The Scotts Miracle-Gro Company (SMG)

Analyst Day 2013

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Dec 13, 2013

Morning. For those of you who I have not had a chance to meet, my name is Jim King. I'm Senior Vice President and Chief Communications Officer for The Scotts Miracle Gro Company. And on behalf of our entire management team, I'd like to welcome everybody to our 2013 analyst meeting. Whether you're attending here in person at the wall door for listening online, I believe the next 2 to 2.5 hours will be a productive use of your time. Our goal this morning is pretty straightforward to give you a better understanding of our future and current view of the industry and our place in it. We'll also give you more details related to our expected financial performance for 2014. So speaking of that, I want to get rid of I want to get through some of the legal housekeeping right away and remind everybody that our comments today will contain forward looking statements. And as such our actual results could differ materially from what we discuss today. So we encourage all of our investors to review our risk factors outlined in our Form 10 ks which is filed with the SEC. Before I run through the agenda, I want to introduce members of our management team who are here this morning who are not presenting. Each of them is sitting at a table and hosting lunch. I encourage you to engage with them over lunch about their respective parts of the business or some of the messages you'll hear today. So if my colleagues would just stand very quickly as I introduce them so people know where they're located. Brian Cura, President of our Scotts Lawn Service Business Chris Allen, Regional President of our Southeast region based in Florida Jim Tates, President of our West region based in Houston Catherine Reeves, who joined us just earlier this year as Senior Vice President and General Manager of our Lawns Strategic Business Unit Jim Jimison, Senior Vice President and General Manager of our Gardens Business Mike French, Senior Vice President and General Manager of our Global Controls Business. Our Vice President and Treasurer, Mark Weaver is here this morning sitting in the back. From our New York office, our Regional President for the Northeast Region, Mike Carbonara is here. 2 other members of our team from New York also are here, Brian Harrington, Director of Government Relations and Chris Hagedorn, Director of Indoor Gardening. Mike Lukemire sitting here in the front, Executive Vice President of Global Business Execution Randy Coleman, Senior Vice President of Financial Operations. Randy also runs our Enterprise Performance Management Analytics team, big title. Mike Sommer, Assistant Treasurer is in the back as well. Dave Swihart, Global or Senior Vice President of Global Research and Development as well as sourcing and then finally our General Counsel Ivan Smith. Okay. So let me walk you through the agenda for the morning. When I leave the stage here in a few minutes, Jim Hagedorn, our Chairman and CEO is going to step up. Jim will spend about bit bad. We have about 45 minutes focusing on the future of the industry. Where do we see the consumer? Will the business be more urban or suburban than it is today? How do we adapt in order to continue nurturing our core consumer mostly baby boomers, while also beginning to reach out to their children and grandchildren who are lined up to be the next generation of our consumer? And what's our view of the service industry? And what do all those factors mean for our ability to grow over the long term and to drive total shareholder return? Jim is not going to spend very much time at all talking about our plans for 2014. And so that discussion is going to be led by Barry Sanders, our Chief Operating Officer and Jim Liske, our Chief Marketing Officer. Barry will begin by sharing our operating assumptions entering the year and then Jim Lisky will spend about 10 minutes on each of the strategic business units and talk about our plans for each of those. The last speaker this morning is going to be Larry Hilsheimer, who joined us earlier this year as our new Chief Financial Officer. He'll not only provide more details around our guidance for the year, but also some changes that we're announcing this morning related to our capital structure. He'll also reiterate our philosophy on uses of cash. For those listening online, we expect the presentations to end between 10 or 11:30 and 11:45. We're going to take a quick break for those of you in the room. We're going to take a quick break for lunch around there. And then we hope to begin the Q and A session at about 12:15 and wrap up by about 1. So that's the agenda. So let's move on with the business at hand. This meeting a year ago, those of you attended might recall that Jim outlined for everybody his revised vision statement for the company as well as his core convictions what he believed were the things that we believed were necessary to ensure our future success. And for the past year, he spent a lot of time sharing those messages with our associates around the world as well as reiterating those with our Board. As we were preparing for this meeting this morning, we believe it was important to reiterate that message with investors as well and help you better understand what we're trying to accomplish and why we enjoy working in this business so much. So we're going to start this morning with a brief video that helps reinforce that. We're going to take a look at that and then Jim's going to take the stage. So again welcome and thanks for being here this morning. Great brands are not based on a name, a logo or an advertising campaign. At the foundation of all great brands lies a simple concept, a promise. What is our promise? To help consumers create and enjoy an outdoor space, where they can celebrate with friends and family, play tag with their kids or fetch with a dog, where they can grow gardens that are both beautiful and plentiful. That promise is the foundation of our vision, To help people of all ages express themselves on their own piece of the earth. That expression is demonstrated in infinite ways. It could come from someone with a showcase garden in the suburbs or someone nurturing a single potted plant on the balcony of a high rise. It could come from someone with a perfectly manicured lawn, as well as someone willing to live with few leaves. That expression could come from someone with decades of experience in the garden or a 6 year old planting a seed for the first time. All of these people are gardeners. And at Scotts Mill Who Grow, all of them are our consumers. Good morning, everybody. So those of you who know me, we I think have finally finished our house in the Virgin Islands and it could have been like a decade. I could have bought an aircraft carrier. But I was dropping my wife off at the airport. She's headed down to load the house with furniture. And he said, so how's your meeting going to go, And I said, it gets good. So just talking to people outside, what would I say thematically? We can just go to the next slide, I think. I would say no drama. We don't have to overwork to make good numbers. And I think that that's if there's a lesson coming out of maybe the last 5 years, it's kind of no drama. And we'll kind of take you through how we add the numbers up. But without having to expect sort of exceptional stuff, we can produce pretty exceptional result. And I think to some extent that's what 13 showed us because remember at the end of March, big month in lawn and garden, our corporate POS was down like 30%. Okay? And this was one of those years where those people who've known me for a long time, some years you work all summer. Other years like kind of end of April, you got the year made and it's going to be a nice bonus and you can kind of take it easy. This was not one of those years. And I think a lot of credit goes to Barry and his team. And I think that's thematically going to be Barry's message. No prob, we got this business under control, okay? So that's kind of I mean, if there's a story, shit's good, under control, don't have to overpromise. And we are committed to 2 thirds of our cash flow going home and so which is consistent with what we told you guys last year. So we intend to make good on our promises. And that's if I mean, I could finish now. That's the story. It's probably worth more talking about. I do want to I have a table in the back corner that is I think I have a quorum on my Board here actually right now. I got Stephanie Schurn, Chair of Audit, my the Vice Chairman and my twin sister, Kate, Adam Hanft Steve Johnson, who was administrator of the U. S. EPA Nancy Mistretta, who's she's responsible for paying us. So she chairs comp. So I love you, man. Anyway, so we could have a meeting. If you guys decide you want to do something, we'll just call a Board meeting and we can get it dealt with right now. So I think if you're looking, say, kind of where am I evolving to, I actually feel like I'm pretty good at telling stories. I think strategy is one of those things that I sort of can't stand the word, because we start feeling stupid, at least I do. So I think we actually have a pretty good plan. I hope I can describe it sort of as good as it is. We have a Board meeting end of January, which is a kind of our global strategic discussion with the Board, which means Barry and I have got a lot of work to do between now and then. And then of course, if you're going to have a guy like Mike Porter on your Board, you better have a strategy committee. So that means I also got to get aligned with him between now and Davos is in the middle. So it's like it's a busy time. And we I'm sure by next year, we'll sort of be able to say it better. But certain themes are kind of emerging for me. And that is a little bit what this slide is about. Now these are the assumptions we're kind of using, all right. And so this does not mean this is what we totally expect to happen, because I think we hope things are better. And if you listen to the news, there's a lot of optimism out there. We did not build a ton of optimism into our plan. And if things are better, housing and I mean, and I think they're improving, okay? But I think fundamentally, we need good jobs and sort of less frictional losses. My son who because he's related to me ends up in the proxy even though he's like pretty far down the food chain including his bonus and he's like 48% of my bonus got taken attacked with that. It's like there's a lot of frictional loss, I think, in this country. And if I think I wish the country was less of a sort of friction, but current core portfolio growing in the low single digits. Now this is not like 5. This could be kind of like 0 to 2, okay? This is not sort of my expectation except to say that I think if you look at sort of Coca Cola, Budweiser, there is growth, I mean, if there is growth, it is in sort of non carbonated sort of beverages. And I think that strategically, it's a good thing for people to say we're going to be in the water business and sports drinks and sort of low calorie fruity drinks. I think if you're in the beer business, I think there's an explosion if you I'm not a beer drinker, but my son is. And I don't think he buys Budweiser. I think he buys kind of fancy craft beers. And so I think you're going to hear that thematically, but what we're saying is in the Budweiser part of our business, which is a really great business, it's really profitable, It's kind of 3 big retailers, extreme concentration. Sort of if you sort of say what did we do and there's some slides that will show this. I kind of brought the brands. Barry and his team have kind of brought the execution. And so within that kind of Budweiser part of the business, we're pretty goddamn good, okay? I mean, we are. But what that means is, we think that the kind of Budweiser part of our business is kind of slow growth. And I think we hope it's going to be better and we're going to we're not going to de invest in these brands. So if do not read this, milk the hell out of Catherine's lawns business, okay? And we're going to talk about that. We do think that organics outpaces the core, okay. Urban outpaces the core, okay. And you can read into a lot of this, which is organic, urban, which is not only older people who are leaving the suburban environment or at least the big lawn environment, but young people, hip people, I would say go west. There's a lot of cool stuff happening in lawn and garden. I'll tell you, if there's a theme, I'm pretty excited about the business, okay? But I think it's different and I think this is a pretty cool way to look at it, actually. Innovation will transform clients. I think that's true, but I would think innovation good, okay? Innovation gets you margin. Innovation gets you growth. For those of you who are on the sort of analysis side of the business, whatever you want to say about Central Garden and Pet with that dopey shit that they launched. But let me tell you, it got listed. This industry is so hungry for innovation that this stuff got listed. Now, they got it on the shelf, they couldn't move it off. But innovation does matter, okay? And so I think there's I'm going to say good stuff happening here on the innovation side and very comfortable where I would have said less comfortable 2 years ago. Old people, I guess that's boomers because King is always telling me like I'm the sort of young end of like the boomers. Sorry, dude. But do it I mean service. We like service, okay? Service is nice margins. I'm a little bit stealing my own thunder, but on the large side as the number 2 player in this lawn service, I don't think anybody is operating businesses as well as we are. And I think that maybe because we've gotten some beatings over time, but I think we've got a good team. We're starting to see like customer growth again, which is a good thing. Our margins are good. Retention is good. And we like pest control, which has even higher margins and probably 10 points more stickiness as far as retention. So I think this is kind of where we're headed, you all, okay? We like our core, but I don't think it's going to be sort of exceptional growth and could be wrong on that, but we're not assuming that. Organic, urban, indoor, innovation matters and service good. I mean that's there's the story, okay? And cash flow good, 2 thirds home. I mean that next slide, I could probably finish right now. Anytime you do one of these decks, it's I think Jim and I worked at like 12 versions of this NAM thing or something like that. There's a point where you give up and say, I'm just but there's a little bit of a skip kind of in the deck. So I'm going to kind of work the front and the back a little bit, and you'll see where it kind of skips, meaning it gets a little repetitive. Our lawns business, this is Catherine's business. MAT-twenty eight, that DuPont product that blew up was unbelievably important to us. It really changed the world. It was something we had an exclusive on. And because of Steve Johnson and his colleagues at the EPA, the application rate of atrazine, which is a major ag herbicide, has gotten to the point for a consumer product that it's so limited that you have pretty poor weed control. And bonus that's a Southern product. But it is a it's a story that's it's the same for all of our lawn products, okay? Not that they're all bad, that the innovation I'm going to talk about here is really happening across all of our lawn products. So we lost MAT28, a product we had invested a ton of time in and it was a really cool opportunity for us. And we will begin the introduction process this coming year, the year we're in, on a new ridiculously effective different active ingredient, which really just says the kind of work Scotts can do when we say, shit, house just blew up, better start building. And between supply chain, R and D and Catherine's brand team, They've just done really nice work and that product is going to start its introduction to South Florida this spring, get further rolled out. This we need to get registrations in the rest of the country starting in the fall and the following spring. That's the country, meaning sort of Gulf States where Southern grasses happen. But we've got to steward the existing brands. So that in spite of the fact that our expectations on growth are pretty low, the Scotts, I mean that video we showed, this company is a branded active is exclusive to us. I think Lisky is going to be talking about some more changes we're going to see in lawns. And so enough said, but that in all the business, whether it's French's business, Jim is the business, there's a lot of work going on stewarding the brands properly. I mean, our business at the end of the day is kind of brands and people and we got to respect our brands. I mean, or we won't have much to play with. So next, Tomcat, so asked a question earlier like you guys are going to be doing acquisitions. The kind of the math is and I think this is pretty consistent with what we told you is that the 1 third of the cash that Barry gets to keep to reinvest in the business is about $100,000,000 okay? And that $100,000,000 is going to be invested into the priorities that I just basically laid out for you. But this idea of core adjacencies, within the core adjacencies, we really like the rodenticides business. Bell Labs, who we bought this business from, is the big player on the pro side. We have access to a really nice supply chain on rat and mouse killers, but it's good business. It's counter seasonal to us. It's nice margin. I think there's global opportunities. This is a nice business for us and the integration has gone really well on this business. So Mike, good job on that. And the retailers are really pleased with it. This is the kind of like easy peasy, pay the right price for it, nice upside in the future for us. We think we can grow it. But we will continue to do that And then we'll probably be investing in some of the urban indoor stuff and we definitely will be investing with Cura in his service business. So that's kind of so you will continue to see adjacent categories, niche markets, just call that kind of craft beer, okay. So which is you could say non top 3, young, urban, a lot of Western and AeroGarden is the kind of deal we had. That's not one where we actually bought the business. It's one where we bought an interest in it. The existing management team runs it. We have options on it. The intellectual property belongs to us. It's the kind of deal we like, I think, in this space, which is allows us to sort of leverage our money better. Next. Strategic Partners, clearly, this is a business that I don't know, I would think it's me. I was having dinner with some colleagues, non Scott's colleagues and Barry and we were talking about our relationship with SCJ and I don't know 5 years ago, what did you say? So we've gotten to the point where we this is a way, I think, sort of clear VantaTrust risk where we can really lever our business pretty well. And so remember, we carry Raid and OFF into our categories of trade. They carry our products into drug and grocery. It's the numbers look really good, okay? They're doing a good job. We're doing a good job. I think maybe a little bit of hiccups on their side year 1, but they did really well last year and we're very pleased. We just made that deal a more powerful deal just over the summer. So Fisk and I Fisk Johnson and I like that business and we like our relationship a lot. Clearly, our relationship with Monsanto is important to us and to them and has been a very positive and profitable relationship for us. The flowers on the bottom are we are working very closely with Syngenta on sort of live goods and we there's you'll see activity starting kind of this spring some of our retailers on this product line. But this really multiplies our ability without having to put big capital dollars out and makes us a much more powerful sort of partner with a lot of these retailers. And it's very much, I think, appreciated in all sides, especially when Barry and his team are executing as tightly as they are in the field. Next. Innovation to focus on I mean that's kind of obvious. I'm not sure we'd need to spend a lot on that. What you see is those grow well these are little pods makes it really easy. People just have to look into a little bin that says here's what I want to grow. You just stick the son of a bitch in the ground and it grows. It takes it's pretty easy. This was one of those things where I think actually people thought it was going to fail even internally. And it's just turned out to be a really nice product line for us and sort of shocking. And Barry deserves a lot of credit for coming into a meeting and saying, what are you talking about? I love this product. And it's worked out. And you're going to see more flavors and coming out of that. Is that good enough? Next. Investment, really this is sort of the investments that help secure our future and just kind of read that as niche markets, okay? So we are believers in craft beer. I would anybody who knows this business, who either studies it or invests into it and that's kind of who you all are, I would say go out west and look what's going on. It's really interesting, okay? There are areas of growth in states like Washington and Colorado and Northern California that's super interesting, okay? More growth in more unique sort of disruptive growth than I've seen before in this business. So this is something we're really focused on and I think it's important to secure our future. I think we go on. Driving our business consistently, this is kind of a metric, this is a growth metric, so it's worth that's the important number here is 3 to 5, okay, top line. Okay. And consistent sustainable growth. I mean, I think those are the words that matter. Next. We will maintain financial discipline. So I think that this is one that at the end of the day, this is where Larry comes in. I think that what we talked about is we believe we can get consistent growth. We understand that margins matter. I think and we've talked about this before, nothing has changed. Margins matter, okay? Cash flow matters. I'm actually probably more interested in cash flow than I am in EPS, but I know the EPS matters to some people, but I think at the end of the day, it's cash flow. Leverage, leverage drives a lot of stuff. So when we talk about shareholder friendly, 2.5 times leverage. That's so you could do the math pretty easy. I mean, this is not hard. Excess cash to shareholders. This is another one where I would say you do not have to think too hard about this, okay? We have increased our regular dividend. We've done a little bit of repurchase under an existing authority that we have. But at the end of the day, if you say what's the cash flow and leverage is going to be at 2.5 times, you can run the math and say 1 third stays with the company, 2 thirds goes home. That's and so it's not hard math. So excess cash, this is just exactly what we said last year. And probably I would say, unless the stock has sort of significant weakness, as we get through our deepest borrowing period sort of end of April, we'll start to if we are not deep into using buyback as a way to return cash, then we'll just do a special dividend at year end to sweep the cash out, okay? And Larry will talk about that. Next. I don't know, man. I'll tell you. Life has been interesting since there. That giant crash, which was not the same as those of you who are in the finance industry, we were like a year before you, that was when agriculture commodities spiked right before the bubble burst and we couldn't price for it, okay? So you had Eurea go from $200 a ton to over $1,000 we couldn't price for it. That sucked. We also had a major compliance problem with Steve Johnson and we basically were out of the ortho business for a season, okay? Life sucked. And it's been an interesting journey. And I would say overall pretty goddamn good. I did make a bet in 'twelve that we could hold prices in the face of pretty significant commodity increases and effectively increased our advertising by 50%. Did it pay out? No. Do I think it didn't work? I wouldn't quite go far as it didn't work. But I would say it was a lot of people who own shares of this company, even besides my family said, you're not going to do that again, are you? And the answer is no. But I would argue to you all that you got a swing at the bat, a swing at the ball to hit it. And I think it was important that it occurred when people said what is going on? Is there a bottom with the consumer to see if we could make it happen? So I'd rather say we were doing something than we did nothing. But I think it wasn't worth it and that's kind of the little jump that happened in there. But overall, it has not been a I mean for those of us who have been around since the get go, it's been a pretty good ride and it's outperformed the various indexes. So we're okay with that. Next. A lot of people say, I mean, you guys suck at acquisitions. I mean, Scott's is a product of acquisitions. We've done like 100 acquisitions. I mean, you guys are the people who want to criticize are focused on Smith and Hawken and birdseed. And truly, look, we cut our losses, We're not losing money on Bird Food. Smith and Hawken, we shut it down. But this is one where you sit with the Board and say, where do we get growth? And we thought outdoor patio is kind of an extension of the yard. Not really branded very well. It's high margin. It's just buying $5,000 cheap furniture stores at the middle of the bank crisis that didn't work out that well. Nardelli didn't work out that great at Depot. So it kind of screwed the whole thing up. But again, this was looking to find growth. I think we just won't swing quite that hard and bet that much money. But these acquisitions have all been like good deals for us and I think this company is okay. And so a lot of these brands come through acquisition. Next. All right. This is kind of the skip in the presentation as we're back to kind of stewarding this. Go next. Good stuff happening here. We kind of talked about Catherine's business. Snap continues to perform well for us. And the interesting part of Snap, we're getting a new customer who smaller yard and the number of units they're buying is like 2 or 3x what they buy per year of like regular like turf builder products. So, I'm not sure the story is done on this, but really good learnings. I think it's a business we like and so, we continue to work on this. But the sort of natural metrics of what this is are pretty good, okay. And it's interesting. You're going to hear that a whole new product redesign and modernization of the packaging on Miracle Gro and our dirt business. You're going to see in a second some natural products under sort of within the core big 3, under Miracle Growth and trying some different things. We're doing this repellents for Ortho, getting more distribution this coming year. And this Roundup 365, a high cost, high margin product has been extremely well received and has got like call it universally universal distribution next year. So, it's all good. And so within the core, I think kind of good things continue to happen. And I think again a pipeline that if you were and listen, we're all here, right? I got my management team here, Swihardt's running R and D, you got the brand people here, you got the regional presidents, their territory folks here. Find them and talk to them. Nobody has been told not to talk. There's good stuff headed down the track. So this is not like we're running an empty here. It's I think actually the opposite. We're just not promising a lot. Next. This is an important underlining for both my management team and you all. Our branded businesses are everything, okay? Now I say people and brands, but people you can be hired. I mean, so that there's a lot of rotation and it is what it is. The brands, that's kind of what we own. They have to be treated with respect. So if you have the wrong people in charge of a business and say, well, it's slow growth and maybe we should just like not invest. That's just not the case. We talked to G and A and I think Larry will kind of get on to that. What you'll see is that within what looks like a G and A increase of 14%, you have comp just budgeted at a different rate, which means we think we'll be okay. So there's bonus built in. Some investments in some parts of the business, people development, etcetera. But advertising, we underspent advertising this year in part because the year was late and we weather triggered don't spend into bad weather, partly because we were nervous as shit. We did get the GRPs. I mean, we did get the impressions we wanted and we didn't know how the year was going to go until pretty late. So we're just not planning to underspend, which will make it look like an increase, okay? But I would argue it's not an increase, it's just getting back to kind of what we would have spent last year. But it's really important for me to impress on my team and to you all, like I am not going to be a CEO who milks our the one thing we have that really makes us different than everybody else, maybe besides Barry and his team ability to execute in the field. So advertising is one of our core conditions and we will continue to view our relationship with the consumer, both digitally and sort of broadcast cable as important. Next. Organic and natural products, next. I mean, some of this stuff is no big surprise or it shouldn't be. I wouldn't like worry about what it says. You know what it says? The younger you are, the more you care. That's what it says, okay? Big surprise. Next. Now by the way, could you just go back one? If you look at that when it comes to service, the older you get, the more interested you are. Big surprise there. Okay. Okay, go ahead. This is one where it's pretty hard to believe we're actually like the biggest lawn and garden player out there. It's only because like we're kind of big and the industry is big, but it's not that we're doing particularly well at it, I think. And so I think the Miracle Gro team really wanted to head off into Nature's Care. The sales force came back and said, no, Miracle Gro, Genent Choice, we really like it. So we're going to be having a pretty major, like I think a 10 market or something like that, major market test of Nature's Care, which is trying to go a little more green, a little more female and a broader line that would include sort of natural and organic pesticides, etcetera, and the kind of relaunch of the organic choice. So it's important. We just couldn't kind of figure out where to place our bets. So we're going to do both and I'm happy with that, okay? But that stuff you'll see. And so we believe that even in the big three, naturals and organics matter. Next. This really gets back to saying even big companies are investing in craft call it, okay. And again, I know Stephanie Schurin, my audit chair, basically said take me out West and we're going out West, okay? Because I guarantee you and maybe what we're going to do is we're going to do a walk this year, if we should go out west and do it, because it's different, okay? And what that says is more craft. Okay. Urban, indoor, keep going. Okay, we'll run a video. By the way, this video was one where we were doing it for a sales conference and we just had this production lady kind of roam around New York. So it wasn't really planned. This is like in 2 days. And what you don't see is you do see a lot of sort of actually urban gardening happening. What you don't see is a lot of our core brands, okay? What you see is like little local marketplaces and like a Whole Foods kind of thing and what you don't see is a lot of like conventional lawn and garden brands. And that's I think one of the reasons we ran this is there is an opportunity there. So let's go ahead and run that. So, and I've kind of gotten into my head that it may be that people who live in a little goddamn box in New York need sort of green and beauty and a sort of line back to nature more than anybody else. I mean, mean, we're not really going to be talking about China here. The average like apartment in China has got like 8 house points and it's all about sort of attitude and cleanliness and purifying the air and kind of getting back to nature. Next slide, please. I think we talked about this. This is really the first time I had seen an AeroGarden was I think when I don't know if we were looking at present, it was like my son's brother-in-law gave him an AeroGarden and he was growing all these herbs and it was in his kitchen and it was pretty cool and it became part of like their kind of their kitchen environment. And we were starting to think about this indoor marketplace. So we decided, we don't need to buy someone, we'll do it ourselves. Of course, God, I hate to think about how many 1,000,000 of dollars we wasted on trying to do it better. And we ended up just buying of them because our stuff wasn't working and this was and but this is really a first step into it's unique in how we did it and they were really needing some capital. So we're really partnering with them and we have a lot of we have complete optionality on this business. But I kind of like the way this is structured, because we're not coming in there acting like we know, I would argue as sort of we don't. They do. They did it better than we do. But if we could build up a portfolio of businesses like this, I think it's really interesting and we can put more money to work, especially if we say, and I think if you look at kind of Monsanto, who I have a good lot of good feelings about U Grant and the team at Monsanto. On the biotech side, they do a lot of this, which is start investing in interesting opportunities. I think pharma does the same. But this is our kind of our first step at this. So next. If I was to say something I'm super proud of with this company, we had a incredible beginning of a biotech. I mean, we were for sure the number one non ag biotech company in the world. We had exclusive access to Monsanto's gene pool, our gene library. We had this gene gun, a lot of other technology to work with the gene gun and other sort of transformation technologies. And everybody's heard the story because those of us who've been with us for a while, like 12 years ago, I applied to the U. S. Government to deregulate Roundup Ready Grass for golf courses. The same gene that's in virtually everything you eat today, cotton, corn, soy. 12 years later, I have no idea where that application is. And it's like it's an outrage. We ended up in the front page of the paper. Monsanto says we don't want to do this anymore, because we didn't have anything to commercialize and it was just a disaster. And in the process of sort of stewarding our withdrawal, I saved a few $1,000,000 a year for basically our biotech team based on an idea that when I was on a trip out West, which was if you take genetic material from a plant and it's not considered a and you don't use a transformation technology that would sort of violate the rules, there's a bunch of stuff you can do that at least technically is unregulated. So I told Bob Harriman just like a really great PhD biologist that we got from Monsanto, but just keep playing there. And of course, let's not go with any of the big ag companies, because if we end up in the front page, they may protect their ag franchise and view this is like not worth it, which is what Monsanto did. And in sort of less than a decade, Bob has created a stunning array of products that are not regulated. We went to Department of Agriculture and said, do you agree this is unregulated? They said, yes. And we are going to start releasing some of those products into residential use this coming year, but it will be our employees just kind of trying stuff out. The following year and sort of limited tests and then I think we should have enough seed. But everything we've ever talked about, grass that grows a third to half as fast, I mean, these are the big dogs if you want to say, what do I hate about a lawn? I hate mowing it. We got a problem. We got we can solve that. These grasses because they're smaller, they got the same amount of chlorophyll, call it the colorants in there. So a smaller leaf with the same amount of colorants is a really beautiful color, okay? Grows half to a third as fast, requires a lot less pesticide use to keep it clean. Remember, if you say what is a noxious weed? A noxious weed, which sounds really bad, is a like distant like spastic custom, okay? So it's a grass that herbicides don't recognize, so it doesn't kill it, it looks really ugly. And so like in Florida, we had this contamination in our Florida lawn of like common Bermuda and it's just it's a really persistent bad weed. If it was in a box of seed, they call it just a really obnoxious weed. But it's so with the ability to sort of spray Roundup on top or glyphosate on top, you can really keep with a lot without the use of a lot of chemicals, you can keep your grass pretty clean. And we think, although we're not sure, but because it grows a lot less fast, it requires less water. So this is kind of like the perfect lawn. And this is like Scott doesn't do a lot of pure research. Mostly it's process work and sort of adapting something from ag to lawn and garden. This is work we have done that's unique. We believe it's going to be patented and it's just really cool. And I'm really proud of my team for getting us there. Go to the next slide. I mean, even beyond consumer lawn and garden, so we use Brickman at Scotts for our 800 Acre Campus, okay? If we could do a deal with Brickman on grass that grows a third as fast and say you can charge Scott the same amount of money, but you got to put less hours into your mowing teams and we'll split the difference with you. I mean, I think that Catherine, which this is business reports to Catherine, I think there's a big opportunity on even non consumer to really change things. And especially in the The rooftops is just because it grows slower, so less mowing on a rooftop. The rooftops is just because it grows slower, so less mowing on a rooftop. But I think really interesting. Next. Globals and Live Goods, I think, we continue to recognize this as an opportunity. We've done it before and screwed it up not screwed it up, but just not been able to harvest the money. We continue to work at it. Syngenta is partnering with us and is extremely interested in dealing with this. And Barry has got good partnerships in the retail side to press on with that as well. So this is important to us, if we can get it right. Next. Service. Next. What do we know? Old people like service. It's actually a group of people. There's plenty of us and they got money in their pocket. So we like this business. Next. Unlike our largest competitor, we are executing really well. And that's a credit not to me or Barry, but to the operating team, who's doing a really nice job running their business. So they're doing a really nice job. We've got organic growth. We're seeing customer accounts go the right way organically. We have acquisition money both on pest and on lawn. So it's if there's a question because I think, Alice, this was probably a decade or more ago. I was at one of these events and we sort of had a bet weeper or keeper for lawn service. I think the entire table was weeper. I would say that if Barry and I were talking, we'd say it's quarter of our business at this point and it's doing pretty well, very well. Next. This is not that we have to compete with Camelon, okay? We don't. We've got less than 10% market share. This is there's a lot of room for us to just grow and consolidate. We don't need to go to war with anybody here. You can see this is where we operate. Yellow is franchise, Green is company owned. But you can see it's pretty much east of the Mississippi. There's a lot of room for us to continue to grow. My personal advice to my team is stay east of the Mississippi by the way. I just I'd rather consolidate where we're bigger. There's not a lot of people until you get all the way to the West. Next. Pest Control, I think we talked about that. I like it. The margins are really good in lawn. They're better in pest. And as I said, customer retention is about 10 points better on pest than it is in lawn. And that's because you're kind of an essential service. Somebody says, I'm kind of running out of money or whatever. It's different when you're dealing with somebody who's got bugs. And that's particularly true in sort of parts of the country where bugs and other pests are more Next. So this is it, you all. I'm not going to sort of go with the slide. I think I'm just going to say, shit's good. We don't have to swing real hard. You add this stuff up, sort of we didn't really talk about Europe. We're not expecting a lot out of the top line, call it nothing out of Europe. We just went through a pretty major restructuring and we would successfully done that. They will be making more money than they made last year. So I'll throw that in there except ship's good, not expect not have to swing in too hard. I think a decent pipeline. I think proper ideas on where we think there is there actually is growth. And we like Soros. And we have not changed at all in regard to our attitude toward cash and shareholder friendly. That's so now Berry comes up and it's basically kind of here's how we did it. But if I can just throw a little bit of a compliment to Barry, My view of like people in the business like the 1st year, they don't know squat. 2nd year, they're kind of start to know what's going on. 3rd year, they can start to begin to be dangerous. Barry is 3 years into the job. Last year was a tough year. It was very much a year he had very well planned. He had a bunch of contingencies planned. He and his team operated. They executed their contingency plan. They brought the year in. And that's well done. That's what I would say. So you're up, dude. Where was that on time? I was over or under. You owe me lunch then. We won the bet. So I think before we go into 2014, like Jim said, there's a lot of lessons learned in 2013. So we reflect back, we look at what happened, we looked at how we did. Like Jim said earlier, when we started the year, we're halfway through the year in March and you looked at what our results were, and we weren't coming off the best financial performance in 'twelve. At the end of March, we were down 30%. And so I think there's a lot of consternation. Larry had just joined us. And what we said to Larry is, don't worry, everything's going to be okay. And I think Larry thought we were crazy for a long time. But I think going into 'thirteen, there was some really important lessons learned. Jim King talked about 1 of Randy's big titles. We this analytics group in place and we did a lot of thinking on the plan on how we were going to go into 2013. And we look back over the last 5 years on how the business had performed. And if you look at it, the business is relatively flat. And so we said, there probably ought to be some learnings there. Our performance was inconsistent with what the industry was and where things were at. So we said, let's look at how the year unfolded and let's look at the decisions that we made and what were the lessons learned from that. And so it's pretty simple to look at it. You look at the business and you say month to month in our business, there's a ton of volatility. It's primarily driven by weather. So you can have a fantastic March. We had a fantastic March in 2012. I think Jim said, we could all go home for the summer, the year would be made and from there it was a straight line downhill and things didn't turn out the way we thought. But then you come to 2013, we knew that the business was going to be down in March, but we did not believe that it was going to be down the way it was last year down 30%. So what we did going into the year is we took a lot of we looked at what were the month to month splits, how did things roll out, what were decisions that we made relative to that volatility and how do we spend. And so, 1st bullet point, nothing beats a solid plan. I thought we had an excellent plan going into 2013. But the plan and the actual performance turned out much different than what reality was. But the most important thing was we're doing a lot better job of planning. We're doing top down planning. We've implemented regionalization. Jim talked about the learning curve of being able to understand what's going to happen. The regions do a lot of bottom up planning. There was a lot of knowledge that went into understanding what we thought was going to happen. And when it turned out that it didn't happen that way, we had done a lot of contingency planning coming into 'thirteen. We said historically, year to year, the business looks like it's going to be fairly flat. Let's not spend into this to try to drive it. As a matter of fact, probably like Jim said, delay a little bit of the spending. So we knew how to adjust the plan. We did we have implemented some new processes and some new technology on how we manage the business. We put in a new thing called CrossLead. We have telecommunications capability all over the globe. We keep in real time contact with our regional offices. We're tracking the business day to day on a real time basis. So as we start implementing those contingency plans, we're tracking real time against that. We're making sure that the results are going to turn out the way that we thought they were. So while it was down 30%, we said it's been relatively flat. Let's adjust our spending. We adjusted it appropriately and things turned out a lot better than it looked like it was going to in March. The second thing is, what goes into the performance of our year is when you start out the year bad, in a seasonal business, retailer sentiment can drive a lot of results of what's going to happen. So as we were doing our real time planning, putting the contingency plans in place, we kept the retailers informed, we had constant communication with them, We replanned the business. They stayed engaged and the year unfolded like the results that we just announced a month ago. So better planning, better communication, better understanding of the analytics. And like Jim says, we have an experienced team that's in place, and we had pretty good results for the year. Like Jim also talked about, we said new news keeps the consumers engaged. New products are part of it, but what I would say is better planning with the retailers, us understanding what they're going to advertise, integrating their promotions with our promotions, understanding what our messaging is going to be and the timing of that. While last year in 2013, it turned out March was really down, part of what we did with the Black Friday events, integrating those events, keeping the retailers engaged, driving that excitement when the customer actually showed up, drove really good results. And one of the things that we'll think about this year is, it's probably going to be a much better March. But if we looked at the way things unfolded the rest of the year, we were up double digits, often over 20% a week throughout the rest of the year. But then what's really important and I think the discipline and what Jim talked about our financial performance is continued discipline on spending. So we did not spend into it to try to drive it. We actually pulled back and said, let's get some efficiencies in our media. We got to our GRP targets. We're able to kind of pull some money back and make sure that we were going to deliver the year. And so investing appropriately as the year is unfolding and I think the thing that's important is not just understanding what that marginal dollar is going to do, but with a more robust planning process, we're not just looking where do we cut, but how do we adjust our stand here today and tell you that that's really a revolutionary process. Not going to stand here today and tell you that that's really a revolutionary process. You could be concluding it's pretty good management practices. But I think what Jim said is we have a good team. We're executing well. We have good things in place. And so what we're able to do is to remove a lot of volatility out of our business year to year to make sure that we're going to be predictable and that we're going to deliver our results. So as we think about those learnings going into 2014, I think those are all good lessons learned. Expectation is we're going to improve on that going into 2014. And pretty much the same story, disciplined on our cost out, making sure that we're taking cost out of the business where we think it's appropriate, improving our gross margins by taking cost appropriately out of our product, making sure that we're managing SG and A, not investing too much, not getting ahead of ourselves, so that we deliver the right kind of operating margins. Equally as well, not only on the profit we're producing, making sure that we're managing our balance sheet. Coming out of 2012, I think we left the retailers in good shape on their inventory, but we had some inventory that had built up on our balance sheet. So making sure that we're delivering the customer service that the retailers expect, making sure that they end with the right amount of inventory because if you look through this year, there was some inventory build, but we said the inventory was going to get out of the retailer's barns and we made sure we did that. But at the same time, the discipline in our own inventory planning to make sure that as we exit the year, we also have the right amount of inventory going into that year and making sure we're producing the cash flow. A new one for us and Jim talked quite about acquisitions, dollars 100,000,000 going into acquisitions. You see the first one of those with Tomcat. I would say taking those same disciplined management processes and rigor on how we're thinking about it. So not only in selecting the right targets, but Jim said we're integrating that business well. When we buy the business, we have a robust plan on how we're going to integrate it. We know how where the upside is and how we're going to plan to get that upside to making sure that we're investing in it. And then finally, you're going to hear us say flat, flat, flat a lot today, but we do believe that there's longer term growth in the business. I think getting to growth is predicated on being able to deliver predictable results, so that we're not overly focused on results and we can focus on where we're going. So long term consumer first, Jim talked about advertising with the brands. Historically, I would say we've taken real advantages and we've talked about this of retail expansion. So new store openings gaining that distribution. But if you look at where the consumer is at right now, more consumers want a garden that's actually gardening. So we've got to do a better job of driving that growth to the consumer. So better advertising, better communication, better products, so that we're getting the retailer I'm sorry, getting the consumer engaged. So we have a great relationship with our retailers. We're doing very well, but I think growth is going to come by driving our business with the consumer. So as we think about this year, like I said earlier, we're going to plan on flat. I think if you listen to the media and the economists, what you're hearing is a slightly improving environment. And we would agree with that, slight improvement in consumer spending, GDP around 2.5%, unemployment slightly less than 7%. And I think very important for our industry and particularly the DIY big boxes, home and prices improving, getting the consumers to come back to the store. In Europe, I think it will be slightly less good than that. We're thinking it's going to be flat, maybe just slightly up. But as I look at it right now, one of the things that I think drives our business given the fact that Lawn and Garden to a certain extent is the discretionary item. We watch consumer confidence pretty close and right now, despite the fact that the economy is improving, we see a slight negative trend on consumer confidence. So I think the place for us to be from a planning perspective is, let's plan for it to be flat. And Jim's talked about not only our ability to execute, but if you look at our business model, we think as we look back at those decisions on how we've run our business, what's really great about our business model is not only are we on top of it and do we have a good management team, but we have flexibility in our capacity. We understand how to run logistics and deliver when the business is up. So not only are we planning to what happens as the business is down, but we equally do that as well on the upside. So for this March, being down 30% last year, one of the things that's going into 2014 plan is what if it comes back all the way? How do we make sure do we deliver? Do we have enough inventory in place? Do we have the trucks to deliver the product? How would we execute that at store? So if the business turns out that it's up significantly, we have good flexibility and capability to be able to service that upside. But equally important, if it turns down turns out that it's slightly down, we can make the adjustments to make sure that we're predictable and delivering on what we need to deliver. So as we think about our consumer, same concept of being flat. We think participation in the category is going to be relatively flat. I would break out how we think about the customer I'm sorry, the consumer into 3 buckets. First is our core consumer that's engaged on a real time every year basis. They think of it as home improvement, home maintenance. They're there every year regardless of weather, economy, whatever is happening, they're consistently in the category and that's about a third of the consumers. The next what I would call bucket would be those consumers that are in and out. We were concerned a few years ago and we did some research because what it looked like to us is that the consumer was actually some of the consumers were actually leaving the category. But what we found out is that consumers were actually leaving the category. But what we found out is we put those into 2 buckets. We said they're kind of this fringe consumer that's in and out and not regular every year. And we would divide those into 2 buckets. 1 is kind of a lower economic status consumer that wants to do it, but because of the discretionary nature may not have the money to do it. So unless they have to do it, they're out and they're not there on a consistent basis. The other one is a consumer that maybe is a changing standard as you think about lawn and garden is, I don't have to have the best lawn in the neighborhood. I just need to be good enough. So that consumer, they're making a choice on it looks good enough, I'm not going to do it or the lawn is not looking good, so maybe I'm going to do it this year. And if you put those 2 kind of in and out categories together, that's about another third. And then the last third is the third that's not participating, but we also think that there's consumers that are in that category of not participating that would like to be participating. So the category we're going to forecast to be flat, driven by participation rates that we think will stay constant. But we know we need to improve participation in the category. And one of the concepts that we introduced a couple of years ago is that we said we need to improve the value equation with the consumer driven by what we would call a formula that says the benefits that the consumer gets from the product divided by the costs. And I think where we've been, call it like over the last 5 to 7 years is we have been adding features and benefits to our product. But normally what adding features and benefits to our product adds cost to our product. And so a modest adjustment to how we think about innovation is we have to improve the quality of the product and the efficacy of the product that Jim talked about. But we also have to maintain a low cost so that the consumer stays engaged, so that we're not driving that consumer out based on economics. And we were having dinner last night and we were talking about this concept and I said, it's like the Billy Mays concept, the guy that's on TV. He says, you have a need, I have a solution and I'll sell it to you at wholesale. He doesn't say, you have a need, I'll fill it and I'll charge you a premium, right? So we believe that maintaining the cost and lowering the cost of our products is going to be good for the participation. I know the questions that's going to come is that it's going to say, can you price for innovation? And the answer is yes. But if I can lower the cost to the consumer and I can improve my margins and I can drive participation in the category, we think that's a better solution going forward. So, one of the things that we've also been trying to improve is our consumer insights. So part of understanding the benefits that the consumer values is really understanding what they're looking for in the product. And I think a great example of some improvements we've made was our improvement in our mulch product. So we did some research. We've been putting a lot of innovation into mulch, the color. We were adding surfactants to get water to flow through. We were doing a number of things on the branding side. And basically the consumer came back and said, I hear all that, but what I really value is make the color last and keep it dark. And so we took some features out of the product, which lowered the cost. We improved the quality of the dies that were going in. We improved the amount of die that was going in and we gave the consumer a better solution. At the same time, we looked at with raw materials, we really bind it in the aftermarket, the bark in the aftermarket market to do the product. We said product the availability of product is going down, the price is going up, the quality is not improving. We said there's got to be a better way to do this. We invested capital and rather from going aftermarketbark, we started buying logs on the open market, bringing them in, grinding them ourselves, lowered our cost, improve the quality of consumer, improve the color of it. The consumer gets a much better value for the product. We don't have to quite as much as premium. So we've kind of taken that to mid tier and we're really driving market share. So innovate, give them what they want, but try to do it at lower cost. With our retailers, as we think going into 2014, our relationships with our retailers have always been what I would call core competency and one of our real strengths. And I think as it has been in the past, it's still the same today. But I would say going into 2014, we have both programs that we've had with our retailers. We have strong programs. Our shelf space has maintained or improved. And I think the thing that's important going back to the planning is, we're really moving up our planning with our retailers, which I talked about the discipline of iterating through and making sure we're going to execute. It gives us that same ability with the retailer to be able to partner with them, understand what we're going to do and do the best job that we can. One of the questions I've been getting as the economy has been improving from a lot of you sitting in the audience is, as the economy improves, will the retailer go back to advertising the big capital ticket items rather than some of the things like lawn and garden and paint. And what I would say is both our relationship, the plans that our retailers have, I don't think you'll see a program go back to that that's a mutually exclusive thing. Lawn and garden is the Christmas of spring to the retailers that we participate with. They're expecting improved sales, comp sales. They have excellent programs and I don't think that there's any concern that they're going to go back to driving capital items instead of us. So overall, I would say we're planning for 2014 company wide sales growth of 2% to 3%, driven by our planning assumptions of flat volume. We did take pricing this year on our core consumer business, so increased pricing. We acquired Tomcat in October, so that will be in our full year results and we're integrating that and that will be part of our improved results. And then I'll talk later about lawn service, but we have expectations for lawn service growth, so overall driving 2% to 3%. So with that, I will turn it over to Jim Liske and he can talk about the programs that we have in place for our North America consumer business. Great. Thanks, Barry. Good morning, everybody. So my intent would be to give you a good flavor of how we're going to execute 14 in the U. S. And a little bit of some information about a little beyond 14. So with that, about 6 months or I guess 9 months ago now back in April, we set up these strategic business units. You saw the people introduced a little bit earlier. What really they're focused on is growing and protecting our brands and our core business that a lot of what Jim talked about previously. In addition to that though, developing and executing a longer term strategic plan for the unit, like how do we how are we going to keep innovation coming and how are we going to identify and sustain growth from those plants. So that's their focus. Help execute the current year, but really set up 2015, 2016 and 2017. We've spent a little bit of time talking about the consumer. This is important because each of these SBUs I'm going to go through, the changing consumer factors into their plans. And as mentioned, we're very happy with the core consumer, right? All of us baby boomers in the audience, we are the core consumer force customer will grow. We're not going away. We may be moving a little. We may be some of us are downsizing, some of us are actually buying additional properties, etcetera. But this consumer performs very, very well for us. Now the opportunity is that there's a whole next generational tranche coming up right behind them. And how do we work with them to be able to communicate effectively, ensure participation in the category, ensure interest going forward. Also, in addition to what you say, how you say. So lot of ability to for us to communicate with this audience outside of kind of our core communication vehicles, which have traditionally been within the store shelf and via TV and radio broadcast media. So digital, social, mobile, all very, very important channels for us communicating our value proposition to this consumer. And you're going to see flavors of that throughout the next like 15 minutes. So Gardens is the first SBO I want to cover, primarily the Miracle Gro brand in the U. S. It's about $750,000,000 category in the U. S. For us, throwing off about $150,000,000 of EBITDA. Good solid gross margins and good share of the market. Growing media were nearly percent of the market and in plant food, we're nearly 2 thirds of the market. So core, core strength. Now, this brand is exceptionally strong too. The Miracle Gro brand has great strength as evidenced. When we started looking at live goods, we went on to some consumer research, asked consumers what brand of live goods that they use. Far and away the Miracle Gro brand was identified as their preferred brand of live goods. And we had no live goods at the time. And so it gave us a lot of confidence that we'd be able to get into the market, provide them a different experience in live goods and be able to price for that kind of an innovation. And in addition to that, we think this brand is so strong that we want to build up this core that we have in growing media and in plant food and make Miracle Gro synonymous with gardening. And there's a lot of pieces of gardening that we think that we can get into with this brand. Some of it could be organically, some of it could be via acquisition, some of it could be via licensing. There's lots of ways to play. We're looking for those economic and value added ways where we can leverage this brand. The brand has the Miracle Gro brand has 90% plus awareness with the consumer. So it's the brand that Horace Hagedorn built and it's the brand that has been consistently invested in over the last 50 years. And we're looking for ways to play off of that core strength and make that investment pay off even more than it has already. So, we're going to talk about a new campaign that we're in development. I don't have the campaign completed, but really what it tries to do is capitalize on the fact that globally gardening is about a $15,000,000,000 category. We play in a piece of it. We want to play in more of it. It's live goods and seeds and tools and watering and in addition to soils and plant food. And what the message we want to talk about is take that Miracle Gro positioning of we've always talked about what Miracle Gro does for the plant, makes it twice as big and we want to start talking about what gardening does for the person. And so we're going to be looking for a campaign that will be able to pull out that the other benefits of gardening other than the plant benefits. And I'll give you a little flavor of that in a while. Jim talked about this. There are definitely areas of innovation that we're going after hard. Organics, we have a multiple city test going on between our kind of champion, which is Miracle Gro Organic Choice and our challenger brand, which is Nature's Care. Our retailers are very interested in this. They believe that this kind of mainstream green plays really well in the big boxes and they're highly attuned to how this test is going to be going. We talked about Globals and Live Goods. Live Goods will be our 2nd year of a test with Home Depot. We'll be expanding to the East Coast. So those of you that live around here should be seeing some of this in the marketplace this March, April, May. Globals, we're continuing on. We have a regional test going on with a pretty big regional test now with Walmart and the Home Depot on Globals and a national program launch with Target and Amazon. So 2 outside of our traditional big three really gravitated towards this as a product that can help them grow gardening within their retail footprint. So very excited about that. We talked about Aerogrow already. That was available on Black Friday, the kind of the traditional Black Friday, the day after Thanksgiving online. And also we put it in a few stores, a few Home Depot stores to test out that. And so Mike Carbonara here, if you want to know how that went, he probably has some data on that. Indoor, this little lineup right here, we developed all at a price point of $5 and less. It's sold primarily through SCJ into that grocery drug channel that Jim talked about. And it's every account that SCJ manages took some or all of this product. So we're very excited to see what the sell through is going to be in 'fourteen coming up. This Christmas tree food right here, we hurried up and launched that this Christmas. Through last weekend, we are 80% sold out. And we so we put a display unit in Lowe's, sold through. I'm assuming after this weekend, there'll be none left. Good news for you, it's in your little gift bag. When you go home, you'll have some of the only Christmas tree food Merry Christmas tree food available in the States when you leave here today. But a good example of fast development, fast to market, low price point, leverage the brand and something that the consumers really gravitated to. So I'm looking forward to what that can be next year. The branding, it's both what we say and how we say it. On shelf, Jim mentioned that we expect we wanted to freshen the brand up, help it communicate for us at the shelf. Still some consumers even though we have a very powerful brand where they go to the retailer looking for our brands, there's still an ability to sell out the shelf and so you'll see new packaging this year there. Word-of-mouth, ratings and comments, sharing via social, Instagram, Facebook, Pinterest, all key drivers of how the consumer research is now. Everybody researches everything digitally other than like routine purchases in every category. And we need to play there. We're playing there hard. You can see some integrations that we're looking at with Food and Wine and other Scripps network So that this is not the campaign, but So that this is not the campaign, but this gives you a little bit of a flavor of the direction the campaign is going. We're looking for real life stories that we're going to feed online. And the ones that resonate, we're going to put on air. And this will give you a little bit of just a flavor of the positioning of the campaign that you'll be seeing later in 2014. So we run that. Grow. It's what we do. Tomatoes, potatoes, hydrangeas, petunias, in boxes and outside of boxes, up walls, around corners. Beautiful, bountiful and healthy plants. So when we put something into the ground, when we feed it and care for it, don't we grow something more, greater? When we grow, we grow more than just plants. When we plant a seed, we grow our belief in the future. When we grow a garden with our children, we grow love. When we plant flowers where there were none, we grow change. And nothing grows like America grows. So let's not grow just plants. Let's grow creativity, blazer, friendship, happier happy hours, bigger hope. Let's grow something greater with Miracle Groove. So with such a dominant brand, we're looking for ways to go after those people that Barry mentioned that third that are in and out and that third that don't participate yet, give them the inspiration, give them the education, give them access to our products and services. So very excited about continuing to extend the Miracle Gro brand. So Scott, our lawns business, it's about $975,000,000 in the United States. It's about $225,000,000 of EBITDA. Very strong brand awareness of this brand also 93%, the Scotts brand. Our share market Furch is about 65%. Steve's is a little over 50%. Bag mulch, we're up to 33 percent now of all bag mulch sold. Bag mulch is also a category that's really outpacing bulk mulch in growth. So all very positive and solid trends for us. Still opportunity. Once again, we have this core consumer who's out there using our products every single year habitually and then we have this third that lawn looks okay or I don't have enough money and we really want to get them into the habit of regularly feeding their lawn and regularly seeding their lawn. And that was the Scotts campaign that we've been running now for 2 years. It's an education campaign. Your lawns alive feed your lawn. And when people realize that the lawn is actually little plants that what Jim talked about and not just like a green carpet, once they know they're plants, it's very intuitive for them to say, oh, yes, I got to feed plants. Lots of innovation here that we're very pleased about. I'll 4 bags of Snap packs for every spreader sold. That's above our projections. It's a great razor razor blade opportunity for us. We're going to keep pushing SNAP. Our retailers are still highly engaged in SNAP and it also fits a lot of consumer trends moving towards smaller lawns. It's very storable and still 97% post use consumer satisfaction. So those ratings and reviews and social word-of-mouth line up and help us sell Snap very aggressively. Turf Builder innovation, we talked about BONUS S, I'll mention it again in a little bit. BONUS S has a great new active MSM. It's Methsulfon Methyl. And but what it really is, is a great technology that is highly effective on dollar weed and clovers in the southern grasses. It's more effective on multiple grasses. And you know what, you put a lot less of the active down than atrazine and other actives that we've used in Southern ones before. So it's a great sustainability message. We also have we're working on developing out a mesotrion active for the northern grasses. That's probably what you're going to hear about next year. At this time, we'll talk about how we're going to be launching that in the near future. So a lot of great technology on the active. Also a lot of good work from this the business unit and the research team on particle technology. And how do we keep leveraging our great strength in particle technology and make the current actives that are already approved and prevalent whether in consumer or professional make them even more efficacious on a consumer application. And so a lot of good work there too. And then finally, seed innovation. We've talked about coated seeds before. We are by far the leader in coated seed technology. And just to give you a flavor, consumers when they hear about coated seed, they say, I want it and I'm willing to pay for it. Our straight seed business, non coated seed, we make about 15% margin. Our coated seed margin, 35%, 40%. It's just a win win. Retailers like it, consumer likes it and obviously we like it. Digital platform here is all about education. The consumer in the lawn says, if I knew more, I would do more. So one of the things that we do besides things like Scott's Garage and other digital applications is we do an email reminder service to our consumers. We're sending out about 1,400,000 emails on a monthly basis. And when consumers get the email reminder service, they actually apply one more application a year than the control group that doesn't get the email reminder service. So leveraging technology and communication that way too to continue to drive the brand and brand performance. We mentioned Bonus S. We are going to launch Bonus S on a trial basis in 2 markets in Florida this spring, Jacksonville and Fort Myer. We're going to leverage our best campaign, Scott the Scott. And Bonus S is the number one SKU for Florida every single month of the year. So it's a very important SKU for us. We're rolling this out. Jim pushed us very hard to get out here in spring to get some learnings. Whatever learnings we get will be put into play to really help us with a huge launch next year for bonus test. So we're going to roll the bonus test commercial right now. At least I intend to roll the commercial. No? Kim, we not have it. All right. This is exclusive. We figured out how to put MSM as something that the lawn service and professionals have used in a liquid form. We figured out how to granulize that and patented that and that's the exclusive technology that we are able to bring to market. So, go. Wake up, lads. The big day is here. Clover and dandelions while it's the lawn care achievement of the century. You know, I'm as giddy as a wee lad on Saint Cavendish Day. Ready to get a new Scotts boneless s lad? Yeah. I can't hear you. Yeah. Come on. Get new Scotts to build a boneless s southern weed and feed. Weed your lawn and feed it. That's a rough. There's a little bit more work to be done, but the retailers are highly interested in this. They're back in it. We'll have good coordination between what you see in store, what you see on air, what you see online on this product. So very excited about what the results are going to be of this rollout. Controls business between Ortho and Roundup in the U. S, we it's about it's $670,000,000 business at about 220,000,000 dollars of EBITDA. Good brand awareness, ortho at about 89%, Roundup about 91%. Our innovation here is focused on a couple of things. One is the concentrate that over here is the Dial and Spray. That hasn't been changed in about 12 years. We're excited about this because not only can you like pour the concentrate in there and mix it yourself, you can actually just take that top and put it on any of our concentrate bottles, any of the old ones or any of the new ones that are coming up with drain back caps and child resistant locks. So, this is something you'll see displayed. Retailers like this, good safety profile. And you know what, the margins on concentrates are very good. So we're excited about how this is going to help us sell more concentrates. The repellents category on the right here, we launched this last year. Repellents is about $100,000,000 category, we believe, in the U. S. The data isn't quite as good right now because there's a lot of dogs and cats, no pun intended. But we captured about 10% market share in 1st year without any distribution in Lowe's, with only limited distribution in New Depot. Retailers are going to behind this more exceptionally for next year. We think we can take this $100,000,000 category and make it a $200,000,000 category through bringing awareness of repellents. And Barry is fond of saying that if consumers only knew what the economic impact of animals and pests are on their plants, deer eating their hostas, etcetera, etcetera. This is a bargain and we ought to be thinking about how to bring that to their attention merchandise as well. This could lead itself very nicely to a subscription service And so we think there's a lot of runway here on repellents. Tomcat integration was mentioned. Between Tomcat and Ortho, we'll have about 26% market share. That will put us ahead of Victor at about 17% and a little behind decon at 29%. We have a lot of momentum going with our major retailers on Tomcat. They were very excited about our our sales force, once again, we have a lot of the sales leads here today, looking forward to selling this and getting behind this aggressively. We closed the deal on, I think, October 10 and immediately the next day had our merchandisers in store getting this thing displayed correctly. So very bullish. Just for your notes, the 28% here is made up of like dozens of players. So it just squarely puts us neck and neck with the market share lead here and we have full designs to take over the market share lead here. What's so great about Tomcat? We think it's a highly extendable brand. This can be a great global brand. We're going to put media behind this. We're going to drive innovation. We're going to highlight the safety factor. The safety profile of the Tomcat brand is superior to the competitive set. We also think this can play globally. It's already in Canada, Australia, we think Mexico, Europe, etcetera are great places where we can take this brand. And the fact that Bell did such a great job here, like they're a great leader in the technology. They are number 1 with a pro. We have full access to their R and D, etcetera. But they really aren't a CPG company and they really didn't have the sales force and yet they were able to put together a pretty nice brand without our expertise. With our expertise, both Bell, as well as the Scottsmarikro team think that this has a lot of runway and can really be the key driver in the category. Last innovation I want to target about is Roundup 365. This we tested this out. This is year long control. So it not only kills the weeds, but you spray all the cracks and crevices in your patios or driveways or etcetera. 74% purchase intent through testing. Very that's very high number. It's margin and dollar rate and dollar accretive and we're going to put a lot of media weight behind this. I about $8,000,000 $9,000,000 of media to introduce this appropriately. It's going to be introduced kind of on the same grandeur that Snap was introduced a couple of years ago, kind of the Scotts way to bring strong innovation to market. And this is a little flavor of what this ad is going to be. It's also rough, but getting close and it capitalizes upon the current roundup campaign, which has been scoring extremely well. I'm the protector of my patio, killing weeds where they grow. A barrier form so weeds can appear, serious weed prevention up to a year. Roundup, back control 365. So I'm fighting So the It's Your Year will be the Thematic rolling out this product and it had great retailer pickup. I think as Jim said or Barry, I can't remember, it said near universal coverage by our retailers and they're excited about it. So I'd expect you to see this promoted very aggressively. So lastly, I mentioned the new consumer, I mentioned the role of digital and I said that, look, we're going to invest continue to invest significantly in digital, in mobile, in social, in ratings for our products, getting our products ready to be able to be distributed directly to the consumer, whether that's through our retailers or retailers like Amazon. And this will just give you a little bit of a recap of how we're pushing this. You're going to see integrations with major properties like Major League Baseball. You'll see integrations with the Scripps network, which is DIY Food Network, etcetera. And you'll see some standalone educational pieces and also kind of the seeding work to be able to get a conversation going in our category. So I'll leave you with this. So, that's how we intend to deliver 14%. I think you see a good forward leaning aggressive posture. We're very bullish on 2014. It gives you a little bit of a sense on what's going happen after 14. Also, that's all in the U. S. I'm going to turn back to Barry to cover off what we're doing in International and lawn service. Thank you. So everything I said for the U. S. Consumer business, I would say applies even more so to our European business. If we look at the economy, we see continued challenges. We're going to forecast that essentially flat to maybe up 1%. We do have a very nice business in Australia and New Zealand. We see growth there of 4% to 5%, but I would say it's a small business. It is growing and we're doing well and then our the new business that we launched in Asia. But overall, what I would say is our expectations, like Jim said, for our European businesses, we're not expecting much growth out of them. We think that they're doing a good job of managing in a relatively tough environment. So the top line had been declining. We think that's stabilized. Margins are starting to improve slightly. And most importantly, the costs are under control. One of the things we did last year was we did take a restructuring charge. We took about $11,000,000 restructuring charge, took some cost out of the business, rightsizing the business to where we think that business needs to be. Same focuses in the U. S. Supply chain is very focused on how do we take cost out of our products. So as we think about our business for 2014, we're expecting no volume growth, but we do expect a step change in profitability, primarily driven by the restructuring and getting the benefit of that in 2014 as well as the cost out. Moving on to our service business. Expectations for the business for 2014, we see growth of 4% to 5% in the business, driven by really 3 buckets. Organic sales growth will be the primary driver. We did launch our test business. I think we're doing about $9,000,000 of revenue there now. We will expect that business to grow. But like we said earlier, we think we're doing a great job of running this business. We're going to start giving capital back to this business. We think we can make acquisitions in the pest area as well as look at some potential franchise buybacks or what Jim said kind of east of the Mississippi look and say is there any kind of nice tuck in acquisitions that we would make. And like Jim said earlier, questions that I used to get when I would come to these things or when I would do 1 on ones is, when are you going to build Scotts Lawn Service off the island as well? But what I'm going to tell you today is we believe that this is a core part of our portfolio. The category is a nice category. Lawn service is about a $4,000,000,000 category, almost as big as the entire consumer category combined. We think we have a great business model, which is allowing us to grow customer count, which is important because we actually have a relatively low market share. We're the number 2 national player at 6% market share. So low penetration for us and a big opportunity to drive the team. And I think what has been the most important factor in us making this a part of our core portfolio is the management team that we have in place and the excellent job that they've done really over the last 5 years. An exciting new part of the business, the pest business, it's a $7,000,000,000 category, significantly bigger than even the lawn service piece. The margins are favorable to lawn service, which is favorable to our core business and the customer retention rates are actually higher than what we believe we have leading industry retention rates in the lawn service business. The important thing is we think we've figured out a model of how to make these two businesses work together, sell the service. You can either buy it independently lawn service or pest, But we think we can do the businesses together, get real economies out of our infrastructure cost on how we drive the business. So we've run the test. We think it's successful. We're going to start deploying capital against the pest business. And if you think about the business model that we have in place, I think the important thing, like I said, is the leadership team. When folks were asking is this business going to remain core to us, I would say there's a couple of real problems. One is there was not real financial discipline and the financials were starting to deteriorate. But the most important thing was, we're using the Scotts brand on this and it's a big part of how we're driving it. And we did not believe that the business was delivering a service that would go along with the excellent attributes that Jim Lisky just described about the Scotts brand. So we said 2,008, let's slow down the growth of this business, let's get control of it, let's make sure that the quality of the service is what the consumer expects. And going back to that value equation, we were charging a pretty big premium. We actually did not take pricing. We've lowered the gap between our pricing and the other national competitors. So we're much more competitive on price, but we believe now through training, through discipline, putting protocols in place, we have an excellent national service quality program, Our customer retention rates are at industry leading levels and the customer satisfaction is where we would expect it to be. So from a growth standpoint, going back, we have low penetration. We think this business can grow. The business has higher gross margins than the consumer business and we think this is going to be a core part of our portfolio going forward. And we think as we continue to gain scale that sometime in call it the next 12 to 24 months that this business from an operating margin will be at least equivalent to or better than our overall company margin. So some exciting things happening in the business and we're going to continue to drive that going forward. So I guess a summary to what I think our operating environment is going to be in 2014 going back to where we started. We have an excellent management team. I have my key Chief Operator and Mike Lukemire, who helps me run the business day to day. He's run supply chain. He's run R and D. He's been in our sales organization. He has a great grounding on the all of our operating team is sitting out in the audience today. They all have great Scott's experience. They bought into our management processes. And I think 2013 really goes to how well that management team is working, how well they're planning the business and their ability to execute. So we're pretty excited about that going into 2014. And just where we think we're heading, we've got a great management team. We've got a dynamic management process given the volatility of our business that allows us to run it on a real time basis and react to the things that are happening in the market. Most importantly, making sure we're going to deliver our results. We're focused on productivity given the growth environment that we're in that we're projecting it to be flat. We're very focused on gross margins, but we're equally as focused on operating margins and controlling our SG and A. What that also allows us to do is like Jim Hagedorn said earlier, we do think there's growth opportunities in this business. The fastest way for us to kill growth opportunities is to not deliver on what we say we're going to do as far as producing financial results. So we got a team that's focused on that. It allows us to have both the financial flexibility as well as the resources to stay focused on those things that Jim Hagedorn went through as well as Jim Lisky just went through and making sure that they're delivering that innovation out and thinking out beyond the year that we're in or even the next year thinking where are we going 2, 3, 4 years from now. So allocated resources on those focus support areas going to support growth efforts going forward. And then finally, we're talking about 2014, but like I said, getting out ahead with our retailers, all of our major retailers have been to our corporate headquarters in the last 45 days, not talking about 2014, but talking about where we're going in 2015 2016, getting the how to head, making sure we have discipline in those plans, making sure we have continuity, making sure we're able to execute on those things going forward. So lot of continuity going into the plan and making sure that we're preparing for the future. So summary, if I was going to put it on one page on where I think we're going, focus on our North America business. There's exciting opportunities. Make sure that we have discipline. Like Jim said earlier, making sure that we're leveraging our brands and supporting our brands appropriately, making sure that we're delivering products that exceed our customers' expectation and we're also doing that at a value, making sure that we have a disciplined approach to the way that we spend against the business. So focus on North America, make sure that we maintain our business in international. We're not expecting any growth out of it in the near future, But what that requires is we've done the restructuring effort making sure we're focused on cost out. But at the same time, we didn't really talk about what we're deploying in international. But if there is stability coming in international of how we're beating the market, It's our ability to take those global the innovations that Jim Lisky just talked about and not only deploy them into North America, but introduce them into our international markets as well. So taking advantage of the scale and the development we're doing. Drive our core lawn service business, I won't say any more about that. We think it's core. We think there's growth there. And then making sure we have disciplined and control and plans going into the $100,000,000 a year that we have to put into adjacent acquisitions. So the net result, 2% to 3% growth, driven by the factors that we talked earlier. I think we have a good plan. It will be a continuation of what we did in 2013. And I think we're pretty confident in where we're going. That, I'll turn it over to Larry Hurlshimmer to talk about the financials for 2014. Thank you, Barry. Well, good morning, everyone. This is my first Analyst Day at Scott's and so I'm happy though that I see some familiar faces in the audience. But since some of you are new and some of the faces and names are new to me, I want to share my story about why I came to Scotts and what I found so appealing about joining Jim and the rest of the team. So let me start by saying that my relationship with Jim goes back about 20 years. My relationship with the company actually goes back longer than that. So I was really intrigued when Jim called me out of the blue earlier this year and asked if I was interested in becoming the CFO. I've always considered Scotts Miracle Gro a great company with great people and really great brands. And while I realize that I now get paid to make that statement, I really have believed it for 30 years. Ours is a business that continues to have really strong long term growth potential. You've heard everybody talk about that this morning, both within our existing portfolio and in the adjacent categories as well as with geographic expansion. My interest though was more than just about becoming the CFO, been sort of been there, done that a few times. But when Jim called and he said he was looking for a partner, he was looking for someone who could help shape the approach to running the business, help determine our strategic direction and really continue the financial discipline within organization to ensure that we deliver on the commitments that we make to our investors, while also maintaining flexibility to invest in long term growth. One of the most appealing parts of the opportunity was really the culture at Scotts. I would describe it as really a hard working group, but really fun environment and dedicated, committed to excellence and never quite boring. And nothing has changed my view on that. I've been in business long enough and have been around enough CEOs to find Jim's candor and transparency refreshing. His understanding of the industry and his willingness to accept risk and the fact that he's not your run of the mill CEO are all part of the reasons we've been successful for so long and why it was attractive to me. So I'm very pleased to be part of this leadership team. I'm also really fortunate to have inherited a strong financial team from my predecessor and I've benefited in the early days because Dave and I shared some of the same philosophies. There are some areas where we differ, but really only slightly and you'll hear some of that as I go through my remarks and I'll point them out so you can understand how some of our priorities may be slightly adjusted. But this morning, I want to accomplish 3 primary things. First, I want to provide a more detailed look at the P and L, give you a better understanding of the guidance we provided during this our conference call last month and this morning. 2nd, I want to update you on changes that we're making to our capital structure, which we expect to be finalized over the next month. Finally, I'll focus a bit on cash flow and our uses of capital. Specifically, I want to help you better understand the approach we'll take to returning capital to shareholders. But let's start with the P and L. Barry told you that our operating plan assumes flat unit volume in our U. S. Consumer business with our growth coming from pricing, the acquisition of Tomcat and its integration and the continued growth of our lawn service business. As Barry said, we expect the international consumer business also to be flat this year. I want to be clear though about our view on unit volume, because saying flat may give you a sense of exactness or precision that is really not reality. Given the sharp swings we regularly experience due to the timing and length of the season, to sit here in December and to predict whether growth will be up 1% or down 1%, it's a bit of a fool's game. And we really can't be that precise. So we haven't built our plans and guidance around a level of visibility that just simply doesn't exist. What we are saying is that we do not see the economy improving dramatically and driving robust unit growth. So we're planning for flat. I think you've heard that about 12 times this morning. But as Barry and Jim discussed, we are charging our business leaders with driving growth. Our retail partners are doing exactly the same thing. And as I will explain, our team is highly incented to drive profitable growth. Barry also outlined our plans for lawn service for the year and provided an overview on our international business. So there's really no reason to elaborate on the points that he's already made. When we look at the business in total, we're expecting company wide sales growth of 2% to 3% for the year, but we're really driving to do much The big profit driver for us this year though will be improved gross margin. While I won't provide a specific range for gross margin rate in 2014, I'll tell you that we have visibility to improvement of approximately 100 basis points. Those of you who know our story well know that our gross margin can move significantly with both volume and product mix. So once again, it's going to be tough to be any more precise than that. What I can tell you is that we have some specific elements that will drive this improvement. First though, let me address one element of gross margin that generates the most questions and that's commodities. So, so that everybody is on equal footing, let me remind you of the composition of our cost of goods. As you can see from this slide, roughly 1 quarter of our cost of goods sold is commodity sensitive. There are many commodities that make up the 25%. What's really interesting to me is that despite our consistent transparency on the mix of commodities, there's an inordinate focus on urea. As you'll note, it's relatively significant component, but when you look at it relative to our total cost of goods sold, it's only about 3% or 4%. So it's no secret that urea costs are down from last year and we'll benefit from that. As we established our plans though for 2014, our expectations looking at everything we know is the benefit of urea costs would be offset by higher costs for grass seed, peat moss and most likely resin and other packaging inputs. So when you look at commodities on an overall basis, we expect cost to be approximately flat to last year. That of course assumes that there's no significant changes in the market conditions. As of December 1, about 70% of our total costs are now locked for the year. So while we still have some potential for favorability, we have good visibility for our costs for the year. I've already mentioned pricing, so let me provide some context here. We've taken very low single digit pricing this year. And in line with 2013, pricing is not a flat increase across all categories. It includes changes in both at SKU level and in trade programs. As a result, as always, mix will influence the price benefit we ultimately realize. The rest of the gross margin improvement is attributable to cost out initiatives that were part of our Project MAX, our productivity initiative. Last year, we told you that we expected $60,000,000 in savings by 2016 with 2 thirds of it coming in 2013 2014. That remains our expectation. Last year, we achieved about $20,000,000 in cost out benefits. Most of those savings didn't really begin to materialize until the second half of the year. So we will see benefits in Q1 and Q2 before those savings begin to anniversary. However, we should achieve another $15,000,000 to $20,000,000 additional savings in 2014 from new efforts. Jim and Barry have repeatedly talked about running the business conservatively in 2014 just as we did last year. If there is one line of P and L where the conservatism is most obvious, it's in the gross margin rate. While I feel confident in the 100 basis point improvement, it could be higher if we hit the higher end of our sales targets because we'll be leveraging some of the fixed cost elements. We've said in the past, including at this meeting, that our aspirational long term goal is for gross margin rate of about 40%. While I'm convinced that we can get there, we will need higher rates of growth to achieve those levels. And as we move forward, you're less likely to hear us emphasize gross margin as much. But it's not because we've abandoned the goal. It's really not that case at all. My view though is that bottom line profitability is what matters most. I think that matters most to our shareholders. But if there's an opportunity that delivers high bottom line growth with little gross margin, but very little impact to our SG and A, I wouldn't pass it up just because of the maniacal focus on gross margin rate. I mean, you can look at Tomcat. Tomcat actually is short of our gross margin rate objectives, but it's we believe it will be very accretive to our bottom line. I mean, we could have a 70% gross margin rate and it would not mean a thing if it couldn't carry to the bottom line on some opportunity. So in talking with you, we will begin to put more emphasis on operating margin. We said in our near that our near term goal is 15%. And I believe that that level is achievable before the gross margin rate hits 40%. To hit those levels, we obviously need to keep a sharp focus on SG and A. So let me talk and transition to about what we expect to see in 2014. As most of you know, SG and A was a great story for us last year with a 6% decline in our spending. This year, we expect SG and A to increase 3% to 4%, but I want to During our Q3 conference call, we were asked if the cuts that we made in G and A in 2013 were sustainable. We said they absolutely were and that's still the case. However, about a point of the total SG and A decline last year was due to advertising spending that came in lower than our plan. As Jim, Barry and Jim have all mentioned, that was not the result of our plans to cut spending. It was the result of the slow start to the season and us being prudent in our spending. With all the bad weather we saw in March, we spent less at the beginning of the season than we budgeted. Nearly all of that unplanned reduction carried through for the entire year. So the increase in ad spending that we're planning for 2014 simply gets us back to the appropriate level. As Jim said in his comments, we must be proper stewards of our brands. There's a as a former operator of an advertising driven business, I am extremely cautious about cutting advertising spend. And I have a very close friend who was the CFO of Scotts at one time and also one of the most cost conscious people, cheap that I know. He told me as I was considering this role and talking to him that one of the cardinal rules that he learned was that supporting the brands with appropriate levels of advertising spend was basically non negotiable. I believe that too. So outside the advertising, the primary change in SG and A for 2014 is people related expense. We made a couple of significant changes in our HR team over the past 2 years. Now that they're settled in, we're beginning capitalize on the skills and experiences that were the reasons that we hired them to prudently invest more heavily in training, product knowledge and overall associate engagement. I have a passionate belief that engaged talented associates are key to our business success. Like most companies, we're also experiencing higher health care costs, so that also adds to the SG and A headwinds for this year. The Fido increased component is higher compensation. But I want to be clear, we're talking about raises in base pay to blue collar workers up to mid level managers. Vice presidents and above in the company did not receive any increase in base pay for fiscal 2014. I'm also not talking about variable compensation. However, I do want to fill you in on some changes we've made into our approach on variable pay. Show you a chart here. So as you can see over the past 7 years, we've experienced extreme volatility in the payout of variable comp. That's the green line there. And you'll see in 2010 for example, the bonus paid out at more than 200%. In 2011, it paid 0. 2012, it paid 20. In 2013, it paid slightly over 100. Those kind of swings are bad for a variety of reasons. First, because it's quite unpredictable. It hurts associate engagement, morale and retention. 2nd, it makes planning and budgeting more difficult. 3rd, big swings in compensation expense make informing all of you far more difficult. So our target going forward is really depicted by the dotted line on this slide is to reduce the volatility and create a more predictable outcome for our associates, while still requiring strong results to earn a bonus and an exceptional effort to receive more than a targeted payout. As we move to the next slide, it shows you the variable compensation curve for 2014. It also shows you the approximate slope of the curve prior to 2013, which is in the blue, the darker color. As you can see, if we hit the guidance range that we provided, our associates receive a targeted payout, which is roughly similar to what we had this year. If we exceed our expectations, then the slope of the curve changes, providing upside for our associates 3% to 4% that we've outlined in our guidance. 3% to 4% that we've outlined in our guidance. Now continuing to work my way down the P and L, we expect operating income to grow 7% to 8% from the $334,000,000 that we reported in 2013. That translates to operating margin of 12 point 5% to 13% and it would be an increase of about 70 to 120 basis points from last year. Moving below operating income, interest expense should be lower by $5,000,000 to $7,000,000 this year. I'll elaborate on this when I get to the balance sheet. On the income tax line, given our current tax code, a rate of 36% to 37% should be about right when you're primarily domestic business that's about what it will be. The full year diluted share count should be about 62,500,000 to 63,000,000 shares. So now taking all of what I've discussed into account to the bottom line, we expect really solid results this year. Net income will improve 10% to 15% resulting in adjusted earnings for the year in the range of $3.05 to $3.20 per share. Before I go on to discuss other year end numbers, I want to pause and discuss our expected Q1 results. I also want to discuss the flow of earnings over the course of the year. In the Q1 of last year, we reported a loss of 1.12 dollars Directionally, we expect loss in Q1 of this year to range anywhere from flat to an improvement of $0.05 a share. Now that may seem like a pretty wide range with only 2 weeks to go in the quarter, so let me provide a little bit of context. Q1 really only represents about 6% of our total sales for the year. And in December, our sales for the entire month are about a day and a half volume in April. So timing of shipments toward the end of the month can skew those numbers. And retailers might be focused on some other things holidays, there might be winter storms, there may be just other year end matters that drive that type of variability. So whether the loss of the quarter is higher or lower than last year, it doesn't really affect our outlook for the full year. As it relates to the pacing of earnings, we expect to see roughly 45% of our sales for the full year in the first half and 55% in the second. We expect modest gross margin improvement in Q1 with the gross margin expected to be up nicely in 2, 3 and 4. The increase in SG and A will also skew more to those quarters. I'm not planning to be any more specific on quarterly guidance, but I want to make sure there's visibility and understanding on how we see the year unfolding. With that, let me shift gears and talk a little bit about the balance sheet. We are currently in the final phases of renegotiating our existing credit facility with our banks. We will extend the term, we'll reduce our spreads, we'll reduce we'll relax covenants and we're going to maintain a top notch syndicate of banks, all good things. We expect to have that completed before Christmas. In addition, we've decided that in January, we will exercise our call option on our $200,000,000 of 7.25 percent senior notes that we issued in 2010. On average, we expect a combination of these actions will reduce our overall cost of debt by approximately 60 basis points. The combination of our expected EBITDA over the year with our rolling 4 year quarter average debt would actually take our leverage ratio below our targeted range of 2 to 2.5 times. While there's nothing wrong with falling below that range, we actually believe that doing so underutilizes the strength of our and flexibility of our balance sheet. I'll elaborate on that a little bit more in a moment. But for now, let me change gears and talk about cash flow. In terms of operating cash flow, we expect a decline from the $342,000,000 of last year. Remember, we benefited from a $90,000,000 reduction in inventory as well as some one time tax benefits. This year, we are expecting operating cash flow to be approximately $275,000,000 In addition to stronger earnings, we expect to benefit from reduced inventory of approximately $15,000,000 to $20,000,000 this year. The combination of our balance sheet and expected operating cash flow will provide capacity to fund the existing business, pursue acquisitions in some of the categories that we discussed earlier, as well as to continue to return capital to our shareholders. Roughly speaking, that split will continue to be about 1 third available capital to the business and 2 thirds to our shareholders, which is our current bias for our uses of capital. By available capital, I mean both our operating cash flow leverage as long as we remain below the high end of our targeted range of our leverage ratio of 2.5 times. As it relates to how we will return cash to shareholders, let me reinforce our prior statements on the matter. As most of you know, we increased our regular dividend by 35 percent to $110,000,000 a year. We have also begun repurchasing shares under our existing authorization. We have about $300,000,000 remaining under this plan, which expires later in fiscal 2014. To the extent which we repurchase shares is dependent on how we view the market, the overall equity market and how we view our current market value. Roughly speaking, we'd like to be able to at least offset the amount of dilution from equity grants and hold share count fairly constant. That is a philosophy that's not necessarily cast in stone. To the extent we have not met our 2 thirds commitment through stock repurchases, we would contemplate paying a special dividend sometime next summer. This would be the subject of course this would be subject of course to our performance and no other more compelling need arising. Before turning things back to Jim King, I want to stress my 2014 operating plan that Barry just shared. I am confident in the plan Barry outlined for 20 14 and it is achievable as long as weather or other issues beyond our control don't derail us. As for the longer term, I'm also very confident in the opportunities that Jim discussed at the beginning of the meeting. Even as some of those opportunities begin to materialize and they'll really begin in 2015, it's too early to really predict the mindset of the consumer, the retail environment and really the overall economy. So while I share Jim's goal of getting back to level of consistent mid single digit top line growth, you have not and will not hear long term growth projections today. I want you to understand my high degree of confidence that we are tracking well to items that are within our control. We've established very strong financial discipline in the past few years and we're committed to staying that course. I feel very good about the state of our business right now. We're taking the right steps. We're delivering on the commitments we've made and the investment committee investing community appears to be giving us the credit that we believe we deserve. Our commitment to you this year is to stay focused on managing the near term reality while planning for the long term. That result should drive accomplishment of our ultimate goal, which is to drive total shareholder value. As I've said earlier, I'm really excited to be part of this team and I'm a big believer in our future. I also know that I need to spend more time getting to know you, so Jim King and I will be on the road after the 1st of the year to continue to share our story and answer your questions. In the meantime, I'd invite each of you to stick around after lunch so that we can make some and begin to connect names with faces. Speaking of lunch, I realize I'm now just sort of getting in the way. So let me turn it back to Jim King. Thank you. All right. Thanks, Larry. So we are right on time. What we're going to do now is we're going to break for lunch. They're going to as soon as I step away, they're going to immediately set the room and start bringing lunch in. We're going to try to make that happen fairly fast. If you're listening online, we're going to strive to start the Q and A right around 12:15, 12:20 at the latest. For those of you in the room here, if you're in a table that's sparsely attended and you want to move around, that's fine. For those of you who are going to be leaving on your way out the door, there is a gift bag with some of the indoor gardening products that Jim talked about earlier. Please grab that from my assistant, Heather. And one other thing I wanted to note, I've introduced everybody this morning with the exception of one person who I feel terrible about, Kim Green, our Manager of Investor Relations in the back of the room, done an outstanding job helping us getting ready for this event. So thank you. And a lot of you interact with her when you call me. So just want to thank her for her efforts. So we're going to bring in lunch now and then we'll break for that and start Q and A in about 25 minutes. Okay. We're going to get started back up. The stock price hit an all time high in the middle of the meeting, so I almost decided to cancel the Q and A and said, it's good enough. But we're going to go ahead. So Kim is going to work that side of the room. I'll work this side. Let us get you a mic. Please introduce yourself when you start and we'll try to take care of everybody. So You can hear me now? Can you hear me now? Yes. How are you doing? Thank you. Olivia Tong, BofA. First question I wanted to ask is about your 3% to 5% long term sales target. First, can you break that down a bit? How much is dependent on an improved macro environment? And also when do you expect to reach that target? And if it is truly a target further out than 2015, what has to happen? And when will you have clarity on those components? All right. So Olivia sort of call it, flat unit volume. I think we think we're kind of there. I think it's just sort of call it flat unit volume in the domestic market. Like I don't know what you're using call it 5 ish percent something like that for lawn service? Yes, 4% to 6%. 1% to 2% acquired growth and kind of flattish Europe and that's how you're going to get to the numbers. And I think that's built into sort of a pretty negative assumption. When I say negative meaning conservative assumption on sort of most of the North American, but the North American and European economy. I think so I think we feel like these are pretty reasonable numbers, except if something terrible has happened to the sort of global American economy. That's kind of my view. I don't know Barry or Larry if you What I said at the table was basically we don't sit there and try to say well it's going to be this many acquisitions and this much in pricing and this much. When you look at it as a whole, it's going to be a balance of all those things. We don't see a robust economy. So we see some pickup out of our acquisition activity. We don't know whether we'll spend $100,000,000 1 year or $30,000,000 1 year and $130,000,000 the next year or whatever. But over time, we expect that we'll make those acquisitions and with a good proportion of it in the lawn service and pest control, we're going to get top line growth out of that. We're going to hopefully get some as the consumer gets back engaged. But yes, I mean, basically same answer just mixing them up. Look, part of it is and just I'm sure this will cause anxiety with my team and maybe my Board members. We always kind of operate with like free numbers. We had our numbers. We got the numbers that we based our incentive on, which is what we try to con the board into believing. And then we got the numbers that we talked to you about. Your guys' numbers are the safest numbers. The Board numbers are somewhere in between and then we have Barry's number and I think that Barry probably has numbers that even I don't know about that he and Mike and Randy Coleman use and I'm totally fine with that. I think that I was really happy with the sort of advertising, seeing some of that stuff I hadn't seen before. I think I'm going to go back to this good things are happening here. Remember, March sucked last year, the year before that April sucked. This is a business that can be pretty explosive. I think Barry kind of refer to that saying we could end up being stressed and a good. So I think the numbers are really safe and I think probably there's more upside than there is downside. And so I think based on what we know that 3 to 5 or to whatever the numbers that we've been presenting is like it's pretty much assuming kind of flat unit volume in North America. And I'm pretty hopeful that it's better than that if we ever get back to a normal season. Just one follow-up. You touched on the 40 gross and 15 operating margin target a couple of times. And while I like having targets out there, does it make sense to have targets given all the things that can happen big mix shift commodity volatility, volume fix and starts and all these other things? Yeah. I mean, I think it makes personally, I think it makes sense to have the targets. Larry, at our table, we were talking about questions on your first on your some of your comments in the alignment between you and me on margins, which is high. I think I did not have to beat insularity to say operating margin is a pretty important number for us. I think that I believe that we have spare capacity in our manufacturing. And I think we can do other things with it, whether it's private label or something else. And I think that to some extent that conflicts with 40 gross margin. And so I think the targets are important. And as we prep for this meeting yesterday, we were trying to deal with potential questions here. And Randy where is Randy? There he is. Randy runs finance for the operating side of the business. And he was saying I mean, because we're talking about pricing. What's our sort of appetite for pricing? Where are we? And we're ahead of where we wanted to be in a gross margin point of view. I mean, so we're pretty comfortable in the journey and I think part of the journey is having targets. I think understanding the conflict that gets created internally with them just means we have to be sensitive and I'm very relaxed that Larry and I see things the same. And so and again that has naturally happened not because I've had to be directed about it. Just two quick ones if I could. 1st to be more of an optimist in terms of the top line. If you did outperform in terms of revenue targets this year, I think we've said in the past that you do expect that to drop to the bottom line. Is that still the case? Or is there a thought to maybe taking some of the volatility out of the earnings that we've seen in the last couple of years? And then secondly, I think, Barry, you mentioned the in and out consumer. It's about 1 third of consumers. What percentage of your revenue comes from those in and out consumers? Thanks. Joe, one thing to be clear just to remind you. We talked about the fact that if we ended up exceeding on targets that slope of that incentive compensation that would drive then SG and A up more than what we talked about. So it won't all follow the bottom line, but I think it's aligned to shareholder interest that if we if the operating team really does deliver much better than what we're planning then they deserve to be rewarded. Our shareholders will be rewarded, but our SG and A would be up more than 3% to 4%. On the in and out, so I would it's just the approximation about 15%. Jeff Zekauskas at JPMorgan. I was puzzled over your comments on special dividends. I think what you said is that your cash flow in 2014 might be $275,000,000 You spend about $75,000,000 in CapEx. So that's $200,000 Your dividend is $110,000,000 So there's $90,000,000 left. And I don't know what piece of this $90,000,000 you want for special dividends or share repurchase. And you also said that what you wanted to do is to offset the dilutive effects of the stock issuance. Why is it that how big is special dividends? Why is special dividends such a good idea since it's tax inefficient and because you have a sustainably high free cash flow yield? So, we've spent a lot of time even before I got to Scott's. But when I got to Scott's, I spent a lot of time with our Board, with a lot of our management team, with some outside advisors that I trust implicitly, going through what's the appropriate capital structure for Scott's. Yes. Okay. What I got to was it reaffirmed where we're at, which is a leverage ratio range of 2 to 2.5 times, okay? So you spoke about operating cash and you walked through our CapEx and all that kind of thing, which is great, but it's not just operating cash, it's capital. And part of our capital structure involves our leverage ratio, right? So we'll look at it in terms of our overall available capital. If we don't have something else compelling that comes along, then we've committed that we're going to return that excess capital to shareholders. And whether it takes the form of a special dividend or more stock repurchases will depend on our judgment at that point of which is the more appropriate way to return it to shareholders. And in terms of the shareholder count, we have a philosophy that's pretty firm about trying to keep our shareholders account our stock count pretty stable to replace equity award uses. And outside of that, it's going to just be more of a judgment of how we view our stock. So if your stock price didn't change, would you be inclined to have a larger special dividend or a larger share repurchase? And where does the goal come from to keep your share count flat? We believe that our we like that concept of just keeping our shareholder count pretty stable. Relative to if our share price is stable where it's at now, it will depend on how we look at our forward look at that point looking at what we believe cash flow generation will be out in the future years. We've got an intrinsic value model that we utilize. We'll make our judgments off of that and return the capital the way we think is best serving our shareholders. Thank you. I have a follow-up to the sales guidance. You seem to be sort of living with this flat volume growth outlook. And I know internally you think it might be better than that. But I'm just wondering if you've done more research into who your consumer is and what the trends are by age group. Because I remember when a lot of the optimism in your prospects was that we've got these aging baby boomers and people over 50 garden wars. So we've got all these people going into the area when they're gardening more. And so volume was going to do well for that reason and somehow it's not. So is it maybe baby boomers aren't gardening as much as they used to and they're traveling more? Or is it that the people between 20 50 are all working more and gardening less? Or are they interested in organics? Or what is it? So it's a multivariant answer. And unfortunately and what we're seeing is the baby boomers are very strong for us. They're going to continue to be strong for us. I think the biggest influencer on them over the last 4 years was the economic impact and their disposable cash flow. And the new consumer is does not see gardening as much of a hobby, a leisure activity. It's a little bit more of a chore for them. But that's why we're trying to influence them with the benefits of that chore and getting them engaged. The new consumer very brand loyal still because they don't want to make a mistake. They want instant results and they don't want to do it again. So we think we can play well with them also. And so overall, net net, I think the economy had a significant impact on the units over the last 4 plus years. And we are thinking some of that's going to wane with the increase I guess I'm not trying to be like outsmart everything. I think it's been like a struggle since 2008. I just think this management team finally believes we're getting expectations, our internal expectations, street expectations, our ability to execute, our programs with the retailers, our communications with the consumer. I think we're all feeling pretty good about that. Like I said before, you have this year and last year, when I say this the calendar year we're still in the year before, where we lost major months, I mean like virtually the entire month for the last 2 years. I'm not sure with all due respect And I'm not trying to blame weather. I And I'm not trying to blame weather. I think we've done we've learned how to operate the business. And largely, I was down at that Wall Street Journal CEO Counsel thing in D. C. A couple weeks ago. And I think everybody I talk to in the CEOs' role is we're all figuring out how to make sort of more money on flat sales. So I don't think we're in an unusual environment. I think very few of them operate a business where their season is like 4 months and you got it like 2 or 3 big months. And so we've had these big deltas and I just don't know what it means. I think operating the business with a sort of assumption can we do what we want to do on flat sales, I think the answer is yes. We're not backing off the support for the brands. Our programs which has not really come up, but our retailer programs are super solid going into 2014. Barry's relationship and his teams really the operating team's relationship with our big retail partners is excellent, with good programs in place. So I think we're kind of ready to go, but we're just not demand really hasn't been there, I think, I saw some the demand really hasn't been there, I think I saw some sort of macro factors in there where you have all these foreclosures. Nobody is like basically putting fertilizer down when you basically given back to a lot of the banks that are in this room. Now I think things are starting to look more positive and we'll see what that means. But I think you're sort of assuming there's more sort of accuracy and sort of our aiming than I think there is. And I think then there is in other consumer goods companies too. I think the world today is be conservative and kind of run your business properly and you'll get what you can. I'm just wondering if you have more data than you've shown us about spending patterns for different demographic groups. I mean, I hear your explanations, but I'm looking for The answer is yes. And I would say, come visit and we'll show you. I'm just like, I don't want to do it here. It's just one of those things where I'd say, anybody who has any interest come visit us in Marysville. So people over 50 aren't in fact, there is not growth in volume terms with that demographic over 50 maybe because of foreclosures whatever? No. I think what we said is the baby boomer like sales per has been relatively flat because primarily economic conditions, not solely or but the economy has had a big influence. Hi. Could sorry. Sorry. Hi, Connie. Could you talk about the atrazine alternatives you have coming to market whether or not you're expect your I mean, I'll start with that. AstraZeneca is a good active and it continues to be an important active within agriculture. The way that I think probably Steve like screwed up the whole thing when he was Steve. They have this risk up is how they look at sort of global lifetime exposure to certain active ingredients. And this is pretty bad for us a lot of times where we view it as a specialty. And so that whether it's the EPA or a manufacturer, will look and basically say, if there's a complete exposure that I can deal with and I only have a certain size of the risk up, where am I going to want that to focus. And ag is like huge money. The rate that not only us, but anybody can put on atrazine today, particularly for the most prevalent weeds in like the Southeast. I would say is what I would decide is a unacceptable probability of guilt, okay? Which means I just don't think the product works the way it should. If you look and say, Catherine, tell me unit volume decline over the last 5 years with MonaS S. Now remember, go back to the questions we were just talking about. So there's a lot of other factors involved in people's ability to spend foreclosure rates in certain regions of the country. But I'm going to say, generally if a product is not working well, would you be surprised and costs have gone up as a result of raw material prices, would you be surprised that unit volume was declining? I wouldn't. Okay. So MSM who's the supplier for MSM? Who is the supplier? Supplier, yes. I don't know, I don't know. Top of my head. I'm not surprised everybody's acting dopey here. MSM is a excellent active. I mean MAT 28 DuPont active would have been like ridiculous awesome, but it just turned out to end up killing these conifers. And thank God I mean in spite of myself, which is I really wanted to launch early, the team just said we're not ready and thank God we didn't get hung up with a lot of people's dead trees. But MSM is a very good act of extremely efficacious at a very low load rate, so environmentally positive. And we're exclusive on that chemistry in our trade. So what do I think it means? We're going to advertise it. We're going to call it out that it's exclusive and better. And my expectation is that we'll start to bring people back into the category, in this case, Southeast based. So that's where Agrazine is a very important active for us because there's really no other herbicide that works well on warm season grasses where you're dealing with Bermuda and St. Augustine. When does it come to market? I'm sorry? When does it come to market? Well, now. We just we're kind of managing the transition inventory and but we want to get out of the market this spring. And I think we believe that we'll have registrations throughout sort of the southern states by call it late this year or late in the fiscal 2014. We're good in Florida now. We're just managing inventories and we have 2 markets that we just want to get some experience in the spring with the product. So that's the plan. Yes. I was just going to add the exclusivity. The active spend in the market, but we're the only ones that's been able to figure out how to get it on a granule and we've patented that process. So there's no one else that can take that active and put it on a granule. Sam Darkash, Raymond James. I understand this is probably a touchy feely question. So to the extent you could be specific, it would be great. In a low category growth environment, obviously, new product innovation is extra critical. You referenced the central AMRO issues. For years years, you've showed us lots of new product. Many of them have been hit, some of them have been misses. It doesn't seem as though the issue is the retailers accepting them. It seems like there's an issue perhaps where it doesn't work, maybe at the point of conversion. What have you learned either in your own experiences or with your competitors as to what works or what are the key drivers of what makes an innovative product? What makes the dog see the dog food? I mean, look, because maybe this stays to be touchy feely. My father had a view of find a need and fill it, okay? So I would say that's got to be true within any product. So if there's a consumer need that's not being met, and I put this MSM bonus product as due to the regulatory environment, nobody has a product that works very well. You now have a product that works really well. I think that you can sell that and that's innovative. I think our aggressive this non regulated innovation in grass seed, I think is true innovation and is saleable. I think that if you have innovation that is consumer centric, that is branded and is going to be advertised. I think you can count on it being listed. The only thing that I would say if I was central is, everything is like really expensive. The packaging is expensive. You got a lot of plastic in it. It's just if it's a bomb, it's it's expensive. But I am I don't laugh at Central over this. My view is Central put innovation out there. They got it listed. They didn't sell it. But and now they're going to suffer the consequences of product that didn't leave the shelf. But it's a good thing. And I think we took a lesson out of that is retailers want innovative products. Consumers, I think, will accept them. And I think we've had better luck actually than that. I'd say our recipe right now kind of the Scotts way to introduce innovation is, A, assure it fits the consumers' need and delivers against that need space. 2, make sure that the retailer's actions and our communications are coordinated through our sales teams at all. And then number 3, advertise the hell out of this. And when we do all three of those and that coordination is there, we see a significant lift over when one of those elements is missing. So then let me ask you a specific question. How would you quantify success or define success in your new products that you've showed us today, be it in the aggregate or what have you? How should we define or how should we gauge your performance there? Well, look, I what would I say? That most of them survive, okay? That this is now I'm talking a little bit to my partners. I think a lot of the areas we're going to be able to innovate that is not like swing to the fences kind of stuff is regional. I think we tend in this company to think it's got to be national. But I think a lot of the products that we look at because again any of us could travel and look and you'd see in certain regions there's pretty important product lines that we're not in, but in the past we would look at and say on a national basis it's not interesting. Kind of if it's not a $10,000,000 product, we don't want to be in it. I don't think that's the way to look at it. I think the way is to look at it regionally and say, if it's an important regional product, we should be there. So really one of the things I'm saying is, I think regional sustainable products that we don't try to push into the rest of the country when they're not product that culturally people use, I think is important. And so what do I think requires to be profitable? It moves us in a direction. It raises our growth rates. I mean, part of what we're saying is above average growth rates. So above it's the growth rate is above the average of the core and it's strategic and it's along the lines of what we said, indoor, urban, deep green, service. These are areas that we are going to work on and success would be that 2 or 3 years from now they're not off the board. I mean do you see it much different than that? I don't know. No. I think one of the keys to success too is our category is a category where the consumer only buys it once a year. It can't be a series of 1 year kind of wonders. To Jim's point, if it meets the consumer need, we have a pretty long runway. And so I think what we've learned, if you look like at our Snap introduction, our introductions, if it's going to do what Jim says, move the category, be margin accretive, take market share, we ought to think of these as multiple year kind of campaigns to get the consumer to understand it and understand that not all products, I mean we had an EZ Seed product that was a huge launch right out of the gate. If it's not a huge launch, we have the opportunity to come back, rethink it, get it right, support it and make it a longer term success. So I think having a little bit of patience goes a long ways as well if you're hitting on what that consumer wants. I would say that in the niche area probably advertising is less important, because it's not as clear to me that this is one of our big brands. I think in our big brand areas, so in the sort of in the core, I am not particularly supportive of unadvertised launch of anything, okay? Catherine is working on a new category that's really interesting. If we're not going to support it properly, I just think that if we don't advertise it, we don't say why we're better, there's no reason for the consumer to buy it. And it turns into this gets back to us. If we look at the sort of if we look to engineer kind of the financials of this company a little bit, you know what killed the fuck out of us? Excess and obsolete, shitty launches. I mean for real. I mean, I bet you're talking $10,000,000 $15,000,000 a year. And that goes along with unsuccessful launches. I think that we and the launches that aren't supported and stewarded properly, I think are much more at risk, okay? So I think proper planning, proper support of those brands, a multiyear approach that says we're not going to look at the year. I mean, I think that if you look at these Globals, I mean, it's pretty famous meeting at Scotts where kind of Barry went in and basically said I think you guys are completely misreading the data. And it has been an important product launch for us. But if it was just a 1 year deal where we said we look at it for the 1st 3 months, how does that look? I think you would have bailed on it and you would have had a major ex E and O problem. And so I think that to me those are I mean, I don't know that it is kind of touchy feely. I would say to you, it's hard to be specific on that. But I think these are the traits of what it takes to succeed in our industry with launches and particularly in the branded side as they have to be stewarded properly. Or don't do it. Two questions. First of all, on the financial side, it seems like part of the equation is adding leverage in order to fund returning cash to shareholders and also acquisitions. And so I'm just curious is that EBITDA grows $40,000,000 next year. Does that mean you add $100,000,000 of leverage to both fund acquisitions and a special dividend or repurchase? We don't look at it as adding leverage to return cash. Capital policy is about either have equity or debt capital. We have a capital structure that we believe is the right one for us that has this position in from a ratings standpoint right where we believe we should be. We're not trying to become an investment grade credit. We've got to and we're going to stay consistent to that structure. We're a very solid cash generating business. There's some fluctuation that goes with weather. As long as we're a good operator, we can have the ability to return capital to shareholders and we'll stay consistent to our capital structure. Within that part of that is borrowing more money, sustaining a leverage yes, If we didn't borrow more, our leverage would go down. It would go down. It would go down pretty precipitously. Yes. Okay. Okay. And then secondly in terms of Europe, curious in the thinking of where things go forward with Europe. You've taken cost out of the business. It's now at breakeven. You're talking about making more acquisitions. It sounds like today you could have some opportunity to Yes. We talked about that at my table. We got this in the January Board meeting that's combined with our annual meeting, which is kind of our global when I say global enterprise strategy, it's the one meeting we kind of put it all together. This is not my wife. She's traveling. She's calling, I'm going to answer. $100,000,000 focused on Berry and growing the business. There's quite a bit of opportunity to use that, especially when you say the repetitive nature of acquisitions within our service businesses. I mean, they're good at it. That's kind of what I'm saying. They pretty routinely are doing deals. And while their flow is up based on what we're allocating to them, They're also going to be focusing on pest and we're all comfortable with that as is the Board. So when we talk about sort of what the niche areas are, what the core areas are And then you say in the context of all that, where does Europe sit? There clearly are consolidation opportunities in Europe. The question is that if you look at that business today and historically on a return on capital basis or even something more sort of simple, which doesn't sort of penalize you for past mistakes called return on sales. The business is marginal. There's enough opportunity within sort of the Americas. I mean, generally, let's say Mexico up to Canada, that I think is higher return, safer and totally fits within a very unique distribution model that we're lucky to have built for ourselves that as we spoke with Porter and Adam was at the meeting Barry and myself, we basically said, continue to improve Europe, but Europe is not a high focus for capital at this point. And so I think we're improve the business and maintain it and we'll kind of see down the road. But I think and focus our opportunities where it's our unique strengths. Thanks. Hi, Josh Bortson here at Longbow Research. In the lawn service business, one of your goals is to attain EBIT margins comparable to the corporate average by 2015. I'm just curious what that implies in terms of magnitude on the top line? I think you have 6% market share today. What number would you like to see in 2015? As far the question as far as market share? Yes. Yes. We're the size of the market will be a whole lot of it. It will be between 6% 7%. So we don't outside of acquisition, we don't have to gain a whole lot of customers to get there. Because part of what happens is, as we continue to expand the markets, the efficiencies that we get from having the logistic locations much closer to each other allows the margins to get there pretty fast without much growth at all. But I think if you look and say, I don't know what the call it like $1 per dollar on the acquisition side. So if we're putting $30,000,000 to $40,000,000 a year toward CURA's business and he's organically growing his business call it 5% per year. I think you can kind of put it together and say kind of where the top line would be. On Tomcat, what did you buy there? Did you buy the right to the brand on the consumer side? Did you I mean, how much capital you need to do we need to do? What are your expectations there? Let me take one. So we bought the consumer brand, but we also as part of the agreement got a relationship with Bell Labs. So they do all of our R and D development, all of our regulatory and so forth. So there's an agreement that's in place for that. And really the only capital involved with the business is the inventory that we have in place. And your expectations as far as growth is concerned? Yes. I mean, how are you going to roll it out when Well, if you look at the markets, we said we have roughly a little bit better than the quarter of the market share. We look at that as high growth opportunity. Jim talked about there's a whole bunch of niche players in there. We have some other strategies on what we're going to do. We could easily see over time growing that market share commiserate with what our market share is in our other categories. So kind of a 50 market share in markets where it's already competing, but we also have the global rollout capability. So to take that product to Canada, to take it to the U. K. And France where we're at right now as well as Australia. So there's upside growth opportunity from that as well. So did you buy 25% share that's on the consumer side of the business? 25% share on the consumer side. You bought a revenue stream EBITDA, you bought a whole P and L along with the consumer? Right. Okay. Can I ask about another question about AeroGarden? You've had control in the Board seats. How do you you're not going to consolidate it, I guess. Do you have the right to buy increase your ownership position there, etcetera? Well, you're answering your own questions. I don't know the answer to any of those. No. Well, the answers are kind of everything you said. If we have the rights that you asked about, the answer is yes. Or I mean, our investment I think less $5,000,000 Are you controlling the business now? No. Yes? No. No. Okay. So you're not going to consolidate it? Okay. Thank you. Any other questions? Going once? Yes. There you go. You spoke about Asia and the indoor plants and what have you or rather you didn't speak about the opportunity for indoor plants, etcetera, in Japan and China, particularly since they have smaller boats. Could you tell us whether you are thinking about that? The answer is yes. Merry Christmas, Nancy. The answer is yes. We definitely are interested in China. I think we view Asia as positive. We, I think, have learned a lot. I mean, I think we continue to lose money in China, which always gets me to saying, so what are we learning, if we're going to have that privilege. And I think Barry kind of threw out, we were at a dinner this week and he somebody asked the same question. He kind of threw out a pretty succinct answer. You want to what if we learned? Well, we have a very successful business model in the U. S. It's primarily concentrated in 3 retailers Home Depot, Lowe's and Walmart. And we have some very successful retailers, but that's the bulk of our business. We have a very good sales model, supply chain model, logistic model on how we approach that business. So we went to China sort of with a hammer looking for a nail to take that same business model. And we did it and we learned that that wasn't very successful. And so if you look at where most of the products sold, it's sold in a very decentralized flower market kind of shop on the street and so forth. And so we put most of our money and our resources behind the big box. Well, the reality of the channels is it's kind of local flower shops and Internet business. And so what we learned is Hold on, I'll add in a not well developed lawn and garden market. So you pay big slotting fees to get in, kind of like grocery in the United States. You pay big slotting fee, then you don't perform because the Chinese consumer is not really a gardener yet. So and then you lose money. And I think that in the actual market where they're buying flowers and some other stuff along with that, not a lot, is not in big retail. So I think that we've learned and Barry and I agree on this, which is share of you will focus on where the flowers are sold. And I think when we've done that the results have been way better. Right. If you were to announce a special dividend, when would it likely be? Just thinking to the past sort of June or August? I would say someone will get it. Yes. What I would like to say is earlier, but I think that based on normally our year when we're starting to understand our cash flows, it's probably later in the summer. So more likely August. I think that's fair. So you wouldn't that's when you would announce it? I'm not sure I care when it gets executed. I think when we announced it we're just a little bit like paying a bonus to the associates, announcing, telling people what the results were and then saying, and we'll pay in like 6 months is not that attractive to me. So I think that based on what our historic leverage is seasonally and getting back to this maintenance of 2.5 times that would be how we would do it. Thank you. Anybody else? Look, I want to wish everybody a happy holidays We only got one over here Joe. And a Merry Christmas. I would ask people to sort of pray for my boy. My youngest is off to Afghanistan. So, no, it's good. It's good, but as long as he doesn't get hurt, it's even better than that. John Anderson, William Blair. Jim, you mentioned in your opening remarks that we should take note of what's happening in the Western part of the United States. I was just wondering if you could comment a little bit more about what you're seeing there in terms of new consumers entering the category usage occasions? And to what degree you think the Miracle of Pro brand your other brands resonate with that consumer in those new use occasions or if you have to attack that? So like don't attack me on this one, you all. This is a big question. It's a kind of a famous at this point. I was headed out to visit stores in Seattle with my sister. And you guys remember like a month and a half, 2 months ago it was like foggy than hell in Seattle for like a week straight. So we basically the weather went bad. We couldn't get into Seattle. We ended up going into Yakima, Washington. There's like 2 stores in Yakima, okay? There's an independent and there's a Home Depot. Now Home Depot would look completely the same as kind of Home Depot's look to us. I mean and you look and say totally understand the merchandising approach. You go in the independent, it's absolutely completely different. And the young dude who owns the place is like just a weird looking dude. I mean, IE doesn't look like as handsome as we do. He looks different. And we had about it's off season, so it's not in the middle of garden season. He's got about this much of our sub Miracle Gro products, call it 4 or 5 feet tall. He's got like here is the far side of the podium, if not more of all kinds of special hydroponics, high value soils, all kind of weird names, crazy claims. But it's like 5 times the amount of space that we have. When you say what are people growing, it's like tomatoes. Really? It's like tomatoes, okay? And I don't think this is unusual out in certain states where the laws are changing pretty rapidly, okay? And I think those brands are not ours. And I'm not sure to be honest. I mean, if you look at the examples we've been giving here and it's not because it's by accident. If you look and say, if that's the kind of crafty part of the business that I have not seen that kind of growth in lawn and garden in any sort of even regionally, I think since I've been out of the military. That's 87. That I'm not sure that the brands are brands at a lot of that. I think if it was Budweiser, is Budweiser when you're dealing with the craft beers, is that friend or foe? I'd ask you. I'm not saying I know the answer, but the folks who run that or planning thing, how do we work there? There's a lot of conflict internally. Is it should we use our brands there? Should we not use our brands there? Should we do both? And I don't think we know the answer yet, but I would say today there's a very robust business happening there that's not any kind of big brands. And I think if you look at this in the sort of beverage side of the business or some of these cereals, the energy bars, even ones that big people are in, whether it's General Mills or it's Procter, I think they tend not to use their big brands. We'll wrap up. You guys have a happy holidays. Everybody here who are your shareholders, thank you. If you're people who follow us, if you say nice things about us, thank you. If you supply us funds, either bank our bank friends, I would say thank you. You guys are the jet fuel and you came here and you're our friends. So have a very Merry Christmas and a Happy New Year guys.

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