<PAGE> 1
Ortho 8K/A
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): January 21, 1999
-----------------
THE SCOTTS COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OHIO 1-11593 31-1414921
-------------------------------- -------------------- ----------------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
</TABLE>
14111 SCOTTSLAWN ROAD, MARYSVILLE, OHIO 43041
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (937) 644-0011
--------------
NOT APPLICABLE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Index to Exhibits is on Page 19.
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 21, 1999, the Scotts Company (the "Registrant") acquired
substantially all of the non-Roundup assets of the Solaris Division of Monsanto
Company ("Monsanto") in a privately negotiated transaction for $339.9 million,
of which $39.9 million was based on Monsanto's estimate of the level of
normalized working capital as of the closing date (the "Ortho Acquisition"). The
exact amount of normalized working capital will be determined through a
post-closing audit, and the purchase price is therefor subject to adjustment.
The acquired assets include the Ortho(R), Green Cross(R), White Swan(R) and
Defender(R) product lines, as well as formulation facilities in Fort Madison,
Iowa and Corwen, United Kingdom. Monsanto used the property, plant and equipment
included among the acquired assets for the production of consumer lawn and
garden pesticides, fertilizers and growing media. The Registrant does not have
any present intention to devote any material amount of the acquired assets to
purposes other than the production of consumer lawn and garden pesticides,
fertilizers and growing media. The Ortho Acquisition was financed through the
private placement by the Registrant of $330 million aggregate principal amount
of its 8.625% Senior Subordinated Notes and through revolving credit borrowings
under the Registrant's credit agreement dated as of December 4, 1998, which
provides for aggregate borrowings of up to $1.025 billion (the "New Credit
Facility"). The identity of the financial institutions which are parties to the
New Credit Facility has been omitted as contemplated under Item 2(a) of Form 8-K
and filed separately with the Securities and Exchange Commission.
The Asset Purchase Agreement dated as of November 11, 1998 between the
Registrant and Monsanto includes various customary representations and
warranties of the parties for transactions of this type and contains customary,
limited carve-outs for materiality, knowledge and disclosed information.
However, the indemnification provisions limit the Registrant's total exposure to
assumed liabilities, disputes with the distributor of the product lines
purchased from Monsanto and breaches of representation to $5 million in the
aggregate.
Pursuant to the Ortho Acquisition, the Registrant made offers to all but a
very limited number of Ortho employees who work primarily in the Ortho business.
The Registrant has also agreed to pay severance costs for U.S. employees based
on Monsanto's severance policy. In return, Monsanto has agreed to reimburse the
Registrant for half of the costs of such termination payments, up to a maximum
of $5 million.
In connection with the Ortho Acquisition, the Registrant and Monsanto have
entered into a supply agreement covering the supply of glyphosate to the
Registrant for use in non-Roundup(R) products that contain glyphosate and that
are being sold to the Registrant in the Ortho Acquisition. The agreement
guarantees the Registrant a long-term supply of glyphosate at a price
competitive with that obtainable in the open market both now and after
glyphosate ceases to be patented in the United States.
On September 30, 1998, the Registrant entered into an Exclusive Agency and
Marketing Agreement with Monsanto (as amended and restated on November 11, 1998,
the "Roundup Marketing Agreement"). Pursuant to the Roundup Marketing Agreement,
the Registrant became Monsanto's exclusive agent for the marketing and
distribution of consumer Roundup(R) products in the consumer lawn and garden
market within the United States and other specified countries, including, among
others, Australia, Austria, Canada, France, Germany and the United Kingdom. In
addition, if Monsanto develops new products containing glyphosate, the active
ingredient in Roundup(R), or other non-selective herbicides, the Registrant has
certain rights to market such products as well in the consumer lawn and garden
market.
Under the Roundup Marketing Agreement, the Registrant and Monsanto will
jointly develop global consumer and trade marketing programs for Roundup(R), and
the Registrant has assumed responsibility for sales support, merchandising,
distribution and logistics. Monsanto will continue to own the consumer Roundup
business and will provide significant oversight of its brand. In addition,
Monsanto will continue to own and operate the agricultural Roundup business.
Roundup(R) is a registered trademark of Monsanto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired:
Please see Index to Financial Statements and Pro Forma Financial
Information at page 3.
(b) Pro Forma Financial Information:
Please see Index to Financial Statements and Pro Forma Financial
Information at page 3.
(c) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2 Asset Purchase Agreement dated as of November 11, 1998, by
and between The Scotts Company and Monsanto Company, a copy
of which is attached to the Registrant's Form 10-K filed
December 21, 1998 and incorporated by reference herein.
99 Press Release issued January 21, 1999
1
<PAGE> 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: February 5, 1999 By: /s/ G. ROBERT LUCAS
-----------------------
G. Robert Lucas
Senior Vice President
2
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Item 7(a) Financial Statements of Business Acquired:
-----------------------------------------------------
Independent Auditors' Report................................ 4
Ortho and Certain Other Brands of The Solaris Group
Statements of Assets to Be Sold........................ 5
Ortho and Certain Other Brands of The Solaris Group
Statements of Net Sales, Cost of Sales and Direct
Operating Expenses..................................... 6
Notes to Financial Statements............................... 7
Item 7(b) Pro Forma Financial Information:
-------------------------------------------
The Scotts Company, Unaudited Pro Forma Combined
Statement of Income.................................... 12
The Scotts Company, Unaudited Pro Forma Combined
Balance Sheet.......................................... 16
</TABLE>
3
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Monsanto Company:
We have audited the accompanying statement of net assets to be sold of Ortho and
Certain Other Brands (as described in Note 1) of The Solaris Group (a division
of Monsanto Company) as of December 31, 1997, and the related statement of net
sales, cost of sales and direct operating expenses for the year then ended.
These financial statements are the responsibility of Monsanto Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 statements are free of material misstatement. An
audit also 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 presentation of the financial statements. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements were prepared to present the net assets,
net sales, cost of sales, and direct operating expenses of the brands of The
Solaris Group to be sold to The Scotts Company pursuant to the Asset Purchase
Agreement described in Note 1. Such financial statements are not intended to be
a complete financial statement presentation of the brands to be sold and may not
be indicative of conditions that would have existed or results that would have
occurred had the Brands operated as an unaffiliated entity.
In our opinion, such financial statements present fairly, in all material
respects, the net assets to be sold of Ortho and Certain Other Brands (pursuant
to the Asset Purchase Agreement described in Note 1) of The Solaris Group (a
division of Monsanto Company) as of December 31, 1997, and the net sales, cost
of sales and direct operating expenses for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Columbus, Ohio
December 8, 1998
4
<PAGE> 6
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
----------------------------------------------------
ORTHO AND CERTAIN OTHER BRANDS OF THE SOLARIS GROUP
STATEMENTS OF ASSETS TO BE SOLD (NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
ASSETS:
Accounts receivable, net of allowances of $3.9 at December
31, 1997 and $1.2 at September 30, 1998................ $ 57.3 $ 42.3
Inventories............................................... 85.6 68.8
Prepaid expenses and other current assets................. 2.1 1.3
Property, plant, and equipment, net....................... 26.7 27.6
Intangible assets......................................... 179.2 166.7
Other assets.............................................. 1.0 5.1
------ ------
Total assets........................................... 351.9 311.8
------ ------
LIABILITIES:
Accounts payable.......................................... 28.1 14.2
Accrued liabilities....................................... 22.2 20.0
------ ------
Total liabilities...................................... 50.3 34.2
------ ------
NET ASSETS TO BE SOLD....................................... $301.6 $277.6
====== ======
</TABLE>
See notes to financial statements.
5
<PAGE> 7
ORTHO AND CERTAIN OTHER BRANDS OF THE SOLARIS GROUP
STATEMENTS OF NET SALES, COST OF SALES
AND DIRECT OPERATING EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
NINE-MONTH
PERIODS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------
1997 1997 1998
------------ ------ ------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
NET SALES................................................. $208.3 $182.0 $185.1
COST OF GOODS SOLD........................................ 140.1 118.3 107.0
------ ------ ------
GROSS PROFIT.............................................. 68.2 63.7 78.1
------ ------ ------
DIRECT OPERATING EXPENSES:
Marketing expenses...................................... 41.7 34.8 33.3
Administrative expenses................................. 13.1 9.3 10.8
Technical expenses...................................... 4.3 3.0 2.9
Amortization of intangible assets....................... 13.3 9.3 13.8
Restructuring expenses.................................. 1.8 1.8
------ ------ ------
Total direct operating expenses................. 74.2 58.2 60.8
------ ------ ------
EXCESS (DEFICIENCY) OF NET SALES OVER COST OF SALES AND
DIRECT OPERATING EXPENSES............................... $ (6.0) $ 5.5 $ 17.3
====== ====== ======
</TABLE>
See notes to financial statements.
6
<PAGE> 8
ORTHO AND CERTAIN OTHER BRANDS OF THE SOLARIS GROUP
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
The Solaris Group ("Solaris"), a division of Monsanto Company and Subsidiaries
("Monsanto"), is a leading manufacturer of brand name consumer products for lawn
and garden care.
The accompanying statements have been prepared for the purpose of presenting the
net assets of the brands of The Solaris Group to be sold pursuant to the Asset
Purchase Agreement (the "Agreement") dated as of November 11, 1998 between
Monsanto and The Scotts Company (the "Buyer") and the net sales, cost of sales
and direct operating expenses as of the dates and for the periods indicated. The
brands and related businesses to be sold are referred to as the "Brands". The
transaction is expected to be consummated on or before March 31, 1999 ("Closing
Date"), subject to certain required consents, approvals and filings as defined
in the Agreement. Pursuant to the Agreement, Monsanto will sell to the Buyer the
assets pertaining to the Brands including inventories and other assets as
specified in the Agreement and the Buyer will assume certain operating
liabilities, in exchange for $300 million, subject to adjustment based on
working capital as of the closing date and as defined in the Agreement.
The net assets of the Brands as defined in the Agreement consist primarily of
the assets and liabilities used to develop, manufacture, sell and market
non-glyphosate weed control products (except for certain glyphosate-containing
weed control products as defined). Insect control products, garden seeds,
decorative garden items, fertilizers and applicators for use by consumers for
lawn and garden care and to participate in a joint venture to market a series of
gardening and home improvements books. The Brands include Ortho, Weed-B-Gon,
Rose Pride, Home Defense, Green Cross, Phostrogen, Defender and certain other
brands. The Brands' operations are in the United States (representing
approximately 90% of operations) and in certain international locations (Canada,
Europe, Asia and Latin America).
The Brands business has been managed as part of the operations of the Solaris
Group and, historically, separate Brands financial statements have not been
prepared. The accompanying statements are derived from the historical accounting
records of Solaris as described herein.
A statement of cash flows is not presented because the Brands essentially have
no cash flow. With respect to cash flows, purchases of inventory, along with
payroll, capital and other expenditures are funded by Monsanto. Sales are
collected by Monsanto, accordingly, the Brands maintain only a minimal petty
cash balance.
Net sales represent sales of the Brands products, less estimated provisions for
discounts and allowances. Expenses include allocations of operating expenses
directly attributable to the Brands, or otherwise related to Solaris. Such
allocations of operating costs are based on the Agreement. These allocation
methods are based on relative sales or other related activity, which management
has agreed upon as a reasonable allocation method. Following are allocated
operating expenses for the year ended December 31, 1997 and the nine-month
periods ended September 30, 1997 and 1998:
Nine-Month
Periods Ended
Year ended September 30,
December 31, -----------------------------
1997 1997 1998
-----------------------------------------------
(Dollars in millions)
Marketing expenses $ 41.7 $ 34.8 $ 33.3
Administrative expenses 13.1 9.3 10.8
Technical expenses 4.3 3.0 2.9
Amortization of intangible assets 13.3 9.3 13.8
Restructuring expenses 1.8 1.8
Costs excluded in the accompanying financial statements consist of general costs
incurred at Monsanto's corporate headquarters (treasury, corporate governance
and overhead), interest and income taxes, as Monsanto's systems and procedures
do not provide sufficient information to develop a reasonable cost allocation.
Accounts receivable, prepaid expenses, account payable and accrued liabilities
have been allocated to the Brands' statements of net assets to be sold based on
the Brands percentage (specified in the Agreement) of the applicable Solaris
balance. Inventories and intangible assets related to the Brands have been
included on a specific identification basis. Property, plant and equipment to be
sold pursuant to the terms of the Agreement are also included in the Brands'
statement of net assets to be sold. Accordingly, the accompanying financial
statements do not represent a full financial statement presentation of the
Brands, and do not purport to be indicative of the operating results of the
Brands had such business operated on a stand-alone basis. In addition, the
historical operating results may not be indicative of the results after
acquisition by the Buyer.
2. SIGNIFICANT ACCOUNTING POLICIES
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 that affect revenues and expenses during the periods reported.
Actual results may differ from the estimates. Significant estimates include
amounts due to and from Central Garden and Pet Company (Central Garden -- See
Note 3), allowance for doubtful accounts, inventory reserves, impairment of
assets, payables, and allocations of costs, assets and certain liabilities.
CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially subject
the Brands to concentrations of credit risk consist primarily of accounts
receivable. A significant portion of accounts receivable is due from Central
Garden (Note 3). Other accounts receivable are due principally from major
retailers, including mass merchandisers, home centers, warehouse clubs and
national and regional chains. Ongoing credit evaluation of customer financial
condition is performed and the amount of credit is limited when deemed
necessary.
REVENUE RECOGNITION -- For shipments under the Central Garden Alliance Agreement
(Note 3), sales and accounts receivable are recognized when product is shipped
from a manufacturing location or from the safety stock warehouse to either a
direct account, Central Garden branch, agent, or sub-distributor, and inventory
is relieved accordingly. Other sales and accounts receivable are recognized when
product is shipped from a manufacturing location. Related distributor program
costs and expenses are recognized at the time revenue is recognized. Provisions
for estimated returns and allowances are recorded at the time of shipment.
7
<PAGE> 9
PROPERTY, PLANT AND EQUIPMENT -- is recorded at cost. The cost of plant and
equipment is depreciated over average periods of 20 years for buildings and
improvements, 5 to 10 years for machinery and equipment, and 3 to 15 years for
office furnishings, fixtures, vehicles, and land improvements utilizing the
straight-line method.
INVENTORY VALUATION -- Inventories are stated at cost or market, whichever is
less. Standard cost, which approximates actual cost, is used to value finished
goods inventory. Standard cost includes direct labor and raw materials, and
manufacturing overhead based on budgeted capacity. Raw materials are valued at
the lesser of cost or replacement cost. The cost of certain inventories
(primarily inventory maintained in the United States) is determined using the
last-in, first-out ("LIFO") method, which generally reflects the effects of
changing prices on cost of goods sold sooner than other inventory cost methods.
Approximately, 89.5% and 90.3% of the inventory balance is determined using the
LIFO method at December 31, 1997 and September 30, 1998, respectively. The cost
of other inventory generally is determined by using the first-in, first-out
("FIFO") method.
Brands inventory cost data is combined with similar data from other Solaris
products for purposes of applying the LIFO method of accounting. Brands has been
allocated a pro rata portion of the LIFO reserve based on the relative inventory
levels of Solaris.
INTANGIBLE ASSETS -- Goodwill, which arose from Monsanto's acquisition of the
Ortho product line in 1993, is included in the accompanying statements and
represents approximately 89% of the Brands' goodwill balance as of September 30,
1998. Such goodwill is being amortized over 20 years. Goodwill arising from
other acquisitions and identifiable intangible assets such as trademarks and
non-competition agreements is amortized over the estimated periods of benefit (3
to 20 years).
LONG-LIVED ASSETS -- Impairment tests of long-lived assets are made when
conditions indicate a possible loss. Such impairment tests are based on a
comparison of undiscounted cash flows to the recorded value of the asset. If an
impairment is indicated, the asset value is written down to its net realizable
value, using an appropriate discount rate. During 1998, management determined
goodwill related to the White Swan acquisition had been impaired as the
undiscounted expected future cash flows were less than the carrying value of the
related asset. Such write-down related to assets to be held and used and is
included in amortization of intangibles on the statement of sales, cost of sales
and direct expenses.
ADVERTISING -- Advertising costs are expensed as incurred. Advertising expense
for the year ended December 31, 1997 and the nine months ended September 30,
1998 and 1997 was $8,110, $5,122 and $8,380, respectively.
CURRENCY TRANSLATION -- Assets and liabilities of foreign operations are
translated into U.S. dollars at current exchange rates as of the dates of the
statements of net assets to be sold indicated. Sales, cost of sales, and direct
operating expenses are translated into U.S. dollars at average exchange rates
for the applicable periods as indicated. Transaction gains and losses were not
significant for the applicable periods as indicated.
TECHNICAL EXPENSES -- Technical expenses include product registration fees,
tonnage taxes, direct regulatory costs, personnel and related support and
product development costs. Product development costs totaled $2.2 million, $ 1.5
million, and $1.2 million for the year ended December 31, 1997, and the
nine-month periods ended September 30, 1997 and 1998, respectively.
3. TRANSACTIONS WITH CENTRAL GARDEN
In 1995, Solaris entered into an exclusive agency and distributor agreement with
Central Garden (the "Alliance Agreement") which expires September 30, 1999. On
June 26, 1998, Solaris notified Central Garden of its intention not to extend
the Alliance Agreement beyond that date. Solaris distributed approximately 74,
74 and 70 percent of total sales volume of Brands products through Central
Garden for the year ended December 31, 1997, and the nine-month periods ended
September 30, 1997 and 1998, respectively. Total fees to Central Garden for
distributor program costs and expenses, which include costs for warehousing,
sales representatives, merchandising, account management, and other related
costs allocated to Brands were $28.7 million, $24.8 million and $23.5 million
during the year ended December 31, 1997 and the nine-month periods ended
September 30, 1997 and 1998, respectively. Payables to
8
<PAGE> 10
Central Garden associated with the distributor program of $2.9 million and $5.2
million at December 31, 1997 and September 30, 1998, respectively, are included
in accrued liabilities.
Net accounts receivable from Central Garden were $30.9 million at December 31,
1997 and $23.1 million at September 30, 1998.
As of September 30, 1998, Central Garden informed Solaris of approximately $10
million of items under dispute, which generally represent amounts alleged by
Central Garden as due from Solaris or a reduction in amounts claimed by Solaris
as due from Central Garden. The ultimate resolution of such disputed amounts
cannot presently be determined. It is reasonably possible that such resolution
will result in additional material expenses to be recognized in the operating
results of the Brands in the near-term. Under the Agreement, Monsanto has agreed
to indemnify Scotts for any subsequent adverse adjustments in excess of $2
million to the recorded Brand receivable/payable balances with Central Garden as
of the Closing Date.
4. ACQUISITIONS
Solaris acquired the assets of Phostrogen, Limited and Defender Products Garden
PTY, Limited, on January 1, 1997 and April 5, 1997, respectively. The assets and
operations resulting from these acquisitions are included in these financial
statements from their respective dates of acquisition. The acquisitions were
accounted for using the purchase method, and the respective assets and
liabilities have been recorded at their estimated fair values at the dates of
acquisition. The excess of each purchase price over the fair value of
identifiable net assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over 15 years. The purchase price
allocations, as of the acquisition dates, are summarized as follows (in
millions):
<TABLE>
<CAPTION>
PHOSTROGEN DEFENDER
---------- --------
<S> <C> <C>
Goodwill............................................. $11
Other assets......................................... 13 $2
--- --
Purchase price..................................... $24 $2
=== ==
</TABLE>
The effects of such acquisitions were not significant for the periods presented
in the accompanying statements.
5. INVENTORY
Inventories consist of (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Finished goods................................. $63.4 $56.8
Packaging supplies............................. 9.5 7.2
Raw materials.................................. 17.9 9.9
----- -----
Inventory, at FIFO cost........................ 90.7 73.9
Excess of FIFO over LIFO....................... (5.1) (5.1)
----- -----
Total................................ $85.6 $68.8
===== =====
</TABLE>
Inventories at FIFO approximate current cost. LIFO costs relating to inventory
acquired from Chevron in 1993 are based upon amounts assigned in accordance with
Accounting Principles Board Opinion No. 16. Brands finished goods inventories of
$12.6 million and $16.0 million at December 31, 1997 and September 30, 1998 are
held by Central Garden in safety stock warehouses under consignment and recorded
as inventory as of such dates.
9
<PAGE> 11
6. PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment consist (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Land........................................... $ 1.4 $ 1.5
Buildings and improvements..................... 7.1 8.7
Machinery and equipment........................ 18.5 19.4
Office furnishings, fixtures and equipment..... 8.0 7.1
Construction in process........................ 4.4 4.5
----- -----
Total................................ 39.4 41.2
Less accumulated depreciation.................. 12.7 13.6
----- -----
Net............................................ $26.7 $27.6
===== =====
</TABLE>
Depreciation expense totaled approximately $3.3 million for the year ended
December 31, 1997 of which $1.8 million was included in cost of goods sold and
$1.5 million was included in operating expenses. For the nine-month periods
ended September 30, 1998 and 1997 depreciation expense totaled approximately
$2.6 million and $2.4 million, respectively, of which $1.4 million and $1.3
million was included in cost of goods sold and $1.2 million and $1.1 million was
included in operating expenses, respectively.
7. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Goodwill....................................... $164.6 $161.4
Trademarks and trade names..................... 53.5 53.8
Noncompetition agreement....................... 16.2 16.2
------ ------
Total................................ 234.3 231.4
Less accumulated amortization of intangibles... 55.1 64.7
------ ------
Net............................................ $179.2 $166.7
====== ======
</TABLE>
8. ACCRUED LIABILITIES
Accrued liabilities consist of (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Distributor Program............................ $11.2 $11.4
Other.......................................... 11.0 8.6
----- -----
Total..................................... $22.2 $20.0
===== =====
</TABLE>
10
<PAGE> 12
9. COMMITMENTS AND CONTINGENCIES
Solaris has contractual obligations including supply, manufacturing, and
purchase agreements that require minimum annual payments. Total future annual
commitments under these arrangements to be assumed by the Buyer are as follows
(in millions):
<TABLE>
<S> <C>
1998........................................................ $1.0
1999........................................................ 1.0
----
Total.................................................. $2.0
====
</TABLE>
Solaris is the lessee under several operating leases primarily for office space
and research facilities. Future minimum rental payments under such operating
leases that have non-concellable terms beyond one year and that are to be
assumed by the Buyer are as follows (in millions):
<TABLE>
<S> <C>
1998........................................................ $2.0
1999........................................................ 1.8
2000........................................................ 1.7
2001........................................................ 1.3
2002........................................................ 0.4
Thereafter.................................................. 0.1
----
Total.................................................. $7.3
====
</TABLE>
Monsanto is a party to a number of lawsuits and claims relating to Solaris and
the Brands. Such matters relate to product liability, government regulation,
including environmental issues, and other matters. Although the results of
litigation cannot be predicted with certainty, management's belief, based upon
the advice of Monsanto's legal counsel, is that the final outcome of such
litigation will not have a material adverse effect on the Brands' financial
statements.
In connection with the acquisition of White Swan Ltd. in 1996, Solaris is
required to make additional acquisition payments each year through December 31,
2003, based upon attainment of certain gross margin thresholds. Any additional
acquisition payments would be recorded as additional goodwill. Through September
30, 1998, no additional payments were required.
See Note 3 concerning disputed amounts with Central Garden.
10. MARKETING AGREEMENT
On November 11, 1998, Monsanto and Buyer entered into an Amended and Restated
Exclusive Agency and Marketing Agreement whereby Buyer agreed to serve as
Monsanto's exclusive agent for the Roundup product line. Buyer agreed to provide
certain services, as defined, in connection with the marketing, sales and
distribution of Roundup products within certain defined markets (primarily North
America, Europe and Australia).
11. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial information as of September 30, 1998 and
for the nine-month periods ended September 30, 1997 and 1998 reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results of the interim periods presented. Such adjustments are
of a normal, recurring nature. Results for interim periods may not be indicative
of results for a full year.
11
<PAGE> 13
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION
-----------------------------------------
The following unaudited proforma combined financial information gives effect to
the Ortho Acquisition, the acquisition of Rhone-Poulenc Jardin (the consumer
lawn and garden division of Rhone-Poulenc S.A. and related entities, herein
referred to as the "RPJ Acquisition"), the marketing agreement with Monsanto
with respect to consumer Roundup(R) products (the "Roundup Marketing
Agreement"), the private placement by the Registrant of its 8 5/8% Senior
Subordinated Notes and the Registrant's new credit facility which provides for
aggregate borrowings of up to $1.025 billion (the "New Credit Facility").
On January 21, 1999, the Company acquired substantially all of the non-Roundup
assets of the Solaris Division of Monsanto for approximately $300 million plus
an amount for normalized working capital at the acquisition date. Based on the
estimate of working capital received from Monsanto, the Company made an
additional payment of $39.9 million at the closing date.
In December 1998, the Company entered into the New Credit Facility. This
facility substantially increased the borrowing capacity available to the Company
compared to the previously existing credit facility, providing term loan
facilities in the aggregate amount of $525 million and a revolving credit
facility in the amount of $500 million. In January 1999, the Company issued $330
million of 8 5/8% Senior Subordinated Notes due in 2009 in a private placement.
Proceeds from this note offering, along with borrowings under the New Credit
Facility, were used to fund the Ortho Acquisition and to repurchase the
Company's then outstanding 9 7/8% Senior Subordinated Notes ($99.5 million).
On October 7, 1998, the Company acquired RPJ for approximately $147 million. RPJ
includes the assets and liabilities of Rhone-Poulenc Jardin SA, Celaflor GmbH
and Celaflor Handelsgesellschaft. In consideration for the acquired businesses,
the Company issued non-interest bearing notes of $12.5 million to the seller.
The remaining purchase price was paid to the seller from funds borrowed under
the Company's New Credit Facility.
In connection with the RPJ acquisition, the Company entered into a Research and
Development Access Rights Agreement with Rhone-Poulenc. In exchange for the
rights provided under the agreement, the Company will make four annual payments
of 39 million French Francs each beginning on October 1, 1999 (the present value
of the payments is approximately $23.2 million).
Effective September 30, 1998, the Company entered into the Roundup Marketing
Agreement with Monsanto. The agreement provides the Company with exclusive
international marketing and agency rights to Monsanto's consumer Roundup
herbicide products. The Company is entitled to receive an annual commission from
Monsanto in consideration for the performance of its duties as agent. In
consideration for the rights granted under the agreement, the Company paid a
marketing fee of $32 million to Monsanto, the funds for which were borrowed
under the New Credit Facility.
The following pro forma statement of income is presented as if the Ortho
Acquisitions, the RPJ acquisition, and the Roundup Marketing Agreement, (the
"Transactions"), and the private placement by the Registrant of its 8.625%
Senior Subordinated Notes had occurred and the Registrant's new credit facility
which provides for aggregate borrowings of up to $1.025 billion (the "New Credit
Facility") was in place on October 1, 1997. The following pro forma balance
sheet gives effect to the Transactions, the New Credit Facility and the private
placement by the Registrant of its 8.625% Senior Subordinated Notes and the use
of proceeds therefrom as if they had occurred on September 30, 1998. The
accompanying pro forma information is presented for illustrative purposes and is
not necessarily indicative of the financial position or results of operations
which would actually have been reported had the above transactions been in
effect during the periods presented or which may be reported in the future.
There are no results of operations for either the Ortho Acquisition or the RPJ
Acquisition, nor any commissions earned under the Roundup Marketing Agreement,
which are included in the Company's historical results for the twelve months
ended September 30, 1998.
THE SCOTTS COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(dollars in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------------
IMPACT OF IMPACT OF
SCOTTS RPJ RPJ ORTHO ORTHO OTHER SCOTTS
HISTORICAL RPJ(1) ADJUSTMENTS ACQUISITION ORTHO(1) ADJUSTMENTS ACQUISITION ADJUSTMENTS PRO FORMA
---------- ------ ----------- ----------- ------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.................. $1,113.0 $144.3 $144.3 $211.4 $ 46.8(2) $269.2 $1,526.5
11.0(3)
Cost of sales.......... 715.0 75.4 75.4 128.8 21.2(2) 157.7 948.1
6.7(3)
1.0(4)
-------- ------ ------ ------ ------ ------ --------
Gross profit........... 398.0 68.9 68.9 82.6 28.9 111.5 578.4
Net commission earned
under agency
agreement............ (35.0)(5) (35.0)
SG&A................... 271.6 55.7 55.7 59.0 25.6(2) 84.6 411.9(6)
Amortization of
goodwill and
other intangibles.... 12.9 2.3 2.0(7) 5.8 17.8 (12.3)(9) 5.5 3.2(10) 27.4
1.5(8)
Restructuring and
other charges........ 15.4 1.8 -- 1.8 -- 17.2
Other expense, net..... 4.0 0.4 -- 0.4 -- 4.4
-------- ------ ------ ------ ------ ------ ------ ------ --------
Income from
operations......... 94.1 8.7 (3.5) 5.2 5.8 15.6 21.4 33.4 152.5
Interest expense....... 32.2 0.2 -- 0.2 -- -- 52.2(11) 84.6
-------- ------ ------ ------ ------ ------ ------ ------ --------
Income before income
taxes................ 61.9 8.5 (3.5) 5.0 5.8 15.6 21.4 (18.8) 67.9
Provision for income
taxes................ 24.9 5.3 -- 5.3 -- -- -- (2.8)(12) 27.4
-------- ------ ------ ------ ------ ------ ------ ------ --------
Income before
extraordinary item... $ 37.0 $ 3.2 $ (3.5) $ (0.3) $ 5.8 $ 15.6 $ 21.4 $(16.0) $ 40.5
======== ====== ====== ====== ====== ====== ====== ====== ========
</TABLE>
---------------
(1) Represents the results of operations for the Ortho and RPJ businesses for
the twelve months ended September 30, 1998. The statement of income data
for RPJ have been translated from French Francs to U.S. Dollars using the
average exchange rate for the twelve months ended September 30, 1998 of FF
5.97: USD 1.
(2) The historical financial statements for the Ortho business reflect certain
amounts paid to distributions and agents for distribution and merchandising
activities as reductions of net sales. This adjustment reflects the
reclassification of these amounts to cost of sales or selling, general and
administrative expenses, as appropriate, to conform with the Company's
presentation.
(3) Represents adjustment to sales and cost of sales on certain shipments to
distributors. The Company intends to reflect these shipments as inventory
until such inventory is subsequently shipped to retailer locations. The
adjustment is as follows:
Estimated increase in revenue............ $11.0
Cost of sales as a percentage of
sales for the Ortho business
for fiscal 1998........................ 60.9%
-----
Estimated increase in cost of sales...... $ 6.7
(4) Represents estimated increase in cost of sales resulting from change in
basis for Ortho inventory from LIFO to FIFO as described in note 3 to
"-- Unaudited Pro Forma Combined Balance Sheet."
(5) Represents the estimated commission that would have been earned for the
1998 Program Year (the twelve months ended September 30, 1998) under the
applicable provisions of the Roundup Marketing Agreement relating to the
calculation of the Company's commission with respect to the first Program
Year (1999), applying such calculation to the unaudited earnings of the
consumer Roundup business for the twelve months ended September 30, 1998.
Based on the earnings of the Roundup business for the twelve months ended
September 30, 1998, the Company would have earned a net commission of $35.0
million if the commission structure for the first Program Year (fiscal
1999) had been in effect for that period. Also, the Contribution Payment
for the 1998 Program Year is assumed to be the same as the Contribution
Payment for the 1999 Program Year. See "The Transactions -- Roundup
Marketing Agreement -- Commission Structure" included in the Registrant's
Form 8-K dated January 7, 1999 and incorporated by reference herein.
The agreement requires the Company to make fixed annual payments to Monsanto as
a contribution against the overall expenses of the Roundup business. The annual
fixed payment is defined as $20 million, however, portions of the annual
payments for the first three years of the agreement are deferred. No payment was
required for the first year (fiscal 1999), a payment of $5 million is required
for the second year and a payment of $15 million is required for the third year
so that a total of $40 million of the contribution payments are deferred.
Beginning in the fifth year of the agreement, the annual payments to Monsanto
increase to at least $25 million, which include per annum charges at 8%. The
annual payments may be increased above $25 million if certain significant
earnings targets are achieved. If all of the deferred contribution amounts are
paid prior to 2018, the annual contribution payments revert to $20 million.
Regardless of whether the deferred contribution amounts are paid, all
contribution payments cease entirely in 2018.
The Company will recognize a charge each year associated with the annual
contribution payments equal to the required payment for that year. The Company
will not recognize a charge for the portions of the contribution payments that
are deferred until such time that those deferred amounts are paid. The Company
considers this method of accounting for the contribution payments to be
appropriate after consideration of the likely term of the agreement, the
Company's ability to terminate the agreement without paying the deferred amounts
and the fact that approximately $18.6 million of the deferred amounts are never
paid even if the agreement is not terminated prior to 2018 unless significant
earnings targets are exceeded.
The express terms of the agreement permit the Company to terminate the agreement
only upon Material Breach, Material Fraud or Material Willful Misconduct by
Monsanto, as such terms are defined in the agreement, or upon the sale of the
Roundup business by Monsanto. In such instances, the agreement permits the
Company to avoid payment of any deferred contribution and related per annum
charge. Our basis for not recording a financial liability to Monsanto for the
deferred portions of the annual contribution and per annum charge is based on
our assessment and consultations with our legal counsel and the Company's
independent accountants. In addition, the Company has obtained a legal opinion
from The Bayard Firm, P.A., which concluded, subject to certain qualifications,
that if the matter were litigated, a Delaware court would likely conclude that
the Company is entitled to terminate the agreement at will, with appropriate
prior notice, without incurring significant penalty, and avoid paying the unpaid
deferred amounts. We have concluded that, should the Company elect to terminate
the agreement at any balance sheet date, it will not incur significant economic
consequences as a result of such action.
The Bayard Firm was special Delaware counsel retained during fiscal 2000 solely
for the limited purpose of providing a legal opinion in support of the
contingent liability treatment of the agreement previously adopted by the
Company and has neither generally represented or advised the Company nor
participated in the preparation or review of the Company's financial statements
or any SEC filings. The terms of such opinion specifically limit the parties who
are entitled to rely on it.
The Company's conclusion is not free from challenge and, in fact, would likely
be challenged if the Company were to terminate the agreement. If it were
determined that, upon termination, the Company must pay any remaining deferred
contribution amounts and related per annum charges, the resulting charge to
earnings could have a material impact on the Company's results of operations and
financial position.
At September 30, 1998, deferred contribution payments and related per annum
charges were approximately $20.7 million, as calculated on a pro forma basis.
This amount is considered a contingent obligation and has not been reflected in
the pro forma financial information as of and for the year then ended.
12
<PAGE> 14
(6) Management estimates that an additional $1.5 million of administrative
costs (e.g., legal, payroll, risk management, tax department, human
resources, information systems, etc.) will be necessary to support the
Ortho business. These costs have not been reflected in the pro forma
statement of income because they are not factually supportable.
(7) Reflects adjustment to amortization of goodwill and other intangibles
resulting from an allocation of the purchase price of the RPJ business as
follows:
<TABLE>
<S> <C>
Purchase price (including transaction
costs of $4.5 million)......................... $147.0
Less amounts allocated to tangible assets and
liabilities.................................... (13.1)
------
Amount allocated to goodwill and other
intangibles.................................... 133.9
Average useful life (in years)................... 31.0
------
4.3
Less amortization included in historical RPJ
financial statements........................... 2.3
------
$ 2.0
</TABLE>
The average useful life of 31.0 years reflects the valuation of the RPJ
business assigning a useful life of 40 years to intangibles such as
tradenames and goodwill and shorter lives to intangibles such as customer
relationships, workforce and supply agreements.
(8) Represents amortization of amounts to be paid under the Access Rights
Agreement over the minimum term of the agreement (15 years).
(9) Reflects adjustment to amortization of goodwill and other intangibles
resulting from an allocation of the estimated purchase price of the Ortho
business as follows:
<TABLE>
<S> <C>
Estimated purchase price (including estimated
transaction costs of $10.0 million).......... $310.0
Less amounts allocated to tangible assets and
liabilities.................................. (116.0)
------
Amount allocated to goodwill and other
intangibles.................................. 194.0
Estimated average useful life (in years)....... 35.0
------
5.5
Less amortization included in historical Ortho
financial statements......................... 17.8
------
$(12.3)
</TABLE>
A final determination of the purchase price for the Ortho business has
not been completed as of the date hereof. Accordingly, the allocation of
the anticipated purchase price is based on management's estimates and
assumes that the book value of fixed assets reasonably approximates their
fair value. The excess of the purchase price over the value of tangible
assets generally is assumed to represent goodwill with an estimated
useful life of 40 years, however certain other intangible assets (e.g.,
trademarks, patents, etc.) may be identified in the valuation process
which have useful lives of less than 40 years. Accordingly, the excess
purchase price over the value of tangible assets is being amortized over
an average life of 35 years.
In addition, the estimated purchase price does not address any adjustment
for the level of normalized working capital as of the closing date of the
Ortho Acquisition. It is unlikely that any portion of such adjustment
would be amortized. Rather it will be reflected as an adjustment to
working capital. The Registrant has
13
<PAGE> 15
received an estimate of normalized working capital of $125.9 million from
Monsanto, which estimate resulted in an additional payment to Monsanto of
$39.9 million as of the closing of the Ortho Acquisition. The Company and
Monsanto are still in discussion regarding the actual amount of normalized
working capital. See "The Transactions -- Ortho Acquisition" in the
Registrant's Form 8-K dated January 7, 1999 and incorporated by reference
herein.
(10) Represents amortization over a term of 10 years (the Company's estimate
of the likely term of the agreement) of the $32.0 million payment paid by
the Company to Monsanto in connection with the marketing rights under the
Roundup Marketing Agreement.
(11) Represents the net adjustment to interest expense as a result of the
anticipated bank borrowings under the New Credit Facility and a private
placement of $330 million aggregate principal amount of the Registrant's
8.625% Senior Subordinated Notes calculated as follows. The assumed
interest rates for each type of borrowing are based on the current market
rates plus the appropriate spread for the respective borrowing.
<TABLE>
<S> <C>
Revolving Credit Facility(a).................... $10.2
Pound Sterling Term Loan(b)..................... 10.9
French Franc Term Loan(c)....................... 3.4
Deutschemark Term Loan(d)....................... 3.3
Tranche B Term Loan(e).......................... 8.2
Tranche C Term Loan(f).......................... 10.5
Notes offered hereby(g)......................... 28.5
RPJ Seller Notes(h)............................. 3.3
Amortization of rate locks(i)................... 1.3
Amortization of deferred financing costs(j)..... 3.3
Interest on remaining indebtedness.............. 1.7
-----
Pro forma interest expense................... 84.6
Less interest on refinanced indebtedness(k)..... 30.7
Less interest on remaining indebtedness......... 1.7
-----
Net adjustment............................... 52.2
</TABLE>
---------------
(a) Represents interest on floating rate Revolving Credit Facility based on
assumed average borrowings of $128.4 million bearing an assumed average
interest rate of 7.93%.
(b) Represents interest on floating rate Pound Sterling Term Loan based on
assumed average borrowings of $120.0 million bearing an assumed
interest rate of 9.10%.
(c) Represents interest on floating rate French Franc Term Loan based on
assumed average borrowings of $57.0 million bearing an assumed
interest rate of 6.06%.
(d) Represents interest on floating rate Deutschemark Term Loan based on
assumed average borrowings of $56.0 million bearing an assumed interest
rate of 5.98%.
(e) Represents interest on floating rate Tranche B Term Loan based on
assumed average borrowings of $96.6 million bearing an assumed interest
rate of 8.53%.
(f) Represents interest on floating rate Tranche C Term Loan based on
assumed average borrowings of $120.0 million bearing an assumed
interest rate of 8.78%.
(g) Represents interest on the $330.0 million fixed rate 8.625% Senior
Subordinated Notes.
(h) Represents interest on amounts due the seller of the RPJ business using
an assumed interest rate of 9.14%.
(i) Represents amortization of amounts deferred under treasury rate locks.
In fiscal 1998, the Company entered into two interest rate locks to
hedge its anticipated interest rate exposure on the Senior Subordinated
Notes offering. The total amount paid to settle the rate locks was
$12.9 million, which has been recorded as a reduction in the carrying
value of the Senior Subordinated Notes and is being amortized on a
straight-line basis over the term of these notes (10 years).
(j) Represents amortization of deferred financing costs. Deferred financing
costs include costs to secure the New Credit Facility of $15 million
and costs incurred in connection with the offering of the $330 million
Senior Subordinated Notes of $11 million. These costs are assumed to be
amortized on a straight-line basis over the term of the New Credit
Facility and the Notes, which is approximately 8.1 years on a combined
basis.
(k) Assumes refinancing of $97.1 million of Senior Subordinated Notes
bearing interest at 9.875% and $282.1 million of average borrowings
under the previous credit facility bearing on average interest rate of
7.43%.
14
<PAGE> 16
An increase or decrease of 0.125% in the assumed interest rate would change
the pro forma interest expense on floating rate debt as follows:
<TABLE>
<S> <C>
Revolving Credit Facility................... $0.2
Pound Sterling Term Loan.................... 0.1
French Franc Term Loan...................... 0.1
Deutschemark Term Loan...................... 0.1
Tranche B Term Loan......................... 0.1
Tranche C Term Loan......................... 0.2
----
$0.8
====
</TABLE>
(12) Represents an estimated provision for income taxes on a combined pro forma
basis using the effective tax rate for the Registrant on a stand-alone
basis for fiscal 1998 of 40.3%.
15
<PAGE> 17
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET
(dollars in millions)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------------------------------------------------------------------------------
SCOTTS RPJ IMPACT OF RPJ ORTHO IMPACT OF ORTHO OTHER SCOTTS
HISTORICAL RPJ(1) ADJUSTMENTS ACQUISITION ORTHO ADJUSTMENTS ACQUISITION ADJUSTMENTS PRO FORMA
---------- ------ ----------- ------------- ------ ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash...................... $ 10.6 $ 0.3 $ 0.3 -- $ 10.9
Cash pool amounts due from
affiliates.............. 34.1 34.1 34.1
Accounts receivable....... 146.6 16.9 16.9 42.3 (26.0)(2) 42.3 205.8
Inventory................. 177.7 29.6 29.6 68.8 5.1(3) 89.7 297.0
15.8(2)
Other current assets...... 32.3 10.1 10.1 1.3 1.3 43.7
-------- ------ ------ ------ ----- ------ --------
Total current assets.. 367.2 91.0 91.0 112.4 5.1 117.5 575.7
Property, plant and
equipment, net.......... 197.0 4.4 4.4 27.6 27.6 229.0
Goodwill and other
intangibles, net........ 435.1 82.2 51.7(4) 157.1 166.7 27.3(6) 194.0 786.2
23.2(5)
Other assets.............. 35.9 2.2 2.2 5.1 5.1 26.0(7) 82.2
-- -- -- 13.0(8)
-------- ------ ------ ------ ------ ----- ------ ------- --------
Total assets.......... 1,035.2 179.8 74.9 254.7 311.8 32.4 344.2 39.0 1,673.0
======== ====== ====== ====== ====== ===== ====== ========
LIABILITIES AND
SHAREHOLDERS EQUITY:
Current portion of
long-term debt.......... 13.3 -- -- -- 13.3
Cash pool amounts due to
affiliates.............. 24.3 24.3 24.3
Bank overdrafts........... 2.5 2.5 2.5
Accounts payable.......... 77.8 22.6 22.6 14.2 14.2 114.6
Accrued liabilities....... 140.8 12.0 12.0 20.0 (4.1)(2) 20.0 (3.1)(9) 133.2
(4.5)(9)
(32.0)(9)
-------- ------ ------ ------ ------ ------- --------
Total current
liabilities......... 231.9 61.4 61.4 34.2 34.2 (39.6) 287.9
Long-term debt, net of
current portion......... 359.2 -- 170.2 170.2 -- 310.0(9) 310.0 (350.1)(9) 922.4
433.1(9)
Other long-term
liabilities............. 40.2 23.1 23.1 -- 63.3
-------- ------ ------- ------ ------ ----- ------ ------- --------
Total liabilities..... 631.3 84.5 170.2 254.7 34.2 310.0 344.2 83.0 1,273.6
Preferred stock........... 177.3 -- -- 177.3
Common shares............. 0.2 -- -- 0.2
Capital in excess of par.. 208.7 -- -- 208.7
Retained earnings......... 76.6 -- -- (6.1)(2) (4.5)(9) 72.1
Divisional equity......... -- 87.4 (87.4)(10) -- -- --
Cumulative foreign
currency translation
account............... (3.0) 7.9 (7.9)(10) -- -- (3.0)
Treasury stock............ (55.9) -- -- (55.9)
Net assets to be sold..... -- -- 277.6 (277.6)(10) --
-------- ------ ------- ------ ------ ------- ------ ------- --------
Total equity.......... 403.9 95.3 (95.3) -- 277.6 (277.6) (4.5) 399.4
-------- ------ ------- ------ ------ ------- ------ ------- --------
Total liabilities
and equity.......... $1,035.2 $179.8 $74.9 $254.7 $311.8 $ 32.4 $344.2 38.9 $1,673.0
======== ====== ======= ====== ====== ====== ====== ======= ========
</TABLE>
16
<PAGE> 18
(1) The balance sheet data for RPJ as of September 30, 1998 have been translated
from French Francs to U.S. Dollars. Assets and liabilities were translated
using the exchange rate as of September 30, 1998 of FF 5.60: USD 1. The
divisional equity account was translated using an historical exchange rate
of FF 6.15: USD 1.
(2) Represents adjustment to restate inventory and eliminate accounts receivable
for the estimated impact of the Company's anticipated revenue recognition
policy as described in note 3 to "-- Unaudited Selected Pro Forma Combined
Statement of Income and Other Financial Data".
<TABLE>
<S> <C>
Ortho shipments included in accounts receivable............. $26.0
Gross profit margin as a % of sales for the Ortho business
for fiscal 1998........................................... 39.1%
-----
Gross profit on shipments that would not be recognized under
the anticipated revenue recognition policy................ 10.2(a)
-----
Amount reinstated to inventory.............................. $15.8
-------
(a) The tax effect of the gross profit that would not be recognized under
the Company's anticipated revenue recognition policy is reflected as a
reduction of the Company's current income tax liability using an assumed
tax rate of 40.3%. The remaining amount, net of the tax effect, is
reflected as a reduction of retained earnings.
</TABLE>
(3) Represents adjustment to convert LIFO basis inventory in historical Ortho
financial statements to the FIFO basis which management anticipates adopting
for Ortho inventory upon acquisition.
(4) Reflects net adjustment to goodwill and other intangibles as a result of the
RPJ Acquisition as follows:
<TABLE>
<S> <C>
Net amount of purchase price allocated to goodwill and other
intangibles (see note 7 to " -- Unaudited Selected Pro
Forma Combined Statement of Income")...................... $133.9
Goodwill and other intangibles included in historical RPJ
balance sheet............................................. 82.2
------
Pro forma adjustment................................... $ 51.7
</TABLE>
(5) Reflects intangible asset for present value of payments to be made under the
Access Rights Agreement.
(6) Reflects net adjustment to goodwill and other intangibles as a result of the
Ortho Acquisition as follows:
<TABLE>
<S> <C>
Net amount of purchase price allocated to goodwill and other
intangibles (see note 8 to " -- Unaudited Selected Pro
Forma Combined Statement of Income")...................... $194.0
Goodwill and other intangibles included in historical Ortho
balance sheet............................................. 166.7
------
Pro forma adjustment................................... $ 27.3
</TABLE>
(7) Represents estimated transaction costs incurred to secure the New Credit
Facility of $15 million and costs incurred in connection with the offering
of the $330 million Senior Subordinated Notes of $11 million.
(8) In fiscal 1998, the Company entered into two interest rate locks to hedge
its anticipated interest rate exposure on the Senior Subordinated Notes
offering. The total amount paid to settle the rate locks was $12.9 million.
17
<PAGE> 19
(9) The following table summarizes the sources and uses of cash in connection
with the Transactions, the New Credit Facility and this offering:
<TABLE>
<S> <C>
Sources:
New Credit Facility:
Revolving Credit Facility.............................. $ 45.7
Pound Sterling Term Loan............................... 130.0
French Franc Term Loan................................. 57.0
Deutschemark Term Loan................................. 55.0
Tranche B Term Loan.................................... 140.0
Tranche C Term Loan.................................... 120.0
RPJ Seller Notes....................................... 35.6
8.625% Senior Subordinated Notes....................... 330.0
--------
Total sources........................................ $ 913.3
Uses:
Ortho Acquisition (a)..................................... $ 300.0
Ortho transaction costs................................... 10.0
RPJ Acquisition........................................... 142.5
Acquire rights under Access Rights Agreement.............. 23.2
RPJ transaction costs..................................... 4.5
Roundup Marketing Fee..................................... 32.0
Repayment of existing indebtedness:
Old Credit Facility.................................... 253.5
9 7/8% Senior Subordinated Notes (b)................... 108.7
Settle treasury rate locks................................ 12.9
Transaction costs (c)..................................... 26.0
--------
Total uses........................................... $ 913.3
</TABLE>
---------------
(a) Excludes any adjustment for the level of normalized working capital as
of the closing date of the Ortho Acquisition. See "The
Transactions -- Ortho Acquisition" in the Registrant's Form 8-K dated
January 7, 1999 and incorporated by reference herein.
(b) Assumes redemption of 97.1% of the currently outstanding 9 7/8% Senior
Subordinated Notes at a redemption premium of 107.258% and accrued
interest of $4.5 million. The difference between the estimated amount
to be paid to retire this portion of these notes and their carrying
value ($96.6 million) represents an extraordinary loss on the
retirement of $7.6 million. The after-tax amount of the loss of $4.5
million is reflected as a reduction in retained earnings. The estimated
tax effect (using a tax rate of 40.3%) is reflected as a reduction in
the Company's current income tax liability.
(c) Transaction costs consist of costs to secure the New Credit Facility of
$15 million and costs, including discounts and commissions, in
connection with the offering of the 8.625% Senior Subordinated Notes of
$11 million. Costs associated with the New Credit Facility and the
Notes offering ($26.0 million combined) are included in Other Assets in
the pro forma balance sheet (see footnote (6)).
(10) Reflects the elimination of historical equity of the RPJ and Ortho
businesses.
18
<PAGE> 20
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
-------------- ----------- --------
<S> <C> <C>
2 Asset Purchase Agreement dated as of November 11, 1998, by __
and between The Scotts Company and Monsanto Company, a copy
of which is attached to the Registrant's Form 10-K filed
December 21, 1998 as Exhibit 2(d) and incorporated by
reference herein.
99 Press Release issued January 21, 1999 20
</TABLE>
19
