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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ___________________
Commission file number 0-19768
The Scotts Company
(Exact name of registrant as specified in its charter)
Ohio
31-1199481
(State or other jurisdiction of incorporation or organization
(I.R.S. Employer
Identification No.)
14111 Scottslawn Road, Marysville, Ohio 43041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
513-644-0011
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
Where Registered
97/8% Senior Subordinated New York Stock Exchange
Notes due August 1, 2004
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
(18,667,064 Common Shares outstanding at November 30, 1994)
Title of class
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 x No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-
affiliates of the registrant at November 30, 1994 was
$275,339,194.
This report contains 258 pages of which this is Page 1. The
Index to Exhibits begins at page 71.
PART I
ITEM 1. BUSINESS.
The Scotts Company, through its wholly-owned subsidiaries,
Hyponex Corporation ("Hyponex"), Scotts-Sierra Horticultural
Products Company ("Sierra"), Republic Tool and Manufacturing
Corp. ("Republic") and their subsidiaries (collectively, the
"Company") is one of the oldest and most widely recognized
manufacturers of products used to grow and maintain landscapes:
lawns, gardens and golf courses. In both the consumer and
professional market segments, the Company's Scotts and Turf
Builder (for consumer lawn care), ProTurf (for professional turf
care) and Osmocote and Peters (for commercial horticulture)
brands command market-leading shares more than double those of
the next ranked competitors. The Company's long history of
technical innovation, its reputation for quality and service and
its effective marketing tailored to the needs of do-it-
yourselfers and professionals have enabled the Company to
maintain leadership in its markets while delivering consistent
growth in sales and operating income and stable operating
margins. On September 20, 1994, The Scotts Company, a Delaware
corporation ("Scotts Delaware") was merged with and into The
Scotts Company, an Ohio corporation ("Scotts Ohio") (hereafter,
the "Company Merger"). On September 30, 1994, Scotts Ohio's
major operating subsidiary, The O. M. Scott & Sons Company, a
Delaware Corporation ("O. M. Scott") was merged into Scotts Ohio
(the "O. M. Scott Merger"). Management believes these mergers
should decrease the Company's overall tax liability.
Do-it-yourselfers and professionals purchase through different
distribution channels and have different information and product
needs. Accordingly, the Company has two business groups,
Consumer and Professional, to serve these domestic markets, as
well as an International Group to serve its markets outside of
North America.
Consumer Business Group
Products
The Company's consumer products include lawn fertilizers,
fertilizer/control combination products, potting soils and other
organic products, grass seed, lawn spreaders, and indoor and
outdoor plant care products.
Lawn Fertilizers and Combination Products. The Company's
most important consumer products are lawn fertilizers, such as
Turf Builder, and combination fertilizer/control products, such
as Turf Builder Plus 2 and Turf Builder Plus Halts. Typically,
these are patented, homogeneous, controlled-release products
which provide complete controlled feeding for consumers' lawns
for up to two months without the risk of damage to the lawn
presented by less expensive non-controlled-release products. Many
of the Company's products are specially formulated for
geographical differences and some, such as Bonus S (to control
weeds in Southern grasses) are distributed to limited areas.
Most of the Company's fertilizer and combination products are
sold in dry, granular form, although the Company also sells a
small amount of liquid lawn care products. With the acquisition
of Sierra in December, 1993, the Company obtained new products
and technologies. Consumer products that utilize Sierra's
technology in this category include Once controlled-release lawn
fertilizer, which can provide up to three months of feeding from
one application.
Management estimates that in fiscal 1994, the Company's share
of the U.S. do-it-yourself consumer lawn chemicals products
market was approximately 46%, more than double that of the second
leading brand.
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Organic Products. The Company sells a broad line of organic
products under the Scotts, Hyponex, Peters Professional and other
labels, including retail potting soils, topsoil, peat, manures
and mulches. Management estimates that the Company's fiscal 1994
U.S. market share was approximately 50% in potting soils, and
approximately 39% in other consumer organic products.
Grass Seed. High quality grass seed was the Company's first
lawn product. Today, the Company sells numerous varieties and
blends of grass seed, many of them proprietary, designed for
different uses and geographies. Management estimates that the
Company's share of the U.S. consumer grass seed market was
approximately 28% in fiscal 1994.
Lawn Spreaders. Because the Company's granular lawn care
products perform best when applied evenly and accurately, the
Company sells a line of spreaders specifically manufactured and
developed for use with its products. This line includes the
SpeedyGreen and EasyGreen rotary spreaders, the PrecisionGreen
and AccuGreen drop spreaders, and the HandyGreen hand-held rotary
spreader.
Since the acquisition of Republic in November, 1992, the
Company has continued to market both its line of Scotts spreaders
and Republic's EZ line of spreaders and to integrate the
manufacture of its spreaders through Republic. Management
estimates that the Company's share of the U.S. market for lawn
spreaders was approximately 42% in fiscal 1994.
Garden Products, Tools and Indoor Products. The Company
produces and sells a line of boxed Scotts Plant Foods, garden and
landscape fertilizers and indoor plant care products and Peters
Professional water soluble fertilizers and Once controlled-
released garden fertilizers. In September 1994, the Company
entered into a licensing agreement with American Lawn Mower
Company ("American") under which American, in return for the
payment of royalties, is granted the right to produce and market
a line of push-type reel lawn mowers bearing the Scotts
trademark. The Company also has a licensing agreement in place
with Union Tools, Inc. ("Union") under which Union, in return for
the payment of royalties, is granted the right to produce and
market a line of garden tools bearing the Scotts trademark. In
management's estimation, the Company did not have a material
share of the markets for these products in fiscal 1994.
Consumer Business Strategy
The Company believes that it has achieved its leading position
in the do-it-yourself lawn care market on the basis of its
sophisticated technology, the superior quality and value of its
products and the service it provides its customers. The Company
plans to maintain and expand its market position by emphasizing
these qualities and taking advantage of the Scotts name and
reputation. Through its Hyponex label, the Company has also
focused on increasing sales of its higher margin organic items
such as potting soils. In 1994, the Company introduced a line of
Scotts potting soils.
The acquisition of Sierra in 1993 provides the Company with
numerous strategic opportunities. This includes the expansion of
sales of water-soluble fertilizers manufactured by Sierra in to
the consumer market and the future introduction into the consumer
market of certain bioinsecticides for which Sierra has licenses.
Drawing upon its strong research and development capabilities,
the Company intends to continue to develop and introduce new and
innovative lawn and garden products. The Company believes that
its ability to introduce successful new consumer products has
been a key element in Scotts' growth. New consumer products in
recent years include PatchMasterr (1992), a unique lawn repair
product containing seed, Scotts Starterr fertilizer and mulch; a
Poly-Sr lawn fertilizer line(1993), which utilizes Scotts
proprietary controlled-release technology to provide a lower
priced product offering versus the Premium Turf Builderr line;
new AccuGreenr and Speedy Greenr (1994) spreaders which are
shipped and sold
Page 3
fully assembled; and Scotts Planting Soils (1994), a line of
ready-to-use, value-added soils which help simplify the do-it-
yourself gardener's task and deliver superior growing
performance.
The Company also seeks to capitalize upon the competitive
advantages stemming from its position as the leading nationwide
supplier of a full line of consumer lawn and garden products.
The Company believes that this gives it an advantage in selling
to larger retailers, who value the efficiency of dealing with a
limited number of suppliers.
The Company has developed a program to take advantage of
Hyponex's composting expertise and the increasing concern about
landfill capacity by entering into agreements with municipalities
and waste haulers to compost yard waste. A pilot program was
started in 1991 on Company-owned land in Marysville when the
Company entered into a five-year contract with Franklin County,
Ohio, to compost a minimum of 50,000 tons of yard waste per year
for a fee of $20 per ton. The Company now has seventeen compost
facilities. In addition to service fees, the Company substitutes
the resulting compost for a portion of the raw materials in
Hyponex and other Company products. Revenues in fiscal 1994 and
1993 from composting services were $5.0 million and $2.1 million,
respectively.
Marketing and Promotion
The Company employs a 100 person direct sales force and
numerous distributors for its consumer products to cover
approximately 24,000 retail outlets and headquarters of national,
regional and local chains. Most salespeople have college degrees
and prior sales experience. In recent years, the percentage of
sales to mass merchandisers and large buying groups has
increased. The top ten accounts (which include three buying
groups of independent retailers) represented 59% of the Consumer
Business Group sales in fiscal 1993 and 66% in 1994.
At the same time, the Company continues to support its
independent retailers. Most importantly, the Company developed a
special line of products, marketed under the Lawn Pro name, which
are sold exclusively by independent retailers. These products
include the 4-Step program, introduced in 1984, which encourages
consumers to purchase four products at one time (fertilizer plus
crabgrass preventer, fertilizer plus weed control, fertilizer
plus insect control and a special fertilizer for Fall
application). The Company promotes the 4-Step program as
providing consumers with all their annual lawn care needs for
less than half of what a lawn care service would cost. The
Company believes that the Lawn Pro line has helped maintain the
loyalty of the independent retailers in the face of increasing
competition from mass merchandisers.
The Company supports its sales efforts with extensive
advertising and promotional programs. Because of the importance
of the Spring sales season in the marketing of consumer lawn and
garden products, the Company focuses its promotional efforts on
this period. Through advertising, consumer rebates, retailer
allowances and other promotional efforts, the Company seeks to
encourage customers to make the bulk of their lawn and garden
purchases in the early Spring. The Company believes that its
early season promotions substantially moderate the risk to its
consumer sales posed by bad weekend weather.
An important part of the Company's sales effort is its
national toll-free consumer hotline, on which its "lawn
consultants" answer questions about the Company's products and
give general lawn care advice to consumers. The Company's lawn
consultants responded to over 372,000 telephone and written
inquiries in fiscal 1994 and have handled over 2,500,000 calls
since the inception of the consumer hotline in 1972.
Backing up the Company's marketing effort is its well-known
"No Quibble" guarantee, instituted in 1958, which promises
consumers a full refund if for any reason they are not satisfied
with the results after using Scotts products. Refunds under this
guarantee have consistently amounted to less than 0.3% of net
sales on an annual basis.
Page 4
Competition
The consumer lawn and garden market is highly competitive.
The most significant competitors for the consumer lawn care
business are lawn care service companies. At least one of these,
Tru Green Company, which also owns the ChemLawn lawn care service
business, operates nationally and is significantly larger than
the Company. In the do-it-yourself segment, the Company's
products compete primarily against regional products and private
label products produced by various suppliers and sold by such
companies as Kmart. These products compete across the entire
range of the Company's product line. In addition, certain of the
Company's products compete against branded fertilizers,
pesticides and combination products marketed by such companies as
Monsanto Company (Ortho and Greensweep), Lebanon Chemical Corp.
(Greenview) and Stern's Miracle-Gro Products, Inc.
Most competitors, with the exception of lawn care service
companies, sell their products at prices lower than those of the
Company. The Company competes primarily on the basis of its
strong brand names, quality, value, service and technological
innovation. The Company's competitive position is also supported
by its national sales force, advertising campaigns and its
unconditional guarantee. There can be no assurance, however,
that additional competition from new or existing competitors will
not erode the Company's share of the consumer market or its
profit margins.
Backlog
The major portion of annual consumer product orders (other
than organic products which are normally ordered in season on an
"as needed" basis) are received from retailers during the months
of October through January and are filled during the months of
January through March. As of December 6, 1994, orders on hand
for retail customers (excluding orders for Sierra products)
totaled approximately $58,693,000 compared to approximately
$42,270,000 on the same date in 1993. All such orders are
expected to be filled in fiscal 1995.
Professional Business Group
The Market
The Company sells its professional products to golf courses,
commercial nurseries and greenhouses, schools and sportsfields,
multi-family housing complexes, business and industrial sites,
lawn and landscape services and specialty crop growers. In 1994,
the Professional Business Group served over 12,000 North American
customers, among them such high profile golf courses as Augusta
National (Georgia), Cypress Point, Spyglass and Pebble Beach
(California), Desert Mountain (Arizona), Muirfield (Ohio), The
Country Club (Massachusetts), Colonial Country Club (Texas) and
Butler National (Illinois). Sports complexes such as Fenway
Park, Camden Yard, Wrigley Field, Yankee Stadium and the Rose
Bowl are professional customers, as are major commercial
nursery/greenhouse operations such as Monrovia, Hines and
Imperial.
Golf courses accounted for approximately 43% of the Company's
professional sales in fiscal 1994. During 1994, the Company sold
products to approximately 55% of the over 14,500 golf courses in
North America, including 78 of Golf Digest's top 100 U.S.
courses. Management estimates, based on an independent bi-annual
market survey and other information available to the Company,
that the Company's leading share of the North American golf
course turf maintenance segment will be approximately 20% in
1994.
According to the National Golf Foundation, approximately 200
new golf courses have been constructed annually for the last
three years. Management believes that the increase in the number
of
Page 5
courses, the concentration of the growth in the West/South with a
longer growing/maintenance season, the increasing playing time
requiring more course maintenance and the trend toward more
highly maintained courses will contribute to an annual sales
growth rate in the golf course segment of 9%.
Horticulture sales accounted for approximately 38% of the
Company's professional sales in fiscal 1994. The Company sold
products to thousands of nursery, greenhouse and specialty crop
growers through a network of over 100 horticultural distributors.
On a full year basis, the Company estimates that its leading
share of the North American horticultural segment was
approximately 35% in 1994.
Management believes the increasing acceptance of controlled-
release fertilizers in horticultural/ agricultural applications
due to performance advantages and groundwater leaching concerns
will contribute to an increase in the annual sales growth rate in
the horticulture segment.
In January, 1994, a new business unit under the ProGrow name
was created to better serve the large, but highly fragmented,
lawn/landscape service market, in addition to
schools/sportsfields, multi-family housing complexes and
business/industrial sites. Many small service operators prefer
to purchase on an as-needed, "cash and carry" basis, so the
Company is establishing a network of distributors to extend local
availability of its professional products. By the end of fiscal
1994, over 60 distributors had been added, with plans to add
additional distributors in 1995 and beyond. Management believes
changing demographic factors such as increasing time pressures,
higher disposable income and an aging population will result in
an expanding service segment.
Products
The Company's professional products, marketed under such brand
names as ProTurf, ProGrow, Osmocote, Peters, Metro-Mix and Terra-
Lite, include a broad line of sophisticated controlled-release
fertilizers, water soluble fertilizers, control products
(herbicides, insecticides, fungicides and growth regulators),
wetting agents, organic products, grass seed and application
devices. The fertilizer lines utilize a range of proprietary
controlled-release fertilizer technologies, including Polyform,
Triaform, Poly-S, Osmocote and ScottKote, and proprietary water
soluble fertilizer technologies, including Peters and Peters
Excel. The Company applies these technologies to meet a wide
range of professional customer needs, ranging from quick release
greenhouse fertilizers to controlled-release fairway/greens
fertilizers to extended release nursery fertilizers that last up
to a year or more.
The Company works very closely with basic pesticide
manufacturers to secure exclusive positions on advanced control
chemistry which can be formulated on granular carriers, including
fertilizers or liquid application. In 1994, over 15 professional
products featured exclusive control technologies, including such
products as the TGR growth regulator line, Turplex bioinsecticide
and DMC weed control. Liquid-applied fertilizers and control
products numbered 37 in 1994. Application devices include both
rotary and drop action spreaders. Over 20 proprietary grass seed
varieties are part of the professional line. The Sierra
acquisition added an established line of soilless mixes in which
controlled and water soluble fertilizers, wetting agents and
control products can be incorporated to customize potting media
for nurseries and greenhouses.
During 1994, the Company introduced 24 new professional
products, including Poly-S and TGR line extensions, a line of
Peters water soluble fertilizers for golf course greens, an
Osmocote controlled-release potassium product and Merit
insecticide.
Page 6
Business Strategy
The Company's Professional Business Group focuses its sales
efforts on the middle and high end of the professional market and
generally does not compete for sales of commodity products.
Demand for the Company's professional products is primarily
driven by product quality, performance and technical support.
The Company seeks to meet these needs with a range of
sophisticated, specialized products that are sold by a
professional, agronomically-trained sales force.
A primary focus of the Professional Business Group's strategy
is to provide a continuing flow of innovative new products to its
professional customers. Products introduced since 1989 accounted
for over 60% of the Professional Business Group's net sales in
fiscal 1994.
The Company intends to use its strong position in the golf
course segment to increase sales of Sierra products to those
users, and, conversely, to expand the distribution of Scott
nursery products in the commercial horticultural segment in which
Sierra has a strong position.
The Professional Business Group also is working to increase
market coverage by focusing on various professional market
niches. In 1965, the Company established its first specialized
professional sales force, focusing on golf courses. Since 1985,
it has established separate sales forces and/or sales managers
for lawn and landscape services, sports fields, golf course
architects and construction companies, and international segments
of the professional market. In 1992, the Company introduced a
fairway application service for golf courses. This service has
been expanded and is now available in eight markets, with six new
markets planned for 1995. In 1994, the ProGrow business was
launched to better serve lawn/landscape services that purchase on
an as-needed basis.
Marketing and Promotion
The Professional Business Group's sales force consists of 125
territory managers who cover over 17,000 accounts. Many
territory managers are experienced former golf course
superintendents or nursery managers and most have degrees in
agronomy, horticulture or similar disciplines. Territory
managers work closely with golf course and sports field
superintendents, turf and nursery managers, and other landscape
professionals. In addition to marketing the Company's products,
Scott's territory managers provide consultation, testing
services, and advice regarding maintenance practices, including
individualized comprehensive programs incorporating various
products for use at specified times throughout the year. The
professional grower segment is served primarily through an
extensive network of distributors, most with substantial
experience in the horticulture market, with territory managers
spending the majority of their time with growers.
To reach potential purchasers, the Company uses trade
advertising and direct mail, publishes newsletters, and sponsors
seminars throughout the country. In addition, the Company
maintains a special toll-free hotline for its professional
customers. The professional customer service department
responded to over 40,000 telephone inquiries in fiscal 1994.
Competition
In the professional turf and nursery market, the Company faces
a broad range of competition from numerous companies ranging in
size from multi-national chemical and fertilizer companies such
as Monsanto and DowElanco Company, to smaller specialized
companies such as Lesco, Inc. and Lebanon Chemical Corp., to
local fertilizer manufacturers and blenders. Portions of this
market, such as fairway and rough fertilizers for golf courses,
are sometimes served by large agricultural fertilizer companies,
while other segments, such as fertilizers and pest controls for
golf course greens and high value nursery crops, are served by
specialized, research-oriented companies. In certain areas of
the country, particularly
Page 7
Florida, a number of companies have begun to offer turf care
services, including product application, to golf courses. In
addition, the higher margins available for sophisticated products
to treat high value crops continue to attract large and small
chemical producers and formulators, some of which have larger
research departments and budgets than the Company. While the
Company believes that its reputation, turf and ornamental market
focus, expertise in product development and professional sales
force will enable it to continue to maintain and build its share
of the professional market, there can be no assurance that the
Company's market share or margins will not be eroded in the
future by new or existing competitors.
Backlog
The major portion of professional product orders are received
during the months of August through November and are filled
during the months of September through November. As of September
30, 1994, orders on hand from professional customers (excluding
orders for Sierra products) totaled approximately $3.4 million
compared with $5.4 million on the same date in 1993. All such
orders are expected to be filled in fiscal 1995.
International
The Market
The Company produces and sells its products in over sixty-five
countries to both consumer and professional markets. Growth
potential exists in both markets, and the Company has positioned
itself to grow through both direct sales and distributor
arrangements.
Consumer lawn and garden products are sold under the Scotts
label mainly in Canada, the Far East and Europe. The Company's
United Kingdom subsidiary has continued to make inroads into the
lawn and garden market in Great Britain. The Company's long-term
relationship with Hyponex Japan Corporation, Ltd. has allowed it
to maintain its presence in Japan's consumer market under its
Hyponex label. International sales of consumer products in
fiscal 1994 totaled approximately $7.3 million.
Professional markets include both the turf and horticulture
industries. The Company currently distributes its professional
products in Canada, Latin America, Europe and Asia Pacific. Turf
products are mainly distributed under the Scotts name, while
horticultural products are distributed primarily under the Sierra
label. Professional horticultural products are also distributed
under the Hyponex label in Japan. International sales of Scotts'
professional products in fiscal 1994 totaled approximately $10
million. International sales of Sierra professional products
from December 17, 1993 through September 30, 1994 totaled
approximately $30.3 million.
Business Strategy
With the acquisition of Sierra, the Company now has
manufacturing facilities in Europe and an established
distribution network worldwide. The Company intends to
capitalize on these strengths to expand into new areas and market
segments. At the same time, the Company plans to increase
international awareness of the Scotts name and oval logo. By
positioning the Scotts' name worldwide, the Company believes it
can build awareness of its products' quality, reliability and
value.
The Company intends to continue to market its products
internationally through both direct sales and distributor
arrangements. In fiscal 1994, the Company entered into various
new distributor agreements. The Company also amicably terminated
its European distributor agreement with Wolf-Gerate AG, and
Sierra terminated several distributor arrangements with W. R.
Grace.
Page 8
Competition
The Company's international consumer business faces strong
competition in the garden center segment, particularly in Canada
and the United Kingdom. Competitors in the United Kingdom
include Fisons, ICI, PBI and various local companies.
Competitors in Canada include Nu-Gro, So-Green and Vigoro. The
Company intends to respond to this competition by increasing
brand awareness and loyalty through increased marketing and
improved customer service.
The international professional products market is very
competitive particularly in the controlled-release fertilizer
segment. Numerous United States and European companies are
pursuing this segment internationally, including Pursell
Industries, Lesco, Lebanon, Vigoro, Noram, BASF, Helena and
Coron. The Company will respond to this competition by educating
customers as to the quality and value of its products.
Management believes the Company is well-positioned to obtain
an increased share of the international market. However, there
can be no assurance that the Company's market share or margins
will not be eroded by new or existing competitors.
Matters Relating to the Company Generally
Patents, Trademarks and Licenses
The "Scotts" and "Hyponex" brand names and logos, as well as a
number of product trademarks, including "Turf Builder", "Lawn
Pro", "ProTurf", "ProGrow", "Osmocote" and "Peters" are federally
registered and are considered material to the Company's business.
In 1989, the Company assigned all its rights to certain Hyponex
trademarks in the Far East to a Japanese company.
As of September 30, 1994, the Company held over 100 patents on
processes, compositions, grasses, and mechanical spreaders and
has several additional patent applications pending. Over the
past two years, the Company has been granted a number of patents
covering key new process and product technologies. This new
patent protection will extend well into the next decade. The
Company also holds exclusive and nonexclusive patent licenses
from certain chemical suppliers permitting the use and sale of
patented pesticides.
Research and Development
The Company has a long history of innovation, and its research
and development successes can be measured in terms of sales of
new products and by the Company's patents. Virtually all of the
Company's fertilizer products, many of its grasses and many of
its mechanical devices are covered by one or more of over 100
U.S. and foreign patents owned by the Company.
The Company's research and development department is
headquartered in the Dwight G. Scott Research Center in
Marysville, Ohio. The Company also operates three research field
stations in Florida, Texas and Oregon. In addition, the Company
funds research at universities across the United States and
conducts cooperative projects with key professional customers.
Research to develop new and improved application devices is
conducted at Republic's manufacturing facility in Carlsbad,
California. Investment in research is directed toward developing
new technology and products to increase manufacturing efficiency,
reduce product cost, improve performance, solve specific
problems, improve packaging and simplify lawn, turf and
horticultural plant care.
Since its introduction of the first home lawn fertilizer in
1928, the Company has used its research and development strengths
to build the do-it-yourself market. Technology continues to be a
Company
Page 9
hallmark. The Company's introduction of the TGR line in 1987 to
control poa annua on golf courses is an example. In 1992, the
Company introduced Poly-S, a proprietary controlled-release
fertilizer technology. In 1993, ScottKote, another controlled-
release technology primarily for the nursery market, was
introduced. In addition, the Company has modified its Marysville
facility to utilize a new, patented production process which is
expected to reduce costs and improve product quality, while
increasing production capacity. (See "Production Facilities.")
Since the Hyponex acquisition in 1988, the Company's research and
development department has worked to improve the quality and
reduce the production cost of branded organic products, in
particular potting soils. One of the results of this effort is
the introduction, in 1994, of a line of value-added, premium
quality potting soils and planting mixes under the Scotts brand.
Research has also been focused on durability, precision, and
reduced production costs of the Republic-produced spreaders.
Recently, Republic completely redesigned the major products
within the Company's consumer spreader line so that they are now
completely preassembled and are distributed and displayed using
innovative packaging.
Sierra pioneered the use of controlled-release fertilizers for
the horticultural markets with the introduction of "Osmocote" in
the 1960's. This polymer-encapsulated technology has achieved a
large share of the horticultural markets due to its ability to
meet the strict performance requirements of professional growers.
The Company's and Sierra's research and development efforts have
been fully integrated and are focused on cost reduction and
product/process innovation. A new, multi-coated controlled-
release technology has been developed and a new production line
is nearing completion at the Company's Charleston, South Carolina
plant.
Research has resulted in improved Peters' water soluble
fertilizers. Reformulated potting soils and planting mixes have
been introduced into both the consumer and professional markets.
Combined Company and Sierra R&D expenses were approximately
$10.4 million (1.7% of net sales) for 1994, including
environmental and regulatory expenses. This compares to $6.2
million (1.5% of net sales) and $7.7 million (1.7% of net sales)
in fiscal 1992 and 1993, respectively.
Production Facilities
The manufacturing plants for consumer and professional
fertilizer-based products marketed under the Scotts label are
located in Marysville, Ohio. The Company's Taylor Seed Packaging
Plant is located on a separate site in Marysville. Hyponex
organic products are harvested and packaged in over 20 locations
throughout the United States. The Company's lawn spreaders are
produced at the Republic facility in Carlsbad, California. Some
granular and mechanical products and all liquid products,
constituting an aggregate of approximately 16% of the Company's
cost of sales in fiscal 1994, are produced for the Company by
other manufacturers. Sierra has manufacturing sites in the
United States and one located in The Netherlands. Sierra's
controlled-release fertilizers are produced in Charleston, South
Carolina, Milpitas, California, and at Heerlen, The Netherlands.
Water-soluble fertilizers are produced in Allentown,
Pennsylvania, and the potting soils are produced in Travelers
Rest, South Carolina and in Hope, Arkansas. Resin used for
producing Osmocote controlled-release fertilizer is manufactured
at Sierra Sunpol Resins, a joint venture company which is 97%
owned by Scotts. The Company operates seventeen composting
facilities where yard waste (grass clippings, leaves, and twigs)
is converted to raw materials for the Company's organic products.
Fourteen of the facilities are "stand-alone" facilities with the
remainder being located at existing organics products bagging
facilities. Recently opened facilities include Pittsburgh,
Pennsylvania; Cincinnati, Ohio; and Riverside, California.
Management believes that each of its facilities is well-
maintained and suitable for its purpose. Substantially all of
the Company's owned properties are mortgaged to secure the
Company's indebtedness under various bank agreements.
Page 10
The Company's fertilizer processing and packaging facilities
currently operate, on average, five days per week for three
shifts. Because of the seasonal nature of the demand for the
Company's products, certain of these facilities operate on a
seven day basis or three out of four weekends during periods of
peak demand. During 1994, initial steps were taken to integrate
some product manufacturing between the Scotts and Sierra
manufacturing locations.
The Company's Marysville facilities were substantially
modified during fiscal 1992 and 1993. The Company replaced one
of the existing fertilizer production lines with a line utilizing
a new, patented process which it developed. In addition, the
Company erected a new physical-blend facility and added equipment
to apply polymer coating to fertilizer materials.
During 1994, approximately $13 million was spent to erect a
new Poly-S fertilizer plant, an investment made necessary by very
strong forecasted demand. Additionally, approximately $4.0
million was spent on Sierra business needs including $1.5 million
for construction of a new processing line at the Charleston,
South Carolina facility to produce a technologically advanced
controlled-release fertilizer.
Capital Expenditures
Capital expenditures totaled $15.2 million and $33.4 million
for the fiscal years ended September 30, 1993 and 1994,
respectively. The Company expects that capital expenditures
during fiscal 1995 will total approximately $23 million.
Purchasing
The key ingredients in the Company's fertilizer and control
products are various commodity and specialty chemicals including
vermiculite, phosphates, urea, potash, herbicides, insecticides
and fungicides. The Company obtains its raw materials from
various sources, which the Company presently considers to be
adequate. No one source is considered to be essential to either
of the Company's Consumer or Professional Business Groups, or to
its business as a whole. The Company has never experienced a
significant interruption of supply.
Sierra purchases granular, homogeneous fertilizer substrates
to be coated, and the resins for coating. These resins are
primarily supplied domestically by Sierra SunPol Resins, a 97%-
owned subsidiary of Sierra.
Sphagnum peat, peat humus, vermiculite manure and bark
constitute Hyponex's most significant raw materials. At current
production levels, the Company estimates Hyponex's peat reserves
to be sufficient for its near-term needs in all locations except
the Northeast. Regulatory activities by the Army Corps of
Engineers have prevented production at one peat harvesting
facility located in Lafayette, New Jersey. See "Environmental
and Regulatory Considerations." To meet the demand previously
filled by this facility, the Company has been purchasing peat
from other nearby producers. Bark products are obtained from
sawmills and other wood residue producers and manure is obtained
from a variety of sources, such as feed lots, race tracks and
mushroom growers. The Company is currently substituting
composted yard waste for some organic raw materials and is
planning to expand this practice.
Raw materials for Republic include various engineered resins
and metals, all of which are available from a variety of vendors.
The Company considers its sources of supply for these materials
to be adequate.
Page 11
Distribution
The primary distribution centers for the Company's products
are located near the Company's headquarters in central Ohio. The
Company's products are shipped by rail and truck. While the
majority of truck shipments are made by contract carriers, a
portion is made by the Company's own fleet of leased trucks.
Inventories are also maintained in field warehouses located in
major markets.
Most of Hyponex's organic products have low sales value per
unit of weight, making freight costs significant to
profitability. Therefore, Hyponex has located approximately
twenty distribution locations near large metropolitan areas in
order to minimize shipping costs. Hyponex uses its own fleet of
approximately 70 trucks as well as contract haulers to transport
its products from distribution points to retail customers.
Sierra's products are produced at three fertilizer and two
organic manufacturing facilities located in the United States.
The majority of shipments are via common carriers to nearby
distributors' warehouses. A small private trucking fleet is
maintained at the organic facilities for direct shipment of
custom orders to customers. Inventories are also maintained in
field warehouses.
Republic-produced, Scotts branded spreaders are shipped via
common carrier to regional warehouses serving the Company's
retail network. Republic's E-Z spreader line and its private
label lines are sold free-on-board (FOB) Carlsbad with
transportation arranged by the customer.
Significant Customers
Kmart and Home Depot represented approximately 23.9% and
14.9%, respectively, of the Company's sales in fiscal 1994, which
reflects their significant position in the retail lawn and garden
market. The loss of either of these customers or a substantial
decrease in the amount of their purchases could have a material
adverse effect on the Company's business.
Employees
The Company's corporate culture emphasizes employee
participation in management, comprehensive employee benefits and
programs and profit sharing plans. As of September 30, 1994, the
Company employed approximately 2,300 full-time year-round workers
including 130 located outside the United States. Full-time
workers average approximately 10 years employment with the
Company or its predecessors. During peak production periods, the
Company engages as many as 750 temporary employees. The
Company's employees are not unionized, with the exception of
twenty-one of Sierra's employees at its Milpitas facility, who
are represented by the International Chemical Workers Union.
Environmental and Regulatory Considerations
Federal, state and local laws and regulations relating to
environmental matters affect the Company in several ways. All
products containing pesticides must be registered with the United
States Environmental Protection Agency ("United States EPA") (and
in many cases, similar state agencies) before they can be sold.
The inability to obtain or the cancellation of any such
registration could have an adverse effect on the Company's
business. The severity of the effect would depend on which
products were involved, whether another product could be
substituted and whether the Company's competitors were similarly
affected. The Company attempts to anticipate regulatory
developments and maintain registrations of, and access to,
substitute chemicals, but there can be no assurance that it will
continue to be able to avoid or minimize these risks. Fertilizer
and organic products (including manures) are also subject to
state labeling regulations.
Page 12
In addition, the use of certain pesticide and fertilizer
products is regulated by various local, state and federal
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 of individuals in the vicinity that products will be
applied in the future or may ban the use of certain ingredients.
The Company has been successful in complying with these
regulations.
Compliance with such regulations and the obtaining of
registrations does not assure, however, that the Company's
products will not cause injury to the environment or to people
under all circumstances.
State and federal authorities generally require Hyponex to
obtain permits (sometimes on an annual basis) in order to harvest
peat and to discharge water run-off or water pumped from peat
deposits. The state permits typically specify the condition in
which the property will be left after the peat is fully
harvested, with the residual use typically being natural wetland
habitats combined with open water areas. Hyponex is generally
required by these permits to limit its harvesting and to restore
the property consistent with the intended residual use. In some
locations, Hyponex has been required to create water retention
ponds to control the sediment content of discharged water.
In July 1990, the Philadelphia district of the Army Corps of
Engineers directed that peat harvesting operations be
discontinued at Hyponex's Lafayette, New Jersey facility, and the
Company complied. In May 1992, the Department of Justice filed
suit seeking a permanent injunction against such harvesting at
that facility and civil penalties. The Philadelphia District of
the Corps has taken the position that peat harvesting activities
there require a permit under Section 404 of the Clean Water Act.
If the Corps' position is upheld, it is possible that further
harvesting of peat from this facility would be prohibited. The
Company is defending this suit and is asserting a right to
recover its economic losses resulting from the government's
actions. Management does not believe that the outcome of this
case will have a material adverse effect on the Company's
operations or its financial condition.
State, federal and local agencies regulate the disposal,
handling and storage of waste and air and water discharges from
Company facilities. During fiscal 1994, the Company had
approximately $100,000 in environmental capital expenditures and
$300,000 in other environmental expenses, compared with
approximately $180,000 in environmental capital expenditures and
$260,000 in other environmental expenses in fiscal 1993. The
Company has budgeted $485,000 in environmental capital
expenditures and $350,000 in other environmental expenses for
fiscal 1995.
The Company has been identified by the Ohio Environmental
Protection Agency (the "Ohio EPA") as a Potentially Responsible
Party ("PRP") with respect to a site in Union County, Ohio (the
"Hershberger site") that has allegedly been contaminated by
hazardous substances whose transportation, treatment or disposal
the Company allegedly arranged. Pursuant to a consent order with
the Ohio EPA, the Company, together with four other PRP's
identified to date, is investigating the extent of contamination
in the Hershberger site and developing a remediation program.
Phase I of the investigation has been completed and the Company
is seeking resolution to this matter by being designated as a de
minimis contributor with minimal financial liability.
Sierra is a PRP in connection with the Lorentz Barrel and Drum
Superfund Site in California, as a result of its predecessor
having shipped barrels to Lorentz for reconditioning or sale
between 1967 and 1972. Many other companies are participating in
the remediation of this site, and issues relating to the
allocation of the costs have been resolved with the Company being
identified as a de minimis contributor. The Company has agreed
to settle this matter by means of a one-time total payment of
$1,000 to the United States EPA and the State of California. In
addition, Sierra is a defendant in a private cost-recovery action
relating to the Novak Sanitary Landfill, located near Allentown,
Pennsylvania. By agreement with
Page 13
W. R. Grace-Conn., Sierra's liability is limited to a maximum of
$200,000 with respect to this site. The Company's management
does not believe that the outcome of these proceedings will in
the aggregate have a material adverse effect on its financial
condition or results of operations.
ITEM 2. PROPERTIES.
The Company has fee or leasehold interests in approximately
sixty-seven (67) facilities. All of the owned properties are
mortgaged to secure the Company's indebtedness under the Third
Amended and Restated Credit Agreement, as amended ("Credit
Agreement") (see Item 7, Liquidity and Capital Resources).
The Company owns approximately 843 acres in two locations at
its Marysville, Ohio headquarters. It owns three research
facilities in Apopka, Florida; Cleveland, Texas and Gervais,
Oregon. The Company leases four fertilizer warehouses in
Illinois, California, Ohio and Pennsylvania. Republic leases its
twenty (20) acre spreader facility in Carlsbad, California.
The Company's twenty-four (24) organics facilities are
located nationwide in eighteen states. Twenty-two are owned,
while two are leased. Facilities at most include production
lines, warehouses and offices. Six sites also include composting
facilities.
The Company has fourteen stand-alone composting facilities.
Nine of these sites are leased and are located in Oregon,
California, Florida, Indiana, Ohio, Pennsylvania and Illinois.
Five sites are utilized through agreements with the
municipalities of Greensboro, NC; Shreveport, LA; Spokane, WA;
Independent Hill, VA and Balls Ford, VA.
The Company owns two Sierra manufacturing facilities in
Fairfield, CA and Heerlen, The Netherlands. It leases three
Sierra manufacturing facilities in Allentown, PA; Milpitas, CA
and North Charleston, SC.
It is the opinion of the Company's management that its
facilities are adequate to serve their intended purposes and that
its property leasing arrangements are stable.
ITEM 3. LEGAL PROCEEDINGS.
As noted in the discussion of "Environmental and Regulatory
Considerations" in Item 1, the Company is defending a suit filed
by the United States Department of Justice which seeks civil
penalties and a permanent injunction against peat harvesting at
Hyponex's Lafayette, New Jersey facility. The Company has
asserted a right to recover its economic losses resulting from
the government's actions. The Company also is involved in
several other environmental matters, as set forth above in
"Environmental and Regulatory Considerations". Management does
not believe the outcome of these matters will have a material
adverse effect on the Company's operations or its financial
condition.
The Company is involved in other lawsuits and claims which
arise in the normal course of its business. In the opinion of
management, these claims individually and in the aggregate are
not expected to result in an adverse effect on the Company's
financial position or operations.
Page 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting of Stockholders ("Special Meeting") of
Scotts Delaware was held in Marysville, Ohio on September 20,
1994. The Special Meeting was held to consider and vote upon a
proposal (the "Reincorporation Proposal") which provided, among
other things, for the change of the Company's state of
incorporation from Delaware to Ohio through a merger of Scotts
Delaware into Scotts Ohio, a wholly owned subsidiary of Scotts
Delaware. The surviving corporation was Scotts Ohio, and the
stockholders of Scotts Delaware became owners of all of the
outstanding common shares of Scotts Ohio.
The Reincorporation Proposal was approved and the result of
the vote of the stockholders is as follows:
Votes For Votes Abstentions
Against
9,507,932 2,174,194 814,765
No proxies were solicited for the purpose of electing
directors. The Company's board of directors remains unchanged
from that identified in the Company's Report on Form 10-Q for the
quarter ended July 2, 1994 except that Karen Gordon Mills was
appointed to the board of directors on September 21, 1994 to fill
the vacancy created by the resignation of Alberto Cribiore.
Executive Officers of Registrant
The executive officers of the Company, their positions and,
as of November 30, 1994, their ages and years with Scotts Ohio
(and its predecessors) are set forth below.
Years
with
Name Age Position(s) Held Scotts
Ohio
(and its
Predecess
ors)
Tadd C. Seitz 53 Director, Chairman of 22
the Board
Chief Executive
Officer
Theodore J. Host 49 Director, President 3
Chief Operating
Officer
Paul D. Yeager 56 Executive Vice 20
President
Chief Financial
Officer
Richard B. Stahl 59 Senior Vice President 27
Professional
Business Group
J. Blaine 51 Senior Vice 2
McKinney President,
Consumer Business
Group
Bernard R. Ford 51 Vice President, 16
Strategy
and Business
Development
Michael P. Kelty 44 Senior Vice 15
President,
Technology and
Operations
Lawrence M. 54 Vice President, 20
McCartney Information
Systems
Lisle J. Smith 38 Vice President, 1
Administration
and Planning
Robert A. Stern 52 Vice President, 12
Human Resources
Craig D. Walley 51 Vice President, 9
General Counsel,
and Secretary
Robert M. Webb 52 Vice President, 14
Manufacturing &
Logistics
Page 15
Executive officers serve at the discretion of the Board of
Directors (and in the case of Mr. Host, pursuant to employment
agreements).
The business experience of each of the persons listed above
during the past five years is as follows:
Mr. Seitz has been the Chief Executive Officer since 1983.
He was also President from 1983 until 1991. Previously, Mr.
Seitz served as Director of Marketing and as General Manager of
Burpee.
Mr. Host has been President and Chief Operating Officer and
a director of the Company since October 1991. From May 1990 to
October 1991, he was Senior Vice President, Marketing for Coca-
Cola USA. He previously was President of the Boyle-Midway
Household Products Division of American Home Products, Inc.
Mr. Yeager has been an Executive Vice President since 1991
and a Vice President and the Chief Financial Officer since 1980.
He was first Assistant Comptroller and then Comptroller from 1974
to 1980.
Mr. Stahl has been Senior Vice President since January,
1994. From December 1987 to 1994, he was Vice President and
General Manager of the Professional Business Group. Mr. Stahl
joined the Company in 1967 as a technical representative in the
golf course division.
Mr. McKinney was named Senior Vice President, Consumer
Business Group, in June, 1992. From January, 1990 to June, 1992
he was Vice President of Marketing and Sales of Salov, N.A., a
manufacturer of consumer products. From July, 1989 to January,
1990 he was Director of Sales of Rickett & Colman, Ltd., a
consumer products company.
Mr. Ford has been Vice President, Strategy and Business
Development since December 1987. Other positions that Mr. Ford
has held include Director of Market Development, Director of
Export Marketing Services and Director of Marketing.
Dr. Kelty was named Senior Vice President, Technology and
Operations in March, 1994. From 1988 to 1994, he served first as
Director, then as Vice President of Research and Development.
Prior to that, Dr. Kelty was the Director of Advanced Technology
Research, and from 1983 to 1987 he was Director, Chemical
Technology Development.
Mr. McCartney has been Vice President, Information Systems
since 1989. He joined the Company in 1974 as Systems and
Programming Manager, and was Director, Information Systems from
1976 until 1989.
Mr. Stern has been Vice President, Human Resources since
1984.
Mr. Walley has been Vice President, General Counsel and
Secretary since 1985.
Mr. Webb has been a Vice President since 1988. He was Vice
President - Operations of Hyponex Corporation from 1980 until
1988.
Page 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Scotts Delaware made an initial public offering of its Class
A Common Stock on January 31, 1992. As a result of the merger of
Scotts Delaware into Scotts Ohio on September 20, 1994, each
share of outstanding Class A Common Stock of Scotts Delaware was
converted into one Common Share of Scotts Ohio. The shares of
Class A Common Stock of Scotts Delaware were, and the Common
Shares of Scotts Ohio are traded in the NASDAQ National Market
System, under the symbol "SCTT".
Sales Prices
High Low
Fiscal 1993
1st quarter 18 - 1/2 14 - 1/2
2nd quarter 20 - 1/2 17 - 1/8
3rd quarter 18 - 3/4 15 - 1/4
4th quarter 18 - 3/8 15 - 1/4
Fiscal 1994
1st quarter 20 - 1/8 16
2nd quarter 20 18
3rd quarter 19 - 7/8 16 - 1/4
4th quarter 17 15 - 1/4
The Company has not paid dividends in the past and does not
presently plan to pay dividends. It is presently anticipated
that earnings will be retained and reinvested to support the
growth of the Company's business. The payment of any future
dividends will be determined by the Board of Directors of the
Company in light of conditions then existing, including the
Company's earnings, financial condition and capital requirements,
restrictions in financing agreements, business conditions and
other factors. Under a covenant in the Company's Credit
Agreement, the Company is restricted in its payment of cash
dividends, to an amount not to exceed 33 1/3% of the consolidated
net income of the Company and its consolidated subsidiaries
during the immediately preceding fiscal year.
As of December 1, 1994, Scotts Ohio estimates there were
approximately 6,400 shareholders including holders of record and
Scotts Ohio's estimate of beneficial holders.
Page 17
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
THE SCOTTS COMPANY AND SUBSIDIARIES
For the fiscal year ended September 30
(in thousands except share 1990 1991 1992 1993(1) 1994(2)
data)
Consolidated Statement of
Income Data(3)
Net sales $350,441 $388,120 $413,558 $466,043 $606,339
Cost of sales 186,803 207,956 213,133 244,218 319,730
Gross profit 163,638 180,164 200,425 221,825 286,609
Operating expenses:
Marketing 48,681 57,489 66,245 74,579 100,106
Distribution 55,628 57,056 61,051 67,377 84,407
General and administrative 23,965 22,985 24,759 27,688 30,189
Research and development 4,714 5,247 6,205 7,700 10,352
Other expenses 2,880 2,000 20 660 2,283
Total operating expenses 135,868 144,777 158,280 178,004 227,337
Income from operations 27,770 35,387 42,145 43,821 59,272
Interest expense 34,531 30,932 15,942 8,454 17,450
Income (loss) before income
taxes, extraordinary
items and cumulative effect
of account changes (6,761) 4,455 26,203 35,367 41,822
Income taxes (143) 2,720 11,124 14,320 17,947
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes (6,904) 1,735 15,079 21,047 23,875
Extraordinary items:
Loss on early extinguishment of
debt, net of tax - - (4,186) - (992)
Utilization of net operating
loss carryforwards - 2,581 4,699 - -
Cumulative effect of changes in
accounting for
postretirement benefits, net
of tax and income taxes - - - (13,157) -
Net income (loss) $(6,904) $4,316 $15,592 $7,890 $22,883
Net income (loss) per common
share: (4)
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes $(0.58) $0.15 $0.84 $1.07 $1.27
Extraordinary items:
Loss on early extinguishment of
debt, net of tax - - (0.23) - (0.05)
Utilization of net operating
loss carryforwards - 0.21 0.26 - -
Cumulative effect of changes in
accounting for
postretirement benefits, net
of tax and income taxes - - - (0.67) -
Net income (loss) $(0.58) $0.36 $0.87 $0.40 $1.22
Weighted average common shares
outstanding during
the period 11,976,733 11,832,651 18,014,151 19,687,013 18,784,729
Consolidated Balance Sheet Data (3)
Working capital $18,230 $21,260 $54,795 $88,526 $140,566
Capital investment 8,494 8,818 19,896 15,158 33,402
Property, plant and equipment,
net 83,384 79,903 89,070 98,791 140,105
Total assets 270,429 260,729 268,021 321,690 528,584
Term debt, including current
portion 192,915 182,954 31,897 92,524 223,885
Total stockholders' equity
(deficit) (12,677) (9,961) 175,929 143,013 168,160
(1) Includes Republic from November 1992.
(2) Includes Sierra from December 16, 1993
(3) Certain amounts have been reclassified to conform to 1994 presentation;
these changes did not impact net income.
(4) Net income (loss) per share for fiscal 1990 and 1991 have been restated
to eliminate the effect of accretion to redemption value of redeemable
common stock to be comparable with fiscal 1992. All per share amounts
for fiscal 1988 through 1991 have been adjusted for the January 1992
reverse stock split, in which every 2.2 shares of old Class A. Common
Stock were exchanged for one share of new Class A Common Stock.
Page 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with
the Consolidated Financial Statements of the Company included
elsewhere in this Report.
Results of Operations
Fiscal 1994 compared with fiscal 1993.
Net sales of $606.3 million increased by $140.3 million or
30.1%, primarily due to increased sales volume, a portion of
which relates to new pre-season promotion programs with major
retailers. The increase included $105.6 million of sales from
Sierra, which was acquired by the Company on December 16, 1993.
Consumer Business Group sales of $419.6 million increased by
$49.4 million or 13.3%. The growth was principally derived from
increased sales volume to major retailers, with sales to the
Company's top ten accounts up 16% over the prior year, and from
sales for Sierra which accounted for $21.3 million of the
increase. Professional Business Group sales of $181.7 million
increased by $88.0 million or 93.9%. The increase was
principally due to sales for Sierra which accounted for $84.3
million of the increase.
On a proforma basis that includes Sierra sales on a
historical basis assuming that the acquisition had occurred on
October 1, 1992, sales increased by 7.1% for the 1994 year.
Cost of sales at 52.7% of net sales showed a slight increase
from 52.4% of net sales last year. The increase reflected a
higher proportion of spreader sales, which have lower margins.
Operating expenses of $227.3 million increased by $49.3
million or 27.7%. The increase was caused, in significant part,
by the inclusion of Sierra operating expenses this year. The
increase was also caused, to a lesser degree, by increased
freight costs due to higher sales volume and by higher marketing
costs which reflected increased spending for national advertising
and promotion programs. The increase was partly offset by
reduced general and administrative expenses, exclusive of Sierra
expenses, for the year.
Interest expense of $17.5 million increased by $9.0 million
principally due to an increase in borrowing levels resulting from
the acquisition of Sierra in December, 1993. The increase was
also caused, to a lesser degree, by the issuance of $100,000,000
of 97/8% Senior Subordinated Notes due August 1, 2004 (the
"Notes") (see "Liquidity and Capital Resources" below) which bear
a higher fixed interest rate than the term debt prepaid with
their net proceeds.
Net income of $22.9 million increased by $15.0 million from
$7.9 million last year. The increase was primarily attributable
to a non-recurring charge of $13.2 million, net of tax, last year
for the cumulative effect of accounting changes. The increase
also reflected increased operating income this year which was
partly offset by increased interest expense and also offset, in
part, by a $1.0 million non-recurring charge, net of tax, for
financing costs related to the term debt prepaid this year with
net proceeds from the Notes.
Fiscal 1993 Compared with Fiscal 1992
Net sales of $466.0 million increased by $52.5 million or
12.7%. The majority of the increase resulted from increased
sales volume of consumer products. Consumer Business Group sales
of $370.2 million increased by $47.6 million or 14.8%. The
growth was principally derived from increased
Page 19
sales volume to major retailers and from sales for Republic,
acquired in November 1992, which accounted for approximately
37.5% of the increase in Consumer Business Group sales.
Professional Business Group sales of $93.7 million increased by
$3.6 million or 4.0%. The majority of the latter increase was
due to increased sales volume.
Cost of sales represented 52.4% of net sales compared with
51.5% in 1992. The increase was primarily caused by lower gross
profit margins on Republic's products in the current year. Cost
savings from the implementation of new controlled-release
fertilizer technology, which exceeded start-up costs incurred
early in the year, partly offset the increase.
Operating expenses of $178.0 million increased by $19.7
million or 12.5%. The increase was caused by increased
investment in advertising and consumer rebates in 1993, higher
distribution costs related to increased sales, and the inclusion
of operating expenses for Republic which amounted to
approximately $3.0 million from November through the end of
fiscal 1993.
Income from operations of $43.8 million increased by $1.7
million or 4.0%, which resulted from increased sales, partially
offset by increased operating expenses. The increase was also
offset, in part, by additional pretax charges of $2.4 million, in
1993, resulting from the implementation of the Financial
Accounting Standards Board ("Board") Statement of Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", ("SFAS 106").
Interest expense of $8.5 million decreased by $7.5 million
or 47.0%. The decrease resulted from reduced borrowings and
lower interest rates including the effect of early redemption of
subordinated notes and debentures. Reduced borrowings resulted
from the application of the net proceeds of the Company's January
1992 initial public offering and cash flow from operations,
partly offset by the use of capital resources for the Republic
acquisition, the purchase of a block of the Company's Class A
Common Stock and capital investment.
Income before extraordinary items and cumulative effect of
accounting changes increased by approximately $6.0 million or
39.6% primarily due to increased operating income and lower
interest expense. The increase was partially offset by a $1.4
million charge, net of tax, related to adoption of SFAS 106 in
fiscal 1993.
Net income of $7.9 million decreased by $7.7 million or
49.4%. The decrease was attributable to expense from the
implementation of SFAS 106 and a non-recurring charge for the
cumulative effect of the change in accounting in the amount of
$14.9 million, net of tax. The decrease was partially offset by
a non-recurring benefit of $1.8 million, related to
implementation of the Board's Statement of Accounting Standards
No. 109, "Accounting for Income Taxes".
Liquidity and Capital Resources
Capital expenditures totaled approximately $33.4 million and
$15.2 million for the fiscal years ended September 30, 1994 and
1993, respectively, and are expected to be approximately $23
million in fiscal 1995. The key capital project in fiscal 1994
was an approximately $13 million investment in a new production
facility to increase capacity to meet demand for Scotts' Poly-Sr
controlled-release fertilizers. The production facility was
completed as planned and is currently in operation. The
Company's Credit Agreement restricts the amount the Company may
spend on future capital expenditures to $35 million per year for
fiscal 1995 and each year thereafter. These expenditures will be
financed with cash provided by operations and utilization of
available credit facilities.
Effective December 16, 1993, the Company completed the
acquisition of Sierra for a purchase price of approximately
$121.2 million. A description of the Sierra acquisition is found
in Item 8, footnote number 2 on page F-10 of this report, which
description is incorporated herein by this reference.
Page 20
Current assets of $250.3 million on September 30, 1994,
increased by $96.9 million compared with current assets on
September 30, 1993. The increase was partly attributable to the
inclusion of Sierra's current assets this year which amounted to
$34.0 million and to higher inventory levels this year resulting
from the inclusion of planned inventories of spreaders which the
Company now produces and other products prepacked in anticipation
of seasonal sales as well as by a higher level of accounts
receivable this year due to increased sales.
Total assets of $528.6 million on September 30, 1994
increased by $207.0 million compared with total assets on
September 30, 1993. The increase was largely due to the
inclusion of Sierra's total assets which amounted to $131.9
million including goodwill of $65.8 million. The increase was
also caused by the increases in accounts receivable and inventory
levels mentioned above.
Total liabilities of $360.4 million on September 30, 1994
increased by $181.8 million compared with total liabilities on
September 30, 1993. The increase was principally due to $125.0
million of term debt incurred in December 1993 to facilitate the
acquisition and the inclusion of Sierra total liabilities which
amounted to $24.6 million at year end. In July, 1994, $96.4
million of the term debt was prepaid with the proceeds of the
Notes offering described below.
Shareholders' equity of $168.2 million on September 30, 1994
increased by $25.1 million compared with shareholders' equity on
September 30, 1993. The increase resulted from $22.9 million of
net income for the year ended September 30, 1994 and from a
cumulative foreign currency adjustment of $2.1 million related to
translating the assets and liabilities of Sierra's foreign
subsidiaries to U.S. dollars.
The primary sources of liquidity for the Company are funds
generated by operations and borrowings under the Company's Credit
Agreement. The Credit Agreement was amended in December 1993 to
provide financing for and permit the acquisition of Sierra. As
amended, the Credit Agreement provides a revolving credit
commitment of $150,000,000 through March 31, 1996 and provides
$195,000,000 of term debt with scheduled maturities extending
through September 30, 2000. As of the date of this report, the
Credit Agreement provides $93.1 million of term debt. The Credit
Agreement contains financial covenants which, among other things,
limit capital expenditures, require maintenance of Adjusted
Operating Profit, Consolidated Net Worth and Interest Coverage
(each as defined therein) and require the Company to reduce
revolving credit borrowings to no more than $30,000,000 for 30
consecutive days each year. The covenant to reduce borrowings
for 30 consecutive days was satisfied for fiscal 1994 during
July. The Credit Agreement was specifically assumed by the
Company after the Company Merger and the O. M. Scott Merger.
On July 19, 1994, the Company issued $100,000,000 of Notes
at 99.212% of face value. The net proceeds of the offering were
$96,402,000 after underwriting discount and estimated expenses
and this amount was used to prepay term debt outstanding under
the Credit Agreement. Scheduled term debt maturities were
adjusted to reflect the prepayment in accordance with the terms
of the Credit Agreement. All of the Notes are subordinated to
other outstanding debt, principally to banks. The Notes are
subject to redemption, at the Company's option, in whole or in
part, at any time after August 1, 1999 at redemption prices
specified in the Notes indenture. In order to redeem the Notes,
the Company must obtain approval of the banks party to the Credit
Agreement as specified therein. The Notes require a limited
number of financial covenants which are generally less
restrictive than the financial covenants contained in the Credit
Agreement. As a result of issuing the Notes, the Company
recognized a one-time extraordinary non-cash charge of
approximately $1.0 million, net of tax, for unamortized deferred
financing costs related to the prepayment of the term debt. In
addition, the Notes fixed interest rate of 9 7/8% is higher than
the floating interest rate paid on the term debt which will cause
an increase in interest expense, at least in the near term.
Company management believed, however, that it was prudent to
obtain what they consider to be attractive fixed rate, ten year
financing to replace part of the Company's floating rate
borrowings.
Page 21
The Company's business is highly seasonal which is reflected
in working capital requirements. Working capital requirements
are greatest from November through May, the peak production
period, and are at their highest in March. Working capital needs
are relatively low in the summer months.
In the opinion of the Company's management, cash flows from
operations and capital resources will be sufficient to meet
future debt service and working capital needs.
Inflation
The Company is subject to the effects of changing prices.
The Company has, however, generally been able to pass along
inflationary increases in its costs by increasing the prices of
its products.
Accounting Issues
In November 1992, the Financial Accounting Standards Board
issued SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"), which changes the prevalent method of
accounting for benefits provided after employment but before
retirement. The Company must adopt SFAS 112 no later than the
first quarter of fiscal 1995. Management has evaluated the
provisions of SFAS No. 112. Since most of these benefits are
already accounted for by the Company on an accrual method, the
impact of this new standard is not expected to be insignificant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and other information required by
this item are contained in the financial statements, the
footnotes thereto and the schedules listed in the Index to
Consolidated Financial Statements and Financial Statement
Schedules on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Page 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding executive officers required by
Item 401 of Regulation S-K is included in Part I hereof following
Item 4.
Pursuant to the Code of Regulations of the Company, the
Board of Directors has set the authorized number of directors to
be elected at nine (9). The directors will hold office until the
next annual meeting of shareholders of the Company and until
their successors are duly elected and qualified, or until their
earlier death, resignation or removal. All of the directors were
first appointed or elected at the various dates set forth below
and have been elected annually since their respective
appointments.
The following information with respect to the principal
occupation or employment, other affiliations and business
experience of each director during the last five years has been
furnished to the Company by each director. Except where
indicated, each director has had the same principal occupation
for the last five years.
Information Concerning Directors as of December 28, 1994:
James B Beard, age 59 Director of the Company since 1989
Dr. Beard is Professor Emeritus of Turfgrass Physiology
and Ecology at Texas A&M University where he served from 1975 to
1992. Presently, he is President and Chief Scientist at the
International Sports Turf Institute. Dr. Beard is the author of
6 books and over 500 scientific articles on turfgrass science and
is an active lecturer and consultant both nationally and
internationally. He is a Fellow of the American Association of
the Advancement of Science and was the first President of the
International Turfgrass Society.
John S. Chamberlin, age 66 Director of the Company since 1989
Since 1988, Mr. Chamberlin has served as an advisor for
investment firms. In 1990 and 1991, he was Chief Executive
Officer of N.J. Publishing, Inc. He has been Senior Advisor to
Mancuso & Co. since 1990, Chairman of Life Fitness Co. since
1992, Chairman of WNS, Inc. since 1993, and a director of
Healthsouth Corporation since 1993. He was also a director of
The Travelers Insurance Company until December, 1993 and was a
director of Curaflex Health Services, Inc. from 1992 to July,
1994.
Joseph P. Flannery, age 62 Director of the Company since 1987
Mr. Flannery was a consultant to Clayton, Dubilier &
Rice, Inc. from September 1988 to December 1990. Mr. Flannery
has been President, Chief Executive Officer and Chairman of the
Board of Directors of Uniroyal Holding, Inc. since 1986. Mr.
Flannery is also a director of Ingersoll Rand Company, Kmart
Corporation, Newmont Mining, Newmont Gold Company, Arvin
Industries, Inc., and APS Holding Corporation.
Page 23
Theodore J. Host, age 49 President, Chief Operating Officer and
Director of the Company since 1991
Prior to joining the Company, Mr. Host was Senior Vice
President, Marketing with Coca-Cola USA from 1990 to 1991 and was
with American Home Products, Inc. for twenty-three years, serving
as President of the Boyle-Midway Household Products division for
five years before joining Coca-Cola USA.
Karen G. Mills, age 41 Director of the Company since 1994
Ms. Mills is President of MMP Group, Inc., a management
company that monitors equity investments and provides consulting
and investment banking services. From 1983 to 1993, she served
as Managing Director at E.S. Jacobs and Company and as Chief
Operating Officer of its Industrial Group. Ms. Mills is
currently on the boards of Triangle Pacific Corp., Armor All
Products, Inc. and Arrow Electronics, Inc.
Tadd C. Seitz, age 53 Chairman of the Board, Chief Executive
Officer and Director of the Company
since 1987
Mr. Seitz has been the Chief Executive Officer of the
Company since 1987. He was also President of O. M. Scott from
1983 until 1991. Previously, Mr. Seitz served as O. M. Scott's
Director of Marketing and as General Manager of The W. Atlee
Burpee Company. Mr. Seitz has been employed by the Company for
twenty-one years. Mr. Seitz also serves as a director of
Holophane Corporation.
Donald A. Sherman, age 43 Director of the Company since 1988
Mr. Sherman has been President of Waterfield Mortgage
Company in Fort Wayne, Indiana, since 1989.
John M. Sullivan, age 59 Director of the Company since 1994
Mr. Sullivan was Chairman of the Board from 1987 to
1993, and President and Chief Executive Officer from 1984 to
1993, of Prince Holdings, Inc., a corporation which, through its
subsidiaries, manufactures sporting goods. Since his retirement
from Prince Holdings, Inc. and its subsidiaries in 1993, Mr.
Sullivan has served as an independent director for various
corporations, none of which, other than the Company, is
registered under or subject to the requirements of the Securities
Exchange Act of 1934 or the Investment Company Act of 1940.
L. Jack Van Fossen, age 57 Director of the Company since 1993
Mr. Van Fossen has been President and Chief Executive
Officer of Red Roof Inns, Inc., an owner and operator of motels,
since 1991. From 1988 to 1991, Mr. Van Fossen was self-employed
as an independent business consultant. Mr. Van Fossen also
serves as a director of Cardinal Health, Inc.
Page 24
To the Company's knowledge, based solely on a review of the
copies of the reports furnished to the Company and written
representations that no other reports were required, during the
fiscal year ended September 30, 1994 (the "1994 Fiscal Year"),
all filing requirements applicable to officers, directors and
greater than 10% beneficial owners of the Company under
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended
September 30, 1994, 1993 and 1992, compensation awarded or paid
to, or earned by, the Company's Chief Executive Officer and the
four other most highly compensated executive officers of the
Company.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
Securities
Underlying
Name and Fiscal Salary Bonus Options All Other
Principal Position Year ($) ($) SARs(#)(1) Compensation($)(2)
Tadd C. Seitz:
Chairman of the 1994 $362,500 $228,965 129,447 $3,270
Board and Chief 1993 $341,725 $189,780 85,019 $3,270
Executive Officer 1992 $323,925 $191,066 0 __
Theodore J. Host:
President and 1994 $307,833 $196,650 82,567 $3,270
Chief Operating 1993 $283,750 $162,963 53,108 $3,270
Officer 1992 $292,745 $250,000 136,364(3) --
Paul D. Yeager:
Executive Vice 1994 $202,250 $125,000 25,342 $3,270
President and Chief 1993 $192,750 $115,103 18,739 $3,270
Financial Officer 1992 $173,950 $ 91,827 0 __
J. Blaine McKinney:
Senior Vice President,1994 $191,667 $105,000 31,658 $1,907
Consumer Business 1993 $177,333 $ 87,365 35,409 $ __
Group 1992 $ 58,333 $ 30,000 0 __
Richard B. Stahl:
Senior Vice President 1994 $180,333 $ 89,000 14,932 $3,270
and General Manager, 1993 $163,600 $ 89,679 14,546 $3,270
Professional Business 1992 $155,000 $ 82,800 0 --
Group
Page 25
(1) Except as noted, these numbers represent options for Common
Shares granted pursuant to the Company's 1992 Long Term
Incentive Plan. See the table under "OPTION GRANTS IN LAST
FISCAL YEAR" for more detailed information on such options.
(2) In accordance with the transition provisions of the revised
rules governing the disclosure of executive compensation
adopted by the Securities and Exchange Commission, amounts
of "All Other Compensation" are excluded for the Company's
1992 fiscal year. Includes contributions to The Scotts
Company Profit Sharing and Savings Plan.
(3) These options expire on January 8, 2002; provided, however,
that if Mr. Host's active employment with the Company and
its subsidiaries is terminated for cause, these options will
be forfeited.
Grants of Options
The following table sets forth information concerning
individual grants of options made during the 1994 fiscal year to
each of the executive officers named in the Summary Compensation
Table. The Company has never granted stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Number of % of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Term(1)
Name Granted(#) Fiscal Year ($/Share) Date 5%($) 10%($)
Tadd C. Seitz 87,840(2)(3) 22.5% $17.25 9/30/03 $953,064 $2,414,722
41,607(3)(4) 10.6% $16.25 11/03/02 $372,840 $ 918,142
Theodore J. Host 56,580(2)(3) 14.5% $17.25 9/30/03 $613,893 $1,555,384
25,987(3)(4) 6.6% $16.25 11/03/02 $232,869 $ 573,455
Paul D. Yeager 16,180(2)(3) 4.1% $17.25 9/30/03 $175,553 $ 444,788
9,162(3)(4) 2.3% $16.25 11/03/02 $ 82,101 $ 202,178
J. Blaine McKinney 21,680(2)(3) 5.5% $17.25 9/30/03 $235,228 $ 595,983
9,978(3)(4) 2.5% $16.25 11/03/02 $ 89,413 $ 220,184
Richard B. Stahl 7,820(2)(3) 2.0% $17.25 9/30/03 $ 84,847 $ 214,972
7,112(3)(4) 1.8% $16.25 11/03/02 $ 63,731 $ 156,940
(1) The amounts reflected in this table represent certain
assumed rates of appreciation only. Actual realized values,
if any, on option exercises will be dependent on the actual
appreciation of the Common Shares of the Company over the
term of the options. There can be no assurances that the
Potential Realizable Values reflected in this table will be
achieved.
(2) These options were granted under the Company's 1992 Long
Term Incentive Plan and become exercisable in three
approximately equal installments on each of the first three
anniversaries of the date of grant, subject to right of the
Compensation Committee of the Company's Board of Directors
to accelerate the exercisability of such options in its
discretion.
(3) In the event of a "change in control" (as defined in the
1992 Long Term Incentive Plan), each option will be canceled
in exchange for a payment in cash of an amount equal to the
excess of the highest price paid (or offered) for Common
Shares during the preceding 30 trading days over the
exercise price for such option. Notwithstanding the
foregoing, if the Compensation Committee determines that the
holder of the option will receive a new award (or have his
prior award honored) in a manner which preserves its value
and eliminates the risk that the value of the award
Page 26
will be forfeited due to an involuntary termination, no
settlement will occur as a result of a change in control.
In the event of termination of employment by reason of
retirement, long term disability or death, the options may
thereafter be exercised in full for a period of 5 years,
subject to the stated term of the options. The options are
forfeited if the holder's employment is terminated for
cause. In the event an option holder's employment is
terminated for any reason other than retirement, long term
disability, death or cause, any exercisable options held by
him at the date of termination may be exercised for a period
of 30 days.
(4) These options (or a percent thereof) were originally to be
earned under the 1992 Long Term Incentive Plan based upon
the Company's performance during the 1994 fiscal year.
However, on December 13, 1994, the Company's Board of
Directors approved its Compensation Committees'
recommendation to grant 100% of these shares as of September
30, 1994.
Option Exercises and Holdings
The following table sets forth information with respect to
unexercised options held as of the end of the 1994 fiscal year by
each of the executive officers named in the Summary Compensation
Table. No options were exercised during the 1994 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number
of Securities Number of Securities Underlying Value of Unexercised
Underlying Unexercised Options at In-the-Money
Options Value FY-End (#) Options at FY-End($)(1)
Name Exercised Realized($) Exercisable Unexercisable Exercisable Unexercisable
Tadd C. Seitz 0 __ 98,873 157,200 $ 0 $ 0
Theodore J. Host 0 __ 198,126 99,900 $763,638 $ 0
Paul D. Yeager 0 __ 12,623 40,621 $ 0 $ 0
J. Blaine McKinney 0 __ 28,721 48,326 $ 0 $ 0
Richard B. Stahl 0 __ 16,912 19,679 $ 0 $ 0
(1) "Value of Unexercised In-the-Money Options at FY-End" is
based upon the fair market value of the Company's Common
Shares on September 30, 1994 ($15.50) less the exercise
price of in-the-money options at the end of the 1994 Fiscal
Year.
Pension Plans
The Company maintains a tax-qualified non-contributory
defined benefit pension plan (the "Pension Plan"). All employees
of the Company and its subsidiaries (except for Hyponex
Corporation, a wholly-owned subsidiary of the Company
("Hyponex"), and O. M. Scott & Sons, Ltd., a wholly owned
subsidiary of the Company in United Kingdom) are eligible to
participate upon meeting certain age and service requirements.
The following table shows the estimated annual benefits (assuming
payment made in the form of a single life annuity) payable upon
retirement at normal retirement age (65 years of age) to an
employee in specified compensation and years of service
classifications.1
PENSION PLANS TABLE
Annualized
Average
Years of Service
Final Pay 10 15 20 25 30
$ 100,000 $13,279.50 $19,919.25 $26,559.00 $33,198.75 $ 39,838.50
250,000 35,779.50 53,669.25 71,559.00 89,448.75 107,338.50
500,000 73,279.50 109,919.25 146,559.00 183,198.75 219,838.50
750,000 110,579.50 166,169.25 221,559.00 276,948.75 332,338.50
1,000,000 148,279.50 222,419.25 296,559.00 370,698.75 444,838.50
1,250,000 185,779.50 278,669.25 371,559.00 464,448.75 557,338.50
Monthly benefits under the Pension Plan upon normal
retirement (age 65) are based upon an employee's average final
pay and years of service, and are reduced by 1.25% of the
employee's PIA times the number of years of such employee's
service. Average final pay is the average of the 60 highest
consecutive months' compensation during the 120 months prior to
retirement. Pay includes all earnings and a portion of sales
incentive payments, management incentive payments and executive
incentive payments, but does not include earnings in connection
with foreign service, the value of a company car, separation or
other special allowances and commissions. Additional provisions
for early retirement are included.
At September 30, 1994, the credited years of service
(including certain prior service with ITT Corporation, from whom
the Company was acquired in 1986) and the 1994 annual covered
compensation for purposes of the Pension Plan and the Excess
Benefit Plan of the five executive officers of the Company named
in the Summary Compensation Table were as follows:
Covered
Years of Service Compensation
Mr. Seitz 18 years 9 months $587,965
Mr. Host 2 years 10 months $501,650
Mr. Stahl 18 years 9 months $264,733
Mr. Yeager 25 years 1 month $324,000
Mr. McKinney 2 years 4 months $291,667
Effective October 1, 1993, the Company also established the
Excess Benefit Plan which provides additional benefits to
participants in the Pension Plan whose benefits are reduced by
limitations imposed under Sections 415 and 401(a)(17) of the
Code. Under the Excess Benefit Plan, executive officers and
certain key employees will receive, at the same time and in the
same form as benefits paid under the Pension Plan, additional
monthly benefits in an amount which, when added to the benefits
paid to the participant under the Pension Plan, will equal the
benefit amount such participant would have earned but for the
limitations imposed by the Code to the extent such limitations
apply.
Page 28
Compensation of Directors
Each director of the Company, other than any director
employed by the Company, receives a $25,000 annual retainer for
Board and committee meetings plus all reasonable travel and other
expenses of attending such meetings.
Directors, other than those employed by the Company (the
"Nonemployee Directors"), receive an annual grant on the first
business day following the date of each annual meeting of
stockholders (commencing with the 1994 Annual Meeting) of options
to purchase 4,000 Common Shares at an exercise price equal to the
fair market value on the date of the grant. In addition, on
November 11, 1992, each of the Nonemployee Directors of the
Company on that date (Messrs. Beard, Chamberlin, Flannery and
Sherman and Henry O. Timnick (who is no longer a director of the
Company)) was granted options to purchase 4,000 Common Shares at
an exercise price of $16.25. Options granted to Nonemployee
Directors become exercisable six months after the date of grant
and remain exercisable until the earlier to occur of (I) the
tenth anniversary of the date of grant or (ii) the first
anniversary of the date the Nonemployee Director ceases to be a
member of the Company's Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table furnishes certain information as of
December 28, 1994 (except as otherwise noted), as to the Common
Shares beneficially owned by each of the directors of the
Company, by each of the executive officers of the Company named
in the Summary Compensation Table and by all directors and
executive officers of the Company as a group, and, to the
Company's knowledge, by the only persons beneficially owning more
than 5% of the outstanding Common Shares.
Amount and Nature of Beneficial Ownership(1)
Common Shares Which
Can be Acquired
Name of Beneficial Upon Exercise of
Owner or Number of Common Shares Options Exercisable Percent
Persons in Group Presently Held Within 60 Days Total of Class(2)
Government of Singapore 1,135,500(3) 0 1,135,500(3) 6.08%(3)
Investment Corporation
Pte Ltd
250 North Bridge Road
#33-00 Raffles City Tower
Singapore 0607
James B Beard 16,727 8,000 24,727 (4)
John S. Chamberlin 22,727 8,000 30,727 (4)
Joseph P. Flannery 25,454 8,000 33,454 (4)
Theodore J. Host(5) 45,454(6) 216,222 261,676 2.05%
Karen Gordon Mills 0 0 0 (4)
Tadd C. Seitz(5) 462,454 127,389 589,843 3.16%
Donald A. Sherman 22,727 8,000 30,727 (4)
John M. Sullivan 1,000 4,000 5,000 (4)
L. Jack Van Fossen 1,200 4,000 5,200 (4)
J. Blaine McKinney(5) 1,100 40,666 41,766 (4)
Richard B. Stahl(5) 77,545(7) 21,890 99,435 (4)
Paul D. Yeager(5) 140,885(8) 27,538 168,423 (4)
All directors and
executive officers
as a group (18 persons) 1,244,123(9) 473,705 1,717,828 9.20%
(1) Unless otherwise indicated, the beneficial owner has sole
voting and investment power as to all of the Common Shares
reflected in the table.
(2) The percent of class is based upon the sum of 18,667,064
Common Shares outstanding on November 30, 1994, and the
number of Common Shares as to which the named person has the
right to acquire beneficial ownership upon the exercise of
options exercisable within 60 days of September 30, 1994.
(3) Based on information contained in Amendment No. 1 to a
Schedule 13D dated October 18, 1994 filed with the
Securities and Exchange Commission, Government of Singapore
Investment Corporation Pte Ltd, an agency of the Singapore
government and an investment manager, shares voting and
investment power with respect to 803,000 Common Shares with
the Government of Singapore, shares voting and investment
power with respect to 303,500 Common Shares with the
Monetary Authority of Singapore and shares voting and
investment power with respect to 29,000 Common Shares with
the Board of Commissioners of Currency, Singapore.
(4) Represents ownership of less than 1% of the outstanding
Common Shares of the Company.
(5) Executive officer of the Company named in the Summary
Compensation Table.
(6) Includes 45,454 Common Shares which were issued to Mr. Host
at the time of his employment by the Company and which are
pledged to Bank One, N.A.
(7) Includes 25,000 Common Shares held in the Richard B. Stahl
and Nancy E. Stahl 1992 Charitable Remainder Trust. In his
capacity as trustee of said Trust, Mr. Stahl exercises sole
voting and investment power with respect to such Common
Shares. Also includes 1,000 Common Shares held by the son
of Mr. Stahl who shares his home.
(8) Includes 100 Common Shares held by each of Mr. Yeager's wife
and his two daughters who share his home.
(9) See Notes (6), (7) and (8) above. Also includes Common
Shares held by the respective spouses of executive officers
of the Company and by their children who reside with them.
Page 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
The Company entered into an Employment Agreement with
Mr. Host effective October 1991 providing for his continued
employment as President and Chief Operating Officer of the
Company until December 1996 at an annual base salary of at least
$270,000 per year, plus incentive bonus under The Scotts Company
Executive Incentive Plan. If Mr. Host's employment is terminated
for specified reasons, the Employment Agreement provides that he
will receive, subject to certain limitations, his full base
salary which would have been paid until the first anniversary of
his date of termination.
In connection with the entering into of his Employment
Agreement, Mr. Host received a signing bonus of $250,000, and in
January 1992, pursuant to such Agreement, purchased 45,454 Common
Shares at a purchase price of $9.90 per share, and pursuant to a
Stock Option Plan and Agreement dated as of January 9, 1992, was
granted options, which vested one-third on the date of grant and
one-third on each of the first and second anniversaries of his
date of employment, to purchase 136,364 Common Shares at a
purchase price of $9.90 per share.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Documents Filed as Part of this Report
1 & 2. Financial Statements and Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this Annual Report on Form 10-K.
Reference is made to "Index to Consolidated Financial Statements
and Financial Statement Schedules "beginning at Page F-1 (page __
as sequentially numbered).
3. Exhibits:
Exhibits filed with this Annual Report on Form 10-K are
attached hereto. For a list of such exhibits, see "Index to
Exhibits" beginning at page E-1 (page ___ as sequentially
numbered). The following table provides certain information
containing executive compensation plans and arrangements
required to be filed as exhibits to this Annual Report on Form
10-K.
Executive Compensation Plans and Arrangements
Exhibit Description Location
No.
10(a) The Scotts Pages 134 through 190
Company
Employees'
Pension Plan
10(b) Second Pages 191 through 232
Restatement of
The Scotts
Company Profit
Sharing and
Savings Plan
Page 31
10(e) Employment Incorporated herein
Agreement, by reference to
dated as of Scotts Delaware's
October 21, Annual Report on
1991 between Form 10-K for the
OMS and fiscal year ended
Theodore J. September 30, 1993
Host (File No. 0-19768)
[Exhibit 10(g)]
10(f) Stock Option Pages 233 through 249
Plan and
Agreement,
dated as of
January 9,
1992 between
Scotts
Delaware and
Theodore J.
Host
10(g) The O.M. Scott Incorporated herein
& Sons Company by reference to
Excess Benefit Scotts Delaware's
Plan Annual Report on
Form 10-K for the
fiscal year ended
September 30, 1993
(File No. 0-19768)
[Exhibit 10(g)]
10(l) The Scotts Incorporated herein
Company 1992 by reference to
Long Term Scotts Delaware's
Incentive Plan Registration
Statement on Form S-
8 filed on March
26, 1993
(Registration No.
33-60056) [Exhibit
4(f)]
10(i) O. M. Scott & Pages 250 through 254
Sons Company
1994 Executive
Annual
Incentive Plan
(b) Reports on Form 8-K
Scotts Ohio electronically filed a Current Report on Form 8-K
with the Securities and Exchange Commission on September 30, 1994
to report the following: 1) the September 20, 1994 merger of
Scotts Delaware into Scotts Ohio; 2) the conversion of each
share of Class A Common Stock, $.01 par value of Scotts Delaware
into one common share, without par value, of Scotts Ohio; and 3)
the September 30, 1994 merger of OMS into Scotts Ohio.
(c) Exhibits
See Item 14(a) (3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this Annual Report on Form 10-K. Reference
is made to "Index to Consolidated Financial Statements and
Financial Statement Schedules" beginning at page F-1 (page
___ as sequentially numbered).
Page 32
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 COMPANY
Dated December 13, 1994 By s/s Tadd C.
Seitz
Tadd C. Seitz
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
s/s James B Beard Director December 13, 1994
James B Beard
s/s John S. Chamberlin Director December 13, 1994
John S. Chamberlin
s/s Joseph P. Flannery Director December 13, 1994
Joseph P. Flannery
s/s Theodore J. Host Director/President December 13, 1994
Theodore J. Host Operating Officer
s/s Karen Gordon Mills Director December 13, 1994
Karen Gordon Mills
s/s Tadd C. Seitz Chairman/Chief December 13, 1994
Executive
Tadd C. Seitz Officer and
Director
s/s Donald A. Sherman Director December 13, 1994
Donald A. Sherman
s/s John M. Sullivan Director December 13, 1994
John M. Sullivan
s/s L. Jack Van Fossen Director December 13, 1994
L. Jack Van Fossen
s/s Paul D. Yeager Executive Vice December 13, 1994
President/
Paul D. Yeager Chief Financial
Officer/
Principal
Accounting Officer
Page 33
THE SCOTTS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Items 8 and 14(a))
Form 10-K
Annual
Report
Data submitted herewith:
Consolidated Financial Statements of The Scotts Company and
Subsidiaries:
Report of Independent Accountants F-2
Consolidated Statements of Income for the
years ended F-3
September 30, 1992, 1993 and 1994
Consolidated Statements of Cash Flows for
the years ended F-4
September 30, 1992, 1993 and 1994
Consolidated Balance Sheets at F-5
September 30, 1993 and 1994
Consolidated Statements of Changes in
Shareholders' Equity F-6
(Deficit) for the years ended
September 30, 1992, 1993 and 1994
Notes to Consolidated Financial Statements F-7 - 23
Schedules Supporting the Consolidated Financial Statements:
Report of Independent Accountants on F-24
Financial Statement Schedules
V - Property, Plant and Equipment F-25 - 27
VI - Accumulated Depreciation and
Amortization of F-28 - 30
Property, Plant and Equipment
VIII - Valuation and Qualifying Accounts F-31 - 33
IX - Short-term Borrowings F-34 - 36
X - Supplementary Income Statement F-37
Information
Schedules other than those listed above are omitted since they are not
required or are not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of
Directors of The Scotts Company
We have audited the accompanying consolidated balance sheets of The Scotts
Company and Subsidiaries as of September 30, 1993 and 1994, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity (deficit) for each of the three years in the period ended
September 30, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Scotts
Company and Subsidiaries as of September 30, 1993 and 1994, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 3 and 6 to the consolidated financial statements,
effective the beginning of fiscal 1993 the Company changed its method of
accounting for postretirement benefits other than pensions and income
taxes.
Coopers & Lybrand L. L. P.
Columbus, Ohio
November 14, 1994
F-2
THE SCOTTS COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
for the years ended September 30,
1992, 1993 and 1994
(in thousands except per share
amounts)
1992 1993 1994
Net sales $413,558 $466,043 $606,339
Cost of sales 213,133 244,218 319,730
Gross profit 200,425 221,825 286,609
Marketing 66,245 74,579 100,106
Distribution 61,051 67,377 84,407
General and administrative 24,759 27,688 30,189
Research and development 6,205 7,700 10,352
Other expenses, net 20 660 2,283
Income from operations 42,145 43,821 59,272
Interest expense 15,942 8,454 17,450
Income before taxes, extraordinary
items and
cumulative effect of 26,203 35,367 41,822
accounting changes
Income taxes 11,124 14,320 17,947
Income before extraordinary items
and cumulative effect of accounting 15,079 21,047 23,875
changes
Extraordinary Items:
Loss on early extinguishment of (4,186) - (992)
debt, net of tax
Utilization of net operating 4,699 -
loss carryforwards
Cumulative effect of changes in
accounting for
postretirement benefits, net of - (13,157) -
tax and income taxes
Net income $15,592 $7,890 $22,883
Net income per common share:
Income before extraordinary
items and cumulative effect of $ .84 $ 1.07 $ 1.27
accounting changes
Extraordinary items:
Loss on early
extinguishment of debt, net of tax (.23) (.05)
Utilization of net
operating loss carryforwards .26
Cumulative effect of changes in
accounting for
postretirement benefits,
net of tax and
income taxes - -
(.67)
Net income $ .87 $ .40 $ 1.22
Weighted average common shares
outstanding
during the period 18,014 19,687 18,785
See Notes to Consolidated Financial
Statements.
F-3
THE SCOTTS COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash
Flows
for the years ended September 30,
1992, 1993 and 1994
1992 1993 1994
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $15,592 7,890 22,883
Adjustments to reconcile net
income to net
cash provided by operating
activities:
Depreciation 10,206 12,278 13,375
Amortization 5,642 5,866 8,562
Extraordinary loss on 4,186 992
early extinguishment of debt
Cumulative effect of
change in accounting for
postretirement benefits 24,280
Postretirement benefits - 2,366 368
Deferred income taxes 1,588 (12,740) 5,378
Loss on sale of 392 94 29
equipment
Provision for losses on 990 1,409 422
accounts receivable
Other 204 748 234
Changes in assets and
liabilities:
Accounts receivable (5,476) (10,002) (32,294)
Inventories (3,291 (11,147) (10,406)
Prepaid and other (268) (393) (2,065)
current assets
Accounts payable (654) (2,390) 6,400
Accrued liabilities (5,351) 1,630 6,220
Other assets and 3,682 4,784 (10,231)
liabilities
Net cash 27,442 24,673 9,867
provided by operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Investment in plant and (19,896) (15,158) (33,402)
equipment
Acquisitions, net of cash - (16,366) (117,107)
acquired
Proceeds from sale of equipment 131 194 384
Net cash used (19,765) (31,330) (150,125)
in investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Borrowings under term debt - 70,000 289,215
Payments on term and other debt (58,307) (640) (166,844)
Net (payments) borrowings under (36,500) (18,238) 30,500
revolving credit
Net borrowings (payments) under 349 (953) 1,211
bank line of credit
Redemption of senior (53,223) - -
subordinated notes
Redemption of subordinated (21,132) - -
debentures
Deferred financing cost (1,117) (628) (5,139)
incurred
Net proceeds from issuance of 160,237 - -
Class A Common Stock
Issuance (purchase) of Class A - (41,441) 160
Common Stock
Net cash (used (9,693) 8,100 149,103
in) provided by financing
activities
Effect of exchange rate changes on - - (473)
cash
Net (decrease) increase in cash (2,016) 1,443 8,372
Cash, beginning of period 2,896 880 2,323
Cash, end of period $ 880 $2,323 $10,695
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest (net of amount $16,240 $6,169 $10,965
capitalized)
Income taxes paid 1,189 11,500 20,144
Businesses acquired:
Fair value of assets 23,799 143,52
acquired
Liabilities assumed (7,433) (26,413)
Net cash paid for 16,366 117,107
acquisition
See Notes to Consolidated Financial
Statements
F-4
THE SCOTTS COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1993 and 1994
(in thousands)
ASSETS
1993 1994
Current Assets:
Cash $ 2,323 $ 10,695
Accounts receivable, less allowance of 60,848 115,772
$2,511 in 1993 and $2,933 in 1994
Inventories 76,654 106,636
Prepaid and other assets 13,552 17,151
Total current assets
153,377 250,254
Property, plant and equipment, net 98,791 140,105
Patents and other intangibles, net 23,502 28,880
Goodwill 41,340 104,578
Other assets 4,580 4,767
Total Assets
$321,590 $528,584
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit line $ 705 $23,416
Current portion of term debt 5,444 3,755
Accounts payable 28,279 42,914
Accrued liabilities 21,170 35,220
Accrued taxes 9,253 4,383
Total current liabilities 64,851 109,688
Long-term debt, less current portion 87,080 220,130
Postretirement benefits other than pensions 26,646 27,014
Other liabilities 3,592
-
Total Liabilities 178,577 360,424
Commitments and Contingencies
Shareholders' Equity:
Preferred stock $.01 for value in 1993
Common stock, $.01 par value,
Issued 21,073 shares in 1993
no par value, Issued 21,082 shares
in 1994 211 211
Capital in excess of par value 193,263 193,661
Retained earnings (deficit) (9,008) 13,875
Cumulative translation gain (loss) (12) 2,065
Treasury stock 2,415 shares in 1993 and (41,441) (41,441)
1994, at cost
Total Shareholders' Equity 143,013 168,160
Total Liabilities and Shareholders' $321,590 $528,584
Equity
See Notes to Consolidated Financial
Statements
F-5
THE SCOTTS
COMPANY AND
SUBSIDIARIES
Consolidated
Statements of
Changes in
Shareholders'
Equity
(Deficit)
for the years
ended
September 30,
1992, 1993 and
1994
(in thousands)
Capital in Retained Cumulative Total
Common Shares excess of Earnings Treasury Stock Translation Shareholders
Shares Amount Par Value (Deficit) Shares Amount Gain (Loss) Equity (Deficit)
Balance, 9,617 $96 $18,083 ($27,720) 117 ($420) ($9,961)
September 30,
1991
Adjustment for
redeemable
common 2,162 22 9,826 9,848
stock
Issuance of
common stock
held in 310 (112) 407 717
treasury
Exchange of
warrants for
common 325 3 4,754 (4,770) (5) 13 -
stock
Issuance of 8,969 90 159,430 159,520
common stock
Net income 15,592 15,592
Amortization
of unearned
compensation 24 24
Options 177 177
outstanding
Foreign
currency
translation
adjustment $12 12
Balance, 21,073 211 192,604 (16,898) 12 175,929
September 30,
1992
Net income 7,890 7,890
Amortization
of unearned
compensation 24 24
Options outstanding 635 635
Foreign currency translation
adjustment (24) (24)
Purchase of (2,415) (41,441) (41,441)
common stock
Balance, 21,073 211 193,263 (9,008) (2,415) (41,441) (12) 143,013
September 30,
1993
Net income 22,883 22,883
Foreign
currency
translation
adjustment 2,077 2,077
Amortization
of unearned
compensation 27 27
Issuance of 9 160 160
common shares
Balance, 21,082 $211 $193,450 $13,875 (2,415) ($41,441) $2,065 $168,16
September 30,
1994
See Notes to
Consolidated
Financial
Statements
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
On September 20, 1994, the shareholders voted to reincorporate The Scotts
Company from Delaware to Ohio. As a result of the reincorporation, The Scotts
Company, a Delaware corporation merged into The Scotts Company,
an Ohio corporation ("Scotts Ohio"). Immediately following the
consummation of the merger, the O. M. Scott & Sons Company was merged into
Scotts Ohio. Scotts Ohio and its wholly-owned subsidiaries, Hyponex
Corporation ("Hyponex"), Republic Tool and Manufacturing Corp.
("Republic") and Scott-Sierra Horticultural Products Company ("Sierra"),
(collectively, the "Company"), is engaged in the manufacture and sale of
lawn care and garden products. All material intercompany transactions have
been eliminated.
Shareholders' equity, shares outstanding and per share amounts for all
periods have been adjusted for the January 1992 reverse stock split, in
which every 2.2 shares of old Class A Common Stock were exchanged for
one share of new Class A Common Stock.
Inventories
Inventories are principally stated at the lower of cost or market,
determined by the FIFO method; certain inventories of Hyponex and Sierra
(primarily organic products) are accounted for by the LIFO method. At
September 30, 1993 and 1994, approximately 24% and 31% of inventories,
respectively, are valued at the lower of LIFO cost or market.
Inventories include the cost of raw materials, labor and manufacturing
overhead.
The Company makes provisions for obsolete or slow-moving inventories as
necessary to properly reflect inventory value. Inventories as of
September 30, 1993 and 1994, net of such provisions, consisted of:
(in thousands) 1993 1994
Finished Goods $ 44,735 $ 55,102
Raw Materials 31,905 52,639
FIFO Cost 76,640 107,741
LIFO Reserve 14 (1,105)
$ 76,654 $ 106,636
Advertising and Consumer Guarantee
The Company has a cooperative advertising program with customer dealers
whereby the Company reimburses dealers for the qualifying portion of
dealer advertising costs. Such advertising allowances are based on the
timing of dealer orders and deliveries. The Company provides for the
cost of this program in the period the sales to dealers are recorded.
All other advertising costs are expensed as incurred.
The Company accrues amounts for product non-performance claims by
consumers under the Company's product guarantee program. The provision
is determined by applying an experience rate to sales in the period the
related products are shipped to dealers.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Property, plant and equipment, including significant improvements, are
stated at cost. Expenditures for maintenance and repairs are charged to
operating expenses 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.
Depletion of applicable land is computed on the units-of-production
method. Depreciation of other 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
Property, plant and equipment at cost at September 30, 1993 and 1994
consisted of the following:
(in thousands)
1993 1994
Land and $19,817 $ 21,856
improvements
Buildings 36,300 41,313
Machinery and 87,250 111,639
equipment
Furniture and 5,952 8,861
fixtures
Construction in 4,687 24,340
progress
154,006 208,009
Less accumulated 55,215 67,904
depreciation
$ 98,791 $140,105
Property subject to capital leases in the amount of $1,484,000 and
$1,270,000 (net of accumulated amortization of $1,560,000 in 1993 and
$2,303,000 in 1994) has been included in machinery and equipment at
September 30, 1993 and 1994, respectively.
The Company capitalized interest costs of $380,000 in fiscal 1992 and
$321,000 in fiscal 1994 as part of the cost of major asset construction
projects.
Research and Development
Significant costs are incurred each year in connection with research and
development programs that are expected to contribute operating profits
in future years. All costs associated with research and development are
charged to expense as incurred.
Intangible Assets
Goodwill arising from business acquisitions is amortized over 40 years
on the straight-line basis. Other intangible assets consist primarily
of patents and are being amortized on a straight-line basis over periods
varying from 7 to 24 years. Accumulated amortization at September 30,
1993 and 1994 was $33,876,000 and $42,438,000 respectively.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company Management periodically assesses the recoverability of goodwill,
patents and other intangible assets by determining whether the
amortization of such assets over the remaining lives can be recovered
through projected undiscounted net cash flows generated by such assets.
Other Assets
Included in other assets are debt issuance costs which are being
amortized over the terms of the various agreements and organization
costs which are being amortized over five years. During the year ended
September 30, 1994, the Company incurred $5.1 million of debt issuance
costs related to the issuance of Term Debt and Senior Subordinated Notes
and recognized an extraordinary charge of $1.7 million before taxes in
unamortized debt issuance costs in connection with certain debt
prepayments.
Foreign Currency
All assets and liabilities in the balance sheets of foreign subsidiaries
whose functional currency is other than the U.S. dollar are translated
into United States dollar equivalents at year-end exchange rates.
Translation gains and losses are accumulated as a separate component of
shareholders' equity. Income and expense items are translated at
average monthly exchange rates. Cumulative foreign currency translation
gain (loss) were ($12,000) and $2,065,000 as of September 30, 1993 and
1994, respectively. Foreign currency transaction gains and losses are
included in determining net income. In fiscal 1992, 1993 and 1994, the
Company recorded foreign currency transaction losses in other expenses
of $324,000, $196,000 and $491,000, respectively.
Income Taxes
Effective October 1, 1992, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes",
which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized
in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of the assets and
liabilities using enacted tax rates.
U.S. federal and state income taxes and foreign taxes are provided
currently on the undistributed earnings of foreign subsidiaries, giving
recognition to current tax rates and applicable foreign tax credits.
Prior to fiscal 1993, the Company's deferred income tax provision was
based on differences between financial reporting and taxable income.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to fiscal 1994 classifications.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.ACQUISITIONS
Republic
Effective November 19, 1992, the Company acquired Republic headquartered
in Carlsbad, California. Republic designs, develops, manufactures and
markets lawn and garden equipment with the substantial majority of its
revenue derived from the sale of its products to mass merchandisers,
home centers and garden outlets in the United. States. The purchase
price of approximately $16,366,000 was financed under the Company's
revolving credit agreement.
The acquisition was accounted for using the purchase method.
Accordingly, the purchase price was allocated among the assets acquired
and liabilities assumed based on their estimated fair values at the date
of acquisition. The excess of purchase price over the estimated fair
values of the net assets acquired ("goodwill") of approximately
$6,400,000 is being amortized on a straight-line basis over 40 years.
Republic's results of operations have been included in the Company's
Consolidated Statement of Income since November 19, 1992. As such, the
Company's fiscal 1993 pro forma results of operations are not materially
different from actual results and are therefore not presented.
Sierra
Effective December 16, 1993, the Company completed the acquisition of
Grace-Sierra Horticultural Products Company (all further references to
Grace-Sierra, now known as Scott-Sierra Horticultural Products Company,
will be made as "Sierra") for an aggregate purchase price of
approximately $121,221,000, including transaction costs of $1,221,000.
Additionally the Company incurred $2,261,000 of deferred financing fees
related to its financing of the acquisition. Sierra is a leading
international manufacturer and marketer of specialty fertilizers and
related products for the nursery, greenhouse, golf course and consumer
markets. Sierra manufactures controlled-release fertilizers in the
United States and the Netherlands, as well as water-soluble fertilizers
and specialty organics in the United States. Approximately
one-quarter of Sierra's net sales are derived from European and other
international markets; approximately one-quarter of Sierra's assets are
internationally based. The purchase price was financed under an
amendment to the Company's Credit Agreement, whereby term debt
commitments available thereunder were increased to $195,000,000.
The acquisition was accounted for using the purchase method.
Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at
the date of acquisition. The excess of purchase price over the
estimated fair value of the net assets acquired ("goodwill") of
approximately $65,755,000 is being amortized on a straight-line basis
over 40 years. Sierra results of operations have been included in the
Consolidated Statements of Income from the acquisition date.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following represents pro forma results of operations assuming the
Sierra acquisition had occurred effective October 1, 1992 after giving
effect to certain related adjustments, including depreciation and
amortization on tangible and intangible assets, and interest and
expenses on acquisition debt.
Year Ended
(in thousands, except per
share amounts)
(unaudited)
September 30 September 30,
1993 1994
[S] [C] [C]
Net sales $ 585,318 $ 627,165
Income before
extraordinary items and $ 20,274 $ 23,768
cumulative effect of
accounting changes
Net income $ 7,117 $ 22,776
Income per common share
before extraordinary items and
cumulative effect of
accounting changes $ 1.03 $ 1.27
Net income per common $ .36 $ 1.22
share
The pro forma information provided does not purport to be indicative of
actual results of operations if the Sierra acquisition had occurred as
of October 1, 1992, and is not intended to be indicative of future
results or trends.
3.ASSOCIATE BENEFITS
Both Scotts Ohio and Sierra have defined benefit pension plans covering
substantially all full-time associates who have completed one year of
eligible service and reached the age of 21. The benefits under these
plans are based on years of service and the associates' average final
compensation for the Scotts Ohio plan and for Sierra salaried employees
and stated amounts for Sierra hourly employees. The Company's funding
policy, consistent with statutory requirements and tax considerations,
is based on actuarial computations using the Projected Unit Credit
method.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the plans' funded status and the related
amounts recognized in the consolidated balance sheets.
(in thousands) September 30,
1993 1994
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation:
Vested benefits $ (28,904) $ (29,768)
Nonvested benefits (1,875) (5,093)
Additional obligation for
projected (5,530) (5,919)
compensation increases
Projected benefit obligation
for service (36,309) (40,780)
rendered to date
Plan assets at fair value,
primarily corporate 33,214 38,901
bonds, U.S. bonds and cash
equivalents
Plan assets less than
projected benefit (3,095) (1,879)
obligations
Unrecognized net asset being
amortized (626) (234)
over 11 1/2 years
Unrecognized net loss 4,609 4,137
Prepaid pension costs $ 888 $ 2,024
Pension cost includes the following components:
Year Ended September
30,
(in thousands) 1992 1993 1994
Service cost $ 1,571 $ 1,571 $ 1,685
Interest cost 2,438 2,628 2,968
Actual return on plan (2,602) (2,774) (3,092)
assets
Net amortization and (133) (18) (53)
deferral
Net pension cost $ 1,274 $ 1,407 $ 1,508
The weighted average settlement rate used in determining the actuarial
present value of the projected benefit obligation was 9%, 8% and 8% as
of September 30, 1992, 1993 and 1994, respectively. Future compensation
is assumed to increase 5% annually for fiscal 1992, and 4% annually for
fiscal 1993 and 1994. The expected long-term rate of return on plan
assets was 10% in fiscal 1992, and 9% in fiscal 1993 and 1994.
The Company provides comprehensive major medical benefits to some of its
retired associates and their dependents. Substantially all of the
Company's associates 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.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective October 1, 1992, the Company changed its method of accounting
for postretirement benefit costs other than pensions by adopting SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The Company elected to immediately recognize the cumulative
effect of the change in accounting which resulted in a charge of
$14,932,000, net of income taxes of $9,348,000, or $.76 per share. In
addition to the cumulative effect, the Company's retiree medical costs
applying the new accounting method increased $1,437,000, net of income
taxes of $929,000, or $.07 per share, during fiscal 1993 as a result of
the change in accounting. Prior to October 1, 1993, the Company
effected several changes in plan provisions, primiarily related to
current and ultimate levels of retiree and dependent contributions..
Current retirees will be entitled to benefits existing prior to these
plan changes. These plan changes resulted in a reduction in
unrecognized prior service cost, which is being amortized over future
years.
Net periodic postretirement benefit costs for fiscal 1993 and 1994
included the following components:
1993 1994
(in thousands)
Service cost - benefits
attributed to associate $ 930 $ 419
service during the year
Interest cost on accumulated
postretirement 2,038 1,276
benefit obligation
Amortization of prior service
costs and gains
from changes in (921)
assumptions
Net periodic $ 2,968 $ 774
postretirement benefit cost
The following table sets forth the retiree medical plan status
reconciled to the amount included in the consolidated balance sheet as
of September 30, 1993 and 1994.
1993 1994
(in thousands)
Accumulated postretirement
benefit obligation:
Retirees $ 6,738 $ 7,136
Fully eligible active plan 314 437
participants
Other active plan 8,305 8,789
participants
Total accumulated
postretirement 15,357 16,362
benefit obligation
Unrecognized prior service 9,494 8,590
cost
Unrecognized gains from
changes 1,795 2,062
in assumptions
Accrued postretirement benefit $ 26,646 $ 27,014
cost
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.5%. For measurement purposes, a 14% annual
rate of increase in per capita cost of covered retiree medical benefits
was assumed for fiscal 1994; the rate was assumed to decrease gradually
to 5.5% through the year 2051 and remain at that level thereafter. A 1%
increase in the health care cost trend rate assumptions would increase
the accumulated postretirement benefit obligation as of September 30,
1993 and 1994 by $875,000 and $957,000, respectively.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Both Scotts Ohio and Hyponex have defined contribution profit sharing
plans. Both plans provide for associates to become participants
following one year of service. The Hyponex plan also requires
associates to have reached the age of 21 for participation. The plans
provide for annual contributions which are entirely at the discretion of
the Board of Directors.
Contributions are allocated among the participants employed as of the
last day of the calendar year, based upon participants' earnings. Each
participant's share of the annual contributions vest according to the
provisions of the plans. The Company has provided a profit sharing
provision for the plans of $1,750,000, $1,993,000 and $2,097,000 for
fiscal 1992, 1993 and 1994, respectively. The Company's policy is to
deposit the contributions with the trustee in the following year.
Sierra has a savings and investment plan ("401K Plan") for certain
salaried U.S. employees. Participants may make voluntary contributions
to the plan between 2% and 16% of their compensation. Sierra
contributes the lesser of 50% of each participant's contribution or 3%
of each participant's compensation. Sierra's contribution for 1994 was
$99,000.
The Company is self-insured for certain health benefits up to $125,000
per occurrence per individual. The cost of such benefits is recognized
as expense in the period the claim occurred. This cost was $6,439,000,
$6,662,000 and $6,177,000 in 1992, 1993 and 1994, respectively. The
Company is self-insured for State of Ohio workers compensation up to
$500,000 per claim. The cost for workers compensation was $127,000,
$268,000 and $297,000 in 1992, 1993 and 1994, respectively. Claims in
excess of stated limits of liability and claims for workers compensation
outside of the State of Ohio are insured with commercial carriers. The
Company had an accrued vacation liability of $3,612,000 and $4,903,000
at September 30, 1993 and 1994, respectively.
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits", which
changes the prevalent method of accounting for benefits provided after
employment but before retirement. The Company is required to adopt SFAS
No. 112 no later than the first quarter of fiscal 1995. Management has
evaluated the provisions of SFAS No. 112. Since most of these benefits
are already accounted for by the Company on an accrual method, the
impact of this new standard is not expected to be significant.
4.LONG-TERM DEBT
(in thousands)
1993 1994
Revolving credit line $ 21,705 $ 53,416
Senior Subordinated Notes $100
million - 99,221
face amount
Term loan 70,000 93,598
Capital lease obligations and 1,524 1,066
other
93,229 247,301
Less current portions 6,149 27,171
$ 87,080 $ 220,130
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of term debt for the next five years are as follows:
(in thousands)
1995 $27,171
1996 41,034
1997 15,779
1998 15,608
1999 and 148,497
thereafter
On December 16, 1993, the Company entered into an amendment to the Third
Amended and Restated Credit Agreement ("Agreement") with Chemical Bank
and various participating banks to finance the Sierra acquisition. The
amendment increased the term debt commitments available under the Credit
Agreement to $195,000,000. The Credit Agreement continues to provide a
revolving credit commitment of $150,000,000 through the scheduled
maturity date of March 31, 1996. The facility contains a requirement
limiting the maximum amount borrowed under the revolving credit
commitment to $30,000,000 for a minimum of 30 consecutive days each
fiscal year.
For both term and revolving credit borrowings under the Agreement, the
Company can elect to borrow domestic funds at the reference rate
("prime") of Chemical or Eurodollars at 1% in excess of the London
Interbank Offered Rate ("LIBOR"). Interest on Chemical rate loans is
payable quarterly and interest on Eurodollar loans is payable at three
month intervals from the date of each Eurodollar contract. Applicable
rates for Chemical and Eurodollar loans were 7.75% and 5.88% to 6.00%,
respectively, at September 30, 1994. A commitment of 3/8 of 1% is
charged on the average daily unused portion of the available commitment.
An additional 1/4 of 1% is charged on the average daily aggregate
principal amount of commercial paper obligations outstanding. Loans
under the Agreement are collateralized by substantially all of the
Company's tangible and intangible assets.
The Agreement contains certain financial and operating covenants, the
most restrictive of which requires the Company to maintain earnings
before interest, taxes, profit sharing, certain depreciation charges and
the effect of certain accounting changes, as defined, to meet specified
requirements. The Company was in compliance with all required covenants
at September 30, 1994.
At September 30, 1994, the Company had available an unsecured $2,000,000
line of credit with a bank, which is renewable annually, of which
$705,000 and $1,916,000 was outstanding at September 30, 1993 and 1994,
respectively.
On July 19, 1994, the Company issued $100,000,000 9 7/8% Senior
Subordinated Notes. Net proceeds were $96,354,000, after original issue
discount of $788,000 and expenses of $2,858,000. The Notes are subject
to redemption, at the option of the Company, in whole or in part at any
time on or after August 1, 1999 at a declining premium to par until 2001
and at par thereafter and are not subject to sinking fund requirements.
The fair market value of the Senior Subordinated Notes, estimated based
on the quoted market prices for same or similar issues is approximately
$101,000,000 at September 30, 1994.
The Company recorded extraordinary charges of $4,186,000, net of income
taxes of $2,157,000, related to the early extinguishment of 13% Senior
Subordinated Notes and 13.5% Subordinated Debentures in 1992 and
$992,000, net of income taxes of $662,000 related to the early
extinguishment of term loans in 1994.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.SHAREHOLDERS' EQUITY
Stock
(in thousands)
1993 1994
Preferred stock $.01
par value:
Authorized 10,000 shares None
Issued None None
Common stock $.01 par value:
Class A - voting:
Authorized 35,000 shares None
Issued 21,074 shares None
Class B - non-voting:
Authorized: 35,000 shares None
Issued: None None
Common shares, no par
value
Authorized 35,000 shares
Issued 21,082 shares
The Class A and Class B Common Stock were identical in all respects
except for voting rights and the right of the holder of non-voting
Class B stock to convert into an equal number of shares of voting
Class A stock and the right of the holder of voting Class A stock to
convert into an equal number of shares of non-voting Class B stock. In
January 1992, every 2.2 shares of old Scotts Class A Common Stock were
exchanged for one share of new Scotts Class A Common Stock ("Shares").
On February 7, 1992, the Company closed the initial public offering of
its Shares pursuant to which Scotts sold 8,968,750 newly issued Shares
and certain non-management shareholders of Scotts sold an aggregate of
5,406,250 Shares. On September 20, 1994, as a result of the
reincorporation, outstanding shares of Class A Common Stock were
converted into an equal number of common shares, without par value, of
Scotts Ohio. Additionally, the Class B Common Stock and preferred stock
is no longer authorized. The Scotts Ohio Common Shares are listed on the
NASDAQ National Market System under the symbol "SCTT".
On February 23, 1993, the Company purchased all of the shares of Class A
Common Stock held by a fund managed by Clayton, Dubilier & Rice, Inc.
In aggregate, 2,414,895 shares of Class A Common Stock were purchased
for approximately $41,441,000, including transaction costs. As a result
of this transaction, 18,658,535 shares of Class A Common Stock and
18,667,064 Common Shares were outstanding as of September 30, 1993 and
1994, respectively.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 4, 1992, the Company adopted The Scotts Company 1992 Long
Term Incentive Plan (the "Plan"). The Plan was accepted by the
shareholders at Scotts' annual meeting on February 25, 1993. Under the
Plan, stock options, stock appreciation rights and performance share
awards may be granted to officers and other key employees of the
Company. The Plan also provides for Board members, who are neither
employees of the Company nor associated with Clayton, Dubilier & Rice,
Inc., to receive stock options. The maximum number of shares of Common
Shares that may be issued under the Plan is 1,700,000, plus the number
of shares surrendered to exercise options (other than director options)
granted under the Plan, up to a maximum of 1,000,000 surrendered shares.
In addition, pursuant to various employment agreements, the Company
granted 136,364 and 300,000 stock options in fiscal 1992 and 1993,
respectively.
Aggregate stock option activity consists of the following:
Year Ended September 30,
1992 1993 1994
[S] [C] [C] [C]
Options outstanding at - 136,364 586,289
October 1
Options granted 136,364 449,925 942,354
Options exercised - - (8,529)
Options canceled - - (155,525)
Options outstanding at 136,364 586,289 1,364,589
September 30
Options exercisable at 45,455 90,910 204,422
September 30
Option prices per share:
Granted $9.90 $16.25- $17.25-
$18.75 $19.375
Exercised $18.75
During fiscal 1993 and 1994, 128,880 and 117,220, respectively, of
performance share awards were granted. These awards entitle the grantee
to receive shares or, at the grantees election, the equivalent value in
cash or stock options, subject to stock ownership requirements. These
awards are conditioned on the attainment of certain performance and
other objectives established by the Compensation Committee of the
Company's Board of Directors.
Compensation for certain stock options results from the difference
between the grant price and market price at the date of grant, and is
recognized over the vesting period of the options. Compensation for
performance share awards is initially measured at the grant date based
upon the current market value of the common stock, with adjustments made
quarterly for market price fluctuations. The Company recognized
compensation expense for stock options and performance share awards of
$177,000, $635,000 and $0 in fiscal 1992, 1993 and 1994, respectively.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1991, an officer of Scotts purchased 22,727 Shares and three
other Scotts associates purchased an aggregate of 44,318 Shares at a
purchase price of $3.98 per share. Pursuant to an employment agreement,
an officer of Scotts purchased 45,454 Shares at a purchase price of
$9.90 per share in January 1992. The Company has recognized $118,000 of
unearned compensation equivalent to the difference between the fair
market value and the purchase price of the Shares as a charge to capital
in excess of par value. This unearned compensation is being amortized
on a straight line basis over the period of the employment agreement.
A significant portion of the price paid by certain officers and
management associates is financed by a major bank. The Company has
guaranteed the full and prompt payment of debt outstanding by management
investors to purchase stock of approximately $1,729,000, $230,000 and
$140,000 at September 30, 1992, 1993 and 1994, respectively.
In connection with the 1988 acquisition of the lawn and garden business
of Hyponex, the Company entered into a warrant purchase agreement with
the prior majority shareholder of Hyponex. In January 1992, the
warrants were exchanged for 330,000 Shares. The repurchase and
retirement of the warrants was valued at the estimated value of the
Shares at the date of the exchange less the original consideration
received.
6.INCOME TAXES
The Company adopted SFAS No. 109 effective October 1, 1992, resulting in
a benefit of $1,775,000 being reported as a cumulative effect of
accounting change in the fiscal 1993 Consolidated Statement of Income.
Assets recorded in prior business combinations net-of-tax were adjusted
to pre-tax amounts, resulting in recognition of $1,501,000 of deferred
tax liabilities at the date of adoption. Prior to fiscal 1993 the Company
accounted for income taxes under Accounting Principles Board Opinion No. 11.
The provision for income taxes consists of the following:
(in thousands) Year Ended September 30,
1992 1993 1994
Currently Payable:
Federal $ 1,802 $14,537 $ 7,400
State 878 1,400 2,131
Foreign - - 2,376
Deferred:
Federal 1,588 (11,694) 4,290
State - (1,046) 1,088
Income Tax Expense $ 4,268 $ 3,197 $17,285
Income tax expense is included in the financial statements as follows:
(in thousands)
Operations $11,124 $14,320 $17,947
Cumulative effect of
change in
accounting - (11,123) -
principle
Extraordinary items (6,856) (662)
-
Income Tax Expense $ 4,268 $ 3,197 $17,285
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes for fiscal 1993 and 1994 reflect the impact of
"temporary differences" between the amounts of assets and liabilities
for financial reporting purposes and such amounts as determined by tax
regulations. These temporary differences are determined in accordance
with SFAS No. 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting
principles.
The components of the net deferred tax asset (liability) are as follows:
(in thousands) September 30,
1993 1994
Assets
Accounts receivable $ 687 $ 987
Inventory 2,359 1,816
Accrued expenses 6,589 7,649
Postretirement benefits 10,458 10,576
Other 652 4,166
Gross deferred tax
assets $ 20,745 $ 25,194
Liabilities
Property and equipmen (9,913) (16,511)
Safe harbor lease (1,181) -
Taxes on repatriated - ( 500)
foreign earnings
Gross deferred tax (11,094) (17,011)
liabilities
Net asset $ 9,651 $ 8,183
The net current and non-current components of deferred income taxes
recognized in the balance sheet at September 30 are:
(in thousands) 1993 1994
Net current asset $9,635 $ 10,452
Net non-current asset 16 (2,269)
(liability)
Net asset $ 9,651 $ 8,183
A reconciliation of the Federal corporate income tax rate and the
effective tax rate on income before income taxes is summarized below:
Year Ended September 30,
1992 1993 1994
Statutory income tax 34.0% 35.0% 35.0%
rate
Pension amortization 0.3 0.7 0.1
Goodwill amortization
and other
permanent 4.0 4.7 2.1
differences resulting
from purchase
accounting
State taxes, net of 2.2 3.4 5.6
federal benefit
Other 2.0 (3.3) 0.1
Effective income 42.5% 40.5% 42.9%
tax rate
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company acquired certain tax credit carryforwards in connection with
its acquisition of Sierra. Foreign tax credit carryforwards total
$704,000 and expire through 1997. Net operating loss carryforwards in
the U.S. total $5,500,000 and expire through 2007, net operating loss
carryforwards in foreign jurisdictions total $1,100,000 and expire
through 1999. The use of these acquired carryforwards are subject to
limitations imposed by the Internal Revenue Code.
In fiscal 1992, for financial reporting purposes the Company utilized
$13,800,000 of net operating loss carryforwards and reflected the
related tax benefits of $4,699,000 as an extraordinary item. At
September 30, 1992, the Company fully utilized its financial reporting
net operating loss carryforwards. For tax purposes, the Company
utilized its remaining net operating loss carryforwards of approximately
$5,000,000 on the fiscal 1993 Federal income tax return. The variance
between the operating loss carryforwards on a tax basis and a financial
reporting basis is principally due to excess tax depreciation, uniform
capitalization rules, nondeductible reserves, capitalization and
amortization of package and design costs, and various accrued
liabilities that are not deductible for tax purposes until paid. During
1992, the Company recognized $1,588,000 of deferred taxes previously
offset by net operating loss carryforwards.
During fiscal 1992, the Company was subject to the alternative minimum
tax ("AMT") for financial reporting purposes resulting in AMT expense of
$1,200,000. During fiscal 1992, the Company fully utilized its AMT net
operating loss carryforwards. AMT paid results in a tax credit
carryforward which can be used in subsequent years to offset regular
income tax to the extent it exceeds AMT tax in those years. At
September 30, 1992, the Company had $1,480,000 of AMT credit
carryforwards which were utilized on the fiscal 1993 Federal income tax
return.
7.LEASES
The Company leases buildings, land and equipment under various
noncancellable lease agreements for periods of two to six years. The
lease agreements generally provide that the Company pay taxes, insurance
and maintenance expenses related to the leased assets. Certain lease
agreements contain purchase options. At September 30, 1994, future
minimum lease payments were as follows:
Year Ending Capital Operating
September 30, Leases Leases Total
(in
thousands)
1995 $ 22 $ 9,490 $ 10,112
1996 481 8,766 9,247
1997 168 6,722 6,890
1998 72 5,571 5,643
1999 - 2,713 2,713
2000 and - 7 7
thereafter
Total minimum
lease $1,343 $33,269 $34,612
payments
Less: Amount
representing 277
interest
Present value
of net
minimum $ 1,066
lease
payments
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also leases transportation and production equipment under
various one-year operating leases, which provide for the extension of
the initial term on a monthly or annual basis. Total rental expense for
operating leases was $7,281,000, $9,125,000 and $12,914,000 for fiscal
1992, 1993 and 1994, respectively.
COMMITMENTS AND CONTINGENCIES
8.Seed production agreements obligate the Company to make future purchases
based on estimated yields. Seed purchases under production agreements
for fiscal 1992, 1993 and 1994 were approximately $9,281,000, $4,692,000
and $6,508,000, respectively. At September 30, 1994, estimated annual
seed purchase commitments were as follows:
(in thousands)
Year
Ending
September
30,
1995 $ 12,049
1996 6,800
1997 2,189
1998 1,184
The Company has a contractual commitment to purchase neem-based
bioinsecticide. The commitment is a multi-year, take or pay
arrangement. There is a penalty for falling short of the purchase
commitment. Minimum commitments are $438,000 in 1995 and $875,000 in
1996. The Company has accrued $1,137,500 in the financial statements
for estimated purchase shortfalls.
Sierra has a supply agreement through 2000, subject to renewal
thereafter, under which Sierra is required to purchase, at prices
determined by formulas, 100% of its requirements for vermiculite.
The Company is involved in various lawsuits and claims which arise in
the normal course of business. In the opinion of management, these
claims individually and in the aggregate are not expected to result in a
material adverse effect on the Company's financial position or results
of operations, however, there can be no assurance that future quarterly
or annual operating results will not be materially affected by final
resolution of these matters. The following details the more significant
of these matters.
The Company has been involved in studying a landfill to which it is
believed some of the Company's solid waste had been hauled in the
1970's. In September 1991, the Company was named by the Ohio
Environmental Protection Agency ("Ohio EPA") as a Potentially
Responsible Party ("PRP") with respect to this landfill. Pursuant to a
consent order with the Ohio EPA, the Company, together with four other
PRP's identified to date, is investigating the extent of contamination
at the landfill and developing a remediation program.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 1990, the Company was directed by the Army Corps of Engineers
(the "Corps") to cease peat harvesting operations at its New Jersey
facility. The Corps' has alleged that the peat harvesting operations
were in violation of the Clean Water Act ("CWA"). The United States
Department of Justice has commenced a legal action to seek a permanent
injunction against peat harvesting at this facility and to recover civil
penalties under the CWA. This action had been suspended while the
parties engaged in discussion to resolve the dispute. Those discussions
have not resulted in a settlement and accordingly the action has been
reinstated. The Company intends to defend the action vigorously but if
the Corps' position is upheld the Company could be prohibited from
further harvesting of peat at this location and penalties could be
assessed against the Company. In the opinion of management, the outcome
of this action will not have a material adverse effect on the Company's
financial position or results of operations. Furthermore, management
believes the Company has sufficient raw material supplies available such
that service to customers will not be adversely affected by continued
closure of this peat harvesting operation.
Sierra has been named as a Potentially Responsible Party ("PRP") in an
environmental contamination action in connection with a landfill near
Allentown, Pennsylvania. By agreement with W. R. Grace-Conn., Sierra's
liability is limited to a maximum of $200,000 with respect to this site.
Based on estimates of the clean-up costs and that the Company denies any
liability in connection with this matter, management believes that the
ultimate outcome will not have a material impact on the financial
position or results of operations of the Company.
Sierra is subject to potential fines in connection with certain EPA
labeling violations under the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"). The fines for such violations are based upon
formulas as stated in FIFRA. As determined by these formulas, Sierra's
maximum exposure for the violations is approximately $810,000. The
formulas allow for certain reductions of the fines based upon achievable
levels of compliance. Based upon management's anticipated levels of
compliance, they estimate Sierra's liability to be $200,000, which has
been accrued in the financial statements.
9.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 mass merchandisers, home centers, independent
hardware stores, nurseries, garden outlets, warehouse clubs and local
and regional chains.
Professional products are sold to golf courses, sports fields,
nurseries, lawn care service companies and growers of specialty
agriculture crops. In 1992, 1993 and 1994, two customers accounted for
15.3% and 7.5%, 18.0% and 9.3% and 15.1% and 9.5% of consolidated net
sales, respectively. No other customer accounted for more than 5% of
consolidated net sales. As of September 30, 1994, two accounts
comprised 15.2% and 5.4% of outstanding trade accounts receivable. The
Company performs a credit review before extending credit to a customer.
The Company establishes its allowances for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical
trends and other information.
10.RELATED PARTIES
Clayton, Dubilier & Rice, Inc., a private investment firm in which a
director of the Company is an owner, was paid $300,000 in fiscal 1992,
and $125,000 in 1993 by the Company for financial advisory and
management consulting services. These services ceased effective with
the Class A Common Stock purchase described in Note 5.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11.QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for fiscal 1993 and 1994 (in thousands except share data):
Fiscal 1993 January 2 April 3 July 3 Septem- Full
ber 30 Year
Net sales $67,757 $161,102 $156,327 $80,857 $466,043
Gross profit 30,703 78,621 74,814 37,687 221,825
Income (loss)
before
cumulative (471) 10,847 7,986 2,685 21,047
effect of
accounting
changes (1)
Net income (13,628) 10,847 7,986 2,685 7,890
(loss) (2)
Net income
(loss) per
common share:
Income (loss)
before (.02) .54 .43 .14 1.07
cumulative
effect of
accounting
changes (1)
Net income (.65) .54 .43 .14 .40
(loss) (2)
Weighted
average common
shares 21,128,564 20,138,585 18,743,752 18,737,150 19,687,013
outstanding
during the
period
Fiscal 1994 January 1 April 2 July 2 Septem- Full
ber 30 Year
Net sales 68,326 207,424 200,915 129,674 606,339
Gross profit 30,962 98,324 96,376 60,947 286,609
Income (loss)
before (1,557) 13,013 9,405 3,014 23,875
extraordinary
items
Net income (1,557) 13,013 9,405 2,022 22,883
(loss)
Net income
(loss) per
common share:
Income (loss)
before (.08) .69 .50 .16 1.27
extraordinary
item
Net income (.08) .69 .50 .11 1.22
(loss)
Weighted
average common
shares 18,658,535 18,890,221 18,810,783 18,727,711 18,784,729
outstanding
during the
period
(1) Income (loss) before cumulative effect of accounting
changes for each of the first three quarters of
fiscal 1993 has been restated to reflect the ongoing
charge resulting from the adoption of SFAS 106
effective October 1, 1992. The net of tax charge was
$462 or $.02 per share for the quarter ended
January 2, 1993 and $325 or $.02 per share for each
of the subsequent two quarters.
(2) The net loss for the quarter ended January 2, 1993
has been restated to reflect the cumulative effect of
accounting for postretirement benefits (a net of tax
charge of $14,932 or $.71 per share) and income taxes
(a benefit of $1,775 or $.08 per share).
F-23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Shareholders and Board of
Directors of The Scotts Company
Our report on the consolidated financial statements of The Scotts Company
is included on page F-2 of this Form 10-K. In connection with our audits
of such financial statements, we have also audited the financial statement
schedules listed in the index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the consolidated financial statements taken as a
whole, present fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L. L. P.
Columbus, Ohio
November 14, 1994
F-24
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
for the year ended September 30, 1992
Column A Column Column Column Column Column
B C D E F
Balance at Retirement Balance at
beginning of Additions at or Sales end of
Classification period Cost Other period
Land and land $ 18,361,000 $200,000 $24,000 $ - $18,537,000
improvements
Buildings 30,610,000 734,000 37,000 - 31,307,000
Machinery and 59,261,000 4,573,000 1,752,000 - 62,082,000(1)
equipment
Furniture and fixtures 5,480,000(1) 100,000 19,000 - 5,561,000(1)
Construction in 2,625,000 14,289,000 - - 16,914,000
progress
Total $116,337,000 $19,896,000 $ 1,832,000 $134,401,000
(1) Amounts reported in the prior year have been adjusted to reflect
amounts reclassified in fiscal 1993; $1,745,000 computer equipment
cost was reclassified to furniture and fixtures from machinery and
equipment.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
for the year ended September 30, 1993
Column A Column Column Column Column Column
B C D E F
Balance at Retirement Balance at
beginning of Additions at or Sales end of
Classification period Cost Other period
Land and land $ 18,537,000 $988,000 $ - $292,000(1) $19,817,000
improvements
Buildings 31,307,000 5,001,000 8,000 - 36,300,000
-
Machinery and 62,082,000(3) 20,649,000 1,990,000 6,152,000(1) 87,250,000
equipment 357,000(2)
Furniture and fixtures 5,561,000 (3) 899,000 684,000 176,000(1) 5,952,000
Construction in 16,914,000 (12,379,000) - 152,000(1) 4,687,000
progress
Total $134,401,000 $ 15,158,000 $2,682,000 $7,129,000 $154,006,000
(1) Amounts reported in the prior year have been adjusted to reflect amounts
reclassified in fiscal 1993; $1,745,000 computer equipment cost
was reclassified to furniture and fixtures from machinery and equipment.
(2) Reclassification of remaining tax basis differential of previously
acquired assets as a result of the fiscal 1993 adoption of SFAS No.
109.
(3) Effective October 1, 1993, $1,745,000 of computer equipment cost was
reclassified to furniture and fixtures from machinery and equipment.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
for the year ended September 30, 1994
Column A Column Column Column Column Column
B C D E F
Balance at Retirement Balance at
beginning of Additions at or Sales end of
Classification period Cost Other period
Land and land $ 19,817,000 $989,000 $14,000 $1,051,000(1) $21,856,000
improvements 13,000(2)
Buildings 36,300,000 751,000 - 4,262,000(1) 41,313,000
Machinery and 87,250,000 10,845,000 1,171,000 14,346,000(1) 111,639,000
equipment 369,000(2)
Furniture and fixtures 5,952,000 1,443,000 129,000 1,595,000(1) 8,861,000
Construction in 4,687,000 19,374,000 - 279,000(1) 24,340,000
progress
Total $154,006,000 $33,402,000 $1,314,000 $21,915,000 $208,009,000
(1) Fair market value of property, plant and equipment associated with
the acquisition of Grace-Sierra Horticulture Products Company
effective December 16, 1993.
(2) Translation adjustments associated with International divisions.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
for the year ended September 30, 1992
Column Column Column Column Column
Column A B C D E F
Balance at Additions Retirement Balance at
charged
beginning of to expenses or Sales end of
Classification period (1) Other period
Land improvements $1,701,000 $502,000 $7,000 $ - $ 2,196,000
Buildings 3,788,000 997,000 6,000 - 4,779,000
Machinery and 28,067,000(2) 8,070,000(2) 1,285,000 - 34,852,000(2)
equipment
Furniture and fixtures 2,878,000(2) 637,000(2) 11,000 - 3,504,000(2)
Total $ 36,434,000 $10,206,000 $1,309,000 - $45,331,000
(1) Included in additions charged to expenses for machinery and equipment
are $454,000 of depreciation on assets under capital leases.
(2) Amounts reported in the prior year have been adjusted to reflect amounts
reclassified in fiscal 1993; $694,000 of accumulated depreciation
on computer equipment was reclassified to furniture and fixtures
from machinery and equipment, and $291,000 of additions charged to
expense were reclassified in a like manner.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
for the year ended September 30, 1993
Column Column Column Column Column
Column A B C D E F
Balance at Additions Retirement Balance at
charged
beginning of to expenses or Sales end of
Classification period (1) Other period
Land improvements
$2,196,000 $522,000 $ - $ - $ 2,718,000
Buildings 4,779,000 1,114,000 2,000 - 5,891,000
Machinery and 34,852,000 10,065,000 1,729,000 - 43,188,000
equipment (2)
Furniture and fixtures 3,504,000(2) 577,000 663,000 - 3,418,000
Total $ 45,331,000 $12,278,000 $2,394,000 - $55,215,000
(1) Included in additions charged to expenses for machinery and equipment
are $233,000 of depreciation on assets under capital leases.
(2) Effective October 1, 1993, $985,000 of accumulated depreciation on
computer equipment was reclassified to furniture and fixtures from
machinery and equipment.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
for the year ended September 30, 1994
Column Column Column Column Column
Column A B C D E F
Balance at Additions Retirement Balance at
charged
beginning of to expenses or Sales end of
Classification period (1) Other (2) period
Land improvements
$2,718,000 $614,000 $7,000 $ - $ 3,325,000
Buildings 5,891,000 1,462,000 - 20,000 7,373,000
Machinery and 43,188,000 10,251,000 842,000 262,000 52,859,000
equipment
Furniture and fixtures 3,418,000 1,048,000 119,000 - 4,347,000
Total $ 55,215,000 $13,375,000 $968,000 $282,000 $67,904,000
(1) Included in additions charged to expenses for machinery and equipment
are $430,000 of depreciation on assets under capital leases.
(2) Translation adjustment associated with International divisions.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
for the year ended September 30, 1992
Column A Column B Column C Column D Column E
Balance at Additions charged to Deduction Balance at
Classification beginning of costs and expenses from reserves end of period
Valuation and qualifying
accounts deducted
from the assets to which
they apply:
Inventory reserve $ 2,970,000 $ 283,000 $ 94,000 $ 3,159,000
Allowance for doubtful $ 2,250,000 $ 990,000 $ 1,130,000 $ 2,110,000
accounts
Other valuation and qualifying
account:
Product guarantee $ 273,000 $ 670,000 $ 743,000 $ 200,000
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
for the year ended September 30, 1993
Column A Column B Column C Column D Column E
Balance at Additions charged to Deduction Balance at
beginning of costs and expenses from reserves end of period
Classification
Valuation and qualifying
accounts deducted
from the assets to which
they apply:
Inventory reserve $ 3,159,000 $ 829,000 $ 177,000 $ 3,811,000
Allowance for doubtful $ 2,110,000 $ 1,409,000 $ 1,008,000 $ 2,511,000
accounts
Other valuation and qualifying
account:
Product guarantee $ 200,000 $ 620,000 $ 690,000 $ 130,000
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
for the year ended September 30, 1994
Column A Column B Column C Column D Column E
Additions
charged to
Balance at costs and Deduction Balance at
expenses from reserves end of period
Classification
Valuation and qualifying
accounts deducted
from the assets to which
they apply:
Inventory reserve $ 3,811,000 $ 2,987,000 $ 690,000 $ 6,108,000
Allowance for
doubtful $ 2,511,000 $ 1,974,000 $1,552,000 $ 2,933,000
accounts
Other valuation and qualifying
account:
Product guarantee $ 130,000 $ 778,000 $ 789,00 0 $ 119,000
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
for the year ended September 30, 1992
Column Column Column Column E Column
Column A B C D E F
Weighted
average
Weighted average Average amount interest
interest rate Maximum amount outstanding rate
Category of short- Balance at at end of outstanding during the period during the
term borrowings beginning of period during the (Note A) pd (Note A)
period period
Revolving credit $ 4,000,000 6.0% $ 74,000,000 $22,549,000 7.73%
Bank note payable $ 1,658,000 6.0% $ 2,000,000 $725,000 6.56%
Note A: The average amount outstanding was calculated by dividing total
daily borrowings by the number of days in the period. The
weighted average interest rate was calculated by dividing
actual interest expense for the period by the average amount
outstanding.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
for the year ended September 30, 1993
Column Column Column Column E Column F
Column A B C D
Weightedaverage
Weighted Average Average
average amount average
interest rate Maximum outstanding interest rate
amount
Balance at at end of outstanding during the during the
Category of agrregate period pd (Note A)
beginning of period during the (Note A)
short-term borrowings period period
Revolving credit $ 21,000,000 4.9% $134,500,000 $60,892,000 5.5%
Bank note payable $ 705,000 6.0% $2,000,000 $ 1,128,000 6.0%
Note A: The average amount outstanding was calculated by dividing total
daily borrowings by the number of days in the period. The
weighted average interest rate was calculated by dividing
actual interest expense for the period by the average amount
outstanding.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
for the year ended September 30, 1994
Column Column Column Column E Column F
Column A B C D
Weighted
average
Weighted Average average
average amount
interest rate Maximum outstanding interest rate
amount
Balance at at end of outstanding during the during the
Category of agrregate period
short- beginning of during the (Note A) pd (Note A)
term borrowings period period period
Revolving credit $ 21,500,000 7.34% $103,750,000 $35,535,000 6.18%
Bank note payable $ 1,916,000 7.75% $ 2,000,000 $ 1,237,000 7.07%
2,000,000 1,237,000
Note A: The average amount outstanding was calculated by dividing total
daily borrowings by the number of days in the period. The
weighted average interest rate was calculated by dividing
actual interest expense for the period by the average amount
outstanding.
THE SCOTTS COMPANY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTAL INCOME STATEMENT INFORMATION
for the years ended September 30, 1992, 1993 and 1994
Column A
Column B
Charged to costs and expenses
1992 1993 1994
ITEM:
Media advertising costs $22,719,000 $24,901,000 $29,396,000
Amortization of intangible
assets:
Patents $ 2,942,000 $ 2,975,000 $ 2,070,000
Goodwill 1,004,000 1,164,000 2,517,000
Other 238,000 592,000 2,312,000
$ 4,184,000 $ 4,731,000 $ 6,899,000
Amortization of deferred $ 1,458,000 $ 1,135,000 $ 1,037,000
financing costs
Repairs and maintenance $ 6,182,000 $ 6,501,000 $ 8,022,000
The amount of royalties and taxes, other than payroll and income taxes,
are not material.
THE SCOTTS COMPANY
Annual Report on Form 10-K
for the
Fiscal Year Ended September 30, 1994
INDEX TO EXHIBITS
Exhibit No. Description Location
2(a) Agreement of Merger, dated as Incorporated herein by
of August 16, 1994, by and reference to
between The Scotts Company, a Registrant's Current
Delaware corporation ("Scotts Report on Form 8-K
Delaware"), and The Scotts filed on September 30,
Company, an Ohio corporation 1994 (File No. 0-
("Registrant") 19768) [Exhibit 2(a)]
2(b) Agreement of Merger, dated as Incorporated herein by
of September 21, 1994, by and reference to
between The O.M. Scott & Sons Registrant's Current
Company, a Delaware Report on Form 8-K
corporation ("OMS") and The filed on September 30,
Scotts Company, an Ohio 1994 (File No. 0-
corporation ("Registrant") 19768) (Exhibit 2(b))
3(a) Amended Articles of Pages 74 through 76
Incorporation of Registrant
3(b) Regulations of Registrant Pages 77 through 95
4(a) Third Amended and Restated Incorporated herein by
Revolving Credit Agreement, reference to Scotts
dated as of April 7, 1992, Delaware's Quarterly
among Scotts Delaware, The O. Report on Form 10-Q
M. Scott & Sons Company for the fiscal quarter
("OMS"), Manufacturers Hanover ended March 28, 1992
Trust Company ("MHT"), as (File No. 0-19768)
agent, and the banks parties [Exhibit 10(a)]
thereto
4(b) First Amendment and Waiver, Incorporated herein by
dated as of November 19, 1992, reference to Scotts
to the Third Amended and Delaware's Current
Restated Revolving Credit Report on Form 8-K
Agreement among Scotts dated December 2, 1992
Delaware, OMS, the banks (File No. 0-19768)
listed therein and Chemical [Exhibit 4(a)]
Bank, as agent
4(c) Second Amendment, dated as of Incorporated herein by
February 23, 1993, to the reference to Scotts
Third Amended and Restated Delaware's Annual
Credit Agreement, among Scotts Report on Form 10-K
Delaware, OMS, the banks for the fiscal year
listed therein and Chemical ended September 30,
Bank, as agent 1993 (File No. 0-
19768) [Exhibit 4(c)]
4(d) Third Amendment to the Third Incorporated herein by
Amended and Restated Credit reference to Scotts
Agreement, dated December 16, Delaware's Annual
1993, among Scotts Delaware, Report on Form 10-K
OMS, the banks listed therein for the fiscal year
and Chemical Bank, as agent ended September 30,
1993 (File No. 0-
19768) [Exhibit 4(d)]
4(e) Fourth Amendment, dated as of Pages 96 through 104
July 5, 1994, to the Third
Amended and Restated Credit
Agreement among Scotts
Delaware, OMS, the banks
listed therein and Chemical
Bank, as agent
E-1
4(f) Fifth Amendment and Consent, Pages 105 through 122
dated as of September 20,
1994, to the Third Amended and
Restated Credit Agreement
among Registrant, OMS, the
banks listed therein and
Chemical Bank, as agent
4(g) Subordinated Indenture, dated Incorporated herein by
as of June 1, 1994, among reference to Scotts
Scotts Delaware, OMS and Delaware's
Chemical Bank, as trustee Registration Statement
on Form S-3 filed June
1, 1994 (Registration
No. 33-53941) [Exhibit
4(b)]
4(h) First Supplemental Indenture, Incorporated herein by
dated as of July 12, 1994, reference to Scotts
among Scotts Delaware, OMS and Delaware's Current
Chemical Bank, as trustee Report on Form 8-K
dated July 18, 1994
(File No. 0-19768)
[Exhibit 4.1]
4(i) Second Supplemental Indenture, Pages 123 through 128
dated as of September 20,
1994, among Registrant, OMS,
Scotts Delaware and Chemical
Bank, as trustee
4(j) Third Supplemental Indenture, Pages 129 through 133
dated as of September 30,
1994, between Registrant and
Chemical Bank, as trustee
10(a) The Scotts Company Employees' Pages 134 through 190_
Pension Plan
10(b) Second Restatement of The Pages 191 through 232
Scotts Company Profit Sharing
and Savings Plan
10(c) Supplemental Indemnification Incorporated herein by
Agreement, dated as of reference to Scotts
November 10, 1988, between RSL Delaware's Current
Holding Company, Inc. and OMS Report on Form 8-K
Acquisition Corp. ("Hyponex") dated November 9, 1988
(File No. 33-18713)
[Exhibit 2(d)]
10(d) Tax Administration Agreement, Incorporated herein by
dated November 10, 1988, reference to Scotts
between RSL Holding Company, Delaware's Annual
Inc. and Hyponex Report on Form 10-K
for the fiscal year
ended September 30,
1988 (File No. 33-
18713) [Exhibit
10(rr)]
10(e) Employment Agreement, dated as Incorporated herein by
of October 21, 1991, between reference to Scotts
OMS and Theodore J. Host Delaware's Annual
Report on Form 10-K
for the fiscal year
ended September 30,
1993 (File No. 0-
19768) [Exhibit 10(g)]
10(f) Stock Option Plan and Pages 233 through 249
Agreement, dated as of January
9, 1992, between Scotts
Delaware and Theodore J. Host
E-2
10(g) The O. M. Scott & Sons Company Incorporated herein by
Excess Benefit Plan reference to Scotts
Delaware's Annual
Report on Form 10-K
for the fiscal year
ended September 30,
1993 (File No. 0-
19768) [Exhibit 10(h)]
10(h) The Scotts Company 1992 Long Incorporated herein by
Term Incentive Plan reference to Scotts
Delaware's
Registration Statement
on Form S-8 filed on
March 26, 1993
(Registration No. 33-
60056) [Exhibit 4(f)]
10(i) O. M. Scott & Sons Company Pages 250 through 254
1994 Executive Annual
Incentive Plan
11(a) Computation of Net Income Per Page 255
Common Share
21 Subsidiaries of Registrant Page 256
23 Consent of Independent Page 257
Accountants
27 Financial Data Schedule Page 258
E-3
Exhibit 11(a)
THE SCOTTS COMPANY
Computation of Net Income Per Common Share
(in thousands except share amounts)
For theThree For the
Months Ended Year Ended
Septembe Septembe Septembe Septembe
r 30 r 30 r 30 r 30
199 199 199 199
3 4 3 4
Net income for
computing net income
per
common share:
Income before
extraordinary items and
cumulating effect of $ $ $ $
accounting 2,685 3,014 21,047 23,875
changes
Extraordinary items:
Loss on early
extinguishment of debt,
net of tax
- (992) - (992)
Cumulative effect of
changes in
accounting for
postretirement - - (13,157) -
benefits,
net of tax and
income taxes
Net income $ 2,685 $ 2,022 $ $
7,890 22,883
Net income per common
share:
Income before
extraordinary items and
cumulative effect of $ $ $ $
accounting changes .14 .16 1.07 1.27
Extraordinary items:
Loss on
extinguishment of debt,
net of tax
- (.05) - (.05)
Cumulative effect of
changes in
accounting for
postretirement - - (.67) -
benefits,
net of tax and
income taxes
Net income $ $ $ $
.14 .11 .40 1.22
Computation of Weighted Average Number
of Common Shares Outstanding
For theThree For the
Months Ended Year Ended
Septembe Septembe Septembe Septembe
r 30 r 30 r 30 r 30
19 19 199 199
93 94 3 4
Weighted average common
shares
outstanding during 18,658,5 18,667,0
the period 35 64 19,607,2 18,662,9
44 98
Performance based
shares 12,043 - 6,271 36,336
Effect of options based
upon the
Treasury Stock
Method:
October 1991 -
136,364 at $ 9.90 63,707 60,647 61,575 68,458
November 1992 -
123,925 at $16.25 2,865 - 7,439 12,088
December 1992 -
300,000 at $18.00 - - 4,484 -
June 1992 -
15,000 at $16.25 - - - 1,260
October 1993 -
129,950 at $17.25 - - - 3,589
Weighted average common
shares
outstanding during
the period for
computing net income
(loss) per 18,737, 18,727, 19,687, 18,784,
common share 150 711 013 729
Fully diluted weighted average shares outstanding were not
materially different than primary
weighted average shares outstanding for the periods
presented.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of The Scotts Company on Form S-8 (File Nos. 33-47073 and 33-
60056) of our report dated November 14, 1994 on our audits of the
consolidated financial statements and our report dated November 14, 1994
on our audits of the financial statement schedules of The Scotts Company
as of Septembe 30, 1993 and 1994 and for the years ended September 30,
1992, 1993 and 1994, which reports are included in this Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
Columbus, Ohio
December 28, 1994
Exhibit 27. Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF INCOME OF THE SCOTTS COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1994.
TYPE: EX-27
DESCRIPTION: FINANCIAL DATA
SCHEDULE
ARTICLE: 5
MULTIPLIER: 1000
CURRENCY: US DOLLARS
FISCAL YEAR END: SEPT-30-1995
PERIOD START OCT-1-1993
PERIOD END SEPT-30-1994
PERIOD TYPE YEAR
CASH 10,695
SECURITIES
RECEIVABLES (net) 115,772
ALLOWANCES
INVENTORY 106,636
CURRENT ASSETS 250,254
PP&E 208,009
DEPRECIATION 67,904
TOTAL ASSETS 528,584
CURRENT 109,688
LIABILITIES
BONDS
PREFERRED
MANDATORY
PREFERRED
COMMON 211
OTHER SE 167,949
TOTAL LIABILITY 528,584
AND EQUITY
SALES 606,339
TOTAL REVENUES 608,239
CGS 319,730
TOTAL COSTS 544,287
OTHER EXPENSE 4,183
LOSS PROVISION
INTEREST EXPENSE 17,947
INCOME PRETAX 41,822
INCOME CONTINUING 23,875
DISCONTINUED
EXTRAORDINARY
(992)
CHANGES
NET INCOME 22,883
EPS PRIMARY 1.22
EPS DILUTE 1.22
_______________________________
1The Internal Revenue Code of 1986, as amended (the "Code"),
places certain limitations on the annual pension benefits which
can be paid from the Pension Plan. Such limitations are not
reflected in the table. This table reflects the total aggregate
benefits payable annually upon retirement under both the Pension
Plan and The Scotts Company Excess Benefit Plan (the "Excess
Benefit Plan"), which is discussed below. The Pension Plan and
the Excess Benefit Plan require an offset of 1.25% of the Social
Security primary insurance amount ("PIA") for each year of
service and such amount has been deducted from the figures in the
table. The PIA used in developing the above figures is
$13,764.00. Thus, the offset is $5,161.50 for a person with 30
years of service. The maximum possible offset is $6,882.00 for a
person with 40 years of service.
Page 27