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Executives

Carey Phelps – Division Vice President, Investor Relations

Kent J. Hussey – Chief Executive Officer

Anthony L. Genito – Chief Financial Officer

Analysts

[Karu Martison] – Deutsche Bank

[Bob Wettenhoff] – Royal Bank of Canada

Joe Galzerano – Babson Capital

Bill Chappell – Suntrust Robinson Humphrey

Reza Vahabzadeh – Barclays Capital

[Unidentified Analyst] – BMO Capital Markets

[Mary Ann Manzalilla] – Angelo, Gordon & Co.

Jason Gere – Wachovia Securities

[Gentry Klein – Cetas]

[Henry Caplan] – Oppenheimer & Co.

Spectrum Brands, Inc. (SPC) F4Q08 Earnings Call November 11, 2008 4:30 PM ET

Operator

Good afternoon. My name is Tim and I’ll be your conference operator today. At this time I’d like to welcome everyone to the Spectrum Brands fourth quarter fiscal 2008 earnings conference call. (Operator Instructions) I would now like to introduce Miss Carey Phelps, DVP of Investor Relations. Miss Phelps, you may begin your conference.

Carey Phelps

Thank you Tim. Good afternoon everyone and welcome to the Spectrum Brands fourth quarter conference call. With me today are Kent Hussey, our Chief Executive Officer and Tony Genito, our Chief Financial Officer.

By now you should have an opportunity to read Spectrum Brands news release which is available on our website at www.SpectrumBrands.com and will be filed with the SEC when its system reopens tomorrow morning.

This conference call is intended to complement that release. Before we begin, let me remind you that our comments this afternoon may include forward-looking statements which are based on management’s current expectations, projections and assumptions and are by nature uncertain. Actual results may differ materially from those expectations, projections and assumptions so we encourage you to review the risk factors and cautionary statements outlined in the press release and in Spectrum Brands SEC filings including its most recent 10-Q and 10-K.

Spectrum Brands assumes 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, adjusted gross profit margins and net sales excluding foreign exchange translations. Spectrum Brands management uses these non-GAAP measures in its internal analysis of operational performance and believes that non-GAAP measures may assist investors in analyzing the impact of events and results and in identifying trends in the company’s business.

While 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. Reconciliation of these adjusted results to comparable GAAP financial results are available in the press release and also posted on our website at www.SpectrumBrands.com in the Investor Relations section. With that, I’ll turn the call over to Kent.

Kent J. Hussey

Thanks Carey. Good afternoon everybody and welcome to our conference call. Pleased to report that we closed out our fiscal year with over 7% consolidated revenue growth for the fourth quarter, led by market share gains and expanded distribution in our battery and personal care categories as well as foreign exchange benefits. Excluding foreign exchange, our sales for the quarter were up 5% with growth in every business unit.

For the full year, revenue grew 5% due mainly to foreign exchange. Sales were up 1% excluding foreign exchange. Consolidated adjusted EBITDA was $281.3 million for the year, up slightly over last year. Of note, our largest business unit, global batteries and personal care exceeded our expectations for annual adjusted EBITDA delivering year-over-year growth of 12.4% for fiscal 2008.

Before getting into anymore specifics for our quarter, let me discuss the notice we received last week stating that we had fallen below one of the minimum criteria to maintain our listing with the New York Stock Exchange. As a result of the dramatic decline in our stock price over the past several months, our 30 day trading average market capitalization has fallen below the minimum requirement of $75 million while at the same time our latest reported shareholders equity was below the required $75 million, causing us to be below the Exchange’s minimum criteria.

Per New York Stock Exchange rules, we intend to submit a plan as to how we propose to remedy our deficiency within the required period. While obviously a very disappointing development, I strongly believe that the recent declines in our stock price are not commensurate with the viability, strength and performance of our businesses. Rather, as you are all too painfully aware, the recent credit meltdown, global financial crisis has resulted in an almost unparalleled drop in stock prices over the past couple of months.

Companies such as Spectrum, which have high levels of debt, have been even more severely impacted as investors have made a flight to security in these unsettled times. This problem was exacerbated by the recent distribution of over 12 million shares or almost 25% of our total number of shares outstanding by the T.H. Lee Company, formerly our largest shareholder, as they were winding down the fund that held our stock.

These distributions obviously created a severe supply/demand imbalance which coupled with the volatile market conditions created in essence the perfect storm on our stock. In addition, unfortunately as a direct result of the dramatic decline in the market value of both our debt and equity, we were required under GAAP to book another large impairment charge this quarter. As you are all well aware, we have lots of company. As I’ve said before these are non-cash accounting charges that have no direct impact on our operations or liquidity. And Tony will walk you through some of the details later in the call.

However, we believe our company is performing well, gaining share in many product segments as the combination of exciting new products, our traditional value positioning and a more cautious consumer are all working to our advantage. All three of our business units are profitable, generate cash and are meaningful competitors in respected industries. And while as a corporation we are burdened with a high level of debt, our operating businesses have been generating a positive cash flow, enabling us to service our debt and to continue to invest for the future.

Notwithstanding the recent share price movements, I’m very pleased with the momentum I’m seeing in many of our lines of business and we are taking aggressive steps to remedy the one area that’s not working. Our largest segment, global batteries and personal care, delivered outstanding results for the year. Our global pet supply segment, despite enormous distractions with the now terminated sale process, also delivered very solid results. In our controls products within our home and garden business unit generated growth in sales and positive adjusted EBITDA for the year.

Our only noticeable disappointment was in the growing products segment within our home and garden business unit. As we stated on our last call, a sluggish housing market, tight inventories at retailers, low levels of foot traffic, and unprecedented commodity cost increases caused our growing products category to be a drag on the profitability of this segment and on our consolidated results.

In spite of intense efforts over the past year to restore profitability by raising prices and introducing higher margin value added products, the margins and return on invested capital on what are essentially private label products have not been at minimally acceptable levels. Despite recent declines in the price of urea, DAP and potash remain at historically high levels.

And more importantly, the level of volatility in these input costs, coupled with the extremely seasonal nature of this business and its significant working capital demands, creates a level of risk on our business that we believe is unacceptable under current circumstances. As a result and consistent with what other areas of our business to eliminate unprofitable products from our portfolio, our board has approved the shutdown of the growing products segment of our home and garden business, which includes fertilizers, soils, mulch and grass seed.

This decision was made only after our attempts to sell this segment in whole or in part were unsuccessful. We believe that the inability of interested buyers to obtain the necessary working capital financing proved to be an insurmountable issue. Our growing products segment required a working capital investment in the peak of the production cycle of nearly $100 million. While these products delivered revenues of $267 million for fiscal 2008, gross margins for the growing products business were down 16% year-over-year creating a significant drag on the rest of our businesses.

Adjusted EBITDA for our growing products in 2008 was a loss of $11.3 million. Including allocated overheads of approximately $9 million, the loss was over $20 million. We believe that the shutdown of this business one, eliminates an unnecessary level of risk in our business thereby strengthening the overall portfolio; two, is consistent with our previously communicated strategy of focusing on profitable growth; and three, improves corporate liquidity by eliminating a significant working capital investment.

We are working diligently with our customers to insure a very smooth transition of this business to new supplier to minimize disruptions in supply for the upcoming season. I should point out, however, we remain committed to the controls portion of our home and garden business, which generated over $300 million in revenue during 2008 and is composed of indoor and outdoor insecticides, pesticides, herbicides and personal repellants. This segment has been characterized by high gross margins, less seasonality, and therefore less peak working capital investment and broader retail distribution.

We market our value position products under national brands such as Spectracide, Hot Shot, Cutter and Repel, which has allowed us to more effectively leverage our marketing spending on a national basis. This segment is also more akin to our other businesses as it is a more traditional package goods business. With that, let me move on to our segment results for the fourth quarter.

Starting with global batteries and personal care, led by strong growth in alkaline shipments in North America, as well as continued double digit growth in women’s hair care, sales in our global battery and personal care segment increased 5.8% to $423.6 million, excluding exchange revenues that were up 2.1%. Global battery sales were $261.5 million, up 5.9% over last year due primarily to strong performance in North America and to foreign exchange benefits.

With the quarter highlighted by market share gains, expanded distribution, and encouraging placement wins at several of our major retailers, North American battery sales improved nicely, growing almost 20% over the fourth quarter of last year. That’s right, 20% in spite of sluggish category sales. North American battery sales accounted for over 30% of our total battery revenues in 2008.

During these tough economic times, as consumers are increasingly searching for ways to save money, we believe that the Rayovac value positioning, same or better performance at a lower price, is proving to be a winning strategy. Additionally, we expect that our presence in the largest discount retailers and recent additions of off shelf displays and promotions showcasing our value positioning, should help us to continue to deliver good results through the holiday season.

As in other consumer product categories, we believe that consumers are discovering that the value alternative such as our value position Rayovac battery brand, is just as good as the premium brand. We have always believed that once consumers try our product they will become loyal customers. After all, we’re selling energy in a can so if we last as long as the other guys, why pay more?

There appears to be a sea change in consumer attitudes, shifting from conspicuous consumption to smart shopping and saving money. I believe this trend will benefit many of our product categories where we are the branded value alternative. Turning now to sales in Europe, European battery sales were down 1.3% for the quarter, primarily due to our decision to exit some low margin, private label accounts as well as a tough comp in alkaline where we saw a very strong sell-in during the fourth quarter of fiscal 2007.

We believe the growth of private labels has stabilized and we are continuing our efforts to promote profitable growth and therefore expect to continue to exit certain low margin business as appropriate to create a more favorable mix of branded versus private label in our European operations.

Before moving on, I should also mention that the closure of our Ningbo, China facility announced last quarter is on track and we expect to be completed by January, 2009. As a reminder, as a result of higher transportation costs, rapidly rising material costs in country, and new labor and tax legislation in China, this plant became non-competitive resulting in our decision to shutdown this facility and move its production to our alkaline plants in both Germany and Wisconsin.

We’re currently converting with inventory into finished product to fill remaining orders and expect to cease manufacturing activity this month. Key equipment has been and will be relocated to other Spectrum Brands facilities and we intend to divest the remaining assets, including the facility within the next 12 months.

Latin America battery sales which accounted for nearly 20% of the segment’s annual battery revenues in 2008 were down 1% for the fourth quarter, where nearly 40% growth in alkaline was offset by a decrease in zinc carbon batteries, as consumers in this region switch to the better performing alkaline products. However, softening commodity markets appear to be taking their toll on the economies in this region of the world, which we [expect] consumer spending going forward.

In prior periods of economic slowdown in this region, consumers reversed course and converted their battery purchases back to less expensive zinc carbon products. We believe this could benefit us as we are the market share leader in the zinc carbon segment.

Turning to our personal care business, Remington sales were $132.2 million, up 3% including about $2.2 million of foreign exchange benefits. Women’s hair care continues to lead the way with nearly 30% sales growth in North America and we’ve seen nice growth in continental Europe as well. We’ve experienced continuing success with our straightener lines, particularly our Wet to Straight products and as a result have gained increased distribution at our major retailers.

We’ve been the fastest growing women’s hair care brand in the U.S. for 11 straight months. The trend, which based on placement secured through next spring, we believe should continue. Cindy Crawford will continue as our spokesperson in this category. For the full year, women’s hair care grew an impressive 16% with global revenue of $231 million, almost equal to our shaving and grooming business.

Shaving and grooming sales were down 6% for the quarter where we faced a tough comp in the UK as a result of aggressive promotional activity a year ago and a decline in the U.S. as we transitioned to our new, rotary shaving models. This transition is now complete and has positioned our shaving and grooming segment for what we believe will be a more robust holiday and first half of 2009 versus last year. Our optimism has been bolstered by early POS results for our new Flex 360 Rotary Shavers which are up 30 to 40% at key retailers compared to last year.

Designed to appeal to the traditional Remington customer, engineered to provide the closest and most comfortable shave ever, and value priced, we believe the Flex 360 is a winner. We recently signed Marisa Miller, a cover model and number one internet search celebrity for males 18 to 34, to bolster marketing activity and drive buying to our website for our shaving products. Our goal this season is to regain some of the share which we lost over the past two years.

Turning to our global pet business, with the distraction of the now terminated sale process completely behind us, our global pet segment grew sales 7.7% for the quarter to $159.2 million with strong gains in companion animal and European aquatics. Our top line also benefited from pricing taken earlier in the year. With expanding market share and powerful brand name, sales in North American companion animal were up 13.6%. Our Dingo dog treat products continue to lead the way with sales up 38% year-over-year for the quarter.

Growth in this segment should continue as we continue to expand the product line and leverage the Dingo brand. I’m also pleased to report for the first time in five quarters, North American aquatics saw positive year-over-year growth for the fourth quarter. Sales were up almost 1% reflecting a slow but stabilizing market.

Internationally, we experienced solid sales growth during the quarter of 11.9% and 6.8% in Europe and the Pac Rim respectively as we continued to see growth in aquatics in both regions, positive trends in Eastern Europe and the launch of companion animal in Europe which is now gaining traction. As you know, we invested significant marketing funds during 2008 to support the launch of the companion animal and are receiving good reception so far in the marketplace.

Overall, I’m very pleased with the performance of our global pet supply segment. During 2008, this team faced tremendous distractions but delivered very solid results. Full year revenue grew by 6% over 2007 and was up 3% excluding foreign exchange, led again by companion animal which was up an impressive 11%. Looking ahead to 2009, many of the input costs in this business are still at relatively high levels. As a result, we’ve developed a number of initiatives, some of which have already been implemented, to streamline our organization’s structure and reduce overhead costs.

We expect that fiscal year 2009 should also benefit from pricing averaging approximately 3% across a broad range of products implemented earlier this year. Fortunately, pet products, particularly consumables such as dog treats, birdseed, fish food and so on, tend to hold up well regardless of economic conditions. However, like many companies, we are seeing weakness in our more expensive aquatic equipment products.

Moving on to home and garden, as I mentioned a few moments ago, major changes are underway in this segment. However, including the products we are discontinuing, this business delivered revenues of $123.7 million for the fourth quarter, up 11.5% over the same period last year. Revenue growth was driven by our growing products which as I said earlier expanded their market share this year but also experienced dramatic declines in profitability.

Revenues for our indoor and outdoor control products were $84 million for the quarter versus $72.8 million for the fourth quarter of fiscal 2007, representing an increase of 7.4%. Gross profit for the controls products during the quarter was $36.4 million compared to $32.9 million during the same period last year, resulting in a nearly 100 basis point improvement in gross profit margins for the quarter for these products.

For the full fiscal year, revenues for our control products were $328.7 million. With that, let me turn the call over to Tony to discuss some of the details of our results and when he’s done I’ll come back with some concluding remarks.

Anthony L. Genito

Thanks Kent. Good afternoon everybody. I’d like to start off today reviewing a number of unusual items we recorded this quarter which have been excluded from our calculation of adjusted earnings per share.

Table 3 in our press release provides a full reconciliation of our GAAP loss per share to our adjusted diluted earnings per share. First, as a result of the decline in the company’s stock price and the decline in the fair value of our debt securities, the company in accordance with Statement of Financial Accounting Standards Number 142 recorded a goodwill and trade name non-cash impairment charge of $550.4 million or $459.9 million net of taxes.

Second, the company recorded net tax adjustments of $31 million to exclude the effect of certain adjustments made to our valuation allowance against deferred taxes and other tax related items. Third, we recorded $6.2 million net of tax of restructuring and related charges in connection with our decision to exit our Ningbo battery manufacturing facility in China as well as other company wide cost reduction initiatives.

Fourth, our general and administrative expenses this quarter included $2.2 million net of tax, primarily related to the termination fee incurred in connection with the previously proposed pet sale which was terminated in July. And finally, during the fourth quarter we had a benefit associated with expiring taxes and penalties in our Brazilian subsidiary of $2.3 million. This benefit has been excluded for purposes of calculating adjusted earnings per share.

Also, before moving on I should remind you that for GAAP earnings per share, the basic share counts of 50.9 million shares is used for both basic and fully diluted earnings per share as we incurred a GAAP loss. However, once adjusted for the items I just discussed, our GAAP loss turns to income and therefore we used our fully diluted share count of 52.8 million shares to calculate adjusted fully diluted earnings per share. With those items behind us, let me move on to our income statement.

Our fourth quarter adjusted diluted earnings per share, which again excludes the amount I just covered, was $0.06 per share compared to $0.11 per share last year. Gross profit for the quarter was $254.9 million, up 7.2% from last year’s level of $237.7 million. Gross profit margin for the quarter was 36.1%, the same as last year. Within cost of sales we incurred restructuring and related charges of approximately $2.2 million, primarily related to our decision to exit our Ningbo battery manufacturing facility which negatively impacted this quarter’s margin by 30 basis points.

Going to fourth quarter of fiscal 2007, cost of sales included approximately $14.6 million of restructuring and related charges, primarily related to the global reorganization announced last year, which negatively impacted that quarter’s margin by over 200 basis points. Excluding restructuring and related charges from both periods, our adjusted gross profit margin was 36.4% this year compared to 38.3% last year.

This reduction in adjusted gross profit margin was primarily driven by the significant inflation we saw in the raw material input costs of our growing products business in our home and garden segment, coupled with to a lesser extent, product and customer mix issues in our global pet supply segment.

Operating expenses for the fourth quarter were $750 million which included the non-cash, goodwill and intangibles impairment of $550.4 million and restructuring and related charges of $6.8 million. Last year operating expenses for the fourth quarter were $351.3 million, which included goodwill and intangibles impairments of $148.4 million and restructuring related charges of $25 million.

So after considering those items, operating expenses increased approximately $15 million year-over-year. Of this $15 million increase, approximately $6 million was due to the impact of foreign exchange translation; approximately $3 million was related to costs associated with the pet sale effort which was terminated in July of 2008; approximately $2 million relates to the nonrecurring curtailment gain related to an employee benefit plan that was terminated during the fourth quarter of 2007; and lastly approximately $3 million relates to depreciation and amortization expense for our home and garden business.

As you’ll recall, D&A related to home and garden was not included in last year’s expenses as that business was reflected as a discontinued operation and hence for GAAP we stopped recording D&A for that business.

Turning now to profitability, recently we have seen some declines in commodity and transportation costs. However, for the bulk of the fourth quarter, input costs were still at near record highs. Despite this, we saw growth over the fourth quarter of last year and adjusted EBITDA in our global battery and personal care segment, offset by a slight decline in pet and a 15% drop in our home and garden segment.

Consistent with what we said last quarter, the spike in input costs coupled with the selling and marketing investments we’ve made in the home and garden segment resulted in a sharp decline in year-over-year adjusted EBITDA. As Kent just mentioned, we are exiting our growing product lines. While growing products delivered an adjusted EBITDA loss of $11.9 million for the fourth quarter, our control products delivered positive adjusted EBITDA of $17.1 million.

Consolidated adjusted EBITDA for the quarter was $84.8 million versus $93.3 million for the fourth quarter of last year, with the largest decline coming from our growing products business within home and garden segment. Full fiscal year 2008 consolidated adjusted EBITDA was

$281.3 million representing a 1.3% increase over last year. And that’s despite the drag of our growing products business, challenging economic times, and extremely volatile commodity markets.

Our global batteries and personal care business unit, which benefited greatly from our global restructuring initiatives announced in 2007, as well as from intensive spending controls and SKU reduction initiatives during 2008, contributed adjusted EBITDA of $63.1 million as compared with $61.2 million of segment level adjusted EBITDA contribution during the fourth quarter of last year. This represents the seventh consecutive quarter of year-over-year adjusted EBITDA improvement in this segment.

Global batteries and personal care generated segment profits of $57.9 million during the quarter and a 6% increase over last year’s results. As an aside, in connection with the SKU reduction initiatives that I just mentioned, during 2008 our global batteries and personal care management team has been able to eliminate 47% of our Remington SKUs and 64% of our Remington models, which has resulted in both operational and cost efficiencies as well as a reduction in inventory levels and better working capital management.

Inventory turnover hit an all time high of 4.4 times this quarter, evidence that our product line simplification efforts are working. For the full fiscal year 2008, global batteries and personal care delivered an adjusted EBITDA of $185.2 million up from $164.7 million last year. That’s a 12% increase.

With regard to our hedges in the global batteries and personal care segment, we are currently 65% hedged for our zinc needs for 2009. In recent weeks, the spot price of zinc has dropped dramatically along with other of the world commodities. The current spot price of zinc is now around $1,100 per metric ton, which is significantly lower than it has been in the previous quarters and lower than the average cost of our hedges. As a result, we are in the process of layering in some additional hedges to take advantage of these depressed prices.

At this time, we have also hedged about 32% of our 2010 needs for zinc. Our ongoing hedging program will allow us to continue to average down if zinc prices remain at current levels. Let me remind you that in addition to zinc, other key inputs in battery manufacturing include nickel, manganese ore and steel. While zinc and nickel have returned to more normal historic levels, manganese ore is still at record highs.

We expect this material to follow the trends of the other input costs and eventually come down in price as one of the primary uses for this is the manufacture of steel, which is clearly still in decline. For now, though, prices remain at an all time high resulting in approximately

$26 million of projected cost increases for 2009 versus 2008. Consistent with the industry in North America, we have implemented selective pricing that went into effect in mid-September to help us maintain our margins.

Our global pet supply segment generated adjusted EBITDA for the quarter of $26.8 million, down 2.4% from last year’s adjusted EBITDA level of $27.3 million for the same period. The global pet supply segment generated segment profits of $20.1 million for the fourth quarter as compared to $21.9 million for the same period last year. Reduction of segment profitability was due to the non-recurrence of a credit adjustment of $2.5 million recorded during the fourth quarter of last year, which represented a true up of allocated corporate overhead expenses.

Excluding the impact of this reclassification, global pet segment profits are ahead of last year by 3.6%. Looking ahead, considering the ongoing volatility of input costs, we have taken selective pricing for 2009 and as Kent mentioned earlier, we have some restructuring issues underway to reduce costs.

Moving on to home and garden, with the lion’s share of the 2008 lawn and garden season past us as of the end of the third quarter, for the fourth quarter the segment delivered adjusted EBITDA of $5.2 million in Q4 of ’08 versus $6.1 million last year. The home and garden segment generated profits of $1.8 million for the quarter versus $6.2 million last year. This variance is primarily due to depreciation and amortization expense of approximately $4 million that was not included in the 2007 fourth quarter segment profit as the business was reflected as discontinued operations at that time.

As Kent mentioned, we will be shutting down the growing products business. In connection with this shutdown, we currently expect annualized savings in the range of $15 to $20 million. In addition, exiting this business will improve corporate liquidity by eliminating a significant working capital investment of close to $100 million.

Charges associated with this shutdown are currently estimated to range between $60 to $75 million primarily representing severance costs, lease obligations and asset impairments of which $30 to $35 million of those charges are estimated to be cash charges. Furthermore, we estimate that approximately $20 million of those cash charges will be incurred during fiscal year 2009.

Moving on, fourth quarter corporate expenses were $15.4 million versus $8.2 million for the same period last year. This year’s corporate expenses included $3.4 million in professional fees associated with the terminated pet sale as well as the non-recurrence of a curtailment gain of

$2.3 million which again was recorded last year in connection with the termination of an employee benefit plan during the fourth quarter of 2007. Interest expense for the quarter was

$56.5 million compared to $64.3 million during the same period last year.

This decrease in interest expense was really driven by several factors. First, we saw lower market rates on our term debt in the fourth quarter of 2008 versus the fourth quarter of 2007. Second, you’ll recall we paid off $200 million of term debt and implemented an AVL revolver at the end of the fourth quarter of 2007. The revolver has a low interest rate spread and the average outstanding balance for the fourth quarter of 2008 was less than the $200 million of term debt replaced in 2007.

Third, in association with the prepayment of the $200 million term debt, we incurred a non-cash expense in the fourth quarter of 2007 which was related to the write off of deferred financing fees that did not recur in 2008. Finally, the interest rate on the PIK toggle notes is higher in 2008 versus 2007, thus slightly tempering the year-over-year reduction in interest expense.

For the full year fiscal 2009, we anticipate total interest expense of roughly $234 million and the average interest rate for the year to be approximately 8.9%. For fiscal 2009, approximately 55% of our total debt is fixed rate or has been hedged. Fourth quarter depreciation and amortization expense was $21.8 million which included D&A of $8.8 million for global batteries and personal care; $6 million for global pet; and $3.5 million for home and garden; and $3.5 million at corporate.

Turning now to cash flow, our fiscal year 2008 free cash flow was a use of approximately

$16 million beating our prior estimate of a use of $50 to $60 million primarily due to focused inventory management and favorable timing of year end cash receipts. With respect to our previously provided cash flow estimates for fiscal 2009, while the favorable timing of net cash receipts in fiscal 2008 will impact 2009 cash flow, we continue to expect positive operating cash flow in 2009 and subsequent to the discontinuance of the growing products business, positive free cash flow for the year.

We made capital expenditures of $21.6 million during fiscal 2008 and received proceeds from the sale of our Canadian home and garden business of $15 million. Turning to our balance sheet and liquidity position, at the end of the quarter we had $104.8 million of cash on hand and our AVL facility was drawn down by $80 million. And we have drawn down additional funds since quarter end on that AVL. Our quarter end cash balance was driven by two factors.

First, as mentioned last quarter, we have been carrying higher cash balances primarily at our foreign subsidiaries which represents a substitution for various overdraft and other credit lines which we previously hadn’t placed prior to our refinancing last year. And secondly, aggressive collection efforts by all of our business units resulted in significant cash receipts at quarter end. As we’ve stated previously, we feel good about our liquidity position and believe we have sufficient funds to operate our business.

Outstanding net debt at quarter end was approximately $2.4 billion. Our senior leverage ratio which represents our only significant financial covenant was 5.0 times, which was well within the 6.25 times maximum ratio allowed which is under our senior credit facility. As a reminder, the maximum ratio allowed under our credit facility drops to 5.7 times for fiscal 2009 and then drops to 5 times for fiscal 2010 and thereafter. We currently do not foresee any issues with maintaining compliance with this covenant. Total leverage as of September 30 for informational purposes was 8.2 times.

So, in summary with the exception of the growing price of business, which we are aggressively addressing, we are very pleased with the solid results that our business delivered for 2008. Keep in mind that these solid results were in the face of rising input costs, a weak economic environment, tight inventory controls at retailers and in the case of our global pet supply business, some major distractions.

We believe that our value positioning will continue to be a positive for us in these harsh economic times as consumers are realizing the value of buying Spectrum Brands products. With that, I’ll now turn the call back over to Kent for his concluding remarks.

Kent J. Hussey

Thanks Tony. As we look to the future, it’s clear that we’re in a recession. The question is, how deep and how long? We believe the recent catastrophic credit and equity market meltdown, rising unemployment, and drop in consumer confidence will depress consumption for at least the next 12 months. The historic and unprecedented actions taken by governments around the world appear to be working, but we believe a return to economic growth is likely to take some time.

In the face of this adversity, we’re actually working on a number of fronts to adapt. Let me walk you through these. First, expect that we’ll continue to exit unprofitable or marginally profitable products, SKUs and customers. We’re very focused on achieving acceptable returns on invested capital and we’ll continue to seek to margin up. The decision to exit growing products portion of our home and garden business is the most prominent example of this strategy.

In other product lines or customers we’re pricing up to achieve minimal acceptable margins and we’ll evaluate exiting the related businesses if we are not successful with our pricing initiatives. Second, we’ll continue to selectively price where appropriate, however keeping the need to maintain our value position in place, especially in these more cost conscious times.

Third, we will channel more of our marketing dollars to in-store, on shelf merchandising and promotions and to maintaining critical price points, rather than spending on increasingly ineffective national media. Winning the consumer at the shelf has been a hallmark of our marketing success in the past and is even more important today.

Making sure the consumer sees us and understands our value proposition is critical. Attractive packaging, signage, displays, and attaining high visibility and high traffic locations in the stores will be our focus. In addition, our initial efforts toward web-based marketing have proved to be highly effective at targeting our customers and we’re planning to expand them in 2009.

Fourth, as I mentioned on our last call, we do not currently have a single big restructuring opportunity planned that is other than exiting growing products to achieve a $50 million cost savings as we did with the restructuring of the company back in 2007. However, we do have many singles and doubles that are being implemented across the entire corporation then in total we believe should exceed that figure by 2010. Lean manufacturing, suppliers who embrace lean principles, and a lean overhead structure will all contribute to this goal.

We expect to continue to consolidate manufacturing wherever possible to improve capacity utilization and reduce fixed overhead. Fifth, we will continue to focus on our largest remaining working capital reduction opportunity, inventory. We expect the areas from growing products will be the biggest single contributor. However, ongoing SKU reduction in every business should also be a major contributor.

And finally, we expect that the transfer battery production back to our western plants will reduce both work in progress on a global basis as well as inventory in transit. In total, and excluding the impact of the exit from growing products, our goal is to reduce inventory by $30 million or 7% on average in 2009.

As I look into 2009, I see one of our biggest challenges is finding offsets for the significant foreign exchange translation changes at today’s foreign exchange rate. With the recent dramatically strengthening U.S. dollar, our earnings in foreign currencies including the euro, pound, yen, Australian dollar, Brazilian real, and dollar among others may impact our reported operating profit and adjusted EBITDA going forward by as much as 10 to 15%.

Exactly where these currencies will go is anyone’s guess. The most recent forecast we have seen from our banking group projects a modest weakening of the dollar over the next 12 months. Fortunately, we do have some natural hedges on our transaction exposure and have most of the remaining transaction exposure hedged for 2009.

The second challenge we face is rapidly responding to consumer spending changes and the impact on our customers. Major retailers have been reducing their inventory levels and delaying purchases to the last minute possible over the past year as the economy weakened. We believe we are now operating close to a true consumption model, where point of sale up or down quickly impacts order patterns.

Our SKU reduction program has made it easier to plan requirements and has enabled us to operate with the right inventory and respond more quickly to changes in the market. So going forward, speed and agility will be key.

Offsetting these two challenges are the myriad of product cost improvement, productivity and cost reduction initiatives we have underway and planned for 2009. We’re taking steps now to reduce our cost structure, trying to get ahead of the curve so to speak. Finally, the silver lining in the global economic slowdown is the decline in commodity prices and oil. While we will not be able to reap the full benefit in 2009 of the zinc declines due to our hedging program, we are locking in what could be $30 to $40 million of favorability in this commodity in 2010 compared to 2008.

Also, while manganese ore is currently a significant cost increase for 2009, we expect this to correct itself by 2010 at the latest. Obviously we expect the dramatic drop in oil will result in lower transportation costs than the past six months as well as less pressure on oil based materials. All in all, 2009 will be an extremely challenging year; however, I believe the actions we are taking should enable us to weather the storm. I’m confident we’ll be able to leverage favorable commodity and input cost tailwinds instead of headwinds for a change, a lower cost organization structure and continuing productivity improvements as we head into 2010.

Hopefully with the resumption of economic growth and consumer spending, the bottom line impact then could be impressive. In the meantime we’ll continue with our stated strategies and tactics which currently give us the liquidity we need to operate our businesses and make the ongoing critical investments for the future. I’ll now open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Karu Martison] – Deutsche Bank.

Karu Martison – Deutsche Bank

When I look at your home and garden and EBITDA, so the right way to look at this is about $48 million for the year and then seasonally, will we still see a loss in the first quarter?

Kent J. Hussey

That’s correct.

Karu Martison – Deutsche Bank

So we will still see a loss in the first quarter?

Kent J. Hussey

Yes. I mean it’s almost the lowest quarter of the year I believe. Yes, the fixed overhead there results in a loss and that’s comparable to other competitors in the industry.

Karu Martison – Deutsche Bank

And in terms of the closing here, I mean, are you going to retain the rights to the brand? I mean, one of your competitors is out saying you know, they’re looking to provide the private label already.

Kent J. Hussey

We are currently retaining the rights but we are working to ultimately transfer these to the retail customers who have used these brands in the past.

Karu Martison – Deutsche Bank

That doesn’t sound like there’s any compensation for the brands coming.

Kent J. Hussey

We’re still working on that.

Karu Martison – Deutsche Bank

I didn’t hear what the average zinc hedge was right now.

Anthony L. Genito

We didn’t give it, Karu. What was – how much was hedged which is about 65% for 2009.

Karu Martison – Deutsche Bank

In terms of the working capital draw down here, I mean last year or last quarter you guys were talking about $40 to $50 million of free cash flow bringing up – well, for this year, but for 2009 you were saying $40 to $50 and you had rattled off we should get $20 to $25 from the FX urea hedges rolling off, we should see continued improvement on the lack of restructuring, obviously we’re not going to have that. I mean, if you backed out these kind of one time items, do you still feel that the core business even gets to those levels here in 2009?

Anthony L. Genito

To the $40, $50 million level?

Karu Martison – Deutsche Bank

Correct.

Anthony L. Genito

Well, keep in mind in 2008 we originally thought that we were going to be in a use of $50 to $60 million which we came in at about $16 million. Just do the math real easy. So we improved and then [were] able to save, came in at $20 so a use of $20 so you’re talking about $30 to $40 million improvement. A portion of that timing clearly is going to now impact 2009, because we did have some strong working capital management but was predominantly driven by as I said, inventory reduction, but mainly late cash receipts that came in at the end of the quarter.

Kent J. Hussey

Let me just head on here that we do believe this company will have free cash flow for next year in the crazy environment we’re in now, we’re somewhat reluctant to give you an exact number but clearly we’re taking all the steps necessary to make sure that we can achieve that objective for next year. So we will be free cash flow positive. The exact number is a little bit difficult to call given the volatility that we’re seeing.

The big unknown for all of us, I mentioned, is FX. Maybe that’s settling out now, but the question is what’s going to happen to the consumer in the next 12 months? And we’re assuming a downturn in the economy, not only here but in Europe and we’re taking steps now to change our cost structure to protect the bottom line, so to speak. And then ultimately protect cash flow of the business.

Operator

Your next question comes from [Bob Wettenhoff] – Royal Bank of Canada.

Bob Wettenhoff – Royal Bank of Canada

Just a couple housekeeping items, $234 cash interest for next year?

Kent J. Hussey

Oh. How much less than the total expense?

Anthony L. Genito

Actually it’s for next year we’re probably looking at something a little south of that, Bob. About $226 million, $225.

Bob Wettenhoff – Royal Bank of Canada

Where’s CapEx for next year?

Anthony L. Genito

It’s probably going to be at consistent levels to –

Kent J. Hussey

Yes, we’re looking at around $25 for next year.

Bob Wettenhoff – Royal Bank of Canada

Just to go back big picture, net working capital including the discontinued operations, you’re going to get some cash back. What’s the net number you guys are looking at?

Kent J. Hussey

We don’t want to give you all that granularity so that you can start backing into the numbers here.

Bob Wettenhoff – Royal Bank of Canada

I’m not asking you for your free cash – I mean, you’ve got to provide a little, not too much granularity but just a little help would be appreciated.

Kent J. Hussey

We expect, you know, you saw the amount – well, we’re not going to invest the peak. There’s actually – I’m not sure what the right number is today in the growing products segment that we’ll get back as we phase out of the business, so let’s defer a specific number there and let Tony get back to you.

Bob Wettenhoff – Royal Bank of Canada

You said a 10 to 15% decline in operating profit and EBITDA due to FX. I mean, you’re kind of like $280 for this year and 10% of that’s roughly $30 million, so are you suggesting like $250 EBITDA?

Kent J. Hussey

No. I’m not – don’t take this the wrong way. I’m not giving you a forecast of EBITDA. What I’m saying though is were we not to take any of the other actions, were we just to allow the you know, run the business at the same level, translating euros, pounds, and all those other currencies back into U.S. dollars would result in a 10 to 15% lower U.S. dollar reported EBITDA. We are aware of that issue and that’s why I said we’re taking a huge number of steps to try and offset that.

Now the unknown for us right now is is the dollar going to strengthen further or is it now going to back off a little bit and weaken a little bit? We don’t know. That’s why I’m telling you a range of, we think maybe 10 to 15% is call it something that we have to find a way to offset in order to maintain the level of profitability in our business.

Anthony L. Genito

Yes, Bob, this goes back to your point which is, you know, our point as well which is there’s a lot of moving pieces, you know, the FX comment that Kent made was exactly that. If everything was to be held constant, that’s what the impact would be. However, as we said in our prepared remarks, zinc we will benefit with lower price zinc, we’re not going to benefit as much as we would if we didn’t have our hedging program but again our hedging program is all about removing the variability.

We’ll ultimately see that but that’s an element that’s going to help us to an extent. So will manganese ore which that’s one commodity that has not moved in tandem with the other commodities and that’s hanging out there to unfortunately bite us right now, which is going the opposite way. And then in addition we talked about FX, but you know we’re looking at ways to and obviously that’s what we get paid for, is to take all those and say okay, well how do we come to something that is an EBITDA level that’s acceptable for us and to continue to grow this business?

And with that we, as you said there’s a lot of moving parts and that FX was just one piece of it.

Bob Wettenhoff – Royal Bank of Canada

Well, just to follow you’re getting back $30 to $40 million in cash flow on lower zinc costs even with your 65% hedge in ’09, correct?

Kent J. Hussey

No.

Anthony L. Genito

No.

Bob Wettenhoff – Royal Bank of Canada

Can you please clarify that on the zinc side?

Kent J. Hussey

Where do you get that number from? I think in 2010 as I said in my remarks, assuming we can continue to hedge at the current price, you know, there’s a $30 to $40 million benefit in 2010 versus where we were this year. 2009 is kind of a transition year because we’re about a third, roughly a little bit more than a third already hedged at something significantly higher than the current $1,100 a ton. 2009 I’m sorry.

Anthony L. Genito

No, 2009 it’s more than that. But as we said 65%.

Kent J. Hussey

Oh, 65%. I’m sorry.

Operator

Your next question comes from Joe Galzerano – Babson Capital.

Joe Galzerano – Babson Capital

I just wanted to get your definition of free cash flow so that we’ll all know what to expect, so your free cash flow at the cash interest, CapEx, cash restructuring, taxes, working capital?

Kent J. Hussey

Exactly. Our definition of free cash flow is the cash that’s available to reduce debt.

Joe Galzerano – Babson Capital

Give me the combinations that you’re taking all steps to continue to be free cash flow. Is that right?

Kent J. Hussey

Correct.

Joe Galzerano – Babson Capital

Is that really the case if you continue to pay interest on notes?

Kent J. Hussey

We have no intention of PIKing the notes. Currently. My lawyer is looking at me. But the number that you were given for interest assumes that we continue to pay the cash interest on the PIK notes.

Joe Galzerano – Babson Capital

And that just seems like you struggle each year to be plus or minus 10 or 20. But isn’t that like $80 or $90 million? Right? We’re talking about 10 to $20 million or possibly break even or what – every year we do this and yet it just seems like an easy way to be free cash flow positive.

Kent J. Hussey

Well, one thing I have to point out to you that my general counsel has reminded me. Under the terms of the indenture we can’t PIK the notes if the average price of our stock is below $3.00. So that option is not available to us currently. I hope we have that option in the future, though.

Operator

Your next question comes from Bill Chappell – Suntrust Robinson Humphrey.

Bill Chappell – Suntrust Robinson Humphrey

On the battery business maybe I missed it, was there any benefit from Hurricanes or was that really all just kind of core year to year growth?

Kent J. Hussey

That was core growth. There was probably a little bit of a pickup. I know that one of our competitors said he got a big boost but we really didn’t. I think what you’re seeing for us is selling in in some of our key retailers where we have, you know, better distribution going into the holiday season.

Bill Chappell – Suntrust Robinson Humphrey

And I guess with regards to that, can you talk about any just recent gains you got, any specifics and how much of it was just better consumer takeaway to your existing accounts?

Kent J. Hussey

If you look at our market share, actually through the end of September, it’s up slightly versus last year, okay? So we haven’t really seen it yet. I think the very, very strong numbers that you saw are a result of us being getting expanded distribution at several of our key retailers and getting that stuff shipped in and in place for the holiday season. You guys know where we do our business. Just walk through a couple of those stores and look around and you’ll see that we have a pretty good presence for the holiday season.

And I think many retailers – you see this all the time now in the last 30 days, are focused on the value alternatives. That’s what they’re pushing, they’re promoting, they’re advertising. And so again as the value alternative here I think there’s a very logical reason why we’re getting a little more play so to speak during this season.

Bill Chappell – Suntrust Robinson Humphrey

And then just one on the pet business, have you seen any incremental weakening as we’ve moved kind of into October, early November of that business? Or has it remained pretty stable?

Kent J. Hussey

No, particularly the equipment side has gotten very weak. People are not going out and spending a lot of money for big new aquarium and filters and equipment. Up through the middle of October the rest of the business seemed to be pretty normal. The last two weeks, you know, we actually have seen somewhat of a slowdown because retailers as they said now are deferring purchases until the last possible minute, waiting to see what the consumer’s going to do in their stores.

Operator

Your next question comes from Reza Vahabzadeh – Barclays Capital.

Reza Vahabzadeh – Barclays Capital

Just on the comments you made regarding inventory, the stocking, Kent. I mean is that something that you were already seeing in the fourth calendar quarter?

Kent J. Hussey

You mean at retailers?

Reza Vahabzadeh – Barclays Capital

Yes.

Kent J. Hussey

That’s been going on for well over a year.

Reza Vahabzadeh – Barclays Capital

Right, but is it accelerating?

Kent J. Hussey

No, no, no. What I’m saying is is that the retailers have been doing this so long now that they really are getting to levels where there isn’t much more to de-stock in many cases. So they’re watching their POS on a daily, weekly basis and they’re relying on key suppliers like us and other major consumer product companies to carry the inventory to be able to fill those orders in 48 hours to replenish their shelves.

And so, you know, we’re in a very, very dynamic environment. We’re depending on what the sales are from week to week. It has a very big impact on order patterns that we’re seeing. We traditionally, in old days, many of the retailers would bring in a large amount of inventory in anticipation or advance of a holiday season so they’d have it available to set the stores and do their own replenishment. We’re not seeing that now. We’re seeing, really a very, very tight inventory situation at the key retailers.

Reza Vahabzadeh – Barclays Capital

So are the order patterns or POS patterns anymore volatile than in the past?

Kent J. Hussey

Yes, they are, actually. I mean if you talk to guys in the business that, you know, you can have good weeks and then a week that actually is, you know, down surprisingly. So far, again as I talked about during my call and the number of our key businesses, be they batteries or Remington and even in pet supplies, at least through the end of September and I would say it continued on into October, we’ve had pretty good POS results.

Reza Vahabzadeh – Barclays Capital

Do you think that the incremental shelf space/display space you have at some of your key customers, can that offset perhaps slowing POS in this quarter?

Kent J. Hussey

It certainly will help. I’d just be very frank with you, though. You know, I think we are in as good a position as we could be, going into the holiday season in virtually all of our businesses. The unknown is, as you saw GM announce in October their sales just stopped. They were down 45%. And so what we can’t predict going forward here is what’s the holiday season going to be like?

I think it’s going to be okay, but my real concern is come January, after the, you know, all of the call it pressure to continue to spend, will we see a dramatic fall off in consumption around the world starting then? That’s my biggest concern.

Reza Vahabzadeh – Barclays Capital

In terms of Europe, I mean, are you seeing POS slowdown at your key customers there, whether it’s on the Remington side or the battery side?

Kent J. Hussey

The only place where we’ve seen a marked slowdown is in the UK. Their economy, you know, has got a lot of the same issues that we do relative to real estate. And so the UK has been very soft and continental Europe, though, Varta and Remington are performing reasonably well. Now the battery category is down slightly in Europe, which is affecting all of us. But our share is pretty steady there right now.

Reza Vahabzadeh – Barclays Capital

And I know many of your product lines are already basically value product lines and I can benefit from a trading down from premium brands, but within your product lines even though they’re value, are you seeing any trade down?

Kent J. Hussey

In terms of like going from a $50 shaver to a $20 shaver?

Reza Vahabzadeh – Barclays Capital

Yes.

Kent J. Hussey

No. No.

Reza Vahabzadeh – Barclays Capital

You have more new spokespersons by the way for Remington. On the other hand you kind of said that, you know, you’re going to be more POS, you know, point-of-sale oriented in merchandising. I’m sorry, but I had a hard time reconciling why you have new spokesperson but you really want to be more point-of-sale merchandising oriented.

Kent J. Hussey

Well, one of the other things I said in addition to being focused on in-store merchandising, we are moving away from what I call national media, TV advertising, and trying to utilize the Internet to target specific customers. That individual happens to be a huge draw for young men who are our target customers for Remington shaving and grooming products. And I’ll just say it’s very cost effective.

Reza Vahabzadeh – Barclays Capital

What was the cash restructuring spend for 2009? You mentioned it but I missed it.

Anthony L. Genito

For 2009? No, we didn’t mention it.

Reza Vahabzadeh – Barclays Capital

You didn’t mention it. Okay. Can I get it?

Kent J. Hussey

We’re actually in the process of doing some revisions to that based on the very recent decision to discontinue the growing products business and I will just tell you, you know, so we’re back refining those numbers. So we prefer to have you call in here maybe in a week or so and we’ll give you, I think, a better handle on it.

Anthony L. Genito

What I did mention in the prepared remarks was that we anticipated that with in connection with the shutdown of the [bag] business we’re saying about $20 million of those charges would be cash in 2009, cash expenditures in 2009. But we didn’t give a combined cash restructuring number, which goes to the point that Kent raised that although we’re not going to have that something of a single restructuring event similar to what we had in 2007, it will help as he put it some singles and doubles which over the next two years will add up to about that number. And you know we haven’t provided the total cash restructuring number.

Reza Vahabzadeh – Barclays Capital

And Kent, by the way, when do you think you can be in a position to talk about what are the offsets, the potential offsets to the FX headwind?

Kent J. Hussey

You know, I think probably the next call, I will give you a little more granularity in that. We’re actually – some things have already been done, others are being implemented and you know we would prefer that things that affect employees that we deal with those first before we go out and talk in public. I find it very uncomfortable with corporations announcing major headcount reductions, thousands and thousands of people before the people in the business even know if they’re going to be affected.

So we’re looking at actions in a number of areas of the business as we continue to find ways to reduce our operating costs. And as Tony said we think that if you add up the things being done in a variety of different places around the company, and this is not again a one time event, this will be initiatives that will take place over the next 12 months that we believe on an annualized basis this will exceed the $15 million in savings we got out of the big 2007 restructuring reorganization.

Operator

Your next question comes from [Unidentified Analyst] – BMO Capital Markets.

Unidentified Analyst – BMO Capital Markets

You guys had talked about the 15% hit to EBITDA if you ran the business at the same levels, I guess. I’m trying to figure out what the impact would be to the top line and I guess sort of what the market impact of currency is, given the current rates.

Kent J. Hussey

The revenue would probably be approximately the same. If you looked in the Wall Street Journal it says that in the last 52 weeks the euro has weakened about 12% and the dollar versus the basket of foreign currencies that are key trading partners is down roughly 11% right now. So, you know, you’re going to be translating the top line at those kinds of changes in exchange rates for our foreign based businesses which is roughly 16% of our revenue.

But again, we do business all over the world so, you know, the pound is different from the Australian dollar is different from the Brazilian real and the Mexican peso. So it’s hard to take a – that’s why I gave you kind of a range in granularity here.

Anthony L. Genito

And keep in mind that it’s not only the translation of P&L which obviously move into sales the expense is going in the opposite direction, but we’ve got transaction gains and losses. As the dollar was weakening throughout the fiscal 2008, we were getting some large transaction gains because keep in mind our Remington product is sourced from Asia and we’re purchasing that in dollars. So when our European businesses are purchasing that Remington product in dollars, it basically costs them less euro and therefore we had a transaction gain in 2008.

So the numbers that Kent was talking includes also an impact for the transaction impact as well in 2009.

Unidentified Analyst – BMO Capital Markets

Moving on to the growing media business, are you guys going to participate at all in the beginning of the season?

Kent J. Hussey

Yes, we are transitioning to make sure that the key retailers are not left without product and so the process of transitioning their requirements to other suppliers is taking place as we speak. But it will take them a while to get up to speed. That’s why it will take us probably 60 days to wind down our manufacturing, fill all of their open orders through this quarter and then hopefully they’ll be in a position to start getting supply from other people come January.

Unidentified Analyst – BMO Capital Markets

That means the shelf space in growing media has been allocated to others already?

Kent J. Hussey

They’re in the process of doing that.

Operator

Your next question comes from Mary Ann Manzalilla – Angelo, Gordon & Co.

Mary Ann Manzalilla – Angelo, Gordon & Co.

If you could shed a little more light on your cash balance of $104 million at the end of the year? You said it’s higher because of the cash you need to keep at the foreign subs. About how much do you need to keep at those foreign subs and how much really is available?

Anthony L. Genito

Again, that’s a good question. Probably I would say of that balance about – there’s probably one-third was related to cash that was necessary to be used in the operations of the business and two-thirds was between timing. We got a plethora of late receipts in the quarter which we just weren’t able to plug into the AVL, probably a significant amount of U.S. –

Kent J. Hussey

We’ve been running about $50 million in cash typically, though, on a more normal quarter.

Historically our cash balance is about $30 million but it’s been about $50 to $60 million because of additional foreign requirements and just making sure that we had the cash available.

Mary Ann Manzalilla – Angelo, Gordon & Co.

So then the year end balance in ’07 when the cash was $69 million, how much of that was related to cash you needed to keep at foreign subsidiaries?

Kent J. Hussey

Very, very small.

Mary Ann Manzalilla – Angelo, Gordon & Co.

So we went up by about $30 million, that requirement?

Anthony L. Genito

That was a result of the change in the credit facilities that took place.

Mary Ann Manzalilla – Angelo, Gordon & Co.

And then on some bigger picture questions, regarding the battery business in Latin America and I know that’s a very profitable business for you, is there something we should read into the fact that zinc sales declined and the alkaline grew? You have a smaller share in the alkaline business. And is it as profitable as the zinc business or could you just kind of shed a little more light on what’s going on there?

Kent J. Hussey

Yes. Again, probably one of the healthier economies that’s still in that part of the world is Brazil and we happen to be the alkaline leader in Brazil. And in some of the other countries, you know, there’s conversion of zinc carbon to alkaline is somewhat driven by the retailers. Alkaline is about the same profitability as zinc carbon in the region.

So I guess we were a little bit surprised by the strength of alkaline this quarter but as I also said on my comments the last time we went through an economic slowdown in the region, we actually saw consumers shift back to the less expensive zinc carbon for about a year. And so we may expect to see some of that coming in 2009.

Mary Ann Manzalilla – Angelo, Gordon & Co.

But so are you indifferent?

Kent J. Hussey

Yes, basically indifferent to be honest with you.

Mary Ann Manzalilla – Angelo, Gordon & Co.

And then there have been articles lately regarding Wal-Mart’s growth plans in Latin America. Do you have a similar presence at Wal-Mart as you do with the smaller, kind of mom and pop shops in Latin America?

Kent J. Hussey

We do in some countries. We do in primarily in Mexico, which is one of their largest operations and I think we have a little bit in Brazil right now. We traditionally have gone not 100% of the cases, but as Wal-Mart has expanded internationally, we try to follow them and remain a supplier to them wherever they go. Probably the two examples where that hasn’t taken place so far is in Japan or in the UK where we are not in ASDA which is owned by Wal-Mart.

Mary Ann Manzalilla – Angelo, Gordon & Co.

And then a question regarding pet as well in the similar vein. Wal-Mart says it’s going to increase its focus on the pet business. There again do you have similar kind of exposure to the pet business through Wal-Mart as you do through some of the specialty retailers?

Kent J. Hussey

Yes. Wal-Mart is a very significant customer. We have very good distribution there. I think one of the things that we have done as a company in the last 18 months or so was realized that we were spreading our resources too thin. And so we have now concentrated more resources in support of Wal-Mart in Bentonville.

We have put higher powered people in place there and are trying to work extremely closely with them as they implement some of their new strategies, particularly their clarity initiatives which is really aimed at making the shopping experience better for their consumers by simplifying the number of SKUs and the number of price points.

And to date we have been relatively successful at being on the positive side of some of those moves as they come forward in a number of categories, including batteries, flashlights, and pet products. And we are an important supplier with high service levels to them. We’re very committed to them to bring them new products and maintain those levels of service. So, knock on wood, hopefully we will continue in that role with them as they continue to focus on those categories.

Operator

Your next question comes from Jason Gere – Wachovia Securities.

Jason Gere – Wachovia Securities

On the pricing that your competitors took on the manganese ore, I think it was in August, when did you guys follow or have you followed with that price increase?

Kent J. Hussey

Yes. I’ve used the term we have selectively followed. I want to remind you that we are very cognizant of maintaining our value positioning at this particular point in time. And so we did not do an across the board, significant price increase and I don’t know the details of what the competitors have done. I know they announced pretty big price increases. We have been very selective at which SKUs, which customers and how we’ve done the pricing, again aimed at trying to protect our margins but at the same time protecting our value positioning in these current economic times.

Jason Gere – Wachovia Securities

Do you know how much the price gap between yourself and the premium players widened I guess over the period?

Kent J. Hussey

Well again it depends on retailers. We traditionally like to be at least 15 to 20% lower, but I would say that in certain retailers that’s probably expanded by as much as 5 to 10 points.

Jason Gere – Wachovia Securities

One of your commentaries is about, you know, I think it was referring to Latin America, you know, the softening commodities hurting the economies. I guess just a little bit more generally speaking what you’re seeing so far at this point to the end of October. And can you talk maybe just about past experiences that you guys have seen, maybe from the late 90’s, in terms of when currencies start to devalue at some point, you know, how well you guys performed especially with the battery business?

Kent J. Hussey

As I said earlier one of the things that we saw was the consumer would switch back to zinc carbon batteries and move away from the higher priced alkaline. Because of call it the lack of infrastructure, many parts of Latin America where we actually have good distribution, the consumer still is very dependent on consumer batteries for his way of life. And so while the big economic drivers can start to go down, you’ll see more of an impact in the metropolitan areas and in a lot of the rural areas where we have good distribution, there isn’t as big an impact. So it’s not as severe as you might imagine.

Jason Gere – Wachovia Securities

The last question I have is on personal care, really in the U.S., I guess, in the fourth quarter, I guess when you think about the holiday season, how much of the sell in happens there as opposed to maybe the beginning of the first fiscal quarter? And then if you could just talk, maybe differentiate between the women’s side and the men’s side.

I mean, I guess in my view and I’m not a woman so I don’t know what drives a woman to keep buying the straighteners, but I certainly know on the men’s side when you think about the rotary shavers, those might be areas where people might not – might forego in this economic cycle, so just wondering if you could just give I guess at your comfort level between women’s and men’s.

Kent J. Hussey

Men’s for us is a combination of men’s shaving and men’s grooming. And shaving, we’re the only company in the world that makes both foil and rotary shavers. We launched a whole new line of rotary shavers that just is in distribution this fall, which is significant improvement in terms of its performance. One of our earlier strategies in years gone by was trying to push consumers – ourselves up into higher and higher price points to compete more with Norelco and Braun.

And that really didn’t work very well, so our new product line is positioned basically in the sweet spot of value positioning which is the place that we think we do best. You watch TV and you see advertising for Braun and Norelco, a lot of the products that they’re advertising for the holiday season cost well over $100. And I think maybe that halo effect brings the consumer into look for their brand, but again our packaging, our point of sale material is really, really key to get that consumer.

The other interesting point is that the grooming side of the business, not shaving the face but moustache, beard trimmers, hair trimmers, body hair groomers, etc., etc. are the fastest growing segment in men’s care. We have the number one selling SKU in America. And we’re seeing that while shavers tend to be or has been very flat to slightly down in terms of unit sales and dollar sales the last couple of years, as the retailers have kind of stopped pushing that as a holiday gift item, our promotional activity surrounding the grooming part of the business has that growing very, very rapidly.

So it’s kind of now beginning to replace shaving as the growth segment for men. In women’s hair care, it’s about product innovation. It’s about having a variety of sub-brands at different price points. And again great packaging, great shelf because if you walk into many retailers, you’ll find 15 women’s hair dryers there, so how do they pick out the one that they want? Well, the packaging has a lot to do with the selling message there as I said. And that’s something that our company excels in.

Jason Gere – Wachovia Securities

Can you talk about the price points maybe on the men’s shaving, the low to high? Just how it differentiates now, I guess, for me. And obviously the holidays are very important for this business.

Kent J. Hussey

Well not as important as they used to be. Again, you know, we used to do 80% of our profits during the holidays. That’s not the case any more. The business is really kind of becoming more of an ongoing replacement business and less of a gifting business, at least in our segment. The traditional male consumer who buys a shaver, basically his wears out, he throws it away and buys a new one, you know, every – it depends, every three to five years.

And our price points are typically at the very low end. We have products that sell in the teens, some grooming products and low end travel shavers that are like $20. And probably the top end of our best rotary shavers maybe $69, $59 to $69. Now Norelco has some products that overlap with us, but a lot of their product line is well above that and Braun is well above us in terms of their price points as well.

Jason Gere – Wachovia Securities

I guess in terms of the sell in for some of the new products, I was just wondering how much came in there or?

Kent J. Hussey

I can’t give you a specific amount. We did start shipping those products in Q4 but you know a lot of it is going in in Q1 as well.

Operator

Your next question comes from Gentry Klein – Cetas.

Gentry Klein – Cetas

You mentioned in the release that there’s some cost increases on the pet side. Could you just explain a little bit what those were?

Kent J. Hussey

A lot of those came out of our suppliers in China. We talked about the fact that our battery plant in China saw significant like 30% plus cost increases due to a whole variety of different factors. Those same macroeconomic trends that affected our battery business are affecting our other products that are sourced in China. So that was one area of cost increase.

Another one was in grains, because of the runoff in grain costs and because we sell a certain amount of food products for birds and other animals, we saw an increase there. I think you’ve heard some of our competitors talk about the impact on their business as well. And then transportation costs in the last year has been significantly increased. We’re hoping now that with oil coming down we’ll get some relief in 2009.

Gentry Klein – Cetas

And are you seeing increased competition from exports out of China in the pet side?

Kent J. Hussey

No.

Gentry Klein – Cetas

On the control products business, is that still going to be run by the management of the batteries and personal care group?

Kent J. Hussey

What we are doing right now is Dave Lumley and Tom Walzer and other of the talented people in that business are helping reorganize and run our remaining controls business. And after we get through this transition period we’ll make decisions about what the kind of permanent management structure will be. We have identified the key management team that will be in place, running the controls business. It will continue to operate as an independent stand alone entity although obviously a much smaller one than what it is today.

But in terms of long – you know, I think you can assume that Dave and some of his other key staff will be overseeing that business in the short term and as we get into 2009 we’ll make more permanent decisions.

Gentry Klein – Cetas

And on the Energizer dispute, what is the dollar amount of lithium batteries that you’re selling and are you –

Kent J. Hussey

Let me – we – you know, obviously lithium batteries is an important product to Energizer. They have a nice portfolio of intellectual property surrounding those products. They have been, you know, they have owned that space which has grown very nicely in the last couple of years. You know, we’d like to offer the consumer a valuable alternative so we identified this as a, you know, something that we were interested in trying to enter that segment. We did extensive research on their patent portfolio.

We believe firmly that the product that we were introducing did not infringe. Obviously the court disagreed with us. But we were at the point of only doing some limited testing of that product with one retailer and actually at the time they filed their suit against us, we actually had zero product being sold in the marketplace. We did have some plans to roll it out over time, but those now have been suspended. We’re studying the situation and we have not yet made a final decision about what we should do.

Obviously a long, drawn out fight with Energizer could be expensive and it is a very small niche category. And so we’re – I’ll just say we believe that we do not infringe any of their intellectual property. We are convinced of that. We’ve done our homework. Obviously we would have to stay in court and fight and win that ultimate battle. And again we haven’t decided exactly what we’re going to do yet.

Gentry Klein – Cetas

Can you give us the U.S. dollar amount of the euro tranch on the term loan?

Anthony L. Genito

$370 million at the end of the year.

Operator

Your last question comes from [Henry Caplan] – Oppenheimer & Co.

Henry Caplan – Oppenheimer & Co.

I had a question about the – was wondering if the stress in the credit markets has impacted your suppliers at all. Have you had any issues with that?

Kent J. Hussey

No, we have not. We have been very diligent at maintaining terms with our suppliers. The only thing that happened, which we have talked about, is some of our foreign suppliers have traditionally relied on credit insurance and several of the major insurers have now withdrawn or significantly reduced their participation in that market. And so we have lost a little bit of the credit insurance that was in place as we’ve gone through perhaps this last six or eight months. That’s really the only specific thing we’ve seen impacting our business as a result of the credit problems.

Henry Caplan – Oppenheimer & Co.

Okay. Thank you very much.

Kent J. Hussey

Well thank you everybody. I know we spent a lot of time going through a lot of detail. There’s a lot of complexity in our business. We tried to give you a very candid, detailed overview of where we’re at. As I said before, 2009 is going to be a challenging year but we are up for the challenge and we’re very actively and aggressively working in a number of different areas of the business. And as I pointed out I think, once we get through 2009, hopefully we will have tremendous opportunity for continuing improvements in our business when we get to 2010.

In the meantime, we appreciate your interest and support and we’ll talk to you again in a couple of months. Good evening.

Operator

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

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Source: Spectrum Brands, Inc. F4Q08 (Qtr End 9/30/08) Earnings Call Transcript
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