The Scotts Miracle-Gro Company (NYSE:SMG), the world’s leading
marketer of branded consumer lawn and garden products, today
announced fiscal 2017 financial results highlighted by record
operating cash flow of $354 million as well as full-year sales
growth of 5 percent driven by a 137 percent increase in revenue
from The Hawthorne Gardening Company.
For the year ended September 30, 2017, Company-wide reported net
sales increased to $2.64 billion. GAAP income from continuing
operations for the full year was $3.29 per share compared with
$3.98 per share in the prior year. Non-GAAP SLS divestiture
adjusted earnings, which exclude impairment, restructuring, the
impact of the Scotts LawnService divestiture and other one-time
charges, was $3.94 per share compared with $3.58 per share a year
ago. The non-GAAP adjusted results are the basis of the Company’s
earnings guidance.
Operating cash flow for the year was $354 million compared with
$237 million a year earlier. Non-GAAP free cash flow productivity
for the year was 130 percent, more than double the rate a year
earlier.
“Our focus on cash flow throughout the year provided an
outstanding result, and cash flow will continue to be a primary
focus for ScottsMiracle-Gro in 2018 and beyond,” said Jim Hagedorn,
chairman and chief executive officer. “The combination of our
operating cash flow, a strong balance sheet, proceeds from the
recent sale of our Europe and Australia businesses and an $87
million distribution we received from TruGreen gave us the
financial fuel we needed in 2017 to invest in higher-growth
businesses while also aggressively returning cash to
shareholders.
“Our goal for 2018 is to again deliver operating cash flow of at
least $350 million while delivering non-GAAP adjusted earnings in
the range of $4.15 to $4.35 per share.”
Fourth quarter detailsCompany-wide sales
increased 8 percent to $376.7 million. Sales in the U.S. Consumer
segment decreased 7 percent in the quarter to $258.1 million due
primarily to lower sales in the mass retail channel. Operating loss
in the segment was $0.3 million compared with operating profit of
$11.2 million a year earlier.
The Hawthorne Gardening Company reported sales of $92.0 million,
a 97 percent increase from the same period a year ago.
Approximately 60 percent of that growth was due to acquisitions.
The segment earned $9.0 million in the quarter compared with $5.2
million a year ago. The fourth quarter marked the first time
Hawthorne has been reported as a stand-alone segment. Historical
quarterly information for Hawthorne will be made available after
the Company files its Form 10-K in late November.
For the quarter, the Company-wide GAAP and non-GAAP adjusted
gross margin rate was 23.4 percent compared with 26.4 percent and
26.6 percent, respectively, a year ago. SG&A increased 2
percent, to $114.5 million. Increased expense related to
acquisitions was offset by lower variable compensation expense.
The Company reported a seasonal loss from continuing operations
on a GAAP basis of $42.3 million, or $0.72 per share, compared with
a loss of $11.3 million, or $0.18 per share. The loss on a non-GAAP
SLS divestiture adjusted basis was $14.9 million, or $0.26 per
share, compared with $11.7 million, or $0.19 per share.
Full Year DetailsCompany-wide sales increased 5
percent to $2.64 billion compared to $2.51 billion a year ago.
Sales in the U.S. Consumer segment decreased 2 percent, to $2.16
billion, due largely to lower-than-expected sales in mass retail
and lower year-over-year sales in the mulch category. U.S. Consumer
operating profit was $521.5 million, an increase of 6 percent.
Consumer purchases of the Company’s products at its largest four
retail partners declined 1 percent on a full-year basis.
“Consumer engagement was strong all season long when the weather
cooperated and we saw increases in the home center and hardware
channel,” Hagedorn said. “In fact, consumer purchases in these
channels increased by nearly 4 percent when excluding the mulch
category and performed largely in line with our expectations
entering the year.”
Hawthorne sales increased 137 percent, to $287.2 million, driven
by the acquisitions of Gavita, Botanicare and Agrolux. Hawthorne
operating profit was $35.5 million, an increase of 201 percent, and
included planned investments in technology systems and other
support functions designed to help foster long-term sustainable
growth.
“The organic volume growth at Hawthorne was 20 percent for the
year, outperforming our assumptions and giving us continued
confidence in this category as we prepare for 2018,” Hagedorn said.
“We remain focused on further strengthening our position in the
hydroponics industry through a combination of acquired and internal
opportunities that we expect to grow both the top and bottom lines
of this business.”
The GAAP and non-GAAP adjusted gross margin rates for the full
year were 36.8 percent compared with 35.9 percent and 36.2 percent,
respectively, a year ago. SG&A was $550.9 million, a 6 percent
increase from 2016, primarily related to expenses from acquired
businesses.
GAAP income from continuing operations was $198.3 million, or
$3.29 per share, compared with $246.1 million, or $3.98 per share.
Non-GAAP SLS divestiture adjusted earnings were $236.9 million, or
$3.94 per share, compared with $221.7 million, or $3.58 per share a
year ago. The full-year diluted share count was 60.2 million
compared with 62.0 million, reflecting share repurchase activity of
approximately $246 million for the year.
2018 OutlookThe Company also provided guidance
for fiscal 2018 that includes projected sales growth of 4 to 6
percent. The guidance assumes that acquisitions will add 3 percent
and Hawthorne slightly more than 1 percent, and that the U.S.
Consumer business has sales growth of 0 to 2 percent.
The gross margin rate is expected to decline by 50-100 basis
points, and SG&A is expected to grow 0 to 2 percent. Non-GAAP
adjusted earnings per share is expected between $4.15 and $4.35.
Operating cash flow is expected to be at least $350 million.
“We expect that Hawthorne volume growth, acquisitions and strong
expense control will continue to be nice tailwinds, but the gross
margin rate is likely to be a challenge throughout the year,” said
Randy Coleman, chief financial officer. “Benefits that we saw from
lower trade program expense in 2017 will reverse in 2018 with no
meaningful offset. However, we believe we can still deliver strong
EPS improvement while continuing to improve our operating and free
cash flow performance again next year.”
Conference Call and Webcast Scheduled for 9:00 a.m. ET
Today, November 7The Company will discuss results during a
webcast and conference call today at 9:00 a.m. Eastern Time.
Conference call participants should call 866-548-2691 (Conference
Code: 8042285). A live webcast of the call will be available on the
investor relations section of the Company's website at
http://investor.scotts.com. An archive of the webcast, as well as
any accompanying financial information regarding any non-GAAP
financial measures discussed by the Company during the call, will
remain available for at least 12 months. In addition, a replay of
the call can be heard by calling 888-203-1112. The replay will be
available for 30 days.
About ScottsMiracle-GroThe Scotts Miracle-Gro
Company is the world's largest marketer of branded consumer
products for lawn and garden care. The Company's brands are among
the most recognized in the industry. The Company's Scotts®,
Miracle-Gro® and Ortho® brands are market-leading in their
categories, as is the consumer Roundup® brand, which is marketed in
the U.S. and certain other countries by Scotts and owned by
Monsanto. We maintain a minority interest in TruGreen®, the largest
residential lawn care service business, and in Bonnie Plants®, the
largest marketer of edible gardening plants in retail channels. The
Company’s wholly-owned subsidiary, The Hawthorne Gardening Company,
is a leading provider of nutrients, lighting and other materials
used in the hydroponic growing segment. For additional information,
visit us at www.scottsmiracle-gro.com.
Forward Looking Non-GAAP MeasuresIn this
release, the Company provides an outlook for fiscal 2018 non-GAAP
adjusted EPS. The Company does not provide a GAAP EPS outlook,
which is the most directly comparable GAAP measure to non-GAAP
adjusted EPS, because changes in the items that the Company
excludes from GAAP EPS to calculate non-GAAP adjusted EPS,
described above, can be dependent on future events that are less
capable of being controlled or reliably predicted by management and
are not part of the Company’s routine operating activities.
Additionally, due to their unpredictability, management does not
forecast the excluded items for internal use and therefore cannot
create or rely on a GAAP EPS outlook without unreasonable efforts.
The timing and amount of any of the excluded items could
significantly impact the Company’s GAAP EPS. As a result, the
Company does not provide a reconciliation of guidance for non-GAAP
adjusted EPS to GAAP EPS, in reliance on the unreasonable efforts
exception provided under Item 10(e)(1)(i)(B) of Regulation S-K.
Cautionary Note Regarding Forward-Looking
StatementsStatements contained in this press release,
other than statements of historical fact, which address activities,
events and developments 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, and the Company’s assumptions regarding such
performance and plans are “forward-looking statements” within the
meaning of the U.S. federal securities laws that are subject to
risks and uncertainties. These forward-looking statements generally
can be identified as statements that include phrases such as
“guidance,” “outlook,” “projected,” “believe,” “target,” “predict,”
“estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,”
“anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,”
“should” or other similar words or phrases. Actual results could
differ materially from the forward-looking information in this
release due to a variety of factors, including, but not limited
to:
- Compliance with environmental and other public health
regulations could increase the Company’s costs of doing business or
limit the Company’s ability to market all of its products;
- Increases in the prices of raw materials and fuel costs could
adversely affect the Company’s results of operations;
- The highly competitive nature of the Company’s markets could
adversely affect its ability to maintain or grow revenues;
- Because of the concentration of the Company’s sales to a small
number of retail customers, the loss of one or more of, or
significant reduction in orders from, its top customers could
adversely affect the Company’s financial results;
- Adverse weather conditions could adversely impact financial
results;
- The Company’s international operations make the Company
susceptible to fluctuations in currency exchange rates and to other
costs and risks associated with international regulation;
- The Company may not be able to adequately protect its
intellectual property and other proprietary rights that are
material to the Company’s business;
- If Monsanto Company were to terminate the Marketing Agreement
for consumer Roundup products, the Company would lose a substantial
source of future earnings and overhead expense absorption;
- Hagedorn Partnership, L.P. beneficially owns approximately 27%
of the Company’s common shares and can significantly influence
decisions that require the approval of shareholders;
- The Company may pursue acquisitions, dispositions, investments,
dividends, share repurchases and/or other corporate transactions
that it believes will maximize equity returns of its shareholders
but may involve risks.
Additional detailed information concerning a number of the
important factors that could cause actual results to differ
materially from the forward-looking information contained in this
release is readily available in the Company’s publicly filed
quarterly, annual and other reports. The Company disclaims any
obligation to update developments of these risk factors or to
announce publicly any revision to any of the forward-looking
statements contained in this release, or to make corrections to
reflect future events or developments.
Contact:Jim KingSenior
Vice PresidentInvestor Relations & Corporate
Affairs(937) 578-5622
|
THE SCOTTS MIRACLE-GRO
COMPANYCondensed Consolidated Statements of
Operations(In millions, except for per common share
data)(Unaudited) |
|
|
|
|
|
Three Months Ended |
|
|
|
Twelve Months Ended |
|
|
|
|
Footnotes |
|
September 30, 2017 |
|
September 30, 2016 |
|
%Change |
|
September 30, 2017 |
|
September 30, 2016 |
|
%Change |
Net
sales |
|
|
|
$ |
376.7 |
|
|
$ |
348.7 |
|
|
8 |
% |
|
$ |
2,642.1 |
|
|
$ |
2,506.2 |
|
|
5 |
% |
Cost of
sales |
|
|
|
288.6 |
|
|
256.1 |
|
|
|
|
1,669.5 |
|
|
1,600.0 |
|
|
|
Cost of
sales—impairment, restructuring and other |
|
|
|
— |
|
|
0.4 |
|
|
|
|
— |
|
|
5.9 |
|
|
|
Gross
profit |
|
|
|
88.1 |
|
|
92.2 |
|
|
(4 |
)% |
|
972.6 |
|
|
900.3 |
|
|
8 |
% |
% of
sales |
|
|
|
23.4 |
% |
|
26.4 |
% |
|
|
|
36.8 |
% |
|
35.9 |
% |
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
114.5 |
|
|
112.8 |
|
|
2 |
% |
|
550.9 |
|
|
518.0 |
|
|
6 |
% |
Impairment, restructuring and other |
|
|
|
3.7 |
|
|
2.8 |
|
|
|
|
4.9 |
|
|
(51.5 |
) |
|
|
Other income, net |
|
|
|
(4.0 |
) |
|
(6.2 |
) |
|
|
|
(16.6 |
) |
|
(13.8 |
) |
|
|
Income
(loss) from operations |
|
|
|
(26.1 |
) |
|
(17.2 |
) |
|
(52 |
)% |
|
433.4 |
|
|
447.6 |
|
|
(3 |
)% |
% of
sales |
|
|
|
(6.9 |
)% |
|
(4.9 |
)% |
|
|
|
16.4 |
% |
|
17.9 |
% |
|
|
Equity in
(income) loss of unconsolidated affiliates |
|
(3 |
) |
|
(1.2 |
) |
|
(11.3 |
) |
|
|
|
29.0 |
|
|
(7.8 |
) |
|
|
Costs
related to refinancing |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
8.8 |
|
|
|
Interest
expense |
|
|
|
17.7 |
|
|
12.8 |
|
|
|
|
76.1 |
|
|
62.9 |
|
|
|
Other
non-operating expense |
|
|
|
13.4 |
|
|
— |
|
|
|
|
13.4 |
|
|
— |
|
|
|
Income
(loss) from continuing operations before income taxes |
|
|
|
(56.0 |
) |
|
(18.7 |
) |
|
(199 |
)% |
|
314.9 |
|
|
383.7 |
|
|
(18 |
)% |
Income tax
expense (benefit) from continuing operations |
|
|
|
(13.7 |
) |
|
(7.4 |
) |
|
|
|
116.6 |
|
|
137.6 |
|
|
|
Income
(loss) from continuing operations |
|
|
|
(42.3 |
) |
|
(11.3 |
) |
|
(274 |
)% |
|
198.3 |
|
|
246.1 |
|
|
(19 |
)% |
Income
(loss) from discontinued operations, net of tax |
|
(3) (4) |
|
8.9 |
|
|
(15.6 |
) |
|
|
|
20.5 |
|
|
68.7 |
|
|
|
Net income
(loss) |
|
|
|
$ |
(33.4 |
) |
|
$ |
(26.9 |
) |
|
|
|
$ |
218.8 |
|
|
$ |
314.8 |
|
|
|
Net
(income) loss attributable to noncontrolling interest |
|
|
|
— |
|
|
0.3 |
|
|
|
|
(0.5 |
) |
|
0.5 |
|
|
|
Net income
(loss) attributable to controlling interest |
|
|
|
$ |
(33.4 |
) |
|
$ |
(26.6 |
) |
|
|
|
$ |
218.3 |
|
|
$ |
315.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per common share: |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
|
$ |
(0.72 |
) |
|
$ |
(0.18 |
) |
|
(300 |
)% |
|
$ |
3.33 |
|
|
$ |
4.04 |
|
|
(18 |
)% |
Income (loss) from discontinued operations |
|
|
|
0.15 |
|
|
(0.26 |
) |
|
|
|
0.35 |
|
|
1.12 |
|
|
|
Net income
(loss) |
|
|
|
$ |
(0.57 |
) |
|
$ |
(0.44 |
) |
|
|
|
$ |
3.68 |
|
|
$ |
5.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per common share: |
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
|
$ |
(0.72 |
) |
|
$ |
(0.18 |
) |
|
(300 |
)% |
|
$ |
3.29 |
|
|
$ |
3.98 |
|
|
(17 |
)% |
Income (loss) from discontinued operations |
|
|
|
0.15 |
|
|
(0.26 |
) |
|
|
|
0.34 |
|
|
1.11 |
|
|
|
Net income
(loss) |
|
|
|
$ |
(0.57 |
) |
|
$ |
(0.44 |
) |
|
|
|
$ |
3.63 |
|
|
$ |
5.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares used in basic income (loss) per share calculation |
|
|
|
58.4 |
|
|
60.6 |
|
|
(4 |
)% |
|
59.4 |
|
|
61.1 |
|
|
(3 |
)% |
Common
shares and potential common shares used in diluted income (loss)
per share calculation |
|
|
|
58.4 |
|
|
60.6 |
|
|
(4 |
)% |
|
60.2 |
|
|
62.0 |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
net income (loss) attributable to controlling interest from
continuing operations |
|
(5 |
) |
|
$ |
(14.9 |
) |
|
$ |
(12.1 |
) |
|
(23 |
)% |
|
$ |
236.9 |
|
|
$ |
230.7 |
|
|
3 |
% |
Adjusted
diluted income (loss) per common share from continuing
operations |
|
(2) (5) |
|
$ |
(0.26 |
) |
|
$ |
(0.20 |
) |
|
(30 |
)% |
|
$ |
3.94 |
|
|
$ |
3.72 |
|
|
6 |
% |
SLS
Divestiture adjusted income (loss) |
|
(3) (5) |
|
$ |
(14.9 |
) |
|
$ |
(11.7 |
) |
|
(27 |
)% |
|
$ |
236.9 |
|
|
$ |
221.7 |
|
|
7 |
% |
SLS
Divestiture adjusted income (loss) per common share |
|
(3) (5) |
|
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
(37 |
)% |
|
$ |
3.94 |
|
|
$ |
3.58 |
|
|
10 |
% |
Adjusted
EBITDA |
|
(5 |
) |
|
$ |
5.5 |
|
|
$ |
5.6 |
|
|
(2 |
)% |
|
$ |
560.5 |
|
|
$ |
517.4 |
|
|
8 |
% |
Note: See
accompanying footnotes on page 12. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYSegment Results(In
millions)(Unaudited)
The Company divides its business into three
reportable segments: U.S. Consumer, Hawthorne and Other. U.S.
Consumer consists of the Company’s consumer lawn and garden
business located in the geographic United States. Hawthorne
consists of the Company’s indoor, urban and hydroponic gardening
business. Other consists of the Company’s consumer lawn and garden
business in geographies other than the U.S. and the Company’s
product sales to commercial nurseries, greenhouses and other
professional customers. Corporate consists of general and
administrative expenses and certain other income/expense items not
allocated to the business segments. 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. These
segments differ from those used in prior periods due to the change
in the Company’s internal organization structure resulting from the
Company’s divestiture of its consumer lawn and garden business in
certain international jurisdictions (the “International Business”),
which closed on August 31, 2017. As a result, effective in its
fourth quarter of fiscal 2017, the Company classified its results
of operations for all periods presented to reflect the
International Business as a discontinued operation and classified
the assets and liabilities of the International Business as held
for sale. The prior period amounts have been reclassified to
conform with the new segments.
Segment performance is evaluated based on
several factors, including income (loss) from continuing operations
before income taxes, amortization, impairment, restructuring and
other charges (“Segment Profit (Loss)”), which is a non-GAAP
financial measure. Senior management uses this measure of profit
(loss) to evaluate segment performance because the Company believes
this measure is indicative of performance trends and the overall
earnings potential of each segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
September 30, |
|
September 30, |
|
%Change |
|
September 30, |
|
September 30, |
|
%Change |
2017 |
2016 |
2017 |
2016 |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
258.1 |
|
|
$ |
278.9 |
|
|
(7 |
)% |
|
$ |
2,160.5 |
|
|
$ |
2,204.4 |
|
|
(2 |
)% |
Hawthorne |
92.0 |
|
|
46.8 |
|
|
97 |
% |
|
287.2 |
|
|
121.2 |
|
|
137 |
% |
Other |
26.6 |
|
|
23.0 |
|
|
16 |
% |
|
194.4 |
|
|
180.6 |
|
|
8 |
% |
Consolidated |
$ |
376.7 |
|
|
$ |
348.7 |
|
|
8 |
% |
|
$ |
2,642.1 |
|
|
$ |
2,506.2 |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
U.S. Consumer |
$ |
(0.3 |
) |
|
$ |
11.2 |
|
|
(103 |
)% |
|
$ |
521.5 |
|
|
$ |
493.7 |
|
|
6 |
% |
Hawthorne |
9.0 |
|
|
5.2 |
|
|
73 |
% |
|
35.5 |
|
|
11.8 |
|
|
201 |
% |
Other |
(0.9 |
) |
|
(2.1 |
) |
|
57 |
% |
|
13.4 |
|
|
10.4 |
|
|
29 |
% |
Total
Segment Profit (Non-GAAP) |
7.8 |
|
|
14.3 |
|
|
(45 |
)% |
|
570.4 |
|
|
515.9 |
|
|
11 |
% |
Corporate |
(24.1 |
) |
|
(23.5 |
) |
|
|
|
(109.6 |
) |
|
(98.9 |
) |
|
|
Intangible asset
amortization |
(6.1 |
) |
|
(4.8 |
) |
|
|
|
(22.5 |
) |
|
(14.9 |
) |
|
|
Impairment,
restructuring and other |
(3.7 |
) |
|
2.1 |
|
|
|
|
(4.9 |
) |
|
33.8 |
|
|
|
Equity in income (loss)
of unconsolidated affiliates(a) |
1.2 |
|
|
6.0 |
|
|
|
|
(29.0 |
) |
|
19.5 |
|
|
|
Costs related to
refinancing |
— |
|
|
— |
|
|
|
|
— |
|
|
(8.8 |
) |
|
|
Interest expense |
(17.7 |
) |
|
(12.8 |
) |
|
|
|
(76.1 |
) |
|
(62.9 |
) |
|
|
Other non-operating
expense(b) |
(13.4 |
) |
|
— |
|
|
|
|
(13.4 |
) |
|
— |
|
|
|
Income
(loss) from continuing operations before income taxes (GAAP) |
$ |
(56.0 |
) |
|
$ |
(18.7 |
) |
|
(199 |
)% |
|
$ |
314.9 |
|
|
$ |
383.7 |
|
|
(18 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Included within equity in income (loss) of
unconsolidated affiliates for the three and twelve months ended
September 30, 2017 are charges of $8.4 million and $25.2
million, respectively, which represent the Company’s share of
restructuring and other charges incurred by the TruGreen Joint
Venture, including a charge of $7.2 million related to costs
associated with TruGreen’s August 2017 refinancing. For the three
and twelve months ended September 30, 2016, the Company’s
share of restructuring and other charges incurred by the TruGreen
Joint Venture of $(5.3) million and $11.7 million, respectively,
were included within impairment, restructuring and other above.
(b) Included within other non-operating expense
for the three and twelve months ended September 30, 2017 is a
charge of $13.4 million, driven by the October 2017 acquisition of
the remaining noncontrolling interest in Gavita, to write-up the
fair value of the loan to the noncontrolling ownership group of
Gavita to the agreed upon buyout value.
|
THE SCOTTS MIRACLE-GRO
COMPANYCondensed Consolidated Balance
Sheets(In millions)(Unaudited) |
|
|
Footnotes |
|
September 30, 2017 |
|
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
$ |
120.5 |
|
$ |
28.6 |
|
Accounts receivable, net |
|
|
286.6 |
|
301.7 |
|
Inventories |
|
|
407.5 |
|
394.7 |
|
Assets held for sale |
(4 |
) |
|
— |
|
256.2 |
|
Prepaid and other current assets |
(7 |
) |
|
67.1 |
|
51.7 |
|
Total current assets |
|
|
881.7 |
|
1,032.9 |
|
Investment in unconsolidated affiliates |
|
|
31.1 |
|
101.0 |
|
Property, plant and equipment, net |
|
|
467.7 |
|
444.9 |
|
Goodwill |
|
|
441.6 |
|
371.9 |
|
Intangible assets, net |
|
|
748.9 |
|
690.0 |
|
Other assets |
(6 |
) |
|
176.0 |
|
115.1 |
|
Total assets |
|
|
$ |
2,747.0 |
|
$ |
2,755.8 |
|
LIABILITIES AND EQUITY |
|
Current liabilities: |
|
|
|
|
|
|
Current portion of debt |
|
|
$ |
143.1 |
|
$ |
185.0 |
|
Accounts payable |
|
|
153.1 |
|
131.2 |
|
Liabilities held for sale |
(4 |
) |
|
— |
|
213.0 |
|
Other current liabilities |
|
|
248.3 |
|
177.9 |
|
Total current liabilities |
|
|
544.5 |
|
707.1 |
|
Long-term debt |
(6 |
) |
|
1,258.0 |
|
1,030.9 |
|
Distributions in excess of investment in unconsolidated
affiliate |
|
|
21.9 |
|
— |
|
Other liabilities |
(7 |
) |
|
260.9 |
|
283.5 |
|
Total liabilities |
|
|
2,085.3 |
|
2,021.5 |
|
Equity |
|
|
661.7 |
|
734.3 |
|
Total liabilities and equity |
|
|
$ |
2,747.0 |
|
$ |
2,755.8 |
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYConsolidated Statements of Cash Flows(In
millions) |
|
|
|
Year Ended September 30, |
|
|
|
2017 |
|
|
|
2016 |
|
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
Net
income |
$ |
218.8 |
|
|
$ |
314.8 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Impairment, restructuring and other |
1.2 |
|
|
0.2 |
|
Costs
related to refinancing |
— |
|
|
2.2 |
|
Share-based compensation expense |
25.2 |
|
|
15.6 |
|
Depreciation |
55.1 |
|
|
53.8 |
|
Amortization |
25.0 |
|
|
19.7 |
|
Deferred
taxes |
(17.4 |
) |
|
83.6 |
|
Gain on
long-lived assets |
(3.3 |
) |
|
(0.8 |
) |
Gain on
sale / contribution of business |
(31.7 |
) |
|
(131.2 |
) |
Equity in
(income) loss and distributions from unconsolidated affiliates |
32.6 |
|
|
(0.3 |
) |
Changes
in assets and liabilities, net of acquired businesses: |
|
|
|
Accounts
receivable |
48.6 |
|
|
(29.8 |
) |
Inventories |
3.6 |
|
|
(29.4 |
) |
Prepaid
and other assets |
(12.2 |
) |
|
(9.3 |
) |
Accounts
payable |
9.0 |
|
|
(45.3 |
) |
Other
current liabilities |
26.9 |
|
|
22.9 |
|
Restructuring |
(8.7 |
) |
|
(7.3 |
) |
Other
non-current items |
(19.6 |
) |
|
(18.4 |
) |
Other,
net |
0.9 |
|
|
(3.6 |
) |
Net cash
provided by operating activities |
354.0 |
|
|
237.4 |
|
INVESTING
ACTIVITIES |
|
|
|
Proceeds
from sale of long-lived assets |
5.7 |
|
|
2.4 |
|
Proceeds
from sale of business, net of cash disposed of |
180.3 |
|
|
— |
|
Investments in property, plant and equipment |
(69.6 |
) |
|
(58.3 |
) |
Investments in loans receivable |
(29.7 |
) |
|
(90.0 |
) |
Cash
contributed to TruGreen Joint Venture |
— |
|
|
(24.2 |
) |
Net
distributions from unconsolidated affiliates |
57.4 |
|
|
194.1 |
|
Investments in acquired businesses, net of cash acquired |
(121.7 |
) |
|
(158.4 |
) |
Net cash
(used in) provided by investing activities |
22.4 |
|
|
(134.4 |
) |
FINANCING
ACTIVITIES |
|
|
|
Borrowings under revolving and bank lines of credit and term
loans |
1,449.3 |
|
|
2,069.1 |
|
Repayments under revolving and bank lines of credit and term
loans |
(1,618.3 |
) |
|
(2,150.4 |
) |
Proceeds
from issuance of 5.250% Senior Notes |
250.0 |
|
|
— |
|
Proceeds
from issuance of 6.000% Senior Notes |
— |
|
|
400.0 |
|
Repayment
of 6.625% Senior Notes |
— |
|
|
(200.0 |
) |
Financing
and issuance fees |
(4.4 |
) |
|
(11.2 |
) |
Dividends
paid |
(120.3 |
) |
|
(116.6 |
) |
Distribution paid by AeroGrow to noncontrolling interest |
(8.1 |
) |
|
— |
|
Purchase
of Common Shares |
(246.0 |
) |
|
(130.8 |
) |
Payments
on sellers notes |
(28.7 |
) |
|
(2.8 |
) |
Excess
tax benefits from share-based payment arrangements |
7.9 |
|
|
5.8 |
|
Cash
received from exercise of stock options |
11.0 |
|
|
14.7 |
|
Net cash
used in financing activities |
(307.6 |
) |
|
(122.2 |
) |
Effect of exchange rate
changes on cash |
1.6 |
|
|
(2.1 |
) |
Net increase (decrease)
in cash and cash equivalents |
70.4 |
|
|
(21.3 |
) |
Cash and cash
equivalents at beginning of year excluding cash classified within
assets held for sale |
28.6 |
|
|
50.8 |
|
Cash and cash
equivalents at beginning of year classified within assets held for
sale |
21.5 |
|
|
20.6 |
|
Cash and cash
equivalents at beginning of year |
50.1 |
|
|
71.4 |
|
Cash and cash
equivalents at end of year |
$ |
120.5 |
|
|
$ |
50.1 |
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(5)(In millions, except per common share
data)(Unaudited) |
|
|
|
|
Three Months Ended September 30, 2017 |
|
Three Months Ended September 30, 2016 |
|
Footnotes |
|
As |
|
Impairment, |
Adjusted |
|
As |
|
Impairment, |
Adjusted |
Reported |
Discontinued |
Restructuring |
(Non- |
Reported |
Discontinued |
Restructuring |
(Non- |
(GAAP) |
Operations |
and Other |
GAAP) |
(GAAP) |
Operations |
and Other |
GAAP) |
Gross profit |
|
|
$ |
88.1 |
|
$ |
— |
|
$ |
— |
|
$ |
88.1 |
|
|
$ |
92.2 |
|
$ |
— |
|
$ |
(0.4 |
) |
$ |
92.6 |
|
Gross profit as a % of
sales |
|
|
23.4 |
% |
|
|
23.4 |
% |
|
26.4 |
% |
|
|
26.6 |
% |
Loss from
operations |
|
|
(26.1 |
) |
— |
|
(3.7 |
) |
(22.4 |
) |
|
(17.2 |
) |
— |
|
(3.2 |
) |
(14.0 |
) |
Loss from operations as
a % of sales |
|
|
(6.9 |
)% |
|
|
(5.9 |
)% |
|
(4.9 |
)% |
|
|
(4.0 |
)% |
Equity income loss of
unconsolidated affiliates |
(3) |
|
(1.2 |
) |
— |
|
8.4 |
|
(9.6 |
) |
|
(11.3 |
) |
— |
|
(5.3 |
) |
(6.0 |
) |
Other non-operating
expense |
|
|
13.4 |
|
— |
|
13.4 |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
Loss from continuing
operations before income taxes |
|
|
(56.0 |
) |
— |
|
(25.5 |
) |
(30.5 |
) |
|
(18.7 |
) |
— |
|
2.1 |
|
(20.8 |
) |
Income tax benefit from
continuing operations |
|
|
(13.7 |
) |
— |
|
1.9 |
|
(15.6 |
) |
|
(7.4 |
) |
— |
|
1 |
|
(8.4 |
) |
Loss from continuing
operations |
|
|
(42.3 |
) |
— |
|
(27.4 |
) |
(14.9 |
) |
|
(11.3 |
) |
— |
|
1.1 |
|
(12.4 |
) |
Net loss
attributable to controlling interest |
|
|
(33.4 |
) |
8.9 |
|
(27.4 |
) |
(14.9 |
) |
|
(26.6 |
) |
(15.6 |
) |
1.1 |
|
(12.1 |
) |
Diluted loss
per common share from continuing operations |
|
|
(0.72 |
) |
— |
|
(0.47 |
) |
(0.26 |
) |
|
(0.18 |
) |
— |
|
0.02 |
|
(0.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Calculation of
Adjusted EBITDA (5): |
|
Three Months Ended September 30, 2017 |
|
Three Months Ended September 30, 2016 |
Net loss
(GAAP) |
|
$ |
(33.4 |
) |
|
$ |
(26.9 |
) |
Income
tax benefit from continuing operations |
|
(13.7 |
) |
|
(7.4 |
) |
Income
tax expense (benefit) from discontinued operations |
|
8.0 |
|
|
(8.2 |
) |
Gain on
sale / contribution of business |
|
(32.0 |
) |
|
11.4 |
|
Interest
expense |
|
17.7 |
|
|
13.3 |
|
Depreciation |
|
13.7 |
|
|
13.6 |
|
Amortization |
|
6.6 |
|
|
5.6 |
|
Impairment, restructuring and other from continuing operations |
|
25.5 |
|
|
(2.1 |
) |
Impairment, restructuring and other from discontinued
operations |
|
7.5 |
|
|
3.5 |
|
Expense
on certain leases |
|
0.9 |
|
|
0.9 |
|
Share-based compensation expense |
|
4.7 |
|
|
1.9 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
5.5 |
|
|
$ |
5.6 |
|
|
|
|
|
|
Note: See
accompanying footnotes on page 12. |
The sum of
the components may not equal due to rounding. |
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(5)(In millions, except per common share
data)(Unaudited) |
|
|
|
|
Twelve Months Ended September 30, 2017 |
|
Twelve Months Ended September 30, 2016 |
|
Footnotes |
|
As |
|
Impairment, |
Adjusted |
|
As |
|
Impairment, |
Costs |
Adjusted |
Reported |
Discontinued |
Restructuring |
(Non- |
Reported |
Discontinued |
Restructuring |
Related to |
(Non- |
(GAAP) |
Operations |
and Other |
GAAP) |
(GAAP) |
Operations |
and Other |
Refinancing |
GAAP) |
Gross profit |
|
|
$ |
972.6 |
|
$ |
— |
|
$ |
— |
|
$ |
972.6 |
|
|
$ |
900.3 |
|
$ |
— |
|
$ |
(6.0 |
) |
$ |
— |
|
$ |
906.3 |
|
Gross profit as a % of
sales |
|
|
36.8 |
% |
|
|
36.8 |
% |
|
35.9 |
% |
|
|
|
36.2 |
% |
Income from
operations |
|
|
433.4 |
|
— |
|
(4.9 |
) |
438.3 |
|
|
447.6 |
|
— |
|
45.5 |
|
— |
|
402.1 |
|
Income from operations
as a % of sales |
|
|
16.4 |
% |
|
|
16.6 |
% |
|
17.9 |
% |
|
|
|
16.0 |
% |
Equity in (income) loss
of unconsolidated affiliates |
(3) |
|
29.0 |
|
— |
|
25.2 |
|
3.8 |
|
|
(7.8 |
) |
— |
|
11.7 |
|
— |
|
(19.5 |
) |
Other non-operating
expense |
|
|
13.4 |
|
— |
|
13.4 |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
Income from continuing
operations before income taxes |
|
|
314.9 |
|
— |
|
(43.5 |
) |
358.4 |
|
|
383.7 |
|
— |
|
33.8 |
|
(8.8 |
) |
358.7 |
|
Income tax expense from
continuing operations |
|
|
116.6 |
|
— |
|
(4.4 |
) |
121.0 |
|
|
137.6 |
|
— |
|
12.2 |
|
(3.1 |
) |
128.5 |
|
Income from continuing
operations |
|
|
198.3 |
|
— |
|
(39.1 |
) |
237.4 |
|
|
246.1 |
|
— |
|
21.6 |
|
(5.7 |
) |
230.2 |
|
Net income
attributable to controlling interest |
|
|
218.3 |
|
20.5 |
|
(39.1 |
) |
236.9 |
|
|
315.3 |
|
68.7 |
|
21.6 |
|
(5.7 |
) |
230.7 |
|
Diluted income
per common share from continuing operations |
|
|
3.29 |
|
— |
|
(0.65 |
) |
3.94 |
|
|
3.98 |
|
— |
|
0.35 |
|
(0.09 |
) |
3.72 |
|
|
Calculation of
Adjusted EBITDA (5): |
|
Twelve Months Ended September 30, 2017 |
|
Twelve Months Ended September 30, 2016 |
Net
income (GAAP) |
|
$ |
218.8 |
|
|
$ |
314.8 |
|
Income
tax expense from continuing operations |
|
116.6 |
|
|
137.6 |
|
Income
tax expense from discontinued operations |
|
11.9 |
|
|
43.2 |
|
Gain on
sale / contribution of business |
|
(31.7 |
) |
|
(131.2 |
) |
Costs
related to refinancing |
|
— |
|
|
8.8 |
|
Interest
expense |
|
76.6 |
|
|
65.6 |
|
Depreciation |
|
55.1 |
|
|
53.8 |
|
Amortization |
|
25.0 |
|
|
19.7 |
|
Impairment, restructuring and other from continuing operations |
|
43.5 |
|
|
(33.8 |
) |
Impairment, restructuring and other from discontinued
operations |
|
15.9 |
|
|
19.7 |
|
Expense
on certain leases |
|
3.6 |
|
|
3.6 |
|
Share-based compensation expense |
|
25.2 |
|
|
15.6 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
560.5 |
|
|
$ |
517.4 |
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
2017 |
|
2016 |
Calculation of
free cash flow (5): |
|
|
|
|
Net cash
provided by operating activities (GAAP) |
|
$ |
354.0 |
|
|
$ |
237.4 |
|
Investments in property, plant and equipment |
|
(69.6 |
) |
|
(58.3 |
) |
Free cash flow
(Non-GAAP) |
|
$ |
284.4 |
|
|
$ |
179.1 |
|
|
|
|
|
|
Calculation of
free cash flow productivity (5): |
|
|
|
|
Free cash
flow (Non-GAAP) |
|
$ |
284.4 |
|
|
$ |
179.1 |
|
Net
income (GAAP) |
|
218.8 |
|
|
314.8 |
|
Free cash flow
productivity (Non-GAAP) |
|
130.0 |
% |
|
56.9 |
% |
|
Note: See
accompanying footnotes on page 12. |
The sum of
the components may not equal due to rounding. |
|
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(5)(In millions, except per common share
data)(Unaudited) |
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
|
September 30, 2017 |
|
|
|
September 30, 2016 |
|
|
|
September 30, 2017 |
|
|
|
September 30, 2016 |
|
Calculation of SLS Divestiture adjusted income
(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
income (loss) from continuing operations (GAAP) |
$ |
(42.3 |
) |
|
$ |
(11.3 |
) |
|
$ |
198.3 |
|
|
$ |
246.1 |
|
Net
(income) loss attributable to noncontrolling interest |
— |
|
|
0.3 |
|
|
(0.5 |
) |
|
0.5 |
|
Net income
(loss) attributable to controlling interest from continuing
operations |
(42.3 |
) |
|
(11.0 |
) |
|
197.8 |
|
|
246.6 |
|
Impairment, restructuring and other |
25.5 |
|
|
(2.1 |
) |
|
43.5 |
|
|
(33.8 |
) |
Costs related to refinancing |
— |
|
|
— |
|
|
— |
|
|
8.8 |
|
Adjustment to income tax (expense) benefit from continuing
operations |
1.9 |
|
|
1.0 |
|
|
(4.4 |
) |
|
9.1 |
|
Adjusted
net income (loss) attributable to controlling interest from
continuing operations (Non-GAAP) |
(14.9 |
) |
|
(12.1 |
) |
|
236.9 |
|
|
230.7 |
|
Income (loss) from discontinued operations from SLS
Business |
(0.7 |
) |
|
(11.4 |
) |
|
(1.8 |
) |
|
102.9 |
|
Gain on contribution of SLS Business |
— |
|
|
— |
|
|
— |
|
|
(131.2 |
) |
Adjustment to gain on contribution of SLS Business |
0.7 |
|
|
11.4 |
|
|
1.0 |
|
|
— |
|
Impairment, restructuring and other from SLS Business in
discontinued operations |
— |
|
|
— |
|
|
0.8 |
|
|
13.6 |
|
Adjustment to income tax benefit from discontinued
operations |
— |
|
|
0.4 |
|
|
— |
|
|
5.7 |
|
Adjusted
income (loss) from SLS Business in discontinued operations, net of
tax |
— |
|
|
0.4 |
|
|
— |
|
|
(9.0 |
) |
SLS
Divestiture adjusted income (loss) (Non-GAAP) |
$ |
(14.9 |
) |
|
$ |
(11.7 |
) |
|
$ |
236.9 |
|
|
$ |
221.7 |
|
|
|
|
|
|
|
|
|
Reported
diluted income (loss) per common share from continuing operations
(GAAP) |
$ |
(0.72 |
) |
|
$ |
(0.18 |
) |
|
$ |
3.29 |
|
|
$ |
3.98 |
|
Impairment, restructuring and other |
0.44 |
|
|
(0.03 |
) |
|
0.72 |
|
|
(0.55 |
) |
Costs related to refinancing |
— |
|
|
— |
|
|
— |
|
|
0.14 |
|
Adjustment to income tax (expense) benefit from continuing
operations |
0.03 |
|
|
0.02 |
|
|
(0.07 |
) |
|
0.15 |
|
Adjusted
diluted income (loss) per common share from continuing operations
(Non-GAAP) |
(0.26 |
) |
|
(0.20 |
) |
|
3.94 |
|
|
3.72 |
|
Income (loss) from discontinued operations from SLS
Business |
(0.01 |
) |
|
(0.19 |
) |
|
(0.03 |
) |
|
1.66 |
|
Gain on contribution of SLS Business |
— |
|
|
— |
|
|
— |
|
|
(2.12 |
) |
Adjustment to gain on contribution of SLS Business |
0.01 |
|
|
0.19 |
|
|
0.02 |
|
|
— |
|
Impairment, restructuring and other from SLS Business in
discontinued operations |
— |
|
|
— |
|
|
0.01 |
|
|
0.22 |
|
Adjustment to income tax benefit from discontinued
operations |
— |
|
|
0.01 |
|
|
— |
|
|
0.09 |
|
Adjusted
diluted income (loss) from SLS Business in discontinued operations,
net of tax |
— |
|
|
0.01 |
|
|
— |
|
|
(0.15 |
) |
SLS
Divestiture adjusted income (loss) per common share
(Non-GAAP) |
$ |
(0.26 |
) |
|
$ |
(0.19 |
) |
|
$ |
3.94 |
|
|
$ |
3.58 |
|
Common
shares and potential common shares used in SLS Divestiture adjusted
income (loss) per share calculation |
58.4 |
|
|
60.6 |
|
|
60.2 |
|
|
62.0 |
|
|
|
|
|
|
|
|
|
Note: See
accompanying footnotes on page 12. |
The sum of
the components may not equal due to rounding. |
|
THE SCOTTS MIRACLE-GRO
COMPANYFootnotes to Preceding Financial Statements
(1) Basic income (loss) per common share amounts
are calculated by dividing income (loss) from continuing
operations, income (loss) from discontinued operations and net
income (loss) attributable to controlling interest by the weighted
average number of common shares outstanding during the period.
(2) Diluted income (loss) per common share
amounts are calculated by dividing income (loss) from continuing
operations, income (loss) from discontinued operations and net
income (loss) attributable to controlling interest by the weighted
average number of common shares, plus all potential dilutive
securities (common stock options, performance shares, performance
units, restricted stock and restricted stock units) outstanding
during the period.
(3) On April 13, 2016, pursuant to the terms of
the Contribution and Distribution Agreement, by and among the
Company and TruGreen Holding Corporation (“TruGreen Holdings”), the
Company completed the contribution of the Scotts LawnService®
business (the “SLS Business”) to a newly formed subsidiary of
TruGreen Holdings (the “TruGreen Joint Venture”) in exchange for a
minority equity interest of 30% in the TruGreen Joint Venture. As a
result, effective in its second quarter of fiscal 2016, the Company
classified its results of operations for all periods presented to
reflect the SLS Business as a discontinued operation and classified
the assets and liabilities of the SLS Business as held for sale.
The Company’s 30% interest in the TruGreen Joint Venture has been
accounted for using the equity method of accounting, with the
Company's proportionate share of the TruGreen Joint Venture
earnings reflected in the consolidated statements of
operations.
(4) On April 29, 2017, The Scotts Miracle-Gro
Company (the “Company”) received a binding and irrevocable
conditional offer (the “Offer”) from Exponent Private Equity LLP
(“Exponent”) to purchase its consumer lawn and garden business in
certain international jurisdictions (the “International Business”).
On July 5, 2017, the Company accepted the Offer and entered into
the Share and Business Sale Agreement (the “Agreement”)
contemplated by the Offer. The transaction closed on August 31,
2017. Pursuant to the Agreement, Scotts-Sierra Investments LLC, an
indirect wholly-owned subsidiary of the Company (“Sierra”) and
certain of its direct and indirect subsidiaries, entered into
separate stock or asset sale transactions with respect to the
consumer lawn and garden businesses located in Australia, Austria,
Benelux, Czech Republic, France, Germany, Poland and the United
Kingdom. As a result, effective in its fourth quarter of fiscal
2017, the Company classified its results of operations for all
periods presented to reflect the International Business as a
discontinued operation and classified the assets and liabilities of
the International Business as held for sale.
(5) Reconciliation of Non-GAAP Measures
Use of Non-GAAP Measures
To supplement the financial measures prepared in
accordance with U.S. generally accepted accounting principles
(“GAAP”), the Company uses non-GAAP financial measures. The
reconciliations of these non-GAAP financial measures to the most
directly comparable financial measures calculated and presented in
accordance with GAAP are shown in the tables above. These non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for or superior to, financial measures reported in
accordance with GAAP. Moreover, these non-GAAP financial measures
have limitations in that they do not reflect all the items
associated with the operations of the business as determined in
accordance with GAAP. Other companies may calculate similarly
titled non-GAAP financial measures differently than the Company,
limiting the usefulness of those measures for comparative
purposes.
In addition to GAAP measures, management uses
these non-GAAP financial measures to evaluate the Company’s
performance, engage in financial and operational planning and
determine incentive compensation because it believes that these
measures provide additional perspective on and, in some
circumstances are more closely correlated to, the performance of
the Company’s underlying, ongoing business.
Management believes that these non-GAAP
financial measures are useful to investors in their assessment of
operating performance and the valuation of the Company. In
addition, these non-GAAP financial measures address questions
routinely received from analysts and investors and, in order to
ensure that all investors have access to the same data, management
has determined that it is appropriate to make this data available
to all investors. Non-GAAP financial measures exclude the impact of
certain items (as further described below) and provide supplemental
information regarding operating performance. By disclosing these
non-GAAP financial measures, management intends to provide
investors with a supplemental comparison of operating results and
trends for the periods presented. Management believes these
measures are also useful to investors as such measures allow
investors to evaluate performance using the same metrics that
management uses to evaluate past performance and prospects for
future performance. Management views free cash flow as an important
measure because it is one factor used in determining the amount of
cash available for dividends and discretionary investment.
Management views free cash flow productivity as a useful measure to
help investors understand the Company’s ability to generate
cash.
Exclusions from Non-GAAP Financial Measures
Non-GAAP financial measures reflect adjustments
based on the following items:
- Impairments, which are excluded because they do not occur in or
reflect the ordinary course of the Company’s ongoing business
operations and their exclusion results in a metric that provides
supplemental information about the sustainability of operating
performance.
- Restructuring and employee severance costs, which include
charges for discrete projects or transactions that fundamentally
change the Company’s operations and are excluded because they are
not part of the ongoing operations of its underlying business,
which includes normal levels of reinvestment in the business.
- Costs related to refinancing, which are excluded because they
do not typically occur in the normal course of business and may
obscure analysis of trends and financial performance. Additionally,
the amount and frequency of these types of charges is not
consistent and is significantly impacted by the timing and size of
debt financing transactions.
- Charges or credits incurred by the TruGreen Joint Venture that
are apart from and not indicative of the results of its ongoing
operations, including transaction related costs, refinancing costs,
restructurings and other discrete projects or transactions
including a non-cash purchase accounting fair value write down
adjustment related to deferred revenue and advertising (“TruGreen
Joint Venture non-GAAP adjustments”).
- Discontinued operations and other unusual items, which include
costs or gains related to discrete projects or transactions and are
excluded because they are not comparable from one period to the
next and are not part of the ongoing operations of the Company’s
underlying business.
The tax effect for each of the items listed
above is determined using the tax rate and other tax attributes
applicable to the item and the jurisdiction(s) in which the item is
recorded.
Definitions of Non-GAAP Financial Measures
The reconciliations of non-GAAP disclosure items
includes the following financial measures that are not calculated
in accordance with GAAP and are utilized by management in
evaluating the performance of the business, engaging in financial
and operational planning, the determination of incentive
compensation, and by investors and analysts in evaluating
performance of the business:
Adjusted gross profit: Gross
profit excluding impairment, restructuring and other charges /
recoveries.Adjusted income (loss) from operations:
Income (loss) from operations excluding impairment, restructuring
and other charges / recoveries.Adjusted equity in income
(loss) of unconsolidated affiliates: Equity in income
(loss) of unconsolidated affiliates excluding TruGreen Joint
Venture non-GAAP adjustments.Adjusted other non-operating
expense: Other non-operating expense excluding impairment,
restructuring and other charges / recoveries.Adjusted
income (loss) from continuing operations before income
taxes: Income (loss) from continuing operationsbefore
income taxes excluding impairment, restructuring and other charges
/ recoveries, costs related to refinancingand TruGreen Joint
Venture non-GAAP adjustments.Adjusted income tax expense
(benefit) from continuing operations: Income tax expense
(benefit) from continuing operations excluding the tax effect of
impairment, restructuring and other charges / recoveries, costs
related to refinancing and TruGreen Joint Venture non-GAAP
adjustments.Adjusted income (loss) from continuing
operations: Income (loss) from continuing operations
excluding impairment, restructuring and other charges / recoveries,
costs related to refinancing and TruGreen Joint Venture non-GAAP
adjustments, each net of tax.Adjusted net income (loss)
attributable to controlling interest from continuing
operations: Net income (loss) attributable to controlling
interest excluding impairment, restructuring and other charges /
recoveries, costs related to refinancing, TruGreen Joint Venture
non-GAAP adjustments and discontinued operations, each net of
tax.Adjusted diluted income (loss) per common share from
continuing operations: Diluted income (loss) per common
share from continuing operations excluding impairment,
restructuring and other charges / recoveries, costs related to
refinancing and TruGreen Joint Venture non-GAAP adjustments, each
net of tax.Adjusted EBITDA: Net income (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 or non-cash items affecting net income (loss).
The presentation of adjusted EBITDA is intended to be consistent
with the calculation of that measure as required by the Company’s
borrowing arrangements, and used to calculate a leverage ratio
(maximum of 4.50 at September 30, 2017) and an interest coverage
ratio (minimum of 3.00 for the twelve months ended September 30,
2017).Free cash flow: Net cash provided by (used
in) operating activities reduced by investments in property, plant
and equipment.Free cash flow productivity: Ratio
of free cash flow to net income (loss).SLS Divestiture
adjusted income (loss): Net income (loss) from continuing
operations excluding impairment, restructuring and other charges /
recoveries, costs related to refinancing and TruGreen Joint Venture
non-GAAP adjustments, each net of tax. This measure also includes
income (loss) from discontinued operations related to the SLS
Business; however, excludes the gain on the contribution of the SLS
Business to the TruGreen Joint Venture, each net of tax.SLS
Divestiture adjusted income (loss) per common share:
Diluted net income (loss) per common share excluding impairment,
restructuring and other charges / recoveries, costs related to
refinancing and TruGreen Joint Venture non-GAAP adjustments, each
net of tax. This measure also includes income (loss) from
discontinued operations related to the SLS Business; however,
excludes the gain on the contribution of the SLS Business to the
TruGreen Joint Venture, each net of tax.
For the three and twelve months ended
September 30, 2017, the following items were adjusted, in
accordance with the definitions above, to arrive at the non-GAAP
financial measures:
- The Company incurred restructuring costs related to termination
benefits and facility closure costs of $7.1 million and $8.3
million for the three and twelve months ended September 30,
2017, respectively, related to Project Focus activity within the
“Impairment, restructuring and other” line in the Condensed
Consolidated Statements of Operations.
- The Company recognized a recovery of $4.4 million related to
the reduction of a contingent consideration liability associated
with a historical acquisition and recorded a $1.0 million
impairment charge on the write-off of a trademark asset due to
recent performance and future growth expectations. These items were
recorded within the “Impairment, restructuring and other” line in
the Condensed Consolidated Statements of Operations.
- In connection with the October 2017 acquisition of the
remaining noncontrolling interest in Gavita, the Company incurred a
charge of $13.4 million, which is not tax-deductible, to write-up
the fair value of the loan to the noncontrolling ownership group of
Gavita to the agreed upon buyout value within the “Other
non-operating expense” line in the Condensed Consolidated
Statements of Operations.
- The Company incurred TruGreen Joint Venture non-GAAP
adjustments of $8.4 million and $25.2 million for the three and
twelve months ended September 30, 2017, respectively, within
the “Equity in (income) loss of unconsolidated affiliates” line in
the Condensed Consolidated Statements of Operations. For the three
and twelve months ended September 30, 2017, this included a
charge of $7.2 million related to costs associated with TruGreen’s
August 2017 refinancing. The remaining adjustments include
nonrecurring integration and separation costs, transaction costs
and a non-cash purchase accounting fair value write down adjustment
related to deferred revenue and advertising.
- In connection with the sale of the International Business, the
Company recognized additional tax expense of $7.2 million
associated with valuation allowances established in connection with
historical foreign tax credits as the Company does not expect to
utilize these prior to their expiration.
For the three and twelve months ended
September 30, 2016, the following items were adjusted, in
accordance with the definitions above, to arrive at the non-GAAP
financial measures:
- For the three and twelve months ended September 30, 2016,
the Company incurred ($0.5) million and $6.4 million, respectively,
in costs related to consumer complaints and claims related to the
reformulated Bonus® S fertilizer product sold in the
southeastern United States during fiscal 2015 within the
“Impairment, restructuring and other” and the “Cost of
sales—impairment, restructuring and other” lines in the Condensed
Consolidated Statements of Operations. Additionally, the Company
recorded offsetting insurance reimbursement recoveries of zero and
$55.9 million for the three and twelve months ended
September 30, 2016, respectively, within the “Impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations.
- The Company incurred restructuring costs related to termination
benefits and transaction activity of $3.7 million and $4.0 million
for the three and twelve months ended September 30, 2016,
respectively, related to Project Focus activity within the
“Impairment, restructuring and other” line in the Condensed
Consolidated Statements of Operations.
- The Company incurred TruGreen Joint Venture non-GAAP
adjustments of $(5.3) million and $11.7 million for the three and
twelve months ended September 30, 2016, respectively, within
the “Equity in (income) loss of unconsolidated affiliates” line in
the Condensed Consolidated Statements of Operations.
Forward Looking Non-GAAP Measures
In this earnings release, the Company presents
its outlook for fiscal 2018 non-GAAP adjusted EPS. The Company does
not provide a GAAP EPS outlook, which is the most directly
comparable GAAP measure to non-GAAP adjusted EPS, because changes
in the items that the Company excludes from GAAP EPS to calculate
non-GAAP adjusted EPS, described above, can be dependent on future
events that are less capable of being controlled or reliably
predicted by management and are not part of the Company’s routine
operating activities. Additionally, due to their unpredictability,
management does not forecast the excluded items for internal use
and therefore cannot create or rely on a GAAP EPS outlook without
unreasonable efforts. The timing and amount of any of the excluded
items could significantly impact the Company’s GAAP EPS. As a
result, the Company does not provide a reconciliation of guidance
for non-GAAP adjusted EPS to GAAP EPS, in reliance on the
unreasonable efforts exception provided under Item 10(e)(1)(i)(B)
of Regulation S-K.
(6) In April 2015, the Financial Accounting
Standards Board (“FASB”) issued an accounting standard update that
requires debt issuance costs related to a recognized debt liability
to be presented in the balance sheet as a direct deduction from the
corresponding debt liability rather than as an asset; however debt
issuance costs relating to revolving credit facilities will remain
in other assets. The Company adopted this guidance on a
retrospective basis effective October 1, 2016. As a result,
debt issuance costs totaling $6.0 million have been presented as a
component of the carrying amount of long-term debt in the Condensed
Consolidated Balance Sheets as of September 30, 2016. This
amount was previously reported within other assets.
(7) In November 2015, the FASB issued an
accounting standard update to simplify the presentation of deferred
income taxes by requiring that deferred income tax liabilities and
assets be classified as noncurrent in a classified statement of
financial position. The Company adopted this guidance on a
retrospective basis during the fourth quarter of fiscal 2017. As a
result, deferred tax assets totaling $43.7 million have been
presented net within other liabilities in the Condensed
Consolidated Balance Sheets as of September 30, 2016. This amount
was previously reported within prepaids and other current
assets.
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