-----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, JrXy4iVD4wCxZJJSHryv5ddQdrRPDuYcXdgmaWOS7HSv9vQRxWcGp+33dDTIy2a+ RLeb8oDKBIwsUodQtvIWFw== 0000950124-99-000803.txt : 19990209 0000950124-99-000803.hdr.sgml : 19990209 ACCESSION NUMBER: 0000950124-99-000803 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990208 ITEM INFORMATION: FILED AS OF DATE: 19990208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONSANTO CO CENTRAL INDEX KEY: 0000067686 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 430420020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-02516 FILM NUMBER: 99524159 BUSINESS ADDRESS: STREET 1: 800 N LINDBERGH BLVD CITY: ST LOUIS STATE: MO ZIP: 63167 BUSINESS PHONE: 3146941000 MAIL ADDRESS: STREET 1: 800 NORTH LINDBERGH BLVD CITY: ST LOUIS STATE: MO ZIP: 63167 FORMER COMPANY: FORMER CONFORMED NAME: MONSANTO CHEMICAL CO DATE OF NAME CHANGE: 19711003 8-K/A 1 FORM 8-K/A 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 8, 1999 (DECEMBER 4, 1998) MONSANTO COMPANY (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 1-2516 (Commission File Number) 43-0420020 (I.R.S. Employer Identification Number) 800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167 (Address of principal executive offices) (Zip Code) (314) 694-1000 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 Monsanto Company ("Monsanto") hereby files Amendment No. 1 to its Form 8-K filed on December 8, 1998. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired (i) Financial statements of DEKALB Genetics Corporation ("DEKALB"), together with the related Report of Independent Public Accountants, are attached as Exhibit 99 and are incorporated herein by reference. (b) Pro Forma Financial Information (i) Unaudited Pro Forma Combined Condensed Statement of Financial Position as of September 30, 1998, including notes thereto. (ii) Unaudited Pro Forma Combined Condensed Statement of Income for the year ended December 31, 1997 and for the nine months ended September 30, 1998, including notes thereto. (c) Exhibits See the Exhibit Index attached hereto and incorporated herein by reference. 1 3 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the acquisition of DEKALB using the purchase method of accounting, after giving effect to the pro forma adjustments described in the accompanying notes. These unaudited pro forma combined condensed financial statements have been prepared from, and should be read in conjunction with, the historical consolidated financial statements and notes thereto of Monsanto and DEKALB which are incorporated by reference in this Form 8-K/A. It is necessary to present the unaudited pro forma combined condensed financial information with cautions as to its interpretations and usefulness. The purchase price allocations are based on preliminary assumptions and are subject to revision. Accordingly, it is probable that purchase accounting adjustments will differ from the pro forma adjustments. The unaudited pro forma combined condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred had the acquisition of DEKALB by Monsanto been consummated as of the dates indicated, nor is it necessarily indicative of future operating results or financial position of Monsanto. Further, the unaudited pro forma combined condensed financial information does not reflect any benefits or synergies that are expected to result from the acquisition. The Unaudited Pro Forma Combined Condensed Statement of Financial Position gives effect to the acquisition as if it had occurred on September 30, 1998, combining the statement of consolidated financial position for Monsanto as of September 30, 1998 and the consolidated balance sheet for DEKALB as of August 31, 1998. The Unaudited Pro Forma Combined Condensed Statements of Income give effect to the acquisition as if it had occurred at the beginning of the earliest period presented, combining the results of Monsanto for the year ended December 31, 1997 and the nine months ended September 30, 1998 with the results of DEKALB for the 12 months ended November 30, 1997 and the nine months ended August 31, 1998, respectively. In the fourth quarter of 1998, Monsanto issued 25 million shares of Monsanto Common Stock, $700 million of 6.50 percent Adjustable Conversion-rate Equity Security Units (ACES), and $2.5 billion of senior unsecured long-term debt with an average interest rate of 6 percent, related to several acquisitions of seed companies. For purposes of these unaudited pro forma combined condensed financial statements, the common stock, the ACES and $583 million of the long-term debt were assumed to be used to finance the DEKALB acquisition. As a result of the acquisition and in connection with the merger agreement, DEKALB cancelled its outstanding stock options in exchange for cash paid to option holders. DEKALB recognized an aftertax charge of $48 million for the cancellation of these options. The cancellation was completed prior to the acquisition closing date of December 4. This charge has not been reflected in the Unaudited Pro Forma Combined Condensed Statement of Income because of its nonrecurring nature; however the $20 million portion related to Monsanto's pre-existing equity interest in DEKALB has been reflected as a reduction to reinvested earnings in the Unaudited Pro Forma Combined Condensed Statement of Financial Position. As a result of the acquisition of DEKALB, Monsanto recognized an after-tax charge of $151 million in the fourth quarter of 1998 for the write-off of acquired in-process research and development (R&D). The amount of this write-off was determined by an independent valuation. Management believes that the technological feasibility of the acquired in-process R&D has not been established and that it has no alternative future uses. Accordingly, the amounts allocated to in-process R&D were expensed immediately under generally accepted accounting principles. This estimated write-off for acquired in-process R&D has not been reflected in the Unaudited Pro Forma Combined Condensed Statement of Income because of its nonrecurring nature; however, it has been reflected as a reduction to reinvested earnings in the Unaudited Pro Forma Combined Condensed Statement of Financial Position. 2 4 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL POSITION AS OF SEPTEMBER 30, 1998 (DOLLARS IN MILLIONS)
HISTORICAL -------------------- PRO FORMA PRO FORMA MONSANTO DEKALB ADJUSTMENTS COMBINED -------- ------ ----------- --------- ASSETS Current Assets: Cash and cash equivalents..................... $ 215 $ (20)(2b) $ 147 (48)(3) Trade Receivables............................. 2,845 $ 69 (10)(4) 2,904 Miscellaneous receivables and prepaid expenses................................... 731 10(4) 770 29(4) Deferred income tax benefit................... 302 15 317 Inventories................................... 1,505 184 1,689 Other current assets.......................... 29 (29)(4) ------- ---- ------ ------- Total Current Assets....................... 5,598 297 (68) 5,827 ------- ---- ------ ------- Property, Plant and Equipment -- Net............ 2,729 238 27(2b) 2,994 Investments in Affiliates....................... 359 8 (160)(1) 207 Intangible Assets, net of accumulated amortization.................................. 3,127 39 75(1) 5,321 2,052(2b) 28(3) Other Assets.................................... 1,053 9 1,062 ------- ---- ------ ------- Total Assets............................... $12,866 $591 $1,954 $15,411 ======= ==== ====== ======= LIABILITIES AND SHAREOWNERS' EQUITY Current Liabilities: Accounts payable.............................. $ 452 $ 45 $ 497 Accrued liabilities........................... 1,819 49 $ 34(2c) 1,902 Short-term debt............................... 2,169 139 2,308 ------- ---- ------ ------- Total Current Liabilities.................. 4,440 233 34 4,707 ------- ---- ------ ------- Long-Term Debt.................................. 2,506 113 1,283(2a) 3,902 Deferred Income Taxes........................... 100 23 60(2d) 183 Postretirement Liabilities...................... 838 838 Other Liabilities............................... 296 10 16(2c) 322 Shareowners' Equity: Common stock.................................. 1,644 4 (2)(1) 1,694 50(2a) (2)(2f) Additional contributed capital................ 518 124 (50)(1) 1,412 894(2a) (74)(2f) Treasury stock, at cost....................... (2,500) (2) 1(1) (2,500) 1(2f) Reinvested earnings........................... 5,272 92 (36)(1) 5,101 (151)(2e) (56)(2f) (20)(3) Reserve for ESOP debt retirement.............. (111) (111) Accumulated other comprehensive loss.......... (137) (6) 2(1) (137) 4(2f) ------- ---- ------ ------- Total Shareowners' Equity.................. 4,686 212 561 5,459 ------- ---- ------ ------- Total Liabilities and Shareowners' Equity....... $12,866 $591 $1,954 $15,411 ======= ==== ====== =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statement of Financial Position 3 5 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL POSITION Pro forma adjustments were made to the Unaudited Pro Forma Combined Condensed Statement of Financial Position to reflect the following: NOTE 1 To eliminate the 40 percent of DEKALB that Monsanto already owned, and to reclassify the related goodwill. NOTE 2 (a) To record the issuance of $944 million of common stock, $700 million of 6.50 percent ACES and $583 million of long-term debt with an average interest rate of 6 percent for the purchase price of the remaining 60 percent of DEKALB. (b) To record the excess of the purchase price of DEKALB, including $20 million of acquisition costs, over net assets acquired, and to adjust DEKALB's net assets acquired to estimated fair market values. (c) To record liabilities assumed in connection with the acquisition, primarily for workforce reductions. (d) To record the deferred tax liability related to (b) and (c) above, based on the effective tax rate of 38 percent. (e) To record the write-off of acquired in-process R&D. (f) To eliminate the remaining 60 percent of DEKALB's historical equity accounts. NOTE 3 To record for the cancellation of DEKALB stock options in exchange for cash. NOTE 4 To reclassify to conform to Monsanto's presentation. There were no significant transactions between Monsanto and DEKALB to eliminate. 4 6 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------ PRO FORMA PRO FORMA MONSANTO DEKALB ADJUSTMENTS COMBINED -------- ------ ----------- --------- Net Sales........................................ $6,500 $ 439 $6,939 Costs and Expenses: Cost of Goods Sold............................... 2,622 241 $ 3(2) 2,866 Selling, General and Administrative Expenses..... 1,746 109 1,855 Technological Expenses........................... 967 71 (1)(5) 1,037 Acquired In-Process Research and Development..... 189 189 Amortization of Intangible Assets................ 206 67(2) 274 1(5) Restructuring Expense (Income)................... (35) (35) Interest Expense................................. 214 7 60(3) 284 3(5) Interest Income.................................. (39) (3)(5) (42) Other Expense -- Net............................. 27 2(1) 29 ------ ----- ----- ------ Income Before Income Taxes....................... 603 11 (132) 482 Income Taxes..................................... 250 3 (32)(4) 221 ------ ----- ----- ------ Net Income....................................... $ 353 $ 8 $(100) $ 261 ====== ===== ===== ====== Basic Earnings per Share......................... $ 0.59 $0.23 $ 0.42 Diluted Earnings per Share....................... $ 0.56 $0.22 $ 0.40 Average number of common shares outstanding during the period -- basic..................... 600.4 34.6 (34.6)(6)(8) 625.4 25.0(7) Average number of common shares outstanding during the period -- diluted................... 626.8 36.4 (36.4)(6)(8) 651.8 25.0(7)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Income 5 7 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO ------------------ PRO FORMA FORMA MONSANTO DEKALB ADJUSTMENTS COMBINED -------- ------ ----------- -------- Net Sales........................................ $7,514 $ 448 $7,962 Costs and Expenses: Cost of Goods Sold............................... 3,091 226 $ 4(2) 3,321 Selling, General and Administrative Expenses..... 2,023 115 2,138 Technological Expenses........................... 1,044 58 (1)(5) 1,101 Acquired In-Process Research and Development..... 684 684 Amortization of Intangible Assets................ 173 89(2) 263 1(5) Interest Expense................................. 170 6 81(3) 260 3(5) Interest Income.................................. (45) (3)(5) (48) Other Expense (Income) -- Net.................... 8 (4) 7(1) 11 ------ ----- ----- ------ Income Before Income Taxes....................... 366 47 (181) 232 Income Taxes..................................... 72 18 (43)(4) 47 ------ ----- ----- ------ Net Income....................................... $ 294 $ 29 $(138) $ 185 ====== ===== ===== ====== Basic Earnings per Share......................... $ 0.50 $0.84 $ 0.30 Diluted Earnings per Share....................... $ 0.48 $0.80 $ 0.29 Average number of common shares outstanding during the period -- basic..................... 588.7 34.5 (34.5)(6)(8) 613.7 25.0(7) Average number of common shares outstanding during the period -- diluted................... 609.6 36.1 (36.1)(6)(8) 634.6 25.0(7)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Income 6 8 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME Pro forma adjustments were made to the Unaudited Pro Forma Combined Condensed Statement of Income to reflect the following: NOTE 1 To eliminate 40 percent of DEKALB's net income recorded as income from equity affiliates in Monsanto's Statement of Consolidated Income. NOTE 2 To record the additional depreciation and amortization expense resulting from the fair market value adjustments to fixed assets and intangibles recorded in connection with the acquisition. NOTE 3 To record the increase in interest expense resulting from the issuance of $700 million of ACES at an interest rate of 6.50 percent and the issuance of $583 million of long-term debt at an average interest rate of 6 percent. NOTE 4 To record the income tax effects of the tax deductible pro forma adjustments in Note 2 and Note 3, based on the effective tax rate of 38 percent. NOTE 5 To reclassify to conform to Monsanto's presentation. NOTE 6 To eliminate the outstanding shares of DEKALB acquired by Monsanto. NOTE 7 To reflect the issuance of 25 million shares of Monsanto common stock in connection with the purchase of DEKALB. NOTE 8 To reflect the cancellation of DEKALB stock options in connection with the acquisition. 7 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MONSANTO COMPANY -------------------------------------- (Registrant) By /s/ TOM D. HARTLEY ------------------------------------ Tom D. Hartley Assistant Controller Date: February 8, 1999 8 10 EXHIBIT INDEX These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 1 Omitted--Inapplicable 2 Agreement and Plan of Merger, dated as of May 8, 1998, by and among Monsanto Company, Corn Acquisition Corporation and DEKALB Genetics Corporation (incorporated by reference to Exhibit (c) (1) to the Tender Offer Statement on Schedule 14D-1 of the Company, dated May 15, 1998). 4 Omitted -- Inapplicable 16 Omitted -- Inapplicable 17 Omitted -- Inapplicable 20 Omitted -- Inapplicable 23 Consent of Arthur Andersen LLP 24 Omitted -- Inapplicable 27 Omitted -- Inapplicable 99 Financial Statements of DEKALB
9 EX-23.1 2 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report (relating to the financial statements of DEKALB Genetics Corporation) dated October 2, 1998, included in this Form 8-K/A, into the Monsanto Company's previously filed Registration Statement File Nos. 2-36636, 2-76696, 2-90152, 23-13197, 33-21030, 33-39704, 33-39705, 33-39706, 33-39707, 33-49717, 33-53363, 33-53365, 33-53367, 333-02783, 333-02961, 333-02963, 333-33531, 333-38599 and 333-45341. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Chicago, Illinois February 5, 1999 EX-99 3 FINANCIAL STATEMENTS OF DEKALB 1 EXHIBIT 99 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of DEKALB Genetics Corporation: We have audited the accompanying consolidated balance sheets of DEKALB Genetics Corporation (a Delaware corporation) and subsidiaries as of August 31, 1998 and 1997, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended August 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DEKALB Genetics Corporation and subsidiaries as of August 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 1998 in conformity with generally accepted accounting principles. /S/ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Chicago, Illinois October 2, 1998 2 DEKALB GENETICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
for the years ended August 31 - in millions except per share amounts 1998 1997 1996 - -------------------------------------------------------------------------------- Revenues $502.2 $451.4 $387.5 Cost of revenues 275.2 230.5 202.1 - -------------------------------------------------------------------------------- Gross Margin 227.0 220.9 $185.4 Selling expense 96.3 83.1 73.9 Research and development expense 77.1 57.3 47.6 General and administrative expense 29.3 33.2 31.1 - -------------------------------------------------------------------------------- Operating Earnings 24.3 47.3 32.8 - -------------------------------------------------------------------------------- Interest expense, net (9.5) (4.9) (6.1) Other income, net 0.4 4.0 1.4 - -------------------------------------------------------------------------------- Earnings before income taxes 15.2 46.4 28.1 Income tax provision 4.9 17.6 11.1 - -------------------------------------------------------------------------------- NET EARNINGS $ 10.3 $ 28.8 $ 17.0 ================================================================================ BASIC EARNINGS PER SHARE $ 0.30 $ 0.84 $ 0.52 ================================================================================ DILUTED EARNINGS PER SHARE $ 0.28 $ 0.81 $ 0.51 ================================================================================ DIVIDENDS PER SHARE $ 0.14 $ 0.14 $ 0.137 ================================================================================
The accompanying notes are an integral part of the financial statements. 3 DEKALB GENETICS CORPORATION CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
at August 31 - in millions 1998 1997 - ------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ -- $ 5.2 Receivables, net 69.5 67.5 Inventories 184.5 139.1 Deferred income taxes 14.6 6.9 Other current assets 28.7 7.8 ------------------------------------------------------------------------- Total current assets $ 297.3 $ 226.5 ------------------------------------------------------------------------- Investments and advances 7.5 7.2 Intangible assets, net 38.9 40.3 Other assets 9.3 9.5 Property, plant and equipment, net 237.8 166.1 ------------------------------------------------------------------------- Total Assets $ 590.8 $ 449.6 ========================================================================= LIABILITIES AND Current liabilities: SHAREHOLDERS' EQUITY Short-term debt $ 139.0 $ 34.5 Accounts payable, trade 9.1 15.6 Other accounts payable 35.8 37.3 Other current liabilities 49.2 46.1 ------------------------------------------------------------------------- Total current liabilities $ 233.1 $ 133.5 ------------------------------------------------------------------------- Deferred compensation and other credits 10.2 9.9 Deferred income taxes 23.2 20.1 Long-term debt 112.9 90.0 ------------------------------------------------------------------------- Total long-term liabilities $ 146.3 $ 120.0 ------------------------------------------------------------------------- Commitments and contingent liabilities Shareholders' equity: Capital stock: Common, Class A; no par value, authorized 15,000,000 shares issued 4,552,994 for 1998 and 4,698,392 for 1997 0.5 0.5 Common, Class B; no par value, non-voting, authorized 45,000,000 shares issued 30,087,593 for 1998 and 30,105,987 for 1997 3.0 3.0 Capital in excess of stated value 124.2 114.9 Retained earnings 91.4 85.9 Cumulative translation adjustment (6.1) (5.7) ------------------------------------------------------------------------- $213.0 $ 198.6 Less treasury stock, at cost: 287,182 and 443,206 shares of Class B in 1998 and 1997, respectively. (1.6) (2.5) ------------------------------------------------------------------------- Total shareholders' equity $211.4 $ 196.1 - ------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $590.8 $ 449.6 ================================================================================================
The accompanying notes are an integral part of the financial statements. 4 DEKALB GENETICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
For the years ended August 31 - in millions ----------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 10.3 $ 28.8 $ 17.0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15.5 13.8 11.3 (Gain) on sale of fixed assets 0.6 (0.6) (0.2) Provision for losses on accounts receivable 0.8 2.8 1.2 Provision for deferred income taxes (4.4) 6.0 1.8 Provision for inventory valuation 5.3 11.8 7.3 Equity (earnings) loss, net of dividends 0.8 (2.2) (1.7) ------ ------ ------ 18.6 31.6 19.7 Changes in assets and liabilities: Receivables (2.7) (15.3) 1.9 Other current assets (28.7) (2.2) (1.1) Inventories (50.7) (51.8) (0.5) Accounts payable (8.1) 5.3 25.2 Accrued expenses 1.8 5.6 8.2 Current taxes payable 1.3 3.2 1.8 Deferred income taxes 7.4 (1.2) (1.2) Other assets and liabilities 0.7 (0.5) (0.8) ------ ------ ------ (79.0) (56.9) 33.5 Net cash flow (used) provided by operating activities (50.1) 3.5 70.2 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (90.3) (59.4) (30.7) Proceeds from sale of property, plant and equipment 2.7 1.9 0.4 Acquisitions and investments -- -- (3.2) ------ ------ ------ (87.6) (57.5) (33.5) Net cash flow used by investing activities - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings 104.6 34.4 -- Proceeds from long-term borrowings 22.9 5.0 -- Principal payments made on debt -- -- (42.8) Sale of equity 6.3 0.6 27.6 Dividends paid (4.8) (4.8) (4.3) Other capital transactions 3.9 2.2 1.3 ------ ------ ------ 132.9 37.4 (18.2) Net cash flow (used) provided by financing activities - ------------------------------------------------------------------------------------------------------------- Net effect of exchange rates on cash (0.4) (1.5) 1.8 ------ ------ ------ Net increase (decrease) in cash and cash equivalents (5.2) (18.1) 20.3 Cash and cash equivalents, at the beginning of the year 5.2 23.3 3.0 ------ ------ ------ Cash and cash equivalents, at the end of the year $ 0.0 $ 5.2 $ 23.3 ============================================================================================================ Note: Cash paid during the year for: Income taxes $ 6.9 $ 8.4 $ 7.6 Interest $ 7.5 $ 7.3 $ 6.9
The accompanying notes are an integral part of the financial statements. 5 DEKALB GENETICS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
at August 31-in millions except 1998 1997 1996 shares in thousands Dollars Shares Dollars Shares Dollars Shares ----------- ----------- ----------- ------------ ------------- --------- Class A Common Stock Balance, beginning of year $ 0.5 4,698 $ 0.2 2,404 $ 0.1 773 Exchange Class A for Class B -- (269) -- (185) -- (99) Stock options exercised -- 60 -- 87 -- 32 Employee 401(k) stock plan -- 64 -- 32 -- 14 Sale of equity to Monsanto Company -- -- -- -- -- 81 Three-for-one stock split effected in the form of a 200% stock dividend -- -- -- -- 0.1 1,603 Restricted Stock -- -- -- 10 -- -- Two-for-one stock split effected in the form of a 100% stock dividend -- -- 0.3 2,350 -- -- --------- --------- --------- ------- --------- ------- Balance, end of year $ 0.5 $ 4,553 $ 0.5 4,698 $ 0.2 2,404 - -------------------------------------------------------------------------------------------------------------------------- Class B Common Stock Balance, beginning of year $ 3.0 30,106 $ 1.5 14,868 $ 0.4 4,485 Exchange Class A for Class B -- 269 -- 185 -- 99 Sale of equity to Monsanto Company -- -- -- 12 0.1 378 Three-for-one stock split effected in the form of 200% stock dividend -- -- -- -- 1.0 9,906 Two-for-one stock split effected in the form of a 100% stock dividend -- -- 1.5 15,041 -- -- --------- --------- --------- ------- --------- ------- Balance, end of year $ 3.0 $ 30,375 $ 3.0 30,106 $ 1.5 14,868 - ------------------------------------------------------------------------------------------------------------------------- Capital in Excess of Stated Value Balance, beginning of year $ 114.9 $ 109.7 $ 80.9 Sale of equity to Monsanto Company 5.4 0.6 27.6 Stock options exercised 0.4 0.5 0.6 Non-qualified stock option tax benefit 1.0 2.3 -- Employee 401(k) stock plan 2.8 1.5 0.5 Director Stock Option Plan 0.1 0.3 0.1 Authorized share increase (0.4) -- -- --------- --------- --------- Balance, end of year $ 124.2 $ 114.9 $ 109.7 - ------------------------------------------------------------------------------------------------------------------------- Retained Earnings Balance, beginning of year $ 85.9 $ 63.7 $ 52.3 Net Income 10.3 28.8 17.0 Cash dividends on common stock ($0.14 per share in 1998, $0.14 per share in 1997, and $0.137 per share in 1996 (4.8) (4.8) (4.5) Three-for-one stock split effected in the form of a 200% stock dividend -- -- (1.1) Two-for-one stock split effected in the form of a 100% stock dividend -- (1.8) -- --------- --------- --------- Balance, end of year $ 91.4 $ 85.9 $ 63.7 - ------------------------------------------------------------------------------------------------------------------------- Cumulative Translation Adjustment Balance, beginning of year $ (5.7) $ (4.1) (5.0) Translation gain/(loss) (0.4) (1.6) 0.9 --------- --------- -------- Balance, end of year $ (6.1) $ (5.7) (4.1) - ------------------------------------------------------------------------------------------------------------------------- Treasury Stock Balance, beginning of year $ (2.5) (443) $ (2.4) (220) $ (2.4) (74) Stock options exercised -- -- -- -- (0.1) (2) Employee 401(k) stock plan -- -- -- -- 0.1 2 Three-for-one stock split effected in the form of a 200% stock dividend -- -- -- -- -- (146) Two-for-one stock split effected in the form of a 100% stock dividend -- -- -- (221) -- -- Treasury stock repurchase (0.1) (2) -- -- Sale of equity to Monsanto Company 0.9 156 -- -- -- -- --------- --------- --------- ------- --------- ------- Balance, end of year $ (1.6) (287) (2.5) (443) $ (2.4) (220) - ------------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity $ 211.4 $ 196.1 $ 168.6 =========================================================================================================================
The accompanying notes are an integral part of the financial statements. 6 DEKALB Genetics Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the seed division ("DEKALB Seed") and DEKALB Swine Breeders, Inc. ("DEKALB Swine"). The accounts of the DEKALB subsidiary in Argentina are included on the basis of its May 31 fiscal year, which more properly reflects the growing season in that country. Transactions between this date and the Company's fiscal year-end are not considered material. The Company's investments in related companies (owned 50% or less), primarily in Mexico, are carried at cost plus equity in undistributed net earnings and losses since dates of acquisition. Carrying values approximate the Company's interest in the net assets of these related companies. INTANGIBLE ASSETS - Intangible assets consist primarily of the cost of purchased businesses in excess of market value of net assets acquired (goodwill). In accordance with company policy, DEKALB assesses recoverability and impairment of goodwill on an annual basis. DEKALB amortizes goodwill on a straight-line method over 40 years. PROPERTY, PLANT AND EQUIPMENT - It is the policy of DEKALB to capitalize expenditures for major renewals and betterments and to charge to operating expenses the cost of current maintenance and repairs. Provisions for depreciation have been computed principally on the straight-line method, based on expected lives, for buildings and equipment. Rates used for depreciation are determined separately for individual plants and locations and are based principally on the following expected lives: buildings - 12.5 to 33.5 years; equipment - 4 to 12.5 years; other - 3 to 20 years; and leasehold improvements - term of lease or useful life, whichever is shorter. The cost and accumulated allowances for depreciation and amortization relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of disposition. The resulting gain or loss is included in "other income, net." INCOME TAXES - In accordance with SFAS 109, the Company accounts for income taxes under the asset and liability method. The asset and liability method is applied using enacted tax rates expected to apply when temporary differences between financial and tax reporting are realized. The amount of income tax expense recognized for a period is the amount of income taxes currently payable or refundable, plus or minus the change in aggregate deferred tax assets and liabilities. The most significant of these differences are set forth in Note L. At August 31 of each year presented, United States income taxes were provided on undistributed earnings of non-U.S. subsidiaries. FOREIGN CURRENCY TRANSLATION - Effective in fiscal 1995, the Company no longer considered certain countries hyperinflationary for purposes of applying Statement of Financial Accounting Standards No. 52 (SFAS No. 52), "Foreign Currency Translation." Foreign-currency assets and liabilities are translated into their U.S. dollar equivalents based on rates of exchange prevailing at the end of the respective period. Translation adjustments resulting from translating foreign currency financial statements of consolidated subsidiaries into their U.S. dollar equivalents are reported separately and accumulated in a component of shareholders' equity. STATEMENT OF CASH FLOWS - DEKALB classifies highly liquid investments with original maturities of three months or less as cash and cash equivalents. CONCENTRATION OF CREDIT RISK - The Company's business activity is primarily with dealers and distributors located in the United States and certain foreign countries. When the Company grants credit, it is primarily to customers whose ability to pay is dependent upon the agribusiness economics prevailing in that specific area of the world. No significant concentration of credit risk exists. REVENUE RECOGNITION - The Company recognizes revenues upon shipment of goods, with discounts and returned goods partially offsetting this amount. 7 DEKALB Genetics Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued RECLASSIFICATIONS - Certain expense reclassifications have been made for segment comparability purposes. These reclassifications had no effect on net earnings. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DEFERRED LICENSING COSTS - The Company defers direct costs associated with company-owned swine licensed under the royalty program. Revenue recognition under a third party licensing agreement occurs, in part, at initiation of the license and, in future years, in the form of royalties from selected progeny. The costs deferred are direct costs, primarily feed and the labor to produce the swine. These costs are amortized in proportion to the estimated revenue from the license agreement. The average license period is 2.5 years. The amount of costs deferred (net) in fiscal 1998, 1997, and 1996 was $0.3 million, $2.3 million, and $3.0 million, respectively. EARNINGS PER SHARE - Basic earnings per share of common stock are calculated by dividing net earnings by the weighted average of common shares outstanding during each fiscal year; 34,577,265, 34,250,522 and 32,515,743 in 1998, 1997 and 1996, respectively. Diluted earnings per share of common stock are calculated by dividing net earnings by the weighted average of common and common equivalent (stock options) shares outstanding during each fiscal year; 36,364,767, 35,744,050 and 33,553,649 in 1998, 1997 and 1996, respectively. During fiscal 1998 the Company adopted the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," effective February 28, 1998. Shares outstanding and per share amounts have been restated for prior years. STOCK-BASED COMPENSATION - The Company continues to account for its employee stock option plans using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which results in no charge to earnings when options are issued at fair market value. The Company has adopted the disclosure requirements of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation. NEW ACCOUNTING STANDARDS - The Company adopted Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of," in fiscal 1997. The new accounting standard had no impact on the carrying value of the Company's long lived assets as of August 31, 1997 and 1998. During fiscal year 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," effective for both interim and annual periods ending after December 15, 1997. The standard simplifies the computation of earnings per share and will be comparable to fully diluted earnings per share presently reflected under APB Opinion No. 15. During fiscal 1998 the Company adopted the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," effective February 28, 1998. Shares outstanding and per share amounts have been restated for prior years. In June 1997 the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," which establishes standards for reporting of comprehensive income. This pronouncement requires that all items be recognized as components of comprehensive income, as defined in the pronouncement, be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income included all changes in equity during a period except those resulting from investments by owners and distributions to owners. The financial statement presentation required under Statement No. 130 is effective for all fiscal year's beginning after December 15, 1997. The Company had planned to adopt Statement No. 130 in fiscal 1998, but due to the pending sale of the Company, management decided to delay adoption. As of August 31, 1998, the impact of adopting this pronouncement has not been determined, however; the Company expects it will be affected by it. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which amends the requirements for a public enterprise to report financtial and descriptive information about its reportable operating segments. Operating segments, as defined in the pronouncement, are components of an enterprise about which separate financial information is available that is evaluated regularly by 8 DEKALB Genetics Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued the company in deciding how to allocate resources and in accessing performance. The financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The disclosures required by Statement No. 131 are effective for all fiscal years beginning after December 15, 1997. The Company had planned to adopt Statement No. 131 in fiscal 1998, but due to the pending sale of the Company, management decided to delay adoption. This pronouncement will have an affect on the Company's reporting in the subsequent periods. However, as of August 31, 1998, the impact of this pronouncement has not been determined. In July 1998 the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and for Hedging Activities," which replaces existing pronouncements and practices with a single, integrated accounting framework for derivatives and hedging activities. The Company plans to adopt Statement No. 133 in fiscal 1999. This pronouncement will have an affect on the Company's reporting in the subsequent periods. However, as of August 31, 1998, the impact of this pronouncement has not been determined. 9 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- B. STOCK SPLIT During fiscal year 1997 the Company declared a two-for-one stock split effected in the form of a stock dividend. Shares were distributed on August 8, 1997 to holders of record on July 25, 1997. The Company's annual cash dividend was subsequently adjusted to 14 cents per share from 28 cents per share. In fiscal 1996, the Company declared a three-for-one stock split effected in the form of a stock dividend to holders of record May 10, 1996 with shares being distributed on May 24, 1996. Following this split, the quarterly cash dividend was increased five percent. All share numbers and earnings per share information in this document have been adjusted to reflect these stock splits. C. STATEMENT OF OPERATIONS DATA
for the years ended August 31 - in millions 1998 1997 1996 - -------------------------------------------------------------------------------- (1) INTEREST EXPENSE, NET Interest expense $ (12.6) $ (7.5) $ (8.3) Interest income 3.1 2.6 2.2 - -------------------------------------------------------------------------------- Interest Expense, net $ (9.5) $ (4.9) $ (6.1) ================================================================================ for the years ended August 31 - in millions 1998 1997 1996 - -------------------------------------------------------------------------------- (2) OTHER INCOME, NET Equity in net earnings of related companies $ 4.7 $ 4.0 $ 1.7 Gain(Loss) on sale of fixed assets (0.6) 0.6 0.2 All others, net (3.7) (0.6) (0.5) - -------------------------------------------------------------------------------- Other income, net $ 0.4 $ 4.0 $ 1.4 ================================================================================ for the years ended August 31 - in millions 1998 1997 1996 - -------------------------------------------------------------------------------- (3) RESEARCH AND DEVELOPMENT EXPENSE DEKALB Seed $ 70.3 $ 50.2 $ 40.9 DEKALB Swine 6.8 7.1 6.7 - -------------------------------------------------------------------------------- Research and development expense $ 77.1 $ 57.3 $ 47.6 ================================================================================
10 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- D. RECEIVABLES
at August 31 - in millions 1998 1997 - -------------------------------------------------------------------------------- Trade accounts and notes $ 66.1 $ 64.9 Employees 1.8 2.1 Related companies 0.7 0.2 Other 8.2 5.6 - -------------------------------------------------------------------------------- $ 76.8 $ 72.8 Less allowance for doubtful accounts $ 7.3 $ 5.3 - -------------------------------------------------------------------------------- Receivables, net $ 69.5 $ 67.5 ================================================================================
E. INVENTORIES
at August 31 - in millions 1998 1997 - -------------------------------------------------------------------------------- At lower of cost or market: Commercial seed-average cost $ 168.8 $ 124.5 Commercial swine-average cost 9.3 10.0 Supplies and other-principally first-in, first-out 6.4 4.6 - -------------------------------------------------------------------------------- Inventories $ 184.5 $ 139.1 ================================================================================
11 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- F. PROPERTY, PLANT AND EQUIPMENT, NET (AT COST)
at August 31 - in millions 1998 1997 - -------------------------------------------------------------------------------------- Land $ 9.5 $ 9.6 Buildings 124.3 97.7 Equipment 150.2 156.0 Other 36.0 11.9 Construction in progress 72.1 45.9 - -------------------------------------------------------------------------------------- 392.1 321.1 Less accumulated depreciation and amortization 154.3 155.0 - -------------------------------------------------------------------------------------- Property, plant and equipment, net $ 237.8 $ 166.1 ======================================================================================
G. OTHER CURRENT LIABILITIES
at August 31 - in millions 1998 1997 - --------------------------------------------------------------------------- Current income taxes $ 4.1 $ 2.9 Payroll 9.9 8.4 Vacation 3.4 3.2 Pensions and other credits 0.5 3.3 Insurance 1.8 2.5 Taxes, other than income 3.4 3.5 Production costs 10.4 10.8 Other 15.7 11.5 - --------------------------------------------------------------------------- Other current liabilities $ 49.2 $ 46.1 ===========================================================================
12 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- H. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES During 1995, the Company adopted Statement of Financial Accounting Standards No. 119, "Disclosures About Derivative Financial Instruments and Fair Value of Financial Instruments". This statement in conjunction with Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" requires certain disclosures about the fair value of financial instruments, including derivative financial instruments for which it is practicable to estimate fair value. The following methods and assumptions were used to estimate the fair market value of each class of financial instrument. TRADE ACCOUNTS AND NOTES RECEIVABLE The carrying amount of the Company's trade accounts and notes receivable approximates market value. SHORT-TERM AND LONG-TERM DEBT Short-term debt represents borrowings against lines of credit with various banks. The weighted average interest rate on short-term borrowings for fiscal 1998 was approximately 6.0%. At August 31, 1998, committed lines of credit available to DEKALB included a $50 million revolving credit agreement and $15 million in credit facilities for a 364 day period. The revolving credit agreement provides credit for general purposes and is committed through December 31, 2003, but may be extended annually for successive one year periods with the consent of the lending banks. The line of credit requires a step-down to $20.0 million for any one day during each year. The agreement contains various restrictions on the activities of the Company as to minimum tangible net worth, amount and type of indebtedness and the acquisition or disposition of capital shares or assets of the Company and its subsidiaries. At August 31, 1998, tangible net worth was approximately $172.5 million, which meets these covenant requirements. The Company pays a commitment fee of 1/10 of 1% for the active portion of its line of credit. The base amount of $20.0 million is available throughout the year. An additional $30.0 million available for seasonal needs during six months of the year beginning as early as October 31, of any year but no later than December 31 of the same year. The available line of credit at August 31, 1998 was entirely unused. The $15 million in credit facilities carry a 5 basis point fee on the unused portion of the commitment. The line was fully utilized in fiscal 1998 and, therefore, no fees were required. The carrying amount of the Company's long-term debt and all the Company's short-term debt approximates market value because rates on those debt agreements are variable and are set periodically based on current rates during the year. Exceptions would be the $20 million long-term loan which has a fixed rate of 7.15%, two $5 million long-term loans which have fixed rates of 7.56% and 6.98%, respectively, two $10 million long-term loans with fixed rates of 6.93% and 6.5%, respectively, a $4 million long-term loan with a fixed rate of 10.25% and a $5 million long-term loan with a fixed rate of 10.5%. The Company estimated the market value of its long-term debt by utilizing a discounted cash flow methodology. 13 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- H. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES (CONTINUED) SWAP AGREEMENTS The Company has entered into interest rate swap agreements with third parties to manage interest rate movements on the majority of its variable rate term debt. At August 31, 1998, the Company had swap agreements with an aggregate notional principal amount of $40 million and an average interest rate of 6.0 percent, maturing in fiscal 2003. Any interest rate differential on these swap agreements is recognized in interest expense, net over the terms of the agreements. The interest expense related to swap agreements was $0.1 million for years 1998, 1997 and 1996. The Company is exposed to credit loss in the event of nonperformance by the other parties to the agreements. However, the Company does not anticipate nonperformance by any of those parties. The Company estimated the market value of its interest rate swap agreements by utilizing a discounted cash flow methodology. DERIVATIVES DEKALB has contractual commitments with seed growers for payments based on local market corn and soybean commodity prices. To mitigate the impact of fluctuation in these prices on inventory costs, the Company hedges these payments by using Chicago Board of Trade corn and soybean futures contracts. Growers not priced at the end of August are normally priced by March, at which time the related futures contracts are closed. The Company estimates the timing of grower payment pricing to determine the futures maturities. In addition, the Company, from time to time, hedges its exposure to price fluctuations in grain used for swine feed. Gains or losses on these hedge positions are included as a component of the applicable year's inventory. At August 31, 1998 and 1997, the Company had corn and soybean futures contracts outstanding with a contract market value of $28.8 million and $1.6 million, respectively. Margin deposits for open futures and/or option contracts are recorded as other current assets. DEKALB sells market hogs, which are by-products from the production of breeding animals, to independent processing and packing firms at the premium to the major market averages. The Company periodically hedges against the exposure of price fluctuations in these markets by using Chicago Mercantile Exchange hog futures contracts. At August 31, 1998 the Company had hog futures contracts outstanding with a contract market value of $0.1 million. At August 31, 1997, the Company had no hog futures contracts outstanding. As of August 31, 1998 the net unrecognized loss on open futures contracts was $5.0 million. As of August 31, 1997 the net unrecognized gain on open futures contracts was $0.1 million. The Company reviews potential foreign currency risks on an on-going basis and is party to forward contracts in the management of its foreign currency exposure related to royalty income and export sales. In order to reduce its exposure to foreign currency fluctuation related to royalty payments from its French licensee and export receipts from its Italian subsidiary, the Company utilizes foreign currency forward contracts with maturities that mirror the anticipated receipts and payments in October and November. At August 31, 1998 and 1997, the Company had French franc forward contracts outstanding with an aggregate contract market value of $4.4 million and $6.3 million, respectively, and Italian lira forward contracts outstanding with an aggregate contract market value of $4.9 million and $5.8 million, respectively. Other foreign currency transactions occur in the Argentine peso and the Canadian dollar, although there were no foreign currency contracts outstanding for those currencies at year end. The Company had an unrealized gain of $0.2 million in fiscal 1998 and $1.5 million in fiscal 1997 related to the aggregate of all foreign currency contracts. The fair value of cash equivalents, receivables, short-term borrowings, long-term debt, and interest rate swaps approximates carrying value at August 31, 1998. 14 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- I. LONG-TERM DEBT
at August 31 - in millions 1998 1997 - ------------------------------------------------------------------------------- Term loans, variable rates, due 2000-2003 $ 55.0 $ 50.0 Term loans, 7.15% fixed rate, due from 1999-2007 20.0 20.0 Term loan, 7.56% fixed rate, due from 1999-2005 5.0 5.0 Term loan, 6.98% fixed rate, due from 1999-2006 5.0 5.0 Term loan, 6.93% fixed rate, due 2003 10.0 10.0 Term loan, 6.50% fixed rate, due 2003 10.0 -- Term loan, 10.25% fixed rate, due 2000 4.0 -- Term loan, 10.50% fixed rate, due 2000 5.0 -- - ------------------------------------------------------------------------------- 114.0 90.0 Less current maturities 1.1 -- - ------------------------------------------------------------------------------- Net long-term debt $ 112.9 $ 90.0 ===============================================================================
The variable rate term loan agreements allow the Company to borrow at rates based on the London Interbank Offer Rate on Eurodollar deposits (LIBOR). At August 31, 1998, interest on the variable rate term loans was at a rate of approximately 6.0%. All of the term loans contain similar restrictive covenants. The most restrictive of these covenants requires the maintenance of a minimum tangible net worth. At August 31, 1998, the Company is in compliance with all the debt covenants. Aggregate maturities for the years ending August 31, 2000 through 2002 are $10.4 million, $4.3 million, and $15.3 million, respectively. The remaining $82.9 million matures between 2003 and 2007. There are long-term debt maturities of $1.1 million in 1999. J. SAVINGS AND INVESTMENT PLAN Effective September 1, 1995, the Company provides to each full and part-time employee a guaranteed contribution to the Savings and Investment Plan (401(k)). For fiscal 1996, the contribution was one percent of each employee's compensation covered by the Plan. Beginning in fiscal 1997, the Company's guaranteed compensation-based contribution is equal to two percent of each employee's pay. Additionally, each full and part-time DEKALB employee can voluntarily contribute to the Savings and Investment Plan. The plan provides for DEKALB to match a minimum of $.50 for every dollar contributed by employees, to the extent employees contribute up to 6% of their salaries. Additional discretionary awards may also be contributed when warranted by results of operations. DEKALB's contributions charged to expense under this plan were $2.0 million, $3.8 million, and $3.9 million for the years ended August 31, 1998, 1997, 1996, respectively. 15 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- K. COMMITMENTS AND CONTINGENT LIABILITIES. DEKALB is a defendant in various legal actions arising in the course of business activities. In the opinion of the Company's management, these actions will not result in a material adverse effect on DEKALB's consolidated results of operations or financial position. Additional information is in Part I, Item 3 Legal Proceedings in this Form 10-K. DEKALB is self-insured against property losses on the majority of its operating facilities. DEKALB's total rental and lease expense for fiscal years 1998, 1997 and 1996 was $15.7 million, $9.7 million and $6.7 million, respectively. 16 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- L. INCOME TAX
for the year ended August 31 - in millions 1998 1997 1996 ---------------------------------------------------------------------------------------- Current provision: Federal $ (0.3) $ 4.4 $ 5.9 State (0.5) 1.4 1.1 Foreign 10.1 5.8 2.3 ---------------------------------------------------------------------------------------- $ 9.3 $ 11.6 $ 9.3 ---------------------------------------------------------------------------------------- Deferred provision: Federal (1.9) 5.1 $ 1.9 State (1.1) 1.1 (0.4) Foreign (1.4) (0.2) 0.3 ---------------------------------------------------------------------------------------- $ (4.4) $ 6.0 $ 1.8 ---------------------------------------------------------------------------------------- Total income tax provision $ 4.9 $ 17.6 $11.1 ========================================================================================
The significant components of the company's deferred tax assets and deferred tax liabilities are presented below:
as of August 31 - in millions 1998 1997 ------------------------------------------------------------------------------------------ Deferred tax assets: Research Expenditures $ 5.8 $ 4.9 Benefit Plans 3.9 2.8 Inventory 11.3 4.8 Other 7.7 5.2 ------------------------------------------------------------------------------------------ Total Gross Deferred Tax Assets $ 28.7 $ 17.7 Valuation Allowance (2.8) (0.8) ------------------------------------------------------------------------------------------ Gross Deferred Tax Assets $ 25.9 $ 16.9 ------------------------------------------------------------------------------------------ Deferred tax liabilities: Purchase Price Allocations (10.2) (10.2) Undistributed Foreign Earnings (4.7) (4.8) Depreciation (12.9) (6.9) Other (6.7) (8.2) ------------------------------------------------------------------------------------------ Gross Deferred Tax Liabilities $(34.5) $(30.1) ------------------------------------------------------------------------------------------ Net Deferred Tax Liability $ (8.6) $(13.2) ==========================================================================================
The net deferred tax liability disclosed above equals the deferred tax on the balance sheet. The footnote disclosure classified the components as assets or liabilities while the balance sheet discloses the current and long-term portion of those two classifications. The valuation allowance relates to those deferred tax assets that may not be fully realized. Total tax provisions (benefits) resulted in amounts differing from those based on the statutory federal income tax rates. The reasons for these differences are:
for the years ended August 31 - in millions 1998 1997 1996 ------------------------------------------------------------------------------------------------------- U.S. statutory rate $ 5.3 $ 16.2 $ 9.9 State and local taxes (1.1) 1.7 1.0 International operations (0.3) (0.3) (0.1) Qualified export activity - (0.1) (0.1) Research credits (2.1) (0.7) - Other 3.1 0.8 0.4 ------------------------------------------------------------------------------------------------------- Income tax provision $ 4.9 $ 17.6 $ 11.1 ========================================================================================================
The domestic and foreign components of earnings before taxes of consolidated companies were as follows:
------------------------------------------------------------------------------------------------------ for the years ended August 31 - in millions 1998 1997 1996 ------------------------------------------------------------------------------------------------------- U.S. $ (5.2) $ 35.8 $ 25.3 Argentina 19.0 8.3 2.3 Other Non-U.S. 1.4 2.3 0.5 ------------------------------------------------------------------------------------------------------- Total earnings before taxes $ 15.2 $ 46.6 $ 28.1 =======================================================================================================
17 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- M. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended August 31, 1998 and 1997. DEKALB's North American seed operations comprise a significant portion of its business. DEKALB generally delivers only a minor portion of North American seed in the first quarter, delivers more than half in the second quarter, and substantially all the seed is delivered by the end of the third quarter. The Company defers first quarter expenses and anticipates fourth quarter expenses and matches these expenses against second and third quarter revenues. Third quarter results also reflect estimates of seed product returns. Consequently, fourth quarter earnings include adjustments for those earlier estimates. The total of four quarters' earnings per share might not equal the earnings per share for the year due to the application of the treasury stock method and market price changes.
- --------------------------------------------------------------------------------------------------------------------- in millions except per share amounts - three months ended the last day of November February May August -------------------------------------------------------------------------------------------------- 1998 Revenues $ 62.8 $213.8 $219.9 $ 5.7 Cost of Revenues 34.1 106.5 124.2 10.4 Net earnings 2.7 19.3 2.8 (14.5) Basic earnings per share 0.08 0.56 0.08 (0.42) Diluted earnings per share $ 0.08 $ 0.53 $ 0.08 $ (0.40) ===================================================================================================================== 1997 Revenues $ 67.1 $192.3 $178.6 $ 13.4 Cost of Revenues 38.9 93.4 89.0 9.2 Net earnings 2.1 16.3 13.1 (2.7) Basic earnings per share 0.06 0.48 0.38 (0.08) Diluted earnings per share $ 0.06 $ 0.46 $ 0.36 $ (0.07) =====================================================================================================================
18 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- N. OPERATION BY GEOGRAPHIC AREA Information on DEKALB's operations by geographic area for fiscal years 1998, 1997 and 1996 is shown below. Operating earnings are equal to total revenues less expenses of the geographic areas, excluding interest and general corporate expenses. Transfers of products between geographic areas are at prices approximating those charged to unaffiliated customers and are not material to any geographic area.
-------------------------------------------------------------------- August 31 - in millions 1998 1997 1996 -------------------------------------------------------------------- Revenues United States $ 372.8 $ 343.6 $ 300.9 Argentina 87.3 67.3 49.8 Other Non-U.S. 42.1 40.5 36.8 -------------------------------------------------------------------- $ 502.2 $ 451.4 $ 387.5 ==================================================================== Operating Earnings United States $ 0.4 $ 38.2 $ 30.1 Argentina 24.6 11.7 5.6 Other Non-U.S. 5.0 5.9 3.7 -------------------------------------------------------------------- $ 30.0 $ 55.8 $ 39.4 ==================================================================== Equity in Earnings Other Non-U.S. $ 4.7 $ 4.0 $ 1.7 ==================================================================== Identifiable Assets United States $ 452.1 $ 332.4 $ 256.8 Argentina 120.1 86.0 77.7 Other Non-U.S. 18.6 31.2 28.8 -------------------------------------------------------------------- $ 590.8 $ 449.6 $ 363.3 ====================================================================
Consolidated net assets included approximately $69.6 million at August 31, 1998 and $55.8 million at August 31, 1997, located in countries other than the United States. Consolidated net earnings included approximate earnings of $22.3 million in fiscal year 1998 and $13.7 million in fiscal year 1997 from these countries. 19 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- O. PENSION Prior to fiscal 1994, the Company provided employees a PLANS noncontributory pension plan covering substantially all domestic employees who met age and service requirements. Benefits provided under this pension plan are based primarily on each employee's career earnings up until the suspension of the plan on October 1, 1993. Plan assets consist primarily of stocks and U.S. government securities. At the time of suspension, the Company recognized a pre-tax curtailment benefit of $3.7 million. In addition, DEKALB has a supplemental noncontributory pension plan covering certain management employees, which is not funded. Benefits are based mainly on each participant's years of service, final average compensation, and estimated benefits received from certain other benefit plans. This plan was suspended in fiscal 1994 and reinstated in fiscal 1997. During fiscal 1998 the Company recorded an expense of $0.2 million. The components of total estimated pension income (expense) for the two plans are as follows:
August 31 - in millions 1998 1997 1996 ---------------------------------------------------------------------------------------- Service Cost - benefits earned during the year $ 0.2 $ 0.1 $ -- Interest cost on projected benefit obligations 1.0 0.9 0.7 Actual return on plan assets (0.3) (2.4) (1.2) Net amortization and deferral (0.6) 1.6 0.3 ---------------------------------------------------------------------------------------- Net Pension Income (Expense) $0.3 $ 0.2 $(0.2) ========================================================================================
20 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- O. PENSION Actuarial assumptions for August 31, 1998 are a discount rate PLANS of 7.00% and a return on plan PLANS assets of 8.5%. (CONTINUED) Assumptions for August 31, 1997 are a discount rate of 7.25% and a return on plan assets of 8.5%. A reconciliation of the funded status to accrued pension expense is as follows:
Funded Plan Unfunded Plan August 31 - in millions 1998 1997 1998 1997 -------------------------------------------------------------------------------------------------- Actuarial present value of benefits based on service to date and present pay levels: Vested $ 8.4 $ 7.6 $ 1.8 $ 1.9 Nonvested 0.7 0.9 0.1 - -------------------------------------------------------------------------------------------------- 9.1 8.5 1.9 1.9 Accumulated benefit obligation Additional amounts related to projected pay increases - - 3.7 3.2 -------------------------------------------------------------------------------------------------- Projected benefit obligation 9.1 8.5 5.6 5.1 Plan assets at fair market value 8.7 9.6 - - -------------------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (0.4) 1.1 (5.6) (5.1) Unrecognized loss from experience 2.7 1.1 4.5 4.2 Unrecognized net transition asset (2.0) (2.3) - - -------------------------------------------------------------------------------------------------- Accrued pension expense included in the Consolidated Balance Sheet $ 0.3 $ (0.1) $ (1.1) $ (0.9) ==================================================================================================
The Company has obligations under termination indemnification plans in several foreign countries, but does not have any foreign defined benefit pension plans as defined in Financial Accounting Standard No. 87. 21 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- P. INFORMATION ON RELATED COMPANIES The following is summarized financial information for DEKALB's less than 50 percent owned operations:
Balance Sheets --------------------------------------------------------------------- at August 31 - in millions 1998 1997 --------------------------------------------------------------------- ASSETS Current assets $17.7 $17.7 Non-current assets 2.6 2.6 --------------------------------------------------------------------- Total Assets $20.3 $20.3 ===================================================================== LIABILITIES Current liabilities $ 3.9 $ 3.6 Non-current liabilities 2.9 3.1 --------------------------------------------------------------------- Total Liabilities $ 6.8 $ 6.7 ===================================================================== Summary of Earnings ----------------------------------------------------------------------------------- for the years ended August 31 - in millions 1998 1997 1996 ----------------------------------------------------------------------------------- Revenues $25.8 $ 23.3 $ 15.5 =================================================================================== Gross Profit $14.3 $ 12.9 $ 7.1 =================================================================================== Net Earnings $ 9.3 $ 8.1 $ 3.4 =================================================================================== DEKALB's Equity in Net Earnings $ 4.7 $ 4.0 $ 1.7 ===================================================================================
DEKALB's investments in related companies are carried at cost plus equity in undistributed net earnings and losses since dates of acquisition. Carrying values approximate DEKALB's interest in the net assets of these related companies. Dividends received from related companies were $3.9 million in fiscal year 1998 and $1.8 million in fiscal year 1997. No dividends were received in fiscal year 1996. 22 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- Q. INCENTIVE PLANS In August, 1988, the Company initially adopted a Long-Term Incentive Plan which provided for the awarding of stock appreciation rights (SARs), restricted stock and incentive and nonqualified options to purchase Class A or Class B Common Stock of the Company. The Company's Stock Option Committee may make awards of SARs, restricted stock or stock options to certain officers and key employees of the Company. All stock options may be granted at no less than fair market value of the Company's stock at the date of grant and are exercisable within periods specified by the Stock Option Committee. The following share information reflects the two-for-one and the three-for-one stock splits.
1998 1997 1996 ---------- ---------- ---------- Class A Class A Class A ---------- ---------- ---------- Shares under option at beginning of year 1,623,114 1,517,136 1,422,924 Activity: Granted 372,550 267,000 343,800 Exercised (25,523) (133,122) (239,382) Canceled (2,134) (27,900) (10,206) ---------- ---------- ---------- Shares under option at end of year 1,968,007 1,623,114 1,517,136 ========== ========== ========== Shares available for future grants as of August 31 1,530,792 1,622,914 2,140,308 Shares vested and exercisable as of August 31 1,315,361 1,043,514 917,934 Price range of options exercised $4.46 - $30.38 $ 0.33 - $ 8.04 $ 4.40 - $6.25 Price range of shares under option at end of year $0.33 - $30.38 $ 0.33 - $30.38 $ 0.33 - $8.04
In fiscal 1991, the shareholders also approved a Director Stock Option Plan which gives outside directors an election to receive options to purchase Class A Common Stock (which options have a discounted exercise price) in lieu of annual retainer and meeting fees. The 25% discount in the exercise price, multiplied by the number of shares subject to the option, equals the annual retainer and meeting fees the directors would have received. Total expense for the Director Stock Option Plan was $0.1 million in each of the fiscal years 1998, 1997 and 1996.
1998 1997 1996 ------------------ ------------------ ------------------ Class A Class A Class A ------------------ ------------------ ------------------ Shares under option at beginning of year 390,138 390,166 323,472 Activity: Granted 23,379 20,972 69,678 Exercised (34,495) (21,000) (2,984) Canceled (273) - - ------------------ ------------------ ------------------ Shares under option at end of year 378,749 390,138 390,166 ================== ================== ================== Shares available for future grants as of 86,688 109,774 130,746 August 31 Shares vested as of August 31 378,749 390,138 390,166 Shares exercisable as of August 31 355,370 369,166 320,488 Price range of options exercised $ 3.35 - $ 6.03 $ 3.35 - $ 3.38 $ 4.19 Price range of shares under option at end $ 3.35 - $22.03 $ 3.35 - $22.03 $ 3.35 - $ 6.03 of year
23 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- Q. INCENTIVE PLANS (CONTINUED) The Company applies APB 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for stock options granted under the August 1998 Long Term Incentive Plan. If compensation costs for stock options had been determined based on the fair value at the grant dates for awards under these plans consistent with the method of SFAS 123, the Company's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated as follows:
1998 1997 ---------- --------- Net Earnings: ($ in millions) As Reported $ 10.3 $ 28.8 Pro Forma $ 7.8 $ 27.6 Basic Earnings Per Share: As Reported $ 0.30 $ 0.84 Pro Forma $ 0.23 $ 0.81 Diluted earnings per share As reported $ 0.28 $ 0.81 Pro forma $ 0.21 $ 0.77
In accordance with SFAS 123, the fair value approach to valuing stock options used for pro forma presentation has not been applied to stock options granted prior to September 1, 1995. The compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. The weighted average fair value of options granted was $18.59 per share and $17.20 per share during 1998 and 1997, respectively. The fair value is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998 and 1997, respectively: dividend yield of 0.2% and 0.4%; expected volatility of 45.4% and 32.8%; risk-free interest rates of 5.3% and 6.5%; and an expected life of seven years. 24 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- R. INDUSTRY SEGMENT The following industry segment information summarized DEKALB's operations as of and for the years ended August 31, 1998, 1997, and 1996. Operating earnings are total sales and revenues less operating expenses of the segments, excluding interest, and general corporate allocations. No customer accounted for 10 percent or more of total operating revenues. 25 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - --------------------------------------------------------------------------------
R. INDUSTRY SEGMENT (CONTINUED) - --------------------------------------------------------------------------------------------------------------------- August 31 - in millions 1998 1997 1996 ---------------------------------------------------------------------------------------------------------- Revenues ----------------------------------------------------------- Seed (1) $ 453.1 $ 394.8 $ 340.4 Swine 49.1 56.6 47.1 -------- -------- -------- $ 502.2 $ 451.4 $ 387.5 ======== ======== ======== Earnings (Loss) Before Income Taxes ----------------------------------------------------------- Seed: Operating earnings $ 35.0 $ 54.3 $ 39.2 Equity in net earnings of related companies 4.7 4.0 1.7 -------- -------- -------- $ 39.7 $ 58.3 $ 40.9 Swine (5.0) 1.5 0.2 -------- -------- -------- Total Operations $ 34.7 $ 59.8 $ 41.1 General corporate expenses (10.0) (8.5) (6.9) Net interest expense (9.5) (4.9) (6.1) -------- -------- -------- $ 15.2 $ 46.4 $ 28.1 ======== ======== ======== Identifiable Assets ----------------------------------------------------------- Seed $ 561.2 $ 413.1 $ 329.8 Swine 29.4 36.1 32.7 Discontinued Operations 0.2 0.4 0.8 -------- -------- -------- $ 590.8 $ 449.6 $ 363.3 ======== ======== ======== Depreciation and Amortization Expense ----------------------------------------------------------- Seed $ 13.3 $ 11.6 $ 9.1 Swine 2.2 2.2 2.2 -------- -------- -------- $ 15.5 $ 13.8 $ 11.3 ======== ======== ======== Property Additions ----------------------------------------------------------- Seed $ 88.3 $ 57.6 $ 28.5 Swine 2.0 1.8 2.2 -------- -------- -------- $ 90.3 $ 59.4 $ 30.7 ======== ======== ========
(1) Consolidated revenues do not include approximately $135 million in fiscal year 1998, $155 million in fiscal year 1997 and $145 million in fiscal year 1996 of DEKALB seed sold under royalty agreements with non-consolidated affiliates and licensees or recognized by equity companies. (Footnote P). 26 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- S. DISCONTINUED OPERATIONS On April 28, 1995, the Company sold its poultry operations to Central Farm of America, Inc., an affiliate of Toshoku, Ltd., for $12.5 million cash. Accordingly, the poultry business is reported as a discontinued operation and the consolidated financial statements have been reclassified to report separately the net assets and operating results of the business. The Company's operating results for prior years have been restated to reflect continuing operations. Net earnings from discontinued operations in fiscal 1995 included an operating loss of $0.5 million, net of $0.5 million tax benefit and a net gain on the sale of $1.7 million, net of $0.5 million tax expense. Revenues for discontinued operations were $12.1 million for the eight months of fiscal 1995. Net assets of the discontinued operations at August 31, 1998 amounted to $0.2 million. 27 DEKALB GENETICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- T. MONSANTO TRANSACTION On January 31, 1996, the Company entered into a series of agreements with Monsanto Company (Monsanto), including an agreement which provides for a long-term research and development collaboration with Monsanto in the field of agricultural biotechnology, particularly corn seed. DEKALB and Monsanto also entered into cross-licensing agreements covering insect-resistant and herbicide-tolerant corn products. The two companies share the royalties received from third parties relating to the patents covered by such cross-licensing agreements. During the third quarter of fiscal 1996, DEKALB completed a sale of equity to Monsanto as part of an Investment Agreement. The two-for-one stock split to shareholders of record on July 25, 1997, and the three-for-one stock split to shareholders of record on May 10, 1996 are reflected in the following share and price information. During fiscal 1996, Monsanto purchased from DEKALB 0.5 million newly issued shares of DEKALB Class A (voting) Common Stock at a price per share of $ 10.83 and 2.8 million newly issued shares of Class B (non-voting) Common Stock at a price per share of $10.83. As a result of the new stock issued to Monsanto, the total number of outstanding shares of Common Stock of the Company rose to over 34.0 million from about 31.2 million. During fiscal 1996, Monsanto also acquired 10.4 million shares of DEKALB's publicly traded Class B Common Stock in a separate cash tender offer at a price of $11.83 per share. Upon completion of the tender offer, Monsanto held 10 percent of the Class A voting shares and approximately 43 percent of the Class B non-voting shares. As of August 31, 1997, Monsanto held 0.5 million shares of Class A and 13.2 million shares of Class B Common Stock. This represents approximately 10 percent of Class A and 44 percent of Class B non-voting shares. In accordance with the Investment Agreement, Monsanto acquired an additional 0.2 million shares of DEKALB's publicly traded Class B Common Stock at $40.38 per share during fiscal 1998. As of August 31, 1998, Monsanto held 0.5 million shares of Class A and 13.3 million shares of Class B Common Stock representing approximately eleven percent of Class A voting shares and 44 percent of Class B non-voting shares. Additionally, DEKALB received $4.0 million from Monsanto in March, 1996, $3.0 million in February, 1997, $3.0 million in January, 1998, and $3.0 million in March, 1998. These payments represent the first four installments under the companies' collaboration agreement, which calls for total payments of $18.2 million over the term of the agreement. On May 11, 1998, DEKALB announced that it had entered into an Agreement with Monsanto Company providing for Monsanto to acquire all of the shares of DEKALB capital stock that it did not already own. Pursuant to the agreement, on May 15,1998, Monsanto commenced a cash tender offer for all of the common stock of DEKALB at $100 net per share. The second step of the transaction will be a merger in which any remaining stock of DEKALB will be exchanged for cash at the same price per share paid in the tender offer. If the tender offer is not completed by May 9, 1999, the offer price will increase by 50 cents per share on the tenth day of each month, starting on May 10. The tender offer is conditioned on the expiration of the Hart-Scott-Rodino Act waiting period and other customary conditions. On June 3, 1998, DEKALB and Monsanto announced that they received requests for additional information and other documentary materials from the U.S. Department of Justice under the Hart-Scott-Rodino Act. Monsanto is required to extend the tender offer pending satisfaction of the Hart-Scott-Rodino Act waiting period and the other conditions to the offer, but in no event beyond November 9, 1999, unless the offer is earlier terminated in accordance with the terms of the merger agreement. As of November 30, 1998, Monsanto and the Antitrust Division of fhe U.S. Department of Justice have concluded extensive discussions regarding Monsanto's proposed acquisition of DEKALB Genetics Corporation. Monsanto officials believe they have resolved all issues raised by the Division, and, as a result, intend to close the tender offer for the outstanding shares of DEKALB Class A and Class B Common Stock, in accordance with the terms previously announced. Monsanto's tender offer for all the outstanding shares of Class A and Class B Common Stock of DEKALB at a purchase price of $100 in cash per share expires at 5 p.m. ET, on Monday, November 30, 1998, unless extended. -----END PRIVACY-ENHANCED MESSAGE-----