-----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, JQuBEDqTnhJoD2v9VO4lweHaxaxhwimy4CL5DbuOHa9rT8tPuiTaIMbokW47x+1d ew74HxrhIhNl46BKMpJHGA== 0000078716-99-000010.txt : 19990713 0000078716-99-000010.hdr.sgml : 19990713 ACCESSION NUMBER: 0000078716-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990712 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: 99663078 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 3RD QTR 10-Q 18 =============================================================================== 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, 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 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 22, 1999 - ------------------------------------------ ----------------------------- Common Stock ($1.00 par value) 239,470,394 Class B Common Stock ($1.00 par value) - ================================================================================ PIONEER HI-BRED INTERNATIONAL, INC. INDEX
PAGE ----- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets -- May 31, 1999, August 31, 1998, and May 31, 1998.............................. 3-4 Consolidated Condensed Statements Of Operations-- Three Months and Nine Months Ended May 31, 1999 and May 31, 1998............ 5 Consolidated Condensed Statements Of Cash Flows-- Nine Months Ended May 31, 1999 and May 31, 1998............................ 6 Notes to Consolidated Condensed Financial Statements............. 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 11-16 PART II - OTHER INFORMATION Item 5. Market price of and dividends on registrants' common equity and related stockholder matters............................................ 17 Item 6. Exhibits and Reports on Form 8-K................................. 17 Signatures................................................................ 18
2 PIONEER HI-BRED INTERNATIONAL, INC. PART I - FINANCIAL INFORMATION CONSOLIDATED CONDENSED BALANCE SHEETS (In millions)
May 31, August 31, May 31, ASSETS 1999 1998 1998 ---------- ---------- ----------- (Unaudited) (Unaudited) CURRENT ASSETS Cash and cash equivalents........... $ 88 $ 86 $ 284 Accounts and notes receivable, net.. 991 400 561 Inventories: Finished seed..................... 320 273 303 Unfinished seed................... 123 201 102 Other............................. 10 7 9 Deferred income taxes............... 54 69 60 Prepaid expenses and other current assets........................ 7 3 7 ----- ----- ----- ....................Total current assets $ 1,593 $ 1,039 $ 1,326 LONG-TERM ASSETS........................ 57 47 62 PROPERTY AND EQUIPMENT, net of accumulated depreciation and allowances May 31, 1999 - $558 August 31, 1998 - $520 May 31, 1998- $517.................. 635 576 567 INTANGIBLES............................. 78 55 58 ----- ----- ----- $ 2,363 $ 1,717 $ 2,013 ===== ===== =====
See Notes to Consolidated Condensed Financial Statements. 3 PIONEER HI-BRED INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In millions)
LIABILITIES AND SHAREHOLDERS' May 31, August 31, May 31, EQUITY 1999 1998 1998 -------- --------- ---------- (Unaudited) (Unaudited) CURRENT LIABILITIES Short-term borrowings................. $ 198 $ 76 $ 56 Current maturities of long-term debt.. 1 14 4 Accounts payable, trade............... 151 81 119 Accrued compensation.................. 50 61 54 Income taxes payable.................. 92 46 166 Other accruals........................ 104 67 80 ----- ----- ----- Total current liabilities........... $ 596 $ 345 $ 479 ----- ----- ----- LONG-TERM DEBT............................ $ 205 $ 5 $ 17 ----- ----- ----- DEFERRED ITEMS Postretirement benefits............... $ 104 $ 94 $ 92 Income taxes.......................... 18 19 17 ----- ----- ----- $ 122 $ 113 $ 109 ----- ----- ----- MINORITY INTEREST IN SUBSIDIARIES......... $ 8 $ 7 $ 9 ----- ----- ----- SHAREHOLDERS' EQUITY Common stock, $1 par value............ $ 280 $ 230 $ 230 Class B common, $1 stated value....... - 49 49 Additional paid-in capital............ 260 246 242 Retained earnings..................... 1,645 1,428 1,501 Accumulated other comprehensive loss, net............................... (50) (46) (34) ----- ----- ----- $ 2,135 $ 1,907 $ 1,988 Less: Cost of common shares acquired for the treasury........... (669) (631) (557) Unearned compensation................. (34) (29) (32) ----- ----- ----- $ 1,432 $ 1,247 $ 1,399 ----- ----- ----- $ 2,363 $ 1,717 $ 2,013 ===== ===== =====
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, 1999 1998 1999 1998 --------------------- ---------------------- Net sales.......................... $ 1,324 $ 1,317 $ 1,700 $ 1,698 ----- ----- ----- ----- Operating costs and expenses: Cost of goods sold............... $ 516 $ 517 $ 709 $ 716 Research and product development. 55 43 140 115 Selling.......................... 214 193 343 317 General and administrative....... 44 34 115 103 ----- ----- ----- ----- $ 829 $ 787 $ 1,307 $ 1,251 ----- ----- ----- ----- Operating income................. $ 495 $ 530 $ 393 $ 447 Investment income.................. 19 11 31 36 Interest expense................... (8) (4) (18) (9) Net exchange and other gains (losses) (9) 22 (17) 14 ----- ----- ----- ----- Income before items shown below.......................... $ 497 $ 559 $ 389 $ 488 Provision for income taxes......... (134) (191) (98) (166) Minority interest and other........ (2) (2) (2) (3) ----- ----- ----- ----- Net income....................... $ 361 $ 366 $ 289 $ 319 ===== ===== ===== ===== Preferred stock dividend......... -- -- -- (9) ===== ===== ===== ===== Net income available to common stockholders............ $ 361 $ 366 $ 289 $ 310 ===== ===== ===== ===== Income per common share basic*..... $ 1.50 $ 1.50 $ 1.20 $ 1.36 Income per common share diluted*... 1.50 1.50 1.20 1.26 Dividends per common share*........ $ .10 $ .09 $ .30 $ .26 Weighted average number of common shares outstanding basic......... 239.5 244.0 239.7 228.4 Weighted average number of common shares outstanding diluted....... 240.5 245.1 240.5 253.2
* 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, 1999 1998 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income....................................... $ 289 $ 319 Noncash items included in net income: Depreciation and amortization.................. 83 64 Gain on sale of available-for-sale securities.. - (20) Other.......................................... 7 (4) Change in assets and liabilities, net Receivables.................................... (643) (263) Other assets and liabilities................... 213 232 ----- ----- Net cash provided by operating activities...... $ (51) $ 328 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures............................. $ (143) $ (87) Technology investments........................... (14) (5) Proceeds on sale of available-for-sale securities - 40 Other............................................ (7) - ----- ----- Net cash used in investing activities.......... $ (164) $ (52) ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) proceeds on short-term borrowings. $ 142 $ (30) Purchase common stock............................ (34) (1,683) Dividends on common and preferred stock.......... (72) (68) Net proceeds from issuance of preferred stock.... - 1,701 Net proceeds (payments) on long-term debt........ 187 (5) ----- ----- Net cash used in financing activities.......... $ 223 $ (85) ----- ----- Effect of foreign currency exchange rate changes on cash and cash equivalents........................ $ (6) $ ( 4) ----- ----- Net increase in cash and cash equivalents....... $ 2 $ 187 Cash and cash equivalents, beginning............... 86 97 ----- ----- CASH AND CASH EQUIVALENTS, ENDING $ 88 $ 284 ===== ===== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest................................ $ 12 $ 9 ===== ===== Income taxes............................ $ 44 $ 35 ===== ===== NON CASH FINANCING ACTIVITIES Retirement of 49,398,135 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 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, 1999 and 1998, and the results of operations and cash flows for the nine months ended May 31, 1999 and 1998. Because of the seasonal nature of the Company's business, the results of operations for the nine months ended May 31, 1999, 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, 1999 and 1998. 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. 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. Following the signing of the Merger Agreement, all class B common stock was converted to common stock on a one for one basis. If the merger is completed, Pioneer shareholders, other than DuPont, will receive $40 for each Pioneer share they own. Pioneer shareholders may elect to receive the $40 in shares of DuPont common stock based on the average trading price of DuPont common stock over the 10-trading day period ending three trading days before the date of the special meeting of Pioneer shareholders or may choose to receive the $40 in cash. Only 45 percent of the aggregate consideration paid by DuPont will be in the form of cash and the remaining 55 percent will be in the form of DuPont common stock. The closing of the Merger is subject to various conditions, including the approval of Pioneer stockholders. On May 21, 1999, the Company met the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and was notified that the U.S. Department of Justice had completed it's review. Even after the termination of the waiting period, the Antitrust Division of the Department of Justice and the Federal Trade Commission will have the authority to challenge the merger on antitrust grounds before or after the merger is completed. On June 21, 1999, Pioneer was informed by the European Commission that DuPont's acquisition of the 80 percent of Pioneer not currently owned by DuPont has received merger clearance. The Company does not believe that any other material regulatory approvals will be required. On July 2, 1999, the Company filed a transaction statement on Schedule 13e-3 with the Securities and Exchange Commission (SEC) outlining the terms of the merger with DuPont. The filing includes a proposed proxy statement for Pioneer to use in soliciting proxies for the Pioneer special meeting of shareholders. Following review by the SEC and approval by Pioneer shareholders, the merger is expected to be completed late this summer. 7 5. 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. Following the signing of the merger agreement with DuPont on March 15, 1999, Pioneer exchanged, on a share-for-share basis. Pioneer common shares entitled to five votes per share for all Pioneer class B common shares previously owned by DuPont. This conversion had no effect on the number of shares used to calculate earnings per share. The following table summarizes the computation of basic weighted-average common shares outstanding for the periods presented:
Three Months Ended May 31, 1999 1998 ----------------------------------------------------------------------------------- (in millions) Number of shares of common stock outstanding at beginning of period 239.5 245.3 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) Weighted-average number of shares of common stock outstanding during the period 239.5 244.0
Nine Months Ended May 31, 1999 1998 ----------------------------------------------------------------------------------- (in millions) Number of shares of common stock outstanding at beginning of period 240.3 246.7 Weighted-average number of shares of common stock issued during the period 0.3 22.8 Weighted-average number of shares of common stock purchased for the treasury or retired (0.9) (41.1) Weighted-average number of shares of common stock outstanding during the period 239.7 228.4
8 6. The following tables provide a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented:
Three Months Ended May 31, 1999 May 31, 1998 ------------------ ------------------------------- ------------------------------- (in millions, except Shares Shares per share amounts) Income Denom- Per-Share Income Denom- Per-Share Numerator inator Amount Numerator inator Amount --------- -------- ---------- ---------- -------- --------- Basic earnings per share: Net income attributable to common shareholders $ 361 239.5 $ 1.50 $ 366 244.0 $ 1.50 Effect of dilutive securities: Stock options - 1.0 - 1.1 ----- ----- ----- ----- Diluted earnings per share: Net income attributable to common shareholders $ 361 240.5 $ 1.50 $ 366 245.1 $ 1.50 ===== ===== ===== ===== ===== =====
Nine Months Ended May 31, 1999 May 31, 1998 ----------------- --------------------------- ----------------------------------- (in millions, except Shares Shares per share amounts) Income Denom- Per-Share Income Denom- Per-Share Numerator inator Amount Numerator inator Amount -------- ------- ---------- ------------ --------- ----- Basic earnings per share: Net Income $ 289 $ 319 Less: Preferred stock dividends - (9) ----- ----- Net income attributable to common shareholders $ 289 239.7 $ 1.20 $ 310 228.4 $ 1.36 Effect of dilutive securities: Convertible preferred stock - - 9 23.7 Stock options - 0.8 - 1.1 ----- ----- ----- ----- Diluted earnings per share: Net income attributable to common shareholders $ 289 240.5 $ 1.20 $ 319 253.2 $ 1.26 ===== ===== ===== ===== ===== =====
9 7. 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 May 31, 1998, and August 31, 1998, financial statements have been reclassified to conform to the requirements of SFAS No. 130. Total comprehensive income for the nine months ended May 31, 1999 and 1998, which includes net income and other comprehensive income amounted to $286 million and $292 million, respectively. 8. Income tax expense for the first nine months of fiscal 1999 is based upon an estimated worldwide effective tax rate for the year of 33 percent. The provision for the quarter ended May 31, 1999, was reduced by a benefit resulting from tax settlements. The worldwide effective tax rate for the same period the previous year was 34 percent. The effective tax rate reflected for the third 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, principally due to the timing of the DuPont merger transaction as well as any changes in the mix of earnings between the Company's North American seed business and other worldwide operations. 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 May 31, 1999, consisted of $121 million in domestic commercial paper and $77 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 agreement described above, 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. Following the signing of the Merger Agreement, (note 4), all class B common stock was converted to common stock on a one for one basis. The decrease in the Company's cash position and increase in accounts receivable at May 31, 1999 is primarily due to the high level of acceptance to the Company's enhanced customer credit programs offered for the 1999 sales season. The four-fold increase in the customer credit programs created the need for additional short-term borrowings. In addition, prior year short-term borrowings were not at traditional levels due to the agreement described above with DuPont. Cash from that transaction decreased prior year short-term borrowing needs. Long-term debt increased $188 million as a result of the Company's issuance of $200 million in debt securities in January 1999. 11 Impacting treasury stock for the nine months ended May 31, 1999, was the repurchase of 1.2 million shares of the Company's stock for a total of $33.7 million through the Company's share repurchase program. MATERIAL CHANGES IN RESULTS OF OPERATIONS: Net income for the nine months ended May 31, 1999, was $289 million on sales of $1.7 billion, or $1.20 per diluted share. Net income totaled $319 million, or $1.26 per diluted share, on sales of $1.7 billion for the first nine months of fiscal 1998. 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. The downturn in the world agricultural economy has had a substantial impact on the Company's current year results. The Company's preliminary estimates show Pioneer maintained its 42 percent market share in a very competitive North American hybrid seed corn market in 1999. The Company's products performed well in side-by-side comparisons conducted by Pioneer during the 1998 harvest. 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. There is excitement surrounding Pioneer's soybean operations in North America. Results in 1999 will again reflect record sales and profits from the Company's soybean business. Glyphosate-resistant products represented approximately two-thirds of total year-to-date unit sales, compared to approximately 40 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 operations outside the United States have declined from a year ago due to depressed grain prices, reduced farm income, Genetically Modified Organisms (GMO) concerns and economic issues in several markets. Nine Months Ended May 31, 1999 compared to the Nine Months Ended May 31, 1998 Operating income for the first nine months of fiscal 1999 decreased $54 million to $393 million. A decrease in corn acreage in the United States resulted in lower corn unit sales in 1999 compared to 1998. Reduced seed corn sales, increased investments in research and product development and intellectual property protection, higher loan loss provision and merger related costs reduced operating income. Record soybean results only partially offset these increased costs. 12 Net Sales and Operating Profit (Unaudited, in millions)
Quarter Ended Nine Months Ended May 31, May 31, Increase/ May 31, May 31, Increase/ 1999 1998 (Decrease) 1999 1998 (Decrease) --------------------------------- -------------------------------- Net sales: Corn: North America..... $ 789 $ 807 $ (18) $ 898 $ 932 $ (34) Europe............ 165 190 (25) 289 295 (6) Other Regions..... 27 25 2 82 72 10 ----- ----- ----- ----- ----- ----- $ 981 $ 1,022 $ (41) $ 1,269 $ 1,299 $ (30) Soybeans............ 241 194 47 256 210 46 Other............... 102 101 1 175 189 (14) ----- ----- ----- ----- ----- ----- Total net sales....... $ 1,324 $ 1,317 $ 7 $ 1,700 $ 1,698 $ 2 ===== ===== ===== ===== ===== ===== Operating profit: Corn................ $ 422 $ 470 $ (48) $ 393 $ 448 $ (55) Soybean............. 82 56 26 66 40 26 Other............... 23 26 (3) 13 27 (14) ----- ----- ----- ----- ----- ----- Product line operating profit............ $ 527 $ 552 $ (25) $ 472 $ 515 $ (43) Indirect general and administrative expenses........ (32) (22) (10) (79) (68) (11) ----- ----- ----- ----- ----- ----- Operating income...... $ 495 $ 530 $ (35) $ 393 $ 447 $ (54) ===== ===== ===== ===== ===== ===== Units delivered: Corn: North America..... 9.5 9.7 (0.2) 11.0 11.4 (0.4) Europe........... 1.7 1.7 - 2.7 2.7 - Other Regions.... 0.4 0.3 0.1 1.3 1.1 0.2 ----- ----- ----- ----- ----- ----- 11.6 11.7 (0.1) 15.0 15.2 (0.2) ===== ===== ===== ===== ===== ===== Soybean-North America 13.8 11.2 2.6 14.4 12.0 2.4 ===== ===== ===== ===== ===== =====
SEED CORN North America Operating profit in North America decreased $45 million over 1998 results. This decrease is largely due to lower unit sales, increased investment in research and product development, and higher provisions for loan loss reserves from the Company's enhanced credit programs. Current year seed corn unit sales through third quarter are down approximately 400,000 units, or 3.5 percent, over those recorded in the previous year due to a decrease in corn acreage. Low commodity prices in the United States typically drive down the number of acres planted to corn. Corn commodity prices have been significantly depressed this year and as a result the North America market size for corn is estimated at 80.9 million acres, a decrease of more than 3 percent from 1998. Current estimates of North America market share are approximately 42 percent, maintaining the previous year market concentration. The sales of new genetics increased the average price per unit, however the intensity of the competitive environment increased sampling and discounts which resulted in the average sales price remaining comparable to the prior year. Nearly two-thirds of 1999 unit sales are from new genetics - hybrids introduced in 1997 or later. Unit sales of corn hybrids with the Bt gene for resistance to the European Corn Borer (ECB) increased 1.3 million units, more than 50 percent over prior year unit sales. 13 The Company's expanded customer credit program was positively received by the Company's customers. The deferred payment program is approximately four times the volume of the prior year. The increased volume increased the provision for loan losses $9 million over the prior year provision. Due to Pioneer's continued commitment to invest for the future the Company's investment in research and product development and information management increased costs $25 million or 10 percent. The Company's investment in research increased $17 million or 24 percent over prior year. Other Regions Seed corn operating results outside North America decreased approximately $10 million for the first nine months of fiscal 1999 compared to the same period in the previous year. An increase in Italy due to increased corn acreage from improved commodity prices was more than offset by market share decreases in northern Europe and increased inventory writedowns in Europe and Latin America. SOYBEANS Year-to-date soybean operating income improved nearly 65 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. Soybean operations have benefited from the farmer's efforts to minimize input costs by switching from higher input cost crops such as corn to lower input cost crops. The shift to lower input cost crops and a federal loan program that pays higher rates for soybeans increased acres planted to soybeans by approximately 2 million acres or 3 percent over 1998. Product mix has also contributed to improved operating performance. North America unit sales have increased almost 20 percent, or approximately 2.4 million units from 1998 levels. The increased sales resulted in an estimated market share increase of approximately 3 percent. Unit sales of soybeans with the Roundup Ready(1) gene are estimated to comprise approximately two-thirds of current year soybean unit sales compared to 40 percent of prior year sales. This change in product mix is the major factor in the increased average sales price of approximately 4 percent. OTHER PRODUCTS Other products current year operating results decreased $14 million over those recorded a year earlier. Gains in sunflower and canola were more than offset by decreases in wheat and alfalfa, increased fixed costs, and the Company's share of the losses in Optimum Quality Grains, L.L.C.. INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES Current year indirect general and administrative expenses increased $11 million, or 16 percent, over 1998 levels. Increased cost for intellectual property protection and costs associated with the pending merger with DuPont are the primary reasons for the increase. NET FINANCIAL AND TAXES Net financial for the nine months ended May 31, 1999, was an expense of $4 million, compared to income of $41 million for the same period ended May 31, 1998. Net exchange and other gains and losses in the prior year were impacted by a gain on the sale of two million shares of Mycogen Corporation stock in 1998. The Mycogen transactions, net of expenses, increased earnings per share $.04 for 1998. In addition, the net proceeds from the equity transaction with DuPont resulted in increased interest income and decreased interest expense for the prior year. Income tax expense for the first nine months of fiscal 1999 is based upon an estimated worldwide effective tax rate for the year of 33 percent. The provision for the quarter ended May 31, 1999, was reduced by a benefit resulting from tax settlements. The worldwide effective tax rate for the same period the previous year was 34 percent. The effective tax rate reflected for the third 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, principally due to the timing of the DuPont merger transaction as well as any changes in the mix of earnings between the Company's North American seed business and other worldwide operations. 14 YEAR 2000 The Company's Year 2000 compliance program is on schedule. The following key objectives have been met by the close of June 1999. Core infrastructure and core application remediation efforts are substantially complete and certification efforts within our integrated Y2K testing environment are on schedule. The assessment of office automation, building, lab, and seed production equipment is substantially complete and remediation efforts are on schedule. The preliminary assessment of key third-party suppliers is complete. Contingency plans are being developed given our risk assessment of certain key suppliers. Over the next six months, compliance efforts will focus on executing test plans to prove and document system compliance, completing remediation of non-compliant equipment, and completing formal contingency plans covering facility operations and key supplier services. 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. ALLIANCE WITH DUPONT 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. Following the signing of the Merger Agreement, all class B common stock was converted to common stock on a one for one basis. If the merger is completed, Pioneer shareholders, other than DuPont, will receive $40 for each Pioneer share they own. Pioneer shareholders may elect to receive the $40 in shares of DuPont common stock based on the average trading price of DuPont common stock over the 10-trading day period ending three trading days before the date of the special meeting of Pioneer shareholders or may choose to receive the $40 in cash. Only 45 percent of the aggregate consideration paid by DuPont will be in the form of cash and the remaining 55 percent will be in the form of DuPont common stock. The closing of the Merger is subject to various conditions, including the approval of Pioneer stockholders. On May 21, 1999, the Company met the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and was notified that the U.S. Department of Justice had completed it's review. Even after the termination of the waiting period, the Antitrust Division of the Department of Justice and the Federal Trade Commission will have the authority to challenge the merger on 15 antitrust grounds before or after the merger is completed. On June 21, 1999, Pioneer was informed by the European Commission that DuPont's acquisition of the 80 percent of Pioneer not currently owned by DuPont has received merger clearance. The Company does not believe that any other material regulatory approvals will be required. On July 2, 1999, the Company filed a transaction statement on Schedule 13e-3 with the Securities and Exchange Commission (SEC) outlining the terms of the merger with DuPont. The filing includes a proposed proxy statement for Pioneer to use in soliciting proxies for the Pioneer special meeting of shareholders. Following review by the SEC and approval by Pioneer shareholders, the merger is expected to be completed late this summer. 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. 16 PIONEER HI-BRED INTERNATIONAL, INC. PART II - OTHER INFORMATION Item 5. - Market price of and dividends on registrants common equity and related stockholder matters Pioneer will hold its 2000 annual meeting of Pioneer shareholders on January 25, 2000 only if the merger with DuPont is not consummated. In the event, that such a meeting is held, any proposals of Pioneer shareholders intended to be presented at the 2000 annual meeting must be submitted in writing and received by the Corporate Secretary of Pioneer Hi-Bred International, Inc. at 800 Capital Square, 400 Locust Street, P.O. Box 14458, Des Moines, Iowa 50306-3458 no later than August 11, 1999 in order to be considered for inclusion in the Pioneer 2000 annual meeting proxy materials. A Pioneer shareholder intending to present a proposal to the 2000 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 27, 1999. The notice must otherwise comply with requirements of the Company's By-laws. Item 6. - Exhibits and Reports on Form 8-K a.Exhibits Financial Data Schedule (Exhibit 27). b.Reports on Form 8-K On March 17, 1999, the Company filed a report on Form 8-K reporting under Item 5, that Pioneer Hi-Bred International, Inc., E. I. du Pont de Nemours and Company (DuPont), and Delta Acquisition Sub, Inc., a wholly owned subsidiary of DuPont entered into an Agreement and Plan of Merger on March 15, 1999, pursuant to which Pioneer will be merged into Delta, with Delta surviving the Merger. Related exhibits were included under Item 7 of the report. 17 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: July 12, 1999 18 EX-27 2 FDS --
5 (Replace this text with the legend) 0000078716 PIONEER HI-BRED 1,000,000 USD 9-MOS AUG-31-1999 SEP-01-1998 MAY-31-1999 1.0 68 20 1045 54 453 1,593 1,193 558 2,363 596 0 0 0 280 1,152 2,363 1,700 1,700 849 849 458 0 18 387 98 289 0 0 0 289 1.20 1.20
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