View:
FORM 10-Q/A
AMENDMENT NUMBER 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer Identification No.)
incorporation or organization)
14111 Scottslawn Road
Marysville, Ohio 43041
(Address of principal executive offices)
(Zip Code)
(513) 644-0011
(Registrant's telephone number, including area code)
No change
(Former name, former address and former fiscal year, if changed since
last report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
18,667,064 Outstanding at May 8, 1995
- ------------------------------------- ---------------------------
Common Shares, voting, no par value
Page 1 of 17 pages
Exhibit Index at page 15
THE SCOTTS COMPANY AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three month and
six month periods ended April 2, 1994 and April 1, 1995 3
Consolidated Statements of Cash Flows - Six month
periods ended April 2, 1994 and April 1, 1995 4
Consolidated Balance Sheets - April 2, 1994,
April 1, 1995 and September 30, 1994 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
Signatures
14
Exhibit Index
15
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SCOTTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
Three Months Ended Six Months Ended
April 2 April 1 April 2 April 1
1994 1995 1994 1995
Net sales .......................... $207,424 $236,092 $275,750 $334,111
Cost of sales ...................... 109,100 123,890 146,464 177,410
-------- -------- -------- --------
Gross profit ....................... 98,324 112,202 129,286 156,701
-------- -------- -------- --------
Marketing .......................... 32,990 38,513 45,911 60,910
Distribution ....................... 24,888 30,479 35,864 45,019
General and administrative ......... 9,331 6,997 14,341 12,964
Research and development ........... 2,934 2,963 4,938 5,728
Other expenses, net ................ 776 1,558 804 2,553
-------- -------- -------- --------
Income from operations ............. 27,405 31,692 27,428 29,527
Interest expense ................ 4,917 8,114 7,557 13,808
-------- -------- -------- --------
Income before taxes ................ 22,488 23,578 19,871 15,719
Income taxes .................... 9,475 9,785 8,415 6,523
-------- -------- -------- --------
Net income ......................... $ 13,013 $ 13,793 $ 11,456 $ 9,196
======== ======== ======== ========
Net income per common share ........ $ .69 $ .73 $ .61 $ .49
======== ======== ======== ========
Weighted average number of
common shares outstanding........... 18,890 18,820 18,855 18,762
======== ======== ======== ========
See Notes to Consolidated Financial Statements
Page 3
THE SCOTTS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
April 2 April 1
1994 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................... $ 11,456 $ 9,196
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization .............. 10,777 11,908
Postretirement benefits .................... 64 204
Net increase in certain components of
working capital ........................ (120,160) (130,838)
Net change in other assets and
liabilities and other adjustments ...... 667 (504)
--------- ---------
Net cash used in operating activities. (97,196) (110,034)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in plant and equipment, net ......... (12,436) (10,891)
Investment in software ......................... -- (483)
Investment in Affiliate ........................ -- (250)
Acquisition of Sierra, net of cash acquired .... (118,986) --
========
Net cash used in investing activities. (131,422) (11,624)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under term debt ..................... 125,000 --
Payments on term and other debt ................ (428) (1,197)
Revolving lines of credit and bank line of ..... 106,295 118,378
credit, net
Issuance of Class A Common Stock ............... 160 --
Deferred financing costs incurred .............. -- (275)
====
Net cash provided by financing ....... 231,027 116,906
activities ======= =======
Effect of exchange rate changes on cash .......... (179) 676
========= =========
Net increase (decrease) in cash .................. 2,230 (4,076)
Cash at beginning of period ...................... 2,323 10,695
--------- ---------
Cash at end of period ............................ $ 4,553 $ 6,619
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amount capitalized ....... $ 3,005 $ 14,007
Income taxes paid .............................. 9,164 996
Detail of entities acquired:
Fair value of assets acquired ................. 144,501
Liabilities assumed ........................... (25,515)
Net cash paid for acquisition ................. 118,986
See Notes to Consolidated Financial Statements
Page 4
THE SCOTTS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
ASSETS
April 2 April 1 September 30
1994 1995 1994
Current Assets:
Cash ............................... $ 4,553 $ 6,619 $ 10,695
Accounts receivable, less allowances
of $2,784, $3,395 and $2,933, ..... 200,763 252,509 115,772
respectively
Inventories ........................ 128,832 143,574 106,636
Prepaid and other assets ........... 16,832 18,601 17,151
--------- --------- ---------
Total current assets .............. 350,980 421,303 250,254
--------- --------- ---------
Property, plant and equipment, net ... 126,594 143,791 140,105
Patents and other intangibles, net ... 32,770 26,529 28,880
Goodwill ............................. 106,842 103,224 104,578
Other assets ......................... 4,957 9,755 4,767
========= ========= =========
Total Assets ...................... $ 622,143 $ 704,602 $ 528,584
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit line .............. $ 98,000 $ 39,852 $ 23,416
Current portion of term debt ....... 20,417 -- 3,755
Accounts payable ................... 69,294 79,591 46,967
Accrued liabilities ................ 33,425 24,258 31,167
Accrued taxes ...................... 7,990 20,572 4,383
--------- --------- ---------
Total current liabilities ......... 229,126 164,273 109,688
--------- --------- ---------
Long-term debt, less current portions 205,917 324,630 220,130
Postretirement benefits other than ... 26,710 27,218 27,014
pensions
Other liabilities .................... 5,254 7,622 3,592
--------- --------- ---------
Total Liabilities ................. 467,007 523,743 360,424
--------- --------- ---------
Shareholders' Equity:
Common Shares, no par value ........ 211 211 211
Capital in excess of par value ..... 193,618 193,155 193,450
Retained earnings .................. 2,448 23,071 13,875
Cumulative translation gain ........ 300 5,863 2,065
Treasury stock, 2,415 shares at cost (41,441) (41,441) (41,441)
====================================== ========= ========= =========
Total Shareholders' Equity ........ 155,136 180,859 168,160
--------- --------- ---------
Total Liabilities and Shareholders' $ 622,143 $ 704,602 $ 528,584
Equity ......................... ======= ======= =======
See Notes to Consolidated Financial Statements
Page 5
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
The Scotts Company ("Scotts") and its wholly owned subsidiaries,
Hyponex Corporation ("Hyponex"), Republic Tool and Manufacturing Corp.
("Republic") and Scott-Sierra Horticultural Products Company ("Sierra"),
(collectively, the "Company"), are engaged in the manufacture and sale of
lawn care and garden products. The Company's business is highly seasonal
with approximately 70% of sales occurring in the second and third fiscal
quarters.
The consolidated balance sheets as of April 2, 1994 and April 1,
1995, the related consolidated statements of income for the three and six
month periods ended April 2, 1994 and April 1, 1995 and the related
consolidated statements of cash flows for the six month periods ended
April 2, 1994 and April 1, 1995 are unaudited; however, in the opinion of
management, such financial statements contain all adjustments necessary
for the fair presentation of the Company's financial position and results
of operations. Interim results reflect all normal recurring adjustments
and are not necessarily indicative of results for a full year. The
interim financial statements and notes are presented as specified by
Regulation S-X of the Securities Exchange Act of 1934, and should be read
in conjunction with the financial statements and accompanying notes in
the Company's fiscal 1994 Annual Report on Form 10-K.
The financial statements included in this Form 10-Q/A, Amendment No.
1 have been revised to reflect a change in the timing of expense
recognition related to a promotional allowance offered to retail
customers introduced for the first time in fiscal 1995. The impact of
this revision is on timing of marketing promotional expense recognition
in the first three quarters of the Company's fiscal year and did not
impact the full fiscal year results of operations.
2. Reclassifications
Certain reclassifications have been made to the prior periods'
financial statements to conform to April 1, 1995 presentation.
3. Inventories
(in thousands)
Inventories consisted of the following:
April 2 April 1 September 30
1994 1995 1994
==== ==== ====
Raw material ...................... $ 53,302 $ 56,326 $ 51,656
Finished products ................. 75,530 87,248 54,980
-------- -------- --------
Total Inventories ............. $128,832 $143,574 $106,636
======== ======== ========
Page 6
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
4. Long-Term Debt
(in thousands)
9/30/94 4/1/95
_______ ______
Revolving Credit Line ........................ $ 53,416 $264,321
Senior Subordinated Notes
($100 million face amount) ................... 99,221 99,267
Term Loan .................................... 93,598 --
Capital Lease Obligations .................... 1,066 894
-------- --------
247,301 364,482
Less current portions ........................ 27,171 39,852
-------- --------
$220,130 $324,630
======== ========
On March 17, 1995, the Company entered into the Fourth Amended and
Restated Credit Agreement ("Agreement") with Chemical Bank ("Chemical")
and various participating banks. The Agreement provides, on an unsecured
basis, up to $375 million to the Company, comprised of an uncommitted
competitive advance facility and a committed revolving credit facility
through the scheduled termination date of March 31, 2000. The Agreement
contains a requirement limiting the maximum amount borrowed to $225
million for a minimum of 30 consecutive days each fiscal year. Expenses
expected to be incurred related to the Agreement are approximately
$500,000 and will be deferred.
Interest pursuant to the commercial paper/competitive advance
facility is determined by auction. Interest pursuant to the revolving
credit facility is at a floating rate initially equal, at the Company's
option, to the Alternate Base Rate as defined in the Agreement without
additional margin or the Eurodollar Rate as defined in the Agreement plus
a margin of .3125% per annum, which margin may be decreased to .25% or
increased up to .625% based on the higher of the unsecured debt ratings
of the Company. Applicable interest rates for the facilities ranged from
6.33% to 9.00% at April 1, 1995. The Agreement provides for the payment
of an annual administration fee of $100,000 and a facility fee of .1875%
per annum, which fee may be reduced to .15% or increased up to .375%
based on the higher of the unsecured debt ratings of the Company.
The Agreement contains certain financial and operating covenants,
including maintenance of interest coverage ratios, maintenance of
consolidated net worth, and restrictions on additional indebtedness and
capital expenditures. The Company was in compliance with all required
covenants at April 1, 1995.
Maturities of term debt for the next five years are as follows:
(in thousands)
Fiscal Year
-----------
1995 $ 39,592
1996 404
1997 149
1998 68
1999 -
2000 and thereafter 325,000
Page 7
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Foreign Exchange Instruments
The Company enters into forward foreign exchange and currency
options contracts to hedge its exposure to fluctuations in foreign
currency exchange rates. These contracts generally involve the exchange
of one currency for a second currency at some future date. Counterparties
to these contracts are major financial institutions. Gains and losses on
these contracts generally offset gains and losses on the assets,
liabilities and transactions being hedged.
Realized and unrealized foreign exchange gains and losses are
recognized and offset foreign exchange gains or losses on the underlying
exposures. Unrealized gains and losses that are designated and effective
as hedges on such transactions are deferred and recognized in income in
the same period as the hedged transactions. The net unrealized gain
deferred totaled $646,715 at April 1, 1995.
At April 1, 1995, the Company's European operations had foreign
exchange risk in various European currencies tied to the Dutch guilder.
These currencies are: the Australian Dollar, Belgian Franc, German Mark,
Spanish Peseta, French Franc, British Pound and the U. S. Dollar. The
Company's U. S. operations have foreign exchange rate risk in the
Canadian Dollar, the Dutch Guilder and the British Pound which are tied
to the U. S. Dollar. As of April 1, 1995, the Company had outstanding
forward foreign exchange contracts with a contract value of approximately
$26.7 million and outstanding purchased currency options with a contract
value of approximately $3.3 million. These contracts have maturity dates
ranging from April 6, 1995 to July 13, 1995.
6. Acquisitions
Effective December 16, 1993 the Company completed the acquisition of
Grace-Sierra Horticultural Products Company now known as Scotts-Sierra
Horticultural Products Company (all further references will be made as
"Sierra"). 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.
On January 26, 1995, the Company, the shareholders (the "Miracle-Gro
Shareholders") of Stern's Miracle-Gro Products, Inc. and affiliated
companies (the "Miracle-Gro Companies"), and the Miracle Gro Companies
entered into an Agreement and Plan of Merger (the "Miracle-Gro
Agreement"). On April 6, 1995, the Company's shareholders approved
certain matters necessary to permit the consummation of the transactions
contemplated by the Miracle-Gro Agreement. Such transactions still
require the approval of the Federal Trade Commission (the "FTC") which is
currently having discussions with the Company. The Company expects a
decision by the FTC during May 1995. The Miracle-Gro Agreement, as
amended, provides that, upon consummation of the transactions
contemplated thereby, the Company will issue $195 million face amount of
convertible preferred stock and warrants to purchase three million common
shares. The convertible preferred stock will be convertible into common
shares at $19 per share (subject to adjustment), will pay annual
dividends at a rate of 5.0%, will not be subject to redemption by the
Company for five years and will be subject to certain restrictions on
transfer. The warrants will be exercisable over eight and one half years
at prices ranging from $21 to $29 per share. The transactions
contemplated by the Miracle-Gro Agreement, as amended, will be accounted
for as a purchase, of which the fair value was estimated to be
approximately $200 million as of January 26, 1995.
Page 8
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following pro forma results of operations give effect to the
above Sierra acquisition as if it had occurred on October 1, 1992 and
Miracle-Gro merger as if it had occurred on October 1, 1993.
Six Months Ended
(in thousands, except per share amounts)
April 2 April 1
1994 1995
Net sales .................................. $ 349,979 $393,618
============== ========
Net income ................................. $ 19,179 $ 15,913
============== ========
Net income per common share -
primary and fully-diluted .............. $ .66 $ .55
============== ========
Miracle-Gro contributes net sales of $59,507 and $53,403, net income
of $6,717 and $7,830 and net income per common share of $.01 and $.06 for
the six months ended April 1, 1995 and April 2, 1994, respectively. For
purposes of computing earnings per share, the convertible preferred stock
is considered a common stock equivalent. Pro forma primary and
fully-diluted earnings per share for the six months ended April 1, 1995
and April 2, 1994 are calculated using the weighted average common shares
outstanding for Scotts of 18,762 and 18,855, respectively and the common
shares that would have been issued assuming conversion of preferred stock
at the beginning of the year to 10,263 common shares. The computation of
pro forma primary earnings per share assuming reduction of earnings for
preferred dividends and no conversion of preferred stock was
anti-dilutive.
The pro forma information provided does not purport to be indicative
of actual results of operations that would have occurred had the Sierra
acquisition and Miracle-Gro merger occurred on October 1, 1992 and
October 1, 1993, respectively, and is not intended to be indicative of
future results or trends.
7. Contingencies
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 result 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 1970s.
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 PRPs identified to date, is
investigating the extent of contamination at the landfill and developing
a remediation program.
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
Page 9
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Page 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 1995, VERSUS THREE MONTHS ENDED APRIL 2, 1994
Net sales increased 13.8% to $236,092,000. Consumer Business Group sales
of $181,975,000 increased by approximately 15.1% resulting from sales volume
increases primarily in lawn fertilizers. Increased demand for seed, organics
and spreaders also contributed to the sales increase, but to a lesser extent.
Commercial Business Group (previously referred to as the Professional Business
Group) sales of $34,610,000 increased by approximately 0.4% reflecting a
continuing trend by golf course customers to order closer to spring usage. The
peak Commercial selling season is August to November. International sales
increased by approximately 30.9% to $19,507,000. Volume has been the primary
factor of the International sales increase (approximately 19.4%) reflecting
the continued positive impact from the introduction of U.S. produced Scotts
products in the Sierra International distribution network. In addition, sales
were aided by favorable exchange rates due to the weak dollar (approximately
11.5%).
Cost of sales for the three months ended April 1, 1995 comprised 52.5% of
net sales, nearly flat with cost of sales for the three months ended April 2,
1994, which represented 52.6%.
Operating expenses increased by approximately 13.5% including increased
marketing spending for national advertising and promotion programs (including
the promotional allowance to retailers introduced in the first quarter of
1995) reflecting a continuing commitment to supporting the brand and
stimulating sales and increased distribution expense related to increased
sales volume and higher freight rates. These increases were partially offset
by lower general and administrative expenses due to synergies achieved from
the integration of Sierra.
Interest expense increased approximately 65%. The increase is primarily
the result of increased interest rates and a modest increase in borrowing
levels to support a higher level of inventories and receivables resulting from
increases in sales.
Net income of $13,793,000 increased by $780,000 or approximately 6.0%, as
a result of increased operating income offset in part by increased interest
expense.
SIX MONTHS ENDED APRIL 1, 1995 VERSUS SIX MONTHS ENDED APRIL 2, 1994
Net sales increased to $334,111,000, up approximately 21.2%. Net sales
included net sales for Sierra, which was acquired by Scotts on December 16,
1993. On a pro forma basis, assuming that both the Sierra acquisition and
Miracle-Gro merger had taken place on October 1, 1993, net sales for the six
months ended April 1, 1995 would have increased by $43,639,000 or
approximately 12.5%. Consumer Business Group sales increased by approximately
17.5%, resulting primarily from increased sales volume, a portion of which
relates to new pre-season promotion programs with major retailers. Increased
demand in lawn fertilizers and to a lesser extent demand for seed, organics
and spreaders also contributed to the increase. Commercial Business Group
sales increased by 16.7% due to the inclusion of net sales for Sierra.
International sales increased by approximately 70.5% due to gains in these
markets combined with continued positive impact resulting from the
introduction of U.S. produced Scotts products into the Sierra International
distribution network (approximately 13.6%), the inclusion of net sales for
Sierra (41.9%) and favorable exchange rates due to the weakening dollar
(approximately 15%).
Page 11
Cost of sales represented 53.1% of net sales, flat with cost of sales for
the six months ended April 2, 1994.
Operating expenses increased approximately 24.9%. The increase resulted
from the increase in sales (17.4%) and higher marketing expense as a result of
a promotional allowance offered to retail customers (7.5%) introduced in the
first quarter of fiscal 1995. This allowance replaced the Company's point
of sale rebates offered to consumers. On a pro forma basis, operating
expenses increased by approximately 14.9% reflecting higher marketing expense
and distribution expense related to higher sales partially offset by lower
general and administrative expenses due to synergies of the Sierra
integration.
Interest expense increased approximately 82.7%. The increase was caused
by higher interest rates on the floating-rate bank debt and the 9 7/8% Senior
Subordinated notes compared with the floating rate bank debt the notes
replaced, borrowings to fund the Sierra acquisition, which were outstanding
for the full six months ended April 1, 1995, as compared to 3.5 months for the
previous period and an increase in borrowing levels to support increases in
accounts receivable and inventories resulting from increased sales.
Net income of $9,916,000 decreased by $2,260,000. The decrease was
primarily attributable to increased operating income offset by the higher
interest expense discussed above.
FINANCIAL POSITION AS OF APRIL 1, 1995
Capital expenditures for the year ending September 30, 1995 are expected
to be approximately $23,000,000, which will be financed with cash provided by
operations and utilization of existing credit facilities.
The seasonal volume of the Company's business 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.
Current assets increased by $171,049,000 compared with September 30,
1994, and by $70,323,000 compared with April 2, 1994. The increase compared
with September 30, 1994 is primarily attributable to the seasonal nature of
Scotts' business, with inventory and accounts receivable levels generally
being higher at the end of March relative to September. The increase as
compared with April 2, 1994 is primarily due to higher level of receivables
which is consistent with the year-to-year sales increase and higher inventory
levels needed to support increased sales.
Current liabilities increased by $54,585,000 compared with September 30,
1994 and decreased by $64,853,000 compared with April 2, 1994. The increase
compared with September 30, 1994 is primarily caused by the seasonality of
Scotts' business. The decrease compared with April 2, 1994 is caused by a
decrease in short term debt which resulted from the requirements of the Fourth
Amended and Restated Credit Agreement ("the Agreement") dated as of March 17,
1995 entered into by the Company with Chemical Bank and various participating
banks which requires the Company to reduce revolving credit borrowings to no
more than $225,000,000 for 30 consecutive days each year as compared to
$30,000,000 in the Company's prior amended credit Agreement resulting in a
reclassification from short-term to long-term. The decrease was partially
offset by an increase in accounts payable needed to support the increase in
sales.
Long-term debt increased by $104,500,000 compared with September 30, 1994
and increased $118,713,000 compared with April 2, 1994. The increase compared
with September 30, 1994 is caused by the seasonality of the business. The
increase compared with April 2, 1994 is caused by the reclassification from
short-term to long-term of the borrowings under the Agreement discussed above
and a moderate increase in borrowings to support increases in accounts
receivable and inventories resulting from increased sales.
Page 12
Shareholders' equity increased $12,699,000 compared with September 30,
1994 primarily due to $9,196,000 of net income for the six months ended April
1, 1995 and to the change in the cumulative foreign currency adjustment
related to the translation of the assets and liabilities of foreign
subsidiaries to U.S. dollars. Shareholders' equity increased $25,723,000
compared with April 2, 1994 primarily due to net income of $20,623,000 for the
twelve months ended April 1, 1995 and the change in the cumulative foreign
currency adjustment related to the translation of the assets and liabilities
of 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 March 1995. As amended, the Credit Agreement
provides, on an unsecured basis, up to $375 million through March 31, 2000,
and does not contain a term loan facility. Additional information on the
Credit Agreement is described in Footnote No. 4 on page 7 of this report.
The Company has foreign exchange rate risk related to international
earnings and cash flows. A management program was designed to minimize the
exposure to adverse currency impacts on the cash value of the Company's
non-local currency receivables and payables, as well as the associated
earnings impact. Beginning in January 1995, the Company entered into forward
foreign exchange contracts and purchased currency options tied to the economic
value of receivables and payables and expected cash flows denominated in
non-local foreign currencies. Management anticipates that these financial
instruments will act as an effective hedge against the potential adverse
impact of exchange rate fluctuations on the Company's results of operations,
financial condition and liquidity. It is recognized, however, that the program
will minimize but not completely eliminate the Company's exposure to adverse
currency movements.
As of April 1, 1995, the Company's European operations had foreign
exchange risk in various European currencies tied to the Dutch guilder. These
currencies are: the Australian Dollar, Belgian Franc, German Mark, Spanish
Peseta, French Franc, British Pound and the U. S. Dollar. The Company's U.S.
operations have foreign exchange rate risk in the Canadian Dollar, Dutch
Guilder and the British Pound which are tied to the U.S. Dollar. As of April
1, 1995, outstanding foreign exchange forward contracts had a contract value
of approximately $26.7 million and outstanding purchased currency options had
a contract value of approximately $3.3 million. These contracts have maturity
dates ranging from April 6, 1995 to July 13, 1995.
The pending transactions involving the Company and Stern's Miracle-Gro
Products, Inc. and its affiliated companies are described in Footnote No. 6 to
the Company's Consolidated Financial Statements on pages 8 and 9 of this
Report. Any additional working capital needs resulting from those transactions
are expected to be financed through funds available under the amended credit
Agreement described above.
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.
ACCOUNTING ISSUES
In March 1995 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of"
which establishes accounting standards for the impairment of long lived
assets, certain identifiable intangibles and goodwill related to those assets
to be held and used for long lived assets and certain identifiable intangibles
to be disposed of. The Company's current policies are in accordance with SFAS
No. 121.
Page 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SCOTTS COMPANY
Date December 27, 1995
_____________________________
/s/ Paul D. Yeager
Paul D. Yeager
Executive Vice President
Chief Financial Officer
Principal Accounting Officer
Page 14
THE SCOTTS COMPANY
QUARTERLY REPORT ON FORM 10-Q/A FOR
FISCAL QUARTER ENDED APRIL 1, 1995
EXHIBIT INDEX
Exhibit Page
Number Description Number
2(a) Agreement and Plan of Merger dated Incorporated herein
as of January 26, 1995 among Stern's by reference to the
Miracle-Gro Products, Inc., Stern's Registration
Nurseries, Inc., Miracle-Gro Lawn Statement on
Products Inc., and Miracle-Gro Form S-4 of The
Products Limited (the "Miracle-Gro Scotts Company filed
Constituent Companies"), Horace with the Securities
Hagedorn, James Hagedorn, Katherine and Exchange
Hagedorn Littlefield, Paul Hagedorn, Commission on
Peter Hagedorn, Robert Hagedorn, February 4, 1995
Susan Hagedorn and John Kenlon, (the (Registration No.
"Miracle-Gro Shareholders"), The 33-57595) (Exhibit 2)
Scotts Company and ZYX Corporation.
2(b) Amendment No. 1, dated as of May 1, Incorporated herein
1995, among the Miracle-Gro by reference to the
Constituent Companies, the Quarterly Report on
Miracle-Gro Shareholders, The Scotts Form 10-Q for the
Company, ZYX Corporation, Hagedorn fiscal quarter ended
Partnership, L.P. and Community April 1, 1995 of The
Funds, Inc. Scotts Company (File
No. 0-19768)
(Exhibit 2(b))
4(a) Amended Articles of Incorporation of Incorporated herein
The Scotts Company as filed with the by reference to the
Ohio Secretary of State on Annual Report on
September 20, 1994 Form 10-K for the
fiscal year ended
September 30, 1994
of The Scotts
Company (File No.
0-19768) (Exhibit 3(a))
4(b) Certificate of Amendment by Incorporated herein
Shareholders to the Articles of by reference to the
Incorporation of The Scotts Company Quarterly Report on
as filed with the Ohio Secretary of Form 10-Q for the
State on May 4, 1995 fiscal quarter ended
April 1, 1995 of The
Scotts Company (File
No. 0-19768)
(Exhibit 4(b))
4(c) Regulations of The Scotts Company Incorporated herein
(reflecting amendments adopted by by reference to the
the shareholders of The Scotts Quarterly Report on
Company on April 6, 1995) Form 10-Q for the
fiscal quarter ended
April 1, 1995 of The
Scotts Company (File
No. 0-19768)
(Exhibit 4(c))
4(d) Fourth Amended and Restated Credit Incorporated herein by
Agreement dated as of March 17, 1995 reference to the Quarterly
among The Scotts Company, Chemical Report on Form 10-Q for the
Bank, the lenders party thereto and fiscal quarter ended April
Chemical Bank as agent 1, 1995 of The Scotts
Company (File No. 0-19768)
(Exhibit 4(d))
11 Computation of Net Income Per Common Share Page 16
27 Financial Data Schedule Page 17
Page 15