-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VULFxfT+l/7KckYg9DJ4z18K2znwEBkRxPDo+JLJ3O//9+LiFfj0lrNVrvWdA6RN FmEEVEDx/Cu35SA1N0uX/A== 0000950148-02-000277.txt : 20020414 0000950148-02-000277.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950148-02-000277 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011228 FILED AS OF DATE: 20020211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMINIS INC CENTRAL INDEX KEY: 0001078259 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 360769130 STATE OF INCORPORATION: IL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26519 FILM NUMBER: 02534612 BUSINESS ADDRESS: STREET 1: 1905 LIRIO AVENUE CITY: SATICOY STATE: CA ZIP: 93004-4206 MAIL ADDRESS: STREET 1: 1905 LIRIO AVENUE CITY: SATICOY STATE: CA ZIP: 93004-4206 10-Q 1 v78979e10-q.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q ---------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 2001 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 000-26519 SEMINIS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-0769130 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 2700 CAMINO DEL SOL, OXNARD, CALIFORNIA 93030-7967 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (805) 647-1572 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (FORMER NAME, ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Indicate, by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ As of February 5, 2002, the Registrant had 16,919,453 registered shares of Class A Common Stock, $0.01 par value per share, issued and outstanding, and 45,142,508 unregistered shares of Class B Common Stock, $0.01 par value per share, issued and outstanding. ================================================================================ SEMINIS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 2001 TABLE OF CONTENTS
Page ---- PART I -- FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 28, 2001 and September 30, 2001.................................................. 3 Consolidated Statements of Operations for the Three Months Ended December 28, 2001 and December 29, 2000 ............... 4 Consolidated Statement of Stockholders' Equity for the Three Months Ended December 28, 2001........................ 5 Consolidated Statements of Cash Flows for the Three Months Ended December 28, 2001 and December 29, 2000................ 6 Notes to Consolidated Financial Statements.......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 22 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................... 23 Item 6. Exhibits and Reports on Form 8-K.................................... 23 Signatures.......................................................... 27
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEMINIS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
AS OF AS OF DECEMBER 28, SEPTEMBER 30, 2001 2001 ------------ ------------- (Unaudited) ASSETS: Current assets Cash and cash equivalents $ 22,293 $ 22,323 Accounts receivable, net 126,193 141,691 Other receivable -- 20,612 Inventories 288,658 279,683 Prepaid expenses and other current assets 4,443 3,436 --------- --------- Total current assets 441,587 467,745 Property, plant and equipment, net 180,588 182,261 Intangible assets, net 165,292 169,664 Other assets 15,888 15,687 --------- --------- $ 803,355 $ 835,357 ========= ========= LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY: Current liabilities Short-term borrowings $ 28,321 $ 19,665 Current maturities of long-term debt 277,672 67,527 Accounts payable 47,786 45,423 Accrued liabilities 90,710 89,169 --------- --------- Total current liabilities 444,489 221,784 Long-term debt 18,554 248,898 Deferred income taxes 14,999 15,736 Minority interest in subsidiaries 1,400 1,721 --------- --------- Total liabilities 479,442 488,139 --------- --------- Commitments and contingencies Mandatorily redeemable stock Class B Redeemable Preferred Stock, $.01 par value; 25 shares authorized as of December 28, 2001 and September 30, 2001; 25 shares issued and outstanding as of December 28, 2001 and September 30, 2001 28,000 27,500 --------- --------- Total mandatorily redeemable stock 28,000 27,500 --------- --------- Stockholders' equity Class C Preferred Stock, $.01 par value; 14 shares 1 1 authorized as of December 28, 2001 and September 30, 2001; 12 shares issued and outstanding as of December 28, 2001 and September 30, 2001 (Liquidation Value of $132.1 and $129.2 million at December 28, 2001 and September 30, 2001, respectively) Class A Common Stock, $.01 par value; 211,000 shares 169 147 authorized as of December 28, 2001 and September 30, 2001; 16,919 and 14,682 shares issued and outstanding as of December 28, 2001 and September 30, 2001, respectively Class B Common Stock, $.01 par value; 67,000 shares 452 452 authorized as of December 28, 2001 and September 30, 2001; 45,142 shares issued and outstanding as of December 28, 2001 and September 30, 2001 Additional paid-in-capital 765,441 764,657 Accumulated deficit (421,365) (397,485) Accumulated other comprehensive loss (48,785) (48,054) --------- --------- Total stockholders' equity 295,913 319,718 --------- --------- $ 803,355 $ 835,357 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. SEMINIS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
FOR THE THREE MONTHS ENDED --------------------------- DECEMBER 28, DECEMBER 29, 2001 2000 ------------ ------------ (UNAUDITED) Net sales $ 80,079 $ 81,233 Cost of goods sold 30,286 32,962 -------- -------- Gross profit 49,793 48,271 -------- -------- Operating expenses Research and development expenses 11,899 13,556 Selling, general and administrative expenses 43,907 45,133 Amortization of intangible assets 4,158 7,300 -------- -------- Total operating expenses 59,964 65,989 -------- -------- Loss from operations (10,171) (17,718) -------- -------- Other income (expense) Interest income 120 554 Interest expense (7,290) (8,665) Foreign currency gain (loss) (1,064) 2,442 Other, net 394 (101) -------- -------- (7,840) (5,770) -------- -------- Loss before income taxes (18,011) (23,488) Income tax benefit (expense) (1,300) 6,651 -------- -------- Net loss (19,311) (16,837) Preferred stock dividends (3,430) (3,430) Additional capital contribution dividends (1,139) (819) -------- -------- Net loss available for common stockholders $(23,880) $(21,086) ======== ======== Net loss available for common stockholders per common share, basic and diluted $ (0.40) $ (0.35) ======== ========
The accompanying notes are an integral part of these consolidated financial statements. SEMINIS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands)
CLASS C CLASS A CLASS B ACCUMULATED PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL OTHER TOTAL ---------------- --------------- -------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS' NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL DEFICIT LOSS EQUITY ------ ------ ------ ------ ------ ------ ---------- ----------- ------------- ------------- BALANCE, SEPTEMBER 30, 2001 12 $ 1 14,682 $ 147 45,142 $ 452 $ 764,657 $(397,485) $ (48,054) $ 319,718 --------- Comprehensive loss Net loss (Unaudited) -- -- -- -- -- -- -- (19,311) -- (19,311) Translation adjustment -- -- -- -- -- -- -- -- (731) (731) (Unaudited) --------- (20,042) Restricted Share Issuance -- -- 2,237 22 -- -- 784 -- -- 806 (Unaudited) Dividends on additional capital contribution -- -- -- -- -- -- -- (1,139) -- (1,139) (Unaudited) Dividends on Redeemable -- -- -- -- -- -- -- (500) -- (500) Preferred Stock (Unaudited) Dividends on Class C -- -- -- -- -- -- -- (2,930) -- (2,930) Preferred Stock ------ ------ ------ ------ ----- ------ --------- --------- --------- --------- (Unaudited) BALANCE, DECEMBER 28, 2001 12 $ 1 16,919 $ 169 45,142 $ 452 $ 765,441 $(421,365) $ (48,785) $ 295,913 (UNAUDITED) ====== ====== ====== ====== ====== ====== ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. SEMINIS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
FOR THE THREE MONTHS ENDED --------------------------- DECEMBER 28, DECEMBER 29, 2001 2000 ------------ ------------ (Unaudited) Cash flows from operating activities: Net loss $(19,311) $(16,837) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 8,050 11,516 Deferred income taxes 157 (8,166) Inventory write-down 4,000 3,979 Other 1,822 (1,930) Changes in assets and liabilities: Accounts receivable 14,577 19,476 Inventories (15,009) (20,804) Prepaid expenses and other assets (2,276) (3,100) Current income taxes 202 440 Accounts payable 2,646 (1,948) Other liabilities (1,774) (14,608) -------- -------- Net cash used in operating activities (6,916) (31,982) -------- -------- Cash flows from investing activities: Purchases of fixed and intangible assets (4,428) (2,439) Proceeds from disposition of assets 22,232 2,770 Other (298) -- -------- -------- Net cash provided by investing activities 17,506 331 -------- -------- Cash flows from financing activities: Proceeds from long-term debt 119 1,230 Repayment of long-term debt (20,129) (8,611) Net short-term borrowings 9,164 (635) Additional capital contribution -- 45,850 -------- -------- Net cash provided by (used in) financing activities (10,846) 37,834 -------- -------- Effect of exchange rate changes on cash and cash equivalents 226 (825) -------- -------- Increase (decrease) in cash and cash equivalents (30) 5,358 Cash and cash equivalents, beginning of period 22,323 22,479 -------- -------- Cash and cash equivalents, end of period 22,293 27,837 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Seminis, Inc. ("Seminis" or the "Company") is the largest developer, producer and marketer of vegetable and fruit seeds in the world. The Company is a majority-owned subsidiary of Savia, S.A. de C.V. ("Savia") and effectively began operations when it purchased Asgrow Seed Company in December 1994. Basis of Presentation The consolidated financial statements include the accounts of the Company and its majority controlled and owned subsidiaries. Investments in unconsolidated entities, representing ownership interests between 20% and 50%, are accounted for using the equity method of accounting. All material intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior periods to conform to the current quarter presentation. Seminis generally operates on a thirteen week calendar closing on the Friday closest to the natural calendar quarter, except for the fiscal year end which closes on September 30. The unaudited consolidated financial statements included herein reflect all adjustments, (consisting only of normal recurring adjustments), that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The Company's business is subject to seasonal fluctuation and, therefore, the results of operations for periods less than one year are not necessarily indicative of results which may be expected for any other interim period or for the fiscal year as a whole. SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplementary Cash Flow Information
THREE MONTHS ENDED -------------------------- DECEMBER 28, DECEMBER 29, 2001 2000 ------------ ----------- (Unaudited) Cash paid for interest $5,909 $7,328 Cash paid for income taxes 941 1,075 Supplemental non-cash transactions: Class C Preferred Stock dividends 2,930 2,930 Class B Redeemable Preferred Stock dividends 500 500 Additional capital contribution dividends 1,139 819
Effective January 2001, Class C Preferred Stock and additional capital contribution accrue cash dividends at 10% per annum. The syndicated bank agreement, however, precludes the payment of cash dividends. SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Loss per Common Share Net loss per common share has been computed pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic loss per common share is computed by dividing net loss available to common stockholders by the average number of common shares outstanding during each period. Net loss available to common stockholders represents reported net loss less preferred and additional capital contribution dividends. Diluted net loss per common share reflects the potential dilution that could occur if dilutive securities and other contracts were exercised or converted into common stock or resulted in the issuance of common stock. The following table provides a reconciliation of net loss and sets forth the computation for basic and diluted net loss per share available for common stockholders.
THREE MONTHS ENDED ----------------------------- DECEMBER 28, DECEMBER 29, 2001 2000 ------------ ------------ (Unaudited) NUMERATOR FOR BASIC AND DILUTED: Net loss $(19,311) $(16,837) Preferred stock dividends (3,430) (3,430) Additional capital contribution dividends (1,139) (819) -------- -------- Net loss available for common stockholders $(23,880) $(21,086) ======== ======== DENOMINATOR -- SHARES: Weighted average common shares outstanding (basic) 60,051 59,824 Add: potential common shares: -- -- Less: antidilutive effect of potential common shares -- -- -------- -------- Weighted average common shares outstanding (diluted) 60,051 59,824 ======== ======== NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS PER COMMON SHARE: Basic and diluted $ (0.40) $ (0.35) ======== ========
Reclassification Certain amounts have been reclassified to conform to the current period presentation. SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 141, "Business Combinations" became effective for the Company on July 1, 2001. SFAS No. 141 addresses financial accounting and reporting for business combinations and supercedes APB Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS No. 142, "Goodwill and Other Intangible Assets" is effective for the Company for fiscal years beginning after December 15, 2001, but may be adopted early as of the beginning of fiscal 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets, (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company has early adopted this pronouncement in fiscal 2002 and expects no impairment in its goodwill and other intangible assets, and to cease the amortization of goodwill that approximates $9.0 million. NOTE 2 -- LIQUIDITY As of September 30, 2000, the Company was not in compliance with certain covenants of its syndicated credit facility, which gave the lenders the right to accelerate payment of all amounts outstanding under the facility. In December 2000, the lenders granted a waiver with respect to these covenants as of September 30, 2000, December 29, 2000, and March 31, 2001 that extended through April 30, 2001, at which time any defaults would once again arise. As the Company did not expect to be in compliance with its covenants once the waiver expired, all outstanding borrowings under the credit facility were classified as a current liability as of September 30, 2000. In connection with granting the waivers, the lenders agreed to reschedule principal payments within fiscal year 2001. The lenders also accelerated the final maturity of the term loan and the termination date for the revolving credit commitments to June 30, 2002 from June 30, 2004. The Company was obligated to deliver a financial plan through September 30, 2002, which detailed cash flow projections on a monthly basis as well as proposed alternatives for the refinancing of the syndicated credit facility or recapitalization of the Company. In April 2001, the Company submitted its financial plan to its lenders, detailing operating initiatives that reduce existing infrastructure and working capital requirements. Additionally, the plan identified alternative sources of capital to repay the bank debt within newly defined terms, SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which may include the sale of non-strategic assets, debt refinancing and additional equity infusions. On May 31, 2001, the Company's lenders agreed with the financial plan and the terms to restructure the Company's $310.0 million credit facility. Upon receipt of the amended credit agreement, long-term portions of borrowings were reclassified from current liabilities to long-term debt. Among other things, the amendment extended the final maturity of the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, revised principal payment dates under the term loan, instituted a new grid pricing formula to determine interest on borrowings, and revised covenant obligations. Additionally, the amendment requires the Company to submit monthly reports comparing actual cash flows to projections as well as describing the progress and status of any asset sales. Interim principal obligations under the amendment included $19.0 million, $4.0 million, $31.0 million, and $9.0 million due in the first, second, third, and fourth quarters of fiscal year 2002, respectively. As all remaining amounts under the credit facility are due within one year, the $273.7 million of outstanding borrowings under the credit facility have been classified as a current liability as of December 28, 2001. The Company met all required principal and interest payments during fiscal year 2001, and was in compliance with all of its financial covenants under the amended credit agreement at September 30, 2001 and December 28, 2001. In October 2001, the Company completed the sale of an office building in Seoul, South Korea, which generated net proceeds of approximately $20.0 million. The Company used $19.5 million of the proceeds to pay the scheduled $19.0 million of its syndicated debt in October 2001. The Company also sold one of its non-core businesses in January 2002, which generated additional proceeds of approximately $17.6 million. The Company used $13.0 million of the proceeds to prepay its syndicated debt in January 2002. When combined with cash flows expected to be generated from on-going operations, these additional proceeds will enable the Company to meet all obligations and covenants under the credit facility through September 30, 2002. The Company believes it can continue to improve its operating cash flows through aggressive cash collection efforts, disciplined inventory purchases, and lower operating expenses following the Global Restructuring and Optimization Plan. Whereas the Company expects to meet its obligations as well as covenant requirements under the amended credit facility through September 30, 2002, the Company must successfully execute a refinancing or recapitalization plan prior to December 31, 2002 in order to meet the final maturity of the facility. Based on current projections, the Company will be obligated to pay $230.2 million during the first quarter of fiscal year 2003. The Company intends to pursue various alternatives in order to complete the refinancing or recapitalization, however there can be no assurances that it will be able to do so. Failure to comply with existing covenants which would make the syndicated debt callable, or inability to obtain adequate financing with reasonable terms prior to December 31, 2002 could have a material adverse impact on the Company's business, results of operations, or financial condition. SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- GLOBAL RESTRUCTURING AND OPTIMIZATION PLAN In February 2000, the Company announced a global cost saving initiative designed to streamline operations, increase utilization of facilities and improve efficiencies. The first phase of the initiative, which commenced in fiscal year 2000, and focused on North American operations, was completed by the end of fiscal year 2001. In June 2000, the Company announced the second phase, which was targeted at its global operations. An expansion of phase two of the plan was launched in the third quarter of fiscal year 2001 and is expected to be completed by the end of fiscal year 2002. The key elements to Seminis' global restructuring and optimization plan involve: - Reorganizing its 10 legacy seed companies into four geographical regions; - Reducing operation and production facilities; - Reducing headcount that results from the reorganization and facility consolidation; - Rationalizing the product portfolio; - Implementing an advanced global logistics management information system; and - Divesting non-strategic assets. In connection with phase one of the Global Restructuring and Optimization Plan, the Company recorded nonrecurring pre-tax charges to operations of approximately $34.4 million for restructuring costs during fiscal year 2000 that included severance and other exit costs, inventory write-downs and costs associated with streamlining the products portfolio. Of this amount, $18.4 million was included in cost of goods sold for inventory write-downs. The remaining $16.0 million was included in selling, general and administrative expenses and consisted primarily of severance costs. The total phase one and initial phase two severance charge related to a planned 600-employee reduction worldwide in both operational and administrative groups. As part of the Implementation of the expanded second phase of the Global Restructuring and Optimization Plan, a pre-tax charge of $12.0 million was recorded in selling, general and administrative expenses by the Company in the third quarter of fiscal year 2001. This charge primarily related to severance and related costs, resulting from an additional planned 250-employee reduction worldwide in both operational and administrative groups. Further employee reductions were identified in the fourth quarter of fiscal year 2001. Additionally, the Company recorded non-cash inventory write-downs of $58.2 million in cost of goods sold in order to comply with more stringent seed quality standards and to further rationalize the Company's product portfolio from 6,000 to 4,000 varieties. During fiscal year 2001, the Company also sold its properties in Saticoy, California, Filer, Idaho, Vineland, New Jersey and South Korea as part of its efforts to reduce and consolidate operation and production facilities. There were 92, 758, and 144 employees severed in the first quarter of fiscal year 2002, fiscal year 2001 and fiscal year 2000, respectively, primarily as part of the Global Restructuring and Optimization Plan. Remaining components of the restructuring accruals are as follows:
BALANCE AT BALANCE AT SEPTEMBER 30, ADDITIONAL AMOUNTS DECEMBER 28, 2001 CHARGES INCURRED 2001 ------------ ---------- -------- ------------ Severance and related expenses ............. $11,936 $ -- $ 3,944 $ 7,992
To date, there have been no material adjustments to amounts accrued under the plan. SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 -- INVENTORIES Inventories consist of the following:
DECEMBER 28, SEPTEMBER 30, 2001 2001 ------------ ------------- (Unaudited) Seed $253,089 $246,250 Unharvested crop growing costs 26,252 25,857 Supplies 9,317 7,576 -------- -------- $288,658 $279,683 ======== ========
NOTE 5 -- SEMINIS INC. STOCK AWARD PLAN During the quarter ended June 29, 2001, the Company adopted a stock award plan that is subject to stockholders' approval. Certain key executives are awarded Company shares that vest if certain quarterly performance criteria are achieved over an eighteen month period. Upon meeting each quarterly goal, the shares awarded become vested subject to shareholders' approval. Total number of Class A Common Stock eligible to be awarded under this plan is 4.8 million. During the first quarter of fiscal year 2002, the Company met its performance goals, which resulted in a quarterly compensation charge of approximately $1.3 million recorded in selling, general and administrative expenses. As the quarterly goals related to the stock award plan were met in each of the last three quarters, .8 million, .7 million, and .7 million shares were earned in the third quarter of fiscal year 2001, fourth quarter of fiscal year 2001 and the first quarter of fiscal year 2002, respectively. On December 19, 2001, the Company received confirmation from the NASDAQ that the Company could implement the stock award plan in accordance with NASDAQ rules provided that the stock awards will not vest before shareholder approval is obtained and the awards will be forfeited back to the Company if shareholder approval is not obtained. As such the earned share amounts have been shown as issued Class A Common Stock during the first quarter of fiscal year 2002. The Company believes that during its shareholders' meeting to be held in 2002, the stock award plan will be approved by its shareholders. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto of the Company included elsewhere herein. The following discussion and analysis contains certain "forward-looking statements" which are subject to certain risks, uncertainties and contingencies which could cause Seminis' actual business, results of operations or financial condition to differ materially from those expressed in, or implied by, such statements. OVERVIEW Seminis is the largest developer, producer and marketer of vegetable and fruit seeds in the world. Seminis produces more than 60 species and 4,000 distinct varieties of vegetable and fruit seeds. Seminis has established a worldwide presence and global distribution network that spans 120 countries with 30 research and development facilities and 29 screening farms in 19 countries and production sites in over 25 countries. Seminis is a majority owned subsidiary of Savia, S.A. de C.V. ("Savia"). In order to achieve its position as the premier vegetable and fruit seed company, Seminis has completed nine acquisitions since its formation in 1994 and has incurred significant expenses related to the development of its infrastructure, including its human resource capability, information systems, brand marketing teams and its research and development capability. Seminis expenses its investments in research and development and in the creation of its worldwide sales capability. The comparability of Seminis' results of operations from year to year has also been affected by the impact of acquisition accounting under purchase accounting principles, interest expense attributable to acquisition financing and exposure to foreign currency fluctuations. RESULTS OF OPERATIONS The table below sets forth Seminis' results of operations data expressed as a percentage of net sales. THREE MONTHS ENDED --------------------------- DECEMBER 28, DECEMBER 29, 2001 2000 ------------ ------------ (Unaudited) Net sales 100.0% 100.0% ------ ------ Gross margin 62.2 59.4 Research and development expenses 14.9 16.7 Selling, general and administrative expenses 54.8 55.6 Amortization of intangible assets 5.2 8.9 ------ ------ Loss from operations (12.7) (21.8) Interest expense, net (9.0) (10.0) Other non-operating income, net (0.8) 2.9 ------ ------ Loss before income taxes (22.5) (28.9) Income tax benefit (expense) (1.6) 8.2 ------ ------ Net loss (24.1)% (20.7)% ====== ======
THREE MONTHS ENDED DECEMBER 28, 2001 COMPARED WITH THREE MONTHS ENDED DECEMBER 29, 2000 Net Sales Net sales decreased 1.4% to $80.1 million for the three months ended December 28, 2001 compared to the three months ended December 29, 2000. The result was primarily due to $1.7 million of negative impact of currency fluctuations relating to weakness in the Euro, South Korean Won, and Brazilian Real versus the U.S. Dollar during the first quarter of fiscal year 2002 compared to the same period in the prior year. In constant dollars stated at monthly average exchange rates of fiscal year 2001, sales increased .7% to $81.8 million for the first quarter of fiscal year 2002 from $81.2 million for the first quarter of fiscal year 2001. Geographically, there were sales increases in Europe due to strong performances of tomatoes, cucumbers and onions sales. This increase was partially offset by decreased sales in the Far East due to timing changes of the buying patterns of certain South Korean customers in the first quarter of fiscal year 2002 compared to the first quarter of fiscal year 2001. The Company's business is subject to seasonal fluctuations and, therefore, the sales for the first quarter of a fiscal year are not necessarily indicative of those to be expected in any other interim period or for a fiscal year as a whole. Gross Profit Gross profit increased 3.2% to $49.8 million for the three months ended December 28, 2001 from $48.3 million for the three months ended December 29, 2000. Gross margin increased to 62.2% for the three months ended December 29, 2000 from 59.4% for the three months ended December 29, 2000. The increase was primarily due to the Company's seed price increases within the NAFTA and European sales regions. Additionally, $.6 million of freight and handling charge revenue was recognized in net sales during the first quarter of fiscal year 2002 in compliance with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," with the corresponding expense recorded in selling, general and administrative expense. In the prior year, such freight and handling charge revenue was netted against the corresponding selling, general and administrative expense. Research and Development Expenses Research and development expenses decreased 12.2% to $11.9 million for the three months ended December 28, 2001 from $13.6 million for the three months ended December 29, 2000. This decrease was primarily a result of personnel reduction from the Global Restructuring and Optimization Plan and currency fluctuations from research and development operations in Europe, South Korea, and Brazil in the first quarter of fiscal year 2001. Selling, General and Administrative Expenses Selling, general, and administrative expenses decreased 2.7% to $43.9 million for the three months ended December 28, 2001 from $45.1 million for the three months ended December 29, 2000. The decrease was primarily due to the impact of further headcount reductions following the implementation of the Global Restructuring and Optimization Plan and, in part, the impact of currency fluctuations. Furthermore, the decrease was the result of approximately $1.5 million of facility moving costs incurred in the first quarter of fiscal year 2001 with no similar expenses during the same period in fiscal year 2002. The decrease in expenses was partially offset by a compensation charge of $1.3 million related to an employee stock award plan, recorded during the first quarter of fiscal year 2002. Additionally, the decrease in expenses was offset as the Company recorded $.6 million of freight and handling charge revenue in net sales during the first quarter of fiscal year 2002 in compliance with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," with the corresponding expense recorded in selling, general and administrative expense. In the prior year, such freight and handling charges within selling, general and administrative expense were netted against the corresponding revenue. Amortization of Intangible Assets Amortization of intangible assets decreased 43.0% to $4.2 million for the three months ended December 28, 2001 from $7.3 million for the three months ended December 29, 2000. The decrease was primarily due to the Company's early adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." The pronouncement requires that periodic amortization of goodwill be ceased, and that annual reviews of the net realizable value of the goodwill need to be performed to determine if an impairment of the goodwill asset value exists. The Company expects no impairment in its goodwill and other intangible assets. Therefore, the Company recorded no goodwill amortization in accordance to SFAS No. 142 in the first quarter of fiscal year 2002, whereas approximately $2.4 million of goodwill amortization was recorded during the first quarter of fiscal year 2001. Furthermore, the balance of the decrease was due to the currency impact from the devaluation of the South Korean Won on Korean based intangible assets. Interest Expense, Net Interest expense, net decreased 11.6% to $7.2 million for the three months ended December 28, 2001 from $8.1 million for the three months ended December 29, 2000. The decrease was primarily due to lower average debt balances and interest rates during the first quarter of fiscal year 2002 compared to the same period of the prior year. The decrease was partially offset by the accelerated amortization of deferred financing cost related to the Company's credit facility, resulting from the advancement of the maturity date of the term loan and revolving credit commitments of the Company's credit facility from June 30, 2004 to December 31, 2002. Other Non-Operating Income (Expense), Net Seminis had other non-operating expense including foreign currency gain (loss), net of $.7 million for the three months ended December 28, 2001 as compared to other non-operating income, net of $2.3 million for the three months ended December 29, 2000. Other non-operating expense, net, for the three months ended December 28, 2001, was due to a foreign currency loss of $1.1 million primarily resulting from the devaluation of the Euro on a U.S. dollar denominated loan in Holland partially offset by gains from non-strategic asset sales in South Korea. Other non-operating income, net, for the three months ended December 29, 2000 includes a foreign currency gain of $2.4 million primarily resulting from the appreciation of the Euro on a U.S. dollar denominated loan in Holland. Income Tax Benefit (Expense) Income tax expense was $1.3 million for the three months ended December 28, 2001 compared with an income tax benefit of $6.7 million for the three months ended December 29, 2000. The change in the effective tax rate during the first quarter of fiscal year 2002 compared to the same period in the prior year was primarily due to the mix of worldwide income and local statutory tax rates. Seasonality The seed business is highly seasonal. Generally, net sales are highest in the second fiscal quarter due to increased demand from Northern Hemisphere growers who plant seed in the early spring. Seminis recorded 33.7% of its fiscal year 2001 net sales during its second fiscal quarter. Seminis has historically operated at a loss during the first and third fiscal quarters due to lower sales during such quarters. Seminis' results in any particular quarter should not be considered indicative of those to be expected for a full year. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2000, the Company was not in compliance with certain covenants of its syndicated credit facility, which gave the lenders the right to accelerate payment of all amounts outstanding under the facility. In December 2000, the lenders granted a waiver with respect to these covenants as of September 30, 2000, December 29, 2000, and March 31, 2001 that extended through April 30, 2001, at which time any defaults would once again arise. As the Company did not expect to be in compliance with its covenants once the waiver expired, all outstanding borrowings under the credit facility were classified as a current liability as of September 30, 2000. In connection with granting the waivers, the lenders agreed to reschedule principal payments within fiscal year 2001. The lenders also accelerated the final maturity of the term loan and the termination date for the revolving credit commitments to June 30, 2002 from June 30, 2004. The Company was obligated to deliver a financial plan through September 30, 2002, which detailed cash flow projections on a monthly basis as well as proposed alternatives for the refinancing of the syndicated credit facility or recapitalization of the Company. In April 2001, the Company submitted its financial plan to its lenders, detailing operating initiatives that reduce existing infrastructure and working capital requirements. Additionally, the plan identified alternative sources of capital to repay the bank debt within newly defined terms, which may include the sale of non-strategic assets, debt refinancing and additional equity infusions. On May 31, 2001, the Company's lenders agreed with the financial plan and the terms to restructure the Company's $310.0 million credit facility. Upon receipt of the amended credit agreement, long-term portions of borrowings were reclassified from current liabilities to long-term debt. Among other things, the amendment extended the final maturity of the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, revised principal payment dates under the term loan, instituted a new grid pricing formula to determine interest on borrowings, and revised covenant obligations. Additionally, the amendment requires the Company to submit monthly reports comparing actual cash flows to projections as well as describing the progress and status of any asset sales. Interim principal obligations under the amendment included $19.0 million, $4.0 million, $31.0 million, and $9.0 million due in the first, second, third, and fourth quarters of fiscal year 2002, respectively. As all remaining amounts under the credit facility are due within one year, the $273.7 million of outstanding borrowings under the credit facility have been classified as a current liability as of December 28, 2001. The Company met all required principal and interest payments during fiscal year 2001, and was in compliance with all of its financial covenants under the amended credit agreement at September 30, 2001 and December 28, 2001. In October 2001, the Company completed the sale of an office building in Seoul, South Korea, which generated net proceeds of approximately $20.0 million. The Company used $19.5 million of the proceeds to pay the scheduled $19.0 million of its syndicated debt in October 2001. The Company also sold one of its non-core businesses in January 2002, which generated additional proceeds of approximately $17.6 million. The Company used $13.0 million of the proceeds to prepay its syndicated debt in January 2002. When combined with cash flows expected to be generated from on-going operations, these additional proceeds will enable the Company to meet all obligations and covenants under the credit facility through September 30, 2002. The Company believes it can continue to improve its operating cash flows through aggressive cash collection efforts, disciplined inventory purchases, and lower operating expenses following the Global Restructuring and Optimization Plan. Whereas the Company expects to meet its obligations as well as covenant requirements under the amended credit facility through September 30, 2002, the Company must successfully execute a refinancing or recapitalization plan prior to December 31, 2002 in order to meet the final maturity of the facility. Based on current projections, the Company will be obligated to pay $230.2 million during the first quarter of fiscal year 2003. The Company intends to pursue various alternatives in order to complete the refinancing or recapitalization, however there can be no assurances that it will be able to do so. Failure to comply with existing covenants which would make the syndicated debt callable, or inability to obtain adequate financing with reasonable terms prior to December 31, 2002 could have a material adverse impact on the Company's business, results of operations, or financial condition. As a result of the Global Restructuring and Optimization Plan the Company has made significant strides in the enhancement of its cash flow. During the first quarter of fiscal year 2002, operating activities of the Company utilized $25.1 million less cash as compared to the same period in fiscal year 2001. This improvement in cash flow was primarily due to positive impacts of a decrease in operating expenses related to a reduction in global headcount and an overall reduction in working capital arising from strong accounts receivable collections and improved production planning over the Company's inventory levels. Capital expenditures increased to $4.4 million for the first quarter of fiscal year 2002, from $2.4 million for the same period in the prior year. The increase was primarily due to investment in a production facility in South Korea, which is being utilized to consolidate our Korean operations and to enable our growth strategy in the Far East market. Other investing activities for the three months ended December 28, 2001 included approximately $22.2 million in proceeds from the sale of non-operating assets, primarily relating to the sale of an office building in Seoul, South Korea. The Company had $3.0 million of accrued dividends relating to Class B Mandatorily Redeemable Preferred Stock at December 28, 2001. These accrued dividends are classified within mandatorily redeemable stock. Seminis' total indebtedness as of December 28, 2001 was $324.5 million, of which $273.7 million were borrowings under the syndicated credit facility. Additionally, $16.6 million, $6.5 million, $9.5 million, $5.1 million, and $7.4 million were borrowings by the United States, Chilean, Italian, Spanish, and Korean subsidiaries, respectively, and $5.7 million were borrowings primarily by other foreign subsidiaries. Seminis' exposure to foreign currency fluctuations is primarily due to foreign currency gains or losses that occur from intercompany loans between Seminis and its foreign subsidiaries and from the U.S. dollar denominated loan, originated by SVS Holland, B.V., a foreign subsidiary of Seminis. Seminis does not have any material outstanding hedging contracts as of December 28, 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our market risk disclosures set forth in the 2001 Form 10-K have not changed significantly through the first quarter ended December 28, 2001. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved from time to time as a defendant in various lawsuits arising in the normal course of business. Seminis believes that no current claims, individually or in the aggregate, will have a material adverse effect on Seminis' business, results of operations or financial condition. Since our 2001 Form 10-K filed on January 14, 2002 and Form 10-K/A filed on January 28, 2002, there have been no material changes in legal proceedings discussed in such Form 10-K. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K for the quarter ended December 28, 2001. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (a)1 Form of Underwriting Agreement (c)2 Merger Agreement by and between Seminis, Inc., an Illinois corporation and Seminis, Inc., a Delaware corporation (c)3.1 Certificate of Incorporation (c)3.2 Certificate of Designations of Class A Mandatorily Redeemable Preferred Stock and Class B Mandatorily Redeemable Preferred Stock of Seminis, Inc. (c)3.3 Certificate of Designations of Class C Redeemable Preferred Stock of Seminis, Inc. (c)3.4 By-Laws (c)4.1 Form of Class A Common Stock Certificate (a)4.2 Registration Rights Agreement by and among Seminis, Inc. and certain shareholders of Seminis, dated October 1, 1995 (c)5 Opinion of Milbank, Tweed, Hadley & McCloy LLP (a)10.1 Seminis, Inc. 1998 Stock Option Plan (b)10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan (a)10.3 Share Subscription Agreement by and between Seminis, Inc. and Hungnong Seed Co., Ltd., dated June 12, 1998 (c)10.4 Form of New Credit Facility among Seminis, Inc, Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as lenders, dated as of June 28, 1999 (c)10.5 Form of Letter Agreement between Savia, S.A. de C.V. and Seminis, Inc. dated as of June 21, 1999 (d)10.6 Second Amendment and Waiver to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, Dated as of June 29, 2000, effective March 31, 2000 (d)10.7 Security Agreement Re: Accounts, Inventory and General Intangibles among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 29, 2000 (e)10.8 Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of September 30, 2000, effective September 30, 2000. (d)10.9 Extension of Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust
EXHIBIT NUMBER DESCRIPTION - ------- ----------- and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of December 30, 2000, effective December 30, 2000. (f)10.10 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of December 29, 2000, effective December 29, 2000. (g)10.11 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of April 30, 2001, effective April 30, 2001.
EXHIBIT INDEX -- (CONTINUED)
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (g)10.11 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of April 30, 2001, effective April 30, 2001. (h)10.12 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of May 31, 2001, effective May 31, 2001. (i)10.13 Revision to (h) 10.12 (b)21 Subsidiaries of Registrant 27.1 Financial Data Schedule
- ---------- (a) Incorporated by reference to Seminis' Form S-1 filed on February 11, 1999. (b) Incorporated by reference to Seminis' Amendment No. 2 to Form S-1 filed on May 27, 1999. (c) Incorporated by reference to Seminis' Amendment No. 3 to Form S-1 filed on June 21, 1999. (d) Filed with the June 30, 2000 form 10Q. (e) Filed with the September 30, 2000 form 10K. (f) Filed with the December 30, 2000 form 10Q. (g) Filed with the March 30, 2001 form 10Q. (h) Filed with the June 29, 2001 form 10Q. (i) Filed with the September 30, 2001 form 10K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 5, 2002 SEMINIS, INC. /s/ Eugenio Najera Solorzano -------------------------------------------- Eugenio Najera Solorzano President (Principal Executive Officer) /s/ Gaspar Alvarez Martinez -------------------------------------------- Gaspar Alvarez Martinez Chief Financial and Accounting Officer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----