Spectrum Brands Holdings, Inc. (SPB) Q4 2013 Earnings Report, Transcript and Summary

Good morning. My name is Shannon, 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 Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, November 21, 2013. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations for Spectrum Brands. Mr. Prichard, you may begin your conference.

Thank you, operator, and good morning, and welcome to Spectrum Brands Holdings Fiscal 2013 Full Year and Fourth Quarter Conference Call and Webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands, and I'll be your moderator for today's call. Now to help you follow along with our comments this morning, we have placed a slide presentation on the Event Calendar page in the Investor Relations section of our website, which is www.spectrumbrands.com. This document will remain there following our call. Now if you go to Slide 2 of the presentation, you will see, once again, that our call will be led this morning by Dave Lumley, our Chief Executive Officer; and Tony Genito, our Chief Financial Officer, who will both provide opening comments and then conduct the Q&A session. Also joining us this morning for the Q&A session is Andreas Rouve, President, International. Now turning to Slides 3 and 4, our comments today include forward-looking statements, including our outlook for fiscal '14 and beyond. These statements are based upon management's current expectations, projections and assumptions and are, by nature, uncertain. The actual results may differ materially. Due to that risk, Spectrum Brands encourages all of you to review the risk factors and the cautionary statements outlined in our press release dated November 21, 2013 and our most recent SEC filings and Spectrum Brands' most recent 10-K. We assume no obligation to update any forward-looking statement. Also, please note that we will be discussing certain non-GAAP financial measures in the 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. Now for the fourth quarter of fiscal 2013, the company reported a net loss of $36.7 million or $0.70 diluted loss per share on average shares and common stock equivalents outstanding of 52.2 million. Now this net loss was due entirely to $122.2 million of cost and expenses related to the extinguishment of $950 million of senior secured notes in September 2013. This result compared to net income of $5.5 million or $0.10 diluted income per share in the year-ago quarter based upon shares and common stock equivalents outstanding of 53.1 million. Finally, by segment for the fourth quarter of fiscal 2013, the Global Batteries & Appliances segment reported net income, as adjusted, of $54.8 million versus $55.2 million a year ago. The Global Pet Supplies segment reported net income, as adjusted, of $25.9 million versus net income, as adjusted, of $23.1 million last year. The Home and Garden business segment reported net income, as adjusted, of $18.7 million versus net income of $11.9 million, as adjusted, last year. And finally, the Hardware & Home Improvement segment reported net income, as adjusted, of $38.3 million in the fourth quarter of fiscal '13. With that, I am now very pleased to turn the call over to our Chief Executive Officer, Dave Lumley. Dave?

Thanks, Dave, and thank you all for joining us this morning. Let's turn to Slide 6. Fiscal 2013 becomes our fourth straight year of record performance and progress at Spectrum Brands. We met or exceeded our financial guidance with net sales of $4.09 billion and adjusted EBITDA of $647 million, including HHI from its acquisition date of December 17, 2012. On a pro forma basis for HHI, net sales and adjusted EBITDA also increased. HHI delivered better-than-expected results since its December '12 acquisition, while our Pet and Home and Garden businesses reported record years in sales, EBITDA and margins. In addition, Europe was a particularly bright spot for us throughout the year and virtually all our businesses. The legacy business delivered a fourth consecutive year of record adjusted EBITDA with a 2.1% increase. And excluding negative foreign exchange impacts, adjusted EBITDA grew a strong 6%. Our EBITDA margin reached another record annual level of 15.4% versus 14.9% last year. Let's now turn to Slide 7. In fiscal '13, we overcame significant adversity, including $23 million of negative FX impacts on our adjusted EBITDA. This was based on challenging global economies marked by sluggish spending, by still financially stretched consumers, slowing store traffic, tighter retail inventories and reorder rates, very unusual and disruptive weather patterns virtually around the world and sustained and heightened competitor discounting in many of our businesses. Our continuous improvement savings reached a record level, more than offsetting product cost increases and helping us invest in many new products, some launching now, with more in the months ahead. We manage Spectrum Brands to maximize sustainable free cash flow. Most importantly then, our free cash flow in fiscal '13 reached a record $254 million or nearly $5 a share. This was up from $208 million in fiscal '12 or…

Well, thanks, David. Good morning, everybody. Let's turn to Slide 17. Fiscal 2013 gross profit and gross profit margin of $1,390,000,000 and 34%, which includes HHI's acquisition date, compared to $1,120,000,000 and 34.3% a year ago for legacy Spectrum Brands only. The slight margin decline was due to a $31 million increase in cost of goods sold from the sale of inventory revalued in connection with the HHI acquisition, which offsets gross profit improvements from the exit of $45 million of low or no-margin sales in North American small appliances. Fiscal 2013 gross profit margin for legacy Spectrum Brands improved to 34.8% versus 34.3% last year or 50 basis points. Fiscal 2013's SG&A expenses, excluding HHI, of $740 million were unchanged from last year. Fiscal 2013 interest expense was $376 million compared to $192 million last year. The $184 million increase was primarily due to onetime costs related to the replacement of our 9 1/2% senior notes coupled with onetime costs and ongoing higher interest expense related to the HHI acquisition financing. This was partially offset by the non-recurrence of onetime costs related to the replacement of our 12% notes in fiscal 2012. Our full year effective tax rate was a benefit of 98% versus tax expense of 55% last year. This year's rate was impacted by the cost of the replacement of our 9 1/2% notes in September, which resulted in the generation of a pretax loss. Let me highlight a few more key items in our financial statements. Cash restructuring, acquisition and integration charges, excluding certain transactions related items from the HHI acquisition, decreased to $36 million in fiscal 2013 compared to $56 million in 2012, driven by significantly lower legacy business cash payments. We're expecting a further decline in fiscal 2014 to $25 million to $30 million,…

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

[Operator Instructions] Your first question comes from the line of Bill Schmitz of Deutsche Bank.

This is Faiza. I'm calling in for Bill. I just have a couple of questions. First of all, if you could just discuss what your outlook for GDP growth is for fiscal '14, and which businesses do you think are most leveraged to GDP upside next year. And then if you could just talk a little bit about the G&A increase, sort of what drove that increase. And then just a little bit on the margin for HHI and Home and Garden. Sort of Home and Garden was much better than what we had modeled. And is that mostly -- is that just sales leverage or is there something else there? And then just the HHI, you talked about incremental spending. So is that going to continue for the whole year or next year?

Okay. This is Dave Lumley. That was 5 questions. So let's -- just to help, let's start with the first one, right? GDP growth. It's typically been 1.5% to 2.5% growth for GDP, and that's what we're anticipating at this point in time, again, assuming at constant currency, where currencies are today based on that analysis. So that's kind of how our business, the legacy business, tends to go to stay long. And the second question, I believe, was about which one of our businesses tend to do better or worse than GDP growth. Well, clearly, HHI, with the housing rebound, is one that has the opportunity to do better. Our Pet business at times has a chance to do better than that as people tend to spend disproportionally on their pet. I believe that our Appliances and Batteries tend to follow that curve, which I would think would stay about that unless there are market share gains. Home and Garden, I think, has the opportunity to outpace that based on weather and our new product. So I would say, it's generally a positive outlook for us. Question 3 was?

Faiza, what was 3?

G&A.

G&A? Did you say?

Right.

Oh yes, G&A expenses. We would expect G&A expenses to be relatively flat. We pride ourselves on running a rather lean organization, and we're obviously always looking for opportunities to reduce costs not only both in the manufacturing or operations side of the business but also on the administrative side. So we'll continue to hold costs relatively flat.

Then what was the?

Was there one more, Faiza?

Oh, and then I was just asking about like the margins for Home and Garden and HHI. Sort of Home and Garden was better than what we anticipated. So was that just still better sales leverage or was there something else? And then just for HHI, if the current investments are going to continue next year?

Yes. Our margins in Home and Garden typically improve every year due to cost improvement at mix. However this year was a little bit unusual that so much sales came at the end that were not tied to normal promotional spending. And so they improved on that basis as well.

Yes. And just to further add on to the Home and Garden business, keep in mind, as Dave said in his prepared remarks, that the season itself was shifted over towards the latter part of the year, so we had a weaker-than-expected Spring because of the weather. And as a result of that, the business obviously started to ratchet down costs and not make certain promotional investments only because they felt that they were not maybe going to get the payback. As a result of the back-ended pickup in the weather towards the end of the year, we weren't able to have a prepaid sell-in of repellents, which happens to be a very high-margin product for us. But most importantly is that those investments that were not made allowed for greater leverage on the business itself.

Your next question comes from the line of Bob Labick of CJS Securities.

I wanted to focus on HHI for a moment. With the Allegion spin from Ingersoll Rand coming out -- actually trading, and when issued already brings up a couple of questions. I know HHI is the residential leader and Allegion is more commercial, but products are similar nonetheless. And first, it's trading at over 13x EBITDA, so it makes your purchase look like a nice acquisition there. I guess my question is, though, could you remind us of the competitive advantages and barriers to entry of Kwikset? And then particularly as it relates to Kevo, does going into the electronics side open up the market to new competitors? Or what are the barriers to entry there?

This is Dave Lumley. And that's -- yes, we feel very good about our purchase of HHI. And clearly, we've seen the valuation of that deal right now. They are about 80% commercial and about 20% residential, and we are almost primarily residential. And where we compete, we have significant competence on our SmartKey and now our Kevo product. And they really don't so far have an answer to our Kevo product, and frankly, we don't believe, the SmartKey product. So we feel very good about where we are in that situation with Kevo and SmartKey and the growth that's happening there. So we see that as a very good situation for us right now and are enthused with the valuation.

Okay, great. And then just one more, if I could. Obviously, the integration, as you said, has gone very well, and you're projecting very strong cash flow for next year. Could you talk a little bit about the acquisition environment out there and typically when you might get active again, meaning at what leverage levels?

Well, again, Dave Lumley. Our goal is to drive free cash flow and debt reduction. That remains what we're going to do. We also are going to push a lot of our new umbrella process we'll talk about in a little while. Remember, we want to get our debt leverage down to 2.5x to 3.5x. That said, the acquisition environment out there remains where people still have lofty expectations about what they like to sell. Of course, they have very low expectations about what they like to pay, and we all know that that's pretty normal, even in CAGR [ph]. We will continue to the keep our eyes open for very accretive small tuck-ins, especially in our Home and Garden and Pet, and eventually the Hardware business. But right now, we are solely focused on doing that, what I said previously, this year.

Your next question comes from the line of Ian Zaffino of Oppenheimer. Tom Narayan - Oppenheimer & Co. Inc., Research Division: It's actually Tom for Ian. I wanted to know -- on the Battery business, I guess you guys are saying that it's going to be kind of continued -- being slightly depressed in fiscal '14. I'm just wondering if you could kind of talk on that a little bit. What's exactly kind of happening, kind of on the competitive front? Just some color on that.

Okay, sure. This is Dave Lumley. The Battery business tends to follow GDP, especially on a unit basis. So the alkaline battery business and the specialty battery business is about flat on a unit basis worldwide. Some places it's even growing a bit. We've had, for the last 2 or 3 years, a lot of different sales strategies among the big 3. Most of them focus on discounting, which lowers the dollar volume of what we sell in and what we sell out. It remains a zero-sum game despite all these attempts. Now we think this holiday season, we will continue to see that type of promotions. We have continuing different strategies on the 3 battery companies based on the situation of their overall company. However, batteries remain a very, very profitable item for retailers. When the get away come from it, that profit is very difficult to duplicate. So they are getting back behind it; we're seeing them. More importantly, the battery companies -- I'm talking about my company and some of the others -- have introduced some new products that are driving margins. We're entering new categories, like our 2-hour and 7-hour Power. So I think you're going to see this discounting market share go on, driven by both the battery companies and, frankly, the retailers. Retailers are getting back in. We're providing some new higher-margin products. The battery industry is. So I think that we still have some more of this going on, but I think slowly and steadily, since the zero-sum game has produced no real benefit for this. The consumers then make big winner which is not the worst thing. But I think you'll see it getting better and better and better as we go into '14. It's still a pretty steady business, if you look out over the last 10 or 20 years. It's still a profitable business for everyone involved.

Your next question comes from the line of Lee Giordano of Imperial Capital.

Can you talk a little more about the gross margin opportunity in fiscal '14? And maybe the puts and takes you see there for an opportunity for expansion, taking price in certain categories. And how you see the cost environment progressing throughout the year.

We're in 6 businesses, so that's a hard question to answer. Let me try to put it into a couple of categories. Commodities overall have been tempered for now. Actually, they're pretty low if you look at it historically. That's a good sign. We don't see that going up too much because demand isn't that high, okay? Two, so you don't have that big attack there. We have been able to give select pricing, and I think we will continue to do that, especially with these new umbrella products we're bringing out, like I said, the 2 and 7-hour Power, the Kevo Bluetooth lock, the chicken jerky, these things we've been telling you about. I do want to highlight facial products. And our new appliances, it's been years since we've had really competitive new appliances, and we have those now in Black & Decker beverage and toaster ovens and our new George Foreman Grills and other products. So I would think that our opportunity for margins to improve are there. I think we also exited quite a bit of low-margin promotional goods as well as we've had some retailers go on their own private label and take certain approaches, so we would no longer have to provide products to them at what is flat to a loss. So all those things are good. Another great area to improve margins is the continuous improvement programs we have in place, the commonality of parts and bulk of products. And that's working for us. So I would say that we have a good opportunity to improve based on all of those things. Now all that said, if the global environment -- if the economies and foreign exchange and consumers decline dramatically, well then, that would lead to discount, okay? So we'll see how that goes. We'll see how this Christmas goes. Depend on what you read, this could be the worst Christmas ever or it's going to be a pretty good Christmas. So I've decided to go with a pretty good Christmas. And we're not hearing at our product groups, especially our brands, from our retailers, that our RPS [ph] seem to be going well. When you have a product with the same performance at less price in this environment and the retailers have tried to discount promotional premium-priced products all year, the problem is even if you promote the premium-priced product, it still is too high on an acquisition price. There's still no sales. So we're enthused about that. I think we're going to do pretty well.

Great, that's really helpful. And then just a second question. On the release, you talked about opportunity for new retailers and new distribution. Can you just talk about the channels where you see the most opportunity there? Are there any big holes you're looking to fill in and what you might see in fiscal '14?

Yes. Spectrum Brands and most of our products are very strong in certain segments and have a lot of opportunities where our competition is strong in the other segments. We've worked very hard over the last 3 or 4 years to not only go into new geographic segments, like Eastern Europe and Asia Pacific with our new Russell Hobbs appliances and Black & Decker, our i-LIGHT products and batteries in Remington. But channels like food and drug in North America, which is a Nielsen scanned channel, is areas where some of our big, big competitors are very strong with long-term relationships, rebate programs, value allowances. So we made some good progress there. We'll continue to go into grocery in our Battery business, our Appliance businesses, our Home and Garden business, and even Pet in North America. We have had great success doing that in Europe, and we'll launch that in South America. But the thing I'm most excited about is markets within the market like chicken jerky made in the United States. We never had that before, and it's the biggest demand, big opportunity, so we're going with that, and everyone wants that. 2 and 7-hour Power, we're in office supply stores now, electronic stores, airport stores. We're at festival marketing. We put this 2, 7-hour Power at a music festival in Atlanta, and it sold almost $100,000 of it in 1 day. This approximately costs $7. So that's excitement. I think we have a lot of untapped. We have a worldwide platform built on batteries, frankly, where we can take all these products in and it's starting to really work. Last point is, we spent years integrating companies. This year, 2014, will be the first time we are not integrating a major company in the Spectrum Brands for years and years and years, and that's going to give us a lot more focus, a lot more power to driving these channels.

Your next question comes from the line of Dan Oppenheim of Crédit Suisse.

This is actually Will Alexis on for Dan. So, a couple of questions on HHI. First kind of centers around the recent pause we've been seeing in the housing market. I was wondering if you could comment on point-of-sale trends since the quarter ended. And also if you could give a little bit of color on inventory trends, if you can, at retailers.

Yes, this is Dave Lumley. You know we just had our board meeting, and we just went through all of our report-outs. And our leader of HHI, Greg Gluchowski, did say that there was a pause in August and a little bit in September in the builders market, but they're seeing that come back up right now. But still remember that lag I told you about, and it's only about 1/4 of HHI's business. What they have seen, frankly, is much better U.S. growth for SmartKey and their locks business and their plumbing business at Pfister, and then the marketplace growth. And I think that goes back to the fact that they have these patented SmartKey products that they're getting behind it. They're getting a lot of attention for SmartKey through their Kevo Bluetooth launch. It has done very well. There are retailers that I'm not sure locks have ever been in it, okay, like Apple, right, and sales on Amazon and Best Buy. So they are outpacing that. Another exciting development for HHI's POS is that they've done some very successful in-store promotions at one of their key customers. It's a 25% lift in those stores. So it's an exciting thing for them. But I think it goes back to, yes, the housing market is part of it. But if you have a compelling product like Kevo, an umbrella product, and a technology like SmartKey with a consumer really is a benefit. Because most of that activity is retrofit or remodel, and they're getting the word out. So I think they're going to do fine. And you're going to see that and the EBITDA is going to come with it come because we've made the investments. We're in place. They're ready. And I think you're going to see them do quite well. As far as our inventory at store, I can tell you it's in a very good shape. I said earlier about most of our product categories. Our unit sales are good. What we are suffering from a little bit is that other products in our categories are slower moving, especially at higher-priced, premium products. So they affect the inventory build opportunity of the retailer. But I will say this, the retailers are very, very good now getting those inventories in line. So I think as we get to Christmas and go into '14, again, it's going to be an opportunity for us. But I would not worry that. In fact, HHI's problem is not that big. I have too much internal [ph] feel right now.

Your next question comes from the line of Kevin Grundy of Jefferies.

So first on the guidance, the revenue guidance for the year and you guys are sticking with your sort of long-term or legacy guidance of at or above GDP growth. But it feels a bit conservative. And we're all kind of doing the same math given HHI is growing quite well, low double-digit at this point, so you should be getting 1.5, 2 points from that business alone. Is it fair to say that there's some conservatism in your top line guidance?

Well, I think it's fair to say that it's -- the management team would much rather under-promise than over-deliver. With that being said, you raised a good point there, Kevin, about the HHI business growing double digits in the last several quarters. We've loved for that to continue but I don't -- we just look at it and say, is that really sustainable? I mean, there is a portion of pent-up demand probably that's now really flowing through the system with respect to people now making investments in their house. As Dave said, 25% of the business is new construction, 25% is remodel. So if we could -- does that mean we're not going to try to get double-digit growth at HHI? Absolutely not. We're going to try to get triple-digit growth. But that being said, we're trying to be somewhat realistic here.

Yes, this is Dave Lumley. We manage this company conservatively. And again, free cash flow, debt paydown. That's working capital. We will not miss a sale. But we go step-by-step, and we're ready. And you're right, that potential is certainly there. We call that our stretch plan, and that's what we pursue. But we're still a little erratic right now so let's see how it turns out.

Okay. A couple more, if you don't mind. So Tony, on the -- looking at free cash flow and capital structure, so you're going to do with the targeted $350 million in free cash flow and the goal is to pay down $250 million in debt. And after you take out the dividend as well, it doesn't leave much for the buyback, call it $40 million, $50 million or so. Can you talk a little bit about that? So if the pace of de-levering relative to where your stock is trading in its current multiple and how you think about that, both for '14 and then even looking out, how should we be thinking about this? Is this sort of an exclusive de-levering strategy regardless of where the stock is trading? Is that what we should be anticipating over the next couple of years, just exclusively de-levering and not looking for any sort of meaningful step change in either a, the dividend; or b, the buyback?

It's a good, good question, Kevin. I think it's fair to say that the $350 million of cash flow, we said we were targeting to do at least $350 million of cash flow this year and at least $250 million of debt paydown. That being said, you pointed out that we have a dividend. And as to -- obviously, it will be a Board of Directors' decision as to future increases and the announcement of the dividend. But we also have other areas that we could allocate our capital. We've got obviously the repurchase program. When we announced that program, it's a 2-year program, a 24-month program that we'd obviously be opportunistic. And when we believe that the stock is trading below our deemed intrinsic value, we'd make the appropriate buyback at that point in time. So point being is that we have a lot of levers, and I don't think it's at this point fair to try -- and I don't think your question is unfair. I'd just say for me, to say we're going to be going in one sacred direction. As Dave said, our long-term leverage goal is 2.5x to 3.5x gross leverage. We believe that when we said this earlier that in connection with our ability to generate free cash flow, and we do have a primary focus on debt reduction to be able to get down to that leverage ratio as quick as possible, we believe that we'll be able to de-lever at least 0.5 turn a year. So I guess it's kind of -- the position of the company is -- our primary focus is debt reduction, and we've got some other levers that we can do as capital allocation. A lot depends upon -- Dave has spoken about acquisitions. Right now our goal is debt reduction, but if we see something that is a nice bolt-on, tuck-in acquisition in one of the platforms that we talked about, Pet, Home and Garden possibly, even our HHI business, we want to have dry powder enough to be able to do what we want to do when we want to do it. Does that help you?

No. I know it's subjective, and you're judging relative to the assets that are out there and where your stock is trading. So no, the color is helpful and I understand. One more, Dave, if you don't mind. Just on batteries in North America, what specific area are you seeing in non-track channels? Because the track channel today looks pretty awful. Are you seeing much difference there? And then you also mentioned that you've had some wins. I guess where are you winning and then who's losing as a consequence of you gaining share? Those are the key questions I'm looking for.

Okay. Let me see here. We -- Spectrum Brands has a very strong industrial channel business, strong hearing aid battery business. We are seeing -- we've done well in the home centers and the 2-step. And I don't know if those are scanned. And why would that be? Well, one, we're in there with Home and Garden, HHI and Pet, but that clears the majority of foot traffic in North America today is in the home centers. That is why you're seeing some of the mass retailers regardless of -- the majority of mass retailers suffering a bit on store traffic, mainly driven by some of this housing activity, and so they're selling more batteries than normal. And we happen to be there, and we're doing well there. In addition, the battery business, as we go forward, has opportunities in channels due to this portable power I talked about. They are happy for it. Right now your choice is, run out of power, hope you get the outlet in the house or spend $80 on a rechargeable battery pack around your phone. Well, we have an alternative for the everyday consumer because most consumers can't spend $80 for a rechargeable battery when they barely have a good phone. So I think that you're going to see a lot more growth in electronics stores, office stores, on-site stores. We're pursuing that and there's good growth there, and we're going to go get it, especially with rechargeable batteries. Now I think, too, that the battery business is global and North America is not necessarily the center of it, okay? There's a lot of activity in the battery business around the world, and there, we're seeing better unit growth in the alkaline and these new type packs. In fact, we've got Andreas Rouve, our President of International. He's been with us for a long time. He drove the European growth. Andreas, do you want to comment a little bit about this question of where battery growth is coming from?

Sure. Thank you very much, Dave. This is Andreas Rouve. The growth is really triggered by what Dave has mentioned earlier, that we're expanding into new channels, into also new countries. And there we are leveraging also our strength with other product categories, like for instance, in the U.K., we are very strong. We're we are market-leading with Russell Hobbs, and we're using that strength to also attack there with batteries. And these are some of the examples where we continue to gain additional volume across different countries.

I was just going to say can you guys comment at all on who you're gaining share from? Or would you care not to?

I think that the way batteries work, I know, it would be easy to say that this company is staying with that company. What's really going on is that there's been a couple of the big changes at a premium level. But what's really going on is who's winning private label and who is converting private label to branded. And I think that's what's going on. All those things are going on. Now all that said, you can simply also just look at the releases of the big 3 battery companies. Actually, I would appreciate if you ask the other 2 what you guys ask me so I could probably hear about that as well. That's kind of a joke. But nevertheless, I don't think that's facts. The facts are pretty apparent of who's winning and who are losing.

Your next question comes from the line of Patrick Trucchio of BMO Capital Markets.

So I think you previously mentioned accretion from HHI of $0.75 to $0.80 in fiscal 2013 and more than $1 in fiscal '14. So what was the accretion in fiscal '13 and what do you expect it to be in fiscal '14?

Yes, it's basically right. Remember I've said that we would be, Patrick, $0.75 to $1, we expect growth. Patrick?

I mean, basically, we mentioned that when we announced the deal in October of last year, those numbers to your point, and we're hitting them. So we feel really good about that.

Your next question comes from the line of Jim Chartier of Monness, Crespi and Hardt. James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division: Three questions for you. The first is in the guidance for this year, it looks like cash taxes and CapEx are above what you consider normal levels. Should we expect those to normalize next year and FY '15?

Yes. As I mentioned in my prepared remarks, the cash taxes is really driven by the timing, again, actually, German tax -- primarily in Germany, there was a tax payment that we anticipated would be paid in fiscal '13. It got moved into fiscal '14. So right now in our cash tax estimate for next year, 2014, we're actually anticipating 2 payments in Germany. And then as I mentioned to somewhat a lesser extent, we've got some audits in certain jurisdictions that relate back to 2007-2010 timeframe, that we'll be making those payments -- we're anticipating those payments this year, in 2014 as well. So going forward, in 2015 and beyond, we're anticipating cash taxes including the HHI business to reach $55 million to $60 million. And then with respect to CapEx, capital spending this year was $82 million. Next year, it's going to be slightly lower, $70 million to $75 million. But we believe that long-term, again, beginning in 2015 probably in the $65 million to $70 million range. James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division: Okay. And then the FX impact on EBITDA was pretty significant this quarter and greater than the impact on revenue. So could you just talk through how FX impacts gross margin and SG&A?

Obviously, from a translation standpoint, to the extent that we do have a very disciplined hedging program with respect to our trend action and transactional activity. So it's really to the extent. And again, we obviously don't hedge 100%. We typically hedge in the neighborhood of 70% to 80% max close to that 70%. So obviously, when you've got a straight being dollar, you get a negative impact on sales and a positive impact on expenses. However, that translates to a net negative, and that's what we encountered. But keep in mind though, a lot of the impact from exchange was really coming from the smaller or the non-euro and the non-pound currencies. It was really the Latin American currencies to a large extent that impacted us in '13, primarily the fourth quarter of 2013.

Great. And finally, there's been a lot of talk in the market about de-stocking at retail. Can you talk about what you've seen in the fourth quarter and then first quarter to-date?

Sure, this is Dave Lumley. Almost universally around the world, retailers have their -- are getting their stock in line. It's the mix that's the problem. And in general, at least, in our categories, depending on who the retailer is, very high-end retailers are selling high-end goods, and they're doing pretty well. But that's a very small part of the overall market or categories. The main retailers are having a hard time -- no, not having a hard time. But the sales of more expensive goods aren't going as fast, right? So that is the challenge. You have to look at different retailers. When you take the home centers, they're selling everything, right? They're doing pretty well. But I would say that in general the inventory in the field is still a little high because of this mix. Now the Black Friday was called out for a reason, so we will see how the Christmas season goes for a while. If it goes well, then I think those things will straighten out. Now yes, it's in my best interest to keep telling the story. The story is true. Premium-priced products in most channels aren't selling that well, and value-priced products are selling better, because the consumer, the everyday consumer, actual purchasing power over the last 5 years is down almost 50%. I know you saw the image [ph]. That is what it is. So they're paying a lot more money for gas and food and things that probably no value to the household. So, they're more cautious, they're more worried about the future. And frankly, every day the news on this Obamacare thing comes out, they find out that they don't even have health coverage. So there's a lot going on. I mean, I know it sounds funny, but there's a lot going on. That's why we're bullish, but I think overall, you'd keep saying it's sluggish.

Your final question comes from the line of Karru Martinson of Deutsche Bank.

Well, you can give us -- Karru, give us a call offline. Maybe an issue with that. I think with that, we've completed our call. We have a lot of great questions, and we will close down the call. I certainly want to thank Dave and Tony and also Andreas from Germany for the call today. And on behalf of Spectrum Brands, most importantly, I want to thank all of you for participating in our fiscal 2013 year end call. And you have a good day, and we'll talk to you next quarter. Thank you.

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