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 February 28, 1999 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) 742-4500
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 - 38,445,146 shares outstanding as of
March 29, 1999.
<PAGE>
9
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets February 28, 1998,
August 31, 1998, and February 28, 1999 2
Consolidated Statements of Income Three Months
Ended February 28, 1998 and February 28, 1999 3
Consolidated Statements of Operations Six Months
Ended February 28, 1998 and February 28, 1999 4
Consolidated Statements of Cash Flows Six Months
Ended February 28, 1998 and February 28, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
February 28, August 31, February 28,
1998 1998 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,343 $8,062 $9,203
Receivables, net 82,761 104,779 90,836
Inventories 78,476 50,497 106,874
Prepaid expenses 1,467 1,194 4,604
Income tax receivable - 5,562 2,481
Deferred income taxes 3,069 4,408 4,408
-------------- -------------- ---------------
Total current assets 167,116 174,502 218,406
-------------- -------------- ---------------
PROPERTY, PLANT and EQUIPMENT, net 66,131 66,840 65,772
EXCESS OF COST OVER NET ASSETS OF
BUSINESS ACQUIRED, net 4,650 4,583 4,523
INTANGIBLES, net 3,536 3,488 3,495
OTHER ASSETS 2,159 2,378 2,128
============== ============== ===============
$ 243,592 $ 251,791 $ 294,324
============== ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 39,355 $ 1,263 $ 45,208
Accounts payable 20,110 22,831 29,925
Accrued expenses 60,758 92,042 76,573
Income taxes payable 3,097 - -
-------------- -------------- ---------------
Total current liabilities 123,320 116,136 151,706
-------------- -------------- ---------------
LONG-TERM DEBT, less current maturities 36,114 47,070 55,898
DEFERRED INCOME TAXES 4,038 5,020 5,020
MINORITY INTEREST IN SUBSIDIARIES 1,719 2,914 5,152
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;
429,319 shares authorized; no shares issued or outstanding - - -
Series M Convertible Non-Voting Preferred, par value $0.10
per share;
1,066,666 shares authorized; 800,000 shares issued and 80 80 80
outstanding
Common stock, par value $0.10 per share;
100,000,000 shares authorized; 38,005,050; 38,469,616
and 38,551,634 shares issued; 37,890,784; 38,355,350
and 38,437,368 shares outstanding 3,800 3,847 3,855
Capital in excess of par value 26,634 35,867 37,459
Retained earnings 51,715 46,109 39,752
Accumulated other comprehensive loss (1,655) (3,079) (2,425)
Treasury stock at cost, 114,266; 114,266 and 114,266 shares (2,173) (2,173) (2,173)
-------------- -------------- ---------------
Total stockholders' equity 78,401 80,651 76,548
-------------- -------------- ---------------
$ 243,592 $ 251,791 $ 294,324
============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<S> <C> <C> <C>
February 28, February 28,
1998 1999
NET SALES AND LICENSING FEES $ 77,245 $ 72,800
COST OF SALES 50,098 49,684
--------------- ---------------
GROSS PROFIT 27,147 23,116
--------------- ---------------
OPERATING EXPENSES:
Research and development 3,964 4,880
Selling 4,649 3,848
General and administrative 2,214 3,094
Unusual charges primarily related to the merger - 6,125
------------------- -----------------
10,827 17,947
-------------- ---------------
OPERATING INCOME 16,320 5,169
INTEREST EXPENSE, net of capitalized interest of $42 and $12 (895) (1,093)
OTHER 100 202
---------------- ---------------
INCOME BEFORE INCOME TAXES 15,525 4,278
PROVISION FOR INCOME TAXES (5,744) (1,872)
--------------- ------------------
NET INCOME 9,781 2,406
DIVIDENDS ON PREFERRED STOCK (24) (24)
------------------ --------------------
NET INCOME APPLICABLE TO COMMON SHARES $ 9,757 $ 2,382
BASIC EARNINGS PER SHARE:
NET INCOME PER SHARE $ 0.26 $ 0.06
================= =================
NUMBER OF SHARES USED IN BASIC EARNINGS
PER SHARE CALCULATIONS 37,858 38,422
=============== ===============
DILUTED EARNINGS PER SHARE:
NET INCOME PER SHARE $ 0.24 $ 0.06
================= ================
NUMBER OF SHARES USED IN DILUTED EARNINGS
PER SHARE CALCULATIONS 40,397 40,819
================ ================
DIVIDENDS PER SHARE $ 0.03 $ 0.03
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<S> <C> <C> <C>
February 28, February 28,
1998
1999
NET SALES AND LICENSING FEES $ 82,585 $ 79,996
COST OF SALES 53,371 54,552
--------------- ---------------
GROSS PROFIT 29,214 25,444
--------------- ---------------
OPERATING EXPENSES:
Research and development 7,596 9,115
Selling 7,525 7,678
General and administrative 4,816 6,053
Unusual charges primarily related to the merger 47 7,022
----------------- ----------------
19,984 29,868
-------------- ---------------
OPERATING INCOME (LOSS) 9,230 (4,424)
INTEREST EXPENSE, net of capitalized interest of $99 and $44 (1,238) (1,624)
OTHER 166 (35)
---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES 8,158 (6,083)
(PROVISION) BENEFIT FOR INCOME TAXES (3,018) 2,051
--------------- ------------------
NET INCOME (LOSS) 5,140 (4,032)
DIVIDENDS ON PREFERRED STOCK (48) (48)
------------------ ---------------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 5,092 $ (4,080)
BASIC EARNINGS PER SHARE:
NET INCOME (LOSS) PER SHARE $ 0.13 $ ( 0.11)
================= =================
NUMBER OF SHARES USED IN BASIC EARNINGS
PER SHARE CALCULATIONS 37,786 38,397
=============== ===============
DILUTED EARNINGS PER SHARE:
NET INCOME (LOSS) PER SHARE $ 0.13 $ (0.11)
================= =================
NUMBER OF SHARES USED IN DILUTED EARNINGS
PER SHARE CALCULATIONS 40,259 38,397
================ ================
DIVIDENDS PER SHARE $ 0.06 $ 0.06
================== =================
</TABLE>
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 SIX MONTHS ENDED
(in thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C>
February 28, February 28,
1998 1999
---------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,140 $ (4,032)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 3,427 3,288
Noncash items associated with unusual charges - 2,863
Minority interest in subsidiaries 728 2,238
Changes in current assets and liabilities:
Receivables 12,676 13,943
Inventories (35,590) (56,377)
Prepaid expenses 700 (3,410)
Accounts payable 997 7,094
Accrued expenses (30,438) (15,469)
Income taxes payable 1,141 3,081
Decrease in intangible and other assets 290 243
---------------- ---------------
Net cash used in operating activities (40,929) (46,538)
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,336) (5,023)
Proceeds from sale of investment 1,350 -
---------------- ---------------
Net cash used in investing activities (4,986) (5,023)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (3,861) (12,255)
Payments of long-term debt (35,092) (182)
Dividends paid (2,319) (2,325)
Proceeds from long-term debt 40,634 9,010
Proceeds from short-term debt 42,957 56,200
Proceeds from exercise of stock options and tax benefit
of stock option exercises 3,797 1,600
---------------- ---------------
Net cash provided by financing activities 46,116 52,048
---------------- ---------------
EFFECTS OF FOREIGN CURRENCY TRANSLATION (748) 654
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (547) 1,141
CASH AND CASH EQUIVALENTS, as of August 31 1,890 8,062
================ ===============
CASH AND CASH EQUIVALENTS, as of February 28 $ 1,343 $ 9,203
================ ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the six months for:
Interest paid, net of capitalized interest $ 725 $ 1,650
Income taxes $ - $ 140
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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 and six month periods ended February 28, 1998 and February 28, 1999 and
any quarterly period, are not necessarily indicative of the results to be
expected for the full year. For further information reference should be made to
the consolidated financia1 statements and footnotes thereto included in the
Company's Annual Report Stockholders on Form 10-K for the fiscal year ended
August 31, 1998.
Certain prior year balances have been reclassified to conform to the current
year presentation.
2. MERGER WITH MONSANTO
On May 8, 1998, the Company entered into a merger agreement with Monsanto
Company ("Monsanto"), pursuant to which the Company would be merged with and
into Monsanto. This agreement has been approved by the Company's stockholders,
but is still subject to the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under the terms of the
agreement, upon consummation the Company's stockholders will be entitled to
receive 0.8625 shares of Monsanto's Common Stock in exchange for each share of
Delta and Pine Land Company stock they hold.
3. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income", establishes new standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all non-shareowner changes in equity
and consists of net income, foreign currency translation adjustments, unrealized
gains and losses on available-for-sale securities, and minimum pension liability
adjustments. Effective September 1, 1998, the Company adopted the reporting
requirements of SFAS No. 130. Total comprehensive income for the three and six
months ended February 28, 1998 and 1999 was (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
February 28, February 28,
1998 1999 1998 1999
------------- ------------ ------------- --------------
Net income (loss) $ 9,781 $ 2,406 $ 5,140 $ (4,032)
------------- ------------ ------------- --------------
Other comprehensive (loss) income
Foreign currency translation (losses) and gains
(218) (369) (748) 654
Income tax benefit (expense) related to
other comprehensive (loss) income
81 136 277 (242)
------------- ------------ ------------- --------------
Other comprehensive (loss) income, net of tax
(137) (233) (471) 412
------------- ------------ ------------- --------------
Total comprehensive income (loss) applicable to common
stockholders $ 9,644 $ 2,173 $ 4,669 $ (3,620)
============= ============ ============= ==============
</TABLE>
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December 15,
1997. The Company will adopt the year end disclosure requirements of SFAS No.
131 beginning in fiscal 1999.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
This statement is effective for fiscal years beginning after December 15, 1997.
The Company will adopt the year end disclosure requirements of SFAS No. 132
beginning in fiscal 1999.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for the derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company has not yet determined
the effects of adopting of SFAS No. 133 on its financial statements.
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
February 28, August 31, February 28,
1998 1998 1999
Finished goods $ 51,874 $ 45,121 $ 88,145
Raw materials 26,744 14,036 18,456
Growing crops 766 586 396
Supplies and other 1,782 676 656
---------------- -------------- ----------------
81,166 60,419 107,653
Less reserves (2,690) (9,922) (779)
---------------- -------------- ---------------
$ 78,476 $ 50,497 $ 106,874
=============== ============ ==============
</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.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
February 28, August 31, February 28,
1998 1998 1999
Land and improvements $ 4,415 $ 4,437 $ 3,995
Buildings and improvements 32,196 35,849 35,084
Machinery and equipment 36,618 38,530 42,512
Germplasm 7,500 7,500 7,500
Breeder and foundation seed 2,000 2,000 2,000
Construction in progress 7,612 5,650 3,431
--------------- --------------- ---------------
90,341 93,966 94,522
Less accumulated depreciation (24,210) (27,126) (28,750)
--------------- -------------- ---------------
$ 66,131 $ 66,840 $ 65,772
============== ============= =============
</TABLE>
6. CONTINGENCIES
The Company, Monsanto, and other parties were named as defendants in 29
different lawsuits in the State of Georgia. Eleven lawsuits have been filed in
the Superior Court of Brooks County, Georgia; 1 was filed November 25, 1998, 1
was filed December 10, 1998, 3 were filed December 11, 1998, 3 were filed
December 18, 1998, and 3 were filed December 23, 1998. Each of these cases has
been removed to the United States District Court for the Middle District of
Georgia. Four lawsuits were filed in the Superior Court of Bulloch County,
Georgia on March 5, 1999. Five lawsuits have been filed in the Superior Court of
Colquitt County, Georgia; 1 was filed on December 28, 1998 and 4 were filed on
January 4, 1999. Each of these cases has been removed to the United States
District Court for the Middle District of Georgia. Four lawsuits were filed in
the Superior Court of Cook County, Georgia; 2 were filed on December 28, 1998
and 2 were filed on December 29, 1998. Each of these cases has been removed to
the United States District Court for the Middle District of Georgia. One case
has been filed in the Superior Court of Emanuel County, Georgia; this case was
filed on March 5, 1999. Two cases have been filed in the Superior Court of
Lowndes County, Georgia; 1 was filed December 7, 1998 and the other filed
December 28, 1998, and these cases have been removed to the United States
District Court for the Middle District of Georgia. One case was filed in the
Superior Court of Mitchell County, Georgia on December 28, 1998 and has been
removed to the United States District Court for the Middle District of Georgia.
One case was filed in the Superior Court of Pierce County, Georgia on December
18, 1998. This case was removed to the United States Court for the Middle
District of Georgia, but subsequently remanded to the Superior Court of Pierce
County, Georgia. In each case the plaintiff alleges, among other things, that
certain cottonseed acquired from Paymaster which contained the Roundup Ready(R)
gene did not perform as the farmers had anticipated and, in particular, did not
fully protect their crops from damage following the application of Roundup
glyphosate.
Each piece of the Georgia litigation stems from a prior seed arbitration filed
in the State of Georgia. The Company and Monsanto are presently investigating
the claims to determine the cause or causes, if any, of the alleged problems.
Pursuant to the terms of the Roundup Ready Gene License and Seed Service
Agreement (the "Roundup Ready Agreement") between D&PL and Monsanto, D&PL has
tendered the defense of these claims to Monsanto and requested indemnity.
Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to
defend and indemnify the Company against all claims arising out of the failure
of the Roundup glyphosate tolerance gene. D&PL will not have a right to
indemnification from Monsanto, however, for any claim involving defects in seed
separate from or in addition to the failure of the herbicide tolerance gene, and
such claims are contained in these complaints. D&PL believes these claims will
be resolved without any material impact on the Company's financial condition.
The Company and Monsanto were named as defendants in two lawsuits filed on
February 24, 1999 in Lamb County, Texas. These lawsuits are being removed to the
United States District Court, Lubbock Division. In each case the plaintiff
alleges, among other things, that certain cottonseed acquired from Paymaster
which contained the Roundup Ready gene did not perform as the farmers had
anticipated. These lawsuits also include varietal claims aimed solely at the
Company. This litigation is identical to two of the seed arbitration claims
previously filed in the State of Texas which were concluded in the Company's
favor. The Company and Monsanto have investigated the claims to determine the
cause or causes of the alleged problems. Pursuant to the terms of the Roundup
Ready Agreement between the D&PL and Monsanto, D&PL has tendered the defense of
these claims to Monsanto and requested indemnity. Pursuant to the Roundup Ready
Agreement, Monsanto is contractually obligated to defend and indemnify the
Company against all claims arising out of the failure of the Roundup glyphosate
tolerance gene. D&PL will not have a right to indemnification from Monsanto,
however, for any claim involving defects in seed separate from or in addition to
the failure of the herbicide tolerance gene, and such claims are contained in
these complaints. D&PL believes these claims will be resolved without any
material impact on the Company's financial condition.
Through February 1, 1999, 45 farmers in Mississippi and 9 farmers in Texas filed
arbitration claims against the Company and Monsanto with state agencies in
Mississippi and Texas. Nineteen of the Mississippi claims were heard before the
Mississippi Seed Arbitration Council during the month of March, 1999; however,
no rulings have been rendered. The remaining Mississippi cases have been
dismissed by the Seed Arbitration Council due to failure to provide sufficient
information; however, the farmers still have the right to pursue litigation if
they so choose. The nine complaints filed by farmers in Texas were heard and
each has now been concluded in the Company's favor; however, the farmers still
have the right to pursue litigation if they so choose.
Through February 1999, approximately 210 farmers in Georgia had filed
arbitration claims against the Company and, in some cases, Monsanto. The Georgia
Seed Arbitration Council has dismissed all but five of these cases without
hearing because the cases were outside of their jurisdiction; however, the
farmers still have the right to pursue litigation if they so choose. Two of
those cases were heard in March of 1999 and concluded in the Company's favor;
however, the farmers still have the right to pursue litigation if they so
choose. Two cases are scheduled for hearing in June of 1999, and one retained
case remains unscheduled. The remaining cases allege that certain Roundup Ready
cotton seed marketed by the Company in 1998 failed to perform as the farmers had
anticipated and caused the farmers to suffer crop loss; one of the claims
involves allegedly mixed seed. Pursuant to the Roundup Ready Agreement between
D&PL and Monsanto, D&PL has tendered the defense of these claims to Monsanto.
Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to
defend and indemnify the Company against all claims arising out of the failure
of the Roundup glyphosate tolerance gene. D&PL will not have a right to
indemnification from Monsanto, however, for any claims involving defects in
seed, or mixed seed claims, separate from or in addition to the failure of the
herbicide tolerance gene. D&PL believes that these remaining claims will be
resolved without any material impact on the Company's financial condition.
The Company, certain subsidiaries of Monsanto and others were named as
defendants in a lawsuit filed in the Civil District Court, Williamson County,
Texas, 277th Judicial District, in April 1997. The plaintiffs allege, among
others things, that certain cottonseed acquired from Monsanto in the Hartz
Cotton acquisition and subsequently sold by the Company, failed to perform as
represented allegedly resulting in lost yield. Pursuant to the Hartz Cotton
acquisition agreement, the Company is entitled to indemnification from Monsanto
for damages resulting from the sale of bagged seed inventories acquired by D&PL
in that acquisition. Some or all of the seed involved in this case may meet this
criteria and D&PL will therefore be entitled to indemnification from Monsanto
for any losses resulting from such seed. Management believes that this case will
be resolved without any material impact on the Company's financial condition.
The Company, Monsanto and other third parties were named as defendants in
lawsuits filed in (i) the District Court of Falls County, Texas, in August 1996
and (ii) in the District Court of Robertson County, Texas, in March 1998. The
plaintiffs allege, among other things, that D&PL's cottonseed varieties, which
contain Monsanto's Bollgard gene, did not perform as the 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. The portion of this claim relating to failure of the Bollgard gene is
subject to a duty of defense by Monsanto and prorata indemnification under the
Bollgard Agreement. Under the applicable indemnity provisions of the Bollgard
Agreement, defense costs and liability to the plaintiffs on any failure of the
technology would be apportioned 71% to Monsanto and 29% to D&PL. Some of the
claims in this litigation concern failure of Monsanto's express warranties
relating to insect resistance and those claims may not be within the scope of
D&PL's partial indemnity obligation to Monsanto. On the other hand, some of the
claims made in the litigation concern the quality of seed and seed coat
treatments, or other varietal aspects of variety, not involving failure of
performance of the Bollgard gene or express representations with respect thereto
and, therefore, may not be within the scope of Monsanto's indemnity obligation
to D&PL. D&PL intends to cooperate with Monsanto in its anticipated vigorous
defense of these suits. D&PL believes that these suits will be resolved without
any material impact on the Company's consolidated financial condition.
In October 1996, Mycogen Plant Science, Inc. and Agrigenetics, Inc.
(collectively "Mycogen") filed a lawsuit in U.S. District Court in Delaware
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
making, selling, and licensing seed that contains the Bollgard gene. The suit,
which went to trial in January 1998, sought injunctions against alleged
infringement, compensatory damages, treble damages and attorney's fees and court
costs. A jury found in favor of D&PL and Monsanto on issues of infringement.
Mycogen has subsequently re-filed a motion for a new trial and for a judgment in
favor of Mycogen as a matter of law. Pursuant to the terms of the Bollgard
Agreement, Monsanto is required to defend D&PL against patent infringement
claims and indemnify D&PL against damages from any patent infringement claims
and certain other losses and costs. Due to Monsanto's obligation to indemnify
D&PL, the Company believes that the resolution of this matter will not have a
material impact on the Company or its financial condition.
In May 1998, five individual alleged shareholders brought suits against
Monsanto, the Company and its Board of Directors ("Directors") in the Court of
Chancery in New Castle County, Delaware. The complaints alleged that the
consideration to be paid in the proposed merger of the Company with Monsanto is
inadequate and that the Company's Directors breached their fiduciary duties to
the Company's stockholders by voting to approve the Agreement and Plan of
Merger, and that Monsanto aided and abetted the alleged breach of fiduciary
duty. The complaints were consolidated into one action, which sought a
declaration that the action was maintainable as a class action, that the merger
be enjoined, or alternatively, rescinded, and/or an award of unspecified
compensatory damages if the merger was consummated. A settlement agreement was
reached with the named plaintiffs in November 1998, and the parties intend to
apply to the Court for a date for a hearing on approval of the settlement.
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 $800,000 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 a have 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 condition 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. (which own the outstanding common stock of
Sure Grow Seed, Inc). The CID states that the USDOJ is investigating whether
these transactions may have violated the provisions of Section 7 of the Clayton
Act, 15 USC 18. D&PL has responded to the CID, employees have been examined by
the USDOJ, and D&PL is committed to full cooperation with the USDOJ. At the
present time, the ultimate outcome of the investigation cannot be predicted.
7. EARNINGS PER SHARE
The table below reconciles basic and diluted earnings per share at February 28
(in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
For the three months ended For the six months end
February 28, February 28, February 28, February 28,
Basic: 1998 1999 1998 1999
--------------- --------------- --------------- -----------------
Net income (loss) $ 9,781 $ 2,406 $ 5,140 $ (4,032)
Preferred stock dividends (24) (24) (48) (48)
Net income (loss) applicable to stockholders $ 9,757 $ 2,382 $ 5,092 $ (4,080)
=============== =============== =============== =================
Weighted average shares outstanding 37,858 38,422 37,786 38,397
=============== =============== =============== =================
Basic earnings per share $ 0.26 $ 0.06 $ 0.13 $ (0.11)
=============== =============== =============== =================
Diluted:
Net income (loss) applicable to stockholders $ 9,757 $ 2,382 $ 5,092 $ (4,080)
Add Back:
Preferred stock dividends 24 24 48 48
--------------- --------------- --------------- -----------------
Net income (loss) applicable to stockholders $ 9,781 $ 2,406 $ 5,140
=============== =============== =============== =================
Weighted average shares outstanding 38,397
37,858 38,422 37,786
Common stock equivalents -
1,739 1,597 1,673 (1)
Weighted average common stock issuable upon
conversion of preferred stock 800 800 800 - (1)
--------------- --------------- --------------- -----------------
Diluted shares outstanding 40,397 40,819 40,259 38,397
=============== =============== =============== =================
Diluted earnings per share $ 0.24 $ 0.06 $ 0.13 $ (0.11)
=============== =============== =============== =================
</TABLE>
(1) Inclusion of shares would be antidilutive.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
On May 8, 1998, Delta and Pine Land Company and subsidiaries, a Delaware
Corporation ("D&PL" or the "Company") entered into a merger agreement with
Monsanto Company ("Monsanto"), pursuant to which the Company would be merged
with and into Monsanto. This agreement has been approved by the Company's
stockholders but is subject to the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under terms of the
agreement, upon consummation the Company's stockholders will be entitled to
receive 0.8625 shares of Monsanto's Common Stock in exchange for each share of
Delta and Pine Land stock they hold.
On June 1, 1998, Monsanto and American Home Products Corporation ("AHP")
announced that they had entered into an agreement providing for the merger of
those two companies. On October 13, 1998, AHP and Monsanto announced publicly
that they had mutually agreed to terminate the merger pursuant to the agreement.
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, conditions 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 1996, D&PL
commenced commercial sales in the United States of cotton planting seed
containing Bollgard(TM) gene technology licensed from Monsanto which expresses a
protein toxic to certain lepidopteran cotton pests. Since 1997, D&PL has
marketed in the U.S. genetically modified cotton planting seed providing
tolerance to glyphosate-based herbicides ("Roundup Ready(R) Cotton").
In 1980, D&PL added soybean seed to its product line. In 1997 D&PL commenced
commercial sales in the U. S. of soybean planting seed that provides tolerance
to glyphosate-based herbicides ("Roundup Ready Soybeans").
During the 1980's, as a component of its long-term growth strategy, the Company
began to market its products, primarily cottonseed, internationally. Over a
period of years, the Company has strengthened and expanded its international
staff in order to support its expanding joint venture activities. 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 gene technology and Roundup Ready gene technology
licensed from Monsanto would be effective and help farmers in those countries.
D&PL sells its products in foreign countries through (i) export sales from the
U.S., (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 from the U.S. of the
Company's products rather than direct in-country operations.
In 1997, D&PL announced a production and cost optimization program aimed to
improve operating efficiencies. As part of this program, the Company idled three
of its delinting facilities and reduced its work force at these facilities and
at other locations by offering eligible employees a voluntary early retirement
plan. D&PL believes its reconfigured production capabilities will allow it to
continue to meet the accelerating demand for its insect resistant and herbicide
tolerant transgenic products on a cost efficient basis to the farmer.
Acquisitions
In 1996, D&PL acquired Ellis Brothers Seed, Inc., Arizona Processing, Inc. and
Mississippi Seed, Inc., which own the outstanding common stock of Sure Grow
Seed, Inc., (the "Sure Grow Companies") in exchange for stock valued at
approximately $70 million on the day of closing. D&PL exchanged 2.8 million
shares of its common stock (after all stock splits) for all outstanding shares
of the three companies. The merger was accounted for as a pooling-of-interests.
The Company continues to market upland picker cottonseed varieties under the
Sure Grow brand. Additionally, the Sure Grow breeding program has full access to
Monsanto's Bollgard and Roundup Ready gene technologies.
In 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 800,000 shares (after all
stock splits) of the Company's Series M Convertible Non-Voting Preferred Stock.
Additional shares may be issued to Monsanto depending on the sales and
profitability levels achieved by the product line acquired. The varieties
acquired are now sold as "Paymaster" brand products and constitute the entire
Paymaster upland picker product line.
Since the 1940's, the Paymaster(R) and Lankart(R) upland stripper cottonseed
varieties have been developed for and marketed primarily in the High Plains of
Texas and Oklahoma (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 portion
of that seed is actually sold by Paymaster. Farmer-saved seed accounts for a
significant portion 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, D&PL's operations
department, in addition to producing parent seed, commenced delinting,
conditioning and bagging finished seed. Unconditioned seed is also supplied by
D&PL to a limited number of contract processors who delint, condition and bag
seed for a fee. This finished seed is sold by Paymaster to distributors and
dealers.
The Company acquired in 1994 from the Supima Association of America ("Supima")
certain planting seed inventory, the right to use the Supima(R) trade name and
trademark and the right to distribute Pima extra-long staple (fiber-length)
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. In 1998 D&PL
gave notice to the university collaborator of its intention to terminate this
agreement and entered into an agreement with a third party to conduct research
on Pima cotton varieties. Pima seed is produced, conditioned and sold by D&PL to
distributors and dealers.
Biotechnology
Collaborative biotechnology licensing agreements which were executed with
Monsanto in 1992 and subsequently revised in 1993 and 1996, provide for the
commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") gene
technology in D&PL's varieties. The selected Bt is a bacterium found naturally
in soil and 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 is lethal to 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. 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. In October 1995, Monsanto was notified that the
United States Environmental Protection Agency ("EPA") had completed its initial
registration of the Bollgard gene technology, thus clearing the way for
commercial sales of seed containing the Bollgard gene. In 1996, D&PL sold
commercially for the first time two Deltapine varieties, which contained the
Bollgard gene, in accordance with the terms of the Bollgard Gene License and
Seed Services Agreement (the "Bollgard Agreement") between the Company and
Monsanto. This initial EPA registration expires on January 1, 2001, at which
time the EPA will, among other things, reevaluate the effectiveness of the
insect resistance management plan and decide whether to convert the registration
to a non-expiring (and/or unconditional) registration.
Pursuant to the terms of the Bollgard Agreement, farmers must buy a limited use
sublicense for the technology from D&M Partners, a partnership of D&PL and
Monsanto, in order to purchase seed containing the Bt gene technology. The
distributor/dealers who coordinate the farmer licensing process receive a
service payment not to exceed 20% of the technology sublicensing fee. After the
dealers and distributors are compensated, D&M Partners pays Monsanto a royalty
equal to 71% of the net sublicense fee (technology sublicensing fees less
distributor/dealer payments) and D&PL receives 29% for its services. The license
agreement continues until the later of the expiration of all patent rights or
October 2008. D&M Partners contracts the billing and collection activities for
Bollgard and Roundup Ready licensing fees to Monsanto, and therefore may be
affected by Monsanto's year 2000 compliance issues. In its 1998 annual
report, Monsanto
disclosed that all year 2000 remediation work for its internal systems would be
completed by the third quarter of 1999. (Monsanto has a calendar year end.)
Monsanto also plans to have contingency plans in place by the third quarter of
1999 in areas deemed high risk. The Company is not able to predict at the
present time the impact, if any, on its business if Monsanto is unable to
resolve its year 2000 issues successfully.
Pursuant to the Bollgard Agreement, Monsanto must defend and indemnify D&PL
against claims of patent infringement, including all damages awarded or amounts
paid in settlements. Monsanto must also indemnify D&PL against a) costs of
inventory and b) lost profits on inventory which becomes unsaleable because of
patent infringement claims. Monsanto must defend any claims of failure of
performance of a Bollgard gene. Monsanto and D&PL share the cost of any product
performance claims in proportion to each party's share of the royalty. Indemnity
from Monsanto only covers performance claims involving failure of insect
resistance, and not claims arising from other causes.
D&PL has also developed transgenic cotton and transgenic soybean varieties that
are tolerant to Roundup, a glyphosate-based 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 (the "Roundup Ready
Agreement") which provides for the commercialization of Roundup Ready
cottonseed. The Roundup Ready Agreement grants a license to D&PL and certain of
its affiliates the right in the United States to sell cottonseed of D&PL's
varieties that contain Monsanto's Roundup Ready gene. The Roundup Ready gene
makes cotton plants tolerant to contact with Roundup herbicide. Similar to the
Bollgard Agreement, farmers must execute limited use sublicenses for the
technology in order to purchase seed containing the Roundup Ready Gene. Monsanto
must defend and indemnify D&PL against claims of patent infringement, including
all damages awarded or amounts paid in settlements. Monsanto will also indemnify
D&PL against the cost of inventory that becomes unsaleable because of patent
infringement claims, but Monsanto is not required to indemnify D&PL against lost
profits on such unsaleable seed. In contrast with the Bollgard Gene License
where the costs of gene performance claims will be shared in proportion to the
division of sub-license revenue, Monsanto must defend and must bear the full
cost of any claims of failure of performance of the Roundup Ready Gene. In both
agreements, generally, D&PL is responsible for varietal/seed performance issues
and Monsanto is responsible for failure of the genes. In February 1997, the
Company and Monsanto executed the Roundup Ready Soybean License Agreement (the
"Roundup Ready Soybean Agreement") which provides for the commercialization of
Roundup Ready soybean seed and has provisions similar to the Roundup Ready
Agreement for cottonseed.
Since 1987, D&PL has conducted research using genes provided by DuPont to
develop soybean plants that are tolerant to certain DuPont ALS(R) herbicides.
Such plants enable farmers to apply these herbicides for weed control without
significantly affecting the agronomics of the 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.
D&PL announced in March 1998 that it was granted United States Patent No.
5,723,765, entitled CONTROL OF PLANT GENE EXPRESSION. This patent is owned
jointly by D&PL and the United States of America, as represented by the
Secretary of Agriculture. The patent broadly covers plants and seed, both
transgenic and conventional, of all species for a system designed to allow
control of progeny seed viability without harming the crop. The principal
application of the technology will be to control unauthorized planting of seed
of proprietary varieties (sometimes called "brown bagging") by making such
practice non-economic since unauthorized saved seed will not germinate, and
would be useless for planting. The patent has the prospect of opening
significant worldwide seed markets to the sale of transgenic technology in
varietal crops in which crop seed currently is saved and used in subsequent
seasons as planting seed. D&PL intends that licensing of this technology will be
made widely available to other seed companies and intends for it to be used only
in those varieties that contain transgenic traits.
The patent was developed from a research program conducted pursuant to a
Cooperative Research and Development Agreement between D&PL and the U.S.
Department of Agriculture's Agricultural Research Service in Lubbock, Texas. The
technology resulted from basic research and will require further development,
which is already underway, in order to be used in commercial seed. The Company
estimates that it may be as many as seven years before this Technology
Protection System could be available commercially.
The Company has license, research and development, confidentiality and material
transfer agreements with providers of technology that the Company is evaluating
for potential commercial applications and/or introduction. The Company also
contracts with third parties to perform research on the Company's behalf for
enabling and other technologies that the Company believes have potential
commercial applications in varietal crops around the world.
Commercial Seed
Seed of all commercial plant species is either varietal or hybrid. D&PL's cotton
and soybean seed are varietals. 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 of 1970, as amended in 1994, in
essence prohibits, with limited exceptions, purchasers of varieties protected
under the amended Act from selling seed harvested from these varieties without
permission of the plant variety protection certificate owner. Some foreign
countries provide similar legal protection for breeders of crop varieties.
Although cotton is 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. Additionally, Federal patent law makes unlawful any
unauthorized planting of seed containing patented genetic technology saved from
prior crops.
In connection with its seed operations, the Company also farms approximately
2,600 acres in the U.S., 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 parent 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 may be 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 from early in the second fiscal
quarter through the beginning of the fourth fiscal quarter. Varying climatic
conditions can change the quarter in which seed is delivered, thereby shifting
sales and the Company's earnings 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 and Roundup Ready licensing fees are recognized based on
the number of acres expected to be planted with such seed when the seed is
shipped. Prior to 1998, licensing fees were based on the estimated number of
acres that farmers represented would be planted with the seed purchased. In
1998, the licensing fee charged to farmers was based on pre-established planting
rates for seven geographic regions. Revenue is recognized based on established
technology fee per unit shipped to each geographic region. Domestically, the
Company promotes its cotton and soybean seed directly to farmers and sells its
seed through distributors and dealers. All of the Company's domestic seed
products (including Bollgard and Roundup Ready technologies) 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 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 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 export seed revenues are
recognized upon the date seed is shipped or the date letters of credit are
cleared, whichever is later. Generally, international export sales are not
subject to return.
Euro Currency Conversion
On January 1, 1999, the euro became the common legal currency of 11 of the 15
member countries of the European Union. On that date, the participating
countries fixed conversion rates between their existing sovereign currencies
("legacy currencies") and the euro. On January 4, 1999, the euro began trading
on currency exchanges and became available for non-cash transactions. The legacy
currencies will remain legal tender through December 31, 2001. Beginning January
2, 2002, euro-denominated bills and coins will be introduced, and by July 1,
2002, legacy currencies will no longer be legal tender. D&PL to date has not
been affected by the euro currency conversion.
Year 2000 Readiness Disclosure
Beginning in 1996, D&PL initiated its Global Year 2000 program to ensure that
its infrastructure and information systems comply with the systems requirements
for the year 2000. The program includes the following phases: identifying
systems that need to replaced or fixed; assessing the extent of the work
required; prioritizing the work; and successfully completing the associated
action plans. D&PL has essentially completed the first three phases of the
program and is now primarily in the implementation phase. Based on available
knowledge, the majority of systems, including business critical systems, comply
with year 2000 requirements, due in large part to the installation in fiscal
1997 of a third party software system that is year 2000 compliant, at a cost in
excess of $3.0 million. The major tasks remaining include implementation of a
Desktop Redeployment Plan and development of business continuity plans. The
Company continues to evaluate the estimated costs associated with year 2000
compliance based on actual experience. While the year 2000 efforts involve
additional costs, D&PL believes, based on available information, that it will be
able to manage its in-house year 2000 transition issues without any material
adverse effect on its business operations or financial position. Total costs
incurred to date for year 2000 considerations (excluding third party software)
approximate $0.2 million and the Company estimates an additional $0.5 million
will be spent to complete the year 2000 compliance process.
D&PL also has contacted its major suppliers and customers to assess their
preparations for the year 2000. These actions are taken to help mitigate the
possible external impact of year 2000 issues. Even so, presently it is not
feasible to fully assess the potential consequences if service interruptions
occur from suppliers or in such infrastructure areas as utilities,
communications, transportation, banking and government. In addition, it is not
feasible to fully assess the potential consequences if D&PL's customers are not
compliant. D&PL is developing business continuity plans to minimize the impact
of such external events.
D&PL's discussion of the year 2000 computer issue contains forward-looking
information. D&PL believes that its critical computer systems will be year
2000-compliant and that the costs to achieve compliance will not materially
affect its financial condition, operating results, or cash flows. Nevertheless,
factors that could cause actual results to differ from the Company's
expectations include the successful implementation of year 2000 initiatives by
its customers and suppliers, changes in the availability and cost of resources
to implement year 2000 changes, and D&PL's ability to successfully identify and
correct all systems affected by the year 2000 issue.
Outlook
From time to time, the Company may make forward-looking statements relating to
such matters as anticipated financial performance, existing products, technical
developments, new products, research and development activities, year 2000
issues 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 those noted elsewhere in this Item and the following:
D&PL's contemplated merger with Monsanto is subject to approval by
government agencies. The inability to complete this merger may have a
material effect on the Company. However, such effect can not be determined
at this time.
Demand for D&PL's seed will 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.
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 (or lack thereof) 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.
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 and predictable
than domestic profitability and growth.
Overall profitability will depend on weather conditions, government
policies in all countries where the Company sells products and operates,
worldwide 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 (and maintain such approval) for
existing and for additional transgenic 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 successfully complete these projects may affect
future profitability.
RESULTS OF OPERATIONS
The following sets forth selected operating data of the Company (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
February 28, February 28, February 28, February 28,
1998 1999 1998 1999
Operating results
Net sales and licensing fees $ 77,245 $ 72,800 $ 82,585 $ 79,996
Gross profit 23,116 29,214 25,444 27,147
Operating expenses:
Research and development 3,964 4,880 7,596 9,115
Selling 4,649 3,848 7,525 7,678
General and administrative 2,214 3,094 4,816 6,053
Unusual charges primarily related to the - 6,125 47 7,022
merger
Operating income (loss) 16,320 5,169 9,230 (4,424)
Interest expense, net (895) (1,093) (1,238) (1,624)
Income (loss) before income taxes 15,525 4,278 8,158 (6,083)
Net income (loss) applicable to common shares 9,757 2,382 5,092 (4,080)
</TABLE>
The following sets forth selected balance sheet data of the Company as of the
following periods (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
February 28, August 31, February 28,
1998 1998 1999
------------------ ------------------ -------------------
Balance sheet summary-
Current assets $ 167,116 $ 174,502 $ 218,406
Current liabilities 123,320 116,136 151,706
Working capital 43,796 58,366 66,700
Property, plant and equipment, net 66,131 66,840 65,772
Total assets 243,592 251,791 294,324
Outstanding borrowings 75,469 48,333 101,106
Stockholders' equity 78,401 80,651 76,548
</TABLE>
Three months ended February 28, 1999, compared to three months ended February
28, 1998:
An expected increase in domestic cotton acreage to be planted in 1999 to
13,500,000 acres over 1998 acreage of l2,800,000 resulted in a 10% increase in
units shipped in the second quarter of 1999. However, the Company recorded a
reserve for estimated seed returns at a level twice that recorded in 1998. The
increase in such estimate, which the Company evaluates monthly, resulted in an
overall decrease in net sales and licensing fees and is considered appropriate
due to the present
uncertainty of farmers ability to obtain financing, and the related impact on
farmers' planting intentions and the impact that domestic commodity prices and
weather may have on planted acres and reflects management's present estimates.
Operating expenses before merger costs increased from $10.8 million in the
second fiscal quarter of 1998 to $11.8 million in fiscal 1999. This expected
increase is attributable to additional research and product development costs
and the timing of certain general and administrative expenses, partially offset
by lower selling expenses. Unusual charges represent costs incurred for the
planned merger with Monsanto.
Interest expense increased to $1.1 million from $0.9 million primarily due to
higher outstanding borrowings, the effects of which were partially offset by
lower interest rates.
Six months ended February 28, 1999, compared to six months ended February 28,
1998:
Year to date domestic net sales and licensing fees were affected by the factors
noted above in the second quarter, the effects of which were partially offset by
increased sales by the China joint venture and Australia in the first quarter.
Operating expenses before merger costs increased from $19.9 million in 1998 to
$22.8 million in 1999. This expected increase is due to additional research and
product development costs. Unusual charges represent costs incurred for the
planned merger with Monsanto.
Interest expense increased to $1.6 million from $1.2 million primarily due to
higher outstanding borrowings, the effects of which were partially offset by
lower interest rates.
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 17 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 by the first fiscal quarter of the following
year. 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.
The Company records receivables for licensing fees on Bollgard and Roundup Ready
seed sales as the seed is shipped, usually in the Company's second and third
quarters. The Company has contracted the billing and collection activities for
Bollgard and Roundup Ready licensing fees to Monsanto. In September, the
technology fees are due at which time D&PL receives payment from Monsanto. D&PL
then pays Monsanto its royalty for the Bollgard and Roundup Ready licensing
fees.
In April 1998, the Company entered into a syndicated credit facility with its
existing lender and two other financial institutions which provides for
aggregate borrowings of $110 million. This agreement provides a base commitment
of $55 million and a seasonal commitment of $55 million. The base commitment is
a long-term loan that may be borrowed upon at any time and is due April 1, 2001.
The seasonal commitment is a working capital loan that may be drawn upon from
September 1 through June 30 of each fiscal year and expires April 1, 2001. Each
commitment offers variable and fixed interest rate options and requires the
Company to pay facility or commitment fees and to comply with certain financial
covenants.
Capital expenditures for the second fiscal quarter of 1999 were $2.2 million.
The Company anticipates that domestic capital expenditures will approximate $7.0
million in 1999, 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. Capital expenditures in 1999 for
international ventures are expected to range from $6.0 million to $8.0 million
depending on the timing and outcome of such projects.
In the second quarter of fiscal 1999, the Board of Directors authorized a
quarterly dividend of $0.03 per share, paid March 12, 1999 to the stockholders
of record on February 26, 1999. It is anticipated that quarterly dividends of
$0.03 per share will continue to paid until the planned merger with Monsanto is
consummated, 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 1999 working
capital needs.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.01Computation of Earnings Per Share
27.01Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended February 28,
1999.
<PAGE>
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: /s/ Roger D. Malkin
Roger D. Malkin, Chairman and
Chief Executive Officer
Date: /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)
<TABLE>
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED
February 28, February 28,
1998 1999
---------------- ---------------
BASIC EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING
---------------- ---------------
DURING THE PERIOD 37,858 38,422
================ ===============
NET INCOME APPLICABLE TO COMMON SHARES $ 9,757 $ 2,382
================ ===============
BASIC EARNINGS PER SHARE $ 0.26 $ 0.06
================ ===============
DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES 37,858 38,422
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO CONVERTIBLE PREFERRED STOCK 800 800
NUMBER OF SHARES ATTRIBUTED TO
STOCK OPTIONS 1,739 1,597
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
================ ===============
OF DILUTED EARNINGS PER SHARE 40,397 40,819
================ ===============
NET INCOME APPLICABLE TO COMMON SHARES $ 9.781 $ 2,406
================ ===============
DILUTED EARNINGS PER SHARE $ 0.24 $ 0.06
================ ===============
</TABLE>
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED
February 28, February 28,
1998 1999
---------------- ---------------
BASIC EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING
---------------- ---------------
DURING THE PERIOD 37,786 38,397
================ ===============
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 5,092 $ (4,080)
================ ===============
BASIC EARNINGS PER SHARE $ 0.13 $ (0.11)
================ ===============
DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES 37,786 38,397
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO CONVERTIBLE PREFERRED STOCK 800 - (1)
NUMBER OF SHARES ATTRIBUTED TO
STOCK OPTIONS 1,673 - (1)
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
================ ===============
OF DILUTED EARNINGS PER SHARE 40,259 38,397
================ ===============
NET INCOME (LOSS) $ 5,140 $ (4,032)
================ ===============
DILUTED EARNINGS PER SHARE $ 0.13 $ (0.11)
================ ===============
</TABLE>
(1) INCLUSION OF SHARES WOULD BE ANTIDILUTIVE.
<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
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 9,203
<SECURITIES> 0
<RECEIVABLES> 90,836
<ALLOWANCES> 0
<INVENTORY> 106,874
<CURRENT-ASSETS> 218,406
<PP&E> 94,522
<DEPRECIATION> 28,750
<TOTAL-ASSETS> 294,324
<CURRENT-LIABILITIES> 151,706
<BONDS> 101,106
0
80
<COMMON> 3,855
<OTHER-SE> 72,613
<TOTAL-LIABILITY-AND-EQUITY> 294,324
<SALES> 72,800
<TOTAL-REVENUES> 72,800
<CGS> 49,684
<TOTAL-COSTS> 49,684
<OTHER-EXPENSES> 17,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,093
<INCOME-PRETAX> 4,278
<INCOME-TAX> 1,872
<INCOME-CONTINUING> 2,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,406
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
