UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended November 30, 1996 or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number: 000-21788
Exact name of registrant as specified in its charter:
DELTA AND PINE LAND COMPANY
State of Incorporation: Delaware
I.R.S. Employer Identification Number: 62-1040440
Address of Principal Executive Offices (including zip code)
One Cotton Row, Scott, Mississippi 38772
Registrant's telephone number, including area code:
(601) 742-4000
Indicate by check mark whether 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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.10 Par Value -- 21,140,230 shares outstanding as of
December 18, 1996.
<PAGE>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
INDEX
PART I.FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- November 30, 1995, August 31, 1996, and
November 30, 1996
Consolidated Statements of Operations -- Three Months Ended November 30,
1995 and November 30, 1996
Consolidated Statements of Cash Flows -- Three Months Ended November
30, 1995 and November 30, 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
(As Restated)
November 30, August 31, November 30,
1995 1996 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalent $ 2,767 $ 560 $ 1,519
Receivables 5,709 66,650 6,446
Inventories 45,855 41,460 60,779
Prepaid expenses 807 1,363 1,463
Deferred income taxes 2,252 1,907 1,907
Total current assets 57,390 111,940 72,114
PROPERTY, PLANT and EQUIPMENT, net 43,696 55,058 57,893
NOTES RECEIVABLE FROM EMPLOYEES 1,185 629 622
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED, net 1,453 4,950 4,669
INTANGIBLE ASSETS, net 3,211 3,214 3,176
OTHER ASSETS 4,624 3,869 3,917
$ 111,559 $ 179,660 $ 142,391
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 22,215 $ 2,595 $ 12,708
Accounts payable 20,258 14,954 17,868
Accrued expenses 4,040 55,079 11,136
Income taxes payable 2,119 3,338 1,823
Total current liabilities 48,632 75,966 43,535
LONG-TERM DEBT 17,437 31,465 31,463
DEFERRED INCOME TAXES 2,173 2,888 2,888
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.10
per share; 2,000,000 shares
authorized:
Series A Junior Participating
Preferred, par value $0.10 per
share; 241,787 shares authorized;
no shares issued or outstanding - - -
Series M Convertible Non-Voting
Preferred, par value $0.10 per
share; 600,000 shares authorized;
450,000 shares issued and
outstanding - 45 45
Common stock, par value $0.10 per share;
50,000,000 shares authorized;
20,860,555; 21,129,630 and
21,139,430 shares issued and
outstanding 2,086 2,113 2,114
Capital in excess of par value 12,663 22,424 22,589
Retained earnings 28,414 45,004 39,988
Cumulative foreign currency
translation adjustments 154 (245) (231)
Total stockholders' equity 43,317 69,341 64,505
$ 111,559 $ 179,660 $ 142,391
The accompanying notes are an integral part of these balance sheets.
<PAGE>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
(As Restated)
November 30, November 30,
1995 1996
NET SALES AND LICENSING FEES $ 5,326 $ 6,317
COST OF SALES 5,028 5,129
-------- -------
GROSS PROFIT 298 1,188
-------- -------
OPERATING EXPENSES:
Research and development 1,741 2,590
Selling 2,144 2,421
General and administrative 2,464 2,594
Unusual charges related to acquisitions 182 396
-------- -------
6,531 8,001
-------- -------
OPERATING LOSS (6,233) (6,813)
INTEREST EXPENSE, net of capitalized interest
of $165 and $132 (176) (269)
OTHER 267 257
---------- ---------
LOSS BEFORE INCOME TAXES (6,142) (6,825)
INCOME TAX BENEFIT 2,402 2,457
---------- ---------
NET LOSS (3,740) (4,368)
DIVIDENDS ON PREFERRED STOCK - (13)
---------- ----------
NET LOSS APPLICABLE TO COMMON SHARES $ (3,740) $ (4,381)
---------- ----------
PRIMARY EARNINGS PER SHARE:
NET LOSS PER SHARE $ (0.18) $ (0.21)
NUMBER OF SHARES USED IN PRIMARY EARNINGS
PER SHARE CALCULATIONS 20,861 21,135
FULLY DILUTED EARNINGS PER SHARE:
NET LOSS PER SHARE $ (0.18) $ (0.21)
NUMBER OF SHARES USED IN FULLY DILUTED EARNINGS
PER SHARE CALCULATIONS 20,861 21,135
DIVIDENDS PER SHARE $ 0.02 $ 0.03
The accompanying notes are an integral part of these statements.
<PAGE>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
(As Restated)
November 30, November 30,
1995 1996
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,740) $ (4,368)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 705 1,189
(Increase) decrease in notes receivable from employees (352) 7
Changes in current assets and liabilities:
Receivable (457) 60,204
Inventories (25,688) (19,319)
Prepaid expenses 352 (100)
Accounts payable 14,116 2,914
Accrued expenses (7,705) (43,943)
Income taxes payable (4,765) (1,515)
Decrease in intangible and other assets 15 271
Other, net 34 -
---------- ------------
Net cash used in operating activities (27,485) (4,660)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,554) (4,010)
---------- ------------
Net cash used in investing activities (3,554) (4,010)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (15) -
Payment of long-term debt - (2)
Dividends paid (515) (648)
Proceeds from long-term debt 4,623 -
Proceeds from short-term debt 21,565 10,113
Proceeds from exercise of stock options and tax benefit
of stock option exercises - 166
Other (44) -
---------- ------------
Net cash provided by financing activities 25,614 9,629
---------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,425) 959
CASH AND CASH EQUIVALENTS, as of August 31 8,192 560
---------- ------------
CASH AND CASH EQUIVALENTS, as of November 30 $ 2,767 $ 1,519
========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the three months for:
Interest, net of capitalized interest $ 200 $ 300
Income taxes $ 2,800 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except percentages and share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation of the consolidated financial statements
have been included. Due to the seasonal nature of Delta and Pine Land Company
and subsidiaries' (the "Company") business, the results of operations for the
three month periods ended November 30, 1995 and November 30, 1996, are not
necessarily indicative of the results to be expected for the full year. For
further information reference should be made to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report to
Stockholders on Form 10-K for the fiscal year ended August 31, 1996.
The reported results for 1995 (as restated) and 1996 include the results of
operations of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and
Mississippi Seed, Inc. (the "Sure Grow Companies"), with which the Company
merged in May 1996 in a pooling-of-interests transaction.
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of", was issued effective for fiscal years beginning after
December 15, 1995. The Company currently has no impaired assets and, therefore,
was not affected by this statement.
SFAS No. 123, "Accounting for Stock-Based Compensation", was issued effective
for fiscal years beginning December 15, 1995. 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 the SFAS No. 123. The Company is
continuing to account for stock-based compensation using the intrinsic method,
therefore, SFAS No. 123 will not have an impact on the Company's reported
results of operations or financial position.
3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
(As Restated)
November 30 August 31, November 30,
1995 1996 1996
--------------- -------------- ----------------
<S> <C> <C> <C>
Finished goods $ 28,857 $ 28,634 $ 31,544
Raw materials 18,511 13,367 28,991
Growing crops 709 579 1,400
Supplies and other 725 814 778
--------------- -------------- ----------------
48,802 43,394 62,713
Less reserves (2,947) (1,934) (1,934)
=============== ============== ================
$ 45,855 $ 41,460 $ 60,779
=============== ============= ================
</TABLE>
Substantially all finished goods and raw material inventory is valued at the
lower of average cost or market. Growing crops are recorded at cost.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
As Restated)
November 30, August 31, November 30,
1995 1996 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Land and improvements $ 3,360 $ 3,881 $ 3,864
Buildings and improvements 18,620 24,877 26,189
Machinery and equipment 23,717 31,409 32,675
Germplasm, breeder and foundation seed 8,000 9,500 9,500
Construction in progress 7,475 5,840 7,300
-------------- ------------- -------------
61,172 75,507 79,528
Less accumulated depreciation (17,476) (20,449) (21,635)
-------------
============== =============
$ 43,696 $ 55,058 $ 57,893
============== ============= =============
</TABLE>
5. CONTINGENCIES
The Company, Monsanto Company ("Monsanto") and other third parties were named as
defendants in two lawsuits filed in Texas in August, 1996. A third lawsuit was
filed in October 1996 in Louisiana. Two of these suits request that they be
certified as a class action. The plaintiffs allege, among other things, that
D&PL's NuCOTN varieties, which contain Monsanto's Bollgard(TM) gene, did not
perform as these farmers had anticipated and, in particular, did not fully
protect their cotton crops from certain lepidopteran insects. Pursuant to the
terms of the Bollgard agreement between D&PL and Monsanto, Monsanto has assumed
responsibility for the defense of these claims since vendee claims for failure
of the Bollgard gene are subject to a duty of defense by Monsanto and prorata
indemnification under the agreement. Under the applicable indemnity provisions,
defense costs and any liability to the plaintiffs related to claims covered by
the agreement will be apportioned 71% to Monsanto and 29% to D&PL. Some of the
claims made in this litigation concerning the quality of seed and seed coat
treatments, not involving failure of performance of the Bollgard gene or
representations with respect thereof, may not be within the scope of Monsanto's
indemnity obligation. The Company would be required to bear any damages relating
to product defects, if any, not involving a failure of the Bollgard gene to
provide insect resistance. D&PL intends to cooperate with Monsanto in its
anticipated vigorous defense of these claims. D&PL believes that these claims
will be resolved without any material impact on the Company's financial
statements.
In October 1996, Mycogen Plant Science, Inc. ("Mycogen") and Agrigenetics, Inc.
filed a lawsuit naming D&PL, Monsanto and DeKalb Genetics as defendants alleging
that two of Mycogen's recently issued patents have been infringed by the
defendants by selling seed that contains the Bollgard gene. Pursuant to the
terms of the Agreement, Monsanto is required to defend D&PL against patent
infringement claims and indemnify D&PL against damages from any patent
infringement claims. D&PL believes that the resolution of the matter will not
have a material impact on the Company or its financial statements.
A corporation owned by the son of the Company's former Guatemalan distributor
sued in 1989 asserting that the Company violated an agreement with it by
granting to another entity an exclusive license in certain areas of Central
America and southern Mexico. The suit seeks damages of 5,300,000 Guatemalan
quetzales (approximately $900,000 at current exchange rates) and an injunction
preventing the Company from distributing seed through any other licensee in that
region. The Guatemalan court, where this action is proceeding, has twice
declined to approve the injunction sought. Management believes that the
resolution of the matter will not have a material impact on the Company or its
financial statements. The Company continues to offer seed for sale in Guatemala.
The Company is involved in various other claims arising in the normal course of
business. Management believes such matters will be resolved without any material
effect on the Company's financial position or its results of operations.
On July 18, 1996, the United States Department of Justice, Antitrust Division
("USDOJ"), served a Civil Investigative Demand ("CID") on D&PL seeking
information and documents in connection with its investigation of the
acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers
Seed, Inc. and Mississippi Seed, Inc. The CID states that the USDOJ is
investigating whether this transaction may have violated the provisions of
Section 7 of the Clayton Act, 15 USC (Section)18. D&PL is currently engaged in
responding to the CID and is committed to full cooperation with the USDOJ. At
the present time, the ultimate outcome of the investigation cannot be predicted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
D&PL is primarily engaged in the breeding, production, conditioning and
marketing of proprietary varieties of cotton planting seed in the United States
and other cotton producing nations. D&PL also breeds, produces and distributes
soybean planting seed in the United States.
Since 1915, D&PL has bred, produced and/or marketed upland picker varieties of
cotton planting seed for cotton varieties that are grown primarily east of Texas
and in Arizona. The Company has used its extensive classical plant breeding
programs to develop a gene pool necessary for producing cotton varieties with
improved agronomic traits important to farmers, such as crop yield, and to
textile manufacturers, such as enhanced fiber characteristics. In 1980, D&PL
added soybean seed and in 1988 hybrid sorghum seed to its product line. In 1988,
D&PL also commenced distributing corn hybrids acquired from others. In 1995, the
Company sold its corn and sorghum business to Mycogen. D&PL and Mycogen entered
into a joint marketing agreement whereby both companies will sell D&PL's
remaining corn and sorghum hybrids through 1997. The two parties will exchange
certain operating facilities in the future upon the satisfactory completion of
environmental site assessments and remediation procedures as necessary.
In 1988, as a component of its long-term growth strategy, the Company began to
focus on the international marketing of its products, primarily cottonseed. In
foreign countries, cotton acreage is often planted with farmer-saved seed which
has not been delinted or treated and is of low overall quality. Management
believes that D&PL has an attractive opportunity to penetrate foreign markets
because of its widely adaptable, superior cotton varieties, technological
know-how in producing and conditioning high-quality seed and brand name
recognition. Furthermore, in many countries the Bollgard(TM) technology would be
effective and help farmers in those countries to control certain lepidopteran
cotton pests.
D&PL sells its products in foreign countries through (i) export sales, (ii)
direct in-country operations and to a lesser degree (iii) distributors or
licensees. The method varies and evolves, depending upon the Company's
assessment of the potential size and profitability of the market, governmental
policies, currency and credit risks, sophistication of the target country's
agricultural economy, and costs (as compared to risks) of commencing physical
operations in a particular country. To date, a majority of the Company's
international sales have resulted from exports of the Company's products rather
than direct in-country operations.
D&M International, LLC, is a venture formed in 1995 through which D&PL and
Monsanto plan to introduce in combination D&PL's acid delinting technology and
Monsanto's Bollgard gene technology. D&PL is the managing member of D&M
International. In November 1996, D&M International's subsidiary, D&PL China Pte
Ltd. concluded negotiations for a joint venture with parties in Hebei Province,
one of the major cotton producing regions in the People's Republic of China. The
joint venture will be controlled by D&PL China Pte Ltd. The Company is currently
negotiating with potential venture partners in Zimbabwe, Brazil and Columbia and
is in exploratory discussions with potential partners in India, Uzbekistan and
Argentina. Prior joint venture negotiations in Turkey and Egypt reached an
impasse and have ceased.
In 1996, D&PL completed the construction of two smaller, yet cost efficient
delinting plants, one each in South Africa and Argentina which initially will be
used to provide winter nursery services to northern hemisphere operations in
order to accelerate the bulk up and ultimately the introduction of new products
by taking advantage of the southern hemisphere growing season. In addition,
these branches will evaluate and develop the cottonseed business in their
respective areas.
In addition, the Company began the reorganization of its business among its key
operating units including Deltapine, Paymaster (which includes the stripper
varieties acquired in 1994 and the Hartz varieties acquired in 1996), Sure Grow
and International. Effective September 1, 1996, each unit is responsible for its
own Sales, Marketing, Research and Field Agronomy while Operations, Quality
Assurance, Administration and Finance, Technical Services and Transgenic Product
Development will provide services to all operating units. In December 1995, in
response to shareholder interest and to increase the Company's visibility and
attractiveness to a more diverse population of investors, D&PL moved from NASDAQ
and listed its shares on the New York Stock Exchange.
In 1996, D&PL assembled its own fully staffed Sales and Marketing and Technical
Services teams for Deltapine Australia. In the first quarter, the Company sold
limited quantities of seed containing Monsanto's Bt gene (marketed as
Ingard(TM)) in Australia. Operating results in Australia remain at unacceptable
levels, and the organizational changes will add further costs to that operation
in the near term. Deltapine Australia cotton varieties currently under
development, along with two new varieties recently introduced, must perform well
to capture market share to improve operating results.
The production, distribution or sale of crop seed in or to foreign markets may
be subject to special risks, including fluctuations in foreign currency,
exchange rate controls, expropriation, nationalization and other agricultural,
economic, tax and regulatory policies of foreign governments. Particular
policies which may affect the international operations of D&PL include the
testing and quarantine and other restrictions relating to the import and export
of plants and seed products and the availability of proprietary protection for
plant products. In addition, United States government policies, particularly
those affecting foreign trade and investment, may impact the Company's
international operations.
Acquisitions
In May, 1996, D&PL acquired Ellis Brothers Seed, Inc., Arizona Processing, Inc.
and Mississippi Seed, Inc. ( the "Sure Grow Companies") in exchange for stock
valued at approximately $70 million on the day of closing. D&PL exchanged 1.5
million shares of its common stock for all outstanding shares of the three
companies. The merger was accounted for as a pooling-of-interests. The acquired
companies will continue their current operations marketing of upland picker
cottonseed varieties under their existing brand, Sure Grow. The Sure Grow
breeding program will have immediate access to Monsanto's Bollgard and Roundup
Ready(R) gene technologies.
In February, 1996, the Company acquired Hartz Cotton, Inc. from Monsanto, which
included inventories of cotton planting seed of Hartz upland picker varieties,
germplasm, breeding stocks, trademarks, trade names and other assets, for
approximately $6.0 million. The consideration consisted primarily of 450,000
shares of the Company's Series M Convertible Non-Voting Preferred Stock.
Since the 1940's, the Paymaster(Registered) and Lankart(Registered) upland
stripper cottonseed varieties have been developed for and marketed
primarily in the High Plains. In 1994, D&PL acquired the Paymaster and Lankart
cotton planting seed business ("Paymaster"), for approximately $14.0 million.
Although the Paymaster varieties are planted on approximately 80% of the
estimated 4.0 to 5.0 million cotton acres in the High Plains, only a small
portion of that seed is actually sold by Paymaster. Farmer-saved seed and seed
from other sources accounted for up to 85% of the seed needed to plant the
acreage in this market area. Through 1996 the seed needed to plant the remaining
acreage was sold by Paymaster and its 12 sales associates through a certified
seed program. Under this program, Paymaster sold parent seed to its contract
growers who planted, produced and harvested the progeny of the parent seed,
which Paymaster then purchased from the growers. The progeny of the parent seed
was then sold by Paymaster to the sales associates who in turn delinted,
conditioned, bagged and sold it to others as certified seed. The sales
associates paid a royalty to Paymaster on certified seed sales. Beginning in
fiscal 1997, unconditioned seed will be supplied by Paymaster to contract
delinters who will delint, condition and bag the seed for a fee. The seed will
then be sold by Paymaster through its distributors and dealers.
The Company acquired in 1994 from the Supima Association of America ("Supima")
certain planting seed inventory, the right to use the Supima7 trade name and
trademark and the right to distribute Pima extra-long (fiber-length) staple
cotton varieties. D&PL also entered into a research agreement with Supima's
university collaborator that allows D&PL the right of first refusal for any Pima
varieties developed under this program which D&PL partially funds. Pima seed
will be produced, conditioned and marketed directly by D&PL.
Biotechnology
The collaborative biotechnology licensing agreement executed with Monsanto in
1992 and subsequently revised in 1993 and 1996, provides for the
commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt")
technology in D&PL's varieties. Bt is a bacterium found naturally in soil that
produces proteins toxic to certain lepidopteran larvae, the principal cotton
pests in many cotton growing areas. Monsanto created a transgenic cotton plant
by inserting Bt genes into cotton plant tissue. This transgenic plant tissue
causes the death of certain lepidopteran larvae that consume it. The gene and
related technology were patented or licensed from others by Monsanto and were
licensed to D&PL for use under the trade name Bollgard. In D&PL's primary
markets, the cost of insecticides is the largest single expenditure for many
cotton growers, exceeding the cost of seed. The insect resistant capabilities of
transgenic cotton containing the Bollgard gene may reduce the amount of
insecticide required to be applied by cotton growers using planting seed
containing the Bollgard gene. On October 31, 1995, Monsanto was notified that
the United States Environmental Protection Agency ("EPA") had completed its
registration of the Bollgard gene technology, thus clearing the way for
commercial sales of seed containing the Bollgard gene. In 1996, D&PL commenced
commercial sales of two NuCOTN varieties, which contained the Bollgard gene, in
accordance with the terms of the D&PL/Monsanto Bollgard Gene License and Seed
Services Agreement (the "Agreement"). This initial EPA registration expires on
January 1, 2001, at which time the EPA will reevaluate the effectiveness of the
insect resistance management plan and decide whether to convert the registration
to a non-expiring (and/or unconditional) registration.
D&PL is also developing transgenic cotton and transgenic soybean varieties
that are tolerant to Roundup (Registered), a herbicide sold by Monsanto. In
1996, such Roundup Ready plants were approved by the Food and Drug
Administration, the USDA, and the EPA. In February, 1996, the Company and
Monsanto executed the Roundup Ready Gene License and Seed Services Agreement
which provides for the commercialization of Roundup Ready cottonseed. D&PL and
Monsanto are currently negotiating a commercialization agreement for Roundup
Ready soybean seed.
Since 1987, D&PL has conducted research using genes provided by DuPont to
develop cotton and soybean plants that are tolerant to certain DuPont ALS
(Registered)herbicides. Such plants would enable farmers to apply these
herbicides for weed control without significantly affecting the agronomics of
the cotton or soybean plants. Since soybean seed containing the ALS
herbicide-tolerant trait was not genetically engineered, sale of this seed does
not require government approval, although the herbicide to which they express
tolerance must be EPA approved. In February, 1996, DuPont and D&PL mutually
terminated the cotton commercialization agreement signed in 1994. The
termination of this agreement did not materially impact the Company's current
results of operations.
Commercial Seed
Seed of all commercial plant species is either varietal or hybrid. D&PL's cotton
and soybean seed are varietals and its sorghum and corn seed are hybrids.
Varietal plants can be reproduced from seed produced by a parent plant, with the
offspring exhibiting only minor genetic variations. The Plant Variety Protection
Act ("PVPA") of 1970, as amended in 1994, in essence prohibits, with limited
exceptions, purchasers of protected varieties from selling seed harvested from
these varieties. Some foreign countries provide similar protection.
Although cotton is a varietal and, therefore, can be grown from seed of parent
plants saved by the growers, most farmers in D&PL's primary domestic markets
purchase seed from commercial sources each season because cottonseed requires
delinting in order to be sown by modern planting equipment. Delinting and
conditioning may be done either by a seed company on its proprietary seed or by
independent delinters for farmers. Modern cotton farmers in upland picker areas
generally recognize the greater assurance of genetic purity, quality and
convenience that professionally grown and conditioned seed offers compared to
seed they might save.
In connection with its seed operations, the Company also farms approximately
2,000 acres, primarily for production of cotton and soybean foundation seed. The
Company has annual agreements with various growers to produce seed for cotton
and soybeans. The growers plant seed purchased from the Company and follow
quality assurance procedures required for seed production. If the grower adheres
to established Company quality assurance standards throughout the growing season
and if the seed meets Company standards upon harvest, the Company is obligated
to purchase specified minimum quantities of seed, usually in its first and
second fiscal quarters, at prices equal to the commodity market price of the
seed plus a grower premium. The Company then conditions the seed for sale.
The majority of the Company's sales are made early in the second fiscal quarter
through the beginning of the fourth fiscal quarter. Varying climatic conditions
can change the earnings pattern by affecting the quarter in which seed is
delivered, thereby shifting sales between quarters. Thus, seed production,
distribution and sales are seasonal and interim results will not necessarily be
indicative of the Company's results for a fiscal year.
Revenues from domestic seed sales are generally recognized when seed is shipped.
Revenues from Bollgard licensing fees are recognized based on the number of
acres estimated to be planted with such seed when the seed is shipped.
Domestically, the Company promotes its cottonseed directly to farmers and sells
cottonseed through distributors and dealers. All of the Company's domestic seed
products are subject to return or credit, which vary from year to year. The
annual level of returns and, ultimately, net sales are influenced by various
factors, principally commodity prices of other crops and weather conditions
occurring in the spring planting season during the Company's third and fourth
quarters. The Company provides for estimated returns as sales occur. To the
extent actual returns and actual acreage planted with seed containing the
Bollgard gene differ from estimates, adjustments to the Company's operating
results are recorded when such differences become known, typically in the
Company's fourth quarter. All significant returns occur or are accounted for by
fiscal year end. International revenues are recognized upon the date seed is
shipped or the date letters of credit are cleared, whichever is later.
Generally, international sales are not subject to return.
Outlook
From time to time, the Company may make forward-looking statements relating to
such matters as anticipated financial performance, business products, technical
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following:
Domestic demand for D&PL's seed will continue to be affected by government
programs and, most importantly, by weather. Demand for seed is also
influenced by commodity prices and the demand for a crop's end-uses such as
textiles, animal feed, food and raw materials for industrial use. These
factors along with weather influence the cost and availability of seed for
subsequent seasons. Weather impacts crop yields, commodity prices and the
planting decisions that farmers make regarding both original planting
commitments and, when necessary, replanting levels.
The planting seed market is highly competitive and D&PL varieties face
competition from a number of seed companies, diversified chemical companies,
agricultural biotechnology companies, governmental agencies and academic and
scientific institutions. A number of chemical and biotechnology companies
have seed production and/or distribution capabilities to ensure market
access for new seed products. The Company's seed products may encounter
substantial competition from technological advances by others or products
from new market entrants. Many of the Company's competitors are, or are
affiliated with, large diversified companies that have substantially greater
resources than the Company.
Further growth in overall profitability will depend on weather conditions,
government policies in all countries where the Company sells products,
commodity prices, the Company's ability to successfully open new
international markets, the Company's ability to successfully continue the
development of the High Plains market, the technology partners' ability to
obtain timely government approval for additional biotechnology products on
which they and the Company are working and the Company's ability to produce
sufficient commercial quantities of high quality planting seed of these
products. Any delay in or inability to capitalize on these projects may
affect future profitability. Due to the varying levels of agricultural and
social development of the international markets in which the Company
operates and because of factors within the particular international markets
targeted by the Company, international profitability and growth may be less
stable than domestic profitability and growth have been in the past.
RESULTS OF OPERATIONS
The following sets forth selected operating data of the Company (in thousands):
For the Three Months
Ended November 30
(As Restated)
1995 1996
-------------- ------------
Operating results -
Net sales and licensing fees $ 5,326 $ 6,317
Gross profit 298 1,188
Operating expenses:
Research and development 1,741 2,590
Selling 2,144 2,421
General and administrative 2,464 2,594
Unusual charges related to 182 396
acquisitions
Operating loss (6,233) (6,813)
Loss before income taxes (6,142) (6,825)
Net loss applicable to common shares (3,740) (4,381)
The following sets forth selected balance sheet data of the Company as of the
following periods (in thousands):
<TABLE>
(As Restated)
November 30, August 31, November 30,
1995 1996 1996
<S> <C> <C> <C>
------------------ --------- --------- -------------------
Balance sheet summary-
Current assets $ 57,390 $ 111,940 $ 72,114
Current liabilities 48,632 75,966 43,535
Working capital 8,758 35,974 28,579
Property, plant and equipment, net 43,696 55,058 57,893
Total assets 111,559 179,660 142,391
Outstanding borrowings 39,652 34,060 44,171
Stockholders' equity 43,317 69,341 64,505
</TABLE>
Three months ended November 30, 1996, compared to three months ended November
30, 1995:
Net sales and licensing fees increased approximately $1.0 million to $6.3
million from $5.3 million. The increase in net sales and licensing fees is the
result of the timing of and increased seed shipments to Spain and the commercial
introduction in Australia of seed containing the Ingard(TM) gene. The effect of
these positive events was partially offset by the delayed shipments to Greece
and Mexico, which are now expected to occur in the second fiscal quarter of
1997.
Operating expenses increased from $6.5 million in the first fiscal quarter of
1996 to $8.0 million in fiscal 1997. This expected increase is attributable to
additional product development and promotional costs, and additional operational
costs. Operating expenses also include unusual costs associated with the
Company's response to the United States Department of Justice investigation of
the acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers
Seed, Inc. and Mississippi Seed, Inc.
Interest expense increased by 52.8% to $0.3 million from $0.2 million due to
higher average outstanding borrowings partially offset by lower interest rates
during the period.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business significantly impacts cash flow
and working capital requirements. The Company maintains credit facilities, uses
early payments by customers and uses cash from operations to fund working
capital needs. For more than 15 years D&PL has borrowed on a short-term basis to
meet seasonal working capital needs.
D&PL purchases seed from contract growers in its first and second fiscal
quarters. Seed conditioning, treating and packaging commence late in the first
fiscal quarter and continue through the third fiscal quarter. Seasonal
borrowings normally commence in the first fiscal quarter and peak in the third
fiscal quarter. Loan repayments normally begin in the middle of the third fiscal
quarter and are typically completed early in the fourth fiscal quarter. D&PL
also offers distributors, dealers and farmers financial incentives to make early
payments. To the extent D&PL attracts early payments from customers, bank
borrowings under the credit facility are reduced.
In November 1995, the Company and a financial institution entered into a new
loan agreement that replaced the existing facility. The new agreement (as did
the agreement it replaced) provided a base commitment of $15.0 million and a
seasonal commitment of $35.0 million. In March 1996, the bank approved an
additional seasonal facility of $15.0 million. In June 1996, the base commitment
was increased to $30.0 million and the seasonal commitment was reduced to $20.0
million to accommodate the anticipated changes in borrowings related to the
acquisition of Sure Grow. No changes were made to the additional seasonal
facility. The base commitment is a long-term loan that may be borrowed upon at
any time and is due January 1, 1999. Both the seasonal commitment and the
additional seasonal commitment are working capital loans that may be drawn upon
from September 1 through June 30 of each fiscal year and expire January 1, 1999.
Commencing in January 1997 and in each January thereafter, the facilities are
renewable for another three year term. Each commitment offers variable and fixed
interest rate options and requires the Company to pay facility and/or commitment
fees and to comply with certain financial covenants.
Current assets and liabilities, including bank borrowings, fluctuate throughout
the year due to the seasonal nature of the agriculture industry. Inventory
levels depend, in part, on timing of bulk seed receipts, conditioning and
shipping and the related cost of bulk seed and conditioning. Inventory levels
have increased as compared with the first quarter of fiscal 1996 due to the
introduction of the transgenic seed products. Specifically, D&PL, during the
1995 growing season, contracted with its growers to produce enough
non-transgenic seed to meet sales projections for the 1996 season in the event
that the EPA did not approve the sales of seed containing the Bollgard gene
technology. The EPA ultimately approved such technology in October, 1995, which
was beyond the date that D&PL could reduce its purchase contracts for
non-transgenic seed. In addition, the reduction in planted cotton acres from
16.7 million in fiscal 1995 to 14.0 million in fiscal 1996 further contributed
to increased inventory levels since D&PL sold fewer than expected units in the
1996 season.
Capital expenditures for the first quarter of fiscal 1997 were approximately
$4.0 million as the Company continues to facilitate growth in its traditional
and transgenic seed products by modifying and upgrading certain of its
facilities. This investment strategy included the commencement in 1995 of a
special $13.0 million upgrade of the Company's bulk seed stabilization, storage,
handling and processing facilities at three of its cottonseed plants. In
addition, a cottonseed processing plant acquired in the Paymaster acquisition
has been technologically upgraded. Projects for fiscal 1997 include a new fully
integrated computer system , a new international and administrative office
building and further expansion of facilities in Australia and South Africa. Such
expenditures will be funded from cash on hand and borrowings under the Company=s
credit facility. Management believes that capital expenditures will be
approximately $13.0 to $15.0 million in fiscal 1997, excluding expected capital
expenditures for foreign joint ventures which will be funded by cash from
operations, borrowings or investments from joint venture partners, as necessary.
In the first quarter of fiscal 1997, the Board of Directors authorized a
quarterly dividend of $0.03 per share, paid December 13, 1996 to the
stockholders of record on December 1, 1996. It is anticipated that quarterly
dividends of $0.03 per share will continue to be paid in the future, although
the Board of Directors reviews this policy quarterly.
Cash provided from operations, early payments from customers, and borrowings
under the loan agreement should be sufficient to meet the Company's fiscal 1997
working capital needs..
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.01 Computation of Earnings Per Share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended November 30,
1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
DELTA AND PINE LAND COMPANY
Date: December 20, 1996 /s/ Roger D. Malkin
Roger D. Malkin, Chairman and
Chief Executive Officer
Date: December 20, 1996 /s/ W. Thomas Jagodinski
W. Thomas Jagodinski,
Vice President - Finance
and Treasurer
<PAGE>
EXHIBIT 11.01
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
(As Restated)
November 30, November 30,
1995 1996
---------------- ----------------
PRIMARY EARNINGS PER SHARE:
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT THE BEGINNING OF
PERIOD 20,861 21,130
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK ISSUED DURING THE
PERIOD - 5
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS - -
---------------- --------------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
OF PRIMARY EARNINGS PER SHARE 20,861 21,135
================ ================
FULLY DILUTED EARNINGS PER SHARE:
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT THE BEGINNING OF 20,861 21,130
PERIOD
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK ISSUED DURING THE
PERIOD - 5
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO CONVERTIBLE
PREFERRED STOCK - -
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS - -
---------------- ----------------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
OF FULLY DILUTED EARNINGS PER SHARE 20,861 21,135
================ ================
NET LOSS APPLICABLE TO COMMON SHARES $ (3,740) $ (4,381)
================ ================
NET LOSS PER COMMON SHARE:
PRIMARY $ (0.18) $ (0.21)
================ ================
FULLY DILUTED $ (0.18) $ (0.21)
================ ================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial state-
ments.
</LEGEND>
<CIK> 0000902277
<NAME> Delta and Pine Land Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 1,519
<SECURITIES> 0
<RECEIVABLES> 6,446
<ALLOWANCES> 0
<INVENTORY> 60,779
<CURRENT-ASSETS> 72,114
<PP&E> 79,528
<DEPRECIATION> (21,635)
<TOTAL-ASSETS> 142,391
<CURRENT-LIABILITIES> 43,535
<BONDS> 44,171
0
45
<COMMON> 2,114
<OTHER-SE> 62,346
<TOTAL-LIABILITY-AND-EQUITY> 142,391
<SALES> 6,317
<TOTAL-REVENUES> 6,317
<CGS> 5,129
<TOTAL-COSTS> 5,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 269
<INCOME-PRETAX> (6,825)
<INCOME-TAX> (2,457)
<INCOME-CONTINUING> (4,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,381)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
