AGM 2018

Jan 26, 2018

Good morning, and welcome to The Scotts Miracle Gro Company Annual Meeting of Shareholders. Good morning, everyone. My name is Jim Hagedorn. I'm the Chairman and Chief Executive Officer of The Scotts Miracle Gro Company. And I'd like to thank you for joining us this morning for our Annual Meeting of Shareholders. Before we launch into our agenda, I want to thank our shareholders for their continued support. We take your feedback seriously and many of the strategic initiatives we've embarked on in recent years were the result of input we've received from you. At any point, feel free to reach out to us and we'll do everything we can to answer your questions or explain the business. Speaking of our business, I want to touch briefly on what we're doing. As shareholders know, our stock has been trading at near record levels in recent weeks as we continue to successfully execute the strategic plan we shared with you all 2 years ago, a plan we call Project Focus. Since we introduced that plan, we have significantly reconfigured our company. We've divested our Scotts Lawn Service, European and Australian businesses. Meanwhile, our new hydroponic business, Hawthorne, continues to be a major part of our growth strategy. These changes have improved our rate of profitability, given us greater focus and helped us enable the share price appreciation we've seen over the past 2 years. I speak for the entire management team in saying we believe our future prospects remain strong and we're confident in our ability to continue creating value for our shareholders. Before we move on, I want to address the issue of say on pay that was in front of our shareholders. We expect that the vote tally will show that shareholders said yes to stay on pay just as they have every year. This year is a little different though. This year, the margin of approval is lower than we would have expected and has caused us to take notice. The lower approval rating is due to a provision in our long term equity award agreements that could provide for a gross up against potential excise tax for members of the management team in the event of a change of control by a third party other than the Hagedorn Limited Partnership. Under that scenario, it is possible that some members of our management team could face a total tax bill approaching 70% on the 5 year long term equity grant made last year associated with Project Focus. This higher potential tax rate would occur because in addition to normal federal, state and local income taxes, plant participants could also face an additional 20% federal excise tax. Our Board, at my request, included the allowance for this tax gross up in our award agreements to ensure management wouldn't have a potentially distracting or conflicting personal tax consideration while evaluating a potential sale that might benefit all shareholders or that management wouldn't face a punitive tax bill that would not apply to other shareholders. While we still believe the idea would benefit shareholders, both Glass Lewis and Institutional Shareholder Services recommended against our say on pay proposal as a result of this provision. It's worth noting that ISS initially recommended a yes vote on say on pay only to reverse and change its position late last week. We have long prided ourselves on listening to our shareholders. In fact, the very plan that could be subject to this excise tax was created after receiving a great deal of input from our shareholders. It's a performance based pay plan tied to project focus that places emphasis on both cash flow and total shareholder return. You've told us repeatedly you like the plan and both IFS and Glass Lewis recommended a yes vote to stay on pay last year. Clearly though, the tax gross up are not favored. The fact that we expect stay on pay to be approved is irrelevant. We will reevaluate the gross up provision and its purpose in our future planning, and we'll report to you in next year's proxy. Moving on, today's meeting will be brief. We will tend to the business outlined in our proxy statement. When we're done with that portion of the meeting, we'll answer questions that shareholders have asked online. If you have a question, please post it over the next several minutes. Our Board members are also present at this virtual meeting. As a reminder, our Board of Directors is comprised of the following members: Brian Finn, Adam Hanft, Michelle Rea Johnson, Steve Johnson, Tom Kelly, Kate Hagedorn Littlefield, Jim McCann, Nancy Mistretta, Peter Shumlin, General John Vines and myself. This is a diverse group of professionals who play an active oversight role in providing counsel to the entire management team. Their experiences vary between finance, government, strategic planning, consulting, advertising, consumer marketing and the United States military. I believe our shareholders are extremely lucky to be represented by such a talented and engaged group of advisors. I want to take a moment this morning to acknowledge Michelle's contributions since she will be formally leaving the Board after this meeting. She joined our Board in 2014 and has been a valuable contributor during that time, providing innovative thinking and leadership during what was been a transformational period for the company. Michelle's term has expired, and she has chosen not to stand for reelection today. I know I speak for the entire Board as well as the management team in thanking Michelle for everything she's done for us and to wish her health and happiness in her future. I'd also like to say the same thing about my management team. Joining me here this morning are our President and Chief Operating Officer, Mike Luechmeyer our Chief Financial Officer, Randy Coleman our General Counsel and Corporate Secretary, Ivan Smith our Global Head of Human Resources, Denise Stump our Senior Vice President of Strategic Planning, Mike Hoover and our Senior Vice President of Corporate Affairs, Jim King. At this point, we'll move to the business of the Annual Meeting of Shareholders. Please note that the polls are currently open. So if you are a shareholder who has not yet voted or a shareholder looking to change your vote, you may do so by clicking the voting button on the web portal and following the instructions there. I will now turn the floor over to Ivan Smith, our General Counsel and Corporate Secretary. Ivan? Thank you, Jim. I'd like to also add my welcome to the Annual Meeting of Shareholders and introduce Bill Marsh from IDS Associates, who will serve as our Inspector of Elections and Ray Vanderhorst, Lead Client Service Partner at Deloitte and 2 Shell LP, our outside independent auditor. This is the formal part of our meeting where we address the matters that are set forth in the proxy statement sent to our shareholders. When we finished, I'll turn the podium back over to Jim for Q and A. Only validated shareholders will be able to ask questions in the designated field on the web portal. As consideration, I ask you to please limit yourself to one question. This meeting is being recorded. However, no one attending via webcast is permitted to use any audio recording device. During the course of our discussions this morning, we may make forward looking statements regarding the company's future performance. I want to remind everyone that actual results could differ materially from what we discussed based on a variety of risk factors. We encourage investors to familiarize themselves with those risk factors, which are spelled out in detail in our Form 10 ks, which is filed with the SEC. We can now proceed with the business of our meeting. First, with regard to last year's annual meeting of shareholders, I would like the record to reflect that minutes of that meeting have been filed with the records of the company. Next, Jim King will confirm our mailing procedures and registered shareholders. Thank you, Evan. I would like to present the affidavit of Broadridge Financial Solutions pursuant to which Broadridge has confirmed that the notice of this meeting, the proxy statement, the form of proxy and the 2017 annual report were timely mailed to the shareholders of the company. Thanks, Jim. The affidavit and proxy materials are directed to be filed with the records of the company. I would also like to present a list of the registered shareholders of the company's common shares as of the close of business on December 1, 2017, the record date for this meeting. Operator, will you please open the line for Bill Marsh of IBS Associates? Thank you, Jim. The list of registered shareholders is directed to be filed with the records of the company. Next, I'd like to offer one final and following and following the instructions there. Shareholders who have sent in proxies are voted via telephone or the Internet and do not want to change their vote do not need to take any further action. Mr. Marsh, please present your report regarding the number of common shares present at today's meeting. Mr. Marsh, if you're muted, please unmute. Can you hear me now? Yes, sir. Thank you. Okay, I'm sorry. A minimum of 53,000,000 776,000 or 93.6 percent of the common shares are present in person or by proxy. Thank you, Mr. Marsh. The proxies, substitution of proxies and ballots presented to the meeting are hereby ordered to be filed with the records of the company. According to Mr. Marsh's report, a quorum is present so the business may properly be conducted. As set forth in the proxy statement, the business of the meeting includes 5 proposals. Proposal number 1 is to elect 3 directors, each to serve for a 3 year term expiring at the annual meeting of shareholders to be held in 2021. Proposal number 2 is to conduct an advisory vote on the compensation of the company's named executive officers. Proposal number 3 is to ratify the audit committee selection of Deloitte and Touche LLP as the company's independent registered public accounting firm for the fiscal year ending September 30, 2018. Proposal number 4 is to approve an amendment and restatement of the Scotts Miracle Grove Company discounted stock purchase plan to, among other things, increase the number of common shares available for issuance. Proposal number 5 is to conduct an advisory vote on the future frequency of advisory votes on the compensation of the company's named executive officers. Proceeding to proposal number 1, I recognize Denise Stump, Executive Vice President, Global Human Resources for the purpose of nominating the 3 directors. Thank you, Ivan. I hereby move that the following persons be elected as directors of the company, each to hold office until the annual meeting of shareholders to be held in the year 2021 and until their successors are duly elected and qualified or until their earlier death, resignation or removal. Thomas N. Kelly Jr, Peter E. Shumlin and John R. Vines. Is there a second to the motion? I second the motion and move that voting for the election of directors be closed. Is there a second to the motion to close the voting? I second the motion. Voting for the election of directors is hereby closed. As a person appointed as an official proxy, I report that I have voted in accordance with the proxies received from shareholders. Mr. Marsh, may I have your report of the vote regarding the election of the 3 directors? Mr. Smith, I report that each of the 3 nominees for election as a director received not less than 43,119,000 votes in favor. I hereby declare that Thomas N. Kelly, Jr, Peter E. Shumlin and John R. Vine have been duly elected as Directors of the company. The meeting will now proceed to consideration of proposal number 2. I recognize Denise Stumpf for the purpose of presenting the proposal. I hereby move that shareholders approve on an advisory basis the compensation of the company's named executive officers. Is there a second to the motion? I second the motion and move that voting on proposal number 2 be closed. Is there a second to the motion to close the voting? I second the motion. Voting on proposal number 2 is hereby closed. As a person appointed as an official proxy, I report that I have voted in accordance with the proxies received from shareholders. Mr. Marsh, may I have your report of the advisory vote regarding the compensation of the company's named executive officers? Mr. Smith, I report that not less than 30,000,000 757,000 shares were voted in favor of the compensation of the company's named executive officers. I hereby declare that the shareholders have approved on an advisory basis the compensation of the company's named executive officers. The meeting will now proceed to consideration of proposal number 3. I recognize Randy Coleman for the purpose of presenting that proposal. Thank you, Ivan. I hereby move that the Audit Committee's selection of Deloitte and Touche LLP as the company's independent registered public accounting firm for the fiscal year ending September 30, 2018, de ratified. Is there a second to the motion? I second the motion and move that voting on proposal number 3 be closed. Is there a second to the motion to close the voting? I second the motion. Voting on proposal number 3 is hereby closed. As a person appointed as an official proxy, I report that I have voted in accordance with the proxies received from shareholders. Mr. Marsh, may I have your report of the vote regarding the ratification of the audit committee's selection of Deloitte and Touche LLP as the company's independent registered public accounting firm? Mr. Smith, I report that ratification of the audit committee selection of Deloitte and Touche LLP as the company's independent registered public accounting firm for the fiscal year ending September 30, 2018 received not less than 52,000,000 867,000 votes. I hereby declare that the Audit Committee's selection of Deloitte and Touche LLP as the company's independent registered public accounting firm for the fiscal year ending September 30, 2018 has been ratified. The meeting will now proceed to consideration of proposal number 4. Again, I recognize Denise Stumpf for the purpose of presenting that proposal. Thank you, Ivan. I hereby move that shareholders approve an amendment and restatement of the Scotts Miracle Gro Company discounted stock purchase plan to, among other things, increase the number of common shares available for issuance. Is there a second for the motion? I second the motion and move that voting on proposal number 4 be closed. Is there a second to the motion to close the voting? I second the motion. Voting on proposal number 4 is hereby closed. As a person appointed as an official proxy, I report that I have voted in accordance with the proxies received from shareholders. Mr. Marsh, may I have your report of the vote regarding the amendment and restatement of The Scotts Miracle Gro Company discounted stock purchase plan? Mr. Smith, I report that not less than 49,230,000 advisory events were received for approval of the amendment and restatement of the Scotts Miracle Gro Company's discounted stock purchase plan. I hereby declare that the shareholders have approved the amendment and restatement of The Scotts Miracle Grove Company's discounted stock purchase plan. The meeting will now proceed to consideration of proposal number 5. I recognize Denise Stumpf for the purpose of presenting the proposal. I hereby move that shareholders approve on an advisory basis the frequency of future shareholder advisory votes on the compensation of the company's named executive officers. Is there a second to the motion? I second the motion and move that voting on to proposal number 5 be closed. Is there a second to the motion to close the voting? I second the motion. Voting on proposal number 5 is hereby closed. As a person appointed as an official proxy, I report that I have voted in accordance with the proxies received from shareholders. Mr. Marsh, may I have your report on the frequency of future shareholder advisory votes on the compensation of the company's named executive officers? Mr. Smith, I report that executive compensation has received the most votes. I hereby declare that every 1 year is the preferred frequency of future advisory votes on executive compensation. Mr. Chairman, this concludes the formal portion of our meeting. Thank you, Ivan. Now I'd like to open things up for shareholder questions and comments. Please note, I will attempt to answer as many questions or comments as time allow, but only questions or comments that are germane to the meeting will be addressed. Mr. Chairman, ladies and gentlemen, there are no questions or comments that have been presented to us today that are germane to this meeting. So ladies and gentlemen, unfortunately, we are out of time, and so the question and comment period is now closed. Thank you very much for your continued support of Scotts Miracle Gro. There being no further business to come before the meeting, the 2018 meeting of shareholders of the Scotts Miracle Gro Company is now adjourned.