-----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, RQOO8ugT1kPlJCLyKd5rdAYOD2AJ+3293mUIQJhePVTMVxYWg5M+AGmAHjx046Bd OZQNKKqYTvMTY9e74ffdbg== 0000078716-99-000007.txt : 19990402 0000078716-99-000007.hdr.sgml : 19990402 ACCESSION NUMBER: 0000078716-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990331 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: 99581489 BUSINESS ADDRESS: STREET 1: 700 CAPITAL SQ STREET 2: 400 LOCUST ST CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152484800 MAIL ADDRESS: STREET 1: 6800 PIONEER PKWY STREET 2: PO BOX 316 CITY: JOHNSTON STATE: IA ZIP: 50131 10-Q 1 SECOND 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 February 28, 1999 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 (I.R.S. Employer Identification No.) incorporation or organization) 700 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 March 23, 1999 - ----------------------------- ----------------------------- Common Stock ($1.00 par value) 190,140,155 Common Stock - Class B ($1.00 stated value) 49,333,758 PIONEER HI-BRED INTERNATIONAL, INC. INDEX
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets -- February 28, 1999, August 31, 1998, and February 28, 1998......................... 3-4 Consolidated Condensed Statements Of Operations-- Six Months Ended February 28, 1999 and 1998............................... 5 Consolidated Condensed Statements Of Cash Flows-- Six Months Ended February 28, 1999 and 1998............................... 6 Notes to Consolidated Condensed Financial Statements............. 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 11-15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................. 16 Signatures................................................................ 17
2 PIONEER HI-BRED INTERNATIONAL, INC. PART I - FINANCIAL INFORMATION CONSOLIDATED CONDENSED BALANCE SHEETS (In millions)
February 28, August 31, February 28, ASSETS 1999 1998 1998 ----------- ------------ ------------ (Unaudited) (Unaudited) CURRENT ASSETS Cash and cash equivalents........... $ 272 $ 86 $ 578 Accounts and notes receivable, net.. 367 400 339 Inventories: Finished seed..................... 565 273 593 Unfinished seed................... 262 201 197 Other............................. 16 7 11 Income taxes receivable............. 9 -- -- Deferred income taxes............... 77 69 68 Prepaid expenses and other current assets.................. 78 3 72 -------- -------- -------- ....................Total current assets $ 1,646 $ 1,039 $ 1,858 LONG-TERM ASSETS........................ 59 47 85 PROPERTY AND EQUIPMENT, net of accumulated depreciation and allowances February 28, 1999 - $552 August 31, 1998 - $520 February 28, 1998 - $514............ 619 576 555 INTANGIBLES............................. 65 55 60 -------- -------- -------- $ 2,389 $ 1,717 $ 2,558 ======== ======== ========
See Notes to Consolidated Condensed Financial Statements. 3 PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In millions)
LIABILITIES AND SHAREHOLDERS' February 28, August 31, February 28, EQUITY 1999 1998 1998 ------------ ------------- ------------ (Unaudited) (Unaudited) CURRENT LIABILITIES Short-term borrowings................. $ 79 $ 76 $ 67 Current maturities of long-term debt.. 1 14 6 Accounts payable, trade............... 240 81 228 Customer Deposits..................... 525 -- 843 Accrued compensation.................. 38 61 45 Income taxes payable.................. -- 46 4 Other accruals........................ 78 _____67 _____77 ------- -- -- Total current liabilities........... $ 961 $ 345 $ 1,270 -------- -------- -------- LONG-TERM DEBT............................ $ 205 $ 5 $ 18 -------- -------- -------- DEFERRED ITEMS Retirement benefits................... $ 98 $ 94 $ 88 Income taxes.......................... 18 19 18 -------- -------- -------- $ 116 $ 113 $ 106 -------- -------- -------- MINORITY INTEREST IN SUBSIDIARIES......... $ 7 $ 7 $ 6 -------- -------- -------- SHAREHOLDERS' EQUITY Preferred stock, $100 stated value.... $ -- $ -- $ -- Common stock, $1 par or stated value.. 231 230 93 Class B common, $1 stated value....... 49 49 -- Additional paid-in capital............ 260 246 242 Retained earnings..................... 1,308 1,428 1,342 Accumulated other comprehensive loss, Net............................ (42) (46) (28) ------- ------- --- $ 1,806 $ 1,907 $ 1,649 Less: Cost of common shares acquired for the treasury........... (669) (631) (457) Unearned compensation............... (37) (29) (34) -------- -------- -------- $ 1,100 $ 1,247 $ 1,158 -------- -------- -------- $ 2,389 $ 1,717 $ 2,558 ======== ======== ========
See Notes to Consolidated Condensed Financial Statements. 4 PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited, in millions)
Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 1999 1998 1999 1998 -------------------------- --------------------------- Net sales.......................... $ 300 $ 302 $ 376 $ 381 -------- -------- -------- -------- Operating costs and expenses: Cost of goods sold............... $ 137 $ 147 $ 193 $ 198 Research and product development. 45 38 85 72 Selling.......................... 75 69 129 124 General and administrative....... 36 41 71 69 -------- -------- -------- -------- $ 293 $ 295 $ 478 $ 463 -------- -------- -------- -------- Operating income (loss).......... $ 7 $ 7 $ (102) $ (82) Investment income.................. 7 7 12 25 Interest expense................... (5) (3) (10) (5) Net exchange and other losses.................... (3) (3) (8) (8) ------------ -------- -------- -------- Income (loss) before items shown below.......................... $ 6 $ 8 $ (108) $ (70) Provision for income taxes......... (3) (2) 36 25 Minority interest and other........ -- (2) -- (2) -------- -------- -------- -------- Net income (loss)................ $ 3 $ 4 $ (72) $ (47) Preferred stock dividend........... -- 5 -- 9 -------- -------- -------- -------- Net income (loss) attributable to common shareholders............ $ 3 $ (1) $ (72) $ (56) ======== ======== ======== ======== Basic net income (loss) per common share*.................... $ .01 $ (.01) $ (.30) $ (.25) Diluted net income (loss) per common share*.................... $ .01 $ (.01) $ (.30) $ (.25) Dividends per common share*........ $ .10 $ .09 $ .20 $ .17 Basic average common shares outstanding...................... 239.4 214.8 239.8 220.5 Diluted average common shares outstanding....................... 240.1 214.8 239.8 220.5 *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)
Six Months Ended February 28, 1999 1998 ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)....................................... $ (72) $ (47) Noncash items included in net (loss): Depreciation and amortization.................. 52 43 Other.......................................... 14 (9) Net change in assets and liabilities............. 174 511 -------- -------- Net cash provided by operating activities...... $ 168 $ 498 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures............................. $ (81) $ (64) Technology Investments........................... (5) (5) Other............................................ (21) 5 -------- -------- Net cash used in investing activities.......... $ (107) $ (64) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds (payments) on short-term borrowings. $ 22 $ (20) Purchase of common stock......................... (34) (1,583) Dividends paid................................... (48) (47) Net proceeds from issuance of preferred stock.... -- 1,701 Net proceeds (payments) on long-term debt........ 187 (1) -------- -------- Net cash provided by financing activities...... $ 127 $ 50 -------- -------- Effect of foreign currency exchange................ $ (2) $ (3) -------- -------- Net increase in cash and cash equivalents...... $ 186 $ 481 Cash and cash equivalents, beginning............... 86 97 -------- -------- CASH AND CASH EQUIVALENTS, ENDING.................. $ 272 $ 578 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest....................................... $ 7 $ 5 ======== ======== Income taxes................................... $ 33 $ 23 ======== ======== NONCASH FINANCING ACTIVITIES: Retirement of 49,398,135 shares of treasury stock: Common stock................................... $ -- $ 16 Additional paid-in capital..................... -- 1,509 -------- -------- Treasury stock................................. $ -- $ 1,525 ======== ========
See Notes to Consolidated Condensed Financial Statements. 6 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, in accordance with generally accepted accounting principles, the financial position as of February 28, 1999 and 1998, and the results of operations and cash flows for the six months ended February 28, 1999 and 1998. Because of the seasonal nature of the Company's business, the results of operations for the six months ended February 28, 1999, may not be indicative of the results to be expected for the full year. 2. Pioneer 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 February 28, 1999 and 1998. 3. Since April, 1996, DeKalb Genetics Corporation ("DeKalb") has filed six lawsuits against Pioneer. The lawsuits allege that insect resistant corn products that use a Bt gene, and corn products resistant to a glufosinate herbicide, infringe on certain DeKalb patents. On November 10, 1998, two of the six lawsuits filed were dismissed with prejudice. These two lawsuits alleged the Company had infringed on Dekalb patents by using glufosinate resistant products in developing corn hybrids. After reviewing the Company's intellectual property position, DeKalb's patent filings, DeKalb's lawsuits, and conducting extensive discovery, Pioneer continues to believe all 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. 7 4. The following table summarizes the computation of weighted average shares outstanding: Three Months Ended February 28 1999 1998 ---------------------------------------------------------------------------- (in millions) Number of shares of common stock outstanding at beginning of the period..... 239.7 197.4 Weighted average number of shares of common stock issued during the period...... 0.2 18.0 Weighted average number of shares of common stock purchased for the treasury.... (0.5) (0.6) --- --- Weighted average number of shares of common stock outstanding during the period. 239.4 214.8 ===== ===== Six Months Ended February 28, 1999 1998 --------------------------------------------------------------------------- (in millions) Number of shares of common stock outstanding at beginning of the period..... 240.3 246.6 Weighted-average number of shares of common stock issued during the period...... 0.1 9.0 Weighted-average number of shares of common stock purchased for the treasury.... (0.6) (35.1) ---- ----- Weighted-average number of shares of common stock outstanding during the period. 239.8 220.5 ===== ===== 8 5. The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented:
February 28, 1999 February 28, 1998 -------------------------------- ------------------------------- Income/ Shares Income/ Shares (Loss) Denom- Per-Share (Loss) Denom- Per-Share Three Months Ended Numerator inator Amount Numerator inator Amount ------------------------- -------------------------------- ------------------------------- (in millions, except per share amounts) Net income $ 3 $ 4 Less: Preferred stock dividends -- (5) ----- ----- Basic earnings per share: Income(loss) attributable to common shareholders $ 3 239.4 $ .01 $ (1) 214.8 $ (.01) ====== ====== Effect of dilutive securities: Convertible preferred stock -- -- -- -- Stock options -- .7 -- -- ----- ------ ----- -------- Diluted earnings per share: Income(loss) attributable to common shareholders $ 3 240.1 $ .01 $ (1) 214.8 $ (.01) ===== ======= ======= ==== ======== ====== February 28, 1999 February 28, 1998 -------------------------------- ------------------------------ Income/ Shares Income/ Shares (Loss) Denom- Per-Share (Loss) Denom- Per-Share Six Months Ended Numerator inator Amount Numerator inator Amount ------------------------- -------------------------------- ------------------------------- (in millions, except per share amounts) Net (loss) $ (72) $ (47) Less: Preferred stock dividends -- (9) ----- ------ Basic earnings per share: (loss) attributable to common shareholders $ (72) 239.8 $ (.30) $ (56) 220.5 $ (.25) ====== ======= Effect of dilutive securities: Convertible preferred stock -- -- -- -- Stock options -- -- -- -- ----- ------- ----- ------- Diluted earnings per share: (loss) attributable to common shareholders $ (72) 239.8 $ (.30) $ (56) 220.5 $ (.25) ===== ======= ====== ===== ======== =======
The periods presented, with the exception of the Three Months Ended February 28, 1999, reflect a loss attributable to common shareholders. As a result, the effect of convertible preferred stock and stock options are not included in the calculation of diluted earnings per share for the periods with losses as their effects are anti-dilutive. 9 6. Accounting Pronouncements As of September 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement has no impact on a company's net income (loss) or shareholders' equity. SFAS No. 130 requires other comprehensive income to include foreign currency translation adjustments and unrealized gains and losses on certain investments in debt and equity securities classified as available-for-sale securities, which prior to adoption were reported separately in shareholders' equity. The February 28, 1998, and August 31, 1998, financial statements have been reclassified to conform to the requirements of SFAS No. 130. Total comprehensive loss for the six months ended February 28, 1999 and 1998, which includes net loss and other comprensive income (loss) amounted to $67 million and $68 million, respectively. 7. Subsequent Events: On March 15, 1999, Pioneer Hi-Bred International, Inc., an Iowa corporation ("Pioneer"), E. I. du Pont de Nemours and Company, a Delaware corporation ("DuPont"), and Delta Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of DuPont ("Delta"), entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Pioneer will be merged (the "Merger") into Delta, with Delta surviving the Merger. At the effective time of the Merger, each share of Pioneer Common Stock (other than shares held by DuPont and any shares as to which appraisal rights are perfected) will be converted in the Merger, at the election of the holders thereof, into either a fraction of a share of DuPont common stock with an average trading price of $40 or the right to receive $40 in cash, subject to the overall limitation that 45% of the consideration paid to Pioneer stockholders will be cash and 55% will be DuPont common stock. The closing of the Merger is subject to various conditions, including the approval of Pioneer stockholders and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder. 10 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, 1998. 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 February 28, 1999, consisted of $79 million in direct short-term borrowings from foreign banks. During fiscal 1999 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 During the fiscal year ended August 31, 1998, the Company finalized an agreement with DuPont that created one of the world's largest private agricultural research and development collaborations. The Company and DuPont also formed a joint venture, Optimum Quality Grains, L.L.C. that markets improved quality traits. In connection with the above agreement, the Company issued convertible preferred stock to DuPont, which was converted to Class B common stock during fiscal year 1998. As required by the agreement, Pioneer used a majority of the proceeds to purchase shares of the Company's outstanding common stock through a Dutch auction self-tender. The excess proceeds from these transactions of approximately $170 million were used for 1998 operations and to purchase additional shares of Pioneer common stock on the open market through the Company's stock repurchase program. The growth in receivables at February 28, 1999, when compared to February 28, 1998, was primarily due to a $37 million increase in trade receivables resulting from deliveries running ahead of prior years in Italy and Greece. This was partially offset by a decrease in North America trade receivables due to timing of deliveries. Cash and cash equivalents decreased $306 million primarily due to a decrease of $318 million in customer deposits. The decrease in customer deposits is due to the high level of acceptance to the Company's enhanced customer credit programs offered for the 1999 sales season. Long-term debt increased $187 million as a result of the Company's issuance of $200 million in debt securities in January 1999. 11 MATERIAL CHANGES IN RESULTS OF OPERATIONS: Net loss for the six months ended February 28, 1999, was $72 million, or $.30 per share, on sales of $376 million. In the first six months of the prior fiscal year, the Company recorded a loss of $47 million on sales of $381 million. After the payment of preferred dividends the net loss attributable to common shareholders for February 28, 1998 totaled $56 million or $.25 per share. 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. Revenues during the Company's first six months of the fiscal year are generated mostly from Southern Hemisphere operations, North American wheat sales, initial southern North America seed corn sales and worldwide microbial product sales and generally represent less than 25 percent of the Company's annual sales. Six Months Ended February 28, 1999 compared to the Six Months Ended February 28, 1998 The current operating loss increased $20 million to $102 million largely due to increase fixed costs through the second quarter of fiscal 1999. The increase in fixed costs of approximately 8 percent was expected due to planned expenditures in research and product development, sales and marketing, information management and other targeted areas. Increased investments in research and product development of $13 million accounted for over 65 percent of the current year increase in fixed costs. Net sales were $5 million lower than prior year sales. Increased seed corn sales were offset by decreases in other products, primarily wheat. Earlier seed corn deliveries outside of North America, primarily Europe, more than offset a decrease in North America seed corn sales resulting from the timing of deliveries to southern United States dealers. Net Sales and Operating Profit (Loss) (Unaudited, in millions)
Quarter Ended Six Months Ended February 28, Increase/ February 28, Increase/ 1999 1998 (Decrease) 1999 1998 (Decrease) ---------------------------------- ------------------------------------ Net sales: Corn................ $ 255 $ 254 $ 1 $ 288 $ 277 $ 11 Other................. 45 48 (3) 88 104 (16) ------- ------- ------- ------- ------- ------- Total net sales....... $ 300 $ 302 $ (2) $ 376 $ 381 $ (5) ======== ======== ======== ======== ======== ======== Operating profit (loss): Corn................ $ 45 $ 46 $ (1) $ (29) $ (22) $ (7) Other............... (14) (14) -- (26) (15) (11) -------- -------- -------- -------- -------- -------- Product line operating profit (loss)..... $ 31 $ 32 $ (1) $ (55) $ (37) $ (18) Indirect general and administrative expenses........ (24) (25) 1 (47) (45) (2) -------- -------- -------- -------- -------- -------- Operating income (loss).............. $ 7 $ 7 $ -- $ (102) $ (82) $ (20) ======== ======== ======== ======== ======== ======== Units delivered, North America: Corn 1.499 1.723 (.224) 1.447 1.723 (.276)
12 SEED CORN North America Year-to-date North American seed corn operating loss increased $11 million from the same period a year ago. Deliveries of Pioneer products through the second quarter are running behind last year. Seed corn units delivered are down approximately 13 percent due to fewer units shipped to dealer areas in the southern United States. It is anticipated that corn acreage will be down in this region. The Company does not record a sale until the customer takes delivery of the seed. Average net seed price per unit has increased compared to the prior year as customers are trading up to new higher-value genetics. Current year-to-date operating income was also impacted by increased research and product development. Research and product development costs in North America increased $10 million, or 22 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. Pioneer is increasing its rate of research investment in genomics and lab sciences. Other Regions Seed corn sales outside North America increased $27 million for the first six months of fiscal 1999 compared to the previous year. The increased sales resulted in a $4 million increase in operating income over February 28, 1998 results. Current year European seed corn operating income increased $9 million from the same period a year ago. Earlier seed deliveries in southern Europe was the primary driver for improved current period results. Research and product development expenditures increased $6 million or 22 percent. OTHER PRODUCTS The current year operating loss from other products increased $11 million from the loss recorded a year earlier. This increase is due primarily to decreased wheat sales in North America and lower alfalfa sales in Latin America. Almost all of the Company's wheat sales occur by the end of the second quarter of the year. Wheat sales were down $8 million with a decrease in operating profit of $5 million due to low commodity prices which decreased sales price and acreage. Operating results decreased $4 million due to the Company's equity ownership in Optimum Quality Grains, L.L.C.. NET FINANCIAL AND TAXES Year-to-date net financial income decreased $18 million from previous year results due to decreased investment income and increased interest expense. Investment income decreased $13 million primarily due to fiscal 1998 first quarter results including interest earned on proceeds from DuPont's investment in the Company. The Company did not have excess cash to invest in the first quarter of the current year. Typically the Company borrows money during its first quarter to fund operations. The availability of the excess proceeds from the DuPont transactions last year reduced borrowings, which reduced prior year interest expense. The estimated worldwide tax rate of 33 percent reflected in the first six months of fiscal 1999 is the same as the 33 percent effective tax rate reflected on an annual basis for fiscal 1998. The worldwide effective tax rate for the first half of fiscal 1998 was 35 percent. The lower effective tax rate increased the year-to-date loss by approximately $2 million, or $.01 per share, compared to last year. The effective tax rate reflected for the second quarter is based on 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 any changes in the mix of earnings between the Company's North American seed business and other worldwide operations. 13 YEAR 2000 The Company's Year 2000 compliance program is on schedule. The following key objectives were met during the first six months of fiscal 1999. Core infrastructure and core application remediation efforts are estimated to be more than 95 percent complete. The inventory of building, lab, and seed production equipment is complete and assessments started. The Company has completed assessments for a large percentage of third party suppliers and has established a schedule for further investigation of Year 2000 compliance status for specific suppliers. An integrated network testing environment was established covering all corporate processing platforms. Over the next six months, compliance efforts will focus on developing and executing test plans, completing assessment of legacy data, remediation of non-compliant equipment, and completion of supplier assessments to include developing formal contingency plans. Total costs to address the Year 2000 issue are currently estimated not to exceed $3 to $5 million, unchanged from original estimates. Pioneer believes that the Year 2000 challenge will not materially impact the Company's ability to produce seed products or the ability to sell and distribute these products to customers for planting in the spring of 2000. EURO CONVERSION The Company believes the euro conversion will not have a material impact on the Company's ability to execute transactions during the transition period, which began January 1, 1999, and ends December 31, 2001. The significant requirement of companies during this period is the ability to invoice and accept payment in euro at a customer's request. The Company has systems and processes in place to manage euro denominated transactions if a customer makes this request. The Company continues to evaluate the impact the euro conversion will have on its business, however, the Company believes it will not have a material impact on its results of operations or financial condition. Several specific areas have been analyzed as noted. The Company has performed an analysis of applicable computer systems readiness for the euro conversion. Plans are in place to upgrade existing systems prior to 2001 to meet the needs of full euro conversion. The cost of these upgrades is not expected to be material to the Company. In addition, the Company has analyzed changing its hedging of foreign-currency-denominated transactions in participating countries from their legacy currency to the euro. Management expects hedging in the euro to reduce the number of hedging contracts and associated administrative costs. OUTLOOK Pioneer products continue to demonstrate value for our customers. The Company's corn hybrids anticipated to be the top ten volume products for 1999 on average posted a yield advantage of nearly 8 bushels an acre over the average of the top ten competitor hybrids in side-by-side comparisons last fall. Of the seed corn units invoiced to date in North America nearly two-thirds are from new genetics -- hybrids introduced in 1997 or later. In addition, corn hybrids with the Bt gene for resistance to European Corn Borer represented approximately one-third of North America seed corn units invoiced. The sales of new genetics is expected to result in higher seed corn margins in North America. Invoiced seed corn units in North American sales rep areas are running ahead of last year. Sales rep areas account for nearly 90 percent of the Company's annual North America seed corn sales volume. Invoiced seed corn units in North American dealer areas are behind last year primarily due to lower anticipated corn acreage in the southern United States. The Company expects market share gains in North America and other key seed markets around the world. 14 Pioneer brand soybeans are demonstrating excellent results. Based on 28,000 variety comparisons, Pioneer leader soybeans with the Roundup Ready(1) gene on average held a 2 bushel-per-acre yield advantage over competitive Roundup Ready products. Through second quarter, glyphosate-resistant products represented nearly two-thirds of total soybeans invoiced, compared to nearly 40 percent for fiscal year 1998. Soybean operating income is expected to improve as a result of anticipated market share increase and higher average price per unit due to a higher proportion of glyphosate resistant products sold. Invoicing of current year soybean sales are ahead of the same period last year by over 2 million units. FORWARD-LOOKING STATEMENT This report contains forward-looking statements relating to the Company's operations that are based on management's current expectations, estimates, and projections. Words such as "expects", "anticipates", "plans", "intends", "projects", and similar expressions are used to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. In addition to other factors discussed in this report, 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, the Year 2000 issue, the Euro conversion, and industry consolidations. (1) Registered trademark of, and used under license from, Monsanto Company. 15 PIONEER HI-BRED INTERNATIONAL, INC. PART II - OTHER INFORMATION 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 six months ended February 28, 1999. 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 Dated: March 30, 1999 17 EX-27 2 FDS --
5 (Replace this text with the legend) 0000078716 PIONEER HI-BRED 1,000,000 USD 6-MOS AUG-31-1999 SEP-01-1998 FEB-28-1999 1.0 76 196 408 41 843 1,646 1,171 552 2,389 961 0 0 0 280 820 2,389 376 376 278 278 200 0 10 (108) (36) (72) 0 0 0 (72) (.30) (.30)
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