mentioned this on previous calls, we had lost our credit lines offshore because of one of the banks that was no longer in our consortium -- back in 2007 when we refinanced, was not in the consortium. So, we lost those credit lines, and we've been using a higher level of cash or maintaining a higher level of cash just to operate our business. We are in the process of instituting credit lines, and we're doing that as we speak. In fact, we've -- it's a process that -- it's moving not as quick as I'd like, but it's moving, and that's basically what's happening right now.

And that's how we get from a free cash flow of $155 million to $165 million being generated in 2011, yet a cumulative reduction of debt of at least $200 million, and we're going to -- I'm going to push as hard as I know the entire team will to try and make that number as great as possible. And I think there's some room to do that, but the way we're going to get there is through the free cash flow that's being delivered through our businesses in 2011, as well as reducing that cash balance. So I see a more normalized cash balance of somewhere in the $50 million to $70 million range, and again, I'll do my hardest -- work my hardest to try and get that level as low as possible. Does that help you?

Yes, that does. That helps a lot. The other thing is, how much of the free cash flow guidance incorporates -- what's the impact from working capital, the net change in working capital? So it sounds like we're going to be generating some cash from working capital. Is that what we're expecting?

Basically, the assumption -- the assumption is basically a flat working capital assumption, which -- keep in mind that the business, we're growing the business in the 3% to 4% range on the top line, and we're growing EBITDA, but we're assuming that working capital is going to be relatively -- relatively flat. So there will be some savings. And the way we're going to get that is through -- we think there's some more opportunity in inventories to reduce those to the extent we can. Receivables, we do a pretty good job already. I think we're -- if you looked at us versus any consumer products company, I think we're probably right there, best in class. But we think we've got some room in inventory. And obviously, with payables, our vendor relationships are extremely strong, and they've only gotten stronger subsequent to the bankruptcy of last year. Keep in mind, that it's only been a year since -- roughly a year since we emerged from Chapter 11. And we are extremely excited and pleased with the strong liquidity position we have and the fact that the Company is on track now, and it's all about generating growth in EBITDA and paying down debt. That's basically -- my kids at home are getting tired of hearing me say this. Whenever anybody asks me a question at home, that's what I say is -- higher EBITDA and lower debt.

One last thing. You have $30 million of acquisition and related costs and cash restructuring expenses. Is that all $30 million cash, and that's incorporated in the $155 million to $165 million number, free cash flow? Meaning after covering that $30 million.

I'm sorry, Mary, you lost me with the $30 million. Where do you get the $30 million -- where do you get that from?

Oh, on your guidance, let's see. In calculating -- well, it showed restructuring and related charges, $9 million, acquisition --

You're looking at -- that's the reconciliation of the P&L. So that's an expense. That's not necessarily cash. Cash, we haven't given that number, but that's the reconciliation of our GAAP income to adjusted EBITDA, to get to that adjusted -- so we have -- next year, you're going to see in our P&L an expense of $9 million related to restructuring and $21 million related to the acquisition and integration of the Russell Hobbs business.

Right. And how much of that is going to be cash? That's what I was looking for.

I'll be honest with you. We haven't disclosed that number. I would -- we can -- we'll --

Get back to you.

We'll get back to you on that.

Okay. I just want to make sure I don't miss anything in terms of -- getting that.

Let me put it this way. The -- we're looking at -- keep in mind that we've got accruals on our books right now related to restructuring, and also the acquisition and integration charges. So, to the extent that some of those accruals are paid down in 2011, which they will be, we're probably going to see a slightly higher cash number than what's on that $30 million that's going to be on our cash flow statement. So to get to the $155 million to $165 million, it does include all the cash charges that we will be making payment on in 2011 for acquisition, integration, and restructuring.

Perfect. Thank you very much.

Sure.

Operator, I think we have time for two more questions, and then we'll close it down in the interest of the time.

Okay. Your next question comes from the line of Barry Rosenberg with Goldman Sachs. Your line is open.

Thank you (inaudible) private shareholder. Couple of things. Congratulations on the quarter. Can you tell us on the call today, how are you guys planning to drive more people to your website to improve on e-commerce sales? As we all see in 2011, that's going to be the driving force behind a lot of companies' revenues.

I'm sorry, you were asking --

It kind of broke up, I'm sorry.

Can you provide some color -- how are you guys going to be driving more people to your websites to drive more online revenue?

Oh, oh, yes. This is Dave Lumley. We started just this year to put more emphasis on driving people to our websites. But before we did that, we first had to create the website that could handle that. We had other problems. We did not spend the amount of time and effort we should have on that. So that work is just about done. Some are ahead of others. In fact, ironically, we just had a global meeting on that here this last week. I think you'll see this year we will be putting our website on every package we have. We have developed some commonality among our websites. We currently are up and running selling Remington products in North America right now and Dingo products for Pet, and we will continue to move in that direction, both in terms of (inaudible).

We're also looking at mobile. Mobile is really -- by the time America (inaudible) is caught up with what's going on, mobile will be bigger than what we all consider to be online. So, I think you'll see a concentrated effort from us this year, and see a much different Company within six months there in that area. Now, some products obviously like pet side, service side you can't mail through the mail. But, clearly, areas of pet, appliances, are really set up for that. And of course, we would love to send batteries to anyone who would like them.

You mentioned mobile. When can we expect to see something where I can go online and download for my iPhone? What are you projecting? Like, first -- Q1, Q2 of next year?

Oh, I think in the next six to nine months we'll be able to do that on our Appliance business. Because that's where most of that is going -- they can literally go up soon and scan in the store and get information on it, or if they want it, if it's not there. So, I think you're going to see that happening with all kinds of companies in the next year, especially personal appliances.

Regarding social media, how are you guys utilizing the popularity of Facebook and Twitter to do more e-mail campaigns --

Well, we have -- three of our five companies have Facebook sites, Twitter sites. We're also looking into this -- doing Bazaarvoice, which gives you reviews for consumers. So again, three out of those five are up and going, and we talk to a lot of bloggers already, and again, I think we're probably further ahead than you think in some of our divisions. So, if you're really interested, Dave Prichard here, give him a call and he can direct you to some of our sites right now. Remingtonproducts.com. Rayovac.com in North America has got all those things up and running. They have fans, Facebook fans already. So it really is the future.

So with those, are you guys doing e-mail promotions to drive more people to those sites?

Yes. Yes, we do.

And final -- final question. Where would you like to be in terms of that percentage revenue from your sites, have you guys -- any numbers?

We haven't really calculated that yet. I think it depends on each site. Again, we first have to get it right. I actually think for a lot of our businesses, their ability to learn about the products and get coupons is the biggest opportunity and alerts through the e-mails, and then obviously talk to the bloggers and read the reviews. We still have some things that people want to go touch.

Okay. And final question. For 2011, what would you say your top challenge is, and how do you plan to accomplish it?

Well, this is Dave Lumley. I think for 2011 our top challenge is to simply keep our Company focused on our plans and not get off track, and to just build our EBITDA, pay our debt down, execute our Spectrum value model. In today's world, it's easy for people to get excited about making certain acquisitions that perhaps might be good for you two years from now, or refinance several times, or try to do one-off programs, or try to be someone who you're not. We are a superior value brand Company. Our goal is to increase our EBITDA, pay down the debt, and stick to our model. And believe it or not, that takes all your time and effort so everyone understands to stay on the plan and stay focused. And that's what the biggest challenge is, and that's what we're going to do.

Great, thanks.

Operator, we'll take one final question and then close it down, please.

Your last question comes from the line of Arun Seshadri from Credit Suisse. Your line is open.

Hello, gentlemen. Thanks for sneaking me in.

Hello.

Hello. Just one quick question. Most of my questions are answered. One quick question on Russell Hobbs. Can you give us some color on how much North America was down and Europe was up? So what kind of EBITDA growth or EBITDA margin improvements for Russell Hobbs appliance business are you baking into your outlook for 2011, fiscal?

Let's break that into two things. Let me talk -- this is Dave Lumley. Let me talk in general. I'll let Tony address North America and Europe to the best that he can that we disclose. The big opportunity for Russell Hobbs and Remington is, it's now $1.3 billion of appliances. It's a huge purchasing power that neither one had before. But more importantly, it's our model of global product development, and having more of a global product that creates platforms of standardized products. Now that's going to take a while this year. But, what's not going to take a while this year is getting into geographies around the world and using relationships between the two to sell more products in.

Now, there's a lot of competition in this space, and this space is very dependent -- all the competitors, on products from Asia. And that in itself provides some challenges for us. In regards to take-away, a lot of this has to do with how much space retailers want to give these type of products and how they feel about it. So Terry, why don't you jump in here to the point you can answer the rest of that question?

Yes. I won't address EBITDA, because Tony didn't put it in the plan, but I think -- or in the forecast. But we're absolutely seeing exactly what Dave's saying with the infrastructure that we're inheriting from Spectrum Brands. We see lots of runway, Eastern, Western Europe, in particular. Latin America, Australia, because of the combination and our strength down there and the value model, and what we're going to be able to do with our product lines with the vendor community in Asia, I think is a real opportunity for us over the next few years.

Okay.

Thank you.

That's all I have. Thank you.

Well, thank you. On behalf of Dave Lumley, Tony Genito, Terry Polistina, and John Heil, I want to thank all of you for taking part in our fiscal 2010 full-year and fourth quarter call today. Just as a quick reminder, there is a telephone replay of the conference call through Friday, December 17. That is phone number 706-645-9291 through the telephone, and you can use the same conference id that you used today. Or, of course, it's available by replay through our website at www.spectrumbrands.com. Thank you again for participating. We'll talk to you next quarter, and have a good night.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.