1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 21, 1998 (October 7, 1998)
-----------------------------------
THE SCOTTS COMPANY
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(Exact name of registrant as specified in its charter)
OHIO 1-11593 31-1414921
- ---------------------------- ---------------- -------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
14111 SCOTTSLAWN ROAD, MARYSVILLE, OHIO 43041
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (937) 644-0011
--------------
NOT APPLICABLE
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(Former name or former address, if changed since last report.)
Index to Exhibits is on Page 26.
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This Current Report on Form 8-K/A of The Scotts Company (the
"Registrant") furnishes the financial statements and the pro forma financial
information which were omitted from the Current Report on Form 8-K of the
Registrant filed with the Securities and Exchange Commission (the "Commission")
on October 22, 1998 (the "Registrant's October 1998 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 purchase by Scotts France Holdings SARL and Scotts
France SARL, wholly-owned indirect subsidiaries of the Registrant, of all of the
outstanding shares of Rhone-Poulenc Jardin SAS from Rhone-Poulenc Agro ("RPA");
Scotts Celaflor GmbH & Co. KG, a wholly-owned indirect subsidiary of the
Registrant, of all of the outstanding shares of Celaflor GmbH from Rhone-Poulenc
Agro Europe GmbH ("RPAEG"); "David" Sechsundfunfzigste Beteiligungs und
Verwaltungsgesellschaft GmbH (now known as Scotts Holding GmbH), a wholly-owned
indirect subsidiary of the Registrant, of all of the outstanding shares of
Celaflor Handelsgesellschaft m.b.H.; and Scotts Belgium 2 B.V.B.A., a
wholly-owned indirect subsidiary of the Registrant, from Rhone-Poulenc Agro S.A.
("RPA S.A.") of the home and garden business of RPA S.A. in Belgium and the
assets related thereto (collectively, the "RPJ Acquisition"), as described in
Item 2 of the Registrant's October 1998 Form 8-K.
Item 7. Financial Statements and Exhibits.
- ------------------------------------------------
(a) Financial Statements of Businesses Acquired:
--------------------------------------------
Please see Index to Financial Statements and Pro Forma
Financial Information at page 5.
(b) Pro Forma Financial Information:
--------------------------------
Please see Index to Financial Statements and Pro Forma
Financial Information at page 5.
(c) Exhibits:
---------
The following documents were filed as exhibits to the
Registrant's October 1998 Form 8-K:
Exhibit No. Description
----------- -----------
2 Master Contract, dated September 30, 1998, by and between
Rhone-Poulenc Agro; The Scotts Company; Scotts Celaflor
GmbH & Co. K.G.; "David" Sechsundfunfzigste Beteiligungs
und Verwaltungsgesellschaft GmbH; Rhone-Poulenc Agro
Europe GmbH; Scotts France Holdings S.A.R.L.; Scotts
France S.A.R.L.; and Scotts Belgium 2 B.V.B.A. (the
"Master Contract")
23 Consent of Independent Accountants
99 Press Release issued October 7, 1998
Schedules to the Master Contract were not filed. A list of the omitted
Schedules was attached to the Master Contract briefly identifying their
content. The Registrant agreed, and hereby agrees, to furnish
supplementally a copy of any omitted Schedule to the Securities and
Exchange Commission upon its request.
2
3
The following document is being filed as an additional exhibit to this
Current Report on Form 8-K/A:
Exhibit No. Description
----------- -----------
23 Consent of Independent Accountants
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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.
THE SCOTTS COMPANY
Date: December 21, 1998 By: /s/ Jean H. Mordo
-------------------------------------
Jean H. Mordo, Executive Vice
President and Chief Financial Officer
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INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page(s)
-------
Item 7(a) Financial Statements of Businesses Acquired:
- ------------------------------------------------------
Report of Independent Accountants 6
Rhone-Poulenc Jardin Combined Balance Sheets 7
as of December 31, 1997 and September
30, 1998 (in thousands of French Francs)
Rhone-Poulenc Jardin Combined Statements of 8
of Operations for the year ended
December 31, 1997 and the nine months
ended September 30, 1998 (in thousands
of French Francs)
Rhone-Poulenc Jardin Combined Statements of 9
Cash Flows for the year ended December
31, 1997 and the nine months ended
September 30, 1998 (in thousands of
French Francs)
Rhone-Poulenc Jardin Combined Statements of 10
Divisional Equity for the year ended
December 31, 1997 and the nine months
ended September 30, 1998 (in thousands
of French Francs)
Rhone-Poulenc Jardin Notes to Combined 11-20
Financial Statements
Item 7(b) Pro Forma Financial Information:
- ------------------------------------------
The Scotts Company Unaudited Pro Forma 21
Combined Financial Information
The Scotts Company Unaudited Pro Forma 22
Combined Statement of Operations for
the twelve months ended September 30,
1998 (in millions)
The Scotts Company Notes to the Unaudited 23
Pro Forma Combined Statement of
Operations (in millions)
The Scotts Company Unaudited Pro Forma 24
Combined Balance Sheet as of September
30, 1998 (in millions)
The Scotts Company Notes to the Unaudited 25
Pro Forma Combined Balance Sheet
(in millions)
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Rhone-Poulenc Jardin
We have audited the accompanying combined balance sheet of Rhone-Poulenc Jardin,
a business line of Rhone-Poulenc Agro, as of December 31, 1997, and the related
combined statements of operations, divisional equity, and cash flows for the
year then ended. These historical combined financial statements are derived from
the historical financial statements of Rhone-Poulenc Jardin SA and Celaflor
GmbH, which were audited by us, and Celaflor Handelsgesellschaft, which was
audited by other auditors. These combined financial statements are the
responsibility of Rhone-Poulenc Jardin's management. Our responsibility is to
express an opinion on these combined 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 financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Rhone-Poulenc Jardin as of December
31, 1997, and the combined results of its operations and its cash flows for the
year then ended in conformity with United States generally accepted accounting
principles.
Coopers & Lybrand
Lyons, France
September 11, 1998
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Item 7(a) Financial Statements of Businesses Acquired
-------------------------------------------
RHONE-POULENC JARDIN
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND
SEPTEMBER 30, 1998
(in thousands of French Francs)
September 30,
ASSETS December 31, 1998
1997 (unaudited)
-------- --------
Cash and cash pool 48,161 56,754
Marketable securities 525 0
Trade accounts receivable, net 34,160 92,186
Receivable from affiliates 2,089 2,437
Inventories, net 179,662 165,555
Deferred tax asset 8,116 23,808
Other current assets 38,546 32,688
-------- --------
Total current assets 311,259 373,428
Property, plant and equipment, net 26,810 24,642
Intangible assets, net 471,779 459,659
Deferred tax assets 21,200 4,667
Other assets 8,021 7,778
-------- --------
Total assets 839,069 870,174
LIABILITIES AND DIVISIONAL EQUITY
Short-term borrowings 12,075 13,916
Trade accounts payable 114,595 115,187
Payable to affiliates 6,618 11,141
Other current liabilities 54,985 67,002
-------- --------
Total current liabilities 188,273 207,246
Deferred tax liability 48,556 51,601
Accrued pension liability 51,869 58,183
Other provisions and long-term liabilities 19,242 19,935
-------- --------
Total liabilities 307,940 336,965
Commitments and contingencies
Divisional equity 536,186 537,616
Cumulative foreign translation adjustment (5,057) (4,407)
-------- --------
Total divisional equity 531,129 533,209
-------- --------
Total liabilities and divisional equity 839,069 870,174
======== ========
The accompanying notes are an integral part of the combined financial
statements.
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RHONE-POULENC JARDIN
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands of French Francs)
Nine Months ended
Year ended September 30,
December 31, 1998
1997 (unaudited)
-------- --------
Net sales 824,357 670,521
Cost of sales 426,466 352,509
-------- --------
Gross profit 397,891 318,012
Selling, general and administrative expenses 292,196 239,124
Research and development expenses 15,571 13,111
Amortization of intangibles 13,996 10,487
Restructuring expenses 2,044 8,977
-------- --------
Income from operations 74,084 46,313
Interest expense, net 4,033 485
Net foreign currency transaction gains (52) (97)
Other income, net 2,450 2,293
-------- --------
Income before income taxes 67,653 43,632
Income taxes 28,590 23,052
-------- --------
Net income 39,063 20,580
======== ========
The accompanying notes are an integral part of the combined financial
statements.
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RHONE-POULENC JARDIN
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands of French Francs)
Nine Months ended
Year ended September 30,
December 31, 1998
1997 (unaudited)
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 39,063 20,580
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 24,804 20,803
Change in reserve for inventory 514 (503)
Change in allowance for doubtful accounts (164) 590
Changes in long-term provisions 12,371 6,522
Deferred income taxes 25,516 3,779
Loss on sales of property, plant and equipment 4 43
Increase/decrease in operating assets and liabilities:
(Increase) decrease in trade accounts receivable 5,452 (58,616)
(Increase) in receivable from affiliates (1,962) (348)
Decrease in inventories 17,945 14,610
(Increase) decrease in other current assets (5,572) 5,858
Increase in trade accounts payable 17,491 592
Increase (decrease) in payable to affiliates (5,333) 4,523
Increase in other current liabilities 19,780 12,017
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 149,909 30,450
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of marketable securities (52) 0
Acquisitions of property, plant and equipment (4,048) (3,487)
Acquisitions of intangible assets (5,109) (2,302)
Proceeds from sales of marketable securities 0 525
Proceeds from sales of property, plant and equipment 18 84
Proceeds from sale of investment in affiliate 41,407 0
Disbursement for loans (3,574) (200)
Reimbursements of loans 1,730 1,286
Reimbursement of French value added taxes 570 288
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 30,942 (3,806)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (99,251) 1,841
Dividends paid (24,616) (10,650)
Withholding tax paid on dividends (9,049) (8,500)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES (132,916) (17,309)
-------- --------
Net effect of exchange rate changes on cash (1,013) (742)
-------- --------
NET INCREASE IN CASH 46,922 8,593
Cash, beginning of period 1,239 48,161
-------- --------
CASH, END OF PERIOD 48,161 56,754
======== ========
The accompanying notes are an integral part of the combined financial
statements.
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RHONE-POULENC JARDIN
COMBINED STATEMENTS OF DIVISIONAL EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands of French Francs)
Cumulative
Foreign
Divisional Translation
Equity Adjustment Total
------ ---------- -----
Balance as of December 31, 1996 530,580 (2,739) 527,841
Net income 39,063 39,063
Dividends paid (33,457) (33,457)
Change in foreign translation adjustment (2,318) (2,318)
------- ----- -------
Balance as of December 31, 1997 536,186 (5,057) 531,129
Net income for nine month period 20,580 20,580
Dividends paid (19,150) (19,150)
Change in foreign translation adjustment 650 650
------- ----- -------
Balance as of September 30, 1998 537,616 (4,407) 533,209
======= ===== =======
The accompanying notes are an integral part of the combined financial
statements.
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RHONE-POULENC JARDIN
NOTES TO COMBINED FINANCIAL STATEMENTS
(All amounts are in thousands of French Francs unless otherwise noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The combined financial statements of Rhone-Poulenc Jardin (the "Division")
include the "carve-out" financial position, results of operations and cash flows
of Rhone-Poulenc Jardin SA, Celaflor GmbH and Celaflor Handelsgesellschaft.
These financial statements have been prepared as if the Division had operated as
a stand-alone entity for the period presented, and include those assets,
liabilities, and revenues and expenses directly attributable to the Division's
operations.
All significant intercompany transactions and balances are eliminated in
consolidation.
NATURE OF OPERATIONS
The Division is in the lawn and garden care business. The Division's principal
markets are in France, Germany and Austria.
INVENTORIES
Inventories are stated at average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Maintenance costs are
charged to operations as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives, as follows:
Buildings 20 years
Office furniture and equipment 10 years
Machinery and equipment 8 years
Upon sale or retirement of property, plant and equipment, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the statement of operations.
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INTANGIBLE ASSETS AND GOODWILL
Intangible assets are recorded at cost. Amortization is calculated using the
straight-line method over the estimated useful lives as follows:
Goodwill 40 years
Patents, licenses and trademarks 8 years
Software 5 years
The Division investigates potential impairments of intangible assets on an
exception basis where there is evidence that events or changes in circumstances
have made recovery of an asset's carrying value unlikely. An impairment loss is
recognized when the sum of the expected future net cash flows is less than the
carrying amount of the asset.
DEFERRED INCOME TAXES
The Division recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount "more
likely than not" to be realized in future tax returns.
REVENUE RECOGNITION
Revenue from products is recognized when the products are shipped.
TRANSLATION OF FOREIGN CURRENCIES
The translation of the financial statements has been completed as follows:
- - assets and liabilities are translated at year-end exchange rates;
- - shareholders' equity is translated at historical exchange rates;
- - statement of operations items are translated at average exchange rates for the
year;
- - translation gains and losses are recorded in a separate component of
shareholders' equity.
EARNINGS PER SHARE
As there is no separate capitalization, nor are there any shares of stock
specifically attributable to the Division upon which an earnings per share
calculation can be based, earnings per share data is not presented in the
accompanying combined financial statements.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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2. CASH AND CASH POOL
Cash and cash pool consist of the following components:
December 31,
1997
------------
Cash 780
Cash pool 47,381
------
Total cash and cash pool 48,161
======
Rhone-Poulenc Jardin SA and Celaflor GmbH have cash pooling arrangements with
the Rhone-Poulenc Group. The amounts involved are immediately available. Detail
of the cash pool amount at December 31, 1997 is as follows:
Celaflor GmbH cash pool with Rhone-Poulenc
Deutschland GmbH, debit 142,189
Rhone-Poulenc Jardin SA cash pool with Rhone-
Poulenc Agro SA, credit 94,808
------
Total cash pool 47,381
======
Details of the cash pooling agreements are as follows:
- - Celaflor GmbH has a cash pooling agreement with Rhone-Poulenc Deutschland
GmbH whereby Celaflor GmbH will advance funds to Rhone-Poulenc Deutschland
GmbH as necessary up to the amount available at Celaflor GmbH. Interest
accrues on the outstanding balance at the average monthly FIBOR rate (3.45%
at December 31, 1997). Interest income related to these funds was FF 3,296
thousand for the year ended December 31, 1997.
- - Rhone-Poulenc Jardin SA has a cash pooling agreement with Rhone-Poulenc
Agro SA whereby Rhone-Poulenc Agro SA will advance funds to Rhone-Poulenc
Jardin SA as necessary up to the amount available at Rhone-Poulenc Agro SA.
Interest accrues on the outstanding balance at the TJJ daily rate + 0.1%
(3.475% at December 31, 1997). Interest expense related to these funds was
FF 7,654 thousand for the year ended December 31, 1997.
3. TRADE ACCOUNTS RECEIVABLE, NET
Trade accounts receivable, net consist of the following components:
December 31,
1997
------------
Trade accounts receivable 43,313
Less: Allowance for doubtful accounts 9,153
------
Trade accounts receivable, net 34,160
======
4. INVENTORIES
Inventories consist of the following components:
December 31, September 31,
1997 1997
------------ -------------
(unaudited)
Raw materials 46,488 51,922
Work in progress 12,821 6,691
Finished goods 127,505 113,591
------- -------
186,814 172,204
Less: Provisions (7,152) (6,649)
------- -------
Total inventories, net 179,662 165,555
======= =======
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5. OTHER CURRENT ASSETS
Other current assets consist of the following components:
December 31,
------------
1997
Receivable from the state 27,482
Other 11,064
------
Total other current assets 38,546
======
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
1997
------------
Land 2,550
Buildings 28,420
Machinery and equipment 43,377
Office furniture and equipment 15,618
Construction in progress 1,656
-------
91,621
Less: Accumulated depreciation (64,811)
-------
Total property, plant and equipment, net 26,810
=======
Depreciation expense was FF 7,587 thousand during the year ended December 31,
1997.
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7. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
1997
------------
Rhone-Poulenc Jardin (former SOVILO) goodwill 342,790
Celaflor GmbH pushed down goodwill 205,510
Other goodwills 2,949
Software 12,360
Patents, licenses and trademarks 11,881
--------
575,490
Less: Accumulated amortization (103,711)
--------
Total intangible assets, net 471,779
========
In 1991, Rhone-Poulenc Jardin SA acquired goodwill of FF 342,790 thousand in
connection with the purchase of the Sovilo Company. Accumulated amortization was
FF 63,000 thousand at December 31, 1997.
In 1991, Celaflor GmbH was purchased by Rhone-Poulenc. The corresponding
consolidation goodwill, amounting to FF 205,510 thousand, is pushed down in the
Celaflor GmbH financial statements prepared for consolidation in accordance with
US GAAP. Accumulated amortization was FF 34,250 thousand at December 31, 1997.
Most of this goodwill amortization is deductible for tax purposes at the German
level (useful life of 15 years for tax purposes).
8. SHORT-TERM BORROWINGS
Short-term borrowings consist of bank overdrafts and utilization of various
lines of credit.
Rhone-Poulenc Jardin SA's parent company has a cash pooling agreement with its
financial institutions which allows the parent company and its subsidiaries to
borrow up to FF 150,000 thousand. At December 31, 1997, Rhone-Poulenc Jardin SA
had FF 12,075 thousand outstanding under this agreement. Interest accrues at TMP
+0.4%.
Celaflor GmbH has line of credit agreements with its financial institutions
which allow Celaflor GmbH to borrow up to FF 10,037 thousand. At December 31,
1997, there were no borrowings under these agreements. Interest accrues at rates
between 5.75% and 7.0%. At December 31, 1997, Celaflor GmbH had a bank overdraft
of FF 616 thousand.
9. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Accrued salaries and benefits 18,461
Amounts payable to state 15,406
Other 21,118
--------
Total intangible assets, net 54,985
=======
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10. LEASES
The Division leases certain office and research facilities, computer services
and vehicles under operating leases. Total rental expense for the year ended
December 31, 1997 was approximately FF 3,023 thousand. Future minimum lease
payments are as follows:
December 31,
1997
------------
1998 2,873
1999 501
2000 376
2001 151
------
3,901
======
11. COMMITMENTS AND CONTINGENCIES
The Division has a number of commitments and contingencies including operating
leases as described in Note 10. In addition, Rhone-Poulenc Jardin SA has, from
time to time, sold selected accounts receivable for which it retains a maximum
10% risk in relation to non-payment. Management believes that its allowance for
doubtful accounts will be adequate to absorb the expense of any such liability.
The Division is also involved in various lawsuits, claims and regulatory
proceedings incidental to its business. Celaflor GmbH and Celaflor
Handelsgesellschaft are currently involved in litigation related to a defective
product. The product is an oil evaporator against insects which is manufactured
by the supplier Perycut Chemie AG. It was discovered in 1997 that the evaporator
is corroded by the oil and both the evaporator and the oil cannot be used after
corrosion. No harm to the public or damage to the environment has occurred. An
examination of the product has been conducted by a testing institute which
concluded that the design and manufacture of the product were faulty. The
companies are in the process of negotiating with Perycut Chemie AG in order to
have them indemnify the companies for the evaporators held in inventory and for
possible costs of products returned by the distributors. As of December 31,
1997, no provision has been recorded by the companies. It is the opinion of the
Division's legal counsel and management that the ultimate resolution of the
various lawsuits, claims and regulatory proceedings incidental to Rhone-Poulenc
Jardin's business, including the specific litigation described above, will not
have a material adverse effect on the Division's financial position, results of
operations or cash flows.
12. RESTRUCTURING
The restructuring provision recorded in the nine months ended September 30, 1998
is mainly made up of termination costs for 15 salesmen of Rhone-Poulenc Jardin
SA (FF 5,800 thousand) who are laid off as part of a reorganization plan of the
salesforce. The remaining part of the restructuring provision corresponds to
early retirement costs for three sales employees of Celaflor GmbH.
13. INTEREST EXPENSE, NET
Year ended
December 31,
1997
------------
Interest income (3,805)
Interest expense 7,838
------
Interest expense, net 4,033
======
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14. INCOME TAXES
Year ended
December 31,
1997
------------
Current income tax provision 2,074
Deferred income tax provision 26,516
------
Total 28,590
======
Deferred income taxes:
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities reported for financial reporting purposes and
such amounts measured in accordance with tax laws.
The tax effect of temporary differences which give rise to significant deferred
tax assets (liabilities) is as follows:
December 31,
1997
------------
Net operating loss carryforwards 22,174
Retirement 6,632
Compensated absences 1,774
Provisions not currently deductible for tax purposes 1,688
Other 1,711
-------
Total deferred tax assets 33,979
Celaflor GmbH pushed down goodwill depreciation (52,016)
Other (1,203)
-------
Total deferred tax liabilities (53,219)
-------
Net deferred tax liability (19,240)
=======
Net operating loss carryforwards of FF 60,420 thousand as of December 31, 1997
are available at Rhone-Poulenc Jardin SA. Realization of these assets is
contingent on future taxable earnings. Tax loss carryforwards in the amount of
FF 10,497 thousand will expire in 1998 whereas FF 49,923 thousand do not have
expiration dates.
In accordance with SFAS 109, the Division has evaluated the recoverability of
the deferred tax assets and determined there was no need to record a valuation
allowance. Management believes that future revenues will provide sufficient
future income to realize the deferred tax assets.
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Effective tax rate
The difference between the Division's income tax expense and that which would be
calculated using the statutory income tax rate of 41.66% on income is as
follows:
Tax at statutory rate 28,191
Effect of tax rate differences 3,867
Goodwill amortization not tax deductible 3,778
Changes in tax rates (1,972)
Miscellaneous other (5,274)
--------
Effective tax 28,590
========
15. DIVIDENDS
In 1997, Celaflor GmbH declared and paid a cash dividend of FF 33,457 thousand
to Rhone-Poulenc Agro Holding GmbH. In conjunction with this dividend, there was
a withholding tax in the amount of FF 9,033 thousand.
16. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest and income taxes paid:
Nine months ended
Year ended September 30,
December 31, 1998
1997 (unaudited)
-------- ------
Interest paid 7,762 4,475
Income taxes paid 1,867 1,470
17. EMPLOYEE BENEFIT PLAN
The Division has pension plans which cover all of its employees. The plans are
defined benefit plans and provide pension benefits for employees at their
retirement. The following table sets forth the plans' funded status and amounts
recognized in the Division's combined financial statements at December 31, 1997:
Actuarial present value of benefit obligations:
Vested benefit obligation 34,236
======
Accumulated benefit obligation 42,989
======
Projected benefit obligation 52,751
Plan assets at fair value 0
Projected benefit obligation in excess of plan assets 52,751
Unrecognized prior service costs (4,434)
Unrecognized net gain 3,588
Adjustment required to recognize minimum liability 51
------
Accrued pension liability 51,956
======
Net pension cost for 1997 included the following components:
Service cost 2,521
Interest cost 3,600
Amortization of unrecognized prior service cost 481
Amortization of unrecognized net loss 53
------
Net periodic pension cost 6,655
======
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The projected benefit obligation was determined using an assumed discount rate
ranging between 6.75% and 7.50% and an assumed compensation rate ranging between
3.00% and 4.50%.
18. STOCK OPTION PLAN
Rhone-Poulenc Jardin directors and key executive were offered stock options in
1994 and 1996 under the terms of a stock option plan that permit the company to
grant options for up to 5% of Rhone-Poulenc Jardin SA's outstanding shares, or
18,000 shares.
The arrangement provides that the beneficiaries have a put option to sell the
shares back to Rhone-Poulenc Jardin at a price based on the option exercise
price and the company's market price at that date of the sale back. The exercise
price of each option equals the market price of the company's stock on the date
of the grant. The options maximum term is 10 years. Options are vested after a
four-year service period.
The liability incurred by the company and corresponding to the put option (award
settlement in cash) is measured each period based on the update of the stock buy
back formula price. The effects of changes in this formula price, due to changes
in the company's stock market price, are recognized as compensation cost over
the service period. Changes in the amount of the liability due to stock market
price changes after the service period are recognized as compensation cost in
the period the changes occur.
The following table details the options that have been granted and the related
compensation cost for the year and cumulative compensation as of December 31,
1997.
TOTAL CUMULATIVE
EXERCISE CUMULATIVE COMPENSATIONS COMPENSATION
NUMBER OF PRICE COMPENSATION AS ACCRUED AS OF EXPENSE FOR
OPTIONS GRANTED (IN FF) OF DEC 31, 1997 DEC 31, 1997 THE YEAR
--------------- ------- --------------- ------------ ------------
1994 900 632 404 303 182
1996 950 587 437 182 132
--- --- --- ---
Total 1,850 841 485 314
Under the plan terms, if Rhone-Poulenc Jardin's parent company (Rhone-Poulenc
Agro SA) disinvests its shares in Rhone-Poulenc Jardin SA, the selling price of
the shares held at that date by the directors and key executives will be the
highest of the selling price as per the plan or the purchase price paid by the
acquirer.
19. TRANSACTIONS WITH RHONE-POULENC GROUP COMPANIES
The Rhone-Poulenc Jardin Division companies entered into various business
transactions with Rhone-Poulenc Group companies. They result in a receivable
from Rhone-Poulenc Group companies amounting to FF 2,089 thousand (of which FF
1,157 thousand receivable by Rhone-Poulenc Jardin SA from Rhone-Poulenc Agro
Belgium) and a payable to Rhone-Poulenc Group companies amounting to FF 6,618
thousand (of which FF 6,592 thousand payable by Rhone-Poulenc Jardin SA to
Rhone-Poulenc Agro SA).
These financial statements do not include a FF 34,755 thousand gain realized in
December 1997 by Celaflor GmbH on the sale of the Celaflor Handelsgesellschaft
shares. These shares have been sold to a Rhone-Poulenc affiliate, Rhone-Poulenc
Agro Holding GmbH.
19
20
20. SUBSEQUENT EVENTS
i) LITIGATIONS
At December 31, 1997, Celaflor GmbH Celaflor Handelsgesellschaft was involved in
litigation related to a defective product as described in Footnote 11. During
1998, based on more current information, the companies have estimated their
maximum liability to be FF 3,100 thousand. This amount has been recorded in the
companies' accounts during 1998.
ii) STOCK OPTION PLAN
In March 1997, the company offered 1 300 additional stock options to its
directors and key executives at an exercise price of FF 1,214.
In spring-summer 1998, the RP Jardin's parent company entered into discussions
with a potential acquirer. Based on the selling price of the company's stock
agreed upon by the two parties, and total options granted in 1994, 1996 and 1998
the total cumulative compensation would amount to FF 2,142 thousand.
20
21
Item 7(b) Pro Forma Financial Information:
--------------------------------
THE SCOTTS COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined financial information gives effect
to the acquisition of Rhone-Poulenc Jardin ("RPJ") by The Scotts Company (the
"Company") which occurred on October 7, 1998. RPJ includes the assets and
liabilities of Rhone-Poulenc Jardin SA, Celaflor GmbH and Celaflor
Handelsgesellschaft. The historical financial statements of RPJ were prepared in
French francs and translated to U.S. dollars for inclusion in the unaudited pro
forma combined statement of operations and balance sheet.
The unaudited pro forma combined statement of operations for the twelve months
ended September 30, 1998 gives effect to the acquisition of RPJ as if it had
occurred on October 1, 1997. The unaudited pro forma combined balance sheet as
of September 30, 1998 gives effect to the acquisition of RPJ as if it had
occurred on that date. The adjustments, which are based on available information
and upon certain assumptions which management believes are reasonable, are
described in the accompanying notes. The pro forma combined financial
information does not purport to represent what the financial position or results
of operations of the Company actually would have been had the acquisition of RPJ
occurred on the assumed dates or to project the financial position or results of
operations of the Company for any future period or date.
21
22
THE SCOTTS COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(in millions)
Scotts RPJ (a) Adjustments Pro forma
------ ------- ----------- ---------
Sales $1,113.0 $144.3 $1,257.3
Cost of sales 715.0 75.4 790.4
------- ------ ------
Gross profit 398.0 68.9 466.9
Selling, general and administrative expenses 271.6 55.7 327.3
Amortization of goodwill and other intangibles 12.9 2.3 3.5(b) 18.7
Restructuring and other charges 15.4 1.8 17.2
Other expense 4.0 0.4 4.4
------- ------ ------
Income from operations 94.1 8.7 (3.5) 99.3
Interest expense 32.2 0.2 13.8(c) 46.2
------- ------ ------ ------
Income before income taxes 61.9 8.5 (17.3) 53.1
Income taxes 24.9 5.3 (8.8)(d) 21.4
------- ------ ------ ------
Income before extraordinary item 37.0 3.2 (8.5) 31.7
Preferred stock dividends 9.8 9.8
Income before extraordinary item
available to common shareholders $ 27.2 $ 3.2 $ (8.5) $ 21.9
Income before extraordinary item per share:
Basic $ 1.17
Diluted $ 1.05
Number of shares used in per share calculation:
Basic 18.7
Diluted 30.3
22
23
THE SCOTTS COMPANY
NOTES TO THE UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(in millions)
(a) The statement of operations for RPJ has been translated from French francs
to U.S. dollars using the average exchange rate for the twelve months ended
September 30, 1998.
(b) Reflects increased amortization of goodwill and other intangibles resulting
from an allocation of the estimated purchase price of the RPJ business:
Estimated purchase price $216.3
Less amounts allocated to tangible
assets and liabilities (13.1)
------
Amount allocated to goodwill and
other intangibles 203.2
Estimated average useful life (in years) 35.0
------
5.8
Less amortization included in historical
RPJ financial statements 2.3
------
$ 3.5
A valuation of the RPJ business has not been completed as of the date of
this filing. 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 its 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. The Company expects that
the final allocation of the purchase price to be completed by June 30,
1999.
(c) Represents additional interest expense incurred on borrowings under the
Company's revolving credit facility to fund the RPJ acquisition. The
borrowings bear interest at an average rate of 6.37%.
(d) Represents estimated provision for income taxes on a pro forma basis using
the effective tax rate for the Company on a stand-alone basis for fiscal
1998 of 40.3%.
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24
THE SCOTTS COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(in millions)
Scotts RPJ (a) Adjustments Pro forma
------ ------- ----------- ---------
ASSETS
Cash $ 10.6 $ 10.1 $ 20.7
Accounts receivable 146.6 16.9 163.5
Inventory 177.7 29.6 207.3
Other current assets 32.3 10.1 42.4
-------- -------- --------
Total current assets 367.2 66.7 433.9
Plant, property and equipment 197.0 4.4 201.4
Goodwill and other intangibles 435.1 82.2 121.0(b) 638.3
Other assets 35.9 2.2 38.1
-------- -------- ----- --------
Total assets 1,035.2 155.5 121.0 1,311.7
LIABILITIES AND EQUITY
Current portion of long-term debt 13.3 2.5 15.8
Accounts payable 77.8 22.6 100.4
Accrued liabilities 140.8 12.0 152.8
-------- -------- --------
Total current liabilities 231.9 37.1 269.0
Long-term debt 359.2 216.3(c) 575.5
Other long-term liabilities 40.2 23.1 63.3
-------- -------- ----- --------
Total liabilities 631.3 60.2 216.3 907.8
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 76.6
Divisional equity 87.4 (87.4)(d) 0
Cumulative foreign currency translation
adjustment (3.0) 7.9 (7.9)(d) (3.0)
Treasury stock (55.9) (55.9)
-------- -------- ----- --------
Total equity 403.9 95.3 (95.3) 403.9
-------- -------- ----- --------
Total liabilities and equity $1,035.2 $ 155.5 121.0 $1,311.7
24
25
THE SCOTTS COMPANY
NOTES TO THE UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
(in millions)
(a) The balance sheet for RPJ as of September 30, 1998 has been translated from
French francs to U.S. dollars. Assets and liabilities were translated using
the exchange rate as of September 30, 1998. Equity accounts have been
translated using historical exchange rates.
(b) Reflects net adjustment to goodwill and other intangibles as a result of
the RPJ acquisition as follows:
Net amount of purchase price allocated to
Goodwill and other intangibles (see note
(b) to the pro forma statement of operations) $203.2
Goodwill and other intangibles included in
historical RPJ balance sheet 82.2
------
Pro forma adjustment $121.0
(c) Reflects additional borrowings under the Company's revolving credit
facility to fund the RPJ acquisition.
(d) Reflects elimination of historical equity accounts of RPJ.
25
26
INDEX TO EXHIBITS
-----------------
EXHIBIT NUMBER DESCRIPTION PAGE NO.
-------------- ----------- --------
2 Master Contract, dated September 30, 1998, by and Incorporated herein by
between Rhone-Poulenc Agro; The Scotts Company; reference to the Registrant's
Scotts Celaflor GmbH & Co. K.G.; "David" Current Report on Form 8-K
Sechsundfunfzigste Beteiligungs und filed on October 22, 1998 (File
Verwaltungsgesellschaft GmbH; Rhone-Poulenc Agro No. 1-11593) [Exhibit 2]
Europe GmbH; Scotts France Holdings S.A.R.L.;
Scotts France S.A.R.L.; and Scotts Belgium 2
B.V.B.A.
23 Consent of Independent Accountants *
99 Press Release issued October 7, 1998 Incorporated herein by
reference to the Registrant's
Current Report on Form 8-K
filed on October 22, 1998 (File
No. 1-11593) [Exhibit 99]
- ----------------------
Filed herewith.
26
1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
The Scotts Company on Form S-8 (File Nos. 33-47073, 33-60056, 333-00021,
333-06061, and 333-27561) of our report dated September 11, 1998 on our audit of
the combined financial statements of Rhone-Poulenc Jardin as of December 31,
1997 and for the year then ended, which report is incorporated by reference in
this Current Report on Form 8-K.
Lyon, France
December 21, 1998
