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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
JANUARY 25, 2000 (DECEMBER 4, 1998)
MONSANTO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1-2516
(Commission File Number)
43-0420020
(I.R.S. Employer
Identification Number)
800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167
(Address of principal executive offices)
(Zip Code)
(314) 694-1000
(Registrant's telephone number, including area code)
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Monsanto Company ("Monsanto") hereby files Amendment No. 2 to its Form 8-K
filed on December 8, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
(i) Financial statements of DEKALB Genetics Corporation ("DEKALB"),
together with the related Report of Independent Public Accountants,
are attached as Exhibit 99 and are incorporated herein by
reference.
(b) Pro Forma Financial Information
(i) Unaudited Pro Forma Combined Condensed Statement of Financial
Position as of September 30, 1998, including notes thereto.
(ii) Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1997 and for the nine months ended
September 30, 1998, including notes thereto.
(c) Exhibits
See the Exhibit Index attached hereto and incorporated herein by
reference.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Subsequent to the date of these pro forma financial statements (September 30,
1998), but prior to the date of this amended 8-K/A, Monsanto announced its
intention to sell the artificial sweetener and biogum businesses. The results
of operations and financial position of these businesses, and of the alginates
and Ortho(R) lawn-and-garden products businesses, the divestiture of which was
approved by Monsanto's Board of Directors in 1998, have been reclassified as
discontinued operations; and, for all periods presented, the pro forma combined
statement of financial position and pro forma statement of income have been
reclassified to conform to this presentation. The Company expects to sell these
businesses for a gain by July 2000.
As a result of discussions with the staff of the SEC and clarification of its
interpretation regarding the classification of certain transaction, Monsanto
agreed to reclassify certain revenues in the Statement of Consolidated Income.
As a result, the company has reclassified revenues associated with the sales of
Pharmaceutical product rights from net sales to other expense (income) - net for
all periods presented. The effect of this reclassification was to reduce net
sales and increase other income included in other expense (income) - net by $124
million, $120 million and $61 million in 1998, 1997 and 1996, respectively.
The following unaudited pro forma combined condensed financial statements
give effect to the acquisition of DEKALB using the purchase method of
accounting, after giving effect to the pro forma adjustments described in the
accompanying notes. These unaudited pro forma combined condensed financial
statements have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of Monsanto and
DEKALB which are incorporated by reference in this Form 8-K/A.
It is necessary to present the unaudited pro forma combined condensed
financial information with cautions as to its interpretations and usefulness.
The purchase price allocations are based on preliminary assumptions and are
subject to revision. Accordingly, it is probable that purchase accounting
adjustments will differ from the pro forma adjustments. The unaudited pro forma
combined condensed financial information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred had the acquisition of DEKALB by Monsanto been
consummated as of the dates indicated, nor is it necessarily indicative of
future operating results or financial position of Monsanto. Further, the
unaudited pro forma combined condensed financial information does not reflect
any benefits or synergies that are expected to result from the acquisition.
The Unaudited Pro Forma Combined Condensed Statement of Financial Position
gives effect to the acquisition as if it had occurred on September 30, 1998,
combining the statement of consolidated financial position for Monsanto as of
September 30, 1998 and the consolidated balance sheet for DEKALB as of August
31, 1998. The Unaudited Pro Forma Combined Condensed Statements of Income give
effect to the acquisition as if it had occurred at the beginning of the earliest
period presented, combining the results of Monsanto for the year ended December
31, 1997 and the nine months ended September 30, 1998 with the results of DEKALB
for the 12 months ended November 30, 1997 and the nine months ended August 31,
1998, respectively.
In the fourth quarter of 1998, Monsanto issued 25 million shares of
Monsanto Common Stock, $700 million of 6.50 percent Adjustable Conversion-rate
Equity Security Units (ACES), and $2.5 billion of senior unsecured long-term
debt with an average interest rate of 6 percent, related to several acquisitions
of seed companies. For purposes of these unaudited pro forma combined condensed
financial statements, the common stock, the ACES and $583 million of the
long-term debt were assumed to be used to finance the DEKALB acquisition.
As a result of the acquisition and in connection with the merger agreement,
DEKALB cancelled its outstanding stock options in exchange for cash paid to
option holders. DEKALB recognized an aftertax charge of $48 million for the
cancellation of these options. The cancellation was completed prior to the
acquisition closing date of December 4. This charge has not been reflected in
the Unaudited Pro Forma Combined Condensed Statement of Income because of its
nonrecurring nature; however the $20 million portion related to Monsanto's
pre-existing equity interest in DEKALB has been reflected as a reduction to
reinvested earnings in the Unaudited Pro Forma Combined Condensed Statement of
Financial Position.
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As a result of the acquisition of DEKALB, Monsanto recognized an after-tax
charge of $151 million in the fourth quarter of 1998 for the write-off of
acquired in-process research and development (R&D). The amount of this write-off
was determined by an independent valuation. Management believes that the
technological feasibility of the acquired in-process R&D has not been
established and that it has no alternative future uses. Accordingly, the amounts
allocated to in-process R&D were expensed immediately under generally accepted
accounting principles. This estimated write-off for acquired in-process R&D has
not been reflected in the Unaudited Pro Forma Combined Condensed Statement of
Income because of its nonrecurring nature; however, it has been reflected as a
reduction to reinvested earnings in the Unaudited Pro Forma Combined Condensed
Statement of Financial Position.
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<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT
OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS)
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
MONSANTO DEKALB ADJUSTMENTS COMBINED
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 215 $ (20)(2b) $ 147
(48)(3)
Trade Receivables............................. 2,498 $ 69 (10)(4) 2,557
Miscellaneous receivables and prepaid
expenses................................... 684 10 (4) 723
29 (4)
Deferred income tax benefit................... 299 15 314
Inventories................................... 1,137 184 1,321
Other current assets.......................... 29 (29)(4)
------- ---- ------ -------
Total Current Assets....................... 4,833 297 (68) 5,062
------- ---- ------ -------
Property, Plant and Equipment -- Net............ 2,250 238 27 (2b) 2,515
Investments in Affiliates....................... 298 8 (160)(1) 146
Intangible Assets, net of accumulated
amortization.................................. 2,032 39 75 (1) 4,226
2,052 (2b)
28 (3)
Other Assets.................................... 1,015 9 1,024
Net Assets of Discontinued Operations .......... 2,115 2,115
------- ---- ------ -------
Total Assets............................... $12,543 $591 $1,954 $15,088
======= ==== ====== =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable.............................. $ 296 $ 45 $ 341
Accrued liabilities........................... 1,670 49 $ 34 (2c) 1,753
Short-term debt............................... 2,169 139 2,308
------- ---- ------ -------
Total Current Liabilities.................. 4,135 233 34 4,402
------- ---- ------ -------
Long-Term Debt.................................. 2,506 113 1,283 (2a) 3,902
Deferred Income Taxes........................... 68 23 60 (2d) 151
Postretirement Liabilities...................... 838 838
Other Liabilities............................... 310 10 16 (2c) 336
Shareowners' Equity:
Common stock.................................. 1,644 4 (2)(1) 1,694
50 (2a)
(2)(2f)
Additional contributed capital................ 518 124 (50)(1) 1,412
894 (2a)
(74)(2f)
Treasury stock, at cost....................... (2,500) (2) 1 (1) (2,500)
1 (2f)
Reinvested earnings........................... 5,272 92 (36)(1) 5,101
(151)(2e)
(56)(2f)
(20)(3)
Reserve for ESOP debt retirement.............. (111) (111)
Accumulated other comprehensive loss.......... (137) (6) 2 (1) (137)
4 (2f)
------- ---- ------ -------
Total Shareowners' Equity.................. 4,686 212 561 5,459
------- ---- ------ -------
Total Liabilities and Shareowners' Equity....... $12,543 $591 $1,954 $15,088
======= ==== ====== =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of Financial Position.
</TABLE>
5
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NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF FINANCIAL POSITION
Subsequent to the date of these pro forma financial statements (September 30,
1998), but prior to the date of this amended 8-K/A, Monsanto announced its
intention to sell the artificial sweetener and biogum businesses. The financial
position of these businesses, and of the alginates and Ortho(R) lawn-and-garden
products businesses, the divestiture of which was approved by Monsanto's Board
of Directors in 1998, have been reclassified as discontinued operations; and,
for all periods presented, the pro forma combined statement of financial
position has been reclassified to conform to this presentation. The Company
expects to sell these businesses for a gain by July 2000.
Pro forma adjustments were made to the Unaudited Pro Forma Combined
Condensed Statement of Financial Position to reflect the following:
NOTE 1
To eliminate the 40 percent of DEKALB that Monsanto already owned, and to
reclassify the related goodwill.
NOTE 2
(a) To record the issuance of $944 million of common stock, $700 million of
6.50 percent ACES and $583 million of long-term debt with an average
interest rate of 6 percent for the purchase price of the remaining 60
percent of DEKALB.
(b) To record the excess of the purchase price of DEKALB, including $20
million of acquisition costs, over net assets acquired, and to adjust
DEKALB's net assets acquired to estimated fair market values.
Significant components of purchase price allocations for the DEKALB
acquisition were to goodwill, $1,693 million; germplasm and core
technology, $194 million; trademarks, $181 million; in-process research
and development, $151 million; exit cost and employee termination
liabilities, ($44 million); inventories and other individually
insignificant tangible assets and liabilities, $122 million. The
company is continuing to obtain additional information related to
intangible assets, primarily germplasm and trademarks, litigation,
costs to complete the exit plans for certain activities of the acquired
businesses, and inventories. The information necessary to complete the
allocation of purchase price is expected to be obtained by the end of
the fourth quarter of 1999. Any adjustment to the purchase price
allocation for the businesses acquired is not expected to materially
impact Monsanto's financial position, results of operations or cash
flows.
(c) To record liabilities assumed in connection with the acquisition,
primarily for workforce reductions.
(d) To record the deferred tax liability related to (b) and (c) above,
based on the effective tax rate of 38 percent.
(e) To record the write-off of acquired in-process R&D.
(f) To eliminate the remaining 60 percent of DEKALB's historical equity
accounts.
6
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NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF FINANCIAL POSITION (Continued)
NOTE 3
To record for the cancellation of DEKALB stock options in exchange for
cash.
NOTE 4
To reclassify to conform to Monsanto's presentation.
There were no significant transactions between Monsanto and DEKALB to
eliminate.
7
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<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL
------------------ PRO FORMA PRO FORMA
MONSANTO DEKALB ADJUSTMENTS COMBINED
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net Sales........................................ $5,504 $ 439 $5,943
Costs and Expenses:
Cost of Goods Sold............................... 2,115 241 $ 3 (2) 2,359
Selling, General and Administrative Expenses..... 1,528 109 1,637
Technological Expenses........................... 931 71 (1)(5) 1,001
Acquired In-Process Research and Development..... 189 189
Amortization of Intangible Assets................ 167 67 (2) 235
1 (5)
Restructuring Expense (Income)................... (35) (35)
Interest Expense................................. 144 7 60 (3) 214
3 (5)
Interest Income.................................. (35) (3)(5) (38)
Other Expense -- Net............................. 6 2 (1) 8
------ ----- ----- ------
Income from Continuing Operations
Before Income Taxes..................... 494 11 (132) 373
Income Taxes..................................... 215 3 (32)(4) 186
------ ----- ----- ------
Net Income (Loss) from Continuing Operations..... $ 279 $ 8 $(100) $ 187
Income From Discontinued Operations, net of
Tax of $35 million ..................... 74 74
------ ----- ----- ------
Net Income....................................... $ 353 $ 8 $(100) $ 261
===== ===== ===== ======
Basic Earnings per Share:
Continuing Operations........................ $ 0.47 $0.23 $ 0.30
Discontinued Operations...................... $ 0.12 $ 0.12
Net Income................................... $ 0.59 $0.23 $ 0.42
Diluted Earnings per Share:
Continuing Operations........................ $ 0.45 $0.22 $ 0.29
Discontinued Operations...................... $ 0.11 $ 0.11
Net Income................................... $ 0.56 $0.22 $ 0.40
Average number of common shares outstanding
during the period -- basic..................... 600.4 34.6 (34.6)(6)(8) 625.4
25.0 (7)
Average number of common shares outstanding
during the period -- diluted................... 626.8 36.4 (36.4)(6)(8) 651.8
25.0 (7)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Income.
</TABLE>
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<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL PRO
------------------ PRO FORMA FORMA
MONSANTO DEKALB ADJUSTMENTS COMBINED
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
Net Sales........................................ $6,058 $ 448 $6,506
Costs and Expenses:
Cost of Goods Sold............................... 2,382 226 $ 4 (2) 2,612
Selling, General and Administrative Expenses..... 1,745 115 1,860
Technological Expenses........................... 1,049 58 (1)(5) 1,106
Acquired In-Process Research and Development..... 633 633
Amortization of Intangible Assets................ 121 89 (2) 211
1 (5)
Interest Expense................................. 135 6 81 (3) 225
3 (5)
Interest Income.................................. (45) (3)(5) (48)
Other Expense (Income) -- Net.................... (89) (4) 7 (1) (86)
------ ----- ----- ------
Income from Continuing Operations,
Before Income Taxes....................... 127 47 (181) (7)
Income Taxes..................................... (22) 18 (43)(4) (47)
------ ----- ----- ------
Net Income (Loss) from Continuing Operations..... $ 149 $ 29 $(138) $ 40
Income From Discontinued Operations, net of
Tax of $185 million .................... 321 321
------ ----- ----- ------
Net Income....................................... $ 470 $ 29 $(138) $ 361
====== ===== ===== ======
Basic Earnings per Share:
Continuing Operations........................ $ 0.26 $0.84 $ 0.07
Discontinued Operations...................... $ 0.54 $ 0.52
Net Income................................... $ 0.80 $0.84 $ 0.59
Diluted Earnings per Share:
Continuing Operations....................... $ 0.24 $0.80 $ 0.06
Discontinued Operations..................... $ 0.53 $ 0.51
Net Income.................................. $ 0.77 $0.80 $ 0.57
Average number of common shares outstanding
during the period -- basic..................... 588.7 34.5 (34.5)(6)(8) 613.7
25.0 (7)
Average number of common shares outstanding
during the period -- diluted................... 609.6 36.1 (36.1)(6)(8) 634.6
25.0 (7)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Income.
</TABLE>
9
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NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF INCOME
Subsequent to the date of these pro forma financial statements (September 30,
1998), but prior to the date of this amended 8-K/A, Monsanto announced its
intention to sell the artificial sweetener and biogum businesses. The results
of operation of these businesses, and of the alginates and Ortho(R) lawn-and-
garden products businesses, the divestiture of which was approved by Monsanto's
Board of Directors in 1998, have been reclassified as discontinued operations;
and, for all periods presented, the pro forma combined statement of income has
been reclassified to conform to this presentation. The Company expects to sell
these businesses for a gain by July 2000.
As a result of discussions with the staff of the SEC and clarification of its
interpretation regarding the classification of certain transaction, Monsanto
agreed to reclassify certain revenues in the Statement of Consolidated Income.
As a result, the company has reclassified revenues associated with the sales of
Pharmaceutical product rights from net sales to other expense (income) - net for
all periods presented. The effect of this reclassification was to reduce net
sales and increase other income included in other expense (income) - net by $25
million for the nine months ended September 30, 1998, and $120 million for the
year ended December 31, 1997.
Pro forma adjustments were made to the Unaudited Pro Forma Combined
Condensed Statement of Income to reflect the following:
NOTE 1
To eliminate 40 percent of DEKALB's net income recorded as income from
equity affiliates in Monsanto's Statement of Consolidated Income.
NOTE 2
To record the additional depreciation and amortization expense resulting
from the fair market value adjustments to fixed assets and intangibles
recorded in connection with the acquisition.
NOTE 3
To record the increase in interest expense resulting from the issuance of
$700 million of ACES at an interest rate of 6.50 percent and the issuance
of $583 million of long-term debt at an average interest rate of 6 percent.
NOTE 4
To record the income tax effects of the tax deductible pro forma
adjustments in Note 2 and Note 3, based on the effective tax rate of 38
percent.
NOTE 5
To reclassify to conform to Monsanto's presentation.
NOTE 6
To eliminate the outstanding shares of DEKALB acquired by Monsanto.
NOTE 7
To reflect the issuance of 25 million shares of Monsanto common stock in
connection with the purchase of DEKALB.
NOTE 8
To reflect the cancellation of DEKALB stock options in connection with the
acquisition.
10
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SIGNATURE
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.
MONSANTO COMPANY
--------------------------------------
(Registrant)
By /S/ RICHARD B. CLARK
------------------------------------
Richard B. Clark
Vice President and Controller
(On behalf of the Registrant and
as Principal Accounting Officer)
Date: January 25, 2000
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EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1 Omitted--Inapplicable
2 Agreement and Plan of Merger, dated as of May 8, 1998, by
and among Monsanto Company, Corn Acquisition Corporation and
DEKALB Genetics Corporation (incorporated by reference to
Exhibit (c) (1) to the Tender Offer Statement on Schedule
14D-1 of the Company, dated May 15, 1998).
4 Omitted -- Inapplicable
16 Omitted -- Inapplicable
17 Omitted -- Inapplicable
20 Omitted -- Inapplicable
23 Consent of Arthur Andersen LLP
24 Omitted -- Inapplicable
27 Omitted -- Inapplicable
99 Financial Statements of DEKALB
12
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report (relating to the financial statements of DEKALB Genetics Corporation)
dated October 2, 1998, included in this Form 8-K/A, into Monsanto Company's
previously filed Registration Statements File Nos. 2-36636, 2-76696, 2-90152,
33-13197, 33-21030, 33-39704, 33-39705, 33-39706, 33-39707, 33-49717, 33-53363,
33-53365, 33-53367, 333-02783, 333-02961, 333-02963, 333-33531, 333-38599,
333-45341, 333-76653, 333-66175 and 333-73233.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 25, 2000
<PAGE>
EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of DEKALB Genetics Corporation:
We have audited the accompanying consolidated balance sheets of DEKALB Genetics
Corporation (a Delaware corporation) and subsidiaries as of August 31, 1998 and
1997, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended August 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DEKALB Genetics
Corporation and subsidiaries as of August 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended August 31, 1998 in conformity with generally accepted accounting
principles.
/S/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 2, 1998
1
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<TABLE>
DEKALB GENETICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<CAPTION>
for the years ended August 31 -
in millions except per share amounts 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $502.2 $451.4 $387.5
Cost of revenues 275.2 230.5 202.1
- --------------------------------------------------------------------------------
Gross Margin 227.0 220.9 $185.4
Selling expense 96.3 83.1 73.9
Research and development expense 77.1 57.3 47.6
General and administrative expense 29.3 33.2 31.1
- --------------------------------------------------------------------------------
Operating Earnings 24.3 47.3 32.8
- --------------------------------------------------------------------------------
Interest expense, net (9.5) (4.9) (6.1)
Other income, net 0.4 4.0 1.4
- --------------------------------------------------------------------------------
Earnings before income taxes 15.2 46.4 28.1
Income tax provision 4.9 17.6 11.1
- --------------------------------------------------------------------------------
NET EARNINGS $ 10.3 $ 28.8 $ 17.0
================================================================================
BASIC EARNINGS PER SHARE $ 0.30 $ 0.84 $ 0.52
================================================================================
DILUTED EARNINGS PER SHARE $ 0.28 $ 0.81 $ 0.51
================================================================================
DIVIDENDS PER SHARE $ 0.14 $ 0.14 $ 0.137
================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
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<TABLE>
DEKALB GENETICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- ------------------------------------------------------------------------------------------------
at August 31 - in millions 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents $ -- $ 5.2
Receivables, net 69.5 67.5
Inventories 184.5 139.1
Deferred income taxes 14.6 6.9
Other current assets 28.7 7.8
-------------------------------------------------------------------------
Total current assets $ 297.3 $ 226.5
-------------------------------------------------------------------------
Investments and advances 7.5 7.2
Intangible assets, net 38.9 40.3
Other assets 9.3 9.5
Property, plant and equipment, net 237.8 166.1
-------------------------------------------------------------------------
Total Assets $ 590.8 $ 449.6
=========================================================================
LIABILITIES AND Current liabilities:
SHAREHOLDERS' EQUITY Short-term debt $ 139.0 $ 34.5
Accounts payable, trade 9.1 15.6
Other accounts payable 35.8 37.3
Other current liabilities 49.2 46.1
-------------------------------------------------------------------------
Total current liabilities $ 233.1 $ 133.5
-------------------------------------------------------------------------
Deferred compensation and other credits 10.2 9.9
Deferred income taxes 23.2 20.1
Long-term debt 112.9 90.0
-------------------------------------------------------------------------
Total long-term liabilities $ 146.3 $ 120.0
-------------------------------------------------------------------------
Commitments and contingent liabilities
Shareholders' equity:
Capital stock:
Common, Class A; no par value, authorized
15,000,000 shares issued 4,552,994 for
1998 and 4,698,392 for 1997 0.5 0.5
Common, Class B; no par value, non-voting,
authorized 45,000,000 shares issued
30,087,593 for 1998 and 30,105,987 for 1997 3.0 3.0
Capital in excess of stated value 124.2 114.9
Retained earnings 91.4 85.9
Cumulative translation adjustment (6.1) (5.7)
-------------------------------------------------------------------------
$213.0 $ 198.6
Less treasury stock, at cost: 287,182 and
443,206 shares of Class B in 1998 and 1997,
respectively. (1.6) (2.5)
-------------------------------------------------------------------------
Total shareholders' equity $211.4 $ 196.1
- ------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $590.8 $ 449.6
================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
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<TABLE>
DEKALB GENETICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
For the years ended
August 31 - in millions
-----------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 10.3 $ 28.8 $ 17.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15.5 13.8 11.3
(Gain) on sale of fixed assets 0.6 (0.6) (0.2)
Provision for losses on accounts receivable 0.8 2.8 1.2
Provision for deferred income taxes (4.4) 6.0 1.8
Provision for inventory valuation 5.3 11.8 7.3
Equity (earnings) loss, net of dividends 0.8 (2.2) (1.7)
------ ------ ------
18.6 31.6 19.7
Changes in assets and liabilities:
Receivables (2.7) (15.3) 1.9
Other current assets (28.7) (2.2) (1.1)
Inventories (50.7) (51.8) (0.5)
Accounts payable (8.1) 5.3 25.2
Accrued expenses 1.8 5.6 8.2
Current taxes payable 1.3 3.2 1.8
Deferred income taxes 7.4 (1.2) (1.2)
Other assets and liabilities 0.7 (0.5) (0.8)
------ ------ ------
(79.0) (56.9) 33.5
Net cash flow (used) provided by operating activities (50.1) 3.5 70.2
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (90.3) (59.4) (30.7)
Proceeds from sale of property, plant and equipment 2.7 1.9 0.4
Acquisitions and investments -- -- (3.2)
------ ------ ------
(87.6) (57.5) (33.5)
Net cash flow used by investing activities
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 104.6 34.4 --
Proceeds from long-term borrowings 22.9 5.0 --
Principal payments made on debt -- -- (42.8)
Sale of equity 6.3 0.6 27.6
Dividends paid (4.8) (4.8) (4.3)
Other capital transactions 3.9 2.2 1.3
------ ------ ------
132.9 37.4 (18.2)
Net cash flow (used) provided by financing activities
- -------------------------------------------------------------------------------------------------------------
Net effect of exchange rates on cash (0.4) (1.5) 1.8
------ ------ ------
Net increase (decrease) in cash and cash equivalents (5.2) (18.1) 20.3
Cash and cash equivalents, at the beginning of the year 5.2 23.3 3.0
------ ------ ------
Cash and cash equivalents, at the end of the year $ 0.0 $ 5.2 $ 23.3
============================================================================================================
Note: Cash paid during the year for:
Income taxes $ 6.9 $ 8.4 $ 7.6
Interest $ 7.5 $ 7.3 $ 6.9
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
DEKALB GENETICS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
at August 31-in millions except 1998 1997 1996
shares in thousands Dollars Shares Dollars Shares Dollars Shares
----------- ----------- ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A Common Stock
Balance, beginning of year $ 0.5 4,698 $ 0.2 2,404 $ 0.1 773
Exchange Class A for Class B -- (269) -- (185) -- (99)
Stock options exercised -- 60 -- 87 -- 32
Employee 401(k) stock plan -- 64 -- 32 -- 14
Sale of equity to Monsanto Company -- -- -- -- -- 81
Three-for-one stock split effected in
the form of a 200% stock dividend -- -- -- -- 0.1 1,603
Restricted Stock -- -- -- 10 -- --
Two-for-one stock split effected in
the form of a 100% stock dividend -- -- 0.3 2,350 -- --
--------- --------- --------- ------- --------- -------
Balance, end of year $ 0.5 $ 4,553 $ 0.5 4,698 $ 0.2 2,404
- --------------------------------------------------------------------------------------------------------------------------
Class B Common Stock
Balance, beginning of year $ 3.0 30,106 $ 1.5 14,868 $ 0.4 4,485
Exchange Class A for Class B -- 269 -- 185 -- 99
Sale of equity to Monsanto Company -- -- -- 12 0.1 378
Three-for-one stock split effected in
the form of 200% stock dividend -- -- -- -- 1.0 9,906
Two-for-one stock split effected in the
form of a 100% stock dividend -- -- 1.5 15,041 -- --
--------- --------- --------- ------- --------- -------
Balance, end of year $ 3.0 $ 30,375 $ 3.0 30,106 $ 1.5 14,868
- -------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Stated Value
Balance, beginning of year $ 114.9 $ 109.7 $ 80.9
Sale of equity to Monsanto Company 5.4 0.6 27.6
Stock options exercised 0.4 0.5 0.6
Non-qualified stock option tax benefit 1.0 2.3 --
Employee 401(k) stock plan 2.8 1.5 0.5
Director Stock Option Plan 0.1 0.3 0.1
Authorized share increase (0.4) -- --
--------- --------- ---------
Balance, end of year $ 124.2 $ 114.9 $ 109.7
- -------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year $ 85.9 $ 63.7 $ 52.3
Net Income 10.3 28.8 17.0
Cash dividends on common stock ($0.14
per share in 1998, $0.14 per share in
1997, and $0.137 per share in 1996 (4.8) (4.8) (4.5)
Three-for-one stock split effected in
the form of a 200% stock dividend -- -- (1.1)
Two-for-one stock split effected in the
form of a 100% stock dividend -- (1.8) --
--------- --------- ---------
Balance, end of year $ 91.4 $ 85.9 $ 63.7
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment
Balance, beginning of year $ (5.7) $ (4.1) (5.0)
Translation gain/(loss) (0.4) (1.6) 0.9
--------- --------- ---------
Balance, end of year $ (6.1) $ (5.7) (4.1)
- -------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance, beginning of year $ (2.5) (443) $ (2.4) (220) $ (2.4) (74)
Stock options exercised -- -- -- -- (0.1) (2)
Employee 401(k) stock plan -- -- -- -- 0.1 2
Three-for-one stock split effected in
the form of a 200% stock dividend -- -- -- -- -- (146)
Two-for-one stock split effected in the
form of a 100% stock dividend -- -- -- (221) -- --
Treasury stock repurchase (0.1) (2) -- --
Sale of equity to Monsanto Company 0.9 156 -- -- -- --
--------- --------- --------- ------- --------- -------
Balance, end of year $ (1.6) (287) (2.5) (443) $ (2.4) (220)
- -------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 211.4 $ 196.1 $ 168.6
=========================================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
5
<PAGE>
<PAGE>
DEKALB Genetics Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the seed division ("DEKALB Seed") and DEKALB Swine Breeders, Inc.
("DEKALB Swine"). The accounts of the DEKALB subsidiary in Argentina are
included on the basis of its May 31 fiscal year, which more properly reflects
the growing season in that country. Transactions between this date and the
Company's fiscal year-end are not considered material.
The Company's investments in related companies (owned 50% or less), primarily in
Mexico, are carried at cost plus equity in undistributed net earnings and losses
since dates of acquisition. Carrying values approximate the Company's interest
in the net assets of these related companies.
INTANGIBLE ASSETS - Intangible assets consist primarily of the cost of purchased
businesses in excess of market value of net assets acquired (goodwill). In
accordance with company policy, DEKALB assesses recoverability and impairment of
goodwill on an annual basis. DEKALB amortizes goodwill on a straight-line method
over 40 years.
PROPERTY, PLANT AND EQUIPMENT - It is the policy of DEKALB to capitalize
expenditures for major renewals and betterments and to charge to operating
expenses the cost of current maintenance and repairs. Provisions for
depreciation have been computed principally on the straight-line method, based
on expected lives, for buildings and equipment. Rates used for depreciation are
determined separately for individual plants and locations and are based
principally on the following expected lives: buildings - 12.5 to 33.5 years;
equipment - 4 to 12.5 years; other - 3 to 20 years; and leasehold improvements -
term of lease or useful life, whichever is shorter.
The cost and accumulated allowances for depreciation and amortization relating
to assets retired or otherwise disposed of are eliminated from the respective
accounts at the time of disposition. The resulting gain or loss is included in
"other income, net."
INCOME TAXES - In accordance with SFAS 109, the Company accounts for income
taxes under the asset and liability method. The asset and liability method is
applied using enacted tax rates expected to apply when temporary differences
between financial and tax reporting are realized. The amount of income tax
expense recognized for a period is the amount of income taxes currently payable
or refundable, plus or minus the change in aggregate deferred tax assets and
liabilities. The most significant of these differences are set forth in Note L.
At August 31 of each year presented, United States income taxes were provided on
undistributed earnings of non-U.S. subsidiaries.
FOREIGN CURRENCY TRANSLATION - Effective in fiscal 1995, the Company no longer
considered certain countries hyperinflationary for purposes of applying
Statement of Financial Accounting Standards No. 52 (SFAS No. 52), "Foreign
Currency Translation." Foreign-currency assets and liabilities are translated
into their U.S. dollar equivalents based on rates of exchange prevailing at the
end of the respective period. Translation adjustments resulting from translating
foreign currency financial statements of consolidated subsidiaries into their
U.S. dollar equivalents are reported separately and accumulated in a component
of shareholders' equity.
STATEMENT OF CASH FLOWS - DEKALB classifies highly liquid investments with
original maturities of three months or less as cash and cash equivalents.
CONCENTRATION OF CREDIT RISK - The Company's business activity is primarily with
dealers and distributors located in the United States and certain foreign
countries. When the Company grants credit, it is primarily to customers whose
ability to pay is dependent upon the agribusiness economics prevailing in that
specific area of the world. No significant concentration of credit risk exists.
REVENUE RECOGNITION - The Company recognizes revenues upon shipment of goods,
with discounts and returned goods partially offsetting this amount.
6
<PAGE>
<PAGE>
DEKALB Genetics Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
- -------------------------------------------------------------------------------
RECLASSIFICATIONS - Certain expense reclassifications have been made for segment
comparability purposes. These reclassifications had no effect on net earnings.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFERRED LICENSING COSTS - The Company defers direct costs associated with
company-owned swine licensed under the royalty program. Revenue recognition
under a third party licensing agreement occurs, in part, at initiation of the
license and, in future years, in the form of royalties from selected progeny.
The costs deferred are direct costs, primarily feed and the labor to produce the
swine. These costs are amortized in proportion to the estimated revenue from the
license agreement. The average license period is 2.5 years. The amount of costs
deferred (net) in fiscal 1998, 1997, and 1996 was $0.3 million, $2.3 million,
and $3.0 million, respectively.
EARNINGS PER SHARE - Basic earnings per share of common stock are calculated by
dividing net earnings by the weighted average of common shares outstanding
during each fiscal year; 34,577,265, 34,250,522 and 32,515,743 in 1998, 1997 and
1996, respectively. Diluted earnings per share of common stock are calculated by
dividing net earnings by the weighted average of common and common equivalent
(stock options) shares outstanding during each fiscal year; 36,364,767,
35,744,050 and 33,553,649 in 1998, 1997 and 1996, respectively. During fiscal
1998 the Company adopted the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," effective February 28, 1998. Shares
outstanding and per share amounts have been restated for prior years.
STOCK-BASED COMPENSATION - The Company continues to account for its employee
stock option plans using Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," which results in no charge to earnings when
options are issued at fair market value. The Company has adopted the disclosure
requirements of Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation.
NEW ACCOUNTING STANDARDS - The Company adopted Financial Accounting Standards
Board Statement No. 121, "Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of," in fiscal 1997. The new accounting
standard had no impact on the carrying value of the Company's long lived assets
as of August 31, 1997 and 1998.
During fiscal year 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," effective for both interim and annual
periods ending after December 15, 1997. The standard simplifies the computation
of earnings per share and will be comparable to fully diluted earnings per share
presently reflected under APB Opinion No. 15. During fiscal 1998 the Company
adopted the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share," effective February 28, 1998. Shares outstanding and per
share amounts have been restated for prior years.
In June 1997 the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting of
comprehensive income. This pronouncement requires that all items be recognized
as components of comprehensive income, as defined in the pronouncement, be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income included all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The financial statement presentation required under
Statement No. 130 is effective for all fiscal year's beginning after December
15, 1997. The Company had planned to adopt Statement No. 130 in fiscal 1998, but
due to the pending sale of the Company, management decided to delay adoption. As
of August 31, 1998, the impact of adopting this pronouncement has not been
determined, however; the Company expects it will be affected by it.
7
<PAGE>
<PAGE>
DEKALB Genetics Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
- -------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
amends the requirements for a public enterprise to report financtial and
descriptive information about its reportable operating segments. Operating
segments, as defined in the pronouncement, are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the company in deciding how to allocate resources and in accessing performance.
The financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The disclosures required by Statement No. 131 are
effective for all fiscal years beginning after December 15, 1997. The Company
had planned to adopt Statement No. 131 in fiscal 1998, but due to the pending
sale of the Company, management decided to delay adoption. This pronouncement
will have an affect on the Company's reporting in the subsequent periods.
However, as of August 31, 1998, the impact of this pronouncement has not been
determined.
In July 1998 the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," which
replaces existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. The Company plans
to adopt Statement No. 133 in fiscal 1999. This pronouncement will have an
affect on the Company's reporting in the subsequent periods. However, as of
August 31, 1998, the impact of this pronouncement has not been determined.
8
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
B. STOCK SPLIT
During fiscal year 1997 the Company declared a two-for-one stock split
effected in the form of a stock dividend. Shares were distributed on August
8, 1997 to holders of record on July 25, 1997. The Company's annual cash
dividend was subsequently adjusted to 14 cents per share from 28 cents per
share.
In fiscal 1996, the Company declared a three-for-one stock split effected in
the form of a stock dividend to holders of record May 10, 1996 with shares
being distributed on May 24, 1996. Following this split, the quarterly cash
dividend was increased five percent.
All share numbers and earnings per share information in this document have
been adjusted to reflect these stock splits.
C. STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
for the years ended August 31 - in millions 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) INTEREST EXPENSE, NET
Interest expense $ (12.6) $ (7.5) $ (8.3)
Interest income 3.1 2.6 2.2
- --------------------------------------------------------------------------------
Interest Expense, net $ (9.5) $ (4.9) $ (6.1)
================================================================================
for the years ended August 31 - in millions 1998 1997 1996
- --------------------------------------------------------------------------------
(2) OTHER INCOME, NET
Equity in net earnings of related companies $ 4.7 $ 4.0 $ 1.7
Gain(Loss) on sale of fixed assets (0.6) 0.6 0.2
All others, net (3.7) (0.6) (0.5)
- --------------------------------------------------------------------------------
Other income, net $ 0.4 $ 4.0 $ 1.4
================================================================================
<CAPTION>
for the years ended August 31 - in millions 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(3) RESEARCH AND DEVELOPMENT EXPENSE
DEKALB Seed $ 70.3 $ 50.2 $ 40.9
DEKALB Swine 6.8 7.1 6.7
- --------------------------------------------------------------------------------
Research and development expense $ 77.1 $ 57.3 $ 47.6
================================================================================
</TABLE>
9
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
D. RECEIVABLES
<TABLE>
<CAPTION>
at August 31 - in millions 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts and notes $ 66.1 $ 64.9
Employees 1.8 2.1
Related companies 0.7 0.2
Other 8.2 5.6
- --------------------------------------------------------------------------------
$ 76.8 $ 72.8
Less allowance for doubtful accounts $ 7.3 $ 5.3
- --------------------------------------------------------------------------------
Receivables, net $ 69.5 $ 67.5
================================================================================
</TABLE>
E. INVENTORIES
<TABLE>
<CAPTION>
at August 31 - in millions 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
At lower of cost or market:
Commercial seed-average cost $ 168.8 $ 124.5
Commercial swine-average cost 9.3 10.0
Supplies and other-principally first-in, first-out 6.4 4.6
- --------------------------------------------------------------------------------
Inventories $ 184.5 $ 139.1
================================================================================
</TABLE>
10
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
F. PROPERTY, PLANT AND EQUIPMENT, NET (AT COST)
<TABLE>
<CAPTION>
at August 31 - in millions 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 9.5 $ 9.6
Buildings 124.3 97.7
Equipment 150.2 156.0
Other 36.0 11.9
Construction in progress 72.1 45.9
- --------------------------------------------------------------------------------
392.1 321.1
Less accumulated depreciation and amortization 154.3 155.0
- --------------------------------------------------------------------------------
Property, plant and equipment, net $ 237.8 $ 166.1
================================================================================
</TABLE>
G. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
at August 31 - in millions 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Current income taxes $ 4.1 $ 2.9
Payroll 9.9 8.4
Vacation 3.4 3.2
Pensions and other credits 0.5 3.3
Insurance 1.8 2.5
Taxes, other than income 3.4 3.5
Production costs 10.4 10.8
Other 15.7 11.5
- ---------------------------------------------------------------------------
Other current liabilities $ 49.2 $ 46.1
===========================================================================
</TABLE>
11
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
H. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
During 1995, the Company adopted Statement of Financial Accounting Standards
No. 119, "Disclosures About Derivative Financial Instruments and Fair Value
of Financial Instruments". This statement in conjunction with Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments" requires certain disclosures about the fair value of
financial instruments, including derivative financial instruments for which
it is practicable to estimate fair value.
The following methods and assumptions were used to estimate the fair market
value of each class of financial instrument.
TRADE ACCOUNTS AND NOTES RECEIVABLE
The carrying amount of the Company's trade accounts and notes receivable
approximates market value.
SHORT-TERM AND LONG-TERM DEBT
Short-term debt represents borrowings against lines of credit with various
banks. The weighted average interest rate on short-term borrowings for
fiscal 1998 was approximately 6.0%. At August 31, 1998, committed lines of
credit available to DEKALB included a $50 million revolving credit agreement
and $15 million in credit facilities for a 364 day period.
The revolving credit agreement provides credit for general purposes and is
committed through December 31, 2003, but may be extended annually for
successive one year periods with the consent of the lending banks. The line
of credit requires a step-down to $20.0 million for any one day during each
year. The agreement contains various restrictions on the activities of the
Company as to minimum tangible net worth, amount and type of indebtedness
and the acquisition or disposition of capital shares or assets of the
Company and its subsidiaries. At August 31, 1998, tangible net worth was
approximately $172.5 million, which meets these covenant requirements. The
Company pays a commitment fee of 1/10 of 1% for the active portion of its
line of credit. The base amount of $20.0 million is available throughout the
year. An additional $30.0 million available for seasonal needs during six
months of the year beginning as early as October 31, of any year but no
later than December 31 of the same year. The available line of credit at
August 31, 1998 was entirely unused.
The $15 million in credit facilities carry a 5 basis point fee on the unused
portion of the commitment. The line was fully utilized in fiscal 1998 and,
therefore, no fees were required.
The carrying amount of the Company's long-term debt and all the Company's
short-term debt approximates market value because rates on those debt
agreements are variable and are set periodically based on current rates
during the year. Exceptions would be the $20 million long-term loan which
has a fixed rate of 7.15%, two $5 million long-term loans which have fixed
rates of 7.56% and 6.98%, respectively, two $10 million long-term loans with
fixed rates of 6.93% and 6.5%, respectively, a $4 million long-term loan
with a fixed rate of 10.25% and a $5 million long-term loan with a fixed
rate of 10.5%. The Company estimated the market value of its long-term debt
by utilizing a discounted cash flow methodology.
12
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
H. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES (CONTINUED)
SWAP AGREEMENTS
The Company has entered into interest rate swap agreements with third
parties to manage interest rate movements on the majority of its variable
rate term debt. At August 31, 1998, the Company had swap agreements with an
aggregate notional principal amount of $40 million and an average interest
rate of 6.0 percent, maturing in fiscal 2003. Any interest rate differential
on these swap agreements is recognized in interest expense, net over the
terms of the agreements. The interest expense related to swap agreements was
$0.1 million for years 1998, 1997 and 1996. The Company is exposed to credit
loss in the event of nonperformance by the other parties to the agreements.
However, the Company does not anticipate nonperformance by any of those
parties. The Company estimated the market value of its interest rate swap
agreements by utilizing a discounted cash flow methodology.
DERIVATIVES
DEKALB has contractual commitments with seed growers for payments based on
local market corn and soybean commodity prices. To mitigate the impact of
fluctuation in these prices on inventory costs, the Company hedges these
payments by using Chicago Board of Trade corn and soybean futures contracts.
Growers not priced at the end of August are normally priced by March, at
which time the related futures contracts are closed. The Company estimates
the timing of grower payment pricing to determine the futures maturities. In
addition, the Company, from time to time, hedges its exposure to price
fluctuations in grain used for swine feed. Gains or losses on these hedge
positions are included as a component of the applicable year's inventory. At
August 31, 1998 and 1997, the Company had corn and soybean futures contracts
outstanding with a contract market value of $28.8 million and $1.6 million,
respectively. Margin deposits for open futures and/or option contracts are
recorded as other current assets.
DEKALB sells market hogs, which are by-products from the production of
breeding animals, to independent processing and packing firms at the premium
to the major market averages. The Company periodically hedges against the
exposure of price fluctuations in these markets by using Chicago Mercantile
Exchange hog futures contracts. At August 31, 1998 the Company had hog
futures contracts outstanding with a contract market value of $0.1 million.
At August 31, 1997, the Company had no hog futures contracts outstanding.
As of August 31, 1998 the net unrecognized loss on open futures contracts
was $5.0 million. As of August 31, 1997 the net unrecognized gain on open
futures contracts was $0.1 million.
The Company reviews potential foreign currency risks on an on-going basis
and is party to forward contracts in the management of its foreign currency
exposure related to royalty income and export sales. In order to reduce its
exposure to foreign currency fluctuation related to royalty payments from
its French licensee and export receipts from its Italian subsidiary, the
Company utilizes foreign currency forward contracts with maturities that
mirror the anticipated receipts and payments in October and November. At
August 31, 1998 and 1997, the Company had French franc forward contracts
outstanding with an aggregate contract market value of $4.4 million and $6.3
million, respectively, and Italian lira forward contracts outstanding with
an aggregate contract market value of $4.9 million and $5.8 million,
respectively. Other foreign currency transactions occur in the Argentine
peso and the Canadian dollar, although there were no foreign currency
contracts outstanding for those currencies at year end. The Company had an
unrealized gain of $0.2 million in fiscal 1998 and $1.5 million in fiscal
1997 related to the aggregate of all foreign currency contracts.
The fair value of cash equivalents, receivables, short-term borrowings,
long-term debt, and interest rate swaps approximates carrying value at
August 31, 1998.
13
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
I. LONG-TERM DEBT
<TABLE>
<CAPTION>
at August 31 - in millions 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Term loans, variable rates, due 2000-2003 $ 55.0 $ 50.0
Term loans, 7.15% fixed rate, due from 1999-2007 20.0 20.0
Term loan, 7.56% fixed rate, due from 1999-2005 5.0 5.0
Term loan, 6.98% fixed rate, due from 1999-2006 5.0 5.0
Term loan, 6.93% fixed rate, due 2003 10.0 10.0
Term loan, 6.50% fixed rate, due 2003 10.0 --
Term loan, 10.25% fixed rate, due 2000 4.0 --
Term loan, 10.50% fixed rate, due 2000 5.0 --
- -------------------------------------------------------------------------------
114.0 90.0
Less current maturities 1.1 --
- -------------------------------------------------------------------------------
Net long-term debt $ 112.9 $ 90.0
===============================================================================
</TABLE>
The variable rate term loan agreements allow the Company to borrow at rates
based on the London Interbank Offer Rate on Eurodollar deposits (LIBOR). At
August 31, 1998, interest on the variable rate term loans was at a rate of
approximately 6.0%.
All of the term loans contain similar restrictive covenants. The most
restrictive of these covenants requires the maintenance of a minimum
tangible net worth. At August 31, 1998, the Company is in compliance with
all the debt covenants.
Aggregate maturities for the years ending August 31, 2000 through 2002 are
$10.4 million, $4.3 million, and $15.3 million, respectively. The remaining
$82.9 million matures between 2003 and 2007. There are long-term debt
maturities of $1.1 million in 1999.
J. SAVINGS AND INVESTMENT PLAN
Effective September 1, 1995, the Company provides to each full and part-time
employee a guaranteed contribution to the Savings and Investment Plan
(401(k)). For fiscal 1996, the contribution was one percent of each
employee's compensation covered by the Plan. Beginning in fiscal 1997, the
Company's guaranteed compensation-based contribution is equal to two percent
of each employee's pay.
Additionally, each full and part-time DEKALB employee can voluntarily
contribute to the Savings and Investment Plan. The plan provides for DEKALB
to match a minimum of $.50 for every dollar contributed by employees, to the
extent employees contribute up to 6% of their salaries. Additional
discretionary awards may also be contributed when warranted by results of
operations. DEKALB's contributions charged to expense under this plan were
$2.0 million, $3.8 million, and $3.9 million for the years ended August 31,
1998, 1997, 1996, respectively.
14
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
K. COMMITMENTS AND CONTINGENT LIABILITIES.
DEKALB is a defendant in various legal actions arising in the course of
business activities. In the opinion of the Company's management, these
actions will not result in a material adverse effect on DEKALB's
consolidated results of operations or financial position. Additional
information is in Part I, Item 3 Legal Proceedings in this Form 10-K.
DEKALB is self-insured against property losses on the majority of its
operating facilities.
DEKALB's total rental and lease expense for fiscal years 1998, 1997 and 1996
was $15.7 million, $9.7 million and $6.7 million, respectively.
L. INCOME TAX
<TABLE>
<CAPTION>
for the year ended August 31 - in millions 1998 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $ (0.3) $ 4.4 $ 5.9
State (0.5) 1.4 1.1
Foreign 10.1 5.8 2.3
----------------------------------------------------------------------------------------
$ 9.3 $ 11.6 $ 9.3
----------------------------------------------------------------------------------------
Deferred provision:
Federal (1.9) 5.1 $ 1.9
State (1.1) 1.1 (0.4)
Foreign (1.4) (0.2) 0.3
----------------------------------------------------------------------------------------
$ (4.4) $ 6.0 $ 1.8
----------------------------------------------------------------------------------------
Total income tax provision $ 4.9 $ 17.6 $11.1
========================================================================================
</TABLE>
The significant components of the company's deferred tax assets and deferred
tax liabilities are presented below:
<TABLE>
<CAPTION>
as of August 31 - in millions 1998 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Research Expenditures $ 5.8 $ 4.9
Benefit Plans 3.9 2.8
Inventory 11.3 4.8
Other 7.7 5.2
------------------------------------------------------------------------------------------
Total Gross Deferred Tax Assets $ 28.7 $ 17.7
Valuation Allowance (2.8) (0.8)
------------------------------------------------------------------------------------------
Gross Deferred Tax Assets $ 25.9 $ 16.9
------------------------------------------------------------------------------------------
Deferred tax liabilities:
Purchase Price Allocations (10.2) (10.2)
Undistributed Foreign Earnings (4.7) (4.8)
Depreciation (12.9) (6.9)
Other (6.7) (8.2)
------------------------------------------------------------------------------------------
Gross Deferred Tax Liabilities $(34.5) $(30.1)
------------------------------------------------------------------------------------------
Net Deferred Tax Liability $ (8.6) $(13.2)
==========================================================================================
</TABLE>
15
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
The net deferred tax liability disclosed above equals the deferred tax on
the balance sheet. The footnote disclosure classified the components as
assets or liabilities while the balance sheet discloses the current and
long-term portion of those two classifications. The valuation allowance
relates to those deferred tax assets that may not be fully realized.
Total tax provisions (benefits) resulted in amounts differing from those
based on the statutory federal income tax rates. The reasons for these
differences are:
<TABLE>
<CAPTION>
for the years ended August 31 - in millions 1998 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate $ 5.3 $ 16.2 $ 9.9
State and local taxes (1.1) 1.7 1.0
International operations (0.3) (0.3) (0.1)
Qualified export activity - (0.1) (0.1)
Research credits (2.1) (0.7) -
Other 3.1 0.8 0.4
-------------------------------------------------------------------------------------------------------
Income tax provision $ 4.9 $ 17.6 $ 11.1
========================================================================================================
</TABLE>
The domestic and foreign components of earnings before taxes of
consolidated companies were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
for the years ended August 31 - in millions 1998 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ (5.2) $ 35.8 $ 25.3
Argentina 19.0 8.3 2.3
Other Non-U.S. 1.4 2.3 0.5
-------------------------------------------------------------------------------------------------------
Total earnings before taxes $ 15.2 $ 46.6 $ 28.1
=======================================================================================================
</TABLE>
16
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
M. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended August 31, 1998 and 1997. DEKALB's North American seed
operations comprise a significant portion of its business. DEKALB generally
delivers only a minor portion of North American seed in the first quarter,
delivers more than half in the second quarter, and substantially all the
seed is delivered by the end of the third quarter. The Company defers first
quarter expenses and anticipates fourth quarter expenses and matches these
expenses against second and third quarter revenues. Third quarter results
also reflect estimates of seed product returns. Consequently, fourth quarter
earnings include adjustments for those earlier estimates.
The total of four quarters' earnings per share might not equal the earnings
per share for the year due to the application of the treasury stock method
and market price changes.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
in millions except per share amounts -
three months ended the last day of November February May August
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 62.8 $213.8 $219.9 $ 5.7
Cost of Revenues 34.1 106.5 124.2 10.4
Net earnings 2.7 19.3 2.8 (14.5)
Basic earnings per share 0.08 0.56 0.08 (0.42)
Diluted earnings per share $ 0.08 $ 0.53 $ 0.08 $ (0.40)
=====================================================================================================================
1997
Revenues $ 67.1 $192.3 $178.6 $ 13.4
Cost of Revenues 38.9 93.4 89.0 9.2
Net earnings 2.1 16.3 13.1 (2.7)
Basic earnings per share 0.06 0.48 0.38 (0.08)
Diluted earnings per share $ 0.06 $ 0.46 $ 0.36 $ (0.07)
=====================================================================================================================
</TABLE>
17
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
N. OPERATION BY GEOGRAPHIC AREA
Information on DEKALB's operations by geographic area for fiscal years
1998, 1997 and 1996 is shown below. Operating earnings are equal to total
revenues less expenses of the geographic areas, excluding interest and
general corporate expenses. Transfers of products between geographic areas
are at prices approximating those charged to unaffiliated customers and are
not material to any geographic area.
--------------------------------------------------------------------
August 31 - in millions 1998 1997 1996
--------------------------------------------------------------------
Revenues
United States $ 372.8 $ 343.6 $ 300.9
Argentina 87.3 67.3 49.8
Other Non-U.S. 42.1 40.5 36.8
--------------------------------------------------------------------
$ 502.2 $ 451.4 $ 387.5
====================================================================
Operating Earnings
United States $ 0.4 $ 38.2 $ 30.1
Argentina 24.6 11.7 5.6
Other Non-U.S. 5.0 5.9 3.7
--------------------------------------------------------------------
$ 30.0 $ 55.8 $ 39.4
====================================================================
Equity in Earnings
Other Non-U.S. $ 4.7 $ 4.0 $ 1.7
====================================================================
Identifiable Assets
United States $ 452.1 $ 332.4 $ 256.8
Argentina 120.1 86.0 77.7
Other Non-U.S. 18.6 31.2 28.8
--------------------------------------------------------------------
$ 590.8 $ 449.6 $ 363.3
====================================================================
Consolidated net assets included approximately $69.6 million
at August 31, 1998 and $55.8 million at August 31, 1997,
located in countries other than the United States.
Consolidated net earnings included approximate earnings of
$22.3 million in fiscal year 1998 and $13.7 million in fiscal
year 1997 from these countries.
18
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
O. PENSION Prior to fiscal 1994, the Company provided employees a
PLANS noncontributory pension plan covering substantially all domestic
employees who met age and service requirements. Benefits provided
under this pension plan are based primarily on each employee's
career earnings up until the suspension of the plan on October 1,
1993. Plan assets consist primarily of stocks and U.S. government
securities. At the time of suspension, the Company recognized a
pre-tax curtailment benefit of $3.7 million.
In addition, DEKALB has a supplemental noncontributory pension
plan covering certain management employees, which is not funded.
Benefits are based mainly on each participant's years of service,
final average compensation, and estimated benefits received from
certain other benefit plans. This plan was suspended in fiscal
1994 and reinstated in fiscal 1997. During fiscal 1998 the
Company recorded an expense of $0.2 million.
The components of total estimated pension income (expense) for
the two plans are as follows:
<TABLE>
<CAPTION>
August 31 - in millions
1998 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost - benefits earned during the year $ 0.2 $ 0.1 $ --
Interest cost on projected benefit obligations 1.0 0.9 0.7
Actual return on plan assets (0.3) (2.4) (1.2)
Net amortization and deferral (0.6) 1.6 0.3
----------------------------------------------------------------------------------------
Net Pension Income (Expense) $ 0.3 $ 0.2 $(0.2)
========================================================================================
</TABLE>
19
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
O. PENSION Actuarial assumptions for August 31, 1998 are a discount rate
PLANS of 7.00% and a return on plan PLANS assets of 8.5%.
(CONTINUED) Assumptions for August 31, 1997 are a discount rate of 7.25%
and a return on plan assets of 8.5%.
A reconciliation of the funded status to accrued pension
expense is as follows:
<TABLE>
<CAPTION>
Funded Plan Unfunded Plan
August 31 - in millions 1998 1997 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefits
based on service to date
and present pay levels:
Vested $ 8.4 $ 7.6 $ 1.8 $ 1.9
Nonvested 0.7 0.9 0.1 -
--------------------------------------------------------------------------------------------------
9.1 8.5 1.9 1.9
Accumulated benefit obligation
Additional amounts related to projected
pay increases - - 3.7 3.2
--------------------------------------------------------------------------------------------------
Projected benefit obligation 9.1 8.5 5.6 5.1
Plan assets at fair market value 8.7 9.6 - -
--------------------------------------------------------------------------------------------------
Plan assets less than
projected benefit obligation (0.4) 1.1 (5.6) (5.1)
Unrecognized loss
from experience 2.7 1.1 4.5 4.2
Unrecognized net transition asset (2.0) (2.3) - -
--------------------------------------------------------------------------------------------------
Accrued pension expense included
in the Consolidated Balance Sheet $ 0.3 $ (0.1) $ (1.1) $ (0.9)
==================================================================================================
</TABLE>
The Company has obligations under termination indemnification
plans in several foreign countries, but does not have any
foreign defined benefit pension plans as defined in Financial
Accounting Standard No. 87.
20
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
P. INFORMATION ON RELATED COMPANIES
The following is summarized financial information for DEKALB's less than 50
percent owned operations:
<TABLE>
<CAPTION>
Balance Sheets
---------------------------------------------------------------------
at August 31 - in millions 1998 1997
---------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets $17.7 $17.7
Non-current assets 2.6 2.6
---------------------------------------------------------------------
Total Assets $20.3 $20.3
=====================================================================
LIABILITIES
Current liabilities $ 3.9 $ 3.6
Non-current liabilities 2.9 3.1
---------------------------------------------------------------------
Total Liabilities $ 6.8 $ 6.7
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Summary of Earnings
-----------------------------------------------------------------------------------
for the years ended August 31 - in millions 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $25.8 $ 23.3 $ 15.5
===================================================================================
Gross Profit $14.3 $ 12.9 $ 7.1
===================================================================================
Net Earnings $ 9.3 $ 8.1 $ 3.4
===================================================================================
DEKALB's Equity in Net Earnings $ 4.7 $ 4.0 $ 1.7
===================================================================================
</TABLE>
DEKALB's investments in related companies are carried at cost plus equity
in undistributed net earnings and losses since dates of acquisition.
Carrying values approximate DEKALB's interest in the net assets of these
related companies. Dividends received from related companies were $3.9
million in fiscal year 1998 and $1.8 million in fiscal year 1997. No
dividends were received in fiscal year 1996.
21
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Q. INCENTIVE PLANS
In August, 1988, the Company initially adopted a Long-Term Incentive Plan
which provided for the awarding of stock appreciation rights (SARs),
restricted stock and incentive and nonqualified options to purchase Class A
or Class B Common Stock of the Company. The Company's Stock Option Committee
may make awards of SARs, restricted stock or stock options to certain
officers and key employees of the Company. All stock options may be granted
at no less than fair market value of the Company's stock at the date of
grant and are exercisable within periods specified by the Stock Option
Committee.
The following share information reflects the two-for-one and the
three-for-one stock splits.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
Class A Class A Class A
---------- ---------- ----------
<S> <C> <C> <C>
Shares under option at beginning of year 1,623,114 1,517,136 1,422,924
Activity:
Granted 372,550 267,000 343,800
Exercised (25,523) (133,122) (239,382)
Canceled (2,134) (27,900) (10,206)
---------- ---------- ----------
Shares under option at end of year 1,968,007 1,623,114 1,517,136
========== ========== ==========
Shares available for future grants as of
August 31 1,530,792 1,622,914 2,140,308
Shares vested and exercisable as of August 31 1,315,361 1,043,514 917,934
Price range of options exercised $4.46 - $30.38 $ 0.33 - $ 8.04 $ 4.40 - $6.25
Price range of shares under option at end
of year $0.33 - $30.38 $ 0.33 - $30.38 $ 0.33 - $8.04
</TABLE>
In fiscal 1991, the shareholders also approved a Director Stock Option Plan
which gives outside directors an election to receive options to purchase
Class A Common Stock (which options have a discounted exercise price) in
lieu of annual retainer and meeting fees. The 25% discount in the exercise
price, multiplied by the number of shares subject to the option, equals the
annual retainer and meeting fees the directors would have received. Total
expense for the Director Stock Option Plan was $0.1 million in each of the
fiscal years 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
Class A Class A Class A
------------------ ------------------ ------------------
<S> <C> <C> <C>
Shares under option at beginning of year 390,138 390,166 323,472
Activity:
Granted 23,379 20,972 69,678
Exercised (34,495) (21,000) (2,984)
Canceled (273) - -
------------------ ------------------ ------------------
Shares under option at end of year 378,749 390,138 390,166
================== ================== ==================
Shares available for future grants as of 86,688 109,774 130,746
August 31
Shares vested as of August 31 378,749 390,138 390,166
Shares exercisable as of August 31 355,370 369,166 320,488
Price range of options exercised $ 3.35 - $ 6.03 $ 3.35 - $ 3.38 $ 4.19
Price range of shares under option at end $ 3.35 - $22.03 $ 3.35 - $22.03 $ 3.35 - $ 6.03
of year
</TABLE>
22
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Q. INCENTIVE PLANS (CONTINUED)
The Company applies APB 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for stock
options granted under the August 1998 Long Term Incentive Plan. If
compensation costs for stock options had been determined based on the fair
value at the grant dates for awards under these plans consistent with the
method of SFAS 123, the Company's net earnings and net earnings per share
would have been reduced to the pro forma amounts indicated as follows:
1998 1997
---------- ---------
Net Earnings: ($ in millions)
As Reported $ 10.3 $ 28.8
Pro Forma $ 7.8 $ 27.6
Basic Earnings Per Share:
As Reported $ 0.30 $ 0.84
Pro Forma $ 0.23 $ 0.81
Diluted earnings per share
As reported $ 0.28 $ 0.81
Pro forma $ 0.21 $ 0.77
In accordance with SFAS 123, the fair value approach to valuing stock
options used for pro forma presentation has not been applied to stock
options granted prior to September 1, 1995. The compensation cost calculated
under the fair value approach is recognized over the vesting period of the
stock options.
The weighted average fair value of options granted was $18.59 per share and
$17.20 per share during 1998 and 1997, respectively. The fair value is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1998 and
1997, respectively: dividend yield of 0.2% and 0.4%; expected volatility of
45.4% and 32.8%; risk-free interest rates of 5.3% and 6.5%; and an expected
life of seven years.
R. INDUSTRY SEGMENT
The following industry segment information summarized DEKALB's operations
as of and for the years ended August 31, 1998, 1997, and 1996.
Operating earnings are total sales and revenues less operating expenses of
the segments, excluding interest, and general corporate allocations.
No customer accounted for 10 percent or more of total operating revenues.
23
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
R. INDUSTRY SEGMENT (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------
August 31 - in millions 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
-----------------------------------------------------------
Seed <F1> $ 453.1 $ 394.8 $ 340.4
Swine 49.1 56.6 47.1
-------- -------- --------
$ 502.2 $ 451.4 $ 387.5
======== ======== ========
Earnings (Loss) Before Income Taxes
-----------------------------------------------------------
Seed:
Operating earnings $ 35.0 $ 54.3 $ 39.2
Equity in net earnings of related companies 4.7 4.0 1.7
-------- -------- --------
$ 39.7 $ 58.3 $ 40.9
Swine (5.0) 1.5 0.2
-------- -------- --------
Total Operations $ 34.7 $ 59.8 $ 41.1
General corporate expenses (10.0) (8.5) (6.9)
Net interest expense (9.5) (4.9) (6.1)
-------- -------- --------
$ 15.2 $ 46.4 $ 28.1
======== ======== ========
Identifiable Assets
-----------------------------------------------------------
Seed $ 561.2 $ 413.1 $ 329.8
Swine 29.4 36.1 32.7
Discontinued Operations 0.2 0.4 0.8
-------- -------- --------
$ 590.8 $ 449.6 $ 363.3
======== ======== ========
Depreciation and Amortization Expense
-----------------------------------------------------------
Seed $ 13.3 $ 11.6 $ 9.1
Swine 2.2 2.2 2.2
-------- -------- --------
$ 15.5 $ 13.8 $ 11.3
======== ======== ========
Property Additions
-----------------------------------------------------------
Seed $ 88.3 $ 57.6 $ 28.5
Swine 2.0 1.8 2.2
-------- -------- --------
$ 90.3 $ 59.4 $ 30.7
======== ======== ========
<FN>
<F1> Consolidated revenues do not include approximately $135 million
in fiscal year 1998, $155 million in fiscal year 1997 and $145
million in fiscal year 1996 of DEKALB seed sold under royalty
agreements with non-consolidated affiliates and licensees or
recognized by equity companies. (Footnote P).
</TABLE>
24
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
S. DISCONTINUED OPERATIONS
On April 28, 1995, the Company sold its poultry operations to Central Farm
of America, Inc., an affiliate of Toshoku, Ltd., for $12.5 million cash.
Accordingly, the poultry business is reported as a discontinued operation
and the consolidated financial statements have been reclassified to report
separately the net assets and operating results of the business. The
Company's operating results for prior years have been restated to reflect
continuing operations.
Net earnings from discontinued operations in fiscal 1995 included an
operating loss of $0.5 million, net of $0.5 million tax benefit and a net
gain on the sale of $1.7 million, net of $0.5 million tax expense. Revenues
for discontinued operations were $12.1 million for the eight months of
fiscal 1995. Net assets of the discontinued operations at August 31, 1998
amounted to $0.2 million.
T. MONSANTO TRANSACTION
On January 31, 1996, the Company entered into a series of agreements with
Monsanto Company (Monsanto), including an agreement which provides for a
long-term research and development collaboration with Monsanto in the field
of agricultural biotechnology, particularly corn seed. DEKALB and Monsanto
also entered into cross-licensing agreements covering insect-resistant and
herbicide-tolerant corn products. The two companies share the royalties
received from third parties relating to the patents covered by such
cross-licensing agreements.
During the third quarter of fiscal 1996, DEKALB completed a sale of equity
to Monsanto as part of an Investment Agreement. The two-for-one stock split
to shareholders of record on July 25, 1997, and the three-for-one stock
split to shareholders of record on May 10, 1996 are reflected in the
following share and price information. During fiscal 1996, Monsanto
purchased from DEKALB 0.5 million newly issued shares of DEKALB Class A
(voting) Common Stock at a price per share of $ 10.83 and 2.8 million newly
issued shares of Class B (non-voting) Common Stock at a price per share of
$10.83. As a result of the new stock issued to Monsanto, the total number of
outstanding shares of Common Stock of the Company rose to over 34.0 million
from about 31.2 million.
During fiscal 1996, Monsanto also acquired 10.4 million shares of DEKALB's
publicly traded Class B Common Stock in a separate cash tender offer at a
price of $11.83 per share. Upon completion of the tender offer, Monsanto
held 10 percent of the Class A voting shares and approximately 43 percent of
the Class B non-voting shares. As of August 31, 1997, Monsanto held 0.5
million shares of Class A and 13.2 million shares of Class B Common Stock.
This represents approximately 10 percent of Class A and 44 percent of Class
B non-voting shares. In accordance with the Investment Agreement, Monsanto
acquired an additional 0.2 million shares of DEKALB's publicly traded Class
B Common Stock at $40.38 per share during fiscal 1998. As of August 31,
1998, Monsanto held 0.5 million shares of Class A and 13.3 million shares of
Class B Common Stock representing approximately eleven percent of Class A
voting shares and 44 percent of Class B non-voting shares.
Additionally, DEKALB received $4.0 million from Monsanto in March, 1996,
$3.0 million in February, 1997, $3.0 million in January, 1998, and $3.0
million in March, 1998. These payments represent the first four installments
under the companies' collaboration agreement, which calls for total payments
of $18.2 million over the term of the agreement.
On May 11, 1998, DEKALB announced that it had entered into an Agreement with
Monsanto Company providing for Monsanto to acquire all of the shares of
DEKALB capital stock that it did not already own. Pursuant to the agreement,
on May 15, 1998, Monsanto commenced a cash tender offer for all of the
common
25
<PAGE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
stock of DEKALB at $100 net per share. The second step of the transaction
will be a merger in which any remaining stock of DEKALB will be exchanged
for cash at the same price per share paid in the tender offer. If the tender
offer is not completed by May 9, 1999, the offer price will increase by 50
cents per share on the tenth day of each month, starting on May 10.
The tender offer is conditioned on the expiration of the Hart-Scott-Rodino
Act waiting period and other customary conditions. On June 3, 1998, DEKALB
and Monsanto announced that they received requests for additional
information and other documentary materials from the U.S. Department of
Justice under the Hart-Scott-Rodino Act. Monsanto is required to extend the
tender offer pending satisfaction of the Hart-Scott-Rodino Act waiting
period and the other conditions to the offer, but in no event beyond
November 9, 1999, unless the offer is earlier terminated in accordance with
the terms of the merger agreement.
As of November 30, 1998, Monsanto and the Antitrust Division of fhe U.S.
Department of Justice have concluded extensive discussions regarding
Monsanto's proposed acquisition of DEKALB Genetics Corporation. Monsanto
officials believe they have resolved all issues raised by the Division, and,
as a result, intend to close the tender offer for the outstanding shares of
DEKALB Class A and Class B Common Stock, in accordance with the terms
previously announced.
Monsanto's tender offer for all the outstanding shares of Class A and Class
B Common Stock of DEKALB at a purchase price of $100 in cash per share
expires at 5 p.m. ET, on Monday, November 30, 1998, unless extended.
26
