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Executives

Anthony L. Genito - Chief Financial officer, Executive Vice President and Chief Accounting officer

Terry L. Polistina - President Small Appliances Division and Director

David A. Prichard - Vice President of Investor Relations and Corporate Communications

David R. Lumley - Chief Executive Officer and Director

John A. Heil - President of United Pet Group

Analysts

Andrew Muench

Karru Martinson - Deutsche Bank AG, Research Division

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

William Schmitz - Deutsche Bank AG, Research Division

Reza Vahabzadeh - Barclays Capital Inc.

Michael Schwartz - Redwood Partners

Unknown Analyst -

Spectrum Brands Holdings (SPB) Q4 2011 Earnings Call November 16, 2011 9:00 AM ET

Operator

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, November 16, 2011. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin your conference.

David A. Prichard

Thank you, operator, and good morning, and welcome to Spectrum Brands Holdings Fiscal 2011 Fourth Quarter and Full Year Earnings Conference Call and Audio Webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and I'll be your moderator for today's call. With me this morning to lead the call are Dave Lumley, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer. Also with us today for the Q&A session are Terry Polistina, President, Global Appliances; and John Heil, President of Global Pet Supplies.

Now our comments today include forward-looking statements, including our outlook for fiscal 2012 and beyond. These statements are based upon management's current expectations, projections and assumptions and are, by nature, uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated November 16, 2011 and 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. The information is being presented on the basis of our current segment reporting structure of 3 business segments: Global Batteries & 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 very quickly, let me review our GAAP results for the fourth quarter of fiscal 2011. The company reported a GAAP net loss of $33.8 million or $0.65 diluted loss per share on average shares outstanding of $51.9 million and which included a pretax, noncash intangibles impairment charge of $32.5 million. This compared to a net loss of $24.3 million or $0.48 diluted loss per share in the year-ago quarter based upon average shares outstanding of $50.4 million.

By segment for the quarter, the Global Batteries & Appliances segment reported net income of $24.8 million versus $35.5 million a year earlier. The Global Pet Supplies business segment reported net income of $6.3 million in the fourth quarter versus net income of $15.7 million in fiscal 2010. And finally, the Home and Garden business segment reported net income of $12.9 million in the fourth quarter of fiscal 2011 versus net income of $9 million in fiscal 2010.

Also, unless we state otherwise, all results provided today for any period other than the fourth quarter are provided on a pro-forma basis, assuming that Russell Hobbs results of operations had been included in Spectrum's portfolio since the beginning of the respective period discussed.

With that, I am now very pleased to turn the call over to our Chief Executive Officer, Dave Lumley.

David R. Lumley

Thanks, Dave, and thanks for joining us today. We're pleased to report a solid fiscal 2011 performance on the heels of a very strong fourth quarter. With net sales growth of 2.4% and adjusted EBITDA growth of 6% to $457 million in fiscal 2011, we met all of our guidance targets. And in one key area, free cash flow, we significantly exceeded our target of $155 million to $165 million, with $191 million of free cash flow.

We also made $225 million of debt reduction payments on our original $750 million term loan, reducing our year-end leverage to 3.4x. It's important to note that a little more than 2 years ago, our leverage was almost 5x.

I want to emphasize that deleveraging and strengthening our balance sheet remains a top strategic and value-creation priority for our company. At the same time, another major priority is pursuing targeted bolt-on acquisitions, primarily in our Pet and Home and Garden divisions. We can think of this as a pendulum swinging from time to time between deleveraging and debt paydown to the other direction of bolt-on acquisitions. We have been actively pursuing such acquisitions for more than a year.

When it recently became clear several of these transactions, primarily in Pet and Home and Garden, could happen in the next few months, we moved quickly to successfully raise $200 million of opportunistic liquidity to be ready to close these complementary and synergistic acquisitions. These potential deals, which are excellent strategic bids like our recent Black Flag acquisition, would accelerate our EBITDA growth in fiscal 2012 and on into fiscal 2013 from the synergies and more organic-related sales that they will grow and create.

With our free cash flow goal of at least $200 million this year, we plan to resume debt reduction this spring and summer when our cash levels build on a seasonal basis and expect to end 2012 at a leverage at or below the 3.4x level at year-end 2011. We're excited about these acquisition opportunities and look forward to updating you in the quarter ahead.

For fiscal 2012, we see net sales increasing at or above the rate of GDP, consistent with what we have said before about our revenue growth, generally low single digits. We see adjusted EBITDA increasing at a faster rate, reflecting the leverage we get from higher sales, as well as our continuing cost reduction, synergies and expense control initiatives.

We continue to see real success from our Spectrum Value Model. We are generally outperforming category and competitor results in key markets because of our same performance, less price approach. We are seeing positive points of sale at many of our key accounts, even in categories that are otherwise down or flat.

Why is this? Because our Spectrum Value Model focuses on enhancing retailer margins and lowering their inventory carrying costs by introducing new products and product line extensions that perform as well or better than premium-priced products. For example, our Battery business continues to grow primarily because of our product performance strategy of lasts as long for less. Rayovac remains at its highest market share in this century in North America, and we are knocking down the doors of potential new retail accounts using the Spectrum Value Model.

Our VARTA brand is also growing in Europe. In fact, VARTA has grown volume and net sales at a double-digit rate between 2009 and 2011. We expect further progress, especially with our new multiyear branded battery partnership with Carrefour, the world's second-largest retailer. We have relaunched an improved VARTA alkaline battery that offers best-in-class performance with the most important battery size, AA. Finally, we continue to see regional expansion progress in Eastern Europe for the VARTA brand.

After a challenging fiscal 2011 in Latin America, primarily Brazil due to, mainly, very unusual competitive activities, we now have plans in place to improve our performance in 2012 now that, that market has stabilized. We remain the #1 battery player in Latin America, with the best overall alkaline and zinc carbon performance and share.

I also can't say enough about our global hearing aid battery business, which maintains a very solid #1 worldwide market share, with growth continuing in the United States, Europe and now, Latin America. Demographics, led by an aging population, support increased hearing aid use on a global basis in the years ahead.

Our Remington personal care business is actually our fastest-growing segment, as it continues to launch new products and line extensions at a brisk pace. Using our Spectrum Value Model, we just entered the $2 billion U.S. men's wet shave market with the Remington King of Shaves Azor product line, both handles and systems at major food and drug accounts, most notably recently Walgreens. We are extending our Remington brand into the U.S. market for women's hair accessories as well. This is nearly a $1 billion market in the U.S., with attractive margins.

And on the heels of a successful 18-month performance of the product in Europe, we recently received FDA clearance and have just launched in the U.S. and Latin America, our unique i-LIGHT Pro intimate hair removal system for women and men. We have secured several key retail distribution outlets for i-LIGHT this holiday season, with more placements timed for release in 2012.

In North America home kitchen appliances, with positive point-of-sale at most major accounts, this division has had a strong top line performance in the fourth quarter. This was led by higher revenues in beverage, cooking and food preparation appliances, as well as key distribution gains and promotional increases at existing retailers. Several weeks ago we launched a new Farberware kitchenware appliance line exclusively at a key U.S. retailer, with an emphasis on affordable elegance. We believe our Farberware coffee and tea maker, food processor and blender go toe to toe with other well-known brands and outperform them with more features, better pricing and higher-end finishes.

At the same time, we are growing certain segments and geographies of our Small Appliance business, as we will continue to aggressively phase out or replace low-margin appliances here and abroad, such as we did in Europe last year. We continue to eliminate SKUs and brands where it makes sense to stay in our margins, given the cost pressures from Asian suppliers.

In Pet, we are very encouraged by improving volume trends and key distribution gains at several major retailers and by Pet's stronger fourth quarter results, a trend we expect to continue into 2012. Their new product introductions are impressive. In companion animals, they include a launch of Dingo Grill House, a longer-lasting combo dog treat with real chicken; an expansion of the popular Nature's Miracle line to include litter and accessories, shampoo, waste management and pet crates. There are also new product launches in our North American and European Aquatics businesses. On the acquisition front, our Pet business is actively pursuing several bolt-on acquisitions in the companion animal category we hope to announce soon.

Our Home and Garden division turned in record fourth quarter results, featuring a strong 30% EBITDA increase. Despite a challenging spring season due to extreme weather, Home and Garden had a truly outstanding fiscal 2011, with increased sales and adjusted EBITDA; that EBITDA growing an impressive 14% year-on-year to $78 million.

Home and Garden continues to achieve retail distribution gains combined with aggressive expense management and over-delivery of cost improvement programs. Our recent acquisition of Black Flag and TAT brand assets is an excellent strategic fit for Home and Garden, strengthening its household, insecticide portfolio and bringing significant channel growth opportunities and operational synergies.

Given normal weather this spring season of 2012, we believe Home and Garden should see further growth and expansion in its key product categories. And like our Pet business, Home and Garden's evaluation additional of tuck-in acquisition candidates we hope will come to fruition in the coming months.

On the cost side, we continue to attack the significant commodity in Asian supplier cost increases affecting so many companies today. We are working hard to offset them, especially in our Small Kitchen Appliance business though continuous improvement programs, integration, restructuring, retail wins, distribution gains and select price increases.

We are not only ahead of schedule with our Russell Hobbs integration program, but have once again raised our cost synergy projection to $35 million to $40 million from the $30 million to $35 million and an earlier regional target of $25 million to $30 million. The primary reason for higher synergies is the current consolidation of sales, marketing and operation functions in our North American Appliance businesses.

We see other Russell Hobbs opportunities in the next several years. These include new product development synergies by leveraging each company's regional strengths and complementary categories and improving Russell Hobbs' supply chain cost structure with continuous improvement in new product development.

Like our other businesses, our target with Russell Hobbs is to reduce its cost of goods annually by 3% to 5%. Progress continues and moving select Russell Hobbs products into Western Europe and for the first time into Eastern Europe, using our established battery and personal care platforms. As a reminder, these revenues and supply-chain opportunities are not included in the $35 million to $45 million -- $35 million to $40 million of forecasted synergies.

Plant and distribution center consolidation activities are moving along ahead of schedule in our Pet business, and we have identified additional shared services savings in this segment. Accordingly, we have raised our annual cost savings for Pet to $10 million to $15 million from the $7 million to $11 million to be realized by the end of 2012. When you combine the Russell Hobbs and Pet cost savings, we are forecasting annualized synergies of $45 million to $55 million by the end of fiscal 2012, a key element in our program to help offset higher Asian supply-chain costs.

Let me conclude by emphasizing that most of our products are nondiscretionary, non-premium-priced replacement products, providing value, quality and performance to consumers in everyday living. We believe our Spectrum Value Model is the right retail strategy, especially in this continuing period of higher commodity costs and inflationary pressures at the manufacturing, retail and consumer models.

And now to Tony for a brief financial review, and we'll come back after that.

Anthony L. Genito

Thanks, Dave, and good morning, everyone. For our fourth quarter 2011, consolidated net sales increased 5% to $827 million, our strongest quarterly sales performance of the year. All 3 operating segments contributed to the improvement. Sales were positively impacted by $23 million of foreign exchange.

Fourth quarter total operating expenses of $248 million increased $18 million from last year due to a $32 million pretax, non-cash impairment charge relating to certain of our indefinite-live trade names which was recognized in the fourth quarter, partially offset by savings from our integration and cost-reduction initiatives.

Corporate expenses for the quarter were $13 million, a decrease from $14 million last year, also due to savings from our cost-reduction initiatives. But for the quarter, the company recorded a net loss of $34 million or $0.65 diluted loss per share versus a net loss of $24 million or $0.48 diluted loss per share in 2010. As previously mentioned, included in the 2011 fourth quarter net loss was a pretax, noncash intangibles impairment charge of $32 million.

After adjusting both years for certain items management believes are not indicative of ongoing normalized operations, the company reported adjusted diluted earnings per share of $0.47 for the fourth quarter of fiscal 2011 versus adjusted diluted earnings per share of $0.25 last year.

We recorded our strongest quarterly adjusted EBITDA increase in 2011 in our fourth quarter. Adjusted EBITDA increased 15% to $115 million from last year's $100 million. Foreign exchange was a $13 million positive impact on adjusted EBITDA in the quarter.

In the interest of allowing more time for your questions, I'll refer you to our earnings press release and tables for details on our fourth quarter segment results and our improved fiscal 2011 consolidated results.

Let me take this opportunity to review a few other items in our year-end financial statements. Interest expense for fiscal 2011 was $208 million compared with $277 million for the same period last year. This favorable variance was primarily due to lower unusual items totaling $29 million for 2011 compared with $78 million for 2010, coupled with lower debt and interest rates in 2011 compared to 2010.

The $29 million of unusual items for fiscal 2011 related to the refinancing of our term loan back in February to achieve lower interest rates, and these included $24 million of noncash costs related to the write-off of unamortized net discounts and financing fees and $5 million of cash costs related to prepayment fees.

The $78 million of unusual items for fiscal 2010 related to the refinancing associated with the Russell Hobbs combination, which included $61 million of noncash costs related to the write-off of unamortized net discounts financing fees on the company's previously existing debt that was paid off at the time of our closing of the Russell Hobbs transaction; $4 million of cash costs related to prepayment fees for the company's ABL and supplemental loan paid off at closing; $9 million of cash costs related to fees primarily for the unused bridge loan and back-stop commitments; and $4 million of cash costs primarily related to an early termination of an interest rate swap relating to our previously outstanding debt that was paid off at closing.

Cash interest for fiscal 2011, excluding the unusual items noted above was approximately $165 million compared to approximately $190 million for fiscal 2010. The $46 million increase in cash interest payments for 2011 was primarily due to cash interest paid on our 12% PIK notes of $29 million in 2011 versus a noncash payment in kind in 2010, coupled with timing of cash interest payments in 2011 as a result of changes in our capital structure. Cash interest, including the $200 million of additional senior notes we issued earlier this month, is expected to approximate $155 million for fiscal 2012. The difference between interest expense and cash interest for fiscal 2011 was primarily made up of the $29 million of unusual items I mentioned earlier and $17 million of amortization relating to financing fees and original issue discounts.

Tax expense for fiscal 2011 was $92 million compared with $63 million for fiscal 2010. Cash taxes for 2011 were approximately $37 million, which was consistent with what we paid in 2010. Cash taxes for 2011 were lower than previous guidance, primarily due to the timing of a German tax payment.

As I've said previously, based on the level of NOLs we expect to be able to utilize, we do not anticipate being a U.S. federal taxpayer for at least the next 5 years. We will, however, continue to incur foreign and a very small amount of state taxes. Cash taxes are expected to approximate $45 million to $50 million for fiscal 2012.

Now let's turn to our strong free cash flow, year-end liquidity position and reduced leverage. As a result of solid earnings and strong working capital management across all businesses of the company, we generated free cash flow of approximately $191 million, which significantly exceeded our guidance of $155 million to $165 million. Similar to 2010, we finished fiscal 2011 with 0 cash drawn on our ABL facility, and our cash balance is $142 million.

As of the end of our fiscal year, total debt was approximately $1,565,000,000, which consisted of a senior secured term loan of approximately $525 million, senior secured notes of $750 million, PIK notes of approximately $245 million and other debt of approximately $44 million, which included capital leases of $25 million and foreign debt of $19 million.

Our total debt reduction included $225 million of term loan payments, which consist of $220 million of voluntary prepayments and $5 million of scheduled amortizations. We ended the year with a leverage ratio at 3.4x.

We now expect free cash flow of at least $200 million for fiscal 2012 and beyond. We see capital expenditures approximating $40 million in 2012, and we believe this is an adequate amount to address new product development and cost-improvement initiatives that we have identified as well as maintenance capital, which is about $10 million to $20 million per year.

In summary, we ended 2011 in solid fashion, with our businesses performing well in a continued challenging economic environment and with solid operating and financial momentum going into fiscal 2012. We expect to see top line growth in line with or better than GDP in fiscal 2012. We also expect a higher increase in adjusted EBITDA. With the $200 million that we raised in our recent senior notes tack-on offering, we have the available liquidity allowing us to act quickly to complete key bolt-on accretive acquisitions to accelerate adjusted EBITDA growth in 2012, with the objective being to further reduce our leverage later in the year and on into 2013.

Now back to Dave for a few closing remarks.

David R. Lumley

Thanks, Tony. We believe Spectrum Brands has the winning strategy for our broad and growing portfolio of branded, well-known and trusted products. We are well balanced seasonally and geographically, with diverse products and categories.

In this world of sluggish consumer demand, tighter retail inventories and rising Asian supply-chain costs, our Spectrum Value Model is delivering superior margins and lower acquisition costs to our retail customers by offering the consumer the same product performance at a lower price, or even better performance at the same price. This is resonating with retailers and consumers, which is why we are gaining distribution and shelf space, winning at point of sale and generally outperforming our categories.

We delivered a solid fiscal 2011, met or exceeded our guidance targets and paid down debt of $225 million to end the year at 3.4x leverage. While deleveraging remains a fundamental component of our overall strategy, so are measured bolt-on acquisitions. Similar to our Black Flag deal, we have a number of additional and promising bolt-on acquisitions at hand that would accelerate our growth and EBITDA in 2012, yet still allow us to resume significant debt reduction this spring and summer and on into 2013 to delever even further. We believe our time is now. We hope you share our enthusiasm for Spectrum Brands' future.

David A. Prichard

Thanks very much, Dave and Tony. And operator, let's now begin the Q&A session please.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Andrew Muench from Credit Suisse.

Andrew Muench

David, if I can take a step back for a minute, maybe look at the overall sales trajectory of the business. Last year, you had sales growth of 2.4%. Next year, at or maybe slightly above GDP. And I take your comments about low single-digit growth. But right now, we are in a sampling nirvana with weak macros, disposable incomes constrained, et cetera. So I'm interested in your comments around why the business can't grow at maybe 2x or even 3x last year's rate in the near term before even settling maybe at lower rate longer-term. Are there constraints that appear to be limiting this higher level of sales growth? Or maybe we are in a heightened sales growth environment right now. And longer-term, maybe growth is half of what it is today. Can you speak to those issues?

David R. Lumley

I think -- this is Dave Lumley. I think you said could our growth be greater than the 2% to 3%. Is that -- in the short term? Is that an accurate summary of the question?

Andrew Muench

Yes, but just in 2 -- maybe in 2 pieces. One is, is it -- can it be higher? And given we are in this environment where we're seeing a lot of sampling -- free sampling? And then maybe we are sort of in a heightened sales environment right now. And longer term is the growth rate half of what it is right now?

David R. Lumley

To answer your question directly, can our sales growth be higher? Yes, and we showed that in the fourth quarter. I think a lot of it really depends on we gained good distribution. That continues -- when we win -- when any retailer wins a placement, sometimes they win it in a line review, and you have 3 to 6 months until we actually have it on the shelf. And then there's the products in front of you that have to be sold out as well. We've been gaining that distribution throughout the year, and these things are starting to come to fruition. So I would say that if the consumer of these distribution gains continue and we actually get it in time, which we're doing, and the consumer continues to sample like they have been, could we do better? Yes. But what we're trying to say is that we've had predictable, consistent growth for the last 9 quarters like this. So we're trying to tell you hey, look, conservatively, we think this is it. Obviously there's good upside, we think. And let's see how the holiday season goes and the spring goes. But we're going against a pretty weak year last year in Pet and Home and Garden for the industries as we get into '12. So we're cautiously optimistic. And I think it really comes down to will the consumer continue to sample and return to our products and actually go to the store -- keep going to the store? We've had good conversion when people have tried our products because they perform as well, why pay more?

Andrew Muench

Okay. That makes sense. And maybe a follow-up, and it's actually kind of switching gears here. For Tony, you've given pretty clear targets, obviously, for synergies in the businesses next year, which will help offset the commodity costs and wage increases in China. But how much -- I guess how much of an offset is that? Or is there a framework that you can provide for us that will help us think about that? And then finally, just a second piece of that question, can you remind us what percentage of revenues are based on products manufactured in China?

Anthony L. Genito

Yes -- no -- and I think -- I'm sorry I had a little difficulty hearing the question. But I think what I heard is that with the increase in synergy savings that we reported today, basically what are we doing with those savings? In other words, where are they going to?

Andrew Muench

Yes. How much of an offset, I guess? Is it a one -- I don't want to expect it to complete offset the rise in raw material expectations, but is there a way of thinking about the impact to margins, sort of given the pro and con, the give and take?

Anthony L. Genito

Yes. That's a fair enough question. I think it's fair to say it's probably about half. And this goes back to what we had talked about on previous calls, which is really that one of the benefits, I'll say, about the transaction with Russell Hobbs and really with the fact that our wheelhouse -- Spectrum Brands' wheelhouse is cost containment in the sense of -- as Dave said in his prepared remarks and we've said this consistently that we should have, say, 3% to 5% of cost of sales on an annual basis. Now these all go into, I'll call it, arrows into our quiver that allow us to address things that, I'll use my speak, go bump in the night, whether they be higher costs coming out of Asia, which is really the headline, I think, for 2012, that's impacting most manufacturing companies that are in the consumer products category, namely Appliances. But also with -- for instance, we talk about exchange from time to time and the impact of exchange which typically has an offsetting impact on commodities. So I mean there's a whole bunch of items that -- or arrows that we haven't set our quiver that we're able to fire off and try to blunt some of the things that are negative, so to speak, or unpleasant surprises and could prevent headwinds for us. But I think it's fair to say that we are on, we're ahead of schedule with the Russell Hobbs integration and we're seeing those savings come to fruition. And probably about half of those savings are going to be used to offset higher input costs coming out of Asia.

Operator

Your next question comes from Bill Chappell from SunTrust.

Michael Schwartz - Redwood Partners

This is Mike Schwartz filling in for Bill. Maybe if we could just refine the top line guidance or outlook for next year of low single digit or slightly above GDP growth. Does that include the recent acquisitions and any kind currency benefit or hit? In other words, is that an organic number that you're speaking about?

David R. Lumley

This is Dave Lumley. It's very close. The Black Flag sales don't start for a while. And it's a very small part of it. And I think that the guidance is pretty solid. You could just look at what we've done over the last 2 years, which has all basically been organic growth. I think when I spoke earlier about some -- the upside and the last one, I think, Black Flag and -- provides that, especially when we tied in with our other brands. We now have 2 brands to offer in that category against the market leader. And it really closes us to being right there. So I think there's upside to that, as I said before. But if you look at our historical growth, we try to grow in the low single digits, be GDP. And we try to have EBITDA growth 2x to 3x that, and I think we're right on track for that.

Michael Schwartz - Redwood Partners

Okay, great. And then another question. Could you maybe give us some more color on what's going on in Latin America, in particular the Brazilian battery business? I guess we had thought that, that was more of a short-term issue. Are there any signs that that's kind of improving as we head into the holidays? Or could you maybe lay out some of the plans that you referenced earlier to kind of stabilize that business?

David R. Lumley

Yes, I'd be glad to. I think that, that business will fully stabilize in 2012. That is the business in Brazil that there are different competitors there. There, we compete with a large Japanese company, as well as the 2 American battery companies and ourselves, plus a lot of import, private label. There has been a lot of events planned in Brazil, like World Cups and Olympics and all that. A lot of people have tied in promotions. What happened there is that it was just an all-out price war. And it drove down the margins for everyone, all the way down. And now all that inventory is out there and selling through, so what we've done as leaders, we stabilized our pricing dramatically. We had up to -- I don't want to tell you how many prices we had in the market as well as our competitors. I mean, there are hundreds. And it's very stabilized now, a very simple pricing program for wholesalers and distributors and retailers. Product availability is back. I think that the whole market is going back to normal. So I think you'd see a good recovery by everyone in the coming year. Nobody won that one. It was not much different than the bonus pack showdown all the battery companies had in North America and Europe where we added a bunch of batteries. Not much change, except for we added a bunch of batteries. So I think that one's behind us. But to answer your question specifically, we changed our organization we changed our pricing, we changed how we went to market with our promotions and rebates and delivery schedules. And I believe that you'll see everyone taking that approach in the year ahead. It's better for the retailer as well. They didn't do very well in the price war either.

Operator

Your next question comes from Bill Schmitz from Deutsche Bank.

William Schmitz - Deutsche Bank AG, Research Division

So a couple of questions. What's the debt to EBITDA now, like as of today?

Anthony L. Genito

Debt to EBITDA, right now, it's -- well actually, it's a good question. We raised the $200 million, so right now we have a large cash balance. So it's -- basically, it's unchanged. I'm not going to include that. But basically, the leverage is at 3.4x or so; 0 drawn on the ABL; we're in cash-positive position was the position; and our debt hasn't -- we haven't made any payments on debt, obviously, in the last 20, 30 days.

William Schmitz - Deutsche Bank AG, Research Division

Okay. What -- did you say what the EBITDA was for the Black Flag acquisition?

Anthony L. Genito

No, we haven't. And we purposely haven't, because we've been at asked not to disclose that information. It's an agreement we cut with the sellers when we did the deal.

David R. Lumley

This is Dave. We can tell you though it's accretive to us. It provides significant synergies. These are -- this is a product line that -- same as our HotShot. Made in our factory same factory in St. Louis, aerosol cans and bottles. It brings dramatic channel opportunities for us. So I think you're going to find it to be very, very good. And to tell you the truth, we're very optimistic that we can double the EBITDA in that business very quickly.

Anthony L. Genito

Yes. And I think it's important to note...

David R. Lumley

That we got them now.

Anthony L. Genito

What Dave said about the accretion, this transaction is accretive from a cash flow standpoint, from a EBITDA standpoint, from EPS standpoint. So we're very excited about this transaction.

William Schmitz - Deutsche Bank AG, Research Division

That sounds great. Did you say what the EBITDA impact was from currency for the full year?

Anthony L. Genito

Yes, we did say that in the prepared remarks.

David R. Lumley

It's $25 million.

Anthony L. Genito

Yes, and then it's like low...

David R. Lumley

Low $20 million.

Anthony L. Genito

Low to mid $20 million impact.

David R. Lumley

They're in the remarks, and they're in the...

Anthony L. Genito

I think it's about $25 million or $26 million.

William Schmitz - Deutsche Bank AG, Research Division

Okay. Did you give an outlook for next year?

Anthony L. Genito

I'm sorry, an outlook for next year on EBITDA?

William Schmitz - Deutsche Bank AG, Research Division

Just on the currency impact. That might be a lot to ask.

Anthony L. Genito

Yes. We've got -- obviously, we've got internal models that I'd be a little hesitant to share on the call here. But based on where the -- if you look at where the dollar ended -- and let's just use as a surrogate the euro. The euro's been at, on average, about in the mid-130s for the last 3 years. And we're kind of assuming that we're going to stay in that relevant range for this year. Now that's the euro, which represents about 15% of our business. And we've got a host of other currencies, since are -- we deal in over a 120 countries. So with all that being said, it's a pretty hard metric to try and give you just one number as to what the impact is because it's more likely than not, I'll tell you right now, I'd probably be wrong.

David R. Lumley

We do have an active hedge program.

Anthony L. Genito

Yes, that's...

David R. Lumley

And we're pretty far down the line on that.

Anthony L. Genito

Yes. Well, I mean with respect to currencies, I mean we do hedge 5 or 6 major currencies that impact us. And as Dave said, we're hedged because we have a very disciplined hedging program in the neighborhood of between -- staying on average about 60% hedged on foreign currencies going out to 2012.

William Schmitz - Deutsche Bank AG, Research Division

Okay. That's great. And is there a reason that the margin on the currency seems really high? Well I think in the quarter, you had sort of like $23 million of sales but about $12.5 million of EBITDA? Why is it so, I guess, profitable?

Anthony L. Genito

You've got also -- it's a good question. You got the impact of Venezuela from last year, which -- I mean, we could probably take this off-line, Bill, quite honestly, but -- and go to the details with you, but there are a lot of moving parts. But it's a combination of where we were vis-à-vis last year, because we're kind of comparing that change to a change, right? But we can handle that off-line, if you want.

William Schmitz - Deutsche Bank AG, Research Division

Yes. I'll call you back. And just one last one, the battery price increase -- I got in a little late to the call, what do you guys think in North America, on following that?

David R. Lumley

Say that again one more time.

William Schmitz - Deutsche Bank AG, Research Division

The battery price increase.

David R. Lumley

Oh, you mean one of our competitors has announced a battery price increase? Well, we took selective pricing this year already. And we will do it again next year after the holiday, where appropriate and where we can.

Operator

Your next question comes from Reza Vahabzadeh from Barclays Capital.

Reza Vahabzadeh - Barclays Capital Inc.

It's Reza Vahabzadeh from Barclays. So just -- can we just talk about cost savings, as well as cost inflation? So on cost savings you gave the targets for Russell Hobbs in the Pet business. Is that all incremental to 2012 versus 2011? Or is that inclusive of what you realized in 2011?

Anthony L. Genito

No, that's inclusive. That's all in, Reza. So what we said on previous calls is that we've gotten about half in 2011, and we'll probably get about half in 2012.

Reza Vahabzadeh - Barclays Capital Inc.

Okay. So if that's the case, the net cost savings for 2012 is going to be what, $20 million to $28 million, in rough numbers?

David R. Lumley

Yes. These are -- this is Dave Lumley. Yes, that's just from synergies. Remember, we have a 5% goal of cost of goods for all divisions. So our cost is much higher than that, but so is the cost inflation. So what we try to do is take our cost-improvement programs, pricing and our synergies against cost increases. That's why it's so important that these tuck-in acquisition that can yield synergies and related organic growth, meaning that -- take Black Flag and HotShot, now we can sell them in 2 different places we couldn't before. That's why it's important to do these things to keep the model going.

Reza Vahabzadeh - Barclays Capital Inc.

Yes, I hear that, but as far as the cost savings from synergies that you have and the continued productivity savings that you generate, is that enough to offset cost inflation for 2012? Or do you need some help from pricing?

David R. Lumley

It's close. We are pricing now. We have pricing in several of our units on new products and on products that we've enhanced, and we have taken that pricing and we will continue. This is especially true in any businesses heavily relying on Asian suppliers, which would be our Appliance businesses.

Reza Vahabzadeh - Barclays Capital Inc.

Right. And then as far as acquisitions, bolt-on, I mean what kind of size are we talking about? Is it -- I'm assuming when you say bolt-on, we're talking $100 million and less?

David R. Lumley

Yes.

Anthony L. Genito

That's fair.

David R. Lumley

Yes, it's fair.

Reza Vahabzadeh - Barclays Capital Inc.

In purchase price, right?

David R. Lumley

Usually. At or around that.

Reza Vahabzadeh - Barclays Capital Inc.

And Dave, how much pricing do you need to fully offset cost inflation combined with cost savings, a couple of percent or more?

David R. Lumley

It depends on the business. Some businesses could do it with 3%, some need 10%, which -- most people don't get 10% price increases. And even if you did, at retail it wouldn't sell through very well. I think that's what you're going to find out with some of this pricing that you see in the marketplace. If it goes to retail and the price goes up 10%, usually you'll see a fall of 5% to 10% of sell-through. So it really depends on the product. I would say on Appliances, you need to the higher end and on some of our other products, in Home and Garden and Pet and Batteries, you need to the lower end.

Reza Vahabzadeh - Barclays Capital Inc.

So on average, 5% or mid single digits?

David R. Lumley

No. I would say somewhere in the single digits, low to high single digits is what you would need straight up. But I don't think anyone will achieve that this year.

Operator

[Operator Instructions] Your next question comes from Torin Eastburn from CJS Securities.

[Technical Difficulty]

Unknown Analyst -

This is actually Andrew Galvin [ph] filling in for Torin. Most of my questions have been asked, but the one I wanted to ask was about the holiday season. Are you seeing any early indications? Are you guys more or less optimistic than last year?

David R. Lumley

This is Dave Lumley. So far, the holiday season is not good or bad, okay? It really starts right about now. A lot of retailers are just getting all their promotions out, and they are moving some of their other stuff out of the way. I would say in the Battery -- Home and Garden now, obviously, this is not a season for them. Battery, they're getting all their displays out just now. So we'll really know in the next few weeks. I'll let Terry and John Heil answer very quickly on what they're seeing in Appliances and in Pet. Terry, why don't you go first?

Terry L. Polistina

Okay. I think we're cautiously optimistic. I think if you look at retail right now, you'd see a tremendous amount of Spectrum Brands, both personal care and home appliances throughout retail. But the real check on this is once Thanksgiving starts and the sell-throughs. So sell-in has been pretty good, now we just need to see how the sellout goes.

John A. Heil

Yes. And on the Pet side, I would say it's very similar. The sell-in has been what we normally would see. The merchandising and all the major retailers is what you'd hope for. And now we're all waiting to see what kind of traffic goes through the stores.

Operator

Your next question is from Karru Martinson from Deutsche Bank.

Karru Martinson - Deutsche Bank AG, Research Division

So what are you guys looking spring and summer? The cash comes in, you're going to look to pay down some debt. Are we looking up a term loan, or are you guys going to hold out for the call in August? Are you going to hold on for the 12% notes?

Anthony L. Genito

Okay. Well obviously, we can't pay off the 12% notes, since it's subordinated debt and we've got preference in front of it. But obviously as we get closer to that call in August, we are -- it's on our radar screen, Karru, as you're well aware. And we'll look to refinance those notes and take advantage of the market, hopefully, if the market continues to behave. So our focus will be, however -- and thanks for bringing this up. Our focus will be, through the cash flow that we generate in spring and summer, to pay down debt. And as Dave said in his remarks, and as I said in mine, we plan to be at or below where we are today at 3.4x. This company generates a lot of free cash flow. We generated over $190 million in fiscal '11, we anticipate to generate over $200 million in 2012. I know everybody can do the math, but I'll do it for us anyway. It's $4 a share. And we're very excited about that. And so hopefully, we'll be able to make some announcements shortly on where we are with the irons we have in the fire from an acquisition standpoint and through growing our EBITDA and really energizing our EBITDA growth with those acquisitions, we'll be able to pay down debt that much quicker than what we anticipated even a year ago.

Karru Martinson - Deutsche Bank AG, Research Division

And I know it's early, but in terms of the Carrefour distribution and gains that you have here, how are the early reads on the sell-through there?

David R. Lumley

This is Dave Lumley. Very good, not only in Europe but in Latin America, where you know there's 1 or 2 in Latin America, depending on which country. So we're fully in distribution. It's selling through very, very well. We've done a lot of promotions, so we're very happy so far and I believe they are. And we continue to be more aggressive there. So we're very happy with that.

Karru Martinson - Deutsche Bank AG, Research Division

And it seemed like you guys have a nice inventory reduction sequentially here, a little over $100 million. Was there anything that had pumped up that fiscal third quarter inventory number that I may have overlooked?

Anthony L. Genito

Well actually, both on our second quarter and third quarter call, we talked about the higher inventories that were pointed out. And we obviously knew about that. And we did actually do some strategic buys in certain of our businesses to take advantage of pricing of both commodities as well as on products from Asian suppliers. So we did have a higher-than-normal inventory at the end of our second and third quarters. But again, our focus is on free cash flow and the generation thereof. And I think it's probably a good point to note that we, as members of management, in fact, this is the way our compensation program works throughout the company, which is it's basically -- it's a factor of EBITDA growth and cash flow generation. So we're very excited and pleased with the quality of the cash flow that we generated this past year. We had a strong focus on working capital management, which we continue to have. And inventory is part and parcel of that. We reduced inventory from last year by almost $100 million, as you saw. And we're going to keep our shareholder to the wheel and continue to focus on working capital management and generate cash flow.

Operator

Your next question comes from Arthur Roulac.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

So my first question on inventory, just to follow up, do we consider the fourth quarter level to be what is a more normal level?

Anthony L. Genito

I think it would probably -- a good characterization to say it's going to be at or around that. It's -- maybe it's because we had some strong sales in the fourth quarter. You're probably looking at maybe it's lower by $5 million to $10 million. But I think it's probably -- it's a good proximity of where inventory is, where we believe inventories should be.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

Okay. Just because -- looking at last year, obviously, I think you ended around $530 million of inventory. This year, it's $434 million. So I guess the assumption would be then that today we're at what is a roughly a more normal level rather than that $530 million. Is that...

Anthony L. Genito

That's correct. The $535 million did include some strategic buys that were made at the end of last year in certain of our businesses, as we did also during the interim quarters of 2011.

David R. Lumley

We also ran our factories more because of some of the raw materials we bought early, especially in the Battery business.

Anthony L. Genito

At the end of 2010. So I think it's fair to say that '11 is more indicative of where the inventory numbers should be.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

And I assume, obviously when you're giving your free cash flow number that you're excluding the roughly $150 million of positive working capital impact from that sort of base number that you give out?

Anthony L. Genito

You kind of lost me there, Art.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

Well, I'm just saying that working capital is a huge source of cash this year which you're not seem to be including in the free cash...

Anthony L. Genito

Oh, yes, yes, yes.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

What I'm trying to confirm is that $150 million roughly that you guys generated this year is sort of in the bank so to speak, and it isn't like a onetime thing which is sort of what you articulated.

Anthony L. Genito

That's correct. Yes, you're correct.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

Okay. And then idea is going forward, I think you've said that as the business grows, should we consider working capital from here growing at like 1% or 2%, or should it be flatter, or are you going to be more efficient with working capital? How should we think about it?

Anthony L. Genito

I think if you look -- if you assume like maybe a 1% growth, it's relatively flat to low -- very low single-digit growth as a group as opposed with the business. But for the most part, I would love to see working capital for 2012 remaining relatively flat.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

Okay, great. And then in terms of line reviews for next year and planogram resets and whatnot, have there been any wins or losses of note that you can share with us?

David R. Lumley

This is Dave Lumley. I can say that we've done very well. You don't win them all, but we've done very well. There's still quite a few coming up, and we're going into those as aggressively as we can, and we're very optimistic about it. We really believe our model and our product performance and our sell-through, especially when we get in the store and especially when we're displayed next to our competition rather than isolated, we do extremely well. So we're very optimistic about it.

Arthur Roulac - Nomura Securities Co. Ltd., Research Division

Great. So sounds like that's a net positive. And finally with regard to general corporate finance action, obviously you've raised some debt to do acquisitions. You plan to pay down some debt in the second half of the year. The way I sort of think about your stock at the end of the day is sort of it's a growing cash cow. It's clearly an income stock and not a growth crowd-type stock. So when can we expect some sort of dividend? I know you put a press release out saying that. Obviously, there's some restrictive covenants, I believe, in the sub-notes that preclude a larger dividend. But once those, let's say, are called and refinanced next summer, can we start thinking about some good percentage of your free cash flow being paid out in a dividend so people sort of finally get the joke that your free cash flow yield, the equity is 20% and probably should be 8% or 9%, something like that?

Anthony L. Genito

Let me answer that question with a yes. You're absolutely right. You basically answered my -- answered the question with the acts. The 12% notes do have restrictive covenants. Hopefully -- they're on our radar screen, as we said earlier. We take those after a refinancing and at that point in time, we definitely are considering exactly that.

David A. Prichard

All right. With that, we've reached the top of the hour. And I want to thank Dave and Tony, Terry and John. And I think at this point we will close down our conference call. So on behalf of Spectrum Brands, we want to thank you for participating in our earnings call this morning. We will talk to you next quarter, and everybody have a good day. Thanks again.

Operator

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

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