<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1999
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 000-26519
SEMINIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 36-0769130
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1905 LIRIO AVENUE, CALIFORNIA 93004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
805-647-1572
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
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 August 9, 1999, the Registrant had 13,750,000 registered shares of
Class A Common Stock, $0.01 par value per share, issued and outstanding, and
46,074,386 unregistered shares of Class B Common Stock, $0.01 par value per
share, issued and outstanding.
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<PAGE> 2
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and
September 30, 1998.......................................... 2
Consolidated Statements of Operations for the nine months
ended June 30, 1999 and 1998 and for the three months ended
June 30, 1999 and 1998...................................... 3
Consolidated Statements of Stockholders' Equity for the nine
months ended June 30, 1999.................................. 4
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 and 1998................................ 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations...................................
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Signature................................................... 19
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEMINIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents................................. $ 22,997 $ 28,895
Accounts receivable, less allowance for doubtful accounts
of $15,803, and $12,451, respectively................... 193,156 134,701
Inventories............................................... 263,093 245,319
Current maturities from Young Il Chemical Company note.... 7,000 7,000
Refundable income taxes................................... 9,616 4,376
Prepaid expenses and other current assets................. 5,077 5,024
-------- --------
Total current assets.................................... 500,939 425,315
Note receivable from Young Il Chemical Company.............. 28,612 28,612
Property, plant and equipment, net.......................... 211,909 189,255
Intangible assets, net...................................... 213,540 191,272
Other assets................................................ 27,672 27,735
-------- --------
$982,672 $862,189
======== ========
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
Current liabilities
Short-term borrowings..................................... $ 15,318 $ 6,819
Intercompany advance from Savia........................... 20,000 --
Current maturities of long-term debt...................... 11,154 19,825
Current maturities of convertible subordinated debt due
Savia................................................... -- 7,000
Accounts payable.......................................... 20,192 41,049
Accrued liabilities....................................... 76,838 78,525
-------- --------
Total current liabilities............................... 143,502 153,218
Long-term debt.............................................. 485,706 394,446
Convertible subordinated debt due Savia..................... -- 28,857
Deferred income taxes....................................... 35,145 34,850
Minority interest in subsidiaries........................... 16,829 16,981
-------- --------
Total liabilities....................................... 681,182 628,352
-------- --------
Commitments and contingencies
Mandatorily Redeemable Stock
Class A Redeemable Preferred Stock, $.01 par value; 25
shares authorized; 25 shares issued and outstanding..... 25,000 25,000
Class B Redeemable Preferred Stock, $.01 par value; 25
shares authorized; none issued and outstanding.......... -- --
Old Class B Redeemable Common Stock, $.01 par value; no
shares authorized as of June 30, 1999 and 6,772 shares
authorized as of September 30, 1998; no shares issued
and outstanding as of June 30, 1999 and 6,772 shares
issued and outstanding as of September 30, 1998......... -- 48,416
-------- --------
Total mandatorily redeemable stock...................... 25,000 73,416
-------- --------
Stockholders' Equity
Class C Preferred Stock, $.01 par value; 6 shares
authorized as of June 30, 1999 and no shares authorized
as of September 30, 1998; 3 shares issued and
outstanding as of June 30, 1999 and no shares issued and
outstanding as of September 30, 1998.................... 1 --
Class A Common Stock, $.01 par value; 91,000 shares
authorized; none issued and outstanding.................
Class B Common Stock, $.01 par value; 60,229 shares
authorized; 46,074 shares issued and outstanding as of
June 30, 1999 and 37,386 shares issued and outstanding
as of September 30, 1998................................ 461 374
Additional paid-in capital................................ 435,378 317,826
Accumulated deficit....................................... (153,826) (144,439)
Accumulated other comprehensive loss...................... (5,524) (13,340)
-------- --------
Total stockholders' equity.............................. 276,490 160,421
-------- --------
$982,672 $862,189
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1999 1998 1999 1998
-------- --------- -------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................................ $407,056 $ 315,156 $124,745 $92,817
Cost of goods sold....................................... 154,184 122,134 47,573 37,476
-------- --------- -------- -------
Gross profit........................................ 252,872 193,022 77,172 55,341
-------- --------- -------- -------
Operating expenses
Research and development expenses...................... 47,719 33,619 16,494 12,502
Selling, general and administrative expenses........... 149,155 110,245 49,042 40,279
Management fees paid to Savia.......................... -- 6,253 -- 1,831
Amortization of intangible assets...................... 20,417 9,137 6,760 3,022
-------- --------- -------- -------
Total operating expenses............................ 217,291 159,254 72,296 57,634
-------- --------- -------- -------
Income (loss) from operations............................ 35,581 33,768 4,876 (2,293)
-------- --------- -------- -------
Other income (expense)
Interest income........................................ 4,104 376 1,524 51
Interest expense....................................... (39,018) (17,204) (12,754) (7,597)
Foreign currency gain (loss)........................... 946 (367) (719) (154)
Minority interest...................................... (1,045) (40) 499 (4)
Other, net............................................. (163) 357 120 303
-------- --------- -------- -------
(35,176) (16,878) (11,330) (7,401)
-------- --------- -------- -------
Income (loss) before income taxes and extraordinary
items.................................................. 405 16,890 (6,454) (9,694)
Income tax benefit (expense)............................. (952) (5,368) 1,821 3,904
-------- --------- -------- -------
Income (loss) before extraordinary items................. (547) 11,522 (4,633) (5,790)
-------- --------- -------- -------
Extraordinary items, net of tax of $2,435................ (3,973) -- (3,973) --
-------- --------- -------- -------
Net income (loss)........................................ (4,520) 11,522 (8,606) (5,790)
Preferred stock dividends................................ (2,644) (1,500) (1,306) (500)
Accretion of Old Class B Redeemable Common Stock......... (2,223) (3,163) (699) (677)
Excess of repurchase price over redemption value for
repurchase of Old Class B Redeemable Common Stock...... -- (134,289) -- --
-------- --------- -------- -------
Net loss available for common stockholders............... $ (9,387) $(127,430) $(10,611) $(6,967)
======== ========= ======== =======
Loss available for common stockholders per common share,
basic and diluted
Loss before extraordinary items........................ $ (0.14) $ (4.25) $ (0.17) $ (0.23)
Extraordinary items.................................... (0.10) -- (0.10) --
-------- --------- -------- -------
Net loss available for common stockholders............. $ (0.24) $ (4.25) $ (0.27) $ (0.23)
======== ========= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS C CLASS B ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL DEFICIT LOSS EQUITY
------ ------ ------ ------ ---------- ----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997...... -- -- 30,000 $ 1 $179,999 $ (11,072) $ (9,247) $ 159,681
---------
Comprehensive income
Net income..................... -- -- -- -- -- 6,762 -- 6,762
Translation adjustment......... -- -- -- -- -- -- (4,093) (4,093)
---------
2,669
Dividends on Class A
Redeemable Preferred Stock..... -- -- -- -- -- (2,000) -- (2,000)
Accretion of Old Class B
Redeemable Common Stock........ -- -- -- -- -- (3,840) -- (3,840)
Excess of repurchase price over
redemption value for repurchase
of Old Class B Redeemable
Common Stock................... -- -- -- -- -- (134,289) -- (134,289)
Increase in par value following
stock split.................... -- -- -- 299 (299) -- -- --
Issuance of shares............... -- -- 7,386 74 138,126 -- -- 138,200
-- ---- ------ ---- -------- --------- -------- ---------
BALANCE, SEPTEMBER 30, 1998...... -- -- 37,386 374 317,826 (144,439) (13,340) 160,421
---------
Comprehensive income
Net loss (Unaudited)........... -- -- -- -- -- (4,520) -- (4,520)
Translation adjustment
(Unaudited).................. -- -- -- -- -- -- 7,816 7,816
---------
3,296
Dividends on Class C
Preferred Stock (Unaudited).... -- -- -- -- 1,144 (1,144) -- --
Dividends on Class A Redeemable
Preferred Stock (Unaudited).... -- -- -- -- -- (1,500) -- (1,500)
Accretion of Old Class B
Redeemable
Common Stock (Unaudited)....... -- -- -- -- -- (2,223) -- (2,223)
Issuance of shares (Unaudited)... 3 $ 1 -- -- 29,999 -- -- 30,000
Conversion of subordinated debt
due Savia (Unaudited).......... -- -- 1,916 19 35,838 -- -- 35,857
Conversion of Old Class B
Redeemable Common Stock
(Unaudited).................... -- -- 6,772 68 50,571 -- -- 50,639
-- ---- ------ ---- -------- --------- -------- ---------
BALANCE, JUNE 30, 1999
(UNAUDITED).................... 3 $ 1 46,074 $461 $435,378 $(153,826) $ (5,524) $ 276,490
== ==== ====== ==== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 6
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (4,520) $ 11,522
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 34,747 21,091
Deferred income tax benefit............................ (2,464) (4,307)
Provision for minority interest in subsidiaries........ 1,045 40
Loss from extraordinary items, net of taxes............ 3,973 --
Other.................................................. 1,465 853
Changes in assets and liabilities
Accounts receivable.................................. (64,932) (29,579)
Inventories.......................................... (21,382) (28,753)
Prepaid expenses and other assets.................... (1,789) (14,810)
Current income taxes................................. (2,377) 12,466
Accounts payable..................................... (20,108) (31,079)
Other liabilities.................................... (3,478) 2,159
-------- ---------
Net cash used in operating activities.................. (79,820) (60,397)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed and intangible assets.................. (33,971) (44,792)
Proceeds from disposition of assets....................... 1,738 664
Agroceres acquisition, net of cash acquired............... (19,695) --
Exercise of Hungnong put option........................... (8,673) --
Other..................................................... (2,280) (682)
-------- ---------
Net cash used in investing activities.................. (62,881) (44,810)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt.......................... 79,432 287,733
Repurchase of Old Class B Redeemable Common Stock......... -- (211,824)
Net short-term borrowings (repayments).................... 8,975 (8,953)
Intercompany advance from Savia........................... 20,000 22,000
Preferred stock dividend.................................. (1,500) (1,500)
Issuance of Class C Preferred Stock....................... 30,000 --
-------- ---------
Net cash provided by financing activities.............. 136,907 87,456
-------- ---------
Effect of exchange rate changes on cash..................... (104) (124)
-------- ---------
Decrease in cash and cash equivalents....................... (5,898) (17,875)
Cash and cash equivalents, beginning of period.............. 28,895 30,271
-------- ---------
Cash and cash equivalents, end of period.................... $ 22,997 $ 12,396
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 7
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Seminis, Inc. (the "Company") is the largest developer, producer and
marketer of vegetable and fruit seeds in the world. The Company is a
majority-owned subsidiary of Savia, S.A. de C.V. ("Savia") and effectively began
operations when it purchased Asgrow Seed Company ("Asgrow") in December 1994.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its majority controlled and owned subsidiaries. Investments in
unconsolidated entities, representing ownership interests between 20% and 50%,
are accounted for using the equity method of accounting. All material
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to prior periods to conform to the
current quarter presentation.
Seminis generally operates on a thirteen week calendar closing on the
Friday closest to the natural calendar quarter. For convenience, all quarters
are described by their natural calendar dates.
The unaudited consolidated financial statements included herein reflect all
adjustments (consisting only of normal recurring accruals) that the Company
considers necessary for a fair presentation of the results of operations for the
interim periods covered and of the financial condition of the Company at the
date of the interim balance sheet. The Company's business is subject to seasonal
fluctuation and, therefore, the results of operations for periods less than one
year are not necessarily indicative of results which may be expected for any
other interim period or for the fiscal year as a whole.
Supplementary Cash Flow Information
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash paid for interest...................................... $42,995 $11,935
Cash paid (refunded) for income taxes....................... 5,793 (2,791)
Supplemental non-cash transactions
Issuance of preferred stock in payment of Class C
Preferred Stock dividends.............................. 1,144 --
Conversion of subordinated debt due Savia................. 35,857 --
Conversion of Old Class B Redeemable Common Stock......... 50,639 --
</TABLE>
Income (Loss) per Common Share
Income (loss) per common share has been computed pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share."
Basic income (loss) per common share is computed by dividing income (loss)
available to common stockholders by the average number of common shares
outstanding during each period. Income (loss) available to common stockholders
represents reported net income less preferred dividend requirements, accretion
of redemption value for redeemable common stock, and the excess of the
repurchase price paid over the redemption value of mandatorily redeemable common
stock. Diluted income (loss) per common share reflects the potential dilution
that could occur if dilutive securities and other contracts were exercised or
converted into common stock or resulted in the issuance of
6
<PAGE> 8
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock. The following table provides a reconciliation of income (loss)
before extraordinary items and sets forth the computation for basic and diluted
earnings per share (before extraordinary items):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1999 1998 1999 1998
------- --------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR FOR BASIC AND DILUTED:
Income (loss) before extraordinary items.......... $ (547) $ 11,522 $(4,633) $(5,790)
Preferred stock dividends......................... (2,644) (1,500) (1,306) (500)
Accretion of Old Class B Redeemable Common
Stock........................................... (2,223) (3,163) (699) (677)
Excess of repurchase price over redemption value
for repurchase of Old Class B Redeemable Common
Stock........................................... -- (134,289) -- --
------- --------- ------- -------
Loss available to common stockholders before
extraordinary items.......................... $(5,414) $(127,430) $(6,638) $(6,967)
======= ========= ======= =======
DENOMINATOR -- SHARES:
Weighted average common shares outstanding
(basic)......................................... 38,639 30,000 39,867 30,000
Add potential common shares:
Old Class B Redeemable Common Stock............. 6,583 10,545 6,207 6,772
Less antidilutive effect of potential common
shares.......................................... (6,583) (10,545) (6,207) (6,772)
------- --------- ------- -------
Weighted average common shares outstanding
(diluted).................................... 38,639 30,000 39,867 30,000
======= ========= ======= =======
LOSS PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS
Basic and diluted............................... $ (0.14) $ (4.25) $ (0.17) $ (0.23)
</TABLE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair market value. It also requires that gains or losses resulting from changes
in the values of those derivatives be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company is
required to adopt SFAS No. 133 for its fiscal year beginning October 1, 2000.
Management believes the adoption of SFAS No. 133 will not have a material impact
on the Company's consolidated financial position or results of operations.
NOTE 2 -- MERGERS AND ACQUISITIONS
Hungnong Put Option
The Hungnong minority shareholders have had the option to put all or a
portion of their interest in Hungnong to the Company at a price of 2 billion
South Korean won for each 1% of outstanding shares plus accrued interest which
accrues at 10% per annum from July 15, 1998. This option expires on July 15,
2001. On November 15, 1998, the Hungnong minority shareholders exercised their
put option for 5% of the outstanding shares of Hungnong. As a result, on
December 15, 1998, the Company paid $8,673 to increase its ownership in Hungnong
from 70% to 75%.
7
<PAGE> 9
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent Event
In July 1999, the Young II Chemical Company, which is owned by minority
shareholders of Hungnong, repaid the entire outstanding balance of its loan due
to Seminis of $35,612. Subsequent to the repayment, the Hungnong minority
shareholders exercised their put option for the remaining 25% of the outstanding
shares of Hungnong. As a result, Seminis is required to pay approximately
$48,000 to the Hungnong minority shareholders in August 1999.
Agroceres
On November 10, 1998 the Company purchased the assets, subject to certain
liabilities, of the vegetable division of Sementes Agroceres, S.A.
("Agroceres"), a Brazilian company, for approximately $19,695. Agroceres
produces and distributes vegetable seed throughout Brazil The acquisition was
financed through borrowings on the Company's revolving line of credit. Pro forma
results of operations have not been presented for the acquisition because the
effect of the acquisition was not material to the Company. The results of
operations of Agroceres are included in the Company's consolidated statement of
operations from the date of the acquisition and were not material to the
Company.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair market values. The fair value of assets
acquired was $18,129. The balance of the purchase price, $1,566, was recorded as
excess of cost over net assets acquired (goodwill) and is being amortized over
15 years on a straight-line basis.
The pro forma results of operations of the 5% Hungnong acquisition and the
Agroceres acquisition were not materially different than the historic results of
operations.
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Seed.............................................. $222,051 $209,928
Unharvested crop growing costs.................... 26,447 20,405
Supplies.......................................... 14,595 14,986
-------- --------
$263,093 $245,319
======== ========
</TABLE>
NOTE 4 -- LONG-TERM DEBT
On April 30, 1999 Seminis entered into a credit agreement (the "Current
Credit Agreement") with Bank of Montreal and Harris Trust and Savings Bank which
included a $445,000 secured term loan and a $30,000 secured revolving credit
facility. The Company borrowed $473,000 under the Current Credit Agreement to
repay a $10,000 bank demand note and $439,225 outstanding under Seminis' old
credit agreement. The remaining $23,775 of borrowings were for payment of loan
origination fees of $5,250 and working capital. The loan origination fees
relating to the Current Credit Agreement were capitalized and are amortized as
interest expense using the straight line method over the term of the agreement.
Unamortized loan fees of $6,408 relating to the old Credit Facility were charged
to operations as an extraordinary item of $3,973, net of tax.
The Company, at its option, may elect to pay interest on the Current Credit
Agreement borrowings based on either LIBOR plus defined margins of 4% through
June 30, 1999, 5% from July 1, 1999 through August 30, 1999 and 6% thereafter
until maturity on June 30, 2000, or the prime rate plus defined margins of 2.5%
through June 30, 1999, 3.5% from July 1, 1999 through August 30, 1999 and 4.5%
thereafter until maturity on
8
<PAGE> 10
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2000. The Company is required to pay a commitment fee of 0.5% on the
unused portion of the revolving line of credit.
Under the Current Credit Agreement the Company is required to apply the net
proceeds of debt or equity offerings to repay borrowings outstanding. The
Company is required to meet a minimum interest coverage ratio and a minimum net
worth test. The Current Credit Agreement also places limits on dividends,
foreign debt, leasing, capital expenditures, transactions with affiliates and
acquisitions.
See Note 8 for subsequent events relating to the Current Credit Agreement.
NOTE 5 -- CAPITAL STOCK
Class C Preferred Stock
The Company is authorized to issue up to 6 shares of its Class C Preferred
Stock. In December 1998, Savia made an equity investment in Seminis of $10,000
in exchange for 1 share of Class C Preferred Stock to finance the purchase of
shares of Hungnong which Seminis was obligated to purchase from the minority
shareholders of Hungnong in connection with the acquisition of Hungnong, and to
provide working capital. In March 1999, Savia made an additional equity
investment in Seminis of $20,000 in exchange for 2 shares of Class C Preferred
Stock to finance working capital requirements.
Shares of Class C Preferred Stock have no voting rights and are redeemable
at the option of the Company. Dividends accrue cumulatively at the rate of 10%
per year and are payable quarterly. Dividends payable through January 2001 are
payable by issuing additional fully paid and non-assessable shares of Class C
Preferred Stock. As of June 30, 1999, dividends of $1,144 have been declared.
Subsequent Event
Each share of Class A Redeemable Preferred Stock was automatically
converted into one share of Class B Redeemable Preferred Stock upon the
completion of the initial public offering described in Note 8.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Contingencies
The Company has been named as a defendant in various lawsuits arising out
of alleged seedmen's errors and omissions. An accrual related to such claims has
been recorded in the financial statements. It is the opinion of management that
the ultimate resolution of these matters will not have a material adverse effect
on the Company's financial position or results of operations.
Historically, resolution of asserted claims has been in line with
management's expectations.
NOTE 7 -- RECAPITALIZATION
In January 1999, the Board of Directors of Seminis, Inc., an Illinois
corporation, authorized the reincorporation of the Company in Delaware. In
conjunction with the reincorporation the holders of certain securities agreed to
a plan for the recapitalization of the Company (the "Recapitalization") to occur
concurrently. The Recapitalization was effective June 18, 1999 and provided for
the exchange of shares of the Illinois corporation for shares of the Delaware
corporation as follows: (i) all preferred stock is to be exchanged for like
preferred stock; (ii) all 6,772 shares of Class B Redeemable Common Stock ("Old
Class B Redeemable Common Stock") were converted into one-half the number of
such shares of Class B Common Stock; (iii) all Class A Common Stock was
exchanged for one-half the number of such shares of Class B Common Stock; and
(iv) all options to purchase Class C Common Stock were exchanged for options to
purchase Class A Common Stock. Immediately following the Recapitalization, the
Company paid a 1-for-1
9
<PAGE> 11
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock dividend to all holders of Class B Common Stock. The June 30, 1999
consolidated financial statements reflect the Recapitalization.
NOTE 8 -- SUBSEQUENT EVENTS
In July 1999, the Company completed an initial public offering of 13,750
shares of Class A Common Stock at an initial offering price of $15.00 per share,
raising net proceeds of $191,700. The Company also entered into a new credit
agreement with Bank of Montreal and Harris Trust and Savings Bank providing for
a $350,000 credit facility. The Company used the net proceeds of the offering
and funds available under the new credit facility to pay loan origination fees,
repay indebtedness under the Current Credit Agreement and $7,700 of the $20,000
intercompany advance from Savia. The remaining $12,300 of the intercompany
advance was converted into 1.2 shares of Class C Preferred Stock.
The Company's new $350,000 credit facility consists of a term loan in the
amount of $200,000 and a revolving line of credit in the amount of $150,000. The
term loan requires semi-annual payments, with the remaining balance due on June
30, 2004. The revolving line of credit will mature on June 30, 2004. The new
credit agreement will bear interest in accordance with a grid pricing formula
based on the achievement of a specific debt ratio, with such interest ranging
from the prime rate plus 0.5%, or, at the option of the Company, ranging from
LIBOR plus 1.25% to LIBOR plus 2.0%. The Company will also pay commitment fees
quarterly on the unused amount of the revolver.
The new credit agreement contains a number of financial covenants,
including net worth and indebtedness tests, and limitations on its ability to
make acquisitions, transfer or sell assets, create liens, pay dividends, enter
into transactions with its affiliates or enter into a merger, consolidation or
sale of substantially all of its assets. The new credit agreement will be
secured by the intellectual property of Seminis and 100% of the shares of
Seminis Vegetable Seeds, Inc. and shares of some other international
subsidiaries. The new credit agreement provides for events of default typical of
facilities of its type, as well as an event of default if Pulsar Internacional,
S.A. de C.V., together with its affiliates, which includes Savia, fails to hold
a majority of the board of directors or direct management of the Company or
control at least 51% of the voting rights of the Company.
The unamortized loan fees of $4,500 relating to the Current Credit
Agreement were charged to results of operations as an extraordinary item of
$2,790, net of tax, upon repayment of the Current Credit Agreement using the net
proceeds of the offering and borrowings under the new credit agreement.
The following unaudited pro forma condensed, consolidated balance sheet
assumes the initial public offering was effective June 30, 1999. Pro forma
adjustments are made to reflect the use of proceeds from the offering.
10
<PAGE> 12
SEMINIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
HISTORICAL OFFERING OFFERING
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS:
Current assets.......................................... $ 500,939 $ -- $ 500,939
Other assets............................................ 481,733 710 482,443
--------- --------- ---------
Total assets....................................... $ 982,672 $ 710 $ 983,382
========= ========= =========
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND
STOCKHOLDERS' EQUITY:
Current liabilities..................................... $ 143,502 $ (15,000) $ 128,502
Other liabilities....................................... 537,680 (185,500) 352,180
--------- --------- ---------
Total liabilities.................................. 681,182 (200,500) 480,682
--------- --------- ---------
Commitments and contingencies
Mandatorily Redeemable Stock
Class A Redeemable Preferred Stock, $.01 par value; 25
shares authorized; 25 shares issued and outstanding
as of June 30, 1999 and no shares issued and
outstanding on a pro forma basis................... 25,000 (25,000) --
Class B Redeemable Preferred Stock, $.01 par value; 25
shares authorized; no shares issued and outstanding
as of June 30, 1999 and 25 shares issued and
outstanding on a pro forma basis................... -- 25,000 25,000
Old Class B Redeemable Common Stock, $.01 par value;
no shares authorized as of June 30, 1999 and on a
pro forma basis; no shares issued and outstanding
as of June 30, 1999 and on a pro forma basis....... -- -- --
--------- --------- ---------
Total mandatorily redeemable stock................. 25,000 -- 25,000
--------- --------- ---------
Stockholders' Equity
Class C Preferred Stock, $.01 par value; 6 shares
authorized as of June 30, 1999 and on a pro forma
basis; 3 shares issued and outstanding as of June
30, 1999 and 4 shares issued and outstanding on a
pro forma basis.................................... 1 -- 1
Class A Common Stock, $.01 par value; 91,000 shares
authorized; no shares issued and outstanding as of
June 30, 1999 and 13,750 shares issued and
outstanding on a pro forma basis................... -- 138 138
Class B Common Stock, $.01 par value; 60,229 shares
authorized; 46,074 shares issued and outstanding as
of June 30, 1999 and on a pro forma basis.......... 461 -- 461
Additional paid-in capital............................ 435,378 203,862 639,240
Accumulated deficit................................... (153,826) (2,790) (156,616)
Accumulated other comprehensive loss.................. (5,524) -- (5,524)
--------- --------- ---------
Total stockholders' equity......................... 276,490 201,210 477,700
--------- --------- ---------
$ 982,672 $ 710 $ 983,382
========= ========= =========
</TABLE>
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto of the Company included
elsewhere herein. The following discussion and analysis contains certain
"forward-looking statements" which are subject to certain risks, uncertainties
and contingencies which could cause Seminis' actual business, results of
operations or financial condition to differ materially from those expressed in,
or implied by, such statements.
OVERVIEW
Seminis is the largest developer, producer and marketer of vegetable and
fruit seeds in the world. Seminis uses seeds as the delivery vehicle for its
innovative agricultural technology. Seminis develops seeds designed to do one or
more of the following: reduce the need for chemicals, increase crop yield,
reduce spoilage, offer longer shelf life and create tastier foods with better
nutritional content. As a result, Seminis is creating the foundation to obtain
premium pricing at all steps of the vegetable and fruit production and
distribution chain: growers, distributors, processors, retailers and
end-consumers.
In order to achieve its position as the premier vegetable and fruit seed
company, Seminis has completed nine acquisitions since its formation in 1994 and
has incurred significant expenses related to development of its infrastructure,
including its human resource capability, information systems and brand marketing
teams, and its research and development capability. Seminis expenses its
investments in research and development and in the creation of its worldwide
sales capability. The comparability of Seminis' results of operations from year
to year has also been affected by the impact of acquisition accounting under
purchase accounting principles, write-offs of in-process research and
development projects acquired through acquisitions, interest expense
attributable to acquisition financings, exposure to foreign currency
fluctuations and charges for management fees paid to Savia.
RESULTS OF OPERATIONS
The table below sets forth Seminis' results of operations data expressed as
a percentage of net sales.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Gross profit................................................ 62.1 61.2 61.9 59.6
Research and development expenses........................... 11.7 10.7 13.2 13.5
Selling, general and administrative expenses................ 36.6 35.0 39.3 43.4
Management fees paid to Savia............................... -- 2.0 -- 2.0
Amortization of intangible assets........................... 5.0 2.9 5.4 3.3
----- ----- ----- -----
Income (loss) from operations............................... 8.8 10.6 4.0 (2.6)
Interest expense, net....................................... (8.6) (5.3) (9.0) (8.1)
Other non-operating income (loss), net...................... (0.1) -- (0.1) 0.2
----- ----- ----- -----
Income (loss) before income taxes and extraordinary items... 0.1 5.3 (5.1) (10.5)
Income tax benefit (expense)................................ (0.2) (1.7) 1.5 4.2
----- ----- ----- -----
Income (loss) before extraordinary items.................... (0.1) 3.6 (3.6) (6.3)
Extraordinary items, net of tax............................. (1.0) -- (3.2) --
----- ----- ----- -----
Net income (loss)........................................... (1.1)% 3.6% (6.8)% (6.3)%
===== ===== ===== =====
</TABLE>
12
<PAGE> 14
NINE MONTHS ENDED JUNE 30, 1999 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1998
Net Sales
Net sales increased 29.2% to $407.1 million for the nine months ended June
30, 1999 from $315.2 million for the nine months ended June 30, 1998. Excluding
the effect of acquisitions, net sales increased 12.7% or $40.1 million. This
increase was primarily due to increased sales in North America and Southern
Europe of both the Petoseed and the Asgrow brand. Since July 1998, Seminis has
made several acquisitions including two South Korean companies, Hungnong Seed
Co., Ltd. and Choong Ang Seed Co., Ltd., the vegetable division of Sementes
Agroceres S.A. (a Brazilian company), and the distribution rights to LSL Plant
Science LLC tomato varieties. These newly acquired businesses have generated
sales of $51.8 million in the first nine months of fiscal 1999. Seminis has also
increased sales for each of its three major brands: Petoseed, Asgrow and Royal
Sluis. The Petoseed brand has shown the strongest increase due to improved sales
in several product classes, especially tomato seeds.
Gross Profit
Gross profit increased 31.0% to $252.9 million for the nine months ended
June 30, 1999 from $193.0 million for the nine months ended June 30, 1998. Gross
margin increased to 62.1% for the nine months ended June 30, 1999 from 61.2% for
the nine months ended June 30, 1998. This increase in gross margin was primarily
due to an increase in sales of higher margin, long shelf life tomato seeds and a
decrease in sales of lower margin varieties to food processors in North America.
Research and Development Expenses
Research and development expenses increased 41.9% to $47.7 million for the
nine months ended June 30, 1999 from $33.6 million for the nine months ended
June 30, 1998. This increase was primarily due to $4.4 million of expenses
incurred by the newly acquired South Korean subsidiaries and a special $4.3
million charge related to Seminis' research incentive program. The special
research charge consists of two installments of a three installment special
research incentive program. This incentive program is a part of Seminis'
continuing efforts to attract and retain industry leading breeders and research
personnel.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased 35.3% to $149.2
million for the nine months ended June 30, 1999 from $110.2 million for the nine
months ended June 30, 1998. Selling expenses increased primarily due to
acquisitions, establishment of a worldwide marketing force, the implementation
of a multi-brand sales strategy in the Middle East, and the addition of new
direct sales programs in both South America and Eastern Europe. General and
administrative expenses increased due to the expensing of costs of the SAP/
R3(R) management information system, acquisitions, and increased investment in
Seminis' management information systems infrastructure.
Management Fees Paid to Savia
The management fee paid to Savia was $6.3 million for the nine months ended
June 30, 1998. This fee was discontinued effective October 1, 1998.
Amortization of Intangible Assets
Amortization of intangible assets increased 123.5% to $20.4 million for the
nine months ended June 30, 1999 from $9.1 million for the nine months ended June
30, 1998. This increase was due to amortization of goodwill and intangible
assets relating to the acquisition of Hungnong, Choong Ang and LSL PlantScience
in July 1998 and the acquisition of the vegetable division of Agroceres in
November 1998.
13
<PAGE> 15
Interest Expense, Net
Interest expense, net, increased 107.5% to $34.9 million for the nine
months ended June 30, 1999 from $16.8 million for the nine months ended June 30,
1998. This increase was primarily due to increased borrowings used to finance
the repurchase of shares of common stock in January 1998 for $211.8 million, to
finance acquisitions and to support working capital requirements, and due to
higher interest rates under Seminis' current credit facility.
Other Non-Operating Income (Loss), Net
Seminis had other non-operating loss, net, of $0.3 million for the nine
months ended June 30, 1999 as compared to other non-operating loss, net, of $0.1
million for the nine months ended June 30, 1998. Other non-operating loss, net,
for the nine months ended June 30, 1999 includes a minority interest provision
of $1.0 million and a foreign currency gain of $0.9 million. The minority
interest provision is primarily due to net income of Hungnong and the related
25% minority interest and the foreign currency gain is primarily due to a gain
on an intercompany loan to Hungnong.
Income Tax Benefit (Expense)
Income tax expense decreased 82.3% to $1.0 million for the nine months
ended June 30, 1999 from $5.4 million for the nine months ended June 30, 1998.
Seminis' effective tax rate for the nine months ended June 30, 1999 increased
compared to the effective tax rate for the nine months ended June 30, 1998. The
increase in the effective tax rate was primarily due to increased minority
interest provision and goodwill amortization, which are not deductible for tax
purposes.
Net Income (Loss) before Extraordinary Items
Net loss before extraordinary items was $0.5 million for the nine months
ended June 30, 1999 as compared to net income before extraordinary item of $11.5
million for the nine months ended June 30, 1998. This change was primarily due
to increased operating expenses, including a significant increase in the
amortization of intangible assets, and interest expense, net.
Extraordinary Items
The extraordinary item for the nine months ended June 30, 1999 is the
write-off of unamortized loan fees of $4.0 million, net of tax. The fees were
written-off in connection with Seminis' borrowing of $473.0 million under the
current credit agreement and the repayment of the old credit agreement.
Net Income (Loss)
Net loss was $4.5 million for the nine months ended June 30, 1999 as
compared to net income of $11.5 million for the nine months ended June 30, 1998.
This change was due to previously described increases in operating expenses and
interest expense, net, and an extraordinary charge, net of tax, of $4.0 million
for the write-off of unamortized loan fees.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Net Sales
Net sales increased 34.4% to $124.7 million for the three months ended June
30, 1999 from $92.8 million for the three months ended June 30, 1998. Excluding
the effect of acquisitions, net sales increased 21.7% or $20.1 million. This
increase was primarily due to increased sales in North America and Southern
Europe of both the Petoseed and the Asgrow brand. Since July 1998, Seminis has
made several acquisitions including two South Korean companies, Hungnong Seed
Co., Ltd. and Choong Ang Seed Co., Ltd., the vegetable division of Sementes
Agroceres S.A. (a Brazilian company), and the distribution right to LSL Plant
Science LLC tomato varieties. These newly acquired businesses have generated
sales of $11.8 million in the first three months of fiscal 1999. Seminis has
also increased sales for each of its three major brands: Petoseed, Asgrow
14
<PAGE> 16
and Royal Sluis. The Petoseed brand has shown the strongest increase due to
improved sales in several product classes, especially tomato seeds.
Gross Profit
Gross profit increased 39.4% to $77.2 million for the three months ended
June 30, 1999 from $55.3 million for the three months ended June 30, 1998. Gross
margin increased to 61.9% for the three months ended June 30, 1999 from 59.6%
for the three months ended June 30, 1998. This increase in gross margin was
partially due to an increase in sales of higher margin, long shelf life tomato
seeds and a decrease in sales of lower margin varieties to food processors in
North America. Seminis' gross margin was also higher because the provision for
obsolete inventory was less in the third quarter of fiscal 1999 than it was in
the third quarter of fiscal 1998.
Research and Development Expenses
Research and development expenses increased 31.9% to $16.5 million for the
three months ended June 30, 1999 from $12.5 million for the three months ended
June 30, 1998. This increase was primarily due to $1.2 million of expenses
incurred by the newly acquired South Korean subsidiaries and a special $2.2
million charge related to Seminis' research incentive program. The special
research charge was the second installment of a twelve month, three installment
special research incentive program. This incentive program is a part of Seminis'
continuing efforts to attract and retain industry leading breeders and research
personnel.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased 21.8% to $49.0
million for the three months ended June 30, 1999 from $40.3 million for the
three months ended June 30, 1998. Selling expenses increased primarily due to
acquisitions, establishment of a worldwide marketing force, the implementation
of a multi-brand sales strategy in the Middle East, and the addition of new
direct sales programs in both South America and Eastern Europe. General and
administrative expenses increased due to the expensing of costs of the SAP/R3(R)
management information system, acquisitions, and increased investment in
Seminis' management information systems infrastructure.
Management Fees Paid to Savia
The management fee paid to Savia was $1.8 million for the three months
ended June 30, 1998. This fee was discontinued effective October 1, 1998.
Amortization of Intangible Assets
Amortization of intangible assets increased 123.7% to $6.8 million for the
three months ended June 30, 1999 from $3.0 million for the three months ended
June 30, 1998. This increase was due to amortization of goodwill and intangible
assets relating to the acquisition of Hungnong, Choong Ang and LSL PlantScience
in July 1998 and the acquisition of the vegetable division of Agroceres in
November 1998.
Interest Expense, Net
Interest expense, net, increased 48.8% to $11.2 million for the three
months ended June 30, 1999 from $7.5 million for the three months ended June 30,
1998. This increase was primarily due to increased borrowings used to finance
acquisitions and to support working capital requirements, and due to higher
interest rates under Seminis' current credit facility.
Other Non-Operating Income (Loss), Net
Seminis had other non-operating loss, net, of $0.1 million for the three
months ended June 30, 1999 as compared to other non-operating income, net, of
$0.1 million for the three months ended June 30, 1998. Other non-operating loss,
net, for the three months ended June 30, 1999 includes a minority interest
benefit of $0.5
15
<PAGE> 17
million and a foreign currency loss of $0.7 million. The minority interest
benefit is primarily due to a quarterly net loss of Hungnong and the related 25%
minority interest and the foreign currency loss is primarily due to a loss on an
unhedged U.S. dollar denominated debt balance held by a European subsidiary.
Income Tax Benefit (Expense)
Income tax benefit decreased 53.4% to $1.8 million for the three months
ended June 30, 1999 from $3.9 million for the three months ended June 30, 1998.
Seminis' effective tax benefit rate was 28.2% for the three months ended June
30, 1999 compared to 40.3% for the three months ended June 30, 1998. The
decrease in the effective tax benefit rate was primarily due to increased
goodwill amortization, which is not deductible for tax purposes.
Net Income (Loss) before Extraordinary Items
Net loss before extraordinary items decreased to $4.6 million for the three
months ended June 30, 1999 from a net loss of $5.8 million for the three months
ended June 30, 1998. This decrease in net loss before extraordinary item was
primarily due to increased gross profit which more than offset the increase in
operating expenses and interest expense, net.
Extraordinary Items
The extraordinary item for the three months ended June 30, 1999 is the
write-off of unamortized loan fees of $4.0 million, net of tax. The fees were
written-off in connection with Seminis' borrowing of $473.0 million under the
current credit agreement and the repayment of the old credit agreement.
Net Loss
Net loss increased to $8.6 million for the three months ended June 30, 1999
as compared to net loss of $5.8 million for the three months ended June 30,
1998. This change was primarily due to an extraordinary charge, net of tax, of
$4.0 million for the write-off of unamortized loan fees.
Liquidity and Capital Resources
Seminis has historically relied on commercial bank borrowings to finance
its operations and internal infrastructure, on commercial bank borrowings and
equity investments by its stockholders to finance its acquisition and internal
investment program and loans from Savia to finance working capital requirements.
Net cash used in operating activities increased to $79.8 million in the
first nine months of fiscal 1999 from $60.4 million for the comparable period in
fiscal 1998 mainly to support increased working capital levels and the costs
associated with Seminis' increased investment in its operational infrastructure.
Capital expenditures increased to $30.5 million for the nine months ended June
30, 1999 from $22.5 million for the same period in fiscal 1998. The increase was
primarily due to increased investment in Seminis' new office and operating
facility.
Seminis has budgeted capital expenditures for fiscal 1999 of approximately
$50.0 million, including $16.0 million for a new office and operating facility
in Oxnard, California, and $11.0 million for investments in research and
development facilities equipment. Although not part of its capital budget,
Seminis paid $19.7 million for the November 1998 Agroceres acquisition and $8.7
million for the December 1998 purchase of 5% of the shares of Hungnong.
In December 1998, Savia made an equity investment in Seminis of $10.0
million in exchange for 1,000 shares of Class C Preferred Stock to finance the
purchase of shares of Hungnong which Seminis was obligated to purchase from the
minority shareholders of Hungnong in connection with the acquisition of
Hungnong. In March 1999, Savia made an additional equity investment of $20.0
million in exchange for 2,000 shares of Class C Preferred Stock to finance
working capital requirements.
16
<PAGE> 18
Seminis borrowed an additional $20.0 million from Savia in January 1999 as
an intercompany advance. The intercompany advance was used to finance working
capital requirements. Seminis entered into its current credit agreement on April
30, 1999, which includes a $445.0 million term loan and a $30.0 million
revolving credit facility. The proceeds of the current credit agreement were
used to repay the old credit agreement, to repay a $10.0 million bank demand
note, to pay loan origination fees and to finance working capital requirements.
Seminis' total indebtedness as of June 30, 1999 was $532.2 million, of
which $473.0 million was borrowings under the current credit agreement, $20.0
million was the intercompany advance from Savia, $18.2 million was borrowings by
the South Korean subsidiaries and $21.0 million was borrowings primarily by
other foreign subsidiaries.
In July 1999, Seminis completed an initial public offering of 13,750,000
shares of Class A Common Stock at an initial offering price of $15.00 per share,
raising net proceeds of $191.7 million. Seminis also entered into a new credit
agreement with Bank of Montreal and Harris Trust and Savings Bank providing for
a $350.0 million credit facility, consisting of a term loan in the amount of
$200.0 million and a revolving line of credit in the amount of $150.0 million.
Seminis believes that the cash proceeds from the offering, together with
existing cash balances and available borrowings under the new credit agreement,
will be sufficient to meet anticipated cash requirements for the foreseeable
future based on Seminis' current level of operations. There can be no assurance
that additional capital beyond the amounts currently forecasted by Seminis will
not be required or that any such required additional capital will be available
on reasonable terms, if at all, at such time as required by Seminis.
Impact of Year 2000 Issue
The Year 2000 issue involves the potential for system and processing
failures of date-related information resulting from computer-controlled systems
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, an inability to process transactions, send invoices or engage in similar
normal business activities.
Seminis is currently installing a new corporate-wide management information
system to coordinate all aspects of sales, marketing, distribution, production
and finance, which is year 2000 compliant. Seminis is focusing its effort for
Year 2000 compliance on the verification of existing systems. Seminis' business
applications will be compliant by November 1999 in its two main facilities in
the United States and The Netherlands. Seminis' remaining subsidiaries will be
Year 2000 compliant by November 1999, with its worldwide telecommunications
systems and its office software also compliant by November 1999. Seminis'
computer hardware, such as servers for business applications, are also currently
year 2000 compliant in the United States. Seminis will not be required to make
any major equipment upgrades or system replacements in its compliance effort.
Seminis expects that costs to implement new software as well as to become
Year 2000 compliant will be approximately $28.0 million upon completion, of
which approximately $23.0 million has been spent as of June 30, 1999.
Seminis' most critical vendors are growers who produce seed, often located
in developing countries. Such vendors are not highly reliant on information
technology and therefore will only be minimally affected by the Year 2000 issue.
The vendors are able to accept contracts, produce, harvest and ship seeds
without the use of information systems. If a few growers in developed countries
are unable to produce seed, production will shift to unaffected growers,
resulting in only limited shortages. In the case of our non-seed vendors,
supplies can be substituted with other products if necessary. For example,
although Seminis uses cans to package products, they can be replaced with pouch
packaging if needed without affecting Seminis' customers.
If Year 2000 problems arise in chips that are embedded in Seminis'
processing equipment, the equipment can be disconnected from automatic control
and run manually. In this event, the impact on Seminis'
17
<PAGE> 19
operations would be minor at most. If some of the subsidiaries cannot use their
information systems, invoicing and inventory management can be done manually.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Seminis is exposed to market risk, including changes in interest rates and
currency exchange rates. Seminis' exposure to foreign currency fluctuations is
primarily foreign currency gains or losses that occur from intercompany loans
between Seminis and its foreign subsidiaries. Seminis' results of operations and
cash flows can also be impacted by exchange rate fluctuations.
Market risk exposures exist with respect to the settlement of foreign
currency transactions during the year because currency fluctuation cannot be
predicted with certainty. Seminis seeks to mitigate its exposure to market risk
by monitoring its currency exchange exposure for the year and partially or fully
hedging such exposure. Seminis does not trade in financial instruments for
speculative purposes.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time as a defendant in various
lawsuits arising in the normal course of business. Seminis believes that no
current claims, individually or in the aggregate, will have a material adverse
effect on Seminis' business, results of operations or financial condition.
Since our prospectus dated June 29, 1999, there have been no material
changes in legal proceedings discussed in such prospectus.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on Form S-1 (Registration No.
333-72141) was declared effective June 25, 1999 by the Securities and Exchange
Commission. The managing underwriters of the Class A Common Stock offering
commencing June 30, 1999 were Goldman, Sachs & Co., J.P. Morgan & Co., ING
Baring Furman Selz LLC, Morgan Stanley Dean Witter, Salomon Smith Barney, and
Vectormex Inc. The Company registered and sold 13,750,000 shares at an aggregate
price of $206,250,000. The offering has since terminated. The total amount of
expenses incurred by the Company in connection with the offering were
$14,550,000, which is comprised of $11,962,500 for underwriting discounts and
commissions and $2,587,500 of other expenses. Included in the expenses is an
advisory fee of $500,000 paid to Greenhill & Co., LLC, whose Managing Director,
Timothy M. George, is also a director of the Company. The resultant net offering
proceeds were $191,700,000 and were received by the Company on July 5, 1999. The
Company used all proceeds to repay indebtedness under its Current Credit
Agreement.
18
<PAGE> 20
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.
Date: August 9, 1999 SEMINIS, INC.
/s/ ALEJANDRO RODRIGUEZ GRAUE
--------------------------------------
Alejandro Rodriguez Graue
President
(Principal Executive Officer)
/s/ OCTAVIO HERNANDEZ
--------------------------------------
Octavio Hernandez
Chief Financial Officer
(Principal Financial Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 22,997,000
<SECURITIES> 0
<RECEIVABLES> 208,959,000
<ALLOWANCES> 15,803,000
<INVENTORY> 263,093,000
<CURRENT-ASSETS> 500,939,000
<PP&E> 255,207,000
<DEPRECIATION> 43,298,000
<TOTAL-ASSETS> 982,672,000
<CURRENT-LIABILITIES> 143,502,000
<BONDS> 0
25,000,000
1,000
<COMMON> 461,000
<OTHER-SE> 276,028,000
<TOTAL-LIABILITY-AND-EQUITY> 982,672,000
<SALES> 404,283,000
<TOTAL-REVENUES> 407,056,000
<CGS> 154,184,000
<TOTAL-COSTS> 154,184,000
<OTHER-EXPENSES> 217,291,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,018,000
<INCOME-PRETAX> 405,000
<INCOME-TAX> 952,000
<INCOME-CONTINUING> (547,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,973,000)
<CHANGES> 0
<NET-INCOME> (4,520,000)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
