18
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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, 1999
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 22, 1999
- ------------------------------------------ -----------------------------
Common Stock ($1.00 par value) 239,470,394
Class B Common Stock ($1.00 par value) -
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<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -- May 31, 1999,
<S> <C> <C> <C> <C> <C>
August 31, 1998, and May 31, 1998.............................. 3-4
Consolidated Condensed Statements Of Operations-- Three Months
and Nine Months Ended May 31, 1999 and May 31, 1998............ 5
Consolidated Condensed Statements Of Cash Flows-- Nine Months
Ended May 31, 1999 and May 31, 1998............................ 6
Notes to Consolidated Condensed Financial Statements............. 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11-16
PART II - OTHER INFORMATION
Item 5. Market price of and dividends on registrants' common equity and related
stockholder matters............................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 17
Signatures................................................................ 18
</TABLE>
2
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
May 31, August 31, May 31,
ASSETS 1999 1998 1998
---------- ---------- -----------
(Unaudited) (Unaudited)
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents........... $ 88 $ 86 $ 284
Accounts and notes receivable, net.. 991 400 561
Inventories:
Finished seed..................... 320 273 303
Unfinished seed................... 123 201 102
Other............................. 10 7 9
Deferred income taxes............... 54 69 60
Prepaid expenses and other current
assets........................ 7 3 7
----- ----- -----
....................Total current assets $ 1,593 $ 1,039 $ 1,326
LONG-TERM ASSETS........................ 57 47 62
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
May 31, 1999 - $558
August 31, 1998 - $520
May 31, 1998- $517.................. 635 576 567
INTANGIBLES............................. 78 55 58
----- ----- -----
$ 2,363 $ 1,717 $ 2,013
===== ===== =====
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' May 31, August 31, May 31,
EQUITY 1999 1998 1998
-------- --------- ----------
(Unaudited) (Unaudited)
CURRENT LIABILITIES
<S> <C> <C> <C>
Short-term borrowings................. $ 198 $ 76 $ 56
Current maturities of long-term debt.. 1 14 4
Accounts payable, trade............... 151 81 119
Accrued compensation.................. 50 61 54
Income taxes payable.................. 92 46 166
Other accruals........................ 104 67 80
----- ----- -----
Total current liabilities........... $ 596 $ 345 $ 479
----- ----- -----
LONG-TERM DEBT............................ $ 205 $ 5 $ 17
----- ----- -----
DEFERRED ITEMS
Postretirement benefits............... $ 104 $ 94 $ 92
Income taxes.......................... 18 19 17
----- ----- -----
$ 122 $ 113 $ 109
----- ----- -----
MINORITY INTEREST IN SUBSIDIARIES......... $ 8 $ 7 $ 9
----- ----- -----
SHAREHOLDERS' EQUITY
Common stock, $1 par value............ $ 280 $ 230 $ 230
Class B common, $1 stated value....... - 49 49
Additional paid-in capital............ 260 246 242
Retained earnings..................... 1,645 1,428 1,501
Accumulated other comprehensive loss,
net............................... (50) (46) (34)
----- ----- -----
$ 2,135 $ 1,907 $ 1,988
Less: Cost of common shares
acquired for the treasury........... (669) (631) (557)
Unearned compensation................. (34) (29) (32)
----- ----- -----
$ 1,432 $ 1,247 $ 1,399
----- ----- -----
$ 2,363 $ 1,717 $ 2,013
===== ===== =====
</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,
1999 1998 1999 1998
--------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales.......................... $ 1,324 $ 1,317 $ 1,700 $ 1,698
----- ----- ----- -----
Operating costs and expenses:
Cost of goods sold............... $ 516 $ 517 $ 709 $ 716
Research and product development. 55 43 140 115
Selling.......................... 214 193 343 317
General and administrative....... 44 34 115 103
----- ----- ----- -----
$ 829 $ 787 $ 1,307 $ 1,251
----- ----- ----- -----
Operating income................. $ 495 $ 530 $ 393 $ 447
Investment income.................. 19 11 31 36
Interest expense................... (8) (4) (18) (9)
Net exchange and other gains (losses) (9) 22 (17) 14
----- ----- ----- -----
Income before items shown
below.......................... $ 497 $ 559 $ 389 $ 488
Provision for income taxes......... (134) (191) (98) (166)
Minority interest and other........ (2) (2) (2) (3)
----- ----- ----- -----
Net income....................... $ 361 $ 366 $ 289 $ 319
===== ===== ===== =====
Preferred stock dividend......... -- -- -- (9)
===== ===== ===== =====
Net income available to
common stockholders............ $ 361 $ 366 $ 289 $ 310
===== ===== ===== =====
Income per common share basic*..... $ 1.50 $ 1.50 $ 1.20 $ 1.36
Income per common share diluted*... 1.50 1.50 1.20 1.26
Dividends per common share*........ $ .10 $ .09 $ .30 $ .26
Weighted average number of common
shares outstanding basic......... 239.5 244.0 239.7 228.4
Weighted average number of common
shares outstanding diluted....... 240.5 245.1 240.5 253.2
</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>
Nine Months Ended
May 31, May 31,
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income....................................... $ 289 $ 319
Noncash items included in net income:
Depreciation and amortization.................. 83 64
Gain on sale of available-for-sale securities.. - (20)
Other.......................................... 7 (4)
Change in assets and liabilities, net
Receivables.................................... (643) (263)
Other assets and liabilities................... 213 232
----- -----
Net cash provided by operating activities...... $ (51) $ 328
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. $ (143) $ (87)
Technology investments........................... (14) (5)
Proceeds on sale of available-for-sale securities - 40
Other............................................ (7) -
----- -----
Net cash used in investing activities.......... $ (164) $ (52)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on short-term borrowings. $ 142 $ (30)
Purchase common stock............................ (34) (1,683)
Dividends on common and preferred stock.......... (72) (68)
Net proceeds from issuance of preferred stock.... - 1,701
Net proceeds (payments) on long-term debt........ 187 (5)
----- -----
Net cash used in financing activities.......... $ 223 $ (85)
----- -----
Effect of foreign currency exchange rate changes on
cash and cash equivalents........................ $ (6) $ ( 4)
----- -----
Net increase in cash and cash equivalents....... $ 2 $ 187
Cash and cash equivalents, beginning............... 86 97
----- -----
CASH AND CASH EQUIVALENTS, ENDING $ 88 $ 284
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest................................ $ 12 $ 9
===== =====
Income taxes............................ $ 44 $ 35
===== =====
NON CASH FINANCING ACTIVITIES
Retirement of 49,398,135 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>
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, 1999 and 1998, and the results of operations and
cash flows for the nine months ended May 31, 1999 and 1998. Because of the
seasonal nature of the Company's business, the results of operations for
the nine months ended May 31, 1999, 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, 1999
and 1998.
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. On March 15, 1999, Pioneer Hi-Bred International, Inc., an Iowa corporation
("Pioneer"), E. I. du Pont de Nemours and Company, a Delaware corporation
("DuPont"), and Delta Acquisition Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of DuPont ("Delta"), entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which Pioneer will be
merged (the "Merger") into Delta, with Delta surviving the Merger.
Following the signing of the Merger Agreement, all class B common stock was
converted to common stock on a one for one basis.
If the merger is completed, Pioneer shareholders, other than DuPont, will
receive $40 for each Pioneer share they own. Pioneer shareholders may elect
to receive the $40 in shares of DuPont common stock based on the average
trading price of DuPont common stock over the 10-trading day period ending
three trading days before the date of the special meeting of Pioneer
shareholders or may choose to receive the $40 in cash. Only 45 percent of
the aggregate consideration paid by DuPont will be in the form of cash and
the remaining 55 percent will be in the form of DuPont common stock. The
closing of the Merger is subject to various conditions, including the
approval of Pioneer stockholders.
On May 21, 1999, the Company met the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and was notified that
the U.S. Department of Justice had completed it's review. Even after the
termination of the waiting period, the Antitrust Division of the Department
of Justice and the Federal Trade Commission will have the authority to
challenge the merger on antitrust grounds before or after the merger is
completed.
On June 21, 1999, Pioneer was informed by the European Commission that
DuPont's acquisition of the 80 percent of Pioneer not currently owned by
DuPont has received merger clearance. The Company does not believe that any
other material regulatory approvals will be required.
On July 2, 1999, the Company filed a transaction statement on Schedule
13e-3 with the Securities and Exchange Commission (SEC) outlining the terms
of the merger with DuPont. The filing includes a proposed proxy statement
for Pioneer to use in soliciting proxies for the Pioneer special meeting of
shareholders. Following review by the SEC and approval by Pioneer
shareholders, the merger is expected to be completed late this summer.
7
<PAGE>
5. 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.
Following the signing of the merger agreement with DuPont on March 15,
1999, Pioneer exchanged, on a share-for-share basis. Pioneer common shares
entitled to five votes per share for all Pioneer class B common shares
previously owned by DuPont. This conversion had no effect on the number of
shares used to calculate earnings per share. 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, 1999 1998
-----------------------------------------------------------------------------------
(in millions)
Number of shares of common stock outstanding at beginning
of period 239.5 245.3
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)
Weighted-average number of shares of common stock
outstanding during the period 239.5 244.0
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nine Months Ended May 31, 1999 1998
-----------------------------------------------------------------------------------
(in millions)
Number of shares of common stock outstanding at beginning
of period 240.3 246.7
Weighted-average number of shares of common stock issued
during the period 0.3 22.8
Weighted-average number of shares of common stock purchased
for the treasury or retired (0.9) (41.1)
Weighted-average number of shares of common stock
outstanding during the period 239.7 228.4
</TABLE>
8
<PAGE>
6. 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>
Three Months Ended May 31, 1999 May 31, 1998
------------------ ------------------------------- -------------------------------
(in millions, except Shares Shares
per share amounts) Income Denom- Per-Share Income Denom- Per-Share
Numerator inator Amount Numerator inator Amount
--------- -------- ---------- ---------- -------- ---------
Basic earnings per share:
Net income attributable to
<S> <C> <C> <C> <C> <C> <C>
common shareholders $ 361 239.5 $ 1.50 $ 366 244.0 $ 1.50
Effect of dilutive securities:
Stock options - 1.0 - 1.1
----- ----- ----- -----
Diluted earnings per share:
Net income attributable to
common shareholders $ 361 240.5 $ 1.50 $ 366 245.1 $ 1.50
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended May 31, 1999 May 31, 1998
----------------- --------------------------- -----------------------------------
(in millions, except Shares Shares
per share amounts) Income Denom- Per-Share Income Denom- Per-Share
Numerator inator Amount Numerator inator Amount
-------- ------- ---------- ------------ --------- -----
Basic earnings per share:
Net Income $ 289 $ 319
Less: Preferred
stock dividends - (9)
----- -----
Net income attributable to
<S> <C> <C> <C> <C> <C> <C>
common shareholders $ 289 239.7 $ 1.20 $ 310 228.4 $ 1.36
Effect of dilutive securities:
Convertible preferred stock - - 9 23.7
Stock options - 0.8 - 1.1
----- ----- ----- -----
Diluted earnings per share:
Net income attributable to
common shareholders $ 289 240.5 $ 1.20 $ 319 253.2 $ 1.26
===== ===== ===== ===== ===== =====
</TABLE>
9
<PAGE>
7. Accounting Pronouncements
As of September 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS
No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement has no impact on a company's net income (loss) or shareholders'
equity. SFAS No. 130 requires other comprehensive income to include foreign
currency translation adjustments and unrealized gains and losses on certain
investments in debt and equity securities classified as available-for-sale
securities, which prior to adoption were reported separately in
shareholders' equity. The May 31, 1998, and August 31, 1998, financial
statements have been reclassified to conform to the requirements of SFAS
No. 130.
Total comprehensive income for the nine months ended May 31, 1999 and 1998,
which includes net income and other comprehensive income amounted to $286
million and $292 million, respectively.
8. Income tax expense for the first nine months of fiscal 1999 is based upon
an estimated worldwide effective tax rate for the year of 33 percent. The
provision for the quarter ended May 31, 1999, was reduced by a benefit
resulting from tax settlements. The worldwide effective tax rate for the
same period the previous year was 34 percent. The effective tax rate
reflected for the third quarter is based on information available to date.
The effective tax rate on an annual basis may vary from what is reflected
in the current period, principally due to the timing of the DuPont merger
transaction as well as any changes in the mix of earnings between the
Company's North American seed business and other worldwide operations.
10
<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, 1998.
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, 1999,
consisted of $121 million in domestic commercial paper and $77 million in direct
short-term borrowings from foreign banks.
During fiscal 1999, 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
During the fiscal year ended August 31, 1998, the Company finalized an
agreement with DuPont that created one of the world's largest private
agricultural research and development collaborations. The Company and DuPont
also formed a joint venture, Optimum Quality Grains, L.L.C. that markets
improved quality traits.
In connection with the agreement described above, the Company issued
convertible preferred stock to DuPont, which was converted to Class B common
stock during fiscal year 1998. As required by the agreement, Pioneer used a
majority of the proceeds to purchase shares of the Company's outstanding common
stock through a Dutch auction self-tender. The excess proceeds from these
transactions of approximately $170 million were used for 1998 operations and to
purchase additional shares of Pioneer common stock on the open market through
the Company's stock repurchase program. Following the signing of the Merger
Agreement, (note 4), all class B common stock was converted to common stock on a
one for one basis.
The decrease in the Company's cash position and increase in accounts
receivable at May 31, 1999 is primarily due to the high level of acceptance to
the Company's enhanced customer credit programs offered for the 1999 sales
season. The four-fold increase in the customer credit programs created the need
for additional short-term borrowings. In addition, prior year short-term
borrowings were not at traditional levels due to the agreement described above
with DuPont. Cash from that transaction decreased prior year short-term
borrowing needs.
Long-term debt increased $188 million as a result of the Company's issuance
of $200 million in debt securities in January 1999.
11
<PAGE>
Impacting treasury stock for the nine months ended May 31, 1999, was the
repurchase of 1.2 million shares of the Company's stock for a total of $33.7
million through the Company's share repurchase program.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net income for the nine months ended May 31, 1999, was $289 million on sales
of $1.7 billion, or $1.20 per diluted share. Net income totaled $319 million, or
$1.26 per diluted share, on sales of $1.7 billion for the first nine months of
fiscal 1998.
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.
The downturn in the world agricultural economy has had a substantial impact on
the Company's current year results. The Company's preliminary estimates show
Pioneer maintained its 42 percent market share in a very competitive North
American hybrid seed corn market in 1999. The Company's products performed well
in side-by-side comparisons conducted by Pioneer during the 1998 harvest.
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.
There is excitement surrounding Pioneer's soybean operations in North America.
Results in 1999 will again reflect record sales and profits from the Company's
soybean business. Glyphosate-resistant products represented approximately
two-thirds of total year-to-date unit sales, compared to approximately 40
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 operations outside the United States have declined
from a year ago due to depressed grain prices, reduced farm income, Genetically
Modified Organisms (GMO) concerns and economic issues in several markets.
Nine Months Ended May 31, 1999 compared to the Nine Months Ended May 31, 1998
Operating income for the first nine months of fiscal 1999 decreased $54
million to $393 million. A decrease in corn acreage in the United States
resulted in lower corn unit sales in 1999 compared to 1998. Reduced seed corn
sales, increased investments in research and product development and
intellectual property protection, higher loan loss provision and merger related
costs reduced operating income. Record soybean results only partially offset
these increased costs.
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/
1999 1998 (Decrease) 1999 1998 (Decrease)
--------------------------------- --------------------------------
Net sales:
Corn:
<S> <C> <C> <C> <C> <C> <C>
North America..... $ 789 $ 807 $ (18) $ 898 $ 932 $ (34)
Europe............ 165 190 (25) 289 295 (6)
Other Regions..... 27 25 2 82 72 10
----- ----- ----- ----- ----- -----
$ 981 $ 1,022 $ (41) $ 1,269 $ 1,299 $ (30)
Soybeans............ 241 194 47 256 210 46
Other............... 102 101 1 175 189 (14)
----- ----- ----- ----- ----- -----
Total net sales....... $ 1,324 $ 1,317 $ 7 $ 1,700 $ 1,698 $ 2
===== ===== ===== ===== ===== =====
Operating profit:
Corn................ $ 422 $ 470 $ (48) $ 393 $ 448 $ (55)
Soybean............. 82 56 26 66 40 26
Other............... 23 26 (3) 13 27 (14)
----- ----- ----- ----- ----- -----
Product line operating
profit............ $ 527 $ 552 $ (25) $ 472 $ 515 $ (43)
Indirect general and
administrative
expenses........ (32) (22) (10) (79) (68) (11)
----- ----- ----- ----- ----- -----
Operating income...... $ 495 $ 530 $ (35) $ 393 $ 447 $ (54)
===== ===== ===== ===== ===== =====
Units delivered:
Corn:
North America..... 9.5 9.7 (0.2) 11.0 11.4 (0.4)
Europe........... 1.7 1.7 - 2.7 2.7 -
Other Regions.... 0.4 0.3 0.1 1.3 1.1 0.2
----- ----- ----- ----- ----- -----
11.6 11.7 (0.1) 15.0 15.2 (0.2)
===== ===== ===== ===== ===== =====
Soybean-North America 13.8 11.2 2.6 14.4 12.0 2.4
===== ===== ===== ===== ===== =====
</TABLE>
SEED CORN
North America
Operating profit in North America decreased $45 million over 1998 results.
This decrease is largely due to lower unit sales, increased investment in
research and product development, and higher provisions for loan loss reserves
from the Company's enhanced credit programs. Current year seed corn unit sales
through third quarter are down approximately 400,000 units, or 3.5 percent, over
those recorded in the previous year due to a decrease in corn acreage. Low
commodity prices in the United States typically drive down the number of acres
planted to corn. Corn commodity prices have been significantly depressed this
year and as a result the North America market size for corn is estimated at 80.9
million acres, a decrease of more than 3 percent from 1998. Current estimates of
North America market share are approximately 42 percent, maintaining the
previous year market concentration.
The sales of new genetics increased the average price per unit, however the
intensity of the competitive environment increased sampling and discounts which
resulted in the average sales price remaining comparable to the prior year.
Nearly two-thirds of 1999 unit sales are from new genetics - hybrids introduced
in 1997 or later. Unit sales of corn hybrids with the Bt gene for resistance to
the European Corn Borer (ECB) increased 1.3 million units, more than 50 percent
over prior year unit sales.
13
<PAGE>
The Company's expanded customer credit program was positively received by
the Company's customers. The deferred payment program is approximately four
times the volume of the prior year. The increased volume increased the provision
for loan losses $9 million over the prior year provision.
Due to Pioneer's continued commitment to invest for the future the Company's
investment in research and product development and information management
increased costs $25 million or 10 percent. The Company's investment in research
increased $17 million or 24 percent over prior year.
Other Regions
Seed corn operating results outside North America decreased approximately
$10 million for the first nine months of fiscal 1999 compared to the same period
in the previous year. An increase in Italy due to increased corn acreage from
improved commodity prices was more than offset by market share decreases in
northern Europe and increased inventory writedowns in Europe and Latin America.
SOYBEANS
Year-to-date soybean operating income improved nearly 65 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. Soybean operations have benefited from the farmer's
efforts to minimize input costs by switching from higher input cost crops such
as corn to lower input cost crops. The shift to lower input cost crops and a
federal loan program that pays higher rates for soybeans increased acres planted
to soybeans by approximately 2 million acres or 3 percent over 1998. Product mix
has also contributed to improved operating performance.
North America unit sales have increased almost 20 percent, or approximately
2.4 million units from 1998 levels. The increased sales resulted in an estimated
market share increase of approximately 3 percent. Unit sales of soybeans with
the Roundup Ready(1) gene are estimated to comprise approximately two-thirds of
current year soybean unit sales compared to 40 percent of prior year sales. This
change in product mix is the major factor in the increased average sales price
of approximately 4 percent.
OTHER PRODUCTS
Other products current year operating results decreased $14 million over
those recorded a year earlier. Gains in sunflower and canola were more than
offset by decreases in wheat and alfalfa, increased fixed costs, and the
Company's share of the losses in Optimum Quality Grains, L.L.C..
INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES
Current year indirect general and administrative expenses increased $11
million, or 16 percent, over 1998 levels. Increased cost for intellectual
property protection and costs associated with the pending merger with DuPont are
the primary reasons for the increase.
NET FINANCIAL AND TAXES
Net financial for the nine months ended May 31, 1999, was an expense of $4
million, compared to income of $41 million for the same period ended May 31,
1998. Net exchange and other gains and losses in the prior year were impacted by
a gain on the sale of two million shares of Mycogen Corporation stock in 1998.
The Mycogen transactions, net of expenses, increased earnings per share $.04 for
1998. In addition, the net proceeds from the equity transaction with DuPont
resulted in increased interest income and decreased interest expense for the
prior year.
Income tax expense for the first nine months of fiscal 1999 is based upon an
estimated worldwide effective tax rate for the year of 33 percent. The provision
for the quarter ended May 31, 1999, was reduced by a benefit resulting from tax
settlements. The worldwide effective tax rate for the same period the previous
year was 34 percent. The effective tax rate reflected for the third quarter is
based on information available to date. The effective tax rate on an annual
basis may vary from what is reflected in the current period, principally due to
the timing of the DuPont merger transaction as well as any changes in the mix of
earnings between the Company's North American seed business and other worldwide
operations.
14
<PAGE>
YEAR 2000
The Company's Year 2000 compliance program is on schedule. The following key
objectives have been met by the close of June 1999. Core infrastructure and core
application remediation efforts are substantially complete and certification
efforts within our integrated Y2K testing environment are on schedule. The
assessment of office automation, building, lab, and seed production equipment is
substantially complete and remediation efforts are on schedule. The preliminary
assessment of key third-party suppliers is complete. Contingency plans are being
developed given our risk assessment of certain key suppliers. Over the next six
months, compliance efforts will focus on executing test plans to prove and
document system compliance, completing remediation of non-compliant equipment,
and completing formal contingency plans covering facility operations and key
supplier services.
Total costs to address the Year 2000 issue are currently estimated not to
exceed $3 to $5 million, unchanged from original estimates.
Pioneer believes that the Year 2000 challenge will not materially impact the
Company's ability to produce seed products or the ability to sell and distribute
these products to customers for planting in the spring of 2000.
EURO CONVERSION
The Company believes the euro conversion will not have a material impact on
the Company's ability to execute transactions during the transition period,
which began January 1, 1999, and ends December 31, 2001. The significant
requirement of companies during this period is the ability to invoice and accept
payment in euro at a customer's request. The Company has systems and processes
in place to manage euro denominated transactions if a customer makes this
request.
The Company continues to evaluate the impact the euro conversion will have
on its business, however, the Company believes it will not have a material
impact on its results of operations or financial condition.
Several specific areas have been analyzed as noted.
The Company has performed an analysis of applicable computer systems
readiness for the euro conversion. Plans are in place to upgrade existing
systems prior to 2001 to meet the needs of full euro conversion. The cost of
these upgrades is not expected to be material to the Company. In addition, the
Company has analyzed changing its hedging of foreign-currency-denominated
transactions in participating countries from their legacy currency to the euro.
Management expects hedging in the euro to reduce the number of hedging contracts
and associated administrative costs.
ALLIANCE WITH DUPONT
On March 15, 1999, Pioneer Hi-Bred International, Inc., an Iowa corporation
("Pioneer"), E. I. du Pont de Nemours and Company, a Delaware corporation
("DuPont"), and Delta Acquisition Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of DuPont ("Delta"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Pioneer will be merged (the
"Merger") into Delta, with Delta surviving the Merger. Following the signing of
the Merger Agreement, all class B common stock was converted to common stock on
a one for one basis.
If the merger is completed, Pioneer shareholders, other than DuPont, will
receive $40 for each Pioneer share they own. Pioneer shareholders may elect to
receive the $40 in shares of DuPont common stock based on the average trading
price of DuPont common stock over the 10-trading day period ending three trading
days before the date of the special meeting of Pioneer shareholders or may
choose to receive the $40 in cash. Only 45 percent of the aggregate
consideration paid by DuPont will be in the form of cash and the remaining 55
percent will be in the form of DuPont common stock. The closing of the Merger is
subject to various conditions, including the approval of Pioneer stockholders.
On May 21, 1999, the Company met the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and was notified that the
U.S. Department of Justice had completed it's review. Even after the termination
of the waiting period, the Antitrust Division of the Department of Justice and
the Federal Trade Commission will have the authority to challenge the merger on
15
<PAGE>
antitrust grounds before or after the merger is completed.
On June 21, 1999, Pioneer was informed by the European Commission that
DuPont's acquisition of the 80 percent of Pioneer not currently owned by DuPont
has received merger clearance. The Company does not believe that any other
material regulatory approvals will be required.
On July 2, 1999, the Company filed a transaction statement on Schedule 13e-3
with the Securities and Exchange Commission (SEC) outlining the terms of the
merger with DuPont. The filing includes a proposed proxy statement for Pioneer
to use in soliciting proxies for the Pioneer special meeting of shareholders.
Following review by the SEC and approval by Pioneer shareholders, the merger is
expected to be completed late this summer.
FORWARD-LOOKING STATEMENT
This report contains forward-looking statements relating to the Company's
operations that are based on management's current expectations, estimates, and
projections. Words such as "expects", "anticipates", "plans", "intends",
"projects", and similar expressions are used to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties, and assumptions that are difficult to
predict. In addition to other factors discussed in this report, 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, the Year 2000 issue, the Euro
conversion, and industry consolidations.
(1) Registered trademark of, and used under license from, Monsanto Company.
16
<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
Pioneer will hold its 2000 annual meeting of Pioneer shareholders on January
25, 2000 only if the merger with DuPont is not consummated. In the event, that
such a meeting is held, any proposals of Pioneer shareholders intended to be
presented at the 2000 annual meeting must be submitted in writing and received
by the Corporate Secretary of Pioneer Hi-Bred International, Inc. at 800 Capital
Square, 400 Locust Street, P.O. Box 14458, Des Moines, Iowa 50306-3458 no later
than August 11, 1999 in order to be considered for inclusion in the Pioneer 2000
annual meeting proxy materials.
A Pioneer shareholder intending to present a proposal to the 2000 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 27, 1999. The notice must otherwise
comply with requirements of the Company's By-laws.
Item 6. - Exhibits and Reports on Form 8-K
a.Exhibits
Financial Data Schedule (Exhibit 27).
b.Reports on Form 8-K
On March 17, 1999, the Company filed a report on Form 8-K
reporting under Item 5, that Pioneer Hi-Bred International, Inc., E. I. du Pont
de Nemours and Company (DuPont), and Delta Acquisition Sub, Inc., a wholly owned
subsidiary of DuPont entered into an Agreement and Plan of Merger on March 15,
1999, pursuant to which Pioneer will be merged into Delta, with Delta surviving
the Merger. Related exhibits were included under Item 7 of the report.
17
<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
Dated: July 12, 1999
18
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