<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
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Act of 1934
For the fiscal year ended August 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act 1934
For the transition period from to
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Commission file number : 0-17005
DEKALB GENETICS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-3586793
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(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
3100 Sycamore Road, DeKalb, Illinois 60115 815-758-3461
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(Address of principal executive offices) (Registrant's telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Title of Class
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Class A Common Stock, no par value
Class B Common Stock, no par value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
-----------------------------------------
The aggregate market value of all Common Stock held by non-affiliates was
$520,295,948 based upon the closing price on the NASDAQ National Market System
on September 30, 1996. (The officers and directors of the registrant are
considered affiliates for purposes of this calculation.)
As of September 30, 1996, 2,415,197 shares of the registrant's Class A Common
Stock and 14,659,593 shares of the registrant's Class B Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement pertaining to the annual shareholders' meeting
are incorporated herein by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
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(a) DEKALB Genetics Corporation (`DEKALB'' or the ``Company'') is engaged
in the development of products of major importance to two segments of modern
agriculture--seed (corn, soybeans, sorghum, alfalfa and sunflower) and hybrid
swine breeding stock. DEKALB operates two business segments, one through the
seed division of the Company (``DEKALB Seed'') and one through its wholly-
owned subsidiary, DEKALB Swine Breeders, Inc. (``DEKALB Swine'').
DEKALB conducts major research and development programs on those genetically
determined traits which are of primary importance to the profitability of a
farmer's production. The Company develops primary or inbred lines through a
process of observation, evaluation and selection for further breeding of
those plants or swine which exhibit improved performance in certain traits.
These primary or inbred lines, when mated or crossed to other primary or
inbred lines, will pass on to their progeny the improved performance in those
traits for which the primary or inbred lines were selected. Additionally, a
fundamental genetic principle--called heterosis, or hybrid vigor--is
generally utilized. Heterosis occurs when the progeny of genetically
dissimilar parents have certain performance characteristics which are
superior to those of either parent.
DEKALB uses these principles of genetic selection and heterosis to provide
products for the modern day agricultural industry. The Company also develops
production and management techniques to complement the performance potential
which resides in the genetic composition of its products.
In addition, DEKALB uses biotechnology to improve hybrid performance. Using
gene techniques, researchers are able to incorporate genes from any source to
create new, value added traits such as herbicide resistance, insect
resistance, and improved nutritional quality. DNA marker techniques enable
resreachers to correlate field performance with genetic makeup thereby giving
them an improved ability to breed for desired product characteristics.
DEKALB is a Delaware corporation which was organized on June 15, 1988. It
succeeded to the genetics businesses of DEKALB Corporation which was
originally founded in 1917.
(b) Industry Segment and Geographic Area Information is included in Part
II, Item 8, Footnotes R and N of the financial statements.
(c) The following narrative describes the businesses of each segment and
other general matters of the Company.
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SEED
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DEKALB Seed, headquartered in DeKalb, Illinois, engages in the research and
development of hybrid corn, varietal soybean, hybrid sorghum, hybrid sorghum-
sudangrass and hybrid sunflower seed. The Company contracts with growers to
produce the seeds of such plants and markets them under the DEKALB brand. It
also markets varietal alfalfa and other forage mixtures.
RESEARCH AND DEVELOPMENT. Crop producers are very conscious of product
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performance and respond to new, improved products. As a research-based company,
DEKALB commits significant resources (approximately 12 percent of DEKALB Seed
consolidated worldwide revenues in fiscal year 1996) to the research and
development of improved products. Total worldwide research and development
expenditures by DEKALB Seed were $40.9 million, $36.7 million and $34.9 million
for fiscal years 1996, 1995 and 1994, respectively.
DEKALB Seed operates an integrated, worldwide research and development effort,
conducted at 66 research locations and 461 testing sites around the world, with
36 research locations and 306 test sites in the United States and Canada.
Worldwide, it has 35 corn breeding programs, six sorghum breeding programs,
three soybean breeding programs, and three sunflower breeding programs.
Throughout the world new hybrids and varieties are evaluated annually, and in
the United States and Canada alone there are over 1,033,000 performance test
plots. DEKALB Seed has a biotechnology research facility in Mystic,
Connecticut, which includes a laboratory, greenhouse and general office and
represents approximately 15 percent of total research and development spending
for fiscal year 1996.
<PAGE>
PRODUCTS. In 1996, sales of hybrid corn seed represented approximately 68
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percent of DEKALB Seed consolidated worldwide revenues. Corn is the primary
feed grain grown in the United States and has a seed market value of
approximately $1.7 billion in the United States and $4.5 billion worldwide, the
largest of any agricultural seed. Corn is planted under a wide variety of
conditions which affect its growth and yield, including the length of the
growing season (which is primarily determined by latitude and altitude), water
availability, soil, climate and insect and disease challenges. To respond to
this variety of conditions, DEKALB Seed has developed high yielding corn plants
with different relative characteristics in terms of maturity (the time from
planting to harvest), dry down (the time it takes for corn to dry to harvest
standards), grain quality, standability (the strength of roots and stalks),
insect and disease resistance, plant and ear height and tolerance to drought and
other stresses.
Soybean acreage in the United States is third behind corn and wheat acreage, and
in fiscal year 1996 the sale of soybean seed represented approximately 18
percent of DEKALB Seed consolidated worldwide total revenues. DEKALB Seed has
developed high-yielding soybean varieties with characteristics differing on the
basis of maturity, tolerance to disease, seedling emergence, standability of the
plant, and resistance to shattering (the premature opening of the bean pod).
DEKALB Seed produces both grain and forage types of hybrid sorghum seed. In
fiscal year 1996, sales of hybrid sorghum seed represented approximately 6
percent of DEKALB Seed consolidated worldwide revenues. The grain sorghum
product line is planted by farmers to produce a high-quality feed grain,
approaching the value of corn. The DEKALB Seed research effort continues to
focus on developing hybrids which possess consistently high yields, resistance
to lodging and greenbug attacks and drought tolerance, because more than 80
percent of the crop is grown under semi-arid rainfall conditions.
DEKALB Seed is able to serve the requirements of several sunflower seed markets
through development of a range of hybrids. These hybrids exhibit high yield,
high oil content, a range of maturities, standability and disease resistance.
Currently, sunflower seeds are marketed primarily in Argentina, France, Italy,
and China. Sunflower seed sales represented three percent of DEKALB Seed
consolidated worldwide revenues in 1996.
Virtually all corn and sorghum seed planted in the United States and practically
all sunflower seed planted world-wide are hybrids. Because the seeds (grain)
produced by a hybrid do not have the same genetic composition as the seed
planted, farmers purchase nearly all of their corn and sorghum seed each year so
as not to lose the full benefits of genetic selection and heterosis. That is,
if they hold back corn, sorghum or most sunflower seed from their crop and plant
it the next year, yield and other positive attributes will be dramatically
reduced.
<PAGE>
Soybeans, on the other hand, are not hybrids. Farmers frequently retain and use
a part of their crop as seed in the year following harvest. Thus, there is a
reduced market as well as lower profit margin potential for commercial soybean
seed. The Plant Variety Protection Act, a law governing the use of proprietary
soybean varieties, limits the quantity of seed a grower may retain and should
improve future prospects for capturing the benefits of soybean research
investment.
DEKALB Seed also produces and sells SUDAX(R) brand sorghum-sudangrass and sells
alfalfa. SUDAX(R) brand is a hybrid cross of sorghum and sudangrass, producing
a plant suitable for pasturing animals or multiple cuttings for forage or hay.
Alfalfa is used as animal feed, primarily for dairy and feeder cattle. Alfalfa
is a perennial, as it will re-emerge for many seasons without additional
seeding.
Production of hybrid seed is subject to the risk of the environment. The
parental inbred lines which are used in production are more sensitive to adverse
conditions than are commercial hybrids grown by farmers. Weather is the biggest
variable. Wet weather at planting time, lack of moisture during the growing
season, hot weather at pollination time and frost before the crop is mature can
all adversely affect DEKALB Seed's supply and unit costs. For these reasons,
DEKALB Seed has its production facilities spread geographically and frequently
utilizes irrigation to minimize some of these risks.
<PAGE>
MARKETING. In the United States, DEKALB Seed markets seed from coast to coast,
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through a large network of about 7,000 independent farmer-dealers, distributors
and farm stores who resell to approximately 121,000 farmers.
There are approximately 300 companies engaged in the production and marketing of
agricultural seed, resulting in intense competition. DEKALB Seed estimates that
the top two -- Pioneer Hi-Bred International, Inc. of Des Moines, Iowa and
DEKALB Seed -- accounted for approximately 55 percent of 1996 United States seed
corn sales, and that the next seven companies have a combined market share of
nearly 23 percent. DEKALB Seed is the second largest seller of corn seed with a
market share of approximately 11 percent and is one of the largest sellers of
soybean and sorghum seed in the United States. Competition for sales of seed to
farmers involves factors such as relative product performance, price, marketing
and promotional programs, technical support, customer relationships and the
effectiveness of the sales force. DEKALB Seed management believes it competes
favorably with respect to all these factors.
INTERNATIONAL OPERATIONS. The international seed business has similar risks and
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competition as the United States seed business, plus the added risks of
different political environments and currency fluctuations. From its initial
activities in 1959, the international seed business unit of DEKALB Seed has
expanded to most areas of the world where corn, sorghum, soybean, alfalfa and
sunflower are grown.
DEKALB Seed, directly or indirectly, operates wholly-owned subsidiaries in
Argentina, Canada, Italy, and Austria and has a 51% owned subsidiary in Colombia
and a 49% owned affiliate in Mexico. In addition, foreign-based companies in
major agricultural markets have been licensed to produce and market DEKALB seed.
Thus, local production and marketing is carried out in more than 20 countries
worldwide. The agreements with these foreign affiliates provide for the
development, production and sale of hybrids and varieties adapted to meet local
market preferences. International revenues through consolidated subsidiaries
totaled over $80 million in 1996. In addition, it is estimated that DEKALB
brand seed sales through non-consolidated foreign affiliates and licensees
totaled approximately $145 million.
<PAGE>
SEASONALITY. Production, sale and distribution of seed follows a seasonal
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pattern. In North America, DEKALB Seed normally grows its seed supply in the
summer, and it is harvested, conditioned and bagged in the months of September
through January. The dealers' sales effort takes place in the fall, and
generally about three-fourths of farmers' seed orders are placed by December
1st. Deliveries of seed corn occur principally in the late winter and spring,
during the Company's second and third fiscal quarters. Sales revenue is
recognized upon shipment of seed. Returns of unsold seed occur, in most cases,
during the fourth fiscal quarter. At the time sales are recorded, DEKALB Seed
provides for estimated returns based upon historical experience and current
weather conditions. During each of the past three years, approximately 60
percent and 40 percent of North American seed revenues were recorded in the
second and third fiscal quarters, respectively. Cash collections also follow a
seasonal pattern, as the majority of dealers remit cash in advance of their
first due date in June in order to earn discounts for early payment.
Approximately two-thirds of DEKALB Seed's cash outflow in North America occurs
in the months of December through April and includes payments to independent
farmers who have contracted to produce DEKALB Seed products.
The demand for seed reflects the demand for the crop's end use including animal
feed, industrial use and food consumption. The cyclical nature of the business
creates uncertainty from year to year concerning the size of the market for
seed. An inaccurate estimate of seed needs can result in an undersupply of seed
products or an oversupply of seed (which may create the need to write off
inventories).
PATENTS AND APPLICATIONS. Patents, trademarks, United States Plant Variety
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Protection Act Certificates, foreign plant registrations and licenses to use
genetic material and/or intellectual property are growing in importance,
generally, to the industry and to the business of DEKALB Seed. While no single
patent is currently of material importance to the Company's seed business, an
increasing number of patents that have been issued to the Company in the area of
biotechnology are considered to be a key success factor in order to
commercialize genetically engineered products in the future and to provide the
potential for the Company to enter into license agreements with third parties.
DEKALB Seed is expected to incur legal expenses associated with the ongoing
enforcement of its patents.
DEKALB Seed's policy is to fully protect its inventions, discoveries and
intellectual property. (See Item 3 - Legal Proceedings.) DEKALB Seed has
obtained numerous U.S. patents, Plant Variety Protection Act Certificates, and
foreign registrations.
SWINE
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DEKALB Swine, headquartered in DeKalb, Illinois, engages in the research and
development of hybrid swine breeding stock and markets such hybrid breeding
swine and related management services to hog producers in both domestic and
international markets.
<PAGE>
RESEARCH AND DEVELOPMENT. Through genetic research and development, male and
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female lines of swine have been developed which are unique to DEKALB Swine.
These DEKALB Swine lines undergo continual genetic improvement through research
which includes an ongoing process of observation, testing, statistical analysis
and selection for further breeding of only those animals exhibiting improvement
in economically important traits.
DEKALB Swine's research and development expenditures were $6.7 million, $5.8
million and $6.4 million for fiscal years 1996, 1995 and 1994, respectively.
PRODUCTS AND PROGRAMS. Domestically, DEKALB Swine generates breeding stock
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sales and license revenues from five principal programs (Specific Cross(R)
Program, hybrid boar rotation, Custom Genetics(R) Program, crossing farms, and
artificial insemination centers) through which it markets hybrid breeding swine
and semen.
Internationally, DEKALB Swine licenses or sells primary lines to third parties
for the production of breeding stock in the foreign country under trademark
licenses and technical agreements.
DEKALB Swine's secondary product is market hogs, which are a by-product of the
production of breeding animals and represents about 50 percent of total
revenues. Because DEKALB Swine produces a consistent and high quality product,
this market hog by-product is generally sold by DEKALB Swine at a premium above
major slaughter market averages.
MARKETING. In the United States, DEKALB Swine sells breeding stock to
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approximately 1,000 customers who fall into two broad categories. First, larger
hog producers represent a major market for DEKALB Swine's products. As the
number of hog producers has declined by 50 percent over the past ten years to
approximately 183,000 hog farms, these larger producers represent a growing
share of hog production, and an increasing percentage of DEKALB Swine's breeding
stock sales. Larger producers purchase boars or boar semen and either purchase
gilts, or in many cases, operate an in-house `crossing farm'' and pay DEKALB
Swine fees by licensing DEKALB great-grandparent or grandparent lines to produce
their own grandparents or gilts. Second, DEKALB Swine's smaller customers
primarily purchase DEKALB Swine boars and generally retain gilts from their own
herds.
Internationally, DEKALB Swine currently licenses or sells swine breeding stock
to distributors in six foreign countries. Those distributors sell offspring to
several hundred local customers.
<PAGE>
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COMPETITION. In the United States, DEKALB Swine competes with seven national
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and several regional producers of hybrid swine breeding stock and thousands of
producers of purebred stock. DEKALB Swine believes that it is one of the
largest producers of hybrid breeding stock in the United States.
The demand for swine breeding stock depends upon the supply of hogs to be
produced, which is determined by the profitability of hog production, which, in
turn, depends upon the supply and demand for pork and pork products, as well as
the cost of production. The demand for DEKALB Swine breeding stock depends upon
customer acceptance and the ability to offer products and services which are
superior to the competition.
Breeding stock prices are influenced by the quality of the breeding stock, by
competition from other major hybrid producers and purebred producers and by
slaughter market prices. On average, hybrid breeding stock sells at a higher
price than purebred swine.
In addition to price, competition for sales to hog producers involves factors
such as reproductive performance of the parent hybrid boars and gilts,
performance and quality of their market hog offspring, technical knowledge and
competence of the sales force, service programs and post-sale support. DEKALB
Swine management believes it competes favorably with respect to all these
factors.
The swine industry is a cyclical business that is heavily influenced by producer
profitability. Historically, hog production has followed a three to five year
expansion phase followed by a similar contraction phase. At the peak of the
expansion phase, market hog prices are generally at a low and unprofitable
level. As hog production decreases, prices normally begin to rise until
expansion again begins to occur.
GENERAL
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On August 31, 1996, DEKALB had approximately 1,900 employees.
Working capital requirements in the seed business arise out of the need to carry
newly produced inventories of seed (principally corn), and payables to growers
associated with growing that hybrid seed, until receipts from the selling season
are collected several months later. DEKALB Seed, therefore, has significant
working capital requirements from January 1 to July 1 of each year because
approximately two-thirds of DEKALB Seed's cash flow for expenses occurs in the
months of December through April, although final receipts are not received until
June. It is anticipated that such requirements will be met through cash
generated from operations and lines of credit for general corporate purposes.
<PAGE>
DEKALB has available various credit facilities which include a revolving line of
credit. The revolving credit agreement provides for a $50 million line of credit
for general corporate purposes, and has a required step-down to $20 million for
one day during each year.
DEKALB Swine's production and sales patterns are such that working capital needs
are relatively stable.
The operations of DEKALB are subject to various state and federal environmental
and safety laws, rules and regulations. Certain of the facilities of DEKALB are
also subject to state and federal environmental protection laws, rules and
regulations. Management of DEKALB believes that the Company is in compliance,
in all material respects, with applicable environmental and safety laws, rules
and regulations and that such compliance has not had any material adverse effect
on its operations or financial condition.
ITEM 2. PROPERTIES
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In both its seed and swine businesses, DEKALB property consists primarily of
foundation genetic material and the property, buildings and related equipment
for research, production, distribution and marketing.
DEKALB Seed headquarters personnel occupy a 73,000 square foot office building
and DEKALB Swine headquarters personnel occupy a 15,000 square foot office
building, both of which are located in DeKalb, Illinois and are owned by the
Company. In July, 1996 an additional 52,000 square foot facility was purchased
which DEKALB plans to fully occupy by December, 1997. DEKALB Seed also owns
facilities in DeKalb, Illinois that are used for seed research and other seed
operations.
DEKALB Seed owns or leases 36 facilities in the United States and 21 outside of
the United States at which research functions are performed, 26 seed production
and foundation locations in the United States and seven outside the United
States, and two seed warehouses in the United States. DEKALB Seed owns or
leases 13 sales offices, all in the United States, plus a biotechnology research
facility in Mystic, Connecticut.
DEKALB Swine owns 18 research, foundation and production farms and 9 genetic
evaluation stations. Thirteen of the farms, as well as an office and modern
feed mill, are located in Seward and Meade Counties, Kansas and nearby Beaver
and Texas Counties, Oklahoma. Three farms are located near the corporate
headquarters in DeKalb, Illinois with two additional farms near Lubbock, Texas.
DEKALB believes its facilities are adequate to serve its needs and that if
additional facilities are required as the business expands, DEKALB will be able
to acquire or lease such facilities on reasonable terms.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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The Company and its subsidiaries are defendants in various legal actions
arising in the course of business activities. In the opinion of
management, these actions will not result in a material adverse effect on
the Company's consolidated operations or financial position.
The Company is also the plaintiff in various legal actions. The most
significant of these actions have been filed by the Company in federal
district court in the Northern District of Illinois and allege infringement
of one or up to five of the Company's biotechnology related patents. The
patents involved are U.S. patent no. 5,484,956 covering fertile, transgenic
corn plants expressing genes encoding Bacillus thuringiensis (Bt)
insecticidal proteins, U.S. patent no. 5,489,520 covering the
microprojectile method for producing fertile, transgenic corn plants
covering a bar or pat gene, as well as the production and breeding of
progeny of such plants, U.S. patent nos. 5,538,880 and 5,538,899 directed
to methods of producing either herbicide-resistant or insect-resistant
transgenic corn and U.S. patent no. 5,550,318 directed to transgenic corn
plants containing a bar or pat gene. In each such case the Company has
asked the Court to determine that infringement has occurred, to enjoin
further infringement and to award unspecified compensatory and exemplary
damages. Lawsuits were initially filed on April 30, 1996 against Pioneer
Hi-Bred International, Inc., Mycogen Corporation (and two of its
subsidiaries) and Ciba-Geigy Corporation. A similar lawsuit was filed
against Northrup King Co. on June 10, 1996. In addition, the Company sued
Beck's Hybrids, Inc. and Countrymark Cooperative, Inc. on July 23, 1996 and
filed against several AgrEvo entities on August 27, 1996. There can be no
assurance that the Company will prevail in any of the actions described in
this paragraph.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to the vote of security holders during the fourth
quarter of 1996.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, and positions of the executive officers of the Company, with
their business experience during the past five years, are shown below.
Corporate officers are elected annually by the Board of Directors.
Age
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Bruce P. Bickner...........................................................53
Chairman of the Board, Chief Executive Officer and Director of the Company
Mr. Bickner has served as Chairman of the Board, Chief Executive Officer
and Director of the Company during the past five years. He was Chairman of
the Board and Chief Executive Officer of DEKALB Energy Company until
January, 1992, when he was elected to the additional position of President.
He relinquished the titles of President and Chief Executive Officer in
November, 1992. He resigned from all positions with DEKALB Energy Company
upon the sale of the Company in May, 1995.
Richard O. Ryan.............................................................54
President, Chief Operating Officer and Director of the Company
Mr. Ryan has served as President, Chief Operating Officer and Director of
the Company during the past five years.
Richard T. Crowder..........................................................57
Senior Vice President, International of the Company
Mr. Crowder served as Under Secretary, U.S. Department of Agriculture until
July, 1992 at which time he was appointed Executive Vice President and
General Manager, Armour Swift Eckridge. He remained in that position until
he was elected Senior Vice President, International of the Company in
October, 1994.
Thomas R. Rauman............................................................48
Vice President, Finance and Chief Financial Officer of the Company
Mr. Rauman was elected Vice President, Finance, Chief Financial Officer and
Treasurer of the Company in January, 1993. He relinquished the position of
Treasurer in July, 1993. He was Vice President and Controller of DEKALB
Energy Company until January, 1992, when he was elected Vice President,
Finance, Chief Financial Officer and Treasurer. He resigned from all
positions with DEKALB Energy Company in December, 1992.
<PAGE>
John H. Witmer, Jr..........................................................56
Senior Vice President, General Counsel and Secretary of the Company
Mr. Witmer has served as Senior Vice President, General Counsel and
Secretary of the Company during the past five years. He served as Senior
Vice President, General Counsel and Secretary of DEKALB Energy Company
until he relinquished the title of Senior Vice President and was elected
Vice President in November, 1992. He resigned from all positions with
DEKALB Energy Company upon the sale of the Company in May, 1995.
Catherine J. Mackey.........................................................41
Vice President, Research of the Company
Ms. Mackey served as Director Discovery Research of the Company until
September 1995 at which time she was elected Vice President, Research.
John H. Pfund...............................................................49
Vice President, Research of the Company
Mr. Pfund served as Associate Director of Research of the Company until
November 1994 at which time he was appointed Research Director. He served
in that position until September 1995 at which time he was elected Vice
President, Research.
Janis M. Felver.............................................................49
Controller and Chief Accounting Officer of the Company
Ms. Felver served as Assistant Controller of the Company until January,
1995 at which time she was elected Controller and Chief Accounting Officer.
Roy L. Poage................................................................64
President, DEKALB Swine Breeders, Inc.
Mr. Poage has served as President of DEKALB Swine Breeders during the past
five years.
Each officer of DEKALB Genetics Corporation has been elected to serve as
such until the next annual election of officers of DEKALB (expected to
occur in January, 1997) or until his successor is elected.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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A.As of September 30, 1996 there were approximately 650 record holders of Class
A Common Stock and approximately 1,400 record holders of Class B Common
Stock. Class B shares are currently traded on the NASDAQ/NMS under the
trading symbol SEEDB. There is no established public trading market for
Class A shares.
B Common Stock Data* 1st 2nd 3rd 4th
. Qtr. Qtr. Qtr. Qtr.
1996
Dividends per share $ .067 $ .067 $ .07 $ .07
Market price - Low $ $ $ $
range 13.33 14.79 22.33 24.88
- $ $ $ $
High 16.50 23.17 29.42 33.63
1995
Dividends per share $ .067 $ .067 $ .067 $ .067
Market price - Low $ 9.25 $ 8.17 $ 9.67 $
range 12.83
- $ $ 9.92 $ $
High 10.96 12.58 14.92
*All share numbers and prices have been adjusted to reflect
the three-for-one split of the Common Stock to holders of
record May 10, 1996.
<TABLE>
<CAPTION>
ITEM 6 - SELECTED FINANCIAL Years Ended August 31 -
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(Dollars in millions, except per share
DATA
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amounts)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
OPERATIONS Revenues:
DATA North American Seed $ 259.8 $ 199.9 183.8 $ 162.7 $176.8
International Seed 80.6 72.1 63.7 69.6 64.6
Swine 47.1 47.4 52.7 45.1 44.5
Total Operating $ 387.5 $ 319.4 $ 300.2 $ 277.4 285.9
Revenues
Pre-Tax Earnings
(Loss):
North American Seed $ 30.9 $ 22.3 $ 14.7 $ 5.2 $10.0
International Seed 10.0 7.6 8.0 3.3 9.9
Swine 0.2 (0.9) 5.7 3.0 4.6
Interest, corporate (13.0) (13.9) (13.2) (14.1) (10.7)
and other
Earnings before
income taxes and
discontinued 28.1 15.1 15.2 (2.6) 13.9
operations
Income tax provision 11.1 5.6 4.6 (3.4) 4.4
(benefit)
Earnings before 17.0 9.5 10.6 0.8 9.5
discontinued
operations
Discontinued - 1.2 - 0.9 0.8
operations
Net earnings $ 17.0 $ 10.7 $ 10.6 $ 1.7 10.3
PER SHARE Primary earnings per $ 1.03 $ 0.69 $ 0.68 $ 0.11 $0.67
share (1)
DATA (5) Fully diluted - - - - -
earnings per share
(2)
Dividends per share $ 0.273 $ 0.267 $ 0.267 $ 0.267 $0.267
FINANCIAL Return on average 11.5% 8.6% 9.0% 1.5% 9.1%
equity
DATA Current ratio 2.18 1.85 1.75 1.70 2.22
Working capital $ 102.7 $ 80.4 $ 68.9 $ 67.7 $86.0
Net property, plant $ 119.5 $ 99.8 $ 95.7 $ 87.8 $83.5
and equipment
Total Assets $ 363.3 $ 323.0 $ 315.2 $ 313.0 $302.1
Long-term debt $ 85.0 $ 85.0 $ 85.0 $ 85.2 $90.1
Total debt to 33.5% 50.3% 51.8% 55.0% 49.7%
capitalization
Shareholder's equity $ 168.6 $ 126.3 $ 121.3 $ 114.8 $117.9
(3)
Book value per common $ 9.89 $ 8.12 $ 7.86 $ 7.45 $7.67
share
GENERAL Avg. shares
outstanding for 16,573 15,586 15,504 15,456 15,404
primary
earnings per share
(4)
Avg. shares
outstanding for fully - - - - 16,596
diluted
earnings per share
(4)
Number of employees 1,882 1,828 1,927 2,015 2,091
<FN>
(1) Primary earnings per common share for fiscal 1992 - 1996 are
calculated by dividing net earnings by the average number of common
and common equivalents (stock options) shares outstanding during
those fiscal years.
(2) Fully diluted earnings per share in 1992 and 1993 assume
conversion of a convertible subordinated zero coupon note which was
convertible into shares of Class B Common Stock. In 1992, the
calculation was antidilutive and in 1993 - 1995, the calculation was
not applicable.
(3) Gains and losses resulting from translation (except in foreign
countries experiencing hyperinflation) are reflected as an
adjustment to shareholders' equity.
(4) Average shares outstanding are in thousands.
(5) Per share data adjusted to reflect the three-for-one stock
split.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S
- ----------------------------------------------------------------------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------------------------------
RESULTS OF OPERATIONS
Summary
- -------
NOTE:
- -----
The Company declared a three-for-one stock split to holders of record May 10,
1996 with shares being distributed on May 24, 1996. At the time of the stock
split, the quarterly cash dividend was adjusted to seven cents per share, an
increase of five percent. All share numbers and prices are stated on a post-
split basis.
Net earnings for fiscal 1996 were $17.0 million ($1.03 per share) compared with
$10.7 million ($0.69 per share) in fiscal 1995. Earnings from continuing
operations were $7.5 million higher ($17.0 million versus $9.5 million) in
fiscal 1996 than in fiscal 1995. The 79 percent increase was primarily due to
higher North American corn and soybean sales volumes combined with higher corn
sales volumes in Argentina, the net receipt of $3.3 million from the Monsanto
collaboration agreement, and the absence of devaluation losses in Mexico which
occurred in fiscal 1995. Swine segment earnings for fiscal 1996 improved $1.1
million over fiscal 1995. Market hog prices rebounded significantly, but were
partly offset by lower breeding stock sales, reflecting a continuing soft demand
for breeding stock that began in fiscal 1995.
Several significant transactions occurred in fiscal 1996. On January 31, 1996,
DEKALB entered into a series of agreements with Monsanto Company (Monsanto),
including an agreement which provides for a long-term research and development
collaboration in the field of agricultural biotechnology, particularly corn
seed. DEKALB and Monsanto also entered into cross-licensing agreements covering
insect-resistant and herbicide-resistant corn products targeted to begin
reaching the market over the next three years.
During the third quarter, DEKALB completed a sale of equity to Monsanto as part
of an Investment Agreement. Monsanto purchased from DEKALB 242,721 newly issued
shares of Class A (voting) Common Stock at a price per share of $21.67 and
1,134,000 newly issued shares of Class B (non-voting) Common Stock at a price
per share of $21.67. As a result of the new stock issued to Monsanto, the total
number of outstanding shares of Common Stock of the Company rose to
approximately 17.0 million from about 15.6 million.
<PAGE>
In comparing fiscal 1995 with fiscal 1994, net earnings for fiscal 1995 were
$10.7 million ($0.69 per share) compared with $10.6 million ($0.68 per share) in
fiscal 1994. Earnings from continuing operations in fiscal 1995 were $9.5
million ($0.61 per share) compared with $8.9 million ($0.57 per share) in
fiscal 1994, excluding an after-tax benefit in 1994 of $2.1 million ($.13 per
share) related to the suspension of the defined benefit portion of the Company's
retirement program. The seven percent increase in earnings from continuing
operations was largely due to higher corn margins in the United States combined
with higher sales volumes for each of the seed product lines in the United
States. Swine earnings decreased substantially due to lower market hog prices
and soft demand for breeding stock.
During the third quarter of fiscal 1995, the Company sold the stock of its
wholly-owned poultry subsidiary to Central Farm of America, Inc., an affiliate
of Toshoku, LTD., a Tokyo-based trading company specializing in food and food
products. A gain of $1.7 million, after-tax, was recognized as a result of the
sale while discontinued operations reported a loss of $0.5 million, after-tax,
for the eight months that the Company owned the subsidiary in fiscal 1995. Net
proceeds of over $9 million in cash were reinvested in the Company's seed and
swine businesses.
The fiscal 1994 suspension of the defined benefit portion of the retirement plan
affected each of the segment's earnings. The benefit, after-tax, recognized by
each segment was $1.7 million for North American seed and $0.2 million each for
swine and corporate. In addition, in fiscal 1994, the Company adopted financial
accounting standard No. 109 (SFAS), `Accounting for Income Taxes.'' The
adoption of SFAS No. 109 resulted in the recognition of $0.4 million ($.03 per
share) of deferred tax expense.
Fiscal 1996 revenues were $387.5 million, up over 21 percent from $319.4 million
in fiscal 1995. North American seed revenues increased 30 percent and
international seed revenues were up 12 percent while swine revenues decreased
slightly. In fiscal 1995, North American seed revenues increased nine percent
and international revenues were up by 13 percent, while swine revenues decreased
nearly 10 percent from the previous year.
<PAGE>
Fourth Quarter
- --------------
The net loss in the fourth quarter of fiscal 1996 of $1.2 million ($0.07 per
share) was comparable with the prior year fourth quarter loss of $1.2 million
($0.08 per share); however, the reasons differed from year to year. The fiscal
1996 loss primarily reflected corporate and administrative expenses incurred in
the fourth quarter. Similar expenses were incurred in the fourth quarter of
fiscal 1995, but, in addition, higher seed earnings from late soybean sales were
offset by higher interest expense when compared with fiscal 1996. Fiscal 1994
fourth quarter earnings of $1.2 million included the recognition of certain
full year foreign royalties due to license contract revisions. Losses are more
typical for DEKALB in the fourth quarter because that period primarily reflects
corporate and interest expenses and adjustments related to estimated full year
seed returns and expenses recorded in the previous nine months.
Full Year Industry Segment Revenues and Pre-Tax Earnings
- ---------
(in millions)
Years ended August 31
Revenues 1996 1995 1994
- -------- ---- ---- ----
North American seed $259.8 $199.9 $183.8
International seed 80.6 72.1 63.7
Swine 47.1 47.4 52.7
---- ---- ----
$387.5 $319.4 $300.2
====== ====== ======
Pre-tax Earnings
- ----------------
North American seed $30.9 $22.3 $14.7
International seed 10.0 7.6 8.0
Swine 0.2 (0.9) 5.7
General Corporate (6.9) (5.4) (5.7)
Expenses
Interest Expense, Net (6.1) (8.5) (7.5)
----- ----- -----
$28.1 $15.1 $15.2
===== ===== =====
<PAGE>
- ------
North American Seed
- -------------------
Segment earnings for North American seed increased 39 percent from $22.3 million
in fiscal 1995 to $30.9 million in fiscal 1996 as revenues rose nearly thirty
percent from increased corn and soybean sales volumes. The earnings improvement
continued the trend started in fiscal 1995 when North American seed earnings
increased 52 percent while revenues increased nine percent over fiscal 1994.
Corn sales volume climbed 23 percent during fiscal 1996. Improved demand for
DEKALB corn hybrids continued as North American corn market share rose one
percentage point in fiscal 1996 to 11 percent, and as much as two to three
percentage points in key Cornbelt areas. An increase of 12 percent in U.S. corn
planted acreage also contributed to the volume increase. Fiscal 1996 corn margin
decreased over $1.00 per unit. Average selling price increased six percent,
which was more than offset by higher production costs. Corn unit costs rose
almost $5.00 from the previous fiscal year due to adverse planting and growing
conditions during the 1995 summer production season combined with higher winter
production costs. Parly offsetting increased production cost was lower discard
costs resulting from aggressive supply utilization.
In fiscal 1995, North American seed revenues were nine percent higher than a
year earlier. An improved corn sales product mix resulted in a six percent
increase in average corn selling price plus all five seed product lines
experienced sales volume increases. Corn sales volume in the United States
increased three percent despite a nine percent decrease in planted acreage in
fiscal 1995. The resulting market share increase of over one percentage point
was driven by higher sales in the Cornbelt. Corn margin also increased over
$8.00 per unit. The combination of a higher average selling price due to a
favorable product mix and a lower cost per unit caused the margin increase.
Cost per unit decreased as the result of a large production crop harvested in
the fall of 1994 following very favorable growing conditions during the
preceding summer.
Soybean sales volume increased over seven percent in fiscal 1996 following a 16
percent increase in fiscal 1995 over fiscal 1994. The contribution of the
soybean product line to segment earnings has continued to increase over the past
three years as a result of growing sales volume.
Fiscal 1996 sorghum sales volume grew 15 percent as sorghum planted acreage
expanded 40 percent from fiscal 1995. Farmers shifted to sorghum as a
replacement for failed winter wheat crops and significantly better market
prices, which made production more profitable. Increased demand for sorghum
resulted in a tight supply of DEKALB hybrids.
<PAGE>
In fiscal 1995, sorghum planted acreage fell for the third year in a row but
DEKALB sales volume increased over six percent, following a two percent
increase in fiscal 1994. Margin per unit decreased five percent in fiscal 1995
due to higher costs and a less favorable sales mix. Cost per unit increased in
fiscal 1995 due to unfavorable production conditions.
International Seed
- ------------------
International seed segment earnings rose $2.4 million during fiscal 1996 to
$10.0 million, compared with $7.6 million in the previous year. The primary
factors were improved earnings from Latin America and Africa, partly offset by
lower earnings in Europe.
Fiscal 1995 segment earnings for international seed were down slightly compared
with fiscal 1994. Revenues were up 13 percent in fiscal 1995 due to increased
sales volumes for all major products in Argentina plus higher export sales
volume.
Latin American segment earnings in fiscal 1996 were significantly improved from
the prior year. Results from Mexico were up $3.0 million from the previous
year's loss which resulted, in part, from the devaluation of the peso. Higher
sorghum selling prices combined with significant sales volume growth resulted in
improved sorghum revenues. Sorghum planted acreage in Mexico increased by 63
percent which contributed to the higher sales volume. Argentine corn sales
volume rose 14 percent in fiscal 1996 from the previous year as planted acreage
increased 15 percent. Restricted Argentine corn supply resulted in a percentage
point loss of market share.
In fiscal 1995, segment earnings from Latin America were mixed as earnings from
Argentine operations increased and equity earnings from Mexico were lower.
Argentine corn operations rebounded from the adverse growing conditions in
fiscal 1994 and experienced higher average selling prices and sales volume in
fiscal 1995. In Mexico, however, drought and the lack of agricultural credit
due to the devaluation of the peso significantly reduced corn sales
opportunities. In addition, seed corn production and discard costs were
significantly above fiscal 1994 levels. The earnings decrease in Mexico more
than offset the improvement in Argentina.
International operations in Africa benefited from increased royalty revenues,
while operations in Asia captured additional market share in Japan, Korea, and
China during fiscal 1996. Through licensing programs in Thailand, Indonesia,
and Vietnam, the Company strengthened its market position with increased sales
volumes.
The loss from company-owned operations in Italy was higher in fiscal 1996 while
fiscal 1995 was nearly comparable with fiscal 1994. Fiscal 1996 suffered from a
supply constraint of competitive corn products and from higher production costs.
Royalty income from Western Europe was relatively unchanged in fiscal 1996
compared with fiscal 1995 when royalty income was up from the previous year.
<PAGE>
- ------
World Wide Seed
- ---------------
Patents, trademarks, United States Plant Variety Protection Act Certificates,
foreign plant registrations and licenses to use genetic material and/or
intellectual property are growing in importance, generally, to the industry and
to the business of DEKALB Seed. While no single patent is currently of material
importance to the Company's seed business, an increasing number of patents that
have been issued to the Company in the area of biotechnology are considered to
be a key success factor in order to commercialize genetically engineered
products in the future and to provide the potential for the Company to enter
into license agreements with third parties. DEKALB Seed is expected to incur
legal expenses associated with the ongoing enforcement of its patents.
Seed segment earnings will continue to be affected by a variety of factors in
both domestic and international markets including the Company's relative product
performance and competitive market position, weather conditions, commodity
prices and trade policies.
Swine
- -----
Fiscal 1996 swine segment results improved by $1.1 million from the loss of $0.9
million in fiscal 1995. The average market hog price received by DEKALB
rebounded from $40.24 in fiscal 1995 to $48.78 in fiscal 1996. Partly
offsetting market hog price improvements was lower breeding stock volume (down
21 percent), resulting in part from soft demand caused by an unfavorable
hog\corn price ratio for producers.
A combination of lower market hog prices and soft demand for breeding stock led
to a $6.6 million decrease in swine segment earnings in fiscal 1995 compared
with fiscal 1994. Revenues decreased ten percent in fiscal 1995 compared with
fiscal 1994 even though breeding stock sales volume increased 12 percent.
Liquidation and consolidation of breeding herds following a significant drop in
the market price during the fall and winter of fiscal 1995 led to weak demand
for DEKALB male genetics. The average price received by DEKALB for market hogs
fell over $7.50 per hundred weight ($40.24 in fiscal 1995 from $47.83 in fiscal
1994) or 16 percent. Market-driven prices caused revenues from the female line
of the breeding stock business to be flat, even though sales volume increased in
fiscal 1995.
<PAGE>
The decrease in fiscal 1995 segment earnings compared to fiscal 1994 was almost
entirely due to the drop in revenues because operating expenses were flat from
year to year, excluding the benefit in fiscal 1994 related to the suspension of
the defined benefit portion of the retirement program.
General
- -------
The $1.5 increase in general corporate expenses over the prior year was largely
the result of enhanced employee benefits, higher bonuses, and consulting
expenses.
Net interest expense was $2.4 million lower in fiscal 1996 than fiscal 1995 .
The cash received from Monsanto strengthened DEKALB's cash position and reduced
the need for short term debt. Net interest expense increased $1.0 million in
fiscal 1995 over fiscal 1994 as a result of higher borrowing rates.
The effective tax rate increased to 39.5% in fiscal 1996 from 37% in fiscal
1995. The main reason for the increase was the unavailability of research and
development tax credits during most of fiscal 1996. Previously allowed research
credits expired in June, 1995, and were not reinstated by the legislature until
July, 1996. Tax expense increased $5.5 million due to higher pre-tax earnings
and the higher tax rate.
In fiscal 1995, the effective tax rate increased to 37% from 27% in fiscal
1994. In fiscal 1994, tax expense reflected benefits from the previous year's
international seed losses which were partially offset by the effects of adopting
SFAS No. 109.
On January 31, 1996, DEKALB entered into a series of agreements with Monsanto
Company (Monsanto), including an agreement which provides for a long-term
research and development collaboration with Monsanto in the field of
agricultural biotechnology, particularly corn seed. DEKALB and Monsanto also
entered into cross-licensing agreements covering insect-resistant and herbicide-
tolerant corn products targeted to reach the market over the next three years.
During the third quarter, DEKALB completed a sale of equity to Monsanto as part
of an Investment Agreement. Monsanto purchased from DEKALB 242,721 newly issued
shares of DEKALB Class A (voting) Common Stock at a price per share of $ 21.67
and 1,134,000 newly issued shares of Class B (non-voting) Common Stock at a
price per share of $21.67. As a result of the new stock issued to Monsanto, the
total number of outstanding shares of Common Stock of the Company rose to over
17.0 million from about 15.6 million.
<PAGE>
Monsanto also acquired 5,1771,214 shares of DEKALB's publicly traded Class B
Common Stock in a separate cash tender offer at a price of $23.67 per share.
Upon completion of the tender offer, Monsanto held ten percent of the Class A
voting shares and approximately 43 percent of the Class B non-voting shares.
Additionally, DEKALB received $4.0 million from Monsanto in March, 1996, the
first payment under the companies' collaboration agreement, which calls for
total payments of $19.5 million over the term of the agreement.
Effective in fiscal 1995, the Company began accounting for the translation of
foreign currency in countries formerly considered hyperinflationary in
accordance with the Statement of Financial Accounting Standards No. 52 (SFAS No.
52), `Foreign Currency Translation.'' The change to SFAS No. 52 accounting
combined with the devaluation of the Mexican peso resulted in a significant
write-down of the Company's investment in its equity position in Mexico. The
resulting translation adjustment of $3.1 million was recorded in the separately
designated component of shareholders' equity.
The Company is required to adopt Financial Accounting Standards Board Statement
No. 121, Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to Be Disposed Of, in fiscal 1997. The new accounting standard is
expected to have no impact on the carrying value of the Company's long lived
assets as of August 31, 1996.
FINANCIAL POSITION
Management believes its operating cash flow and existing credit facilities are
sufficient to cover normal and expected working capital needs, dividends,
capital expenditures and debt maturities.
Cash Flow
- ---------
In fiscal 1996, net cash flow from operating activities was $63.5 million higher
than the previous year. Cash from Argentine customer deposits and the receipts
generated from excellent U.S. and Argentine sales activity were up
significantly. Net cash flow used by investing activities reflected the
continued upgrade and expansion of seed production plants in the U.S. and
Argentina.
Net cash flow from fiscal 1995 operating activities decreased $26.1 million from
fiscal 1994. Increased cash was required in fiscal 1995 for the large seed crop
produced in the summer of 1994. Company cash investments in fixed assets were
partly offset by cash generated from the sale of its poultry business. The net
result reduced cash required for investing activities by over $10.0 million
compared with fiscal 1994.
<PAGE>
Credit Facilities
- -----------------
Genetics has various credit facilities and available lines of credit with
several commercial banks, both domestic and foreign. Committed credit lines
include a $50 million revolving credit facility and $20 million in credit
facilities for a 364 day period.
The revolving credit agreement provides credit for general corporate purposes
and is committed through December 31, 1998, but may be extended annually for
successive one year periods with the consent of the lending banks. The line of
credit requires a step-down to $20.0 million for any one day during each year.
The agreement contains various restrictions on the activities of the Company as
to maintenance of working capital and tangible net worth, amount and type of
indebtedness, and the acquisition or disposition of capital shares or assets of
the Company and its subsidiaries. At August 31, 1996, tangible net worth was
approximately $47.0 million in excess of the required minimum under the most
restrictive of these covenants.
Genetics also has numerous uncommitted short term credit facilities available
and draws upon them periodically. The available line of credit at August 31,
1996 was entirely unused.
Capital Expenditures
- --------------------
The Company continued to upgrade and expand seed production plants in the United
States and Argentina. Capital expenditures were $30.7 million in fiscal 1996,
an increase of $15.3 million from the fiscal 1995 spending level of $15.4
million. Capital expenditures were $18.1 million in fiscal 1994. No additional
swine facilities have been built since fiscal 1994.
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of DEKALB Genetics Corporation:
We have audited the accompanying consolidated balance sheets of DEKALB Genetics
Corporation (a Delaware corporation) and subsidiaries as of August 31, 1996 and
1995, and the related consolidated statements of operations, cash flows and
shareholders' equity for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DEKALB Genetics
Corporation and subsidiaries as of August 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a) (2) of this Form 10-K is presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 4, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of DEKALB Genetics Corporation:
We have audited the accompanying consolidated statements of operations, cash
flows and shareholders' equity of DEKALB Genetics Corporation for the year
ended August 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
DEKALB Genetics Corporation for the year ended August 31, 1994 in conformity
with generally accepted accounting principles.
As discussed in Note L, effective September 1, 1993, the Company adopted the
liability method of accounting for income tax. As discussed in Note A, the
Company changed the accounting method of valuing its commercial seed inventories
and retroactively restated all years presented.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
October 4, 1996
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended August 31 -
in millions except per share Note 1996 1995 1994
amounts
<S> <C> <C> <C> <C>
Revenues $ $ $
387.5 319.4 300.2
Cost of revenues 202.1 162.3 163.9
Gross Margin 185.4 157.1 136.3
Selling expense 73.0 64.5 58.0
Research and development expense 47.6 42.5 41.3
General and administrative 32.0 25.8 17.1
expense
152.6 132.8 116.4
Operating Earnings 32.8 24.3 19.9
Interest expense, net C (6.1) (8.5) (7.5)
Other income (expense), net C 1.4 (0.7) 2.8
Earnings from continuing
operations before income taxes
and accounting change 28.1 15.1 15.2
Income tax provision A&L 11.1 5.6 4.2
Earnings from continuing
operations before cumulative
effect of accounting change $ 17.0 $ 9.5 $ 11.0
Discontinued Operations:
Loss from operations, net of - (0.5) 0
tax
Gain on disposition, net of tax - 1.7 -
Earnings before cumulative effect $ 17.0 $ 10.7 $ 11.0
of accounting change
Cumulative effect of accounting - - (0.4)
change
NET EARNINGS $ 17.0 $ 10.7 $ 10.6
Earnings per share from
continuing operations before
cumulative effect of $ 1.03 $ 0.61 $ 0.71
accounting change
Discontinued Operations:
Loss from operations, net of - (0.03) -
tax
Gain on disposition, net of tax - 0.11 -
Earnings per share before
cumulative effect of
accounting change $ 1.03 $ 0.69 $ 0.71
Cumulative effect of accounting - - (0.03)
change
NET EARNINGS PER SHARE $ 1.03 $ 0.69 $ 0.68
DIVIDENDS PER SHARE $ $ $
0.273 0.267 0.267
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
CONSOLIDATED BALANCE SHEETS
at August 31 - in millions Note 1996 1995
<S> <C> <C> <C>
ASSETS Current assets:
Cash and cash equivalents A $ 23.3 $ 3.0
Receivables, net D 54.6 57.6
Inventories E 99.1 106.0
Deferred income taxes A & L 8.2 4.7
Other current assets 4.8 3.7
Total current assets $ 190.0 $ 175.0
Investments and advances 5.0 3.9
Intangible assets, net A 41.6 40.0
Other assets 7.2 4.3
Property, plant and equipment, net A & F 119.5 99.8
Total Assets $ 363.3 $ 323.0
LIABILITIES Current liabilities:
AND
SHAREHOLDER Short-term debt $ - $ 42.8
S' EQUITY
Accounts payable, trade 13.6 6.7
Other accounts payable 34.1 15.6
Other current liabilities G 39.6 29.5
Total current liabilities $ 87.3 $ 94.6
Deferred compensation and other 7.1 5.8
credits
Deferred income taxes A & L 15.3 11.3
Long-term debt I 85.0 85.0
Total long-term liabilities $ 107.4 $ 102.1
Commitments and contingent K
liabilities
Shareholders' equity:
Capital stock:
Common, Class A; no par value,:
authorized 15,000,000 shares
issued 2,403,580 for 1996 and 0.2 0.1
772,942 for 1995
Common, Class B; no par value,
non-voting, authorized
45,000,000 shares issued
14,867,540
for 1996 and 4,484,882 for 1995 1.5 0.4
Capital in excess of stated value 109.7 80.9
Retained earnings 63.7 52.3
Cumulative translation adjustment (4.1) (5.0)
171.0 128.7
Less treasury stock, at cost:
2,346 shares of Class A in 1995,
and 219,603 and 73,201 shares of
Class B in 1996 and 1995, (2.4) (2.4)
respectively.
Total shareholders' equity $ 168.6 $ 126.3
Total Liabilities and $ 363.3 $ 323.0
Shareholders' Equity
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
August 31 - in millions
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 17.0 $ 10.7 $ 10.6
Adjustments to reconcile net income
to net cash
provided by operating activities:
Depreciation and amortization 11.3 11.1 10.8
(Gain) on sale of fixed (0.2) (0.5) (1.3)
assets
Provision for losses on accounts 1.2 0.6 0.7
receivable
Provision for deferred income 1.8 1.0 1.1
taxes
Provision for inventory valuation 7.3 10.6 10.1
Equity (earnings) loss, net of (1.7) 1.0 (0.1)
dividends
Cumulative effect of accounting - - 0.4
change
Loss from discontinued operations - 0.5 0
Gain on disposition of - (1.7) -
discontinued operations
19.7 22.6 21.7
Changes in assets and liabilities:
Receivables 1.9 (13.8) (11.3)
Other current assets (1.1) 0.6 -
Inventories (0.5) (17.2) 6.8
Accounts payable 25.2 2.7 8.3
Accrued expenses 8.2 1.6 (1.8)
Current taxes payable 1.8 (1.1) -
Deferred income taxes (1.2) (0.9) (1.5)
Other assets and liabilities (0.8) 1.5 -
33.5 (26.6) 0.5
Net cash flow provided by $ 70.2 $ 6.7 $ 32.8
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and (30.7) (15.4) (18.1)
equipment
Proceeds from sale of property, plant 0.4 1.2 1.8
and equipment
Acquisitions and investments (3.2) - -
Proceeds from sale of discontinued - 12.5 -
operations
Cash provided (used) by discontinued - (3.5) 0.4
operations
Net cash flow used by investing (33.5) (5.2) (15.9)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments made on debt (42.8) (2.3) (10.1)
Sale of equity 27.6 - -
Dividends paid (4.3) (4.2) (4.1)
Other capital transactions 1.3 0.8 0.2
Net cash flow used by financing (18.2) (5.7) (14.0)
activities
Net effect of exchange rates on 1.8 1.0 (0.2)
cash
Net increase (decrease) in cash 20.3 (3.2) 2.7
and cash equivalents
Cash and cash equivalents, at the 3.0 6.2 3.5
beginning of the year
Cash and cash equivalents, at the end $ 23.3 $ 3.0 $ 6.2
of the year
Note: Cash paid during the year for:
Income taxes $ 7.6 $ 6.8 $ 3.3
Interest $ 6.9 $ 8.7 $ 8.1
<FN>
The accompanying notes are an integral part of the
financial statements.
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
at August 31-in millions 1996 1995 1994
except
shares in thousands Dollars Shares Dollars Shares Dollars Shares
<S> <C> <C> <C> <C> <C> <C>
Class A Common Stock
Balance, beginning of year $ 0.1 773 $ 0.1 788 $ 0.1 841
Exchange Class A for Class - (99) - (54) - (60)
B
Stock options exercised - 32 - 34 - 1
Employee 401(k) stock plan - 14 - 5 - 6
Sale of equity to Monsanto - 81 - - - -
Company
Three-for-one stock split
effected in the form 0.1 1,603 - - - -
of a 200% stock dividend
Balance, end of year $ 0.2 2,404 $ 0.1 773 $ 0.1 788
Class B Common Stock
Balance, beginning of year $ 0.4 4,485 $ 0.4 4,431 $ 0.4 4,371
Exchange Class A for Class - 99 - 54 - 60
B
Sale of equity to Monsanto 0.1 378 - - - -
Company
Three-for-one stock split
effected in the form 1.0 9,906 - - - -
of a 200% stock dividend
Balance, end of year $ 1.5 14,868 $ 0.4 4,485 $ 0.4 4,431
Capital in Excess of Stated
Value
Balance, beginning of year $ 80.9 $ 80.1 $ 79.9
Sale of equity to Monsanto 27.6 - -
Company
Stock options exercised 0.6 0.6 -
Employee 401(k) stock plan 0.5 0.1 0.1
Director Stock Option Plan 0.1 0.1 0.1
Balance, end of year $ 109.7 $ 80.9 $ 80.1
Retained Earnings
Balance, beginning of year $ 52.3 $ 45.8 $ 39.3
Net Income 17.0 10.7 10.6
Cash dividends on common
stock ($0.273 per
share in 1996, $0.267 per (4.5) (4.2) (4.1)
share in 1995 and
1994)
Three-for-one stock split
effected in the form (1.1) - -
of a 200% stock dividend
Balance, end of year $ 63.7 $ 52.3 $ 45.8
Cumulative Translation
Adjustment
Balance, beginning of year ($ 5.0) ($ 2.7) ($ 2.5)
Translation gain/(loss) 0.9 (2.3) (0.2)
Balance, end of year ($ 4.1) ($ 5.0) ($ 2.7)
Treasury Stock
Balance, beginning of year ($ 2.4) (74) ($ 2.4) (73) ($ 2.4) (73)
Stock options exercised (0.1) (2) (0.2) (7) - -
Employee 401(k) stock plan 0.1 2 0.2 6 - -
Three-for-one stock split
effected in the form - (146) - - - -
of a 200% stock dividend
Balance, end of year ($ 2.4) (220) ($ 2.4) (74) ($ 2.4) (73)
Total Shareholders' Equity $ 168.6 $ 126.3 $ 121.3
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
DEKALB Genetics Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES
- -----------------------
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the seed division (`DEKALB Seed'') and DEKALB Swine Breeders, Inc.
(`DEKALB Swine''). The accounts of the DEKALB subsidiary in Argentina are
included on the basis of its May 31 fiscal year, which more properly reflects
the growing season in that country. Transactions between this date and the
Company's fiscal year-end are not considered material.
The Company's investments in related companies (owned 50% or less), primarily in
Mexico, are carried at cost plus equity in undistributed net earnings and losses
since dates of acquisition. Carrying values approximate the Company's interest
in the net assets of these related companies.
ACCOUNTING CHANGE - During the third quarter of fiscal 1994, the Company changed
the accounting method of valuing its commercial seed inventories, previously
valued using the last-in, first-out (LIFO) method, to average cost. The
Company's planning, production and sales activities include the utilization of
commercial seed inventories from more than one crop year. However, the use of
the LIFO method, in effect, caused the matching of the most recent crop year's
cost with current revenues. This caused significant commercial seed earnings
volatility given year-to-year uncertainties such as crop size, yield and market
prices. Therefore, the Company believes the average cost method of inventory
valuation achieves a better matching of blended inventory costs with revenues
and better reflects the utilization of commercial seed inventory units. The
change in accounting method has been applied retroactively and financial
information for all periods presented has been restated. In fiscal 1994, net
earnings were $1.3 million ($.08 per share) higher as a result of the change.
INTANGIBLE ASSETS - Intangible assets consist primarily of the cost of purchased
businesses in excess of market value of net assets acquired (goodwill). In
accordance with company policy, DEKALB assesses recoverability and impairment of
goodwill on an annual basis. DEKALB amortizes goodwill on a straight-line
method over 40 years.
PROPERTY, PLANT AND EQUIPMENT - It is the policy of DEKALB to capitalize
expenditures for major renewals and betterments and to charge to operating
expenses the cost of current maintenance and repairs. Provisions for
depreciation have been computed principally on the straight-line method, based
on expected lives, for buildings and equipment. Rates used for depreciation are
determined separately for individual plants and locations and are based
principally on the following expected lives: buildings - 12.5 to 33.5 years;
equipment - 4 to 12.5 years; other - 3 to 20 years; and leasehold improvements -
term of lease or useful life, whichever is shorter.
<PAGE>
The cost and accumulated allowances for depreciation and amortization relating
to assets retired or otherwise disposed of are eliminated from the respective
accounts at the time of disposition. The resulting gain or loss is included in
`other income, net''.
INCOME TAXES - Effective September 1, 1993, the Company changed its method of
accounting for income taxes by adopting the provisions of Statement of Financial
Accounting Standards No. 109 (SFAS 109). `Accounting for Income Taxes.'' SFAS
109 requires a change from the deferred method of accounting for income taxes
under APB Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the expected future book and tax bases of assets
and liabilities using enacted tax rates expected to apply in the years in which
the temporary differences are expected to reverse.
The adoption of SFAS 109 resulted in the recognition of $0.4 million, $.03 per
share, of deferred tax expense. This amount was included as a charge to net
earnings as the cumulative effect of change in accounting principle in the first
quarter of fiscal 1994.
Deferred taxes arise principally from temporary differences between financial
and tax reporting. The most significant of these differences are set forth in
Note L. At August 31 of each year presented, United States income taxes were
provided on undistributed earnings of non-U.S. subsidiaries.
<PAGE>
DEKALB Genetics Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
FOREIGN CURRENCY TRANSLATION - Effective in fiscal 1995, the Company no longer
considered certain countries hyperinflationary for purposes of applying
Statement of Financial Accounting Standards No. 52 (SFAS No. 52), `Foreign
Currency Translation.'' Foreign-currency assets and liabilities are translated
into their U.S. dollar equivalents based on rates of exchange prevailing at the
end of the respective period. Translation adjustments resulting from
translating foreign currency financial statements of consolidated subsidiaries
into their U.S. dollar equivalents are reported separately and accumulated in a
component of shareholders' equity.
STATEMENT OF CASH FLOWS - DEKALB classifies highly liquid investments with
original maturities of three months or less as cash and cash equivalents.
CONCENTRATION OF CREDIT RISK - The Company's business activity is primarily with
dealers and distributors located in the United States and certain foreign
countries. When the Company grants credit, it is primarily to customers whose
ability to pay is dependent upon the agribusiness economics prevailing in that
specific area of the world. No significant concentration of credit risk exists.
REVENUE RECOGNITION - The Company recognizes revenues upon shipment of goods,
with discounts and returned goods offsetting this amount.
RECLASSIFICATIONS - Certain expense reclassifications have been made for segment
comparability purposes. These reclassifications had no effect on net earnings.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFERRED LICENSING COSTS - The Company defers direct costs associated with
company-owned swine licensed under the royalty program. Revenue recognition
under a third party licensing agreement occurs, in part, at initiation of the
license and, in future years, in the form of royalties from selected progeny.
The costs deferred are direct costs, primarily feed and the labor to produce the
swine. These costs are amortized in proportion to the estimated revenue from
the license agreement. The average license period is 2.5 years. The amount of
costs deferred in fiscal 1996 and 1995 were $3.0 million and $1.2 million,
respectively.
<PAGE>
EARNINGS PER SHARE - Primary earnings per share of common stock are calculated
by dividing net earnings by the weighted average of common and common equivalent
(stock options) shares outstanding during each fiscal year: 16,572,777,
15,585,582 and 15,503,882 in 1996, 1995 and 1994, respectively.
STOCK-BASED COMPENSATION - In 1995 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123 (`SFAS No. 123''),
Accounting for Stock-Based Compensation, which is effective for fiscal 1997.
Under this standard, companies may continue to use the intrinsic value
methodology prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, or may apply a fair value methodology used in
SFAS No. 123. As the Company anticipates continuing to account for stock-based
compensation using the intrinsic method, SFAS No. 123 will not have an impact on
the Company's reported results of operations or financial position. The
Company plans to adopt the disclosure requirements of SFAS No. 123 effective
with the 1997 fiscal year reporting.
NEW ACCOUNTING STANDARD - The Company is required to adopt Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of, in fiscal 1997. The new
accounting standard is expected to have no impact on the carrying value of the
Company's long lived assets as of August 31, 1996.
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
B.STOCK SPLIT The company declared a three-for-one stock split
to holders of record May 10, 1996 with shares
being distributed on May 24, 1996. Following the
split, the quarterly cash dividend was adjusted
to seven cents per share, an increase of five
percent.
.
<TABLE>
- -------
<CAPTION>
- ---------
C.STATEMENT OF
OPERATIONS DATA
for the years ended August 31 - in 1996 1995 1994
millions
<S> <S> <C> <C> <C>
(1)INTEREST EXPENSE,
NET
Interest expense $ (8.3) $ (9.6) $
(8.2)
Interest income 2.2 1.1 0.7
Interest Expense, net ($ 6.1) ($ 8.5) ($ 7.5)
for the years ended August 31 - in 1996 1995 1994
millions
(2)OTHER INCOME,
NET
Equity in net earnings of related $ 1.7 ($ 1.0) $ 1.5
companies
Gain on sale of fixed assets 0.2 0.5 1.3
All others, net (0.5) (0.2) -
Other income, net $ 1.4 ($ 0.7) $ 2.8
for the years ended August 31 - in 1996 1995 1994
millions
(3)RESEARCH AND
DEVELOPMENT
EXPENSE
DEKALB Seed $ 40.9 $ 36.7 $ 34.9
DEKALB Swine 6.7 5.8 6.4
Research and development expense $ 47.6 $ 42.5 $ 41.3
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
at August 31 - in millions 1996 1995
<S> <S> <C> <C>
D.RECEIVABLES
Trade accounts and notes $ 51.7 $ 53.2
Employees 1.4 2.3
Related companies 0.8 1.3
Other 4.3 3.5
$ 58.2 $ 60.3
Less allowance for doubtful accounts 3.6 2.7
Receivables, net $ 54.6 $ 57.6
E. at August 31 - in millions 1996 1995
INVENTORIES
At lower of cost or market:
Commercial seed-average cost $ 86.0 $ 95.3
Commercial swine-average cost 9.6 7.6
Supplies and other-principally first- 3.5 3.1
in, first-out
Inventories $ 99.1 $ 106.0
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
at August 31 - in millions 1996 1995
<S> <S> <C> <C>
F.PROPERTY, PLANT
AND EQUIPMENT,
NET (AT COST) Land $ 9.5 $ 9.2
Buildings 86.7 81.7
Equipment 134.7 127.2
Other 11.3 10.7
Construction in progress 23.8 11.2
266.0 240.0
Less accumulated depreciation and 146.5 140.2
amortization
Property, plant and equipment, net $ 119.5 $ 99.8
G.OTHER CURRENT at August 31 - in millions 1996 1995
LIABILITIES
Current income taxes $ 2.0 $ 0.2
Payroll 8.3 5.2
Vacation 2.8 2.5
Pensions and other credits 2.7 1.4
Insurance 2.5 2.2
Taxes, other than income 4.4 6.5
Production costs 7.2 4.3
Other 9.7 7.2
Other current liabilities $ 39.6 $ 29.5
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
H.FINANCIAL During 1995, the Company adopted Statement of
INSTRUMENTS Financial Accounting Standards No. 119,
AND RELATED ``Disclosures About Derivative Financial
DISCLOSURES Instruments and Fair Value of Financial
Instruments''. This statement in conjunction with
Statement of Financial Accounting Standards No.
107, ``Disclosures About Fair Value of Financial
Instruments'' requires certain disclosures about
the fair value of financial instruments, including
derivative financial instruments for which it is
practicable to estimate fair value.
The following methods and assumptions were used to
estimate the fair market value of each class of
financial instrument.
TRADE ACCOUNTS AND NOTES RECEIVABLE
The carrying amount of the Company's trade
accounts and notes receivable approximates market
value.
SHORT-TERM AND LONG-TERM DEBT
Short-term debt represents borrowings against
lines of credit with various banks. The weighted
average interest rate on short-term borrowings for
fiscal 1996 was approximately 6.5%. At August 31,
1996, committed lines of credit available to
DEKALB included a $50 million revolving credit
agreement and $16 million in credit facilities for
a 364 day period.
The revolving credit agreement provides credit for
general purposes and is committed through December
31, 1998, but may be extended annually for
successive one year periods with the consent of
the lending banks. The line of credit requires a
step-down to $20.0 million for any one day during
each year. The agreement contains various
restrictions on the activities of the Company as
to maintenance of working capital and tangible net
worth, amount and type of indebtedness and the
acquisition or disposition of capital shares or
assets of the Company and its subsidiaries. At
August 31, 1996, tangible net worth was
approximately $47.0 million in excess of the
required minimum under the most restrictive of
these covenants. The Company pays a commitment
fee of 1/10 of 1% for the $50 million line of
credit. The available line of credit at August
31, 1996 was entirely unused.
The $16 million in credit facilities carry a 1/8
of 1% fee on the unused portion of the commitment.
The line was not fully utilized in fiscal 1996
and, therefore, some fees were required.
The carrying amount of the Company's long-term
debt and all the Company's short-term debt
approximates market value because rates on those
debt agreements are variable and are set
periodically based on current rates during the
year. An exception would be the $20 million long-
term loan which has a fixed rate of 7.15% and two
$5 million long-term loans which have fixed rates
of 7.56% and 6.98%, respectively. The company
estimated the market value of its long-term debt
by utilizing a discounted cash flow methodology.
SWAP AGREEMENTS
The Company has entered into interest rate swap
agreements with third parties to manage interest
rate movements on the majority of its variable
rate term debt. At August 31, 1996, the Company
had swap agreements with an aggregate notional
principal amount of $55 million and an average
interest rate of 5.7%, maturing in fiscal 1997 and
fiscal 1998. Any interest rate differential on
these swap agreements is recognized in interest
expense, net over the terms of the agreements.
The interest income (expense) related to swap
agreements recognized during 1996, 1995 and 1994
was $(0.1) million, $0.1 million and $(1.3)
million, respectively. The Company is exposed to
credit loss in the event of nonperformance by the
other parties to the agreements. However, the
company does not anticipate nonperformance by any
of those parties. The Company estimated the
market value of its interest rate swap agreements
by utilizing a discounted cash flow methodology.
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
H.FINANCIAL DERIVATIVES
INSTRUMENTS
AND RELATED DEKALB has contractual commitments with seed
DISCLOSURES growers for payments based on local market corn
(CONTINUED) and soybean commodity prices. To mitigate the
impact of fluctuation in these prices on inventory
costs, the Company hedges these payments by using
Chicago Board of Trade corn and soybean futures
contracts. Growers not priced at the end of
August are normally priced by March, at which time
the related futures contracts are closed. The
Company estimates the timing of grower payment
pricing to determine the futures maturities. In
addition, the Company, from time to time, hedges
its exposure to price fluctuations in grain used
for swine feed. Gains or losses on these hedge
positions are included as a component of the
applicable year's inventory. At August 31, 1996
and 1995, the Company had corn and soybean futures
contracts outstanding with contract market values
of $1.6 million and $2.5 million, respectively.
Margin deposits for open futures and/or option
contracts are recorded as other current assets.
DEKALB sells market hogs, which are by-products
from the production of breeding animals, to
independent processing and packing firms at the
premium to the major market averages. The Company
periodically hedges against the exposure of price
fluctuations in these markets. At August 31, 1996
and 1995 the Company had hog futures contracts
outstanding with a contract market value of $1.4
million and $1.9 million, respectively.
As of August 31, 1996 and 1995, the net
unrecognized gain on open futures contracts was
$1.3 million and $0.5 million, respectively.
The Company reviews potential foreign currency
risks on an on-going basis and is party to forward
contracts in the management of its foreign
currency exposure related to royalty income and
export sales. In order to reduce its exposure to
foreign currency fluctuation related to royalty
payments from its French licensee and export
receipts from its Italian subsidiary, the Company
utilizes foreign currency forward contracts with
maturities that mirror the anticipated receipts
and payments in October and November. At August
31, 1996 and 1995, the Company had French franc
forward contracts outstanding with an aggregate
contract market value of $7.8 million and $9.5
million, respectively, and Italian lira forward
contracts outstanding with an aggregate contract
market value of $4.3 million and $2.8 million,
respectively. Other foreign currency transactions
occur in the Argentine peso and the Canadian
dollar, although there are no foreign currency
contracts outstanding for those currencies at year
end. The Company had an unrealized loss of $0.2
million in fiscal 1996 related to the aggregate of
all foreign currency contracts. There was no
corresponding gain or loss in fiscal 1995.
The estimated fair value of the Company's financial
instruments was as follows:
<TABLE>
<CAPTION>
Carrying Fair
at August 31, 1996-in Amount Value
millions
<S> <C> <C>
Assets:
Cash and marketable $ 23.3 $ 23.3
securities
Trade accounts and notes 54.6 54.6
receivable
Interest rate swap - 0.3
agreements
Liabilities:
Short-term debt - -
Trade accounts payable 13.6 13.6
Long-term debt 85.0 85.0
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
at August 31 - in millions 1996 1995
<S> <S> <C> <C>
I.LONG-TERM Term loans, variable rates, due 2000 $ 55.0 $ 60.0
DEBT Term loans, 7.15% fixed rate, due from 1999-2003 20.0 20.0
Term loan, 7.56% fixed rate, due from 1999-2005 5.0 5.0
Term loan, 6.98% fixed rate, due from 1999-2006 5.0 -
85.0 85.0
Less current maturities - -
Net long-term debt $ 85.0 $ 85.0
<FN>
The variable rate term loan agreements allow the Company to borrow at
rates based on the London Interbank Offer Rate on Eurodollar deposits
(LIBOR). At August 31, 1996, interest on the variable rate term
loans was at a rate of approximately 6.1%.
All of the term loans contain similar restrictive covenants. The
most restrictive of these covenants requires the maintenance of a
minimum tangible net worth. At August 31, 1996, the Company's
tangible net worth was approximately $47.0 million in excess of the
required minimum under this covenant.
Aggregate maturities for the years ending August 31, 1999 through
2001 are $16.1 million, $49.4 million, and $5.4 million,
respectively. The remaining $14.1 million matures between 2002 and
2006. There are no long-term debt maturities in 1997 or 1998.
</TABLE>
<PAGE>
J.SAVINGS AND Effective September 1, 1995, the Company provides to each full
INVESTMENT and part-time employee a guaranteed contribution to the Savings
PLAN and Investment Plan (401(k)). The contribution equals one
percent of each employee's compensation covered by the Plan.
Beginning in fiscal 1997, the Company's guaranteed
compensation-based contribution will equal two percent of each
employee's pay.
Additionally, each full and part-time DEKALB employee can
voluntarily contribute to the Savings and Investment Plan. The
plan provides for DEKALB to match a minimum of $ .50 for every
dollar contributed by employees, to the extent employees
contribute up to 6% of their salaries. Additional discretionary
awards may also be contributed when warranted by results of
operations. DEKALB's contributions charged to expense under
this plan were $3.9 million for the year ended August 31, 1996,
$2.3 million in 1995 and $1.3 million in 1994.
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
K. COMMITMENTS DEKALB is a defendant in various legal actions arising in the
AND course of business activities. In the opinion of the
CONTINGENT management, these actions will not result in a material adverse
LIABILITIES effect on DEKALB's consolidated results of operations or
financial position. Additional information in Part I, Item 3 -
Legal Proceedings.
DEKALB is self-insured against property losses on the majority
of its operating facilities.
DEKALB's total rental expense for fiscal years 1996, 1995 and
1994 was $6.1 million, $5.4 million and $4.6 million,
respectively.
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
for the year ended August 31 - in millions 1996 1995 1994
<S>
<S>
L.INCOME Current provision: <C> <C> <C>
INCOME
TAX Federal $ 5.9 $ 1.3 $ 1.2
State 1.1 0.7 0.5
Foreign 2.3 2.6 1.5
$ 9.3 $ 4.6 $ 3.2
Deferred provision:
Federal $ 1.9 $ 1.5 $ 1.0
State (0.4) (0.1) 0.2
Foreign 0.3 (0.4) (0.2)
$ 1.8 $ 1.0 $ 1.0
Total income tax provision (benefit) $ 11.1 $ 5.6 $ 4.2
The significant components of the company's deferred tax assets and
deferred tax liabilities are presented below:
as of August 31 - in millions 1996 1995
Deferred tax assets:
Research Expenditures 5.2 6.8
Benefit Plans 2.1 1.7
Inventory 7.0 3.9
Other 3.4 4.6
Total Gross Deferred Tax Assets $ 17.7 $ 17.0
Valuation Allowance (0.8) (0.8)
Gross Deferred Tax Assets $ 16.9 $ 16.2
Deferred tax liabilities:
Purchase Price Allocations (9.8) (9.6)
Undistributed Foreign Earnings (4.6) (5.4)
Depreciation (5.6) (5.1)
Other (4.0) (2.7)
Gross Deferred Tax Liabilities ($24.0) ($22.8)
Net Deferred Tax Liability ($ 7.1) ($ 6.6)
<FN>
The net deferred tax liability disclosed above equals the deferred tax
on the balance sheet. The footnote disclosure classified the components
as assets or liabilities while the balance sheet discloses the current
and long-term portion of those two classifications. The valuation
allowance relates to those deferred tax assets that may not be fully
realized.
Total tax provisions (benefits) resulted in amounts differing from those
based on the statutory federal income tax rates. The reasons for these
differences are:
</TABLE>
<TABLE>
<CAPTION>
for the years ended August 31 - in millions 1996 1995 1994
<S> <C> <C> <C>
U.S. statutory rate $ 9.9 $ 5.3 $ 5.3
State and local taxes 1.0 0.4 0.4
International operations (0.1) (0.3) (1.8)
Qualified export activity (0.1) - -
Research credits - (0.5) (0.3)
Other 0.4 0.7 0.6
Income tax provision (benefit) $ 11.1 $ 5.6 $ 4.2
</TABLE>
<TABLE>
<CAPTION>
The domestic and foreign components of earnings before taxes of
consolidated companies were as follows:
for the years ended August 31 - in 1996 1995 1994
millions
<S> <C> <C> <C>
U.S. $ 25.3 $ 13.3 $ 10.0
Argentina 2.3 2.1 0.7
Other Non-U.S. 0.5 (0.3) 4.5
Total earnings before taxes $ 28.1 $ 15.1 $ 15.2
<FN>
Effective September 1, 1993, the Company adopted the liability method
of accounting for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, ``Accounting for Income Taxes''. Prior to
fiscal year 1994, income tax was calculated in accordance with
Accounting Principle Board Opinion No. 11. The adoption of SFAS 109
resulted in a one-time provision adjustment of $0.4 million or $0.03
per share which was recorded in the first quarter of fiscal year 1994.
This amount is included as a charge to net earnings as the cumulative
effect of accounting change.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
M.
QUARTERLY The following is a summary of the unaudited quarterly results of
RESULTS operations for the years ended August 31, 1996 and 1995. DEKALB's
OF North American seed operations comprise a significant portion of
OPERATIONS its business. DEKALB generally delivers only a minor portion of
(UNAUDITED) North American seed in the first quarter, delivers more than half
in the second quarter, and substantially all the seed is delivered
by the end of the third quarter. The Company deferred first
quarter expenses and anticipates fourth quarter expenses and
matches these expenses against second and third quarter revenues.
Third quarter results also reflect estimates of seed product
returns. Consequently, fourth quarter earnings include
adjustments for those earlier estimates.
The total of four quarters' earnings per share might not equal the
earnings per share for the year due to the application of the
treasury stock method and market price changes.
<TABLE>
<CAPTION>
in millions except per share amounts
- November February May August
three months ended the last day of
<S> <C> <C> <C> <C>
1996
Revenues $ 50.1 $ 180.3 $ 137.0 $ 20.1
Cost of Revenues 28.4 95.1 68.4 10.2
Net earnings (0.1) 9.7 8.6 (1.2)
Earnings per share ($ 0.01) $ 0.60 $ 0.51 ($ 0.07)
1995
Revenues $ 45.2 $ 144.2 $ 104.9 $ 25.1
Cost of Revenues 26.8 71.1 50.6 13.8
Net earnings (1.2) 7.7 5.4 (1.2)
Earnings per share ($ 0.08) $ 0.49 $ 0.34 ($ 0.08)
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
N. Information on DEKALB's operations by geographic area for
OPERATION BY fiscal years 1996, 1995 and 1994 is shown below.
GEOGRAPHIC Operating earnings are equal to total revenues less
AREA expenses of the geographic areas, excluding interest and
general corporate expenses. Transfers of products
between geographic areas are at prices approximating
those charged to unaffiliated customers and are not
material to any geographic area.
<TABLE>
<CAPTION>
August 31 - in millions 1996 1995 1994
<S> <C> <C> <C>
Revenues
United States $ 300.9 $ 243.2 $ 232.8
Argentina 49.8 42.5 37.4
Other Non-U.S. 36.8 33.7 30.0
$ 387.5 $ 319.4 $ 300.2
Operating Earnings
United States $ 30.1 $ 21.0 $ 21.9
Argentina 5.6 5.2 3.0
Other Non-U.S. 3.7 3.8 3.5
$ 39.4 $ 30.0 $ 28.4
Equity in Earnings
Other Non-U.S. $ 1.7 ($ 1.0) $ 1.5
Identifiable Assets
United States $ 256.8 $ 232.1 $ 225.5
Argentina 77.7 64.2 54.5
Other Non-U.S. 28.8 26.7 35.2
$ 363.3 $ 323.0 $ 315.2
<FN>
Consolidated net assets included approximately $49.0
million at August 31, 1996 and $35.4 million at August
31, 1995, located in countries other than the United
States. Consolidated net earnings included approximate
earnings of $5.4 million in fiscal year 1996 and $1.1
million in fiscal year 1995 from these countries.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
O. Prior to fiscal 1994, the Company provided employees a
PENSION noncontributory pension plan covering substantially all
PLANS domestic employees who met age and service
requirements. Benefits provided under this pension
plan are based primarily on each employee's career
earnings up until the suspension of the plan on October
1, 1993. Plan assets consist primarily of stocks and
U.S. government securities. At the time of suspension,
the Company recognized a pre-tax curtailment benefit of
$3.7 million.
In addition, DEKALB has a supplemental noncontributory
pension plan covering certain management employees,
which is not funded. Benefits are based mainly on each
participant's years of service, final average
compensation, and estimated benefits received from
certain other benefit plans. This plan was also
suspended on October 1, 1993 and the Company recognized
a pre-tax benefit of $0.5 million related to the
suspension.
<TABLE>
<CAPTION>
The components of total estimated pension income for the two plans are as
follows:
August 31 - in millions
1996 1995 1994
<S> <C> <C> <C>
Service Cost - benefits earned during the year $ - $ - $ 0.2
Interest cost on projected benefit obligations 0.7 0.9 1.0
Actual return on plan assets (1.2) (1.6) (0.4)
Net amortization and deferral 0.3 0.5 (0.8)
Income from plan curtailment - - (4.2)
Net Pension Income ($ 0.2) ($ 0.2) ($ 4.2)
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
O.PENSION Actuarial assumptions for August 31, 1996 and August 31, 1995 are as
PLANS follows:
(CONTINUED)
1996 1995
<S> <C> <C>
Discount rate 7.25% 7.0%
Return on plan assets 8.5% 8.5%
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the funded status to accrued pension expense is as
follows:
Funded Plan Unfunded Plan
August 31 - in millions 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Actuarial present value of
benefits
based on service to date and
present
pay levels:
Vested $ 9.3 $ 8.5 $ 0.6 $ 0.4
Nonvested 0.1 1.0 - -
Accumulated benefit obligation 9.4 9.5 0.6 0.4
Additional amounts related to
projected
pay increases - - - -
Projected benefit obligation 9.4 9.5 0.6 0.4
Plan assets at fair market value 8.8 9.4 - -
Plan assets less than
projected benefit obligation (0.6) (0.1) (0.6) (0.4)
Unrecognized loss
from experience 2.9 2.5 0.1 -
Unrecognized net transition asset (2.6) (2.8) - -
Accrued pension expense included
in the Consolidated Balance ($ 0.3) ($ 0.4) ($ 0.5) ($ 0.4)
Sheet
<FN>
The Company has obligations under termination indemnification plans in
several foreign countries, but does not have any foreign defined benefit
pension plans as defined in Financial Accounting Standard No. 87.
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
P. The following is summarized financial information for
INFORMATION DEKALB's less than 50 percent owned operations:
ON RELATED
COMPANIES
Balance Sheets
at August 31 - in millions 1996 1995
<S> <C> <C>
ASSETS
Current assets $ 9.8 $ 8.4
Non-current assets 2.9 3.9
Total Assets $ 12.7 $ 12.3
LIABILITIES
Current liabilities $ 1.6 $ 2.8
Non-current liabilities 1.8 1.9
Total Liabilities $ 3.4 $ 4.7
</TABLE>
<TABLE>
<CAPTION>
Summary of Earnings
for the years ended August 31 - in 1996 1995 1994
millions
<S> <C> <C> <C>
Revenues $ 15.5 $ 13.3 $ 18.4
Gross Profit $ 7.1 $ 4.1 $ 3.5
Net Earnings $ 3.4 ($ 2.1) $ 3.1
DEKALB's Equity in Net Earnings $ 1.7 ($ 1.0) $ 1.5
<FN>
DEKALB's investments in related companies are carried at cost plus
equity in undistributed net earnings and losses since dates of
acquisition. Carrying values approximate DEKALB's interest in the
net assets of these related companies. Dividends received from
related companies were $1.5 million in fiscal year 1994 . No
dividends were received in fiscal years 1996 and 1995.
</TABLE>
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Q. In August, 1988, the Company adopted a Long-Term Incentive Plan which provides for the
INCENTIVE awarding of stock appreciation rights (SARs), stock indemnification rights (SIRs) are
PLANS restricted stock and the granting of incentive and nonqualified options to purchase
Class A or Class B Common Stock of the Company. The Company's Stock Option Committee
may make awards of SARs, SIRs, restricted stock or stock options to certain officers
and key employees of the Company. All stock options may be granted at no less than
fair market value of the Company's stock at the date of grant and are exercisable
within periods specified by the Stock Option Committee.
The following share information reflects the three-for-one stock split.
1996 1995 1994
Class A Class A Class A
<S> <C> <C> <C>
Shares under option at beginning of year 711,462 730,533 623,520
Activity:
Granted 171,900 173,250 139,200
Exercised (119,691) (145,869) (7,815)
Canceled (5,103) (46,452) (24,372)
Shares under option at end of year 758,568 711,462 730,533
Shares available for future grants as of 1,070,154 186,951 313,749
August 31
Shares vested and exercisable as of 458,967 451,386 472,683
August 31
Price range of options exercised $ 8.79 - $ 12.50 $ 0.67 - $ $ 0.67 - $
12.25 10.54
Price range of shares under option at $ 0.67 - $ 16.08 $ 0.67 - $ $ 0.67 - $
end of year 12.75 12.75
>
In<FN fiscal 1991, the shareholders also approved a Director Stock Option Plan which
gives outside directors an election to receive options to purchase Class A Common Stock
(which options have a discounted exercise price) in lieu of annual retainer and meeting
fees. The 25% discount in the exercise price, multiplied by the number of shares
subject to the option, equals the annual retainer and meeting fees the directors would
have received. Total expense for the Director Stock Option Plan was $0.1 million in
each of the fiscal years 1996, 1995 and 1994.
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
Class A Class A Class A
<S> <C> <C> <C>
Shares under option at beginning of year 161,736 147,237 103,044
Activity:
Granted 34,839 44,055 44,598
Exercised (1,492) (28,860) -
Canceled - (696) (405)
Shares under option at end of year 195,083 161,736 147,237
Shares available for future grants as of 65,373 100,212 143,571
August 31
Shares vested as of August 31 195,083 161,736 147,237
Shares exercisable as of August 31 160,244 117,681 102,639
Price range of options exercised $ 8.37 $ 6.69 - $ -
8.37
Price range of shares under option at $ 6.69 - $ $ 6.69 - $ $ 6.69 - $ 8.37
end of year 12.06 8.37
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
R.INDUSTRY The following industry segment information
SEGMENT summarized DEKALB's operations as of and for the
years ended August 31, 1996, 1995, and 1994.
Operating earnings are total sales and revenues
less operating expenses of the segments, excluding
interest, and general corporate allocations.
No customer accounted for 10 percent or more of
total operating revenues.
<TABLE>
<CAPTION>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
R.INDUSTRY
SEGMENT
(CONTINUED)
August 31 - in millions 1996 1995 1994
<S> <C> <C> <C>
Revenues
Seed (1) $ 340.4 $ 272.0 $ 247.5
Swine 47.1 47.4 52.7
$ 387.5 $ 319.4 $ 300.2
Earnings (Loss) Before
Income Taxes
Seed:
Operating earnings $ 39.2 $ 30.9 $ 21.2
Equity in net earnings 1.7 (1.0) 1.5
of related companies
40.9 29.9 22.7
Swine 0.2 (0.9) 5.7
Total Operations 41.1 29.0 28.4
General corporate expenses (6.9) (5.4) (5.7)
Net interest expense (6.1) (8.5) (7.5)
$ 28.1 $ 15.1 $ 15.2
Identifiable Assets
Seed $ 329.8 $ 290.5 $ 274.0
Swine 32.7 31.7 34.0
Discontinued Operations 0.8 0.8 7.2
$ 363.3 $ 323.0 $ 315.2
Depreciation and
Amortization Expense
Seed $ 9.1 $ 8.7 $ 8.4
Swine 2.2 2.4 2.4
$ 11.3 $ 11.1 $ 10.8
Property Additions
Seed $ 28.5 $ 14.6 $ 13.1
Swine 2.2 0.8 5.0
$ 30.7 $ 15.4 $ 18.1
<FN>
(1) Consolidated revenues do not include approximately
$145 million in fiscal year 1996, $130 million in
fiscal year 1995 and $135 million in fiscal year 1994
of DEKALB seed sold under royalty agreements with non-
consolidated affiliates and licensees or recognized by
equity companies. (Footnote P).
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
S. On April 28, 1995, the Company sold its poultry
DISCONTINUED operations to Central Farm of America, Inc., an
OPERATIONS affiliate of Toshoku, Ltd., for $12.5 million
cash. Accordingly, the poultry business is
reported as a discontinued operation and the
consolidated financial statements have been
reclassified to report separately the net assets
and operating results of the business. The
Company's operating results for prior years have
been restated to reflect continuing operations.
Net earnings from discontinued operations
included an operating loss of $0.5 million, net
of $0.5 million tax benefit and a net gain on the
sale of $1.7 million, net of $0.5 million tax
expense. Revenues for discontinued operations
were $12.1 million for the eight months of fiscal
1995 and $19.8 million for the twelve months of
fiscal 1994. Net assets of the discontinued
operations at August 31, 1995 consist primarily
of current assets amounting to $0.8 million.
<PAGE>
DEKALB GENETICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
T.MONSANTO On January 31, 1996, the Company entered into a
TRANSACTION series of agreements with Monsanto Company
(Monsanto), including an agreement which provides
for a long-term research and development
collaboration with Monsanto in the field of
agricultural biotechnology, particularly corn
seed. DEKALB and Monsanto also entered into
cross-licensing agreements covering insect-
resistant and herbicide-tolerant corn products
targeted to reach the market over the next three
years.
During the third quarter of fiscal 1996, DEKALB
completed a sale of equity to Monsanto as part of
an Investment Agreement. The three-for-one stock
split to shareholders of record on May 10, 1996
is reflected in the following share and price
information. Monsanto purchased from DEKALB
242,721 newly issued shares of DEKALB Class A
(voting) Common Stock at a price per share of $
21.67 and 1,134,000 newly issued shares of Class
B (non-voting) Common Stock at a price per share
of $21.67. As a result of the new stock issued
to Monsanto, the total number of outstanding
shares of Common Stock of the Company rose to
over 17.0 million from about 15.6 million.
Monsanto also acquired 5,171,214 shares of
DEKALB's publicly traded Class B Common Stock in
a separate cash tender offer at a price of $23.67
per share. Upon completion of the tender offer,
Monsanto held ten percent of the Class A voting
shares and approximately 43 percent of the Class
B non-voting shares. Additionally, DEKALB
received $4.0 million from Monsanto in March,
1996, the first payment under the companies'
collaboration agreement, which calls for total
payments of $19.5 million over the term of the
agreement.
The Investment Agreement, among other things: (i)
provides Monsanto with the right, for one year
after the closing under the Investment Agreement
(the ``Closing''), to purchase in the stock market
additional Class B Stock so long as the total
Common Stock owned by Monsanto does not exceed
40% of the Common Stock outstanding at such time,
(ii) restricts the ability of Monsanto to
transfer securities of DEKALB; (iii) provides
DEKALB under specified circumstances with a right
of first refusal in respect of certain proposed
transfers by Monsanto of securities of DEKALB;
(iv) limits for ten years, subject to certain
exceptions, the ability of Monsanto to acquire
additional securities of DEKALB; (v) requires
DEKALB to provide notice to Monsanto of certain
transactions in order to provide Monsanto with
the opportunity to propose an alternative
transaction to DEKALB; and (vi) prohibits
Monsanto from engaging in specified activities.
Pursuant to the Investment Agreement, Robert T.
Fraley, president of the Ceregen unit at Monsanto
Co., was named to the board of directors of
DEKALB Genetics Corporation at the April, 1996
board of directors meeting.
The Investment Agreement also provides that
Monsanto may nominate for election in January,
1997 an additional member to DEKALB's Board.
DEKALB is obligated to support any such
nominations made in accordance with the terms of
the Investment Agreement. The Investment
Agreement further provides that, during any
period in which Monsanto is entitled to nominate
one or more members to DEKALB's Board, DEKALB
will use all reasonable efforts to assure that
there be at least three members of its Board who
are independent of DEKALB, Monsanto and certain
large holders of Class A Stock.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The Company will file with the Securities and Exchange Commission a definitive
Proxy Statement not later than 120 days after the close of its fiscal year ended
August 31, 1996. The information required by this Item is incorporated by
reference from the Proxy Statement.
Information about Executive Officers is shown on page 9 of this filing.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this Item is incorporated by reference from the
Proxy Statement.
<TABLE>
<CAPTION>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) (1)
Financial
Statements
The following financial statements of
DEKALB Genetics Corporation are included
in Part II, Item 8:
Page
<S> <S> <C>
Reports of Independent Public 18-
Accountants 19
Consolidated Statements of Operations
for the years ended August 31, 1996, 20
1995 and 1994
Consolidated Balance Sheets at August 21
31, 1996 and 1995
Consolidated Statements of Cash Flows
for the years ended August 31, 1996, 22
1995 and 1994
Consolidated Statements of Shareholders'
Equity for the years ended August 31, 23
1996, 1995 and 1994
Notes to Consolidated Financial 24-
Statements 43
(a) (2)
Financial
Statement
Schedules
Report of Independent Accountants 49
Schedule VIII - Valuation and Qualifying 50
Account
</TABLE>
PART IV
<TABLE>
<CAPTION>
(a) (3) Page
Exhibits
<S> <S> <C>
3A Restated Certificate of Incorporation of *
DEKALB Genetics Corporation
[Attached as Exhibit A to Information
Statement contained in Form 8 Amendment
(Amendment No. 3) dated August 18, 1988,
amending Form 10 Registration Statement of
the Company dated June 17, 1988 (File No.
0-17005)]
3B By-Laws of DEKALB Genetics Corporation *
[Attached as Exhibit B to Information
Statement contained in Form 8 Amendment
(Amendment No. 3) dated August 18, 1988,
amending Form 10 Registration Statement of
the Company dated June 17, 1988 (File No.
0-17005)]
4A Form of Class A Common Stock Certificate *
[Incorporated by reference to Exhibit 4A to
Form 8 Amendment (Amendment No. 1) dated
August 3, 1988, amending Form 10
Registration Statement of the Company dated
June 17, 1988 (File No. 0-17005)]
4B Form of Class B Common Stock Certificate *
[Incorporated by reference to Exhibit 4B to
Form 8 Amendment (Amendment No. 1) dated
August 3, 1988, amending Form 10
Registration Statement of the Company dated
June 17, 1988 (File No. 0-17005)
4C Revolving Credit Agreement between DEKALB *
Genetics Corporation and the banks listed
therein. [Attached as Exhibit 4C to Form
10-K filed October 14, 1994 (File No. 0-
17005]
Other instruments with respect to long-term
debt of the Registrant are not filed
because the total amount of securities
authorized under each such instrument does
not exceed 10% of the total assets of the
Registrant and its subsidiaries on a
consolidated basis and the Company agrees
to provide a copy to the Commission upon
request.
10A DEKALB Genetics Corporation Long-Term *
Incentive Plan [Incorporated by reference
to Exhibit 4A to Form S-8 Registration
Statement No. 33-24875]**
10B Form of Indemnification Agreements *
[Attached as Exhibit D to Information
Statement contained in Form 8 Amendment
(Amendment No. 3) Dated August 18, 1988,
amending Form 10 Registration Statement of
the Company dated June 17, 1988 (File No.
0-17005)]**
10C DEKALB Genetics Corporation Savings and *
Investment Plan [Incorporated by reference
to Exhibit 4.3 to Form S-8 (File No. 33-
33305) dated February 1, 1990]**
10D DEKALB Genetics Corporation Pension Plan** *
10E Form of Long-Term Incentive Plan Agreement *
[Incorporated by reference to Exhibit 4B to
Form S-8 Registration Statement
(Registration No. 33-24875)]**
(a) (3)
Exhibits Page
contin
ued
10F Director Stock Option Plan *
[Incorporated by reference to Exhibit 4.3
to Form S-8 Registration Statement
(Registration No. 33-39986)]**
10G Employment Agreement between DEKALB *
Genetics Corporation and Bruce P. Bickner
dated September 1, 1994 [Incorporated by
reference to Exhibit 10a to Form 10-Q filed
April 12, 1995 (File No. 0-17005)]**
10H Employment Agreement between DEKALB *
Genetics Corporation and Richard O. Ryan
dated September 1, 1994 [Incorporated by
reference to exhibit 10B to Form 10-Q filed
April 12, 1995 (File No. 0-17005)]**
10I Employment Agreement between DEKALB *
Genetics Corporation and John H. Witmer,
Jr. dated September 1, 1994 [Incorporated
by reference to Exhibit 10C to Form 10-Q
filed April 12, 1995 (File No. 0-17005)]**
10J Employment Agreement between DEKALB *
Genetics Corporation and Richard T. Crowder
dated October 26, 1994 [Incorporated by
reference to Exhibit 10J to Form 10-K filed
October 12, 1995 (File No. 0-17005)]**
10K Employment Agreement between DEKALB
Genetics Corporation and Thomas R. Rauman 51-
dated September 1, 1995** 53
11 Computation of Earnings Per Share 54
21 Subsidiaries of DEKALB Genetics Corporation 55
23A Consent of Independent Public Accountants - 56
Arthur Andersen LLP
23B Consent of Independent Accountants - 57
Coopers and Lybrand LLP
27 Financial Data Schedule
* Document has heretofore been filed with the
Commission and is incorporated by
reference.
** Document is a management contract or
compensating plan or arrangement.
(b) Reports on Form 8-K - No Form 8-K was filed
during the three months ended August 31,
1996.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
DEKALB GENETICS CORPORATION
Date: October 8, 1996 By: Bruce P. Bickner
----------------
Bruce P. Bickner
Chairman, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on this 8th day of October, 1996.
Signature Title
Richard O. Ryan President, Chief Operating
---------------
Officer
Richard O. Ryan and Director
Thomas R. Rauman Vice President - Finance and
----------------
Thomas R. Rauman Chief Financial Officer
Janis M. Felver Controller, Chief Accounting Officer
---------------
Janis M. Flever
DIRECTORS
---------
Charles J. Arntzen Allan Aves
------------------ ----------
Charles J. Arntzen Allan Aves
Robert T. Fraley Tod R. Hamachek
---------------- ---------------
Robert T. Fraley Tod R. Hamachek
Paul H. Hatfield Virginia R. Holt
---------------- ----------------
Paul H. Hatfield Virginia R. Holt
Douglas C. Roberts John T. Roberts
------------------ ---------------
Douglas C. Roberts John T. Roberts
H. Blair White
--------------
H. Blair White
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of DEKALB Genetics Corporation:
Our report on the consolidated financial statements of DEKALB Genetics
Corporation is included elsewhere in this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in Item 14 (a) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
October 12, 1994, except for Note S, as to which the date is October 8, 1996
<TABLE>
<CAPTION>
DEKALB Genetics Corporation
SCHEDULE VIII - VALUATION and QUALIFYING ACCOUNT
years ended August 31, 1996, 1995 and 1994
(Dollars in thousands)
Column A Column B Column C Column D Column E
Additions
Balance Charged Charged Balance
at to Costs to Other at
Description Beginnin and Accounts Deductions End
g Expenses Of Period
of
Period
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1996:
Deducted in the balance sheet
from the assets to which they
apply:
Allowance for doubtful
accounts $ 2,713 $ 1,233 $ 0 $ 365 (a) $ 3,581
and notes receivable
Inventory reserve $14,342 $7,379 $0 $7,806 $13,915
Year ended August 31, 1995:
Deducted in the balance sheet
from the assets to which they
apply:
Allowance for doubtful
accounts $ 2,159 $ 961 $ 0 $ 407 (a) $ 2,713
and notes receivable
Inventory reserve $13,829 $10,615 $0 $10,102 $14,342
Year ended August 31, 1994:
Deducted in the balance sheet
from the assets to which they
apply:
Allowance for doubtful
accounts $ 1,537 $ 725 $ 0 $ 103 (a) $ 2,159
and notes receivable
Inventory reserve $10,760 $10,060 $205 (b) $7,196 $13,829
<FN>
Notes:
(a) Uncollectible items written off, less recoveries of items previously written off.
(b) Adjustment for change in accounting method from LIFO to average cost.
</TABLE>
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
1. This Agreement is effective September 1, 1995.
2. Employee is Thomas R. Rauman. The Company is DEKALB Genetics Corporation
and its subsidiaries and affiliates.
3. If this Agreement is not terminated in writing by either party prior
September 1 of each year, the Agreement shall extend for another year.
4. Employee shall work for the Company in an executive capacity.
5. Employee shall perform the duties assigned by the Company ("Duties") at
such location(s) as the Company reasonably requires.
6. Employee shall devote full efforts during normal business hours to Duties,
and the Company shall receive all of the benefits related to Duties.
7. Employee's annual compensation is described in Exhibit A. If the Exhibit
is not updated prior to an anniversary date, the terms of the Exhibit shall
continue until a new written Exhibit is agreed to by the parties.
8. If Employee dies or becomes disabled and cannot perform Employee's Duties
with reasonable accommodation, Employee or employee's estate shall receive
an annual performance bonus equal to the target annual performance bonus in
effect at the Employee's death or date of disability, prorated for the
portion of the year up to the date of such death or disability.
9. The Company will pay Employee's travel and other business expenses,
consistent with company policies and as supported by appropriate
documentation.
10. Other than in the normal course of Duties with the Company, Employee will
not at any time, during or after employment by the Company, disclose any
non-public information relating to the Company. Employee agrees to treat
as confidential all such information, whether written or otherwise,
including but not limited to, information regarding financial reports,
employees, customers, products, costs, prices, services, research programs,
patents, equipment, systems, production procedures, operations, potential
acquisitions, new location plans, prospective and executed contracts and
other business arrangements.
<PAGE>
11. Upon termination of employment, Employee will return to the Company all
assets and all books, records, lists and other written materials, including
information in computers or computer disks, whether furnished by the
Company or prepared by the Employee, which contain any information relating
to the Company's business.
12. Employee shall make full and prompt written disclosure to the Company of
any business opportunity of which Employee becomes aware and which relates
to the business of the Company.
13. All inventions, discoveries, ideas, improvements and designs made or
conceived by Employee, and copyrights to all software, writings or other
materials prepared by Employee, in each case solely or with others, while
employed by the Company, during or after working hours, which are related
to the actual or anticipated business of the Company, belong exclusively to
the Company. Employee shall make full and prompt written disclosure to the
Company of the above. At the request and expense of the Company, either
before or after termination of employment, Employee shall execute a written
assignment of and shall assist in acquiring and maintaining patent or other
proprietary information protection of the Company's rights to such
inventions, ideas, improvements, designs or copyrights.
14. If Employee is terminated by the Company without cause, the Employee shall
receive severance equivalent to twelve (12) months base salary in lieu of
the standard severance policy payment.
15. For three years after employment, Employee will not, in any way or
capacity, solicit any officer, director, employee or other individual:
A. to leave employment or any position with the Company,
B. to compete with the business of the Company, or
C. to violate the terms of any agreement with the Company.
16. Except as otherwise provided in this Agreement, Employee's rights under any
employee benefit plan shall not be affected by this Agreement.
17. Employee has received a copy of both the DEKALB Antitrust Compliance Policy
and the DEKALB Business Conduct Standards. Employee will adhere to the
policies and principles contained therein, and will require all employees
reporting to Employee to adhere to those policies and principles.
<PAGE>
18. The Company shall have the right, at its own expense and for its own
benefit, to take out life insurance on Employee in such amount or amounts
as it shall see fit, and Employee agrees to cooperate with the Company in
obtaining such insurance.
19. The Beneficiary Designation form attached hereto as Exhibit B is a part of
this Agreement. In the event of Employee's death when no beneficiary
designation is in effect, the Company shall make payment of any amounts to
which Employee was entitled to Employee's personal representative, heirs,
devisees or legatees. Employee may change Exhibit B at any time, by
providing an amended version to the Personnel Department.
20. If in any proceeding a term, geographic or other restriction, covenant or
promise contained herein is found to be unreasonable, unlawful or otherwise
invalid and for that reason unenforceable, then such term, geographic or
other restriction, covenant or promise shall automatically be deemed
modified to the extent necessary to make it enforceable.
21. This Agreement shall be binding upon the Company, its successors and
assigns and upon Employee, Employee's heirs, executors and administrators.
This Agreement may be assigned by the Company or transferred by operation
of law. Employee agrees that if the Company is sold or Employee is
transferred to a subsidiary or affiliate, or from one subsidiary or
affiliate to another, all terms and conditions of this Agreement shall
remain in force as if it initially had been made with that purchaser,
subsidiary or affiliate.
22. Notices contemplated by this Agreement shall be effective when delivered in
writing to the Company at 3100 Sycamore Road, DeKalb, IL 60115, ATTN:
General Counsel or to Employee at 3 Hampton Court, DeKalb, IL 60115.
23. This Agreement, including Exhibits A and B as they may be amended from time
to time, all confidentiality agreements and all invention assignment
agreements signed by Employee during any employment with the Company,
contain the entire agreement between the parties hereto with respect to the
transactions contemplated herein; together they supersede all prior
negotiations and other agreements, both oral and written, between the
parties and they cannot be modified except by an instrument in writing
signed by both parties.
<PAGE>
EMPLOYEE
DEKALB GENETICS CORPORATION
By:
<TABLE>
<CAPTION>
EXHIBIT 11
DEKALB Genetics Corporation
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
years ended August 31, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
PRIMARY EARNINGS PER SHARE:
1996 1995 1994
<S> <C> <C> <C>
1.Average shares outstanding 16,257,872 15,490,507 15,424,266
2.Net additional shares
outstanding assuming
dilutive options exercised
and proceeds
used to purchase treasury
stock at average
market price 314,905 95,075 79,616
3.Average number of common and
common
equivalent shares outstanding 16,572,777 15,585,582 15,503,882
4.Net earnings for primary
earnings per share
computation $ 17,025 $ 10,758 $ 10,564
5.Primary earnings per share $ 1.03 $ 0.69 $ 0.68
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of DEKALB Genetics Corporation
The following table sets forth principal subsidiaries of the registrant and
indicates as to each such subsidiary the state or other jurisdiction under the
laws of which it was organized and the percentage of voting securities thereof
owned by the registrant.
Percentage
Jurisdictio of
n Voting
of Securities
Incorporati Owned by
on the
Registrant
DEKALB Swine Breeders, Inc. Delaware 100%
DEKALB Argentina S.A. Argentina 100%
DEKALB Canada Inc. Ontario 100%
DEKALB Italia S.p.A. Italy 100%
The foregoing list does not name certain subsidiaries of subsidiaries and
certain companies reported on the equity basis as in the aggregate they are not
considered significant.
No financial statements are filed for companies in which the registrant
recognizes equity in undistributed earnings because all such companies in the
aggregate are not considered significant.
<PAGE>
EXHIBIT 23A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated October 4, 1996, included in this Form 10-K, into the DEKALB
Genetics Corporation's previously filed Registration Statements No. 33-24875,
No. 33-33305 and No. 33-39986 on Form S-8.
ARTHUR ANDERSON LLP
Chicago, Illinois
October 8, 1996
<PAGE>
EXHIBIT 23B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements No.
33-24875, No. 33-33305 and No. 33-39986 on Form S-8 of our report dated October
12, 1994 except for Note S, as to which the date is October 4, 1996,
accompanying the consolidated financial statements of DEKALB Genetics
Corporation as of August 31, 1994 and for the year ended August 31, 1994
included in this annual report on Form 10-K of DEKALB Genetics Corporation.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Operations and the Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 18200
<SECURITIES> 5100
<RECEIVABLES> 58200
<ALLOWANCES> 3600
<INVENTORY> 99100
<CURRENT-ASSETS> 190000
<PP&E> 266000
<DEPRECIATION> 146500
<TOTAL-ASSETS> 363300
<CURRENT-LIABILITIES> 87300
<BONDS> 0
0
0
<COMMON> 1700
<OTHER-SE> 166900
<TOTAL-LIABILITY-AND-EQUITY> 363300
<SALES> 372100
<TOTAL-REVENUES> 387500
<CGS> 202100
<TOTAL-COSTS> 202100
<OTHER-EXPENSES> 151200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6100
<INCOME-PRETAX> 28100
<INCOME-TAX> 11100
<INCOME-CONTINUING> 17000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17000
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Operations and the Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 3000
<SECURITIES> 0
<RECEIVABLES> 60300
<ALLOWANCES> 2700
<INVENTORY> 106000
<CURRENT-ASSETS> 175000
<PP&E> 240000
<DEPRECIATION> 140200
<TOTAL-ASSETS> 323000
<CURRENT-LIABILITIES> 94600
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 125800
<TOTAL-LIABILITY-AND-EQUITY> 323000
<SALES> 309500
<TOTAL-REVENUES> 319400
<CGS> 162300
<TOTAL-COSTS> 162300
<OTHER-EXPENSES> 133500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8500
<INCOME-PRETAX> 15100
<INCOME-TAX> 5600
<INCOME-CONTINUING> 9500
<DISCONTINUED> 1200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10700
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0
</TABLE>
