<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 JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 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 NUMBER)
2700 CAMINO DEL SOL, CALIFORNIA 93030
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 805-918-2740
1905 LIRIO AVENUE, CALIFORNIA, 93004
(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 7, 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
SEMINIS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
September 30, 1999.......................................... 1
Consolidated Statements of Operations for the Three and Nine
Months Ended June 30, 2000 and 1999......................... 2
Consolidated Statements of Stockholders' Equity for the Nine
Months Ended June 30, 2000.................................. 3
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2000 and 1999................................ 4
Notes to Consolidated Financial Statements.................. 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................... 8
Quantitative and Qualitative Disclosures About Market
Item 3. Risk........................................................ 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures.................................................. 15
Exhibit Index............................................... 16
</TABLE>
i
<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
JUNE 30, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 13,421 $ 19,068
Accounts receivable, net.................................. 196,393 171,283
Inventories............................................... 316,075 301,744
Refundable income taxes................................... -- 4,144
Prepaid expenses and other current assets................. 5,511 3,582
---------- ---------
Total current assets............................... 531,400 499,821
Property, plant and equipment, net.......................... 235,333 226,635
Intangible assets, net...................................... 241,192 242,275
Other assets................................................ 18,768 24,631
---------- ---------
$1,026,693 $ 993,362
========== =========
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings..................................... $ 25,113 $ 6,591
Current maturities of long-term debt...................... 29,967 20,563
Accounts payable.......................................... 42,959 54,681
Accrued liabilities....................................... 85,489 68,811
---------- ---------
Total current liabilities.......................... 183,528 150,646
Long-term debt.............................................. 311,441 315,424
Deferred income taxes....................................... 7,227 30,453
Minority interest in subsidiaries........................... 1,553 1,124
---------- ---------
Total liabilities.................................. 503,749 497,647
---------- ---------
Commitments and contingencies
Mandatorily redeemable stock
Class B Redeemable Preferred Stock, $0.01 par value; 25
shares authorized as of June 30, 2000 and September
30,1999; 25 shares issued and outstanding as of June 30,
2000 and September 30, 1999............................. 25,000 25,000
---------- ---------
Total mandatorily redeemable stock................. 25,000 25,000
---------- ---------
Stockholders' equity
Class C Preferred Stock, $0.01 par value; 12 and 9 shares
authorized as of June 30, 2000 and September 30, 1999,
respectively; 9 and 4 shares issued and outstanding as
of June 30, 2000 and September 30, 1999, respectively... 1 1
Class A Common Stock, $0.01 par value; 91,000 shares
authorized as of June 30, 2000 and September 30, 1999;
13,976 and 13,750 shares issued and outstanding as of
June 30, 2000 and September 30, 1999, respectively...... 140 138
Class B Common Stock, $0.01 par value; 60,229 shares
authorized as of June 30, 2000 and September 30, 1999;
45,848 and 46,074 shares issued and outstanding as of
June 30, 2000 and September 30, 1999, respectively...... 459 461
Additional paid-in capital................................ 686,517 640,357
Accumulated deficit....................................... (179,865) (155,299)
Accumulated other comprehensive loss...................... (9,308) (14,943)
---------- ---------
Total stockholders' equity......................... 497,944 470,715
---------- ---------
$1,026,693 $ 993,362
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales....................................... $114,360 $124,745 $382,150 $407,056
Cost of goods sold.............................. 59,636 47,573 165,227 154,184
-------- -------- -------- --------
Gross profit.................................. 54,724 77,172 216,923 252,872
-------- -------- -------- --------
Operating expenses
Research and development expenses............. 14,517 16,494 43,739 47,719
Selling, general and administrative
expenses................................... 61,660 49,042 163,082 149,155
Amortization of intangible assets............. 7,464 6,760 22,455 20,417
-------- -------- -------- --------
Total operating expenses.............. 83,641 72,296 229,276 217,291
-------- -------- -------- --------
Income (loss) from operations................... (28,917) 4,876 (12,353) 35,581
-------- -------- -------- --------
Other income (expense)
Interest income............................... 755 1,524 2,037 4,104
Interest expense.............................. (9,229) (12,754) (24,285) (39,018)
Foreign currency gain (loss).................. (479) (719) (3,204) 946
Other, net.................................... 10,023 619 10,786 (1,208)
-------- -------- -------- --------
1,070 (11,330) (14,666) (35,176)
Income (loss) before income taxes and
extraordinary items........................... (27,847) (6,454) (27,019) 405
Income tax benefit (expense).................... 8,600 1,821 8,113 (952)
-------- -------- -------- --------
Net loss before extraordinary items............. (19,247) (4,633) (18,906) (547)
-------- -------- -------- --------
Extraordinary items, net of tax of $2,435....... -- (3,973) -- (3,973)
-------- -------- -------- --------
Net loss........................................ (19,247) (8,606) (18,906) (4,520)
Preferred stock dividends....................... (2,366) (1,306) (5,660) (2,644)
Accretion of Old Class B Redeemable Common
Stock......................................... -- (699) -- (2,223)
-------- -------- -------- --------
Net loss available for common stockholders...... $(21,613) $(10,611) $(24,566) $ (9,387)
======== ======== ======== ========
Net loss available for common stockholders per
common share, basic and diluted:
Loss before extraordinary items available for
common stockholders........................... $ (0.36) $ (0.17) $ (0.41) $ (0.14)
Extraordinary items............................. -- (0.10) -- (0.10)
-------- -------- -------- --------
Net loss available for common stockholders...... $ (0.36) $ (0.27) $ (0.41) $ (0.24)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<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 loss (Unaudited).......... -- -- -- -- -- -- -- (18,906) --
Translation adjustment
(Unaudited)................. -- -- -- -- -- -- -- -- 5,635
Conversion of shares
(Unaudited)................... -- -- 226 2 (226) (2) -- -- --
Issuance of Class C Preferred
Stock (Unaudited)............. 4 -- -- -- -- -- 42,000 -- --
Dividends on Class B Redeemable
Preferred Stock (Unaudited)... -- -- -- -- -- -- -- (1,500) --
Dividends on Class C Preferred
Stock (Unaudited)............. 1 -- -- -- -- -- 4,160 (4,160) --
-- -- ------ ---- ------ ---- -------- --------- --------
BALANCE, JUNE 30, 2000
(UNAUDITED)................... 9 $1 13,976 $140 45,848 $459 $686,517 $(179,865) $ (9,308)
== == ====== ==== ====== ==== ======== ========= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, SEPTEMBER 30, 1999..... $470,715
--------
Comprehensive income
Net loss (Unaudited).......... (18,906)
Translation adjustment
(Unaudited)................. 5,635
--------
(13,271)
Conversion of shares
(Unaudited)................... --
Issuance of Class C Preferred
Stock (Unaudited)............. 42,000
Dividends on Class B Redeemable
Preferred Stock (Unaudited)... (1,500)
Dividends on Class C Preferred
Stock (Unaudited)............. --
--------
BALANCE, JUNE 30, 2000
(UNAUDITED)................... $497,944
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
-------------------
2000 1999
-------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(18,906) $(4,520)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 36,322 34,747
Deferred income tax benefit............................ (24,690) (2,464)
Other.................................................. (9,816) 6,483
Changes in assets and liabilities:
Accounts receivable.................................. (31,994) (64,932)
Inventories.......................................... (20,212) (21,382)
Prepaid expenses and other assets.................... 4,470 (1,789)
Current income taxes................................. 14,961 (2,377)
Accounts payable..................................... (10,665) (20,108)
Other liabilities.................................... 7,445 (3,478)
-------- -------
Net cash used in operating activities............. (53,085) (79,820)
-------- -------
Cash flows from investing activities:
Purchases of fixed and intangible assets.................. (32,664) (33,971)
Proceeds from disposition of assets....................... 5,509 1,738
Exercise of Hungnong put option........................... -- (8,673)
Agroceres acquisition, net of cash acquired............... -- (19,695)
Proceeds from sale of MBS' assets......................... 9,712 --
Other..................................................... (898) (2,280)
-------- -------
Net cash used in investing activities............. (18,341) (62,881)
-------- -------
Cash flows from financing activities:
Borrowings under long-term debt........................... 57,872 79,432
Repayments of long-term debt.............................. (51,421) --
Demand note from bank..................................... -- 8,975
Net short-term borrowings................................. 19,188 --
Intercompany advance from Savia........................... -- 20,000
Class B Redeemable Preferred Stock dividends.............. (1,500) (1,500)
Issuance of Class C Preferred Stock....................... 42,000 30,000
-------- -------
Net cash provided by financing activities......... 66,139 136,907
-------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (360) (104)
-------- -------
Decrease in cash and cash equivalents....................... (5,647) (5,898)
Cash and cash equivalents, beginning of period.............. 19,068 28,895
-------- -------
Cash and cash equivalents, end of period.................... $ 13,421 $22,997
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<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>
NINE MONTHS ENDED
JUNE 30,
------------------
2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
Cash paid for interest...................................... $24,087 $42,995
Cash paid for income taxes.................................. 1,616 5,793
Supplemental non-cash transactions:
Issuance of preferred stock in payment of Class C
Preferred Stock dividends.............................. 4,160 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
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 (loss) 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 net
income (loss) before extraordinary items available for common stockholders and
sets
5
<PAGE> 8
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
forth the computation for basic and diluted net income (loss) before
extraordinary items available for common stockholders per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- ------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Numerator for Basic and Diluted:
Loss before extraordinary items................... $(19,247) $(4,633) $(18,906) $ (547)
Preferred stock dividends......................... (2,366) (1,306) (5,660) (2,644)
Accretion of Old Class B Redeemable Common
Stock........................................... -- (699) -- (2,223)
-------- ------- -------- -------
Loss available for common stockholders (basic
& diluted)................................. $(21,613) $(6,638) $(24,566) $(5,414)
======== ======= ======== =======
Denominator -- Shares:
Weighted average common shares outstanding
(basic)......................................... 59,824 39,867 59,824 38,639
Add potential common shares:
Old Class B Redeemable Common Stock............. -- 6,207 -- 6,583
Exercisable stock options....................... -- -- -- --
Less antidilutive effect of potential common
shares.......................................... -- (6,207) -- (6,583)
-------- ------- -------- -------
Weighted average common shares outstanding
(diluted).................................. 59,824 39,867 59,824 38,639
======== ======= ======== =======
Loss before extraordinary items available for
common stockholders per common share:
Basic........................................ $ (0.36) $ (0.17) $ (0.41) $ (0.14)
Diluted...................................... (0.36) (0.17) (0.41) (0.14)
======== ======= ======== =======
</TABLE>
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Seed............................................... $269,405 $257,774
Unharvested crop growing costs..................... 13,746 28,504
Supplies........................................... 32,924 15,466
-------- --------
$316,075 $301,744
======== ========
</TABLE>
NOTE 3 -- GLOBAL RESTRUCTURING AND OPTIMIZATION PLAN
In February 2000, the Company announced a global cost saving initiative
designed to streamline operations, increase utilization of facilities and
improve efficiencies. The first phase of the initiative focused on North
American operations. In June 2000, the Company announced the second phase, which
was targeted at its global operations. The key elements to Seminis' global
restructuring and optimization plan involve:
- Reorganizing its 10 legacy seed companies into four geographical regions;
- Reducing operation and production facilities from 21 to 6;
- Reducing headcount resulting from the reorganization and facility
consolidation;
6
<PAGE> 9
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- Rationalizing the product portfolio;
- Implementing an advanced global logistics management information system;
and
- Divesting non-strategic assets.
In connection with the restructuring plan, the Company recorded
nonrecurring pre-tax charges to operations of approximately $34.2 million for
restructuring costs that included severance and other exit costs, inventory
write-downs and costs associated with streamlining the products portfolio. Of
this amount, $18.4 million was included in cost of goods sold for inventory
write-downs, $7.7 million of which was recorded in the second quarter. The
remaining $15.8 million was included in selling, general and administrative
expenses, $0.6 million of which was recorded in the second quarter, and consists
primarily of severance costs. These relate to approximately 600 employees
worldwide in both operation and administrative groups.
The Company commenced the restructuring during fiscal 2000, and expects to
complete the plan by fiscal 2001. Further elements of the plan will be initiated
in the future and should be completed by fiscal 2002.
Components of the restructuring charges are as follows:
<TABLE>
<CAPTION>
BALANCE AT
TOTAL AMOUNTS JUNE 30,
CHARGES INCURRED 2000
------- -------- ----------
<S> <C> <C> <C>
Write-downs of inventory............................... $18.4 $18.4 $ --
Severance and related expenses......................... 14.0 -- 14.0
Other.................................................. 1.8 1.8 --
----- ----- -----
Total........................................ $34.2 $20.2 $14.0
===== ===== =====
</TABLE>
As part of the strategy to divest of non-strategic assets, in June 2000,
the Company sold the assets of MBS, Inc., a U.S. subsidiary in the soybean seed
business. The total purchase price was $11.9 million, from which the Company
recorded a gain of $10.6 million, which is included in other non-operating
income.
NOTE 4 -- BORROWINGS
In June 2000, the Company amended its credit agreement to provide for more
relaxed financial covenant ratios as well as to allow for the needed expenses
related to the Global Restructuring and Optimization Plan. The Company also
entered into a security agreement with its lenders that collateralized its
receivables, general intangibles and inventory.
NOTE 5 -- CLASS C PREFERRED STOCK CONVERSIONS
In April, May and June 2000, the Company received advances of $22.0
million, $14.0 million and $6.0 million, respectively, from Savia to finance
additional working capital requirements. These advances were converted to Class
C Preferred Stock that pays dividends quarterly in kind at 10% per annum.
7
<PAGE> 10
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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Gross profit.......................................... 47.8 61.9 56.8 62.1
Research and development expenses..................... 12.7 13.2 11.4 11.7
Selling, general and administrative expenses.......... 53.9 39.3 42.7 36.6
Amortization of intangible assets..................... 6.5 5.4 5.9 5.0
----- ----- ----- -----
Income (loss) from operations......................... (25.3) 4.0 (3.2) 8.8
Interest expense, net................................. (7.4) (9.0) (5.8) (8.6)
Other non-operating income (expense), net............. 8.4 (0.1) 2.0 (0.1)
----- ----- ----- -----
Income (loss) before income taxes and extraordinary
items............................................... (24.3) (5.1) (7.0) 0.1
Income tax benefit (expense).......................... 7.5 1.5 2.1 (0.2)
----- ----- ----- -----
Net loss before extraordinary items................... (16.8) (3.6) (4.9) (0.1)
Extraordinary items, net of tax....................... -- (3.2) -- (1.0)
----- ----- ----- -----
Net loss.............................................. (16.8)% (6.8)% (4.9)% (1.1)%
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED JUNE 30, 2000 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1999
Net Sales
Net sales decreased 6.1% to $382.2 million for the nine months ended June
30, 2000 from $407.1 million for the same period ended June 30, 1999. The
decrease is primarily due to the $16.5 million impact from currency fluctuation
and the unfavorable horticultural industry in North America. The Euro weakened
during the nine months ended June 30, 2000 and was weaker overall compared to
the same period of fiscal year 1999. Geographically, sales decreased in North
America due to the prolonged slump in the fresh produce prices at the grower
level that led to reductions in planted acreage, particularly in fresh market
tomato, onion and
8
<PAGE> 11
lettuce. The South American market continued with strong performance in Colombia
and Venezuela, even though vegetable prices were depressed in Argentina, Chile
and Ecuador due to reduced consumption. Europe and the Middle East are slightly
behind last year due to adverse climatic condition. The Far East outperformed
last year both in volume and margin. The Company's business is subject to
seasonal fluctuations and, therefore, the sales for the first nine months 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 14.2% to $216.9 million for the nine months ended
June 30, 2000 from $252.9 million for the nine months ended June 30, 1999. Gross
margin decreased to 56.8% for the nine months ended June 30, 2000 from 62.1% for
the nine months ended June 30, 1999. The primary contributing factor to a lower
gross margin in fiscal year 2000 was the $18.4 million inventory written-off in
connection with the implementation of the Company's Global Restructuring and
Optimization Plan.
Research and Development Expenses
Research and development expenses decreased 8.3% to $43.7 million for the
nine months ended June 30, 2000 from $47.7 million for the nine months ended
June 30, 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 9.3% to $163.1
million for the nine months ended June 30, 2000 from $149.2 million for the nine
months ended June 30, 1999. The increase is due to approximately $14.0 million
in severance costs and approximately $1.8 million of expenses due to programs
designed to maximize the efficiency of Seminis' product pipeline that related to
the Company's Global Restructuring and Optimization Plan. Offsetting these
increases were lower overhead expenses resulting from the Company's continued
cost containing measures.
Amortization of Intangible Assets
Amortization of intangible assets increased 10.0% to $22.5 million for the
nine months ended June 30, 2000 from $20.4 million for the nine months ended
June 30, 1999. This increase was primarily due to amortization of goodwill
relating to the acquisition of an additional 25% of Hungnong Seed Co., Ltd., a
South Korean subsidiary, in August 1999. In addition, the Korean Won
strengthened during the first nine months of fiscal 2000 compared to the same
period in fiscal 1999, resulting in additional amortization recorded in U.S.
dollars. Also, in the nine months ended June 30, 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 36.3% to $22.2 million for the nine months
ended June 30, 2000 from $34.9 million for the nine months ended June 30, 1999.
Both the 1999 refinancing of Seminis' credit agreements and the repayment of
debt using the proceeds from the Company's initial public offering in July 1999
resulted in a lower average debt balance for the nine months ended June 30, 2000
compared to the same period in fiscal year 1999.
Other Non-Operating Income (Expense), Net
Seminis had other non-operating income, net, of $7.6 million for the nine
months ended June 30, 2000 as compared to other non-operating expense, net, of
$0.3 million for the nine months ended June 30, 1999. Other non-operating
income, net, for the nine months ended June 30, 2000 included a gain on the
asset sale of MBS, a soybean subsidiary, of $10.6 million, a foreign currency
loss of $3.2 million and other gains from the disposition of fixed assets. The
foreign currency loss was principally due to a charge recorded by SVS Holland
9
<PAGE> 12
on its U.S. dollar denominated loan. Other non-operating expense, net, for the
nine months ended June 30, 1999 included a foreign currency gain of $0.9 million
primarily due to the Hungnong intercompany loan and a minority interest
provision of $1.1 million related to the 25% minority interest in Hungnong.
Income Tax Benefit (Expense)
Income tax benefit increased to $8.1 million for the nine months ended June
30, 2000 from income tax expense of $1.0 million for the nine months ended June
30, 1999. The increase in income tax benefit was the result of lower
consolidated pretax income.
Loss before Extraordinary Items
Loss before extraordinary items was $18.9 million for the nine months ended
June 30, 2000 as compared to $0.5 million for the nine months ended June 30,
1999. This increase in loss was due primarily to lower overall sales, reduced
gross margins and non-recurring expenses partially offset by lower interest
expense, net.
Extraordinary Items
The extraordinary item for the nine months ended June 30, 1999 was the
write-off of unamortized loan fees of $4.0 million, net of taxes. The fee was
written-off in connection with Seminis' borrowing of $473.0 million under the
fiscal year 1999 credit agreement and the repayment of the old credit agreement.
Net Loss
Net loss was $18.9 million for the nine months ended June 30, 2000 as
compared to $4.5 million for the nine months ended June 30, 1999. The same
factors discussed earlier contributed to the increase.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Net Sales
Net sales decreased 8.3% to $114.4 million for the three months ended June
30, 2000 from $124.7 million for the three months ended June 30, 1999. The
decrease was primarily due to the effect of currency fluctuation and the
depressed North American vegetable market. The currency impact of $4.5 million
was mainly due to the weakening of the Euro during the third quarter of fiscal
2000; the Euro was weaker overall compared to the same period in fiscal 1999.
The prolonged decline in fresh produce prices at the grower level in North
America resulted in the reduction of planted acreage that in turn affected seed
sales. Europe and the Middle East bounced back considerably after a lackluster
performance in the first half of fiscal 2000. The Far East continued in its
growth mode with volume increases complimented by price increases. South America
edged forward despite consumption set backs in Argentina, Chile and Ecuador. The
Company's business is subject to seasonal fluctuations and, therefore, the sales
for the third 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 29.1% to $54.7 million for the three months ended
June 30, 2000 from $77.2 million for the three months ended June 30, 1999. Gross
margin decreased to 47.8% for the three months ended June 30, 2000 from 61.9 %
for the three months ended June 30, 1999. The decrease in gross margin was
primarily due to a $10.7 million inventory write-off in connection with the
implementation of the Company's Global Restructuring and Optimization Plan. The
weak agricultural economy, particularly in North America, also generated demand
for less expensive seeds that further deteriorated the margin. Without the
aforementioned inventory write-off, gross margin would have been 57.2% for the
third quarter of fiscal 2000.
10
<PAGE> 13
Research and Development Expenses
Research and development expenses decreased 12.0% to $14.5 million for the
three months ended June 30, 2000 from $16.5 million for the three months ended
June 30, 1999. This decrease was primarily due to a $2.2 million charge related
to Seminis' research incentive program taken in the third quarter of fiscal
1999. 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 25.7% to $61.7
million for the three months ended June 30, 2000 from $49.0 million for the
three months ended June 30, 1999. The increase was due to approximately $13.4
million in severance costs and approximately $0.8 million of expenses due to
programs designed to maximize the efficiency of Seminis' product pipeline that
related to the Company's Global Restructuring and Optimization Plan. Offsetting
these increases were lower overhead expenses resulting from the Company's
continued cost containing measures.
Amortization of Intangible Assets
Amortization of intangible assets increased 10.4% to $7.5 million for the
three months ended June 30, 2000 from $6.8 million for the three months ended
June 30, 1999. This increase was primarily due to amortization of goodwill and
intangible assets relating to the acquisition of an additional 25% of Hungnong
Seed Co., Ltd., a South Korean subsidiary, in August 1999. In addition, the
Korean Won strengthened during the three months ended June 30, 2000 compared to
the same fiscal period last year, resulting in additional amortization recorded
in U.S. dollars. Also in the three months ended June 30, 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 24.5% to $8.5 million for the three months
ended June 30, 2000 from $11.2 million for the three months ended June 30, 1999.
Both the 1999 refinancing of Seminis' credit agreements and the repayment of
debt using the proceeds from the Company's initial public offering in July 1999
resulted in a lower average debt balance for the three months ended June 30,
2000 compared to the same period in fiscal year 1999.
Other Non-Operating Income (Expense), Net
Seminis had other non-operating income, net, of $9.5 million for the three
months ended June 30, 2000 as compared to other non-operating expense, net, of
$0.1 million for the three months ended June 30, 1999. Other non-operating
income, net, for the three months ended June 30, 2000 included a $10.6 million
gain on the asset sale of MBS, a soybean subsidiary, a foreign currency loss of
$0.5 million and a minority interest provision of $0.5 million. The foreign
currency loss is principally 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 June 30, 1999 included a foreign currency loss of $0.7 million primarily
relating to the unhedged U.S. dollar denominated loan held by SVS Holland and a
minority interest benefit of $0.5 million related to the 25% minority interest
in Hungnong.
Income Tax Benefit (Expense)
Income tax benefit increased to $8.6 million for the three months ended
June 30, 2000 from $1.8 million for the three months ended June 30, 1999. The
increase in income tax benefit was a result of higher pre-tax loss related to
the aforementioned factors.
11
<PAGE> 14
Loss before Extraordinary Items
Loss before extraordinary items was $19.2 million for the three months
ended June 30, 2000 as compared to $4.6 million for the three months ended June
30, 1999. This increase was due primarily to lower overall sales, reduced gross
margins and non-recurring expenses partially offset by lower interest expense,
net.
Extraordinary Items
The extraordinary item for the three months ended June 30, 1999 was 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
fiscal year 1999 credit agreement and the repayment of the old credit agreement.
Net Loss
Net loss increased to $19.2 million for the three months ended June 30,
2000 as compared to $8.6 million for the same period ended June 30, 1999. The
same factors discussed earlier contributed to the increase.
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 any other quarter or 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 advances from Savia to finance working capital
requirements.
Net cash used in operating activities decreased to $53.1 million in the
first nine months of fiscal year 2000 from $79.8 million for the comparable
period in fiscal year 1999. The decrease was mainly due to lower accounts
receivable that resulted from lower sales in the first nine months of fiscal
2000 in comparison to the same period in fiscal 1999. Other changes in working
capital included an increase in accounts payable due to higher inventory levels
and an increase in other liabilities due to the restructuring accrual.
Net cash used in investing activities decreased to $18.3 million for the
nine months ended June 30, 2000 compared to $62.9 million for the nine months
ended June 30, 1999. The change is primarily the result of the Company's
acquisition of Agroceres in November 1998 and the acquisition of an additional
5% of Hungnong from minority shareholders in December 1998 compared to no
acquisition or purchase activities during the nine months ended June 30, 2000.
The decrease in net cash used in investing activities was also due to the
proceeds from the sale of MBS' assets.
Seminis' total indebtedness as of June 30, 2000 was $366.5 million, of
which $310.8 million were borrowings under the current credit agreement. Other
borrowings consisted of $19.1 million within the U.S., $8.9 million and $8.0
million by the Chilean and South Korean subsidiaries, respectively, and $19.7
million by other foreign subsidiaries.
In April, May and June 2000, the Company received advances of $22.0
million, $14.0 million and $6.0 million from Savia, respectively, to finance
additional working capital requirements. These advances were converted to Class
C Preferred Stock that pay dividends quarterly in kind at 10% per annum.
In June 2000, the Company amended its credit agreement to provide for more
relaxed financial covenant ratios as well as to allow for the needed expenses
related to the Global Restructuring and Optimization Plan.
12
<PAGE> 15
The Company also entered into a security agreement with its lenders that
collateralized its receivables, general intangibles and inventory.
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 $44.3 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. As of June 30, 2000, SVS
Holland had an unhedged U.S. dollar liability of approximately $44.3 million.
Impact of the 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 filed December
28, 1999 have not changed significantly through the third quarter ended June 30,
2000.
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.
13
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K for the quarter ended June
30, 2000.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(a)1 Form of Underwriting Agreement
(c)2 Merger Agreement by and between Seminis, Inc., an Illinois
corporation and Seminis, Inc., a Delaware corporation
(c)3.1 Certificate of Incorporation
(c)3.2 Certificate of Designations of Class A Mandatorily
Redeemable Preferred Stock and Class B Mandatorily
Redeemable Preferred Stock of Seminis, Inc.
(c)3.3 Certificate of Designations of Class C Redeemable Preferred
Stock of Seminis, Inc.
(c)3.4 By-Laws
(c)4.1 Form of Class A Common Stock Certificate
(a)4.2 Registration Rights Agreement by and among Seminis, Inc. and
certain shareholders of Seminis, dated October 1, 1995
(c)5 Opinion of Milbank, Tweed, Hadley & McCloy LLP
(a)10.1 Seminis, Inc. 1998 Stock Option Plan
(b)10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan
(a)10.3 Share Subscription Agreement by and between Seminis, Inc.
and Hungnong Seed Co., Ltd., dated June 12, 1998
(c)10.4 Form of New Credit Facility among Seminis, Inc., Seminis
Vegetable Seeds, Inc., SVS Holland B.V., as borrowers,
Harris Trust and Savings Bank, individually and as
Administrative Agent, Bank of Montreal, individually and as
Syndication Agent, and the Lenders from time to time parties
thereto, as Lenders, dated as of June 28, 1999
(c)10.5 Form of Letter Agreement between Savia, S.A. de C.V. and
Seminis, Inc. dated as of June 21, 1999
(d)10.6 Second Amendment and Waiver to Credit Agreement dated as of
June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds,
Inc., SVS Holland B.V., as borrowers, Harris Trust and
Savings Bank, individually and as Administrative Agent, Bank
of Montreal, individually and as Syndication Agent, and the
Lenders from time to time parties thereto, as Lenders, dated
as of June 29, 2000, effective March 31, 2000
(d)10.7 Security Agreement Re: Accounts, Inventory and General
Intangibles among Seminis, Inc., Seminis Vegetable Seeds,
Inc., SVS Holland B.V., as borrowers, Harris Trust and
Savings Bank, individually and as Administrative Agent, Bank
of Montreal, individually and as Syndication Agent, and the
Lenders from time to time parties thereto, as Lenders, dated
as of June 29, 2000
(b)21 Subsidiaries of Registrant
27.1 Financial Data Schedule
</TABLE>
---------------
(a) Incorporated by reference to Seminis' Form S-1 filed on February 11, 1999.
(b) Incorporated by reference to Seminis' Amendment No. 2 to Form S-1 filed on
May 27, 1999.
(c) Incorporated by reference to Seminis' Amendment No. 3 to Form S-1 filed on
June 21, 1999.
(d) Filed with this form 10Q.
14
<PAGE> 17
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: August 14, 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
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(a)1 Form of Underwriting Agreement
(c)2 Merger Agreement by and between Seminis, Inc., an Illinois
corporation and Seminis, Inc., a Delaware corporation
(c)3.1 Certificate of Incorporation
(c)3.2 Certificate of Designations of Class A Mandatorily
Redeemable Preferred Stock and Class B Mandatorily
Redeemable Preferred Stock of Seminis, Inc.
(c)3.3 Certificate of Designations of Class C Redeemable Preferred
Stock of Seminis, Inc.
(c)3.4 By-Laws
(c)4.1 Form of Class A Common Stock Certificate
(a)4.2 Registration Rights Agreement by and among Seminis, Inc. and
certain shareholders of Seminis, dated October 1, 1995
(c)5 Opinion of Milbank, Tweed, Hadley & McCloy LLP
(a)10.1 Seminis, Inc. 1998 Stock Option Plan
(b)10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan
(a)10.3 Share Subscription Agreement by and between Seminis, Inc.
and Hungnong Seed Co., Ltd., dated June 12, 1998
(c)10.4 Form of New Credit Facility among Seminis, Inc., Seminis
Vegetable Seeds, Inc., SVS Holland B.V., as borrowers,
Harris Trust and Savings Bank, individually and as
Administrative Agent, Bank of Montreal, individually and as
Syndication Agent, and the Lenders from time to time parties
thereto, as Lenders, dated as of June 28, 1999
(c)10.5 Form of Letter Agreement between Savia, S.A. de C.V. and
Seminis, Inc. dated as of June 21, 1999
(d)10.6 Second Amendment and Waiver to Credit Agreement dated as of
June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds,
Inc., SVS Holland B.V., as borrowers, Harris Trust and
Savings Bank, individually and as Administrative Agent, Bank
of Montreal, individually and as Syndication Agent, and the
Lenders from time to time parties thereto, as Lenders, dated
as of June 29, 2000, effective March 31, 2000
(d)10.7 Security Agreement Re: Accounts, Inventory and General
Intangibles among Seminis, Inc., Seminis Vegetable Seeds,
Inc., SVS Holland B.V., as borrowers, Harris Trust and
Savings Bank, individually and as Administrative Agent, Bank
of Montreal, individually and as Syndication Agent, and the
Lenders from time to time parties thereto, as Lenders, dated
as of June 29, 2000
(b)21 Subsidiaries of Registrant
27.1 Financial Data Schedule
</TABLE>
---------------
(a) Incorporated by reference to Seminis' Form S-1 filed on February 11, 1999.
(b) Incorporated by reference to Seminis' Amendment No. 2 to Form S-1 filed on
May 27, 1999.
(c) Incorporated by reference to Seminis' Amendment No. 3 to Form S-1 filed on
June 21, 1999.
(d) Filed with this form 10Q.
16
