-----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, K7FJUVSTHWi8lSbcuIp/vxKDa8jD0zgCZTV0yIZFP2M2DpNEuhLZuuzD0TLKDxYg mldKOxUz4W6s2iNDJ+jNIA== 0000902277-96-000029.txt : 19961223 0000902277-96-000029.hdr.sgml : 19961223 ACCESSION NUMBER: 0000902277-96-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19961220 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA & PINE LAND CO CENTRAL INDEX KEY: 0000902277 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 621040440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14136 FILM NUMBER: 96684338 BUSINESS ADDRESS: STREET 1: ONE COTTON ROW CITY: SCOTT STATE: MI ZIP: 38772 BUSINESS PHONE: 6017423351 MAIL ADDRESS: STREET 1: ONE COTTON ROW CITY: SCOTT STATE: MS ZIP: 38772 10-Q 1 NOVEMBER 30, 1996 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 the quarterly period ended November 30, 1996 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 000-21788 Exact name of registrant as specified in its charter: DELTA AND PINE LAND COMPANY State of Incorporation: Delaware I.R.S. Employer Identification Number: 62-1040440 Address of Principal Executive Offices (including zip code) One Cotton Row, Scott, Mississippi 38772 Registrant's telephone number, including area code: (601) 742-4000 Indicate by check mark whether 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 ( ) APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.10 Par Value -- 21,140,230 shares outstanding as of December 18, 1996. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES INDEX PART I.FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets -- November 30, 1995, August 31, 1996, and November 30, 1996 Consolidated Statements of Operations -- Three Months Ended November 30, 1995 and November 30, 1996 Consolidated Statements of Cash Flows -- Three Months Ended November 30, 1995 and November 30, 1996 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited) (As Restated) November 30, August 31, November 30, 1995 1996 1996 ASSETS CURRENT ASSETS: Cash and cash equivalent $ 2,767 $ 560 $ 1,519 Receivables 5,709 66,650 6,446 Inventories 45,855 41,460 60,779 Prepaid expenses 807 1,363 1,463 Deferred income taxes 2,252 1,907 1,907 Total current assets 57,390 111,940 72,114 PROPERTY, PLANT and EQUIPMENT, net 43,696 55,058 57,893 NOTES RECEIVABLE FROM EMPLOYEES 1,185 629 622 EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED, net 1,453 4,950 4,669 INTANGIBLE ASSETS, net 3,211 3,214 3,176 OTHER ASSETS 4,624 3,869 3,917 $ 111,559 $ 179,660 $ 142,391 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 22,215 $ 2,595 $ 12,708 Accounts payable 20,258 14,954 17,868 Accrued expenses 4,040 55,079 11,136 Income taxes payable 2,119 3,338 1,823 Total current liabilities 48,632 75,966 43,535 LONG-TERM DEBT 17,437 31,465 31,463 DEFERRED INCOME TAXES 2,173 2,888 2,888 COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' EQUITY: Preferred stock, par value $0.10 per share; 2,000,000 shares authorized: Series A Junior Participating Preferred, par value $0.10 per share; 241,787 shares authorized; no shares issued or outstanding - - - Series M Convertible Non-Voting Preferred, par value $0.10 per share; 600,000 shares authorized; 450,000 shares issued and outstanding - 45 45 Common stock, par value $0.10 per share; 50,000,000 shares authorized; 20,860,555; 21,129,630 and 21,139,430 shares issued and outstanding 2,086 2,113 2,114 Capital in excess of par value 12,663 22,424 22,589 Retained earnings 28,414 45,004 39,988 Cumulative foreign currency translation adjustments 154 (245) (231) Total stockholders' equity 43,317 69,341 64,505 $ 111,559 $ 179,660 $ 142,391 The accompanying notes are an integral part of these balance sheets. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED (in thousands, except per share amounts) (Unaudited) (As Restated) November 30, November 30, 1995 1996 NET SALES AND LICENSING FEES $ 5,326 $ 6,317 COST OF SALES 5,028 5,129 -------- ------- GROSS PROFIT 298 1,188 -------- ------- OPERATING EXPENSES: Research and development 1,741 2,590 Selling 2,144 2,421 General and administrative 2,464 2,594 Unusual charges related to acquisitions 182 396 -------- ------- 6,531 8,001 -------- ------- OPERATING LOSS (6,233) (6,813) INTEREST EXPENSE, net of capitalized interest of $165 and $132 (176) (269) OTHER 267 257 ---------- --------- LOSS BEFORE INCOME TAXES (6,142) (6,825) INCOME TAX BENEFIT 2,402 2,457 ---------- --------- NET LOSS (3,740) (4,368) DIVIDENDS ON PREFERRED STOCK - (13) ---------- ---------- NET LOSS APPLICABLE TO COMMON SHARES $ (3,740) $ (4,381) ---------- ---------- PRIMARY EARNINGS PER SHARE: NET LOSS PER SHARE $ (0.18) $ (0.21) NUMBER OF SHARES USED IN PRIMARY EARNINGS PER SHARE CALCULATIONS 20,861 21,135 FULLY DILUTED EARNINGS PER SHARE: NET LOSS PER SHARE $ (0.18) $ (0.21) NUMBER OF SHARES USED IN FULLY DILUTED EARNINGS PER SHARE CALCULATIONS 20,861 21,135 DIVIDENDS PER SHARE $ 0.02 $ 0.03 The accompanying notes are an integral part of these statements. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED (in thousands) (Unaudited)
(As Restated) November 30, November 30, 1995 1996 ------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,740) $ (4,368) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 705 1,189 (Increase) decrease in notes receivable from employees (352) 7 Changes in current assets and liabilities: Receivable (457) 60,204 Inventories (25,688) (19,319) Prepaid expenses 352 (100) Accounts payable 14,116 2,914 Accrued expenses (7,705) (43,943) Income taxes payable (4,765) (1,515) Decrease in intangible and other assets 15 271 Other, net 34 - ---------- ------------ Net cash used in operating activities (27,485) (4,660) ---------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (3,554) (4,010) ---------- ------------ Net cash used in investing activities (3,554) (4,010) ---------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments of short-term debt (15) - Payment of long-term debt - (2) Dividends paid (515) (648) Proceeds from long-term debt 4,623 - Proceeds from short-term debt 21,565 10,113 Proceeds from exercise of stock options and tax benefit of stock option exercises - 166 Other (44) - ---------- ------------ Net cash provided by financing activities 25,614 9,629 ---------- ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,425) 959 CASH AND CASH EQUIVALENTS, as of August 31 8,192 560 ---------- ------------ CASH AND CASH EQUIVALENTS, as of November 30 $ 2,767 $ 1,519 ========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the three months for: Interest, net of capitalized interest $ 200 $ 300 Income taxes $ 2,800 $ -
The accompanying notes are an integral part of these statements. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except percentages and share amounts) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the consolidated financial statements have been included. Due to the seasonal nature of Delta and Pine Land Company and subsidiaries' (the "Company") business, the results of operations for the three month periods ended November 30, 1995 and November 30, 1996, are not necessarily indicative of the results to be expected for the full year. For further information reference should be made to the consolidated financial statements and footnotes thereto included in the Company's Annual Report to Stockholders on Form 10-K for the fiscal year ended August 31, 1996. The reported results for 1995 (as restated) and 1996 include the results of operations of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed, Inc. (the "Sure Grow Companies"), with which the Company merged in May 1996 in a pooling-of-interests transaction. 2. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", was issued effective for fiscal years beginning after December 15, 1995. The Company currently has no impaired assets and, therefore, was not affected by this statement. SFAS No. 123, "Accounting for Stock-Based Compensation", was issued effective for fiscal years beginning December 15, 1995. Under this standard, companies may continue to use the intrinsic value methodology prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", or may apply a fair value methodology used in the SFAS No. 123. The Company is continuing to account for stock-based compensation using the intrinsic method, therefore, SFAS No. 123 will not have an impact on the Company's reported results of operations or financial position. 3. INVENTORIES Inventories consisted of the following (in thousands):
(As Restated) November 30 August 31, November 30, 1995 1996 1996 --------------- -------------- ---------------- Finished goods $ 28,857 $ 28,634 $ 31,544 Raw materials 18,511 13,367 28,991 Growing crops 709 579 1,400 Supplies and other 725 814 778 --------------- -------------- ---------------- 48,802 43,394 62,713 Less reserves (2,947) (1,934) (1,934) =============== ============== ================ $ 45,855 $ 41,460 $ 60,779 =============== ============= ================
Substantially all finished goods and raw material inventory is valued at the lower of average cost or market. Growing crops are recorded at cost. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands): As Restated) November 30, August 31, November 30, 1995 1996 1996 -------------- ------------- ------------- Land and improvements $ 3,360 $ 3,881 $ 3,864 Buildings and improvements 18,620 24,877 26,189 Machinery and equipment 23,717 31,409 32,675 Germplasm, breeder and foundation seed 8,000 9,500 9,500 Construction in progress 7,475 5,840 7,300 -------------- ------------- ------------- 61,172 75,507 79,528 Less accumulated depreciation (17,476) (20,449) (21,635) ------------- ============== ============= $ 43,696 $ 55,058 $ 57,893 ============== ============= =============
5. CONTINGENCIES The Company, Monsanto Company ("Monsanto") and other third parties were named as defendants in two lawsuits filed in Texas in August, 1996. A third lawsuit was filed in October 1996 in Louisiana. Two of these suits request that they be certified as a class action. The plaintiffs allege, among other things, that D&PL's NuCOTN varieties, which contain Monsanto's Bollgard(TM) gene, did not perform as these farmers had anticipated and, in particular, did not fully protect their cotton crops from certain lepidopteran insects. Pursuant to the terms of the Bollgard agreement between D&PL and Monsanto, Monsanto has assumed responsibility for the defense of these claims since vendee claims for failure of the Bollgard gene are subject to a duty of defense by Monsanto and prorata indemnification under the agreement. Under the applicable indemnity provisions, defense costs and any liability to the plaintiffs related to claims covered by the agreement will be apportioned 71% to Monsanto and 29% to D&PL. Some of the claims made in this litigation concerning the quality of seed and seed coat treatments, not involving failure of performance of the Bollgard gene or representations with respect thereof, may not be within the scope of Monsanto's indemnity obligation. The Company would be required to bear any damages relating to product defects, if any, not involving a failure of the Bollgard gene to provide insect resistance. D&PL intends to cooperate with Monsanto in its anticipated vigorous defense of these claims. D&PL believes that these claims will be resolved without any material impact on the Company's financial statements. In October 1996, Mycogen Plant Science, Inc. ("Mycogen") and Agrigenetics, Inc. filed a lawsuit naming D&PL, Monsanto and DeKalb Genetics as defendants alleging that two of Mycogen's recently issued patents have been infringed by the defendants by selling seed that contains the Bollgard gene. Pursuant to the terms of the Agreement, Monsanto is required to defend D&PL against patent infringement claims and indemnify D&PL against damages from any patent infringement claims. D&PL believes that the resolution of the matter will not have a material impact on the Company or its financial statements. A corporation owned by the son of the Company's former Guatemalan distributor sued in 1989 asserting that the Company violated an agreement with it by granting to another entity an exclusive license in certain areas of Central America and southern Mexico. The suit seeks damages of 5,300,000 Guatemalan quetzales (approximately $900,000 at current exchange rates) and an injunction preventing the Company from distributing seed through any other licensee in that region. The Guatemalan court, where this action is proceeding, has twice declined to approve the injunction sought. Management believes that the resolution of the matter will not have a material impact on the Company or its financial statements. The Company continues to offer seed for sale in Guatemala. The Company is involved in various other claims arising in the normal course of business. Management believes such matters will be resolved without any material effect on the Company's financial position or its results of operations. On July 18, 1996, the United States Department of Justice, Antitrust Division ("USDOJ"), served a Civil Investigative Demand ("CID") on D&PL seeking information and documents in connection with its investigation of the acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed, Inc. The CID states that the USDOJ is investigating whether this transaction may have violated the provisions of Section 7 of the Clayton Act, 15 USC (Section)18. D&PL is currently engaged in responding to the CID and is committed to full cooperation with the USDOJ. At the present time, the ultimate outcome of the investigation cannot be predicted. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview D&PL is primarily engaged in the breeding, production, conditioning and marketing of proprietary varieties of cotton planting seed in the United States and other cotton producing nations. D&PL also breeds, produces and distributes soybean planting seed in the United States. Since 1915, D&PL has bred, produced and/or marketed upland picker varieties of cotton planting seed for cotton varieties that are grown primarily east of Texas and in Arizona. The Company has used its extensive classical plant breeding programs to develop a gene pool necessary for producing cotton varieties with improved agronomic traits important to farmers, such as crop yield, and to textile manufacturers, such as enhanced fiber characteristics. In 1980, D&PL added soybean seed and in 1988 hybrid sorghum seed to its product line. In 1988, D&PL also commenced distributing corn hybrids acquired from others. In 1995, the Company sold its corn and sorghum business to Mycogen. D&PL and Mycogen entered into a joint marketing agreement whereby both companies will sell D&PL's remaining corn and sorghum hybrids through 1997. The two parties will exchange certain operating facilities in the future upon the satisfactory completion of environmental site assessments and remediation procedures as necessary. In 1988, as a component of its long-term growth strategy, the Company began to focus on the international marketing of its products, primarily cottonseed. In foreign countries, cotton acreage is often planted with farmer-saved seed which has not been delinted or treated and is of low overall quality. Management believes that D&PL has an attractive opportunity to penetrate foreign markets because of its widely adaptable, superior cotton varieties, technological know-how in producing and conditioning high-quality seed and brand name recognition. Furthermore, in many countries the Bollgard(TM) technology would be effective and help farmers in those countries to control certain lepidopteran cotton pests. D&PL sells its products in foreign countries through (i) export sales, (ii) direct in-country operations and to a lesser degree (iii) distributors or licensees. The method varies and evolves, depending upon the Company's assessment of the potential size and profitability of the market, governmental policies, currency and credit risks, sophistication of the target country's agricultural economy, and costs (as compared to risks) of commencing physical operations in a particular country. To date, a majority of the Company's international sales have resulted from exports of the Company's products rather than direct in-country operations. D&M International, LLC, is a venture formed in 1995 through which D&PL and Monsanto plan to introduce in combination D&PL's acid delinting technology and Monsanto's Bollgard gene technology. D&PL is the managing member of D&M International. In November 1996, D&M International's subsidiary, D&PL China Pte Ltd. concluded negotiations for a joint venture with parties in Hebei Province, one of the major cotton producing regions in the People's Republic of China. The joint venture will be controlled by D&PL China Pte Ltd. The Company is currently negotiating with potential venture partners in Zimbabwe, Brazil and Columbia and is in exploratory discussions with potential partners in India, Uzbekistan and Argentina. Prior joint venture negotiations in Turkey and Egypt reached an impasse and have ceased. In 1996, D&PL completed the construction of two smaller, yet cost efficient delinting plants, one each in South Africa and Argentina which initially will be used to provide winter nursery services to northern hemisphere operations in order to accelerate the bulk up and ultimately the introduction of new products by taking advantage of the southern hemisphere growing season. In addition, these branches will evaluate and develop the cottonseed business in their respective areas. In addition, the Company began the reorganization of its business among its key operating units including Deltapine, Paymaster (which includes the stripper varieties acquired in 1994 and the Hartz varieties acquired in 1996), Sure Grow and International. Effective September 1, 1996, each unit is responsible for its own Sales, Marketing, Research and Field Agronomy while Operations, Quality Assurance, Administration and Finance, Technical Services and Transgenic Product Development will provide services to all operating units. In December 1995, in response to shareholder interest and to increase the Company's visibility and attractiveness to a more diverse population of investors, D&PL moved from NASDAQ and listed its shares on the New York Stock Exchange. In 1996, D&PL assembled its own fully staffed Sales and Marketing and Technical Services teams for Deltapine Australia. In the first quarter, the Company sold limited quantities of seed containing Monsanto's Bt gene (marketed as Ingard(TM)) in Australia. Operating results in Australia remain at unacceptable levels, and the organizational changes will add further costs to that operation in the near term. Deltapine Australia cotton varieties currently under development, along with two new varieties recently introduced, must perform well to capture market share to improve operating results. The production, distribution or sale of crop seed in or to foreign markets may be subject to special risks, including fluctuations in foreign currency, exchange rate controls, expropriation, nationalization and other agricultural, economic, tax and regulatory policies of foreign governments. Particular policies which may affect the international operations of D&PL include the testing and quarantine and other restrictions relating to the import and export of plants and seed products and the availability of proprietary protection for plant products. In addition, United States government policies, particularly those affecting foreign trade and investment, may impact the Company's international operations. Acquisitions In May, 1996, D&PL acquired Ellis Brothers Seed, Inc., Arizona Processing, Inc. and Mississippi Seed, Inc. ( the "Sure Grow Companies") in exchange for stock valued at approximately $70 million on the day of closing. D&PL exchanged 1.5 million shares of its common stock for all outstanding shares of the three companies. The merger was accounted for as a pooling-of-interests. The acquired companies will continue their current operations marketing of upland picker cottonseed varieties under their existing brand, Sure Grow. The Sure Grow breeding program will have immediate access to Monsanto's Bollgard and Roundup Ready(R) gene technologies. In February, 1996, the Company acquired Hartz Cotton, Inc. from Monsanto, which included inventories of cotton planting seed of Hartz upland picker varieties, germplasm, breeding stocks, trademarks, trade names and other assets, for approximately $6.0 million. The consideration consisted primarily of 450,000 shares of the Company's Series M Convertible Non-Voting Preferred Stock. Since the 1940's, the Paymaster(Registered) and Lankart(Registered) upland stripper cottonseed varieties have been developed for and marketed primarily in the High Plains. In 1994, D&PL acquired the Paymaster and Lankart cotton planting seed business ("Paymaster"), for approximately $14.0 million. Although the Paymaster varieties are planted on approximately 80% of the estimated 4.0 to 5.0 million cotton acres in the High Plains, only a small portion of that seed is actually sold by Paymaster. Farmer-saved seed and seed from other sources accounted for up to 85% of the seed needed to plant the acreage in this market area. Through 1996 the seed needed to plant the remaining acreage was sold by Paymaster and its 12 sales associates through a certified seed program. Under this program, Paymaster sold parent seed to its contract growers who planted, produced and harvested the progeny of the parent seed, which Paymaster then purchased from the growers. The progeny of the parent seed was then sold by Paymaster to the sales associates who in turn delinted, conditioned, bagged and sold it to others as certified seed. The sales associates paid a royalty to Paymaster on certified seed sales. Beginning in fiscal 1997, unconditioned seed will be supplied by Paymaster to contract delinters who will delint, condition and bag the seed for a fee. The seed will then be sold by Paymaster through its distributors and dealers. The Company acquired in 1994 from the Supima Association of America ("Supima") certain planting seed inventory, the right to use the Supima7 trade name and trademark and the right to distribute Pima extra-long (fiber-length) staple cotton varieties. D&PL also entered into a research agreement with Supima's university collaborator that allows D&PL the right of first refusal for any Pima varieties developed under this program which D&PL partially funds. Pima seed will be produced, conditioned and marketed directly by D&PL. Biotechnology The collaborative biotechnology licensing agreement executed with Monsanto in 1992 and subsequently revised in 1993 and 1996, provides for the commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") technology in D&PL's varieties. Bt is a bacterium found naturally in soil that produces proteins toxic to certain lepidopteran larvae, the principal cotton pests in many cotton growing areas. Monsanto created a transgenic cotton plant by inserting Bt genes into cotton plant tissue. This transgenic plant tissue causes the death of certain lepidopteran larvae that consume it. The gene and related technology were patented or licensed from others by Monsanto and were licensed to D&PL for use under the trade name Bollgard. In D&PL's primary markets, the cost of insecticides is the largest single expenditure for many cotton growers, exceeding the cost of seed. The insect resistant capabilities of transgenic cotton containing the Bollgard gene may reduce the amount of insecticide required to be applied by cotton growers using planting seed containing the Bollgard gene. On October 31, 1995, Monsanto was notified that the United States Environmental Protection Agency ("EPA") had completed its registration of the Bollgard gene technology, thus clearing the way for commercial sales of seed containing the Bollgard gene. In 1996, D&PL commenced commercial sales of two NuCOTN varieties, which contained the Bollgard gene, in accordance with the terms of the D&PL/Monsanto Bollgard Gene License and Seed Services Agreement (the "Agreement"). This initial EPA registration expires on January 1, 2001, at which time the EPA will reevaluate the effectiveness of the insect resistance management plan and decide whether to convert the registration to a non-expiring (and/or unconditional) registration. D&PL is also developing transgenic cotton and transgenic soybean varieties that are tolerant to Roundup (Registered), a herbicide sold by Monsanto. In 1996, such Roundup Ready plants were approved by the Food and Drug Administration, the USDA, and the EPA. In February, 1996, the Company and Monsanto executed the Roundup Ready Gene License and Seed Services Agreement which provides for the commercialization of Roundup Ready cottonseed. D&PL and Monsanto are currently negotiating a commercialization agreement for Roundup Ready soybean seed. Since 1987, D&PL has conducted research using genes provided by DuPont to develop cotton and soybean plants that are tolerant to certain DuPont ALS (Registered)herbicides. Such plants would enable farmers to apply these herbicides for weed control without significantly affecting the agronomics of the cotton or soybean plants. Since soybean seed containing the ALS herbicide-tolerant trait was not genetically engineered, sale of this seed does not require government approval, although the herbicide to which they express tolerance must be EPA approved. In February, 1996, DuPont and D&PL mutually terminated the cotton commercialization agreement signed in 1994. The termination of this agreement did not materially impact the Company's current results of operations. Commercial Seed Seed of all commercial plant species is either varietal or hybrid. D&PL's cotton and soybean seed are varietals and its sorghum and corn seed are hybrids. Varietal plants can be reproduced from seed produced by a parent plant, with the offspring exhibiting only minor genetic variations. The Plant Variety Protection Act ("PVPA") of 1970, as amended in 1994, in essence prohibits, with limited exceptions, purchasers of protected varieties from selling seed harvested from these varieties. Some foreign countries provide similar protection. Although cotton is a varietal and, therefore, can be grown from seed of parent plants saved by the growers, most farmers in D&PL's primary domestic markets purchase seed from commercial sources each season because cottonseed requires delinting in order to be sown by modern planting equipment. Delinting and conditioning may be done either by a seed company on its proprietary seed or by independent delinters for farmers. Modern cotton farmers in upland picker areas generally recognize the greater assurance of genetic purity, quality and convenience that professionally grown and conditioned seed offers compared to seed they might save. In connection with its seed operations, the Company also farms approximately 2,000 acres, primarily for production of cotton and soybean foundation seed. The Company has annual agreements with various growers to produce seed for cotton and soybeans. The growers plant seed purchased from the Company and follow quality assurance procedures required for seed production. If the grower adheres to established Company quality assurance standards throughout the growing season and if the seed meets Company standards upon harvest, the Company is obligated to purchase specified minimum quantities of seed, usually in its first and second fiscal quarters, at prices equal to the commodity market price of the seed plus a grower premium. The Company then conditions the seed for sale. The majority of the Company's sales are made early in the second fiscal quarter through the beginning of the fourth fiscal quarter. Varying climatic conditions can change the earnings pattern by affecting the quarter in which seed is delivered, thereby shifting sales between quarters. Thus, seed production, distribution and sales are seasonal and interim results will not necessarily be indicative of the Company's results for a fiscal year. Revenues from domestic seed sales are generally recognized when seed is shipped. Revenues from Bollgard licensing fees are recognized based on the number of acres estimated to be planted with such seed when the seed is shipped. Domestically, the Company promotes its cottonseed directly to farmers and sells cottonseed through distributors and dealers. All of the Company's domestic seed products are subject to return or credit, which vary from year to year. The annual level of returns and, ultimately, net sales are influenced by various factors, principally commodity prices of other crops and weather conditions occurring in the spring planting season during the Company's third and fourth quarters. The Company provides for estimated returns as sales occur. To the extent actual returns and actual acreage planted with seed containing the Bollgard gene differ from estimates, adjustments to the Company's operating results are recorded when such differences become known, typically in the Company's fourth quarter. All significant returns occur or are accounted for by fiscal year end. International revenues are recognized upon the date seed is shipped or the date letters of credit are cleared, whichever is later. Generally, international sales are not subject to return. Outlook From time to time, the Company may make forward-looking statements relating to such matters as anticipated financial performance, business products, technical developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include the following: Domestic demand for D&PL's seed will continue to be affected by government programs and, most importantly, by weather. Demand for seed is also influenced by commodity prices and the demand for a crop's end-uses such as textiles, animal feed, food and raw materials for industrial use. These factors along with weather influence the cost and availability of seed for subsequent seasons. Weather impacts crop yields, commodity prices and the planting decisions that farmers make regarding both original planting commitments and, when necessary, replanting levels. The planting seed market is highly competitive and D&PL varieties face competition from a number of seed companies, diversified chemical companies, agricultural biotechnology companies, governmental agencies and academic and scientific institutions. A number of chemical and biotechnology companies have seed production and/or distribution capabilities to ensure market access for new seed products. The Company's seed products may encounter substantial competition from technological advances by others or products from new market entrants. Many of the Company's competitors are, or are affiliated with, large diversified companies that have substantially greater resources than the Company. Further growth in overall profitability will depend on weather conditions, government policies in all countries where the Company sells products, commodity prices, the Company's ability to successfully open new international markets, the Company's ability to successfully continue the development of the High Plains market, the technology partners' ability to obtain timely government approval for additional biotechnology products on which they and the Company are working and the Company's ability to produce sufficient commercial quantities of high quality planting seed of these products. Any delay in or inability to capitalize on these projects may affect future profitability. Due to the varying levels of agricultural and social development of the international markets in which the Company operates and because of factors within the particular international markets targeted by the Company, international profitability and growth may be less stable than domestic profitability and growth have been in the past. RESULTS OF OPERATIONS The following sets forth selected operating data of the Company (in thousands): For the Three Months Ended November 30 (As Restated) 1995 1996 -------------- ------------ Operating results - Net sales and licensing fees $ 5,326 $ 6,317 Gross profit 298 1,188 Operating expenses: Research and development 1,741 2,590 Selling 2,144 2,421 General and administrative 2,464 2,594 Unusual charges related to 182 396 acquisitions Operating loss (6,233) (6,813) Loss before income taxes (6,142) (6,825) Net loss applicable to common shares (3,740) (4,381) The following sets forth selected balance sheet data of the Company as of the following periods (in thousands): (As Restated) November 30, August 31, November 30, 1995 1996 1996 ------------------ --------- --------- ------------------- Balance sheet summary- Current assets $ 57,390 $ 111,940 $ 72,114 Current liabilities 48,632 75,966 43,535 Working capital 8,758 35,974 28,579 Property, plant and equipment, net 43,696 55,058 57,893 Total assets 111,559 179,660 142,391 Outstanding borrowings 39,652 34,060 44,171 Stockholders' equity 43,317 69,341 64,505
Three months ended November 30, 1996, compared to three months ended November 30, 1995: Net sales and licensing fees increased approximately $1.0 million to $6.3 million from $5.3 million. The increase in net sales and licensing fees is the result of the timing of and increased seed shipments to Spain and the commercial introduction in Australia of seed containing the Ingard(TM) gene. The effect of these positive events was partially offset by the delayed shipments to Greece and Mexico, which are now expected to occur in the second fiscal quarter of 1997. Operating expenses increased from $6.5 million in the first fiscal quarter of 1996 to $8.0 million in fiscal 1997. This expected increase is attributable to additional product development and promotional costs, and additional operational costs. Operating expenses also include unusual costs associated with the Company's response to the United States Department of Justice investigation of the acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed, Inc. Interest expense increased by 52.8% to $0.3 million from $0.2 million due to higher average outstanding borrowings partially offset by lower interest rates during the period. LIQUIDITY AND CAPITAL RESOURCES The seasonal nature of the Company's business significantly impacts cash flow and working capital requirements. The Company maintains credit facilities, uses early payments by customers and uses cash from operations to fund working capital needs. For more than 15 years D&PL has borrowed on a short-term basis to meet seasonal working capital needs. D&PL purchases seed from contract growers in its first and second fiscal quarters. Seed conditioning, treating and packaging commence late in the first fiscal quarter and continue through the third fiscal quarter. Seasonal borrowings normally commence in the first fiscal quarter and peak in the third fiscal quarter. Loan repayments normally begin in the middle of the third fiscal quarter and are typically completed early in the fourth fiscal quarter. D&PL also offers distributors, dealers and farmers financial incentives to make early payments. To the extent D&PL attracts early payments from customers, bank borrowings under the credit facility are reduced. In November 1995, the Company and a financial institution entered into a new loan agreement that replaced the existing facility. The new agreement (as did the agreement it replaced) provided a base commitment of $15.0 million and a seasonal commitment of $35.0 million. In March 1996, the bank approved an additional seasonal facility of $15.0 million. In June 1996, the base commitment was increased to $30.0 million and the seasonal commitment was reduced to $20.0 million to accommodate the anticipated changes in borrowings related to the acquisition of Sure Grow. No changes were made to the additional seasonal facility. The base commitment is a long-term loan that may be borrowed upon at any time and is due January 1, 1999. Both the seasonal commitment and the additional seasonal commitment are working capital loans that may be drawn upon from September 1 through June 30 of each fiscal year and expire January 1, 1999. Commencing in January 1997 and in each January thereafter, the facilities are renewable for another three year term. Each commitment offers variable and fixed interest rate options and requires the Company to pay facility and/or commitment fees and to comply with certain financial covenants. Current assets and liabilities, including bank borrowings, fluctuate throughout the year due to the seasonal nature of the agriculture industry. Inventory levels depend, in part, on timing of bulk seed receipts, conditioning and shipping and the related cost of bulk seed and conditioning. Inventory levels have increased as compared with the first quarter of fiscal 1996 due to the introduction of the transgenic seed products. Specifically, D&PL, during the 1995 growing season, contracted with its growers to produce enough non-transgenic seed to meet sales projections for the 1996 season in the event that the EPA did not approve the sales of seed containing the Bollgard gene technology. The EPA ultimately approved such technology in October, 1995, which was beyond the date that D&PL could reduce its purchase contracts for non-transgenic seed. In addition, the reduction in planted cotton acres from 16.7 million in fiscal 1995 to 14.0 million in fiscal 1996 further contributed to increased inventory levels since D&PL sold fewer than expected units in the 1996 season. Capital expenditures for the first quarter of fiscal 1997 were approximately $4.0 million as the Company continues to facilitate growth in its traditional and transgenic seed products by modifying and upgrading certain of its facilities. This investment strategy included the commencement in 1995 of a special $13.0 million upgrade of the Company's bulk seed stabilization, storage, handling and processing facilities at three of its cottonseed plants. In addition, a cottonseed processing plant acquired in the Paymaster acquisition has been technologically upgraded. Projects for fiscal 1997 include a new fully integrated computer system , a new international and administrative office building and further expansion of facilities in Australia and South Africa. Such expenditures will be funded from cash on hand and borrowings under the Company=s credit facility. Management believes that capital expenditures will be approximately $13.0 to $15.0 million in fiscal 1997, excluding expected capital expenditures for foreign joint ventures which will be funded by cash from operations, borrowings or investments from joint venture partners, as necessary. In the first quarter of fiscal 1997, the Board of Directors authorized a quarterly dividend of $0.03 per share, paid December 13, 1996 to the stockholders of record on December 1, 1996. It is anticipated that quarterly dividends of $0.03 per share will continue to be paid in the future, although the Board of Directors reviews this policy quarterly. Cash provided from operations, early payments from customers, and borrowings under the loan agreement should be sufficient to meet the Company's fiscal 1997 working capital needs.. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 11.01 Computation of Earnings Per Share (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended November 30, 1996. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized DELTA AND PINE LAND COMPANY Date: December 20, 1996 /s/ Roger D. Malkin Roger D. Malkin, Chairman and Chief Executive Officer Date: December 20, 1996 /s/ W. Thomas Jagodinski W. Thomas Jagodinski, Vice President - Finance and Treasurer EXHIBIT 11.01 COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE THREE MONTHS ENDED (As Restated) November 30, November 30, 1995 1996 ---------------- ---------------- PRIMARY EARNINGS PER SHARE: NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT THE BEGINNING OF PERIOD 20,861 21,130 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK ISSUED DURING THE PERIOD - 5 WEIGHTED AVERAGE NUMBER OF SHARES ATTRIBUTED TO OPTIONS - - ---------------- -------------- WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DURING THE PERIOD FOR COMPUTATION OF PRIMARY EARNINGS PER SHARE 20,861 21,135 ================ ================ FULLY DILUTED EARNINGS PER SHARE: NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT THE BEGINNING OF 20,861 21,130 PERIOD WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK ISSUED DURING THE PERIOD - 5 WEIGHTED AVERAGE NUMBER OF SHARES ATTRIBUTED TO CONVERTIBLE PREFERRED STOCK - - WEIGHTED AVERAGE NUMBER OF SHARES ATTRIBUTED TO OPTIONS - - ---------------- ---------------- WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DURING THE PERIOD FOR COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE 20,861 21,135 ================ ================ NET LOSS APPLICABLE TO COMMON SHARES $ (3,740) $ (4,381) ================ ================ NET LOSS PER COMMON SHARE: PRIMARY $ (0.18) $ (0.21) ================ ================ FULLY DILUTED $ (0.18) $ (0.21) ================ ================ EX-27 2 FDS --
5 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial state- ments. 0000902277 Delta and Pine Land Company 1,000 3-MOS AUG-31-1997 NOV-30-1996 1,519 0 6,446 0 60,779 72,114 79,528 (21,635) 142,391 43,535 44,171 0 45 2,114 62,346 142,391 6,317 6,317 5,129 5,129 0 0 269 (6,825) (2,457) (4,381) 0 0 0 (4,381) (0.21) (0.21)
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