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 February 28, 1998
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)
<TABLE>
<CAPTION>
<S> <C>
Iowa 42-0470520
------------------------------------------------------------ ----------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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 March 27, 1998
----- -----------------------------
Common Stock ($1.00 par value) 64,968,041
Common Stock - Class B ($1.00 stated value) 16,444,586
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Condensed Balance Sheets -- February 28, 1998,
August 31, 1997, and February 28, 1997......................... 3-4
Consolidated Condensed Statements Of Operations-- Six Months
Ended February 28, 1998 and 1997............................... 5
Consolidated Condensed Statements Of Cash Flows-- Six Months
Ended February 28, 1998 and 1997............................... 6
Notes to Consolidated Condensed Financial Statements............. 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 10-14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 15
Signatures................................................................ 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
February 28, August 31, February 28,
ASSETS 1998 1997 1997
---- ---- ----
CURRENT ASSETS
Cash and cash equivalents........... $ 578 $ 97 $ 333
Accounts and notes receivable, net.. 339 301 232
Inventories:
Finished seed..................... 593 245 556
Unfinished seed................... 197 186 219
Other............................. 11 9 9
Deferred income taxes............... 68 57 65
Prepaid expenses and other
current assets.................. 19 6 12
----- --- -----
Total current assets $ 1,805 $ 901 $ 1,426
LONG-TERM ASSETS........................ 85 93 84
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
February 28, 1998 - $514
August 31, 1997 - $500
February 28, 1997 - $495............ 555 545 534
INTANGIBLES............................. 60 64 59
-------- -------- --------
$ 2,505 $ 1,603 $ 2,103
======== ======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS'EQUITY February 28, August 31, February 28,
1998 1997 1997
------------ ---------- ------------
CURRENT LIABILITIES
<S> <C> <C> <C>
Short-term borrowings................. $ 67 $ 91 $ 24
Current maturities of long-term debt.. 6 6 2
Accounts payable, trade............... 175 85 178
Customer deposits..................... 843 -- 753
Accrued compensation.................. 45 60 45
Income taxes payable.................. 4 26 14
Other accruals........................ 77 61 53
-------- -------- --------
Total current liabilities........... $ 1,217 $ 329 $ 1,069
-------- -------- --------
LONG-TERM DEBT............................ $ 18 $ 19 $ 25
-------- -------- --------
DEFERRED ITEMS
Retirement benefits................... $ 88 $ 80 $ 75
Income taxes.......................... 18 20 13
-------- -------- --------
$ 106 $ 100 $ 88
-------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES......... $ 6 $ 7 $ 6
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $100 stated value.. $ -- $ -- $ --
Common stock, $1 par or stated value 93 93 93
Additional paid-in capital.......... 242 43 41
Retained earnings................... 1,342 1,436 1,186
Unrealized gain on available-for-sale
securities, net................... 9 19 21
Cumulative translation adjustment... (37) (26) (12)
-------- -------- --------
$ 1,649 $ 1,565 $ 1,329
Less: Cost of common shares
acquired for the treasury........... (457) (393) (385)
Unearned compensation............... (34) (24) (29)
-------- -------- --------
$ 1,158 $ 1,148 $ 915
-------- -------- --------
$ 2,505 $ 1,603 $ 2,103
======== ======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales.......................... $ 302 $ 264 $ 381 $ 354
-------- -------- -------- --------
Operating costs and expenses:
Cost of goods sold............... $ 147 $ 137 $ 198 $ 187
Research and product development. 38 33 72 63
Selling.......................... 69 65 124 116
General and administrative....... 41 35 69 65
-------- -------- -------- --------
$ 295 $ 270 $ 463 $ 431
-------- -------- -------- --------
Operating income (loss).......... $ 7 $ (6) $ (82) $ (77)
Investment income.................. 7 5 25 9
Interest expense................... (3) (2) (5) (4)
Net exchange and other
gains (losses)................... (3) 3 (8) 1
-------- -------- -------- --------
Income (loss) before items shown
below.......................... $ 8 $ -- $ (70) $ (71)
Provision for income taxes......... (2) (1) 25 26
Minority interest and other........ (2) (1) (2) (2)
-------- ------- ------- -------
Net income (loss)................ $ 4 $ (2) $ (47) $ (47)
Preferred stock dividend........... 5 -- 9 --
-------- ------- -------- -------
Net (loss) attributable to
common shareholders............ $ (1) $ (2) $ (56) $ (47)
======== ======== ======== ========
Basic and diluted net (loss) per
common and class B
common share*.................... $ (.02) $ (.02) $ (.76) $ (.57)
Dividends per common share*........ $ .26 $ .23 $ .52 $ .46
Average common and class B
common shares outstanding........ 71.6 82.3 73.5 82.4
</TABLE>
* Not in millions
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
<TABLE>
<CAPTION>
Six Months Ended
February 28,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss)....................................... $ (47) $ (47)
Noncash items included in net (loss):
Depreciation and amortization.................. 43 41
Gain on sale of available-for-sale securities.. -- (7)
Other.......................................... (9) --
Net change in assets and liabilities............. 511 376
------- -------
Net cash provided by operating activities...... $ 498 $ 363
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. $ (64) $ (65)
Technology Investments........................... (5) (16)
Proceeds on sale of available-for-sale
securities.................................... -- 17
Other............................................ 5 (5)
------- --------
Net cash used in investing activities.......... $ (64) $ (69)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on short-term borrowings. $ (20) $ 14
Purchase of common stock......................... (1,583) (17)
Dividends paid on common and preferred stock..... (47) (38)
Net proceeds from issuance of preferred stock.... 1,701 --
Principal payments on long-term borrowing........ (1) (10)
------- -------
Net cash provided by (used in)
financing activities......................... $ 50 $ (51)
------- -------
Effect of foreign currency exchange rate changes on
cash and cash equivalents...................... $ (3) (9)
------ -------
Net increase in cash and cash equivalents...... $ 481 $ 234
Cash and cash equivalents, beginning............... 97 99
------- -------
CASH AND CASH EQUIVALENTS, ENDING.................. $ 578 $ 333
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest....................................... $ 5 $ 4
======= =======
Income taxes................................... $ 23 $ 35
======= =======
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 February 28, 1998 and 1997, and the results of operations
and cash flows for the six months ended February 28, 1998 and 1997. Because
of the seasonal nature of the Company's business, the results of operations
for the six months ended February 28, 1998, are not indicative of the
results to be expected for the full year.
2. The Company has guaranteed the repayment of principal and interest on
certain obligations of Village Court Associates, an affiliated real estate
venture. At February 28, 1998, 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 effect on the consolidated financial position and
results of operations of the Company. Pioneer also does not expect delays
in the introductions of advanced corn hybrids with insect and herbicide
resistance because of these lawsuits.
4. In September 1997, the Company and E.I. du Pont de Nemours and Company
(DuPont) executed 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 began operations January 1, 1998, and the
Company's share of loss for the two months ended February 28, 1998, was not
material.
In connection with the above agreements, DuPont also acquired an equity
interest in Pioneer through the purchase of 164,446 shares of preferred
voting stock for $1.71 billion. Effective January 30, 1998, each preferred
share was converted into 100 shares of class B common stock with a stated
value of $1 per share, or $16.4 million. As required by the agreement,
Pioneer used approximately $1.52 billion of the proceeds from the DuPont
investment to purchase approximately 16.4 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 class B common 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 was approximately 20
percent.
The agreement, among other things, includes a standstill provision that
prohibits DuPont from increasing its ownership interest in the Company for
16 years without the consent of the Company. DuPont also gained two seats
on the Company's board of directors.
7
<PAGE>
5. 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, was effective for the
Company's second quarter ending February 28, 1998, and required restatement
of all prior period earnings per share data presented.
As previously presented under APB15, the Company was only required to
disclose primary earnings per share. Under SFAS 128, the Company is
required to disclose both basic and diluted earnings per share. The
Company's presentation of diluted earnings per share under SFAS 128 is not
expected to materially differ from the Company's previous disclosure of
primary earnings per share under APB15.
6. Except for the calculation of votes per share, shareholder rights and
preferences are substantially the same for both common stock and class B
common stock. Therefore, both are included jointly in all reference to
common stock. The following table summarizes the computation of basic
weighted-average common shares outstanding for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended February 28, 1998 1997
-----------------------------------------------------------------------------------
(in millions)
Number of shares of common stock
<S> <C> <C>
outstanding at beginning of period 65.8 82.4
Weighted-average number of shares of
common stock issued during the period 6.0 --
Weighted-average number of shares of
common stock purchased for the treasury
(.2) (.1)
---- ----
Weighted-average number of shares of
common stock outstanding during the period 71.6 82.3
==== ====
Six Months Ended February 28, 1998 1997
-----------------------------------------------------------------------------------
(in millions)
Number of shares of common stock
outstanding at beginning of period 82.2 82.4
Weighted-average number of shares of
common stock issued during the period 3.0 --
Weighted-average number of shares of
common stock purchased for the treasury (11.7) --
----- -----
Weighted-average number of shares of
common stock outstanding during the period 73.5 82.4
===== =====
</TABLE>
8
<PAGE>
7. The following tables provide a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for
the periods presented:
<TABLE>
<CAPTION>
February 28, 1998 February 28, 1997
----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Income/ Shares Income/ Shares
(Loss) Denom- Per-Share (Loss) Denom- Per-Share
Three Months Ended Numerator inator Amount Numerator inator Amount
------------------ --------- ------ ------ --------- ------ ------
(in millions, except
per share amounts)
Net income/(loss) $ 4 $ (2)
Less: Preferred
stock dividends (5) -----
-----
Basic earnings per share:
(Loss) attributable to
common shareholders $ (1) 71.6 $ (.02) $ (2) 82.3 $ (.02)
===== =====
Effect of dilutive securities:
Convertible preferred stock -- -- -- --
Stock options -- -- -- --
----- ----- ----- -----
Diluted earnings per share:
(Loss) attributable to
common shareholders $ (1) $ 71.6 $ (.02) $ (2) 82.3 $ (.02)
===== ====== ====== ====== ===== =====
February 28, 1998 February 28, 1997
----------------- -----------------
Income/ Shares Income/ Shares
(Loss) Denom- Per-Share (Loss) Denom- Per-Share
Six Months Ended Numerator inator Amount Numerator inator Amount
---------------- --------- ------ ------ --------- ------ ------
(in millions, except
per share amounts)
Net (loss) $ (47) $ (47)
Less: Preferred
stock dividends (9) --
----- -----
Basic earnings per share:
(Loss) attributable to
common shareholders $ (56) 73.5 $ (.76) $ (47) 82.4 $ (.57)
======= =====
Effect of dilutive securities:
Convertible preferred stock -- -- -- --
Stock options -- -- -- --
----- ----- ----- -----
Diluted earnings per share:
(Loss) attributable to
common shareholders $ (56) $ 73.5 $ (.76) $ (47) 82.4 $ (.57)
===== ====== ====== ===== ===== =====
</TABLE>
As all periods presented reflect a loss attributable to common shareholders,
the effect of convertible preferred stock and stock options are not included in
the calculation of diluted earnings per share as their effects are
anti-dilutive. Including these effects for the three month and six month periods
ending February 28, 1998, diluted earnings per share would have totaled $.04 and
$(.55), respectively.
9
<PAGE>
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 February 28, 1998,
consisted of $67 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
Cash and cash equivalents and customer deposits at February 28, 1998,
increased from a year earlier due to higher advance cash collections in the
current year. The Company does not record a sale until seed is delivered to the
customer. In addition, the Company's cash position increased, in part, because
of the money remaining after the sale of preferred shares to DuPont and the
subsequent Dutch auction self tender, in which Pioneer purchased approximately
20 percent of its outstanding shares.
Higher sales revenue in North America and Italy, combined with longer credit
terms in Latin America and Mexico, contributed to the current year increase in
accounts receivable at February 28, 1998, when compared to prior year results.
Short-term borrowings are higher at February 28, 1998, when compared to the
prior year as a result of slower collections on receivables outside North
America resulting from extended credit terms.
Additional paid-in capital and treasury stock were 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 16.4 million of the Company's common
shares for approximately $1.52 billion. The Company has subsequently converted
the preferred stock into 16.4 million shares of class B common stock with a
stated value of $1 per share.
10
<PAGE>
Also impacting treasury stock for the six months ended February 28, 1998,
was the repurchase of 546,600 shares of the Company's stock for a total of $58.2
million through the Company's share repurchase program. At February 28, 1998,
the remaining number of shares authorized to be repurchased under the Company's
program totaled approximately 1.6 million.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net loss for the six months ended February 28, 1998, was $47 million on
sales of $381 million. After payment of preferred dividends, the net loss
attributable to common shareholders totaled $56 million, or $.76 per share. In
the first six months of fiscal 1997, the Company recorded a net loss of $47
million, or $.57 per share, on sales of $354 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 six months of fiscal 1998 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 have subsequently
been converted into 16.4 million class B 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 second quarter results, excluding the impact from the above
equity transactions, were a loss of $56 million, or $.68 per 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 February 28, 1997 Reported Transactions
- -------------------------------------------- -------- ------------
(in millions)
Reported net loss $ (47.3) $ (47.3)
Preferred dividends paid (8.5) --
Interest benefit from DuPont proceeds -- (8.9)
------ ------
Loss attributable to common shareholders $ (55.8) $ (56.2)
====== ======
Average shares outstanding 73.5 82.1
====== ======
Net loss per common share $ (.76) $ (.68)
====== ======
In North America, Pioneer(R) brand seed corn hybrids performed well in
wide-area testing during the 1997 harvest. After approximately 280,000
side-by-side comparisons conducted by Pioneer during the 1997 harvest, the
Company's corn hybrids posted a 6.4 bushel per acre yield advantage over the
average of competitors' products. In particular, the Company's Bt products
performed exceptionally well, posting nearly a 12 bushel per acre yield
advantage over the average of competitors' Bt products. In addition to Bt corn
hybrids, new releases for 1998 included high-yielding conventional hybrids,
products for the rapidly growing high-oil market, hybrids with better disease
resistance, as well as new white and waxy corn hybrids for the starch industry.
Demand for new products in the current year is strong.
Seed corn units invoiced through second quarter are running ahead of last
year. In particular, Bt corn unit sales are estimated at approximately 2.5
million for the year. Overall, current year sales of higher-priced new
technology seed corn products are estimated to represent approximately 40
percent of total current year seed corn unit sales.
11
<PAGE>
The price per unit of seed corn sold in North America is increasing as
customers move to higher-priced premium products. The level of increase will be
affected by product mix and intense price competition in the industry. Per-unit
seed corn cost of sales in North America is expected to hold relatively steady
compared to 1997.
Soybean invoicing is running well ahead of year-to-date units a year ago.
Glyphosate-resistant products are expected to represent more than 35 percent of
total North American soybean sales, compared to 17 percent of total sales a year
ago. Therefore, margins in North America should improve because of their premium
sales price over elite varieties.
Weather, currency fluctuations, economic instability, and product
performance are the most significant factors that could affect operations
outside North America, therefore, predicting results for these operations is
more difficult. Operating results for most operations outside the United States
should improve from a year ago on a local currency basis, however, the strong
dollar is expected to reduce annual reported pre-tax consolidated results by
more than $25 million.
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.
Six Months Ended February 28, 1998 compared to the Six Months Ended February 28,
1997
Operating results for the first half of fiscal 1998 were impacted by earlier
deliveries in North America and Europe, higher investments in research and
product development, selling expenses, and marketing costs supporting the
Company's expanded introduction of new corn hybrids, and an increase in net
financial income.
12
<PAGE>
Net Sales and Operating Profit (Loss)
(Unaudited, in millions)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
February 28, Increase/ February 28, Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
-------------------------------- --------------------------------
Net sales:
<S> <C> <C> <C> <C> <C> <C>
Corn................ $ 254 $ 228 $ 26 $ 277 $ 268 $ 9
Other............... 48 36 12 104 86 18
------- ------- ------- ------- ------- -------
Total net sales....... $ 302 $ 264 $ 38 $ 381 $ 354 $ 27
======= ======= ======= ======= ======= =======
Operating profit (loss):
Corn................ $ 46 $ 28 $ 18 $ (22) $ (25) $ 3
Other............... (15) (14) (1) (15) (13) (2)
------- ------- ------- ------- ------- ------
Product line operating
profit (loss)..... $ 31 $ 14 $ 17 $ (37) $ (38) $ 1
Indirect general and
administrative
expenses........ (24) (20) (4) (45) (39) (6)
------- ------- ------- ------- ------- -------
Operating income
(loss).............. $ 7 $ (6) $ 13 $ (82) $ (77) $ (5)
======= ======= ======= ======= ======= =======
Units delivered,
North America:
Corn.............. 1.723 1.593 .130 1.723 1.594 .129
</TABLE>
SEED CORN
North America
Year-to-date North American seed corn operating loss decreased $6 million
from the same period a year ago. Current year unit sales through second quarter
reflect only those units that have been delivered to customers, and are running
ahead of those recorded in the previous year. The Company does not record a sale
until the customer takes delivery of the seed. Seed price per unit also
increased compared to the prior year, positively impacting year-to-date results.
Current year-to-date operating income was primarily impacted by higher research
and product development, selling expenses, and marketing costs supporting the
Company's expanded introduction of new corn hybrids.
Seed corn units delivered are up approximately 8 percent in North America
due to earlier deliveries. Invoiced units to date are also running above those
during the previous year, and customer deposits were up 12 percent compared to a
year earlier. However, several factors could still affect North American seed
corn sales, including aggressive discounting by competitors which may result in
an increase in the amount of late season returns.
Net sales price per unit for the first six months of fiscal 1998 increased
over the prior year due to a higher-priced mix of current year sales. The
Company is excited about the performance of its products, and plans to continue
to price products to capture its share of the value of that performance.
Beginning in 1997 and into 1998, the Company has introduced a new wave of
high-performance hybrids for the North American market. Approximately 40 percent
of current year unit sales are expected to be from these new higher-priced
technology products introduced in 1997 and 1998. Current year cost of sales per
unit should be comparable to last year.
13
<PAGE>
Research and product development costs in North America increased $7
million, or 18 percent, compared to the same period a year ago. The Company's
continued emphasis on developing improved products for customers played a
significant role in the current year increase. Integrating new technology is
essential to crop genetic improvements. The Company has more than 1,000
agreements with third parties specializing in technology which will help improve
the Company's germplasm base and deliver enhanced products to the Company's
customers.
Other Regions
Seed corn operating income outside North America increased $9 million for
the first six months of fiscal 1997 compared to the previous year.
Current year European operations increased $15 million from the same period
a year ago. Earlier seed deliveries in Italy and France and sales price
increases in Italy were the primary drivers for improved current period results.
Strengthening of the U.S. dollar against European currencies had a negative
impact of $4 million on current year-to-date reported results. Excluding this
impact, the region posted an improvement of approximately $19 million over
results the same period a year previous.
Latin American operations decreased $5 million for the first half of 1997
compared to the same period a year ago.
OTHER PRODUCTS
The current year operating loss from other products increased $2 million
from the loss recorded a year earlier. Higher research and development costs and
selling expenses account for most of the current year-to-date change.
INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES
Current year-to-date indirect general and administrative expenses increased
$6 million over 1997 levels. Increased employee compensation costs and higher
training and development costs, resulting from investments in information
systems within North America and Europe, were a significant part of the current
year increase.
NET FINANCIAL AND TAXES
Current period net investment income for the first six months of fiscal 1998
increased $16 million from what was recorded in the prior year primarily due to
interest earned on the net proceeds from DuPont's investment in the Company. Net
exchange and other gains and losses were impacted by a gain of $7 million ($.04
per share after taxes and all associated costs) on the sale of one million
shares of Mycogen Corporation stock in the first six months of 1997 not present
in the same period this year. Also impacting net exchange and other gains and
losses was the strengthening U.S. dollar within various regions around the
world.
The worldwide effective tax rate reflected in the first half of fiscal 1998
was 35 percent. The worldwide effective tax rate for the first half of fiscal
1997 was 36 percent. The effective tax rate reflected in the current year 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.
14
<PAGE>
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
six months ended February 28, 1998.
15
<PAGE>
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
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