-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILUl+RRIIIr/tCx7R7MYwYSSDdHYI5syVw6mLMH7r0aXx0+sbCHrlSrPR/BWRWqD iGY/uRxse5HO+kaHX4SHEA== /in/edgar/work/0000928585-00-000061/0000928585-00-000061.txt : 20001130 0000928585-00-000061.hdr.sgml : 20001130 ACCESSION NUMBER: 0000928585-00-000061 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA & PINE LAND CO CENTRAL INDEX KEY: 0000902277 STANDARD INDUSTRIAL CLASSIFICATION: [0100 ] IRS NUMBER: 621040440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14136 FILM NUMBER: 779983 BUSINESS ADDRESS: STREET 1: ONE COTTON ROW CITY: SCOTT STATE: MI ZIP: 38772 BUSINESS PHONE: 6017423351 MAIL ADDRESS: STREET 1: ONE COTTON ROW CITY: SCOTT STATE: MS ZIP: 38772 10-K 1 0001.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended August 31, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 000-21788 DELTA AND PINE LAND COMPANY (Exact name of registrant as specified in its charter) Delaware 62-1040440 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) One Cotton Row, Scott, Mississippi 38772 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (662) 742-4000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- ------------------- Common Stock, $0.10 par value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on October 31, 2000 as reported on the New York Stock Exchange, was approximately $534,298,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of October 31, 2000, Registrant had outstanding 38,391,681 shares of Common Stock. Documents Incorporated by Reference Portions of the Proxy Statement for the December 29, 2000 Annual Meeting of Shareholders are incorporated by reference into Part III. PART I ITEM 1. 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. In 2000, the majority of international sales came from joint ventures and export sales, (primarily China, Australia, Greece, and South Africa). 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, 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. 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, 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. Commercial sales of D&PL cotton varieties containing the Bollgard gene technology began in 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. ("MDM"), produces, conditions and sells acid-delinted D&PL varieties of cotton planting seed. MDM produced and delinted enough cottonseed of conventional varieties in 1999 to plant up to 900,000 acres. In 2000, the Company began selling D&PL conventional cotton varieties and first year sales accounted for more than 20% of cotton acreage planted in Brazil. The newly formed company will introduce transgenic cottonseed varieties containing both Bollgard and Roundup Ready gene technologies in the Brazilian market as soon as government approvals are obtained. Subsidiaries The Company's operations 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 Canas, Costa Rica and has completed construction of 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 rapid market development more difficult. Employees As of October 31, 2000, the Company employed a total of 583 full time employees worldwide excluding an estimated 86 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 1,066,667 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 had been set to expire on January 1, 2001 but has been updated to expire January 1, 2002, 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 (90%) and Monsanto (10%), 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. 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. Pursuant to the collaborative biotechnology licensing agreements executed in 1996 and amended in December 1999, 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. 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 1999 and 2000, 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 had for sale 107 varieties as cotton planting seed for either commercial or experimental purposes. Of those varieties, 16 contain the Bollgard gene technology, 20 contain the Roundup Ready gene technology, 21 contain both gene technologies, and 50 are 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 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. The licensing fee charged to farmers is based on pre-established planting rates for seven geographic regions in 1998 and eight such regions in 1999 and 2000, and considers 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. 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. 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. 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 D&PL successfully completed its year 2000 readiness work and passed through the January 1, 2000 rollover event 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. 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 in "Risks and Uncertainties" in Item 7. ITEM 2. PROPERTIES D&PL maintains facilities primarily used for research, delinting, conditioning, storage and distribution. The Company's headquarters is located in Scott, Mississippi. This location is used for corporate offices, quality assurance, research and development, sales and marketing, seed production, and cotton planting seed delinting, conditioning and storage. The Company's other owned cottonseed delinting, conditioning and storage facilities are in: Chandler, Arizona (on leased land); Eloy, Arizona; Hollandale, Mississippi; Tunica, Mississippi; Aiken, Texas and Lubbock, Texas. The Company owns a soybean processing plant in Harrisburg, Arkansas. The Company also owns cottonseed delinting facilities in Narromine, New South Wales, Australia; Groblersdal, South Africa; Canas, Costa Rica; Shijiazhuang, Hebei, China (through a Chinese joint venture); and Saenz Pena, Chaco, Argentina (through an Argentine joint venture). The Company's plant breeders conduct research at eight facilities in the United States, four of which are owned by the Company and four of which are leased. The Company also leases research facilities in Australia, Brazil, and Greece. In connection with its foundation seed program, the Company leases land in the United States, Argentina, Costa Rica and South Africa. All owned properties are free of encumbrances. Management believes that all of D&PL's facilities, including its conditioning, storage and research facilities, are well maintained and generally adequate to meet its needs for the foreseeable future. (See "Liquidity and Capital Resources" in Item 7).
PRINCIPAL COMPANY LOCATIONS, AFFILIATES AND SUBSIDIARIES: World Headquarters Operations Facilities - ------------------ --------------------- Scott, Mississippi, USA Scott, Mississippi, USA Hollandale, Mississippi, USA Research Centers Tunica, Mississippi, USA - ---------------- Chandler, Arizona, USA Scott, Mississippi, USA Eloy, Arizona, USA Leland, Mississippi, USA Harrisburg, Arkansas, USA Maricopa, Arizona, USA Aiken, Texas, USA Sylvester, Georgia, USA Lubbock, Texas, USA Hartsville, South Carolina, USA Catamarca, Argentina Hale Center, Texas, USA Saenz Pena, Chaco, Argentina Haskell, Texas, USA Narromine, New South Wales, Australia Lubbock, Texas, USA Uberlandia, Minas Gerais, Brazil Goondiwindi, Queensland, Australia Canas, Costa Rica Capinopolis, Minas Gerais, Brazil Hefei City, Anhui, People's Republic of China Rondonopolis, Mato Grasso, Brazil Shijiazhuang, Hebei, People's Republic of China Larissa, Greece Groblersdal, South Africa Adana, Turkey Foreign Offices --------------- Narrabri, New South Wales, Australia Beijing, People's Republic of China Thessaloniki, Greece Mexicali, Mexico Mexico City, Mexico Zoetermeer, The Netherlands Seville, Spain Izmir, Turkey Soke, Turkey Urfa, Turkey
ITEM 3. LEGAL PROCEEDINGS The Company and Monsanto are named as defendants in four pending lawsuits filed in the State of Texas. 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. These lawsuits were removed to the United States District Court, Lubbock Division, but subsequently were 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 did not perform as the farmers had anticipated or as allegedly represented to them. This litigation is 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 to determine the cause or causes of the alleged problems and they appear to be totally caused by environmental factors. The Company and Monsanto were also named as defendants in one additional lawsuit filed in the State of Texas. That lawsuit was filed in the 106th Judicial District Court of Gaines County, Texas, on April 27, 2000. In this case the plaintiff alleges, among other things, that certain cottonseed acquired from D&PL that contained the Roundup Ready(R) gene did not perform as the farmer had anticipated. The Company and Monsanto are investigating the claim to determine the cause or causes of the alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between D&PL and Monsanto, D&PL has tendered the defense of this claim 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(R) glyphosate tolerance gene. D&PL will not have a right of indemnification from Monsanto, however, for any claim involving defective varietal characteristics separate from or in addition to the herbicide tolerance gene and such claims are contained in this litigation. The Company and Monsanto are named as defendants, along with local seed or technology distributors in sixteen lawsuits filed in Alabama. Four were filed in Autauga County, three on March 23, 2000 and one on March 27, 2000; three were filed in Barbour County, two on October 19, 2000, and one on November 7, 2000; three were filed in Chilton County on March 22, 2000; one was filed in Dallas County on March 22, 2000; one was filed in Elmore County on March 22, 2000; one was filed in Escambia County on April 5, 2000; two were filed in Lowndes County, one on March 14 and one on March 22, 2000; and one was filed in Wilcox County on March 22, 2000. These lawsuits, with the exception of the Escambia and Barbour County cases, were removed to the United States District Court for the Middle District of Alabama, but subsequently remanded back to the state court in which they were filed. In each case the plaintiff alleges, among other things, that certain cottonseed acquired from D&PL, which contained either the Roundup Ready(R) gene, the Bollgard(R) gene or both of such genes, did not perform as the farmers had anticipated or as allegedly represented to them. These lawsuits also include varietal claims based solely at the Company. Twelve of these lawsuits were earlier filed as seed arbitration claims with the Alabama Department of Agriculture. Eleven were dismissed for lack of jurisdiction by that entity, the case in Escambia County was heard and the Company was exonerated from liability. The Company and Monsanto have investigated the claims, and are continuing to investigate the claims, to determine the cause or causes of the alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between D&PL and Monsanto and the Bollgard(R) Gene Licensing Agreement between D&PL and Monsanto, D&PL has a right to be contractually indemnified against all claims arising out of the failure of Monsanto's gene technology. D&PL will not have a right to indemnification, however, from Monsanto for any claim involving varietal characteristics separate from or in addition to the failure of the Monsanto technology and such claims are contained in each of these lawsuits. The Company and Monsanto and various retail seed suppliers were named in three pending lawsuits in the State of South Carolina. One lawsuit was filed November 15, 1999, in the Beaufort Division of the United States District Court, District of South Carolina; both other cases were filed on November 15, 1999, in the Court of Common Pleas of Hampton County, South Carolina. The two state court lawsuits were removed to the United States District Court for the District of South Carolina but were subsequently remanded back to the state court in which they were filed. In each of these cases the plaintiff alleges, among other things, that certain seed acquired from D&PL which contained the Roundup Ready(R) gene and/or the Bollgard(R) gene did not perform as the farmer had anticipated. These lawsuits also include varietal claims aimed solely at the Company. Two of these cases, one filed in Hampton County and the other filed in the United States District Court seek class action treatment for all purchasers of certain D&PL varieties which contain the Monsanto technology. The Company and Monsanto are continuing to investigate the claims to determine the cause or causes of the alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between D&PL and Monsanto and the Bollgard(R) Gene Licensing Agreement between D&PL and Monsanto, D&PL has a right to be contractually indemnified against all claims arising out of the failure of Monsanto's gene technology. D&PL will not have a right to indemnification, however, from Monsanto for any claim involving varietal characteristics separate from or in addition to the failure of the Monsanto technology and such claims are contained in each of these lawsuits. On July 18, 2000, the Company and Monsanto were named in a lawsuit filed in the United States District Court for the Eastern District of Arkansas. This lawsuit alleges that certain cottonseed varieties containing the Roundup Ready(R) gene did not perform as promised and that the farmer suffered damages as a result of a lack of tolerance of his growing cotton crop to applications of Roundup herbicide. This case was the subject of an earlier claim filed before the Seed Arbitration Council of the Arkansas Department of Agriculture which was dismissed. The Company and Monsanto are investigating these claims to determine the cause or causes of the alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between D&PL and Monsanto, D&PL has tendered the defense of this claim 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(R) Ready gene. D&PL 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 was named in five lawsuits filed in the State of Mississippi. Three lawsuits were filed in the Circuit Court of Coahoma County on September 19, 2000; one lawsuit was filed in Circuit Court of Leflore County on September 25, 2000; and one lawsuit was filed in the Circuit Court of Coahoma County on October 26, 2000. These lawsuits allege that certain cottonseed sold by the Company was defective and that as a result of the defect the farmers suffered lower than expected yields. The Company is presently investigating these claims to determine the cause or causes of the alleged problems. 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 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. In December 1999, Mycogen filed a suit in the Federal Court of Australia alleging that Monsanto Australia Ltd., Monsanto's wholly-owned Australian subsidiary, and Deltapine Australia Pty. Ltd., D&PL's wholly-owned Australian subsidiary, have been infringing two of Mycogen's Australian patents by making, selling, and licensing cotton planting seed expressing insect resistance. The suit seeks injunction against continued sale of seed containing Monsanto's Ingard(R) gene and recovery of an unspecified amount of damages. The litigation is currently in discovery. Consistent with its commitments, Monsanto has agreed to defend D&PL in this suit and to indemnify D&PL against damages, if any are awarded. Monsanto is providing separate defense counsel for D&PL. D&PL is assisting Monsanto to the extent reasonably necessary. 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 $678,000 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, Bios Agrosystems S.A. ("Bios"), a former distributor of SureGrow brand cotton seed in Greece, brought suit in the U.S. District Court in Delaware against D&PL International Technology, D&PL's subsidiary, to enjoin the termination of its distributorship which was to become effective at the end of November 1999. The suit demanded a declaratory judgment that the termination is not effective and compensatory and punitive damages for wrongful termination. Bios also filed a request for arbitration and a parallel suit seeking injunctive relief in a Greek court. In January 2000, the U. S. District Court denied the request for an injunction to prevent termination of Bios' distributorship and subsequently enjoined Bios from proceeding with parallel litigation in the Greek courts. Bios has appealed to the United States Court of Appeals for the Third Circuit, where the appeal remains pending. D&PL believes this litigation will be resolved without material effect on D&PL's combined financial condition and without interference with the distribution of SureGrow brand cotton seed in Greece. On July 18, 1996, the United States Department of Justice, Antitrust Division ("USDOJ"), served a Civil Investigative Demand ("CID") on D&PL seeking information and documents in connection with its investigation of the acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed, Inc. (which own the outstanding common stock of Sure Grow Seed, Inc.). The CID states that the USDOJ is investigating whether these transactions may have violated the provisions of Section 7 of the Clayton Act, 15 USC ss.18. D&PL has responded to the CID, employees were examined in 1997 by the USDOJ, and D&PL is committed to full cooperation with the USDOJ. D&PL believes that it has demonstrated to the USDOJ that this acquisition did not constitute a violation of the Clayton Act or any other anti-trust law. At the present time, the ultimate outcome of this investigation cannot be predicted. On August 9, 1999, D&PL and Monsanto received Civil Investigative Demands from the USDOJ, seeking to determine whether there had been any inappropriate exchanges of information between Monsanto and D&PL or if any acquisitions are likely to have substantially lessened competition in the sale or development of cottonseed or cottonseed genetic traits. In September 1999, D&PL complied with the USDOJ's request for information and documents in the 1999 CID. The USDOJ has taken no further action directed toward D&PL in connection with the 1999 CID. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the vote of security holders during the fourth quarter of 2000. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's stock trades on the New York Stock Exchange (the "NYSE") under the trading symbol DLP. The range of closing prices for these shares for the last two fiscal years, as reported by the NYSE, was as follows:
Common Stock Data 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr - ----------------- ----------- ----------- ------------ ----------- 1999 Market Price Range - Low $25.62 $29.31 $28.38 $26.75 - High 48.69 38.31 37.75 32.00 2000 Market Price Range - Low $22.38 $14.87 $17.45 $21.35 - High 32.69 24.39 23.37 28.59
Annual dividends of $0.12 per share were paid in 1999 and 2000. It is anticipated that quarterly dividends of $0.03 per share will continue to be paid in the future; however, the Board of Directors reviews this policy quarterly. Aggregate dividends paid in 2000 were $4.6 million and should approximate $5.0 million in 2000. On October 31, 2000, there were approximately 7,000 shareholders of the Company's 38,391,681 outstanding shares. ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS (In thousands, except per share amounts) AS of and for YEAR ENDED AUGUST 31, - ---------------------------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 ----------- ------------ ----------- ----------- ------------ Operating Results: Net sales and licensing fees $153,271 $183,249 $192,339 $260,465 $301,181 Special charges and unusual income item (1) (1,418) (20,700) (22,662) (29,884) 71,233 Net income applicable to common shares 15,237 6,850 1,783 7,477 79,198 Balance Sheet Summary: Current assets $111,940 $145,449 $174,502 $217,543 $313,701 Current liabilities 75,966 112,524 116,136 174,947 215,315 Working capital 35,974 32,925 58,366 45,503 98,386 Total assets 179,660 220,656 251,791 295,758 390,134 Long-term debt 31,465 30,572 47,070 17,000 2,482 Stockholders' equity 69,341 72,531 80,651 89,404 159,628 Per Share Data: Net income applicable to common shares - Basic $0.41 $0.18 $0.05 $0.19 $2.06 Book value 1.86 1.93 2.12 2.33 4.15 Cash dividends per common share 0.062 0.078 0.12 0.12 0.12 Weighted average number of shares used in per share calculations - Basic 37,292 37,579 38,011 38,438 38,496 - ---------------------------------------------------------------------------------------------------------------------
(1) In 1997, the Company announced a production and cost optimization program which resulted in the Company taking a special charge of $19.0 million along with $1.7 million for nonrecurring charges related to acquisitions. In 1998, the Company reported (a) a $17.5 million special charge for inventory write-offs due to a reduction in cotton acreage in 1998, the realignment of the Company's product line to seed with new technologies and the recall of certain products and (b) $5.1 million in costs associated with the Company's evaluation of various strategic alternatives and the Monsanto merger. In 1999, the Company reported (a) special charges for inventory write-offs of $15.2 million resulting from the Company's decision to purchase additional seed in 1999 to ensure that ample seed of both transgenic and conventional varieties were available and due to less than expected soybean sales, (b) special charges of approximately $9.0 million related to the failed acquisition by Monsanto (c) nonrecurring charges for severance pay and relocation expenses of $2.0 million related to a reorganization of the sales and marketing and technical services divisions and (d) the loss on the disposal of fixed assets and other nonrecurring charges of $3.7 million. In 2000, the Company reported the $81 million merger termination fee, net of related expenses as an unusual income item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Increased sales of the Company's transgenic cotton varieties containing the Bollgard and Roundup Ready gene technologies, or both, to 89% of total domestic unit sales coupled with increased sales in Australia and Greece are the major reasons that D&PL reported record sales of $301.2 million up from $260.5 million in 1999. The Company sold, in the U.S., sufficient quantities of seed containing the Bollgard and/or Roundup Ready gene technologies to plant approximately 7.4 million acres in 2000 versus approximately 6.7 million acres planted in 1999. Domestic upland cotton acreage planted increased to 15.4 million acres in 2000 from 14.2 million acres in 1999 even though cotton prices were at recent record lows. Since the prices of crops that compete for the cotton acreage in D&PL's primary territory (corn and soybeans) were relatively even lower, cotton acreage was favorably affected. 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. 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 as "SPECIAL CHARGES AND UNUSUAL INCOME ITEM, net" in the accompanying Consolidated Statements of income. In July 1999, the Company announced the consolidation of the three divisional sales and marketing staffs and three divisional technical services staffs into one corporate wide sales and marketing team and one corporate wide technical services team that will serve the three brands (Deltapine, SureGrow, and Paymaster). Approximately forty salaried positions were eliminated which generated severance pay and relocation costs of approximately $2 million which were recorded as special charges. Actual savings approximated $4 million in fiscal 2000. The three divisional research programs were combined into a single company-wide program, and two new research facilities were launched in the Company's effort to invest its resources where it believes it has the best opportunity for developing new products for commercial introduction. Net Sales and Licensing Fees In 2000, D&PL's consolidated net sales and licensing fees increased 15.6% to $301.2 million from 1999 sales of $260.5 million. The increase is primarily the result of (a) increased sales of upland picker cottonseed varieties that contain either or both of the Bollgard and Roundup Ready gene technologies, (b) increased sales of Roundup Ready soybeans and (c) increased sales reported by the Australian subsidiary, joint ventures in China and Brazil and the successful sales efforts of a new distributor in Greece. In 2000, domestic transgenic cottonseed sales comprised approximately 89% of total domestic unit sales of cottonseed, compared to approximately 80% in 1999. Roundup Ready soybean units comprised approximately 80% of total units sold in 2000 compared to 64% in 1999. International sales increased to $31.0 million in 2000 from $26.5 million in 1999 due to sales increases in Australia and Greece. The effects of these increases were partially offset by a decline in export sales in certain smaller markets. In 1999, D&PL's consolidated net sales and licensing fees increased 35.5% to $260.5 million from 1998 sales of $192.3 million. The increase is primarily the result of (a) increased sales cottonseed varieties that contain either or both of the Bollgard and Roundup Ready gene technologies, (b) increased sales of Roundup Ready soybeans and (c) record sales reported by the Australian subsidiary and the joint ventures in China. In 1999, transgenic cottonseed sales comprised approximately 80% of total domestic unit sales of cottonseed, compared to approximately 65% in 1998. Roundup Ready soybean units comprised approximately 64% of total units sold in 1999 compared to 44% in 1998. International sales increased to $26.5 million in 1999 from $21.7 million in 1998 due to sales increases in Australia and China which resulted in both entities reporting profits in 1999. The effects of these increases were partially offset by a decline in export sales to Mexico which was caused by a reduction in planted cotton acreage due to inclement weather and lower commodity prices. Gross Profit D&PL's consolidated gross profit increased to $99.4 million in 2000 compared to $75.2 million in 1999. This is primarily attributable to the increased penetration of transgenic cottonseed varieties in the U.S., increased sales in the Company's international segment as discussed above and the absence of special charges in 2000 compared to special charges of $15.2 million which were recorded in 1999 and are discussed below. D&PL's consolidated gross profit after special cotton and soybean seed inventory write-offs of $15.2 million was $75.2 million in 1999 compared to $53.6 million in 1998. Special pre-tax charges of $15.2 million were recorded in 1999 that relate to the write-off of excess cottonseed and soybean seed. The cottonseed was purchased to ensure that D&PL had ample supplies of both conventional and transgenic cottonseed varieties since management was uncertain of the ultimate sales mix for the 1999 season. Commodity prices of corn, cotton and soybeans, and their impact on farmer planting decisions, the increased flexibility of planting decisions by farmers afforded by the Freedom to Farm Act, coupled with wide scale availability in 1999 of cottonseed of varieties that contained both the Bollgard and Roundup Ready genes (which were available only in limited quantities and varieties in 1998) as well as the introduction of new varieties, made forecasting with any degree of certainty difficult. The Company wanted to be prepared to meet farmer demand and purchased additional seed in 1999 to ensure it had adequate supplies of both conventional and transgenic varieties. Soybean seed sales were one-third less than planned for, and the resultant excess inventory (approximately $4 million) was written off at year end. The product lines of both cotton and soybeans continue to realign to those varieties with transgenic traits. Gross margin (expressed as a percentage of sales) before special inventory charges was 35% in 1999 compared to 36% in 1998. The decline is attributable to increased sales of transgenic cottonseed varieties which carry a lower gross margin compared to conventional varieties since the Company's gross margin on technology fees approximates 30%. Operating Expenses Operating expenses before special charges decreased to $46.0 million in 2000 from $46.4 million in 1999. This decrease is primarily due savings which resulted from the 1999 reorganization of the Company's sales and marketing and technical service staffs which were partially offset by higher research and general and administrative costs. Recurring operating expenses are expected to increase somewhat in 2001 over 2000 levels. In 1999, special charges related to severance pay and benefits of $2.0 million resulting from the elimination of the divisional sales and marketing and divisional technical services staffs, and costs associated with the ultimately terminated merger with Monsanto which approximated $9.0 million, were included as operating expenses. These charges are in addition to the inventory write-offs noted earlier which are recorded as cost of sales. Research and Development Expenses Research and development expenses did not change materially in 2000 from 1999 levels since savings achieved by the 1999 consolidation were offset by the cost of new research programs. The Company expects recurring research and development costs in 2001 to remain consistent with 2000 levels. Research and development expenses increased 12.3% to $18.7 million in 1999 from $16.7 million in 1998. The increase was primarily attributable to increased transgenic seed development activities, additional variety trials and seed testing and increased cotton research activities in Argentina, Australia, Brazil, China, Greece, and Spain. Selling Expenses Selling expenses decreased 11.6% to $14.2 million in 2000 from $16.1 million in 1999. The decrease is primarily attributable to the Company's 1999 reorganization of the sales and marketing staff and the related synergies for the Company's advertising and promotional efforts. Selling expenses increased 7.0% to $16.1 million in 1999 from $15.0 million in 1998. The increase is related to higher fees paid the California Department of Food and Agriculture on seed sales made in California, sales and marketing activities by the Company's joint ventures in Argentina and Brazil, increased advertising, and the costs associated with an incentive program designed to promote the sale of transgenic seed. General and Administrative Expenses General and administrative expenses increased 12.7% to $13.1 million in 2000 from $11.6 million in 1999. The increase primarily consists of expenses related to expansion of the Company's operations in Argentina and Brazil, an increase in insurance costs and higher legal fees associated with the litigation discussed in Item 3 and non -U.S. patents, trademark and variety registrations. General and administrative expenses increased 10.7% to $11.6 million in 1999 from $10.5 million in 1998. The increase relates to expenses related to operations in Argentina and Brazil and higher legal fees associated with non- U.S. patents, trademark and variety registrations. Special Charges and Unusual Charges Related to Acquisitions In fiscal 2000, the Company reported, as an unusual income item, the $81 million merger termination fee, net of related expenses, which was paid by Monsanto to D&PL pursuant to the terms of the May 8, 1998, merger agreement. In 1999, the Company incurred approximately $9.0 million in costs related to the planned merger with Monsanto. Such costs are primarily legal and professional fees and reserves established for losses on the planned disposition of certain assets. The Company also paid severance and related benefits of approximately $2.0 million to approximately forty employees who were terminated in August, 1999 in connection with the reorganization of the sales and marketing and technical services departments. In connection with the evaluation and pursuit of various strategic alternatives and ultimately the planned merger with Monsanto, the Company incurred, in 1998, approximately $5.1 million associated with legal, investment banker and other professional fees. Interest Income/Expense The Company reported net interest income of $0.9 million in 2000 compared to net interest expense of $3.5 million in 1999 due to lower average borrowings resulting from an increase of cash generated by operating activities and interest earned on the $81 million merger termination fee collected from Monsanto. Interest expense, net of interest income, increased 8.1% to $3.5 million in 1999 from $3.2 million in 1998 which was attributable to higher bank fees and lower capitalized interest. Net Income and Earnings Per Share Net income applicable to common shares increased to $79.3 million in 2000 from $7.5 million in 1999 and $1.8 million in 1998. Net income per share (diluted) after special and nonrecurring charges was $1.98, $0.18 and $0.04 in 2000, 1999, and 1998, respectively. Net income per share (diluted) before special and nonrecurring charges was $0.90, $0.66, and $0.37 in 2000, 1999, and 1998, respectively. The number of shares deemed outstanding was 40.2 million, 41.0 million, and 40.8 million in 2000, 1999 and 1998, respectively. 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 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 August 31, 2000, the Company had $55.0 million available for borrowing under the base commitment. 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 coverage 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 August 31, 1999 the Company's ratio of total liabilities to tangible net worth exceeded the permitted ratio, at which time the financial institutions waived compliance with this covenant. At August 31, 2000, the Company was in compliance with those covenants. See Note 4 of the Notes to Consolidated Financial Statements in Item 8. Capital expenditures were $7.1 million, $8.1 million, and $10.2 million in fiscal 2000, 1999 and 1998, respectively. The Company anticipates that domestic capital expenditures will approximate $8.0 million in 2001. Capital expenditures in 2001 for international ventures are expected to approximate $1 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 2001 working capital needs. RISKS AND UNCERTAINTIES From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, existing products, technical developments, new products, research and development activities, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include those noted elsewhere in this Item and filing 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 ("GMOs") or products made from plants that contain GMOs may have an effect on the Company's sales in the future. In 2000, approximately 89% of the Company's cottonseed that was sold contained either the Bollgard, Roundup Ready, or both gene technologies and 80% 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 GMOs could impact demand for crops (and ultimately seed) 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. IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for the derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. 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, although earlier adoption is encouraged and retroactive application is prohibited. Therefore, D&PL must adopt the statement no later than September 1, 2000. Management has determined the adoption of this statement will not have a material impact on D&PL's results of operations, financial position or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin No. 101; Revenue Recognition in Financial Statements ("SAB101"). SAB101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. In June 2000, the SEC issued an amendment to SAB101 which allows registrants to wait until the fourth quarter of their first fiscal year beginning after December 15, 1999 to implement SAB101. Therefore, D&PL must adopt the requirements of SAB101 no later than June 1, 2001. Management has determined that the adoption of SAB101 will not have a material impact on the Company's financial statements. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants released SOP 98-5 requiring that start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 31, 1998. Effective September 1, 1999, the Company adopted the requirements of SOP 98-5 which resulted in a write-off of approximately $2,965,000, net of income tax benefits of $1,817,000 to retroactively apply the new method. This adjustment was recorded in the results of operations in the first fiscal quarter of 2000. PART II ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Financial Statements Page(s) The following consolidated financial statements of Delta and Pine Land Company and subsidiaries are submitted in response to Part II, Item 8: Report of Independent Public Accountants................................23 Consolidated Statements of Income - for each of the three years in the period ended August 31, 2000........................................25 Consolidated Balance Sheets - August 31, 1999 and 2000..................26 Consolidated Statements of Cash Flows - for each of the three years in the period ended August 31, 2000..................................27 Consolidated Statements of Stockholders' Equity - for each of the three years in the period ended August 31, 2000......................28 Notes to Consolidated Financial Statements..............................29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO DELTA AND PINE LAND COMPANY: We have audited the accompanying consolidated balance sheets of DELTA AND PINE LAND COMPANY (a Delaware corporation) and subsidiaries as of August 31, 1999 and 2000, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended August 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Delta and Pine Land Company and subsidiaries as of August 31, 1999 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2000, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective September 1, 1999, the Company changed its method of accounting for start-up activities. Arthur Andersen LLP Memphis, Tennessee, October 18, 2000. MANAGEMENT'S REPORT: The Company is responsible for preparing the financial statements and related information appearing in this report. Management believes that the financial statements present fairly the Company's financial position, its results of operations and its cash flows in conformity with accounting principles generally accepted in the United States. In preparing its financial statements, the Company is required to include amounts based on estimates and judgments that it believes are reasonable under the circumstances. The Company maintains accounting and other systems designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for and safeguarded. Compliance with these systems and controls is reviewed by executive management and the accounting staff. Limitations exist in any internal control system, recognizing that the system's cost should not exceed the benefits derived. The Board of Directors pursues its responsibility for the Company's financial statements through its Audit Committee, which is composed solely of directors who are not Company officers or employees. The Audit Committee meets at least annually with the independent public accountants and management. The independent public accountants have direct access to the Audit Committee, with and without the presence of management representatives.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share amounts) FOR THE YEARS ENDED AUGUST 31, 1998 1999 2000 ------------ ------------- ------------ NET SALES AND LICENSING FEES $ 192,339 $ 260,465 $ 301,181 COST OF SALES (121,246) (170,127) (201,814) SPECIAL CHARGES (17,527) (15,187) - ------------ ------------- ------------ GROSS PROFIT 53,566 75,151 99,367 ------------ ------------- ------------ OPERATING EXPENSES: Research and development 16,656 18,702 18,685 Selling 15,006 16,054 14,198 General and administrative 10,501 11,624 13,104 ------------ ------------- ------------ 42,163 46,380 45,987 SPECIAL CHARGES AND UNUSUAL INCOME ITEM (5,135) (10,997) 71,233 ------------ ------------- ------------ OPERATING INCOME 6,268 17,774 124,613 INTEREST INCOME (EXPENSE), NET (3,241) (3,502) 852 OTHER INCOME (EXPENSE) 459 (3,747) 67 MINORITY INTEREST IN (EARNINGS) / LOSS OF SUBSIDIARIES (300) 475 909 ------------ ------------- ------------ INCOME BEFORE INCOME TAXES AND CUMMULATIVE EFFECT OF ACCOUNTING CHANGE 3,186 11,000 126,441 PROVISION FOR INCOME TAXES (1,307) (3,427) (44,150) ------------ ------------- ------------ INCOME BEFORE CUMMULATIVE EFFECT OF ACCOUNTING CHANGE 1,879 7,573 82,291 CUMMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR START-UP COSTS, NET - - (2,965) ------------ ------------- ------------ NET INCOME 1,879 7,573 79,326 DIVIDENDS ON PREFERRED STOCK (96) (96) (128) ------------ ------------- ------------ NET INCOME APPLICABLE TO COMMON SHARES $ 1,783 $ 7,477 $ 79,198 ============ ============= ============ BASIC EARNINGS PER SHARE $ 0.05 $ 0.19 $ 2.06 ============ ============= ============ WEIGHTED AVERAGE NUMBER OF SHARES USED IN PER SHARE CALCULATIONS - BASIC 38,011 38,438 38,496 ============ ============= ============ DILUTED EARNINGS PER SHARE $ 0.04 $ 0.18 $ 1.98 ============ ============= ============ WEIGHTED AVERAGE NUMBER OF SHARES USED IN PER SHARE CALCULATIONS - DILUTED 40,839 40,973 40,159 ============ ============= ============
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES Consolidated BALANCE SHEETS AS OF AUGUST 31, (In thousands, except share and per share amounts) 1999 2000 --------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,552 $ 87,467 Receivables, net 147,926 181,305 Inventories 47,727 35,278 Prepaid expenses 1,473 2,231 Deferred income taxes 12,865 7,420 ------------- --------------- Total current assets 217,543 313,701 PROPERTY, PLANT AND EQUIPMENT, NET 65,166 65,044 EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED, net of accumulated amortization of $91 and $686 4,458 4,514 INTANGIBLES, net of accumulated amortization of $650 and $854 4,365 4,250 OTHER ASSETS 4,226 2,625 -------------- -------------- TOTAL ASSETS $ 295,758 $ 390,134 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 3,819 $ 2,000 Accounts payable 19,990 23,441 Accrued expenses 143,056 164,702 Income taxes payable 8,082 25,172 --------------- -------------- Total current liabilities 174,947 215,315 --------------- -------------- LONG-TERM DEBT 17,000 2,482 DEFERRED INCOME TAXES 5,773 4,975 COMMITMENTS AND CONTINGENCIES (Notes 7 and 12) MINORITY INTEREST IN SUBSIDIARIES 8,634 7,734 --------------- -------------- Total noncurrent liabilities 31,407 15,191 --------------- -------------- 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; 456,989 shares authorized; - - no shares issued or outstanding; Series M Convertible Non-Voting Preferred, par value $0.l0 per share; 1,066,667 shares authorized, issued and outstanding 107 107 Common stock, par value $0.10 per share; 100,000,000 shares authorized; 38,664,565 and 38,945,725 shares issued; 38,550,299 and 38,377,759 shares outstanding 3,866 3,895 Capital in excess of par value 41,179 45,096 Retained earnings 48,970 123,552 Accumulated other comprehensive income (2,545) (3,146) Treasury stock at cost 114,266 and 567,966 shares (2,173) (9,876) --------------- -------------- Total stockholders' equity 89,404 159,628 --------------- -------------- Total liabilities and stockholders' equity $ 295,758 $ 390,134 =============== ==============
The accompanying notes are an integral part of these consolidated balance sheets.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, (in thousands) 1998 1999 2000 ---------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,879 $ 7,573 $ 79,326 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,654 6,882 7,114 Noncash items associated with special charges and disposition of 9,865 8,902 203 assets Minority interest in net (loss) income of subsidiaries 300 (475) (909) Change in deferred income taxes (357) (7,704) 4,647 Changes in assets and liabilities: Receivables (9,342) (42,822) (33,379) Inventories (17,476) (4,416) 12,449 Prepaid expenses 973 (279) (758) Accounts payable 3,718 (3,320) 3,451 Accrued expenses 846 51,465 21,646 Income taxes (782) 17,028 18,763 Intangibles and other assets 157 (2,769) 1,438 ---------- ----------- ---------- Net cash provided by (used in) operating activities (3,565) 30,065 113,991 ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (10,242) (8,093) (7,144) Sale of investments and property 1,350 100 171 ---------- ----------- ---------- Net cash used in investing activities (8,892) (7,993) (6,973) ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of short-term debt (35,190) (53,889) (9,487) Payments of long-term debt (7,930) (38,185) (33,000) Dividends paid (4,664) (4,712) (4,744) Proceeds from long-term debt 24,428 9,000 18,482 Proceeds from short-term debt 36,193 56,500 7,668 Minority interest portion of investment in Subsidiaries 1,623 6,459 250 Minority interest in dividends paid by Subsidiaries - (263) (241) Payments to acquire treasury stock - - (7,703) Proceeds from exercise of stock options 6,341 1,974 2,273 ---------- ----------- ---------- Net cash provided by (used in) financing activities 20,801 (23,116) (26,502) ---------- ----------- ---------- EFFECTS OF FOREIGN CURRENCY TRANSLATION (LOSSES) GAINS (2,172) 534 (601) ---------- ----------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,172 (510) 79,915 CASH AND CASH EQUIVALENTS, beginning of year 1,890 8,062 7,552 ---------- ----------- ---------- CASH AND CASH EQUIVALENTS, end of year $ 8,062 $ 7,552 $ 87,467 ========== =========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest, net of capitalized interest $ 3,500 $ 3,600 $ 1,100 Income taxes $ 2,600 $ 600 $ 18,200 Noncash financing activities: Tax benefit of stock option exercises $ 6,700 $ 3,400 $ 1,700
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED AUGUST 31, 1998, 1999 AND 2000 (In thousands, except per share data) Accumulated Capital in Other Total Preferred Common Excess of Retained Comprehensive Treasury Stockholders' Stock Stock Par Value Earnings Income/(Loss) Stock Equity ----- ----- --------- -------- ------------- ----- ------ Balance at August 31, 1997 $ 107 $ 3,772 $ 22,838 $ 48,894 $ (907) $ (2,173) $ 72,531 Net income - - - 1,879 - - 1,879 Foreign currency translation adjustment - - - - (2,172) - (2,172) --------- Total comprehensive (loss) (293) Exercise of stock options and tax benefit of stock option exercises - 75 13,002 - - - 13,077 Cash dividends, $0.12 per share - - - (4,664) - - (4,664) -------- --------- --------- --------- -------- --------- --------- Balance at August 31, 1998 107 3,847 35,840 46,109 (3,079) (2,173) 80,651 Net income - - - 7,573 - - 7,573 Foreign currency translation adjustment - - - - 534 - 534 --------- Total comprehensive income 8,107 Exercise of stock options and tax benefit of stock option exercises - 19 5,339 - - - 5,358 Cash dividends, $0.12 per share - - - (4,712) - - (4,712) -------- --------- --------- --------- -------- --------- --------- Balance at August 31, 1999 107 3,866 41,179 48,970 (2,545) (2,173) 89,404 Net income - - - 79,326 - - 79,326 Foreign currency translation adjustment - - - - (601) - (601) --------- Total comprehensive income 78,725 Exercise of stock options and tax benefit of stock option exercises - 29 3,917 - - - 3,946 Cash dividends, $0.12 per share - - - (4,744) - - (4,744) Purchase of common stock - - - - - (7,703) (7,703) -------- --------- --------- --------- -------- --------- --------- Balance at August 31, 2000 $ 107 $ 3,895 $ 45,096 $ 123,552 $ (3,146) $ (9,876) $ 159,628 ======== ========= ========= ========= ========= ========= ==========
The accompanying notes are an integral part of these consolidated statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Delta and Pine Land Company and subsidiaries (the "Company" or "D&PL") breed, produce, condition and market cotton and soybean planting seed. In connection with its seed operations, the Company farms approximately 2,600 acres, largely for the production of cotton and soybean foundation seed. The Company has annual agreements with various growers to produce seed for cotton and soybeans. The growers plant seed purchased from the Company and follow quality assurance procedures required for seed production. If the grower adheres to established Company quality assurance standards throughout the growing season and if the seed meets Company quality standards upon harvest, the Company may be obligated to purchase specified minimum quantities of seed at prices equal to the commodity market price of the seed, plus a grower premium. The Company then conditions the seed for sale as planting seed. Basis of Presentation The accompanying financial statements include the accounts of Delta and Pine Land Company and its subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation. Special Charges On May 8, 1998, Delta and Pine Land Company ("DPLC") entered into a Merger Agreement with Monsanto Company ("Monsanto"), pursuant to which DPLC 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. 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 as "SPECIAL CHARGES AND UNUSUAL INCOME ITEM, net" in the accompanying Consolidated Statements of Income. In July 1999, D&PL announced a restructuring program aimed to improve operating efficiencies by consolidating the Company's three domestic divisions into one. The Company recorded a $2.0 million charge in its fourth quarter for the severance and related costs associated with this plan, substantially all of which were paid prior to August 31, 1999. This charge is included in "SPECIAL CHARGES AND UNUSUAL INCOME ITEM net" in the accompanying Consolidated Statements of Income as is $9.0 million in cost related to the now foiled merger with Monsanto. In 1999, the Company wrote-off inventory that was deemed to be excess or obsolete. The portion of this inventory write-off deemed to be in excess of normal levels ($15.2 million) is separately presented as a component of cost of sales. Other income and expense includes a $3.7 million loss on the disposition of fixed assets and other nonrecurring charges. In 1998, the Company recorded special and nonrecurring charges of $22.6 million that relate to additional inventory reserves and costs related to evaluation of various strategic alternatives which culminated in the contemplated merger with Monsanto. The level of inventory reserves and write-offs were a result of excess inventory quantities resulting from a 7% reduction in acreage and the further realignment of the Company's product line due to the introduction of new products and changing demand. The costs related to the merger are primarily fees for legal advice, investment bankers and other professionals. At August 31, 2000, all reserves established in 1999, 1998 and prior years have been fully utilized. Cash Equivalents Cash equivalents include overnight repurchase agreements and other short-term investments having an original maturity of less than three months. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization are provided for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Accelerated methods are used for income tax purposes. The estimated useful lives of the various classes of property, in years, are as follows: Land improvements 5-20 Buildings and improvements 10-35 Machinery and equipment 3-15 Germplasm 10-15 Breeder and foundation seed 40 The germplasm, breeder and foundation seed was purchased as part of the Paymaster and Hartz acquisitions and includes amounts for specifically identified varieties and for breeding stocks. The amounts associated with specific varieties are amortized over the expected commercial life of those varieties. Breeding stocks are amortized over 40 years, since they can be revitalized from time to time and remain viable indefinitely after such revitalization. Intangible Assets and Deferred Charges Intangible assets consist of trademarks, patents and other intangible assets and are being amortized using the straight-line method over 5 to 40 years. Excess of cost over net assets of businesses acquired are being amortized using the straight-line method over 40 years. Organization costs for foreign ventures are amortized over five years. Foreign Currency Translation Financial statements of foreign operations where the local currency is the functional currency are translated using exchange rates in effect at period end for assets and liabilities and average exchange rates during the period for results of operations. Financial statements of foreign entities in highly-inflationary economies are translated as though the functional currency is the United States currency. Translation adjustments are reported as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in earnings. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws. Fair Value of Financial Instruments The fair value of the Company's financial instruments at August 31, 2000 approximates their carrying value. Revenue Recognition 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. The licensing fees 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. 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. 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. Research and Development All research and development costs incurred to breed and produce experimental seed are expensed. Costs incurred to produce sufficient quantities of planting seed needed for commercialization are carried as inventory until such seed is sold. Cotton lint and other by-products of seed production are also carried as inventory until sold. Derivative Financial Instruments The Company uses futures and option contracts for its soybean hedging program to effectively fix the cost of a significant portion of its soybeans. These contracts are accounted for on a settlement basis, with the net amounts paid or received under such contracts included in the cost of soybeans. Open futures contracts and the underlying soybean inventory are marked to market. The Company does not typically terminate contracts prior to their expiration. The amount of deferred gains associated with the soybean hedging program at August 31, 2000 was not material. The Company does not speculate in derivatives. Impairment of Assets D&PL assesses recoverability and impairment of intangible assets and other long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. D&PL determines if the unamortized balance can be recovered through projected future operating cash flows. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Otherwise, an impairment loss is not recognized, and D&PL continues to amortize its intangible assets and other assets based on the remaining estimated useful life. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform with the 2000 presentation. Implementation of Financial Accounting Standards SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for the derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. 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, although earlier adoption is encouraged and retroactive application is prohibited. D&PL must adopt this statement no later than September 1, 2000. Management has determined that the adoption of this standard will not have a material impact on D&PL's results of operations, financial position or cash flows. SOP 98-5 "Reporting on the Costs of Start-up 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, net of tax benefits of approximately $1,817,000, to retroactively apply the new method was recorded in the first fiscal quarter of 2000. In December 1999, the SEC issued Staff Accounting Bulletin No. 101; Revenue Recognition in Financial Statements ("SAB101"). SAB101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. In June 2000, the SEC issued an amendment to SAB101 which allows registrants to wait until the fourth quarter of their fist fiscal year beginning after December 15, 1999 to implement SAB101. Therefore, D&PL must adopt the requirements of SAB101 no later than June 1, 2001. Management has determined that the adoption of SAB101 will not have a material impact on the Company's financial statements. 2. INVENTORIES
Inventories at August 31, consisted of the following: 1999 2000 ---------------------- ---------------------- Finished goods $ 43,528,000 $ 28,649,000 Raw materials 15,774,000 11,327,000 Growing crops 1,564,000 1,744,000 Supplies 969,000 1,165,000 ---------------------- ---------------------- 61,835,000 42,885,000 Less reserves ( 14,108,000) (7,607,000) ---------------------- ---------------------- $ 47,727,000 $ 35,278,000 ====================== ======================
Substantially all finished goods and raw material inventory is valued at the lower of average cost or market. Growing crops and supplies are recorded at cost. 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at August 31, consisted of the following: 1999 2000 ----------------------- -------------------- Land and improvements $ 4,113,000 $ 4,046,000 Buildings and improvements 35,251,000 37,759,000 Machinery and equipment 43,291,000 46,239,000 Germplasm 7,500,000 7,500,000 Breeder and foundation seed 2,000,000 2,000,000 Construction in progress 4,789,000 4,444,000 ----------------------- -------------------- 96,944,000 101,988,000 Less accumulated depreciation (31,778,000) (36,944,000) ----------------------- -------------------- $ 65,166,000 $ 65,044,000 ======================= ====================
4. NOTES PAYABLE AND LONG-TERM DEBT The Company has a syndicated credit facility with three financial institutions which provides for aggregate unsecured borrowings of $110 million comprised of 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 August 31, 2000, the Company had $55.0 million available for borrowing under the base commitment. The interest rate charged for each loan is based on LIBOR plus 35 to 55 basis points depending on the achievement of certain financial ratios. The combined average interest rate was 7.26%, 5.6% and 6.07% during 2000, 1999 and 1998, respectively. The financial covenants 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 fiscal quarter ends) (b) maintain a fixed charge coverage 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 as of the last day of each fiscal year, commencing with August 31, 1998. At August 31, 1999, the Company's ratio of total liabilities to tangible net worth exceeded the permitted ratio at which time the Company's lenders waived compliance with this covenant. At August 31, 2000, the Company was in compliance with these covenants. 5. ACCRUED EXPENSES
Accrued expenses at August 31, consisted of the following: 1999 2000 ------------------ ------------------ Bollgard and Roundup Ready royalties and related expenses due Monsanto $ 115,260,000 $128,581,000 Sales returns and allowances 8,627,000 11,285,000 Payroll 2,883,000 4,011,000 Other accrued expenses 16,286,000 20,825,000 ------------------ ------------------ $ 143,056,000 $ 164,702,000 ================== ==================
6. INCOME TAXES
The provisions for income taxes for the years ended August 31, consisted of the following: 1998 1999 2000 --------------- ---------------- ----------------- Current- Federal $970,000 $9,628,000 $43,452,000 State 39,000 858,000 1,647,000 Deferred 298,000 (7,059,000) (949,000) --------------- ---------------- ----------------- $1,307,000 $3,427,000 $44,150,000 =============== ================ =================
The differences between the statutory federal income tax rate and the effective rate are as follows: 1998 1999 2000 ----------- ----------- ------------ Statutory rate 35.0% 35.0% 35.0% Increases (decreases) in tax resulting from: State taxes, net of federal tax benefit 2.2 2.3 0.7 Research and development tax credits (19.3) (8.6) (0.4) Tax effects resulting from non deductible costs and foreign activities 20.3 (1.2) (1.1) Other 2.8 3.7 0.6 ----------- ----------- ------------ Effective rate 41.0% 31.2% 34.8% =========== =========== ============
The components of deferred income taxes at August 31, are as follows: Deferred tax assets: 1999 2000 ---------------- ---------------- Inventory $9,226,000 $3,821,000 Charitable contributions 368,000 481,000 Intangibles 192,000 47,000 Deferred inventory - 413,000 Other 4,083,000 3,290,000 ---------------- ---------------- $13,869,000 $8,052,000 ================ ================ Deferred tax liabilities: Deferred charges $ (908,000) $ - Property (5,228,000) (5,285,000) Other (641,000) (322,000) ---------------- ---------------- (6,777,000) (5,607,000) ---------------- ---------------- Net deferred income taxes $ 7,092,000 $ 2,445,000 ================ ================
To date the Company's foreign subsidiaries and joint ventures either have not generated taxable income, or have been granted tax holidays and, for these reasons, no taxes are provided for foreign operations. 7. LEASES The Company leases real estate and machinery and equipment used in its operations. Substantially all rent expense is recorded as cost of sales. The Company has no capital leases. Future minimum rental payments after 2000 under operating leases with initial or remaining noncancellable terms in excess of one year are as follows: 2001 $ 322,000 2002 $ 205,000 2003 $ 65,000 2004 $ 5,000 2005 $ - Rent and lease expense including land rent approximated $3,354,000, $3,182,000 and $3,101,000 in 2000, 1999 and 1998, respectively. 8. EMPLOYEE BENEFIT PLANS Defined Benefit Plan - - -------------------- Substantially all full-time employees are covered by a noncontributory defined benefit plan (the "Plan"). Benefits are paid to employees, or their beneficiaries, upon retirement, death or disability based on their final average compensation over the highest consecutive five years. Plan assets consist primarily of U.S. government securities and common stock and are managed by an independent portfolio manager. The Company's funding policy is to make contributions to the Plan that are at least equal to the minimum amounts required to be funded in accordance with the provisions of ERISA. Effective January 15, 1992, the Company adopted a Supplemental Executive Retirement Plan (the "SERP"), which will pay supplemental pension benefits to certain employees whose benefits from the Plan were decreased as a result of certain changes made to the Plan. The benefits from the SERP will be paid in addition to any benefits the participants may receive under the Plan and will be paid from Company assets, not Plan assets. The Company has adopted SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." The measurement of Plan and SERP assets and obligations was performed as of June 30. The following table provides a reconciliation of the changes in the Plan's and SERP's benefit obligations and fair value of assets over the two-year period ended August 31, 2000, and a statement of the funded status as of August 31, 1999 and 2000.
Plan SERP ------------------------------------- ---------------------------------- 1999 2000 1999 2000 ---------------- ---------------- --------------- ----------------- CHANGE IN BENEFIT OBLIGATIONS Benefit obligation at beginning of year $ 9,489,000 $ 10,387,000 $ 588,000 $ 643,000 Service cost 481,000 571,000 39,000 6,000 Interest cost 687,000 754,000 43,000 46,000 Actuarial loss 395,000 229,000 10,000 8,000 Benefits paid (665,000) (718,000) (37,000) (61,000) ---------------- ---------------- --------------- ----------------- Benefit obligation at end of year $10,387,000 $ 11,223,000 $ 643,000 $ 642,000 ================ ================ =============== ================= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 9,646,000 $ 11,213,000 $ 500,000 $ 641,000 Actual return on plan assets 1,614,000 1,722,000 98,000 64,000 Company contributions 700,000 - 85,000 - Benefits paid (665,000) (718,000) (36,000) (61,000) Expenses (82,000) (94,000) (6,000) (2,000) ---------------- ---------------- --------------- ----------------- Fair value of plan assets at end of year $ 11,213,000 $ 12,123,000 $ 641,000 $ 642,000 ================ ================ ================ ================= Funded status $ 826,000 $ 900,000 $ (2,000) $ - Unrecognized transition obligation 304,000 184,000 - - Unrecognized prior service cost 53,000 50,000 - - Unrecognized net gain (1,797,000) (2,160,000) (38,000) - ---------------- ---------------- ---------------- ----------------- Accrued pension cost $ (614,000) $(1,026,000) $ (40,000) $ - ================ ================ ================ =================
Periodic Pension Expense: Plan SERP ----------------------------------------------- ---------------------------------------------- 1998 1999 2000 1998 1999 2000 ---------------- ------------- --------------- -------------- --------------- -------------- Service cost $ 444,000 $ 482,000 $ 571,000 $ 47,000 $ 39,000 $ 6,000 Interest cost on projected benefit obligation 584,000 687,000 754,000 38,000 43,000 46,000 Actual return on assets (2,135,000) (1,614,000) (1,722,000) (18,000) (98,000) (64,000) Amortization of transitional obligation 118,000 119,000 120,000 - - - Net unrecognized (gain)/loss and amortization 1,334,000 712,000 690,000 2,000 75,000 (29,000) -------------- ------------- -------------- -------------- --------------- ------------- Net periodic pension expense/(income) 345,000 386,000 $413,000 69,000 59,000 (41,000) ============== ============= ============== ============== =============== ============= Company contributions $ - $ 700,000 $ - $ 275,000 $ 85,000 $ - ================ ============= ============== ============== =============== =============
The actuarial present value of the projected benefit obligation of the Plan and the SERP was determined using a discount rate of 7.5% in 1999 and 2000, with assumed salary increases of 4% in 1999 and 2000 to age 65. The expected long-term rate of return on assets was 9% in 1999 and 2000. Prior service cost is amortized over 15 years. Defined Contribution Plan - - ------------------------- D&PL sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code which covers substantially all full-time employees of the Company. The Company, at its option, may elect to make matching contributions to the Plan. No matching contributions were made in 2000, 1999 or 1998. 9. MAJOR CUSTOMERS In fiscal 1998, 1999, and 2000 seed sales to each of three customers and the related licensing fees ultimately billed to farmers for sales made by these customers for transgenic products comprised more than 10% of total sales and licensing fees. The approximate amount of annual sales including technology fees to each of the customers were as follows: Customer 1998 1999 2000 ------------------ ------------------- ------------------- A $23,800,000 $34,615,000 $34,246,000 B 27,388,000 50,767,000 51,938,000 C 44,054,000 74,710,000 69,951,000 10. BUSINESS SEGMENT INFORMATION 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. D&PL breeds, produces, delints and conditions, and markets proprietary varieties of cotton planting seed in the United States. D&PL also breeds, produces, conditions and distributes soybean planting seed in the United States. The international segment offers similar cottonseed in several foreign countries. The Company develops its proprietary seed products through research and development efforts throughout the United States and certain foreign countries. 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. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Information about the Company's segments for the years ended August 31, is as follows (in thousands):
1998 1999 2000 --------------- ------------------ -------------------- Net sales Domestic $170,569 $ 233,949 $ 270,205 International 21,770 26,516 30,976 --------------- ------------------ -------------------- $192,339 $ 260,465 $ 301,181 =============== ================== ==================== Operating income/(loss) Domestic $ 9,228 $ 19,856 $ 120,305 International (2,960) (2,082) 4,308 --------------- ------------------ -------------------- $ 6,268 $ 17,774 $ 124,613 =============== ================== ==================== Capital expenditures Domestic $ 5,305 $ 3,824 $ 6,805 International 4,937 4,269 339 --------------- ------------------ -------------------- $ 10,242 $ 8,093 $ 7,144 =============== ================== ====================
Information about the financial position of the Company's segments as of August 31, is as follows (in thousands): 1999 2000 ----------------- ---------------- Long-term assets Domestic $ 62,187 $ 62,033 International 16,028 14,400 ----------------- ---------------- $ 78,215 $ 76,433 ================= ================ Total assets Domestic $ 280,063 $ 367,600 International 15,695 22,534 ----------------- ---------------- $ 295,758 $ 390,134 ================= ================ 11. RELATED PARTY TRANSACTIONS A partner of a law firm that represents the Company is also a stockholder and serves as corporate secretary. The Company paid legal fees to that firm of approximately $715,000, $740,000, and $943,000 in 1998, 1999 and 2000, respectively. During 1998, 1999 and 2000 the Institute of Molecular Agrobiology ("IMA"), which is owned by the National University of Singapore and the National Science and Technology Board of Singapore, conducted contract research upon the Company's instruction related to the development of certain technologies for varietal crops such as cotton and soybeans. The Company paid approximately $260,000, $340,000 and 296,000 in 1998, 1999 and 2000, respectively, for such research projects. Dr. Chua, a member of the Board of Directors of the Company, was the Chairman of the Management Board of Directors of IMA until September 2000 when he became vice chairman and is also Chairman of the Board of an affiliate of IMA, IMAGEN. IMAGEN, together with Singapore Bio-Innovations Pte. Ltd., STIC Investments Pte. Ltd., and OCBC Wearnes and Walden Investments Pte. Ltd., own 20% of the stock of D&PL China Pte. Ltd. In 1999, the Company sold at a loss of approximately $1.1 million its site at Centre, Alabama to an entity that is controlled by an officer who is also a shareholder. This shareholder was an officer and shareholder of the Sure Grow Companies at the time of their acquisition by D&PL. 12. COMMITMENTS AND CONTINGENCIES The Company is named as a defendant in various lawsuits that allege, among other things, that certain of the companies products (including Monsanto's technology) did not perform as the farmer had anticipated or expected. In many of these suits, Monsanto and, in some cases, the distribution/dealer who sold the seed were also named. In all cases where the seed sold contained either or both of Monsanto's Bollgard and Roundup Ready gene technologies, D&PL tendered the defense of these cases to Monsanto and requested indemnity. Pursuant to the terms of the February 6, 1996 Bollgard Gene License and Seed Services Agreement (the "Bollgard Agreement") and the February 6, 1996 Roundup Ready Gene License and Seed Services Agreement (the "Roundup Ready Agreement") (both as amended December 8, 1999) D&PL has a right to be contractually indemnified by Monsanto against all claims arising out of the failure of Monsanto's gene technology. Some of the product liability lawsuits contain varietal claims which are aimed solely at the Company. D&PL does not have a right to indemnification; however, from Monsanto for any claims involving varietal characteristics separate from or in addition to the failure of the Monsanto technology. The Company believes that the resolution of these matters will not have a material impact on the consolidated financial statements. The Company intends to vigorously defend itself in these matters. See Part I, Item III for a discussion of each case. 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 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. In December 1999, Mycogen filed a suit in the Federal Court of Australia alleging that Monsanto Australia Ltd., Monsanto's wholly-owned Australian subsidiary, and Deltapine Australia Pty. Ltd., D&PL's wholly-owned Australian subsidiary, have been infringing two of Mycogen's Australian patents by making, selling, and licensing cotton planting seed expressing insect resistance. The suit seeks injunction against continued sale of seed containing Monsanto's Ingard(R) gene and recovery of an unspecified amount of damages. The litigation is currently in discovery. Consistent with its commitments, Monsanto has agreed to defend D&PL in this suit and to indemnify D&PL against damages, if any are awarded. Monsanto is providing separate defense counsel for D&PL. D&PL is assisting Monsanto to the extent reasonably necessary. 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 $678,000 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, Bios Agrosystems S.A. ("Bios"), a former distributor of SureGrow brand cotton seed in Greece, brought suit in the U.S. District Court in Delaware against D&PL International Technology, D&PL's subsidiary, to enjoin the termination of its distributorship which was to become effective at the end of November 1999. The suit demanded a declaratory judgment that the termination is not effective and compensatory and punitive damages for wrongful termination. Bios also filed a request for arbitration and a parallel suit seeking injunctive relief in a Greek court. In January 2000, the U. S. District Court denied the request for an injunction to prevent termination of Bios' distributorship and subsequently enjoined Bios from proceeding with parallel litigation in the Greek courts. Bios has appealed to the United States Court of Appeals for the Third Circuit, where the appeal remains pending. D&PL believes this litigation will be resolved without material effect on D&PL's combined financial condition and without interference with the distribution of SureGrow brand cotton seed in Greece. On July 18, 1996, the United States Department of Justice, Antitrust Division ("USDOJ"), served a Civil Investigative Demand ("CID") on D&PL seeking information and documents in connection with its investigation of the acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed, Inc. (which own the outstanding common stock of Sure Grow Seed, Inc). The CID states that the USDOJ is investigating whether these transactions may have violated the provisions of Section 7 of the Clayton Act, 15 USC 18. D&PL has responded to the CID, employees 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, 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 is complying with the USDOJ's request for information and documents and with the recent Civil Investigative Demand. 13. STOCKHOLDERS' EQUITY Preferred Stock The Board of Directors of D&PL is authorized, subject to certain limitations prescribed by law, without further stockholder approval, to issue up to an aggregate of 2,000,000 shares of Preferred Stock, in one or more series, and to determine or alter the designations, preferences, rights and any qualifications, limitations or restrictions on the shares of each such series thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. In August 1996, the Board of Directors adopted a Stockholder Rights Plan ("Rights Plan") and declared a dividend of one preferred stock purchase right ("right") for each outstanding share of D&PL's Common Stock. Similar rights have been, and generally will be, issued in respect of Common Stock subsequently issued. Each right becomes exercisable, upon the occurrence of certain events, for one one-hundredth of a share of Series A Junior Participating Preferred Stock, $0.10 par value, at a purchase price of $175 per one one-hundredth of a Preferred Share, subject to adjustment. In the event that D&PL is acquired in a merger or other business combination transaction not approved by the Board of Directors, each holder of a right shall have the right to receive that number of shares of common stock of the surviving company which would have a market value of two times the exercise price of the right. The Board of Directors previously approved the Monsanto merger and modified the Rights Plan to deactivate it for such merger. Upon the merger termination, the Board rescinded that deactivation. Under the Rights Plan, 456,989 shares of Series A Junior Participating Preferred Stock have been reserved. The rights currently are not exercisable and will be exercisable only if a person or group acquires beneficial ownership of 15% or more of D&PL's outstanding shares of Common Stock. The rights, which expire on August 30, 2006, are redeemable in whole, but not in part, at D&PL's option at any time for a price of $0.01 per right. D&PL issued 1,066,667 shares (after effect of stock splits) of Series M Convertible Non-voting Preferred Stock, as consideration for the purchase in 1996 of Hartz Cotton, Inc. from Monsanto. The holders of Series M Preferred Stock are entitled to receive dividends at the same rate per share as is paid from time to time on each share of the Common Stock of D&PL, and no more, when and as declared by the Board of Directors. In the event of any liquidation, dissolution or winding up of D&PL, either voluntary or involuntary, the holders of Series M Preferred Stock shall be entitled to receive, prior to and in preference to any distribution to holders of Common Stock or any other class of security of D&PL, $10.452 per share of Series M Preferred Stock. The Series M Preferred Stock is convertible beginning upon the seventh anniversary of the date on which the Series M Preferred Stock was issued or the occurrence of other specified events, whichever occurs first. Stock Option Plans The 1993 Stock Option Plan authorized options to purchase up to 2,560,000 shares of Common Stock at an option price not less than the market price on the date of grant. The 1995 Long-Term Incentive Plan, as amended and restated in March 2000, (the "LTIP") allows for the awarding of stock options to officers, key employees and directors. Under the LTIP, 5,120,000 shares of Common Stock of D&PL were available for grant. Shares subject to options and awards which expire unexercised are available for new option grants and awards. Future members of the Board of Directors receive automatic grants of 62,222 shares upon being named to the Board. On February 27, 1997, stockholders amended this plan to provide additional annual grants of 2,666 shares for each of the next five years (1997 - 2001) to then present directors of the Company. Such options are exercisable ratably over five years commencing after one year from the date of grant.
Stock Options Number of Shares Price Range ----------------------- ----------------------------------- Outstanding at August 31, 1997 3,456,379 $ 4.67 $ 28.90 Granted 722,994 26.82 49.31 Exercised (745,749) 4.67 22.85 Lapsed or canceled (113,157) 4.67 28.90 ----------------------- ----------------- -------------- Outstanding at August 31, 1998 3,320,467 4.67 49.31 Granted 70,996 32.80 37.80 Exercised (194,948) 4.67 26.82 Lapsed or canceled (53,558) 10.69 41.97 ----------------------- ----------------- -------------- Outstanding at August 31, 1999 3,142,957 4.67 49.31 Granted 1,785,443 16.91 19.81 Exercised (281,160) 4.67 26.82 Lapsed or canceled (209,620) 10.69 48.56 ----------------------- ----------------- -------------- Outstanding at August 31, 2000 4,437,620 $ 4.67 $ 49.31 ======================= ================= ==============
SFAS No. 123, "Accounting for Stock-Based Compensation", requires companies to estimate the fair value of stock options on the date of grant. This pronouncement requires D&PL to record the estimated fair value of stock options issued as compensation expense in its income statements over the related service periods or, alternatively, continue to apply accounting methodologies as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and disclose the pro forma effects of the estimated fair value of stock options issued in the accompanying footnotes to its financial statements. In adopting this pronouncement, D&PL elected to continue to follow the accounting methodologies as prescribed by APB Opinion No. 25. The determination of fair value is only required for stock options issued beginning in fiscal 1996. The weighted average fair values of options granted in fiscal 1998, 1999 and 2000 were $15.91, $19.24 and $9.61 per share, respectively. The pro forma effects of the total compensation expense that would have been recognized under SFAS No. 123 are as follows:
August 31, (Dollars in thousands, except per share data) 1998 1999 2000 - --------------------------------------------------------- --------------- ------------------- ---------------- Pro forma compensation cost $ 3,080 $ 3,621 $ 2,260 Net income, as reported 1,783 7,477 79,198 Pro forma net income (loss) (1,303) 3,942 76,938 Basic earnings per share, as reported 0.05 0.19 2.06 Pro forma basic earnings (loss) per share (0.03) 0.10 2.00 Diluted earnings (loss) per share, as reported 0.04 0.19 1.98 Pro forma diluted earnings (loss) per share $ (0.03) $ 0.10 $ 1.92
D&PL utilized the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted using the following assumptions:
1998 1999 2000 --------------- ---------------- -------------- Expected dividend yield 3% 3% 3% Expected option lives 5 years 5 years 5 years Expected volatility 48.7% to 54.4% 64.41% 51.88% Risk-free interest rates 5.34% to 5.89% 6.29% 5.96%
The following table summarizes certain information about stock options granted, exercised and forfeited for the three year period ended August 31, 2000:
Options Granted net Weighted Average of Exercises and Remaining Contractual Life Weighted Average Exercise Price Range Forfeitures in Years Exercise Price - -------------------------- ----------------------- ------------------------------ --------------------- $16.91 - $28.69 2,261,510 9.04 $21.00 $32.80 - $39.10 86,992 8.22 $35.85 $41.69 - $49.31 97,000 7.70 $45.95
Treasury Stock In February 2000, the Board of Directors authorized a program for the repurchase of up to $50 million of the Company's common stock. The shares repurchased under this program are to be used to provide for option exercises, conversion of the Company's Series M Convertible Non-Voting Preferred shares and for other general corporate purposes. At August 31, 2000, the Company had repurchased 453,700 shares at an aggregate purchase price of approximately $7,703,000 under this program. 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 153,000, 142,000 and 781,000 outstanding stock options were not included in the computation of diluted earnings per share for the years ended August 31, 1998, 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 2010.
Earnings Per Share 1998 1999 2000 ----------------- ---------------- --------------- Basic Earnings per Share: Net income per share before cumulative effect of accounting change $ 0.05 $ 0.19 $ 2.14 Cumulative effect of accounting change - - (0.08) ----------------- ---------------- --------------- Net income $ 0.05 $ 0.19 $ 2.06 ================= ================ =============== Diluted Earnings per Share: Net income per share before cumulative effect of accounting change $ 0.04 $ 0.18 $ 2.05 Cumulative effect of accounting change - - (0.07) ----------------- ---------------- --------------- Net income $ 0.04 $ 0.18 $ 1.98 ================= ================ =============== Number of shares used in basic earnings per share calculations 38,011 38,438 38,496 ================= ================ =============== Number of shares used in diluted earnings per share calculations 40,839 40,973 40,159 ================= ================ ===============
The table below reconciles the basic and diluted per share computations for income before the cumulative effect of a change in accounting principle:
FOR THE TWELVE MONTHS ENDED AUGUST 31 ------------------------------------- 1998 1999 2000 ----------------- ---------------- --------------- Income Income before cumulative effect of accounting change $ 1,879 $ 7,573 $ 82,291 Less: Preferred stock dividends (96) (96) (128) ----------------- --------------- --------------- Basic EPS: Income available to common stockholders 1,783 7,477 82,163 Effect of Dilutive Securities: Convertible Preferred Stock Dividends 96 96 128 ----------------- --------------- --------------- Diluted EPS: Income available to common stockholders plus assumed conversions $ 1,879 $ 7,573 $ 82,291 ================= =============== =============== Shares Basic EPS shares 38,011 38,438 38,496 Effect of Dilutive Securities: Options to purchase common stock 1,761 1,468 596 Convertible preferred stock 1,067 1,067 1,067 ----------------- --------------- --------------- Diluted EPS shares 40,839 40,973 40,159 ================= =============== =============== Per Share Amounts Basic $ 0.05 $ 0.19 $ 2.14 ================= =============== =============== Diluted $ 0.04 $ 0.18 $ 2.05 ================= =============== ===============
14. UNAUDITED QUARTERLY FINANCIAL DATA All of D&PL's domestic seed products are subject to return or credits, which vary from year to year. The annual level of returns and ultimately net sales and net income are influenced by various factors, principally weather conditions occurring in the spring planting season (spanning the Company's third and fourth fiscal quarters). The Company provides for estimated returns as sales are made. 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. Generally, international sales are not subject to return. A substantial portion of Company sales are concentrated in the second and third fiscal quarters. As a result, the Company generally expects to incur losses in the first and fourth quarters. Management believes that such seasonality is common throughout the seed industry.
Summarized unaudited quarterly financial data is as follows: (In thousands, except per share data) - ----------------------------------------------------------------------------------------------------------- Fiscal 1998: Three months ended November 30 February 28 May 31 August 31 - ----------------------------------------------------------------------------------------------------------- Net sales and licensing fees(2) $ 5,340 $77,245 $126,029 $(16,275) Gross profit(4) 2,067 27,147 40,018 (15,666) Net income (loss) applicable to common shares(4) (4,665) 9,757 13,941 (17,250) Net income (loss) per share-basic(1)(4) (0.12) 0.26 0.36 (0.45) Weighted average number of shares used in quarterly per share calculations -basic 37,721 37,858 38,133 38,367 Net income (loss) per share- diluted(1)(4) (0.12) 0.24 0.34 (0.45) Weighted average number of shares used in quarterly per share calculations- diluted 37,721 40,663 41,594 38,367 - ---------------------------------------------------------------------------------------------------------- Fiscal 1999: Three months ended November 30 February 28 May 31 August 31 - ---------------------------------------------------------------------------------------------------------- Net sales and licensing fees 7,195 $72,800 $158,591 $21,879 Gross profit(5) 2,248 23,116 51,378 (1,591) Net income (loss) applicable to common shares(5) (6,463) 2,382 20,724 (9,166) Net income (loss) per share-basic(1)(5) (0.17) 0.06 0.54 (0.24) Weighted average number of shares used in quarterly per share calculations -basic 38,380 38,422 38,454 38,513 Net income (loss) per share- diluted(1)(5) (0.17) 0.06 0.51 (0.24) Weighted average number of shares used in quarterly per share calculations- diluted 38,380 41,085 41,017 38,513 - ---------------------------------------------------------------------------------------------------------- Fiscal 2000: Three months ended November 30 February 29 May 31 August 31 - ---------------------------------------------------------------------------------------------------------- Net sales and licensing fees $ 4,549 $ 104,203 $ 177,365 $ 15,064 Gross profit 301 31,041 65,190 2,835 Net income (loss) applicable to common shares(3) (9,540) 58,595 34,856 (4,713) Net income (loss) per share-basic(1)(3) (0.25) 1.52 0.91 (0.12) Weighted average number of shares used in quarterly per share calculations -basic 38,662 38,664 38,319 38,363 Net income (loss) per share-diluted(1)(3) (0.25) 1.46 0.88 (0.12) Weighted average number of shares used in quarterly per share calculations-diluted 38,662 40,110 39,845 38,363
(1) The sum of the quarterly net income (loss) per share amounts may not equal the annual amount reported since per share amounts are computed independently for each quarter, whereas annual earnings per share are based on the annual weighted average shares deemed outstanding during the year. (2)Seed returns were higher in the fourth quarter than the level of returns anticipated at the end of the third quarter. A change in the accounting estimate for these returns was recorded in the fourth quarter. The new provision for returns was greater than the amount of sales recorded in the fourth quarter, and as a result, reported net sales in the fourth quarter were negative. (3)The second quarter includes the effect of recording the $81.0 million merger termination fee paid by Monsanto, net of related expense which are expense as incurred. (4)The fourth quarter includes the effect of recording a $17.5 million special charge in cost of sales associated with inventory write -offs and recalled inventory and $5.1 million in operating expense for the effects of the evaluation of various strategic alternatives and the Monsanto merger. (5) The fourth quarter includes the effect of recording special charges of $20.3 million of which $15.2 million is recorded as cost of sales and is associated with inventory write-offs due to product phase outs and reserves established for excess inventory, $3.1 million in operating expenses related to the merger and approximately $2.0 million in other income associated with loss on sale of fixed assets. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to this item is set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders on December 29, 2000 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information with respect to this item is set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders on December 29, 2000 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to this item is set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders on December 29, 2000 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to this item is set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders on December 29, 2000 and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements - the following consolidated financial statements of Delta and Pine Land Company and subsidiaries are submitted in response to Part II, Item 8: Report of Independent Public Accountants Consolidated Statements of Income - for each of the three years in the period ended August 31, 2000 Consolidated Balance Sheets - August 31, 1999 and 2000 Consolidated Statements of Cash Flows - for each of the three years in the period ended August 31, 2000 Consolidated Statements of Changes in Stockholders' Equity - for each of the three years in the period ended August 31, 2000 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedule - the following financial statement schedule of Delta and Pine Land Company and subsidiaries is submitted in response to Part IV, Item 14: Report of Independent Public Accountants....................50 Schedule II - Consolidated Valuation and Qualifying Accounts.................................51 All other schedules have been omitted as not required, not applicable or because all the data is included in the financial statements. (a) 3. Exhibits The exhibits to the Annual Report of the Delta and Pine Land Company filed herewith are listed on Page 51. (b) 4. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended August 31, 2000. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 22, 2000. DELTA AND PINE LAND COMPANY (Registrant) November 22, 2000 /s/ Jon E. M. Jacoby - -------------------------- By: Jon E. M. Jacoby, Chairman of the Board Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ F. Murray Robinson Vice Chairman and November 22, 2000 - ---------------------- Chief Executive Officer F. Murray Robinson (Principal Executive Officer) /s/W. Thomas Jagodinski Senior Vice President and November 22, 2000 - ----------------------- Chief Financial Officer W. Thomas Jagodinski (Principal Financial and Accounting Officer) /s/ Stanley P. Roth Vice Chairman and Director November 22, 2000 - ------------------- Stanley P. Roth /s/ Nam-Hai Chua Director November 22, 2000 - ---------------- Nam-Hai Chua /s/ Joseph M. Murphy Director November 22, 2000 - -------------------- Joseph M. Murphy /s/ Rudi E. Scheidt Director November 22, 2000 - ------------------- Rudi E. Scheidt REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO DELTA AND PINE LAND COMPANY: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Delta and Pine Land Company included in this Form 10-K. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index of Part IV, Item 14(a)2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Memphis, Tennessee, October 18, 2000.
SCHEDULE II DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (In thousands) Column A Column B Column C Column D Column E Description - ----------- Balance at Charged Charged to Balance Beginning to Costs Other at End of of Period and Accounts Deductions Period Expenses - ------------------------------------------------------------------------------------------------------------------------ Fiscal year ended August 31, 1998 - ---------------------------------- Allowance for doubtful accounts $ 281 $ 200 $ - $ (113)(a) $ 368 Inventory valuation reserve $ 2,525 $ 17,527(d) $ - $ (10,130)(c) $ 9,922 Fiscal year ended August 31, 1999 - --------------------------------- Allowance for doubtful accounts $ 368 $ 118 $ - $ (11)(a) $ 475 Inventory valuation reserve $ 9,922 $ 15,365(e) $ - $ (11,179)(c) $ 14,108 Fiscal year ended August 31, 2000 - --------------------------------- Allowance for doubtful accounts $ 475 $ 643 $ - $ (27)(a) $ 1,091 Inventory valuation reserve $ 14,108 $ 8,500 $ - $ (15,001)(c) $ 7,607
(a) Write off of uncollectible accounts, net of recoveries (b) Reserve of cottonseed as a result of production and cost optimization program. (c) Disposal and/or write-off of inventory (d) Reserve of cottonseed resulting from reduction in cotton acreage in 1998, the further realignment of the Company's product line to seed with new technologies and the recall of certain products that did not meet quality standards. (e) Reserves of excess planting seed inventory and for the realignment of the Company's product line. INDEX EXHIBITS TO ANNUAL REPORT ON FORM 10-K YEAR ENDED AUGUST 31, 2000 DELTA AND PINE LAND COMPANY Exhibits(1) Description 2.01 Agreement and Plan of Merger dated as of May 8, 1998, by and between Monsanto Company and Delta and Pine Land Company. (2) 2.02 Termination Option Agreement dated as of May 8, 1998, by and between Monsanto, Company and Delta and Pine Land Company. (2) 3.01 Restated Certificate of Incorporation of the Registrant dated June 11, 1993. 3.02 Amended and Restated By-Laws of the Registrant dated April 26, 1993. 4.01 Certificate of Designation, Convertible Preferred Stock of Delta and Pine Land Company. (3) 4.02 Specimen Certificate representing the Common Stock, par value $.10 per share. 4.03 Letter from Registrant to John Hancock Mutual Life Insurance Company regarding certain registration rights dated June 28, 1993. 4.04 Rights Agreement, dated as of August 13, 1996, between Delta and Pine Land Company and Harris Trust and Savings Bank, including the form of Right Certificate and related form of Election to Purchase as Exhibit A and the Summary of Rights to Purchase Preferred Shares as Exhibit B. (4) 4.05 Amendment No. 1 to the Rights Agreement dated May 8, 1998, by and between Delta and Pine Land Company and the Harris Trust and Savings Bank. (2) 4.06 Amendment No. 2 to the Rights Agreement dated May 8, 1998 by and between Delta and Pine Land Company and the Harris Trust and Savings Bank. 4.07 Certificate of Designations of the rights and privileges of the shares of junior participating preferred stock created on August 13, 1996, to be filed pursuant to Section 151 of the Delaware General Corporation Law. (4) 10.01 Lease dated March 25, 1995, between Registrant, as Lessee, and The Prudential Insurance Company of America, as Lessor regarding approximately 2,500-acre farm, certain grain bins, and a certain research facility in Scott, Mississippi. (5) 10.02 License Agreement dated February 1, 1990, between Registrant, as Licensor, and Semillas Deltacol, Ltd., as Licensee, regarding operations in Columbia. 10.03 License Agreement dated March 5, 1990, between Registrant, as Licensor and Helena Chemical Company d/b/a HyPerformer Seed Company, as Licensee. 10.04 License Agreement dated March 16, 1992, between Registrant and Monsanto Company, as amended by the Agreement on Modified Terms for License Agreement Dated October 11, 1993 (confidential treatment has been requested for portions of this exhibit pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934). (1)(7) 10.05 Incentive Bonus Program.(1)(6) 10.06 Retirement Plan of the Company, dated January 2, 1992, Amendment No. 1 to the Plan dated April 30, 1992, Amendment No. 2 to the Plan dated December 20, 1992, and Amendment No. 3 to the Plan dated October 6, 1994. (1)(5) 10.07 Agreement between Educo, Inc. and Southwide dated June 1, 1975, relating to employer-sponsored college scholarships and medical expense plan for children of certain employees of Registrant. 10.08 Supplemental Executive Retirement plan dated May 22, 1992, and effective January 1, 1992. (1)(6) 10.09 Tax Sharing Agreement dated May 24, 1993, between Southwide and Registrant. 10.10 1993 Stock Option Plan of Registrant, as adopted on June 11, 1993. (1)(6) 10.11 Asset Purchase agreement between Delta and Pine Land Company and Cargill, Inc. dated May 2, 1994 (8) 10.12 Herbicide-Tolerant Cotton License Agreement dated August 22, 1994, between the Company and E.I. Dupont De Nemours and Company (confidential treatment has been requested for portions of this exhibit pursuant to the Rule 24b-2 under the Securities and Exchange Act of 1934).(7) 10.13 1994 Saving Plan of Registrant, as adopted on April 1, 1994, Amendment No. 1 dated May 1, 1994. (5)(6) 10.14 $50,000,000 Revolving Credit Agreement between Registrant and Nations Bank dated November 15, 1995. (5) 10.15 Hartz Cotton Acquisition Agreement dated February 2, 1996 among Monsanto Company ("Monsanto"), Hartz Cotton, Inc. ("Hartz Cotton"), Delta and Pine Land Company (the "Company") and Paymaster Technology Corp. ("PTC"). (3) 10.16 Trademark License Agreement dated February 2, 1996 between Monsanto and the Company. (3) 10.17 Registration Rights Agreement between the Company and Monsanto dated February 2, 1996. (3) 10.18 Temporary Services Agreement dated February 2, 1996 between Monsanto, the Company, and PTC. (3) 10.19 Research Facility Lease with Option to Purchase dated February 2, 1996 between Monsanto and PTC. (3) 10.20 Greenhouse Lease dated February 2, 1996 between Monsanto and PTC. (3) 10.21 Research Agreement dated February 2, 1996 between Monsanto and PTC. (3) 10.22 Partnership Agreement dated February 2, 1996 between the Company and Monsanto.(3) 10.23 Marketing Services Agreement dated February 2, 1996 between the Company, Monsanto and D&M Partners. (3) 10.24 Bollgard Gene License and Seed Services Agreement dated February 2, 1996 between Monsanto, D&M Partners, and the Company. (3) 10.25 Roundup Ready Gene License and Seed Services Agreement dated February 2, 1996 between Monsanto, D&M Partners and the Company. (3) 10.26 Option Agreement dated February 2, 1996 between Monsanto and the Company. (3)(6) 10.27 Agreement between the D&PL Companies and the Sure Grow Companies, Sure Grow Shareholders and Sure Grow Principals dated May 20, 1996. (9) 10.28 Delta and Pine Land Company 1995 Long-Term Incentive Plan, as adopted on February 6, 1996. (6)(10) 10.29 Amendment to Agreements dated as of December 8, 1999, by and between Monsanto Company, Registrant, D&M Partners, a partnership of Monsanto and D&PL, and Paymaster Technology Corp. (12) 10.30 D&M International Operating Agreement on March 10, 1995, between Delta and Pine Land Company, through its wholly owned subsidiary D&PL International Technology Corp. and Monsanto Company. (13) 11.01 Statement Re: Computation of Earnings per Share. (11) 21.01 Subsidiaries of the Registrant. (11) 23.01 Consent of Independent Public Accountants (11) - ------------------------- (1) All incorporated by reference from Registration Statement on form S-1, File No. 33-61568, filed June 29, 1993 except as otherwise noted herein. (2) Incorporated by reference from Form 8-K filed May 14, 1998 (3) Incorporated by reference from Form 8-K filed February 19, 1996 (4) Incorporated by reference from Form 8-A filed September 3, 1996 (5) Incorporated by reference from Form 10-K filed November 22, 1995 (6) Represents management contract or compensatory plan (7) Incorporated by reference from Form 10-Q filed July 14, 1995 (8) Incorporated by reference from Form 8-K filed May 16, 1994 (9) Incorporated by reference from Form 8-K filed June 4, 1996 (10) Incorporated by reference from Form 10-K filed November 27, 1996 (11) Filed herewith (12) Incorporated by reference from Form 8-K filed May 18, 2000 (13) Incorporated by reference from 8-K filed September 14, 2000 EXHIBIT 11.01
COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) The table below reconciles the basic and diluted per share computations for income before the cumulative effect of a change in accounting principle: FOR THE TWELVE MONTHS ENDED AUGUST 31 ------------------------------------- 1998 1999 2000 ----------------- ---------------- --------------- Income Income before cumulative effect of accounting change $ 1,879 $ 7,573 $ 82,291 Less: Preferred stock dividends (96) (96) (128) ----------------- --------------- --------------- Basic EPS: Income available to common stockholders 1,783 7,477 82,163 Effect of Dilutive Securities: Convertible Preferred Stock Dividends 96 96 128 ----------------- --------------- --------------- Diluted EPS: Income available to common stockholders plus assumed conversions $ 1,879 $ 7,573 $ 82,291 ================= =============== =============== Shares Basic EPS Shares 38,011 38,438 38,496 Effect of Dilutive Securities: Options to purchase common stock 1,761 1,468 596 Convertible Preferred Stock 1,067 1,067 1,067 ----------------- --------------- --------------- Diluted EPS Shares 40,839 40,973 40,159 ================= =============== =============== Per Share Amounts Basic $ 0.05 $ 0.19 $ 2.14 ================= =============== =============== Diluted $ 0.04 $ 0.18 $ 2.05 ================= =============== ===============
EXHIBIT 21.01 SUBSIDIARIES OF REGISTRANT SUBSIDIARY PLACE OF INCORPORATION - -------------------------------------------------------------------------------- ATLED CORPORATION USA D&M INTERNATIONAL LLC USA D&M PARTNERS USA D&PL ARGENTINA, INC. USA D&PL CHINA, INC. USA D&PL CHINA PTE, LTD. SINGAPORE D&PL INVESTING CORP. USA D&PL INVESTMENTS, INC. USA D&PL MEXICO, INC. USA DELTAPINE PARAGUAY, INC. USA D&PL SOUTH AFRICA, INC. USA D&PL INTERNATIONAL TECHNOLOGY CORP. USA DELTA AND PINE LAND INTERNATIONAL, LTD. VIRGIN ISLANDS DELTA PINE DE MEXICO, S.A. de C.V. MEXICO DELTAPINE AUSTRALIA PTY. LIMITED AUSTRALIA GREENFIELD SEED COMPANY USA HEBEI JI DAI COTTONSEED TECHNOLOGY COMPANY, LTD. CHINA PAYMASTER TECHNOLOGY CORP. USA TURK DELTAPINE, INC. USA SURE GROW SEED, INC. USA ELLIS BROTHERS SEED, INC. USA ARIZONA PROCESSING, INC. USA MISSISSIPPI SEED, INC. USA D&PL Semillas Limitada Costa Rica CDM Mandyu S.R.L. Argentina Delta & Pine Land Hellas Monoprosopi e.P.E. Greece D&PL BraSil, Ltda Brazil Anhui An Dai Cottonseed Technology Company, Ltd. China S.G. Seed, Inc. (name changed November 17, 1998 to USA D&PL Technology Holding Corp.) D&M Brasil, Ltda Brazil MDM Maeda DeltaPine Monsanto Algodao Ltda Brazil EXHIBIT 23.01 ------------- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report, dated October 18, 2000, included in this Form 10-K, into Delta and Pine Land's previously filed Registration Statement File No. 333-21049. Arthur Andersen LLP Memphis, Tennessee, November 22, 2000. - ---------------------- EX-27 2 0002.txt FDS --
5 0000902277 Delta and Pine Land Company 1,000 12-MOS AUG-31-2000 SEP-01-1999 AUG-31-2000 87,467 0 182,396 1,091 35,278 313,701 101,988 36,944 390,134 215,315 2,482 0 107 3,895 155,626 390,134 301,181 301,181 201,814 201,814 67 0 852 126,441 44,150 82,291 0 0 (2,965) 79,326 2.06 1.98
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