REGISTRATION NO.________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
TRADICO MISSOURI, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1794250
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
9811 SOUTH OUTER FORTY DRIVE
ST. LOUIS, MISSOURI 63124
(ADDRESS OF PRINCIPAL OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 982-_____
Securities to be registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- ---------------------------------------- -----------------------------------
Common Stock, S.01 par value New York Stock Exchange, Inc
Common Stock Purchase Rights New York Stock Exchange, Inc
Securities to be registered pursuant to Section 12(b) of the Act: None
<PAGE>
TRADICO MISSOURI, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM I0
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ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ---------------------------------------------- ----------------------------------------
1. Business BUSINESS AND PROPERTIES
2. Financial Information SUMMARY SELECTED HISTORICAL
FINANCIAL INFORMATION;
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
3. Properties BUSINESS AND PROPERTIES--Properties
4. Security Ownership of Certain Beneficial
Owners and Management SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF TRADICO STOCK
5. Directors and Executive Officers MANAGEMENT
6. Executive Compensation EXECUTIVE COMPENSATION; TRADICO
COMPENSATION AND BENEFIT PLANS;
RALSTON COMPENSATION PROGRAMS
7. Certain Relationships and Related Transactions AGREEMENTS BETWEEN RALSTON AND
TRADICO, CERTAIN TRANSACTIONS
8. Legal Proceedings BUSINESS AND PROPERTIES-Litigation
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters THE DISTRIBUTION--Listing and Trading of
Tradico Stock
11. Description of Registrant's Securities to be
Registered DESCRIPTION OF TRADICO CAPITAL STOCK;
ANTI-TAKEOVER EFFECTS OF CERTAIN
PROVISIONS
12. Indemnification of Directors and Officers INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF TRADICO
13. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION
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II-1
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities.
Tradico Missouri, Inc., ("Tradico") was incorporated as a Missouri
corporation on October 6, 1997. It issued 1000 shares of its $.01 par value
common stock to Ralston Purina International Holding Company, Inc. ("RPIHCI")
on that date in consideration of a capital contribution of $10. Such issuance
was exempt from registration under the Securities Act of 1933, as amended,
(the "Act"), pursuant to Section 4(2) of the Act because such issuance did not
involve any public offering of securities.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements--See Index to Financial Information
(b) Exhibits:
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EXHIBIT NO. DESCRIPTION
- ---------- -----------
2.1 Form of Agreement and Plan of Reorganization *
2.2 Form of Tax Sharing Agreement *
2.3 Form of Bridging Agreement *
2.4 Form of Technology Licenses *
2.5 Form of Trademark Agreement *
2.6 Form of Master Distribution Agreement *
3.1 Form of Articles of Incorporation of Tradico Missouri, Inc. *
3.2 Form of Bylaws of Tradico Missouri, Inc. *
4.1 Form of Rights Agreement between Tradico Missouri, Inc. and ________________,
as Rights Agent *
10.1 Form of Tradico Incentive Stock Plan *
10.2 Form of Tradico Deferred Compensation Plan *
10.3 Form of Management Continuity Agreements *
10.4 Form of Indemnification Agreements with Executive Officers and Directors *
21 List of Tradico Subsidiaries *
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* To be filed by amendment
II-2
<PAGE>
TRADICO MISSOURI, INC.
9811 South Outer Forty Drive
St. Louis, Missouri 63124
February __1998
Dear Shareholder:
I am pleased to welcome you as a shareholder of Tradico Missouri, Inc.
("Tradico"), a company which is the successor to the international
agricultural products and animal feeds business formerly operated as part of
Ralston Purina Company ("Ralston").
Although Tradico is a new public company, its businesses are well
established. Ralston has been engaged in the agricultural products and animal
feeds business since its inception in 1894. The legacy we inherit from
Ralston--highly dedicated employees experienced in meeting customer needs and
providing high quality products and services--remains our greatest strength.
I welcome your participation as a Tradico shareholder and we look forward
to continue working on your behalf.
Sincerely,
William P. Stiritz
Chief Executive Officer and President
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned thereunto duly authorized.
TRADICO MISSOURI, INC.
BY: /S/
---
David R. Wenzel
Chief Financial Officer
October 10, 1997
II-3
RALSTON PURINA COMPANY
RALSTON PURINA COMPANY W. PATRICK MCGINNIS
CHECKERBOARD SQUARE J. PATRICK MULCAHY
ST. LOUIS, MISSOURI 63164 CO-CHIEF EXECUTIVE OFFICERS
February__, 1998
Dear Ralston Purina Shareholder:
We are pleased to inform you that on February __, 1998, the Board of
Directors of Ralston Purina Company ("Ralston") declared a distribution by
Ralston to holders of its Common Stock ("Ralston Stock") of shares of the
Common Stock of Tradico Missouri, Inc. ("Tradico"), a subsidiary of Ralston.
The distribution will occur on February __, 1998.
Tradico and its subsidiaries will own and operate the international
agricultural products and animal feeds business presently conducted by
Ralston. Following the distribution, Tradico will conduct that business as a
separate, publicly-owned company.
If you are a shareholder of record of Ralston Stock at the close of
business on February __, 1998, the record date for the distribution, you will
receive one share of Tradico Common Stock for every _____ shares of Ralston
Stock you own (and a cash payment in lieu of any fractional share of Tradico
Common Stock). No action is required on your part in order to receive your
distribution. We are using a book entry system to distribute shares of
Tradico Common Stock. In a book entry system, ownership of stock is recorded
in the records maintained by Tradico's Transfer Agent, but physical
certificates will not be issued unless requested. You will receive a
statement of the shares of Tradico Common Stock credited to your account (and
any cash payment in lieu of any fractional shares) in a separate mailing
shortly after February __, 1998. If you request to receive physical
certificates instead of participating in the book entry system, certificates
will be issued, following the Distribution, for each share credited to you.
The attached Information Statement, which is being distributed to all
holders of Ralston Stock in connection with the distribution, describes the
transaction in detail and contains important information about Tradico,
including financial statements and other financial information.
Tradico's Common Stock will be listed and traded on the New York Stock
Exchange, Inc., and its stock symbol will be "___".
Your Board of Directors has carefully considered the spin-off of the
Tradico business and believes the spin-off is in the best interests of the
shareholders of Ralston Stock and will result in organizational and
operational changes that should benefit both Tradico and Ralston. After the
spin-off, Ralston and Tradico will each be an independent company with its own
management group able to be more focused on responding to the operational
characteristics and competitive dynamics of their respective businesses.
Sincerely,
W. Patrick McGinnis
J. Patrick Mulcahy
co - Chief Executive Officers
<PAGE>
INFORMATION STATEMENT
TRADICO MISSOURI, INC.
COMMON STOCK
($.01 par value)
This Information Statement is being furnished by Ralston Purina Company
("Ralston") in connection with the distribution (the "Distribution") by
Ralston to holders of its $.10 par value Common Stock ("Ralston Stock") of
shares of the $.01 par value Common Stock ("Tradico Stock") of its subsidiary,
Tradico Missouri, Inc. ("Tradico").
The Distribution will be made on February __, 1998 on the basis of one
share of Tradico Stock for every _____ shares of Ralston Stock held on that
date. Ralston has received a ruling from the U.S. Internal Revenue Service to
the effect that the Distribution will qualify as a tax-free spin-off for
Federal income tax purposes (see "THE DISTRIBUTION--Certain Federal Income Tax
Consequences of the Distribution"). *No consideration will be required to be
paid by holders of Ralston Stock for the shares of Tradico Stock to be
received by them in the Distribution, nor will they be required to surrender
or exchange shares of Ralston Stock in order to receive Tradico Stock in the
Distribution. Neither Ralston nor Tradico will receive any cash or other
proceeds from the Distribution.
* The rulings have not been received as of the date of this filing but it is
anticipated that they will be received prior to the time the Information
Statement is provided to shareholders.
Following the Distribution, Ralston will not own any shares of Tradico
Stock and Tradico will cease to be a subsidiary of Ralston and will operate as
an independent, publicly held company. Tradico Stock will be listed and traded
on the New York Stock Exchange, Inc. under the symbol "___"; however, prior to
the date hereof, there has not been a trading market for Tradico Stock.
Holders of Ralston Stock receiving shares of Tradico Stock in the Distribution
should consider carefully the matters described under the caption "THE
DISTRIBUTION--Certain Significant Considerations".
NO VOTE OF STOCKHOLDERS OF RALSTON OR TRADICO IS REQUIRED IN CONNECTION WITH
THE DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS INFORMATION STATEMENT IS FEBRUARY __, 1998.
<PAGE>
AVAILABLE INFORMATION
Ralston is (and, following the Distribution, Tradico will be) subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files (and Tradico
will file) reports, proxy statements and other information with the Securities
and Exchange Commission (the "Commission"). The reports, proxy statements and
other information filed by Ralston (and to be filed by Tradico) with the
Commission may be inspected and copied at the Public Reference Room of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C., 20549, as well as at the public reference facilities maintained at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such information may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains an
Internet site on the World Wide Web at http://www.sec.gov that contains
reports, proxy statements and other information regarding public companies.
Shares of Ralston Stock are listed on the New York Stock Exchange ("NYSE") and
reports, proxy statements and other information concerning Ralston can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
Tradico intends to furnish holders of Tradico Stock with annual reports
beginning with its fiscal year ending August 31, 1998, containing consolidated
financial statements audited by an independent public accounting firm.
Tradico has filed with the Commission a Registration Statement on Form 10
(the "Registration Statement") under the Exchange Act covering the Tradico
Stock. This Information Statement does not contain all of the information in
the Registration Statement and the related exhibits and schedules thereto, to
which reference is hereby made. Statements in this Information Statement as to
the contents of any contract, agreement or other document are summaries only
and are not necessarily complete. For more complete information as to any
contract, agreement or other document filed with the Registration Statement,
reference is made to the applicable exhibit or schedule to the Registration
Statement. The Registration Statement and the related exhibits filed by
Tradico may be inspected at the public reference facilities of the Commission
listed above.
The principal office of Tradico is located at 9811 South Outer Forty
Drive, St. Louis, Missouri 63124 (telephone: 314/___-____).
Questions concerning the Distribution should be directed to Ralston's
Investor Relations Department, Ralston Purina Company, Checkerboard Square,
7T, St. Louis, Missouri 63164 (telephone: 314/982-2161). After the
Distribution Date, holders of Tradico Stock having inquiries related to their
investment in Tradico should contact Tradico's General Counsel, Tradico
Missouri, Inc., 9811 South Outer Forty Drive, St. Louis, Missouri 63124
(telephone: 314/___-_____).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
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PAGE
----
AVAILABLE INFORMATION 2
QUESTIONS AND ANSWERS ABOUT THE
SPINOFF OF TRADICO COMMON STOCK 5
SUMMARY OF CERTAIN INFORMATION 8
SUMMARY SELECTED HISTORICAL
FINANCIAL INFORMATION 11
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION 12
INTRODUCTION 16
THE DISTRIBUTION 16
Background and Reasons for the
Distribution 16
Certain Significant Considerations 19
No Operating History as an Independent
Company 19
Certain Financial Considerations 19
No Prior Market for Tradico Stock 20
Possibility of Substantial Sales of
Tradico Stock 20
Risks Associated with Foreign
Operations 20
Risks Associated with Animal
Production Industry 21
Significant Competitive Activity 21
Raw Material Price Volatility 21
Tradico Dividend Policy 22
Certain Anti-takeover Effects 22
Effects on Ralston Stock 22
Certain Federal Income Tax
Considerations 22
Manner of Effecting the Distribution 23
Certain Federal Income Tax Consequences
of the Distribution 24
Listing and Trading of Tradico Stock 25
Disposition of Tradico Stock Received by
Benefit Plans 26
REGULATORY APPROVALS 26
AGREEMENTS BETWEEN RALSTON AND
TRADICO 27
Agreement and Plan of Reorganization 27
Tax Sharing Agreement 30
Bridging Agreement 31
Trademark Agreement 31
Technology Licenses 31
Master Distribution Agreement 31
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 32
BUSINESS AND PROPERTIES . 39
Background 39
Strategy 41
Distribution System 42
Competition 42
Employees 43
Raw Materials 43
Governmental Regulation; Environmental
Matters 43
Properties 44
Litigation 45
MANAGEMENT 45
Directors of Tradico 45
Directors' Meetings, Fees and Committees 46
Executive Officers of Tradico 47
EXECUTIVE COMPENSATION 48
TRADICO COMPENSATION AND BENEFIT
PLANS 48
Incentive Stock Plan 49
Savings Investment Plan 52
Deferred Compensation Plan 52
Management Continuity Agreements 53
RALSTON COMPENSATION PROGRAMS 53
CERTAIN TRANSACTIONS 54
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF TRADICO
STOCK 54
DESCRIPTION OF TRADICO CAPITAL
STOCK 55
Authorized Capital Stock 55
Tradico Common Stock 56
Tradico Preferred Stock 56
Common Stock Purchase Rights 56
ANTI-TAKEOVER EFFECTS OF CERTAIN
PROVISIONS 58
Limitations on Changes in Board
Composition and Other Actions by
Shareholders 58
Preferred and Common Stock 59
Fair Price Provisions 60
Amendment of Certain Provisions of the
Tradico Articles and Bylaws 60
Rights 60
Management Continuity Agreements;
Other Severance Arrangements 60
Statutory Provisions 60
INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF TRADICO 61
SHAREHOLDER PROPOSALS 61
INDEPENDENT ACCOUNTANTS 62
INDEX TO FINANCIAL INFORMATION F-1
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF TRADICO COMMON STOCK
Q. WHEN WILL THE SPINOFF OCCUR?
A. The spinoff of Tradico will occur at the close of business on February
__, 1998. In the spinoff, Ralston will distribute shares of common stock of
Tradico to each Ralston shareholder. Because of this, the spinoff is
generally referred to as the "Distribution" throughout the rest of this
document.
Q. WHAT WILL I RECEIVE IN THE DISTRIBUTION?
A. For every share of Ralston Stock, you will receive .____ of a share of
Tradico Stock and a cash payment in lieu of any fractional share of Tradico
Stock. The amount of the cash payment for fractional shares will be based
upon the average of the closing prices of the Tradico Stock for the first
three trading days following the Distribution Date. We are using a book entry
system to distribute shares of Tradico Stock. In a book entry system,
ownership of stock is recorded in the records maintained by _______________,
Tradico's Transfer Agent (the "Transfer Agent"), but physical certificates
will not be issued unless requested. You will receive a statement of the
shares of Tradico Stock credited to your account, or, if requested, physical
certificates (and any cash payment in lieu of any fractional shares) in a
separate mailing shortly after February __, 1998. See "THE DISTRIBUTION --
Manner of Effecting the Distribution".
You will also receive a common stock purchase right similar to the rights
you have with your existing Ralston Stock. These rights are designed to
encourage a potential acquiror of a large percentage of Tradico Stock to
negotiate with the Tradico Board of Directors before making a large purchase.
They are also designed to protect shareholders in the event that someone makes
a large purchase of Tradico Stock that the Tradico Board of Directors
concludes is not in the best interests of the Company and its shareholders.
See "DESCRIPTION OF TRADICO CAPITAL STOCK -- Common Stock Purchase Rights".
Q. HOW DO I REQUEST CERTIFICATES FOR MY SHARES?
A. Following the Distribution, you may obtain a certificate for all or a
portion of your book-entry shares by calling the Transfer Agent at
1-800-___-____ using a touch-tone telephone and requesting the option "to
issue shares" or by completing a transaction form which can be obtained by
calling 1-800-___-____ and returning it to the Transfer Agent. A certificate
will be mailed to you within approximately forty-eight hours of the Transfer
Agent's receipt of your request.
Q. HOW DO I TRANSFER BOOK-ENTRY SHARES?
A. Aside from participation in the Odd-Lot Program, you may transfer your
shares through the Transfer Agent by calling 1-800-___-____ using a touch-tone
telephone and requesting the option "to sell shares" or by completing a
transaction form and returning it to the Transfer Agent. A transaction fee
and applicable brokerage commission will be deducted from the sale proceeds
returned to you. You may also transfer your shares through your broker/dealer
by either first requesting a certificate and delivering it to your
broker/dealer for transfer, or by electronically transferring your book-entry
shares to your broker/dealer account. To do so, you must complete and return
to the Transfer Agent an Authorization to Provide Broker/Dealer Information, a
copy of which may be obtained by calling 1-800-___-____. Your book-entry
shares will be electronically transferred to your broker/dealer within
approximately forty-eight hours of the Transfer Agent's receipt of your
properly completed Authorization.
Q. WHAT IS THE TRADICO ODD-LOT PROGRAM?
A. Ralston shareholders who are entitled to receive fewer than 100 shares
("Odd-Lot") of Tradico Stock in the Distribution may elect to sell such
shares, or purchase additional shares to round-up to 100 shares, at the then
current market price of the Tradico Stock, pursuant to a program (the "Tradico
Odd-Lot Program") being offered as a convenience to shareholders who will
receive an Odd-Lot. Upon receipt of a shareholder's election to either (1)
sell such Odd-Lot shares, or (2) purchase additional round-up shares,
______________ (the "Distribution Agent") will match requests for sales
against requests for purchases. If there are insufficient shares available
from selling shareholders to effect all requested purchases of round-up
shares, the Distribution Agent will then purchase such shares of Tradico Stock
on behalf of the requesting shareholders for cash in the open market at the
then current market price of the Tradico Stock. Payment for such shares by
the purchasing shareholders must be made within normal settlement periods. If
insufficient numbers of round-up shares are purchased, the excess of Odd-Lot
shares to be sold will be sold by the Distribution Agent for cash in the open
market at the then current market price of the Tradico Stock. The proceeds
of all sales of Odd-Lot shares will be remitted to the shareholders by the
Distribution Agent as soon as practicable following the sale. Brokerage fees
and commissions incurred by the Distribution Agent with respect to purchases
or sales will be paid for by participants in the Tradico Odd-Lot Program as
pre-set commissions at a per share amount. A form containing the terms of
the Tradico Odd-Lot Program
and an authorization form pursuant to which holders of Odd-Lot shares may
elect to participate in the Tradico Odd-Lot Program will be mailed to all
eligible shareholders as soon as possible after the Distribution Date.
Participation in the Tradico Odd-Lot Program is voluntary. Ralston
shareholders who are entitled to receive fewer than 100 shares of Tradico
Stock must transmit a completed authorization form to the Distribution Agent
prior to __________, 1998, to participate in the Tradico Odd-Lot Program. See
"THE DISTRIBUTION - Manner of Effecting the Distribution".
Q. WILL TRADICO PAY DIVIDENDS?
A. The Board of Directors of Tradico does not expect initially to pay cash
dividends on the Tradico Stock following the Distribution. Any excess cash
generated by the Tradico businesses is expected to be used to fund working
capital, future acquisitions and capital expenditures, and purchases of
Tradico Stock from shareholders. The Board of Directors may change its
dividend policy at any time, however.
Ralston's Board of Directors has indicated that it currently intends to
maintain the current level of cash dividends paid on Ralston Stock following
the Distribution. Ralston currently is paying $1.20 per year on each share of
Ralston Stock.
Q. DO I HAVE TO PAY TAXES ON THE RECEIPT OF TRADICO STOCK?
A. Ralston has received a ruling from the Internal Revenue Service that
the Distribution of Tradico Stock will be tax-free to Ralston shareholders for
federal income tax purposes. *However, any cash that your receive instead of
fractional portions of Tradico Stock, and, if you elect to participate in the
Tradico Odd-Lot Program, any cash that you receive for your Odd-Lot Shares,
will be taxable. In addition, Tradico Stock which is distributed with respect
to shares of restricted Ralston Stock will be taxable at the time that
restrictions lapse. To review the tax consequences of the Distribution in
greater detail, see "THE DISTRIBUTION - Certain Federal Income Tax
Consequences of the Distribution."
* The rulings have not been received as of the date of this filing but it is
anticipated that they will be received prior to the time the Information
Statement is provided to shareholders.
Q. WILL TRADICO STOCK BE LISTED ON ANY EXCHANGE?
A. Yes, the Tradico Stock will be listed on the New York Stock Exchange,
Inc. and will be trading under the symbol "___".
Q. WHAT WILL HAPPEN TO THE TRADING OF RALSTON AND TRADICO STOCK?
A. Beginning on or about February __, 1998, and continuing through March
__, 1998, you will only be able to sell your Ralston Stock with due bills for
Tradico Stock. This means that you will give up your right to receive Tradico
Stock if you sell your Ralston Stock during this time. The shares of Tradico
Stock must be delivered by you to the buyer by electronically transferring
ownership with the Transfer Agent as soon as you receive the statement of
shares of Tradico Stock credited to your book entry account by reason of the
Distribution.
Beginning on or about March __, 1998, we expect that investors will be
able to buy and sell Tradico Stock on a when-issued basis until the statements
of shares so credited are actually issued.
You should consult your own financial advisors before you attempt to make
any of these types of sales and make sure that these advisors understand your
intentions with respect to such sales.
SUMMARY OF CERTAIN INFORMATION
This summary highlights selected information from this document. It may not
contain all of the information that is important to you. To better understand
the transaction and for a more complete description of the legal terms of the
Distribution, you should read carefully this entire Information Statement and
other documents referred to in the Information Statement.
THE DISTRIBUTION -- In the Distribution, Ralston shareholders will receive one
share of Tradico Stock together with an associated common stock purchase right
for every ___ shares of Ralston Stock that they own on the record date for the
Distribution. The shares and rights represent a continuing interest in the
Tradico Business. See "BUSINESS AND PROPERTIES -- Background".
Tradico intends to use a book entry system to distribute shares in the
Distribution. In a book entry system, ownership of stock is recorded in the
records maintained by Tradico's transfer agent, but physical certificates are
not issued unless requested. Following the Distribution, each stockholder of
record on the Distribution record date will receive a statement of the shares
of Tradico Stock credited to the stockholder's book entry account. If
physical certificates are thereafter requested, they will be delivered to the
shareholder within approximately forty-eight hours of the receipt of the
request by the Transfer Agent.
Fractional share interests will not be issued in the Distribution, but a cash
payment in lieu thereof will be distributed to those shareholders otherwise
entitled to be credited with a fractional share of Tradico Stock. The amount
of such cash payment will be based upon the average of the closing prices of
the Tradico Stock during each of the first three trading days following the
Distribution Date. See "THE DISTRIBUTION - Manner of Effecting the
Distribution".
If you have questions about Ralston or the Distribution, please contact:
Ralston Purina Company
Investor Relations Department
Checkerboard Square, 7T
St. Louis, Missouri 63164
(314) 982-2161
If, following the Distribution Date, you have questions about the shares of
Tradico Stock which will be credited to your book entry account with the
Transfer Agent, please contact:
Michael Costello
General Counsel
Tradico Missouri, Inc.
9811 South Outer Forty Drive
St. Louis, Missouri 63124
(314) ___-____
Following the Distribution, _______________ will serve as Transfer Agent and
Registrar for Tradico.
THE TRADICO BUSINESS -- Following the Distribution, Tradico will be a leading
international producer and marketer of formula animal feeds and other
agricultural products, and in certain countries, pet foods.With a
worldwide network of approximately 3500
independent dealers, as well as independent and direct sales forces, Tradico
and its subsidiaries market a broad line of animal feeds and nutrition
products, including feeds for hogs, dairy cows,
cattle, poultry (broilers and layers), rabbits, horses, shrimp and fish.
Tradico and its subsidiaries operate 73 manufacturing plants in 16 countries
on four continents. For a more detailed discussion of the Tradico business,
please see the Sections titled "BUSINESS AND PROPERTIES", and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
REASONS FOR THE DISTRIBUTION -- Since the sale by Ralston of its domestic
animal feeds business in 1986, the international agricultural products and
animal feeds business which Ralston retained has not been an important part of
Ralston's overall business strategy. The agricultural products and animal
feeds business is fundamentally different from Ralston's core businesses, and
Ralston has concluded that its centralized management is not the most
efficient or effective way of managing the Tradico Business. The Board of
Directors of Ralston believes that the Distribution of Tradico will allow the
international agricultural products and animal feeds business to be managed
and operated more effectively by resolving certain systemic problems arising
out of Ralston's operation of the Tradico Business. It is expected that the
spinoff will result in changes in organization and operation of both the
Tradico Business and Ralston's international pet food business, to the benefit
of both businesses. In addition, as an independent company, Tradico will be
able to compensate its management with Tradico Stock-based awards, the value
of which will depend upon the operating results of Tradico alone. Tradico may
also be able to raise capital by the issuance of additional Tradico Stock, or
it may be able to use Tradico Stock to make acquisitions. For a more detailed
discussion of the reasons for the spinoff, please read the Section titled "THE
DISTRIBUTION - Background and Reasons for the Distribution".
CERTAIN SIGNIFICANT CONSIDERATIONS -- An investment in Tradico Stock is
subject to a number of risks, among which are (i) Tradico's lack of an
operating history as an independent company; (ii) Tradico's ability to service
its approximately $125 million of debt under its revolving credit facility;
(iii) the potential of poor performance, or wide fluctuations in market price,
of the Tradico Stock; (iv) the potential negative effect on the Tradico
Business from competition, industry consolidation, currency fluctuations,
political and economic instability, decline in the demand for agricultural
products, increases in the price of commodities and raw materials, foreign and
U.S. tax laws, governmental interventions, tariffs or quotas, and restrictions
on the flow of capital; and (v) the potential anti-takeover effects of certain
terms of Tradico's Articles of Incorporation, Bylaws and Common Stock Purchase
Rights. Shareholders should carefully review the matters discussed under the
Section titled "THE DISTRIBUTION - Certain Significant Considerations".
RELATIONSHIP BETWEEN TRADICO AND RALSTON AFTER THE DISTRIBUTION -After the
Distribution, Tradico will be a separate company. Tradico and Ralston will
enter into agreements to assist in the separation and transition of the
international agricultural products and animal feeds and Ralston's other
businesses. The agreements deal with many operational issues, including:
(a) the separation of the international agricultural products and
animal feeds business from Ralston's other businesses;
(b) the terms of mutual non-compete covenants between Ralston and
Tradico;
(c) transitional services to be provided by or received from Ralston
and its affiliates, on the one hand, and Tradico and its affiliates, on the
other hand, following the Distribution;
(d) the transfer or license of technology and trademark rights from
Ralston to Tradico and certain of its affiliates;
(e) the manufacture, supply and/or distribution of pet products in
certain countries; and
(f) the allocation of certain tax and other liabilities between
Tradico and Ralston.
Under these agreements, Tradico and Ralston agree to compensate each other
after the Distribution for certain losses, damages, claims and liabilities
resulting from the operation of their respective businesses, as well as for
certain tax liabilities. Detailed information about these agreements can be
found in the Section titled "AGREEMENTS BETWEEN RALSTON AND TRADICO."
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth Summary Selected Historical Financial
Information for Tradico. The historical financial information
presented below may not necessarily be indicative of the results of operations
or financial position that would have been
obtained if Tradico had been an independent company during the periods shown
or of Tradico's future performance as an
independent company. The financial data set forth below should be read in
conjunction with Tradico's Combined Financial
Statements and the notes thereto found elsewhere in this Information
Statement. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "INDEX TO
FINANCIAL INFORMATION".
Earnings per share data is presented elsewhere in this Information Statement
on a pro forma basis only (see "UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION").
<TABLE>
<CAPTION>
TRADICO
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION
(In millions except percentage data)
<S> <C> <C> <C>
FOR THE NINE MONTHS ENDED
MAY 31,
FOR THE YEAR ENDED AUGUST 31,
STATEMENT OF EARNINGS DATA 1997 1996 1996
--------------------------- ------------------------------- ---------
Net Sales $ 1,156.8 $ 1,056.8 $1,430.3
Depreciation and Amortization 16.4 15.4 20.7
Earnings Before Income Taxes 39.0 27.0 28.3
As a Percent of Sales 3.4% 2.6% 2.0%
Income Taxes $ 22.3 $ 12.2 $ 15.1
Net Earnings (a,b) 16.7 14.8 13.2
TRADICO
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION
(In millions except percentage data)
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
STATEMENT OF EARNINGS DATA 1995 1994 1993 1992
--------- --------- --------- ---------
Net Sales $1,170.1 $1,039.2 $1,044.1 $1,050.1
Depreciation and Amortization 17.7 17.3 16.2 18.0
Earnings Before Income Taxes 35.4 34.4 19.8 (8.4)
As a Percent of Sales 3.0% 3.3% 1.9% -0.8%
Income Taxes $ 19.6 $ 26.6 $ 20.3 $ 8.2
Net Earnings (a,b) 15.8 7.8 (0.5) (16.6)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
MAY 31, FOR THE YEAR ENDED AUGUST 31,
------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993 1992
-------- ------------------------------ ------ ------ ------ ------
Working Capital $ 81.4 $ 62.3 $ 38.9 $ 39.3 $ 19.5 $ 15.1
Net Property 158.1 149.8 139.9 140.5 145.2 163.0
Additions (during the period) 29.3 30.0 28.6 26.6 22.5 28.3
Depreciation (during the period) 15.1 19.3 17.5 17.0 16.2 18.0
Total Assets 527.2 508.9 416.2 367.8 337.3 385.8
Long-Term Debt 41.0 41.7 34.7 40.4 45.6 12.9
Ralston Equity Investment 221.8 195.6 139.6 132.4 113.1 156.5
</TABLE>
(a) After-tax provisions for restructuring reduced net earnings by $1.5 in
the nine months ended May 31, 1996, $7.2 in the year ended August 31,
1996, $1.0 in 1995, $2.8 in 1994, $1.3 in 1993, and $14.1 in 1992.
(b) After-tax gain on the sale of property increased net earnings
by $2.9 in the nine months ended May 31, 1996, $2.9 in the year ended
August 31, 1996, $1.1 in 1995, $3.8 in 1994, $4.3 in 1993, and $0.6 in
1992.
<PAGE>
TRADICO
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Ralston will spin off its international agricultural products and animal
feed business together with certain assets
associated with its international pet food operations in Korea,
Colombia, Venezuela and Guatemala (collectively
Tradico). Tradico was organized for the purpose of effecting the Distribution
and has no operating history as an
independent company. The historical combined financial statements of Tradico
reflect periods during which the
various spun-off businesses operated as divisions or subsidiaries of Ralston.
The pro forma combined statement of earnings for the nine months ended
May 31, 1997, presents the
combined results of Tradico's operations assuming that the Distribution had
occurred as of September 1, 1996.
Such statement of earnings has been prepared by adjusting the historical
statement of earnings for the effect of
costs and expenses and the recapitalization which might have occurred had the
Distribution been effected on
September 1, 1996.
The pro forma combined statement of earnings for the year ended August
31, 1996, presents the
combined results of Tradico's operations assuming that the Distribution had
occurred as of September 1, 1995.
Such statement of earnings has been prepared by adjusting the historical
statement of earnings for the effect of
costs and expenses and the recapitalization which might have occurred had the
Distribution been effected on
September 1, 1995.
The pro forma combined balance sheet at May 31, 1997, presents the
combined financial position of
Tradico assuming the Distribution had occurred at that date. Such balance
sheet has been prepared by adjusting
the historical balance sheet for the effect of changes in assets, liabilities,
and capital structure which might have
occurred had the Distribution been effected on May 31, 1997.
The pro forma financial statements may not necessarily reflect the
combined results of operations or
financial position that would have existed had the Distribution been effected
on the dates specified, nor are they indicative of future results.
<PAGE>
TRADICO
PRO FORMA COMBINED STATEMENT OF EARNINGS
(IN MILLIONS EXCEPT PER SHARE DATA)
NINE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO PRO
HISTORICAL DISTRIBUTION FORMA
------------- -------------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 1,156.8 $ 1,156.8
Costs and Expenses
Cost of products sold 988.2 0.4 (b) 989.3
0.7 (c)
Selling, general and administrative 122.2 1.9 (a) 125.8
1.4 (b)
0.3 (c) .
Interest 8.4 1.2 (d) 9.6
Other (income)/expense, net (1.0) 1.5 (e) 0.5
------------- ----- -----
1,117.8 7.4 1,125.2
------------- -------------- --------
Earnings before Income Taxes 39.0 (7.4) 31.6
Income Taxes 22.3 (5.3) (f) 17.0
----- ------- -----
Net Earnings $ 16.7 $ (2.1) $ 14.6
============= ============== ========
Earnings per share (g) . $ 1.43
=========
Weighted average shares of common stock (g) 10.2
=============
</TABLE>
(a) To reflect the incremental costs associated with becoming a
stand-alone public company.
(b) To reflect both the payment of Trademark and Technology License fees
related to pet food production
and arms-length imported product pricing as a result of agreements to be
entered into on the Distribution
Date.
(c) To reflect increase in net pension costs resulting from the
anticipated transfer of certain international
retirement plan assets to Ralston.
(d) To reflect interest expense on incremental debt at an average rate of
12.3%.
(e) To reflect decrease in interest income resulting from the reduction
in cash and marketable securities to
levels set out in the proposed Agreement and Plan of Reorganization.
(f) To reflect tax effect of the above pro forma adjustments and to
remove portion of incremental U.S. taxes
allocated by Ralston to Tradico.
(g) The number of shares used to compute earnings per share is based on
the weighted average number of
primary shares of Ralston stock outstanding during the nine month period
ending June 30, 1997, adjusted
for the anticipated 1 for 10 stock distribution.
<PAGE>
<TABLE>
<CAPTION>
TRADICO
PRO FORMA COMBINED STATEMENT OF EARNINGS
(IN MILLIONS EXCEPT PER SHARE DATA)
YEAR ENDED AUGUST 31, 1996
(UNAUDITED)
ADJUSTMENTS
RELATED TO PRO
HISTORICAL DISTRIBUTION FORMA
------------- -------------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 1,430.3 $ 1,430.3
Costs and Expenses
Cost of products sold 1,234.3 0.5 (b) 1,235.6
0.8 (c)
Selling, general and administrative 145.9 3.9 (a) 151.7
1.5 (b)
0.4 (c)
Interest 13.7 3.3 (d) 17.0
Provisions for restructuring 8.3 8.3
Gain on sale of property (3.6) (3.6)
Other (income)/expense, net 3.4 2.2 (e) 5.6
------------- ------- -------
1,402.0 12.6 1,414.6
------------- -------------- ---------
Earnings before Income Taxes 28.3 (12.6) 15.7
Income Taxes 15.1 (7.5)(f) 7.6
------- -------- -----
Net Earnings $ 13.2 $ (5.1) $ 8.1
============= ============== =========
Earnings per share (g) $ 0.79
=============
Weighted average shares of common stock (g) 10.2
=============
</TABLE>
(a) To reflect the incremental costs associated with becoming a
stand-alone public company.
(b) To reflect both the payment of Trademark and Technology License fees
related to pet food production
and arms-length imported product pricing as a result of agreements to be
entered into on the Distribution
Date.
(c) To reflect increase in net pension costs resulting from the
anticipated transfer of certain international
retirement plan assets to Ralston.
(d) To reflect interest expense on incremental debt at an average rate of
14%.
(e) To reflect decrease in interest income resulting from the reduction in
cash and marketable securities to
levels set out in the proposed Agreement and Plan of Reorganization.
(f) To reflect tax effect of the above pro forma adjustments and to remove
portion of incremental U.S. taxes
allocated by Ralston to Tradico.
(g) The number of shares used to compute earnings per share is based on
the weighted average number of
primary shares of Ralston stock outstanding during the year ending
September 30, 1996, adjusted for the
anticipated 1 for 10 stock distribution.
<TABLE>
<CAPTION>
TRADICO
PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS - UNAUDITED)
HISTORICAL PRO PRO FORMA
MAY 31, FORMA MAY 31,
1997 ADJUSTMENTS 1997
------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 39.9 $ (28.6) (a) $11.3
Marketable securities 13.0 (9.3) (a) 3.7
Receivables, less allowance for doubtful accounts 123.2 123.2
Inventories 118.5 118.5
Other current assets 18.3 18.3
Total Current Assets 312.9 (37.9) 275.0
------------ ------------- -----------
Investments and Other Assets 56.2 (9.0) (a) 47.2
Property at Cost 316.4 316.4
Accumulated Depreciation (158.3) (158.3)
------------ -----------
158.1 - 158.1
Total $ 527.2 $ (46.9) $ 480.3
============ ============= ===========
LIABILITIES AND NET INVESTMENT IN RPI AGRIBUSINESS
Current Liabilities
Current maturities of long-term debt $ 1.2 $ 1.2
Notes payable 46.0 36.8 (b) 82.8
Accounts payable and accrued liabilities 171.6 171.6
Income taxes 12.7 12.7
Total Current Liabilities 231.5 36.8 268.3
------------ ------------- -----------
Long-Term Debt 41.0 41.0
Deferred Income Taxes 7.1 7.1
Other Liabilities 25.8 25.8
Net Investment in RPI Agribusiness 221.8 (221.8) (c) -
Shareholders Equity 138.1 (c) 138.1
Total $ 527.2 $ (46.9) $ 480.3
============ ============= ===========
</TABLE>
(a) To reflect reduction in cash and marketable securities and
transfer of certain international retirement
plan assets to Ralston in accordance with the proposed Agreement and
Plan of Reorganization.
Assumed the reduction in cash and marketable securities would be
ratable.
(b) To reflect debt to be assumed by Tradico at the Distribution
Date.
(c) To reflect the planned liquidation of the remaining investment
by Ralston and the issuance of Tradico
Stock shares.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Information
Statement under the captions "The Distribution", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business and
Properties", and elsewhere in this Information Statement are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and are subject to the safe harbor created by that Act. Such
forward-looking statements include, without limitation, the future
availability and prices of raw materials, the availability of capital on
acceptable terms, the competitiveness of the agricultural products and animal
feeds industry, potential liabilities and Tradico's strategies and other
statements contained herein that are not historical facts. Because such
forward-looking statements involve risks and uncertainties, there are
important factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include, but are not limited
to, changes in general economic and business conditions (including
agricultural markets)in the various regions of the world in which Tradico
operates, Tradico's ability to recover its raw material costs in the pricing
of its products, the availability of capital on acceptable terms, actions of
competitors and government entities, the level of demand for Tradico's
products, changes in Tradico's business strategies and other factors discussed
under "Certain Significant Considerations".
INTRODUCTION
On March 28, 1996, the Board of Directors of Ralston ("Ralston Board")
approved in principle a plan to spin-off its international agricultural
products and animal feeds business to holders of Ralston Stock (see "BUSINESS
AND PROPERTIES"). On ________, 1998, the Ralston Board authorized the
contribution to Tradico of the capital securities of Ralston's various
international subsidiaries engaged in the agricultural products and animal
feeds business, the acquisition by Tradico of other assets utilized in that
business in certain countries and, in Korea, Colombia, Venezuela and
Guatemala, the retention by the local Tradico subsidiaries of certain assets
associated with Ralston's international pet food business (together, the
"Tradico Business"). Following the Distribution, Tradico will be a leading
international producer and marketer of formula animal feeds and other animal
nutrition products, and a successor to Ralston's over 100 years of experience
in the agricultural products and animal feeds industry. Over the past 100
years, Ralston has built and maintained its industry position by consistently
providing high-quality products and customer service.
On February __, 1998, the Ralston Board formally approved the
Distribution and declared a dividend payable to each holder of record of
Ralston Stock at the close of business on February __, 1998 (the "Distribution
Date") of one share of Tradico Stock, together with an associated common stock
purchase right (a "Right"), for every ____ shares of Ralston Stock held by
such holder on the Distribution Date (references hereinafter to Tradico Stock
shall be deemed to include a reference to the associated Rights).
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
The production and sale of animal feed was the primary business of
Ralston when it was established in 1894. Although Ralston's business was soon
expanded into the human foods market with the introduction of hot cereals and
other breakfast foods, the agricultural products and animal feed business
continued to be dominant until the 1950s. The development at that time of a
new extruded dry dog food by Ralston revolutionized the pet food industry and
transformed Ralston into primarily a consumer products company. Since then,
the pet food business has continued to grow in importance to Ralston while the
relative contribution of the agricultural products and animal feed business
declined. In the 1980s, Ralston's focus became increasingly directed away
from the agricultural products and animal feed business as Ralston acquired
Continental Baking Company, the nation's largest wholesale baker, in 1984, and
the worldwide Eveready battery business in 1986. The intention of Ralston's
management to focus on consumer packaged goods and its stable of leading
brands culminated in the sale of its domestic animal feeds business to a
subsidiary of British Petroleum in 1986. British Petroleum was not interested
in acquiring Ralston's international agricultural products and animal feeds
business, which became a non-core business, having limited synergies with
Ralston's other international businesses.
Ralston continually reviews its businesses for means by which it can enhance
the long-term interests of its stockholders. Ralston's management has focused
primarily on its core businesses - pet products and battery products - seeking
to gain competitive advantage by serving world-wide markets through
globally-coordinated production, purchasing, distribution and marketing
initiatives. Following considerable review during the past several years, the
Ralston Board has approved the divestment of certain significant businesses in
order to increase this focus. In 1994, Ralston spun-off Ralcorp Holdings,
Inc., a subsidiary to which Ralston had contributed its breakfast cereal, baby
food, cracker and cookie, coupon redemption and all-seasons resort businesses.
In 1995, Ralston sold all of the capital stock of Continental Baking Company.
In 1996, Ralston sold its assets associated with its cereal business in the
Asia Pacific region (which it had retained in the Ralcorp spin-off), and
terminated its European cereal operations. In 1997, Ralston sold its
international soy protein technologies business. In line with this focus on
its core businesses, Ralston attempted to sell its international agricultural
products and animal feed business in 1994, but negotiations broke off as the
parties were unable to agree on key terms.
The Ralston Board believes that, after the Distribution, Ralston and Tradico
will each be able to be more focused in responding to the differing
operational characteristics and competitive dynamics of their respective
businesses. The Tradico Business requires different management, distribution,
production and marketing strategies than Ralston has adopted in connection
with its core global and predominantly consumer product-oriented businesses.
The Tradico Business functions mostly as a collection of separate entities,
competing in a highly fragmented industry, which produce and sell
industrial-oriented products to diverse customer groups in numerous foreign
countries, often under vastly different local conditions. Tradico's animal
feed customers generally are located in rural farming regions, and are either
wholesalers who purchase for resale or bulk volume purchasers who purchase for
use on their own farms. These customers typically require and expect a high
level of technical support in connection with their purchases. The Tradico
Business has much less intensive capital requirements than Ralston's other
businesses; for its product distribution it relies significantly on local
networks of independent dealers with whom there are long standing
relationships; each local subsidiary has historically sourced its needs for
raw materials locally instead of on a global basis; and although large direct
consumer accounts are becoming increasingly important in certain countries,
advertising and marketing to the ultimate consumer has historically been less
significant than in Ralston's other businesses. Manufacturing is done
locally, and because of the greater need to have products customized for local
conditions, the Tradico Business has a far wider product line than Ralston's
other businesses. As a commodity based business with numerous product
ingredient alternatives, the animal feeds industry is generally a lower-margin
business compared to Ralston's other businesses.
The Tradico Business, however, represents a sizable collection of viable
international operating units which, even though each requires customized
approaches to unique circumstances, clearly benefit from their association
with one another in terms of commodities sourcing, financial management and
other management practices, research and know-how. With Tradico as a separate
independent company, Tradico's management will be able to concentrate its
efforts and resources on the Tradico Business, and to tailor its business
strategies, capital investments and employee benefit plans to its specific
requirements and the unique competitive demands of the agricultural products
and animal feed industry, without regard to the corporate objectives, policies
and investment standards of Ralston's other operations. In addition, it is
expected that, as an independent publicly held company, Tradico will be able
to recruit key personnel more effectively and design more effective
equity-based incentive compensation programs for its management and employees
by linking their compensation much more directly to the performance of the
Tradico Business, as reflected in the stock market's valuation of Tradico
Stock. It is anticipated that Tradico grants of stock options and restricted
stock awards, as well as a Tradico 401(k) plan with a significant company
match for eligible employees, will place a meaningful number of shares of
Tradico Stock in the hands of Tradico employees. In connection with its
request for Rulings that the Distribution will qualify as a tax-free spin-off,
Ralston has represented to the I.R.S. that key management personnel and other
key employees of Tradico will own or have options to acquire . 5% of the
outstanding Tradico Stock within one year of the Distribution, at least 3%
within three years of the Distribution, and at least 5% within five years of
the Distribution.
Ralston believes that the separation of Tradico from Ralston's international
pet products business will be beneficial to that business, as well. Ralston
believes that it will be better able to implement globally coordinated
production, purchasing, distribution and marketing initiatives with respect to
the pet products business, free of concerns about the effect of those
initiatives on the agricultural products and animal feed business. Ralston
will be better able to distribute its products through a number of channels,
as it does in the United States, without the restrictions and constraints of
Tradico's dealer network. Ralston also believes that its managers in local
countries will be more focused on pet products operations without the demands
of the agricultural products and animal feed business, and their efforts will
be visible on a stand-alone basis, isolated, as they will be, from animal feed
results.
However, despite the above benefits of separation, certain pet food
production assets and facilities in Korea, Colombia, Venezuela and Guatemala
will remain with the respective Tradico subsidiaries and, for a period of five
years following the Distribution, Tradico will produce pet food, under
royalty-bearing licenses with Ralston, in those countries. These production
assets and facilities are located in or near existing animal feed production
facilities. Because of the intermingled nature and shared manufacturing
infrastructure of the two businesses in this limited group of countries,
Ralston and Tradico believe it is not advisable to incur the expense of
separation of facilities and business management at this time. In conjunction
with the assumption of pet food production, for a period of five years
following the Distribution, Tradico will have exclusive distribution rights
for Ralston's pet food in those countries as well as in Ecuador, Peru and
Bolivia (which currently receive pet foods manufactured in Colombia and the
United States), and northern China (which will receive pet foods manufactured
in Korea and the United States). In addition, for that same period in Canada,
a Tradico subsidiary will be appointed the exclusive distributor in a limited
distribution channel for Ralston's pet foods, and all of that Tradico
subsidiary's requirements for pet foods will be supplied by Ralston. Because
of the need to retain a complete product line in its distribution channels, in
all other countries in which the Tradico Business is currently operated,
Tradico will continue to distribute Ralston pet foods on a non-exclusive
basis, supplied at competitive distribution prices by Ralston. For a period
of five years following the Distribution, Tradico will acquire all of its pet
food requirements from Ralston. If Ralston declines in a local market to
supply certain "economy" dog and cat foods, Tradico may produce, or source
them from other producers, but without the use of trademarks or technology
licensed to Tradico by Ralston. If Ralston declines to supply "super premium"
pet foods in a local market, Tradico can source such products from other
manufacturers.
The Distribution will also afford holders of Ralston Stock the opportunity to
continue their investment in either or both of Ralston Stock and Tradico
Stock, depending on their investment objectives, and the separate reporting of
the results of the Tradico Business and the remaining Ralston operations
(i.e., pet products and battery products) should create a framework for
increased and more focused equity research coverage of both companies by the
investment community. Tradico will be able to implement a capital structure
appropriate for its business performance, and access capital markets directly.
Tradico may be able to utilize the issuance of Tradico Stock for acquisitions,
joint ventures and capital expenditures. However, for a period of two years
following the Distribution, Tradico will be subject to certain restrictions on
its ability to issue its capital stock. See "AGREEMENTS BETWEEN RALSTON AND
TRADICO - Agreement and Plan of Reorganization - Certain Post-Distribution
Covenants".
As of the Distribution Date, Tradico and its subsidiaries will bear
approximately $125 million of debt, either under existing arrangements or
borrowed pursuant to a newly-established revolving credit facility. The
proceeds of such borrowings under this facility will be used to pay off
certain existing inter-company obligations to Ralston, to purchase certain
assets from Ralston in connection with the separation of the Tradico Business
from Ralston's other businesses, to refinance certain local external debt, and
to finance additional capital expenditures following the Distribution. See
".--Certain Significant Considerations--Certain Financial Considerations"
below.
The Ralston Board believes that the indebtedness of Tradico should not have a
material adverse effect on Tradico's ability to fund its presently anticipated
operating and capital expenditures due to Tradico's expected level of cash
flow from operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATlON--Liquidity and Capital Resources".
CERTAIN SIGNIFICANT CONSIDERATIONS
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
The assets associated with Ralston's international agricultural products
and animal feeds business were first contributed to Tradico in _________ of
1998 for the purpose of effecting the Distribution. As a result, Tradico does
not have an operating history as an independent public company. While the
Tradico Business in the aggregate has been profitable as part of Ralston,
there is no assurance that it can be operated profitably as a stand-alone
company; in addition, from time to time, certain local operations of the
Tradico Business have operated at a loss. The geographic dispersion of the
operations of Tradico, and their tradition of local autonomy, may present
obstacles to maintaining an enhanced system of internal controls appropriate
to a stand-alone entity. The potential termination by Ralston in five years
following the Distribution of the exclusive right to manufacture and
distribute pet food in Korea, Venezuela, Colombia and Guatemala, and to
distribute pet foods in Peru, Ecuador, Bolivia, northern China and Canada
(within a limited channel) could adversely affect the results of operations
in those countries and for Tradico as a whole. Following the Distribution,
the Tradico Business will no longer be able to rely on Ralston for
financial support or benefit from its relationship with Ralston to obtain
credit or receive favorable terms for the purchase or sale of certain
goods and services. In addition, except as provided in the Bridging
Agreement, Tradico will be responsible for obtaining its own sources of
financing and for its own corporate administrative services such as tax,
treasury, accounting, legal, research and development, information systems
and human resources. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" and "AGREEMENTS BETWEEN RALSTON AND TRADICO --Bridging
Agreement", " --Trademark Agreement", and " -- Technology Licenses"
below.
CERTAIN FINANCIAL CONSIDERATIONS
As of the Distribution Date, Tradico and its subsidiaries will become or
remain obligated with respect to approximately $125 million of pre-existing or
newly placed debt under its revolving credit facility. Interest of
approximately $9.6 million associated with such debt is reflected on a pro
forma basis in the Pro Forma Combined Statement of Earnings of Tradico for
the nine months ended May 31, 1997 To
the extent that Ralston has agreed or may be required to remain contingently
liable with respect to any of such pre-existing debt, Tradico has agreed to
indemnify Ralston for any payments Ralston may be required to make with
respect to such debt. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources" below.
NO PRIOR MARKET FOR TRADICO STOCK
There has been no prior trading market for Tradico Stock, and there can
be no assurance as to the prices at which the Tradico Stock will trade before
or after the Distribution Date. Tradico will file an application seeking
approval for listing of the shares of Tradico Stock on the New York Stock
Exchange, Inc. Until the Tradico Stock is fully distributed and an orderly
market develops, the prices at which the Tradico Stock trades may fluctuate
significantly. Prices for the Tradico Stock will be determined in the trading
markets and may be influenced by many factors, including the depth and
liquidity of the market for Tradico Stock (which may be affected by its unique
status as a United States corporation with exclusively foreign operations),
investor perceptions of Tradico and its business, Tradico's dividend
policy,and general economic and market conditions throughout the world. In
addition, the stock market often experiences significant price fluctuations
that are unrelated to the operating performance of the specific companies
whose stock is traded. Such fluctuations have affected the share prices of
many newly public issuers. Market fluctuations, as well as economic
conditions, may adversely affect the market price of the shares of Tradico
Stock. See "--Listing and Trading of Tradico Stock" below.
POSSIBILITY OF SUBSTANTIAL SALES OF TRADICO STOCK
The planned Distribution will involve the distribution of an aggregate of
approximately __ million shares of Tradico Stock to the shareholders of
Ralston on the Distribution Date, representing all of the outstanding shares
of Tradico Stock. Substantially all of such shares of Tradico Stock will be
eligible for immediate resale in the public market. Investment criteria of
certain large holders of Ralston Stock may dictate the immediate sale of
Tradico Stock received by them in the Distribution. Also, the Distribution
Agent has established the Tradico Odd-Lot Program described below, to be in
effect for a period of time following the Distribution. Under the terms of
that program, Odd-Lot shares which are elected to be sold will be aggregated
by the Distribution Agent and sold on the open market. Neither Ralston nor
Tradico is able to predict whether substantial amounts of Tradico Stock will
be sold in the open market following the Distribution, whether pursuant to the
Tradico Odd-Lot Program or otherwise. Any sales of substantial amounts of
Tradico Stock, whether as a result of the Distribution or otherwise, could
adversely affect the market price of Tradico Stock. See " -- Manner of
Effecting the Distribution" below.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
The Tradico Business is currently conducted almost exclusively outside of
the United States. It consequently is subject to a number of significant
risks associated with foreign operations. The operating profits of Tradico
may be negatively affected by changes in the value of local currencies in the
countries in which operations are conducted, as well as by hyperinflationary
conditions such as those which have occurred in the past in several of such
countries, notably Brazil, Mexico and Venezuela. The failure of any European
country in which the Tradico Business is conducted to join the European Union
or the European Monetary Union, or delay in the expansion or formation,
respectively, of those Unions, may have a negative effect on borrowing and
exchange rates and economic stability. Other risks and considerations include
the effect of foreign income and withholding taxes and the U.S. tax
implications of foreign source income and losses; the possibility of
expropriation or confiscatory taxation or price controls; adverse changes in
local investment or exchange control regulations; difficulties inherent in
operating in less developed legal systems; political instability, government
corruption and civil unrest; and potential restrictions on the flow of
international capital. In many developing countries in which the Tradico
Business is operated there has not been significant governmental regulation
relating to the environment, occupational safety, employment practices or
other business matters routinely regulated in the United States. As such
economies develop, it is possible that new regulations may increase the
expense and risk of doing business in such countries. In addition, social
legislation in many countries in which the Tradico Business operates may
result in significantly higher expenses associated with terminating employees
or distributors or closing manufacturing facilities. As the Tradico Business
operates on an international basis, however, weakness in a particular market
may be offset by strength in another market. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Inflation" below.
RISKS ASSOCIATED WITH THE ANIMAL PRODUCTION INDUSTRY
The Tradico Business, as a supplier of animal feeds and other
agricultural products, is subject to the risks and uncertainties associated
with the animal production industry and the resulting fluctuations in demand
for Tradico's products. The animal production industry in a particular
country can be negatively affected by a number of factors, including urban
development; weather conditions; the prices of commodities and alternative
feed sources; the market price of livestock, poultry and other animals and
their food products; animal
diseases (such as BSE or "Mad Cow" disease); changes in consumer demand; real
estate values; government farm programs and other government regulations;
restrictive quota and trade policies and tariffs; production difficulties,
including capacity and supply constraints; and general economic conditions.
Profit pressure and overcapacity in various markets has led to consolidation
of both the feed production and animal production industries in those markets.
Larger animal producers have tended to integrate their business by acquiring
or constructing feed production facilities to meet some or all of their feed
requirements, and consequently have relied less on outside suppliers of animal
feeds. As the Tradico Business operates on an international basis, however,
weakness in a particular market may be offset by strength in another market.
See "BUSINESS AND PROPERTIES -- Background" below.
SIGNIFICANT COMPETITIVE ACTIVITY
The Tradico Business faces intense competition from other international
as well as local and regional feed manufacturers, cooperatives, single-owner
establishments and, in the case of many markets, government feed companies.
Because of limited technological or capital barriers to entry to the animal
feed industry and the extremely fragmented nature of that industry, new
competitors with relatively modest return objectives could arise in any market
at any time. In addition, lower priced alternative feed sources or methods of
feeding may be elected by Tradico's customers during weak economic conditions.
Competition is based upon price, product quality and efficiency, customer
service and the ability to identify and satisfy animal production needs in
particular countries. The Tradico Business from time to time experiences price
pressure in certain of its markets as a result of competitors' pricing
practices. As the Tradico Business operates on an international basis and
markets a broad line of animal feeds and other nutritional products, it bears
higher costs associated with a multi-layered distribution system, a complex
production system, and tax and financing obligations imposed by its
international and multi-currency structure. Such higher costs may restrict
its ability to compete in particular markets on the basis of price. Again,
however, weakness in a particular market may be offset by strength in another
market. See "BUSINESS AND PROPERTIES--Competition" below.
RAW MATERIAL PRICE VOLATILITY
Production requirements generally dictate that the principal raw material
used in the Tradico Business -- grain, grain products and protein ingredients
- -- be sourced locally rather than regionally or globally, and as a result the
cost associated with raw materials is especially susceptible to fluctuations
due to weather conditions, government regulations, economic climate,
pestilence or diseases affecting yields at harvest, or other unforeseen local
circumstances. Operating results may be affected by the price volatility of
raw materials which constitute a substantial component of the cost of goods
sold for the Tradico Business. The rapid turnover of certain raw material
inventory items and, for certain products, the ability to substitute
alternative lower cost ingredients to produce feeds with specified nutritional
characteristics at a lower total cost may provide Tradico with some protection
against fluctuating raw material prices. Tradico believes that adequate
supplies of its necessary raw materials are available at the present time, but
cannot predict future availability or prices of such products and materials.
There can be no assurance that Tradico will be able to pass increases in raw
material costs through to its customers in the form of price increases, and
any such inability could have an adverse impact upon the profitability of
Tradico. See "BUSINESS AND PROPERTIES -- Raw Materials" below.
TRADICO DIVIDEND POLICY
The payment and level of cash dividends, if any, by Tradico after the
Distribution will be at the discretion of the Tradico Board of Directors,
based primarily upon the earnings, cash flow and financial requirements of the
Tradico Business. Restrictions on the flow of international capital may
restrict the amount of funds available in the United States for the payment of
dividends. The Tradico Board of Directors currently intends that initially no
cash dividends will be paid on Tradico Stock in order to make funds available
for repayment of debt, future acquisitions, capital expenditures, repurchases
of Tradico Stock and such other purposes as the Board of Directors may
determine. The Tradico Board of Directors may change its policy on dividends
at any time.
CERTAIN ANTI-TAKEOVER EFFECTS
The Tradico Articles of Incorporation, Bylaws and Rights, and The General
and Business Corporation Law of Missouri ("GBCL"), contain several provisions
that could have the effect of delaying, deferring or preventing a change of
control of Tradico in a transaction not approved by the Tradico Board of
Directors. In addition, the Tradico Board of Directors has adopted certain
other programs, plans and agreements with its management and/or employees
which may make such a change of control more expensive. See "ANTI-TAKEOVER
EFFECTS OF CERTAIN PROVISIONS" below.
EFFECTS ON RALSTON STOCK
After the Distribution, Ralston Stock will continue to be listed and
traded on the NYSE and certain other stock exchanges. As a result of the
Distribution, the trading price of Ralston Stock is expected to be
correspondingly lower than the trading price of Ralston Stock immediately
prior to the Distribution. The combined trading prices of Ralston Stock and
Tradico Stock after the Distribution may be less than, equal to or greater
than the trading price of Ralston Stock prior to the Distribution. The Board
of Directors of Ralston has informed Tradico that it currently intends, for at
least some period of time following the Distribution, to maintain the level of
cash dividends that will be paid on each outstanding share of Ralston Stock at
$1.20 annually.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Ralston has received rulings from the Internal Revenue Service ("IRS") to
the effect that, among other things, for Federal income tax purposes, the
transfer of assets and liabilities of the Tradico Business to Tradico and its
subsidiaries will be tax free under Sections 368(a)(1)(D) and 361 of the
Internal Revenue Code of 1986, as amended (the "Code") and that the
Distribution will be tax-free under Section 355 of the Code.* As discussed
below, cash received in lieu of fractional share interests in Tradico Stock
will generally be taxable to recipients. IRS rulings were not requested or
received concerning the tax treatment of Tradico Stock received in the
Distribution by Ralston employees who hold restricted shares of Ralston Stock
previously awarded as compensation. Ralston intends to treat the Tradico Stock
distributed to holders of restricted Ralston Stock as compensatory. As such,
these shares of Tradico Stock will not qualify for tax-free treatment under
section 355 of the Code. Rather, pursuant to Section 83 of the Code and the
underlying Treasury regulations, unrestricted shares of Tradico Stock so
distributed will be taxable to the distributee upon receipt as ordinary
compensation income; and restricted shares of Tradico Stock so distributed
will be taxed as compensation when the shares become unrestricted. See
"--Certain Federal Income Tax Consequences of the Distribution" below. The
continuing validity of the IRS rulings received is subject to certain factual
representations and assumptions. Ralston is not aware of any facts or
circumstances which should cause such representations and assumptions to be
untrue. Tradico and Ralston have also agreed to certain restrictions on their
respective future actions for a period of time following the Distribution to
provide further assurances that the Distribution will qualify as a tax-free
distribution. See "AGREEMENTS BETWEEN RALSTON AND TRADICO--Agreement and Plan
of Reorganization--Certain Post-Distribution Covenants". If the Distribution
were taxable, then (i) corporate level income taxes would be payable by the
consolidated group of which Ralston is the common parent, based upon the
amount by which the fair market value of the Tradico Stock distributed in the
Distribution exceeds Ralston's basis therein, and (ii) each holder of Ralston
Stock who receives shares of Tradico Stock in the Distribution would be
treated as if such shareholder received a taxable distribution, taxed as a
dividend to the extent of such shareholder's pro rata share of Ralston's
current and accumulated earnings and profits. Tradico has agreed to indemnify
Ralston and the Ralston shareholders if its actions or the actions of any of
its affiliates result in such tax liability. Ralston has agreed to indemnify
Tradico for any losses which it may incur in the event that Ralston or any of
its affiliates take any action which adversely impacts the tax-free nature of
the Distribution. See "--Certain Federal Income Tax Consequences of the
Distribution" below and "AGREEMENTS BETWEEN RALSTON AND TRADICO--Tax Sharing
Agreement".
* The rulings have not been received as of the date of this filing but it is
anticipated that they will be received prior to the time the Information
Statement is provided to shareholders.
The potential corporate tax liability which could arise from an
acquisition of Tradico for a period of time following the Distribution,
together with the foregoing indemnification arrangements, could have an
anti-takeover effect on the acquisition of control of either company.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made as of February __, 1998 (the "Distribution
Date") on a pro rata basis to holders of record of issued and outstanding
Ralston Stock at the close of business on that date. Ralston intends to use a
direct registration system to implement the distribution of Tradico Stock in
the Distribution. Ralston shareholders will not receive physical certificates
representing shares of Tradico Stock unless requested. On the Distribution
Date, one certificate representing all issued and outstanding shares of
Tradico Stock, other than fractional shares, will be delivered by Ralston to
___________, as the distribution agent (the "Distribution Agent"). As soon as
practicable thereafter, an account statement will be mailed to each
shareholder stating the number of shares of Tradico Stock received by such
shareholder in the Distribution. Following the Distribution, stockholders may
request physical certificates for their shares of Tradico Stock. Holders of
record of Ralston Stock on the Distribution Date will receive shares of
Tradico Stock on the basis of one share of Tradico Stock for every ____ shares
of Ralston Stock held on the Distribution Date. No fractional shares of
Tradico Stock will be issued to shareholders. In lieu of fractional shares,
each holder of Ralston Stock who would otherwise be entitled to receive a
fractional share of Tradico Stock will receive cash for the fractional
interest, based upon the average of the closing prices of the Tradico Stock
during each of the first three trading days on the New York Stock Exchange,
Inc. following the Distribution Date. See "- Certain Federal Income Tax
Consequences of the Distribution" below. Based on the number of shares of
Ralston Stock issued and outstanding at ________, 1998, approximately __
million shares of Tradico Stock will be issued. All such shares of Tradico
Stock will be fully paid, nonassessable and free of preemptive rights.
Ralston shareholders who are entitled to receive fewer than 100 shares
("Odd-Lot") of Tradico Stock in the Distribution may elect to sell such
shares, or purchase additional shares to round-up to 100 shares, at the then
current market price of the Tradico Stock, pursuant to a program (the "Tradico
Odd-Lot Program") being offered as a convenience to shareholders who will
receive an Odd-Lot. Upon receipt of a shareholder's election to either (1)
sell such Odd-Lot shares, or (2) purchase additional round-up shares, the
Distribution Agent will match requests for sales against requests for
purchases. If there are insufficient shares available from selling
shareholders to effect all requested purchases of round-up shares, the
Distribution Agent will then purchase such shares of Tradico Stock on behalf
of the requesting shareholders for cash in the open market at the then current
market price of the Tradico Stock. Payment for such shares by the purchasing
shareholders must be made within normal settlement periods. If insufficient
numbers of round-up shares are purchased, the excess of Odd-Lot shares to be
sold will be sold by the Distribution Agent for cash in the open market at the
then current market price of the Tradico Stock. The proceeds of all sales of
Odd-Lot shares will be remitted to the shareholders by the Distribution Agent
as soon as practicable following the sale. Brokerage fees and commissions
incurred by the Distribution Agent with respect to purchases or sales will be
paid for by participants in the Tradico Odd-Lot Program as pre-set commissions
at a per share amount. A form
containing the terms of the Tradico Odd-Lot Program and an authorization form
pursuant to which holders of Odd-Lot shares may elect to participate in the
Tradico Odd-Lot Program will be mailed to all eligible shareholders as soon as
possible after the Distribution Date. Participation in the Tradico Odd-Lot
Program is voluntary. Ralston shareholders who are entitled to receive fewer
than 100 shares of Tradico Stock must transmit a completed authorization form
to the Distribution Agent prior to __________, 1998, to participate in the
Tradico Odd-Lot Program. See "--Certain Federal Income Tax Consequences of the
Distribution." below
The Board of Directors of Tradico has adopted a Rights Plan and pursuant
thereto declared a distribution of one Right for every outstanding share of
Tradico Stock, which Rights will be indicated on each shareholder's account
statement reflecting ownership of Tradico Stock, or, if requested, physical
certificates of Tradico Stock. See "DESCRIPTION OF TRADICO CAPITAL
STOCK--Common Stock Purchase Rights".
Tradico Stock distributed in respect of Ralston Stock held in the Ralston
Purina Dividend Reinvestment Plan will be registered with the Transfer Agent
in the name of the participants in that plan, and an account statement will be
issued, indicating stock ownership. Participants may thereafter request
physical certificates for the shares so registered. Cash payable in lieu of
fractional shares of Tradico Stock will be distributed to the participants in
that plan. The number of whole shares and fractional share interests, if any,
of Tradico Stock which each participant as of the close of business on the
Distribution Date is entitled to receive, will be determined by dividing the
sum of the number of shares of Ralston Stock that each such person holds of
record, plus the number of shares of Ralston Stock then held for that person's
account in the Ralston Purina Dividend Reinvestment Plan, by _____.
Following the Distribution, approximately ___ million shares of Tradico
Stock will remain authorized but unissued, of which approximately __ million
will be reserved for issuance pursuant to rights and options.
NO HOLDER OF RALSTON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF TRADICO STOCK TO BE RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF RALSTON STOCK OR TO TAKE
ANY OTHER ACTION IN ORDER TO RECEIVE TRADICO STOCK. THE DISTRIBUTION WILL NOT
AFFECT THE NUMBER OF OUTSTANDING SHARES OF RALSTON STOCK.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
As indicated above, Ralston has received rulings from the IRS (the "Tax
Rulings") to the effect, among other things, that the Distribution will
qualify as a tax-free transaction under Section 355 of the Code. *The Tax
Rulings provide that, among other things, for Federal income tax purposes:
* The rulings have not been received as of the date of this filing but it is
anticipated that they will be received prior to the time the Information
Statement is provided to shareholders.
(1) No gain or loss will be recognized by or be includable in the income
of a holder of Ralston Stock solely as a result of the receipt of Tradico
Stock upon the Distribution;
(2) No gain or loss will be recognized by Ralston upon the Distribution;
(3) Assuming that a holder of Ralston Stock holds such Ralston Stock as a
capital asset, such holder's holding period for the Tradico Stock received in
the Distribution will include the period during which such Ralston Stock was
held;
(4) The tax basis of Ralston Stock held by a Ralston shareholder
immediately prior to the Distribution will be apportioned (based upon relative
market values at the time of the Distribution) between the Ralston Stock held
immediately after the Distribution and the Tradico Stock received by such
shareholder in the Distribution;
(5) Cash received in lieu of fractional share interests in Tradico Stock
will be taxable to the recipient shareholders as a sale or exchange of the
fractional share interests; and
(6) Cash received upon sales of Odd-Lot shares in the Tradico Odd-Lot
Program will be taxable to the recipient shareholders as a sale or exchange of
the Odd-Lot shares.
IRS rulings were not requested concerning the tax treatment of Tradico
Stock received in the Distribution by Ralston employees who hold restricted
shares of Ralston Stock previously awarded as compensation. Ralston intends to
treat the Tradico Stock distributed to holders of restricted Ralston Stock as
compensatory. As such, these shares of Tradico Stock will not qualify for
tax-free treatment under Section 355 of the Code. Rather, pursuant to Section
83 of the Code and the underlying Treasury regulations, unrestricted shares of
Tradico Stock so distributed will be taxable to the distributee upon receipt
as ordinary compensation income; and restricted shares of Tradico Stock so
distributed will be taxed as compensation when the shares become unrestricted.
As soon as practicable following the Distribution, Ralston intends to
make available to its shareholders information regarding the allocation of
basis between Ralston Stock and Tradico Stock.
For a description of the agreements pursuant to which Ralston and Tradico
have provided for various tax matters, see "AGREEMENTS BETWEEN RALSTON AND
TRADICO--Agreement and Plan of Reorganization and "AGREEMENTS BETWEEN RALSTON
AND TRADICO---Tax Sharing Agreement".
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS
TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER,
INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF TRADICO STOCK
There is currently no public trading market for Tradico Stock. Prices at
which Tradico Stock may trade prior to the Distribution on a "when-issued"
basis, or after the Distribution, cannot be predicted. In particular, until
the Tradico Stock is fully distributed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which Tradico Stock trades will be determined in the securities
trading markets and may be influenced by many factors, including among others,
the depth and liquidity of the market for Tradico Stock, investor perceptions
of Tradico and the Tradico Business, Tradico's dividend policy and general
economic and market conditions. Such prices may also be affected by certain
provisions of Tradico's Articles of Incorporation, Bylaws and Rights, as each
will be in effect following the Distribution, and of the GBCL. See "--Certain
Significant Considerations--No Prior Market for Tradico Stock", "--Certain
Significant Considerations --Tradico Dividend Policy" and "ANTI-TAKEOVER
EFFECTS OF CERTAIN PROVISIONS".
Application will be made to list the shares of Tradico Stock on the New York
Stock Exchange, Inc. ("NYSE"), under the symbol "___". As of the Distribution
Date, Tradico initially is expected to have approximately _____ shareholders
of record, based upon the number of holders of record of Ralston Stock as of
_________, 1998. The Transfer Agent and Registrar for the Tradico Stock will
be ____________________, located at __________________________.
Shares of Tradico Stock distributed to shareholders of Ralston Stock in the
Distribution will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of Tradico under the Securities
Act of 1933, as amended (the "Securities Act"). Persons who may be deemed to
be affiliates of Tradico after the Distribution generally include individuals
or entities that control, are controlled by, or are under common control with,
Tradico, and may include certain officers and directors of Tradico as well as
principal shareholders of Tradico, if any. Persons who are affiliates of
Tradico will be permitted to sell their shares of Tradico Stock only pursuant
to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act, such as
the exemptions afforded by Section 4(2) of the Securities Act and Rule 144
thereunder (exclusive of the holding period requirements thereunder).
DISPOSITION OF TRADICO STOCK RECEIVED BY BENEFIT PLANS
Tradico Stock distributed in respect of Ralston Stock held in the Ralston
Purina Master Collective Trust for the Ralston Purina Retirement Plan will be
either sold over time or retained in the trust at the discretion of the
Retirement Plan trustees, J.R. Elsesser, L.L. Fraley, C.S. Sommer and A.M.
Wray, all of whom are employees of Ralston. Shares of Tradico Stock
distributed in respect of Ralston Stock held by the trustee for the Ralston
Purina Company Savings Investment Plan ("Ralston SIP"), Vanguard Fiduciary
Trust Company, will be maintained in the Plan or sold as directed by the
individual participants to whom such shares are attributed pursuant to the
terms of the Ralston SIP. Participants will not be permitted to invest
additional monies in Tradico Stock, and after a period of time all shares of
Tradico Stock still retained by the Ralston SIP will be sold and the proceeds
invested, according to participants' elections, in other funds offered by the
Plan. With respect to participants in the Ralston SIP who will become, as a
result of the Distribution, employees of Tradico, shares of Tradico Stock
allocated to them in the Ralston SIP will be transferred, along with such
participants' other account balances, to a defined contribution plan to be
established by Tradico ("Tradico SIP"). In addition, shares of Ralston's
Series A ESOP Convertible Preferred Stock ("ESOP Stock") which are allocated
to such participants will be converted into or redeemed for shares of Ralston
Stock, pursuant to the terms of the ESOP Stock, at a time determined by
investment fiduciaries of the Ralston SIP, and such shares, along with the
shares of Tradico Stock which will be distributed with respect to such shares
of Ralston Stock received in such conversion or exchange, will also be
transferred to the Tradico SIP. Tradico Stock distributed in respect of
restricted stock awards of Ralston Stock granted to employees of Ralston and
its subsidiaries will be either retained on behalf of the employees granted
such awards, and will be subject to the same restrictions applicable to the
original restricted stock awards, or, in some instances, will be distributed
directly to such employees free of restrictions. See "AGREEMENTS BETWEEN
RALSTON AND TRADICO--Employee Benefit Arrangements".
REGULATORY APPROVALS
No material federal, state or foreign regulatory approvals will be
required in connection with the Distribution which have not been obtained.
AGREEMENTS BETWEEN RALSTON AND TRADICO
For the purpose of effecting the Distribution and governing certain of
the relationships between Ralston and Tradico after the Distribution, Ralston
and Tradico have entered or will enter into the various agreements described
below. The agreements summarized below have been filed as exhibits to the
Registration Statement. The following descriptions do not purport to be
complete and are qualified in their entirety by reference to such agreements.
AGREEMENT AND PLAN OF REORGANIZATION
Ralston and Tradico have entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") providing for, among other
things, the principal corporate transactions required to effect the
Distribution and certain other agreements governing the relationship between
Ralston and Tradico with respect to or in consequence of the Distribution.
The Reorganization. The Reorganization Agreement provides for the
completion of the following transactions prior to the Distribution: (i) the
merger of Ralston Purina International Holding Company, Inc. ("RPIHCI"), a
wholly owned subsidiary, into Ralston, with Ralston as the surviving
corporation and successor to the assets and liabilities of RPIHCI, including
all of the outstanding capital stock of Tradico and of the subsidiaries
engaged in the Tradico Business throughout the world which are currently held
by RPIHCI; (ii) the contribution by Ralston to Tradico or one of its
subsidiaries of the outstanding capital stock of the subsidiaries engaged in
the Tradico Business (other than in Canada and Brazil), as well as an amount
equal to the appraised value of the net assets utilized in the Canadian
agricultural products business (which assets will then be acquired by Tradico
or one of its subsidiaries from the Ralston subsidiary currently owning those
assets) and the value of the capital stock of newly formed Brazilian
subsidiary holding the agricultural products assets in Brazil (which capital
stock will subsequently be acquired by Tradico or a subsidiary of Tradico);
(iii) the
contribution or sale by Ralston to Tradico or one of its subsidiaries of
certain other assets utilized by Ralston and its subsidiaries in the operation
of the Tradico Business; and (iv) the assumption by Tradico and its
subsidiaries of certain employee benefit plan liabilities associated with the
operation of such contributed businesses. In addition, the Reorganization
Agreement provides that Tradico and its subsidiaries will utilize the proceeds
of newly placed debt under its revolving credit facility to pay off certain
existing inter-company obligations to Ralston or to purchase certain assets
from Ralston in connection with the separation of the Tradico Business from
Ralston's other businesses, and that Ralston itself will retain or assume
certain other liabilities associated with the Tradico Business.
Indemnification. Subject to certain exceptions, the Reorganization
Agreement provides for indemnification by the parties as follows.
Ralston has agreed to indemnify Tradico against any liabilities assumed
or retained by Ralston pursuant to the Reorganization Agreement and
liabilities relating to (i) any breach by Ralston or any of its subsidiaries
of any covenant made in the Reorganization Agreement or any other agreement
referred to therein (the "Ancillary Agreements"), (ii) any third party claim
primarily relating to the actions of the Ralston Board in authorizing the
Distribution, and (iii) the operation of the businesses conducted or to be
conducted by Ralston and its subsidiaries or the ownership of its assets
(other than businesses and assets to be contributed to Tradico) both prior to
and following the Distribution, except to the extent the liabilities therefor
are assumed or retained by Tradico or one of its subsidiaries pursuant to the
Reorganization Agreement.
Tradico has agreed to indemnify Ralston against any liabilities assumed
or retained by Tradico or its subsidiaries pursuant to the Reorganization
Agreement, and liabilities relating to (i) any breach by Tradico or any of its
subsidiaries of any covenant made in the Reorganization Agreement or any
Ancillary Agreement, and (ii) the operation of the Tradico Business or the
ownership of the assets to be contributed to Tradico by Ralston, except to the
extent the liabilities therefor are assumed or retained by Ralston or one of
its subsidiaries pursuant to the Reorganization Agreement. In addition,
Tradico has agreed to indemnify Ralston for all liabilities arising out of
Ralston's continuing guarantee of any obligation of Tradico or any Tradico
subsidiary.
The indemnities described above will be limited to the amount of the loss less
insurance proceeds, net of deductibles and allocated paid loss retro-premiums
received by the indemnified party.
Notwithstanding the foregoing, neither Ralston nor Tradico will have any
liability to the other for taxes except as provided in the Tax Sharing
Agreement, described below.
Certain Post-Distribution Covenants. The Reorganization Agreement also
provides that, in order to avoid adversely affecting the intended tax
consequences of the Distribution, neither Tradico nor any of its subsidiaries
will engage in certain transactions for a period of two years following the
Distribution Date, unless, in the sole discretion of Ralston, either (a) an
opinion in form and substance satisfactory to Ralston is obtained from counsel
to Tradico, the selection of which counsel is agreed to by Ralston or (b) a
supplemental ruling is obtained from the IRS, in either case to the effect
that such transactions would not adversely affect the Federal income tax
consequences, as set forth in the Tax Rulings, of the Distribution to Ralston,
Tradico or the Ralston shareholders. Tradico expects that these limitations
will not significantly inhibit its activities or its ability to respond to
unanticipated developments. The transactions subject to this provision are:
(i) making a material disposition (including intra-company transfers) by means
of a sale or exchange of assets, a distribution to shareholders, or otherwise,
of any of its assets (other than as contemplated by the Reorganization
Agreement), except in the ordinary course of business, (ii) repurchasing any
Tradico capital stock, unless such repurchase satisfies certain Federal tax
requirements, (iii) issuing any Tradico capital stock that in the aggregate
exceeds twenty percent (20%) of the issued and outstanding stock of Tradico
immediately following the Distribution, (iv) liquidating or merging with any
other corporation (including a subsidiary), or (v) ceasing to engage in the
active conduct of a trade or business within the meaning of the Code.
In addition, the Reorganization Agreement provides that, if Tradico
engages in any of the transactions referred to above, and if the Distribution
fails to qualify as tax-free under the provisions of the Code by reason
thereof, Tradico will indemnify Ralston and its shareholders as of the
Distribution Date against all tax liabilities, including interest and
penalties, incurred by reason of the Distribution being a taxable event.
Ralston has agreed to indemnify Tradico against losses which it may incur in
the event that Ralston or any of its subsidiaries take any action which
adversely impacts the tax-free nature of the Distribution. In the
event that the Distribution failed to so qualify as tax-free, Ralston would
recognize gain upon the Distribution equal to the excess, if any, of the fair
market value of the Tradico Stock distributed on the Distribution Date over
Ralston's net tax basis for the assets contributed to Tradico by
Ralston. See "THE DISTRIBUTION---Certain Significant Considerations--
Certain Federal Income Tax Considerations".
Covenants Not To Compete. The Reorganization Agreement provides that, for a
period of five years following the Distribution, Ralston and its subsidiaries
will not compete anywhere in the world, directly or indirectly, with Tradico's
international agricultural products and animal feeds business, as conducted as
of the Distribution Date. The Reorganization Agreement also provides that,
for a period of five years following the Distribution, Tradico and its
subsidiaries will not compete anywhere in the world, directly or indirectly,
with any business conducted by Ralston as of the Distribution Date, except as
contemplated by the Trademark Agreement, the Technology Licenses and the
Master Distribution Agreement. In addition, the Reorganization Agreement
provides that Tradico will comply with the terms of the non-compete provisions
applicable to Ralston and its affiliates under agreements with E.I. Du Pont de
Nemours and Company relating to Ralston's sale of its protein technologies
business.
Additional Covenants. The Reorganization Agreement provides that all expenses
associated with the transfer of assets and businesses to Tradico will be borne
by Ralston. The Agreement also provides that, by the Distribution Date,
Tradico's Articles of Incorporation and Bylaws will be in the forms attached
hereto as Annexes A and B, respectively, and that the parties will take all
actions that may be required to elect or otherwise appoint as directors of
Tradico the six persons identified herein. See "MANAGEMENT--Directors of
Tradico" The Reorganization Agreement further provides that each of Ralston
and Tradico will be granted access to certain records and information in the
possession of the other and requires retention for a period of seven years
following the Distribution of all such information in its possession, and
thereafter requires that each party give the other prior notice of the
intention to dispose of such information.
Employee Benefit Arrangements. The Reorganization Agreement contains
certain agreements relating to employee benefit and compensation matters in
connection with the Distribution. Generally, except as noted herein, from and
after the Distribution Date, Ralston will cease to have any liability or
obligation to individuals who become employees of Tradico or one of its
subsidiaries ("Tradico Employees") and their beneficiaries under any Ralston
benefit plans, programs or practices, and Tradico will assume and be solely
responsible for liabilities and obligations to such Tradico Employees and
their beneficiaries under Tradico benefit plans, programs and practices.
Severance Pay. Subject to local laws or regulations, Ralston and Tradico
have agreed that, with respect to individuals who, in connection with the
Distribution, cease to be employees of Ralston or one of its subsidiaries and
become Tradico Employees, such cessation will not be deemed a severance of
employment for purposes of any plan providing for the payment of severance or
salary continuation, and Ralston and Tradico will, in connection with the
Distribution, if and to the extent appropriate, obtain waivers from
individuals against any such assertion.
Retirement Plans. Tradico Employees who, prior to the Distribution, are
participants in the Ralston Retirement Plan will remain credited with the term
of service and any accrued benefit credited to such Tradico Employee as of the
Distribution Date under the terms of the Plan and upon
retirement will receive retirement benefits from the Plan in accordance
with its terms. Tradico will not offer a defined benefit retirement plan to
its United States employees following the Distribution, but local plans in
certain countries are expected to continue.
Savings Plan. Tradico has agreed to establish the Tradico Savings
Investment Plan (the "Tradico SIP"), a defined contribution plan which is
intended to be a qualified plan subject to Section 401(k) of the Code, and to
include therein all Tradico Employees who immediately prior to the
Distribution Date were participants in the Ralston SIP. Each Tradico Employee
will, for all purposes under the Tradico SIP, be credited with the term of
service and any account balance credited to such Tradico Employee as of the
Distribution Date under the terms of the Ralston SIP as if such service had
been rendered to Tradico and as if such account balance had originally been
credited to such Tradico Employee under the Tradico SIP. Tradico has agreed
that the Tradico SIP will contain a "Tradico Stock Fund" in which matching
contributions will be invested. The Tradico SIP will provide a 50 to 100%
matching contribution to the Tradico Stock Fund for the first 6% of
participant elective deferrals.
Ralston has agreed to transfer an amount equal to the account balances
(as of the date of transfer) attributable to the participants in the Ralston
SIP who are Tradico Employees, plus the applicable portion of any unallocated
contributions and trust earnings, other than those with respect to the ESOP
Stock. The Tradico SIP will contain certain provisions deemed by Tradico and
Ralston to be necessary or appropriate to accept the transfer from the trusts
funding the Ralston SIP of the account balances of Tradico Employees. All
shares of the ESOP Stock held by the trustee for the Ralston SIP on behalf of
Tradico Employees will be converted into or redeemed for shares of Ralston
Stock pursuant to the terms of the ESOP Stock, at a time determined by
investment fiduciaries of the Plan, and the shares of Ralston Stock received
upon such conversion or redemption, and any shares of Tradico Stock
distributed in respect of such shares of Ralston Stock, will be transferred to
accounts for such employees in the Tradico SIP.
Welfare Plans. Tradico has agreed that, as of the Distribution Date, it
will adopt such welfare benefit plans as it deems desirable to provide welfare
benefits to Tradico Employees as of that date, and Tradico Employees will be
credited with the terms of service and eligibility for benefits that they
possessed under similar Ralston plans. Tradico will assume and be responsible
for all welfare benefit claims of Tradico Employees incurred following the
Distribution, and Ralston will retain liability for all welfare benefit claims
of Tradico Employees incurred under Ralston welfare plans prior to the
Distribution. Ralston will also retain liability for all benefits, including
retiree medical and life insurance benefits, payable under the Ralston plans,
to employees of the businesses conducted by Tradico who retired or became
disabled prior to the Distribution Date.
Stock Options. Ralston and Tradico have agreed to take all action
necessary to adopt an incentive compensation plan of Tradico so that, as of
the Distribution Date, the Nominating and Compensation Committee of the
Tradico Board of Directors may grant such options as it deems appropriate in
accordance with the terms of the plan. Existing options to acquire Ralston
Stock held by Tradico Employees will, by their terms, become immediately
exercisable at the Distribution and will be exercisable for a period of
time after the Distribution Date in accordance with the terms of the
options. In connection with its request for
Rulings that the Distribution will qualify as a tax-free spin-off, Ralston has
represented to the IRS that key management personnel and other key
employees of Tradico will own or have options to acquire 0.5% of the
outstanding Tradico Stock within one year of the Distribution, at least 3%
within three years of the Distribution, and at least 5% within five years of
the Distribution, through a combination of stock option grants and restricted
stock awards.
Restricted Stock. As of the Distribution Date, (i) restricted shares of
Ralston Stock granted under a Ralston incentive compensation plan and held by
Tradico Employees will, by their terms, immediately vest and thereafter
receive shares of Tradico Stock in the Distribution on the same basis as all
other shareholders of Ralston Stock, and (ii) all other employees of Ralston
who immediately prior thereto are the holders of any restricted shares of
Ralston Stock will receive shares of Tradico Stock in the Distribution on the
same basis as all other shareholders of Ralston Stock, and the shares of
Tradico Stock so received will either be restricted and vest in the same
manner and upon the same schedule as the underlying restricted shares of
Ralston Stock, or will be distributed directly to such employees free of
restrictions.
Deferred Compensation Plans. Tradico has agreed that, as soon as
practicable and effective as of the Distribution Date, Tradico will establish
and administer one or more deferred compensation plans which will provide
benefits to Tradico Employees and Directors.
TAX SHARING AGREEMENT
Through the Distribution Date the business operations to be contributed
to Tradico by Ralston as of that date will continue to be included in the
consolidated Federal income tax returns of Ralston. As part of the
Distribution, Ralston and Tradico will enter into a Tax Sharing Agreement (the
"Tax Sharing Agreement") providing, among other things, for the allocation
among the parties thereto of Federal, state, local and foreign tax liabilities
for all periods through 11:59 p.m. on the Distribution Date and reimbursement
by each party for any of its taxes which may have been paid or advanced by the
other. The Tax Sharing Agreement provides that Ralston will be liable for
certain tax liabilities through the Distribution Date, including any such
liabilities resulting from the audit or other adjustment to previously filed
tax returns, that Tradico will be liable for certain foreign tax liabilities
attributable to the operation of the Tradico Business prior to the
Distribution Date, and that Tradico will be responsible for all Federal,
state, local and foreign taxes attributable to the business of Tradico after
the Distribution Date. Though valid as between the parties thereto, the Tax
Sharing Agreement is not binding on the IRS or foreign tax authorities and
does not affect the joint and several liability of Ralston and Tradico, and
their respective subsidiaries, to the IRS or foreign tax authorities for all
taxes of the consolidated group of which Ralston is the common parent,
relating to periods prior to the Distribution Date.
BRIDGING AGREEMENT
Ralston and Tradico will enter into one or more Bridging Agreements
pursuant to which Ralston may continue to provide certain administrative
services, including but not limited to, government affairs, risk management,
internal audit, library and information services, and investor and public
relations services, and Ralston and
Tradico will each provide certain other administrative and tollmilling
services to the other in individual countries in which the Tradico Business
and Ralston's international pet products business are conducted, for a limited
period of time following the Distribution Date, subject to renewal at the
request of the recipient of such services. Charges for such services will be
similar to those arrived at by similarly situated independent parties
bargaining at arms' length.
TRADEMARK AGREEMENT
Ralston and Tradico will enter into a Trademark Agreement pursuant to
which Ralston will assign to Tradico or one or more of its subsidiaries all of
Ralston's rights in certain trademarks associated solely with the Tradico
Business, and Ralston will perpetually license to Tradico, on a royalty-free
basis, the right to use the trademarks "Purina", "Chow" and the Checkerboard
logo with respect to agricultural products, subject to the rights of Purina
Mills, Inc. which utilizes such trademarks in the United States. For a
five-year period, renewable for one-year periods at the discretion of the
parties, Ralston will also provide certain Tradico subsidiaries one or more
royalty-bearing licenses to use certain Ralston-owned trademarks in Korea,
Colombia, Venezuela, Guatemala, Peru, Ecuador, Bolivia and northern China,
with respect to certain pet foods. Certain pet-food trademarks owned by
subsidiaries of Tradico will be assigned to Ralston or its subsidiaries.
TECHNOLOGY LICENSES
Ralston and Tradico will enter into various Technology Licenses pursuant
to which Ralston will license to Tradico or one or more of its subsidiaries
the perpetual right to utilize Ralston's technology for agricultural and
animal feed products on a royalty-free basis, subject to the rights of Purina
Mills, Inc. to utilize such technology in the United States. Ralston will
also, for a five-year period, renewable for one year periods, license Tradico
to utilize certain Ralston technology, on a royalty-bearing basis, in the
manufacture of pet food in the countries of Korea, Colombia, Venezuela and
Guatemala.
MASTER DISTRIBUTION AGREEMENT
Ralston and Tradico will enter into a Master Distribution Agreement
pursuant to which Ralston will appoint Tradico as the exclusive distributor of
Ralston's pet foods in the countries of Korea, Colombia, Venezuela, Guatemala,
Peru, Ecuador, Bolivia and northern China, for a period of five years,
renewable for additional one year periods at the discretion of the parties.
In addition, for that same period in Canada, a Tradico subsidiary will be
appointed the exclusive distributor in a limited distribution channel for
Ralston's pet foods, and all of that Tradico subsidiary's requirements for pet
foods will be supplied by Ralston. In all other countries in which the
Tradico Business is currently operated, Tradico will continue to distribute
Ralston pet foods on a non-exclusive basis, supplied at competitive
distribution prices by Ralston. For a period of five years following the
Distribution, Tradico will acquire all of its pet food requirements from
Ralston. If Ralston declines in a local market to supply certain "economy"
dog and cat foods, Tradico may produce, or source them from other producers,
but without the use of trademarks or technology licensed to Tradico by
Ralston. If Ralston declines to supply "super premium" pet foods in a local
market, Tradico can source such products from other manufacturers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is a summary of the key factors management considers
necessary in reviewing Tradico Missouri, Inc.'s (Tradico's) results of
operations, liquidity, capital resources, and operating segment results. This
discussion should be read in conjunction with the Business Segment Information
and the Combined Financial Statements and related notes found elsewhere in
this Information Statement.
The audited Combined Financial Statements included herein may not necessarily
be indicative of the results of operations, financial position and cash flows
of Tradico had it operated as a separate, independent company during the
periods presented or in the future. The audited Combined Financial Statements
included herein do not reflect any changes that may occur in the financing and
operations of Tradico as a result of the Distribution.
OUTLOOK
Tradico is a leading international producer and marketer of formula
animal feeds and other animal health and nutrition products. Tradico's
business is currently conducted almost exclusively outside of the United
States. Tradico primarily produces and sells its products in sixteen foreign
countries under vastly different local conditions. The markets in which
Tradico operates are highly competitive and sensitive to both pricing and
promotion.
Agricultural products sales prices and gross profit margins
are directly influenced by changes in the underlying commodity prices for the
raw materials used to formulate animal feeds. Typically, the industry
operates on a unit margin basis with frequent price changes based on the
underlying commodity price movements.
Tradico, as a supplier of animal feeds and other agricultural products, is
subject to the risks and uncertainties associated with the animal production
industry and the resulting fluctuations in demand for Tradico's products. The
animal production industry in a particular country can be negatively affected
by a number of factors, including weather conditions, the prices of
commodities and alternative feed sources, the market price of livestock,
poultry and other animals, animal diseases, changes in consumer demand, real
estate values, government farm programs and other government regulations,
restrictive quota and trade policies and tariffs, production difficulties,
including capacity and supply constraints, and general economic conditions.
Consolidation of the feed production and animal production industries around
the world is expected to continue to bring about significant changes in
the product
production and distribution pattern. Such changes will effect the growth
prospects and pricing practices of Tradico. Future growth opportunities for
Tradico are expected to depend on its ability to implement strategies for
expanding in growing, lesser-developed agricultural markets, making strategic
acquisitions and divestitures, particularly in more mature markets,
maintaining effective cost control programs, and developing and implementing
more efficient manufacturing and distribution methodologies, while at the same
time maintaining competitive pricing and promotion of its products.
NINE MONTHS ENDED MAY 31, 1997 AND 1996
OPERATING RESULTS
Net earnings for the nine months ended May 31, 1997 were $16.7 million
compared to $14.8 million for the same period in the prior year. Net earnings
increased on favorable margins and increased volume in the Asia Pacific and
European regions which was only partially offset by decreased volume and lower
margins in the Americas region. Tradico experienced a less favorable earnings
mix by country for the nine months ended May 31, 1997, which resulted in a
higher effective tax rate.
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAS (EXCLUDING UNITED STATES)
1997 1996
------- -------
Net sales $469.4 $450.2
Operating profit $ 17.8 $ 21.7
Operating profit as % of net sales 3.8% 4.8%
</TABLE>
Net sales were up 4% on increased prices to cover rising commodity prices.
Volume in units was down in the Americas region for the nine months ended May
31, 1997, primarily due to declines in Mexico and Venezuela where difficult
economic conditions had the greatest impact.
Operating profit declined $3.9 million primarily due to the drop in volume,
and competitive pressures in Mexico and Venezuela.
<TABLE>
<CAPTION>
<S> <C> <C>
EUROPE
1997 1996
------- -------
Net sales $345.4 $339.0
Operating profit $ 8.5 $ 4.5
Operating profit as % of net sales 2.5% 1.3%
</TABLE>
The increase in net sales of the European operations for the nine months ended
May 31, 1997 is attributable to the acquisition of the remaining interest of
Tradico's joint venture in Spain on January 1, 1996. The increase from Spain
was partially offset by declines in volume and net sales in France and Italy,
mainly in the dairy and cattle segments which suffered from red meat concerns
due to BSE or "Mad Cow" disease and reduced milk production quotas imposed
by the European Union.
The increase in operating profit for the nine months ended May 31, 1997 was
broad based across the European region with the exception of operations in
Spain. The operations in Hungary were the largest contributor to earnings in
the region during both periods. Results also improved in the nine months
ended May 31, 1997 due to the impact of prior year restructuring in the
European region.
Additional restructuring and other monrecurring charges are anticipated as
Tradico continues to streamline the European operations.
<TABLE>
<CAPTION>
<S> <C> <C>
ASIA PACIFIC
1997 1996
------- -------
Net sales $342.0 $267.6
Operating profit $ 25.4 $ 17.1
Operating profit as % of net sales 7.4% 6.4%
</TABLE>
Net sales of Tradico's Asia Pacific operations increased 28% for the nine
months ended May 31, 1997 as Tradico continued to gain market share in both
Korea and the Philippines. Production capacity was increased in both
locations in order to meet strong demand for Purina animal feeds.
Operating profit increased 48% for the nine months ended May 31, 1997. The
increase is attributable to a combination of increased volume and improved
margins. The margin improvement was most notable in the Philippines where
Tradico experienced favorable ingredient costs, gains in production efficiency
and strong end-product markets.
INTEREST EXPENSE AND OTHER INCOME/EXPENSE
Interest expense was $2.9 million lower for the nine months ended May 31, 1997
compared to the same period last year. The decrease resulted from lower
average outstanding borrowings and lower rates.
Other income/expense, net, improved by $3.2 million for the nine months ended
May 31, 1997 compared to the same period last year primarily on lower foreign
currency translation and exchange losses in Mexico and Colombia.
INCOME TAXES
Income taxes, which include United States and foreign taxes, were 57% of
pre-tax earnings for the nine months ended May 31, 1997 compared to 45% of
pre-tax earnings for the same period in the prior year. The increase in the
effective rate for 1997 resulted from changes in the earnings mix including
increased income in countries with higher corporate tax rates and foreign
losses in countries for which no tax benefit could be currently recognized.
In addition, Tradico experienced higher taxes in 1997 because of increased
repatriation of foreign earnings to the United States.
FINANCIAL CONDITION
During the nine months ended May 31, 1997 net cash provided by operations
totaled $57.2 million on increased cash earnings coupled with relatively
stable working capital components during the period. During the nine months
ended May 31, 1996 net cash used by operations totaled $21.6 million as
Tradico experienced significant increases in receivables and inventory as a
result of substantial increases in commodity prices and in support of the
growth of the business.
Cash flows used for investing activities were $34.1 million and $31.2 million
for the nine months ended May 31, 1997 and 1996, respectively. The
acquisition of the remaining interest of Tradico's joint venture operations in
both Spain and Hungary in 1996 represented significant investments, which were
partially offset by the cash proceeds of $10 million from the sale of the
Korean cereal business. Capital expenditures, primarily to replace or enhance
existing production facilities and equipment, totaled $29.3 million and $20.7
million for the nine months ended May 31, 1997 and 1996, respectively.
Tradico's capital investments and acquisitions have been partially funded with
investments by and advances from Ralston. Net proceeds from Ralston were
$17.2 million and $50.9 million for the nine months ended May 31, 1997 and
1996, respectively.
Tradico is currently negotiating with lenders in order to obtain floating rate
bank financing. No agreement with a bank has yet been reached but the
structure is
expected to be a revolving credit facility. Of the total, approximately $125
million is expected to be borrowed prior to the Distribution, which will be
used to settle intercompany debts with Ralston, refinance local external debt
and finance additional capital expenditures pre-spin. Management is currently
evaluating to what degree a portion of the revolving credit facility might be
replaced by medium or long-term financing.
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
OPERATING RESULTS
Net earnings were $13.2 million for the year ended August 31, 1996 compared to
$15.8 in 1995. In 1996, net profit declined as higher volumes in most world
areas were more than offset by restructuring costs associated with the
streamlining of operations in advance of the planned distribution. In
addition, improved results in the Asia Pacific region were offset by
unfavorable results in Europe and the Americas.
In 1995, net earnings increased on higher volumes, lower interest expense and
lower foreign currency translation and exchange losses. Tradico also
experienced a more favorable earnings mix by country, which resulted in a
lower effective tax rate.
In 1994, net earnings were favorably impacted by a $13.5 million pre-tax gain
on the sale of land in Korea.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMERICAS (EXCLUDING UNITED STATES)
1996 1995 1994
------- ------- -------
Net sales $602.6 $543.9 $488.6
Operating profit $ 25.9 $ 26.4 $ 27.1
Operating profit as % of net sales 4.3% 4.9% 5.5%
</TABLE>
Tradico's Americas operations experienced an 11% increase in net sales in both
1996 and 1995. The increase in 1996 was primarily attributable to price
increases to cover rising ingredient costs. In 1995, the increase in net
sales was broad based across all countries except Mexico. In 1995, Tradico's
operations in Mexico experienced a decline drop in both volume and
prices as the Mexican economy suffered the effects of the significant
devaluation of the peso.
The Americas operations experienced erosion of operating profit over the 1994
through 1996 period as increased volumes, higher selling prices and lower
operating expenses were more than offset by higher commodity prices.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EUROPE
1996 1995 1994
------- ------- -------
Net sales $461.6 $327.5 $303.7
Operating profit $ 0.1 $ 5.8 $ 4.6
Operating profit as % of net sales 0.0% 1.8% 1.5%
</TABLE>
The 41% increase in net sales of the European operations for 1996 is primarily
attributable to the acquisition of the remaining interest of Tradico's joint
venture agribusiness in Spain. The 8% increase in net sales for 1995 was the
result of broad-based price increases necessitated by higher ingredient costs.
European agricultural industries are mature and highly competitive.
Consolidation is accelerating in both the feed production and animal
production industries. As a result of these conditions, Tradico's European
operating profits have lagged the other regions of Tradico.
Despite the significant increase in volume in 1996, European operating profits
declined as Tradico incurred $6.4 million of pre-tax restructuring charges
associated with streamlining the European operations in advance of the planned
spin-off.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASIA PACIFIC
1996 1995 1994
------- ------- -------
Net sales $366.1 $298.7 $246.9
Operating profit $ 24.3 $ 19.3 $ 27.0
Operating profit as % of net sales 6.6% 6.5% 10.9%
</TABLE>
Net sales of Tradico's Asia Pacific operations increased 23% in 1996 after
increasing 21% in 1995. A significant portion of the increases resulted from
increased prices to cover higher ingredient costs. The increases are also
attributable to increased market share by Tradico's operations in both Korea
and the Philippines as Tradico has pursued growth strategy in
the Asia Pacific market.
The increase in operating profit is generally attributable to the increase in
volume. In 1994, operating profit was also favorably impacted by a $13.5
million pre-tax gain on the sale of land in Korea.
RESTRUCTURING ACTIVITIES
In 1996, Tradico recorded provisions for restructuring which reduced earnings
before income taxes and net earnings by $8.3 million and $7.2, respectively.
These charges represented primarily severance costs and were associated with
the streamlining of the Tradico operations in advance of the planned spin-off.
The provisions provided for the severance of approximately 275 employees, most
of whom were severed prior to August 31, 1996. Pre-tax cost savings from
these restructuring activities are expected to approximate $7.0 million
annually beginning in 1997.
Provisions for restructuring in previous years related to closing of
production facilities and reorganization of certain administrative functions.
Activities related to these restructuring provisions were substantially
complete at August 31, 1996.
INTEREST EXPENSE AND OTHER INCOME/EXPENSE
Interest expense totaled $13.7 million in 1996 compared to $12.6 million in
1995 and $16.7 million in 1994. The 1996 increase resulted primarily from
higher average outstanding borrowings. The decrease in 1995 was primarily
attributable to lower interest rates.
Other income/expense, net, changed unfavorably by $6.9 million in 1996
primarily due to higher foreign currency translation and exchange losses in
Venezuela and Mexico. In 1995, other income/expense, net, improved by $5.2
million on lower foreign currency translation and exchange losses in Brazil.
INCOME TAXES
Income taxes, which include United States and foreign taxes, were 53% of
pre-tax earnings in 1996, 55% in 1995 and 77% in 1994. The increase over
the 35% federal statutory rate results from foreign income in countries where
the tax rate exceeds the U.S. domestic rate and foreign losses in countries
for which no tax benefit could be currently recognized. The higher effective
rate is also a function of the timing when foreign earnings are repatriated to
the United States. The effective tax rate in 1994 was higher due to
significant capital gains taxes incurred in connection with sale of property
in Korea.
FINANCIAL CONDITION
Cash flows from operations decreased in 1996 primarily as Tradico experienced
significant increases in receivables and inventory as a result of substantial
increases in commodity prices and in support of the growth of the business.
The acquisition of the remaining interest of Tradico's joint venture
agribusinesses in both Spain and Hungary for $25.6 million in 1996 represented
significant investments. In addition, capital expenditures were $30.0
million, $28.6 million and $26.6 million in fiscal years 1996, 1995 and 1994,
respectively.
Tradico's capital investments and acquisitions have been partially funded with
investments by and advances from Ralston. Net proceeds from Ralston were
$51.9 million, $5.4 million and $7.9 million in fiscal years 1996, 1995 and
1994, respectively. The significant increase in 1996 was to support the
growth of the business, including acquisitions in Spain and Hungary.
Projected capital expenditures of approximately $40 million in 1997 are
expected to be financed with investments by and advances from Ralston as well
as from funds generated from operations.
Cash flows from operations, net proceeds from Ralston and borrowings under
various lines of credit are Tradico's primary sources of liquidity.
The combined operating, bank financing and equity position of
Tradico should continue to provide the capital flexibility necessary to fund
future opportunities as well as to meet existing obligations.
INFLATION
Management recognizes that inflationary pressures may have an adverse effect
on Tradico through higher asset replacement costs and related depreciation and
higher material costs. In addition, hyperinflationary conditions have
occurred in many of the countries in which Tradico operates. Tradico tries to
minimize these effects through geographical diversification, cost reductions
and productivity improvements as well as price increases to maintain
reasonable profit margins. It is management's view, however, that inflation
has not had a significant impact on the consolidated operations in the nine
months ended May 31, 1997 nor in the three years ended August 31, 1996.
FOREIGN EXCHANGE
International operations account for almost all of Tradico's revenue and
operating income. Tradico periodically enters into foreign exchange forward
contracts to mitigate Tradico's economic exposure to changes in exchange
rates. Open contracts and deferred gains and losses at August 31, 1996 and
1995 as well as gains and losses recognized in the statement of earnings in
1996, 1995 and 1994 were not significant.
Tradico generally views as long-term its investments in foreign subsidiaries
with a functional currency other than the U.S. Dollar. As a result, Tradico
does not generally hedge these net investments. However, Tradico uses capital
structuring techniques to manage its net investment in foreign currencies as
considered necessary. Additionally, Tradico attempts to limit its U.S. Dollar
net monetary liabilities in currencies of hyperinflationary countries
primarily in South America.
SEASONAL FACTORS
Sales prices and volume are both impacted by seasonal factors. As mentioned
earlier, agricultural products sales prices are directly influenced by changes
in the underlying commodity prices for the raw materials used to formulate
animal feeds. Commodity prices are usually at their lowest in the months
immediately following the fall harvest. Sales volume fluctuates somewhat
seasonally as temperature affects caloric intake and weather factors
influence, for example, the quantity of commercial animal feed rations
purchased for cattle.
Overall, seasonal factors have a minimal impact on Tradico's total performance
in any given quarter as the factors not only have a mitigating effect on each
other but they are also mitigated by the geographical diversification of
Tradico's operations.
BUSINESS AND PROPERTIES
BACKGROUND
Tradico Missouri, Inc. ("Tradico") is a Missouri corporation and wholly owned
subsidiary of Ralston, originally incorporated on October 6, 1997. On _____,
1998, Tradico, Inc., a Delaware corporation which was also a wholly owned
subsidiary of Ralston, was merged with and into Tradico, with Tradico as the
surviving corporation. (Prior to the merger, Tradico, Inc. was engaged in the
business of purchasing, on a global basis from independent third parties, both
raw materials in bulk and equipment used in the manufacture of agricultural
products, and selling such material and equipment to foreign-based affiliates
of Ralston for use primarily in animal feed operations.) Immediately prior to
the Distribution, Ralston will transfer to Tradico all of the outstanding
capital stock of its international subsidiaries engaged in the agricultural
products and animal feed business, as well as an amount equal to the appraised
value of the net assets utilized in the Canadian animal feed business (which
assets will subsequently be acquired by Tradico or one of its subsidiaries
from the Ralston subsidiary currently owning those assets) and the value of
the capital stock of a newly formed Brazilian subsidiary holding the animal
feed assets in Brazil (which capital stock will then be acquired by
Tradico or a subsidiary of Tradico). In addition, Tradico subsidiaries
will retain production assets associated with Ralston's international
pet products business in Korea, Colombia, Venezuela and Guatemala.
See "AGREEMENTS BETWEEN RALSTON AND TRADICO -- Trademark Agreement;
Technology Licenses; Master Distribution Agreement.") All of the
businesses to be contributed to or retained, and subsequently operated by,
Tradico and its subsidiaries are hereinafter referred to as the
"Tradico Business".
Following the Distribution, Tradico will be a leading international producer
and marketer of formula animal feeds and other animal nutrition products, and
a successor to Ralston's over 100 years of experience in the agricultural
products and animal feeds industry. Over the past 100 years, Ralston has
built and
maintained its industry position by consistently providing high-quality
products and customer service. Although the business originated in the United
States, it expanded throughout the world, entering the Americas (outside of
the United States) in 1927, Europe in 1957, and Asia in 1967. Other than the
procurement of both raw materials and finished goods for export, and minor
import sales, the Tradico Business is currently conducted exclusively outside
of the United States; United States animal feed operations were sold by
Ralston in 1986.
Because of high transportation costs, animal feeds, as a general rule, are
produced locally - close to their end markets - using available local
ingredients with imported ingredients as necessary. The local markets served
by the Tradico Business vary dramatically with respect to locally available
ingredients, animal species being raised, climate and economic conditions. In
order to manage effectively in this environment, day-to-day operating
decisions must be made with in-depth knowledge of local factors.
Consequently, the Tradico Business has been organized as a collection of
highly autonomous units on a country by country basis in sixteen foreign
countries, each under the direction of a Managing Director responsible for all
functions within the country. The animal feed customers of the Tradico
Business generally are located in rural farming regions, and are either
wholesalers who purchase for resale or bulk volume purchasers who purchase for
use on their own farms. These customers typically require and expect a high
level of technical support in connection with their purchases. The Tradico
Business develops feed products, programs and information targeted to local
conditions and customer needs in each of the countries in which it operates.
Tradico's staff of trained sales representatives and technicians work closely
with dealers and customers to help ensure that its feed products and services
are matched with the animal producer's facilities and overall management
practices, as well as the nutritional needs of the particular animal species.
The Tradico Business' extensive experience and knowledge of the nutritional
requirements of animals enable it to provide high-performance products that
can command a premium over other feed alternatives. Tradico's products are
designed to provide the essential nutrients that meet the needs of a
particular species of animal at each phase of its life cycle. It continually
strives to maintain a desirable cost-effective balance between weight gain,
feed efficiency, yield, animal health and price.
The Tradico Business currently markets a broad line of animal feeds and other
nutrition products, including products for hogs, dairy cows, cattle, poultry
(broilers and layers), rabbits, horses, shrimp and fish. It operates 73
manufacturing plants in 16 countries on four continents. Tradico's products
are sold as complete feeds or as concentrates which are mixed with the
customer's base ingredients. Tradico's products are generally those marketed
under the widely recognized brand names "Purina" and "Chow" and the
"Checkerboard" logo, and product names such as "Omoline". Prior to the
Distribution, Ralston will transfer to Tradico a number of trademarks related
to product names, and will perpetually license brand-name trademarks used in
association with animal feed products. See "AGREEMENTS BETWEEN RALSTON AND
TRADICO--Trademark Agreement".
The basic food manufacturing process consists of grinding various grains and
protein sources into a meal form and then mixing it with nutritional
additives, such as vitamins, minerals and synthetic amino acids, and, in some
cases, medications. The resulting products are sold in a variety of forms,
including meal, pellets, blocks and liquids. The combination of the
nutritional value of the ingredients and the animal's ability to absorb that
nutrition determines the effectiveness of a feed product. The value of a
particular feed, relative to its price, is determined not only by its effect
on the animal's health, but also by the efficiency with which it is converted
into milk, meat or eggs, and any impact it has on the quality of those
end-products. However, the premium available for higher quality animal feeds
has been relatively modest, either because the differences in effectiveness
are relatively modest, or because feed customers are sometimes unwilling or
unable to pay higher unit prices. The challenge for the feed producer, given
the relatively modest margins, is to develop products with greater
effectiveness and ultimate value, but with minimal additional production cost.
Tradico's feed formulas are based upon proprietary scientific research into
the nutrient content and animal absorption of the various grains and additives
utilized, and it has been able to utilize this research to produce feeds with
specified nutritional characteristics at a lower total cost.
The demand for particular products of Tradico is affected by a number of
factors, including urban development; weather conditions; the prices of
commodities and alternative feed sources; the market price of livestock,
poultry and other animals; animal diseases; changes in consumer demand; real
estate values; government farm programs and other government regulations;
restrictive quota and trade policies and tariffs; production difficulties,
including capacity and supply constraints; and general economic conditions.
When the price of grain commodities in a local market have been high, many of
Tradico's customers have in the past chosen to purchase complete rations.
This often results in higher tonnage but lower margins, reflecting the higher
cost of raw materials. Conversely, when commodity prices have been relatively
low, animal producers have tended to provide their own grains (resulting in
decreased volume) but have often purchased concentrated, nutritional
additives, with higher per unit margins. Historically, the effect on
profitability of lower volume during periods of low commodity prices has
tended to be offset by this increase in overall unit margins. In addition,
the Tradico Business operates on an international basis, and weakness in a
particular market can be offset by strength in another market.
Profit pressure and overcapacity in various markets has led to consolidation
of both the feed production and animal production industries in those markets.
Particularly in the more economically developed regions in which Tradico
operates, larger animal producers have tended to integrate their business by
acquiring or constructing feed production facilities to meet some or all of
their feed requirements, and consequently have relied less on outside
suppliers of animal feeds. Tradico believes that the superiority of its
products and its reputation for service and knowledgeability about animal
nutrition needs allow it to effectively compete in the face of such trends.
<PAGE>
STRATEGY
Tradico's objective is to enhance revenue growth and profitability by
delivering premium quality products and services to its dealers and customers,
expanding its strong market positions into new growing agricultural markets,
maintaining effective cost control programs, and developing and implementing
methods for more efficient manufacturing and distribution operations, while at
the same time maintaining aggressive pricing and promotion of its products.
Tradico plans to achieve its objective through the following key strategies:
- - Increase Market Share and Expand Geographically. Tradico intends to
increase sales through further penetration of existing markets and expansion
into broader geographic markets. Tradico has established fast-growing
operations in China, Southeast Asia and Eastern Europe and believes those
regions present significant opportunities for expansion and growth on a
profitable basis. Tradico also will continue to pursue acquisitions to expand
or complement its current market areas and product lines, and to strategically
invest in the development of new products.
- - Accelerate Transfer of Best Practices. The decentralized management of
the Tradico Business and its organization into highly autonomous regions
permits quick, focused response to the needs of local customers and to trends
in each region, while its international affiliation permits local Tradico
businesses to benefit from their association with one another in terms of
commodities sourcing, financial management and other management practices,
product development and know-how. Tradico management believes that the
communication and application of such "best practices" throughout its
operations can be improved and accelerated in order to optimize the individual
performance of each local affiliate.
- - Leverage Existing Distribution System. Tradico's existing distribution
network of over 3500 independent and primarily exclusive dealers represents a
core strength of the Tradico Business and presents significant opportunities
for introducing new products and product line extensions and developing new
business relationships. Tradico will continue to utilize these dealers as an
extremely valuable resource for identifying customer needs and product
opportunities, as well as an extremely efficient means, in terms of both costs
and time, of bringing new product developments to market.
- - Maximize Operating Efficiencies. Tradico intends to embark on a number
of cost-saving and productivity programs as part of its strategy to maximize
operating efficiencies. Since 1995, the Tradico Business has restructured or
divested underperforming assets, and is actively reviewing measures to reduce
excess capacity and exit unprofitable markets. Tradico will operate with a
minimal management staff, and intends to take other steps which will reduce
its selling and distribution expenses, including reducing administrative and
operating costs. Regional management is continually reviewing the development
and implementation of more efficient manufacturing and distribution practices.
Management also intends to utilize Tradico's global market knowledge to source
commodities at lower cost and maintain research and development and training
of technical support staff on an efficient basis.
- - Introduce Better Workforce Incentives. Tradico is redesigning its
compensation programs to motivate its workforce to achieve Tradico's strategic
goals. By providing its workforce, and especially its executives and key
management personnel, with compensation programs that contain a significant
equity component, Tradico intends to align their personal interests with those
of shareholders, thereby motivating them to enhance long-term value. Included
among these programs is the creation of the Tradico Incentive Stock Plan (as
hereinafter defined). In connection with its request for Rulings that the
Distribution will qualify as a tax-free spin-off, Ralston has represented to
the I.R.S. that key management personnel and other employees will own, or have
options to acquire, . 5% of the outstanding Tradico Stock within one year of
the Distribution, at least 3% within three years of the Distribution, and at
least 5% within five years of the Distribution. See "EXECUTIVE COMPENSATION".
DISTRIBUTION SYSTEM
Products of the Tradico Business are distributed primarily through a
network of over 3500 independent dealers and over 1800 direct or indirect
sales personnel throughout the world. In some countries, particularly in the
Americas, products are sold directly to over 5000 large customer accounts.
Tradico products are available through approximately 50,000 independently
owned sales locations.
COMPETITION
The agricultural products and animal feed business, which has substantial
excess capacity in certain regions of the world, is extremely fragmented and
generally highly competitive. The Tradico Business faces intense competition
in most of its markets from other large feed manufacturers, including, in
certain countries, large multinational corporations such as Cargill and
Charoen Pokphand, cooperatives, single-owner establishments and, in a number
of countries, government feed companies. Some of these competitors are larger
and have greater financial resources than Tradico will have, and in some
countries, government feed companies may have significant financial and
political advantages. Because of limited technological or capital barriers to
entry to the agricultural products and animal feed business, new competitors
with relatively modest return objectives could arise in any market at any
time. In addition, less effective but lower priced feed sources become an
especially attractive alternative to Tradico's products when livestock,
poultry and other animal prices are low and customers are unwilling to pay a
premium for quality feeds. Although the strength of competitors varies by
geographic area and product line, Tradico believes that no other current
competitor produces and markets as broad a line of products across as many
numbers of countries as Tradico.
Both the feed production and animal production industries are consolidating,
and this trend is expected to continue. The Tradico Business has been
successful in generating sales to large producers. However, the tendency of
large producers to integrate their business vertically by acquiring or
constructing feed production facilities has at times led to significantly less
reliance on outside suppliers of feed. As the consolidation of animal
producers continues, competition is likely to increase among independent feed
suppliers, and that industry is also likely to consolidate.
Much of the competition in the agricultural products and animal feed industry
centers around price due to the commodity-like aspects of basic animal feed.
The Tradico Business generally bears higher costs associated with a
multi-layered distribution system, a complex production system, and tax and
financing obligations imposed by its international and multi-currency
structure, which higher costs may restrict its ability to compete in
particular markets on the basis of price. However, product quality, customer
service and the ability to identify and satisfy animal production needs in
individual markets are also significant competitive factors. The Tradico
Business has significant advantages due to its extensive dealer distribution
network, its nutritional expertise, its ability to convert its research and
technology into products which meet the diverse requirements of its customers
in different markets under different economic circumstances, its high level of
customer service and the responsiveness of its locally autonomous structure,
and the breadth, quality and efficacy of its product lines. The agricultural
products business is expected to remain highly competitive in the foreseeable
future. Future growth opportunities for the Tradico Business are expected to
depend on Tradico's ability to implement strategies for competing effectively
in new, growing agricultural markets, maintaining effective cost control
programs, making strategic acquisitions, and developing and implementing
methods for more efficient manufacturing and distribution operations, while at
the same time maintaining aggressive pricing and promotion of its products.
In 1986, Ralston sold the outstanding capital stock of its Purina Mills, Inc.
subsidiary, which was engaged in the agricultural products and animal feed
business in the United States to a subsidiary of British Petroleum. In
connection with that sale, Purina Mills, Inc. was granted a perpetual license
in the United States with respect to certain significant trademarks and trade
names which are currently used in the Tradico Business outside of the United
States. Although Tradico does not currently compete with Purina Mills, Inc.
in the United States, there are no legal restrictions on Tradico's expanding
into that market, subject to the exclusive rights of Purina Mills, Inc. to
utilize such trademarks and trade names, and certain technologies, in the
United States.
EMPLOYEES
After the Distribution, Tradico will employ approximately 45 administrative
employees in the United States, and approximately 5500 production, sales,
marketing and administrative employees throughout the world. Approximately
__% of Tradico's international employees are represented by labor unions.
RAW MATERIALS
Tradico manufactures its feed products from raw ingredients ranging from
widely-traded commodities, such as corn, milo, meat meal, soybean meal and
wheat middlings, to more specialized ingredients such as vitamins, minerals,
medications and synthetic amino acids, such as lysine and methionine.
Historically the Tradico Business has purchased most of its requirements
locally through purchasing agents based regionally or in local countries. It
is anticipated that purchases of some of these ingredients will be shifted to
a central purchasing operation so that the Tradico Business may further reduce
the delivered cost of such ingredients.
The raw materials used by the Tradico Business are generally available from a
number of different sources. The Tradico Business has not experienced any
significant interruption in availability of raw materials. Tradico affiliates
do not typically enter into long-term contracts for purchase of ingredients.
The cost of raw materials used in the products manufactured by the Tradico
Business may fluctuate due to weather conditions, crop disease or pestilence,
government regulations, economic climate, or other unforeseen circumstances,
and such fluctuation may be volatile. Sales prices of agricultural products, a
large portion of the production cost of which are represented by the costs of
raw materials, are adjusted frequently to reflect changes in raw material
costs. The rapid turnover of certain raw material inventory items and the
ability to substitute ingredients in some of these products can provide
further protection against fluctuating raw material prices. The Tradico
Business has used the futures markets, options and other risk management tools
designed to protect its margins on firm purchase price sales contracts with
customers and to lock in prices to support promotions on various products.
Management has extensive experience in purchasing ingredients in the commodity
markets. From time to time, management has taken positions in various
ingredients to assure supply and to protect profits on anticipated sales
volume. Although Tradico intends to continue to use these risk management
tools to hedge its risks, it does not intend to speculate in the commodity
markets and intends to maintain a relatively low dollar level of risk related
to open market positions.
GOVERNMENTAL REGULATION; ENVIRONMENTAL MATTERS
The operations of the Tradico Business are subject to regulation by various
common market and local governmental entities and agencies and various common
market and local laws and regulations with respect to environmental matters,
including air and water quality, noise pollution, underground fuel storage
tanks, waste handling and disposal and other regulations intended to protect
public health and the environment.
While it is difficult to quantify with certainty the potential financial
impact of actions regarding expenditures for environmental matters,
particularly remediation, and future capital expenditures for environmental
control equipment, in the opinion of management, based upon the information
currently available, the ultimate liability arising from such environmental
matters, taking into account established accruals for estimated liabilities,
should not have a material effect on Tradico's capital expenditures, earnings
and competitive position.
PROPERTIES
Tradico's principal properties are its feed manufacturing locations.
Shown below are the locations of the principal properties of Tradico, all of
which, except as indicated, will be owned by Tradico or its wholly owned
subsidiaries following the Distribution. Tradico will lease the office space
in Ladue, Missouri in which its principal executive offices will be located.
Although a substantial number of these manufacturing facilities are more than
twenty years old, the management of Tradico believes its facilities are
suitable and adequate for the purposes for which they are used and are
adequately maintained.
<PAGE>
<TABLE>
<CAPTION>
<S>
Addison, Ontario, Canada
Arequipa, Peru (1)
Barcelona, Venezuela
Benavente, Portugal (4)
Benavente, Spain
Bessenay, France (2)
Borgoratto, Italy
Bucaramanga, Colombia (1)
Buga, Colombia
Cabimas, Venezuela (2)(4)
Canoas, Brazil
Cantenhede, Portugal
Carmo do Cajaru, Brazil(1)
Cartagena, Colombia
Chatillon, France (2)
Chiclayo, Peru
Courchelettes, France
Courtice, Ontario, Canada (1)
Cuautitlan, Mexico
Dos Hermanas, Spain
Drummondville, Quebec, Canada
Encrucijada, Venezuela
Fushun, People's Rep. of China(2)
Gonen, Turkey
Guadalajara, Mexico
Guatemala City, Guatemala
Ibaque, Colombia(1)
Inhumas, Brazil
Kaposvar, Hungary
Karcag, Hungary
Kunsan, Korea
La Coruna, Spain
Langfang, People's Rep. of China (5)
Lima, Peru
Limoges, France (2)
Longue, France
Luleburgaz, Turkey
Maracaibo, Venezuela
<S>
Maracay, Venezuela (1)(5)
Marcilla, Spain
Maringa, Brazil
Medellin, Colombia (1)
Merida, Mexico (2)
Merida, Spain
Mexicali, Mexico
Monterrey, Mexico
Montvendre, France (2)
Mosquera, Colombia
Nanjing, People's Rep. of China
Obregon, Mexico
Palmerston, Ontario, Canada
Paulinia, Brazil
Pommevic, France
Pulilan, Philippines
Pusan, Korea
Recife, Brazil
St. Romuald, Quebec, Canada
St. Ybard, France (2)
Salamanca, Mexico
San Felice, Italy
Sorcy, France
Songtan, Korea
Sospiro, Italy
Spessa, Italy (1)
Strathroy, Ontario, Canada
Tehuacan, Mexico
Termoli, Italy
Torrejon, Spain
Valencia, Spain
Villasis, Philippines
Volta Redonda, Brazil
Woodstock, Ontario, Canada
Yantai, People's Rep. of China (2)
Hatcheries
Valencia, Venezuela
</TABLE>
<PAGE>
In addition to the properties identified above, Tradico and its subsidiaries
will own and/or operate sales offices, regional offices, storage facilities,
distribution centers and terminals and related properties.
(1) Leased (2) Joint Venture (3)Under Construction
(4)To be Divested (5) Being Acquired
LITIGATION
Ralston is a party to a number of legal proceedings in various foreign
jurisdictions arising out of the operations of the Tradico Business. These
proceedings are in varying stages and some involve highly complex questions of
law and fact. Liability for these proceedings will be assumed by Tradico
except to the extent otherwise provided in the Reorganization Agreement.
Many of the foregoing matters are in preliminary stages, involve complex
issues of law and fact and may proceed for protracted periods of time. The
amount of alleged liability, if any, from these proceedings cannot be
determined with certainty; however, in the opinion of Tradico management,
based upon the information presently known, as well as upon the limitation of
its liabilities set forth in the Reorganization Agreement, the ultimate
liability of Tradico, if any, arising from the pending legal proceedings, as
well as from asserted legal claims and known potential legal claims which are
probable of assertion, taking into account established accruals for estimated
liabilities, should not be material.
MANAGEMENT
DIRECTORS OF TRADICO
Pursuant to the Tradico Articles of Incorporation and Bylaws, the Board
of Directors of Tradico (the "Tradico Board") will consist of from five to
twelve individuals, divided into three approximately equal classes with each
class serving a three year term. The exact number of directors will be set
from time to time by resolution of the Board. Initially following the
Distribution, the Tradico Board will consist of six individuals, only one of
whom will be an employee of Tradico and only ____ of whom will be officers or
directors of Ralston. The following table sets forth information as to the
persons who serve or who will serve as directors of Tradico following the
Distribution, their class membership, and their original terms (the directors'
ages are as of December 31, 1997). It is presently intended that Mr. Stiritz
will serve as Chairman of the Board of Directors.
NAME AGE INITIAL
- ---- ---
TERM
EXPIRES INFORMATION
------- -----------
______________ __ 1999
_______________ __ 1999
______________ __ 2000
______________ __ 2000
______________ __ 2001
William P. Stiritz 63 2001 Chairman of the Board, Chief
Executive Officer and President, Tradico Inc. Chairman of the Board of
Ralston Purina Company. Also a director of Angelica Corporation, Ball
Corporation, Reinsurance Group of America, Inc., Ralcorp Holdings, Inc., The
May Department Stores Company and Vail Resorts, Inc.
<PAGE>
DIRECTORS' MEETINGS, FEES AND COMMITTEES
The Tradico Board expects to have four regularly scheduled meetings per
year, and will hold such special meetings as it deems advisable, to review
significant matters affecting Tradico and to act upon matters requiring Board
approval. Non-management directors will receive an annual retainer of $20,000,
and will also be paid $1,000 for attending each regular or special Board
meeting and $1,000 for attending each standing committee meeting and for each
telephonic meeting and consent to action without a meeting. Tradico will also
pay the premiums on Directors' and Officers' Liability, and Travel Accident
insurance policies insuring directors.
Tradico will adopt the Tradico Missouri, Inc. Deferred Compensation Plan
(the Tradico Deferred Compensation Plan). Under this Plan (which is eligible
for participation by key employees and Executive Officers as well as
directors), any non-management director may elect to defer, with certain
limitations, all retainers and fees. Deferrals will be pursuant to a number of
investment options which mirror the investment funds offered by the Tradico
SIP, including a Tradico Stock equivalent option, and a percentage of each
deferral may be matched by Tradico. Deferrals and related earnings will be
paid out in a lump sum in cash to the Director at the Director's termination
of service, or total disability or to the Director's estate or beneficiary
upon the Director's death.
The Tradico Incentive Stock Plan ("ISP") also provides that certain
non-management directors may be granted non-qualified stock options to acquire
shares of Tradico Stock and other awards of Tradico Stock. For a more complete
description of the ISP and the tax consequences to participants of awards
under that plan, see "TRADICO COMPENSATION AND BENEFIT PLANS--Incentive Stock
Plan". Presently no awards under the ISP have been made or are contemplated to
be made to any of the non-management directors.
Prior to the Distribution, the Tradico Board is expected to establish and
designate specific functions and areas of oversight to a Nominating and
Compensation Committee and an Audit Committee. Directors who are also
employees or officers of Tradico will not be permitted to serve on either
committee. A description of these standing committees and the identity of
their expected members follows:
Nominating and Compensation Committee-__________ (Chairman),________;
__________.
The Nominating and Compensation Committee will consist entirely of
non-management Directors free from interlocking or other relationships that
might be considered a conflict of interest. It will recommend to the Board
nominees for election as Directors and Executive Officers of the Company.
Additionally, it will make recommendations to the Board regarding election of
Directors to positions on committees of the Board and compensation and
benefits for Directors. The Nominating and Compensation Committee will also
consider suggestions from shareholders regarding possible Director candidates.
This Committee will also set the compensation of all Executive Officers and
administer the Tradico Deferred Compensation Plan and ISP, including the
granting of awards under the latter plan, other than to Directors on the
Committee. It will also review the competitiveness of management compensation
and benefit programs, and principal employee relations policies and
procedures.
Audit Committee - _________ (Chairman); ____________; _____________.
The Audit Committee will consist entirely of non-management Directors. It
will be responsible for matters relating to accounting policies and practices,
financial reporting, and internal controls. It will recommend to the Board the
appointment of a firm of independent accountants to examine the financial
statements of Tradico, and will review with representatives of the independent
accountants and the Director of Internal Audit the scope of the examination of
Tradico financial statements, results of audits, audit costs, and
recommendations with respect to internal controls and financial matters. It
will also review nonaudit services rendered by Tradico's independent
accountants and will periodically meet with or receive reports from principal
corporate officers.
EXECUTIVE OFFICERS OF TRADICO
Tradico's senior management team (the "Executive Officers") will consist
primarily of individuals currently responsible for the management of the
businesses which will be operated by Tradico. Ages shown are as of December
31, 1997.
William P. Stiritz will be Chief Executive Officer, President and
Chairman of the Board for Tradico. Mr. Stiritz joined Ralston in 1963 and
served as Chief Executive Officer and President of
Ralston until his retirement in 1997. Age: 63.
David R. Wenzel will be Chief Financial Officer for Tradico. Mr. Wenzel
joined Ralston's Protein Technologies subsidiary as Director of Strategic
Planning in 1993 and in 1994 became Director of Strategic Planning for
Ralston. Prior to joining Ralston, Mr. Wenzel was a Manager, Tax Services,
for Price Waterhouse LLP in their St. Louis office. He has served as the
Chief Financial Officer for Ralston's international agricultural products
business since 1996. Age: 34.
Bill Armstrong will be Executive Vice President of Operations for
Tradico. Mr. Armstrong re-joined Ralston in 1989. He served as Managing
Director of Ralston's international agricultural products Philippine
operations from 1992 to 1995; international agricultural products Regional
Chief Executive Officer - South Asia from 1995 to 1997; and as Executive Vice
President of Operations for Ralston's international agricultural products
business since 1997. Age: 49.
Gonzalo Dal Borgo will be Regional Chief Executive Officer - Americas for
Tradico. Mr. Dal Borgo joined Ralston in 1968. He served as President and
Managing Director for Ralston's international agricultural products Brazilian
and South American operations from 1991 to 1994; and international
agricultural products Regional Chief Executive Officer - Americas since 1994.
Age: 57.
Kim Ki Yong will be Regional Chief Executive Officer - Asia for Tradico.
Mr. Kim re-joined Ralston in 1980. He served as President and Chief Executive
Officer of Ralston's international agricultural products Korean operations
from ____ to 1995; and international agricultural products Regional Chief
Executive Officer - North Asia since 1995. Age: 52.
Eric Poole will be Regional Chief Executive Officer - Europe for Tradico.
Mr. Poole re-joined Ralston in _____ He served as Vice President - Americas
for Ralston's international agricultural products operations from ____ to
1995; and as international agricultural products Regional Chief Executive
Officer - Europe since 1995. Age: 52.
Michael Costello will be Secretary and General Counsel for Tradico. Mr.
Costello joined Ralston in 1989 and has served as International Counsel for
Ralston's international agricultural products business since that time. Age:
45.
All of such individuals currently employed by Ralston or its affiliates will
resign from their positions effective as of the Distribution Date.
EXECUTIVE COMPENSATION
All direct and indirect remuneration of all Executive Officers and
certain other executives will be approved by the Nominating and Compensation
Committee of the Tradico Board (the "Committee"). The Committee consists
entirely of non-management directors free from interlocking or other
relationships that might be considered a conflict of interest. It is
anticipated that compensation for the Executive Officers and for other
executives will consist principally of base salary, annual cash bonus and
long-term stock-based incentive awards.
It is expected that, among other factors, salaries will be based on the
Committee's assessment of the executive's responsibilities, experience and
performance; compensation data of other companies; and the competitive
environment for attracting and retaining executives.
It is anticipated that cash bonuses will be set each year at or following
the end of Tradico's fiscal year. Factors, among others, to be considered in
determining the amount of cash bonuses will be the officer's individual
performance (including the quality of strategic plans, organizational and
management development, special project leadership and similar manifestations
of individual performance); the financial performance of the officer's
business unit relative to the business plan (including such areas as sales
volume, revenues, costs, cash flow and operating profit); and Tradico
financial performance (including the measures of business unit performance
listed above and, in addition, earnings per share, return on equity and total
return to the shareholders in the form of stock price appreciation).
Stock-based incentive awards will consist principally of stock options and
restricted stock awards which will be granted from time to time under the ISP.
The Committee will base its decisions on the granting of stock-based
incentives on, among other factors, the number of shares of Tradico Stock
outstanding, the number of shares of Tradico Stock authorized under the ISP,
the number of options and shares of restricted stock held by the executive for
whom an award is being considered and the other elements of the executive's
compensation. In connection with its request for Rulings that the
Distribution will qualify as a tax-free spin-off, Ralston has represented to
the I.R.S. that key management personnel and other key employees of Tradico
will own or have options to acquire 0.5% of the outstanding Tradico Stock
within one year of the Distribution, at least 3% within three years of the
Distribution, and at least 5% within five years of the Distribution.
Although the Tradico Business was owned in all substantial respects by
Ralston or its affiliates during Ralston's last fiscal year, Tradico was not
incorporated and in existence, nor did it employ any personnel, at any time
during that year. Certain individuals who are expected to serve as Executive
Officers of Tradico, although employed by Ralston, were not dedicated
exclusively to the Tradico Business and, in fact, devoted substantial time and
effort to other Ralston businesses. Accordingly, no historical information on
Ralston compensation for such individuals is reported. Tradico's proxy
statement for its 1999 Annual Meeting of Shareholders will contain information
on compensation paid to the Executive Officers in fiscal year 1998.
TRADICO COMPENSATION AND BENEFIT PLANS
The following is a description of the compensation and benefit plans
adopted or expected to be adopted by Tradico, some of which are substantially
similar to plans in effect at Ralston. The compensation and benefit plans of
Tradico are intended to attract and retain employees and to reward such
employees through emphasis on performance and incentive criteria. It is
anticipated that the Executive Officers, United States employees of Tradico
and regional management will participate in such plans. After the
Distribution, none of the officers of Tradico will participate in any of the
employee benefit plans of Ralston, except to the extent such officers are
entitled to accrued benefits pursuant to such plans; Mr. Stiritz, however, as
a Director of Ralston, may participate in Ralston compensation plans and
programs available to its Directors.
INCENTIVE STOCK PLAN
Prior to the Distribution, Ralston, as sole shareholder of the
outstanding capital stock of Tradico, approved the ISP which is administered
by the Nominating and Compensation Committee of the Tradico Board (the
"Committee"). The Committee has sole discretion, subject to terms of the ISP
to determine those eligible to receive awards and the amount and type of
awards. Members of the Committee are not eligible for awards unless approved
by the Board as a whole. The ISP provides for the granting of stock options,
restricted stock awards and other awards payable in Tradico Stock to Tradico
employees, including Executive Officers, and to Tradico Directors. The purpose
of the ISP is to enhance the profitability and value of Tradico for the
benefit of its shareholders by providing stock awards to attract, retain and
motivate officers, other key employees and in certain circumstances,
non-management directors, who make important contributions to the success of
Tradico. Terms and conditions of awards will be set forth in written
agreements, the terms of which are consistent with the terms of the ISP.
Any kesy employee of Tradico or any of its subsidiaries is eligible for any
award under the ISP if selected by the Committee. Subject to the provisions
of the ISP the Committee would have full authority and discretion to
determine the individuals to whom awards will be granted and the amount
and form of such awards. It is estimated that there are approximately 250
persons employed by Tradico and its subsidiaries who would be eligible
for selection for participation by the Committee.
The ISP will continue until the shares reserved for award have been
granted in awards or such earlier time as determined by the Committee. Under
the ISP the maximum number of shares of Tradico Stock granted or subject to
awards will be _________ (approximately __% of the issued and outstanding
shares of Tradico Stock as of the Distribution Date). Since there is no
current market for shares of the Tradico Stock, the market value of such
securities cannot be determined. Upon the cancellation or expiration of an
award, the unissued shares of Tradico Stock subject to such awards will again
be available for awards under the ISP
Under the ISP the Committee is authorized (i) to grant stock options that
qualify as "Incentive Stock Options" under Section 422 of the Code, and (ii)
to grant stock options that do not so qualify. The Committee is entitled to
set the option price of stock options at any price it determines in excess of
par value. Stock options entitle the recipient to purchase a specific number
of shares of Tradico Stock after a specified period of time at an option price
set by the Committee (or at the fair market value of Tradico Stock at the time
of grant for Incentive Stock Options). No stock option can be exercised more
than ten years after the date such option is granted. In the case of Incentive
Stock Options, the aggregate fair market value of the stock with respect to
which options are exercisable for the first time by any recipient during any
calendar year cannot, under present tax rules, exceed $100,000.
The shares which may be granted pursuant to a restricted stock award will be
restricted and will not be able to be sold, pledged, transferred or otherwise
disposed of until such restrictions lapse. Shares of stock issued pursuant to
a restricted stock award will be issued for no monetary consideration.
The grant of Tradico Stock and stock equivalents pursuant to the Tradico
Deferred Compensation Plan will be subject to the provisions of that plan. See
"--Deferred Compensation Plan". Pursuant to that plan, the Committee may in
its discretion permit an eligible employee to defer payment of a cash bonus or
other cash compensation in the Tradico Stock option of the plan, or in other
investment options available under that plan. Upon a deferral into the Tradico
Stock option, an account in the employee's name will be credited with an
appropriate number of shares of Tradico Stock or stock equivalents. Such
account will be credited from time to time with dividends or dividend
equivalents if dividends are paid by Tradico. At the discretion of the
Committee, deferrals into the Tradico Stock fund may entitle the participant
to a Company matching contribution equal to a stated percentage of the
deferral. Upon retirement or other termination of employment, the employee
receives shares of Tradico Stock equal to the number of equivalents credited
to such employee's account or, at the Committee's discretion, may receive the
value of such shares in cash.
The ISP provides that it may be amended by the Board of Directors, except
that no such amendment can increase the number of shares of stock reserved for
awards, withdraw the authority of the Committee to administer the ISP, change
the class of individuals who may be eligible for awards, or change the term of
awards granted prior to the amendment without the consent of the recipient.
However, the Committee may make appropriate adjustments to the number of
shares available for awards and the terms of outstanding awards under the ISP
to reflect any change in capital stock of Tradico; issuance of any targeted
stock; split-up; stock dividend; exercisability of stock purchase rights;
special distribution to shareholders; combinations or reclassifications with
respect to any outstanding series or class of stock; or consolidation, merger
or sale of all or substantially all of the assets of Tradico.
Stock options to be issued under the ISP as Incentive Stock Options
("ISO") will satisfy the requirements of Section 422 of the Code. Under the
provisions of that Section, the optionee will not be deemed to receive any
income at the time an ISO is granted or exercised. If the optionee disposes of
the shares more than two years after the grant and one year after the exercise
of the ISO, the gain, if any (i.e., the excess of the amount realized for the
shares over the option price) will be long-term capital gain. If the optionee
disposes of the shares acquired on exercise of an ISO within two years after
the date of grant or within one year after the exercise of the ISO, the
disposition will constitute a "disqualifying disposition", and the optionee
will have ordinary income in the year of the disqualifying disposition equal
to the fair market value of the stock on the date of exercise minus the option
price. The excess of the amount received for the shares over the fair market
value at the time of exercise will be capital gain. If the optionee disposes
of the shares in a disqualifying disposition, and such disposition is a sale
or exchange which would result in a loss to the optionee, then the amount
treated as ordinary income is the excess (if any) of the amount realized in
such sale or exchange over the adjusted basis of such shares.
Tradico is not entitled to a deduction as a result of the grant or
exercise of an ISO. If an optionee has ordinary income as a result of a
disqualifying disposition, Tradico will have a corresponding deductible
expense in an equivalent amount in the taxable year of Tradico in which the
disqualifying disposition occurs.
The difference between the fair market value of the option at the time of
exercise and the option price is a tax preference item for alternative minimum
tax purposes. The basis in an ISO for alternative minimum tax purposes is
increased by the amount of the preference.
Stock options issued under the ISP which do not satisfy the requirements
of Section 422 of the Code will have the following tax consequences:
(i) the optionee will have ordinary income at the time the option is
exercised in an amount equal to the excess of the fair market value at the
date of exercise over the option price;
(ii) Tradico will have a deductible expense in an amount equal to the
ordinary income of the optionee;
(iii) no amount other than the price paid under the option shall be
considered as received by Tradico for shares so transferred; and
(iv) any gain from the subsequent sale of the shares by the optionee for
an amount in excess of fair market value on the date the option is exercised
will be capital gain and any loss will be capital loss.
In general, a recipient of other stock awards, including Tradico Stock
equivalents pursuant to the Tradico Deferred Compensation Plan, but excluding
restricted stock awards (see below), will have ordinary income equal to the
cash or fair market value of the stock on the date received in the year in
which the award is actually paid. Tradico will have a corresponding deductible
expense in the same year in an amount equal to that reported by the recipient
as ordinary income. The recipient's basis in the stock received will be equal
to the fair market value of the stock when received and his holding period
will begin on that date.
With respect to restricted stock awards, such awards do not constitute taxable
income under existing Federal tax law until such time as restrictions lapse
with respect to any installment. When any installment of securities are
released from restriction, the market value of such shares on the date the
restrictions lapse constitutes income to the recipient in that year and is
taxable at ordinary income rates, and Tradico will have a corresponding
deductible expense in an amount equal to that reported by the recipient as
ordinary income and in the same year.
The Code, however, permits a recipient of a restricted stock award to
elect to have the award treated as taxable income in the year of the award and
to pay tax at ordinary income rates on the fair market value of all of the
shares awarded based on the price of the shares on the date the recipient
receives a beneficial interest in such shares. The election must be made
promptly within time limits prescribed by the Code and the regulations
thereunder. Any appreciation in value thereafter would be taxed at capital
gain rates when the restrictions lapse and the stock is subsequently sold.
However, should the market value of the stock at the time the restrictions
lapse and the stock is sold, be lower than at the date acquired, the recipient
would have a capital loss, to the extent of the difference. In addition, if
after electing to pay tax on the award in the year received the recipient
subsequently forfeits the award for any reason, the tax previously paid is not
recoverable. Since the lapse of restrictions on restricted stock awards is
accelerated in the event of a change of control of Tradico, such an
acceleration may result in an excess parachute payment, as defined in Section
280 (G) of the Code. In such event, Tradico's deduction with respect to such
payment is denied and the recipient is subject to a nondeductible 20% excise
tax on such excess parachute payment.
The tax treatment upon disposition of Tradico Stock acquired under the ISP
will depend upon how long the shares have been held. The tax treatment also
will depend on whether or not the shares were acquired by exercising an ISO.
There are no tax consequences to Tradico upon a participant's disposition of
shares acquired under the ISP except that Tradico may take a deduction equal
to the amount the participant must recognize as compensation income in the
case of the disposition of shares acquired under ISO's before the applicable
ISO holding period has been satisfied.
The Committee has the sole discretion to determine that awards under the ISP
contain provisions regarding the treatment of awards in the event of a change
in ownership or of a change in control of Tradico. Upon a change in ownership
or change in control, all terms, conditions, restrictions and limitations in
effect with respect to any unexercised award will immediately lapse and no
other terms and conditions will be applied. Any unexercised, unvested,
unearned or unpaid award will automatically become 100% vested. Awards with
performance periods will be treated as if the performance objectives have been
obtained at a level of 100%.
Unless determined otherwise by the Committee, awards to a participant under
the ISP are forfeited upon any of the following: by the participant's
discharge for cause; voluntary termination other than retirement; engaging in
competition with Tradico; or engaging in activity or conduct contrary to the
best interest of Tradico. Awards (other than unrestricted stock awards) will
be non-assignable (except by will or the laws of descent and distribution) and
will have such term and will terminate upon such conditions as contained in
individual awards.
In connection with its request for Rulings that the Distribution will qualify
as a tax-free spin-off, Ralston has represented to the I.R.S., among other
things, that within one year after the date of the Distribution, Tradico will
make awards of restricted Tradico Stock or options to acquire Tradico Stock
aggregating 0.5% of the outstanding Tradico Stock, at least 3% within three
years after the date of the Distribution, and at least 5% within five years
after the date of the Distribution, in order to align the interests of
management with those of stockholders and foster significant stock ownership
by Tradico's key executives. Such awards will be made to certain of the
Executive Officers and other key executives; however, the total number of
shares to be granted, their value and how they will be allocated has not been
determined at this time. The Committee may make additional awards of
restricted stock or stock options to the Executive Officers and other
directors and employees of Tradico.
A copy of the ISP is attached as Annex C to this Information Statement.
The foregoing description of the ISP is intended only as a summary and is
qualified in its entirety by reference to the ISP.
SAVINGS INVESTMENT PLAN
Tradico also intends to adopt a Tradico Savings Investment Plan ("Tradico
SIP") a defined contribution plan which is intended to be a 401(k) Plan.
Pursuant to that Plan, any eligible regular non-union sales, administrative,
clerical employees of Tradico who have completed one year of service may elect
to have their employer contribute to the Tradico SIP on their behalf
Contributions of up to __% of their compensation in 1% increments rather than
receive such amounts in cash. Tradico will contribute a Company Matching
Contribution equal to 50% up to 100% of each participant's Basic Contribution,
but only to the extent that the participant's Contributions do not exceed 6%
of compensation. Neither the Basic Contributions nor the Company Matching
Contributions will be subject to Federal income tax in the year contributed;
however, the total Contributions will be subject to limitation as required by
Section 415 of the Code.
Amounts contributed to the Tradico SIP will be invested by the Trustee in
one or more funds as directed by the participant. It is contemplated that
initially there will be approximately 6 such funds offering a variety of
investment media. Company Matching Contributions will originally be
invested in the Tradico Common Stock Fund. Contributions will be invested as
directed by participants.
A participant's election deferrals will be vested from the time made.
Company Matching Contributions will vest at the rate of __% for each year of
service (including service with Ralston) by the participant or are fully
vested upon attainment of age 65, upon retirement, disability or death, or in
the case of termination of the Tradico SIP or discontinuance of Company
Matching Contributions. Upon termination of employment, retirement, disability
or death, that portion of the trust fund credited to a participant which is
vested will be made available to the participant.
The Code imposes limits on deferrals permitted in tax-qualified plans
such as the Tradico SIP. Compensation of certain Executive Officers, and
certain other key management employees, will be deferred to the Deferred
Compensation Plan to the extent such deferrals exceed the qualified plan
limits in the Tradico SIP or are otherwise ineligible to be deferred into the
Tradico SIP. Such deferrals will be credited with Company Matching
Contributions in the same manner as in the Tradico SIP.
DEFERRED COMPENSATION PLAN
Tradico intends to adopt the Tradico Deferred Compensation Plan which
will be administered by the Nominating and Compensation Committee. Under this
Plan, all or any part of an eligible employee's salary and bonus may be
deferred by the participant until retirement, termination of employment, total
disability or death. Participation in the plan will be offered to certain key
employees (including the Executive Officers) of Tradico and certain of its
subsidiaries, as well as to non-management directors. The purpose of the Plan
is to afford the participant the opportunity to create
post-retirement benefits. The Plan initially will provide that all or any part
of the participant's compensation may be deferred in various investment
options which will mirror the performance of the investment funds offered by
the Tradico SIP, including a Tradico Stock equivalent option. At the
discretion of the Committee exercised prior to any deferrals, deferrals may
entitle the participant to a Company Match of a stated percentage of the
deferral.
Deferrals under the Tradico Deferred Compensation Plan will normally be
distributed to the participant in a lump sum following retirement, termination
of employment or total disability. In the event of the participant's death,
deferrals will be paid to the participant's beneficiary or legal
representative.
MANAGEMENT CONTINUITY AGREEMENTS
Tradico intends to enter into management continuity agreements with the
Executive Officers and possibly other key employees. The purpose of these
agreements is to provide severance compensation in the event of voluntary or
involuntary termination after a change in control of Tradico, which is
generally defined as the acquisition of 50% or more of the outstanding shares
of Tradico Stock, or the failure of the initial Directors or their recommended
or appointed successors to constitute a majority of the Tradico Board of
Directors. The compensation provided would be in the form of (i) a lump sum
payment equal to the present value of continuing their respective salaries and
bonuses throughout an applicable period following termination of employment,
and (ii) the continuation of other employee benefits for the same period. The
initial applicable period will be two years, in the event of an involuntary
termination of employment (including a constructive termination), and one
year, in the event of a voluntary termination of employment, which periods
will be subject to reduction for each complete year the relevant individual
remains employed following a change in control. No payments would be made in
the event termination is due to death, disability or normal retirement, or is
for cause, nor would any payments continue beyond attainment of normal
retirement age.
RALSTON COMPENSATION PROGRAMS
The Reorganization Agreement contains provisions for the assumption by
Tradico of certain employee benefit obligations and liabilities to Tradico
employees, including the Executive Officers, pursuant to certain Ralston
incentive and compensation programs and plans. See "AGREEMENTS BETWEEN RALSTON
AND TRADICO--Agreement and Plan of Reorganization-Employee Benefit
Arrangements".
An investment fiduciary for the Ralston SIP will, at a time deemed appropriate
by it, cause to be converted or redeemed all shares of Ralston's Series A ESOP
Convertible Preferred Stock ("ESOP Stock") held on behalf of Tradico employees
who, prior to the Distribution Date, are participants in that Plan. The ESOP
Stock will be converted or redeemed into shares of Ralston Stock, in
accordance with the terms of the ESOP Stock, and all shares of Ralston Stock
held pursuant to that Plan, whether in accounts under the Ralston Stock Fund
or received by the Plan upon the conversion or redemption of the ESOP Stock so
described, will receive shares of Tradico Stock pursuant to the Distribution.
As soon as practicable following the Distribution, shares of Ralston Stock and
Tradico Stock (received in the Distribution) held in the Ralston SIP on behalf
of Tradico employees will be transferred to the Tradico SIP and held in
accounts established for such employees pursuant to that Plan.
[Amounts credited to Tradico employees, including the Executive Officers,
pursuant to Ralston's Deferred Compensation Plan for Key Employees will be
retained in that Plan at the time of the Distribution, and such Tradico
Employees will receive distributions under that Plan in accordance with its
terms. Ralston will retain liability for all obligations under that Plan.]
For a discussion of the treatment of outstanding options to acquire shares of
Ralston Stock and restricted shares of Ralston Stock granted by Ralston to
Tradico Employees including the Executive Officers, see "THE
DISTRIBUTION--Manner of Effecting the Distribution", "THE
DISTRIBUTION--Listing and Trading of Tradico Stock"; "AGREEMENTS BETWEEN
RALSTON AND TRADICO--Agreement and Plan of Reorganization--Stock Options",
"AGREEMENTS BETWEEN RALSTON AND TRADICO--Agreement and Plan of
Reorganization--Restricted Stock"; and "TRADICO COMPENSATION AND BENEFIT
PLANS--Incentive Stock Plan".
CERTAIN TRANSACTIONS
The Tradico Business has in the past engaged in numerous transactions
with other Ralston divisions and subsidiaries. (See "Notes to Combined
Financial Statements---Related Party Activity".) Such transactions have
included, among other things, the extension of intercompany loans, purchases
of raw materials or additives, the provision of various other types of
financial support by or to Ralston, and the sharing of services and
administration and the costs thereof. In addition, affiliates of Ralston or of
Tradico have distributed products manufactured by the other in certain
countries.
At or following the Distribution, Tradico and Ralston will enter into a
Master Distribution Agreement and various local agreements concerning the
continued distribution by Ralston affiliates of products produced by Tradico
or by Tradico subsidiaries of products produced by Ralston affiliates. Terms
and conditions of such agreements are expected to be similar to those
negotiated by unrelated parties at arm's length. In addition, Ralston will
license certain trademarks and technology utilized in its pet food business to
Tradico in certain countries for a period of five years following the
Distribution. See "AGREEMENTS BETWEEN RALSTON AND TRADICO-- Master
Distribution Agreement", "AGREEMENTS BETWEEN RALSTON AND TRADICO--Trademark
Agreement", and "AGREEMENTS BETWEEN RALSTON AND TRADICO--Technology Licenses".
Except as provided in any such agreements and except as provided in the
Bridging Agreement, administrative services provided by Ralston to Tradico
affiliates, or by Tradico affiliates to Ralston affiliates, will be
discontinued. All other administrative services currently provided by Ralston
will be either assumed by Tradico or obtained by it from unaffiliated third
parties. See "AGREEMENTS BETWEEN RALSTON AND TRADICO --Bridging Agreement".
W. P. Stiritz, the Chief Executive Officer, President and Chairman of the
Board of Tradico, is also Chairman of the Board of Ralston; __________ and
_________, Directors of Tradico, are also Directors of Ralston.
See also, generally, "AGREEMENTS BETWEEN RALSTON AND TRADICO".
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF TRADICO STOCK
All of Tradico's outstanding Common Stock is currently held by Ralston.
To the best knowledge of Tradico, the following table sets forth projected
Tradico Stock ownership information with respect to each of the Tradico
Directors and to all Tradico Directors and Executive Officers as a group and
with respect to each person who is projected to own more than 5% of the
Tradico Stock immediately after the Distribution. Such projections are based
on the anticipated distribution of one share of Tradico Stock for every
_______ shares of Ralston Stock beneficially owned by such parties as of
____________, 1998 (including shares of Ralston Stock held in the Ralston SIP
for the accounts of Executive Officers). The projections do not include any
shares of Tradico Stock which may be acquired as a result of a distribution
with respect to shares of Ralston Stock which will be acquired at the
Distribution upon conversion or redemption of ESOP Stock held on such date for
the accounts of such Executive Officers. Under the formulas governing such
conversions or redemptions, the number of such shares of Tradico Stock depends
on the relative market values of the Tradico Stock and the Ralston Stock at
the time of the Distribution as well as on the number of shares converted or
redeemed. Consequently, the number of such shares of Tradico Stock is not
determinable with certainty at this time. See "THE DISTRIBUTION--Manner of
Effecting the Distribution" and "RALSTON COMPENSATION PROGRAMS".
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NUMBER OF SHARES
TO BE % OF SHARES EXPLANATORY
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING (A) NOTES
- --------------------------- ------------------ --------------- -----------
Nationsbank, N.A.
One Nationsbank Plaza
St. Louis, Missouri
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109
William P. Stiritz ________________ ______%
________________
________________
________________
________________
________________
</TABLE>
(A) Shares Outstanding were based on the anticipated distribution of
Tradico Stock in respect of shares of Ralston Stock actually outstanding on
____________, 1998. An asterisk in this column indicates the person would own
less than 1% of the Tradico Stock.
<PAGE>
DESCRIPTION OF TRADICO CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under Tradico's Articles of Incorporation, a copy of which is attached as
Annex A to this Information Statement (the "Tradico Articles"), the total
number of shares of all classes of stock that Tradico will have authority to
issue under the Tradico Articles will be ___ million, of which ___ million
will be shares of $.01 par value preferred stock, and ___ million will be
shares of $.01 par value Tradico Common Stock. No shares of Tradico preferred
stock will be issued in connection with the Distribution. Based on the number
of shares of Ralston Stock outstanding at February __, 1998, approximately __
million shares of Tradico Stock will be issued to shareholders of Ralston in
the Distribution. All of the shares of Tradico Stock issued in the
Distribution will be validly issued, fully paid and nonassessable.
TRADICO COMMON STOCK
The holders of Tradico Stock will be entitled to one vote for each share
held of record on the applicable record date on all matters voted on by
shareholders, including elections of directors, and, except as otherwise
required by law or provided in any resolution adopted by the Tradico Board
with respect to any shares of Tradico preferred stock, the holders of such
shares will exclusively possess all voting power. The Tradico Articles do not
provide for cumulative voting in the election of directors or any preemptive
rights to purchase or subscribe for any stock or other securities and there
are no conversion rights or redemption or sinking fund provisions with respect
to such stock. Subject to any preferential rights of any outstanding series of
Tradico preferred stock created by the Tradico Board from time to time, the
holders of Tradico Stock on the applicable record date will be entitled to
such dividends as may be declared from time to time by the Tradico Board from
funds available therefor, and upon liquidation will be entitled to receive pro
rata all assets of Tradico available for distribution to such holders. See
"THE DISTRIBUTION--Certain Significant Considerations--Tradico Dividend
Policy", and "THE DISTRIBUTION--Manner of Effecting the Distribution".
The Tradico Articles, Bylaws and Rights Agreement contain certain
provisions which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of
Tradico. See "--Common Stock Purchase Rights" below and "ANTI-TAKEOVER EFFECTS
OF CERTAIN PROVISIONS".
TRADICO PREFERRED STOCK
The Tradico Board has the authority to issue shares of Tradico preferred
stock in one or more series and to fix, by resolution, the voting powers
(which may be full, limited or eliminated), designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, including liquidation
preferences, dividend rates, conversion rights and redemption provisions of
the shares constituting any series, without any further vote or action by the
shareholders. Any shares of Tradico preferred stock so authorized and issued
could have priority over the Tradico Stock with respect to dividend and/or
liquidation rights.
COMMON STOCK PURCHASE RIGHTS
The Tradico Board has declared a dividend distribution of one Right
("Right") for each outstanding share of Tradico Stock. Each Right will
entitle the registered holder to purchase from Tradico one share of Tradico
Stock at a price of $__ per share, subject to adjustment (the "Purchase
Price"). The terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between Tradico and _____________ (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of Tradico Stock (other than
Tradico Stock received by such person in the Distribution) constituting 20% or
more of the outstanding Tradico Stock, or (ii) 10 business days (or such later
date as may be determined by action of the Tradico Board prior to such time as
any Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer, the
consummation of which would result in a person or group acquiring beneficial
ownership of 20% or more of such outstanding Tradico Stock (the earlier of
such dates being called the "Rights Distribution Date"), the Rights will be
evidenced, with respect to any shares of Tradico Stock, by the shareholder's
most recent account statement issued by the Transfer Agent (the "Account
Statement") with respect to book entry shares, or by the shareholder's
physical stock certificates.
The Rights Agreement provides that, until the Rights Distribution Date
(or earlier redemption, exchange or expiration of the Rights), each issued
Account Statement or physical stock certificate will contain a notation
incorporating the Rights Agreement by reference. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the transfer of any
shares of Tradico Stock will also constitute the transfer of the Rights
associated with such shares of Tradico Stock. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights will be mailed to holders of record of the Tradico Stock as of the
close of business on the Rights Distribution Date and thereafter such separate
Rights Certificate alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire ten years from the Distribution Date (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by Tradico, in each case as described below.
The Purchase Price payable, and the number of shares of Tradico Stock or
other securities or property issuable upon the exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Tradico Stock, (ii) upon the grant to holders of the Tradico Stock of
certain rights or warrants to subscribe for or purchase Tradico Stock at a
price, or securities convertible into Tradico Stock with a conversion price,
less than the then current market price of the Tradico Stock or (iii) upon the
distribution to holders of the Tradico Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
reduced earnings or dividends payable in Tradico Stock) or of subscription
rights or warrants (other than those referred to above).
In the event that Tradico is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have
a market value of two times the exercise price of the Right. In the event that
any person becomes an Acquiring Person, proper provision shall be made so that
each holder of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the right to
acquire a share of Tradico Stock at 33 1/3% of its then current market value.
An Acquiring Person is a Person (or a group of affiliated or associated
persons) that becomes the beneficial owner of Tradico Stock (other than any
shares of Tradico Stock received by such person in the Distribution)
constituting 20% or more of the then outstanding Tradico Stock.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Tradico
Stock, the Tradico Board may exchange the Rights (other than Rights owned by
such person or group which have become void), in whole or in part, at an
exchange ratio of one share of Tradico Stock per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional shares of Tradico Stock will be issued and in
lieu thereof, an adjustment in cash will be made based on the market price of
Tradico Stock on the last trading day prior to the date of exercise.
At any time prior to the time a person becomes an Acquiring Person, the
Tradico Board may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the
Tradico Board in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Tradico, including, without limitation, the right to vote
or to receive dividends.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Tradico on
terms not approved by the Tradico Board, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Tradico Board since the Rights may be redeemed by Tradico at the
Redemption Price prior to the time that a person or group has become an
Acquiring Person.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the form of the Rights Agreement, a copy of which has
been filed as an exhibit to the Registration Statement.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Tradico Articles, Bylaws, Rights and the GBCL contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Tradico by various means such as a tender offer or merger
not approved by the Tradico Board. These provisions are designed to enable the
Tradico Board, particularly in the initial years of Tradico's existence as an
independent, publicly-owned company, to develop Tradico's business in a manner
that will foster its long-term growth without the potential disruption that
might be entailed by the threat of a takeover not deemed by the Tradico Board
to be in the best interests of Tradico and its shareholders. See also
"AGREEMENTS BETWEEN RALSTON AND TRADICO--Agreement and Plan of
Reorganization---Certain Post-Distribution Covenants" for a discussion of
certain covenants that could also deter a takeover proposal.
The description set forth below is intended as a summary of these
provisions only and is qualified in its entirety by reference to such
provisions. A copy of the Tradico Articles and Bylaws is attached to this
Information Statement as Annexes A and B, respectively.
LIMITATIONS ON CHANGES IN BOARD COMPOSITION AND OTHER ACTIONS BY SHAREHOLDERS
The Tradico Bylaws provide that the number of directors will be fixed
from time to time exclusively by the Tradico Board, but shall consist of not
less than three and no more than eight directors (initially the Tradico Board
will be comprised of six directors). The Tradico Articles provide for the
Tradico Board to be divided into three classes, as nearly equal in size as
possible, serving staggered terms so that the terms of two of the initial
directors of Tradico will expire at each of the 1999, 2000 and 2001 annual
meetings of Tradico's shareholders. Starting with the 1999 annual meeting
of Tradico's shareholders, one class of directors will be elected each
year for a three year term. As a result, at least two annual meetings
of shareholders may be required for shareholders to change a majority
of the directors, whether or not a majority of Tradico's shareholders
believes that such a change would be desirable. See "MANAGEMENT--
Directors of Tradico".
The GBCL provides that, unless a corporation's articles of incorporation or
bylaws provide otherwise, the holders of a majority of the corporation's
voting stock may remove any director from office. The Tradico Articles provide
that a director may be removed by shareholders only "for cause" and only by
the affirmative vote of (i) two-thirds of all members of the Tradico Board and
(ii) the holders of at least two-thirds of Tradico's voting stock. The GBCL
also provides that, unless a corporation's articles of incorporation or bylaws
provide otherwise, all vacancies on a corporation's board of directors,
including any vacancies resulting from an increase in the number of directors,
may be filled by a majority of the directors then in office, although less
than a quorum, until the next election of directors by the shareholders of
Tradico. The Tradico Articles provide that, subject to any rights of holders
of Tradico preferred stock, vacancies may be filled only by a majority of the
remaining directors.
Under the Tradico Bylaws only persons who are nominated by or at the
direction of the Tradico Board, or by a shareholder who has given notice in
accordance therewith, which generally requires notice not less than sixty nor
more than ninety days prior to a meeting at which directors are to be elected,
will be eligible for election as directors at that meeting. The Tradico Bylaws
also establish such advance notice procedure with regard to other matters
which any shareholder may desire to be brought before any meeting of
shareholders. See "SHAREHOLDER PROPOSALS".
The GBCL provides that special meetings of shareholders may be called by
the board of directors or by such other person or persons as may be authorized
by a corporation's Articles of Incorporation or Bylaws. The Tradico Bylaws
provide that special meetings of Tradico's shareholders may be called only by
the Chairman of the Board or President of Tradico or by a majority of the
entire Tradico Board. The Tradico Bylaws also provide that only such business
shall be conducted at a special meeting of Tradico's shareholders as shall be
specified in the notice of meeting.
The GBCL provides that any action by written consent of shareholders in
lieu of a meeting must be unanimous.
The provisions of the Tradico Articles and Bylaws with respect to the
classification of directors, the advance notice requirements for director
nominations or other proposals of shareholders and the limitations on the
ability of shareholders to increase the size of the board, remove directors
and fill vacancies, will have the effect of making it more difficult for
shareholders to change the composition of the Tradico Board or otherwise to
bring a matter before shareholders without the Tradico Board's consent, and
thus will reduce the vulnerability of Tradico to an unsolicited takeover
proposal.
PREFERRED AND COMMON STOCK
Tradico Articles authorize the Tradico Board to establish series of
preferred stock and to determine, with respect to any series of preferred
stock, the voting powers (full, limited, or eliminated), and such
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof as
are stated in the resolutions of the Tradico Board providing for such series.
In addition, the Tradico Articles authorize the Tradico Board to issue up to
approximately ___ million additional shares of Tradico Stock after the
Distribution (in addition to shares reserved for the Rights and outstanding
options). The number of authorized but unissued shares will provide Tradico
with the ability to meet future capital needs and to provide shares for
possible acquisitions and stock dividends or stock splits.
Tradico believes that the preferred stock will provide Tradico with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. Having
such authorized shares available for issuance will allow Tradico to issue
shares of preferred stock without the expense and delay of a special
shareholders' meeting. The authorized and unissued shares of preferred stock,
as well as the authorized and unissued shares of Tradico Stock, will be
available for issuance without further action by shareholders, unless such
action is otherwise required by applicable law. Although the Tradico Board has
no intention at the present time of doing so, it could issue a series of
preferred stock that could, subject to certain limitations imposed by the law,
depending on the terms of such series, impede the completion of a merger,
tender offer or other takeover attempt. The Tradico Board will make any
determination to issue such shares based on its judgment as to the best
interests of Tradico and its then-existing shareholders at the time of the
issuance. The Tradico Board, in so acting, could issue preferred stock having
terms which could discourage an acquisition attempt or other transaction that
some, or a majority, of the shareholders might believe to be in their best
interests or in which shareholders might receive a premium for their stock
over the then market price of such stock.
FAIR PRICE PROVISIONS
In order to ensure Tradico shareholders receive a fair price for their
shares of Tradico Stock upon significant change in the ownership of Tradico,
the Tradico Articles contain a fair price provision requiring the affirmative
vote of not less than 85% of all of the outstanding shares of capital stock of
Tradico then entitled to vote, and a majority of the voting power of all such
shares of which an interested shareholder (as defined) is not the beneficial
owner, to approve certain business combinations. See Article Nine of Tradico's
Articles attached hereto as Annex A. Business combinations covered by the
provision include a merger or consolidation, sale or other disposition of a
substantial amount of Tradico assets, a plan of liquidation or dissolution of
Tradico, or other transactions involving the transfer, issuance,
reclassification or recapitalization of Tradico securities, in each case
benefiting an individual or entity that, together with its affiliates and
associates, is the beneficial owner of more than 10% of the outstanding shares
entitled to vote in the election of directors. In certain circumstances, the
Tradico Board of Directors may approve any of the foregoing in lieu of the
super-majority shareholder approval provision.
AMENDMENT OF CERTAIN PROVISIONS OF THE TRADICO ARTICLES AND BYLAWS
The Tradico Articles provide that the Bylaws may only be amended or
repealed by two-thirds of the Tradico Board of Directors. Any amendment of the
Tradico Articles requires a vote of a majority of the outstanding shares of
Tradico capital stock entitled to vote. Amendment of the provisions of the
Tradico Articles relating to the Directors of the corporation requires the
vote of two-thirds of the outstanding shares of Tradico capital stock entitled
to vote. Amendment of the provisions of the Tradico Articles relating to the
"Fair Price" and "Indemnification" provisions require the vote of 85% of the
outstanding shares of Tradico capital stock entitled to vote.
RIGHTS
As described above, the Rights will permit disinterested shareholders to
acquire shares of Tradico Stock or common stock of an acquiring company at a
substantial discount in the event of certain described changes in control. See
"DESCRIPTION OF TRADICO CAPITAL STOCK--Common Stock Purchase Rights".
MANAGEMENT CONTINUITY AGREEMENTS; OTHER SEVERANCE ARRANGEMENTS
Tradico has entered into Management Continuity Agreements with its
executive officers and other key management employees providing severance
compensation and continuation of benefits in the event of termination
following a change in control of Tradico, with the amount of payments to be
received being dependent upon the voluntary or involuntary nature of such
termination. See "TRADICO COMPENSATION AND BENEFIT PLANS --Management
Continuity Agreements".
STATUTORY PROVISIONS
Tradico is subject to the business combination provisions of Section
351.459 of the GBCL, which allows the Tradico Board to retain discretion over
the approval of certain business combinations. That Section, together with
the provisions of Section 351.347 of the GBCL permitting the Tradico Board to
consider the interests of non-shareholder constituencies in connection with
acquisition proposals, may make it more difficult for there to be a change in
control of Tradico or for Tradico to enter into certain business combinations
than if Tradico were not subject to such sections. In its Bylaws, Tradico has
elected not to be subject to the control shares acquisition provisions of
Section 351.407 of the GBCL, which denies an acquiror voting rights with
respect to any shares of voting stock which increase its equity ownership to
more than specified thresholds.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF TRADICO
Under Section 351.355 of the GBCL and the Tradico Articles, Tradico must
indemnify any person (other than a party plaintiff suing on his or her behalf
or in the right of Tradico) who is or was a director or officer of Tradico, or
is or was serving at the request of Tradico as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, trade or
industry association or other enterprise, to the maximum extent permitted by
law, against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by such
person in connection with any civil, criminal, administrative or investigative
action, proceeding or claim (including an action by or in the right of
Tradico), by reason of the fact that such person is or was serving in such
capacity, provided that such person's conduct is not finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct.
Tradico's Directors and Executive Officers also have indemnification contracts
with Tradico which will become effective as of the Distribution Date. Pursuant
to those agreements, the Company agrees to indemnify the Directors and
Executive Officers to the full extent authorized or permitted by the GBCL. The
agreements also provide for indemnification to the extent not covered by the
GBCL or insurance policies purchased and maintained by Tradico (e.g. if the
GBCL is amended to change the scope of indemnification). Such indemnification
would be coextensive with the indemnification currently permitted by the GBCL,
as described above, but no indemnity would be paid (i) in respect to
remuneration paid to the Director or Executive Officer if it shall be finally
judicially adjudged that such remuneration was in violation of law; (ii) on
account of any suit for an accounting of profits made from the purchase or
sale by the Director or Executive Officer of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended, or similar provisions of any state or local statutory law;
(iii) on account of the Director's or Executive Officer's conduct which is
finally judicially adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct; or (iv) if a final decision by a Court having
jurisdiction in the matter (all appeals having been denied or none having been
taken) shall determine that such indemnification is not lawful.
The agreements also provide for the advancement of expenses of defending
any civil or criminal action, claim, suit or proceeding against the Director
or Executive Officer and for repayment of such expenses by the Director or
Executive Officer to the Company if it is ultimately judicially determined
that the Director or Executive Officer is not entitled to such
indemnification.
Tradico will have, following the Distribution, directors' and officers'
insurance which protects each director and officer from liability for actions
taken in their capacity as directors or officers. This insurance may provide
broader coverage for such individuals than may be required by the provisions
of the Tradico Articles.
The foregoing represents a summary of the general effect of the
indemnification provisions of Missouri law and the Tradico Articles and such
agreements and insurance. Additional information regarding indemnification of
directors and officers can be found in Section 351.355 of the GBCL, Tradico's
Articles of Incorporation and its pertinent agreements.
SHAREHOLDER PROPOSALS
Article I, Section 4 of the Tradico Bylaws attached as Annex B hereto
sets forth advance notice requirements applicable to shareholders desiring to
nominate candidates for directors or to present a proposal or bring other
business before a Tradico shareholders meeting. In each case the notice must
be given to the Secretary of Tradico, whose address is 9811 South Outer Forty
Drive, St. Louis, Missouri 63124. The 1999 Annual Meeting of Tradico
Shareholders is expected to be held on January __, 1999. To be considered,
notice of any such nomination or proposal must be received between November
__, 1998 and December __, 1998. To be included in Tradico's proxy statement
and form of proxy for that meeting, any such proposal must also comply in all
respects with the rules and regulations of the Commission.
INDEPENDENT ACCOUNTANTS
The Tradico Board has appointed Price Waterhouse LLP as Tradico's
independent accountants to audit Tradico's financial statements for the fiscal
year ending August 31, 1998. Price Waterhouse LLP has audited the financial
statements of Ralston since 1955.
INDEX TO FINANCIAL INFORMATION
OF TRADICO MISSOURI, INC.
<TABLE>
<CAPTION>
<S> <C>
Page
- --------------------------------------------------
Report of Independent Accountants F-2
Combined Statement of Earnings F-3
Combined Balance Sheet F-4
Combined Statement of Cash Flows F-5
Notes to Combined Financial Statements F-6
Quarterly Financial Information F-20
Condensed Combined Statement of Earnings F-21
Condensed Combined Balance Sheet F-22
Condensed Combined Statement of Cash Flows F-23
Notes to Condensed Combined Financial Statements F-24
</TABLE>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Ralston Purina Company
In our opinion, the accompanying combined balance sheet and the related
combined statements of earnings and of cash flows present fairly, in all
material respects, the financial position of Tradico Missouri, Inc., comprised
of businesses of Ralston Purina Company as described in the Basis of
Presentation note to the financial statements, at August 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended August 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
August 8, 1997
F-2
<TABLE>
<CAPTION>
TRADICO
COMBINED STATEMENT OF EARNINGS
YEAR ENDED AUGUST 31
(DOLLARS IN MILLIONS)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net Sales $1,430.3 $1,170.1 $1,039.2
--------- --------- ---------
Costs and Expenses
Cost of products sold 1,234.3 991.6 876.0
Selling, general and administrative 145.9 133.8 121.1
Interest 13.7 12.6 16.7
Provisions for restructuring 8.3 1.8 2.8
Gain on sale of property (3.6) (1.6) (13.5)
Other (income)/expense, net 3.4 (3.5) 1.7
--------- --------- ---------
1,402.0 1,134.7 1,004.8
--------- --------- ---------
Earnings before Income Taxes 28.3 35.4 34.4
Income Taxes 15.1 19.6 26.6
--------- --------- ---------
Net Earnings $ 13.2 $ 15.8 $ 7.8
========= ========= =========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TRADICO
COMBINED BALANCE SHEET
AUGUST 31
(DOLLARS IN MILLIONS)
1996 1995
------ ------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 20.9 $ 16.2
Marketable securities 11.4 17.7
Receivables, less allowance for doubtful accounts 121.6 101.5
Inventories 136.7 95.7
Other current assets 12.6 12.2
------ ------
Total Current Assets 303.2 243.3
------ ------
Investments and Other Assets 55.9 33.0
Property at Cost
Land 9.1 9.0
Buildings 67.9 65.1
Machinery and equipment 220.5 198.3
Construction in progress 6.5 16.6
------ ------
304.0 289.0
Accumulated depreciation 154.2 149.1
------ ------
149.8 139.9
Total $508.9 $416.2
====== ======
LIABILITIES AND NET INVESTMENT IN TRADICO
Current Liabilities
Current maturities of long-term debt $ 1.1 $ 13.7
Notes payable 68.7 52.8
Accounts payable and accrued liabilities 162.7 129.1
Income taxes 8.4 8.8
------ ------
Total Current Liabilities 240.9 204.4
------ ------
Long-Term Debt 41.7 34.7
Deferred Income Taxes 7.9 12.2
Other Liabilities 22.8 25.3
Net Investment in Tradico 195.6 139.6
Total $508.9 $416.2
====== ======
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
F4
<PAGE>
<TABLE>
<CAPTION>
TRADICO
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31
(DOLLARS IN MILLIONS)
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONS
Net earnings $ 13.2 $ 15.8 $ 7.8
Adjustments to reconcile net earnings to net cash flow
provided by operations:
Depreciation and amortization 20.7 17.7 17.3
Deferred income taxes (3.4) 1.7 4.2
Gain on sale of property (3.6) (1.6) (13.5)
Changes in assets and liabilities used in operations:
Increase in accounts receivable (18.4) (14.5) (28.1)
Increase in inventories (44.8) (38.4) (16.1)
(Increase) decrease in other current assets 1.1 (3.0) (2.9)
Increase in accounts payable and
accrued liabilities 18.1 32.8 29.8
Increase (decrease) in other current liabilities (0.5) (0.6) 8.4
Other, net 0.7 1.5 3.0
------- ------- -------
Net cash flow from operations (16.9) 11.4 9.9
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisitions of businesses (25.6)
Property additions (30.0) (28.6) (26.6)
Proceeds from sale of Korean cereal business 10.0
Proceeds from the sale of property 1.2 7.1 21.9
Other, net 6.8 (6.6) (4.7)
------- ------- -------
Net cash used by investing activities (37.6) (28.1) (9.4)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of long-term debt 10.8 2.3 5.7
Principal payments on long-term debt, including
current maturities (17.0) (3.3) (5.0)
Net increase in notes payable 15.9 13.0 8.8
Net transactions with Ralston 51.9 5.4 7.9
------- ------- -------
Net cash provided by financing activities 61.6 17.4 17.4
------- ------- -------
Effect of Exchange Rate Changes on Cash (2.4) (0.9) (9.1)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 4.7 (0.2) 8.8
Cash and Cash Equivalents, Beginning of Year 16.2 16.4 7.6
------- ------- -------
Cash and Cash Equivalents, End of Year $ 20.9 $ 16.2 $ 16.4
======= ======= =======
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Financial Statements.
F-5
<PAGE>
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
BASIS OF PRESENTATION
On March 28, 1996, the Board of Directors of Ralston Purina Company (Ralston)
approved in principle a plan to spin off its worldwide livestock and poultry
nutrition business. That business, together with certain assets associated
with Ralston's international pet food business in Korea, Colombia, Venezuela
and Guatemala, which will be retained by subsidiaries of the new entity, will
be referred to as "Tradico." Not included in the spin-off are Ralston's pet
operations in a number of other international locations (RPI Consumer).
Ralston has requested rulings from the IRS as to whether the distribution will
qualify as a tax-free spin-off.
Tradico is one of the world's largest producers and marketers of formula feeds
and operates 73 manufacturing plants in 16 countries. Its products are
marketed under the Purina Chow global brand through a worldwide network of
approximately 3,500 independent dealers, as well as an independent and a
direct sales force.
The financial statements of Tradico include the financial position, results of
operations and cash flows of Tradico. Ralston's historical cost basis of
assets and liabilities has been reflected in the Tradico financial statements.
The financial information in these financial statements is not necessarily
indicative of results that would have occurred if Tradico had been a separate
stand-alone entity during the periods presented or of future results of
Tradico.
RPI Consumer, while not included in the accompanying financial statements,
generally operates within the same subsidiaries and affiliates as Tradico.
See Related Party note for a more complete discussion.
SUMMARY OF ACCOUNTING POLICIES
Tradico's significant accounting policies, which conform to U.S. generally
accepted accounting principles and are applied on a consistent basis among all
years presented, are described below:
PRINCIPLES OF COMBINATION - These financial statements include the accounts of
Tradico and its majority-owned subsidiaries. All significant intercompany
transactions are eliminated. Investments in affiliated companies, 20% through
50%-owned, are carried at equity.
Minority interests in earnings of subsidiaries and Tradico's share of the net
earnings of unconsolidated companies
carried at equity are included in selling, general and administrative
expenses.
F-6
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
FOREIGN CURRENCY TRANSLATION - Foreign currency financial statements of
foreign operations where the local currency is the functional currency are
translated using exchange rates in effect at period end for assets and
liabilities and average exchange rates during the period for results of
operations. Related translation adjustments are reported as a separate
component of Net Investment in Tradico.
For foreign operations where the U.S. dollar is the functional currency and
for countries which are considered highly inflationary, translation practices
differ in that inventories, properties, accumulated depreciation and
depreciation accounts are translated at historical rates of exchange and
related translation adjustments are included in earnings. Gains and losses
from foreign currency transactions are generally included in earnings.
FINANCIAL INSTRUMENTS - Tradico periodically uses financial derivatives in the
management of foreign currency risks that are inherent to its business
operations. Such instruments are not held or issued for trading purposes.
Tradico periodically uses foreign exchange (F/X) instruments, including
currency forwards, futures and options, to reduce transaction and translation
exposures resulting from its foreign currency activities. F/X instruments
used are selected based on their risk reduction attributes and the related
market conditions. Such instruments are marked-to-market, and the terms
generally do not exceed twelve months. Realized and unrealized gains and
losses from instruments qualifying as hedges are deferred as part of the cost
basis of the asset or liability being hedged and are recognized in the
statement of earnings in the same period as the underlying transaction.
Realized and unrealized gains or losses from F/X instruments used as economic
hedges but not qualifying for hedge accounting are recognized currently in the
statement of earnings. Cash flows from F/X instruments are classified in the
same category in the statement of cash flows as the underlying activities.
F/X instruments are generally not disposed of prior to the settlement date;
however, if an F/X instrument was disposed of prior to the settlement date,
any gain or loss would be recognized immediately in the statement of earnings.
CASH EQUIVALENTS, for purposes of the statement of cash flows, are considered
to be all highly liquid investments with a maturity of three months or less
when purchased.
MARKETABLE SECURITIES are valued at cost which approximates market.
INVENTORIES are valued generally at the lower of average cost or market.
F-7
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
PROPERTY AT COST - Expenditures for new facilities and those which
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Maintenance, repairs and minor renewals
are expensed as incurred. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
accounts and gains or losses on the dispositions are reflected in earnings.
DEPRECIATION is generally provided on the straight-line basis by charges to
costs or expenses at rates based on the estimated useful lives of the
properties. Estimated useful lives range from 5 to 15 years for machinery and
equipment and 15 to 40 years for buildings. Depreciation expense was $19.4 in
1996, $17.5 in 1995 and $17.0 in 1994.
GOODWILL, which is included in Investments and Other Assets, represents the
excess of cost over the net tangible assets of acquired businesses and is
amortized over periods of up to 40 years, with the majority being amortized
over a 25 year period, including goodwill related to fiscal 1996 acquisitions.
Subsequent to acquisition, Tradico continually evaluates whether later events
and circumstances have occurred that indicate the remaining estimated useful
life of businesses carrying goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. The measurement of
possible impairment is based on the ability to recover the balance of goodwill
from expected future operating cash flows on an undiscounted basis. In the
opinion of management, no such impairment existed as of August 31, 1996 and
1995.
ADVERTISING COSTS are expensed as incurred and were $17.8 in 1996, $17.6 in
1995, and $14.2 in 1994.
RESEARCH AND DEVELOPMENT COSTS are expensed as incurred and were $3.3 in 1996,
$2.1 in 1995, and $1.6 in 1994.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INCOME TAXES - Tradico is included in the consolidated federal income tax
return filed by Ralston. U.S. income tax payments, refunds, credits,
provision and deferred tax components have been allocated to Tradico in
accordance with Ralston's tax allocation policy. Such policy allocates tax
components included in the consolidated income tax return of Ralston to
Tradico to the extent such components were generated or related to Tradico.
Tradico follows the liability method of accounting for income taxes. Deferred
income taxes are recognized for the effect of temporary differences between
financial and tax reporting. No additional U.S. taxes have been provided on
earnings of foreign subsidiaries expected to be reinvested indefinitely.
Additional income taxes are provided, however, on planned repatriation of
foreign earnings after taking into account tax-exempt earnings and applicable
foreign tax credits.
EARNINGS PER SHARE - The combined financial statements of Tradico include
primarily wholly-owned subsidiaries of Ralston and its subsidiaries. As such,
earnings per share data does not provide meaningful information about the
results of operations of Tradico.
F-8
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
RELATED PARTY ACTIVITY
FINANCING - As a matter of policy, most financial activities of Tradico and
RPI Consumer are managed jointly. Such activities include cash management and
the issuance and repayment of debt. Accordingly, substantially all cash and
cash equivalents, marketable securities, notes payable and long-term debt have
been allocated based on cash flows.
Interest expense and interest income have been allocated to Tradico based upon
the allocation of interest bearing instruments. No interest has been charged
on intercompany transactions with affiliates.
SHARED SERVICES - Tradico and RPI Consumer share most general and
administrative functions and distribute some product through a combined
distribution network. Costs of shared activities are allocated based on
utilization or other methods which management believes to be reasonable.
Total costs of these shared activities were $31.6 in 1996, $36.6 in 1995, and
$36.6 in 1994. Of such costs, allocations to Tradico were $18.2 in 1996,
$26.5 in 1995, and $26.0 in 1994.
Ralston provides certain general and administrative services to Tradico
including finance, facilities and systems. These expenses were allocated to
Tradico based on utilization or other methods which management believes to be
reasonable. These allocations were $1.3 in 1996, $1.3 in 1995, and $1.4 in
1994.
Tradico receives technical service fees from non-consolidated affiliates which
are carried under the equity method of accounting. Included in other income
and expense is service fee income from such affiliates of $1.4 in 1996, $3.1
in 1995, and $2.1 in 1994.
F-9
<PAGE>
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
GEOGRAPHIC INFORMATION
Financial information by geographic location for the past three years is set
forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
SALES
- ------------------------------------
Americas (excluding United States) $ 602.6 $ 543.9 $ 488.6
Europe 461.6 327.5 303.7
Asia Pacific 366.1 298.7 246.9
Total $1,430.3 $1,170.1 $1,039.2
========= ========= =========
<PAGE>
<PAGE>
OPERATING PROFIT
- ------------------------------------
Americas (excluding United States) $ 25.9 (b) $ 26.4 $27.1
Europe 0.1 (a) 5.8 (d) 4.6
Asia Pacific 24.3 (c) 19.3 27.0 (f)
--------- --------- ------
Operating Profit 50.3 51.5 58.7
Unallocated Corporate and
Miscellaneous Expenses (8.3) (3.5) (e) (7.6)
Interest Expense (13.7) (12.6) (16.7)
Earnings Before Income Taxes $ 28.3 $ 35.4 $ 34.4
========= ========= =========
<PAGE>
<PAGE>
<PAGE>
TOTAL ASSETS
- ------------------------------------
Americas (excluding United States) $ 173.6 $ 151.4 $ 137.2
Europe 166.3 109.3 98.7
Asia Pacific 169.0 155.5 131.9
Total $ 508.9 $ 416.2 $ 367.8
========= ========= =========
</TABLE>
(a) Includes restructuring provisions of $6.4
(b) Includes restructuring provisions of $1.9
(c) Includes gain on the sale of property of $3.6.
(d) Includes restructuring provisions of $0.9 and gain on the sale of
property of $1.6
(e) Includes restructuring provisions of $0.9
(f) Includes gain on sale of land of $13.5 and restructuring provisions of
$2.8
F-10
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
INCOME TAXES
U.S. income tax payments, refunds, credits, provision and deferred tax
components have been allocated to Tradico in accordance with Ralston's tax
allocation policy. Such policy allocates tax components included in the
consolidated income tax return of Ralston to Tradico to the extent such
components were generated by or related to Tradico.
Had the Tradico income tax provision been calculated as if Tradico was a
single, stand-alone U.S. taxpayer, the income tax provision would have been
lower by approximately $3.1 in 1996, $1.9 in 1995, and $3.2 in 1994.
The provisions for income taxes consisted of the following for the years ended
August 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------ ----- -----
Currently Payable:
United States $ 6.5 $ 2.0 $ 3.2
Foreign 12.0 15.9 19.2
------ ----- -----
Total Current 18.5 17.9 22.4
------ ----- -----
Deferred -- Foreign (3.4) 1.7 4.2
------ ----- -----
Provision For Income Taxes $15.1 $19.6 $26.6
====== ===== =====
</TABLE>
The source of pre-tax earnings was:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----- -------- --------
United States $11.3 $( 5.2) $( 3.6)
Foreign 17.0 40.6 38.0
----- -------- --------
Total $28.3 $ 35.4 $ 34.4
===== ======== ========
</TABLE>
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----- ----- -----
Computed tax at federal statutory rate $ 9.9 $12.4 $12.0
Foreign tax in excess of domestic rate
- operations .2 1.8 2.8
- sale of facilities 5.0
Taxes on repatriation of foreign earnings 5.0 5.4 6.8
----- ----- -----
$15.1 $19.6 $26.6
===== ===== =====
</TABLE>
F-11
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of August 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------- -------
Deferred Tax Liabilities:
Depreciation and property differences $ 5.3 $ 5.6
Inventory differences 4.5 3.2
Retirement plans 3.1 2.7
Other tax liabilities, current 2.6 .1
Other tax liabilities, non-current 6.0 7.6
------- -------
Gross deferred tax liabilities $ 21.5 $ 19.2
------- -------
Deferred Tax Assets:
Tax loss carryforwards $ (4.0) $ (5.6)
Tax credits (2.0) (1.8)
Other tax assets, current (7.9) (3.4)
Other tax assets, non-current (4.5) (1.2)
------- -------
Gross deferred tax (assets) (18.4) (12.0)
Valuation allowance 4.0 4.6
------- -------
Net deferred tax liabilities $ 7.1 $ 11.8
======= =======
</TABLE>
Total net deferred tax liabilities shown above include current and noncurrent
amounts.
An insignificant amount of tax loss carryforwards and tax credits expired in
1996. Future expiration of tax loss carryforwards and tax credits, if not
utilized, are as follows: 1997 - $.4, 1998 - $.2, 1999 - $.1, 2000 - $.7,
2001 and beyond - $4.6. The valuation allowance is primarily attributed to
certain tax loss carryforwards outside the U.S. The valuation allowance
decreased in 1996 by $.6.
At August 31, 1996, approximately $67.0 of foreign subsidiary net earnings was
considered permanently invested in those businesses. Accordingly, U.S. income
taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.
NOTES PAYABLE
Notes payable of $68.7 and $52.8 at August 31, 1996 and 1995, respectively,
had a weighted average interest rate of 11% and 12%, respectively.
Compensating balance arrangements are informal and do not restrict the
withdrawal of funds. Under these arrangements, Tradico maintained average
compensating bank balances of approximately $8.0 in 1996.
F-12
<PAGE>
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
On August 31, 1996, total unused lines of credit for Tradico and RPI Consumer
were $166.0.
LONG-TERM DEBT
The detail of long-term debt allocated to Tradico is as follows at August 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------ -------
Canadian subsidiary, interest rate reset quarterly, weighted
average interest reate of 6.2% in 1996 and 7.3% in 1995;
due 1998. $11.6 $ 15.6
Colombian subsidiary, Libor + .25%, which ranged from 5.5%
to 6.2% in 1996 and 5.1% to 6.4% in 1995; due 2000 5.0 5.0
Korean subsidiary, with interest rate of 10% in 1996 and 11%
in 1995; due 1999 9.7 10.3
Korean subsidiary, with interest rate of 11.5% in 1996 and
12% in 1995; open-ended maturity 8.3 8.7
Other long-term debt with interest rates ranging from 6.5% to
30.5% in 1996 and 5.1% to 10.8% in 1995 8.2 8.8
------ -------
42.8 48.4
Less: Current Maturities (1.1) (13.7)
------ -------
$41.7 $ 34.7
====== =======
</TABLE>
Aggregate maturities of long-term debt are $13.1, $11.9, $5.6 and $11.1 for
the years ending August 31, 1998 through 2001, respectively.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Certain foreign locations participate in various defined benefit pension plans
sponsored by Ralston affiliates, and substantially all U.S. administrative
employees of Tradico participate in Ralston's noncontributory defined benefit
plan. In addition, employees in certain foreign locations are covered by
defined benefit plans that are required by local laws. These plans generally
provide retirement or severance benefits based on years of service and
compensation.
F-13
<PAGE>
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
The cost of these plans are allocated to Tradico based on employee population
and include the following components for the years ended August 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------ ------ ------
Service cost for benefits earned during the year:
Funded plans $ 1.7 $ 1.6 $ 1.5
Unfunded plans 2.5 3.6 2.2
Interest cost on projected benefit obligation 2.4 2.1 2.1
Return on plan assets (4.0) (2.1) (2.2)
Net amortization and deferral 1.0 (0.9) (0.8)
Cost of special benefits related to plant closing - - 1.2
------ ------ ------
$ 3.6 $ 4.3 $ 4.0
====== ====== ======
</TABLE>
The following table presents the funded status of the principal funded defined
benefit plans and amounts recognized in the balance sheet at August 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------- -------
Actuarial present value of:
Vested benefits $(18.0) $(16.6)
Nonvested benefits - -
------- -------
Accumulated benefit obligation (18.0) (16.6)
Effect of future salary increases (8.2) (8.1)
------- -------
Projected benefit obligation (26.2) (24.7)
Plan assets at fair value 30.8 28.8
------- -------
Plan assets in excess of projected benefit
obligation 4.6 4.1
Unrecognized net loss 2.0 1.9
Unrecognized prior service cost .7 0.8
Unrecognized net asset at transition,
net of amortization (3.8) (4.3)
------- -------
Net pension asset $ 3.5 $ 2.5
======= =======
</TABLE>
The assumptions used in determining the above information reflect weighted
averages for the component plans and are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
----- -----
Discount rate 9.0% 9.4%
Rate of increase of future compensation levels 7.1% 7.3%
Long-term rate of return on assets 9.2% 9.4%
</TABLE>
F-14
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
The balance sheet accruals for unfunded plans of $13.9 and $12.2 as of August
31, 1996 and 1995, respectively, approximate the actuarial present value of
vested benefits for these plans or represent accrual amounts that comply with
local regulations for required termination payments.
Ralston provides health care and life insurance benefits for a limited group
of retired employees who meet specified age and years of service requirements.
Ralston also sponsors plans whereby certain management employees may defer
compensation in exchange for cash benefits after retirement. The cost of these
postretirement benefits has been allocated to Tradico based on employee
population and was $.8 in 1996 and $.9 in 1995 and 1994.
NET INVESTMENT IN TRADICO
The following analyzes Ralston's Net Investment in Tradico for the years ended
August 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------- ------- ------
Balance at beginning of year $139.6 $132.4 $113.1
Net earnings 13.2 15.8 7.8
Change in cumulative translation adjustment (3.7) (10.6) 4.4
Net transactions with Ralston 46.5 2.0 7.1
------- ------- ------
Balance at end of year $195.6 $139.6 $132.4
======= ======= ======
</TABLE>
Included in Net Investment in Tradico are cumulative translation adjustments
occurring in non-hyperinflationary countries of $49.5, $45.8 and $35.2 at
August 31, 1996, 1995 and 1994, respectively, representing net devaluation of
currencies relative to the U.S. dollar over the period of investment.
Also included in Net Investment in Tradico are accounts payable and receivable
between Tradico and Ralston and Tradico borrowings from Ralston.
RESTRUCTURING RESERVES
In 1996, Tradico recorded provisions for restructuring which reduced earnings
before income taxes and net earnings by $8.3 and $7.2, respectively. These
charges represented primarily severance costs and were associated with the
streamlining of the Tradico operations in advance of the planned spin-off.
The provisions provided for the severance of approximately 275 employees, most
of whom were severed prior to August 31, 1996.
Provisions for restructuring in previous years related to closing of
production facilities and reorganization of certain administrative functions.
Activities related to these restructuring provisions were substantially
complete at August 31, 1996.
F-15
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
Components of the provisions for the years ended August 31 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996 1995 1994
----- ----- -----
Severance $ 7.1 $ 1.8 -
Other cash costs 1.2 - -
Fixed asset writedown - - $2.8
----- ----- ----
$ 8.3 $ 1.8 $ 2.8
===== ===== =====
</TABLE>
The following summarizes activity within the restructuring reserves:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------ ------ ------
Balance at beginning of year $ 2.4 $ 3.9 $ 8.4
Provision during year 8.3 1.8 2.8
Spending/fixed asset writedown during year (6.4) (3.3) (7.3)
------ ------ ------
Balance at end of year $ 4.3 $ 2.4 $ 3.9
====== ====== ======
</TABLE>
The remaining reserve balance is expected to be utilized in 1997.
FINANCIAL INSTRUMENTS
FOREIGN CURRENCY CONTRACTS - At August 31, 1996 and 1995, the notional value
of the forward foreign exchange contracts outstanding was $3.1 and $.8,
respectively. Unrealized gains or losses related to these contracts were not
significant at either date.
CONCENTRATION OF CREDIT RISK - The counterparties to foreign currency
contracts consist of a number of major international financial institutions
and are generally institutions with which Tradico or Ralston maintains lines
of credit. Tradico does not enter into foreign exchange contracts through
brokers nor does it trade foreign exchange contracts on any other exchange or
over the counter markets.
Tradico continually monitors its positions and the credit ratings of its
counterparties both internally and by using outside rating agencies. Tradico
has implemented policies which limit the amount of agreements it enters into
with any one party. While nonperformance by these counterparties exposes
Tradico to potential credit losses, such losses are not anticipated due to the
control features mentioned.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, generally short payment terms and their
dispersion across geographic areas.
F-16
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
FAIR VALUE OF FINANCIAL INSTRUMENTS - Tradico's financial instruments include
cash equivalents, marketable securities, short-term and long-term debt and
foreign currency contracts. Due to the nature of cash equivalents and
marketable securities, carrying amounts on the balance sheet approximate fair
value.
Tradico has been allocated borrowings in numerous countries under a variety of
terms and arrangements. Due to the number of countries involved, and the
availability of information about market value of debt in these countries, it
is not practicable to determine the market value of such debt of Tradico at
August 31, 1996 and 1995.
The fair value of foreign currency contracts is the amount that Tradico would
receive or pay to terminate the specific agreements, considering first, quoted
market prices of comparable agreements, or in the absence of quoted market
prices, such factors as interest rates, currency exchange rates and remaining
maturities. Based on these considerations, the calculated fair values of
foreign currency contracts outstanding at August 31, 1996 and 1995 were not
material.
LEGAL AND ENVIRONMENTAL MATTERS
Various Ralston affiliates engaged in agribusiness activities are parties to a
number of legal and tax proceedings in various jurisdictions. These
proceedings are in varying stages and many may proceed for protracted periods
of time. Some proceedings involve highly complex questions of fact and law.
The operations of Tradico, like those of other companies engaged in similar
businesses, are subject to various laws and regulations intended to protect
the public health and the environment, including air and water quality, and
waste handling and disposal.
In the opinion of management, based on the information presently known, the
ultimate liability for all such matters, together with the liability for all
other pending legal and tax proceedings, asserted legal claims and known
potential legal claims which are probable of assertion, taking into account
established accruals for estimated liabilities, should not be material to the
financial position or net earnings of Tradico, but could be material to
results of operations or cash flows for a particular quarter or annual period.
OTHER CONTINGENCIES AND COMMITMENTS
GUARANTEES - At August 31, 1996, Tradico had third party guarantees
outstanding in the aggregate amount of approximately $4.6. These guarantees
relate to financial arrangements with customers, suppliers and other business
relations.
SALE OF RECEIVABLES - Tradico sells certain of its trade accounts receivable
and notes receivable to others subject to defined limited recourse provisions.
Tradico is responsible for collection of the accounts and remits the proceeds
to the purchaser on a monthly basis. During 1996, Tradico - Korea sold, on
average, accounts receivable totaling $4.1 each month. At August 31, 1996,
$7.4 of transferred receivables were outstanding and subject to recourse
provisions.
F-17
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
OTHER COMMITMENTS - Future minimum rental commitments under noncancellable
operating leases in effect as of August 31, 1996 were: 1997 - $1.3, 1998 -
$1.0, 1999 - $.4, and 2000 - $.1. Total rental expense for all operating
leases was $7.5 in 1996, $5.6 in 1995, and $4.5 in 1994.
ACQUISITIONS
In October 1995, Tradico acquired the 49% interest of the minority
shareholders in Purina Hage (Tradico in Hungary) for $8.9. Purina Hage is
included as a consolidated subsidiary in the financial statements of Tradico
as of and for the years ended August 31, 1996 and 1995.
In December 1995, Tradico acquired the 50% interest of its joint venture
partner in the agribusiness of Gallina Blanca Purina (Spain) for $16.7. The
agribusiness operations of Gallina Blanca Purina are included in the financial
statements at 50% equity for the year ended August 31, 1995, and the four
months ended December 31, 1995. Since January 1, 1996, Gallina Blanca Purina
is included as a consolidated subsidiary in the financial statements of
Tradico.
In August 1995, Tradico assumed the operations of a feed mill in Sildamin,
Italy under a three year lease of the facility.
These acquisitions were accounted for using the purchase method of accounting,
and accordingly, the results of operations are included in the consolidated
statement of earnings from the date of acquisition. Assuming these
acquisitions had occurred as of the beginning of their respective fiscal
years, they would not have had a material effect on net sales or net earnings.
OTHER (INCOME)/EXPENSE, NET
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
------ ------ ------
Translation and exchange loss $ 8.4 $ 4.5 $11.4
Investment income (3.6) (5.0) (7.6)
Other income (1.4) (3.0) (2.1)
------ ------ ------
$ 3.4 $(3.5) $ 1.7
====== ====== ======
</TABLE>
SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----- ----- -----
Interest paid $14.2 $14.5 $16.7
===== ===== =====
Income taxes paid $14.6 $24.0 $15.9
===== ===== =====
</TABLE>
F-18
TRADICO
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995
------- -------
Receivables (current) --
Trade $ 98.4 $ 74.4
Value added tax 10.5 7.9
Receivable on property sales 1.3 5.2
Other 18.7 18.6
Allowance for doubtful accounts (7.3) (4.6)
------- -------
$121.6 $101.5
======= =======
Inventories --
Raw materials and supplies $112.7 $ 78.8
Finished products 24.0 16.9
------- -------
$136.7 $ 95.7
======= =======
Investments and Other Assets --
Goodwill (net of accumulated amortization of $ 31.9 $ 11.4
$2.7 in 1996 and $2.0 in 1995)
Investments in affiliated companies 5.2 7.6
Deferred charges and other assets 18.8 14.0
------- -------
$ 55.9 $ 33.0
======= =======
<PAGE>
Account Payable and Accrued Liabilities --
Trade accounts payable $112.7 $ 86.0
Incentive compensation, salaries and vacations 13.4 10.4
Restructuring reserves 4.3 2.4
Other items 32.3 30.3
------- -------
$162.7 $129.1
======= =======
Other Liabilities --
Retirement and other employee benefits $ 16.4 $ 16.2
Minority interests 1.2 6.4
Other 5.2 2.7
------- -------
$ 22.8 $ 25.3
------- -------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1996 1995 1994
------- ------- ------
Balance, beginning of year $ 4.6 $ 4.1 $ 3.2
Provision charged to expense 3.8 2.2 2.1
Write-offs, less recoveries (1.1) (1.7) (1.2)
------- ------- ------
Balance, end of year $ 7.3 $ 4.6 $ 4.1
======= ======= ======
</TABLE>
F-19
<PAGE>
TRADICO
QUARTERLY FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
(UNAUDITED)
The results of any single quarter are not necessarily indicative of Tradico's
results for the full year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal 1996 First Second Third Fourth
- ----------------- ------ ------- ------ --------
Net sales $327.1 $ 348.6 $381.1 $ 373.5
Gross profit 47.4 48.0 50.2 50.4
Net earnings * 4.2 6.0 4.6 (1.6)
Fiscal 1995 First Second Third Fourth
- ----------------- ------ ------- ------ --------
Net sales $286.2 $ 276.8 $296.7 $ 310.4
Gross profit 46.4 43.2 43.7 45.2
Net earnings 5.8 3.7 2.7 3.6
</TABLE>
* Net earnings in 1996 were reduced by the following amounts due to provisions
for restructuring:
first quarter $.3
second quarter .4
third quarter .8
fourth quarter 5.7
Additionally, net earnings in the second quarter of 1996 were increased by a
$2.9 gain on the sale of the Korean cereal business.
F-20
<TABLE>
<CAPTION>
TRADICO
CONDENSED FINANCIAL STATEMENTS FOR THE
NINE MONTHS ENDED MAY 31, 1997 AND 1996
COMBINED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS)
(UNAUDITED)
NINE MONTHS ENDED
MAY 31,
-------
1997 1996
--------- ---------
<S> <C> <C>
Net Sales $1,156.8 $1,056.8
Costs and Expenses
Cost of products sold 988.2 911.2
Selling, general and administrative 122.2 107.2
Interest 8.4 11.3
Provisions for restructuring - 1.5
Gain on sale of property - (3.6)
Other (income)/expense, net (1.0) 2.2
--------- ---------
1,117.8 1,029.8
--------- ---------
Earnings before Income Taxes 39.0 27.0
Income Taxes 22.3 12.2
--------- ---------
Net Earnings $ 16.7 $ 14.8
========= =========
</TABLE>
See Accompanying Notes to Condensed Financial Statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
TRADICO
COMBINED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS)
(UNAUDITED)
MAY 31, AUGUST 31,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 39.9 $ 20.9
Marketable securities 13.0 11.4
Receivables, less allowance for doubtful accounts 123.2 121.6
Inventories 118.5 136.7
Other current assets 18.3 12.6
-------- --------
Total Current Assets 312.9 303.2
-------- --------
Investments and Other Assets 56.2 55.9
Property at Cost 316.4 304.0
Accumulated Depreciation (158.3) (154.2)
-------- --------
158.1 149.8
Total $ 527.2 $ 508.9
======== ========
LIABILITIES AND NET INVESTMENT IN TRADICO
Current Liabilities
Current maturities of long-term debt $ 1.2 $ 1.1
Notes payable 46.0 68.7
Accounts payable and accrued liabilities 171.6 162.7
Income taxes 12.7 8.4
-------- --------
Total Current Liabilities 231.5 240.9
-------- --------
Long-Term Debt 41.0 41.7
Deferred Income Taxes 7.1 7.9
Other Liabilities 25.8 22.8
Net Investment in Tradico 221.8 195.6
-------- --------
Total $ 527.2 $ 508.9
======== ========
</TABLE>
See Accompanying Notes to Condensed Financial Statements. See Pro Forma
Combined
Balance Sheet for Tradico included elsewhere in this Information Statement for
adjustments to
this historical combined balance sheet to reflect the Distribution.
F-22
<PAGE>
<TABLE>
<CAPTION>
TRADICO
COMBINED STATEMENT OF CASH FLOWS
(CONDENSED)
(DOLLARS IN MILLIONS)
(UNAUDITED)
NINE MONTHS ENDED
MAY 31,
-------
1997 1996
------- -------
<S> <C> <C>
CASH FLOW FROM OPERATIONS
Net Earnings $ 16.7 $ 14.8
Non-cash items included in income 15.2 12.0
Changes in operating assets and liabilities used in operations 18.3 (59.8)
Other, net 7.0 11.4
------- -------
Net cash flow from (used by ) operations 57.2 (21.6)
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisitions of businesses (25.6)
Property additions (29.3) (20.7)
Proceeds from sale of Korean cereal business 10.0
Proceeds from the sale of property 1.1
Other, net (5.9) 5.1
------- -------
Net cash used by investing activities (34.1) (31.2)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of long-term debt 2.0 9.9
Principal payments on long-term debt, including current maturities (1.2) (16.6)
Net (decrease) increase in notes payable (19.5) 13.6
Net transactions with Ralston 17.2 50.9
------- -------
Net cash (used by) provided by financing activities (1.5) 57.8
------- -------
Effect of Exchange Rate Changes on Cash (2.6) (2.4)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 19.0 2.6
Cash and Cash Equivalents, Beginning of Year 20.9 16.2
------- -------
Cash and Cash Equivalents, End of Nine Month Period $ 39.9 $ 18.8
======= =======
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-23
TRADICO
NOTES TO CONDENSED FINANCIAL STATEMENTS
MAY 31, 1997
(DOLLARS IN MILLIONS)
(UNAUDITED)
NOTE 1 - The accompanying unaudited financial statements have been
prepared in accordance with Article 10
of Regulation S-X and do not include all of the information and footnotes
required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair
presentation, have been included. These statements should be read in
connection with the financial
statements of Tradico and notes thereto for the year ended August 31,
1996.
NOTE 2 - Receivables consist of the following:
<TABLE>
<CAPTION>
MAY 31, 1997 AUGUST 31, 1996
-------------- -----------------
<S> <C> <C>
Gross receivables $ 132.6 $ 128.9
Allowance for doubtful accounts (9.4) (7.3)
-------------- -----------------
$ 123.2 $ 121.6
============== =================
</TABLE>
<TABLE>
<CAPTION>
NOTE 3 - Inventories consist of the following:
MAY 31, 1997 AUGUST 31, 1996
-------------------------------------- ----------------
<S> <C> <C>
Raw materials and supplies $ 94.4 $ 112.7
Finished products 24.1 24.0
-------------------------------------- ----------------
$ 118.5 $ 136.7
====================================== ================
</TABLE>
<TABLE>
<CAPTION>
NOTE 4 - Investments and Other Assets consist of the following:
MAY 31, 1997 AUGUST 31, 1996
------------------------------------------------------- ----------------
<S> <C> <C>
Goodwill, net of accumulated amortization $ 32.7 $ 31.9
of $3.6 in 1997 and $2.7 in 1996
Investments in affiliated companies 8.4 5.2
Deferred charges and other assets 15.1 18.8
------------------------------------------------------- ----------------
$ 56.2 $ 55.9
======================================================= ================
</TABLE>
<TABLE>
<CAPTION>
NOTE 5 - Accounts payable and accrued liabilities consist of the following:
MAY 31, 1997
-------------------------------------------------------------------
<S> <C>
Trade Accounts Payable $ 118.1
Incentive Compensation, Salaries, and Vacations 14.2
Restructuring Reserves 1.2
Other Items 38.1
-------------------------------------------------------------------
$ 171.6
===================================================================
NOTE 5 -
AUGUST 31, 1996
----------------
<S> <C>
Trade Accounts Payable $ 112.7
Incentive Compensation, Salaries, and Vacations 13.4
Restructuring Reserves 4.3
Other Items 32.3
----------------
$ 162.7
================
</TABLE>
F-24
