Ohio | 001-11593 | 31-1414921 |
(State or other jurisdiction | (Commission | (IRS Employer |
of incorporation or organization) | File Number) | Identification No.) |
14111 Scottslawn Road, Marysville, Ohio | 43041 | |
(Address of principal executive offices) | (Zip Code) |
Exhibit No. | Description |
News release issued by The Scotts Miracle-Gro Company on July 31, 2018 |
THE SCOTTS MIRACLE-GRO COMPANY | ||
Dated: July 31, 2018 | By: | /s/ THOMAS RANDAL COLEMAN |
Printed Name: Thomas Randal Coleman | ||
Title: Executive Vice President and Chief Financial Officer |
Exhibit No. | Exhibit Description |
News release issued by The Scotts Miracle-Gro Company on July 31, 2018 |
The Scotts Miracle-Gro Company | NEWS |
• | U.S. Consumer sales increase 1% in Q3; Hawthorne up 2% including acquisitions |
• | Consumer purchases increase 5.4 percent in Q3 |
• | Q3 GAAP earnings from continuing operations of $2.23 per share |
• | Non-GAAP adjusted earnings of $2.67 per share |
• | Full-year Sales and Non-GAAP EPS guidance range re-affirmed |
• | 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; |
• | Climate change and unfavorable weather conditions could adversely impact financial results; |
• | Certain of our products may be purchased for use in new or emerging industries or segments and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions; |
• | The Company may not be able to adequately protect its intellectual property and other proprietary rights that are material to the Company’s business; |
• | In the event the Restated Marketing Agreement for consumer Roundup products terminates, we would lose a substantial source of future earnings and overhead expenses absorption; |
• | Hagedorn Partnership, L.P. beneficially owns approximately 26% of the Company’s common shares and can significantly influence decisions that require the approval of shareholders; |
• | Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact our business and results of operations. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
Footnotes | June 30, 2018 | July 1, 2017 | % Change | June 30, 2018 | July 1, 2017 | % Change | ||||||||||||||||||
Net sales | $ | 994.6 | $ | 973.4 | 2 | % | $ | 2,229.5 | $ | 2,265.4 | (2 | )% | ||||||||||||
Cost of sales | 635.9 | 590.0 | 1,427.5 | 1,380.8 | ||||||||||||||||||||
Cost of sales—impairment, restructuring and other | 11.1 | — | 11.1 | — | ||||||||||||||||||||
Gross profit | 347.6 | 383.4 | (9 | )% | 790.9 | 884.6 | (11 | )% | ||||||||||||||||
% of sales | 34.9 | % | 39.4 | % | 35.5 | % | 39.0 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling, general and administrative | 144.5 | 153.4 | (6 | )% | 418.7 | 436.4 | (4 | )% | ||||||||||||||||
Impairment, restructuring and other | 19.3 | 0.4 | 29.4 | 1.3 | ||||||||||||||||||||
Other income, net | (1.9 | ) | (6.5 | ) | (3.3 | ) | (12.6 | ) | ||||||||||||||||
Income from operations | 185.7 | 236.1 | (21 | )% | 346.1 | 459.5 | (25 | )% | ||||||||||||||||
% of sales | 18.7 | % | 24.3 | % | 15.5 | % | 20.3 | % | ||||||||||||||||
Equity in (income) loss of unconsolidated affiliates | (3) | (1.1 | ) | (7.2 | ) | (3.3 | ) | 30.1 | ||||||||||||||||
Interest expense | 23.2 | 21.8 | 63.6 | 58.5 | ||||||||||||||||||||
Other non-operating (income) expense, net | (6) | (2.6 | ) | — | 4.2 | — | ||||||||||||||||||
Income from continuing operations before income taxes | 166.2 | 221.5 | (25 | )% | 281.6 | 370.9 | (24 | )% | ||||||||||||||||
Income tax expense from continuing operations | 40.7 | 76.9 | 23.4 | 130.3 | ||||||||||||||||||||
Income from continuing operations | 125.5 | 144.6 | (13 | )% | 258.2 | 240.6 | 7 | % | ||||||||||||||||
Income (loss) from discontinued operations, net of tax | (3) (4) | (42.7 | ) | 7.3 | (47.6 | ) | 11.7 | |||||||||||||||||
Net income | $ | 82.8 | $ | 151.9 | $ | 210.6 | $ | 252.3 | ||||||||||||||||
Net (income) loss attributable to noncontrolling interest | 0.1 | — | 0.1 | (0.5 | ) | |||||||||||||||||||
Net income attributable to controlling interest | $ | 82.9 | $ | 151.9 | $ | 210.7 | $ | 251.8 | ||||||||||||||||
Basic income (loss) per common share: | (1) | |||||||||||||||||||||||
Income from continuing operations | $ | 2.27 | $ | 2.44 | (7 | )% | $ | 4.57 | $ | 4.02 | 14 | % | ||||||||||||
Income (loss) from discontinued operations | (0.77 | ) | 0.13 | (0.84 | ) | 0.20 | ||||||||||||||||||
Net income | $ | 1.50 | $ | 2.57 | $ | 3.73 | $ | 4.22 | ||||||||||||||||
Diluted income (loss) per common share: | (2) | |||||||||||||||||||||||
Income from continuing operations | $ | 2.23 | $ | 2.41 | (7 | )% | $ | 4.50 | $ | 3.96 | 14 | % | ||||||||||||
Income (loss) from discontinued operations | (0.76 | ) | 0.12 | (0.83 | ) | 0.20 | ||||||||||||||||||
Net income | $ | 1.47 | $ | 2.53 | $ | 3.67 | $ | 4.16 | ||||||||||||||||
Common shares used in basic income (loss) per share calculation | 55.4 | 59.2 | (6 | )% | 56.5 | 59.7 | (5 | )% | ||||||||||||||||
Common shares and potential common shares used in diluted income (loss) per share calculation | 56.3 | 60.0 | (6 | )% | 57.4 | 60.6 | (5 | )% | ||||||||||||||||
Non-GAAP results: | ||||||||||||||||||||||||
Adjusted net income attributable to controlling interest from continuing operations | (5) | $ | 150.1 | $ | 148.3 | 1 | % | $ | 253.2 | $ | 251.8 | 1 | % | |||||||||||
Adjusted diluted income per common share from continuing operations | (2) (5) | $ | 2.67 | $ | 2.47 | 8 | % | $ | 4.41 | $ | 4.16 | 6 | % | |||||||||||
Adjusted EBITDA | (5) | $ | 253.7 | $ | 288.1 | (12 | )% | $ | 481.8 | $ | 555.0 | (13 | )% | |||||||||||
Note: See accompanying footnotes on page 10. |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
June 30, 2018 | July 1, 2017 | % Change | June 30, 2018 | July 1, 2017 | % Change | ||||||||||||||||
Net Sales: | |||||||||||||||||||||
U.S. Consumer | $ | 810.9 | $ | 801.4 | 1 | % | $ | 1,857.1 | $ | 1,902.5 | (2 | )% | |||||||||
Hawthorne | 74.2 | 72.4 | 2 | % | 192.8 | 195.2 | (1 | )% | |||||||||||||
Other | 109.5 | 99.6 | 10 | % | 179.6 | 167.7 | 7 | % | |||||||||||||
Consolidated | $ | 994.6 | $ | 973.4 | 2 | % | $ | 2,229.5 | $ | 2,265.4 | (2 | )% | |||||||||
Segment Profit (Loss) (Non-GAAP): | |||||||||||||||||||||
U.S. Consumer | $ | 243.1 | $ | 246.4 | (1 | )% | $ | 491.4 | $ | 521.8 | (6 | )% | |||||||||
Hawthorne | (3.6 | ) | 10.3 | (135 | )% | (6.6 | ) | 26.5 | (125 | )% | |||||||||||
Other | 13.1 | 12.9 | 2 | % | 10.6 | 14.3 | (26 | )% | |||||||||||||
Total Segment Profit (Non-GAAP) | 252.6 | 269.6 | (6 | )% | 495.4 | 562.6 | (12 | )% | |||||||||||||
Corporate | (29.2 | ) | (27.7 | ) | (87.8 | ) | (85.4 | ) | |||||||||||||
Intangible asset amortization | (7.3 | ) | (5.4 | ) | (21.0 | ) | (16.4 | ) | |||||||||||||
Impairment, restructuring and other | (30.4 | ) | (0.4 | ) | (40.5 | ) | (1.3 | ) | |||||||||||||
Equity in income (loss) of unconsolidated affiliates | 1.1 | 7.2 | 3.3 | (30.1 | ) | ||||||||||||||||
Interest expense | (23.2 | ) | (21.8 | ) | (63.6 | ) | (58.5 | ) | |||||||||||||
Other non-operating income (expense), net | 2.6 | — | (4.2 | ) | — | ||||||||||||||||
Income from continuing operations before income taxes (GAAP) | $ | 166.2 | $ | 221.5 | (25 | )% | $ | 281.6 | $ | 370.9 | (24 | )% |
Footnotes | June 30, 2018 | July 1, 2017 | September 30, 2017 | |||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 29.6 | $ | 87.9 | $ | 120.5 | ||||||||
Accounts receivable, net | 704.5 | 649.9 | 286.6 | |||||||||||
Inventories | 500.5 | 413.2 | 407.5 | |||||||||||
Assets held for sale | (4 | ) | — | 295.0 | — | |||||||||
Prepaid and other current assets | (7 | ) | 84.4 | 78.4 | 67.1 | |||||||||
Total current assets | 1,319.0 | 1,524.4 | 881.7 | |||||||||||
Investment in unconsolidated affiliates | 34.4 | 65.7 | 31.1 | |||||||||||
Property, plant and equipment, net | 517.6 | 436.5 | 467.7 | |||||||||||
Goodwill | 621.2 | 407.4 | 441.6 | |||||||||||
Intangible assets, net | 879.6 | 746.8 | 748.9 | |||||||||||
Other assets | 192.1 | 121.3 | 176.0 | |||||||||||
Total assets | $ | 3,563.9 | $ | 3,302.1 | $ | 2,747.0 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Current portion of debt | $ | 314.5 | $ | 289.1 | $ | 143.1 | ||||||||
Accounts payable | 195.6 | 175.6 | 153.1 | |||||||||||
Liabilities held for sale | (4 | ) | — | 145.3 | — | |||||||||
Other current liabilities | 315.2 | 259.5 | 248.3 | |||||||||||
Total current liabilities | 825.3 | 869.5 | 544.5 | |||||||||||
Long-term debt | 1,975.4 | 1,410.8 | 1,258.0 | |||||||||||
Distributions in excess of investment in unconsolidated affiliate | 21.9 | — | 21.9 | |||||||||||
Other liabilities | (7 | ) | 210.0 | 278.8 | 260.9 | |||||||||
Total liabilities | 3,032.6 | 2,559.1 | 2,085.3 | |||||||||||
Equity | 531.3 | 743.0 | 661.7 | |||||||||||
Total liabilities and equity | $ | 3,563.9 | $ | 3,302.1 | $ | 2,747.0 |
Three Months Ended June 30, 2018 | Three Months Ended July 1, 2017 | ||||||||||||||||||||||||||
Footnotes | As Reported (GAAP) | Discontinued Operations | Impairment, Restructuring and Other | Adjusted (Non-GAAP) | As Reported (GAAP) | Discontinued Operations | Impairment, Restructuring and Other | Adjusted (Non-GAAP) | |||||||||||||||||||
Gross profit | $ | 347.6 | $ | — | $ | (11.1 | ) | $ | 358.7 | $ | 383.4 | $ | — | $ | — | $ | 383.4 | ||||||||||
Gross profit as a % of sales | 34.9 | % | 36.1 | % | 39.4 | % | 39.4 | % | |||||||||||||||||||
Income from operations | 185.7 | — | (30.4 | ) | 216.1 | 236.1 | — | (0.4 | ) | 236.5 | |||||||||||||||||
Income from operations as a % of sales | 18.7 | % | 21.7 | % | 24.3 | % | 24.3 | % | |||||||||||||||||||
Equity in income of unconsolidated affiliates | (3) | (1.1 | ) | — | — | (1.1 | ) | (7.2 | ) | — | 5.0 | (12.2 | ) | ||||||||||||||
Income from continuing operations before income taxes | 166.2 | — | (30.4 | ) | 196.6 | 221.5 | — | (5.4 | ) | 226.9 | |||||||||||||||||
Income tax expense from continuing operations | 40.7 | — | (5.9 | ) | 46.6 | 76.9 | — | (1.7 | ) | 78.6 | |||||||||||||||||
Income from continuing operations | 125.5 | — | (24.5 | ) | 150.0 | 144.6 | — | (3.7 | ) | 148.3 | |||||||||||||||||
Net income attributable to controlling interest | 82.9 | (42.7 | ) | (24.5 | ) | 150.1 | 151.9 | 7.3 | (3.7 | ) | 148.3 | ||||||||||||||||
Diluted income per common share from continuing operations | 2.23 | — | (0.44 | ) | 2.67 | 2.41 | — | (0.06 | ) | 2.47 |
Calculation of Adjusted EBITDA (5): | Three Months Ended June 30, 2018 | Three Months Ended July 1, 2017 | ||||||
Net income (GAAP) | $ | 82.8 | $ | 151.9 | ||||
Income tax expense from continuing operations | 40.7 | 76.9 | ||||||
Income tax expense (benefit) from discontinued operations | (21.6 | ) | 2.1 | |||||
Gain on sale / contribution of business | (0.8 | ) | — | |||||
Interest expense | 23.2 | 21.8 | ||||||
Depreciation | 13.7 | 13.8 | ||||||
Amortization | 7.5 | 6.1 | ||||||
Impairment, restructuring and other from continuing operations | 30.4 | 5.4 | ||||||
Impairment, restructuring and other from discontinued operations | 65.1 | 3.8 | ||||||
Interest income | (2.6 | ) | — | |||||
Expense on certain leases | 0.9 | 0.9 | ||||||
Share-based compensation expense | 14.4 | 5.4 | ||||||
Adjusted EBITDA (Non-GAAP) | $ | 253.7 | $ | 288.1 | ||||
Note: See accompanying footnotes on page 10. | ||||||||
The sum of the components may not equal due to rounding. |
Nine Months Ended June 30, 2018 | Nine Months Ended July 1, 2017 | |||||||||||||||||||||||||||||
Footnotes | As Reported (GAAP) | Discontinued Operations | Impairment, Restructuring and Other | Other Non-Operating Expense | Adjusted (Non-GAAP) | As Reported (GAAP) | Discontinued Operations | Impairment, Restructuring and Other | Adjusted (Non-GAAP) | |||||||||||||||||||||
Gross profit | $ | 790.9 | $ | — | $ | (11.1 | ) | $ | — | $ | 802.0 | $ | 884.6 | $ | — | $ | — | $ | 884.6 | |||||||||||
Gross profit as a % of sales | 35.5 | % | 36.0 | % | 39.0 | % | 39.0 | % | ||||||||||||||||||||||
Income from operations | 346.1 | — | (40.5 | ) | — | 386.6 | 459.5 | — | (1.3 | ) | 460.8 | |||||||||||||||||||
Income from operations as a % of sales | 15.5 | % | 17.3 | % | 20.3 | % | 20.3 | % | ||||||||||||||||||||||
Equity in (income) loss of unconsolidated affiliates | (3) | (3.3 | ) | — | — | — | (3.3 | ) | 30.1 | — | 16.7 | 13.4 | ||||||||||||||||||
Income from continuing operations before income taxes | 281.6 | — | (40.5 | ) | (11.7 | ) | 333.8 | 370.9 | — | (18.0 | ) | 388.9 | ||||||||||||||||||
Income tax expense from continuing operations | 23.4 | — | (54.2 | ) | (3.1 | ) | 80.7 | 130.3 | — | (6.3 | ) | 136.6 | ||||||||||||||||||
Income from continuing operations | 258.2 | — | 13.7 | (8.6 | ) | 253.1 | 240.6 | — | (11.7 | ) | 252.3 | |||||||||||||||||||
Net income attributable to controlling interest | 210.7 | (47.6 | ) | 13.7 | (8.6 | ) | 253.2 | 251.8 | 11.7 | (11.7 | ) | 251.8 | ||||||||||||||||||
Diluted income per common share from continuing operations | 4.50 | — | 0.24 | (0.15 | ) | 4.41 | 3.96 | — | (0.19 | ) | 4.16 |
Calculation of Adjusted EBITDA (5): | Nine Months Ended June 30, 2018 | Nine Months Ended July 1, 2017 | ||||||
Net income (GAAP) | $ | 210.6 | $ | 252.3 | ||||
Income tax expense from continuing operations | 23.4 | 130.3 | ||||||
Income tax expense (benefit) from discontinued operations | (23.3 | ) | 3.9 | |||||
Loss on sale / contribution of business | 2.8 | 0.3 | ||||||
Interest expense | 63.6 | 58.9 | ||||||
Depreciation | 39.2 | 41.4 | ||||||
Amortization | 21.6 | 18.4 | ||||||
Impairment, restructuring and other from continuing operations | 40.5 | 18.0 | ||||||
Impairment, restructuring and other from discontinued operations | 66.6 | 8.3 | ||||||
Other non-operating expense | 11.7 | — | ||||||
Interest income | (7.5 | ) | — | |||||
Expense on certain leases | 2.6 | 2.7 | ||||||
Share-based compensation expense | 30.0 | 20.5 | ||||||
Adjusted EBITDA (Non-GAAP) | $ | 481.8 | $ | 555.0 |
Note: See accompanying footnotes on page 10. | ||||
The sum of the components may not equal due to rounding. |
(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. In the first quarter of fiscal 2018, the Company discontinued applying the equity method of accounting for the TruGreen Joint Venture as the Company’s investment and advances were reduced to zero. The Company does not have any contractual obligations to fund losses of the TruGreen Joint Venture. |
(4) | On April 29, 2017, 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 |
• | 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”). The Company holds a noncontrolling equity interest of approximately 30% in the TruGreen Joint Venture. The Company does not control, nor does it have any legal claim to, the revenues and expenses of the TruGreen Joint Venture or its other unconsolidated affiliates. The use of non-GAAP measures that are subject to TruGreen Joint Venture non-GAAP adjustments is not intended to imply that the Company has control over the operations and resulting revenue and expenses of the TruGreen Joint Venture or its other unconsolidated affiliates. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all revenue and expenses of the unconsolidated affiliates. |
• | 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. |
• | In connection with the acquisition of Sunlight Supply during the third quarter of fiscal 2018, the Company announced the launch of an initiative called Project Catalyst. Project Catalyst is a company-wide restructuring effort to reduce operating costs and drive synergies with the recently acquired Sunlight Supply. The Company recognized charges of $30.4 million related to Project Catalyst for the three and nine months ended June 30, 2018. This included employee termination benefits of $1.4 million, impairment of property, plant and equipment of $5.9 million, and facility closure costs of $3.8 million recognized in the “Cost of sales—impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations. The Company also recognized a non-cash impairment charge of $17.5 million related to the write-off of previously acquired customer relationship intangible assets due to the acquisition of Sunlight Supply, and employee termination benefits of $1.8 million in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations. Additionally, the Company reduced the value of deferred tax liabilities associated with the above write-off of previously acquired customer relationship intangible assets by $7.3 million, which was recognized in the “Income tax expense from continuing operations” line in the Condensed Consolidated Statement of Operations for the three and nine months ended June 30, 2018. |
• | The Company recognized a charge of $65.0 million for a probable loss related to the previously disclosed legal matter In re Morning Song Bird Food Litigation for the three and nine months ended June 30, 2018 in the “Income (loss) from discontinued operations, net of tax” line in the Condensed Consolidated Statements of Operations. |
• | The Company recognized adjustments to previously recognized employee termination benefits related to Project Focus activity of zero and $0.1 million for the three and nine months ended June 30, 2018 in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations. |
• | The Company recognized charges of zero and $10.2 million for a probable loss on a previously disclosed legal matter for the three and nine months ended June 30, 2018 in the “Impairment, restructuring and other” line in the Condensed Consolidated Statements of Operations. |
• | On December 22, 2017, President Trump signed into law H.R.1 (the “Act,” formerly known as the “Tax Cuts and Jobs Act”) which provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended. Among other items important to the Company, the Act implements a territorial tax system, imposes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, and permanently reduces the federal corporate tax rate to 21% effective January 1, 2018. As the Company’s fiscal year end falls on September 30, the statutory federal corporate tax rate for fiscal 2018 will be prorated to 24.5%, with the statutory rate for 2019 and beyond at 21%. Included in the effective tax rate for the three and nine months ended June 30, 2018 are one-time impacts related to the tax law change of $45.7 million. These include a one-time $45.9 million net tax benefit adjustment reflecting the revaluation of the Company’s net deferred tax liability at the lower tax rate. In addition, as part of the Act, the Company recognized a one-time tax expense on deemed repatriated earnings and cash of foreign subsidiaries as required by the Act of $14.0 million, partially offset by the recognition and application of foreign tax credits associated with these foreign subsidiaries of $13.9 million. |
• | As a result of the enactment of the Act, the Company repatriated cash from a foreign subsidiary during the second quarter of fiscal 2018 resulting in the liquidation of substantially all of the assets of the subsidiary and the write-off of accumulated foreign currency translation loss adjustments of zero and $11.7 million for the three and nine months ended June 30, 2018 in the “Other non-operating (income) expense, net” line in the Condensed Consolidated Statements of Operations. |
• | The Company recognized $0.4 million and $1.3 million for the three and nine months ended July 1, 2017, respectively, related to Project Focus transaction 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 $5.0 million and $16.7 million for the three and nine months ended July 1, 2017, respectively, within the “Equity in (income) loss of unconsolidated affiliates” line in the Condensed Consolidated Statements of Operations. |
(6) | For the three and nine months ended June 30, 2018, the Company has classified interest income on loans receivable of $2.6 million and $7.5 million, respectively, in the “Other non-operating (income) expense, net” line in the Condensed Consolidated Statements of Operations. For the three and nine months ended July 1, 2017, interest income on loans receivable of $3.0 million and $7.8 million, respectively, is classified in the “Other income, net” line in the Condensed Consolidated Statements of Operations. |
(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 $42.1 million have been classified net in the “Other liabilities” line in the Condensed Consolidated Balance Sheets as of July 1, 2017. This amount was previously classified in the “Prepaid and other current assets” line. |