OUR VISION:
To help people of all ages
express themselves on their
own piece of the Earth.
2013 Annual Report
The Scotts Miracle-Gro Company
(in millions, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses, net
Impairment, restructuring and other charges
including product registration and recall matters
Income from operations
Interest expense
Income from continuing operations before taxes
Income tax expense from continuing operations
Income from continuing operations
Diluted income per share from continuing
operations
Adjusted income from continuing operations1
Adjusted diluted income per share from
continuing operations
Adjusted EBITDA
$
2013
$ 2,816.5
1,834.1
982.4
651.1
18.1
313.2
59.2
254.0
92.8
161.2
$ 2.58
$ 174.4
$ 2.79
$ 390.5
2012
$ 2,826.1
1,864.8
961.3
702.8
14.9
243.6
61.8
181.8
68.6
113.2
1.82
124.9
$
$
$
$
2.01
$ 302.9
1Adjusted results exclude charges related to product registration and recall matters, as well as impairment,
restructuring and other charges.
GRO1000 — Transforming Communities One Garden at a Time
Our commitment to garden and green space development includes
GRO1000—our signature community outreach program. Launched in
2011, GRO1000 will result in the creation of 1,000 community gardens
and green spaces by 2018—the Company’s 150th anniversary.
To date, we have created nearly 400 community gardens in the U.S.
We’re honored to bring the benefits that gardens and green spaces
provide to more and more neighborhoods, schools and communities,
particularly those in need.
DEAR SHAREHOLDERS
I have spent nearly my entire life in or around the lawn and garden industry.
No matter how prepared you are for the growing season to arrive, each
year has a unique character. Some years, you know by the end of May
whether it’s going to be a good year. Other years, you don’t know until the
very end. After a late start to the 2013 season, it wasn’t until September
that we were able to step back and acknowledge our accomplishments,
which were due to the hard work and continued focus of our associates.
Entering the year, we said we would budget
conservatively in 2013 and focus on driving
margin improvement and operating cash flow.
We said we would de-lever the balance sheet
and adopt a bias of returning two-thirds of
our cash to shareholders, and the remaining
one-third would be used to grow the business,
including acquisitions that were easily
integrated into our existing operations. Every
major effort of our team was in keeping with
these commitments.
In our core North America business, we
drove significant profit improvement in a flat
category while maintaining overall market
share. In aggregate, market share in the U.S.
was essentially flat, after a 200 basis point
improvement in fiscal 2012. Consumer
purchases of our products at our largest
retailers in the U.S. were in line with the
previous year, as were our consolidated net
sales at $2.82 billion.
In our international consumer business, we
successfully executed a restructuring effort in
Europe that will result in higher profitability in
fiscal 2014. In addition, our Scotts LawnService
business saw mid-single digit sales growth and
continued improvement in operating margin.
Our LawnService business continues to show
steady growth and strong long-term prospects.
On a company-wide basis, we delivered
adjusted gross margin improvement of 100
basis points and operating margin
improvement of 260 basis points. We
reduced investments in selling, media,
marketing and other SG&A, reductions that
we believe are sustainable and will not impact
our long-term commitment to growth. As a
result of these efforts, we delivered adjusted
earnings of $2.79 per share, slightly above
the guidance range we expected heading into
the year. Our inventory management helped
drive operating cash flow to $342 million
dollars, which was better than what we
expected. In terms of using cash, we
announced a 35% increase in our quarterly
dividend and in the early weeks in fiscal 2014
announced an acquisition that will strengthen
our market position in the controls category.
Fiscal 2013 was a year where we were
focused on making good on our
commitments, even with slightly lower
revenue growth than we originally expected,
we achieved what we set out to do. We made
significant progress in restoring the
profitability of our core business and ended
the year with a strong balance sheet.
As CEO, I am less encouraged by what we did
than how we did it. Indeed, weather delays
meant that the lawn and garden category got
off to a slow start in nearly every global market
in which we compete except the western U.S.
We entered April with a year-to-date decline
in U.S. consumer purchases of 28%. While
we were clearly behind our internal plan
entering the second half of the fiscal year, our
team remained focused on execution and
keeping retailers and consumers engaged.
1
At the peak of our season, we have more
than 8,000 associates. Every one of them
contributed to the success we had in 2013,
and I want to thank them for a job well done.
However, we know we still have work to do.
As we prepare for a new season, we do so
with the belief that there are significant
opportunities to do even better.
As we look ahead, my conservative view of
the marketplace has not changed. While the
broader macroeconomic trends have shown
signs of steady improvement, top-line growth
and category expansion are still hard to come
by. In the U.S., a housing resurgence, stable
gasoline prices and a strong stock market are
encouraging. However, I continue to believe
discretionary spending will accelerate at a
slower pace. And while consumers seem to be
turning a deaf ear to Washington infighting,
I’m convinced the economy will remain
sluggish until our political leaders can find a
more collaborative approach to governing.
As a result, we once again expect unit volume
will likely be flat in 2014. While we believe
modest price increases and the benefit from
tuck-in acquisitions will result in positive
sales growth, we are not planning for an
increased level of consumer engagement in
the near-term.
That said, we are aggressively working to put
ourselves in a better position to drive category
growth and market share improvements
starting in 2015 and beyond. I’m convinced
that longer-term growth is out there and
we’re focused on achieving it with initiatives
such as the following:
• Scotts LawnService has strong organic
growth opportunities, as well as the
ability for high-margin acquired growth
in both lawn and pest control services.
• Urban gardening is a big opportunity
for us, as more and more people move
from the suburbs to the city, and we
have a team with the singular focus of
urban gardening.
• Consumers continue to engage with
natural and organic lawn and garden
products, and we are testing a new line
of organic Miracle-Gro products in 2014.
• Grass seed is one of our oldest
businesses, but the scientific advances
in seeds are creating significant
opportunities for future growth.
• We are exploring formulation changes
and new active ingredients in our lawn
fertilizer business that would improve
the consumer experience.
As we look ahead, it’s with the excitement
and confidence that we can continue to drive
this business to new heights and further
improve our market leadership. But it is also
with the realization that in order to fully
achieve our potential we must maintain
financial discipline. We will continue to focus
on margins and reducing costs, while
balancing near-term goals with the long-term
health of our brands and existing businesses.
We will continue to invest in innovation and
our people. And we remain focused on
strengthening our core North America
business. The combination of all these efforts
should allow us to drive strong operating cash
flow and continue to execute against
shareholder-friendly initiatives.
Our entire team takes great pride in our
fiscal 2013 accomplishments. We have
demonstrated our ability to move in one
direction to deliver value for our consumers,
retailers and shareholders. I am confident in
our business plan and continued momentum
in fiscal 2014 should allow us to drive strong
total shareholder return in the new year.
Regards,
Jim Hagedorn
Chairman of the Board and Chief Executive Officer
The Scotts Miracle-Gro Company
December 2013
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2013
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 1-11593
______________________________________________________________
The Scotts Miracle-Gro Company
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
14111 Scottslawn Road,
Marysville, Ohio
(Address of principal executive offices)
31-1414921
(I.R.S. Employer
Identification No.)
43041
(Zip Code)
Registrant’s telephone number, including area code:
937-644-0011
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Shares, without par value
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
______________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of Common Shares (the only common equity of the registrant) held by non-affiliates as of March 30, 2013 (the last
business day of the most recently completed second quarter) was approximately $1,892,511,413.
There were 61,985,318 Common Shares of the registrant outstanding as of November 13, 2013.
______________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the registrant’s 2014 Annual Meeting of Shareholders are incorporated by reference into Part III of
this Annual Report on Form 10-K.
ITEM 1.
BUSINESS
Company Description and Development of the Business
PART I
The discussion below provides a brief description of the business conducted by The Scotts Miracle-Gro Company (“Scotts
Miracle-Gro” and, together with its subsidiaries, the “Company,” “we” or “us”), including general developments in the Company’s
business during the fiscal year ended September 30, 2013 (“fiscal 2013”). For additional information on recent business
developments, see “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS” of this Annual Report on Form 10-K.
We are a leading manufacturer and marketer of branded consumer lawn and garden products. Our products are marketed
under some of the most recognized brand names in the industry, including, in North America, Scotts® and Turf Builder® lawn and
grass seed products, including the Scotts® LawnPro® Annual 4 Step® Program; Miracle-Gro®, Scotts®, Liquafeed® and Osmocote®1
gardening and landscape products; Ortho®, Roundup®2 and Home Defense® branded insect control, weed control and rodenticide
products; and Scotts® and Morning Song® wild bird food products. In the United Kingdom, key brands include Miracle-Gro®
plant fertilizers; Weedol® and Pathclear® herbicides; EverGreen® lawn fertilizers; and Levington® gardening and landscape
products. Other significant brands in Europe include KB® and Fertiligène® in France; Celaflor®, Nexa Lotte® and Substral® in
Germany and Austria; and ASEF®, KB® and Substral® in Belgium, the Netherlands and Luxembourg. We also operate the Scotts
LawnService® business, which provides residential and commercial lawn care, tree and shrub care and limited pest control services
in the United States.
Our heritage is tied to the 1995 merger of The Scotts Company, which traces its roots to a company founded by O.M. Scott
in Marysville, Ohio in 1868, and Stern’s Miracle-Gro Products, Inc., which was formed on Long Island, New York by Horace
Hagedorn and Otto Stern in 1951. Scotts Miracle-Gro is an Ohio corporation.
We are dedicated to delivering strong, long-term financial results and outstanding shareholder returns by providing products
of superior quality and value to enhance consumers’ lawn and garden environments. In fiscal 2013, we progressed a number of
key initiatives which focused on: (1) margin improvement and SG&A reduction and (2) stronger balance sheet and operating cash
flow with a bias towards returning cash to shareholders. After a late start to the season impacting first half results, strong consumer
engagement and our initiatives came together in the second half of the year to lift full year results. We also continued our long
term focus on innovation and global expansion.
Business Segments
We divide our business into the following reportable segments:
•
•
Global Consumer
Scotts LawnService®
This division of reportable segments is consistent with how the segments report to and are managed by our Chief Executive
Officer (the chief operating decision maker of the Company). Financial information about these segments for each of the three
years ended September 30 is presented in “NOTE 21. SEGMENT INFORMATION” of the Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Principal Products and Services
Global Consumer
In our Global Consumer segment, we manufacture and market consumer lawn and garden products in the following categories:
_____________
1 Osmocote® is a registered trademark of Everris International B.V., a subsidiary of Israel Chemicals Ltd.
2 Roundup® is a registered trademark of Monsanto Technology LLC, a company affiliated with Monsanto Company
("Monsanto")
2
Lawn Care: The lawn care category is designed to help consumers obtain and enjoy the lawn they want. In the United
States, products within this category include fertilizer products under the Scotts® and Turf Builder® brand names, grass seed
products under the Scotts®, Turf Builder®, EZ Seed®, Water Smart® and PatchMaster® brand names and lawn-related weed, pest
and disease control products primarily under the Scotts® and Lawn Pro® brand names, including sub-brands such as GrubEx®. A
similar range of products is marketed in Europe under a variety of brands such as EverGreen®, Fertiligène®, Substral®, Miracle-
Gro Patch Magic®, Weedol®, Pathclear®, KB® and Celaflor®. The lawn care category also includes spreaders and other durables
under the Scotts® brand name, including Turf Builder® EdgeGuard® spreaders, Snap® spreaders and Handy Green®II handheld
spreaders.
Gardening and Landscape: The gardening and landscape category is designed to help consumers grow and enjoy
flower and vegetable gardens and beautify landscaped areas. In the United States, products within this category include a complete
line of water soluble plant foods under the Miracle-Gro® brand and sub-brands such as LiquaFeed®, continuous-release plant foods
under the Osmocote® and Shake ‘N Feed® brand names, potting mixes and garden soils under the Miracle-Gro®, Scotts®, Hyponex®,
Earthgro® and SuperSoil® brand names, mulch and decorative groundcover products under the Scotts® brand, including the sub-
brands Nature Scapes® and Earthgro®, landscape weed prevention products under the Ortho® brand, plant-related pest and disease
control products under the Ortho® brand, wild bird food and bird feeder products under the Scotts Songbird Selections®, Morning
Song® and Country Pride® brand names, organic garden products under the Miracle-Gro Organic Choice®, Scotts® and Whitney
Farms® brand names, and live goods under the Miracle-Gro® brand and Gro-ables® sub-brand. Internationally, similar products
are marketed under the Miracle-Gro®, Fertiligène®, Substral®, KB®, Celaflor®, ASEF®, Scotts®, Morning Melodies®, Scotts
EcoSense®, Fertiligène Naturen®, Substral Naturen®, KB Naturen®, Carre Vert® and Miracle-Gro Organic Choice® brand names.
Controls: The controls category is designed to help consumers protect their homes from pests and maintain external
home areas. In the United States, insect control and rodenticide products are marketed under the Ortho® brand name, including
Ortho Max®, Home Defense Max® and Bug B Gon Max® sub-brands, selective weed control products are marketed under the
Ortho® Weed B Gon® sub-brand, while non-selective weed control products are marketed under the Roundup® and Groundclear®
brand names. Internationally, products within this category are marketed under the Nexa Lotte®, Fertiligène®, KB®, Home
Defence®, Weedol®, Pathclear® and Roundup® brands. In addition, in October 2013 through our acquisition of the Tomcat®
consumer rodent control business from Bell Laboratories, Inc., we began to market rodent control products under the Tomcat®
brand.
Since 1999, we have served as Monsanto’s exclusive agent for the marketing and distribution of consumer Roundup® products
in the consumer lawn and garden market within the United States and other specified countries, including Australia, Austria,
Belgium, Canada, France, Germany, the Netherlands and the United Kingdom. Under the terms of the Amended and Restated
Exclusive Agency and Marketing Agreement (the “Marketing Agreement”) between the Company and Monsanto, we are jointly
responsible with Monsanto for developing global consumer and trade marketing programs for consumer Roundup®. We have
responsibility for manufacturing conversion, distribution and logistics, and selling and marketing support for consumer Roundup®.
Monsanto continues to own the consumer Roundup® business and provides significant oversight of the brand. In addition, Monsanto
continues to own and operate the agricultural Roundup® business. For additional details regarding the Marketing Agreement, see
“ITEM 1A. RISK FACTORS — If Monsanto were to terminate the Marketing Agreement for consumer Roundup® products, we
would lose a substantial source of future earnings and overhead expense absorption” of this Annual Report on Form 10-K and
“NOTE 6. MARKETING AGREEMENT” of the Notes to Consolidated Financial Statements included in this Annual Report on
Form 10-K.
Scotts LawnService®
The Scotts LawnService® segment provides residential and commercial lawn care, tree and shrub care and limited pest
control services in the United States through periodic applications of fertilizer and control products. As of September 30, 2013,
Scotts LawnService® had 86 Company-operated locations as well as 93 locations operated by independent franchisees.
Acquisitions and Divestitures
On October 14, 2013, we acquired the Tomcat® consumer rodent control business from Bell Laboratories, Inc. located in
Madison, Wisconsin for $60 million. In addition, over the past five years we have completed several smaller acquisitions within
our controls, growing media and Scotts LawnService® businesses.
During the past five years we have completed several divestitures including the wind down of our Smith & Hawken business
completed in the first quarter of fiscal 2010 and the February 28, 2011 sale of our Global Professional (“Global Pro”) business to
Israel Chemicals Ltd. (“ICL”) for $270 million. In the fourth quarter of fiscal 2012, we completed the wind down of our professional
seed business. We have classified our results of operations for all periods presented to reflect these businesses as discontinued
operations. See “NOTE 2. DISCONTINUED OPERATIONS” of the Notes to Consolidated Financial Statements included in
this Annual Report on Form 10-K for additional information.
3
Principal Markets and Methods of Distribution
We sell our consumer products primarily to home centers, mass merchandisers, warehouse clubs, large hardware chains,
independent hardware stores, nurseries, garden centers and food and drug stores through both a direct sales force and our network
of brokers and distributors. In addition, during fiscal 2013, we employed approximately 2,200 full-time and seasonal in-store
associates within the U.S. to help our retail partners merchandise their lawn and garden departments directly to consumers of our
products.
The majority of shipments to customers are made via common carriers or through distributors in the United States and
through a network of public warehouses and distributors in Europe. We primarily utilize third parties to manage the key distribution
centers for our Global Consumer business in North America, which are strategically placed across the United States and Canada.
The primary distribution centers for our Global Consumer business internationally are located in the United Kingdom, France,
Germany, Austria and Australia and are also managed by third-party logistics providers. Growing media products are generally
shipped direct-to-store without passing through a distribution center. Fiscal 2013 marked year five of our multi-year plan to co-
distribute lawn fertilizer and growing media products directly to our retail customers, which to date has helped eliminate the need
for approximately 25% of our third-party warehouse space.
Raw Materials
We purchase raw materials for our products from various sources. We are subject to market risk as a result of the fluctuating
prices of raw materials such as urea and other fertilizer inputs, resins, diesel, gasoline, sphagnum peat, bark, grass seed and wild
bird food grains. Our objectives surrounding the procurement of these materials are to ensure continuous supply, to minimize
costs and to improve predictability. We seek to achieve these objectives through negotiation of contracts with favorable terms
directly with vendors. When appropriate, we commit to purchase a certain percentage of our needs in advance of the season to
secure pre-determined prices. We also hedge certain commodities, particularly diesel, gasoline and urea, to improve predictability
and control costs. Sufficient raw materials were available during fiscal 2013.
Trademarks, Patents and Licenses
We consider our trademarks, patents and licenses to be key competitive advantages. We pursue a vigorous trademark
protection strategy consisting of registration and maintenance of key trademarks and proactive monitoring and enforcement
activities to protect against infringement. The Scotts®, Miracle-Gro®, Ortho®, Scotts LawnService®, Hyponex® and Earthgro®
brand names and logos, as well as a number of product trademarks, including Turf Builder®, EZ Seed®, Snap®, Organic Choice®,
Home Defense Max®, Nature Scapes® and Weed B Gon Max®, are registered in the United States and/or internationally and are
considered material to our business.
In addition, we actively develop and maintain a vast portfolio of utility and design patents covering subject matter such as
fertilizer, chemical and growing media compositions and processes; grass seed varieties; and mechanical dispensing devices such
as applicators, spreaders and sprayers. Our utility patents provide protection generally extending to 20 years from the date of
filing, and many of our patents will continue well into the next decade. We also hold exclusive and non-exclusive patent licenses
and supply arrangements, permitting the use and sale of additional patented fertilizers, pesticides and mechanical devices. Although
our portfolio of patents and patent licenses is important to our success, no single patent or group of related patents is considered
significant to any of our business segments or the business as a whole.
Seasonality and Backlog
Our business is highly seasonal, with in excess of 75% of our annual net sales occurring in our second and third fiscal quarters
combined. Our annual sales are further concentrated in our second and third fiscal quarters by retailers who rely on our ability to
deliver products closer to when consumers buy our products, thereby reducing retailers’ pre-season inventories.
We anticipate significant orders for the upcoming spring season will start to be received late in the winter and continue
through the spring season. Historically, substantially all orders are received and shipped within the same fiscal year with minimal
carryover of open orders at the end of the fiscal year.
Significant Customers
Approximately 89.7% of our worldwide net sales in fiscal 2013 were made by our Global Consumer segment. Our three
largest customers are reported within the Global Consumer segment and are the only customers that individually represent more
than 10% of reported consolidated net sales. Approximately 65% of our Global Consumer segment net sales in fiscal 2013 were
made to Home Depot, Lowe’s and Walmart. We face strong competition for the business of these significant customers. The loss
of any of these customers or a substantial decrease in the volume or profitability of our business with any of these customers could
have a material effect on our financial condition, results of operations or cash flows.
4
Competitive Marketplace
The markets in which we sell our products are highly competitive. In the United States lawn and garden and pest control
markets, our products compete against private-label as well as branded products. Primary competitors include Spectrum Brands,
Bayer AG, Central Garden & Pet Company, Enforcer Products, Inc., Kellogg Garden Products, Old Castle Retail, Inc., Infinity
Lawn and Garden Inc. and Lebanon Seaboard Corporation. In addition, we face competition from regional competitors who
compete primarily on the basis of price for commodity growing media products.
Internationally, we face strong competition in the lawn and garden market, particularly in Europe. Our competitors in the
European Union include Bayer AG, Compo GmbH, Westland Horticulture and a variety of local companies.
We have the second largest market share position in the fragmented U.S. lawn care service market. We compete against
TruGreen®, a division of ServiceMaster®, which has a substantially larger share of this market than Scotts LawnService®, as well
as numerous regional and local lawn care service operations and national and regional franchisors.
Research and Development
We continually invest in research and development, both in the laboratory and at the consumer level, to improve our products,
manufacturing processes, packaging and delivery systems. Spending on research and development was $46.7 million, $50.8
million and $50.9 million in fiscal 2013, fiscal 2012 and fiscal 2011, respectively, including product registration costs of $12.4
million, $14.0 million and $14.6 million, respectively. In addition to the benefits of our own research and development, we actively
seek ways to leverage the research and development activities of our suppliers and other business partners.
Regulatory Considerations
Local, state, federal and foreign laws and regulations affect the manufacture, sale and application of our products in several
ways. For example, in the United States, products containing pesticides must comply with the Federal Insecticide, Fungicide, and
Rodenticide Act of 1947, as amended (“FIFRA”), and be registered with the U.S. Environmental Protection Agency (the
“U.S. EPA”) and similar state agencies before they can be sold or distributed. Fertilizer and growing media products are subject
to state and foreign labeling regulations. Our manufacturing operations are subject to waste, water and air quality permitting and
other regulatory requirements of federal, state and foreign agencies. Our wild bird food business is subject to regulation by the
U.S. Food and Drug Administration and various state regulations. Our grass seed products are regulated by the Federal Seed Act
and various state regulations. Most states require our Scotts LawnService® business locations and/or technicians to comply with
strict licensing requirements prior to applying many of our products. The failure to comply with any of these laws or regulations
could have an adverse effect on our business.
In addition, the use of certain pesticide and fertilizer products is regulated by various local, state, federal and foreign
environmental and public health agencies. These regulations may include requirements that only certified or professional users
apply the product or that certain products be used only on certain types of locations (such as “not for use on sod farms or golf
courses”), may require users to post notices on properties to which products have been or will be applied, may require notification
to individuals in the vicinity that products will be applied in the future or may ban the use of certain ingredients.
State, federal and foreign authorities generally require growing media facilities to obtain permits (sometimes on an annual
basis) in order to harvest peat and to discharge storm water run-off or water pumped from peat deposits. The permits typically
specify the condition in which the property must be left after the peat is fully harvested, with the residual use typically being
natural wetland habitats combined with open water areas. We are generally required by these permits to limit our harvesting and
to restore the property consistent with the intended residual use. In some locations, these facilities have been required to create
water retention ponds to control the sediment content of discharged water.
For more information regarding how compliance with federal, state, local and foreign laws and regulations may affect us,
see “ITEM 1A. RISK FACTORS — Compliance with environmental and other public health regulations or changes in such
regulations or regulatory enforcement priorities could increase our costs of doing business or limit our ability to market all of our
products” of this Annual Report on Form 10-K.
Regulatory Matters
We are subject to various environmental proceedings, the majority of which are for site remediation. At September 30,
2013, $4.0 million was accrued for such environmental matters. During fiscal 2013, fiscal 2012 and fiscal 2011, we expensed
$0.4 million, $0.8 million and $2.4 million, respectively, for such environmental matters. We had no material capital expenditures
during the last three fiscal years related to environmental or regulatory matters.
5
Employees
As of September 30, 2013, we employed approximately 6,200 employees. During peak sales and production periods, we
employ approximately 8,400 employees, including seasonal and temporary labor.
Financial Information About Geographic Areas
For certain information concerning our international revenues and long-lived assets, see “NOTE 21. SEGMENT
INFORMATION” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
General Information
We maintain a website at http://investor.scotts.com (this uniform resource locator, or URL, is an inactive textual reference
only and is not intended to incorporate our website into this Annual Report on Form 10-K). We file reports with the Securities
and Exchange Commission (the “SEC”) and make available, free of charge, on or through our website, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as our proxy and information
statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
ITEM 1A. RISK FACTORS
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, including the exhibits hereto and the information incorporated by reference herein, as
well as our 2013 Annual Report to Shareholders (our “2013 Annual Report”), contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are subject to risks and uncertainties. Other than statements of historical fact, information regarding activities,
events and developments that we expect or anticipate will or may occur in the future, including, but not limited to, information
relating to our future growth and profitability targets and strategies designed to increase total shareholder value, are forward-
looking statements based on management’s estimates, assumptions and projections. Forward-looking statements also include, but
are not limited to, statements regarding our future economic and financial condition and results of operations, the plans and
objectives of management and our assumptions regarding our performance and such plans and objectives, as well as the amount
and timing of repurchases of Scotts Miracle-Gro common shares. Forward-looking statements generally can be identified through
the use of words such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,”
“may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” and other similar words and variations.
Forward-looking statements contained in this Annual Report on Form 10-K and our 2013 Annual Report are predictions
only and actual results could differ materially from management’s expectations due to a variety of factors, including those described
below. All forward-looking statements attributable to us or persons working on our behalf are expressly qualified in their entirety
by such risk factors.
The forward-looking statements that we make in this Annual Report on Form 10-K and our 2013 Annual Report are based
on management’s current views and assumptions regarding future events and speak only as of their dates. We disclaim any
obligation to update developments of these risk factors or to announce publicly any revisions to any of the forward-looking
statements that we make, or to make corrections to reflect future events or developments, except as required by the federal securities
laws.
Compliance with environmental and other public health regulations or changes in such regulations or regulatory
enforcement priorities could increase our costs of doing business or limit our ability to market all of our products.
Local, state, federal and foreign laws and regulations relating to environmental matters affect us in several ways. In the
United States, all products containing pesticides must comply with FIFRA and be registered with the U.S. EPA and similar state
agencies before they can be sold or distributed. The inability to obtain or maintain such compliance, or the cancellation of any
such registration, could have an adverse effect on our business, the severity of which would depend on the products involved,
whether another product could be substituted and whether our competitors were similarly affected. We attempt to anticipate
regulatory developments and maintain registrations of, and access to, substitute active ingredients, but there can be no assurance
that we will be able to avoid or reduce these risks. In the European Union (the “EU”), the European Parliament has adopted
various forms of regulation which may substantially restrict or eliminate our ability to market and sell certain of our consumer
pesticide products in their current form in the EU. In addition, in Canada, regulations have been adopted by several provinces
that substantially restrict our ability to market and sell certain of our consumer pesticide products.
6
Under the Food Quality Protection Act, enacted by the U.S. Congress in 1996, food-use pesticides are evaluated to determine
whether there is reasonable certainty that no harm will result from the cumulative effects of pesticide exposures. Under this Act,
the U.S. EPA is evaluating the cumulative and aggregate risks from dietary and non-dietary exposures to pesticides. The pesticides
in our products, certain of which may be used on crops processed into various food products, are typically manufactured by
independent third parties and continue to be evaluated by the U.S. EPA as part of this exposure risk assessment. The U.S. EPA or
the third-party registrant may decide that a pesticide we use in our products will be limited or made unavailable to us. We cannot
predict the outcome or the severity of the effect of continuing evaluations.
In addition, the use of certain pesticide and fertilizer products is regulated by various local, state, federal and foreign
environmental and public health agencies. These regulations may include requirements that only certified or professional users
apply the product or that certain products be used only on certain types of locations, may require users to post notices on properties
to which products have been or will be applied, may require notification to individuals in the vicinity that products will be applied
in the future or may ban the use of certain ingredients. Most states require our Scotts LawnService® business locations and/or
technicians to comply with strict licensing requirements prior to applying many of our products. Even if we are able to comply
with all such regulations and obtain all necessary registrations and licenses, we cannot provide assurance that our products,
particularly pesticide products, will not cause injury to the environment or to people under all circumstances. The costs of
compliance, remediation or products liability have adversely affected operating results in the past and could materially adversely
affect future quarterly or annual operating results.
The harvesting of peat for our growing media business has come under increasing regulatory and environmental scrutiny.
In the United States, state regulations frequently require us to limit our harvesting and to restore the property to an agreed-upon
condition. In some locations, we have been required to create water retention ponds to control the sediment content of discharged
water. In the United Kingdom, our peat extraction efforts are also the subject of regulation.
In addition to the regulations already described, local, state, federal and foreign agencies regulate the disposal, transport,
handling and storage of waste, remediation of contaminated sites, air and water discharges from our facilities, and workplace
health and safety.
Under certain environmental laws, we may be liable for the costs of investigation regarding and remediation of the presence
of certain regulated materials, as well as related costs of investigation and remediation of damage to natural resources, at various
properties, including our current and former properties as well as offsite waste handling or disposal sites that we have used.
Liability may be imposed upon us without regard to whether we knew of or caused the presence of such materials and, under
certain circumstances, on a joint and several basis. There can be no assurances that the presence of such regulated materials at
any such locations, or locations that we may acquire in the future, will not result in liability to us under such laws or expose us to
third-party actions such as tort suits based on alleged conduct or environmental conditions.
The adequacy of our current non-FIFRA compliance-related environmental reserves and future provisions depends upon
our operating in substantial compliance with applicable environmental and public health laws and regulations, as well as the
assumptions that we have both identified all of the significant sites that must be remediated and that there are no significant
conditions of potential contamination that are unknown to us. A significant change in the facts and circumstances surrounding
these assumptions or in current enforcement policies or requirements, or a finding that we are not in substantial compliance with
applicable environmental and public health laws and regulations, could have a material adverse effect on future environmental
capital expenditures and other environmental expenses, as well as our financial condition, results of operations or cash flows.
Damage to our reputation could have an adverse effect on our business.
Maintaining our strong reputation with both consumers and our retail customers is a key component in our success. Product
recalls, our inability to ship, sell or transport affected products and governmental investigations may harm our reputation and
acceptance of our products by our retail customers and consumers, which may materially and adversely affect our business
operations, decrease sales and increase costs.
In addition, perceptions that the products we produce and market are not safe could adversely affect us and contribute to the
risk we will be subjected to legal action. We manufacture and market a variety of products, such as fertilizers, certain growing
media, herbicides and pesticides. On occasion, allegations are made that some of our products have failed to perform up to
expectations or have caused damage or injury to individuals or property. Based on reports of contamination at a third-party
supplier’s vermiculite mine, the public may perceive that some of our products manufactured in the past using vermiculite are or
may be contaminated. Public perception that our products are not safe, whether justified or not, could impair our reputation,
involve us in litigation, damage our brand names and have a material adverse effect on our business.
7
Our marketing activities may not be successful.
We invest substantial resources in advertising, consumer promotions and other marketing activities in order to maintain,
extend and expand our brand image. There can be no assurances that our marketing strategies will be effective or that the amount
we invest in advertising activities will result in a corresponding increase in sales of our products. If our marketing initiatives are
not successful, we will have incurred significant expenses without the benefit of higher revenues.
Disruptions in availability or increases in the prices of raw materials or fuel costs could adversely affect our results of
operations.
We source many of our commodities and other raw materials on a global basis. The general availability and price of those
raw materials can be affected by numerous forces beyond our control, including political instability, trade restrictions and other
government regulations, duties and tariffs, price controls, changes in currency exchange rates and weather.
A significant disruption in the availability of any of our key raw materials could negatively impact our business. In addition,
increases in the prices of key commodities and other raw materials could adversely affect our ability to manage our cost structure.
Market conditions may limit our ability to raise selling prices to offset increases in our raw material costs. Our proprietary
technologies can limit our ability to locate or utilize alternative inputs for certain products. For certain inputs, new sources of
supply may have to be qualified under regulatory standards, which can require additional investment and delay bringing a product
to market.
We utilize hedge agreements periodically to fix the prices of a portion of our urea and fuel needs. The hedge agreements
are designed to mitigate the earnings and cash flow fluctuations associated with the costs of urea and fuel. In periods of declining
urea and fuel prices, utilizing hedge agreements may effectively increase our expenditures for these raw materials.
Our hedging arrangements expose us to certain counterparty risks.
In addition to commodity hedge agreements, we utilize interest rate swap agreements as a means to hedge our variable
interest rate exposure on debt instruments as well as foreign currency forward contracts to manage the exchange rate risk associated
with certain intercompany loans with foreign subsidiaries. Utilizing these hedge agreements exposes us to certain counterparty
risks. The failure of one or more of these counterparties to fulfill their obligations under the hedge agreements, whether as a result
of weakening financial stability or otherwise, could adversely affect our financial condition, results of operations or cash flows.
Economic conditions could adversely affect our business.
Uncertain global economic conditions could adversely affect our business. Negative global economic trends, such as
decreased consumer and business spending, high unemployment levels, reduced rates of home ownership and housing starts, high
foreclosure rates and declining consumer and business confidence, pose challenges to our business and could result in declining
revenues, profitability and cash flow. Although we continue to devote significant resources to support our brands, unfavorable
economic conditions may negatively affect consumer demand for our products. Consumers may reduce discretionary spending
during periods of economic uncertainty, which could reduce sales volumes of our products or result in a shift in our product mix
from higher margin to lower margin products.
The highly competitive nature of our markets could adversely affect our ability to maintain or grow revenues.
Each of our operating segments participates in markets that are highly competitive. Our products compete against national
and regional products and private label products produced by various suppliers. Many of our competitors sell their products at
prices lower than ours. Our most price sensitive customers may trade down to lower priced products during challenging economic
times or if current economic conditions worsen. We compete primarily on the basis of product innovation, product quality, product
performance, value, brand strength, supply chain competency, field sales support, in-store sales support, the strength of our
relationships with major retailers and advertising. Some of our competitors have significant financial resources. The strong
competition that we face in all of our markets may prevent us from achieving our revenue goals, which may have a material adverse
effect on our financial condition, results of operations or cash flows. Our inability to continue to develop and grow brands with
leading market positions, maintain our relationships with key retailers and deliver products on a reliable basis at competitive prices
could have a material adverse effect on us.
8
We may not successfully develop new products or improve existing products or maintain our effectiveness in reaching
consumers through rapidly evolving communication vehicles.
Our future success depends, in part, upon our ability to improve our existing products and to develop, manufacture and
market new, innovative products to meet evolving consumer needs, as well as our ability to leverage new mediums such as digital
media and social networks to reach existing and potential consumers. We cannot be certain that we will be successful in the
development, manufacturing and marketing of new products or product innovations which satisfy consumer needs or achieve
market acceptance, or that we will develop and market new products or product innovations in a timely manner. If we fail to
successfully develop, manufacture and market new or enhanced products or develop product innovations, or if we fail to reach
existing and potential consumers, our ability to maintain or grow our market share may be adversely affected, which in turn could
materially adversely affect our business, financial condition and results of operations. In addition, the development and introduction
of new products and product innovations require substantial research, development and marketing expenditures, which we may
be unable to recoup if such new products or innovations do not achieve market acceptance.
Many of the products we manufacture and market contain active ingredients that are subject to regulatory approval. The
need to obtain such approval could delay the launch of new products or product innovations that contain active ingredients or
otherwise prevent us from developing and manufacturing certain products and innovations, further exacerbating the risks to our
business.
Because of the concentration of our sales to a small number of retail customers, the loss of one or more of, or significant
reduction in orders from, our top customers could adversely affect our financial results.
Global Consumer net sales represented approximately 89.7% of our worldwide net sales in fiscal 2013. Our top three retail
customers together accounted for 65% of our Global Consumer segment fiscal 2013 net sales and 56% of our outstanding accounts
receivable as of September 30, 2013. The loss of, or reduction in orders from our top three retail customers, Home Depot, Lowe’s,
Walmart, or any other significant customer could have a material adverse effect on our business, financial condition, results of
operations or cash flows, as could customer disputes regarding shipments, fees, merchandise condition or related matters. Our
inability to collect accounts receivable from one of our major customers, or a significant deterioration in the financial condition
of one of these customers, including a bankruptcy filing or a liquidation, could also have a material adverse effect on our financial
condition, results of operations or cash flows.
We do not have long-term sales agreements with, or other contractual assurances as to future sales to, any of our major retail
customers. In addition, continued consolidation in the retail industry has resulted in an increasingly concentrated retail base, and
as a result, we are significantly dependent upon key retailers whose bargaining strength is strong. To the extent such concentration
continues to occur, our net sales and income from operations may be increasingly sensitive to deterioration in the financial condition
of, or other adverse developments involving our relationship with, one or more of our customers. In addition, our business may
be negatively affected by changes in the policies of our retailers, such as inventory destocking, limitations on access to shelf space,
price demands and other conditions.
Our reliance on third-party manufacturers could harm our business.
We rely on third-party service providers to manufacture certain of our products. This reliance generates a number of risks,
including decreased control over the production process, which could lead to production delays or interruptions, and inferior
product quality control. In addition, performance problems at these third-party providers could lead to cost overruns, shortages
or other problems, which could increase our costs of production or result in service delays to our customers.
If one or more of our third-party manufacturers becomes insolvent or unwilling to continue to manufacture products of
acceptable quality, at acceptable costs, in a timely manner, our ability to deliver products to our customers could be significantly
impaired. Substitute manufacturers might not be available or, if available, might be unwilling or unable to manufacture the products
we need on acceptable terms. Moreover, if customer demand for our products increases, we may be unable to secure sufficient
additional capacity from our current third-party manufacturers, or others, on commercially reasonable terms, or at all.
Our reliance on a limited base of suppliers may result in disruptions to our business and adversely affect our financial
results.
We rely on a limited number of suppliers for certain of our raw materials, product components and other necessary supplies,
including certain active ingredients used in our products. If we are unable to maintain supplier arrangements and relationships,
if we are unable to contract with suppliers at the quantity and quality levels needed for our business, or if any of our key suppliers
becomes insolvent or experiences other financial distress, we could experience disruptions in production, which could have a
material adverse effect on our financial results.
9
A significant interruption in the operation of our or our suppliers’ facilities could impact our capacity to produce products
and service our customers, which could adversely affect revenues and earnings.
Operations at our and our suppliers’ facilities are subject to disruption for a variety of reasons, including fire, flooding or
other natural disasters, disease outbreaks or pandemics, acts of war, terrorism, government shut-downs and work stoppages. A
significant interruption in the operation of our or our suppliers’ facilities could significantly impact our capacity to produce products
and service our retail customers in a timely manner, which could have a material adverse effect on our revenues, earnings and
financial position. This is especially true for those products that we manufacture at a limited number of facilities, such as our
fertilizer and liquid products in both the United States and Europe.
Adverse weather conditions could adversely impact financial results.
Weather conditions in North America and Europe can have a significant impact on the timing of sales in the spring selling
season and overall annual sales. An abnormally wet and/or cold spring throughout North America or Europe, abnormally dry
periods or droughts, and other severe weather conditions or events could adversely affect fertilizer, pesticide and insecticide sales
and, therefore, our financial results.
Our indebtedness could limit our flexibility and adversely affect our financial condition.
As of September 30, 2013, we had $570.5 million of debt. Our inability to meet restrictive financial and non-financial
covenants associated with that debt could adversely affect our financial condition.
Our ability to make payments on our indebtedness, fund planned capital expenditures and acquisitions, pay dividends and
make share repurchases depends on our ability to generate cash in the future. This, to some extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot ensure that our business
will generate sufficient cash flow from operating activities or that future borrowings will be available to us under our credit facility
in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
Our credit facility, the indenture governing our 7.25% Senior Notes due 2018 (the “7.25% Senior Notes”) and the indenture
governing our 6.625% Senior Notes due 2020 (the “6.625% Senior Notes” and, collectively with the 7.25% Senior Notes, the
“Senior Notes”) contain restrictive covenants and cross-default provisions. In addition, our credit facility requires us to maintain
specified financial ratios. Our ability to comply with those covenants and satisfy those financial ratios can be affected by events
beyond our control. A breach of any of those financial ratio covenants or other covenants could result in a default. Upon the
occurrence of such an event of default, the lenders could elect to declare all of the outstanding indebtedness immediately due and
payable and terminate all commitments to extend further credit. We cannot ensure that our lenders would waive a default or that
we could pay the indebtedness in full if it were accelerated.
Subject to compliance with certain covenants under our credit facility and the indentures governing our Senior Notes, we
may incur additional debt in the future. If we incur additional debt, the risks described above could intensify.
Our postretirement-related costs and funding requirements could increase as a result of volatility in the financial markets,
changes in interest rates and actuarial assumptions.
We sponsor a number of defined benefit pension plans associated with our U.S. and international businesses, as well as a
postretirement medical plan in the U.S. for certain retired associates and their dependents. The performance of the financial
markets and changes in interest rates impact the funded status of these plans and cause volatility in our postretirement-related
costs and future funding requirements. If the financial markets do not provide the expected long-term returns on invested assets,
we could be required to make significant pension contributions. Additionally, changes in interest rates and legislation enacted by
governmental authorities can impact the timing and amounts of contribution requirements.
We utilize third-party actuaries to evaluate assumptions used in determining projected benefit obligations and the fair value
of plan assets for our pension and other postretirement benefit plans. In the event we determine that our assumptions should be
revised, such as the discount rate, the expected long-term rate or expected return on assets, our future pension and postretirement
benefit expenses could increase or decrease. The assumptions we use may differ from actual results, which could have a significant
impact on our pension and postretirement liabilities and related costs and funding requirements.
10
Our international operations make us susceptible to the costs and risks associated with operating internationally.
We currently operate manufacturing, sales and service facilities outside of the United States, particularly in Canada, France,
the United Kingdom and Germany. In fiscal 2013, sales outside of the United States accounted for 17.2% of our total net sales.
Accordingly, we are subject to risks associated with operating in foreign countries, including:
•
•
•
•
•
•
•
•
•
•
fluctuations in currency exchange rates;
limitations on the remittance of dividends and other payments by foreign subsidiaries;
additional costs of compliance with local regulations;
historically, in certain countries, higher rates of inflation than in the United States;
changes in the economic conditions or consumer preferences or demand for our products in these markets;
restrictive actions by multi-national governing bodies, foreign governments or subdivisions thereof;
changes in foreign labor laws and regulations affecting our ability to hire and retain employees;
changes in U.S. and foreign laws regarding trade and investment;
less robust protection of our intellectual property under foreign laws; and
difficulty in obtaining distribution and support for our products.
In addition, our operations outside the United States are subject to the risk of new and different legal and regulatory
requirements in local jurisdictions, potential difficulties in staffing and managing local operations and potentially adverse tax
consequences. The costs associated with operating our international business could adversely affect our results of operations,
financial condition or cash flows in the future.
Failure of our key information technology systems could adversely impact our ability to conduct business.
We rely on information technology systems in order to conduct business, including communicating with employees and our
key retail customers, ordering and managing materials from suppliers, shipping products to customers and analyzing and reporting
results of operations. While we have taken steps to ensure the security of our information technology systems, our systems may
nevertheless be vulnerable to computer viruses, security breaches and other disruptions from unauthorized users. If our information
technology systems are damaged or cease to function properly for an extended period of time, whether as a result of a significant
cyber incident or otherwise, our ability to communicate internally as well as with our retail customers could be significantly
impaired, which may adversely impact our business.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our
business.
Our ability to compete effectively depends in part on our rights to service marks, trademarks, tradenames and other intellectual
property rights we own or license, particularly our registered brand names and issued patents. We have not sought to register
every one of our marks either in the United States or in every country in which they are used. Furthermore, because of the
differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same
protection in other countries as we would in the United States with respect to the registered brand names and issued patents we
hold. If we are unable to protect our intellectual property, proprietary information and/or brand names, we could suffer a material
adverse effect on our business, financial condition or results of operations.
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend
against claims by third parties that our products or services infringe their intellectual property rights. Any litigation or claims
brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, patent
or other intellectual property infringement against us, or any other successful challenge to the use of our intellectual property,
could subject us to damages or prevent us from providing certain products or services under our recognized brand names, which
could have a material adverse effect on our business, financial condition or results of operations.
11
If Monsanto were to terminate the Marketing Agreement for consumer Roundup® products, we would lose a substantial
source of future earnings and overhead expense absorption.
If we were to commit a serious default under the Marketing Agreement with Monsanto for consumer Roundup® products,
Monsanto may have the right to terminate the Marketing Agreement. If Monsanto were to terminate the Marketing Agreement
for cause, we would not be entitled to any termination fee. Monsanto may also be able to terminate the Marketing Agreement
within a given region, including North America, without paying us a termination fee if unit volume sales to consumers in that
region decline: (i) over a cumulative three-fiscal-year period; or (ii) by more than 5% for each of two consecutive years. If the
Marketing Agreement was terminated for any reason, we would also lose all, or a substantial portion, of the significant source of
earnings and overhead expense absorption the Marketing Agreement provides. For additional information regarding the Marketing
Agreement, see “NOTE 6. MARKETING AGREEMENT” of the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K.
Hagedorn Partnership, L.P. beneficially owns approximately 27% of our common shares and can significantly influence
decisions that require the approval of shareholders.
Hagedorn Partnership, L.P. beneficially owned approximately 27% of our outstanding common shares on a fully diluted
basis as of November 13, 2013. As a result, it has sufficient voting power to significantly influence the election of directors and
the approval of other actions requiring the approval of our shareholders, including the entering into of certain business combination
transactions. In addition, because of the percentage of ownership and voting concentration in Hagedorn Partnership, L.P., elections
of our board of directors will generally be within the control of Hagedorn Partnership, L.P. While all of our shareholders are
entitled to vote on matters submitted to our shareholders for approval, the concentration of shares and voting control presently
lies with Hagedorn Partnership, L.P. As such, it would be difficult for shareholders to propose and have approved proposals not
supported by Hagedorn Partnership, L.P. Hagedorn Partnership, L.P. may have an interest in our pursuing transactions that it
believes may enhance the value of its equity investment in us, even though such transactions may involve certain risks.
We may pursue acquisitions, dispositions, investments, dividends, share repurchases and/or other corporate transactions
that we believe will maximize equity returns of our shareholders but may involve risks.
From time to time, we consider opportunities for acquisitions of businesses, product lines or other assets, potential dispositions
and other strategic transactions. These types of transactions may involve risks, such as risks of integration of acquired businesses
and loss of cash flows and market positions of disposed businesses, the possibility that anticipated synergies from strategic
acquisitions may not materialize, and the risk that sales of acquired products may not meet expectations.
In addition, if our business performs according to our financial plan, subject to the discretion of our Board of Directors and
to market and other conditions we may, over time, significantly increase the rate of dividends on, and the amount of repurchases
of, our common shares. For example, in the fourth quarter of fiscal 2010 we doubled the amount of our quarterly cash dividend,
and our Board of Directors authorized the repurchase of up to $500 million of Scotts Miracle-Gro common shares. In fiscal 2011
we increased the amount of our dividend by an additional 20% and our Board of Directors authorized the repurchase of up to an
additional $200 million of our common shares. We increased the amount of our dividend again in fiscal 2012. In the fourth quarter
of fiscal 2013 we increased the amount of our dividend by an additional 35%. We may further increase the rate of dividends on,
and the amount of repurchases of, our common shares in the future.
There can be no assurance that we will effect any of these transactions or activities, but, if we do, certain risks may be
increased, possibly materially.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters are located in Marysville, Ohio, where we own or lease approximately 730 acres. We also lease
office space for sales, marketing and general operating activities as well as warehouse, distribution, and research and development
throughout North America, Europe, Australia, and Asia. We believe that our facilities are adequate to serve their intended purposes
and that our property leasing arrangements are satisfactory.
We own or lease numerous facilities throughout the world to support our business operations.
•
Global Consumer — We own or lease eight properties to support manufacturing, distribution, and research and
development in North America. In addition, we operate 31 stand-alone growing media facilities in North America,
12
25 of which are owned by the Company and six of which are leased. Most of these facilities include production
lines, warehouses, offices and field processing areas. We own three production facilities for our wild bird food
operations in Indiana, South Dakota, and Texas.
We lease facilities for the headquarters of our international business in Ecully (Lyon), France. We own two
manufacturing facilities in France and four manufacturing facilities in the United Kingdom. We own or lease four
peat extraction facilities in Scotland and the United Kingdom.
•
Scotts LawnService® — We lease facilities for each of our 86 Company-operated Scotts LawnService® locations.
ITEM 3. LEGAL PROCEEDINGS
As noted in the discussion in “ITEM 1. BUSINESS — Regulatory Considerations” of this Annual Report on Form 10-K,
we are involved in several pending environmental and regulatory matters. We believe that our assessment of contingencies is
reasonable and that related reserves, in the aggregate, are adequate; however, there can be no assurance that the final resolution
of these matters will not have a material effect on our financial condition, results of operations or cash flows.
We have been named as a defendant in a number of cases alleging injuries that the lawsuits claim resulted from exposure
to asbestos-containing products, apparently based on our historic use of vermiculite in certain of our products. In many of these
cases, the complaints are not specific about the plaintiffs’ contacts with us or our products. We believe that the claims against us
are without merit and are vigorously defending against them. It is not currently possible to reasonably estimate a probable loss,
if any, associated with the cases and, accordingly, no reserves have been recorded in our consolidated financial statements. We
are reviewing agreements and policies that may provide insurance coverage or indemnity as to these claims and are pursuing
coverage under some of these agreements and policies, although there can be no assurance of the results of these efforts. There
can be no assurance that these cases, whether as a result of adverse outcomes or as a result of significant defense costs, will not
have a material effect on our financial condition, results of operations or cash flows.
In connection with the sale of wild bird food products that were the subject of a voluntary recall in 2008, we have been
named as a defendant in four putative class actions filed on and after June 27, 2012, which have now been consolidated in the
United States District Court for the Southern District of California as In re Morning Song Bird Food Litigation, Lead Case No.
3:12-cv-01592-JAH-RBB. The plaintiffs allege various statutory and common law claims associated with the Company's sale of
wild bird food products and a plea agreement entered into in previously pending government proceedings associated with such
sales. The plaintiffs allege, among other things, a purported class action on behalf of all persons and entities in the United States
who purchased certain bird food products. The plaintiffs seek monetary damages (actual, compensatory, consequential, punitive,
and treble); reimbursement, restitution, and disgorgement for benefits unjustly conferred; injunctive and declaratory relief; pre-
judgment and post-judgment interest; and costs and attorneys' fees. The Company intends to vigorously defend the consolidated
action. Given the early stages of the action, we cannot make a determination as to whether it could have a material effect on the
Company's financial condition, results of operations or cash flows and have not recorded any accruals with respect thereto.
We are involved in other lawsuits and claims which arise in the normal course of our business. In our opinion, these claims
individually and in the aggregate are not expected to result in a material effect on our financial condition, results of operations or
cash flows.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
13
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Scotts Miracle-Gro, their positions and, as of November 13, 2013, their ages and years with Scotts
Miracle-Gro (and its predecessors) are set forth below.
Name
James Hagedorn
Barry W. Sanders
Lawrence A. Hilsheimer
Denise S. Stump
Age
Position(s) Held
58 Chief Executive Officer and Chairman of the Board
49 President and Chief Operating Officer
56 Executive Vice President and Chief Financial Officer
59 Executive Vice President, Global Human Resources and Chief Ethics
Officer
Ivan C. Smith
44 Executive Vice President, General Counsel, Corporate Secretary and Chief
Compliance Officer
James R. Lyski
Michael C. Lukemire
50 Executive Vice President, Chief Marketing Officer
55 Executive Vice President, Business Execution
Years with
Company
26
12
1
13
10
3
17
Executive officers serve at the discretion of the Board of Directors of Scotts Miracle-Gro and pursuant to employment
agreements or other arrangements.
The business experience of each of the individuals listed above during at least the past five years is as follows:
Mr. Hagedorn was named Chairman of the Board of Scotts Miracle-Gro’s predecessor in January 2003 and named
Chief Executive Officer of Scotts Miracle-Gro’s predecessor in May 2001. He also served as President of Scotts Miracle-Gro (or
its predecessor) from November 2006 until October 2008 and from April 2000 until December 2005. Mr. Hagedorn serves on
Scotts Miracle-Gro’s Board of Directors, a position he has held with Scotts Miracle-Gro (or its predecessor) since 1995.
Mr. Hagedorn is the brother of Katherine Hagedorn Littlefield, a director of Scotts Miracle-Gro.
Mr. Sanders was named President of Scotts Miracle-Gro in October 2010 and named Chief Operating Officer of Scotts
Miracle-Gro in January 2012. In this position, Mr. Sanders oversees all business unit and operating functions at the Company.
Prior to his appointment as President and Chief Operating Officer, Mr. Sanders had served as the Company’s Executive Vice
President, Global Consumer since June 2010. Previously, he served as Executive Vice President, North America of Scotts Miracle-
Gro from October 2007 until June 2010. He served as Executive Vice President of Global Technology and Operations of Scotts
Miracle-Gro from January to October 2007, where he was responsible for the Company’s supply chain and information systems,
as well as research and development efforts. Before January 2007, he led the North American and global supply chain organizations
as well as the North American sales force.
Mr. Hilsheimer was named Executive Vice President and Chief Financial Officer of Scotts Miracle-Gro in April 2013.
Prior to joining Scotts Miracle-Gro, Mr. Hilsheimer served as the President and Chief Operating Officer of Nationwide Retirement
Plans for Nationwide Mutual Insurance Company from August 2012 to March 2013. Prior to that, Mr. Hilsheimer served as the
President and Chief Operating Officer of Nationwide Direct and Customer Solutions, a post he had held since November 2009.
Before November 2009, he served as the Chief Financial Officer and Executive Vice President of Nationwide Mutual Insurance
Company.
Ms. Stump has served as Executive Vice President, Global Human Resources of Scotts Miracle-Gro (or its predecessor)
since February 2003. Effective October 31, 2013, Ms. Stump also was named Chief Ethics Officer.
Mr. Smith was named Executive Vice President, General Counsel and Corporate Secretary of Scotts Miracle-Gro in
July 2013. Effective October 31, 2013, Mr. Smith also was named Chief Compliance Officer. Prior to becoming Executive Vice
President, General Counsel and Corporate Secretary, Mr. Smith served as Vice President, Global Consumer Legal and Assistant
General Counsel since October 2011. From April 2009 to September 2011, he served as Vice President, North America Legal and
Assistant General Counsel. From October 2007 to March 2009, he served as Vice President, Litigation.
Mr. Lyski was named Executive Vice President, Chief Marketing Officer of Scotts Miracle-Gro in April 2011. He had
previously served as interim Chief Marketing Officer since February 2011. Prior to joining Scotts Miracle-Gro, Mr. Lyski served
as Executive Vice President, Chief Marketing Officer for Nationwide Mutual Insurance Company from October 2006 until January
2011, where he was responsible for corporate strategy, corporate marketing, brand management, advertising and communications.
Mr. Lyski serves as President of the Board of Trustees for the Wexner Center Foundation.
14
Mr. Lukemire was named Executive Vice President, Business Execution of Scotts Miracle-Gro in July 2013. In that
position, Mr. Lukemire is responsible for leading the Company’s global supply chain, research and development, business
transformation, operational strategy and environmental health and safety efforts. Prior to this appointment, Mr. Lukemire served
as President, U.S. Consumer Regions since October 2011. Previously, he served as Regional President from May 2009 to September
2011, where he was responsible for leading the Company's business development, marketing and sales efforts in the Southeastern
United States. Before May 2009, Mr. Lukemire served as Executive Vice President, Global Technologies and Operations,
responsible for global supply chain, global research and development and global business information services.
15
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The common shares of Scotts Miracle-Gro (the “Common Shares”) trade on the New York Stock Exchange under the symbol
“SMG.” The quarterly high and low sale prices for the fiscal years ended September 30, 2013 and September 30, 2012 were as
follows:
FISCAL 2013
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
FISCAL 2012
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Sale Prices
High
Low
44.60
47.60
50.46
55.99
50.85
55.58
55.95
45.00
$
$
$
$
$
$
$
$
39.64
42.64
42.01
47.87
40.57
46.17
35.49
37.97
A quarterly dividend of $0.25 per Common Share was paid in December, March and June of fiscal 2011. On August 8,
2011, Scotts Miracle-Gro announced that its Board of Directors had increased the quarterly cash dividend to $0.30 per Common
Share, which was paid in September of fiscal 2011 and December, March and June of fiscal 2012. On August 9, 2012, Scotts
Miracle-Gro announced that its Board of Directors had further increased the quarterly cash dividend to $0.325 per Common Share,
which was paid in September of fiscal 2012 and December, March and June of fiscal 2013. On August 6, 2013, Scotts Miracle-
Gro announced that its Board of Directors had further increased the quarterly cash dividend to $0.4375 per Common Share, which
was paid in September of fiscal 2013. The payment of future dividends, if any, on the Common Shares will be determined by the
Board of Directors 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. The Company’s credit facility restricts
future dividend payments to an aggregate of $125 million annually through fiscal 2013 and $150 million annually beginning in
fiscal 2014 if our leverage ratio, after giving effect to any such annual dividend payment, exceeds 2.50. Our leverage ratio was
2.05 at September 30, 2013. See “NOTE 10. DEBT” of the Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K for further discussion regarding the restrictions on dividend payments.
As of November 7, 2013, there were approximately 23,700 shareholders, including holders of record and our estimate of
beneficial holders.
The following table shows the purchases of Common Shares made by or on behalf of Scotts Miracle-Gro or any “affiliated
purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of Scotts Miracle-Gro for
each of the three fiscal months in the quarter ended September 30, 2013:
Period
June 30 through July 27, 2013. . . . . . . . . . .
July 28 through August 24, 2013. . . . . . . . .
August 25 through September 30, 2013 . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
_____________
Approximate
Dollar Value of
Common Shares
That May Yet
be Purchased
Under the Plans
(3)
or Programs
298,816,796
298,816,796
298,816,796
Total Number
of Common
Shares
Purchased
(1)
Average Price
Paid per
Common
(2)
Share
Total Number
of Common
Shares Purchased
as Part of Publicly
Announced Plans
or
Programs
(3)
49.34
—
54.95
54.32
— $
— $
— $
—
184
$
— $
1,508
1,692
$
$
16
(1)
Amounts in this column represent Common Shares purchased by the trustee of the rabbi trust established by the Company
as permitted pursuant to the terms of The Scotts Company LLC Executive Retirement Plan (the “ERP”). The ERP is an
unfunded, non-qualified deferred compensation plan which, among other things, provides eligible employees the
opportunity to defer compensation above specified statutory limits applicable to The Scotts Company LLC Retirement
Savings Plan and with respect to any Executive Management Incentive Pay (as defined in the ERP), Performance Award
(as defined in the ERP) or other bonus awarded to such eligible employees. Pursuant to the terms of the ERP, each eligible
employee has the right to elect an investment fund, including a fund consisting of Common Shares (the “Scotts Miracle-
Gro Common Stock Fund”), against which amounts allocated to such employee’s account under the ERP, including
employer contributions, will be benchmarked (all ERP accounts are bookkeeping accounts only and do not represent a
claim against specific assets of the Company). Amounts allocated to employee accounts under the ERP represent deferred
compensation obligations of the Company. The Company established the rabbi trust in order to assist the Company in
discharging such deferred compensation obligations. When an eligible employee elects to benchmark some or all of the
amounts allocated to such employee’s account against the Scotts Miracle-Gro Common Stock Fund, the trustee of the
rabbi trust purchases the number of Common Shares equivalent to the amount so benchmarked. All Common Shares
purchased by the trustee are purchased on the open market and are held in the rabbi trust until such time as they are
distributed pursuant to the terms of the ERP. All assets of the rabbi trust, including any Common Shares purchased by
the trustee, remain, at all times, assets of the Company, subject to the claims of its creditors. The terms of the ERP do
not provide for a specified limit on the number of Common Shares that may be purchased by the trustee of the rabbi trust.
(2) The average price paid per Common Share is calculated on a settlement basis and includes commissions.
(3) In August 2010, the Scotts Miracle-Gro Board of Directors authorized the repurchase of up to $500 million of Common
Shares over a four-year period (through September 30, 2014). On May 4, 2011, the Scotts Miracle-Gro Board of Directors
authorized the repurchase of up to an additional $200 million of Common Shares, resulting in authority to repurchase up
to a total of $700 million of Common Shares through September 30, 2014. The dollar amounts in the “Approximate
Dollar Value” column reflect the remaining amount available to repurchase under the $700 million authorized repurchase
program.
17
ITEM 6.
SELECTED FINANCIAL DATA
Five-Year Summary(1)
Year Ended September 30,
2013
2012
2011
2010
2009
(In millions, except per share amounts)
OPERATING RESULTS:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,816.5
982.4
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
313.2
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
161.2
Income from continuing operations . . . . . . . . . . . . . . . .
(0.1)
Income (loss) from discontinued operations, net of tax .
161.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,826.1
961.3
243.6
113.2
(6.7)
106.5
$ 2,799.7
1,009.2
274.8
139.9
28.0
167.9
$ 2,873.0
1,085.6
374.4
207.7
(3.6)
204.1
$ 2,715.3
986.7
273.4
140.9
12.4
153.3
ADJUSTED OPERATING RESULTS(2):
Adjusted income from operations. . . . . . . . . . . . . . . . . . $
Adjusted income from continuing operations. . . . . . . . .
333.5
174.4
FINANCIAL POSITION:
Working capital(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current ratio(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . $
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt to total book capitalization(4). . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . .
371.2
1.7
422.3
1,937.2
44.5%
570.5
710.5
CASH FLOWS:
Cash flows from operating activities . . . . . . . . . . . . . . . $
Investments in property, plant and equipment . . . . . . . .
Investments in intellectual property . . . . . . . . . . . . . . . .
Investments in acquisitions, net of cash acquired. . . . . .
Total cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . .
Total purchases of common shares. . . . . . . . . . . . . . . . .
342.0
60.1
—
4.0
87.8
—
PER SHARE DATA:
Earnings per common share from continuing
operations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted diluted(2) . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per common share(5) . . . . . . . . . . . . . . . . . . .
Stock price at year-end. . . . . . . . . . . . . . . . . . . . . . . . . .
Stock price range—High . . . . . . . . . . . . . . . . . . . . . . . .
Stock price range—Low . . . . . . . . . . . . . . . . . . . . . . . .
2.61
2.58
2.79
1.4125
55.03
55.99
39.64
OTHER:
Adjusted EBITDA(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest coverage ratio(6). . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . . . . . . .
Common shares and dilutive potential common
shares used in diluted EPS calculation. . . . . . . . . . . . . .
390.5
2.05
6.59
61.7
62.6
$
$
$
$
$
$
$
258.9
124.9
566.4
2.3
427.4
2,074.4
56.5%
782.6
601.9
153.4
69.4
—
7.0
75.4
17.5
1.86
1.82
2.01
1.225
43.47
55.95
35.49
302.9
2.93
4.90
61.0
62.1
$
$
$
$
$
$
$
345.3
187.2
523.9
2.1
394.7
2,052.2
58.7%
795.0
559.8
122.1
72.7
—
7.9
67.9
358.7
2.16
2.11
2.83
1.05
44.60
60.62
39.99
393.0
1.98
7.47
64.7
66.2
$
$
$
$
$
$
$
401.6
226.0
381.3
1.3
381.3
2,164.0
45.2%
631.7
764.5
295.9
83.4
—
0.6
42.6
25.0
3.13
3.07
3.34
0.625
51.73
52.56
37.50
440.1
2.00
9.40
66.3
67.6
$
$
$
$
$
$
$
302.0
159.0
382.7
1.3
356.6
2,220.1
58.1%
810.1
584.5
264.6
72.0
3.4
10.7
33.4
—
2.17
2.13
2.40
0.50
42.95
44.25
18.27
350.5
3.20
6.21
65.0
66.1
18
(1)
On July 8, 2009, Scotts Miracle-Gro announced that its wholly-owned subsidiary, Smith & Hawken, Ltd., had adopted
a plan to close the Smith & Hawken business. During our first quarter of fiscal 2010, all Smith & Hawken stores were
closed and substantially all operational activities of Smith & Hawken were discontinued. As a result, effective in our
first quarter of fiscal 2010, we classified Smith & Hawken as discontinued operations in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). Smith & Hawken® is a registered trademark
of Target Brands, Inc. The Company sold the Smith & Hawken brand and certain intellectual property rights related
thereto to Target Brands, Inc. on December 30, 2009, and subsequently changed the name of the subsidiary entity formerly
known as Smith & Hawken, Ltd. to Teak 2, Ltd. References in this Annual Report on Form 10-K to Smith & Hawken
refer to the subsidiary entity, not the brand itself.
On February 28, 2011, we completed the sale of Global Pro to ICL. In conjunction with the transaction, Scotts LLC and
ICL entered into several product supply agreements which are generally up to five years in duration, as well as various
trademark and technology licensing agreements with varying durations. Our continuing cash inflows and outflows related
to these agreements are not considered to be significant in relation to the overall cash flows of Global Pro. Furthermore,
none of these agreements permit us to influence the operating or financial policies of Global Pro under the ownership of
ICL. Therefore, Global Pro met the criteria for presentation as discontinued operations. As such, effective in the first
quarter of fiscal 2011, we classified Global Pro as discontinued operations in accordance with GAAP.
In the fourth quarter of fiscal 2012, the Company completed the wind down of the Company's professional seed business
(“Pro Seed”). As a result, effective in its fourth quarter of fiscal 2012, we classified Pro Seed as discontinued operations
in accordance with GAAP.
The Selected Financial Data has been retrospectively updated to recast Smith & Hawken, Global Pro and Pro Seed as
discontinued operations for each period presented.
(2)
The Five-Year Summary includes non-GAAP financial measures, as defined in Item 10(e) of SEC Regulation S-K, of
adjusted operating income, adjusted income from continuing operations and adjusted diluted earnings per share from
continuing operations, which exclude costs or gains related to discrete projects or transactions. Items excluded during
the five-year period ended September 30, 2013 consisted of charges or credits relating to refinancings, impairments,
restructurings, product registration and recall matters, discontinued operations, and other unusual items such as costs or
gains related to discrete projects or transactions that are apart from and not indicative of the results of the operations of
the business. The comparable GAAP measures are reported operating income, reported income from continuing operations
and reported diluted earnings per share from continuing operations. Our management believes that these non-GAAP
measures are the most indicative of our earnings capabilities and that disclosure of these non-GAAP financial measures
therefore provides useful information to investors or other users of the financial statements, such as lenders. A
reconciliation of the non-GAAP to the most directly comparable GAAP measures is presented in the following tables:
Year Ended September 30,
2013
2012
2011
2010
2009
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment, restructuring and other charges . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . . . . .
Adjusted income from operations . . . . . . . . . . . . . . . . . . . . . $
Income from continuing operations . . . . . . . . . . . . . . . . . . . . $
Impairment, restructuring and other charges, net of tax . . . .
Product registration and recall matters, net of tax . . . . . . . . .
Adjusted income from continuing operations . . . . . . . . . . . . $
Diluted earnings per share from continuing operations. . . . . $
Impairment, restructuring and other charges, net of tax . . . .
Product registration and recall matters, net of tax . . . . . . . . .
Adjusted diluted earnings per share from continuing
operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
$
$
$
$
313.2
20.3
—
333.5
161.2
13.2
—
174.4
2.58
0.21
—
(In millions, except per share data)
243.6
7.1
274.8
55.9
$
$
374.4
18.5
$
$
$
$
8.2
258.9
113.2
4.3
7.4
124.9
1.82
0.07
0.12
$
$
$
$
14.6
345.3
139.9
35.3
12.0
187.2
2.11
0.53
0.19
8.7
401.6
207.7
12.7
5.6
226.0
3.07
0.19
0.08
$
$
$
$
$
273.4
—
28.6
302.0
140.9
—
18.1
159.0
2.13
—
0.27
2.79
$
2.01
$
2.83
$
3.34
$
2.40
(3)
Working capital is calculated as current assets minus current liabilities. Current ratio is calculated as current assets divided
by current liabilities.
19
(4)
(5)
(6)
The total debt to total book capitalization percentage is calculated by dividing total debt by total debt plus shareholders’
equity.
Scotts Miracle-Gro began paying a quarterly dividend of $0.125 per Common Share in the fourth quarter of fiscal 2005.
On August 10, 2010, Scotts Miracle-Gro announced that its Board of Directors had increased the quarterly cash dividend
to $0.25 per Common Share, which was first paid in the fourth quarter of fiscal 2010. On August 8, 2011, Scotts Miracle-
Gro announced that its Board of Directors had increased the quarterly cash dividend to $0.30 per Common Share, which
was first paid in the fourth quarter of fiscal 2011. On August 9, 2012, Scotts Miracle-Gro announced that its Board of
Directors had further increased the quarterly cash dividend to $0.325 per Common Share, which was first paid in the
fourth quarter of fiscal 2012. On August 6, 2013, Scotts Miracle-Gro announced that its Board of Directors had further
increased the quarterly cash dividend to $0.4375 per Common Share, which was first paid in the fourth quarter of fiscal
2013.
We view our credit facility as material to our ability to fund operations, particularly in light of our seasonality. Please
refer to “ITEM 1A. RISK FACTORS — Our indebtedness could limit our flexibility and adversely affect our financial
condition” of this Annual Report on Form 10-K for a more complete discussion of the risks associated with our debt and
our credit facility and the restrictive covenants therein. Our ability to generate cash flows sufficient to cover our debt
service costs is essential to our ability to maintain our borrowing capacity. We believe that Adjusted EBITDA provides
additional information for determining our ability to meet debt service requirements. The presentation of Adjusted
EBITDA herein is intended to be consistent with the calculation of that measure as required by our borrowing arrangements,
and used to calculate a leverage ratio (maximum of 3.50 at September 30, 2013) and an interest coverage ratio (minimum
of 3.50 for the year ended September 30, 2013). Leverage ratio is calculated as average total indebtedness, as described
in our credit facility, relative to Adjusted EBITDA. Interest coverage ratio is calculated as Adjusted EBITDA divided
by interest expense, as described in our credit facility, and excludes costs related to refinancings. Our leverage ratio was
2.05 at September 30, 2013 and our interest coverage ratio was 6.59 for the year ended September 30, 2013. Please refer
to “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — Liquidity and Capital Resources” of this Annual Report on Form 10-K for a discussion of our credit
facility.
In accordance with the terms of our credit facility, Adjusted EBITDA is calculated as net income or loss before interest,
taxes, depreciation and amortization as well as certain other items such as the impact of the cumulative effect of changes
in accounting, costs associated with debt refinancing and other non-recurring, non-cash items affecting net income. In
addition, non-recurring cash items affecting net income that are incurred between April 3, 2011 and June 30, 2012 in an
aggregate amount not to exceed $40 million are also excluded from the determination of Adjusted EBITDA. Our
calculation of Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash
flows from operating activities as determined by GAAP. We make no representation or assertion that Adjusted EBITDA
is indicative of our cash flows from operating activities or results of operations. We have provided a reconciliation of
Adjusted EBITDA to income from continuing operations solely for the purpose of complying with SEC regulations and
not as an indication that Adjusted EBITDA is a substitute measure for income from continuing operations.
A numeric reconciliation of Adjusted EBITDA to income from continuing operations is as follows:
20
Year Ended September 30,
2013
2012
2011
2010
2009
161.2
$
(In millions, except per share data)
113.2
139.9
$
$
207.7
$
140.9
92.8
68.6
82.7
123.5
80.2
(0.1)
(0.2)
—
59.2
—
54.9
11.2
11.2
—
0.3
—
(5.0)
(2.0)
—
61.8
—
51.5
10.9
4.7
0.2
(1.0)
—
(11.5)
(7.2)
1.2
51.0
1.7
50.3
11.4
64.3
8.7
0.5
—
390.5
$
302.9
$
393.0
$
(3.6)
3.1
—
43.2
3.7
48.5
10.9
18.5
1.0
—
(16.4)
440.1
12.4
(22.8)
—
52.4
4.0
47.9
12.5
7.4
2.9
—
12.7
$
350.5
Income from continuing operations . . . . . . . . . . . . . . . . . . . . $
Income tax expense from continuing operations . . . . . . . . . .
Income (loss) from discontinued operations, net of tax
(excluding Global Pro sale) . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) from discontinued operations .
Costs related to refinancings . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense from discontinued operations . . . . . . . . . . .
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on impairment and other charges . . . . . . . . . . . . . . . . .
Product registration and recall matters, non-cash portion . . .
Mark-to-market adjustments on derivatives . . . . . . . . . . . . .
Smith & Hawken closure process, non-cash portion . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion is to provide an understanding of our financial condition and results of operations by focusing
on changes in certain key measures from year-to-year. Management’s Discussion and Analysis (“MD&A”) is divided into the
following sections:
•
•
•
•
•
•
Executive summary
Results of operations
Segment results
Liquidity and capital resources
Regulatory matters
Critical accounting policies and estimates
Executive Summary
We are dedicated to delivering strong, long-term financial results and outstanding shareholder returns by providing products
of superior quality and value to enhance consumers’ lawn and garden environments. We are a leading manufacturer and marketer
of consumer branded products for lawn and garden care in North America and Europe. We are Monsanto’s exclusive agent for
the marketing and distribution of consumer Roundup® non-selective herbicide products within the United States and other
contractually specified countries. We have a presence in similar consumer branded products in Australia, the Far East and Latin
America. We also operate Scotts LawnService®, the second largest U.S. lawn care service business. Our operations are divided
into the following reportable segments: Global Consumer and Scotts LawnService®.
In fiscal 2013, we progressed a number of key initiatives which focused on: (1) margin improvement and SG&A reduction
and (2) stronger balance sheet and operating cash flow with a bias towards returning cash to shareholders. After a late start to the
season impacting first half results, strong consumer engagement and our initiatives came together in the second half of the year
to lift full year results. We also continued our long-term focus on innovation and global expansion.
As a leading consumer branded lawn and garden company, our product development and marketing efforts are largely
focused on providing innovative and differentiated products and on continually increasing brand and product awareness to inspire
consumers and create retail demand. We have successfully applied this model for a number of years by focusing on research and
development and investing approximately 5 - 6% of our annual net sales in advertising to support and promote our products and
brands. We continually explore new and innovative ways to communicate with consumers. We believe that we receive a significant
return on these expenditures and anticipate a similar commitment to research and development, advertising and marketing
investments in the future, with the continuing objective of driving category growth and profitably increasing market share.
Our sales in any one year are susceptible to weather conditions in the markets in which our products are sold. For instance,
periods of abnormally wet or dry weather can adversely impact sale of certain products, while increasing demand for other products.
We believe that our diversified product line and our broad geographic diversification reduce this risk, although to a lesser extent
in a year where unfavorable weather is geographically wide-spread and extends across a significant portion of the lawn and garden
season. We also believe that weather conditions in any one year, positive or negative, do not materially alter longer-term category
growth trends.
Due to the nature of the lawn and garden business, significant portions of our products ship to our retail customers during
our second and third fiscal quarters, as noted in the chart below. Our annual sales are further concentrated in the second and third
fiscal quarters by retailers who rely on our ability to deliver products closer to when consumers buy our products, thereby reducing
retailers’ pre-season inventories.
22
Percent of Net Sales from Continuing
Operations by Quarter
2013
2012
2011
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3%
36.2%
40.8%
15.7%
7.1%
41.4%
37.3%
14.2%
8.1%
40.1%
37.4%
14.4%
Management focuses on a variety of key indicators and operating metrics to monitor the financial condition and performance
of the continuing operations of our business. These metrics include consumer purchases (point-of-sale data), market share, category
growth, net sales (including unit volume, pricing, and foreign exchange movements), gross profit margins, advertising to net sales
ratios, income from operations, income from continuing operations, net income and earnings per share. To the extent applicable,
these measures are evaluated with and without impairment, restructuring and other charges as well as product registration and
recall matters, which management believes are not indicative of the earnings capabilities of our businesses. We also focus on
measures to optimize cash flow and return on invested capital, including the management of working capital and capital
expenditures.
In August 2010, the Scotts Miracle-Gro Board of Directors authorized the repurchase of up to $500 million of Scotts
Miracle-Gro’s common shares (the “Common Shares”) over a four-year period through September 30, 2014. In May 2011, the
Scotts Miracle-Gro Board of Directors authorized the repurchase of up to an additional $200 million of the Common Shares,
resulting in authority to repurchase up to a total of $700 million of the Common Shares through September 30, 2014. Since
inception of the program in the fourth quarter of fiscal 2010 through September 30, 2013, Scotts Miracle-Gro has repurchased 7.8
million Common Shares for $401.2 million to be held in treasury, leaving $298.8 million authorized for repurchases through
September 30, 2014.
Further, on August 6, 2013, we announced that the Scotts Miracle-Gro Board of Directors increased our quarterly dividend
from $0.325 to $0.4375 per common share. The decision to increase the amount of cash we intend to return to our shareholders
reflects our continued confidence in the business and our desire to maintain a consistent capital structure.
Results of Operations
We classified our professional seed business and Global Professional business (excluding our non-European professional
business, “Global Pro”) as discontinued operations, for all periods presented, beginning in our fourth quarter of fiscal 2012 and
our first quarter of fiscal 2011, respectively. As a result, and unless specifically stated, all discussions regarding results for the
fiscal years ended September 30, 2013, 2012 and 2011 reflect results from our continuing operations.
23
The following table sets forth the components of income and expense as a percentage of net sales:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales—impairment, restructuring and other. . . . . . . . . . . . . . .
Cost of sales—product registration and recall matters. . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other. . . . . . . . . . . . . . . . . . . . . . . . . . .
Product registration and recall matters. . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . .
Income tax expense from continuing operations . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
Year Ended September 30,
2013
2012
2011
100.0%
65.0
0.1
—
34.9
23.5
0.6
—
(0.3)
11.1
—
2.1
9.0
3.3
5.7
—
5.7%
100.0%
66.0
—
—
34.0
25.0
0.3
0.3
(0.1)
8.5
—
2.2
6.3
2.4
3.9
(0.2)
3.7%
100.0%
63.2
0.7
0.1
36.0
24.4
1.3
0.4
—
9.9
0.1
1.8
8.0
3.0
5.0
1.0
6.0%
Net sales for fiscal 2013 decreased 0.3% to $2.82 billion from $2.83 billion in fiscal 2012. Net sales for fiscal 2012 increased
0.9% from $2.80 billion in fiscal 2011. The change in net sales was attributable to the following:
Year Ended September 30,
2013
2012
Volume. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.9)%
1.6
(0.2)
0.2
(0.3)%
0.7%
0.7
(0.7)
0.2
0.9%
The decrease in net sales for the year ended September 30, 2013 was primarily driven by:
•
•
•
•
•
•
decreased volume in our Global Consumer segment, driven by a decrease in sales within the U.S. of fertilizers, controls
and wild bird food products, partially offset by increases within the U.S. for sales of mulch and grass seed products;
a decline in net sales attributable to reimbursements associated with our Marketing Agreement with Monsanto;
decreased sales in Corporate & Other related to ICL supply agreements, which were entered into in connection with the
sale of Global Pro in February 2011;
an unfavorable impact of foreign exchange rates as a result of the strengthening of the U.S. dollar relative to other
currencies;
partially offset by the favorable impact of increased pricing in the Global Consumer segment, primarily in the U.S.; and
also partially offset by increased volume within our Scotts LawnService® segment driven by higher customer count and
a weather driven delay of sales from the fourth quarter of fiscal 2012 to the first quarter of fiscal 2013.
24
The increase in net sales for the year ended September 30, 2012 was primarily driven by:
•
•
•
•
increased volume in our Global Consumer segment, driven by an increase in sales within the U.S. of mulch and controls
products, offset by declines within the U.S. of wild bird food, grass seed and plant food products; international sales were
flat to fiscal 2011, excluding changes in foreign exchange rates;
increased volume within our Scotts LawnService® segment driven by higher customer count;
increased sales in Corporate & Other related to ICL supply agreements, which were entered into in connection with the
sale of Global Pro in February 2011; and
partially offset by the unfavorable impact of foreign exchange rates as a result of the strengthening of the U.S. dollar
relative to other currencies.
Cost of Sales
The following table shows the major components of cost of sales:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Manufacturing labor and overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution and warehousing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roundup® reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2013
2012
(In millions)
2011
1,113.1
332.4
324.4
62.0
1,831.9
2.2
—
1,834.1
$
$
1,142.2
321.9
320.7
79.6
1,864.4
—
0.4
1,864.8
$
$
1,079.5
319.3
306.5
63.7
1,769.0
18.3
3.2
1,790.5
Factors contributing to the change in cost of sales are outlined in the following table:
Material costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Volume and product mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roundup® reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2013
2012
(In millions)
(8.6) $
(1.5)
(17.6)
(4.8)
(32.5)
2.2
(0.4)
(30.7) $
68.3
25.4
15.9
(14.2)
95.4
(18.3)
(2.8)
74.3
The decrease in cost of sales, excluding impairment, restructuring and other charges, and product registration and recall matters
for fiscal 2013 was primarily driven by:
•
•
•
•
lower reimbursements attributable to our Marketing Agreement with Monsanto;
a decline in our growing media material costs due to our product cost-out initiatives, partially offset by increased costs
of fertilizer inputs and packaging;
decreased volume in our Global Consumer segment, driven by a decrease in sales within the U.S. of fertilizers, controls
and wild bird food products, partially offset by increases within the U.S. for sales of growing media and grass seed
products; and
a favorable impact of foreign exchange rates as a result of the strengthening of the U.S. dollar relative to other currencies.
25
The increase in cost of sales, excluding impairment, restructuring and other charges, and product registration and recall matters
for fiscal 2012 was primarily driven by:
•
•
•
•
the increase in material costs primarily related to packaging for products and fertilizer inputs;
the impact of higher sales volume, including increased distribution costs resulting from an early season surge in consumer
activity and continued and unplanned surge in mulch volume;
higher reimbursements attributable to our Marketing Agreement with Monsanto; and
partially offset by the favorable impact of foreign exchange rates as a result of the strengthening of the U.S. dollar relative
to other currencies.
Gross Profit
As a percentage of net sales, our gross profit rate was 34.9% for fiscal 2013 compared to 34.0% for fiscal 2012. As a
percentage of net sales, our gross profit rate was 34.0% for fiscal 2012 compared to 36.0% for fiscal 2011. Factors contributing
to the change in gross profit rate are outlined in the following table:
Pricing
Material costs
Product mix and volume:
Roundup® commissions and reimbursements
Corporate & Other
Scotts LawnService®
Global Consumer mix and volume
Impairment, restructuring and other
Product registration and recall matters
Change in gross profit rate
Year Ended September 30,
2013
2012
1.0%
0.3
0.2
0.1
0.1
(0.7)
1.0
(0.1)
—
0.9%
0.5 %
(2.5)
(0.1)
(0.2)
—
(0.5)
(2.8)
0.7
0.1
(2.0)%
The increase in the gross profit rate, excluding impairment, restructuring and other charges and product registration and recall
matters, for fiscal 2013, was primarily driven by:
•
•
•
•
favorable impact of increased pricing for the Global Consumer segment, primarily in the U.S.;
decreased material costs in our Global Consumer segment due to a decline in growing media material costs resulting
from product cost-out initiatives, partially offset by increased material costs for fertilizer inputs;
impact of zero margin dollar reimbursements, attributable to our Marketing Agreement with Monsanto; and
partially offset by decreased volume in our Global Consumer segment resulting in reduced leverage of fixed manufacturing
and warehousing costs.
The decrease in the gross profit rate, excluding impairment, restructuring and other charges and product registration and recall
matters, for fiscal 2012, was primarily driven by:
•
•
•
•
increased material costs attributable primarily to packaging for products and fertilizer inputs;
negative product mix, driven by increased sales of our mulch products within the U.S., and international;
increased costs for distribution as a result of an early season surge in consumer activity and continued and unplanned
surge in mulch volume; and
increased sales associated with our supply agreements with ICL, which commenced with the sale of Global Pro in February
2011 and do not generate profit.
26
Selling, General and Administrative Expenses
The following table shows the major components of Selling, General and Administrative expenses (“SG&A”):
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Advertising as a percentage of net sales . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other selling, general and administrative . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2013
2012
2011
(In millions, except percentage figures)
142.2
$
168.9
$
5.0%
10.3
46.7
8.2
453.7
661.1
$
6.0%
12.5
50.8
8.2
465.3
705.7
$
140.7
5.0%
15.9
50.9
9.5
469.3
686.3
Advertising expense decreased $26.7 million or 15.8% to $142.2 million in fiscal 2013 compared to $168.9 million in fiscal
2012. This decrease was primarily attributable to our planned reduction in media investment, reduced spending due to delay in
the fiscal 2013 lawn and garden season and our media purchasing efficiencies within the Global Consumer segment. Advertising
expense in fiscal 2012 increased $28.2 million compared to fiscal 2011, driven by our planned increase in media and marketing
initiatives, partially offset by $1.1 million of changes in foreign currency rates.
Share-based compensation decreased $2.2 million or 17.6% to $10.3 million in fiscal 2013 compared to $12.5 million in
fiscal 2012. The decrease in share-based compensation expense in fiscal 2013 was primarily due to the forfeiture of shares
associated with the departure of certain key executives. Fiscal 2012 share-based compensation expense declined $3.4 million
primarily due to the acceleration of expense in fiscal 2011 for certain terminated employees. The majority of our share-based
awards vest over three years, with the associated expense recognized ratably over the vesting period. In certain cases, such as
individuals who are eligible for early retirement based on their age and years of service, the vesting period is shorter than three
years.
Amortization expense was $8.2 million in fiscal 2013, compared to $8.2 million and $9.5 million in fiscal 2012 and fiscal
2011, respectively. The decline in fiscal 2012 was driven by assets that became fully amortized in fiscal 2011 and due to impairment
of certain intangible assets in fiscal 2011.
Other SG&A decreased $11.6 million or 2.5% in fiscal 2013 compared to fiscal 2012. The primary driver of the decrease
was due to a decline in outside consulting expenses, selling and marketing expenditures due to cost productivity initiatives, partially
offset by higher compensation expense, including incentive compensation, healthcare and severance. In fiscal 2012, Other SG&A
spending was roughly flat compared to fiscal 2011.
Impairment, Restructuring and Other (included in SG&A)
The following table shows the breakdown of Impairment, Restructuring and Other Charges (included in SG&A):
Restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment impairments . . . . . . . . . . . . . . . .
Goodwill and intangible asset impairments . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2013
2012
(In millions)
2011
2.2
—
15.9
18.1
$
$
1.8
2.1
3.2
7.1
$
$
18.2
—
19.4
37.6
In fiscal 2013 we recorded restructuring charges related to an international restructuring plan to reduce headcount and
streamline management decision making within the Global Consumer segment. During fiscal 2013, we incurred $6.9 million in
restructuring costs related to termination benefits provided to employees who were involuntarily terminated and special termination
benefits provided to certain employees upon future separation, which included $0.5 million related to curtailment gain for our
international defined benefit pension plans. During the first quarter of fiscal 2013, the Company recognized income of $4.7 million
related to the reimbursement by a vendor for a portion of the costs incurred for the development and commercialization of products
including the active ingredient MAT 28 for the Global Consumer segment.
27
During the first quarter of 2013, the Company recognized a $4.3 million asset impairment charge as a result of issues with
the commercialization of an insect repellent technology for the Global Consumer segment. Also, as a result of the Company's
annual impairment review performed in the fourth quarter of fiscal 2013, the Company recognized an impairment charge for a
non-recurring fair value adjustment of $11.6 million within the Global Consumer segment related to the Ortho® brand and certain
sub-brands of Ortho®. The fair value was calculated based upon the evaluation of the historical performance and future growth
of the Ortho® business.
In fiscal 2012, in continuation of the 2011 restructuring plan, we incurred an additional $1.6 million in restructuring costs
related to termination benefits provided to employees who accepted voluntary retirement and special termination benefits provided
to certain employees upon future separation as well as $0.2 million related to curtailment charges for our U.S. defined benefit
pension and U.S. retiree medical plans. Additionally, we recognized a $5.3 million asset impairment charge as a result of issues
with commercialization of products including the active ingredient MAT 28 for the Global Consumer segment. Further, we have
previously expensed product development and marketing costs associated with the previously planned launch of products containing
MAT 28 and are evaluating our options for recovering those costs.
In fiscal 2011 we recorded restructuring charges designed to streamline management decision making and continue the
regionalization of our operating structure, with the objective of reinvesting the savings generated in innovation and growth
initiatives. During fiscal 2011, we incurred $23.7 million in restructuring costs related to termination benefits provided to employees
who were involuntarily terminated and special termination benefits provided to certain employees upon future separation, as well
as $2.3 million related to curtailment charges for our U.S. defined benefit pension and U.S. retiree medical plans. In addition, we
recognized charges of $2.3 million for other intangible asset impairments and $1.4 million for restructuring and other charges.
Our fourth quarter fiscal 2011 impairment analysis resulted in a non-cash charge of $17.1 million, primarily attributed to
the intangible assets and goodwill associated with our wild bird food business, including Morning Song tradename. Losses
generated by this business over the preceding two years combined with a revised long-term outlook had negatively impacted the
value of the business.
Product Registration and Recall Matters (included in SG&A)
As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2012, in
fiscal year 2012, the Company resolved the previously disclosed U.S. EPA and U.S. Department of Justice (“U.S. DOJ”)
investigations into pesticide product registration issues. Product registration and recall costs were $7.8 million and $11.4 million
in fiscal 2012 and fiscal 2011, respectively. For fiscal 2013, there were no product registration and recall costs. Fiscal 2012 and
fiscal 2011 costs include additional reserves established in connection with the fiscal 2012 settlement of previously disclosed U.S.
EPA and U.S. DOJ investigations, as well as third-party compliance review, legal and consulting fees associated with these
investigations. Fiscal 2011 costs primarily related to third-party compliance review, legal and consulting fees associated with
these investigations. The Company does not expect to incur any additional costs related to these investigations, as they were
settled in the fourth quarter of fiscal 2012.
Other Income, net
Other income, net, was $10.0 million, $2.9 million and $0.9 million in fiscal 2013, fiscal 2012 and fiscal 2011 respectively.
The increase in other income for fiscal 2013 is primarily due to the sale of peat bog land in fiscal 2013 in the United Kingdom for
a gain of $2.3 million and a non-recurring impairment charge of $4.4 million incurred in fiscal 2012 resulting from the revaluation
of the Company's aircraft. Other income is comprised of activities outside our normal business operations, such as royalty income
from the licensing of certain of our tradenames, franchise fee income from our Scotts LawnService® business, foreign exchange
gains/losses and gains/losses from the sale of non-inventory assets. The fiscal 2012 changes from fiscal 2011 were not significant.
Income from Operations
Income from operations in fiscal 2013 was $313.2 million compared to $243.6 million in fiscal 2012, an increase of $69.6
million, or 28.6%. Excluding impairment, restructuring and other charges and product registration and recall costs, income from
operations increased by $74.6 million, or 28.8%, in fiscal 2013, primarily driven by higher gross profit and a decrease in SG&A
spending.
Income from operations in fiscal 2012 was $243.6 million compared to $274.8 million in fiscal 2011, a decrease of $31.2
million, or 11.4%. Excluding impairment, restructuring and other charges and product registration and recall costs, income from
operations decreased by $86.4 million, or 25.0%, in fiscal 2012, primarily driven by lower gross profit and additional SG&A
spending.
28
Interest Expense
Interest expense in fiscal 2013 was $59.2 million compared to $61.8 million and $51.0 million in fiscal 2012 and fiscal
2011, respectively. The decline in fiscal 2013 was primarily due to a decrease in average borrowings, partially offset by an increase
of 24 basis points in our weighted average interest rate. Excluding the impact of foreign exchange rates, average borrowings
decreased by approximately $80.9 million during fiscal 2013. The decline in average borrowings was driven by lower working
capital needs associated with lower production of inventory and fewer raw material purchases. The increase in fiscal 2012 was
primarily due to an increase in our average borrowings. Excluding the impact of foreign exchange rates, average borrowings
increased by approximately $118.3 million during fiscal 2012.
Income Tax Expense
A reconciliation of the federal corporate income tax rate and the effective tax rate on income from continuing operations
before income taxes is summarized below:
Year Ended September 30,
2013
2012
2011
Statutory income tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . .
Domestic production activities deduction permanent difference
Effect of other permanent differences . . . . . . . . . . . . . . . . . . . . .
Research and experimentation and other federal tax credits . . . .
Resolution of prior tax contingencies . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
0.8
2.9
(2.1)
0.8
(0.3)
0.2
(0.8)
36.5%
35.0%
(0.5)
3.1
(1.5)
2.4
(0.1)
(0.9)
0.2
37.7%
35.0%
(0.3)
2.8
(2.3)
1.9
(0.2)
0.7
(0.4)
37.2%
The effective tax rate for continuing operations was 36.5% for fiscal 2013, compared to 37.7% for fiscal 2012 and 37.2%
for fiscal 2011. Excluding reserves established for product registrations and recall matters, the effective tax rate for continuing
operations was 36.5%, 36.5% and 36.0% for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
Income and Earnings per Share from Continuing Operations
We reported income from continuing operations of $161.2 million, or $2.58 per diluted share, in fiscal 2013 compared to
income from continuing operations of $113.2 million, or $1.82 per diluted share, in fiscal 2012. In fiscal 2013, we incurred costs
of $20.3 million relating to impairment, restructuring and other charges. In fiscal 2012, we incurred $7.1 million of impairment,
restructuring and other charges, as well as $8.2 million in costs associated with product registration and recall matters. Excluding
these items, adjusted income from continuing operations was $174.4 million in fiscal 2013 compared to $124.9 million in fiscal
2012, an increase of $49.5 million, primarily driven by higher gross profit and lower SG&A spending and interest expense. Diluted
weighted-average common shares outstanding increased from 62.1 million in fiscal 2012 to 62.6 million in fiscal 2013. The
increase was primarily driven by the exercise of stock options and the issuance of stock for vested restricted share based awards
partially offset by a decrease in the number of dilutive equivalent shares. Dilutive equivalent shares for fiscal 2013 and fiscal
2012 were 0.9 million and 1.1 million, respectively. The decrease in equivalent shares was primarily driven by the exercise of
stock options, partially offset by an increase in our average share price.
We reported income from continuing operations of $113.2 million, or $1.82 per diluted share, in fiscal 2012 compared to
income from continuing operations of $139.9 million, or $2.11 per diluted share, in fiscal 2011. In fiscal 2012, we incurred costs
of $7.1 million relating to impairment, restructuring and other charges, as well as $8.2 million in costs associated with product
registration and recall matters. In fiscal 2011, we incurred $55.9 million of impairment charges, as well as $14.6 million in costs
associated with product registration and recall matters. Excluding these items, adjusted income from continuing operations was
$124.9 million in fiscal 2012 compared to $187.2 million in fiscal 2011, a decrease of $62.3 million, primarily driven by lower
gross profit, higher SG&A spending and interest expense. Diluted weighted-average common shares outstanding decreased from
66.2 million in fiscal 2011 to 62.1 million in fiscal 2012. The decrease was primarily driven by repurchases of our common shares
and a decrease in the number of dilutive equivalent shares, partially offset by the exercise of stock options. Dilutive equivalent
shares for fiscal 2012 and fiscal 2011 were 1.1 million and 1.5 million, respectively. The decrease in equivalent shares was due
to a decrease in our average share price.
29
Income (loss) from Discontinued Operations
In our fourth quarter of fiscal 2012, we completed the wind down of the professional seed business. As a result, we began
presenting this business within discontinued operations. In our second quarter of fiscal 2011 we completed the sale of Global Pro
to ICL. As a result of the then-pending sale, effective in the first quarter of fiscal 2011, we began presenting Global Pro as
discontinued operations.
Loss from discontinued operations, net of tax, was $0.1 million in fiscal 2013, while a loss of $6.7 million and income of
$28.0 million were recognized in fiscal 2012 and fiscal 2011, respectively. Fiscal 2013 and fiscal 2012 included activity associated
with the wind down and disposal of the non-European professional seed business. Fiscal 2011 included a net after-tax gain of
$39.5 million on the sale of Global Pro to ICL.
Segment Results
Our continuing operations are divided into the following reportable segments: Global Consumer and Scotts LawnService®.
This division of reportable segments is consistent with how the segments report to and are managed by the chief operating decision
maker of the Company. We have made reclassifications to prior period segment amounts as a result of the change in our internal
organization structure associated with the sale of a significant majority of our previously reported Global Professional segment,
which is now reported in discontinued operations. Corporate & Other includes revenues and expenses associated with the
Company’s supply agreements with ICL and the amortization related to the Roundup® Marketing Agreement, as well as corporate
general and administrative expenses and certain other income/expense items not allocated to the business segments.
We evaluate segment performance based on several factors, including income from continuing operations before
amortization, product registration and recall costs, and impairment, restructuring and other charges. Management uses this measure
of operating profit to evaluate segment performance because we believe this measure is the most indicative of performance trends
and the overall earnings potential of each segment.
The following tables present segment information:
Net Sales by Segment
Year Ended September 30,
2013
2012
(In millions)
2011
Global Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService® . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,527.5
257.8
2,785.3
31.2
2,816.5
$
$
2,539.2
245.8
2,785.0
41.1
2,826.1
Income from Continuing Operations before Income Taxes by Segment
Year Ended September 30,
2013
2012
(In millions)
Global Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService® . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
406.4
28.7
435.1
(91.2)
(10.4)
—
(20.3)
—
(59.2)
254.0
$
$
338.3
27.0
365.3
(96.3)
(10.1)
(8.2)
(7.1)
—
(61.8)
181.8
$
$
$
$
2,533.2
235.6
2,768.8
30.9
2,799.7
2011
425.0
25.9
450.9
(95.0)
(10.6)
(14.6)
(55.9)
(1.2)
(51.0)
222.6
30
Global Consumer
Global Consumer segment net sales decreased 0.5% from $2.54 billion in fiscal 2012 to $2.53 billion in fiscal 2013. The
change in fiscal 2013 net sales was unfavorably impacted by volume and foreign exchange rates of 2.2% and 0.3%, respectively,
partially offset by favorable pricing of 1.9% and acquisitions of 0.1%. Net sales in the U.S. decreased by 0.5%, driven by declines
in reimbursements attributable to our Marketing Agreement with Monsanto, sales of our controls, wild bird food and plant food
products, partially offset by an increase in pricing, and increases in sales of mulch and grass seed products. Net sales outside of
the U.S. decreased 0.2% in fiscal 2013, primarily attributable to volume declines in Europe and unfavorable effects of foreign
currency changes as a result of the strengthening of the U.S. dollar relative to other currencies, partially offset by volume increases
in Asia Pacific. Excluding the impact of foreign currency rates, net sales outside of the U.S. increased 1.1% compared to fiscal
2012.
Global Consumer segment income for fiscal 2013 was $406.4 million, an increase of $68.1 million, or 20.1%, compared to
fiscal 2012. Excluding the impact of foreign exchange movements, segment income increased by $67.3 million, or 20.0%, from
fiscal 2012. The increase in segment income for fiscal 2013 was primarily driven by the favorable impact of pricing, decreased
material costs and a decrease in SG&A expenses resulting from our product cost-out initiatives.
Global Consumer segment net sales increased 0.2% from $2.53 billion in fiscal 2011 to $2.54 billion in fiscal 2012. The
increase in fiscal 2012 net sales was favorably impacted by volume and pricing of 0.4% and 0.6%, respectively, offset by unfavorable
foreign exchange rates of 0.8%. Net sales in the U.S. increased by 1.3%, driven by an increase in pricing, higher sales of our
controls and mulch products, and the national launch of our new Scotts Snap® spreader system, partially offset by declines in sales
of grass seed, wild bird food and plant food products. Net sales outside of the U.S. decreased 4.0% in fiscal 2012, primarily
attributable to the unfavorable effect of foreign currency changes as a result of the strengthening of the U.S. dollar relative to other
currencies. Excluding the impact of foreign currency rates, net sales outside of the U.S. were roughly flat compared to fiscal 2011.
Global Consumer segment income for fiscal 2012 was $338.3 million, a decrease of $86.7 million, or 20.4%, compared to
fiscal 2011. Excluding the impact of foreign exchange movements, segment income decreased by $85.6 million, or 20.1%, for
fiscal 2011. The decrease in segment income for fiscal 2012 was primarily driven by gross profit decline and an increase in SG&A
expenses. The decreased gross profit rate was primarily the result of increased material costs primarily due to packaging and
fertilizer inputs, negative product mix within the U.S. driven by increased sales of mulch products, and increased distribution and
warehousing as a result of an early season surge in consumer activity and continued and unplanned surge in mulch volume. The
increase in SG&A spending primarily related to costs associated with our planned increase in media and marketing initiatives.
Scotts LawnService®
Scotts LawnService® net sales increased by $12.0 million, or 4.9%, to $257.8 million in fiscal 2013, primarily due to increased
customer count, acquisitions in fiscal 2013, and a weather driven delay of sales from the fourth quarter of fiscal 2012 into the first
quarter of fiscal 2013. Scotts LawnService® segment income increased $1.7 million to $28.7 million in fiscal 2013. The improved
operating results were driven by higher net sales and lower product costs, partially offset by higher SG&A, which was primarily
the outcome of higher marketing and selling expenses.
Scotts LawnService® net sales increased by $10.2 million, or 4.3%, to $245.8 million in fiscal 2012, primarily due to increased
customer retention, the full year impact of acquisitions and new customer sales. Scotts LawnService® segment income increased
$1.1 million to $27.0 million in fiscal 2012. The improved operating results were driven by higher net sales and improved labor
productivity, partially offset by higher product costs and SG&A, which was primarily the outcome of higher performance based
variable compensation.
Corporate & Other
Net sales for Corporate & Other decreased $9.9 million to $31.2 million in fiscal 2013, primarily due to our ICL supply
agreements, which commenced shortly after the sale of Global Pro in our second quarter of fiscal 2011. The net expense for
Corporate & Other decrease of $5.1 million in fiscal 2013 was driven by reduced spending on outside consulting expenses and
marketing related expenditures as part of our cost productivity initiatives, partially offset by higher employee related costs, including
incentive compensation, health care and severance.
Net sales for Corporate & Other increased $10.2 million to $41.1 million in fiscal 2012, primarily due to our ICL supply
agreements, which commenced shortly after the sale of Global Pro in our second quarter of fiscal 2011. Net expense for Corporate &
Other increased by $1.3 million in fiscal 2012, driven by increased variable compensation of $1.3 million.
31
Liquidity and Capital Resources
Operating Activities
Cash provided by operating activities increased by $188.6 million to $342.0 million in fiscal 2013. The change in our
operating activities was primarily due to an increase in net income of $54.6 million and a reduction in inventory levels over the
prior year of $89.0 million as a result of improved inventory management. In addition, income taxes paid declined in fiscal 2013
due to the receipt of an overpayment of taxes related to fiscal 2012 of $37.8 million.
Cash provided by operating activities increased by $31.3 million to $153.4 million in fiscal 2012 from $122.1 million in
fiscal 2011. Excluding the impact of discontinued operations, cash provided by operating activities decreased by $48.2 million
to $143.1 million in fiscal 2012 compared to a decrease of $118.1 million in fiscal 2011. Excluding discontinued operations and
non-cash operating expenses, income from continuing operations decreased by approximately $24.7 million primarily due to lower
gross profit rates and higher advertising expenses.
The seasonal nature of our operations generally requires cash to fund significant increases in inventories during the first half
of the fiscal year. Receivables and payables also build substantially in the second quarter of the fiscal year in line with the timing
of sales to support our retailers’ spring selling season. These balances liquidate during the June through September period as the
lawn and garden season unwinds. Unlike our core Global Consumer segment, Scotts LawnService® typically has its highest
receivables balance in the fourth quarter because of the seasonal timing of customer applications and service revenues.
Investing Activities
Cash used in investing activities totaled $64.2 million and $75.7 million in fiscal 2013 and fiscal 2012, respectively. The
change in our investing activities was primarily driven by a reduction of capital investments in property, plant and equipment and
acquisitions of $9.3 million and $3.8 million, respectively and cash proceeds from the sale of long-lived assets of $3.6 million.
Significant capital projects during fiscal 2013 included investments in our mulch production facilities associated with our product
cost-out initiatives, additional capital to increase capabilities in our fertilizer production facilities, improvements to our inventory
warehouse management system and investments in information technology. Further, during fiscal 2013 we completed an acquisition
of two franchisee businesses within our Scotts LawnService® segment for $3.2 million and an investment of an unconsolidated
affiliate in the indoor gardening market for $4.5 million.
Cash used in investing activities totaled $75.7 million in fiscal 2012, as compared to cash provided by investing activities
of $153.5 million for fiscal 2011. The change in our investing activities was primarily driven by the cash received from the sale
of our Global Pro business, which generated $253.6 million in cash in fiscal 2011. Capital spending decreased from $72.7 million
in fiscal 2011 to $69.4 million in fiscal 2012. Significant capital projects during fiscal 2012 included a new growing media plant
in Texas, additional capital for our liquid production facilities in Iowa and Mississippi, improvements at various other growing
media production facilities and investments in information technology. Further, during fiscal 2012 we completed an acquisition
within our Global Consumer segment with total cash paid of $6.7 million.
For the three years ended September 30, 2013, our capital spending was allocated as follows: 62% for expansion and
maintenance of existing Global Consumer productive assets; 17% for new productive assets supporting our Global Consumer
segment; 11% to expand our information technology and transformation and integration capabilities; 3% for expansion and upgrades
of Scotts LawnService® infrastructure; and 7% for Corporate & Other assets.
Financing Activities
Financing activities used cash of $280.6 million and $79.3 million in fiscal 2013 and fiscal 2012, respectively. Cash returned
to shareholders through dividends of $87.8 million and reduced borrowings under our credit facility of $196.7 million were
significant elements of cash used in financing activities in fiscal 2013. Net payments under our credit facilities were $207.3 million
in fiscal 2013, compared to $10.6 million in fiscal 2012. Financing activities also included a decrease in cash received from the
exercise of stock options of $4.3 million in fiscal 2013 compared to fiscal 2012.
Financing activities used cash of $79.3 million and $230.7 million in fiscal 2012 and fiscal 2011, respectively. Cash returned
to shareholders through dividends of $75.4 million and the repurchasing of Common Shares of $17.5 million were significant
elements of cash used in financing activities in fiscal 2012. Net payments under our credit facilities were $10.6 million in fiscal
2012, compared to $22.0 million in fiscal 2011. Financing activities also included a decrease in cash received from the exercise
of stock options of $13.9 million in fiscal 2012 compared to fiscal 2011.
32
Cash and Cash Equivalents
Our cash and cash equivalents were held in depository accounts with major financial institutions around the world or invested
in high quality, short-term liquid investments, with original maturities of three months or less with a balance of $129.8 million as
of September 30, 2013, compared to $131.9 million as of September 30, 2012. The cash and cash equivalents balance at
September 30, 2013 included $120.4 million held by controlled foreign corporations. Our current plans do not demonstrate a need
to, nor do we have plans to, repatriate the retained earnings from these foreign corporations as the earnings are indefinitely
reinvested. However, in the future, if we determine it is necessary to repatriate these funds, or if we sell or liquidate any of these
foreign corporations, we may be required to pay associated taxes on the repatriation.
Borrowing Arrangements
Our primary sources of liquidity are cash generated by operations and borrowings under our credit agreement which is
guaranteed by substantially all of our domestic subsidiaries. On June 30, 2011, we and certain of our subsidiaries entered into a
second amended and restated senior secured credit facility, providing for revolving loans in the aggregate principal amount of up
to $1.7 billion over a five year term. Borrowings may be made in various currencies including U.S. dollars, Euros, British pounds,
Australian dollars and Canadian dollars. Under this credit facility, we may request up to an additional $450 million in revolving
and/or term commitments, subject to certain specified conditions, including approval from the lenders. The credit facility replaced
our previous senior secured credit facilities, which were comprised of: (a) a senior secured revolving loan facility in the aggregate
principal amount of up to $1.59 billion and (b) a senior secured term loan facility totaling $560 million. The previous credit
facilities were scheduled to expire in February 2012.
The terms of the credit facility provide for customary representations and warranties and affirmative covenants. The credit
facility also contains customary negative covenants setting forth limitations, subject to negotiated carve-outs on liens; contingent
obligations; fundamental changes; acquisitions, investments, loans and advances; indebtedness; restrictions on subsidiary
distributions; transactions with affiliates and officers; sales of assets; sale and leaseback transactions; changing our fiscal year
end; modifications of certain debt instruments; negative pledge clauses; entering into new lines of business; and restricted payments,
which are limited to an aggregate of $125 million annually through fiscal 2013 and $150 million annually beginning in fiscal 2014
if our leverage ratio, after giving effect to any such annual dividend payment, exceeds 2.50. The credit facility is secured by
collateral that includes the capital stock of specified subsidiaries, substantially all domestic accounts receivable (exclusive of any
“sold” receivables), inventory and equipment. The credit facility is guaranteed by substantially all of our domestic subsidiaries.
Under our credit facility, we have the ability to obtain letters of credit up to $75 million outstanding. At September 30,
2013, the Company had letters of credit in the aggregate face amount of $23.3 million outstanding, and $1.6 billion of availability
under its credit facility.
On January 14, 2010, we issued $200 million aggregate principal amount of 7.25% Senior Notes due 2018. The net proceeds
of the offering were used to reduce outstanding borrowings under our then existing credit facilities. The 7.25% Senior Notes
represent general unsecured senior obligations, and were sold to the public at 99.254% of the principal amount thereof, to yield
7.375% to maturity. The 7.25% Senior Notes have interest payment dates of January 15 and July 15 of each year, which began
on July 15, 2010 and may be redeemed prior to maturity at applicable redemption premiums. The 7.25% Senior Notes contain
usual and customary incurrence-based covenants, which include, but are not limited to, restrictions on the incurrence of additional
indebtedness, the incurrence of liens and the issuance of certain preferred shares, and the making of certain distributions, investments
and other restricted payments, as well as other usual and customary covenants, which include, but are not limited to, restrictions
on sale and leaseback transactions, restrictions on purchases or redemptions of Scotts Miracle-Gro stock and prepayments of
subordinated debt, limitations on asset sales and restrictions on transactions with affiliates. The 7.25% Senior Notes mature on
January 15, 2018. Substantially all of our domestic subsidiaries serve as guarantors of the 7.25% Senior Notes.
On December 16, 2010, we issued $200 million aggregate principal amount of 6.625% Senior Notes due 2020 in a private
placement exempt from the registration requirements under the Securities Act of 1933, as amended. The net proceeds of the
offering were used to repay outstanding borrowings under our then existing credit facilities and for general corporate purposes.
The 6.625% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with our existing and
future unsecured senior debt, including, without limitation, the 7.25% Senior Notes. The 6.625% Senior Notes have interest
payment dates of June 15 and December 15 of each year, which began on June 15, 2011, and may be redeemed prior to maturity
at applicable redemption premiums. The 6.625% Senior Notes contain usual and customary incurrence-based covenants, as well
as other usual and customary covenants, substantially similar to those contained in the 7.25% Senior Notes. The 6.625% Senior
Notes mature on December 15, 2020. Substantially all of our domestic subsidiaries serve as guarantors of the 6.625% Senior
Notes.
33
We are in compliance with the terms of all debt covenants at September 30, 2013. The credit facility contains, among other
obligations, an affirmative covenant regarding our leverage ratio, calculated as average total indebtedness, as described in the our
credit facility, relative to the our EBITDA, as adjusted pursuant to the terms of the credit facility (“Adjusted EBITDA”). Under
the terms of the credit facility, the maximum allowable leverage ratio was 3.50 as of September 30, 2013. Our leverage ratio was
2.05 at September 30, 2013. Our credit facility also includes an affirmative covenant regarding our interest coverage ratio. Interest
coverage ratio is calculated as Adjusted EBITDA divided by interest expense, as described in the credit facility, and excludes costs
related to refinancings. Under the terms of the credit facility, the minimum allowable interest coverage ratio was 3.50 for the year
ended September 30, 2013. Our interest coverage ratio was 6.59 for the year ended September 30, 2013. The weighted average
interest rates on average debt were 6.2% and 6.0% for fiscal 2013 and fiscal 2012, respectively. Please see “ITEM 6. SELECTED
FINANCIAL DATA” of this Annual Report on Form 10-K for further details pertaining to the calculations of the foregoing ratios.
At September 30, 2013, we had outstanding interest rate swap agreements with major financial institutions that effectively
converted the LIBOR index portion of variable-rate debt denominated in U.S. dollars to a fixed rate. The swap agreements had
a total U.S. dollar notional amount of $1,100 million at September 30, 2013. Interest payments made between the effective date
and expiration date are hedged by the swap agreements, except as noted below. The notional amount, effective date, expiration
date and rate of each of these swap agreements are shown in the table below.
Notional Amount
(in millions)
50
150
150
50
100
150
50
150
50
200
(b)
(c)
(b)
(b)
(c)
(d)
(b)
(b)
(c)
Effective
Date (a)
2/14/2012
2/7/2012
11/16/2009
2/16/2010
2/21/2012
12/20/2011
12/6/2012
2/7/2017
2/7/2017
12/20/2016
Expiration
Date
2/14/2016
5/7/2016
5/16/2016
5/16/2016
5/23/2016
6/20/2016
9/6/2017
5/7/2019
5/7/2019
6/20/2019
Fixed
Rate
3.78%
2.42%
3.26%
3.05%
2.40%
2.61%
2.96%
2.12%
2.25%
2.12%
(a)
(b)
(c)
(d)
The effective date refers to the date on which interest payments were, or will be, first hedged by the applicable swap agreement.
Interest payments made during the three-month period of each year that begins with the month and day of the effective date are hedged
by the swap agreement.
Interest payments made during the six-month period of each year that begins with the month and day of the effective date are hedged
by the swap agreement.
Interest payments made during the nine-month period of each year that begins with the month and day of the effective date are hedged
by the swap agreement.
The Company maintains a Master Accounts Receivable Purchase Agreement (“MARP Agreement”), which is uncommitted
and provides for the discretionary sale by the Company, and the discretionary purchase by the banks, on a revolving basis, of
accounts receivable generated by sales to three specified account debtors in an aggregate amount not to exceed $400 million. On
October 25, 2013, the Company signed an amendment to the existing MARP Agreement which extended the termination date to
August 29, 2014, or such later date as may be mutually agreed by the Company and the banks party thereto. Under the amended
terms of the MARP Agreement, the banks have the opportunity to purchase those accounts receivable offered by the Company at
a discount (from the agreed base value thereof) effectively equal to the one-week LIBOR plus 0.75%. There were $85.3 million
of short-term borrowings as of September 30, 2013 and no short-term borrowings as of September 30, 2012 under the MARP
Agreement. The carrying value of the receivables pledged as collateral was $106.7 million as of September 30, 2013.
We continue to monitor our compliance with the leverage ratio, interest coverage ratio and other covenants contained in the
credit facility and, based upon our current operating assumptions, we expect to remain in compliance with the permissible leverage
ratio and interest coverage ratio throughout fiscal 2014. However, an unanticipated charge to earnings, an increase in debt or other
factors could materially affect our ability to remain in compliance with the financial or other covenants of our credit facility,
potentially causing us to have to seek an amendment or waiver from our lending group which could result in repricing of our credit
facility.
In our opinion, cash flows from operations and capital resources will be sufficient to meet debt service, capital expenditures
and working capital needs during fiscal 2014, and thereafter for the foreseeable future. However, we cannot ensure that our
business will generate sufficient cash flow from operations or that future borrowings will be available under our credit facility in
amounts sufficient to pay indebtedness or fund other liquidity needs. Actual results of operations will depend on numerous factors,
34
many of which are beyond our control, as further discussed in “ITEM 1A. RISK FACTORS — Our indebtedness could limit our
flexibility and adversely affect our financial condition” of this Annual Report on Form 10-K.
Judicial and Administrative Proceedings
We are party to various pending judicial and administrative proceedings arising in the ordinary course of business, including,
among others, proceedings based on accidents or product liability claims and alleged violations of environmental laws. We have
reviewed these pending judicial and administrative proceedings, including the probable outcomes, reasonably anticipated costs
and expenses, and the availability and limits of our insurance coverage, and have established what we believe to be appropriate
reserves. We do not believe that any liabilities that may result from these pending judicial and administrative proceedings are
reasonably likely to have a material effect on our financial condition, results of operations, or cash flows; however, there can be
no assurance that future quarterly or annual operating results will not be materially affected by final resolution of these matters.
Contractual Obligations
The following table summarizes our future cash outflows for contractual obligations as of September 30, 2013:
Contractual Cash Obligations
Payments Due by Period
Total
Less Than 1
Year
1-3 Years
4-5 Years
More Than
5 Years
Debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on debt obligations . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily retirement plan obligations . . . . . . . . . . . .
Total contractual cash obligations . . . . . . . . . . . . . . . . . . . .
$
570.5
201.1
179.0
211.3
87.9
$ 1,249.8
$
$
(In millions)
76.1
$
85.2
66.1
75.7
17.7
320.8
$
$
$
92.4
43.9
47.0
114.3
9.9
307.5
201.0
52.8
30.8
21.0
15.3
320.9
$
$
201.0
19.2
35.1
0.3
45.0
300.6
We have long-term debt obligations and interest payments due primarily under the 7.25% and 6.625% Senior Notes and our
credit facility. Amounts in the table represent scheduled future maturities of long-term debt principal for the periods indicated.
The interest payments for our credit facility is based on outstanding borrowings as of September 30, 2013. Actual interest expense
will likely be higher due to the seasonality of our business and associated higher average borrowings.
Purchase obligations primarily represent commitments for materials used in our manufacturing processes, as well as
commitments for warehouse services, seed and out-sourced information services which comprise the unconditional purchase
obligations disclosed in “NOTE 17. COMMITMENTS” of the Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K.
Other obligations include actuarially determined retiree benefit payments and pension funding to comply with local funding
requirements. Pension funding requirements beyond fiscal 2013 are based on preliminary estimates using actuarial assumptions
determined as of September 30, 2013. The above table excludes liabilities for unrecognized tax benefits and insurance accruals
as the Company is unable to estimate the timing of payments for these items.
Off-Balance Sheet Arrangements
At September 30, 2013, the Company had letters of credit in the aggregate face amount of $23.3 million outstanding. Further,
the Company has residual value guarantees on Scotts LawnService® vehicles and the corporate aircraft as disclosed in “NOTE
16. OPERATING LEASES” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
35
Regulatory Matters
We are subject to local, state, federal and foreign environmental protection laws and regulations with respect to our business
operations and believe we are operating in substantial compliance with, or taking actions aimed at ensuring compliance with, such
laws and regulations. We are involved in several legal actions with various governmental agencies related to environmental
matters, including those described in “ITEM 3. LEGAL PROCEEDINGS” of this Annual Report on Form 10-K and “NOTE 18.
CONTINGENCIES” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. While it
is difficult to quantify the potential financial impact of actions involving these environmental matters, particularly remediation
costs at waste disposal sites and future capital expenditures for environmental control equipment, in the opinion of management,
the ultimate liability arising from such environmental matters, taking into account established reserves, should not have a material
effect on our financial condition, results of operations or cash flows. However, there can be no assurance that the resolution of
these matters will not materially affect our future quarterly or annual results of operations, financial condition or cash flows.
Additional information on environmental matters affecting us is provided in “ITEM 1. BUSINESS — Regulatory Considerations”
and “ITEM 3. LEGAL PROCEEDINGS” of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with GAAP. Certain accounting policies are particularly significant, including
those related to revenue recognition, goodwill and intangibles, certain associate benefits and income taxes. We believe these
accounting policies, and others set forth in “NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” of the Notes
to Consolidated Financial Statements included in this Annual Report on Form 10-K, should be reviewed as they are integral to
understanding our results of operations and financial position. Our critical accounting policies are reviewed periodically with the
Audit and Finance Committee of the Board of Directors of Scotts Miracle-Gro.
The preparation of financial statements requires management to use judgment and make estimates that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts,
inventories, intangible assets, income taxes, restructuring, environmental matters, contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Although actual results historically have not deviated significantly from those determined using our estimates, our results of
operations or financial condition could differ, perhaps materially, from these estimates under different assumptions or conditions.
Revenue Recognition and Promotional Allowances
Most of our revenue is derived from the sale of inventory, and we recognize revenue when title and risk of loss transfer,
generally when products are received by the customer. Provisions for payment discounts, product returns and allowances are
recorded as a reduction of sales at the time revenue is recognized based on historical trends and adjusted periodically as
circumstances warrant. Similarly, reserves for uncollectible receivables due from customers are established based on management’s
judgment as to the ultimate collectability of these balances. We offer sales incentives through various programs, consisting
principally of volume rebates, cooperative advertising, consumer coupons and other trade programs. The cost of these programs
is recorded as a reduction of sales. The recognition of revenues, receivables and trade programs requires the use of estimates.
While we believe these estimates to be reasonable based on the then current facts and circumstances, there can be no assurance
that actual amounts realized will not differ materially from estimated amounts recorded.
Income Taxes
Our annual effective tax rate is established based on our pre-tax income (loss), statutory tax rates and the tax impacts of
items treated differently for tax purposes than for financial reporting purposes. We record income tax liabilities utilizing known
obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax
effects from existing temporary differences and operating loss and tax credit carryforwards. Valuation allowances are used to
reduce deferred tax assets to the balances that are more likely than not to be realized. We must make estimates and judgments on
future taxable income, considering feasible tax planning strategies and taking into account existing facts and circumstances, to
determine the proper valuation allowances. When we determine that deferred tax assets could be realized in greater or lesser
amounts than recorded, the asset balance and consolidated statement of operations reflect the change in the period such
determination is made. Due to changes in facts and circumstances and the estimates and judgments that are involved in determining
the proper valuation allowances, differences between actual future events and prior estimates and judgments could result in
adjustments to these valuation allowances. We use an estimate of our annual effective tax rate at each interim period based on the
facts and circumstances available at that time, while the actual effective tax rate is calculated at year-end.
36
Inventories
Inventories are stated at the lower of cost or market, principally determined by the first-in, first-out method of accounting.
Inventories include the cost of raw materials, labor, manufacturing overhead and freight and in-bound handling costs incurred to
pre-position goods in our warehouse network. Adjustments to net realizable value for excess and obsolete inventory are based on
a variety of factors, including product changes and improvements, changes in active ingredient availability and regulatory
acceptance, new product introductions and estimated future demand. The adequacy of our adjustments could be materially affected
by changes in the demand for our products or regulatory actions.
Long-lived Assets, including Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is provided on the straight-
line method and is based on the estimated useful economic lives of the assets. Intangible assets with finite lives, and therefore
subject to amortization, include technology (e.g., patents), customer relationships and certain tradenames. These intangible assets
are being amortized over their estimated useful economic lives typically ranging from 3 to 25 years. We review long-lived assets
whenever circumstances change such that the recorded value of an asset may not be recoverable and therefore impaired.
Goodwill and Indefinite-lived Intangible Assets
We have significant investments in intangible assets and goodwill. Our annual goodwill and indefinite-lived intangible asset
testing is performed as of the first day of our fiscal fourth quarter or more frequently if circumstances indicate potential impairment.
In our evaluation of goodwill and indefinite-lived intangible assets impairment, we perform either an initial qualitative or
quantitative evaluation for each of our reporting units and indefinite-lived intangible assets. Factors considered in the qualitative
test include operating results as well as new events and circumstances impacting the operations or cash flows of the reporting unit
and indefinite-lived intangible assets. For the quantitative test, the review for impairment of goodwill and indefinite-lived intangible
assets is primarily based on our estimates of discounted future cash flows, which are based upon annual budgets and longer-range
strategic plans. These budgets and plans are used for internal purposes and are also the basis for communication with outside
parties about future business trends. While we believe the assumptions we use to estimate future cash flows are reasonable, there
can be no assurance that the expected future cash flows will be realized. As a result, impairment charges that possibly would have
been recognized in earlier periods may not be recognized until later periods if actual results deviate unfavorably from earlier
estimates. An asset’s value is deemed impaired if the discounted cash flows or earnings projections generated do not substantiate
the carrying value of the asset. The estimation of such amounts requires management to exercise judgment with respect to revenue
and expense growth rates, changes in working capital, future capital expenditure requirements and selection of an appropriate
discount rate, as applicable. The use of different assumptions would increase or decrease discounted future operating cash flows
or earnings projections and could, therefore, change impairment determinations.
Fair value estimates employed in our annual impairment review of indefinite-lived tradenames and goodwill were determined
using discounted cash flow models involving several assumptions. Changes in our assumptions could materially impact our fair
value estimates. Assumptions critical to our fair value estimates were: (i) discount rates used in determining the fair value of the
reporting units and tradenames; (ii) royalty rates used in our tradename valuations; (iii) projected revenue and operating profit
growth rates used in the reporting unit and tradename models; and (iv) projected long-term growth rates used in the derivation of
terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and
may change in the future based on period specific facts and circumstances.
At September 30, 2013, goodwill totaled $315.1 million, with $183.1 million and $132.0 million of goodwill for Global
Consumer and Scotts LawnService® segments, respectively. No goodwill impairment was recognized as a result of the annual
evaluation performed as of June 30, 2013. The estimated fair value of each reporting unit was substantially in excess of its carrying
value as of the annual test date. If we were to alter our impairment testing by increasing the discount rate in the discounted cash
flow analysis by 100 basis points, there still would not be any impairment indicated for any of these reporting units. At September
30, 2013, indefinite-lived intangible assets comprised of tradenames totaled $222.3 million. With the exception of the Ortho®
tradename, each of these tradenames had an estimated fair value substantially in excess of its carrying value as of the annual test
date. As a result of the Company's annual impairment review performed in the fourth quarter of fiscal 2013, the Company
recognized an impairment charge for a non-recurring fair value adjustment of $11.6 million within the Global Consumer segment
related to the Ortho® brand and certain sub-brands of Ortho®. The fair value was calculated based upon the evaluation of the
historical performance and future growth of the Ortho® business. If we were to increase the discount rate in the Ortho® brand fair
value calculation by 100 basis points, the resulting non-recurring fair value adjustment would have increased by approximately
$14.7 million.
37
Associate Benefits
We sponsor various post-employment benefit plans, including pension plans, both defined contribution plans and defined
benefit plans, and other post-employment benefit (“OPEB”) plans, consisting primarily of health care for retirees. For accounting
purposes, the defined benefit pension and OPEB plans are dependent on a variety of assumptions to estimate the projected and
accumulated benefit obligations and annual expense determined by actuarial valuations. These assumptions include the following:
discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected
return on plan assets; and health care cost trend rates.
Assumptions are reviewed annually for appropriateness and updated as necessary. We base the discount rate assumption
on investment yields available at fiscal year-end on high-quality corporate bonds that could be purchased to effectively settle the
pension liabilities. The salary growth assumption reflects our long-term actual experience, the near-term outlook and assumed
inflation. The expected return on plan assets assumption reflects asset allocation, investment strategy and the views of investment
managers regarding the market. Retirement and mortality rates are based primarily on actual and expected plan experience. The
effects of actual results that differ from our assumptions are accumulated and amortized over future periods.
Changes in the discount rate and investment returns can have a significant effect on the funded status of our pension plans
and shareholders’ equity. We cannot predict discount rates or investment returns with certainty and, therefore, cannot determine
whether adjustments to our shareholders’ equity for pension-related activity in subsequent years will be significant. We also cannot
predict future investment returns, and therefore cannot determine whether future pension plan funding requirements could
materially affect our financial condition, results of operations or cash flows. A 100 basis point change in the discount rate would
have an immaterial effect on fiscal 2013 pension expense. A 100 basis point change in the discount rate would have a $41.7 million
change in our projected benefit obligation as of September 30, 2013.
Insurance and Self-Insurance
We maintain insurance for certain risks, including workers’ compensation, general liability and vehicle liability, and are
self-insured for employee-related health care benefits up to a specified level for individual claims. We establish reserves for losses
based on our claims experience and industry actuarial estimates of the ultimate loss amount inherent in the claims, including losses
for claims incurred but not reported. Our estimate of self-insured liabilities is subject to change as new events or circumstances
develop which might materially impact the ultimate cost to settle these losses.
Derivative Instruments
In the normal course of business, we are exposed to fluctuations in interest rates, the value of foreign currencies and the cost
of commodities. A variety of financial instruments, including forward and swap contracts, are used to manage these exposures.
Our objective in managing these exposures is to better control these elements of cost and mitigate the earnings and cash flow
volatility associated with changes in the applicable rates and prices. We have established policies and procedures that encompass
risk-management philosophy and objectives, guidelines for derivative-instrument usage, counterparty credit approval, and the
monitoring and reporting of derivative activity. We do not enter into derivative instruments for the purpose of speculation.
Contingencies
As described more fully in “NOTE 18. CONTINGENCIES” of the Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K, we are involved in environmental and legal matters which have a high degree of uncertainty
associated with them. We continually assess the likely outcome of these matters and the adequacy of reserves, if any, provided
for their resolution. There can be no assurance that the ultimate outcomes of these matters will not differ materially from our
current assessment of them, nor that all matters that may currently be brought against us are known by us at this time.
Other Significant Accounting Policies
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed above, are also
critical to understanding the consolidated financial statements. The Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K contain additional information related to our accounting policies, including recent accounting
pronouncements, and should be read in conjunction with this discussion.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of our ongoing business, we are exposed to certain market risks, including fluctuations in interest rates, foreign
currency exchange rates and commodity prices. Financial derivative and other instruments are used to manage these risks. These
instruments are not used for speculative purposes.
38
Interest Rate Risk
We had variable rate debt instruments outstanding at September 30, 2013 and September 30, 2012 that are impacted by
changes in interest rates. As a means of managing our interest rate risk on these debt instruments, we entered into interest rate
swap agreements with major financial institutions to effectively fix the LIBOR index on certain variable-rate debt obligations.
At September 30, 2013 and September 30, 2012, we had outstanding interest rate swap agreements with a total U.S. dollar
equivalent notional value of $1,100.0 million and $700.0 million, respectively. The weighted average fixed rate of swap agreements
outstanding at September 30, 2013 was 2.7%.
The following table summarizes information about our derivative financial instruments and debt instruments that are sensitive
to changes in interest rates as of September 30, 2013 and September 30, 2012. For debt instruments, the table presents principal
cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swap agreements, the table
presents expected cash flows based on notional amounts and weighted-average interest rates by contractual maturity dates.
Weighted-average variable rates are based on rates in effect at September 30, 2013 and September 30, 2012. A change in our
variable interest rate of 100 basis points for a full twelve-month period would have a $2.5 million impact on interest expense
assuming approximately $250 million of our average fiscal 2013 variable-rate debt had not been hedged via an interest rate swap
agreement. The information is presented in U.S. dollars (in millions):
2013
Long-term debt:
2014
2015
2016
2017
2018
After
Total
Expected Maturity Date
Fixed rate debt . . . . . . . . . . . . . . .
Average rate . . . . . . . . . . . . . . . . .
Variable rate debt . . . . . . . . . . . . .
Average rate . . . . . . . . . . . . . . . . .
$ — $ — $ — $ — $ 200.0
$ 200.0
$ 400.0
—
$ 85.3
—
—
$ — $ 73.0
—
7.3%
6.6%
6.9%
$ — $ — $ — $ 158.3
1.0%
—
2.4%
—
—
—
1.7%
Fair
Value
$ 523.0
—
$ 158.3
—
Interest rate derivatives:
Interest rate swaps . . . . . . . . . . . .
Average rate . . . . . . . . . . . . . . . . .
2012
Long-term debt:
Fixed rate debt . . . . . . . . . . . . . . .
Average rate . . . . . . . . . . . . . . . . .
Variable rate debt . . . . . . . . . . . . .
Average rate . . . . . . . . . . . . . . . . .
Interest rate derivatives:
Interest rate swaps . . . . . . . . . . . .
Average rate . . . . . . . . . . . . . . . . .
$ — $ — $ (17.8)
3.0%
—
—
$ (2.6)
3.0%
$
3.7
2.1%
$ — $ (16.7)
2.7%
—
$ (16.7)
—
2013
2014
2015
2016
2017
After
Total
Expected Maturity Date
$ — $ — $ — $ — $ — $ 400.0
$ 400.0
—
—
$ — $ — $ — $ 377.1
—
—
—
6.9%
6.9%
$ — $ — $ 377.1
—
—
—
2.7%
—
—
2.7%
Fair
Value
$ 429.5
—
$ 377.1
—
$ — $ — $ — $ (24.9)
3.0%
—
—
—
$ (3.9)
3.0%
$ — $ (28.8)
3.0%
—
$ (28.8)
—
Excluded from the information provided above are $12.2 million and $5.5 million at September 30, 2013 and September 30,
2012, respectively, of miscellaneous debt instruments.
Other Market Risks
Through fiscal 2013, we had transactions that were denominated in currencies other than the currency of the country of
origin. We use foreign currency swap contracts to manage the exchange rate risk associated with intercompany loans with foreign
subsidiaries that are denominated in local currencies. At September 30, 2013, the notional amount of outstanding foreign currency
swap contracts was $80.4 million with a negative fair value of $2.1 million. At September 30, 2012, the notional amount of
outstanding foreign currency swap contracts was $61.8 million with a negative fair value of $1.0 million.
We are subject to market risk from fluctuating prices of certain raw materials, including urea, resins, diesel, gasoline,
sphagnum peat, grass seed and wild bird food grains. Our objectives surrounding the procurement of these materials are to ensure
continuous supply and to control costs. We seek to achieve these objectives through negotiation of contracts with favorable terms
39
directly with vendors. In addition, we entered into arrangements to partially mitigate the effect of fluctuating direct and indirect
fuel costs on our Global Consumer and Scotts LawnService® businesses and hedged a portion of our fuel and urea needs for fiscal
2013 and fiscal 2012. We had outstanding derivative contracts for approximately 7,098,000 gallons of fuel with a negative fair
value of $0.3 million at September 30, 2013. We had outstanding derivative contracts for approximately 11,984,000 gallons of
fuel with a fair value of $1.2 million at September 30, 2012. We also had outstanding derivative contracts for 49,500 and 34,500
aggregate tons of urea at September 30, 2013 and September 30, 2012, respectively. The outstanding derivative contracts for
49,500 aggregate tons at September 30, 2013 had a negative fair value of $2.0 million, while the fair value of the outstanding
derivative contracts for 34,500 aggregate tons at September 30, 2012 was $0.8 million.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and other information required by this Item are contained in the Consolidated Financial Statements,
Notes to Consolidated Financial Statements and Schedules Supporting the Consolidated Financial Statements listed in the “Index
to Consolidated Financial Statements and Financial Statement Schedules” on page 46 of this Annual Report on Form 10-K.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
With the participation of the principal executive officer and the principal financial officer of The Scotts Miracle-Gro Company
(the “Registrant”), the Registrant’s management has evaluated the effectiveness of the Registrant’s disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of the end of the
fiscal year covered by this Annual Report on Form 10-K. Based upon that evaluation, the Registrant’s principal executive officer
and principal financial officer have concluded that the Registrant’s disclosure controls and procedures were effective as of the end
of the fiscal year covered by this Annual Report on Form 10-K.
Management’s Annual Report on Internal Control Over Financial Reporting
The “Annual Report of Management on Internal Control Over Financial Reporting” required by Item 308(a) of SEC
Regulation S-K is included on page 47 of this Annual Report on Form 10-K.
Attestation Report of Independent Registered Public Accounting Firm
The “Report of Independent Registered Public Accounting Firm” required by Item 308(b) of SEC Regulation S-K is included
on page 48 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
No changes in the Registrant’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act) occurred during the Registrant’s fiscal quarter ended September 30, 2013, that have materially affected, or are reasonably
likely to materially affect, the Registrant’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
40
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of Scotts Miracle-Gro and the
nominees for election or re-election as directors of Scotts Miracle-Gro at the Annual Meeting of Shareholders to be held on
January 30, 2014 (the “2014 Annual Meeting”) is incorporated herein by reference from the disclosure which will be included
under the caption “PROPOSAL NUMBER 1 — ELECTION OF DIRECTORS” in Scotts Miracle-Gro’s definitive Proxy Statement
relating to the 2014 Annual Meeting (“Scotts Miracle-Gro’s Definitive Proxy Statement”), which will be filed pursuant to SEC
Regulation 14A not later than 120 days after the end of Scotts Miracle-Gro’s fiscal year ended September 30, 2013.
The information required by Item 401 of SEC Regulation S-K concerning the executive officers of Scotts Miracle-Gro is
incorporated herein by reference from the disclosure included under the caption “SUPPLEMENTAL ITEM. EXECUTIVE
OFFICERS OF THE REGISTRANT” in Part I of this Annual Report on Form 10-K.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference from the disclosure which
will be included under the caption “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in Scotts
Miracle-Gro’s Definitive Proxy Statement.
Procedures for Recommending Director Nominees
Information concerning the procedures by which shareholders of Scotts Miracle-Gro may recommend nominees to Scotts
Miracle-Gro’s Board of Directors is incorporated herein by reference from the disclosures which will be included under the captions
“CORPORATE GOVERNANCE — Nominations of Directors” and “MEETINGS AND COMMITTEES OF THE BOARD —
Committees of the Board — Governance and Nominating Committee” in Scotts Miracle-Gro’s Definitive Proxy Statement. These
procedures have not materially changed from those described in Scotts Miracle-Gro’s definitive Proxy Statement for the 2013
Annual Meeting of Shareholders held on January 17, 2013.
Audit and Finance Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is incorporated herein by reference from
the disclosure which will be included under the caption “MEETINGS AND COMMITTEES OF THE BOARD — Committees
of the Board — Audit and Finance Committee” in Scotts Miracle-Gro’s Definitive Proxy Statement.
Committee Charters; Code of Business Conduct and Ethics; Corporate Governance Guidelines
The Board of Directors of Scotts Miracle-Gro has adopted charters for each of the Audit and Finance Committee, the
Governance and Nominating Committee, the Compensation and Organization Committee, the Innovation and Technology
Committee and the Strategy and Business Development Committee, as well as Corporate Governance Guidelines, as contemplated
by the applicable sections of the New York Stock Exchange Listed Company Manual.
In accordance with the requirements of Section 303A.10 of the New York Stock Exchange Listed Company Manual and
Item 406 of SEC Regulation S-K, the Board of Directors of Scotts Miracle-Gro has adopted a Code of Business Conduct and
Ethics covering the members of Scotts Miracle-Gro’s Board of Directors and associates (employees) of Scotts Miracle-Gro and
its subsidiaries, including, without limitation, Scotts Miracle-Gro’s principal executive officer, principal financial officer and
principal accounting officer. Scotts Miracle-Gro intends to disclose the following events, if they occur, on its Internet website
located at http://investor.scotts.com within four business days following their occurrence: (A) the date and nature of any amendment
to a provision of Scotts Miracle-Gro’s Code of Business Conduct and Ethics that (i) applies to Scotts Miracle-Gro’s principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions,
(ii) relates to any element of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a
technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the
waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a
provision of the Code of Business Conduct and Ethics granted to Scotts Miracle-Gro’s principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions, that relates to one or more of the elements
of the code of ethics definition enumerated in Item 406(b) of SEC Regulation S-K.
The text of Scotts Miracle-Gro’s Code of Business Conduct and Ethics, Scotts Miracle-Gro’s Corporate Governance
Guidelines, the Audit and Finance Committee charter, the Governance and Nominating Committee charter, the Compensation and
41
Organization Committee charter, the Innovation and Technology Committee charter and the Strategy and Business Development
Committee charter are posted under the “Corporate Governance” link on Scotts Miracle-Gro’s Internet website located at http://
investor.scotts.com. Interested persons and shareholders of Scotts Miracle-Gro may also obtain copies of each of these documents
without charge by writing to The Scotts Miracle-Gro Company, Attention: Corporate Secretary, 14111 Scottslawn Road, Marysville,
Ohio 43041. In addition, a copy of the Code of Business Conduct and Ethics, as revised effective January 18, 2012, is incorporated
by reference in Exhibit 14 to this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference from the disclosures which
the captions “EXECUTIVE COMPENSATION” and “NON-EMPLOYEE DIRECTOR
will be
COMPENSATION” in Scotts Miracle-Gro’s Definitive Proxy Statement.
included under
The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by reference from the disclosure
which will be included under the caption “MEETINGS AND COMMITTEES OF THE BOARD — Compensation and Organization
Committee Interlocks and Insider Participation” in Scotts Miracle-Gro’s Definitive Proxy Statement.
The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by reference from the disclosure
which will be included under the caption “COMPENSATION COMMITTEE REPORT” in Scotts Miracle-Gro’s Definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Ownership of Common Shares of Scotts Miracle-Gro
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference from the disclosure which
will be included under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”
in Scotts Miracle-Gro’s Definitive Proxy Statement.
Equity Compensation Plan Information
The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by reference from the disclosure
which will be included under the caption “EQUITY COMPENSATION PLAN INFORMATION” in Scotts Miracle-Gro’s
Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Person Transactions
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference from the disclosures which
will be included under the caption “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” in Scotts Miracle-Gro’s
Definitive Proxy Statement.
Director Independence
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by reference from the disclosures
which will be included under the captions “CORPORATE GOVERNANCE — Director Independence” and “MEETINGS AND
COMMITTEES OF THE BOARD” in Scotts Miracle-Gro’s Definitive Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference from the disclosures which will be included
under the captions “AUDIT AND FINANCE COMMITTEE MATTERS — Fees of the Independent Registered Public Accounting
Firm” and “AUDIT AND FINANCE COMMITTEE MATTERS — Pre-Approval of Services Performed by the Independent
Registered Public Accounting Firm” in Scotts Miracle-Gro’s Definitive Proxy Statement.
42
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
1 and 2. Financial Statements and Financial Statement Schedules:
The response to this portion of Item 15 is submitted as a separate section of this Annual Report on Form 10-K.
Reference is made to the “Index to Consolidated Financial Statements and Financial Statement Schedules” on page 46 of this
Annual Report on Form 10-K.
(b) EXHIBITS
The exhibits listed on the “Index to Exhibits” beginning on page 110 of this Annual Report on Form 10-K are filed or
furnished with this Annual Report on Form 10-K or incorporated herein by reference as noted in the “Index to Exhibits.”
(c) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule filed with this Annual Report on Form 10-K is submitted in a separate section hereof. For
a description of such financial statement schedules, see “Index to Consolidated Financial Statements and Financial Statement
Schedules” on page 46 of this Annual Report on Form 10-K.
43
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.
SIGNATURES
THE SCOTTS MIRACLE-GRO COMPANY
By:
/s/ JAMES HAGEDORN
James Hagedorn, Chief Executive Officer and
Chairman of the Board
Dated: November 20, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ ALAN H. BARRY*
Director
November 20, 2013
Alan H. Barry
/s/ LAWRENCE A.
HILSHEIMER
Chief Financial Officer and Executive Vice President
November 20, 2013
Lawrence A. Hilsheimer
(Principal Financial Officer and Principal Accounting Officer)
/s/ JAMES HAGEDORN
Chief Executive Officer, Chairman of the Board and Director
November 20, 2013
James Hagedorn
(Principal Executive Officer)
/s/ ADAM HANFT*
Director
Adam Hanft
/s/ STEPHEN L. JOHNSON*
Director
Stephen L. Johnson
/s/ THOMAS N. KELLY JR.*
Director
Thomas N. Kelly Jr.
/s/ KATHERINE HAGEDORN
LITTLEFIELD*
Katherine Hagedorn Littlefield
Director
November 20, 2013
November 20, 2013
November 20, 2013
November 20, 2013
44
Signature
Title
Date
/s/ NANCY G. MISTRETTA*
Nancy G. Mistretta
Director
/s/ MICHAEL E. PORTER*
Director
Michael E. Porter
/s/ STEPHANIE M. SHERN*
Director
Stephanie M. Shern
/s/ JOHN R. VINES*
Director
John R. Vines
November 20, 2013
November 20, 2013
November 20, 2013
November 20, 2013
*
The undersigned, by signing his name hereto, does hereby sign this Report on behalf of each of the directors of the Registrant
identified above pursuant to Powers of Attorney executed by the directors identified above, which Powers of Attorney are
filed with this Report as exhibits.
By:
/s/ LAWRENCE A. HILSHEIMER
Lawrence A. Hilsheimer, Attorney-in-Fact
45
THE SCOTTS MIRACLE-GRO COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements of The Scotts Miracle-Gro Company and Subsidiaries:
Annual Report of Management on Internal Control Over Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Independent Registered Public Accounting Firm(cid:3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the fiscal years ended September 30, 2013, 2012 and 2011(cid:3). . . . . . . . . .
Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2013, 2012 and
2011(cid:3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2013, 2012 and 2011. . . . . . . . . .
Consolidated Balance Sheets at September 30, 2013 and 2012(cid:3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the fiscal years ended September 30, 2013, 2012 and 2011(cid:3). .
Notes to Consolidated Financial Statements(cid:3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
47
48
50
51
52
53
54
55
Schedules Supporting the Consolidated Financial Statements:
Schedule II—Valuation and Qualifying Accounts for the fiscal years ended September 30, 2013, 2012 and 2011(cid:3). .(cid:3)
109
All other financial statement schedules for which provision is made in the applicable accounting regulations of the Securities
and Exchange Commission are omitted because they are not required or are not applicable, or the required information has been
presented in the Consolidated Financial Statements or Notes thereto.
46
ANNUAL REPORT OF MANAGEMENT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of The Scotts Miracle-Gro Company and our consolidated
subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and
expenditures of The Scotts Miracle-Gro Company and our consolidated subsidiaries are being made only in accordance with
authorizations of management and directors of The Scotts Miracle-Gro Company and our consolidated subsidiaries, as appropriate;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the assets of The Scotts Miracle-Gro Company and our consolidated subsidiaries that could have a material effect on our consolidated
financial statements.
Management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness
of our internal control over financial reporting as of September 30, 2013, the end of our fiscal year. Management based its
assessment on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and
operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control
environment. This assessment is supported by testing and monitoring performed under the direction of management.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an
effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial
statement preparation.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of
September 30, 2013, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of
America. We reviewed the results of management’s assessment with the Audit and Finance Committee of the Board of Directors
of The Scotts Miracle-Gro Company.
Our independent registered public accounting firm, Deloitte & Touche LLP, independently audited our internal control over
financial reporting as of September 30, 2013 and has issued their attestation report which appears herein.
/s/ JAMES HAGEDORN
/s/ LAWRENCE A. HILSHEIMER
James Hagedorn
Chief Executive Officer and Chairman of the Board
Lawrence A. Hilsheimer
Executive Vice President and Chief Financial Officer
Dated: November 20, 2013
Dated: November 20, 2013
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Scotts Miracle-Gro Company
Marysville, Ohio
We have audited the accompanying consolidated balance sheets of The Scotts Miracle-Gro Company and subsidiaries (the
"Company") as of September 30, 2013 and 2012, and the related consolidated statements of operations, comprehensive income,
shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2013. Our audits also included
the financial statement schedules listed in the Index to Consolidated Financial Statements and Financial Statement Schedules.
These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of September 30, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2013, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of September 30, 2013, based on the criteria established in Internal
Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated November 20, 2013 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
November 20, 2013
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Scotts Miracle-Gro Company
Marysville, Ohio
We have audited the internal control over financial reporting of The Scotts Miracle-Gro Company and subsidiaries (the
"Company") as of September 30, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, which is included in the accompanying Annual Report of Management on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the
United States of America ("generally accepted accounting principles"). A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements and financial statement schedules as of and for the year ended September 30, 2013 of the
Company and our report dated November 20, 2013 expressed an unqualified opinion on those consolidated financial statements
and financial statement schedules.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
November 20, 2013
49
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Operations
(In millions, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales—impairment, restructuring and other . . . . . . . . . . . . . . . . . . . .
Cost of sales—product registration and recall matters . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . . . . . .
Income tax expense from continuing operations . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax. . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic income per common share: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted income per common share: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2013
2012
2011
$
2,816.5
1,831.9
2.2
—
982.4
$
2,826.1
1,864.4
—
0.4
961.3
2,799.7
1,769.0
18.3
3.2
1,009.2
661.1
18.1
—
(10.0)
313.2
—
59.2
254.0
92.8
161.2
(0.1)
161.1
2.61
—
2.61
2.58
(0.01)
2.57
$
$
$
$
$
705.7
7.1
7.8
(2.9)
243.6
—
61.8
181.8
68.6
113.2
(6.7)
106.5
1.86
(0.11)
1.75
1.82
(0.11)
1.71
$
$
$
$
$
686.3
37.6
11.4
(0.9)
274.8
1.2
51.0
222.6
82.7
139.9
28.0
167.9
2.16
0.44
2.60
2.11
0.43
2.54
See Notes to Consolidated Financial Statements.
50
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss):
Net foreign currency translation adjustment
Net unrealized losses on derivative instruments, net of tax of $2.1, $6.2
and $3.0 for fiscal 2013, 2012 and 2011, respectively
Reclassification of net unrealized losses on derivatives to net income, net
of tax of $5.4, $5.6 and $2.3 for fiscal 2013, 2012 and 2011, respectively
Net unrealized gains (losses) in pension and other post retirement
benefits, net of tax of $2.4, $0.4 and $4.7 for fiscal 2013, 2012 and 2011,
respectively
Reclassification of net pension and post-retirement benefit loss to net
income, net of tax of $2.3, $2.2 and $2.2 for fiscal 2013, 2012 and 2011,
respectively
Total other comprehensive income (loss)
Comprehensive income
Year Ended September 30,
2013
2012
2011
$
161.1
$
106.5
$
167.9
(5.2)
(3.3)
8.4
5.8
3.8
9.5
$
170.6
$
2.3
(9.3)
8.4
(10.1)
(13.0)
10.0
(14.3)
8.3
3.6
(9.3)
97.2
$
3.9
(0.9)
167.0
See Notes to Consolidated Financial Statements.
51
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Cash Flows
(In millions)
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided by operating activities:. . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net loss of unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of acquired businesses: . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business, net of transaction costs . . . . . . . . . . . . . . . . . . .
Investments in property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration and related payments. . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in acquired businesses, net of cash acquired . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . .
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans . . . . . . . . . . . . .
Repayments under revolving and bank lines of credit and term loans. . . . . . . . . . . . .
Proceeds from issuance of Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing and issuance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on sellers notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment arrangements . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended September 30,
2012
2011
2013
161.1
$
106.5
$
167.9
16.2
—
10.3
54.9
11.2
24.2
(2.1)
—
0.4
17.9
89.0
0.3
(5.2)
5.4
(8.1)
(32.6)
(0.9)
342.0
3.6
—
(60.1)
—
(4.5)
(3.2)
(64.2)
5.3
—
12.5
51.5
10.9
24.2
0.1
—
—
(6.9)
(23.1)
17.3
(6.9)
(15.9)
(19.4)
(9.0)
6.3
153.4
0.7
—
(69.4)
—
—
(7.0)
(75.7)
1,474.8
(1,682.1)
—
—
(87.8)
—
(0.8)
2.0
13.3
(280.6)
0.7
(2.1)
131.9
129.8
$
1,684.0
(1,694.6)
—
—
(75.4)
(17.5)
—
6.6
17.6
(79.3)
2.6
1.0
130.9
131.9
$
31.8
1.2
16.0
50.3
11.4
(11.3)
0.8
(93.0)
—
10.4
(37.8)
(7.6)
6.1
(76.5)
29.1
13.0
10.3
122.1
0.2
253.6
(72.7)
(20.0)
—
(7.6)
153.5
1,610.1
(1,632.1)
200.0
(18.9)
(67.9)
(358.7)
(0.3)
5.6
31.5
(230.7)
(2.1)
42.8
88.1
130.9
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(56.6) $
(44.0)
(48.6) $
(79.6)
(44.5)
(115.1)
See Notes to Consolidated Financial Statements.
52
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
(In millions, except stated value per share)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, less allowances of $9.5 in 2013 and $10.5 in 2012 . . . . . . . . . . . . .
Accounts receivable pledged. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Notes 16, 17 and 18)
Shareholders’ equity:
September 30,
2013
2012
$
$
$
129.8
206.6
106.7
324.9
113.0
881.0
422.3
315.1
284.4
34.4
1,937.2
92.4
137.7
279.7
509.8
478.1
238.8
1,226.7
131.9
330.9
—
414.9
122.3
1,000.0
427.4
309.4
307.1
30.5
2,074.4
1.5
152.3
279.8
433.6
781.1
257.8
1,472.5
Common shares and capital in excess of $.01 stated value per share; shares outstanding
of 62.0 in 2013 and 61.3 in 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost; 6.1 shares in 2013 and 6.8 shares in 2012 . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
397.5
703.4
(312.6)
(77.8)
710.5
1,937.2
$
408.6
630.2
(349.6)
(87.3)
601.9
2,074.4
See Notes to Consolidated Financial Statements.
53
Balance at September 30, 2010. . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . .
Share-based compensation . . . . . . . . .
Dividends declared ($1.05 per share) .
Treasury share purchases . . . . . . . . . .
Treasury share issuances . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2011. . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . .
Share-based compensation . . . . . . . . .
Dividends declared ($1.225 per share)
Treasury share purchases . . . . . . . . . .
Treasury share issuances . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2012. . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . .
Share-based compensation . . . . . . . . .
Dividends declared ($1.4125 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury share issuances . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2013. . . . . .
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
Common Shares
Shares
68.1
Amount
0.3
$
Capital in
Excess of
Stated Value
433.7
$
Retained
Earnings
$ 499.6
167.9
Treasury Shares
Shares
1.8
Amount
$
(92.0) $
Accumulated
Other
Comprehensive
Income (loss)
Total
(0.9)
(78.0)
(77.1) $ 764.5
167.9
(0.9)
16.0
(68.3)
(358.7)
37.9
1.4
559.8
106.5
(9.3)
12.5
(75.4)
(17.5)
25.2
0.1
601.9
161.1
9.5
10.3
(87.3)
(9.3)
9.5
(87.8)
15.6
(0.1)
(77.8) $ 710.5
68.1
0.3
68.1
0.3
6.9
(1.2)
(358.7)
62.2
7.5
(388.5)
0.4
(1.1)
(17.5)
56.4
6.8
(349.6)
16.0
(24.3)
1.4
426.8
12.5
(31.2)
0.2
408.3
10.3
(68.3)
599.2
106.5
(75.4)
(0.1)
630.2
161.1
(87.8)
(21.4)
(0.7)
37.0
68.1
$
0.3
$
397.2
(0.1)
$ 703.4
6.1
$ (312.6) $
See Notes to Consolidated Financial Statements.
54
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Scotts Miracle-Gro Company (“Scotts Miracle-Gro” and, together with its subsidiaries, the “Company”) are engaged
in the manufacturing, marketing and sale of branded products for consumer lawn and garden care. The Company’s primary
customers include home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores,
nurseries, garden centers and food and drug stores. The Company’s products are sold primarily in North America and the European
Union. The Company also operates the Scotts LawnService® business, which provides residential and commercial lawn care, tree
and shrub care and limited pest control services in the United States.
On February 28, 2011, the Company completed the sale of a significant majority of the assets of its Global Professional
business (excluding the non-European professional seed business, “Global Pro”) to Israel Chemicals Ltd. (“ICL”). As a result of
the then-pending sale, effective in the Company’s first quarter of fiscal 2011, the Company classified Global Pro as discontinued
operations. In the fourth quarter of fiscal year 2012, the Company completed the wind down of the Company's professional seed
business (“Pro Seed”). As a result, effective in its fourth quarter of fiscal 2012, the Company classified Pro Seed as a discontinued
operation.
In fiscal 2012 and fiscal 2011 the Company incurred product registration and recall costs of $8.2 million and $14.6 million,
respectively. Fiscal 2012 and fiscal 2011 costs include reserves that were established in connection with the previously disclosed
U.S. EPA and U.S. DOJ investigations into pesticide product registration issues, which, as previously disclosed in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2012, were settled in the fourth quarter of fiscal year 2012.
The Company does not expect to incur any additional costs related to these investigations.
Due to the nature of the consumer lawn and garden business, the majority of sales to customers occur in the Company’s
second and third fiscal quarters. On a combined basis, net sales for the second and third quarters of the last three fiscal years
represented in excess of 75% of annual net sales.
Organization and Basis of Presentation
The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Scotts Miracle-Gro and
all wholly-owned and majority-owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
The Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity)
and an objective evaluation and determination of effective management control.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are
based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results
ultimately may differ from the estimates.
Revenue Recognition
Revenue is recognized when title and risk of loss transfer, which generally occurs when products or services are received
by the customer. Provisions for estimated returns and allowances are recorded at the time revenue is recognized based on historical
rates and are periodically adjusted for known changes in return levels. Outbound shipping and handling costs are included in cost
of sales.
Under the terms of the Amended and Restated Exclusive Agency and Marketing Agreement (the “Marketing Agreement”)
between the Company and Monsanto Company (“Monsanto”), the Company, in its role as exclusive agent, performs certain
functions, primarily manufacturing conversion, distribution and logistics, and selling and marketing support on behalf of Monsanto
in the conduct of the consumer Roundup® business. The actual costs incurred by the Company on behalf of the consumer Roundup®
business are recovered from Monsanto through the terms of the Marketing Agreement. The reimbursement of costs for which the
Company is considered the primary obligor is included in net sales.
55
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Promotional Allowances
The Company promotes its branded products through, among other things, cooperative advertising programs with retailers.
Retailers may also be offered in-store promotional allowances and rebates based on sales volumes. Certain products are promoted
with direct consumer rebate programs and special purchasing incentives. Promotion costs (including allowances and rebates)
incurred during the year are expensed to interim periods in relation to revenues and are recorded as a reduction of net sales. Accruals
for expected payouts under these programs are included in the “Other current liabilities” line in the Consolidated Balance Sheets.
Advertising
Advertising costs incurred during the year by our Global Consumer segment are expensed to interim periods in relation to
revenues. All advertising costs, except for external production costs, are expensed within the fiscal year in which such costs are
incurred. External production costs for advertising programs are deferred until the period in which the advertising is first aired.
Scotts LawnService® promotes its service offerings primarily through direct mail campaigns. External costs associated with
these campaigns that qualify as direct response advertising costs are deferred and recognized as advertising expense in proportion
to revenues over a period not beyond the end of the subsequent calendar year. Costs that do not qualify as direct response advertising
costs are expensed within the fiscal year incurred on a monthly basis in proportion to net sales. There were no costs deferred at
September 30, 2013. The costs deferred at September 30, 2012 were $1.1 million.
Advertising expenses were $142.2 million in fiscal 2013, $168.9 million in fiscal 2012 and $140.7 million in fiscal 2011.
Research and Development
All costs associated with research and development are charged to expense as incurred. Expenses for fiscal 2013, fiscal
2012 and fiscal 2011 were $46.7 million, $50.8 million and $50.9 million, respectively, including product registration costs of
$12.4 million, $14.0 million and $14.6 million, respectively.
Environmental Costs
The Company recognizes environmental liabilities when conditions requiring remediation are probable and the amounts can
be reasonably estimated. Expenditures which extend the life of the related property or mitigate or prevent future environmental
contamination are capitalized. Environmental liabilities are not discounted or reduced for possible recoveries from insurance
carriers.
Share-Based Compensation Awards
The fair value of awards is expensed over the requisite service period which is typically the vesting period, generally three
years, except in cases where employees are eligible for accelerated vesting based on having satisfied retirement requirements
relating to age and years of service. Performance-based awards are expensed over the requisite service period based on achievement
of performance criteria. The Company uses a binomial model to determine the fair value of its option grants. The Company
classifies share-based compensation expense within selling, general and administrative expenses to correspond with the same line
item as cash compensation paid to employees.
Earnings per Common Share
Basic earnings per common share is computed based on the weighted-average number of common shares outstanding each
period. Diluted earnings per common share is computed based on the weighted-average number of common shares and dilutive
potential common shares (stock options, stock appreciation rights, performance shares, restricted stock and restricted stock unit
awards) outstanding each period.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with original maturities of three months or less to be cash
equivalents. The Company maintains cash deposits in banks which from time to time exceed the amount of deposit insurance
available. Management periodically assesses the financial condition of the Company’s banks and believes that the risk of any
potential credit loss is minimal.
56
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Allowances for doubtful accounts
reflect the Company’s best estimate of amounts in its existing accounts receivable that may not be collected due to customer claims
or customer inability or unwillingness to pay. The allowance is determined based on a combination of factors, including the
Company’s risk assessment regarding the credit worthiness of its customers, historical collection experience and length of time
the receivables are past due. Account balances are charged off against the allowance when the Company believes it is probable
the receivable will not be recovered.
Inventories
Inventories are stated at the lower of cost or market, principally determined by the first in, first out method of accounting.
Inventories include the cost of raw materials, labor, manufacturing overhead and freight and in-bound handling costs incurred to
pre-position goods in the Company’s warehouse network. The Company makes provisions for obsolete or slow-moving inventories
as necessary to properly reflect inventory at the lower of cost or market value. Adjustments to reflect inventories at net realizable
values were $19.7 million and $21.0 million at September 30, 2013 and 2012, respectively.
Long-lived Assets
Property, plant and equipment are stated at cost. Interest capitalized in property, plant and equipment amounted to $0.8
million, $0.9 million and $0.1 million during fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Expenditures for maintenance
and repairs are charged to expense as incurred. When properties are retired or otherwise disposed of, the cost of the asset and the
related accumulated depreciation are removed from the accounts with the resulting gain or loss being reflected in income from
operations.
Depreciation of property, plant and equipment is provided on the straight-line method and is based on the estimated useful
economic lives of the assets as follows:
Land improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 –25 years
10 –40 years
3 –15 years
6 –10 years
3 – 8 years
Intangible assets with finite lives, and therefore subject to amortization, include technology such as patents, customer
relationships, non-compete agreements and certain tradenames. These intangible assets are being amortized over their estimated
useful economic lives, which typically range from 3 to 25 years. The Company’s fixed assets and intangible assets subject to
amortization are required to be tested for recoverability whenever events or changes in circumstances indicate that carrying amounts
may not be recoverable. If an evaluation of recoverability was required, the estimated undiscounted future cash flows associated
with the asset would be compared to the asset’s carrying amount to determine if a write-down is required. If the undiscounted
cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds fair
value and classified as “Impairment, restructuring and other charges” in the Consolidated Statements of Operations.
The Company had noncash investing activities of $7.3 million, $17.3 million and $8.7 million respectively, representing
unpaid liabilities incurred during fiscal 2013, fiscal 2012 and fiscal 2011 to acquire property, plant and equipment.
Internal Use Software
The costs of internal use software are expensed or capitalized depending on whether they are incurred in the preliminary
project stage, application development stage or the post-implementation/operation stage. As of September 30, 2013 and
September 30, 2012, the Company had $17.5 million and $18.6 million, respectively, in unamortized capitalized internal use
computer software costs. Amortization of these costs was $7.3 million, $8.0 million and $9.0 million during fiscal 2013, fiscal
2012 and fiscal 2011, respectively.
57
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not subject to amortization. Goodwill and indefinite-lived intangible
assets are reviewed for impairment by applying a fair-value based test on an annual basis, as of the first day of the Company’s
fiscal fourth quarter, or more frequently if circumstances indicate impairment may have occurred. With respect to goodwill, the
Company performs either a qualitative or quantitative evaluation for each of its reporting units. Factors considered in the qualitative
test include reporting unit specific operating results as well as new events and circumstances impacting the operations of the
reporting units. For the quantitative test, the Company assesses goodwill for impairment by comparing the carrying value of its
reporting units to their respective fair values and reviewing the Company’s market value of invested capital. A reporting unit is
defined as an operating segment or one level below an operating segment. The Company has identified six reporting units. The
Company determines the fair value of its reporting units under the income-based approach utilizing discounted cash flows and
incorporates assumptions it believes marketplace participants would utilize. The Company also uses a comparative market-based
approach using market multiples and other factors to corroborate the discounted cash flow results used.
With respect to indefinite-lived intangible assets, the Company performs either a qualitative or quantitative evaluation for
each of its indefinite-lived intangible assets. Factors considered in the qualitative test include indefinite-lived intangible asset
specific operating results as well as new events and circumstances impacting the cash flows of the indefinite-lived intangible assets.
For the quantitative test, the value of all indefinite-lived tradenames was determined using a royalty savings methodology similar
to that employed when the associated businesses were acquired but using updated estimates of sales, cash flow and profitability.
If it is determined that an impairment has occurred, an impairment loss is recognized for the amount by which the carrying value
of the asset exceeds its estimated fair value and classified as “Impairment, restructuring and other charges” in the Consolidated
Statements of Operations.
Insurance and Self-Insurance
The Company maintains insurance for certain risks, including workers’ compensation, general liability and vehicle liability,
and is self-insured for employee-related health care benefits up to a specified level for individual claims. The Company accrues
for the expected costs associated with these risks by considering historical claims experience, demographic factors, severity factors
and other relevant information. Costs are recognized in the period the claim is incurred, and accruals include an actuarially
determined estimate of claims incurred but not yet reported.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized
for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective
tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon
available evidence. A valuation allowance is established when management believes that it is more likely than not that some
portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the
Company’s tax provision in the period of change.
The Company establishes a liability for tax return positions in which there is uncertainty as to whether or not the position
will ultimately be sustained. Amounts for uncertain tax positions are adjusted in quarters when new information becomes available
or when positions are effectively settled. The Company recognizes interest expense and penalties related to these unrecognized
tax benefits within income tax expense.
U.S. income tax expense and foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely
reinvested at the time the earnings are generated. Where foreign earnings are indefinitely reinvested, no provision for U.S. income
or foreign withholding taxes is made. When circumstances change and the Company determines that some or all of the undistributed
earnings will be remitted in the foreseeable future, the Company accrues an expense in the current period for U.S. income taxes
and foreign withholding taxes attributable to the anticipated remittance.
Translation of Foreign Currencies
The functional currency for each Scotts Miracle-Gro subsidiary is generally its local currency. Assets and liabilities of these
subsidiaries are translated at the exchange rate in effect at each year-end. Income and expense accounts are translated at the average
rate of exchange prevailing during the year. Translation gains and losses arising from the use of differing exchange rates from
period to period are included in accumulated other comprehensive income (loss) within shareholders’ equity. Foreign currency
transaction gains and losses are included in the determination of net income and classified as “Other (income) expense, net” in
the Consolidated Statements of Operations.
58
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative Instruments
In the normal course of business, the Company is exposed to fluctuations in interest rates, the value of foreign currencies
and the cost of commodities. A variety of financial instruments, including forward and swap contracts, are used to manage these
exposures. These financial instruments are recognized at fair value on the balance sheet, and all changes in fair value are recognized
in net income or shareholders’ equity through accumulated other comprehensive income (loss). The Company’s objective in
managing these exposures is to better control these elements of cost and mitigate the earnings and cash flow volatility associated
with changes in the applicable rates and prices.
The Company has established policies and procedures that encompass risk-management philosophy and objectives,
guidelines for derivative-instrument usage, counterparty credit approval, and the monitoring and reporting of derivative activity.
The Company does not enter into derivative instruments for the purpose of speculation.
The Company formally designates and documents instruments at inception that qualify for hedge accounting of underlying
exposures in accordance with GAAP. The Company formally assesses, both at inception and at least quarterly, whether the financial
instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure.
Fluctuations in the value of these instruments generally are offset by changes in the cash flows of the underlying exposures being
hedged. This offset is driven by the high degree of effectiveness between the exposure being hedged and the hedging instrument.
GAAP requires all derivative instruments to be recognized as either assets or liabilities at fair value in the Consolidated Balance
Sheets. The Company designates commodity hedges as cash flow hedges of forecasted purchases of commodities and interest
rate swap agreements as cash flow hedges of interest payments on variable rate borrowings. Any ineffective portion of a change
in the fair value of a qualifying instrument is immediately recognized in earnings. The amounts recorded in earnings related to
ineffectiveness of derivative hedges for the years ended September 30, 2013, September 30, 2012 and September 30, 2011 were
not significant.
RECENT ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
In June 2011, the FASB issued amended accounting guidance on the presentation of comprehensive income. The amended
guidance requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The provisions were effective for the Company’s financial
statements for the fiscal year beginning October 1, 2012 and the Company elected to present net income and other comprehensive
income in two separate but consecutive statements. The adoption of the amended guidance did not have a significant impact on
the Company's financial statements and related disclosures.
Balance Sheet Offsetting
In December 2011, the FASB issued an amendment to accounting guidance on the presentation of offsetting of derivatives,
and financial assets and liabilities. The amended guidance requires quantitative disclosures regarding the gross amounts and their
location within the statement of financial position. The provisions are effective for the Company's financial statements for the
fiscal year beginning October 1, 2013. The adoption of the amended guidance will not have a significant impact on the Company's
financial statements and related disclosures.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued an amendment to accounting guidance on the reporting of amounts reclassified out of
accumulated other comprehensive income. The amended guidance requires presentation of reclassification adjustments from each
component of accumulated other comprehensive income either in a single note or parenthetically on the face of the financial
statements, for those amounts required to be reclassified into net income in their entirety in the same reporting period. For amounts
that are not required to be reclassified in their entirety in the same reporting period, cross-reference to other disclosures is required.
The provisions are effective for the Company's financial statements for the fiscal year beginning October 1, 2013. The Company
elected to early adopt the amended guidance for the financial statements presented. The adoption of the amended guidance did
not have a significant impact on the Company's financial statements and related disclosures.
59
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 2. DISCONTINUED OPERATIONS
Pro Seed
In the fourth quarter of fiscal year 2012, the Company completed the wind down of the Company's professional seed business.
As a result, effective in its fourth quarter of fiscal 2012, the Company classified its results of operations for all periods presented
to reflect the professional seed business as a discontinued operation. In 2013, the Company recorded a $0.1 million loss related
to the wind-down of the professional seed business. The Company recorded restructuring and other charges of $0.1 million and
$3.4 million in fiscal 2012 and fiscal 2011, respectively related to termination benefits provided to employees and other restructuring
charges. The company also recorded a $0.5 million impairment charge related to the investment in Turf-Seed (Europe) Limited
in fiscal 2012.
On May 26, 2011, the Company and the former owners of Turf-Seed, Inc. agreed to an early settlement of the contingent
consideration associated with the Company’s fiscal 2006 acquisition of Turf-Seed, Inc. Concurrently, several other contracts and
agreements between the Company and the former owners of Turf-Seed, Inc. were terminated or amended. The Company agreed
to pay a total of $21.3 million to resolve these matters, resulting in a net charge of $10.3 million after consideration of previously
recorded liabilities and other aspects of the agreements. In the fourth quarter of fiscal 2011, the Company also recorded impairment
and other charges of $6.5 million related to the investment in Turf-Seed (Europe) Limited.
Global Pro
On February 28, 2011, the Company completed the sale of Global Pro to ICL for $270 million. After agreed upon adjustments
(including post-closing adjustments), the Company received $270.9 million net proceeds, or $253.6 million after transaction costs.
Results from discontinued operations for fiscal 2011 include an after-tax gain on the sale of Global Pro of $39.5 million, which
includes transaction costs. In addition, in fiscal 2012, the Company recorded an adjustment of $1.7 million as a change in estimate
on the tax due on the sale of Global Pro.
Pursuant to the terms of the indenture governing the Company’s 7.25% Senior Notes due 2018 and the indenture governing
the Company’s 6.625% Senior Notes due 2020, the Company had a period of 360 days to apply an amount equal to the net proceeds
received from the sale of Global Pro or any other asset sales to repay indebtedness, acquire equity interests in certain entities, make
capital expenditures, acquire other assets useful in a related business and/or make investments in certain joint ventures. Any
amount not so applied must be used to make an offer to repurchase the Senior Notes, provided that such repurchase offer may be
deferred until such time as the unutilized net proceeds from the sale of Global Pro and any other asset sales exceed $50 million
(at which time the entire unutilized net proceeds, and not just the amount in excess of $50 million, shall be applied to make such
repurchase offer). As of September 30, 2013, the Company had applied all but approximately $45 million of the net proceeds
from the sale of Global Pro to one or more of the uses permitted by the indentures. The Company has no unutilized net proceeds
from any other asset sales.
The Company’s decision to exit the professional ornamental horticulture, turf and specialty agriculture markets and sell
Global Pro was another step in its strategy to evolve its business portfolio to better leverage growth opportunities within its Global
Consumer and Scotts LawnService® business segments.
In conjunction with the transaction, The Scotts Company LLC (“Scotts LLC”), a wholly owned subsidiary of Scotts Miracle-
Gro, and ICL entered into several product supply agreements which are generally up to five years in duration, as well as various
trademark and technology licensing agreements with varying durations. The purpose of these agreements is to allow each party
to continue leveraging existing production capabilities and intellectual property to meet customer demand for their respective
products. Scotts LLC estimates that it will supply ICL with approximately $30 million of product under these agreements, as well
as purchase approximately $15 million of materials from ICL, each on an annualized basis.
The Company’s continuing cash inflows and outflows related to these agreements are not considered to be significant in
relation to the overall cash flows of Global Pro. Furthermore, none of these agreements permit the Company to influence the
operating or financial policies of Global Pro under the ownership of ICL. Therefore, Global Pro met the criteria for presentation
as discontinued operations. As such, effective in the first quarter of fiscal 2011, the Company classified Global Pro as discontinued
operations for all periods presented. The Global Pro results from discontinued operations include an allocation of interest expense
relating to the amount of our then existing credit facilities that was required to be repaid from the sale proceeds.
60
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the results of Pro Seed and Global Pro as discontinued operations:
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of Global Pro business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Pro sale related transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations before income taxes . . . . . . . . .
Income tax expense (benefit) from discontinued operations. . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended September 30,
2013
2012
2011
(In millions)
— $
0.3
—
—
—
—
—
(0.3)
(0.2)
(0.1) $
$
26.7
32.7
0.6
—
—
0.3
—
(6.9)
(0.2)
(6.7) $
124.7
122.5
20.2
(93.0)
17.3
(1.0)
1.7
57.0
29.0
28.0
NOTE 3. IMPAIRMENT, RESTRUCTURING AND OTHER
The following table details impairment, restructuring and other and rolls forward the restructuring and other accrued in fiscal
2013, fiscal 2012 and fiscal 2011:
Year Ended September 30,
2013
2012
2011
(In millions)
Restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Property, plant and equipment impairments . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . .
Total impairment, restructuring and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.4
—
15.9
20.3
$
$
1.8
2.1
3.2
7.1
$
$
Amounts reserved for restructuring and other at beginning of year . . . . . . . . $
Restructuring and other in continuing operations . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other in discontinued operations . . . . . . . . . . . . . . . . . . . .
Payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reserved for restructuring and other at end of year . . . . . . . . . . . . . $
Year Ended September 30,
2013
2012
2011
(In millions)
10.2
$
29.6
$
9.1
—
(8.2)
11.1
$
1.8
0.1
(21.3)
10.2
$
27.4
9.1
19.4
55.9
0.5
27.4
20.2
(18.5)
29.6
Included in the restructuring reserves as of September 30, 2013, is $3.1 million that is classified as long-term. Payments against
the long-term reserves will be incurred as the employees covered by the 2011 restructuring plan retire. The remaining amounts
reserved will be paid out over the course of fiscal 2014.
Fiscal 2013
During the first quarter of fiscal 2013, the Company recognized income of $4.7 million related to the reimbursement by a
vendor for a portion of the costs incurred for the development and commercialization of products including the active ingredient
MAT 28 for the Global Consumer segment. During the first quarter of 2013, the Company also recognized a $4.3 million asset
impairment charge as a result of issues with the commercialization of an insect repellent technology for the Global Consumer
segment. Also, as a result of the Company's annual impairment review performed in the fourth quarter of fiscal 2013, the Company
recognized an impairment charge for a non-recurring fair value adjustment of $11.6 million within the Global Consumer segment
related to the Ortho® brand and certain sub-brands of Ortho®. The fair value was calculated based upon the evaluation of the
historical performance and future growth of the Ortho® business.
61
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During fiscal 2013, the Company recognized $9.1 million in restructuring costs related to termination benefits provided to
international employees in relation to the profitability improvement initiative announced in December 2012, associated with the
international restructuring plan to reduce headcount and streamline management decision making within the Global Consumer
segment.
Fiscal 2012
During fiscal 2012, in continuation of the 2011 restructuring plan, the Company incurred an additional $1.6 million in
restructuring costs related to termination benefits provided to employees who accepted voluntary retirement and special termination
benefits provided to certain employees upon future separation as well as $0.2 million related to curtailment charges for its U.S.
defined benefit pension and U.S. retiree medical plans.
For the year ended September 30, 2012, the Company recognized a $5.3 million asset impairment charge as a result of issues
with commercialization of products including the active ingredient MAT 28 for the Global Consumer segment.
Fiscal 2011
On August 8, 2011, the Company announced a restructuring plan designed to streamline management decision making and
continue the regionalization of the Company’s operating structure, with the objective of reinvesting the savings generated in
innovation and growth initiatives. During fiscal 2011, the Company incurred $23.7 million in restructuring costs related to
termination benefits provided to employees who were involuntarily terminated and special termination benefits provided to certain
employees upon future separation, as well as $2.3 million related to curtailment charges for its U.S. defined benefit pension and
U.S. retiree medical plans.
In connection with the Company’s annual impairment review, the Company recognized impairment charges related to the
Wild Bird Food reporting unit of $9.1 million for property, plant and equipment, $16.8 million for intangible assets and $0.3 million
for goodwill, based on their respective estimated fair values. Losses generated by this business over the past two years, combined
with a revised long-term outlook have negatively impacted the value of this business.
In addition, the Company recognized charges of $2.3 million for other intangible asset impairments and $1.4 million for
restructuring and other charges.
NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
The following table displays a rollforward of the carrying amount of goodwill by reportable segment, as well as Corporate &
Other:
Global
Consumer
(In millions)
Scotts
LawnService
®
Corporate &
Other
Total
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . .
Balance at September 30, 2011
Acquisitions, net of purchase price adjustments . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . .
Balance at September 30, 2012
Acquisitions, net of purchase price adjustments . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated impairment losses . . . . . . . . . . . . . . . .
Balance at September 30, 2013
$
244.6
(62.8)
181.8
0.3
244.9
(62.8)
182.1
1.0
245.9
(62.8)
183.1
62
$
$
127.3
—
127.3
—
$
127.3
$
—
127.3
4.7
132.0
—
132.0
$
$
$
$
24.6
(24.6)
—
—
24.6
(24.6)
—
—
$
$
— $
—
— $
396.5
(87.4)
309.1
0.3
396.8
(87.4)
309.4
5.7
377.9
(62.8)
315.1
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents intangible assets, net:
September 30, 2013
September 30, 2012
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
61.8
81.2
47.0
103.9
(53.8) $
(65.0)
(24.8)
(88.2)
$
(In millions)
8.0
$
16.2
22.2
15.7
62.1
222.3
284.4
$
60.9
82.6
47.0
101.2
(47.1) $
(65.6)
(22.7)
(81.5)
$
13.8
17.0
24.3
19.7
74.8
232.3
307.1
Finite-lived intangible assets:
Technology. . . . . . . . . . . . . . . . . . . . . $
Customer accounts . . . . . . . . . . . . . . .
Tradenames . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Total finite-lived intangible assets,
net. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite-lived tradenames. . . . . . . . . . . .
Total intangible assets, net. . . . . . . . .
Fiscal 2013
During the first quarter of 2013, the Company recognized a $4.3 million asset impairment charge as a result of issues with
the commercialization of an insect repellent technology for the Global Consumer segment. During the fourth quarter of fiscal
2013, the Company completed its annual impairment review and recognized an impairment charge for a non-recurring fair value
adjustment of $11.6 million, which includes $11.1 million for indefinite-lived tradenames and $0.5 million for finite-lived
tradenames, within the Global Consumer segment related to the Ortho® brand and certain sub-brands of Ortho®. The impact of
the fair value adjustment was to reduce the carrying value of the indefinite-lived Ortho® brand and sub-brands from $137.1 million
to $126.0 million. The impairment charge is discussed further in “NOTE 3. IMPAIRMENT, RESTRUCTURING AND OTHER
CHARGES.” As a result of the annual impairment review, the Company also determined that no other charges for impairment of
goodwill or intangible assets were required. The estimated fair value of each reporting unit was substantially in excess of its
carrying value as of the annual test date. Each of the indefinite-lived tradenames had an estimated fair value substantially in excess
of its carrying value as of the annual test date, with the exception of the Ortho® brand.
Fiscal 2012
The Company recognized a $3.2 million impairment charge related to an intangible asset associated with the active ingredient
MAT 28. The impairment charge is discussed further in “NOTE 3. IMPAIRMENT, RESTRUCTURING AND OTHER
CHARGES.”
During the fourth quarter of fiscal 2012, the Company completed its annual impairment analysis and determined that no
additional charges for impairment of goodwill or intangible assets were required. The estimated fair value of each reporting unit
was substantially in excess of its carrying value as of the annual test date. Each of the indefinite-lived tradenames had an estimated
fair value substantially in excess of its carrying value as of the annual test date, with the exception of the Ortho® tradename and
French tradenames of KB® and Fertiligene®. The carrying value of the Ortho® tradename and French tradenames (KB® and
Fertiligene®) at September 30, 2012 were $137.1 million and $17.7 million, respectively. The excess fair value over the carrying
value of Ortho® tradename and French tradenames were 7.4% and 14.1%, respectively. If future analyses indicate that fair value
has declined below carrying value, the result will be an impairment of a portion of the indefinite-lived intangible asset value.
Fiscal 2011
In connection with the Company’s annual impairment review, the Company recognized impairment charges related to the
Wild Bird Food reporting unit of $16.8 million for intangible assets and $0.3 million for goodwill, based on their respective
estimated fair values. The impairment charges are discussed further in “NOTE 3. IMPAIRMENT, RESTRUCTURING AND
OTHER CHARGES.”
63
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total amortization expense for the years ended September 30, 2013, 2012, and 2011 was $11.2 million, $10.9 million and
$11.4 million, respectively. Amortization expense is estimated to be as follows for the years ending September 30 (in millions):
2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 5. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS
The following is detail of certain financial statement accounts:
September 30,
2013
2012
(In millions)
INVENTORIES:
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PREPAID AND OTHER ASSETS:
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, non-trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
182.6
42.7
99.6
324.9
67.1
12.9
33.0
113.0
$
$
$
$
September 30,
2013
2012
(In millions)
PROPERTY, PLANT AND EQUIPMENT, NET:
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
79.6
216.3
508.7
39.7
116.7
15.1
19.6
995.7
(573.4)
422.3
$
$
11.4
9.7
7.3
5.1
3.8
224.6
48.3
142.0
414.9
76.5
13.4
32.4
122.3
74.4
205.2
462.9
45.1
120.8
22.3
39.3
970.0
(542.6)
427.4
64
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
OTHER CURRENT LIABILITIES:
Payroll and other compensation accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Advertising and promotional accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER NON-CURRENT LIABILITIES:
Accrued pension and postretirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Unrecognized loss on derivatives, net of tax of $7.1, $10.6 and $9.6
Pension and other postretirement liabilities, net of tax of $31.4, $36.1 and
$33.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
September 30,
2013
2012
(In millions)
66.6
103.0
110.1
279.7
96.5
96.2
46.1
238.8
$
$
$
$
38.9
152.5
88.4
279.8
118.5
71.6
67.7
257.8
September 30,
2013
2012
2011
(In millions)
(11.5) $
(16.6) $
(15.7)
(58.0)
(8.3)
(77.8) $
(67.6)
(3.1)
(87.3) $
(56.9)
(5.4)
(78.0)
NOTE 6. MARKETING AGREEMENT
The Company is Monsanto’s exclusive agent for the marketing and distribution of consumer Roundup® herbicide products
(with additional rights to new products containing glyphosate or other similar non-selective herbicides) in the consumer lawn and
garden market within the United States and other specified countries, including Australia, Austria, Belgium, Canada, France,
Germany, the Netherlands and the United Kingdom. Under the terms of the Marketing Agreement, the Company is entitled to
receive an annual commission from Monsanto as consideration for the performance of the Company’s duties as agent. The annual
gross commission under the Marketing Agreement is calculated as a percentage of the actual earnings before interest and income
taxes (EBIT) of the consumer Roundup® business in the markets covered by the Marketing Agreement and is based on the
achievement of two earnings thresholds, as defined in the Marketing Agreement. The Marketing Agreement also requires the
Company to make annual payments to Monsanto as a contribution against the overall expenses of the consumer Roundup® business.
The annual contribution payment is defined in the Marketing Agreement as $20 million.
In consideration for the rights granted to the Company under the Marketing Agreement for North America, the Company
was required to pay a marketing fee of $32 million to Monsanto. The Company has deferred this amount on the basis that the
payment will provide a future benefit through commissions that will be earned under the Marketing Agreement. The economic
useful life over which the marketing fee is being amortized is 20 years, with a remaining amortization period of five years as of
September 30, 2013.
Under the terms of the Marketing Agreement, the Company performs certain functions, primarily manufacturing conversion,
distribution and logistics, and selling and marketing support, on behalf of Monsanto in the conduct of the consumer Roundup®
business. The actual costs incurred for these activities are charged to and reimbursed by Monsanto. The Company records costs
incurred under the Marketing Agreement for which the Company is the primary obligor on a gross basis, recognizing such costs
in “Cost of sales” and the reimbursement of these costs in “Net sales,” with no effect on gross profit or net income.
The gross commission earned under the Marketing Agreement, the contribution payments to Monsanto and the amortization
of the initial marketing fee paid to Monsanto are included in the calculation of net sales in the Company’s Consolidated Statements
of Operations. The elements of the net commission earned under the Marketing Agreement and reimbursements associated with
the Marketing Agreement and included in “Net sales” were as follows:
65
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended September 30
2013
2012
2011
(In millions)
Gross commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contribution expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of marketing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursements associated with Marketing Agreement . . . . . . . . . . . . . . .
Total net sales associated with Marketing Agreement. . . . . . . . . . . . . . $
81.8
(20.0)
(0.8)
61.0
62.0
123.0
$
$
81.3
(20.0)
(0.8)
60.5
79.6
140.1
$
$
77.9
(20.0)
(0.8)
57.1
63.7
120.8
The Marketing Agreement has no definite term except as it relates to the European Union countries (the “EU term”). The
current EU term extends through September 30, 2015. Thereafter, the Marketing Agreement provides that the parties may agree
to renew the EU term for an additional three years.
The Marketing Agreement provides Monsanto with the right to terminate the Marketing Agreement upon an event of default
(as defined in the Marketing Agreement) by the Company, a change in control of Monsanto or the sale of the consumer Roundup®
business. The Marketing Agreement provides the Company with the right to terminate the Marketing Agreement in certain
circumstances, including an event of default by Monsanto or the sale of the consumer Roundup® business. Unless Monsanto
terminates the Marketing Agreement due to an event of default by the Company, Monsanto is required to pay a termination fee to
the Company that varies by program year. The termination fee is calculated as a percentage of the value of the Roundup® business
exceeding a certain threshold, but in no event will the termination fee be less than $16 million. Monsanto may also be able to
terminate the Marketing Agreement within a given region, including North America, without paying a termination fee if unit
volume sales to consumers in that region decline: (1) over a cumulative three-fiscal-year period; or (2) by more than 5% for each
of two consecutive years. If the Marketing Agreement was terminated for any reason, the Company would also lose all, or a
substantial portion, of the significant source of earnings and overhead expense absorption the Marketing Agreement provides.
Under the Marketing Agreement, Monsanto must provide the Company with notice of any proposed sale of the consumer
Roundup® business, allow the Company to participate in the sale process and negotiate in good faith with the Company with
respect to any such proposed sale. In the event the Company acquires the consumer Roundup® business in such a sale, the Company
would receive as a credit against the purchase price the amount of the termination fee that would have been paid to the Company
if Monsanto had exercised its right to terminate the Marketing Agreement in connection with a sale to another party. If Monsanto
decides to sell the consumer Roundup® business to another party, the Company must let Monsanto know whether the Company
intends to terminate the Marketing Agreement and forfeit any right to a termination fee. For additional details regarding the
Marketing Agreement, see “ITEM 1A. RISK FACTORS - If Monsanto were to terminate the Marketing Agreement for consumer
Roundup® products, we would lose a substantial source of future earnings and overhead expense absorption” of this Annual Report
on Form 10-K.
NOTE 7. ACQUISITIONS
During fiscal 2013, 2012 and 2011, the Company completed several acquisition within its controls, growing media and
Scotts LawnService® businesses that individually and in the aggregate were not significant. The aggregate purchase price of these
acquisitions was $7.2 million, $6.7 million and $10.9 million in fiscal 2013, fiscal 2012 and fiscal 2011, respectively. The
Consolidated Financial Statements include the results of operations from these business combinations from the date of each
acquisition.
On October 14, 2013, the Company acquired substantially all of the assets of the Tomcat® consumer rodent control business
from Bell Laboratories, Inc. located in Madison, Wisconsin for $60 million. The initial purchase price accounting for the Tomcat®
acquisition will be provided during the first quarter of fiscal 2014.
NOTE 8. RETIREMENT PLANS
The Company sponsors a defined contribution 401(k) plan for substantially all U.S. associates. The Company matches
150% of associates’ initial 4% contribution and 50% of their remaining contribution up to 6%. The Company recorded charges
of $13.1 million, $12.9 million and $13.2 million under the plan in fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
The Company sponsors two defined benefit plans for certain U.S. associates. Benefits under these plans have been frozen
and closed to new associates since 1997. The benefits under the primary plan are based on years of service and the associates’
average final compensation or stated amounts. The Company’s funding policy, consistent with statutory requirements and tax
66
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
considerations, is based on actuarial computations using the Projected Unit Credit method. The second frozen plan is a non-
qualified supplemental pension plan. This plan provides for incremental pension payments so that total pension payments equal
amounts that would have been payable from the Company’s pension plan if it were not for limitations imposed by the income tax
regulations. In connection with the restructuring plan discussed in “NOTE 3. IMPAIRMENT, RESTRUCTURING AND OTHER
CHARGES,” the Company recognized a plan curtailment gain of $0.5 million in fiscal 2013 and charge of $0.2 million in fiscal
2012 for a change in the benefit obligations associated with these plans.
The Company sponsors defined benefit pension plans associated with its international businesses in the United Kingdom,
Germany, France and the Netherlands. These plans generally cover all associates of the respective businesses, with retirement
benefits primarily based on years of service and compensation levels. In fiscal 2013 the Company's remaining obligations were
settled for the defined benefit pension plan associated with its Netherlands business. Two of the Company’s previously-sponsored
international defined benefit plans were transferred to ICL in connection with the sale of Global Pro on February 28, 2011. On
July 1, 2010, the Company froze its two U.K. defined benefit pension plans and transferred participants to an amended defined
contribution plan. Under the frozen plans, participants are no longer credited for future service; however, future salary increases
will continue to be factored into each participant’s final pension benefit.
67
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present information about benefit obligations, plan assets, annual expense, assumptions and other
information about the Company’s defined benefit pension plans. The defined benefit plans are valued using a September 30
measurement date.
U.S. Defined
Benefit Plans
International
Defined
Benefit Plans
2013
2012
2013
2012
(In millions)
118.8
$
109.6
$
188.0
$
159.6
—
3.9
(8.8)
(7.2)
—
—
—
—
106.7
106.7
85.3
3.4
2.8
(7.2)
—
—
—
$
$
$
—
4.6
11.5
(7.1)
0.2
—
—
—
118.8
118.8
74.3
13.0
5.1
(7.1)
—
—
—
$
$
$
$
84.3
(22.4) $
85.3
$
(33.5) $
$
106.7
106.7
84.3
$
118.8
118.8
85.3
(0.2) $
(22.2)
(22.4) $
36.9
—
36.9
$
$
(0.2) $
(33.4)
(33.6) $
48.8
—
48.8
$
$
1.2
7.8
4.5
(6.1)
(0.8)
(4.6)
(1.3)
2.0
$
$
$
190.7
184.8
139.8
12.1
8.2
(6.1)
(4.6)
0.7
(1.3)
148.8
$
(41.9) $
$
190.7
184.8
148.8
(1.0) $
(40.9)
(41.9) $
56.1
0.4
56.5
$
$
1.1
8.6
22.2
(6.6)
—
—
(0.9)
4.0
188.0
179.9
118.2
15.3
9.3
(6.6)
—
4.3
(0.7)
139.8
(48.2)
188.0
179.9
139.8
(0.9)
(47.3)
(48.2)
55.5
0.5
56.0
Change in projected benefit obligation
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . $
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation. . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at end of year. . . . . . . . . . . . . . . . $
Accumulated benefit obligation at end of year . . . . . . . . . . $
Change in plan assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . $
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . $
Underfunded status at end of year . . . . . . . . . . . . . . . . . . . . $
Information for pension plans with an accumulated
benefit obligation in excess of plan assets
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in the Consolidated Balance Sheets
consist of:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amount accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amounts recognized in accumulated other
comprehensive loss consist of:
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
68
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. Defined
Benefit Plans
International
Defined
Benefit Plans
2013
2012
2013
2012
(In millions, except percentage figures)
Total change in other comprehensive loss attributable to:
Pension benefit gain (loss) during the period
Reclassification of pension benefit losses to net income
Curtailment gain during the period
Foreign currency translation
Total change in other comprehensive loss
Amounts in accumulated other comprehensive loss
expected to be recognized as components of net periodic
benefit cost in fiscal 2014 are as follows:
Actuarial loss
Prior service cost
Amount to be amortized into net periodic benefit cost
Weighted average assumptions used in development of
projected benefit obligation
$
$
$
$
7.1
4.8
—
—
11.9
3.6
—
3.6
$
$
$
(5.1)
5.1
—
—
— $
(0.3)
1.2
(1.0)
(0.4)
(0.5)
$
$
(14.8)
0.8
—
(1.6)
(15.6)
$
$
1.3
—
1.3
Discount rate
Rate of compensation increase
4.32%
n/a
3.39%
n/a
4.32%
3.74%
4.45%
3.40%
Components of net periodic benefit cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Net amortization . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost . . . . . . . . . . . . . . . . .
Curtailment loss (gain) . . . . . . . . . . . . . . . . . . .
Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual termination benefits . . . . . . . . . . .
Total benefit cost . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average assumptions used in
development of net periodic benefit cost
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . .
U.S. Defined
Benefit Plans
International
Defined Benefit Plans
2013
2012
2011
2013
2012
2011
(In millions, except percentage figures)
— $
3.8
(5.2)
4.8
3.4
—
—
—
3.4
$
— $
4.6
(5.5)
5.1
4.2
0.2
—
—
4.4
$
— $
4.8
(5.1)
4.9
4.6
1.1
—
—
5.7
$
1.2
7.8
(8.7)
1.2
1.5
(0.5)
(0.5)
—
0.5
$
$
1.1
8.6
(8.4)
0.8
2.1
—
—
0.3
2.4
$
$
1.3
8.9
(8.4)
1.2
3.0
—
—
—
3.0
3.39%
6.25%
n/a
4.29%
7.50%
n/a
4.66%
7.50%
n/a
4.45%
6.52%
3.4%
5.46%
7.00%
3.5%
5.01%
7.00%
3.5%
69
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other information:
Plan asset allocations:
Target for September 30, 2014:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2013:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2012:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected company contributions in fiscal 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Expected future benefit payments:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 – 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Defined
Benefit Plans
International
Defined
Benefit Plans
(In millions, except percentage figures)
33%
67%
—%
—%
33%
66%
1%
—%
36%
61%
3%
—%
3.9
7.1
7.1
7.2
7.2
7.3
36.1
$
$
49%
49%
—%
2%
47%
44%
—%
9%
54%
41%
—%
5%
7.3
6.2
6.5
6.6
7.0
7.3
43.0
70
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables set forth the fair value of the Company’s pension plan assets, segregated by level within the fair value
hierarchy:
September 30, 2013
Quoted Prices in
Active
Markets for
Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Unobservable
Inputs
(Level 3)
Total
(In millions)
U.S. Defined Benefit Plan Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $
Mutual funds—equities . . . . . . . . . . . . . . . . . . . . . .
Mutual funds—fixed income. . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International Defined Benefit Plan Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds—equities . . . . . . . . . . . . . . . . . . . . . .
Mutual funds—fixed income. . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.5
—
—
1.5
1.6
—
—
—
1.6
$
$
$
$
— $
27.5
55.3
82.8
$
— $
3.3
73.9
70.0
147.2
$
— $
—
—
— $
— $
—
—
—
— $
September 30, 2012
Quoted Prices in
Active
Markets for
Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Unobservable
Inputs
(Level 3)
Total
(In millions)
U.S. Defined Benefit Plan Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $
Mutual funds—equities . . . . . . . . . . . . . . . . . . . . . .
Mutual funds—fixed income. . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International Defined Benefit Plan Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds—equities . . . . . . . . . . . . . . . . . . . . . .
Mutual funds—fixed income. . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2.3
30.8
52.2
85.3
1.0
—
—
—
1.0
$
$
$
$
— $
—
—
— $
— $
3.4
73.2
57.9
134.5
$
— $
—
—
— $
— $
4.4
—
—
4.4
$
1.5
27.5
55.3
84.3
1.6
3.3
73.9
70.0
148.8
2.3
30.8
52.2
85.3
1.0
7.8
73.2
57.9
139.9
The fair value of the mutual funds are valued at the exchange-listed year end closing price or at the net asset value of shares
held by the fund at the end of the year. Insurance contracts are valued by discounting the related cash flows using a current year
end market rate or at cash surrender value, which is presumed to equal fair value. Funds of hedge funds are valued at the net asset
value of shares held by the fund at the end of the year.
71
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below sets forth a summary of changes in the fair value of the Company’s level 3 pension plan assets:
Balance, September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Realized gain on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, sales, issuances and settlements (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized gain on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, sales, issuances and settlements (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Level 3 Assets
Insurance contracts
(In millions)
3.7
1.0
—
(0.1)
(0.2)
4.4
0.3
—
—
(4.7)
—
Investment Strategy
Target allocation percentages among various asset classes are maintained based on an individual investment policy established
for each of the various pension plans. Asset allocations are designed to achieve long-term objectives of return while mitigating
against downside risk and considering expected cash requirements necessary to fund benefit payments. However, the Company
cannot predict future investment returns and therefore cannot determine whether future pension plan funding requirements could
materially and adversely affect its financial condition, results of operations or cash flows.
Basis for Long-Term Rate of Return on Asset Assumptions
The Company’s expected long-term rate of return on asset assumptions are derived from studies conducted by third parties.
The studies include a review of anticipated future long-term performance of individual asset classes and consideration of the
appropriate asset allocation strategy given the anticipated requirements of the plans to determine the average rate of earnings
expected. While the studies give appropriate consideration to recent fund performance and historical returns, the assumptions
primarily represent expectations about future rates of return over the long term.
NOTE 9. ASSOCIATE MEDICAL BENEFITS
The Company provides comprehensive major medical benefits to certain of its retired associates and their dependents.
Substantially all of the Company’s domestic associates who were hired before January 1, 1998 become eligible for these benefits
if they retire at age 55 or older with more than 10 years of service. The retiree medical plan requires certain minimum contributions
from retired associates and includes provisions to limit the overall cost increases the Company is required to cover. The Company
funds its portion of retiree medical benefits on a pay-as-you-go basis.
The following table sets forth information about the retiree medical plan for domestic associates. The retiree medical plan
is valued using a September 30 measurement date.
72
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Change in Accumulated Plan Benefit Obligation (APBO)
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial (loss) gain
Early retirement reinsurance program receipts
Benefits paid (net of federal subsidy of $0.3 and $0.3)
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Employer contribution
Plan participants’ contributions
Gross benefits paid
Fair value of plan assets at end of year
Unfunded status at end of year
Amounts recognized in the Consolidated Balance Sheets consist of:
Current liabilities
Noncurrent liabilities
Total amount accrued
Amounts recognized in accumulated other comprehensive loss consist of:
Actuarial loss
Total change in other comprehensive loss attributable to:
Benefit (gain) loss during the period
Net (gain) loss amortized during the year
Total change in other comprehensive (gain) loss
2013
2012
(In millions, except percentage
figures)
$
$
$
$
$
$
$
$
$
36.3
0.5
1.3
1.1
(4.4)
—
(3.2)
31.6
$
$
— $
2.4
1.1
(3.5)
—
(31.6)
$
(2.4)
(29.2)
(31.6)
0.4
(4.3)
(0.2)
(4.5)
$
$
$
$
$
34.4
0.5
1.6
1.0
1.5
0.2
(2.9)
36.3
—
2.0
1.0
(3.0)
—
(36.3)
(2.5)
(33.8)
(36.3)
3.4
1.6
0.1
1.7
Discount rate used in development of APBO
4.54%
3.66%
Components of net periodic benefit cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discount rate used in development of net periodic benefit cost . . . . . . . .
2013
2012
2011
0.5
1.3
—
0.1
1.9
$
$
0.6
1.6
—
—
2.2
$
$
0.5
1.6
1.1
—
3.2
3.66%
4.66%
4.91%
The estimated actuarial gain that will be amortized from accumulated loss into net periodic benefit cost over the next fiscal
year is immaterial. In connection with the restructuring plan discussed in “NOTE 3. IMPAIRMENT, RESTRUCTURING AND
OTHER CHARGES,” the Company recognized a plan curtailment charge of $1.1 million in fiscal 2011 for an increase in the
benefit obligation associated with its retiree medical plan.
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act (the “Act”) became law. The
Act provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a prescription drug benefit that is
at least actuarially equivalent to the benefit established by the Act. The APBO at September 30, 2013, has been reduced by a
deferred actuarial gain in the amount of $0.3 million to reflect the effect of the subsidy related to benefits attributed to past service.
73
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amortization of the actuarial gain and reduction of service and interest costs served to reduce net periodic post retirement
benefit cost for fiscal 2013, fiscal 2012 and fiscal 2011 by $0.3 million, $0.2 million and $1.1 million, respectively.
For measurement as of September 30, 2013, management has assumed that health care costs will increase at an annual rate
of 7.00% in fiscal 2013, decreasing 0.25% per year to an ultimate trend of 5.00% in 2021. A 1% increase in health cost trend rate
assumptions would increase the APBO by $1.4 million as of September 30, 2013. A 1% decrease in health cost trend rate
assumptions would decrease the APBO by $1.3 million as of September 30, 2013. A 1% increase or decrease in the same rate
would not have a material effect on service or interest costs.
The following benefit payments under the plan are expected to be paid by the Company and the retirees for the fiscal years
indicated:
Gross
Benefit
Payments
Retiree
Contributions
Medicare
Part D
Subsidy
Net
Company
Payments
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 – 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4.0
4.2
4.4
4.6
4.8
27.3
(In millions)
(1.2) $
(1.4)
(1.6)
(1.8)
(2.0)
(13.6)
(0.4) $
(0.4)
(0.4)
(0.5)
(0.5)
(3.0)
2.4
2.4
2.4
2.3
2.3
10.7
The Company also provides comprehensive major medical benefits to its associates. The Company is self-insured for certain
health benefits up to $0.5 million per occurrence per individual. The cost of such benefits is recognized as expense in the period
the claim is incurred. This cost was $35.1 million, $28.7 million and $27.9 million in fiscal 2013, fiscal 2012 and fiscal 2011,
respectively.
NOTE 10. DEBT
The components of long-term debt are as follows:
September 30,
2013
2012
(In millions)
Credit Facilities - Revolving loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Senior Notes – 7.25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes – 6.625% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master Accounts Receivable Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
73.0
200.0
200.0
85.3
12.2
570.5
92.4
478.1
$
$
The Company’s debt matures as follows for each of the next five fiscal years and thereafter (in millions):
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
74
377.1
200.0
200.0
—
5.5
782.6
1.5
781.1
92.4
1.9
74.2
0.5
200.5
201.0
570.5
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Credit Facilities
Scotts Miracle-Gro and certain of its subsidiaries are parties to an amended and restated senior secured credit facility,
providing for revolving loans in the aggregate principal amount of up to $1.7 billion over a five-year term. Borrowings may be
made in various currencies including U.S. dollars, Euros, British pounds, Australian dollars and Canadian dollars. Under this
credit facility, the Company may request up to an additional $450 million in revolving and/or term commitments, subject to certain
specified conditions, including approval from the Company’s lenders.
The terms of the credit facility provide for customary representations and warranties and affirmative covenants. The credit
facility also contains customary negative covenants setting forth limitations, subject to negotiated carve-outs on liens; contingent
obligations; fundamental changes; acquisitions, investments, loans and advances; indebtedness; restrictions on subsidiary
distributions; transactions with affiliates and officers; sales of assets; sale and leaseback transactions; changing the Company’s
fiscal year end; modifications of certain debt instruments; negative pledge clauses; entering into new lines of business; and restricted
payments, which were limited to an aggregate of $125 million annually through fiscal 2013 and $150 million annually beginning
in fiscal 2014 if the Company's leverage ratio, after giving effect to any such annual dividend payment, exceeds 2.50. The credit
facility is secured by collateral that includes the capital stock of specified subsidiaries of Scotts Miracle-Gro, substantially all
domestic accounts receivable (exclusive of any “sold” receivables), inventory and equipment. The credit facility is guaranteed
by substantially all of Scotts Miracle-Gro’s domestic subsidiaries, which have a carrying value of $1.5 billion.
Loans made under the credit facility bear interest, at the Company’s election, at a rate per annum equal to either the ABR
or LIBOR rate, (both as defined) plus an applicable margin. Amounts outstanding under the credit facility at September 30, 2013
were at interest rates based on LIBOR applicable to the borrowed currencies plus 200 basis points. Under the credit facility, the
Company has the ability to obtain letters of credit up to $75 million outstanding. At September 30, 2013, the Company had letters
of credit in the aggregate face amount of $23.3 million outstanding on the credit facility, and $1.6 billion of availability under its
credit facility.
Senior Notes- 7.25%
On January 14, 2010, Scotts Miracle-Gro issued $200 million aggregate principal amount of 7.25% Senior Notes due 2018
(the “7.25% Senior Notes”). The net proceeds of the offering were used to reduce outstanding borrowings under the Company’s
then existing credit facilities. The 7.25% Senior Notes represent general unsecured senior obligations of Scotts Miracle-Gro, and
were sold to the public at 99.254% of the principal amount thereof, to yield 7.375% to maturity. The 7.25% Senior Notes have
interest payment dates of January 15 and July 15 of each year, which began on July 15, 2010 and may be redeemed prior to maturity
at applicable redemption premiums. The 7.25% Senior Notes contain usual and customary incurrence-based covenants, which
include, but are not limited to, restrictions on the incurrence of additional indebtedness, the incurrence of liens and the issuance
of certain preferred shares, and the making of certain distributions, investments and other restricted payments, as well as other
usual and customary covenants, which include, but are not limited to, restrictions on sale and leaseback transactions, restrictions
on purchases or redemptions of Scotts Miracle-Gro stock and prepayments of subordinated debt, limitations on asset sales and
restrictions on transactions with affiliates. The 7.25% Senior Notes mature on January 15, 2018. Substantially all of Scotts
Miracle-Gro's domestic subsidiaries serve as guarantors of the 7.25% Senior Notes.
Senior Notes- 6.625%
On December 16, 2010, Scotts Miracle-Gro issued $200 million aggregate principal amount of 6.625% Senior Notes due
2020 (the “6.625%” Senior Notes”) in a private placement exempt from the registration requirements under the Securities Act of
1933, as amended. The net proceeds of the offering were used to repay outstanding borrowings under the Company’s then existing
credit facilities and for general corporate purposes. The 6.625% Senior Notes represent general unsecured senior obligations of
Scotts Miracle-Gro and rank equal in right of payment with the Company’s existing and future unsecured senior debt, including,
without limitation, the 7.25% Senior Notes. The 6.625% Senior Notes have interest payment dates of June 15 and December 15
of each year, which began on June 15, 2011, and may be redeemed prior to maturity at applicable redemption premiums. The
6.625% Senior Notes contain usual and customary incurrence-based covenants, as well as other usual and customary covenants,
substantially similar to those contained in the 7.25% Senior Notes. The 6.625% Senior Notes mature on December 15, 2020.
Substantially all of Scotts Miracle-Gro’s domestic subsidiaries serve as guarantors of the 6.625% Senior Notes.
The Company was in compliance with the terms of all debt covenants at September 30, 2013. The credit facility contains,
among other obligations, an affirmative covenant regarding the Company’s leverage ratio, calculated as average total indebtedness,
as described in the Company’s credit facility, relative to the Company’s EBITDA, as adjusted pursuant to the terms of the credit
facility (“Adjusted EBITDA”). Under the terms of the credit facility, the maximum leverage ratio was 3.50 as of September 30,
2013. The Company’s leverage ratio was 2.05 at September 30, 2013. The Company’s credit facility also includes an affirmative
75
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
covenant regarding its interest coverage ratio. Interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense,
as described in the credit facility, and excludes costs related to refinancings. Under the terms of the credit facility, the minimum
interest coverage ratio was 3.50 for the year ended September 30, 2013. The Company’s interest coverage ratio was 6.59 for the
year ended September 30, 2013. The weighted average interest rates on average debt were 6.2% and 6.0% for fiscal 2013 and
fiscal 2012, respectively.
Interest Rate Swap Agreements
At September 30, 2013, the Company had outstanding interest rate swap agreements with major financial institutions that
effectively converted the LIBOR index portion of variable-rate debt denominated in U.S. dollars to a fixed rate. The swap
agreements had a total U.S. dollar notional amount of $1,100 million at September 30, 2013. Interest payments made between
the effective date and expiration date are hedged by the swap agreements, except as noted below. The notional amount, effective
date, expiration date and rate of each of these swap agreements are shown in the table below.
Notional Amount
(in millions)
Effective
Date (a)
Expiration
Date
Fixed
Rate
$
50
150 (b)
150 (c)
50 (b)
100 (b)
150 (c)
50 (d)
150 (b)
50 (b)
200 (c)
2/14/2012
2/7/2012
11/16/2009
2/16/2010
2/21/2012
12/20/2011
12/6/2012
2/7/2017
2/7/2017
12/20/2016
2/14/2016
5/7/2016
5/16/2016
5/16/2016
5/23/2016
6/20/2016
9/6/2017
5/7/2019
5/7/2019
6/20/2019
3.78%
2.42%
3.26%
3.05%
2.40%
2.61%
2.96%
2.12%
2.25%
2.12%
(a)
(b)
(c)
(d)
The effective date refers to the date on which interest payments were, or will be, first hedged by the applicable swap
agreement.
Interest payments made during the three-month period of each year that begins with the month and day of the effective
date are hedged by the swap agreement.
Interest payments made during the six-month period of each year that begins with the month and day of the effective date
are hedged by the swap agreement.
Interest payments made during the nine-month period of each year that begins with the month and day of the effective
date are hedged by the swap agreement.
Master Accounts Receivable Purchase Agreement
The Company maintains a Master Accounts Receivable Purchase Agreement (“MARP Agreement”), which is uncommitted
and provides for the discretionary sale by the Company, and the discretionary purchase by the banks, on a revolving basis, of
accounts receivable generated by sales to three specified account debtors in an aggregate amount not to exceed $400 million. On
October 25, 2013, the Company signed an amendment to the existing MARP Agreement which extended the termination date to
August 29, 2014, or such later date as may be mutually agreed by the Company and the banks party thereto. Under the amended
terms of the MARP Agreement, the banks have the opportunity to purchase those accounts receivable offered by the Company at
a discount (from the agreed base value thereof) effectively equal to the one-week LIBOR plus 0.75%.
The Company accounts for the sale of receivables under its MARP Agreement as short-term debt and continues to carry the
receivables on its Consolidated Balance Sheet, primarily as a result of the Company’s right to repurchase receivables sold. There
were $85.3 million of short-term borrowings as of September 30, 2013 and no short-term borrowings as of September 30, 2012
under the MARP Agreement. The carrying value of the receivables pledged as collateral was $106.7 million as of September 30,
2013.
76
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Fair Values
A description of the methods and assumptions used to estimate the fair values of the Company’s debt instruments is as
follows:
Credit Facility
The interest rate currently available to the Company fluctuates with the applicable LIBOR rate, prime rate or Federal Funds
Effective Rate, and thus the carrying value is a reasonable estimate of fair value. The fair value measurement for the credit facility
was classified in Level 2 of the fair value hierarchy.
7.25% Senior Notes
The fair value of the 7.25% Senior Notes can be determined based on the trading value of the 7.25% Senior Notes in the
open market. The difference between the carrying value and the fair value of the 7.25% Senior Notes represents the premium or
discount on that date. The fair value measurement for the 7.25% Senior Notes was classified in Level 1 of the fair value hierarchy.
6.625% Senior Notes
The fair value of the 6.625% Senior Notes can be determined based on the trading value of the 6.625% Senior Notes in the
open market. The difference between the carrying value and the fair value of the 6.625% Senior Notes represents the premium
or discount on that date. The fair value measurement for the 6.625% Senior Notes was classified in Level 1 of the fair value
hierarchy.
Accounts Receivable Pledged
The interest rate on the short-term debt associated with accounts receivable pledged under the MARP Agreement fluctuates
with the applicable LIBOR rate, and thus the carrying value is a reasonable estimate of fair value. The fair value measurement
for the MARP agreement was classified in Level 2 of the fair value hierarchy.
The estimated fair values of the Company’s debt instruments are as follows:
Year Ended September 30,
2013
2012
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Revolving loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Senior Notes – 7.25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes – 6.625% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master Accounts Receivable Purchase Agreement. . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
73.0
200.0
200.0
85.3
12.2
$
(In millions)
73.0
209.5
213.5
85.3
12.2
$
377.1
200.0
200.0
—
5.5
377.1
212.0
217.5
—
5.5
NOTE 11. SHAREHOLDERS’ EQUITY
Authorized and issued capital shares consisted of the following:
Preferred shares, no par value:
Authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2 shares
0.0 shares
0.2 shares
0.0 shares
Common shares, no par value, $.01 stated value per share
Authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0 shares
68.1 shares
100.0 shares
68.1 shares
September 30,
2013
2012
(In millions)
77
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In fiscal 1995, The Scotts Company merged with Stern’s Miracle-Gro Products, Inc. (“Miracle-Gro”). At September 30,
2013, the former shareholders of Miracle-Gro, including Hagedorn Partnership L.P., owned approximately 27% of Scotts Miracle-
Gro’s outstanding common shares and, thus, have the ability to significantly influence the election of directors and other actions
requiring the approval of Scotts Miracle-Gro’s shareholders.
Under the terms of the merger agreement with Miracle-Gro, the former shareholders of Miracle-Gro may not collectively
acquire, directly or indirectly, beneficial ownership of Voting Stock (as that term is defined in the Miracle-Gro merger agreement)
representing more than 49% of the total voting power of the outstanding Voting Stock, except pursuant to a tender offer for 100%
of that total voting power, which tender offer is made at a price per share which is not less than the market price per share on the
last trading day before the announcement of the tender offer and is conditioned upon the receipt of at least 50% of the Voting Stock
beneficially owned by shareholders of Scotts Miracle-Gro other than the former shareholders of Miracle-Gro and their affiliates
and associates.
In August 2010, the Scotts Miracle-Gro Board of Directors authorized the repurchase of up to $500 million of Scotts Miracle-
Gro’s common shares (the “Common Shares”) over a four-year period through September 30, 2014. On May 4, 2011, the Scotts
Miracle-Gro Board of Directors authorized the repurchase of up to an additional $200 million of the Common Shares, resulting
in authority to repurchase up to a total of $700 million of the Common Shares through September 30, 2014. The authorization
provides the Company with flexibility to purchase the Common Shares from time to time in open market purchases or through
privately negotiated transactions. All or part of the repurchases may be made under Rule 10b5-1 plans, which the Company may
enter from time to time and which enable the repurchases to occur on a more regular basis, or pursuant to accelerated share
repurchases. The share repurchase authorization, which expires September 30, 2014, may be suspended or discontinued at any
time, and there can be no guarantee as to the timing or amount of any repurchases. Since the inception of this program in the
fourth quarter of fiscal 2010 through September 30, 2013, Scotts Miracle-Gro has repurchased approximately 7.8 million Common
Shares for $401.2 million to be held in treasury. Common Shares held in treasury totaling 0.7 million and 1.1 million were reissued
in support of share-based compensation awards and employee purchases under the employee stock purchase plan during fiscal
2013 and fiscal 2012, respectively.
Share-Based Awards
Scotts Miracle-Gro grants share-based awards annually to officers, certain other employees of the Company and non-
employee directors of Scotts Miracle-Gro. The share-based awards have consisted of stock options, restricted stock, restricted
stock units, deferred stock units and performance-based awards. Stock appreciation rights (“SARs”) have been granted, though
not in recent years. SARs result in less dilution than stock options as the SAR holder receives a net share settlement upon exercise.
All of these share-based awards have been made under plans approved by the shareholders. Generally, employee share-based
awards provide for three-year cliff vesting. Vesting for non-employee director awards varies based on the length of service and
age of each director at the time of the award. Vesting of performance-based awards are dependent on service and achievement of
specified performance targets. Share-based awards are forfeited if a holder terminates employment or service with the Company
prior to the vesting date. The Company estimates that 15% of its share-based awards will be forfeited based on an analysis of
historical trends. This assumption is re-evaluated on an annual basis and adjusted as appropriate. Stock options and SAR awards
have exercise prices equal to the market price of the underlying common shares on the date of grant with a term of 10 years. If
available, Scotts Miracle-Gro will typically use treasury shares, or if not available, newly-issued Common Shares, in satisfaction
of its share-based awards.
A maximum of 23 million Common Shares are available for issuance under share-based award plans. At September 30,
2013, approximately 3.3 million Common Shares were not subject to outstanding awards and were available to underlie the grant
of new share-based awards.
78
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a recap of the share-based awards granted during the periods indicated:
Employees
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors
Deferred stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total share-based awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate fair value at grant dates (in millions) . . . . . . . . . . . . . $
Year Ended September 30,
2013
2012
2011
—
178,030
178,321
33,253
389,604
464,061
107,373
110,079
30,943
712,456
17.5
$
17.4
$
429,700
65,939
53,874
30,296
579,809
13.8
Total share-based compensation was as follows for the periods indicated:
Share-based compensation
Tax benefit recognized
Year Ended September 30,
2013
2012
(In millions)
2011
$
$
10.3
3.9
$
12.5
4.8
16.0
6.2
As of September 30, 2013, total unrecognized compensation cost related to non-vested share-based awards amounted to
$10.7 million. This cost is expected to be recognized over a weighted-average period of 1.9 years. The tax benefit realized from
the tax deductions associated with the exercise of share-based awards and the vesting of restricted stock totaled $4.5 million for
fiscal 2013.
Stock Options/SARs
Aggregate stock option and SARs activity consisted of the following for the year ended September 30, 2013 (options/SARs
in millions):
Beginning balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No. of
Options/SARs
WTD.
Avg.
Exercise
Price
$
3.3
—
(0.5)
(0.1)
2.7
2.0
37.28
—
31.88
49.50
37.60
33.53
79
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At September 30, 2013, the Company expects 0.7 million stock options (after forfeitures), with a weighted-average
exercise price of $49.57, intrinsic value of $3.7 million and average remaining term of 7.8 years, to vest in the future. The following
summarizes certain information pertaining to stock option and SAR awards outstanding and exercisable at September 30, 2013
(options/SARs in millions):
Range of
Exercise Price
$20.12 – $21.65 . . . . . . . . . . . . . . . . . . . . . . .
$24.45 – $28.72 . . . . . . . . . . . . . . . . . . . . . . .
$29.01 – $31.62 . . . . . . . . . . . . . . . . . . . . . . .
$33.25 – $37.48 . . . . . . . . . . . . . . . . . . . . . . .
$37.89 – $38.90 . . . . . . . . . . . . . . . . . . . . . . .
$40.81 – $51.73 . . . . . . . . . . . . . . . . . . . . . . .
Awards Outstanding
Awards Exercisable
No. of
Options/
SARs
WTD.
Avg.
Remaining
Life
WTD.
Avg.
Exercise
Price
No. of
Options/
SARS
WTD.
Avg.
Remaining
Life
WTD.
Avg.
Exercise
Price
0.3
0.2
0.3
0.3
0.6
1.0
2.7
5.01
0.21
1.33
2.05
3.59
7.05
4.38
$
$
21.65
24.72
29.16
35.80
38.56
47.32
37.60
0.3
0.2
0.3
0.3
0.6
0.3
2.0
5.01
0.21
1.33
2.05
3.59
5.14
3.20
$
$
21.65
24.72
29.16
35.80
38.56
42.55
33.53
The intrinsic value of the stock option and SAR awards outstanding and exercisable at September 30 were as follows (in
millions):
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
47.2
43.4
The grant date fair value of stock option awards are estimated using a binomial model and the assumptions in the following
table. Expected market price volatility is based on implied volatilities from traded options on Scotts Miracle-Gro’s common shares
and historical volatility specific to the common shares. Historical data, including demographic factors impacting historical exercise
behavior, is used to estimate stock option exercises and employee terminations within the valuation model. The risk-free rate for
periods within the contractual life (normally ten years) of the stock option is based on the U.S. Treasury yield curve in effect at
the time of grant. The expected life of stock options is based on historical experience and expectations for grants outstanding.
No stock options awards were granted in fiscal 2013. The weighted average assumptions for awards granted in fiscal 2012 and
2011 are as follows:
Expected market price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of stock options in years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated weighted-average fair value per stock option . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2012
2011
33.2%
1.2%
2.5%
5.96
11.50
31.9%
2.4%
1.9%
5.97
14.06
The total intrinsic value of stock options exercised was $8.1 million, $23.9 million and $22.4 million during fiscal 2013,
fiscal 2012 and fiscal 2011, respectively. Cash received from the exercise of stock options for fiscal 2013 and fiscal 2012 was
$13.3 million and $17.6 million, respectively.
80
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted share-based awards
Restricted share-based award activity (including restricted stock, restricted stock units and deferred stock units) was as
follows:
Awards outstanding at September 30, 2010
Granted
Vested
Forfeited
Awards outstanding at September 30, 2011
Granted
Vested
Forfeited
Awards outstanding at September 30, 2012
Granted
Vested
Forfeited
Awards outstanding at September 30, 2013
No. of
Shares
WTD. Avg.
Grant Date
Fair Value
per Share
$
840,426
96,235
(136,355)
(103,400)
696,906
138,316
(301,132)
(36,891)
497,199
211,283
(251,855)
(46,976)
409,651
33.52
51.99
38.44
32.76
35.22
47.53
22.25
45.28
45.75
44.80
40.87
53.54
47.36
The total fair value of restricted stock units vested was $10.3 million, $3.1 million and $0.6 million during fiscal 2013, fiscal
2012 and fiscal 2011, respectively. The total fair value of restricted stock vested was $3.6 million and $4.6 million during fiscal
2012 and fiscal 2011, respectively. The Company has no outstanding restricted stock as of September 30, 2012.
Performance-based awards
Performance-based award activity was as follows:
Awards outstanding at September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards outstanding at September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards outstanding at September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards outstanding at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 12. EARNINGS PER COMMON SHARE
No. of
Units
WTD. Avg.
Grant Date
Fair Value
per Unit
$
24,200
53,874
(35,774)
—
42,300
114,279
—
(2,670)
153,909
178,321
—
(70,313)
261,917
29.85
51.91
32.57
—
51.73
47.63
—
47.66
45.48
45.06
—
46.62
46.81
Basic earnings per common share are computed by dividing income from continuing operations, income from discontinued
operations or net income by the weighted average number of common shares outstanding. Diluted earnings per common share
are computed by dividing income from continuing operations, income from discontinued operations or net income by the weighted
average number of common shares outstanding plus all potentially dilutive securities. Stock options with exercise prices greater
than the average market price of the underlying common shares are excluded from the computation of diluted earnings per common
share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. The number of common shares
81
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
covered by out-of-the-money stock options was 0.8 million, 0.7 million and 0.2 million for the years ended September 30, 2013,
2012 and 2011, respectively. The following table presents information necessary to calculate basic and diluted earnings per
common share.
Year Ended September 30,
2013
2012
2011
(In millions, except per share data)
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
BASIC EARNINGS PER COMMON SHARE:
Weighted-average common shares outstanding
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
DILUTED EARNINGS PER COMMON SHARE:
Weighted-average common shares outstanding
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average number of common shares
outstanding and dilutive potential common shares . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
161.2
(0.1)
161.1
61.7
2.61
—
2.61
61.7
0.9
62.6
2.58
(0.01)
2.57
$
$
$
$
$
$
113.2
(6.7)
106.5
61.0
1.86
(0.11)
1.75
61.0
1.1
62.1
1.82
(0.11)
1.71
$
$
$
$
$
$
NOTE 13. INCOME TAXES
The provision (benefit) for income taxes allocated to continuing operations consisted of the following:
Year Ended September 30,
2013
2012
(In millions)
2011
Current:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
57.1
7.5
4.5
69.1
22.7
1.1
(0.1)
23.7
92.8
$
$
31.0
6.0
7.2
44.2
23.5
1.3
(0.4)
24.4
68.6
$
$
139.9
28.0
167.9
64.7
2.16
0.44
2.60
64.7
1.5
66.2
2.11
0.43
2.54
66.2
8.3
5.4
79.9
2.2
(0.1)
0.7
2.8
82.7
82
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The domestic and foreign components of income from continuing operations before income taxes were as follows:
Year Ended September 30,
2013
2012
(In millions)
2011
Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . . $
238.3
15.7
254.0
$
$
165.3
16.5
181.8
$
$
205.7
16.9
222.6
A reconciliation of the federal corporate income tax rate and the effective tax rate on income from continuing operations
before income taxes is summarized below:
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit. . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Production Activities Deduction permanent difference. .
Effect of other permanent differences . . . . . . . . . . . . . . . . . . . . . . .
Research and Experimentation and other federal tax credits. . . . . .
Resolution of prior tax contingencies . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2013
2012
2011
35.0%
0.8
2.9
(2.1)
0.8
(0.3)
0.2
(0.8)
36.5%
35.0%
(0.5)
3.1
(1.5)
2.4
(0.1)
(0.9)
0.2
37.7%
35.0%
(0.3)
2.8
(2.3)
1.9
(0.2)
0.7
(0.4)
37.2%
Included in “Effect of other permanent differences” in the effective tax rate reconciliation table above are nondeductible
fines and penalties of $0.4 million, $4.8 million and $7.7 million for the fiscal years ended September 30, 2013, 2012, and 2011
respectively, from the settlement of previously disclosed U.S. EPA and U.S. DOJ investigations. The Company does not expect
to incur additional costs related to these investigations.
83
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and
liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets
and liabilities were as follows:
DEFERRED TAX ASSETS
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State NOL carryovers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign NOL carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credit carryovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED TAX LIABILITIES
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax (liability) asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2013
2012
(In millions)
$
13.7
59.2
33.7
7.3
1.1
51.6
8.6
6.3
6.0
187.5
(51.5)
136.0
(62.3)
(99.5)
(3.3)
(165.1)
(29.1) $
17.0
61.5
41.2
7.9
1.9
48.2
8.3
11.0
4.2
201.2
(48.4)
152.8
(58.9)
(85.8)
(3.2)
(147.9)
4.9
The net current and non-current components of deferred income taxes recognized in the Consolidated Balance Sheets were:
Net current deferred tax assets (classified with prepaid and other assets) . . . . . . . $
Net non-current deferred tax liabilities (classified with other liabilities) . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
September 30,
2013
2012
$
(In millions)
67.1
(96.2)
(29.1) $
76.5
(71.6)
4.9
GAAP requires that a valuation allowance be recorded against a deferred tax asset if it is more likely than not that the tax
benefit associated with the asset will not be realized in the future. As shown in the table above, valuation allowances were recorded
against $51.5 million and $48.4 million of deferred tax assets as of September 30, 2013, and September 30, 2012, respectively.
Most of these valuation allowances relate to certain foreign net operating losses as explained more fully below.
The Company has elected to treat certain foreign entities as disregarded entities for U.S. tax purposes, which results in their
net income or loss being recognized currently in the Company’s U.S. tax return. As such, the tax benefit of net operating losses
available for foreign statutory tax purposes has already been recognized for U.S. purposes. Accordingly, a full valuation allowance
is required on the tax benefit of these net operating losses on global consolidation. The foreign net operating losses of these foreign
disregarded entities were $195.7 million at September 30, 2013, the majority of which have indefinite carryforward periods. The
statutory tax benefit of these net operating loss carryovers, and related full valuation allowances thereon, amounted to $49.7 million
and $46.4 million for the fiscal years ended September 30, 2013 and September 30, 2012, respectively.
Foreign net operating losses of certain controlled foreign corporations were $7.2 million as of September 30, 2013, the
majority of which have indefinite carryforward periods. Due to a history of losses in these entities, a full valuation allowance has
also been placed against the statutory tax benefit associated with these losses amounting to $1.8 million and $1.8 million at
September 30, 2013 and September 30, 2012, respectively.
84
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
State net operating losses were $22.6 million as of September 30, 2013, with carryforward periods ranging from 5 to 20
years. Any losses not utilized within a specific state’s carryforward period will expire. Tax benefits associated with state tax
credits will expire if not utilized and amounted to $0.5 million at both September 30, 2013 and September 30, 2012. No valuation
allowance has been placed against these net operating losses and credits as the Company should fully utilize these within their
respective carryover periods.
Deferred taxes have not been provided on unremitted earnings of $147.0 million for certain foreign subsidiaries and foreign
corporate joint ventures as such earnings have been indefinitely reinvested. These foreign entities held cash and cash equivalents
of $120.4 million and $118.6 million at September 30, 2013 and September 30, 2012, respectively. Our current plans do not
demonstrate a need to, nor do we have plans to, repatriate the retained earnings from these subsidiaries as the earnings are indefinitely
reinvested. In the future, if we determine it is necessary to repatriate these funds, or we sell or liquidate any of these subsidiaries,
we may be required to pay associated taxes on the repatriation. We may also be required to withhold foreign taxes depending on
the foreign jurisdiction from which the funds are repatriated. The effective rate of tax on such repatriations may materially differ
from the federal statutory tax rate and could have a material impact on tax expense in the year of repatriation; however, the Company
cannot reasonably estimate the amount of such a tax event.
GAAP provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the
technical merits of the position. The amount recognized is measured as the largest amount of tax benefit that is greater than 50%
likely of being realized upon settlement.
The Company had $6.7 million, $7.0 million and $8.9 million of gross unrecognized tax benefits related to uncertain tax
positions at September 30, 2013, 2012 and 2011, respectively. Included in the September 30, 2013, 2012 and 2011 balances were
$6.7 million, $6.9 million and $7.3 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact
on the effective tax rate.
A reconciliation of the unrecognized tax benefits is as follows:
Year Ended September 30,
2013
2012
(In millions)
2011
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions of the current year . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . .
Settlements with tax authorities. . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of statutes of limitation . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7.0
0.3
4.3
(3.8)
(0.4)
(0.7)
6.7
$
$
8.9
1.0
2.9
(4.1)
(0.5)
(1.2)
7.0
$
$
7.8
1.1
1.9
(1.2)
(0.6)
(0.1)
8.9
The Company continues to recognize accrued interest and penalties related to unrecognized tax benefits as a component of
the provision for income taxes. As of September 30, 2013, 2012 and 2011, respectively, the Company had $1.8 million, $1.8
million and $1.6 million accrued for the payment of interest that, if recognized, would impact the effective tax rate. As of
September 30, 2013, 2012 and 2011, respectively, the Company had $0.7 million, $0.8 million and $0.7 million accrued for the
payment of penalties that, if recognized, would impact the effective tax rate. For the year ended September 30, 2013, the Company
recognized $0.1 million of tax interest and tax penalties in its statement of operations.
Scotts Miracle-Gro or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local
and foreign jurisdictions. With few exceptions, which are discussed below, the Company is no longer subject to examinations by
these tax authorities for fiscal years prior to 2010. The Company is currently under examination by certain foreign and U.S. state
and local tax authorities. Regarding the foreign jurisdictions, an audit is currently underway in France for fiscal years 2010 through
2012. Audits closed during the fiscal year ended September 30, 2013 for Austria, Belgium and Canada with no material impact
on the Company's consolidated financial position, results of operations or cash flows. In regard to the U.S. state and local audits,
the tax periods under examinations are limited to fiscal years 1997 through 2011. In addition to these aforementioned audits,
certain other tax deficiency notices and refund claims for previous years remain unresolved.
The Company currently anticipates that few of its open and active audits will be resolved in the next 12 months. The
Company is unable to make a reasonably reliable estimate as to when or if cash settlements with taxing authorities may occur.
85
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Although audit outcomes and the timing of audit payments are subject to significant uncertainty, the Company does not anticipate
that the resolution of these tax matters or any events related thereto will result in a material change to its consolidated financial
position, results of operations or cash flows.
On September 13, 2013, the United States Treasury and Internal Revenue Service issued final tangible personal property
regulations that broadly apply to amounts paid to acquire, produce or improve tangible property, as well as dispositions of such
property. In review of these regulations, the Company has concluded that there is no material impact on its consolidated financial
position, results of operations or cash flows.
Management judgment is required in determining tax provisions and evaluating tax positions. Management believes its tax
positions and related provisions reflected in the consolidated financial statements are fully supportable and appropriate. The
Company established reserves for additional income taxes that may become due if the tax positions are challenged and not sustained,
and as such, the Company’s tax provision includes the impact of recording reserves and changes thereto.
NOTE 14. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices.
To manage a portion of the volatility related to these exposures, the Company enters into various financial transactions. The
utilization of these financial transactions is governed by policies covering acceptable counterparty exposure, instrument types and
other hedging practices. The Company does not hold or issue derivative financial instruments for speculative trading purposes.
Exchange Rate Risk Management
The Company periodically uses foreign currency forward contracts to manage the exchange rate risk associated with
intercompany loans with foreign subsidiaries that are denominated in local currencies. At September 30, 2013, the notional amount
of outstanding foreign currency forward contracts was $80.4 million, with a negative fair value of $2.1 million. At September 30,
2012, the notional amount of outstanding foreign currency swap contracts was $61.8 million, with a negative fair value of $1.0
million. The unrealized loss on the foreign currency forward contracts approximates the unrealized gain on the intercompany
loans recognized by the Company’s lending subsidiaries. The contracts will mature over the next fiscal year.
Interest Rate Risk Management
The Company enters into interest rate swap agreements as a means to hedge its variable interest rate risk on debt instruments.
The fair values are reflected in the Company’s Consolidated Balance Sheets. Net amounts to be received or paid under the swap
agreements are reflected as adjustments to interest expense. Since the interest rate swap agreements have been designated as
hedging instruments, unrealized gains or losses resulting from adjusting these swaps to fair value are recorded as elements of
accumulated other comprehensive income (“AOCI”) within the Consolidated Balance Sheets.
At September 30, 2013 and 2012, the Company had outstanding interest rate swap agreements with major financial institutions
that effectively converted a portion of the Company’s variable-rate debt to a fixed rate. The swap agreements had a total U.S. dollar
equivalent notional amount of $1,100.0 million and $700.0 million at September 30, 2013 and 2012 respectively. Refer to
“NOTE 10. DEBT” for the terms of the swap agreements outstanding at 2013. Included in the AOCI balance at September 30,
2013 is a loss of $5.0 million related to interest rate swap agreements that is expected to be reclassified to earnings during the next
12 months, consistent with the timing of the underlying hedged transactions.
Commodity Price Risk Management
The Company had outstanding derivative contracts at September 30, 2013 designed to fix the price of a portion of its projected
future urea requirements. The contracts are designated as hedges of the Company’s exposure to future cash flow fluctuations
associated with the cost of urea. The objective of the hedges is to mitigate the earnings and cash flow volatility attributable to the
risk of changing prices. Unrealized gains or losses in the fair value of these contracts are recorded to the AOCI component of
shareholders’ equity. Realized gains or losses remain as a component of AOCI until the related inventory is sold. Upon sale of
the underlying inventory, the gain or loss is reclassified to cost of sales. Included in the AOCI balance at September 30, 2013 was
a loss of $1.0 million related to urea derivatives that is expected to be reclassified to earnings during the next 12 months, consistent
with the timing of the underlying hedged transactions.
Periodically, the Company also uses derivatives to partially mitigate the effect of fluctuating diesel and gasoline costs on
operating results. Any such derivatives that do not qualify for hedge accounting treatment in accordance with GAAP are recorded
at fair value, with unrealized gains and losses on open contracts and realized gains or losses on settled contracts recorded as an
element of cost of sales. Unrealized gains or losses in the fair value of derivative contracts that do qualify for hedge accounting
86
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
are recorded in accumulated other comprehensive income (expense), except for any ineffective portion of the change in fair value,
which is immediately recorded in earnings. For the effective portion of the change in fair value, realized gains or losses remain
as a component of AOCI until the related fuel is consumed. Upon consumption of the fuel, the gain or loss is reclassified to cost
of sales. Included in the AOCI balance at September 30, 2013 was an immaterial gain related to fuel derivatives that is expected
to be reclassified to earnings during the next 12 months, consistent with the timing of the underlying hedged transactions.
The Company had the following outstanding commodity contracts that were entered into to hedge forecasted purchases:
September 30,
2013
2012
Commodity
Urea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diesel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gasoline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heating Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,500 tons
3,528,000 gallons
630,000 gallons
2,940,000 gallons
34,500 tons
6,552,000 gallons
224,000 gallons
5,208,000 gallons
Fair Values of Derivative Instruments
The following table summarizes the fair values of the Company’s derivative instruments and the respective lines in which
they were recorded in the Consolidated Balance Sheets at September 30:
Assets / (Liabilities)
2013
2012
Derivatives Designated As Hedging Instruments
Balance Sheet Location
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . Other assets
Other current liabilities
Other liabilities
Commodity hedging instruments . . . . . . . . . . . . . . . . . . Prepaid and other assets
Other current liabilities
Total derivatives designated as hedging instruments . . . . . . .
Derivatives Not Designated As Hedging Instruments
Balance Sheet Location
Foreign currency forward contracts . . . . . . . . . . . . . . . . Other current liabilities
Commodity hedging instruments . . . . . . . . . . . . . . . . . . Prepaid and other assets
Other current liabilities
Total derivatives not designated as hedging instruments. . . .
Total derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value
$
(In millions)
3.7
(8.3)
(12.1)
0.1
(2.0)
(18.6) $
(2.1) $
—
(0.3)
(2.4) $
(21.0) $
—
(8.2)
(20.6)
1.0
—
(27.8)
(1.0)
1.0
—
—
(27.8)
$
$
$
$
$
87
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The effect of derivative instruments on AOCI and the Consolidated Statements of Operations for the year ended September
30 was as follows:
Derivatives in Cash Flow Hedging Relationships
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Amount of Gain/(Loss)
Recognized in AOCI
2013
2012
(In millions)
(1.0) $
(2.3)
(3.3) $
(10.9)
1.6
(9.3)
Derivatives in Cash Flow Hedging Relationships
Reclassified From AOCI Into
Statement of Operations
Amount of Gain/(Loss)
2013
2012
Interest rate swap agreements . . . . . . . . . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . . . . . Cost of sales
Interest expense
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives not Designated As Hedging Instruments
Recognized in Statement of Operations
Foreign currency forward contracts. . . . . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . . . . . Cost of sales
Interest expense
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 15. FAIR VALUE MEASUREMENTS
$
$
$
$
(In millions)
(8.4) $
—
(8.4) $
(10.0)
1.6
(8.4)
Amount of Gain/(Loss)
2013
2012
$
(In millions)
6.7
(0.6)
6.1
$
(6.6)
2.3
(4.3)
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants at
the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires
entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to
measure fair value are as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities
in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs.
The following describes the valuation methodologies used for financial assets and liabilities measured at fair value on a
recurring basis, as well as the general classification within the valuation hierarchy.
Derivatives
Derivatives consist of foreign currency, interest rate and commodity derivative instruments. Foreign currency forward
contracts are valued using observable forward rates in commonly quoted intervals for the full term of the contracts. Interest rate
swap agreements are valued based on the present value of the estimated future net cash flows using implied rates in the applicable
yield curve as of the valuation date. Commodity contracts are measured using observable commodity exchange prices in active
markets.
These derivative instruments are classified within Level 2 of the valuation hierarchy and are included within other assets
and other liabilities in our Consolidated Balance Sheets, except for derivative instruments expected to be settled within the next
12 months, which are included within prepaid and other assets and other current liabilities.
88
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash equivalents
Cash equivalents consist of highly liquid investments purchased with a maturity of three months or less. The carrying value
of these cash equivalents approximates fair value due to their short-term maturities.
Other
Other financial assets consist of investment securities in non-qualified retirement plan assets. These securities are valued
using observable market prices in active markets.
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis at
September 30, 2013:
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(In millions)
Total
Assets
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives
Interest rate swap agreements . . . . . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liabilities
Derivatives
Interest rate swap agreements . . . . . . . . . . . . . . . $
Foreign currency forward contracts . . . . . . . . . . .
Commodity hedging instruments . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
83.9
$
— $
—
—
7.0
90.9
$
— $
—
—
— $
3.7
0.1
—
3.8
$
(20.4) $
(2.1)
(2.3)
(24.8) $
— $
—
—
—
— $
— $
—
—
— $
83.9
3.7
0.1
7.0
94.7
(20.4)
(2.1)
(2.3)
(24.8)
The following presents the Company’s non-financial assets and liabilities measured at fair value on a non-recurring basis
at September 30, 2013 and describes the valuation methodologies used for non-financial assets and liabilities measured at fair
value, as well as the general classification within the valuation hierarchy:
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
Losses
Global Consumer insect repellent technology. . . . . . . $
Ortho® brands and sub-brands. . . . . . . . . . . . . . . . . . .
— $
—
(In millions)
— $
—
— $
126.0
4.3
11.6
The intangible asset related to the insect repellent technology was determined to be fully impaired based on the estimated
future cash flows associated with the insect repellent technology in relation to its carrying value. Also, as a result of the Company's
annual impairment review performed in the fourth quarter of fiscal 2013, the Company recognized an impairment charge for a
non-recurring fair value adjustment of $11.6 million within the Global Consumer segment related to the Ortho® brand and certain
sub-brands of Ortho®. Certain finite-lived sub-brands of Ortho® were determined to be fully impaired. The remaining fair value
of the indefinite-lived Ortho® brand and sub-brands is $126.0 million. The fair value was calculated based upon the evaluation
of the historical performance and future growth of the Ortho® business using a royalty savings methodology similar to that employed
when the associated business was acquired with updated estimates of sales, cash flow and profitability.
89
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis at
September 30, 2012:
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(In millions)
Total
Assets
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivatives
Commodity hedging instruments . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liabilities
Derivatives
Interest rate swap agreements . . . . . . . . . . . . . . . $
Commodity hedging instruments . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
41.1
$
— $
—
6.4
47.5
$
— $
—
— $
2.0
—
2.0
$
(28.8) $
(1.0)
(29.8) $
— $
—
—
— $
— $
—
— $
41.1
2.0
6.4
49.5
(28.8)
(1.0)
(29.8)
The following presents the Company’s non-financial assets and liabilities measured at fair value on a non-recurring basis
at September 30, 2012 and describes the valuation methodologies used for non-financial assets and liabilities measured at fair
value, as well as the general classification within the valuation hierarchy:
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
Losses
Assets of MAT 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
(In millions)
— $
1.2
$
5.3
Certain property, plant and equipment and other assets were written down to their fair value, resulting in an impairment
charge of $5.3 million, which was included in earnings for the period. The value of the property, plant and equipment was
determined using the market approach, which is a valuation technique based on what other purchasers and sellers in the market
have agreed to as prices for comparable assets, adjusted for such factors as age, condition and location of the respective assets
being valued. The intangible asset was determined to be fully impaired based on estimated future cash flows associated with this
active ingredient in relation to its carrying value.
90
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 16. OPERATING LEASES
The Company leases certain property and equipment from third parties under various non-cancelable operating lease
agreements. Certain lease agreements contain renewal and purchase options. The lease agreements generally require that the
Company pay taxes, insurance and maintenance expenses related to the leased assets. Future minimum lease payments for non-
cancelable operating leases at September 30, 2013, were as follows (in millions):
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
47.0
37.8
28.3
17.4
13.4
35.1
179.0
The Company also leases certain vehicles (primarily cars and light trucks) under agreements that are cancelable after the
first year, but typically continue on a month-to-month basis until canceled by the Company. The vehicle leases and certain other
non-cancelable operating leases contain residual value guarantees that create a contingent obligation on the part of the Company
to compensate the lessor if the leased asset cannot be sold for an amount in excess of a specified minimum value at the conclusion
of the lease term. If all such vehicle leases had been canceled as of September 30, 2013, the Company’s residual value guarantee
would have approximated $9.4 million.
Other residual value guarantee amounts that apply at the conclusion of non-cancelable lease terms are as follows:
Amount of
Guarantee
(In millions)
Lease
Termination Date
Scotts LawnService® vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Corporate aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
3.9
2020
2016
Rent expense for fiscal 2013, fiscal 2012 and fiscal 2011 totaled $61.9 million, $69.0 million and $67.2 million, respectively.
NOTE 17. COMMITMENTS
The Company has the following unconditional purchase obligations due during each of the next five fiscal years that have
not been recognized on the Consolidated Balance Sheet at September 30, 2013 (in millions):
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
114.3
54.3
21.4
11.6
9.4
0.3
211.3
Purchase obligations primarily represent commitments for materials used in the Company’s manufacturing processes, as
well as commitments for warehouse services, grass seed and out-sourced information services. In addition, the Company leases
certain property and equipment from third parties under various non-cancelable operating lease agreements. Future minimum
lease payments for non-cancelable operating leases not included above are included in “NOTE 16. OPERATING LEASES.”
91
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 18. CONTINGENCIES
Management regularly evaluates the Company’s contingencies, including various lawsuits and claims which arise in the
normal course of business, product and general liabilities, workers’ compensation, property losses and other liabilities for which
the Company is self-insured or retains a high exposure limit. Self-insurance reserves are established based on actuarial loss
estimates for specific individual claims plus actuarially estimated amounts for incurred but not reported claims and adverse
development factors applied to existing claims. Legal costs incurred in connection with the resolution of claims, lawsuits and
other contingencies are expensed as incurred. In the opinion of management, its assessment of contingencies is reasonable and
related reserves, in the aggregate, are adequate; however, there can be no assurance that final resolution of these matters will not
have a material effect on the Company’s financial condition, results of operations or cash flows.
Regulatory Matters
At September 30, 2013, $4.0 million was accrued in the “Other liabilities” line in the Consolidated Balance Sheet for
environmental actions, the majority of which is for site remediation. The amounts accrued are believed to be adequate to cover
such known environmental exposures based on current facts and estimates of likely outcomes. Although it is reasonably possible
that the costs to resolve such known environmental exposures will exceed the amounts accrued, any variation from accrued amounts
is not expected to be material.
Other
The Company has been named as a defendant in a number of cases alleging injuries that the lawsuits claim resulted from
exposure to asbestos-containing products, apparently based on the Company’s historic use of vermiculite in certain of its products.
In many of these cases, the complaints are not specific about the plaintiffs’ contacts with the Company or its products. The
Company believes that the claims against it are without merit and is vigorously defending against them. It is not currently possible
to reasonably estimate a probable loss, if any, associated with these cases and, accordingly, no reserves have been recorded in the
Company’s Consolidated Financial Statements. The Company is reviewing agreements and policies that may provide insurance
coverage or indemnity as to these claims and is pursuing coverage under some of these agreements and policies, although there
can be no assurance of the results of these efforts. There can be no assurance that these cases, whether as a result of adverse
outcomes or as a result of significant defense costs, will not have a material effect on the Company’s financial condition, results
of operations or cash flows.
In connection with the sale of wild bird food products that were the subject of a voluntary recall in 2008, the Company has
been named as a defendant in four putative class actions filed on and after June 27, 2012, which have now been consolidated in
the United States District Court for the Southern District of California as In re Morning Song Bird Food Litigation, Lead Case
No. 3:12-cv-01592-JAH-RBB. The plaintiffs allege various statutory and common law claims associated with the Company's
sale of wild bird food products and a plea agreement entered into in previously pending government proceedings associated with
such sales. The plaintiffs allege, among other things, a purported class action on behalf of all persons and entities in the United
States who purchased certain bird food products. The plaintiffs seek monetary damages (actual, compensatory, consequential,
punitive, and treble); reimbursement, restitution, and disgorgement for benefits unjustly conferred; injunctive and declaratory
relief; pre-judgment and post-judgment interest; and costs and attorneys' fees. The Company intends to vigorously defend the
consolidated action. Given the early stages of the action, the Company cannot make a determination as to whether it could have
a material effect on the Company's financial condition, results of operations or cash flows and the Company has not recorded any
accruals with respect thereto.
The Company is involved in other lawsuits and claims which arise in the normal course of business. These claims individually
and in the aggregate are not expected to result in a material effect on the Company’s financial condition, results of operations or
cash flows.
NOTE 19. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash depository accounts with major financial institutions around the world and invests in high
quality, short-term liquid investments. Such investments are made only in investments issued by highly rated institutions. These
investments mature within three months and have not historically incurred any losses.
Trade accounts receivable are exposed to a concentration of credit risk with retailers principally located in the United States.
The Company's retail customers include home centers, mass merchandisers, warehouse clubs, large hardware chains, independent
hardware stores, nurseries, garden centers and food and drug stores. Concentrations of net sales and accounts receivable by segment
in the United States as a percentage of consolidated net sales and accounts receivable at September 30 were as follows:
92
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Percentage of Net Sales
Percentage of Gross Accounts
Receivable at September 30,
2013
2012
2011
2013
2012
Global Consumer segment. . . . . . . . . . . . . . . . . . . . . . . .
Scotts LawnService® segment . . . . . . . . . . . . . . . . . . . . .
Total Concentration in United States. . . . . . . . . . . . . . . .
73%
9%
82%
73%
9%
82%
72%
8%
80%
63%
9%
72%
67%
8%
75%
The remainder of the Company’s net sales and accounts receivable at September 30, 2013, 2012 and 2011 were generated
from customers located outside of the United States, primarily retailers, distributors and nurseries in Europe, Canada and Australia.
No concentrations of these customers or individual customers within this group accounted for more than 10% of the Company’s
net sales and accounts receivable for any period presented above.
The Company’s three largest customers are reported within the Global Consumer segment and are the only customers that
individually represent more than 10% of reported consolidated net sales and accounts receivable for each of the last three fiscal
years. These three customers accounted for the following percentages of Global Consumer segment net sales for the fiscal years
ended September 30:
Home Depot. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lowe's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Walmart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34%
18%
13%
32%
17%
14%
31%
17%
14%
Accounts receivable for these three largest customers as a percentage of consolidated accounts receivable were 56% and
Percentage of Net Sales
2013
2012
2011
52% for September 30, 2013 and 2012, respectively.
NOTE 20. OTHER INCOME, NET
Other (income) expense consisted of the following:
Year Ended September 30,
2013
2012
(In millions)
2011
Royalty income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Franchise fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(4.7) $
(0.3)
0.4
(5.4)
(10.0) $
(4.9) $
(0.3)
(0.7)
3.0
(2.9) $
(4.3)
(0.3)
1.4
2.3
(0.9)
NOTE 21. SEGMENT INFORMATION
The Company divides its business into the following segments — Global Consumer and Scotts LawnService®. This division
of reportable segments is consistent with how the segments report to and are managed by the chief operating decision maker of
the Company. The Company has made reclassifications to prior period segment amounts as a result of the change in internal
organization structure associated with the disposal of the Company's professional seed business, which is now reported in
discontinued operations. For additional information regarding the sale, refer to “NOTE 2. DISCONTINUED OPERATIONS.”
The Global Consumer segment consists of the U.S. Consumer and International Consumer business groups. The business
groups comprising this segment manufacture, market and sell dry, granular slow-release lawn fertilizers, combination lawn fertilizer
and control products, grass seed, spreaders, water-soluble, liquid and continuous release garden and indoor plant foods, plant care
products, potting, garden and lawn soils, mulches and other growing media products, wild bird food, pesticide and rodenticide
products. Products are marketed to mass merchandisers, home centers, large hardware chains, warehouse clubs, distributors,
garden centers and grocers in the United States, Canada, Europe, Latin America and Australia.
93
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Scotts LawnService® segment provides residential and commercial lawn fertilization, disease and insect control and
other related services such as core aeration, tree and shrub fertilization and limited pest control services through Company-owned
branches and independent franchisees in the United States.
Segment performance is evaluated based on several factors, including income from continuing operations before
amortization, product registration and recall costs, and impairment, restructuring and other charges, which is not a GAAP measure.
Senior management of the Company uses this measure of operating profit to evaluate segment performance because the Company
believes this measure is the most indicative of performance trends and the overall earnings potential of each segment. Total assets
reported for the Company’s operating segments include the intangible assets for the acquired businesses within those segments.
The accounting policies of the segments are the same as those described in the “NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES.”
Corporate & Other consists of the Company’s revenues and expenses associated with the Company’s supply agreements
with ICL and the amortization related to the Roundup® Marketing Agreement, as well as corporate, general and administrative
expenses and certain other income/expense items not allocated to the business segments. Corporate & Other assets primarily
include deferred financing and debt issuance costs and corporate intangible assets, as well as deferred tax assets.
The following table presents summarized financial information concerning the Company’s reportable segments:
Year Ended September 30,
2013
2012
2011
(In millions)
Net sales:
Global Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService®. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from continuing operations before income taxes:
Global Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService®. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Depreciation and amortization:
Global Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService®. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures:
Global Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService®. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,527.5
$
2,539.2
$
257.8
2,785.3
31.2
2,816.5
406.4
28.7
435.1
(91.2)
(10.4)
—
(20.3)
—
(59.2)
254.0
48.7
4.0
13.4
66.1
53.3
3.1
3.7
$
$
$
$
$
$
245.8
2,785.0
41.1
2,826.1
338.3
27.0
365.3
(96.3)
(10.1)
(8.2)
(7.1)
—
(61.8)
181.8
44.2
4.1
14.1
62.4
64.6
1.9
2.9
$
$
$
$
$
$
$
60.1
$
69.4
$
94
2,533.2
235.6
2,768.8
30.9
2,799.7
425.0
25.9
450.9
(95.0)
(10.6)
(14.6)
(55.9)
(1.2)
(51.0)
222.6
43.6
3.4
13.8
60.8
59.0
3.0
8.1
70.1
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total assets:
Global Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Scotts LawnService® . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate & Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
September 30,
2013
2012
(In millions)
1,564.2
189.8
183.2
1,937.2
$
$
1,676.4
181.5
216.5
2,074.4
The following table presents net sales by product category for the Global Consumer segment:
Year Ended September 30,
2013
2012
2011
Net sales:
Lawn care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34%
34%
34%
Growing media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roundup® Marketing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wild bird food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily gardening and landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
14
5
2
11
33
14
6
2
11
31
13
5
3
14
Segment total product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
The following table presents net sales and long-lived assets (property, plant and equipment and finite-lived intangibles) by
geographic area:
Net sales:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended September 30,
2013
2012
2011
(In millions)
2,332.4
484.1
2,816.5
419.9
64.5
484.4
$
$
$
$
2,340.9
485.2
2,826.1
432.0
70.2
502.2
$
$
$
$
2,294.4
505.3
2,799.7
411.3
69.8
481.1
95
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 22. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations.
FISCAL 2013
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share:
Income (loss) from continuing operations . . . . . . . . . . . $
Income (loss) from discontinued operations, net of tax .
Basic net income (loss) per common share . . . . . . . . . . $
Common shares used in basic EPS calculation . . . . . . . . . . .
Diluted income (loss) per common share:
Income (loss) from continuing operations . . . . . . . . . . . $
Income (loss) from discontinued operations, net of tax .
Diluted net income (loss) per common share . . . . . . . . . $
Common shares and dilutive potential common shares used
in diluted EPS calculation . . . . . . . . . . . . . . . . . . . . . . . . . . .
FISCAL 2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax. . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share:
Income (loss) from continuing operations . . . . . . . . . . . $
Income (loss) from discontinued operations. . . . . . . . . .
Basic net income (loss) per common share . . . . . . . . . . $
Common shares used in basic EPS calculation . . . . . . . . . . .
Diluted income (loss) per common share:
Income (loss) from continuing operations . . . . . . . . . . . $
Income (loss) from discontinued operations. . . . . . . . . .
Diluted net income (loss) per common share . . . . . . . . . $
Common shares and dilutive potential common shares used
in diluted EPS calculation . . . . . . . . . . . . . . . . . . . . . . . . . . .
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full Year
(In millions, except per share data)
205.8
$ 1,019.6
$ 1,148.1
$
443.0
$ 2,816.5
31.1
(68.3)
0.6
(67.7)
(1.11) $
0.01
(1.10) $
61.4
(1.11) $
0.01
(1.10) $
61.4
378.7
99.9
0.1
100.0
1.62
—
1.62
61.6
1.60
—
1.60
62.4
$
$
$
$
441.8
148.2
—
148.2
2.40
—
2.40
61.7
2.37
—
2.37
62.6
$
$
$
$
130.8
(18.6)
(0.8)
(19.4)
(0.30) $
(0.01)
(0.31) $
62.0
982.4
161.2
(0.1)
161.1
2.61
—
2.61
61.7
(0.30) $
(0.01)
(0.31) $
2.58
(0.01)
2.57
62.0
62.6
199.6
$ 1,170.4
$ 1,054.9
$
401.2
$ 2,826.1
25.6
(73.1)
(0.8)
(73.9)
(1.20) $
(0.01)
(1.21) $
60.9
(1.20) $
(0.01)
(1.21) $
60.9
461.7
126.5
0.7
127.2
2.08
0.01
2.09
60.9
2.04
0.01
2.05
62.0
$
$
$
$
369.0
96.4
(3.1)
93.3
1.58
(0.05)
1.53
61.1
1.55
(0.05)
1.50
$
$
$
$
105.0
(36.6)
(3.5)
(40.1)
(0.60) $
(0.06)
(0.66) $
61.2
(0.60) $
(0.06)
(0.66) $
961.3
113.2
(6.7)
106.5
1.86
(0.11)
1.75
61.0
1.82
(0.11)
1.71
62.2
61.2
62.1
Common share equivalents, such as share-based awards, are excluded from the diluted loss per common share calculation
in periods where there is a loss from continuing operations because the effect of their inclusion would be anti-dilutive. The
Company’s business is highly seasonal, with approximately 75% of net sales occurring in the second and third fiscal quarters.
Unusual items during fiscal 2013 consisted of impairment, restructuring and other. These items are reflected in the quarterly
financial information as follows: first quarter impairment, restructuring and other of $(0.4) million; second quarter impairment,
restructuring and other of 0.1 million in cost of sales and $0.1 million in SG&A; third quarter impairment, restructuring and other
96
THE SCOTTS MIRACLE-GRO COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of 1.5 million in cost of sales and $7.0 million in SG&A; and fourth quarter impairment, restructuring and other of 0.6 million
in cost of sales and $11.4 million in SG&A.
Unusual items during fiscal 2012 consisted of product registration and recall charges and impairment, restructuring and
other. These items are reflected in the quarterly financial information as follows: first quarter product registration and recall
charges of $0.3 million and impairment, restructuring and other of $2.5 million; second quarter product registration and recall
charges of $3.5 million and impairment, restructuring and other of $5.0 million; third quarter product registration and recall charges
of $4.0 million and an adjustment to impairment, restructuring and other of $(0.4) million; and fourth quarter product registration
and recall charges of $0.4 million. In the fourth quarter of fiscal year 2012, the Company completed the wind down of the
Company's professional seed business. As a result, effective in its fourth quarter of fiscal 2012, the Company classified its results
of operations for all periods presented to reflect the professional seed business as a discontinued operation. The company recorded
a $0.4 million impairment charge related to the investment in Turf-Seed (Europe) Limited in fiscal 2012. In addition, in the third
quarter of fiscal 2012, the Company recorded an adjustment of $1.7 million as a change in estimate on the tax due on the sale of
Global Pro.
NOTE 23. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTORS
The 7.25% and 6.625% Senior Notes (collectively, the “Senior Notes”) issued by Scotts Miracle-Gro on January 14, 2010
and December 16, 2010, respectively, are guaranteed by certain of its domestic subsidiaries and, therefore, the Company has
disclosed condensed, consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements
of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The following 100% directly or indirectly
owned subsidiaries fully and unconditionally guarantee the Senior Notes on a joint and several basis: EG Systems, Inc., dba Scotts
LawnService®; Gutwein & Co., Inc.; Hyponex Corporation; Miracle-Gro Lawn Products, Inc.; OMS Investments, Inc.; Rod
McLellan Company; Sanford Scientific, Inc.; Scotts Temecula Operations, LLC; Scotts Manufacturing Company; Scotts Products
Co.; Scotts Professional Products Co.; Scotts-Sierra Investments LLC; SMG Growing Media, Inc.; SMGM LLC; Swiss Farms
Products, Inc.; and The Scotts Company LLC (collectively, the “Guarantors”). SMGM LLC was added as a Guarantor of the
Senior Notes on September 30, 2013. Accordingly, SMGM LLC has been classified as a Guarantor for all periods presented in
the condensed, consolidating financial information accompanying this Note 23. SMG Brands, Inc. was merged into OMS
Investments., Inc. effective September 27, 2013.
The following information presents condensed, consolidating Statements of Operations, Statement of Comprehensive Income
and Statements of Cash Flows for each of the three years ended September 30, 2013, and condensed, consolidating Balance Sheets
as of September 30, 2013 and September 30, 2012. The consolidating financial information presents, in separate columns, financial
information for: Scotts Miracle-Gro on a Parent-only basis, carrying its investment in subsidiaries under the equity method;
Guarantors on a combined basis, carrying investments in subsidiaries which do not guarantee the debt (collectively, the “Non-
Guarantors”) under the equity method; Non-Guarantors on a combined basis; and eliminating entries. The eliminating entries
primarily reflect intercompany transactions, such as interest expense, accounts receivable and payable, short and long-term debt,
and the elimination of equity investments and income in subsidiaries. Because the Parent is obligated to pay the unpaid principal
amount and interest on all amounts borrowed by the Guarantors or Non-Guarantors under the credit facility (and was obligated to
pay the unpaid principal amount and interest on all amounts borrowed by the Guarantors and Non-Guarantors under the previous
senior secured five-year revolving loan facility), the borrowings and related interest expense for the loans outstanding of the
Guarantors and Non-Guarantors are also presented in the accompanying Parent-only financial information, and are then eliminated.
97
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Statement of Operations
for the fiscal year ended September 30, 2013
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales - impairment, restructuring and other. . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, general and administrative. . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense from continuing operations . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
— $ 2,317.4
$
499.1
$
— $ 2,816.5
—
—
—
—
—
—
—
(180.9)
(20.4)
52.4
148.9
(12.2)
161.1
—
161.1
$
1,480.4
—
837.0
516.8
11.2
(6.9)
315.9
1.3
—
25.2
289.4
106.7
182.7
(0.1)
182.6
351.5
2.2
145.4
144.3
6.9
(3.1)
(2.7)
—
—
2.0
—
—
—
—
—
—
—
179.6
20.4
(20.4)
(4.7)
(1.7)
(3.0)
—
(3.0) $
(179.6)
—
(179.6)
—
(179.6) $
$
1,831.9
2.2
982.4
661.1
18.1
(10.0)
313.2
—
—
59.2
254.0
92.8
161.2
(0.1)
161.1
98
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidated Statement of Comprehensive Income
for the fiscal year ended September 30, 2013
(In millions)
Net income
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment
Net change in derivatives
Net change in pension and other post retirement
benefits
Total other comprehensive income (loss)
Comprehensive income
Parent
$
161.1
Subsidiary
Guarantors
182.6
$
Non-
Guarantors
$
(3.0) $
Eliminations Consolidated
161.1
(179.6) $
—
7.2
—
7.2
—
(2.1)
10.6
8.5
$
168.3
$
191.1
$
(5.2)
—
(1.0)
(6.2)
(9.2) $
—
—
—
—
(179.6) $
(5.2)
5.1
9.6
9.5
170.6
99
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . $
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets . . . . . . . .
Investments in property, plant and equipment . . .
Investment in unconsolidated affiliates . . . . . . . .
Investments in acquired businesses, net of cash
acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . .
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of
credit and term loans. . . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving and bank lines of
credit and term loans. . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on seller notes. . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment
arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . .
Intercompany financing . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . .
Net decrease in cash and cash equivalents. . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . .
Cash and cash equivalents at end of year. . . . . . . . . . . $
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Statement of Cash Flows
for the fiscal year ended September 30, 2013
(in millions)
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
(18.0) $
245.9
$
114.1
$
— $
342.0
—
—
—
—
—
0.2
(44.6)
(4.5)
(3.2)
(52.1)
3.4
(15.5)
—
—
(12.1)
—
1,130.4
344.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3.6
(60.1)
(4.5)
(3.2)
(64.2)
1,474.8
(1,682.1)
(87.8)
(0.8)
2.0
13.3
—
(280.6)
0.7
(2.1)
131.9
(603.6)
—
—
—
—
154.4
(104.8)
0.7
(2.1)
129.3
$
127.2
$
— $
129.8
—
(87.8)
—
(1,078.5)
—
(0.8)
—
13.3
92.5
18.0
—
—
—
— $
2.0
—
(246.9)
(193.8)
—
—
2.6
2.6
100
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Balance Sheet
As of September 30, 2013
(in millions)
Parent
ASSETS
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
— $
2.6
$
127.2
$
— $
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable pledged . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investment in subsidiaries . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
22.4
317.1
119.7
106.7
247.2
76.4
552.6
377.9
314.4
244.8
19.5
—
—
86.9
—
77.7
36.6
328.4
44.4
0.7
39.6
26.5
—
—
$ 1,509.2
$
439.6
Intercompany assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
725.7
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,065.2
—
$ (1,076.8) $ 1,937.2
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investment in subsidiaries . . . . . . . . . . . . . . . . . . . . .
Intercompany liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
—
16.0
16.0
327.0
11.7
—
—
87.3
83.9
183.4
354.6
67.9
213.3
173.3
652.1
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
354.7
1,461.2
53.8
80.3
139.2
10.2
47.8
—
146.6
343.8
95.8
$
5.1
$
— $
48.0
$ 1,509.2
$
439.6
710.5
$ (1,076.8) $ 1,937.2
129.8
206.6
106.7
324.9
113.0
881.0
422.3
315.1
284.4
34.4
—
92.4
137.7
279.7
509.8
478.1
238.8
—
—
1,226.7
—
—
—
—
—
—
—
—
(34.0)
(317.1)
(725.7)
—
—
—
73.0
(34.0)
(173.3)
(798.7)
(933.0)
(143.8)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
710.5
Total liabilities and shareholders’ equity. . . . . . . . . $ 1,065.2
101
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Statement of Operations
for the fiscal year ended September 30, 2012
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales - product registration and recall matters. . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, general and administrative. . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense from continuing operations . .
Income (loss) from continuing operations . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
— $ 2,320.9
$
505.2
$
— $ 2,826.1
—
—
—
—
—
—
—
—
(126.4)
(24.5)
56.5
94.4
(12.1)
106.5
—
106.5
$
1,511.2
0.4
809.3
552.9
7.9
7.8
(1.1)
241.8
1.6
—
25.4
214.8
81.7
133.1
(6.7)
126.4
353.2
—
152.0
152.8
(0.8)
—
(1.8)
1.8
—
—
4.4
—
—
—
—
—
—
—
—
124.8
24.5
(24.5)
(2.6)
(1.0)
(1.6)
—
(1.6) $
(124.8)
—
(124.8)
—
(124.8) $
$
1,864.4
0.4
961.3
705.7
7.1
7.8
(2.9)
243.6
—
—
61.8
181.8
68.6
113.2
(6.7)
106.5
102
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidated Statement of Comprehensive Income
for the fiscal year ended September 30, 2012
(In millions)
Net income (loss)
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment
Net change in derivatives
Net change in pension and other post retirement
benefits
Total other comprehensive income (loss)
Comprehensive income (loss)
Parent
$
106.5
Subsidiary
Guarantors
126.4
$
Non-
Guarantors
$
(1.6) $
Eliminations Consolidated
106.5
(124.8) $
—
0.1
—
0.1
$
106.6
$
—
(1.0)
(1.2)
(2.2)
124.2
$
2.3
—
(9.5)
(7.2)
(8.8) $
—
—
—
—
(124.8) $
2.3
(0.9)
(10.7)
(9.3)
97.2
103
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Statement of Cash Flows
for the fiscal year ended September 30, 2012
(in millions)
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . $
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets . . . . . . . .
Investments in property, plant and equipment . . .
Investments in acquired businesses, net of cash
acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . .
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of
credit and term loans. . . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving and bank lines of
credit and term loans. . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of common shares . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment
arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . .
Intercompany financing . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents .
Cash and cash equivalents at beginning of year . . . . .
Cash and cash equivalents at end of year. . . . . . . . . . . $
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
(20.0) $
163.6
$
9.8
$
— $
153.4
—
—
—
—
—
—
(75.4)
(17.5)
—
17.6
95.3
20.0
—
—
—
0.7
(61.2)
(6.7)
(67.2)
—
(8.2)
(0.3)
(8.5)
853.4
830.6
(1,016.2)
—
(678.4)
—
—
6.6
—
58.1
(98.1)
—
(1.7)
4.3
—
—
—
(153.4)
(1.2)
2.6
2.7
126.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
2.6
$
129.3
$
— $
0.7
(69.4)
(7.0)
(75.7)
1,684.0
(1,694.6)
(75.4)
(17.5)
6.6
17.6
—
(79.3)
2.6
1.0
130.9
131.9
104
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Balance Sheet
As of September 30, 2012
(in millions)
Parent
ASSETS
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
— $
2.6
$
129.3
$
— $
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investment in subsidiaries . . . . . . . . . . . . . . . . . . . . .
29.8
828.5
Intercompany assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
556.6
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,414.9
—
—
—
—
—
—
—
248.4
332.1
88.5
671.6
380.6
308.7
264.2
11.2
—
—
82.5
82.8
33.8
328.4
46.8
0.7
42.9
32.8
—
—
$ 1,636.3
$
451.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
—
$ (1,428.4) $ 2,074.4
131.9
330.9
414.9
122.3
1,000.0
427.4
309.4
307.1
30.5
—
1.5
152.3
279.8
433.6
781.1
257.8
—
—
1,472.5
—
—
—
—
—
—
—
(43.3)
(828.5)
(556.6)
—
—
—
(377.1)
(43.4)
(304.4)
(179.4)
(904.3)
(524.1)
601.9
$ (1,428.4) $ 2,074.4
— $
1.2
$
0.3
$
— $
—
15.9
15.9
777.1
20.0
—
—
813.0
105.4
177.4
284.0
99.8
227.2
304.4
62.6
978.0
658.3
$ 1,636.3
$
46.9
86.5
133.7
281.3
54.0
—
116.8
585.8
(134.2)
451.6
Current liabilities:
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investment in subsidiaries . . . . . . . . . . . . . . . . . . . . .
Intercompany liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
601.9
Total liabilities and shareholders’ equity. . . . . . . . . $ 1,414.9
105
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Statement of Operations
for the fiscal year ended September 30, 2011
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales — impairment, restructuring and other . . . . . .
Cost of sales — product registration and recall matters . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, general and administrative. . . . . . . . . . . . . . . . .
Impairment, restructuring and other . . . . . . . . . . . . . . . .
Product registration and recall matters . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Costs related to refinancing . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . .
Income tax (benefit) expense from continuing operations . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax. . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Parent
Subsidiary
Guarantors
— $ 2,276.6
1,422.9
—
17.3
—
3.2
—
833.2
—
Non-
Guarantors
523.1
$
346.1
1.0
—
176.0
Eliminations
$
Consolidated
— $ 2,799.7
1,769.0
—
18.3
3.2
1,009.2
—
—
—
—
—
—
—
(186.8)
(19.4)
1.2
48.1
156.9
(11.0)
167.9
—
167.9
$
523.3
34.1
11.4
(0.5)
264.9
(41.3)
—
—
20.0
286.2
90.9
195.3
(8.5)
186.8
$
163.0
3.5
—
(0.4)
9.9
—
—
—
2.3
7.6
2.8
4.8
36.5
41.3
$
—
—
—
—
—
228.1
19.4
—
(19.4)
(228.1)
—
(228.1)
—
(228.1) $
686.3
37.6
11.4
(0.9)
274.8
—
—
1.2
51.0
222.6
82.7
139.9
28.0
167.9
106
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidated Statement of Comprehensive Income
for the fiscal year ended September 30, 2011
(In millions)
Net income
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment
Net change in derivatives
Net change in pension and other post retirement
benefits
Total other comprehensive income (loss)
Comprehensive income
Parent
$
167.9
Subsidiary
Guarantors
186.8
$
Non-
Guarantors
41.3
$
Eliminations Consolidated
167.9
$
(228.1) $
—
(4.3)
—
(4.3)
163.6
$
$
—
1.3
(1.6)
(0.3)
186.5
(10.1)
—
13.8
3.7
$
45.0
$
—
—
—
—
(228.1) $
(10.1)
(3.0)
12.2
(0.9)
167.0
107
THE SCOTTS MIRACLE-GRO COMPANY
Condensed, Consolidating Statement of Cash Flows
for the fiscal year ended September 30, 2011
(in millions)
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
INVESTING ACTIVITIES
Proceeds from sale of long-lived assets . . . . . . . . . . . . .
Proceeds from sale of business, net of transaction costs
Investments in property, plant and equipment . . . . . . . .
Contingent consideration and related payments . . . . . . .
Investment in acquired businesses, net of cash acquired
Net cash provided by investing activities . . . . . . . .
FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit
and term loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving and bank lines of credit
and term loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of Senior Notes, net of
discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing and issuance fees . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of common shares . . . . . . . . . . . . . . . . . . . . . .
Payments on seller notes. . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment
arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . . . . . . .
Intercompany financing . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . .
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . $
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
(10.5) $
85.2
$
47.4
$
— $
122.1
—
—
—
—
—
—
—
0.2
158.7
(64.5)
(20.0)
(7.6)
66.8
—
94.9
(8.2)
—
—
86.7
908.2
701.9
(302.4)
(660.8)
(668.9)
200.0
(18.9)
(67.9)
(358.7)
—
—
31.5
526.9
10.5
—
—
—
—
—
—
—
(0.3)
5.6
—
(405.3)
(152.6)
—
(0.6)
5.1
—
—
—
—
—
—
—
(121.6)
(88.6)
(2.1)
43.4
83.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.2
253.6
(72.7)
(20.0)
(7.6)
153.5
1,610.1
(1,632.1)
200.0
(18.9)
(67.9)
(358.7)
(0.3)
5.6
31.5
—
(230.7)
(2.1)
42.8
88.1
— $
4.5
$
126.4
$
— $
130.9
108
Schedule II—Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2013
Column A
Classification
Column B
Balance
at
Beginning
of Period
Column C
Column D
Column E
Column F
Reserves
Acquired
Additions
Charged
to
Expense
(In millions)
Deductions
Credited
and
Write-Offs
Balance
at End of
Period
Valuation and qualifying accounts deducted from the assets
to which they apply:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . $
Income tax valuation allowance. . . . . . . . . . . . . . . . . . . . . . .
$
10.5
48.4
— $
—
$
5.5
(4.0)
(6.5) $
7.1
9.5
51.5
Schedule II—Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2012
Column A
Classification
Column B
Balance
at
Beginning
of Period
Column C
Column D
Column E
Column F
Reserves
Acquired
Additions
Charged
to
Expense
(In millions)
Deductions
Credited
and
Write-Offs
Balance
at End of
Period
Valuation and qualifying accounts deducted from the assets
to which they apply:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . $
Income tax valuation allowance. . . . . . . . . . . . . . . . . . . . . . .
$
12.9
44.3
— $
—
$
19.1
(0.6)
(21.5) $
4.7
10.5
48.4
Schedule II—Valuation and Qualifying Accounts
for the fiscal year ended September 30, 2011
Column A
Classification
Column B
Balance
at
Beginning
of Period
Column C
Column D
Column E
Column F
Reserves
Acquired
Additions
Charged
to
Expense
(In millions)
Deductions
Credited
and
Write-Offs
Balance
at End of
Period
Valuation and qualifying accounts deducted from the assets
to which they apply:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . $
Income tax valuation allowance. . . . . . . . . . . . . . . . . . . . . . .
$
7.7
42.3
$
0.1
—
$
9.5
(2.0)
(4.4) $
4.0
12.9
44.3
109
The Scotts Miracle-Gro Company
Index to Exhibits
Exhibit
No.
3.1(a)
3.1(b)
3.2
4.1(a)
4.1(b)
4.1(c)
Description
Initial Articles of Incorporation of The Scotts Miracle-
Gro Company as filed with the Ohio Secretary of State
on November 22, 2004
Certificate of Amendment by Shareholders to Articles
of Incorporation of The Scotts Miracle-Gro Company
as filed with the Ohio Secretary of State on March 18,
2005
Code of Regulations of The Scotts Miracle-Gro
Company
Indenture, dated January 14, 2010, among The Scotts
Miracle-Gro Company, the guarantors from time to
time party thereto and U.S. Bank National Association,
as trustee
First Supplemental Indenture, dated January 14, 2010,
among The Scotts Miracle-Gro Company,
the
subsidiary guarantors named therein and U.S. Bank
National Association, as trustee
Second Supplemental Indenture, dated September 28,
2011, among The Scotts Miracle-Gro Company, the
subsidiary guarantors named therein and U.S. Bank
National Association, as trustee
4.1(d)
Form of 7.25% Senior Notes due 2018
4.2(a)
4.2(b)
Indenture, dated as of December 16, 2010, by and
among The Scotts Miracle-Gro Company,
the
Guarantors (as defined therein) and U.S. Bank National
Association, as trustee
First Supplemental Indenture, dated as of September
28, 2011, by and among The Scotts Miracle-Gro
Company, the Guarantors (as defined therein) and U.S.
Bank National Association, as trustee
4.2(c)
Form of 6.625% Senior Notes due 2020
4.2(d)
as of
Registration Rights Agreement, dated
December 16, 2010, by and among The Scotts Miracle-
Gro Company, the guarantors named therein and
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as representative of the several initial purchasers named
therein
Location
Incorporated herein by reference to the Current Report
on Form 8-K of The Scotts Miracle-Gro Company, (the
“Registrant”) filed March 24, 2005 (File No. 1-11593)
[Exhibit 3.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed March 24, 2005 (File
No. 1-11593) [Exhibit 3.2]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed March 24, 2005 (File
No. 1-11593) [Exhibit 3.3]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed January 14, 2010
(File No. 1-11593) [Exhibit 4.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed January 14, 2010
(File No. 1-11593) [Exhibit 4.2]
Incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 2011 (File No. 1-11593) [Exhibit 4.1(c)]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed January 14, 2010
(File No. 1-11593) [Included in Exhibit 4.2]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed December 16, 2010
(File No. 1-11593) [Exhibit 4.1]
Incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 2011 (File No. 1-11593) [Exhibit 4.2(b)]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed December 16, 2010
(File No. 1-11593) [Included in Exhibit 4.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed December 16, 2010
(File No. 1-11593) [Exhibit 4.3]
4.3
Agreement to furnish copies of instruments and
agreements defining rights of holders of long-term debt
*
110
10.1(a)
10.1(b)
10.2
10.3
10.4(a)†
10.4(b)†
Amended and Restated Agreement and Plan of Merger,
dated as of May 19, 1995, among Stern’s Miracle-Gro
Products, Inc., Stern’s Nurseries, Inc., Miracle-Gro
Lawn Products Inc., Miracle-Gro Products Limited,
Hagedorn Partnership, L.P., the general partners of
Hagedorn Partnership, L.P., Horace Hagedorn,
Community Funds, Inc., and John Kenlon, The Scotts
Company and ZYX Corporation
First Amendment to Amended and Restated Agreement
and Plan of Merger, made and entered into as of
October 1, 1999, among The Scotts Company, Scotts’
Miracle-Gro Products, Inc. (as successor to ZYX
Corporation and Stern’s Miracle-Gro Products, Inc.),
Miracle-Gro Lawn Products
Inc., Miracle-Gro
Products Limited, Hagedorn Partnership, L.P.,
Community Funds, Inc., Horace Hagedorn and John
Kenlon, and James Hagedorn, Katherine Hagedorn
Littlefield, Paul Hagedorn, Peter Hagedorn, Robert
Hagedorn and Susan Hagedorn
the “Borrower”
Second Amended and Restated Credit Agreement,
dated as of June 30, 2011, by and among The Scotts
the
Miracle-Gro Company as
Subsidiary Borrowers (as defined in the Second
Amended and Restated Credit Agreement); the several
banks and other financial institutions from time to time
parties to the Second Amended and Restated Credit
Agreement (the “Lenders”); Bank of America, N.A., as
Syndication Agent; Cobank, ACB, BNP Paribas, Credit
Agricole Corporate and Investment Bank, Rabobank
Nederland, Citizens Bank of Pennsylvania, The Bank
of Nova Scotia and Wells Fargo Bank, N.A., as
Documentation Agents; and JPMorgan Chase Bank,
N.A., as Administrative Agent
Second Amended and Restated Guarantee and
Collateral Agreement, dated as of June 30, 2011, made
by The Scotts Miracle-Gro Company, each domestic
Subsidiary Borrower under the Second Amended and
Restated Credit Agreement, and certain of its and their
domestic subsidiaries, in favor of JPMorgan Chase
Bank, N.A., as Administrative Agent
The Scotts Miracle-Gro Company Amended and
Restated 1996 Stock Option Plan (effective as of
October 30, 2007)
Specimen form of Stock Option Agreement for Non-
Qualified Stock Options granted to employees under
The Scotts Company 1996 Stock Option Plan (now
known as The Scotts Miracle-Gro Company Amended
and Restated 1996 Stock Option Plan)
10.5(a)†
The Scotts Miracle-Gro Company Amended and
Restated 2003 Stock Option and Incentive Equity Plan
(effective as of October 30, 2007)
10.5(b)(i)
Specimen form of Award Agreement for Directors used
to evidence grants of Nonqualified Stock Options made
under The Scotts Company 2003 Stock Option and
Incentive Equity Plan (now known as The Scotts
Miracle-Gro Company Amended and Restated 2003
Stock Option and Incentive Equity Plan) [2003 version]
111
Incorporated herein by reference to the Current Report
on Form 8-K of The Scotts Company, a Delaware
corporation, filed June 2, 1995 (File No. 0-19768)
[Exhibit 2(b)]
Incorporated herein by reference to the Current Report
on Form 8-K of The Scotts Company, an Ohio
corporation, filed October 5, 1999 (File No. 1-13292)
[Exhibit 2]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed July 1, 2011 (File
No. 1-11593) [Exhibit 4.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed July 1, 2011 (File
No. 1-11593) [Exhibit 4.2]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2007 (File No. 1-11593) [Exhibit 10(d)
(4)]
Incorporated herein by reference to the Current Report
on Form 8-K of The Scotts Company, an Ohio
corporation, filed November 19, 2004 (File No.
1-11593) [Exhibit 10.7]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2007 (File No. 1-11593) [Exhibit 10(j)
(3)]
Incorporated herein by reference to the Current Report
on Form 8-K of The Scotts Company, an Ohio
corporation, filed November 19, 2004 (File No.
1-11593) [Exhibit 10.9]
10.5(b)(ii)
10.5(c)(i)†
10.5(c)(ii)†
Specimen form of Award Agreement for Directors used
to evidence grants of Nonqualified Stock Options made
under The Scotts Miracle-Gro Company 2003 Stock
Option and Incentive Equity Plan (now known as The
Scotts Miracle-Gro Company Amended and Restated
2003 Stock Option and Incentive Equity Plan)
[post-2003 version]
Specimen form of Award Agreement for Nondirectors
used to evidence grants of Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock and Performance Stock made
under The Scotts Company 2003 Stock Option and
Incentive Equity Plan (now known as The Scotts
Miracle-Gro Company Amended and Restated 2003
Stock Option and Incentive Equity Plan) [pre-
December 1, 2004 version]
Specimen form of Award Agreement for Nondirectors
used to evidence grants of Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock and Performance Shares made
under The Scotts Miracle-Gro Company 2003 Stock
Option and Incentive Equity Plan (now known as The
Scotts Miracle-Gro Company Amended and Restated
2003 Stock Option and Incentive Equity Plan)
[effective December 1, 2004]
10.6(a)†
The Scotts Miracle-Gro Company Long-Term
Incentive Plan (effective as of January 17, 2013)
10.6(b)
10.6(c)(i)
10.6(c)(ii)
10.6(c)(iii)
Specimen form of Award Agreement for Nonemployee
Directors used to evidence grants of Time-Based
Nonqualified Stock Options which may be made under
The Scotts Miracle-Gro Company 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro
Company Long-Term Incentive Plan)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units made under The Scotts Miracle-
Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro
Company Long-Term Incentive Plan) (February 4,
2008 through January 22, 2009 version)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan (now known as The
Scotts Miracle-Gro Company Long-Term Incentive
Plan) (January 23, 2009 through January 19, 2012)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan (now known as The
Scotts Miracle-Gro Company Long-Term Incentive
Plan) (January 20, 2012 through January 17, 2013)
112
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2005 (File No. 1-11593) [Exhibit 10(v)]
Incorporated herein by reference to the Current Report
on Form 8-K of The Scotts Company, an Ohio
corporation, filed November 19, 2004 (File No.
1-11593) [Exhibit 10.8]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2005 (File No. 1-11593) [Exhibit 10(u)]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed January 24, 2013
(File No. 1-11593) [Exhibit 10.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed February 2, 2006
(File No. 1-11593) [Exhibit 10.3]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2007 (File No. 1-11593) [Exhibit
10(m)]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended March 28, 2009 (File No. 1-11593) [Exhibit
10.1]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2011 (File No. 1-11593) [Exhibit
10.4]
10.6(c)(iv)
10.6(c)(v)
10.6(c)(vi)
10.6(d)(i)
10.6(d)(ii)
10.6(d)(iii)
10.6(d)(iv)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units made on January 20, 2012 to
Adam Hanft and William G. Jurgensen under The
Scotts Miracle-Gro Company Amended and Restated
Long-Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Long-Term Incentive Plan)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units which may be made under The
Scotts Miracle-Gro Company Long-Term Incentive
Plan (post-January 17, 2013 version)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units made on January 18, 2013 to
William G. Jurgensen under The Scotts Miracle-Gro
Company Long-Term Incentive Plan
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units made under The Scotts Miracle-
Gro Company Amended and Restated 2006 Long-Term
Incentive Plan (now known as The Scotts Miracle-Gro
Company Long-Term Incentive Plan) (Deferral of Cash
Retainer — January 22, 2010 through January 20, 2011
version)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan (now known as The
Scotts Miracle-Gro Company Long-Term Incentive
Plan) (Deferral of Cash Retainer — January 21, 2011
through January 19, 2012)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units which may be made under The
Scotts Miracle-Gro Company Amended and Restated
2006 Long-Term Incentive Plan (now known as The
Scotts Miracle-Gro Company Long-Term Incentive
Plan) (Deferral of Cash Retainer — January 20, 2012
through January 17, 2013)
Specimen form of Deferred Stock Unit Award
Agreement for Nonemployee Directors (with Related
Dividend Equivalents) used to evidence grants of
Deferred Stock Units which may be made under The
Scotts Miracle-Gro Company Long-Term Incentive
Plan (Deferral of Cash Retainer — post-January 17,
2013 version)
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2011 (File No. 1-11593) [Exhibit
10.5]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.3]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.4]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended January 2, 2010 (File No. 1-11593) [Exhibit
10.1]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended January 1, 2011 (File No. 1-11593) [Exhibit 10.4]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2011 (File No. 1-11593) [Exhibit
10.6]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.2]
113
10.6(e)†
10.6(f)(i)†
10.6(f)(ii)†
10.6(f)(iii)†
10.6(f)(iv)†
10.6(g)(i)†
10.6(g)(ii)†
10.6(g)(iii)†
Specimen form of Award Agreement used to evidence
grants of Restricted Stock Units, Performance Shares,
Nonqualified Stock Options, Incentive Stock Options,
Restricted Stock and Stock Appreciation Rights made
under The Scotts Miracle-Gro Company 2006 Long-
Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Long-Term Incentive Plan)
[pre-October 30, 2007 version]
Specimen form of Restricted Stock Unit Award
Agreement for Employees (with Related Dividend
Equivalents) used to evidence grants of Restricted
Stock Units which may be made under The Scotts
Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Long-Term Incentive Plan)
(January 20, 2010 through January 19, 2012 version)
Specimen form of Restricted Stock Unit Award
Agreement for Employees (with Related Dividend
Equivalents) used to evidence grants of Restricted
Stock Units which may be made under The Scotts
Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Long-Term Incentive Plan)
(January 20, 2012 through January 17, 2013)
Specimen form of Restricted Stock Unit Award
Agreement for Employees (with Related Dividend
Equivalents) used to evidence grants of Restricted
Stock Units which may be made under The Scotts
Miracle-Gro Company Long-Term Incentive Plan
(post-January 17, 2013 version)
Specimen form of Restricted Stock Unit Award
Agreement for Employees (with Related Dividend
Equivalents) used to evidence grants of Restricted
Stock Units made on April 1, 2013 to Lawrence A.
Hilsheimer under The Scotts Miracle-Gro Company
Long-Term Incentive Plan
Specimen form of Performance Unit Award Agreement
for Employees (with Related Dividend Equivalents)
used to evidence grants of Performance Units which
may be made under The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan
(now known as The Scotts Miracle-Gro Company
Long-Term Incentive Plan) (January 21, 2011 through
January 19, 2012 version)
Specimen form of Performance Unit Award Agreement
for Employees (with Related Dividend Equivalents)
used to evidence grants of Performance Units which
may be made under The Scotts Miracle-Gro Company
Amended and Restated 2006 Long-Term Incentive Plan
(now known as The Scotts Miracle-Gro Company
Long-Term Incentive Plan) (January 20, 2012 through
January 17, 2013
Specimen form of Performance Unit Award Agreement
for Employees (with Related Dividend Equivalents)
used to evidence grants of Performance Units which
may be made under The Scotts Miracle-Gro Company
Long-Term Incentive Plan (January
17, 2013 version)
114
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2005 (File No. 1-11593) [Exhibit
10(b)]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended January 2, 2010 (File No. 1-11593) [Exhibit
10.2]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2011 (File No. 1-11593) [Exhibit
10.2]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.5]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 2013 (File No. 1-11593) [Exhibit 10.6]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed January 26, 2011
(File No. 1-11593) [Exhibit 10.1]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2011 (File No. 1-11593) [Exhibit
10.1]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.6]
10.6(g)(iv)†
Specimen form of Performance Unit Award Agreement
for Employees (with Related Dividend Equivalents)
used to evidence grants of Performance Units made on
January 18, 2013 to James Hagedorn under The Scotts
Miracle-Gro Company Long-Term Incentive Plan
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 2013 (File No. 1-11593) [Exhibit
10.8]
10.6(h)(i)†
10.6(h)(ii)†
10.6(h)(iii)†
10.6(h)(iv)†
10.6(h)(v)†
10.7(a)(i)†
10.7(a)(ii)†
10.7(b)(i)†
Specimen form of Nonqualified Stock Option Award
Agreement for Employees used to evidence grants of
Nonqualified Stock Options made under The Scotts
Miracle-Gro Company 2006 Long-Term Incentive Plan
(now known as The Scotts Miracle-Gro Company
Long-Term Incentive Plan) [October 30, 2007 through
October 8, 2008 version]
Specimen form of Nonqualified Stock Option Award
Agreement for Employees used to evidence grants of
Nonqualified Stock Options made under The Scotts
Miracle-Gro Company Amended and Restated 2006
Long-Term Incentive Plan (now known as The Scotts
Miracle-Gro Company Long-Term Incentive Plan)
(October 9, 2008 through January 19, 2010 version)
Specimen form of Nonqualified Stock Option Award
Agreement for Employees used to evidence grants of
Nonqualified Stock Options which may be made under
The Scotts Miracle-Gro Company Amended and
Restated 2006 Long-Term Incentive Plan (now known
as The Scotts Miracle-Gro Company Long-Term
Incentive Plan) (January 20, 2010 through January 19,
2012 version)
Specimen form of Nonqualified Stock Option Award
Agreement for Employees used to evidence grants of
Nonqualified Stock Options which may be made under
The Scotts Miracle-Gro Company Amended and
Restated 2006 Long-Term Incentive Plan (now known
as The Scotts Miracle-Gro Company Long-Term
Incentive Plan) (January 20, 2012 through January 17,
2013)
Specimen form of Nonqualified Stock Option Award
Agreement for Employees used to evidence grants of
Nonqualified Stock Options which may be made under
The Scotts Miracle-Gro Company Long-Term
Incentive Plan (post-January 17, 2013 version)
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2007 (File No. 1-11593) [Exhibit 10(t)
(3)]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2008 (File No. 1-11593) [Exhibit 10.7
(f)(ii)]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended January 2, 2010 (File No. 1-11593) [Exhibit
10.4]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2011 (File No. 1-11593) [Exhibit
10.3]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.7]
The Scotts Company LLC Amended and Restated
Executive/Management Incentive Plan (approved on
November 7, 2007 and effective as of October 30,
2007)
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2007 (File No. 1-11593) [Exhibit 10(b)
(2)]
Amendment to The Scotts Company LLC Amended
and Restated Executive/Management Incentive Plan
(effective as of November 5, 2008) [amended the name
of the plan to be The Scotts Company LLC Amended
and Restated Executive Incentive Plan]
form of Employee Confidentiality,
Specimen
Noncompetition, Nonsolicitation Agreement
for
employees participating in The Scotts Company
Executive/Management Incentive Plan (now known as
The Scotts Company LLC Amended and Restated
Executive Incentive Plan) [2005 version]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed November 12, 2008
(File No. 1-11593) [Exhibit 10.2]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2008 (File No. 1-11593) [Exhibit 10.2
(b)(i)]
115
10.7(b)(ii)†
10.7(c)†
10.8(a)(i)†
10.8(a)(ii)†
form of Employee Confidentiality,
Specimen
Noncompetition, Nonsolicitation Agreement
for
employees participating in The Scotts Company LLC
Executive/Management Incentive Plan (now known as
The Scotts Company LLC Amended and Restated
Executive Incentive Plan) [post-2005 version]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended July 1, 2006 (File No. 1-11593) [Exhibit 10.1]
Executive Officers of The Scotts Miracle-Gro
Company who are parties to form of Employee
Confidentiality, Noncompetition, Nonsolicitation
Agreement for employees participating in The Scotts
Company LLC Amended and Restated Executive
Incentive Plan
*
The Scotts Company LLC Executive Retirement Plan,
As Amended and Restated as of January 1, 2011
(executed December 22, 2010)
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended January 1, 2011 (File No. 1-11593) [Exhibit 10.3]
First Amendment to The Scotts Company LLC
Executive Retirement Plan, as Amended and Restated
as of January 1, 2011 (effective as of January 1, 2011)
10.8(a)(iii)†
Second Amendment to The Scotts Company LLC
Executive Retirement Plan, as Amended and Restated
as of January 1, 2011 (effective as of January 1, 2012)
10.8(a)(iv)†
Third Amendment to The Scotts Company LLC
Executive Retirement Plan, as Amended and Restated
as of January 1, 2011 (effective as of January 1, 2013)
10.8(b)†
Form of Executive Retirement Plan Retention Award
Agreement between The Scotts Company LLC and
each of David C. Evans, Barry W. Sanders, Denise S.
Stump, Michael C. Lukemire and Vincent C. Brockman
(entered into on November 4, 2008)
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.8]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.9]
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 2012 (File No. 1-11593) [Exhibit
10.10]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed October 15, 2008
(File No. 1-11593) [Exhibit 10.2]
10.9
Summary of Compensation
for Nonemployee
Directors of The Scotts Miracle-Gro Company
(effective as of January 22, 2010)
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended April 3, 2010 (File No. 1-11593) [Exhibit 10.7]
10.10(a)†
Employment Agreement, dated as of May 19, 1995,
between The Scotts Company and James Hagedorn
10.10(b)†
10.10(c)†
Amendments to Employment Agreement by and
among The Scotts Miracle-Gro Company, The Scotts
Company LLC and James Hagedorn, effective as of
October 1, 2008 (executed by Mr. Hagedorn on
December 22, 2008 and on behalf of The Scotts
Miracle-Gro Company and The Scotts Company LLC
by Denise Stump on December 22, 2008 and Vincent
C. Brockman on December 30, 2008)
Separation Agreement and Release of All Claims,
entered into and effective as of July 10, 2013, by and
between The Scotts Company LLC and Vincent C.
Brockman
Incorporated herein by reference to the Annual Report
on Form 10-K of The Scotts Company, an Ohio
corporation, for the fiscal year ended September 30,
1995 (File No. 1-11593) [Exhibit 10(p)]
Incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 2008 (File No. 1-11593) [Exhibit
10.16]
Incorporated herein by reference to the Registrant's
Current Report on Form 8-K filed July 11, 2013 (File
No. 1-11593) [Exhibit 10.1]
10.10(d)
Consulting Agreement, dated as of May 9, 2013,
between The Scotts Miracle-Gro Company and Dr.
Michael Porter
Incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 2013 (File No. 1-11593) [Exhibit 10.3]
116
10.11(a)†
The Scotts Company LLC Executive Severance Plan,
adopted on May 4, 2011
10.11(b)†
Form of Tier 1 Participation Agreement under The
Scotts Company LLC Executive Severance Plan
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed May 10, 2011 (File
No. 1-11593) [Exhibit 10.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed May 10, 2011 (File
No. 1-11593) [Exhibit 10.2]
10.11(c)†
10.12(a)
10.12(b)
10.12(c)
10.13
10.14
10.15(a)
10.15(b)
12
14
21
23
Executive Officers of The Scotts Miracle-Gro
Company who are parties to form of Tier 1 Participation
Agreement under The Scotts Company LLC Executive
Severance Plan
*
Amended and Restated Exclusive Agency and
Marketing Agreement, effective as of September 30,
1998, between Monsanto Company and The Scotts
Company LLC (as successor to The Scotts Company)
Letter Agreement, dated March 10, 2005, amending the
Amended and Restated Exclusive Agency and
Marketing Agreement, dated as of September 30, 1998,
between Monsanto Company and The Scotts Company
LLC (as successor to The Scotts Company)
Letter Agreement, dated March 28, 2008, amending the
Amended and Restated Exclusive Agency and
Marketing Agreement, dated as of September 30, 1998,
between Monsanto Company and The Scotts Company
LLC
Purchase Agreement, dated as of December 13, 2010,
among The Scotts Miracle-Gro Company,
the
subsidiary guarantors named therein and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as representative
of the several initial purchasers named therein
Share and Business Sale Agreement, dated as of
February 23, 2011, by and among The Scotts Company
LLC, as Seller, each of the Share Sellers and Business
Sellers (as defined therein), Israel Chemicals Ltd., as
Purchaser, each of the Share Purchasers and Business
Purchasers (as defined therein) and The Scotts Miracle-
Gro Company, as Seller Guarantor
Master Accounts Receivable Purchase Agreement,
dated as of November 15, 2012, by and among The
Scotts Miracle-Gro Company, The Scotts Company
LLC, The Bank of Nova Scotia, Suntrust Bank, RB
Receivables LLC and Mizuho Corporate Bank, Ltd., as
Administrative Agent and as a Bank
First Amendment, dated as of October 25, 2013, to the
Master Accounts Receivable Purchase Agreement,
dated as of November 15, 2012, among The Scotts
Miracle-Gro Company, The Scotts Company LLC, The
Bank of Nova Scotia, Suntrust Bank, RB Receivables
LLC and Mizuho Bank, Ltd., as Administrative Agent
and as a Bank
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2005 (File No. 1-11593) [Exhibit 10(x)]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2009 (File No. 1-11593) [Exhibit 10.17
(b)]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2008 (File No. 1-11593) [Exhibit 10.18
(b)]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed December 16, 2010
(File No. 1-11593) [Exhibit 10.1]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed March 1, 2011 (File
No. 1-11593) [Exhibit 10.1]
Incorporated herein by reference to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended
September 30, 2012 (File No. 1-11593) [Exhibit 10.16]
Incorporated herein by reference to the Registrant’s
Current Report on Form 8-K filed October 31, 2013
(File No. 1-11593) [Exhibit 10.1]
Computation of Ratio of Earnings to Fixed Charges
*
The Scotts Miracle-Gro Company Code of Business
Conduct & Ethics (as revised effective January 18,
2012)
Incorporated herein by reference to the Registrant's
Current Report on Form 8-K filed January 24, 2012
(File No. 1-11593) [Exhibit 14.1]
Subsidiaries of The Scotts Miracle-Gro Company
Consent of Independent Registered Public Accounting
Firm — Deloitte & Touche LLP
*
*
117
24
31.1
31.2
32
Powers of Attorney of Executive Officers and Directors
of The Scotts Miracle-Gro Company
*
Rule 13a-14(a)/15d-14(a) Certifications
Executive Officer)
(Principal
*
Rule 13a-14(a)/15d-14(a) Certifications
Financial Officer)
(Principal
*
Section 1350 Certifications
Officer and Principal Financial Officer)
(Principal Executive
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase
101.DEF**
XBRL Taxonomy Extension Definition Linkbase
101.LAB**
XBRL Taxonomy Extension Label Linkbase
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase
*
*
*
*
*
*
*
*
**
†
Filed or furnished herewith.
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange
Act of 1934 and otherwise are not subject to liability.
Management contract, compensatory plan or arrangement.
118
Rule 13a-14(a)/15d-14(a) Certifications
(Principal Executive Officer)
CERTIFICATIONS
I, James Hagedorn, certify that:
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K of The Scotts Miracle-Gro Company for the fiscal year ended
September 30, 2013;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: November 20, 2013
By:
/s/ JAMES HAGEDORN
Printed Name: James Hagedorn
Title: Chief Executive Officer and Chairman of the Board
Rule 13a-14(a)/15d-14(a) Certifications
(Principal Financial Officer)
CERTIFICATIONS
I, Lawrence A. Hilsheimer, certify that:
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K of The Scotts Miracle-Gro Company for the fiscal year ended
September 30, 2013;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: November 20, 2013
By:
/s/ LAWRENCE A. HILSHEIMER
Printed Name: Lawrence A. Hilsheimer
Title: Executive Vice President and Chief Financial Officer
SECTION 1350 CERTIFICATIONS*
Exhibit 32
In connection with the Annual Report on Form 10-K of The Scotts Miracle-Gro Company (the “Company”) for the fiscal year
ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned James Hagedorn, Chief Executive Officer and Chairman of the Board of the Company, and Lawrence A.
Hilsheimer, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 1350 of Chapter
63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of their knowledge:
1)
2)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition
and results of operations of the Company and its subsidiaries.
/s/ JAMES HAGEDORN
Printed Name: James Hagedorn
Title: Chief Executive Officer and Chairman of the
Board
/s/ LAWRENCE A. HILSHEIMER
Printed Name: Lawrence A. Hilsheimer
Title: Executive Vice President and Chief Financial Officer
November 20, 2013
November 20, 2013
*
THESE CERTIFICATIONS ARE BEING FURNISHED AS REQUIRED BY RULE 13a-14(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934 (THE “EXCHANGE ACT”) AND SECTION 1350 OF CHAPTER 63 OF
TITLE 18 OF THE UNITED STATES CODE, AND SHALL NOT BE DEEMED “FILED” FOR PURPOSES OF
SECTION 18 OF THE EXCHANGE ACT OR OTHERWISE SUBJECT TO THE LIABILITY OF THAT SECTION.
THESE CERTIFICATIONS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY
FILING UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THAT
THE COMPANY SPECIFICALLY INCORPORATES THESE CERTIFICATIONS BY REFERENCE.
SHAREHOLDER INFORMATION
World Headquarters
14111 Scottslawn Road
Marysville, Ohio 43041
(937) 644-0011
www.scotts.com
Annual Meeting
The annual meeting of shareholders will be held
at The Berger Learning Center, 14111 Scottslawn
Road, Marysville, Ohio 43041, on Thursday,
January 30, 2014 at 9:00 a.m. ET.
NYSE Symbol
The common shares of The Scotts Miracle-Gro
Company trade on the New York Stock
Exchange under the symbol SMG.
Transfer Agent and Registrar
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0856
Shareholder and Investor
Relations Contact
Jim King
Senior Vice President,
Chief Communications Officer
The Scotts Miracle-Gro Company
14111 Scottslawn Road
Marysville, Ohio 43041
(937) 644-0011
Dividends
The Scotts Miracle-Gro Company began paying
a quarterly cash dividend of $0.125 per share in
the fourth quarter of fiscal 2005. In the fourth
quarter of fiscal 2010, the Company increased
the quarterly cash dividend to $0.25 per share.
In the fourth quarter of fiscal 2011, the Company
increased the quarterly cash dividend to $0.30
per share. In the fourth quarter of fiscal 2012,
the Company increased the quarterly cash
dividend to $0.325 per share. On August 6,
2013, the Company announced that its Board
of Directors had further increased the quarterly
cash dividend to $0.4375 per share, which was
first paid to shareholders in the fourth quarter
of fiscal 2013.
The payment of future dividends, if any, on
common shares 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. The Company’s credit facility restricts
future dividend payments to an aggregate of
$150 million annually beginning in fiscal 2014
if the Company’s leverage ratio, after giving
effect to any such annual dividend payment,
exceeds 2.50. The Company’s leverage ratio
was 2.05 at September 30, 2013. For further
discussion regarding the restrictions on
dividend payments, see “NOTE 10. DEBT” of
the Notes to Consolidated Financial Statements
included in the Company’s 2013 Annual Report
on Form 10-K.
Stock Price Performance
See chart below for stock price performance.
The Scotts Miracle-Gro Company common
shares have been publicly traded since
January 31, 1992.
Shareholders
As of November 7, 2013, there were
approximately 23,700 shareholders, including
holders of record and The Scotts Miracle-Gro
Company’s estimate of beneficial holders.
Publications for Shareholders
In addition to this 2013 Annual Report,
The Scotts Miracle-Gro Company informs
shareholders about the Company through its
Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, its Current Reports on
Form 8-K and its Notice of Annual Meeting of
Shareholders and Proxy Statement.
Copies of any of these documents may be
obtained without charge on our Investor
Relations Web site at http://investor.scotts.com
or by writing to:
The Scotts Miracle-Gro Company
Attention: Investor Relations
14111 Scottslawn Road
Marysville, Ohio 43041
Stock Price Range
Fiscal year ended
September 30, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$44.60
$47.60
$50.46
$55.99
$39.64
$42.64
$42.01
$47.87
Fiscal year ended
September 30, 2012
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$50.85
$55.58
$55.95
$45.00
$40.57
$46.17
$35.49
$37.97
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995:
Statements contained in this 2013 Annual
Report, other than statements of historical fact,
which address activities, events and develop-
ments that the Company expects or anticipates
will or may occur in the future, including, but
not limited to, information regarding the future
economic performance and financial condition
of the Company, the plans and objectives of
the Company’s management, the Company’s
assumptions regarding such performance and
plans, as well as the amount and timing of
repurchases of the Company’s common shares
are “forward-looking statements” within the
meaning of the U.S. federal securities laws that
are subject to risks and uncertainties. Actual
results could differ materially from the forward-
looking information in this 2013 Annual Report
due to a variety of factors. Additional detailed
information concerning a number of the impor-
tant factors that could cause actual results
to differ materially from the forward-looking
information contained in this 2013 Annual
Report is readily available in the Company’s
Annual Report on Form 10-K for the fiscal year
ended September 30, 2013, which is filed with
the Securities and Exchange Commission.
Comparison of 5-Year Cumulative Total Return*
Among The Scotts Miracle-Gro Company, The Russell 2000 Index and The S&P Household Products Index
The Scotts Miracle-Gro Company
Russell 2000
S&P Household Products Index
$300
$250
$200
$150
$100
$50
$0
9/08
9/09
9/10
9/11
9/12
9/13
*$100 invested on 9/30/08 in stock or index, including
reinvestment of dividends. Fiscal year ending September 30.
09945Text_Page.indd 1
12/6/13 7:09 AM
LEADERSHIP TEAM
Jim Hagedorn
Chief Executive Officer and
Chairman of the Board
Barry Sanders
President and Chief Operating Officer
Larry Hilsheimer
Executive Vice President,
Chief Financial Officer
Jim Lyski
Executive Vice President,
Chief Marketing Officer
Mike Lukemire
Executive Vice President,
Business Execution
Ivan Smith
Executive Vice President,
General Counsel
Corporate Secretary and
Chief Compliance Officer
Denise Stump
Executive Vice President,
Global Human Resources and
Chief Ethics Officer
Chris Allen
President, South Region
Mike Carbonara
President, North Region
Randy Coleman
Senior Vice President,
Global Finance Operations and Enterprise
Performance Management Analytics
Mike French
Senior Vice President
and General Manager,
Controls Strategic Business Unit
Michel Gasnier
President, International Region
Jim Gimeson
Senior Vice President
and General Manager,
Gardens Strategic Business Unit
Scott Hendrick
Senior Vice President,
Chief Information Officer
Phil Jones
Senior Vice President, Channel Sales
Jim King
Senior Vice President,
Chief Communications Officer
Brian Kura
President, Scotts LawnService
Kathryne Reeves
Senior Vice President
and General Manager,
Lawns Strategic Business Unit
Pete Supron
Strategy Principal
Dave Swihart
Senior Vice President,
Global R&D and Sourcing
Jim Tates
President, West Region
Jan Valentic
Senior Vice President,
Regional Marketing
Stephanie M. Shern
Former Vice Chairman and
Global Director – Retail and Consumer Products
Ernst & Young LLP
Professional Services Provider
Chair of Audit & Finance Committee
Board member since 2003
John R. Vines
Lieutenant General (Retired)
U.S. Army
Member of Governance & Nominating Committee and
Strategy & Business Development Committee
Board member since 2013
BOARD OF DIRECTORS
Alan H. Barry
Former President and Chief Operating Officer
Masco Corporation
Manufacturer of products for
home improvement and construction
Chair of Governance & Nominating Committee and
Member of Audit & Finance Committee
Board member since 2009
James Hagedorn
Chief Executive Officer and Chairman of the Board
The Scotts Miracle-Gro Company
Board member since 1995
Adam Hanft
Founder and Chief Executive Officer
Hanft Projects LLC
Strategic consultancy firm
Member of Governance & Nominating Committee
and Innovation & Technology Committee
Board member since 2010
The Honorable Stephen L. Johnson
Former Administrator
U.S. Environmental Protection Agency
Member of Audit & Finance Committee,
Compensation & Organization Committee and
Innovation & Technology Committee
Board member since 2010
Thomas N. Kelly Jr.
Former Executive Vice President,
Transition Integration
Sprint Nextel Corporation
Global communications company
Lead Independent Director
Member of Compensation & Organization Committee
and Strategy & Business Development Committee
Board member since 2006
Katherine Hagedorn Littlefield
Chair
Hagedorn Partnership, L.P.
Private investment partnership
Vice Chairman of the Board
Chair of Innovation & Technology Committee and
Member of Strategy & Business Development Committee
Board member since 2000
Nancy G. Mistretta
Retired Partner
Russell Reynolds Associates
Executive search firm
Chair of Compensation & Organization Committee
and Member of Audit & Finance Committee
Board member since 2007
Michael E. Porter, Ph.D.
Bishop William Lawrence University Professor
Harvard Business School
Chair of Strategy & Business Development Committee
Board member since 2013
*The electronic version of the Company’s Annual Report includes certain clerical corrections to titles of directors, officers
and other company personnel.
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www.scottsmiraclegro.com
14111 Scottslawn Road
Marysville, Ohio 43041
937.644.0011