-----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, UaS0iy83mmDNckGGEu3+M4vYfrlFHKKypi43I2e/6lVvVad5DaerUk6ISSX6u5Zh sCQ3Z3u/n8spayM3lEzZDQ== 0000835015-98-000027.txt : 19980409 0000835015-98-000027.hdr.sgml : 19980409 ACCESSION NUMBER: 0000835015-98-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980408 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEKALB GENETICS CORP CENTRAL INDEX KEY: 0000835015 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 363586793 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13035 FILM NUMBER: 98589298 BUSINESS ADDRESS: STREET 1: 3100 SYCAMORE RD CITY: DEKALB STATE: IL ZIP: 60115 BUSINESS PHONE: 8157589196 MAIL ADDRESS: STREET 1: 3100 SYCAMORE ROAD CITY: DEKALB STATE: IL ZIP: 60115 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the six month period ended February 28, 1998 or Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act 1934 For the transition period from to Commission file number: 017005 DEKALB Genetics Corporation ---------- ---------- (Exact name of registrant as specified in its charter)
Delaware 36-3586793 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 3100 Sycamore Road, DeKalb, 60115 Illinois (Address of principal (Zip Code) executive offices) 815-758-3461 (Registrant's telephone number, including area code)
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
Title of class Outstanding as of February 28, 1998 Class A Common, no par value 4,669,987 Class B Common, no par value 29,942,660
Exhibit index is located on page 2 Total number of pages 14 1 DEKALB GENETICS CORPORATION INDEX PART 1. FINANCIAL INFORMATION (Unaudited except for the Condensed Consolidated Balance Sheet as of August 31, 1997)
PAGE Item 1. Financial Statements Condensed Consolidated Statements of Operations for the six months ended February 28, 1998 and 1997 3 Condensed Consolidated Statements of Operations for the three months ended February 28, 1998 and 1997 4 Condensed Consolidated Balance Sheets, February 28, 1998 and 1997 and August 31, 1997 5 Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
PAGE Item 1. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security 12 Holder Item 6. Exhibits and Reports on Form 8-K 13
2
DEKALB GENETICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) (UNAUDITED) February February 1998 1997 Revenues $276.6 $259.4 Cost of revenues 140.6 132.3 GROSS MARGIN 136.0 127.1 Selling expenses 47.5 45.1 Research and development cost 37.2 31.4 General and administrative 17.8 18.5 expenses OPERATING EARNINGS 33.5 32.1 Interest expense, net of interest income of $0.7 in 1998 (4.6) (2.4) and $0.8 in 1997 Other income, net 3.4 0.5 Earnings before income taxes 32.3 30.2 Income tax provision 10.3 11.8 NET EARNINGS $22.0 $18.4 BASIC NET EARNINGS PER SHARE $ 0.64 $ 0.54 DILUTED NET EARNINGS PER SHARE $ 0.61 $ 0.52 DIVIDENDS PER SHARE $ 0.07 $ 0.07 The accompanying notes are an integral part of the financial statements.
3
DEKALB GENETICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) (UNAUDITED) February February 1998 1997 Revenues $213.8 $192.3 Cost of revenues 106.5 93.4 GROSS MARGIN 107.3 98.9 Selling expenses 38.8 35.1 Research and development cost 30.8 25.4 General and administrative expense 9.9 10.6 OPERATING EARNINGS 27.8 27.8 Interest expense, net of interest income of $0.3 in 1998 and $0.4 in 1997 (2.5) (1.1) Other income, net 2.6 0.1 Earnings before income taxes 27.9 26.8 Income tax provision 8.6 10.5 NET EARNINGS $ 19.3 $ 16.3 BASIC NET EARNINGS PER SHARE $ 0.56 $ 0.48 DILUTED NET EARNINGS PER SHARE $ 0.53 $ 0.46 DIVIDENDS PER SHARE $ 0.035 $ 0.035 The accompanying notes are an integral part of the financial statements.
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DEKALB GENETICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 1998 AND 1997 AND AUGUST 31, 1997 FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND AUGUST 31, 1996 (DOLLARS IN MILLIONS) February February August 1998 1997 1997 (Unaudited) Current assets: Cash and cash equivalents $ 19.0 $ 28.1 $ 5.2 Notes and accounts receivable, net of allowance for doubtful accounts of $5.4 at February 74.2 69.6 67.5 28, 1998, $4.3 at February 28, 1997, and $5.3 at August 31, 1997 Inventories (Note 2) 227.9 152.9 139.1 Deferred income taxes 9.7 8.2 6.9 Other current assets 12.7 7.1 7.8 Total current assets 343.5 265.9 226.5 Investments in and advances to related 7.5 5.7 7.2 companies Intangible assets 39.6 40.9 40.3 Other assets 10.7 8.9 9.5 Property, plant and equipment, at cost 355.3 281.1 321.1 Less accumulated depreciation and amortization (158.4) (150.2) (155.0) Net property, plant and equipment 196.9 130.9 166.1 Total assets $ 598.2 $ 452.3 $ 449.6 Current liabilities: Notes payable $ 25.0 $ 10.1 $ 34.5 Accounts payable, trade 60.6 45.4 15.6 Other accounts payable 69.6 39.0 37.3 Other current liabilities 82.6 55.6 46.1 Total current liabilities 237.8 150.1 133.5 Deferred compensation and other credits 9.2 7.7 9.9 Deferred income taxes 24.2 21.7 20.1 Long-term debt, less current maturities 104.0 85.0 90.0 Shareholders' equity: Capital stock: Common, Class A; no par value, authorized 35,000,000 shares, issued 4,699,987 at February 28, 0.5 0.2 0.5 1998, 2,394,692 at February 28, 1997, and 4,698,392 at August 31, 1997 Common, Class B; no par value, non- voting authorized, 130,000,000 shares, issued 30,229,842 at 3.0 1.5 3.0 February 28, 1998; 14,965,911 at February 28,1997 and 30,105,987 at August 31, 1977 Capital in excess of stated value 123.1 112.3 114.9 Retained earnings 105.5 79.7 85.9 Currency translation adjustments (6.6) (3.5) (5.7) 225.5 190.2 198.6 Less treasury stock, at cost (2.5) (2.4) (2.5) Total shareholders' equity 223.0 187.8 196.1 Total liabilities and shareholders' equity $ 598.2 $ 452.3 $449.6 The accompanying notes are an integral part of the financial statements
5
DEKALB GENETICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997 (DOLLARS IN MILLIONS) (UNAUDITED) February February 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 22.0 $ 18.4 Adjustments to reconcile net income to net cash flow from operating activities Depreciation and amortization 7.1 6.2 Equity (earnings) loss, net of dividends of $1.6 million in (0.4) 0.4 1998 and $1.8 in 1997 Other 1.6 7.3 Changes in assets and liabilities: Receivables (7.4) (15.6) Inventories (88.8) (53.8) Other current assets (7.6) (2.5) Accounts payable 77.2 36.6 Accrued expenses 31.6 13.7 Other assets and liabilities 8.5 2.9 Net cash flow provided by operating 43.8 13.6 activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (40.5) (18.6) Proceeds from sale of property, plant and 1.1 0.9 equipment Net cash flow used by investing activities ( 39.4) ( 17.7) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings - 10.0 Principal payments made on short-term borrowings (9.5) - Proceeds from long-term borrowings 14.0 - Dividends paid (2.4) (2.4) Sale of equity 6.3 - Other 1.9 1.9 Net cash flow provided by financing 10.3 9.5 activities Net effect of exchange rates on cash (0.9) (0.6) Net increase in cash and cash equivalents 13.8 4.8 Cash and cash equivalents August 31 5.2 23.3 Cash and cash equivalents at the end of February $ 19.0 $ 28.1 Supplemental Cash Flow Information Cash paid (refunded) during the period for: Income taxes $ 3.3 $ 2.2 Interest $ 4.7 $ 3.5 The accompanying notes are an integral part of the financial statements.
6 Any forward looking statements, oral or written, are subject to several risks and uncertainties that could cause actual results to differ from those in the forward looking statements. Among these factors are the Company's relative product performance and competative market position, weather conditions commodity prices, trade policies, government regulations, market conditions and results of pending litigation. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1.The consolidated financial statements included herein are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in the Company's annual report on Form 10-K. In order to facilitate a better comparison of the highly seasonal seed operations of the Company, a Condensed Consolidated Balance Sheet at February 28, 1997 is included herein as part of the condensed consolidated financial statements. The Company declared a two-for-one stock split to holders of record July 25, 1997 with shares being distributed on August 8, 1997; thus, earnings per share and all other share amounts have been restated. The results presented are unaudited (other than the Condensed Consolidated Balance Sheet at August 31, 1997, which is derived from the Company's audited year-end balance sheet) but include, in the opinion of management, all adjustments of a normal recurring nature necessary for a fair statement of the results of operations and financial position for the respective interim periods. Certain costs and expenses incurred in the North American and international seed businesses are charged against income as sales are recognized for interim reporting purposes. The Company believes this method more closely matches revenues with expenses and results in more comparability of reporting periods within the year. Since there are only minor North American seed sales recorded in the first and fourth quarters, this method defers first quarter expenses related to sales which will occur later in the year, primarily in the second quarter; it also anticipates expenses incurred in the fourth quarter, primarily in the third quarter. Southern hemisphere international seed sales occur largely in the first and second quarters and this same method anticipates future expenses from the third and fourth quarters and matches them against the first and second quarter revenues. 2.Inventories, valued at the lower of cost or market (in millions), were as follows:
February February August 1998 1997 1997 Commercial seed $212.3 $138.3 $124.5 Swine 9.7 9.7 10.0 Supplies & other 5.9 4.9 4.6 $227.9 $152.9 $139.1
3.The Company adopted Financial Accounting Standards Board Statement No. 128, ``Earnings Per Share'' effective February 28, 1998. Shares outstanding and per share amounts have been restated for prior periods. 4.The Company and its subsidiaries are defendants in various legal actions arising in the course of business activities. In the opinion of management, these actions will not result in a material adverse effect on the Company's consolidated operations or financial position. Additional information in Part II, Other Information, Item 1 - Legal Proceedings. Most potential property losses are self-insured. 7 5. On February 11, 1998 DEKALB announced that its board of directors had determined to pursue a possible business combination in order to maximize shareholder value. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net earnings for the first six months of fiscal 1998 were $22.0 million ($0.61 per share) compared with $18.4 million ($0.52 per share) for the same period of fiscal 1997. Revenues increased seven percent as higher corn sales volume in Argentina more than offset delayed sales in North America. Swine segment revenues decreased as a result of lower market hog prices. Led by Argentina and Mexico, international seed segment earnings for the first six months of fiscal 1998 more than doubled. Corn sales volume in Argentina increased more than 50 percent and unit margins improved. Equity earnings from Mexico also increased sharply. North American segment earnings were down $6.4 million due primarily to a shift in deliveries from second quarter to third quarter. This was caused, in large part, by customers taking delivery in March and April of newly introduced corn hybrids grown during the off-season in South America. This delayed the recognition of sales. In addition, interest expense in the current year was $2.2 million more than in the prior year first six months due to higher corporate borrowing requirements. Fiscal 1998 second quarter earnings of $19.3 million ($0.53 per share) were higher than a year ago when net earnings were $16.3 million ($0.46 per share). Argentine corn volume and unit margins combined with higher U.S. third party royalties accounted for most of the improvement.
Quarterly Industry Segment Revenues and Earnings In Millions (Unaudited) Second Quarter Year-to-Date February February February February 1998 1997 1998 1997 Revenues North American Seed $157.2 $157.3 $161.3 $162.4 International Seed 44.4 21.1 88.7 69.2 Swine 12.2 13.9 26.6 27.8 Total revenues $ 213.8 $ 192.3 $276.6 $ 259.4 Earnings North American Seed $ 17.0 $ 23.5 $16.9 $ 23.3 International Seed 18.3 6.2 26.7 12.1 Swine (2.1) 0.3 (2.1) 0.6 Total operations $ 33.2 $ 30.0 $ 41.5 $ 36.0 General corporate expenses (2.8) (2.1) (4.6) (3.4) Net interest expense (2.5) (1.1) (4.6) (2.4) Earnings before income $ 27.9 $ 26.8 $32.3 $ 30.2 taxes Income tax provision 8.6 10.5 10.3 11.8 Net Earnings $ 19.3 $ 16.3 $ 22.0 $ 18.4
9 Seed North American and European sales and net earnings are primarily realized in the second and third fiscal quarters (December through May) and for that reason, the results of the first six months should not be annualized. The best year-to-year comparison of seed results from these two markets is a combined total of the second and third quarters for the years compared. North American Seed North American seed segment earnings for the first six months of fiscal 1998 were $6.4 million lower than a year ago. Certain corn shipments were shifted from the second quarter into the third quarter as a large volume of newly commercialized Round-Up Ready and Bt corn hybrids were delivered to dealers and customers after the end of the second quarter due to their off-season production in South America. Partly offsetting the delay in corn shipments was a 20% increase in soybean sales volume combined with higher U.S. third party royalty payments compared with a year ago. Customer advanced payments through February were 11% higher than a year ago. Revenues for the first six months were nearly identical to a year earlier. Higher average selling prices for the corn shipped, increased soybean volume, and higher third party royalties nearly offset the reduction in corn volume. Unit corn margins were lower as higher prices did not offset significantly higher unit corn costs which reflected a high proportion of expensive winter production as well as higher U.S. growing costs last summer. Fiscal 1998 second quarter segment earnings results are as described above since segment earnings for the six months occur primarily in the second quarter. International Seed International seed segment earnings more than doubled over the prior year six month results. Operations in Argentina and Mexico were primarily responsible for the improvement. Significantly higher corn volume, reflecting a 14 percent increase in market share to approximately 47% of the Argentine market together with higher unit margins, were the major factors contributing to the improvement. In Mexico, higher sorghum sales volumes generated improved earnings from the Company's equity investment. Revenues for the six months improved 28 percent based primarily on higher sales volumes. Revenues for the second quarter were up over 100 percent as compared with the same period a year ago. In the prior year, deliveries occurred in the first quarter due to early cash deposits held by DEKALB at the end of fiscal 1996; whereas, in fiscal 1998, customers took receipt of corn in the second quarter. The $12.1 million improvement in international seed segment earnings during the second quarter was the result of increased volume and margins in Argentina and higher sorghum sales volumes in Mexico. Swine Swine segment revenues decreased from 1997 by $1.2 million as lower market hog prices more than offset higher market and genetics volume. Margins were negatively impacted by a decrease of approximately $13.00 per hundred weight in market hog prices, which also affects the selling price for female genetics. General The effective tax rate decreased to 32% in 1998 from 39% in the prior year. The decrease is primarily related to the tax effects of international operations and changes in the overall earnings mix of the Company. For each interim period, the tax rate is determined from an estimate of full year earnings and the resultant tax. Interest expense increased $2.2 million in fiscal 1998 due to higher corproate borrowing requirements. 10 The Company uses software and other related technologies throughout its business. With senior management accountability and corporate staff guidance, the issue of the Year 2000 date change is being reviewed as part of the significant systems initiatives already in progress. Management currently believes that the total cost of becoming Year 2000 compliant will not have a material impact on financial results. Failure by the Company, its customers, or vendors to complete the necessary work in a timely manner would not pose a material financial risk. Financial Position During the first six months of fiscal 1998, net cash flow from operations was $44.4 million compared with $13.6 million of cash generated in the prior year. Increased customer deposits in the United States combined with higher winter corn production, resulting in later production payments, caused the improvement year-to-year. Cash requirements for the first six months were provided by earnings and existing short-term credit facilities. Committed credit lines include a $50 million revolving credit facility through December, 2002 and $15 million in facilities available through August 28, 1998. These agreements contain various restrictions on the activities of the Company as to maintenance of tangible net worth, amount and type of indebtedness, and the acquisition or disposition of capital shares or assets of the Company and its subsidiaries. Management believes its operating cash flow, other potential sources of funds, and existing lines of credit are sufficient to cover normal and expected working capital needs, capital expenditures, dividends and debt maturities. 11 Part II OTHER INFORMATION Item 1. Legal Proceedings On February 3, 1998, a federal jury in Wilmington, Delaware ruled that neither the Company nor either of the other two defendants in a lawsuit filed by two subsidiaries of Mycogen Corporation infringed U.S. Patent No. 5,567,600 or 5,569,862. The patents purported to be directed to certain processes that produce seeds or plants that exhibit certain insect resistance, as well as, such seeds. The parties have filed post- trial motions and are awaiting action by the Court. The Company is a defendant in other legal actions and also the plaintiff in various legal actions. Refer to Item 3. `Legal Proceedings'' of the Company's Form 10K for discussion of such actions. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of the Company was held on Tuesday, January 20, 1998. The holders of Class A Common Stock elected four directors and the votes were cast as follows:
For Withheld Dr. Charles Arntzen 4,163,547 54,440 Bruce P. Bickner 4,161,825 56,162 Virginia Roberts Holt 4,161,957 56,030 H. Blair White 4,163,614 54,373
An amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock of the Company was approved with 4,119,268 votes cast in favor, 79,026 votes against and 19,621 abstentions. An amended and restated Long-Term Incentive Plan of the Company was approved, with 3,973,676 votes cast in favor, 136,409 votes against and 21,780 abstentions. There were no broker non-votes on either of the amendments. 12 Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 11 - Computation of Net Earnings per Common and Common Equivalent Shares for the six months ended February 28, 1998 and February 29, 1997 and for the six months ended February 28, 1998 and February 29, 1997. (b) Reports on Form 8-K - In a report filed on Form 8K dated February 11, 1998, the Company reported that its Board of Directors had unanimously determined to pursue a possible business combination in order to maximize shareholder value. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEKALB Genetics Corporation Date: April 7, 1998 /s/ Thomas R. Rauman (Signature) Thomas R. Rauman Vice President-Finance, Chief Financial Officer EX-11 2
EXHIBIT 11 COMPUTATION OF NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE* For the six months ended February 28, 1998 and 1997 February February 1998 1997 BASIC EARNINGS PER SHARE: Shares Average shares outstanding 34,530,849 34,181,663 Net Earnings Net earnings for basic earnings per $21,974,000 $18,388,000 share Basic Earnings Per Share $ 0.64 $ 0.54 DILUTED EARNINGS PER SHARE Shares Average shares outstanding 34,530,849 34,181,663 Net average additional shares outstanding assuming dilutive stock options exercised and 1,612,422 1,441,199 proceeds used to purchase treasury stock at average market price Average number of common and common equivalent 36,143,271 35,622,862 shares outstanding Net Earnings Net earnings for diluted earnings per $21,974,000 $18,388,000 share Diluted Earnings Per Share $ 0.61 $ 0.52 *Earnings per share and all share amounts have been adjusted to reflect the two-for-one split of the Common Stock to holders of record July 25, 1997.
EXHIBIT 11 COMPUTATION OF NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE* For the three months ended February 28, 1998 and 1997 February February 1998 1997 BASIC EARNINGS PER SHARE: Shares Average shares outstanding 34,595,053 34,216,355 Net Earnings Net earnings for basic earnings per $19,262,000 $16,323,000 share Basic Earnings Per Share $ 0.56 $ 0.48 DILUTED EARNINGS PER SHARE Shares Average shares outstanding 34,595,053 34,216,355 Net average additional shares outstanding assuming dilutive stock options exercised and 1,630,070 1,488,058 proceeds used to purchase treasury stock at average market price Average number of common and common equivalent 36,225,123 35,704,413 shares outstanding Net Earnings Net earnings for diluted earnings per $19,262,000 $16,323,000 share Diluted Earnings Per Share $ 0.53 $ 0.46 *Earnings per share and all share amounts have been adjusted to reflect the two-for-one split of the Common Stock to holders of record July 25, 1997.
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5 This schedule contains summary financial information extracted from the Consolidated Statement of Operations and the Consolidated Balance Sheets qualified in its entirety by reference to such financial statements. 6-MOS AUG-31-1998 FEB-28-1998 19,000 0 60,000 5,400 227,900 343,500 355,000 158,400 598,200 237,800 0 0 0 3,500 219,500 598,200 276,600 276,600 140,600 140,600 33,500 0 4,600 32,300 10,300 22,000 0 0 0 22,000 0.64 0.61 The Company declared a two-for-one stock split to holders of record July 25, 1997 with shares being distributed on August 8, 1997; thus, earnings per share and all other share amounts have been restated.
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