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) FEBRUARY 3, 1997
THE SCOTTS COMPANY
(Exact name of registrant as specified in its charter)
OHIO 1-11593 31-1199481
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
14111 SCOTTSLAWN ROAD, MARYSVILLE, OHIO 43041
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (937) 644-0011
NOT APPLICABLE
(Former name or former address, if changed since last report.)
Page 1 of 10 Pages.
Index to Exhibits is on Page 5.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not Applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not Applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not Applicable.
ITEM 5. OTHER EVENTS.
On February 3, 1997, Charles M. Berger, the Chairman of the Board,
President and Chief Executive Officer of The Scotts Company (the "Registrant"),
forwarded to the shareholders of the Registrant and to certain investors and
analysts the letter included herewith as Exhibit 99 (the "Letter to Shareholders
and Investors").
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not Applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) - (b) None required.
(c) Exhibits.
EXHIBIT NUMBER DESCRIPTION PAGE NO.
99 Letter to Shareholders and Investors, 5 through 10
dated February 3, 1997
ITEM 8. CHANGE IN FISCAL YEAR.
Not Applicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
Not Applicable.
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SIGNATURES
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 thereunto duly authorized.
THE SCOTTS COMPANY
Date: February 4, 1997 By: /s/ Charles M. Berger
________________________________________
Charles M. Berger, Chairman of
the Board, President and Chief
Executive Officer
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE NO.
99 Letter to Shareholders and Investors, 5 through 10
dated February 3, 1997
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EXHIBIT 99
Letter to Shareholders and Investors,
Dated February 3, 1997
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The Scotts Company [Scotts Logo]
14111 SCOTTSLAWN ROAD MARYSVILLE, OHIO 43041 937-644-0011
BEGINNING WITH THE FIRST QUARTER IN FISCAL 1997, ENDED DECEMBER 28, 1996, THE
SCOTTS COMPANY WILL BEGIN QUARTERLY COMMUNICATIONS TO ITS SHAREHOLDERS, TO HELP
YOU BETTER UNDERSTAND THE COMPANY'S PERFORMANCE AND PROGRESS.
February 3, 1997
Dear Scotts Company Shareholder:
During fiscal 1997's first quarter, your company continued its progress toward
renewed profitability. We not only reduced net and operating losses compared to
1996's first quarter, but we continued to reduce costs; and we strengthened our
balance sheet by reducing receivables and borrowings. This progress positions
Scotts well for profitable financial performance during the spring lawn care and
gardening season, our second and third quarters.
In the quarter, The Scotts Company had a net loss of $4.1 million, or 35 cents
per common share, significantly smaller than the loss of $7.2 million, or 51
cents per common share, in 1996's first quarter. The 1996 first quarter included
a $2.1 million charge for restructuring.
Putting the Numbers in Perspective. And while it's important to recognize that
this pre-season quarter has historically accounted for approximately 15 percent
of our sales, viewed in the context of Scotts' strategy to restore
profitability, the first quarter more than met our objectives. Reaction from the
financial community has been positive, too.
Scotts' 1996 performance was hampered by lingering effects of an unsuccessful
1995 Consumer Lawns sales promotion program, which significantly increased costs
and created as much as $60 million in increased trade inventories.
Scotts' 1997 strategy calls for replacing the unsuccessful "push" marketing
programs with a new "pull" strategy. In addition, its restructured organization
should be more competitive as the company begins to enjoy the benefits of the
reduced cost structure.
Positive Performance. We made continued progress in all of these areas during
the first quarter. Sales were down by 15 percent from the year-earlier quarter,
but we believe they more accurately reflected retailers' inventory timing
requirements for our products. The higher level first quarter 1996 sales, on the
other hand, were driven in part by costly promotion programs.
Looking at first quarter sales by individual business groups:
* Consumer Lawns Business Group sales were down 31.2 percent, essentially
due to the discontinuance of the costly promotional programs that had
encouraged retailers to make extensive pre-season purchases in previous
years.
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* Consumer Gardens Group sales were down 12.3 percent, primarily due to
postponing some shipments into the second quarter, to optimize in-season
shelf life of grass seed products.
* Organics Business Group sales were down 7.7 percent, reflecting reduced
costly promotional discounting to drive volume.
* Professional Business Group sales, as anticipated, were down 4.5 percent,
due to the discontinuance of unprofitable products.
* Scotts' International Business Group sales increased by 8.3 percent, most
of that growth coming from the Pacific Rim.
Marketing Cost Reductions. While sales decreased 15 percent, marketing costs
were down nearly 21 percent from first quarter 1996. This confirms, we believe,
that we have more cost-effective marketing programs for the company. And while
our new marketing strategy will concentrate more of our marketing expenditures
during the second and third quarters this year, we still expect overall
marketing expense as a percent of sales to be down slightly for the balance of
fiscal 1997. Trade response to that new strategy has been positive, with orders
to date up considerably versus last year.
In addition, the effects of Scotts' cost-reduction efforts also led to
improvements in other key areas such as distribution, general and
administrative, and interest expense.
The company's balance sheet improved during the quarter, too, with receivables
down more than $75 million from last year's first quarter. Reduced debt -- down
by nearly $73 million from the 1996 quarter -- was a direct result of
lowerworking capital needs.
Other Actions. During the first quarter, The Scotts Company announced that it
had signed a Letter of Intent to purchase the remaining interest in Miracle
Holdings Limited and its subsidiary, Miracle Garden Care, Ltd., the profitable
lawn and garden care operation in the United Kingdom in which it held a 32.4
percent ownership interest. The transaction, which was completed early in fiscal
1997's second quarter, will help provide Scotts with an established base for
growth in Europe's lawn care and garden products market. We believe it
complements our existing European operations well, since they primarily serve
professional markets.
The acquisition, which -- after interest expenses and amortization of goodwill
- -- is expected to have neutral to slightly accretive earnings implications for
the company in 1997, is a key element in our international growth strategy.
Going forward, we believe we cannot only improve Miracle Garden Care's
performance, but use it as a base for expanding our presence in continental
Europe.
During the quarter, we also announced that Jean (John) H. Mordo had been named
Scotts' Executive Vice President and Chief Financial Officer, effective January
6, 1997. Jean comes to us from Pratt and Whitney Aircraft, a $6 billion division
of United Technologies Corporation, where he had served as Senior Vice President
and Chief Financial Office since 1992.
Prior to that, he was with Otis Elevator, also a division of United
Technologies, where he served most recently as President of Latin American
Operations and Chief Financial Officer. I'm confident that Jean will play an
important role in our continuing efforts to return The Scotts Company to
profitability and growth.
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Scotts also, during the quarter, contracted with a marketing research firm,
Triad Systems Corporation, to audit retail sales to provide us with a better
understanding of our consumer market share and the actual price paid at the
point of purchase. This kind of data, which has not been readily available in
our industry in the past, should not only help us track Scotts' products, but
also competitors' products in each of the categories we serve. This should prove
invaluable as we work to simplify our products lines, establish proper pricing
points, and consider new opportunities.
Positioned for Profitability. We're confident that the reduced loss, the marked
progress in key cost areas, the positive trade reaction to our new 1997
marketing programs, and the strengthened balance sheet all reflect significant
progress in our plan for renewed profitability. They should permit the company
to react quickly and efficiently when spring breaks.
We entered the second quarter of fiscal 1997 well positioned to capitalize on
the immense potential of The Scotts Company's brands and products. We're
optimistic that, as the company's 1996 Annual Report explained, we have taken
the right steps to unlock Scotts' potential for profitable growth.
Sincerely,
/s/ Charles M. Berger
____________________________________
Charles M. Berger
Chairman, President and Chief Executive Officer
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995: to
encourage companies to provide additional forward-looking information to
investors, Congress in 1995 passed legislation called the Private Securities
Litigation Act of 1995. This letter contains statements that, under the Act, are
considered forward-looking. Shareholders should keep in mind that actual results
could differ materially from the forward-looking information contained in this
letter, due to a variety of factors, including, but not limited to, the effects
of weather conditions on sales of the company's products; the success of the new
promotion programs discussed in the letter, and the company's ability to
maintain favorable profit margins on its products and produce them on a timely
basis. Additional detailed information on these and other factors is readily
available in the company's publicly filed quarterly, annual, and other reports.
For copies, please contact Investor Relations, The Scotts Company, 14111
Scottslawn Road, Marysville, Ohio 43041.
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THE SCOTTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 28, 1996
AND DECEMBER 30, 1995
(in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
December 30, December 28,
1995 1996 % CHANGE
------------ ------------ --------
Net sales 117,928 100,184 -15.0%
Cost of sales 64,714 53,842 -16.8%
--------- -------
Gross profit 53,214 46,342 -12.9%
% of sales 45.1% 46.3%
Marketing 27,590 21,830 -20.9%
Distribution 16,465 13,688 -16.9%
General and administrative 8,057 7,293 -9.5%
Research and development 2,663 2,664 0.0%
Amortization of goodwill and
other intangibles 2,172 2,233 2.8%
Other expenses, net 242 267 10.3%
Unusual expense 2,055 -- na
--------- -------
Income from operations (6,030) (1,633) 72.9%
% of sales -5.1% -1.6%
Interest expense 6,601 5,573 -15.6%
--------- -------
Income before taxes (12,631) (7,206) 42.9%
Income tax benefit (5,457) (3,113) 43.0%
--------- -------
Net income (7,174) (4,093) 42.9%
Preferred stock dividend 2,436 2,438 nm
--------- -------
Income available to common shareholders $ (9,610) $ (6,531) nm
========= =========
Net income (loss) per common share (1) $ (0.51) $ (0.35) 31.6%
========= =========
Common shares used in per share calculation 18,689 18,575 nm
========= =========
(1) Fully diluted earnings per share for all periods presented did not differ
more than 3% from primary earnings per share.
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THE SCOTTS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 30, December 28, September 30,
1995 1996 1996
ASSETS
Current assets
Cash $ 7,903 $ 5,854 $ 10,598
Accounts receivable, net 196,373 121,648 110,426
Inventories, net 184,629 195,454 148,836
Other current assets 22,637 22,342 22,101
-------- -------- --------
Total current assets 411,542 345,298 291,961
-------- -------- --------
Property, plant and equipment 147,787 136,076 139,488
Trademarks, net 88,688 86,433 86,997
Other intangibles, net 23,513 18,421 19,455
Goodwill 178,794 178,899 180,154
Other assets 15,883 13,551 13,630
-------- -------- --------
Total assets $866,207 $778,678 $731,685
======== ======== ========
LIABILITY AND SHAREHOLDERS' EQUITY
Current liabilities
Revolving credit 36,488 1,875 2,197
Accounts payable 54,414 44,921 46,288
Other current liabilities 47,543 55,192 62,273
-------- -------- --------
Total current liabilities 138,445 101,988 110,758
-------- -------- --------
Long-term debt 324,368 286,405 223,128
Postretirement benefits 27,204 27,202 27,157
Other liabilities 5,152 6,064 6,341
-------- -------- --------
Total liabilities 495,169 421,659 367,384
Shareholder's equity 371,038 357,019 364,301
-------- -------- --------
Total liabilities and equity $866,207 $778,678 $731,685
======== ======== ========
