SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 16, 1993
THE SCOTTS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 0-19768 31-1199481
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
14111 Scottslawn Road, Marysville, Ohio 43041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 644-0011
Not Applicable
(Former name or former address, if changed since last report.)
Page 1 of 38 Pages.
Index to Exhibits located at Page 3-5.
This Current Report on Form 8-K/A of The Scotts Company (the
"Registrant") furnishes the financial statements and the pro forma
financial information that were omitted from the Current Report on
Form 8-K of the Registrant filed with the Securities and Exchange
Commission (the "Commission") on December 30, 1993 (the "Registrant's
December 1993 Form 8-K") in accordance with Items 7(a)(4) and 7(b)(2) of
Form 8-K which allow the Registrant a 60-day extension of the time for
the filing of such financial statements and pro forma financial
information. The financial statements and pro forma financial
information relate to the acquisition by the Registrant of Grace-Sierra
Horticultural Products Company ("Grace-Sierra") as described in Item 2 of
the Registrant's December 1993 Form 8-K.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of the business acquired:
Audited Financial Statements of Grace-Sierra Horticultural
Products Company:
Reports of Independent Accountants
Consolidated Balance Sheets at December 16, 1993 and
December 31, 1992
Consolidated Statements of Operations for the period
from January 1 to December 16, 1993 and the year ended
December 31, 1992
Consolidated Statements of Changes in Common Shareholders'
Deficit for the period from January 1 to December 16, 1993 and
the year ended December 31, 1992
Consolidated Statements of Cash Flows for the period from
January 1 to December 16, 1993 and the year ended
December 31, 1992
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information:
Pro Forma Consolidated Financial Information (Unaudited)
Pro Forma Consolidated Statement of Income for the year ended
September 30, 1993 (Unaudited)
Notes to Pro Forma Consolidated Statement of Income for the year
ended September 30, 1993 (Unaudited)
Pro Forma Consolidated Statement of Income for the three months
ended January 1, 1994 (Unaudited)
Notes to Pro Forma Consolidated Statement of Income for the three
months ended January 1, 1994 (Unaudited)
Pro Forma Consolidated Balance Sheet at January 1, 1994 (Unaudited)
Notes to Pro Forma Consolidated Balance Sheet (Unaudited)
2
Item 7(c) Exhibits:
The following documents were filed as exhibits to the Registrant's
December 1993 Form 8-K:
Exhibit No. Description
2(a) Plan of Merger of ZXY Corp.
into Grace-Sierra
Horticultural Products
Company, dated
October 24, 1993
2(b) First Amendment to Plan of
Merger of ZXY Corp. into
Grace-Sierra Horticultural
Products Company, dated
November 22, 1993
2(c) Second Amendment to Plan
of Merger of ZXY Corp.
into Grace-Sierra
Horticultural Products
Company, dated
December 15, 1993
2(d) Letter Agreement, dated
October 24, 1993, between
The Scotts Company (the
"Registrant") and W. R.
Grace & Co. - Conn.
2(e) Amendment to Letter Agreement,
dated November 22, 1993,
between the Registrant and
W. R. Grace & Co. - Conn.
2(f) Second Amendment to
Letter Agreement, dated
December 15, 1993, between
the Registrant and
W. R. Grace & Co. - Conn.
2(g) Agreement of Merger of
ZXY Corp. and Grace-Sierra
Horticultural Products
Company, dated
December 16, 1993
4(a) Third Amendment to Credit
Agreement, dated December 16,
1993, among the Registrant,
The O. M. Scott & Sons
Company ("Scott"), the banks
listed therein and Chemical
Bank, as agent (the "Third
Agreement")
3
Exhibit No. Description
99(a) Separate Term Loan Notes dated
February 23, 1993, executed by
the Registrant and Scott,
jointly and severally, in
favor of the banks identified
therein, in connection with
the Third Amendment
99(b) Separate Revolving Credit
Notes, dated February 23,
1993, in favor of the banks
identified therein and
executed by the Registrant and
Scott, in connection with the
Third Amendment
99(c) Swing Line Note, dated
December 16, 1993, and
executed by Scott in favor of
Chemical Bank, as agent, in
connection with the Third
Amendment
99(d) Scotts-Sierra Horticultural
Products Company ("SSHPC")
Security Agreement, dated
December 16, 1993, executed by
SSHPC and Chemical Bank, as
agent, in connection with the
Third Amendment
99(e) Scotts-Sierra Crop Protection
Company ("SSCPC") Security
Agreement, dated December 16,
1993, executed by SSCPC and
Chemical Bank, as agent, in
connection with the Third
Amendment
99(f) SSHPC Patent and Trademark
Assignment, dated December 16,
1993, executed by SSHPC and
Chemical Bank, as agent, in
connection with the Third
Agreement
99(g) SSCPC Patent and Trademark
Assignment, dated December 16,
1993, executed by SSCPC and
Chemical Bank, as agent, in
connection with the Third
Amendment
4
Exhibit No. Description
99(h) Subsidiary Pledge Agreement,
dated December 16, 1993,
executed by SSHPC and Chemical
Bank, as agent, in connection
with the Third Amendment
99(i) Netherlands Pledge Agreement,
dated December 16, 1993,
executed by SSHPC and Chemical
Bank, as agent, in connection
with the Third Amendment
99(j) Second Amended and Restated
Subsidiaries Guarantee, dated
December 16, 1993, executed by
related entities of the
Registrant and Scott as listed
therein, SSHPC and SSCPC, in
connection with the Third
Amendment
The following documents are being filed as additional exhibits to this
Current Report on Form 8-K/A:
23(a) Consent of Price Waterhouse
23(b) Consent of Coopers & Lybrand
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Date: February 28, 1994 THE SCOTTS COMPANY
By: Paul D. Yeager
Paul D. Yeager, Executive Vice
President and Chief Financial
Officer
6
INDEX TO FINANCIAL STATEMENTS
Page(s)
Item 7(a) Financial statements of the business acquired
Audited Financial Statements of Grace-Sierra
Horticultural Products Company
Reports of Independent Accountants F-1 - F-2
Consolidated Balance Sheets at December 16, 1993
and December 31, 1992 F-3
Consolidated Statements of Operations for the
period from January 1 to December 16, 1993 and
the year ended December 31, 1992 F-4
Consolidated Statements of Common Shareholders'
Deficit for the period from January 1 to
December 16, 1993 and the year ended
December 31, 1992 F-5
Consolidated Statements of Cash Flows for the
period from January to December 16, 1993 and
the year ended December 31, 1992 F-6
Notes to Consolidated Financial Statements F-7 - F-17
Item 7(b) Pro Forma Financial Information
Pro Forma Consolidated Financial Information F-18
(Unaudited)
Pro Forma Consolidated Statement of Income
for the year ended September 30, 1993
(Unaudited) F-19
Notes to Pro Forma Consolidated Statement of
Income for the year ended September 30, 1993
(Unaudited) F-20
Pro Forma Consolidated Statement of Income
for the three months ended January 1, 1994 F-21
Notes to Pro Forma Consolidated Statement of
Income for the three months ended January 1, 1994 F-22
Pro Forma Consolidated Balance Sheet at
January 1, 1994 (Unaudited) F-23-F-24
Notes to Pro Forma Consolidated Balance Sheet
(Unaudited) F-25
7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Grace-Sierra Horticultural Products Company
We have audited the accompanying consolidated balance sheet of
Grace-Sierra Horticultural Products Company and its subsidiaries as
of December 16, 1993 and the related consolidated statements of
operations, changes in common shareholders deficit, and cash flows
for the period from January 1, 1993 to December 16, 1993. 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 audit. The consolidated financial
statements of Grace-Sierra Horticultural Products Company as of and
for the year ended December 31, 1992 were audited by other auditors
whose report thereon dated February 17, 1993 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, all
of the Company's common stock was acquired by a third party
effective on the close of business December 16, 1993.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Grace-Sierra Horticultural Products Company and its
subsidiaries as of December 16, 1993 and the consolidated results of
their operations and their cash flows for the period from January 1,
1993 to December 16, 1993, in conformity with generally accepted
accounting principles.
Coopers & Lybrand
Columbus, Ohio
February 11, 1994
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Grace-Sierra Horticultural Products Company
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statement of operations, of
shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Grace-Sierra
Horticultural Products Company and its subsidiaries at
December 31, 1992, and the results of their operations and
their cash flows for the year then ended 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 audit. We conducted our audit 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 audit provides a reasonable
basis for the opinion expressed above.
Price Waterhouse
San Jose, California
February 17, 1993
F-2
<TABLE>
GRACE-SIERRA HORTICULTURAL PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<S> <C> <C>
December 16, December 31,
1993 1992
ASSETS
Current assets:
Cash $ 4,114 $ 2,650
Accounts receivable, net of allowance
for doubtful accounts of $749 and $802 23,409 24,208
Inventories 18,205 16,405
Prepaids and other current assets 1,050 1,779
Total current assets 46,778 45,042
Property, plant and equipment, less accumulated
depreciation and amortization 19,822 22,576
Other assets, net 1,017 851
$ 67,617 $ 68,469
LIABILITIES, MANDATORILY REDEEMABLE CUMULATIVE PREFERRED
STOCK AND COMMON SHAREHOLDERS' DEFICIT
Current liabilities:
Bank overdraft $ - $ 2,056
Trade accounts payable and accrued expenses 9,254 10,039
Employee compensation 3,822 1,728
Interest payable - 191
Income taxes payable 412 89
Current maturities of long-term debt 4,149 129
Total current liabilities 17,637 14,232
Long-term debt, less current maturities 76,395 79,592
Other long-term liabilities 507 497
Total Liabilities 94,539 94,321
Commitments and contingencies
Mandatorily redeemable cumulative preferred stock at
redemption value of $100 per share; 700,000 shares authorized;
635,011 shares issued and outstanding 63,501 63,501
Preferred stock dividend payable 7,620 3,810
71,121 67,311
Common shareholders' deficit:
Common stock, at stated value of $1 per share; par value
$0.001; 5,100,000 shares authorized; 1,000,000 shares
issued and outstanding 1,000 1,000
(Deficit) retained earnings (2,555) 1,437
Capital deficit (98,517) (98,517)
Foreign currency translation adjustment 2,029 2,917
Total common shareholders' deficit (98,043) (93,163)
$ 67,617 $ 68,469
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<TABLE>
GRACE-SIERRA HORTICULTURAL PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<CAPTION>
Period from
January 1 to Year Ended
December 16, 1993 December 31, 1992
<S> <C> <C>
Net sales $ 108,650 $ 107,044
Costs and expenses:
Cost of goods sold 62,441 63,642
Selling, administrative and general 32,486 30,207
Research and development 3,927 3,430
Interest 7,400 7,411
Foreign exchange loss 57 760
Other expense (income), net 474 (273)
106,785 105,177
Income before income taxes 1,865 1,867
Provision for income taxes 2,047 2,001
Net loss $ (182) $ (134)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<TABLE>
GRACE-SIERRA HORTICULTURAL PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' DEFICIT
(in thousands except share data)
FOR THE PERIOD FROM JANUARY 1 TO DECEMBER 16, 1993 AND THE YEAR ENDED DECEMBER 31, 1992
<CAPTION>
Foreign
(Deficit) Currency
Common Stock Retained Capital Translation
Shares Amount Earnings Deficit Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 1,000,000 $ 1,000 $ 8,975 $(98,517) $ 3,555 $(84,987)
Net loss (134) (134)
Dividend of preferred stock (3,594) (3,594)
Dividend payable on preferred stock (3,810) (3,810)
Foreign currency translation adjustment (638) (638)
Balance at December 31, 1992 1,000,000 1,000 1,437 (98,517) 2,917 (93,163)
Net loss (182) (182)
Dividend payable on preferred stock (3,810) (3,810)
Foreign currency translation adjustment (888) (888)
Balance at December 16, 1993 1,000,000 $ 1,000 $ (2,555) $(98,517) $ 2,029 $(98,043)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-5
<TABLE>
GRACE-SIERRA HORTICULTURAL PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Period from
January 1 to Year Ended
December 16, 1993 December 31, 1992
<S> <C> <C>
Cash flows from operations:
Net loss $ (182) $ (134)
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 3,504 3,122
Amortization of debt issuance costs 121 121
Amortization of other intangible assets 215 223
Loss (gain) on disposal of fixed assets 10 (27)
Deferred income (260) (272)
Changes in operating assets and liabilities:
Accounts receivable 271 (6,036)
Inventories (2,087) (3,418)
Trade accounts payable and accrued expenses 49 4,899
Income taxes 336 (404)
Prepaids and other 457 151
Net cash provided by (used in) operating activities 2,434 (1,775)
Cash flows from investing activities:
Acquisition of property, plant and equipment (1,602) (5,906)
Net cash used in investing activities (1,602) (5,906)
Cash flows from financing activities:
Proceeds from long-term debt 1,000 8,000
Principal payments on long-term debt (177) (116)
Net cash provided by financing activities 823 7,884
Net effect of changes in translation rates on cash (191) (110)
Increase in cash 1,464 93
Cash, beginning of year 2,650 2,557
Cash, end of year $ 4,114 $ 2,650
Supplemental Information:
Interest paid $ 7,480 $ 7,211
Income taxes paid, net 1,943 2,522
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-6
GRACE-SIERRA HORTICULTURAL PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS:
Grace-Sierra Horticultural Products Company ("Grace-Sierra" or
the "Company") develops, manufactures and markets special-purpose
controlled-release and water-soluble fertilizers, pesticides, and
growing media for commercial markets and consumers. It markets its
products in the United States and, through wholly-owned
subsidiaries, to various international market areas. Manufacturing
is conducted in facilities in the United States and The Netherlands.
Formation of Grace-Sierra
Grace-Sierra was formed on October 25, 1989 upon the combination of:
[ Sierra Chemical Company ("Sierra"), a corporation in which
W. R. Grace & Co. ("Grace") previously held a 29% common
stock interest, and
[ Certain business and assets of the former Grace
Horticultural Products business ("GHP").
On October 25, 1989 Grace contributed to a newly-formed
corporation, the business and assets, subject to certain
liabilities, of GHP and Grace's common stock interest in
Sierra. The newly-formed corporation then merged into Sierra
and the name Sierra was changed to Grace-Sierra. Concurrently,
Sierra's former shareholders, other than Grace, received
$67,492,662 in cash from Grace-Sierra for their shares of
common stock of Sierra. Grace received shares of mandatorily
redeemable cumulative preferred stock ("Redeemable Preferred
Stock") of Grace-Sierra having a redemption value on the date
of issue of $46,400,000 and 49% of the Grace-Sierra common
stock ("Common Stock") issued. 1001 Yosemite Limited
("Yosemite"), a limited partnership in which several former
principal shareholders of Sierra are partners, and Merrill
Lynch Interfunding, Inc. acquired 30% and 21% of the Common
Stock, respectively. Financing required to buy out Sierra's
former shareholders other than Grace was provided by the sale
of $65,000,000 of 10.28% Senior Notes to a group of
institutional lenders. Since these transactions represented a
restructuring of a majority of ownership interests, they were
accounted for at historical costs.
Subsequent Event
Effective at the close of business on December 16, 1993,
Grace-Sierra was acquired by O. M. Scott & Sons ("OMS"), a
subsidiary of The Scotts Company. The acquisition was
structured as a merger of a subsidiary of OMS into
Grace-Sierra, with Grace-Sierra surviving and changing its name to Scotts-
Sierra Horticultural Products Company ("Scotts-Sierra").
F-7
The purchase price of $120,000,000 included the acquisition of all
of the outstanding Common Stock of Grace-Sierra and the retirement
of the Redeemable Preferred Stock and substantially all the
outstanding long-term indebtedness of the Company.
These consolidated financial statements and the accompanying notes
have been prepared based on the financial position of Grace-Sierra
as of December 16, 1993, prior to the merger transaction described
above. Therefore, certain disclosures provided therein are
substantially impacted by the transaction described above and should
be read in consideration thereof.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of
Grace-Sierra and its wholly-owned subsidiaries, which have been
recorded on the predecessor historical cost basis after giving
effect to the formation transactions described in Note 1. All
significant intercompany accounts and transactions have been
eliminated.
Capital deficit
The difference between: (A) the sum of (i) the debt assumed by
Grace-Sierra on October 25, 1989, (ii) the redemption value of the
cumulative redeemable preferred stock and (iii) the retained
earnings and foreign currency translation adjustment of Sierra and
(B) the net assets of Sierra and GHP at predecessor historical cost,
all as of October 25, 1989, has been reflected as capital deficit.
Revenue recognition
Revenue is recognized when products are shipped. A significant
portion of sales are made under deferred payment terms.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out method for U.S. inventories
and the first-in, first-out method for other inventories and
includes materials, labor and manufacturing overhead.
Property, plant and equipment
Property, plant and equipment are stated at historical cost and are
depreciated by the straight-line method over their estimated useful
lives, which range from three to ten years for machinery and
equipment and up to 40 years for buildings.
Intangible assets
Debt issuance costs incurred in connection with financing the
transaction described in Note 1 are accounted for as a deferred
charge and amortized by the interest method over the terms of the
debt agreements. Accumulated amortization of debt issuance costs
and other intangible assets totalled $1,010,000 and $674,000 as of
December 16, 1993 and December 31, 1992, respectively.
F-8
Foreign currency translation
The local currencies of Grace-Sierra's foreign subsidiaries have
been designated as functional currencies. Accordingly, assets and
liabilities of foreign subsidiaries are translated at the period end
rates of exchange, and statements of operations are translated at
average rates of exchange for the respective period. Gains or
losses resulting from translating foreign currency financial
statements are accumulated as a separate component of common
shareholders' deficit. Gains or losses resulting from foreign
currency transactions (transactions denominated in a currency other
than the entity's local currency) are included in results of
operations.
Income taxes
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax assets and
liabilities for expected future tax consequences of events that have
been recognized in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax
bases of the assets and liabilities using enacted tax rates. The
cumulative effect of adopting this new accounting principle did not
have a material effect on the Company's financial statements.
Prior to fiscal 1993, the Company's deferred income tax provision
was based on differences between financial reporting and taxable
income.
NOTE 3 - INVENTORIES:
<TABLE>
Inventories consisted of the following:
<CAPTION>
December 16, December 31,
1993 1992
(in thousands)
<S> <C> <C>
Finished goods $ 10,545 $ 9,700
Raw materials, supplies and work-in-process 7,660 6,705
$ 18,205 $ 16,405
</TABLE>
At December 16, 1993 and December 31, 1992, domestic inventories
accounted for on the last-in, first-out method amounted to
$15,508,000 and $12,597,000, respectively, which amounted to
approximately $1,277,000 and $1,674,000, respectively, less than
current replacement cost.
On July 2, 1992, Company inventories sustained fire damage due to a
lightning strike. Damage from the fire of approximately $1,268,000
was covered under the Company's insurance policies, the final
proceeds of which were collected during 1993.
F-9
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
Property, plant and equipment consisted of the following:
<CAPTION>
December 16, December 31,
1993 1992
(in thousands)
<S> <C> <C>
Land $ 748 $ 743
Buildings 6,522 6,393
Machinery and equipment 30,434 31,153
37,704 38,289
Less accumulated depreciation and amortization (17,882) (15,713)
$ 19,822 $ 22,576
</TABLE>
NOTE 5 - DEBT AND LEASE COMMITMENTS:
<TABLE>
Long-term debt consists of:
<CAPTION>
December 16, 1993 Years of December 16, December 31,
Interest Rate Maturity 1993 1992
(in thousands)
<S> <C> <C> <C>
Senior notes 10.28% 1995-1999 $ 65,000 $ 65,000
Revolving credit agreement 6.625% 1994-1996 15,000 14,000
Mortgage note payable 8.375% 1994-1995 105 234
Various capitalized lease obligations 1994-1998 439 487
80,544 79,721
Amount due within one year (4,149) (129)
Long-term debt, excluding current portion $ 76,395 $ 79,592
</TABLE>
Long-term debt matures as follows (in thousands): 1994 - $4,149;
1995 - $18,136; 1996 - $19,100; 1997 - $13,106; 1998 - $13,053
and 1999 - $13,000.
The Senior Notes require annual payments of $13,000,000 commencing
on October 31, 1995 and become due in full on October 31, 1999. At
its option, Grace-Sierra, may make prepayments on the Senior Notes.
Optional prepayments are subject to a premium, determined by a
specified calculation. On October 14, 1993, Grace acquired all of
the Company's outstanding Senior Notes from the group of
institutional lenders.
The Revolving Credit Agreement provides for an initial loan
commitment of $15,000,000 which declines to $11,000,000 in 1994,
$6,000,000 in 1995 and terminates in 1996. The Revolving Credit
Agreement provides Grace-Sierra the option to choose between various
forms of loans, all of which have interest rates approximating prime plus
5/8 of 1%. The prime rate at December 16, 1993 and December 31,
1992 was 6%. The average daily amount of the unused portion of the
loan commitment is subject to a commitment fee of 3/8 of 1%.
The mortgage note payable is with an agency of The Netherlands
Government, is due in equal annual installments including interest,
and is collateralized by land and a building with a net book value of
$1,224,000 at December 16, 1993.
F-10
Assets recorded under capitalized lease obligations and included in
property, plant and equipment, at December 16, 1993 and December 31,
1992 were comprised of:
<TABLE>
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Buildings $ 1,096 $ 1,096
Less - accumulated amortization (548) (516)
$ 548 $ 580
</TABLE>
The Senior Notes and the Revolving Credit Agreement contain
restrictive covenants including the maintenance of net worth,
current ratio, interest coverage and limitations on indebtedness,
investments, liens and encumbrances, payment of dividends and the
sale of assets. The Company was in default of various restrictive
covenants of the Senior Notes and the Revolving Credit Agreement as
of and throughout the period ended December 16, 1993. The Company
received waivers from the Senior Notes holder and the bank issuing
the Revolving Credit Agreement. At December 16, 1993, there were no
earnings free of restrictions for the payment of cash dividends.
The Senior Notes and the Revolving Credit Agreement are classified
in the accompanying balance sheets according to their scheduled
maturities. In connection with the acquisition of the Company (see
Note 1), these credit facilities were retired by the acquirer.
Grace-Sierra occupies its Milpitas, California facilities under an
operating lease expiring in 1998 under which rent is due at
specified minimum rates. Future minimum lease commitments are as
follows:
<TABLE>
<CAPTION>
Period Ending Capital Operating
December 31, Leases Leases Total
(in thousands)
<S> <C> <C> <C>
1994 $ 114 $ 1,299 $ 1,413
1995 114 1,083 1,197
1996 114 1,108 1,222
1997 114 1,133 1,247
1998 53 1,159 1,212
1999 and thereafter - 2,427 2,427
Total minimum
lease payments $ 509 $ 8,209 $ 8,718
Less: amount
representing
interest 70
Present value of
net minimum
lease payments $ 439
</TABLE>
Rent expense amounted to $1,382,000 and $1,791,000 for the periods
ended December 16, 1993 and December 31, 1992, respectively.
Certain facilities lease agreements provide for escalation in lease
rents based on inflation and give Grace-Sierra the option to renew
the agreements beyond their original terms.
F-11
NOTE 6 - RELATED PARTY TRANSACTIONS:
On October 25, 1989, Grace-Sierra granted Grace options to purchase
4,100,000 shares of authorized but unissued shares of Common Stock
at a purchase price of $1.30 per share, exercisable for ten years
commencing October 25, 1992. These options become immediately
exercisable if there is an initial public offering of the Common
Stock, or if either substantially all the assets or outstanding
shares of Common Stock are sold or Grace-Sierra is merged with
another corporation and is not the surviving company. Grace has not
exercised its option to purchase these shares.
On October 25, 1989, Merrill Lynch Interfunding, Inc. entered into
an agreement with Grace-Sierra which provides that if and when it
disposes of its 210,000 shares of Common Stock it would provide
Grace-Sierra with the initial $3,000,000 of proceeds of such sale or
sales.
In 1984, Sierra sold its Milpitas, California facility to Yosemite.
The gain recognized by Sierra on the sale of the facility amounted
to $2,715,000 and is being recognized on a straight-line basis over
ten years, the original lease term. As of December 16, 1993 and
December 31, 1992, the unrealized portion of the gain amounted to
$237,000 and $497,000, respectively. In 1988, Yosemite constructed
a second facility which was also leased to Sierra. The amended
lease agreement covering both facilities ("Facilities") expires in
1998 and provides for scheduled minimum rent increases.
On October 25, 1989, Grace-Sierra and Yosemite amended the lease for
the Facilities. This amendment provides Grace-Sierra an option to
purchase the Facilities at the greater of the fair market value of
the Facilities at the date the option is exercised or $6,350,000, as
adjusted for inflation to the date the option is exercised. The
option provides that in 1995 Yosemite would at its option either (1)
sell to Grace-Sierra the 300,000 shares of Common Stock it owns for
$780,000, (2) sell the Facilities to Grace-Sierra for $780,000 with
Grace-Sierra assuming mortgage indebtedness on the Facilities up to
$4,000,000, subject to adjustment or (3) grant to Grace-Sierra an
option to purchase the Facilities in January 1997 for $780,000 with
Grace-Sierra assuming mortgage indebtedness on the Facilities up to
$4,000,000, subject to adjustment. This option terminates on the
earlier of the date Grace-Sierra declines to exercise its right of
first refusal to purchase the Facilities under the lease or July 31,
1997.
On October 25, 1989, Grace-Sierra and Grace entered into six year
supply agreements, subject to renewal thereafter, under which
Grace-Sierra is required to purchase from Grace, at prices
determined by formulas, 90% of its requirements for vermiculite.
Grace shall also make available to Grace-Sierra certain quantities
of soil mixes, vermiculite soil amendments and pesticide products at
annually agreed-upon prices. Such purchases totalled $ 3,511,000
and $2,942,000 for the periods ended December 16, 1993 and
December 31, 1992, respectively. Grace-Sierra and Grace also
entered into a services agreement under which Grace-Sierra may
purchase certain administrative and technical support services from
Grace. Charges for these services amounted to approximately
$298,000 for the year ended December 31, 1992; there were no such
F-12
charges for the period from January 1 to December 16, 1993. At
December 16, 1993 and December 31, 1992, $741,000 and $451,000,
respectively, was due to Grace, and is included in trade accounts
payable and accrued expenses on the accompanying balance sheets.
Sales of Grace-Sierra products to Grace during the periods ended
December 16, 1993 and December 31, 1992 were $279,000 and
$1,130,000, respectively. As of December 16, 1993 and December 31,
1992, the related receivable balance from Grace was $74,000 and
$129,000, respectively and is included in accounts receivable on the
accompanying balance sheets.
NOTE 7 - MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK:
Grace-Sierra has authorized 1,000,000 shares of Preferred Stock at
$0.001 par value, of which 700,000 shares authorized are Redeemable
Preferred Stock. Of the authorized Redeemable Preferred Stock,
635,011 shares are issued and outstanding at December 16, 1993, at a
redemption value of $100 per share.
Dividends on Redeemable Preferred Stock are cumulative and accrue at
an annual rate of $12 per share and are payable when and as declared
in equal semiannual payments on June 30 and December 31 in each
year. For each dividend payment date prior to June 30, 1992, the
dividend was paid by issuing additional shares of Redeemable
Preferred Stock on the basis of one full share for each $100 of such
dividend. 67,608 shares accrued as dividends for the year ended
December 31, 1992. For each payment date after June 30, 1992 the
dividend is to be paid in cash. At December 16, 1993, an amount of
$7,620,000 has been recorded as payable to shareholders of
Redeemable Preferred Stock.
<TABLE>
<CAPTION>
Redeemable Preferred Stock Preferred Stock
Shares Amount Dividend Payable
(in thousands except share amounts)
<S> <C> <C> <C>
Balance at December 31, 1991 599,067 $ 59,907 $ -
Dividend of preferred stock 35,944 3,594 -
Dividend declared on preferred stock - - 3,810
Balance at December 31, 1992 635,011 63,501 3,810
Dividend declared on preferred stock - - 3,810
Balance at December 16, 1993 635,011 $ 63,501 $ 7,620
</TABLE>
Grace-Sierra is required to redeem all shares of Redeemable Preferred Stock
outstanding on June 30, 2004 by paying in cash the $100 per share redemption
value, plus an amount per share equal to all accrued but unpaid dividends
thereon. Grace-Sierra, at its option, may redeem the Redeemable Preferred
Stock at any time prior to June 30, 2004 at redemption value plus accrued and
unpaid dividends.
Furthermore, Grace-Sierra cannot declare or pay dividends, or make other
distributions, on any shares of Common Stock until all accrued and unpaid
dividends of the Redeemable Preferred Stock have been paid in full. Upon
liquidation, the holders of the Redeemable Preferred Stock shall be
F-13
entitled to receive an amount of $100 per share, plus an amount per
share equal to all accrued but unpaid dividends. The remaining
assets, if any, shall be distributed ratably among the holders of
the Common Stock.
NOTE 8 - INCOME TAXES:
Income (loss) before income taxes consists of the following
components:
<TABLE>
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
U. S. Operations $ (3,071) $ (3,294)
Foreign 4,936 5,161
$ 1,865 $ 1,867
</TABLE>
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Currently Payable:
Federal $ - $ -
Foreign 2,047 2,001
Income Tax Expense $ 2,047 $ 2,001
</TABLE>
Deferred income taxes for fiscal 1993 reflect the impact of
"temporary differences" between the amounts of assets and
liabilities for financial reporting purposes and such amounts as
determined by tax regulations. These temporary differences are
determined in accordance with SFAS No. 109 and are more inclusive in
nature than "timing differences" as determined under previously
applicable accounting principles. No deferred taxes were recognized
in 1993 and 1992.
<TABLE>
The components of deferred tax assets and liabilities at
December 16, 1993 are as follows:
<S> <C>
Assets:
Accounts receivable $ 496
Inventories 742
Accrued expenses 814
Net operating loss carryforward 3,863
Foreign tax credit carryforward 717
Gross asset 6,632
Liability:
Property, plant and equipment 2,304
Gross liability 2,304
Net asset 4,328
Less valuation allowance (4,328)
$ -0-
</TABLE>
F-14
Upon adoption of SFAS 109, the Company recorded a net deferred tax
asset of $4,500,000, offset by a valuation allowance of $4,500,000
due to the uncertainty that the asset will be realized. During
1993, the net deferred tax asset and the corresponding valuation
allowance were increased by $1,408,000.
The differences between income tax at the federal statutory rate and
the effective rate provided in the financial statements are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Income tax at federal statutory rate $ 634 $ 635
Difference related to foreign subsidiaries 369 247
Current year loss producing no tax benefit 1,044 1,123
Other - (4)
Provision for income taxes $ 2,047 $ 2,001
</TABLE>
Undistributed earnings intended to be reinvested indefinitely in
foreign subsidiaries were approximately $19,600,000 at December 16,
1993. The determination of unrecognized deferred tax liability is
not practicable. At December 16, 1993, the Company had net
operating loss carryforwards of $9,700,000 for U.S. federal income
tax purposes available to reduce future taxable income; such
carryforwards expire in 2007. Foreign tax credit carryforwards as
of December 16, 1993 amounted to approximately $700,000; such
carryforwards expire beginning in years 1994 to 1997. If certain
substantial changes in the Company's ownership should occur, there
would be an annual limitation on the amount of the net operating
loss carryforwards which can be utilized.
NOTE 9 - CONSOLIDATED FOREIGN SUBSIDIARIES:
<TABLE>
The accompanying consolidated financial statements include net
assets and net income of foreign subsidiaries, located principally
in Europe, as follows:
Balance sheet information:
<CAPTION>
December 16, December 31,
1993 1992
(in thousands)
<S> <C> <C>
Working capital:
Cash $ 2,963 $ 2,276
Accounts receivable, net 10,167 8,016
Inventories 3,996 3,856
Other, net (4,473) (3,943)
12,653 10,205
Property, plant and equipment-net 3,013 3,580
15,666 13,785
Long-term debt (62) (182)
Net assets $ 15,604 $ 13,603
</TABLE>
F-15
<TABLE>
Statement of operations information:
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Net sales $ 27,922 $ 28,221
Costs and expenses:
Cost of goods sold 11,732 11,246
Selling, administrative and general 10,767 10,597
Research and development 462 448
Interest - 17
Other expense, net 25 752
22,986 23,060
Income before income taxes 4,936 5,161
Provision for income taxes 2,047 2,001
Net income $ 2,889 $ 3,160
</TABLE>
NOTE 10 - PENSION AND SAVINGS PLANS:
On October 25, 1989, Grace-Sierra adopted non-contributory defined benefit
pension plans that cover its eligible U.S. employees. The benefits under
these plans are based on years of service and final average compensation
levels for salaried employees and stated amounts for hourly employees. The
Company's funding policy, consistent with statutory requirements and tax
considerations, is based on actuarial computations using the Projected Unit
Credit method.
<TABLE>
The components of the net periodic pension cost for the periods ended
December 16, 1993 and December 31, 1992 are as follows:
<CAPTION>
1993 1992
(in thousands)
<S> <C> <C>
Service cost-benefits earned during the year $ 513 $ 253
Interest cost on projected benefit obligation 105 49
Net amortization and deferral 40 1
Return on assets (62) (45)
Net periodic pension cost $ 596 $ 258
</TABLE>
<TABLE>
The funded status of the plans and amounts recognized in the
Company's balance sheets are as follows:
<CAPTION>
December 16, December 31,
1993 1992
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,042 $ 442
Nonvested benefit obligation 136 59
Accumulated benefit obligation 1,178 501
Effects of projected future compensation levels 936 340
Projected benefit obligation 2,114 841
Less plan assets at fair value (1,259) (815)
Projected benefit obligation in excess of plan assets 855 26
Unrecognized net (gain) loss (453) 207
Unrecognized prior service cost (159) (173)
Accrued pension cost $ 243 $ 60
</TABLE>
F-16
<TABLE>
Significant assumptions used in determining pension obligations and the
related pension expense are as follows:
<CAPTION>
1993 1992
<S> <C> <C>
Weighted average discount rate 7% 9%
Expected long-term rate of return
on plan assets 9% 9%
Projected rate of increase in future
compensation levels 6% 6%
</TABLE>
The Company also sponsors a savings and investment plan ("401K plan") for
certain salaried U.S. employees. Participants may make voluntary
contributions to the plan between 2% and 16% of their compensation (as
defined). The Company contributes the lesser of 50% of each
participant's contribution or 3% of each participant's compensation (as
defined). Company contributions during the periods ended December 16,
1993 and December 31, 1992 were $275,000 and $313,000, respectively.
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," which
changes the prevalent method of accounting for benefits provided after
employment but before retirement. The Company is required to adopt SFAS
No. 112 no later than 1995. Management is currently evaluating the
provisions of SFAS No. 112 and, at this time, the effect of adopting SFAS
No. 112 has not been determined.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits and claims that arise in the
normal course of business. In the opinion of management, these claims
individually and in the aggregate are not expected to result in a
material adverse effect on the Company's financial position or results of
operations, however, there can be no assurance that future results will
not be materially affected by the final resolution of the matters.
Grace-Sierra has been named as a Potentially Responsible Party ("PRP") in
an environmental contamination action in connection with a landfill near
Allentown, Pennsylvania. Based on estimates of the clean-up costs and
that the Company denies any liability in connection with this matter,
management believes that the ultimate outcome will not have a material
impact on the financial position or results of operations of the Company.
The Company has been named as a PRP at a location in Newark, California
where commercial barrels were cleaned. A voluntary effort has been
implemented by the Company and other PRP's to remediate the location.
Under the current plan, the remediation costs are to be allocated based
upon the pro-rata share of barrels sent to the location. The cost to the
Company is expected to be approximately $75,000, which has been accrued
in the financial statements.
In addition to being named as PRP's in the above noted situations, the
Company is subject to potential fines in connection with certain EPA
labeling violations under the Federal Insecticide, Fungicide and
Rodenticide Act (FIFRA). The fines for such violations are based upon
formulas as stated in FIFRA. As determined by these formulas the
Company's maximum exposure for the violations is approximately $810,000.
The formulas allow for certain reductions of the fines based upon
achievable levels of compliance. Based upon management's anticipated
levels of compliance, they estimate the Company's ultimate liability to
be $200,000, which has been accrued in the financial statements.
F-17
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Statements of
Income gives effect to the acquisition of the Grace-Sierra
Horticultural Products Company ("Grace-Sierra") as if the
transaction, which occurred on December 16, 1993, had taken place on
October 1, 1992. The following unaudited Pro Forma Consolidated
Balance Sheet gives effect to the acquisition as if the transaction
had occurred on January 1, 1994.
The unaudited pro forma consolidated financial statements
should be read in conjunction with the accompanying historical
financial statements located elsewhere herein. These statements do
not purport to be indicative of the results of operations which
actually would have occurred had the acquisition taken place on
October 1, 1992 nor do they purport to indicate the results of
future operations of The Scotts Company.
F-18
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
Pro Forma Consolidated Statement of Income
For the Year Ended September 30, 1993
(Unaudited)
(in thousands except share data)
<CAPTION>
The Scotts
Company Grace-Sierra
Historical Historical Pro Forma
for the for the for the
Year Ended Year Ended Pro Forma Year Ended
9/30/93 9/30/93 (a) Adjustments 9/30/93
<S> <C> <C> <C> <C>
Net sales $ 466,043 $ 119,275 $ - $ 585,318
Cost of sales 244,218 66,135 1,249 (1) 311,602
Gross profit 221,825 53,140 (1,249) 273,716
Operating expenses:
Marketing 74,579 23,243 - 97,822
Distribution 67,377 4,025 - 71,402
General and administrative 27,688 8,837 164 (2) 36,689
Research and development 7,700 4,114 - 11,814
Total operating expenses 177,344 40,219 164 217,727
Income from operations 44,481 12,921 (1,413) 55,989
Interest expense 8,454 7,514 (507) (3) 15,461
Other expense, net 660 1,030 2,763 (4) 4,453
Income before income taxes
and cumulative effect of
accounting changes 35,367 4,377 (3,669) 36,075
Income taxes 14,320 1,727 (246) (5) 15,801
Income before cumulative
effect of accounting changes $ 21,047 $ 2,650 $ (3,423) $ 20,274
Earnings per common share
before cumulative effect
of accounting changes $ 1.07 $ 1.03
Weighted average common
shares outstanding 19,687,013 19,687,013
</TABLE>
F-19
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to the Pro Forma Consolidated Statement of Income
For the Year Ended September 30, 1993
(Unaudited)
(amounts in thousands)
(a) Certain reclassifications have been made to Grace-Sierra's
historical statement of income to conform to The Scotts Company
classifications. To conform Grace-Sierra's fiscal year of
December 31, 1993 to Scotts' fiscal year of September 30, 1993,
Grace-Sierra's results of operations for the three months ended
December 31, 1993 have been excluded and their results of
operations for the three months ended December 31, 1992 have
been included in the pro forma presentation. Net sales and net
income for these respective three month periods were:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Net sales 25,705 27,798
Net (loss) income (784) 485
</TABLE>
(1) To reflect the manufacturing profit of acquired inventories
($1,140), depreciate the step-up to fair value of tangible
assets acquired ($209), amortize the fair value of patents
acquired ($42) and reflect a reduction in expense related to
above market facilities leases assumed in the acquisition
($142).
(2) To amortize organizational costs ($164) associated with the
acquisition.
(3) To reflect interest on acquisition indebtedness ($6,781) and
amortization of related deferred financing costs ($326); offset
by the elimination of interest on Grace-Sierra's retired
indebtedness ($7,514) and the elimination of related deferred
financing costs ($100).
(4) To amortize non-compete agreements ($1,200) and goodwill
($1,563).
(5) To reflect domestic income taxes not previously recorded by
Grace-Sierra due to its net operating loss position, as well as
income taxes or benefits resulting from changes in pro forma
interest expense, patent amortization, adjusted lease expense
and amortization of non-compete agreements at statutory federal
and state income tax rates.
F-20
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
Pro Forma Consolidated Statement of Income
For the Three Months Ended January 1, 1994
(Unaudited)
(in thousands except share data)
<CAPTION>
The Scotts
Company Grace-Sierra
Historical Historical Pro Forma
for the Three for for the Three
Months Ended 10/1/93 to Pro Forma Months Ended
1/1/94 12/16/93 (a) Adjustments 1/1/94
<S> <C> <C> <C> <C>
Net sales $ 68,326 $ 20,826 $ - $ 89,152
Cost of sales 37,364 12,201 (132) (1) 49,433
Gross profit 30,962 8,625 132 39,719
Operating expenses:
Marketing 12,921 5,233 - 18,154
Distribution 10,976 539 - 11,515
General and administrative 5,010 2,052 34 (2) 7,096
Research and development 2,004 906 - 2,910
Total operating expenses 30,911 8,730 34 39,675
Income (loss) from operations 51 (105) 98 44
Interest expense 2,640 1,734 (274) (3) 4,100
Other expense, net 28 7 575 (4) 610
Loss before income taxes (2,617) (1,846) (203) (4,666)
Income taxes (benefit) (1,060) 264 (1,229) (5) (2,025)
Net loss $ (1,557) $ (2,110) $ 1,026 $ (2,641)
Net loss per common share $ (.08) $ (.14)
Weighted average common
shares outstanding 18,658,535 18,658,535
</TABLE>
F-21
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to the Pro Forma Consolidated Statement of Income
For the Three Months Ended January 1, 1994
(Unaudited)
(a) Certain reclassifications have been made to Grace-Sierra's
historical statement of income to conform to The Scotts Company
classifications.
(1) To eliminate the manufacturing profit of acquired inventories
($163), depreciate the step-up to fair value of tangible assets
acquired ($52), amortize the fair value of patents acquired
($8) and reflect a reduction in expense related to above market
facilities leases assumed in the acquisition ($29).
(2) To amortize organizational costs ($34) associated with the
acquisition.
(3) To reflect interest on acquisition indebtedness ($1,387) and
amortization of related deferred financing costs ($68); offset
by the elimination of interest on Grace-Sierra's retired
indebtedness ($1,708) and the elimination of related deferred
financing costs ($21).
(4) To amortize non-compete agreements ($250) and goodwill ($325).
(5) To reflect domestic income taxes not previously recorded by
Grace-Sierra due to its net operating loss position, as well as
income taxes or benefits resulting from changes in pro forma
interest expense, patent amortization, adjusted lease expense
and amortization of non-compete agreements at statutory federal
and state income tax rates.
F-22
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
as of January 1, 1994
(Unaudited)
(in thousands)
<CAPTION>
The Scotts
Company Grace-Sierra
Historical Historical Pro Forma Pro Forma
1/1/94 12/16/93 Adjustments 1/1/94
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 1,133 $ 4,114 $ - $ 5,247
Accounts receivable, net 72,582 23,409 - 95,991
Inventories 110,022 18,205 1,917 (2) 130,144
Prepaids and other assets 5,753 1,050 - 6,803
Total current assets 189,490 46,778 1,917 238,185
Property, plant and equipment,
at cost 158,609 37,704 (16,170) 180,143
Less accumulated depreciation 57,809 17,882 (17,882) 57,809
100,800 19,822 1,712 (3) 122,334
Patents and other
intangibles, net 19,063 - 6,298 (4) 25,361
Deferred financing and
organizational costs, net 3,223 705 2,375 (5) 6,303
Excess of costs over underlying
value of net assets acquired
(goodwill), net 41,048 - 66,126 (6) 107,174
Other assets 14,146 312 2,570 (7) 17,028
Total Assets $ 367,770 $ 67,617 $ 80,998 $ 516,385
</TABLE>
F-23
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
as of January 1, 1994
(Unaudited)
(in thousands)
<CAPTION>
The Scotts
Company Grace-Sierra
Historical Historical Pro Forma Pro Forma
1/1/94 12/16/93 Adjustments 1/1/94
LIABILITIES AND
SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities:
Revolving credit $ 44,000 $ - $ - $ 44,000
Bank line of credit 1,303 - - 1,303
Current portion of term debt 5,444 4,149 10,851 (1) 20,444
Accounts payable, trade 31,446 8,385 - 39,831
Accrued liabilities 5,552 869 4,858 (8) 11,279
Accrued payroll and
fringe benefits 9,052 3,822 - 12,874
Accrued taxes 5,338 412 2,000 7,750
Total current liabilities 102,135 17,637 17,709 137,481
Long-term debt, less
current portion 97,825 76,395 31,835 (1) 206,055
Postretirement benefits
other than pensions 26,678 - - 26,678
Other - 507 4,532 (9) 5,039
226,638 94,539 54,076 375,253
Mandatorily redeemable
cumulative preferred stock - 63,501 (63,501) (1) -
Preferred stock dividends payable - 7,620 (7,620) (1) -
- 71,121 (71,121) -
Shareholders' Equity:
Class A Common stock 211 1,000 (1,000) (1) 211
Capital in excess of par value 193,353 - - 193,353
Initial capital deficit - (98,517) 98,517 (1) -
Deficit (10,975) (2,555) 2,555 (1) (10,975)
Foreign currency adjustment (16) 2,029 (2,029) (1) (16)
Treasury stock, at cost (41,441) - - (41,441)
Total Shareholders' Equity 141,132 (98,043) 98,043 141,132
$ 367,770 $ 67,617 $ 80,998 $ 516,385
</TABLE>
F-24
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
as of January 1, 1994
(Unaudited)
(in thousands)
(1) To reflect additional borrowings to finance the redemption of
preferred shares, consideration paid for a non-competition
agreement and payments made to retire certain indebtedness of
Grace-Sierra; and to eliminate Grace-Sierra's equity.
(2) To reflect at fair market value and conform inventory costing
methods to Scotts'.
(3) To reflect step-up in the historical cost basis of plant,
property and equipment to fair market value.
(4) To reflect the fair value of identifiable intangible assets
acquired:
Non-compete agreements $ 6,000
Patents 298
$ 6,298
(5) To reflect deferred financing costs of $2,281 and organization
costs of $819 associated with the financing and consummation
of the acquisition.
(6) To reflect the excess of purchase price over the underlying
value of net assets acquired (goodwill).
(7) To reflect a net deferred tax asset for the financial
reporting and tax basis differences in certain acquired assets
and liabilities, and an accrued tax liability of $2,000.
(8) To reflect the liability for estimated costs of closing
certain Grace-Sierra facilities.
(9) To record liabilities for an unfavorable lease commitment
($852), estimated environmental contingencies assumed in the
acquisition ($350) and accrue a deferred tax liability of
$3,330.
F-25
INDEX TO EXHIBITS
THE SCOTTS COMPANY
Current Report on Form 8-K/A
Dated February 28, 1994
Exhibit No. Description Location
2(a) Plan of Merger of ZXY Incorporated herein by reference
Corp. into Grace-Sierra to The Scotts Company's
Horticulutral Products ("Registrant's") Annual Report
Company, dated on Form 10-K for the fiscal year
October 24, 1993 ended September 30, 1993
("Registrant's 1993 Form 10-K")
(File No. 0-19768)
(Exhibit 2(b))
2(b) First Amendment to Plan Incorporated herein by
of Merger of ZXY Corp. reference to Registrant's
into Grace-Sierra 1993 Form 10-K (Exhibit 2(c))
Horticultural Products
Company, dated
November 22, 1993
2(c) Second Amendment to Incorporated herein by
Plan of Merger of ZXY reference to Registrant's
Corp. into Grace-Sierra 1993 Form 10-K
Horticultural Products (Exhibit 2(d))
Company, dated
December 15, 1993
2(d) Letter Agreement, dated Incorporated herein by
October 24, 1993, reference to Registrant's
between the Registrant 1993 Form 10-K
and W. R. Grace & Co. - (Exhibit 2(e))
Conn.
2(e) Amendment to Letter Incorporated herein by
Agreement, dated reference to Registrant's
November 22, 1993, 1993 Form 10-K
between the Registrant (Exhibit 2(f))
and W. R. Grace & Co. -
Conn.
2(f) Second Amendment to Incorporated herein by
Letter Agreement, dated reference to Registrant's
December 15, 1993, 1993 Form 10-K
between the Registrant (Exhibit 2(g))
and W. R. Grace & Co. -
Conn.
E-1
Exhibit No. Description Location
2(g) Agreement of Merger of Incorporated herein by reference
ZXY Corp. and Grace- to Registrant's 1993 Form 10-K
Sierra Horticultural (Exhibit 2(h))
Products Company, dated
December 16, 1993
4(a) Third Amendment to Incorporated herein by reference
Credit Agreement, dated to Registrant's 1993 Form 10-K
December 16, 1993, (Exhibit 4(d))
among the Registrant,
The O. M. Scott & Sons
Company ("Scott"), the
banks listed therein
and Chemical Bank, as
agent (the "Third
Amendment")
23(a) Consent of Price Page E-5
Waterhouse
23(b) Consent of Coopers & Page E-6
Lybrand
99(a) Separate Term Loan Incorporated herein by reference
Notes, dated to Registrant's 1993 Form 10-K
February 23, 1993, (Exhibit 10(zz))
executed by the
Registrant and Scott,
jointly and severally
in favor of the banks
identified therein, in
connection with the
Third Amendment
99(b) Separate Revolving Incorporated herein by reference
Credit Notes, dated to Registrant's 1993 Form 10-K
February 23, 1993, in (Exhibit 10(aaa))
favor of the banks
identified therein and
executed by the
Registrant and Scott,
in connection with the
Third Amendment
99(c) Swing Line Note, dated Incorporated herein by reference
December 16, 1993, and to Registrant's 1993 Form 10-K
executed by Scott in (Exhibit 10(bbb))
favor of Chemical Bank,
as agent, in connection
with the Third Amendment
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Exhibit No. Description Location
99(d) Scotts-Sierra Incorporated herein by reference
Horticultural Products to Registrant's 1993 Form 10-K
Company ("SSHPC") (Exhibit 10(ccc))
Security Agreement,
dated December 16, 1993,
executed by SSHPC and
Chemical Bank, as agent,
in connection with the
Third Amendment
99(e) Scotts-Sierra Company Incorporated herein by reference
Protection Company to Registrant's 1993 Form 10-K
("SSCPC") Security (Exhibit 10(ddd))
Agreement, dated
December 16, 1993,
executed by SSCPC and
Chemical Bank, as agent,
in connection with the
Third Amendment
99(f) SSHPC Patent and Incorporated herein by reference
Trademark Assignment, to Registrant's 1993 Form 10-K
dated December 16, 1993, (Exhibit 10(eee))
executed by SSHPC and
Chemical Bank, as agent,
in connection with the
Third Amendment
99(g) SSCPC Patent and Incorporated herein by reference
Trademark Assignment, to Registrant's 1993 Form 10-K
dated December 16, 1993, (Exhibit 10(fff))
executed by SSCPC and
Chemical Bank, as agent,
in connection with the
Third Amendment
99(h) Subsidiary Pledge Incorporated herein by reference
Agreement, dated to Registrant's 1993 Form 10-K
December 16, 1993, (Exhibit 10(ggg))
executed by SSHPC and
Chemical Bank, as agent,
in connection with the
Third Amendment
99(i) Netherlands Pledge Incorporated herein by reference
Agreement, dated to Registrant's 1993 Form 10-K
December 16,1993, (Exhibit 10(hhh))
executed by SSHPC and
Chemical Bank, as agent,
in connection with the
Third Agreement
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Exhibit No. Description Location
99(j) Second Amended and Incorporated herein by reference
Restated Subsidiaries to Registrant's 1993 Form 10-K
Guarantee, dated (Exhibit 10(iii))
December 16, 1993,
executed by related
entities of the
Registrant and Scott as
listed therein, SSHPC
and SSCPC, in connection
with the Third Amendment
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EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of The Scotts Company on Form S-8 (File Nos. 33-47073 and
33-60056) of our report dated February 17, 1993 on our audit of the
consolidated financial statements of Grace-Sierra Horticultural
Products Company as of December 31, 1992 and for the year then
ended, which report is included in this Form 8-K/A.
Price Waterhouse
San Jose, California
February 27, 1994
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EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of The Scotts Company on Form S-8 (File Nos. 33-47073 and
33-60056) of our report dated February 11, 1994 on our audit of the
consolidated financial statements of Grace-Sierra Horticultural
Products Company as of December 16, 1993 and for the period from
January 1, 1993 to December 16, 1993, which report is included in
this Form 8-K/A.
Coopers & Lybrand
Columbus, Ohio
February 28, 1994
E-6
