<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
_____
Exchange Act of 1934
For the nine month period ended May 31, 1997 or
_____ Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act 1934
For the transition period from ________________ to _________________
Commission file number: 0-17005
DEKALB Genetics Corporation
_____________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 36-3586793
_____________________________________________________________ _____________
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
3100 Sycamore Road, DeKalb, Illinois 60115
_______________________________________ _________
(Address of principal executive offices) (Zip Code)
815-758-3461
___________________________________________________
(Registrant's telephone number, including area code)
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
_______ _______
Title of class Outstanding as of May 31, 1997
____________________________ ______________________________
Class A Common, no par value 2,354,251
Class B Common, no par value 14,808,371
Exhibit index is located on page 2
Total number of pages 12
<PAGE>
DEKALB GENETICS CORPORATION
INDEX
PART 1. FINANCIAL INFORMATION
(Unaudited except for the Condensed Consolidated Balance Sheet as of August 31,
1996)
Page
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the nine
months ended May 31, 1997 and 1996................3
Condensed Consolidated Statements of Operations for the three
months ended May 31, 1997 and 1996................4
Condensed Consolidated Balance Sheets, May 31, 1997 and 1996
and August 31, 1996...............................5
Condensed Consolidated Statements of Cash Flows for the nine
months ended May 31, 1997 and 1996................6
Notes to Condensed Consolidated Financial Statements. . . .7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................9-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................12
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 1997 AND 1996
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
May May
1997 1996
_________ ________
<S> <C> <C>
Revenues $438.0 $367.4
Cost of revenues 221.3 192.0
_________ ________
GROSS MARGIN 216.7 175.4
Selling expense 78.0 69.7
Research and development cost 54.2 44.4
General and administrative expense 30.1 26.0
_________ ________
OPERATING EARNINGS 54.4 35.3
Interest expense, net of interest
income of $0.8
in 1997 and $0.3 in 1996 (4.1) (5.8)
Other income, net 1.3 0.3
________ _________
Earnings before income taxes 51.6 29.8
Income tax provision 20.1 11.6
________ _________
NET EARNINGS $ 31.5 $ 18.2
NET EARNINGS PER SHARE $ 1.76 $ 1.12
========== =========
DIVIDENDS PER SHARE $ 0.21 $ 0.203
========= =========
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1997 AND 1996
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
May May
1997 1996
_______ _______
<S> <C> <C>
Revenues $178.6 $137.0
Cost of revenues 89.0 68.4
________ _______
GROSS MARGIN 89.6 68.6
Selling expense 33.5 26.7
Research and development cost 22.8 17.5
General and administrative expense 11.0 9.8
________ _______
OPERATING EARNINGS 22.3 14.6
Interest expense, net of interest income
of $0.4
in 1997 and $0.1 in 1996 (1.7) (1.4)
Other income, net 0.8 0.9
________ _______
Earnings before income taxes 21.4 14.1
Income tax provision 8.3 5.5
________ _______
NET EARNINGS $ 13.1 $ 8.6
======== ========
NET EARNINGS PER SHARE $ 0.73 $ 0.51
======== ========
DIVIDENDS PER SHARE $ 0.07 $ 0.07
======== ========
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND 1996 AND AUGUST 31, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
May May August
1997 1996 1996
------- ------ -------
(Unaudited)
------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ - $1.7 $23.3
Notes and accounts receivable, net
of allowance for
doubtful accounts of $5.3 at May
31, 1997, $4.2 at
May 31, 1996, and $3.6 at August 156.1 139.0 54.6
31, 1996
Inventories (Note 2) 96.0 69.2 99.1
Deferred income taxes 8.2 4.7 8.2
Other current assets 10.2 6.0 4.8
------ ------ ------
Total current assets 270.5 220.6 190.0
Investments in and advances to related 5.1 3.8 5.0
companies
Intangible assets 40.6 42.2 41.6
Other assets 9.4 6.2 7.2
Property, plant and equipment, at cost 292.6 252.5 266.0
Less accumulated depreciation and (151.5) (144.9) (146.5)
amortization ------- ------- -------
Net property, plant and equipment 141.1 107.6 119.5
------- ------- -------
Total assets $466.7 $380.4 $363.3
======= ====== =======
Current liabilities:
Notes payable $58.9 $14.3 $ -
Accounts payable, trade 10.5 5.7 13.6
Other accounts payable 7.0 26.9 34.1
Other current liabilities 73.8 61.1 39.6
------- ------ ------
Total current liabilities 150.2 108.0 87.3
Deferred compensation and other 8.3 6.3 7.1
credits
Deferred income taxes 24.4 11.2 15.3
Long-term debt, less current 85.0 85.0 85.0
maturities
Shareholders' equity:
Capital stock:
Common, Class A; no par value,
authorized 15,000,000 shares,
shares, issued 2,354,251 at May
31, 1997 and
2,405,289 at May 31, 1996 0.2 0.2 0.2
Common, Class B; no par value,
non-voting authorized,
45,000,000 shares, issued
15,029,974 at May 31, 1997
and 14,588,562 at May 31, 1996 1.5 1.5 1.5
Capital in excess of stated value 112.8 109.6 109.7
Retained earnings 91.6 66.0 63.7
Currency translation adjustments (4.8) (5.0) (4.1)
------- ------ ------
201.3 172.3 171.0
Less treasury stock, at cost (2.5) (2.4) (2.4)
------- ------ ------
Total shareholders' equity 198.8 169.9 168.6
------- ------ ------
Total liabilities and shareholders' $466.7 $380.4 $363.3
equity ======= ======= =======
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1997 AND 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
May May
1997 1996
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $31.5 $18.2
Adjustments to reconcile net income to
net cash
flow from operating activities:
Depreciation and amortization 9.3 8.2
Equity earnings, net of dividends of (0.3) (0.6)
$1.8 in 1997
Other 14.8 7.4
Changes in assets and liabilities:
Receivables (102.5) (82.6)
Inventories (0.1) 30.0
Other current assets (5.6) (2.3)
Accounts payable (30.2) 10.2
Accrued expenses 31.0 25.4
Other assets and liabilities 1.7 3.1
------ ------
Net cash flow (used) provided by ( 50.4) 17.0
operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and (31.3) (13.4)
equipment
Proceeds from sale of property, plant 1.4 0.4
and equipment
Other - (3.2)
-------- --------
Net cash flow used by investing ( 29.9) (16.2)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 58.9 -
Principal payments made on short-term - (28.5)
borrowings
Dividends paid (3.6) (3.1)
Sale of equity - 27.7
Other 2.3 1.1
-------- -------
Net cash flow provided (used) by 57.6 ( 2.8)
financing activities
Net effect of exchange rates on (0.6) 0.7
cash -------- -------
Net decrease in cash and cash (23.3) (1.3)
equivalents
Cash and cash equivalents August 31 23.3 3.0
-------- -------
Cash and cash equivalents at the end of $ 0.0 $ 1.7
May ========= ========
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $6.0 $4.2
Interest $5.0 $6.9
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in the Company's annual report on Form 10-
K. In order to facilitate a better comparison of the highly seasonal seed
operations of the Company, a Condensed Consolidated Balance Sheet at May 31,
1996 is included herein as part of the condensed consolidated financial
statements.
The Company declared a three-for-one stock split to holders of record May 10,
1996 with shares being distributed on May 24, 1996; thus, earnings per share
and all other share amounts have been restated to reflect a tripling in the
number of shares outstanding.
The results presented are unaudited (other than the Condensed Consolidated
Balance Sheet at August 31, 1996, which is derived from the Company's audited
year-end balance sheet) but include, in the opinion of management, all
adjustments of a normal recurring nature necessary for a fair statement of
the results of operations and financial position for the respective interim
periods.
Certain costs and expenses incurred in the North American and international
seed businesses are charged against income as sales are recognized for
interim reporting purposes. The Company believes this method more closely
matches revenues with expenses and results in more comparability of reporting
periods within the year. Since there are only minor North American seed
sales recorded in the first and fourth quarters, this method defers first
quarter expenses related to sales which will occur later in the year,
primarily in the second quarter; it also anticipates expenses incurred in the
fourth quarter, primarily in the third quarter. Southern hemisphere
international seed sales occur largely in the first and second quarters and
this same method anticipates future expenses from the third and fourth
quarters and matches them against the first and second quarter revenues.
2.Inventories, valued at the lower of cost or market (in millions), were as
follows:
<TABLE>
<CAPTION>
May May August
1997 1996 1996
------ ------ ------
<S> <C> <C> <C>
Commercial seed $80.9 $54.6 $86.0
Swine 9.6 8.9 9.6
Supplies and other 5.5 5.7 3.5
------- ------ ------
$96.0 $69.2 $99.1
======= ====== ======
</TABLE>
During the first nine months of fiscal 1997, inventories increased primarily
due to a larger corn production crop when compared to the same period a year
ago.
3.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.
Most potential property losses are self-insured.
<PAGE>
4. On January 31, 1996, the Company 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. The two companies will share the royalties
received from third parties relating to the patents covered by such cross-
licensing agreements.
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 has risen to over17.0 million from about 15.6 million.
Monsanto also acquired 5,171,214 shares of DEKALB's publicly traded Class B
Stock in a separate cash tender offer at a price of $23.67 per share.
Additionally, DEKALB received $4.0 million from Monsanto in March, 1996, and
$3.0 million in February, 1997, the first two payments under the companies'
collaboration agreement, which calls for total payments of $19.5 million over
the term of the agreement.
As of May 31, 1997, Monsanto held 242,721 shares of Class A and 6,582,706
shares of Class B Common Stock. This represents approximately ten percent of
the Class A voting shares and 45 percent of the Class B non-voting shares.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Net earnings for the first nine months of fiscal 1997 were $31.5 million ($1.76
per share) compared with $18.2 million ($1.12 per share) for the same period of
fiscal 1996. Revenues increased 19 percent as corn average selling prices in
Argentina and North America increased largely due to a significant portion of
the volume shifting to higher price categories. Swine segment revenues
increased as the result of higher market hog prices.
North American Seed segment earnings were up $13.4 million largely due to higher
corn unit margins and third party royalties. The increase in international seed
segment earnings was due to higher corn volume and margins from increased sales
of single cross hybrids in Argentina combined with higher equity earnings from
Mexico. In addition, consolidated interest expense for the first nine months of
fiscal 1997 was $1.7 million less than in the prior year first nine months due
to lower average corporate borrowing requirements.
Fiscal 1997 third quarter net earnings of $13.1 million ($.73 per share) were
substantially higher than a year ago when net earnings were $8.6 million ($.51
per share). Higher North American corn unit margins combined with increased
average selling prices in Argentina accounted for the improvement.
Quarterly Industry Segment Revenues and Earnings
------------------------------------------------
In Millions
-----------
(Unaudited)
<TABLE> -----------
<CAPTION>
Third Quarter Year-to-Date
-------------- --------------
May May May May
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
North American Seed $140.0 $105.5 $302.4 $254.6
International Seed 24.7 20.9 93.9 78.6
Swine 13.9 10.6 41.7 34.2
------ ------ ------- ------
Total revenues $178.6 $137.0 $438.0 $367.4
====== ====== ====== ======
Earnings
North American Seed $21.1 $15.6 $44.4 $31.0
International Seed 6.3 2.4 18.4 9.6
Swine (0.5) (0.6) 0.1 0.1
------ ------ ----- -----
Total operations 26.9 17.4 62.9 40.7
General corporate (3.8) (1.9) (7.2) (5.1)
expenses
Net interest expense (1.7) (1.4) (4.1) (5.8)
------ ------ ------ ------
Earnings before
income taxes 21.4 14.1 51.6 29.8
Income tax provision 8.3 5.5 20.1 11.6
------ ------ ------ ------
Net Earnings $13.1 $ 8.6 $31.5 $18.2
====== ====== ====== ======
</TABLE>
<PAGE>
Seed
- ----
North American Seed
-------------------
North American seed segment earnings for the first nine months of fiscal 1997
were 43 percent, or $13.4 million, higher than a year ago. Corn unit margins
increased over $5.00 per unit based on sales mix, selling price increases,
and lower production costs. Fiscal 1996 costs were negatively
impacted by adverse planting and growing conditions in the summer of 1995
while current year costs benefited from above-target production yields,
partly offset by a projected increase in discard units. The corn gross
margin improvements were partially offset by shared increases in operating
expenses as the Company continues to expand research and development efforts.
Revenues increased 19 percent during the first nine months of fiscal 1997
compared to the corresponding period a year ago. Higher volumes and selling
prices for both corn and soybeans, together with third-party royalties,
resulted in the increase. Royalties, which depend on sales by third parties,
were accrued in the second and third quarters, consistent with the historical
pattern of DEKALB sales. Corn sales volume increased about five percent
compared with a year ago, but the magnitude of the market share gain will be
dependent upon final planted acreage.
Fiscal 1997 third quarter segment earnings improvement of $5.5 million was
the result of the same factors described for the nine month period.
International Seed
------------------
International seed segment earnings for the first nine months of fiscal 1997
increased by $8.8 million, or 92 percent, over the prior year nine month
results on a 19 percent increase in revenues. Operations in Argentina and
Mexico were primarily responsible for the earnings improvement. Higher corn
margins, driven largely by increased sales volume accompanied by higher
average selling prices, were the major factors contributing to the
improvement in Argentina. Increased demand for single-cross corn hybrids
generated a volume mix shift to higher priced products. In Mexico, higher
corn and sorghum sales volumes generated improved earnings from the Company's
equity investment.
Revenues for the third quarter of fiscal year 1997 increased 18 percent from
the same period a year ago. An increase in Argentine corn sales volume was
the main contributing factor.
Swine
- -----
Swine segment revenues for the first nine months of fiscal 1997 increased 22
percent over the prior year nine months mainly due to higher market hog prices.
The fiscal 1997 average market hog price received by the Company was $56 per
hundred weight compared with $49 per hundred weight for the first nine months of
fiscal 1996. Increased demand for genetically improved breeding stock also
contributed to higher revenues.
Swine segment profitability in the first nine months of fiscal 1997 was flat
with the same period in fiscal 1996. Gross margin was negatively impacted by
higher production costs and offset the revenue improvements when compared with
prior year.
<PAGE>
General
- -------
The effective tax rate was 39 percent in each of the nine month periods
reported. For each interim period, the tax rate is determined from an estimate
of full year earnings and the resultant tax.
Interest expense decreased $1.7 million in fiscal 1997 due to lower average
corporate borrowing requirements during the nine month period.
Financial Position
- ------------------
During the first nine months of fiscal 1997, a larger seed corn production crop
and additional investments in seed production facilities resulted in increased
short-term borrowings. In the prior year, cash from the sale of equity allowed
the Company to reduce the short-term debt level to $14.3. Consistent with the
Company's intentions, investments in research and development have increased
$9.8 during the first nine months of fiscal 1997 when compared with the same
period of fiscal 1996.
Cash requirements for the first nine months were provided by earnings and
existing short-term credit facilities. Committed credit lines include a $50
million revolving credit facility through December, 1999. These agreements
contain 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.
Management believes its operating cash flow, other potential sources of funds,
and existing lines of credit are sufficient to cover normal and expected working
capital needs, capital expenditures, dividends and debt maturities.
Any forward-looking statements, oral or written, are subject to several risk
factors that could cause actual results to differ from projections. Among these
factors are the company's relative product performance and competitive market
position, weather conditions, commodity prices, trade policies, market
conditions, and results of pending litigation.
<PAGE>
Part II
OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------
(a) Exhibit 11 -
Computation of Net Earnings per Common and Common Equivalent Shares for the
nine months ended May 31, 1997 and 1996 and for the three months
ended May 31, 1997 and 1996.
(b) Reports on Form 8-K -
No Form 8-K was filed during the three months ended May 31, 1997.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEKALB Genetics Corporation
---------------------------
Date: July 10, 1997 Thomas R. Rauman
-----------------------
(Signature)
Thomas R. Rauman
Vice President-Finance,
Chief Financial Officer
<PAGE>
EXHIBIT 11
----------
COMPUTATION OF NET EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
For the nine months ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
May May
1997 1996
--------- ---------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Shares*
-------
Average shares outstanding 17,111,137 16,020,515
Net average additional shares
outstanding assuming dilutive stock options
exercised and proceeds used to purchase
treasury stock
at average market price 740,682 161,661
---------- ----------
Average number of common and common
equivalent shares outstanding 17,851,819 16,182,176
=========== ==========
Net Earnings
------------
Net earnings for primary earnings $31,460,000 $18,172,000
per share =========== ===========
Primary Earnings Per Share* $1.76 $1.12
=========== ============
*Earnings per share and all share amounts have been
adjusted to reflect the three-for-one split of the
Common Stock to holders of record May 10, 1996.
</TABLE>
<PAGE>
EXHIBIT 11
-----------
COMPUTATION OF NET EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
For the three months ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
May May
1997 1996
---------- ----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Shares*
Average shares outstanding 17,154,100 16,690,225
Net average additional shares
outstanding assuming dilutive stock options
exercised and proceeds used to purchase treasury
stock at average market price 767,452 189,626
----------- ---------
Average number of common and common
equivalent shares outstanding 17,921,552 16,879,851
=========== ==========
Net Earnings
Net earnings for primary earnings per $13,072,000 $8,581,000
share =========== ==========
Primary Earnings Per Share* $0.73 $0.51
=========== ==========
*Earnings per share and all share amounts have been adjusted to reflect
the three-for-one split of the Common Stock to holders of record May 10, 1996.
</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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 148000
<ALLOWANCES> 5300
<INVENTORY> 96000
<CURRENT-ASSETS> 270500
<PP&E> 292600
<DEPRECIATION> 151500
<TOTAL-ASSETS> 466700
<CURRENT-LIABILITIES> 150200
<BONDS> 0
0
0
<COMMON> 1700
<OTHER-SE> 197100
<TOTAL-LIABILITY-AND-EQUITY> 466700
<SALES> 438000
<TOTAL-REVENUES> 438000
<CGS> 221300
<TOTAL-COSTS> 221300
<OTHER-EXPENSES> 162300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4100
<INCOME-PRETAX> 51600
<INCOME-TAX> 20100
<INCOME-CONTINUING> 31500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31500
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 0
</TABLE>
