<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 THE QUARTERLY PERIOD ENDED MARCH 31, 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 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>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 805-647-1572
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 May 9, 2000, the Registrant had 13,975,764 registered shares of Class
A Common Stock, $0.01 par value per share, issued and outstanding, and
45,848,622 unregistered shares of Class B Common Stock, $0.01 par value per
share, issued and outstanding.
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<PAGE> 2
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
September 30, 1999.......................................... 3
Consolidated Statements of Operations for the Three and the
Six Months Ended March 31, 2000 and 1999.................... 4
Consolidated Statements of Stockholders' Equity for the Six
Months Ended March 31, 2000................................. 5
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 2000 and 1999............................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures.................................................. 15
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEMINIS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS:
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 8,689 $ 19,068
Accounts receivable, net.................................. 225,156 171,283
Inventories............................................... 322,205 301,744
Refundable income taxes................................... -- 4,144
Prepaid expenses and other current assets................. 5,745 3,582
---------- ---------
Total current assets............................... 561,795 499,821
Property, plant and equipment, net.......................... 237,717 226,635
Intangible assets, net...................................... 246,844 242,275
Other assets................................................ 16,529 24,631
---------- ---------
$1,062,885 $ 993,362
========== =========
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
Current liabilities
Short-term borrowings..................................... $ 27,283 $ 6,591
Current maturities of long-term debt...................... 24,194 20,563
Accounts payable.......................................... 79,081 54,681
Accrued liabilities....................................... 67,965 68,811
---------- ---------
Total current liabilities.......................... 198,523 150,646
Long-term debt.............................................. 336,841 315,424
Deferred income taxes....................................... 22,608 30,453
Minority interest in subsidiaries........................... 910 1,124
---------- ---------
Total liabilities.................................. 558,882 497,647
---------- ---------
Commitments and contingencies
Mandatorily redeemable stock
Class B Redeemable Preferred Stock, $.01 par value; 25
shares authorized as of March 31, 2000 and September 30,
1999; 25 shares issued and outstanding as of March 31,
2000 and September 30, 1999............................. 25,000 25,000
---------- ---------
Total mandatorily redeemable stock................. 25,000 25,000
---------- ---------
Stockholders' equity
Class C Preferred Stock, $.01 par value; 6 shares
authorized as of March 31, 2000 and September 30, 1999;
5 and 4 shares issued and outstanding as of March 31,
2000 and September 30, 1999, respectively............... 1 1
Class A Common Stock, $.01 par value; 91,000 shares
authorized as of March 31, 2000 and September 30, 1999;
13,976 and 13,750 shares issued and outstanding as of
March 31, 2000 and September 30, 1999, respectively..... 140 138
Class B Common Stock, $.01 par value; 60,229 shares
authorized as of March 31, 2000 and September 30, 1999;
45,848 and 46,074 shares issued and outstanding as of
March 31, 2000 and September 30, 1999, respectively..... 459 461
Additional paid-in capital................................ 642,651 640,357
Accumulated deficit....................................... (158,252) (155,299)
Accumulated other comprehensive loss...................... (5,996) (14,943)
---------- ---------
Total stockholders' equity......................... 479,003 470,715
---------- ---------
$1,062,885 $ 993,362
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- ------------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $186,604 $197,450 $267,790 $282,311
Cost of goods sold........................ 74,741 74,760 105,591 106,611
-------- -------- -------- --------
Gross profit............................ 111,863 122,690 162,199 175,700
-------- -------- -------- --------
Operating expenses
Research and development expenses....... 13,468 17,027 29,222 31,225
Selling, general and administrative
expenses............................. 52,010 50,141 101,422 100,113
Amortization of intangible assets....... 7,565 6,925 14,991 13,657
-------- -------- -------- --------
Total operating expenses........ 73,043 74,093 145,635 144,995
-------- -------- -------- --------
Income from operations.................... 38,820 48,597 16,564 30,705
-------- -------- -------- --------
Other income (expense)
Interest income......................... 558 1,389 1,282 2,580
Interest expense........................ (7,633) (14,405) (15,056) (26,264)
Foreign currency gain (loss)............ (3,308) (702) (2,725) 1,665
Other, net.............................. 473 (1,559) 763 (1,827)
-------- -------- -------- --------
(9,910) (15,277) (15,736) (23,846)
Income before income taxes................ 28,910 33,320 828 6,859
-------- -------- -------- --------
Income tax expense........................ (9,502) (10,835) (487) (2,773)
-------- -------- -------- --------
Net income................................ 19,408 22,485 341 4,086
Preferred stock dividends................. (1,655) (838) (3,294) (1,338)
Accretion of Old Class B Redeemable Common
Stock................................... -- (762) -- (1,524)
-------- -------- -------- --------
Net income (loss) available for common
stockholders (basic).................... $ 17,753 $ 20,885 $ (2,953) $ 1,224
Add Back Accretion of Old Class B
Redeemable Common Stock................. -- 762 -- --
-------- -------- -------- --------
Net income (loss) available for common
stockholders (diluted).................. $ 17,753 $ 21,647 $ (2,953) $ 1,224
======== ======== ======== ========
Net income (loss) available for common
stockholders per common share:
Basic..................................... $ .30 $ .54 $ (.05) $ .03
Diluted................................... .30 .48 (.05) .03
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CLASS C CLASS A CLASS B ACCUMULATED
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL OTHER
--------------- --------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL DEFICIT LOSS
------ ------ ------ ------ ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1999...... 4 $1 13,750 $138 46,074 $461 $640,357 $(155,299) $(14,943)
Comprehensive income
Net income (Unaudited)......... -- -- -- -- -- -- -- 341 --
Translation adjustment
(Unaudited).................. -- -- -- -- -- -- -- -- 8,947
Conversion of shares
(Unaudited).................... 226 2 (226) (2)
Dividends on Redeemable Preferred
Stock (Unaudited).............. -- -- -- -- -- -- -- (1,000) --
Dividends on Class C Preferred
Stock (Unaudited).............. 1 -- -- -- -- -- 2,294 (2,294) --
-- -- ------ ---- ------ ---- -------- --------- --------
BALANCE, MARCH 31, 2000
(UNAUDITED).................... 5 $1 13,976 $140 45,848 $459 $642,651 $(158,252) $ (5,996)
== == ====== ==== ====== ==== ======== ========= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, SEPTEMBER 30, 1999...... $470,715
--------
Comprehensive income
Net income (Unaudited)......... 341
Translation adjustment
(Unaudited).................. 8,947
--------
9,288
Conversion of shares
(Unaudited).................... --
Dividends on Redeemable Preferred
Stock (Unaudited).............. (1,000)
Dividends on Class C Preferred
Stock (Unaudited).............. --
--------
BALANCE, MARCH 31, 2000
(UNAUDITED).................... $479,003
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 341 $ 4,086
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 24,376 23,177
Deferred income tax benefit............................ (9,453) (1,722)
Other.................................................. 572 1,313
Changes in assets and liabilities:
Accounts receivable.................................. (59,855) (74,910)
Inventories.......................................... (25,704) (25,396)
Prepaid expenses and other assets.................... 6,162 1,059
Current income taxes................................. 6,780 2,419
Accounts payable..................................... 25,510 2,274
Other liabilities.................................... (3,005) (9,608)
-------- --------
Net cash used in operating activities............. (34,276) (77,308)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed and intangible assets.................. (23,885) (19,837)
Proceeds from disposition of assets....................... 1,979 992
Exercise of Hungnong put option........................... -- (8,673)
Agroceres acquisition, net of cash acquired............... -- (19,695)
Other..................................................... (175) (515)
-------- --------
Net cash used in investing activities............. (22,081) (47,728)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt........................... 33,433 62,822
Repayments of long-term debt.............................. (7,222) (8,951)
Demand note from bank..................................... -- 10,000
Net short-term borrowings................................. 21,463 11,080
Intercompany advance from Savia........................... -- 20,000
Class B Redeemable Preferred Stock dividends.............. (1,000) (1,000)
Issuance of Class C Preferred Stock....................... -- 30,000
-------- --------
Net cash provided by financing activities......... 46,674 123,951
-------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (696) 403
-------- --------
Decrease in cash and cash equivalents....................... (10,379) (682)
Cash and cash equivalents, beginning of period.............. 19,068 28,895
-------- --------
Cash and cash equivalents, end of period.................... $ 8,689 $ 28,213
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<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. ("Seminis" or 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 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, except for the fiscal year end
which closes on September 30. 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 adjustments) 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>
SIX MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
Cash paid for interest................................... $14,766 $30,178
Cash paid for income taxes............................... 3,160 2,076
Supplemental non-cash transactions
Issuance of preferred stock in payment of Class C
Preferred Stock dividends......................... 2,294 338
</TABLE>
Income/(Loss) per Common Share
Net income (loss) per common share has been computed pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share." Basic net income (loss) per common share is computed by dividing net
income (loss) available for common stockholders by the average number of common
shares outstanding during each period. Net income (loss) available for common
stockholders represents reported net income less preferred stock dividends and,
in fiscal year 1999, accretion of redemption value for Old Class B Redeemable
Common Stock. Diluted net 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 common
stock. The following table provides a reconciliation of
7
<PAGE> 8
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
net income (loss) available for common stockholders and sets forth the
computation for basic and diluted net income (loss) available for common
stockholders per common share available for common stockholders.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR FOR BASIC AND DILUTED:
Net income........................................ $19,408 $22,485 $ 341 $ 4,086
Preferred stock dividends......................... (1,655) (838) (3,294) (1,338)
Accretion of Old Class B Redeemable Common
Stock.......................................... -- (762) -- (1,524)
------- ------- ------- -------
Net income (loss) available for common
stockholders (basic)......................... $17,753 $20,885 $(2,953) $ 1,224
Add Back Accretion of Old Class B Redeemable
Common Stock................................... -- 762 -- --
------- ------- ------- -------
Net income (loss) available for common
stockholders (diluted)....................... $17,753 $21,647 $(2,953) $ 1,224
======= ======= ======= =======
DENOMINATOR -- SHARES:
Weighted average common shares outstanding
(basic)........................................... 59,824 38,664 59,824 38,025
Add potential common shares:
Old Class B Redeemable Common Stock............... -- 6,772 -- 6,772
Less antidilutive effect of potential common
shares............................................ (6,772)
------- ------- ------- -------
Weighted average common shares outstanding
(diluted)......................................... 59,824 45,436 59,824 38,025
======= ======= ======= =======
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCKHOLDERS
PER COMMON SHARE:
Basic............................................. $ .30 $ .54 $ (.05) $ .03
Diluted........................................... .30 .48 (.05) .03
</TABLE>
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Seed............................................... $280,266 $257,774
Unharvested crop growing costs..................... 27,506 28,504
Supplies........................................... 14,433 15,466
-------- --------
$322,205 $301,744
======== ========
</TABLE>
NOTE 3 -- BORROWINGS
The Company had an increase of net long-term borrowings of $26,211 and net
short-term borrowings of $21,463 for the six months ended March 31, 2000. The
increase in overall borrowings was primarily due to seasonal working capital
requirements.
The Company was not in compliance with a financial ratio covenant at March
31, 2000 and has received a waiver from the lenders under the Syndicated Credit
Agreement.
In April and May 2000, the Company received advances of $22,000 and
$14,000, respectively, from Savia to finance additional working capital
requirements.
8
<PAGE> 9
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 produces more than 60 species and 8,000
distinct varieties of vegetable and fruit seeds. Seminis has established a
worldwide presence and global distribution network that spans 120 countries with
70 research stations in 19 countries and production sites in 32 countries.
Seminis is a majority owned subsidiary of Savia, S.A. de C. V. ("Savia").
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 the 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 period to period has also been affected by the impact of acquisition
accounting under purchase accounting principles, interest expense attributable
to acquisition financing and exposure to foreign currency fluctuations.
RESULTS OF OPERATIONS
The table below sets forth Seminis' results of operations data expressed as
a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ----------------
2000 1999 2000 1999
------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Gross profit.......................................... 59.9 62.1 60.6 62.2
Research and development expenses..................... 7.2 8.6 10.9 11.0
Selling, general and administrative expenses.......... 27.9 25.4 37.9 35.5
Amortization of intangible assets..................... 4.0 3.5 5.6 4.8
----- ----- ----- -----
Income from operations................................ 20.8 24.6 6.2 10.9
Interest expense, net................................. (3.8) (6.6) (5.2) (8.4)
Other non-operating expense, net...................... (1.5) (1.1) (.7) (.1)
----- ----- ----- -----
Income from continuing operations before income
taxes............................................... 15.5 16.9 .3 2.4
Income tax expense.................................... (5.1) (5.5) (.2) (1.0)
----- ----- ----- -----
Net income............................................ 10.4% 11.4% .1% 1.4%
===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 2000 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1999
Net Sales
Net sales decreased 5.1% to $267.8 million for the six months ended March
31, 2000 from $282.3 million for the same period ended March 31, 1999. The
decrease is primarily due to the effect of currency fluctuation and unfavorable
global climate. The Euro weakened during the first half of fiscal year 2000 and
was weaker overall compared to the same period of fiscal year 1999. In constant
dollars, sales decreased 1.9% to $273.7 million for the first half of fiscal
year 2000 from $278.9 million for the first half of fiscal year 1999.
Geographically, sales decreased in North America due to overstocking of canned
and frozen vegetables. Europe and the Middle East had similar issues; but were
further impacted by climatic problems. The
9
<PAGE> 10
Company's business is subject to seasonal fluctuations and, therefore, the sales
for the first half of a fiscal year are not necessarily indicative of those to
be expected in any other interim period or for an entire fiscal year.
Gross Profit
Gross profit decreased 7.7% to $162.2 million for the six months ended
March 31, 2000 from $175.7 million for the six months ended March 31, 1999.
Gross margin decreased to 60.6% for the six months ended March 31, 2000 from
62.2% for the six months ended March 31, 1999. The decrease in gross margin was
partially due to a change in the product mix for North American sales with a
higher volume of lower margin seeds and an overall decrease in higher margin
sales in Europe and the Middle East. Another contributing factor was increased
inventory provisions due to low quality seeds.
Research and Development Expenses
Research and development expenses decreased 6.4% to $29.2 million for the
six months ended March 31, 2000 from $31.2 million for the six months ended
March 31, 1999. This decrease was primarily due to the impact of the weaker Euro
as the Company has significant research and development activities in the
Netherlands, France, Spain and Italy.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 1.3% to $101.4
million for the six months ended March 31, 2000 from $100.1 million for the six
months ended March 31, 1999. The increase is due to approximately $.6 million in
non-recurring severance costs related to the restructuring of the Company's
North American operations. Additionally the Company incurred approximately $1.0
million of expenses related to programs designed to maximize the efficiency of
Seminis' product pipeline.
Amortization of Intangible Assets
Amortization of intangible assets increased 9.8% to $15.0 million for the
six months ended March 31, 2000 from $13.7 million for the six months ended
March 31, 1999. This increase was primarily due to amortization of goodwill and
intangible assets relating to the additional 25% acquisition of Hungnong Seed
Co., Ltd., a South Korean subsidiary, in August 1999. In addition, the Korean
Won strengthened during the first half of fiscal 2000 compared to the same
fiscal period in 1999, resulting in additional amortization recorded in U.S.
dollars. Also in the six months ended March 31, 2000, the Company recorded
amortization as a result of the purchase of the seedless watermelon germplasm of
Barham Seeds, Inc. in July 1999.
Interest Expense, Net
Interest expense, net, decreased 41.8% to $13.8 million for the six months
ended March 31, 2000 from $23.7 million for the six months ended March 31, 1999.
Both the refinancing of Seminis' credit agreements during fiscal year 1999 and
the repayment of debt using the proceeds from the Company's initial public
offering in June 1999 resulted in a lower average debt balance for the six
months ended March 31, 2000 compared to the same period in fiscal year 1999.
Other Non-Operating Expense, Net
Seminis had other non-operating expense, net, of $2.0 million for the six
months ended March 31, 2000 as compared to $.2 million for the six months ended
March 31, 1999. Other non-operating expense, net, for the six months ended March
31, 2000 includes a foreign currency loss of $2.7 million and other income of
$.7 million primarily relating to the sale of fixed assets. The foreign currency
loss is primarily due to a loss recorded by SVS Holland on its U.S. dollar
denominated loan. Other non-operating expense, net, for the six months ended
March 31, 1999 includes a foreign currency gain of $1.7 million primarily due to
the Hungnong intercompany loan and a minority interest provision of $1.5 million
related to the 25% minority interest in Hungnong.
10
<PAGE> 11
Income Tax Expense
Income tax expense decreased 82.4% to $.5 million for the six months ended
March 31, 2000 from $2.8 million for the six months ended March 31, 1999. The
decrease in income tax expense was the result of lower consolidated pretax
income and the mix of worldwide income.
Net Income
Net income was $.3 million for the six months ended March 31, 2000 as
compared to $4.1 million for the six months ended March 31, 1999. This decrease
was due primarily to lower overall sales and gross margins partially offset by
lower interest expense, net.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Net Sales
Net sales decreased 5.5% to $186.6 million for the three months ended March
31, 2000 from $197.5 million for the three months ended March 31, 1999. The
decrease is primarily due to the effect of currency fluctuation. The Euro
weakened further during the second quarter of fiscal 2000 and was weaker overall
compared to the same period in fiscal 1999. In constant dollars, sales decreased
1.9% to $191.7 million for the second quarter of fiscal 2000 from $195.5 million
for the same period in fiscal 1999. Unfavorable climate around the world,
processor consolidation and over supply of canned and frozen vegetables are
other factors affecting the volume shortfall. The Company's business is subject
to seasonal fluctuations and, therefore, the sales for the second quarter of a
fiscal year are not necessarily indicative of those to be expected in any other
interim period or for an entire fiscal year.
Gross Profit
Gross profit decreased 8.8% to $111.9 million for the three months ended
March 31, 2000 from $122.7 million for the three months ended March 31, 1999.
Gross margin decreased to 59.9% for the three months ended March 31, 2000 from
62.1% for the three months ended March 31, 1999. The decrease in gross margin
was due to both changes in the North American product mix and an overall
decrease in higher margin sales in Europe and the Middle East. Higher inventory
provisions due to low quality seeds also affected gross profit. Without the
aforementioned inventory write-off, gross margin would have been 62.4% for the
second quarter of fiscal 2000.
Research and Development Expenses
Research and development expenses decreased 20.9% to $13.5 million for the
three months ended March 31, 2000 from $17.0 million for the three months ended
March 31, 1999. This decrease was primarily due to a $2.1 million charge related
to Seminis' research incentive program taken in the second quarter of fiscal
1999 compared to a charge of approximately $1.0 million in the same period of
fiscal 2000 for the final installment of the program. The incentive program
launched in the second quarter of fiscal 1999, is part of Seminis' continuing
efforts to attract and retain industry leading breeders and research personnel.
The decrease is also the result of the currency impact of the weaker Euro during
the second quarter of fiscal 2000 compared to the same period in fiscal 1999.
The Company has significant research and development activities in the
Netherlands, France, Spain and Italy.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 3.7% to $52.0
million for the three months ended March 31, 2000 from $50.1 million for the
three months ended March 31, 1999. The increase is due to approximately $.6
million in non-recurring severance costs related to the restructuring of the
Company's North American operations. Additionally the Company incurred
approximately $1.0 million of expenses related to programs designed to maximize
the efficiency of Seminis' product pipeline.
11
<PAGE> 12
Amortization of Intangible Assets
Amortization of intangible assets increased 9.2% to $7.6 million for the
three months ended March 31, 2000 from $6.9 million for the three months ended
March 31, 1999. This increase was primarily due to amortization of goodwill and
intangible assets relating to the additional 25% acquisition of Hungnong Seed
Co., Ltd., a South Korean subsidiary, in August 1999. In addition, the Korean
Won strengthened during the three months ended March 31, 2000 compared to the
same fiscal period last year, resulting in additional amortization recorded in
U.S. dollars. Also in the three months ended March 31, 2000, the Company
recorded amortization as a result of the purchase of the seedless watermelon
germplasm of Barham Seeds, Inc. in July 1999.
Interest Expense, Net
Interest expense, net, decreased 45.6% to $7.1 million for the three months
ended March 31, 2000 from $13.0 million for the three months ended March 31,
1999. Both the refinancing of Seminis' credit agreements during fiscal year 1999
and the repayment of debt using the proceeds from the Company's initial public
offering in June 1999 resulted in a lower average debt balance for the three
months ended March 31, 2000 compared to the same period in fiscal year 1999.
Other Non-Operating Expense, Net
Seminis had other non-operating expense, net, of $2.8 million for the three
months ended March 31, 2000 as compared to other non-operating expense, net, of
$2.3 million for the three months ended March 31, 1999. Other non-operating
expense, net, for the three months ended March 31, 2000 includes a foreign
currency loss of $3.3 million and other income of $.5 million primarily related
to the sale of fixed assets. The foreign currency loss is primarily due to a
loss recorded by SVS Holland on its U.S. dollar denominated loan. Other
non-operating expense, net, for the three months ended March 31, 1999 includes a
foreign currency loss of $.7 million primarily related to the Hungnong
intercompany loan and a minority interest provision of $1.2 million related to
the 25% minority interest in Hungnong.
Income Tax Expense
Income tax expense decreased 12.3% to $9.5 million for the three months
ended March 31, 2000 from $10.8 million for the three months ended March 31,
1999. The decrease in income tax expense was a result of lower consolidated
pre-tax income and the mix of worldwide income.
Net Income
Net income was $19.4 million for the three months ended March 31, 2000 as
compared to $22.5 million for the three months ended March 31, 1999. This
decrease was due primarily to lower overall sales and gross margins partially
offset by lower interest expense, net.
Seasonality
The seed business is highly seasonal. Generally, net sales are highest in
the second fiscal quarter due to increased demand from northern hemisphere
growers who plant seed in the early spring. Seminis recorded 37.2% of its fiscal
year 1999 net sales during its second fiscal quarter. Seminis has historically
operated at a loss during the first and third fiscal quarters due to lower sales
during such quarters. Seminis' results in any particular quarter should not be
considered indicative of those to be expected for a full year.
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 programs and on loans from Savia to finance working capital
requirements.
12
<PAGE> 13
Net cash used in operating activities decreased to $34.3 million in the
first six months of fiscal year 2000 from $77.3 million for the comparable
period in fiscal year 1999 primarily due to seasonal working capital needs and
an increase in accounts payable because of higher inventory levels.
Net cash used in investing activities decreased to $22.1 million for the
six months ended March 31, 2000 compared to $47.7 million for the six months
ended March 31, 1999. The change is primarily the result of the Company's
acquisition of Agroceres in November 1998 and the additional 5% purchase of
Hungnong from minority shareholders in December 1998 compared to no acquisition
activities during the six months ended March 31, 2000. The decrease in net cash
used in investing activities was slightly offset by capital expenditures of
$23.9 million in fiscal 2000 compared to $19.8 million in fiscal 1999. The
capital expenditure increase was due to the investment in Seminis' new operating
facility and headquarters.
Seminis' total indebtedness as of March 31, 2000 was $388.3 million, of
which $328.4 million were borrowings under the Syndicated Credit Agreement.
Other borrowings consisted of $19.6 million within the United States, $16.3
million by the South Korean subsidiaries and $24.0 million by other foreign
subsidiaries.
The Company was not in compliance with a financial ratio covenant at March
31, 2000 and has received a waiver from the lenders under the Syndicated Credit
Agreement.
In April and May 2000, the Company received advances of $22.0 million and
$14.0 million, respectively, from Savia to finance additional working capital
requirements.
Seminis believes that existing cash balances and available financing from
Savia 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.
Except for the SVS Holland debt described below, Seminis' exposure to
foreign currency fluctuations is primarily foreign currency gains or losses that
occur from intercompany loans and receivables between Seminis Vegetable Seeds,
Inc., the Company's main U.S. operating subsidiary, and its foreign
subsidiaries. SVS Holland, whose functional currency is the Dutch Guilder, owes
approximately $45.5 million in U.S. dollar denominated debt. SVS Holland hedged
the majority of its debt position during the first quarter of fiscal year 2000
through forward foreign exchange contracts. In late December 1999, SVS Holland
terminated its foreign forward exchange contracts, and, as a result on March 31,
2000, SVS Holland had an unhedged U.S. dollar liability of approximately $45.5
million.
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.
Seminis has not experienced any system failures or miscalculations causing
disruptions of operations as a result of the Year 2000 issue. During fiscal year
1999, Seminis installed a new corporate-wide management information system in
its efforts to become Year 2000 compliant. The Company spent approximately $24.2
million to become Year 2000 compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk disclosures set forth in the 1999 Form 10-K have not
changed significantly through the second quarter ended March 31, 2000.
13
<PAGE> 14
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 1999 Form 10-K filed December 28, 1999 there have been no
material changes in legal proceedings discussed in such Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K for the quarter ended
March 31, 2000.
14
<PAGE> 15
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.
Date: May 15, 2000 SEMINIS, INC.
/s/ ALEJANDRO RODRIGUEZ GRAUE
--------------------------------------
Alejandro Rodriguez Graue
President
(Principal Executive Officer)
/s/ OCTAVIO HERNANDEZ
--------------------------------------
Octavio Hernandez
Chief Financial Officer
(Principal Financial Officer)
15
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