UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of
Report (Date of earliest event reported): May
5,
2008
The
Scotts Miracle-Gro Company
(Exact
name of registrant as specified in its charter)
|
Ohio
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1-13292
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31-1414921
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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14111
Scottslawn Road, Marysville, Ohio 43041
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(Address
of principal executive offices) (Zip Code)
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(937) 644-0011
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(Registrant’s
telephone number, including area code)
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Not
applicable
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(Former
name or former address, if changed since last report)
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
| o |
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
| o |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
| o |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
|
| o |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
|
Item 2.02.
Results of Operation and Financial Condition
On May
5, 2008, The Scotts Miracle-Gro Company (“the Company”) issued a News Release
concerning information regarding its results of operations for the three and
six
month periods ended March 29, 2008 and its financial condition as of
March 29, 2008. The News Release is attached hereto as Exhibit 99.1.
The
News
Release includes the following non-GAAP financial measure as defined in
Regulation G:
Adjusted
net income and adjusted diluted income per share - These measures exclude
charges or credits relating to refinancings, impairments, restructurings,
product recalls, and other unusual items as such costs or gains relate to
discrete projects or transactions that are apart from and not indicative
of the
results of the operations of the business.
Adjusted
EBITDA - This measure is provided as a convenience to the Company’s lenders
because adjusted EBITDA is a component of certain debt compliance covenants.
Adjusted EBITDA, as defined by the Company’s credit facility, is calculated as
net income or loss before interest, taxes, depreciation and amortization
as well
as certain other items such as the impact of discontinued operations, the
cumulative effect of changes in accounting, costs associated with debt
refinancing and other non-recurring, non-cash items effecting income. The
Company’s calculation of adjusted EBITDA does not represent and should not be
considered as an alternative to net income or cash flow from operations as
determined by accounting principles generally accepted in the United States
of
America. The Company makes no representation or assertion that adjusted EBITDA
is indicative of its cash flows from operations or results of operations.
The
Company has provided a reconciliation of net income to adjusted EBITDA solely
for the purpose of complying with Regulation G and not as an indication that
adjusted EBITDA is a substitute measure for income from operations.
The
Company’s management believes that the disclosure of these non-GAAP financial
measures provides useful information to investors or other users of the
financial statements, such as lenders.
Item 9.01.
Financial Statements and Exhibits.
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(a)
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Financial
statements of businesses acquired:
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|||||
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Not
applicable.
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|||||
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(b)
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Pro
forma financial information:
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|||||
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Not
applicable.
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|||||
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(c)
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Shell
company transactions:
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|||||
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Not
applicable.
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|||||
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(d)
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Exhibits:
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Exhibit No.
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Description
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99.1
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News
Release issued by The Scotts Miracle-Gro Company on May 5,
2008
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-2-
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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THE
SCOTTS MIRACLE-GRO COMPANY
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||
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Dated:
May 5, 2008
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By: |
/s/
David C. Evans
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Printed
Name: David C. Evans
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Title:
Executive Vice President and Chief Financial
Officer
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-3-
INDEX
TO
EXHIBITS
Current
Report on Form 8-K
Dated May
5, 2008
The
Scotts Miracle-Gro Company
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Exhibit No.
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|
Description
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99.1
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|
News
Release issued by The Scotts Miracle-Gro Company on May 5,
2008
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-4-
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The
Scotts Miracle-Gro Company
|
NEWS
|
ScottsMiracle-Gro
Announces Second Quarter Financial Results
Adjusted
diluted EPS of $1.19; reported diluted EPS of $0.88
Company
adjusts full-year earnings outlook
MARYSVILLE,
Ohio (May 5, 2008) - The Scotts Miracle-Gro Company (NYSE: SMG), the world’s
leading marketer of branded consumer lawn and garden products, today announced
that a slow start to the lawn and garden season led to a decline in sales
and
net income for the second quarter ended March 29, 2008 compared with the
same
period a year ago.
“Cold
and
wet weather in March caused the season to break later than normal in most
parts
of our business, which adversely affected our sales,” said Jim Hagedorn,
chairman and chief executive officer. “In addition, recent product recalls
resulted in a pre-tax charge of $31 million during the quarter. While that
charge was excluded from adjusted earnings, the recalls had a significant
impact
on our reported net income.
“Although
consumer purchases increased 24 percent in April - traditionally our most
important month of the year - the combination of the slow start to the season
and a generally weak consumer environment, combined with lost future sales
related to the recalls and continued pressure from commodities, now makes
it
unlikely that we will achieve our initial full-year outlook.”
Sales
for
the second quarter declined 4 percent to $958 million compared with $993
million
a year earlier. Sales were down 6 percent excluding the impact of foreign
exchange. The Company’s largest segment, Global Consumer, reported a 6 percent
decline to $802 million due primarily to a 9 percent decline in North America.
Consumer sales in Europe increased 10 percent, or were flat excluding the
impact
of foreign exchange rates. Scotts LawnService sales were $32 million compared
with $34 million a year earlier, and Smith & Hawken sales were $25 million
compared with $30 million. Global Professional sales increased by 29 percent
to
$100 million from $77 million the same period a year earlier. Excluding the
impact of foreign exchange rates, Global Professional sales increased 20
percent.
Page
1
Gross
margin rate in the quarter was 33.7 percent compared with 37.1 percent a
year
ago. Product recalls negatively impacted gross margin rate by 240 basis points.
Excluding the impact of the recalls, second quarter gross margin rate was
36.1
percent. The remaining 100 basis point decline was attributable to increased
promotional costs. Selling, general and administrative expense increased
3
percent to $208 million.
Net
income for the quarter was $58.0 million, or $0.88 per diluted share, compared
with $83.4 million, or $1.23 per diluted share, a year earlier. On an adjusted
basis - which excludes the recalls as well as refinancing costs in the second
quarter of fiscal 2007 - the Company reported adjusted net income of $77.7
million, or $1.19 per diluted share, compared with $95.1 million, or $1.40
per
diluted share, a year earlier.
During
the second quarter of 2007, the Company recapitalized, increasing its long-term
borrowings by more than $750 million in order to return cash to shareholders
through a share repurchase and special one-time dividend. On a pro forma
adjusted basis - which excludes costs related to the refinancing and assumes
the
recapitalization had occurred at the beginning of fiscal 2007 - the Company’s
second quarter earnings per share of $1.19 would have compared with $1.37
for
the same period a year ago.
FIRST
HALF DETAILS
Net
sales
through the first six months were $1.27 billion, flat from 2007 and down
2
percent excluding the impact of foreign exchange rates. Gross margin rate
was
31.1 percent compared with 33.5 percent. Excluding the impact of the product
recalls, gross margin rate was 33.0 percent. SG&A increased 2 percent to
$353 million. Reported net income was $1.2 million, or $0.02 per diluted
share,
compared with $24.0 million, or $0.35 per diluted share, the same period
last
year.
Excluding
costs related to the product recalls - as well as refinancing costs in 2007
-
adjusted net income for the first six months was $20.9 million, or $0.32
per
diluted share, compared with $35.7 million, or $0.52 per diluted share, a
year
earlier. On a pro forma adjusted basis, earnings per share of $0.32 compared
with $0.31 for the first half of fiscal 2007.
Page
2
FULL-YEAR
OUTLOOK
The
Company revised its full-year outlook and now expects adjusted earnings to
range
from $2.00 to $2.20 per share based on the following reasons:
|
·
|
Although
consumer purchases have been strong in recent weeks, the Company
expects
consumer purchases to be lower-than-expected on a full-year basis
due to a
slow start to the season and broader macroeconomic
issues.
|
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·
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Continued
pressure from commodity costs that are likely to affect second-half
results.
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·
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The
impact of future lost sales and unplanned administrative expenses
- such
as legal and consulting fees - resulting from the product recalls.
This
impact excludes direct costs of the product recalls which are excluded
from adjusted earnings and does not currently include any potential
fines
or penalties in relation to the recalls or the potential for additional
recalls.
|
“While
we’re disappointed that we won’t meet our original projections, our team remains
focused on delivering the best results possible,” Hagedorn said. “Overall, the
category appears to be holding up well in the context of an increasingly
uncertain economic environment. The fact that our core consumers and our
retail
partners remain engaged in the category also reinforces our confidence in
the
business.
“While
we
could make aggressive cuts in planned strategic investments to improve our
results this year, we believe such a move would be detrimental to the long-term
growth of the business. We will continue to invest in key strategic initiatives
throughout the balance of this year that we believe will further strengthen
our
leadership position in the marketplace and enhance long-term shareholder
value.”
The
Company will discuss its second quarter results during a Webcast and conference
call at 5 p.m. Eastern Time today. The call will be available live on the
investor relations section of the ScottsMiracle-Gro Web site, http://investor.scotts.com.
An
archive of the Webcast, as well as accompanying financial information regarding
any non-GAAP financial measures discussed by the Company during the call,
will
be available on the Web site for at least 12 months.
Page
3
About
ScottsMiracle-Gro
With
more
than $2.9 billion in worldwide sales and more than 6,000 associates, The
Scotts
Miracle-Gro Company, through its wholly-owned subsidiary, The Scotts Company
LLC, is the world's largest marketer of branded consumer products for lawn
and
garden care, with products for professional horticulture as well. The Company’s
brands are the most recognized in the industry. In the U.S., the Company's
Scotts®, Miracle-Gro® and Ortho® brands are market-leading in their categories,
as is the consumer Roundup® brand, which is marketed in North America and most
of Europe exclusively by Scotts and owned by Monsanto. The Company also owns
Smith & Hawken, a leading brand of garden-inspired products that includes
pottery, watering equipment, gardening tools, outdoor furniture and live
goods,
and Morning Song, a leading brand in the wild bird food market. In Europe,
the
Company’s brands include Weedol®, Pathclear®, Evergreen®, Levington®,
Miracle-Gro®, KB®, Fertiligene® and Substral®. For additional information, visit
us at www.scotts.com.
Statement
under the Private Securities Litigation Act of 1995:
Certain
of the statements contained in this press release, including, but not limited
to, information regarding the future economic performance and financial
condition of the company, the plans and objectives of the company’s management,
and the company’s assumptions regarding such performance and plans are forward
looking in nature. Actual results could differ materially from the
forward-looking information in this release, due to a variety of factors,
including, but not limited to:
|
·
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Adverse
weather conditions could adversely affect our sales and financial
results;
|
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·
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Our
historical seasonality could impair our ability to pay obligations
and
operating expenses as they come due and operating
expenses;
|
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·
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Our
substantial indebtedness could adversely affect our financial
health;
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·
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Public
perceptions regarding the safety of our products, particularly
in light of
our recently announced product recalls, could adversely affect
us;
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·
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Costs
associated with our recently announced product recalls and the
corresponding governmental investigation, including recall costs,
legal
and advertising expenses, lost sales and potential governmental
fines
could adversely affect our financial
results;
|
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·
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The
loss of one or more of our top customers could adversely affect
our
financial results because of the concentration of our sales to
a small
number of retail customers;
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·
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The
expiration of certain patents could substantially increase our
competition
in the United States;
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·
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Compliance
with environmental and other public health regulations could increase
our
cost of doing business; and
|
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·
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Our
significant international operations make us more susceptible to
fluctuations in currency exchange rates and to the costs of international
regulation.
|
Additional
detailed information concerning a number of the important factors that could
cause actual results to differ materially from the forward-looking information
contained in this release is readily available in the company’s publicly filed
quarterly, annual and other reports.
Contact:
Jim
King
Vice
President
Investor
Relations & Corporate Affairs
(937)
578-5622
Page
4
THE
SCOTTS MIRACLE-GRO COMPANY
Results
of Operations for the Three and Six Months
Ended
March 29, 2008 and March 31, 2007
(in
millions, except per share data)
(Unaudited)
Note:
See
Accompanying Footnotes on Page 10
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||||||||
|
March
29,
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March
31,
|
%
|
March
29,
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March
31,
|
%
|
|||||||||||||||||
|
Footnotes
|
2008
|
2007
|
Change
|
2008
|
2007
|
Change
|
||||||||||||||||
|
Net
sales
|
$
|
958.0
|
$
|
993.3
|
-4
|
%
|
$
|
1,266.7
|
$
|
1,264.5
|
0
|
%
|
||||||||||
|
Cost
of sales
|
612.6
|
624.9
|
850.0
|
840.8
|
||||||||||||||||||
|
Cost
of sales - product recalls
|
22.6
|
-
|
22.6
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-
|
||||||||||||||||||
|
Gross
profit
|
322.8
|
368.4
|
-12
|
%
|
394.1
|
423.7
|
-7
|
%
|
||||||||||||||
|
%
of sales
|
33.7
|
%
|
37.1
|
%
|
31.1
|
%
|
33.5
|
%
|
||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||||
|
Selling,
general and administrative
|
208.4
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203.0
|
3
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%
|
352.7
|
345.2
|
2
|
%
|
||||||||||||||
|
SG&A
- product recalls
|
1.2
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-
|
1.2
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-
|
||||||||||||||||||
|
Other
income, net
|
(1.0
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)
|
(1.1
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)
|
(4.2
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)
|
(3.4
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)
|
||||||||||||||
|
Total
operating expenses
|
208.6
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201.9
|
3
|
%
|
349.7
|
341.8
|
2
|
%
|
||||||||||||||
|
Income
from operations
|
114.2
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166.5
|
-31
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%
|
44.4
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81.9
|
-46
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%
|
||||||||||||||
|
%
of sales
|
11.9
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%
|
16.8
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%
|
3.5
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%
|
6.5
|
%
|
||||||||||||||
|
Costs
related to refinancings
|
-
|
18.3
|
-
|
18.3
|
||||||||||||||||||
|
Interest
expense
|
23.5
|
17.9
|
42.5
|
26.1
|
||||||||||||||||||
|
Income
before taxes
|
90.7
|
130.3
|
-30
|
%
|
1.9
|
37.5
|
-95
|
%
|
||||||||||||||
|
Income
tax expense
|
32.7
|
46.9
|
0.7
|
13.5
|
||||||||||||||||||
|
Net
income
|
$
|
58.0
|
$
|
83.4
|
-30
|
%
|
$
|
1.2
|
$
|
24.0
|
-95
|
%
|
||||||||||
|
Basic
income per share
|
(1
|
)
|
$
|
0.90
|
$
|
1.26
|
-29
|
%
|
$
|
0.02
|
$
|
0.36
|
-94
|
%
|
||||||||
|
Diluted
income per share
|
(2
|
)
|
$
|
0.88
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$
|
1.23
|
-28
|
%
|
$
|
0.02
|
$
|
0.35
|
-94
|
%
|
||||||||
|
Common
shares used in basic income per
share calculation
|
64.4
|
66.1
|
-3
|
%
|
64.3
|
66.6
|
-3
|
%
|
||||||||||||||
|
Common
shares and potential common shares used in diluted income per share
calculation
|
65.6 | 67.8 |
-3
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%
|
65.7 | 68.4 |
-4
|
%
|
||||||||||||||
|
Results
of operations excluding restructuring, refinancing
charges, loss on impairment and other charges:
|
||||||||||||||||||||||
|
Adjusted
net income
|
(4
|
)
|
$
|
77.7
|
$
|
95.1
|
-18
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%
|
$
|
20.9
|
$
|
35.7
|
-41
|
%
|
||||||||
|
Adjusted
diluted income per share
|
(2)
(4
|
)
|
$
|
1.19
|
$
|
1.40
|
-15
|
%
|
$
|
0.32
|
$
|
0.52
|
-39
|
%
|
||||||||
|
Adjusted
EBITDA
|
(3)
(4
|
)
|
$
|
145.7
|
$
|
184.2
|
-21
|
%
|
$
|
93.1
|
$
|
116.0
|
-20
|
%
|
||||||||
|
Pro
forma results as if the recapitalization transactions and
related debt restructuring occurred as of the the beginning
of each fiscal
year
|
||||||||||||||||||||||
|
Pro
forma adjusted net income
|
(4)
(5
|
)
|
$
|
77.7
|
$
|
89.2
|
-13
|
%
|
$
|
20.9
|
$
|
20.5
|
2
|
%
|
||||||||
|
Pro
forma adjusted diluted income per share
|
(4)
(5
|
)
|
$
|
1.19
|
$
|
1.37
|
-13
|
%
|
$
|
0.32
|
$
|
0.31
|
1
|
%
|
||||||||
Page
5
THE
SCOTTS MIRACLE-GRO COMPANY
Net
Sales by Segment - Three and Six Months
Ended
March 29, 2008 and March 31, 2007
(in
millions)
(unaudited)
|
Three
Months Ended
|
||||||||||
|
March
29,
|
March
31,
|
|||||||||
|
2008
|
2007
|
%
Change
|
||||||||
|
Global
Consumer
|
$
|
801.9
|
$
|
852.3
|
-6
|
%
|
||||
|
Global
Professional
|
99.5
|
77.1
|
29
|
%
|
||||||
|
Scotts
LawnService®
|
32.0
|
33.7
|
-5
|
%
|
||||||
|
Corporate
& Other
|
24.6
|
30.2
|
-19
|
%
|
||||||
|
Consolidated
|
$
|
958.0
|
$
|
993.3
|
-4
|
%
|
||||
|
Six
Months Ended
|
||||||||||
|
March
29,
|
March
31,
|
|||||||||
|
2008
|
2007
|
%
Change
|
||||||||
|
Global
Consumer
|
$
|
968.8
|
$
|
996.8
|
-3
|
%
|
||||
|
Global
Professional
|
161.9
|
133.6
|
21
|
%
|
||||||
|
Scotts
LawnService®
|
70.3
|
59.5
|
18
|
%
|
||||||
|
Corporate
& Other
|
65.7
|
74.6
|
-12
|
%
|
||||||
|
Consolidated
|
$
|
1,266.7
|
$
|
1,264.5
|
0
|
%
|
||||
Page
6
THE
SCOTTS MIRACLE-GRO COMPANY
Consolidated
Balance Sheets
March
29, 2008, March 31, 2007 and September 30, 2007
(Unaudited)
(in
millions)
|
March
29,
|
March
31,
|
September
30,
|
||||||||
|
2008
|
2007
|
2007
|
||||||||
|
ASSETS
|
||||||||||
|
Current
assets
|
||||||||||
|
Cash
and cash equivalents
|
$
|
76.9
|
$
|
43.5
|
$
|
67.9
|
||||
|
Accounts
receivable, net
|
1,035.1
|
1,001.0
|
397.8
|
|||||||
|
Inventories,
net
|
625.1
|
571.9
|
405.9
|
|||||||
|
Prepaids
and other current assets
|
159.7
|
131.0
|
127.7
|
|||||||
|
Total
current assets
|
1,896.8
|
1,747.4
|
999.3
|
|||||||
|
Property,
plant and equipment, net
|
363.3
|
369.2
|
365.9
|
|||||||
|
Goodwill,
net
|
467.3
|
475.0
|
462.9
|
|||||||
|
Other
intangible assets, net
|
417.9
|
421.7
|
418.8
|
|||||||
|
Other
assets
|
25.6
|
29.5
|
30.3
|
|||||||
|
Total
assets
|
$
|
3,170.9
|
$
|
3,042.8
|
$
|
2,277.2
|
||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||
|
Current
liabilities
|
||||||||||
|
Current
portion of debt
|
$
|
281.8
|
$
|
23.7
|
$
|
86.4
|
||||
|
Accounts
payable
|
368.0
|
341.5
|
202.5
|
|||||||
|
Other
current liabilities
|
421.2
|
355.8
|
297.7
|
|||||||
|
Total
current liabilities
|
1,071.0
|
721.0
|
586.6
|
|||||||
|
Long-term
debt
|
1,445.9
|
1,783.2
|
1,031.4
|
|||||||
|
Other
liabilities
|
187.8
|
163.8
|
179.9
|
|||||||
|
Total
liabilities
|
2,704.7
|
2,668.0
|
1,797.9
|
|||||||
|
Shareholders'
equity
|
466.2
|
374.8
|
479.3
|
|||||||
|
Total
liabilities and shareholders' equity
|
$
|
3,170.9
|
$
|
3,042.8
|
$
|
2,277.2
|
||||
Page
7
THE
SCOTTS MIRACLE-GRO COMPANY
Reconciliation
of Non-GAAP Disclosure Items for the Three
Months
Ended March 29, 2008 and March 31, 2007
Note:
See
Notes 3, 4 and 5 to the Accompanying Footnotes on Page 10
|
Three
Months Ended March 29, 2008
|
Three
Months Ended March 31, 2007
|
||||||||||||||||||||||||
|
As
Reported
|
Product
Recalls
|
Adjusted
|
As
Reported
|
Costs
related to refinancings
|
Adjusted
|
Pro
Forma Adjustments
|
Pro
Forma
Adjusted
|
||||||||||||||||||
|
Net
sales
|
$
|
958.0
|
$
|
(19.0
|
)
|
$
|
977.0
|
$
|
993.3
|
$
|
-
|
$
|
993.3
|
$
|
-
|
$
|
993.3
|
||||||||
|
Cost
of sales
|
612.6
|
(12.0
|
)
|
624.6
|
624.9
|
-
|
624.9
|
-
|
624.9
|
||||||||||||||||
|
Cost
of sales - product recalls
|
22.6
|
22.6
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Gross
profit
|
322.8
|
(29.6
|
)
|
352.4
|
368.4
|
-
|
368.4
|
-
|
368.4
|
||||||||||||||||
|
%
of sales
|
33.7
|
%
|
36.1
|
%
|
37.1
|
%
|
37.1
|
%
|
37.1
|
%
|
|||||||||||||||
|
Operating
expenses:
|
|||||||||||||||||||||||||
|
Selling,
general and administrative
|
208.4
|
-
|
208.4
|
203.0
|
-
|
203.0
|
-
|
203.0
|
|||||||||||||||||
|
SG&A
- product recalls
|
1.2
|
1.2
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Other
income, net
|
(1.0
|
)
|
-
|
(1.0
|
)
|
(1.1
|
)
|
-
|
(1.1
|
)
|
-
|
(1.1
|
)
|
||||||||||||
|
Total
operating expenses
|
208.6
|
1.2
|
207.4
|
201.9
|
-
|
201.9
|
-
|
201.9
|
|||||||||||||||||
|
Income
from operations
|
114.2
|
(30.8
|
)
|
145.0
|
166.5
|
-
|
166.5
|
-
|
166.5
|
||||||||||||||||
|
%
of sales
|
11.9
|
%
|
14.8
|
%
|
16.8
|
%
|
16.8
|
%
|
16.8
|
%
|
|||||||||||||||
|
Costs
related to refinancings
|
-
|
-
|
-
|
18.3
|
18.3
|
-
|
-
|
-
|
|||||||||||||||||
|
Interest
expense
|
23.5
|
-
|
23.5
|
17.9
|
-
|
17.9
|
9.3
|
27.2
|
|||||||||||||||||
|
Income
before taxes
|
90.7
|
(30.8
|
)
|
121.5
|
130.3
|
(18.3
|
)
|
148.6
|
(9.3
|
)
|
139.3
|
||||||||||||||
|
Income
tax expense
|
32.7
|
(11.1
|
)
|
43.8
|
46.9
|
(6.6
|
)
|
53.5
|
(3.4
|
)
|
50.1
|
||||||||||||||
|
Net
income (reported, adjusted and pro forma)
|
$
|
58.0
|
$
|
(19.7
|
)
|
$
|
77.7
|
$
|
83.4
|
$
|
(11.7
|
)
|
$
|
95.1
|
$
|
(5.9
|
)
|
$
|
89.2
|
||||||
|
Basic
income per share
|
$
|
0.90
|
$
|
(0.31
|
)
|
$
|
1.21
|
$
|
1.26
|
$
|
(0.18
|
)
|
$
|
1.44
|
$
|
(0.04
|
)
|
$
|
1.41
|
||||||
|
Diluted
income per share
|
$
|
0.88
|
$
|
(0.30
|
)
|
$
|
1.19
|
$
|
1.23
|
$
|
(0.17
|
)
|
$
|
1.40
|
$
|
(0.03
|
)
|
$
|
1.37
|
||||||
|
Common
shares used in basic income per
share calculation
|
64.4
|
64.4
|
64.4
|
66.1
|
66.1
|
66.1
|
63.4
|
||||||||||||||||||
|
Common
shares and potential common shares
used
in diluted income per share calculation
|
65.6
|
65.6
|
65.6
|
67.8
|
67.8
|
67.8
|
65.2
|
||||||||||||||||||
|
|
|||||||||||||||||||||||||
|
Net
income
|
58.0
|
83.4
|
|||||||||||||||||||||||
|
Income
tax expense
|
32.7
|
46.9
|
|||||||||||||||||||||||
|
Interest
expense
|
23.5
|
17.9
|
|||||||||||||||||||||||
|
Restructuring
and other charges
|
14.1
|
-
|
|||||||||||||||||||||||
|
Costs
related to refinancing
|
-
|
18.3
|
|||||||||||||||||||||||
|
Depreciation
|
13.3
|
13.7
|
|||||||||||||||||||||||
|
Amortization,
including marketing fees
|
4.1
|
4.0
|
|||||||||||||||||||||||
|
Adjusted
EBITDA
|
$
|
145.7
|
$
|
184.2
|
|||||||||||||||||||||
Page
8
THE
SCOTTS MIRACLE-GRO COMPANY
Reconciliation
of Non-GAAP Disclosure Items for the Six
Months
Ended March 29, 2008 and March 31, 2007
Note:
See
Notes 3, 4 and 5 to the Accompanying Footnotes on Page
10
|
Six
Months Ended March 29, 2008
|
Six
Months Ended March 31, 2007
|
||||||||||||||||||||||||
|
As
Reported
|
Product
Recalls
|
Adjusted
|
As
Reported
|
Costs
related to refinancings
|
Adjusted
|
Pro
Forma Adjustments
|
Pro
Forma
Adjusted
|
||||||||||||||||||
|
Net
sales
|
$
|
1,266.7
|
$
|
(19.0
|
)
|
$
|
1,285.7
|
$
|
1,264.5
|
$
|
-
|
$
|
1,264.5
|
$
|
-
|
$
|
1,264.5
|
||||||||
|
Cost
of sales
|
850.0
|
(12.0
|
)
|
862.0
|
840.8
|
-
|
840.8
|
-
|
840.8
|
||||||||||||||||
|
Cost
of sales - product recalls
|
22.6
|
22.6
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Gross
profit
|
394.1
|
(29.6
|
)
|
423.7
|
423.7
|
-
|
423.7
|
-
|
423.7
|
||||||||||||||||
|
%
of sales
|
31.1
|
%
|
33.0
|
%
|
33.5
|
%
|
33.5
|
%
|
33.5
|
%
|
|||||||||||||||
|
Operating
expenses:
|
|||||||||||||||||||||||||
|
Selling,
general and administrative
|
352.7
|
-
|
352.7
|
345.2
|
-
|
345.2
|
-
|
345.2
|
|||||||||||||||||
|
SG&A
- product recalls
|
1.2
|
1.2
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Other
income, net
|
(4.2
|
)
|
-
|
(4.2
|
)
|
(3.4
|
)
|
-
|
(3.4
|
)
|
-
|
(3.4
|
)
|
||||||||||||
|
Total
operating expenses
|
349.7
|
1.2
|
348.5
|
341.8
|
-
|
341.8
|
-
|
341.8
|
|||||||||||||||||
|
Income
from operations
|
44.4
|
(30.8
|
)
|
75.2
|
81.9
|
-
|
81.9
|
-
|
81.9
|
||||||||||||||||
|
%
of sales
|
3.5
|
%
|
5.8
|
%
|
6.5
|
%
|
6.5
|
%
|
6.5
|
%
|
|||||||||||||||
|
Costs
related to refinancings
|
-
|
-
|
-
|
18.3
|
18.3
|
-
|
-
|
-
|
|||||||||||||||||
|
Interest
expense
|
42.5
|
-
|
42.5
|
26.1
|
-
|
26.1
|
23.6
|
49.7
|
|||||||||||||||||
|
Income
before taxes
|
1.9
|
(30.8
|
)
|
32.7
|
37.5
|
(18.3
|
)
|
55.8
|
(23.6
|
)
|
32.2
|
||||||||||||||
|
Income
tax expense
|
0.7
|
(11.1
|
)
|
11.8
|
13.5
|
(6.6
|
)
|
20.1
|
(8.4
|
)
|
11.7
|
||||||||||||||
|
Net
income (reported, adjusted and pro forma)
|
$
|
1.2
|
$
|
(19.7
|
)
|
$
|
20.9
|
$
|
24.0
|
$
|
(11.7
|
)
|
$
|
35.7
|
$
|
(15.2
|
)
|
$
|
20.5
|
||||||
|
Basic
income per share
|
$
|
0.02
|
$
|
(0.31
|
)
|
$
|
0.33
|
$
|
0.36
|
$
|
(0.18
|
)
|
$
|
0.54
|
$
|
(0.04
|
)
|
$
|
0.32
|
||||||
|
Diluted
income per share
|
$
|
0.02
|
$
|
(0.30
|
)
|
$
|
0.32
|
$
|
0.35
|
$
|
(0.17
|
)
|
$
|
0.52
|
$
|
(0.03
|
)
|
$
|
0.31
|
||||||
|
Common
shares used in basic income per
share calculation
|
64.3
|
64.3
|
64.3
|
66.6
|
66.6
|
66.6
|
63.0
|
||||||||||||||||||
|
Common
shares and potential common shares
used in diluted income per share calculation
|
65.7
|
65.7
|
65.7
|
68.4
|
68.4
|
68.4
|
65.0
|
||||||||||||||||||
|
Net
income
|
1.2
|
24.0
|
|||||||||||||||||||||||
|
Income
tax expense
|
0.7
|
13.5
|
|||||||||||||||||||||||
|
Interest
expense
|
42.5
|
26.1
|
|||||||||||||||||||||||
|
Restructuring
and other charges
|
14.1
|
-
|
|||||||||||||||||||||||
|
Costs
related to refinancing
|
-
|
18.3
|
|||||||||||||||||||||||
|
Depreciation
|
26.4
|
26.4
|
|||||||||||||||||||||||
|
Amortization,
including marketing fees
|
8.2
|
7.7
|
|||||||||||||||||||||||
|
Adjusted
EBITDA
|
$
|
93.1
|
$
|
116.0
|
|||||||||||||||||||||
Page
9
THE
SCOTTS MIRACLE-GRO COMPANY
Footnotes
to Preceding Financial Statements
(in
millions, except per share data)
Results
of Operations
|
(1)
|
Basic
earnings per common share is calculated by dividing net income
by average
common shares outstanding during the period.
|
|||||
|
(2)
|
Diluted
income per share is calculated by dividing net income by the average
common shares and dilutive potential common shares (common stock
options,
stock appreciation rights, and restricted stock) outstanding during
the
period.
|
|||||
|
(3)
|
"Adjusted
EBITDA" is defined as net income before interest, taxes, depreciation
and
amortization as well as certain other items such as the impact
of
discontinued operations, the cumulative effect of changes in accounting,
costs associated with debt refinancing and other non-recurring,
non-cash
items effecting net income. Adjusted EBITDA is not intended to
represent
cash flow from operations as defined by generally accepted accounting
principles and should not be used as an alternative to net income
as an
indicator of operating performance or to cash flow as a measure
of
liquidity.
|
|||||
|
(4)
|
The
Reconciliation of non-GAAP Disclosure Items includes the following
non-GAAP financial measures:
Adjusted
net income and adjusted diluted income per share - These measures
exclude
charges or credits relating to refinancings, impairments, restructurings,
product recalls, and other unusual items as such costs or gains
relate to
discrete projects or transactions that are apart from and not indicative
of the results of the operations of the business.
Pro
forma adjusted net income and pro forma adjusted diluted income
per share
- These measures include interest expense and diluted shares which
have
been computed as if the recapitalization transactions were completed
as
described in Note 5 below.
Adjusted
EBITDA - The presentation of adjusted EBITDA is provided as a convenience
to the Company's lenders because adjusted EBITDA is a component
of certain
debt covenants.
Free
cash flow - This annual measure is often used by analysts and
creditors as
a measure of a company’s ability to service debt, reinvest in the business
beyond normal capital expenditures, and return cash to shareholders.
Free
cash flow is equivalent to cash provided by operating activities
as
defined by generally accepted accounting principles less capital
expenditures.
The
Company believes that the disclosure of these non-GAAP financial
measures
provides useful information to investors or other
users of the financial statements, such as
lenders.
|
|||||
|
(5)
|
During
the second quarter of fiscal 2007, Scotts Miracle-Gro completed
a
significant recapitalization plan. The objective of this plan,
announced
on December 12, 2006, was to return $750 million to the Company's
shareholders. This was accomplished via a share repurchase that
totaled
$245.5 million, or 4.5 million shares, which was completed via
a modified
Dutch auction tender offer on February 14, 2007, and a special
one-time
cash dividend of $8.00 per share, totaling $508.0 million, which
was paid
on March 5, 2007 to shareholders of record as of February 26, 2007.
|
|||||
|
In
order to fund these transactions, the Company entered into new
credit
facilities aggregating to $2.15 billion. As part of this debt
restructuring, the Company launched a successful tender offer for
all of
its $200 million 6 5/8% senior subordinated notes, which were retired
in
the second quarter.
|
||||||
|
Subsequent
to the completion of this recapitalization, the Company's interest
expense
has been and will be significantly higher as a result of the borrowings
incurred to fund the cash returned to shareholders and related
expenses.
The following pro forma incremental interest expense has been determined
as if the Company had completed these recapitalization transactions
as of
October 1, 2006 for fiscal 2007. Borrowing rates in effect as of
March 30,
2007 were used to compute this pro forma interest expense. As the
recapitalization involved a share repurchase, pro forma diluted
shares are
also provided.
|
||||||
|
Fiscal
2007
|
|||||||
|
Q1
|
Q2
|
||||||
|
Incremental
interest on recapitalization borrowings
|
$
|
13.1
|
$
|
8.7
|
|||
|
New
credit facility interest rate differential
|
1.0
|
0.5
|
|||||
|
Incremental
amortization of new credit facility fees
|
0.2
|
0.1
|
|||||
|
Pro
forma incremental interest from recapitalization
|
$
|
14.3
|
$
|
9.3
|
|||
|
Year-to-date
incremental interest
|
$
|
23.6
|
|||||
|
Common
shares and potential common shares used
|
|||||||
|
in
diluted income per share calculation
|
67.2
|
67.8
|
|||||
|
Incremental
impact of repurchased shares
|
(4.5
|
)
|
(2.7
|
)
|
|||
|
Incremental
impact on potential common shares
|
-
|
0.1
|
|||||
|
Pro
forma diluted shares
|
62.7
|
65.2
|
|||||
|
Year-to-date
pro forma diluted shares
|
65.0
|
||||||
Page
10