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 29, 2000 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:
(662) 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 - 38,385,837 shares outstanding as of March 30,
2000.
<PAGE>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - February 29, 2000,
August 31, 1999, and February 28, 1999 2
Consolidated Statements of Operations - Three Months
Ended February 28, 1999 and February 29, 2000 3
Consolidated Statements of Operations - Six Months
Ended February 28, 1999 and February 29, 2000 4
Consolidated Statements of Cash Flows - Six Months
Ended February 28, 1999 and February 29, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Business 17
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
February 28, August 31, February 29,
1999 1999 2000
---- ---- ----
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,203 $ 7,552 17,345
Receivables, net 90,836 147,926 127,614
Inventories 106,874 47,727 74,118
Prepaid expenses 4,604 1,473 1,673
Income tax receivable 2,481 - -
Deferred income taxes 4,408 12,865 12,865
-------------- -------------- --------------
Total current assets 218,406 217,543 233,615
-------------- -------------- --------------
PROPERTY, PLANT and EQUIPMENT, net 65,772 65,166 64,644
EXCESS OF COST OVER NET ASSETS OF
BUSINESS ACQUIRED, net 4,523 4,458 4,647
INTANGIBLES, net 3,495 4,365 4,401
OTHER ASSETS 2,128 4,226 3,095
-------------- -------------- --------------
$ 294,324 $ 295,758 310,402
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 45,208 $ 3,819 663
Accounts payable 29,925 19,990 33,315
Accrued expenses 76,573 143,352 94,124
Income taxes payable - 8,082 35,227
-------------- -------------- --------------
Total current liabilities 151,706 175,243 163,329
-------------- -------------- --------------
LONG-TERM DEBT, less current maturities 55,898 17,000 0
-------------- -------------- --------------
DEFERRED INCOME TAXES 5,020 5,773 5,773
-------------- -------------- --------------
MINORITY INTEREST IN SUBSIDIARIES 5,152 8,338 8,825
-------------- -------------- --------------
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;
1,066,667 shares authorized; 1,066,667, 1,066,667 and 1,066,667 107 107 107
shares issued and outstanding
Common stock, par value $0.10 per share; 100,000,000 shares authorized;
38,551,634; 38,664,565 and 38,843,547 shares issued; 38,437,368;
38,550,299 and 38,376,781 shares outstanding 3,855 3,866 3,884
Capital in excess of par value 37,432 41,179 43,718
Retained earnings 39,752 48,970 95,710
Accumulated other comprehensive loss (2,425) (2,545) (2,850)
Treasury stock at cost, 114,266; 114,266 and 466,766 shares (2,173) (2,173) (8,094)
-------------- -------------- --------------
Total stockholders' equity 76,548 89,404 132,475
-------------- -------------- --------------
$ 294,324 $ 295,758 310,402
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
February 28, February 29,
1999 2000
--------------- ---------------
<S> <C> <C>
NET SALES AND LICENSING FEES $ 72,800 $ 104,203
COST OF SALES 49,684 73,162
--------------- ---------------
GROSS PROFIT 23,116 31,041
--------------- ---------------
OPERATING EXPENSES:
Research and development 4,880 5,022
Selling 3,848 3,596
General and administrative 3,094 2,985
--------------- ---------------
11,822 11,603
--------------- ---------------
SPECIAL CHARGES AND UNUSUAL (INCOME) ITEM 6,125 (74,694)
--------------- ---------------
OPERATING INCOME 5,169 94,132
INTEREST EXPENSE, net of capitalized interest of $12 and $21 (1,093) (271)
OTHER 478 (4)
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES (276) 43
--------------- ---------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 4,278 93,900
INCOME TAX PROVISION 1,872 35,265
--------------- ---------------
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,406 58,635
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
STARTUP COSTS, NET - -
--------------- ---------------
NET INCOME 2,406 58,635
DIVIDENDS ON PREFERRED STOCK (24) (40)
--------------- ---------------
NET INCOME APPLICABLE TO COMMON SHARES $ 2,382 $ 58,595
=============== ===============
BASIC EARNINGS PER SHARE:
NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ .06 $ 1.52
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - -
-------------- ---------------
NET INCOME $ .06 $ 1.52
============== ===============
NUMBER OF SHARES USED IN BASIC EARNINGS
PER SHARE CALCULATIONS 38,422 38,644
============== ===============
DILUTED EARNINGS PER SHARE:
NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ .06 $ 1.46
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - -
-------------- ---------------
NET INCOME $ .06 $ 1.46
============== ===============
NUMBER OF SHARES USED IN DILUTED EARNINGS
PER SHARE CALCULATIONS 40,819 40,110
============== ===============
DIVIDENDS PER COMMON SHARE $ 0.03 $ 0.03
============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
February 28, February 29,
1999 2000
--------------- -------------
<S> <C> <C>
NET SALES AND LICENSING FEES $ 79,996 $ 108,751
COST OF SALES 54,552 77,410
--------------- -------------
GROSS PROFIT 25,444 31,341
--------------- -------------
OPERATING EXPENSES:
Research and development 9,115 9,381
Selling 7,678 6,833
General and administrative 6,053 6,069
--------------- -------------
22,846 22,283
--------------- -------------
SPECIAL CHARGES AND UNUSUAL (INCOME) ITEM 7,022 (74,227)
--------------- -------------
OPERATING INCOME/(LOSS) (4,424) 83,285
INTEREST EXPENSE, net of capitalized interest of $44 and $36 (1,624) (188)
OTHER (9) 78
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES (26) 159
--------------- -------------
INCOME/(LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (6,083) 83,334
INCOME TAX PROVISION/(BENEFIT) (2,051) 31,250
--------------- -------------
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (4,032) 52,084
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
STARTUP COSTS, NET - (2,965)
--------------- -------------
NET INCOME/(LOSS) (4,032) 49,119
DIVIDENDS ON PREFERRED STOCK (48) (64)
--------------- -------------
NET INCOME APPLICABLE TO COMMON SHARES $ 4,080 $ 49,055
=============== ==============
BASIC EARNINGS PER SHARE:
NET INCOME/(LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (0.11) $ 1.35
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (0.08)
-------------- --------------
NET INCOME/(LOSS) $ (0.11) $ 1.27
=============== ==============
NUMBER OF SHARES USED IN BASIC EARNINGS
PER SHARE CALCULATIONS 38,397 38,653
=============== ==============
DILUTED EARNINGS PER SHARE:
NET INCOME/(LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (0.11) $ 1.29
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (0.07)
-------------- --------------
NET INCOME/(LOSS) $ (0.11) $ 1.22
=============== ==============
NUMBER OF SHARES USED IN DILUTED EARNINGS
PER SHARE CALCULATIONS 38,397 40,186
============== ==============
DIVIDENDS PER COMMON SHARE $ 0.06 $ 0.06
============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(in thousands)
(Unaudited)
February 28, February 29,
1999 2000
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,032) $ 49,119
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,288 3,527
Loss on sale of equipment 0 57
Minority interest in earnings of subsidiaries 26 (159)
Non-cash items associated with unusual charges 2,863 -
Changes in current assets and liabilities:
Receivables 13,943 20,312
Inventories (56,377) (26,391)
Prepaid expenses (3,410) (200)
Accounts payable 7,094 13,325
Accrued expenses (15,469) (46,025)
Income taxes payable 3,081 27,145
Decrease in intangible and other assets 243 852
----------- ----------
Net cash used in operating activities (48,750) 41,562
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,023) (3,008)
Proceeds from sale of investment - -
----------- ----------
Net cash used in investing activities (5,023) (3,008)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (12,255) (3,156)
Payments of long-term debt (182) (65,028)
Dividends paid (2,325) (2,379)
Proceeds from long-term debt 9,010 48,028
Proceeds from short-term debt 56,200 -
Minority interest in investment in subsidiaries 3,733 250
Minority interest in dividends paid by subsidiaries (1,521) (2,807)
Proceeds from exercise of stock options and tax benefit
of stock option exercises 1,600 2,557
Payments to acquire treasury stock 0 (5,921)
----------- ----------
Net cash provided by (used in) financing activities 54,260 (28,456)
----------- ----------
EFFECTS OF FOREIGN CURRENCY TRANSLATION 654 (305)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,141 9,793
CASH AND CASH EQUIVALENTS, as of August 31 8,062 7,552
----------- ----------
CASH AND CASH EQUIVALENTS, as of February 28 and as of
February 29, respectively $ 9,203 $ 17,345
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the three months for:
Interest paid, net of capitalized interest $ 1,700 $ 1000
Income taxes $ 100 $ 400
</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, 1999 and February 29, 2000 or for
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 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, 1999.
Certain prior year balances have been reclassified to conform to the current
year presentation.
2. ABANDONMENT OF MERGER BY 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.
On December 20, 1999, Monsanto withdrew its pre-merger notification filed
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act")
effectively terminating Monsanto's efforts to gain government approval of the
merger. On December 30, 1999, the Company filed suit (the "December 30 suit") in
the First Judicial District of Bolivar County, Mississippi, seeking, among other
things, the payment of the $81 million termination fee due pursuant to the
merger agreement, compensatory damages of $1 billion and punitive damages in an
amount to be proved at trial from Monsanto's breach of contract. On January 2,
2000, the Company and Monsanto reached an agreement whereby the Company would
withdraw the December 30 suit, and Monsanto would immediately pay the $81
million. The parties agreed to negotiate in good faith over the following two
weeks and Monsanto agreed to make members of its senior management available to
conduct such negotiations. It was also agreed that if no consensual resolution
was reached, the lawsuit brought by the Company would be re-filed. On January 3,
2000, Monsanto paid to the Company a termination fee of $81 million as required
by the merger agreement. On January 18, 2000, the Company re-filed suit
reinstating essentially all of the allegations contained in the December 30
suit.
The $81 million termination fee, net of related expenses, is separately
presented in the income statement.
<PAGE>
3. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
SFAS No. 130, "Reporting Comprehensive Income", establishes 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. Total comprehensive income for the three and six months ended
February 28, 1999 and February 29, 2000 was (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 29, February 28, February 29,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $ 2,406 $ 58,635 $ (4,032) $ 49,119
Other comprehensive (loss) income:
Foreign currency translation (losses) and gains (369) 181 654 (305)
Income tax benefit (expense) related to other
comprehensive income 139 (68) (247) 115
--- --- --- ---
Other comprehensive (loss) income, net of tax (230) 113 407 (190)
--- --- --- ---
Total comprehensive (loss) income applicable to
common stockholders $ 2,176 $ 58,748 $ (3,625) $ 48,929
======= ======== ======== ========
</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. The Company is in
a single line of business and operating in two business segments, domestic and
international. The Company's reportable segments offer similar products;
however, the business units are managed separately due to the geographic
dispersion of their operations. The Company's chief operating decision maker
utilizes revenue information in assessing performance and making overall
operating decisions and resource allocations. Profit and loss information is
reported by segment to the chief operating decision maker and the Company's
Board of Directors.
Information about the Company's segments for the three and six months ended
February 28, 1999 and February 29, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 29, February 28, February 29,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Domestic $ 65,164 $ 89,483 $ 66,251 $ 89,925
International 7,636 14,720 13,745 18,826
----- ------ ------ ------
$72,800 $104,203 $ 79,996 $ 108,751
======= ======== ========== =========
Operating Income/(Loss)
Domestic $ 5,297 $ 88,650 $ (4,262) $ 78,617
International (128) 5,482 (162) 4,668
---- ----- ---- -----
$ 5,169 $ 94,132 $ (4,424) $ 83,285
========== ========== ========== =========
</TABLE>
Material Changes in
Assets:
Inventories increased approximately 26,391 to 74,118 at February 29, 2000
from 47,727 at August 31, 1999. This increase reflects the seasonal nature
of the Company's business. The domestic segment of the Company purchases
bulk seed in its first and second fiscal quarters and begins production for
the current year's selling season. The increase at February 29, 2000 from
August 31, 1999, in inventories and accounts payable is primarily related
to those events and is consistent with Company's historical experience.
Accounts receivable decreased approximately 20,312 to 127,614 at February
29, 2000 from 147,926 at August 31, 1999. This decrease is primarily
related to the collection of technology fees sublicense revenue from
Monsanto partially offset by second quarter sales in both the domestic and
international divisions. Subsequent to receipt of the technology fees from
Monsanto, the Company paid Monsanto its royalty for the Bollgard and
Roundup Ready licensing fees which is reflected in the reduction of accrued
expenses from August 31, 1999 to February 29, 2000.
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. The effective date of this statement was delayed via the
issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for fiscal
years beginning after June 15, 2000, though earlier adoption is encouraged and
retroactive application is prohibited. Therefore D&PL must adopt the statement
no later than September 1, 2000. Management does not expect the adoption of this
statement to have a material impact on D&PL's results of operations, financial
position or cash flows.
SOP 98-5, "Reporting on the Costs of Startup Activities," requires that costs
related to start-up activities be expensed as incurred and all previously
capitalized costs be written off. Effective September 1, 1999, the Company
adopted the requirements of SOP 98-5. The effect of adopting this statement
resulted in a write-off, net of tax, of approximately $2,965,000 ( or $0.08 per
share). The adjustment of $2,965,000, after income tax benefits of $1,817,000,
to retroactively apply the new method, is recorded in income of the first fiscal
quarter of 2000.
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
February 28, August 31, February 29,
1999 1999 2000
---------------- --------------- --------------
<S> <C> <C> <C>
Finished goods $ 88,145 $ 43,528 $ 57,289
Raw materials 18,456 15,774 25,835
Growing crops 396 1,564 360
Supplies and other 656 969 537
-------------- -------------- -----------------
107,653 61,835 84,021
Less reserves (779) (14,108) (9,903)
--------------- --------------- ----------------
$ 106,874 $ 47,727 $ 74,118
================ ============ ==============
</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>
<CAPTION>
February 28, August 31, February 29,
1999 1999 2000
-------------- ------------- --------------
<S> <C> <C> <C>
Land and improvements $ 3,995 $ 4,113 $ 4,119
Buildings and improvements 35,084 35,251 37,325
Machinery and equipment 42,512 43,291 46,378
Germplasm 7,500 7,500 7,500
Breeder and foundation seed 2,000 2,000 2,000
Construction in progress 3,431 4,789 2,057
-------------- ------------- --------------
94,522 96,944 99,379
Less accumulated depreciation (28,750) (31,778) (34,735)
-------------- ------------- --------------
$ 65,772 $ 65,166 $ 64,644
============== ============= ==============
</TABLE>
6. CONTINGENCIES
On October 14, 1999, the Company, Monsanto and UAP/GA Ag. Chem. Inc. were named
as defendants in two lawsuits filed by two cotton farmers in the United States
District Court for the Western District of North Carolina. The suits allege,
among other things, that certain varieties sold by the Company that contain the
Roundup Ready gene, performed poorly, specifically including lack of tolerance
to Roundup and poor germination. 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 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 defective
varietal characteristics 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 consolidated financial statements.
On June 11, 1999, D&PL, Monsanto, Asgrow Seed Company, SF Services, Terral Seed,
Inc., Valley Farmers Co-Op, Red River Co-Op, and Central Louisiana Grain Co-Op
were named as defendants in a lawsuit filed in the Fourth Judicial District,
Parish of Natchitoches, State of Louisiana. The suit alleges, among other
things, that certain soybean seeds which contain the Roundup Ready(R) gene did
not perform as advertised and did not produce promised yields. The plaintiffs in
this case are seeking certification of a class of all purchasers of Roundup
Ready soybeans during the years of 1997 and 1998. The Company and Monsanto are
presently investigating the claim; however, they believe it to be without merit
and their plan is to vigorously defend this lawsuit. Pursuant to the terms of
the Roundup Ready Soybean Agreement between D&PL and Monsanto, D&PL has tendered
the defense of this claim to Monsanto. Pursuant to the Roundup Ready Soybean
Agreement, Monsanto is contractually obligated to defend and indemnify any and
all claims arising out of the failure of glyphosate gene tolerance, and certain
other types of claims. D&PL will have no right to indemnification from Monsanto,
however, for any claim involving defects in seed and/or promotional
representations made solely by D&PL without Monsanto's approval. Such claims
appear to be contained within this complaint. D&PL believes this claim will be
resolved without any material impact on the Company's consolidated financial
statements.
The Company and Monsanto are named as defendants in four pending lawsuits filed
in the State of Texas. Two lawsuits were filed in Lamb County, Texas on April 5,
1999; one lawsuit was filed in Lamb County, Texas on April 14, 1999; and one
lawsuit was filed in Hockley County, Texas, on April 21, 1999. These lawsuits
were removed to the United States District Court, Lubbock Division, but
subsequently were remanded back to the state court where they were filed. 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 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 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 defective varietal
characteristics 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
consolidated financial statements.
The Company, Monsanto and other parties were named as defendants in a lawsuit
filed in the Superior Court of Calhoun County, Georgia on April 19, 1999, which
has been removed to the United States District Court of the Middle District of
Georgia, Albany Division. The Company and Monsanto are presently investigating
the claim to determine the cause or causes, if any, of the alleged problems.
Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto,
D&PL has tendered the defense of this claim to Monsanto and requested indemnity,
as 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. This case was the subject of a seed arbitration case filed in
Georgia during 1997 which was concluded in the Company's favor. D&PL believes
this lawsuit will be resolved without any material impact on the Company's
consolidated financial statements.
On November 15, 1999, Monsanto and local cotton seed distributors were named in
a lawsuit filed in the Court of Common Pleas, County of Hampton, State of South
Carolina. This case was subsequently removed to the United States District
Court, District of South Carolina, Beaufort Division. This case requests class
action treatment and alleges that a wide variety of the Company's transgenic
cotton products were defective because they grew plants which produced cotton
bolls that contained immature, defective and rotten seed in the bolls. The
plaintiff in this case seeks class certification of purchases of a wide variety
of seed purchased during the 1999 crop year. The Company and Monsanto are
presently investigating the claim; however, they believe it to be without merit
and their plan is to vigorously defend this lawsuit, with particular emphasis on
defending the class action allegations. The Company has tendered the defense of
this claim to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R)
Agreement, Monsanto is contractually obligated to indemnify and defend the
Company against all claims arising out the failure of the glyphosate tolerance
gene. The Company will not have a right to indemnification from Monsanto,
however, for any claim involving defective varietal characteristics separate
from or in addition to the failure of the herbicide tolerance gene, and such
claims are contained in these complaints. The Company believes this claim is not
one that is likely to receive class treatment. Accordingly, D&PL believes that
this claim will be resolved without any material impact on the Company's
consolidated financial statements.
On November 15, 1999, the Company, Monsanto and certain local cottonseed
distributors were named in an additional case filed in the Court of Common
Pleas, County of Hampton State of South Carolina. This case has been removed to
the United States District Court, District of South Carolina, Beaufort Division.
This case alleges that a wide variety of the Company's transgenic cotton
products were defective because they grew plants that produced cotton bolls that
contained immature, defective and rotten seed in the bolls during the 1999 crop
year. The Company and Monsanto are presently investigating the claim; however,
they believe it to be without merit and their plan is to vigorously defend this
lawsuit. The Company has tendered the defense of this claim to Monsanto and
requested indemnity. Pursuant to the Roundup Ready(R) Agreement, Monsanto is
contractually obligated to indemnify and defend the Company against all claims
arising out the failure of the glyphosate tolerance gene. The Company will not
have a right to indemnification from Monsanto, however, for any claim involving
defective varietal characteristics separate from or in addition to the failure
of the herbicide tolerance gene, and such claims are contained in this
complaint. The Company believes that this claim will be resolved without any
material impact on the Company's consolidated financial statements.
On November 15, 1999, the Company, Monsanto and certain local cottonseed
distributors were name in a lawsuit filed in United States District Court,
District of South Carolina, Beaufort Division. This case requests class action
treatment and alleges that a wide variety of the Company's transgenic cotton
products were defective because they grew plants that produced cotton bolls
containing immature, defective and rotten seed in the bolls. The plaintiff in
this case seeks class certification of purchases of a wide variety of seed
purchased during the 1999 crop year. The Company and Monsanto are presently
investigating the claim; however, they believe it to be without merit and their
plan is to vigorously defend this lawsuit, with particular emphasis on defending
the class action allegations. The Company has tendered the defense of this claim
to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R) Agreement,
Monsanto is contractually obligated to indemnify and defend the Company against
all claims arising out the failure of the glyphosate tolerance gene. The Company
will not have a right to indemnification from Monsanto, however, for any claim
involving defective varietal characteristics separate from or in addition to the
failure of the herbicide tolerance gene, and such claims are contained in these
complaints. The Company believes this claim is not one that is likely to receive
class treatment. Accordingly, D&PL believes that this claim will be resolved
without any material impact on the Company's consolidated financial statements.
On March 30, 1999, the Company, Asgrow Seed Company, L.L.C., and Terra
International were named as defendants in a lawsuit filed in the Fourth Judicial
District Court, Parish of Morehouse, State of Louisiana, which has now been
removed to the United States District Court for the Western District of
Louisiana. The suit alleges, among other things, that certain soybean seed which
contained the Roundup Ready gene did not properly germinate and did not perform
as the farmer had anticipated and, in particular, did not fully protect their
crops from damage following the application of Roundup. The Company and Monsanto
are presently investigating the claim to determine the cause or causes, if any,
of the alleged problem. Pursuant to the terms of the Roundup Ready Agreement
between D&PL and Monsanto, D&PL has tendered the defense of this claim to
Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is contractually
obligated to defend and indemnify any and all claims arising out of the failure
of the glyphosate tolerance gene. D&PL believes this case can be resolved
without any material impact on the Company's consolidated financial statements.
Sixteen farmers in Mississippi have filed seed arbitration claims against the
Company with the Mississippi Department of Agriculture arising from their 1999
crop. Pursuant to the terms of the Bollgard Gene Licensing Agreement, Delta and
Pine Land Company has tendered the defense of these claims to Monsanto, Monsanto
is contractually obligated to defend and indemnify the Company against claims
arising from a failure of the Bollgard gene. Monsanto has declined the
assumption of defense and indemnity of these cases and, indeed, it appears that
the cases do not involve a complaint of the failure of the gene technology. The
Mississippi Department of Agriculture has not yet scheduled a hearing on any of
these claims. The Company has moved to dismiss many of the claims as having been
untimely filed. The Company believes these claims can be resolved without any
material impact on the Company's consolidated financial statement.
In 1999, approximately 189 cotton farmers in Georgia filed seed arbitration
cases against the Company and, in some cases, against Monsanto, alleging damages
for their 1999 crops. Although hearings were originally scheduled for 6 of these
claims in January of 2000, the Georgia Seed Arbitration Council dismissed those
cases without hearing determining that the claims fell outside the jurisdiction
of that body. Similar orders of dismissal have been entered for 145 other cases
pending before the Georgia Seed Arbitration Council and it is anticipated that a
significant number of the remaining cases will likewise be dismissed without
hearing. The Company and Monsanto are in the process of investigating these
claims to determine the cause or causes, if any, of the alleged problems.
Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto,
D&PL has tendered the defense of these seed arbitration claims to Monsanto and
has 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. The Company
will not have a right to indemnification, however, for any claim involving
defects in the seed, separate from or in addition to the failure of the
herbicide tolerance gene, and such claims are contained in some of the seed
arbitration claims filed. Based upon information received to date, the Company
believes these claims can be resolved without any material impact on the
Company's consolidated financial statements.
In 1998, one claim was filed with the Arkansas Seed Arbitration Council. A
Motion to Dismiss has been filed. This case alleges that certain Roundup Ready
cottonseed marketed by the Company in 1997 failed to perform as farmers had
anticipated and caused the farmers to suffer crop loss. Pursuant to the Roundup
Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of this
claim to Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is
contractually obligated to defend and indemnify any and all claims arising out
of the failure of the glyphosate gene tolerance. D&PL has requested dismissal of
this claim alleging that it was untimely filed. The Arkansas Department of
Agriculture has not yet scheduled a hearing on this claim. D&PL believes this
case can be resolved without any material impact on the Company's consolidated
financial statements.
During 1999, five farmers in the State of Alabama filed seed arbitration claims
against the Company for their 1999 crop year. The Company is in the process of
investigating these claims to determine the cause or causes, if any, of the
alleged problems. Pursuant to the terms of the Roundup Ready Agreement between
D&PL and Monsanto, D&PL has tendered the defense of these seed arbitration
claims to Monsanto and has 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. The Company will not have a right to indemnification, however,
for any claim involving defects in the seed, separate from or in addition to the
failure of the herbicide tolerance gene, and such claims are contained in some
of the seed arbitration claims filed. The Alabama Department of Agriculture has
not yet scheduled hearing dates on any of these claims. Based upon information
received to date, the Company believes these claims can be resolved without any
material impact on the Company's consolidated financial statements.
Six farmers in the State of Florida have filed arbitration claims against the
Company for the 1999 crop year, however, one was withdrawn due to high yields.
The Florida Department of Agriculture has not yet scheduled hearings on any of
these claims. The Company believes these claims can be resolved without any
material impact on the Company's consolidated financial statements.
In 1999, 112 farmers in the State of South Carolina have filed seed arbitration
claims against the Company. The Company and Monsanto are in the process of
investigating these claims to determine the cause or causes, if any, of the
alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between
the Company and Monsanto, the Company has tendered the defense of these seed
arbitration claims to Monsanto and requested indemnity. Pursuant to the Roundup
Ready(R) 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 have no right to indemnification, however,
from any claims involving defective seed, separate from or in additional to the
failure of the herbicide tolerance gene, such claims are contained in the seed
arbitration claims filed in South Carolina. The South Carolina Department of
Agriculture has not yet scheduled a hearing on any of these claims. The Company
believes the claims to be without merit and that the farmers complaints are
environmentally induced and not related to seed performance; accordingly, the
Company believes these claims can be resolved without any material impact on the
Company's consolidated financial statements.
On January 31, 2000, the Company was named as a defendant in a lawsuit filed in
the Circuit Court of Bolivar County, Mississippi. The Company is presently
investigating the claim to determine the cause or causes of any of the alleged
problems. This claim arises from a seed arbitration case heard by the
Mississippi Seed Arbitration Council during 1999. Pursuant to the terms of the
Roundup Ready(R) Agreement between D&PL and Monsanto, D&PL has tendered the
defense of this claim to Monsanto and requested indemnity, as Monsanto is
contractually obligated to defend and indemnify the Company against all claims
arising out the failure of the Roundup(R) glyphosate gene tolerance. Such claims
are made in this lawsuit and it is anticipated that Monsanto will assume the
defense of and/or indemnify the Company in full for this claim. The Company
believes this lawsuit will be resolved without any material impact on the
Company's consolidated financial statements.
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 "Delaware Chancery Court"). The
complaints alleged that the consideration to be paid in the proposed merger of
the Company with Monsanto was 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.
This settlement was contingent on consummation of the merger. In light of
Monsanto's termination of the merger, the Company believes that this lawsuit
will be resolved without any material effect on the Company's consolidated
financial statements.
In December 1999 and January 2000, five individual, alleged shareholders
(including some of the plaintiffs in the suits filed in May 1998) brought two
new suits (now consolidated) against the Directors, the Company, and Monsanto in
the Delaware Chancery Court. These complaints allege that the Company's
Directors breached fiduciary duties by failing to seek compensation from
Monsanto for breach of the Agreement and Plan of Merger and by failing to
explore strategic alternatives after the termination of the merger transaction
by Monsanto and that Monsanto aided, abetted, and assisted the Directors'
alleged breaches of fiduciary duty. The plaintiffs seek to maintain these
actions as class actions and demand injunctive relief requiring the Directors to
maximize shareholder value and, alternatively, unspecified compensatory damages,
attorneys' fees, and costs (See Note 2). Monsanto has filed a cross-claim in
those consolidated cases seeking a declaratory judgment that it is not liable to
the Company for breach of contract for failure to consummate the merger.
Monsanto seeks no monetary recovery against the Company. The Company believes
that plaintiffs' complaints, which were filed before plaintiffs were aware of
the actions undertaken by the Company and its Directors to seek compensation
from Monsanto and to maximize shareholder value in the aftermath of Monsanto's
termination of the merger transaction, are without merit and should be dismissed
without material effect on the Company's consolidated financial statements. The
Company has moved to dismiss Monsanto's cross-claim or, alternatively, to stay
the cross-claim in favor of the Company's suit against Monsanto filed in state
court in Mississippi.
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 had 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 subsequently re-filed a motion for a new trial and for a judgment in
favor of Mycogen as a matter of law. The trial court has ruled in these motions
holding for Mycogen on certain issues but sustaining the jury verdict in favor
of D&PL and Monsanto. Mycogen has appealed to the U.S. Court of Appeals for the
Federal Circuit. 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's
consolidated financial statements.
In December 1999, Mycogen Plant Science, Inc., an Australian affiliate of Dow
Chemical Co. ("Mycogen-Australia") filed suit in the Federal Court of Australia
against Monsanto Australia, Limited and Deltapine Australia Pty, Limited (the
Australian affiliates of Monsanto and D&PL, respectively) alleging that sales in
Australia of genetically-modified cotton seed containing Monsanto's Bt gene
infringe two Australian patents held by Mycogen-Australia. The suit seeks to
enjoin sales of such allegedly infringing seed in Australia and monetary
damages. This suit involves issues similar to those in the above described
Delaware litigation but will be decided under Australian patent law which,
unlike the United States, applies a "first to file" priority rule. Monsanto and
D&PL, which are cooperating in defense of this suit, are relying on other
defenses to infringement claims. At the present time, the outcome of this
litigation cannot be predicted.
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 $700,000 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's
consolidated financial statements. The Company continues to offer seed for sale
in Guatemala.
In November 1999, a distributor of Sure-Grow brand cotton seed in Greece brought
suit in U. S. District Court in Delaware seeking to enjoin the termination of
its distributorship (which become effective on November 30, 1999), a declaratory
judgment that the Company's termination of its distributorship was not
effective, compensatory damages of not less than $6 million and unspecified
punitive damages. The distributor has also filed a request for arbitration with
the American Arbitration Association and a suit seeking injunctive relief in a
court in Thessaloniki, Greece. In January 2000, the U. S. District Court in
Delaware denied the request for injunctive relief. The Company has sought an
injunction against the distributor's proceeding with litigation in the Greece
Court. The Company believes that the former distributor's claims are without
merit and that these claims will be resolved without any material impact on the
Company's consolidated financial statements. The Company continues to offer
cotton seed (including seed of the Sure-Grow brand) for sale in Greece through
another distributor.
On July 18, 1996, the United States Department of Justice, Antitrust Division
("USDOJ"), served a Civil Investigative Demand (the "1996 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 1996 CID stated that the USDOJ was investigating
whether these transactions may have violated the provisions of Section 7 of the
Clayton Act, 15 USC 18. D&PL responded to the 1996 CID, employees were examined
in 1997 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.
On August 9, 1999, D&PL and Monsanto received Civil Investigative Demands from
the USDOJ (the "1999 CID's"), seeking to determine whether there have been any
inappropriate exchanges of information between Monsanto and D&PL or if any prior
acquisitions are likely to have substantially lessened competition in the sale
or development of cottonseed or cottonseed genetic traits. D&PL has complied
with the USDOJ's request for information and documents. The USDOJ has taken no
further action on the 1999 CID's since D&PL and Monsanto's responses were filed.
7. EARNINGS PER SHARE
The table below reconciles basic and diluted earnings per share for the three
and six months ended February 28 and February 29, respectively:
<TABLE>
<CAPTION>
Three Months Six Months
Basic: 1999 2000 1999 2000
- ------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Income/(Loss) before cumulative effect of accounting
change $2,406 $ 58,635 $ (4,032) $52,084
Preferred stock dividends
(24) (40) (48) (64)
--- --- --- ---
Net income/(loss) before cumulative effect of accounting
change applicable to common stockholders
$2,382 $ 58,595 $ (4,080) $52,020
====== ======== ======== =======
Weighted average shares outstanding
38,422 38,644 38,397 38,653
====== ====== ====== ======
Basic earnings per share before cumulative effect of
accounting change $ 0.06 $ 1.52 $ (0.11) $ 1.35
====== ======== ======== =======
Diluted:
Net income/(loss) before cumulative effect of accounting
change applicable to common stockholders 2,382 58,595 $ (4,080) $52,020
Add Back:
Preferred stock dividends 24 40 48 64
-- -- -- --
Net Income/(loss) before cumulative effect of accounting
change $2,406 $58,635 $ (4,032) $52,084
====== ======= ======== =======
Diluted shares outstanding 40,819 40,110 38,397 40,186
====== ====== ====== ======
Diluted earnings per share before cumulative effect of
accounting change 0.06 1.46 $ (0.11) $ 1.29
====== ====== ======== =======
</TABLE>
PART I.
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 Delta and Pine Land Company
would be merged with and into Monsanto.
On December 20, 1999, Monsanto withdrew its filing under the HSR Act thereby
effectively abandoning plans to consummate the merger. On January 3, 2000,
Monsanto paid Delta and Pine Land Company an $81 million termination fee, which,
net of related expenses, is separately presented in the accompanying income
statement. The diluted per share effect of this non-recurring payment (net of
related expenses) was $1.16 and $1.15 for the three and six months ended
February 29, 2000, respectively.
RESULTS OF OPERATIONS
The following sets forth selected operating data of the Company (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
February 28, February 29, February 28, February 29,
1999 2000 1999 2000
------ ------- ------ -----
<S> <C> <C> <C> <C>
Operating results -
Net sales and licensing fees $ 72,800 $ 104,203 $ 79,996 $ 108,751
Gross profit 49,684 73,162 25,444 31,341
Operating expenses:
Research and development 4,880 5,022 9,115 9,381
Selling 3,848 3,596 7,678 6,833
General and administrative 3,094 2,985 6,053 6,069
Special charges and unusual item 6,125 (74,694) 7,022 (74,227)
Operating income/(loss) 5,169 94,132 (4,424) 83,285
Income/(loss) before income taxes and
cummulative effect of accounting change 4,278 93,900 (6,083) 83,334
Net income/(loss) applicable to common shares
before accounting change 2,406 58,635 (4,080) 49,055
</TABLE>
The following sets forth selected balance sheet data of the Company as of the
following periods (in thousands):
<TABLE>
<CAPTION>
February 28, August 31, February 29,
1999 1999 2000
----------------- ----------------- ------------------
<S> <C> <C> <C>
Balance sheet summary-
Current assets $ 218,406 $ 217,543 $ 233,615
Current liabilities 151,706 175,243 163,329
Working capital 66,700 42,300 70,286
Property, plant and equipment, net 65,772 65,166 64,644
Total assets 294,324 295,758 310,402
Outstanding borrowings 101,106 20,819 663
Stockholders' equity 76,548 89,404 132,475
</TABLE>
Three months ended February 29, 2000, compared to three months ended February
28, 1999:
Net sales and licensing fees increased approximately $31.4 million to $104.2
million from $72.8 million. The increase in net sales and licensing fees is
primarily the result of an approximate 5% increase in anticipated planted cotton
acreage in the United States. In addition, the company is experiencing stronger
demand for its varieties which contain the Bollgard and Roundup Ready gene
technologies resulting in higher revenue from its technology licensing
agreements. The International division experienced increased export sales to
Greece. In addition, sales by the previously formed Brazilian joint venture were
successful during its first full selling season.
Operating expenses decreased from $11.8 million in the second fiscal quarter of
1999 to $11.6 million in fiscal 2000. This decrease is primarily attributable to
cost savings as which are the result of the Company's July 1999 restructuring
program.
The Company reported net interest expense of $0.27 million in the second fiscal
quarter of 2000 compared to net interest expense of $1.10 million in the second
fiscal 1999. This change is primarily due to lower average outstanding
borrowings and higher interest rates earned on cash equivalents as a result of
the receipt of the $81.0 million merger break-up fee received from Monsanto.
Six months ended February 2000, compared to three months ended February 1999:
Net sales and licensing fees increased approximately $28.7 million to $108.7
million from $80 million. The increase in net sales and licensing fees is
primarily the result of an approximate 5% increase in anticipated planted cotton
acreage in the United States. In addition, the Company is experiencing stronger
demand for its varieties which contain the Bollgard and Roundup Ready gene
technologies resulting in higher revenue from its technology licensing
agreements.
Operating expenses decreased from $22.8 million in the first six months of
fiscal 1999 to $22.3 million in fiscal 2000. This decrease is primarily
attributable to cost savings as which are the result of the Company's July 1999
restructuring program.
The Company reported net interest income of $0.19 million in the first fiscal
quarter of 2000 compared to net interest expense of $1.62 million in the first
six months of fiscal quarter of 1999. This change is primarily due to lower
average outstanding borrowings and higher interest rates earned on cash
equivalents as a result of the receipt of the $81.0 million merger break-up fee
received from Monsanto.
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 18 years D&PL has borrowed on a short-term basis to
meet seasonal working capital needs.
In the United States, 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 customers 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. At February 29, 2000, the Company had $55.0 million available for
borrowing under the base commitment and $54.3 million available under its
seasonal commitment. In addition the lead lender has approved a $25.0 million
credit line that can be activated by the Company as needed. Such facility is
generally available for up to 180 days and bears interest at rates comparable to
the existing facility.
The financial covenants under the loan agreements require the Company to: (a)
maintain a ratio of total liabilities to tangible net worth at August 31, of
less than or equal to 2.25 to 1 (4.0 to 1.0 at the Company's other quarter ends)
(b) maintain a fixed charge ratio at the end of each quarter greater than or
equal to 2.0 to 1.0 and (c) maintain at all times tangible net worth of not less
than the sum of (i) $40 million plus (ii) 50% of net income (but not losses)
determined on the last day of each fiscal year, commencing with August 31, 1998.
At February 29, 2000, the Company was in compliance with these covenants.
Capital expenditures for the first six months of 2000 were $3.0 million which
was a decrease from $5.0 million in the first six months of 1999. The Company
anticipates that domestic capital expenditures will approximate $8.0 million in
2000, 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 2000 for international
ventures are expected to range from $1.0 million to $2.0 million depending on
the timing and outcome of such projects.
Cash provided from operations, early payments from customers and borrowings
under the loan agreement should be sufficient to meet the Company's 2000 working
capital needs.
In the second quarter of fiscal 2000, the Board of Directors authorized a
quarterly dividend of $0.03 per share, paid March 13, 2000 to the stockholders
of record on February 29, 2000. It is anticipated that quarterly dividends of
$0.03 per share will continue to be paid although the Board of Directors reviews
this policy quarterly.
In January 2000, the Board of Directors approved a stock repurchase plan
pursuant to which the Company expects to purchase up to $50,000,000 of its
outstanding common stock. The shares repurchased will be used for stock
issuances pursuant to the Company's stock option plans and for other corporate
purposes.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Footnote 6
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Business
Domestic
On May 8, 1998, Delta and Pine Land Company ("DPLC") entered into a Merger
Agreement with Monsanto Company ("Monsanto"), pursuant to which DPLC would have
been merged with and into Monsanto. On December 20, 1999, Monsanto withdrew its
pre-merger notification filed pursuant to the HSR Act thereby terminating
Monsanto's efforts to obtain government approval of the merger. On January 3,
2000 Monsanto paid DPLC the $81 million termination fee pursuant to the
agreement.
Delta and Pine Land Company, a Delaware corporation, and subsidiaries ("D&PL" or
the "Company") 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 1980, D&PL added soybean seed to its product line. In 1996, D&PL commenced
commercial sales in the United States of cotton planting seed containing
Bollgard(R) 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. cotton planting seed that contains a gene that provides tolerance to
glyphosate-based herbicides ("Roundup Ready(R) Cotton"). In 1997, D&PL commenced
commercial sales in the U.S. of soybean planting seed that contains a gene that
provides tolerance to glyphosate-based herbicides ("Roundup Ready Soybeans").
International
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 international business, primarily
through joint ventures. 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 is
effective and could bring value to farmers.
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. Prior to 1999, a majority of the
Company's international sales resulted from exports from the U.S. of the
Company's products rather than direct in-country operations. In 1999, direct
in-country operations through joint ventures or subsidiaries (primarily,
Australia, China and South Africa) comprised over one-half of total
international sales which represent approximately 15% of consolidated sales.
Joint Ventures
D&M International, LLC, is a venture formed in 1995 through which D&PL (the
managing member) and Monsanto plan to introduce, in combination, cotton planting
seed in international markets combining D&PL's acid delinting technology and
elite germplasm and Monsanto's Bollgard and Roundup Ready gene technologies. In
November 1995, D&M International, LLC formed a subsidiary, D&PL China Pte Ltd.
("D&PL China"). In November 1996, D&PL China formed with parties in Hebei
Province, one of the major cotton producing regions in the People's Republic of
China, Hebei Ji Dai Cottonseed Technology Company Ltd. ("Ji Dai"), a joint
venture controlled by D&PL China. In June 1997, Ji Dai commenced construction of
a cottonseed conditioning and storage facility in Shijiazhuang, Hebei Province,
China, under terms of the joint venture agreement. The new facility was
completed in December 1997 and seed processing and sales commenced in 1998.
In December 1997, D&M International, LLC, formed a joint venture with Ciagro
S.R.L. ("Ciagro"), a distributor of agricultural inputs in the Argentine cotton
region, for the production and sale of genetically improved cottonseed. CDM
Mandiyu S.R.L., is owned 60% by D&M International, LLC, and 40% by Ciagro. The
cotton region, primarily comprised of the Provinces of Chaco, Santiago del
Estero, Salta and Jujuy, presently has 1.2 million acres of cotton requiring
9,000 tons of cotton planting seed per year. CDM Mandiyu S.R.L. has been
licensed to sell D&PL cotton varieties containing Monsanto's Bollgard gene
technology. Sales of such varieties commenced in 1999. Future plans include the
production and sale of Roundup Ready cottonseed varieties pending government
approval.
In July 1998, D&PL China and the Anhui Provincial Seed Corporation formed a
joint venture, Anhui An Dai Cotton Seed Technology Company, Ltd. ("An Dai")
which is located in Hefei City, Anhui Province, China. Under the terms of the
joint venture agreement, the newly formed entity will produce, condition and
sell acid delinted D&PL varieties of cottonseed which contain Monsanto's
Bollgard gene. In the fall of 1998, An Dai harvested sufficient seed from seed
plots in Anhui to plant up to 250,000 acres. The joint venture did not receive
authority to operate from the Chinese government until after the 1999 selling
season was completed. Therefore, commercial sales are expected to commence in
early 2000.
In November 1998, D&M International LLC and Maeda Administracao e Participacoes
Ltda, an affiliate of Agropem - Agro Pecuria Maeda S.A., formed a joint venture
in Minas Gerais, Brazil. The new company, MDM Maeda Deltapine Monsanto Algodao
Ltda., will produce, condition and sell acid-delinted D&PL varieties of cotton
planting seed. The new company produced and delinted enough cottonseed of
conventional varieties in 1999 to plant up to 900,000 acres. The newly formed
company will introduce transgenic cottonseed varieties, both Bollgard and
Roundup Ready, to the Brazilian market as soon government approvals are
obtained.
Subsidiaries
The Company's delinting plants in Groblersdal, South Africa and Catamarca,
Argentina process foundation seed grown in these countries. The use of Southern
Hemisphere winter nurseries and seed production programs such as these can
accelerate the introduction of new varieties because D&PL can raise at least two
crops per year by taking advantage of the Southern Hemisphere growing season.
The Company maintains a winter nursery in Costa Rica and is currently
constructing a delinting plant there to process foundation seed for export to
the United States. Multiple winter nursery locations are used to manage seed
production risks.
Deltapine Australia Pty. Ltd., a wholly owned Australian subsidiary of DPLC,
conducts breeding, production, conditioning and marketing of cotton planting
seed in Australia. Certain varieties developed in Australia are well adapted to
other Southern Hemisphere cotton producing countries and Australian developed
varieties are exported to these areas. The Company sells seed of both
conventional and transgenic varieties in Australia. The Company, through its
Australian operations, is identifying smaller potential export markets for the
Company's products throughout Southeast Asia. The adaptability of the Company's
germplasm must be evaluated in the target markets before such sales can be made.
The recent instability of the economies in some of the countries in this region
will make successful market development difficult.
Employees
As of February 29, 2000, the Company employed a total of 558 full time employees
worldwide. Due to the nature of the business, the Company utilizes seasonal
employees in its delinting plants and its research and foundation seed programs.
The maximum number of seasonal employees approximates 300 and typically occurs
in October and November of each year. The Company considers its employee
relations to be good.
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 1,066,667 shares (after
all stock splits) of the Company's Series M Convertible Non-Voting Preferred
Stock.
In 1994, D&PL acquired the Paymaster and Lankart cotton planting seed business
("Paymaster"), for approximately $14.0 million. 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"). 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. Prior to 1997, 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, the certified seed program was discontinued and the Company, in
addition to producing parent seed, commenced delinting, conditioning and bagging
finished seed. Unconditioned seed is also supplied by D&PL to two 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 a third party
to develop Pima varieties that allows D&PL the right of first refusal for any
Pima varieties developed under this program. 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 Bollgard 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 retains 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.
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 performance of
the Bollgard gene and not claims arising from other causes.
D&PL has also developed transgenic cotton 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 in order to purchase seed
containing the Roundup Ready Gene. The distributors/dealers who coordinate the
farmer licensing process receive a portion of the technology sublicensing fee.
D&PL's portion of the Roundup Ready technology fee varies depending on the
technology fee per acre established by Monsanto. In 1998 and 1999, D&M Partners
paid Monsanto approximately 70% of the Roundup Ready technology fees and D&PL
retained the remaining 30%.
Pursuant to the Roundup Ready Agreement, 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 cost of
gene performance claims will be shared in proportion to the division of
sublicense 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 2000, the Company has for sale for either commercial or experimental purposes
16 cotton planting seed varieties that contain the Bollgard gene technology, 20
cotton planting seed varieties that contain the Roundup Ready gene technology,
21 varieties that contain both technologies, and 50 conventional varieties.
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.
On July 27, 1999, United States Patent No. 5,929,300 was issued to the United
States of America as represented by the Secretary of Agriculture (USDA) entitled
POLLEN BASED TRANSFORMATION SYSTEM USING SOLID MEDIA. D&PL has an option to
obtain a license for pollen transformation, subject to certain rights reserved
to the USDA. D&PL has notified the USDA of its intention to exercise its rights.
The patent covers transformation of plants.
In March 1998, D&PL 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. One application of the technology could 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 has stated it intends that licensing
of this technology will be made widely available to other seed companies.
Both patents were 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
technologies 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 will be several years before these technologies could be
available commercially.
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.
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 prior to seed treatment with chemicals and 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 farms approximately 2,600
acres in the U.S., primarily for research purposes and 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
and 1999, the licensing fee charged to farmers was based on pre-established
planting rates for seven geographic regions and the estimated number of seed
contained in each bag which may vary by variety, location grown, and other
factors. Revenue is recognized based on the 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 revenues are recognized upon the later
of when seed is shipped or the date letters of credit are confirmed. Generally,
international export sales are not subject to return. All other international
revenues from the sale of planting seed, less estimated reserves for returns,
are recognized when the seed is shipped.
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 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. To date, D&PL 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. D&PL has essentially completed the program. Based on
available knowledge, the majority of systems, including critical business
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. Contingency plans were developed
for all critical vendor products and services. These plans identify critical
functions, acceptable delay times and business resumption strategies. The major
task remaining is completion of the implementation of the Desktop Redeployment
Plan. The Company continues to evaluate the estimated costs associated with the
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
cost incurred to date for year 2000 considerations (excluding third party
software) approximate $600,000 and the Company estimates that no additional
funds are required 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. It is not feasible to fully assess
the potential consequences if D&PL's customers are not compliant. D&PL has
developed business continuity plans to minimize the impact of such external
events. D&M Partners (a partnership of which D&PL owns 90% and Monsanto owns
10%) contracts with Monsanto to 1) administer sublicensing to farmers the right
to use the Bollgard and Roundup Ready technologies, 2) bill for such
technologies and 3) collect the sublicensing revenues for using technology. In
its 1998 Annual Report, Monsanto disclosed that all year 2000 remediation work
for its internal systems would be completed by the third calendar quarter of
1999. The Company is not able to predict at the present time the impact, if any,
on its business if Monsanto is unable to resolve any remaining year 2000 issues.
D&PL's discussion of the year 2000 computer issue contains forward-looking
information. D&PL believes that its critical computer systems are year
2000-compliant. 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:
On December 20, 1999, Monsanto withdrew its pre-notification filed under
the HSR Act thereby abandoning their efforts to consummate the merger.
Monsanto's failure to complete the merger with Monsanto may have a
material effect on the Company. However, such effect is not known at this time.
Demand for D&PL's seed will be affected by government programs and
policies 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 and new
technologies that may compete with the Bollgard and Roundup Ready gene
technologies. The Company's seed products and technologies contained
therein 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 domestic and
international operations of D&PL include the use of and the acceptance of
products that were produced from plants that were genetically modified,
the testing, 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.
The recent publicity related to genetically modified organisms ("GMO's")
or products made from plants that contain GMO's may have an effect on the
Company's sales in the future. In 1999, approximately 80% of the Company's
cotton seed that was sold contained either the Bollgard, Roundup Ready, or
both gene technologies and 64% of the Company's soybean seed sales
contained the Roundup Ready gene technology. Although many farmers have
rapidly adopted these technologies, the alleged concern over finished
products that contain GMO's could impact demand for crops raised from seed
containing such traits.
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 the factors noted above as well as
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
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
successfully complete these projects may affect future profitability.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.01 Computation of Earnings Per Share
27.01 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended February 29,
2000.
<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: April 14, 2000 /s/ Roger D. Malkin
---------------------------
Roger D. Malkin, Chairman
and Chief Executive Officer
Date: April 14, 2000 /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>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
February 28, February 29,
1999 2000
----------------- -----------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING ----------------- -----------------
DURING THE PERIOD 38,397 38,653
================= =================
NET INCOME/(LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE APPLICABLE TO COMMON STOCKHOLDERS $ (4,080) $ 52,020
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (2,965)
----------------- -----------------
NET INCOME/(LOSS) APPLICABLE TO COMMON SHARES $ (4,080) $ 49,055
================= =================
BASIC EARNINGS PER SHARE $ (0.11) $ 1.27
================= =================
DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES 38,397 38,653
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD
WEIGHTED AVERAGE OF SHARES ATTRIBUTED TO
CONVERTIBLE PREFERRED STOCK - (a) 1,066
NUMBER OF SHARES ATTRIBUTED TO STOCK OPTIONS - (a) 467
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION ----------------- -----------------
OF DILUTED EARNINGS PER SHARE 38,397 40,186
================= =================
NET INCOME/(LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE APPLICABLE TO COMMON STOCKHOLDERS $ (4,080) $ 52,028
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
- (2,965)
----------------- -----------------
NET INCOME/(LOSS) $ (4,080) $ 49,055
================= =================
DILUTED EARNINGS PER SHARE $ (0.11) $ 1.22
================= =================
</TABLE>
(a) Inclusion of shares would be anti-dilutive.
<PAGE>
EXHIBIT 11.01 (continued)
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
February , 1999 February ,
2000
----------------- -----------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING ----------------- -----------------
DURING THE PERIOD 38,422 38,644
================= =================
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
APPLICABLE TO COMMON STOCKHOLDERS $ 2,382 $ 58,595
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
- -
----------------- -----------------
NET INCOME $ 2,382 $ 58,595
================= =================
BASIC EARNINGS PER SHARE $ 0.06 $ 1.52
================= =================
DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES 38,422 38,644
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD
WEIGHTED AVERAGE NUMBER OF SHARES ATTRIBUTABLE
TO CONVERTIBLE PREFERRED STOCK 1,066 1,066
NUMBER OF SHARES ATTRIBUTABLE TO STOCK OPTIONS 1,331 400
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION ----------------- -----------------
OF DILUTED EARNINGS PER SHARE 40,819 40,110
================= =================
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
APPLICABLE TO COMMON STOCKHOLDERS $ 2,382 $ 58,595
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
- -
----------------- -----------------
NET INCOME $ 2,406 $ 58,635
================= =================
DILUTED EARNINGS PER SHARE $ 0.06 $ 1.46
================= =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000902277
<NAME> Delta and Pine Land Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 17,345
<SECURITIES> 0
<RECEIVABLES> 127,774
<ALLOWANCES> 160
<INVENTORY> 74,118
<CURRENT-ASSETS> 233,615
<PP&E> 99,379
<DEPRECIATION> 34,735
<TOTAL-ASSETS> 310,402
<CURRENT-LIABILITIES> 163,329
<BONDS> 0
0
107
<COMMON> 3,883
<OTHER-SE> 128,485
<TOTAL-LIABILITY-AND-EQUITY> 310,402
<SALES> 108,751
<TOTAL-REVENUES> 108,751
<CGS> 77,410
<TOTAL-COSTS> (51,944)
<OTHER-EXPENSES> (237)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 83,334
<INCOME-TAX> 31,250
<INCOME-CONTINUING> 52,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,965)
<NET-INCOME> 49,119
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.22
</TABLE>
