-----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, EAN+A4/JJHFS9DLbtyQN4P3ea4DBeDYsQT2Jwf6iuyNep3/EKKmdHMCvp/iJASVh uu5kyq0W0KrcQLu0PEGnPQ== 0000902277-99-000003.txt : 19990415 0000902277-99-000003.hdr.sgml : 19990415 ACCESSION NUMBER: 0000902277-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: SEC FILE NUMBER: 001-14136 FILM NUMBER: 99593308 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 DELTA AND PINE LAND COMPANY FEB. 1999 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 February 28, 1999 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) 742-4500 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 - 38,445,146 shares outstanding as of March 29, 1999. 9 DELTA AND PINE LAND COMPANY AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets February 28, 1998, August 31, 1998, and February 28, 1999 2 Consolidated Statements of Income Three Months Ended February 28, 1998 and February 28, 1999 3 Consolidated Statements of Operations Six Months Ended February 28, 1998 and February 28, 1999 4 Consolidated Statements of Cash Flows Six Months Ended February 28, 1998 and February 28, 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) February 28, August 31, February 28, 1998 1998 1999 ASSETS CURRENT ASSETS: Cash and cash equivalents $1,343 $8,062 $9,203 Receivables, net 82,761 104,779 90,836 Inventories 78,476 50,497 106,874 Prepaid expenses 1,467 1,194 4,604 Income tax receivable - 5,562 2,481 Deferred income taxes 3,069 4,408 4,408 -------------- -------------- --------------- Total current assets 167,116 174,502 218,406 -------------- -------------- --------------- PROPERTY, PLANT and EQUIPMENT, net 66,131 66,840 65,772 EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED, net 4,650 4,583 4,523 INTANGIBLES, net 3,536 3,488 3,495 OTHER ASSETS 2,159 2,378 2,128 ============== ============== =============== $ 243,592 $ 251,791 $ 294,324 ============== ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 39,355 $ 1,263 $ 45,208 Accrued expenses 60,758 92,042 76,573 Income taxes payable 3,097 - - -------------- -------------- --------------- Total current liabilities 123,320 116,136 151,706 -------------- -------------- --------------- LONG-TERM DEBT, less current maturities 36,114 47,070 55,898 DEFERRED INCOME TAXES 4,038 5,020 5,020 MINORITY INTEREST IN SUBSIDIARIES 1,719 2,914 5,152 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; 429,319 shares authorized; no shares issued or outstanding - - - Series M Convertible Non-Voting Preferred, par value $0.10 per share; 1,066,666 shares authorized; 800,000 shares issued and 80 80 80 outstanding Common stock, par value $0.10 per share; 100,000,000 shares authorized; 38,005,050; 38,469,616 and 38,551,634 shares issued; 37,890,784; 38,355,350 and 38,437,368 shares outstanding 3,800 3,847 3,855 Capital in excess of par value 26,634 35,867 37,459 Retained earnings 51,715 46,109 39,752 Accumulated other comprehensive loss (1,655) (3,079) (2,425) Treasury stock at cost, 114,266; 114,266 and 114,266 shares (2,173) (2,173) (2,173) -------------- -------------- --------------- Total stockholders' equity 78,401 80,651 76,548 -------------- -------------- --------------- $ 243,592 $ 251,791 $ 294,324 ============== ============== ===============
The accompanying notes are an integral part of these balance sheets. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED (in thousands, except per share amounts) (Unaudited) February 28, February 28, 1998 1999 NET SALES AND LICENSING FEES $ 77,245 $ 72,800 COST OF SALES 50,098 49,684 --------------- --------------- GROSS PROFIT 27,147 23,116 --------------- --------------- OPERATING EXPENSES: Research and development 3,964 4,880 Selling 4,649 3,848 General and administrative 2,214 3,094 Unusual charges primarily related to the merger - 6,125 ------------------- ----------------- 10,827 17,947 -------------- --------------- OPERATING INCOME 16,320 5,169 INTEREST EXPENSE, net of capitalized interest of $42 and $12 (895) (1,093) OTHER 100 202 ---------------- --------------- INCOME BEFORE INCOME TAXES 15,525 4,278 PROVISION FOR INCOME TAXES (5,744) (1,872) --------------- ------------------ NET INCOME 9,781 2,406 DIVIDENDS ON PREFERRED STOCK (24) (24) ------------------ -------------------- NET INCOME APPLICABLE TO COMMON SHARES $ 9,757 $ 2,382 BASIC EARNINGS PER SHARE: NET INCOME PER SHARE $ 0.26 $ 0.06 ================= ================= NUMBER OF SHARES USED IN BASIC EARNINGS PER SHARE CALCULATIONS 37,858 38,422 =============== =============== DILUTED EARNINGS PER SHARE: NET INCOME PER SHARE $ 0.24 $ 0.06 ================= ================ NUMBER OF SHARES USED IN DILUTED EARNINGS PER SHARE CALCULATIONS 40,397 40,819 ================ ================ DIVIDENDS PER SHARE $ 0.03 $ 0.03 ================== =================
The accompanying notes are an integral part of these statements. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED (in thousands, except per share amounts) (Unaudited) February 28, February 28, 1998 1999 NET SALES AND LICENSING FEES $ 82,585 $ 79,996 COST OF SALES 53,371 54,552 --------------- --------------- GROSS PROFIT 29,214 25,444 --------------- --------------- OPERATING EXPENSES: Research and development 7,596 9,115 Selling 7,525 7,678 General and administrative 4,816 6,053 Unusual charges primarily related to the merger 47 7,022 ----------------- ---------------- 19,984 29,868 -------------- --------------- OPERATING INCOME (LOSS) 9,230 (4,424) INTEREST EXPENSE, net of capitalized interest of $99 and $44 (1,238) (1,624) OTHER 166 (35) ---------------- ---------------- INCOME (LOSS) BEFORE INCOME TAXES 8,158 (6,083) (PROVISION) BENEFIT FOR INCOME TAXES (3,018) 2,051 --------------- ------------------ NET INCOME (LOSS) 5,140 (4,032) DIVIDENDS ON PREFERRED STOCK (48) (48) ------------------ --------------------- NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 5,092 $ (4,080) BASIC EARNINGS PER SHARE: NET INCOME (LOSS) PER SHARE $ 0.13 $ ( 0.11) ================= ================= NUMBER OF SHARES USED IN BASIC EARNINGS PER SHARE CALCULATIONS 37,786 38,397 =============== =============== DILUTED EARNINGS PER SHARE: NET INCOME (LOSS) PER SHARE $ 0.13 $ (0.11) ================= ================= NUMBER OF SHARES USED IN DILUTED EARNINGS PER SHARE CALCULATIONS 40,259 38,397 ================ ================ DIVIDENDS PER SHARE $ 0.06 $ 0.06 ================== =================
The accompanying notes are an integral part of these statements. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED (in thousands) (Unaudited) February 28, February 28, 1998 1999 ---------------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,140 $ (4,032) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 3,427 3,288 Noncash items associated with unusual charges - 2,863 Minority interest in subsidiaries 728 2,238 Changes in current assets and liabilities: Receivables 12,676 13,943 Inventories (35,590) (56,377) Prepaid expenses 700 (3,410) Accounts payable 997 7,094 Accrued expenses (30,438) (15,469) Income taxes payable 1,141 3,081 Decrease in intangible and other assets 290 243 ---------------- --------------- Net cash used in operating activities (40,929) (46,538) ---------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (6,336) (5,023) Proceeds from sale of investment 1,350 - ---------------- --------------- Net cash used in investing activities (4,986) (5,023) ---------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of short-term debt (3,861) (12,255) Payments of long-term debt (35,092) (182) Dividends paid (2,319) (2,325) Proceeds from long-term debt 40,634 9,010 Proceeds from short-term debt 42,957 56,200 Proceeds from exercise of stock options and tax benefit of stock option exercises 3,797 1,600 ---------------- --------------- Net cash provided by financing activities 46,116 52,048 ---------------- --------------- EFFECTS OF FOREIGN CURRENCY TRANSLATION (748) 654 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (547) 1,141 CASH AND CASH EQUIVALENTS, as of August 31 1,890 8,062 ================ =============== CASH AND CASH EQUIVALENTS, as of February 28 $ 1,343 $ 9,203 ================ =============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the six months for: Interest paid, net of capitalized interest $ 725 $ 1,650 Income taxes $ - $ 140
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 and six month periods ended February 28, 1998 and February 28, 1999 and any quarterly period, are not necessarily indicative of the results to be expected for the full year. For further information reference should be made to the consolidated financia1 statements and footnotes thereto included in the Company's Annual Report Stockholders on Form 10-K for the fiscal year ended August 31, 1998. Certain prior year balances have been reclassified to conform to the current year presentation. 2. MERGER WITH MONSANTO On May 8, 1998, the Company entered into a merger agreement with Monsanto Company ("Monsanto"), pursuant to which the Company would be merged with and into Monsanto. This agreement has been approved by the Company's stockholders, but is still subject to the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under the terms of the agreement, upon consummation the Company's stockholders will be entitled to receive 0.8625 shares of Monsanto's Common Stock in exchange for each share of Delta and Pine Land Company stock they hold. 3. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 130, "Reporting Comprehensive Income", establishes new standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all non-shareowner changes in equity and consists of net income, foreign currency translation adjustments, unrealized gains and losses on available-for-sale securities, and minimum pension liability adjustments. Effective September 1, 1998, the Company adopted the reporting requirements of SFAS No. 130. Total comprehensive income for the three and six months ended February 28, 1998 and 1999 was (in thousands): Three Months Ended Six Months Ended February 28, February 28, 1998 1999 1998 1999 ------------- ------------ ------------- -------------- Net income (loss) $ 9,781 $ 2,406 $ 5,140 $ (4,032) ------------- ------------ ------------- -------------- Other comprehensive (loss) income Foreign currency translation (losses) and gains (218) (369) (748) 654 Income tax benefit (expense) related to other comprehensive (loss) income 81 136 277 (242) ------------- ------------ ------------- -------------- Other comprehensive (loss) income, net of tax (137) (233) (471) 412 ------------- ------------ ------------- -------------- Total comprehensive income (loss) applicable to common stockholders $ 9,644 $ 2,173 $ 4,669 $ (3,620) ============= ============ ============= ==============
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. The Company will adopt the year end disclosure requirements of SFAS No. 131 beginning in fiscal 1999. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. This statement is effective for fiscal years beginning after December 15, 1997. The Company will adopt the year end disclosure requirements of SFAS No. 132 beginning in fiscal 1999. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for the derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not yet determined the effects of adopting of SFAS No. 133 on its financial statements. 4. INVENTORIES Inventories consisted of the following (in thousands): February 28, August 31, February 28, 1998 1998 1999 Finished goods $ 51,874 $ 45,121 $ 88,145 Raw materials 26,744 14,036 18,456 Growing crops 766 586 396 Supplies and other 1,782 676 656 ---------------- -------------- ---------------- 81,166 60,419 107,653 Less reserves (2,690) (9,922) (779) ---------------- -------------- --------------- $ 78,476 $ 50,497 $ 106,874 =============== ============ ==============
Substantially all finished goods and raw material inventory is valued at the lower of average cost or market. Growing crops are recorded at cost. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands): February 28, August 31, February 28, 1998 1998 1999 Land and improvements $ 4,415 $ 4,437 $ 3,995 Buildings and improvements 32,196 35,849 35,084 Machinery and equipment 36,618 38,530 42,512 Germplasm 7,500 7,500 7,500 Breeder and foundation seed 2,000 2,000 2,000 Construction in progress 7,612 5,650 3,431 --------------- --------------- --------------- 90,341 93,966 94,522 Less accumulated depreciation (24,210) (27,126) (28,750) --------------- -------------- --------------- $ 66,131 $ 66,840 $ 65,772 ============== ============= =============
6. CONTINGENCIES The Company, Monsanto, and other parties were named as defendants in 29 different lawsuits in the State of Georgia. Eleven lawsuits have been filed in the Superior Court of Brooks County, Georgia; 1 was filed November 25, 1998, 1 was filed December 10, 1998, 3 were filed December 11, 1998, 3 were filed December 18, 1998, and 3 were filed December 23, 1998. Each of these cases has been removed to the United States District Court for the Middle District of Georgia. Four lawsuits were filed in the Superior Court of Bulloch County, Georgia on March 5, 1999. Five lawsuits have been filed in the Superior Court of Colquitt County, Georgia; 1 was filed on December 28, 1998 and 4 were filed on January 4, 1999. Each of these cases has been removed to the United States District Court for the Middle District of Georgia. Four lawsuits were filed in the Superior Court of Cook County, Georgia; 2 were filed on December 28, 1998 and 2 were filed on December 29, 1998. Each of these cases has been removed to the United States District Court for the Middle District of Georgia. One case has been filed in the Superior Court of Emanuel County, Georgia; this case was filed on March 5, 1999. Two cases have been filed in the Superior Court of Lowndes County, Georgia; 1 was filed December 7, 1998 and the other filed December 28, 1998, and these cases have been removed to the United States District Court for the Middle District of Georgia. One case was filed in the Superior Court of Mitchell County, Georgia on December 28, 1998 and has been removed to the United States District Court for the Middle District of Georgia. One case was filed in the Superior Court of Pierce County, Georgia on December 18, 1998. This case was removed to the United States Court for the Middle District of Georgia, but subsequently remanded to the Superior Court of Pierce County, Georgia. In each case the plaintiff alleges, among other things, that certain cottonseed acquired from Paymaster which contained the Roundup Ready(R) gene did not perform as the farmers had anticipated and, in particular, did not fully protect their crops from damage following the application of Roundup glyphosate. Each piece of the Georgia litigation stems from a prior seed arbitration filed in the State of Georgia. The Company and Monsanto are presently investigating the claims to determine the cause or causes, if any, of the alleged problems. Pursuant to the terms of the Roundup Ready Gene License and Seed Service Agreement (the "Roundup Ready Agreement") between D&PL and Monsanto, D&PL has tendered the defense of these claims to Monsanto and requested indemnity. Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify the Company against all claims arising out of the failure of the Roundup glyphosate tolerance gene. D&PL will not have a right to indemnification from Monsanto, however, for any claim involving defects in seed separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in these complaints. D&PL believes these claims will be resolved without any material impact on the Company's financial condition. The Company and Monsanto were named as defendants in two lawsuits filed on February 24, 1999 in Lamb County, Texas. These lawsuits are being removed to the United States District Court, Lubbock Division. In each case the plaintiff alleges, among other things, that certain cottonseed acquired from Paymaster which contained the Roundup Ready gene did not perform as the farmers had anticipated. These lawsuits also include varietal claims aimed solely at the Company. This litigation is identical to two of the seed arbitration claims previously filed in the State of Texas which were concluded in the Company's favor. The Company and Monsanto have investigated the claims to determine the cause or causes of the alleged problems. Pursuant to the terms of the Roundup Ready Agreement between the D&PL and Monsanto, D&PL has tendered the defense of these claims to Monsanto and requested indemnity. Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify the Company against all claims arising out of the failure of the Roundup glyphosate tolerance gene. D&PL will not have a right to indemnification from Monsanto, however, for any claim involving defects in seed separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in these complaints. D&PL believes these claims will be resolved without any material impact on the Company's financial condition. Through February 1, 1999, 45 farmers in Mississippi and 9 farmers in Texas filed arbitration claims against the Company and Monsanto with state agencies in Mississippi and Texas. Nineteen of the Mississippi claims were heard before the Mississippi Seed Arbitration Council during the month of March, 1999; however, no rulings have been rendered. The remaining Mississippi cases have been dismissed by the Seed Arbitration Council due to failure to provide sufficient information; however, the farmers still have the right to pursue litigation if they so choose. The nine complaints filed by farmers in Texas were heard and each has now been concluded in the Company's favor; however, the farmers still have the right to pursue litigation if they so choose. Through February 1999, approximately 210 farmers in Georgia had filed arbitration claims against the Company and, in some cases, Monsanto. The Georgia Seed Arbitration Council has dismissed all but five of these cases without hearing because the cases were outside of their jurisdiction; however, the farmers still have the right to pursue litigation if they so choose. Two of those cases were heard in March of 1999 and concluded in the Company's favor; however, the farmers still have the right to pursue litigation if they so choose. Two cases are scheduled for hearing in June of 1999, and one retained case remains unscheduled. The remaining cases allege that certain Roundup Ready cotton seed marketed by the Company in 1998 failed to perform as the farmers had anticipated and caused the farmers to suffer crop loss; one of the claims involves allegedly mixed seed. Pursuant to the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of these claims to Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify the Company against all claims arising out of the failure of the Roundup glyphosate tolerance gene. D&PL will not have a right to indemnification from Monsanto, however, for any claims involving defects in seed, or mixed seed claims, separate from or in addition to the failure of the herbicide tolerance gene. D&PL believes that these remaining claims will be resolved without any material impact on the Company's financial condition. The Company, certain subsidiaries of Monsanto and others were named as defendants in a lawsuit filed in the Civil District Court, Williamson County, Texas, 277th Judicial District, in April 1997. The plaintiffs allege, among others things, that certain cottonseed acquired from Monsanto in the Hartz Cotton acquisition and subsequently sold by the Company, failed to perform as represented allegedly resulting in lost yield. Pursuant to the Hartz Cotton acquisition agreement, the Company is entitled to indemnification from Monsanto for damages resulting from the sale of bagged seed inventories acquired by D&PL in that acquisition. Some or all of the seed involved in this case may meet this criteria and D&PL will therefore be entitled to indemnification from Monsanto for any losses resulting from such seed. Management believes that this case will be resolved without any material impact on the Company's financial condition. The Company, Monsanto and other third parties were named as defendants in lawsuits filed in (i) the District Court of Falls County, Texas, in August 1996 and (ii) in the District Court of Robertson County, Texas, in March 1998. The plaintiffs allege, among other things, that D&PL's cottonseed varieties, which contain Monsanto's Bollgard gene, did not perform as the 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. The portion of this claim relating to failure of the Bollgard gene is subject to a duty of defense by Monsanto and prorata indemnification under the Bollgard Agreement. Under the applicable indemnity provisions of the Bollgard Agreement, defense costs and liability to the plaintiffs on any failure of the technology would be apportioned 71% to Monsanto and 29% to D&PL. Some of the claims in this litigation concern failure of Monsanto's express warranties relating to insect resistance and those claims may not be within the scope of D&PL's partial indemnity obligation to Monsanto. On the other hand, some of the claims made in the litigation concern the quality of seed and seed coat treatments, or other varietal aspects of variety, not involving failure of performance of the Bollgard gene or express representations with respect thereto and, therefore, may not be within the scope of Monsanto's indemnity obligation to D&PL. D&PL intends to cooperate with Monsanto in its anticipated vigorous defense of these suits. D&PL believes that these suits will be resolved without any material impact on the Company's consolidated financial condition. In October 1996, Mycogen Plant Science, Inc. and Agrigenetics, Inc. (collectively "Mycogen") filed a lawsuit in U.S. District Court in Delaware 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 making, selling, and licensing seed that contains the Bollgard gene. The suit, which went to trial in January 1998, sought injunctions against alleged infringement, compensatory damages, treble damages and attorney's fees and court costs. A jury found in favor of D&PL and Monsanto on issues of infringement. Mycogen has subsequently re-filed a motion for a new trial and for a judgment in favor of Mycogen as a matter of law. Pursuant to the terms of the Bollgard Agreement, Monsanto is required to defend D&PL against patent infringement claims and indemnify D&PL against damages from any patent infringement claims and certain other losses and costs. Due to Monsanto's obligation to indemnify D&PL, the Company believes that the resolution of this matter will not have a material impact on the Company or its financial condition. In May 1998, five individual alleged shareholders brought suits against Monsanto, the Company and its Board of Directors ("Directors") in the Court of Chancery in New Castle County, Delaware. The complaints alleged that the consideration to be paid in the proposed merger of the Company with Monsanto is inadequate and that the Company's Directors breached their fiduciary duties to the Company's stockholders by voting to approve the Agreement and Plan of Merger, and that Monsanto aided and abetted the alleged breach of fiduciary duty. The complaints were consolidated into one action, which sought a declaration that the action was maintainable as a class action, that the merger be enjoined, or alternatively, rescinded, and/or an award of unspecified compensatory damages if the merger was consummated. A settlement agreement was reached with the named plaintiffs in November 1998, and the parties intend to apply to the Court for a date for a hearing on approval of the settlement. 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 $800,000 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 a have 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 condition 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. (which own the outstanding common stock of Sure Grow Seed, Inc). The CID states that the USDOJ is investigating whether these transactions may have violated the provisions of Section 7 of the Clayton Act, 15 USC 18. D&PL has responded to the CID, employees have been examined by the USDOJ, and D&PL is committed to full cooperation with the USDOJ. At the present time, the ultimate outcome of the investigation cannot be predicted. 7. EARNINGS PER SHARE The table below reconciles basic and diluted earnings per share at February 28 (in thousands): For the three months ended For the six months end February 28, February 28, February 28, February 28, Basic: 1998 1999 1998 1999 --------------- --------------- --------------- ----------------- Net income (loss) $ 9,781 $ 2,406 $ 5,140 $ (4,032) Preferred stock dividends (24) (24) (48) (48) Net income (loss) applicable to stockholders $ 9,757 $ 2,382 $ 5,092 $ (4,080) =============== =============== =============== ================= Weighted average shares outstanding 37,858 38,422 37,786 38,397 =============== =============== =============== ================= Basic earnings per share $ 0.26 $ 0.06 $ 0.13 $ (0.11) =============== =============== =============== ================= Diluted: Net income (loss) applicable to stockholders $ 9,757 $ 2,382 $ 5,092 $ (4,080) Add Back: Preferred stock dividends 24 24 48 48 --------------- --------------- --------------- ----------------- Net income (loss) applicable to stockholders $ 9,781 $ 2,406 $ 5,140 =============== =============== =============== ================= Weighted average shares outstanding 38,397 37,858 38,422 37,786 Common stock equivalents - 1,739 1,597 1,673 (1) Weighted average common stock issuable upon conversion of preferred stock 800 800 800 - (1) --------------- --------------- --------------- ----------------- Diluted shares outstanding 40,397 40,819 40,259 38,397 =============== =============== =============== ================= Diluted earnings per share $ 0.24 $ 0.06 $ 0.13 $ (0.11) =============== =============== =============== =================
(1) Inclusion of shares would be antidilutive. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview On May 8, 1998, Delta and Pine Land Company and subsidiaries, a Delaware Corporation ("D&PL" or the "Company") entered into a merger agreement with Monsanto Company ("Monsanto"), pursuant to which the Company would be merged with and into Monsanto. This agreement has been approved by the Company's stockholders but is subject to the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under terms of the agreement, upon consummation the Company's stockholders will be entitled to receive 0.8625 shares of Monsanto's Common Stock in exchange for each share of Delta and Pine Land stock they hold. On June 1, 1998, Monsanto and American Home Products Corporation ("AHP") announced that they had entered into an agreement providing for the merger of those two companies. On October 13, 1998, AHP and Monsanto announced publicly that they had mutually agreed to terminate the merger pursuant to the agreement. 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, conditions 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 1996, D&PL commenced commercial sales in the United States of cotton planting seed containing Bollgard(TM) gene technology licensed from Monsanto which expresses a protein toxic to certain lepidopteran cotton pests. Since 1997, D&PL has marketed in the U.S. genetically modified cotton planting seed providing tolerance to glyphosate-based herbicides ("Roundup Ready(R) Cotton"). In 1980, D&PL added soybean seed to its product line. In 1997 D&PL commenced commercial sales in the U. S. of soybean planting seed that provides tolerance to glyphosate-based herbicides ("Roundup Ready Soybeans"). During the 1980's, as a component of its long-term growth strategy, the Company began to market its products, primarily cottonseed, internationally. Over a period of years, the Company has strengthened and expanded its international staff in order to support its expanding joint venture activities. 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 gene technology and Roundup Ready gene technology licensed from Monsanto would be effective and help farmers in those countries. D&PL sells its products in foreign countries through (i) export sales from the U.S., (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 from the U.S. of the Company's products rather than direct in-country operations. In 1997, D&PL announced a production and cost optimization program aimed to improve operating efficiencies. As part of this program, the Company idled three of its delinting facilities and reduced its work force at these facilities and at other locations by offering eligible employees a voluntary early retirement plan. D&PL believes its reconfigured production capabilities will allow it to continue to meet the accelerating demand for its insect resistant and herbicide tolerant transgenic products on a cost efficient basis to the farmer. Acquisitions In 1996, D&PL acquired Ellis Brothers Seed, Inc., Arizona Processing, Inc. and Mississippi Seed, Inc., which own the outstanding common stock of Sure Grow Seed, Inc., (the "Sure Grow Companies") in exchange for stock valued at approximately $70 million on the day of closing. D&PL exchanged 2.8 million shares of its common stock (after all stock splits) for all outstanding shares of the three companies. The merger was accounted for as a pooling-of-interests. The Company continues to market upland picker cottonseed varieties under the Sure Grow brand. Additionally, the Sure Grow breeding program has full access to Monsanto's Bollgard and Roundup Ready gene technologies. In 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 800,000 shares (after all stock splits) of the Company's Series M Convertible Non-Voting Preferred Stock. Additional shares may be issued to Monsanto depending on the sales and profitability levels achieved by the product line acquired. The varieties acquired are now sold as "Paymaster" brand products and constitute the entire Paymaster upland picker product line. Since the 1940's, the Paymaster(R) and Lankart(R) upland stripper cottonseed varieties have been developed for and marketed primarily in the High Plains of Texas and Oklahoma (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 portion of that seed is actually sold by Paymaster. Farmer-saved seed accounts for a significant portion 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, D&PL's operations department, in addition to producing parent seed, commenced delinting, conditioning and bagging finished seed. Unconditioned seed is also supplied by D&PL to a limited number of contract processors who delint, condition and bag seed for a fee. This finished seed is sold by Paymaster to distributors and dealers. The Company acquired in 1994 from the Supima Association of America ("Supima") certain planting seed inventory, the right to use the Supima(R) trade name and trademark and the right to distribute Pima extra-long staple (fiber-length) 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. In 1998 D&PL gave notice to the university collaborator of its intention to terminate this agreement and entered into an agreement with a third party to conduct research on Pima cotton varieties. Pima seed is produced, conditioned and sold by D&PL to distributors and dealers. Biotechnology Collaborative biotechnology licensing agreements which were executed with Monsanto in 1992 and subsequently revised in 1993 and 1996, provide for the commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") gene technology in D&PL's varieties. The selected Bt is a bacterium found naturally in soil and 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 is lethal to 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. 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. In October 1995, Monsanto was notified that the United States Environmental Protection Agency ("EPA") had completed its initial registration of the Bollgard gene technology, thus clearing the way for commercial sales of seed containing the Bollgard gene. In 1996, D&PL sold commercially for the first time two Deltapine varieties, which contained the Bollgard gene, in accordance with the terms of the Bollgard Gene License and Seed Services Agreement (the "Bollgard Agreement") between the Company and Monsanto. This initial EPA registration expires on January 1, 2001, at which time the EPA will, among other things, reevaluate the effectiveness of the insect resistance management plan and decide whether to convert the registration to a non-expiring (and/or unconditional) registration. Pursuant to the terms of the Bollgard Agreement, farmers must buy a limited use sublicense for the technology from D&M Partners, a partnership of D&PL and Monsanto, in order to purchase seed containing the Bt gene technology. The distributor/dealers who coordinate the farmer licensing process receive a service payment not to exceed 20% of the technology sublicensing fee. After the dealers and distributors are compensated, D&M Partners pays Monsanto a royalty equal to 71% of the net sublicense fee (technology sublicensing fees less distributor/dealer payments) and D&PL receives 29% for its services. The license agreement continues until the later of the expiration of all patent rights or October 2008. D&M Partners contracts the billing and collection activities for Bollgard and Roundup Ready licensing fees to Monsanto, and therefore may be affected by Monsanto's year 2000 compliance issues. In its 1998 annual report, Monsanto disclosed that all year 2000 remediation work for its internal systems would be completed by the third quarter of 1999. (Monsanto has a calendar year end.) Monsanto also plans to have contingency plans in place by the third quarter of 1999 in areas deemed high risk. The Company is not able to predict at the present time the impact, if any, on its business if Monsanto is unable to resolve its year 2000 issues successfully. Pursuant to the Bollgard Agreement, Monsanto must defend and indemnify D&PL against claims of patent infringement, including all damages awarded or amounts paid in settlements. Monsanto must also indemnify D&PL against a) costs of inventory and b) lost profits on inventory which becomes unsaleable because of patent infringement claims. Monsanto must defend any claims of failure of performance of a Bollgard gene. Monsanto and D&PL share the cost of any product performance claims in proportion to each party's share of the royalty. Indemnity from Monsanto only covers performance claims involving failure of insect resistance, and not claims arising from other causes. D&PL has also developed transgenic cotton and transgenic soybean varieties that are tolerant to Roundup, a glyphosate-based 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 (the "Roundup Ready Agreement") which provides for the commercialization of Roundup Ready cottonseed. The Roundup Ready Agreement grants a license to D&PL and certain of its affiliates the right in the United States to sell cottonseed of D&PL's varieties that contain Monsanto's Roundup Ready gene. The Roundup Ready gene makes cotton plants tolerant to contact with Roundup herbicide. Similar to the Bollgard Agreement, farmers must execute limited use sublicenses for the technology in order to purchase seed containing the Roundup Ready Gene. Monsanto must defend and indemnify D&PL against claims of patent infringement, including all damages awarded or amounts paid in settlements. Monsanto will also indemnify D&PL against the cost of inventory that becomes unsaleable because of patent infringement claims, but Monsanto is not required to indemnify D&PL against lost profits on such unsaleable seed. In contrast with the Bollgard Gene License where the costs of gene performance claims will be shared in proportion to the division of sub-license revenue, Monsanto must defend and must bear the full cost of any claims of failure of performance of the Roundup Ready Gene. In both agreements, generally, D&PL is responsible for varietal/seed performance issues and Monsanto is responsible for failure of the genes. In February 1997, the Company and Monsanto executed the Roundup Ready Soybean License Agreement (the "Roundup Ready Soybean Agreement") which provides for the commercialization of Roundup Ready soybean seed and has provisions similar to the Roundup Ready Agreement for cottonseed. Since 1987, D&PL has conducted research using genes provided by DuPont to develop soybean plants that are tolerant to certain DuPont ALS(R) herbicides. Such plants enable farmers to apply these herbicides for weed control without significantly affecting the agronomics of the 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. D&PL announced in March 1998 that it was granted United States Patent No. 5,723,765, entitled CONTROL OF PLANT GENE EXPRESSION. This patent is owned jointly by D&PL and the United States of America, as represented by the Secretary of Agriculture. The patent broadly covers plants and seed, both transgenic and conventional, of all species for a system designed to allow control of progeny seed viability without harming the crop. The principal application of the technology will be to control unauthorized planting of seed of proprietary varieties (sometimes called "brown bagging") by making such practice non-economic since unauthorized saved seed will not germinate, and would be useless for planting. The patent has the prospect of opening significant worldwide seed markets to the sale of transgenic technology in varietal crops in which crop seed currently is saved and used in subsequent seasons as planting seed. D&PL intends that licensing of this technology will be made widely available to other seed companies and intends for it to be used only in those varieties that contain transgenic traits. The patent was developed from a research program conducted pursuant to a Cooperative Research and Development Agreement between D&PL and the U.S. Department of Agriculture's Agricultural Research Service in Lubbock, Texas. The technology resulted from basic research and will require further development, which is already underway, in order to be used in commercial seed. The Company estimates that it may be as many as seven years before this Technology Protection System could be available commercially. The Company has license, research and development, confidentiality and material transfer agreements with providers of technology that the Company is evaluating for potential commercial applications and/or introduction. The Company also contracts with third parties to perform research on the Company's behalf for enabling and other technologies that the Company believes have potential commercial applications in varietal crops around the world. Commercial Seed Seed of all commercial plant species is either varietal or hybrid. D&PL's cotton and soybean seed are varietals. 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 of 1970, as amended in 1994, in essence prohibits, with limited exceptions, purchasers of varieties protected under the amended Act from selling seed harvested from these varieties without permission of the plant variety protection certificate owner. Some foreign countries provide similar legal protection for breeders of crop varieties. Although cotton is 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. Additionally, Federal patent law makes unlawful any unauthorized planting of seed containing patented genetic technology saved from prior crops. In connection with its seed operations, the Company also farms approximately 2,600 acres in the U.S., 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 parent 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 may be 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 from early in the second fiscal quarter through the beginning of the fourth fiscal quarter. Varying climatic conditions can change the quarter in which seed is delivered, thereby shifting sales and the Company's earnings 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 and Roundup Ready licensing fees are recognized based on the number of acres expected to be planted with such seed when the seed is shipped. Prior to 1998, licensing fees were based on the estimated number of acres that farmers represented would be planted with the seed purchased. In 1998, the licensing fee charged to farmers was based on pre-established planting rates for seven geographic regions. Revenue is recognized based on established technology fee per unit shipped to each geographic region. Domestically, the Company promotes its cotton and soybean seed directly to farmers and sells its seed through distributors and dealers. All of the Company's domestic seed products (including Bollgard and Roundup Ready technologies) 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 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 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 export seed revenues are recognized upon the date seed is shipped or the date letters of credit are cleared, whichever is later. Generally, international export sales are not subject to return. Euro Currency Conversion On January 1, 1999, the euro became the common legal currency of 11 of the 15 member countries of the European Union. On that date, the participating countries fixed conversion rates between their existing sovereign currencies ("legacy currencies") and the euro. On January 4, 1999, the euro began trading on currency exchanges and became available for non-cash transactions. The legacy currencies will remain legal tender through December 31, 2001. Beginning January 2, 2002, euro-denominated bills and coins will be introduced, and by July 1, 2002, legacy currencies will no longer be legal tender. D&PL to date has not been affected by the euro currency conversion. Year 2000 Readiness Disclosure Beginning in 1996, D&PL initiated its Global Year 2000 program to ensure that its infrastructure and information systems comply with the systems requirements for the year 2000. The program includes the following phases: identifying systems that need to replaced or fixed; assessing the extent of the work required; prioritizing the work; and successfully completing the associated action plans. D&PL has essentially completed the first three phases of the program and is now primarily in the implementation phase. Based on available knowledge, the majority of systems, including business critical systems, comply with year 2000 requirements, due in large part to the installation in fiscal 1997 of a third party software system that is year 2000 compliant, at a cost in excess of $3.0 million. The major tasks remaining include implementation of a Desktop Redeployment Plan and development of business continuity plans. The Company continues to evaluate the estimated costs associated with year 2000 compliance based on actual experience. While the year 2000 efforts involve additional costs, D&PL believes, based on available information, that it will be able to manage its in-house year 2000 transition issues without any material adverse effect on its business operations or financial position. Total costs incurred to date for year 2000 considerations (excluding third party software) approximate $0.2 million and the Company estimates an additional $0.5 million will be spent to complete the year 2000 compliance process. D&PL also has contacted its major suppliers and customers to assess their preparations for the year 2000. These actions are taken to help mitigate the possible external impact of year 2000 issues. Even so, presently it is not feasible to fully assess the potential consequences if service interruptions occur from suppliers or in such infrastructure areas as utilities, communications, transportation, banking and government. In addition, it is not feasible to fully assess the potential consequences if D&PL's customers are not compliant. D&PL is developing business continuity plans to minimize the impact of such external events. D&PL's discussion of the year 2000 computer issue contains forward-looking information. D&PL believes that its critical computer systems will be year 2000-compliant and that the costs to achieve compliance will not materially affect its financial condition, operating results, or cash flows. Nevertheless, factors that could cause actual results to differ from the Company's expectations include the successful implementation of year 2000 initiatives by its customers and suppliers, changes in the availability and cost of resources to implement year 2000 changes, and D&PL's ability to successfully identify and correct all systems affected by the year 2000 issue. Outlook From time to time, the Company may make forward-looking statements relating to such matters as anticipated financial performance, existing products, technical developments, new products, research and development activities, year 2000 issues 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 those noted elsewhere in this Item and the following: D&PL's contemplated merger with Monsanto is subject to approval by government agencies. The inability to complete this merger may have a material effect on the Company. However, such effect can not be determined at this time. Demand for D&PL's seed will 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. 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 (or lack thereof) 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. 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 and predictable than domestic profitability and growth. Overall profitability will depend on weather conditions, government policies in all countries where the Company sells products and operates, worldwide 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 (and maintain such approval) for existing and for additional transgenic 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 successfully complete these projects may affect future profitability. RESULTS OF OPERATIONS The following sets forth selected operating data of the Company (in thousands): For the Three Months Ended For the Six Months Ended February 28, February 28, February 28, February 28, 1998 1999 1998 1999 Operating results Net sales and licensing fees $ 77,245 $ 72,800 $ 82,585 $ 79,996 Gross profit 23,116 29,214 25,444 27,147 Operating expenses: Research and development 3,964 4,880 7,596 9,115 Selling 4,649 3,848 7,525 7,678 General and administrative 2,214 3,094 4,816 6,053 Unusual charges primarily related to the - 6,125 47 7,022 merger Operating income (loss) 16,320 5,169 9,230 (4,424) Interest expense, net (895) (1,093) (1,238) (1,624) Income (loss) before income taxes 15,525 4,278 8,158 (6,083) Net income (loss) applicable to common shares 9,757 2,382 5,092 (4,080)
The following sets forth selected balance sheet data of the Company as of the following periods (in thousands): February 28, August 31, February 28, 1998 1998 1999 ------------------ ------------------ ------------------- Balance sheet summary- Current assets $ 167,116 $ 174,502 $ 218,406 Current liabilities 123,320 116,136 151,706 Working capital 43,796 58,366 66,700 Property, plant and equipment, net 66,131 66,840 65,772 Total assets 243,592 251,791 294,324 Outstanding borrowings 75,469 48,333 101,106 Stockholders' equity 78,401 80,651 76,548
Three months ended February 28, 1999, compared to three months ended February 28, 1998: An expected increase in domestic cotton acreage to be planted in 1999 to 13,500,000 acres over 1998 acreage of l2,800,000 resulted in a 10% increase in units shipped in the second quarter of 1999. However, the Company recorded a reserve for estimated seed returns at a level twice that recorded in 1998. The increase in such estimate, which the Company evaluates monthly, resulted in an overall decrease in net sales and licensing fees and is considered appropriate due to the present uncertainty of farmers ability to obtain financing, and the related impact on farmers' planting intentions and the impact that domestic commodity prices and weather may have on planted acres and reflects management's present estimates. Operating expenses before merger costs increased from $10.8 million in the second fiscal quarter of 1998 to $11.8 million in fiscal 1999. This expected increase is attributable to additional research and product development costs and the timing of certain general and administrative expenses, partially offset by lower selling expenses. Unusual charges represent costs incurred for the planned merger with Monsanto. Interest expense increased to $1.1 million from $0.9 million primarily due to higher outstanding borrowings, the effects of which were partially offset by lower interest rates. Six months ended February 28, 1999, compared to six months ended February 28, 1998: Year to date domestic net sales and licensing fees were affected by the factors noted above in the second quarter, the effects of which were partially offset by increased sales by the China joint venture and Australia in the first quarter. Operating expenses before merger costs increased from $19.9 million in 1998 to $22.8 million in 1999. This expected increase is due to additional research and product development costs. Unusual charges represent costs incurred for the planned merger with Monsanto. Interest expense increased to $1.6 million from $1.2 million primarily due to higher outstanding borrowings, the effects of which were partially offset by lower interest rates. 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 17 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 by the first fiscal quarter of the following year. 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. The Company records receivables for licensing fees on Bollgard and Roundup Ready seed sales as the seed is shipped, usually in the Company's second and third quarters. The Company has contracted the billing and collection activities for Bollgard and Roundup Ready licensing fees to Monsanto. In September, the technology fees are due at which time D&PL receives payment from Monsanto. D&PL then pays Monsanto its royalty for the Bollgard and Roundup Ready licensing fees. In April 1998, the Company entered into a syndicated credit facility with its existing lender and two other financial institutions which provides for aggregate borrowings of $110 million. This agreement provides a base commitment of $55 million and a seasonal commitment of $55 million. The base commitment is a long-term loan that may be borrowed upon at any time and is due April 1, 2001. The seasonal commitment is a working capital loan that may be drawn upon from September 1 through June 30 of each fiscal year and expires April 1, 2001. Each commitment offers variable and fixed interest rate options and requires the Company to pay facility or commitment fees and to comply with certain financial covenants. Capital expenditures for the second fiscal quarter of 1999 were $2.2 million. The Company anticipates that domestic capital expenditures will approximate $7.0 million in 1999, 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. Capital expenditures in 1999 for international ventures are expected to range from $6.0 million to $8.0 million depending on the timing and outcome of such projects. In the second quarter of fiscal 1999, the Board of Directors authorized a quarterly dividend of $0.03 per share, paid March 12, 1999 to the stockholders of record on February 26, 1999. It is anticipated that quarterly dividends of $0.03 per share will continue to paid until the planned merger with Monsanto is consummated, 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 1999 working capital needs. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 11.01Computation of Earnings Per Share 27.01Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended February 28, 1999. 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: /s/ Roger D. Malkin Roger D. Malkin, Chairman and Chief Executive Officer Date: /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 February 28, February 28, 1998 1999 ---------------- --------------- BASIC EARNINGS PER SHARE: WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ---------------- --------------- DURING THE PERIOD 37,858 38,422 ================ =============== NET INCOME APPLICABLE TO COMMON SHARES $ 9,757 $ 2,382 ================ =============== BASIC EARNINGS PER SHARE $ 0.26 $ 0.06 ================ =============== DILUTED EARNINGS PER SHARE: WEIGHTED AVERAGE NUMBER OF SHARES 37,858 38,422 OF COMMON STOCK OUTSTANDING DURING THE PERIOD WEIGHTED AVERAGE NUMBER OF SHARES ATTRIBUTED TO CONVERTIBLE PREFERRED STOCK 800 800 NUMBER OF SHARES ATTRIBUTED TO STOCK OPTIONS 1,739 1,597 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DURING THE PERIOD FOR COMPUTATION ================ =============== OF DILUTED EARNINGS PER SHARE 40,397 40,819 ================ =============== NET INCOME APPLICABLE TO COMMON SHARES $ 9.781 $ 2,406 ================ =============== DILUTED EARNINGS PER SHARE $ 0.24 $ 0.06 ================ ===============
COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE SIX MONTHS ENDED February 28, February 28, 1998 1999 ---------------- --------------- BASIC EARNINGS PER SHARE: WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ---------------- --------------- DURING THE PERIOD 37,786 38,397 ================ =============== NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 5,092 $ (4,080) ================ =============== BASIC EARNINGS PER SHARE $ 0.13 $ (0.11) ================ =============== DILUTED EARNINGS PER SHARE: WEIGHTED AVERAGE NUMBER OF SHARES 37,786 38,397 OF COMMON STOCK OUTSTANDING DURING THE PERIOD WEIGHTED AVERAGE NUMBER OF SHARES ATTRIBUTED TO CONVERTIBLE PREFERRED STOCK 800 - (1) NUMBER OF SHARES ATTRIBUTED TO STOCK OPTIONS 1,673 - (1) WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DURING THE PERIOD FOR COMPUTATION ================ =============== OF DILUTED EARNINGS PER SHARE 40,259 38,397 ================ =============== NET INCOME (LOSS) $ 5,140 $ (4,032) ================ =============== DILUTED EARNINGS PER SHARE $ 0.13 $ (0.11) ================ ===============
(1) INCLUSION OF SHARES WOULD BE ANTIDILUTIVE. EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS AUG-31-1999 FEB-28-1999 9,203 0 90,836 0 106,874 218,406 94,522 28,750 294,324 151,706 101,106 0 80 3,855 72,613 294,324 72,800 72,800 49,684 49,684 17,947 0 1,093 4,278 1,872 2,406 0 0 0 2,406 .06 .06
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