-----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, A/MbOP+dkVS3hkQFdII5fj++609pheJvxTFw5qwm1dhUfCQLmzpQIdh8QWVT0A7q oiVKmQk5Irl0NU0QIF+znA== 0000078716-98-000017.txt : 19980709 0000078716-98-000017.hdr.sgml : 19980709 ACCESSION NUMBER: 0000078716-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980708 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER HI BRED INTERNATIONAL INC CENTRAL INDEX KEY: 0000078716 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 420470520 STATE OF INCORPORATION: IA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11551 FILM NUMBER: 98662078 BUSINESS ADDRESS: STREET 1: 700 CAPITAL SQ STREET 2: 400 LOCUST ST CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152453500 MAIL ADDRESS: STREET 1: 6800 PIONEER PKWY STREET 2: PO BOX 316 CITY: JOHNSTON STATE: IA ZIP: 50131 10-Q 1 THIRD QUARTER 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ------ SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended May 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number : 0-7908 PIONEER HI-BRED INTERNATIONAL, INC. (Exact name of registrant as specified in its charter)
Iowa 42-0470520 - -------------------------------------------------------------- ----------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
800 Capital Square, 400 Locust, Des Moines, Iowa 50309 -------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (515) 248-4800 --------------- 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 -------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 26, 1998 - ------------------------------------- ---------------------------- Common Stock ($1.00 par value) 192,246,734 Class B Common Stock ($1.00 par value) 49,333,758 ================================================================================ PIONEER HI-BRED INTERNATIONAL, INC. INDEX
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets -- May 31, 1998, August 31, 1997, and May 31, 1997.............................. 3-4 Consolidated Condensed Statements Of Operations-- Three Months and Nine Months Ended May 31, 1998 and May 31, 1997............ 5 Consolidated Condensed Statements Of Cash Flows-- Nine Months Ended May 31, 1998 and May 31, 1997............................ 6 Notes to Consolidated Condensed Financial Statements............. 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 10-15 PART II - OTHER INFORMATION Item 5. Market price of and dividends on registrants' common equity and related stockholder matters............................................ 16 Item 6. Exhibits and Reports on Form 8-K................................. 16 Signatures................................................................ 17
2 PART I - FINANCIAL INFORMATION PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited, in millions)
May 31, August 31, May 31, ASSETS 1998 1997 1997 ---------- ----------- -------- CURRENT ASSETS Cash and cash equivalents........... $ 284 $ 97 $ 183 Accounts and notes receivable, net.. 561 301 489 Inventories: Finished seed..................... 303 245 288 Unfinished seed................... 102 186 94 Other............................. 9 9 7 Deferred income taxes............... 60 57 59 Prepaid expenses and other current assets........................ 7 6 11 -------- -------- -------- Total current assets.................... $ 1,326 $ 901 $ 1,131 LONG-TERM ASSETS........................ 62 93 87 PROPERTY AND EQUIPMENT, net of accumulated depreciation and allowances May 31, 1998 - $517 August 31, 1997 - $500 May 31, 1997- $499.................. 567 545 542 INTANGIBLES............................. 58 64 66 -------- -------- -------- $ 2,013 $ 1,603 $ 1,826 ======== ======== ========
See Notes to Consolidated Condensed Financial Statements. 3 PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited, in millions)
LIABILITIES AND SHAREHOLDERS' May 31, August 31, May 31, EQUITY 1998 1997 1997 ----------- ---------- ------- CURRENT LIABILITIES Short-term borrowings................. $ 56 $ 91 $ 28 Current maturities of long-term debt.. 4 6 5 Accounts payable, trade............... 132 85 167 Accrued compensation.................. 54 60 52 Income taxes payable.................. 166 26 181 Other accruals........................ 67 61 49 -------- -------- -------- Total current liabilities........... $ 479 $ 329 $ 482 -------- -------- -------- LONG-TERM DEBT............................ $ 17 $ 19 $ 32 -------- -------- -------- DEFERRED ITEMS Postretirement benefits............... $ 92 $ 80 $ 77 Income taxes.......................... 17 20 11 -------- -------- -------- $ 109 $ 100 $ 88 -------- -------- -------- MINORITY INTEREST IN SUBSIDIARIES......... $ 9 $ 7 $ 7 -------- -------- -------- SHAREHOLDERS' EQUITY Common stock, $1 par value............ 279 93 93 Additional paid-in capital............ 242 43 41 Retained earnings..................... 1,501 1,436 1,499 Unrealized gain on available-for-sale securities, net..................... 1 19 17 Cumulative translation adjustment..... (35) (26) (13) -------- -------- -------- $ 1,988 $ 1,565 $ 1,637 Less: Cost of common shares acquired for the treasury........... (557) (393) (393) Unearned compensation................. (32) (24) (27) -------- -------- -------- $ 1,399 $ 1,148 $ 1,217 -------- -------- -------- $ 2,013 $ 1,603 $ 1,826 ======== ======== ========
See Notes to Consolidated Condensed Financial Statements. 4 PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited, in millions)
Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 1998 1997 1998 1997 -------------------------- ---------------------- Net sales.......................... $ 1,317 $ 1,288 $ 1,698 $ 1,642 -------- -------- -------- -------- Operating costs and expenses: Cost of goods sold............... $ 517 $ 513 $ 716 $ 700 Research and product development. 43 40 115 103 Selling.......................... 193 189 317 305 General and administrative....... 34 31 103 96 --------- --------- --------- --------- $ 787 $ 773 $ 1,251 $ 1,204 -------- -------- -------- -------- Operating income................. $ 530 $ 515 $ 447 $ 438 Investment income.................. 11 7 36 16 Interest expense................... (4) (2) (9) (6) Net exchange and other gains (losses 22 (1) 14 - --------- ------------- --------- -------- Income before items shown below.......................... $ 559 $ 519 $ 488 $ 448 Provision for income taxes......... (191) (187) (166) (161) Minority interest and other........ (2) -- (3) (2) -------- -------- -------- -------- Net income....................... $ 366 $ 332 $ 319 $ 285 ======== ======== ======== ======== Preferred stock dividend......... - - (9) - --------- --------- --------- --------- Net income available to common stockholders............ $ 366 $ 332 $ 310 $ 285 ======== ======== ======== ======== Income per common share basic*..... $ 1.50 $ 1.35 $ 1.36 $ 1.15 Income per common share diluted*... 1.50 1.34 1.26 1.15 Dividends per common share*........ $ .09 $ .08 $ .26 $ .23 Weighted average number of common shares outstanding basic......... 244.0 246.7 228.4 246.9 Weighted average number of common shares outstanding diluted....... 245.1 247.4 253.2 247.6
* Not in millions See Notes to Consolidated Condensed Financial Statements. 5 PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited, in millions) Nine Months Ended May 31, May 31, 1998 1997
----------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income....................................... $ 319 $ 285 Noncash items included in net income: Depreciation and amortization.................. 64 64 Gain on sale of available-for-sale securities.. (20) (7) Other.......................................... (4) 1 Net change in assets and liabilities............. (31) (75) -------- -------- Net cash provided by operating activities...... $ 328 $ 268 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures............................. $ (87) $ (85) Technology investments........................... (5) (24) Proceeds on sale of available-for-sale securities 40 17 Other............................................ - (7) --------- -------- Net cash used in investing activities.......... $ (52) $ (99) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) proceeds on short-term borrowings. $ (30) $ 17 Purchase of common stock......................... (1,683) (24) Dividends on common and preferred stock.......... (68) (57) Net proceeds from issuance of preferred stock.... 1,701 - Principal payments on long-term borrowings....... (5) (11) -------- -------- Net cash used in financing activities.......... $ (85) $ (75) -------- -------- Effect of foreign currency exchange rate changes on cash and cash equivalents........................ $ (4) $ (10) -------- -------- Net increase in cash and cash equivalents....... $ 187 $ 84 Cash and cash equivalents, beginning............... 97 99 -------- -------- CASH AND CASH EQUIVALENTS, ENDING $ 284 $ 183 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest................................ $ 9 $ 5 ======== ======== Income taxes............................ $ 35 $ 54 ======== ======== NON CASH FINANCING ACTIVITIES Retirement of 16,466,045 shares of treasury stock: Common stock............................ $ 16 $ - Additional paid in capital.............. 1,509 - --------- --------- Treasury stock.......................... $ 1,525 $ - ======== ======== Stock split in the form of a 200% common stock dividend.......................... $ 186 $ - ======== ========
See Notes to Consolidated Condensed Financial Statements. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PIONEER HI-BRED INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present the financial position as of May 31, 1998 and 1997, and the results of operations and cash flows for the nine months ended May 31, 1998 and 1997. Because of the seasonal nature of the Company's business, the results of operations for the nine months ended May 31, 1998, may not be indicative of the results to be expected for the full year. 2. The Company has guaranteed the repayment of principal and interest on certain obligations of Village Court Associates, an affiliated real estate venture. Such guarantees totaled approximately $23 million at May 31, 1998 and 1997. 3. DeKalb Genetics Corporation ("DeKalb") has filed five lawsuits against Pioneer alleging that insect-resistant corn products that use a Bt gene, and corn products resistant to a glufosinate herbicide, infringe on certain DeKalb patents. After reviewing the Company's intellectual property position, all of DeKalb's patent filings, and DeKalb's lawsuits, Pioneer believes DeKalb's claims are without merit. Pioneer has denied DeKalb's allegations and raised defenses that, if successful, would render DeKalb's patents invalid. Pioneer believes that disposition of the lawsuits will not have a materially adverse effect on the consolidated financial position and results of operations of the Company. Pioneer also does not expect delays in the introductions of advanced corn hybrids with insect and herbicide resistance because of these lawsuits. 4. In September 1997, the Company and E.I. du Pont de Nemours and Company (DuPont) executed an agreement that created one of the world's largest private agricultural research and development collaborations. The companies also formed a joint venture that will market improved quality traits to increase the value of crops for livestock feeders, grain processors, and other end users. The joint venture will not sell seed. Pioneer will be the preferred worldwide provider and marketer of quality trait seed for the joint venture. The joint venture began operations January 1, 1998, and the Company's share of operations for the five months ended May 31, 1998, was not material. In connection with the above agreements, DuPont also acquired an equity interest in Pioneer through the purchase of 164,446 shares of preferred voting stock for $1.71 billion. Effective January 30, 1998, each preferred share was converted into 100 shares of class B common stock with a stated value of $1 per share, or $16.4 million. As required by the agreement, Pioneer used approximately $1.52 billion of the proceeds from the DuPont investment to purchase approximately 16.4 million of the Company's common outstanding shares through a Dutch auction self-tender. The common shares reacquired by the Company were subsequently retired, but remain authorized and unissued. The net effect of these equity transactions, including associated transaction costs, was an increase in class B common stock of $16 million, a decrease in common stock of $16 million, and an increase in additional paid in capital of approximately $180 million, the use of which is unrestricted. Immediately following the completion of the Dutch auction self-tender, DuPont's equity interest in Pioneer was approximately 20 percent. The agreement, among other things, includes a standstill provision that prohibits DuPont from increasing its ownership interest in the Company for 16 years without the consent of the Company. DuPont also gained two seats on the Company's board of directors. 5. SFAS No. 128, "Earnings Per Share" (SFAS 128), which is intended to simplify the earnings per share computation and increase comparability of earnings per share on an international basis, was effective for the Company's second quarter ending February 28, 1998, and required restatement of all prior period earnings per share data presented. As previously presented under APB15, the Company was only required to disclose primary earnings per share. Under SFAS 128, the Company is required to disclose both basic and diluted earnings per share. The Company's presentation of diluted earnings per share under SFAS 128 is not expected to materially differ from the Company's previous disclosure of primary earnings per share under APB15. 7 6. On March 10, 1998, the Board of Directors approved a three-for-one stock split effected in the form of a 200 percent stock dividend. The stock dividend was paid on April 23, 1998, to shareholders of record on March 27, 1998. 7. Except for the calculation of votes per share, shareholder rights and preferences are substantially the same for both common stock and class B common stock. Pursuant to the Company's existing time phased voting structure every share of common stock is generally entitled to five votes, if it has been beneficially owned continuously by the same holder for a period of 36 months. Holders of class B common stock are entitled to cast votes equal to their percentage of common stock equivalent economic ownership interest in the Company, not to exceed 20%. Both common stock and class B common stock are included jointly in all reference to common stock. The following table summarizes the computation of basic weighted-average common shares outstanding for the periods presented:
Three Months Ended May 31, 1998 1997 ----------------------------------------------------------------------------------- (in millions) Number of shares of common stock outstanding at beginning of period 245.3 247.0 Weighted-average number of shares of common stock issued during the period - - Weighted-average number of shares of common stock purchased for the treasury (1.3) (0.3) ----- ----- Weighted-average number of shares of common stock outstanding during the period 244.0 246.7 ===== ====== Nine Months Ended May 31, 1998 1997 ----------------------------------------------------------------------------------- (in millions) Number of shares of common stock outstanding at beginning of period 246.7 247.2 Weighted-average number of shares of common stock issued during the period 22.8 0.3 Weighted-average number of shares of common stock purchased for the treasury or retired (41.1) (0.6) ----- ----- Weighted-average number of shares of common stock outstanding during the period 228.4 246.9 ===== ======
8 8. The following tables provide a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented:
May 31, 1998 May 31, 1997 -------------------------------- ------------------------------- Shares Shares Income Denom- Per-Share Income Denom- Per-Share Three Months Ended Numerator inator Amount Numerator inator Amount ------------------------- -------------------------------- ------------------------------- (in millions, except per share amounts) Basic earnings per share: Net income attributable to common shareholders $ 366 244.0 $ 1.50 $ 332 246.7 $ 1.35 ====== ====== Effect of dilutive securities: Stock options - 1.1 - .7 ------ ------- ------- ----- Diluted earnings per share: Net income attributable to common shareholders $ 366 245.1 $ 1.50 $ 332 247.4 $ 1.34 ======= ======== ====== ======= ====== ====== May 31, 1998 May 31, 1997 -------------------------------- ------------------------------- Shares Shares Income Denom- Per-Share Income Denom- Per-Share Nine Months Ended Numerator inator Amount Numerator inator Amount ------------------------- -------------------------------- ------------------------------- (in millions, except per share amounts) Basic earnings per share: Net Income $ 319 $ 285 Less: Preferred stock dividends (9) - ------- ------- Net income attributable to common shareholders $ 310 228.4 $ 1.36 $ 285 246.9 $ 1.15 ====== ===== Effect of dilutive securities: Convertible preferred stock 9 23.7 - - Stock options - 1.1 - .7 ------- ------- ------- ----- Diluted earnings per share: Net income attributable to common shareholders $ 319 253.2 $ 1.26 $ 285 247.6 $ 1.15 ======= ======= ====== ======= ====== =====
9 PIONEER HI-BRED INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes, and with the Company's audited financial statements and notes for the fiscal year ended August 31, 1997. MATERIAL CHANGES IN FINANCIAL CONDITION: Due to the seasonal nature of the agricultural seed business, the Company generates most of its cash from operations during the second and third quarters of the fiscal year. Cash generated during this time is used to meet the cash needs of the period and to pay the commercial paper and accounts payable which are the Company's primary sources of financing during the first and fourth quarters of the fiscal year. Any excess funds are invested, primarily in short-term commercial paper. Most of the Company's financing is done through the issuance of commercial paper in the U.S., backed by revolving and seasonal lines of credit. In addition, foreign lines of credit and direct borrowing agreements are relied upon to support overseas financing needs. Short-term debt at May 31, 1998, consisted of $56 million in direct short-term borrowings from foreign banks. During fiscal 1998, the Company has the following domestic lines of credit available: (in millions) Revolving Seasonal Total First quarter $200 $100 $300 Second quarter $200 $100 $300 Third quarter $200 $ -- $200 Fourth quarter $200 $ -- $200 The increase in the Company's cash position is primarily due to the money remaining after the sale of preferred shares to DuPont and the subsequent Dutch auction self tender, in which Pioneer purchased approximately 20 percent of its outstanding shares. Additional paid-in capital and treasury stock were impacted in the current period by the Company's investment agreement with DuPont (see Note 4 of Notes to Consolidated Condensed Financial Statements). Also impacting treasury stock for the nine months ended May 31, 1998, was the repurchase of 4.6 million shares of the Company's stock for a total of $160.4 million through the Company's share repurchase program. At May 31, 1998, the remaining number of shares authorized to be repurchased under the Company's program totaled approximately 1.8 million. During June 1998, the Board of Directors authorized the repurchase of 5 million additional shares of the Company's common stock on the open market. 10 MATERIAL CHANGES IN RESULTS OF OPERATIONS: Net income for the nine months ended May 31, 1998, was $319 million on sales of $1.7 billion, or $1.26 per diluted share. Net income totaled $285 million, or $1.15 per share, on sales of $1.6 billion for the first nine months of fiscal 1997. Due to the seasonality of the seed business, partial-year results and quarter-to-quarter comparisons are not always meaningful. Accordingly, such quarterly comparisons are not emphasized. Typically, most of the Company's revenue and operating profit are generated in the third quarter. Results during the first nine months of fiscal 1998 were affected by the completion of an agreement with DuPont (see Note 4 of Notes to Consolidated Condensed Financial Statements). Without the DuPont equity transaction, the Company would have had less cash available for investment, and the Company would not have paid any preferred stock dividends. Current year nine-month results, excluding the impact from the above equity transactions, were income of $308.6 million, or $1.25 per diluted share. The following table summarizes the components of income per share as reported and excluding the impact from the equity transactions with DuPont: As Reported Excluding Equity Transactions Shares Shares Income Denom- Per-Share Income Denom- Per-Share Nine Months Ended Numerator inator Amount Numerator inator Amount ------------------------- -------------------------------- ---------------------------- (in millions, except per share amounts) Net income $ 319.2 $ 319.2 Items resulting from the DuPont equity transactions: Preferred stock dividends (8.5) - Interest benefit from DuPont proceeds - (10.6) ------- ------- Basic earnings per share: Net income attributable to common shareholders $ 310.7 228.4 $ 1.36 $ 308.6 245.5 $ 1.26 ====== ====== Effect of dilutive securities: Convertible preferred stock 8.5 23.7 - - Stock options - 1.1 - 1.1 ------- ------ ------- ----- Diluted earnings per share: Net income attributable to common shareholders $ 319.2 253.2 $ 1.26 $ 308.6 246.6 $ 1.25 ======= ====== ====== ======= ====== ======
Aggressive discounting by competitors is putting pressure on the Company's share of the North American seed corn market. However, depending on final corn acreage and seeding rates, the Company is estimating an increase in its share of the North American seed corn market in 1998. This was the result of a quality line-up of seed corn products, which included large volumes of new technology products first introduced in 1997. These products performed well in side-by-side comparisons conducted by Pioneer during the 1997 harvest. In particular, the Company's ECB resistant products performed exceptionally well. In addition to ECB resistant corn hybrids, the new product line-up included high-yielding conventional hybrids, products for the rapidly growing high-oil market, hybrids with better disease resistance, as well as new white and waxy corn hybrids for the starch industry. The Company's ability to quickly increase supply of these high-performing products, due to year-round production capabilities, made them widely available in 1998. Customers had many choices of seed supply available to them during the current selling season. The proven quality of the Company's product line-up played a significant role in current year results. 11 There is excitement surrounding Pioneer's soybean operations in North America. Results in 1998 will again reflect record sales and profits from the Company's soybean business. Glyphosate-resistant products represented approximately 40 percent of total year-to-date unit sales, compared to 17 percent of total unit sales a year ago. Soybean margins improved because of the premium sales price of glyphosate-resistant products over elite varieties. Operating results for most operations outside the United States are expected to improve from a year ago on a local currency basis, however, the strong dollar reduced current year-to-date reported pre-tax consolidated results by more than $30 million. As always, uncertainties exist that could affect the Company's expectations, and fluctuations in expected results are likely, as more information becomes available. Some of the important factors that could cause actual results to vary significantly from management's expectations noted in forward looking statements include the weather, government programs/approvals, commodity prices, changes in corn acreage, intellectual property positions, product performance, product returns, customer preferences, currency fluctuations, and costs. Nine Months Ended May 31, 1998 compared to the Nine Months Ended May 31, 1997 Operating income for the first nine months of fiscal 1998 increased $9 million from the same period a year earlier. Excluding the negative impact on year-to-date operating results from the strengthening of the U.S. dollar against foreign currencies, operating income improved approximately $40 million or 9 percent over results from the same period last year. Additional North American seed corn unit sales and a higher sales price per unit, and increased North American soybean unit sales and sale price were the primary factors for the increase. 12 Net Sales and Operating Profit (Unaudited, in millions)
Quarter Ended Nine Months Ended May 31, May 31, Increase/ May 31, May 31, Increase/ 1998 1997 (Decrease) 1998 1997 (Decrease) ---------------------------------- ----------------------------------- Net sales: Corn: North America..... $ 807 $ 768 $ 39 $ 932 $ 882 $ 50 Europe............ 190 233 (43) 295 323 (28) Other Regions..... 25 20 5 72 84 (12) --------- --------- --------- --------- --------- --------- $ 1,022 $ 1,021 $ 1 $ 1,299 $ 1,289 $ 10 Soybeans............ 194 174 20 210 182 28 Other............... 101 93 8 189 171 18 -------- -------- -------- -------- -------- -------- Total net sales....... $ 1.317 $ 1,288 $ 29 $ 1,698 $ 1,642 $ 56 ======== ======== ======== ======== ======== ======== Operating profit: Corn................ $ 468 $ 468 $ - $ 446 $ 443 $ 3 Soybean............. 56 46 10 40 31 9 Other............... 28 20 8 29 22 7 -------- -------- -------- -------- -------- -------- Product line operating profit............ $ 552 $ 534 $ 18 $ 515 $ 496 $ 19 Indirect general and administrative expenses........ (22) (19) (3) (68) (58) (10) -------- -------- -------- -------- -------- -------- Operating income...... $ 530 $ 515 $ 15 $ 447 $ 438 $ 9 ======== ======== ======== ======== ======== ======== Units delivered: Corn: North America..... 9.7 9.7 - 11.4 11.3 0.1 Europe........... 1.7 2.0 (0.3) 2.7 3.0 (0.3) Other Regions.... 0.3 0.3 - 1.1 1.2 (0.1) -------- -------- -------- -------- -------- ---------- 11.7 12.0 (0.3) 15.2 15.5 (0.3) ======== ======== ========= ======== ======== ========= Soybean-North America 11.2 11.0 0.2 12.0 11.6 0.4 ======== ======== ======== ======== ======== =========
SEED CORN North America Operating profit in North America improved $23 million over 1997 results. Current year unit sales through third quarter are up approximately 100,000 units over those recorded in the previous year. Sales price per unit increased compared to the prior year, and when combined with per unit cost of sales similar to 1997 unit costs, margins improved nearly $40 million. Higher fixed costs and a stronger U.S. dollar against the Canadian dollar also impacted current year results. The stronger U.S. dollar reduced operating income approximately $3 million. Increased investment in research and product development and higher selling costs reduced operating income approximately $13 million. The average net seed corn selling price per unit to customers in North America is expected to increase approximately 4 percent. The Company implemented changes to its replant program during 1998. In previous years seed sold for replant was discounted 50 percent. In 1998 replant seed was provided free of charge. In addition to the program change, adverse weather resulted in significantly higher replanting in 1998. Excluding these two factors, the net selling price of seed in North America would be expected to increase more than 5 percent, from the introduction of several new elite products, which are priced at a premium, and a continued shift in sales mix of products in the current year to higher-priced premium products. Current year per-unit seed corn cost of sales are comparable to a year ago resulting from lower carry-in costs and lower commodity costs related to the 1997 crop. 13 An increase in North American market size and estimated market share growth also impacted current year operating results. North American market size is estimated at 83.9 million acres, an increase of 0.7 percent from 1997. Based on current year unit sales, the Company's share of the North American seed corn market is estimated to increase slightly. Research and product development costs in North America increased approximately $10 million, or 16 percent, compared to the same period a year ago. The Company's continued emphasis on developing improved products for customers played a significant role in the current year increase. Integrating new technology is essential to crop genetic improvements. The Company has more that 1,000 agreements with third parties specializing in technology which will help improve the Company's germplasm base and deliver enhanced products to the Company's customers. Current year-to-date selling fixed costs increased approximately $3 million, or 5 percent, from those recorded in the same period last year. Promotional activities associated with the new product launch in the current year was the primary factor in the current year increase. Other Regions Seed corn operating results outside North America decreased approximately $20 million for the first nine months of fiscal 1998 compared to the same period in the previous year. The primary factor for this decrease is the impact of a stronger U.S. dollar against foreign currencies, which reduced current year operating results approximately $23 million. SOYBEANS Year-to-date soybean operating income improved nearly 30 percent from the prior year, almost entirely the result of record North American operations. Soybean operations continue to grow, and have improved on the record results reflected a year ago. Unit sales have increased almost 4 percent, or approximately 450,000 units, from 1997 levels, almost entirely the result of increased acreage. Higher commodity prices and additional acres planted to soybeans from acres coming out of conservation programs have resulted in additional acres planted to soybeans in the current year. Net margin improved from a year ago despite higher commodity costs. An increase in list prices for the current year, combined with the sales price effect of glyphosate-resistant products which are sold at a premium, more than offset the increase in unit costs. OTHER PRODUCTS Other products current year operating results improved $7 million over those recorded a year earlier. Wheat, Sunflower, and Canola account for most of the current year-to-date change. INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES Current year indirect general and administrative expenses increased $10 million, or 17 percent, over 1997 levels. Increased employee compensation costs, legal costs and higher training and development costs, resulting from investments in information systems within North America and Europe, were a significant part of the current year increase. NET FINANCIAL AND TAXES Current period net financial income for the first nine months of fiscal 1998 increased $30.5 million from what was recorded in the prior year primarily due to interest earned on the net proceeds from DuPont's investment in the Company. Net exchange and other gains and losses in the current year were impacted by a gain on the sale of two million shares of Mycogen Corporation stock in 1998 and one million shares in 1997. The Mycogen transactions, net of expenses, increased earnings per share $.04 and $.01 for 1998 and 1997, respectively. Also impacting net exchange and other gains and losses was the strengthening of the U.S. dollar against various foreign currencies around the world. 14 The worldwide effective tax rate reflected for the first nine months of fiscal 1998 was 34 percent. The worldwide effective tax rate for the same period the year previous was 36 percent. The decrease in the effective tax rate between years increased earnings per share by $.03. The effective tax rate reflected in the current year is based on all information available to date. The effective tax rate on an annual basis may vary from what is reflected in the current period, in part as a result of the level of earnings and associated tax rates from the various countries in which the Company operates. SUBSEQUENT EVENTS On June 29, 1998 severe storms hit the Des Moines metro area causing significant property damage to the area. The Company incurred damage ranging from broken windows and overhead doors to roof damage. With the exception of tree damage, the property damage was insured. On June 7, 1998 a fire destroyed several of the Company's greenhouses located in Johnston, Iowa. No one was injured in the fire. Experimental corn and soybean products were lost. However, most of the plant materials destroyed can be replaced through other seed, plants, or plant tissue. The construction of new greenhouses is in progress and in the meantime temporary greenhouse space has been arranged. No research information was lost. Product development and new product introductions will continue as previously planned. The Company's greenhouses were insured. The financial effect of these events on the Company's current year operating results will not be material. 15 PIONEER HI-BRED INTERNATIONAL, INC. PART II - OTHER INFORMATION Item 5. - Market price of and dividends on registrants common equity and related stockholder matters The 1999 Annual Meeting is scheduled to be held on January 26, 1999. A Shareholder intending to present a proposal to the 1999 Annual Meeting and wishing to have such proposal included in the Proxy Statement and form of Proxy to be distributed by the Board of Directors in connection with the 1999 Annual Meeting must submit such proposal no later than August 12, 1998 in writing to the Secretary, Pioneer Hi-Bred International, Inc., 800 Capital Square, 400 Locust Street, P.O. Box 14458, Des Moines, Iowa 50306-3458. A Shareholder intending to present a proposal to the 1999 Annual Meeting who does not intend to have such proposal included in the Proxy Statement and form of Proxy, must submit such proposal in writing to the address set forth above. Written notice of the intent to make such a proposal must be given, either by personal delivery or United States Mail, First Class postage prepaid to the address above by October 28, 1998. Item 6. - Exhibits and Reports on Form 8-K a.Exhibits Financial Data Schedule (Exhibit 27). b.Reports on Form 8-K No reports on Form 8-K were filed with the Commission during the three months ended May 31, 1998. 16 PIONEER HI-BRED INTERNATIONAL, INC. 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. PIONEER HI-BRED INTERNATIONAL, INC. (Registrant) By /s/ JERRY L. CHICOINE JERRY L. CHICOINE Executive Vice President and Chief Operating Officer By /s/ BRIAN G. HART BRIAN G. HART Vice President and Chief Financial Officer 17 EX-27 2 FDS --
5 (Replace this text with the legend) 0000078716 PIONEER HI-BRED 1,000,000 USD 9-MOS AUG-31-1998 SEP-01-1997 MAY-31-1998 1 63 221 587 26 414 1,326 1,080 513 2,013 479 0 0 0 279 1,120 2,013 1,698 1,698 831 831 420 0 9 485 (166) 319 0 0 0 319 1.36 1.26
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