Spectrum Brands Holdings Inc (SPB) 2011 Q2 法說會逐字稿

Good morning my name is Andrea and I will be your conference operator today. At this time I would like to welcome everyone to the Spectrum Brands second quarter fiscal 2011 earnings 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 period. (Operator Instructions) As a reminder, ladies and gentlemen, this conference call is being recorded today May 11, 2011. Thank you. I would now like to introduce Mr David Prichard, Vice President of Investor Relations. Mr Prichard, you may begin your conference.

Thank you, operator, good morning and welcome to Spectrum Brands fiscal 2011 second quarter and first half 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 morning 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 Appliances; and John Heil, President of Global Pet Supplies. Now our comments today include forward-looking statements including our outlook for fiscal 2011 and beyond. These statements are based upon Management's current expectation, 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 May 11, 2011, and our most recent SEC filings of Spectrum Brands Holdings 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 second, they 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, to meet it's working capital requirements. Free cash flow should not be considered in isolation or as a substitute for pre-tax income or loss, net income or loss, cash provided by or used in operating activities, or other statements 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 May 11, 2011, which has been furnished on the 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 3, a complete reconciliation of diluted loss per share on a GAAP basis to adjusted diluted EPS for the three-months and six-months ended April 3, 2011, and April 4, 2010. Second, in Table 4, a reconciliation of GAAP net income or loss to adjusted EBITDA for the three and six-months ended April 3, 2011 and April 4, 2010. Third, in Table 6, a reconciliation of GAAP net income to adjusted EBITDA on a consolidated perspective basis for the 12-months ending September 30, 2011 and fourth, in Table 7, 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 at www.Spectrumbrands.com, in the Investor Relations section. We will provide reconciliation of net sales excluding foreign exchange during this call.

Now, effective October 1, 2010, the Company's Chief Operating Decision-maker decided to manage the businesses in three, vertically integrated product focused reporting segments. First, Global Batteries and Appliances, which consist of the Company's worldwide battery, shaving and grooming, personal care, small electric appliances in the kitchen and home product categories as well as portable lighting business. Second, Global Pet Supplies, which consist of the Company's worldwide pet supplies business, and third, the Home and Garden business, which consist of the Company's lawn and garden and insect control businesses. This current reporting segment structure reflects the combination of the former, Global Batteries and Personal Care segment, with substantially all of the former Small Appliances segment. Which consists of the Russell Hobbs businesses acquired on June 16, 2010 to form Global Batteries and Appliances. In addition, certain pest control and pet products in the former Small Appliances segment have been reclassified into the Home and Garden business, and the Global Pet Supplies segments respectively. These reclassifications have been made for all periods presented.

Now, let me take a very quick moment to review our GAAP results. For the second quarter of fiscal 2011, the Company reported a GAAP net loss of $50.2 million, or $0.99 per diluted loss per share, on average shares and common stock equivalents of 50.8 million. Compared with a net loss of $19 million or $0.63 per diluted loss per share, in the year ago quarter, based upon average shares and common stock equivalents of 30 million. By segment for the second quarter of fiscal 2011, the Global Batteries and Appliances segment reported net income of $35.5 million, versus $27.9 million a year earlier. The Global Pet Supplies business segment reported net income of $14.4 million, in fiscal 2011, second quarter, versus net income of $18.3 million in fiscal 2010. And finally, the Home and Garden business segment reported net income of $14.2 million, in the second quarter of fiscal 2011, versus net income of $9.4 million in fiscal 2010. During the course of our comments today, unless we say otherwise, current year results relate to the fiscal second quarter of 2011, while any references to prior year results are for the second quarter of fiscal 2010. Also, unless we state otherwise, all results provided today for the quarter, are provided on a pro forma basis, assuming that Russell Hobbs results of operations had been included in the Spectrum portfolio, since the beginning of the respective period discussed. With that, I'm very pleased now to turn the call over to our Chief Executive Officer, Dave Lumley.

Thanks, Dave. And thanks to all of you for joining us on the call today. We're now focused on delivering a stronger second half and we feel very good about where our Company is, it's pathway in fiscal 2011. We remain optimistic and excited about the future of Spectrum Brands and the initiatives we are undertaking to create even greater value in the future. We're on track, we're ahead of schedule on our 5 key priorities. One, the strategic development growth of our Businesses; two, exceeding our financial results and targets; three, the strengthening of our balance sheet through consistent debt pay down; four, achieving operating cost reductions worldwide; and five, increasing shareholder value. We delivered our second quarter with higher sales and adjusted EBITDA. Even though, as many of you may know, it is Spectrum's least important quarter of the year, as an indicator for the full year's overall strategy. Our fiscal first quarter is usually our key quarter, and is the largest one for our Appliance businesses, Russell Hobbs and Remington, and for Batteries, given the typical, holiday season. Our third quarter is key and it's driven by the spring season of our Home and Garden business. And, we finished with a solid fourth quarter as we said for new holiday periods.

In reporting our second quarter results today, we have reconfirmed our full-year targets for net sales growth of 3% to 4%. And, increases in both adjusted EBITDA to $455 million to $465 million, and free cash flow from $155 million to $165 million.

We've also raised cost synergy target range for the Russell Hobbs integration to $30 million to $35 million from $25 million to $35 million over the next two years. We'll talk more about that in a moment.

We made two voluntary prepayments of $50 million and $20 million in the first half to reduce our original $750 million senior, secured term loan, to $680 million. This began a continuous, and aggressive, debt pay down program to reach our target leverage of three times or less by the end of fiscal 2012. We still plan cumulative debt reduction on our term loan of at least $200 million during fiscal 2011. Which would reduce the principal amount to a minimum of $550 million, versus the original $750 million.

I want to stress, Spectrum Brands has compelling opportunities for continued market share growth around the world, along with the corresponding increases in EBITDA. We have the means to generate strong, free cash flow. This free cash flow is built on a diversified revenue stream, attractive margins and the top 1, 2 or 3 global market positions. They are trusted, extendable and enduring brand names in categories with plenty of room for distribution growth in existing and new segments. We continue to see very real success based on our Spectrum value model. We believe we are outperforming industry sales in key categories because of our same performance, less price approach for products. We are also seeing modest increases at point-of-sale in some categories that are otherwise down. Our model, which is at the heart of our operating approach, focuses squarely on enhancing retailer margins and lowering their inventory carrying costs. Introducing new products and product lines extensions and rigorously pursuing reduced cost across our Company, to create the most efficient operating structure we can.

Before Tony reviews our second quarter in detail, I want to touch upon why we feel optimistic about a stronger, second half of fiscal 2011 and, more growth in fiscal 2012. In short, it's because we believe our value proposition for consumers and retailers is winning in the global market place. In our Battery business, we continue to grow our shares globally. Recently, we landed significant, new Battery distribution at several key worldwide retailers that we will announce shortly. Our worldwide Battery business continues to grow, primarily because of its product performance strategy of Last As Long For Less. In North America, we have reached a record level of alkaline share with our value proposition with more room to grow. In Europe and elsewhere, we remain a significant player in all key markets with a solid number two position. In Latin America, we remain the number one Battery player, with the best overall alkaline and zinc carbon performance and share, and finally, we have the number one worldwide market share in Hearing Aid Batteries. In fact, we were just honored by Her Majesty, Queen Elizabeth of Great Britain, with a quality and innovation award in this category. We are going to continue to launch new products and programs to ensure we continue to win at point-of-sale value performance in our Battery business.

Turn to our Remington business and our Personal Care, where it is outperforming or trending higher in key US and European categories. This is also the number two and fastest growing brand in Latin America, the UK and Europe. This business continues to launch new products and line extensions at a greater than 25% mix. For example, we're just entering the nearly $2 billion US Men's Wet Shave market, with the Remington King of Shave line. As well as the Women's Hair Care Accessories market, in both the US and Australia.

In our Pet Supplies segment, we look for much stronger top-line in the second half. We have achieved significant, new distribution gains in several major retailers, led by a number of new product launches in the Dingo and Nature's Miracles line as well as our Tetra Aquatics category.

Finally, our Home and Garden segment is in the midst of its largest quarter of the year with the spring season in full swing. Even after its strong performance last year, we believe our Business is poised for further gains this year with important, new listings. New product launches and expanded placement for our key brands, with our top US retail customers. We also see growth in the Pest Control category where we are in the US market share leader.

Turning to the cost side of our Business, were pleased with the pace of Russell Hobbs integration. So much so, as I said earlier, we have increased our original $25 million to $30 million cost synergy projection to $30 million to $35 million over the next several years. Other opportunities ahead are capturing additional new product development synergies as we leverage each company's regional strengths in complimentary categories and improve upon Russell Hobbs supply chain cost structure with continuous improvement in new product development. Our goal at Russell Hobbs, like our other businesses, is to reduce annual cost of goods sold by up to 5%.

In addition, we are starting to see some initial progress in moving Russell Hobbs products more fully into Western Europe and for the first time, into Eastern Europe and China. We do this by using our Battery and Personal Care platforms we have established there. In China, we are already in distribution for Russell Hobbs and Remington at a large retailer. I'll remind you, these revenues, and supply chain opportunities, are not included in the now $30 million to $35 million of forecasted synergies.

Beyond Russell Hobbs, significant integration activities continue in our Global Pet business. We continue to forecast annualized cost savings of $7 million to $11 million over this year and next, as the Business completes its major consolidation of US plants and distribution centers.

So, when you combine the increased projection of Russell Hobbs synergies of $30 million to $35 million, with the Pet cost savings of $7 million to $11 million, we are forecasting total synergies from these restructurings and consolidations, a $37 million to $46 million as we move through fiscal 2012 and into fiscal 2013. Our fiscal 2011 guidance, as we have said before, is not built upon any expectations for our consumer spending rebound, or economic recovery. Like so many other companies have said, we too are starting to see early signs of rising costs, especially from our Asian suppliers. It's becoming more evident these cost increases are already starting to affect retailers and consumers. As a Company, we feel we are well-positioned for the rest of fiscal 2011. We also have detailed plans in place to help mitigate most of these new supply chain cost pressures in fiscal 2012. We are reviewing other options, as well. In addition, our cost synergies from Russell Hobbs and Global Pet, which are going to flow through our income statement as we move through 2012 and into 2013, will help to temper these cost pressures.

In summary, it is also important to remember most of our products are non-discretionary, non-premium price, replacement products that provide valued, quality performance to consumers in everyday living. Our Spectrum value model we think is particularly key in this time of increasing costs and inflationary pressures at the manufacturing, retail and consumer levels. And finally, our vision is clear, to be the leader in retailer metrics, with superior value consumer products for everyday use.

Let me now turn this over to Tony for more of a financial review and then I will come back.

Thanks, Dave and good morning everyone. Our second quarter, coming after the big holiday season, and before the spring season, is typically the smallest quarter for us in the fiscal year. However, after the first half, we are on track to achieve the financial targets we have projected for the year. And, as Dave pointed out, we see a stronger second half of the year versus the first six-months as we drive our increased top-line growth and higher adjusted EBITDA and free cash flow levels, which in turn, will lead to an acceleration of our debt reduction. For our second quarter of fiscal 2011, we reported consolidated GAAP net sales of $694 million, up 30% from $533 million in the year ago quarter. The addition of the Russell Hobbs business as of June 16, 2010, drove the net sales increase. These results were positively impacted by $6 million of foreign exchange. When we included the fiscal 2010 second quarter results for Russell Hobbs, net sales for 2011 second quarter of $694 million increased 0.5% versus $690 million last year. The Company's gross profit for the second quarter improved to $255 million, an increase of 22% from $210 million for the same period last year.

Total operating expenses for the second quarter were $208 million, up from $164 million for the comparable quarter last year. The increase of about $44 million was primarily driven by $30 million related to the addition of the Russell Hobbs business and $8 million of acquisition and integration related charges incurred in connection with the Russell Hobbs transaction.

Corporate expenses for the quarter were $15 million, up $11 million for the same period last year. The increase was attributed to a $5 million increase in stock compensation expense, a non-cash expense. As a percentage of consolidated net sales, corporate expense for the second quarter was 2.2%, essentially unchanged from the 2.1% for the 2010 second quarter. For the second quarter of fiscal 2011, the Company reported a GAAP net loss of $50 million, or $0.99 per diluted loss per share, versus a net loss of $19 million, or $0.63 per diluted loss per share, in 2010. After adjusting both years for certain items, Management believes are not indicative of the Company's ongoing normalized operations, the Company generated adjusted, diluted earnings per share of $0.23, a non-GAAP number, for the second quarter of 2011, an increase of 156%, compared with the adjusted, diluted earnings per share of $0.09 in fiscal 2010 second quarter. These adjustments, which aggregated to $1.22 and $0.72 per diluted share, in the second quarters of 2011 and 2010 respectively, are spelled out in detail in Table 3 of our earnings release. So in the interest of time I won't go through them here.

2011 second quarter consolidated adjusted EBITDA was $93 million, a 3% increase versus consolidated adjusted EBITDA for the second quarter of fiscal 2010, of $91 million. Which includes the results of Russell Hobbs as of combined with Spectrum Brands as of the beginning of last year's second quarter. Foreign exchange had an $8 million positive impact on adjusted EBITDA in the second quarter of 2011. We believe we are on target to achieve our projection of adjusted EBITDA of $455 million to $465 million in fiscal 2011, which, when you do the math, means achieving adjusted EBITDA in the second half of this year, of between $239 million and $249 million, compared with $216 million in the first half.

Now, let me quickly review our consolidated results for the first half of fiscal 2011. The Company reported consolidated GAAP net sales of $1.56 billion, for the first six-months of fiscal 2011, a 38% increase compared with $1.13 billion for the same period in 2010. The increase was a result of the Russell Hobbs acquisition, along with higher net sales of the Company's Personal Care Products, and Home and Garden business. Including the prior years, the first half results for Russell Hobbs businesses, net sales of $1.56 billion in the first half of fiscal 2011, increased 1.6%, compared with $1.53 billion a year ago period.

Spectrum Brands GAAP gross profit of $555 million, in the first half of fiscal 2011, increased 41% versus $394 million in the comparable, year ago period. The Company reported a GAAP net loss of $70 million, or $1.38 per diluted loss per share for the first six-months of fiscal 2011, on average shares and common stock equivalents of 50.8 million. This compares with a net loss of $79 million or $2.64 per diluted loss per share, in the first half a year ago, based upon average shares and common stock equivalents of 30 million. Adjusted for certain items in both years, first six-month, which are presented in Table 3 of this press release, and which Management believes are not indicative of the Company's ongoing normalized operations, the Company generated adjusted diluted earnings per share of $0.69, a non-GAAP number, for the first six-months of fiscal 2011, representing an increase of 21% versus adjusted diluted earnings per share of $0.57 in fiscal 2010 first half.

Fiscal 2011 first half consolidated adjusted EBITDA was $216 million, this represented a 4% increase versus consolidated adjusted EBITDA for the first half of fiscal 2010, of $208 million, which includes the results of Russell Hobbs business as of combined with Spectrum Brands as of the beginning of last year. Foreign exchange added $800,000 negative impact on adjusted EBITDA in the first half of fiscal 2011.

Now, let's review our second quarter segment results. The Global Batteries and Appliances segment reported fiscal 2011 second quarter net sales of $459 million versus $308 million in the second quarter of last year. Including the Russell Hobbs business, as if combined with Spectrum in last year's second quarter, the segment's 2011 second quarter net sales of $459 million were essentially unchanged versus $461 million a year ago. The second quarter, 2011 segment sales were positively impacted by $5 million of foreign exchange.

Global Battery sales for the second quarter were $198 million, compared with $212 million a year earlier, or a 6.6% decline due to unusual competitive actions in Latin America, and the timing of key North American shipments. Foreign exchange positively impacted these results by $1 million, or 0.5%.

North American Battery sales were $81 million versus $84 million in the prior year's quarter. European Battery sales for the quarter, where the Company continued its voluntary exit of low-margin, private-label sales, were $73 million compared with $76 million during the same period last year. Because of this regions focus on profitable growth, despite a smaller top-line for the region as a whole compared with year ago, Europe's Battery business saw an improvement in profits. Finally, in Latin America, Battery sales were $41 million for the second quarter, a decline in 18% versus $50 million in the comparable period last year. The net sales decrease in Latin America was driven predominantly by lower pricing and volume in Brazil. Foreign exchange positively impacted Latin American Battery sales by $1 million.

Reflecting growth across all geographic regions, net sales for the Global Personal Care Product category rose 12% to $108 million in the second quarter of fiscal 2011, versus $96 million for the same period last year. And, that sales growth was driven by a combination of new product introductions, line extensions and expanded, in-store promotions. Foreign exchange positively impacted these results by $800,000.

The Small Electrical Appliances Products of the Global Batteries and Appliances segment reported net sales in the 2011 second quarter of $154 million, essentially unchanged when compared with $153 million in the previous year's quarter, after including the Russell Hobbs business with Spectrum Brands in that quarter. Foreign exchange positively impacted the Small Electrical Appliance Products net sales by $3 million.

With segment net income of $36 million, the Global Batteries and Appliances segment recorded adjusted EBITDA of $57 million for the second quarter of fiscal 2011, versus adjusted EBITDA of $56 million in the year, earlier quarter when segment net income was $28 million. Foreign exchange positively impacted adjusted EBITDA in the second quarter by $8 million.

Turning now to Global Pet Supplies. This segment reported net sales of $144 million for the second quarter of fiscal 2011, a decline of 3%, compared with $148 million in the comparable year ago period. The reclassification of certain Pet products into the Global Pet Supplies business segment from the Small Appliances segment -- from the former Small Appliances segment, accounted for a net sales increase of $3 million in fiscal 2011 second quarter. The lower revenues were attributed to continued softness in the North American Aquatics category and the macroeconomic factors, partially offset by stronger international performance. Foreign exchange positively impacted these results by $700,000.

Net income for this segment was $14 million for the second quarter of fiscal 2011, versus $18 million in the prior year's quarter. Primarily as a result of the lower net sales, second quarter adjusted EBITDA of $24 million for the segment declined from $28 million in the same period last year.

With the second fiscal quarter marking the start of the season, the Home and Garden business segment recorded net sales of $90 million for the second quarter of fiscal 2011, an increase of 19%, from $76 million for the same period last year. The improvement was driven by distribution gains across key customers, and as retailers ordered inventory in anticipation of the spring season. Also contributing to the second quarter net sales growth was the reclassification of several Pest Control Products into the Home and Garden business segment, from the former Small Appliances segment. Second quarter net sales typically reflect approximately 20% of full-year net sales for this segment.

The business segment reported first quarter net income of $14 million, a 51% improvement, compared with a net income of $9 million in fiscal 2010 second quarter. As a result of the distribution gain, along with ongoing operational excellence initiatives, the Home and Garden business increased its adjusted EBITDA by 20%, to $18 million in the second quarter of fiscal 2011, from $15 million in the same period last year.

Let me review a few more items in our second quarter financial statements. Interest expense for the second quarter of fiscal 2011 was $72 million, compared with $48 million for the same period last year. This variance was primarily due to unusual items totaling approximately $29 million, related to the refinancing of our term debt into the quarter as previously announced. In connection with the refinancing, we incurred non-cash costs totalling approximately $24 million in the write-off, unamortized deferred financing fees and original issue discounts, plus cash costs of approximate $5 million for a prepayment fee. As a result of the refinancing, we now expect cash interest for full-year fiscal 2011, excluding any one-time costs associated with the refinancing, to approximate $165 million, versus the $170 million we previously provided you. Furthermore, assuming that the term debt balance of approximately $678 million as of April 3, 2011, were to remain unchanged, we would save cash interest of approximately $20 million annually, as a result of the refinancing executed in the quarter.

Tax expense for the fiscal 2011 second quarter was $25 million, compared with $10 million for the same period last year. As I've said before, they fund the levels of NOLs we expect to be able to utilize, we do not anticipate being a US federal taxpayer for at least the next five years and likely longer. However, we will continue to incur foreign and a very small amount of state cash taxes, cash taxes are still expected to approximate $45 million to $50 million in fiscal 2011.

Let's turn to our review of our liquidity position, which continues to be solid. We finished the second quarter of fiscal 2011 with a cash balance of $73 million, and $118 million drawn on our $300 million ABL working capital facility. This reflects the normal, timing of peak business seasonality for the Company. As many of you know, the latter part of our second fiscal quarter is always a period of temporarily higher inventory builds, primarily in anticipation of the spring season of our Home and Garden business. As of the end of the second quarter, total gross debt was $1.84 billion, which consisted of our senior secured term loan of $678 million, senior secured notes of $750 million, subordinated notes of $245 million, the working capital facility draw of $118 million, and capital leases and foreign debt of approximately $49 million. In addition, we had approximately $36 million of letters of credit outstanding.

Regarding our cash flow projections, as we have previously stated, given the strong cash flow potential of our businesses, we expect to generate between $155 million and $165 million of free cash flow for fiscal 2011, and more than $200 million for fiscal 2012 and beyond. We still expect capital expenditures to approximate $40 million in 2011, of which more than 0.667 represents investments in product development, and cost reduction projects. As disclosed previously, we have made voluntary, prepayment totaling $70 million in the first half of fiscal 2011, to reduce our original $750 million senior secured term loan to $680 million. Let me note here, that the term loan is technically now at $678 million, as a result of scheduled amortization.

With our target of at least $200 million of debt reduction this year, this obviously means we will be making larger and more frequent prepayments of the term loan balance in the second half of this year, starting later this month. We remain committed to implementing our primary, Corporate financial objective. Using our strong free cash flow to aggressive pay down debt thereby reaching a leverage of 3.5 times or less, by the end of fiscal 2011, and our target leverage of three times or less by the end of fiscal 2012. Let we remind you 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 from the end of fiscal 2010.

Lastly, as many of you are aware, on April 21 2011, we completed the amendment of our existing $300 million ABL revolver. This amendment provides reduced pricing to lower interest rates, the extension of the maturity date of the ABL by 22 months to April, 2016, and the favorable realignment of certain structural attributes consistent with current market conditions while providing us with additional overall operating flexibility. Assuming average utilization of cash draws and outstanding letters of credit totaling approximately $80 million, the new pricing would reduce our annual cash interest and related administrative expenses associated with the ABL, by approximately $2 million a year.

In summary, with our second quarter results now under our belt, we remain on track to achieve all of our announced targets for fiscal 2011. To reiterate, we expect to see top-line growth of 3% to 4% in fiscal 2011, driven by a stronger second half performance, most notably from new destination gains and product placement in our Pet and Home and Garden segments, and continued strength in our Remington, Personal Care category. We also expect increased adjusted EBITDA this year of $455 million to $465 million versus $432 million last year, and we continue to project that free cash flow will reach $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, voluntary debt prepayments, even as we continue to expand our businesses with new product development, line extensions and increased, in-store placements while we continue to create a low-cost and efficient operating structure.

Finally, as a reminder, we have targeted creating an additional $1 billion of shareholder value over the next several years through a combination of EBITDA growth and debt reduction. Our Management team remain focused on delivering greater shareholder value and growth in the quarters and years ahead.

Let me now turn it back to Dave for a few closing remarks before our question-and-answer period.

Thanks, Tony. We're excited about Spectrum Brands prospects for value creation. Both in the short-term and the long-term. As a global, value proposition leader in our space, we think our Company is well positioned for solid, ongoing and consistent financial results. As we've explained, we expect a stronger second half of fiscal 2011. And another year of increased net sales and strong increases in adjusted EBITDA and free cash flow. And, more than $200 million of term debt reduction Tony talked about. This will give our Company and even stronger balance sheet. And, significantly reduced leverage over the next several years.

More so than ever, in today's consumer environment of rising prices, we will continue to pursue what we believe is the right strategy for our businesses, delivering superior margins, and lower acquisition costs to our retail customers. And, offering consumers worldwide, the same product performance at a better price or better product performance at the same price.

What can you look for from Spectrum Brands going forward? Five points. One, continued investment in our Businesses. Two, reducing our cost structure on an ongoing basis. Three, launching new products and product extensions, every year. Four, expanding geographically, growing our market shares with trusted brands in new retail channels. And expanding the placements at existing retailers. And five, increasing our EBITDA by delivering strong free cash flow and reduce leverage for our shareholders.

I want to thank you for joining us today, and I'm going to turn it back to Dave Prichard.

Thanks very much, Dave and Tony. Operator, you may now begin the Q&A session, please.

(Operator Instructions)

Bill Chappell, SunTrust.

I had two question -- I guess first, on the top-line outlook, am I right in saying you need about 4% or 5% organic growth in the back half to hit the midpoint of your range? And then, maybe you could give some color on how we get there in terms of price or new products or shelf space gains? Because I'm just going to look at this quarter, and my guess is, the only real divisions that mattered this quarter for seasonal purposes were Home and Garden and Remington, so I just want to make sure I'm looking at that right. Thanks.

Your first question, the answer is yes; the second question is that we're typically stronger on the second half in our ability to grow sales, and that's because the full Home and Garden is in our fiscal third quarter. Right? With the line extensions and distribution we've grown, and the significant distribution we've grown in Pet and North American Russell Hobbs will all come in late third quarter and fourth quarter. So, that's the simplest way I can put it; as well as that the Battery retailers, especially in the United States, are more involved in the Battery business on the second half than it has been in the past. So, I think of those things combined to us feeling good about that.

Yes. And, right in saying that Battery would still be weak this coming June quarter, just as they flesh out the leftover bonus packs, and then really rebound in the September quarter; and I think you were saying that Pet should really bounce back with Aquatics by the September quarter as well?

I think everything you said, Bill, is accurate except for, I think, Batteries are getting stronger every day as that excess inventory of the promo packs -- around the world, frankly, not just in the United States -- and in parts of the world is a little slower to get through that inventory. But, you're right, as it goes through between now and summer, things should just get better for the retailers after that.

Okay, just switching to costs -- I understand that you reiterated the EBITDA guidance, but I've got to think in the past three-months, some of your input costs have spiked pretty dramatically. I know you're hedged on zinc and some other things, but can you talk about the change of scene, despite a willingness to reiterate the EBITDA guidance?

The costs that are coming, we've anticipated, because it started in some of the raw material; but mostly in what I would call the Asian businesses, where they are making finished goods. But it is coming in, in a measured way so there hasn't been like a dramatic spike like you would see in some of the commodities or the finished goods, as we used to be in fertilizer and growing media. I think that will just be a steady climb as we go through the year, and in speaking with many of our top retailers and our suppliers -- in fact, we were just in China for two months with an 11 man team, man/woman team -- they are there, they're coming. As normal, there is a lot of hope here that they are not coming, a lot of denial, but they are here and they're coming. But I think they are coming in a measured way over the period, giving everyone a chance to deal with it. So, I don't want anyone to think that, boom, they all arrived at one time. I think you need to separate food and clothing from finished goods a little bit, and some of these raw materials that tend to come in a little bit more measured basis.

Okay and then, last one -- I might have missed it, but could you give what your all outlet share was in the US for Battery? Just trying to understand that versus the year-over-year drop in sales?

The year-to-year drop in sales is simply a timing issue at a couple of our key retailers as we are being able to move in large shipments of promotions. So, that is not indicative of our Battery business. If you look at our Battery business in the first six-months, it's up. So, I think sometimes -- which is your guys' job; you overreact to a month or a week of shipment, retailers don't quite cooperate the way that you'd like, because their sales tend to flow and that their store operations tend to flow on that. So I think that's in pretty good shape. I'm not too worried about that.

Torin Eastburn, CJS Securities.

My first question is about the distribution gains in Pet and in Battery. Can you give a sense of what you think an annualized revenue contribution might be?

Well, let's take the Pet one. We happen to have John Heil, our President of the Pet Division. He can give you some range and color on that. On the Pet, we can come back to the Batteries. But, I mean we don't usually give exact numbers. I don't think you can, because you really don't know the sell-through. But I think you can talk in terms of distribution, percentage gains, and usually that corresponds to the sales. John, do you want to tackle Pet for a second?

We've been fortunate to get a lot of new distribution gains on our Dingo business, and our Nature's Miracle business, as well as Tetra, in some major customers in North America. And, expectations from my side would be that we would reverse the flat to negative volume trends that we had, and turn into positive growth in the 3% to 4% range going forward.

Speaking of Batteries, the good news is, this is an industry that has seen dollar declines in industry in the United States, and most world markets, of up to minus 8%; which now have almost pulled back to almost flat. I'm going to answer your question of revs in a minute. However, the actual sales sold were pretty flat, year on year. In fact, over the last 52 weeks, our numbers tilted slightly, just maybe it's gone a little positive. But it shows that the battery business is much like a lot of consumption businesses -- as long as there are toys, and devices, and more people, it's going to go back to normality when the industry isn't giving away a whole bunch of extra batteries. And which the whole industry (inaudible) getting back to a more rational pack sizes. Our gains are pretty well documented.

We've talked publicly about how we've just about doubled our alkaline share in United States over the last four years. Now, that still puts us in the mid to high teens, but the other 2 are still much larger than us in the United States. Worldwide, our share is in the low 20s, and we've been growing a point or so a year in both of those categories. And, I would think that we have the opportunity to continue to do that as we go forward. I think the big opportunity in Batteries is that the consumer and the retailer have started to realize that foreign-sourced batteries, especially from Asia, have a very difficult time meeting the performance criteria of batteries made on certain equipment in the United States and Europe. And, that's starting to provide more opportunities for what I would call locally sourced performance batteries. So, I don't know if that answers your question, but I think it gives you a good sense of where this is going.

Sure. And, in Home and Garden, it was a very good quarter from a revenue standpoint. Do you think the level of gains you had this quarter is sustainable for the rest of the year?

Yes. Home and Garden sold principally, where we compete, through 3 big retailers; and then the Food and Drug Channel on the household items. And again, it tends to be a consumption-based business; there are X amount of people, X amount of homes. The bugs come every year. It doesn't matter if it rains or it doesn't rain. And, in fact, bugs are increasing as the lack of new chemicals to keep their growth down has become harder and harder to get approved. So, I think that you will see that.

Now, I think a lot of times we over-react to -- it was a great March, and huge shipments and sell-through and then it rained in April, it was a terrible month. If you look at Home and Garden sales over the last 10 years, each quarter comes out to what it's going to come out. It may start fast and end slow, start slow end fast. Now, there are certain items in there, on the [SGM] side that have steps that could be more affected by this. We sell chemicals. And, for the most part, I think it's going to be good. So, I think it's sustainable . And certainly historically, it's shown that. I don't think all you guys should over-react to last year's April and this year's April. Frankly, I was just at a retailer yesterday, and we were commenting that last year's Home and Garden season was the greatest April in 10 years. Two years ago was pretty good, and most people did that; but this April, compared to that it's bad. So this is really something that you have to look at on a quarterly basis in Home and Garden in its

Okay. And last question. I assume you've had pricing discussions with your retailers. What is their receptivity at this point to price increases?

Well, retailers are smart. I mean, they have a lot of their own private label businesses. They have their own purchasing departments, they understand the same thing. Of course, you know how pricing works. No manufacturer thinks they should get any, and no retailer thinks they should get any, and the consumer certainly thinks prices should just go down every year. And, I'm kind of joking, but that's kind of the environment we've lived in. That environment is changing, certainly with gasoline and food, and it will change in a lot the products; the consumer packaged goods as well. I think the retailers are realistic. But again, prices in these categories come in kind of in a phase basis.

There's a lot of inventory out there. So, no one is really feeling it to the level yet; but as that inventory sells through, the new one comes in, and I think the retailers are realistic. No one is saying, no, we can't have price, but I think everyone should understand something -- when you price in an intensely fierce consumer market, worldwide, you're going to see volume declines in those categories. The retailers know that, too. So the challenge is, how do you do that mix? How do you achieve that mix? And that's what we're all working on. I think you've got to keep both those things in mind in getting that mix right, and gaining distribution in that environment is key. Now, if you have a same performance for less price product, you should do better in that environment, than a premium price product that performs the same. So what are you paying for, right? I think that you'll see pricing in the marketplace; it always comes later than you think, and then it comes higher than you think, and then there's volume adjustments. So, I think everyone's got a rational view on it. There is no cookie-cutter approach -- I guess that's a good one, Torin.

Hamed Khorsand, BWS Financial.

Just a couple of questions here. On the distribution gains that you got on the Pet and Home and Garden, were there any displacement of competitors, or was this just brand-new shelf space that opened up for you?

I will let John talk about Pet, and we'll talk about Home and Garden next.

On the Pet side, on Aquatics, it was the displacement of some competitors. On the Dingo, it was just some innovative new products that they added to the category.

Okay.

In Home and Garden, it's a combination for us of new products -- like we entered the cleaning business, and that's all new to us. We have expanded bed-bug, which is new to everybody, right? So, about half of our gains were new products, new entries, new segments, new applications, new sprays; and then of course, we have two very good competitors -- more than two, but it depends which category -- they've got good products, they've got good things. So there's always some trading between the Companies, based on price and promotions. But, I think our focus to be in the chemical business, and not try to be so broad-based into several categories like the fertilizer and growing medium, has led us to be better in winning some things that before we had lost, and/or that we've legitimately won. So I would say it's about half and half.

Okay. And my other question was -- your inventory was up sequentially this quarter. Was there a specific reason why? Usually, I would have thought it would go down after the holiday period.

Yes, this Tony Genito --

Yes, let me take that one, Hamed. The rise in inventory is really a seasonal issue. You've got the Home and Garden business, we did some strategic pre-buys of inventory in anticipation of the season, which worked out well for us. In addition, we did some pre-buys in certain of the other businesses; because of some concerns on rising prices, we had some inventory purchases in the Small Appliance business as well as some key raw materials within the Battery side of the business. In addition, keep in mind that we are going through a facility consolidation, primarily focused on our Pet region, so what we've done is we've built some strategic inventories in that regard as well.

But, with all that being said, the inventories were slightly higher this quarter. However, our plans are, again, to reduce that back down to our plan levels by the end of our fiscal year; and we have a specific pathway to get there. And, I'm happy to say that we're executing that plan, and not only are we on that plan, we are actually ahead of that plan to get those inventories down through accommodation of sales, as we utilized inventory that was strategically built.

Okay. And was this increase in inventory the reasoning behind the debt figure increasing from last quarter?

It was a small piece of it, but the really lion's share of that is driven by the seasonal peak of the Home and Garden business.

Reza Vahabzadeh, Barclays Capital.

On your guidance for EBITDA, are you including the benefit of FX that you have realized so far, and may realize the back half of the year as well?

Yes.

Yes.

And how much of it is FX benefits, then?

Well, I think we said that for the first half of the year, it was basically negligible; it was like $700,000 or $800,000 of impact, which oddly enough, if you look at -- we'll just use the euro as a surrogate at this point, because obviously, we operate in over 120 countries, but a lot of different currencies -- but the average euro in 2009 was $1.35, $1.36 in that neighborhood. Believe it or not, the average euro in 2010 was $1.35, $1.36, and you want to guess what the average euro was in the first half of 2011? You got it, $1.35, $1.36. So, it is included, but obviously we are a US-based company, and that's a dollar based company. So we report in dollars. I can only tell you that the $455 million to $465 million guidance that we gave which is obviously in dollars, which is all in, whether it is positive or negative exchange.

I've got it. And then can you talk about consumption trends, sell-through trends in your various product categories to the extent that you can share that with us for this March quarter? And anything you're seeing so far in the June quarter?

Well -- this is Dave -- I think I'm going to have Terry Polistina jump in here on Appliances, because he's feeling ignored over there. But, let's take Batteries. I think I addressed that, this is an industry that the sell count is back -- actually, it never went away, kind of flat to actually maybe gone a little positive as these bonus packs are going back to normal pack sizes, Battery should follow the GDP, it's consumption based on toys and devices, and, I think you'll see a slow growth but Batteries has always grown around 0% to 3%. I think you'll get back to that and I think we're getting there.

I do think that could go up a little bit in the back half, and be a little better with a more rational approach by retailers and manufacturers there. In the Home and Garden business, that's a business that has been trending up for everybody. I know timing is something that's in the mid-single digits, that industry does pretty well. I will let Terry here talk about Appliances. Remington has been a superstar for us, but Personal Care business has been going very well. I'm going to let Terry talk about those 2.

Yes, I think in general, the Home and Personal Care businesses around the globe follow GDP, and they have historically. I think the one exception -- and you heard us talk about in the quarter and year-to-date -- is our Personal Care business is really bucking that trend. Around the globe, and it's a direct result of the hero products that we come out with in each of the categories, because of the Spectrum value model and the global MPD process. So, I think in general, we're seeing consumption kind of follow the GDP with the exception being the Personal Care businesses bucking that trend, really all around the globe.

John Heil you may want to talk about the Pet business.

Yes, I would say, in general, the Aquatics business has been soft; flat to slight declines across the globe. We have been gaining -- or holding or gaining share in most markets across the globe in the Aquatics side. On the Companion Pet side, on Dog and Cat, volumes are little better. Up 1% or 2% consumptionwise, and the Bird, Small Animal business -- Bird, Small Animal, Reptile -- being up 1% or 2% as well. So, Aquatics, slightly down; Companion Pet slightly up.

I've got it. And then, you talked in your press release about rising commodity costs and inflationary pressures, which some other folks already asked you about. But, as far as COGS inflation for the second half, excluding your cost savings -- what kind of inflation should we be expecting? Are we talking about mid-single digits or higher?

This is Dave Lumley. I think that, for this year, you're talking single digits, and I think it depends on the business. It could be low, it could be mid. I think in 2012, a lot will have to do with not only commodities in China, but their ability to get the right labor, their ability to consolidate and get their own cost savings; but also the US dollar versus the Chinese currency, which I think everyone is forgetting, that's already 4% or 5% hit that happened already. And, I think those are the things you should watch. And, we'll see.

And, keep in mind -- this is Tony speaking -- keep in mind that, for the remainder of 2011, as everyone is aware on the phone, in fact it was mentioned, we do hedge. We hedged zinc. While we don't hedge, because of the lack of market, for manganese or, for instance, for Batteries or nickel or related inputs, we do, do some pre-buying with, I'll say, long-term contracts -- long-term defined as for the year. So we're protected in that regard. And also, with respect to our Businesses, we do enter into contracts on the Appliance side, with manufacturers over in Asia early on in the season, and again, they extend out for -- to cover pretty much the fiscal year.

So, for the remainder of 2011, we feel pretty good because of protection that we've developed ourselves, and the way we are protected in general. 2012, again, that's headwinds on the horizon that we see coming, and I think anybody who watches the news or picks up a newspaper, or looks on the Internet, is aware of it. But, as Dave said, we'll have to play it out and see how it goes. But, from a standpoint of from a Company perspective, we are in pretty good shape, with the fact that we do have the Russell Hobbs business and the synergy opportunities associated with that. And, some of the restructuring that we're doing with the rationalization within Pet, that is a further way for us to protect ourselves.

Okay, operator I think we will take one more question and then we will close down the call, please.

Karru Martinson, Deutsche Bank.

Just wanted to follow up on the cost side here. What are we looking at for shipping as we head into the second half of the year and into the holiday season for early 2012?

Can you clarify what you mean by shipping?

Well, in terms of coming out of Asia, freight costs, spikes, last year around the Labor Day time period as people rushed to get orders in -- should we expect that type of cost flow through your P&L this year?

Like I said, I think it's a slow, gradual build. You will hear things that prices in China for goods are going up 5% to 15%; that's their costs, which typically they then have cost reductions, we have cost reductions. But that again, phases in. I know all you guys want 1 number and apply it; but that won't work that way, okay? And we have five different businesses and they are all different. And I know it is hard to follow. But it just tends to be somewhere between 0% to 3%, depending on where it is, and then you time it in. Then it depends on volume; if the volume shifts to a certain supplier over there, it's less, it's higher. Depends what the retailer wants to do. They want to stay in the category. They want to promote the category. They want to price the category.

I think the general message is, will goods cost more in 2012? Yes. And, it will come down to how well the supply chain of companies, and how well they work with retailers, will determine how much of that is mitigated. The rest will translate into price. And price will translate into some artificial, top-lines for a while, and a reduction in unit volume. And then those who do that best will win, and those that don't are going to get hurt. Okay?

Okay. On Home and Garden -- as you guys exited the growing media, do you feel that business is less weather-sensitive now, or how should we think of that, given the historical track record for that category?

When we were in the fertilizer, growing media, soil, seed, all those things, it was more susceptible to weather. By the very nature of it, you're planting things, you're protecting things, you're fertilizing things -- it's kind of a 4-step process. One of our key competitors has a very good explanation of that 4-step process on their website, which we could explain. So if one of those steps are washed out, or droughted out, or whatever -- I don't think droughted out is a word, though; I meant drought -- then they would be affected, right? I think when you are in the case goods business, which deals a lot more with herbicides and pesticides, a lot of them inside the house, or in your back yard -- take insect repellent -- you are much less susceptible to wild weather swings. And, so to answer to your question, we're less susceptible. But again, weather has been pretty consistent since the beginning of time; it's just a matter of which week it happens. Okay.

And then switching gears to Battery. Latin America, we had lower pricing and lower volumes in Brazil. Was there anything specific that was flowing through this quarter in that market?

Yes. There was a very, very unusual price war there in the last 6 months. And, there are different competitors there than you are used to in the United States. There's actually a fourth Battery company that's there. But all the Battery companies got involved in an extreme case of what we jokingly call the Battery Wars; and it was quite a toll, and we ended up growing our share. That was the good news, but the consumers benefited dramatically in the last 6 months there. But I think you'll see rationality returning to that market as well. There is a lot of unusual things happening in claims and sponsorships of the World Cup, and wholesalers and distributors and national retailers, and that happens. And, if you know much about the Latin market, it's the one that has a lot of emotion, and a lot of different challenges and taxes and prices and all that. So, it was one of the most unusual things I've seen of irrational behavior at all levels. But, I do believe that, that is subsiding and again rationality will return.

Okay, and just lastly, while we are definitely encouraged by the $200 million pay down of the term loan target for the year, I can't help but wondering why you are not targeting some of your more expensive debt. I was kind of wondering what your capacity under your RP baskets are to tackle buying for 2012, or to see secured in the open market?

Great question. Tony is going to explain it.

Well, that's a great idea, Karru. I never thought of it. (Laughter.) All kidding aside, as you are well aware, we do have debt that precedes the subordinated notes; and the subordinated notes at 12%, yes they are on our radar screen as something that we look at continuously from a standpoint of as opportunity possibly of correcting or further fix the capital structure. I think overall, we're in very good shape on the capital structure standpoint, but those 12% notes obviously do stand out. They do have a note call provision that really doesn't expire until August of 2012, and then they are callable at a 6% premium.

The RP baskets that we have, we've been working on that as we've been working on our debt -- the term debt repricing or refinancing that we did, and then the amendment to the ABL, we've gotten some language in there to increase the size. It's not Nirvana, but it's something more than what we had before, which is a $40 million RP basket for subordinated notes. Now, obviously, we haven't addressed the 9.5% notes, because we haven't done anything with those. But again, the point is that this is something that we are looking at. And again, the term debt is our first and foremost focus right now, because we can pay that down, and that's what we are doing. But, as time goes on, we'll continue to assess what we can do, and let me just assure you that the 12% notes are on our radar screen, Karru.

Thanks to everybody and on behalf of Dave Lumley, Tony Genito, Terry Polistina, and John Heil, we do want to thank you for joining us on today's Spectrum Brands fiscal 2011 second quarter earnings conference call. And, we will talk to you next quarter. Have a good day.

This concludes today's conference call and webcast.