Good morning. My name is Jack, and I will be your conference operator today. At this time I would like to welcome everyone to the Spectrum Brands Fiscal 2016 Fourth Quarter Earnings Conference Call. [Operator Instructions] 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.

Good morning and welcome to Spectrum Brands Holdings fiscal 2016 full year and fourth quarter earnings 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 our comments we have placed, as usual, a slide presentation on the event calendar page in the IR section of our website at spectrumbrands.com. This document will remain there following our call. So if we start with the presentation and turn to Slide 2, you will see that our call will be led again by Andreas Rouve, our Chief Executive Officer; and Doug Martin, our Chief Financial Officer. Andreas and Doug will deliver opening remarks and then conduct the Q&A session. Now, let us turn to Slides 3 and 4, our comments today do include forward-looking statements, including our outlook for fiscal 2017 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 the cautionary statements outlined in our press release dated November 17, 2016 and our most recent SEC filings and Spectrum Brands holdings most recent 10-K. We assume no obligation to update any forward looking statement. Also, 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 today's press release and 8-K filing, which are both available on our website in the Investor Relations section. I am now pleased to turn the call over to our Chief Executive Officer, Andreas Rouve.

Thanks, Dave and thank you all for joining us. Turning to Slide 6, fiscal 2016 was our seventh consecutive year of record financial performance. We overcame a second-year of major negative currency headwinds, along with intense competition and pricing pressure, North American retailer inventory reductions and soft markets in several appliance categories. Our reported adjusted EBITDA grew $152 million year-over-year with a margin expansion of 180 basis points to $18.9%, the sixth consecutive year of margin improvement. Legacy adjusted EBITDA, which excludes acquisition EBITDA of $106 million, increased 6% despite $80 million of negative currency. Our improvement was broad based across most business and regions; Home and Garden, Hardware and Home Improvement, as well as Global Auto Care achieved record results. Also Batteries, Personal Care and Pet delivered strong performances. All of our core regions reported organic sales and adjusted EBITDA growth on a currency neutral basis. Our organic sales growth of 2.6% was negatively impacted by approximately 1.1% from the exit of unprofitable business largely in hardware and home improvement, and Global Pet totally approximately $53 million in order to drive EBITDA and free cash flow growth. As I have stated before, we will not achieve sales growth just for the sake of gaining market share or boosting the top line. In opposite, we will either fix or exit any product lines in which we do not generate long-term healthy returns even if this leads to a short-term decline in net sales. As such, we [entered] in the last quarter in two non-strategic cases in Mexico and China into license agreements, which do reduce our net sales, but improve at the same time our EBITDA and free cash flow. In our fourth quarter, we delivered good profit growth and solid margin expansion despite lower net sales. The sales decline…

Thanks Andreas and good morning, everyone. As Andreas mentioned, 2016 was a record year for Spectrum Brands. I would also add that the quality of earnings and consistency of cash flow delivery also continued to be very strong. So now turning to Slide 9, let's review Q4 results beginning with net sales. Fourth quarter reported net sales of $1.25 billion decreased 4.5% versus last year. Excluding the negative impact of $16.9 million of foreign currency, organic net sales fell 3.2%. Four fewer shipping days in the quarter negatively impacted sales by approximately $70 million to $80 million, as well as exits of unprofitable businesses of approximately $12 million. Reported gross margin of 38.9% increased 320 basis points from 35.7% last year, primarily due to improved mix and strong productivity. Reported SG&A expense of $294.4 million or 23.6% of sales compared to $229.3 million last year, or 22.9%. Reported operating margin of 12.7% increased by 240 basis points compared to 10.3% last year, largely driven by expanding gross margin, lower SG&A and lower acquisition and integration spending. On a reported basis, Q4 diluted EPS of $1.49 compared to $0.44 last year primarily due to improved mix, reduced acquisition and integration activity, and a change in income tax provision from the prior period. Adjusted EPS of $1.31 increased 16% from $1.13 last year primarily as a result of the strong productivity and favorable mix. The Q4 reported tax rate of a negative 8.4% decreased by 59.5% a year ago primarily as a result of the timing of the net operating loss usage and tax planning outside of the US. Turning now to Slide 10. Reported interest expense in fiscal 2016 of $250 million decreased $22 million from last year driven by a lower annualized interest cost and non-recurring financing items in 2015.…

Thank you, very much, Andreas and Doug. Operator, with that, you may now begin the Q&A session, please.

[Operator Instructions] Your first question comes from the line of Bill Smith with Deutsche Bank. Your line is open.

Hi guys, good morning.

Good morning.

Good morning.

Hey, so can you like if you look at the first quarter, not yet to lap the six extra selling days you had in the first quarter of last year. Right, so I think you had like it was like 95 days versus 89. And then you had four fewer days I guess this quarter. So, where did the other two days go, so you can get your today's next year, I just want to try to get the model figured out and I think you said you thought like Home and Garden wasn’t to grow in the front half of next year and I'm wondering how that happens, just giving the really tough comp in the first quarter given the extra selling days.

Yes. So, the way that works, Bill, is the way we think about how the year unfold. So, starting with 2016. Even though there are five days the way we look at turning on a weekend days. In the first, in our first fiscal quarter, that also our low season and how they feel, and so very slow shipping fees. But we really think the impact of the yesterday's in 2016 was at the end of June and early July, which is where the pivot occurred, just for context. So, as first half of the year where we picked up the four days and then gave them back them this quarter. From a modeling perspective for next year, now last year was '16 was also happen to a later year, so next year we actually have three days that we'll shift, to fewer days in Q1 and one extra day in Q4 next year. Again, same low point high point from a seasonality perspective. So, it ought to be a little more muted this year.

Okay. No, that's helpful. And then, did you some the Home and Garden margins, I mean, what drove the margin compression there in the quarter, was that just a fewer sign days or is there something else going on?

Well, that was really a cup of things. It was the top-line decline and leverage on SG&A and some spending that we're doing in that business behind growth. So, you saw a 7.5% growth across that business this year and we committed to as we said moving Black Flag out from indoors to outdoors and we're doing making some spending choices there that help both the indoor requirements and help us launch outdoors. So, of that spending occurred in the quarter.

Okay. Again and then one last quick one. On cash from operations. I think if I then just reported numbers I don’t have the adjustments by quarter, but it looks like it was down 18%. Was that just a fewer days or it was something else going on there?

I'll have to go back and look at that, Bill. I just -- I'll come back, we'll come back to you on that. I suspect part of the NIP flow given the again the flow of the quarter.

Okay. All right, thanks so much. I'll now pass it on.

Okay.

Your next question comes from the line of Olivia Tong with Merrill Lynch. Your line is open.

Great. Thanks, good morning. I know, went back to this sort of quarterly shift and all that, and in obviously you even called it up before. But last quarter you talked about sort of being comfortable in a 2.5% to 4.5% organic sales growth range for the full-year and you came in at 2.6 for the year. So, relative to your expectations perhaps 12 weeks ago or so, can you talk about the puts and takes of where maybe it fell a bit short relative to you, those expectations? Thanks.

Yes. This is Andreas. I think what I mentioned earlier, we are always analyzing where we make money and where we also have long-term competitive advantages. And as such, we do challenge in certain parts of the business, going forward strategy, like I mentioned for instance, in Mexico we were very strong there in the OPP with hardware and locks business under the funnel brand. And if you look at our P&L, we generated a loss. So, that's why we decided to exit that business and therefore we move to a license model where we have agreed with an external partner that day assumed that. And the same business supplies in China where we did a similar thing on the plumbing business with the Pfister brand where again our long-term competitive advantage was not given. So, if you take those exits out of the equation, we grew about 3.5% which or slightly even more than that which I think is pretty much in line with our growth expectations also going forward. Now, flagging it proactively, yes, we will have also in '17 the impact of certain exits. We expect it right now to be in the range of about $30 million to $40 million in fiscal '17 compared against '16.

Got it. Thanks, that's helpful.

Olivia, that's largely carryover items, but for now transaction, as apparently a final transaction as Andreas referenced happen very late in the year. So, those are carryover effect. Most of them were one and a couple of it.

Understood. If I could ask about gross margin, it was particularly strong this quarter. You obviously lapped order now and I know you have some exits and probably a little bit of benefits still from commodities helping you out. But other than that or the key drivers that kind of allowed you to keep that quarterly expansion pace just by lapping the benefits of model.

I think it is really the favorable mix. Like and again we mention your exits for instance in hardware and pet, but we actually also did exit in the battery business certain private labels. Like for instance in one of the neighboring countries in the US, we exited with a major retailer a private label contract but we had negative margins. And these are the kind of initiatives which do dampen top-line but which are driving bottom-line and cross profit and that leads it. And you can really go across the portfolio even in appliances, those losses which we did incur were at the lower end in the OPP in the promotional activities where our margins are very low, whereas in the more innovative the more premium products, we are making very nice progress.

Got it, thanks guys.

Thank you.

Thank you.

The next question is from Joe Altobello from Raymond James.

Hey guys, good morning.

Good morning, Joe.

Good morning, Joe.

So, first question, I'm probably nitpicking a little bit here but I think this morning you guys talked about growing above market growth going forward. On your last call, actually a couple of calls you talked about double market growth. Is that just semantics or is there something else that's kind of creeping into your outlook here?

I think and the point is if we, you look at what is the average market growth. It will be somewhere between 1.5%, in that range of 1.5% and we do expect that we will grow significantly faster than that in our core business but that it will be partly offset from the exit and therefore I would say a what niche reported growth if not going to be twice as fast as the market. So, therefore, we still believe that despite the exits, we will grow faster than the categories but not probably twice. However, we should continue to see a favorable margin expansion coming from that favorable mix because in our core business we will grow faster but partly offset by the exit of low margin unprofitable business.

Okay. So, the 3.5% organic growth you talked about just now. That excludes the impact from the product exits?

That would include it and therefore it's you should probably reduce it slightly downward.

Okay, got you. I guess in terms of the other dynamics you guys have been seeing. Retailer and how reductions you mentioned that again today. Obviously in the struggles in personal care and small appliances, any improvement in either of those, obviously at the end of the retailer, any sort of reduction?

Yes. I think if you look at and the biggest impact what really see in the US which with the big retailer speed and mass or in the home improvement area where all of them have implemented new warehouse management systems and where they also have reported big progress in reducing their inventory which of course had an impact on us. I think the biggest part of that has occurred. I think what also and just we comment also on Home and Garden because that sales were down in the quarter. I think there's also very important to see that retailers are partly pulling inventory earlier in ahead of the season to be prepared for an early part of the season however they are also very rigorous in pulling inventory down towards the end of the season. So, that they are not stuck with a non-moving inventory in the warehouses. So, I think the inventory management of retailers have significantly improved, which did put some pressure on us in the fourth quarter.

Okay, great. Thank you, guys.

.:

Thanks. Good morning, everyone.

Hi, Steph.

A couple of questions from --. The first is Andreas, you talked a little bit about exiting some businesses that are unprofitable or maybe not as capital efficient. So, is there an added double of scrutiny across the business mix today, just posted the Auto acquisition where you're feeling like you need to maybe unlock some capital within the P&L. or is it really about kind of a mixed up effect as you look at a higher bar with that new business coming in?

I think Stephanie, our target is very clear. We want to grow EBITDA organic sustainable long-term. And I always say that easiest way to grow EBITDA is by growing sales. However, if we look at the profitability of each business, be it by category, be it by region, and if that category is not supporting EBITDA growth, then we will challenge it. And in the first step, we will optimize cost. That means, we will see can we improve the efficiency of that business and also we analyze that it have long-term strategic value. Like, if you take the example of a null Mexico. Yes, for us, security hardware are core parts of the business, but we are not going to be in the OPP segment where we are going to compete with low quality low feature competitors coming from China and that's not going to be the area that we believe that we should play long-term. So, therefore in fundamentally we are about the more growing top-line. However, if there are pockets out of our business where we are unprofitable and where we do not see long-term strategic competitive advantages, we will exit that business to improve our EBITDA and free cash flow.

That's really helpful. And this is a follow-up to that. So, using that from areas the case study, are there other countries where licensed model might extend, can you maybe talk about how the economics of a license structure work, is it a royalty or some sort of wholesale pricing arrangement. How should we think about the benefits of a licensing model?

I think licensing, if again if you look at Spectrum Brands, we have a very wide portfolio of brands. And in certain brands we have strong expertise and if I may just pick home appliances for instance, we are very strong with the Russell Hobbs brand especially in the UK but increasingly also now in continental Europe. And we are leveraging the strength of that brand also to partly enter into license agreements with suppliers which are covering portfolio which are outside of our call range. Like for instance with microwave ovens. So, categories where we do not play our self but where our brands carry over into the adjacent categories and this is one also of our strategic long-term initiatives to evaluate if we can use that licensing model in more part of the world in more of our brands. So, we have one dedicated expert within Spectrum Brands who is continuously evaluating those additional opportunities.

Thanks guys, best of luck.

Thank you.

Thank you.

.:

Good morning. Thanks for taking my question.

Hi, Bob.

Hi. So, the stocks had a wild ride over the last 10 days or so. Not asking to speculate on the share price but could you talk about what if any real or perceived changes have come from the election and how they could affect Spectrum?

Well, I think the impact on our set side price Bob, is probably more related to the category to rotation from category consumer products type business like ours in the some of the other sectors that you've seen. We have we tend to have outsourced movements in either direction in the short-term is because of the lower float that we have. So, that will be our observation. From a the election perspective, over time we think we can manage the business as effectively under any administration and the goal and nature of our business allows us to balance all that growth.

Okay, great. And then you did a great job discussing this at your Analyst Day, but maybe as a summary and for those who may have missed it. Could you give us a sense of the top three or four white spaces available for you now for organic growth and the timing to penetrate those areas?

I think the -- this is Andreas. I think every category has white space opportunities. If we start with our oldest the call back for your business, here again as part of the post-bankruptcy restructuring, we focus on the few top retailers and we basically neglected the entire grocery channel, drug sort channel and so on. So, what we have started doing is a higher more dedicated sales specialist to go after those channels. We have launched brand Refresh, we are supporting it right now in the public with the media to support the brand awareness. And also we have implemented a product segmentation which again will allow us to go after more price points and serve the more channels without causing a channel conflict. So, that's just one example. And then you can take other examples like what I mentioned earlier, with pets. We have been historically very strong with pet in North America and in Europe. But we have more or less neglected completely the Latin American market where we have a strong presence in 12 countries with our own sales organization. So, again same strategy we have started recruiting in Latin America additional sales and trade marketing specialist to serve this channel. And there again we are making good progress. Now, Doug mentioned also earlier some other examples like for instance in Global Auto Care, we have very strong brands with Armor All and STP. I mentioned earlier that part of leverage those brands is with licensing, but partly we are also working on ideas to leverage those brands and expand into adjacencies where those brands should play very nicely. Like for instance with STP and this small engine area and these are the kind of initiatives which we are driving forward.

Great. Thank you, very much.

Thank you.

Thank you.

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

Thanks. Good morning, guys.

Good morning.

Good morning, Kevin.

What's the tick up on home appliances and Andreas, your commentary was more around adjustment of inventory levels. But the PO, this is US Nielsen data. Now the point of sale data continues to be poor not just for you guys with category, and I want to make sure I understand fully I guess some of the dynamics there. So, could you walk a little bit, walk us through that and also give us an idea what you're seeing in non-track channels including online, what you think broadly the category growth rate is over the past quarter and sort of what you anticipate here as we look at over the next few quarters.

Yes. This is quite a complex topic. If I start first, yes, I think the market overall is down in appliances. And that is partly linked to the fact that we are seeing increasingly over the last couple of years, fashion trends appear. That means, like for instance this mix and goal, food processing, those kind of there are certain fashion trends which boost the market with very strong growth but then after that fashion fades a little bit then the market calms down again. And you can have similar in coffee and a lot of those areas. So, I think we are right now a little bit just the market is declining partly because of that lack of a new fashionable trend. What basically is happening of course because of that declining market that competition is getting much more aggressive and therefore a strong price erosion? And then of course as we h ad mentioned before also on the Investor Day, you have the tendency that more and more retailers try to source directly from China, especially in the opening price point area. So, that's a strong competition in the lower end and we are trying to offset that with investing more into R&D and pushing for more innovation. Like I mentioned earlier for instance, this Wi-Fi enabled slow cooker. Slow cooking is one of those trends, and then again with the connected home, so therefore there are new trends appearing and these are the kind of examples where you can launch a new product, you get immediately the traction, you get good support by the retailers and these are the kind of strategic investments which we are going to do going forward and we will continue to invest more. Now, your second question on the channels. If you look at the online channel, the penetration of our categories in the online is very different. So, if you go to one extreme like in Auto Care or batteries, it is very low. But then on the other side especially in appliances, both in home appliances and personal care, it is very high. And the reason is again very simple. The value of those products are high, therefore shipping compared to the product cost is in a good relationship and again many consumers buy those products based on features. And those you can much easier research online, you can compare online and then you can order. And accordingly we are seeing some very nice momentum also online, so that channel is developing very good for us.

Okay, that's helpful. Just one follow-up if I may on the M&A pipeline. And then sort of tying in a lot of the volatility we're seeing post-election, higher rate, stronger dollar, expectations of tax cuts, potentially more strategic trade policies role, kind of looking and reading the same things here. Does that change the view, I think gave more head or are you alluded to even pre this is back at your Investor Day, sort of potentially in a version to larger scale M&A. is that sort of reinforced as a result of some of the volatility and higher cost of capital. So, commentary there 1) on the pipeline. 2) Any change in view there given the volatility that we're seeing now and uncertainty with respect to what the administration may deal. Thank you.

Thanks Kevin, this is Doug. Look, I would separate that question in that M&A in two different ways. The first is those businesses that we currently have that we like to continue to build out with new name of brands, new name of categories to geographic opportunities. We still believe that there are opportunities in those spaces and they are real expensive now, they're real expensive everywhere. But I think a little bit of volatility that we're seeing, the little bit of uncertainty between now and whenever we see more clarity on what's going to happen here in the US will not affect our ability to attract overdue and closed deals in the range that we want to close demand and a bolt on or tuck-in fashion. From a transformative perspective, I don’t think that David said that he was averse to them, I think we're always ready for something if it comes along and it fits us nicely, it fits the my own strategy nicely and we can get it at the right price. So, given the strength of our balance sheet today, the expectations that will continue to improve to throughout the year. I believe we are actually in a very good position should the right opportunity presented so.

Right, good. Thank you, good luck guys.

Thank you.

Your next question comes from the line of Ian Zaffino with Oppenheimer. Your line is open.

Hi, thanks.

Hi, Ian.

How are you doing there?

Good.

Good. Help me understand maybe some of your supply agreements with some of your manufacturers. In that if the person like does kind of fall for some of the claims, I mean, are you able to maybe move your sourcing out of China and somewhere else or how does that work. And then the other question would be, I know you've had some planning as it relates to post NOL expiration. How would that the does that back and potentially coming here impact your thinking. Or maybe an update on thoughts there. Thanks.

Let me pick the first one and I think second one Doug will answer. I think on our supplier relation, in most categories we have a very good solid vertical integration where we produce more so the products our self. Really the big exception is the appliances business where we work together and where we have outsourced, I mean, the factoring. But even here we are trying to have a few strategic partners with whom we are investing into R&D. So, into new design, new features, so that we can gain competitive advantages. And of course we will continuously look at potential alternative locations but in all fairness I think and you will see a lot of other business categories as well, that is a very strong concentration of those suppliers in China and they simply have a very strong competitive advantage, be it in labor, be it in their investment. So, therefore, but we are continuously evaluating alternatives, be it in Eastern Europe, be it in southern part of the America. So, therefore that is a continuous process. But I would say right now that's a very strong corporation with those strategic partners.

On the NOL and tax front side, Ian, what I would say is overall lower tax rates are good for us period. Without the some of the NOL we're down and well as you know use the NOL for the next several years. So, we will be a tax period again and lower rates in the US would be fantastic. It doesn’t really impact the way we think about global tax planning. And when we think about global tax planning, we don’t think about it solely from a US perspective, we think about first and foremost lower-end taxes in every jurisdiction that we're operating. And so, I would -- and we do it over the long-term. So, as sure as I'm confident the tax rates are going to come down in the not too distant future. I'm also confident that they'll go up again sometimes. So, we plan over a very long horizon from that perspective. The only game changer would be if the US went from a worldwide to a territorial tax system and that would be good for us. So, overall we're still on the path that we've been communicating. Lower tax rates would obviously be would be beneficial.

Okay. And then just following on the initial question. As it relates to, if you get kind of get this protective person in place. Does the category have the ability to raise prices to maybe offset any type of the appliance category? Does it have the ability to take price offset those rising costs? Would you benefit from that or would that be a negative, thanks.

I think, if you look at the capability of raising prices, you have to make regional distinctions. In Latin America where we are living in a more traditional high inflationary environment, yes. Raising prices there, I don’t want to say is easy but that's kind of part of life in Latin America. If you look at the US and to Europe, the situation is much different because again of the strong purchasing powers of retailers, the strong also yes visibility price fronts currency and there the only tool we see to raise prices is through innovation. Trying to go back to a retailer and raise prices for an existing unchanged product, my only response is good luck, give it a try but the probability is not very high. So, therefore this is why we are investing more into R&D and more into marketing so that we can continuously bring new products and with those new products and additional features, then you have that capability to implement price increases.

All right, great. Thank you, very much.

Thank you.

Your next question comes from the line of Jason Gere with KeyBanc. Your line is open.

Okay. Yes, guys I just have two questions. I guess the first one, as you look at the segments in the portfolio, as you exit 2016 and head into '17. The commentary seems pretty positive on the categories here and just internally are there any segments that you're feeling much better about maybe after a week or 16 and then maybe on the flip side, anything where you might see a little bit of a slowdown on some of your faster growing businesses. So, that's the first question.

I think again just picking the extreme sample of Home and Garden. We had a very successful year. But as you have seen in the fourth quarter, their sales were actually down because the weather and also retailer inventories did hurt it. And they're also going into '17, those categories especially in the Auto Care, with the AC business but also Home and Garden, we will depend very much on weather. Having a cold rainy year would hurt sales in those categories but on the other side if we would have a hot and dry that would actually help it a lot. And so therefore there are certain weather. I think if you look at the other categories we are seeing a very nice traction with in pet for instance in developing new products and launching them however, again it takes typically quite some time before those innovations are listed in the market and hit the market. And again Doug mentioned earlier, we are seeing in '17 a stronger second half compared with the first half. And that is partly also that some of those new listing at major retailers are kicking in in the March-April timeframe and that's where we will then see a very nice positive trend also in those categories which have been a little bit challenged in '16.

Okay. That's great. And then the second question, clearly the productivity improvements that you showed in this quarter despite the four fewer selling days was pretty impressive. So, I guess as we think about the margins for next year. If you go back the last three years, you guys have been able to expand that operating margin over 60 basis points, some of that obviously is a little bit of acquisition in there. But I was just wondering as you think about '17, how should that kind of framework versus what you've done in the past. I don’t anticipate it's going to be a strong margin as '16, but should we be able to see margin somewhere in that 50 basis point which I think is kind of around your long-term goals. Thanks.

Yes. What we've been saying, Jason, you won't see the same kind of step up to we say this year because we had a significant animalization of Global Auto Care impact in the year. But what you will see going forward is a continuation of a very strong productivity culture inside the company and we are very good plans for this year. Our teams are very good planned and they're educating against good productivity plans and what is it continuously a challenging environment. So, FX we thought we're going to largely annualize this year, well, we have a little bit more as you know. We and so we use productivity is overcome that and to enhance margin. We'll also have I think the continuing next benefit that you're seeing now. It Home and Garden makes impact was very helpful this year. It won't be probably quite as helpful next year because it won't outgrow the rest of our business as much next year. We haven’t said 50 basis points, we kind of said 30 to 50 basis points over time as what we would expect it.

Okay. And then is there anything just one that point. Is there anything on the labor front, I just noticed that your accrued wages jumped up pretty significantly in the fourth quarter. I don’t know I know you've made some new hires strengthening the management team. But I was just wondering if there's anything on the labor front from a manufacturing standpoint that it would way down on '17 just like other companies have seen?

Well, if I just comment on the '16 labor cost, the strong increase was linked to our variable compensation. Spectrum Brands, we firmly believe in the pay for performance, so we have a very high variable component, we did exceed our targets quite nicely in '16 and therefore accordingly we do pay a buff target bonuses in '16. So, therefore labor cost is really not one of our major concern. However just let me add another point which we have not touched so far. We do start being in commoditive, rising commodity cost and that of course is also something which we have to take into account and which we have taken into account with the direction which we have given to you.

Okay, thanks. I appreciate the color.

Okay, thanks Jason. Operator, we're at the top of the hour, but we'll squeeze in one more final question. We have one question left and then we'll close down the call.

Your final question comes from the line of Karru Martinson with Jefferies. Your line is open.

Thank you very much guys.

Hi, Karru.

If you guys, as you guys, you've got the model for acquisitions and if that’s the right price you're in a good position to do them. But if those acquisitions don’t come out and you don’t see the pricing that you want. What are your thoughts on the use of cash, how should we look at the capital structure here?

Well, I think that you know the first would be continuation of what we've done this year. And that is to continue to deliver and keep our resources in reserve but the opportunities when they do a rise. We're in no hurry to grow through acquisition. We're in a hurry to put capital to work in the most efficient and effective way. That means investing a $110 million to a $120 million in good capital in the business, we're going to do that. And that takes priority for us because growing our and improving our existing businesses is critically important to us. Paying down debt would be the next step for us. And I think we got a solid year ahead of us to get into the half return or so leverage out, maybe a little more. And then we will evaluate as we go.

Thank you, very much, guy. I appreciate the time.

Thank you.

Thank you, Karru. And thanks to all of you. We have reached the top of the hour, so we will conclude our conference call now. I certainly want to thank Andreas Rouve and Doug Martin on the call today. And on behalf of all of us here at Spectrum Brands, we want to thank all of you for participating in our fiscal 2016 full-year and fourth quarter earnings call. Have a good day. Thank you.

This concludes today's conference call. All participants may now disconnect.