UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended November 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number : 0-7908
PIONEER HI-BRED INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Iowa 42-0470520
------------------------------------------------------------ ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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700 Capital Square, 400 Locust, Des Moines, Iowa 50309
--------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (515) 248-4800
--------------
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 29, 1997
- ----------------------------- --------------------------------
Common Stock ($1.00 par value) 65,756,873
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PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Condensed Balance Sheets -- November 30, 1997,
August 31, 1997, and November 30, 1996......................... 3-4
Consolidated Condensed Statements Of Operations-- Three Months
Ended November 30, 1997 and 1996............................... 5
Consolidated Condensed Statements Of Cash Flows-- Three Months
Ended November 30, 1997 and 1996............................... 6
Notes to Consolidated Condensed Financial Statements............. 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 9-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 13
Signatures................................................................ 14
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2
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PART I - FINANCIAL INFORMATION
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
<TABLE>
<CAPTION>
November 30, August 31, November 30,
<S> <C> <C> <C>
ASSETS 1997 1997 1996
----------- ----------- ------------
CURRENT ASSETS
Cash and cash equivalents........... $ 76 $ 97 $ 68
Accounts and notes receivable, net.. 237 301 178
Inventories:
Finished seed..................... 429 245 415
Unfinished seed................... 372 186 401
Other............................. 11 9 12
Deferred income taxes............... 63 57 54
Prepaid expenses and other
current assets.................. 11 6 7
-------- -------- --------
Total current assets................ $ 1,199 $ 901 $ 1,135
LONG-TERM ASSETS........................ 79 93 83
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
November 30, 1997 - $509
August 31, 1997 - $500
November 30, 1996 - $495............ 554 545 523
INTANGIBLES............................. 65 64 51
-------- -------- --------
$ 1,897 $ 1,603 $ 1,792
======== ======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
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PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
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<CAPTION>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' November 30, August 31, November 30,
EQUITY 1997 1997 1996
------------ ---------- ------------
CURRENT LIABILITIES
Short-term borrowings................. $ 85 $ 91 $ 215
Current maturities of long-term debt.. 6 6 12
Accounts payable, trade............... 340 85 399
Accrued compensation.................. 33 60 37
Income taxes payable.................. 9 26 16
Other accruals........................ 51 61 43
-------- -------- --------
Total current liabilities........... $ 524 $ 329 $ 722
-------- -------- --------
LONG-TERM DEBT............................ $ 19 $ 19 $ 25
-------- -------- --------
DEFERRED ITEMS,
Retirement benefits................... $ 84 $ 80 $ 72
Income taxes.......................... 19 20 14
-------- -------- --------
$ 103 $ 100 $ 86
-------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES......... $ 6 $ 7 $ 5
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $100 stated value.. $ 16 $ -- $ --
Common stock, $1 par value.......... 76 93 93
Additional paid-in capital.......... 227 43 23
Retained earnings................... 1,360 1,436 1,207
Unrealized gain on available-for-sale
securities, net................... 12 19 13
Cumulative translation adjustment... (31) (26) (5)
-------- -------- --------
$ 1,660 $ 1,565 $ 1,331
Less: Cost of common shares
acquired for the treasury........... (393) (393) (365)
Unearned compensation............... (22) (24) (12)
-------- -------- --------
$ 1,245 $ 1,148 $ 954
-------- -------- --------
$ 1,897 $ 1,603 $ 1,792
======== ======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
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PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in millions)
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<CAPTION>
Three Months Ended
November 30,
1997 1996
--------- ---------
<S> <C> <C>
Net sales.......................................... $ 79 $ 90
-------- --------
Operating costs and expenses:
Cost of goods sold............................... $ 51 $ 50
Research and product development................. 34 30
Selling.......................................... 55 51
General and administrative....................... 28 30
-------- --------
$ 168 $ 161
-------- --------
Operating (loss)................................. $ (89) $ (71)
Investment income.................................. 18 4
Interest expense................................... (2) (2)
Net exchange (loss)................................ (5) (2)
-------- --------
(Loss) before items shown below.................. $ (78) $ (71)
Provision for income taxes......................... 27 27
Minority interest and other........................ -- (1)
-------- --------
Net (loss)....................................... $ (51) $ (45)
Preferred stock dividend........................... 4 --
-------- --------
Net (loss) attributable to common shareholders... $ (55) $ (45)
======== ========
Net (loss) per common share*....................... $ (.73) $ (.55)
Dividends per common share*........................ $ .26 $ .23
Average common shares outstanding.................. 75.3 82.4
* Not in millions
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
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PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1997 1996
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss)....................................... $ (51) $ (45)
Noncash items included in net (loss):
Depreciation and amortization.................. 22 19
Other.......................................... (12) 6
Net change in assets and liabilities............. (104) (151)
-------- --------
Net cash used in operating activities.......... $ (145) $ (171)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. $ (30) $ (32)
Technology investments........................... -- (6)
Other............................................ 8 (4)
-------- --------
Net cash used in investing activities.......... $ (22) $ (42)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on short-term borrowings. $ (4) $ 203
Purchase of common stock......................... (1,525) --
Dividends paid................................... (26) (19)
Net proceeds from issuance of preferred stock.... 1,701 --
Other............................................ -- (2)
-------- --------
Net cash provided by financing activities...... $ 146 $ 182
-------- --------
Net decrease in cash and cash equivalents...... $ (21) $ (31)
Cash and cash equivalents, beginning............... 97 99
-------- --------
CASH AND CASH EQUIVALENTS, ENDING.................. $ 76 $ 68
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest....................................... $ 1 $ 3
======== ========
Income taxes................................... $ 9 $ 18
======== ========
NONCASH FINANCING ACTIVITIES:
Retirement of 16,466,045 shares of treasury stock:
Common stock................................... $ 16 $ --
Additional paid in capital..................... 1,509 --
-------- --------
Treasury stock................................. $ 1,525 $ --
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PIONEER HI-BRED INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to fairly present the financial
position as of November 30, 1997 and 1996, and the results of operations
and cash flows for the three months ended November 30, 1997 and 1996.
Because of the seasonal nature of the Company's business, the results of
operations for the three months ended November 30, 1997, may not be
indicative of the results to be expected for the full year.
2. Pioneer has guaranteed the repayment of principal and interest on certain
obligations of Village Court Associates, an affiliated real estate venture.
At November 30, 1997, such guarantees totaled approximately $23 million.
3. DeKalb Genetics Corporation ("DeKalb") has filed five lawsuits against
Pioneer alleging that insect-resistant corn products that use a Bt gene,
and corn products resistant to a glufosinate herbicide, infringe on certain
DeKalb patents. After reviewing the Company's intellectual property
position, all of DeKalb's patent filings, and DeKalb's lawsuits, Pioneer
believes DeKalb's claims are without merit. Pioneer has denied DeKalb's
allegations and raised defenses that, if successful, would render DeKalb's
patents invalid. Pioneer believes that disposition of the lawsuits will not
have a materially adverse affect on the consolidated financial position and
results of operations of the Company. Pioneer also does not expect these
lawsuits to delay the introductions of advanced corn hybrids with insect
and herbicide resistance.
4. In September 1997, Pioneer and E.I. du Pont de Nemours and Company (DuPont)
formally completed an agreement that creates one of the world's largest
private agricultural research and development collaborations. The companies
also formed a joint venture that will market improved quality traits to
increase the value of crops for livestock feeders, grain processors, and
other end users. The joint venture will not sell seed. Pioneer will be the
preferred worldwide provider and marketer of quality trait seed for the
joint venture. The joint venture begins operations January 1, 1998,
therefore, there is no impact on first quarter operations.
In connection with the above agreements, DuPont also acquired an equity
interest in Pioneer through the purchase of 164,446 shares of voting
preferred stock for $1.71 billion. Each preferred share is convertible into
100 shares of common stock and has a stated value of $100 per share, or $16
million. As required by the agreement, Pioneer used approximately $1.52
billion of the proceeds from the DuPont investment to purchase
approximately 16 million of the Company's common outstanding shares through
a Dutch auction self-tender. The common shares reacquired by the Company
were subsequently retired, but remain authorized and unissued. The net
effect of these equity transactions, including associated transaction
costs, was an increase in preferred stock of $16 million, a decrease in
common stock of $16 million, and an increase in additional paid in capital
of approximately $180 million, the use of which is unrestricted.
Immediately following the completion of the Dutch auction self-tender,
DuPont's equity interest in Pioneer stood at approximately 20 percent.
7
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The agreement, among other things, includes a standstill provision that
prohibits DuPont from increasing its ownership interest in Pioneer for 16
years without the consent of the Company. DuPont also gained two seats on
the Company's board of directors.
5. The following table summarizes the current period computation of weighted
average shares outstanding:
Period Ended November 30, 1997
(in millions)
Number of shares of common stock
outstanding at beginning of the period..... 82.2
Weighted average number of shares of
common stock issued during the period...... --
Weighted average number of shares of
common stock purchased for the treasury.... (6.9)
----
Weighted average number of shares of
common stock outstanding during the period. 75.3
The convertible preferred shares issued to DuPont were not considered
converted as their effect would have been anti-dilutive.
6. SFAS No. 128, "Earnings Per Share" (SFAS 128), which is intended to simplify
the earnings per share computation and increase comparability of earnings
per share on an international basis, will become effective for the Company's
second quarter ending February 28, 1998, and requires restatement of all
prior period earnings per share data presented.
As currently presented under APB15, the company is only required to disclose
primary earnings per share. Under SFAS 128, the Company will be required to
disclose both basic and diluted earnings per share. The presentation of
diluted earnings per share under SFAS 128 is not expected to materially
differ from the disclosure of primary earnings per share under APB15.
8
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PIONEER HI-BRED INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes, and with the
Company's audited financial statements and notes for the fiscal year ended
August 31, 1997.
MATERIAL CHANGES IN FINANCIAL CONDITION:
Due to the seasonal nature of the agricultural seed business, the Company
generates most of its cash from operations during the second and third quarters
of the fiscal year. Cash generated during this time is used to meet the cash
needs of the period and to pay the commercial paper and accounts payable which
are the Company's primary sources of financing during the first and fourth
quarters of the fiscal year. Any excess funds are invested, primarily in
short-term commercial paper.
Most of the Company's financing is done through the issuance of commercial
paper in the U.S., backed by revolving and seasonal lines of credit. In
addition, foreign lines of credit and direct borrowing agreements are relied
upon to support overseas financing needs. Short-term debt at November 30, 1997,
consisted of $39 million in domestic commercial paper and $46 million in direct
short-term borrowings from foreign banks.
During fiscal 1998, the Company has the following domestic lines of credit
available: (in millions) Revolving Seasonal Total
First quarter $200 $100 $300
Second quarter $200 $100 $300
Third quarter $200 $ -- $200
Fourth quarter $200 $ -- $200
Increased credit sales in North America and Italy, combined with lower
collections in Argentina, contributed to the current year increase in accounts
receivable at November 30, 1997, when compared to prior year results.
Short-term borrowings are lower at November 30, 1997, when compared to the
prior year as a result of the net proceeds received from the sale of stock to
DuPont (see Note 4 of Notes to Consolidated Condensed Financial Statements). The
excess proceeds reduced the level of short-term borrowings needed in the current
period.
Capital stock and additional paid-in capital were also impacted in the
current period by the Company's investment agreement with DuPont (see Note 4 of
Notes to Consolidated Condensed Financial Statements). The Company issued
164,446 shares of preferred stock with a stated value of $100 per share to
DuPont for $1.71 billion. The Company then repurchased, and subsequently
retired, 16.4 million of the Company's common shares for approximately $1.52
billion.
9
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MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net loss for the three months ended November 30, 1997, was $51 million on
sales of $79 million. After payment of preferred dividends, the net loss
attributable to common shareholders totaled $55 million, or $.73 per share. In
the first three months of the prior fiscal year, the Company recorded a loss of
$45 million, or $.55 per share, on sales of $90 million.
Due to the seasonality of the seed business, partial-year results and
quarter-to-quarter comparisons are not always meaningful. Accordingly, such
quarterly comparisons are not emphasized. Typically, most of the Company's
revenue and operating profit are generated in the third quarter.
Results during the first quarter were affected by the completion of an
agreement with DuPont (see Note 4 of Notes to Consolidated Condensed Financial
Statements). Under terms of the agreement, DuPont purchased, at a price of $1.71
billion, preferred voting shares which are convertible into 16.4 million common
shares of the Company. The Company used most of the proceeds to purchase a
similar amount of common shares through a Dutch auction self-tender. As a
result, DuPont's ownership interest in Pioneer stands at approximately 20
percent.
Current year first quarter results, excluding the impact from the above
equity transactions, were a loss of $58 million, or $.70 a share. The following
table summarizes the components of the loss per share as reported and excluding
the impact from the equity transactions with DuPont:
As Excluding Equity
Period Ended November 30, 1997 Reported Transactions
- ------------------------------ -------- ----------------
(in millions)
Reported net loss....................... $ (50.5) $ (50.5)
Preferred dividends paid................ (4.3) --
Interest benefit from DuPont Proceeds... -- (7.3)
-------- ----------
Loss attributable to common
shareholders.......................... $ (54.8) $ (57.8)
======== ==========
Average shares outstanding.............. 75.3 82.2
======== ==========
Net loss per common share............... $ (.73) $ (.70)
======== ==========
Operating results in the first quarter were affected by lower sales and
margins from operations in Latin America and by the effects of adverse weather
in Asia. Increased investments in research and product development, selling
expenses, and marketing costs supporting the Company's expanded introduction of
new corn hybrids also affected current year results compared to the prior year.
On an annual basis, management is optimistic that 1998 will be another strong
year. In North America, the performance advantage of Pioneer(R) brand seed corn
hybrids during the 1997 harvest is exciting. After approximately 280,000
side-by-side comparisons conducted by Pioneer, the Company's corn hybrids are
showing a 6.4 bushel per acre advantage over the average competitors' products.
The yield advantage of the ten hybrids expected to be the Company's top sellers
for the 1998 growing season is approximately ten bushels per acre higher than
that of the average of the competitors' products. In particular, the Company's
Bt products are performing exceptionally well. The yield advantage of the
10
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Company's Bt products over the average of competitors' Bt products is nearly 12
bushels per acre. That advantage improves to 17 bushels for the Company's Bt
products over the average of competitors' non-Bt products.
Operating results in North America during the current year may also benefit
from higher seed corn margins. A continued shift by customers to higher-priced,
higher-value new products is expected to increase the average per-unit seed corn
selling price in North America. Per-unit seed corn cost of sales in North
America is expected to hold relatively steady compared to 1997.
Management believes that 1997's strong North American soybean operations
should continue into 1998 as the Company's soybean products are performing well
against the competition. The demand for glyphosate-resistant products is
expected to increase, and the Company will have larger supplies of these
products available for sale in 1998. As a result, sales of glyphosate-resistant
products are expected to represent a larger percentage of overall soybean sales
in 1998, and margins are expected to improve because of their premium sales
price over elite varieties.
Results outside North America are more difficult to predict. Weather,
currency fluctuations, economic instability, and product performance are the
most significant factors that could affect operations in these regions.
As always, uncertainties exist that could affect the Company's expectations,
and fluctuations in expected results are likely as more information becomes
available. Some of the important factors that could cause actual results to vary
significantly from management's expectations noted in forward looking statements
include the weather, government programs/approvals, commodity prices, changes in
corn acreage, intellectual property positions, product performance, customer
preferences, currency fluctuations, and costs.
Three Months Ended November 30, 1997 compared to the Three Months Ended November
30, 1996:
Typically, revenues during the Company's first quarter are generated mostly
from Southern Hemisphere operations, North American wheat sales, and worldwide
microbial product sales.
Operating loss for the first three months of fiscal 1998 increased $18
million from the same period a year earlier. Year-to-date seed corn operating
results in the current year were $15 million lower than the previous year,
accounting for most of the year-to-year change.
11
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Net Sales and Operating Loss
(Unaudited, in millions)
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<CAPTION>
Quarter Ended
November 30
1997 1996 Increase/(Decrease)
----------------------------------------------
Net Sales:
<S> <C> <C> <C>
Corn...................... $ 23 $ 39 $ (16)
Other..................... 56 51 5
------- --------- --------
Total Net Sales............. $ 79 $ 90 $ (11)
====== ======== =======
Operating loss:
Corn...................... $ (68) $ (53) $ (15)
Other..................... (1) -- (1)
------- -------- --------
Product line operating
loss................... $ (69) $ (53) $ (16)
Indirect general and
administrative expenses.. (20) (18) (2)
------ ------- --------
Operating Loss.............. $ (89) $ (71) $ (18)
------ ------- -------
</TABLE>
North American operations had the greatest impact on current period
comparisons as additional costs from the expanded current year introduction of
new corn hybrids and increased investments in corn research and product
development reduced current period seed corn operating results approximately $8
million.
Outside North America, operating results were $7 million lower in the
current period compared to a year earlier. Lower sales and margins from
operations in Latin America accounted for approximately $3 million of the
decrease, primarily the result of fewer units sold in Argentina.
Adverse weather in Asia reduced current period operating results $3 million
compared to the previous year. Drought conditions in Southeast Asia, resulting
in planting delays, have had a significant impact on current year sales
accounting for virtually the entire decrease for the region. Local currency
devaluation against the U.S. dollar had little impact on current period results,
however, it is expected to have a greater impact as the year progresses.
Current period net financial income increased $11 million from year-ago
results mostly due to increased investment income, partially offset by higher
exchange losses. Investment income increased $14 million primarily due to
interest earned on proceeds from DuPont's investment in the Company. Net
exchange loss was impacted by higher losses in the current year on intercompany
transactions within the regions of Mexico and Latin America.
The estimated worldwide tax rate of 35 percent reflected in the first
quarter of fiscal 1998 is similar to the 34 percent effective tax rate reflected
on an annual basis for fiscal 1997. The worldwide effective tax rate for the
first quarter of fiscal 1997 was 37.5 percent. The lower current year first
quarter effective tax rate increased the current period loss by approximately $2
million compared to last year's first quarter. The effective tax rate reflected
for the first quarter is based on all information available to date. The
effective tax rate on an annual basis may vary from what is reflected in the
current period, in part as a result of the level of earnings and associated tax
rates from the various countries in which the Company operates.
12
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PIONEER HI-BRED INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
a.Exhibits
Financial Data Schedule (Exhibit 27).
b.Reports on Form 8-K
No reports on Form 8-K were filed with the Commission during the
three months ended November 30, 1997.
13
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PIONEER HI-BRED INTERNATIONAL, INC.
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.
PIONEER HI-BRED INTERNATIONAL, INC.
(Registrant)
By /s/ JERRY L. CHICOINE
JERRY L. CHICOINE
Executive Vice President and Chief
Operating Officer
By /s/ BRIAN G. HART
BRIAN G. HART
Vice President and Chief
Financial Officer
14
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<NAME> PIONEER HI-BRED
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<EXCHANGE-RATE> 1
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16
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