Spectrum Brands Holdings Inc (SPB) 2011 Q3 法說會逐字稿

Good morning, my name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Third Quarter Fiscal 2010 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question and answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, August 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.

Good morning, and welcome to Spectrum Brands Holdings Fiscal 2010 Third Quarter and [3-month] Earnings Conference Call and Audio webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands Holdings 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 of our Global Appliances Business and John Heil, President of Global Pet Supplies. 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. Actually results may differ materially.

Due to that risk, Spectrum Brands Holdings encourages you to review the risk factors and cautionary statements outlined in our press release dated August 11, 2011 at our most recent SEC filings and Spectrum Brands Holdings most recent 10-K. We assume no obligation to update any forward-looking statement. Additionally, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in this morning's press release and 8-K filing which are both available on our website, in the investor relations section at www.spectrumbrands.com. The information is being presented on the basis of our current segment reporting structure of 3 business segments -- Global Batteries and Appliances, Global Pet Supplies and Home and Garden. This change from the 4 segments we used previously, became effective as of October 1, 2010 and is reflected in our SEC filings.

Now, let me take a brief moment to review our GAAP results. For the third quarter of fiscal 2010, the Company reported GAAP net income of $28.6 million, or $0.56 per diluted income per share, on average shares and common stock equivalents of 51 million. This compared with a net loss of $86.5 million, or $2.53 per diluted loss per share, in the year ago quarter, based upon average shares and common stock equivalents of 34.1 million. By segment for the third quarter of fiscal 2011, the Global Batteries and Appliances segment reported net income of $39.9 million, versus $32.4 million a year earlier. The Global Pet Supplies Business segment reported net income of $15.1 million in fiscal 2011's third quarter, versus net income of $17.2 million in fiscal 2010.

And, finally, the Home and Garden Business segment reported net income of $42.2 million in the third quarter of fiscal 2011 versus net income of $40.3 million in 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 have been included in Spectrum Brand's portfolio since the beginning of the respective period discussed. With that, I'm pleased to turn the call over to our Chief Executive Officer, Dave Lumley.

Thanks, Dave, and thanks for joining us today. We delivered our third quarter, higher net sales and adjusted EBITDA and increased cash flow. We reconfirmed fiscal 2011 targets to grow adjusted EBITDA to $455 million to $465 million and increased free cash flow to $155 million to $165 million. Our priority is rapid balance sheet deleveraging. A little more than 2 years ago, our leverage ratio was about 5 times. We expect to be at or below 3.5 times by the end of fiscal 2011, and as low as 3 times by the end of fiscal 2012. We are a strong free cash flow generator.

This free cash flow is built on a diversified revenue stream and top 1, 2, or 3 global market positions. Our message today is, we believe our time has come. Spectrum Brands has many opportunities worldwide for continued market share growth in distribution gains. We are seeing real success based on our Spectrum Value Model. We believe we are outperforming category and competitor results in key markets because of our same performance, less price approach. We are seeing positive point-of-sales at most of our key accounts. Even in categories that are otherwise down or flat.

Why? Because our Spectrum Value Model focuses on enhancing retailer margins and lowering their inventory carrying costs, while introducing new products and product line extensions that perform as well or better than premium priced products. For example, our battery business is growing fairly primarily based on our product performance strategy of lasts as long for less. Rayovac today is at its highest market share in the century. Our Varta brand is growing in Europe with more to come with our new, 2-year contract with [Carrefour], the world's second-largest retailer. Following a listing competition with other major global battery producers, spectrum has been chosen as one of the 2 branded battery suppliers for Carrefour, including our branded, alkaline and zinc batteries under the Varta brand in Europe and the Rayovac brand in Latin America.

Next month in Europe, we are proud that we are relaunching an improved Varta alkaline battery that offers best-in-class performance for the most important battery size, AA. In North America, we have reached a record level of alkaline market share with our compelling value position and with more room to grow. In the last 13 weeks, the alkaline category has trended up 1.4%, fueled by increases in average price per sale and average pack price. In Latin America, despite unusual competitive pressures, we remain the number one battery player with the best overall alkaline and the zinc carbon performance in share.

Plans are in place to improve our performance in fiscal 2012 as the market stabilizes. Finally, we maintain our solid number one worldwide market share in hearing aid batteries with very strong growth in Europe and increasing share of US retailers. Our Remington personal care business is our fastest growing segment. It continues to outperform or trend higher in key US and European categories. More recently, it is the number one major hair care brand in both units and dollars in North America. We continue to launch new products and line extensions at a rapid rate. In the fall, using our Spectrum Value Model, we will enter the $2 billion US men's market with the Remington King of Shaves Azor product line. Both handles and systems have major food and drug accounts.

We've also achieved a successful extension of our Remington brant name in hair care accessories and brushes at major retailers. And, on the heels of a very successful 18-month launch of the product in Europe, we recently received FDA clearance for our unique i-LIGHT intimate hair removal system. We have already secured several key retail distribution outlets for i-LIGHT this holiday season with more retail placements expected in 2012. In North American Home, we've seen positive POS at all of our major accounts recently. We expect similar trends to continue as we've secured an increased share of holiday promotions. We recently announced an extension of our trademark license agreement for the Black & Decker brand through December 31, 2015 in North America, Latin America, excluding Brazil, and the Caribbean.

In Global Pet Supplies, we are encouraged by improving volume trends driven by key distribution gains at several major retailers, including new product launches in our Dingo and Nature Miracles lines, as well as in our Tetra aquatics category. On the acquisition front, our pet business is actively considering a handful of small, bolt-on acquisitions in the companion animal category. Finally, in Home and Garden recent data shows consumers embracing our value brands and we are taking market share. Our later season indoor and repellent products have not been impacted by the extreme weather this spring like most outdoor products. Remember, too, our exit from the retail fertilizer and seed business 2 years ago has greatly reduced our exposure to weather variability. Home and Garden should still deliver a stronger fiscal 2011 from impressive share grains, aggressive expense management and over-delivery of continuous improvement programs.

Already, through the 9 months of this year, Home and Garden's net sales are up 3% and adjusted EBITDA has increased a solid 10%. And, like our pet business, Home and Garden is evaluating several small tuck-in acquisitions. On the cost side, we've been out front of a significant commodity and Asian supplier cost increases affecting so many companies today. We are aggressively tackling it head-on with a combination of continuous improvement programs, continued retail [lens] and distribution expansions and going forward with select price increases. We also believe we are well protected into fiscal 2012 through our commodity and currency hedging program such as for [zinc] and others. We are ahead of schedule with our Russell Hobbs integration program and increased cost synergy projection of $30 million to $35 million by the end of fiscal 2012.

Other Russell Hobbs opportunities lie ahead. They include capturing new product development strategies as we leverage each company's regional strengths and complementary categories and improve upon Russell Hobbs supply chain cost structure with continuous improvement in new product development. Our goal with Russell Hobbs, like our other businesses, is to reduce cost of goods sold annually by up to 5%. We are seeing early progress in moving select Russell Hobbs products into Western Europe and for the first time, into Eastern Europe and China using our established battery and personal care platforms. These revenue and supply chain opportunities are not included in the $30 million to $35 million of forecasted synergies.

Major integration activities continue as well in our pet business. We continue to forecast annualized cost savings of $7 million to $11 million, and likely, on the higher end of this range by the end of fiscal 2012. When you combine the Russell Hobbs and pet cost savings, we are forecasting annualized synergies of $37 million to $46 million by the end of fiscal 2012. As a reminder, our fiscal 2011 guidance was not built upon a consumer spending rebound or an economic recovery. Like so many other companies are reporting, we are experiencing rising costs, especially from Asian suppliers.

However, we feel we are well-positioned for the rest of fiscal 2011 and 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. Let me emphasize again, that most of our products are non-discretionary, non-premium price, replacement products that provide value, quality and performance to consumers in everyday living. We continue to believe our Spectrum Value Model is the right retail strategy, especially in this period of rising commodity costs and inflationary pressures at the manufacturing retail and consumer levels. Now, I'm going to ask Tony to give you a brief financial review.

Thanks, Dave, and good morning, everyone. For our third quarter of 2011, consolidated GAAP net sales increased 23% to $805 million. The addition of Russell Hobbs business, as of June 16, 2010, drove the increase. Results were positively impacted by $31 million of foreign exchange. Including last year's third quarter results for Russell Hobbs, this year's third quarter net sales of $805 million increased 2% versus $791 million in 2010. Third quarter total operating expenses of $215 million increased $22 million from last year, primarily due to the addition of the Russell Hobbs business, which accounted for $19 million of the increase. Corporate expenses for the quarter were $14 million, up from $12 million last year, due to a $2 million increase in stock-based compensation expense, a non-cash expense. For the quarter, the Company reported GAAP net income of $29 million, or $0.56 diluted income per share, versus a net loss of $87 million, or $2.53 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, 2011 third quarter adjusted diluted earnings per share, a non-GAAP measure, was $0.66, representing an increase of 35% compared with adjusted diluted earnings per share of $0.49 last year. Including the results of Russell Hobbs as its combined at the beginning of last year's third quarter, 2011 third quarter adjusted EBITDA increased 2% to $127 million from last year's $124 million. Foreign exchange had a $5 million positive impact on adjusted EBITDA in the quarter. We remain on target to achieve our projection of adjusted EBITDA of $455 million to $465 million in fiscal 2011. In the interest of allowing more time for questions and answers, I will refer you to our earnings press release for details on our third quarter segment results and our consolidated results for the 9 months of fiscal 2011. Let me review a few more items in our third quarter financial statements. Third quarter interest expense was $40 million compared with $132 million last year.

This was primarily due to unusual items totaling approximately $78 million in the same period in fiscal 2010 related to the Russell Hobbs acquisition, coupled with lower effective interest rates in fiscal 2011. Cash interest payments for the third quarter were $49 million compared to $56 million last year. The payments for 2010 included $16 million of cash items included in the $78 million of unusual expense items related to the Russell Hobbs transaction. Excluding the $16 million of unusual items for 2010, payments for 2011 were higher by $10 million, primarily due to timing and changes in our capital structure. Cash interest payments are expected to approximate $160 million to $165 million in fiscal 2011. Tax expense for the third quarter was $9 million compared with $12 million last year. Cash tax payments for the quarter were $10 million compared to $8 million last year, primarily due to the Russell Hobbs acquisition and timing.

As noted before, based upon the level of NOLs we expect to utilize, we do not anticipate being a US federal taxpayer for at least the next 5 years. However, we will continue to incur a very small amount of state cash taxes and primarily foreign taxes when it comes to cash taxes. Cash taxes are still expected to approximate $45 million to $50 million in fiscal 2011. Our liquidity position remains solid. We finished the third quarter with a cash balance of $88 million and $55 million drawn on our $300 million ABL working capital facility. The $63 million reduction in borrowings on our ABL from the end of our second fiscal quarter to the end of our third fiscal quarter reflects the normal seasonal timing of our business. As of the end of the third quarter, total gross debt was $1.763 billion, which consisted of our term loan of $657 million, senior secured notes of $750 million, subordinated notes of $245 million, and the working capital facility draw of $55 million and capital leases and foreign debt of approximately $56 million. In addition, we had approximately $24 million of letters of credit outstanding.

Dave has reaffirmed our fiscal 2011 free cash flow projection of $155 million to $165 million. Capital expenditures should approximate $40 million this year. We are committed to our primary financial objective using our strong free cash flows to aggressively pay down debt, thereby reaching a leverage ratio of 3.5 times or less by the end of fiscal 2011. Finally, please refer to our earnings press release for details on the recent public offering of our common stock by the Company and by Harbinger Capital Partners Master Fund. The net proceeds to our Company for the sale of its 1.15 million shares, which includes the over-allotment, and after underwriting discounts and estimated expenses, was approximately $30.6 million. We will not receive any proceeds from the sale of the common stock by Harbinger Capital Partners. As we previously stated, we expect to use the net proceeds for general corporate purposes including, among other things, the expansion of our business, acquisitions, working capital needs and the refinancing of existing indebtedness and debt reduction. Now, back to Dave for a few closing remarks.

Thanks, Tony. In summary, we expect to deliver top line growth of 1.5% to 2.5% this year. We project increased adjusted EBITDA of $455 million to $465 million versus $432 million last year. We continue to forecast free cash flow this year of $155 million to $165 million. Aggressive debt pay down and deleveraging remains our overriding focus. We are also offsetting rising commodity and Asian supplier costs with continuous improvement programs, reducing our cost structure and lowering our expenses, continuing distribution in market share gains and pricing actions when and where appropriate. In today's world of sluggish consumer demand, tighter retailer inventories and rising costs, we believe we have the correct strategy for our portfolio of branded and trusted products, 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 performance at the same price. Thank you.

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

(Operator Instructions) Bill Schmitz, Deutsche Bank.

Have you taken a stab at what the organic growth was in the quarter ex currency and ex Russell Hobbs? Because I was trying to back into it and I was having a pretty tough time.

Bill, it's basically flat, which would mean that it's up in all our categories, because almost all our categories were flat to down.

Okay. Is it that same thing for the guidance? Like you think it'll roughly will be flat ex currency for the full year also?

Yes. Maybe a little bit up, because we're a lot stronger in the fourth quarter than the third quarter. Because we prepare for holiday. We're trending pretty good right now.

Okay, that's great. Thanks. How about the timing of the Carrefour shipments? Was there a benefit this quarter and is there more going forward?

They've just started. We should see in it the fourth quarter and really next year.

Okay. Will there be a big pipeline fill or will it really just be consumption-driven?

Their system is a little different than others. It kind of goes country by country, so it will take a while before it's fully engaged. But, really, by our new fiscal year it should be fully in place.

Okay, great. Then just one last one, is there any specifics you can give us on pricing? Like where you took it? Obviously, we know that the battery pricing is out there and it looks like its sticking pretty well, but is there any other big, notable pricing increases that we should be aware of?

Well, how we do pricing, because of our model, is, what we try to do is we do targeted pricing. So that could be low single digits and then we also offer a mix of cost improvements, cost reduction, distribution gain, synergies, we kind of put it all together and we really try to work with our suppliers and customers to achieve the right. But, we price kind of what the market tries to price with, competitively. We try to do more things than just price, because I don't believe just pricing is going to solve all these retail and consumer issues.

Okay, great. And then, I'm going to put you on the spot little bit. Given what you know now, how good do you feel about Spectrum 500?

You know

It was always a stretch, though, I understand that.

I don't know how I felt about anything the last four days, how about that? (Laughter)

You and me both. Okay, that's fair. All right, thanks.

Bill Chappell, SunTrust.

Just to go back on of Bill's questions, the way I was looking at some of the numbers, it looks like every division had sales declines if you take out FX, except for personal care. Is that not organic or are you including FX benefits when you're talking about organic growth?

Well, Bill, no. You're wrong. We have some really good gains in certain geographies and we have some declines in others. It's nice to exclude FX, but then I would like to have credit for all the cost increases in commodities. Then tend to offset each other. So, it's kind of dangerous for people to start getting caught up in this FX and not understanding how much commodity increases there are.

And, they tend to, right now, I would gladly trade all the FX gains to get rid of all the commodity increases, how about that? I would say that the reason that our sales look that way is that 0.75 of our businesses, and especially geographically, are up pretty nicely. We just have one or two that just aren't.

Tony, here, Bill. Just to expand on that, a tad. You're absolutely right, what stands out is the Remington personal care business that we have that we call personal care shaving and grooming and the hair care piece, and that's worldwide. If you dissect into batteries, you can see that we have had gains in North America and in Europe, it was Latin America where we've got the competitive pressures that have abated now. We're still the number 1 battery player and we won the competitive pressures or bite, but there was a high cost to that.

And then, when you look at the other piece of the business, Home and Garden, clearly impacted by the weather, but when you look at it on 9-month basis, that business is up in sales and as Dave said, 10% growth in EBITDA, which we think is a very, very strong performance, outstanding performance considering where the competitors were in that category in total. So, I think Dave's point is right that on the surface, you can paint it with a wide brush and say yes, the business was down when you excluded exchange other than personal care. But when you start to dissect into the details, I think it tells quite a different story. Clearly, as Dave said, in categories that are flat to down, and we're beating those categories, that's really what I think is the most important take away.

Okay, well then let me just dig into it a little bit more because the 2 areas, I guess I don't understand our European battery and Pet. On European battery, if you take out FX, it looks like maybe you gained $1 million in business, which is like a percentage point, so I just -- am I missing something there? And then on Pet, taking out FX, Pet was actually down. I thought originally you thought in third and fourth quarter, Pet would rebound and we'd see growth in that category. Can you maybe give some more color on those?

Let me answer the pet question, Bill. In pet, when you look at it globally, companion pet and aquatics together, you take FX out, it's essentially flat versus year-ago. But when you dissect it further, the companion pet business inside of that was actually up almost 7%, aquatics was down 3% or 4%. Depending on how you look at it, we were very pleased with our growth in companion pet, which is what we were hoping to have occur, and we're fighting the battle in aquatics, which is a very tough category.

So, you do think we'll see a rebound in pet as we move to the next couple of quarters?

We are seeing growth versus year-ago, at all of our key customers, as Dave explained. On a currency basis, we have a lot of aquatics outside of the US, which hurts us, obviously. But, we are seeing growth in our major accounts in North America on Pet right now.

And then, I'm sorry, on European battery?

European battery hasn't grown in 4 years. And the fact that we're up a little bit is really good news and we haven't really shipped Carrefour and we haven't really shipped our lithium batteries and we haven't shipped the new batteries we got placement for. So that trends very positive and we've exited most of the unprofitables privately.

Yes. It's behind us.

I'm very encouraged about where that one's going.

Okay. Then, just last question, in light of what's going on over the past 5, 6 days, have you changed or have you gotten maybe more opportunistic on terms of some of the commodity hedges and how you're looking at some of the headwinds, maybe tailwinds going into next year? Does it --?

Of course we have.

I didn't know if there's much you can do you on zinc since you already hedge a fair amount out. But is it diesel, is it oil, are there areas which you're seeing --?

Zinc fell a couple hundred --

Zinc was down, I believe it was 16%, from Friday into Monday. As we've said before, we have a very disciplined hedging program and what we do is we hedge 6 quarters out and we'll layer in 12% hedges each quarter and as I said, going 6 quarters out. Then we'll look for opportunities if we think a discretionary hedge is appropriate based upon where the market is. Just so happens that we're in our next quarter and every quarter we layer in this disciplined hedge. When we saw the zinc prices drop on Monday, we struck while the iron was hot. We're now in a position where we continue our policy of hedging zinc and I'll just tell you that for next year, we're about 65% hedged for next year. Of course, this year we're pretty much at our capacity of 75% hedged, which is typically where we like to be.

So you can actually see some benefit from the recent drop in the fiscal 2012?

Yes. We're hopeful. Yes.

Okay. That's all I had. Thanks so much.

Torin Eastburn, CJS Securities.

In the Home and Garden business, is there any way to try to estimate how much you think weather impacted the results or conversely, how much you think you could make up in your fourth quarter?

This is Dave Lumley. The fourth quarter is not a big quarter for Home and Garden. It's repellents and some of the household. So there's some opportunity for the industry to make up some, but it's also the time of the year retailers tend to start shifting their space as they prepare for other things. It is where it is. Now, the good news for us is that we're pretty heavy in household repellent, so we're optimistic about where market is, but we only have 6, 7 weeks left in our fiscal year.

I do think that you should feel good about next year, that most likely this amount of unusual weather that hit in the spring and one of the all-time droughts in the Southwest should not reoccur. So, I would think that everyone should feel better about next year than this year. If you study Home and Garden 5-year, 10-year trends, you'll see it kind of levels out. There is x amount of homes, there's x amount of lawns, and there certainly is x amount of bugs. So, it kind of levels out. You may remember, too, last year was an unusually good year and everybody was running around and building models for that. You really have to look at the whole Home and Garden Business in 3-year, 5-year and 10-year ranges and not get too excited in a big year and get too depressed in a down year.

How much do think the business is impacted by strength or weakness in the housing market?

It is impacted. It's definitely impacted. But that's been going on for more than 2 or 3 years, so I think that's built in right now.

Yes.

The big things that impact, that helps it, it was kind of like when I was in the storage business is people moving and there's a lot less people moving.

Right. I think it's fair to say, too, while it does impact our business, there's no doubt about it, it probably impacts us less than when we were in the fertilizer growing [media] business. Typically there, when you have the housing market, people are doing new landscaping. When you look at our products, we sell in the herbicides, we're talking spectracide when it comes to killing weeds, we're talking about insecticides indoor and repellents, obviously, and then outdoor insecticides. So there's an impact, but it's not as egregious of an impact as when we were in the fertilizer growing business.

I think it's an important thing to realize that you can drive top line in the Home and Garden business pretty easily if you want to lose a lot of money, especially in fertilizer, seed, mulch, growing media and especially if you're in the private label business. To be up 10% in that this year would mean you're losing a lot of money. We're not in that business anymore, which is why we focus on the case good chemical business, it's much more steady. Yes, we have a controls business that was affected in March, but we have not dominant share there. We're gaining share there. Our model, our stability of our model is very attractive.

All right. And, one other question to follow up on Bill's question about zinc, you don't give profitability for batteries specifically, but broadly, how do you feel about the margins there now and over the next, let's say, 12 months or however far out you feel comfortable talking about?

I'd say I feel -- Dave Lumley here -- a lot better than I have the last 2 years. I mean imagine, in the last 2 years, you've not only had rising commodities, but an unusual pricing war for distribution among the top 3 battery companies with bonus packs and all kinds of wild discounting around the world, not just in the United States, especially down in Latin America throughout Europe, all kinds of different things. You not only have increasing input costs that you have increasing promotional costs. This has stabilized. Everyone figured that didn't work, especially for the retailer, and now, zinc is stabilizing and down a little bit and rationality has come back to the market. I'm cautiously optimistic that margins should improve, especially for retailers. Because they took all lot of the hit in this war as well.

All right. Thank you.

Hamed Khorsand, BWS Financial.

I'm trying to figure out where are you expecting softness that you were forced to reduce your revenue forecast?

This is Dave Lumley. I forgot that we were in Boston and New York and we explained that. The revenue forecast is down like 1% on average and that's about -- we have $3 billion of sales, 1% is about $30 million, and we missed about $15 million of expected sales in Home and Garden last spring that we knew we couldn't make up in the control segment, which I just talked about. Then we made a strategic decision in our Appliance Business, which Terry Polistina runs, in not being as aggressive in some of the promotions that were money losers with the current price increases from China. Our retailers, we work with our retailers and they agreed as well, there's no sense to put out product that we all lost money on. We took a step back. We're very aggressive in promotions in our appliance business and our personal care and that was about $15 million. You take $30 million out, we only have 6, 7 weeks to go at our fiscal year.

Remember our fiscal year is not the calendar year. Now, we fully expect it to pick that up next year as we do things if things stabilize. It was that simple. I've had other people saying only have a lot of moving pieces. That's right, we do, but those are very easy to identify things. Frankly, we made those type of decisions across the board right now because our number one goal is to pay down debt and increase our cash flow. You don't want to go spend $30 million, $50 million to lose money. So, that's kind of what we did.

Okay. My other question is when will we see results from your recent increase in R&D spending?

I think you're seeing it right now in our distribution gains; in our hearing aid, our mercury-free hearing aids, we've had a great year, and that was a lot of that increased spending. Our Varta relaunch, making it best-in-class performance in Europe, there's is a direct result. Our new, i-Light intimate hair removal FDA clearance in the US, that was a very long process and appropriately so. That's coming out by the end of the calendar year. I could go through several other examples in Home and Garden; we've had new formulas and stuff.

New delivery systems.

A lot of new delivery systems there. So it's happening now and that's frankly, why I think we're gaining some share. And any Company that has anything unique that's better, these things can happen. We were R&D starved for a while and as you know, when you spend R&D money, it doesn't immediately result. But it's doing it now and I think you'll see more next year.

Okay. Thank you.

Arthur Roulac, Nomura.

A couple questions -- first, on the synergies and cost savings from the acquisition, how should we think about that in terms of modeling next year' EBITDA? Meaning, what's been realized this year and what should we be adding on to EBITDA, so to speak, due to these synergies?

We've said that with respect to the Russell Hobbs transaction, $30 million to $35 million in synergies. I think it's fair to say that it's about 50/50, that we've gotten this year and to model 50% of that coming into next year, as well. It's about the same percentage for the pet side. We say 7 to 11. We've hinted that it's probably going at the higher end of those ranges, so use your good judgment. But I'd say use a split of 50/50.

Okay, great. My next question is, can you just elaborate a little bit your thoughts on some of the bolt-on acquisitions, the nature of them and size and when you anticipate perhaps closing them?

Well, I will let John Heil talk a little bit about that for Pet and it's virtually the same for Home and Garden.

But maybe as an overall comment, before we switch over to John, is that we've said publicly that the 2 businesses that we're focused on is the Pet Business and the Home and Garden Business. Why the Pet business? We'd like to get more companion animal, even out the hold, if you will, between the companion animal and our holdings of aquatics. And, obviously, it's a high-growth area, the companion animal space, and Home and Garden because we're the strong, number 2 player in, whether it be herbicides or the insecticide side of the business, and its a hybrid entry, very profitable business. Both the Pet Business being in the high teens and over 20% with the Home and Garden Business. So, that being said, that's where our focus is and as to answer specific to your question, it's kind of difficult to say timing and all because we continuously look at opportunities and we're looking at small, bolt-on or tuck-in acquisitions.

It's very difficult to say, for instance in the Pet space, a lot of those are entrepreneurial type companies that it's relationship building and it's a relatively long process as to when the trigger will ultimately be pulled, if you'll pardon my expression. That being said, there's other factors too, with respect to the price of the property and does it make good economic sense for us, what are the synergies associated with that. But we're looking in those 2 categories, primarily for products that are manufactured products that we could bring into our manufacturing footprint, whether it be Pet or Home and Garden and not only reap the benefits of the sales and EBITDA of the target company, but also have the normal air quotes around synergies, the back office synergies. But more importantly, the synergies associated with manufacturing to further fill up our plants so that we're able to run favorable variances and really hit on all 3 of those aspects. But, John, I don't know if you want to add anything to that, specifically to Pet?

Tony, I think you've covered most of it. I would just say that in the Pet area, the spaces that we are looking at are principally the areas of dog and cat treats, emerging dog and cat foods and healthcare, all areas that are showing dynamic growth, both in the US and globally. We do have a global platform so we are looking globally at properties in different parts of the US that we could use either the brand or the product or the intellectual property and leverage our platform. So, we're active, I think Tony said it pretty well, these are not big processes or auctions, we're looking at small, emerging companies that could be a nice additional piece to our portfolio.

Got it. And 2 follow-up questions -- 1 would be any thoughts from a corporate finance standpoint of maybe instituting a small dividend with the $40 million restricted payments that you can use?

Yes, we're looking at that and it's under consideration. But, keep in mind that we do have credit agreements that there's certain hurdles we need to reach to get to those.

The bottom line is you're absolutely correct. The potential for a dividend, we look at that and we see that as being a potential down the road and clearly, a potential buyback as well.

Finally, I know you'd said you'd picked up share in North American battery. Can you tell us what that share is now versus what it had been at the beginning of this fiscal year?

Yes, we're almost 17 and alkaline and into the high 20s overall. It's up about 1, 1.5 share points versus this time last year. Now, these things go up and down quite a bit as the best season for selling batteries is November, December, January. So, that will tell whether we keep going up or not.

And, have you seen, in battery, I think Energizer on their call had said they thought there had been some sort of hangover from a demand standpoint due to the larger pack that had gone out the last couple of quarters. Are you seeing that in your business at all? Or do you think that's more of an Energizer issue?

No, there was a big hangover. All the companies had bonus packs and they had to be pushed through the market and that's taken some time. But it appears that thing is just about through. There's still pockets in certain retailers that have more left than others. But I think as we get into Christmas season, and after, again, like I said, it appears that a rationality has returned to this market. But, if not, then we will respond in kind and immediately.

Okay. Well, thank you and way to execute against your plan. We'll talk soon.

Reza Vahabzadeh, Barclays Capital.

On the cost savings you talked about the 2011 cost savings, have you realized any of that so far in FY '11?

Which cost saving, Reza, I'm sorry?

On the Russell Hobbs or on the Pet side?

Yes, yes, yes. On the Russell Hobbs, we said that we anticipate by the end of fiscal 2012, we should have $30 million to $35 million of annualized synergies. And yes, as I mentioned on the question before, about 50% of that has been earned in 2011 and about 50% will come through an next year.

Right.

And it's the same with the Pet. Yes.

On a run rate basis, where are you as of the end of your third quarter? On a cost savings?

It's pretty rateable I'd say. We're probably about maybe 75%, 80% in there, maybe closer to 80% done. We're starting to see the benefits come through in a good way.

I assume all the actions have already been implemented to realize the remaining cost savings on both the Russell Hobbs and the Pet side? It's just a matter of rolling through the P&L?

Not entirely, no. It's a process. Russell Hobbs was an $800 million transaction and I think it's fair to say that all the back office-type items have been completed and now we're in the process of moving towards the front office and truly integrating the Remington business and the Russell Hobbs business together. So, I would say that there's still more some costs to come, but they should be relatively within the next quarter or 2 at the most I would say.

We're ahead of our schedule --

Right.

-- in every case and we've accelerated them and the same is true in Pet. The issue with synergies and integration is that it's usually a 3-step process. Sometimes you get all excited and try to make it a 2-step process. That's why most companies don't achieve any synergy savings at all, because then you're operations suffer. But the more accurate word is, they fall apart. We are really on schedule in the 3-phase program. We're well into phase 2 on the Russell Hobbs, Remington 1. Phase 3 is always the easiest. And in Pet, they as well are well into phase 2.

By the end of 2012, we should get there faster than the end of 2012. But again, the last 4 or 5 days have made things, who knows. But, I think we're pretty good at this and we're doing really well on it. I think it's a strength that we got out in front of this quite a while ago. We do so much in China. Most of you may remember, we've been saying we knew this was coming for a year. It seems like certain people in the media just discovered it 4 days ago. But, I think this is a really good thing for us and we're ahead of this and we know how to do this.

Then, you talked about, David, some distribution gains, as well as some favorable POS trends. Can you elaborate on that and give us some examples besides the Carrefour?

I can give you some general examples. The problem with this is, you guys would like a number for worldwide batteries and that's just misleading. I think if you took Home and Garden, let's go there. We talked about Home and Garden. Our repellent and insecticide business is doing extremely well, high single digits, double-digit POS gains. That's good. The controls business suffered like everyone else is. They weren't positive.

Our Battery Business, except for in Latin America, is up in the mid, low to high single digits, depending on what type of battery it is, same in Europe. Our Remington business has done extremely well all year, single to double digits. POS is tied to 2 things -- one is how much you have in distribution and the other is how affective your programs are in working in concert with the retailer. If the retailer is really pushing the category, then you're going to do better than if they're not. You heard John Heil talk about companion animals doing extremely well for him in almost all accounts. Yet, aquatics continues to suffer. You add the 2 together, it means flat. The consumer, worldwide, is hunting for value and promotions and buying what they need and those are the products we sell.

So, in down categories we are up and I have a hard time explaining this. We don't price as aggressively of some of our competition, due to the amount of acquisitions they do to show a top line. We tried to help grow the category for the retailer organically right now. So if their categories are flat to down and we're the one who's up, we're up. But, we don't report the negative part of their POS and add that to ours. I don't know if you quite understand what I'm talking about.

I get it.

The other thing that's going on right now, and appropriately, much like we're doing with our suppliers, retailers are doing with their suppliers is they are not necessarily filling to 100% in the store. So, let's say you were selling hand lotion and your hand lotion business at retailer A was $100 million and he was selling plus 2%. So, you should be at $102 million, all things being equal. But let's say that you're selling through at 105%, so you should be 105%, why are your sales 98%? Because he's not filling to 100%. He's filling the shelves at 90%. Understand?

Yes.

That is what is going on, too, here. And no one is going to rush to take on extra inventory right now because the consumer is fickle, hesitant. So I think all this flushes through this fiscal year and you're going to get better comps next year, but there might not actually be better sales. We have to wait and see. But, I do know this, the consumer is shifting his mix from a lot of premium products only to more value products and even some private label products.

Or, more bigger purchases at a warehouse club and less trips to the store because of the cost of gas, right? All of those places, I think that the premium brand is important to have and the value brand is important to have. It's just that I think the mix is moving now more to the value brand, especially if the performance is the same or the taste is the same or whatever.

Let me just slip in one last question, you talk about commodity cost and the higher costs from China. Can you just talk about what is the rate of cost inflation that you're experiencing in your total cost of goods bucket?

Sure. In the Asian suppliers that make appliances, they have cost increases out there 5% to 15%, in some cases, 20%, 25%. Now, I'm not saying they're achieving them all, but what's complicating those price increases is also currency change. You've got to look at, if the Chinese currency was [6 8 and it's 6 5] that's 5%, 6% price increase right there. I think that's also starting for retailers who have been buying direct or sourcing direct, I don't care if they're flashlights or coffee makers, they've got that problem, too. And not only do they have the currency problem, the shipping problem, but they have the cost increase. And it's all there.

Yes.

Dead on. Again, I think that certain companies here, like ourselves, have an opportunity because we're kind of a buffer in that, whereas before, let's rush out to Asia and Mr. Retailer A and buy everything direct. Well, you've got all the exposure there. So, that's another thing that's going on. I actually think, believe or not, now this is just me speaking, over the last 4 days, that this adjustment, while very upsetting the stock price is going to help a little bit in Asia and commodities to alleviate some of the pressure. Should help that a little bit, because you can't keep rising there and keep falling over here. It just doesn't work.

Makes sense, thank you.

Karru Martinson with Deutsche Bank.

With the recent turmoil, as you referenced, here in the stock market and everything else, are you seeing any change for the orders for the holidays or is there an impact or any concerns that you have going into the holiday season?

Well, of course, everyone's concerned and the retailers are concerned, but at the moment, so far, everything's going forward. People still are going to buy Christmas presents and I think they are still going to have toast and kill bugs and turn the TV on with batteries. But so far, it's okay. I would just say it's a more cautious approach at the moment. Now, when the stock market was [12,500], the people who went into retail had no more money if they were laid off than they have today. So, if that holds, we should be okay.

Frankly, the best thing that could happen in the world is more people go back to work. Period. And all of this will get better. And until that happens, then it's a share gain.

And how do you feel about the holiday shipments versus the prior year?

Well, like we've said all year, we used to feel great and now we feel good. And, we still feel good because we have significant promotions we won and distributions we won, so we should still do better this year than last year unless there's something else that happens. We feel good. Like I said, I think our time has come a little bit here. Our model and our offerings -- it's one thing, I read a lot about consumers trading down. That's fine. But if you're trading down to something that tastes as good, works as well, lasts as long. I don't know if that's a trade down after you've got a good, positive experience.

The trading down on price.

On price.

Which makes sense if the product works just as good or better than the competing product.

And I've talked a lot about that. Our biggest issue with respect to our brands is simply getting trial gains, someone to try it. I don't care if it's a retailer or the buyer who's a little leery, wants to buy safe, buy the premium brand only. But this trading down or this -- I'd rather call it shifting the mix as the consumer tries new things. As we get trial, we get holding onto more those and that's why I believe that the model will continue to stronger and stronger and stronger.

And just lastly, were there any material changes in the Black & Decker license agreement? Specifically, was there anything changing in kind of a wind down if the agreement wasn't renewed in 2015?

I'll have Terry, who has been a part of that agreement since its beginning, talk.

Yes, there was no material changes and it's basically the same type of extension that we've had the last 4 times that we've done it since 1998.

Very good. Thank you very much, guys.

(Operator Instructions) Orlando [Munchand], [Tyron Investments].

I have a question about the value model. I'm trying to understand a little bit more how you work with retailers. You products, because they are lower-priced, reduce overall category sales, but they have a higher margin and a lower cost of inventory. Could you explain how the retailer thinks about in terms of how their net benefit of carrying some of these brands is?

The better question would be to ask each retailer. I'm not going to speak specifically to the retailer, but I can tell you that we have two reactions from retailers. When I have asked retailers, do you want top line growth, margin growth and lower inventory, which one you want? They say yes. We usually offer the same performance, less price, better performance, same price or, value. Give you an example, let's say we have a product and that product could be priced 10% below the premium brand and the top line sales you would assume would be 10% less. That's assuming the same rate of sale. But normally, when you're priced below, you sell more units.

In one case we catch up that way for the top line, and obviously they're making more margin in both those sales. Or we may add more value, we may put more product in the pack and charge the same. So that consumers actually has a 10% or 15% or 20% price decrease from a value standpoint, meaning that if you had a battery pack with 8 and ours had 12, and the price was the same, then the consumer has actually spent less. You could do it that way. We do it that way as well. There's always been this the idea that the consumer, because they have more of something, more soap, more shampoo, more batteries then they're going to come back and by less.

That old story may have held in the old days, it doesn't appear to be that way anymore. It seems like if you get extra of something, you use it faster because you know you have it, for the most part. Now, what did happen this year when the entire industry goes overboard, like we did in batteries, then you do slow down the rate in use. It's kind of like Cash for Clunkers, those who were going to buy it, just accelerated it. But that was an extreme example. If you just do it the normal basis, it tends to work out okay. Does that help you?

Yes, it does. Another question regarding your expectations of your ability to delever next year, could you just talk a little bit about how much room you have to achieve those targets of generating $200 million, $220 million of free cash flow next year, the different levels of EBITDA?

I think the best way to answer the question is that our number one objective is to delever the balance sheet. We're going to be at 3.5 times this year, we're going to be at or below 3 times, we believe by the end of next year. From a cash flow generation standpoint, we believe that the EBITDA, as we continue to grow our EBITDA and again, we haven't given any projections for 2012 with respect to EBITDA, but the point is, that we don't have a lot of items that impact our cash flow in a negative basis. You look at our cash taxes, they're relatively $40 million to $50 million, capital spending about $40 million and we continually pursue ways to maximize our working capital so that we can either grow the business and hold it flat or actually reduce it. So, I would say that, where we stand right now, based on where we are today, I'd say that we still feel very, very good about generating at least $200 million of cash flow next year and focusing primarily on debt pay down as a result of that. That is the prime directive that we have and that we operate under. Does that help you?

Yes, yes. And, just one follow-up on that subject, once you reach say 3 times debt to EBITDA, have you thought at all about where you plan to maintain your leverage ratios going forward?

Yes, we would see a sweet spot of about that level, between the 2.5 to 3 times leverage ratio, which our peer group, if you were to pull the companies that we perceive to be our peers, is probably in that range of somewhere between high 2s and mid-3 leverage.

Thank you, Orlando, we can take up some further questions off-line if you'd like, today as well. So, I think we're past the top of the hour and we'll close down the call now. But we do want to thank everybody on the half of Dave Lumley and Tony Genito, Terry Polistina and John Heil. We again wanted thank you for joining us on today's Spectrum Brands Holdings fiscal 2010 third quarter, 9-months earnings conference call. And, we will talk to all of you again on our fiscal 2011 year-end conference call. Have a good day. Thanks.

Thank you everybody.

This concludes today's conference call, you may now disconnect.