10-Q 1 0001.txt QUARTERLY REPORT 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 May 31, 2000 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: (662) 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 38,351,501 shares outstanding as of May 31, 2000. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Consolidated Financial Statements Consolidated Balance Sheets - May 31, 1999, August 31, 1999, and May 31, 2000 4 Consolidated Statements of Operations - Three Months Ended May 31, 1999 and May 31, 2000 5 Consolidated Statements of Operations - Nine Months Ended May 31, 1999 and May 31, 2000 6 Consolidated Statements of Cash Flows - Nine Months Ended May 31, 1999 and May 31, 2000 7 Notes to Consolidated Financial Statements 8 - 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Business 18 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 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) May 31, August 31, May 31, 1999 1999 2000 ---- ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,658 $ 7,552 $ 61,845 Receivables, net 236,495 147,926 260,376 Inventories 70,931 47,727 47,276 Prepaid expenses 3,533 1,473 1,666 Deferred income taxes 4,408 12,865 13,070 ------------- ------------- ------------- Total current assets 322,025 217,543 384,233 ------------- ------------- ------------- PROPERTY, PLANT and EQUIPMENT, net 65,587 65,166 64,001 EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED, net 4,488 4,458 4,559 INTANGIBLES, net 4,479 4,365 4,296 OTHER ASSETS 2,898 4,226 2,961 ------------- ------------- ------------- $ 399,477 $ 295,758 $ 460,050 ============= ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 15,055 $ 3,819 $ 1,001 Accounts payable 16,780 19,990 15,370 Accrued expenses 191,120 143,352 213,054 Income taxes payable 10,492 8,082 51,067 ------------- ------------- ------------- Total current liabilities 233,447 175,243 280,492 ------------- ------------- ------------- LONG-TERM DEBT, less current maturities 55,003 17,000 189 ------------- ------------- ------------- DEFERRED INCOME TAXES 5,020 5,773 5,774 ------------- ------------- ------------- MINORITY INTEREST IN SUBSIDIARIES 9,098 8,338 8,620 ------------- ------------- ------------- 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, issued, and outstanding 107 107 107 Common stock, par value $0.10 per share; 100,000,000 shares authorized; 38,584,700; 38,664,565 and 38,919,467 shares issued; 38,470,434; 38,550,299 and 38,351,501 shares outstanding 3,859 3,866 3,891 Capital in excess of par value 38,123 41,179 44,609 Retained earnings 59,293 48,970 129,415 Accumulated other comprehensive loss (2,300) (2,545) (3,171) Treasury Stock at cost, 114,266; 114,266 and 567,966 shares (2,173) (2,173) (9,876) ------------- ------------- ------------- Total stockholders' equity 96,909 89,404 164,975 $ 399,477 $ 295,758 $ 460,050 ============= ============= ============
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) May 31, May 31, 1999 2000 ---- ---- NET SALES AND LICENSING FEES $ 158,591 $ 177,365 COST OF SALES 107,213 112,175 ------------ -------------- GROSS PROFIT 51,378 65,190 ------------ -------------- OPERATING EXPENSES: Research and development 5,325 4,435 Selling 4,908 4,022 General and administrative 3,072 3,700 ------------ -------------- 13,305 12,157 ------------ -------------- SPECIALCHARGESANDUNUSUALINCOMEITEM (876) (820) ------------ -------------- OPERATINGINCOME 37,197 52,213 INTERESTEXPENSE,net (1,396) (77) OTHER EXPENSE (1,752) (489) MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES (336) (141) ------------ -------------- EFFECT OF ACCOUNTING CHANGE 33,713 51,506 INCOME TAX PROVISION 12,965 16,618 ------------ -------------- NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 20,748 34,888 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR STARTUP COSTS, NET - - ------------ -------------- NET INCOME 20,748 34,888 DIVIDENDS ON PREFERRED STOCK (24) (32) ------------ -------------- NET INCOME APPLICABLE TO COMMON SHARES $ 20,724 $ 34,856 ============ =============== BASIC EARNINGS PER SHARE: NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.54 $ 0.91 CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - ------------ -------------- NET INCOME $ 0.54 $ 0.91 ============ =============== NUMBER OF SHARES USED IN BASIC EARNINGS PER SHARE CALCULATIONS 38,454 38,319 ============ =============== DILUTED EARNINGS PER SHARE: NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.51 $ 0.88 CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - ------------ --------------- NET INCOME $ 0.51 $ 0.88 ============ =============== NUMBER OF SHARES IN DIULUTED EARNINGS PER SHARE CALCULATIONS 41,018 39,845 ============ =============== DIVIDENDS PER COMMON 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 NINE MONTHS ENDED (in thousands, except per share amounts) (Unaudited) May 31, May 31, 1999 2000 ---- ---- NET SALES AND LICENSING FEES $ 238,587 $ 286,116 COST OF SALES 161,765 189,585 ---------------- -------------- GROSS PROFIT 76,822 96,531 ---------------- -------------- OPERATING EXPENSES Research and development 14,440 13,816 Selling 12,586 10,855 General and administrative 9,125 9,769 ---------------- -------------- 36,151 34,440 ---------------- -------------- SPECIAL CHARGES AND UNUSUAL INCOME ITEM (7,898) 73,407 ---------------- -------------- OPERATING INCOME 32,773 135,498 INTEREST EXPENSE, net (3,020) (265) OTHER EXPENSE (1,812) (411) MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES (311) 18 ---------------- -------------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 27,630 134,840 INCOME TAX PROVISION 10,914 47,868 ---------------- -------------- NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 16,716 86,972 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR STARTUP COSTS, NET - (2,965) ---------------- -------------- NET INCOME 16,716 84,007 DIVIDENDS ON PREFERRED STOCK (72) (96) ---------------- -------------- NET INCOME APPLICABLE TO COMMON SHARES $ 16,644 $ 83,911 ================ ============== BASIC EARNINGS PER SHARE: NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.43 $ 2.25 CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (0.08) ---------------- -------------- NET INCOME $ 0.43 $ 2.17 ================ ============== NUMBER OF SHARES USES IN BASIC EARNINGS PER SHARE CALCULATIONS 38,415 38,541 ================ ============== DILUTED EARNINGS PER SHARE: NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.41 $ 2.16 CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (0.07) ---------------- -------------- NET INCOME $ 0.41 $ 2.09 ================ ============== NUMBER OF SHARES USED IN DILUTED EARNINGS PER SHARE CALCULATIONS 41,077 40,157 ================ ============== DIVIDENDS PER COMMON SHARE $ 0.09 $ 0.09 ================ ==============
The accompanying notes are an integral part of these statements. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED (in thousands) (Unaudited)
May 31, May 31, 1999 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 16,716 $ 84,007 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,217 4,551 Loss on sale of equipment 1,835 - Minority interest in net income of subsidiaries 311 (18) Changes in current assets and liabilities: Receivables (131,391) (112,450) Inventories (20,434) 451 Prepaid expenses (2,339) (193) Accounts payable (6,530) (4,620) Accrued expenses 99,563 69,993 Deferred income taxes - (204) Income taxes payable 16,054 42,985 Change in intangible and other assets (1,585) 1,134 ---------------- -------------- Net cash provided by (used in) operating activities (22,583) 85,636 ---------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (7,085) (3,287) Proceeds from sale of property and equipment 100 - ---------------- -------------- Net cash used in investing activities (6,985) (3,287) ---------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of short-term debt (42,536) (3,156) Payments of long-term debt (182) (65,028) Dividends paid (3,532) (3,562) Proceeds from long-term debt 9,000 48,217 Proceeds from short-term debt 56,500 338 Minority interest in investment in subsidiaries 6,103 250 Minority interest in dividends paid by subsidiaries (263) (241) Payments to acquire treasury stock - (7,703) Proceeds from exercise of stock options and tax benefits of stock option exercises 2,295 3,455 ---------------- -------------- Net cash provided by (used in) financing activities 27,385 (27,430) ---------------- -------------- EFFECTS OF FOREIGN CURRENCY TRANSLATION 779 (626) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,404) 54,293 CASH AND CASH EQUIVALENTS, as of August 31 8,062 7,552 ---------------- -------------- CASH AND CASH EQUIVALENTS, as of May 31 $ 6,658 $ 61,845 ================ ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the nine months for: Interest $ 3,100 $ 1,100 Income taxes $ 300 $ 1,000
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 per 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 nine month periods ended May 31, 1999 and May 31, 2000 or for 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 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, 1999. Certain prior year balances have been reclassified to conform to the current year presentation. 2. ABANDONMENT OF MERGER BY 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. On December 20, 1999, Monsanto withdrew its pre-merger notification filed pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") effectively terminating Monsanto's efforts to gain government approval of the merger. On December 30, 1999, the Company filed suit (the "December 30 suit") in the First Judicial District of Bolivar County, Mississippi, seeking, among other things, the payment of the $81 million termination fee due pursuant to the merger agreement, compensatory damages of $1 billion and punitive damages in an amount to be proved at trial for Monsanto's breach of contract. On January 2, 2000, the Company and Monsanto reached an agreement whereby the Company would withdraw the December 30 suit, and Monsanto would immediately pay the $81 million. The parties agreed to negotiate in good faith over the following two weeks and Monsanto agreed to make members of its senior management available to conduct such negotiations. It was also agreed that if no consensual resolution was reached, the lawsuit brought by the Company would be re-filed. On January 3, 2000, Monsanto paid to the Company a termination fee of $81 million as required by the merger agreement. On January 18, 2000, the Company re-filed a suit reinstating essentially all of the allegations contained in the December 30 suit. The $81 million termination fee, net of related expenses, is separately presented in the income statement for the nine months ended May 31, 2000. The per diluted share effect is $1.18. 3. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income", establishes 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. Total comprehensive income for the three and nine months ended May 31, 1999 and May 31, 2000 was (in thousands):
Three Months Ended Nine Months Ended ------------------ ----------------- May 31, May 31, May 31, May 31, 1999 2000 1999 2000 ---- ---- ---- ---- Net income $ 20,748 $ 34,888 $ 16,716 $ 84,007 Other comprehensive (loss) income: Foreign currency translation (losses) and gains 125 779 779 (626) Income tax benefit (expense) related to other comprehensive income (48) (252) (308) 222 ------------ ----------- ----------- ----------- Other comprehensive (loss) income, net of tax 77 527 471 (404) ------------ ----------- ----------- ----------- Total comprehensive (loss) income applicable to common stockholders $ 20,825 $ 35,415 $ 17,187 $ 83,603 =========== =========== =========== ===========
4. SEGMENT DISCLOSURES 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. The Company is in a single line of business and operates in two business segments, domestic and international. The Company's reportable segments offer similar products; however, the business units are managed separately due to the geographic dispersion of their operations. The Company's chief operating decision maker utilizes revenue information in assessing performance and making overall operating decisions and resource allocations. Profit and loss information is reported by segment to the chief operating decision maker and the Company's Board of Directors. Information about the Company's segments for the three and nine months ended May 31, 1999 and May 31, 2000 is as follows (in thousands):
Three Months Ended Nine Months Ended ------------------ ----------------- May 31, May 31, May 31, May 31, 1999 2000 1999 2000 ---------------- ----------------- ---------------- ------------------ Net Sales Domestic $ 151,462 $ 169,157 $ 217,713 $ 259,082 International 7,129 8,208 20,874 27,034 ---------------- ----------------- ---------------- ------------------ $ 158,591 $ 177,365 $ 238,587 $ 286,116 ================ ================= ================ ================== Operating Income/(Loss) Domestic $ 37,444 $ 51,287 $ 33,183 $ 129,907 International (247) 924 (410) 5,591 ---------------- ----------------- ---------------- ------------------ $ 37,197 $ 52,213 $ 32,773 $ 135,498 ================ ================= ================ ==================
Material Changes in Assets: Accounts receivable increased approximately $112,450 to $260,376 at May 31, 2000 from $147,926 at August 31, 1999. This increase is primarily related to technology sublicense revenue due from Monsanto as well as third quarter sales in both the domestic and international segments. The royalty payments due Monsanto for the Bollgard and Roundup Ready licensing fees is reflected in the increase of accrued expenses from August 31, 1999 to May 31, 2000. 5. NEW ACCOUNTING PRONOUNCEMENTS 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 forhedging activities. The effective date of this statement was delayed via the issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for fiscal years beginning after June 15, 2000, though earlier adoption is encouraged and retroactive application is prohibited. Therefore D&PL must adopt the statement no later than September 1, 2000. Management does not expect the adoption of this statement to have a material impact on D&PL's results of operations, financial position or cash flows. SOP 98-5, "Reporting on the Costs of Startup Activities," requires that costs related to start-up activities be expensed as incurred and all previously capitalized costs be written off. Effective September 1, 1999, the Company adopted the requirements of SOP 98-5. The effect of adopting this statement resulted in a write-off, net of tax, of approximately $2,965,000 ( or $0.08 per share). The adjustment of $2,965,000, after income tax benefits of $1,817,000, to retroactively apply the new method, is recorded in results of operations for the first fiscal quarter of 2000. 6. INVENTORIES Inventories consisted of the following (in thousands): May 31, August 31, May 31, 1999 1999 2000 ---------- --------- ---------- Finished goods $ 54,269 $ 43,528 $ 39,104 Raw materials 18,938 15,774 17,786 Growing crops 1,028 1,564 766 Supplies and other 450 969 637 ---------- --------- ---------- 74,685 61,835 58,293 Less reserves (3,754) (14,108) (11,017) ---------- --------- ---------- $ 70,931 $ 47,727 $ 47,276 ========== ========= ========== Substantially all finished goods and raw material inventory is valued at the lower of average cost or market. Growing crops are recorded at cost. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands): May 31, August 31, May 31, 1999 1999 2000 --------- -------- --------- Land and improvements $ 4,025 $ 4,113 $ 4,091 Buildings and improvements 35,249 35,251 37,365 Machinery and equipment 42,860 43,291 46,589 Germplasm 7,500 7,500 7,500 Breeder and foundation seed 2,000 2,000 2,000 Construction in progress 4,241 4,789 2,489 --------- -------- --------- 95,875 96,944 100,034 Less accumulated depreciation (30,288) (31,778) (36,033) --------- -------- --------- $ 65,587 $ 65,166 $ 64,001 ========= ======== ========= 8. CONTINGENCIES The Company and Monsanto are named as defendants in five pending lawsuits filed in the State of Texas. One which was filed in the 106th Judicial District Court of Gaines County, Texas on April 27, 2000. Two lawsuits were filed in Lamb County, Texas on April 5, 1999; one lawsuit was filed in Lamb County, Texas on April 14, 1999; and one lawsuit was filed in Hockley County, Texas, on April 21, 1999. All of these lawsuits were removed to the United States District Court, Lubbock Division, and all but the most recently filed have been subsequently remanded back to the state court where they were filed. 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 and further allege claims that the farmer's crop was injured by the application of Round Up. These lawsuits, however include varietal claims aimed solely at the Company. The first four cases were identical to 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 and determined that the cause or causes of the alleged problems are not related to seed quality or technology but to drought conditions. Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL tendered the defense of all these claims to Monsanto and requested indemnity. Monsanto has agreed to indemnify D&PL in the Gaines County, Texas case, but has declined to indemnify D&PL in the other cases. D&PL has no right to indemnification from Monsanto for any claim involving defective varietal characteristics separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in the Lamb County and Hockley County cases. D&PL believes these claims will be resolved without any material impact on the Company's consolidated financial statements. The Company, Monsanto and other parties were named as defendants in a lawsuit filed in the Superior Court of Calhoun County, Georgia on April 19, 1999, which has been removed to the United States District Court of the Middle District of Georgia, Albany Division. An Order was entered in this case on March 30, 2000, remanding this case to state court. The Company and Monsanto are presently investigating the claim to determine the cause or causes, if any, of the alleged problems. Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of this claim to Monsanto and requested indemnity, as 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. This case was the subject of a seed arbitration case filed in Georgia during 1997 which was concluded in the Company's favor. D&PL believes this lawsuit will be resolved without any material impact on the Company's consolidated financial statements. On November 15, 1999, Monsanto and local cotton seed distributors were named in a lawsuit filed in the Court of Common Pleas, County of Hampton, State of South Carolina. This case was subsequently removed to the United States District Court, District of South Carolina, Beaufort Division, but has since been remanded to the Court of Common Pleas of Hampton County, South Carolina. This case requests class action treatment and alleges that a wide variety of the Company's transgenic cotton products were defective because they grew plants which produced cotton bolls that contained immature, defective and rotten seed in the bolls. The plaintiff in this case seeks class certification of purchasers of a wide variety of seed planted during the 1999 crop year. The Company and Monsanto are presently investigating the claim; however, they believe it to be without merit and their plan is to vigorously defend this lawsuit, with particular emphasis on defending the class action allegations. The Company has tendered the defense of this claim to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R) Agreement, Monsanto is contractually obligated to indemnify and defend the Company against all claims arising out the failure of the glyphosate tolerance gene. The Company will not have a right to indemnification from Monsanto, however, for any claim involving defective varietal characteristics separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in these complaints. The Company believes this claim is not one that is likely to receive class treatment. Accordingly, D&PL believes that this claim will be resolved without any material impact on the Company's consolidated financial statements. On November 15, 1999, the Company, Monsanto and certain local cottonseed distributors were named in an additional case filed in the Court of Common Pleas, State of South Carolina. This case has been removed to the United States District Court, District of South Carolina, Beaufort Division, and then remanded back to the Court of Common Pleas. This case alleges that a wide variety of the Company's transgenic cotton products were defective because they grew plants that produced cotton bolls that contained immature, defective and rotten seed in the bolls during the 1999 crop year. The Company and Monsanto are presently investigating the claim; however, they believe it to be without merit and their plan is to vigorously defend this lawsuit. The Company has tendered the defense of this claim to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R) Agreement, Monsanto is contractually obligated to indemnify and defend the Company against all claims arising out the failure of the glyphosate tolerance gene. The Company will not have a right to indemnification from Monsanto, however, for any claim involving defective varietal characteristics separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in this complaint. The Company believes that this claim will be resolved without any material impact on the Company's consolidated financial statements. On November 15, 1999, the Company, Monsanto and certain local cottonseed distributors were named in a lawsuit filed in United States District Court, District of South Carolina, Beaufort Division. This case requests class action treatment and alleges that a wide variety of the Company's transgenic cotton products were defective because they grew plants that produced cotton bolls containing immature, defective and rotten seed in the bolls. The plaintiff in this case seeks class certification of purchasers of a wide variety of seed planted during the 1999 crop year, this case seeks to include as class members only those individuals having a claim of $75,000 or greater. The Company and Monsanto are presently investigating the claim; however, they believe it to be without merit and their plan is to vigorously defend this lawsuit, with particular emphasis on defending the class action allegations. The Company has tendered the defense of this claim to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R) Agreement, Monsanto is contractually obligated to indemnify and defend the Company against all claims arising out the failure of the glyphosate tolerance gene. The Company will not have a right to indemnification from Monsanto, however, for any claim involving defective varietal characteristics separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in this complaint. The Company believes this claim is not one that is likely to receive class treatment. Accordingly, D&PL believes that this claim will be resolved without any material impact on the Company's consolidated financial statements. On March 30, 1999, the Company, Asgrow Seed Company, L.L.C., and Terra International were named as defendants in a lawsuit filed in the Fourth Judicial District Court, Parish of Morehouse, State of Louisiana, which has now been removed to the United States District Court for the Western District of Louisiana. The suit alleges, among other things, that certain soybean seed which contained the Roundup Ready gene did not properly germinate and did not perform as the farmer had anticipated and, in particular, did not fully protect their crops from damage following the application of Roundup. The Company and Monsanto investigated the claim and determined that the cause or causes of the farmer's problems were related to the environment and drought-like conditions, not to seed quality or technology. Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of this claim to Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify any and all claims arising out of the failure of the glyphosate tolerance gene. D&PL believes this case can be resolved without any material impact on the Company's consolidated financial statements. Sixteen farmers in Mississippi have filed seed arbitration claims against the Company with the Mississippi Department of Agriculture arising from their 1999 crop. The Mississippi Seed Arbitration Council has dismissed all of these claims, however the farmers remain free to pursue legal action should they choose to do so. To date, none of these farmers have instituted legal action. Pursuant to the terms of the Bollgard Gene Licensing Agreement, D&PL has tendered the defense of these claims to Monsanto, Monsanto is contractually obligated to defend and indemnify the Company against claims arising from a failure of the Bollgard gene. Monsanto has declined the assumption of defense and indemnity of these cases and, indeed, it appears that the cases do not involve a complaint of the failure of the gene technology. The Mississippi Department of Agriculture has not yet scheduled a hearing on any of these claims. The Company has moved to dismiss many of the claims as having been untimely filed. The Company believes these claims can be resolved without any material impact on the Company's consolidated financial statements. Approximately 189 cotton farmers in Georgia filed seed arbitration claims against the Company and, in some cases, against Monsanto arising from their 1999 crop. The Georgia Seed Arbitration Council has dismissed all of these claims, however the farmers remain free to pursue legal action should they choose to do so. To date, none of these farmers have instituted legal action. Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of these seed arbitration claims to Monsanto and has 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. The Company will not have a right to indemnification, however, for any claim involving defects in the seed, separate from or in addition to the failure of the herbicide tolerance gene, and such claims were contained in some of the seed arbitration claims filed. Based upon information received to date, the Company believes these claims can be resolved without any material impact on the Company's consolidated financial statements. In 1998, one Arkansas farmer filed a complaint with the Arkansas Seed Arbitration Council related to an alleged crop performance issues in 1997. This claim was recently dismissed by the Arkansas Seed Arbitration Council however the farmer remains free to pursue legal action should he choose to do so. To date, the farmer has not instituted legal action. This case alleges that certain Roundup Ready cottonseed marketed by the Company in 1997 failed to perform as the farmer had anticipated and caused the farmer to suffer crop loss. Pursuant to the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of this claim to Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify any and all claims arising out of the failure of the glyphosate gene tolerance. D&PL believes this case can be resolved without any material impact on the Company's consolidated financial statements. Twelve farmers in the State of Alabama filed seed arbitration claims against the Company for their 1999 crop year. The Company is in the process of investigating these claims to determine the cause or causes, if any, of the alleged problems. One of the claims was heard on May 3, 2000, and dismissed on June 7, 2000, for lack of merit. The remaining claims were dismissed without hearing. With the exception of one seed arbitration claim, all the other farmers are now pursuing formal litigation against D&PL and Monsanto. Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of these seed arbitration claims to Monsanto and has 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 Ready gene. The Company will not have a right to indemnification, however, for any claim involving defects in the seed, separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in some of the seed arbitration claims filed. The Alabama Department of Agriculture has not yet scheduled hearing dates on any of these claims. Based upon information received to date, the Company believes these claims can be resolved without any material impact on the Company's consolidated financial statements. Six farmers in the State of Florida have filed arbitration claims against the Company for the 1999 crop year, however, three of those claims have been withdrawn by the farmers due to higher than expected yields. The Florida Department of Agriculture has not yet scheduled hearings on any of these claims. The Company believes these claims can be resolved without any material impact on the Company's consolidated financial statements. In 1999, 112 farmers in the State of South Carolina filed seed arbitration claims against the Company. The Company and Monsanto are in the process of investigating these claims to determine the cause or causes, if any, of the alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between the Company and Monsanto, the Company has tendered the defense of these seed arbitration claims to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R) Agreement, Monsanto is contractually obligated to defend and indemnify the Company against all claims arising out of the failure of the Roundup Ready gene. D&PL will have no right to indemnification, however, for any claims involving defective seed, separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained in the seed arbitration claims filed in South Carolina. The South Carolina Department of Agriculture has not yet scheduled a hearing on any of these claims. The Company believes the claims to be without merit and that the farmers complaints are environmentally induced and not related to seed performance; accordingly, the Company believes these claims can be resolved without any material impact on the Company's consolidated financial statements. In the event classes are certified in either of the two pending litigation matters in South Carolina seeking class certification, it is likely these claims will become subsumed in that litigation. The Company, Monsanto and seed distributors including Dixie Ag Supply, Inc., Central Alabama Farmers Co-Op and Helena Chemical Company, and employees of those entities, were named as defendants in 10 lawsuits filed in the State of Alabama. Two lawsuits were filed in Lowndes County, Alabama, one on March 14, 2000, and one on March 22, 2000; one lawsuit was filed in Dallas County, Alabama on March 22, 2000, three cases were filed in Autauga County, Alabama, one on March 27, 2000, two on March 23, 2000, three lawsuits were filed in Chilton County, Alabama, three on March 22, 2000, and one lawsuit was filed in Elmore County, Alabama on March 22, 2000. These lawsuits were removed to the United States District Court. All have subsequently been remanded back to the state court in which they were filed. In each case the plaintiff alleges, among other things, that certain cottonseed varieties purchased from D&PL did not perform as the farmer had anticipated. These lawsuits also include varietal claims aimed solely at the Company. The Company, Monsanto and other defendants have investigated the claims to determine the cause or causes of the allege problems and believe that all the plaintiff's claims were enviromentally induced and not related to the performance of the Company's seed or Monsanto's technology. Pursuant to the terms of the Roundup Ready(R) 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(R) agreement Monsanto is contractually obligated to defend and indemnify the Company against all claims arising out of the failure of the Roundup Ready gene. D&PL will have no right to indemnification from Monsanto however, for any claim involving defective varietal characteristics separate from or in addition to the failure of the herbicide tolerance gene, and such claims are contained within these complaints. To date Monsanto has declined D&PL's request for indemnity and defense. Certain of these claims were earlier filed as seed arbitration claims in the state of Alabama which were dismissed and, based on investigation to date, D&PL believes these claims will be resolved without any material impact on the Company's consolidated financial statements. One other farmer has filed suit in the Circuit Court of Escambia County, Alabama, this suit was filed on April 5, 2000. This suit alleges a failure of glyphosate gene tolerance or alternatively alleges the mislabeling of the seed involved in the complaint. This claim was the subject of a seed arbitration hearing that resulted in a favorable ruling for the Company. The Company believes this claim will be resolved without any material impact on the Company's consolidated financial statements. 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 "Delaware Chancery Court"). The complaints alleged that the consideration to be paid in the proposed merger of the Company with Monsanto was 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. This settlement was contingent on consummation of the merger. In light of Monsanto's termination of the merger, the Company believes that this lawsuit is in effect, moot. In December 1999 and January 2000, two individual alleged shareholders (including some of the plaintiffs in the suits filed in May 1998) brought two new suits (now consolidated) against the Directors, the Company, and Monsanto in the Delaware Chancery Court. These complaints allege that the Company's Directors breached fiduciary duties by failing to seek compensation from Monsanto for breach of the Agreement and Plan of Merger and by failing to explore strategic alternatives after the termination of the merger transaction by Monsanto and that Monsanto aided, abetted, and assisted the Directors' alleged breaches of fiduciary duty. The plaintiffs sought to maintain these actions as class actions and demanded injunctive relief requiring the Directors to maximize shareholder value and, alternatively, unspecified compensatory damages, attorneys' fees, and costs. Monsanto has filed a cross-claim against D&PL in those consolidated cases seeking a declaratory judgment that it is not liable to the Company for breach of contract for failure to consummate the merger. Monsanto seeks no monetary recovery against the Company. The Company believes that plaintiffs' complaints, which were filed before plaintiffs were aware of the actions undertaken by the Company and its Directors to seek compensation from Monsanto and to maximize shareholder value in the aftermath of Monsanto's termination of the merger transaction, are without merit and should be dismissed. On June 21, 2000, the Court ruled for the Company and dismissed the December 1999 and January 2000 shareholder suits. The Company has moved to dismiss Monsanto's cross-claim or, alternatively, to stay the cross-claim in favor of the Company's suit against Monsanto filed in state court in Mississippi. That motion is pending. 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 subsequently re-filed a motion for a new trial and for a judgment in favor of Mycogen as a matter of law. The trial court has ruled in these motions holding for Mycogen on certain issues but sustaining the jury verdict in favor of D&PL and Monsanto. Mycogen has appealed to the U.S. Court of Appeals for the Federal Circuit. 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's consolidated financial statements. In December 1999, Mycogen Plant Science, Inc., an Australian affiliate of Dow Chemical Co. ("Mycogen-Australia") filed suit in the Federal Court of Australia against Monsanto Australia Limited and Deltapine Australia Pty Limited (the Australian affiliates of Monsanto and D&PL, respectively) alleging that sales in Australia of genetically-modified cotton seed containing Monsanto's Bt gene infringe two Australian patents held by Mycogen-Australia. The suit seeks to enjoin sales of allegedly infringing seed in Australia and monetary damages. This suit involves issues similar to those in the above described Delaware litigation but will be decided under Australian patent law which, unlike the United States, applies a "first to file" priority rule. Monsanto and D&PL, which are cooperating in defense of this suit, are relying on other defenses to infringement claims. At the present time, the outcome of this litigation cannot be predicted. 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 $700,000 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's consolidated financial statements. The Company continues to offer seed for sale in Guatemala. In November 1999 a distributor of Sure-Grow brand cotton seed in Greece brought suit in U. S. District Court in Delaware seeking to enjoin the termination of its distributorship (which become effective on November 30, 1999) a declaratory judgment that the Company's termination of its distributorship was not effective, compensatory damages of not less than $6 million and unspecified punitive damages. The distributor has also filed a request for arbitration with the American Arbitration Association and a suit seeking injunctive relief in a court in Thessaloniki, Greece. In January 2000 the U. S. District Court in Delaware denied the request for injunctive relief. The Company has sought an injunction against the distributor's proceeding with litigation in the Greece Court. The Company believes that the former distributor's claims are without merit and that these claims will be resolved without any material impact on the Company's consolidated financial statements. The Company continues to offer cotton seed (including seed of the Sure-Grow brand) for sale in Greece through another distributor. On July 18, 1996, the United States Department of Justice, Antitrust Division ("USDOJ"), served a Civil Investigative Demand (the "1996 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 1996 CID stated that the USDOJ was investigating whether these transactions may have violated the provisions of Section 7 of the Clayton Act, 15 USC 18. D&PL responded to the 1996 CID, employees were examined in 1997 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. On August 9, 1999, D&PL and Monsanto received Civil Investigative Demands from the USDOJ (the "1999 CIDs"), seeking to determine whether there have been any inappropriate exchanges of information between Monsanto and D&PL or if any prior acquisitions are likely to have substantially lessened competition in the sale or development of cottonseed or cottonseed genetic traits. D&PL has complied with the USDOJ's request for information and documents. The USDOJ has taken no further action on the 1999 CIDs since D&PL and Monsanto's responses were filed. In May 2000, three cotton farmers and a seed dealer brought a class action suit in the United States District Court for the Northern District of Alabama against the Company, Monsanto and D&M International, LLC ("D&M"). The Complaint alleges that the defendants have attempted to monopolize and/or restrain trade in the U. S. markets for cotton seed and herbicides in violation of the Sherman Act and the Clayton Act and seeks damages and other relief for the plaintiffs and a purported class of similarly situated parties. The Company has responded to allegations relating the Company and D&M and has demanded that the suit be dismissed. Company believes that the claims in this lawsuit pertaining to the Company and D&M are without merit and will be resolved without any material impact on the Company's consolidated financial statements. 9. EARNINGS PER SHARE Basic earnings per share before the cumulative effect of a change in accounting principle was calculated using the weighted average number of common shares outstanding for each reporting period (38,454 and 38,319 for the three months ended May 31, 1999 and 2000, respectively, and 38,415 and 38,541 for the nine months ended May 31, 1999 and 2000, respectively). Diluted earnings per share before the cumulative effect of a change in accounting principle was computed taking into account the effect of dilutive common share equivalents (which totaled 2,564 and 1,526 for the three months ended May 31, 1999 and 2000, respectively, and 2,662 and 1,616 for the nine months ended May 31, 1999 and 2000, respectively). Dilutive common share equivalents consist of both the Company's Series M Convertible Non-Voting Preferred Shares and outstanding stock options under the Company's 1993 Stock Option Plan and the 1995 Long-Term Incentive Plan. Approximately 169,000 and 1,532,000, outstanding stock options were not included in the computation of diluted earnings per share for the three months ended May 31, 1999 and 2000, respectively, and approximately 169,000 and 1,484,000 outstanding stock options were not included in the computation of diluted earnings per share for the nine months ended May 31, 1999 and 2000, respectively, because the effect of their exercise was not dilutive based on the average market price of the Company's common stock for each respective reporting period. These options expire at various dates from 2006 to 2009. PART I. 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 Delta and Pine Land Company would be merged with and into Monsanto. On December 20, 1999, Monsanto withdrew its filing under the HSR Act thereby effectively abandoning plans to consummate the merger. On January 3, 2000, Monsanto paid Delta and Pine Land Company an $81 million termination fee, which, net of related expenses, is separately presented in the accompanying income statement. The diluted per share effect of this non-recurring payment (net of tax and related expenses) was $1.18 for the nine months ended May 31, 2000. RESULTS OF OPERATIONS The following sets forth selected operating data of the Company (in thousands):
For the Three Months Ended For the Nine Months Ended May 31, May 31, May 31, May 31, 1999 2000 1999 2000 --------- --------- --------- --------- Operating results - Net sales and licensing fees $ 158,591 $ 177,365 $ 238,587 $ 286,116 Gross profit 51,378 65,190 76,822 96,531 Operating expenses: Research and development 5,325 4,435 14,440 13,816 Selling 4,908 4,022 12,586 10,855 General and administrative 3,072 3,700 9,125 9,769 Special charges and unusual income item (876) (820) (7,898) 73,407 Operating income 37,197 52,213 32,773 135,498 Income before income taxes and cumulative effect of accounting change 33,713 51,506 27,630 134,840 Net income applicable to common shares $ 20,724 $ 34,856 $ 16,644 $ 83,911
The following sets forth selected balance sheet data of the Company as of the following periods (in thousands):
May 31, August 31, May 31, 1999 1999 2000 ---- ---- ---- Balance sheet summary- Current assets $ 322,025 $ 217,543 $ 384,233 Current liabilities 233,447 175,243 280,492 Working capital 88,578 42,300 103,741 Property, plant and equipment, net 65,587 65,166 64,001 Total assets 399,477 295,758 460,050 Outstanding borrowings 70,058 20,819 1,190 Stockholders' equity 96,909 89,404 164,975
Three months ended May 31, 2000, compared to three months ended May 31, 1999: Net sales and licensing fees in the third quarter ended May 31, 2000 increased 12% to $177.4 million from $158.6 million in the same quarter in 1999. The increase in sales is the result of i) an increase in planted cotton acreage, ii) a shift by farmers from both conventional varieties and single gene varieties containing either the Bollgard or Roundup Ready gene technology to higher priced transgenic products that contain both gene technologies, and iii) an increase in international sales. Operating expenses declined to $12.2 million in 2000 from $13.3 million in the same quarter in 1999 due primarily to the 1999 reorganization of the sales and marketing and technical service staffs. Interest expense decreased to $77,000 from $1.4 million due to lower outstanding borrowings due, in part, to the collection of the $81 million termination fee from Monsanto. During the third quarter, the Company revised its estimate of the effective income tax rate for the year ending August 31, 2000 to 35.5%. The effect of this change in estimate was recorded in the third quarter ended May 31, 2000. Nine months ended May 31, 2000, compared to nine months ended May 31, 1999: Net sales and licensing fees increased to $286.1 million for the nine months ended May 31, 2000 from $238.6 million in 1999. This increase is the result of sales of cottonseed varieties containing both the Bollgard and Roundup Ready genes nearly doubling in 2000 over 1999 and an increase in international sales to $27.0 million from $20.9 million, the effects of which were partially offset by a $7.2 million decline in soybean sales. Transgenic cottonseed unit sales in 2000 approximated 85% of unit sales in 2000 compared to 80% in 1999. Roundup Ready soybean unit sales increased to 69% of units sold in 2000 from 60% in 1999. Operating expenses for the nine months ended May 31, 2000 declined to $34.4 million from $36.2 in 1999. The decrease is primarily attributed to the 1999 reorganization of sales and marketing and technical service staffs, and the closing of the Stuttgart, Arkansas breeding station in contemplation of opening two new breeding stations which are not yet operating at full scale. Interest expense declined to $265,000 in 2000 compared to $3.0 million in 1999 due to lower average borrowing as a result of cash generated from operations and the receipt of the $81 million termination fee from Monsanto. 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 18 years D&PL has borrowed on a short-term basis to meet seasonal working capital needs. In the United States, 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 customers 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 domestic 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. At May 31, 2000, the Company had $55.0 million available for borrowing under the base commitment and $55.0 million available under its seasonal commitment. In addition the lead lender has approved a $25.0 million credit line that can be activated by the Company as needed. Such facility is generally available for up to 180 days and bears interest at rates comparable to the existing facility. The financial covenants under the loan agreements require the Company to: (a) maintain a ratio of total liabilities to tangible net worth at August 31, of less than or equal to 2.25 to 1 (4.0 to 1.0 at the Company's other quarter ends) (b) maintain a fixed charge ratio at the end of each quarter greater than or equal to 2.0 to 1.0 and (c) maintain at all times tangible net worth of not less than the sum of (i) $40 million plus (ii) 50% of net income (but not losses) determined on the last day of each fiscal year, commencing with August 31, 1998. At May 31, 2000, the Company was in compliance with these covenants. Capital expenditures for the first nine months of 2000 were $3.3 million which was a decrease from $7.1 million in the first nine months of 1999. The Company anticipates that domestic capital expenditures will approximate $8.0 million in 2000, 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 2000 for international ventures are expected to range from $1.0 million to $2.0 million depending on the timing and outcome of such projects. Cash provided from operations, early payments from customers and borrowings under the loan agreement should be sufficient to meet the Company's 2000 working capital needs. In the third quarter of 2000, the Board of Directors authorized a quarterly dividend of $0.03 per share, paid June 12, 2000 to the stockholders of record on May 31, 2000. It is anticipated that quarterly dividends of $0.03 per share will continue to be paid, although the Board of Directors reviews this policy quarterly. In January 2000, the Board of Directors approved a stock repurchase plan pursuant to which the Company expects to purchase up to $50,000,000 of its outstanding common stock. The shares repurchased will be used for stock issuances pursuant to the Company's stock option plans and for other corporate purposes. During the third quarter ended May 31, 2000, D&PL repurchased 101,200 shares at an average price of $17.55 per share. PART II. OTHER INFORMATION Item 1. Legal Proceedings See Part I, Item 1, Footnote 8 Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of the Shareholders of Delta and Pine Land Company was held March 30, 2000 and the following matters were brought to a vote with the noted results:
Item Number For Against Abstain Non-Voted ----------- --- ------- ------- --------- 1. Directors: Roger D. Malkin 32,189,407 306 68,907 0 Jon E. M. Jacoby 32,190,678 306 67,636 0 For Against Abstain Non-Voted --- ------- ------- --------- 2. Amend the Company's 1995 Long Term Incentive Plan to increase the number of shares available for grant from 2,560,000 to 5,120,000 18,500,749 3,544,264 304,075 9,909,532 For Against Abstain Non-Voted --- ------- ------- --------- 3. Approve Arthur Andersen, LLP as principal independent certified public accountants for the fiscal year ending August 31, 2000 32,216,945 30,100 11,575 0
Item 5. Business Domestic Delta and Pine Land Company, a Delaware corporation, and subsidiaries ("D&PL" or the "Company") 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 1980, D&PL added soybean seed to its product line. In 1996, D&PL commenced commercial sales in the United States of cotton planting seed containing Bollgard(R) 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. cotton planting seed that contains a gene that provides tolerance to glyphosate-based herbicides ("Roundup Ready(R) Cotton"). In 1997, D&PL commenced commercial sales in the U.S. of soybean planting seed that contains a gene that provides tolerance to glyphosate-based herbicides ("Roundup Ready Soybeans"). In 1998, D&PL commenced sales of cottonseed of varieties containing both the Bollgard and Roundup Ready genes. International 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 international business, primarily through joint ventures. 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 is effective and could bring value to farmers. 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. Prior to 1999, a majority of the Company's international sales resulted from exports from the U.S. of the Company's products rather than direct in-country operations. In 1999, direct in-country operations through joint ventures or subsidiaries (primarily, Argentina, Australia, Brazil, China, and South Africa) comprised over one-half of total international sales which represented approximately 10% of consolidated sales. Joint Ventures D&M International, LLC, is a venture through which D&PL (the managing member) and Monsanto plan to introduce, in combination, cotton planting seed in international markets combining D&PL's acid delinting technology and elite germplasm and Monsanto's Bollgard and Roundup Ready gene technologies. In November 1995, D&M International, LLC formed a subsidiary, D&PL China Pte Ltd. ("D&PL China"). In November 1996, D&PL China formed with parties in Hebei Province, one of the major cotton producing regions in the People's Republic of China, Hebei Ji Dai Cottonseed Technology Company Ltd. ("Ji Dai"), a joint venture controlled by D&PL China. In June 1997, Ji Dai commenced construction of a cottonseed conditioning and storage facility in Shijiazhuang, Hebei Province, China, under terms of the joint venture agreement. The new facility was completed in December 1997 and seed processing and sales commenced in 1998. In December 1997, D&M International, LLC, formed a joint venture with Ciagro S.R.L. ("Ciagro"), a distributor of agricultural inputs in the Argentine cotton region, for the production and sale of genetically improved cottonseed. CDM Mandiyu S.R.L., is owned 60% by D&M International, LLC, and 40% by Ciagro. The cotton region, primarily comprised of the Provinces of Chaco, Santiago del Estero, Salta and Jujuy, presently has 1.2 million acres of cotton requiring 9,000 tons of cotton planting seed per year. CDM Mandiyu S.R.L. has been licensed to sell D&PL cotton varieties containing Monsanto's Bollgard gene technology. Sales of such varieties commenced in 1999. Future plans include the production and sale of Roundup Ready cottonseed varieties pending government approval. In July 1998, D&PL China and the Anhui Provincial Seed Corporation formed a joint venture, Anhui An Dai Cotton Seed Technology Company, Ltd. ("An Dai") which is located in Hefei City, Anhui Province, China. Under the terms of the joint venture agreement, the newly formed entity will produce, condition and sell acid delinted D&PL varieties of cottonseed which contain Monsanto's Bollgard gene. In the fall of 1998, An Dai harvested sufficient seed from seed plots in Anhui to plant up to 250,000 acres. The joint venture did not receive authority to operate from the Chinese government until after the 1999 selling season was completed. Therefore, commercial sales are expected to commence in early 2000. In November 1998, D&M International LLC and Maeda Administracao e Participacoes Ltda, an affiliate of Agropem - Agro Pecuria Maeda S.A., formed a joint venture in Minas Gerais, Brazil. The new company, MDM Maeda Deltapine Monsanto Algodao Ltda., will produce, condition and sell acid-delinted D&PL varieties of cotton planting seed. The new company produced and delinted enough cottonseed of conventional varieties in 1999 to plant up to 900,000 acres. The newly formed company will introduce transgenic cottonseed varieties, both Bollgard and Roundup Ready, to the Brazilian market as soon government approvals are obtained. Subsidiaries The Company's delinting plants in Groblersdal, South Africa and Catamarca, Argentina process foundation seed grown in these countries. The use of Southern Hemisphere winter nurseries and seed production programs such as these can accelerate the introduction of new varieties because D&PL can raise at least two crops per year by taking advantage of the Southern Hemisphere growing season. The Company maintains a winter nursery in Costa Rica and is currently constructing a delinting plant there to process foundation seed for export to the United States. Multiple winter nursery locations are used to manage seed production risks. Deltapine Australia Pty. Ltd., a wholly owned Australian subsidiary of D&PL, conducts breeding, production, conditioning and marketing of cotton planting seed in Australia. Certain varieties developed in Australia are well adapted to other Southern Hemisphere cotton producing countries and Australian developed varieties are exported to these areas. The Company sells seed of both conventional and transgenic varieties in Australia. The Company, through its Australian operations, is identifying smaller potential export markets for the Company's products throughout Southeast Asia. The adaptability of the Company's germplasm must be evaluated in the target markets before such sales can be made. The recent instability of the economies in some of the countries in this region will make successful market development difficult. Employees As of May 1, 2000, the Company employed a total of 581 full time employees worldwide excluding an estimated 85 employees of joint ventures. Due to the nature of the business, the Company utilizes seasonal employees in its delinting plants and its research and foundation seed programs. The maximum number of seasonal employees approximates 300 and typically occurs in October and November of each year. The Company considers its employee relations to be good. 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 1,066,666 shares (after all stock splits) of the Company's Series M Convertible Non- Voting Preferred Stock. In 1994, D&PL acquired the Paymaster and Lankart cotton planting seed business ("Paymaster"), for approximately $14.0 million. 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"). 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. Prior to 1997, 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, the certified seed program was discontinued and the Company, in addition to producing parent seed, commenced delinting, conditioning and bagging finished seed. Unconditioned seed is also supplied by D&PL to two 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 a third party to develop Pima varieties that allows D&PL the right of first refusal for any Pima varieties developed under this program. 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 amended and restated in 1996 and further amended in December 1999, provide for the commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") gene technology in D&PL's varieties in the United States. 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 Bollgard 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 retains 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. 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 performance of the Bollgard gene and not claims arising from other causes. D&PL has also developed transgenic cotton 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 in order to purchase seed containing the Roundup Ready Gene. The distributors/dealers who coordinate the farmer licensing process receive a portion of the technology sublicensing fee. D&PL's portion of the Roundup Ready technology fee varies depending on the technology fee per acre established by Monsanto. In 1998 and 1999, D&M Partners paid Monsanto approximately 70% of the Roundup Ready technology fees and D&PL retained the remaining 30%. Pursuant to the Roundup Ready Agreement, 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 cost of gene performance claims will be shared in proportion to the division of sublicense 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 2000, the Company has for sale for either commercial or experimental purposes 16 cotton planting seed varieties that contain the Bollgard gene technology, 20 cotton planting seed varieties that contain the Roundup Ready gene technology, 21 varieties that contain both technologies, and 50 conventional varieties. 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. On July 27, 1999, United States Patent No. 5,929,300 was issued to the United States of America as represented by the Secretary of Agriculture (USDA) entitled POLLEN BASED TRANSFORMATION SYSTEM USING SOLID MEDIA. D&PL has an option to obtain a license for pollen transformation, subject to certain rights reserved to the USDA. D&PL has notified the USDA of its intention to exercise its rights. The patent covers transformation of plants. In March 1998, D&PL 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. One application of the technology could 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 has stated it intends that licensing of this technology will be made widely available to other seed companies. Both patents were 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 technologies 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 will be several years before these technologies could be available commercially. 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. 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 prior to seed treatment with chemicals and 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 farms approximately 2,600 acres in the U.S., primarily for research purposes and 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. The licensing fee charged to farmers was based on pre-established planting rates for seven geographic regions in 1998 and eight such regions in 1999 and 2000, and the estimated number of seed contained in each bag which may vary by variety, location grown, and other factors. Revenue is recognized based on the 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 revenues are recognized upon the later of when seed is shipped or the date letters of credit are confirmed. Generally, international export sales are not subject to return. All other international revenues from the sale of planting seed, less estimated reserves for returns, are recognized when the seed is shipped. 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 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. To date, D&PL 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. D&PL essentially completed the program. The majority of systems, including critical business systems, comply with year 2000 requirements, due in large part to the installation in fiscal 1997 of a third party software system that was year 2000 compliant, at a cost in excess of $3.0 million. While the year 2000 efforts involved additional costs, D&PL was able to manage its in-house year 2000 transition issues without any material adverse effect on its business operations or financial position. Total cost incurred to date for year 2000 considerations (excluding third party software) approximate $600,000 and the Company estimates that no additional funds are required to complete the year 2000 compliance process. D&PL also contacted its major suppliers and customers to assess their preparations for the year 2000. These actions were taken to help mitigate the possible external impact of year 2000 issues. It is not feasible to fully assess the potential consequences if D&PL's customers are not compliant. D&M Partners (a partnership of which D&PL owns 90% and Monsanto owns 10%) contracts with Monsanto to i) administer sublicensing to farmers the right to use the Bollgard and Roundup Ready technologies, ii) bill for such technologies, and iii) collect the sublicensing revenues for using technology. Monsanto disclosed that all year 2000 remediation work for its internal systems would be completed by the third calendar quarter of 1999. The Company is not able to predict at the present time the impact, if any, on its business if Monsanto is unable to resolve any of its remaining year 2000 issues. D&PL's discussion of the year 2000 computer issue contains forward-looking information. D&PL believes that its critical computer systems are year 2000-compliant. 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 any 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: Demand for D&PL's seed will be affected by government programs and policies 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 and new technologies that may compete with the Bollgard and Roundup Ready gene technologies. The Company's seed products and technologies contained therein 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 domestic and international operations of D&PL include the use of and the acceptance of products that were produced from plants that were genetically modified, the testing, 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. The recent publicity related to genetically modified organisms ("GMO's") or products made from plants that contain GMO's may have an effect on the Company's sales in the future. In 2000, approximately 85% of the Company's cotton seed that was sold contained either the Bollgard, Roundup Ready, or both gene technologies and 69% of the Company's soybean seed sales contained the Roundup Ready gene technology. Although many farmers have rapidly adopted these technologies, the alleged concern over finished products that contain GMO's could impact demand for crops raised from seed containing such traits. 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 the factors noted above as well as 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 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 successfully complete these projects may affect future profitability. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 11.01 Reconciliation of the Basic and Diluted Per Share Computations for Income Before the Cumulative Effect of a Change in Accounting Principle as Required by SFAS 128 Paragraph 40(a) 27.01 Financial Data Schedule (b) Reports on Form 8-K. On May 18, 2000 the Company filed Form 8-K dated December 8, 1999, regarding amendments to the February 2, 1996 Bollgard Gene License and Seed Services Agreement and the February 2, 1996 Roundup Ready Gene License and Seed Services Agreement among D&PL, D&M Partners and Monsanto Company and the February 2, 1996 Option Agreement between D&PL and Monsanto and the February 2, 1996 Hartz Cotton Acquisition Agreement among Monsanto, Hartz Cotton Inc., D&PL and Paymaster Technology Corp. (a wholly owned subsidiary of D&PL). 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: July 14, 2000 /s/ Roger D. Malkin ------------------- Roger D. Malkin, Chairman and Chief Executive Officer Date: July 14, 2000 /s/ W. Thomas Jagodinski ------------------------ W. Thomas Jagodinski, Vice President - Finance and Treasurer Exhibit 11.01 RECONCILIATION OF THE BASIC AND DILUTED PER SHARE COMPUTATIONS FOR INCOME BEFORE THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE AS REQUIRED BY SFAS 128 PARAGRAPH 40(a)
For the Three Months Ended May 31, -------------------------------------------------------------------------------------- 1999 2000 ----------------------------------- ---------------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Income before cumulative effect of accounting change $ 20,748 $ 34,888 Less: Preferred Stock Dividends (24) (32) -------- -------- Basic EPS: Income available to common stockholders 20,724 38,454 $ 0.54 34,856 38,319 $ 0.91 ------ ========= ------ ========= Effect of Dilutive Securities: Common Stock Equivalents 1,497 459 Convertible Preferred Stock 24 1,067 32 1,067 -------- ------ -------- ------ 2,564 1,526 ------ ------ Diluted EPS: Income available to common stockholders plus assumed conversions 20,748 41,018 $ 0.51 34,888 39,845 $ 0.88 ====== ====== ========= ====== ====== ========= For the Nine Months Ended May 31, -------------------------------------------------------------------------------------- 1999 2000 ----------------------------------- ---------------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Income before cumulative effect of accounting change $ 16,716 $ 86,972 Less: Preferred Stock Dividends (72) (96) -------- -------- Basic EPS: Income available to common stockholders 16,644 38,415 $ 0.43 86,876 38,541 $ 2.25 ------ ========= ------ ========= Effect of Dilutive Securities: Common Stock Equivalents 1,595 549 Convertible Preferred Stock 72 1,067 96 1,067 -------- ------ -------- ------ 2,662 1,616 ------ ------ Diluted EPS: Income available to common stockholders plus assumed conversions 16,716 41,077 $ 0.41 86,972 40,157 $ 2.16 ====== ====== ========= ====== ====== =========