<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 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 three month period ended November 30, 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
(Registrants 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 November 30, 1997
Class A Common, no par value 4,713,535
Class B Common, no par value 29,865,911
Index is located on page 2
Total number of pages 12
<PAGE>
DEKALB GENETICS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
(Unaudited except for the Condensed Consolidated Balance Sheet as of August 31,
1997)
Item 1. Financial Statements Page
Condensed Consolidated Statements of Operations for the three
months ended November 30, 1997 and 1996......3
Condensed Consolidated Balance Sheets, November 30, 1997 and 1996
and August 31, 1997..........................4
Condensed Consolidated Statements of Cash Flows for the three months
ended November 30, 1997 and 1996.............5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................10
Item 6. Exhibits and Reports on Form 8-K............10
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues $ 62.8 $ 67.1
Cost of revenues 34.1 38.9
GROSS MARGIN 28.7 28.2
Selling expenses 8.7 10.0
Research and development expenses 6.4 6.0
General and administrative expenses 7.9 7.9
23.0 23.9
OPERATING EARNINGS 5.7 4.3
Interest expense, net of interest income
of $0.4 (2.1) (1.3)
in 1997 and 1996
Other income, net 0.8 0.4
Earnings before taxes 4.4 3.4
Income tax provision 1.7 1.3
NET EARNINGS $ 2.7 $ 2.1
NET EARNINGS PER SHARE $ 0.08 $ 0.06
DIVIDENDS PER SHARE $ 0.035 $ 0.035
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1997 AND 1996 AND AUGUST 31, 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
November November August
1997 1996 1997
Unaudited
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $13.1 $ 0.1 $ 5.2
Notes and accounts receivable, net of
allowance for
doubtful accounts of $5.6 at November 43.8 51.1 67.5
30, 1997, $3.8 at November 30,
1996, and $5.3 at August 31, 1997
Inventories (Note 2) 310.2 227.4 139.1
Deferred income taxes 9.7 8.2 6.9
Other current assets 35.3 29.0
7.8
Total current assets 412.1 315.8 226.5
Investments in and advances to related 6.5 4.6 7.2
companies
Intangible assets 39.9 41.3 40.3
Other assets 10.0 8.1 9.5
Property, plant and equipment, at cost 334.4 273.3 321.1
Less accumulated depreciation and (158.0) (148.5) (155.0)
amortization
Net property, plant and equipment 176.4 124.8 166.1
Total assets $ 644.9 $ 494.6 $ 449.6
Current liabilities:
Notes payable $ 80.5 $ 38.0 $ 34.5
Accounts payable, trade 113.2 107.5 15.6
Other accounts payable 17.9 5.0 37.3
Other current liabilities 90.2 64.9 46.1
Total current liabilities 301.8 215.4 133.5
Deferred compensation and other credits 9.6 6.9 9.9
Deferred income taxes 23.5 16.1 20.1
Long term debt, less current maturities 104.0 85.0 90.0
Shareholders' equity:
Capital stock:
Common, Class A; no par value,
authorized 15,000,000 shares,
issued 4,713,535 at November 30, 1997,
2,408,888 at November 30, 1996, and 0.5 0.2 0.5
4,698,392 at August 31, 1997
Common, Class B; no par value, non-
voting, authorized 45,000,000
shares, issued 30,153,093 at November 30,
1997, 14,892,283 at November 30, 3.0 1.5 3.0
1996, and 30,105,987 at
August 31, 1997
Capital in excess of stated value 122.7 111.1 114.9
Retained earnings 87.5 64.6 85.9
Currency translation adjustments (5.2)
(3.8) (5.7)
208.5 173.6 198.6
Less treasury stock, at cost (2.5)
(2.4) (2.5)
Total shareholders' equity 206.0 171.2 196.1
Total liabilities and shareholder's equity $ 644.9 $ 494.6 $449.6
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
DEKALB GENETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2.7 $ 2.1
Adjustments to reconcile net income to net cash
flow from
from operating activities:
Depreciation and amortization 3.6 3.1
Equity earnings, net of dividends of $1.6 in 0.7 0.9
1997 and $1.8 in 1996
Other 0.8 1.0
Changes in assets and liabilities:
Receivables 23.3 3.3
Inventories (171.1) (128.3)
Other current assets (30.3) (24.4)
Accounts payable 78.1 64.8
Accrued expenses 46.8 26.4
Other assets and liabilities (0.3) (1.3)
Net cash flow used by operating activities $ (45.7) $ (52.4)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (13.8) (8.1)
Proceeds from sale of property, plant and 0.3 0.1
equipment
Net cash flow used by investing activities $ (13.5) $ (8.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 46.0 38.0
Proceeds from long-term borrowings 14.0 -
Dividends paid (1.2) (1.2)
Sale of Equity 6.3 -
Other 1.5 0.7
Net cash flow provided by financing $ 66.6 $ 37.5
activities
Net effect of exchange rates on cash 0.5 (0.3)
Net increase (decrease) in cash and cash 7.9 (23.2)
equivalents
Cash and cash equivalents August 31 5.2 23.3
Cash and cash equivalents at the end of $ 13.1 $ 0.1
November
Supplemental Cash Flow Information
Cash paid (refunded) during the period for
Income taxes $ 0.9 $ 0.9
Interest $ 2.4 $ 1.2
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>Any forward looking statements, oral or written, are subject to several
risks and uncertainties that could cause actual results to differ from those in
the forward looking statements. Among these factors are the Company's relative
product performance and competitive market position, weather conditions,
commodity prices, trade policies, government regulations, market conditions, and
results of pending litigation.
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 November
30, 1996 is included herein as part of the condensed consolidated financial
statements.
The Company declared a two-for-one stock split to holders of record July 25,
1997 with shares being distributed on August 8, 1997; thus, earnings per
share and all other share amounts have been restated.
The results presented are unaudited (other than the Condensed Consolidated
Balance Sheet at August 31, 1997, 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.
The seed operations of the Company comprise a substantial portion of the
Company's business each year. The first quarter results as presented should
not be considered indicative of the results to be expected for the entire
year.
2. Inventories, valued at the lower of cost or market (in millions), were as
follows:
<TABLE>
<CAPTION>
November November August
1997 1996 1997
<S> <C> <C> <C>
Commercial seed $ 293.7 $ 212.2 $ 124.5
Swine 9.9 9.5 10.0
Supplies and 6.6 5.7 4.6
other
$ 310.2 $ 227.4 $ 139.1
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
3.The Financial Accounting Standards Board issued Statement No. 128, ``Earnings
Per Share'', which will be effective for the Company with the interim period
ending February 28, 1998. The standard simplifies the computation of
earnings per share and will be comparable to fully diluted earnings per share
presently reflected under APB Opinion No. 15. The following table summarizes
the year-to-date impact to the Company.
<TABLE>
<CAPTION>
November February May August
1998 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C>
As Reported $ 0.08 $ 0.06 $ 0.52 $ 0.88 $ 0.80
FAS 128 - Basic 0.08 0.06 0.54 0.92 0.84
FAS 128 - 0.08 0.06 0.52 0.88 0.81
Diluted
</TABLE>
4.The Company and its subsidiaries are plaintiffs or 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. See additional
information in Part II, Other Information, Item 1 - Legal Proceedings.
Most potential property losses are self-insured.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net earnings for the first quarter of fiscal 1998 were $2.7 million ( $.08 per
share) compared with a $2.1 million ($.06 per share) in the first quarter of
fiscal 1997. International seed segment earnings improved 42% due to increased
corn sales volume and unit margin in Argentina. These improvements in
profitability were partly offset by an increase in interest expense.
North American seed sales and net earnings are primarily realized in the second
and third fiscal quarters (December through May), and for that reason first
quarter results should not be viewed as indicative of full year results. Most
expenses which are incurred in the first quarter and relate to the North
American seed business are deferred until later in the year when sales are
recorded.
Quarterly Industry Segment Revenues and Earnings
In Millions
(Unaudited)
<TABLE>
<CAPTION>
November November
1997 1996
<S> <C> <C>
Revenues
North American Seed $ 4.1 $ 5.1
International Seed 44.3 48.1
Swine 14.4 13.9
Total revenues $ 62.8 $ 67.1
Earnings
North American Seed $ (0.1) $ (0.2)
International Seed 8.4 5.9
Swine 0.0 0.3
Total operations $ 8.3 $ 6.0
General corporate expenses (1.8) (1.3)
Net interest expense (2.1) (1.3)
Earnings before income taxes $ 4.4 $ 3.4
Income tax provision 1.7 1.3
Net Earnings $ 2.7 $ 2.1
</TABLE>
Seed
Seed revenues and earnings in the first quarter are primarily the result of
Latin American operations because the North American seed business and other
northern hemisphere operations do not report any material sales or earnings
until the second quarter.
<PAGE>
International Seed
International seed segment earnings for the first quarter of fiscal 1998
increased 42% over the prior year first quarter. Argentine operations were
primarily responsible for the improvement. An increase in corn sales volume and
higher unit margins were the factors influencing increased profitability in
Argentina as the demand for single-cross corn hybrids, which carry higher unit
margins, continued to grow. Prior year revenues in the first quarter of fiscal
1997 reflected increased sunflower and sorghum seed shipments due to significant
customer deposits held by DEKALB at the end of fiscal 1996.
Results from international seed operations outside of Latin America are largely
in the northern hemisphere and will not generate any significant results until
the second quarter.
North American Seed
Revenues in North America for the first quarter of fiscal 1998 were lower than
in fiscal 1997. In prior years, the Company shipped soybeans to dealers in
advance of orders to accomodate warehousing needs. Earnings in the first
quarter of fiscal 1998 were consistent with the prior year and the nature of the
business. First quarter North American seed results are not indicative of
annual results because significant seed shipment activity does not occur until
the second and third quarters.
Swine
Swine segment revenues for the first quarter of fiscal 1998 increased $0.5
million over the prior year first quarter as the result of an increase in
breeding stock sales volume. However, unit margins were negatively impacted by
a $7.80 per hundred weight decrease in market hog prices, which also effect the
selling price for female genetics. As a result, segment earnings decreased $0.3
million in the first quarter of fiscal 1998.
General
The effective tax rate decreased from 39% in the first quarter of fiscal 1997 to
38% in the same period of fiscal 1998 due primarily to the effect of
international operations. For each interim period, the tax rate is determined
from an estimate of full year earnings and the resultant tax.
Interest expense increased $0.8 million in fiscal 1998 due to increased
corporate borrowing requirements.
Financial Position
During the first quarter of fiscal 1998, the net cash outflow from operations
decreased to $45.7 million, from $52.4 million in the prior year, due to
increased collections in Argentina, partially offset by an increase in cash
required for seed corn production resulting from a larger harvested crop.
Cash requirements for the first quarter were provided by earnings and existing
short-term credit facilities. Committed credit lines include a $50 million
revolving credit facility through December, 2003 and $10 million in facilities
available through August 29, 1998. These agreements contain various
restrictions on the activities of the Company as to maintenance of 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.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in various legal actions
arising in the course of business activities. DEKALB is a defendant in a
lawsuit filed by Rhone-Poulenc Agrochimie S.A. (`RPA'') on October 30,
1997 in the federal district court in the Middle District of North
Carolina. RPA alleges that DEKALB misappropriated certain RPA technology,
that DEKALB is in breach of certain agreements and that DEKALB is in
violation of certain antitrust laws, all as they relate to corn that is
resistant to glyphosate herbicide. In the opinion of management, this
action will not result in a material adverse effect on the Company's
consolidated operations or financial position.
The Company is also the defendant or plaintiff in various other legal
actions. Refer to `Item 3. Legal Proceedings'' of the Company's Form 10-
K for a discussion of such actions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 -
Computation of Net Earnings per Common and Common Equivalent Share
for the three months ended November 30, 1997 and 1996.
(b) Reports on Form 8-K -
No Form 8-K was filed during the three months ended November 30, 1997.
<PAGE>
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: January 13, 1998 /s/ 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 three months ended November 30, 1997 and November
30, 1996
<TABLE>
<CAPTION>
November November
1997 1996
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Shares*
Average shares outstanding 34,478,79 34,142,3
5 40
Net average additional shares
outstanding
assuming dilutive stock options
exercised
and proceeds used to purchase treasury
stock
at average market price 1,582,953 1,407,20
8
Average number of common and common
equivalent shares outstanding 36,061,74 35,549,5
8 48
Net Earnings
Net earnings for primary earnings per $2,712,00 $2,065,0
share 0 00
Primary Earnings Per Share* $0.08 $0.06
*Earnings per share and all share amounts have been adjusted to
reflect the two-for-one split of the
Common Stock to holders of record July 25, 1997.
</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
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 13100
<SECURITIES> 0
<RECEIVABLES> 34700
<ALLOWANCES> 5600
<INVENTORY> 310200
<CURRENT-ASSETS> 412100
<PP&E> 334400
<DEPRECIATION> 158000
<TOTAL-ASSETS> 644900
<CURRENT-LIABILITIES> 301800
<BONDS> 0
0
0
<COMMON> 3500
<OTHER-SE> 202500
<TOTAL-LIABILITY-AND-EQUITY> 644900
<SALES> 62800
<TOTAL-REVENUES> 62800
<CGS> 34100
<TOTAL-COSTS> 34100
<OTHER-EXPENSES> 23000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2100
<INCOME-PRETAX> 4400
<INCOME-TAX> 1700
<INCOME-CONTINUING> 2700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2700
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08<F1>
<FN>
<F1>The Company declared a two-for-one stock split to holders of record July 25,
1997 with shares being distributed on August 8, 1997; thus, earnings per share
and all other share amounts have been restated.
</FN>
</TABLE>
