Spectrum Brands Holdings, Inc. (SPB)

SPB 
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Spectrum Brands Holdings (SPB)

Q2 2011 Earnings Call

May 11, 2011 9:00 am ET

Executives

David Prichard - Vice President of Investor Relations and Corporate Communications

John Heil - President of Global Pet Supplies

Anthony Genito - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

David Lumley - Chief Executive Officer and Director

Terry Polistina - President Small Appliances Division and Director

Analysts

Torin Eastburn - CJS Securities, Inc.

William Chappell - SunTrust Robinson Humphrey, Inc.

Hamed Khorsand - Beating Wall Street, Inc.

Karru Martinson - Deutsche Bank

Reza Vahabzadeh - Lehman Brothers

Presentation

Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Second Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded today, May 11, 2011. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations. Mr. Prichard, you may begin your conference.

David Prichard

Thank you, operator. Good morning, and welcome to Spectrum Brands Fiscal 2011 Second Quarter and First-Half Earnings Conference Call and audio webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and your moderator for today's call. With me this morning to lead the call are Dave Lumley, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer. Also with us today for the Q&A session are Terry Polistina, President, Global Appliances; and John Heil, President of Global Pet Supplies.

Now our comments today include forward-looking statements, including our outlook for fiscal 2011 and beyond. These statements are based upon management's current expectations, projections and assumptions and are by nature uncertain. Actual results may differ materially. Due to that risks, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated May 11, 2011, and our most recent SEC filings and Spectrum Brands Holdings' most recent 10-K. We assume no obligation to update any forward-looking statement.

Additionally, please note that we'll discuss certain non-GAAP financial measures during our remarks, including adjusted diluted earnings per share, adjusted EBITDA, free cash flow and net sales, excluding foreign exchange translation. Spectrum Brands management uses these metrics because it believes they provide a means of analyzing the company's current and future performance and identifying trends. And the second, they provide further insight in to our operating performance because they eliminate certain items that are not comparable, either from 1 period to the next or from 1 company to another.

Additionally, adjusted EBITDA can also be a useful measure of a company's ability to service debt and is 1 of the major use for determining the company's debt covenants to clients. Also, management believes that free cash flow is useful to both management and investors in their analysis of the company's ability to service and repay its debts and to meet its working capital requirements. Free cash flow should not be considered an isolation or as a substitute for pretax income or loss, net income or loss, cash provided by or used in operating activities or other statements of operations or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity.

In addition, the calculation of free cash flow does not reflect cash used to service debt, and therefore, does not reflect funds available for investment or discretionary uses. While Spectrum Brands management believes that these non-GAAP financial measures are useful supplemental information, such adjusted results are not intended to replace the company's GAAP financial results, and should be read in conjunction with those GAAP results.

I want to caution the audience that although net income is the GAAP measure from which adjusted EBITDA is derived, projected adjusted EBITDA results discussed during this call may differ significantly from net income results due to factors not included in the calculation of adjusted EBITDA.

In our press release dated May 11, 2011, which has been furnished on the Form 8-K filed with the SEC, we have provided the reconciliations for the following non-GAAP information in the tables indicated: first, in Table 3, a complete reconciliation of diluted loss per share on a GAAP basis to adjusted diluted EPS for the 3 months and 6 months ended April 30, 2011, and April 4, 2010; second, in Table 4, a reconciliation of GAAP net income or loss to adjusted EBITDA for the 3 and 6 months ended April 3, 2011, and April 4, 2010; third, in Table 6, a reconciliation of GAAP net income to adjusted EBITDA on a consolidated perspective basis for the 12 months ending September 30, 2011, and 4th, Table 7, a reconciliation of net cash provided from operating activities to free cash flow for the 12 months ending September 30, 2011. A copy of the 8-K is available in our website at www.spectrumbrands.com, in the Investors section. We'll provide reconciliation of net sales excluding foreign exchange during this call.

Now effective October 1, 2010, the companies Chief Operating Decision Maker decided to manage the businesses in 3 vertically integrated product focused reporting segments. First, Global Batteries and Appliances which consist of the company's Worldwide Battery, Shaving and Grooming, Personal Care, Small Electric Appliances in the Kitchen and Home Product categories, as well as Portable Lighting business; second, Global Pet Supplies, which consists of the company's Worldwide Pet Supplies business; and third, the Home and Garden business, which consists of the company's Lawn-and-Garden and Insect Control businesses.

This current reporting segment structure reflects the combination of the former Global Batteries and Personal Care segment with substantially all of the former Small Appliances segment, which consist of the Russell Hobbs businesses acquired on June 16, 2010 to form Global Batteries and Appliances. In addition, certain pest control and pet products in the former Small Appliances segment have been reclassified into the Home and Garden business and the Global Pet Supply segments, respectively. These reclassifications have been made for all periods presented.

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