<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period ended
September 30, 2000
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
________ to _________
Commission File Number: 0-12177
BIONOVA HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2632242
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6701 San Pablo Avenue
Oakland, California 94608
(Address of principal executive offices) (Zip Code)
(510) 547-2395
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
As of November 10, 2000, 23,588,031 shares of common stock, par value
$0.01 per share, of Bionova Holding Corporation were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIONOVA HOLDING CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 3,304 $ 4,510
Accounts receivable .............................................. 23,157 30,499
Advances to growers, net ......................................... 7,419 3,151
Inventories ...................................................... 12,636 17,218
Other current assets ............................................. 1,015 1,771
--------------- --------------
Total current assets ........................................ 47,531 57,149
Property, plant and equipment, net ............................... 37,900 38,379
Patents and trademarks, net ...................................... 17,116 15,374
Goodwill, net .................................................... 26,907 28,210
Deferred income taxes ............................................ 631 611
Other assets ..................................................... 9,978 22,230
--------------- --------------
Total assets ................................................ $ 140,063 $ 161,953
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans ............................................ $ 22,129 $ 22,653
Current portion of long-term debt ................................ 3,200 3,250
Accounts payable and accrued expenses ............................ 16,158 20,899
Accounts due to related parties .................................. 9,660 8,413
Deferred income taxes ............................................ 1,513 1,513
--------------- --------------
Total current liabilities ................................... 52,660 56,728
Long-term debt with third parties ................................ 206 100,252
Long-term debt with related parties .............................. 115,961 --
--------------- --------------
Total liabilities ........................................... 168,827 156,980
--------------- --------------
Minority interest ................................................ 1,662 1,589
--------------- --------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000 shares authorized,
no shares issued and outstanding ............................... --
Common stock, $.01 par value, 50,000,000 shares
authorized, 23,588,031 shares issued and outstanding ........... 236 236
Additional paid-in capital ....................................... 107,918 107,918
Accumulated deficit .............................................. (138,352) (104,494)
Accumulated other comprehensive income (loss) .................... (228) (276)
--------------- --------------
Total stockholders' equity (deficit) ............................ (30,426) 3,384
--------------- --------------
Total liabilities, minority interest, and stockholders' equity.... $ 140,063 $ 161,953
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BIONOVA HOLDING CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME AND LOSS
THOUSANDS OF U.S. DOLLARS
(EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues ..................................... $ 39,834 $ 51,817 $ 167,675 $ 180,527
----------- ----------- ----------- -----------
Cost of sales ...................................... 37,540 49,351 160,706 168,218
Selling and administrative expenses ................ 6,170 7,754 21,538 21,246
Research and development expenses .................. 1,458 1,666 4,379 4,894
Amortization of goodwill, patents and trademarks ... 875 1,172 2,584 2,786
----------- ----------- ----------- -----------
46,043 59,943 189,207 197,144
----------- ----------- ----------- -----------
Operating income (loss) ............................ (6,209) (8,126) (21,532) (16,617)
----------- ----------- ----------- -----------
Interest expense ................................... (4,385) (4,735) (12,958) (11,570)
Interest income .................................... 533 697 1,625 2,445
Exchange gain (loss), net .......................... 480 903 269 853
Other non-operating income ......................... (3) 1 (15) --
----------- ----------- ----------- -----------
(3,375) (3,134) (11,079) (8,272)
----------- ----------- ----------- -----------
Loss before income tax, minority interest, and
extraordinary item ............................... (9,584) (11,260) (32,611) (24,889)
Income tax benefit (expense) ....................... (409) (173) (899) (340)
----------- ----------- ----------- -----------
Loss before minority interest and
extraordinary item ............................... (9,993) (11,433) (33,510) (25,229)
Minority interest in net loss (income) of
subsidiaries ..................................... 166 236 1,569 818
----------- ----------- ----------- -----------
Loss before extraordinary item ..................... $ (9,827) $ (11,197) $ (31,941) $ (24,411)
Extraordinary loss on retirement of floating
rate notes ....................................... -- -- (1,917) --
----------- ----------- ----------- -----------
Net loss ........................................... $ (9,827) $ (11,197) $ (33,858) $ (24,411)
Other comprehensive income (expense) net of tax:
Foreign currency translation adjustments ......... 26 (112) 48 (111)
----------- ----------- ----------- -----------
Comprehensive income (loss) ........................ $ (9,801) $ (11,309) $ (33,810) $ (24,522)
=========== =========== =========== ===========
Loss per share before extraordinary item ........... $ (0.42) $ (0.48) $ (1.36) (1.04)
Loss per share due to extraordinary item ........... -- -- $ (0.08) --
----------- ----------- ----------- -----------
Net loss per share - basic and diluted ............. $ (0.42) $ (0.48) $ (1.44) $ (1.04)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding ........................................ 23,588,031 23,588,031 23,588,031 23,588,031
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
BIONOVA HOLDING CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................................. $ (33,858) $ (24,411)
Items not affecting cash:
Minority interest ................................................ (1,569) (818)
Depreciation ..................................................... 2,676 3,677
Amortization of goodwill, patents and trademarks ................. 2,561 2,474
Deferred income taxes ............................................ (20) (57)
Allowances for uncollectible receivables and slow moving
inventory ..................................................... 3,908 --
Gain from sale of property, plant and equipment .................. -- 17
Net changes (exclusive of subsidiaries acquired or divested) in:
Accounts receivable and advances to growers, net ................. 1,805 199
Inventories ...................................................... 5,605 4,337
Other assets ..................................................... 1,861 (2,586)
Accounts payable and accrued expenses ............................ (4,741) (9,513)
--------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................ (21,772) (26,680)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of intellectual property ............................. (3,000) --
Purchases of property, plant and equipment ....................... (2,567) (5,380)
Payment for purchase of companies ................................ -- (349)
--------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................ (5,567) (5,729)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt ...................................... (524) (62,275)
Issuance of long-term debt ......................................... -- 100,000
Retirement of long-term debt ....................................... (100,096) (812)
Accounts due to related parties .................................... 117,208 (1,206)
Restricted cash .................................................... 9,545 (12,555)
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................ 26,133 23,152
--------------- --------------
Net increase (decrease) in cash and cash equivalents ............... (1,206) (9,257)
Cash at beginning of year .......................................... 4,510 15,405
--------------- --------------
Cash at end of period .............................................. $ 3,304 $ 6,148
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BIONOVA HOLDING CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
Bionova Holding Corporation (together with its subsidiaries, "Bionova
Holding" or the "Company") is a subsidiary of Bionova, S.A. de C.V., a
Mexican corporation ("Bionova Mexico"), and acts as a holding company for (i)
Agrobionova, S.A. de C.V., of which the Company owns 80% ("ABSA"), (ii)
International Produce Holding Company, of which the Company owns 100%
("IPHC"), (iii) DNA Plant Technology Corporation, of which the Company owns
100% ("DNAP"), and (iv) VPP Corporation, of which the Company owns 100%
("VPP").
NOTE 2 - GENERAL
In management's opinion, the accompanying unaudited consolidated
financial statements for Bionova Holding for the three and nine month periods
ended September 30, 2000 and 1999 have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
include all adjustments (consisting only of normal recurring accruals) that
the Company considers necessary for a fair presentation of its financial
position, results of operations, and cash flows for such periods. However,
the accompanying financial statements do not contain all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. All such financial statements are unaudited
except the December 31, 1999 balance sheet. This report and the accompanying
unaudited and audited financial statements should be read in conjunction with
the Company's audited financial statements and notes thereto presented in its
1999 10-K for the fiscal year ended December 31, 1999. Footnotes which would
substantially duplicate disclosures in the Company's audited financial
statements for the fiscal year ended December 31, 1999 contained in the 1999
10-K report have been omitted. The interim financial information contained
herein is not necessarily indicative of the results to be expected for any
other interim period or the full fiscal year ending December 31, 2000.
NOTE 3 - NET LOSS PER COMMON SHARE
The weighted average number of common shares outstanding during the
three and nine month periods ended September 30, 2000 and 1999 was 23,588,031.
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
THOUSAND OF U.S. DOLLARS
September 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
Finished produce .......................... $ 2,692 $ 1,708
Growing crops ............................. 4,758 8,851
Advances to suppliers ..................... 704 281
Spare parts and materials ................. 3,116 3,834
Merchandise in transit and other .......... 1,571 3,813
--------------- --------------
12,841 18,487
Allowance for slow moving inventories ..... (205) (1,269)
--------------- --------------
$ 12,636 $ 17,218
=============== ==============
</TABLE>
5
<PAGE>
NOTE 5 - FINANCING
On March 22, 1999, the Company issued $100 million of Senior Guaranteed
Floating Rate Notes due 2002. The interest rate on this debt during the first
quarter of 2000 was 12.28%. In addition, the Company was charged a service fee
of 1% by Savia, S.A. de C.V. ("Savia"), the ultimate parent company of Bionova
Holding, relating to its guarantee on these notes. On April 13, 2000 the entire
amount of the $100 million of Senior Guaranteed Floating Rate Notes was retired.
Financing for this early retirement of the notes was provided by Savia. Savia
agreed to provide this $100 million of financing on terms no less favorable than
the terms of the Floating Rate Notes. Savia also agreed that Bionova Holding may
defer all interest payments until the final maturity date of March 23, 2002, and
that Bionova Holding will not be required to maintain any funds in an interest
reserve account. Bionova Holding recorded a charge of $1.9 million in the second
quarter of 2000 to recognize the remaining balance of up front fees paid for the
Floating Rate Note facility that had not previously been amortized. During the
third quarter Savia's interest rate for the financing provided to Bionova
Holding was 12.39%, and no service fee on the debt was charged.
NOTE 6 - LIQUIDITY
The Company has incurred significant losses for the last several
years and at September 30, 2000 has an accumulated deficit of $138.4 million
and negative working capital of $5.1 million. The accompanying financial
statements have been prepared assuming the Company will continue as a going
concern. The Company's long-term ability to continue as a going concern is
dependent upon returning to profitable operations and/or developing
additional sources of financing. Management's plans include a possible sale
of the Company's fresh produce business and a possible re-capitalization of
some or all of the Company's debt. Such sale and re-capitalization are still
in negotiations. Management also recognizes the need for additional working
capital. The Company obtained a commitment from Savia which provides
financial support at least through December 31, 2000. In addition, Savia has
committed to continue to guarantee the short-term bank loans of the Company.
Bionova Holding and Savia currently are in negotiations which could provide
the Company with additional funding into 2001. There can be no assurance that
these negotiations will result in assurance of funding through the entire
2001 calendar year nor that any of the alternatives being negotiated will
result in sufficient working capital to significantly improve the Company's
current financial position or its results of operations.
NOTE 7 - RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 8 - SEGMENT REPORTING
The Company classifies its business into three fundamental areas:
FARMING, which consists principally of interests in Company-owned fresh produce
production facilities and joint ventures with other growers; DISTRIBUTION,
consisting principally of interests in sales and distribution companies in
Mexico, the United States, and Canada; and RESEARCH AND DEVELOPMENT, consisting
of business units focused on the development of fruits and vegetables and
intellectual properties associated with these development efforts.
Information pertaining to the operations of these different business
segments is set forth below. The Company evaluates performance based on several
factors. The most significant financial measure used to evaluate business
performance is business segment operating income. Inter-segment sales are
accounted for at fair value as if the sales were to third parties. Segment
information includes the allocation of corporate overhead to the various
segments, as looked at from the point of view of the segment presidents. All
acquired goodwill has been pushed down to the companies and segments that have
made the acquisitions.
6
<PAGE>
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
Total of
Research and Reportable
Farming Distribution Development Segments
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
JANUARY 1 - SEPTEMBER 30, 2000
Revenues from unaffiliated customers ........... $ (503) $ 165,425 $ 2,753 $ 167,675
Inter-segment revenues ......................... 31,604 -- -- 31,604
------------ ------------ ------------ ------------
Total revenues ................................. 31,101 165,425 2,753 199,279
============ ============ ============ ============
Operating income (loss) ........................ (8,860) (5,913) (5,141) (19,914)
Depreciation and amortization .................. 1,672 932 1,820 4,424
Identifiable assets at September 30 (1) ........ 68,579 61,947 35,148 165,674
Acquisition of long-lived assets ............... 1,904 202 3,461 5,567
JANUARY 1 - SEPTEMBER 30, 1999
Revenues from unaffiliated customers ........... ( 434) 175,659 5,083 180,308
Inter-segment transfers ........................ 42,862 -- -- 42,862
------------ ------------ ------------ ------------
Total revenues ................................. 42,428 175,659 5,083 223,170
============ ============ ============ ============
Operating income (loss) ........................ (12,085) (841) (3,691) (16,617)
Depreciation and amortization .................. 3,739 690 1,722 6,151
Identifiable assets at September 30 (1) ........ 73,507 51,250 42,152 166,909
Acquisition of long-lived assets ............... 4,379 1,117 233 5,729
</TABLE>
NOTES:
1. IDENTIFIABLE ASSETS for segments are defined as total assets less cash in
banks, deferred income taxes and investment in shares.
Reconciliation of the segments to total consolidated amounts is set
forth below:
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
JANUARY 1 - SEPTEMBER 30
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Total segment revenues ......................... 199,279 223,170
Eliminations of inter-segment revenues ......... 31,604 42,862
------------ ------------
Consolidated revenues .......................... 167,675 180,308
============ ============
INCOME BEFORE TAXES
Total operating income (loss) from reportable
segments ..................................... (19,914) (16,617)
Total operating income (loss) from
Bionova Holding Corp (1) ................... (1,618) --
Interest, net ................................... (11,333) (9,125)
Exchange gain (loss) ............................ 269 853
Other non-operating income (loss), net .......... (15) --
------------ ------------
Consolidated income (loss) before taxes ............. (32,611) (24,889)
============ ============
ASSETS
Total segment identifiable assets ............... 165,674 166,909
Unallocated and corporate assets (2) ........... 5,095 30,427
Eliminations (3) ............................... (30,706) (27,305)
------------ ------------
Consolidated assets ............................. 140,063 170,031
============ ============
</TABLE>
NOTES:
1. Certain expenses, such as shareholder litigation, investor relations, and
Board and professional fees that were allocated in the first nine months of
1999 to the operating segments were not allocated to these segments in the
first nine months of 2000. This change was made because management
7
<PAGE>
determined that these types of expenses were not associated with, nor did
the results of these activities benefit the operating segments. Management
further determined that it was impractical to restate the first nine months
of 1999 to exclude these types of expenses from the operating segments.
2. Includes Bionova Holding's and segments' cash in banks, deferred income
taxes and other corporate assets.
3. Consists principally of inter-segment intercompany balances.
A breakdown of revenues to unaffiliated customers by product category
is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF U.S. DOLLARS
Total of
Research and Reportable
Farming Distribution Development Segments
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
JANUARY 1 - SEPTEMBER 30, 2000
Core vegetables (1) .................. 90,673 90,673
Fruits and other fresh produce (2) ... (503) 74,752 74,249
Contracted R&D revenue ............... 2,335 2,335
Licensed technology and royalties .... 418 418
----- -------- ------ --------
Total................................. (503) 165,425 2,753 167,675
===== ======== ====== ========
JANUARY 1 - SEPTEMBER 30, 1999
Core vegetables (1) .................. 90,574 90,574
Fruits and other fresh produce (2) ... (434) 85,085 84,651
Contracted R&D revenue ............... 4,382 4,382
Licensed technology and royalties .... 701 701
----- -------- ------ --------
Total................................. (434) 175,659 5,083 180,308
===== ======== ====== ========
</TABLE>
NOTES:
1. Core vegetables include tomatoes, bell peppers and cucumbers.
2. Fruits and other fresh produce include papayas, mangoes, grapes, melons,
watermelons and others.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE COMPANY
Bionova Holding Corporation, a Delaware corporation (together with its
subsidiaries, unless the context requires otherwise, "Bionova Holding" or the
"Company"), was formed in January 1996, and acts as a holding company for (i)
Agrobionova, S.A. de C.V., a corporation organized under the laws of the United
Mexican States, of which the Company owns 80% ("ABSA"), (ii) International
Produce Holding Company, a Delaware corporation, of which the Company owns 100%
("IPHC"), (iii) DNA Plant Technology Corporation, a Delaware corporation, of
which the Company owns 100% ("DNAP"), and (iv) VPP Corporation, a Delaware
corporation, of which the Company owns 100% ("VPP"). Since October 6, 1998,
approximately 76.6% of the outstanding common stock of the Company has been
indirectly owned by Savia, S.A. de C.V.
The Company classifies its business into three fundamental business
segments. The FARMING segment consists principally of ABSA's interests in
Company-owned fresh produce production facilities and joint ventures with other
growers. The DISTRIBUTION segment consists of Interfruver de Mexico, S.A. de
C.V. ("Interfruver"), which engages in the business of marketing and
distributing fresh produce in Mexico, and IPHC, which owns total or majority
interests in sales and distribution companies in the United States and Canada.
The RESEARCH AND DEVELOPMENT segment consists of DNAP and VPP, two companies
which are focused on the development and application of genetic engineering and
transformation technologies to fruits and vegetables and the intellectual
properties associated with these development efforts.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Consolidated total revenues decreased by 23% from $51.8 million in the
third quarter of 1999 to $39.8 million in the third quarter of 2000.
Consolidated gross profit (revenues less cost of sales) declined from $2.5
million in the third quarter of 1999 to $2.3 million in the second quarter of
2000. The Company's consolidated operating loss declined from $8.1 million in
the third quarter of 1999 to $6.2 million in the third quarter of 2000.
FARMING segment revenues, the majority of which are eliminated in
consolidation, declined from $14.6 million in the third quarter of 1999 to
$2.4 million in the third quarter of 2000. This decline was attributable
entirely to the termination of ABSA's joint venture arrangement with Santa
Cruz Empacadora, S. de R.L. de C.V., a grower based in Baja California Sur.
The decision to terminate this joint venture was taken in March of this year
because of the very heavy losses sustained by this joint venture in the 1999
growing season. ABSA sought to locate alternative sources of supply for the
July through November 2000 growing season, but due to previous commitments of
growers in this area ABSA was not able to replace this production. ABSA
expects it will be able to secure relationships with other growers for the
July through November 2001 growing season. As a consequence of the heavy
losses recorded by ABSA's joint ventures in the third quarter of 1999, the
operating loss of the farming segment declined from $4.9 million in the third
quarter of 1999 to $0.9 million in the third quarter of 2000.
Revenues of the DISTRIBUTION segment decreased from $50.2 million in
the third quarter of 1999 to $39.0 million in the third quarter of 2000. This
decline was a direct consequence of the volume reduction stemming from the
termination of the Santa Cruz joint venture and severely affected the U.S.
distribution companies and Interfruver. Correspondingly, gross profit of the
Distribution segment declined from $4.1 million in the third quarter of 1999
to $2.3 million in the third quarter of 2000, which led the Distribution
segment to experience an operating loss of $1.3 million in the third quarter
of 2000 as compared with an operating profit of $0.5 million in the third
quarter of 1999.
Revenues of the RESEARCH AND DEVELOPMENT segment declined from $2.2
million in the third quarter of 1999 to $0.8 million in the third quarter of
2000. The most significant factor accounting for this decline in revenues was
a "catchup" payment made by Savia to DNAP during the third quarter of 1999.
Under the long-term founded research agreement between Savia and DNAP, Savia
is obligated to fund DNAP at least $9.0 million in research payments over each
three year period, the first of which ended on September 30, 1999. To meet
this obligation Savia paid DNAP $1.0 million in the third quarter of 1999. The
decline in revenues translated directly to lower gross profit generation in
this segment of the business. Research expenses decreased by $0.2 million due
to a reduction in supervisory personnel during the third quarter of 2000 as
compared with the same period in 1999. The lower gross profit, offset in part
by the lower research expenses, led to an operating loss in the Research and
Development Segment of $1.8 million in the third quarter of 2000, as compared
with an operating loss of $0.8 million in the same quarter of 1999.
Selling and administrative expenses declined from $7.8 million in the
third quarter of 1999 to $6.2 million in the same quarter of 2000. This
decrease was due primarily to staff reductions at ABSA and in the corporate
office.
Interest expense declined from $4.7 million in the third quarter of
1999 to $4.4 million in the same quarter of 2000. This $0.3 million decrease
was due to a lower overall rate of interest incurred on the long-term debt
during the third quarter of 2000 as compared with the same quarter in 1999.
Interest income decreased from $0.7 million in the third quarter of
1999 to $0.5 million in the same quarter of 2000. This lower level of interest
earnings was due to a reduction in grower receivables during the third quarter
of 2000 as compared with the same quarter in 1999.
Income tax expense increased from $0.2 million in the third quarter of
1999 to $0.4 million during the same quarter in 2000. This increase was due to
an increase in the tax provision made for Interfruver.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Consolidated total revenues declined from $180.5 million during in the
first nine months of 1999 to $167.7 million in the same period of 2000.
Consolidated gross profit (revenues less cost of sales) was $12.3 million for
the first nine months of 1999, as compared with $7.0 million for the same
period in 2000. The Company's consolidated operating loss increased from $16.6
million in the first nine months of 1999 to $21.5 million in the same period
in 2000.
FARMING segment revenues, the majority of which are eliminated in
consolidation, declined from $42.4 million in the first nine months of 1999 to
$31.1 million in the same period of 2000 due to (1) the very heavy production
of tomatoes from Florida and grapes from Chile, which kept prices very low
throughout the first six months of 2000, (2) the curtailment of production
volumes during certain weeks in the first half of the year due to the low
prices, and (3) the termination in March 2000 of ABSA's joint venture
arrangement with Santa Cruz Empacadora, S. de R.L. de C.V., a grower based in
Baja California Sur, which led to a substantial reduction in production volume
in the third quarter of 2000. The operating loss of the Farming segment
declined from $12.1 million in the first nine months of 1999 to $8.9 million
in the same period of 2000. This reduction in the operating loss was a direct
consequence of the termination of ABSA's joint ventures which experienced
large losses in 1999.
Revenues of the DISTRIBUTION segment decreased from $175.7 million in
the first nine months of 1999 to $165.4 million in the same period of 2000.
This decline was largely a consequence of the volume reduction stemming from
the termination of the Santa Cruz joint venture and most severely affected the
U.S. distribution companies. Premier Fruits and Vegetables in Canada (+8%) and
Interfruver in Mexico (+16%) have been able to continue their strong
performances in the first nine months of 2000 versus the same period a year
ago because of the greater variety of products they sell as compared with the
Company's U.S. distribution subsidiaries. The operating loss of the
Distribution segment increased from $0.9 million in the first nine months of
1999 to $5.9 million during the same period in 2000 and was concentrated in
two of the Company's U.S. shipping and distributing subsidiaries - Bionova
Produce, Inc. in Nogales, Arizona and R.B. Packing of California, Inc. The
primary factors that contributed to the larger operating loss of Bionova
Produce, Inc. was (i) a $15.7 million sales decrease emanating from a
reduction in grape volumes and prices which impacted commissions earned during
the first nine months and (ii) a $2.7 million write off of growers and
accounts receivables in conjunction with the termination of a contract with a
Mexican grower of mangoes, papaya, and other fruit products on which the
Company had lost money over the past two years. R.B. Packing of California,
Inc. was the primary distributor of the products from the Santa Cruz joint
venture, and the loss of this production in the third quarter caused this
subsidiary to experience a $0.6 million operating loss during the first nine
months of 2000 as compared with an operating profit of $0.3 million during the
same period in 1999.
Revenues of the RESEARCH AND DEVELOPMENT segment declined from $5.1
million in the first nine months of 1999 to $2.8 million in the same period of
2000. The most significant factor accounting for this decline in revenues was
a "catchup" payment made by Savia to DNAP during the first nine months of
1999. Under the long-term founded research agreement between Savia and DNAP,
Savia is obligated to fund DNAP at least $9.0 million in research payments
over each three year period, the first of which ended on September 30, 1999.
To meet this obligation Savia paid DNAP $1.5 million during the first nine
months of 1999. The decline in revenues translated directly to lower gross
profit generation in this segment of the business. Research expenses decreased
by $0.5 million due to a reduction in supervisory personnel during the first
nine months of 2000 as compared with the same period in 1999. The lower gross
profit, offset in part by the lower research expenses, led to an operating
loss in the Research and Development Segment of $5.1 million during the first
nine months 2000, as compared with an operating loss of $3.7 million in the
same period of 1999.
Selling and administrative expenses increased from $21.2 million
during the first nine months of 1999 to $21.5 million in the same period of
2000. This increase was due to higher professional fees and severance payments
associated with the corporate re-structuring, higher legal expenses associated
with shareholder litigation cases, and a special charge incurred by
Interfruver for outside services and consulting
10
<PAGE>
advice in connection with its expansion strategy and operations during the
first six months of 2000, offset in part by the benefits of the corporate
re-structuring reflected in the third quarter of 2000.
Interest expense increased from $11.6 million in the first nine months
of 2000 to $13.0 million in the same period of 2000. This $1.4 million
increase was due to a higher overall level of debt outstanding and the higher
interest rates and amortization of the debt issuance costs in the first
quarter of 2000 associated with the Senior Guaranteed Floating Rate Notes
issued on March 22, 1999 as compared with the first quarter of 1999.
Interest income decreased from $2.4 million in the first nine months
of 1999 to $1.6 million in the same period of 2000. This decline in interest
income was due to a reduction in grower receivables.
During the first nine months of 2000, the share of losses allocable to
minority interests was $1.6 million as compared to $0.8 million in the same
period of 1999. The 2000 and 1999 allocations of losses are consistent with
the minority positions held across the operating subsidiaries of the Company.
Income tax expense increased from $0.3 million in the first nine
months of 1999 to $0.9 million during the same period in 2000. This increase
was due to an increase in the tax provision made for Interfruver.
An extraordinary charge of $1.9 million was recorded in the second
quarter of 2000 to recognize the remaining balance of up front fees paid for
the Floating Rate Note facility that was retired on April 13, 2000.
CAPITAL EXPENDITURES AND ACQUISITION OF INTELLECTUAL PROPERTY
During the first nine months of 2000, the Company made capital
investments of $2.6 million in property, plant and equipment. The majority of
the funds were spent by the Farming segment ($1.9 million) for equipment in
Culiacan, Hermosillo and La Paz, Mexico. Minor investments of $0.2 million and
$0.5 million were made in the Company's distribution and technology
operations, respectively. The Company also made a payment during the quarter
of $3.0 million to Monsanto. This payment was made for certain intellectual
property rights associated with the strawberry assets that were acquired in
December 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000, the Company used $21.8
million of cash in operating activities. Cash used in the results of
operations amounted to $26.3 million (i.e., net income as adjusted for items
not affecting cash, including minority interest, depreciation, amortization,
and allowances for uncollectible receivables). Working capital requirements
decreased by $4.5 million during the first nine months of 2000. Accounts
receivable and advances to growers declined by $1.8 million in the first nine
months of 2000, which was consistent with the low sales volumes typical of
this season of the year and a reduction in advances to growers due to the
termination of the Santa Cruz joint venture in Baja California Norte.
Inventories declined by $5.6 million, which also was consistent with third
quarter seasonality and the Company's decision to terminate the majority of
its growing operations in Culiacan, Sinaloa, Mexico. Accounts payable and
accrued expenses declined $4.7 million due to the reduction in farming
operations. The $1.9 million cash generation from other assets reflected a
payment of a collateral receipt for the import of Chilean product into Mexico
and a reduction in prepaid commissions associated with the retirement of the
Floating Rate Notes.
On April 13, 2000 the entire amount of the $100 million of Senior
Guaranteed Floating Rate Notes was retired. Financing for this early
retirement of the notes was provided by Savia. Savia agreed to provide this
$100 million of financing on terms no less favorable than the terms of the
Floating Rate Notes. Savia also agreed that Bionova Holding may defer all
interest payments until the final maturity date of March 23, 2002, and that
Bionova Holding will not be required to maintain any funds in an interest
reserve account.
11
<PAGE>
Savia has committed at least through December 31, 2000 to financially
support the Company and its subsidiaries so that they can continue with their
business plans and the fulfillment of their financial obligations. In
addition, Savia has committed to continue to guarantee the short-term bank
loans of the Company. Bionova Holding and Savia currently are in negotiations
as regards the overall restructuring of the Company, including discussions on
continued funding into 2001. There can be no assurance that these negotiations
will result in assurance of funding through the entire 2001 calendar year nor
that any of the alternatives being negotiated will result in sufficient
working capital to significantly improve the Company's current financial
position or its results of operations.
As a consequence of the retirement of the floating rate notes and
Savia's commitment to support the Company, cash generated from financing
activities during the first nine months of 2000 was $26.1 million. Of this
amount $9.5 million was generated when the Floating Rate Notes were retired,
which freed up the restricted cash being held against the interest reserve
account associated with these notes. The remaining $16.6 million reflects
additional borrowings from Savia to support operations during the first nine
months of this year.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking" statements within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of
the Securities Exchange Act of 1934. All statements, including without
limitation statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" other than statements of
historical facts included in this Form 10-Q, including statements regarding
our financial position, business strategy, prospects, plans and objectives of
our management for future operations, and industry conditions, are
forward-looking statements. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we can give you
no assurance that these expectations will prove to be correct. In addition to
important factors described elsewhere in this report, the following "Risk
Factors," sometimes have affected, and in the future could affect, our actual
results and could cause these results during 2000, and beyond, to differ
materially from those expressed in any forward-looking statements made by us
or on our behalf. When we use the terms "Bionova," "we," "us," and "our,"
these terms refer to the Company and its subsidiaries.
RISKS RELATING TO OUR FINANCIAL CONDITION
WE MAY CONTINUE TO SUSTAIN LOSSES AND ACCUMULATE DEFICITS IN THE FUTURE
We have sustained losses in 1996, 1997, 1998, 1999, and in the first
nine months of 2000. As of September 30, 2000 our accumulated deficit was
$138.4 million. For the quarter ended September 30, 2000, we had a net loss of
$9.8 million. The factors that caused these losses, including factors
described in this section, may continue to limit our ability to make a profit
in the future.
WE MAY NEED ADDITIONAL FINANCING TO EXECUTE OUR TECHNOLOGY STRATEGY, WHICH
COULD HURT OUR GROWTH AND FINANCIAL CONDITION
We may need additional capital to meet our working capital
requirements. Our projected cash flows from operations and existing capital
resources, including our existing credit lines, may not be sufficient to allow
us to pursue proposed business strategies to acquire additional rights to
technologies. Therefore, we may need to obtain additional capital, which could
cause us to incur additional debt or issue additional equity securities. We
cannot assure you that additional capital will be available on satisfactory
terms, if at all, and, as a result, we may be restricted in executing our
technology strategy.
OUR LEVERAGED POSITION COULD CAUSE US TO BE UNABLE TO MEET OUR CAPITAL NEEDS,
WHICH COULD HURT OUR FINANCIAL CONDITION.
At September 30, 2000 we had $141.5 million of indebtedness and a
stockholders' deficit of $30.4 million. This level of indebtedness may pose
substantial risks to our company, including the possibility
12
<PAGE>
that we may not generate sufficient cash flow to pay our outstanding debts.
Our level of indebtedness may also adversely affect our ability to incur
additional indebtedness and finance our future operations and capital needs,
and may limit our ability to pursue other business opportunities.
OUR COMPANY IS CONSIDERING RESTRUCTURING ALTERNATIVES WHICH COULD GREATLY
AFFECT BOTH SHORT- AND LONG-TERM REVENUES AND PROFIT
In May, the Company announced its intent to concentrate on its
technology business and pursue alternatives for the fresh produce business,
including the possible divestiture of parts or all of this business segment.
While Savia recently has expressed an interest in acquiring the Company's
fresh produce business, no commitment has yet been made. Further, if the fresh
produce business is acquired by Savia or another party, the Company's future
will then be focused on its existing technology activities and new initiatives
it is endeavoring to develop. Revenues will be reduced significantly and
losses during the next several years are likely to be higher than they would
have been if the fresh produce business were continued, though lower than they
have been over the past two years.
RISKS RELATING TO OUR FARMING AND DISTRIBUTION BUSINESS
BAD WEATHER AND CROP DISEASE CAN AFFECT THE AMOUNT OF PRODUCE WE CAN GROW AND
SOURCE FROM OTHER GROWERS, WHICH CAN DECREASE OUR REVENUES AND PROFITABILITY
Weather conditions greatly affect the amount of fresh produce we bring
to market, and, accordingly, the prices we receive for our produce. Storms,
frosts, droughts, and particularly floods, can destroy a crop and less severe
weather conditions, such as excess precipitation, cold weather and heat, can
kill or damage significant portions of a crop. Crop disease and pestilence can
be unpredictable and can have a devastating effect on our crops, rendering
them unsalable and resulting in the loss of all or a portion of the crop for
that harvest season. Even when only a portion of our crops are damaged, the
profits we could have made on the crop will be severely affected because the
costs to plant and cultivate the entire crop will have been incurred although
we may experience low yields or may only be able to sell a portion of our
crop. In 1998 and 1999, Agrobionova's significant losses were in large measure
due to very cold weather and diseases that severely affected outputs in its
Culiacan operations and in its joint venture in Baja California Norte.
ABSA RECENTLY SHUT DOWN ITS GROWING OPERATIONS IN CULIACAN WHICH WILL AFFECT
THE AMOUNT OF PRODUCE WE GROW, WHICH CAN DECREASE REVENUES AND PROFITS
During the second quarter ABSA, the Company's agricultural subsidiary
in Mexico, substantially reduced its growing operations in Culiacan, Sinaloa.
ABSA has contracted with other growers in the region to supply it with produce
during the winter season, which will then be packaged in ABSA's packing
facilities and sold through the Company's distribution subsidiaries. While
ABSA believes it has replaced virtually all of its lost production in
Culiacan, it cannot predict with certainty that all of the contracts will
deliver an equivalent supply nor can it assure the profit which will result
will be higher or lower than what it would have generated had it continued its
own production in Culiacan.
A RECENT CHANGE IN ABSA'S RELATIONSHIP WITH ITS JOINT VENTURE IN BAJA
CALIFORNIA NORTE WILL AFFECT THE AMOUNT OF PRODUCE WE GROW, WHICH CAN DECREASE
REVENUES AND PROFITS
One grower in Baja California, Santa Cruz Empacadora, S. de R.L. de
C.V., accounted in 1999 for approximately 11% of our consolidated sales. Due
to losses incurred during the 1999 growing season, ABSA terminated its joint
venture growing agreement in March 2000 and negotiated an agreement with this
grower whereby the grower has pledged certain assets as collateral to secure
its debt to ABSA. ABSA sought to locate alternative sources of supply for the
July through November 2000 growing season, but due to previous commitments of
growers in this growing region ABSA was not able to replace this production.
While ABSA expects to secure relationships with other growers for future
years' growing seasons, it cannot predict with any certainty the amount of
produce it will be able to source or the relative cost to grow or purchase
this product as compared with Santa Cruz. If ABSA is not able to source as
much product as it expected to grow in its association with Santa Cruz, this
likely will result in lower overall sales of the
13
<PAGE>
Company and lower total operating profit as compared with what previously had
been projected for future years.
LABOR SHORTAGES AND UNION ACTIVITY CAN AFFECT OUR ABILITY TO HIRE WORKERS TO
HARVEST AND DISTRIBUTE OUR CROPS, WHICH CAN HURT OUR FINANCIAL CONDITION
The production of fresh produce is heavily dependent upon the
availability of a large labor force to harvest crops. The turnover rate among
the labor force is high due to the strenuous work, long hours, necessary
relocation and relatively low pay. If it becomes necessary to pay more to
attract labor to farm work, our labor costs will increase.
The Mexican farm work force retained by ABSA is unionized. If the
union attempts to disrupt production and is successful on a large scale, labor
costs will likely increase and work stoppages may be encountered, which would
be particularly damaging in our industry where harvesting crops at peak times
and getting them to market on a timely basis is critical. The majority of
fresh produce is shipped by truck. In the United States and in Mexico, the
trucking industry is largely unionized and therefore susceptible to labor
disturbances. As a result, delivery delays caused by labor disturbances in the
trucking industry or any other reason could limit our ability to get fresh
produce to market before it spoils.
ABSA'S RELIANCE ON LEASES AND RELATIONSHIPS WITH OTHER GROWERS COULD RESULT IN
INCREASED COSTS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
ABSA relies on agricultural land leased from others and relationships
with other growers for a large part of its supply. The average term of these
land leases is two years and we expect to renew many of these land leases as
they expire. If the other parties to these leases and other arrangements were
to choose not to renew their agreements with ABSA, ABSA would be required to
locate alternate sources of supply and/or land or, in some cases, to pay
increased rents for land. In addition to increased rental rates, increases in
land costs could result from increases in water charges, property taxes and
related expenses.
RISKS RELATING TO OUR SCIENTIFIC RESEARCH AND DEVELOPMENT BUSINESS
GOVERNMENT REGULATION CAN CAUSE DELAYS AND INCREASED COSTS, WHICH DECREASE OUR
REVENUES AND PROFITABILITY
Our subsidiaries' activities in the United States are extensively
regulated by the Food and Drug Administration, the United States Department of
Agriculture, the Environmental Protection Agency, and other federal and state
regulatory agencies in the United States. Similarly, our subsidiaries'
activities in Mexico are extensively regulated by the Secretaria de
Agricultura, Ganaderia y Desarrollo Rural, the Secretaria de Salud, and other
federal and state regulatory agencies in Mexico. Also, our products may
require regulatory approval or notification in the United States or in other
countries in which they are tested, used or sold. The regulatory process may
delay research, development, production, or marketing and require more costly
and time-consuming procedures, and there can be no assurance that requisite
regulatory approvals or registration of our current or future genetically
engineered products will be granted on a timely basis.
IF THE PRODUCTS WE DEVELOP AND MARKET ARE NOT COMMERCIAL SUCCESSES, WE WILL
NOT RECOUP OUR DEVELOPMENT AND PRODUCTION COSTS, WHICH WILL HURT OUR FINANCIAL
CONDITION
We are currently in the early stages of marketing several of our new
products, and there can be no assurance that any of these products will be
successful or will produce significant revenues or profits. In addition, a
number of our product development projects are in the early stages, and these
projects may not be successful. The success of these and future products
depends on many variables, including the ability to produce and make available
to the market consistent, premium quality fruits and vegetables on a
year-round basis, consumers' willingness to pay higher prices for premium
quality fruits and vegetables, and retailers' willingness to carry such fruits
and vegetables.
14
<PAGE>
IF THE PUBLIC IS UNWILLING TO ACCEPT GENETICALLY ENGINEERED PRODUCTS, WE WILL
NOT RECOUP OUR DEVELOPMENT AND PRODUCTION COSTS, WHICH WILL HURT OUR FINANCIAL
CONDITION
Our second generation products are being developed through the use of
genetic engineering. The commercial success of these products will depend in
part on public acceptance of the cultivation and consumption of genetically
engineered products. We cannot assure you that these products will gain
sufficient public acceptance to be profitable, even if these products obtain
the required regulatory approvals.
WE MAY NOT BE SUCCESSFUL IN OBTAINING PATENTS, PROTECTING OUR TRADE SECRETS
AND CONDUCTING OUR BUSINESS WITHOUT INFRINGING ON THE RIGHTS OF OTHERS, WHICH
COULD ADVERSELY AFFECT OUR BUSINESS
Our success depends, in part, on our ability to obtain and enforce
patents, maintain trade secret protection, and conduct our business without
infringing the proprietary rights of others. If others develop competing
technologies and market competing products, our sales could be adversely
affected. If we are not able to maintain our trade secrets or to enforce our
patents, our competitive position could be adversely affected. In addition, we
license technology from third parties. If we cannot maintain these licenses,
or if we cannot obtain licenses to other useful technology on commercially
reasonable terms, our research efforts could be adversely affected.
RISKS RELATING TO OUR INTERNATIONAL OPERATIONS
LEGAL LIMITATIONS COULD AFFECT OUR OWNERSHIP OF RURAL LAND IN MEXICO, WHICH
COULD DECREASE OUR SUPPLY OF PRODUCE CAUSING A DECREASE IN OUR REVENUES AND
PROFITABILITY
ABSA owns a substantial amount of rural land in Mexico, which it uses
to grow fresh fruits and vegetables. Historically, the ownership of rural land
in Mexico has been subject to legal limitations and claims by residents of
rural communities, which in some cases could lead to the owner being forced to
surrender its land. ABSA has been, and continues to be, involved in land
dispute proceedings as part of its ordinary course of business. If ABSA is
required to surrender any of its land, the volume of fresh fruits and
vegetables it produces would decline and adversely affect our profitability.
There are currently pending in Mexico two lawsuits challenging the ownership
rights of ABSA to rural land it owns in Mexico. If both of these lawsuits were
decided against ABSA, ABSA could lose a total of 30% of all the rural land it
owns in Mexico.
CURRENCY FLUCTUATIONS AND INFLATION CAN INCREASE THE COST OF OUR PRODUCTS IN
THE UNITED STATES AND ABROAD, WHICH DECREASES OUR REVENUES AND PROFITABILITY
The currency exchange rates in Mexico have historically been volatile.
For example, in December 1994, the Mexican government announced its intention
to float the Mexican peso against the United States dollar and, as a result,
the peso devalued over 40% relative to the dollar during that month. Since
January 1995, the value of the peso has decreased approximately 90%. These
exchange rate fluctuations impact our subsidiaries' business. If the value of
the peso decreases relative to the value of the dollar, then:
1. imports of produce into Mexico for distribution by our Mexican
subsidiary become more expensive in peso terms and therefore more
difficult to sell in the Mexican market; and
2. inflation that generally accompanies reductions in the value of the
peso reduces the purchasing power of Mexican consumers, which
reduces the demand for all products including produce and, in
particular, imported, branded or other premium-quality produce.
Conversely, if the value of the peso increases relative to the value
of the dollar, Mexican production costs increase in dollar terms, which
results in lower margins or higher prices with respect to produce grown in
Mexico and sold in the United States and Canada.
15
<PAGE>
VOLATILE INTEREST RATES IN MEXICO CAN INCREASE OUR CAPITAL COSTS
Historically, interest rates in Mexico have been volatile,
particularly in times of economic unrest and uncertainty. High interest rates
restrict the availability and raise the cost of capital for our Mexican
subsidiaries and for growers and other Mexican parties with whom we do
business, both for borrowings denominated in pesos and for borrowings
denominated in dollars. Costs of operations for our Mexican subsidiaries are
higher as a result.
TRADE DISPUTES BETWEEN THE UNITED STATES AND MEXICO CAN RESULT IN TARIFFS,
QUOTAS AND BANS ON IMPORTS, INCLUDING OUR PRODUCTS, WHICH CAN HURT OUR
FINANCIAL CONDITION
Despite the enactment of the North American Free Trade Agreement,
Mexico and the United States from time to time are involved in trade disputes.
The United States has, on occasion, imposed tariffs, quotas, and importation
bans on products produced in Mexico. U.S. tomato growers have brought dumping
claims against Mexican tomato growers and may do so again. Because some of our
subsidiaries produce products in Mexico, which we sell in the United States,
such actions, if taken, could adversely affect our business.
GENERAL BUSINESS RISKS
BIONOVA INTERNATIONAL, INC. HAS SUBSTANTIAL CONTROL OVER OUR COMPANY AND CAN
AFFECT VIRTUALLY ALL DECISIONS MADE BY OUR STOCKHOLDERS
Bionova International beneficially owns 18,076,839 shares of our
common stock accounting for 76.6% of all issued and outstanding shares. As a
result, Bionova International has the requisite voting power to significantly
affect virtually all decisions made by Bionova and our stockholders, including
the power to elect all of our directors and to block corporate actions such as
an amendment to most provisions of our certificate of incorporation. This
ownership and management structure will inhibit the taking of any action by
Bionova which is not acceptable to Bionova International.
WE MAY NOT BE ABLE TO ADAPT OUR MANAGEMENT INFORMATION SYSTEMS, WHICH COULD
HURT OUR FINANCIAL CONDITION
Our business has undergone significant change since the Company's
inception in 1996. As a result, significant strains have been placed on the
management, operations and financial resources of our subsidiaries. The
realization of our business strategy depends on, among other things, our
ability to adapt management information systems and controls and to hire,
train and retain qualified employees to allow these operations to be
effectively managed. The geographic separation of our subsidiaries' operations
exacerbates these issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The table below provides information about the Company's derivative
financial instruments and consists primarily of debt obligations that are
sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected (contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contracts. Weighted average
variable rates are based on implied forward rates in the yield curve on
September 30, 2000. The information is presented in U.S. dollar equivalents,
which is the Company's reporting currency. The instrument's actual cash flows
are denominated in both U.S. dollars and Mexican pesos, and are indicated
accordingly in the tables below.
16
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATE
-----------------------------------------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt:
($US equivalent in millions)
-----------------------------------------------------------------------------------------------------------
US dollar variable rate.... 24.0 24.0 24.0
-----------------------------------------------------------------------------------------------------------
Average interest rate.... 10%
-----------------------------------------------------------------------------------------------------------
Peso variable rate (in 1.1 1.1 1.1
$US).....................
-----------------------------------------------------------------------------------------------------------
Average interest rate.... 23%
-----------------------------------------------------------------------------------------------------------
Long-term debt:
-----------------------------------------------------------------------------------------------------------
US dollar fixed rate.......
-----------------------------------------------------------------------------------------------------------
Average interest rate....
-----------------------------------------------------------------------------------------------------------
US dollar variable rate.... 0.2 0.1 115.9 116.2 116.2
-----------------------------------------------------------------------------------------------------------
Average interest rate.... 12% 12% 12%
-----------------------------------------------------------------------------------------------------------
</TABLE>
The Company tries to use the most cost-effective means to fund its
operating and capital needs. Fixed or variable debt will be borrowed in both
U.S. dollars and Mexican pesos. The Company borrows Mexican pesos to provide
for its working capital needs in its Mexican operations. To minimize exchange
risk associated with the importation of products, the Company will enter into
forward exchange contracts where the functional currency to be used in the
transaction is dollars.
EXCHANGE RATE RISK
The table below provides information about the Company's financial
instruments by functional currency that are subject to exchange risk. This
information is presented in U.S. dollar equivalents. The table summarizes
information on instruments that are sensitive to foreign currency exchange
rates, including peso-denominated debt obligations. For debt obligations, the
table presents principal cash flows and related weighted average interest
rates by expected maturity dates.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATE
-----------------------------------------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
On-Balance sheet
Financial Investments
($US equivalent in millions)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Peso short-term debt:
-----------------------------------------------------------------------------------------------------------
Variable rate (in $US).... 1.1 $ 1.1 $ 1.1
-----------------------------------------------------------------------------------------------------------
Average interest rate..... 23%
-----------------------------------------------------------------------------------------------------------
Expected maturity or
Transaction date........ Nov. 27
-----------------------------------------------------------------------------------------------------------
</TABLE>
The Company had no firmly committed forward sales contracts in Mexican
pesos as of September 30, 2000.
The Company is exposed to U.S. dollar-to-Mexican peso currency
exchange risk due to revenues and costs denominated in Mexican pesos
associated with its Mexican subsidiaries, ABSA and Interfruver. The Company
expects it will continue to be exposed to currency exchange risks in the near
future.
The Company's subsidiaries, Interfruver and Premier, from time to time
enter into foreign exchange forward contracts to manage their exposure to
fluctuations in foreign currency denominated payables. These contracts
generally mature within three months. As of December 31, 1999, the Company had
foreign exchange forward contracts outstanding in the amount of $1.883
million. Gains
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and losses arising from foreign currency transactions are included in the line
item entitled "Exchange (loss) gain, net" in the Consolidated Statement of
Operations when realized.
COMMODITY PRICE RISK
The table below provides information about the Company's fresh produce growing
crops inventory and fixed price contracts that are sensitive to changes in
commodity prices. For inventory, the table presents the carrying amount and
fair value at December 31, 1999. For the fixed price contracts, the table
presents the notional amounts in Boxes, the weighted average contract prices,
and the total dollar contract amount by expected maturity dates, the latest of
which occurs within one year from the reporting date. Contract amounts are
used to calculate the contractual payments and quantity of fresh produce to be
exchanged under futures contracts.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------
Carrying Fair
Amount Value
--------------------------------------------------------------------------------------
<C> <C> <C>
On-balance sheet commodity position:
Fresh produce crops in process inventory ($US in
millions)......................................... $ 4.80 $ 4.80
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Fixed price contracts:
Contract volumes (2,406,999 boxes)
Weighted average unit price (per 2,406,999 boxes).. $ 8.48 $ 8.48
Contract amount ($US in millions).................. $20.40 $20.40
--------------------------------------------------------------------------------------
</TABLE>
In order to manage the exposure to commodity price sensitivity
associated with fresh produce products, the Company enters into fixed price
contracts with certain customers which guarantee specified volumes for the
growing season or the year at a fixed price. The Company believes that its
efforts to assure a high level of product quality along with efforts to
develop and market differentiated, added value products also reduce to some
extent its exposure to commodity price sensitivity.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the Company's annual report on Form 10-K for
the year ended December 31, 1999, and in the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 2000, the Company and DNAP were
defendants in two related class action lawsuits: GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL., filed on January 7, 1999, and
ROBERT KACZAK V. EMPRESAS LA MODERNA, S.A. DE C.V., ET AL., filed on January
28, 1999. In both cases, former preferred stockholders of DNAP alleged that
there were material misrepresentations and omissions in the Proxy
Statement/Prospectus distributed to DNAP's stockholders in connection with the
1996 merger of DNAP with a subsidiary of the Company. The two lawsuits had
been consolidated and were pending in the U.S. District Court for the Northern
District of California. On September 19, 2000, the court ruled in favor of the
Company and DNAP and dismissed all of the plaintiffs' claims. The plaintiffs
have appealed this ruling to the U.S. Court of Appeals for the Ninth Circuit.
The Company and DNAP deny any wrongdoing and liability in this matter and
intend to vigorously contest this lawsuit.
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ITEM 5. OTHER INFORMATION
BUSINESS RESTRUCTURING
Savia and a Special Committee of Independent Directors have shared
proposals with respect to the possible acquisition by Savia of the Company's
fresh produce business, a possible re-capitalization of some or all of the
Company's debt, and the Company's funding needs for 2001. Negotiations to
reach a final agreement are in process.
RIGHTS OFFERING
Bionova Holding has, at least temporarily, ceased efforts to complete
the filing of the registration statement relating to its offering to
shareholders of rights to purchase shares of common stock for $5.75 per share
because of the restructuring negotiations currently in progress. A
determination regarding the rights offering will be made in connection with
the final restructuring plan.
CONTROLLING STOCKHOLDER; CONFLICTS OF INTEREST
Approximately 76.6% of the outstanding shares of common stock of the
Company are owned of record by Bionova International, Inc., an indirect,
wholly-owned subsidiary of Savia. Therefore, Savia has the power to elect a
majority of the Company's board of directors and to determine the outcome of
any action requiring the approval of the holders of the Company's common
stock. This ownership and management structure will inhibit the taking of any
action by the Company which is not acceptable to the controlling stockholder.
Certain of the Company's directors and executive officers are also
currently serving as board members or executive officers of Savia or companies
related to Savia, and it is expected that each will continue to do so. Such
management interrelationships and intercorporate relationships may lead to
possible conflicts of interest.
The Company and other entities that may be deemed to be controlled by
or affiliated with Savia sometimes engage in (i) intercorporate transactions
such as guarantees, management and expense sharing arrangements, shared fee
arrangements, joint ventures, partnerships, loans, options, advances of funds
on open account and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (ii) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties.
The Company continuously considers, reviews and evaluates, and understands
that Savia and related entities consider, review and evaluate, transactions of
the type described above. Depending upon the business, tax and other
objectives then relevant, it is possible that the Company might be a party to
one or more of such transactions in the future in addition to those currently
in force, such as the Long Term Funded Research Agreement dated January 1,
1997 between Seminis Vegetable Seeds, Inc., an indirect subsidiary of Savia,
and DNAP. In connection with these activities the Company might consider
issuing additional equity securities or incurring additional indebtedness. The
Company's acquisition activities may in the future include participation in
the acquisition or restructuring activities conducted by other companies that
may be deemed to be controlled by Savia.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Company (filed as an exhibit to the
Company's Registration Statement on Form S-4 (No. 333-09975) and
incorporated herein by reference).
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company effective September 26, 1996 (filed as an exhibit to the
Company's quarterly report on Form 10-Q for the quarterly period ended
June 30, 1996 and incorporated herein by reference).
3.3 Certificate of Amendment to the Certificate of Incorporation of the
Company effective April 28, 1999 (filed as an exhibit to the Company's
Quarterly report on Form 10-Q for the quarterly period ended March 31,
1999 and incorporated herein by reference).
3.4* Bylaws of the Company.
4.1* Note Acquisition Agreement dated as of March 22, 1999 among Savia, S.A.
de C.V., the Company, the Holders referred to therein, Morgan Guaranty
Trust Company of New York, as Administrative Agent and Documentation
Agent, Bankers Trust Company, as Paying Agent and Registrar, and
Citibank, N.A., as Collateral Agent.
27.1 Financial Data Schedule
</TABLE>
----------
* Filed as an exhibit to the Company's annual report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by reference.
(b) Reports on Form 8-K
None.
20
<PAGE>
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 thereunto duly authorized.
BIONOVA HOLDING CORPORATION
Date: November 12, 2000 By: /s/ ARTHUR H. FINNEL
----------------------------
Arthur H. Finnel,
Executive Vice President,
Treasurer and Chief Financial Officer
21
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Company (filed as an exhibit to
the Company's Registration Statement on Form S-4 (No. 333-09975) and
incorporated herein by reference).
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company effective September 26, 1996 (filed as an exhibit to the
Company's quarterly report on Form 10-Q for the quarterly period ended
June 30, 1996 and incorporated herein by reference).
3.3 Certificate of Amendment to the Certificate of Incorporation of the
Company effective April 28, 1999 (filed as an exhibit to the Company's
Quarterly report on Form 10-Q for the quarterly period ended March 31,
1999 and incorporated herein by reference).
3.4* Bylaws of the Company.
4.1* Note Acquisition Agreement dated as of March 22, 1999 among Savia,
S.A. de C.V., the Company, the Holders referred to therein, Morgan
Guaranty Trust Company of New York, as Administrative Agent and
Documentation Agent, Bankers Trust Company, as Paying Agent and
Registrar, and Citibank, N.A., as Collateral Agent.
27.1 Financial Data Schedule
</TABLE>
----------
* Filed as an exhibit to the Company's annual report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by reference.
22
