================================================================================
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 May 31, 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>
800 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 June 26, 1998
- ------------------------------------- ----------------------------
Common Stock ($1.00 par value) 192,246,734
Class B Common Stock ($1.00 par value) 49,333,758
================================================================================
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Consolidated Condensed Balance Sheets -- May 31, 1998,
August 31, 1997, and May 31, 1997.............................. 3-4
Consolidated Condensed Statements Of Operations-- Three Months
and Nine Months Ended May 31, 1998 and May 31, 1997............ 5
Consolidated Condensed Statements Of Cash Flows-- Nine Months
Ended May 31, 1998 and May 31, 1997............................ 6
Notes to Consolidated Condensed Financial Statements............. 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 10-15
PART II - OTHER INFORMATION
Item 5. Market price of and dividends on registrants' common equity and related
stockholder matters............................................ 16
Item 6. Exhibits and Reports on Form 8-K................................. 16
Signatures................................................................ 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
<TABLE>
<CAPTION>
May 31, August 31, May 31,
ASSETS 1998 1997 1997
---------- ----------- --------
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents........... $ 284 $ 97 $ 183
Accounts and notes receivable, net.. 561 301 489
Inventories:
Finished seed..................... 303 245 288
Unfinished seed................... 102 186 94
Other............................. 9 9 7
Deferred income taxes............... 60 57 59
Prepaid expenses and other current
assets........................ 7 6 11
-------- -------- --------
Total current assets.................... $ 1,326 $ 901 $ 1,131
LONG-TERM ASSETS........................ 62 93 87
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
May 31, 1998 - $517
August 31, 1997 - $500
May 31, 1997- $499.................. 567 545 542
INTANGIBLES............................. 58 64 66
-------- -------- --------
$ 2,013 $ 1,603 $ 1,826
======== ======== ========
</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' May 31, August 31, May 31,
EQUITY 1998 1997 1997
----------- ---------- -------
CURRENT LIABILITIES
<S> <C> <C> <C>
Short-term borrowings................. $ 56 $ 91 $ 28
Current maturities of long-term debt.. 4 6 5
Accounts payable, trade............... 132 85 167
Accrued compensation.................. 54 60 52
Income taxes payable.................. 166 26 181
Other accruals........................ 67 61 49
-------- -------- --------
Total current liabilities........... $ 479 $ 329 $ 482
-------- -------- --------
LONG-TERM DEBT............................ $ 17 $ 19 $ 32
-------- -------- --------
DEFERRED ITEMS
Postretirement benefits............... $ 92 $ 80 $ 77
Income taxes.......................... 17 20 11
-------- -------- --------
$ 109 $ 100 $ 88
-------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES......... $ 9 $ 7 $ 7
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock, $1 par value............ 279 93 93
Additional paid-in capital............ 242 43 41
Retained earnings..................... 1,501 1,436 1,499
Unrealized gain on available-for-sale
securities, net..................... 1 19 17
Cumulative translation adjustment..... (35) (26) (13)
-------- -------- --------
$ 1,988 $ 1,565 $ 1,637
Less: Cost of common shares
acquired for the treasury........... (557) (393) (393)
Unearned compensation................. (32) (24) (27)
-------- -------- --------
$ 1,399 $ 1,148 $ 1,217
-------- -------- --------
$ 2,013 $ 1,603 $ 1,826
======== ======== ========
</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 Nine Months Ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
-------------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales.......................... $ 1,317 $ 1,288 $ 1,698 $ 1,642
-------- -------- -------- --------
Operating costs and expenses:
Cost of goods sold............... $ 517 $ 513 $ 716 $ 700
Research and product development. 43 40 115 103
Selling.......................... 193 189 317 305
General and administrative....... 34 31 103 96
--------- --------- --------- ---------
$ 787 $ 773 $ 1,251 $ 1,204
-------- -------- -------- --------
Operating income................. $ 530 $ 515 $ 447 $ 438
Investment income.................. 11 7 36 16
Interest expense................... (4) (2) (9) (6)
Net exchange and other gains (losses 22 (1) 14 -
--------- ------------- --------- --------
Income before items shown
below.......................... $ 559 $ 519 $ 488 $ 448
Provision for income taxes......... (191) (187) (166) (161)
Minority interest and other........ (2) -- (3) (2)
-------- -------- -------- --------
Net income....................... $ 366 $ 332 $ 319 $ 285
======== ======== ======== ========
Preferred stock dividend......... - - (9) -
--------- --------- --------- ---------
Net income available to
common stockholders............ $ 366 $ 332 $ 310 $ 285
======== ======== ======== ========
Income per common share basic*..... $ 1.50 $ 1.35 $ 1.36 $ 1.15
Income per common share diluted*... 1.50 1.34 1.26 1.15
Dividends per common share*........ $ .09 $ .08 $ .26 $ .23
Weighted average number of common
shares outstanding basic......... 244.0 246.7 228.4 246.9
Weighted average number of common
shares outstanding diluted....... 245.1 247.4 253.2 247.6
</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)
Nine Months Ended
May 31, May 31,
1998 1997
<TABLE>
<CAPTION>
----------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income....................................... $ 319 $ 285
Noncash items included in net income:
Depreciation and amortization.................. 64 64
Gain on sale of available-for-sale securities.. (20) (7)
Other.......................................... (4) 1
Net change in assets and liabilities............. (31) (75)
-------- --------
Net cash provided by operating activities...... $ 328 $ 268
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. $ (87) $ (85)
Technology investments........................... (5) (24)
Proceeds on sale of available-for-sale securities 40 17
Other............................................ - (7)
--------- --------
Net cash used in investing activities.......... $ (52) $ (99)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on short-term borrowings. $ (30) $ 17
Purchase of common stock......................... (1,683) (24)
Dividends on common and preferred stock.......... (68) (57)
Net proceeds from issuance of preferred stock.... 1,701 -
Principal payments on long-term borrowings....... (5) (11)
-------- --------
Net cash used in financing activities.......... $ (85) $ (75)
-------- --------
Effect of foreign currency exchange rate changes on
cash and cash equivalents........................ $ (4) $ (10)
-------- --------
Net increase in cash and cash equivalents....... $ 187 $ 84
Cash and cash equivalents, beginning............... 97 99
-------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 284 $ 183
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest................................ $ 9 $ 5
======== ========
Income taxes............................ $ 35 $ 54
======== ========
NON CASH FINANCING ACTIVITIES
Retirement of 16,466,045 shares of treasury stock:
Common stock............................ $ 16 $ -
Additional paid in capital.............. 1,509 -
--------- ---------
Treasury stock.......................... $ 1,525 $ -
======== ========
Stock split in the form of a 200% common
stock dividend.......................... $ 186 $ -
======== ========
</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 May 31, 1998 and 1997, and the results of operations and
cash flows for the nine months ended May 31, 1998 and 1997. Because of the
seasonal nature of the Company's business, the results of operations for
the nine months ended May 31, 1998, may not be 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. Such guarantees totaled approximately $23 million at May 31, 1998
and 1997.
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 created 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 operations for the five months ended May 31, 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.
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.
7
<PAGE>
6. On March 10, 1998, the Board of Directors approved a three-for-one stock
split effected in the form of a 200 percent stock dividend. The stock
dividend was paid on April 23, 1998, to shareholders of record on March 27,
1998.
7. 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. Pursuant to the Company's existing time phased voting
structure every share of common stock is generally entitled to five votes,
if it has been beneficially owned continuously by the same holder for a
period of 36 months. Holders of class B common stock are entitled to cast
votes equal to their percentage of common stock equivalent economic
ownership interest in the Company, not to exceed 20%. Both common stock and
class B common stock 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>
<S> <C> <C> <C>
Three Months Ended May 31, 1998 1997
-----------------------------------------------------------------------------------
(in millions)
Number of shares of common stock
outstanding at beginning of period 245.3 247.0
Weighted-average number of shares of common
stock issued during the period - -
Weighted-average number of shares of
common stock purchased for the treasury (1.3) (0.3)
----- -----
Weighted-average number of shares of
common stock outstanding during the period 244.0 246.7
===== ======
Nine Months Ended May 31, 1998 1997
-----------------------------------------------------------------------------------
(in millions)
Number of shares of common stock
outstanding at beginning of period 246.7 247.2
Weighted-average number of shares of
common stock issued during the period 22.8 0.3
Weighted-average number of shares of
common stock purchased for the treasury or
retired (41.1) (0.6)
----- -----
Weighted-average number of shares of
common stock outstanding during the period 228.4 246.9
===== ======
</TABLE>
8
<PAGE>
8. 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>
<S> <C> <C> <C> <C>
May 31, 1998 May 31, 1997
-------------------------------- -------------------------------
Shares Shares
Income Denom- Per-Share Income Denom- Per-Share
Three Months Ended Numerator inator Amount Numerator inator Amount
------------------------- -------------------------------- -------------------------------
(in millions, except
per share amounts)
Basic earnings per share:
Net income attributable to
common shareholders $ 366 244.0 $ 1.50 $ 332 246.7 $ 1.35
====== ======
Effect of dilutive securities:
Stock options - 1.1 - .7
------ ------- ------- -----
Diluted earnings per share:
Net income attributable to
common shareholders $ 366 245.1 $ 1.50 $ 332 247.4 $ 1.34
======= ======== ====== ======= ====== ======
May 31, 1998 May 31, 1997
-------------------------------- -------------------------------
Shares Shares
Income Denom- Per-Share Income Denom- Per-Share
Nine Months Ended Numerator inator Amount Numerator inator Amount
------------------------- -------------------------------- -------------------------------
(in millions, except
per share amounts)
Basic earnings per share:
Net Income $ 319 $ 285
Less: Preferred
stock dividends (9) -
------- -------
Net income attributable to
common shareholders $ 310 228.4 $ 1.36 $ 285 246.9 $ 1.15
====== =====
Effect of dilutive securities:
Convertible preferred stock 9 23.7 - -
Stock options - 1.1 - .7
------- ------- ------- -----
Diluted earnings per share:
Net income attributable to
common shareholders $ 319 253.2 $ 1.26 $ 285 247.6 $ 1.15
======= ======= ====== ======= ====== =====
</TABLE>
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 May 31, 1998,
consisted of $56 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
The increase in the Company's cash position is primarily due to 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.
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).
Also impacting treasury stock for the nine months ended May 31, 1998, was
the repurchase of 4.6 million shares of the Company's stock for a total of
$160.4 million through the Company's share repurchase program. At May 31, 1998,
the remaining number of shares authorized to be repurchased under the Company's
program totaled approximately 1.8 million. During June 1998, the Board of
Directors authorized the repurchase of 5 million additional shares of the
Company's common stock on the open market.
10
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net income for the nine months ended May 31, 1998, was $319 million on sales
of $1.7 billion, or $1.26 per diluted share. Net income totaled $285 million, or
$1.15 per share, on sales of $1.6 billion for the first nine months of fiscal
1997.
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 nine months of fiscal 1998 were affected by the
completion of an agreement with DuPont (see Note 4 of Notes to Consolidated
Condensed Financial Statements). Without the DuPont equity transaction, the
Company would have had less cash available for investment, and the Company would
not have paid any preferred stock dividends. Current year nine-month results,
excluding the impact from the above equity transactions, were income of $308.6
million, or $1.25 per diluted share. The following table summarizes the
components of income per share as reported and excluding the impact from the
equity transactions with DuPont:
<TABLE>
As Reported Excluding Equity Transactions
Shares Shares
Income Denom- Per-Share Income Denom- Per-Share
Nine Months Ended Numerator inator Amount Numerator inator Amount
------------------------- -------------------------------- ----------------------------
(in millions, except
per share amounts)
<S> <C> <C> <C> <C>
Net income $ 319.2 $ 319.2
Items resulting from the
DuPont equity transactions:
Preferred stock dividends (8.5) -
Interest benefit from DuPont
proceeds - (10.6)
------- -------
Basic earnings per share:
Net income attributable to
common shareholders $ 310.7 228.4 $ 1.36 $ 308.6 245.5 $ 1.26
====== ======
Effect of dilutive securities:
Convertible preferred stock 8.5 23.7 - -
Stock options - 1.1 - 1.1
------- ------ ------- -----
Diluted earnings per share:
Net income attributable to
common shareholders $ 319.2 253.2 $ 1.26 $ 308.6 246.6 $ 1.25
======= ====== ====== ======= ====== ======
</TABLE>
Aggressive discounting by competitors is putting pressure on the Company's
share of the North American seed corn market. However, depending on final corn
acreage and seeding rates, the Company is estimating an increase in its share of
the North American seed corn market in 1998. This was the result of a quality
line-up of seed corn products, which included large volumes of new technology
products first introduced in 1997. These products performed well in side-by-side
comparisons conducted by Pioneer during the 1997 harvest. In particular, the
Company's ECB resistant products performed exceptionally well. In addition to
ECB resistant corn hybrids, the new product line-up 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. The Company's ability to quickly increase supply of these
high-performing products, due to year-round production capabilities, made them
widely available in 1998. Customers had many choices of seed supply available to
them during the current selling season. The proven quality of the Company's
product line-up played a significant role in current year results.
11
<PAGE>
There is excitement surrounding Pioneer's soybean operations in North
America. Results in 1998 will again reflect record sales and profits from the
Company's soybean business. Glyphosate-resistant products represented
approximately 40 percent of total year-to-date unit sales, compared to 17
percent of total unit sales a year ago. Soybean margins improved because of the
premium sales price of glyphosate-resistant products over elite varieties.
Operating results for most operations outside the United States are expected
to improve from a year ago on a local currency basis, however, the strong dollar
reduced current year-to-date reported pre-tax consolidated results by more than
$30 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, product
returns, customer preferences, currency fluctuations, and costs.
Nine Months Ended May 31, 1998 compared to the Nine Months Ended May 31, 1997
Operating income for the first nine months of fiscal 1998 increased $9
million from the same period a year earlier. Excluding the negative impact on
year-to-date operating results from the strengthening of the U.S. dollar against
foreign currencies, operating income improved approximately $40 million or 9
percent over results from the same period last year. Additional North American
seed corn unit sales and a higher sales price per unit, and increased North
American soybean unit sales and sale price were the primary factors for the
increase.
12
<PAGE>
Net Sales and Operating Profit
(Unaudited, in millions)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
May 31, May 31, Increase/ May 31, May 31, Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
---------------------------------- -----------------------------------
Net sales:
Corn:
<S> <C> <C> <C> <C> <C> <C>
North America..... $ 807 $ 768 $ 39 $ 932 $ 882 $ 50
Europe............ 190 233 (43) 295 323 (28)
Other Regions..... 25 20 5 72 84 (12)
--------- --------- --------- --------- --------- ---------
$ 1,022 $ 1,021 $ 1 $ 1,299 $ 1,289 $ 10
Soybeans............ 194 174 20 210 182 28
Other............... 101 93 8 189 171 18
-------- -------- -------- -------- -------- --------
Total net sales....... $ 1.317 $ 1,288 $ 29 $ 1,698 $ 1,642 $ 56
======== ======== ======== ======== ======== ========
Operating profit:
Corn................ $ 468 $ 468 $ - $ 446 $ 443 $ 3
Soybean............. 56 46 10 40 31 9
Other............... 28 20 8 29 22 7
-------- -------- -------- -------- -------- --------
Product line operating
profit............ $ 552 $ 534 $ 18 $ 515 $ 496 $ 19
Indirect general and
administrative
expenses........ (22) (19) (3) (68) (58) (10)
-------- -------- -------- -------- -------- --------
Operating income...... $ 530 $ 515 $ 15 $ 447 $ 438 $ 9
======== ======== ======== ======== ======== ========
Units delivered:
Corn:
North America..... 9.7 9.7 - 11.4 11.3 0.1
Europe........... 1.7 2.0 (0.3) 2.7 3.0 (0.3)
Other Regions.... 0.3 0.3 - 1.1 1.2 (0.1)
-------- -------- -------- -------- -------- ----------
11.7 12.0 (0.3) 15.2 15.5 (0.3)
======== ======== ========= ======== ======== =========
Soybean-North America 11.2 11.0 0.2 12.0 11.6 0.4
======== ======== ======== ======== ======== =========
</TABLE>
SEED CORN
North America
Operating profit in North America improved $23 million over 1997 results.
Current year unit sales through third quarter are up approximately 100,000 units
over those recorded in the previous year. Sales price per unit increased
compared to the prior year, and when combined with per unit cost of sales
similar to 1997 unit costs, margins improved nearly $40 million. Higher fixed
costs and a stronger U.S. dollar against the Canadian dollar also impacted
current year results. The stronger U.S. dollar reduced operating income
approximately $3 million. Increased investment in research and product
development and higher selling costs reduced operating income approximately $13
million.
The average net seed corn selling price per unit to customers in North
America is expected to increase approximately 4 percent. The Company implemented
changes to its replant program during 1998. In previous years seed sold for
replant was discounted 50 percent. In 1998 replant seed was provided free of
charge. In addition to the program change, adverse weather resulted in
significantly higher replanting in 1998. Excluding these two factors, the net
selling price of seed in North America would be expected to increase more than 5
percent, from the introduction of several new elite products, which are priced
at a premium, and a continued shift in sales mix of products in the current year
to higher-priced premium products. Current year per-unit seed corn cost of sales
are comparable to a year ago resulting from lower carry-in costs and lower
commodity costs related to the 1997 crop.
13
<PAGE>
An increase in North American market size and estimated market share growth
also impacted current year operating results. North American market size is
estimated at 83.9 million acres, an increase of 0.7 percent from 1997. Based on
current year unit sales, the Company's share of the North American seed corn
market is estimated to increase slightly.
Research and product development costs in North America increased
approximately $10 million, or 16 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
that 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.
Current year-to-date selling fixed costs increased approximately $3 million,
or 5 percent, from those recorded in the same period last year. Promotional
activities associated with the new product launch in the current year was the
primary factor in the current year increase.
Other Regions
Seed corn operating results outside North America decreased approximately
$20 million for the first nine months of fiscal 1998 compared to the same period
in the previous year. The primary factor for this decrease is the impact of a
stronger U.S. dollar against foreign currencies, which reduced current year
operating results approximately $23 million.
SOYBEANS
Year-to-date soybean operating income improved nearly 30 percent from the
prior year, almost entirely the result of record North American operations.
Soybean operations continue to grow, and have improved on the record results
reflected a year ago.
Unit sales have increased almost 4 percent, or approximately 450,000 units,
from 1997 levels, almost entirely the result of increased acreage. Higher
commodity prices and additional acres planted to soybeans from acres coming out
of conservation programs have resulted in additional acres planted to soybeans
in the current year.
Net margin improved from a year ago despite higher commodity costs. An
increase in list prices for the current year, combined with the sales price
effect of glyphosate-resistant products which are sold at a premium, more than
offset the increase in unit costs.
OTHER PRODUCTS
Other products current year operating results improved $7 million over those
recorded a year earlier. Wheat, Sunflower, and Canola account for most of the
current year-to-date change.
INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES
Current year indirect general and administrative expenses increased $10
million, or 17 percent, over 1997 levels. Increased employee compensation costs,
legal 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 financial income for the first nine months of fiscal 1998
increased $30.5 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 in the current year were impacted by a
gain on the sale of two million shares of Mycogen Corporation stock in 1998 and
one million shares in 1997. The Mycogen transactions, net of expenses, increased
earnings per share $.04 and $.01 for 1998 and 1997, respectively. Also impacting
net exchange and other gains and losses was the strengthening of the U.S. dollar
against various foreign currencies around the world.
14
<PAGE>
The worldwide effective tax rate reflected for the first nine months of
fiscal 1998 was 34 percent. The worldwide effective tax rate for the same period
the year previous was 36 percent. The decrease in the effective tax rate between
years increased earnings per share by $.03. 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.
SUBSEQUENT EVENTS
On June 29, 1998 severe storms hit the Des Moines metro area causing
significant property damage to the area. The Company incurred damage ranging
from broken windows and overhead doors to roof damage. With the exception of
tree damage, the property damage was insured.
On June 7, 1998 a fire destroyed several of the Company's greenhouses
located in Johnston, Iowa. No one was injured in the fire. Experimental corn and
soybean products were lost. However, most of the plant materials destroyed can
be replaced through other seed, plants, or plant tissue. The construction of new
greenhouses is in progress and in the meantime temporary greenhouse space has
been arranged. No research information was lost. Product development and new
product introductions will continue as previously planned. The Company's
greenhouses were insured.
The financial effect of these events on the Company's current year operating
results will not be material.
15
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 5. - Market price of and dividends on registrants common equity and related
stockholder matters
The 1999 Annual Meeting is scheduled to be held on January 26, 1999. A
Shareholder intending to present a proposal to the 1999 Annual Meeting and
wishing to have such proposal included in the Proxy Statement and form of Proxy
to be distributed by the Board of Directors in connection with the 1999 Annual
Meeting must submit such proposal no later than August 12, 1998 in writing to
the Secretary, Pioneer Hi-Bred International, Inc., 800 Capital Square, 400
Locust Street, P.O. Box 14458, Des Moines, Iowa 50306-3458.
A Shareholder intending to present a proposal to the 1999 Annual Meeting who
does not intend to have such proposal included in the Proxy Statement and form
of Proxy, must submit such proposal in writing to the address set forth above.
Written notice of the intent to make such a proposal must be given, either by
personal delivery or United States Mail, First Class postage prepaid to the
address above by October 28, 1998.
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 May 31, 1998.
16
<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
17
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