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) May 19, 1995
THE SCOTTS COMPANY
(Exact name of registrant as specified in its charter)
0-19768 31-1199481
Ohio
(State or other (Commission File (IRS Employer
jurisdiction Number) Identification No.)
of 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 19 pages
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 May
31, 1995 (the "Registrant's May 1995 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 the Miracle-Gro
Companies as described in Item 2 of the Registrant's May 1995
Form 8-K.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of the business acquired:
Audited Financial Statements of Stern's Miracle-Gro
Products, Inc. and Affiliated Companies:
Report of Independent Public Accountants.
Incorporated herein by reference to the
Registrant's Registration Statement on Form S-4
(File No. 33-57595) (the "Registrant's
Form S-4"), F-12.
Combined Balance Sheets at September 30, 1993 and
1994. Incorporated herein by
reference to the Registrant's Form S-4, F-13.
Combined Statements of Income and Retained Earnings
for the years ended September 30, 1992, 1993 and 1994.
Incorporated herein by reference to the Registrant's
Form S-4, F-14.
Combined Statements of Cash Flows for the years ended
September 30, 1992, 1993 and 1994. Incorporated herein
by reference to the Registrant's Form S-4, F-15-F-16.
Notes to Combined Financial Statements. Incorporated
herein by reference to the Registrant's Form S-4, F-17-F-23.
Unaudited Financial Statements of Stern's Miracle-Gro
Products, Inc. and Affiliated Companies:
Combined Balance Sheets at March 31, 1995 (Unaudited)
Combined Statements of Income and Retained Earnings
for the six months ended March 31, 1994 and 1995 (Unaudited)
Combined Statements of Cash Flows for the six months
ended March 31, 1994 and 1995 (Unaudited)
Notes to Combined Financial Statements (Unaudited)
(b) Pro Forma Financial Information:
Pro Forma Consolidated Financial Information
(Unaudited)
Pro Forma Consolidated Statement of Income for the year
ended September 30, 1994 (Unaudited)
Notes to Pro Forma Consolidated Statement of Income for
the year ended September 30, 1994 (Unaudited)
Pro Forma Consolidated Statement of Income for the six
months ended April 1, 1995 (Unaudited)
2
Notes to Pro Forma Consolidated Statement of Income for
the six months ended April 1, 1995 (Unaudited)
Pro Forma Consolidated Balance Sheet at April 1, 1995
(Unaudited)
Notes to Pro Forma Consolidated Balance Sheet
(Unaudited)
(c) Exhibits:
The following documents were filed as exhibits to the
Registrant's May 1995 Form 8-K or incorporated by
reference therein and are all incorporated by reference
herein.
Exhibit No. Description
2(a) Agreement and Plan of
Merger dated as of
January 26, 1995, among
the Miracle-Gro
Companies, the original
shareholders of the
Miracle-Gro Companies,
Registrant and Merger
Subsidiary
2(b) Amended and Restated
Agreement and Plan of
Merger dated as of
May 19, 1995, among the
Miracle-Gro Companies,
the Hagedorn
Partnership, the general
partners of the Hagedorn
Partnership, the
Charity, Horace
Hagedorn, John Kenlon,
the Registrant and
Merger Subsidiary
4(a) Amended Articles of
Incorporation of the
Registrant as filed with
the Ohio Secretary of
State on September 20,
1994 (including the
terms of the Class A
Convertible Preferred
Stock of the Registrant)
4(b) Certificate of Amendment
by Shareholders of the
Articles of
Incorporation of the
Registrant as filed with
the Ohio Secretary of
State on May 4, 1995
4(c) Regulations of the
Registrant (reflecting
amendments adopted by
the shareholders of the
Registrant on April 6,
1995)
4(c) Form of Series A Warrant
4(d) Form of Series B Warrant
4(e) Form of Series C Warrant
99(a) Press release issued by
the Registrant on
May 19, 1995
3
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: August 2, 1995 THE SCOTTS COMPANY
By: /s/ Paul D. Yeager
Paul D. Yeager, Executive Vice
President and Chief Financial Officer
4
INDEX TO FINANCIAL STATEMENTS
Page(s)
Item Financial statements of the business
7(a) acquired
Unaudited Financial Statements of
Stern's Miracle-Gro Products, Inc.
and Affiliated Companies:
Combined Balance Sheets at March 31, F-1
1995 (Unaudited)
Combined Statements of Income and
Retained
Earnings for the six months ended F-2
March 31, 1994
and 1995 (Unaudited)
Combined Statements of Cash Flows
for the six F-3
months ended March 31, 1994 and
1995 (Unaudited)
Notes to Combined Financial F-4 - F-5
Statements (Unaudited)
Item Pro Forma Financial Information
7(b)
Pro Forma Consolidated Financial F-6
Information (Unaudited)
Pro Forma Consolidated Statement of
Income for the year ended F-7
September 30, 1994 (Unaudited)
Notes to Pro Forma Consolidated
Statement of Income for the year F-8 - F-9
ended September 30, 1994 (Unaudited)
Pro Forma Consolidated Statement of
Income for the six months ended F-10
April 1, 1995 (Unaudited)
Notes to Pro Forma Consolidated
Statement of Income for the six F-11 - F-12
months ended April 1, 1995
(Unaudited)
Pro Forma Consolidated Balance Sheet
at April 1, 1995 (Unaudited) F-13
Notes to Pro Forma Consolidated
Balance Sheet (Unaudited) F-14
5
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
(Unaudited)
(in thousands)
March 31, 1995
ASSETS
Current Assets:
Cash $ 459
Accounts receivable, net 44,806
Inventories 21,189
Other current assets 221
Total current assets 66,675
Property, plant and equipment, net 1,259
Other assets 411
Total Assets $68,345
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit $23,100
Accounts payable 6,107
Other current liabilities 5,317
Total current liabilities 34,524
Long-term debt 3,500
Total Liabilities 38,024
Stockholders' Equity:
Capital stock 9,455
Paid in capital 240
Retained earnings 20,626
Total Stockholders' Equity 30,321
Total Liabilities and Stockholders' Equity $68,345
See Notes to Combined Financial Statements
F-1
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
1994 1995 1994 1995
Net sales $43,214 $47,467 $57,293 $62,722
Cost of sales 19,717 23,323 26,287 30,614
Gross profit 23,497 24,144 31,006 32,108
Marketing 5,263 6,431 6,778 8,180
Distribution 1,066 1,527 1,521 1,938
General and 1,775 2,547 3,366 4,788
administrative expenses
Other expenses, net 474 (148) 745 670
Income from operations 14,919 13,787 18,596 16,532
Interest expense, net 187 486 186 489
Income before taxes 14,732 13,301 18,410 16,043
Provision for state 120 146 240 295
income taxes
Net income 14,612 13,155 18,170 15,748
Beginning retained 8,068 7,471 13,478 19,415
earnings
Total 22,680 20,626 31,648 35,163
Less: Distribution to (8,968) (14,537)
stockholders
Retained earnings, $22,680 $20,626 $22,680 $20,626
March 31
See Notes to Combined Financial Statements
F-2
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
March 31,
1994 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 18,170 $ 15,748
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 106 216
Equity loss - 192
Net change in components of (37,306) (40,502)
working capital
Other 67 8
Net cash flows used in operating (18,963) (24,338)
activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investment in fixed assets, net (600) (169)
Net cash flows used in investing (600) (169)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase in note payable 18,135 23,100
Distribution to shareholders (8,968) (14,537)
Net cash flows provided by financing 9,167 8,563
activities
Net decrease in cash and equivalents (10,396) (15,944)
Cash and cash equivalents at 11,747 16,403
beginning of period
CASH AND CASH EQUIVALENTS AT END OF 1,351 459
PERIOD
Supplemental Cash Flow Information:
Interest Paid $ 292 $ 466
Income Taxes Paid $ 109 $ 37
See Notes to Combined Financial Statements
F-3
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined quarterly financial
statements include the accounts of Stern's Miracle-
Gro Products, Inc. ("MG, Inc."), Miracle-Gro
Products Limited ("MG Limited"), Miracle-Gro Lawn
Products, Inc. ("Lawn Products") and Stern's
Nurseries, Inc. ("Sterns"), collectively the
"Company" or "Miracle-Gro." The Company is engaged
in the marketing and distribution of plant foods
and lawn and garden products primarily in the
United States, Canada and through MG Limited in the
United Kingdom. The Company's business is highly
seasonal with approximately 80% of sales occurring
in its second and third fiscal quarters.
The combined financial statements are presented to
reflect the combined financial position and results
of operations of the companies acquired pursuant to
the transaction described in Note 5. Each of the
above companies is controlled by the same group of
shareholders (directly or indirectly).
Accordingly, the assets, liabilities and equity of
the individual entities have been combined. All
material intercompany transactions and balances
have been eliminated in combination. Another
company similarly controlled, Necessary Organics,
Inc., has not been included in the presentation as
it is not part of the group of companies acquired.
The combined balance sheets as of March 31, 1995,
the related combined statements of income and
retained earnings, and cash flows for the six
months ended March 31, 1994 and 1995 are unaudited;
however, in the opinion of Miracle-Gro's
management, such financial statements contain all
adjustments necessary for the fair presentation of
the Company's financial position and results of
operations. Interim results reflect all normal
recurring adjustments and are not necessarily
indicative of results for a full year. The interim
financial statements and notes are presented as
specified by Regulation S-X of the Securities
Exchange Act of 1934, and should be read in
conjunction with the financial statements and the
accompanying notes in the Company's fiscal 1994
annual financial statements filed in the
Registrant's S-4.
NOTE 2 INVENTORIES
(in thousands)
Inventories are valued at the lower of cost or
market under the Last-In First-Out (LIFO) method.
Inventories at March 31, 1995 were comprised of the
following:
Raw Materials $ 7,705
Finished Goods 13,484
$21,189
NOTE 3 INCOME TAXES
Each of the affiliated companies in the combined
financial statements (except for Stern's) has
elected to be treated as a Subchapter S corporation
under the Internal Revenue Code. Therefore,
federal and most state income taxes are paid by
their stockholders. As a result, the combined
financial statements include only those state and
local income taxes payable directly by the
affiliated companies.
Had the affiliated companies been C corporations,
additional provisions for income taxes of
$7,140,000 and $6,090,000 would have been incurred
for the six months ended March 31, 1994 and 1995,
respectively.
F-4
STERN'S MIRACLE-GRO PRODUCTS, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
As the entities are not taxable under the lnternal
Revenue Code, no deferred taxes have been provided
in the combined statements. Effective April 1,
1995, each of the affiliated Companies (except for
Stern's) elected to be treated as a C corporation
under the Internal Revenue Code.
NOTE 4 SIGNIFICANT TRANSACTIONS
On December 31, 1994, MG Limited entered into an
agreement to exchange its equipment and a license
for distribution of Miracle-Gro products in certain
areas of Europe for a 32.5% equity interest in a
U.K. based garden products company. The initial
period of the license is five years and may be
extended up to twenty years from January 1, 1995,
depending on the circumstances defined in the
license agreement. MG Limited is entitled to
annual royalties for the first five years of the
license.
The exchange is being accounted for at historical
cost, with MG Ltd's investment being equal to the
book value of its assets contributed to the new
company. The investment will be accounted for on
the equity method, with MG Limited recognizing its
proportionate share of the new company's net income
and/or losses, as well as royalty income.
On January 26, 1995, the Company entered into a
merger agreement with The Scotts Company ("Scotts")
whereby Scotts would purchase all the outstanding
stock of the Company in exchange for $195,000,000
face amount of convertible preferred stock and
warrants to purchase 3,000,000 common shares of
Scotts. Such securities have been registered on
Form S-4 in connection with this transaction. The
preferred stock will have a dividend yield of 5.0%
and will be convertible to common shares of Scotts
at $19.00 per share. The warrants are exercisable
for 1,000,000 common shares at $21.00 per share,
1,000,000 common shares at $25.00 per share and
1,000,000 common shares at $29.00 per share.
NOTE 5 SUBSEQUENT EVENTS
On May 19, 1995, the merger agreement between the
Company and The Scotts Company was completed. The
total purchase price was based on the estimated
fair value of the convertible preferred stock and
warrants as of closing and was $226,000,000.
NOTE 6 LITIGATION CONTINGENCY
An action was commenced against the Company on
March 2, 1995 in a U. S. District Court in Alabama
by Pursell Industries. This action alleges, among
other things, that the Company breached an alleged
joint venture contract with the Plaintiff,
committed fraud and breached an alleged fiduciary
duty owed to the Plaintiff by not informing it of
the negotiations concerning the merger with The
Scotts Company described in Note 5. The Plaintiff
seeks compensatory and punitive damages in excess
of $10 million. Prior to that, the Company had
filed suit in New York seeking a declaratory
judgment there was no enforceable joint venture
agreement. The cases are presently in discovery
and there are several motions pending. The Company
does not believe the Alabama action has any merit
and intends to defend it vigorously. The financial
statements do not include any adjustments that
might result from the outcome of this litigation.
F-5
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Statements of
Income give effect to the acquisition of the Miracle-Gro
Companies as if the transaction, which occurred on May 19,
1995, had taken place on October 1, 1993. The following
unaudited Pro Forma Consolidated Balance Sheet gives effect
to the acquisition as if the transaction had occurred on
April 1, 1995.
The unaudited pro forma consolidated financial statements
should be read in conjunction with the accompanying
historical financial statements located elsewhere herein and
in the Registrant's
S-4. 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, 1993 nor do
they purport to indicate the results of future operations of
The Scotts Company.
F-6
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended September 30, 1994
(Unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
Subtotal
Pro Forma
The Scotts Sierra As
Company Pro Forma Previously Miracle- Pro Forma
Gro
Historical See Note (A) Presented Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Net sales $606,339 $20,826 $627,165 $107,421 $ (8,355) (1) $726,231
Cost of sales 319,730 10,642 330,372 52,255 (7,355) (1)(2) 375,272
Gross profit 286,609 10,184 296,793 55,166 (1,000) 350,959
Marketing 100,106 5,233 105,339 18,551 (129) (1)(3) 123,761
Distribution 84,407 989 85,396 - 2,957 (4) 88,353
General and 30,189 2,086 32,275 6,541 (2,075) (1)(5) 36,741
administrative
Research and development 10,352 906 11,258 - - 11,258
Other expense, net 2,283 582 2,865 550 2,617 (1)(6) 6,032
Income from operations 59,272 388 59,660 29,524 (4,370) 84,814
Interest expense 17,450 1,460 18,910 125 - 19,035
Income before income 41,822 (1,072) 40,750 29,399 (4,370) 65,779
taxes
Income taxes 17,947 (965) 16,982 490 11,172 (7) 28,644
Net income $ 23,875 $ (107) $ 23,768 $28,909 $ (15,542) $ 37,135
Net income per common $1.27 $1.27 $1.27
share
See Notes to Pro Forma Consolidated Statement of Income
</TABLE>
F-7
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the fiscal year ended September 30, 1994
(Unaudited)
(in thousands, except share amounts)
I. Pro Forma Adjustments
(A) On December 17, 1993, Scotts purchased Grace-Sierra
Horticultural Products Company ("Sierra"). The pro forma
consolidated statement of income for the year ended
September 30, 1994 reflects this acquisition as if it had
occurred on October 1, 1992, as previously reported, giving
effect to pro forma adjustments for depreciation and
amortization of tangible and intangible assets, interest
and expenses on acquisition indebtedness, and income taxes.
The Company's consolidated balance sheet as of April 1,
1995 and consolidated statement of income for the six
months ended April 1, 1995 include Sierra for the entire
period.
Miracle-Gro Limited Transaction
(1) The historical combined financial statements of Miracle-Gro
include the revenues and expenses of Miracle-Gro Products
Limited ("Limited"). On December 31, 1994, Limited entered
into an agreement to exchange its equipment and a license
for distribution of Miracle-Gro products in certain areas
of Europe for a 32.5% equity interest in a U.K. based
garden products company. In future periods, this
investment will be accounted for on the equity method.
Accordingly, the Pro Forma Consolidated Statement of Income
has been adjusted to reflect the net income of Limited for
the year ended September 30, 1994 as if it had been
accounted for as an equity investment.
To reclassify Limited income statement accounts:
Net sales $8,355
Cost of sales 4,456
Marketing expense 1,868
General and administrative expense 304
Other expense 807
Net income as reclassified to pro forma $ 920
other expense, net
This reclassification reflects the historical Limited
results and not the results that would have been reported
had the 32.5% interest in the U.K. based garden products
company been held for the year. The historical income of
Limited reflected on the equity method of accounting is
not necessarily indicative of Limited's share of future
earnings attributable to its equity investment.
Miracle-Gro Acquisition
The following pro forma adjustments are made to reflect the
application of purchase accounting and certain adjustments
to conform the Miracle-Gro financial statement classifications
to the Scotts presentation.
(2) To reclassify distribution expense ($2,957) recorded as
cost of sales to distribution; and to reclassify
depreciation ($58) to cost of sales from general and
administrative.
F-8
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRELIMINARY PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the fiscal year ended September 30, 1994
(Unaudited)
(in thousands, except share amounts)
(3) To reclassify sales and marketing related salaries and
fringe benefits ($1,739) from general and administrative to
marketing.
(4) To reclassify distribution expense ($2,957) from cost of
sales.
(5) To record additional depreciation on buildings and
amortization of a favorable land lease ($26); to reclassify
sales and marketing salaries ($1,739) to marketing; and to
reclassify depreciation ($58) to cost of sales.
(6) To record amortization of acquired trademarks and goodwill
($4,343) over 40 years.
(7) To record additional income tax expense assuming Miracle-
Gro had been taxed as C corporations ($11,180) and to
record the tax benefit of pro forma adjustments ($8);
historically Miracle-Gro had elected Subchapter S status
under the Internal Revenue Code.
II. Earnings Per Common Share
For purposes of computing earnings per share, the convertible
preferred stock is considered a common stock equivalent. Pro
forma primary and fully-diluted earnings per share for the year
ended September 30, 1994 are calculated using the weighted
average common shares outstanding for Scotts of 18,784,729 and
the common shares that would have been issued assuming
conversion of preferred stock at the beginning of the year of
10,263,158 common shares. The computation of pro forma primary
earnings per share assuming reduction of earnings for preferred
dividends and no conversion of preferred stock was anti-
dilutive.
F-9
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended April 1, 1995
(Unaudited)
(in thousands except share data)
The Scotts
Company Miracle-Gro Pro Forma
Historical Historical Adjustments Pro Forma
Net Sales $334,111 $62,722 $ (3,216) (1) $393,617
Cost of Sales 177,410 30,614 (1,809) (1)(2) 206,215
Gross profit 156,701 32,108 (1,407) 187,402
Marketing 56,670 8,180 747 (1)(3) 65,597
Distribution 45,019 1,938 - 46,957
General and 12,964 4,788 (1,670) (1)(4) 16,082
administrative
Research and 5,728 - - 5,728
development
Other expense, net 2,553 705 1,250 (1)(5) 4,508
Income from 33,767 16,497 (1,734) 48,530
operations
Interest expense 13,808 489 - 14,297
Income before 19,959 16,008 (1,734) 34,233
income taxes
Income taxes 8,282 295 4,999 (6) 13,576
Net income $ 11,677 $15,713 $ (6,733) $ 20,657
Net income per $ 0.62 $ 0.71
common share
F-10
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRELIMINARY PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the six months ended April 1, 1995
(Unaudited)
(in thousands, except share amounts)
I. Pro Forma Adjustments
(A) Certain reclassifications have been made to Miracle-Gro's
historical statement of income to conform to The Scotts
Company classifications.
Miracle-Gro Limited Transaction
(1) The historical combined financial statements of Miracle-Gro
include the revenues and expenses of Miracle-Gro Products
Limited ("Limited"). On December 31, 1994, Limited entered
into an agreement to exchange its equipment and a license
for distribution of Miracle-Gro products in certain areas
of Europe for a 32.5% equity interest in a U.K. based
garden products company. In future periods, this
investment will be accounted for on the equity method.
Accordingly, the Preliminary Pro Forma Consolidated
Statement of Income has been adjusted to reflect the net
income of Limited for the six months ended April 1, 1995
as if it had been accounted for as an equity investment.
To reclassify Limited income statement accounts:
Net sales $3,216
Cost of sales 1,839
Marketing expense 123
General and administrative expense 332
Other expense 755
Net income as reclassified to pro forma $ 167
other expense, net
This reclassification reflects the historical Limited
results and not the results that would have been reported
had the 32.5% interest in the U.K. based garden products
company been held for the period. The historical income of
Limited reflected on the equity method of accounting is not
necessarily indicative of Limited's share of future
earnings attributable to its equity investment.
Miracle-Gro Acquisition
The following pro forma adjustments are made to reflect the
application of purchase accounting and certain adjustments
to conform the Miracle-Gro financial statement
classifications to the Scotts presentation.
(2) To reclassify depreciation ($30) to cost of sales from
general and administrative.
(3) To reclassify sales and marketing related salaries and
fringe benefits ($870) from general and administrative to
marketing.
F-11
THE SCOTTS COMPANY AND SUBSIDIARIES
NOTES TO PRELIMINARY PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the six months ended April 1, 1995
(Unaudited)
(in thousands, except share amounts)
(4) To record additional depreciation on buildings and
amortization of a favorable land lease ($12); to reclassify
sales and marketing salaries ($870) to marketing; to
eliminate ($450) of Miracle-Gro deal costs; and to
reclassify depreciation ($30) to cost of sales.
(5) To record amortization of acquired trademarks and goodwill
($2,172) over 40 years.
(6) To record additional income tax expense assuming Miracle-
Gro had been taxed as C corporation ($4,866) and to record
the income tax of pro forma adjustments ($133);
historically Miracle-Gro had elected Subchapter S status
under the Internal Revenue Code.
II. Earnings Per Common Share
For purposes of computing earnings per share, the convertible
preferred stock is considered a common stock equivalent. Pro
forma primary and fully-diluted earnings per share for the six
months ended April 1, 1995 are calculated using the weighted
average common shares outstanding for Scotts of 18,762,358 and
the common shares that would have been issued assuming
conversion of preferred stock at the beginning of the year of
10,263,158 common shares. The computation of pro forma primary
earnings per share assuming reduction of earnings for preferred
dividends and no conversion of preferred stock was anti-dilutive.
F-12
<TABLE>
THE SCOTTS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
As of April 1, 1995
(Unaudited)
(in thousands)
<CAPTION>
ASSETS
The
Scotts
Company Miracle-Gro Pro Forma
Historical Historical Adjustments Pro Forma
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 6,619 $ 459 $ - $ 7,078
Accounts receivable, net 252,509 44,806 (4,572) (1)(2) 292,743
Inventories 143,574 21,189 (184) (3) 164,579
Prepaid and other current
assets 22,841 221 23,062
Total current assets 425,543 66,675 (4,756) 487,462
Property, plant and 143,791 1,259 659 (4) 145,709
equipment, net
Trademarks, patents and 26,529 - 90,000 (5) 116,529
other intangibles
Goodwill 103,224 - 83,739 (5) 186,963
Other assets 9,755 411 10,226 (1)(6) 20,392
Total Assets $708,842 $68,345 $ 179,868 $957,055
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Revolving credit line $39,852 $23,100 $ - $ 62,952
Accounts payable 79,591 6,107 - 85,698
Other current liabilities 46,589 5,317 21,689 (1)(7)(8) 73,595
(9)(10)
Total current liabilities 166,032 34,524 21,689 222,245
Long-term debt 324,630 3,500 (3,500)(1) 324,630
Postretirement benefits 27,218 - - 27,218
other than pensions
Other noncurrent liabilities 7,622 - - 7,622
Total Liabilities 525,502 38,024 18,189 581,715
Shareholders' Equity:
Preferred stock - - 178,200 (11) 178,200
Common stock 211 9,455 (9,455)(11) 211
Capital in excess of par 193,155 240 13,560 (11) 206,955
value
Retained earnings 25,552 20,626 (20,626)(11) 25,552
Cumulative translation gain 5,863 - - 5,863
Treasury stock (41,441) - - (41,441)
Total Shareholders' Equity 183,340 30,321 161,679 375,340
Total Liabilities and $708,842 $ 68,345 $179,868 $957,055
Shareholders' Equity
See Notes to Pro Forma Consolidated Balance Sheet
</TABLE>
F-13
THE SCOTTS COMPANY AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
As of April 1, 1995
(Unaudited)
(in thousands)
(1) On December 31, 1994, Limited entered into an agreement
to exchange its equipment and a license for distribution
of Miracle-Gro products in certain areas of Europe for a
32.5% equity interest in a U.K. based garden products
company. Current assets, comprised primarily of accounts
receivable and inventories will be used to liquidate
current liabilities and long-term debt, with any residual
cash remaining with Limited.
To record the investment in the new company at fair
value:
Other assets $ 10,186
To reflect disposition of assets in
satisfaction of liabilities:
Accounts receivable $ (4,072)
Accounts payable $ 572
Accrued liabilities -
Long-term debt $ 3,500
(2) To adjust estimate for allowance for doubtful accounts
($500).
(3) To record inventory at estimated fair value ($344).
(4) To record buildings and equipment ($659) at estimated
fair value.
(5) To record the estimated fair value of Miracle-Gro
trademarks ($90,000) and to record the excess of purchase
price over the underlying value of net assets acquired
(goodwill).
(6) To record a non-current deferred tax asset ($40) for
differences in the financial reporting and tax bases of
certain liabilities and fixed assets.
(7) To record the estimated liability ($16,600) for
distribution to be made to Miracle-Gro shareholders
pursuant to the purchase agreement. The total liability
will be $21,014 based on the increase in Miracle-Gro's
net assets from normal operations through the transaction
closing date.
(8) To record the excess of the projected benefit obligation
over the plan assets ($791) of the Miracle-Gro defined
benefit pension plan.
(9) To adjust estimated vacation accrual ($163), incentive
accrual ($675) and payroll accrual ($32).
(10) To record for estimated transaction costs ($4,000).
(11) To record the issuance of 5% convertible preferred stock
with an estimated market value of $178,200 and a face
amount of $195,000 and warrants to purchase common stock
with an estimated market value of $13,800 as consideration
to acquire Miracle-Gro, and to eliminate the historical
shareholders' equity of Miracle-Gro.
F-14
