Scotts Miracle-Gro Co (SMG) 2009 Q1 法說會逐字稿

Good morning everyone. We're going to get started.

For those of you who I've not had a chance to meet, let me introduce myself. My name is Jim King, I'm Senior Vice President of Investor Relations and Corporate Affairs at Scotts Miracle-Gro. And on behalf of the entire management team, both my colleagues up here on the stage and those in the audience, I want to welcome everybody to our 2009 Analyst Day Meeting, whether you're joining us here in New York or one of the people joining us via webcast, which I think are probably a couple hundred. We're hopeful that you're going to find this meeting to be a productive use of your time.

I've been an investor relations officer now for almost 15 years and nothing compares to what we've seen in the last six months, as all of you know. The volatility in the marketplace, the confusion in the marketplace, the noise in the marketplace is unprecedented.

Our job this morning is to break through that noise as it relates to Scotts Miracle-Gro and tell you why we remain confident in the business -- where we are, where we're going, how we're going to get there. And I think you'll hear that over the course of the day.

So not only do I think it'll be a productive use of your time, but I can tell you it will be ours as well because we really enjoy sharing the story and helping you all understand how we're driving the business, steps that we're taking to enhance shareholder value and to get your input.

So along those lines, before we get started, I just want to share with you the fact that we have recently retained a firm by the name of Rivel Research to help work with us on an investor perception study. This is the fourth time that we have retained Rivel and we're going to be asking them, over the course of the next several weeks, to reach out to many of you and to get 15 to 20 minutes of your time to share your impressions of the company, of our strategies, of our management team, of our financials, and of our investor relations efforts.

And I can assure you that we would put that feedback to use, and use it to have a more productive and proactive investor relations effort. So if you can give us 15 to 20 minutes of your time, in the weeks ahead, I'd be grateful.

Another piece of housekeeping, before we move on, obviously you all know that our discussion this morning will indeed contain forward-looking statements. As such, actual results may differ materially and we encourage investors to familiarize themselves with the risk factors that we identify for the business that you can find in our Form 10-K filed with the SEC.

Speaking of forward-looking statements, let's start right away. Many of you know that this meeting this morning not only serves as our annual analyst day meeting, but serves in lieu of our first quarter conference call as well because we issued first quarter results this morning at six forty-five. So I won't steal all the thunder, but let me give you a few of the headlines from our press release this morning.

Company-wide sales up 3%, driven primarily by a 9% increase in the global consumer business. On an adjusted basis -- that's adjusted to include non-recurring items -- we had a seasonal loss in the quarter of $0.81 versus $0.89 a year ago. Now remember, lawn and garden is a very seasonal business. October, November, December, there's not much going on. So we report a loss every year in the first quarter.

About $0.81 versus $0.89, I think, well ahead of the First Call estimates as well. And as you saw this morning, we also moved our earnings guidance up from where it was at $2 a share the last time we spoke to all of you in November, to a range of $2.10 to $2.30.

We're going to spend a good bit of the time this morning walking you through that range, helping you understand the things that we're doing to drive the business this year to get there. So with that, let's move on to what the agenda looks like today.

When I step down, I'm going to turn the stage over to Jim Hagedorn, our Chairman and CEO. Jim's going to walk you through the state of the business -- where we stand right now, how we feel about the business and what we think we can do going forward.

He'll share the stage, about a half hour in, with Mark Baker, who joined us in October as President and Chief Operating Officer. Mark will share with you his early impressions of the business as well as share a discussion with you about the strategic drivers we think are necessary going forward.

Now that part of the meeting is going to be mostly big picture, strategic. Then we're going to really shift gears and we're going to spend the rest of the day talking about 2009. We're going to start with an in-depth review of the quarter, which will be led by Dave Evans, our Chief Financial Officer. He'll walk you through the results we reported this morning and give you a detailed understanding of what drove those results.

We're going to stop short, though, of going forward and explaining the full year guidance because we really want to give you a better understanding of the context of what's going to drive the business. So Dave is going to turn the stage over to Barry Sanders, our EVP of our North American business; and Claude Lopez, EVP of our International and Global Professional businesses, to give you an understanding of the things that are going to drive their respective businesses throughout 2009.

When they're done -- somewhere between eleven-thirty and eleven-forty-five, we hope -- we're going to break for some Q&A and we'll take whatever time is left up until noon for questions. Now we'll come back for questions later in the day, but we're going to take as many questions as we can in the morning. And then we're going to have a hard stop for lunch -- that'll get served at noon -- and we'll go until about twelve-forty, twelve-forty-five.

And at that point, Jan Valentic, our Senior Vice President of Marketing in North America, will explain to you the things that we're doing to keep the consumer engaged this year and drive the business. As you'll hear from Barry, primarily, we've got a lot of great tailwinds in the business this year, but it's all about the consumer and Jan's going to spend some time talking to you about what we're doing to drive the consumer.

Now at that point, you will have heard from the operators, you'll hear from the marketers. Dave will come back to the stage with Mike Lukemire as well, who runs our Global Technology and Operations, and explain to you in more detail what we think '09's going to look like. And he'll run through a full range of guidance for you at that point. Then we'll wrap up and we'll take as many questions as we can between when we wrap up and we'll take as many questions as we can, between when we wrap up and about two-forty-five, which is when we need to get out of this room.

So that's the agenda for the day. Let me explain to you -- for lunch, there's a member of the management team seated at every one of the tables this morning, so let me introduce those folks. If you could just raise your hand or stand so that people know where you are.

I'll start with Pete Supron, who is Senior Vice President of Global Purchasing. I told Pete I wouldn't tell anybody that he's the guy that buys urea, so don't ask him any questions.

Keith Baeder, Senior Vice President of Gardens. That's our soil and plant food business, primarily. Growing media business.

Peter Korda, Senior Vice President of Scotts LawnService.

Dan Paradiso, who may have the hardest job. He just took a 30% price increase in his business. He's the Senior Vice President of Lawns.

Tim Portland, Senior Vice President of our Controls business. That's Ortho and Roundup.

Randy Coleman, Senior Vice President of North American Finance.

[Scott Hefty], Corporate Treasurer.

[Jamie Schroeder], Assistant Treasurer.

And Ashley Gullion, Manager of Investor Relations.

Okay. So we're going to move on. Before I turn the stage over to Jim though, I was sharing with him a couple of weeks ago, I've been with Scotts now for almost eight years. And I wish I had a dollar for every time I was talking to an analyst from New York who said, Yes, you've got to have great brands, you've got a great sales force, you've got a great supply chain. I understand all that. But I live in an apartment. And I really don't understand lawn care or gardening. Do people really plant tomatoes in their backyards still?

So I thought before we get started this morning, that we'd start with a little video that shows the energy of this business, the relationship that we have with the consumer, why they love gardening, why they're passionate about gardening, and why they're passionate about us as their partner in helping them succeed. It's a piece we call "The Magic of Gardening."

(VIDEO PLAYING)

Hey, everybody. What an awesome business to be in. Better than selling cars.

I guess I can push buttons here.

2008 has to be one of the (expletive) years of my life.

We suffered, let me tell you, last year. And it started in March. The category was down 30%. The rain and cold, we could -- I could show you maps. And I ain't looking for like a ton of sympathy, but we started saying to ourselves, Maybe the consumer is sick? Maybe our thoughts that we're recession-resistant are wrong. Now the good news is, from April to the end of the summer, business was pretty darn good. And I think POS averaged about 7% better. So -- but we were pretty worried.

We had commodities that went bananas. Oh, and by the way, as far as being worried, the retailers were, too. So they didn't want any inventory. And you saw the retailer equities were terrible.

Our cost of goods last year went up, call it about $140 million. Over half of that was not included in our budget. So that's $1.40 right there. So call it more than half of that unbudgeted.

And so when you look at last year, I just think that it puts it in perspective. It looks like we have all of our treasury people. The bankers must be in the back. Thanks, guys. I wouldn't want to be a banker either.

That's a hard thing to say, isn't it? We'd rather be selling dirt than money? But the credit crisis was, is, terrible. But '08, November, it was the end of last year felt terrible. And then, of course, we found out we had a person working in our regulatory group that decided that it was easier to type an approval from the EPA than it was to actually get one.

And so we went through a major sort of look-see, which we're almost done with, looking through our -- all of our registrations, and that was pretty scary. So I put down '08 as probably the toughest year since I've been in business. And so to me that -- this is sort of the context of, since we were together last time, it's been a heck of a ride. Let me tell you.

Now -- and I think it's mostly -- I would say mostly good news. Let's -- I guess I've got to do this.

To start with, I'm going to start with the management team -- my partners here. You know how they make steel harder by tempering? Let me tell you, we've got a team that has been significantly tempered and is together. I went hunting one time down in Texas and we were hunting havalinas -- these little pigs -- and we were also out there, feral pigs, which there's no season on. And I learned a little bit about operating under stress.

We went hunting -- and we were doing everything you could do wrong to hunt these pigs. Making a lot of noise, they could smell us. But they couldn't see us. And when they were under stress, they ran around in circles and bit them -- bit each other on the ass. So instead of running away, being productive about what they were doing under stress, they went dysfunctional, and the stress made them fight and run in circles and ultimately get shot.

This is a team that has come together well under stress. And we've added a new member, who's a friend of mine, and I've known a long time, knows our business, and we'll talk more about Mark. But the most important thing that happened in '08 is the team has come together really well and I think, hopefully, you'll be impressed, I'm proud, but impressed with what we talk about today.

I'm going to get to the headlines last, or maybe second to last. We took a boatload of pricing. And because the hundred and, call it, roughly hag math, the $150 million of price increases in our cost of goods we saw last year, it was looking more like $250 million additional pricing cost of goods pressure going into '09. So -- and by the way, it's looking more like $140 million is real, again, but that's less than we thought.

So we took all this pricing and the commodities have significantly moderated. And just to put that in sort of perspective, nitrogen, which probably went as high as $800, we were expecting it to go higher, is now down about $300. Phosphorus, about $800 at the high point, $300. Potassium went up to about $1,200, now down about $750 and easing.

So this is a pretty good place for us. It's that we took all this pricing and ultimately, the headline for everybody who talks to you today is going to be, It's all about the consumer and it's all about what we do to drive the consumer out to buy our stuff. But the bottom line is, from a cost point of view, we're in really good shape.

By the way, if you use -- if you view money as a commodity, and I know our bankers in the bank will say, No, it's not a commodity. We're like tying into our fragile balance sheet. But the cost of money is probably, I don't know, maybe you can get you can get it cheaper than this, but it's hard to see. So from where we thought the world was going to be to where the world is, money as a cost of goods is cheaper than we thought. So that's a good place for us to be.

You want to see the effect of the credit market on a business? Look at Spectrum Brands. So Spec had a lot of non-national brand products, a lot of the private label products. Remember, they did the same thing we did. Took on bag fertilizer at like 30% pricing and the commodities crashed.

From a profit point of view, it's a good thing. Why didn't they keep that business? Because they didn't have the money to build the inventory.

So we have the opportunity, and we'll talk more about that later, to take a major slice of business we didn't have. At a, what I'd consider to be a very fair price. So I would say slightly dilutive from a gross margin point of view. From an operating margin point of view, it's about at our company average.

So this is good business that we picked up. And so our competitive position within our industry, I've got to say, a lot of this -- like the government coming in and propping up the banks, I'll tell you, I would feel really bad if they came in and propped up Spec, just from a competitive point of view. I think what should be occurring naturally is happening here. And you've got to wonder if sometimes, well, editorial comment, is it right that the government steps in and props up poor competitors.

Talked about the leadership team. I'm probably going to talk a little bit later about what was written in the Wall Street Journal about our incentive plan. But let me tell you, you have a group of people who have done pretty well and were significantly vested in the equity of this company. And it goes from 48 to 17 -- virtually their entire net worth wiped out.

So when you see the word "stabilize," maybe you don't think -- well, the people in the banks, you guys know. We had a group of people who were stunned. We had never seen this happen before. We're -- you're going to see us moving more into restricted stock, just as a way of reducing some of that risk of people owning pure options. But the options to -- and still many of those last couple of years of options are under water still.

So I think we've stabilized our management team and we've added Mark and I think you've got a group of steely-eyed mafos up here. And I think you'll be impressed with them, unless they spent too much time at Sparks. Although, there's another thing, talk about the environment, they to Sparks Steak House, and like pretty empty last night, which says something about the New York economy.

I think if there's a headline coming out of today, this is under the improved marketing and consumer outreach strategy, which is a lot of fancy words that say, Making money today is harder than it's ever been, and we're going to have to work hard to convince the consumers to buy our stuff.

That's the hag talk of the improved marketing and consumer outreach strategy is basically, we've got to work harder to sell stuff. Because the consumer is not -- doesn't -- their hands aren't as long or their pockets aren't as deep or a combination as they were. And I think we have a little bit of a belief that, you know what, this is actually is a consumer or a recession resistant, maybe not proof, but a recession resistant business.

So these factors allow us to increase our guidance. And it's a two-edged sword with you guys. Because the rule has to be -- underpromise, overdeliver. And so are we being stupid here?

I'd start by -- because I'm going to explain some of this stuff to you. But I would start by saying we don't think so because all we're including in here is the fact that our margins are better than we thought and we picked up a bunch of extra business. So we'll talk about the assumptions that go into where we think we're going to be and at the end of the day, what's the headline? It all depends on the consumer. And this we don't know yet. We have some indications, but actually, they're so good that you also say there must be some anomaly there.

So what does it all mean? And it gets back to saying, We picked up additional business, the consumer seems less sick, and our margins are better? We are so blessed. Seriously. You look at all these businesses out there today that are really '09 is their -- is like our '08. And what this allows us to do, I think, is recognize that we have been struggling.

And if you look back, you'd say, have we been investing in our brands the way we should? Have we been doing some of the things that we would say were more long term? Because (inaudible). It ain't a surprise. This could be your home. This could be a business you all run. When you're not making your P&L, you tend to say, Well, what can I do to reinforce? And some of those decisions are not great long-term decisions. You put off some things that you'd like to do and you know were good.

This -- I really believe that we have an opportunity here if we do it right to sort of reset and start running the business properly when it's -- it's not like we've been it all screwed up. But actually making investments to drive the business going forward. And you're going to hear about that stuff today. So I think this is a great place for us to be.

But it all depends on the consumer. So let me just give you a little bit of background on 2 10 to 2 30. We are assuming that there is going to be a mid-single-digit decline in corporate unit volume. That's integral to the range.

Lawns -- you're talking greater than a 10% unit decline based on internal concerns on elasticity, based on the pricing that we/Dan took, on the lawns unit, which is about 30%. These are built in to the numbers we're sharing with you.

So what do we know so far? Because this is one of those years where every week's data matters. Part of what you're going to hear from Mark is what we're calling regionalization. But basically, if you say it's about convincing very reluctant consumers to hand over their money to us and we're going to have to be really good, it means we're going to get real, real tight with the consumer.

We tend -- my father used to call this our national marketing efforts, like B-52 carpet bonding. Guess what? It is not the carpet bonding, it's not the future for us when it comes to sort of marketing, which is national media. But we're going to have to be much more like bomb in the window of 455 East 51st Street. Sixth floor, farthest east window. That's how we're going to have to operate our business.

What does that mean? Actually, we've got parts of the country that are in season right now. So if -- and what you're going to hear from Barry is -- I think from everybody, but sure, Barry and Mr. Finance Man, Dave Evans, is flexibility.

And that is tighten up to the market and tighten up with what's going on, where if it ain't working we can start flipping circuit breakers to turn it off, which protects the P&L. And says we're talking like we think we know what's going on. If we don't, tick, tick, tick, tick, tick, turn it off. Because we're talking pretty significant investment in driving business.

So what are we seeing so far in the markets that are in season? Early, early days and I would say I don't know what it all means. Because since the days are early, remember, like the southeast is way less droughted up than it used to be, like a year ago. We've got more inventory in the market and the retailers have said earlier because they're, I'm going to say, committed to the business.

I don't think they're making like -- I don't think they have thoughts to say we're going to be selling a lot more of those big cabinet projects. So lawn and garden is actually a business that they can succeed in and it's an early season item for them. So they're well set up early and we have worked with that to get the stores set, I'm going to say, weeks earlier than they would have before. So we're in a good inventory position and we're set weeks before we would have been set last -- in previous years. So that may be part of what's going on here.

Our, what I consider to be really fine regional marketing efforts haven't even started yet. That's not our thing -- just to throw out there. They don't start until next week. So I think February 8th is beginning of our southern and south-western approach.

Southern markets -- Dave has a big list. The numbers are actually a little bit better than this. But our southern, couple of dozen, top markets, so far, dollars, plus 30 units plus 10.

Bonus S -- a Florida, unique lawn fertilizer, pretty much. So it says something. Plus 20, zero. So, flat.

Lawn fertilizer sales, southeast, last weekend, so I don't have a lot of the breakouts yet because I just got this data this morning. Week-on-week, last week, plus 80%. So again, small numbers, but I would say better than a poke in the eye. And gives you, sort of saying, what does it all mean? What it means is to the consumers there, it's good.

I'll just throw a sort of a hand grenade in and say if business was just flat, unit wise, it's a super frigging good year. So we're not counting on that. We're assuming it's going to be a mid-single-digit decline across the board and within the lawns business a double-digit decline in units. That's what is in the numbers we gave you.

If it's better than that, it's better than that. And we have a lot of flexibility, which these guys can talk about. If stuff we want to do is not working, that we're going to be tight enough to the market to start turning that stuff off.

So I -- what do I think? Pretty frigging good, actually. Those of you who are shareholders in the room, thank you for joining the team. We've done okay.

So since we bought them, we've had a lot of investors, I think, actually file, who's sitting at my desk, who's a guy I met while he was working for Perry Capital. I think he's been in twice since we went to 17, it hasn't been good for you. So those of you who got in early on this, congrats. But -- so for our bankers and our shareholders that are here, thank you for your support in us, that's what I'll say there.

So these next two slides are pretty much apple pie in Marysville, Ohio. What are we up to? I think what you'll hear is we're going to be tighter to the consumer. We'll give up a little bit of efficiency on the national level to be more local. And it might not be exactly the zip code, but we've got a lot of local people, and the local people who are operating the business are much more engaged in what sells and how we market and what kind of local promotion happens.

So at the end of the day, our brands are our relationship with the consumer and we're going to be operating that on a more local level, which I think means tighter to the consumer and not assuming the South Florida consumer is the same as the Seattle consumer or vice versa.

And I'm pretty excited to be up here, actually. But Mark's the one driving this regionality. I love ideas that are like so simple and obvious, which is, if this is a market, we've got to work harder to sell stuff and we get more local, and don't try to treat South Florida like it's Baltimore. And we do that and we mean it.

It's one of those things where you say, yes. Kind of, of course. But you've got to say, Ideas like that, I love ideas like that. Ideas that are obvious, that's good with me. So getting local and tight with the consumer, that's cool.

You're going to hear about innovation. I tend to think innovation is more than just product innovation, although we have some very cool product innovation both in 9 and beyond. We'll -- we're prepared to talk about. But I would say largely I think innovation is bigger than product innovation.

And people tend to think of it as product innovation, but I think it goes beyond that to all kinds of stuff like the in-store shopping experience, financial innovation. There's a lot of places we can innovate and we're, I think, thinking about. Maybe more than thinking about.

Luke was sitting over there. Where is Luke? He's up with us? If we're talking about more regional and local selling, well, more regional and local supply chain, loaded up with a lot more pounds that are low value, when it's low value meaning heavy bags of fertilizer and dirt. It's another obviously -ism, which says you think that's good or bad for regional manufacturing. It's good and allows him to fill trucks faster and so that's another one of those obvious things that along with a regional approach to marketing and sales, we're going to have a more regional approach to manufacturing and distribution, which is obvious.

A lot of this stuff was really obvious when oil was $140 a barrel. It's still obvious today.

Distance ourselves from the competition. I would say, yes.

Innovation, in a lot of ways.

Drive category relevance.

If you looked at our advertising last year, which I don't -- I guess I would say I regret, but I think if we made a mistake, we made it with good intentions. Which is we -- our advertising we showed last year was a lot more about lifestyle. And I think when people are tight on costs, it's why should I pay for more for your stuff than somebody else's stuff? And so you're going to see, call it, category relevance. We're going to be talking about, like, how great a result you can get, and why you should be paying more for our stuff than other people's stuff -- even if that happens to be stuff we also sell. But we care about our brands.

Reducing, yes, supply chain. I would apologize to our retailers now, for any shipping issues we had as a result of our regulatory missteps. I apologize to our shareholders for that. I apologize to the EPA for that, if they're listening.

That being said, we have as good a relationship as we've ever had with our retailers. They recognize that lawn and garden is a category that can drive their business, I think, maybe uniquely so. And a major percentage of DIY retailer sales are lawn and garden. And it's a business that I think, based on what we saw last year, what we've seen historically, and the fact that it's the first one out of the season this year, and I think a very enthusiastic Scotts Company and hungry Scotts Company, the retailers are like all over this, and I think are being really cooperative.

And while it would not be fair to say they're not saying, Hey, the costs are down and can you give us some of that money? We're saying, How about we take that money and drive people into your stores? And so far, they're good with that. So I think that we have a great relationship with our retailers; and I think we will hopefully, at the end of the year, sort of high-five each other and say that was awesome.

And at the end of the day, it's about a franchise. I have to say that I -- I've talked to you dudes about the -- ladies -- and ladies, about enduring franchise. A lot of those ones I don't want to -- I think JP Morgan was on that. It was not like this great franchise. Starbucks. They've just been struggling recently. So a lot of -- I think we have a chance to be -- and what does enduring franchise mean? It means a company that people look at 20 years from now and say man, that's a good company. It's a company that's run well.

What sets us apart? Besides the folks sitting up here and the Scotts folks that in the -- and a lot of people back in Marysville and [Leone] and all around the world? Which is probably the most important thing that we have. It's our brands. Those brands are our franchise. It's our license to operate. Combine our license to operate with a good team, it should be okay.

Innovation is -- I'll just repeat myself. But -- oh, my thing is blinking zero. Okay, I'm done. We've got to think of innovation as beyond. Every single person here can innovate and help us reinforce our franchise. But we have yet to deal with the customer shopping experience, even though we've talked about it a lot, and I hope this is one of the things that Mark deals with.

Debt levels. I just want to talk about this only because I read that Baron's article over the weekend and my head was like -- I was fuming. I did it -- I hope that guy showed up. I did invite him.

Dave will be dealing with this, but leverage ratio, which is our tightest. So this is just a, I think, mid-range view of where we think we ought to be. We ended the year at about four times leverage, okay? '09, we should be, I'm going to say, no worse than 3.5 times. Something like that. And '10, we're looking for kind of 2.75 turns. So I -- we're taking virtually all of our free cash flow and dedicating it to, well, number -- making more money, which helps. And paying down debt.

So I think from a, how do we feel about leverage ratio, pay down debt, I think, and make more money. That's how we feel.

Blah, blah, blah and Mark Baker is the guy that when he left the Home Depot, I wanted to hire. He decided to take some time off and then ultimately, went to some sports place. Although I -- he looks like the orange-striped suit that he wore once in awhile at Depot. But I was really lucky to get Mark to join our Board. He knows our company, he knows this industry, he knows how to drive business, he's already bedded down well. The team, I think, likes working with him, and so I'll just hand it to Mark and say your show, dude.

Thanks, James. Well, this business is a business that I've -- know a little bit about. And just kind of a brief introduction, in the '70s and '80s, I was working for a company called Knox Lumber up in the -- Minnesota, where the lawn and garden business was described in Duluth and Fargo as sometimes up to three or four days long.

So I decided that I'd move to Florida, with a company called Scotties in the, I guess, the middle -- early '80s, mid-'80s. And boy, the lawn and garden business was really a lot easier there in Florida, you got it right pretty much all year round, other than the occasional hurricane, it was a lot easier to do the lawn and garden business there.

I went to the West Coast, in California, we had the Pacific Northwest and California. Big differences in operating the model between snowy markets and Southern California. A lot easier to get it right.

As I joined Home Depot as the Division President of the Midwest, and thinking about what that's all going to be about in Chicago and operating the lawn and garden business in the Midwest. Back to the Midwest again, where you live and breathe on those weekends, what it's going to be like this Saturday. Are you going to have ten good Saturdays, ten Saturdays that it's 70 and it's sunny? That makes or breaks the business.

What I'm telling you about the lawn and garden business, it's an exciting business for most of these retailers are representing 25% to 40% of their volume on a given week from the season. It's an exciting time and this time of year, when we perch ourselves ready and poised to be good at the lawn and garden business. It's a very exciting time.

So what do I think early on in this company? I've now been here about 120 days, but I've been on the Board for a number of years and I made my first trip to Marysville in the late '70s. I still have a lot to learn, but this is an exciting business. This is a great business. This is a business that is really great. It can be bigger and better.

What has caused this business to grow over the last several years in the time I've been familiar with it has been the retailer bricks and mortar growth. Jim and the team have done a great job of assembling some great brands. Servicing these retailers through their growth phases. Innovating products, but there's more to be done.

We want to also focus on making sure that we return to the historic margins that this company deserves, we'll perform on. And we're going to improve the ROIC.

Let's get the issue about Smith & Hawken on the table right away. Smith & Hawken has been one of those challenging children that we've had to deal with -- very difficult retail environment. But about two or three months ago, I put Pat Farrah in charge of Smith & Hawken.

And many of you know Pat Farrah was one of the founders of Home Depot and he's been excited. He's been on site. As a matter of fact, he's made a number of big decisions so far at Smith & Hawken that will reduce the G&A, headcount expenses by up to 30%, closed a number of unprofitable stores already. He's focusing on the core basics of running the Smith & Hawken and returned it to some type of profitability.

I'm excited about what that brand can mean to the Scotts portfolio over time. But for right now, the most important piece is managing that asset to make sure we can return some type of profitability and take care of those customers in those 56 remaining stores.

One of the other things that I think I bring to Scotts is a little bit of the retail urgency. And when I talk about that, working with Barry and Claude and Mike, Dave -- see, I'm used to looking at sales, what happened yesterday. Making sure that as we looked at yesterday's sales, by department, by category, by product line, by geography, what are the things we can make decisions on that can support the business better?

Do we need another promotion? Do we need to get more service in those stores? If there's something that we're missing, make sure that we can do market share gaining things and grow the market by talking more to these consumers.

We are operating this business on a daily read about units, something else that's different to the category this year. Because we've been used to looking at dollars, US dollars, because it's been a constant, more or less, price of a bag of fertilizer. But today, with 30% higher prices, the most important metric in my mind is making sure those backyards actually get a bag of fertilizer on it. And we're holding ourselves accountable to the units, making sure that those consumers understand the value of the Scotts brand, and what Turf Builder can actually do for their backyard. It really is inexpensive decorating.

The next level here of the -- what's really happened out there, and I think it's just important to reflect on the growth and what's driven the business between Lowe's and Home Depot and Wal-Mart. Everybody here knows the bricks and mortar day, at least in North America, is probably mature. There are probably a few more bricks and mortar retailers than really need to be on this planet today.

We happen to have three really great partners and a number of others -- Costco, Ace, Menards -- that are joining the portfolio of good distribution for the Scotts Company. But clearly, the engine of growth that has been around that new sales, the annuity that goes with another new location, another new address to ship to, is shrinking. Clearly, the consumers are making choices about whether it's organic, making sure that they feel comfortable and safe about the products that they're using on their backyard with their family and children. And there have been challenges on regulatory issues.

You can look at all those things here and say, the best days are behind us. What I'm saying, and I believe, the reason I've joined this great business, is great days ahead. We know how to handle all these growth opportunities. We're going to have responsible products for these consumers. And we're going to make sure that we understand the trends of the business and have the best answers for this category.

Right after joining full-time with Scotts, I pulled the senior management team together off-site. 30 of our senior leaders from around the world came together and said, What are -- who are we? What are we capable of doing?

This wasn't one of these slogan days that you just try and get the banners and hang them around the office or put on somebody's business card, but to really define the opportunities that are ahead of us, which are big. But they have this vision, which is you want to be the global authority in the lawn and garden industry, providing the best solutions to grow healthy lawns, plants, while controlling weeds and pests. That's who we are.

It's a grand story, but it really means, and this is why I believe in it, we have to become the local authority and aggregate to the global level. Because knowing more about what consumers need in their backyards and their geographies and their climate zones. So we're going to leverage those local insights, the global authority to provide consumers with the best solutions to enjoy healthy lawns.

It's an important distinction for Scotts Miracle-Gro. Who else is going to do this? In many cases, you have competitors push you. We have to lead. This is our operating mantra and how we're going to think about what our future is.

I'm going to more completely spell this out, what does it really mean? We need to understand the cultures. Who are our customers that we're actually selling to? Where do they live? How important is garden? Is edible gardens more important than flowers? Are lawns less important than killing bugs? Those are all different based on the geographies and the cultures.

Jim mentioned this culture of innovation. I think this company has grown a lot. I've been on the Board for a number of years, I've seen the continual investments that we've made in product R&D. And frankly, the early days when I wasn't very happy on the buyer side of this business, they innovated the supply chain -- went from what I would consider not to be the worst, but close, to the best. The service in stores, the things that help counsellors tell our customers what they really need, best-in-class once again.

Well it's about a culture of innovation, it's not just about a product. It's about a process, it may be about a shopping experience. It may be about how we go to market.

And our brand image, things that I think are really good about Scotts. We have a lot of pride in this brand, we can have even more. The awareness of our brand can continue to grow and we'll do that through the trust in our products, we'll do it through profitable growth and making sure that we have a dynamic workplace where we bring people to either Marysville, Geneva or wherever it is that we're doing business, bringing the best people along.

This is, and Jim thinks it's a simple idea, it is. Thank God. The regionalization is a big idea. Regionalization, and we'll spend some time talking to that, is about really understanding the consumer in those markets. And there's a lot of opportunity here. When I talk about this operating platform, I'll ask Claude to talk about in a moment, how we manage the European business. We need to understand the opportunities that exist uniquely in Seattle.

I was in Las Vegas a couple of weeks ago, walking through our partner stores of Wal-Mart, Home Depot and Lowe's. The lawns business is not going to be very significant in Las Vegas, in Phoenix or in a desert. But it can be a very good growing medium business. It can be a very good Miracle-Gro business. We need to understand those opportunities that are unique to the geographies.

We think that the opportunity here in the North American business, we have nice share, big share, but there's still over half share that we don't have. What are we going to do to maximize that in North America?

We may end up looking at how to innovate products that are only important in Southern California -- Ice plant killer. One of those unique items that you won't see on a shelf here in New York or in Minnesota or in Florida, but is necessary for us to be good and really taking care of customers at that local level.

So we operated these three platforms, which are regionalization, innovation, and maintaining our freedom to operate. Some people call it sustainability. But these are the three things that the senior group said are portals and platforms, which we're going to drive the growth of Scotts and the Miracle-Gro Company with. Making sure we understand what happens at a local level, making sure that we innovate how we get to the consumer, and making sure that we do the right things to de-risk our business and manage it very well.

So regionalization -- we think we can expand the category here. This is about share gain, but it's also about informing consumers on what they need in their markets. As great as the Scotts Company is, and it is great, we still miss an awful lot of opportunities to talk to consumers about what they need. I think Barry says it well. There's half the consumers that don't use any of our products, but should. The customers that do use our products don't use enough of the right products. So we can expand that.

I'll talk about our share in the north, northern part of the United States, which is pretty strong, but it's a lawns business. We think we can improve the profitability significantly, by the way, when you operate and grow your business within your core.

So specifically, the company has been doing some regionalization work in developing specific products in the southeast, Bonus S MAX, probably stronger fire ant campaign. We migrated more recently away from some of the national TV, I'll show you what that looks like, it's compared on some of the sales graphs. I think we've focused more on the retailer, making sure that we're getting the support at the store level.

Our people, when I walk in the stores and work with our sales and service people, really are revered at these retailers. They know what they're talking about. They get the in-cap because they do a better job of putting the sign on it, getting it merchandised. They know that they're going to be there Saturday, talking about the products, helping the consumers make a better decision -- unique to Scotts.

And Michael talked a bit about the opportunity to use this regionalization to drive even more efficiency out of it, it was announced a couple of years ago, the regional supply chain to drive efficiencies. But why now? Why is this a big idea now? What changed?

Well, what changed is when I was growing up in retail, Wal-Mart, the district managers were gods, they could make an order, they could take a stack out if Wal-Mart was growing across the country. Lowe's, what was strongly a south-eastern regional player, acquired Eagle in the Northwest, so they really did learn about the business that was unique to the Pacific Northwest and mountain states.

Home Depot, at its peak, operated nine buying offices. Some say it wasn't very efficient, but it was a very effective way to get to the market, drive local advertising, make sure that those markets were being appropriately talked to at the right time, make sure the right assortments were put in place.

Well, what changed? None of them do that today. Our three biggest customers today are centralized. They operate pretty much out of Atlanta, North Carolina, and Bentonville. They're great partners. They want us to help manage this lawn and garden category even better to make sure we're talking to the consumers in the way that they want to hear and the time that they want to hear about the products.

So how different is this from the way that we've done our business in the past? And Claude, I'm going to ask him to speak in a moment here. Again, this is a simple concept because we've actually done it. Claude, do you want to comment about how we operate in Europe?

Yes, this is the model we have in Europe is basically, you have the headquarters that provides a recipe. But actually, you put the power locally where you have local leaders that gather the local insights and then the HQ provides recipes that the local leaders execute. And I think the key here is where you put the accountability of the P&L is something we have to figure out, moving forward.

So the model is not that much different here. The thing we're talking about is not that much different, about how -- from how we manage the business in Europe. And actually, what's really exciting, when you look at North America, which is more a continent than a country actually, the realities are as different as Florida versus Boston as they are in France versus Poland or versus the UK or versus Germany or versus Austria.

But what is really exciting is today we're managing those, call it, small countries compared to the size of some regions in the US, in Europe, with more level of detail than we're actually managing the Northeast or the Southwest. So would we be able to apply the same kind of local insight-driven management to the US? I mean, the opportunity is huge.

Yes.

It is interesting to note how we operate in Europe and internationally, because we have a P&L for France or Belgium or the UK and yet, none of those countries are as big as probably the opportunity in California or Florida. So from driving a financial result, looking at it with putting what resources are required to get a different result, we're going to start breaking down the country into much more pieces of geography and roll them up from a city or county leve -- make sure we understand what our share is, what our opportunity is.

But for a moment, just think about the size of the prize as we internally talk about the market share. If we just had the market share that we have from the origins of Scotts in Marysville, Ohio in the Northeast and the rest of the country, we'd be about another $400, $500 million of additional sales in just North American today. It seems reasonable. It's going to take us several years, but we believe that's possible.

Regionalization of this product and the promotion and the channels, there's different channels as well. If you look at the Pacific Northwest, there's a lot of great lawn and garden companies, may have one or two stores. We may not have focused on them as much as we have or as much as we will.

We will understand a better way to talk to those consumers. It may be radio in some markets. It may be print in some markets. It may be TV in other markets. But the potential, $300 to $500 million available to the Scotts Company here in North America, we think would drive a significant level of profitability.

This is that share I talked to you about a moment ago -- 51% in the Ohio, upper Midwest area, 53% in the New England area. And yet, these pieces of geography, which are actually way too big to look at, because there's a big difference between Southern California and Seattle, but only 40% market share.

Quick math, that means there's almost 60% available to us if we start going after it. Because who else can talk to these consumers at the level that Scotts can? Who else has got the national brands? Who's got the sale and service networks that can actually activate these customers with counselors in stores? No one.

If you look at this map here in the hardiness zone, and what this really is. And I've lived in Florida, California, Chicago, Atlanta, there are a lot of differences in the type of plants you use, the time you plant them certainly. And if it's a market where there are large lawns or small lawns, it makes a big difference whether we should we promoting 5,000 or 15,000 square foot bags of Turf Builder. Or should be spending more time on Miracle-Gro? Should we spend more time on Landscape Mulch?

These are the opportunities that I think we've been too broad on. Again, because of the retailer growth that has been very significant, we didn't have to pay attention to this in the past. We had great growth. But there's more opportunity in every one of those regions.

Barry, for a moment, will discuss here a little more further, we started breaking these down and started looking very carefully at -- this is an example of how we run the seasons in the Northeast and the West and the timing of our advertising and early season timing. And if you look at the West, which is actually very interesting, is it's pretty flat on the curve. We talk about this business being seasonal. But in the West, particularly California, you could fertilize all year round.

In the Northeast, obviously, it's an April, May, June business, while we have always done most of our advertising pretty much from April to May across the country on a national buy. Barry, can you have a comment a little bit about how we're looking at this now?

Sure, Mark. If you look at the chart, what you see on the chart is a national chart showing our advertising of the West versus the Southeast. And like Mark said, you can see the timing differences. So not only do we need to look at this at a much finer level of detail, this is an aggregate number. We need to break this apart by products that they're selling. We need to look at this in different ways.

And if you look on the right hand side, what you can see, the month of April, our sales on the West Coast were 20% lawns, but 40% of the advertising -- 49% of the advertising that went into that market was actually lawns, so much more disproportionate levels of advertising. So if you think about the products that are appropriate, you think about the timing that's appropriate and you think about driving the consumers into the retail stores with relevant messaging, relevant timing and relevant product, we think we can do a lot better job across the country at managing how we spend our advertising going forward.

Just one further example to show you that we're starting to do a lot more research, pay attention to our sales and service people walking stores with them. What are we missing? What can we do a lot better?

The difference between Los Angeles and Portland, Oregon, which we again, when we go back to that original map that showed us about 40% of the market share, well the top five items between Seattle and Los Angeles, there's only two that actually overlap. So again, what we think about promotions, what we're doing to make sure we've got the right planogram, making sure that we're getting the right support, but think differently about these geographies and react, making sure that we have more space, more commitment, more ad commitment to the products that are appropriate for those markets.

So I'm very excited about what regionalization can do for us. I'll talk a little bit more about innovation and what we're doing to the freedom to operate. But I think it's important to inject Mike Lukemire here and talk about how this really works together with the previously announced regional supply chain. Mike, can you talk a couple of minutes about that?

A year ago, I stood up here and talked about regional supply chain. And what I'm going to do is describe to you what it is in a three-prong approach to deliver $50 million of savings and improve our working capital by $100 million.

We've already started, so I'm going to show you some things that I'm really excited. Jim was having a discussion earlier about, am I excited about the Vigoro pounds? Any pound I can put on a truck and fill up a truck is a good thing. So let me share with you some of the things we're doing.

Our traditional network was fertilizer, liquids, grass seed, all through a ten regional network. It was a great service network. But imagine in your mind that 20% of those trucks were only -- were totally filled. Most of them were less than a truckload. And so it was a great service model. And generally, it was about a seven day lead time.

The network on our right is our growing media network, big bags, pallets, about 99.9% full truckloads. And actually we traditionally weight out. So the opportunity is how do you combine -- how do you move the bags into the growing media? This local sourcing, regionalization opportunity is to drive those products in faster deliveries to the customer, greater savings, it really makes sense to put the big bag items together. And then take the liquid and case good items and put those through the DCs. They're like slower moving, but you can actually ship full truckloads with those through the retailer DCs.

Our three-prong approach we had started, starting to put fertilizer in the South. We have six facilities, invested about $3 million in some shelters and really cross-docked the material. We're going to save about $3 million. And I love this picture. If you look at it close enough, there's Vigoro, there's fertilizer, there's growing media bag and that truck is full. And that's really what regionalization is about. In a local community, how can we just drive full truckloads and service their customers in a more timely fashion?

The regional DCs, what I have up here graphically is, these are the DCs for Lowes, Home Depot, and Wal-Mart. But you actually could lay in Kroger, Walgreens, other DCs. And we can take our case goods and reduce our footprint of our warehouses by 50%. A huge savings, run those liquids through the regional DCs at full truckload rates and then actually deliver products through that.

So this also expands, as Mark talked about, the regionalization opportunity is we're going to build a delivery network that can service big bags and high velocity in any market. Case goods, we can run through regional DCs of consumers and expand our footprint.

And finally, we're looking at going local sourcing on regional manufacturing. So the example I got up here is for liquids. So if you took this bottle of water, we ship a lot of water across the country. The opportunity is to blow the bottle regionally and deliver it into the network, so you're not shipping the bottle, so you're not shipping air; you're not shipping liquid and reduce our costs. We have a trial going on in the Southeast region right now on liquids. We're looking at either co-packers or distress assets as the market conditions allow.

The Vigoro business for fertilizers actually allowed us to cobble together our regional networks to deliver that product. So we're not making that in Marysville, we're making it all across the country. And we can expand with our branded products. So it gives us a lot of flexibility to reduce costs. I'm really excited about developing these local markets. And this infrastructure we're delivering, also gives us the ability to get closer to consumer and really force competition from taking us on.

So with that, I'm going to turn it back to Mark, and talk about innovation.

Thanks, Mike. One of the other platforms that we're really trying to make sure we communicate is about innovation. And Jim and I have talked about it. Obviously, we believe we're innovating supply chain, we're innovating marketing, the regionalization. We've got some great products coming.

I talked a little bit about Scott's heritage years, since 1946 I've been on the research station in Oregon, obviously the one in Florida, the one in Marysville. This Company's commitment from an R&D and a product point of view is unique to this category. There isn't anybody else doing it.

Mike and Barry and I and Claude were at the Global R&D Conference last week. We called 200 associates around the world working on making sure that we have great products coming to market, whether they're naturals, organic or synthetic, whatever it is, to make sure that we're doing the right thing for the environment, making sure that we're doing the right thing for our consumer's needs, build basic premise of Horace Hagedorn, understand a need a fill it. There are lots of needs that we can fulfill today because we have this great asset called our R&D group.

But I'm making sure that we don't let R&D be solely responsibility for the innovation that's available to us. Because these products, as they come to market, whether it's Easy Seed or Song Bird, Turf Builder with the Water Smart Formula, really a better mousetrap that Barry will talk about in a moment. These products are all ahead of us.

These opportunities remain significant for the Scotts Miracle-Gro Company. And these launches become over and over and over a theme that again, regionalization helps us grow. Innovation will help us grow. And we're also going to make sure that we're operating our businesses with this freedom to operate which Dave will talk about in a moment.

We know we have to continue to bring new products to the market place today. And there are some game-changing innovations that are not far away from us. Some very neat, new weed control products, maybe a bio-herbicide that can work very much differently than any product we've had in the past. Improve the grass seed varieties, advance mulches, dramatically improve the fertilizer application and the delivery methods, and really neat new delivery methods and application devices. We're going to change this game.

We need to drive it to the next level, though. We need to make sure that the process of bringing these products to the market, part of operating a research station in Australia now. We'll now have research going on 12 months a year to make sure we understand how we can bring these products to market. Making sure we're working with the regulatory part. Making sure that we've got cross-trained talent across the globe, so that we can bring whatever we learn to the market place.

This is the last platform which I'll talk about. I'm going to turn it over to Dave here. I've asked Dave Evans to lead us through, in some cases, de-risking our business. But really making sure we understand how we're going to operate this business with the advantages that we have in place today. So, Dave.

What we've done, and it's partially in response to some of the regulatory issues that Jim referred to earlier this year, is we've really redoubled our efforts, as an organization, to better identify those risks that might get in the way of us realizing our growth opportunities. It's a renewed focus and effort that starts all the way at the Board level and on down. But proactively identifying those risks and in certain instances, by embedding strategies into the businesses, figuring out ways to turn those risks into opportunities, or even competitive advantages. So when Mark talked about innovation, some of those we really want to be able to turn in terms of socio-political movements into opportunities rather than perceiving them as risks.

Initially, we identified three focus areas. That's not to say these are the only focus areas, but we initially put some immediate resources on, first of all, legal compliance. So we're looking at a more comprehensive review across the Company of our risks and where we need to improve across the Company in our efforts to be in compliance as an organization as we need to be.

Second of all, we looked at balance sheet. We have a tremendous asset with our credit facility right now. That credit facility enables us to borrow money at very attractive rates. We wanted to make sure that we had thoroughly vetted, forecasted model out, how we operate in a way that keeps us in compliance and gradually de-levers this company to give us increased financial flexibility moving forward.

The third key initiative revolves around environmental sustainability. And that is one -- it's really about re-focusing on where our true vision is. And then making sure that vision is embedded in every thing we do and how we communicate and how we present our corporate image and brand image. So those are the three initial platforms we've identified underneath freedom to operate.

If you go to the next slide, so what are the benefits that we're hoping to yield out of this? Well, by approaching this at the enterprise level, more holistically by engaging the Executive Team and the Board fully in this process, our ultimate goal is to reduce the future level of surprises. We hope to also have a more efficient prioritization of what our key initiatives and how we allocate resources to mitigate those issues. And then ultimately, the objective and the benefit is to integrate this back into the business strategies.

So excited about this initiative, it's exciting to have it be one of our three key platforms going forward. And I look forward to talking more about this in future meetings.

Thanks, Dave. So Jim said this really well, it is a great time to be part of the Scotts Company. The opportunities are very, very significant. It's a journey about innovation, regionalization, making sure we've got the freedom to operate. It'll take us through the next several years, but with growth, real, genuine, profitable growth.

I am very excited to be here, excited to make sure that we have these opportunities, $300 to $500 million of additional sales. Mike and team reducing costs, Barry and team making sure we've got the right marketing messages. We've got the best Lawn and Garden team in the world and I'm proud to be here. David?

Thanks, Mark. Good morning everyone. I think we started the morning off with a strategic overview from Jim and Mark. And to bring it back in again, and focus on the results we released this morning. Talk a little bit about Q1, and then through the balance of the morning, work our way back out to the full year plan. Barry, Claude, and Mike are going to give you some perspectives on that. And then I'll wrap it up with the guidance for 2009.

So the first quarter, as Jim King mentioned, is not our most significant quarter with respect to consumer activity. It's actually fairly small. But having said that, let's say we are encouraged by the results for the quarter. And I think it gives us some good momentum as we enter into the second quarter.

We ship only about 10% to 11% of our full year in the first quarter. So it is historically a seasonal loss making quarter. The positive news is that on a GAAP reported basis, our loss is flat to prior year. And when you exclude the non-recurring costs associated with the product registration matters, we've actually decreased our loss in the first quarter by around $5 million.

Directionally, I'd say the trends that we saw in the first quarter are fairly consistent with the trends we're going to talk about on a full year basis later today. We saw low single-digit growth in our sales. We had gross margin rate improvement, some G&A growth and then some fairly significant interest savings.

So let me peel this back, one layer further, and talk a little bit about some of the segments. So our Global Consumer business is about 8% of the way through the year, through the first quarter. For perspective, about 20% of the sales in the Global Consumer business are non-US denominated currencies.

So it's primarily Euro, the British Pound and the Canadian Dollar. So you start to see the impact of the stronger US dollar here. Our growth, as reported, was 9% if you exclude the affects of foreign currency, it was actually 14%.

So what drove that growth? Well, it was almost equally driven by pricing, by unit volume growth. So we saw about six points of pricing in that 14% of growth. If you then look at, in the first quarter, shipments are one thing. It's the remnants of replenishment from the fall. But it's really the initial stages of starting to refill the stores and sets for the following seasons. So traditionally, you don't have a real high connection of POS growth and shipment growth until the season comes to an end.

But I wanted to share with you what our POS growth was in the first quarter. On the left side of the slide, you can see our POS actually declined 2% in the quarter. But what you should note is that within the Lawns group is grass seed. And grass seed actually had a decline of about 25% in the quarter.

Now the reason we're not overly concerned with that is that, as Barry will describe to you later, we have some fairly dramatic, exciting new product launches in the grass seed area. And we're in a stage of significant transition in the first quarter as we were trying to empty the shelves of the older product in preparation for putting a new product in.

If you exclude grass seed, our POS for the quarter was actually up 2%. Our retailers ended with inventory on a reasonably good position.

Now as Jim mentioned, we're watching this in an incredibly granular and finite level. We're looking at it every single day.

I just wanted to give you a snapshot on the right-half of the slide of what we're seeing early in the season. I would caution you by telling you that January is the smallest month of the year from POS. But when we look at Deep South markets, and we say that this is really the first time when retailer prices at shelf were flux 2009 prices.

So recall, we took some fairly significant pricing on lawn fertz. It's our first blush of what -- how consumers are responding. And it's very encouraging. Is it sustainable? Absolutely not at this level, but as Jim said, it's sure as heck better than a poke in the eye. So we're pretty excited about that as well.

If you move to our next business segment, Global Pro, this business is actually a little further along in the season than the consumer business. The reason for that is about 15% to 20% of our sales in the Global Pro segment actually are driven by Latin America and the Southern Hemisphere regions. So the business is further along.

It's also, as a segment, much more international than our Global Consumer business. About two-thirds of our Global Pro segments are non-US denominated currencies. So you see a fairly sizable impact again of the significantly strengthened dollar year-over-year. So growth as reported about 5%, growth excluding currency movements about 18%. Now before you get too excited on the 18%, I'd also tell you that we believe a lot of this is emanating from pricing. And a lot of it is coming from Europe and our Southern Hemisphere countries.

So we think the pricing over time, we're not going to be -- we're not going to realize a significant increase in pricing in future periods, because you recall last year, our Pro business was taking pricing almost every other month all year and we'll start anniversarying some of that. Nevertheless, we're very excited with the start in our Pro business.

Lawn Service -- so this is a business that we've described as one of our more cyclical business in contrast to the Consumer business. For the Lawn Service business, about 16% of the year has passed. And very encouraged, sales are actually up 1% on a year-over-year basis for this segment.

Why is that? Our customer count is actually down a bit in this business segment. But our sales are up because we're realizing better pricing, less discounting, and actually the customers that we have retained tend to be higher realizations.

They're higher frequency of applications and better customers. And so it's a trend that may not be that different from what we see the full year as well, where our customer count decline exceeds -- may not be directly correlated to our sales.

And then as Mark mentioned, our fourth group, Smith & Hawken, not unlike other specialty retailers, saw some significant challenges in the first quarter, in the holiday environment. And our sales in this segment were down 23%. The positive, if you can find a positive in that kind of a result, is we actually ended the season in better shape than last year from an inventory perspective. So the retailer having a lot of seasonal goods, that's something that the team did a very good job of managing as we wound down the quarter.

So let me move on to gross margin rate. So gross margin rate is a very positive story. We're up 380 basis points in the quarter. I would caution you in this one that while we think the trend is also consistent with what we'll expect directionally on a full-year basis, the magnitude of this increase is somewhat of a distortion because it is such a low volume quarter. We tend to have changes in product mix, customer mix and the impact of our fixed costs have a more dramatic and magnified impact in a small quarter like Q1.

So we're encouraged with this result. Again, it gives us some momentum. I'll share with you more, later today, what we expect on a full-year basis. I would just foreshadow a bit, that while we expect to see improvements, it will not be as aggressive as what we realized in the first quarter.

So SG&A -- G&A was up about 6% in the quarter. The results in G&A were consistent with our internal expectations and are fairly in line with our full year expectations as well. I think the nuance that you have to see when you look at G&A is that the good portion of these items are fairly discretionary and controllable. And you'll hear a consistent theme through the morning that we've really tried to take our costs and create plans where we can modulate the level we'll be spending, as we did last year, based on how the consumer responds.

So some of the unique items I've mentioned here is variable compensation. I'll describe to you a little bit more what our plan is at the end of the day for the full year, but the rate of increase there is one that, if the business performs this year, we'll expect to see it continue.

I know everybody's been fairly concerned and focused on our compliance with our debt covenants. I'm pleased to report that for the quarter, we exited the quarter again with room to spare. Our leverage ratios didn't change a whole lot from the fourth quarter. The reason for that was that our GAAP reported loss was fairly flat to prior year. And our debt level year-over-year in the first quarter didn't change that dramatically.

As Jim mentioned, we expect to see some incremental improvements in our ratio from this point forward. Particularly as the impact of the product recall and registration costs roll out of our trailing 12-month average. So recall last year in our second quarter, we incurred about $30 million in costs related to this matter. And that will roll out of our base EBITDA 12 month rolling average at our second quarter.

So I know this is a topic that some folks are concerned about. I'm going to address this in more detail at the end of the day when we talk about the full year. And I'll help give you greater confidence and why we're confident that this will not be an issue for this season.

From a balance sheet perspective, I think a pretty positive story. I think we've been improving our working capital efficiency for several periods now. You see here, receivables up fairly significantly. What I'd share with you there is that that's primarily a reflection of the timing of the sales within our quarter. We had significant amount of sales in December as our customers began loading and preparing for next year's season. The quality of the receivables, we've seen no decline in so far in terms of day sales outstanding or aging.

Inventory, I'm actually very pleased with inventory. If you look at inventory and exclude the impact of the foreign currency, we're actually flat on a year-over-year basis, despite the fact that while costs have trended down recently, a lot of costs in our inventory are still up fairly significantly. So on a unit level basis, inventories in good shape.

Payables are up -- I think you've seen them up -- over the last two or three quarters. And it reflects a continued effort led by our procurement group in trying to, gradually over time, migrate our vendor base to a turn that more reflects our inventory turns. So we're trying to get better, more efficient use of our cash flow.

So just in wrapping up, again, our full-year guidance, as we said in our press release, has been updated. At our last call, we talked about earnings closer to $2. We're now updating it to guidance of $2.10 to $2.30 per share. As Jim alluded to, there's not very significant changes in our top line assumptions, more so a function of commodity costs and interest expense.

Our free cash flow guidance for the full year is also up. At year-end, we spoke in terms of being flat. We're now looking to generate free cash flow of $150 to $170 million.

So I'm going to transition it back to Jim, and then I'll come back again at the end of the day, after you've had the benefit of hearing in more depth, the business plans, and pull together the details and give you more context that supports that new guidance.

Thanks, Dave, well done. All right, I'm going to just blow through a couple of pages real quick here. I put this in the category of, you've already heard it, sort of blah, blah, blah, same thing, working tight with our retailers, blah, blah, blah. And here is one I just wanted to touch on because I think this is new news, which is probably the first time we're talking about what kind of volume did we pick up on Private Label?

So over $100 million -- if you look at Home Depot, we've got the Private Label lawn fertilizer business. We've got the Private Label Dirt business. We've got the Private Label Pesticide business and we've got the Private Label Garden Fertilizer business. So it means we're touching both sides of the business, both in national brand and in Private Label.

At Wal-Mart, we've got the Private Label Lawns business. We had that, and we've picked up the Private Label Dirt business. At Lowes, we picked up the Private Label Dirt business. So we've got a pretty big chunk of the global opportunity on that business. And I think as I said, from a gross margin point of view, I would say slightly dilutive, but from an operating margin point of view, it is called flat with our current business. So we view this as profitable good business for the Scotts Company.

I think with that said, I'm going to hand it to Barry to move into the operating businesses.

My name's Barry Sanders. I lead our North America business. And I have responsibility for running our Consumer business as well as our Scotts Lawn Service business. I think at one of these analyst shows a few years ago, I think Jim ended the show, and the question he asked, Is there a better business to be in, let me know.

And when you think about last year, we were asking ourselves that question a couple of times. But when I stand here today, I'm going to tell you the answer is there is no better business. I was actually talking to [Eric Bosshard], this morning, and I said when I watch the news in the morning, and I listen to what's going on in the economy, I talk to my neighbors, I talk to other business colleagues, I almost feel guilty about where we're at, because things are going so positive for us.

But then I also remember last year, and like Jim said, if it was a bad year for Jim last year, it was the absolute worst year of my life last year. So I think we deserve a bit of this.

I think the place to start -- Jim, Mark and Dave have talked about what the opportunities are to grow our business going forward. And if I think, those are just tremendous opportunities. Mark talked about $400 or $500 million in sales, driving innovative, driving to places that we need to go. But I think it's important for those of you who are new to our business. So we go back and talk a little bit about where we've come from.

And one of our advisors is Dr. Michael Porter from Harvard. And he pounds it into our heads; it's a strategic competitive advantage. If you look at our business, first with our brands, we have the leading brand in every category we compete in -- Scotts, big green lawns; Miracle-Gro, grows plants twice as big; Roundup, kills weeds to the roots; Ortho Home Defense, Ortho Weed B Gon. Those are significant brands to drive our business. And from an advertising perspective, we've looked at our advertising spend versus our competitors, and quite frankly, there isn't a whole lot.

So we expanded to look at the home improvement category. And when you look at those numbers, if you look at the next ten advertisers combined, they don't advertise nearly as much as we do on just our business. So our brands, we support them. We have a share of voice, and the brand recognition is second to none.

Mike Lukemire talked about our supply chain. We actually ship in excess of 2 billion pounds a year on hundreds of thousands of trucks to multiple thousands of locations. Mike does that 99% plus on time, in full, every time. Mark Baker talked about a decade ago, we weren't so good at doing that. And Mark used to come to Marysville and tell us about that -- that we needed to improve.

But if you look at what we've done, our supply chain, our ability to service the business, get the product there. A decade ago, Mike Lukemire and I actually tried to outsource our warehousing. And what we -- we went to a leading provider and what we found out is, we ship so many pounds, so many trucks in such a short period of time, that there's no one that can do it like we can. And quite frankly, to build that scale and compete against us, I don't think there's anybody out there that could do that.

Our in-store presence with our service team, our ability to manage at that local level. One of the things Mark talked about was being more regional. Our service model at the store is winning at every store. We have people in the store. We receive the shipments. We put it away. We put the product on the shelf. And on the weekends, when the consumer is coming in there, we're there selling our product.

And so you look at those, you say those are of significant importance. They allow us to compete. They are what allow us to win and take advantage of these future opportunities that we have.

Also I think of significance importance considering the times that we're living in right now, is our ability to be recession-resistant or in a bad economy, drive our business. I actually joined the Scotts Company, October 1st of 2001, right after 9/11 happened. And Scotts did come out of a bad year. And my wife challenged my sanity saying, What are you doing? Where you going and so forth?

2002 the economy wasn't so great. It was on the tail end of the internet bubble, 9/11 which was tragic. Our business in 2002, we had the best year that Scotts had ever had that year. And I think it's because people stay home. Like Jim said, they tend not to do the major products. For $50 or less, the value that you can get out of our products is significant.

And the consumer wants to feel good about their home. They tend to stay home. They don't go on vacations. They sail back for the BBQs in the backyard and so forth. And so when you look at it from a recession-resistant standpoint, not only is the consumers engaged in the activity, but our retailers are expecting us to drive that foot traffic in and drive this category.

Finally, from a performance standpoint, while last year was a tough year, it was really a tough year, I would say, in the first two-thirds of the year. From June through September, we had the best June that we've ever had in the history of the Company. And like the numbers that Dave showed from a POS standpoint, the business has performed exceptionally well, really in the last half of 2008. And we're continuing that strong performance going into 2009.

So for the rest of the presentation, I'm going to tell you about some exciting things we're going to do. We're spending some money on driving the business. But I think there's two key concepts that both Jim and Mark have talked about, that I think are going to be important.

Number one is flexibility. Historically, when we looked at our business -- it was around 18 months ago -- we were spending 90% of our advertising dollars on national network buys. And we usually bought that in the upfront. So there wasn't a whole lot of flexibility. Number one from a consumer standpoint, we've taken down those dollars that we're spending on national network; and we've also taken down the dollars that we bought in the upfront, which allows us to be a lot more flexible.

Also, on things like radio, we're now doing things, which was a huge success last year, called weather triggered radio. We actually determine on a Tuesday, if we're going to run radio that Wednesday. So we have a lot more flexibility built into the plan.

And probably most important, one of the things that Mark has brought to us, is we tended to look at our business primarily in terms of weeks, but ultimately in terms of months. And I think one of the good cultural changes that Mark is bringing to us is that retailer perspective saying, no, no, no, if you look at your business every day, you determine whether you're on plan, or need to make adjustments.

And so I think the flexibility that we've built in is going to allow us to, like Jim said, if things are going well, spend more. Or if things are not going so well, we can flip those switches and actually spend less on our business.

So as we enter 2009, we're pretty positive about our business. We've made some changes to our sales. We're going to talk about. We have a lot of new products. We have great new marketing plans. We've already talked about it at a competitive level. One of our major competitors has exited some major categories in our business. But I think the thing that's going to be most important, as Jim has said, is the consumer going to show up?

Like I said, historically, performance and bad economic times is good for Lawn and Garden. And some of the trends that we're seeing are really positive. Gardening continues to be the number one activity, and outdoor activity in the US with 80 million participants. And like we've seen, the early trends are positive.

Another positive trend that we're seeing is vegetable gardening. The chart on the screen, you can see from 2007, a dramatic increase in searches on vegetable gardening. We looked at those -- that data, and actually went back and started talking to some of the growers. And one of things that happened in 2007, which we're going to capitalize on going forward, is there was actually more vegetable plants sold in the US starting in 2007 and last year than there was color plants.

So if you think about that from a staying at your home and gardening, but also from the value perspective of growing your own vegetables, and Jan's going to talk more about some PR that we're going to be doing, but not only from an activity standpoint, but from an economic standpoint of growing your own food. So we think those are positive trends. And we're going to capitalize on those.

One of the significant areas that we talked about last year for investment was our sales force. Just to describe, because I don't think this chart does it very well, but describe the structure of our sales force. We actually have, what we call, BDTs or Business Development Teams, in every major city where are customers are at, so Bentonville, Atlanta, Mooresville.

We have a team called INAT -- Independent National Account Teams that we've put in Marysville. So these are teams that partner with our customers. We have not only sales people but we have marketing people working with our customers. We have supply chain people working with our customers, information systems people working with our customers. And it really allows us to integrate into their business, and from some perspective, allow us to manage the business for them.

The other significant component to which this talks about is we actually have people in the stores doing merchandising, managing inventory, stocking the shelves and selling on the weekends. Last year, we talked about a $10 million investment that we were going to make into that to make sure that we were driving those hours in, maintaining that activity and making sure that we were doing the service that we needed to do at retail.

We said this year we were actually going to investment another $10 million to drive that activity. But as the team looked at it, one of the things that we became painfully aware of during the year was, depending on how the season breaks, if you make those investments in fixed resources, you have very little flexibility to re-deploy that activity.

So this summer, we decided that we were going to restructure the business. You can see from a management level at the top, the six regional VPs remain the same, but at the next two lower levels, at the District Manager level and at the Sales Merchandiser level, we actually took out 80 individuals, so about 160,000 hours, and then added 250,000 back in at that merchandising level. So that hourly level -- stocking the shelves, putting product away, making sure that the stores are clean -- and at that counseling level in the store on the Friday, Saturdays and Sundays, we actually have a 20% increase in hours.

We've also partnered up with an outside firm that provides merchandise and accounts and activities to other consumer product companies to be able to quickly integrate new people, deploy those into the stores. So while we're planning, I go like from, call it 970,000 to 1.2 million hours, we can actually, if we need to, go less hours than that, or if we need to dramatically increase, we already have trained people and who are qualified, that we can put 1.3, 1.4 million hours in.

And so flexibility, making sure that the stores are set, they look clean. Merchandising the new business that we've picked up, the Private Label business, and then having people in there on the weekends counseling and selling our products is going to be key, I think, to our success this year.

The other thing we did last summer was we went to some of our other accounts. That activity that I just described, has traditionally only been at Lowes and Home Depot. They sell a lot of product through their stores and they require us to service it. But last spring, I was actually at the hardware show talking to a number of our customers, and actually, quite a few of them said, We would really like you to consider coming to our stores and doing some of that activity for us.

So we did some tests -- some small tests -- at some national accounts as well as some smaller accounts. And on average, what we saw was a 30% lift if we -- making sure that we picked the right store, with the right flow-through, and the right traffic. That by us merchandising it, being in there on the weekend, we could actually drive a 30% lift.

So this year, we're actually with Wal-Mart, going to be merchandising and counseling in their top 500 stores. We're going to be merchandising accounts at Orchard Supply and Menards as well. And then there's some other smaller local accounts that we're going to be doing it with. Those are all incremental hours not included in the 1.2, but we have high expectations for the sales that that's going to drive this year.

One of the things that we did also, it would have been nice to have this in Florida, as Jim and Mark and Dave have been talking about, the POS that we've been driving in those Southern markets. But since you guys couldn't go there, we came here. Last week, we actually took our sales team to Florida and did a virtual walk-through with our customers to show you what's the new programs that we're going to have this year and what the store sets are going to look like for 2009.

Good morning, everyone, I'm Brian Kura Senior Vice President of North America Sales. We're tapping this message the week before Analyst Day in South Florida, where the stores are set and the season's about to break.

Over the next few minutes, we'll talk to you about new programs and merchandising strategies for 2009, about the strong support that we continue to receive from our retailers and why we remain optimistic that we'll succeed this year. But first, I want to offer some background.

At the peak of the lawn and garden season, we have about 2,000 people in the field. We're working with store managers to make sure orders have been placed and that products have been delivered and merchandised. We're also working directly with the consumer. We help answer their lawn and garden questions, direct them to the right solutions, and put our products in their carts.

As you might imagine, our presence in the store is a significant competitive advantage for us. In fact, Scotts Miracle-Gro is now the only company in lawn and garden with a national sales force. Last year we increased our investment in the sales force and it paid dividends for us. Now we're poised to do even more.

Barry's already told you how we've changed our model this year and how that will allow us to provide even more in-store hours. From my perspective, there are two major benefits from this change. First, it will increase our flexibility in the peak of the season, allowing us to more easily drive the business in markets where the business is strong while turning it down in markets that might be a little slower.

The other piece of exciting news is that these changes will allow us to expand our reach. We will provide direct merchandising and counseling services in the top 500 Wal-Mart stores in the country as well as Menards and Orchard Supply. This is a major step for us and just one of the big changes that we are making this year.

Over the next few minutes, you'll hear from Chris Allen, Pete Carpentier, and Jason Nichol, the leaders of each of our Business Development Teams, or BDTs. These groups are based in the headquarter cities of Home Depot, Lowes and Wal-Mart respectively, where they're working with our retailers every day, whether we're in season or not.

I'll turn it over to them to quickly walk you through the stores. When we're done, I think you'll better understand how important the sales force is to our success and why we're so energized about the excellent opportunities within Lawn and Garden.

(VIDEO PLAYING)

Thanks Brian, hello everyone, I'm Chris Allen, Vice President of the Home Depot Team for Scotts Miracle-Gro based in Atlanta. Like all the Business Development Teams, we have a cross section of people from sales, marketing, supply chain, category management and finance. While the peak of the lawn and garden season won't hit until April or May, each of the BDTs has been working since the middle of last year to ensure the entire season is as successful as possible.

I'm especially proud of what we have in place with Home Depot, entering the 2009 season. What's great about our listings at Home Depot is that the consumers are immediately introduced to our products. Lawn and arden, in addition to having its own entrance at most stores, is also aggressively merchandised at the front door. And our products inevitably receive the lion's share of that space. Consumers continue to see our products when they are checking out as well. In fact, the merchandising at the cash register has become an important part of the floor for us.

Let's look around the department a bit and talk about some of our big wins this year. As always, our presence at Home Depot in 2009 will be strong. In fact, it will be stronger than ever. As you know, we've agreed to be the Private Label supplier for Home Depot's Vigoro line of lawn fertilizer and plant foods after Spectrum Brands abandoned the category last fall. This is a big piece of news for us. It not only brings new volume, but also allows us to better leverage our supply chain as well as our all important in-store merchandising efforts.

I'm sure you might wonder what impact the Vigoro business will have on our branded Turf Builder business. Let me start by saying that we expect Home Depot to have an even greater focus on brands this year. Their strategy is to keep prices low and to use national brands to drive traffic in POS. Obviously, that's good news for us.

In the stores, we don't expect anything to be different. Vigoro and Scotts products will continue to be merchandised side-by-side. We're confident that Turf Builder will continue to have great success at Home Depot.

As we will with other retailers, this year, we'll be marketing a 1,000 square foot Turf Builder product which is easy to use and perfect for a homeowner with a small lawn. By the way, they're an estimated 14 million lawns in the United States that are 1,000 square feet or less.

Other new products will be critical to our success this year. Since most of these products will be sold by all of our retail partners, I'll let my colleagues elaborate on those. But I do want to focus on one of them, our Roundup Pump'N Go offering. Last year, this product was our most successful new product ever, demonstrating that even with the price point of $20, the consumer will trade-up for an item that makes lawn and garden care easier.

Home Depot is a huge supporter of this effort last year, and they will be again in 2009. This season, we will be expanding the Pump'N Go concept to both our Extended Control and Poison Ivy products. When consumers walk into the Home Depot this spring, our displays will be stronger than ever. We're confident, we'll continue to grow the Roundup franchise and capture market share as consumers continue to recognize the benefits of these products.

Across the board, we are excited and optimistic about our listings and support this season with Home Depot. As the largest retailer of lawn and garden products in the world, they obviously play an important role in our success. And we're encouraged in knowing that they continue to see lawn and garden as a critical category and expect it to be a bright spot for them again this year.

I couldn't agree more with what Chris just said. lawn and garden remains a critical category for our retailers. And that's particularly true for our Home Centers. Hello, I'm Pete Carpentier, and I lead the Company's Business Development Team for Lowes in Charlotte, which has helped us build a stronger relationship with Lowes as they continue to drive impressive results.

Like others, Lowes is adopting an aggressive price strategy. Special values will be easier to find throughout the store this season, but especially in lawn and garden. And we're glad that Scotts Miracle-Gro products will have increased three-fold comparable to last year, and will be featured as a part of this promotional strategy.

There's really no place like the live goods section of a lawn and garden department in the spring. Color is everywhere, and that puts the customers in the mood for planting. And that's great news for us. As many of you know, our growing media business continues to show strong results. In large part, we have grown this business with great cross-merchandising strategies. Our soils and potting mixes are integrated within the live goods section as well as on end caps and other high traffic locations.

The live goods section also provides a great opportunity to market plant foods. We use merchandising efforts like this to remind consumers to buy plant foods with their ornamentals or vegetables. At Lowes, we will own 70% of the box-on-a-stick merchandising space during the 2009 season.

Another thing that's important across our major accounts is our use of retail entertainment. Whether it's the use of the Scotts race car, giant inflatable displays, demonstrations, or throwing some hotdogs on a grill, these activities work. They allow us to get in front of the customer in a fun environment, help educate them about our products and drive sales. In nearly every instance, we see a weekend sales boost when we use these displays.

This season, we will have more than 800 retail entertainment events at Lowes around the country. In fact, the entire store is already set and the season is starting to break. We'll be working the Florida market harder than ever this February and we're looking forward to great results -- not just here, but around the country.

Hello, I'm Jason Nichol and I lead the Wal-Mart BDT for Scotts Miracle-Gro in Bentonville. It's clear to nearly everyone that Wal-Mart is particularly well-positioned in the current economic environment. The Company's "Save money. Live Better" campaign has resonated with consumers. And we're confident that this trend will carry into the lawn and garden season as well.

Wal-Mart will be relying more on national brands this season to drive traffic. As a result, our merchandising plan, including price roll-backs and tax support, will be more aggressive than it's been in many years. In fact, the strength of our relationship with Wal-Mart will be on full display this season. The amount of shelf space our products will receive this year at Wal-Mart is substantially and noticeably greater than in 2008. The use of brand blocking and vertical merchandising will give our products a display look on the shelves.

As many of you know, Wal-Mart's focus on sustainability has been gaining momentum. As a result, they will have an exclusive four to eight-foot planogram of four new Ortho Ecosense products, Miracle-Gro Organic Choice, and Scotts Natural Fertilizer. This is a significant increase in their commitment to this emerging segment within the lawn and garden category.

What else is new at Wal-Mart this year? A lot, actually. We have tremendous support of our new items, including our new line of Ortho Home Defense rodenticide, which will be merchandised in the grocery side of the store in the household chemical category. This new line or rodenticides will add to the offering of Home Defense in the area of the store that sees the most traffic.

We're also launching our new innovative Scotts Songbird Selection Colorful Bird Blend in the wild bird food category. This is a growing category, and we're all excited about the launch of this new item at Wal-Mart.

In lawn and garden, they will be expanding the space they provide to our home pest control, which means further support of our Home Defense products. We will continue to get prominent placement of our Bug-B-Gon MAX products as well as products like Ortho Tree & Shrub and Ortho Fruit, Flower & Vegetables. Miracle-Gro Potting Mixes and Garden Soils will be on front and center again this year, particularly in our outdoor displays. This is a category in which Wal-Mart continues to rely on us to help drive growth.

Entering 2009, we received several new growing media listings, including the entire line of Wal-Mart's Private Label Expert Gardener Soils. So as you can see, whether it's inside the store or outside, our presence with Wal-Mart entering the 2009 lawn and garden season has never been stronger. And given their outstanding position in the current retail market place, we couldn't have had a better year to have so much new space.

As you've heard, we're looking forward to a strong season in 2009. We're ready to leverage our trusted brands, merchandising expertise, national sales force and retail partnerships to drive even more growth for Scotts Miracle-Gro. Thanks for your attention this morning. With that, I'll turn it back over to the team from Marysville.

So a pretty good sell-in force this year and we're proud of what the team has done. Last year, we had a little different format. We had everybody from the business up here explaining what they were going to do. And so Jim talked about the team that's up here. I'm truly blessed as well to have a great team. Dan Paradiso running our Lawns business, Tim Portland running our Controls business, Keith Baeder running our Gardens business, and Jan Valentic running Marketing and Brian Kura running our sales team.

One of the other individuals that was up here last year was Jeff Garascia. We talked a lot about innovation. And I think what you saw in the video was the real success the team has had this year in a very short period of time. Last year, Jeff said we were going to put out a new model. Simple, sustainable, and significant was going to be our themes for how we're going to drive our products. And you see a lot of those new products up here and you saw them on the video as well.

The other thing, working with Mike Lukemire and his team, is we've increased the spending on R&D over the last two years by 40%. So we're getting productivity out, getting new products out quickly, we're spending more money, and we have big plans for that going forward.

And I think if you see from the successes of what we had a couple of years ago with LiquaFeed, so it's twice in four years we've had the biggest launches that we've ever had. LiquaFeed was it a few years ago, and then you saw Pump'N Go this year, actually, in excess of $40 million of sales and really driving the category. So innovation's important and it's going to be, like Mark said, one of our key themes on how we're going to drive our business going forward.

Now going into each of our businesses, I'm going to give you a little update. You've seen a lot of it, but from my perspective, the heritage of the Scotts Company is our Scotts Lawn business. The business is, like Jim has said, 140 years old. From an innovation standpoint, Scotts was the first company to introduce consumer grass seed. We were also the first company to introduce consumer lawn fertilizer. We have an extremely strong market share -- 60% plus.

But as we've been talking over the last several months, the challenge for this business is with where the commodities have gone. The pricing is up 50% over the last couple of years. So how are we going to deal with this? I think one of the things that Mark has brought to us is saying, we will not be looking at our sales based on dollars this year. Jim has even talked about units; we're going to focus on driving units. The objective for this business this year is to drive to flat units, drive participation in the category.

And probably most importantly what the team has done is gone back and segmented the consumers into what I think are four pretty simple consumer segments. The first on the left-side, the confident master. That is the person that's probably been participating with Scotts since 1868 when we first came out with lawn fertilizer doing three or four aps a year and really understands the business.

The second is the challenged optimist. They want a good lawn. Maybe they didn't grow up taking care of a lawn, but they really want a good lawn and they need to know how to do it. The third group is the confused strugglers, maybe first-time home buyers. They're not really that interested in the lawn, but they know they need to have a good lawn because their neighbors have a good lawn.

And finally, the group that probably transcends across all of these is those consumers that are focused on safety for their children and pets as well as safety for the environment. The programs that the team has put together this year I think address a lot of these needs.

The first new advertising, All Food No Filler. For those people that are already participating in the category, why should I pay more for Scotts instead of the private label? The All Food No Filler, we're going to go back to that.

With every single particle of fertilizer that we sell, it has the NPK. There's no filler, there's no gravel, there's no sand in the bag. You're getting value in everything that you use from the fertilizer and it drives better results.

The second is promotions. For those consumers that are coming in, making sure that we're telling the appropriate time to apply fertilizer. Now is the time to apply halts, now is the time to put down Turf Builder Plus 2, and then closing those sales at the shelves.

One of the new products that you saw in the video is our new small lawns applicator. Traditionally, in our lawns business, the smallest size that we've actually sold is a 5,000 square foot product, and you had to buy a spreader.

Like the data says, 24% of the lawns or 14 million lawns in the United States are 1,000 square feet or less. So selling them 5,000 square feet of product and having them put a big spreader in their garage is probably not a good idea. Maybe they don't participate for that.

This year, we actually have a new product coming out. It's 1,000 square feet. It has a built-in applicator. Like the chart says, you flip it, tilt it, and sprinkle it out. You saw that on the video, and we think that's going to be a great new product for that segment of consumer that wasn't participating before.

It also allows us to merchandise lawn fertilizer in channels that we haven't been in in the past. So you don't see lawn fertilizer in grocery drug. You don't see them in the smaller convenience stores. This allows us to merchandise it with the channels that actually have lawn and garden. They may have plant food. They may have some control products. We can now put fertilizer in those stores as well. We're seeing pretty sale from this product in those channels.

The second category for lawns is our grass seed business. We've actually had a good couple year run and my CFO, Randy Coleman, keeps telling us that this business is up and down every year and tends to follow the agronomic and weather conditions. But we've come up with two new products -- the Turf Builder Grass Seed with the coating on it as well as the Easy Seed business.

This is truly driven innovation based on what the consumer has told us that they have the challenges with the grass seed. The first thing is they don't understand how to grow the grass, believe it or not. And it's not as simple as you may think. You actually have to buy the seed. You have to buy soil. You have to buy fertilizer. You have to make sure that it's watered at least once, if not twice, a day. And it's fairly complicated to do that.

So we took, from a development standpoint, and built two new products. From a branding perspective, last year and the years in the past, the Turf Builder Grass Seed was only available at Home Depot. We worked with Home Depot to allow us to take that on a national level. That allows us to have a ubiquitous brand across the entire lawns business, Turf Builder fertilizer as well as Turf Builder grass seed, and the products address the consumer needs that the consumer told us they wanted.

So -- we also have a video for this that probably describes it a lot better than I can describe the process standing up here.

(VIDEO PLAYING)

A little bit on the seed before we move on. A couple of great things about the innovation. First, the process I described, when you all leave there's a gift bag that has this product in it. I think you should try it out. Instead of buying soil, fertilizer, the grass seed, you buy it in this package. You sprinkle it down on the area. The grass grows. You have to water it half as much.

For those folks that want to over seed or seed a bigger area, we have the Smart Seed that will do those areas. So big innovation. We think it's going to drive growth in the category; and for us, it's also going to grow our margins. Grass seed has been one of those areas that's probably a little lower margin for us. These products not only provide the consumer value, they're going to grow the business for the retailers, and they have better margins than the products that replace which is a great combination for our innovation.

So if you think about our lawn fert business, the program that we have going forward this year, we've got great branding. We're bringing the Turf Builder brand back to grass seed. We're going to drive that across our entire business.

Second, we're going to clearly communicate the advantages of our product. Jim had talked about earlier, we went a little more lifestyle last year. This year, All Food No Filler, Water Smart saves water, Easy Seed goof proof, and that's good for the consumer. So a great marketing program that Dan Paradiso and his team has put together.

And we talked a lot about pricing. We've taken pricing. We're not giving that pricing back. But what we are doing is working with our retailers to make sure we're driving excitement at retail.

One of the things, and I think you heard our folks talk about, temporary price reductions, roll backs, promotions at shelf. What we saw last year is when we take a price reduction and put a lower price at the shelf we were getting returns in the 30% to 70% lift on taking those at shelf rather than just pricing it. So you see some pricing here. We've taken down the price of our grass seed because it's a better technology and we have some innovation in that, but still higher margins for us.

Turf Builder, when it's the appropriate time to be selling that product, we have a promotion to take it down for $13.98 to $11.98. And then Bonus S, which is going right now in the southern market, and we haven't even ran the promotion yet, taking it down from $21.98 to $19.98. So we think those are going to be significant, once again, driving to flatten units in our Lawns business.

Then finally, we've been talking a lot about regionalization. The one thing about the Lawns business, and if you looked at that plant heartiness chart that Mark had up, everywhere in the country turf is different. It's different seed. Its different types of seed; it's different agronomic conditions. And it takes different type of fertilizer and different type of control products to maintain it. So investing at that local level to make sure we're providing the consumer with what they need.

Following on lawns, just transition to our Scotts Lawn Service business for a minute. For those of you who are new, this is a segment that we actually report separate than our consumer business but I think it goes well going to lawns.

We talked about, I think Dave talked about us having a slightly lower customer count going into this year. What we saw in the industry is sales are tough and retention is tougher than it has been. But I think where we're sitting right now with what Peter Korda and his team has done is, we had an excellent year last year.

The team made some significant productivity improvements and we saw those in our first quarter results with sales being up 1% and our loss actually being significantly less than it is in that seasonal quarter going from a $12 million loss to a $8 million loss. And how they've done that?

First, reengineering our selling process. Historically, what we've done is we've mailed out flyers to the consumers. The consumers get those flyers, they call back in, make contact with us in our call center. We send back out a sales person to their house, measure their lawn, go back to our office, put together a quote, send them back a price, and then hope that we sell it.

In the peak of the season, talking about this being a seasonal business, all that activity is happening really within a two- to four-week period. So times can get delayed; it can be an extended period of time. Maybe you're not selling it and the consumer wants to buy right then.

So what we've done this year is, every mailer that goes out to our consumers is already pre-priced in our database. So that consumer that's calling in no longer has to have a sales person go out to their house. We can actually close the sale right on the phone conversation, which makes it much better, and we think it's going to drive much higher close rates going forward.

It also saves us a lot of money from having to send a salesperson out to every person that wants us to quote on their business, allowing them to have more time to spend with the people that actually does want someone to come out to their house.

So a better acquisition process. A lower cost acquisition process. And one that we think is going to make the consumers much happier.

Also, on the service delivery side, Peter's done an excellent job of recruiting people, training people. And really what drives productivity in the business is having qualified technicians to do the business. A second-year associate technician that goes out to the lawn is 30% to 35% more productive than someone that we just hired in their first year.

Going into this year, we have the highest level of second-year associates and third-year associates that we've ever had in this business. Some folks have reminded me and said, Barry, maybe they can't find jobs. I would say, Peter's done an excellent job of training them, making sure that we've stabilized the workforce. We've put some capacity management systems in that said we don't plan at the highest level. We plan on a flat production rate that allows us to. If we need to ramp up, we can do that.

But last year, one of the things that Peter did that did significant productivity was we had the least amount of overtime that we have ever had, which makes it a better work-life balance, and also makes it less costly. So significant productivity gains.

The other exciting thing is this year, with our mailer, we think we have a significantly improved marketing program. This year, because of the cost-conscious consumer, we're going to go out, it's going to be a postcard. We traditionally went out with a more elaborate mailer. This year, you get the postcard, the price is on it, you call us back, you close it at that point. So better marketing program, better sales, and more productivity in our business. We think we're going to have a good year in Scotts Lawn Service.

For our Controls business, Tim Portland manages the business and has done a good job of delivering last year and I think we're carrying a lot of momentum into this year. One of the things that you're going to see in this category is probably the most competitive categories that we compete in.

The Lawns business is fairly straight forward. The Gardens business is fairly straight forward. Tim participates in a lot of different categories across segments. So new product introduction is important.

We're entering rodenticides with six new SKUs, and I'll talk about that in a minute. You saw in the video -- we have a new outdoor insect, fruit and flower, vegetable product. And for our home-defense franchise, we have a new RTS perimeter drench as well as a new hornet and wasp aerosol and we're going to be driving more aerosols going forward.

You'll also see our Ortho Ecosense watch for products that are an alternative to our synthetic products. Like the video said also, it has received significant support from our consumers. You're going to see a brand block of this at Wal-Mart. The business looks very good.

From a marketing perspective, so you see all these new products. One of the things, as we've gone back and looked at the business, what we've tended to do in the past is to support our new products with advertising to get them launched and take money away from our existing business. This year, we've said we're going to support our new business, rodenticides, the Ortho Ecosense, and so forth, but our established franchises like Weed-B-Gon, home defense, our fire ant business, our Bug-B-Gon business that's been out there.

We're going to support those at maximum historical level to make sure that we're driving those business as well. So new products and a better marketing program out of our Controls business.

For the rodenticides, it's a great category. It's about $100 million in sales. When we looked at this category the question was, how should we go about entering the category? We looked at making some acquisitions. But what we ultimately came back to was, we have a great brand. We think we can develop a better mousetrap. Mark and I were actually -- Mike and I were in Las Vegas last week at our Global R&D conference and the keynote address by [Jeff Gracias] said that from an R&D, from a scientist and an engineer perspective, he thinks this group has achieved a pinnacle of innovation and development; and he's really, truly built a better mousetrap.

So these in your bags as well. A couple of new products, what they call the "Jaws of Death." Traditional mousetrap, you don't see the snap, spikes. What they tell me is when they've done the research the highest efficacy in killing mice that there is in this type of product. So very aggressive --

The mouse murderer.

The mouse murderer. So those of you -- the people that actually want to actually see the mouse murdered, a really good new product.

For those of you who want a gentler kill and you don't want to see the mouse, this is the cornerstone of the innovation. We've worked with some folks at some universities that actually -- the mouse goes in, there's no escaping out the back side. Flips the mouse upside down. Much less aggressive kill although the mouse does die of hypothermia because mice that can't move die from the hypothermia.

Significantly, for the consumer that doesn't want to see the mouse, touch the mouse, know that the mouse is there, the mouse gets flipped up inside. You simply take the trap and you throw it away. So we've got a lot of support for the products; and once again, most importantly from a channel perspective very big in grocery drug, allows us to go places that haven't been before, and gives the consumer a much better product than we think the existing mousetraps provide.

And finally, in controls, our Roundup business, we did have a great launch last year on Pump 'N Go. We're taking that applicator and extending it into the Extended Eontrol business which is a product that lasts all season as well as our poison ivy and tough brush. I think this is important from a case study on innovation.

The product in Roundup, while there's been minor improvements over the years, and you look at what's happened with pricing in this category, we started out in a trigger sprayer at $9.99. We came out with Pull 'N Spray a decade ago, which you pulled the product from the bottom and it gives 30 seconds of spray. We went out at a $14.99 price point. Retailers, everybody said you can't sell it at $14.99 selling the trigger spray at $9.99. The huge success, number one product in the category.

Last year, we went out with Pump 'N Go which you pump it up, it's like a traditional tank sprayer all built in and you have five minutes of spray. Price point $20.00. They said you can't sell this product, it's too high a price point -- the largest launch in the history of the Company.

So applicators, ease-of-use, consumer value matters. That's the types of things they're looking for and that's where we're going to be driving going forward.

Also, from an advertising perspective, you look on the left is last year 2008. You see from middle of March through June, we supported the brand with national TV. But then there was no support in significant areas of volume on both the front half of the season, but most importantly, on the back half of the season.

This year we extended a national TV by a month. Roundup is one of those brands that really can be supported by national TV. We've also got call-to-action radio on the front and the back half. So new products, better marketing campaign, and we think we're going to have the biggest year ever in our Roundup business.

For our Gardens business, this continues to be a great business for us. It's our fastest growing business. Not only did it grow in dollars last year; it also grew in units. So that activity of gardening is special to people -- number one outdoor activity, 80 million people participating in it.

The growth of this category, if you look at this though from a historical perspective, a decade ago when I first joined Scotts, there was actually discussion at the Board level about whether we should get out of this business or not. It was a $150 million business making no money.

Now with the introduction of moisture control potting soil, putting the Miracle-Gro brand on it, Liqua Feed, other products that we've brought into the gardening category. This year, our growing media business will be a $600 million business with 20-plus operating margins. So $150 million to $600 million and significantly growth on operating margin levels.

I think the thing that's also significant is, there's categories in growing media that we're not even really participating in now. You look at garden soil, we're taking our moisture control platform to garden soil this year so those folks that want top plant vegetables put soil in their landscape and so forth.

But right now that's primarily a commodity business, $0.99 topsoil, top feed and [cal]. We think we're going to have a great new platform with our moisture control potting soil. So this business continues to roll on.

The thing we are going to make a change on this year is, this is probably the business where we went most lifestyle on our advertising. This year we're going back to, "Grows plants twice as big and we're better," and we think that will be much better.

The final business to talk about, which we think is going to be a lot like our growing media category, we bought this business, Morning Song Bird Food business three years ago. We think it had a lot of the characteristics that our Growing Media business had a decade ago. It's a billion-dollar category primarily non-branded, primarily commodity-driven. Over the last three years, we've been spending money updating our packaging, reformulating our products, providing better products.

This year, we're most excited, we're going to launch two new products, out Colorful Bird Blend, and our Wild Finch & Small Songbird Blend. We've done a lot of research. We now have ornithologists on our staffs. We have people watching birds every day. I think it says 40,000 feeder observations over the last couple of years. And we've developed a formula that actually, for the consumer, will attract twice as many colorful birds and the birds they want to see and not attract the birds, the blackbirds and the crackles, and the birds that they don't want to see.

We think we have a great new product. We have sustained claims and probably best, we don't have the commercial done this year, but we have great new products and we're actually going to support this launch with $5 million in national media this year which will be the most advertising that there's ever been in bird food. So we want to show the video.

(VIDEO PLAYING)

So good new product. We think the consumers will like it. It's also much better margin for us and we think it's going to grow the category.

Finally, our advertising. Jan's going to spend a lot more time on this over lunch but I think the key for us is expanding our reach to the consumers. We talked about that earlier. It's not just going to be national TV. This year, it's going to be -- we are going to have national TV but we're going to be much more regional, 160% increase in our regional spending.

Last year, we went out with our call-to-action, our weather-triggered radio. It was highly successful. This year, 200% increase in our weather-triggered radio. So national regional call-to-action. And then when they actually get to the shelf, closing them at shelf with those price offerings and the right promotions to drive the business.

Also, a couple of years ago, we went to Hispanic labeling on our packaging but we really didn't market to the Hispanics. So from a regionality perspective, we are going to be advertising in the southern markets on Hispanic radio. So better reach, the spend, like Jim said, is not as efficient as driving through that national media, but we think driving to that regionality level, reaching the consumer where they are, and driving them to the store to get the product at the right time is going to be the key to our success going forward.

So Jan will give you a lot more on advertising over lunch. Now Claude's going to talk about international and our professional business.

Thank you, Barry. Hi, everybody. For those who are new don't know me yet, if you guys didn't get it, I'm not English, I'm not French, I'm not American, either. So if you're struggling with my accent just bear with me 15 minutes and you're done.

I'm here to talk to you about the two businesses I'm managing. The first one is the International Consumer business which is part of global consumer. And the other one is the Global Professional business. And let me start with the International Consumer business.

You heard us in the past talking about this business probably more like a problem child than anything else. It took us a couple of years to figure out what or wherefore here. And we're pretty pleased with the results we've been having in the past years and we believe we've figured out how to manage this business. We've put together a model where basically, we are following the US as much as we can in terms of innovation, rollout; and then locally, we adapt when needed and we compete very aggressively.

Actually, you look at this business, it's a $350 to $400 million business. We have operations in the major European countries -- France, UK, Germany, Poland, Belgium. Actually, the best business we are in so far is the French business which we've turned around pretty well in the past putting together the same approaches that we have developed in the US, becoming category captains, putting together BDTs, investing in historic counselors, competing aggressively and winning pretty well. We're winning share. We've turned around the profitability pretty well. So this is the model by which we are managing basically all of the European countries.

I also want to talk to you about some opportunities that we see in Europe. And I'm going to talk a bit about the opportunities that we see in countries such as Eastern Europe, Poland, Russia, which are really areas where we don't have a lot of business and consumers are really starting to love our categories more and more.

And you're also going to hear me talk about a project that we have announced in January which is about relocating our international headquarters to Switzerland.

If you want to know, our competitors want to know what we're going to launch in Europe. It's pretty simple. Look at what we do in the US. Okay? We've launched liquid feed, we've brought liquid feed to France, UK, Belgium, Germany already. We brought singles to the market. We brought Pump 'N Go.

And actually, there are two things I want to talk about here which are probably more specific and give you a good illustration on how we need to adapt locally to some regional specificities which are the -- this product that you see on the screen, we sold more or less. This is a product we're announcing in the UK this year.

In lawns, like in the US, we have significant commodity increases and we have to take significant pricing, up to 30% in some countries. Actually, we have developed this product which allows the consumer -- which probably targets more the new consumer as opposed to the existing consumer. And that allows us to offer at a lower price point and still in the purchase margin a product that allows consumers to mow twice as less. Actually, mowing is one of the hurdles for some consumers to penetrate into the category.

The other one I want to talk about is, for those of you who heard me last year, I was talking a lot about naturals, and how Europe is probably progressively having this challenge about chemicals and pesticides and the growing offering or the growing potential that we could see in this region about natural and organic products.

We started this effort last year, as a chemical company, historically, and this is where, most of the competitors are by the way. You could be scared by what's happening in Europe as it relates to environmental constraints, regulatory constraints. We just saw it the other way. We said, Look, this is a huge opportunity for us. There is a huge opportunity for basically taking the lead and offering, to consumers, natural and organic products and becoming number one and capturing new consumers.

We started this effort last year. First year of sales, we got $53 million worth of sales. We are targeting $50 million plus this year with an advertise. We're announcing new products, on which we've got some exclusivities. We actually have pioneered, I would say, the effort around natural offering in the US as well.

And the US is going to announce the Ecosense brand this year. Many of the actives that we put in our products are global. So not only are we following, but in some areas we can even, when European consumers can be ahead of the American consumer, we can even give insights to the US business on what's going to happen to this market next. So we're pretty excited about that.

I want to talk a bit about the UK. You heard me talking a bit about France, which now is doing pretty well after several years where we were losing share and now we're gaining. If should look at the most competitive marketplace in the whole world that the Scotts Company is facing, that's probably the UK.

It's not only because the trade is tough -- that's the case as well in the US -- but it's also because we have pretty smart competition locally over there. Historically, we've let competition in our space, I would argue it to be too much. We started behaving like a leader last year and resumed investment behind our brands; it worked pretty well. We used to lose a bit of market share, we're now gaining. We're going to continue our efforts next year, or this year.

We've made some investments in this business, particularly in the green media side, where in order to offer more capacity to our retailers for both private label and branded business, and also in order to lower our costs, we purchased last year a peat bog in the north of England, a business called Humax, which we are now integrating into our business.

This gives us local access to peat, which is actually critical in the UK, in Pounds, which is better than in Euro those times. It also allows us to go to our retailers with a strategy of offering both branded business and private labeling, providing private-label not to be dilutive to our margins.

So we're going to continue to compete. We have some great initiatives this year. We've taken pricing to a pretty aggressive level. Also, we have downsized some of our product offerings to get the same price point with less product in it instead of higher price for a kilogram. And that should be a second year where you can expect market share gains in the UK.

Now we have our big countries but we also have some potential reservoir of growth moving forward in Euro, and the most important one is actually obviously Eastern Europe. You look at the Eastern European business, look at countries like Poland; you see all the big guys are there, French, German, and some Americans.

This is a business on which we have started investing two years ago -- three years ago. Bending infrastructure. Hiring sales people. Getting local sourcing and local supply chain. It's still pretty small. It's like 5% of our total business except it's growing 26% a year. It's pretty profitable. These are countries where you can sell buckets of garden fertilizer for EUR150 to the consumer, into the ROI.

So we have actually, Eastern Europe is probably our best country in terms of gross margins today.

We are continuing to invest in those countries. We're putting sales people. We're also looking at extending our reach. Our main country today is Poland. We have a new distribution agreement in Hungary. We are establishing a base in Yugoslavia. And you are probably going to see us entering Russia -- not this year, but in the years to come -- as soon as we get registration for those products.

So the picture I like you to have in your mind is, we have the big countries where we are competing and we believe we have figured out how to win. We are now trying to focus on more growing opportunities and capturing more growth by penetrating more regions.

Now let me switch to completely different business which is the global professional business. This is a completely different animal. We are selling basically a big-business-to-business activity. We're selling fertilizers, very high-value and premium fertilizers to professionals.

It's a truly global business. I'm going to tell you more about what we're doing in each region. We decided last year to report it separately. We basically are selling to three types of customers, roughly. We have a segment which we call horticulture, which is about selling very high-value fertilizer for plants to professional growers. We use them to grow the plants that we then sell to Home Depot, and Wal-Mart, and Lowes. That's one business.

The other business, a roughly $150 million business, the pure business of raw is roughly a $350 million business. So hort is one business. The second one is one we call Turf. We have the Seed business in the US and we're also selling, mostly in Europe, fertilizers for turfs mostly targeted at golf courses, sports stadium, tennis stadiums so we're doing Wimbledon. For instance, we're doing the majority in Europe of the big sports stadium, are fertilized by our fertilizers.

In the Food business it's what we call specialty ag, which is the fastest growing business, although not yet very high; it's roughly an $80 million business. And this is about selling very specialized fertilizers for very specialized crops. So for instance, we're the leader in shrubbery. We have a great business in Latin America selling fertilizers for banana plantations.

This is a business where we have pretty important global customers; people like Dole, Chiquita, those guys. And this is a business, and I'm going to focus in the last part of my presentation because it's a great opportunity to penetrate some regions like China and Latin America.

The thing I'd like you to have in mind about this business is the Professional business is highly technology driven. We're having patented proprietary technologies that provide benefits to our customers. So for instance, one of them which is called Osmocote. This is a slow-release fertilizer that you put in the plant which provides nutrients to the plant along -- whatever the plant needs. For the grower, the benefit is labor savings and better quality of plants.

So there is some sensitivity to price. The Professional business is being subjected to a lot of commodity increases last year. We've taken pricing probably every month. So there is some sensitivity to price. We might have to give back some of the pricing we've taken so far. But the good thing about this business is our products provide technology advantages to our customers that allow them to save money.

So providing the balance is right; we should be affected profit wise. As I was saying, this is a truly global business. We have operations in Europe, which is our biggest business; in North America, mostly on the horticulture business, selling fertilizers to growers for their plants, and also in emerging countries.

And when the dynamics are mostly the same -- i.e., about added value technology, premium products and the efficacy of the sales force -- the opportunity that was see probably most important, moving forward, and we're trying to capture already part this year, is what we call emerging country.

So you look -- we have an $80 million business roughly in Asia, Malaysia, China, and Latin America. This is mostly about, as I was saying, selling fertilizers to very specialized plantations. This business is going to grow pretty considerably in the future as the demand for food is actually growing. So we're investing resources there.

We have grown this business 300% in the last two to three years. We're going to continue to grow it pretty significantly. We believe it's going to be a great part of our global business. The other thing that we are interested in as far as this business is concerned, is in some countries and some regions like China where the consumer market has not really appeared, as far as lawn and garden is concerned, we're using the Professional business to provide a beachhead for the Consumer business opportunity were we see it coming.

So by having infrastructure there in which we're investing in, we are watching the potential development of the Consumer business and that will be able to allow us to be there today. There is a significant market. So, we're pretty excited about that. We have a good team.

We have decided to manage this business in a truly global way. There are exciting new products coming along this year and the years forward. We have constantly invested in R&D. We're providing innovation to the customers. Good business -- and pretty profitable, by the way.

The last thing I want to talk about, which actually is a common project for both the International Consumer business and the Global Professional business, is a project that we have announced early January to move operational, potentially next year, our international headquarters in Geneva, Switzerland.

Today, we're managing the International business of global pro, international consumer from basically two headquarters. One is in Holland which is the headquarters for Pro business and the other one is in Lyon, France which is the headquarter of our International Consumer business.

As we consolidate Europe we're trying to take synergy. We also want to have, potentially down the road, a platform for building further globalization opportunities. We have announced this project, which is about moving and consolidating our headquarters, in a place which is truly international where you can find diversity of talents and of cultures; and that can also provide a platform for us as a company as we become more of the global authority, to consolidate potentially some global functions over there later down the road.

What that allows us to do, it also allows us to complete the journey of having an improved IT infrastructure. We put the Consumer business on SAP two years ago. We're now going to use this project and put the professional business in SAP as well. And last but not least, when you evaluate the various European places where you can put an international headquarter; the adventure of Switzerland on top of meeting all the other parameters is that it provides a pretty significant interest as far as tax saving is concerned.

So this is going to be -- if it happens, it's going to be close to three events. We're starting the project. We're holding it a bit until we know how the year is going and we're keeping optionality, but we believe it is the right thing to do for the business.

It's going to be a two-year investment of $20 million. Part of it is capital, $6 million, $14 million is expense and $10 million is going to be -- $10 million of those $14 million are going to be restructuring. We expect less than a four-year payback and a savings mostly driven by taxes. But we believe down the road we are going to also have efficiencies by having everybody in the same place and basically centralizing more functions.

So Dave is going to give more details about this project, but we're pretty excited about that -- both by the advantages it could provide from a financial standpoint, but also by what it allows us to do in terms of having access to a more international place; having more diversity of talent; and increasing the quality of our workforce.

Thank you for that. And as being said, I'm heading over to Jim King for the rest.

Okay. We're right on time so that's good. We're going to take about 15 minutes here for some Q&A before we break for lunch. As I said at the outset, for those of you who weren't here, Dave's going to walk through the full-year model after lunch. So if we can keep any questions that you have focused on the presentations we have this morning, I think that will be the most productive.

So just raise your hand if we need to get a mic to you so that we can get folks who are listening on the webcast to hear as well.

And, if I can just throw out there, that if anybody needs to use the loo because we're going to head right into lunch at noon. So we're going to have another Q&A session call roughly one-forty-five to 2 o'clock and we'll try to get any intelligent question answered.

So you're not going to lose your chance to ask questions if you want to stretch your legs. That's what I'm saying.

Okay, this is a dumb question. Mark, you mentioned the $300 million to $500 million dollar opportunity by increasing market share regionally. Can you give us some sense, historically, as to how the lower market share parts of the country did in terms of growth and even profitability relative to the high market share regions?

The question around how do we view the history around why those shares have been lower, and why we see the opportunity now. I think that if you look across the country, most of our lower shares have been in the South. Some of those things have been more oriented to -- and I'll chose fire ants as an example, of a product line that we haven't been the biggest share leaders that we need to be by focusing our energy around advertising. And James is going to share with you some of the real energy we have in radio commercials that are going to drive that business.

The Company has focused most of its network advertising on lawns and therefore that's why we haven't grown those businesses as much as --. We see the opportunity today. It can be growing media plants in Southern California that really just are only there that have some unique features and benefits to those consumers. Whether it's growing media or slug-and-snail, it's only a California Westcoast kind of item. Let's take some of our dollars and drive that. Again, just refer to why we were able to get all the growth before was because the retailers were taking us there and growing that space.

But, we're going to focus on items now and categories that probably we don't have a national application. And that's why I think the growth is going to be historically different.

I would say that I think if you look over the last five years, you'd see higher growth in Southeast, Southwest. But if you look at last year, it would be an even lower growth. In part because of drought in the Southeast and I think some competitive issues in the Southwest, and economy.

Two quick questions. First, on the Spectrum business. I think I remember that the total business out there was closer to $200 million. You said you were figuring about $100 million. Can you tell us who's getting the rest of the business and then do you expect the business that you pickup to be permanent or a one year?

And then Mark, on the rationalization, the issue in the past of the European model was it was very localized. But there was more infrastructure head count and specialized marketing and so the margins were much lower than North America. How do you implement that strategy without bringing -- converging the margins back to the European model?

I'll talk to a little bit about the Spectrum piece as well. We did see that there were -- going to call it $250 million out there. Our arrangement with Home Depot is a multi-year arrangement and this is our first year, if you will, to participate in the category -- really, on three-quarter's worth because we didn't ship anything to speak of in our first quarter. So we do see nice growth from that with a multi-year arrangement. The growth at the Wal-Mart side. The rest of it was relatively fragmented and we haven't anticipated exactly where that business is going to show up.

It can show up in Ace or maybe some of the independents picking up some pieces that weren't scalable, if you will, in small segments of that Spectrum business. That's the way we're viewing it. There wasn't anything of large significance beyond the Home Depot; Wal-Mart; and to a degree, somewhat Lowe's. At this point in time we do not have that business.

As it relates to the scale of what it takes to be a good regional operator --.

Let me just interrupt on -- just because I think Spectrum or Central picked up some, Lebanon picked up some. But I think there's probably $100 million, we have no idea where it went. So I think that means there's some opportunity and there's some noise within the number.

Good point, Jim. On the regionalization costs, I think the models are a little different than Europe and I think Claude may actually be converging to a middle point here where he's going to try and use some of the scale of the operations in the backroom of Geneva as we migrate there to take some costs out of some of the regions. I think what we're looking at in the US is saying we might have to move some of the power base out of Marysville, with a head count neutral thinking, but to make sure that we've got eyes and ears closest to the consumers making those decisions.

So I'm not looking at it as the net addition of significant G&A but I am making sure that the decisions are closest to the consumers.

But I think that's the trick, right? Is -- how to do it in a way -- because part of what of, if you look at what we've done in the last decade we created Scotts North America. If we're saying we're going to unwind parts of that it has to be to make it better and it can't be to leave Marysville in place and then say, Oh, we're going to build a sort of regional sort of hubs and how do we do that? I -- and, there's a lot of work which has already started figuring out how to do that and I think it starts tomorrow morning at my house.

I understand you have a lot of high-cost fertilizer inventory to clear, and that's why we have the 30% price increase. But looking out a couple of quarters where do you see the pricing strategy once we clear the high cost inventory?

Where do we see the pricing strategy?

Right, right. I mean 30% hike is a big hike but there was a big spike in your urea costs last year, but they've come down --.

Well let me tell you what I view as sort or, and I'm not sure it's absolutely answering the question. [Chris Negal] talked about this a lot, back in the day, and that is that we're not a low-cost business model, okay?

And what's clear with our newfound margin, which is in part because we took all this pricing and cost collapsed, on the commodities side, is that there's a lot more smiles on peoples faces because there's a lot more ability to drive the business. And if it wasn't for the consumer which is sort of saying, Oh, is the consumer really there? But that, being said, we're driving to make consumer sales happen.

I think what is totally clear to me is that this company, in a margin-challenged world, is really -- it's not a good place to be and it's not a great place to work. So, what do I think? I think we have to be really hard on pricing because remember if you look at margins, and I'm not sure -- I think it might be in Dave's slides, this basically takes our margin back to where it was historically. This is a great place to work when we have money to work with and when we have jet fuel to fight the war, we can drive the consumer.

A lot of what we're talking about is so obvious, and you say, Why weren't we doing it? It's because we were scratching the - it's like -- I talk to Scott it's like going out to the fuel tank and banging it a -- and saying (expletive). There's not much in there. And you operate the business differently than when you have enough jet fuel to fight the war.

So what do I think it means sort of going forward as far as pricing? That we have to, without, with mercy, protect our margins. And I think, that if you look back over the decline over the last couple of years and margins, it really eliminates our ability to flex the business and attack the market, which is driving the consumer and sort of getting tight.

So I think that if anything comes out of the reset button that we have luckily found in the resetting of commodity prices, it's that we cannot let this happen again, which is margin declines, which inhibit our ability to activate the business. Because you'll hear the same thing from Jan at lunch -- that everything we did to sort of activate the business worked hard. If you listen to what Barry said, every time he like tried to flex up stuff and drive the field, it worked.

So then question is, Well, why aren't we doing that? I think that what you're going to see this year is maybe a slightly sick consumer and if we can do all that stuff to drive, as Barry said, to flat and unify them, we'll have a good result. But I think long-term ,we have to actually drive the category up, increase units. And pricing things is really important to that.

That's probably the one observation that comes out of everything that has happened to us in the last couple of years. So good question.

I've got to hand it to Alice, because, sorry, ladies first. Sorry, dude, I'll get to you. But it cannot be a multi-faceted like 20 questions in one, please.

I have something you've already talked about, and it's Smith & Hawkens. Have you talked about how much money it's losing on an annualized basis, and whether you're willing to treat it as a discontinued business so we can get it out of your numbers?

I guess the answer is, No, no. And I think that if we thought that -- look, start with, we didn't sell it because we couldn't sell it. And "Can't sell it" means, I'm not writing a check for someone to take it. So in this environment, it's got to be reasonably economic to sell the business that is, in marketing, is worth something.

So, if we can't sell it in this environment, we're going to run it hard. We've cut a third of the people, instantly. We -- anybody who stayed, unless they're operating a store, had to agree to a 25% pay reduction, and they did.

We put Pat Farrah, who is a friend of ours, but if you don't know him, he's probably, I think -- unfortunately, he announced this at our Board meeting, that he is the best merchant in the world. But he is one of the best merchants in the world, for sure, and he's got some team members he added that, I think, can get this thing righted.

If we got a reasonable offer for the business, I'd sell it tomorrow, okay? I think the problem with calling it discontinued, which we've talked about, is if you can't sell it, then all of the sudden, it rolls back in. And you look at Spec and how they dealt with their lawn and garden business, they call it discontinued, and then you have this hassle rolling it back in.

So I think -- think of it how you want. We haven't been particularly open about if -- what exactly the financials are, and I'll leave that to Dave. So I think the answer is no. We didn't talk about it, and no we're not calling it discontinued. But I would say if we could have sold it, we would have. And if we got a reasonable offer for it tomorrow, we'd sell it tomorrow. Okay.

Two questions, if I may? First off, with respect to SLS, historically, one of your advantages over TruGreen has been that fact that based on their historical telemarketing campaigns that their customers have been much more price sensitive than yours. And now you're going towards a model where you're going to be actually advertising based on price, from the mailers. Is that a concern of yours that you would then have a more price sensitive customer for SLS like TruGreen might?

Second question would be your organic margins. The organics historically not -- you need more scale. Are you yet to the point with the additional Wal-Mart SKUs and such where it's getting closer to making sense on a return-on-capital basis or -- talk to us about what your thoughts are on the organics margins, if we could?

Well, Dave, I'll leave you organics margins. I will say that, part of what Korda, Pete Korda, has done at SLS is produce a much better result than '08 with a significantly less customer account. And a lot of that happened through efficiencies in the field and up-selling product. I think that will be the model again. But it's the conversation of actually getting that customer and then up-selling to them.

So do I have a little nervousness that we're moving a little bit toward a more numbered sale? Yes. But Peter assures me -- and I believe him, and he did it last year -- that we can up-sell other products to those folks to make it look like a higher margin sale when we're actually done up-selling.

So I do -- I'm a believer in Scotts Lawn; and that if somebody has a Scott's lawn, it's an annuity. That said, we have to make the connection with the consumer and get him into the family, and that's what this is about.

I think on the natural organics, so yes, we're migrating up the profitability as we're gaining more scale. The margin rates vary by category. So some categories like growing media, they're very good. So, I think we're please with the progress. We see momentum there as we gain scale, and I think there's ever any reason to believe we can get margins up to a comparable level over the next handful of years.

(Inaudible question - microphone inaccessible).

I think it's probably a combination of both. I'll probably let Barry answer that one. But I think you're picking up some new consumers, and then some may be trading.

(Inaudible question - microphone is inaccessible).

So is it the natural sale, an incremental sale, or is it a sale of conventional to natural?

Jim repeated the math. Half the consumers do nothing and those that use it use half as much as they should. And so I look at it and say, if it gets people into the category and using the products I think it will be incremental because there's a lot of people who aren't participating because they either view synthetics are bad or they have reservations about the product.

So it gets us into a category that we haven't been in, to drive that consumer base so I think it's incremental.

Okay, so proof that rehearsal works. The clock is about to turn noon here. So we're going to break now for lunch. Those of you who want to step out there the restroom is down the hall over -- down the hallway and to the left, just a few steps away. They're going to bring in lunch here in just a second. It should be set within the next ten minutes or so -- ten, 15 minutes or so. And then we'll resume. If you're listening via webcast, we're going to resume the discussions at around twelve-forty-five.

(BREAK)

Please welcome back Jim King.

Okay. We're going to start back up. As you heard from most of our speakers this morning. We feel really good about the business this year and feel we've got a lot of tailwinds from a cost perspective. Really, where the rubber hits the road is with the consumer and keeping the consumer engaged in a category.

So Jan Valentic, our Senior Vice-President of Marketing in North America is going to take the stage here in a moment and share with you our plans for our marketing efforts for fiscal '09.

Jan joined the company almost two years ago, in 2007, coming to us from Young & Rubicam where she was an Executive Vice President with that firm and globally for Team Microsoft. Prior to that, she was Vice-President of global marketing for the Ford Motor Company. So with that, I'll turn the stage over to Jan.

Thank you. I know I'm glad not to be selling cars these days. So I don't mean to upset peoples' lunch but I only have one slide that might do it and this is it. So if I said to you General Motors' run by Rod Blagojevich and peanut butter, that kind of sums up why the consumer is virtually numb.

If you think about unprecedented economic instability, raw and unedited coverage of acts of inhumanity around the world, wanting to slay the unethical behavior of our elected officials, and lack of safety in our food supply, it's no wonder consumers are a little iffy as it relates to how they're going to spend their money.

Henninger of Wall Street Journal had a great quote that really summed up these times -- "Our capacity for shock has been recalibrated." So as you've heard from our other leaders, we know we have our work cut out for us. We know we're going to have to work harder and smarter to earn that consumers' dollar; and to actually help them feel good about spending their money, period.

But we're also very positive and optimistic about the consumer because, as the ruby slippers say, "There's no place like home." And home is a real source of sanctuary for consumers which is more important than ever these days. Space Popcorn predicts that consumers will be uber-cocooning. It wasn't enough just to be cocooning they have to uber-cocoon. They're taking stay-vacations and basically doing more of everything at home.

And we know from our own loyal consumers that when they use our products to take care of their yard, their lawn, their garden, and their home, they view it as therapy. Some consumers enjoy the process of just being outside or getting their hands dirty and others are focused on how good they feel when they see the fruits of their labor.

So the key themes that you'll be hearing throughout our '09 marketing are as follows -- we're going to reinforce our competitive advantage. We want to show how our products will deliver a great return on consumer's investment of their time and their money. We're helping making it easier for consumers to get the yard that they want, and we're educating consumers on how easy it is to grow their own food and to give back to their community.

But we also need to have some flexibility in our plan because we don't know how the consumer is going to behave in these very, very unusual times. To drive flexibility, we've smoothed more of our spending across the season. We have the ability to make decisions on whether to advertise or not on a weekly-basis with weather triggered radio. Our local spending enables us to tailor the most compelling message to the right consumer at the right time. Search-engine-marketing gives us a great view into what consumes are very interested in and our direct response television we optimize that on a weekly-basis.

In addition to building flexibility in our decision making, we're also keeping a close finger on the pulse of our consumer. We continue to build deeper understanding of their needs, their wants, and triggers that lead them to engage in our category.

We conduct usage and attitude studies that serve as the segmentation framework for our marketing. In fact, you saw bits of that in Barry's presentation about the Lawns business. Here, we have our Bird Food segmentation where we're focusing our communication on two key segments, two key segments dedicated aficionados and discriminating enthusiasts.

One of the fun things about doing segmentation studies is you get to pick great names for these different groups that capture kind of their attitude about the category and their behavior in the category. We're also learning more about emerging new segments like Gen-Y homeowners, Hispanic consumers, and what they are seeking in home and garden products.

We also conduct quick and inexpensive studies to get new insights through things like neighborhood garden parties. Essentially, we bring the booze and the snacks, and the consumers never stop talking.

We do observational shopper studies where we basically put hidden cameras at resale to see what consumers are doing right at the shelf and we get some great feedback from our sales associates on things like the common issues, suggestions, even competitive intelligence. And of course, we monitor macro trends. And we have consumer metrics which gives us a quantitative sense of how well we're doing.

We do quarterly tracking of things like household penetration and usage frequency. Analyzing what consumers are actually putting into their shopping carts using our [Dunn-Honey] data, this gives us ideas for cross promoting -- in market our line analyses for marketing efforts and the usual battery of research around product positioning and the like.

So why will we win in '09? Well, we think we have a terrific plan to drive demand and to convert those shoppers into buyers at very important moment of truth -- at the shelf. As I mentioned earlier, we know that we have our work cut out for us. So let me take you through the detail that's listed on this slide.

How are we driving demand? More advertising. We're going to spend more and we're going to get more and we have confidence it's going to drive our business. Why? Well, you heard a little bit earlier we have conducted tests and conducted control markets for a variety of spending scenarios for pretty much all of our brands.

Here's a couple of examples of some of the results. We've done heavy spend tests, we've done extended seasonality tests, we've even tested products that were previously unsupported, and I'm happy to tell you they all paid out.

Now from a marketer's standpoint, there is no better business to be in than one that is highly responsive to marketing. But on top of that, we have a bunch of new things to say. Barry mentioned all of the great new products that we have. How much better can it get? Grass seed that actually grows on pavement or a new mousetrap? We're having a great time selling our products and having a lot of fun.

So we're getting off strong and early in the season this year to really give us a sense of the health of the consumer in our southern markets. And once we get a sense of that, we'll be able to monitor and adjust our plans accordingly.

You've heard us talk about the business impact that weather has. So rotten weather actually negatively impacts our business and nice weather positively impacts our business. Last year, we had great success using weather triggered radio to run messages when consumers are most likely to be in the mindset of getting outside and caring for their lawn and garden, which is nice weather.

So we're able to choose not only when we're going to run the product, when we're going to run the message, but also what products are we going to advertise so that we can correlate a unique agronomic opportunity with weather. As Barry said, we get together early in the week, Monday or Tuesday. We go region-by-region and we make the call right then and there if we're going to run that advertising that week or if we're going to save it and use it the following week.

So this area, we're doubling our investment, and we think this is particularly key in the volatile early spring market. One way that we're using local market intelligence to inform our marketing is through our call center and our on line inquiries. Essentially, we model issues and inquiries and inquires down to the zip code level. And when our call volume exceeds that of our normative data, we issue a consumer intelligence alert to our field sales force, supply chain, and the local media. Last year, we sent out 23 of them.

Here's an example of one where we got out ahead of an outbreak of a lawn fungus called red thread, which is pictured here. In fact, the slide shows that the state of Pennsylvania was hit pretty hard with it.

So when we issued the alert, we not only included the data but we also included an explanation of how to diagnose it and the product to recommend, which enabled us to educate our retailers, field displays, and develop local signage.

Two weeks after we issued the alert, POS spiked and we had enough inventory to match demand. This is stuff that we're really, really great at.

As you've already heard today, we are significantly increasing our regional marketing spend. About half of our spend will be regional; and where appropriate, we're customizing our creative message to the region, like this outdoor board for Ortho Fire Ant killer. In Texas, they're toast.

Now I don't know that anyone in this room has been bitten by a fire ant. Anybody? Alright, a couple of them.

Well, I've had the dubious honor of having come close to a mound that didn't really look like a mound, but within seconds there's like 100 of them on your leg, and they all talk to each other. And they say, Bite her right now. And it's excruciating. You'd almost rather have your leg cut off.

Well, that's the kind of insight that we get from our consumers who live in the south, who live with this every day. Imagine if you had toddlers. They wouldn't be going out in the backyard if you had fire ants. So this is the kind of information that informs our advertising. So I'd like to take a moment now to play some of our radio advertising that we'll be playing in the south for our fire ant killer.

Will you please play the radio?

(COMMERCIAL PLAYING)

You'd look forward to listening to that, wouldn't you? I guarantee you'll be telling jokes about that advertising. And we have a lot more. I guess we are having way too much fun with this.

Last year, we talked about our new website. We launched it in February and we've seen about a 60% increase in traffic to the site. In fact, when we're in season, we have over a quarter million consumers visit the site every single week. We have great content on it and we update the content on a seasonal basis. If you haven't been to the site, I highly encourage you to go there. You're going to learn a lot. You'll really see what the experience is like for our consumer.

And if you get the chance, go into some of the blogs. See some of the pictures that people have uploaded. This is a great source of intelligence for us. We get to see what delights people, how they're rating our products, and this starts to indicate to us maybe we should be selecting new search terms because this is what they're searching for on the site. And we also know what really turn them on. So we put that into our messaging as well. So check it out.

Another aspect of our web initiative is our one-to-one communication through our email reminder service. We have about a million consumers who have opted in to receive our monthly communication. These folks on average apply twice the national rates. So they're really good customers for us.

Last year, we also invited about 5,000 of these email reminder recipients to be part of a pilot loyalty program that we called the Scotts Insider Program. That included things like exclusive newsletters on topics that they wanted to learn about, eight video newsletters, a self-guided lawn expert certification program where they could print out a certificate at the end of the program. Sweepstakes, coupons, a welcoming gift.

Participants absolutely love the program and the interaction with us. And while we don't have transaction data, self-reported numbers indicate that they purchased even more of our products across more of the brands. And they served as happy and enthusiastic advocates for our products. So we plan to significantly expand this program in '09.

Cell phone penetration is about 86%. And we know from our call centers that more and more consumers are using their mobile phones to call us. So we're also offering our email reminder service through text messaging on ones cell phone.

For our most loyal lawn warrior, they love the local alerts, like this one that I've highlighted from Pittsburgh. They want to be on the cutting edge of what's going on agronomically in their neighborhood.

We also did a pretty interesting test with Verizon last year where we did a mobile coupon program where essentially consumers would go to the Verizon home site. There was a link to a $5 coupon for any Scotts Turf Builder product. You could click on that, it would send the coupon to your email address. You would download the coupon and use it.

The good news is, we had three times the clicks per rate than we do on normal banner ads. The bad news is we had about a third of the redemption rate and we think that's largely due to the fact that it wasn't a very convenient way to get a coupon.

But we're really keeping an eye on what's happening in mobile phone technology because as things develop like being able to use your phone as a debit card, we want to test and learn because this is a huge way for us to connect with consumers.

Another key way that we're leveraging the convenience of the cell phone is the ability to text message a question to us. It could be about a product recommendation. It could be simply about how to diagnose whatever product you're experiencing. Not only is this great for the consumers but it allows our in-store counselors or our retail sales associates to answer a question right then and there, in the store, at the shelf -- really great new tool.

Other things we're doing to educate the consumer and demonstrate our product superiority at shelf -- we got some great POP, attention getting displays, I don't know if you can see the mousetrap there, but can you imagine a mousetrap about this big? How great is that? Love that.

In-store videos where we show the difference between our product and a competitive product. And we're also trying to make our products a lot easier to understand with simplified labels that have visual instructions like this Roundup label.

A key opportunity for our growth is to increase the number of consumers who buy all of our brands. We executed a cross-brand promotion with Lowes last fall in which a rebate was offered with the purchase of any combination of Scotts products. The products were also merchandised together. It was so successful that we're doing it again in early spring in southern markets with Lowes. So we're really excited about this.

We're also using Carl Edwards, our Number 60 Scotts NASCAR driver, across all of our POP materials to help educated consumers on how easy it is to start right and finish big using our products.

We're not using Carl in the typical race car driver suit, but rather a regular guy who has the inside track. Consumers will see Carl in multiple places around the store, and we will promote cross-brand purchases with displays like the one that you see there, which is straight TB and our Weed-B-Gon products. So we're really trying to educate the consumer on how to use multiple brands within our portfolio.

We also know from last year that retail events really drive our business. Events like the Fire Ants Brigade saw about a 15% POS lift. Now believe it or not, they have fire ant festivals in Texas and they awarded like, Mr. and Mrs. Fire Ants. I actually have the T-shirts. Our NASCAR show car program saw POS increases of about 5.1% per store. So we will continue to do these in '09.

Last year, we printed coupons for our in-store counselors to use to encourage consumers to buy Scotts versus competitive products and also to drive trial of complimentary products to those items that were in their shopping baskets. We had over double the industry average of redemption on coupons that are distributed at retail and we plan to continue to give our counselors these walking around coupons, primarily in our under indexed areas.

We are also driving our business through local events, at NASCAR races where we have the opportunity to touch over 125,000 race fans. We set up opportunities to sign them up for email reminder service, hand out how-to brochures and coupons, and we do interesting things in the community in which the race is taking place.

For example, we've joined forces with Keep America Beautiful to organize cleanups and planned community parks. We also went door-to-door and handed out information on how to conserve water, or how to be water smart.

This year, we're working the major league baseball organization, starting with the Cincinnati Reds. In fact, we have a really neat integrated program which includes in-stadium communications, local advertising, a unique product which is a Scott's major league baseball ballpark blend of seed and fertilizer, and participation in the refurbishment of local youth ball fields in the Cincinnati community.

Another way that we're reaching into peoples backyards is though our edible gardening initiative. Growing your own -- and I am talking vegetables -- is really, really popular. Not only does it save money, even when you factor in the plant, the water, the dirt, the food, and your time, but it's better for you; it tastes better. It's the ultimate in eating local and it's just good for the soul.

So we're helping consumers understand how easy it is to grow a garden no matter what kind of place they have, in a container, in the ground, vertically. We'll be communicating this through advertising in-store events, even some NASCAR race events and online.

In fact, we're talking to Martha Stewart about using our products in her own garden, like Miracle-Gro Organic Choice soils and plant food and using our Ortho Ecosense line as a control product in case she ever gets any bugs. I'm told she doesn't but we have it just in case.

And where possible, we'll also highlight the containers and tools available from Smith & Hawkins, like that vertical planter featured there.

We're also using edible gardening as a platform for corporate citizenship. We will be donating over a million pounds of fresh produce to Feeding America, which has food banks around the country that accept fresh produce.

We will be encouraging consumers to pledge a portion of their own backyard harvest to their local food bank, and we are working with Keep America Beautiful and the Garden Writers association to build edible community gardens in multiple cities around the country.

And then finally, our own Scotts associates will be growing veggies at our headquarters and donating the proceeds of the activity to our local food bank in Ohio.

So we hope that all of this really starts a movement, a movement to get people to grow their own food and experience the joy of gardening. And we think it's going to be a great way to attract new users to our category.

So we're taking what we've learned in '08 and building on it in '09. As I said earlier, we know we have to work harder and smarter to really get the consumer to part with their dollars. But we're also incredibly confident in our plan.

We're driving demand with more advertising. We're getting the right balance between national and local communications. We're using technology to build relationships with our best customers. We're driving growth through cross-brand promotions, displays, and in-store presence, turning shoppers into buyers with persuasive in-store communication.

We're offering walking around coupons and temporary price reductions in key drive periods. And we're creating excitement at retail with events that educate and create a sense of urgency for the consumer. And finally, we're making it easy for the consumer to grow their own and to give back to their community.

So I hope you agree there really is no better business to be in and we are having a lot of fun driving it.

Thank you very much. Jim?

All right, thanks, Jan. So you heard the operators this morning. You heard Jan now talk about the ways that we are going to stay engaged with the consumer. So in a moment here, we're going to turn it over to Dave to share with you the full plan for '09. He's being joined by Mike Lukemire, who is EVP of Global Technology and Operations. Our global purchasing group reports to Mike, and so Mike is going to share some insights about where we stand with commodities and what the cost of goods outlook looks like for '09.

Before we get started, a couple of pieces of housekeeping. I know some of you have come in from out of town and are worried about the weather. Rest assured, it's sunny outside. The clouds have cleared away and you don't have any problems, so we're all good.

[CROSSTALK]

Same joke. Nobody laughed then, either.

And on your way out, we have gift bags for all of you. And we ask you all to take one, so we don't have to take them back with us. A lot of the products we've been talking about today, '09 innovations, are in that bag. Our Water Smart grass seed, our Easy Seed lawn product as well. Some of the mousetraps that we keep talking about, as well as Miracle-Gro Single.

So whether you live in the city or live out in the suburbs, if you don't know a gardener take it anyway and give it somebody that you know. But please take one with you. I think it's a good representation of the Company and the innovation it's got. So that will turn it over to Dave and we'll go through the numbers.

Well, thanks, Jim. I'm a little bit jealous. Jan gets to show these cool videos and advertisements and I get to show you rows and columns and numbers. Hopefully, this is equally interesting.

So we're going to pull it all together now again. You heard the punch line this morning which was updated guidance. So on November 1, we guided, at that time we said around $2 per share and around flat free cash flow. On the basis of the plan that you heard today, we're raising that guidance to $2.10 to $2.30 per share. Hopefully, this is equally interesting. So we're going to pull it all together now again.

You heard the punch line this morning, which was updated guidance. So on November 1st, we guided, at that time, we said around $2 per share and around flat free cash flow. On the basis of the plans you heard today, we're raising that guidance to $2.10 to $2.30 per share at $150 to $170 million in free cash flow. So I'm going to walk you through the mechanics of how we intend to do that, so you'll have a better understanding as we walk through the P&L.

So first of all, at the sales line, our full-year expectation now is to be flat to plus 2% in sales. Recall on November 1st when we spoke to you, the bridge was pretty simple, if you look at the bottom row there. At that time, we had articulated that we felt we had an opportunity for about 8% in pricing and it was offset by currency, strength in dollar, to the tune of negative 5%. And then we said that we felt we had low single-digit unit declines in the base business, leaving us a range of nearly flat for the year.

As we update that information with the time that's past, there's two substantial changes here. First of all, the addition of the Private Label business, so was not on our radar at the time we spoke last time. And as Jim mentioned, the Private Label for us is in the area of $100 million. And as he mentioned, what we picked up was Home Depot, so the Vigoro brand of fertilizers, plant foods and soils. And we also picked up some additional volume at Wal-Mart with Expert Gardener Soils. So that volume, in aggregate, is worth about 3% on a corporate basis.

Now you see the total growth is still 0% to 2%. So you say why -- how did that happen? Well when we considered all the events that have occurred between the end of October and to today, in light of recent information and considering the price increases that we're taking and the environment in general, I think we took a bit more of a cautious outlook on our unit volume. And now are effectively saying, our unit decline built into this guidance assumes a loss of units in the 4% to 6% range.

So the two key changes are addition of Private Label, moderated by a more cautious outlook on unit volume due to basically broader economic concerns over the last 3.5 months. If you look at it segment level, you can see the Consumer business, we're anticipating growth of 2% to 4%; the Global Pro business, roughly flat; Lawn Service, while they had a strong start, we do anticipate seeing some volume loss in this business, and then Smith & Hawken as well.

You can move down the P&L and you look at gross margins. You could see a story that I'm all too familiar with. It's not a very positive story in terms of enabling us to continue to make types of investments that we need to make as the category leader, driving innovation, increasing participation and providing consumers in-store support.

We experienced declines since 2004 from a peak of 37.6% gross margin rate to 33.1%. Over this period of time, we've seen a fairly dramatic rise in commodity costs that accelerated over this time period to last year when we experienced about a $140 million cost increase. While we've been taking pricing on a steady basis, the pricing we've taken has barely managed to keep pace with the cost increases, and that alone has been the single largest reason for our continued gross margin rate decline.

We've also seen some unfavorable trends in mix, both from a product mix but also from some of the acquisitions that we made that were dilutive to our gross margin rate. With that foundation, I'm going to turn it over to Mike Lukemire. And to let Mike tell you a little bit about our perspectives on commodities, productivity improvements this year. And then I'm going to tie back margin rate when Mike's complete.

Thanks Dave. My table already tried to get me to commit to what 2010 commodities were going to look like. So I kind of reminded them, last year's presentation was we thought 2009 would be relatively flat. I think in November, we said it was going up 200 million and I think in our deck today, we're saying 140. So if I could predict commodities, I probably wouldn't be standing here. I'd probably be on some island enjoying the sun and riding a boat. But I'll take a shot at what is happening in 2009 with commodities.

For the Global Consumer and Professional business, the cost of goods for Scott's is about 1.7 billion. That excludes Smith & Hawken. And of that, about 40% of that is really commodity sensitive, about 700 million. Now we use tools, and our strategy historically has been, is when we try to set pricing with the retailers, we try to really lock-in that we would match the commodities and the cost with the pricing, and so that we would always have a fair price.

Last year, we didn't do that; the costs went up. This year we took pricing, the costs have come down. But the key areas there are certainly urea and grains for grass seed, and then other materials that Jim had talked about in his opening slides.

We do use a long term purchasing contracts. We do some hedging. We try to keep that within the year. And then we use trade derivatives for fuel, because basically we don't own the trucks, we have to do it. It's not treated as hedge accounting.

So where are we at for 2009? We have about 75% of our needs locked, 69% of our urea needs. Right now I would buy as much urea as I can without busting inventory. If I could hedge more, I probably would be pushing Dave to give us the ability to hedge that. Diesel is 60% locked and we're looking to continually lock that as well. And certainly potash, it's basically holding around 300, but it's not going down as fast as we would like it to be.

So the net number is 140 million. And if volume goes up or we're buying more, that might be a better story. But I really wouldn't commit to that, that's really where we're at.

In addition, our productivity continues to be there. We build in $43 million. It's a historical one, so some of the projects like regionalization, formulation changes, productivity in the plants, all being captured and brought in. So with that, Dave's going to give you the functional item. What it means for gross margin for 2009?

Thanks, Mike. So when we look at gross margin rate and aggregate, we're confident of realizing 100 to 200 basis point improvement this year relative to 2008. So we ought to be a 34% or 35%, which would get us back to 2007 levels.

If you think about how to bridge that, as Mike mentioned, commodity costs have eased. Recall back in the summer when we spoke after third quarter earnings, we were talking about cost increases at that time in the neighborhood of $250 million. When we spoke again around November 1st, we were talking about cost increases of a couple $100 million.

Our current outlook is for cost increases of about $140 million. So it's easy to forget that year-over-year, our costs are still up. They're just up at a much-reduced rate relative to what we thought earlier in the summer.

Cost productivity, so Mike on his prior slide talked about continual improvement that the supply chain is making, driving a reduced cost. It's been fairly consistent in driving $30, $40 million of cost savings in a year. It's on the basis of the capital investment we made. And we expect that to continue this year as well.

Pricing, so we have spoken about pricing, everybody's aware we took some fairly aggressive pricing this year, led by lawn ferts where we're taking a 30% price increase. In aggregate, we still believe pricing will yield nearly 8% across the Company. And finally, from a gross margin rate perspective mix, which in the past several years has been a negative. You'll recall in our first fiscal quarter, it was actually a positive. We see two dynamics doing on here.

First of all we have the addition of about $100 million in Private Label volume that will be dilutive at the gross margin rate level. Offsetting that is the balance of the product line. Within that product line, we see, this year, we're building in a plan for continued trade-down in lawn ferts, which was a continuation of what we saw last year.

But we see that being substantially offset with new innovative and higher margin products in the grass seed area, in the bird food area, and a continuation of a multi-trend in growing media. We continue, even last year to see consumers trading up from commodity soils to branded soils.

So when we think about mix this year, the primary dilutive impact will be Private Label. So some of those four events is what gives us the confidence to believe we'll end up increasing or improving our margin rate by 100 to 200 basis points this year.

If you look at G&A, it's an interesting story this year. You see fairly aggressive growth in G&A. On the one hand, that could be concerning. What I would say though is that large portions of this G&A are fairly variable. So the items that you have to think about as being fairly variable include variable compensation, the media, marketing and in-store and the technology and innovation.

Let me start with the variable comp. So as you're probably familiar, because we spoke about this on our fourth quarter call, last year and frankly the preceding three years, have all yielded target payouts as an outcome of our plans and as an outcome of our results, in and around the 50% range. As we constructed our plans this year and as we -- the Board reviewed our plans, the context within in which they were in was commodity cost going up about $0.25 billion while the consumer environment deteriorating, and the credit facility that gave us some pause.

So we designed a comp program in that context and put some pretty significant hurdles or cliffs of a downside that would prevent the management team from being paid a nickel if two things happened. If our earnings fell below $2 per share or if in any way payment of the plan resulted in a credit compliancy issue. So we had a pretty steep, hard cliff on it. At the same token, we had a pretty rapid rise up in the variable pay as the result of the Company improved.

When you look at this number here, 25 million, it's on the basis of achieving earnings about the mid point of our guidance. And that's relative to prior year where we had a very small payout.

The other variable items are really the media, marketing and in-store. As Jan expressed, we've dedicated a much larger share of our spend this year to items that we think will drive volume but give us a tremendous amount of control to turn them on or off as we see the consumer responding. What I would say is, if you go to the high end of this guidance that would be reflective of, if we saw an environment where consumers were responsive, we saw the category doing better than our expectations, we would continue to spend to try to ride that momentum.

The third item, which I would say is variable but would probably be one of the last ones we touch is the innovative and technology. So this is both investments in IS as well as technology and innovative.

Barry talked about, this morning, the increases we've made in our R&D investment over the last two, three years. This is a continuation of that. And I think we're really pretty proud of all the innovative you've seen today, and this is an outcome of that. So our hope is to continue that investment.

The other costs are human capital and retention. That primarily consists of some new leadership and some equity as well, as some pretty innovative retention programs.

And then finally, pension, like more other companies, we're seeing a rapid run-up in our pension expense as an outcome of asset values deteriorating so much. What I'd say is the impact on Scott's Miracle-Gro is fairly nominal on a relative basis. We had a defined benefit plan in North America historically, but that plan was actually discontinued back in 1995. We still have some plans in the UK, but our exposure as a Company is somewhat limited.

And then we expect to see some favorable benefit from currency. It's about a quarter of our SG&A in non-US denominated currencies. So overall, we see a pretty and unusually wide range in this, because it really shows the uncertainty we have with our unit volume this year.

As you move down the P&L, interest expense is a real positive this year as well. The key drivers are rates, cash flow and currency. Recall that our debt in total is about $1.2 billion. About half of this is fixed and about 30% of it is denominated in the non-US currencies. So when you think about half our debt is variable. And to the box on the right, you can see changes in LIBOR rates. You can see what's driving that improvement in interest expense of nearly $14 million.

Cash flow, this is really more a function of cash flow we generated last year, then cash flow we generate this year, as most of the cash flow generated in this business ends up being the Q3 and Q4 event. But think about last year, we generated about $140 million in free cash flow.

We paid roughly a $30 million dividend. That's approximately how much was used to repay debt last year, which we're going to benefit from this year. And finally, because about a third of our debt is denominated in non-US currencies, the interest expense associated with that will also be lower as a result of the strengthened dollar.

Just one other note of -- for color is that we think about from a capital strategy perspective, the amount of debt that we want to leave fixed versus variable, the fair bias right now in interest rate environment, is we focused on different ways we can continue to fix a greater share of our debt in the future through different instruments.

Now that pretty much takes you to the bottom of the P&L. And that discussion has been on, what we've historically called, an adjusted basis, which gives you a good comparison year-over-year of the types of growth we expect. When you move -- when you adjust to get to GAAP or reported earnings, there's two adjustments of note that you need to be aware of.

First is the ongoing product recall and registration matters. Last year, we incurred costs of about $51 million for the product registration. This year, we now see that number increasing to about $70 million with an additional $20 million of expense incurred this year.

I'll tell you that this has been a pretty unprecedented process. And we've been -- this started back in the spring. And we nearly -- or I should say, we substantially completed the first phase of this review, which is a review of all of our product registrations. We're now in phase two of the review, which is a review of the advertising. And as a result, we can say with some confidence that we believe that there will be no material impact on 2009 shipments as a result of these reviews.

However because of this process, it is a new process. No one's been through this before. If there's been an ebb and a flow and a bit of unpredictability to understanding how long it's going to take, that's in large part the reason why our estimates have gone up. And that is the primary reason why our estimate has gone up another $5 million since the last time we spoke.

So at the last time we spoke, we thought this process would be completed some time in the early February time frame. Our current estimate is probably going to continue through late April.

The second adjustment that you would see in our earnings this year relates to the globalization and consolidation in Geneva that Claude Lopez referenced. This is a move that's very consistent and enables our business strategies. It standardizes us globally on an SAP platform. And it has positive economics.

What this value of 9 million represents is the cost of restructuring. So it's primarily relocating our personnel. As Claude mentioned, while we believe this is sound from a strategic perspective, we are moving at a slower pace until we have more certainty and clarity on the health of the business this spring.

So we see this as probably being initiated in Q3 and assuming that we pull the trigger on it, we would incur about a $7 million charge as an adjustment to our adjusted earnings.

From a cash flow perspective, our cash flows are up from 140 to 150 to 170. So what's driving that? As you look at our guidance, the operating income is relatively flat. But the benefit we see is the reduction in the non-recurring registration costs so last year the charge was about 50 million. Not all was cash, but call it around 50 and this year you see about 20 million.

That is the single largest driver for that. I would say the improved working capital productivity, which we'll continue to strive to drive, is really a mechanism for us to fund some slight increase in our capital expenditures. Historically we've had CapEx in the area of 50 to 55 million. This year were anticipating CapEx closer to 70 million, partially driven by some of the regionalization concepts that Mike Lukemire described earlier.

So I know this has been a topic that's been on everybody's minds over the last 12 months or so. It revolves around our credit facility. So we've been very open about this. We have a credit facility with two financial covenants. By far for us the more restrictive of the two is our debt to EBITDA leverage covenant.

The interest coverage is not been historically a gating item. Last year our covenant at the end of September 30 was 4.25. That covenant is reduced by 50 basis points at the end of this fiscal year and drops to about 3.75. It drops again another 25 basis points in 2010.

If you look at our range right now, we think we have fairly high confidence we can end the season in the fiscal year in the range of three and a quarter to three and a half. Let me give a little bit of confidence for how that's going to happen. Our average debt this past year at the end of the fiscal year was about 1.265 billion.

We think we're going to drive out average debt down to about 1.1 billion by the end of the year. That's going to come from the free cash flow plus the dividends that I described. And it's also going to come from reduced debt that's denominated in non-US currencies. So to the extent that we have 30% of our debt in non-US, when we convert it back to US at a stronger dollar that gives us an additional tailwind on our average debt.

For the denominator, EBITDA, we conservatively estimate we would have EBITDA of 310 million. Let me walk you through how you get there. So we said on our guidance, operating income is relatively flat. Last year was $286 million. Just to use round numbers, assume it's $280 million.

We disclosed that depreciate and amortization is about 60 million so that takes you up to 340 and then you subtract out the adjustments we make to report GAAP earnings. If you go through that math you arrive at about $310 million. That gets you to around a three and a half leverage.

So why we have confidence we won't exceed that? Well we have a variety of what we call circuit breakers in this plan that gives us a much higher degree of certainty. So first of all as I mentioned our variable comp plan has a circuit breaker that if ever we're in a condition of default then all incentives get reduced to zero. That alone is about a $30 million circuit breaker.

The second lever we have is the international restructuring. Call that another $10 million. And the third that I'm not even going to attempt to quantify here is if we would be in a situation where we'd see we'd be bumping closer to this, as we did last year, I think we have ability to address our variable spending fairly quickly and adjust that down.

So all in all, the conclusion we've reached is we would have to have a unit decline, a fairly substantial unit volume decline for us to have a serious issue with this covenant this year. To feel like we've really put ourselves in a better position today than we were six months ago on this.

So if you pull it all together you see the top line growth of 0.2%, the gross margin rate improvement, 100 to 200 basis points, SG&A growth four to nine, net-net if you do the math yields operating income of slightly down to up 4%. We'll see a nice benefit in interest expense and all told that leaves us with earnings in the range of $2.10 to $2.30 per share. And as I mentioned, free cash flow of $150 to $170 million.

So that really sums it up for this year's guidance. I know a lot of folks are interested in longer term. What I would say is I think it's very challenging in this environment to even give guidance on this year let alone next year. But having said that, the strategies that Jim and Mark outlined this morning give us a lot of confidence that there's a growth still to be had in this category.

Mark quantified regionalization as a $300 to $500 million opportunity. Innovation we believe could be up to $500 million opportunity. So there is tremendous growth still to be had here.

If we go back and reflect on the longer term guidance we provided last year, we really believe that it's still attainable and when we look more near-term at 2010, we believe we're going to have some nice tailwinds if the commodity market continues to moderate as it has. So it gives us a lot of optimism both in our 2009 and 2010 plans.

That's all I have and I think at this point I'm going to turn it back over to Jim. Thank you.

Wrap up. I don't have much of a wrap up to be honest. It's a pretty damn good industry to be in, I think. I think we still are recession-resistant. We've got all the brands in the industry and I think we have an opportunity to sort of hit the reset button and sort of embrace the fact that margins count.

So what do we know about the business? We know we got prices up. We know our costs are down, at least relative to what we budgeted. Margin's up, back to the if you look at the last four years, three of them at about 35%. The consumer appears to be alive at least for stuff that sells for less than $10. Yes, it is. It's nice to be in the dirt business. I think the only thing better maybe selling water.

Retailers are supportive of our business. We've got new ideas. We've got a bad which means good attitude. I got Baker. The team has come together. And what is the big question? Is the consumer really there? At the end of the day, if the consumer's there, we're good. If the consumer's there or not there, I think our plan is legit. This is not to say we couldn't screw it up but I would say as long as the consumer is alive, it'd be pretty hard for us to do that.

So that's kind of how we finish is we feel pretty lucky to be in the lawn and garden business. I think we feel confident that the business is more recession-resistant than we might have thought this time last year and it's based on actual data from April to today. Retailers want this business to succeed, they want us to drive customers in to the store. We're doing that and I think we're doing okay. Now if we go up to -- Baker do you want to join me and we'll do Q&A and...

I f you've got a question let us get a mic to you so the folks online can hear as well.

Actually, this question is for Dave, if I could. Just wanted to walk through the guidance you gave at the end of the fourth quarter and the guidance today and sort of what changed since then? It's sounds like this is overly simplistic.

But if we assume the private label pickup roughly offsets the lower volumes on the EBIT line and you assume the lower interest expense roughly offsets the incremental SG&A spend, then what pops out is basically the commodity delta which is about $0.50 a share, yet the guidance is up only 15 to 30. So what am I missing? Is the missing piece the incremental, the variable comp portion of SG&A? Or is the math wrong?

I'm sure I was following all your math. But if you think about the volume first of all, what's changed since November 1? Our total assumption hasn't changed at all. It's still kind of flat to plus two. We've picked up some private label but I think given the continuing downward spiral in the economy we had a commensurate decline in the base business.

So really, the benefits that we've seen are lowering commodities, so call it from a couple hundred to 150, so 50 million there and some interest savings and then the offset is really some increased variable comp and increased SG&A that you saw. That's what kind of balances it all out to an increase from $2 a share to a mid-point in this range of $2.20 a share.

I'll follow-up offline but it seems like you're setting, I don't want to put words in your mouth, but it seems like you're setting this up for potential change in guidance later on this year should the current trend continue in terms of consumer take-away.

But the answer to that is yes. I think we were talking earlier and people said in this environment, set the bar so low you trip over it and I think that we've picked up incremental business, our margins are better. I'm not going to spend a lot of time trying to tie everything today. If Dave wants to do that, he can do that. I think that this is not an environment where we want to over-promise. I think that it would be really bad for us to do that.

So I think if the consumer is there, I say my point of view, and I'll probably get in trouble with my partners here, my point of view is that this is not a market where we want to get out way ahead of anybody. I think this is a market when we have the sales, we will definitely tell you and if we do, it's all good.

So if the answer is would we rather wait until we actually have the sales to say we want to call our numbers up if that happens? The answer is yes. Do I want to do it here? Do I think the market will pay us for it? No. That's my view.

He can spend all the time he wants trying to tie it all together for you, but at the end of the day that's the direction that I gave which is let's wait until we have the money before we start acting like it's ours. And there's a lot of buts there. Because it all depends on the consumer. (inaudible)

With unprecedented pricing. You remember taking a 30% price increase in our lawn and fertilizer business in a pretty historic consumer environment. We're being cautious and not trying to get out ahead of ourselves.

You think we're wrong?

(inaudible question - microphone inaccessible)

It's convoluted.

You laid out the price increase but can you talk a little bit about what you're prepared or what you're planning on spending to drive incremental spending from consumers? In other words if Home Depot and Lowe's wake up from the worse, I'm trying to figure out where the funding and what the mindset is to provide support in order to move product.

Let me take a little bit of that on. These [QS] numbers that we showed that Dave had up where it shows call it 30% and units up, remember that's coming from them already. So they're really already excited about the load-in, some of its new product driven. They know that the advertising's coming as we start going through Florida and the bonus stuff here in February.

So from Barry and I spending time with our retail partners and their senior management people they're very excited about the support that Scott's bringing to them for the category. And if this [QS] continues they're going to really like what Scott's has done for the category and particularly for them.

Every retailer out there right now is looking for a way to drive comparable store sales and this could be one of the few categories that actually significantly impacts them in a positive way. So I would say that while there's always pressure about cost, price, who gets what and the trade-off, we can all win here. And I think we watch every day, we talk to them every day and every week. They're feeling pretty good right now.

I might add just a little different. There's a pretty significant investment in the southern markets that will happen the next couple weeks. And that's budgeted in those markets. If we see that work, kind of the reverse side of that question is how much more would you spend to drive the business if it worked in the southern markets. We roll it up and it would be a pretty significant increase in spend as we push sales up to the market.

So I think that that's maybe the other side of the question, which is how much would you spend to drive the business? I don't think we will be particularly supportive of price reduction unless we saw, because the question came up which was what would happen if we saw that our private label business was doing significantly better.

I don't think so, largely because I've seen programs we have in place that are very brand-oriented, they're very action-oriented, they're sort of everything we think we've ever done right in these markets.

If that works, we would continue doing that until we saw it didn't work and if we saw a major shift between major share, that's the only reason it would force us to take back and look at actual pricing and say have we priced ourselves into a square corner even thought the differential hasn't changed, it has in dollars just because everybody's moved up but the dollar difference has gotten bigger.

Could you quantify any percent increase in space Home Depot and Lowe's might be giving to lawn and garden the category this year? Did they increase their square footage 5% for lawn and garden during the lawn and garden season?

I think what we're seeing with the sales group and service group is we're getting a lot more of the incremental stack-out areas, the impulse areas that are around the cash wrap, so we're inside they call the rail coming in, the fence line. They programmed those things out, both Lowe's, Depot, and to a degree Wal-Mart.

And to the degree that we can measure it, and again this happens on a very localized basis, we feel very good that we're actually incrementally getting significant space increases to us and not just the garden category but to Scott's itself as we plan for the promotions for this year. Barry, if you have any other thoughts on that?

We're getting more of the promotional space but I think overall space to the category in the normal set is staying relatively the same and you'll see us mark on the fence line at the cash wrap, those type of things. But I think what you will see is you will see Scott's branded product have a more significant presence in the normal set in the plan-o-gram that they do have.

So you're gaining more space share even without the new private label business?

That's correct. The branded as well.

And then what about the support, the percentage of brochures devoted to you or to lawn and garden by the retailers? Has that increased?

I think that the amount of commitment that I've seen from the ads that Wal-Mart, Depot, Lowe's and by the way, Orchard, Minards, on the line, that are going to use Scott's as their index to try and show value and drive consumers into their stores is probably unprecedented at least in the last ten years where most of the retailers have shifted toward private label for incremental margin improvement.

Most retailers today are struggling to go get share and to show top line growth and like how we not happened to lease in the last ten years, they're using Scott's very, very significantly on TV, radio, newsprint, obviously we have our regular Co-op support but they're doing it largely on their own because they know it will drive traffic to their stores.

Maybe I'll just let Barry comment on it but I think that you're seeing more lawn and garden pages than we've seen in the past and a higher percentage of them going to us.

When you look at the category, more is going to go to lawn and garden, more is going to go to paint, less is going to go to capital items, appliances, kitchen items, those type of things so and like Mark said, so we're getting more space within the tab. We're also getting more tab presence so we're going to be actually in more tabs, we're going to be tagged on the radio, you're going to see our products on your TV and so like Mark said, in ten years I've never seen our retailers say we're going to drive the brand business in lawn and garden that's going to drive the footsteps into the store.

And then I just have one more and this is about the quarterly progression. The second quarter, if we could just comment a little bit on the second quarter. It seems to be an easy comparison versus last year. On the other hand, you seem to have over-shipped in the first quarter versus consumer take-away and that would maybe take away from the second quarter. So can you comment on the second quarter a little bit?

You know, Alice, we haven't provided quarterly guidance. Frankly, to try to predict the split between March and April you have to be a weather God to know where it's going to be.

I think your comment about Q1 is correct. You can see by the divergence of POS and shipments that there's more inventory out there, which intuitively tells you that if we shipped a little earlier there would be a little bit of a headwind in Q2.

But you're right as well in that last year March was a terrible month, which would represent a tail wind. So directionally I think you're probably correct, but we're really not going to get into trying to call quarter by quarter today.

I'll see if I can stuff three questions in real quick, but one, about four or five months ago you talked about --.

Why don't you look at her when you're saying that?

No, no, I'm long winded on my own. You had talked about some sub $10 kind of fertilizer light products. Did that get scrapped when you picked up the Spectrum business?

The second question is, marketing spend, I'm a little bit surprised that it's still going to be higher next year. Are you not seeing benefits in print, TV, radio spots? I would think that's a pretty nice tail wind. And third, I don't know if you'd comment a bit, are you keeping the same tax rate for '09?

So tax rate, 36%, media, working backwards here, I think Jan is the expert, she could comment on the efficiencies we're going to see. So we are going to get some more efficiencies.

At the same time, we're also going more regional than national, which has a cost to it as well. So I think when we referenced on one of the slides a 12% increase in spending, I think effectively we're getting a bigger increase than even the 12%.

All right, shall I take the fertilizer light, since I've got to say I'm the sort of father of it? It's a little bit like trying to sell electric cars when fuel is less than $2 a gallon. So that took a little bit of the need away.

Second, it was a harder sell. Now remember, Lukemire -- where's Luke? Luke and I were driving around in the UK and saw what a competitor was doing and said, hell, we can do that better than they can.

And it was basically cut fertilizer still to a point where it works and put some organic matter in there, make a bunch of marketing claims. And this is not to say it didn't work. The product did work and it tested pretty well.

That being said, it almost competed directly with the retailer's private label. And so there was a lot more resistance, I think, than we thought we would see for a product that, if urea was at $1,000 a ton or more, we felt that we had to offer the consumer something that was kind of reasonably priced, that was below retailer private label and more like products sold for in '08.

The retailer was more resistant in general to that than we thought. And then to some extent the need went away as costs went down. But I would say it's a harder sell than I thought it would be. Mike?

The only thing, obviously having the private label thing, if we put our focus on there it would have been difficult to do this year as well.

Any questions in the back as well? One up here.

All right, looking at your grass seed initiatives, particularly with the Turf Builder, is this replacing another Scott's product? Or is this going to get you incremental shelf space to key retailers?

Where's Dan, are you here? Dan, talk to us about are you getting incremental -- well look, first of all, it was only a depot before. But talk about increased distribution, where it's coming from, what sort of segment of the market it's coming from?

Well, the whole Turf Builder business is truly national for the first time. So actually, the support from the [Inet Group] is really high.

So incremental distribution through the non-top four, I think we've got 100% distribution on --.

Yes, I mean we were pretty strong in the Big Three, with the exception of Wal-Mart, which expanded their pinky. And then Inet was a huge opportunity.

(Inaudible question - microphone inaccessible)

Big time.

And I think the game-changing technology in terms of the Water Smart piece and the advertising and marketing that's going to go behind that hopefully will invite a lot of new customers into the category. Does that help?

Okay.

Roundup is a terrific business and I'm wondering if you could comment on your relationship with Monsanto. And do you think the business will continue under the current framework? Or will there be any renegotiation of terms or anything like that?

No, I don't think there'll be a renegotiation of terms. Monsanto's a great company, Hugh Grant is just a really nice individual and I think he's a pleasure to deal with.

That said, I think it's a pretty smart, tough company. And my objective is try to keep it friendly. And Berger had a saying, my predecessor, surly but not mutinous. So I think at times it gets surly.

But you know, listen, it's a business that makes a lot of money. It's good for both companies, everybody recognizes that. They want us to do our job and focus exclusively on the Roundup products and I think we have done a great job at that.

But it doesn't mean that, just like a group of smart, aggressive family members, there aren't disagreements at times. But ultimately, it's a good business for both companies and everybody recognizes that. So no, I don't see a major re-discussion of terms. The agreement doesn't allow for it anyway. It's a good deal for us, by the way.

Hi. Just first a point of clarification, when you say gross margins below and operating margins in line for the private label business, are you talking relative to the total-company average or just the consumer business?

I think on a total company basis private label is dilutive with the margin rate but it's nearly neutral on an operating margin level.

Total company, I guess.

Total company.

Okay. And then, you touched a little bit on grocery earlier in the discussion. I'm just wondering, some of the channel diversification strategy, is there anything you can point to in grocery, in Dollar Club, any of the other channels other than the top three?

Well, you know, I think the question is about how the other channels are adjacent channels. I'm very excited, some of the stuff that Mike Lukemire's working on in terms of the way we can manage and handle and ship to these customers, which we may have not had before, as this regional distribution becomes more powerful.

But even as an effort to get out, some of our best-growing areas right now are the independents. Our independent business is probably up as much as anything or more.

And as I've seen in the past, the best independents, because it matters to them how they're doing in their own little retail store, they get pretty aggressive. And our business continues to be strong there, Orchard Supply, [Lenarge] is a growth business for we've seen, Costco has been a nice business in growth. So every kind of channel that we've been in and, as we look to adapt products, like the rodenticides might be a good grocery play, we see a lot of channel expansion opportunities.

And maybe even the size of the packages that we send, 1,000 square foot Turf Builder, which I think is a great item, is going to find its way probably more likely into a Target store and other places like that, that probably wouldn't have been as likely to carry a 5,000 square foot bag. So we're driving that and seeing big results.

Have you got a point of view on commodities and alternative or non-standard distribution of commodities at My Convenience and --?

Yes, I think that we talk about some of the greatest places of retail and I'm obviously a little bit of a student in retail. And whether it's grocery or we mentioned CVS, Walgreen's, we need to be places where people shop.

And as I talk about how we have used [Stifenhoken] and they use it really effectively in the future as a future relationship with Target. Target's one of the last big multi-store retailers we don't do a lot of business with because they don't have big garden centers. And yet they have a lot of customers, a lot of female customers typically, and they do pretty well.

So we're spending more time adapting, whether it's naturals or, as Jan pointed out, some of these edible gardens or vertical gardening that may be significantly appropriate for other adjacent forms of distribution and trying to adapt our package and our proposition to them, rather than having them trying to add on garden centers, which is not likely going to happen. So over the next several years we haven't counted in any of the regionalization as such, but I see that activity being driven by the regional.

Do you guys have any data with respect to the ease-of-use products, the Pump-n-Go, the LiquaFeed? How much of that's actually consumer trading over from the bag product or the regular product? How much of that is you taking share from a competing product? Or how much of that is just a new user as a whole?

Barry?

Maybe we can get Tim to talk specifically about it. Like we said, Pump-n-Go was a $40 million introduction and it was the largest year. We actually reversed a small decline from the previous year so it was incremental.

And I think that part of it is a trade over, but part of it's also the consumer seeing the value in the applicator and how we're going to drive that going forward. So we've talked a lot about innovation and I think you're going to see this across all of our businesses.

In Gardens we came out with LiquaFeed, which was a different form of delivering the garden fertilizer. Thank you we had Pump-n-Go, we have some exciting new applicators coming for Ortho. And then probably one of the largest innovations that you're going to see on the applicator front on our Lawns business is going to be coming in 2011.

And so, if you go back to that segmentation point of view, those people that are already buying the products, they may be trading up. But like we said, half of the consumers aren't in the category at all anyway. And so, if we make it easy for them to use, it's easy to understand, it's an easy process to do, we think that is going to be the catalyst to actually grow the category from that perspective.

Tim, I don't know if you want to comment any more on Pump-n-Go.

Yes, everything Barry said is accurate. I'd also add that Roundup grew both dollar and unit market share last year. So we definitely attracted new consumers to the Roundup franchise. That market share growth, again, was both on a unit and a dollar basis.

Our existing Roundup products were strong and then we added Pump-n-Go on top of that, so we had record sales for Roundup. So it grew the Roundup business, it took share. There was some switch over so it was somewhat cannibalistic but it was, in total, incremental.

Yes and I've got to say, sort of a hats off to, at the end of the day, Monsanto's commitment to the business with us. The business plan needs to be jointly agreed. We agreed to a very significant, more than 20% increase in advertising year-over-year for Roundup.

And what you see in that chart that -- I'm not sure who had it, I think it was Jan maybe, was it your chart, was that we were basically just advertising in the center of the season. So we have significantly more advertising in the areas of the country where the season has started but it's not national yet and in the Summer where there's a lot of Roundup sales occur in the Summer.

So whatever we sort of grumble about Monsanto, at the end of the day they bought what is core to us, which is advertising works. And that's a big commitment to the business as a, I don't know, Tim, was it 20 some odd percent increase in advertising.

The variable comp is tied to what?

At the executive level the three fundamental metrics are net income, so growth in net income, cash flow and return on invested capital. As you go down the organization, we make it more specific to span of control and it's really the equivalent of income and cash flow.

So it might be EBITDA for a particular group and their ability to influence working capital of the particular group. Those are the three fundamentals measures.

So it's not tied to units really, unit volume.

Unit volume at the sales level, the sales and service guys regionally, they are tracked on that. And we haven't ever done it before as a true metric for paying bonuses, but I can tell it's a significant metric that they're watching every day to see how successful they are.

Are there internal targets for salesforce comp tied to volume?

Yes, I apologize, I was answering the question to the management team. For sure, when you get to the sales team, then their intent is to have a sales growth metric associated with it. It is dollars not units, but Barry and his team have cascaded our goals, as you do with any sales organization, ask them to over achieve, cascaded that down to the regional level and the account level.

So they have visibility on a weekly, monthly and quarterly basis. But they are not tied to units right now and I think that's kind of a discipline that Mark is introducing more so, particularly in a period where pricing is changing so radically year-over-year.

Can I ask another line of question? The rodent products, how much of the market is urban versus -- I assume you don't have a lot of presence in really urban areas.

You're talking specifically about the rodent market?

Yes.

Actually, fortunately there's mice everywhere and it's really not as urban as you might think. I think you were working on that, Tim, as well. But having sold those at retail and having the knowledge of what happened at Home Depot or Lowe's and all those markets, as well as Wal-Mart, we know that those things are sold pretty much everywhere across the country with a high degree of penetration.

The nice part about it, we're having a significant roll out early on with Wal-Mart. The biggest rodent season is actually in the Fall when they all start to come back indoors. Isn't that right, Tim?

Yes the peak season is Fall, so it's a little bit counter cyclical to our current business.

But I would say that, as a distribution angle, grocery and -- I'm not sure if the word's Bodega, but it would be, if you looked here in New York, it would be neighborhood groceries that, if you look at where those products are sold, you would see ant control, roach control and small rodent control and, to some extent, aerosol as well.

All these are in an area where we are looking to increase distribution. And so as we look at grocery as an opportunity, and we do, to have a full line of products you're going to need aerosol indoor insect control, you're going to need ant and roach traps and baits and you're going to need the same with -- and if you look at our rodent control, it's actually a pretty full line.

So it has bait stations that come from our European colleagues that are really pretty cool, so that kids can't get hold of them, they're wrapped, the rodent has to eat its way in, they're pasta based so it's a really good bait. And then you have the other traps. And we've already got a pretty decent line of roach and ant products.

So this is an opportunity for us to consolidate a line of stuff that could be sold both in urban areas and in non-US tropical areas as well that we think is an opportunity.

How big do you think that market is? And are the distribution channels similar?

About $100 million I think was what we had up there, Tim?

Yes, US is $100 million wholesale, about $180 million POS.

In all channels or just in DOI?

No all channels. And you're correct, grocery and drug is a much bigger share of that market versus the rest of our categories.

And how about bird feed, similar distribution channels?

It was similar distribution?

Yes, birdseed is similar distribution but a good question about urban or suburban. I think, again, it has a good distribution both in town and out of town. And the Home Depot, Lowe's, Wal-Mart are actually the strong distributors for all the bird food I think, Keith, isn't that correct?

Yes. Wal-Mart is the largest birdseed seller and Home Depot and Lowe's are much smaller than Wal-Mart. But then you get into grocery, grocery is very big in birdseed and even the farm and fleet stores, some of the more rural areas. So it's about an $800 million plus category.

With no leader.

With no leader, no brand, commoditized.

Poor packaging.

Poor packaging.

No advertising.

Big opportunity, it's huge.

Anything else? No questions? Going once, going twice.

Okay, well hold on, hold on. There are bags of stuff. It's like a zillion mousetraps in there I think. But anyway, make sure you grab your bag. It is snowing outside. It does seem like every time we do this there's either an ice storm or a snowstorm, so be careful.

And thank you for coming, one. Two, for those people who either lend us money or own shares, thank you. And for those people who follow us, I hope we didn't like screw ourselves up. Thank you very much, everybody.