View:
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) April 3, 1996
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 (513) 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 4.
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 April 3, 1996, Tadd C. Seitz, the Chairman of the Board and Interim
President and Chief Executive Officer of The Scotts Company (the "Registrant")
forwarded to certain investors and analysts the letter included herewith as
Exhibit 99 (the "Letter to 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 Investors, dated April 3, 1996 5 through 10
Item 8. Change in Fiscal Year.
Not Applicable.
-2-
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: April 3, 1996 By: /s/Tadd C. Seitz
____________________________________
Tadd C. Seitz, Chairman of the
Board and Interim President
and Chief Executive Officer
-3-
INDEX TO EXHIBITS
Exhibit Number Description Page No.
99 Letter to Investors, dated April 3, 1996 5 through 10
-4-
LETTER TO INVESTORS,
DATED APRIL 3, 1996
April 3, 1996
Dear fellow investors and analysts:
In fiscal 1995, The Scotts Company instituted a promotional program of
allowances paid directly to the trade. These promotions did increase sales,
but they proved far more costly than anticipated and led to a restatement of
the company's 1995 results, reducing earnings by $2.7 million, or $.12 per
share, and the resignation of the company's Chief Executive Officer on
February 22, 1996.
In a presentation I made in New York on February 29, I promised to get back to
you with answers to your questions. At that time, I had been Interim CEO for
only a few days. Now, one month later, I can give you better guidance as to
where The Scotts Company is currently and how I think we can solve the
problems that have surfaced.
There are three points on which I want to elaborate:
1. The adverse financial effects of the Scotts (Consumer Lawn Products) 1995
promotional program should not continue into 1997. We have quantified the
effects for 1996 to a large extent, and share that information below.
2. There are significant steps we plan to take in 1996 to help offset some
of the expected impact to 1996 earnings and cash flow, and to build the
foundation for a stronger 1997. Some of these initiatives are
cost-cutting steps, while others are changes to our management structure
and priorities.
3. The financial problems created by the 1995 promotional program have not
damaged the Scotts franchise. We believe we have the strongest brands in
the growing lawn and garden industry, and that we are well positioned to
achieve long-term profitable growth.
1. Effects on 1996*
Our 1995 results reflected a sales-growth orientation that was not
adequately tempered by concern with profitability. At the same time, cash
flow was negatively impacted; receivables increased as a result of extended
terms given to retailers; and inventories also grew as production outpaced
actual sales.
What is the likely impact of these problems on 1996 results? First, trade
inventory levels are significantly higher than they were a year ago as a
___________________________
* Comparisons to 1995 pro forma results exclude the gain on the sale of
the Peters consumer water soluble plant food business, and income attributable
to that business.
-5-
result of the "pre-season" promotions in the 4th quarter of 1995 and the
1st quarter of 1996. We estimate that this excess trade inventory will
impact our sales in the 2nd, 3rd and 4th quarters by up to $60 million in
high-margin products. However, I believe that virtually all of this excess
trade inventory will be worked through the system this year.
The Board and management have agreed that the amount of pre-season business
going into 1997 will be significantly reduced to avoid a repetition of the
problems we are experiencing. Also, as I indicated a few weeks ago, the
trade promotion programs cannot be changed for 1996. That means that 1996
will experience approximately the same high level of incremental cost as
1995, which was $4-5 million pre-tax. Keep in mind that based on our
current plans to restructure these programs, this elevated cost level
should not go forward into 1997.
Additionally, the level of earnings expected in 1996, combined with the
fixed amount of non-deductible goodwill amortization, will increase our
effective tax rate in 1996. At this point, we estimate that the 1996 tax
rate could be as high as 46%.
2. Actions: Current and Anticipated
The painful experience of 1995 has galvanized the Board and the management
team to fundamentally re-examine our operating philosophies and policies.
As a result, the Company now has a clear focus on its core businesses and a
high sense of urgency to achieve sound, consistent growth in the
profitability of these businesses.
Here are the actions already underway:
* We are redesigning the trade promotional programs to bring their
cost back in line with historical norms and, at the same time, to be
more profitable for both Scotts and our retailers.
* We are committed to the ongoing restructuring of our facilities,
corporate staff, business groups and overall spending. Our current
target is to reduce an annualized $8-10 million from our costs by
the end of this fiscal year. Most will come from headcount/
compensation reductions in the corporate staff areas. Given the
timing and one-time costs, we do not expect to see a significant
benefit from these efforts in the 1996 results, but should see the
full benefit in 1997. (The company recorded a $2.1 million charge
for restructuring in the 1st quarter and we expect to record
additional restructuring charges of $6-$8 million for the balance of
the year, a portion of which will be recorded in the 2nd quarter.)
At the end of the fiscal year, we will report back to you on
specific actions and update you on expected savings.
* We are sharply cutting our own inventories and receivables to
reverse last year's decline in cash flow. Our target is to reduce
year-end inventories and receivables below fiscal 1995 actuals. In
order to reduce inventories, production will be scaled back, which,
of course, will have some negative impact on cost of goods as fixed
plant costs are spread over fewer units. Receivables will be
decreased by significantly reducing pre-season shipments with
extended terms.
-6-
* We are also committed to reduce capital expenditures from $28
million budgeted to $20 million. These reductions should not impact
key capacity or cost-reduction activities.
* Strong positive cash flow will enable the Board to consider actions
to improve shareholder value that we had hoped to be able to
undertake earlier as the result of the merger with Miracle-Gro. We
will periodically update you on our progress toward positive cash
flow.
I want to emphasize that all of the items I have quantified are targets for
fiscal 1996, not projections.** However, they give you an idea of what we
think we can do. And we will get back to you on a regular basis and report
on these important milestones as we progress.
New Management Structure for More Profitable Growth
The changes we are making to the Scotts organization are not just aimed at
cost cutting. Their primary purpose is to drive the organization to achieve
more profitable growth. We believe that this can best be accomplished by
changing Scotts' highly centralized structure to a decentralized profit
center organization.
We are placing the responsibility and the authority to achieve aggressive
growth and profit targets squarely on the shoulders of the managers running
our main business groups -- Consumer Lawn, Consumer Garden, Professional,
and International -- and we are putting in place new incentive programs
that will tie the compensation of our managers directly to both their sales
and profit objectives.
In the last year, we have made major management changes:
* Three new Miracle-Gro directors joined the Board in 1995. They have
been extremely helpful and constructive.
* Jim Rogula, formerly a Miracle-Gro director, joined us as head of
the Consumer Lawn products business in 1995. His assignment includes
redesigning the promotional programs for 1997. Jim joined us from
the American Candy Company, where he was President. Prior to that,
he was responsible for the Arm & Hammer brand at Church & Dwight.
* Jim Hagedorn, from Miracle-Gro, became head of the Consumer Garden
products business in 1995. He has been exceptionally helpful to me
in developing our overall plans for the company.
___________________________
** Safe Harbor Statement under the Private Securities Litigation Act of
1995. The statements contained in this letter which are not historical fact
are "forward looking statements" that involve various important risks,
uncertainties, and other factors which could cause the Company's actual
results for 1996 and beyond to differ materially from those expressed in such
forward looking statements. These important factors include, without
limitation, the risks and factors set forth above as well as other risks
previously disclosed in the Company's securities filings.
-7-
* In July 1995, Ron Justice came to us from Continental Baking Company
where he was head of Operations. He also brings with him twelve
years' experience with Frito-Lay. He is responsible for optimizing
manufacturing efficiency as well as leveraging our purchasing
opportunities and managing our extensive distribution system.
* Bob Stohler came on board in November 1995 from his position as
President of Rubbermaid, Europe. He also brings experience from
Proctor & Gamble and S.C. Johnson Wax. Bob is managing our
International business, where we have very ambitious growth plans.
* Mike Kelty is now heading up our Professional Group, where he has
been charged with putting together a new distribution and growth
plan that will enable Scotts to compete more effectively in
professional markets. Mike's history with Scotts includes heading up
our R&D and most recently, Senior Vice President of Technology and
Operations.
As you can see, there is a lot of "new blood" here, along with some
seasoned Scotts people, many of whom bring consumer product expertise to
our business. I think you'll be impressed by the caliber of these
executives.
The search for our new CEO is in full swing. The Board's search committee
expects to start interviewing by the end of April.
3. Strength of the Scotts/Miracle-Gro Brands
Consumer interest in our products continues to grow -- Discount Store News,
1995 states that Scotts, Miracle-Gro and Hyponex are ranked first, second
and seventh, respectively, as the "most preferred" of all lawn and garden
brands.
It is a pun, but also true, to say that we are in a "growing" market.
According to a National Gardening Survey for 1994, "Seventy-four percent,
or an estimated 72 million householders, participated in one or more types
of indoor and outdoor lawn and garden activities in 1994."
Discount Store News recently wrote that in the minds of many retailers,
"Gardening is such a popular hobby these days that sales of lawn and garden
supplies have risen dramatically and now rival the importance of computer
hardware and housewares."
Our own Scotts Consumer Hotline will receive its 3 millionth call sometime
this month -- an indication not only of lawn and garden popularity, but
also of Scotts' leadership role as a source of information. We fully intend
to keep that leadership position and grow profitably with the industry.
1996 will be a challenging year, but we are taking this opportunity to return
Scotts' focus to improving profit and building shareholder value. We also
commit to provide you with timely and accurate information on our progress as
we work to minimize the impact of these unusual events in 1996 and to create
the foundation for a strong 1997 and beyond.
I know I speak for all my associates in saying that we appreciate your support
in the past and will do everything in our power to reward your loyalty.
Sincerely,
Tadd C. Seitz
Chairman and Interim President & CEO