e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-11593
The Scotts Miracle-Gro
Company
(Exact name of registrant as
specified in its charter)
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Ohio
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31-1414921
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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14111 Scottslawn Road, Marysville, Ohio
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43041
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
937-644-0011
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Shares, without par value
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New York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of Common Shares (the only common
equity of the registrant) held by non-affiliates of the
registrant computed by reference to the price at which Common
Shares were last sold as of the last business day of the
registrants most recently completed second fiscal quarter
(March 27, 2009) was approximately $1,589,973,114.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date: The number of Common Shares of the registrant
outstanding as of November 20, 2009 was 66,286,021.
DOCUMENT
INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for Registrants
2010 Annual Meeting of Shareholders to be held January 21,
2010, are incorporated by reference into Part III hereof.
PART I
Company
Description
The Scotts Miracle-Gro Company, an Ohio corporation
(Scotts Miracle-Gro and, together with its
subsidiaries, the Company), traces its roots to two
businesses launched by entrepreneurs. In 1868, Civil War veteran
O.M. Scott started a seed business in Marysville, Ohio, based on
the conviction that farmers shall have clean, weed-free
fields. Beginning in 1907, The Scotts Company expanded its
reach by selling grass seed to consumers and eventually exited
the agricultural market. By 1988 through innovation
and acquisition The Scotts Company had become a
leading marketer of lawn fertilizer, grass seed and growing
media products within the United States.
Separately, Horace Hagedorn and his partner Otto Stern launched
Sterns Miracle-Gro Products, Inc. in 1951 in New York.
Their easy-to-use plant food quickly revolutionized the
gardening category. Through innovative marketing,
Miracle-Gro®
eventually became the leading plant food product in the
gardening industry. In 1995, The Scotts Company and Sterns
Miracle-Gro Products, Inc. merged, marking the start of a
significant evolution for the Company.
In the late 1990s, the Company launched both a geographic
and a category expansion. It acquired companies with
industry-leading brands in France, Germany and the United
Kingdom. In fiscal 1999, the Company acquired the
Ortho®
brand in the United States and exclusive rights for the
marketing and distribution of consumer
Roundup®*
brand products within the United States and other specified
countries, thereby adding industry-leading weed, insect and
disease control products to its portfolio. The Company expanded
into the lawn care service industry with the launch of Scotts
LawnService®
in 1998. Since fiscal 2001, the Company has invested nearly
$125 million in acquisitions of local and regional lawn
care businesses to provide a platform for rapid expansion
throughout the United States. Most recently, the Company entered
the North American wild bird food category in fiscal 2006 with
the acquisition of Gutwein & Co., Inc. and its Morning
Song®
brand of bird food.
As the Company celebrates more than 100 years of selling
products to consumers, we own the leading brands in nearly every
category of the lawn and garden industry. A list of some of our
North American leading consumer brands is as follows:
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Category
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Brands
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Lawns
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Scotts®;
Turf
Builder®
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Gardens
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Miracle-Gro®;
Osmocote®;
LiquaFeed®;
Organic
Choice®
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Growing Media
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Miracle-Gro®;
Scotts®;
Hyponex®;
Earthgro®;
SuperSoil®
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Grass Seed
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Scotts®;
Turf
Builder®
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Controls
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Ortho®;
Home Defense
Max®;
Weed-B-Gon
Max®;
Roundup®*
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Wild Bird Food
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Morning
Song®;
Scotts Songbird
Selections®
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In addition, we have the following significant brands in Europe:
Miracle-Gro®
plant fertilizers,
Weedol®
and
Pathclear®
herbicides,
EverGreen®
lawn fertilizers and
Levington®
growing media in the United Kingdom;
KB®
and
Fertiligène®
in France;
Celaflor®,
Nexa
Lotte®
and
Substral®
in Germany and Austria; and
ASEF®,
KB®
and
Substral®
in Belgium, the Netherlands and Luxembourg.
Roundup®
is also a significant brand in the United Kingdom, France,
Germany and other European markets.
* Roundup®
is a registered trademark of Monsanto Technology LLC, a company
affiliated with Monsanto Company.
2
Business
Segments
For fiscal 2009, the Company divided its business into the
following segments:
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Global Consumer;
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Global Professional;
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Scotts
LawnService®; and
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Corporate & Other.
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This division of reportable segments is consistent with how the
segments report to and are managed by senior management of the
Company. Financial information about these current segments for
the three years ended September 30, 2009 is presented in
NOTE 22. SEGMENT INFORMATION of the Notes to
Consolidated Financial Statements included in this Annual Report
on
Form 10-K.
Global
Consumer
In our Global Consumer segment, the Company manufactures and
markets products that provide easy, reliable and effective
assistance to homeowners who seek healthy, weed-free and
pest-free lawns, gardens and indoor plants. These products
incorporate many of the latest technologies available. The
Global Consumer segment sells products in the following
categories:
Lawns: A complete line of granular lawn
fertilizer and combination products, including fertilizer and
crabgrass control, weed control or pest control, is sold under
the
Scotts®
and Turf
Builder®
brand names. The Turf
Builder®
line of products in the United States is designed to make it
easy for do-it-yourself consumers to select and properly apply
the right product in the right quantity for their lawns. A
similar range of products is available in the United Kingdom
under the
EverGreen®
brand, in France under the
Fertiligéne®
brand name and in Germany, Austria, the Nordic countries and
throughout Eastern Europe under the
Substral®
brand name.
Gardens: A complete line of plant foods is
marketed under the
Miracle-Gro®
brand name in North America, the United Kingdom and selected
Western European markets. In addition to our high-quality
granular and liquid water-soluble plant foods, which we market
as the Shake n
Feed®
and
LiquaFeed®
sub-brands under
Miracle-Gro®,
we have continuous-release plant foods for extended feeding and
convenience, which we market under the
Osmocote®
brand. The Company also markets an extensive line of plant food
products under the
Substral®
brand name in Germany, Austria, the Nordic countries and
throughout Eastern Europe, and under the
Fertiligéne®
brand name in France.
Growing Media: A complete line of growing
media products for indoor and outdoor uses is marketed under the
Miracle-Gro®,
Scotts®,
Hyponex®,
Earthgro®
and
SuperSoil®
brand names in the United States, as well as other labels. These
products include potting mix, garden soils, seeding soil,
topsoil, manures, sphagnum peat and decorative barks and
mulches. The addition of the
Miracle-Gro®
and
Scotts®
brand names plus plant food to higher quality potting mixes,
garden soils and seeding soil has turned previously low-margin
commodity products into value-added category leaders. The
introduction of the Moisture
Control®,
Organic
Choice®
and Nature
Scapes®
line extensions has provided further innovation and
differentiation of our products in the marketplace. This same
strategy is being employed in Europe, where the
Miracle-Gro®
brand, as well as the
Levington®,
Fertiligène®,
KB®
and
Substral®
brands, are being used to market growing media products.
Grass Seed: We offer a broad line of grass
seed products for consumers. Our leading grass seed products are
sold under the
Scotts®
Turf
Builder®,
EZ
Seed®,
and
PatchMaster®
brand names in the consumer market. Scotts EZ
Seed®,
introduced in 2009, is an example of our on-going innovation.
This unique lawn repair product combines
Scotts®
grass seed with granular fertilizer in a proprietary growing
material having superior water absorbency qualities. By
retaining moisture, the growing material not only allows for
better seed germination but supports less frequent watering,
resulting in a higher level of consumer success. Similarly, our
proprietary Water
Smarttm
grass seed allows consumers to successfully grow turf while
using less water.
3
Controls: A broad line of weed control, indoor
and outdoor pest control and plant disease control products is
marketed under the
Ortho®
brand name in the United States.
Ortho®
products are available in aerosol,
ready-to-use
liquid, concentrated, granular and dust forms.
Ortho®
control products include
Weed-B-Gon
Max®,
Bug-B-Gon
Max®,
Home Defense
Max®,
Ortho
Max®,
GroundClear®,
RosePride®,
and
Orthene®
Fire Ant Killer. In 2009, we introduced an innovative line of
mouse and rat control products under the Home Defense
Max®
brand by literally we think building a
better mouse trap. In Europe, the Company markets an extensive
line of control products under a variety of brand names,
including
Weedol®,
Pathclear®,
KB®,
Fertiligéne®,
Celaflor®
and Nexa
Lotte®.
Since 1999, the Company has served as Monsanto Companys
(Monsanto) exclusive agent for the marketing and
distribution of
Roundup®
non-selective herbicide products in the consumer lawn and garden
market within the United States and other specified countries,
including Australia, Austria, Belgium, Canada, France, Germany,
the Netherlands and the United Kingdom. (See the
Roundup®
Marketing Agreement discussion later in this Item 1
for a more detailed explanation of the Companys agreement
with Monsanto.)
Wild Bird Food: We manufacture and market an
assortment of wild bird food products. The Morning
Song®
line of products is sold at leading mass retailers, grocery, pet
and general merchandise stores. We also offer a Scotts Songbird
Selections®
branded line of wild bird food which emphasizes innovative
packaging and premium blends designed to attract desirable
species of birds.
Other Consumer Products: The Company also
manufactures and markets several lines of high-quality lawn
spreaders under the
Scotts®
brand name Turf
Builder®
EdgeGuard®
DLX spreaders,
AccuGreen®
drop spreaders and Handy
Green®II
handheld spreaders. We sell a line of hose-end applicators for
water-soluble plant foods such as
Miracle-Gro®
products, and lines of applicators under the
Ortho®
and
Dial N Spray®
trademarks for the diluted application of control products sold
in the concentrated form.
The Global Consumer segment also includes our Canadian consumer
operations, where we believe we are the leading marketer of
branded consumer lawn and garden products. In Canada, we sell a
full range of lawn and garden fertilizers, control products,
grass seed, spreaders, and value-added growing media products
under the
Scotts®,
Turf Builder®,
EcoSensetm,
Miracle-Gro®,
Ortho®,
Killex®
and
Roundup®
brands.
Global
Professional
The Global Professional segment sells professional products to
commercial nurseries and greenhouses and specialty crop growers
primarily in North America, Europe, the Middle East, Africa,
Latin America, Australia, New Zealand and throughout the Far
East. Our professional products include a broad line of
sophisticated controlled-release fertilizers, water-soluble
fertilizers, plant protection products, wetting agents, growing
media and grass seed that are sold under brand names that
include
Osmocote®,
Sierrablen®,
Peters
Professional®,
Peters
Excel®,
Agroblen®,
Agrocote®,
Agroleaf®,
Rout®,
OH2®,
Scotts®
Professional Seed and
Scotts®
Turf-Seedtm.
Scotts
LawnService®
The Scotts
LawnService®
segment provides residential lawn care, lawn aeration, tree and
shrub care and limited pest control services in the United
States. As of September 30, 2009, Scotts
LawnService®
had 82 Company-operated locations and 78 independent
franchises.
Corporate &
Other
The Corporate & Other segment includes our unallocated
corporate general and administrative expenses, as well as the
remainder of the Smith &
Hawken®
business, an outdoor living and garden lifestyle category brand.
On July 8, 2009, the Company announced its intention to
cease operating the Smith &
Hawken®
business. As of November 17, 2009, all Smith &
Hawken®
stores had been closed and all operational activity is expected
to be substantially complete by December 31, 2009. The
Company will begin reporting the Smith &
Hawken®
business as a discontinued operation in the first quarter of
fiscal 2010. Financial information about the Smith &
Hawken®
closure process for the fiscal year ended September 30,
2009 (fiscal 2009) is presented in
NOTE 3.
4
IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES of the Notes
to Consolidated Financial Statements included in this Annual
Report on
Form 10-K.
Competitive
Marketplace
Our major customers include home centers, mass merchandisers,
warehouse clubs, large hardware chains, independent hardware
stores, nurseries, garden centers, food and drug stores,
commercial nurseries and greenhouses and specialty crop growers.
Each of our segments participates in markets that are highly
competitive and many of our competitors sell their products at
prices lower than ours. The Company attributes its market
leadership and continued success in the lawn and garden category
to our industry-leading brands, innovative products,
award-winning advertising, supply chain excellence, highly
effective field sales and merchandising organization and the
strength of our relationships with major retailers in our
product categories.
In the North American Global Consumer do-it-yourself lawn and
garden and pest control markets, we compete primarily against
private label products as well as branded products.
Private label products are those sold under a
retailer-owned label or a supplier-owned label, which are sold
exclusively at a specific retail chain. In late October 2008,
the Companys largest North American competitor, Spectrum
Brands, announced it would cease competing in the lawn
fertilizer, grass seed and growing media categories. As a
result, the Company was awarded additional lawn fertilizer and
growing media business by two of its retail partners.
The Company continues to compete with Spectrum Brands in other
lawn and garden categories. We also compete with Bayer AG,
Central Garden & Pet Company, Enforcer Products, Inc.,
Green Light Company and Lebanon Seaboard Corporation. In
addition, we face competition from regional competitors who
compete primarily on the basis of price for commodity growing
media business.
Internationally, we face strong competition in the consumer
do-it-yourself lawn and garden market, particularly in Europe.
Our competitors in the European Union include Bayer AG, Compo
GmbH, a subsidiary of K&S Aktiengesellschaft (which owns
the
Compo®,
Sem®
and
Algoflash®
brands), Westland Horticulture and a variety of local companies.
In the North American Global Professional horticulture markets,
we face a broad range of competition from numerous companies
such as Agrium, Inc., Haifa Chemicals Ltd., Chisso Asahi
Fertilizer Co. Ltd., Syngenta AG and Bayer AG. Some of these
competitors have significant financial resources and research
departments.
The international Global Professional horticulture markets in
which we compete are also very competitive, particularly the
markets for controlled-release and water-soluble fertilizer
products. We have numerous U.S. and European competitors in
these international markets, including Pursell Industries, Inc.,
Compo GmbH, a subsidiary of K&S Aktiengesellschaft, Norsk
Hydro ASA, Haifa Chemicals Ltd. and Kemira Oyj.
We have the second largest market share position in the
fragmented U.S. do-it-for-me lawn care service market. We
compete against
TruGreen-ChemLawn®,
a division of ServiceMaster, which has the leading market share
in the U.S. lawn care service market and has a
substantially larger share of this market than Scotts
LawnService®,
as well as numerous regional and local lawn care services
operations.
Significant
Customers
Approximately 78% of our worldwide net sales in fiscal 2009 were
made by our Global Consumer segment. Within the Global Consumer
segment, approximately 33% of our net sales in fiscal 2009 were
made to Home Depot, 19% to Lowes and 18% to Walmart. We
face strong competition for the business of these significant
customers. The loss of any of these customers or a substantial
decrease in the volume or profitability of our business with any
of these customers could have a material adverse effect on our
financial condition, results of operations or cash flows.
5
Competitive
Strengths
Strong
Brands
The Company considers its industry-leading brands to be its
single largest competitive advantage, though hardly its only
advantage. The Company believes it has the leading market share
in every major U.S. category in which its Global Consumer
business competes. The Company also owns many of the leading
brands in the European marketplace.
The Company has helped to build awareness of its brands through
consistently investing in advertising and marketing. As a
result, consumer awareness of the Companys key
brands especially in the United States
rivals that of nearly any other consumer products company. The
strength of the
Scotts®
brand, in particular, has been a critical aspect of the success
of Scotts
LawnService®.
Trademarks,
Patents and Licenses
The Company considers its trademarks, patents and licenses to be
key competitive advantages. We pursue a vigorous trademark
protection strategy consisting of registration and maintenance
of key trademarks and proactive monitoring and enforcement
activities to protect against infringement. The
Scotts®,
Miracle-Gro®,
Ortho®,
Scotts
LawnService®,
Smith &
Hawken®,
Osmocote®,
Hyponex®
and
Earthgro®
brand names and logos, as well as a number of product
trademarks, including Turf
Builder®,
Organic
Choice®,
Home Defense
Max®
and Weed-B-Gon
Max®,
are federally
and/or
internationally registered and are considered material to our
business.
As of September 30, 2009, we held approximately 97 issued
and unexpired utility and design patents in the United States
covering subject matter such as fertilizer, chemical and growing
media compositions and processes; grass varieties; and
mechanical dispensing devices such as applicators, spreaders and
sprayers. Similar patents have also been issued in foreign
countries throughout the world, bringing our total worldwide
patent portfolio to approximately 466 issued and unexpired
utility and design patents. The issued utility patents provide
protection generally extending to 20 years from the date of
filing, subject to the payment of applicable governmental
maintenance and annuity fees, and many of our patents will
extend well into the next decade.
In addition, we continue to file new patent applications each
year covering new, commercially significant developments
conceived by our research and development associates. Currently,
we have approximately 206 pending utility and design patent
applications worldwide, including approximately 33 pending
U.S. applications. We also hold exclusive and non-exclusive
patent licenses and supply arrangements, permitting the use and
sale of additional patented fertilizers, pesticides and
mechanical devices.
During fiscal 2009, we were granted seven U.S. and 28
foreign national utility and design patents, including patents
for the designs of various spraying devices, the designs of
rodent traps, the designs of spreader devices and pest control
compositions comprising soybean oil derivatives. We continue to
pursue patent coverage of our core technologies nationally and
in our Canadian, European, Asia/Pacific and South American
markets.
No significant U.S. or foreign patents expired in fiscal
2009. However, in fiscal 2010, the Company is anticipating the
expiration of several patents, including two U.S. patents
for slow release coated fertilizers and one U.S. patent for
carrierless granular fertilizer products.
Innovation
The Company views its commitment to innovation as a competitive
advantage. We continually invest in research and development, in
the laboratory and at the consumer level, to improve our
products, manufacturing processes, packaging and delivery
systems. The Companys long-standing commitment to
innovation is evidenced by its worldwide portfolio of patents.
Spending on research and development was $56.3 million,
$44.7 million and $38.8 million in fiscal 2009, fiscal
2008 and fiscal 2007, respectively, including product
registration costs of $15.6 million, $9.8 million and
$9.3 million, respectively. In addition to the benefits of
our own research and development, we actively seek ways to
leverage the research and development activities of our
suppliers.
Our worldwide research and development headquarters is located
at the Dwight G. Scott Research Center in Marysville, Ohio. We
also have research and development facilities in the United
Kingdom, France, the Netherlands
6
and Australia, as well as several research field stations
located throughout the United States. In these combined
locations, the Company employs 28 PhD scientists.
The Companys biotechnology program is evidence of its
commitment to responsible research and to developing more
effective and
easier-to-use
products that are preferred by consumers and are better for the
environment. As part of this program, the Company is currently
employing technology already proven in agriculture to develop
new turf varieties that could one day require less maintenance,
less water and fewer chemical inputs to resist insects, weeds
and disease.
Supply
Chain and Sales Force
Because our Global Consumer segment sells a substantial majority
of its products to a concentrated number of retail customers, it
is critical to maintain strong relationships with these
partners. We believe our supply chain and sales force are major
competitive advantages that have allowed us to build unrivaled
relationships with our key retail partners.
In fiscal 2009, the Company commenced a three-year plan aimed to
regionalize its supply chain by co-locating fertilizer and
growing media distribution centers to allow for more full
truckload deliveries, thereby lowering costs. The Company has
also begun to roll out a regional packaged goods filling and
distribution strategy. The investments associated with our
regional manufacturing and distribution should allow the Company
to more efficiently supply its key retail accounts and diversify
its manufacturing footprint. The Company considers its order
fill rate which measures the accuracy of
shipments to be an important measure of customer
service. In fiscal 2009, the Company achieved a global order
fill rate of 98.6 percent. Additionally, over the past
several years, the supply chain has helped the Company improve
its inventory turns, as well as those of its retail partners.
The Company has made substantial investments to lower the cost
structure of its supply chain operations in Europe while
simultaneously improving customer service levels.
The Companys U.S. sales force is another major
competitive advantage. By increasing the size of the sales force
over several years, the Company has taken a more proactive role
in helping our retail partners merchandise the lawn and garden
department and maximize the productivity of this space. In
addition to working closely with retailers, our nearly
2,000 person full-time and seasonal U.S. in-store
sales force also provides the Company with an opportunity to
interact
face-to-face
with consumers
at-the-shelf.
By helping consumers answer their lawn and garden questions, we
believe we can drive higher sales of our products.
In fiscal 2009, the Company also began migrating to a
regionalized sales focus in the United States that resulted in
the opening of offices in Florida, Texas and California. By
focusing more intently on local and regional issues, the Company
believes it can improve its level of intimacy with both
consumers and retailers.
Roundup®
Marketing Agreement
The Company is Monsantos exclusive agent for the marketing
and distribution of consumer
Roundup®
products (with additional rights to new products containing
glyphosate or other similar non-selective herbicides) in the
consumer lawn and garden market within the United States and
other specified countries, including Australia, Austria,
Belgium, Canada, France, Germany, the Netherlands and the United
Kingdom. Under the terms of the Amended and Restated Exclusive
Agency and Marketing Agreement (the Marketing
Agreement) between us and Monsanto, we are jointly
responsible with Monsanto for developing global consumer and
trade marketing programs for consumer
Roundup®.
We have assumed responsibility for sales support, merchandising,
distribution and logistics for consumer
Roundup®.
Monsanto continues to own the consumer
Roundup®
business and provides significant oversight of its brand. In
addition, Monsanto continues to own and operate the agricultural
Roundup®
business.
We are compensated under the Marketing Agreement based on the
success of the consumer
Roundup®
business in the markets covered by the Marketing Agreement. We
receive a graduated commission to the extent that the earnings
before interest and taxes of the consumer
Roundup®
business in the included markets exceed specified thresholds.
Regardless of these earnings, we are required to make a
$20 million annual contribution payment against the overall
expenses of the consumer
Roundup®
business.
7
The gross commission earned under the Marketing Agreement, the
contribution payments to Monsanto and the amortization of the
initial marketing fee paid to Monsanto are included in the
calculation of net sales in the Companys Consolidated
Statements of Operations. For fiscal 2009, fiscal 2008 and
fiscal 2007, the net amount earned under the Marketing Agreement
was $51.4 million, $44.3 million and
$41.9 million, respectively. For further details, see
NOTE 7. MARKETING AGREEMENT of the Notes to
Consolidated Financial Statements included in this Annual Report
on
Form 10-K.
The Marketing Agreement has no definite term except as it
relates to the European Union countries (the EU
term). The EU term extends through September 30,
2011, with up to two additional automatic renewal periods of two
years each, subject to non-renewal only upon the occurrence of
certain performance defaults. Thereafter, the Marketing
Agreement provides that the parties may agree to renew the EU
term for an additional three years.
The Marketing Agreement provides Monsanto with the right to
terminate the Marketing Agreement upon an event of default (as
defined in the Marketing Agreement) by the Company, a change in
control of Monsanto or the sale of the consumer
Roundup®
business. The Marketing Agreement provides the Company with the
right to terminate the Marketing Agreement in certain
circumstances, including an event of default by Monsanto or the
sale of the consumer
Roundup®
business. Unless Monsanto terminates the Marketing Agreement due
to an event of default by the Company, Monsanto is required to
pay a termination fee to the Company that varies by program
year. The termination fee is calculated as a percentage of the
value of the
Roundup®
business exceeding a certain threshold, but in no event will the
termination fee be less than $16 million. If Monsanto were
to terminate the Marketing Agreement due to an event of default
by the Company, however, the Company would not be entitled to
any termination fee, and it would lose all, or a substantial
portion, of the significant source of earnings and overhead
expense absorption the Marketing Agreement provides. Monsanto
may also be able to terminate the Marketing Agreement within a
given region, including North America, without paying a
termination fee if unit volume sales to consumers in that region
decline: (1) over a cumulative three-fiscal-year period; or
(2) by more than 5% for each of two consecutive years.
Monsanto has agreed to provide us with notice of any proposed
sale of the consumer
Roundup®
business, allow us to participate in the sale process and
negotiate in good faith with us with respect to any such
proposed sale. In the event we acquire the consumer
Roundup®
business in such a sale, we would receive as a credit against
the purchase price the amount of the termination fee that would
have been paid to us if Monsanto had exercised its right to
terminate the Marketing Agreement in connection with a sale to
another party. If Monsanto decides to sell the consumer
Roundup®
business to another party, we must let Monsanto know whether we
intend to terminate the Marketing Agreement and forfeit any
right to a termination fee or whether we will agree to continue
to perform under the Marketing Agreement on behalf of the
purchaser.
Strategic
Initiatives
Our strategic plan is focused on leveraging our key competitive
advantages to extend category and share growth and reduce costs,
further distancing us from the competition and increasing
shareholder value. Even in a difficult economy, we continue to
expand upon our strategy of strengthening our relationship with
the consumer. This will allow us to leverage the cornerstone of
our business our brands and drive higher
usage of our products. We seek to raise household penetration of
our products, as well as the frequency with which existing
consumers use our products. We believe this can be accomplished
by increasing our intimacy with our consumers and customers at a
localized level, by building our portfolio of simple,
significant and sustainable products through innovation and by
leveraging our strong customer relationships. We are currently
involved in several initiatives designed to meet this criteria:
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We have adopted a regionalized sales and marketing organization
in the United States. In addition to our sales and marketing
staff located at the Companys headquarters, which will
continue to service customers in the Northeast and Midwest
regions of the U.S., we have established local offices in the
Southeast, the Southwest and the West (collectively, the
Regions). The Regions will take the lead on
enhancing our understanding of our consumers better than ever
before what they need, how they participate in the
lawn and garden category, what drives them to buy, where they
shop and many other insights. The Regions will focus on
increasing both the overall participation rate in lawn and
garden activities and our market share by
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meeting the regional needs of their consumers at the local
level. In order to achieve these objectives, the Regions will
work closely with our retail partners at a local level in order
to optimize merchandising and programs.
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Headquarters will support the Regions with effective programs
and services to attract more consumers and enhance support to
our retailers, as well as to continue to drive innovation in our
products, services, programs and operations in ways designed to
keep consumers engaged in lawn and garden activities and to
improve business efficiency for the long-term.
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Our strategic plan is heavily focused on driving innovation,
which we believe is necessary to achieve higher sales and
profits. In recent years, new products have been critical to our
success. Our strategy is focused on continuing to leverage what
we consider an unmatched commitment to innovation with three
criteria used to evaluate every new product
simple, significant and
sustainable.
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Simple means that products must be easy for the
consumer to buy, use and store. In addition, they should reduce
the amount of time it takes to accomplish a task and should give
the consumer improved results. Significant products
should have strong margin potential, generate possible cost
savings, present a global opportunity and be proprietary
whenever possible. Sustainable means new products
must be designed with consumer safety and environmental impacts
in mind, including the development of formulations designed to
replace restricted or aging active ingredients.
We believe this strategy resulted in the successful launch of
several new products in 2009, including Turf
Builder®
Water
Smarttm
Grass Seed and EZ
Seed®
Grass Seed. The former includes a full line of premium grass
seed products that provide consumers high-performance seed
wrapped in a super-absorbent coating which allows every seed to
absorb up to 40% more water than ordinary seed. As a result, the
seed needs to be watered less frequently, which enables
consumers to more easily succeed in growing a healthy lawn. EZ
Seed®
is a seed mix which includes premium grass seed, fertilizer and
a proprietary growing material. Our proprietary technology
absorbs water, expanding to surround the seed in a moist
protective layer. The protective layer continues to care for the
seed, infusing it with water and nutrients, so it builds strong
roots that survive tough conditions.
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Our strategic plan also continues to focus on further assisting
our retail partners in order to improve their sales and the
productivity of the lawn and garden department. We believe this
strategy makes us a more critical component to their success and
helps to ensure our continued growth.
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In 2009, we employed more merchandisers and expert product
counselors and significantly increased the number of hours we
spent in the stores of our major retail partners. We
accomplished this by rebalancing our sales force, shifting a
portion of our full year fixed compensation to seasonal variable
labor and by employing other productivity measures which allowed
us to spend more time helping our retailers and consumers and
less time on administrative activities.
We believe continued use of this strategy provides a more
flexible cost structure, helping maximize the return on our
investment and allows us to better meet the needs and timing of
local markets. It also allows us to quickly deploy more labor in
those regions where business is particularly strong and reduce
spending in regions where sales may be lower than expected due
to poor weather, economic concerns or other factors.
Our strategy also incorporates long-term initiatives to further
increase the cost productivity of our U.S. supply chain
model. We believe this effort, which is another form of
regionalization, can result in cumulative cost savings of
$50 million and reduce inventories by $100 million.
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Today, the majority of our lawn fertilizer products in the
United States are shipped from our plant in Marysville, Ohio to
one of 11 warehouses across the country. From those warehouses,
the fertilizer products are then shipped along with
controls, plant food, grass seed and durable
products directly to home center stores. These
products are often shipped on
less-than-full
trucks, making their distribution less efficient than we would
like.
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Meanwhile, growing media products are shipped
direct-to-store
through a network of 26 manufacturing facilities. Because these
shipments go shorter distances on full trucks, they are more
efficient.
9
Our strategy for a future model which began in 2009
and is being rolled out over a three-year period
allows fertilizer products to be shipped into these growing
media facilities, instead of to warehouses. From there, the
fertilizer and growing media products are co-distributed
directly to the stores. Once deployed across the entire country,
nearly all fertilizer products for home center customers will be
shipped through these growing media facilities, significantly
improving our product distribution efficiency.
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Following completion of the build-out of the fertilizer and
growing media co-distribution model, it is anticipated that up
to half of our third-party warehouse square footage could be
eliminated. With fertilizer and growing media products shipping
together to home center retailers, a significant portion of the
remaining cased goods would be shipped from the warehouses to
our retail partners distribution centers on fully-loaded
trucks.
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The third element of our regional supply chain model is
increased regionalization of manufacturing. Our manufacturing
processes for fertilizers and liquids are currently highly
centralized. With investments in regional facilities, we
anticipate realizing cost savings from a combination of reduced
in-bound and out-bound freight combined with reduced inventory
investments.
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These strategic efforts not only present a significant economic
benefit to the Company, but our retail partners will benefit as
well, through more frequent store replenishment, improved
inventory turns and reduced order lead times. As such, we
believe our partners can maximize their retail
point-of-sale
opportunities without compromising the customer service they
have come to expect.
Strengthening
our Global Consumer Business Internationally
We continue to believe in the long-term growth potential of our
Global Consumer business internationally. In order to maximize
shareholder value in this business, we have sharpened our focus
by: (i) reducing costs in the business to improve
profitability and to allow for marketing investments;
(ii) aligning the organization by category rather than by
geography to better leverage our knowledge of the marketplace
and the consumer; and (iii) better leveraging the
Companys innovation competencies. We have implemented a
global supply chain to provide our smaller, international market
segments with the benefits of the larger Company, such as lower
packaging costs and the ability to source products from any
Company-owned plant globally. The first steps of the
organizational realignment have taken place, and as part of a
broader corporate initiative, they will continue to evolve in
fiscal 2010 and beyond. Finally, we are combining global scale
with locally tailored products to streamline our technology
platform in the international Global Consumer business. As an
example, when the Company introduced
LiquaFeed®
Plant Food to a variety of European countries in fiscal 2008,
each label carried the same design and branding while the claims
and instructions were displayed in the local language. At the
same time, the European business doubled sales of natural
products in fiscal 2008 by launching
Naturen®
sub-branded
products as a locally driven effort.
Expanding
Scotts
LawnService®
The number of homeowners who want to maintain their lawns and
gardens but do not want to do it themselves represents a
significant portion of the total lawn and garden market. We
recognize that our portfolio of well-known brands provides us
with a unique ability to extend our business into lawn and
garden services and that the strength of our brands provides us
with a competitive advantage in acquiring new customers. We have
spent the past several years developing our Scotts
LawnService®
business model and the business has grown significantly, from
revenues of $41.2 million in fiscal 2001 to revenues of
$231.1 million in fiscal 2009. This growth has come from
geographic expansion, acquisitions and organic growth fueled by
our direct marketing programs. Although acquisition activity has
been negligible in recent years, we anticipate continuing to
make selective acquisitions in fiscal 2010 and beyond. We will
also continue to invest in the Scotts
LawnService®
business infrastructure in order to continually improve customer
service throughout the organization and leverage economies of
scale as we continue to grow.
Seasonality
and Backlog
Our business is highly seasonal, with 70% to 75% of our annual
net sales occurring in our second and third fiscal quarters
combined. Our annual sales are further concentrated in our
second and third fiscal quarters by
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retailers who increasingly rely on our ability to deliver
products in season when consumers buy our products,
thereby reducing the retailers inventories.
We anticipate significant orders for the upcoming spring season
will start to be received late in the winter and continue
through the spring season. Historically, substantially all
orders are received and shipped within the same fiscal year with
minimal carryover of open orders at the end of the fiscal year.
Raw
Materials
We purchase raw materials for our products from various sources
that we presently consider to be adequate to supply the needs of
each of our segments and our business as a whole. We are subject
to market risk from fluctuating prices of certain raw materials,
including urea, resins, fuel, grass seed and wild bird food
components. Our objectives surrounding the procurement of these
materials are to ensure continuous supply, to minimize costs and
to improve predictability. We seek to achieve these objectives
through negotiation of contracts with favorable terms directly
with vendors. When appropriate, we will procure a certain
percentage of our needs in advance of the season to secure
pre-determined prices. We also hedge certain commodities to
improve predictability and control costs.
Manufacturing
and Distribution
We manufacture products for our Global Consumer business in
North America at our facilities in Marysville, Ohio;
Fort Madison, Iowa; Albany, Oregon and Temecula,
California, as well as at a number of third-party contract
packer facilities in the United States and Canada. In addition,
the Company manufactures growing media products in 27 regional
facilities located throughout North America. We also own four
production facilities for our wild bird food operations in
Indiana, South Dakota, South Carolina and Texas. The primary
distribution centers for our Global Consumer business in North
America are managed by the Company and strategically placed
across the United States.
We manufacture the non-growing media products for our Global
Consumer business internationally at our facilities in Howden,
the United Kingdom and Bourth, France. We also utilize a number
of third-party contract packers. The primary distribution
centers for our Global Consumer business internationally are
located in the United Kingdom, France and Germany and are
managed by a logistics provider.
The growing media products for our international Global Consumer
business are produced at our facilities in Hatfield and Sutton
Bridge, both in the United Kingdom, and Hautmont, France, and at
a number of third-party contract packer facilities. These
growing media products are generally shipped direct without
passing through a distribution center.
We also manufacture horticultural products for our Global
Professional business at a leased fertilizer manufacturing
facility in Charleston, South Carolina and a Company-owned site
in Heerlen, the Netherlands. The remaining products for our
Global Professional businesses are produced at other
Company-owned facilities and subcontractors in the United States
and Europe.
The majority of shipments to customers are made via common
carriers or through distributors in the United States and
through a network of public warehouses and distributors in
Europe. We are subject to market risk from fluctuating market
prices of diesel fuel, which our common carriers pass on to the
Company in the form of fuel surcharges. When appropriate, the
Company will hedge a portion of these indirect fuel costs to
improve predictability and control costs.
Employees
As of September 30, 2009, we employed 5,715 full-time
employees in the United States and an additional
1,136 full-time employees located outside the United
States. During peak sales and production periods, we utilize
seasonal and temporary labor.
None of our
U.S.-based
employees are members of a union. Thirty-nine of our full-time
U.K.-based employees are members of the Transport and General
Workers Union and have full collective bargaining rights. An
undisclosed number of our full-time employees at our office in
Ecully, France are members of the Confederation Francaise
11
Democratique du Travail and Confederation Generale du Travail,
participation in which is confidential under French law. In
addition, a number of union and non-union full-time employees
are members of works councils at three sites in Bourth, Hautmont
and Ecully, France, and a number of non-union employees are
members of works councils in Ingelheim, Germany. In the
Waardenburg office and in the Heerlen Plant in the Netherlands,
10 employees are members of a workers union, but we are not
responsible for collective bargaining negotiations with this
union. In the Netherlands, we are governed by the Works Councils
Act with respect to the union. Works councils represent
employees on labor and employment matters and manage social
benefits.
We believe we have good relationships with our employees in the
United States, and with both unionized and non-unionized
international employees.
Regulatory
Considerations
Local, state, federal and foreign laws and regulations affect
the sale of our products in several ways.
In the United States, all products containing pesticides must
comply with the Federal Insecticide, Fungicide, and Rodenticide
Act of 1947, as amended (FIFRA), and be registered
with the U.S. Environmental Protection Agency (the
U.S. EPA) (and similar state agencies) before
they can be sold or distributed. The inability to obtain or
maintain such compliance, or the cancellation of any such
registration, could have an adverse effect on our business, the
severity of which would depend on the products involved, whether
another product could be substituted and whether our competitors
were similarly affected. We attempt to anticipate regulatory
developments and maintain registrations of, and access to,
substitute active ingredients, but there can be no assurance
that we will continue to be able to avoid or minimize these
risks.
Fertilizer and growing media products are subject to state and
foreign labeling regulations. Our manufacturing operations are
subject to waste, water and air quality permitting and other
regulatory requirements of federal and state agencies. The
Companys wild bird food business is subject to regulation
by the U.S. Food and Drug Administration and various state
regulations. Our grass seed products are regulated by the
Federal Seed Act and various state regulations.
Pursuant to the Food Quality Protection Act, the U.S. EPA
is evaluating the cumulative risks from dietary and non-dietary
exposures to pesticides. The pesticides in our products are
typically manufactured by independent third parties and as a
result of the U.S. EPAs continuing risk assessment, a
decision by the U.S. EPA or the third-party registrant may
restrict our access to the pesticides. We cannot predict the
outcome or the severity of the effect of these continuing
evaluations.
The use of certain pesticide and fertilizer products is
regulated by various local, state, federal and foreign
environmental and public health agencies. These regulations may
include requirements that only certified or professional users
apply the product or that certain products be used only on
certain types of locations (such as not for use on sod
farms or golf courses), may require users to post notices
on properties to which products have been or will be applied,
may require notification to individuals in the vicinity that
products will be applied in the future or may ban the use of
certain ingredients. We believe we are operating in substantial
compliance with, or taking action aimed at ensuring compliance
with, these laws and regulations.
State, federal and foreign authorities generally require growing
media facilities to obtain permits (sometimes on an annual
basis) in order to harvest peat and to discharge storm water
run-off or water pumped from peat deposits. The permits
typically specify the condition in which the property must be
left after the peat is fully harvested, with the residual use
typically being natural wetland habitats combined with open
water areas. We are generally required by these permits to limit
our harvesting and to restore the property consistent with the
intended residual use. In some locations, these facilities have
been required to create water retention ponds to control the
sediment content of discharged water.
FIFRA
Compliance, the Corresponding Governmental Investigations and
Similar Matters
In April 2008, we became aware that a former associate
apparently deliberately circumvented the Companys policies
and U.S. EPA regulations under FIFRA, by failing to obtain
valid registrations for certain products
and/or
causing certain invalid product registration forms to be
submitted to regulators. Since that time, we have been
12
cooperating with both the U.S. EPA and the
U.S. Department of Justice (the U.S. DOJ)
in related civil and criminal investigations into our pesticide
product registration issues.
In late April of 2008, in connection with the
U.S. EPAs investigation, we conducted a
consumer-level recall of certain consumer lawn and garden
products and a Scotts
LawnService®
product. Subsequently, the Company and the U.S. EPA agreed
upon a Compliance Review Plan for conducting a comprehensive,
independent review of the Companys product registration
records. Pursuant to the Compliance Review Plan, an independent
third-party firm, Quality Associates Incorporated
(QAI), reviewed substantially all of our
U.S. pesticide product registrations and associated
advertisements, some of which were historical in nature and no
longer related to sales of our products. The U.S. EPA
investigation and the QAI review process resulted in the
temporary suspension of sales and shipments of certain products.
In addition, as the QAI review process or our internal review
identified potential FIFRA registration issues (some of which
appear unrelated to the actions of the former associate), we
endeavored to stop selling or distributing the affected products
until the issues could be resolved. QAIs review of our
U.S. pesticide product registrations and associated
advertisements is now substantially complete. The results of the
QAI review process did not materially affect, and are not
expected to materially affect, our fiscal 2009 and fiscal 2010
sales, respectively.
In late 2008, the Company and its indirect subsidiary, EG
Systems, Inc., doing business as Scotts
LawnService®,
were named as defendants in a purported class action filed in
the U.S. District Court for the Eastern District of
Michigan relating to Scotts LawnServices application of
certain pesticide products. In the suit, Mark Baumkel, on behalf
of himself and the purported classes, sought an unspecified
amount of damages, plus costs and attorneys fees, for
alleged claims involving breach of contract, unjust enrichment,
tort, and violation of the State of Michigans consumer
protection act. On September 28, 2009, the court granted
the Companys and Scotts LawnServices motion and
dismissed the suit with prejudice. Since that time, the Company
and Mr. Baumkel have agreed to a confidential settlement
that, among other things, precludes an appeal of the decision.
The impact of the confidential settlement did not, and will not,
materially affect our financial condition, results of operations
or cash flows.
In fiscal 2008, we conducted a voluntary recall of certain of
our wild bird food products due to a formulation issue. Certain
wild bird food products had been treated with pest control
additives to avoid insect infestation, especially at retail
stores. While the pest control additives had been labeled for
use on certain stored grains that can be processed for human
and/or
animal consumption, they were not labeled for use on wild bird
food products. In October, 2008, the U.S. Food &
Drug Administration concluded that the recall had been completed
and that there had been proper disposition of the recalled
products. The results of the wild bird food recall did not
materially affect our fiscal 2009 financial condition, results
of operations or cash flows.
For more information with respect to additional risks and
uncertainties the Company may face in connection with the
ongoing investigations and for a discussion of the related costs
and expenses related to the matters discussed above, see
ITEM 1A. RISK FACTORS The Ongoing
Governmental Investigation Regarding Our Compliance with FIFRA
Could Adversely Affect Our Financial Condition, Results of
Operations or Cash Flows in this Annual Report on
Form 10-K
and NOTE 2. PRODUCT REGISTRATION AND RECALL
MATTERS to the Consolidated Financial Statements included
in this Annual Report on
Form 10-K.
Other
Regulatory Matters
In 1997, the Ohio Environmental Protection Agency (the
Ohio EPA) initiated an enforcement action against us
with respect to alleged surface water violations and inadequate
wastewater treatment capabilities at our Marysville, Ohio
facility and sought corrective action under the Federal Resource
Conservation and Recovery Act. The action related to discharges
from on-site
waste water treatment and several discontinued
on-site
disposal areas that date back to the early operations of the
Marysville facility, which we had already been assessing and, in
some cases, remediating, on a voluntary basis. We are
remediating the Marysville site under the terms of a judicial
consent order under the oversight of the Ohio EPA.
We completed negotiations with the Philadelphia District of the
U.S. Army Corps of Engineers (the Corps)
regarding the terms of site remediation and the resolution of
the Corps civil penalty demand in connection with our
prior peat harvesting operations at our Lafayette, New Jersey
facility. A final consent decree was entered
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into on October 18, 2004 that required us to perform five
years of wetland monitoring, and the completion of additional
actions if after five years, the monitoring indicates the
wetlands have not developed satisfactorily. As site monitoring
activities were not initiated until 2006, the five-year
monitoring period will extend until December 2010.
At September 30, 2009, $3.2 million was accrued for
these non-FIFRA compliance-related environmental actions, the
majority of which is for site remediation. Most of the costs
accrued as of September 30, 2009 are expected to be paid in
fiscal 2010; however, payments could be delayed. During fiscal
2009, fiscal 2008 and fiscal 2007, we expensed
$0.8 million, $1.4 million, and $1.5 million for
non-FIFRA compliance-related environmental matters. There were
no material capital expenditures during the last three fiscal
years related to environmental or regulatory matters.
General
Information
The Company maintains a website at
http://investor.scotts.com
(this uniform resource locator, or URL, is an inactive textual
reference only and is not intended to incorporate our website
into this Annual Report on
Form 10-K).
We file reports with the Securities and Exchange Commission (the
SEC) and make available, free of charge, on or
through our website, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as well as our proxy and information
statements, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC.
Financial
Information About Geographic Areas
For certain information concerning our international revenues
and long-lived assets, see NOTE 22. SEGMENT
INFORMATION of the Notes to Consolidated Financial
Statements included in this Annual Report on
Form 10-K.
Cautionary
Statement on Forward-Looking Statements
We have made and will make forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, in this Annual
Report on
Form 10-K,
in our 2009 Annual Report to Shareholders (our 2009 Annual
Report) and in other contexts relating to matters
including future growth and profitability targets and strategies
designed to increase total shareholder value. Forward-looking
statements also include, but are not limited to, information
regarding our future economic and financial condition and
results of operations, the plans and objectives of our
management and our assumptions regarding our performance and
these plans and objectives.
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements to
encourage companies to provide prospective information, so long
as those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those discussed in the forward-looking
statements. We desire to take advantage of the safe
harbor provisions of that Act.
Forward-looking statements that we make in our 2009 Annual
Report, in this Annual Report on
Form 10-K
and in other contexts are subject to a variety of risks and
assumptions and numerous factors beyond our control. Important
factors that could cause actual results to differ materially
from the forward-looking statements we make include those
described below. All forward-looking statements attributable to
us or persons working on our behalf are expressly qualified in
their entirety by the following cautionary statements.
The
Ongoing Governmental Investigation Regarding Our Compliance with
FIFRA Could Adversely Affect Our Financial Condition, Results of
Operations or Cash Flows.
Our products that contain pesticides must comply with FIFRA and
be registered with the U.S. EPA (and similar state
agencies) before they can be sold or distributed. In April 2008,
we became aware that a former associate
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apparently deliberately circumvented Company policies and
U.S. EPA regulations under FIFRA by failing to obtain valid
registrations for products
and/or
causing invalid product registration forms to be submitted to
regulators. Since that time, internal and third-party reviews
have identified additional potential pesticide product
registration issues (some of which appear unrelated to the
actions of the former associate) and we have been cooperating
with both the U.S. EPA and the U.S. DOJ in related
civil and criminal investigations into the pesticide product
registration issues.
In connection with the registration investigations and FIFRA
compliance review process, we have recorded, and in the future
expect to record, charges and costs for estimated retailer
inventory returns, consumer returns and replacement costs, costs
to rework existing products, inventory write-downs and legal and
professional fees and costs associated with administration of
the registration investigation and compliance review process.
Because these expected future charges are based on estimates,
they may increase as a result of numerous factors, many of which
are beyond our control, including the number and type of legal
or regulatory proceedings relating to the registration
investigation and FIFRA compliance review process and regulatory
or judicial orders or decrees that may require us to take
certain actions in connection with the registration
investigations and FIFRA compliance review process or to pay
civil or criminal fines
and/or
penalties at the state
and/or
federal level.
The U.S. EPA and U.S. DOJ investigations continue and
may result in future state, federal or private rights of action
including fines
and/or
penalties with respect to known or potential additional product
registration issues. Until the U.S. EPA and U.S. DOJ
investigations are complete, we cannot reasonably determine the
scope or magnitude of possible liabilities that could result
from known or potential product registration issues, and no
reserves for these potential liabilities have been established
as of September 30, 2009. However, it is possible that such
liabilities, including fines, penalties, judgments
and/or
litigation costs could be material and have an adverse effect on
our financial condition, results of operations or cash flows.
There can be no assurance that the ultimate outcome of the
investigations will not result in further action against us,
whether administrative, civil or criminal, by the U.S. EPA,
the U.S. DOJ, state regulatory agencies or private
litigants, and any such action, in addition to the costs we have
incurred and would continue to incur in connection therewith,
could materially and adversely affect our financial condition,
results of operations or cash flows. In particular, the
realization of a significant fine, penalty or judgment against
us could materially affect our ability to remain in compliance
with the leverage ratio or other covenants of our credit
facilities, potentially causing us to have to seek an amendment
or waiver from our lending group, which may increase our costs
of borrowing.
Product recalls, our inability to ship, sell or transport
affected products and the on-going governmental investigation
may harm our reputation and acceptance of our products by our
retail customers and consumers, which may materially and
adversely affect our business operations, decrease sales and
increase costs.
Compliance
With Environmental and Other Public Health Regulations Could
Increase Our Costs of Doing Business or Limit Our Ability to
Market All of Our Products.
Local, state, federal and foreign laws and regulations relating
to environmental matters affect us in several ways. In the
United States, all products containing pesticides must comply
with FIFRA and be registered with the U.S. EPA (and similar
state agencies) before they can be sold or distributed. The
inability to obtain or maintain such compliance, or the
cancellation of any registration, could have an adverse effect
on our business, the severity of which would depend on the
products involved, whether another product could be substituted
and whether our competitors were similarly affected. We attempt
to anticipate regulatory developments and maintain registrations
of, and access to, substitute active ingredients, but there can
be no assurance that we will be able to avoid or reduce these
risks. In the European Union (the EU), the European
Parliament has adopted various forms of regulation which may
substantially restrict or eliminate our ability to market and
sell certain of our consumer and professional pesticide products
in their current form in the EU. In addition, in Canada,
regulations have been adopted by several provinces that
substantially restrict our ability to market and sell certain of
our consumer pesticide products.
Under the Food Quality Protection Act, enacted by the
U.S. Congress in 1996, food-use pesticides are evaluated to
determine whether there is reasonable certainty that no harm
will result from the cumulative effects of pesticide exposures.
Under this Act, the U.S. EPA is evaluating the cumulative
risks from dietary and non-dietary exposures to pesticides. The
pesticides in our products, certain of which may be used on
crops processed into various food products, are typically
manufactured by independent third parties and continue to be
evaluated by the
15
U.S. EPA as part of this exposure risk assessment. The
U.S. EPA or the third-party registrant may decide that a
pesticide we use in our products will be limited or made
unavailable to us. For example, in December 2000, the
U.S. EPA reached agreement with various parties, including
manufacturers of the active ingredient diazinon, regarding a
phased withdrawal from retailers by December 2004 of residential
uses of products containing diazinon, which was also used in our
lawn and garden products. We cannot predict the outcome or the
severity of the effect of continuing evaluations.
In addition, the use of certain pesticide and fertilizer
products is regulated by various local, state, federal and
foreign environmental and public health agencies. These
regulations may include requirements that only certified or
professional users apply the product or that certain products be
used only on certain types of locations, require users to post
notices on properties to which products have been or will be
applied, or require notification to individuals in the vicinity
that products will be applied in the future or ban the use of
certain ingredients. Even if we are able to comply with all such
regulations and obtain all necessary registrations, we cannot
provide assurance that our products, particularly pesticide
products, will not cause injury to the environment or to people
under all circumstances. The costs of compliance, remediation or
products liability have adversely affected operating results in
the past and could materially adversely affect future quarterly
or annual operating results.
Perceptions that the products we produce and market are not safe
could adversely affect us and contribute to the risk we will be
subjected to legal action. We manufacture and market a number of
complex chemical products, such as fertilizers, certain growing
media, herbicides and pesticides. On occasion, allegations are
made that some of our products have failed to perform up to
expectations or have caused damage or injury to individuals or
property. Based on reports of contamination at a third-party
suppliers vermiculite mine, the public may perceive that
some of our products manufactured in the past using vermiculite
are or may be contaminated. Public perception that our products
are not safe, whether justified or not, could impair our
reputation, involve us in litigation, damage our brand names and
have a material adverse affect on our business.
The harvesting of peat for our growing media business has come
under increasing regulatory and environmental scrutiny. In the
United States, state regulations frequently require us to limit
our harvesting and to restore the property to an
agreed-upon
condition. In some locations, we have been required to create
water retention ponds to control the sediment content of
discharged water. In the United Kingdom, our peat extraction
efforts are also the subject of regulation.
In addition to the regulations already described, local, state,
federal and foreign agencies regulate the disposal, handling and
storage of waste, air and water discharges from our facilities.
The adequacy of our current non-FIFRA compliance related
environmental reserves and future provisions is based on our
operating in substantial compliance with applicable
environmental and public health laws and regulations, as well as
the assumptions that we have both identified all of the
significant sites that must be remediated and that there are no
significant conditions of potential contamination that are
unknown to us.
If there is a significant change in the facts and circumstances
surrounding these assumptions or if we are found not to be in
substantial compliance with applicable environmental and public
health laws and regulations, there could be a material adverse
impact on future environmental capital expenditures and other
environmental expenses and our financial condition, results of
operations or cash flows.
Increases
in the Prices of Certain Raw Materials Could Adversely Affect
Our Results of Operations.
Our ability to manage our cost structure can be adversely
affected by movements in commodity and other raw material
prices. Market conditions may limit our ability to raise selling
prices to offset increases in our raw material costs. The
uniqueness of our technologies can limit our ability to locate
or utilize alternative inputs for certain products. For certain
inputs, new sources of supply may have to be qualified under
regulatory standards, which can require additional investment
and delay bringing a product to market.
16
The
Highly Competitive Nature of Our Markets Could Adversely Affect
Our Ability to Grow or Maintain Revenues.
Each of our segments participates in markets that are highly
competitive. Many of our competitors sell their products at
prices lower than ours. Our most price sensitive customers may
be more likely to trade down to lower price point products in a
more challenging economic environment. We compete primarily on
the basis of product innovation, product quality, product
performance, value, brand strength, supply chain competency,
field sales support, the strength of our relationships with
major retailers and advertising. Some of our competitors have
significant financial resources. The strong competition that we
face in all of our markets may prevent us from achieving our
revenue goals, which may have a material adverse affect on our
financial condition, results of operations or cash flows. Our
inability to continue to innovate, including by commercializing
differentiated products to meet evolving consumer needs, could
have a material adverse affect.
Because
of the Concentration of Our Sales to a Small Number of Retail
Customers, the Loss of One or More of, or Significant Reduction
in Orders From, Our Top Customers Could Adversely Affect Our
Financial Results.
Global Consumer net sales represented approximately 78% of our
worldwide net sales in fiscal 2009. Our top three North American
retail customers together accounted for 70% of our Global
Consumer segment fiscal 2009 net sales and 42% of our
outstanding accounts receivable as of September 30, 2009.
Home Depot, Lowes and Walmart represented approximately
33%, 19% and 18%, respectively, of our fiscal 2009 Global
Consumer net sales. The loss of, or reduction in orders from,
Home Depot, Lowes, Walmart or any other significant
customer could have a material adverse effect on our business,
financial condition, results of operations or cash flows, as
could customer disputes regarding shipments, fees, merchandise
condition or related matters. Our inability to collect accounts
receivable from any of these customers could also have a
material adverse affect on our financial condition, results of
operations or cash flows.
We do not have long-term sales agreements with, or other
contractual assurances as to future sales to, any of our major
retail customers. In addition, continued consolidation in the
retail industry has resulted in an increasingly concentrated
retail base. To the extent such concentration continues to
occur, our net sales and income from operations may be
increasingly sensitive to deterioration in the financial
condition of, or other adverse developments involving our
relationship with, one or more of our customers.
Adverse
Weather Conditions Could Adversely Impact Financial
Results.
Weather conditions in North America and Europe can have a
significant impact on the timing of sales in the spring selling
season and overall annual sales. An abnormally wet
and/or cold
spring throughout North America or Europe could adversely affect
both fertilizer and pesticide sales and, therefore, our
financial results.
Our
Historical Seasonality Could Impair Our Ability to Pay
Obligations As They Come Due, Including Our Operating
Expenses.
Because our products are used primarily in the spring and
summer, our business is highly seasonal. For the past three
fiscal years, 70% to 75% of our annual net sales have occurred
in the second and third fiscal quarters combined. Our working
capital needs and borrowings typically peak during the initial
weeks of our third fiscal quarter because we are incurring
expenditures in preparation for the spring selling season, while
the majority of our revenue collections occur later in our third
fiscal quarter. If cash on hand is insufficient to pay our
obligations as they come due, including interest payments or
operating expenses, at a time when we are unable to draw on our
credit facilities, this seasonality could have a material
adverse effect on our ability to conduct our business. Adverse
weather conditions could heighten this risk.
17
The
Amount of Our Debt Could Adversely Affect Our Ability to Obtain
Financing in the Future, React to Changes in Our Business and
Satisfy Our Obligations, Adversely Impacting Our Financial
Condition.
We have a significant amount of debt. Our inability to meet
restrictive financial and non-financial covenants associated
with that debt, or to generate sufficient cash flow to repay
maturing debt, could adversely affect our financial condition.
Our debt level could:
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increase our vulnerability to general adverse economic and
industry conditions;
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require us to dedicate a substantial portion of cash flows from
operating activities to payments on our indebtedness, which
would reduce the cash flows available to fund working capital,
capital expenditures, advertising, research and development
efforts and other general corporate requirements;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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limit our ability to borrow additional funds;
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expose us to risks inherent in interest rate fluctuations
because some of our borrowings are at variable rates of
interest, which could result in higher interest expense in the
event of increases in interest rates; and
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place us at a competitive disadvantage compared to our
competitors that have less debt.
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Our ability to make payments and to refinance our indebtedness,
fund planned capital expenditures and acquisitions and pay
dividends will depend on our ability to generate cash in the
future. This, to some extent, is subject to general economic,
financial, competitive, legislative, regulatory and other
factors that are beyond our control.
We cannot provide assurance that our business will generate
sufficient cash flow from operating activities or that future
borrowings will be available to us under our credit facilities
in amounts sufficient to enable us to pay our indebtedness or to
fund our other liquidity needs. We will need to refinance all or
a portion of our indebtedness, on or before maturity. We cannot
be sure that we will be able to refinance our indebtedness on
commercially reasonable terms.
Our credit facilities contain restrictive covenants and cross
default provisions and require us to maintain specified
financial ratios. Our ability to comply with those covenants and
satisfy those financial ratios can be affected by events beyond
our control. A breach of any of these financial ratio covenants
or other covenants could result in a default. Upon the
occurrence of an event of default, the lenders could elect to
declare the applicable outstanding indebtedness due immediately
and payable and terminate all commitments to extend further
credit. We cannot be sure that our lenders would waive a default
or that we could pay the indebtedness in full if it were
accelerated.
Our
Significant International Operations Make Us Susceptible to
Fluctuations in Currency Exchange Rates and to the Costs of
International Regulation.
We currently operate manufacturing, sales and service facilities
outside of the United States, particularly in Canada, France,
the United Kingdom, Germany and the Netherlands. In fiscal 2009,
international net sales, including Canada, accounted for
approximately 19% of our total net sales. Accordingly, we are
subject to risks associated with operating in foreign countries,
including:
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fluctuations in currency exchange rates;
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limitations on the remittance of dividends and other payments by
foreign subsidiaries;
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additional costs of compliance with local regulations; and
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historically, in certain countries, higher rates of inflation
than in the United States.
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In addition, our operations outside the United States are
subject to the risk of new and different legal and regulatory
requirements in local jurisdictions, potential difficulties in
staffing and managing local operations and
18
potentially adverse tax consequences. The costs related to our
international and Canadian operations could adversely affect our
results of operations, financial condition or cash flows in the
future.
We May
Not Be Able to Adequately Protect Our Intellectual Property and
Other Proprietary Rights That Are Material to Our
Business.
Our ability to compete effectively depends in part on our rights
to service marks, trademarks, trade names and other intellectual
property rights we own or license, particularly our registered
brand names and issued patents. We have not sought to register
every one of our marks either in the United States or in every
country in which they are used. Furthermore, because of the
differences in foreign trademark, patent and other intellectual
property or proprietary rights laws, we may not receive the same
protection in other countries as we would in the United States
with respect to the registered brand names and issued patents we
hold. If we are unable to protect our intellectual property,
proprietary information
and/or brand
names, we could suffer a material adverse effect on our
business, financial condition or results of operations.
Litigation may be necessary to enforce our intellectual property
rights and protect our proprietary information, or to defend
against claims by third parties that our products or services
infringe their intellectual property rights. Any litigation or
claims brought by or against us could result in substantial
costs and diversion of our resources. A successful claim of
trademark, patent or other intellectual property infringement
against us, or any other successful challenge to the use of our
intellectual property, could subject us to damages or prevent us
from providing certain products or services under our recognized
brand names, which could have a material adverse effect on our
business, financial condition or results of operations.
If
Monsanto Were to Terminate the Marketing Agreement for Consumer
Roundup®
Products Without Being Required to Pay Any Termination Fee, We
Would Lose a Substantial Source of Future Earnings and Overhead
Expense Absorption.
If we were to commit a serious default under the Marketing
Agreement with Monsanto for consumer
Roundup®
products, Monsanto may have the right to terminate the Marketing
Agreement. If Monsanto were to terminate the Marketing Agreement
for cause, we would not be entitled to any termination fee, and
we would lose all, or a substantial portion, of the significant
source of earnings and overhead expense absorption the Marketing
Agreement provides. Monsanto may also be able to terminate the
Marketing Agreement within a given region, including North
America, without paying us a termination fee if unit volume
sales to consumers in that region decline: (1) over a
cumulative three-fiscal-year period; or (2) by more than 5%
for each of two consecutive years.
Hagedorn
Partnership, L.P. Beneficially Owns Approximately 31% of Our
Outstanding Common Shares on a Fully Diluted
Basis.
Hagedorn Partnership, L.P. beneficially owned approximately 31%
of our outstanding common shares as of November 20, 2009,
and has sufficient voting power to significantly influence the
election of directors and the approval of other actions
requiring the approval of our shareholders.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
The Company owns or leases, as appropriate, numerous facilities
throughout the world to support each of its respective business
segments:
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Global Consumer We own manufacturing,
distribution and research and development facilities in
Marysville, Ohio; research facilities in Apopka, Florida and
Gervais, Oregon; and a production facility in Fort Madison,
Iowa. We lease a spreader and other durable components
manufacturing facility in Temecula, California. In addition, we
operate 26 stand-alone growing media facilities in North
America 22 of which are owned by the Company and
four of which are leased. Most of our growing media facilities
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include production lines, warehouses, offices and field
processing areas. We also lease property in Orrville, Ohio for
manufacturing fertilizer, manufacturing growing media and a
distribution center. We own four production facilities for our
wild bird food operations in Indiana, South Dakota, South
Carolina and Texas. We lease general office space, including
business development sales offices in Atlanta, Georgia;
Mooresville, North Carolina; and Bentonville, Arkansas. The
headquarters for our Canadian subsidiary is in Mississauga,
Ontario. The Company also leases, or is in the process of
leasing, space for its regional sales offices in West Palm
Beach, Florida; The Woodlands, Texas and Irvine, California.
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Further, we own a manufacturing facility in Sutton Bridge,
United Kingdom; a blending and bagging facility for growing
media in Hautmont, France; and a plant in Bourth, France that we
use for formulating, blending and packaging plant protection
products mainly for the consumer market. The headquarters for
our U.K. business is in Godalming (Surrey), United Kingdom. The
headquarters for our international business (which also serves
as our local French operations office) is in Ecully (Lyon),
France. We also have a business office in Ingelheim, Germany; a
business office in Salzburg, Austria; and a sales office in
Saint Niklaas, Belgium.
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Global Professional We lease a
controlled-release fertilizer manufacturing facility in North
Charleston, South Carolina; a corporate office in Waardenburg,
Netherlands; and a sales office in Bramford,
United Kingdom, where we also have some supply chain
services. Further, we lease sales offices in Nordhorn, Germany;
Budapest, Hungary; Tarragona, Spain and Nairobi, Kenya, where we
also lease warehouse space.
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Global Consumer and Global Professional
In addition to the above, the Company owns or leases a
number of properties that we use for both the Global Consumer
and Global Professional segments of our business. We own
manufacturing facilities in Howden (East Yorkshire) and Hatfield
(South Yorkshire), both in the United Kingdom. Our site in
Heerlen, Netherlands includes a research facility, a
distribution center and a manufacturing site for coated
fertilizers for the consumer and professional markets (we own
the land and the building for the manufacturing facility, but
lease two distribution center/warehousing buildings). We lease
land for peat extraction in Manchester, England (Irlam Moss);
Gretna, England (Solway Moss); and Dumfriesshire, Scotland
(Nutberry Moss and Creca Moss), and we also lease land to
stockpile harvested peat in South Lanarkshire, Scotland (Douglas
Water). We own peat extraction facilities in Dumfriesshire,
Scotland (Nutberry Moss); North Lanarkshire, England (Fannyside
Muir); Stirlingshire, Scotland (Letham); and on two properties
in South Lanarkshire, Scotland (Douglas Water &
Carnwath). We own a grass seed production facility in Albany,
Oregon. We lease a research and development facility in Morance,
France and own a research and development facility in Levington,
United Kingdom. We lease sales offices in Treviso, Italy and
Warsaw, Poland, and we lease our Australian corporate office,
located in Baulkam Hills (New South Wales), Australia.
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Scotts
LawnService®
We conduct Company-owned Scotts
LawnService®
operations from 79 leased facilities, primarily located in
industrial parks.
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Corporate & Other Our
corporate headquarters are located in Marysville, Ohio, which
includes our Global Consumer manufacturing and distribution
facilities and our research and development facilities. In
total, we own or lease approximately 750 acres in
Marysville. The Company also leases space in Marysville, Ohio
for a retail store that opened in June 2009. Pursuant to the
Companys announcement on July 8, 2009 of our
intention to cease operating the Smith &
Hawken®
business, as of November 17, 2009, all Smith &
Hawken®
retail stores, which were leased facilities, have been closed.
The main headquarters in Novato, California, which are also
leased, are expected to close by the end of calendar 2009.
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The Company also leases warehouse space throughout North America
and continental Europe as needed.
We believe that our facilities are adequate to serve their
intended purposes and that our property leasing arrangements are
satisfactory.
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ITEM 3.
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LEGAL
PROCEEDINGS
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As noted in the discussion in ITEM 1.
BUSINESS Regulatory Considerations,
ITEM 1. BUSINESS FIFRA Compliance, the
Corresponding Governmental Investigation and Similar
Matters and ITEM 1. BUSINESS
20
Other Regulatory Matters, we are involved in several
pending environmental and regulatory matters. We believe that
our assessment of contingencies is reasonable and that related
reserves, in the aggregate, are adequate; however, there can be
no assurance that the final resolution of these matters will not
have a material adverse affect on our financial condition,
results of operations or cash flows.
FIFRA
Compliance, the Corresponding Governmental Investigations and
Similar Matters
Information with respect to the ongoing investigations and a
discussion of the related costs and expenses related to such
matters is hereby incorporated by reference to
NOTE 2. PRODUCT REGISTRATION AND RECALL MATTERS
of the Notes to Consolidated Financial Statements included in
this Annual Report on
Form 10-K.
U.S.
Horticultural Supply, Inc. (F/K/A E.C. Geiger, Inc.)
On November 5, 2004, U.S. Horticultural Supply, Inc.
(Geiger) filed suit against the Company in the
U.S. District Court for the Eastern District of
Pennsylvania. The complaint alleged that the Company conspired
with another distributor, Griffin Greenhouse Supplies, Inc., to
restrain trade in the horticultural products market, in
violation of Section 1 of the Sherman Antitrust Act.
Geigers damages expert quantified Geigers alleged
damages at approximately $3.3 million, which could have
been trebled under antitrust laws. Geiger also sought recovery
of attorneys fees and costs. On January 13, 2009, the
U.S. District Court granted the Companys motion for
summary judgment and entered judgment for the Company. Geiger
has appealed the ruling to the U.S. Court of Appeals for
the Third Circuit.
The Company continues to pursue the collection of funds owed to
the Company by Geiger as confirmed by the Companys
April 25, 2005 judgment against Geiger.
Other
Pending Significant Legal Proceedings
The Company has been named as a defendant in a number of cases
alleging injuries that the lawsuits claim resulted from exposure
to asbestos-containing products, apparently based on the
Companys historic use of vermiculite in certain of its
products. In many of these cases, the complaints are not
specific about the plaintiffs contacts with the Company or
its products. None of the claims seek damages from the Company
alone. The Company believes that the claims against it are
without merit and is vigorously defending against them. It is
not currently possible to reasonably estimate a probable loss,
if any, associated with the cases and, accordingly, no accrual
or reserves have been recorded in the Companys
consolidated financial statements. There can be no assurance
that these cases, whether as a result of adverse outcomes or as
a result of significant defense costs, will not have a material
adverse effect on the Companys financial condition,
results of operations or cash flows.
The Company is reviewing agreements and policies that may
provide insurance coverage or indemnity as to these claims and
is pursuing coverage under some of these agreements and
policies, although there can be no assurance of the results of
these efforts.
On April 27, 2007, the Company received a proposed Order On
Consent from the New York State Department of Environmental
Conservation (the Proposed Order) alleging that,
during calendar year 2003, the Company and James Hagedorn,
individually and as Chairman of the Board and Chief Executive
Officer of the Company, unlawfully donated to a Port Washington,
New York youth sports organization 40 bags of
Scotts®
LawnPro®
Annual Program Step 3 Insect Control Plus Fertilizer which,
while federally registered, was allegedly not registered in the
state of New York. The Proposed Order requests penalties
totaling $695,000. The Company has responded in writing to the
New York State Department of Environmental Conservation and is
awaiting a response.
We are involved in other lawsuits and claims which arise in the
normal course of our business. In our opinion, these claims
individually and in the aggregate are not expected to result in
a material adverse effect on our financial condition, results of
operations or cash flows.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of the security
holders of Scotts Miracle-Gro during the fourth quarter of
fiscal 2009.
SUPPLEMENTAL
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Scotts Miracle-Gro, their positions
and, as of November 20, 2009, their ages and years with
Scotts Miracle-Gro (and its predecessors) are set forth below.
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Years with
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Name
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Age
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Position(s) Held
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Company
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James Hagedorn
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54
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Chief Executive Officer and Chairman of the Board
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Mark R. Baker
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52
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President and Chief Operating Officer
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1
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Michael P. Kelty, Ph.D.
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59
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Executive Vice President
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David C. Evans
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46
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Executive Vice President and Chief Financial Officer
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Denise S. Stump
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55
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Executive Vice President, Global Human Resources
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9
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Barry W. Sanders
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45
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Executive Vice President, North America
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8
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Claude L. Lopez
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48
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Executive Vice President, International
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8
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Vincent C. Brockman
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46
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Executive Vice President, General Counsel and Corporate
Secretary and Chief Ethics & Compliance Officer
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Executive officers serve at the discretion of the Board of
Directors of Scotts Miracle-Gro and pursuant to employment
agreements or other arrangements.
The business experience of each of the individuals listed above
during at least the past five years is as follows:
Mr. Hagedorn was named Chairman of the Board of
Scotts Miracle-Gros predecessor in January 2003 and named
Chief Executive Officer of Scotts Miracle-Gros predecessor
in May 2001. He served as President of Scotts Miracle-Gro (or
its predecessor) from November 2006 until October 2008 and from
May 2001 until December 2005. Mr. Hagedorn serves on Scotts
Miracle-Gros Board of Directors, a position he has held
with Scotts Miracle-Gro (or its predecessor) since 1995. He also
serves as a director for Farms For City Kids Foundation, Inc.,
Nurse Family Partnership, The CDC Foundation, Embry-Riddle
Aeronautical University, North Shore University Hospital (New
York), Scotts Miracle-Gro Foundation and the Intrepid
Sea-Air-Space Museum, all charitable organizations.
Mr. Hagedorn is the brother of Katherine Hagedorn
Littlefield, a director of Scotts Miracle-Gro.
Mr. Baker was named President and Chief Operating
Officer of Scotts Miracle-Gro in October 2008, and continues to
serve on Scotts Miracle-Gros Board of Directors, a role he
has held with Scotts Miracle-Gro (or its predecessor) since
2004. From September 2002 until October 2008, Mr. Baker
served as Chief Executive Officer of Gander Mountain Company, an
outdoor retailer specializing in hunting, fishing and camping
gear. He served as President of Gander Mountain Company from
February 2004 until October 2008 and as a director of Gander
Mountain Company from April 2004 until October 2008.
Dr. Kelty was named Executive Vice President of
Scotts Miracle-Gro in October 2008. He served as Vice Chairman
and Executive Vice President of Scotts Miracle-Gro (or its
predecessor) from May 2001 until his retirement in November
2005. After his retirement, Dr. Kelty served as an hourly
consultant to Scotts
Miracle-Gro
at various times, most recently beginning in October 2007.
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Mr. Evans was named Executive Vice President and
Chief Financial Officer of Scotts Miracle-Gro on
September 14, 2006. From October 2005 to September 2006, he
served as Senior Vice President, Finance and Global Shared
Services of The Scotts Company LLC (Scotts LLC).
From March 2005 to September 2005, he served as Senior Vice
President, North America of Scotts LLC, and from October 2003 to
March 2005, he served in the same capacity for Scotts LLCs
predecessor. From June 2001 to September 2003, he served as Vice
President, Finance, North America Sales of Scotts LLCs
predecessor.
Ms. Stump was named Executive Vice President, Global
Human Resources of Scotts Miracle-Gros predecessor in
February 2003. She had previously served as Senior Vice
President, Global Human Resources of Scotts Miracle-Gros
predecessor since October 2002. From July 2001 until October
2002, Ms. Stump served as Vice President, Human Resources
North America of Scotts Miracle-Gros predecessor. From
September 2000 until July 2001, Ms. Stump served as Vice
President, Human Resources Technology and Operations of Scotts
Miracle-Gros predecessor.
Mr. Sanders was named Executive Vice President,
North America of Scotts Miracle-Gro in September 2007.
Previously, from January 2007 until September 2007, he served as
Executive Vice President of Global Technologies and Operations
of Scotts Miracle-Gro and was responsible for the Companys
supply chain and information systems, as well as research and
development efforts. Before January 2007, he led the North
American and global supply chain organizations as well as the
North American sales force. In 2005, he ran the
Smith &
Hawken®
business on an interim basis. Prior to joining Scotts
Miracle-Gros predecessor in 2001, he was a partner with
CapGemini/Ernst & Young.
Mr. Lopez was named Executive Vice President,
International of Scotts Miracle-Gro in October 2007. In this
role, Mr. Lopez has leadership responsibility for all of
the Scotts Miracle-Gro consumer businesses outside of the United
States. He also heads the Scotts Miracle-Gro Global Professional
and Pro Seed businesses. Recently, Mr. Lopez was also
appointed to lead the Scotts Miracle-Gro global sustainability
and naturals initiatives. From December 2004 until September
2007, he served as Senior Vice President, International or
Scotts Miracle-Gro (or its predecessor). Mr. Lopez joined
Scotts Miracle-Gros predecessor in 2001 as general manager
of the Companys French business.
Mr. Brockman was named Executive Vice President,
General Counsel and Corporate Secretary of Scotts Miracle-Gro in
January 2008 and named Chief Ethics & Compliance
Officer in July 2009. From February 2007 until January 2008, he
served as Senior Vice President, Chief Ethics &
Compliance Officer and Chief Administrative Officer of Scotts
LLC. He served as Chief Administrative Officer of Scotts LLC
from 2006 until February 2007. From 2004 until February 2007, he
served as Chief Ethics and Compliance Officer of Scotts LLC (or
its predecessor). Mr. Brockman served as Vice President and
Assistant General Counsel of Scotts LLCs predecessor from
2002 until 2004.
23
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The common shares of The Scotts Miracle-Gro Company
(Scotts Miracle-Gro and, together with its
subsidiaries, the Company) trade on the New York
Stock Exchange under the symbol SMG. The quarterly
high and low sale prices for the fiscal years ended
September 30, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Sale Prices
|
|
|
|
High
|
|
|
Low
|
|
|
FISCAL 2009
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
32.36
|
|
|
$
|
18.27
|
|
Second quarter
|
|
$
|
36.50
|
|
|
$
|
24.89
|
|
Third quarter
|
|
$
|
39.06
|
|
|
$
|
30.49
|
|
Fourth quarter
|
|
$
|
44.25
|
|
|
$
|
33.13
|
|
FISCAL 2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
46.90
|
|
|
$
|
33.50
|
|
Second quarter
|
|
$
|
40.65
|
|
|
$
|
30.51
|
|
Third quarter
|
|
$
|
36.76
|
|
|
$
|
17.79
|
|
Fourth quarter
|
|
$
|
30.17
|
|
|
$
|
16.12
|
|
On June 22, 2005, the Company announced that its Board of
Directors had approved the establishment of a quarterly cash
dividend. The $0.50 per share (adjusted for the
2-for-1
stock split distributed November 9, 2005) annual
dividend has been paid in quarterly increments since the fourth
quarter of fiscal 2005. The payment of future dividends, if any,
on the common shares will be determined by the Board of
Directors of Scotts Miracle-Gro in light of conditions then
existing, including the Companys earnings, financial
condition and capital requirements, restrictions in financing
agreements, business conditions and other factors. Future
dividend payments are currently restricted to an aggregate of
$55 million annually under our existing credit facilities.
See NOTE 11. DEBT of the Notes to Consolidated
Financial Statements included in this Annual Report on
Form 10-K
for further discussion regarding the restrictions on dividend
payments.
As of November 20, 2009, there were approximately
31,000 shareholders, including holders of record and our
estimate of beneficial holders.
The following table shows the purchases of common shares of
Scotts Miracle-Gro (Common Shares) made by or on
behalf of Scotts Miracle-Gro or any affiliated
purchaser (as defined in
Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934, as amended) of Scotts
Miracle-Gro for each of the three fiscal months in the quarter
ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Common Shares That
|
|
|
|
Total Number of
|
|
|
|
|
|
Part of Publicly
|
|
|
May Yet be
|
|
|
|
Common Shares
|
|
|
Average Price Paid
|
|
|
Announced Plans or
|
|
|
Purchased Under the
|
|
Period
|
|
Purchased(1)
|
|
|
per Common Share
|
|
|
Programs
|
|
|
Plans or Programs
|
|
|
June 28 through July 25, 2009
|
|
|
313
|
|
|
$
|
39.90
|
|
|
|
0
|
|
|
|
Not applicable
|
|
July 26 through August 22, 2009
|
|
|
0
|
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
August 23 through September 30, 2009
|
|
|
1,325
|
|
|
$
|
41.08
|
|
|
|
0
|
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,638
|
|
|
$
|
40.85
|
|
|
|
0
|
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts in this column represent Common Shares purchased by the
trustee of the rabbi trust established by the Company as
permitted pursuant to the terms of The Scotts Company LLC
Executive Retirement Plan (the ERP). The ERP is an
unfunded, non-qualified deferred compensation plan which, among
other things, provides eligible employees the opportunity to
defer compensation above specified statutory limits applicable |
24
|
|
|
|
|
to The Scotts Company LLC Retirement Savings Plan and with
respect to any Executive Management Incentive Pay (as defined in
the ERP), Performance Award (as defined in the ERP) or other
bonus awarded to such eligible employees. Pursuant to the terms
of the ERP, each eligible employee has the right to elect an
investment fund, including a fund consisting of Common Shares
(the Scotts Miracle-Gro Common Stock Fund), against
which amounts allocated to such employees account under
the ERP, including employer contributions, will be benchmarked
(all ERP accounts are bookkeeping accounts only and do not
represent a claim against specific assets of the Company).
Amounts allocated to employee accounts under the ERP represent
deferred compensation obligations of the Company. The Company
established the rabbi trust in order to assist the Company in
discharging such deferred compensation obligations. When an
eligible employee elects to benchmark some or all of the amounts
allocated to such employees account against the Scotts
Miracle-Gro Common Stock Fund, the trustee of the rabbi trust
purchases the number of Common Shares equivalent to the amount
so benchmarked. All Common Shares purchased by the trustee are
purchased on the open market and are held in the rabbi trust
until such time as they are distributed pursuant to the terms of
the ERP. All assets of the rabbi trust, including any Common
Shares purchased by the trustee, remain, at all times, assets of
the Company, subject to the claims of its creditors. The terms
of the ERP do not provide for a specified limit on the number of
Common Shares that may be purchased by the trustee of the rabbi
trust. |
|
|
|
None of the Common Shares purchased during the three fiscal
months in the quarter ended September 30, 2009 were
purchased pursuant to a publicly announced plan or program. |
25
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Five-Year
Summary(1)
For the fiscal year ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009(2)
|
|
2008
|
|
2007
|
|
2006(2)
|
|
2005(2)
|
|
|
(In millions, except per share amounts)
|
|
OPERATING RESULTS(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,141.5
|
|
|
$
|
2,981.8
|
|
|
$
|
2,871.8
|
|
|
$
|
2,697.1
|
|
|
$
|
2,369.3
|
|
Gross profit
|
|
|
1,089.0
|
|
|
|
939.6
|
|
|
|
1,004.5
|
|
|
|
955.9
|
|
|
|
860.4
|
|
Income from operations
|
|
|
267.1
|
|
|
|
98.0
|
|
|
|
277.1
|
|
|
|
252.5
|
|
|
|
200.9
|
|
Net income (loss)
|
|
|
153.3
|
|
|
|
(10.9
|
)
|
|
|
113.4
|
|
|
|
132.7
|
|
|
|
100.6
|
|
Depreciation and amortization
|
|
|
60.4
|
|
|
|
70.3
|
|
|
|
67.5
|
|
|
|
67.0
|
|
|
|
67.2
|
|
FINANCIAL POSITION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
334.1
|
|
|
$
|
366.8
|
|
|
$
|
412.7
|
|
|
$
|
445.8
|
|
|
$
|
301.6
|
|
Current ratio
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
1.6
|
|
Property, plant and equipment, net
|
|
$
|
369.7
|
|
|
$
|
344.1
|
|
|
$
|
365.9
|
|
|
$
|
367.6
|
|
|
$
|
337.0
|
|
Total assets
|
|
|
2,220.1
|
|
|
|
2,156.3
|
|
|
|
2,277.2
|
|
|
|
2,217.6
|
|
|
|
2,018.9
|
|
Total debt to total book capitalization(4)
|
|
|
58.1
|
%
|
|
|
69.6
|
%
|
|
|
70.0
|
%
|
|
|
30.8
|
%
|
|
|
27.7
|
%
|
Total debt
|
|
$
|
810.1
|
|
|
$
|
999.5
|
|
|
$
|
1,117.8
|
|
|
$
|
481.2
|
|
|
$
|
393.5
|
|
Total shareholders equity
|
|
|
584.5
|
|
|
|
436.7
|
|
|
|
479.3
|
|
|
|
1,081.7
|
|
|
|
1,026.2
|
|
CASH FLOWS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
264.6
|
|
|
$
|
200.9
|
|
|
$
|
246.6
|
|
|
$
|
182.4
|
|
|
$
|
226.7
|
|
Investments in property, plant and equipment
|
|
|
72.0
|
|
|
|
56.1
|
|
|
|
54.0
|
|
|
|
57.0
|
|
|
|
40.4
|
|
Investments in intellectual property
|
|
|
3.4
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in acquisitions, including seller note payments
|
|
|
10.7
|
|
|
|
2.7
|
|
|
|
21.4
|
|
|
|
122.9
|
|
|
|
84.6
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
2.36
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.74
|
|
|
$
|
1.97
|
|
|
$
|
1.51
|
|
Diluted earnings (loss) per common share
|
|
|
2.32
|
|
|
|
(0.17
|
)
|
|
|
1.69
|
|
|
|
1.91
|
|
|
|
1.47
|
|
Total cash dividends paid
|
|
|
33.4
|
|
|
|
32.5
|
|
|
|
543.6
|
|
|
|
33.5
|
|
|
|
8.6
|
|
Dividends per common share(5)(6)
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
8.50
|
|
|
|
0.50
|
|
|
|
0.125
|
|
Stock price at year-end(6)
|
|
|
42.95
|
|
|
|
23.64
|
|
|
|
42.75
|
|
|
|
44.49
|
|
|
|
43.97
|
|
Stock price range High(6)
|
|
|
44.25
|
|
|
|
46.90
|
|
|
|
57.45
|
|
|
|
50.47
|
|
|
|
43.97
|
|
Stock price range Low(6)
|
|
|
18.27
|
|
|
|
16.12
|
|
|
|
40.57
|
|
|
|
37.22
|
|
|
|
30.95
|
|
OTHER:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(7)
|
|
$
|
350.5
|
|
|
$
|
318.4
|
|
|
$
|
382.6
|
|
|
$
|
385.9
|
|
|
$
|
291.5
|
|
Interest coverage (Adjusted EBITDA/interest expense)(7)
|
|
|
6.2
|
|
|
|
3.9
|
|
|
|
5.4
|
|
|
|
9.7
|
|
|
|
7.0
|
|
Weighted average common shares outstanding
|
|
|
65.0
|
|
|
|
64.5
|
|
|
|
65.2
|
|
|
|
67.5
|
|
|
|
66.8
|
|
Common shares and dilutive potential common shares used in
diluted EPS calculation
|
|
|
66.1
|
|
|
|
64.5
|
|
|
|
67.0
|
|
|
|
69.4
|
|
|
|
68.6
|
|
|
|
|
(1) |
|
All common share and per share information presented in the
above five-year summary have been adjusted to reflect the
2-for-1
stock split of the common shares which was distributed on
November 9, 2005 to shareholders of record on
November 2, 2005. |
26
|
|
|
(2) |
|
Fiscal 2009 includes Humax Horticulture Limited from the
October 1, 2008 date of acquisition. Fiscal 2006 includes
Rod McLellan Company, Gutwein & Co., Inc. and certain
brands and assets acquired from Turf-Seed, Inc. and Landmark
Seed Company from the dates of acquisition. Fiscal 2005 includes
Smith &
Hawken®
from the October 2, 2004 date of acquisition. See further
discussion of certain of the acquisitions in NOTE 8.
ACQUISITIONS of the Notes to Consolidated Financial
Statements included in this Annual Report on
Form 10-K. |
|
(3) |
|
Operating results include the following items segregated by
lines affected as set forth on the Consolidated Statements of
Operations included with the Consolidated Financial Statements
included in this Annual Report on
Form 10-K. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Net sales includes the following relating to the
Roundup®
Marketing Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net commission income, excluding the deferred contribution charge
|
|
$
|
51.4
|
|
|
$
|
44.3
|
|
|
$
|
41.9
|
|
|
$
|
39.9
|
|
|
$
|
40.4
|
|
Reimbursements associated with the
Roundup®
Marketing Agreement
|
|
|
67.8
|
|
|
|
58.0
|
|
|
|
47.7
|
|
|
|
37.6
|
|
|
|
40.7
|
|
Deferred contribution charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45.7
|
)
|
Cost of sales includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with the
Roundup®
Marketing Agreement
|
|
|
67.8
|
|
|
|
58.0
|
|
|
|
47.7
|
|
|
|
37.6
|
|
|
|
40.7
|
|
Impairment, restructuring, and other charges (income)
|
|
|
6.6
|
|
|
|
15.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
Product registration and recall matters
|
|
|
11.7
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges
|
|
|
8.1
|
|
|
|
|
|
|
|
2.7
|
|
|
|
9.3
|
|
|
|
9.8
|
|
Impairment charges
|
|
|
|
|
|
|
121.7
|
|
|
|
35.3
|
|
|
|
66.4
|
|
|
|
23.4
|
|
Product registration and recall matters
|
|
|
16.8
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to refinancings
|
|
|
|
|
|
|
|
|
|
|
18.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
(4) |
|
The total debt to total book capitalization percentage is
calculated by dividing total debt by total debt plus
shareholders equity. |
|
(5) |
|
Scotts Miracle-Gro began paying a quarterly dividend of 12.5
cents per common share in the fourth quarter of fiscal 2005. |
|
(6) |
|
Scotts Miracle-Gro paid a special one-time cash dividend of
$8.00 per common share on March 5, 2007. Stock prices have
not been adjusted for this special one-time cash dividend. |
|
(7) |
|
Given our significant borrowings, we view our credit facilities
as material to our ability to fund operations, particularly in
light of our seasonality. Please refer to ITEM 1A.
RISK FACTORS The Amount of Our Debt Could Adversely
Affect Our Ability to Obtain Financing in the Future, React to
Changes in Our Business and Satisfy Our Obligations, Adversely
Impacting Our Financial Condition in this Annual Report on
Form 10-K
for a more complete discussion of the risks associated with our
debt and our credit facilities and related covenants. Our
ability to generate cash flows sufficient to cover our debt
service costs is essential to our ability to maintain our
borrowing capacity. We believe that Adjusted EBITDA provides
additional information for determining our ability to meet debt
service requirements. The presentation of Adjusted EBITDA herein
is intended to be consistent with the calculation of that
measure as required by our borrowing arrangements, and used to
calculate a leverage ratio (maximum of 3.75 at
September 30, 2009) and an interest coverage ratio
(minimum of 3.50 for the year ended September 30, 2009).
Our leverage ratio was 3.20 at September 30, 2009 and our
interest coverage ratio was 6.20 for the year ended
September 30, 2009. |
27
|
|
|
|
|
In accordance with the terms of our credit facilities, Adjusted
EBITDA is defined as net income (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 affecting
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. |
|
|
|
Interest coverage is calculated as Adjusted EBITDA divided by
interest expense excluding costs related to refinancings. |
A numeric reconciliation of net income (loss) to Adjusted EBITDA
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income (loss)
|
|
$
|
153.3
|
|
|
$
|
(10.9
|
)
|
|
$
|
113.4
|
|
|
$
|
132.7
|
|
|
$
|
100.6
|
|
Interest
|
|
|
56.4
|
|
|
|
82.2
|
|
|
|
70.7
|
|
|
|
39.6
|
|
|
|
41.5
|
|
Income taxes
|
|
|
57.4
|
|
|
|
26.7
|
|
|
|
74.7
|
|
|
|
80.2
|
|
|
|
57.7
|
|
Deprecation and amortization
|
|
|
60.4
|
|
|
|
70.3
|
|
|
|
67.5
|
|
|
|
67.0
|
|
|
|
67.2
|
|
Loss on impairment and other charges
|
|
|
7.4
|
|
|
|
136.8
|
|
|
|
38.0
|
|
|
|
66.4
|
|
|
|
23.4
|
|
Smith &
Hawken®
closure process, non-cash portion
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product registration and recall matters, non-cash portion
|
|
|
2.9
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to refinancings
|
|
|
|
|
|
|
|
|
|
|
18.3
|
|
|
|
|
|
|
|
1.3
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
350.5
|
|
|
$
|
318.4
|
|
|
$
|
382.6
|
|
|
$
|
385.9
|
|
|
$
|
291.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The purpose of this discussion is to provide an understanding of
the financial condition and results of operations of The Scotts
Miracle-Gro Company (Scotts Miracle-Gro) and its
subsidiaries (collectively, together with Scotts Miracle-Gro,
the Company, we or us) by
focusing on changes in certain key measures from
year-to-year.
Managements Discussion and Analysis
(MD&A) is divided into the following sections:
|
|
|
|
|
Executive summary
|
|
|
|
Results of operations
|
|
|
|
Managements outlook
|
|
|
|
Liquidity and capital resources
|
|
|
|
Critical accounting policies and estimates
|
Executive
Summary
We are dedicated to delivering strong, consistent financial
results and outstanding shareholder returns by providing
products of superior quality and value in order to enhance
consumers outdoor living environments. We are a leading
manufacturer and marketer of consumer branded non-durable
products for lawn and garden care and professional horticulture
in North America and Europe. We are Monsantos exclusive
agent for the marketing and distribution of consumer
Roundup®
non-selective herbicide products within the United States and
other contractually specified countries. We have a presence in
similar consumer branded and professional horticulture products
in Australia, the Far East, Latin America and South America. In
the United States, we operate Scotts
LawnService®,
the second largest residential lawn care service business. Our
operations are divided into the following reportable segments:
Global Consumer, Global Professional, Scotts
LawnService®
and Corporate & Other. The Corporate & Other
segment consists of the Smith &
Hawken®
business and corporate general and administrative expenses. On
July 8, 2009, we announced that we were commencing a
process to close the Smith &
Hawken®
stores. As of November 17, 2009, all Smith &
Hawken®
stores had been closed with operational activity expected to be
substantially complete by December 31, 2009.
As a leading consumer branded lawn and garden company, our
marketing efforts are largely focused on providing innovative
and differentiated products and on continually increasing brand
and product awareness to inspire consumers and create retail
demand. We have successfully applied this model for a number of
years, consistently increasing our investment in research and
development and investing approximately 5% of our annual net
sales in advertising to support and promote our products and
brands. We continually explore new and innovative ways to
communicate with consumers. We believe that we receive a
significant return on these expenditures and anticipate a
similar level of research and development, advertising and
marketing investments in the future, with the continuing
objective of driving category growth and increasing market share.
Our sales are susceptible to global weather conditions. For
instance, periods of wet weather can adversely impact sales of
certain products, while increasing demand for other products. We
believe that our diversified product line provides some
mitigation to this risk. We also believe that our broad
geographic diversification further reduces this risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Net Sales by Quarter
|
|
|
2009
|
|
2008
|
|
2007
|
|
First Quarter
|
|
|
10.1
|
%
|
|
|
10.4
|
%
|
|
|
9.5
|
%
|
Second Quarter
|
|
|
30.6
|
%
|
|
|
32.1
|
%
|
|
|
34.6
|
%
|
Third Quarter
|
|
|
40.7
|
%
|
|
|
39.3
|
%
|
|
|
38.2
|
%
|
Fourth Quarter
|
|
|
18.6
|
%
|
|
|
18.2
|
%
|
|
|
17.7
|
%
|
Due to the nature of our lawn and garden business, significant
portions of our products ship to our retail customers during the
second and third fiscal quarters. Our annual sales are further
concentrated in the second and
29
third fiscal quarters by retailers who increasingly rely on our
ability to deliver products in season when consumers
buy our products, thereby reducing retailers inventories.
Management focuses on a variety of key indicators and operating
metrics to monitor the financial condition and performance of
our business. These metrics include consumer purchases
(point-of-sale
data), market share, net sales (including unit volume, pricing,
product mix and foreign exchange movements), organic sales
growth (net sales growth excluding the impact of foreign
exchange movements, product recalls, and acquisitions), gross
profit margins, income from operations, net income and earnings
per share. To the extent applicable, these measures are
evaluated with and without impairment, restructuring and other
charges, which management believes are not indicative of the
ongoing earnings capabilities of our businesses. We also focus
on measures to optimize cash flow and return on invested
capital, including the management of working capital and capital
expenditures.
Given our historical performance and consistent cash flows, we
undertook a number of actions beginning in fiscal 2005 to return
cash to our shareholders. We began paying a quarterly cash
dividend of 12.5 cents per share in the fourth quarter of fiscal
2005. In fiscal 2006, we launched a five-year, $500 million
share repurchase program pursuant to which we repurchased
2.0 million common shares for an aggregate purchase price
of $87.9 million during fiscal 2006. In December 2006, we
announced a recapitalization plan to return $750 million to
our shareholders. This plan expanded and accelerated the
previously announced five-year, $500 million share
repurchase program (which was canceled). Pursuant to the
recapitalization plan, in February 2007, we repurchased
4.5 million of our common shares for an aggregate purchase
price of $245.5 million ($54.50 per share) and paid a
special one-time cash dividend of $8.00 per share
($508 million in the aggregate) in early March 2007.
In order to fund this recapitalization, we entered into credit
facilities totaling $2.15 billion and terminated our prior
credit facility. Please refer to NOTE 11. DEBT
to the Consolidated Financial Statements included in this Annual
Report on
Form 10-K
for further information as to the credit facilities and the
repayment and termination of our prior credit facility and our
65/8% senior
subordinated notes.
Product
Registration and Recall Matters
In April 2008, we became aware that a former associate
apparently deliberately circumvented our policies and
U.S. Environmental Protection Agency
(U.S. EPA) regulations under the Federal
Insecticide, Fungicide, and Rodenticide Act of 1947, as amended
(FIFRA), by failing to obtain valid registrations
for certain products
and/or
causing certain invalid product registration forms to be
submitted to regulators. Since that time, we have been
cooperating with both the U.S. EPA and the
U.S. Department of Justice (the U.S. DOJ)
in related civil and criminal investigations into our pesticide
product registration issues.
In late April of 2008, in connection with the
U.S. EPAs investigation, we conducted a
consumer-level recall of certain consumer lawn and garden
products and a Scotts
LawnService®
product. Subsequently, the Company and the U.S. EPA agreed
upon a Compliance Review Plan for conducting a comprehensive,
independent review of our product registration records. Pursuant
to the Compliance Review Plan, an independent third-party firm,
Quality Associates Incorporated (QAI), reviewed
substantially all of our U.S. pesticide product
registrations and associated advertising, some of which were
historical in nature and no longer related to sales of our
products. The U.S. EPA investigation and the QAI review
process resulted in the temporary suspension of sales and
shipments of certain products. In addition, as the QAI review
process or our internal review identified potential FIFRA
registration issues (some of which appear unrelated to the
actions of the former associate), we endeavored to stop selling
or distributing the affected products until the issues could be
resolved. QAIs review of our U.S. pesticide product
registrations and associated advertisements is now substantially
complete. The results of the QAI review process did not
materially affect, and are not expected to materially affect,
our fiscal 2009 and fiscal 2010 sales, respectively.
In late 2008, the Company, and its indirect subsidiary, EG
Systems, Inc., doing business as Scotts
LawnService®
were named as defendants in a purported class action filed in
the U.S. District Court for the Eastern District of
Michigan relating to Scotts
LawnService®
application of certain pesticide products. In the suit, Mark
Baumkel, on behalf of himself and the purported classes, sought
an unspecified amount of damages, plus costs and attorneys
fees, for alleged claims involving breach of contract, unjust
enrichment and violation of the state of Michigans
consumer protection act. On September 28, 2009, the court
granted the Companys and Scotts
30
LawnServices motion and dismissed the suit with prejudice.
Since that time, the Company and Mr. Baumkel have agreed to
a confidential settlement that, among other things, precludes an
appeal of the decision. The impact of the confidential
settlement did not, and will not, materially affect our
financial condition, results of operations or cash flows.
In fiscal 2008, we conducted a voluntary recall of certain of
our wild bird food products due to a formulation issue. Certain
wild bird food products had been treated with pest control
additives to avoid insect infestation, especially at retail
stores. While the pest control additives had been labeled for
use on certain stored grains that can be processed for human
and/or
animal consumption, they were not labeled for use on wild bird
food products. In October, 2008, the U.S. Food &
Drug Administration concluded that the recall had been completed
and that there had been proper disposition of the recalled
products. The results of the wild bird food recall did not
materially affect our fiscal 2009 financial condition, results
of operations or cash flows.
As a result of these registration and recall matters, we have
reversed sales associated with estimated returns of affected
products, recorded charges for affected inventory and recorded
other registration and recall-related costs. The effects of
these adjustments were pre-tax charges of $28.6 million and
$51.1 million for the years ended September 30, 2009
and 2008, respectively. We expect to incur an additional
$10-$15 million in fiscal 2010 on recall and registration
matters, excluding possible fines, penalties, judgments
and/or
litigation costs. We expect that these charges will include
costs associated with the rework of certain finished goods
inventories, the potential disposal of certain products and
ongoing third-party professional services related to the
U.S. EPA and U.S. DOJ investigations.
The U.S. EPA and U.S. DOJ investigations continue and
may result in future state, federal or private rights of action
including fines
and/or
penalties with respect to known or potential additional product
registration issues. Until the U.S. EPA and U.S. DOJ
investigations are complete, we cannot reasonably determine the
scope or magnitude of possible liabilities that could result
from known or potential product registration issues, and no
reserves for these potential liabilities have been established
as of September 30, 2009. However, it is possible that such
liabilities, including fines, penalties, judgments
and/or
litigation costs could be material and have an adverse effect on
our financial condition, results of operations or cash flows.
We are committed to providing our customers and consumers with
products of superior quality and value to enhance their lawns,
gardens and overall outdoor living environments. We believe
consumers have come to trust our brands based on the superior
quality and value they deliver, and that trust is highly valued.
We also are committed to conducting business with the highest
degree of ethical standards and in adherence to the law. While
we are disappointed in these events, we believe we have made
significant progress in addressing the issues and restoring
customer and consumer confidence in our products.
31
Results
of Operations
The following table sets forth the components of income and
expense as a percentage of net sales for the three years ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
64.7
|
|
|
|
67.1
|
|
|
|
65.0
|
|
Cost of sales impairment, restructuring and other
charges
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
|
|
Cost of sales product registration and recall matters
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
34.7
|
|
|
|
31.5
|
|
|
|
35.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
25.4
|
|
|
|
24.1
|
|
|
|
24.4
|
|
SG&A impairment, restructuring and other charges
|
|
|
0.3
|
|
|
|
4.1
|
|
|
|
1.4
|
|
SG&A product registration and recall matters
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
8.5
|
|
|
|
3.3
|
|
|
|
9.6
|
|
Costs related to refinancing
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Interest expense
|
|
|
1.8
|
|
|
|
2.8
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6.7
|
|
|
|
0.5
|
|
|
|
6.5
|
|
Income taxes
|
|
|
1.8
|
|
|
|
0.9
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
4.9
|
%
|
|
|
(0.4
|
)%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Consolidated net sales for fiscal 2009 increased 5.4% to
$3.14 billion from $2.98 billion in fiscal 2008. Net
sales for fiscal 2008 increased 3.8% to $2.98 billion from
$2.87 billion in fiscal 2007. Organic net sales growth,
which excludes the impact of changes in foreign exchange rates,
product recalls and acquisitions, was 8.9% and 2.3% for fiscal
2009 and fiscal 2008, respectively, as noted in the following
table:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Net sales growth
|
|
|
5.4
|
%
|
|
|
3.8
|
%
|
Acquisitions
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
Foreign exchange rates
|
|
|
3.7
|
|
|
|
(2.0
|
)
|
Product recall matters returns
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Organic net sales growth
|
|
|
8.9
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
Organic net sales in the Global Consumer segment increased 12.5%
in fiscal 2009, driven by 14.8% growth in North America. We
believe the North America growth was attributable to a variety
of factors, including increased marketing efforts, support
received from our retail partners, product innovation, new
private label business and improvements to our sales force.
Global Professional organic net sales declined 7.6% primarily
driven by the decrease in net sales for the North America
Professional business, which was negatively impacted by the
significant drop in demand due to the downturn in commercial and
residential construction and customer inventory build-ups in
fiscal 2008 in anticipation of price increases. Organic net
sales for Scotts
LawnService®
declined by 6.6% due to the anticipated decrease in customer
count driven by macroeconomic factors. Corporate &
Other organic net sales growth, which pertains primarily to
Smith &
Hawken®,
increased 1.4% in fiscal 2009.
Global Consumer organic net sales increased approximately 1.6%
for fiscal 2008 as a result of a number of factors, including
the overall economic climate in the United States, as well as
unfavorable early spring weather conditions. Organic net sales
in our Global Professional segment grew 17.2%, driven by strong
demand for the proprietary technology used in that segment and
pricing actions that prompted customer inventory build-ups in
32
fiscal 2008 in anticipation of price increases. Despite a
reduction in customer count, Scotts
LawnService®
experienced organic net sales growth of 4.0% primarily due to
higher selling prices. Corporate & Other organic net
sales decreased 13.9%, primarily driven by declines across all
channels of the Smith &
Hawken®
business.
Gross
Profit
As a percentage of net sales, gross profit was 34.7% of net
sales for fiscal 2009 compared to 31.5% for fiscal 2008. The
increase in gross profit rates was primarily driven by increased
selling prices net of increased commodity costs, and cost
productivity improvements. Product registration and recall
matters unfavorably impacted gross profit rates by 30 and
110 basis points for fiscal 2009 and 2008, respectively.
Impairment, restructuring and other charges unfavorably impacted
gross profit rates by 20 and 50 basis points for fiscal
2009 and 2008, respectively.
As a percentage of net sales, gross profit was 31.5% of net
sales for fiscal 2008 compared to 35.0% for fiscal 2007. The
decrease in gross profit rates was primarily driven by increased
commodity costs, which unfavorably impacted all operating
segments, and the product registration and recall matters and
impairment, restructuring and other charges noted above.
Selling,
General and Administrative Expenses
The following table shows the major components of SG&A for
the three years ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Advertising
|
|
$
|
141.2
|
|
|
$
|
142.4
|
|
|
$
|
150.9
|
|
Advertising as a percentage of net sales
|
|
|
4.5
|
%
|
|
|
4.8
|
%
|
|
|
5.3
|
%
|
Other SG&A
|
|
$
|
631.8
|
|
|
$
|
547.1
|
|
|
$
|
519.2
|
|
Stock-based compensation
|
|
|
14.5
|
|
|
|
12.5
|
|
|
|
15.5
|
|
Amortization of intangibles
|
|
|
11.7
|
|
|
|
15.6
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
799.2
|
|
|
$
|
717.6
|
|
|
$
|
700.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising expenses in fiscal 2009 were $141.2 million
compared to $142.4 million in fiscal 2008. Excluding the
impact of foreign exchange movements, advertising expense
increased in fiscal 2009 by $2.4 million, or 1.7%, driven
by increased spending in the North America Consumer business,
substantially offset by reductions in Scotts
LawnService®
and International Consumer. Advertising expenses in fiscal 2008
were $142.4 million, a decrease of $8.5 million, or
5.6%, from fiscal 2007. The decline in fiscal 2008 was 6.7%
excluding foreign exchange movements. During fiscal 2009 and
fiscal 2008, we shifted some spending from media to consumer
promotions and other trade expense, the costs of which are
netted against sales rather than classified as SG&A.
In fiscal 2009, other SG&A spending increased
$84.7 million, or 15.5%, from fiscal 2008. Excluding the
impact of foreign exchange movements, other SG&A spending
increased 19.1% in fiscal 2009 primarily driven by increased
variable compensation. Other increases in SG&A spending,
designed to drive long-term growth, included research and
development, sales force, regulatory and technology. In
addition, non-revenue enhancing areas, including pension and
health care costs, increased in fiscal 2009. In fiscal 2008,
other SG&A spending increased $27.9 million or 5.4%
from fiscal 2007. Excluding the impact of foreign exchange
movements, other SG&A spending increased 3.2% in fiscal
2008 due to increased investments focused principally within the
sales force, research and development and marketing areas of the
North America portion of the Global Consumer segment.
The majority of our stock-based awards vest over three years,
with the associated expense recognized ratably over the vesting
period. In certain cases, such as individuals who are eligible
for early retirement based on their age and years of service,
the vesting period is shorter than three years. The increase in
stock-based compensation expense in fiscal 2009 was primarily
due to the acceleration of expense for 2009 awards granted to
key employees who are approaching eligibility for early
retirement, as well as an increase in the total value of equity
awards granted in fiscal 2009. The decrease in stock-based
compensation expense in fiscal 2008 as compared to fiscal 2007
was primarily attributable to a change in the Board of Directors
equity compensation plan effective in February 2008, which
resulted in the majority of associated expense being recognized
ratably over the Board of Directors service
33
period, compared to previous years grants where the
associated expense was recorded entirely in the year of the
grant.
Amortization expense was $11.7 million in fiscal 2009,
compared to $15.6 million and $15.3 million in fiscal
2008 and 2007, respectively. The decline in fiscal 2009 was
driven by the reduction of amortizing intangible assets due to
the impairment charges recorded in fiscal 2008, assets that
became fully amortized in fiscal 2009, and foreign exchange
movements.
Impairment,
Restructuring and Other Charges
The breakdown of Impairment, Restructuring and Other Charges for
the three years ended September 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
SG&A Smith &
Hawken®
closure process
|
|
$
|
8.1
|
|
|
$
|
|
|
|
$
|
|
|
SG&A product registration and recall matters
|
|
|
16.8
|
|
|
|
12.7
|
|
|
|
|
|
Goodwill and intangible asset impairment
|
|
|
|
|
|
|
120.0
|
|
|
|
35.3
|
|
Property, plant and equipment impairment
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24.9
|
|
|
$
|
134.4
|
|
|
$
|
38.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our annual goodwill and indefinite life intangible impairment
testing is performed as of the first day of our fiscal fourth
quarter. We engaged an independent valuation firm to assist in
our impairment assessment reviews. The impairment analysis for
the fourth quarter of fiscal 2009 indicated that no charge for
impairment was required. We recorded $16.8 million of
SG&A-related product registration and recall costs during
fiscal 2009 which primarily related to a third-party compliance
review, as well as legal and consulting fees. In addition, we
recorded $8.1 million of SG&A costs related to the
Smith &
Hawken®
closure process, primarily comprised of third-party agency fees
and severance.
As a result of a significant decline in the market value of the
Companys common shares during the latter half of the third
fiscal quarter ended June 28, 2008, the Companys
market value of invested capital was approximately 60% of the
comparable impairment metric used in our fourth quarter fiscal
2007 annual impairment testing. Management determined this was
an indicator of possible goodwill impairment and, therefore,
interim impairment testing was performed as of June 28,
2008.
Our third quarter fiscal 2008 interim impairment review resulted
in a non-cash charge of $123.3 million to reflect the
decline in the fair value of certain goodwill and other assets
evidenced by the decline in the Companys common shares. No
further adjustments to the goodwill portion of this impairment
charge were required as a result of the completion of Step 2 of
the goodwill impairment test in the fourth quarter of fiscal
2008. However, an additional impairment charge of
$13.5 million was recorded in the fourth quarter of fiscal
2008, primarily related to leasehold improvements of
Smith &
Hawken®.
In total, the fiscal 2008 impairment charges were comprised of
$80.8 million for goodwill, $19.0 million related to
indefinite-lived tradenames and $37.0 million for
long-lived assets. Of the $37.0 million impairment charge
recorded for long-lived assets, $15.1 million was recorded
in cost of sales. On a reportable segment basis,
$64.5 million of the impairment charges were in Global
Consumer and $38.4 million were in Global Professional,
with the remaining $33.9 million in Corporate &
Other.
The Company recorded $12.7 million of SG&A-related
product registration and recall costs during fiscal 2008 which
primarily related to third-party compliance review, legal and
consulting fees.
Our fourth quarter fiscal 2007 impairment review resulted in a
non-cash goodwill and intangible asset impairment charge of
$35.3 million, of which $29.2 million related to the
Smith &
Hawken®
goodwill and intangibles, $2.2 million was for a goodwill
impairment charge for our turfgrass biotechnology program and
$3.9 million was associated with technology initiatives in
our Scotts
LawnService®
segment. Other charges in fiscal 2007 related to inventory
write-downs and ongoing monitoring and remediation costs
associated with our turfgrass biotechnology program.
34
Other
Income, net
Other income, net was $2.2 million in fiscal 2009, compared
to $10.4 million and $11.5 million for fiscal 2008 and
fiscal 2007, respectively. The decline in fiscal 2009 was driven
by decreased royalty income and the net loss on sale of assets.
Income
from Operations
Income from operations in fiscal 2009 was $267.1 million
compared to $98.0 million in fiscal 2008, an increase of
$169.1 million. Fiscal 2009 was negatively impacted by
costs related to product registration and recall matters
($28.6 million) and the Smith &
Hawken®
closure process ($14.7 million) that, when excluded, result
in income from operations of $310.4 million. Fiscal 2008
was negatively impacted by impairment charges
($136.8 million) and product registration and recall costs
($51.1 million) that, when excluded, result in income from
operations of $285.9 million. Excluding the impairment,
restructuring and other charges and product registration and
recall costs, income from operations increased by
$24.5 million, or 8.6%, in fiscal 2009, primarily driven by
increased net sales and gross margins that were partially offset
by an increase in SG&A spending.
Income from operations in fiscal 2008 was $98.0 million
compared to $277.1 million in fiscal 2007, a decrease of
$179.1 million. Fiscal 2007 was negatively impacted by
impairment and other charges ($38.0 million) that, when
excluded, result in income from operations of
$315.1 million. Excluding impairment and other charges and
product registration and recall costs, income from operations
declined by $29.2 million, or 9.3%, in 2008, primarily
driven by increased commodity costs which more than offset price
increases passed onto our customers.
Interest
Expense and Refinancing Activities
Interest expense in fiscal 2009 was $56.4 million compared
to $82.2 million and $70.7 million in fiscal 2008 and
fiscal 2007, respectively. The decrease in fiscal 2009 was
primarily due to a decline in our borrowing rates and a
reduction in average debt outstanding, as well as the favorable
impact of foreign exchange rates. Weighted-average interest
rates decreased by 131 basis points during fiscal 2009.
Average borrowings also decreased by approximately
$170 million during fiscal 2009. The increase in interest
expense in fiscal 2008 was primarily attributable to an increase
in average borrowings resulting from the recapitalization
transactions that were consummated during the second quarter of
fiscal 2007.
Income
Taxes
A reconciliation of the federal corporate income tax rate and
the effective tax rate on income before income taxes from
continuing operations for the three years ended
September 30, 2009 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of foreign operations
|
|
|
(0.7
|
)
|
|
|
(4.5
|
)
|
|
|
(0.5
|
)
|
State taxes, net of federal benefit
|
|
|
2.3
|
|
|
|
0.6
|
|
|
|
1.6
|
|
Change in state NOL and credit carryforwards
|
|
|
(0.4
|
)
|
|
|
(1.3
|
)
|
|
|
(0.2
|
)
|
Research & Development tax credit
|
|
|
(0.5
|
)
|
|
|
(4.7
|
)
|
|
|
(0.5
|
)
|
Change in valuation allowances
|
|
|
(8.8
|
)
|
|
|
106.9
|
|
|
|
1.0
|
|
Effect of goodwill impairment and other permanent differences
|
|
|
(0.7
|
)
|
|
|
42.3
|
|
|
|
4.8
|
|
Other
|
|
|
1.0
|
|
|
|
(5.7
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
27.2
|
%
|
|
|
168.6
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for fiscal 2009 was 27.2% compared to
168.6% in fiscal 2008 and 39.7% in fiscal 2007. The effective
tax rates were higher for fiscal 2008 and fiscal 2007 due to
goodwill impairment charges ($80.8 million and
$26.8 million in fiscal 2008 and 2007, respectively), which
are not fully deductible for tax purposes. Fiscal 2009 income
tax expense includes the reduction of $18.4 million of
valuation allowances recorded in prior years to fully reserve
deferred tax assets that originated from impairment charges
recorded for the Smith &
35
Hawken®
business in fiscal 2007 and fiscal 2008. In fiscal 2008, when we
were attempting to sell Smith &
Hawken®,
we concluded that we would not receive any future tax benefit
from these deferred tax assets as a stock sale would have
resulted in a non-deductible capital loss. Given our fourth
quarter fiscal 2009 decision to close the Smith &
Hawken®
business, we concluded that the losses generated would be
deducted for tax purposes. As a result, the deferred tax asset
valuation allowances recorded in fiscal 2008 associated with
these impairment charges were eliminated, thereby decreasing the
effective tax rate for fiscal 2009.
Net
Income (Loss) and Earnings (Loss) per Share
We reported net income of $153.3 million or $2.32 per
diluted share in fiscal 2009 compared to a net loss of
$10.9 million or $0.17 per diluted share in fiscal 2008. In
fiscal 2009, we incurred $28.6 million of costs related to
product registration and recall matters, as well as
Smith &
Hawken®
closure related costs totaling $14.7 million. Fiscal 2008
was unfavorably impacted by $136.8 million of impairment
charges, as well as $51.1 million in costs associated with
product registration and recall matters. Excluding these items,
the increase in fiscal 2009 net income was primarily driven
by increased net sales, led by double-digit growth in the North
America consumer business. In addition, gross margin rates
improved due to pricing increases in excess of increased
commodity costs and cost productivity improvements. The growth
in net sales and gross margins was partially offset by an
increase in SG&A spending. Challenging weather conditions
in March 2008 negatively impacted net sales for the largest part
of our business, the Global Consumer segment. Additionally,
commodity costs increased significantly in fiscal 2008. Diluted
weighted-average common shares outstanding increased from
64.5 million in fiscal 2008 to 66.1 million in fiscal
2009. Diluted average common shares included 1.1 million
equivalent shares for fiscal 2009. We excluded 0.9 million
potential common shares from the fiscal 2008 diluted loss per
share calculation because their effect was anti-dilutive. The
changes in diluted average common shares are primarily driven by
an increase in the Companys common share price.
We reported net income of $113.4 million or $1.69 per
diluted share in fiscal 2007 compared to the net loss of
$10.9 million or $0.17 per diluted share in fiscal 2008.
Fiscal 2007 was unfavorably impacted by $35.3 million of
goodwill and intangible asset impairment charges and
$2.7 million of other charges, as well as costs related to
refinancing of $18.3 million. Fiscal 2008 results from
operations were significantly impacted by the charges noted
above. Excluding these items, the reduction in fiscal 2008 net
income was attributable to higher commodity costs and the
negative effects on net sales of adverse early spring weather
conditions. Diluted weighted-average common shares outstanding
decreased from 67.0 million in fiscal 2007 to
64.5 million in fiscal 2008, due to the 4.5 million
common shares repurchased as part of the recapitalization
consummated during the second quarter of fiscal 2007, weighted
for the period outstanding, and offset by common shares issued
upon the exercise of share-based awards and the vesting of
restricted stock.
Segment
Results
Our operations are divided into the following segments: Global
Consumer, Global Professional, Scotts
LawnService®
and Corporate & Other. The Corporate & Other
segment consists of Smith &
Hawken®
and corporate general and administrative expenses. Segment
performance is evaluated based on several factors, including
income from operations before amortization, product registration
and recall costs, and impairment, restructuring and other
charges, which are not generally accepted accounting principles
(GAAP) measures. Management uses this measure of
operating profit to gauge segment performance because we believe
this measure is the most indicative of performance trends and
the overall earnings potential of each segment.
36
The following tables present the segment information for the
three years ended September 30, 2009 (certain costs not
allocated to business segments for internal management reporting
purposes are not allocated for purposes of this presentation):
Net Sales
by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Global Consumer
|
|
$
|
2,457.6
|
|
|
$
|
2,250.1
|
|
|
$
|
2,176.2
|
|
Global Professional
|
|
|
293.1
|
|
|
|
348.8
|
|
|
|
281.9
|
|
Scotts
LawnService®
|
|
|
231.1
|
|
|
|
247.4
|
|
|
|
230.5
|
|
Corporate & Other
|
|
|
160.8
|
|
|
|
158.6
|
|
|
|
184.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
3,142.6
|
|
|
|
3,004.9
|
|
|
|
2,872.6
|
|
Roundup®
amortization
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
Product registrations and recall matters-returns
|
|
|
(0.3
|
)
|
|
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
3,141.5
|
|
|
$
|
2,981.8
|
|
|
$
|
2,871.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Operations by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Global Consumer
|
|
$
|
429.3
|
|
|
$
|
344.5
|
|
|
$
|
379.1
|
|
Global Professional
|
|
|
19.4
|
|
|
|
33.7
|
|
|
|
31.3
|
|
Scotts
LawnService®
|
|
|
19.0
|
|
|
|
11.3
|
|
|
|
11.3
|
|
Corporate & Other
|
|
|
(144.8
|
)
|
|
|
(87.2
|
)
|
|
|
(90.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
322.9
|
|
|
|
302.3
|
|
|
|
331.2
|
|
Roundup®
amortization
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
Other amortization
|
|
|
(11.7
|
)
|
|
|
(15.6
|
)
|
|
|
(15.3
|
)
|
Product registrations and recall matters
|
|
|
(28.6
|
)
|
|
|
(51.1
|
)
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
(136.8
|
)
|
|
|
(35.3
|
)
|
Restructuring and other charges
|
|
|
(14.7
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
267.1
|
|
|
$
|
98.0
|
|
|
$
|
277.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Consumer
Global Consumer segment net sales were $2.46 billion in
fiscal 2009 compared to $2.25 billion in fiscal 2008, an
increase of 9.2%. Organic net sales growth for fiscal 2009 was
12.5%, including the favorable impact of price increases of
6.7%. Foreign exchange movements decreased net sales by 3.3% for
fiscal 2009. Within Global Consumer, organic net sales in North
America increased 14.8% for fiscal 2009, which included the
favorable impact of higher selling prices of 7.4%. Sales of our
products to consumers at retail
(point-of-sales)
for our three largest U.S. customers increased by 15.0% for
fiscal 2009, driven by higher sales in all major categories, led
by growing media, lawn fertilizers, and plant foods. Organic net
sales in Europe increased by 1.1% for fiscal 2009, which
included the favorable impact of price increases of 3.3%. Strong
growth in the United Kingdom, led by growing media and lawn
fertilizer categories, and Eastern Europe was offset by declines
in sales in France and Central Europe caused by inventory
de-load by retailers and a slow pesticide season.
Global Consumer segment operating income for fiscal 2009 was
$429.3 million, an increase of $84.8 million, or
24.6%, compared to fiscal 2008. Excluding the impact of foreign
exchange movements, segment operating income increased by
$91.7 million, or 26.6%, for fiscal 2009. The increase in
operating income was primarily driven by the increase in net
sales accompanied by improvement in gross margin rate of
280 basis points for fiscal 2009. The increase in gross
margin rate was primarily the result of pricing and cost
productivity improvements,
37
partially offset by commodity cost increases. The improvements
in net sales and gross margin rates were partially offset by
increases in SG&A spending, primarily related to higher
advertising and promotional spending, higher selling and
research and development costs, and increased variable
compensation.
Global Consumer segment net sales were $2.25 billion in
fiscal 2008 compared to $2.18 billion in fiscal 2007, an
increase of 3.4%. Organic net sales growth for fiscal 2008
increased approximately 1.6%, which included pricing actions
that increased net sales by 4.1%. Foreign exchange movements
increased net sales by 1.8% for fiscal 2008. Organic net sales
in North America were flat, which included the impact of price
increases of 4.7%. North America
point-of-sales
for our three largest U.S. customers increased by 2.2% for
fiscal 2008, driven by growing media products, where consumers
traded up for branded, value-added solutions.
Point-of-sales
for our lawn products, comprised of fertilizers, grass seed, and
durables, decreased by 1.1% primarily due to the late start to
the lawn and garden season, resulting in reduced sales of higher
priced lawn fertilizer combination products.
Ortho®
point-of-sales
decreased by 5.2% in fiscal 2008, while the
point-of-sales
in the wild bird food category increased by 16.0% primarily due
to pricing. Organic net sales in Europe increased by 2.0% in
2008, driven by growth in France and Central Europe as the
result of improved marketing programs and new products. This
growth offset the decreased net sales in the United Kingdom
where the economic environment was more challenging and
competition was more aggressive.
Global Consumer segment operating income decreased by
$34.6 million or 9.1% in fiscal 2008. The decrease in
operating income was driven primarily by a decrease in gross
margin rates of 160 basis points. The decrease in gross
margin rates was largely the result of higher commodity costs,
which more than offset price increases. SG&A spending,
including media advertising, increased 3.7% in fiscal 2008
primarily related to higher selling and research and development
costs.
Global
Professional
Global Professional segment net sales decreased
$55.7 million, or 16.0%, in fiscal 2009. Organic net sales
declined 7.6%, which included increased pricing of 9.9%. Foreign
exchange movements decreased net sales by 10.5%. Net sales from
Humax Horticulture Limited, a privately-owned growing media
company in the United Kingdom acquired by the Company on
October 1, 2008 were $7.3 million in fiscal 2009,
resulting in 2.1% growth. While organic net sales for the
European and Emerging Markets Professional businesses increased
by 1.8% and 5.7%, respectively, organic net sales for the North
America Professional business, including its seed business,
declined 28.3% in fiscal 2009, driven by the downturn in
commercial and residential construction and customer inventory
build-ups in
fiscal 2008 in anticipation of price increases.
Global Professional segment operating income decreased
$14.3 million in fiscal 2009, or $9.4 million
excluding the impact of foreign exchange rates. The decline in
operating income was primarily attributable to the reduction in
net sales and a $9.9 million inventory write-down
necessitated by the significant decline in the market pricing
and demand for professional grass seed in North America.
Global Professional segment net sales increased
$66.9 million, or 23.7%, in fiscal 2008. Organic net sales
increased by 17.2% driven primarily by strong demand for our
proprietary technology. Pricing actions increased net sales by
7.8%. Global Professional segment operating income increased by
$2.4 million in fiscal 2008 as the strong growth in net
sales was partially offset by increased commodity costs and
SG&A spending, primarily related to selling costs.
Scotts
LawnService®
Compared to fiscal 2008, Scotts
LawnService®
net sales decreased 6.6% to $231.1 million in fiscal 2009
primarily related to macroeconomic pressures that have reduced
customer count. Despite the decline in net sales, the Scotts
LawnService®
segment operating income increased $7.7 million to
$19.0 million in fiscal 2009. The improved operating
results were driven by more efficient marketing and sales
programs, improved labor productivity, and declines in fuel and
fertilizer costs.
Compared to fiscal 2007, Scotts
LawnService®
net sales increased 7.3% to $247.4 million in fiscal 2008.
The increase for fiscal 2008 was the result of organic growth of
4.0% and acquisition growth of 3.3%. Despite
38
macroeconomic pressures that reduced customer count, the
business grew in part due to increased penetration on tree,
shrub and insect services and a reduction in customer cancels
due to issues with service or results. Additionally, the shift
of late season lawn treatments to the first quarter of fiscal
2008 positively impacted net sales. The Scotts
LawnService®
segment operating income was flat compared to fiscal 2007 as the
net sales and gross margin growth were offset by an increase in
SG&A spending.
Corporate &
Other
Net sales for the Corporate & Other segment, which
pertain primarily to Smith &
Hawken®,
increased $2.2 million in fiscal 2009 primarily due to
higher fourth quarter sales following our Smith &
Hawken®
closure announcement. The operating loss for
Corporate & Other increased by $57.6 million in
fiscal 2009 primarily driven by increased variable compensation
and retention costs, higher information technology spending,
increased regulatory and compliance costs, and higher pension
and health care costs.
On July 8, 2009, we announced that we intend to cease
operating the Smith &
Hawken®
business by the end of the calendar year. We incurred
$14.7 million of pre-tax charges in fiscal 2009 related to
the Smith &
Hawken®
closure process, primarily related to the termination of retail
site lease obligations, third-party agency fees, charges related
to inventory, and severance and benefit commitments. We expect
to incur approximately $20-$25 million of pre-tax charges
in fiscal 2010 related to the closure process. Based on our best
estimates, we expect the overall cash impact to be neutral to
slightly positive driven by the liquidation of working capital
and anticipated tax benefits, offsetting the related charges. As
of November 17, 2009, all Smith &
Hawken®
stores had been closed, and we will begin reporting the
Smith &
Hawken®
business as a discontinued operation in the first quarter of
fiscal 2010.
Net sales for the Corporate & Other segment decreased
$25.4 million or 13.8% in fiscal 2008, reflecting decreased
net sales across all channels of Smith &
Hawken®.
The operating loss for Corporate & Other decreased by
$3.3 million in fiscal 2008 primarily due to lower net
Corporate spending.
Managements
Outlook
We are pleased with our performance in fiscal 2009. Despite the
global recession and significant declines in consumer
confidence, we delivered record net sales, crossing the
$3.0 billion mark for the first time in our history. Our
sales results were driven primarily by strong point of sales
growth in our North America consumer business. In addition, net
cash provided by operating activities less capital investments,
or free cash flow, amounted to $189.2 million.
Our strong results in fiscal 2009 have laid a foundation for
another successful year in fiscal 2010. Excluding financial
results of Smith &
Hawken®,
we anticipate net sales growth of 3% to 5% in fiscal 2010
primarily driven by unit volume growth in our Global Consumer
business. We also anticipate that gross margin rates will be
flat compared to fiscal 2009 and that expenditures on SG&A
will be consistent with fiscal 2009. Interest expense is
expected to decline slightly in fiscal 2010. Excluding the
impact of product registration and recall costs and
Smith &
Hawken®,
we anticipate earnings per share growth in the
mid-to-high
teens.
In the long-term, the Company remains focused on continuing to
improve its free cash flow and return on invested capital, both
of which the Company believes are important drivers of
shareholder value. Our regular quarterly dividend will allow us
to continue to return funds to shareholders while maintaining
our targeted capital structure.
For certain information concerning our risk factors, see
ITEM 1A. RISK FACTORS, in this Annual Report on
Form 10-K.
Liquidity
and Capital Resources
Operating
Activities
Cash provided by operating activities increased by
$63.7 million from $200.9 million in fiscal 2008 to
$264.6 million in fiscal 2009. Net income (loss) plus
non-cash impairment and other charges, stock-based compensation
expense, depreciation and amortization increased by
$24.6 million, from $208.7 million in fiscal
39
2008 to $233.3 million in fiscal 2009, primarily due to
higher operating income in our Global Consumer segment. Fiscal
2009 operating cash flows were unfavorably impacted by an
increase in inventory caused primarily by higher input costs and
additional professional grass seed inventory resulting from a
significant drop in demand. The increase in inventory was offset
by increases in other current liabilities, driven by accruals
for variable compensation, and in accrued taxes, driven by our
higher taxable income, for which the cash outflow will not occur
until fiscal 2010.
Cash provided by operating activities decreased by
$45.7 million from $246.6 million in fiscal 2007 to
$200.9 million in fiscal 2008. Net income (loss) plus
non-cash impairment charges, non-cash costs related to
refinancing, stock-based compensation expense, depreciation and
amortization declined by $41.8 million, from
$250.5 million in fiscal 2007 to $208.7 million in
fiscal 2008, primarily due to product registration and recall
costs of approximately $51.1 million.
The seasonal nature of our operations generally requires cash to
fund significant increases in working capital (primarily
inventory) during the first half of the year. Receivables and
payables also build substantially in the second quarter of the
year in line with the timing of sales to support our
retailers spring selling season. These balances liquidate
during the June through September period as the lawn and garden
season unwinds. Unlike our core retail business, Scotts
LawnService®
typically has its highest receivables balance in the fourth
quarter because of the seasonal timing of customer applications
and extra service revenues.
Investing
Activities
Cash used in investing activities was $83.3 million and
$59.1 million for fiscal 2009 and fiscal 2008,
respectively. Capital spending, including investments in
intellectual property, increased by $15.2 million from
$60.2 million in fiscal 2008 to $75.4 million in
fiscal 2009. The increase in capital spending in fiscal 2009 was
driven primarily by expansion of North America production
facilities. For the three years ended September 30, 2009,
our capital spending was allocated as follows: 48% for expansion
and maintenance of Global Consumer productive assets; 20% for
new productive assets supporting our Global Consumer business;
5% primarily for leasehold improvements associated with new
Smith &
Hawken®
retail stores; 4% for expansion and upgrades of Scotts
LawnService®
facilities; 14% to expand our information technology
capabilities; and 9% for other corporate assets. In fiscal 2009,
we acquired a growing media company in the United Kingdom for
$9.3 million. There was no acquisition activity in fiscal
2008. Acquisition activity in fiscal 2007 was restricted to our
Scotts
LawnService®
business, approximating $18.7 million.
Financing
Activities
Financing activities used cash of $194.0 million and
$123.0 million in fiscal 2009 and fiscal 2008,
respectively. In fiscal 2009, the cash used was primarily the
result of net repayments of $178.0 million on outstanding
debt and dividends paid of $33.4 million, offset by cash of
$14.8 million received from the exercise of stock options.
In fiscal 2008, the cash used was primarily the result of net
repayments of $99.9 million on outstanding debt and
dividends paid of $32.5 million, offset by cash of
$9.2 million received from the exercise of stock options.
Financing activities in fiscal 2007 used cash of
$158.8 million, which included our 2007 recapitalization.
See NOTE 5. 2007 RECAPITALIZATION of the Notes to
Consolidated Financial Statements included in this Annual Report
on
Form 10-K
for additional information.
Credit
Agreements
Our primary sources of liquidity are cash generated by
operations and borrowings under our credit agreements. In
February 2007, Scotts Miracle-Gro and certain of its
subsidiaries entered into the following senior secured credit
facilities totaling up to $2.15 billion in the aggregate:
(a) a senior secured five-year term loan facility in the
principal amount of $560 million and (b) a senior
secured five-year revolving loan facility in the aggregate
principal amount of up to $1.59 billion. Borrowings may be
made in various currencies including U.S. dollars, Euros,
British pounds, Australian dollars and Canadian dollars. Under
our current structure, we may request an additional
$200 million in revolving credit
and/or term
credit commitments, subject to approval from our lenders. As of
September 30, 2009, there was $1.2 billion of
availability under the senior secured credit facilities.
NOTE 11. DEBT of the Notes to
40
Consolidated Financial Statements included in this Annual Report
on
Form 10-K
provides additional information pertaining to our borrowing
arrangements.
At September 30, 2009, we had outstanding interest rate
swap agreements with major financial institutions that
effectively converted a portion of our variable-rate debt
denominated in U.S. dollars to a fixed rate. Interest
payments made between the effective date and expiration date are
hedged by the swap agreements, except as noted below. The key
terms of these swap agreements are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Effective Date(a)
|
|
Expiration Date
|
|
Fixed Rate
|
(In millions)
|
|
|
|
|
|
|
|
$
|
200
|
|
|
|
3/30/2007
|
|
|
|
3/30/2010
|
|
|
|
4.87
|
%
|
|
200
|
|
|
|
2/14/2007
|
|
|
|
2/14/2012
|
|
|
|
5.20
|
%
|
|
50
|
|
|
|
2/14/2012
|
|
|
|
2/14/2016
|
|
|
|
3.78
|
%
|
|
150(b)
|
|
|
|
11/16/2009
|
|
|
|
5/16/2016
|
|
|
|
3.26
|
%
|
|
50(c)
|
|
|
|
2/16/2010
|
|
|
|
5/16/2016
|
|
|
|
3.05
|
%
|
|
|
|
(a) |
|
The effective date refers to the date on which interest payments
are first hedged by the applicable swap agreement. |
|
(b) |
|
Interest payments made during the six-month period beginning
November 14 of each year between the effective date and
expiration date are hedged by the swap agreement. |
|
(c) |
|
Interest payments made during the three-month period beginning
February 14 of each year between the effective date and
expiration date are hedged by the swap agreement. |
On April 11, 2007, we entered into a one-year Master
Accounts Receivable Purchase Agreement (the 2007 MARP
Agreement). On April 9, 2008, we terminated the 2007
MARP Agreement and entered into a new Master Accounts Receivable
Purchase Agreement (the 2008 MARP Agreement). The
terms of the 2008 MARP Agreement were substantially the same as
the 2007 MARP Agreement. The 2008 MARP Agreement provided an
interest rate that was equal to the
7-day LIBOR
rate plus 85 basis points. The 2008 MARP Agreement provided
for the discounted sale, on a revolving basis, of accounts
receivable generated by specified account debtors, with
seasonally adjusted monthly aggregate limits ranging from
$10 million to $300 million. The 2008 MARP Agreement
also provided for specified account debtor sublimit amounts,
which provided limits on the amount of receivables owed by
individual account debtors that could be sold to the banks. The
2008 MARP Agreement expired by its terms on April 8, 2009.
On May 1, 2009, we entered into a Master Accounts
Receivable Purchase Agreement (the 2009 MARP
Agreement), with a stated termination date of May 1,
2010, or such later date as may be mutually agreed by us and our
lender. The 2009 MARP Agreement provides an interest rate that
is equal to the
7-day LIBOR
rate plus 225 basis points. The 2009 MARP Agreement
provides for the discounted sale, on an uncommitted, revolving
basis, of accounts receivable generated by a specified account
debtor, with aggregate limits not to exceed $80 million.
Borrowings under the 2009 MARP Agreement at September 30,
2009 were $4.2 million.
As of September 30, 2009, we were in compliance with all
debt covenants. Our senior secured credit facilities contain,
among other obligations, an affirmative covenant regarding our
leverage ratio, calculated as indebtedness relative to our
earnings before taxes, depreciation and amortization. Under the
terms of the senior secured credit facilities, the maximum
leverage ratio was 3.75 as of September 30, 2009, which is
scheduled to decrease to 3.50 on September 30, 2010.
Management continues to monitor our compliance with the leverage
ratio and other covenants contained in the senior secured credit
facilities and, based upon our current operating assumptions, we
expect to remain in compliance with the permissible leverage
ratio throughout fiscal 2010. However, an unanticipated charge
to earnings, an increase in debt or other factors could
materially adversely affect our ability to remain in compliance
with the financial or other covenants of our senior secured
credit facilities, potentially causing us to have to seek an
amendment or waiver from our lending group which would be likely
to result in repricing of our senior secured credit facilities
to then current market rates. Although we were in compliance
with all of our debt covenants throughout fiscal 2009, please
see ITEM 1A. RISK FACTORS The Ongoing
Governmental Investigation Regarding Our Compliance with FIFRA
Could Adversely Affect Our Financial Condition, Results of
Operations or
41
Cash Flows for a discussion of the potential negative
impact of such issues on our compliance with certain covenants
contained in our credit agreements.
Judicial
and Administrative Proceedings
Apart from the proceedings surrounding the FIFRA compliance
matters, which are discussed separately, we are party to various
pending judicial and administrative proceedings arising in the
ordinary course of business, including, among others,
proceedings based on accidents or product liability claims and
alleged violations of environmental laws. We have reviewed these
pending judicial and administrative proceedings, including the
probable outcomes, reasonably anticipated costs and expenses,
and the availability and limits of our insurance coverage, and
have established what we believe to be appropriate reserves. We
do not believe that any liabilities that may result from these
pending judicial and administrative proceedings are reasonably
likely to have a material adverse effect on our financial
condition, results of operations, or cash flows; however, there
can be no assurance that future quarterly or annual operating
results will not be materially affected by final resolution of
these matters.
Contractual
Obligations and Off-Balance Sheet Arrangements
The following table summarizes our future cash outflows for
contractual obligations as of September 30, 2009 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Cash Obligations
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Debt obligations
|
|
$
|
810.1
|
|
|
$
|
160.4
|
|
|
$
|
645.7
|
|
|
$
|
1.0
|
|
|
$
|
3.0
|
|
Operating lease obligations
|
|
|
186.8
|
|
|
|
46.1
|
|
|
|
71.3
|
|
|
|
43.2
|
|
|
|
26.2
|
|
Purchase obligations
|
|
|
461.4
|
|
|
|
235.5
|
|
|
|
171.4
|
|
|
|
54.5
|
|
|
|
|
|
Other, primarily retirement plan obligations
|
|
$
|
131.8
|
|
|
|
11.9
|
|
|
|
29.0
|
|
|
|
29.7
|
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
1,590.1
|
|
|
$
|
453.9
|
|
|
$
|
917.4
|
|
|
$
|
128.4
|
|
|
$
|
90.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations primarily represent commitments for
materials used in the Companys manufacturing processes, as
well as commitments for warehouse services, seed and out-sourced
information services which comprise the unconditional purchase
obligations disclosed in NOTE 18. COMMITMENTS
of the Notes to Consolidated Financial Statements included in
this Annual Report on
Form 10-K.
Other includes actuarially determined retiree benefit payments
and pension funding to comply with local funding requirements.
Pension funding requirements beyond fiscal 2010 are based on
preliminary estimates using actuarial assumptions determined as
of September 30, 2009. The above table excludes interest
payments and insurance accruals as the Company is unable to
estimate the timing of the payment for these items.
The Company has no off-balance sheet financing arrangements.
In our opinion, cash flows from operations and capital resources
will be sufficient to meet debt service, capital expenditures
and working capital needs during fiscal 2010, and thereafter for
the foreseeable future. However, we cannot ensure that our
business will generate sufficient cash flow from operations or
that future borrowings will be available under our credit
facilities in amounts sufficient to pay indebtedness or fund
other liquidity needs. Actual results of operations will depend
on numerous factors, many of which are beyond our control.
Shelf
Registration Statement
Following the filing of this Annual Report on
Form 10-K,
we expect to file a universal automatic shelf registration
statement on
Form S-3ASR
with the SEC that will permit us, from time to time, in one or
more public offerings, to offer debt securities, common shares,
preferred shares, warrants, purchase contracts and purchase
units or combinations of the preceding securities. These
securities, which may be offered in one or more offerings and in
any combination, will in each case be offered pursuant to a
separate prospectus supplement issued
42
at the time of the particular offering that will describe the
specific types, amounts, prices and terms of the offered
securities and the expected use of proceeds from the offering.
Regulatory
Matters
We are subject to local, state, federal and foreign
environmental protection laws and regulations with respect to
our business operations and believe we are operating in
substantial compliance with, or taking actions aimed at ensuring
compliance with, such laws and regulations. Apart from the
proceedings surrounding the FIFRA compliance matters, which are
discussed separately, we are involved in several legal actions
with various governmental agencies related to environmental
matters. While it is difficult to quantify the potential
financial impact of actions involving these environmental
matters, particularly remediation costs at waste disposal sites
and future capital expenditures for environmental control
equipment, in the opinion of management, the ultimate liability
arising from such environmental matters, taking into account
established reserves, should not have a material adverse effect
on our financial condition, results of operations or cash flows.
However, there can be no assurance that the resolution of these
matters will not materially affect our future quarterly or
annual results of operations, financial condition or cash flows.
Additional information on environmental matters affecting us is
provided in ITEM 1. BUSINESS Regulatory
Considerations, ITEM 1. BUSINESS
FIFRA Compliance, the Corresponding Governmental Investigations
and Similar Matters, ITEM 1.
BUSINESS Other Regulatory Matters and
ITEM 3. LEGAL PROCEEDINGS of this Annual Report
on
Form 10-K.
Critical
Accounting Policies and Estimates
Our discussion and analysis of financial condition and results
of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
U.S. GAAP. Certain accounting policies are particularly
significant, including those related to revenue recognition,
goodwill and intangibles, certain employee benefits, and income
taxes. We believe these accounting policies, and others set
forth in NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES of the Notes to Consolidated Financial Statements
included in this Annual Report on
Form 10-K,
should be reviewed as they are integral to understanding our
results of operations and financial position. Our critical
accounting policies are reviewed periodically with the Audit
Committee of the Board of Directors of Scotts Miracle-Gro.
The preparation of financial statements requires management to
use judgment and make estimates that affect the reported amounts
of assets, liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those related to
customer programs and incentives, product returns, bad debts,
inventories, intangible assets, income taxes, restructuring,
environmental matters, contingencies and litigation. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. Although actual results historically have not
deviated significantly from those determined using our
estimates, our results of operations or financial condition
could differ, perhaps materially, from these estimates under
different assumptions or conditions.
Revenue
Recognition and Promotional Allowances
Most of our revenue is derived from the sale of inventory, and
we recognize revenue when title and risk of loss transfer,
generally when products are received by the customer. Provisions
for payment discounts, product returns and allowances are
recorded as a reduction of sales at the time revenue is
recognized based on historical trends and adjusted periodically
as circumstances warrant. Similarly, reserves for uncollectible
receivables due from customers are established based on
managements judgment as to the ultimate collectibility of
these balances. We offer sales incentives through various
programs, consisting principally of volume rebates, cooperative
advertising, consumer coupons and other trade programs. The cost
of these programs is recorded as a reduction of sales. The
recognition of revenues, receivables and trade programs requires
the use of estimates. While we believe these estimates to be
reasonable based on the then current facts and circumstances,
there can be no assurance that actual amounts realized will not
differ materially from estimated amounts recorded.
43
Long-lived
Assets, including Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
of property, plant and equipment is provided on the
straight-line method and is based on the estimated useful
economic lives of the assets. Intangible assets with finite
lives, and therefore subject to amortization, include technology
(e.g., patents), customer relationships and certain tradenames.
These intangible assets are being amortized on the straight-line
method over periods typically ranging from 3 to 25 years.
The Company reviews long-lived assets whenever circumstances
change such that the indicated recorded value of an asset may
not be recoverable and therefore impaired.
Goodwill
and Indefinite-lived Intangible Assets
We have significant investments in intangible assets and
goodwill. Our annual goodwill and indefinite-lived intangible
asset testing is performed as of the first day of our fiscal
fourth quarter or more frequently if circumstances indicate
potential impairment. The review for impairment of intangibles
and goodwill is primarily based on our estimates of discounted
future cash flows, which are based upon budgets and longer-range
strategic plans. These budgets and plans are used for internal
purposes and are also the basis for communication with outside
parties about future business trends. While we believe the
assumptions we use to estimate future cash flows are reasonable,
there can be no assurance that the expected future cash flows
will be realized. As a result, impairment charges that possibly
should have been recognized in earlier periods may not be
recognized until later periods if actual results deviate
unfavorably from earlier estimates. An assets value is
deemed impaired if the discounted cash flows or earnings
projections generated do not substantiate the carrying value of
the asset. The estimation of such amounts requires management to
exercise judgment with respect to revenue and expense growth
rates, changes in working capital and selection of an
appropriate discount rate, as applicable. The use of different
assumptions would increase or decrease discounted future
operating cash flows or earnings projections and could,
therefore, change impairment determinations.
Fair values related to our annual impairment review of
indefinite-lived tradenames and goodwill were determined using
discounted cash flow models involving several assumptions.
Changes in our assumptions could materially impact our fair
value estimates. Assumptions critical to our fair value
estimates were: (i) present value factors used in
determining the fair value of the reporting units and
tradenames; (ii) royalty rates used in our tradename
valuations; (iii) projected average revenue growth rates
used in the reporting unit and tradename models; and
(iv) projected long-term growth rates used in the
derivation of terminal year values. These and other assumptions
are impacted by economic conditions and expectations of
management and will change in the future based on period
specific facts and circumstances.
Inventories
Inventories are stated at the lower of cost or market, the
majority of which are based on the first-in, first-out method of
accounting. Reserves for excess and obsolete inventory are based
on a variety of factors, including product changes and
improvements, changes in active ingredient availability and
regulatory acceptance, new product introductions and estimated
future demand. The adequacy of our reserves could be materially
affected by changes in the demand for our products or regulatory
actions.
Contingencies
As described more fully in NOTE 19.
CONTINGENCIES of the Notes to Consolidated Financial
Statements included in this Annual Report on
Form 10-K,
we are involved in significant environmental and legal matters
which have a high degree of uncertainty associated with them. We
continually assess the likely outcomes of these matters and the
adequacy of amounts, if any, provided for their resolution.
There can be no assurance that the ultimate outcomes of these
matters will not differ materially from our assessment of them,
nor that all matters that may currently be brought against us
are known by us at this time.
Income
Taxes
Our annual effective tax rate is established based on our
pre-tax income (loss), statutory tax rates and the tax impacts
of items treated differently for tax purposes than for financial
reporting purposes. We record income tax liabilities utilizing
known obligations and estimates of potential obligations. A
deferred tax asset or liability is
44
recognized whenever there are future tax effects from existing
temporary differences and operating loss and tax credit
carryforwards. Valuation allowances are used to reduce deferred
tax assets to the balance that is more likely than not to be
realized. We must make estimates and judgments on future taxable
income, considering feasible tax planning strategies and taking
into account existing facts and circumstances, to determine the
proper valuation allowance. When we determine that deferred tax
assets could be realized in greater or lesser amounts than
recorded, the asset balance and consolidated statement of
operations reflect the change in the period such determination
is made. Due to changes in facts and circumstances and the
estimates and judgments that are involved in determining the
proper valuation allowance, differences between actual future
events and prior estimates and judgments could result in
adjustments to this valuation allowance. We use an estimate of
our annual effective tax rate at each interim period based on
the facts and circumstances available at that time, while the
actual effective tax rate is calculated at year-end.
Associate
Benefits
We sponsor various post-employment benefit plans. These include
pension plans, both defined contribution plans and defined
benefit plans, and other post-employment benefit
(OPEB) plans, consisting primarily of health care
for retirees. For accounting purposes, the defined benefit
pension and OPEB plans are dependent on a variety of assumptions
to estimate the projected and accumulated benefit obligations
determined by actuarial valuations. These assumptions include
the following: discount rate; expected salary increases; certain
employee-related factors, such as turnover, retirement age and
mortality; expected return on plan assets; and health care cost
trend rates. These and other assumptions affect the annual
expense recognized for these plans.
Assumptions are reviewed annually for appropriateness and
updated as necessary. We base the discount rate assumption on
investment yields available at fiscal year-end on high-quality
corporate bonds that could be purchased to effectively settle
the pension liabilities. The salary growth assumption reflects
our long-term actual experience, the near-term outlook and
assumed inflation. The expected return on plan assets assumption
reflects asset allocation, investment strategy and the views of
investment managers regarding the market. Retirement and
mortality rates are based primarily on actual and expected plan
experience. The effects of actual results differing from our
assumptions are accumulated and amortized over future periods.
Changes in the discount rate and investment returns can have a
significant effect on the funded status of our pension plans and
shareholders equity. We cannot predict these discount
rates or investment returns with certainty and, therefore,
cannot determine whether adjustments to our shareholders
equity for pension-related activity in subsequent years will be
significant. We also cannot predict future investment returns,
and therefore cannot determine whether future pension plan
funding requirements could materially and adversely affect our
financial condition, results of operations or cash flows.
Accruals
for Self-Insurance
We maintain insurance for certain risks, including workers
compensation, general liability and vehicle liability, and are
self-insured for employee-related health care benefits. We
establish reserves for losses based on our claims experience and
industry actuarial estimates of the ultimate loss amount
inherent in the claims, including losses for claims incurred but
not reported. Our estimate of self-insured liabilities is
subject to change as new events or circumstances develop which
might materially impact the ultimate cost to settle these losses.
Derivative
Instruments
In the normal course of business, we are exposed to fluctuations
in interest rates, the value of foreign currencies and the cost
of commodities. A variety of financial instruments, including
forward and swap contracts, are used to manage these exposures.
Our objective in managing these exposures is to better control
these elements of cost and mitigate the earnings and cash flow
volatility associated with changes in the applicable rates and
prices.
We have established policies and procedures that encompass
risk-management philosophy and objectives, guidelines for
derivative-instrument usage, counterparty credit approval, and
the monitoring and reporting of derivative activity. We do not
enter into derivative instruments for the purpose of speculation.
45
Other
Significant Accounting Policies
Other significant accounting policies, primarily those with
lower levels of uncertainty than those discussed above, are also
critical to understanding the consolidated financial statements.
The Notes to Consolidated Financial Statements included in this
Annual Report on
Form 10-K
contain additional information related to our accounting
policies, including recent accounting pronouncements, and should
be read in conjunction with this discussion.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
As part of our ongoing business, we are exposed to certain
market risks, including fluctuations in interest rates, foreign
currency exchange rates and commodity prices. Financial
derivative and other instruments are used to manage these risks.
These instruments are not used for speculative purposes.
Interest
Rate Risk
The Company had variable rate debt instruments outstanding at
September 30, 2009 and 2008 that are impacted by changes in
interest rates. As a means of managing our interest rate risk on
these debt instruments, the Company enters into interest rate
swap agreements to effectively convert certain variable-rate
debt obligations to fixed rates.
At September 30, 2009 and 2008, the Company had outstanding
interest rate swap agreements with major financial institutions
that effectively convert a portion of our variable-rate debt to
a fixed rate. The swap agreements had a total U.S. dollar
equivalent notional amount of $650.0 million and
$711.4 million, respectively. The average fixed rate of
swap agreements outstanding at September 30, 2009 was 4.4%.
The following table summarizes information about our derivative
financial instruments and debt instruments that are sensitive to
changes in interest rates as of September 30, 2009 and
2008. For debt instruments, the table presents principal cash
flows and related weighted-average interest rates by expected
maturity dates. For interest rate swap agreements, the table
presents expected cash flows based on notional amounts and
weighted-average interest rates by contractual maturity dates.
Weighted-average variable rates are based on implied forward
rates in the yield curve at September 30, 2009 and 2008. A
change in our variable interest rate of 1% for a full
twelve-month period would have a $6.7 million impact on
interest expense assuming approximately $670 million of our
average fiscal 2009 variable-rate debt had not been hedged via
an interest rate swap agreement. The information is presented in
U.S. dollars (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
|
|
Fair
|
|
2009
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
After
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt
|
|
$
|
158.7
|
|
|
$
|
193.2
|
|
|
$
|
439.6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
791.5
|
|
|
$
|
791.5
|
|
Average rate
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
|
|
Interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps based on U.S. Dollar, Euro and GBP LIBOR
|
|
$
|
(4.5
|
)
|
|
$
|
|
|
|
$
|
(18.2
|
)
|
|
$
|
|
|
|
$
|
(1.0
|
)
|
|
$
|
(23.7
|
)
|
|
$
|
(23.7
|
)
|
Average rate
|
|
|
4.9
|
%
|
|
|
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
3.3
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
|
|
Fair
|
|
2008
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
After
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt
|
|
$
|
146.7
|
|
|
$
|
154.1
|
|
|
$
|
193.2
|
|
|
$
|
485.0
|
|
|
$
|
|
|
|
$
|
979.0
|
|
|
$
|
979.0
|
|
Average rate
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
|
|
Interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps based on U.S. Dollar, Euro and GBP LIBOR
|
|
$
|
(0.9
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
|
|
|
$
|
(9.5
|
)
|
|
$
|
|
|
|
$
|
(15.0
|
)
|
|
$
|
(15.0
|
)
|
Average rate
|
|
|
4.8
|
%
|
|
|
4.9
|
%
|
|
|
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
4.7
|
%
|
|
|
|
|
46
Excluded from the information provided above are
$18.6 million and $20.5 million at September 30,
2009 and 2008, respectively, of miscellaneous debt instruments.
Other
Market Risks
Through fiscal 2009, we had transactions that were denominated
in currencies other than the currency of the country of origin.
We use foreign currency swap contracts to manage the exchange
rate risk associated with intercompany loans with foreign
subsidiaries that are denominated in local currencies. At
September 30, 2009, the notional amount of outstanding
foreign currency contracts was $105.9 million with a fair
value of ($3.9) million. At September 30, 2008, the
notional amount of outstanding foreign currency contracts was
$86.4 million with a fair value of ($0.4) million.
We are subject to market risk from fluctuating prices of certain
raw materials, including urea, resins, fuel, grass seed and wild
bird food components. Our objectives surrounding the procurement
of these materials are to ensure continuous supply and to
minimize costs. We seek to achieve these objectives through
negotiation of contracts with favorable terms directly with
vendors. In addition, we entered into arrangements to partially
mitigate the effect of fluctuating direct and indirect fuel
costs on our Global Consumer and Scotts
LawnService®
businesses and hedged a portion of our fuel and urea needs for
fiscal 2008 and fiscal 2009. We had outstanding contracts for
approximately 1.3 million gallons of fuel with a fair value
of $0.1 million at September 30, 2009. There were no
outstanding derivatives for fuel at September 30, 2008. We
also had hedging arrangements for 74,000 and 48,500 aggregate
tons of urea at September 30, 2009 and 2008, respectively.
The fair value of the 74,000 aggregate tons at
September 30, 2009 was $0.1 million, while the fair
value of the 48,500 aggregate tons at September 30, 2008
was ($8.5) million.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and other information required by this
Item are contained in the Consolidated Financial Statements,
Notes to Consolidated Financial Statements and Financial
Statement Schedules listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules on
page 61 of this Annual Report on
Form 10-K.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
With the participation of the principal executive officer and
the principal financial officer of The Scotts Miracle-Gro
Company (the Registrant), the Registrants
management has evaluated the effectiveness of the
Registrants disclosure controls and procedures (as defined
in
Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act)), as of the end of the fiscal year covered by this
Annual Report on
Form 10-K.
Based upon that evaluation, the Registrants principal
executive officer and principal financial officer have concluded
that:
|
|
|
|
|
information required to be disclosed by the Registrant in this
Annual Report on
Form 10-K
and the other reports that the Registrant files or submits under
the Exchange Act is accumulated and communicated to the
Registrants management, including its principal executive
officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure;
|
|
|
|
information required to be disclosed by the Registrant in this
Annual Report on
Form 10-K
and the other reports that the Registrant files or submits under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms; and
|
|
|
|
the Registrants disclosure controls and procedures were
effective as of the end of the fiscal year covered by this
Annual Report on
Form 10-K.
|
47
Managements
Annual Report on Internal Control Over Financial
Reporting
The Annual Report of Management on Internal Control Over
Financial Reporting required by Item 308(a) of SEC
Regulation S-K
is included on page 62 of this Annual Report on
Form 10-K.
Attestation
Report of Independent Registered Public Accounting
Firm
The Report of Independent Registered Public Accounting
Firm required by Item 308(b) of SEC
Regulation S-K
is included on page 64 of this Annual Report on
Form 10-K.
Changes
in Internal Control Over Financial Reporting
There were no changes in the Registrants internal control
over financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) that occurred during the
Registrants fiscal quarter ended September 30, 2009,
that have materially affected, or are reasonably likely to
materially affect, the Registrants internal control over
financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
On November 20, 2009, the Compensation and Organization
Committee (the Committee) of the Board of Directors
(the Board) of the Company approved a change to the
annual compensation package of James Hagedorn, the
Companys Chairman and Chief Executive Officer. In lieu of
further increasing Mr. Hagedorns cash-based
compensation to compensate him for the prior commuting
perquisite he enjoyed, the Committee has determined to provide
Mr. Hagedorn with a compensatory monthly commuting
allowance of $20,000, effective at the beginning of the 2010
fiscal year. For safety and security reasons, the Board-approved
CEO/COO Travel Guidelines (the Guidelines) provide
that Mr. Hagedorn may use either personal aircraft or
Company-owned or leased aircraft for commuting purposes and the
commuting allowance is intended to offset the annual costs
associated with Mr. Hagedorns compliance with the
Guidelines.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Directors,
Executive Officers and Persons Nominated or Chosen to Become
Directors or Executive Officers
The information required by Item 401 of SEC
Regulation S-K
concerning the directors of The Scotts Miracle-Gro Company
(Scotts Miracle-Gro or the Registrant)
and the nominees for re-election as directors of Scotts
Miracle-Gro at the Annual Meeting of Shareholders to be held on
January 21, 2010 (the 2010 Annual Meeting) is
incorporated herein by reference from the disclosure which will
be included under the caption PROPOSAL NUMBER
1 ELECTION OF DIRECTORS in Scotts
Miracle-Gros definitive Proxy Statement relating to the
2010 Annual Meeting (Scotts Miracle-Gros Definitive
Proxy Statement), which will be filed pursuant to SEC
Regulation 14A not later than 120 days after the end
of Scotts Miracle-Gros fiscal year ended
September 30, 2009.
The information required by Item 401 of SEC
Regulation S-K
concerning the executive officers of Scotts Miracle-Gro is
incorporated herein by reference from the disclosure included
under the caption SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF
THE REGISTRANT in Part I of this Annual Report on
Form 10-K.
Compliance
with Section 16(a) of the Securities Exchange Act of
1934
The information required by Item 405 of SEC
Regulation S-K
is incorporated herein by reference from the disclosure which
will be included under the caption SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE in Scotts
Miracle-Gros Definitive Proxy Statement.
Procedures
for Recommending Director Nominees
Information concerning the procedures by which shareholders of
Scotts Miracle-Gro may recommend nominees to Scotts
Miracle-Gros Board of Directors is incorporated herein by
reference from the disclosures
48
which will be included under the captions CORPORATE
GOVERNANCE Nominations of Directors and
MEETINGS AND COMMITTEES OF THE BOARD
Committees of the Board Governance and Nominating
Committee in Scotts Miracle-Gros Definitive Proxy
Statement. These procedures have not materially changed from
those described in Scotts Miracle-Gros definitive Proxy
Statement for the 2009 Annual Meeting of Shareholders held on
January 22, 2009.
Audit
Committee
The information required by Items 407(d)(4) and 407(d)(5)
of SEC
Regulation S-K
is incorporated herein by reference from the disclosure which
will be included under the caption MEETINGS AND COMMITTEES
OF THE BOARD Committees of the Board
Audit Committee in Scotts Miracle-Gros Definitive
Proxy Statement.
Committee
Charters; Code of Business Conduct and Ethics; Corporate
Governance Guidelines
The Board of Directors of the Registrant has adopted charters
for each of the Audit Committee, the Governance and Nominating
Committee, the Compensation and Organization Committee, the
Finance Committee and the Innovation & Technology
Committee as well as Corporate Governance Guidelines as
contemplated by the applicable sections of the New York Stock
Exchange Listed Company Manual.
In accordance with the requirements of Section 303A.10 of
the New York Stock Exchanges Listed Company Manual, the
Board of Directors of the Registrant has adopted a Code of
Business Conduct and Ethics covering the members of the
Registrants Board of Directors and associates (employees)
of the Registrant and its subsidiaries, including, without
limitation, the Registrants principal executive officer,
principal financial officer and principal accounting officer.
The Registrant intends to disclose the following events, if they
occur, on its Internet website located at
http://investor.scotts.com
within four business days following their occurrence:
(A) the date and nature of any amendment to a provision of
Scotts Miracle-Gros Code of Business Conduct and Ethics
that (i) applies to the Registrants principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, (ii) relates to any element of the code of
ethics definition enumerated in Item 406(b) of SEC
Regulation S-K,
and (iii) is not a technical, administrative or other
non-substantive amendment; and (B) a description (including
the nature of the waiver, the name of the person to whom the
waiver was granted and the date of the waiver) of any waiver,
including an implicit waiver, from a provision of the Code of
Business Conduct and Ethics to the Registrants principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, that relates to one or more of the elements of the
code of ethics definition set forth in Item 406(b) of SEC
Regulation S-K.
The text of the Registrants Code of Business Conduct and
Ethics, the Registrants Corporate Governance Guidelines,
the Audit Committee charter, the Governance and Nominating
Committee charter, the Compensation and Organization Committee
charter, the Finance Committee charter and the
Innovation & Technology Committee charter are posted
under the Corporate Governance link on the
Registrants Internet website located at
http://investor.scotts.com.
Interested persons and shareholders of Scotts Miracle-Gro may
also obtain copies of each of these documents without charge by
writing to The Scotts Miracle-Gro Company, Attention: Corporate
Secretary, 14111 Scottslawn Road, Marysville, Ohio 43041. In
addition, a copy of the Code of Business Conduct and Ethics, as
amended on November 2, 2006, is incorporated by reference
in Exhibit 14 to this Annual Report on
Form 10-K.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by Item 402 of SEC
Regulation S-K
is incorporated herein by reference from the disclosures which
will be included under the captions EXECUTIVE
COMPENSATION and NON-EMPLOYEE DIRECTOR
COMPENSATION in Scotts Miracle-Gros Definitive Proxy
Statement.
The information required by Item 407(e)(4) of SEC
Regulation S-K
is incorporated herein by reference from the disclosure which
will be included under the caption MEETINGS AND COMMITTEES
OF THE BOARD Compensation and Organization Committee
Interlocks and Insider Participation in Scotts
Miracle-Gros Definitive Proxy Statement.
49
The information required by Item 407(e)(5) of SEC
Regulation S-K
is incorporated herein by reference from the disclosure which
will be included under the caption COMPENSATION COMMITTEE
REPORT in Scotts Miracle-Gros Definitive Proxy
Statement.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Ownership
of Common Shares of Scotts Miracle-Gro
The information required by Item 403 of SEC
Regulation S-K
is incorporated herein by reference from the disclosure which
will be included under the caption BENEFICIAL OWNERSHIP OF
SECURITIES OF THE COMPANY in Scotts Miracle-Gros
Definitive Proxy Statement.
Equity
Compensation Plan Information
The information required by Item 201(d) of SEC
Regulation S-K
is incorporated herein by reference from the disclosure which
will be included under the caption EQUITY COMPENSATION
PLAN INFORMATION in Scotts Miracle-Gros Definitive
Proxy Statement.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Certain
Relationships and Related Person Transactions
The information required by Item 404 of SEC
Regulation S-K
is incorporated herein by reference from the disclosures which
will be included under the captions PROPOSAL NUMBER
1 ELECTION OF DIRECTORS, BENEFICIAL
OWNERSHIP OF SECURITIES OF THE COMPANY and CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in Scotts
Miracle-Gros Definitive Proxy Statement.
Director
Independence
The information required by Item 407(a) of SEC
Regulation S-K
is incorporated herein by reference from the disclosures which
will be included under the captions CORPORATE
GOVERNANCE Director Independence and
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in
Scotts Miracle-Gros Definitive Proxy Statement.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this Item 14 is incorporated
herein by reference from the disclosures which will be included
under the captions PROPOSAL NUMBER 2
RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM Fees of the Independent
Registered Public Accounting Firm and
PROPOSAL NUMBER 2 RATIFICATION OF THE
SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM Pre-Approval of Services Performed by the
Independent Registered Public Accounting Firm in Scotts
Miracle-Gros Definitive Proxy Statement.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) LIST OF DOCUMENTS FILED AS PART OF THIS
REPORT
1 and 2. Financial Statements and Financial Statement
Schedules:
The response to this portion of Item 15 is submitted as a
separate section of this Annual Report on
Form 10-K.
Reference is made to the Index to Consolidated Financial
Statements and Financial Statement Schedules on
page 61 herein.
50
3. Exhibits:
The exhibits listed on the Index to Exhibits
beginning on page 115 of this Annual Report on
Form 10-K
are filed with this Annual Report on
Form 10-K
or incorporated herein by reference as noted in the Index
to Exhibits. The following table provides certain
information concerning each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this
Annual Report on
Form 10-K
or incorporated herein by reference.
MANAGEMENT
CONTRACTS AND COMPENSATORY PLANS AND ARRANGEMENTS
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.1(a)
|
|
The Scotts Company LLC Excess Benefit Plan for Grandfathered
Associates as of January 1, 2005 (executed as of September 30,
2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008
(File No. 1-11593)
[Exhibit 10.1(a)]
|
|
10
|
.1(b)
|
|
The Scotts Company LLC Excess Benefit Plan for Non Grandfathered
Associates as of January 1, 2005 (executed as of November 20,
2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008
(File No. 1-11593)
[Exhibit 10.1(b)]
|
|
10
|
.2(a)(i)
|
|
The Scotts Company LLC Amended and Restated Executive/Management
Incentive Plan (approved on November 7, 2007 and effective as of
October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(b)(2)]
|
|
10
|
.2(a)(ii)
|
|
Amendment to The Scotts Company LLC Amended and Restated
Executive/Management Incentive Plan (effective as of November 5,
2008) [amended the name of the plan to be The Scotts Company LLC
Amended and Restated Executive Incentive Plan]
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed November 12, 2008 (File
No. 1-11593)
[Exhibit 10.2]
|
|
10
|
.2(b)(i)
|
|
Specimen form of Employee Confidentiality, Noncompetition,
Nonsolicitation Agreement for employees participating in The
Scotts Company Executive/Management Incentive Plan (now known as
The Scotts Company LLC Amended and Restated Executive Incentive
Plan) [2005 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.2(b)(i)]
|
|
10
|
.2(b)(ii)
|
|
Specimen form of Employee Confidentiality, Noncompetition,
Nonsolicitation Agreement for employees participating in The
Scotts Company LLC Executive/Management Incentive Plan (now
known as The Scotts Company LLC Amended and Restated Executive
Incentive Plan) [post-2005 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended July 1, 2006
(File No. 1-11593)
[Exhibit 10.1]
|
|
10
|
.2(c)
|
|
Executive Officers of The Scotts Miracle-Gro Company who are
parties to form of Employee Confidentiality, Noncompetition,
Nonsolicitation Agreement for employees participating in The
Scotts Company LLC Amended and Restated Executive Incentive Plan
|
|
*
|
|
10
|
.3(a)
|
|
The Scotts Miracle-Gro Company Amended and Restated 1996 Stock
Option Plan (effective as of October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(d)(4)]
|
51
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.3(b)
|
|
Specimen form of Stock Option Agreement for Non-Qualified Stock
Options granted to employees under The Scotts Company 1996 Stock
Option Plan (now known as The Scotts Miracle-Gro Company Amended
and Restated 1996 Stock Option Plan)
|
|
Incorporated herein by reference to The Scotts Company, an Ohio
corporation, Current Report on
Form 8-K
filed November 19, 2004 (File
No. 1-11593)
[Exhibit 10.7]
|
|
10
|
.4(a)
|
|
The Scotts Company LLC Executive Retirement Plan, As Amended and
Restated as of January 1, 2005 (executed December 30, 2008)
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed January 6, 2009 (File
No. 1-11593)
[Exhibit 10.1]
|
|
10
|
.4(b)(i)
|
|
Trust Agreement between The Scotts Company and Fidelity
Management Trust Company for The Scotts Company Nonqualified
Deferred Compensation Trust established to assist in discharging
obligations under The Scotts Company Nonqualified Deferred
Compensation Plan (now known as The Scotts Company LLC Executive
Retirement Plan), dated as of January 1, 1998
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(i)]
|
|
10
|
.4(b)(ii)
|
|
First Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Nonqualified Deferred Compensation Plan (now known as
The Scotts Company LLC Executive Retirement Plan), dated as of
March 24, 1998
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(ii)]
|
|
10
|
.4(b)(iii)
|
|
Second Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Nonqualified Deferred Compensation Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
January 15, 1999]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(iii)]
|
|
10
|
.4(b)(iv)
|
|
Third Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Nonqualified Deferred Compensation Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
July 1, 1999]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(iv)]
|
|
10
|
.4(b)(v)
|
|
Fourth Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Executive Retirement Plan (now known as The Scotts
Company LLC Executive Retirement Plan) [dated as of August 1,
1999]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(v)]
|
|
10
|
.4(b)(vi)
|
|
Fifth Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Executive Retirement Plan (now known as The Scotts
Company LLC Executive Retirement Plan) [dated as of December 20,
2000]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(vi)]
|
|
10
|
.4(b)(vii)
|
|
Sixth Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Executive Retirement Plan (now known as The Scotts
Company LLC Executive Retirement Plan) [effective as of November
29, 2001]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(vii)]
|
|
10
|
.4(b)(viii)
|
|
Seventh Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Executive Retirement Plan (now known as The Scotts
Company LLC Executive Retirement Plan) [dated as of September 1,
2002]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(viii)]
|
52
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.4(b)(ix)
|
|
Eighth Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Executive Retirement Plan (now known as The Scotts
Company LLC Executive Retirement Plan) [dated as of December 31,
2002]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(ix)]
|
|
10
|
.4(b)(x)
|
|
Ninth Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company with regard to The Scotts
Company Executive Retirement Plan (now known as The Scotts
Company LLC Executive Retirement Plan) [dated as of October 15,
2004]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(x)]
|
|
10
|
.4(b)(xi)
|
|
Tenth Amendment to Trust Agreement between Fidelity Management
Trust Company and The Scotts Company LLC with regard to The
Scotts Company Executive Retirement Plan (now known as The
Scotts Company LLC Executive Retirement Plan) [dated as of
October 2, 2006]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(xi)]
|
|
10
|
.4(b)(xii)
|
|
Eleventh Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company LLC with regard
to The Scotts Company LLC Executive Retirement Plan (dated as of
February 9, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.5(b)(xii)]
|
|
10
|
.4(c)
|
|
Form of Executive Retirement Plan Retention Award Agreement
between The Scotts Company LLC and each of David C. Evans, Barry
W. Sanders, Denise S. Stump, Michael C. Lukemire and Vincent C.
Brockman (entered into on November 4, 2008)
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed October 15, 2008 (File
No. 1-11593)
[Exhibit 10.2]
|
|
10
|
.5(a)
|
|
The Scotts Miracle-Gro Company Amended and Restated 2003 Stock
Option and Incentive Equity Plan (effective as of October 30,
2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(j)(3)]
|
|
10
|
.5(b)(i)
|
|
Specimen form of Award Agreement for Directors used to evidence
grants of Nonqualified Stock Options made under The Scotts
Company 2003 Stock Option and Incentive Equity Plan (now known
as The Scotts Miracle-Gro Company Amended and Restated 2003
Stock Option and Incentive Equity Plan) [2003 version]
|
|
Incorporated herein by reference to The Scotts Company, an Ohio
corporation, Current Report on
Form 8-K
filed November 19, 2004 (File
No. 1-11593)
[Exhibit 10.9]
|
|
10
|
.5(b)(ii)
|
|
Specimen form of Award Agreement for Directors used to evidence
grants of Nonqualified Stock Options made under The Scotts
Miracle-Gro Company 2003 Stock Option and Incentive Equity Plan
(now known as The Scotts Miracle-Gro Company Amended and
Restated 2003 Stock Option and Incentive Equity Plan) [post-2003
version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2005 (File
No. 1-11593)
[Exhibit 10(v)]
|
|
10
|
.5(c)(i)
|
|
Specimen form of Award Agreement for Nondirectors used to
evidence grants of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock and
Performance Stock made under The Scotts Company 2003 Stock
Option and Incentive Equity Plan (now known as The Scotts
Miracle-Gro Company Amended and Restated 2003 Stock Option and
Incentive Equity Plan) [pre-December 1, 2004 version]
|
|
Incorporated herein by reference to The Scotts Company, an Ohio
corporation, Current Report on
Form 8-K
filed November 19, 2004 (File
No. 1-11593)
[Exhibit 10.8]
|
53
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.5(c)(ii)
|
|
Specimen form of Award Agreement for Nondirectors used to
evidence grants of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock and
Performance Shares made under The Scotts Miracle-Gro Company
2003 Stock Option and Incentive Equity Plan (now known as The
Scotts Miracle-Gro Company Amended and Restated 2003 Stock
Option and Incentive Equity Plan) [post-December 1, 2004 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2005 (File
No. 1-11593)
[Exhibit 10(u)]
|
|
10
|
.6(a)
|
|
The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (effective as of October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(r)(2)]
|
|
10
|
.6(b)(i)
|
|
Specimen form of Award Agreement for Nonemployee Directors used
to evidence grants of Time-Based Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company 2006
Long-Term Incentive Plan (now known as The Scotts Miracle-Gro
Company Amended and Restated 2006 Long-Term Incentive Plan)
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed February 2, 2006 (File
No. 1-11593)
[Exhibit 10.3]
|
|
10
|
.6(b)(ii)
|
|
Specimen form of Stock Unit Award Agreement for Nonemployee
Directors (with Related Dividend Equivalents) used to evidence
grants of Stock Units which may be made under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (post-December 20, 2007 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 29, 2007 (File
No. 1-11593)
[Exhibit 10(l)]
|
|
10
|
.6(b)(iii)
|
|
Specimen form of Deferred Stock Unit Award Agreement for
Nonemployee Directors (with Related Dividend Equivalents) used
to evidence grants of Deferred Stock Units which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (post-February 3, 2008 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 29, 2007 (File
No. 1-11593)
[Exhibit 10(m)]
|
|
10
|
.6(b)(iv)
|
|
Specimen form of Deferred Stock Unit Award Agreement for
Nonemployee Directors (with Related Dividend Equivalents) used
to evidence grants of Deferred Stock Units which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (post-January 22, 2009 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended March 28, 2009 (File
No. 1-11593)
[Exhibit 10.1]
|
|
10
|
.6(c)(i)
|
|
Specimen form of Award Agreement used to evidence grants of
Restricted Stock Units, Performance Shares, Nonqualified Stock
Options, Incentive Stock Options, Restricted Stock and Stock
Appreciation Rights made under The Scotts Miracle-Gro Company
2006 Long-Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan) [pre-October 30, 2007 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 31, 2005 (File
No. 1-11593)
[Exhibit 10(b)]
|
|
10
|
.6(c)(ii)
|
|
Specimen form of Award Agreement for Employees used to evidence
grants of Nonqualified Stock Options, Restricted Stock,
Performance Shares and Restricted Stock Units made under The
Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan (now
known as The Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan) [French Specimen] (pre-November
6, 2007 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 30, 2006 (File
No. 1-11593)
[Exhibit 10.4]
|
54
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.6(d)(i)
|
|
Specimen form of Restricted Stock Unit Award Agreement for
Employees (with Related Dividend Equivalents) used to evidence
grants of Restricted Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (post-October 8, 2008 version)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(d)(i)]
|
|
10
|
.6(d)(ii)
|
|
Special Restricted Stock Unit Award Agreement for Employees
(with Related Dividend Equivalents) evidencing grant of
Restricted Stock Units made on October 8, 2008 to Mark R. Baker
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(d)(ii)]
|
|
10
|
.6(d)(iii)
|
|
Specimen form of Restricted Stock Unit Award Agreement for
Employees (with Related Dividend Equivalents) used to evidence
grants of Restricted Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (French Specimen) [post-October 7, 2008 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 27, 2008 (File
No. 1-11593)
[Exhibit 10.7]
|
|
10
|
.6(d)(iv)
|
|
Special Restricted Stock Unit Award Agreement (with Related
Dividend Equivalents) evidencing grant of Restricted Stock Units
made on November 4, 2008 to Claude Lopez under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(d)(iii)]
|
|
10
|
.6(e)(i)
|
|
Specimen form of Performance Share Award Agreement for Employees
(with Related Dividend Equivalents) used to evidence grants of
Performance Shares which may be made under The Scotts
Miracle-Gro Company 2006 Long-Term Incentive Plan (now known as
The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan) [post-October 30, 2007 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(t)(5)]
|
|
10
|
.6(e)(ii)
|
|
Special Performance Share Award Agreement (with Related Dividend
Equivalents) evidencing grant of Performance Shares made on
October 30, 2007 to Barry W. Sanders under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (executed by The Scotts Miracle-Gro Company on
December 20, 2007 and by Barry W. Sanders on January 7, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 29, 2007 (File
No. 1-11593)
[Exhibit 10(n)]
|
|
10
|
.6(f)(i)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
made under The Scotts Miracle-Gro Company 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan) [October 30,
2007 through October 8, 2008 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(t)(3)]
|
|
10
|
.6(f)(ii)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company Amended
and Restated 2006 Long-Term Incentive Plan (post-October 8, 2008
version)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(f)(ii)]
|
|
10
|
.6(f)(iii)
|
|
Special Nonqualified Stock Option Award Agreement for Employees
evidencing grant of Nonqualified Stock Options made on October
8, 2008 to Mark R. Baker under The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(f)(iii)]
|
55
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.6(f)(iv)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company Amended
and Restated 2006 Long-Term Incentive Plan (French Specimen)
[November 6, 2007 through October 7, 2008 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended March 29, 2008 (File
No. 1-11593)
[Exhibit 10(c)(2)]
|
|
10
|
.6(f)(v)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company Amended
and Restated 2006 Long-Term Incentive Plan (French Specimen)
[post-October 7, 2008 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 27, 2008 (File
No. 1-11593)
[Exhibit 10.11]
|
|
10
|
.6(g)(i)
|
|
Form of letter agreement amending grants of Restricted Stock
made under The Scotts Miracle-Gro Company 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan) [effective
as of October 30, 2007]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(t)(2)]
|
|
10
|
.6(g)(ii)
|
|
Specimen form of Restricted Stock Award Agreement for Employees
used to evidence grants of Restricted Stock made under The
Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan (now
known as The Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan) [October 30, 2007 through October
8, 2008 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(t)(4)]
|
|
10
|
.6(g)(iii)
|
|
Specimen form of Restricted Stock Award Agreement for Employees
used to evidence grants of Restricted Stock which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (effective October 8, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(g)(iii)]
|
|
10
|
.6(g)(iv)
|
|
Special Restricted Stock Award Agreement for Employees
evidencing grant of Restricted Stock made on October 8, 2008 to
Dr. Michael Kelty under The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(g)(iv)]
|
|
10
|
.6(g)(v)
|
|
Special Restricted Stock Award Agreement for Employees
evidencing grant of Restricted Stock made on October 1, 2008 to
Mark R. Baker under The Scotts Miracle-Gro Company Amended and
Restated 2006 Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.7(g)(v)]
|
|
10
|
.6(g)(vi)
|
|
Specimen form of Restricted Stock Award Agreement for Employees
used to evidence grants of Restricted Stock which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (French Specimen) [post-November 6,
2007 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended March 29, 2008 (File
No. 1-11593)
[Exhibit 10(c)(1)]
|
|
10
|
.7(a)
|
|
The Scotts Miracle-Gro Company Discounted Stock Purchase Plan
(As Amended and Restated as of January 26, 2006; Reflects
2-for-1 Stock Split Distributed on November 9, 2005)
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed February 2, 2006 (File
No. 1-11593)
[Exhibit 10.1]
|
|
10
|
.7(b)
|
|
Amendment to The Scotts Miracle-Gro Company Discounted Stock
Purchase Plan (effective as of November 6, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.8(b)]
|
56
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.8
|
|
Summary of Compensation for Nonemployee Directors of
The Scotts Miracle-Gro Company (effective as of January 23,
2009)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended March 28, 2009 (File
No. 1-11593)
[Exhibit 10.2]
|
|
10
|
.9(a)
|
|
Employment Agreement, dated as of May 19, 1995, between The
Scotts Company and James Hagedorn
|
|
Incorporated herein by reference to The Scotts Company, an Ohio
corporation, Annual Report on
Form 10-K
for the fiscal year ended September 30, 1995 (File
No. 1-11593)
[Exhibit 10(p)]
|
|
10
|
.9(b)
|
|
Amendments to Employment Agreement by and among The Scotts
Miracle-Gro Company, The Scotts Company LLC and James Hagedorn,
effective as of October 1, 2008 (executed by Mr. Hagedorn on
December 22, 2008 and on behalf of The Scotts Miracle-Gro
Company and The Scotts Company LLC by Denise Stump on December
22, 2008 and Vincent C. Brockman on December 30, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 27, 2008 (File
No. 1-11593)
[Exhibit 10.16]
|
|
10
|
.10(a)
|
|
Letter agreement, dated June 5, 2000 and accepted by Mr. Norton
on June 8, 2000, between The Scotts Company and Patrick J. Norton
|
|
Incorporated herein by reference to The Scotts Company, an Ohio
corporation, Annual Report on
Form 10-K
for the fiscal year ended September 30, 2000 (File
No. 0-19768)
[Exhibit 10(q)]
|
|
10
|
.10(b)
|
|
Letter agreement, dated November 5, 2002, and accepted by
Mr. Norton on November 22, 2002, pertaining to the terms of
employment of Patrick J. Norton through December 31, 2005, and
superseding certain provisions of the letter agreement, dated
June 5, 2000, between The Scotts Company and Mr. Norton
|
|
Incorporated herein by reference to The Scotts Company, an Ohio
corporation, Annual Report on
Form 10-K
for the fiscal year ended September 30, 2002 (File
No. 0-19768)
[Exhibit 10(q)]
|
|
10
|
.10(c)
|
|
Letter of Extension, dated October 25, 2005, between The Scotts
Miracle-Gro Company and Patrick J. Norton
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed December 14, 2005 (File
No. 1-11593)
[Exhibit 10.3]
|
|
10
|
.11(a)
|
|
Employment Agreement, effective as of October 1, 2007, between
The Scotts Company LLC and Barry W. Sanders (executed by Mr.
Sanders on November 16, 2007 and on behalf of The Scotts Company
LLC on November 19, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(m)]
|
|
10
|
.11(b)
|
|
First Amendment to Employment Agreement, effective as of January
14, 2009, by and between The Scotts Company LLC and Barry Sanders
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed January 20, 2009 (File
No. 1-11593)
[Exhibit 10.2]
|
|
10
|
.12
|
|
Employment Contract for an Unlimited Time, effective as of
July 1, 2001, between The Scotts Company (now known as The
Scotts Company LLC) and Claude Lopez [English
Translation Original in French]
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2007 (File
No. 1-11593)
[Exhibit 10(n)]
|
|
10
|
.13
|
|
Employment Agreement for David C. Evans, executed on behalf of
The Scotts Company LLC on November 19, 2007 and by David C.
Evans on December 3, 2007 and effective as of October 1, 2007
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed December 7, 2007 (File
No. 1-11593)
[Exhibit 10.1]
|
57
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.14
|
|
Employment Agreement for Denise S. Stump, executed on behalf of
The Scotts Company LLC on November 19, 2007 and by Denise S.
Stump on December 11, 2007 and effective as of October 1, 2007
|
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
filed December 17, 2007 (File
No. 1-11593)
[Exhibit 10.1]
|
|
10
|
.15(a)
|
|
Employment Agreement for Vincent Brockman, executed on behalf of
The Scotts Miracle-Gro Company and by Vincent Brockman on May
24, 2006 and effective as of March 1, 2006 (effective until June
1, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended December 29, 2007 (File
No. 1-11593)
[Exhibit 10(q)]
|
|
10
|
.15(b)
|
|
Employment Agreement for Vincent C. Brockman, effective as of
June 1, 2008, between The Scotts Company LLC and Vincent C.
Brockman (executed by Mr. Brockman on June 26, 2008 and on
behalf of The Scotts Company LLC on June 27, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarterly period ended June 28, 2008 (File
No. 1-11593)
[Exhibit 10(d)]
|
|
10
|
.16
|
|
Employment Agreement for Mark R. Baker, effective October 1,
2008, between The Scotts Company LLC and Mark R. Baker (executed
by Mr. Baker on September 9, 2008 and on behalf of The Scotts
Company LLC on September 10, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2008 (File
No. 1-11593)
[Exhibit 10.17]
|
(b) EXHIBITS
The exhibits listed on the Index to Exhibits
beginning on page 115 of this Annual Report on
Form 10-K
are filed with this Annual Report on
Form 10-K
or incorporated herein by reference as noted in the Index
to Exhibits.
(c) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule filed with this Annual Report
on
Form 10-K
is submitted in a separate section hereof. For a description of
such financial statement schedules, see Index to
Consolidated Financial Statements and Financial Statement
Schedules on page 61 of this Annual Report on
Form 10-K.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 MIRACLE-GRO COMPANY
James Hagedorn, Chief Executive Officer and
Chairman of the Board
Dated: November 24, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alan
H. Barry*
Alan
H. Barry
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Mark
R. Baker
Mark
R. Baker
|
|
President, Chief Operating Officer and Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ David
C. Evans
David
C. Evans
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Joseph
P. Flannery*
Joseph
P. Flannery
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ James
Hagedorn
James
Hagedorn
|
|
Chief Executive Officer, Chairman of the Board and Director
(Principal Executive Officer)
|
|
November 24, 2009
|
|
|
|
|
|
/s/ William
G. Jurgensen*
William
G. Jurgensen
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Thomas
N. Kelly Jr.*
Thomas
N. Kelly Jr.
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Carl
F. Kohrt, Ph.D.*
Carl
F. Kohrt, Ph.D.
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Katherine
Hagedorn Littlefield*
Katherine
Hagedorn Littlefield
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Nancy
G. Mistretta*
Nancy
G. Mistretta
|
|
Director
|
|
November 24, 2009
|
59
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Patrick
J. Norton*
Patrick
J. Norton
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ Stephanie
M. Shern*
Stephanie
M. Shern
|
|
Director
|
|
November 24, 2009
|
|
|
|
|
|
/s/ John
S. Shiely*
John
S. Shiely
|
|
Director
|
|
November 24, 2009
|
|
|
|
* |
|
The undersigned, by signing his name hereto, does hereby sign
this Report on behalf of each of the directors of the Registrant
identified above pursuant to Powers of Attorney executed by the
directors identified above, which Powers of Attorney are filed
with this Report as exhibits. |
David C. Evans,
Attorney-in-Fact
60
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
Page
|
|
Consolidated Financial Statements of The Scotts Miracle-Gro
Company and Subsidiaries:
|
|
|
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
Schedules Supporting the Consolidated Financial Statements:
|
|
|
|
|
|
|
|
114
|
|
All other financial statement schedules for which provision is
made in the applicable accounting regulations of the Securities
and Exchange Commission are omitted because they are not
required or are not applicable, or the required information has
been presented in the Consolidated Financial Statements or Notes
thereto.
61
ANNUAL
REPORT OF MANAGEMENT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal
control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of The Scotts
Miracle-Gro Company and our consolidated subsidiaries;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of The Scotts Miracle-Gro Company and our
consolidated subsidiaries are being made only in accordance with
authorizations of management and directors of The Scotts
Miracle-Gro Company and our consolidated subsidiaries, as
appropriate; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the assets of The Scotts
Miracle-Gro Company and our consolidated subsidiaries that could
have a material effect on our consolidated financial statements.
Management, with the participation of our principal executive
officer and principal financial officer, assessed the
effectiveness of our internal control over financial reporting
as of September 30, 2009, the end of our fiscal year.
Management based its assessment on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included evaluation of
such elements as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting
policies and our overall control environment. This assessment is
supported by testing and monitoring performed under the
direction of management.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluations of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Accordingly, even an effective system of internal control over
financial reporting will provide only reasonable assurance with
respect to financial statement preparation.
Based on our assessment, management has concluded that our
internal control over financial reporting was effective as of
September 30, 2009, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States of America. We reviewed the
results of managements assessment with the Audit Committee
of the Board of Directors of The Scotts Miracle-Gro Company.
Our independent registered public accounting firm,
Deloitte & Touche LLP, independently audited our
internal control over financial reporting and has issued their
report which appears herein.
|
|
|
/s/ James
Hagedorn
James
Hagedorn
Chief Executive Officer and
Chairman of the Board
Dated: November 24, 2009
|
|
/s/ David
C. Evans
David
C. Evans
Executive Vice President and
Chief Financial Officer
Dated: November 24, 2009
|
62
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Scotts Miracle-Gro Company
Marysville, Ohio
We have audited the accompanying consolidated balance sheets of
The Scotts Miracle-Gro Company and Subsidiaries (the
Company) as of September 30, 2009 and 2008, and
the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended September 30, 2009. Our audits
also included the financial statement schedules listed in the
Index to Consolidated Financial Statements and Financial
Statement Schedules. These financial statements and financial
statement schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of September 30, 2009 and 2008, and the results
of its operations and its cash flows for each of the three years
in the period ended September 30, 2009, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 10 to the financial statements, on
September 30, 2007, the Company adopted new guidance
regarding employers accounting for defined benefit pension
and other post-retirement benefit plans.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
September 30, 2009, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated November 24, 2009 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Columbus, Ohio
November 24, 2009
63
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Scotts Miracle-Gro Company
Marysville, Ohio
We have audited the internal control over financial reporting of
The Scotts Miracle-Gro Company and Subsidiaries (the
Company) as of September 30, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Annual Report of Management on Internal Control
Over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of September 30, 2009, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedules as of and for the year ended September 30, 2009
of the Company and our report dated November 24, 2009
expressed an unqualified opinion on those financial statements
and financial statement schedules.
/s/ Deloitte &
Touche LLP
Columbus, Ohio
November 24, 2009
64
The
Scotts Miracle-Gro Company
for the fiscal years ended September 30, 2009, 2008
and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except per share data)
|
|
|
Net sales
|
|
$
|
3,141.5
|
|
|
$
|
2,981.8
|
|
|
$
|
2,871.8
|
|
Cost of sales
|
|
|
2,034.2
|
|
|
|
1,999.9
|
|
|
|
1,867.3
|
|
Cost of sales impairment, restructuring and other
charges
|
|
|
6.6
|
|
|
|
15.1
|
|
|
|
|
|
Cost of sales product registration and recall matters
|
|
|
11.7
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,089.0
|
|
|
|
939.6
|
|
|
|
1,004.5
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
799.2
|
|
|
|
717.6
|
|
|
|
700.9
|
|
Impairment, restructuring and other charges
|
|
|
8.1
|
|
|
|
121.7
|
|
|
|
38.0
|
|
Product registration and recall matters
|
|
|
16.8
|
|
|
|
12.7
|
|
|
|
|
|
Other income, net
|
|
|
(2.2
|
)
|
|
|
(10.4
|
)
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
267.1
|
|
|
|
98.0
|
|
|
|
277.1
|
|
Costs related to refinancing
|
|
|
|
|
|
|
|
|
|
|
18.3
|
|
Interest expense
|
|
|
56.4
|
|
|
|
82.2
|
|
|
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
210.7
|
|
|
|
15.8
|
|
|
|
188.1
|
|
Income taxes
|
|
|
57.4
|
|
|
|
26.7
|
|
|
|
74.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
153.3
|
|
|
$
|
(10.9
|
)
|
|
$
|
113.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
2.36
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
2.32
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
65
The
Scotts Miracle-Gro Company
for the fiscal years ended September 30, 2009, 2008
and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
153.3
|
|
|
$
|
(10.9
|
)
|
|
$
|
113.4
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment and other charges
|
|
|
5.1
|
|
|
|
136.8
|
|
|
|
38.0
|
|
Costs related to refinancing
|
|
|
|
|
|
|
|
|
|
|
18.3
|
|
Stock-based compensation expense
|
|
|
14.5
|
|
|
|
12.5
|
|
|
|
13.3
|
|
Depreciation
|
|
|
47.9
|
|
|
|
53.9
|
|
|
|
51.4
|
|
Amortization
|
|
|
12.5
|
|
|
|
16.4
|
|
|
|
16.1
|
|
Deferred taxes
|
|
|
(6.0
|
)
|
|
|
(16.5
|
)
|
|
|
6.3
|
|
Loss (gain) on sale of property, plant and equipment
|
|
|
(1.1
|
)
|
|
|
1.0
|
|
|
|
(0.4
|
)
|
Changes in assets and liabilities, net of acquired businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
7.1
|
|
|
|
(15.7
|
)
|
|
|
(4.2
|
)
|
Inventories
|
|
|
(47.4
|
)
|
|
|
(17.9
|
)
|
|
|
13.2
|
|
Prepaid and other current assets
|
|
|
4.7
|
|
|
|
(2.6
|
)
|
|
|
(6.9
|
)
|
Accounts payable
|
|
|
(17.3
|
)
|
|
|
9.4
|
|
|
|
(3.5
|
)
|
Other current liabilities
|
|
|
86.3
|
|
|
|
31.7
|
|
|
|
(2.0
|
)
|
Restructuring reserves
|
|
|
(0.3
|
)
|
|
|
(1.4
|
)
|
|
|
(5.0
|
)
|
Other non-current items
|
|
|
36.9
|
|
|
|
14.4
|
|
|
|
6.8
|
|
Other, net
|
|
|
(31.6
|
)
|
|
|
(10.2
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
264.6
|
|
|
|
200.9
|
|
|
|
246.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
|
1.4
|
|
|
|
1.1
|
|
|
|
0.5
|
|
Investments in property, plant and equipment
|
|
|
(72.0
|
)
|
|
|
(56.1
|
)
|
|
|
(54.0
|
)
|
Investments in intellectual property
|
|
|
(3.4
|
)
|
|
|
(4.1
|
)
|
|
|
|
|
Investments in acquired businesses, net of cash acquired
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(83.3
|
)
|
|
|
(59.1
|
)
|
|
|
(72.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving and bank lines of credit and term
loans
|
|
|
1,558.0
|
|
|
|
942.1
|
|
|
|
2,519.2
|
|
Repayments under revolving and bank lines of credit and term
loans
|
|
|
(1,736.0
|
)
|
|
|
(1,042.0
|
)
|
|
|
(1,710.5
|
)
|
Repayment of
65/8% senior
subordinated notes
|
|
|
|
|
|
|
|
|
|
|
(209.6
|
)
|
Financing and issuance fees
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(13.0
|
)
|
Dividends paid
|
|
|
(33.4
|
)
|
|
|
(32.5
|
)
|
|
|
(543.6
|
)
|
Payments on sellers notes
|
|
|
(1.4
|
)
|
|
|
(2.7
|
)
|
|
|
(2.7
|
)
|
Purchase of common shares
|
|
|
|
|
|
|
|
|
|
|
(246.8
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
4.1
|
|
|
|
2.9
|
|
|
|
19.0
|
|
Cash received from exercise of stock options
|
|
|
14.8
|
|
|
|
9.2
|
|
|
|
29.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(194.0
|
)
|
|
|
(123.0
|
)
|
|
|
(158.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(0.4
|
)
|
|
|
(2.0
|
)
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(13.1
|
)
|
|
|
16.8
|
|
|
|
19.8
|
|
Cash and cash equivalents, beginning of year
|
|
|
84.7
|
|
|
|
67.9
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
71.6
|
|
|
$
|
84.7
|
|
|
$
|
67.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of interest capitalized
|
|
|
(55.6
|
)
|
|
|
(82.0
|
)
|
|
|
(75.9
|
)
|
Income taxes paid
|
|
|
(51.2
|
)
|
|
|
(36.8
|
)
|
|
|
(65.2
|
)
|
See Notes to Consolidated Financial Statements.
66
The
Scotts Miracle-Gro Company
September 30,
2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
71.6
|
|
|
$
|
84.7
|
|
Accounts receivable, less allowances of $11.1 in 2009 and $10.6
in 2008
|
|
|
384.3
|
|
|
|
259.8
|
|
Accounts receivable pledged
|
|
|
17.0
|
|
|
|
146.6
|
|
Inventories, net
|
|
|
458.9
|
|
|
|
415.9
|
|
Prepaid and other assets
|
|
|
159.1
|
|
|
|
137.9
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,090.9
|
|
|
|
1,044.9
|
|
Property, plant and equipment, net
|
|
|
369.7
|
|
|
|
344.1
|
|
Goodwill
|
|
|
375.2
|
|
|
|
377.7
|
|
Intangible assets, net
|
|
|
364.2
|
|
|
|
367.2
|
|
Other assets
|
|
|
20.1
|
|
|
|
22.4
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,220.1
|
|
|
$
|
2,156.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
$
|
160.4
|
|
|
$
|
150.0
|
|
Accounts payable
|
|
|
190.0
|
|
|
|
207.6
|
|
Other current liabilities
|
|
|
406.4
|
|
|
|
320.5
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
756.8
|
|
|
|
678.1
|
|
Long-term debt
|
|
|
649.7
|
|
|
|
849.5
|
|
Other liabilities
|
|
|
229.1
|
|
|
|
192.0
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,635.6
|
|
|
|
1,719.6
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 2, 17, 18 and 19)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common shares and capital in excess of $.01 stated value
per share; shares issued and outstanding of 66.2 in 2009 and
65.2 in 2008
|
|
|
451.5
|
|
|
|
472.4
|
|
Retained earnings
|
|
|
337.5
|
|
|
|
216.7
|
|
Treasury shares, at cost; 2.4 million shares in 2009 and
3.4 million shares in 2008
|
|
|
(131.7
|
)
|
|
|
(185.3
|
)
|
Accumulated other comprehensive loss
|
|
|
(72.8
|
)
|
|
|
(67.1
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
584.5
|
|
|
|
436.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,220.1
|
|
|
$
|
2,156.3
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
67
The
Scotts Miracle-Gro Company
for the fiscal years ended September 30, 2009, 2008
and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stated Value
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Income/(loss)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance, September 30, 2006
|
|
|
68.1
|
|
|
$
|
0.3
|
|
|
$
|
508.8
|
|
|
$
|
690.7
|
|
|
|
1.5
|
|
|
$
|
(66.5
|
)
|
|
$
|
(51.6
|
)
|
|
$
|
1,081.7
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113.4
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Unrecognized loss on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
(2.4
|
)
|
Minimum pension liability, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.4
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136.3
|
|
Adjustment to initially apply FASB ASC 715, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.3
|
)
|
|
|
(13.3
|
)
|
Stock-based compensation expense (non-cash)
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
Cash dividends paid ($8.50 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(543.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(543.6
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
|
|
(246.8
|
)
|
|
|
|
|
|
|
(246.8
|
)
|
Treasury stock issuances
|
|
|
|
|
|
|
|
|
|
|
(42.1
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
93.8
|
|
|
|
|
|
|
|
51.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
68.1
|
|
|
|
0.3
|
|
|
|
480.0
|
|
|
|
260.5
|
|
|
|
4.0
|
|
|
|
(219.5
|
)
|
|
|
(42.0
|
)
|
|
|
479.3
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.9
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
|
|
8.5
|
|
Unrecognized loss on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.5
|
)
|
|
|
(13.5
|
)
|
Pension and other postretirement liabilities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.1
|
)
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36.0
|
)
|
Adjustment to initially apply FASB ASC 740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Stock-based compensation expense (non-cash)
|
|
|
|
|
|
|
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5
|
|
Cash dividends paid ($0.50 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.5
|
)
|
Treasury stock issuances
|
|
|
|
|
|
|
|
|
|
|
(20.4
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
34.2
|
|
|
|
|
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
|
68.1
|
|
|
|
0.3
|
|
|
|
472.1
|
|
|
|
216.7
|
|
|
|
3.4
|
|
|
|
(185.3
|
)
|
|
|
(67.1
|
)
|
|
|
436.7
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153.3
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.6
|
|
|
|
9.6
|
|
Unrecognized loss on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
(3.2
|
)
|
Pension and other postretirement liabilities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147.6
|
|
Stock-based compensation expense (non-cash)
|
|
|
|
|
|
|
|
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.5
|
|
Dividends declared ($0.50 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32.5
|
)
|
Treasury stock issuances
|
|
|
|
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
53.6
|
|
|
|
|
|
|
|
20.1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
68.1
|
|
|
$
|
0.3
|
|
|
$
|
451.2
|
|
|
$
|
337.5
|
|
|
|
2.4
|
|
|
$
|
(131.7
|
)
|
|
$
|
(72.8
|
)
|
|
$
|
584.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
68
The
Scotts Miracle-Gro Company
|
|
NOTE 1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature
of Operations
The Scotts Miracle-Gro Company (Scotts Miracle-Gro)
and its subsidiaries (collectively, together with Scotts
Miracle-Gro, the Company) are engaged in the
manufacturing, marketing and sale of lawn and garden care
products. The Companys primary customers include home
centers, mass merchandisers, warehouse clubs, large hardware
chains, independent hardware stores, nurseries, garden centers,
food and drug stores, commercial nurseries and greenhouses and
specialty crop growers. The Companys products are sold
primarily in North America and the European Union. The
Company also operates the Scotts
LawnService®
business, which provides residential lawn care, lawn aeration,
tree and shrub care and limited pest control services in the
United States.
Since its acquisition in fiscal 2005, the Company has also
operated Smith &
Hawken®,
an outdoor living and garden lifestyle category brand. As
discussed in NOTE 3. IMPAIRMENT, RESTRUCTURING AND
OTHER CHARGES, on July 8, 2009, the Company announced
that it intends to cease operating the Smith &
Hawken®
business by the end of the calendar year. As of
November 17, 2009, all Smith &
Hawken®
stores have been closed with all operational activity expected
to be substantially complete by December 31, 2009.
Due to the nature of the lawn and garden business, the majority
of sales to customers occur in the Companys second and
third fiscal quarters. On a combined basis, net sales for the
second and third fiscal quarters generally represent 70% to 75%
of annual net sales.
Organization
and Basis of Presentation
The Companys consolidated financial statements are
presented in accordance with accounting principles generally
accepted in the United States of America (GAAP). The
consolidated financial statements include the accounts of Scotts
Miracle-Gro and all wholly-owned and majority-owned
subsidiaries. All intercompany transactions and accounts are
eliminated in consolidation. The Companys consolidation
criteria are based on majority ownership (as evidenced by a
majority voting interest in the entity) and an objective
evaluation and determination of effective management control.
Use
of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Although these estimates are
based on managements best knowledge of current events and
actions the Company may undertake in the future, actual results
ultimately may differ from the estimates.
Revenue
Recognition
Revenue is recognized when title and risk of loss transfer,
which generally occurs when products or services are received by
the customer. Provisions for estimated returns and allowances
are recorded at the time revenue is recognized based on
historical rates and are periodically adjusted for known changes
in return levels. Shipping and handling costs are included in
cost of sales.
Under the terms of the Amended and Restated Exclusive Agency and
Marketing Agreement (the Marketing Agreement)
between the Company and Monsanto Company (Monsanto),
the Company, in its role as exclusive agent, performs certain
functions, such as sales support, merchandising, distribution
and logistics, and incurs certain costs in support of the
consumer
Roundup®
business. The actual costs incurred by the Company on behalf of
Roundup®
are recovered from Monsanto through the terms of the Marketing
Agreement. The reimbursement of costs for which the Company is
considered the primary obligor is included in net sales.
69
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Promotional
Allowances
The Company promotes its branded products through, among other
things, cooperative advertising programs with retailers.
Retailers may also be offered in-store promotional allowances
and rebates based on sales volumes. Certain products are
promoted with direct consumer rebate programs and special
purchasing incentives. Promotion costs (including allowances and
rebates) incurred during the year are expensed to interim
periods in relation to revenues and are recorded as a reduction
of net sales. Accruals for expected payouts under these programs
are included in the Other current liabilities line
in the Consolidated Balance Sheets.
Advertising
Advertising costs incurred during the year by our Global
Consumer segment are expensed to interim periods in relation to
revenues. All advertising costs, except for external production
costs, are expensed within the fiscal year in which such costs
are incurred. External production costs for advertising programs
are deferred until the period in which the advertising is first
aired.
Scotts
LawnService®
promotes its service offerings primarily through direct mail
campaigns. External costs associated with these campaigns that
qualify as direct response advertising costs are deferred and
recognized as advertising expense in proportion to revenues over
a period not beyond the end of the subsequent calendar year.
Costs that do not qualify as direct response advertising costs
are expensed within the fiscal year incurred on a monthly basis
in proportion to net sales. The costs deferred at
September 30, 2009 and 2008 were $2.1 million and
$4.5 million, respectively.
Advertising expenses were $141.2 million in fiscal 2009,
$142.4 million in fiscal 2008 and $150.9 million in
fiscal 2007.
Research
and Development
All costs associated with research and development are charged
to expense as incurred. Expenses for fiscal 2009, fiscal 2008
and fiscal 2007 were $56.3 million, $44.7 million and
$38.8 million, respectively, including product registration
costs of $15.6 million, $9.8 million and
$9.3 million, respectively.
Environmental
Costs
The Company recognizes environmental liabilities when conditions
requiring remediation are probable and the amounts can be
reasonably estimated. Expenditures which extend the life of the
related property or mitigate or prevent future environmental
contamination are capitalized. Environmental liabilities are not
discounted or reduced for possible recoveries from insurance
carriers.
Stock-Based
Compensation Awards
The fair value of awards is expensed ratably over the vesting
period, generally three years. The Company uses a binomial model
to determine the fair value of its option grants.
Earnings
per Common Share
Basic earnings per common share is computed based on the
weighted-average number of common shares outstanding each
period. Diluted earnings per common share is computed based on
the weighted-average number of common shares and dilutive
potential common shares (stock options, restricted stock,
performance shares and stock appreciation rights) outstanding
each period.
70
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
The Company considers all highly liquid financial instruments
with original maturities of three months or less to be cash
equivalents. The Company maintains cash deposits in banks which
from time to time exceed the amount of deposit insurance
available. Management periodically assesses the financial
condition of the banks and believes that the risk of any
potential credit loss is minimal.
Accounts
Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. Allowances reflect our best estimate
of amounts in our existing accounts receivable that may not be
collected due to customer claims, the return of goods, or
customer inability or unwillingness to pay. We determine the
allowance based on customer risk assessment and historical
experience. We review our allowances monthly. Past due balances
over 90 days and in excess of a specified amount are
reviewed individually for collectibility. All other balances are
reviewed on a pooled basis by type of receivable. Account
balances are charged off against the allowance when we feel it
is probable the receivable will not be recovered. We do not have
any off-balance-sheet credit exposure related to our customers.
Inventories
Inventories are stated at the lower of cost or market,
principally determined by the FIFO method. Inventories include
the cost of raw materials, labor, manufacturing overhead and
freight and in-bound handling costs incurred to pre-position
goods in the Companys warehouse network. The Company makes
provisions for obsolete or slow-moving inventories as necessary
to properly reflect inventory at the lower of cost or market
value. Lower of
cost-or-market
reserves were $35.3 million and $26.2 million at
September 30, 2009 and 2008, respectively.
Goodwill
and Indefinite-lived Intangible Assets
Goodwill and intangible assets determined to have indefinite
lives are not subject to amortization. Goodwill and
indefinite-lived intangible assets are reviewed for impairment
by applying a fair-value based test on an annual basis, as of
the first day of the Companys fiscal fourth quarter, or
more frequently if circumstances indicate a potential
impairment. If it is determined that an impairment has occurred,
an impairment loss is recognized for the amount by which the
carrying amount of the asset exceeds its estimated fair value
and classified as Impairment, restructuring and other
charges in the Consolidated Statements of Operations.
Long-lived
Assets
Property, plant and equipment are stated at cost. Interest
capitalized on capital projects amounted to $0.4 million,
$0.3 million and $0.4 million during fiscal 2009,
fiscal 2008 and fiscal 2007, respectively. Expenditures for
maintenance and repairs are charged to expense as incurred. When
properties are retired or otherwise disposed of, the cost of the
asset and the related accumulated depreciation are removed from
the accounts with the resulting gain or loss being reflected in
income from operations.
Depreciation of property, plant and equipment is provided on the
straight-line method and is based on the estimated useful
economic lives of the assets as follows:
|
|
|
Land improvements
|
|
10 25 years
|
Buildings
|
|
10 40 years
|
Machinery and equipment
|
|
3 15 years
|
Furniture and fixtures
|
|
6 10 years
|
Software
|
|
3 8 years
|
Intangible assets with finite lives, and therefore subject to
amortization, include technology (e.g., patents), customer
relationships, non-compete agreements and certain tradenames.
These intangible assets are being
71
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amortized on the straight-line method over periods typically
ranging from 3 to 25 years. The Companys fixed assets
and intangible assets subject to amortization are required to be
tested for recoverability whenever events or changes in
circumstances indicate that carrying amounts may not be
recoverable. If an evaluation of recoverability was required,
the estimated undiscounted future cash flows associated with the
asset would be compared to the assets carrying amount to
determine if a write-down is required. If the undiscounted cash
flows are less than the carrying amount, an impairment loss is
recorded to the extent that the carrying amount exceeds fair
value.
Internal
Use Software
The costs of internal use software are expensed or capitalized
depending on whether they are incurred in the preliminary
project stage, application development stage or the
post-implementation/operation stage. As of September 30,
2009 and 2008, the Company had $23.4 million and
$21.9 million, respectively, in unamortized capitalized
internal use computer software costs. Amortization of these
costs was $8.2 million, $7.2 million and
$12.1 million during fiscal 2009, fiscal 2008 and fiscal
2007, respectively.
Accruals
for Self-Insured Losses
The Company maintains insurance for certain risks, including
workers compensation, general liability and vehicle
liability, and is self-insured for employee related health care
benefits. The Company accrues for the expected costs associated
with these risks by considering historical claims experience,
demographic factors, severity factors and other relevant
information. Costs are recognized in the period the claim is
incurred, and the financial statement accruals include an
actuarially determined estimate of claims incurred but not yet
reported.
Translation
of Foreign Currencies
For all foreign operations, the functional currency is the local
currency. Assets and liabilities of these operations are
translated at the exchange rate in effect at each year-end.
Income and expense accounts are translated at the average rate
of exchange prevailing during the year. Translation gains and
losses arising from the use of differing exchange rates from
period to period are included in other comprehensive income
(loss), a component of shareholders equity. Foreign
currency transaction gains and losses are included in the
determination of net income (loss).
Derivative
Instruments
In the normal course of business, the Company is exposed to
fluctuations in interest rates, the value of foreign currencies
and the cost of commodities. A variety of financial instruments,
including forward and swap contracts, are used to manage these
exposures. The Companys objective in managing these
exposures is to better control these elements of cost and
mitigate the earnings and cash flow volatility associated with
changes in the applicable rates and prices.
The Company has established policies and procedures that
encompass risk-management philosophy and objectives, guidelines
for derivative-instrument usage, counterparty credit approval,
and the monitoring and reporting of derivative activity. The
Company does not enter into derivative instruments for the
purpose of speculation.
Variable
Interest Entities
GAAP provides a framework for identifying variable interest
entities (VIEs) and determining when a company
should include the assets, liabilities, noncontrolling interests
and results of operations of a VIE in its consolidated financial
statements. In general, a VIE is a corporation, partnership,
limited liability company, trust or any other legal structure
used to conduct activities or hold assets that either:
(1) has an insufficient amount of equity to carry out its
principal activities without additional subordinated financial
support, (2) has a group of equity owners that are unable
to make significant decisions about its activities or
(3) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns
generated by its operations.
72
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GAAP requires a VIE to be consolidated if a party with an
ownership, contractual or other financial interest in the VIE (a
variable interest holder) is obligated to absorb a majority of
the risk of loss from the VIEs activities, is entitled to
receive a majority of the VIEs residual returns (if no
party absorbs a majority of the VIEs losses), or both. A
variable interest holder that consolidates the VIE is called the
primary beneficiary. Upon consolidation, the primary beneficiary
generally must initially record all of the VIEs assets,
liabilities and noncontrolling interests at fair value and
subsequently account for the VIE as if it were consolidated
based on majority voting interest. GAAP also requires
disclosures about VIEs that the variable interest holder is not
required to consolidate but in which it has a significant
variable interest.
The Companys Scotts
LawnService®
business sells new franchise territories, primarily in small to
mid-size markets, under arrangements where a portion of the
franchise fee is paid in cash with the balance due under a
promissory note. The Company believes that it may be the primary
beneficiary for certain of its franchisees initially, but ceases
to be the primary beneficiary as the franchisees develop their
businesses and the promissory notes are repaid. At
September 30, 2009 and 2008, the Company had approximately
$2.4 million and $1.8 million in notes receivable from
such franchisees, respectively. The effect of consolidating the
entities where the Company may be the primary beneficiary for a
limited period of time is not material to the consolidated
financial statements.
Subsequent
Events
The Company adopted new accounting guidance for subsequent
events, which is intended to establish general standards of
accounting for and disclosures of events that occur after the
balance sheet date but before financial statements are issued.
The adoption had no impact on the Companys consolidated
financial statements. The Company evaluated all events or
transactions that occurred after September 30, 2009 up
through November 24, 2009, the date the Company issued
these consolidated financial statements. During this period, the
Company did not have any material recognizable subsequent events.
RECENT
ACCOUNTING PRONOUNCEMENTS
FASB
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (the
FASB) issued new accounting guidance which
establishes two levels of GAAP, authoritative and
non-authoritative. The FASB Accounting Standards Codification
(the Codification) is the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases
of the Securities and Exchange Commission (SEC),
which are sources of authoritative GAAP for SEC registrants. All
other non-grandfathered, non-SEC accounting literature not
included in the Codification will become non-authoritative. This
standard is effective for financial statements for interim or
annual reporting periods ended after September 15, 2009.
The Company began using the new guidelines and numbering system
prescribed by the Codification when referring to GAAP in the
fourth quarter of fiscal 2009. The adoption of this guidance did
not have an impact on the Companys consolidated financial
statements.
Fair
Value Measurements
On October 1, 2008, the Company adopted new accounting
guidance on fair value measurements. The new guidance defines
fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value
measurements. The effect of the adoption was not material and
required no adjustment to the Companys financial condition
or results of operations. Refer to NOTE 16. FAIR
VALUE MEASUREMENTS for further information regarding the
effect of the adoption with respect to financial assets and
liabilities. In February 2008, the FASB issued additional
guidance which removed leasing transactions from the scope of
fair value measurements. In February 2008, the FASB also delayed
the effective date of the new fair value guidance for all
nonrecurring fair value measurements of nonfinancial assets and
nonfinancial liabilities until fiscal years beginning after
November 15, 2008. The guidance states that a measurement
is recurring if it happens at least annually and defines
nonfinancial assets and nonfinancial liabilities as all assets
and liabilities other than those meeting the definition of a
financial asset or financial
73
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liability. The Company is completing its evaluation of the
guidance issued in February 2008 and does not expect it to have
a material impact on the Companys financial condition or
results of operations.
The
Fair Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued new accounting guidance that
allows an entity the irrevocable option to elect fair value for
the initial and subsequent measurement for certain financial
assets and liabilities on a
contract-by-contract
basis. Subsequent changes in fair value of these financial
assets and liabilities would be recognized in earnings when they
occur. The guidance further establishes certain additional
disclosure requirements. The Company adopted the guidance as of
October 1, 2008. The Company has not elected to measure any
financial assets or liabilities at fair value which were not
previously required to be measured at fair value.
Disclosures
about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued new accounting guidance on
disclosures about derivative instruments and hedging activities.
The objective is to enhance the disclosure framework and improve
the transparency of financial reporting for derivative
instruments and hedging activities. The guidance requires
entities to provide enhanced disclosures about: (a) how and
why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for and (c) how derivative instruments and related hedged
items affect an entitys financial position, financial
performance and cash flows. The Company adopted the new
accounting guidance for the fiscal quarter ended March 28,
2009. Refer to NOTE 15. DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES for the applicable disclosures.
Business
Combinations
In December 2007, the FASB issued new accounting guidance on
business combinations and non-controlling interests in
consolidated financial statements. The objective is to improve
the relevance, representational faithfulness and comparability
of the information that a reporting entity provides in its
financial reports about a business combination and its effects.
The guidance applies to all transactions or other events in
which an entity (the acquirer) obtains control of
one or more businesses (the acquiree), including
those sometimes referred to as true mergers or
mergers of equals and combinations achieved without
the transfer of consideration. In April 2009, the FASB issued
additional guidance which addresses application issues arising
from contingencies in a business combination. The new guidance
is effective for the Companys financial statements for the
fiscal year that began October 1, 2009. The Company will
adopt the new guidance prospectively as applicable.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued new accounting and reporting
standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. The new guidance also
changes the way the consolidated financial statements are
presented, establishes a single method of accounting for changes
in a parents ownership interest in a subsidiary that do
not result in deconsolidation, requires that a parent recognize
a gain or loss in net income when a subsidiary is deconsolidated
and expands disclosures in the consolidated financial statements
that clearly identify and distinguish between the parents
ownership interest and the interest of the noncontrolling owners
of a subsidiary. The provisions are to be applied prospectively
as of the beginning of the fiscal year in which the guidance is
adopted, except for the presentation and disclosure
requirements, which are to be applied retrospectively for all
periods presented. The new guidance will be effective for the
Companys financial statements for the fiscal year
beginning October 1, 2009. The Company is in the process of
evaluating the impact that the guidance may have on its
financial statements and related disclosures.
74
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Determination
of the Useful Life of Intangible Assets
In April 2008, the FASB issued new accounting guidance which
amends the list of factors an entity should consider in
developing renewal or extension assumptions used in determining
the useful life of recognized intangible assets. The new
guidance applies to: (a) intangible assets that are
acquired individually or with a group of other assets and
(b) intangible assets acquired in both business
combinations and asset acquisitions. Entities estimating the
useful life of a recognized intangible asset must consider their
historical experience in renewing or extending similar
arrangements or, in the absence of historical experience, must
consider assumptions that market participants would use about
renewal or extension. The new guidance will require certain
additional disclosures beginning October 1, 2009 and
prospective application to useful life estimates for intangible
assets acquired after September 30, 2009. The Company is in
the process of evaluating the impact that the guidance may have
on its financial statements and related disclosures.
Employers
Disclosures About Postretirement Benefit Plan
Assets
In December 2008, the FASB issued new accounting guidance on
employers disclosures about assets of a defined benefit
pension or other postretirement plan. It requires employers to
disclose information about fair value measurements of plan
assets. The objectives of the disclosures are to provide an
understanding of: (a) how investment allocation decisions
are made, including the factors that are pertinent to an
understanding of investment policies and strategies,
(b) the major categories of plan assets, (c) the
inputs and valuation techniques used to measure the fair value
of plan assets, (d) the effect of fair value measurements
using significant unobservable inputs on changes in plan assets
for the period and (e) significant concentrations of risk
within plan assets. The disclosures required will be effective
for the Companys financial statements for the fiscal year
that began October 1, 2009. The Company is in the process
of evaluating the impact that the guidance may have on its
financial statement disclosures.
Accounting
for Transfers of Financial Assets
In June 2009, the FASB issued new accounting guidance to improve
the information provided in financial statements concerning
transfers of financial assets, including the effects of
transfers on financial position, financial performance and cash
flows, and any continuing involvement of the transferor with the
transferred financial assets. The provisions are effective for
the Companys financial statements for the fiscal year
beginning October 1, 2010. The Company is in the process of
evaluating the impact that the guidance may have on its
financial statements and related disclosures.
Variable
Interest Entities
In June 2009, the FASB issued new accounting guidance requiring
an enterprise to perform an analysis to determine whether the
enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity. It
also requires enhanced disclosures that will provide users of
financial statements with more transparent information about an
enterprises involvement in a variable interest entity. The
provisions are effective for the Companys financial
statements for the fiscal year beginning October 1, 2010.
The Company is in the process of evaluating the impact that the
guidance may have on its financial statements and related
disclosures.
|
|
NOTE 2.
|
PRODUCT
REGISTRATION AND RECALL MATTERS
|
In April 2008, the Company became aware that a former associate
apparently deliberately circumvented the Companys policies
and U.S. Environmental Protection Agency (the
U.S. EPA) regulations under the Federal
Insecticide, Fungicide, and Rodenticide Act of 1947, as amended
(FIFRA), by failing to obtain valid registrations
for certain products
and/or
causing certain invalid product registration forms to be
submitted to regulators. Since that time, the Company has been
cooperating with both the U.S. EPA and the
U.S. Department of Justice (the U.S. DOJ)
in related civil and criminal investigations into the pesticide
product registration issues.
75
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In late April of 2008, in connection with the
U.S. EPAs investigation, the Company conducted a
consumer-level recall of certain consumer lawn and garden
products and a Scotts
LawnService®
product. Subsequently, the Company and the U.S. EPA agreed
upon a Compliance Review Plan for conducting a comprehensive,
independent review of the Companys product registration
records. Pursuant to the Compliance Review Plan, an independent
third-party firm, Quality Associates Incorporated
(QAI), reviewed substantially all of the
Companys U.S. pesticide product registrations and
associated advertisements, some of which were historical in
nature and no longer related to sales of the Companys
products. The U.S. EPA investigation and the QAI review
process resulted in the temporary suspension of sales and
shipments of certain products. In addition, as the QAI review
process or the Companys internal review identified
potential FIFRA registration issues (some of which appear
unrelated to the actions of the former associate), the Company
endeavored to stop selling or distributing the affected products
until the issues could be resolved. QAIs review of the
Companys U.S. pesticide product registrations and
associated advertisements is now substantially complete. The
results of the QAI review process did not materially affect, and
are not expected to materially affect, the Companys fiscal
2009 and fiscal 2010 sales, respectively.
In late 2008, the Company and its indirect subsidiary EG
Systems, Inc., doing business as Scotts
LawnService®,
were named as defendants in a purported class action filed in
the U.S. District Court for the Eastern District of
Michigan relating to Scotts LawnServices application of
certain pesticide products. In the suit, Mark Baumkel, on behalf
of himself and the purported classes, sought an unspecified
amount of damages, plus costs and attorneys fees, for
alleged claims involving breach of contract, unjust enrichment,
tort, and violation of the State of Michigans consumer
protection act. On September 28, 2009, the court granted
the Companys and Scotts LawnServices motion and
dismissed the suit with prejudice. Since that time, the Company
and Mr. Baumkel have agreed to a confidential settlement
that, among other things, precludes an appeal of the decision.
The impact of the confidential settlement did not, and will not,
materially affect the Companys financial condition,
results of operations or cash flows.
In fiscal 2008, the Company conducted a voluntary recall of
certain of its wild bird food products due to a formulation
issue. Certain wild bird food products had been treated with
pest control additives to avoid insect infestation, especially
at retail stores. While the pest control additives had been
labeled for use on certain stored grains that can be processed
for human
and/or
animal consumption, they were not labeled for use on wild bird
food products. In October, 2008, the U.S. Food &
Drug Administration concluded that the recall had been completed
and that there had been proper disposition of the recalled
products. The results of the wild bird food recall did not
materially affect the Companys fiscal 2009 financial
condition, results of operations or cash flows.
As a result of these registration and recall matters, the
Company has reversed sales associated with estimated returns of
affected products, recorded charges for affected inventory and
recorded other registration and recall-related costs. The
effects of these adjustments were pre-tax charges of
$28.6 million and $51.1 million for the years ended
September 30, 2009 and 2008, respectively. The Company
expects to incur an additional $10-$15 million in fiscal
2010 on recall and registration matters, excluding possible
fines, penalties, judgments
and/or
litigation costs. The Company expects that these charges will
include costs associated with the rework of certain finished
goods inventories, the potential disposal of certain products
and ongoing third-party professional services related to the
U.S. EPA and U.S. DOJ investigations.
The U.S. EPA and U.S. DOJ investigations continue and
may result in future state, federal or private rights of action
including fines
and/or
penalties with respect to known or potential additional product
registration issues. Until the U.S. EPA and U.S. DOJ
investigations are complete, the Company cannot reasonably
determine the scope or magnitude of possible liabilities that
could result from known or potential product registration
issues, and no reserves for these potential liabilities have
been established as of September 30, 2009. However, it is
possible that such liabilities, including fines, penalties,
judgments
and/or
litigation costs could be material and have an adverse effect on
the Companys financial condition, results of operations or
cash flows.
76
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables summarize the impact of the product
registration and recall matters on the results of operations
during fiscal 2009 and fiscal 2008 and on accrued liabilities
and inventory reserves as of September 30, 2009 and 2008
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net sales product recalls
|
|
$
|
(0.3
|
)
|
|
$
|
(22.3
|
)
|
Cost of sales product recalls
|
|
|
(0.2
|
)
|
|
|
(11.1
|
)
|
Cost of sales other charges
|
|
|
11.7
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
(11.8
|
)
|
|
|
(38.4
|
)
|
SG&A
|
|
|
16.8
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(28.6
|
)
|
|
|
(51.1
|
)
|
Income tax benefit
|
|
|
(10.3
|
)
|
|
|
(17.9
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18.3
|
)
|
|
$
|
(33.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Established
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
Costs and
|
|
|
|
|
|
Reserves at
|
|
|
Costs and
|
|
|
|
|
|
Reserves at
|
|
|
|
Quarter of
|
|
|
Changes in
|
|
|
Reserves
|
|
|
September 30,
|
|
|
Changes in
|
|
|
Reserves
|
|
|
September 30,
|
|
|
|
Fiscal 2008
|
|
|
Estimates
|
|
|
Used
|
|
|
2008
|
|
|
Estimates
|
|
|
Used
|
|
|
2009
|
|
|
Sales returns product recalls
|
|
$
|
19.0
|
|
|
$
|
3.3
|
|
|
$
|
(22.1
|
)
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
(0.5
|
)
|
|
$
|
|
|
Cost of sales returns product recalls
|
|
|
(12.0
|
)
|
|
|
0.9
|
|
|
|
11.0
|
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
|
|
|
|
Inventory reserves
|
|
|
14.1
|
|
|
|
(0.8
|
)
|
|
|
(7.4
|
)
|
|
|
5.9
|
|
|
|
2.9
|
|
|
|
(4.7
|
)
|
|
|
4.1
|
|
Other incremental costs of sales
|
|
|
8.5
|
|
|
|
5.4
|
|
|
|
(10.7
|
)
|
|
|
3.2
|
|
|
|
8.8
|
|
|
|
(7.8
|
)
|
|
|
4.2
|
|
Other general and administrative costs
|
|
|
1.2
|
|
|
|
11.5
|
|
|
|
(8.4
|
)
|
|
|
4.3
|
|
|
|
16.8
|
|
|
|
(19.7
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and inventory reserves
|
|
$
|
30.8
|
|
|
$
|
20.3
|
|
|
$
|
(37.6
|
)
|
|
$
|
13.5
|
|
|
$
|
28.6
|
|
|
$
|
(32.4
|
)
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3.
|
IMPAIRMENT,
RESTRUCTURING AND OTHER CHARGES
|
On July 8, 2009, the Company announced that its
wholly-owned subsidiary, Smith & Hawken, Ltd., adopted
a plan (the Plan) to close the business and to
engage the services of an outside consultant to supervise and
assist with the closure process.
The Smith & Hawken, Ltd. Board of Directors had been
actively exploring its strategic options for the business and
determined that shutting down the business presented the best
alternative. As a result of the decision, which was supported by
the Board of Directors of Scotts Miracle-Gro, the Company
expects to incur pre-tax charges of approximately
$35-$40 million,
primarily related to the termination of retail site lease
obligations, agency fees, severance and benefit commitments,
charges related to inventories, and impairment of retail site
improvements and fixtures. Based on the best estimates of the
Company, the Plan is expected to have a neutral to slightly
positive impact on cash as the recovery of working capital,
together with anticipated tax benefits, will approximately
offset the related charges. As of November 17, 2009, all
Smith &
Hawken®
stores have been closed with all operational activity expected
to be substantially complete by December 31, 2009.
77
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company recorded net restructuring and other charges of
$14.7 million, $1.0 million and $1.1 million in
fiscal 2009, fiscal 2008 and fiscal 2007, respectively. Other
charges in fiscal 2009 relate to the closure process of
Smith &
Hawken®.
Other charges in fiscal 2008 and fiscal 2007 related to the
Companys turfgrass biotechnology program.
Property, plant and equipment charges of $15.8 million in
fiscal 2008 related primarily to Smith &
Hawken®.
Goodwill and intangible asset impairment charges of
$120.0 million and $35.3 million were recorded in
fiscal 2008 and fiscal 2007, respectively. The nature of the
impairment charges are discussed further in NOTE 4.
GOODWILL AND INTANGIBLE ASSETS, NET.
The following table details impairment, restructuring and other
charges and rolls forward the cash portion of the restructuring
and other charges accrued in fiscal 2009, fiscal 2008 and fiscal
2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Restructuring and other charges
|
|
$
|
14.7
|
|
|
$
|
1.0
|
|
|
$
|
2.7
|
|
Property, plant and equipment impairment
|
|
|
|
|
|
|
15.8
|
|
|
|
|
|
Goodwill and intangible asset impairments
|
|
|
|
|
|
|
120.0
|
|
|
|
35.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment, restructuring and other charges
|
|
$
|
14.7
|
|
|
$
|
136.8
|
|
|
$
|
38.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amounts reserved for restructuring and other charges at
beginning of year
|
|
$
|
1.1
|
|
|
$
|
2.5
|
|
|
$
|
6.4
|
|
Restructuring and other expense
|
|
|
14.7
|
|
|
|
1.0
|
|
|
|
2.7
|
|
Payments and other
|
|
|
(1.2
|
)
|
|
|
(2.4
|
)
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reserved for restructuring and other charges at end of
year
|
|
$
|
14.6
|
|
|
$
|
1.1
|
|
|
$
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4.
|
GOODWILL
AND INTANGIBLE ASSETS, NET
|
Goodwill and indefinite-lived intangible assets are not subject
to amortization. Goodwill and indefinite-lived intangible assets
are reviewed for impairment by applying a fair-value based test
on an annual basis or more frequently if circumstances indicate
impairment may have occurred. The Company assesses goodwill for
impairment by comparing the carrying value of its reporting
units to their respective fair values and reviewing the
Companys market value of invested capital. Management
engages an independent valuation firm to assist in its
impairment assessment reviews. The Company determines the fair
value of its reporting units primarily utilizing discounted cash
flows and incorporates assumptions it believes marketplace
participants would utilize. The Company also uses comparative
market multiples and other factors to corroborate the discounted
cash flow results used. The value of all indefinite-lived
tradenames was determined using a royalty savings methodology
similar to that employed when the associated businesses were
acquired but using updated estimates of sales, cash flow and
profitability.
Fiscal
2009
The Company completed its impairment analysis as of
June 28, 2009 and determined that no charge for impairment
was required.
Fiscal
2008
The Companys fiscal 2008 impairment review resulted in a
non-cash charge of $136.8 million to reflect the decline in
the fair value of certain goodwill and other assets as evidenced
by the decline in the Companys common shares. In total,
the fiscal 2008 impairment charges were comprised of
$80.8 million for goodwill, $19.0 million
78
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to indefinite-lived tradenames and $37.0 million
for long-lived assets. Of the $37.0 million impairment
charge recorded for long-lived assets, $15.1 million was
recorded in cost of sales. On a reportable segment basis,
$64.5 million of the impairment was in Global Consumer,
$38.4 million was in Global Professional, with the
remaining $33.9 million in Corporate & Other.
Fiscal
2007
The Companys fourth quarter fiscal 2007 impairment review
resulted in a non-cash goodwill and intangible asset impairment
charge of $35.3 million, of which, $29.2 million
related to Smith &
Hawken®
goodwill and intangibles, $2.2 million for a goodwill
impairment charge related to its turfgrass biotechnology program
and $3.9 million was associated with information technology
initiatives in the Companys Scotts
LawnService®
segment.
The following table presents goodwill and intangible assets as
of September 30, 2009 and 2008 (dollars in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
15
|
|
|
$
|
53.6
|
|
|
$
|
(40.3
|
)
|
|
$
|
13.3
|
|
|
$
|
49.9
|
|
|
$
|
(39.1
|
)
|
|
$
|
10.8
|
|
Customer accounts
|
|
|
14
|
|
|
|
85.0
|
|
|
|
(44.6
|
)
|
|
|
40.4
|
|
|
|
83.5
|
|
|
|
(38.0
|
)
|
|
|
45.5
|
|
Tradenames
|
|
|
17
|
|
|
|
11.3
|
|
|
|
(10.2
|
)
|
|
|
1.1
|
|
|
|
11.3
|
|
|
|
(9.0
|
)
|
|
|
2.3
|
|
Other
|
|
|
14
|
|
|
|
105.1
|
|
|
|
(75.1
|
)
|
|
|
30.0
|
|
|
|
101.2
|
|
|
|
(71.2
|
)
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.8
|
|
|
|
|
|
|
|
|
|
|
|
88.6
|
|
Unamortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279.4
|
|
|
|
|
|
|
|
|
|
|
|
278.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364.2
|
|
|
|
|
|
|
|
|
|
|
|
367.2
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375.2
|
|
|
|
|
|
|
|
|
|
|
|
377.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
739.4
|
|
|
|
|
|
|
|
|
|
|
$
|
744.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes to the net carrying value of goodwill by segment for
the fiscal years ended September 30, 2009 and 2008 are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
Scotts
|
|
|
|
|
|
|
Consumer
|
|
|
Professional
|
|
|
LawnService®
|
|
|
Total
|
|
|
Balance as of September 30, 2007
|
|
$
|
277.0
|
|
|
$
|
62.4
|
|
|
$
|
123.5
|
|
|
$
|
462.9
|
|
Increases due to acquisitions
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Impairment
|
|
|
(61.0
|
)
|
|
|
(19.8
|
)
|
|
|
|
|
|
|
(80.8
|
)
|
Other, primarily foreign currency translation
|
|
|
(0.9
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
|
215.1
|
|
|
|
38.8
|
|
|
|
123.8
|
|
|
|
377.7
|
|
Other, primarily foreign currency translation
|
|
|
(3.4
|
)
|
|
|
1.0
|
|
|
|
(0.1
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
$
|
211.7
|
|
|
$
|
39.8
|
|
|
$
|
123.7
|
|
|
$
|
375.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total amortization expense for the years ended
September 30, 2009, 2008 and 2007 was $12.5 million,
$16.4 million and $16.1 million, respectively.
Amortization expense is estimated to be as follows for the years
ending September 30 (in millions):
|
|
|
|
|
2010
|
|
$
|
11.7
|
|
2011
|
|
|
8.9
|
|
2012
|
|
|
8.8
|
|
2013
|
|
|
8.6
|
|
2014
|
|
|
8.5
|
|
|
|
NOTE 5.
|
2007
RECAPITALIZATION
|
On December 12, 2006, the Company announced a
recapitalization plan to return $750 million to the
Companys shareholders. This plan expanded and accelerated
the previously announced five-year, $500 million share
repurchase program (which was canceled) under which the Company
repurchased $87.9 million of its common shares during
fiscal 2006. Pursuant to the recapitalization plan, on
February 14, 2007, the Company completed a modified
Dutch auction tender offer, resulting in the
repurchase of 4.5 million of the Companys common
shares for an aggregate purchase price of $245.5 million
($54.50 per share). On February 16, 2007, the
Companys Board of Directors declared a special one-time
cash dividend of $8.00 per share ($508 million in the
aggregate), which was paid on March 5, 2007, to
shareholders of record on February 26, 2007.
In order to fund these transactions, the Company entered into
new credit facilities aggregating $2.15 billion and
terminated its prior credit facility. As part of this debt
restructuring, the Company also conducted a cash tender offer
for any and all of its outstanding
65/8% senior
subordinated notes in an aggregate principal amount of
$200 million. Please refer to NOTE 11.
DEBT for further information as to the current credit
facilities and the repayment and termination of the prior credit
facility and the
65/8% senior
subordinated notes.
The payment of the special one-time cash dividend required the
Company to adjust the number of common shares subject to stock
options and stock appreciation rights outstanding under the
Companys share-based awards programs, as well as the price
at which the awards may be exercised. Please refer to
NOTE 12. SHAREHOLDERS EQUITY for further
information.
80
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys interest expense has been significantly
higher for periods subsequent to the recapitalization
transactions as a result of the borrowings incurred to fund the
cash returned to shareholders. The following pro forma financial
information has been compiled as if the Company had completed
the recapitalization transactions as of October 1, 2006 for
fiscal 2007. Borrowing rates in effect as of March 30, 2007
were used to compute pro forma interest expense. As the
recapitalization involved a share repurchase, pro forma diluted
common shares are also provided.
|
|
|
|
|
|
|
Pro Forma Financial
|
|
|
|
Information
|
|
|
|
Year Ended
|
|
|
|
September 30, 2007
|
|
|
|
(In millions, except
|
|
|
|
per share data)
|
|
|
|
(Unaudited)
|
|
|
Income before income taxes, as reported
|
|
$
|
188.1
|
|
Add back reported interest expense
|
|
|
70.7
|
|
Add back costs related to refinancing
|
|
|
18.3
|
|
Deduct pro forma interest expense
|
|
|
(94.3
|
)
|
|
|
|
|
|
Pro forma income before income taxes
|
|
|
182.8
|
|
Pro forma income taxes
|
|
|
72.5
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
110.3
|
|
|
|
|
|
|
Pro forma basic net income per common share
|
|
$
|
1.74
|
|
|
|
|
|
|
Pro forma diluted net income per common share
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
Reported interest expense
|
|
$
|
70.7
|
|
Incremental interest on recapitalization borrowings
|
|
|
21.8
|
|
New credit facilities interest rate differential
|
|
|
1.5
|
|
Incremental amortization of new credit facilities fees
|
|
|
0.3
|
|
|
|
|
|
|
Pro forma interest expense
|
|
$
|
94.3
|
|
|
|
|
|
|
Pro forma effective tax rates
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
Pro Forma Shares
|
|
|
|
Year Ended
|
|
|
|
September 30, 2007
|
|
|
|
(In millions)
|
|
|
Weighted-average common shares outstanding during the period
|
|
|
65.2
|
|
Incremental full period impact of repurchased common shares
|
|
|
(1.8
|
)
|
|
|
|
|
|
Pro forma basic common shares
|
|
|
63.4
|
|
|
|
|
|
|
Weighted-average common shares outstanding during the period
plus dilutive potential common shares
|
|
|
67.0
|
|
Incremental full period impact of repurchased common shares
|
|
|
(1.8
|
)
|
Impact on dilutive potential common shares
|
|
|
0.3
|
|
|
|
|
|
|
Pro forma diluted common shares
|
|
|
65.5
|
|
|
|
|
|
|
81
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6.
|
DETAIL OF
CERTAIN FINANCIAL STATEMENT ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
INVENTORIES, NET:
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
239.1
|
|
|
$
|
277.3
|
|
Work-in-progress
|
|
|
41.5
|
|
|
|
29.9
|
|
Raw materials
|
|
|
178.3
|
|
|
|
108.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
458.9
|
|
|
$
|
415.9
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
61.5
|
|
|
$
|
61.0
|
|
Buildings
|
|
|
173.3
|
|
|
|
165.1
|
|
Machinery and equipment
|
|
|
449.6
|
|
|
|
432.0
|
|
Furniture and fixtures
|
|
|
36.3
|
|
|
|
36.2
|
|
Software
|
|
|
98.9
|
|
|
|
92.0
|
|
Aircraft
|
|
|
8.4
|
|
|
|
|
|
Construction in progress
|
|
|
34.0
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
862.0
|
|
|
|
804.7
|
|
Less: accumulated depreciation
|
|
|
(492.3
|
)
|
|
|
(460.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
369.7
|
|
|
$
|
344.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Payroll and other compensation accruals
|
|
$
|
120.8
|
|
|
$
|
50.3
|
|
Advertising and promotional accruals
|
|
|
158.4
|
|
|
|
144.1
|
|
Other
|
|
|
127.2
|
|
|
|
126.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
406.4
|
|
|
$
|
320.5
|
|
|
|
|
|
|
|
|
|
|
OTHER NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accrued pension and postretirement liabilities
|
|
$
|
128.4
|
|
|
$
|
108.4
|
|
Deferred tax liability
|
|
|
49.6
|
|
|
|
42.6
|
|
Other
|
|
|
51.1
|
|
|
|
41.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
229.1
|
|
|
$
|
192.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized loss on derivatives, net of tax of $10.7, $8.9 and
$0.4
|
|
$
|
(17.3
|
)
|
|
$
|
(14.1
|
)
|
|
$
|
(0.6
|
)
|
Pension liability, net of tax of $35.3, $29.2 and $15.9
|
|
|
(59.2
|
)
|
|
|
(47.1
|
)
|
|
|
(27.0
|
)
|
Foreign currency translation adjustment
|
|
|
3.7
|
|
|
|
(5.9
|
)
|
|
|
(14.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(72.8
|
)
|
|
$
|
(67.1
|
)
|
|
$
|
(42.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7.
|
MARKETING
AGREEMENT
|
The Company is Monsantos exclusive agent for the domestic
and international marketing and distribution of consumer
Roundup®
herbicide products. Under the terms of the Marketing Agreement
with Monsanto, the Company is entitled to receive an annual
commission from Monsanto in consideration for the performance of
the Companys duties as agent. The annual gross commission
under the Marketing Agreement is calculated as a percentage of
the actual earnings before interest and income taxes
(EBIT) of the consumer
Roundup®
business and is based on the achievement of two earnings
thresholds, as defined in the Marketing Agreement. The Marketing
Agreement also requires the Company to make annual payments to
Monsanto as a contribution against the overall expenses of the
consumer
Roundup®
business. The annual contribution payment is defined in the
Marketing Agreement as $20 million.
In consideration for the rights granted to the Company under the
Marketing Agreement for North America, the Company was required
to pay a marketing fee of $32 million to Monsanto. The
Company has deferred this amount on the basis that the payment
will provide a future benefit through commissions that will be
earned under the Marketing Agreement. Based on managements
current assessment of the likely term of the Marketing
Agreement, the useful life over which the marketing fee is being
amortized is 20 years.
Under the terms of the Marketing Agreement, the Company performs
certain functions, primarily manufacturing conversion,
distribution and logistics, and selling and marketing support,
on behalf of Monsanto in the conduct of the consumer
Roundup®
business. The actual costs incurred for these activities are
charged to and reimbursed by Monsanto. The Company records costs
incurred under the Marketing Agreement for which the Company is
the primary obligor on a gross basis, recognizing such costs in
Cost of sales and the reimbursement of these costs
in Net sales, with no effect on gross profit or net
income. The related net sales and cost of sales were
$67.8 million, $58.0 million and $47.7 million
for fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
The elements of the net commission earned under the Marketing
Agreement and included in Net sales for each of the
three years in the period ended September 30, 2009 were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gross commission
|
|
$
|
72.2
|
|
|
$
|
65.1
|
|
|
$
|
62.7
|
|
Contribution expenses
|
|
|
(20.0
|
)
|
|
|
(20.0
|
)
|
|
|
(20.0
|
)
|
Amortization of marketing fee
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net commission income
|
|
|
51.4
|
|
|
|
44.3
|
|
|
|
41.9
|
|
Reimbursements associated with Marketing Agreement
|
|
|
67.8
|
|
|
|
58.0
|
|
|
|
47.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales associated with Marketing Agreement
|
|
$
|
119.2
|
|
|
$
|
102.3
|
|
|
$
|
89.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Marketing Agreement has no definite term except as it
relates to the European Union countries (the EU
term). The EU term extends through September 30,
2011, with up to two additional automatic renewal periods of two
years each, subject to non-renewal only upon the occurrence of
certain performance defaults. Thereafter, the Marketing
Agreement provides that the parties may agree to renew the EU
term for an additional three years.
The Marketing Agreement provides Monsanto with the right to
terminate the Marketing Agreement upon an event of default (as
defined in the Marketing Agreement) by the Company, a change in
control of Monsanto or the sale of the consumer
Roundup®
business. The Marketing Agreement provides the Company with the
right to terminate the Marketing Agreement in certain
circumstances, including an event of default by Monsanto or the
sale of the consumer
Roundup®
business. Unless Monsanto terminates the Marketing Agreement due
to an event of default by the Company, Monsanto is required to
pay a termination fee to the Company that varies by program
year. The termination fee is calculated as a percentage of the
value of the
Roundup®
business exceeding a certain threshold, but in no event will the
termination fee be less than $16 million. If Monsanto were
to terminate the Marketing Agreement due to an event of default
by the Company, however, the Company would not be entitled to
83
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
any termination fee, and the Company would lose all, or a
substantial portion, of the significant source of earnings and
overhead expense absorption the Marketing Agreement provides.
Monsanto may also be able to terminate the Marketing Agreement
within a given region, including North America, without paying a
termination fee if unit volume sales to consumers in that region
decline: (1) over a cumulative three-fiscal-year period; or
(2) by more than 5% for each of two consecutive years.
Effective October 1, 2008, the Company acquired Humax
Horticulture Limited (Humax), a privately-owned
growing media company in the United Kingdom, for a total cost of
$9.3 million. Purchase accounting allocations have been
recorded for Humax, including the allocation of the purchase
price to assets acquired and liabilities assumed, based on
estimated fair values at the date of acquisition. Pro forma net
sales, net income and net income per common share for fiscal
2008 would not have been significantly different had the
acquisition of Humax occurred as of October 1, 2007.
Scotts
LawnService®
During fiscal 2007, the Companys Scotts
LawnService®
segment acquired 11 individual lawn service entities for a total
cost of approximately $22.5 million. The following table
summarizes the details of these transactions (dollar amounts in
millions):
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2007
|
|
Number of individual acquisitions
|
|
|
11
|
|
Total cost
|
|
$
|
22.5
|
|
Portion of cost paid in cash
|
|
|
18.7
|
|
Notes issued and liabilities assumed
|
|
|
3.8
|
|
Goodwill
|
|
|
14.9
|
|
Other intangible assets
|
|
|
6.3
|
|
Working capital and property, plant and equipment
|
|
|
1.3
|
|
The Company sponsors a defined contribution profit sharing and
401(k) plans for substantially all U.S. associates. The
Company provides a base contribution equal to 2% of compensation
up to 50% of the Social Security taxable wage base plus 4% of
remaining compensation. Associates also may make pretax
contributions from compensation that are matched by the Company
at 100% of the associates initial 3% contribution and 50%
of their remaining contribution up to 5%. The Company recorded
charges of $15.3 million, $11.4 million and
$10.7 million under the plan in fiscal 2009, fiscal 2008
and fiscal 2007, respectively.
The Company sponsors two defined benefit plans for certain
U.S. associates. Benefits under these plans have been
frozen and closed to new associates since 1997. The benefits
under the primary plan are based on years of service and the
associates average final compensation or stated amounts.
The Companys funding policy, consistent with statutory
requirements and tax considerations, is based on actuarial
computations using the Projected Unit Credit method. The second
frozen plan is a non-qualified supplemental pension plan. This
plan provides for incremental pension payments so that total
pension payments equal amounts that would have been payable from
the Companys pension plan if it were not for limitations
imposed by the income tax regulations.
The Company sponsors defined benefit pension plans associated
with its international businesses in the United Kingdom, the
Netherlands, Germany and France. These plans generally cover all
associates of the respective businesses, with retirement
benefits primarily based on years of service and compensation
levels. During fiscal 2004, the U.K. plans were closed to new
participants, but existing participants continue to accrue
benefits. All newly hired associates of the U.K. business now
participate in a defined contribution plan.
84
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables present information about benefit
obligations, plan assets, annual expense, assumptions and other
information about the Companys defined benefit pension
plans (in millions). The defined benefit plans are valued using
a September 30 measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailed Defined
|
|
|
International
|
|
|
|
Benefit Plans
|
|
|
Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
90.2
|
|
|
$
|
90.8
|
|
|
$
|
176.7
|
|
|
$
|
179.5
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
2.8
|
|
Interest cost
|
|
|
5.6
|
|
|
|
5.4
|
|
|
|
9.6
|
|
|
|
10.0
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.9
|
|
Actuarial loss
|
|
|
12.1
|
|
|
|
0.5
|
|
|
|
8.3
|
|
|
|
10.2
|
|
Benefits paid
|
|
|
(6.4
|
)
|
|
|
(6.5
|
)
|
|
|
(5.1
|
)
|
|
|
(6.6
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.6
|
)
|
Special termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
(19.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
101.5
|
|
|
$
|
90.2
|
|
|
$
|
182.4
|
|
|
$
|
176.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
101.5
|
|
|
$
|
90.2
|
|
|
$
|
157.4
|
|
|
$
|
152.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
65.9
|
|
|
$
|
77.9
|
|
|
$
|
118.9
|
|
|
$
|
142.7
|
|
Actual return on plan assets
|
|
|
3.2
|
|
|
|
(10.3
|
)
|
|
|
11.9
|
|
|
|
(11.5
|
)
|
Employer contribution
|
|
|
1.5
|
|
|
|
4.8
|
|
|
|
9.3
|
|
|
|
9.1
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.9
|
|
Actuarial loss
|
|
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
|
|
Benefits paid
|
|
|
(6.4
|
)
|
|
|
(6.5
|
)
|
|
|
(5.1
|
)
|
|
|
(6.6
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(8.2
|
)
|
|
|
(15.0
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
64.2
|
|
|
$
|
65.9
|
|
|
$
|
122.9
|
|
|
$
|
118.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underfunded status at end of year
|
|
$
|
(37.3
|
)
|
|
$
|
(24.3
|
)
|
|
$
|
(59.5
|
)
|
|
$
|
(57.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for pension plans with an accumulated benefit
obligation in excess of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
101.5
|
|
|
$
|
90.2
|
|
|
$
|
182.4
|
|
|
$
|
157.0
|
|
Accumulated benefit obligation
|
|
|
101.5
|
|
|
|
90.2
|
|
|
|
157.4
|
|
|
|
135.9
|
|
Fair value of plan assets
|
|
|
64.2
|
|
|
|
65.9
|
|
|
|
122.9
|
|
|
|
102.0
|
|
Amounts recognized in the Consolidated Balance Sheets consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.0
|
)
|
Noncurrent liabilities
|
|
|
(37.1
|
)
|
|
|
(24.1
|
)
|
|
|
(58.4
|
)
|
|
|
(56.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount accrued
|
|
$
|
(37.3
|
)
|
|
$
|
(24.3
|
)
|
|
$
|
(59.5
|
)
|
|
$
|
(57.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailed Defined
|
|
|
International
|
|
|
|
Benefit Plans
|
|
|
Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
$
|
48.6
|
|
|
$
|
37.7
|
|
|
$
|
48.3
|
|
|
$
|
46.3
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
48.6
|
|
|
$
|
37.7
|
|
|
$
|
47.3
|
|
|
$
|
45.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in other comprehensive loss attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefit losses during the period
|
|
$
|
13.9
|
|
|
$
|
17.0
|
|
|
$
|
8.1
|
|
|
$
|
31.1
|
|
Reclassification of pension benefit losses to net income
|
|
|
(3.0
|
)
|
|
|
(1.3
|
)
|
|
|
(2.0
|
)
|
|
|
(0.5
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in other comprehensive loss
|
|
$
|
10.9
|
|
|
$
|
15.7
|
|
|
$
|
2.1
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive loss expected to
be recognized as components of net periodic benefit cost in
fiscal 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
$
|
4.3
|
|
|
$
|
3.0
|
|
|
$
|
2.4
|
|
|
$
|
2.4
|
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount to be amortized into net periodic benefit cost
|
|
$
|
4.3
|
|
|
$
|
3.0
|
|
|
$
|
2.3
|
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used in development of projected
benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.23
|
%
|
|
|
6.46
|
%
|
|
|
5.51
|
%
|
|
|
6.06
|
%
|
Rate of compensation increase
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
3.8
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailed Defined Benefit Plan
|
|
|
International Benefit Plans
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.4
|
|
|
$
|
2.8
|
|
|
$
|
3.9
|
|
Interest cost
|
|
|
5.6
|
|
|
|
5.4
|
|
|
|
5.3
|
|
|
|
9.6
|
|
|
|
10.0
|
|
|
|
9.2
|
|
Expected return on plan assets
|
|
|
(5.1
|
)
|
|
|
(6.2
|
)
|
|
|
(5.6
|
)
|
|
|
(7.2
|
)
|
|
|
(9.3
|
)
|
|
|
(8.2
|
)
|
Net amortization
|
|
|
3.1
|
|
|
|
1.3
|
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
0.4
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
3.6
|
|
|
|
0.5
|
|
|
|
1.8
|
|
|
|
6.8
|
|
|
|
3.9
|
|
|
|
7.0
|
|
Curtailment/settlement loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit cost
|
|
$
|
3.6
|
|
|
$
|
0.5
|
|
|
$
|
1.8
|
|
|
$
|
6.8
|
|
|
$
|
4.0
|
|
|
$
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used in development of net
periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.46
|
%
|
|
|
6.11
|
%
|
|
|
5.93
|
%
|
|
|
6.06
|
%
|
|
|
5.67
|
%
|
|
|
4.86
|
%
|
Expected return on plan assets
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
5.8
|
%
|
|
|
5.8
|
%
|
|
|
6.6
|
%
|
Rate of compensation increase
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
4.1
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
86
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
information
|
|
|
|
|
|
|
|
|
|
|
Curtailed Defined
|
|
International
|
|
|
Benefit Plans
|
|
Benefit Plans
|
|
Plan asset allocations:
|
|
|
|
|
|
|
|
|
Target for September 30, 2010:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
49
|
%
|
Debt securities
|
|
|
40
|
%
|
|
|
51
|
%
|
September 30, 2009:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
57
|
%
|
|
|
50
|
%
|
Debt securities
|
|
|
41
|
%
|
|
|
50
|
%
|
Other
|
|
|
2
|
%
|
|
|
0
|
%
|
September 30, 2008:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
56
|
%
|
|
|
48
|
%
|
Debt securities
|
|
|
43
|
%
|
|
|
52
|
%
|
Other
|
|
|
1
|
%
|
|
|
0
|
%
|
Expected contributions in fiscal 2010:
|
|
|
|
|
|
|
|
|
Company
|
|
|
3.2
|
|
|
|
8.7
|
|
Employee
|
|
|
|
|
|
|
0.8
|
|
Expected future benefit payments:
|
|
|
|
|
|
|
|
|
2010
|
|
|
6.8
|
|
|
|
5.1
|
|
2011
|
|
|
6.8
|
|
|
|
5.3
|
|
2012
|
|
|
6.9
|
|
|
|
5.8
|
|
2013
|
|
|
6.9
|
|
|
|
6.1
|
|
2014
|
|
|
7.1
|
|
|
|
6.4
|
|
2015 2019
|
|
|
35.9
|
|
|
|
38.3
|
|
Investment
Strategy
Target allocation percentages among various asset classes are
maintained based on an individual investment policy established
for each of the various pension plans. Asset allocations are
designed to achieve long-term objectives of return, while
mitigating against downside risk and considering expected cash
requirements necessary to fund benefit payments. However, we
cannot predict future investment returns, and therefore cannot
determine whether future pension plan funding requirements could
materially and adversely affect our financial condition, results
of operations or cash flows.
Basis
for Long-Term Rate of Return on Asset Assumptions
The Companys expected long-term rate of return on asset
assumptions is derived from studies conducted by third parties.
The studies include a review of anticipated future long-term
performance of individual asset classes and consideration of the
appropriate asset allocation strategy given the anticipated
requirements of the plan to determine the average rate of
earnings expected. While the studies give appropriate
consideration to recent fund performance and historical returns,
the assumptions primarily represent expectations about future
rates of return over the long term.
87
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10.
|
ASSOCIATE
MEDICAL BENEFITS
|
The Company provides comprehensive major medical benefits to
certain of its retired associates and their dependents.
Substantially all of the Companys domestic associates who
were hired before January 1, 1998 become eligible for these
benefits if they retire at age 55 or older with more than
ten years of service. The plan requires certain minimum
contributions from retired associates and includes provisions to
limit the overall cost increases the Company is required to
cover. The Company funds its portion of retiree medical benefits
on a pay-as-you-go basis.
The following table sets forth the information about the retiree
medical plan for domestic associates (in millions). The retiree
medical plan is valued using a September 30 measurement date.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in Accumulated Plan Benefit Obligation (APBO)
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
26.2
|
|
|
$
|
30.4
|
|
Service cost
|
|
|
0.4
|
|
|
|
0.5
|
|
Interest cost
|
|
|
1.9
|
|
|
|
1.8
|
|
Plan participants contributions
|
|
|
0.9
|
|
|
|
0.9
|
|
Actuarial (gain)/loss
|
|
|
4.8
|
|
|
|
(4.5
|
)
|
Benefits paid (net of federal subsidy of $0.3 and $0.3)
|
|
|
(3.2
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
31.0
|
|
|
$
|
26.2
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
|
|
|
$
|
|
|
Employer contribution
|
|
|
2.6
|
|
|
|
2.3
|
|
Plan participants contributions
|
|
|
0.9
|
|
|
|
0.9
|
|
Gross benefits paid
|
|
|
(3.5
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(31.0
|
)
|
|
$
|
(26.2
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets consist
of:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(2.2
|
)
|
|
$
|
(2.4
|
)
|
Noncurrent liabilities
|
|
|
(28.8
|
)
|
|
|
(23.8
|
)
|
|
|
|
|
|
|
|
|
|
Total amount accrued
|
|
$
|
(31.0
|
)
|
|
$
|
(26.2
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
consist of:
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
$
|
0.8
|
|
|
$
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
Total change in other comprehensive loss attributable to:
|
|
|
|
|
|
|
|
|
Benefit losses (gains) during the period
|
|
$
|
4.8
|
|
|
$
|
(4.5
|
)
|
Reclassification of benefit gains to net income
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in other comprehensive loss
|
|
$
|
5.0
|
|
|
$
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
The estimated actuarial gain that will be amortized from
accumulated loss into net periodic benefit cost over the next
fiscal year is immaterial.
|
|
|
|
|
|
|
|
|
Discount rate used in development of APBO
|
|
|
5.50
|
%
|
|
|
7.54
|
%
|
|
|
|
|
|
|
|
|
|
88
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.4
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
Interest cost
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
1.8
|
|
Amortization of actuarial gain
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement benefit cost
|
|
$
|
2.1
|
|
|
$
|
2.3
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate used in development of net periodic benefit
cost
|
|
|
7.54
|
%
|
|
|
6.22
|
%
|
|
|
5.86
|
%
|
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act (the Act) became
law. The Act provides for a federal subsidy to sponsors of
retiree health care benefit plans that provide a prescription
drug benefit that is at least actuarially equivalent to the
benefit established by the Act. The APBO at September 30,
2009, has been reduced by a deferred actuarial gain in the
amount of $6.3 million to reflect the effect of the subsidy
related to benefits attributed to past service. The amortization
of the actuarial gain and reduction of service and interest
costs served to reduce net periodic post retirement benefit cost
for fiscal 2009, fiscal 2008 and fiscal 2007 by
$0.6 million, $0.5 million and $0.7 million,
respectively.
For measurement as of September 30, 2009, management has
assumed that health care costs will increase at an annual rate
of 8.0% in fiscal 2009, decreasing 0.50% per year to an ultimate
trend of 5.00% in 2015. A 1% increase in health cost trend rate
assumptions would increase the APBO by $0.9 million both as
of September 30, 2009 and 2008. A 1% decrease in health
cost trend rate assumptions would decrease the APBO as of
September 30, 2009 and 2008 by $1.0 million and
$0.6 million, respectively. A 1% increase or decrease in
the same rate would not have a material effect on service or
interest costs.
Estimated
Future Benefit Payments
The following benefit payments under the plan are expected to be
paid by the Company and the retirees for the fiscal years
indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Medicare
|
|
Net
|
|
|
Benefit
|
|
Retiree
|
|
Part D
|
|
Company
|
|
|
Payments
|
|
Contributions
|
|
Subsidy
|
|
Payments
|
|
2010
|
|
$
|
3.4
|
|
|
$
|
(0.9
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
2.2
|
|
2011
|
|
|
3.7
|
|
|
|
(1.0
|
)
|
|
|
(0.4
|
)
|
|
|
2.3
|
|
2012
|
|
|
4.0
|
|
|
|
(1.3
|
)
|
|
|
(0.4
|
)
|
|
|
2.3
|
|
2013
|
|
|
4.3
|
|
|
|
(1.5
|
)
|
|
|
(0.5
|
)
|
|
|
2.3
|
|
2014
|
|
|
4.6
|
|
|
|
(1.8
|
)
|
|
|
(0.5
|
)
|
|
|
2.3
|
|
2015 2019
|
|
|
28.6
|
|
|
|
(13.3
|
)
|
|
|
(3.3
|
)
|
|
|
12.0
|
|
The Company also provides comprehensive major medical benefits
to its associates. The Company is self-insured for certain
health benefits up to $0.3 million per occurrence per
individual. The cost of such benefits is recognized as expense
in the period the claim is incurred. This cost was
$27.8 million, $24.1 million and $21.4 million in
fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
The Company adopted the recognition and disclosure provisions of
new accounting guidance regarding employers accounting for
defined benefit pension and other post-retirement benefit plans
on September 30, 2007. The effect of this new guidance was
additional accumulated other comprehensive loss of
$13.3 million, net of tax.
89
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Credit Facilities:
|
|
|
|
|
|
|
|
|
Revolving loans
|
|
$
|
330.4
|
|
|
$
|
375.8
|
|
Term loans
|
|
|
456.4
|
|
|
|
540.4
|
|
Master Accounts Receivable Purchase Agreement
|
|
|
4.2
|
|
|
|
62.1
|
|
Notes due to sellers
|
|
|
11.0
|
|
|
|
12.8
|
|
Foreign bank borrowings and term loans
|
|
|
0.5
|
|
|
|
0.7
|
|
Other
|
|
|
7.6
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810.1
|
|
|
|
999.5
|
|
Less current portions
|
|
|
160.4
|
|
|
|
150.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
649.7
|
|
|
$
|
849.5
|
|
|
|
|
|
|
|
|
|
|
The Companys debt matures as follows for each of the next
five fiscal years and thereafter (in millions):
|
|
|
|
|
2010
|
|
$
|
160.4
|
|
2011
|
|
|
195.1
|
|
2012
|
|
|
450.6
|
|
2013
|
|
|
0.5
|
|
2014
|
|
|
0.5
|
|
Thereafter
|
|
|
3.0
|
|
|
|
|
|
|
|
|
$
|
810.1
|
|
|
|
|
|
|
In connection with the recapitalization transactions discussed
in NOTE 5. 2007 RECAPITALIZATION, in February
2007, the Company entered into the following senior secured
credit facilities totaling up to $2.15 billion in the
aggregate: (a) a senior secured five-year term loan in the
principal amount of $560 million and (b) a senior
secured five-year revolving loan facility in the aggregate
principal amount of up to $1.59 billion. Under the terms of
these credit facilities, the Company may request an additional
$200 million in revolving credit
and/or term
credit commitments, subject to approval from the lenders.
Borrowings may be made in various currencies including
U.S. dollars, Euros, British pounds, Australian dollars and
Canadian dollars.
The terms of these senior secured credit facilities provide for
customary representations and warranties and affirmative
covenants. The senior secured credit facilities also contain
customary negative covenants setting forth limitations, subject
to negotiated carve-outs, on liens; contingent obligations;
fundamental changes; acquisitions, investments, loans and
advances; indebtedness; restrictions on subsidiary
distributions; transactions with affiliates and officers; sales
of assets; sale and leaseback transactions; changing the
Companys fiscal year end; modifications of certain debt
instruments; negative pledge clauses; entering into new lines of
business; and restricted payments (including restricting
dividend payments to $55 million annually based on the
current Leverage Ratio (as defined) of the Company). The senior
secured credit facilities are secured by collateral that
includes the capital stock of specified subsidiaries of Scotts
Miracle-Gro, substantially all domestic accounts receivable
(exclusive of any sold receivables), inventory and
equipment. The senior secured credit facilities also require the
maintenance of a specified Leverage Ratio and Interest Coverage
Ratio (both as defined), and are guaranteed by substantially all
of Scotts Miracle-Gros domestic subsidiaries.
The senior secured credit facilities have several borrowing
options, including interest rates that are based on (i) a
LIBOR rate plus a margin based on a Leverage Ratio (as defined)
or (ii) the greater of the prime rate or the
90
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Federal Funds Effective Rate (as defined) plus 1/2 of 1%
plus a margin based on a Leverage Ratio (as defined). Commitment
fees are paid quarterly and are calculated as an amount equal to
the product of a rate based on a Leverage Ratio (as defined) and
the average daily unused portion of both the revolving and term
credit facilities. Amounts outstanding under the senior secured
credit facilities at September 30, 2009 were at interest
rates based on LIBOR applicable to the borrowed currencies plus
125 basis points. The weighted average interest rates on
average debt under the credit facilities were 4.8% and 6.2% at
September 30, 2009 and 2008, respectively. As of
September 30, 2009, there was $1.2 billion of
availability under the senior secured credit facilities. Under
the senior secured credit facilities, the Company has the
ability to issue letter of credit commitments up to
$65.0 million. At September 30, 2009, the Company had
letters of credit in the amount of $35.9 million
outstanding.
On January 10, 2007, the Company also launched a cash
tender offer for any and all of its outstanding
65/8% senior
subordinated notes due 2013 in an aggregate principal amount of
$200 million. Substantially all of the
65/8% senior
subordinated notes were repurchased under the terms of the
tender offer on February 14, 2007. The remaining senior
subordinated notes not tendered were subsequently called and
repurchased on March 26, 2007. Proceeds from the senior
secured credit facilities were used to fund the repurchase of
the
65/8% senior
subordinated notes, at an aggregate cost of $209.6 million
including an early redemption premium.
At September 30, 2009, the Company had outstanding interest
rate swap agreements with major financial institutions that
effectively converted a portion of variable-rate debt
denominated in U.S. dollars to a fixed rate. The swap
agreements had a total U.S. dollar notional amount of
$650.0 million at September 30, 2009. Interest
payments made between the effective date and expiration date are
hedged by the swap agreement, except as noted below. The term,
expiration date and rates of these swap agreements are shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Expiration
|
|
Fixed
|
Notional Amount
|
|
Date(a)
|
|
Date
|
|
Rate
|
(In millions)
|
|
|
|
|
|
|
|
$
|
200
|
|
|
|
3/30/2007
|
|
|
|
3/30/2010
|
|
|
|
4.87
|
%
|
|
200
|
|
|
|
2/14/2007
|
|
|
|
2/14/2012
|
|
|
|
5.20
|
%
|
|
50
|
|
|
|
2/14/2012
|
|
|
|
2/14/2016
|
|
|
|
3.78
|
%
|
|
150
|
(b)
|
|
|
11/16/2009
|
|
|
|
5/16/2016
|
|
|
|
3.26
|
%
|
|
50
|
(c)
|
|
|
2/16/2010
|
|
|
|
5/16/2016
|
|
|
|
3.05
|
%
|
|
|
|
(a) |
|
The effective date refers to the date on which interest payments
are first hedged by the applicable swap agreement. |
|
(b) |
|
Interest payments made during the six-month period beginning
November 14 of each year between the effective date and
expiration date are hedged by the swap agreement. |
|
(c) |
|
Interest payments made during the three-month period beginning
February 14 of each year between the effective date and
expiration date are hedged by the swap agreement. |
The Company recorded a charge of $18.3 million (including
approximately $8.0 million of non-cash charges associated
with the write-off of deferred financing costs) during fiscal
2007 relating to the refinancing of the then existing
$1.05 billion senior credit facility and the repurchase of
the
65/8% senior
subordinated notes.
Master
Accounts Receivable Purchase Agreement
On April 11, 2007, the Company entered into a one-year
Master Accounts Receivable Purchase Agreement (the 2007
MARP Agreement). On April 9, 2008, the Company
terminated the 2007 MARP Agreement and entered into a Master
Accounts Receivable Purchase Agreement (the 2008 MARP
Agreement). The terms of the 2008 MARP Agreement were
substantially the same as the 2007 MARP Agreement. The 2008 MARP
Agreement provided an interest rate that was equal to the
7-day LIBOR
rate plus 85 basis points. The 2008 MARP Agreement provided
for the discounted sale, on a revolving basis, of accounts
receivable generated by specified account
91
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
debtors, with seasonally adjusted monthly aggregate limits
ranging from $10 million to $300 million. The 2008
MARP Agreement also provided for specified account debtor
sublimit amounts, which provided limits on the amount of
receivables owed by individual account debtors that could be
sold to the banks. The 2008 MARP Agreement expired by its terms
on April 8, 2009.
On May 1, 2009, the Company entered into a Master Accounts
Receivable Purchase Agreement (the 2009 MARP
Agreement), with a stated termination date of May 1,
2010, or such later date as may be mutually agreed by the
Company and its lender. The 2009 MARP Agreement provides an
interest rate that is equal to the
7-day LIBOR
rate plus 225 basis points. The 2009 MARP Agreement
provides for the discounted sale, on an uncommitted, revolving
basis, of accounts receivable generated by a specified account
debtor, with aggregate limits not to exceed $80 million.
The Company accounts for the sale of receivables under the 2009
MARP Agreement as short-term debt and continues to carry the
receivables on its Consolidated Balance Sheet, in accordance
with GAAP primarily as a result of the Companys right to
repurchase receivables sold. The caption Accounts
receivable pledged on the accompanying Consolidated
Balance Sheets in the amounts of $17.0 million and
$146.6 million as of September 30, 2009 and 2008,
respectively, represents the pool of receivables that have been
designated as sold under the 2009 and 2008 MARP
Agreements, respectively, and serve as collateral for short-term
debt thereunder in the amounts of $4.2 million and
$62.1 million as of those dates, respectively.
The Company was in compliance with the terms of all borrowing
agreements at September 30, 2009. Our senior secured credit
facilities contain, among other obligations, an affirmative
covenant regarding our leverage ratio, calculated as
indebtedness relative to our earnings before taxes, depreciation
and amortization. Under the terms of the senior secured credit
facilities, the maximum leverage ratio was 3.75 as of
September 30, 2009, which is scheduled to decrease to 3.50
on September 30, 2010. Management continues to monitor the
Companys compliance with the leverage ratio and other
covenants contained in the senior secured credit facilities and,
based upon the Companys current operating assumptions, the
Company expects to remain in compliance with the permissible
leverage ratio throughout fiscal 2010. However, an unanticipated
charge to earnings or an increase in debt could materially
affect our ability to remain in compliance with the financial
covenants of our senior secured credit facilities, potentially
causing the Company to have to seek an amendment or waiver from
the lending group which would be likely to result in repricing
of our senior secured credit facility to then current market
rates.
A description of the Companys debt instruments and the
methods and assumptions used to estimate their fair values is as
follows:
Long-Term
Debt
The interest rate currently available to the Company fluctuates
with the applicable LIBOR rate, prime rate or Federal Funds
Effective Rate, and thus the carrying value is a reasonable
estimate of fair value.
Accounts
Receivable Pledged
The interest rate on the short-term debt associated with
accounts receivable pledged under the 2009 MARP Agreement
fluctuates with the one-week LIBOR rate, and thus the carrying
value is a reasonable estimate of fair value.
92
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated
Fair Values
The estimated fair values of the Companys debt instruments
are as follows for the fiscal years ended September 30 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Revolving loans
|
|
$
|
330.4
|
|
|
$
|
330.4
|
|
|
$
|
375.8
|
|
|
$
|
375.8
|
|
Foreign bank borrowings and term loans
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Term loans
|
|
|
456.4
|
|
|
|
456.4
|
|
|
|
540.4
|
|
|
|
540.4
|
|
Master Accounts Receivable Purchase Agreement
|
|
|
4.2
|
|
|
|
4.2
|
|
|
|
62.1
|
|
|
|
62.1
|
|
Notes due to sellers
|
|
|
11.0
|
|
|
|
11.0
|
|
|
|
12.8
|
|
|
|
12.8
|
|
Other
|
|
|
7.6
|
|
|
|
7.6
|
|
|
|
7.7
|
|
|
|
7.7
|
|
|
|
NOTE 12.
|
SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Preferred shares, no par value:
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
0.2 shares
|
|
|
|
0.2 shares
|
|
Issued
|
|
|
0.0 shares
|
|
|
|
0.0 shares
|
|
Common shares, no par value, $.01 stated value per share
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
100.0 shares
|
|
|
|
100.0 shares
|
|
Issued
|
|
|
68.1 shares
|
|
|
|
68.1 shares
|
|
In fiscal 1995, The Scotts Company merged with Sterns
Miracle-Gro Products, Inc. (Miracle-Gro). At
September 30, 2009, the former shareholders of Miracle-Gro,
including Hagedorn Partnership L.P., owned approximately 31% of
Scotts Miracle-Gros outstanding common shares and, thus,
have the ability to significantly influence the election of
directors and approval of other actions requiring the approval
of Scotts Miracle-Gros shareholders.
Under the terms of the merger agreement with Miracle-Gro, the
former shareholders of Miracle-Gro may not collectively acquire,
directly or indirectly, beneficial ownership of Voting Stock (as
that term is defined in the Miracle-Gro merger agreement)
representing more than 49% of the total voting power of the
outstanding Voting Stock, except pursuant to a tender offer for
100% of that total voting power, which tender offer is made at a
price per share which is not less than the market price per
share on the last trading day before the announcement of the
tender offer and is conditioned upon the receipt of at least 50%
of the Voting Stock beneficially owned by shareholders of Scotts
Miracle-Gro other than the former shareholders of Miracle-Gro
and their affiliates and associates.
Common shares held in treasury totaling 1.0 million and
0.6 million were reissued in support of share-based
compensation awards and employee purchases under the employee
stock purchase plan during fiscal 2009 and fiscal 2008,
respectively. Scotts Miracle-Gro did not reacquire any common
shares in fiscal 2009 or in fiscal 2008. See NOTE 5.
2007 RECAPITALIZATION for a discussion of the
Companys fiscal 2007 recapitalization transactions.
Share-Based
Awards
Scotts Miracle-Gro grants share-based awards annually to
officers, other key employees of the Company and non-employee
directors of Scotts Miracle-Gro. The share-based awards
typically consist of stock options, restricted stock and
restricted stock units, although performance share awards have
been made. Stock appreciation rights (SARs) also
have been granted, though not in recent years. SARs result in
less dilution than stock options as the SAR holder receives a
net share settlement upon exercise. All of these share-based
awards have been made under
93
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
plans approved by the shareholders. Generally, employee
share-based awards provide for three-year cliff vesting. Vesting
for non-employee director awards varies based on the length of
service and age of each director at the time of the award.
Share-based awards are forfeited if a holder terminates
employment or service with the Company prior to the vesting
date. The Company estimates that
10-15% of
its share-based awards will be forfeited based on an analysis of
historical trends. This assumption is re-evaluated on an annual
basis by grant and adjusted as appropriate. Stock options and
SAR awards have exercise prices equal to the market price of the
underlying common shares on the date of grant with a term of
10 years. If available, Scotts Miracle-Gro will typically
use treasury shares, or if not available, newly-issued common
shares, in satisfaction of its share-based awards.
A maximum of 18 million common shares are available for
issuance under share-based award plans. At September 30,
2009, approximately 1.5 million common shares were not
subject to outstanding awards and were available to underlie the
grant of new share-based awards.
The following is a recap of the share-based awards granted
during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Key employees
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
701,100
|
|
|
|
889,700
|
|
|
|
821,200
|
|
Options and SARs due to recapitalization
|
|
|
|
|
|
|
|
|
|
|
872,147
|
|
Restricted stock
|
|
|
243,400
|
|
|
|
154,900
|
|
|
|
193,550
|
|
Restricted stock units
|
|
|
199,262
|
|
|
|
|
|
|
|
|
|
Performance shares
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
Board of Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock units
|
|
|
33,281
|
|
|
|
30,271
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
127,000
|
|
Options due to recapitalization
|
|
|
|
|
|
|
|
|
|
|
202,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based awards
|
|
|
1,177,043
|
|
|
|
1,114,871
|
|
|
|
2,216,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate fair value at grant dates (in millions), excluding
additional options and SARs issued due to the recapitalization
|
|
$
|
16.7
|
|
|
$
|
18.7
|
|
|
$
|
22.3
|
|
As discussed in NOTE 5. 2007 RECAPITALIZATION,
the Company consummated a series of transactions as part of a
recapitalization plan in the quarter ended March 31, 2007.
The payment of a special dividend is a recapitalization or
adjustment event under the Companys share-based award
programs. As such, it was necessary to adjust the number of
common shares subject to stock options and SARs outstanding at
the time of the dividend, as well as the price at which such
awards may be exercised. The adjustments to the outstanding
awards resulted in an increase in the number of common shares
subject to outstanding stock options and SAR awards in an
aggregate amount of 1.1 million common shares. The
methodology used to adjust the awards was consistent with
Internal Revenue Code (IRC) Section 409A and
the then proposed regulations promulgated thereunder and IRC
Section 424 and the regulations promulgated thereunder,
compliance with which was necessary to avoid adverse tax
consequences for the holder of an award. Such methodology also
resulted in a fair value for the adjusted awards post-dividend
equal to that of the unadjusted awards pre-dividend, with the
result that there was no additional compensation expense in
accordance with GAAP.
94
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total share-based compensation and the deferred tax benefit
recognized were as follows for the periods indicated (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Share-based compensation
|
|
$
|
14.5
|
|
|
$
|
12.5
|
|
|
$
|
15.5
|
|
Tax benefit recognized
|
|
|
5.6
|
|
|
|
4.8
|
|
|
|
6.2
|
|
Stock
Options/SARs
Aggregate stock option and SARs activity consisted of the
following for the year ended September 30, 2009
(options/SARs in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTD.
|
|
|
|
|
|
|
Avg.
|
|
|
|
No. of
|
|
|
Exercise
|
|
|
|
Options/SARs
|
|
|
Price
|
|
|
Beginning balance
|
|
|
5.8
|
|
|
$
|
29.01
|
|
Granted
|
|
|
0.7
|
|
|
$
|
21.87
|
|
Exercised
|
|
|
(0.8
|
)
|
|
$
|
18.98
|
|
Forfeited
|
|
|
(0.3
|
)
|
|
$
|
35.57
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
5.4
|
|
|
$
|
29.36
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
3.3
|
|
|
$
|
26.80
|
|
The following summarizes certain information pertaining to stock
option and SAR awards outstanding and exercisable at
September 30, 2009 (options/SARs in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards Outstanding
|
|
|
Awards Exercisable
|
|
|
|
No. of
|
|
|
WTD. Avg.
|
|
|
WTD. Avg.
|
|
|
No. of
|
|
|
|
|
|
WTD. Avg.
|
|
Range of
|
|
Options/
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options/
|
|
|
|
|
|
Remaining
|
|
Exercise Price
|
|
SARs
|
|
|
Life
|
|
|
Price
|
|
|
SARS
|
|
|
Exercise Price
|
|
|
Life
|
|
|
$12.72 $14.61
|
|
|
0.2
|
|
|
|
1.51
|
|
|
$
|
12.84
|
|
|
|
0.2
|
|
|
$
|
12.84
|
|
|
|
1.51
|
|
$16.03 $19.82
|
|
|
0.5
|
|
|
|
2.53
|
|
|
|
17.17
|
|
|
|
0.5
|
|
|
|
17.17
|
|
|
|
2.53
|
|
$20.12 $21.65
|
|
|
1.1
|
|
|
|
7.13
|
|
|
|
21.41
|
|
|
|
0.5
|
|
|
|
21.09
|
|
|
|
3.88
|
|
$24.45 $28.97
|
|
|
0.8
|
|
|
|
4.93
|
|
|
|
25.68
|
|
|
|
0.8
|
|
|
|
25.68
|
|
|
|
4.93
|
|
$29.01 $31.62
|
|
|
0.6
|
|
|
|
5.79
|
|
|
|
29.11
|
|
|
|
0.5
|
|
|
|
29.08
|
|
|
|
5.71
|
|
$33.25 $37.48
|
|
|
0.5
|
|
|
|
6.66
|
|
|
|
35.73
|
|
|
|
0.5
|
|
|
|
35.72
|
|
|
|
6.57
|
|
$37.89 $39.95
|
|
|
1.4
|
|
|
|
8.09
|
|
|
|
38.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$40.53 $46.70
|
|
|
0.3
|
|
|
|
7.49
|
|
|
|
43.30
|
|
|
|
0.3
|
|
|
|
43.34
|
|
|
|
7.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
6.29
|
|
|
$
|
29.36
|
|
|
|
3.3
|
|
|
$
|
26.80
|
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of the stock option and SAR awards
outstanding and exercisable at September 30, were as
follows (in millions):
|
|
|
|
|
|
|
2009
|
|
Outstanding
|
|
$
|
73.4
|
|
Exercisable
|
|
|
53.0
|
|
The grant date fair value of stock option awards are estimated
using a binomial model and the assumptions in the following
table. Expected market price volatility is based on implied
volatilities from traded options on Scotts Miracle-Gros
common shares and historical volatility specific to the common
shares. Historical data, including
95
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
demographic factors impacting historical exercise behavior, is
used to estimate stock option exercises and employee
terminations within the valuation model. The risk-free rate for
periods within the contractual life (normally ten years) of the
stock option is based on the U.S. Treasury yield curve in
effect at the time of grant. The expected life of stock options
is based on historical experience and expectations for grants
outstanding. The weighted average assumptions for awards granted
are as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected market price volatility
|
|
|
45.3
|
%
|
|
|
30.2
|
%
|
|
|
26.3
|
%
|
Risk-free interest rates
|
|
|
3.0
|
%
|
|
|
4.0
|
%
|
|
|
4.8
|
%
|
Expected dividend yield
|
|
|
2.3
|
%
|
|
|
1.3
|
%
|
|
|
1.1
|
%
|
Expected life of stock options in years
|
|
|
5.93
|
|
|
|
6.19
|
|
|
|
5.83
|
|
Estimated weighted-average fair value per stock option
|
|
$
|
7.93
|
|
|
$
|
12.34
|
|
|
$
|
11.42
|
|
Restricted
Stock (including Performance Shares)
Restricted stock award activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
Grant Date
|
|
|
|
No. of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Awards outstanding at September 30, 2006
|
|
|
302,795
|
|
|
$
|
39.26
|
|
Granted
|
|
|
193,550
|
|
|
|
45.69
|
|
Vested
|
|
|
(114,665
|
)
|
|
|
35.67
|
|
Forfeited
|
|
|
(104,600
|
)
|
|
|
43.23
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2007
|
|
|
277,080
|
|
|
|
43.74
|
|
Granted
|
|
|
187,000
|
|
|
|
39.99
|
|
Vested
|
|
|
(29,215
|
)
|
|
|
34.91
|
|
Forfeited
|
|
|
(53,300
|
)
|
|
|
43.23
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2008
|
|
|
381,565
|
|
|
|
42.65
|
|
Granted
|
|
|
251,300
|
|
|
|
22.31
|
|
Vested
|
|
|
(113,653
|
)
|
|
|
38.86
|
|
Forfeited
|
|
|
(34,962
|
)
|
|
|
36.35
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2009
|
|
|
484,250
|
|
|
$
|
33.44
|
|
|
|
|
|
|
|
|
|
|
96
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Units (including Deferred Stock Units)
Restricted stock unit award activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
Grant Date
|
|
|
|
No. of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Awards outstanding at September 30, 2007
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
30,271
|
|
|
|
38.78
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2008
|
|
|
30,271
|
|
|
|
38.78
|
|
Granted
|
|
|
232,543
|
|
|
|
25.57
|
|
Vested
|
|
|
(6,115
|
)
|
|
|
38.74
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
|
21.65
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2009
|
|
|
253,699
|
|
|
$
|
26.87
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, total unrecognized compensation
cost related to non-vested share-based awards amounted to
$13.9 million. This cost is expected to be recognized over
a weighted-average period of 1.7 years. Unearned
compensation cost is amortized by grant on the straight-line
method over the vesting period, with the amortization expense
classified as a component of Selling, general and
administrative expense within the Consolidated Statements
of Operations.
The total intrinsic value of stock options exercised was
$16.1 million, $11.4 million and $65.5 million
during fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
The total fair value of restricted stock vested was
$4.4 million, $1.1 million and $5.5 million
during fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
The total fair value of restricted stock units vested was
$0.2 million during fiscal 2009.
Cash received from the exercise of stock options for fiscal 2009
was $14.8 million. The tax benefit realized from the tax
deductions associated with the exercise of share-based awards
and the vesting of restricted stock totaled $7.1 million
for fiscal 2009.
97
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 13.
|
EARNINGS
(LOSS) PER COMMON SHARE
|
The following table (in millions, except per share data)
presents information necessary to calculate basic and diluted
earnings (loss) per common share. Basic earnings (loss) per
common share are computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted
earnings per common share are computed by dividing net income by
the weighted average number of common shares outstanding plus
all potentially dilutive securities. Stock options with exercise
prices greater than the average market price of the underlying
common shares are excluded from the computation of diluted net
income (loss) per share because they are
out-of-the-money.
The number of common shares covered by
out-of-the-money
stock options was 2.3 million, 4.0 million and
0.17 million common shares for the years ended
September 30, 2009, 2008 and 2007, respectively. Because of
the net loss in fiscal 2008, 0.9 million potential common
shares were not included in the calculation of diluted loss per
share because to do so would have been anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions except per share data)
|
|
|
Net income (loss)
|
|
$
|
153.3
|
|
|
$
|
(10.9
|
)
|
|
$
|
113.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding during the period
|
|
|
65.0
|
|
|
|
64.5
|
|
|
|
65.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2.36
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding during the period
|
|
|
65.0
|
|
|
|
64.5
|
|
|
|
65.2
|
|
Potential common shares
|
|
|
1.1
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding and
dilutive potential common shares
|
|
|
66.1
|
|
|
|
64.5
|
|
|
|
67.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2.32
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes consisted of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
49.9
|
|
|
$
|
27.9
|
|
|
$
|
54.5
|
|
State
|
|
|
5.1
|
|
|
|
2.8
|
|
|
|
5.4
|
|
Foreign
|
|
|
8.4
|
|
|
|
12.5
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
63.4
|
|
|
|
43.2
|
|
|
|
68.4
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(5.5
|
)
|
|
|
(13.6
|
)
|
|
|
6.5
|
|
State
|
|
|
(0.8
|
)
|
|
|
(1.9
|
)
|
|
|
(0.6
|
)
|
Foreign
|
|
|
0.3
|
|
|
|
(1.0
|
)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
(6.0
|
)
|
|
|
(16.5
|
)
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
57.4
|
|
|
$
|
26.7
|
|
|
$
|
74.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The domestic and foreign components of income before taxes were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
191.1
|
|
|
$
|
75.0
|
|
|
$
|
175.3
|
|
Foreign
|
|
|
19.6
|
|
|
|
(59.2
|
)
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
210.7
|
|
|
$
|
15.8
|
|
|
$
|
188.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal corporate income tax rate and
the effective tax rate on income before income taxes from
continuing operations is summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of foreign operations
|
|
|
(0.7
|
)
|
|
|
(4.5
|
)
|
|
|
(0.5
|
)
|
State taxes, net of federal benefit
|
|
|
2.3
|
|
|
|
0.6
|
|
|
|
1.6
|
|
Change in state NOL and credit carryforwards
|
|
|
(0.4
|
)
|
|
|
(1.3
|
)
|
|
|
(0.2
|
)
|
Research & Development tax credit
|
|
|
(0.5
|
)
|
|
|
(4.7
|
)
|
|
|
(0.5
|
)
|
Change in valuation allowances
|
|
|
(8.8
|
)
|
|
|
106.9
|
|
|
|
1.0
|
|
Effect of goodwill impairment and other permanent differences
|
|
|
(0.7
|
)
|
|
|
42.3
|
|
|
|
4.8
|
|
Other
|
|
|
1.0
|
|
|
|
(5.7
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
27.2
|
%
|
|
|
168.6
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes arise from temporary differences between
financial reporting and tax reporting bases of assets and
liabilities, and operating loss and tax credit carryforwards for
tax purposes. The components of the deferred income tax assets
and liabilities as of September 30, 2009 and 2008 were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
DEFERRED TAX ASSETS
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
20.3
|
|
|
$
|
18.5
|
|
Accrued liabilities
|
|
|
76.5
|
|
|
|
64.0
|
|
Postretirement benefits
|
|
|
46.6
|
|
|
|
40.0
|
|
Accounts receivable
|
|
|
8.6
|
|
|
|
8.4
|
|
State NOL carryovers
|
|
|
4.6
|
|
|
|
4.6
|
|
Foreign NOL carryovers
|
|
|
42.0
|
|
|
|
45.9
|
|
Other
|
|
|
16.1
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
214.7
|
|
|
|
194.1
|
|
Valuation allowance
|
|
|
(43.1
|
)
|
|
|
(65.8
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
171.6
|
|
|
|
128.3
|
|
|
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(41.7
|
)
|
|
|
(34.3
|
)
|
Intangible assets
|
|
|
(68.6
|
)
|
|
|
(52.9
|
)
|
Other
|
|
|
(7.1
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(117.4
|
)
|
|
|
(92.8
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
54.2
|
|
|
$
|
35.5
|
|
|
|
|
|
|
|
|
|
|
The net current and non-current components of deferred income
taxes recognized in the Consolidated Balance Sheets were (in
millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net current deferred tax asset (classified with prepaid and
other assets)
|
|
$
|
103.8
|
|
|
$
|
78.1
|
|
Net non-current deferred tax liability (classified with other
liabilities)
|
|
|
(49.6
|
)
|
|
|
(42.6
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
54.2
|
|
|
$
|
35.5
|
|
|
|
|
|
|
|
|
|
|
Tax benefits relating to state net operating loss carryforwards
were $4.6 million at both September 30, 2009 and 2008.
State net operating loss carryforward periods range from 5 to
20 years. Any losses not utilized within a specific
states carryforward period will expire. State net
operating loss carryforwards include $1.1 million of tax
benefits relating to Smith &
Hawken®.
As these losses may only be used against income of
Smith &
Hawken®,
and cannot be used to offset income of the consolidated group, a
full valuation allowance has been recorded against this tax
asset. Tax benefits associated with state tax credits amounted
to $0.4 million and $0.3 million at September 30,
2009 and 2008, respectively.
Fiscal 2009 income tax expense includes the reduction of
$18.4 million of valuation allowances recorded in prior
years to fully reserve deferred tax assets that originated from
impairment charges recorded for the Smith &
Hawken®
business in fiscal 2007 and fiscal 2008. In fiscal 2008, when
the Company was attempting to sell Smith &
Hawken®,
the Company concluded that it would not receive any future tax
benefit from these deferred tax assets as a stock sale would
have resulted in a non-deductible capital loss. Given the
Companys fourth quarter fiscal 2009
100
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
decision to close the Smith &
Hawken®
business, the Company concluded that the losses generated would
be deducted for tax purposes.
Deferred taxes have not been provided on unremitted earnings
approximating $143.0 million of certain foreign
subsidiaries and foreign corporate joint ventures as such
earnings have been permanently reinvested. The Company has also
elected to treat certain foreign entities as disregarded
entities for U.S. tax purposes, which results in their net
income or loss being recognized currently in the Companys
U.S. tax return. As such, the tax benefit of net operating
losses available for foreign statutory tax purposes has already
been recognized for U.S. purposes. Accordingly, a full
valuation allowance is required on the tax benefit of these net
operating losses on global consolidation. The statutory tax
benefit of these net operating loss carryovers amounted to
$40.5 million and $45.9 million for the fiscal years
ended September 30, 2009 and 2008, respectively. A full
valuation allowance has been placed on these assets for
worldwide tax purposes.
GAAP provides that a tax benefit from an uncertain tax position
may be recognized when it is more likely than not that the
position will be sustained upon examination, including
resolutions of any related appeals or litigation processes,
based on the technical merits of the position. The amount
recognized is measured as the largest amount of tax benefit that
is greater than 50% likely of being realized upon settlement.
The Company had $6.2 million and $7.2 million of gross
unrecognized tax benefits related to uncertain tax positions at
September 30, 2009 and 2008, respectively. Included in the
September 30, 2009 and 2008 balances were $6.4 million
and $6.5 million, respectively, of unrecognized tax
benefits that, if recognized, would have an impact on the
effective tax rate.
A reconciliation of the unrecognized tax benefits for fiscal
2009 and fiscal 2008 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
7.2
|
|
|
$
|
10.0
|
|
Additions for tax positions of the current year
|
|
|
0.5
|
|
|
|
2.2
|
|
Additions for tax positions of prior years
|
|
|
1.1
|
|
|
|
0.6
|
|
Reductions for tax positions of the current year
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Reductions for tax positions of prior years
|
|
|
(0.7
|
)
|
|
|
(1.8
|
)
|
Settlements with tax authorities
|
|
|
(0.3
|
)
|
|
|
(1.8
|
)
|
Expiration of statutes of limitation
|
|
|
(1.5
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
6.2
|
|
|
$
|
7.2
|
|
|
|
|
|
|
|
|
|
|
The Company continues to recognize accrued interest and
penalties related to unrecognized tax benefits as a component of
the provision for income taxes. As of both September 30,
2009 and 2008, the Company had $1.2 million accrued for the
payment of interest that, if recognized, would impact the
effective tax rate. As of both September 30, 2009 and 2008,
the Company had $0.6 million accrued for the payment of
penalties that, if recognized, would impact the effective tax
rate. For the year ended September 30, 2009, the Company
recognized a $0.1 million benefit related to tax interest
and tax penalties in its statement of operations.
ScottsMiracle-Gro or one of its subsidiaries files income tax
returns in the U.S. federal jurisdiction and various state,
local and foreign jurisdictions. With few exceptions, the
Company is no longer subject to examinations by these tax
authorities for fiscal years prior to 2006. The Company is
currently under examination by certain foreign and
U.S. state and local tax authorities. In regard to the
foreign audits, the tax periods under investigation are limited
to fiscal years 2006 through 2008. In the Companys third
quarter of fiscal 2008, the Canada Revenue Agency completed an
examination of income tax returns for fiscal years 2002 and 2003
resulting in no material modifications or adjustments to
unrecognized tax benefits. In regards to the U.S. state and
local audits, the tax periods under investigation are limited to
fiscal years 2001 through 2007. In addition to the
aforementioned audits, certain other tax deficiency issues and
refund claims for previous years remain unresolved.
101
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company currently anticipates that few of its open and
active audits will be resolved in the next 12 months. The
Company is unable to make a reasonably reliable estimate as to
when or if cash settlements with taxing authorities may occur.
Although audit outcomes and the timing of audit payments are
subject to significant uncertainty, the Company does not
anticipate that the resolution of these tax matters or any
events related thereto will result in a material change to its
consolidated financial position, results of operations or cash
flows.
Management judgment is required in determining tax provisions
and evaluating tax positions. Management believes its tax
positions and related provisions reflected in the consolidated
financial statements are fully supportable and appropriate. The
Company established reserves for additional income taxes that
may become due if the tax positions are challenged and not
sustained, and as such, the Companys tax provision
includes the impact of recording reserves and changes thereto.
Based on currently available information, the Company believes
that the ultimate outcome of any challenges to its tax positions
will not have a material adverse effect on its financial
position, results of operations or cash flows.
|
|
NOTE 15.
|
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
|
Derivatives
and Hedging
The Company is exposed to market risks, such as changes in
interest rates, currency exchange rates and commodity prices. To
manage the volatility related to these exposures, the Company
enters into various financial transactions. The utilization of
these financial transactions is governed by policies covering
acceptable counterparty exposure, instrument types and other
hedging practices. The Company does not hold or issue derivative
financial instruments for speculative trading purposes.
The Company formally designates and documents qualifying
instruments as hedges of underlying exposures at inception. The
Company formally assesses, both at inception and at least
quarterly, whether the financial instruments used in hedging
transactions are effective at offsetting changes in either the
fair value or cash flows of the related underlying exposure.
Fluctuations in the value of these instruments generally are
offset by changes in the fair value or cash flows of the
underlying exposures being hedged. This offset is driven by the
high degree of effectiveness between the exposure being hedged
and the hedging instrument. GAAP requires all derivative
instruments to be recognized as either assets or liabilities at
fair value in the Consolidated Balance Sheets. The Company
designates commodity hedges as cash flow hedges of forecasted
purchases of commodities and interest rate swap agreements as
cash flow hedges of interest payments on variable rate
borrowings. Any ineffective portion of a change in the fair
value of a qualifying instrument is immediately recognized in
earnings. The amounts recorded in earnings related to
ineffectiveness of derivative hedges for the years ended
September 30, 2009, 2008 and 2007 were not significant.
Foreign
Currency Swap Contracts
The Company periodically uses foreign currency swap contracts to
manage the exchange rate risk associated with intercompany loans
with foreign subsidiaries that are denominated in local
currencies. At September 30, 2009, the notional amount of
outstanding foreign currency swap contracts was
$105.9 million, with a fair value of $(3.9) million.
The fair value of foreign currency swap contracts is determined
based on changes in spot rates. The unrealized loss on the
foreign currency swap contracts approximates the unrealized gain
on the intercompany loans recognized by the Companys
lending subsidiaries.
Interest
Rate Swap Agreements
The Company enters into interest rate swap agreements as a means
to hedge its variable interest rate exposure on debt
instruments. The fair values are reflected in the Companys
Consolidated Balance Sheets. Net amounts to be received or paid
under the swap agreements are reflected as adjustments to
interest expense. Since the interest rate swap agreements have
been designated as hedging instruments, unrealized gains or
losses resulting from adjusting
102
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these swaps to fair value are recorded as elements of
accumulated other comprehensive loss (AOCI) within
the Consolidated Balance Sheets. The fair value of the swap
agreements is determined based on the present value of the
estimated future net cash flows using implied rates in the
applicable yield curve as of the valuation date.
At September 30, 2009 and 2008, the Company had outstanding
interest rate swap agreements with major financial institutions
that effectively converted a portion of the Companys
variable-rate debt to a fixed rate. The swap agreements had a
total U.S. dollar equivalent notional amount of
$650.0 million and $711.4 million at
September 30, 2009 and 2008, respectively. Refer to
NOTE 11. DEBT for the terms of the swap
agreements outstanding at September 30, 2009. Included in
the AOCI balance at September 30, 2009 is a pre-tax loss of
$16.5 million related to interest rate swap agreements that
is expected to be reclassified to earnings during the next
12 months, consistent with the timing of the underlying
hedged transactions.
Commodity
Hedges
The Company has outstanding hedging arrangements at
September 30, 2009 designed to fix the price of a portion
of its urea needs. The contracts are designated as hedges of the
Companys exposure to future cash flow fluctuations
associated with the cost of urea. The objective of the hedges is
to mitigate the earnings and cash flow volatility attributable
to the risk of changing prices. Unrealized gains or losses in
the fair value of these contracts are recorded to the AOCI
component of shareholders equity. Realized gains or losses
remain as a component of AOCI until the related inventory is
sold. Upon sale of the underlying inventory, the gain or loss is
reclassified to cost of sales. Included in the AOCI balance at
September 30, 2009 is a pre-tax loss of $3.5 million
related to urea derivatives that is expected to be reclassified
to earnings during the next 12 months, consistent with the
timing of the underlying hedged transactions.
Periodically, the Company also uses fuel derivatives to
partially mitigate the effect of fluctuating diesel and gasoline
costs on operating results. Historically, the majority of fuel
derivatives used by the Company has not qualified for hedge
accounting treatment in accordance with GAAP and are
marked-to-market,
with unrealized gains and losses on open contracts and realized
gains or losses on settled contracts recorded as an element of
cost of sales.
In the third quarter of fiscal 2009, the Company entered into
fuel derivatives for its Scotts
LawnService®
business that qualify for hedge accounting treatment. Unrealized
gains or losses in the fair value of these contracts are
recorded to the AOCI component of shareholders equity
except for any ineffective portion of the change in fair value,
which is immediately recorded in earnings. For the effective
portion of the change in fair value, realized gains or losses
remain as a component of AOCI until the related fuel is consumed
by the Scotts
LawnService®
service vehicles. Upon consumption of the fuel, the gain or loss
is reclassified to cost of sales. Included in the AOCI balance
at September 30, 2009 is a pre-tax gain of
$0.1 million related to fuel derivatives that is expected
to be reclassified to earnings during the next 12 months,
consistent with the timing of the underlying hedged transactions.
As of September 30, 2009, the Company had the following
outstanding commodity contracts that were entered into to hedge
forecasted purchases:
|
|
|
Commodity
|
|
Volume
|
|
Urea
|
|
74,000 tons
|
Diesel
|
|
966,000 gallons
|
Gasoline
|
|
336,000 gallons
|
103
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Values of Derivative Instruments
The fair values of the Companys derivative instruments
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets/(Liabilities)
|
|
Derivatives Designated as
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Hedging Instruments
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Interest rate swap agreements
|
|
Other assets
|
|
$
|
|
|
|
Other assets
|
|
$
|
0.4
|
|
|
|
Other liabilities
|
|
|
(23.7
|
)
|
|
Other liabilities
|
|
|
(15.4
|
)
|
Commodity hedging instruments
|
|
Prepaid and other assets
|
|
|
0.1
|
|
|
Prepaid and other assets
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
Other current liabilities
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
(23.6
|
)
|
|
|
|
$
|
(23.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated as
|
|
|
|
|
|
|
|
|
|
|
Hedging Instruments(1)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swap contracts
|
|
Other current liabilities
|
|
$
|
(3.9
|
)
|
|
Other current liabilities
|
|
$
|
|
|
Commodity hedging instruments
|
|
Prepaid and other assets
|
|
|
0.1
|
|
|
Prepaid and other assets
|
|
$
|
1.9
|
|
|
|
Other current liabilities
|
|
|
(0.1
|
)
|
|
Other current liabilities
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments(1)
|
|
|
|
$
|
(3.9
|
)
|
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
(27.5
|
)
|
|
|
|
$
|
(22.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See discussion above for additional information regarding the
Companys purpose for entering into derivatives not
designated as hedging instruments and its overall risk
management strategy. |
Refer to NOTE 16. FAIR VALUE MEASUREMENTS for
the Companys fair value measurements of derivative
instruments as they relate to the valuation hierarchy.
The effect of derivative instruments on OCI and the Consolidated
Statements of Operations for the years ended September 30,
2009 and 2008 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
Recognized in OCI
|
|
|
|
Year Ended
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
2009
|
|
|
2008
|
|
|
Interest rate swap agreements
|
|
$
|
(20.5
|
)
|
|
$
|
(12.9
|
)
|
Commodity hedging instruments
|
|
|
(6.7
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(27.2
|
)
|
|
$
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
Location of Gain/(Loss)
|
|
Reclassified From OCI Into Earnings
|
|
Derivatives in Cash Flow
|
|
Reclassified From OCI Into Earnings
|
|
Year Ended
|
|
Hedging Relationships
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
(16.1
|
)
|
|
$
|
(7.1
|
)
|
Commodity hedging instruments
|
|
Cost of sales
|
|
|
(8.0
|
)
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(24.1
|
)
|
|
$
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
104
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
Location of Gain/(Loss)
|
|
Recognized in Earnings
|
|
Derivatives not Designated As
|
|
Recognized in Income
|
|
Year Ended
|
|
Hedging Instruments
|
|
|
|
2009
|
|
|
2008
|
|
|
Foreign currency swap contracts
|
|
Interest expense
|
|
$
|
(10.2
|
)
|
|
$
|
5.7
|
|
Commodity hedging instruments
|
|
Cost of sales
|
|
|
(0.7
|
)
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(10.9
|
)
|
|
$
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 16.
|
FAIR
VALUE MEASUREMENTS
|
As disclosed in NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, the Company adopted new accounting
guidance with respect to the fair value measurement and
disclosure of financial assets and liabilities. The guidance
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. It
defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in
the principal or the most advantageous market for the asset or
liability in an orderly transaction between market participants
at the measurement date. GAAP establishes a three-level fair
value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy requires entities to maximize the use of
observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are as
follows:
Level 1 Quoted prices in active markets
for identical assets or liabilities.
Level 2 Observable inputs other than
quoted prices included in Level 1, such as quoted prices
for similar assets and liabilities in active markets; quoted
prices for similar assets and liabilities in markets that are
not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3 Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. This
includes pricing models, discounted cash flow methodologies and
similar techniques that use significant unobservable inputs.
The following describes the valuation methodologies used for
financial assets and liabilities measured at fair value, as well
as the general classification within the valuation hierarchy.
Derivatives
Derivatives consist of foreign currency, interest rate and
commodity derivative instruments. The Company uses foreign
currency swap contracts to manage the exchange rate risk
associated with intercompany loans with foreign subsidiaries
that are denominated in U.S. dollars. These contracts are
valued using observable forward rates in commonly quoted
intervals for the full term of the contracts.
Interest rate derivatives consist of interest rate swap
agreements. The Company enters into interest rate swap
agreements as a means to hedge its variable interest rate
exposure on debt instruments. The fair value of the swap
agreements is determined based on the present value of the
estimated future net cash flows using implied rates in the
applicable yield curve as of the valuation date.
The Company has hedging arrangements designed to fix the price
of a portion of its urea and fuel needs. The objective of the
hedges is to mitigate the earnings and cash flow volatility
attributable to the risk of changing prices. These contracts are
measured using observable commodity exchange prices in active
markets.
These derivative instruments are classified within Level 2
of the valuation hierarchy and are included within other
noncurrent assets and other noncurrent liabilities in our
Consolidated Balance Sheets, except for derivative instruments
expected to be settled within the next 12 months, which are
included within prepaid and other assets and other current
liabilities.
105
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For further information on the Companys derivative
instruments, refer to NOTE 15. DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES.
Other
Other financial assets and liabilities consist of investment
securities in non-qualified retirement plan assets. These
securities are valued using observable market prices in active
markets. These investment securities, and the related
liabilities, are classified within Level 1 of the valuation
hierarchy and are included within other noncurrent assets and
other noncurrent liabilities in our Consolidated Balance Sheets.
The following table presents the Companys financial assets
and liabilities measured at fair value on a recurring basis at
September 30, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity hedging instruments
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
Other
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5.7
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
|
|
|
$
|
(23.7
|
)
|
|
$
|
|
|
|
$
|
(23.7
|
)
|
Foreign currency swap contracts
|
|
|
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
(3.9
|
)
|
Commodity hedging instruments
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(27.7
|
)
|
|
$
|
|
|
|
$
|
(27.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17.
|
OPERATING
LEASES
|
The Company leases certain property and equipment from third
parties under various non-cancelable operating lease agreements.
Certain lease agreements contain renewal and purchase options.
The lease agreements generally provide that the Company pay
taxes, insurance and maintenance expenses related to the leased
assets. Future minimum lease payments for non-cancelable
operating leases at September 30, 2009, are as follows
(in millions):
|
|
|
|
|
2010
|
|
$
|
46.1
|
|
2011
|
|
|
38.7
|
|
2012
|
|
|
32.6
|
|
2013
|
|
|
22.5
|
|
2014
|
|
|
20.7
|
|
Thereafter
|
|
|
26.2
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
186.8
|
|
|
|
|
|
|
Included in the future minimum lease payments are lease payments
scheduled to occur in 2010 and beyond in accordance with the
Smith &
Hawken®
retail store lease agreements. For Smith &
Hawken®
lease termination agreements that were executed as of
September 30, 2009, the remaining lease payments, if any,
cease in the first quarter of fiscal 2010. For Smith &
Hawken®
lease termination agreements not executed as of
September 30, 2009, the remaining lease payments reflected
in the table are in accordance with the terms of the original
lease agreement.
106
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
However, to the extent Smith &
Hawken®
lease termination agreements are executed subsequent to
September 30, 2009, the future lease payments reflected in
the table will decrease.
The Company also leases certain vehicles (primarily cars and
light trucks) under agreements that are cancelable after the
first year, but typically continue on a
month-to-month
basis until canceled by the Company. The vehicle leases and
certain other non-cancelable operating leases contain residual
value guarantees that create a contingent obligation on the part
of the Company to compensate the lessor if the leased asset
cannot be sold for an amount in excess of a specified minimum
value at the conclusion of the lease term. If all such vehicle
leases had been canceled as of September 30, 2009, the
Companys residual value guarantee would have approximated
$5.9 million.
Other residual value guarantee amounts that apply at the
conclusion of the non-cancelable lease term are as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
Lease
|
|
|
Guarantee
|
|
Termination Date
|
|
Scotts
LawnService®
vehicles
|
|
$
|
15.7 million
|
|
|
|
2013
|
|
Corporate aircraft
|
|
|
12.8 million
|
|
|
|
2012
|
|
Rent expense for fiscal 2009, fiscal 2008 and fiscal 2007
totaled $65.6 million, $68.1 million and
$74.9 million, respectively.
The Company has the following unconditional purchase obligations
due during each of the next five fiscal years that have not been
recognized on the Consolidated Balance Sheet at
September 30, 2009 (in millions):
|
|
|
|
|
2010
|
|
$
|
235.5
|
|
2011
|
|
|
106.4
|
|
2012
|
|
|
65.0
|
|
2013
|
|
|
42.9
|
|
2014
|
|
|
11.6
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
461.4
|
|
|
|
|
|
|
Purchase obligations primarily represent commitments for
materials used in the Companys manufacturing processes, as
well as commitments for warehouse services, grass seed and
out-sourced information services.
Management regularly evaluates the Companys contingencies,
including various lawsuits and claims which arise in the normal
course of business, product and general liabilities,
workers compensation, property losses and other fiduciary
liabilities for which the Company is self-insured or retains a
high exposure limit. Self-insurance reserves are established
based on actuarial loss estimates for specific individual claims
plus actuarially estimated amounts for incurred but not reported
claims and adverse development factors for existing claims.
Legal costs incurred in connection with the resolution of
claims, lawsuits and other contingencies generally are expensed
as incurred. In the opinion of management, its assessment of
contingencies is reasonable and related reserves, in the
aggregate, are adequate; however, there can be no assurance that
final resolution of these matters will not have a
107
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
material adverse effect on the Companys financial
condition, results of operations or cash flows. The following
are the more significant of the Companys identified
contingencies:
FIFRA
Compliance and the Corresponding Governmental
Investigations
For a description of the Companys ongoing FIFRA compliance
efforts and the corresponding governmental investigation, see
NOTE 2. PRODUCT REGISTRATION AND RECALL MATTERS.
U.S.
Horticultural Supply, Inc. (F/K/A E.C. Geiger,
Inc.)
On November 5, 2004, U.S. Horticultural Supply, Inc.
(Geiger) filed suit against the Company in the
U.S. District Court for the Eastern District of
Pennsylvania. The complaint alleged that the Company conspired
with another distributor, Griffin Greenhouse Supplies, Inc., to
restrain trade in the horticultural products market, in
violation of Section 1 of the Sherman Antitrust Act.
Geigers damages expert quantified Geigers alleged
damages at approximately $3.3 million, which could have
been trebled under antitrust laws. Geiger also sought recovery
of attorneys fees and costs. On January 13, 2009, the
U.S. District Court granted the Companys motion for
summary judgment and entered judgment for the Company. Geiger
has appealed the ruling to the U.S. Court of Appeals for
the Third Circuit.
The Company continues to pursue the collection of funds owed to
the Company by Geiger as confirmed by the Companys
April 25, 2005 judgment against Geiger.
Other
Regulatory Matters
In 1997, the Ohio Environmental Protection Agency initiated an
enforcement action against the Company with respect to alleged
surface water violations and inadequate wastewater treatment
capabilities at its Marysville, Ohio facility, seeking
corrective action under the federal Resource Conservation and
Recovery Act. The action related to discharges from
on-site
waste water treatment and several discontinued
on-site
disposal areas. Pursuant to a Consent Order entered by the Union
County Common Pleas Court in 2002, the Company is actively
engaged in restoring the site to eliminate exposure to waste
materials from the discontinued
on-site
disposal areas.
At September 30, 2009, $3.2 million was accrued for
other regulatory matters in the Other liabilities
line in the Consolidated Balance Sheet. The amounts accrued are
believed to be adequate to cover such known environmental
exposures based on current facts and estimates of likely
outcomes. However, if facts and circumstances change
significantly, they could result in a material adverse effect on
the Companys financial condition, results of operations or
cash flows.
Other
The Company has been named as a defendant in a number of cases
alleging injuries that the lawsuits claim resulted from exposure
to asbestos-containing products, apparently based on the
Companys historic use of vermiculite in certain of its
products. The complaints in these cases are not specific about
the plaintiffs contacts with the Company or its products.
The Company in each case is one of numerous defendants and none
of the claims seek damages from the Company alone. The Company
believes that the claims against it are without merit and is
vigorously defending against them. It is not currently possible
to reasonably estimate a probable loss, if any, associated with
these cases and, accordingly, no accrual or reserves have been
recorded in the Companys consolidated financial
statements. The Company is reviewing agreements and policies
that may provide insurance coverage or indemnity as to these
claims and is pursuing coverage under some of these agreements
and policies, although there can be no assurance of the results
of these efforts. There can be no assurance that these cases,
whether as a result of adverse outcomes or as a result of
significant defense costs, will not have a material adverse
effect on the Companys financial condition, results of
operations or cash flows.
108
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is reviewing agreements and policies that may
provide insurance coverage or indemnity as to these claims and
is pursuing coverage under some of these agreements and
policies, although there can be no assurance of the results of
these efforts.
On April 27, 2007, the Company received a proposed Order On
Consent from the New York State Department of Environmental
Conservation (the Proposed Order) alleging that,
during calendar year 2003, the Company and James Hagedorn,
individually and as Chairman of the Board and Chief Executive
Officer of the Company, unlawfully donated to a Port Washington,
New York youth sports organization forty bags of
Scotts®
LawnPro Annual Program Step 3 Insect Control Plus Fertilizer
which, while federally registered, was allegedly not registered
in the state of New York. The Proposed Order requests penalties
totaling $695,000. The Company has responded in writing to the
New York State Department of Environmental Conservation with
respect to the Proposed Order and is awaiting a response.
The Company is involved in other lawsuits and claims which arise
in the normal course of business. These claims individually and
in the aggregate are not expected to result in a material
adverse effect on the Companys financial condition,
results of operations or cash flows.
|
|
NOTE 20.
|
CONCENTRATIONS
OF CREDIT RISK
|
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade
accounts receivable. The Company sells its consumer products to
a wide variety of retailers, including home centers, mass
merchandisers, warehouse clubs, large hardware chains,
independent hardware stores, nurseries, garden centers, food and
drug stores, commercial nurseries and greenhouses and specialty
crop growers. Concentrations of accounts receivable at
September 30, net of accounts receivable pledged under the
terms of the 2009 MARP Agreement and the 2008 MARP Agreement, as
applicable whereby the purchaser has assumed the risk associated
with the debtors financial inability to pay
($17.0 million and $146.6 million for 2009 and 2008,
respectively), were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Due from customers geographically located in North America
|
|
|
76
|
%
|
|
|
53
|
%
|
Applicable to the consumer business
|
|
|
84
|
%
|
|
|
61
|
%
|
Applicable to Scotts
LawnService®,
the professional businesses (primarily distributors) and
Smith &
Hawken®
|
|
|
16
|
%
|
|
|
39
|
%
|
Top 3 customers as a percent of total North America Consumer
accounts receivable
|
|
|
63
|
%
|
|
|
0
|
%
|
The remainder of the Companys accounts receivable at
September 30, 2009 and 2008, were generated from customers
located outside of North America, primarily retailers,
distributors, nurseries and growers in Europe. No concentrations
of customers or individual customers within this group accounted
for more than 10% of the Companys accounts receivable at
either balance sheet date.
The Companys three largest customers are reported within
the Global Consumer segment, and are the only customers that
individually represent more than 10% of reported consolidated
net sales for each of the last three fiscal years. These three
customers accounted for the following percentages of
consolidated net sales for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Largest
|
|
|
2nd Largest
|
|
|
3rd Largest
|
|
|
|
Customer
|
|
|
Customer
|
|
|
Customer
|
|
|
2009
|
|
|
25.7
|
%
|
|
|
14.8
|
%
|
|
|
14.2
|
%
|
2008
|
|
|
21.0
|
%
|
|
|
13.5
|
%
|
|
|
13.4
|
%
|
2007
|
|
|
20.2
|
%
|
|
|
10.9
|
%
|
|
|
10.2
|
%
|
109
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 21.
|
OTHER
(INCOME) EXPENSE
|
Other (income) expense consisted of the following for the fiscal
years ended September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Royalty income
|
|
$
|
(4.1
|
)
|
|
$
|
(9.6
|
)
|
|
$
|
(9.9
|
)
|
Gain from peat transaction
|
|
|
(1.0
|
)
|
|
|
(1.2
|
)
|
|
|
(1.0
|
)
|
Franchise fees
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Foreign currency (gains) losses
|
|
|
0.1
|
|
|
|
0.9
|
|
|
|
(0.2
|
)
|
Other, net
|
|
|
3.4
|
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2.2
|
)
|
|
$
|
(10.4
|
)
|
|
$
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 22.
|
SEGMENT
INFORMATION
|
For fiscal 2009 and fiscal 2008, the Company divided its
business into the following segments Global
Consumer, Global Professional, Scotts
LawnService®,
and Corporate & Other. This division of reportable
segments is consistent with how the segments report to and are
managed by senior management of the Company.
The Global Consumer segment consists of the North American
Consumer and International Consumer business groups. The
business groups comprising this segment manufacture, market and
sell dry, granular slow-release lawn fertilizers, combination
lawn fertilizer and control products, grass seed, spreaders,
water-soluble, liquid and continuous release garden and indoor
plant foods, plant care products, potting, garden and lawn
soils, mulches and other growing media products and pesticide
products. Products are marketed to mass merchandisers, home
centers, large hardware chains, warehouse clubs, distributors,
garden centers and grocers in the United States, Canada and
Europe.
The Global Professional segment is focused on a full line of
horticultural products including controlled-release and
water-soluble fertilizers and plant protection products, wetting
agents, grass seed products, spreaders and customer application
services. Products are sold to commercial nurseries and
greenhouses and specialty crop growers, primarily in North
America and Europe. Our consumer businesses in Australia and
Latin America are also part of the Global Professional segment.
The Scotts
LawnService®
segment provides lawn fertilization, disease and insect control
and other related services such as core aeration, tree and shrub
fertilization and limited pest control services primarily to
residential consumers through company-owned branches and
franchises in the United States.
The Corporate & Other segment consists of the
Smith &
Hawken®
business and corporate general and administrative expenses.
The following table presents segment financial information for
fiscal 2009, fiscal 2008 and fiscal 2007 (in millions) in
accordance with GAAP. The presentation of the segment financial
information is consistent with the
110
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
basis used by management (i.e., certain costs not allocated to
business segments for internal management reporting purposes are
not allocated for purposes of this presentation).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Consumer
|
|
$
|
2,457.6
|
|
|
$
|
2,250.1
|
|
|
$
|
2,176.2
|
|
Global Professional
|
|
|
293.1
|
|
|
|
348.8
|
|
|
|
281.9
|
|
Scotts
LawnService®
|
|
|
231.1
|
|
|
|
247.4
|
|
|
|
230.5
|
|
Corporate & Other
|
|
|
160.8
|
|
|
|
158.6
|
|
|
|
184.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
3,142.6
|
|
|
|
3,004.9
|
|
|
|
2,872.6
|
|
Roundup®
amortization
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
Product registration and recall matters returns
|
|
|
(0.3
|
)
|
|
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,141.5
|
|
|
$
|
2,981.8
|
|
|
$
|
2,871.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Consumer
|
|
$
|
429.3
|
|
|
$
|
344.5
|
|
|
$
|
379.1
|
|
Global Professional
|
|
|
19.4
|
|
|
|
33.7
|
|
|
|
31.3
|
|
Scotts
LawnService®
|
|
|
19.0
|
|
|
|
11.3
|
|
|
|
11.3
|
|
Corporate & Other
|
|
|
(144.8
|
)
|
|
|
(87.2
|
)
|
|
|
(90.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
322.9
|
|
|
|
302.3
|
|
|
|
331.2
|
|
Roundup®
amortization
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
Amortization
|
|
|
(11.7
|
)
|
|
|
(15.6
|
)
|
|
|
(15.3
|
)
|
Product registration and recall matters
|
|
|
(28.6
|
)
|
|
|
(51.1
|
)
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
(136.8
|
)
|
|
|
(35.3
|
)
|
Restructuring and other charges
|
|
|
(14.7
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
267.1
|
|
|
$
|
98.0
|
|
|
$
|
277.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Consumer
|
|
$
|
39.6
|
|
|
$
|
42.2
|
|
|
$
|
39.1
|
|
Global Professional
|
|
|
3.6
|
|
|
|
3.3
|
|
|
|
3.6
|
|
Scotts
LawnService®
|
|
|
4.9
|
|
|
|
5.2
|
|
|
|
4.1
|
|
Corporate & Other
|
|
|
12.3
|
|
|
|
19.6
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60.4
|
|
|
$
|
70.3
|
|
|
$
|
67.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Consumer
|
|
$
|
62.6
|
|
|
$
|
50.2
|
|
|
$
|
37.8
|
|
Global Professional
|
|
|
1.8
|
|
|
|
1.0
|
|
|
|
1.2
|
|
Scotts
LawnService®
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
3.8
|
|
Corporate & Other
|
|
|
9.2
|
|
|
|
7.2
|
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75.4
|
|
|
$
|
60.2
|
|
|
$
|
54.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Consumer
|
|
$
|
1,478.8
|
|
|
$
|
1,483.8
|
|
|
|
|
|
Global Professional
|
|
|
359.8
|
|
|
|
289.9
|
|
|
|
|
|
Scotts
LawnService®
|
|
|
176.1
|
|
|
|
186.5
|
|
|
|
|
|
Corporate & Other
|
|
|
205.4
|
|
|
|
196.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,220.1
|
|
|
$
|
2,156.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss) represents earnings before
amortization of intangible assets, interest and taxes, since
this is the measure of profitability used by management.
Accordingly, the Corporate & Other operating loss
includes unallocated corporate general and administrative
expenses and certain other income/expense not allocated to the
business segments.
Total assets reported for the Companys operating segments
include the intangible assets for the acquired businesses within
those segments. Corporate & Other assets primarily
include deferred financing and debt issuance costs and corporate
intangible assets, as well as deferred tax assets and
Smith &
Hawken®
assets.
The following table presents net sales and property, plant and
equipment by geographic area for fiscal 2009, fiscal 2008 and
fiscal 2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,626.2
|
|
|
$
|
2,435.7
|
|
|
$
|
2,402.0
|
|
International
|
|
|
515.3
|
|
|
|
546.1
|
|
|
|
469.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,141.5
|
|
|
$
|
2,981.8
|
|
|
$
|
2,871.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
321.6
|
|
|
$
|
297.3
|
|
|
$
|
313.9
|
|
International
|
|
|
48.1
|
|
|
|
46.8
|
|
|
|
52.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
369.7
|
|
|
$
|
344.1
|
|
|
$
|
365.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 23.
|
QUARTERLY
CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
|
The following is a summary of the unaudited quarterly results of
operations for fiscal 2009 and fiscal 2008 (in millions, except
per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Full Year
|
|
FISCAL 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
318.0
|
|
|
$
|
960.1
|
|
|
$
|
1,280.0
|
|
|
$
|
583.4
|
|
|
$
|
3,141.5
|
|
Gross profit
|
|
|
84.2
|
|
|
|
358.3
|
|
|
|
486.8
|
|
|
|
159.7
|
|
|
|
1,089.0
|
|
Net income (loss)
|
|
|
(57.0
|
)
|
|
|
77.4
|
|
|
|
147.8
|
|
|
|
(14.9
|
)
|
|
|
153.3
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.88
|
)
|
|
$
|
1.19
|
|
|
$
|
2.27
|
|
|
$
|
(0.23
|
)
|
|
$
|
2.36
|
|
Common shares used in basic EPS calculation
|
|
|
64.7
|
|
|
|
64.9
|
|
|
|
65.0
|
|
|
|
65.3
|
|
|
|
65.0
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.88
|
)
|
|
$
|
1.18
|
|
|
$
|
2.23
|
|
|
$
|
(0.23
|
)
|
|
$
|
2.32
|
|
Common shares and dilutive potential common shares used in
diluted EPS calculation
|
|
|
64.7
|
|
|
|
65.8
|
|
|
|
66.1
|
|
|
|
65.3
|
|
|
|
66.1
|
|
112
The
Scotts Miracle-Gro Company
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Full Year
|
|
FISCAL 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
308.7
|
|
|
$
|
958.0
|
|
|
$
|
1,170.9
|
|
|
$
|
544.2
|
|
|
$
|
2,981.8
|
|
Gross profit
|
|
|
71.3
|
|
|
|
322.8
|
|
|
|
423.8
|
|
|
|
121.7
|
|
|
|
939.6
|
|
Net income (loss)
|
|
|
(56.8
|
)
|
|
|
58.0
|
|
|
|
22.6
|
|
|
|
(34.7
|
)
|
|
|
(10.9
|
)
|
Basic earnings (loss) per common share
|
|
$
|
(0.89
|
)
|
|
$
|
0.90
|
|
|
$
|
0.35
|
|
|
$
|
(0.54
|
)
|
|
$
|
(0.17
|
)
|
Common shares used in basic EPS calculation
|
|
|
64.2
|
|
|
|
64.4
|
|
|
|
64.6
|
|
|
|
64.7
|
|
|
|
64.5
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.89
|
)
|
|
$
|
0.88
|
|
|
$
|
0.35
|
|
|
$
|
(0.54
|
)
|
|
$
|
(0.17
|
)
|
Common shares and dilutive potential common shares used in
diluted EPS calculation
|
|
|
64.2
|
|
|
|
65.6
|
|
|
|
65.3
|
|
|
|
64.7
|
|
|
|
64.5
|
|
Common share equivalents, such as share-based awards, are
excluded from the diluted loss per common share calculation in
periods where there is a net loss because their effect is
anti-dilutive.
The Companys business is highly seasonal, with 70% to 75%
of net sales occurring in the second and third fiscal quarters
combined.
Unusual items during fiscal 2009 consisted of product
registration and recall charges and Smith &
Hawken®
restructuring and other charges. These items are reflected in
the quarterly financial information as follows: first quarter
product registration and recall charges of $7.6 million;
second quarter product registration and recall charges of
$8.0 million; third quarter product registration and recall
charges of $6.4 million and Smith &
Hawken®
restructuring and other charges of $2.7 million; and fourth
quarter product registration and recall charges of
$6.6 million and Smith &
Hawken®
restructuring and other charges of $12.0 million.
Unusual items during fiscal 2008 consisted of impairment and
product registration and recall charges. These items are
reflected in the quarterly financial information as follows:
second quarter product registration and recall charges of
$30.8 million; third quarter product registration and
recall charges of $10.2 million and impairment of
intangible assets and goodwill of $123.3 million; and
fourth quarter product registration and recall charges of
$10.1 million and impairment of intangible assets and
goodwill of $13.5 million.
113
The
Scotts Miracle-Gro Company
for the
fiscal year ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
Column F
|
|
|
|
Balance
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
at
|
|
|
|
|
|
Charged
|
|
|
Credited
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Reserves
|
|
|
to
|
|
|
and
|
|
|
at End of
|
|
Classification
|
|
of Period
|
|
|
Acquired
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Period
|
|
|
|
(In millions)
|
|
|
Valuation and qualifying accounts deducted from the assets to
which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve
|
|
$
|
17.5
|
|
|
$
|
|
|
|
$
|
16.4
|
|
|
$
|
(6.9
|
)
|
|
$
|
27.0
|
|
Inventory reserve product recalls
|
|
|
8.7
|
|
|
|
|
|
|
|
2.9
|
|
|
|
(3.3
|
)
|
|
|
8.3
|
|
Allowance for doubtful accounts
|
|
|
10.6
|
|
|
|
|
|
|
|
6.2
|
|
|
|
(5.7
|
)
|
|
|
11.1
|
|
Income tax valuation allowance
|
|
|
65.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
(24.5
|
)
|
|
|
43.1
|
|
Schedule II
Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
Column F
|
|
|
|
Balance
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
at
|
|
|
|
|
|
Charged
|
|
|
Credited
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Reserves
|
|
|
to
|
|
|
and
|
|
|
at End of
|
|
Classification
|
|
of Period
|
|
|
Acquired
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Period
|
|
|
|
(In millions)
|
|
|
Valuation and qualifying accounts deducted from the assets to
which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve
|
|
$
|
15.6
|
|
|
$
|
|
|
|
$
|
13.3
|
|
|
$
|
(11.4
|
)
|
|
$
|
17.5
|
|
Inventory reserve product recalls
|
|
|
|
|
|
|
|
|
|
|
16.7
|
|
|
|
(8.0
|
)
|
|
|
8.7
|
|
Allowance for doubtful accounts
|
|
|
11.4
|
|
|
|
|
|
|
|
4.7
|
|
|
|
(5.5
|
)
|
|
|
10.6
|
|
Income tax valuation allowance
|
|
|
41.0
|
|
|
|
|
|
|
|
27.0
|
|
|
|
(2.2
|
)
|
|
|
65.8
|
|
Schedule II
Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
Column F
|
|
|
|
Balance
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
at
|
|
|
|
|
|
Charged
|
|
|
Credited
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Reserves
|
|
|
to
|
|
|
and
|
|
|
at End of
|
|
Classification
|
|
of Period
|
|
|
Acquired
|
|
|
Expense
|
|
|
Write-Offs
|
|
|
Period
|
|
|
|
(In millions)
|
|
|
Valuation and qualifying accounts deducted from the assets to
which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve
|
|
$
|
15.1
|
|
|
$
|
|
|
|
$
|
9.6
|
|
|
$
|
(9.1
|
)
|
|
$
|
15.6
|
|
Allowance for doubtful accounts
|
|
|
11.3
|
|
|
|
4.1
|
|
|
|
1.3
|
|
|
|
(5.3
|
)
|
|
|
11.4
|
|
Income tax valuation allowance
|
|
|
35.4
|
|
|
|
|
|
|
|
8.5
|
|
|
|
(2.9
|
)
|
|
|
41.0
|
|
114
The
Scotts Miracle-Gro Company
Index to
Exhibits
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
2
|
.1(a)
|
|
Amended and Restated Agreement and Plan of Merger, dated as of
May 19, 1995, among Sterns Miracle-Gro Products,
Inc., Sterns Nurseries, Inc., Miracle-Gro Lawn Products
Inc., Miracle-Gro Products Limited, Hagedorn Partnership, L.P.,
the general partners of Hagedorn Partnership, L.P., Horace
Hagedorn, Community Funds, Inc., and John Kenlon, The Scotts
Company and ZYX Corporation
|
|
Incorporated herein by reference to the Current Report on Form
8-K of The Scotts Company, a Delaware corporation, filed June 2,
1995 (File No. 0-19768) [Exhibit 2(b)]
|
|
2
|
.1(b)
|
|
First Amendment to Amended and Restated Agreement and Plan of
Merger, made and entered into as of October 1, 1999, among
The Scotts Company, Scotts Miracle-Gro Products, Inc. (as
successor to ZYX Corporation and Sterns Miracle-Gro
Products, Inc.), Miracle-Gro Lawn Products Inc., Miracle-Gro
Products Limited, Hagedorn Partnership, L.P., Community Funds,
Inc., Horace Hagedorn and John Kenlon, and James Hagedorn,
Katherine Hagedorn Littlefield, Paul Hagedorn, Peter Hagedorn,
Robert Hagedorn and Susan Hagedorn
|
|
Incorporated herein by reference to the Current Report on Form
8-K of The Scotts Company, an Ohio corporation, filed October 5,
1999 (File No. 1-13292) [Exhibit 2]
|
|
3
|
.1(a)
|
|
Initial Articles of Incorporation of The Scotts Miracle-Gro
Company as filed with the Ohio Secretary of State on
November 22, 2004
|
|
Incorporated herein by reference to the Current Report on Form
8-K of The Scotts Miracle-Gro Company (the
Registrant) filed March 24, 2005 (File No. 1-11593)
[Exhibit 3.1]
|
|
3
|
.1(b)
|
|
Certificate of Amendment by Shareholders to Articles of
Incorporation of The Scotts Miracle-Gro Company as filed with
the Ohio Secretary of State on March 18, 2005
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed March 24, 2005 (File No.
1-11593) [Exhibit 3.2]
|
|
3
|
.2
|
|
Code of Regulations of The Scotts Miracle-Gro Company
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed March 24, 2005 (File No.
1-11593) [Exhibit 3.3]
|
|
4
|
.1(a)
|
|
Amended and Restated Credit Agreement, dated as of
February 7, 2007, by and among The Scotts Miracle-Gro
Company as the Borrower; the Subsidiary Borrowers
(as defined in the Amended and Restated Credit Agreement); the
several banks and other financial institutions from time to time
parties to the Amended and Restated Credit Agreement; Bank of
America, N.A., as Syndication Agent; The Bank of
Tokyo-Mitsubushi UFJ. Ltd, BNP Paribas, CoBank, ACB, BMO Capital
Markets Financing, Inc., LaSalle Bank N.A., Cooperatieve
Centrale Raiffeisen Boerenleenbank, B.A. Rabobank
Nederland, New York Branch, Citicorp North America, Inc.
and The Bank of Nova Scotia, as Documentation Agents; and
JPMorgan Chase Bank, N.A., as Administrative Agent
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2007 (File
No. 1-11593)
[Exhibit 4(a)]
|
|
4
|
.1(b)
|
|
First Amendment, dated as of April 10, 2007, to the Amended
and Restated Credit Agreement, dated as of February 7,
2007, by and among The Scotts Miracle-Gro Company as the
Borrower; the Subsidiary Borrowers (as defined in
the Amended and Restated Credit Agreement); the several banks
and other financial institutions from time to time parties to
the Amended and Restated Credit Agreement; the Syndication Agent
and the Documentation Agents named in the Amended and Restated
Credit Agreement; and JPMorgan Chase Bank, N.A., as
Administrative Agent
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2007 (File
No. 1-11593)
[Exhibit 4(b)]
|
115
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
4
|
.2
|
|
Amended and Restated Guarantee and Collateral Agreement, dated
as of February 7, 2007, made by The Scotts Miracle-Gro
Company and each Domestic Subsidiary Borrower (and certain of
the Subsidiary Borrowers domestic subsidiaries) under the
Amended and Restated Credit Agreement in favor of JPMorgan Chase
Bank, N.A., as Administrative Agent
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2007 (File
No. 1-11593)
[Exhibit 4(c)]
|
|
4
|
.3
|
|
Foreign Pledge Agreement Acknowledgement and Confirmation, dated
as of March 30, 2007, entered into by Scotts Sierra
Investments, Inc. and OMS Investments, Inc. in favor of JPMorgan
Chase Bank, N.A., as Administrative Agent
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2007 (File
No. 1-11593)
[Exhibit 4(d)]
|
|
4
|
.4
|
|
Agreement to furnish copies of instruments and agreements
defining rights of holders of long-term debt
|
|
*
|
|
10
|
.1(a)
|
|
The Scotts Company LLC Excess Benefit Plan for Grandfathered
Associates as of January 1, 2005 (executed as of
September 30, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.1(a)]
|
|
10
|
.1(b)
|
|
The Scotts Company LLC Excess Benefit Plan for Non Grandfathered
Associates as of January 1, 2005 (executed as of
November 20, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.1(b)]
|
|
10
|
.2(a)(i)
|
|
The Scotts Company LLC Amended and Restated Executive/Management
Incentive Plan (approved on November 7, 2007 and effective
as of October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(b)(2)]
|
|
10
|
.2(a)(ii)
|
|
Amendment to The Scotts Company LLC Amended and Restated
Executive/Management Incentive Plan (effective as of
November 5, 2008) [amended the name of the plan to be The
Scotts Company LLC Amended and Restated Executive Incentive Plan]
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed November 12, 2008 (File No.
1-11593) [Exhibit 10.2]
|
|
10
|
.2(b)(i)
|
|
Specimen form of Employee Confidentiality, Noncompetition,
Nonsolicitation Agreement for employees participating in The
Scotts Company Executive/Management Incentive Plan (now known as
The Scotts Company LLC Amended and Restated Executive Incentive
Plan) [2005 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.2(b)(i)]
|
|
10
|
.2(b)(ii)
|
|
Specimen form of Employee Confidentiality, Noncompetition,
Nonsolicitation Agreement for employees participating in The
Scotts Company LLC Executive/Management Incentive Plan (now
known as The Scotts Company LLC Amended and Restated Executive
Incentive Plan) [post-2005 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
July 1, 2006 (File No. 1-11593) [Exhibit 10.1]
|
|
10
|
.2(c)
|
|
Executive Officers of The Scotts Miracle-Gro Company who are
parties to form of Employee Confidentiality, Noncompetition,
Nonsolicitation Agreement for employees participating in The
Scotts Company LLC Amended and Restated Executive Incentive Plan
|
|
*
|
|
10
|
.3(a)
|
|
The Scotts Miracle-Gro Company Amended and Restated 1996 Stock
Option Plan (effective as of October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(d)(4)]
|
116
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.3(b)
|
|
Specimen form of Stock Option Agreement for Non-Qualified Stock
Options granted to employees under The Scotts Company 1996 Stock
Option Plan (now known as The Scotts Miracle-Gro Company Amended
and Restated 1996 Stock Option Plan)
|
|
Incorporated herein by reference to the Current Report on Form
8-K of The Scotts Company, an Ohio corporation, filed November
19, 2004 (File
No. 1-11593)
[Exhibit 10.7]
|
|
10
|
.4(a)
|
|
The Scotts Company LLC Executive Retirement Plan, As Amended and
Restated as of January 1, 2005 (executed December 30,
2008)
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed January 6, 2009 (File No.
1-11593) [Exhibit 10.1]
|
|
10
|
.4(b)(i)
|
|
Trust Agreement between The Scotts Company and Fidelity
Management Trust Company for The Scotts Company
Nonqualified Deferred Compensation Trust established to assist
in discharging obligations under The Scotts Company Nonqualified
Deferred Compensation Plan (now known as The Scotts Company LLC
Executive Retirement Plan), dated as of January 1, 1998
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(i)]
|
|
10
|
.4(b)(ii)
|
|
First Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Nonqualified Deferred Compensation Plan
(now known as The Scotts Company LLC Executive Retirement Plan),
dated as of March 24, 1998
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(ii)]
|
|
10
|
.4(b)(iii)
|
|
Second Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Nonqualified Deferred Compensation Plan
(now known as The Scotts Company LLC Executive Retirement Plan)
[dated as of January 15, 1999]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(iii)]
|
|
10
|
.4(b)(iv)
|
|
Third Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Nonqualified Deferred Compensation Plan
(now known as The Scotts Company LLC Executive Retirement Plan)
[dated as of July 1, 1999]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(iv)]
|
|
10
|
.4(b)(v)
|
|
Fourth Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Executive Retirement Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
August 1, 1999]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(v)]
|
|
10
|
.4(b)(vi)
|
|
Fifth Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Executive Retirement Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
December 20, 2000]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(vi)]
|
|
10
|
.4(b)(vii)
|
|
Sixth Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Executive Retirement Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [effective as
of November 29, 2001]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(vii)]
|
|
10
|
.4(b)(viii)
|
|
Seventh Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Executive Retirement Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
September 1, 2002]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(viii)]
|
117
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.4(b)(ix)
|
|
Eighth Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Executive Retirement Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
December 31, 2002]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(ix)]
|
|
10
|
.4(b)(x)
|
|
Ninth Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company with regard
to The Scotts Company Executive Retirement Plan (now known as
The Scotts Company LLC Executive Retirement Plan) [dated as of
October 15, 2004]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(x)]
|
|
10
|
.4(b)(xi)
|
|
Tenth Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company LLC with
regard to The Scotts Company Executive Retirement Plan (now
known as The Scotts Company LLC Executive Retirement Plan)
[dated as of October 2, 2006]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(xi)]
|
|
10
|
.4(b)(xii)
|
|
Eleventh Amendment to Trust Agreement between Fidelity
Management Trust Company and The Scotts Company LLC with
regard to The Scotts Company LLC Executive Retirement Plan
(dated as of February 9, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.5(b)(xii)]
|
|
10
|
.4(c)
|
|
Form of Executive Retirement Plan Retention Award Agreement
between The Scotts Company LLC and each of David C. Evans, Barry
W. Sanders, Denise S. Stump, Michael C. Lukemire and Vincent C.
Brockman (entered into on November 4, 2008)
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed October 15, 2008 (File No.
1-11593) [Exhibit 10.2]
|
|
10
|
.5(a)
|
|
The Scotts Miracle-Gro Company Amended and Restated 2003 Stock
Option and Incentive Equity Plan (effective as of
October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(j)(3)]
|
|
10
|
.5(b)(i)
|
|
Specimen form of Award Agreement for Directors used to evidence
grants of Nonqualified Stock Options made under The Scotts
Company 2003 Stock Option and Incentive Equity Plan (now known
as The Scotts Miracle-Gro Company Amended and Restated 2003
Stock Option and Incentive Equity Plan) [2003 version]
|
|
Incorporated herein by reference to the Current Report on Form
8-K of The Scotts Company, an Ohio corporation, Current Report
on Form 8-K filed November 19, 2004 (File No. 1-11593) [Exhibit
10.9]
|
|
10
|
.5(b)(ii)
|
|
Specimen form of Award Agreement for Directors used to evidence
grants of Nonqualified Stock Options made under The Scotts
Miracle-Gro Company 2003 Stock Option and Incentive Equity Plan
(now known as The Scotts Miracle-Gro Company Amended and
Restated 2003 Stock Option and Incentive Equity Plan) [post-2003
version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2005
(File
No. 1-11593)
[Exhibit 10(v)]
|
|
10
|
.5(c)(i)
|
|
Specimen form of Award Agreement for Nondirectors used to
evidence grants of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock and
Performance Stock made under The Scotts Company 2003 Stock
Option and Incentive Equity Plan (now known as The Scotts
Miracle-Gro Company Amended and Restated 2003 Stock Option and
Incentive Equity Plan) [pre-December 1, 2004 version]
|
|
Incorporated herein by reference to the Current Report on Form
8-K of The Scotts Company, an Ohio corporation, Current Report
on Form 8-K filed November 19, 2004 (File No. 1-11593) [Exhibit
10.8]
|
|
10
|
.5(c)(ii)
|
|
Specimen form of Award Agreement for Nondirectors used to
evidence grants of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock and
Performance Shares made under The Scotts Miracle-Gro Company
2003 Stock Option and Incentive Equity Plan (now known as The
Scotts Miracle-Gro Company Amended and Restated 2003 Stock
Option and Incentive Equity Plan) [post-December 1, 2004
version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2005
(File
No. 1-11593)
[Exhibit 10(u)]
|
118
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.6(a)
|
|
The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (effective as of October 30, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(r)(2)]
|
|
10
|
.6(b)(i)
|
|
Specimen form of Award Agreement for Nonemployee Directors used
to evidence grants of Time-Based Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company 2006
Long-Term Incentive Plan (now known as The Scotts Miracle-Gro
Company Amended and Restated 2006 Long-Term Incentive Plan)
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed February 2, 2006 (File No.
1-11593) [Exhibit 10.3]
|
|
10
|
.6(b)(ii)
|
|
Specimen form of Stock Unit Award Agreement for Nonemployee
Directors (with Related Dividend Equivalents) used to evidence
grants of Stock Units which may be made under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (post-December 20, 2007 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 2007 (File
No. 1-11593)
[Exhibit 10(l)]
|
|
10
|
.6(b)(iii)
|
|
Specimen form of Deferred Stock Unit Award Agreement for
Nonemployee Directors (with Related Dividend Equivalents) used
to evidence grants of Deferred Stock Units which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (post-February 3, 2008 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 2007 (File
No. 1-11593)
[Exhibit 10(m)]
|
|
10
|
.6(b)(iv)
|
|
Specimen form of Deferred Stock Unit Award Agreement for
Nonemployee Directors (with Related Dividend Equivalents) used
to evidence grants of Deferred Stock Units which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (post-January 22, 2009 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 28, 2009 (File
No. 1-11593)
[Exhibit 10.1]
|
|
10
|
.6(c)(i)
|
|
Specimen form of Award Agreement used to evidence grants of
Restricted Stock Units, Performance Shares, Nonqualified Stock
Options, Incentive Stock Options, Restricted Stock and Stock
Appreciation Rights made under The Scotts Miracle-Gro Company
2006 Long-Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan) [pre-October 30, 2007 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 2005 (File
No. 1-11593)
[Exhibit 10(b)]
|
|
10
|
.6(c)(ii)
|
|
Specimen form of Award Agreement for Employees used to evidence
grants of Nonqualified Stock Options, Restricted Stock,
Performance Shares and Restricted Stock Units made under The
Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan (now
known as The Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan) [French Specimen]
(pre-November 6, 2007 version)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 30, 2006 (File
No. 1-11593)
[Exhibit 10.4]
|
|
10
|
.6(d)(i)
|
|
Specimen form of Restricted Stock Unit Award Agreement for
Employees (with Related Dividend Equivalents) used to evidence
grants of Restricted Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (post-October 8, 2008 version)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(d)(i)]
|
|
10
|
.6(d)(ii)
|
|
Special Restricted Stock Unit Award Agreement for Employees
(with Related Dividend Equivalents) evidencing grant of
Restricted Stock Units made on October 8, 2008 to Mark R.
Baker under The Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(d)(ii)]
|
|
10
|
.6(d)(iii)
|
|
Specimen form of Restricted Stock Unit Award Agreement for
Employees (with Related Dividend Equivalents) used to evidence
grants of Restricted Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (French Specimen) [post-October 7, 2008
version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 2008 (File
No. 1-11593)
[Exhibit 10.7]
|
119
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.6(d)(iv)
|
|
Special Restricted Stock Unit Award Agreement (with Related
Dividend Equivalents) evidencing grant of Restricted Stock Units
made on November 4, 2008 to Claude Lopez under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(d)(iii)]
|
|
10
|
.6(e)(i)
|
|
Specimen form of Performance Share Award Agreement for Employees
(with Related Dividend Equivalents) used to evidence grants of
Performance Shares which may be made under The Scotts
Miracle-Gro Company 2006 Long-Term Incentive Plan (now known as
The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan) [post-October 30, 2007 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(t)(5)]
|
|
10
|
.6(e)(ii)
|
|
Special Performance Share Award Agreement (with Related Dividend
Equivalents) evidencing grant of Performance Shares made on
October 30, 2007 to Barry W. Sanders under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (executed by The Scotts Miracle-Gro Company on
December 20, 2007 and by Barry W. Sanders on
January 7, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 2007 (File
No. 1-11593)
[Exhibit 10(n)]
|
|
10
|
.6(f)(i)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
made under The Scotts Miracle-Gro Company 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan)
[October 30, 2007 through October 8, 2008 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(t)(3)]
|
|
10
|
.6(f)(ii)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company Amended
and Restated 2006 Long-Term Incentive Plan (post-October 8,
2008 version)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(f)(ii)]
|
|
10
|
.6(f)(iii)
|
|
Special Nonqualified Stock Option Award Agreement for Employees
evidencing grant of Nonqualified Stock Options made on
October 8, 2008 to Mark R. Baker under The Scotts
Miracle-Gro Company Amended and Restated 2006 Long-Term
Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(f)(iii)]
|
|
10
|
.6(f)(iv)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company Amended
and Restated 2006 Long-Term Incentive Plan (French Specimen)
[November 6, 2007 through October 7, 2008 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 29, 2008 (File
No. 1-11593)
[Exhibit 10(c)(2)]
|
|
10
|
.6(f)(v)
|
|
Specimen form of Nonqualified Stock Option Award Agreement for
Employees used to evidence grants of Nonqualified Stock Options
which may be made under The Scotts Miracle-Gro Company Amended
and Restated 2006 Long-Term Incentive Plan (French Specimen)
[post-October 7, 2008 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 2008 (File
No. 1-11593)
[Exhibit 10.11]
|
|
10
|
.6(g)(i)
|
|
Form of letter agreement amending grants of Restricted Stock
made under The Scotts Miracle-Gro Company 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan) [effective
as of October 30, 2007]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(t)(2)]
|
|
10
|
.6(g)(ii)
|
|
Specimen form of Restricted Stock Award Agreement for Employees
used to evidence grants of Restricted Stock made under The
Scotts Miracle-Gro Company 2006 Long-Term Incentive Plan (now
known as The Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan) [October 30, 2007 through
October 8, 2008 version]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(t)(4)]
|
120
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.6(g)(iii)
|
|
Specimen form of Restricted Stock Award Agreement for Employees
used to evidence grants of Restricted Stock which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (effective October 8, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(g)(iii)]
|
|
10
|
.6(g)(iv)
|
|
Special Restricted Stock Award Agreement for Employees
evidencing grant of Restricted Stock made on October 8,
2008 to Dr. Michael Kelty under The Scotts Miracle-Gro
Company Amended and Restated 2006 Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(g)(iv)]
|
|
10
|
.6(g)(v)
|
|
Special Restricted Stock Award Agreement for Employees
evidencing grant of Restricted Stock made on October 1,
2008 to Mark R. Baker under The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.7(g)(v)]
|
|
10
|
.6(g)(vi)
|
|
Specimen form of Restricted Stock Award Agreement for Employees
used to evidence grants of Restricted Stock which may be made
under The Scotts Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (French Specimen)
[post-November 6, 2007 version]
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 29, 2008 (File
No. 1-11593)
[Exhibit 10(c)(1)]
|
|
10
|
.7(a)
|
|
The Scotts Miracle-Gro Company Discounted Stock Purchase Plan
(As Amended and Restated as of January 26, 2006; Reflects
2-for-1
Stock Split Distributed on November 9, 2005)
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed February 2, 2006 (File No.
1-11593) [Exhibit 10.1]
|
|
10
|
.7(b)
|
|
Amendment to The Scotts Miracle-Gro Company Discounted Stock
Purchase Plan (effective as of November 6, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.8(b)]
|
|
10
|
.8
|
|
Summary of Compensation for Nonemployee Directors of The Scotts
Miracle-Gro Company (effective as of January 23, 2009)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
March 28, 2009 (File
No. 1-11593)
[Exhibit 10.2]
|
|
10
|
.9(a)
|
|
Employment Agreement, dated as of May 19, 1995, between The
Scotts Company and James Hagedorn
|
|
Incorporated herein by reference to the Annual Report on Form
10-K of The Scotts Company, an Ohio corporation, for the fiscal
year ended September 30, 1995 (File
No. 1-11593)
[Exhibit 10(p)]
|
|
10
|
.9(b)
|
|
Amendments to Employment Agreement by and among The Scotts
Miracle-Gro Company, The Scotts Company LLC and James Hagedorn,
effective as of October 1, 2008 (executed by
Mr. Hagedorn on December 22, 2008 and on behalf of The
Scotts Miracle-Gro Company and The Scotts Company LLC by Denise
Stump on December 22, 2008 and Vincent C. Brockman on
December 30, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 2008 (File
No. 1-11593)
[Exhibit 10.16]
|
|
10
|
.10(a)
|
|
Letter agreement, dated June 5, 2000 and accepted by
Mr. Norton on June 8, 2000, between The Scotts Company
and Patrick J. Norton
|
|
Incorporated herein by reference to the Annual Report on Form
10-K of The Scotts Company, an Ohio corporation, for the fiscal
year ended September 30, 2000 (File No. 0-19768) [Exhibit 10(q)]
|
121
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.10(b)
|
|
Letter agreement, dated November 5, 2002, and accepted by
Mr. Norton on November 22, 2002, pertaining to the
terms of employment of Patrick J. Norton through
December 31, 2005, and superseding certain provisions of
the letter agreement, dated June 5, 2000, between The
Scotts Company and Mr. Norton
|
|
Incorporated herein by reference to the Annual Report on Form
10-K of The Scotts Company, an Ohio corporation, for the fiscal
year ended September 30, 2002 (File No. 0-19768) [Exhibit 10(q)]
|
|
10
|
.10(c)
|
|
Letter of Extension, dated October 25, 2005, between The
Scotts Miracle-Gro Company and Patrick J. Norton
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed December 14, 2005 (File No.
1-11593) [Exhibit 10.3]
|
|
10
|
.11(a)
|
|
Employment Agreement, effective as of October 1, 2007,
between The Scotts Company LLC and Barry W. Sanders (executed by
Mr. Sanders on November 16, 2007 and on behalf of The
Scotts Company LLC on November 19, 2007)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(m)]
|
|
10
|
.11(b)
|
|
First Amendment to Employment Agreement, effective as of
January 14, 2009, by and between The Scotts Company LLC and
Barry Sanders
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed January 20, 2009 (File No.
1-11593) [Exhibit 10.2]
|
|
10
|
.12
|
|
Employment Contract for an Unlimited Time, effective as of
July 1, 2001, between The Scotts Company (now known as The
Scotts Company LLC) and Claude Lopez [English
Translation Original in French]
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2007
(File
No. 1-11593)
[Exhibit 10(n)]
|
|
10
|
.13
|
|
Employment Agreement for David C. Evans, executed on behalf of
The Scotts Company LLC on November 19, 2007 and by David C.
Evans on December 3, 2007 and effective as of
October 1, 2007
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed December 7, 2007 (File No.
1-11593) [Exhibit 10.1]
|
|
10
|
.14
|
|
Employment Agreement for Denise S. Stump, executed on behalf of
The Scotts Company LLC on November 19, 2007 and by Denise
S. Stump on December 11, 2007 and effective as of
October 1, 2007
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed December 17, 2007 (File No.
1-11593) [Exhibit 10.1]
|
|
10
|
.15(a)
|
|
Employment Agreement for Vincent Brockman, executed on behalf of
The Scotts Miracle-Gro Company and by Vincent Brockman on
May 24, 2006 and effective as of March 1, 2006
(effective until June 1, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
December 29, 2007 (File
No. 1-11593)
[Exhibit 10(q)]
|
|
10
|
.15(b)
|
|
Employment Agreement for Vincent C. Brockman, effective as of
June 1, 2008, between The Scotts Company LLC and Vincent C.
Brockman (executed by Mr. Brockman on June 26, 2008
and on behalf of The Scotts Company LLC on June 27, 2008)
|
|
Incorporated herein by reference to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
June 28, 2008 (File
No. 1-11593)
[Exhibit 10(d)]
|
|
10
|
.16
|
|
Employment Agreement for Mark R. Baker, effective
October 1, 2008, between The Scotts Company LLC and Mark R.
Baker (executed by Mr. Baker on September 9, 2008 and
on behalf of The Scotts Company LLC on September 10, 2008)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.17]
|
|
10
|
.17(a)
|
|
Amended and Restated Exclusive Agency and Marketing Agreement,
effective as of September 30, 1998, between Monsanto
Company and The Scotts Company LLC (as successor to The Scotts
Company)
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2005
(File
No. 1-11593)
[Exhibit 10(x)]
|
122
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Location
|
|
|
10
|
.17(b)
|
|
Letter Agreement, dated March 10, 2005, amending the
Amended and Restated Exclusive Agency and Marketing Agreement,
dated as of September 30, 1998, between Monsanto Company
and The Scotts Company LLC (as successor to The Scotts Company)
|
|
*
|
|
10
|
.17(c)
|
|
Letter Agreement, dated March 28, 2008, amending the
Amended and Restated Exclusive Agency and Marketing Agreement,
dated as of September 30, 1998, between Monsanto Company
and The Scotts Company LLC
|
|
Incorporated herein by reference to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 2008
(File No. 1- 11593) [Exhibit 10.18(b)]
|
|
10
|
.18
|
|
Master Accounts Receivable Purchase Agreement, dated as of
April 9, 2008, among The Scotts Company LLC as seller, The
Scotts Miracle-Gro Company as guarantor and Bank of America,
N.A. as purchaser (expired pursuant to its terms on
April 8, 2009)
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed April 15, 2008 (File No.
1-11593) [Exhibit 10.2]
|
|
10
|
.19
|
|
Master Accounts Receivable Purchase Agreement, dated as of
May 1, 2009, by and among The Scotts Company LLC as the
Company, The Scotts Miracle-Gro Company as the Parent and Calyon
New York Branch as the Bank
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed May 6, 2009 (File
No. 1-11593)
[Exhibit 10.1]
|
|
14
|
|
|
Code of Business Conduct and Ethics of The Scotts Miracle-Gro
Company, as amended on November 2, 2006
|
|
Incorporated herein by reference to the Registrants
Current Report on Form 8-K filed November 8, 2006 (File No.
1-11593) [Exhibit 14]
|
|
21
|
|
|
Subsidiaries of The Scotts Miracle-Gro Company
|
|
*
|
|
23
|
|
|
Consent of Independent Registered Public Accounting
Firm Deloitte & Touche LLP
|
|
*
|
|
24
|
|
|
Powers of Attorney of Executive Officers and Directors of The
Scotts Miracle-Gro Company
|
|
*
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certifications (Principal Executive Officer)
|
|
*
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certifications (Principal Financial Officer)
|
|
*
|
|
32
|
|
|
Section 1350 Certifications (Principal Executive Officer
and Principal Financial Officer)
|
|
*
|
123