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) October 28, 2004
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THE SCOTTS COMPANY
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(Exact name of registrant as specified in its charter)
OHIO 1-13292 31-1414921
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
14111 SCOTTSLAWN RD MARYSVILLE, OHIO 43041
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(Address of principal executive offices) (Zip Code)
(937) 644-0011
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
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 (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| 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.
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On October 28, 2004, The Scotts Company issued a News Release
concerning information regarding its results of operations and financial
condition for the three and twelve month periods ended September 30, 2004. The
News Release is attached hereto as Exhibit 99.1.
The press release includes the following non-GAAP financial
measures as defined in Regulation G: (1) adjusted net income, (2) adjusted
diluted earnings per share, (3) EBITDA and (4) adjusted EBITDA. The Registrant'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. As to adjusted net income, adjusted EBITDA and
adjusted diluted earnings per share, the excluded items are costs or gains for
discrete projects or transactions related to the closure, downsizing or
divestiture of certain operations that are apart from and not indicative of the
results of the operations of the business. Also excluded from adjusted net
income and adjusted diluted earnings per share are the costs incurred to
refinance the long term debt of The Scotts Company. EBITDA and adjusted EBITDA
are provided as a convenience to the Registrant's lenders because EBITDA is a
component of certain debt compliance covenants. The Registrant makes no
representation or assertion that EBITDA or adjusted EBITDA are indicative of its
cash flows from operations or results of operations. The Registrant has provided
a reconciliation of EBITDA to income from operations solely for the purpose of
complying with Regulation G and not as an indication that EBITDA is a substitute
measure for income from operations.
Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of business acquired
Not applicable
(b) Pro Forma Financial Information
Not applicable
(c) Exhibits:
Exhibit No. Description
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99.1 News Release issued on October 28, 2004
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
By: /s/ Christopher L. Nagel
----------------------------
Christopher L. Nagel
Executive Vice President and
Chief Financial Officer
Date: October 28, 2004
Exhibit Index
Exhibit No. Description
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99.1 News Release issued on October 28, 2004
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
THE SCOTTS COMPANY NEWS
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THE SCOTTS COMPANY REPORTS RECORD FINANCIAL RESULTS FOR FISCAL 2004
RECORD SALES OF $2.0 BILLION; ADJUSTED NET INCOME INCREASED 18 PERCENT;
REPORTED NET INCOME DECLINED 3 PERCENT
o Full-year adjusted earnings per share of $4.06; Reported earnings per share
of $3.03
o Fourth quarter adjusted earnings per diluted share of $0.08; Reported loss
per share of $0.05
o Consumer purchases of Scotts and Roundup products increased 7 percent for
the full year
o Excluding restructuring, full-year gross margins improved 80 basis points;
Reported gross margins improved 130 basis points
MARYSVILLE, Ohio (October 28, 2004) - The Scotts Company (NYSE: SMG), the
world's leading marketer of branded consumer lawn and garden products, announced
that strong sales in North America and Scotts LawnService coupled with
significant margin expansion led to net income growth in fiscal 2004 of 18
percent on an adjusted basis, and down 3 percent from 2003 on a reported basis.
For the year ended September 30, Scotts reported record company-wide
sales of $2.0 billion, up 8 percent from $1.9 billion last year. Excluding the
impact of foreign exchange, sales were up 5 percent over the prior year.
Adjusted net income for the year was a record $135.3 million, or $4.06
per diluted share, compared with $114.7 million, or $3.57 per diluted share, for
the same period last year. Current period adjusted net income excludes
restructuring and other non-recurring charges of $34.4 million, net of tax.
Including these restructuring and non-recurring items, reported net income for
the year was $100.9 million, or $3.03 per diluted share compared to $103.8
million, or $3.23 for last year.
"We posted record results in 2004 while continuing to improve our
financial condition, which demonstrates the strength of our brands, our team at
Scotts and our commitment to
1
enhancing shareholder value," said Jim Hagedorn, chairman and chief executive
officer. "Our continued focus on executing the fundamentals of our business not
only paid off throughout the year but also has Scotts well-positioned for
continued growth in 2005."
During fiscal 2004, the Company twice renegotiated its debt facilities
to take advantage of its increased financial strength and favorable market
conditions. As a result of the refinancing and the Company's election to pre-pay
$100 million of term debt, the Company's capital structure has been
significantly improved, resulting in lower interest rate spreads, increased
flexibility through an enhanced ability to pre-pay debt and less restrictive
covenants. The $34.4 million of net non-recurring charges are primarily related
to costs incurred with refinancing.
"Renegotiating our debt facilities in fiscal 2004 was an important
element of our financial strategy," said Chris Nagel, chief financial officer.
"Our new structure better reflects our rapidly improving financial position and
helps ensure we have the capital and flexibility to support future growth."
The Company said it expects its financial performance in 2005 to be in
line with its long-term goal of increasing sales 5-7 percent a year and to
improve net income by 10-12 percent. Scotts plans to provide more details on its
outlook for 2005 in early December.
Fiscal 2004 Results
For the year, North American sales increased 7 percent to $1.48 billion
from $1.39 billion last year driven by increased sales of its Ortho product line
and higher-margin, branded lawn fertilizer and growing media products. Consumer
purchases of branded products in the U.S., including Roundup, increased 7
percent at the Company's largest retail accounts. Ortho posted the strongest
gain with a 16 percent improvement in consumer purchases, driven by strong
consumer response to repackaged, repositioned and advertised new products such
as Season-Long Grass & Weed Killer(R) and Bug 'B Gon Max(R) insect control.
Additionally, consumer purchases of value-added growing media increased 11
percent and lawn fertilizers increased 5 percent.
Scotts LawnService reported a 22 percent increase in sales to $135.2
million. Customer counts increased significantly over 2003 due to improved
marketing and an increase in customer retention of 225 basis points to 74
percent. As a result, operating profit increased by more than 50 percent.
2
"Our focus on the customer was obvious as Scotts LawnService regained
its momentum in 2004," said Hagedorn. "The Scotts LawnService team made
significant progress this year toward building a successful customer-service
model that will drive long-term growth for this business."
International sales were $419.5 million, up 8 percent from $388.4
million a year earlier. Excluding the effects of foreign exchange, sales
declined by approximately 3 percent. The UK achieved sales growth of 3 percent
while overall consumer sales were flat to last year. Sales for the International
Professional business declined approximately 12 percent as a result of the
discontinuance of a low-margin product line.
Gross margin excluding restructuring improved 80 basis points to 37.8
percent from 37.0 percent last year due mainly to favorable product mix in North
America, namely growth of higher-margin lawn fertilizer and growing media
products and improved margin from new Ortho products. The Company's gross margin
also continues to improve behind the rapid growth of the high-margin Scotts
LawnService business. Reported margins increased from 36.5 percent to 37.8
percent.
Operating expenses increased for the year to $545.4 million from $474.9
million last year. Approximately $15 million, or 20 percent of the increase, is
due to the effect of foreign exchange rates. The remaining increase is primarily
driven by infrastructure investments in Scotts LawnService, increased variable
compensation, increased legal expenditures, additional investment in research
and development and the increase in stock option expense. Stock option expense
of $7.8 million, up from $4.8 million last year, had a full-year impact of
approximately 15 cents per share for fiscal 2004.
Net Roundup commission increased to $28.5 million for the year,
compared with $17.6 million a year earlier, driven by a 13 percent increase in
consumer purchases.
Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA), were $320.2 million for the year, compared to $300.9 million a year
earlier. Including restructuring and other charges, reported EBITDA was $310.5
million, compared with $283.8 million last year.
Interest expense for the year, excluding refinancing charges, was $48.8
million, a $20.4 million improvement from last year. The decrease was due to a
more favorable interest rate environment, the Company's successful October 2003
and August 2004 refinancing and lower
3
average debt levels. Scotts' leverage ratio declined significantly from 3.0 last
year to 2.4 this year.
"We are very pleased with our financial progress," said Nagel. "The
improvement in our debt metrics reflects, in part, our continued focus on free
cash flows. We also improved our return on invested capital to 9.5 percent as we
continue to focus on this important metric."
Fourth Quarter Results
Net sales for the fourth quarter were a record $363.6 million, compared
with $340.0 million a year earlier. Excluding the impact of foreign exchange
rates, fourth quarter sales increased 5 percent over the prior year. Adjusted
net income was $2.6 million or $0.08 per diluted share, compared with $0.7
million, or $0.02 per diluted share, for the same period last year. Fourth
quarter adjusted net income excludes restructuring and other charges of $4.3
million net of taxes. Including restructuring and other charges, net loss in the
quarter was $1.7 million, or $0.05 per share compared to a loss of $3.1 million
or $0.10 per share for last year.
Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA) were $25.0 million for the quarter, compared to $31.9 million a year
earlier. Including restructuring and other charges, reported EBITDA was $19.2
million compared with $26.0 million for the same period last year.
In North America, sales increased 6 percent to $250.4 million versus
$235.5 million for last year's comparable period driven by continued strength in
sales of fall season products. Scotts LawnService sales for the fourth quarter
increased 17 percent to $50.4 from $43.1 million last year.
Fourth quarter International sales were $62.8 million, up 2 percent
compared with $61.4 million for the same period in 2003. Excluding the impact of
foreign exchange rates, sales decreased 6 percent driven by end-of-season
weakness in the UK and the discontinuance of a low-margin Professional business
product line.
Gross margin for the quarter increased 10 basis points to 34.0 percent.
Excluding restructuring, gross margin decreased 90 basis points mainly due to
unfavorable supply chain costs in North America and International.
4
Operating expenses for the quarter increased to $122.7 million from
$107.7 million a year ago. Excluding the effect of restructuring charges,
operating expenses increased from $105.2 million to $116.7 million, or 11
percent.
Net Roundup commission for the quarter was $4.0 million, which was
flat compared to the fourth quarter of 2003.
For the fourth quarter, interest expense, excluding refinancing
charges, was $10.7 million compared with $15.8 million in the prior year.
On October 1st, the company acquired Smith and Hawken, a leading brand
of garden-inspired products.
The Company will discuss its full-year and fourth quarter 2004 results
during a webcast conference call at 10:00 a.m. EDT today. The call will be
available live on the investor relations section of the Scotts' 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.
DEDICATED TO A BEAUTIFUL WORLD
THE SCOTTS COMPANY IS THE WORLD'S LARGEST MARKETER OF BRANDED CONSUMER PRODUCTS
FOR LAWN AND GARDEN CARE, WITH A FULL RANGE OF PRODUCTS FOR PROFESSIONAL
HORTICULTURE AS WELL. THE COMPANY OWNS THE INDUSTRY'S MOST RECOGNIZED BRANDS. IN
THE U.S., THE COMPANY'S SCOTTS(R), MIRACLE-GRO(R) AND ORTHO(R) BRANDS ARE
MARKET-LEADING IN THEIR CATEGORIES, AS IS THE CONSUMER ROUNDUP(R) BRAND, WHICH
IS MARKETED IN NORTH AMERICA AND MOST OF EUROPE EXCLUSIVELY BY SCOTTS AND OWNED
BY MONSANTO. IN EUROPE, SCOTTS' BRANDS INCLUDE WEEDOL(R), PATHCLEAR(R),
EVERGREEN(R), LEVINGTON(R), MIRACLE-GRO(R), KB(R), FERTILIGENE(R) AND
SUBSTRAL(R).
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:
o Adverse weather conditions could adversely affect the Company's sales
and financial results;
o The Company's historical seasonality could impair the Company's
ability to pay obligations as they come due and operating expenses;
o The Company's substantial indebtedness could adversely affect the
Company's financial health;
o Public perceptions regarding the safety of the Company's products
could adversely affect the Company;
o The loss of one or more of the Company's top customers could adversely
affect the Company's financial results because of the concentration of
the Company's sales to a small number of retail customers;
o The expiration of certain patents could substantially increase the
Company's competition in the United States;
5
o Compliance with environmental and other public health regulations
could increase the Company's cost of doing business; and,
o The Company's significant international operations make the Company
more susceptible to fluctuations in currency exchange rates and to the
costs of international regulation.
Additional detailed information concerning a number of 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
Director, Investor Relations & Corporate Communications
(937) 578-5622
6
THE SCOTTS COMPANY
RESULTS OF OPERATIONS FOR THE THREE AND TWELVE MONTHS
ENDED SEPTEMBER 30, 2004 AND 2003
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes on Page 11
Three Months Ended Twelve Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
Footnotes 2004 2003 2004 2003
--------- ------------- ------------- ------------- -------------
Net sales $ 363.6 $ 340.0 $ 2,037.9 $ 1,887.7
Cost of sales 240.2 221.5 1,267.6 1,189.7
Cost of sales - restructuring and other (0.2) 3.4 0.6 9.1
----------- ----------- ----------- -----------
Gross profit 123.6 115.1 769.7 688.9
% of sales 34.0% 33.9% 37.8% 36.5%
Gross commission from marketing agreement 12.5 11.1 58.2 45.9
Contribution expenses under marketing agreement 7.7 6.3 26.4 25.0
Amortization of marketing fee 0.8 0.8 3.3 3.3
----------- ----------- ----------- -----------
Net commission from marketing agreement 4.0 4.0 28.5 17.6
Operating expenses:
Advertising 15.2 16.1 105.0 97.7
S,G&A - excluding lawn service business
and stock-based compensation 90.1 77.3 368.6 320.4
Stock-based compensation (0.3) 1.7 7.8 4.8
S,G&A - lawn service business 14.5 11.3 56.8 46.2
S,G&A - restructuring and other 6.0 2.5 9.1 8.0
Amortization of intangibles 1.2 2.3 8.3 8.6
Other (income) expense (4.0) (3.5) (10.2) (10.8)
----------- ----------- ----------- -----------
Total operating expenses 122.7 107.7 545.4 474.9
----------- ----------- ----------- -----------
Income from operations 4.9 11.4 252.8 231.6
% of sales 1.3% 3.4% 12.4% 12.3%
Interest expense - refinancing 0.9 -- 45.5 --
Interest expense - recurring 10.7 15.8 48.8 69.2
----------- ----------- ----------- -----------
Income (loss) before taxes (6.7) (4.4) 158.5 162.4
Income tax expense (income) (4.8) (1.6) 58.0 59.2
----------- ----------- ----------- -----------
Net income (loss) from continuing operations (1.9) (2.8) 100.5 103.2
Income (loss) from discontinued operations, net of tax 0.2 (0.3) 0.4 0.6
----------- ----------- ----------- -----------
Net income (loss) $ (1.7) $ (3.1) $ 100.9 $ 103.8
=========== =========== =========== ===========
Basic earnings (loss) per share (1) $ (0.05) $ (0.10) $ 3.12 $ 3.36
=========== =========== =========== ===========
Diluted earnings (loss) per share (2) $ (0.05) $ (0.10) $ 3.03 $ 3.23
=========== =========== =========== ===========
Common shares used in basic earnings
per share calculation 32.6 31.6 32.3 30.9
=========== =========== =========== ===========
Common shares and potential common
shares used in diluted earnings per
share calculation 32.6 31.6 33.3 32.1
=========== =========== =========== ===========
EBITDA (3) $ 19.2 $ 26.0 $ 310.5 $ 283.8
=========== =========== =========== ===========
Results of operations excluding restructuring and other
charges including income/(loss) from discontinued operations,
one-time additions to income:
Adjusted net income $ 2.6 $ 0.7 $ 135.3 $ 114.7
=========== =========== =========== ===========
Adjusted diluted earnings per share (2) $ 0.08 $ 0.02 $ 4.06 $ 3.57
=========== =========== =========== ===========
Adjusted EBITDA (3) $ 25.0 $ 31.9 $ 320.2 $ 300.9
=========== =========== =========== ===========
Page 7
THE SCOTTS COMPANY
NET SALES BY BUSINESS UNIT - THREE AND TWELVE MONTHS
ENDED SEPTEMBER 30, 2004 AND 2003
(in millions)
(unaudited)
Three Months Ended % Change
---------------------------- --------
September 30, September 30,
2004 2003 Actual
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North America $ 250.4 $ 235.5 6.33%
Scotts LawnService 50.4 43.1 16.94%
International 62.8 61.4 2.28%
------------ ------------
Consolidated $ 363.6 $ 340.0 6.94%
============ ============
Twelve Months Ended % Change
---------------------------- --------
September 30, September 30,
2004 2003 Actual
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North America $ 1,483.2 $ 1,388.9 6.79%
Scotts LawnService 135.2 110.4 22.46%
International 419.5 388.4 8.01%
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Consolidated $ 2,037.9 $ 1,887.7 7.96%
============ ============
Page 8
THE SCOTTS COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARES & SHARE PRICES)
Sept 30, Sept 30,
2004 2003
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 172.8 $ 155.9
Accounts receivable, net 292.4 290.5
Inventories, net 290.1 276.1
Current deferred tax asset 24.9 56.9
Prepaid and other current assets 50.1 33.2
--------- ---------
Total current assets 830.3 812.6
--------- ---------
Property, plant and equipment, net 328.0 338.2
Goodwill and other intangible assets, net 848.9 835.5
Other assets 40.6 44.0
--------- ---------
Total assets $ 2,047.8 $ 2,030.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt $ 22.1 $ 55.4
Accounts payable 127.4 149.0
Other current liabilities 284.9 243.8
--------- ---------
Total current liabilities 434.4 448.2
--------- ---------
Long-term debt 608.5 702.2
Other liabilities 131.1 151.7
--------- ---------
Total liabilities 1,174.0 1,302.1
Shareholders' equity 873.8 728.2
--------- ---------
Total liabilities and equity $ 2,047.8 $ 2,030.3
========= =========
KEY STATISTICS:
Debt to book capitalization 48.2% 56.4%
Market capitalization:
Common shares outstanding and
dilutive common share equivalents 33.3 32.1
Share price on balance sheet date 64.15 54.70
--------- ---------
$ 2,136.2 $ 1,755.9
========= =========
Page 9
THE SCOTTS COMPANY
RECONCILIATION OF NON-GAAP DISCLOSURE ITEMS FOR THE THREE AND TWELVE
MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(in millions, except per share data)
Three Months Ended Twelve Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net income (loss) $ (1.7) $ (3.1) $ 100.9 $ 103.8
Restructuring and other charges, net of tax 3.7 3.8 6.1 10.9
Debt refinancing charges, net of tax 0.6 -- 28.3 --
------------- ------------- ------------- -------------
Adjusted net income $ 2.6 $ 0.7 $ 135.3 $ 114.7
============= ============= ============= =============
Income from operations $ 4.9 $ 11.4 $ 252.8 $ 231.6
Depreciation 12.3 11.5 46.1 40.3
Amortization, including marketing fee 2.0 3.1 11.6 11.9
------------- ------------- ------------- -------------
EBITDA $ 19.2 $ 26.0 $ 310.5 $ 283.8
============= ============= ============= =============
Restructuring and other charges, gross 5.8 5.9 9.7 17.1
------------- ------------- ------------- -------------
Adjusted EBITDA $ 25.0 $ 31.9 $ 320.2 $ 300.9
============= ============= ============= =============
Diluted earnings per share $ (0.05) $ (0.10) $ 3.03 $ 3.23
Restructuring and other charges, net of tax 0.11 0.12 0.18 0.34
Debt refinancing charges, net of tax 0.02 -- 0.85 --
------------- ------------- ------------- -------------
Adjusted diluted earnings per share $ 0.08 $ 0.02 $ 4.06 $ 3.57
============= ============= ============= =============
Page 10
THE SCOTTS 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 earnings per common share is calculated by dividing net income
by the average common shares and dilutive potential common shares
(common stock warrants and options) outstanding during the period. If
there is a loss, diluted earnings per share is equal to basic earnings
per share.
(3) "EBITDA" is defined as income from operations, plus depreciation and
amortization. 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.
Page 11
